Glenmark down 3%; Credit Suisse says Venezuela may hurt PAT

Moneycontrol Bureau

Credit Suisse has maintained its underperform rating on Glenmark Pharma as it feels potential currency devaluation in Venezuela could hurt profit meaningfully. The stock lost more than 3 percent intraday Wednesday.

The brokerage expects a 20 percent degrowth in company’s FY17 earnings per share as it continued to see underappreciating Venezuela risk for Glenmark.

“2015 annual report shows 90 percent of growth in Latin America was driven by Venezuela and Venezuela subsidiary made 41 percent profit before tax margin which including transfer pricing implies EBITDA margins in Venezuela are more than 50 percent. Thus Venezuela is 10-15 percent of profits and a potential currency devaluation could hurt profit meaningfully,” Credit Suisse reasons.

The effective cash tax rate for FY15 was high at 35 percent due to higher losses in subsidiary (Russia made a loss before transfer pricing and loss in Brazil & Czech Republic increased) and Venezuela subsidiary is paying a 35 percent tax rate now.

Glenmark Pharma guided for 25-30 percent tax rate in FY16. The brokerage believes FY16 tax rate is more likely to be 30 percent.

Yield on cash for the company remained at less than 1 percent for the last three years. Consolidated cash was Rs 770 crore and was 25 percent of debt at the end of FY15.

In FY15, Rest of the World business of the company declined 17.69 percent to Rs 812.33 crore compared to last year, majorly impacted by Russia. Glenn Saldanha, Chairman & MD had said currency devaluation and subdued business environment persisted to impact Rest of the World, especially Russian operations. Consolidated revenue increased by 10.62 percent to Rs 6,644.77 crore during the same period.

At 11:02 hours IST, the scrip of Glenmark Pharma was quoting at Rs 1,093, down Rs 31.50, or 2.80 percent on the BSE.