Glenmark Pharma, Glenmark Life shares in news on Nirma deal. What analysts say

Glenmark Pharmaceuticals Ltd (Glenmark Pharma) has announced selling 75 per cent stake in Glenmark Life Sciences to Nirma for an estimated Rs 5,650 crore. Analysts noted that this is the third such transaction by Glenmark Pharma in the last 12-15 months, with a cumulative cash generation of Rs 6,250 crore. The fresh move, analysts said, may help Glenmark Pharma pare debt and increase its emphasis on branded or innovative products, they said. The target price on Glenmark Pharma, however, suggests limited upside potential for the stock.

"Expecting significant deleveraging and superior execution in both the domestic formulation and EU/ROW markets, we anticipate an improved outlook for Glenmark Pharma over the next 2-3 years, which should positively impact return ratios to some extent. We value Glenmark Pharma at 14 times 12-month forward earnings to arrive at a price target of Rs 780," Motilal Oswal Securities said in a note. The domestic brokerage said it stays Neutral on Glenmark Pharma, as the current valuation adequately captures potential earnings upside and better return ratios.

Nuvama Institutional Equities has a target of Rs 830 on the stock. It noted that the deal implying 3.5 times Glenmark Life's FY23 revenues and 16.1 times its FY23 PAT.

"Selling a profitable franchise to pare debt may not seem prudent, but given Glenmark Pharma's growth drivers (India, Ryaltris, inhalers), Glenmark Life is not vital to Glenmark Pharma's growth. With the inhaler franchise doing well in the EU, Ryaltris ramp-up and R&D control, path to profitability is unlikely to be affected," it said. 

It suggested 12 per cent revenue and 19 per cent Ebitda dilution for Glenmark Pharma, but a 3 per cent PAT accretion in FY25 due to lower D&A, interest savings and minority interest.

"Importantly, Glenrmark Pharma will turn net-cash Rs 2,700 crore post-deal, but before settlement payouts. We retain ‘HOLD’ on GNP given Ichnos uncertainty with an unchanged target of Rs 830. We have not incorporated the deal in the numbers yet," it said.

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