Glenmark shares surge nearly 100% in one year: Key factors behind the rally

Glenmark Pharmaceuticals has witnessed a significant surge in its share price over the past year, nearly doubling from Rs 597.35 on 31 May, 2023 to Rs 1,160.75 on 31 May, 2024. Marking a substantial 94.3% increase, the trend reflected a surge in market sentiment and investor confidence towards the company.

This performance comes after strategic maneuvers by Glenmark Pharmaceuticals. A pivotal development was the company's deal with Nirma Limited, an Indian conglomerate. Glenmark announced the sale of its Active Pharmaceutical Ingredients (API) business, Glenmark Life Sciences Limited (GLS), to Nirma Limited for an enterprise value of approximately Rs 5,651 crore ($750 million). This strategic transaction provided Glenmark with a significant liquidity infusion and facilitated a transition to a net cash-positive position in May 2024.

Following the Nirma deal, Glenmark Pharmaceuticals reported that it had become net cash positive, a transformation driven by a substantial inflow from the sale. This financial turnaround is significant, considering the company's reported financial losses in previous fiscal years and the debt burdens that constrained its operations.

"Glenmark’s stock price has outperformed its peers over the last year, driven by balance sheet deleveraging (cash from API business divestment), their announcement to reduce research and development (R&D) spending on new chemical entity (NCE) development, and a decent ramp-up in the recently launched novel product, Ryaltris," said Vishal Manchanda, senior vice president, Institutional Research, Systematix, a stock broking and investment banking firm.

Ryaltris is a nasal spray used for the treatment of symptoms associated with seasonal allergic rhinitis (SAR). NCE is a drug with an active ingredient that has never been approved or marketed by regulatory authorities in any country.

The impact of these strategic shifts is evident in Glenmark's financial performance. For the fourth quarter ending March 31, 2024, the company reported consolidated revenue of Rs. 3,063 crore, reflecting growth across various markets except for North America. The Rest of the World (RoW) segment, India's business, and Europe all contributed positively to the revenue growth trajectory.

Looking ahead, Glenmark Pharmaceuticals has outlined ambitious plans for financial year 2025. The company aims to achieve consolidated revenue between Rs 13,500 crores and Rs 14,000 crores, signaling its commitment to market leadership and sustained growth. To support this goal, Glenmark plans substantial investments in research and development (R&D), with an allocation of 7-7.25% of total sales earmarked for R&D efforts, the company said.

“Investors have been critical and cautious about NCE R&D, as it is high risk by nature, and, the sentiment hasn’t changed as investors haven’t seen the R&D efforts translate into success. With the announcement regarding the lowering of R&D spend, investors have turned optimistic, which also indicates an alignment of the company with the investors’ thought processes," said Manchanda.

Operational efficiency remains a key focus for Glenmark, with targets set for an Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) margin of approximately 19% and a double-digit profit after tax (PAT) margin. The company's diversified portfolio across therapeutic areas such as dermatology, respiratory, oncology, cardiac, diabetes, and oral contraceptives continues to drive success in international markets, the pharmaceutical firm said in a statement.

Glenmark Pharmaceuticals Ltd.'s financial performance over the past five years saw fluctuations in debt levels and profitability. Debt ranged from Rs 4,639.39 crore in FY 2018 to Rs 4,347.72 crore in FY 2023, while sales increased from Rs 9,705.08 crore in 2019 to Rs 11,635.46 crore in 2024. Operating profit also rose, reaching Rs 2,035.33 crore in 2024. Despite revenue growth, profitability challenges arose, with a loss of Rs 1,830.85 crore in 2024 compared to a profit of Rs 924.99 crore in 2019.