Alpha | Glenmark Life Sciences Ltd.

Glenmark Life Sciences Ltd. – Pure Play API Producer

Glenmark Life Sciences (GLS), a subsidiary of Glenmark Prescribed drugs Ltd, is likely one of the main builders and producers of selective high-value Lively Pharmaceutical Elements. The corporate additional operates in Contract Improvement and manufacturing operations to supply providers to specialty Pharmaceutical corporations. It has a diversified portfolio of 139 molecules and provides its merchandise to clients in India, Europe, North America, Latin America, Japan and the remainder of the world (ROW). The corporate’s 4 manufacturing services are positioned in Ankleshwar, Dahej, Mohol and Kurkumbh with a complete put in capability of 1198 KL, that are usually inspected by international regulators equivalent to USFDA, PMDA (Japan) and EDQM (Europe).

Merchandise & Providers:

The corporate has three segments particularly API, CDMO and others.

• Generic API – API (Lively Pharmaceutical Ingredient) is the corporate’s main income producing phase which consists of 139 APIs throughout varied therapeutic segments like Cardio Vascular Illness (CVS), Central Nervous Problems (CNS), Diabetes, Oncology, Ache administration, Anti-Infectives, Gastrointestinal well being, and so forth.

• CDMO – The corporate leverage its course of analysis, analytical analysis and chemistry capabilities to offer CDMO (Contract Improvement and Manufacturing Operations) providers for a spread of multinational companies and specialty corporations.

• Others – It’s a service phase which is nothing however offering end-to-end assist to companions.

Subsidiaries: As on FY23, the corporate doesn’t have any subsidiaries.

Key Rationale:

• Established Place – GLS’ API phase consists of the event and manufacturing of APIs in persistent therapies, together with CVS, CNS, ache administration and diabetes. GLS additionally manufactures and sells APIs which is used to deal with gastrointestinal issues and people used for anti-infective functions and different therapeutic areas. GLS continues to have robust relationships with the highest 20 international generic pharmaceutical corporations based mostly within the US, Europe and Japan, which give income visibility. The corporate’s main API and intermediates have market management positions. The corporate’s skill to develop the area of interest and distinctive chemistry with a low-cost operational mannequin is the important thing aggressive benefit.

• Enlargement – Glenmark Life Sciences has accomplished the addition of 240 KL of API capability in addition to the oncology facility at Dahej. A 208 KL backward integration plant is below development at Ankleshwar, with an additional 192 KL commissioned in Mar’23. The greenfield venture at Solapur can be progressing nicely with consent to institution (CTE) obtained for 1,000 KL, scheduled to be operationalised over FY24-FY26. General, the corporate’s reactor capability stood at 1,198 KL as of FY23 which is focused to double to 2,405 KL by FY26.

• Q4FY23 – Glenmark Life Sciences registered a income from operations of Rs.621 crs for Q4FY23, recording a robust development of 14.8% QoQ and development of 20.9% YoY. Gross Margins for the quarter had been at 54.9%, up 390 bps QoQ and up 450 bps YoY pushed by greater contribution from CDMO, higher product combine, PLI scheme profit and decrease enter price. EBITDA for This autumn FY23 was at Rs.206 crs up 42% QoQ and 45% YoY. EBITDA margins had been at 33%, up ~600 bps QoQ and up ~550 bps YoY. Revenue After Tax (PAT) for the quarter was at Rs.146 crs in Q4FY23, registering a development of 39% QoQ and 47.4% YoY. PAT Margin for the quarter was at 23.5%. Generic API revenues in This autumn FY23 elevated 10.4% QoQ and elevated 15.5% YoY. CDMO revenues at Rs.57 crs has doubled sequentially and grew by 30.5% YoY in Q4FY23. CVS, CNS and ache administration portfolio continues to ship a gentle development. Portfolio smart, CVS contributed 36% of the general income, adopted by CNS with 15%, Diabetes with 4%, Ache Administration with 6% and others with 39% respectively for Q4FY23.

• Monetary Efficiency – The corporate’s income and PAT CAGR stands at 25% and 24% between FY19-23. The Reserves within the stability sheet has grown at a whopping CAGR of 123% for a similar interval. The corporate has a constructive working cashflow traditionally and a complete of ~Rs.1300 crs for the final three years. The corporate is actually a debt free firm with a really zero borrowings in its stability sheet. The R&D spends for the corporate have grown at CAGR of 15% from Rs.37.6 crs in FY19 to Rs.65.2 crs in FY23. The R&D Spends as a % of gross sales stands at a file 3% in FY23.

Trade:

India is the most important supplier of generic medication globally and is thought for its reasonably priced vaccines and generic drugs. The Indian Pharmaceutical trade is at the moment ranked third in pharmaceutical manufacturing by quantity after evolving over time right into a thriving trade rising at a CAGR of 9.43% for the reason that previous 9 years. The pharmaceutical trade in India is at the moment valued at $50 Bn and it’s anticipated to succeed in $65 Bn by 2024 and to $130 Bn by 2030. India is a serious exporter of Prescribed drugs, with over 200+ nations served by Indian pharma exports. India provides over 50% of Africa’s requirement for generics, ~40% of generic demand within the US and ~25% of all drugs within the UK. Indian pharma corporations have a considerable share within the prescription market within the US and EU. The most important variety of FDA-approved crops outdoors the US is in India.

Development Drivers:

• The cumulative FDI fairness influx within the Medication and Prescribed drugs trade is US$ 21.46 billion in the course of the interval April 2000 – March 2023.

• The Authorities introduces two PLI schemes named PLI 1.0 and PLI 2.0 for prescription drugs and bulk medication with a complete funding outlay of Rs.21,940 crs.

• The rising prevalence of persistent issues, growing demand for personalised drugs and emergence of novel drug supply units are among the key components anticipated to drive the API market over the subsequent 5 years.

Opponents: Laurus Labs, Aarti Medication, and so forth.

Peer Evaluation:

Glenmark Life is producing the very best ever EBITDA margins amongst its API friends with its low quantity excessive worth product technique. Aside from EBITDA Margin, the opposite metrics equivalent to return ratios, debt to fairness and cashflow technology are additionally favouring the Glenmark Life sciences.

Outlook:

GLS’ positioning of being a pure-play API producer is strengthened by its service choices throughout markets, which allows it to behave as a one-stop store for formulation corporations. The corporate’s DMF (Drug Grasp Recordsdata) submitting continues throughout main markets in Q4FY23, taking the whole cumulative filings to 468 as on 31 March, 2023. Within the Generic API phase, Addition of 1 new excessive potent API to the event grid has taken the whole variety of excessive potent API within the GLS portfolio to 9, with a world market dimension of greater than USD 19 billion (Supply: IQVIA Dec’22). Out of the 9, 5 merchandise are in a complicated stage of growth. 3 iron compounds are within the varied phases of growth with cumulative international market dimension of greater than USD 1.8 billion (Supply: IQVIA MAT Dec’22). Out of the three iron compounds, 1 received the Regulatory submitting accomplished. Within the CDMO Section, A number of discussions are going with the businesses throughout the globe for extra enterprise alternatives.

Valuation:

The corporate has a concentrate on particular high-value, non-commoditized APIs in persistent therapeutic areas of CVS, CNS, ache and anti-diabetic. It has a uniquely positioned API portfolio, the place it selectively chooses merchandise based mostly on market entry limitations and aggressive depth. We advocate a BUY score within the inventory with the goal worth (TP) of Rs.672, 13x FY25E EPS.

Dangers:

• Consumer Focus Threat – Over FY19-FY22, excluding Glenmark Pharma (Father or mother), GLS’ 5 largest clients accounted for 25-35% of gross sales. A few of these clients at the moment manufacture or might begin manufacturing their very own APIs and will discontinue buying APIs from GLS which is a key threat for the income.

• Foreign exchange Threat – A major a part of GLS’ revenues is denominated in currencies (largely USD) aside from INR. Although it has a partial pure hedge, any antagonistic foreign exchange motion can result in foreign exchange losses for the corporate.

• Regulatory Threat – The US and EU are key geographies for GLS’s clientele, implying the chance of lapses in sustaining the strict cGMP requirements required by regulators in these markets. Nonetheless, there have been no regulatory lapses on the firm’s manufacturing crops up to now.

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