Higher sales in domestic market, lower costs bode well for Glenmark

Glenmark Pharmaceuticals
Glenmark Pharmaceuticals (Glenmark) reported the best sales performance among Indian companies in the domestic pharmaceutical (pharma) market for August. Sales were up 32 per cent for the month on the back of higher sales of Covid treatment drug favipiravir. The drug was the sixth largest molecule in the pharma market in August and is used in treating mild-to-moderate symptoms of Covid-19.  

Being the first off the blocks, the company is a major beneficiary of higher sales in the product, with 84 per cent market share. The drug helped push Glenmark’s anti-infective sales nearly two times in August, compared to the year-ago period. For the second consecutive month, Glenmark has been able to achieve sales growth above 30 per cent.  

Adjusted for sales of favipiravir, Glenmark’s sales were up 2 per cent, while the pharma market reported a dip in sales by 2 per cent for the month. Brokerages expect the company’s outperformance trend in the domestic formulation business to continue, led by new product introductions as well presence in faster growing categories of cardiology and diabetes.

Growth in new product introductions is expected to more than offset the divestments over the past few quarters. While the company divested its gynaecology portfolio to True North in the March quarter, it sold its VWash portfolio to Hindustan Unilever in the June quarter.

The other trigger for the stock is the cost savings from lower investments in research and development and fundraising for innovation research. The company had indicated after its June quarter earnings that Ichnos Sciences, its innovation subsidiary, has initiated the process to raise capital in the US to finance its development pipeline and growth plans. It expects to complete the same by the second half of the current financial year.

Saion Mukherjee and Prateek Mandhana of Nomura Research believe these steps (external funding, asset monetisation, and lower spending) will significantly lower dependence on cash from the rest of the businesses and address a key investor concern.

While weak US sales and currency fluctuations in emerging markets could weigh on sentiment, any fundraising development should rub off positively on the stock whose valuations are below the average valuation multiple over the past five years.

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