US biz pick-up, deleveraging key for Glenmark’s re-rating


Glenmark Pharmaceuticals Ltd is buzzing with positive news flow and the stock scaled 52-week highs recently. The India growth catching pace is encouraging investors. The company, however, over the past few years has seen pressure on its US sales led by rising competition. Thus, US sales growth gaining momentum holds the key for driving overall prospects.

Besides, the company remains one of the few leveraged entities in India’s pharmaceutical space. Monetization of its products and molecules through licensing agreements and other fundraising efforts continue to be monitored as they are drivers for debt reduction. The company had a debt of 3,758 crore on 31 March, which translated into net debt to Ebitda of 1.6 times.

Key market

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Key market

Glenmark signed an exclusive licensing agreement with Italy’s Menarini Group for commercializing Ryaltris nasal spray in Europe. Glenmark will be responsible for the development and getting regulatory nod of Ryaltris from relevant European authorities, while Menarini Group will handle the commercialization of Ryaltris across markets in Europe. Glenmark will receive an upfront payment followed by the launch and sales-based milestone payments. This may help in reducing debt and growing revenues.

That said, getting regulatory approval is not easy and is a risk for Glenmark, Yash Gupta, analyst at Angel Broking Ltd, wrote in a note. Analysts believe the progress on commercialization and execution holds key.

Meanwhile, the company also has plans to raise funds by selling a stake in its drug discovery subsidiary, Ichnos Sciences, in the second half of FY21. A successful deal would significantly ease R&D cost and debt burden for Glenmark.

The company had spent $115.7 million for Ichnos or 8% of revenues in FY20, according to analysts at HSBC Securities and Capital Markets (India) Pvt. Ltd. That said, the timeline of this stake sale remains uncertain, analysts note.

Glenmark’s domestic operations remain decent with sales getting a boost from covid-19 treatment drug. The rebound in the acute segment sales from the lockdown hit bodes well for its India growth prospects. The management expects better growth from the US market in the fiscal second half.

The stock trades at 498 a piece or 15.7 times its one-year forward earnings estimates.

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