Glenmark Pharma - Divestment Of Life Sciences Arm To Address Short-Term Concerns: ICICI Securities

ICICI Securities Report

Glenmark Pharmaceuticals Ltd. is divesting 75% stake in its active pharma ingredient arm Glenmark Lifesciences Ltd. for Rs 56.5 billion (Rs 615 per share) to Nirma Ltd. valuing Glenmark Life Sciences at 11.7 times FY25E earnings per share and 6.4 times enterprise value/Ebitda.

Glenmark Pharma, though, will still hold nearly 7.8% stake in Glenmark Lifesciences. The proceeds from the transaction will be used to pare off debt (Rs 43.4 billion at the end of FY23) of Glenmark Pharma.

We believe the proposed transaction may have a negative impact of 10% on FY25E revenue (of Rs 172 billion) and Ebitda margin may shrink 150 basis points, though, repayment of debt may partially offset the impact.

The divestment will clear the current debt pile, but in the long run it would continue to require cash to fund its research and development budget of Rs 13-14 billion per annum, marketing cost of Ryaltris and an ailing U.S. generic business.

We maintain our 'Sell' rating on the stock with target price of Rs 660 (12 times FY25E earnings).

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