BOB Capital Has Given 'Buy' Rating to This Pharma Stock For Up To 44% Potential Gains

BOB Capital Markets has been bullish on Glenmark Life Sciences Ltd and suggests buying for a target price of Rs 620/share. Glenmark Life Sciences is a pioneer in the development and manufacture of high-value, non-commoditized Active Pharmaceutical Ingredients (APIs) for chronic diseases.

Stock Overview & Potential gains

Glenmark Life Sciences stock today closed at Rs 431.20/share. The share tumbled 2.33% from its previous close of Rs 441.50/share. It was opened at Rs 459.95/share. The stock touched the 52-week high level of Rs 799 on 05 August 2021, and 52 week low level of Rs 410 on 26 May 2022.

The stock was listed last year in August since then the stock has fallen nearly 42.39%. In the last 3 months, it witnessed a fall of 6.59%, whereas, in the last 6 months it declined almost 28.14%. In the last 1 month, it witnessed a fall of 3.51%, while in the last 1 week it has fallen roughly 3.51%. For the last 3 months, various international incidents also affected the performance of the stock.

Potential gains - Although the stock has witnessed a continuous fall for the last 6 months, the brokerage suggests buying for 44% of strong potential upside, considering the Target Price and the CMP of the stock.

Niche API player focused on lucrative chronic therapies

Glenmark Life Sciences is a generic API manufacturer (90% of revenue) that focuses on high-value, low-volume products and draws a significant portion of revenue from chronic therapies (63%). Focus therapy areas include CVS (38% of revenue), CNS (14%), diabetes (7%) and pain management (4%). The company also manufactures and sells APIs in gastrointestinal, anti-infective and other therapeutic areas.

Sizeable market share in key products

As of FY21, Glenmark Life Sciences had global market share in excess of 30% in its key products of Atovaquone, Perindopril, Adapalene and Zonisamide, 20-30% share in Desloratadine, Riluzole and Cilazapril, and 10-20% in Telmisartan, Etoricoxib and Teneligliptin.

Better realisations and CDMO contribution drive superior margins

Glenmark Life Sciences earns EBITDA margins of ~30% vs. 19% for API peers on average (FY20-FY22) backed by its portfolio of high-value products in chronic therapy areas which has superior realisations, as well as tight controls over employee cost and other expenses. Margins are further supported by the ~8% revenue contribution from its higher-margin CDMO business where peers such as ARTD and NLL have little to no presence in.

Capacity expansion targeted to double sales by FY25

Management has guided for investments of Rs 6bn-6.5bn toward manufacturing capacities to meet demand from the expanding API portfolio and CDMO clientele over FY20-FY25. Given that Rs 3.2bn of this capex drive has been implemented till FY22 and internal accruals are intended as a major source of funding, we believe the investment plan will be back-ended in nature while retaining the spotlight on profitable growth.

Buy for a target price of Rs 620/share

Glenmark Life Sciences is trading at attractive valuations of 10.6x/8.9x P/E and 7.0x/5.6x EV/EBITDA on FY23E/FY24E. We value the stock using a two-stage DCF model which yields a Target Price of Rs 620 and implies an FY24E P/E of 12.5x - which is ~35% discount to the peers as we take a conservative approach and find comfort in valuation. In light of the company's solid market positioning in APIs, attractive margins and ongoing CDMO expansion, we commence coverage with BUY.

Company Overview- Glenmark Life Sciences

Glenmark Life Sciences Limited provides pharmaceutical products. It is the arm of drug major Glenmark Pharmaceuticals. Glenmark Life Sciences Limited provides pharmaceutical products. The Company develops, manufactures, and supplies non-commoditized active pharmaceutical ingredients in chronic therapeutic areas and end-to-end support. Glenmark Life Sciences serves customers worldwide.

Over the years, it has established strong relationships with leading global generic pharmaceutical companies that have helped us expand our product offerings and geographic reach. We work with 16 of the 20 largest generic companies globally.

Disclaimer

The stock has been picked from the brokerage report of BOB Capital Markets. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.