Shares of
Glenmark Pharmaceuticals, which had fallen by almost half from January highs till March, have seen a sharp rebound in the past few days. The stock gained more that 20 per cent on Monday. While the rally in pharma stocks is lending support to this rebound, analysts say that the strong growth outlook for domestic business is helping the stock even as Glenmark's US prospects are still challenging and high debt remains a concerns.
Glenmark stock's under performance to other peers till March had been attributed to high debt. Analysts at CLSA had said that the worst returns have been from leveraged companies like Aurobindo and
Glenmark. However, post steep correction, the valuations had become very attractive and domestic growth remains on a strong footing. Domestic sales in December quarter (Q3) were up by 18 per cent year-on-year propelled by launch of a diabetes product, as compared to 13-15 per cent during the first two quarters of FY20. Analysts anticipate the company’s domestic sales growth in March quarter to be ahead of Indian Pharma market growth.
Not surprising, analysts at J P Morgan have said that while leverage in Glenmark will likely remain a concern in the current environment, the company presents a compelling value opportunity with the recent correction.
While current rebound is on the back of cheap valuations and with change in sentiments towards pharma sector, for any significant upside, the US growth needs to gather momentum. The company, despite strong domestic growth, is expected to report flattish Q4 performance as analysts at Nirmal Bang Institutional Equities say that US has not seen any major launch during the quarter. Even the benefits of euro appreciation is to be offset by depreciation in emerging market currencies. Hence, a pick up in US growth is important for improvement in earnings. Though Glenmark has recently signed an exclusive licensing arrangement with Hikma for commercialising allergic Rhinitis spray in the US, the product approval is expected in the second half CY2020 and will be watched closely by investors.
Further, R&D costs too remain high with the company investing in Novel chemical entities. Trials for auto-immune disease treatment molecule GBR 830, diabetic neuropathy treatment GRC 17536, oncology drugs GBR 1302 and GBR 1342, inhaled respiratory compound GRC 39815 and biosimilar molecule will also take up some resources. Hence, more licensing agreements could provide fresh triggers, as it can help the company reduce development costs, garner milestone payments and thereby, reduce debt.
Courtesy : Business Standard
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