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| Summary of Contents | STOCK UPDATE Glenmark Pharmaceuticals
Recommendation: Buy
Price target: Rs915
Current market price: Rs782 Price target revised up to Rs915; upgraded to Buy Key points - Gearing up: Glenmark Pharmaceuticals is stepping ahead to gain from its key novel molecules and generic products pipeline built over the past few years in the US, Europe and the Latin American market. While the Q2FY2015 results already reflected a bounce back in Latin American (up 139%) and European business (up 25%), the US business is likely to crack the stagnation with a fresh wave of approvals nearing and its first-to-file (FTF) opportunity on genetic Zetia (market size $1.3 billion) ticking in Q4FY2017.
- Near-term upside from GRC 17536: The company is said to be in advance stage of talks with a few multinational players to out-licence its novel molecule GRC 17536, which has successfully completed phase-II clinical trials on 138 patients in Europe and India. GRC 17536 is expected to have a market potential worth $1 billion. A successful out-licencing deal would earn the company a sizeable amount of upfront payment, developmental milestone based payments and royalties on sales. We expect the out-licencing deal to close in the next few months.
- We revise price target up to Rs915; upgraded to Buy: We anticipate an increased run rate of product approvals in the US market over FY2016-17 and a decent upside from monetisation of novel molecule GRC 17536 (though not factored in our price target as the out-licencing deals remain under negotiation stage). We revise our price target up by 13% to Rs915 which includes Rs860 for base business (16x FY2017 core EPS), Rs55 for its R&D pipeline and Rs10 for its exclusivity opportunity on generic Zetia. We upgrade our recommendation to Buy on the stock.
Triveni Turbines
Recommendation: Buy
Price target: Rs128
Current market price: Rs106 Overseas business continues to be growth driver Key points - Opening of service centres abroad would boost overseas business: Triveni Turbine Ltd (TTL) has seen a strong ramp-up in its export order book (which formed 60% of the consolidated order book at the end of Q2FY2015) in the past few quarters aided by a good demand from renewable and waste heat recovery projects. Accordingly, the contribution of exports to the total revenues has gone up from the past level of 20-22% to 30% in Q2FY2015 and is likely to touch 60% in the coming two to three quarters. In order to effectively service the current orders and capture new business opportunities, the company is planning to open a few service centres by forming an international subsidiary in the near future. We feel this is also a good strategy to capture the high-margin after-market segment where the company is already a leader in the domestic market.
- Export order booking looks promising, lull in domestic market continues: In our recent interaction, the company indicated that the finalisation of orders in the domestic market is yet to pick up while the export order inflow remained robust during the quarter. The management also indicated that the impact of foreign currency fluctuation is likely to be limited in the quarterly results as the company follows a 100% back-to-back hedging policy.
- Q3FY2015 expected to be a good quarter: The execution of overseas order book is likely to pick up in Q3FY2015, resulting in a 10% year-on-year growth in the stand-alone revenues. However, the real growth is likely to come from its GE venture, which is likely to turn around in H2FY2015 (the company reports only the stand-alone quarterly results). The operating profit margin is likely to remain healthy at 22-23% on the back of its after-market segment where the company enjoys healthy margins as high as 40% (the business accounted for 10% of the outstanding order book in Q2FY2015).
- Maintain positive outlook and price target: We remain positive on its strong competitive positioning, robust order backlog and healthy balance sheet (it is a debt-free company with superior return ratios). What sets TTL apart from its domestic peers is that the company has partly derisked its business model from the slowdown in the domestic capital expenditure by increasing its exposure to overseas markets and the after-market segment. The company continues to look attractive on the valuation front at 16.5x FY2017E earnings per share, considering the expectation of a compounded annual growth rate of 39% in its earnings over FY2014-17. We maintain our Buy rating on the stock with a price target of Rs128.
| | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. | |
| Regards,
The Sharekhan Research Team |
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