You are right. Given the outsized contribution of Ankleshwar plant to the company’s revenues, some revenue loss from the closure was certainly expected. The decline in revenue is certainly more than what a few days of delayed reopening would justify. So, the management seems to have incorrectly downplayed the impact of closure in Q1 call.
Also, I don’t think Argentina contributes much to the company revenues. Management declined to provide the exact percentage, but we know that Glenmark Pharma has a formulation facility in Argentina which earned a revenue of Rs.117 crore in FY24.
Using this, one can assume it has quarterly revenues of around Rs.30 crore and so a small portion (20-25 % ??) of that would be API cost (which become GLS revenues). That would be say Rs.5 to 10 crore per quarter, that’s all.
One analyst pointed out there is pricing pressure in the market due to aggressive pricing by the Chinese. Mr. Rawjee said they are much less impacted as they play more in the regulated markets.
Earlier, he had also pointed to improvement in Gross Margins as proof that there was no pricing pressure. But even in regulated markets, formulation companies do have multiple approved suppliers, and will buy from the lowest cost approved supplier, why not. Further, your Gross Margins can improve even if your own input costs decline more than selling prices. So the impact of Chinese pricing pressure on topline cannot be fully ruled out.
Besides this, there could also be other reasons that are distorting year on year comparison. Loss of PLI benefit this year is one. Alignment of revenue recognition policy with Nirma – which is more conservative – is another.
I for one was certainly expecting a decline in revenues this quarter, and I would be very much surprised if the market wasn’t. But I hope the broader story remains intact. New molecule commercialization under CDMO, new API launches, capex execution and regulatory inspections are the things to track. Early indications from the new promoter are positive, such as stepping up investments in R&D. The broad strategic direction seems fine so far. Let’s see what happens next.
(Disc.: Invested)
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