Recommendation From Pharmaceuticals & Healthcare Facilities Products Sectors

The scrips in this column have been recommended with a 15-day investment horizon in mind and carry high risk. Therefore, investors are advised to take into account their risk appetite before investing, as fundamentals may or may not back the recommendations. 

GLENMARK 

CMP - Rs 590.35
BSE CODE 532296
Volume 133407
Face Value Rs 1
Target Rs 640
Stoploss Rs 543 

A global pharma company, which is engaged in the development of new chemical entities and new biological entities, earns nearly 75% of its revenue from India and the US, followed by nearly 8% from Europe. The higher R&D spend and delay in profitable product approvals led to a decline in profitability, specifically in the US by 30% YoY and 5% QoQ in Q4. However, the expected launch of 10 more products, including 5-6 niche products, would revive earnings in the coming quarters. The company launched Tacrolimus and gWelchol in Q1FY19 and gained 10-15% US market share, which would offset the loss from Mupirocin. Moreover, the continued boom in India and 40% YoY growth in Europe with the widespread gSeretide cushioned the earnings. Meanwhile, the company has filed its first speciality respiratory product in the US in the last quarter and would file in-licensed complex generics by 2020. It is expected to start phase 2b trials for its derma product. With this, the company can expect 10-15% revenue growth as against flat growth in the current fiscal. The company has a D/E of 1, but the interest coverage of 4.9x lends security. We recommend a BUY. 

APOLLO HOSPITALS 

CMP - Rs 1054.50
BSE CODE 508869
Volume 22794
Face Value Rs 5
Target Rs 1145
Stoploss Rs 975 

The company provides healthcare facilities (55% of FY18 revenue) and operates standalone pharma (40% of FY18 revenue). The company operates 70 hospitals (43 owned, 11 day care/short surgical stay centres, 11 cradles, 5 managed hospitals) with total bed capacity of 9,844 beds, while it operated 3021 pharmacies as of March-end of 2018. During FY18, the company posted 13.6% and 8.9% growth in consolidated revenue and EBITDA, respectively, while its PAT de-grew in the wake of EBITDA loss of its hospital in Navi Mumbai and other new hospitals and the PAT loss of Apollo Gleneagles Hospital, Kolkata. However, the management expects the Navi Mumbai occupancy to increase from 30 (out of total 175) and thereby it expects an increase in the EBITDA margins of 10-15% by FY20 and Gleneagles EBITDA of Rs 30 crore in FY19 from Rs 10 crore in FY18. It has also plans for capex of Rs 350-400 crore in FY19. The management is expected to start proton therapy treatment from Q4FY19. With the expected revival in EBITDA loss segments, constant addition of hospitals and consistent revenue growth, we recommend a BUY