Executive Summary

Glenmark Pharmaceuticals is one of the fastest growing companies in the Indian pharmaceutical space. It has shown extraordinary performance in all its business segments. The Pat performance demonstrates the success of its well-defined strategy and dynamism.

Glenmark is the largest success story in NCE research in the Indian pharmaceutical industry. In the last two years, the company out licensed two lead molecules to multinational companies. It also has a very strong pipeline of molecules under research, which holds significant earning potential.

The company has succeeded in achieving phenomenal growth in regulated and semi-regulated formulation markets. Within three years of starting its US operations, sales have reached Rs. 2207mn. The company's focus on Latin American market is also paying off. It is expected to report strong growth in international formulations, going forward.

Its domestic formulation business too is doing very well. The company is focusing on strengthening its presence in respiratory, pain management and metabolic diseases, with a cumulative market size of more than Rs. 60bn.

Outlook and Valuation

We believe, the company will achieve remarkable growth in revenue and net income in coming years on the back of a very strong research pipeline, which will fetch them very high returns from out licensing deals. At the end of FY07, the company had 13 products in the US market and 36 ANDAs pending approval. These will help sustain its growth in the US market. With acquisitions expected in Central and Eastern European markets, revenues will start flowing in from FY08. The changing business mix will also help improve its margins, going forward.

Based on our estimated EPS of Rs. 39.2 for FY08 and Rs. 50.3 for FY09, the stock currently trades at a forward PE of 17.4x and 13.6x respectively. Looking at its capabilities and strong business prospects, we feel the stock is very cheaply valued. Hence, we recommend BUY, with a price target of Rs. 1019. Our price target is based on a PE of 26x on the FY08 EPS of Rs. 39.2.

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