Glenmark Pharmaceuticals (GLEPHA)

May 16, 2016

ICICI Securities Ltd | Retail Equity Research

Result Update

Strong performance across geographies… • Revenues grew 28.5% YoY to | 2281.3 crore (I-direct estimate:

| 1849.6 crore) mainly on account of robust growth across geographies. The company witnessed 21.6% YoY growth in the US to | 652.0 crore, 22.5% YoY growth in India to | 539.8 crore, 33.5% YoY growth in Latin America to | 241.6 crore and 35.6% growth in RoW markets to | 298.0 crore

• EBITDA margins declined 258 bps YoY to 13.3% (against I-direct estimate: 21.2%) due to lower gross margin and one-offs. Ex one-off the EBITDA was ~| 460 crore i.e. 20% of revenues

• Adjusted net profit declined 13.2% YoY to | 171.5 crore, (I-direct estimate: | 210.1 crore) due to lower EBITDA

US Generics, India formulations main growth drivers The R&D set-back in 2008-10 actually benefited the company as the focus was shifted to more productive segments such as US, India and RoW markets. The changed focus has improved operating cash flows as well as leverage situation as the debt/EBITDA has improved from a high of 4.6x in FY09 to 2.1x in FY16P. Glenmark has also focused more on niche therapies like dermatology, oral contraceptives and respiratory where the competition is relatively less intense. US generics business provides impetus after R&D setbacks After toying with R&D success and subsequent setbacks, the company has successfully developed and nurtured the US generics franchise. US generics now comprise ~31% of total turnover and has grown at a CAGR of 23.7% in the last five years. Total USFDA filings as on date are 171. So far, the company has received approvals for 112. From the pending ANDAs, 26 are Para IV applications. Key therapies in the US are oral contraceptives, pain management and CVS. The new focus areas in the US will be oncology, respiratory and dermatology. We expect US sales to grow at a CAGR of 21.7% in FY16P-18E to | 3584.4 crore. Targeting specific therapies in IPM Glenmark is ranked 15th in domestic formulations with a market share of 2.3%. It is market leader in dermatology and improving its presence in therapies like respiratory, CVS and anti-infectives. It has defied muted growth in IPM in FY16P by growing at 20.7% vis-à-vis IPM growth of 11.5% by churning the portfolio. We expect sales from India to grow at a CAGR of 15.9% in FY16P-18E to | 2834.4 crore. Product launches across geographies spur growth; maintain BUY Q4 revenues witnessed strong growth across geographies driven by incremental product launches. Also, adjusted EBITDA margins were stable at ~20% despite high R&D spend and currency headwinds in most of the ex-US markets. Going ahead, the US franchisee looks promising with gZetia launch under exclusivity and strong pipeline of 63 pending approvals (including 26 Para IVs). Domestic formulations continue to maintain higher trajectory on the back of market share gain in key therapies. Europe and LatAm continue to buck the trend on the back of new product launches and strong respiratory traction. The management has guided for ~25% growth in FY17, including 25% growth in the US business and more than 20% growth in Europe and LatAm. We have ascribed a target price of | 1000 based on 20x FY18E EPS of | 50.1.

Rating matrix Rating : BuyTarget : | 1000Target Period : 12-15 monthsPotential Upside : 17%

What’s Changed? Target Changed from | 975 to | 1000EPS FY16P Changed from | 30.0 to | 32.2EPS FY17E Changed from | 40.1 to | 41.4EPS FY18E Changed from | 48.8 to | 50.1Rating Unchanged

Quarterly Performance

Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%)Revenue 2,281.3 1,775.8 28.5 1,756.4 29.9EBITDA 302.6 281.4 7.5 369.8 -18.2EBITDA (%) 13.3 15.8 -258.1 21.1 -778.7Adj. Net Profit 171.5 197.7 -13.2 169.9 0.9

Key Financials (| Crore) FY15 FY16P FY17E FY18ERevenues 6644.8 7746.5 8993.0 10442.5EBITDA 1225.2 1620.4 1996.8 2328.9Adjusted PAT 650.9 906.6 1166.7 1409.5EPS (|) 23.1 32.2 41.4 50.1

Valuation summary

FY15 FY16E FY17E FY18EPE (x) 52.1 26.7 20.7 17.1Target PE (x) 43.3 31.1 24.1 20.0EV to EBITDA (x) 22.2 16.8 13.8 11.4Price to book (x) 8.1 5.7 4.5 3.6RoNW (%) 21.7 21.2 21.7 21.0RoCE (%) 13.3 16.2 18.8 20.3

Stock data ParticularMarket CapitalisationDebt (FY16P)Cash (FY16P)EV 52 week H/L 1262/672

Equity capital Face value | 1

| 27338 crore

Amount| 24212 crore

| 3988 crore| 862 crore

| 28.2 crore

Price performance (%)

1M 3M 6M 1Glenmark Pharma 2.2 21.1 -4.4 21Divi's Labs 4.1 7.8 -5.9 22Cadila Healthcare -3.6 4.4 -11.6 -14

Glenmark Pharmaceuticals (GLEPHA) | 858

Research Analyst

Siddhant Khandekar [email protected] Mitesh Shah [email protected]

Nandan Kamat [email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis Q4FY16 Q4FY16E Q4FY15 Q3FY16 YoY (%) QoQ (%) Comments

Revenue 2,281.3 1,849.6 1,775.8 1,756.4 28.5 29.9 Robust growth was mainly due to strong growth across geographies and one off annual export incentives of ~| 81 crore for the entire FY16 reported in Q4

Raw Material Expenses 745.4 536.4 381.8 506.8 95.3 47.1 Gross margins were impacted due to pricing pressure in most of the key markets

Employee Expenses 347.9 351.4 254.2 344.9 36.9 0.9Other Expenditure 885.3 570.3 858.4 535.0 3.1 65.5EBITDA 302.6 391.5 281.4 369.8 7.5 -18.2EBITDA (%) 13.3 21.2 15.8 21.1 -258 bps -779 bps EBITDA was impacted due to one-off expenses pertaining to sitagliptin and azelaic

acid litigation. Ex one-off EBITDA was | 460 crore i.e. 20% of total revenues

Interest 47.5 46.9 39.7 46.9 19.7 1.4Depreciation 62.8 55.9 64.5 55.9 -2.6 12.4Other Income 11.7 3.0 0.3 2.1 3,497.8 447.2PBT before EO & Forex 204.0 291.8 177.6 269.2 14.9 -24.2PBT 204.0 291.8 -9.5 269.2 -2,248.5 -24.2Tax 32.7 81.7 -20.1 99.2 -263.1 -67.0PAT before MI 171.3 210.1 10.6 169.9 1,518.3 0.8Adj. Net Profit 171.5 210.1 197.7 169.9 -13.2 0.9 YoY de-growth mainly due to higher taxation and interest expensesKey MetricsUS 652.0 630.6 536.3 608.9 21.6 7.1 YoY growth was mainly due to incremental new product launches Europe 270.5 182.5 243.3 176.4 11.2 53.4 YoY growth was mainly due robust growth across Europe. Beat vis-a-vis our

expectation was mainly due to better than expected sales in via new product launches

India 539.8 506.7 440.6 488.0 22.5 10.6 YoY growth was on account of market share gain across therapies and new product launches. Beat vis-a-vis our expectation was mainly due to higher market shares in some products

Latin America 241.6 110.5 181.0 123.7 33.5 95.3 Brazil and Mexico constant currency sales grew 25% and 60% respectively. Beat vis-a-vis our expectation was mainly due to better than expected constant currency growth

RoW markets 298.0 224.2 219.8 236.3 35.6 26.1 Sales were mainly driven by strong growth in Russia. Russia constant currency growth was 40% YoY. Asia and Africa secondary sales grew 29% and 11% YoY, respectively. Beat vis-a-vis our expectation was mainly due better than expected growth in Russia

API 222.9 162.5 154.7 145.0 44.0 53.7

Source: Company, ICICIdirect.com Research Change in estimates

(| Crore) Old New % Change Old New % Change CommentsRevenue 8,553.1 8,993.0 5.1 9,903.5 10,442.5 5.4 Chnged mainly due to better-than-expected traction coming from new launches in

Europe and LatAmEBITDA 1,889.7 1,996.8 5.7 2,201.6 2,328.9 5.8 Changed in sync with revenueEBITDA Margin (%) 22.1 22.2 10 bps 22.2 22.3 10 bpsPAT 1,130.6 1,166.7 3.2 1,373.1 1,409.5 2.6EPS (|) 40.1 41.4 3.3 48.8 50.1 2.6

FY17E FY18E

Source: Company, ICICIdirect.com Research Assumptions

Comments(| crore) FY15 FY16P FY17E FY18E FY17E FY18EUS 2,039.8 2,420.4 3,037.6 3,584.4 3,056.7 3,607.0Europe 644.5 717.1 861.3 1,033.6 809.8 971.7 Increased due to better than expected traction coming from new launchesIndia 1,749.0 2,109.3 2,402.0 2,834.4 2,465.5 2,909.2Latin America 764.0 749.5 896.7 986.4 469.7 493.2 Changed as per management guidance and incremental product launches across

LatAmRoW markets 812.3 903.3 1,038.7 1,194.6 986.7 1,134.7API 605.3 668.3 623.7 654.9 638.3 670.2

Current Earlier

Source: Company, ICICIdirect.com Research


Company Analysis Incorporated in 1977, Glenmark was never a mass market player with a clear focus on niche areas such as dermatology, respiratory and cardiology. The company was one of the few Indian players (like DRL) to identify the importance of dedicated R&D efforts in the nineties. Post its maiden IPO in 2000, the company started ramping up the API business via small acquisitions. In 2005, it struck its first out-licensing R&D seal with US based Forest Laboratories for COPD/asthma molecule with Oglemilast. Similar R&D deals were struck with Innovator companies such as Eli Lily and Merck KGaA (Germany). It received a substantial amount in the nature of upfront – milestone payments. However it received a setback in most of these deals, one after another in 2007-09, as clients were unsatisfied with the progress or uninterested in pursuing the same any further due to changed priorities or budgetary constraints. This had hit the company hard during that period as, unlike other Indian players that hived off risky R&D ventures into separate companies to protect core balance sheet, Glenmark hived off the generic business. Its balance sheet got stretched with huge debts. However, post the R&D debacle, the company refocused on the generics business, especially in the US and Indian formulations, putting R&D on the backburner. The change has worked going by the performance in the last two or three years as strong traction in the US, backed by forays into niche areas like oral contraceptives and dermatology, robust growth in Indian formulations and strong tractions from RoW and LatAm markets have improved the balance sheet and operating cash flows significantly. The R&D deals are still active but the focus on the innovative R&D and generic R&D is almost equal. The company has almost fully recovered the amount spent on innovative R&D, which is almost US$200 million in the last nine years. With other geographies also chipping in, growth, going ahead, is likely to be broad based with India and the US, the largest geographies growing at a decent pace and emerging segments such as RoW markets and Latin America showing greater traction. The company also remains committed to API exports. We expect revenues to grow at a CAGR of 16.1% to | 10442.5 crore in FY16P-18E. Exhibit 1: Revenues to grow at CAGR of 16.1% in FY16P-18E

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Glenmark has reclassified it operations into six categories - India, US, Europe, Latin America, RoW markets and APIs. Earlier, the classification was on the basis of - 1) specialty businesses and 2) generics businesses.


India (27% of overall sales) – In India it operates through over 20 divisions with focus on dermatology, cardiology, respiratory and anti-infectives among all. The company markets over 350 products in India. As AIOCD MAT April, 2016, Glenmark ranks 15th in IPM with a market share of 2.3%. Among therapies, it is second in dermatology, sixth in respiratory and seventh in cardiology. The current MR strength of the company is ~3200 and the MR productivity is | 47.2 lakh per MR. The acute: chronic: sub-chronic ratio for Glenmark is 45: 35: 20. Exhibit 2: India business major growth driver…

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The US (31% of overall sales) – The US generic business is being operated through its subsidiary Glenmark Generics. It focuses on developing, manufacturing and distribution of generics through wholesalers, retailers and pharmacy chains. Glenmark’s US strategy is to focus on less crowded therapies such as oral contraceptives, dermatology, oncology, etc. Typically, the company focuses on small ticket but niche opportunities. Till date, the company has filed 171 ANDAs with the USFDA. Of these, it has received approval for 112 ANDAs. It is currently awaiting USFDA approval for 59 ANDAs, of which 26 are Para IV applications. Exhibit 3: …so is the US

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The drug discovery business is focusing on areas of inflammation (asthma/COPD, rheumatoid arthritis etc.), metabolic disorders (diabetes, obesity, etc.) and pain (neuropathic pain and inflammatory pain).


Glenmark has a pipeline of seven molecules – two NCEs and five NBEs in various stages of preclinical and preclinical development. Of these, five are in clinical trials. Glenmark has been following a strategy of out-licensing research-staged molecules in clinical development to MNCs. So far, Glenmark has struck seven deals in the last nine years booking ~US$200 million as upfront and milestone payments. Exhibit 4: Higher R&D spend here to stay….

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Exhibit 5: Margins remains under pressure due to higher R&D spend

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Exhibit 6: Net profit to grow at CAGR of 24.7% in FY16P-18E on a lower base

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Exhibit 7: Return ratios to improve, going ahead…

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Exhibit 8: Trends in quarterly financials (| Crore) Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 YoY (%) QoQ (%)Total Operating Income 1637.1 1746.8 1871.7 1968.5 2050.1 2108.0 2189.5 2288.2 1647.7 1874.6 1756.4 2281.3 -0.3 29.9Raw Material Expenses 539.4 676.2 720.4 777.6 813.3 822.1 759.1 802.1 499.3 549.4 506.8 745.4 -7.1 47.1% of revenue 32.9 38.7 38.5 39.5 39.7 39.0 34.7 35.1 30.3 29.3 28.9 32.7Gross Profit 1097.7 1070.6 1151.3 1190.9 1236.8 1285.9 1430.3 1486.1 1148.4 1325.2 1249.6 1535.8 3.3 22.9Gross Profit Margin (%) 67.1 61.3 61.5 60.5 60.3 61.0 65.3 64.9 69.7 70.7 71.1 67.3 238 bps -382 bpsEmployee Expenses 262.9 273.0 261.5 273.6 290.1 287.3 317.0 314.1 286.0 398.4 344.9 347.9 10.8 0.9% of revenue 16.1 15.6 14.0 13.9 14.2 13.6 14.5 13.7 17.4 21.3 19.6 15.3Other Manufacturing Expenses 549.0 537.0 594.6 558.8 570.6 577.7 666.1 676.2 502.8 524.9 535.0 885.3 30.9 65.5% of revenue 33.5 30.7 31.8 28.4 27.8 27.4 30.4 29.5 30.5 28.0 30.5 38.8Total Expenditure 1351.3 1486.3 1576.4 1610.0 1674.0 1687.0 1742.3 1792.4 1288.1 1472.8 1386.6 1978.6 10.4 42.7% of revenue 82.5 85.1 84.2 81.8 81.7 80.0 79.6 78.3 78.2 78.6 78.9 86.7EBITDA 285.8 260.5 295.3 358.6 376.1 421.0 447.2 495.9 359.6 401.9 369.8 302.6 -39.0 -18.2EBITDA Margins (%) 17.5 14.9 15.8 18.2 18.3 20.0 20.4 21.7 21.8 21.4 21.1 13.3 -840 bps -779 bpsDepreciation 47.1 51.8 49.6 52.8 67.7 73.3 70.7 75.5 69.7 63.4 55.9 62.8 -16.9 12.4Interest 27.8 19.3 19.0 24.0 18.1 17.3 16.2 16.3 41.9 42.6 46.9 47.5 191.8 1.4Other Income 12.5 12.2 12.8 13.1 10.4 14.6 10.0 20.3 5.4 0.8 2.1 11.7 -42.5 447.2Forex & EO 26.7 0.0 -48.0 -13.7 -1.2 0.2 4.6 1.4 0.0 0.0 0.0 0.0PBT 223.4 201.7 236.0 281.2 299.6 345.3 374.9 425.8 253.3 296.7 269.2 204.0 -52.1 -24.2Total Tax 20.3 10.1 40.8 34.8 52.4 57.1 79.1 70.8 75.1 96.2 99.2 32.7 -53.7 -67.0Tax rate (%) 9.1 5.0 17.3 12.4 17.5 16.5 21.1 16.6 29.6 32.4 36.9 16.1 -57 bps -2082 bpsPAT 203.1 191.6 195.2 246.4 247.1 288.2 295.8 355.0 178.3 200.4 169.9 171.3 -51.8 0.8Minority Interest 8.0 8.2 9.2 7.2 6.9 10.1 13.9 4.7 0.0 0.0 0.0 -0.2 NA NAPAT after MI 195.1 183.4 186.0 239.2 240.2 278.1 281.9 350.4 178.3 200.4 169.9 171.5 -51.1 0.9EPS (|) 9.5 9.0 9.1 11.7 11.7 13.6 13.8 17.1 6.3 7.1 6.0 6.1 -64.4 0.9


SWOT Analysis Strengths - Prudent geographical mix covering high opportunity emerging markets as well as developed markets. Presence in niche therapies in the US such as oral contraceptives, dermatology, which is relatively less crowded. Time tested R&D focused business model with a portfolio of Innovative products. Well placed to monetise the R&D pipeline in with product in various stages of completion Weakness - High debt level, presence of substantial intangibles in the balance sheet. Higher R&D spends likely to put pressure on margins Opportunities - In the US generics space lot of opportunities are panning out in the oral contraceptives and respiratory space Threats - Increased USFDA scrutiny across the globe regarding cGMP issues and consolidation in the US pharmacy space. Currency volatility in LatAm and RoW markets Conference call highlights

• Company’s accumulated ANDAs were at 171, including 59 pending approvals (26 Para IV filings). In Q4FY16, it filed six ANDAs with the USFDA with 12 ANDA filings in FY16

• It received eight final and two tentative ANDA approvals each from USFDA during the quarter. In FY16, the company received 24 ANDA approvals (including five tentative approvals) from USFDA

• During the quarter, the company launched five products in Asia, three in Europe (two in UK, one in Germany) and five in Africa region. It launched 24 products in FY16 of which 16 were in-licensed


• During Q4FY16, the company concluded the licensing deal with Celon for generic Seretide Accuhaler in Europe. It obtained semi-exclusive marketing and distribution rights for the product across 15 European countries, including UK and Germany upon commercialisation

• The company filed four new APIs in the US and two each in CEP and Canada. Amiodarone, Lercanidipine, Adapalene continued to record good growth sales. Glenmark received successful accepted status of all API facilities

• The company has a pipeline of seven molecules – two NCEs and five NBEs molecules in clinical trials or ready to enter clinical trials in the near term

• The company has successfully completed preclinical studies and Phase I enabling toxicity studies for GRC 27864

• Phase II enabling toxicology studies for GRC 17536 have been completed and it has shown a good safety profile supporting further development. The company has submitted an IND for a Phase IIb dose range finding study with the USFDA

• A Phase I clinical trial has been initiated in the UK for GBR 900 • The company has an open IND at the USFDA and Health Canada

approval for GBR 830 under which a Phase II study in atopic dermatitis is currently ongoing.

• The gross debt was at | 3988 crore during Q4FY16, with cash of | 862 crore on the books

• R&D was 11% of net sales (| 254 crore) in Q4FY16 and 9.6% in FY16 to | 724 crore. Total | 321 crore of R&D was on innovative products while | 430 crore was on generic products. The company plans R&D threshold of ~11% of sales (ex-Zetia) in future.

• The Venezuela business revenues were at | 320 crore for FY16 with net profit at | 75 crore. The company expects US$10-15 million of revenues from the geography in FY17

• The company has guided for 22-25% tax rate for FY17 • The company gave a revenue growth guidance of 25% for FY17.

US sales (ex-Zetia) are expected to grow at 15-20% in FY17 • The company gave a capex guidance of US$ 100 million for FY17

and FY18 each • The company plans to file more than 25 ANDAs in FY17 and

expects approvals for 10-12 ANDAs

Market Share: Domestic MAT Mar 2016 (%) MAT Mar 2015 (%)

Cardiac 3.7 4.0Respiratory 3.8 4.1Anti Diabetic 2.0 2.2Derma 7.8 8.6



Exhibit 9: Facilities Location Segment Regulatory Approvals TypeNashik, India Formulations WHO GMP, ANVISA, NDA-Uganda, MOH-Nigeria, TFDA-Tanzania, MOH-Ethopia, MOH,

Congo, MCC-SA, MOH-Oman, MOH-Ukraine, INVIMA-Colombiasolid & liquid orals, external creams & powders

Baddi, India Formulations USFDA, WHO GMP, ANVISA Brazil, UKMHRA, MCC SA, TGA Australia, NDA Uganda, Ukraine GMP, DDA Nepal, TPD Canada, FDA Ghana, CHMP Kenya

solid orals, semi-solid and liquid orals as well as external preparations like lotions, creams, etc

Nalagarh, India Formulations ANVISA (Brazil), UGANDA, WHO GMP, Local FDA Liquid, Ointment/Cream, and Lotion

Sikkim, India Formulations Oral solids (Tablets and Capsules) Ointments, Creams, Lotions and Liquids

Vysoke Myto, Czech Formulations Manufacturing licence for medicinal products (issued by SUKL), Distribution licence for medicinal products (issued by SUKL), Certificate of GMP Compliance of Manufacturer (issued by SUKL), Certificate of GMP Compliance of a Manufacturer (issued by USKVBL)

solid-orals and semi-solids (ointments)

Sao Paulo, Brazil Formulations WHO-GMP, ANVISA Brazil

Bardez, Goa Formulations USFDA, TPD (Canada), MCC (South Africa), WHO-GMP, ANVISA (Brazil), MHRA (UK), ISO 14001:2004

Oral Solids, Semi Solids & Hormones

Solan, HP Formulations

Pithampur, Indore Formulations USFDA, UKMHRA solid oraldosage forms

Buenos Aires, Argentina Formulations cytotoxics, anti hormonals, lyophilizedinjectables and supportive therapies

Aurangabad, Maharashtra Formulations

Monroe, USA Formulations

Ankleshwar, Bharuch, Gujarat API WHO GMP, USFDA, MHRA - UK, MHRA - Romania and EMEA

Solapur, Maharashtra API

Pune Maharashtra API

Bharuch, Gujarat API



Valuation Q4 revenues witnessed strong growth across geographies driven by incremental product launches. Also, adjusted EBITDA margins were stable at ~20% despite high R&D spend and currency headwinds in most of the ex-US markets. Going ahead, the US franchisee looks promising with gZetia launch under exclusivity and strong pipeline of 63 pending approvals (including 26 Para IVs). Domestic formulations continue to maintain higher trajectory on the back of market share gain in key therapies. Europe and LatAm continue to buck the trend on the back of new product launches and strong respiratory traction. The management has guided for ~25% growth in FY17, including 25% growth in the US business and more than 20% growth in Europe and LatAm. We have ascribed a target price of | 1000 based on 20x FY18E EPS of | 50.1. Exhibit 10: One year forward PE

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Exhibit 11: One year forward PE of company vs. BSE Healthcare Index

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Exhibit 12: Valuation

Revenues Growth Adj. EPS Growth P/E EV/EBITDA RoNW RoCE(| crore) (%) (|) (%) (x) (X) (%) (%)

FY15 6645 33 23.1 4 52.1 22.2 21.7 13.3FY16P 7746 17 32.2 39 26.7 16.8 21.2 16.2FY17E 8993 16 41.4 29 20.7 13.8 21.7 18.8FY18E 10442 16 50.1 21 17.1 11.4 21.0 20.3



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Target Price: | 1000

Source: Bloomberg, Company, ICICIdirect.com Research Key events Date EventAug-09 Forest & Glenmark Pharma announce Phase IIb results for Oglemilast. The molecule did not show satisfactory results compare to its Placebo.

Oct-09 Launches four products in the UK market through its subsidiary Glenmark Generics Europe.

Mar-10 Receives USFDA approval for its new drug application for Oxycodone Hydrochloride capsules and liquid solutions filed as an NDA with USFDA under 505b2 route.

May-10 Enters into an agreement with Sanofi to out-license its GRC 15300 molecule. Receives US$ 20 million as an upfront payment.

Jan-11 Sanofi & Abbott win patent litigation case of generic Tarka. A Federal jury asks Glenmark to pay US$ 16 million as damages for launching at risk in the US market.

Apr-11 Enters into an exclusive agreement with a Canadian base company ImmanenceIntegrale Dermo Correction (IDC) to market high end dermatology products in eight countries including India & Brazil.

May-11 Out-licenses monoclonal antibody GBR 500 to Sanofi. Receives US$ 50 million as upfront payment.

Aug-12 The International Center for Dispute resolution rules in favor of Glenmark on the arbitration claim it filed against Napo Pharma. Glenmark will have rights to develop, commercialise and distribute Crofelemer in 140 emerging markets.

Jul-13 Confirms filing of ANDA for Lacosamide tablets and oral solutions with the USFDA under Para IV certification.

Mar-14 Provided | 213 crore for Tarka liability

Jan-15 Receives shareholders' approval to raise up to $300 million (around | 1,890 crore) through issue of securities

Oct-15 Sanofi calls off its deal with Glenmark related to the development of Vatelizumab drug (GBR 500), a monoclonal antibody (MaB) for multiple sclerosis.The drug is in Phase II clinical trials

Source: Company, ICICIdirect.com Research Top 10 Shareholders Shareholding Pattern Rank Investor Name Latest Filing Date % O/S Positionsition Change1 Saldanha Family Trust 31-Mar-16 45.5 128.2 0.02 Aranda Investments (Mauritius) Pte. Ltd. 31-Mar-16 4.0 11.3 0.03 OppenheimerFunds, Inc. 31-Mar-16 2.7 7.5 1.14 Life Insurance Corporation of India 31-Mar-16 2.2 6.2 1.85 The Vanguard Group, Inc. 31-Mar-16 1.4 3.8 0.06 T. Rowe Price International (UK) Ltd. 31-Mar-16 1.3 3.6 0.67 BlackRock Institutional Trust Company, N.A. 30-Apr-16 1.1 3.1 0.08 GIC Private Limited 31-Mar-16 1.1 3.1 3.19 Morgan Stanley Investment Management Inc. (US) 31-Mar-16 1.1 3.0 0.010 APG Asset Management 31-Mar-16 1.1 3.0 1.5

(in %) Mar-15 Jun-15 Sep-15 Dec-15 Mar-16Promoter 48.3 46.4 46.5 46.5 46.5FII 34.7 35.9 36.8 36.9 36.8DII 6.1 6.8 6.0 5.6 5.5Others 10.9 10.9 10.7 11.0 11.2

Source: Reuters, ICICIdirect.com Research Recent Activity

Investor name Value ($ mn) Shares Investor name Value ($ mn) SharesGIC Private Limited 36.6 3.1 William Blair Investment Management, LLC -22.7 -1.6Life Insurance Corporation of India 21.3 1.8 Norges Bank Investment Management (NBIM) -5.7 -0.4APG Asset Management 18.0 1.5 Baron Capital Management, Inc. -4.2 -0.4OppenheimerFunds, Inc. 13.3 1.1 Capital International, Inc. -4.1 -0.3T. Rowe Price International (UK) Ltd. 7.0 0.6 Reliance Capital Asset Management Ltd. -3.0 -0.3

Buys Sells

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Financial summary

Profit and loss statement | Crore (Year-end March) FY15 FY16P FY17E FY18ERevenues 6,644.8 7,746.5 8,993.0 10,442.5Growth (%) 32.5 16.6 16.1 16.1Raw Material Expenses 1,933.8 2,300.9 2,805.3 3,114.6Employee Expenses 1,202.4 1,377.2 1,625.2 2,019.7Other Manufacturing Expenses 2,283.3 2,448.0 2,565.8 2,979.3Total Operating Expenditure 5,419.5 6,126.1 6,996.2 8,113.6EBITDA 1,225.2 1,620.4 1,996.8 2,328.9Growth (%) 21.1 32.2 23.2 16.6Interest 190.8 178.9 167.9 138.9Depreciation 271.5 251.8 289.2 326.7Other Income 6.9 20.0 16.0 16.0PBT before Exceptional Items 769.9 1,209.7 1,555.6 1,879.3PBT 582.8 1,209.7 1,555.6 1,879.3Total Tax 119.0 303.3 388.9 469.8PAT before MI 463.8 906.4 1,166.7 1,409.5PAT 463.8 906.6 1,166.7 1,409.5Adjusted PAT 650.9 906.6 1,166.7 1,409.5Growth (%) 4.5 39.3 28.7 20.8EPS (Adjusted) 23.1 32.2 41.4 50.1


Cash flow statement | Crore (Year-end March) FY15 FY16E FY17E FY18EProfit/(Loss) after taxation 463.8 906.6 1,166.7 1,409.5Add: Depreciation & Amortization 271.5 251.8 289.2 326.7Net Increase in Current Assets -593.1 -492.7 -1,227.4 -535.2Net Increase in Current Liabilities 374.9 -8.3 346.7 379.3Others -83.2 0.0 0.0 0.0CF from operating activities 433.8 657.3 575.3 1,580.3(Inc)/dec in Investments -0.6 1.5 0.0 0.0(Inc)/dec in Fixed Assets -420.8 -888.3 -700.0 -700.0Others -131.2 -244.4 0.0 0.0CF from investing activities -552.5 -1,131.2 -700.0 -700.0Inc / (Dec) in Equity Capital 0.0 1.1 0.0 0.0Inc / (Dec) in Loan Funds 533.0 188.2 -463.3 -609.8Other 4.9 -65.9 -65.9 -65.9CF from financing activities 537.8 123.4 -529.2 -675.7

Net Cash flow 419.2 -350.6 -654.0 204.6Opening Cash 800.7 1,219.8 869.3 215.3Closing Cash 1,219.8 869.3 215.3 419.9


Balance sheet | Crore (Year-end March) FY15 FY16E FY17E FY18EEquity Capital 27.1 28.2 28.2 28.2Reserve and Surplus 2,973.2 4,242.0 5,342.8 6,686.4Total Shareholders funds 3,000.3 4,270.2 5,371.0 6,714.6Total Debt 3,799.9 3,988.1 3,524.8 2,915.0Deferred Tax Liability 279.8 218.5 218.5 218.5Minority Interest -0.2 -0.3 -0.3 -0.3Other Non Current Liabilities 121.9 77.0 77.0 77.0

Source of Funds 7,201.8 8,553.6 9,191.0 9,924.8Gross Block - Fixed Assets 4,201.7 4,702.6 5,402.6 6,102.6Accumulated Depreciation 931.2 1,183.0 1,472.2 1,798.9Net Block 3,270.4 3,907.5 4,318.2 4,691.5Goodwill on Consolidation 58.0 57.5 57.5 57.5Investments 18.7 17.2 17.2 17.2Inventory 1,269.0 1,567.8 1,838.6 2,135.0Cash 768.1 861.8 215.3 419.9Debtors 2,511.8 2,492.6 2,923.3 3,394.5Other Current Assets 774.3 114.4 1,040.2 1,207.9Total Current Assets 5,323.3 5,909.6 6,490.5 7,230.3Creditors 2,045.7 2,006.6 2,353.3 2,732.6Provisions & Other CL 440.1 494.4 494.4 494.4Total Current Liabilities 2,485.7 2,501.0 2,847.6 3,226.9Net Current Assets 2,837.5 3,408.7 3,642.9 4,003.4LT L& A, Other Assets 44.0 595.8 588.3 588.3Deferred Tax Assets 973.1 566.9 566.9 566.9

Application of Funds 7,201.7 8,553.5 9,191.0 9,924.8


Key ratios (Year-end March) FY15 FY16E FY17E FY18EPer share data (|)Adj EPS 23.1 32.2 41.4 50.1BV 106.5 151.6 190.7 238.4DPS 2.3 2.3 2.3 2.3Cash Per Share 33.1 42.0 52.3 63.9Operating Ratios (%)Gross Margin 70.9 70.3 68.8 70.2EBITDA margins 18.4 20.9 22.2 22.3Net Profit margins 9.8 11.7 13.0 13.5Inventory days 70 74 75 75Debtor days 138 117 119 119Creditor days 112 95 96 96Asset Turnover 0.9 0.9 1.0 1.1EBITDA conversion Rate 35.4 40.6 28.8 67.9Return Ratios (%)RoE 21.7 21.2 21.7 21.0RoCE 13.3 16.2 18.8 20.3RoIC 17.8 26.3 24.7 25.6Valuation Ratios (x)P/E 52.1 26.7 20.7 17.1EV / EBITDA 22.2 16.8 13.8 11.4Market Cap / Sales 3.6 3.1 2.7 2.3Price to Book Value 8.1 5.7 4.5 3.6Solvency RatiosDebt / Equity 1.3 0.9 0.7 0.4Debt / EBITDA 3.1 2.5 1.8 1.3Current Ratio 1.8 1.7 2.0 2.1



ICICIdirect.com coverage universe (Healthcare) Company I-Direct CMP TP Rating M Cap

Code (|) (|) (| Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E

Ajanta Pharma AJAPHA 1543 1,780 Buy 13510.8 36.0 45.7 52.4 42.8 33.8 29.5 26.8 23.3 19.9 50.3 43.7 37.9 37.8 34.4 30.0

Apollo Hospitals APOHOS 1312 1,420 Hold 18246.3 23.7 27.6 34.6 55.2 47.5 37.9 27.6 23.9 18.9 9.9 11.2 13.0 10.4 11.1 12.5

Aurobindo Pharma AURPHA 764.7 990 Buy 44745.0 28.1 33.9 37.7 27.2 22.5 20.3 30.7 25.1 22.0 23.4 24.7 25.0 31.7 28.7 24.7

Alembic Pharma ALEMPHA 607 620 Hold 11450.4 15.1 38.2 19.6 40.3 15.9 31.0 32.2 12.6 23.9 30.7 58.0 24.8 32.1 51.5 22.3

Biocon BIOCON 574.9 560 Hold 11498.0 20.4 22.1 28.3 28.2 26.1 20.3 8.3 7.6 6.4 10.4 9.1 10.9 12.5 10.9 12.7

Cadila Healthcare CADHEA 327 405 Buy 33476.4 11.2 14.7 15.3 29.2 22.3 21.4 19.9 14.8 14.4 20.7 26.2 24.4 27.0 28.0 23.9Cipla CIPLA 527.1 690 Buy 42342.4 14.7 21.5 25.7 35.8 24.5 20.5 19.4 15.6 13.1 13.8 14.8 16.5 10.9 14.1 14.8

Divi's Laboratories DIVLAB 1049 1,320 Buy 27850.3 32.1 40.2 46.7 32.7 26.1 22.5 22.3 18.7 15.9 29.4 31.3 31.1 24.4 25.6 25.1

Dr Reddy's Labs DRREDD 2974 3,480 Buy 52657.2 129.0 142.1 139.2 23.0 20.9 21.4 14.4 12.6 12.3 16.7 15.1 15.1 22.3 18.9 16.1

Glenmark Pharma GLEPHA 858 1,000 Buy 23093.2 23.1 32.2 41.4 37.1 26.7 20.7 22.2 16.8 13.8 13.3 16.2 18.8 21.7 21.2 21.7

Indoco Remedies INDREM 273.8 390 Buy 2523.1 9.0 9.3 15.6 30.5 29.6 17.6 15.9 14.8 10.7 16.4 15.4 22.2 16.0 14.7 20.8

Ipca Laboratories IPCLAB 493 515 Hold 6222.9 19.9 12.1 24.7 24.8 40.8 19.9 13.5 18.2 12.2 11.5 6.7 11.7 11.4 6.6 12.2

Jubilant Life Sciences VAMORG 398.3 375 Hold 6344.9 -0.6 31.0 43.0 NA 12.8 9.3 15.9 8.1 6.5 5.8 13.4 15.8 NA 17.1 19.5

Lupin LUPIN 1577 2,200 Buy 71081.7 53.6 50.5 71.2 29.4 31.2 22.1 17.8 19.6 13.3 35.1 22.4 28.7 27.1 21.2 24.0

Natco Pharma NATPHA 494.2 630 Buy 8607.7 8.3 7.5 11.6 59.5 66.3 42.4 35.3 29.3 21.6 15.4 13.0 16.5 17.9 10.0 13.8

Sun Pharma SUNPHA 803 845 Hold 193152.0 19.8 23.6 28.4 40.5 34.0 28.3 24.1 21.2 17.7 18.8 20.0 21.1 18.6 18.8 19.1

Syngene International SYNINT 399 445 Buy 7971.0 8.8 11.1 15.6 43.3 34.2 24.3 26.6 20.9 17.0 19.5 13.3 16.7 20.7 21.2 23.5

Torrent Pharma TORPHA 1415 1,650 Buy 23952.2 44.4 115.3 67.1 31.9 12.3 21.1 24.4 8.4 13.3 20.1 43.7 24.4 30.2 50.3 24.0

Unichem Laboratories UNILAB 249 310 Buy 2262.0 8.3 11.5 15.9 30.0 21.7 15.7 19.5 12.1 9.8 8.5 13.6 16.7 8.7 11.0 13.8

RoE (%)EPS (|) PE(x) EV/EBITDA (x) RoCE (%)



RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093

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Glenmark Pharmaceuticals (GLEPHA)