Glenmark Life Sciences Ltd- Q1FY22 Analysis
Updated: Feb 11, 2022
Glenmark Lifesciences Ltd came out with a IPO which listed on the bourses on 6th August 2021. The shares listed with a mere gain of 4% over issue price of ₹720. The IPO was a flop show among the IPO frenzy seen at the time of listing. The shares continues to languish around similar level.
Now, coming to the business of the company, they are a developer and manufacturer of select high value, non-commoditized active pharmaceutical ingredients (“APIs”) in chronic therapeutic areas, including cardiovascular disease, central nervous system disease, pain management and diabetes. The company also provides contract development and manufacturing operations (“CDMO”) services to a range of multinational pharmaceutical and specialty pharmaceutical companies.
The profitability of CDMO business is higher than API business.
There has been lot of tailwind for the API sector and the foremost if the Chinese stricter environmental norms in the last 5 years. Many fines were imposed and licenses have been withdrawn/suspended leading to an shrinking supply base which has led to hiked prices.
Most of the world's pharma companies were dependent on China for their API(Bulk Drug) supplies. Even India imports about 70% of its requirement from China. Now their supply chain is disrupted. India being the 2nd option for them has a lot of opportunities to grow.
Coming back to the company, the strength of the business can be seen from the robust margins of the company with a Operating profit margin of more than 30% and profit margin of around 20%. The APIs sold by the company are priced between $200-$900/kg which is much higher than normal APIs.
I will be writing a detailed blog on the company.
Glenmark Lifesciences before listing was a wholly owned subsidiary(100%) of "Glenmark Pharmaceuticals". The company derives a significant amount of revenue(30-40%) from its parent 'Glenmark Pharmaceuticals'. For Q1FY22, the revenue from parent company was 40%.
Glenmark Life Sciences Ltd- Q1FY22 Analysis
During Q1FY22, while the topline for the company grew by impressive 32%, the bottom line dropped by a small amount.
The growth in revenue was aided by the demand of Favipiravir API used to treat COVID-19 which had created havoc in India in the gone by quarter(Q1FY22). Even without the Favipiravir sales, the revenue would have increased by 27%. For favipiravir, the margins charged by the company is much lower than what it charges for other APIs. Because of which the margins were lower in Q2FY21 and Q3FY21 as well.
ROCE was 35.5% and Fixed assets turnover ratio was 3.6 times for the quarter (on an annualized basis). The management explained their margin being higher than peers on account of higher value products sold by the company.
Another reason for the drop in Margins was the drop in revenue from CDMO business in this quarter which the management assured will pick from Q2FY22.
Glenmark Life Sciences Ltd- Segment wise sales growth
Growth drivers for the near future:
Venturing into newer geographies. As in the image above you can see that in this quarter the API business grew by 94.4% in LATAM(Latin America), implying they would have ventured this geography quite recently.
Company keeps on introducing new molecules every year. Going forward they would be launching more complex molecules.
CDMO business which was launched 3 years back is still small and will continue to the growth of the business.
The Company filed 9 DMF/CEPs across major markets (i.e. United States, Europe, Japan, Russia, Brazil, South Korea, Taiwan, Canada, China and Australia) during Q1 FY22 and cumulative filing stands at 407 as on 30th June, 2021. As the approvals come, it will lead to the growth of the business.
Brownfield expansion: This will be in their Dahej(Gujarat) plant. It will consist of 4 modules. The 1st module is likely to be commissioned by Q4FY22 and all 4 by Q2FY23.
Greenfield expansion: The project will start by Oct-Nov 2022 and will be commissioned by Q4FY23.
In terms of valuation, the PE ratio stand at close to 20(Assuming the 9.36 EPS for the current quater *4).
You can read my other blogs on Glenmark LifeSciences following the link below:
Glenmark Life Sciences Ltd- Q2FY22 Analysis
Glenmark Life Sciences Ltd- Q3FY22 Analysis
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