>Glenmark Pharmaceuticals Limited (NIRMAL BANG)

Snapshot: Glenmark Pharmaceuticals Limited (GPL) is a Mumbai based research-driven, fully integrated pharmaceutical company. It has a global presence with focus on branded generics across emerging markets including India. It has twelve manufacturing facilities in four countries and has five R&D centers.

Investment Rationale
■ Strong growth in international markets: The Company has strong presence in both regulated as well semi-regulated markets with around 70% of revenues coming from exports.

■ Increasing footprint in domestic markets: The Company follows the strategy of targeting niche areas as a growth strategy to penetrate in domestic markets which enables the company in maintaining margins. It is a leader in dermatology segment in domestic region and continues to be focused in the segment.

■ Strong research capabilities: It has a strong pipeline of 6 New Chemical Entities (NCEs) and 2 New Biologics Entities (NBEs) in various stages of preclinical and clinical trials and has earned revenues of US$115mn till now from R&D activities, highest ever earned by any Indian company.

■ Listing of Generics business: GPL has re-organized its generics business into a separate subsidiary called Glenmark Generics Limited (GGL), which contributes around 44% of group’s revenues. It has filed RHP and awaiting SEBI’s approval for its IPO.

■ Increasing profitability via restructuring Balance sheet: Company has taken various steps like reducing debtor’s day and debt on the books to improve the liquidity.

Valuation Recommendation
We believe the revenues of the company will grow at a CAGR of 17.2% over a period of two years from 2010 to 2012E whereas net profit will grow at a higher CAGR of 30.7% during the same period, on account of balance sheet restructuring exercises, cost containment program and management of working capital cycle. We expect the company to earn an EPS of Rs. 17.4 in FY11E and Rs.21.1 in FY12E. At the CMP of Rs. 252 per share, GPL is currently trading at a PE of 14.5x FY11E and 11.9x FY12E EPS estimates, which looks quite attractive when compared to its peers. At Rs. 252 per share the stock is trading at a discount of 24% from our intrinsic price of Rs. 314 per share which is 18x FY11E earnings. With growth triggers like first-to-file opportunities, listing of its subsidiary (not factored in our financials), out-licensing deal for its NCE (not factored in our projections) the stock looks undervalued. We recommend a BUY rating on the stock with a price target of Rs 314 with a long term view.

To read the full report: GLENMARK PHARMACEUTICALS