Glenmark Pharma surges as Nomura raises target price, sees 50% upside

The shares of Glenmark Pharma were up almost 3 percent on February 14 afternoon after global research and broking firm Nomura retained its “buy” rating but raised the target price for the stock.

Factoring in the better-than-expected earnings in the December quarter, Nomura raised its price target for Glenmark Pharma to Rs 633 apiece, reflecting an upside potential of nearly 50 percent from the previous day’s close.

The pharmaceutical firm’s net profit for the October-December period rose 31.03 percent to Rs. 290.76 crore on a topline of Rs 3,463.86 crore, which was up 9.15 percent on year.

At 12.34 pm, Glenmark Pharma was trading at Rs 433.55 on the National Stock Exchange, up 2.59 percent from the previous close. Volumes were also nearly fourfold the 20-day daily traded average volumes.

While Nomura remains positive on the better-than-expected growth across segments for the drugmaker, its cashflows still remain a concern and will limit expansion in valuation multiples.

The broking firm does expect sales to grow by the mid-single digit in the upcoming financial year (Apr-Mar).

Pricing in the expected growth in sales, Nomura also raised its revenue estimates for FY23-FY25 by 3-4 percent. The broking firm lifted its earnings estimates for FY23/FY24/25F by 23 percent/6 percent/10 percent, respectively.

Debt concerns

Other brokerages, however, remain cautious on the drugmaker.

Analysts at Elara Capital are uncertain of the company’s pathway to reduce its debt.

“The company has used proceeds from the divestment of its brands in India for remediation of its US-based facilities, while the pathway to reduce Rs 2,600 crore of net debt remains uncertain,” the firm wrote in its report.

Consequently, Elara Capital downgraded the stock to “reduce”, with a target price of Rs 430.

Similarly, analysts at Motilal Oswal Financial Services said the valuation provided limited upside and assigned a “neutral” rating to the stock.

Another brokerage firm, ICICIdirect, has a “hold” rating with a target price of Rs 440. “We await EBITDA margin sustainability besides persisting US base business pressure amid regulatory hurdles at Monroe facility,” ICICIdirect analysts said in a report.

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