The Hindu Business Line : Glenmark Pharmaceuticals: Buy

FRESH exposures can be contemplated in the stock of Glenmark Pharmaceuticals, especially by taking advantage of any correction in price, as the prospects for long-term growth look encouraging. The stocktrades at Rs 317.

Financial snapshot

It has been a story of steady growth so far for Glenmark. Income from operations grew from Rs 145.3 crore for the year ended March 2000 to Rs 335.8 crore in the just-concluded financial year, representing a CAGR of 32 per cent.

Profit-after-tax grewat a CAGR of 15 per cent. For the year ended March 2003, the company posted a topline growth of 27 per cent and a jump in the bottomline by 46 per cent.

Product profile

The main reason why Glenmark has grown at higher-than-industry rates has to do with its product portfolio, which comprises offerings in niche segments such as dermatology, paediatrics, internal medicine, ENT and gynaecology.

Typically, price realisations in such segments are better compared to those in the anti-infective category, which is characterised by intense price competition.

While the anti-infective category constitutes the single largest segment in the domestic market, it is showing signs of stagnating.

On the contrary, segments in which Glenmark operates are growing at a much faster clip. The dermatology segment is the largest contributor, chipping in with about 40 per cent of the company's revenues.

To widen its portfolio as also to reduce its dependence on the dermatology segment, the company recently launched a couple of products in the pain management category that have met with favourable market response.

Exports, the key

Increasingly, Indian pharma majors are looking to penetrate markets in the West which, in spite of having high entry barriers, are more remunerative than the Indian market. Glenmark is no exception.

However, exports, as a percentage of total turnover, continue to remain at under 10 per cent and this needs to go up if the company wants to insulate itself from the vagaries of the domestic market.

To this end, the setting up of a wholly-owned subsidiary in the US and the recent tie-up with the Philadelphia-based Lannett to market the ANDAs (Abbreviated New Drug Application) filed by Glenmark would provide momentum to the export initiative.

Further, the company would also be in the process of getting US FDA approval for the plant in Ankleshwar acquired from Glaxo SmithKline.

Once this happens, the company could also supply active pharmaceutical ingredients to formulation manufacturers looking to target the booming US market for drugs going off patent.

R&D rewards

Glenmark also has in its pipeline a couple of molecules that hold out promise in the therapeutic areas of anti-diabetes/anti-obesity and anti-asthma.

These are at an advanced stage of pre-clinical trials and Glenmark would explore the possibility of a licensing deal for clinical trials and later take these molecules to the market.

Valuations

The upside possibility for Glenmark from this opportunity could drive valuations. Research in the drug industry is riddled with uncertainty and it would be difficult to hazard a guess on whether these molecules will indeed get to be launched commercially.