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Glenmark’s debt reduction, IPO for life sciences arm may trigger re-rating

Glenmark Life Sciences is in the business of manufacturing active pharmaceutical ingredients and its portfolio comprises 120 products. Photo: Pradeep Gaur/MintPremium
Glenmark Life Sciences is in the business of manufacturing active pharmaceutical ingredients and its portfolio comprises 120 products. Photo: Pradeep Gaur/Mint

  • Glenmark expects to generate 400 crore free cash flows in FY22 and plans an IPO for Glenmark Life Sciences. Both measures can lead to 1000- 1200 crore debt reduction and can trigger a re-rating

Glenmark Pharmaceuticals Ltd remains in limelight with its stock rising over 50% since March lows and trading near 52-week highs. The upside has been driven by strong sales growth in the domestic formulations business led by covid treatment drugs. The company is also seeing improved prospects in the US business, while improved cash flows can lead to debt reductions.

High debt had been one of the key concerns of the Street in the past. The company’s net debt at 3549 crore at the end of FY21, though lower than the 3758 crore debt at the end of FY20, remains high. The company expects to generate 400 crore free cash flows in FY22. In addition, it plans an IPO for Glenmark Life Sciences. Both measures can lead to 1000- 1200 crore debt reduction and can trigger a re-rating, say analysts.

Glenmark Life Sciences is in the business of manufacturing active pharmaceutical ingredients (API). Its portfolio comprises 120 products (10 products in laboratory development; four in laboratory validation and 106 are being commercialized) as per the draft red herring prospectus or DRHP filed by the company.

The APIs are across various therapy areas like cardiovascular, CNS, diabetes, anti-infectives, and others. The total market size in terms of sales for the 120 products globally was estimated to be around $140 billion in 2020 and is expected to grow by about 4.3% over the next five years to reach about $180 billion by 2026.

Besides, the company is targeting an increasing share in CDMO (contract development and manufacturing operations) business. Also, the company is looking at expanding the manufacturing of molecules in the peptides segment.

The company expects the growth of the APIs to remain stable driven by the rising prevalence of non-communicable diseases, growing demand from the regulated markets for drugs indicated for hypertension, diabetes, and cancer, and ageing population.

Besides the progress on the IPO, the street will eye the earnings performance of the company during the June quarter. The company has seen about 105% growth during the quarter, as per Indian Pharma Market data. Hence, one may expect strong domestic sales growth during April-June. The company’s extensive dermatology and other specialty portfolios and product range also support growth.

The US business contributes slightly more than a fourth to overall sales and is seeing stable price erosion as was evident in Q4 performance. Thus, helped by new launches, growth in the US may catch the pace. The healthy product pipeline remains supportive with 41 abbreviated new drug applications (ANDAs) pending approval at the end of FY21. Additionally, the company plans to file 18-20 ANDAs, including 4-5 from the Monroe facility.

"We have raised our FY22E/FY23 EPS estimate for Glenmark by 2.5%/2% to account for increased sales of COVID-19 drugs (FabiFlu) and stability in the US base business," said analysts at Motilal Oswal Financial Services Ltd.


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