CS DOWNGRADES GLENMARK
Consensus numbers for FY17 should be cut by 10% due to
Finacea and have overall 20% downside
From Rs36 EPS in FY16, consensus is expecting EPS to grow 48% in
FY17 to Rs53 (excluding Zetia). Out of this Rs53, Finacea is expected
to contribute Rs5 (10%). Finacea has a market size of US$130 mn –
assuming 30% price erosion and 50% market share, this amounts to
revenues of $35 mn and margins of more than 90% (sole player). With
the case loss, it is unlikely Finacea could be launched in FY17.
Venezuela risk remains underappreciated
The extent of Glenmark's Venezuela exposure is not fully appreciated
by the market. In our view, Venezuela is about 10-15% of Glenmark's
EBITDA. Forex reserves of Venezuela are fast depleting with o/s
reserves down to $16 bn vs. $20 bn in April-2015. We have built-in a
devaluation in currency in FY17.
Balance sheet deterioration has been overlooked
Balance sheet metrics for Glenmark have been worsening with
receivable days high at 140 days in FY15, back to the levels in FY11
and cash flow generation remaining weak with net debt increasing in
4Q15 by $50 mn and by $70 mn for FY15.
Downgrade to UNDERPERFORM; stay 20% below
consensus
We had not built in Finacea in our estimates; hence there are no cuts
to our numbers. We find Glenmark expensive at 24x FY17 EPS
(excluding Zetia) and our EPS stays 20% below consensus in FY17.
We downgrade the stock to UNDERPERFORM. TP remains at Rs775.