Glenmark Pharmaceuticals’ (GPL) maintained revenue consistency, posting sales of Rs10.4bn for Q1FY13, beating Nirmal Bang's/consensus estimates. This is the fifth consecutive quarter of over 28% growth in the base business and indicates strong growth drivers in place across geographies. Adjusted earnings of Rs1.22bn were in line with expectations, as a higher tax rate dented an otherwise strong operating performance. Nirmal Bang retains their positive stance on the stock and expect it to get re-rated due to the following: 1) Strong momentum in base business, with broad- based growth across geographies, 2) Balance sheet issues no longer a concern following a sharp improvement in the working capital cycle in FY12, 3) Improvement in base business margins with the Brazilian market turning profitable, and 4) Reduction in leverage on higher free cash flow generation. Nirmal Bang retains their Buy rating on the stock with a target price of Rs462.

Revenue beats expectations: Revenue for the quarter stood at Rs10.4bn - higher than their/consensus estimates of Rs9.7/10.1bn – as GPL put up a strong show in the US (up 56%YoY, 14% QoQ led by strong traction in recent product launches,- over 35% YoY adjusted for rupee depreciation) and India (up 24% YoY, consistently outperforming industry growth) – the two key growth drivers. Rest-of-the-world markets showed a sequential fall (down 26%QoQ), but are expected to normalise from Q2FY13,as the channel inventory depletes. Growth in Brazil was flat, but is expected to pick up in the coming quarters on launch of new products, (products launched in Q1FY13 and another two product launches planned) and strong secondary market growth.

Adjusted PAT in line with expectations: Reported EBITDA margin of 15.9% include MTM (mark-to-market) forex loss of Rs550mn (their estimate Rs1.1bn), adjusting for which it stood at 21.1%, which was above their/consensus estimates of 20.4%/18.5%, respectively. Gross margin improved 334bps sequentially on account of better export realization following rupee depreciation (around 100bps-150bps). Tax rate of 21% was higher than usual and is expected to normalise to 14-15% (effective tax rate is lower than peers due to accrued tax credit) for the full year. Adjusted PAT, consequently, stood at Rs1.22bn, in line with their/consensus estimates of Rs1.25bn/Rs1.27bn, respectively.

Other post-result con-call highlights: 1) GPL has witnessed less than 10% price erosion in its OC portfolio of products since their launch, 2) US dollar-denominated debt stands at USD408mn; total debt at Rs22.4bn 3) Expects research and development (R&D) expenses to remain at 7% of sales in FY13E, 4) Plans to file 16-18 ANDAs in FY13E, and 5) Plans to launch four-five products every year in Brazil.