Glenmark: Study in contrast

Glenmark has done well in exports, but local sales lagged

Glenmark Pharmaceuticals has been attempting to ramp up its presence in the American market via in-licensing agreements.

The latest agreement was with American company Aspen Inc for three medications in the pain management therapeutic segment.

Meanwhile, the company has reported an improved March 2006 quarter results. Standalone operating profit grew 62.3 per cent y-o-y to Rs 33.94 crore in the last quarter compared with 31.3 per cent growth in net sales to Rs 166.3 crore.

The stock has, however, lagged the broader market over the past four months - - it has gained nearly 21.7 per cent compared with 27.5 per cent gain in the Sensex.

Selling, operating and other expenses as a percentage of net sales fell 595 basis points y-o-y to 30.31 per cent in the March 2006 quarter, which aided the growth in operating profit.

Analysts say the company's domestic formulation sales were up 24 per cent y-o-y in Q4 FY06, helped by recent launches such as Nitazet (medication for treating diarrhoea) and Sibet (medication for muscular pain relief).

Also, exports of branded formulations were up 38 per cent y-o-y to Rs 37.4 crore in the last quarter. However, in the domestic market, the company's API sales are understood to have been sluggish as the company was using capacities for captive consumption and a decline in API prices.

Also, the discontinuation of Valdecoxib (medication for osteoarthritis) earlier this year affected top line. However, operating profit margin increased by 389 basis points y-o-y to 20.4 per cent in the March 2006 quarter.

But for the full year, Glenmark's consolidated operating profit fell 10.4 per cent to Rs 139.5 crore owing to one-time revenues from the sale of a molecule in FY05, which resulted in a higher base.

Going forward, the company is planning to launch medications in oncology segment and probiotic dietary supplements in the domestic market.

Also, it is planning to enhance its presence in the high growth Latin American market and launch more products in the US.

However, the Street appears to have factored in growth opportunities for the company, with the stock trading at nearly 17.5 times estimated FY07 earnings.

Syndicate Bank: Testing times

The highlight of Syndicate Bank's March 2006 quarter results was the impact of rising interest rates. Net interest income fell by 26.4 per cent y-o-y to Rs 393.69 crore as interest expenses went up 47.8 per cent.

Pre-provisioning operating profits fell 21.39 per cent to Rs 239.5 crore in Q4 FY06. These numbers were far lower than analysts' expectations and as a result, the stock declined almost 6 per cent on Tuesday, despite the markets ending in the black.

If it were not for the 41.5 per cent increase in other income, operating profit would have been still lower.

According to analysts, the bank had low cost deposits in the March 2005 quarter, so there was a higher base. Provisioning too increased by 436 per cent, with NPA provisioning comprising 60 per cent of the total provisioning at Rs 175 crore.

For FY06, its net interest income went up by 11 per cent, but operating profit before provisioning increased only 1.7 per cent, owing to 31 per cent increase in other operating expenses.

A VRS expense of Rs 86.85 crore eroded profitability. The bank has done reasonably well on the deposit and credit front, which rose 16 per cent and 36 per cent.

Also, for the full year, the proportion of low cost deposits (current and savings accounts) increased by 100 basis points to 38 per cent. Like in other banks, revenues and operating profit in treasury operations declined as lending activities increased.

The bank's profit on sale of investments reduced to Rs 133 crore for FY06 compared with Rs 246 crore in the previous year. The credit-deposit ratio increased from 60 per cent in FY05 to 70 per cent in FY06.

The investor who bought the Syndicate Bank share in the follow-on offer last July is sitting on almost 75 per cent returns. At its current price of Rs 87, the bank trades at 1.3 times estimated FY07 book value.