We note three key positives for the stock: 1) Glenmark Pharma (GNP) has stepped up filings in the US, and as of March 2015, it had 76 pending ANDAs with brand sales of $30 billion. On a smaller base, we estimate US revenues to record a 19% CAGR (ex Zetia) over FY15-18f. There are no major regulatory concerns at this stage; 2) In the past decade, in every fourth year (FY08 and FY12) GNP gained significant licensing income from its innovation research programme. FY16f may not be an exception to this trend. 3) GNP’s growth in India is ahead of the broader market and in emerging markets the approvals in derma and respiratory products is a positive. To an extent, the positives are negated by three concern areas 1) increase in the receivables cycle (139 days in FY15 from 120 in FY12); 2) uncertainty around realisation in Venezuela which contributes 9% to our FY17f earnings estimates ex-Zetia and volatility in EM currencies, and; 3) restraining order on the sale of Gliptins (Zita and Zita Met) in India.
Given these headwinds, our FY16F revenue/EBITDA are more conservative vs GNP’s guidance as we factor in 15% revenue growth and Ebitda of R1,690 crore (guidance: R1,750 crore).
We raise our target price to R977. We value base earnings at 17x FY17f P/E of R54.6 to arrive at a value of R928 per share. Our valuation multiple is at a 25% discount to peers.
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