Glenmark Pharma Shares Decline Amid Nirma’s Acquisition of Glenmark Life Sciences; What Brokerages Says

In a significant development, Glenmark Pharmaceuticals witnessed a 6% decline in its share price during early trading on September 22. This drop followed the news of Nirma’s acquisition of a substantial 75% stake in Glenmark’s subsidiary, Glenmark Life Sciences. The stock opened at ₹815.95, down from the previous closing price of ₹828.05, with a current trading price of ₹775.85 on the BSE.

Glenmark Pharmaceuticals had recently disclosed its decision to sell a 75% stake in Glenmark Life Sciences to Nirma at ₹615 per share, amounting to a total consideration of ₹5.651.75 crore. Notably, Glenmark Pharmaceuticals will still maintain a 7.84% ownership in Glenmark Life Sciences after the transaction.

Nirma Ltd has agreed to acquire this majority stake in Glenmark Life Sciences for ₹5,651.5 crore, valuing the subsidiary at ₹7,535.4 crore. Additionally, Nirma will be making a mandatory open offer to all public shareholders of Glenmark Life Sciences for an additional 17.15% stake at ₹631 per share. Glenmark Life Sciences had made its stock market debut in August 2021 at ₹720 per share. However, the completion of this sale is subject to various conditions, including regulatory and shareholder approvals.

Both Glenmark Pharmaceuticals and Glenmark Life Sciences saw a decline in their share prices during morning trading, while the broader Sensex remained relatively stable. Nevertheless, it’s important to note that both companies have experienced significant gains over the past year. Glenmark Pharma’s shares surged by over 103%, while Glenmark Life Sciences witnessed a 50% increase in its share price. In contrast, the Sensex posted a comparatively modest 12% gain during the same period.

Despite the positive implications of the Nirma-Glenmark Pharma deal in terms of turning the company into a net cash position, some brokerage firms have reservations about the stock’s current outlook. Nuvama Wealth Management expressed concerns about selling a profitable franchise to reduce debt, but it believes that Glenmark Pharma’s growth drivers, including its performance in India, Ryaltris, and inhalers, render Glenmark Life less critical to the company’s growth. Nuvama has issued a ‘hold’ recommendation on the stock with a target price of ₹830.

Nuvama anticipates a 12% revenue and 19% EBITDA dilution but expects a 3% PAT accretion in FY25 due to lower depreciation and amortization, interest savings, and minority interest. This transaction is expected to transform Glenmark Pharma into a net cash position of approximately ₹2,700 crore post-deal, prior to settlement payouts.

Meanwhile, Motilal Oswal Financial Services holds a ‘neutral’ view of the stock with a target price of ₹780. The firm acknowledges that the stake sale alleviates debt-related concerns for Glenmark Pharma, providing additional funds for its innovative pipeline and branded generics business. However, Motilal notes that Glenmark Pharma’s earnings will likely remain neutral, as the reduction in EBITDA from the API business (₹550 crore) is expected to be offset by lower interest costs and higher other income.

Motilal emphasizes that new product launches, increased market share, and inflation-linked price revisions for products under the National List of Essential Medicines (NLEM) are poised to sustain Glenmark Pharma’s growth momentum. The brokerage firm anticipates a 10% CAGR in domestic formulation sales, reaching ₹4,870 crore over the FY23-25 period.

In summary, the Nirma-Glenmark Pharma deal has prompted fluctuations in share prices, but opinions from brokerage firms vary regarding the stock’s outlook, highlighting the complex dynamics of this transaction.