GLENMARK FY16
Glenmark Pharmaceuticals’ (GNP) FY16 annual report analysis
highlights an increase in net worth under IGAAP from INR23.6b in FY10
to INR30.6b in FY16, primarily supported by equity issuance of INR9.4b.
Under IFRS, GNP reported an improvement in its operating
performance, with EBITDA (adjusted for one-offs) increasing 16.6% YoY
to INR15.6b. However, earnings to cash flow conversion at 25% and
earnings to net worth at 53% remained low. In FY16, the company
reported exchange translation losses of INR3.0b, of which INR0.7b
(10% of PAT) was on cash. Operating cash flow post interest adjusted
for translation losses declined from INR1.3b in FY15 to INR0.9b in FY16
due to rising working capital requirements. Current tax rates remained
high at 51%, while effective tax rates were low at 30% due to DTA
recognized on unused tax losses and MAT credit entitlement.
Intangibles stood at INR14.5b (34% of net worth), primarily comprising
of product development. Cash and investments stood at INR8.7b (20%
of net worth), yielding 0.9% returns. Separately, debt increased
marginally to INR39.9b (FY15: INR38b) with borrowing cost of 5%.
Operating performance under IFRS improves:
In FY16, revenues
grew 15% YoY to INR76b on the back of 19% and 21% revenue
growth in the US and India formulations business respectively, while
EBITDA margins adjusted for one-offs remained flattish at 20.4% (v/s
20.1% in FY15).
Translation losses continue to dent net worth:
In FY16, GNP
reported exchange translation losses of INR3.0b which contained
the increase in net worth by INR12.7b, despite preferential equity
issuance to raise INR9.4b and reporting profits post dividend of
INR6.3b. Cumulatively over the last six years, translation losses have
amounted INR12.3b, thus continuing to hurt net worth accretion.
Earnings to cash flow conversion remains low at 25%:
This is
primarily due to (a) MTM losses on cash of INR0.7b (10% of PAT), (b)
muted operating cash flows post interest of INR0.9b (FY15: INR1.3b)
on the back of rising inventory at INR15.7b (FY15: INR12.7b), despite
a steep increase last year due to GGL merger, as well as an increase
in other assets (advances extended/prepayments/exports
incentives), and (c) high cash tax rates at 51%, despite low effective
tax rate at 30% due to deferred tax asset recognized on MAT and
unused tax losses.
Intangibles at 34% of net worth:
These are primarily comprised of
product development and intangibles under development of
INR13.7b (FY15: INR11.8b). We note that while intangible assets in
Europe have increased from INR5.7b in FY12 to INR10.4b in FY16,
revenues have only increased from INR6.4b to INR7.3b.
Net worth accretion under IGAAP over FY11-16 remains low:
Under
an option provided by the SEBI, GNP had adopted IFRS (from IGAAP)
from FY11. It, however, presented IGAAP financials again in FY16. In
both transitions (FY11 and FY16), it took write-off in the value of
assets. IGAAP’s net worth rose from INR23.6b in FY10 to INR30.6b in
FY16, primarily supported by equity issuance of INR9.4b.
The
ART
of annual report analysis
Over FY11-16 NW under IGAAP increases
by INR7b primarily supported by equity
issuance of INR9.4b
Conversion of earnings to cash flow (at
25%) and net worth (at 53%) remains
low
Steep increase in inventory over last two years to INR
15.7b (FY14: INR 9.3b)
A
NNUAL
R
EPORT
T
HREADBARE
1 August 2016
Stock Info
Bloomberg
CMP (INR)
Equity Shares (m)
52-Week Range (INR)
M.Cap. (INR b)/(USD b)
1,6,12 Rel. Perf. (%)
Y/E Mar
Sales
EBITDA
Net Profit
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
Payout (%)
P/E (x)
P/BV (x)
E: MOSL Estimates
GNP IN
856
271.3
1,262/672
232.2/3.5
4/0/-15
2017E
92.4
25.0
12.2
43.1
73.1
202.6
6.4
19.9
4.2
2018E
108.7
26.9
13.8
48.8
13.4
259.7
5.8
17.5
3.3
Financial summary (INR b)
2016
75.9
13.7
7.0
24.9
42.0
151.3
14.1
34.4
5.7
Auditor’s name
Walker Chandiok & Co. LLP, Chartered Accountants
Sandeep Ashok Gupta
(S.Gupta@MotilalOswal.com); +91 22 39825544
Mehul Parikh
(Mehul.Parikh@MotilalOswal.com); +9122 3010 2492 /
Somil Shah
(Somil.Shah@MotilalOswal.com); +91 22 3312 4975
ART will present a threadbare portrait of annual reports -
statistical, strategic and structured. We believe ART's wide canvas -
from accounting and auditing issues to operating performance to
management insights to governance matters - will help readers
paint a clearer picture of the stock's investment worthiness.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

ART|
Glenmark FY16
ART #1
ACCOUNTING & KEY FINANCIAL INSIGHTS
Operating performance improves
Strong performance in US
and India formulation
business drives revenue
growth
On a consolidated basis, GNP’s revenues grew 15% YoY to INR76b in FY16,
primarily driven by 19% and 21% growth in the formulations business in US and
India respectively, on the back of new product launches. However, Latam
reported a decline of 2% on the back of weak demand conditions and currency
depreciation.
EBITDA margins (adjusted for one-offs) remained flattish at 20.4% (FY15: 20.1%),
primarily on account of continued pricing pressure in the US, partially offset by
lower administrative and other expenses on the back of cost controls and
operating leverage.
Exhibit 1:
Revenue growth driving improvement in operational performance
Consolidated
Particulars
(INR b)
Net Revenue (Operations)
Raw Materials Consumed
Gross Margin
Operating and Administrative Expenses
Personnel Cost
EBITDA before exceptional expenses
Texas Liability
Exchange losses
EBITDA - Reported
Depreciation
EBIT
Financial Charges
EBT
Other Income
PBT (Before Exceptional Items)
Exceptional Items
PBT
Tax
PAT
66.3
19.3
47.0
21.6
12.0
13.4
1.6
1.6
10.2
2.6
7.6
1.9
5.7
0.2
5.9
-
5.9
1.2
4.8
FY15
(% of revenue)
100%
29%
71%
33%
18%
20.1%
2%
2%
15%
4%
12%
3%
9%
0%
9%
0%
9%
2%
7%
(INR b)
76.3
23.6
52.7
23.4
13.8
15.6
-
1.4
14.2
2.7
11.5
1.8
9.7
0.4
10.0
-
10.0
3.0
7.0
FY16
(% of revenue)
100%
31%
69%
31%
18%
20.4%
0%
2%
19%
4%
15%
2%
13%
0%
13%
0%
13%
4%
9%
Source: Company Annual Report, MOSL
Subsidiaries’ performance remains weak
Subsidiaries aggregate
FY16 loss at INR4b
GNP had 37 subsidiaries as of FY16-end. In FY16, subsidiaries’ aggregate
performance remained subdued as revenues grew only 15% YoY to INR52b,
while they continued to incur loss of INR4.0b (FY15: INR4.3b).
Losses increased in subsidiaries based in Switzerland and Brazil. Its subsidiaries
in Russia, Argentina and Mexico also incurred losses, albeit at lower levels.
Czech Republic-based subsidiary turned profitable in the year, while profits
declined in Venezuela and US-based subsidiaries.
1 August 2016
2

ART|
Glenmark FY16
Exhibit 2:
Subsidiaries performance muted (INR b)
Particulars
Glenmark Holding S.A., Swtzerland
Glenmark Generics Inc., USA
Glenmark Pharmaceuticals Venezuela, CA
Glenmark Impex L.L.C, Russia
Glenmark Farmaceutica Ltda., Brazil
Glenmark Specialty S.A. , Switzerland
Glenmark Pharmaceuticals SRO, Czech Republic
Glenmark Generics S.A. Argentina
Glenmark South Africa (Pty) Ltd., South Africa
Glenmark Uruguay SA, Uruguay
Glenmark Pharmaceuticals S.A., Switzerland
Glenmark Pharmaceuticals Europe Ltd., UK
Others
Total
Turnover
FY15
-
21.4
4.3
2.9
2.3
-
2.3
0.5
-
0.0
0.3
3.3
7.7
45.2
FY16
0.6
25.2
4.6
3.0
1.9
-
3.7
0.7
0.0
-
0.2
3.7
8.3
52.1
FY15
(1.2)
0.8
1.2
(0.9)
(1.1)
-
(1.0)
(0.3)
(0.0)
(0.0)
(1.2)
0.0
(0.7)
(4.3)
PAT
FY16
(1.2)
0.8
0.8
(0.6)
(1.3)
(0.0)
1.5
(0.3)
(0.0)
(0.0)
(3.4)
(0.0)
(0.1)
(4.0)
Net worth
FY15
6.4
7.5
2.3
2.6
3.6
-
0.5
1.4
0.7
0.6
0.3
1.1
12.1
39.1
FY16
11.5
8.2
1.9
1.6
1.1
1.1
1.0
0.8
0.7
0.7
(6.4)
0.4
1.7
24.3
Source: Company Annual Report, MOSL
Translation losses continue to dent net worth
Exchange translation losses
for FY16 stood at INR3.0b;
of which, INR0.7b was on
MTM loss on cash
In FY16, GNP reported profit (post dividend) of INR6.3b. Furthermore, it raised
INR9.4b (net of issue expenses) by diluting 3.8% of equity.
However, net worth increased only INR12.7b, primarily on account of foreign
currency translation losses of INR3.0b (~43% of PAT). Of this, INR0.7b (10% of
PAT) was on account of MTM losses on cash.
Cumulatively over the last six years, GNP has reported translation losses of
INR12.3b, which has led to an increase in net worth by a mere INR16b
(excluding fresh equity issuance), despite reporting PAT post dividend of
INR29.7b. MTM losses on cash over the same period stand at INR6.1b.
Exhibit 3:
Translation losses impact net worth accretion (INR b)
Particulars
Opening Net Worth
Add: Profit for the year
Add: Issue of shares
Less: Dividend (including tax)
Add/(Less): Other adjustments
Less: Foreign exchange translation losses
Less: Acquisition of non-controlling interest
Closing Net Worth
FY11
17.3
4.5
-
(0.1)
0.1
(1.2)
(0.2)
20.4
FY12
20.4
4.6
-
(0.1)
0.1
(0.7)
(0.2)
24.0
FY13
24.0
6.2
-
(0.6)
(0.1)
(1.5)
(0.4)
27.6
FY14
27.6
5.4
-
(0.6)
0.1
(2.2)
(0.4)
29.8
FY15
29.8
4.8
-
(0.6)
(0.1)
(3.6)
(0.3)
30.0
FY16
30.0
7.0
9.4
(0.7)
0.0
(3.0)
-
42.7
Cumulative
(FY11-16)
17.3
32.5
9.4
(2.8)
0.2
(12.3)
(1.5)
42.7
Source: Company Annual Report, MOSL
1 August 2016
3

ART|
Glenmark FY16
Exhibit 4:
MTM losses on cash continues
MTM losses on Cash (INR b)
36.3
as % of PAT
36.2
15.1
8.6
0.4
FY12
1.0
FY13
2.0
FY14
1.7
FY15
10.0
0.7
FY16
Source: Company Annual Report, MOSL
Exhibit 5:
50% of last six years cumulative translation losses are on cash (INR m)
Particulars
Tangible assets
Intangible Assets
Goodwill
Cash
other net assets
Total
Proportion adjusted in Cash (%)
FY11
40
729
-55
-364
-1,600
-1,249
29
FY12
95
964
3
-400
-1,345
-684
59
FY13
-16
1
-5
-940
-533
-1,492
63
FY14
-74
-206
-2
-1,980
18
-2,244
88
FY15
-210
-424
-22
-1,719
-1,239
-3,615
48
FY16
-132
535
51
-699
-2,762
-3,006
23
Cumulative (FY11-16)
-296
1,599
-30
-6,102
-7,461
-12,290
50
Source: Company Annual Report, MOSL
60% of foreign subsidiary exposure in USD, which appreciated 6% YoY
Management attributes
translation losses in FY16 to
its Venezuela, Switzerland,
Argentina, Brazil and
Russian subsidiaries.
Currencies of emerging markets witnessed a steep decline v/s the INR (VEF
depreciated 97%, RUB 8%, and BRL 4%) in FY16.
At FY16-end, GNP’s exposure to net worth of subsidiaries having VEF, RUB and
BRL as functional currencies stood at 8%, 7% and 5%, respectively; for USD, the
exposure stood at 60% and for CZK at 4%, which have appreciated by 6% and
12%, respectively, against the INR.
Management attributes translation losses in FY16 primarily to its Venezuela,
Switzerland, Argentina, Brazil and Russian subsidiaries.
We note that the above subsidiaries report in their respective country’s
currency, except for Switzerland-based subsidiaries where the reporting
currency is USD.
FY13
21.8
-
5.1
0.0
0.0
0.9
0.2
0.2
0.9
0.2
-
-
3.7
33.0
%
66%
0%
15%
0%
0%
3%
1%
0%
3%
1%
0%
0%
11%
100%
FY14
23.3
-
5.1
0.1
0.0
1.7
0.4
0.3
1.2
0.2
-
0.1
4.1
36.6
%
64%
0%
14%
0%
0%
5%
1%
1%
3%
1%
0%
0%
11%
100%
FY15
24.9
2.6
3.6
0.1
0.1
0.5
0.2
2.3
1.2
0.4
-
(0.4)
3.2
38.7
%
64%
7%
9%
0%
0%
1%
1%
6%
3%
1%
0%
-1%
8%
100%
FY16
14.6
1.6
1.1
0.1
0.1
1.0
0.3
1.9
0.6
0.3
-
-
2.7
24.3
%
60%
7%
5%
0%
0%
4%
1%
8%
2%
1%
0%
0%
11%
100%
Exhibit 6:
Foreign subsidiaries’ net worth exposure skewed toward USD
Particulars
USD
RUB
BRL
MYR
EURO
CZK
RON
VEF
GBP
MXN
CHF
ARS
Others
Total
FY12
1.8
3.2
5.5
0.0
0.0
0.8
0.5
0.1
0.7
0.1
28.7
1.2
2.0
44.7
%
4%
7%
12%
0%
0%
2%
1%
0%
2%
0%
64%
3%
4%
100%
Source: Company Annual Report, MOSL
1 August 2016
4

ART|
Glenmark FY16
Exhibit 7:
Emerging market currencies depreciated against INR (%)
Particulars
USD
RUB
BRL
MYR
EURO
CZK
RON
VEF
GBP
MXN
CHF
ARS
FY12
12
11
4
14
9
8
2
15
15
7
17
N/A
FY13
7
-1
-5
4
1
-3
0
0
4
9
0
1
FY14
11
-5
-2
3
18
10
16
-22
16
3
18
-13
FY15
4
-36
-28
-8
-18
-18
-17
4
-7
-10
-3
-28
FY16
6
-8
-4
1
11
12
9
-97
2
-4
6
-38
Source: Company Annual Report, MOSL
Net worth under IFRS declines on migration to IGAAP
INR6.4b writes down in
value of assets while
transiting from IGAAP to
IFRS in FY11
In FY11, the company, under the option given by the SEBI, voluntarily adopted
the IFRS reporting standards. Upon migration, as permitted, the company
recognized assets (some of which were revalued at fair market value) and
liabilities based on first-time adoption principles of IFRS and adjusted the net
decline in the value of assets (~INR6.4b) against the reserves.
From 1HFY16, GNP prepared consolidated financial statements as per the IGAAP
notified standards and alongside provided comparable financials for FY15.
The company also voluntarily presented consolidated figures under IFRS for
FY16. On account of this move, as at 2QFY16, management in the concall
highlighted the following:
Intangible assets reduced by INR3.8b as IGAAP does not allow indefinite life
and amortization that were due in the intervening period from FY11 to
FY15.
Deferred tax asset reduced by INR3.9b.
Intangible assets lowered by INR3.4b. This was on account of revaluation of
tangible assets, which was done on the basis of fair value derived at the
transition from IGAAP to IFRS. Fair value of these assets was available for
the organization for including in revaluation reserves. However, GNP not to
create revaluation reserve and thus reduce the amount from reserves
accordingly.
Over FY11-FY16, we note that the company had IGAAP net worth of INR23.6b,
which just increased to INR30.6b despite raising INR9.4b by dilution of equity.
Assets write downs in FY16
while transiting from IFRS
to IGAAP
1 August 2016
5

ART|
Glenmark FY16
Exhibit 8:
Change in opening net worth on migration from
IGAAP to IFRS in FY11 (INR b)
5.9
0.0
0.1
0.1
0.3
Exhibit 9:
Net worth reconciliation between IFRS and IGAAP
financials in FY16 (INR b)
0.7
3.2
5.3
3.2
0.2
23.6
17.3
42.7
30.6
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
Exhibit 10:
IGAAP net worth movement between FY11-FY16 (INR b)
9.4
3.5
12.3
17.9
1.5
0.3
30.6
During FY11-16 IGAAP NW
increased byINR7b; while
GNP raised INR9.4b by
equity issuance
32.5
23.6
Note: Profit and translation losses considered as per IFRS fin
*Dividend includes provision for FY16
Source: Company Annual Report, MOSL
Exhibit 11:
Profitability under IFRS and IGAAP varies significantly in FY15
FY15
Particulars
(INR b)
Net Revenue
Raw Materials Consumed
Gross Margin
Operating and Administrative Expenses
Personnel Cost
EBITDA
Depreciation
EBIT
Financial Charges
EBT
Other Income
PBT (Before Exceptional Items)
Exceptional Items
PBT
Tax
PAT
66.3
19.3
47.0
24.7
12.0
10.2
2.6
7.6
1.9
5.7
0.2
5.9
-
5.9
1.2
4.8
IFRS
(% of
revenue)
100
29
71
37
18
15
4
12
3
9
0
9
-
9
2
7
IGAAP
(INR b)
65.6
18.8
46.9
22.6
12.1
12.1
3.0
9.1
1.9
7.2
0.1
7.3
(1.9)
5.4
3.3
2.1
(% of
revenue)
100
29
71
34
18
19
5
14
3
11
0
11
-3
8
5
3
(INR b)
76.3
23.6
52.7
24.8
13.8
14.2
2.7
11.5
1.8
9.7
0.4
10.0
-
10.0
3.0
7.0
IFRS
(% of
revenue)
100
31
69
32
18
19
4
15
2
13
0
13
-
13
4
9
FY16
IGAAP
(% of
(INR b)
revenue)
75.6
23.0
52.6
24.5
13.8
14.3
2.5
11.8
1.8
10.0
0.2
10.2
-
10.2
3.0
7.2
100
30
70
32
18
19
3
16
2
13
0
14
-
14
4
10
Source: Company Annual Report, MOSL
1 August 2016
6

ART|
Glenmark FY16
Earnings to cash conversion remain low
GNP’s earnings to cash conversion remained low at 25% in FY16, primarily on
account of:
(a) High working capital requirements,
(b) Exchange fluctuation losses on cash (as discussed above).
(c) Higher cash taxes paid, while the effective tax rate remained low.
Exhibit 12:
Earnings conversion to cash flows continues to decline (INR b)
Particulars
PAT
Interest expense
Interest income
Non op Income
Depreciation
Operating Profit - (A)
CFO
Forex component
CFO (Adj Forex) - (B)
Earnings to cash flow conversion
FY12
4.6
1.5
0.1
0.1
1.0
6.9
-
8.0
0.4
7.6
111%
FY13
6.3
1.6
0.0
0.1
1.3
9.0
-
6.5
0.9
5.5
61%
FY14
5.5
1.9
0.1
0.0
2.2
9.4
-
8.5
2.0
6.6
70%
FY15
4.8
1.9
0.0
0.2
2.6
9.0
-
4.8
1.7
3.1
34%
FY16
7.0
1.8
0.1
0.3
2.7
11.1
-
3.4
0.7
2.7
25%
Source: Company Annual Report, MOSL
Increase in inventories/other assets drags cash flows
Inventory increased
significantly from INR9.3b in
FY14 to INR15.7b in FY16
Despite an increase in PBT from INR5.9b in FY15 to INR10.0b in FY16, adjusted
operating cash flow post interest continued to decline by 27.3% YoY to INR0.9b
(FY15: INR1.3b).
This is primarily on account of an increase in working capital requirements –
inventories by INR4.3b and other assets by INR2.5b.
The increase in inventory in the cash flow statement is INR4.3b; however, we
note that as per balance sheet, it increased YoY by INR3b to INR15.7b.
Inventories increased steeply, from INR12.7b (19% of revenue) in FY15 to
INR15.7b (21% of revenue) in FY16. This was primary on account of an increase
in finished goods (from INR6.3b in FY15 to INR7.4b in FY16) and in raw material
inventory (from INR3.1b in FY15 to INR4.4b in FY16).
We note that inventory has increased steeply during the last two years. In FY15,
management highlighted that the increase was primarily due to the merger of
GGL (subsidiary) with the parent, wherein the company was provided a
transition period in February 2015 to use the packing material of GGL before
migrating to the new operating entity.
Other assets primarily comprise of (a) advances to vendors, and prepayment &
other advances of INR7.3b, 17% of NW (FY15: INR5.6b, 19% of NW); and (b)
input tax incentives and exports receivables of INR2.4b (FY15: INR2.0b).
Free cash flows declined to negative INR 7.9b (FY15: -INR4.1) on higher capex
for new formulation facility at Monroe, North Carolina and in licensing deal with
Celon Pharma
1 August 2016
7

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Glenmark FY16
Exhibit 13:
Cash flow remains muted (INR b)
Particulars
FY15
FY16
PBT
5.9
10.0
Add
Non Cash adjustments
2.8
2.4
Non-operating adjustments
1.9
1.9
Less
Tax Paid
(3.2)
(4.8)
Operating profit before working capital changes
7.5
9.5
(Increase)/ decrease in trade receivable
(4.0)
1.0
(Increase)/decrease in inventory
(3.5)
(4.3)
(Increase)/decrease in other assets
0.9
(2.5)
Increase /(decrease) in trade payable and other current liabilities
4.0
(0.3)
Cash flow from operations
4.8
3.4
Less
Effect of exchange rate on cash
(1.7)
(0.7)
Interest Paid
(1.8)
(1.8)
Adjusted operating cash flow from operations post interest
1.3
0.9
Less: Capex
5.4
8.9
Adjusted Free cash flow post interest
(4.1)
(7.9)
Source: Company Annual Report, MOSL
Operating cash flow
declined on rising working
capital requirements
Exhibit 14:
Inventory increases steeply over the last two years
Exhibit 15:
Prepayments and advances primary constitute
(INR b)
other assets (INR b)
Particulars
Raw materials
Packing material
Work-in-process
Stores and spares
Finished goods
Total
As a % of Revenue
FY12
1.9
0.6
1.2
0.1
4.0
7.9
19.6
FY13
2.2
0.7
1.3
0.1
4.2
8.4
16.8
FY14
2.6
0.9
1.6
0.1
4.1
9.3
15.5
FY15
3.1
1.0
2.0
0.3
6.3
12.7
19.1
FY16
4.4
1.1
2.3
0.5
7.4
15.7
20.5
Particulars
Input taxes receivables
Advance to vendors
Prepayments and other
advances
Other receivables
Current tax assets
Total
FY12
0.7
1.3
3.2
0.1
0.6
5.8
FY13
0.8
1.7
3.6
0.1
-
6.2
FY14
0.9
2.3
5.3
0.1
-
8.6
FY15
2.0
2.2
3.3
0.2
-
5.6
FY16
2.4
2.3
4.8
0.2
-
7.3
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
Higher payable days lead to superior cash conversion cycle v/s peers
GNP cash conversion cycle (adjusted for acceptances) improved from 103 days
in FY15 to 93 days in FY16 primarily on account of increase in payable days (net
of acceptances), decline in advances to vendors and decline in receivable days.
However, this was partially offset by increase in the inventory days.
While comparing the cash conversion cycle with peers, we note that GNP’s cash
conversion cycle remains much lower than its peers. This is primarily on account
of higher payable days of GNP v/s peers. Also, receivable days are higher than
peers.
1 August 2016
8

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Glenmark FY16
Exhibit 16:
Glenmark (Days)
Particulars
Inventory
Receivable
Payable
Advance to vendors
Advances from customer
Income received in advance
Reported Cash conversion cycle
Acceptances
Adjusted cash conversion cycle
FY12
216
108
196
23
0
3
148
31
179
Exhibit 17:
Sun Pharma (days)
FY13 FY14 FY15 FY16 Particulars
FY12
FY13
FY14 FY15
180 173 208 219 Inventory
398
411
374
238
105 115 129 120 Receivable
73
77
56
50
202 234 301 280 Payable
187
207
176
121
33
39
42
35 Advances to suppliers
6
4
2
3
0
0
0
1 Advance from customer
4
2
-
-
6
5
6
5
Reported Cash conversion cycle
286
283
256
170
110
88
72
88
Acceptances
-
1
1
-
61
56
31
5
Adjusted cash conversion cycle
286
284
257
170
171 144 103 93
FY16 annual report not available
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
Exhibit 18:
Lupin (Days)
Particulars
Inventory
Receivable
Payable
Reported Cash conversion
cycle
Acceptances
Adjusted cash conversion
cycle
FY12
206
77
168
115
31
146
FY13
189
74
151
112
25
137
FY14
195
75
150
120
22
142
FY15 FY16
203 241
73
93
156 176
120
22
142
158
21
179
Exhibit 19:
Dr Reddy (Days)
Particulars
Inventory
Receivable
Payable
Cash conversion cycle
FY12
236
80
93
223
FY13
206
88
86
208
FY14
241
89
97
233
FY15
229
90
81
238
FY16
248
96
87
257
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
Effective tax rate lower due to recognition of deferred tax asset
Current tax remains high at
51%; while, effective tax
was at 30%
GNP’s current tax (at 51%) has remained significantly higher than the effective
tax rate (30%), primarily due to deferred tax.
In FY16, GNP recognized net deferred tax asset of INR2.0b. The DTA accretion is
primarily on account of (a) unused tax losses of foreign subsidiaries of INR0.3b,
and MAT credit entitlement of INR1.4b.
In FY16, the company recognized DTA of INR0.5b on Czech Republic-based
subsidiary, which turned profitable during the year. We note that the company
(unlike in the past) did not recognize DTA for other subsidiaries that continued
to make losses for at least the past five years. GNP’s annual report highlights
that its subsidiaries can carry forward losses for future utilization for 3-7 years.
Deferred tax assets as of FY16-end stood at INR9.1b (21% of net worth), of
which INR4.6b pertains to unused tax losses and INR5.6b to MAT credit
entitlement.
FY12
4,881
1,346
28
-1,108
238
4.9
FY13
7,390
3,128
42
-2,021
1,107
15.0
FY14
6,969
2,990
43
-1,477
1,513
21.7
FY15
5,943
3,650
61
-2,460
1,190
20.0
FY16
10,047
5,146
51
-2,118
3,028
30.1
Exhibit 20:
Huge difference between current and effective tax rates (INR m)
Particulars
PBT (A)
Current tax (B)
Current Tax Rate (B/A)
Deferred Tax Asset /MAT credit
entitlement (C)
Tax expense D= (B+C)
Effective tax rate (D/A)
Source: Company Annual Report, MOSL
1 August 2016
9

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Glenmark FY16
Exhibit 21:
Deferred tax assets remain a significant proportion of net worth (INR b)
Particulars
Deferred
Tax Assets
Unused Tax losses
MAT credit entitlement
Others
Subtotal (A)
Deferred tax asset as % of net worth
Deferred Tax Liabilities
Depreciation on fixed assets
Other current assets
Sub Total (B)
Net deferred Tax Asset (A-B)
Net deferred tax asset as % of net worth
FY12
2.4
1.6
0.2
4.2
17%
1.5
0.0
1.5
2.7
11%
FY13
2.3
3.1
0.2
5.6
20%
1.7
0.1
1.8
3.8
14%
FY14
2.8
3.6
0.8
7.2
24%
1.9
0.2
2.1
5.1
17%
FY15
4.3
4.2
1.3
9.7
32%
2.2
0.6
2.8
6.9
23%
FY16
4.6
5.6
1.6
11.7
27%
2.5
0.1
2.7
9.1
21%
DTA constitutes ~27%
of net worth
Exhibit 22:
DTA recognized on select subsidiaries (INR m)
Particulars
Glenmark Farmaceutica Ltda.
Glenmark Pharmaceuticals SRO
Glenmark Generics S.A. Argentina
Glenmark Pharmaceuticals Mexico, SA DE CV
Glenmark Pharmaceuticals
South Africa (Pty) Ltd.
Glenmark Pharmaceuticals Peru S.A.C
Total (INR m)
PAT (INR m)
DTA recognized as a % of PAT
FY12
181
0
76
22
11
30
320
4,643
6.9
FY13
214
1
107
29
8
7
364
6,283
5.8
FY14
256
522
112
33
64
21
1,008
5,456
18.5
FY15
315
174
122
25
31
20
687
4,752
14.5
FY16
0
509
0
-27
15
8
505
7,019
7.2
Source: Company Annual Report, MOSL
Exhibit 23:
Financial performance of select subsidiaries (INR b)
Particulars
Glenmark Farmaceutica Ltda.
Glenmark Pharmaceuticals SRO
Glenmark Generics S.A. Argentina
Glenmark Pharmaceuticals Mexico,
SA DE CV
Glenmark Pharmaceuticals
South Africa (Pty) Ltd.
Glenmark Pharmaceuticals Peru
S.A.C
Turnover
PBT
PAT
FY15 FY16 FY12 FY13 FY14
(1.4) (1.3) (0.5) (0.8) (0.9)
(1.1)
1.0 (0.7) (0.8) (0.2)
(0.4) (0.3) (0.1) (0.3) (0.3)
FY15 FY16
(1.1) (1.3)
(1.0)
1.5
(0.3) (0.3)
FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14
2.3
2.1
2.2
2.3
1.9 (0.7) (1.0) (1.1)
1.5
1.5
2.4
2.3
3.7 (0.7) (0.8) (0.7)
0.4
0.3
0.4
0.5
0.7 (0.2) (0.4) (0.4)
0.1
0.5
0.1
0.1
0.7
0.1
0.2
0.5
0.1
0.4
0.5
0.1
0.5 (0.2) (0.2) (0.2) (0.2) (0.1) (0.1) (0.1) (0.2) (0.2) (0.1)
0.5 (0.0) (0.0) (0.2) (0.2) (0.1) (0.0) (0.0) (0.2) (0.1) (0.0)
0.2 (0.1) (0.0) (0.1) (0.1) (0.0) (0.0) (0.0) (0.1) (0.0) (0.0)
Source: Company Annual Report, MOSL
Intangibles constitute 34% of net worth
Intangible assets primarily
relate to in-licensing
arrangements in Europe
GNP’s intangibles, primarily comprising product development/brands, stood at
INR14.5b—34% of net worth (FY15: INR12.1b, 40% of net worth)
In FY16, intangibles increased primarily on account of (a) licensing agreement
with Celon Pharma to develop and market the generic version of Seretide
Accuhaler product Fluticasone/Salmeterol DPI in Europe, and (b)
implementation of global ERP solution.
We note that most of these intangible assets, primarily product development,
are related to in-licensing arrangements pertaining to Europe operations.
1 August 2016
10

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Glenmark FY16
Exhibit 24:
Intangible asset investments have remained high (INR b)
Particulars
Computer software
Product development
Intangibles under development
Total
As % of Net worth
FY12
0.2
10.9
0.1
11.3
46.9
FY13
0.5
13.1
0.1
13.7
49.4
FY14
0.3
12.4
0.1
12.7
42.7
FY15
0.2
11.6
0.3
12.1
40.4
FY16
0.7
13.3
0.4
14.5
33.8
Source: Company Annual Report, MOSL
Exhibit 25:
Europe’s revenue has remained muted (INR b)
1.02
Revenue
Asset Turnover (x)
0.75
Exhibit 26:
Europe’s fixed assets - primarily intangible(INR b)
Intangible Assets
Tangible Assets
0.7
0.59
0.65
0.66
0.5
5.7
0.5
6.6
0.7
7.5
0.6
10.4
8.4
6.4
4.2
5.4
6.7
7.3
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
Capital allocation primarily for capex and interest payments
Over the last five years, GNP has generated 61% of cash from operations, while
19% each were contributed by equity issuance and debt.
50% of cash so generated was utilized in capex (including in-licensing of brands),
while 17% was used for the payment of interest and 11% was lost on account of
exchange fluctuations.
Exhibit 28:
11% of funds lost on exchange fluctuations
Capex
11%
14%
4%
17%
4%
50%
Acq. Of stake in
subsidiary
Interest Paid
Dividend Paid
Increase in cash
Exchange loss on cash
Exhibit 27:
38% of funds generated from dilution/debt
Cash from
operation
Other Income
19%
1%
61%
Debt
Equity issuance
19%
Source: Company Annual Report, MOSL
Source: Company Annual Report, MOSL
Yield on investments has
remained low—in the range
of 0.2-2.5% over FY12-16
Investment yield remains lowest among peers
In FY16, cash and investments stood at INR8.7b (20% of net worth). Yield on
investments has remained low at 0.9%.
Management highlighted that as at FY16-end, ~USD45m is stuck in Venezuela
pending repatriation.
GNP’s debt increased from INR38b in FY15 to INR40b in FY16, primarily on
account of forex fluctuation and a spike in working capital. However, debt
refinancing has reduced overall borrowing cost over the last five years.
1 August 2016
11

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Glenmark FY16
Exhibit 29:
GNP’s cash and investments are high…
Total Investments (INR b)
2.5
6.1
3.6
0.7
0.8
0.2
FY12
FY13
FY14
FY15
FY16
*For FY15
Source: Company Annual Report, MOSL
0.9
8.0
7.8
% yields
8.7
4.3%
107.1
8.5
Exhibit 30:
….yields, however, are lower v/s peers (INR b)
Investment
7.4%
5.5%
0.9%
8.7
Yield
41.3
Source: Company Annual Report, MOSL
Exhibit 31:
Refinancing helped lower borrowing cost over years (INR b)
Debt (INR b)
7.6
6.5
5.8
Interest cost (% of debt)
5.8
5.0
22.4
27.6
32.7
38.0
39.9
Source: Company Annual Report, MOSL
1 August 2016
12

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Glenmark FY16
ART #2
GOVERNANCE MATTERS
Directors regular in attending board meetings
GNP’s board comprises 11 members—three executives, one non-executive
promoter director and seven independent directors.
GNP is regular in calling board meetings as per the prescribed laws. Six board
meetings were held in FY16.
All directors attended more than 50% of the meetings in FY16.
Two of the Independent directors have been on the company’s board for more
than 10 years.
Exhibit 32:
Regular attendance in Board meeting
Name of the Director
Mr. Glenn Saldanha
Mrs. Cherylann Pinto
Mr. Rajesh Desai
Mrs. B. E. Saldanha
Mr. D. R. Mehta
Mr. Bernard Munos
Mr. J. F. Ribeiro
Dr. Brian W. Tempest
Mr. Sridhar Gorthi
Mr. N. B. Desai
Mr. Milind Sarwate
Status
Executive Promoter Group
Executive Promoter Group
Executive
Non-Executive Promoter Group
Non-Executive Independent
Non-Executive Independent
Non-Executive Independent
Non-Executive Independent
Non-Executive Independent
Non-Executive Independent
Non-Executive Independent
No. of Meetings
Held
Attended
6
6
6
5
6
6
6
4
6
6
6
4
6
6
6
4
6
5
3
2
2
2
Source: Company Annual Report, MOSL
Managerial remuneration
Managerial remuneration increased from INR132m in FY15 to INR174m in FY16.
GNP’s managerial remuneration at 2.5% of PAT (FY15: 2.8%).
Exhibit 33:
Managerial Remuneration Increased 32% YoY
Managerial Remuneration (INR m)
2.4
1.8
1.2
1.6
As % of PAT
2.5
2.8
55
FY11
86
FY12
100
FY13
130
FY14
132
FY15
174
FY16
Source: Company Annual Report, MOSL
1 August 2016
13

ART/THEMATIC GALLERY
ART
ART
THEMATIC

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Glenmark FY16
NOTES
1 August 2016
15

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ART|
Glenmark FY16
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In respect of any matter arising from or in connection with the research you could contact the following representatives of MotilalOswal Capital Markets Singapore Pte Limited:
Varun Kumar
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1 August 2016
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