Tag Archives: Pharma

Industries: Looking back and ahead

As the year 2010 coming to an end, reports on various industries appeared across the news papers. Here are the links to those reports on the sectors related to our investments.

PHARMACEUTICALS and HEALTH CARE

The pharma story: A decade of transition

The last 10 years were a crucial transition period for the Indian pharmaceutical industry. The next 10 years will be more crucial, predict industry experts. The period between 2000 and 2010 witnessed India’s top 10 drug companies growing from sales turnovers, ranging between Rs 500-Rs 800 crore, to professionally-run multinational generic companies with turnovers ranging from Rs 3,500 crore to over Rs 7,000 crore. If most of these companies earlier relied on bulk drug supplies, small exports to unregulated markets in Africa and Asia and formulation sales in the domestic market, the last 10 years saw them aggressively tapping regulated markets of the US and Europe and penetrating into newer and emerging markets. If the Indian industry had filed only three marketing applications with the US Food and Drug Administration (FDA) in 1998, that number swelled to 148 in 2009. http://www.business-standard.com/india/news/the-pharma-storydecadetransition/420227/

Pharma: Walking the tightrope between affordability, profits

It could well turn out to be a significant year for the over Rs 1-lakh-crore pharmaceutical industry, if clarity dawns on contentious issues facing the sector. Be it implementation of intellectual property laws, signing of free-trade agreements (FTAs), policy of price control on medicines or spate of mergers and acquisitions (M&A) – 2011 will have stake-holders looking to the Government for direction. It all boils down to how the Centre walks the fine line in balancing access to affordable medicines with encouraging industry to maintain healthy bottom-lines. http://www.thehindubusinessline.com/2010/12/31/stories/2010123151610300.htm

YEAR 2010: Acquisitions spurred Pharma, healthcare expansion

Looking healthier on booster dose of global alliances, the Indian pharma and healthcare sectors repeatedly hit headlines this year on account of M&As, but inbound buyouts by MNCs raised concerns over availability of low-cost drugs. Be it Sun Pharma’s victory in acquiring Israel’s Taro after a long drawn battle, or Piramal’s selling off its domestic formulations business to Abbott, or Biocon’s marketing deal with Pfizer, Indian drug makers sought strength from global play. http://www.business-standard.com/india/news/year-2010-acquisitions-spurred-pharma-healthcare-expansion/119573/on

Pharma: On a healthy wicket

The Indian pharmaceutical sector closed 2010 on a high note, what with an impressive stock market performance, driven largely by earnings growth and bettering prospects. And if the sector undercurrents are to be relied upon, good times are likely to continue this year as well. Strong demand growth in the US market, increasing generic penetration worldwide besides a robust domestic market, promise to keep the Indian drug makers in good health in 2011 too. http://www.thehindubusinessline.com/2011/01/01/stories/2011010151720200.htm

FMCG

2010 saw fastest FMCG launches, relaunches

2010 could well figure in the fast moving consumer goods (FMCG) annals as the year of product launches and relaunches. Indeed, the year saw almost every major player launching or relaunching as many as 10-30 products or their variants, either under existing brands or under altogether new brands and categories. http://www.dnaindia.com/money/report_2010-saw-fastest-fmcg-launches-relaunches_1488220

In demand: Iconic consumer brands

Good old brands are finding their way into the portfolios of some of the top FMCG companies in the country. They may be small but that hasn’t prevented them from finding their way into the product portfolios of some of the top fast moving consumer goods (FMCG) companies in the country. Iconic consumer brands are much in demand today. http://www.business-standard.com/india/news/in-demand-iconic-consumer-brands/419643/

Spate of price hikes spells good fortune for FMCG industry

FMCG players seem to be regaining their pricing power, with Hindustan Unilever taking price increases of 5-8 per cent in soaps and detergents, Dabur India hiking prices by 3-4 per cent and Britannia Industries 5-10 per cent on select brands of biscuits over the past six months. After dealing with rampant inflation, bruising competition and parsimonious consumers in 2009 and 2010, listed players in the fast-moving consumer goods (FMCG) segment can now look forward to an easier year ahead. http://www.thehindubusinessline.com/2010/12/27/stories/2010122751610100.htm

AUTOMOBILE

Car industry: Great hopes for 2011

The Indian car industry is looking forward to another promising year, even as the global car market struggles to find its feet after the economic slowdown. With car sales rising over 30 per cent in 2010, the momentum is expected to continue into 2011 on the back of new launches, rising income levels, and the continued availability of cheap finance. http://www.thehindubusinessline.com/2011/01/01/stories/2011010151810200.htm

Indian car makers likely to see slower growth in the new year

Even as global peers struggled with the after-effects of the 2008-09 economic slowdown, Indian car makers enjoyed double digit growth this year and saw their share prices outpace the benchmark market index. But as they enter 2011, they may have to get used to a new normal—slower growth and fiercer competition. http://www.livemint.com/2010/12/29214755/Indian-car-makers-likely-to-se.html?atype=tp

2000-2010: A decade of growth in the auto sector

The noughties or 2000-2010 will be remembered for the rise of Indian auto as a strong and lucrative domestic market. During this period, Indian manufacturers became bold and aggressive with global ambitions to boot in the in the second half. Read more at: http://profit.ndtv.com/news/show/2000-2010-a-decade-of-growth-in-the-auto-sector-132884?cp

INFORMATION TECHNOLOGY

Buoyant Indian IT industry rebounds but remains cautious

Recovering from global tech meltdown, the resilient Indian IT industry returned to high growth during a tumultuous 2010 but is cautiously optimistic about 2011 in view of the economic uncertainty in Europe and the US, which account for 80-85 per cent of its export revenue from software services and back office operations. http://economictimes.indiatimes.com/tech/ites/buoyant-indian-it-industry-rebounds-but-remains-cautious/articleshow/7190235.cms

Mid-size IT companies set to join the party in 2011

The demand for IT services remains strong due to better offshoring sentiment and increased spending by clients . A revival in discretionary projects, together with stable pricing, is likely to continue in the New Year as well. But experts caution that demand visibility has narrowed to only three-six months, given the uncertain economic scenario. http://economictimes.indiatimes.com/markets/analysis/it-mid-size-cos-set-to-join-the-party-in-2011/articleshow/7181987.cms

Infotech looks ahead to high growth, innovation

It’s been a happy 2010 for the tech industry. It ushered in glimpses of recovery, while the second half of the year brought in growth, hiring and resilience , pumping in a sense of confidence back to the markets which were shattered by the global economic meltdown. The highlight was the revival and the resilience it showed. IT companies posted good numbers clearly signalling that the risk of a double dip recession emerging and disrupting growth are now behind us. Besides, hiring plans and increments were back on board, demonstrating the feel good in the sector. So while 2010 was characterized by restructuring , consolidation, pragmatic learning and smart budgeting , 2011 will continue to build on that and move ahead, say industry experts. Read more: http://timesofindia.indiatimes.com/business/india-business/Infotech-looks-ahead-to-high-growth-innovation/articleshow/7170339.cms#ixzz19o9GYqMJ

CEMENT

Cement industry will be weighed down by excess supply

2011 could be a challenging year for cement manufacturers. Though demand for cement will reach higher double-digit growth, it will be insufficient to absorb the entire supply. Rising input prices and excess capacity (and resultant pricing pressures) will continue to depress margins for cement manufacturers. A higher growth in despatches (versus 7 per cent growth this year) will follow good housing demand and the Government’s thrust on infrastructure projects as the eleventh Five Year Plan comes to an end. With GDP growth estimates for 2011 coming at around 8.8 per cent, the cement industry can be expected to report a 10-11 per cent growth in consumption. http://www.thehindubusinessline.com/2010/12/30/stories/2010123052220200.htm

POWER

Power companies seen strengthening foundations for big plans in 2010

From disinvestment to cementing nuclear energy pacts, 2010 saw India’s power sector strengthen its foundations for the massive capacity expansion required to meet the growing needs of the energy-starved nation. The year also saw a shift in the process for awarding power projects to a tariff-based bidding system. These developments augur well for the sector, as India — which is eyeing a GDP growth rate in excess of 9 per cent — aims to add 1,00,000 MW of electricity during the XII Five-Year Plan (2012-17), with the major contribution expected to come from private power producers. http://economictimes.indiatimes.com/news/news-by-industry/energy/power/power-companies-seen-strengthening-foundations-for-big-plans-in-2010/articleshow/7189053.cms

MINING

Hunt for overseas coal assets to intensify

With the Indian economy back on the track after the slowdown, merger and acquisition (M&A) activities in the resource sector are likely to pick up momentum in the coming year. After establishing a foothold in the global oil and gas asset market, India now eyes coal assets. Meanwhile, the Indian government has proposed key changes in the existing mines and minerals development act (MMDR to allow trading of exploration and mining concessions to attract foreign investors. If the these legislative changes are approved, Indian mining sector, especially coal, might see a flurry of M&A activities. http://news.in.msn.com/business/article.aspx?cp-documentid=4742358


Weekly Portfolio Review: 11 December 2010

Concern of interest rate hike amid rise in food inflation and intensified probe into the 2G scam affected stock market negatively in the last week. Report of strong industrial production growth published on Friday helped to regain some of the loss of preceding three days. During the last week, Sensex lost 2.29% to 19,509 and Nifty 2.26% to 5,857. My portfolio lost 1.64% in the month to date.

Good buys in my watch list

Script Sector 3 Years Target Current Price Expected Margin
Graphite India Engineering 200.00 97.15 106%
Swaraj Engines Auto Ancil 850.00 474.65 79%
Tractors India Ltd Construction 1,150.00 664.75 73%
HUL FMCG 445.00 295.45 51%
BHEL Engineering 3,567.00 2,278.00 57%
NTPC Power 293.00 192.20 52%
Hindustan Zinc Metal 1,730.00 1,150.80 50%

I will be buying Swaraj Engines, Tractors India, HUL and Bhel in the coming week. Graphite India is in my top 5 holding.

News Update

Public sector undertaking NTPC today signed a power purchase agreement with Punjab State Power Corporation Ltd (PSPCL) for 2,640 MW coal-based thermal power project at Gidderbaha for Rs 15,000 crore. The plant consists of four units of 660 MW each, which would be entirely funded by NTPC. – The Economic Times, 11 DEC 2010

Country’s largest power producer NTPC has earmarked a whopping Rs 1,50,000 crore investment for sourcing equipment for its power projects in the next fiscal, the deliveries of which will be made over five years – The Economic Times, Dec 8, 2010

The board of state-run Bharat Heavy Electricals Ltd (Bhel) board has approved the company’s plan of starting a non-banking financial company (NBFC) to finance power projects, said B.S. Meena, secretary, department of heavy industries (DHI). Bhel plans to apply for a licence from the Reserve Bank of India. – Livemint, 10 DEC 2010

The Munjals of Hero Group have initiated talks with lenders to secure bridge financing for the buyout of its Japanese joint venture partner’s equity in Hero Honda. – Times of India, Dec 10, 2010

B.M Munjal promoted Hero group will buyout the Japanese partner Honda from the world’s largest two wheeler producing venture, a deal for which would signed this month. After months of negotiations, Hero group is believed to have reached an agreeemnt to acquire 26 per cent stake of Honda in the 26 year old joint venure but it is not clear at what price. – Economic Times, Dec 8, 2010

The country”s largest two-wheeler maker Hero Honda today said it has hiked the prices of its models in the range of Rs 500- Rs 1500 to offset the rising input costs. – The Economic Times, Dec 8, 2010

The Hero Group is in the process of scouting for technology partners in Europe and South East Asia given that the company has reached an agreement with Honda Motor Co to end its partnership in producing motorcycles. The technology agreement between Hero and Honda for bikes expires in 2014.  – NDTV, Dec 7, 2010

Opto Circuits India has announced that Cardiac Science Corporation, the wholly owned subsidiary of the company and a global leader in automated external defibrillator (AED) and diagnostic cardiac monitoring devices, added two electrocardiographs (ECGs) under its Burdick brand, known for its accuracy, reliability, and ease of use. The ECGs, available only in the US, deliver built-in, bi-directional communication so customers can connect to leading EMRs. – India Infoline, Dec 10, 2010

Andhra Pradesh-based Amara Raja Batteries on Friday said that it is scouting for locations to set up a new manufacturing unit in the Northern part of the country which is likely to be operational by 2012.

Amara Raja Batteries Ltd, the technology leader and one of the largest manufacturers of lead acid batteries in India, today unveiled Amaron Volt TM, a specialized storage battery for the Indian telecom industry in the era of 3G & BWA enabled Data driven market and Mobile Internet.  Availability of assured source of Green Energy even in rural and harsh outdoor conditions is what Amaron Volt TM offers. Amaron Volt TM, a 2V high integrity series product is the latest VRLA offering from Amaron Hi Life range to meet the emerging demanding applications requirement of reliable backup power in Indian telecom market. – Business Standard, Dec 10, 2010

Electric vehicle-maker, Mahindra Reva Electric Vehicles , today launched its Revai priced at Rs 3.10-lakh (ex-showroom Pune) and is targeting tripling its sales in the next 12-18-months. – Economic Times, Dec 10, 2010

GAIL India has proposed to set up 5,500 km of gas connectivity over the next two-three years investing USD 4 billion, a senior company official said today. Economic Times, Dec 10, 2010

State-owned Gas Authority of India (Gail), the country’s largest gas transmission and marketing company, has launched 10-year bond issue to raise funds at an upper cap of 8.9% per annum. The issue, which opened on Tuesday, has got close to Rs 1,000 crore bids between 8.85 and 8.89%. According to distributors, the firm has been negotiating with arrangers for the past few days to raise funds at not more than 8.8%. However, with the cost of funds inching up, it could not get commitment from the arrangers. Interestingly, even at this rate, arrangers were not willing to underwrite the issue on their books. – The Economic Times, Dec 8, 2010

Telecom giant Bharti Airtel Friday launched its IMEWE (India-Middle East-Western Europe) cable system, an ultra high capacity fiber optic submarine cable system to deliver better connectivity requirements of Middle East and European countries to Asia transiting through India. ‘IMEWE will open a second gateway for Airtel’s customers to the European market from Asia via Mumbai,’ the company said in a statement. – Economic Times, Dec 10, 2010

Developing a technology that may change the way the world approaches cancer, Biocon Limited, in collaboration with a US-based research company, is working on creating a “therapeutic vaccine” that will help the body activate the immune system to fight cancer on its own. – DNA, Dec 7, 2010

Agri machinery maker Mahindra & Mahindra today announced a tie-up with Italy based farm equipment company Maschio-Gaspardo S.p.A for getting supply of a complete range of rotary tillage equipment. As part of this agreement between Maschio and Mahindra AppliTrac (part of Mahindra & Mahindra’s farm equipment sector) the Italian company will manufacture rotovators. This will be bearing the Mahindra brand name which will be available through both Mahindra and Swaraj dealerships. Maschio will also manufacture other kinds of rotary tillage equipment for planting, seeding, crop care and crop residue management for Mahindra AppliTrac – The Economic Times, Dec 4, 2010

Interesting Read

Pharma companies line up for clinical trials

Signalling a growing interest in new drug discovery research, some major Indian pharmaceutical firms had applied for conducting clinical trials on at least 12 new drugs in 2010. The most sought therapeutic area is cancer. The numbers are the highest ever in the history of domestic drug discovery initiatives triggered by companies such as Dr Reddy’s and Ranbaxy over a decade ago. http://www.business-standard.com/india/news/pharma-companies-linefor-clinical-trials/417751/

Input, ad costs put pressure on FMCG cos

Several mid-sized fast moving consumer goods (FMCG) companies such as Godrej Consumer Products , Dabur India , Marico and Emami have outperformed their larger multi-national peers over several quarters during the year. Acquisitions abroad and consumers’ shift from high-priced premium products to low-priced mass-market products have helped the companies post good performances. But results of the quarter to September indicate that this stand-out performance could be difficult to sustain. http://economictimes.indiatimes.com/news/news-by-industry/cons-products/fmcg/Input-ad-costs-put-pressure-on-FMCG-cos/articleshow/7068767.cms

Labour shortage in the fields drives farmers to tractors

Pawan Goenka noticed something unusual last year—tractor sales were climbing even though India had its worst monsoon in more than three decades and farm output dropped 2.8% in the three months to December last fiscal. The umbilical cord that tied rainfall patterns and tractor sales seemed to have been ruptured. The president of auto and tractor maker Mahindra and Mahindra Ltd offers an interesting explanation to this puzzle: growing labour shortages in rural India are encouraging farmers to mechanize operations. “The traditional model of predicting growth in the tractor market was only linked to the monsoon and didn’t factor in labour shortages,” says Goenka. http://www.livemint.com/2010/12/06233536/Labour-shortage-in-the-fields.html?atype=tp

Cement loosens grip again

With a meaningful demand recovery expected only around mid-CY11, analysts expect the demand-supply mismatch to prevail and stocks to underperform broader markets in the near term. After a superlative performance in October, when the overall dispatches of the cement industry grew over 18 per cent, the sector has taken a beating in November. In fact, on a sequential basis, the top five cement players have reported a 19.8 per cent drop in combined dispatches, indicating that demand is yet to pick up sufficiently to support prices. While analysts expect a demand recovery by mid-CY2011, most of them currently have a neutral to bearish view on the sector, as the valuations are not cheap. http://www.business-standard.com/india/news/cement-loosens-grip-again/417364/

What next for cement stocks?

The July-September quarter was the worst for the cement industry in the recent down cycle. Sales were unimpressive. Profits fell sharply. Every variable played spoil-sport. The extended monsoons dampened demand as construction activity remained poor. Despatches were further curtailed by unavailability of wagons and shortage of labour. Overhang of excess capacity reduced realizations. Correspondingly, an upsurge in raw material prices hindered profitability. The October-December quarter is expected to bring some relief. The month of October witnessed a sharp rebound in production and despatches. This is a normal trend after a dull monsoon season. Cement realizations also improved significantly. Fear of price hikes led dealers to build-up their inventory. http://www.equitymaster.com/detail.asp?date=12/7/2010&story=4&title=What-next-for-cement-stocks

BHEL adopts strategy to venture into newer areas

Bharat Heavy Electricals Ltd (BHEL), the country’s biggest power equipment company, has adopted a policy of forming joint ventures and concluding technical tie-ups for venturing into newer areas of business. While parking of surplus funds in productive activities is one driver for the approach, attention on diversification and risk sharing seems to be the theme behind all such collaborations. The company has a cash surplus of Rs 10,000 crore. It has floated joint ventures (JVs) and technical tie-ups or started preliminary exercises for entry into nuclear equipment, wind energy, specialised grade steel, transmission, transportation and water treatment businesses. http://www.business-standard.com/india/news/bhel-adopts-strategy-to-venture-into-newer-areas/417525/

Hero may have to play on Honda terms after break-up

Hero Group is believed to have won rights to use the Honda brand till 2014-end. As the final draft of separation between the Hero Group and Honda Motor Company gets readied, concerns are being raised on the Indian company’s ability to promote and sell its indigenous products in the long term, while managing the added burden of royalty payouts to the Japanese company. http://www.business-standard.com/india/news/hero-may-have-to-playhonda-terms-after-break-up/417263/

My Portfolio

Return

My Portfolio BSE Sensex NSE Nifty
This Week -2.35% -2.29% -2.26%
This month -1.64% -0.08% -0.10%
This Year 7.24% 11.70% 12.62%
Since 1-1-2009 119.59% 102.23% 97.95%
Since 1-1-2008 47.59% -3.45% -3.66%
Since 1-4-2007 83.36% 49.24% 53.27%

Top 5 holding in my equity portfolio

Company Sector % of Total Value Average Holding Period Absolute Return %
Infosys IT 8 3 Years 89
Graphite India Telecom 6 2 Months 1
KSB Pumps Engineering 5 3 Months -13
Mangalam Cements Cements 5 3 Months -17
Maharashtra Seamless Metal 5 4 Months -5

Shares I bought this month

Company Average Cost
Tata Sponge Iron 368.41
Graphite India 95.62

Shares I sold this month

Company Average Price

Top 5 most gain (absolute)

Company Return % Average Holding Period
Gujarat Gas 208 2.6 Years
Dabur India 143 4.6 Years
Tata Global Beverages 107 2.0 Years
Berger Paints 127 3.8 Years
Infosys 89 3.0 Years

Top 5 most loss (absolute)

Company Return % Average Holding Period
KSB Pumps -12 3 months
Honeywell Automation -14 1 month
Tata Communication -26 11 months
Mangalam Cement -17 2 months
Divi’s Laboratories -14 1 month

Archive of previous portfolio reviews


Pharma may log modest growth in Q4

The pharma sector is expected to log a modest performance for the quarter ended March 2010. Mid-sized pharma companies like Cadila Healthcare, Lupin, Piramal Healthcare, Biocon, Glenmark Pharma are likely to outperform sector biggies like Cipla and Ranbaxy. – A report in Economic Times says.

Aggressive product launches in the US, growth registered in the emerging markets and revival in contract manufacturing are likely to trigger this growth. Though rupee appreciation is negative for export oriented companies, the companies with foreign debts will benefit.

Read complete report of Economic Times

Related Link

Biocon | Cadila Healthcare | Glenmark Pharma | Pharma


Glenmark Pharmaceuticals

Glenmark PharmaGlenmark Pharmaceuticals Limited was incorporated in the year 1977. Glenmark Pharma is a mid-sized Indian pharma company with focus on niche therapeutic areas of dermatology, gynaecology, paediatrics and diabetics. The domestic formulations business contributed about 29% to the company’s revenue in FY09. On the international front, while exports to the semi-regulated markets have been growing at a strong pace, the company is also strengthening its presence in the US and European generics market on its own and through the partnership route. The company is also focusing on R&D.

Glenmark is a leading player in the discovery of new molecules both new chemical entity and new biological entity with eight molecules in various stages of clinical development. The company has a significant presence in branded generics markets across emerging economies including India. Its subsidiary, Glenmark Generics Limited has a fast growing and robust US generics business. The subsidiary also markets APIs to regulated and semi-regulated countries. Glenmark employs nearly 6000 people in over 80 countries. It has twelve manufacturing facilities in four countries and has five R&D centres.

Investment Rationale

While first three quarters of the financial year 2009-10 has seen a lukewarm performance reported by the company, the scenario is expected to improve fourth quarter onwards as the businesses begin to pick up. Glenmark Pharma is expected to report strong growth going forward as its generics business in the US, Latin America, Europe and semi-regulated markets scales up. Management’s ability to strike out-licensing deals for its molecules and a strong R&D pipeline at present with potential going forward makes Glenmark’s prospects bright.

Recently the company got final approval from US Food & Drug Administration for Ropinirole Hydrochloride tablets in multiple strengths. Ropinirole Hydrochloride tablet is the generic version of GlaxoSmithKline’s Requip tablets. The drug is used for treating signs and symptoms of idiopathic Parkinson’s disease. The annual sales of the drug in the US is about $500 million.

As in any business, there are risk factors too to be considered when investing in Glenmarks Pharma’s shares. The high debts position, realisation from R&D front, increased competition and price erosion in the US generic markets are some of the risk factors going forward. Due to the global financial crisis and its impact on companies, revenues from the out-licensing deals may not be as forthcoming for some time as they once were. This will have an impact on Glenmark’s margins.

The company continues to be in talks with global pharma majors to garner some out-licensing deals. The fact that the company was able to bag such a deal with Medicis Pharmaceuticals USA is an encouraging sign.

Company is already working towards reducing the debt burden. The cash generated from the improved performance of its business will go towards paying off this debt. Besides this, the company has filed a draft prospectus with the SEBI for listing Glenmark Generics and part of the proceeds from this listing will also be used to retire debt.

Related Link

Updates

About the Company

Investor Relation

Market Information

Investment in Glenmark Pharma

Glenmark PharmaGlenmark Pharma looks attractive for investment with an expectation of 45% return in 2-3 years.  I added Glenmark Pharma to my portfolio buying a few shares today at Rs. 239.40 per share. It is third company in my portfolio from pharma sector, other two being Piramal Healthcare and Biocon. With this investment, pharma sector constitutes 10% of my total Indian equity portfolio at current market price.

Reasoning for investment

While first three quarters of the financial year 2009-10 has seen a lukewarm performance reported by the company, the scenario is expected to improve fourth quarter onwards as the businesses begin to pick up. Glenmark Pharma is expected to report strong growth going forward as its generics business in the US, Latin America, Europe and semi-regulated markets scales up. Management’s ability to strike out-licensing deals for its molecules and a strong R&D pipeline at present with potential going forward makes Glenmark’s prospects bright.

Recently the company got final approval from US Food & Drug Administration for Ropinirole Hydrochloride tablets in multiple strengths. Ropinirole Hydrochloride tablet is the generic version of GlaxoSmithKline’s Requip tablets. The drug is used for treating signs and symptoms of idiopathic Parkinson’s disease. The annual sales of the drug in the US is about $500 million.

As in any business, there are risk factors too to be considered when investing in Glenmarks Pharma’s shares. The high debts position, realisation from R&D front, increased competition and price erosion in the US generic markets are some of the risk factors going forward. Due to the global financial crisis and its impact on companies, revenues from the out-licensing deals may not be as forthcoming for some time as they once were. This will have an impact on Glenmark’s margins.

The company continues to be in talks with global pharma majors to garner some out-licensing deals. The fact that the company was able to bag such a deal with Medicis Pharmaceuticals USA is an encouraging sign.

Company is already working towards reducing the debt burden. The cash generated from the improved performance of its business will go towards paying off this debt. Besides this, the company has filed a draft prospectus with the SEBI for listing Glenmark Generics and part of the proceeds from this listing will also be used to retire debt.

About Glenmark Pharma

Glenmark Pharmaceuticals Limited was incorporated in the year 1977. Glenmark Pharma is a mid-sized Indian pharma company with focus on niche therapeutic areas of dermatology, gynaecology, paediatrics and diabetics. The domestic formulations business contributed about 29% to the company’s revenue in FY09. On the international front, while exports to the semi-regulated markets have been growing at a strong pace, the company is also strengthening its presence in the US and European generics market on its own and through the partnership route. The company is also focusing on R&D.

Glenmark is a leading player in the discovery of new molecules both new chemical entity and new biological entity with eight molecules in various stages of clinical development. The company has a significant presence in branded generics markets across emerging economies including India. Its subsidiary, Glenmark Generics Limited has a fast growing and robust US generics business. The subsidiary also markets APIs to regulated and semi-regulated countries. Glenmark employs nearly 6000 people in over 80 countries. It has twelve manufacturing facilities in four countries and has five R&D centres.

Bought Biocon Limited

I bought Biocon Limited at 270.75 today. Pharmaceutical sector is a good defensive sector to be included in one’s equity portfolio. At present I have only two companies from pharma sector and with this buy, pharma constitute 7% of my total equity portfolio.

Biocon is a fully integrated biopharmaceutical company with expertise in the fields of biopharmaceuticals, custom research and clinical research. The company is a bulk drug supplier and has a market share of about 40% in the European market in bulk statins a drug class used for treatment of cardio-vascular diseases. Biocon is the largest Indian company in the biotechnology space and has a strong product portfolio.

The biopharmaceutical segment contributes 75% to the Indian biotech industry’s revenues and has been the key growth driver. The Indian biotech industry is expected to generate US$ 5 bn in revenues by 2010 and create more than one million biotech jobs over the next five years. On a global basis too, the biopharmaceutical market has undergone rapid expansion since its emergence 30 years ago.

The positive points for Biocon are healthy operating margin, long term earning growth, decent return on capital invested, consistent dividend payout history, larger promoter holding, lower FII holding, high liquidity, reasonable current ratio and low leverage.

In the global scale, while the fundamental factors driving the industry remain strong, the same is bogged down by intense competition and severe price erosion. The Indian domestic pharma industry is expected to grow at a CAGR of 16% over the next five years, however company’s success is highly depended on R&D efforts, and industry is fragmented and highly competitive. Thus the risk is that whether the company will be able to withstand these industry risks.

Recently Equitymaster recommended Buy with a target price of 360.00 with a two-three year perspective in their paid research service. HDFC Securities has recommended buy rating on the stock of Biocon with a target of Rs 327, in its February 11, 2010 research report. IndiaInfoline recommended buy rating on the stock with a target of Rs 320, in its anuary 14, 2010 research report.