1QFY11 was another mixed quarter and is unlikely to act as the catalyst for GLEN to break out of the current range. While the balance sheet is much better, profitability was below expectations. Revenues (excl R&D) grew 11% YoY, led primarily by India (+17%) and LatAm specialty biz (+21%), while generics (+10%) saw steady growth. Adverse currency affected growth in all international businesses while the branded EU biz was also hit by channel inventory in Poland. GLEN also received R&D income of Rs895m, taking overall topline growth to 26.9% for the quarter.
Excluding R&D income, EBIDTA margin dipped 542bps (to 23.8%) – well below our estimate – even as gross margin improved 150bps YoY. Sharply higher staff cost (+26%) and other expenses (+33%) caused the dip. The management indicated that the former was a seasonal spike. We also expect other exp / sales to normalize over the year as revenues scale up.
Trading at 12.8x FY12E on core earnings (adj NCE val. Rs30), we find current valuations attractive for recovery in earnings profile (CAGR of 30% vs 25% for
peers. EPS expectations FY 11 8-20
