Drug maker Glenmark Pharmaceuticals Ltd’s performance in the first half was dismal but on expected lines. The lack of big launches in the US market and no new licensing deals is affecting growth. Meanwhile, its high level of debt is eating into earnings, as consolidated net profit in September fell by 31% to Rs81 crore. Revenues grew by 7.4% to Rs603 crore.
But Glenmark’s performance is improving steadily, as seen from the improvement over the June quarter. In a conference call with analysts, the firm said growth will come back to normal levels in the future quarters. Its specialty pharmaceuticals business, which contributes to around 56% of sales, grew by 10% during the quarter. India has been a key driver for growth, with sales up 19%, a trend visible among other companies too. This growth was volume-led and Glenmark expects it to rise to around the 20-25% level in future.
Generics is the other key segment. The US is the largest contributor to this, accounting for 69% of revenue, but reported flat growth. Glenmark’s market performance has been affected partly due to the high base effect of sales of one drug. In addition, the slow pace of US Food and Drug Administration approvals is affecting incremental sales. The business grew by around 3% on a sequential basis.
Glenmark’s operating profit margins fell by 224 basis points during the September quarter over the year-ago period. This was mainly due to a much sharper rise in input costs even as it reined in expenditure. But a 60% increase in depreciation, 67% decline in other income and a 144% rise in interest costs led to a 31% drop in net profit to Rs81 crore.
One basis point is one-hundredth of a percentage point.
Glenmark raised around Rs400 crore through an equity issue in September, which has been used to reduce debt. This will reflect in the current quarter. It still has around Rs1,700 crore of debt, which may come down by around Rs450 crore, if Glenmark Generics Ltd’s initial public offering takes off. But what will really bring back the lustre is a visible improvement in its core business, a few big product launches and/or a successful licensing deal. The firm has retained its profit guidance of Rs300 crore for the current fiscal. Investors seem to have already factored a better performance in its price.
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