Home / Markets / Mark To Market /  After decent Q3 show, debt reduction holds the key for Glenmark’s re-rating

Glenmark Pharmaceuticals Ltd’s stock price has risen more than 160% since the March 2020 lows, because of improving business prospects. The company has kept the faith, with a better-than-expected Q3 performance, on the back of strong domestic sales growth. However, debt reduction holds the key for stock re-rating, according to analysts.

Glenmark’s consolidated sales in Q3 grew 3.88% year-on-year (y-o-y), while net profit grew 30.5% y-o-y.

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Sales of active pharma ingredients (API) also contributed to this to a large extent and cost controls meant that the firm posted a decent show in the domestic market in Q3, despite many other geographies reporting muted performances.

Improved prospects
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Improved prospects

Sales in Europe and rest of the world remained almost flat, impacted by lockdowns and, looking at the fresh rise in covid cases, analysts expect growth to remain muted in the near term. Latin America sales, however, declined 18% y-o-y. The company said the entire region continues to witness a challenging environment because of the pandemic.

The key US formulation market, nevertheless, has a silver lining. Sales declined 2.3% y-o-y, but there was a smart rebound sequentially of 4%. This is heartening and indicates that price erosion has been stabilizing and that new product launches are helping. The price erosion in the US base business is now down to 4-5%, Glenmark said. US sales can benefit from launches in injectables and nebulizers in FY22 and sales growth in the US is expected to be 10% y-o-y in FY22.

The favourable demand-supply situation means that API sales too may be strong. Domestic sales are already seeing better traction with acute segment sales rebounding, as the company’s chronic portfolio continues to do well. Domestic formulation sales grew 11.82% y-o-y during Q3.

Analysts at Motilal Oswal Financial Services have raised their earnings estimates for FY22 and FY23 by 8%, and 6%, respectively. They are factoring growth to be driven by new launches in the domestic and US formulations markets. Stabilizing price erosion in the US base business, an improved outlook in the API segment, and benefits from higher operating leverage are other key reasons for the upgrades.

The Street, however, remains watchful on initiatives on debt reduction. Glenmark remains one of the few companies in the pharma arena with elevated concerns on debt. High investments in the development of new molecules remain a key reason for this. Glenmark is focused on out-licensing deals, which would help fund R&D costs, said analysts.

Further, all eyes are also on Glenmark’s discussion with various partners to monetize the Ichnos Sciences business, a 100% US-based innovation subsidiary, as well as other capital-raising initiatives.

ABOUT THE AUTHOR

Ujjval Jauhari

Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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