Fundamental Analysis of Glenmark Life Sciences: For some time now, Glenmark Life Sciences, a listed subsidiary of Glenmark Pharmaceuticals has been in the news. Allegedly, Gujarat-based Nirma Group, KKR, Blackstone, and other giants want to buy this recently listed pharma stock.

But why so? What’s so interesting about it? Should retail investors consider it? We’ll attempt to answer these and other questions by performing a fundamental analysis of Glenmark Life Sciences in this article.

Fundamental Analysis of Glenmark Life Sciences

We’ll begin our study by reading about the history and business of the company. In the process, we’ll also read about its scale of operations and business segments. Next, we’ll equip ourselves with the global API industry landscape. 

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After that, we’ll race through the financials of the stock. A highlight of the R&D spending, future plans and a summary conclude the article at the end. So without further ado, let us jump in.

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Company Overview

Glenmark Life Sciences (GLS) Ltd. traces its origins to 2001 when its parent company Glenmark Pharmaceuticals Ltd. (GPL) set up its active pharmaceutical ingredient (API) business. Since then the segment grew exponentially until it was hived off in 2019 and listed separately as Glenmark Life Sciences in 2021. 

GLS is engaged in the development, manufacturing and supply of high-value, non-commoditised APIs. APIs are the biologically active component in a drug product which create the desired effect.

The company caters to chronic therapeutic segments like Cardiovascular (CVS) disease, Central Nervous System (CNS) disorders, pain management and anti-infectives. 

The API player supplies its products to more than 700 customers across 65 countries globally including 16 of the world’s biggest pharma players. It has a portfolio of 137 API products with 26 more products in the pipeline.

As for the scale of operations, GLS has 4 production facilities in Gujarat and Maharashtra with an annual production capacity of 750+ MT. Additionally, it has a strong research and development team of 300+ employees.

We got a good understanding of the business. Let us look at its revenue segments in the next section.

Business Segments of Glenmark Life Sciences

As for the business segments, the company earned a majority of 88.3% of its total revenue from its API business in FY23. The contract development & manufacturing division contributed 6.5% of the income. 

Similarly, the regulated geographies such as the US, Canada, and others accounted for 78% of the total income for the company while the balance 22% came from the emerging markets.

The image below throws light on the business segments of the company and their revenue contribution in FY23.

Fundamental Analysis of Glenmark Life Sciences - Business Segments
Source: Glenmark Life Sciences Ltd. Q4FY23 Results

We read about the API manufacturer in-depth above. Let us now move forward to equip ourselves with the global API industry landscape.

Industry Overview

The worldwide API market was valued at $ 181.3 billion in 2020. The sector is projected to expand at a CAGR of 6.2% to reach $259.3 billion by 2026. The overall sentiment is positive on account of higher spending by pharmaceutical and biotechnology businesses towards the formulation of novel drugs.

A variety of factors including a focus on the development of innovative therapeutic medicines, higher occurrence of chronic diseases, rising demand for customised drugs, and improvement in drug delivery mechanisms are expected to bring forward this growth.

As for the global industry segments, APIs for oncology control the largest share followed by CVS. However, Glenmark Life Sciences’ business is more tilted towards CVS and diabetes with the two segments accounting for 34.5% and 15.6% of the earnings.

Industry Overview
Source: Glenmark Life Sciences FY22 Annual Report 

Talking about the domestic industry landscape, the low-cost structure and at-par technological capabilities put Indian API manufacturers in a sweet spot. This can be gauged from the fact that the nation accounts for the most number of DMFs applied in the United States at 15%. 

Furthermore, India has the most USFDA-approved API sites. This gives the country a ‘first-mover’ advantage. To boost the nation’s foothold, the Central government has announced a huge PLI scheme of Rs 6,940 crore which will reward drug manufacturers as per their sales performance judged from the base year of FY20.

Glenmark Life Sciences – Financials

Revenue and Net Profit Growth

The API manufacturer Glenmark Life Sciences reported a net profit of Rs 467 crore on revenues of Rs 2,161 crore during the financial year 2022-23. Over the past five years, its topline and button line grew at an impressive CAGR of 11.4% and 12.4% respectively. 

The figures below highlight the revenue and net profit growth of Glenmark Life Sciences over the past five financial years.

Fiscal YearRevenue Net Profit
20232,161467
20222,123419
20211,885316
20201,537313
20191,405293
5-Yr CAGR11.37%12.36%

(figures in Rs Cr except for CAGR)

We learnt above that GLS has consistently increased its earnings in the past. Let us know how the margins fared during this period in the next section of our fundamental analysis of Glenmark Life Sciences.

Profit Margins

Glenmark supplies its products to highly regulated geographies including the US, Canada, Japan, and Europe. This provides it with stability and revenue visibility. Therefore, it has been able to maintain profit margins over the study period.

The company reported a strong EBITDA margin and net profit margin of 31% and 21.6% for the recent fiscal year.

The figures in the table below highlight consistency in the EBITDA margin and net profit margin of Glenmark Life Sciences for the previous five fiscals.

Fiscal YearEBITDA MarginNet Profit Margin
202331.021.6
202229.719.7
202121.418.6
202031.520.4
201930.620.8

(figures in %)

Debt Analysis

We shall keep the debt analysis of the pharma stock as it is a debt-free stock with a nil debt-to-equity ratio. Furthermore, it is not just the recent financial year, Glenmark Life Sciences has remained debt free for a considerable number of years.

Return on Equity / Net Worth (RoE / RoNW)

So far we have learnt about the business, industry and earnings of the company for our fundamental analysis of Glenmark Life Sciences. Let us now move forward to analyse the profitability of the stock.

We’ll look at the return on equity / net worth (RoE / RoNW) and not the return on capital employed (RoCE) as the company is debt free. 

Glenmark’s stock generated an RoE / RoNW of 22.3% in FY23. A casual observer may say that the figure has come down in the recent fiscals. However, a deeper study reveals that it is because of the IPO fundraising in recent years and the demerger earlier (the start of our study period).

The table below showcases the return on equity / net worth of Glenmark Life Sciences for the last five fiscal years.

Fiscal YearRoE / RoNW
202322.3
202229.8
202160.9
202077.9
201999.3

(figures in %)

Research and Development (R&D) Spend 

Research and development (R&D) spending is a key metric to track for any pharmaceutical company. It highlights whether the company is spending enough towards developing newer products to maintain its leadership in the coming years.

Glenmark’s R&D spend at 3% of the total sales in FY23 was the highest during our study period. The image below shows the R&D spending of Glenmark Life Sciences over the last five years.

Fundamental Analysis of Glenmark Life Sciences - R&D Spend
Source: Glenmark Life Sciences Ltd Q4FY23 Investor Presentation

Future Plans Of Glenmark Life Sciences

So far we looked at the previous fiscals data for our fundamental analysis of Glenmark Life Sciences. But there’s a question left: what’s ahead? In this section, we’ll try to get a sense of what lies ahead for the company and its investors.

  1. The management has projected the total reactor capacity to reach 2,405 KL by FY26 from 1,198 KL at present.
  2. Glenmark plans to commission the recently finished 240 KL CAPEX project for its API and Oncology facility soon. 
  3. Furthermore, the pharma company has set the FY24 – FY 26 period as a target for starting the operations at the greenfield expansion of its API facility at Solapur.
  4. In addition to all this, it plans to add new products and expand to more geographies with a focus on recently acquired markets inching closer to stricter regulations.
  5. The management seems to be optimistic about its smaller CDMO division and is eying to grow the portfolio in the coming years.

Fundamental Analysis Of Glenmark Life Sciences – Key Metrics

We are almost at the end of our fundamental analysis of Glenmark Life Sciences. Let us take a quick look at the key metrics of the stock.

Particulars AmountParticulars Amount
CMP ₹566Market Cap (Cr.)₹6,950
EPS38.00Stock P/E15
RoE22.3%Dividend Yield3.7%
Promoter Holding82.8%Book Value₹175
Debt to Equity0.01Price to Book Value3.2
Net Profit Margin31%EBITDA Margin22%

Conclusion

Glenmark’s track record of consistent earnings growth and stable margins makes it an attractive stock. Furthermore, with its CAPEX plans underway, the company may clock the same growth in the quarters to come.

However, with the dividend payout ratio upwards of 50% for the last two fiscals, does it hint at lesser CAPEX and demand growth in the future?

What are your thoughts on this small-cap API manufacturer? Do you think it will be able to register similar growth in the future? How about we continue this conversation in the comments below?

Written by Vikalp Mishra

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