Glenmark’s Q4 shows decent progress, but managing cash flows critical

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MUMBAI: Its decent set of figures for the fourth quarter exhibited a marked improvement in Glenmark Pharmaceuticals Ltd’s business. But while some of that growth stemmed from pre-stocking, particularly in Europe, slower growth in the coming quarters could dull the bounce. Shares of Glenmark inched up about 1% in trade on Monday.

The company’s fourth-quarter revenue grew about 8% year-on-year, surging due to improvement in its domestic market and in Europe. The firm could capitalise on growth opportunities in Europe as the covid-19 disruptions impacted sales of competitors. Some of its increased sales could be attributed to pre-stocking.

Its India business has shown traction, which is good. Its domestic revenues increased by about 14.5%, much better than the Indian Pharma Market’s growth of about 9.6% growth. Another positive is that it improved its market position in some domestic categories.

Its US business, however, is weak, with revenues sliding 1% y-o-y. Strong pricing pressure continues in the US markets. In dermatology, prices have contracted about 20%. Glenmark had planned a number of filings this year both from its US plants and from India. It has about 44 applications pending with the US FDA.

Revenues from other regions (Africa, Asia and the CIS) rose about 12.7% during the quarter, which is quite healthy. Its Latin American business grew well on the launches of respiratory products.

Glenmark is conducting studies on quite a few molecules. One of these recently concluded a Phase-I study. Of course, the focus on new molecules tends to keep research and development expenses high. In the fourth quarter, R&D expenses were about 12.6% of revenues, much higher than some of its Indian counterparts.

Higher costs, however, are a worry. In the conference call, the management said it is on course to reduce capital expenditure from the previous year, which should help increase cash-flows. But the pace of execution needs to be watched.

“The company is talking about lowering debt as they are working towards reducing R&D, reducing capital expenditures, and divesting non-core assets, which is incrementally positive,” said Anshuman Gupta, pharma analyst, Investec Securities Ltd.

The recent Favipiravir launch, which could help in early-stage covid-19 treatment, buoyed the stock price considerably. In addition, the upbeat investor sentiment to pharma stocks further propped its shares. But even as the Street will be watching cash-flow management, the recent run-up seems to have outpriced the stock compared to its growth.

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