Stay overweight on Glenmark Pharmaceuticals and raise target price to R875...
Stay overweight on Glenmark Pharmaceuticals and raise target price to R875. Our March 2015 target is based on P/E of 18x, at a 10% discount to its Indian peer group. We attribute an NPV of R47 from FTF opportunities and R38 from its NCE/NBE research pipeline.
While currency volatility has been a significant headwind over the past few months, operational performance in its ex-US international markets has improved. Despite the currency headwinds, Russia continues to be a profitable market for the company, with growth in LatAm helping the business achieve breakeven this year. We believe management’s expectation of the US improving from Q4 with some assured launches should aide growth and margins. We adjust our FY15 numbers for the Q3 results, but remain OW on Glenmark as it is likely to be one of the biggest beneficiaries from any improvement in approvals in the US. This, coupled with strong EM business and margin expansion, should drive earnings growth in FY16/17.
Management indicated improvement in approvals for Glenmark from the current quarter with expectations of 2-3 approvals in the current and next quarter (including Tarka, Desmopressin, etc.). An improvement in sales trends in the US should help improve profitability further over the next year. We expect adjusted margins for Glenmark to improve from nine months FY15 levels of 21% to 24%-plus in FY17.