Glenmark is a pharmaceutical company based out of Mumbai and was founded in 1977 by Mr Gracias Saldanha and was named after his two sons. The company initially was a generic drug and active pharmaceutical ingredient manufacturer. Saldanha’s son Glenn become the CEO in 2001 and took the company down the path of seeking innovation, which was controversial within the company and with shareholders but made Glenmark one of the biggest pharmaceutical companies in India.
The company’s shares have 52 weeks price band of INR 537-161 and a total market capitalization of INR 113 billion which makes it a Mid-Cap company. The shares have a P/E ratio of 18 and a dividend yield of 0.5%
NoNow, let’s take a deep dive into the fundamentals of the company.
The company will be evaluated on 10 parameters and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022. The parameters are as follows.
1. Economic Moat
2. Business Model and Management
3. Growth Ratios
4. Profitability Ratios
5. Cash Flow Ratios
6. Liquidity and Solvency Ratios
8. Valuation Ratios
9. ROE (Du Pont Analysis)
10. Future Prospects
(All units are INR Millions except ratios and per share data)
You can get the complete excel model used for this analysis from below:
1.Economic Moat (★ ★ ★ ★ ☆)
The company operates in the pharmaceutical industry where market dominance is achieved through R&D, regulatory approvals, scale and distribution network. Glenmark operates in generics, speciality and innovation molecules business and has one of the largest R&D budgets in the industry of around 12-13% of total revenue. The company has 16+ facilities and capability to manufacture small molecules and biologics. It also has Commercial infrastructure in the US, India, Europe, Russia and other emerging markets.
On the front of the approvals, the company has 145+ ANDAs approved, 50+ pending approval and 50+ in development. It also has 8 brands among the top 300 brands in the Indian market along with a strong pipeline of generics in development. The company is further looking forward to launching new drugs in Respiratory (Gx Advair®, Gx Flovent®) and Dermatology along with 5 large, complex OSDs targeting $ 2+ billion markets. Thus the company has a wide economic moat due to its R&D, Scale, Brands and Market presence. Therefore this category gets 4 stars in Glenmark fundamental analysis.
2. Business Model and Management (★ ★ ★ ☆ ☆)
The business model of the company is such that it operates in 3 major verticals namely API manufacturing and Marketing, Formulations and Innovative R&D. The revenue split is also such that 87% comes from formulations, 9% comes from API business and 2% from the Innovative R&D vertical. The geographical mix is such that in the formulations business 32% comes from North America,30% comes from India, 16% from Europe and LATAM and 9% comes from ARCIS nations.
The management’s primary focus in the API segment is on Small molecules in especially in the regulated markets. In formulations, business focus is on Respiratory, Dermatology, Oncology drugs and in Innovative R&D focus is on Immunology, Oncology and Pain relief formulations. The company also assigned a wholly-owned subsidiary Glenmark Life Sciences Ltd., to enhance strategic focus and add new capabilities.
Mr Glenn Saldanha is the Chairman & Managing Director of Glenmark Pharmaceuticals Ltd. Under his leadership, Glenmark has evolved from an Indian branded generics business, into a research-driven organization. Mr V. S. Mani is President and Global Chief Financial Officer of Glenmark Pharmaceuticals Ltd. Management, however, has faced some litigation issues in the past on patents and approvals. Therefore this category gets 3 stars in Glenmark fundamental analysis.
3. Growth Ratios (★ ★ ★ ☆ ☆)
The revenue has seen a 16.5% CAGR growth over the last 10 years. The Operating Income and Net income has also increased by 13% and 11.6% CAGR respectively. This also indicates declining operational efficiency and reducing profitability as the scale increases. The working capital has been negative and the Cap-Ex has increased linearly over the years. Therefore this category gets 3 stars in Glenmark fundamental analysis.
4. Profitability Ratios (★ ★ ★ ★ ☆)
The gross margin has almost flattened over the years and this is due to the nature of the generics business. The other margins along with return on assets have shown a slight decline over the years. This is due to increasing operating costs and competition. However, the margins are likely to remain flattened in the future without any significant improvement. Therefore this category gets 4 stars in Glenmark fundamental analysis.
5. Cash Flow Ratios (★ ★ ★ ☆ ☆)
The net income margin has declined and the Cap-Ex as a percentage of sales has increased in recent years. The free cash flow as a percentage of net income has been fluctuating due to business integrations, Cap-Ex and new projects. The operating and free cash flow growth has also shown signs of improvement. This overall indicates a moderate cash flow position. Therefore this category gets 3 stars in Glenmark fundamental analysis.
6.Liquidity and Solvency Ratios (★ ★ ☆ ☆ ☆)
The company has significant long term debt in its capital structure but it has almost been constant over the years. Hence the financial leverage and debt to equity ratios are flat. The company also has reduced profitability and hence there is a slight deterioration in the solvency of the company. The liquidity ratios are also well below the minimum threshold and indicates illiquidy of the assets. Overall the company has a weak financial position. Therefore this category gets 2 stars in Glenmark fundamental analysis.
7. Efficiency Ratios (★ ★ ★ ☆ ☆)
The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.
Overall the business efficiency has flattned over the years as the company expanded into new formulations and across new geographies. The inventory days are high and the payable period has increased from 170 days to 244 days. The receivable days has reduced from 161 to 91 days but the cash conversion cycle has been positive and flat in the recent years. Therefore this category gets 3 stars in Glenmark fundamental analysis.
8. Valuation Ratios (★ ★ ☆ ☆ ☆)
The market has continuously priced the shares of the company at lower multiples due to deteriorating financial conditions, weal growth prospects and patent litigations. Further, even the growth is expected to pick up in the generics business, the shares are not likely to be priced at higher valuation due to weak fundamentals. Therefore this category gets 2 stars in Glenmark fundamental analysis.
9. ROE 5 way Du Pont Analysis (★ ★ ☆ ☆ ☆)
The leverage ratio has flattened over the years along with the asset turnover. The tax efficiency and interest burden ratios have significantly declined over recent years. The operating margin has also gone down due to increased expenses. Overall the Return on Equity has deteriorated with declining profitability and increasing debt payments. Therefore this category gets 2 stars in Glenmark fundamental analysis.
10. Future Prospects (★ ★ ☆ ☆ ☆)
Some insights for the coming years from management discussion & analysis (MD&A) and con calls are as follows.
- The company already has a weak financial position which will deteriorate further due to the Covid-19 outbreak and the disrupted supply chains across the globe. Extraordinary expenses will eat up profitability in the near future.
- The management guidance was of INR 7-8 billion Cap-Ex for FY 2021. This will now be deferred until the situation clears as the company will look for cash conservation and cost-cutting.
- Glenmark and Celon have signed an agreement, according to which, the company is permitted to sell Salmex in certain European markets like the UK and Germany in an agreed shape of inhaler device. The benefit of the same is expected to accrue from FY2021.
- The company also launched a combination of Remogliflozin Etabonate and Metformin Hydrochloride in India and expects 10-15 ANDA approvals annually. The MR strength is at 3,750+ levels and will remain in this range for the near future.
- The US business is facing a slowdown. Sales are significantly impacted by three products namely Mupirocin Cream, Atomoxetine hydrochloride and Calcipotriene cream. The company expects growth to recover in the near-to-medium term.
Overall the company has weak fundamentals and has not indicated any significant growth prospect for the near future. The financial position along with profitability is also expected to deteriorate in the coming years. Therefore this category gets 2 stars in Glenmark fundamental analysis.
The overall rating is arrived by taking the average of the above 10 category ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5.
Overall Fundamental Rating:
GLENMARK PHARMACEUTICALS SHARES (2.8/5)
Therefore it is a 3-star stock
★ ★ ★ ☆ ☆
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|Economic Moat||★ ★ ★ ★ ☆|
|Business & Management||★ ★ ★ ☆ ☆|
|Growth Ratios||★ ★ ★ ☆ ☆|
|Profitability Ratios||★ ★ ★ ★ ☆|
|Cash Flow Ratios||★ ★ ★ ☆ ☆|
|Liquidity & Solvency||★ ★ ☆ ☆ ☆|
|Efficiency Ratios||★ ★ ★ ☆ ☆|
|Valuation Ratios||★ ★ ☆ ☆ ☆|
|ROE (Du Pont Analysis)||★ ★ ☆ ☆ ☆|
|Future Prospects||★ ★ ☆ ☆ ☆|
|Overall Fundamental Rating||★ ★ ★ ☆ ☆|
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