| Glenmark Pharma has been in the news during the last two weeks. The US FDA allowed Forest, the pharma company's out-licensing partner, to initiate an additional Phase II study for the asthma drug called medicine oglemilast (GRC-3886) last week. |
| It also inked another licensing deal with Eli Lilly under which the latter will acquire the rights to a portfolio of TRPV1 antagonist molecules, including a clinical compound GRC-6211 in North America, Europe and Japan. |
| GRC-6211 is undergoing early clinical Phase II development as a potential next-generation pain medication. Glenmark will receive an upfront fee of $45 million and could get up to an additional $215 million in potential development and sales milestones for the initial indication. |
| If this drug is successfully developed, Glenmark would be entitled to an additional milestone payment of up to $90 million. Analysts value this molecule between Rs 70 and Rs 90 on a per share basis. |
| On Wednesday, Glenmark decided to separate its generics and API businesses into a subsidiary called Glenmark Generics, while Glenmark Pharma will focus on being a speciality player. |
| Glenmark Pharma will have novel R&D and branded formulation businesses in India, Latin America (excluding Argentina), CIS countries, Africa and Asia. Some of the manufacturing plants and sales units in the US, UK and Argentina will move to the generics business. |
| According to Glenmark, the two businesses are being separated as they have become large businesses with different management challenges. |
| The generics business will also need additional scale and new capacities, which will be partly funded by dilution up to 30 per cent. Glenmark Generics will be listed in Q1 FY09. While other companies are separating their R&D businesses into separate companies, Glenmark has done the reverse. |
| The company projects the generics business to have revenues of $180 million in FY08, while those of the speciality business will be $306 million. |
| In the September 2007 quarter, Glenmark's consolidated revenues increased 52 per cent and operating profit margins improved by 720 basis points y-o-y to 31.6 per cent, which is impressive. |
| As a consolidated entity, Glenmark trades at rich valuations of about 24 times estimated FY08 earnings and 20 times FY09 earnings. Besides the hive-off, Glenmark is one of the most profitable pharma companies and is likely to remain an outperformer. |
| HCL Technologies: Big deals |
| HCL Technologies reported an 8.4 per cent q-o-q growth in revenues in dollar terms and 6 per cent in rupee terms in the September 2007 quarter. |
| The growth can be attributed to sequential volume growth of 8.1 per cent and better realisations. However, higher staff costs and a yearly reduction of 190 basis points in the utilisation levels for the offshore staff (including trainees) to 69.2 per cent in the last quarter, led to a q-o-q decline in the consolidated operating profit margins by 25 basis points, to 21.3 per cent. |
| In the June 2007 quarter too, its consolidated operating profit margin had declined by 170 basis points q-o-q to 21.6 per cent. |
| In the September 2007 quarter, the company's core software services division grew by 7 per cent q-o-q in rupee terms and 9.5 per cent in dollar terms, while its infrastructure services grew 6.7 per cent in rupee terms. |
| The company has highlighted growth in verticals such as hi-tech manufacturing and life sciences in the September 2007 quarter. |
| In the June 2007 quarter, HCL's infrastructure services segment grew at 10.6 per cent sequentially in rupee terms, while core software registered a growth of 0.7 per cent. |
| HCL Tech has signed three multi-year, $200-million plus deals in the past two years, with one of them being signed in the September 2007 quarter. |
| It also won a large contract from Hercules, a leading manufacturer and marketer of speciality chemicals. The stock trades at 18 times estimated earnings for the year ended June 2008 and should be a market performer. |
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