Glenmark Pharma
BSE SENSEX
33,573
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg. Val, INRm
Free float (%)
S&P CNX
10,424
GNP IN
US
282
183.0 / 2.8
973 / 568
-2/-39/-54
730.6
53.5
3 November 2017
Q2FY18 Results Update | Sector: Healthcare
CMP: INR627
TP: INR650(+4%)
Neutral
growth to pick up; high debt remains an overhang
Net sales increased marginally by ~2% YoY (-5% QoQ) to INR22.2b (4% miss).
EBITDA declined ~11% YoY to INR3.6b (2% beat), with the margin coming in
at 16% (-230bp YoY, -740bp QoQ). Employee expenses included annual
employee bonus of ~INR1.1b in 2Q. Adjusted for this, EBITDA came in below
the previous quarter’s level (note that 1QFY18 included Zetia sales with
>80% GM). According to management, the improvement in margins
(adjusted for employee bonus) can largely be attributed to cost
rationalization.
US – key launches to drive growth; base business erosion to continue:
US
sales for GNP stood at USD113m, significantly below USD162m in 1QFY18,
due to loss of Zetia exclusivity. The company expects US sales to reach
>USD125m in 3Q, led by ramp-up of existing launches (no new launches
assumed). We expect US sales to inch up in 2H on the back of Statera and
Nitro Glycerin ramp-ups and the expected launch of Welchol and Epiduo.
However, base business erosion for GNP remained high at ~13% YoY. It
reported domestic growth of ~8% YoY (adjusted for excise duty impact).
Earnings call highlights:
1) GNP revised down its sales growth guidance for
FY18 to ~8%, from 8-10% previously. EBITDA margin guidance is intact (flat
YoY). 2) Net debt increased to INR34.98b from ~INR33.6b in 1QFY18; the
company expects net debt to come down to INR33.5b by end-FY18. 3) R&D
as % of sales is expected to be 11% in FY18. 4) LATAM recorded >20% YoY
growth (excluding Venezuela). 5) Effective tax rate in FY18 to be ~25%. 6)
GBS- 301 filing to happen in 1QCY18 in US. 7) Cash tax outflow remained
high in the quarter at ~INR1.8b.
Valuation view:
Weak cash flow conversion and high net debt remain key
concerns for GNP. Maintain
Neutral
with a TP of INR650 @ 15x FY19E EPS.
We cut FY18/19E EPS by 12/ 17%, as we build in slower ramp-up in margins
(GNP expects a challenging business outlook in the US for next two years at
least). Any big in-licensing deal in innovation business could act as a positive
catalyst.
Financials & Valuations (INR b)
2017 2018E
Y/E Mar
Net Sales
89.7
94.4
EBITDA
18.2
18.0
PAT
11.1
10.7
EPS (INR)
39.3
37.9
Gr. (%)
58.0
-3.4
BV/Sh (INR)
159.2
193.5
RoE (%)
24.7
19.6
RoCE (%)
19.1
17.1
P/E (x)
16.0
16.5
P/BV (x)
3.9
3.2
2019E
106.9
19.6
12.1
42.8
12.9
232.7
18.4
19.2
14.6
2.7
Estimate change
TP change
Rating change
Kumar Saurabh – Research analyst
(Kumar.Saurabh@MotilalOswal.com); +91 22 6129 1519
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Glenmark Pharma
Key highlights
India (32% of sales)
Glenmark’s India business grew 5.3% YoY and 15% QoQ to INR7.1b. Adjusting for
GST, growth was 8% on a like-to-like basis. Industry is still recovering post the
implementation of GST. The company has guided for 8% growth in FY18 and 6-7% in
constant currency.
The US business declined ~6% YoY to INR7.3b on back of higher price erosion of 13%
(company had expected 10-12% price erosion) and the impact of channel
consolidation (Claris 1, Walmart-Mckesson collaboration). US sales of USD112 was
lower than the previous quarter (USD161m; 1QFY18 included Zetia sales, adjusting
for which, sales would have been higher by USD5m).
US (33% of sales)
Europe (9% of sales)
GNP’s Europe business posted significant growth of 48.5% YoY to INR2b. High
growth was led by 16 launches in the European market. The company expanded its
footprint to the Nordic region in Europe. GNP expects growth to continue in the
coming quarters.
LatAm (5% of sales)
Latam sales were at INR1b (down ~22% YoY), primarily owing to the absence of sales
in Venezuela. Adjusting for Venezuela, LatAm business grew more than 20% YoY in
constant currency. The Brazil subsidiary grew by 14%, while the Mexico subsidiary
grew by 70% on a much smaller base. Management guided for growth in LatAm
markets to pick up from 3QFY18.
Africa, Asia and CIS Region (ROW) (11% of sales)
RoW sales posted muted growth of 0.7% YoY to INR2.5b. For 2QFY18, secondary
sales growth for the Russia business was flat. Asia market posted marginal growth of
1% YoY.
3 November 2017
2

Glenmark Pharma
Operating metrics
Exhibit 1:
Key operating metrics
2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18
Revenue Mix (%)
India
US
Europe
LatAm
RoW
API
Revenue Growth (%)
India
US
Europe
LatAm
RoW
API
Cost of sales (%)
Raw material
Staff cost
Other expenses
Tax Rate
Margins (%)
Gross Margins
EBITDA Margins
EBIT Margins
PAT margins
28.4
30.2
7.8
13.7
10.4
9.5
14.9
14.5
-9.0
25.1
139.0
0.3
41.3
25.5
29.8
10.2
13.8
12.2
8.6
6.3
13.6
-2.7
27.3
105.8
-31.2
-1.0
24.8
30.2
13.7
10.2
12.4
8.7
4.2
15.0
7.1
25.9
70.5
-35.8
-13.0
28.2
34.0
6.7
13.3
9.6
8.2
10.8
17.2
14.8
12.4
85.7
-25.2
-22.6
31.9
31.3
8.4
8.7
11.0
8.7
13.6
27.3
17.9
22.8
-28.2
21.2
3.7
27.4
34.2
9.9
7.0
13.3
8.2
4.5
12.7
20.0
2.0
-47.2
14.1
-1.0
23.4
28.3
10.2
9.0
12.9
9.7
29.9
22.5
21.6
11.2
33.5
35.6
97.0
27.2
35.5
5.6
11.1
9.9
10.0
19.5
14.9
24.4
36.5
-28.8
23.4
74.7
30.3
34.7
7.2
7.4
11.4
10.0
16.5
10.9
28.9
-16.0
-19.2
20.4
54.5
20.8
49.6
7.1
5.0
10.1
7.7
39.5
5.9
102.1
11.0
-23.5
6.2
32.5
23.7
41.2
7.3
16.2
11.9
8.2
5.3
6.9
53.4
-15.1
- 44.5
-3.1
-34.5
26.1
44.2
4.6
9.2
9.6
8.7
20.0
15.2
49.7
8.1
-45.7
16.2
-3.0
30.3
34.7
11.4
6.1
6.0
10.0
0.3
5.3
- 5.7
48.5
-21.7
-0.7
-7.4
32.9
21.3
26.4
25.1
32.9
18.7
27.0
23.0
21.8
14.5
46.0
23.0
29.8
17.6
31.8
28.9
29.8
21.6
28.5
32.4
29.4
20.0
31.0
36.9
34.2
16.0
40.8
28.5
32.7
19.5
31.1
34.8
28.3
22.2
31.2
28.5
24.3
16.3
31.2
27.2
32.0
15.9
20.6
-6.2
31.0
16.5
18.2
25.0
33.8
25.1
13.3
21.6
67.1
19.5
15.6
9.9
67.1
21.4
17.6
13.0
78.2
17.7
14.0
0.6
70.2
20.8
16.7
11.2
70.2
20.1
16.7
10.9
70.6
19.6
16.4
9.9
65.8
9.0
6.3
6.9
67.3
16.7
13.4
11.9
71.7
18.3
14.8
10.1
75.7
28.1
25.6
19.4
68.0
69.0
66.2
17.0
23.3
16.0
14.1
20.0
12.6
7.6
14.3
9.6
Source: Company; MOSL
3 November 2017
3

Glenmark Pharma
Valuation and view
Maintain Neutral
: Weak cash flow conversion and high net debt remain key
concerns for GNP. Maintain Neutral with a TP of INR650 @ 15x FY19E EPS. We
cut FY18/19E EPS by 12/ 17%, as we build in slower ramp-up in margins (GNP
expects a challenging business outlook in the US for next two years at least). Any
big in-licensing deal in innovation business could act as a positive catalyst.
Key catalysts to drive stock’s performance over the medium term are:
Monetization of key Para IVs, like gWelchol and gRenvela (FY18-19E)
Gradual reduction in gross debt as cash flows improve
Key risks to our investment thesis:
Regulatory delays affecting key US launches
Any adverse US FDA action upon inspection of US facilities
Developmental setbacks in the novel research pipeline
Exhibit 3:
P/E relative to Sensex
Max (x)
-1SD
11.0
9.0
7.0
P/B (x)
Min (x)
Avg (x)
+1SD
Max (x)
-1SD
Exhibit 2:
GNP P/E multiple (over 10 year)
P/E (x)
Min (x)
160.0
120.0
80.0
40.0
0.0
Avg (x)
+1SD
138.7
10.2
6.3
4.6
1.6
2.9
53.8
30.0
6.3
12.5
5.0
13.7
3.0
1.0
2.8
3 November 2017
4

Glenmark Pharma
Story in charts
Exhibit 4:
Formulation lead sales growth (INR b)
Formulations (INR b)
API (INR b)
9
20.1
Exhibit 5:
Margins to remain subdued due to US business
EBITDA (INR b)
24.5
21.2
21.5
17.8
18.1
EBITDA Margin (%)
20.3
19.1
7
3
45
4
54
5
60
6
8
18.3
3
25
3
34
69
87
92
106
6
FY11
10
FY12
11
FY13
13
FY14
12
FY15
14
FY16
18
18
20
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Source: Company, MOSL
FY17 FY18E FY19E
Source: Company, MOSL
Exhibit 6:
EPS to remain muted due to US regulatory issues
Core EPS (INR/ share
)
Exhibit 7:
R&D expense higher due to NCE research
R&D Expense (INR b)
10.0
6.6
4.8
4.7
7.7
% of sales
10.7
9.1
11.8 11.5
12.5
13
17
23
20
18
25
39
38
43
1.2
1.4
2.6
3.9
6.0
6.0
8.2
10.7 10.9 13.4
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Source: Company, MOSL
Exhibit 8:
Debt lowering with improved cash flows
Free cashflow (INR b)
1.1
1.3
1.0
12
-4
1.1
0.7
10
7
D/E
Exhibit 9:
Return ratios to remain subdued
RoE (%)
19.2
22.2
18.2
16.3
12.5
12.7
15.8
16.4
19.1
RoCE (%)
24.7
19.6
17.1
19.2
18.4
1.0
0.8
8
2
1.0
2
1.0
2
17.4
0
12.4
11.4
14.7
Source: Company, MOSL
Source: Company, MOSL
3 November 2017
5

Glenmark Pharma
Financials and Valuations
Story in charts
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Income Statement
Y/E Mar
2012
Formulation lead sales growth (INR b)
40,204
36.3
9,858
24.5
979
8,879
2013
50,123
24.7
10,610
21.2
1,270
9,340
2014
2016
2017
Margins
2015
to improve with business mix
59,839
65,953
75,909
89,701
19.4
10.2
15.1
18.2
12,870
11,751
13,741
18,211
21.5
17.8
18.1
20.3
2,168
2,600
2,691
2,644
10,702
9,151
11,050
15,567
2018E
94,398
5.2
17,991
19.1
3,114
14,877
(INR Million)
2019E
106,934
13.3
19,605
18.3
3,211
16,394
Interest
1,466
1,600
1,886
1,902
1,789
2,373
2,604
2,286
Other Income
-1,218
-403
328
564
787
2,530
2,000
2,000
Extraordinary items
-1,317
0
-2,175
-1,871
0
-809
0
0
PBT
4,878
7,337
6,969
5,943
10,047
14,914
14,273
16,108
Tax
238
1,107
1,513
1,190
3,028
3,827 Source: Company, 4,027
3,568
Source: Company, MOSL
MOSL
Tax Rate (%)
4.9
15.1
21.7
20.0
30.1
25.7
25.0
25.0
Min. Int. & Assoc. Share
40
83
33
-1
0
0
0
0
Strong earnings growth expected ahead
R&D expense higher due to NCE research
Reported PAT
4,601
6,147
5,423
4,753
7,019
11,088
10,705
12,081
Adjusted PAT
4,561
6,065
5,389
4,754
7,019
11,088
10,705
12,081
One off
Change (%)
28.6
33.0
-11.1
-11.8
47.7
58.0
-3.4
12.9
Balance Sheet
12
Y/E Mar
2012
14
2013
2014
2015
2016
2017
2018E
2019E
Share Capital
271
271
271
271
282
282
282
282
Reserves
27,359
29,562
29,732
42,420
44,643
54,329
65,391
23,746
-
0
Net Worth
24,016
27,630
29,833
30,003
42,702
44,925
54,611
65,673
0
-
0
4
Debt 13
39,219
40,651
47,965
38,827
31,517
17
23
20
18 23,225 42 28,500 61 33,191
25
49
Deferred Tax
-2,674
-3,803
-5,142
-6,933
-9,073
-12,856
-12,856
-12,856
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
58,015
Total Capital Employed
44,817
52,571
62,287
74,277
80,032
80,579
84,330
Gross Fixed Assets
17,118
19,785
24,882
30,539
37,083
32,291 Source: Company, MOSL
38,291
44,291
Source: Company, MOSL
Less: Acc Depreciation
4,137
5,286
7,430
9,312
11,810
14,454
17,568
20,779
Net Fixed Assets
12,982
14,498
17,452
21,227
25,273
17,837
20,723
23,512
Debt lowering with improved cash flows
Return ratios to increase with better margins
Capital WIP
656
1,689
798
0
0
6,296
6,296
6,296
Investments
298
323
331
365
350
157
157
157
Current Assets
29,472
37,493
47,814
53,418
59,212
69,738
72,853
77,593
Inventory
7,877
8,435
9,329
12,690
15,678
21,391
16,811
19,043
Debtors
12,436
16,400
21,563
25,118
24,926
24,043
33,621
38,086
Cash & Bank
3,201
6,052
7,948
7,637
8,571
10,565
8,197
4,350
Loans & Adv, Others
5,958
6,605
8,974
7,973
10,037
13,740
14,224
16,113
Curr Liabs & Provns
9,843
13,568
21,109
24,857
25,010
24,496
29,949
33,727
Curr. Liabilities
9,334
12,557
17,540
23,345
23,644
23,726
28,449
32,227
Provisions
509
1,011
3,569
1,513
1,365
770
1,500
1,500
Net Current Assets
19,629
23,925
26,705
28,561
34,203
45,243
42,904
43,866
Total Assets
44,817
52,571
58,015
62,287
74,277
80,032
80,579
84,330
Source: Company, MOSL
Source: Company, MOSL
(INR Million)
3 November 2017
6

Glenmark Pharma
Financials and Valuations
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
Ratios
2012
17.0
20.6
88.8
2.0
13.6
2013
22.7
27.3
102.0
2.0
10.2
2014
20.0
28.0
110.0
2.0
11.6
2015
17.5
27.1
110.6
2.0
13.8
35.8
23.1
5.7
3.2
17.7
0.3
2016
24.9
34.4
151.3
2.0
10.0
25.2
18.2
4.1
2.8
15.2
0.3
16.4
12.7
13.6
1.1
120
75
0.8
2016
13,741
787
-4,708
-5,169
0
4,651
-9,055
-4,404
15
0
-9,040
6,382
1,431
-1,789
-702
5,323
934
7,637
8,571
2017
39.3
48.7
159.2
3.0
9.2
16.0
12.9
3.9
2.4
11.8
0.5
24.7
19.1
20.0
1.2
98
87
0.8
2017
18,211
2,530
-9,046
-7,610
-809
3,275
8,745
12,020
193
0
8,938
-7,845
7,314
-2,373
-1,019
-3,923
8,289
8,571
16,860
2018E
37.9
49.0
193.5
3.0
9.5
16.5
12.8
3.2
2.2
11.5
0.5
19.6
17.1
19.0
1.2
130
65
0.6
2018E
17,991
2,000
-30
-3,568
0
16,393
-6,000
10,393
0
0
-6,000
0
-9,138
-2,604
-1,019
-12,761
-2,368
10,565
8,197
2019E
42.8
54.2
232.7
3.0
8.4
14.6
11.6
2.7
1.9
10.4
0.5
18.4
19.2
20.5
1.3
130
65
0.4
2019E
19,605
2,000
-4,808
-4,027
0
12,770
-6,000
6,770
0
0
-6,000
0
-7,311
-2,286
-1,019
-10,616
-3,846
8,197
4,350
19.2
11.4
15.5
0.9
113
72
0.8
2012
9,858
-1,218
-3
-1,830
-1,317
5,489
-3,746
1,743
11
0
-3,735
-364
1,950
-1,466
-633
-512
1,242
1,959
3,201
22.2
14.7
17.6
1.0
119
61
0.8
2013
10,610
-403
-1,445
-2,236
0
6,526
-4,703
1,824
-25
0
-4,728
-1,982
5,268
-1,600
-634
1,052
2,851
3,201
6,052
18.2
16.3
18.8
1.1
132
57
0.8
2014
12,870
328
-885
-2,852
-2,175
7,286
-4,824
2,462
-7
0
-4,831
-2,619
4,581
-1,886
-635
-559
1,896
6,052
7,948
15.8
12.5
13.7
1.1
139
70
1.1
2015
11,751
564
-2,166
-2,981
-1,871
5,297
-4,983
314
-34
0
-5,017
-3,926
5,893
-1,902
-656
-591
-311
7,948
7,637
Cash Flow Statement
(INR Million)
3 November 2017
7

Glenmark Pharma
Corporate profile
Company description
Glenmark is one of the second tier integrated
pharmaceutical companies which has differentiated
itself through its success in NCE research. The
company has pipeline of 5 Novel drugs in different
phases of clinical studies. It is also one of the
leading Indian generic companies in US with focus
on niche generics segments. Glenmark has large
presence in semi-regulated markets.
Source: MOSL/Bloomberg
Exhibit 1: Sensex rebased
Exhibit 2: Shareholding pattern (%)
Sep-17
Promoter
DII
FII
Others
46.5
5.3
33.2
14.9
Jun-17
46.5
5.4
33.5
14.6
Sep-16
46.5
6.0
35.6
11.9
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Aranda Investments (Mauritius) Pte Ltd
Oppenheimer Developing Markets Fund
Hsbc Pooled Investment Fund - Hsbc Pooled
Asia Pacific Ex Japan Equity Fund
Franklin Templeton Investment Funds
New Horizon Opportunities Master Fund
% Holding
4.0
2.6
1.8
1.7
1.4
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Glenn Saldanha
Harish Kuber
Designation
Chairman & Managing Director
Company Secretary
Exhibit 5: Directors
Name
B E Saldanha
Bernard Munos
D R Mehta
Milind Sarwate
Rajesh Desai
Name
Cheryl Pinto
Brian W Tempest
Julio F Ribeiro
Sridhar Gorthi
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
Sevekari Khare & Associates
Walker Chandiok & Co LLP
Type
Cost Auditor
Statutory
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY18
FY19
MOSL
forecast
37.9
42.8
Consensus
forecast
40.3
45.9
Variation (%)
-6.0
-6.8
Source: Bloomberg
Source: Capitaline
3 November 2017
8

Glenmark Pharma
NOTES
3 November 2017
9

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Glenmark Pharma
Disclosure of Interest Statement
Analyst ownership of the stock
Glenmark Pharma
No
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3 November 2017
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