Stock Recommendations – August 2020


Glenmark Pharma Ltd (GNP) is an India-based pharmaceutical company with commercial presence in more than 80 countries across the globe. GNP is primarily focused on generics, specialty and OTC businesses. The company has strong regional/country-specific presence in diabetes, cardiovascular and oral contraceptives.

The Group Revenue rose 8.0% YoY to Rs. 2,767cr in Q4FY20, largely led by strong growth in India business, up 14.5% YoY to Rs. 765cr (continued to benefit from strong growth in Glenmark consumer care business). Moreover, the India business outperformed the industry (15.9% vs. IPM growth 9.7%), while market share for the Cardiac, Anti diabetic, Respiratory segments rose to 4.7%/1.7%/5.1% in Q4FY20 vs. 4.5%/1.6%/4.7% in Q4FY19. Europe was up 29.3% YoY to Rs. 412cr, supported by growth in western and central Europe. Latin America grew 46.9% YoY to Rs. 177cr, aided by growth in Brazilian subsidiary followed by three new respiratory products licensed from Novartis. The growth in revenue was partially offset by de-growth in US (-1.0% YoY to Rs. 762cr, impacted by Mupirocin Cream, Atomoxetine hydrochloride, Calcipotriene cream and Ranitidine sales) and RoW business (-12.6% YoY to Rs. 337cr). EBITDA came in at Rs. 466cr, as EBITDA margin improved to 280bps YoY to 17.2% due to lower operating expenses, as other expenses declined 5.0% YoY to Rs. 802cr, while employee benefit expenses fell to 19.3% as a percentage of sales (vs. 19.6% in Q4FY19). Resultantly, PAT rose to 36.3% YoY to Rs. 220cr. Adj. PAT came in 17.2% higher as compared to Q4FY19.

The Company has indicated that there will be a further decline in operating expenses, R&D, and capex while the company also intends to reduce debt further in the next year. The Company has launched Favipiravir, an antiviral drug (approved by DCGI) for mild to moderate Covid-19 patients and has also initiated combined study of two antiviral drugs Favipiravir and Umifenovir. Glenmark signed an agreement with HUL for the disinvestment of VWash and its extension business and would receive an upfront amount and a certain percentage of sales for the next 3 years. The Company entered into an agreement with Hikma for commercialization of Ryaltris™. In addition, the company has already signed a licensing deal to manufacture Ryaltri in China, Australia, New Zealand and South Korea. Glenmark continued to strengthen its pipeline with approval of 14 ANDAs (in FY20).

Given new product launches, strong topline and expansion in margins in the upcoming periods, we expect earnings to grow at a healthy ~28% CAGR over FY20-22E. Hence, we have upgraded our rating on the stock to BUY with a revised target price of Rs. 515 based on 12x FY22E EPS.

Analyst: Joe V Samuel, Geojit Financial Services Ltd., INH200000345

For Disclosures and Disclaimers: Glenmark Pharmaceuticals Ltd:

Sun Pharma (SUNP) is India’s top drug maker and world’s fifth largest specialty generic pharmaceutical company and is based in Mumbai, Maharashtra. The company develops, manufactures, and markets branded and generic formulations and active pharmaceutical ingredients (APIs) in India and globally. The company offers formulations in various therapeutic areas, such as cardiology, psychiatry, neurology, gastroenterology and diabetology. SUNP provides APIs such as warfarin, carbamazepine, etodolac, and clorazepate, as well as anti-cancers, steroids, peptides, and controlled substances.

In Q4FY20, revenue rose 14.7% YoY to Rs. 8,078cr, largely contributed by India business (+114.7% YoY to Rs. 2,365cr; market share improved to 8.4%). However, excluding a one-off (distribution related change in 4QFY19), the India business grew ~8% YoY. Additionally, Emerging market (+11.0% YoY to Rs. 1,354cr), and ROW Formulations (+4.0% YoY to Rs. 1,121cr) witnessed gains. Meanwhile, revenue from US fell 13.2% YoY to Rs. 2,713cr in 4QFY19, while Bulks remained stable at Rs. 483cr. EBITDA stood at Rs. 1,505cr (+48.0% YoY, -14.5% QoQ), as EBITDA margin expanded by 420bps YoY on lower cost as a percentage of revenue. However, EBITDA margin contracted ~330bps QoQ on higher cost of materials owing to product mix and material consumption for Taro. Additionally, Employee benefit expenses increased to Rs. 1,652cr (+5.3% YoY; +6.6 QoQ) on the back of provisions for incentives to employee. ILUMYA recorded sales of USD 94mn during the full year of its commercialization and the company plans to launch ILUMYA in the Japanese market. However, phase-III study may be delayed due to the COVID-19.

The Company’s pipeline remains strong with ANDAs for 483 products, and 98 ANDAs are under approval, of which 20 are tentatively approved. In Q4FY20, the company filed 6 ANDAs and received approval for 2 from US FDA. Management guided R&D expenditure as % of sales to be in the range of ~8- 9% for FY21.  On 29th March 2020, the USFDA put all the new approvals on hold at the Halol facility and gave an Official Action Indication (OAI) classification. This may lead to a delay in products getting approval for the US market (19 ANDAs and 2 NDAs are pending for approval). However, the production of products that have been already approved from the facility remains unaffected.

Despite the COVID-19 impact, we believe the revenue growth will be driven by strong pipeline and new product additions. Also, the US specialty business and India sales will support the company’s outlook in the upcoming quarters. Therefore, we have upgraded our rating on the stock to BUY with a revised target price of Rs. 587 based on 25x FY22E adj. EPS.

Analyst: Joe V Samuel, Geojit Financial Services Ltd., INH200000345

For Disclosures and Disclaimers: Sun Pharmaceutical Industries:

Petronet LNG was formed by the Indian government to import liquefied natural gas (LNG) and set up LNG terminals in India. The company operates two regasification terminals situated in Dahej (17.5 MMTPA installed capacity) and Kochi (5 MMTPA).

In Q4FY20, the revenue rose 2.2% YoY to Rs. 8,567cr on higher LNG volumes processed to 219 TBTUs (+6.8% YoY), with increased throughput from Dahej terminal which processed 206 TBTUs LNG (+3.5% YoY, -7.2%QoQ). On a sequential basis, throughput was subdued, owing to the COVID-19 scenario, which impacted both the supply side (disrupted processing) and demand side (low industrial activity), with the month of March seeing the worst hit. EBITDA rose 11.2% YoY to Rs. 698cr as margin expanded 60bps YoY to 8.1%, primarily due to low operating costs and adoption of Ind-AS 116. PAT declined 19.8% YoY to Rs. 373cr, owing to higher D&A (+91.2% YoY) and interest costs (+359.7%).

The company has retained a capex guidance of Rs. 350cr; for small scale LNG (~Rs. 126cr), capacity addition for 2 tanks in Dahej (~ Rs. 64cr) and for a corporate office being built at Delhi and others (~Rs. 70cr). In the medium to long-term, Petronet plans to enter Sri-Lanka with a capex of USD 300mn, pending approval by the Government. Additionally, the company plans to set-up a terminal in the East Coast. The company also plans to set up LNG dispensing stations in three phases. In the first phase, Petronet will setup 50 stations on five major highways in FY21; while in the second phase around 300 dispensing stations will be set up on all highways. In the final phase, the company will scale up to 1,000 stations. The company will be tying up with City Gas Distribution (CGDs) and Oil marketing companies (OMCs) for marketing and setting up of stations. The Kochi-Mangalore pipeline is expected to be commissioned by 25th July, 2020, which will increase the capacity utilization of the Kochi terminal to ~35%. The board has approved reduction in Kochi regas charges from Rs. 104/mmbtu to Rs. 79/mmbtu. Petronet signed MOU with Gujarat gas, for setting up a fire station in the Gujarat LNG dispense stations on Delhi-Mumbai highway. The Company has invoked force majeure clause for cargoes, and the total number of force majeure cargoes are 8 from Qatargas and 1 from ExxonMobil.

We expect the demand recovery to come from 2HFY20 onwards and with the commissioning of Kochi-Mangalore pipeline, hence utilization should improve. The capacity expansion plans for both the terminals should also support the valuation. Hence, we reiterate our BUY rating on the stock with a target price of Rs. 321 based on 15x FY22E adj. EPS.

Analyst: Joe V Samuel, Geojit Financial Services Ltd., INH200000345

For Disclosures and Disclaimers: Petronet LNG Ltd:

Tata Chemicals Limited (TCL) with an annual capacity of 4.3milliion tonnes, the company is the world’s third largest producer of soda ash with manufacturing facilities in Asia, Europe, Africa and North America. It also has a strong focus on consumer, agri and specialty businesses. More than two-thirds of this capacity is natural soda ash based and these are located at the Green River Basin in the US and at Lake Magadi in Kenya. Postsale of its consumer business, TCL has reorganised its businesses under four key verticals- Agri Sciences, Nutritional Sciences, Material Sciences and Energy Sciences.

 In FY2020, the company reported ex-consumer EBITDA of Rs1,949cr with margins of 18.8% and net income of Rs807cr. Q4FY20 revenue fell 7.2% YoY to Rs. 2,378cr, on account of decline in its Basic chemistry products (BCP). EBITDA down 10.4% YoY to Rs. 400cr. Adj. PAT declined 24.3% YoY to Rs. 185cr. By geography, TCL witnessed weak performance across the board: US (-8.0% YoY to Rs. 800cr), India (-6.1% YoY to Rs. 1,098cr incl. Rallis), UK (-4.2% YoY to Rs. 365cr) and Africa (-18.4% to Rs. 115cr). EBITDA margin shrank ~60bps YoY to 16.8%, resulting in the decline of EBITDA by 10.4% YoY to Rs. 400cr, only partially offset by lower input costs from TCL India and TCNA.

 As of 4QFY20, Cash & cash equivalents remained strong at Rs. 3,660cr and Net debt position at Rs. 4,042cr. Going forward, company focus remains broadly on three investment pillars as it calls them, viz. Customer industry (incl. products like soda ash, silica, and those in the halogen group), Nutrition Science, and Agro Sciences (via its subsidiary Rallis). Almost all plants within and outside India are now operational and running with 50-100% capacity utilization.

 As of 11th May, 2020, three of the company’s specialty products facilities at Nellore, Cuddalore, and Sriperumbadur resumed operations after having received necessary approvals from authorities. Meanwhile, its operations elsewhere (i.e., outside India) have been running with minimum restrictions, with few at 100% capacity utilization. Kenya operations took a hit during the quarter owing to logistical issues, but are now slowly getting back on track.

 We expect PAT to grow at 15.3% FY20-22E CAGR and EBITDA margin to improve to 19.7% by FY22E. With increasing capacity utilization worldwide, along with a strong balance sheet, TCL is expected to survive the headwinds in the near-term. We expect gradual but steady recovery in revenue and profit margins by the year end. The valuation looks attractive at current levels. Hence, we upgrade our rating to ACCUMULATE on the stock with a revised target price of Rs. 358 based on 8.5x FY22E adj. EPS.

Analyst: Anil. R, Geojit Financial Services Ltd., INH200000345

For Disclosures and Disclaimers: Tata Chemicals:


  1. I have petronet bought at Rs.260 . Need hold on current downtrend. Advise when the upward movement expected.

    • A weak economy would impact the stock in the short-term. While on a long-term basis, the recent downtrend in gas prices would enable to expand the margins in the future. The Kochi-Mangalore gas pipeline is expected to be completed in H2FY21, enabling higher volume demand. The company is poised to benefit from the regulatory push towards cleaner fuels. We have a 12month target of Rs321.


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