Glenmark Pharmaceuticals Ltd (Glenmark Pharma) is selling a 75% stake in Glenmark Life Sciences to Nirma for around Rs 5,650 crore. This move follows Glenmark Pharma’s recent transactions totaling Rs 6,250 crore in cash generation over the past 12-15 months. Analysts believe this sale will help Glenmark Pharma reduce its debt and focus more on branded or innovative products. However, the stock’s target price suggests limited upside potential.
Motilal Oswal Securities values Glenmark Pharma at 14 times 12-month forward earnings, setting a price target of Rs 780. They maintain a Neutral stance, considering the current valuation adequately reflects potential earnings and return ratios.
Nuvama Institutional Equities has a target of Rs 830 for the stock, noting that the deal implies 3.5 times Glenmark Life’s FY23 revenues and 16.1 times its FY23 PAT.
Despite concerns about selling a profitable franchise to reduce debt, analysts believe that Glenmark Pharma’s growth drivers in India, Ryaltris, and inhalers make Glenmark Life less critical to its growth. They anticipate a 12% revenue and 19% Ebitda dilution for Glenmark Pharma but a 3% PAT accretion in FY25 due to lower D&A, interest savings, and minority interest.
Importantly, Glenmark Pharma is expected to have a net cash position of Rs 2,700 crore post-deal, excluding settlement payouts. However, uncertainties related to Ichnos prompt a ‘HOLD’ recommendation with an unchanged target of Rs 830.