Glenmark Pharma - Life Sciences Unit Stake Sale To Drive Considerable De-Leverage: Motilal Oswal
Earnings neutral event
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Motilal Oswal Report
Glenmark Pharmaceuticals Ltd. has proposed to divest its active pharma ingredient business, Glenmark Life Sciences Ltd. with the aim of reducing debt and increasing its emphasis on branded/innovative products.
This is the third transaction by Glenmark Pharma with a cumulative cash generation of Rs 62.5 billion over the past 12-15 months.
After the stake sale, Glenmark Pharma is set to transition from a net debt position of Rs 29.5 billion to a cash surplus Rs 21 billion.
The net reduction in overall Ebitda due to the sale of API business (Rs 5.5 billion) would be partially offset by a reduction in interest (Rs 4.2 billion).
Expecting significant deleveraging and superior execution in both the domestic formulation and Europe/rest of world markets, we anticipate an improved outlook for Glenmark Pharma over the next two-three years, which should positively impact return ratios to some extent.
We value Glenmark Pharma at 14 times 12 months forward earnings to arrive at a price target of Rs 780.
We maintain our 'Neutral' rating, given that the current valuation adequately captures potential earnings upside/better return ratios.
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