Sales pickup in US, India holds the key for Glenmark

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Glenmark Pharmaceuticals Ltd shares have corrected by about 29% since the July highs. The euphoria around extraordinary gains from covid drugs sales during Q1 has subsided, but the wait for US sales pickup continues.

The Q2 performance did not provide enough reason for cheer. The deceleration in the domestic formulation and US generics sales offset the strong growth in the rest of the world markets. India sales declined 7.8%, while US sales were up just 0.3% year-on-year. Despite a strong 71.5% growth recorded by rest of the world markets, top-line growth was restricted to just 6.6%.

The rising input prices are leading to some pressure on margins too, which have declined from 19.3% a year ago and in the previous quarter to 18.8% now. As such, analysts are waiting for a rebound in India and US sales growth.

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India sales may benefit from about 10 product launches in Q2. The FabiSpray commercialization in CY21 may also benefit India sales.

Analysts at Elara Capital expect a 13% compound annual growth rate in India revenues over FY21-23. The US sales pickup also is crucial. As many as 47 products are pending approval with the US Food and Drug Administration and the launches are critical to countering pricing pressure.

“A pick-up in India and US sales growth and control of operating costs (including research and development) are critical for an operational turnaround,” said analysts at HSBC Securities and Capital Markets (India) Private Limited.

The company said it has reduced its debt by at least 1,600 crore through a combination of free cash generation and initial public offering proceeds of Glenmark Life Sciences Ltd during the year. Glenmark is targeting net debt reduction of 1,900 crore by the end of FY22

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