Source: Livemint | Title: Improved cash flows, debt reduction crucial for Glenmark’s prospects
Glenmark Pharmaceuticals Ltd’s shares have run far ahead of its peers in the past year. The Street is now looking for progress on the debt reduction front, even as the company’s sales performance is improving. Hence, recent news of the company readying for an initial public offering of its wholly-owned subsidiary Glenmark Life Sciences will be keenly watched for.
Glenmark remains one of the few companies in the pharma arena with slight concerns on debt. The company had a debt of ₹3,758 crore on March 31st, which translated to net debt to Ebitda of 1.6 times. High investments in the development of new molecules have been a key reason for rising debt. Glenmark also is focused on out-licensing deals, which would help fund R&D costs, and help improve profitability as well as reduce some debt. However, analysts say other capital-raising initiatives are crucial for debt reduction.
The company has remained in active discussions with various partners for monetizing the Ichnos Sciences business, a 100% US-based innovation subsidiary. While the monetisation was anticipated in the second half of FY21, it hasn’t materialised yet and has been a dampener.
“Lack of free cash flow (FCF) generation by Glenmark has been a long-standing concern. Delay in Ichnos monetisation is a recent dampener on this front” said analysts at Macquarie Research in a recent report.
Apart from capital-raising initiatives, analysts are also eyeing improvement in cashflows through improved profitability. The company’s Q3 performance provides some encouragement on this front. The domestic formulation marked a growth of 12% and is likely to grow better, supported by improved acute segment sales. While US sales were soft, they had indicated some reduction in pricing pressure. After the Q3 results, analysts at Motilal Oswal Financial Services Ltd (MOFL) raised their earnings estimates for FY22 and FY23 by 8%, and 6%, respectively. They are factoring growth to be driven by new launches in the domestic and US formulations markets.
The Q4 performance too is anticipated to be better with analysts at Anand Rathi Securities Ltd expecting Glenmark’s US sales growing 3.5% year-on-year (2.3% year-on-year decline in Q3). Helped by the launches in the injectables and nebulizers segments, MOFL anticipates US sales growth of 10% y-o-y in FY22.
Analysts at Macquarie Research too say that “FCF prospects in FY22 are looking promising led by likely Rs400 Crore organic FCF”. They expect the company to raise Rs350-550 Crore through Ichnos fund-raise, Rs900-1000 Crore from IPO and an out-licensing deal in the US. As these can reduce debt, however, there is little room for disappointment and delays, as has been the case in the past.