Glenmark Pharma: Long-term buy

Sanjiv Shankaran

In an environment marked by increasing competition, Indian pharmaceutical companies have got what it takes to perform better than their counterparts in other sectors . Size does not seem as important for success as it does in the rest of the manufacturing sector. Therefore, investing in the correct low profile pharmaceutical company holds rich potential for the long-term investor.

Glenmark Pharmaceuticals is a Rs 192 crore company that seems to have caught the fancy of the market over the last four months- the stock increased by about 66 per cent to currently trade at around Rs 183.

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Generally, a sharp price rise in a short period of time ought to lead to a cautious outlook. Glenmark, however, looks an attractive investment despite the sharp rise because among low profile companies it appears to have made the best moves.

INVESTMENT RATIONALE: Till a couple of years ago, Glenmark's strength in the domestic dosage form business, seemed restricted to dermatology. Since then, the company has targetted relatively fast-growing therapeutic segments such as anti-diabetes and niche areas in antibiotics for new product launches. Thereby, Glenmark has extended the range of its product basket and therefore imparted stability.

A couple of years ago, Glenmark approached the primary market to raise resources for expansion at a price of Rs 200 per share. One outcome of the move has been a big growth in the company's field force over the last 18 months. With the passage of time, the enhanced field force in conjunction with a bigger product basket should lead to higher profitiability.

One of the objectives of raising public capital was to establish a manufacturing plant in Goa that meets the requirements of the U.S regulatory authorities. Currently, the market for generic drugs in the U.S is perhaps the most lucrative segment for Indian companies, and Glenmark has joined a host of other companies in trying to tap the opportunities present there.

Assuming there are no significant overuns, the Goa plant should start commerical production in a couple of years, and if Glenmark's exports include U.S, returns ought to increase significantly.

Glenmark has joined select Indian companies in investing in basic research. The company appears to have developed a promising compound to treat respiratory problems. Its premature to gauge the returns from the discovery, but what is almost certain is that preliminary success in basic research will have a positive spill-over.

The company has performed well in a difficult environment, earnings grew by about 25 per cent to Rs 10.54 crore in the first half of the current financial year.

Concerns: The two key milestones for Glenmark will be the move into U.S and the manner in which the company manages to beat a slowdown in growth in the domestic market. In both the cases, uncertainties loom large, and much depends on the strategies adopted. At the moment, Glenmark appears to played its cards right and that gives hope for the future.