GLS v2- Redefining growth under the new ownership …
About stock: Glenmark Life Sciences Limited (GLS) is a leading developer and manufacturer of APIs (~93% of FY24 revenues) with major focus in chronic therapeutic areas such as cardiovascular disease, central nervous system disease, pain management and diabetes. The company is also expanding into CDMO services (~7% of FY24 revenues) catering to a range of multinational and specialty pharmaceutical companies. It owns a total reactor capacity of ~1198 KL with manufacturing facilities at Ankaleshwar, Dahej in Gujarat and Mohol, Kurkumbh in Maharashtra.
GLS’s portfolio consists of around 150+ APIs across therapeutic segments like Cardiovascular (CVS) disease, Central Nervous System (CNS) disorders, pain management, anti-diabetics among others. GLS caters to over 700 customers in more than 75 countries.
In 2023 Nirma acquired 75% stake in GLS from Glenmark Pharmaceuticals Limited.
Investment Rationale
• Seasoned API player, significant presence in chronic therapies: With 20+ years of experience in catering to leading global generic players, GLS has established good relationship especially in the areas of CVS (Sartans in particular), CNS, Pain management and Anti-diabetics. CVS and CNS together account for ~60% of the API portfolio. The company is also developing niche, oncology focused high potency APIs. Overall, it has filed over 520 drug master filings/certificates of suitability/dossiers across various markets, mainly in the US, Europe, Brazil, Canada, Japan, Russia and others.
• Change of ownership could expedite capex: Although structurally and strategically the business remains same, we believe the change of ownership is likely provide more autonomy in terms of growth capex. The company needs to augment capacities as the average capacity utilisation has reached to ~85% at most of the facilities. The company is looking for brownfield expansion at Ankleshwar and Dahej as well as greenfield expansion at a new site at Solapur.
• CDMO business shaping up well: CDMO business remains marginal (and at times volatile). But the management is determined to accelerate the tempo with consistent deal wins and execution. At present GLS has around 3 CDMO Projects on hand whereas company targets to double its CDMO business by 2027 via leveraging its existing partnerships and adding new projects. Strategically, being a standalone API player (no more intragroup formulation connection) augurs well to ramp up the CDMO business.
Rating and Target Price
• We have assigned BUY rating on GLS, on the back of proven execution capabilities, strong financials and long-term expansion plans in APIs and CDMO. We believe the change of ownership could be beneficial especially on the expansion front.
• We have assigned a target price of ₹ 1,040 to GLS based on FY26E EPS of ₹ 49.5.
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