Little cheer for Glenmark Pharma as analysts expect stock to remain subdued

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The Glenmark Pharmaceuticals stock has declined nearly 6 per cent since the September quarter results given the lack of short-term triggers and high debt on its books. The discontinuation of some complex molecules that could have been potential growth drivers was a negative for the Street. The worry is on the pricing erosion in the US market. While US sales grew 15.1 per cent sequentially, driven by the launch of limited competition products, gains were higher due to a strong dollar.

US sales grew 11.4 per cent on a year-on-year basis. However, in constant currency terms, sales were little changed and the base business saw price erosion of 10 per cent. The continued price erosion remains a cause of concern, though analysts expect the current sales momentum of $110-115 million a quarter to continue from here on. More product launches will be necessary to sustain and improve its US show. 

Debt is another area that has been a pain point for investors. Despite the sale of its domestic ortho business, net debt continues to remain high. 

Reported gross debt stood at Rs 44.3 billion in the September quarter as against Rs 46.39 billion at the end of FY18.

Going ahead, analysts will look at progress in active pharmaceutical ingredient (API) stake sale and some out-licensing deals, to help reduce debt. 

While the company did outperform expectations in the September quarter, this was more because of one-offs. Adjusted for this, net profit would have declined by 3 per cent year-on-year and margins would shrink 147 basis points due to erosion in base business, say analysts. 

The company’s European business is expected to perform better, on the back of the roll-out of couple of inhalers that it in-licensed from innovators. However, a competitive landscape may restrict the upside, say analysts such as Ranvir Singh of Systematix shares.

The India business seems to be the only bright spot due to steady sales of consumer products.

Though analysts at Edelweiss Securities have revised FY19/20 earnings per share (estimated) upwards, limited growth drivers, burgeoning costs, a changing US landscape as well as a highly leveraged balance sheet are expected to limit the upside potential.

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