Buy This Pharma Stock For 22% Short Term Return: Board Focusing To Strengthen Balance Sheet: ICICI Direct

Reputed brokerage firm ICICI Direct Securities recommends investors to buy the stocks of Glenmark Pharma.

Stock To Buy: Target Price & Financial Result

The Current Market Price (CMP) of Glenmark Pharma is Rs. 389. ICICI Direct has estimated a Target Price for the stock at Rs. 478. This stock has the potential to give a 22.87% return, in the upcoming 1 year. This is a mid-cap stock with a market capitalization of around Rs. 10,901 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 389
Target Price	Rs. 478
Potential 1 year return	22.87%
52 week high share price	Rs. 559.15
52 week low share price	Rs. 348.50

In Q1FY23, Glenmark Pharma's revenue declined 6.3% YoY to Rs. 27.8bn, on a high Covid-induced base and lower US sales. Its adj. EBITDA margin declined 230bps YoY but grew 40bps QoQ to 17.0%, while adj. PAT fell 59.1% YoY to Rs. 1.3bn. The company's India business contracted 15.5% YoY on a high covid base, excluding covid revenue it grew at a healthy double-digit rate. On the other hand, US business shrank 12.3% QoQ to US$86mn due to continued pricing pressures and volume impact (due to supply-chain disruption), while RoW and EU grew 25.7% and 7.9% YoY.

ICICI Direct: Advantages Of The Stock

According to ICICI Direct, "We estimate EBITDA margin to grow at ~18-19%. We expect India business to grow at a CAGR of 5.8% over FY22-FY24E on a high base, and US sales to grow at a CAGR of 1.7% over FY22-FY24E led by contribution from Ryaltris and new product launches. The company has utilized a major portion of its IPO proceeds to reduce debt. Out-licensing of innovative products in FY23 will provide additional funds to help de-lever the balance sheet. We cut our earnings estimates by ~1-4% to factor-in the tepid US growth and higher depreciation. We maintain Buy with a revised target price of Rs. 478/share based on 12x FY24E earnings. However, key risks are pricing pressures in the US and regulatory hurdles."

"Company will strengthen its balance sheet by reducing debt with a cash infusion. Management's focus is to de-lever the balance sheet with strong free cash flow generation. Potential capital raise in ICHNOS Sciences (R&D arm) in FY23 and continuous out-licensing of innovative molecules would be positive triggers," the brokerage firm added.

Company Portfolio

Glenmark is a leading integrated research-based, the global pharmaceutical company. Re-mediation is currently underway; the company may incur additional costs in the coming quarters. The company expects it to be a US$100mn-150mn molecule across all markets within a few years. The board expects to close 1-2 out-licensing agreements in FY23. They have 10 manufacturing facilities and 3 R&D centers. The company's API business sells products in over 65 countries including the US, various countries in the EU, South America, and India.

Disclaimer

The above stock was picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.