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Pharma DolatCap 060913

Pharma DolatCap 060913

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Sections

  • Executive Summary
  • Generic market to remain buoyant
  • So Far So Good
  • ITS NOT A SMOOTH RIDE ALL WAY!
  • Valuation Matrix
  • Aurobindo Pharma
  • Biocon
  • Cadila Healthcare
  • Cipla
  • Divi’s Laboratories
  • Dr. Reddy’s Laboratories
  • GlaxoSmithkline Pharma
  • Glenmark Pharmaceuticals
  • IPCA Laboratories
  • Lupin
  • Sun Pharmaceuticals

Sector Note

DOLAT CAPITAL

Indian Pharma Sector

India Research

Global Generics: Patent cliff around?

Sr. Analyst: Milind Bhangale Tel : +9122 4096 9731 E-mail: milindb@dolatcapital.com

September 4, 2013

DOLAT CAPITAL

Table Of Contents
Sr. No. 1 2 3 4 5 6 Content Executive Summary Generic market to remain buoyant So Far So Good Its Not A Smooth Ride All Way Valuation Matrix Company Snapshots Aurobindo Pharma Biocon Cadila Healthcare Cipla Divi’s Laboratories Dr Reddy’s Laboratories GlaxoSmithkline Pharma Glenmark Pharmaceuticals Ipca Laboratories Lupin Sun Pharmaceuticals Page 3 4 7 15 18 19-59 19 23 27 31 35 39 43 45 49 53 57

September 4, 2013

2

Executive Summary

DOLAT CAPITAL

Global Generics: Patent cliff around?
The Indian pharma players have been one of the biggest beneficiaries of the patent cliff over the last five years. Over time, some of these players have built up sizeable base in the US markets through their systemic approach to tap into the opportunities going off patent, while some have opted to take the direct route through acquisitions. How long can this go on? And how prepared are the Indian players and which ones, to tackle this opportunity as it tapers off next few years? And can there be there other geographies that can present as growth avenues for the companies? We attempt to take a macro view on these issues in this note. GLOBAL GENERICS The global generics market is estimated to grow to USD 430bn in 2016 from USD 242bn in 2011, implying a CAGR of 12%. This compared to the 8% CAGR over 2006-2011 is a marked acceleration. The near-term outlook for US generics remains intact with USD 100bn worth of drugs slated to go off patent over the next five years. While the upcoming patent cliff may throw up selective opportunities for Indian generic companies, we do believe that low lying fruits that created opportunity to reap significant rewards are done. Hence it would require a more selective approach on part of the Indian drug makers to scale up on capabilities towards complex molecules, as well as focus on new areas. We believe Indian generic companies are gearing up for this opportunity through a) Shifting focus towards differentiated platform technologies, b) Niche/complex filings, focusing more on profitability than market share, c) Aggressive Para IV filings, d) Building branded portfolio to tap specialty therapies, e) Orphan/Shortage drugs: future potential for Indian generics, f) M&A activity: tap the complex/ niche opportunity and g) Tie-up/In-licensing deals with innovators. However, challenges such as a) Growing ANDA approval backlog and increasing ANDA approval timelines, b) USFDA’s increased focus on cGMP compliance, c) unfair use of restricted drug distribution program by innovators have impacted sentiment.

September 4, 2013

3

contraceptives and antivirals (excl. This growth would be largely driven by patent expiries in developed markets. improved efficacy and relatively large patient populations leading to increased uptake.DOLAT CAPITAL Generic market to remain buoyant The global generic market is expected to increase from US$242bn in 2011 to US$430bn by 2016. 2013 4 . 2011 and 2016 Source: IMS Institute for Healthcare Informatics. May 2012 September 4. only classes with anti-epileptics. Global Spending. Spending and Growth in Leading Therapy Areas Source: IMS Institute for Healthcare Informatics.HIV products) will grow faster than in the past 5 years. May 2012 Specialty therapies to drive growth: Specialty medicines will experience continued growth driven by novel mechanisms. Of the 20 largest therapy areas. expanded generic use for off-patent molecules and volume-driven growth in the pharmerging markets. IMS Market Prognosis. growth is decelerating in most therapy areas due to patent expiries and the lack of significant new treatment options. However.

Spending by Geography Source: IMS Market Prognosis. May 2012 September 4. However in absolute terms. while the share of top five European countries is expected to decline from 17% to 13%. however continues to be the largest in absolute terms: The US share of global spending on generics is expected to decline from 34% in 2011 to 31% in 2016.DOLAT CAPITAL US share to decline. 2013 5 . May 2012 Contribution to Developed Maket Growth Source: IMS Market Prognosis. The biggest gainer shall be the pharmerging markets going up from USD 194bn in 2011 to USD 359bn in 2016. US market will continue to be the biggest market expanding in generic spending from US$325bn in 2011 to US$364bn in 2016.

as rising incomes. Global Growh 2007-2016 Source: IMS Market Prognosis. will drive significant increase in affordability of basic medicines. 2013 6 .DOLAT CAPITAL Pharmerging markets to grow at 13% CAGR over next five years: The Pharmerging markets are expected to nearly double their pharmaceutical spending from US$194bn in 2011 to US$359bn in 2016 and would reach 30% of global spending in 2016. combined with continued low costs for medicines. May 2012 September 4.

Hence it would require a more selective approach on part of the Indian drug makers to scale up on capabilities towards complex molecules. For example. e. dermatology.g. Suprax.DOLAT CAPITAL So Far So Good Indian companies moving up the value chain in US Indian companies have tapped the US market by focusing on opportunities in plain-vanilla generics segment. as well as focus on new areas. September 4. We believe Indian generic companies are gearing up for this opportunity through. many Indian companies continued to improve their product offerings and look at alternative avenues to generate higher revenues/margins and accelerated growth. 3) Paragraph IV opportunities (several generic companies are also settling litigation with innovators. we do believe that low lying fruits that created opportunity to reap significant rewards are done. primarily focused on monoclonal antibodies (MAbs). and has now forayed into highly profitable dermatology segment through the acquisition of Dusa. Promius pharma – Branded specialty company of Dr Reddy’s. Antara (Lupin).g. Sun continues to operate primarily in the niche. DUSA acquisition by Sun pharma for entry into branded dermatology segment. high margin areas of CNS and CVS. These included: 1) Difficult-to-make products having technological barriers to entry either in terms of API manufacture or dosage formulations 2) Niche category products that require dedicated facilities/clinical trials and are not economically viable for more than few generic players. 2013 7 . controlled substances. Dr Reddy’s and Lupin have created operating niches to derive sustainable growth. Cephalosporins. DRL has entered into an alliance with Merck to co-develop a portfolio of biosimilar compounds in oncology. This alliance offers a risk mitigation pathway for DRL to take its development capabilities through the clinical phase and then into commercialization. e. However. A) Differentiated platform technologies B) Niche/complex filings for the US market C) Aggressive Para IV filings D) Building branded portfolio to tap specialty therapies E) Orphan Drugs: Future potential for Indian generics F) Adding differentiated products/technology through acquisitions G) Tie-up/In-licensing deals Firms such as Sun pharma.. While the upcoming patent cliff may throw up selective opportunities for Indian generic companies. hormonal products etc. thereby ensuring upside and removing litigation risks) and 4) Focus on specialty branded products.

gLoprox. Branded products. gImitrex. Key products/segments tapped Company Dr Reddys Key Products launched gGeodon. gSeroquel. gBactroban Focus areas Para IV products. gPrilosec. gImitrex inj Suprax. gProtonix. gReclast. gLamictal. gLexapro. gAldara. gGemzar. gEloxatin. Controlled substance. gCombivir. gCutivate. gTricor. CNS Sun Pharma Controlled substances. gSingulair. injectables. gTaxotere. gPrevacid. gKeppra XR. gArixtra. dermatology Lupin Glenmark Dermatology. gEthyol. gDiovon. In addition to filing products on its own. Antara. AG Femcon Fe. gAllegra D24. gMircette. gAccolate. gExelon. gSeasonale. gDacogen gTrileptal. OC’s. gStalevo. gZyprexa. gGlumetza. gMaxalt. gLotrel gOvcon-35. 2013 8 . gGeodon. the company is also exploring inorganic opportunities in this space to fill contraceptive segment. dermatology. Ocs. gGabitril. gDifferin. with eight products pending approval from USFDA. gZenatane. gCymbalta. Lupin has identified ophthalmology. 7/7/7. OC’s Source: Dolat Research US Sales of Indian Companies Source: Dolat Research September 4. gOrtho-Novum 1/35. gPropecia. dermatology and respiratory as its medium-term growth drivers. gPrograf.DOLAT CAPITAL Similarly.

Additionally. Sun Pharma has moved from simple dosage forms like tablets and capsules to differentiated/complex products. Based on our estimate. Indian generic companies are building a differentiated product pipeline not only in anti-infectives. drugs worth USD 100 bn shall go off-patent. aerosols. CVS and CNS therapies but also niche therapies such as oral contraceptives.DOLAT CAPITAL A. bio-degradable injections/implants. sprays. topical. Focus on niche/complex therapies Source: Dolat Research C. followed by Sun Pharma. Aggressive Para IV filings Over the next five years. B. Dr Reddy’s. gastro retentive device for controlled release products (allows longer retention of drugs in stomach and improves GI absorption). 2013 9 . This strategy not only helps in keeping competition away for a longer period of time. targeted drug delivery for nanoemulsions (selective delivery of cytotoxic drugs). Niche/complex filings As patent cliff looms. and Lupin have been the most prolific filers for Para IVs due over the next five years. September 4. Among the Indian generic companies. The company has developed different drug delivery platform technologies like novel device for inhaled drugs (dry powder inhalation device for uniform dose administration). ophthalmic and controlled substances. most Indian companies are focusing on quality filings over quantity to mitigate the risk of volatility on account of sharp price erosions in plain vanilla generic drug market. but also provides better pricing environment. dermatology. Shifting focus towards differentiated platform technologies Indian generic companies are moving from plain-simple oral generics to differentiated generics based on novel delivery systems including injectables. we believe that Indian generic companies are targeting USD 40-45bn of opportunity through Para IV filings. Glenmark and Aurobindo respectively.

DOLAT CAPITAL Top 5 brands going off-patent in next five years Source: Dolat Research September 4. 2013 10 .

Building branded portfolio to tap specialty therapies As the US generic market is moving away from plain vanilla generics to specialty/complex products. However. and increase its share in overall prescription market(excluding generics) to 15. 2013 11 .1% in 1998. Levulan PDT (DUSA) Dymista (Partnership with Meda) Absorica (Isotretinoin). Nonetheless.DOLAT CAPITAL D. Ximino (Minocycline HCL) Source: Dolat Research E. Sun Pharma. Antara. Epiceram (Specialty dermatology business under Promiuspharma) Ovide.4% between 2012 and 2018. Branded portfolio of Indian companies in US Company Lupin Dr Reddy’s Sun Pharma Cipla Ranbaxy Branded Product Suprax. these drugs are approved though a fast track approval process by the FDA. Topicort.8% from 2001 to 2010 versus a CAGR of 20. pancreatic cancer and chronic myelogenous leukemia. it is becoming imperative for Indian generics to build branded portfolio. specific tax credits on R&D expenses and waiver of prescription drug user fees. The FDA extends special incentives for companies developing orphan drugs such as seven-year marketing exclusivity. Also. Most Indian large-cap generics have small presence in branded products within the US with marginal contribution to bottom line except for Lupin. Lustra (Taro).000 patients in the US. at a CAGR of 7. In another recent study by Evaluate Pharma. Orphan Drugs: Future potential for Indian generics Orphan drug designation is given by the FDA to drugs.1% for non-orphan drugs. which is to facilitate early commercial launch of the drug. which are intended to treat rare diseases that affect less than 200. This is in contrast to Teva where the branded portfolio accounts for well over half of the company’s profitability. Strides Arcolab.9% by 2018 from 5. branded business remains a risky proposition given the risk of generic entry and expensive acquisition multiples. Natco pharma’s novel anti-cancer drug NRC-AN-019 has received ‘Orphan Drug Designation’ from the USFDA for three indications namely Glioma (brain tumor). We expect these products present interesting opportunities for Indian generic companies like Dr Reddy’s. Scytera. The orphan drugs market grew at a CAGR of 25. Indian pharma is seen investing more in building business in this segment given stability in revenues and pricing advantage. Cloderm. orphan drug market is set to grow to USD127bn. Zydus Cadila and Biocon. September 4. Allernaze (pipeline) Promiseb.

DrReddys would capitalize on OctoPlus’s expertise in injectable specialty generics such as liposomes and microspheres. We expect the acquisition route to be one of the most critical in the pursuit of Indian companies to graduate on capabilities.DOLAT CAPITAL Orphan drugs approved in 2012 Product Elelyso Kyprolis Bosulif Kalydeco Jakafi Erwinaze Onfi Voraxaze Ferriprox Source: FDA Company Pfizer Onyx Pharma Pfizer Vertex Pharma Incyte Corp EUSA Pharma Lundbeck Btg international. Sun Pharma acquired DUSA pharma for ~USD 230mn to gain entry into the drug-device dermatology market. OctoPlus’s key asset is Locteron. September 4. inc ApopharmaInc Molecule Taliglucerasealfa Carfilzomib Bosutinib Ivacaftor Ruxolitinib Asparaginase Erwinia Chrycanthemic Clobazam Glucarpidase Deferiprone Indication Gaucher’s disease Multiple Myleoma Chronic myelogenous leukaemia Cystic fibrosis Bone Marrow disease Acute lymphoblastic leukemia Seizures associated with Lennox-Gastaux syndrome Toxic methotrexate concentrations in plasma of patients receiving chemotherapy Iron overload F. Indian companies completed four global acquisitions (~USD1 bn) to add differentiated products to their portfolio. 2013 12 . which can be applied to various products. Dr Reddy’s acquired OctoPlus NV for ~USD 36mn to get entry in longacting controlled release technology. DUSA’s key flagship product is Levulan PDT (photodynamic therapy) for treatment of non-hyperkeratoticactinic keratoses or AKs of the face or scalp. which is a controlled release interferon alpha2b based on proprietary PolyActive technology. Adding differentiated products/technology through acquisition route: In 2012.

Philippines Acqusition value Details not disclosed USD 230mn USD 454mn NA USD 512mn ~USD 36mn USD 560mn USD 12mn USD 59mn NA Details Details Details Details Details not not not not not disclosed disclosed disclosed disclosed disclosed % stake 100% 100% 66% 100% 100% 98. Indian generics companies benefit by getting the formidable marketing resources of MNC pharma to sell their products – and thereby improve the likelihood of garnering higher market share across products as well as enhance capacity utilization.0% 91.0% 60. This is critical for them to operationalize their EM/ generic strategies without having to go through the lengthy process of developing these multiple products and then sinking in significant capex for manufacturing capabilities. Australia Hormosan Pharma.0% 100. has been the hitherto unthinkable partnering of Global Pharma players and Indian generics.6%* 100. Mexico Lupin I’rom Kyowa Pharma Dynamics.0% 100.0% Rationale Non-Colcrys generic assets Adds Levulan PDT asset Dermatology & topical product portfolio Dosage form plant Provides front end operations in Africa Provides drug delivery technology Entry in German market Entry in UK’s generic market Adds steroids manufacturing capabilities Entry in injectable market in Japan Entry in Japan market Entry in SA market Entry in Australian market Entry in German CNS market Entry in branded generics segment in women’s health and child care segment in Philippines Source: Dolat Research G.0% 51.DOLAT CAPITAL Indian pharma on the roll Company Sun Pharma Target URL Pharma DUSA Pharma Taro Caraco Cipla Dr Reddys Cipla Medpro OctoPlus NV Betapharm BMS labs Roche’s API facility.0% 100. reliable and world class manufacturers with the ability to develop and register a large suite of products across multiple geographies.0% NA 100. Germany Multicare Pharma. These partnerships have been catalyzed by Big Pharma’s need for low-cost. along with generics in regulated markets. Some of the key deals in this segment include: September 4. 2013 13 . South Africa Generic Health. Tie-up/In-licensing deals: An interesting fall-out of Big Pharma’s new operating paradigm involving aggressive branded generics play in EMs.

Japan and Korea US. 2013 14 .DOLAT CAPITAL Tie-up/In-licensing deals Innovator Pfizer Generic company Claris Strides Arcolabs Aurobindo Pharma Astra Zeneca GSK Pharma Torrent Pharma Aurobindo Pharma Strides and Onco Therapeutics Dr Reddy’s Target markets US. NZ ROW Emerging Markets EM outside India and Africa Africa. Canada. New Zealand. Asia Pacific Products 15 sterile injectables 45 products (mainly oncology injectables) ~100 products (includes orals and injectables) 18 products for 9EMs Formulation and sterile products Injectables Co-marketing and revenue sharing To be no. Australia. Canada. LATAM. The agreement has potential to expand to other countries Abbott Labs Acquired domestic India formulation biz of Piramal Healthcare Cadila HC 15 markets Sun Pharma Famy Care Cadila HC Lupin Serum Institute Emerging Markets MSD Mylan Bayer Eli Lilly Merck DSM Pharma Sanofi Pasteur Indoco Remedies Emcure Austria and other international markets India Roche Emcure India Source: Dolat Research September 4. Australia. to be imported/supplied by Sanofi and marketed/distributed by Emcure Emcure will manufacture anticancer biologics drugs. to be extended to 40 products later Innovative branded generics (largely combination products) Develop and supply 22 OC’s 50:50 JV India and Nepal Emerging Markets Promote Huminsulin (Lilly’s products) Develop and commercialise a pneumococcal conjugate vaccine (PCV) Eight APIs Sanofi’s anti-rabies vaccine Verorab. New Zealand US. Herceptin and MabThera. Canada.1 in India. post this acquisition Initially for 24 products. Rest of Europe. ROW.

2013 15 . Growing ANDA approval backlog and increasing ANDA approval timeline: The Office of Generic Drugs of US is facing an acute shortage of resources to review generic drugs. acts of nature that have caused damage or obliteration of a facility). Source: FDA Generic applications vs employees. A general description of this prioritization scheme follows: ƒ Drug shortage situations are given the highest priority for inspection. To address this issue.e.. This has resulted in increased ANDA approval timelines. ƒ The next priority tier involves ANDAs that contain a Para IV certification for which a potential 180-day exclusivity entitlement exists. ƒ The last priority tier involves applications for products that have been impacted by unforeseen circumstances that have caused a firm to stop production (i. Office of generic drugs backlog. Source: FDA September 4. the Office of Compliance and OGD has established a prioritization scheme for inspections that are required to support ANDA’s and ANDA supplements.DOLAT CAPITAL ITS NOT A SMOOTH RIDE ALL WAY! A. consequently leading to growing ANDA approval backlog.

and Cosmetic Act (FFDCA). FDA center for Drug Evaluation and Research issued 95 drug related warning letters in 2012. the DOJ (Department of Justice) has announced that it would be taking a hard look at violations under current good manufacturing practices (cGMPs). USFDA’s increased focus on cGMP compliance: In 2013. an increase of 20% from 2007.DOLAT CAPITAL Increasing ANDA approval timeline Source: FDA B. down from a peak of 171 warning letters in 2010. in addition to Federal Food. The USFDA found violations at 558 drug plants inspected in 2010. The DOJ plans to actively step up enforcement for cGMP violations under the authority of False Claims Act (FCA). In addition. Drug. FDA warning letter from 2008-2012 Source: FDA September 4. 2013 16 . or 54% of all plants inspected in 2010.

DOLAT CAPITAL
Warning letters to Indian companies
Companies Aurobindo Claris Lifesciences Dabur Dr Reddy’s Fresenius Lupin Ranbaxy Facility Unit III & VI Clarion II Bordon Cuernavaca Nadia Bhopal Paonta Sahib Dewas Ohm Labs Ankleshwar Navi Mumbai Detroit Cranbury Waluj Moraiya Location Hyderabad Ahmedabad UK Mexico West Bengal Madhya pradesh Himachal Pradesh Himachal Pradesh New York Gujarat Maharashtra Michigan New Jersey Maharashtra Gujarat Year 2011 2010 2009 2011 2013 2009 2008 2008 2009 2013 2013 2008 2010 2013 2011 Remarks Cleared Cleared Pending Cleared Pending Cleared Pending Pending Pending Pending Pending Partially cleared* Cleared Pending Cleared

RPG Lifesciences Sun pharma/ Caraco

Wockhardt Zydus Cadila
Source: Dolat Research

C. Unfair use of restricted drug distribution program by innovators: Certain brand drugs are subject to distribution restrictions that may used to prevent generic firms from accessing samples (for bioequivalence testing) of brand product. This is being implemented as part of FDA mandated risk management programs known as REMS (Risk Evaluation and Mitigation Strategies). However, the FTC (Federal Trade Commission) has found that branded name drug manufacturers are improperly using restricted drug distribution programs to impede generic competition. Nearly 40% of new drugs are currently subject to FDA-imposed safety restrictions, and innovators are taking advantage to block competition.

September 4, 2013

17

DOLAT CAPITAL
Valuation Matrix
Companies FY13 Aurobindo Biocon Cadila Healthcare Cipla Divi’s Labs Dr. Reddy’s Labs Glenmark GSK Pharma* IPCA Labs Lupin Sun Pharma 57,701 24,853 63,581 82,025 21,448 118,745 50,123 26,303 28,131 96,413 112,389 Net Sales (` mn) FY14E FY15E 68,967 29,286 69,709 94,000 25,370 129,701 58,548 28,182 32,711 111,299 132,833 80,853 33,797 81,864 106,709 29,907 146,568 68,840 31,593 38,322 128,689 160,487 EBIDTA (` mn) FY13 FY14E FY15E 8,609 5,430 11,257 21,193 7,132 27,347 10,113 8,191 6,232 22,700 49,673 12,261 6,516 12,199 24,144 9,894 29,292 12,046 7,489 7,274 26,155 58,295 14,583 7,672 14,736 27,609 11,649 33,172 14,479 8,711 8,681 30,885 68,512 FY13 PAT (` mn) EPS (`) FY14E FY15E FY13 FY14E FY15E 4,378 3,885 7,302 16,797 7,453 17,304 7,201 6,385 4,582 15,572 44,696 7,514 4,693 9,299 19,212 8,912 20,227 8,944 7,311 5,515 17,990 49,978 10.1 19.7 15.3 19.4 32.0 35.7 18.8 20.9 37.7 56.1 102.8 101.9 22.7 26.6 79.9 75.4 30.6 36.3 30.0 34.8 34.7 21.6 25.8 23.5 45.4 23.9 67.1 119.1 33.0 86.3 43.7 40.2 24.1

1,304 5,088 6,553 15,073 5,000 16,090 6,147 6,772 3,867 13,404 35,916

* December year ending

Companies

Mcap (` bn)

CMP (` )

TP Upside P/E (x) ROE (%) EV/EBITDA(x) Mcap/Sales (x) (` ) (%) FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E 41 18 13 18 19 8 9 (17) 15 15 18 18.1 22.1 20.0 21.6 25.4 21.5 22.7 28.5 21.1 28.1 14.7 9.3 17.5 18.0 19.4 17.0 21.7 19.3 30.3 17.8 24.2 23.7 7.1 14.5 14.1 17.0 14.2 18.6 15.6 26.4 14.8 20.9 21.2 5.3 12.4 23.5 18.1 22.1 24.9 29.7 34.5 27.3 29.3 29.7 15.3 13.8 22.5 17.3 28.1 21.6 33.1 31.0 26.0 26.8 33.1 21.8 15.1 24.4 17.1 27.8 20.7 31.3 33.5 25.3 24.9 31.3 9.9 11.7 13.3 15.8 17.9 14.3 15.4 21.1 14.2 16.8 9.9 6.7 10.0 12.1 13.4 12.8 13.0 12.6 23.1 12.1 14.0 17.4 5.6 8.6 10.0 11.5 10.9 11.0 10.1 19.7 10.1 11.7 14.1 0.9 2.7 2.1 4.1 5.9 3.2 2.8 7.4 3.0 4.0 4.7 0.8 2.3 1.9 3.5 5.0 2.9 2.4 6.9 2.5 3.4 8.0 0.7 2.0 1.6 3.1 4.3 2.5 2.0 6.2 2.2 3.0 6.6

Aurobindo 53 183 258 Biocon 68 339 399 Cadila Healthcare 131 642 727 Cipla 326 406 480 Divi’s Labs 127 956 1,141 Dr. Reddy’s Labs 375 2,210 2,382 Glenmark 139 514 561 GSK Pharma* 193 2,282 1,900 IPCA Labs 82 647 743 Lupin 376 840 965 Sun Pharma 1,057 510 603
* December year ending

September 4, 2013

18

Aurobindo Pharma
CMP: ` 183
BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High / Low Avg. Volume (no) BSE Code NSE Symbol Bloomberg Code Reuters Code ` 291mn ` 1/` 53bn USD 794mn ` 205 / 102 2785621 524804 AUROPHARMA ARBP IN ARBN.BO 18,235 5341

DOLAT CAPITAL

Target Price: ` 258
Multi-Year Play on Injectables...

Buy

Aurobindo Pharma (APL), in the last five years, has transformed itself from being a low-margin API player to a high-margin formulation manufacturer. APL has identified injectibles as a key focus area. It is investing upfront to build a strong pipeline of 100 ANDAs from current 30 ANDAs. Further, it has acquired assets (Celon plant) to accelerate growth in hormones/oncology and expects to file for 22 products from acquired site. These assets would render higher growth and margins. With an emerging new business model, we expect APL to have a robust performance on the back of strong US sales, new ARV tenders and growing traction in EU formulations.

Investment Rationale
Business Model - Realigned towards high margin formulations APL has re-aligned its business model successfully over the last five years with an increasing focus on lucrative formulations business from low margin API earlier. Contribution of formulations to business mix has increased from 39% in FY08 to 57% in FY13, and we expect this to reach to 64% by FY15E. US, EU (50% of formulation sales) would be the key growth drivers in formulations as Aurobindo leverages its strong regulatory pipeline and ramps up supplies to licensing partners globally. Aurobindo’s regulatory pipeline boasts of 281 ANDAs, 167 DMFs (drug master files), 1825 MAAs (marketing authorisation application—EU, RoW filings) which is supported by strong backward integration, ensuring price competitiveness in growing generic markets. US Biz – Focus on niche segments US generics segment contributed 30% of total sales in FY13. The company is focusing on high value niche segments such as injectables, controlled substances, penems, and hormones for future growth. The company has filed 281 ANDAs with the USFDA, of which 90 ANDAs are pending approval. We estimate US sales to register 26% CAGR over FY13-FY15E. z Injectable Segment - APL has decided to spin off the injectable business to a wholly owned subsidiary to strengthen and increase its focus on high margin business. Currently, APL has filed 50 ANDAs (30 ANDAs from Unit IV and 20 ANDAs from Unit XII) with the USFDA and received approval for 25 ANDAs. The company has launched
Adj.PAT % Growth Adj.EPS (`) % Growth PER (x) ROANW(%) ROACE (%) 1,976 2,938 5,746 7,514 (63.8) 48.7 95.6 30.8 6.8 10.1 19.7 25.8 (63.8) 48.6 95.6 30.8 26.9 18.1 9.3 7.1 8.3 5.3 15.3 21.8 7.8 11.7 15.9 18.2

Shareholding Pattern as on June’13(%)

Promoter FIIs MF/Banks/FIs Public / Others
APL relative to Sensex 160 150 140 130 120 110 100 90 80 Apr-13 Aug-12 Dec-12

54.84 17.87 13.78 13.51

APL

Sensex

Financials
Year Net Sales % Growth EBIDTA OPM % 45,647 57,701 68,967 80,853 mn 10.6 26.4 19.5 17.2 5,860 8,894 12,561 14,898 12.8 15.4 18.2 18.4 FY12 FY13 FY14E FY15E Figures in `

September 4, 2013

Aug-13

Feb-13

Jun-13

Oct-12

Aurobindo Pharma

19

1x FY15E earnings. it plans to invest in an oncology injectable facility and split the injectable business into a strategic business unit. the stock trades at 9. September 4. We initiate coverage on Aurobindo with ‘BUY’ recommendation and a target price of ` 258 (10x FY15E EPS). 2013 Aurobindo Pharma 20 . strong outflow on capex and addition of new loan due to two new acquisitions.DOLAT CAPITAL eight injectables till date and is planning to launch four more in FY14E. Valuations With new filings in Penems and high value injectables. At CMP. we believe the company’s pending approvals of 90 ANDAs auger well for quality of revenues from US generics and margin. we are concerned on slow ramp-up in utilisation. In addition. While cost optimisation would boost margin.3x FY14E & 7. Management expects the injectable business to contribute USD40 mn in FY14E and USD 60mn in FY15E.

749 943 43.894 2.7 130.DOLAT CAPITAL INCOME STATEMENT Particulars Net Sales Other Operational income Income for Operations Total Expenditure Raw Material Employee Expenses Other Expenses EBIDTA (Excl.208 37.2 2.4 1.) 12.935 26.074 2.274 40.568 33.347 (2.181 1.228 2.1 50.6 10.6 55.5 9.717 (D) Measures of Investment EPS (`) (excl EO) CEPS (`) DPS (`) Dividend Payout (%) Profit Ploughback (%) Book Value (`) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.746 ` mn Mar15E 80.853 1./ (Dec.8 110 70 5.2 1.092 (C) Measures of Financial Status Debt / Equity (x) 1.3 (B) As Percentage of Net Sales Excise Duty % of Gross Sales Raw Material Employee Expenses Other Expenses 1.265 6.3 7. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Minority Interest Net Profit Adj.015) 5.4 Applications of Funds Gross Block 30.451 Investments 385 Current Assets.2 1.5 5.584 7.2 78.0 32.7 10.3 89.635 16.378 5.311 (4.259 38.967 900 69.189 1.926 9.347) (811) 25 (4.) MCap/ Sales (x) EV (` Mn.6 Debtors Period (days) 99 Closing stock (days) 124 Inventory Turnover Ratio (x) 3.4 2.908 6.7 1.2 89.704 25.087 31.444 680 68.551 2.I.4 2.5 183 7.8 11.9 2.9 2.397 102 16.0 21.360) 7.3 1.700 2.269 40.487) (649) 25 (6.514 CASH FLOW Particulars Mar12 Mar13 Profit before tax 1. O.3 11.2 Non Cash Working Capital (` Mn) 19.334 1.472 1.772) (2.8 29.0 18.8 Interest / Sales 6.602 2. Activities (5.9 84.236 15.944 680 62.507) Free Cash Flow 4.112 7.606 34.583 315 14.739 2.491 25.5 183 26.844 680 60.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 6.1 11.425 Total Assets E-estimates 49. Other Income) Other Income EBIDTA (Incl.376 9.728 (19) 49.976 1.888 Mar15E 291 37.115 Interest exp net (2.9 53.460 (10.2 22.882 709 Closing Cash balances 709 2.1 53.536 Less : Current Liabilities & Provisions Current Liabilities 12.7 13.344 19.324 943 42.888 43.7 September 4.8 82.3 0.000) 4.969 68.568 30.2 3. Tax) (415) (519) Other (bal fig.772 3.970 2.3 2.789 7.938 Mar14E 68.949 9.947 1.863 31.0 Fixed Assets Turnover (x) 2.6 11.487 10.1 51.413 (3.7 24.8 35.487 (1.567 37.0 9.867 57.1 80.085 1.456 Sundry Debtors 12.208 (2.1 50.701 853 58.188 0.816 62.403 8.078 10.613 247 5.691 Mar14E 291 30.916 Net Block 21.647 626 46.399 0 (3.661 25.8 13.208 Mar13 291 25.228 9.279 (25) 1.970 (6) 1.276 9.7 37.561 2.635 11.972 33.853 67.1 Working Capital Turnover (x) 2.426 (3.2 6.982 11.602 2.698 24.357 10.0 0.2 3.2 1.2 11.058 110 24.8 18.766 26.107 5.741 Depreciation & w.985 26.347 12.7 22.7 1.897) (2.6 183 9.I.863 Less: Accumulated Depreciation 8.341 14.) (E) Valuation Ratios CMP ( `) P/E (x) Market Cap.082 0 1.1 Interest Coverage (x) 0.472 Mar15E 9.367 1.602 0 9.900) (2.633 13.1 21.4 4.2 17.188 0.992 980 8.005 1. 2013 Aurobindo Pharma 21 .9 2.112) (5.334 2.8 0.3 EBIDTA Margin (incl.0 5.666 6.082 3.304 2.5 183 18.174) 1.1 53.353 (25) 4.6 2.o.5 101 122 3.) in Debt 1.265 14.947 Capital Work in Progress 6.1 Gross Profit Margin 6.8 18.071 Net Change in Cash (1.196 891 12.9 17.3 53.188 0.328 12.6 1.107 827 1.568 29. Loans & Advances Inventories 15.741 1.691 40.614 4.011) (612) 2.8 7.666 Direct taxes paid 888 (827) Change in Working Capital 3.094) (A) CF from Opt.500) (2.897) (2.265 20.514 7.858 110 19.634 2.5 Average Cost Of Debt (%) 5.6 27.2 3.694 15.585 8.882) 1. 2.246 26.609 285 8.9 80.635 13.1 85.7 81.6 10.200 223 13.5 23.860 2.1 Mar13 Mar14E Mar15E Mar14E 7.0 6.005 2.487 Net Interest Exp 2.0 15.1 37.944 29.649 2.) in Investments 0 (163) (B) CF from Inv.898 2.026) Capex (5.666) Dividend Paid (Incl.155 110 21.3 1.8 39.368 5.169 1.3 1.533) Inc.238 9.087 2.4 19.Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Other Reserves Net Worth Minority Interest Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Mar12 291 23.085 5.426 0 (3.9 15.0 2.000 81.0 0.8 62.376 Opening Cash balances 1.261 300 12.659 1.002 17.0 1.015) (2.1) Net Profit Margin 4.366 1.949 2.4 8.9 15.111 Net Current Assets 20. O./(Dec. (` Mn.785 1.810 10.3 4.8 Tax/PBT (82.185 223 19.9 107.6 14.105 23.976 Mar13 57.092 Mar12 45.876 9.9 15.5 22.3 0.2 3.1 13.772 2.4 0.489 (25) 7.553 49.966 1.3 15.0 2.7 1.198 5.200 223 15.895 60.614) (2.534) 8.230 Other Current Assets 743 sub total 33.9 110 71 5.669) Inc.487 3.633) (207) 1.000) (1.) (3.085 E-estimates IMPORTANT RATIOS Particulars Mar12 (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl.) 12.485) 6.405 Provisions 706 sub total 13.472 6.389 2.956 943 49.400 Cash and Bank Balance 709 Loans and Advances 4.2 18. Activities 10.739 7.1 14.141 (C) Cash Flow from Financing (5.082 (888) 1.

2013 Int en tio na lly Le ft B lan k Aurobindo Pharma 22 .DOLAT CAPITAL September 4.

1 17. 2013 Biocon 23 . We estimate 21% revenue CAGR in its CRO segment over FY13-15E with increased focus on integrated drug development services.8 21.9) (9.PAT % Growth EPS (`) 20.885 4. going off-patent 2015E onwards) is on track.430 6.5 15.Biocon CMP: ` 339 BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High / Low Avg.BO Biocon has shifted its focus from statins to branded biotech formulations and contract research services.85 12.9) (9. contributes 20-30% of Syngene sales. # Figures are ex-Axicorp September 4.672 24.6 20. Investment Rationale Risk Adjusted Growth Strategy Biocon is the only company which has made remarkable progress in the Indian Biotech industry with oncology and diabetes as its focus areas.286 33.7 16. Biocon has concluded second part of EU Phase III trial for biosimilar rh-Insulin and is currently compiling the data to be submitted to the European regulatory agencies. Volume (no) BSE Code NSE Symbol Bloomberg Code Reuters Code ` 1000mn ` 5/` 68bn USD 1013mn 18.4 5.384 3. Over the years.50 20.797 (24. product-development arrangement with Mylan (five biosimilar products.6 20.8 15.8 16.4bn.1 22.516 7.2 14.1 16. Moreover. Accumulate ` 352 / 243 976682 532523 BIOCON BIOS IN BION.4 13.853 29.173 5. The Mylan collaboration (products going off-patent 2015 onwards) is on track.865 24.3 22.5 % Growth PER (x) ROANW(%) ROACE (%) (7. Contract Research segment (23% of FY13 sales) – Gaining scale The BMS contract (seven-year contract).341 DOLAT CAPITAL Target Price: ` 399 Clinical Gains.9 15. The company intends to gain scale in this vertical and shall consequently work out the modalities of getting Syngene listed.4 23.8 20.50 Biocon relative to Sensex 150 140 130 120 110 100 90 80 Apr-13 Aug-12 Dec-12 Aug-13 Oct-12 Feb-13 Jun-13 Biocon Sensex Financials Year FY12# FY13 FY14E FY15E Net Sales# % Growth EBIDTA OPM % Adj. We have recently included Biocon in our preferred pick list.3) 26. We have recently included Biocon in our preferred picks list.7 3.235 5. We expect this division to grow at 15% CAGR over FY13-15E to `24.. with 450 FTE’s.8 15. Shareholding Pattern as on June’13(%) Promoter FIIs MF/Banks/FIs Public / Others 52.1 17.15 14.069 3..4bn.3) 26. The company is making efforts to move up the value chain through selective 505 (b) 2 & ANDA filings. Ramp up in sales from Fidaxomicin supplies to Optimer will further add to the growth momentum. the company has entered into strategic partnerships and acquired IPR’s in the diabetic space..8 22.693 (7.7 12.7 Figures in ` mn.9 15. Biopharma Segment (76% of FY13 sales) – To sustain growth momentum The branded formulations business is expected to grow by 18% CAGR during FY13-15E (FY13: `3.8bn.9) 19.5bn) to `4. We estimate core Biopharma division to grow at 15% CAGR over FY13-15E with increasing contribution from domestic branded formulations and ramp up in fidaxomicin bulk supplies and Orlistat. We expect CRO division to grow at 21% CAGR over FY13-15E to `7.3 19.5 14.

over a 12 month evaluation period. thus paving the way for marketing authorization. the stock trades at 17. We have also included Biocon in our preferred picks list. Fidaxomicin bulk and Orlistat supplies. We initiate with ‘Accumulate’ recommendation with a target price of ` 399 (17x FY15E EPS). September 4. Biocon is also contemplating harmonized filing for the insulin which could be used for both the US and EU markets. The company is compiling the data and is in process of dossier submission with European regulatory authorities. 2013 Biocon 24 . shall aid near-term revenue growth. Valuation Revenue scale up in domestic branded business.5x FY14E and 14.DOLAT CAPITAL Commercialization of Rh-Insulin in regulated markets Biocon has concluded second part of EU Phase III trial for biosimilar rhInsulin aimed at establishing comparable immunogenicity and safety with the innovator products.5x FY15E earnings. At CMP. Higher R&D costs (as the product pipeline advances) restricts margin expansion.

6 22.488 412 30.5 23.000 25.423 5. 2013 Biocon 25 .8 15.4 113.233 Mar13 4.260 13.900 7.885 CASH FLOW Particulars Profit before tax Depreciation & w.600) 806 0 287 (4.758 10.o.006 0 5.956 81 5. in Working Capital (A) CF from Opt.199 (3.258 2.384 0 Mar13 24.9 8.463) 1.852 Net Block 12.042 2.0 65.500 2.5 1.917 Cash and Bank Balance 5.7 63.870 2.4 23.900 5.729 Mar14E 5.3 65.350 5.9 0.1 86 60 6.4 19.7 7.418 9 2.067) (92) (303) 3.I.054 1.9 6.629) (633) (122) (997) (1.1 47.5 87 60 6.905 (20) 3.430 5.400 5.770 6.5 33. Activities Capex Free Cash Flow (Inc)/ Dec.1 1.106 34.980 Net Current Assets 2.016 110 6.499 28.797 500 34.4 23.672 8.3 65.233 Loans and Advances 2.9 69.6 3.5 67.511) (391) 702 7. Employed (%) (D) Valuation Ratios CMP (`) PE (x) Market Cap (` Mn) Market Cap / Sales (x) EV (` Mn) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates Mar13 21.7 15.329) (1.9 2.3 16.192 7.556 8. in Investments Others (Bal Fig) (B) CF from Invt.069 ` mn Mar14E 29.127 (38) 5.345 3.793 81 (975) (2.397 22.000 31.2 27.198 8.000 6.572 19.042 2.870 3.042 1.6 5.249 0.563 Current Assets. O.750 5.012 (110) (1.192 3.8 Net Profit Margin 16.3 24.038 2.019) 6.415 5.2 0.0 86 66 5.) Return on Avg.669 1.729 3.6 15.042 0 6.394) 508 463 6.499 Mar14E 1.793 4.6 0.9 16.150 1.6 78.865 Provisions 2.715 9 38 904 1.0 13.392 24.925 0 3.4 4.0 2.693 4.313) 1.297 20.4 14.655) 3.3 19. Loans & Advances Inventories 3.067 11.3 Mar15E 22.698 2.6 Gross Profit Margin 27.884 2.9 Applications of Funds Gross Block 20.082 (2./(Dec.722) 2.3 163.101) (1.418 29.591 32.7 2.3 1.354 Less: Accumulated Depreciation 7.354 (16) (220) (81) (1.7 16.2 (B) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) (C) Measures of Investment Earnings Per Share (`) (excl EO) Earnings Per Share (`) Cash Earnings Per Share (`) Dividend Per Share (`) Dividend Payout (%) Profit Ploughback (%) Book Value (Rs.715 22.677 (4.713 (20) 4.975 (3. O.0 13.7 3.1 12.329 4.2 1.7 24.791 122 5.516 7.I.5 27.102 975 5.1 67.925 1.1 1.0 29.245 39.866 4.7 3.0 1.000 21.853 527 25.238) 4.2 0.178 2.7 72.392 Mar13 1.297 26.688 2.542 946 2.729 7.629 2.082 1.662 6.937 9 653 1.250 (130) (1.9 25.8 22.752) 818 4.1 75 59 6.708 (78) 25.384 BALANCE SHEET Particulars Sources of Funds Equity Capital Reserves (excl Rev Res) Net Worth Revaluation reserve Minority Interest Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Mar12 1.750 898 39.505 13.8 3.726 1.1 13.544 (959) (15) (4.0 30.0 12.8 339 14.786 22.286 500 29.7 12.2 63.866 3.804 2.150) 527 0 (572) (4.560 Mar15E 1.1 1.157 2. Net Worth (%) Return on Avg.7 24.783 Sundry Debtors 4.384 Net Profit After Minority Interest (w/o EOI) 3.496 5.866 5.DOLAT CAPITAL INCOME STATEMENT Particulars Income from Operations Other income Total Income Total Expenditure Operating Profit (excl.233 6.8 Operating Profit Margin (incl. OI) Operating Profit (incl.692 5.560 33.610 11.002 12.500 632 34.4 34.097 6.500 14.1 147.5 339 22.173 5.380 19.437) 5.572 17.172 130 8.125 7.006 1. Cap.5 3.937 26.4 134. Employed (%) Return on Cap.189 Intangibles 1.235 Investments 5.6 70.894 Mar15E 33.9 September 4.2 339 20.894 3.6 16.8 24.7 3.925 541 3.8 23.8 Interest / Sales 0.2 Tax/PBT 13.5 1.4 28.3 23.903 Total Assets E-estimates 25.5 6.405 30.865 618 21.056 7.950 Other Current Assets sub total 16.883 Less : Current Liabilities & Provisions Current Liabilities 11.000 130 (1.406 (4.006) 2.) 24.303 11.000 28.870 2.100 1.) 27.101 3. OI) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Minority Interest Mar12 20.885 3.0 0.497 25.591 9 3.5 67.1 67. Net Interest Exp Direct taxes paid Chg.249 Particulars Mar12 (A) Measures of Performance (%) Operating Profit Margin (excl.870 2.7 23.1 73.162) (1.5 21.4 5.6 11.672 14. Activities Inc.483 15.906 1.949 7.290 5.006 1.9 23.) in Debt Interest exp net Dividend Paid (Incl.875 1.693 Net Profit After Minority Interest 3.984 5.0 0.814 6.744 122 (541) 1.6 339 17.0 15.6 2.115 sub total 13.744 3.3 25.3 Mar14E 22.2 10.1 16.192 Mar15E 6.900 110 (1.556 9. Tax) (C) CF from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates IMPORTANT RATIOS Mar12 3.2 62.500 14.000 4.088 3.000 2.502 Capital Work in Progress 3.

DOLAT CAPITAL Int en tio na lly Le ft B lan k Biocon September 4. 2013 26 .

3% 32.839 20.0 -10.92 9.0 27.6 81.79 5.4% 18.709 9.1 23.4 27.306 3.257 17.581 20. Corrective measures taken by the company are: a) Hospira JV: The company has added a new line and expects sales to pick-up in FY15E b) Takeda/ Nycomed JV: The company is in advanced talks for adding new products and expects to finalize by end of FY14E and c) Bayer JV: Growth would be on account of launch of patented products in FY14E.4% 14. The JV biz has been impacted due to lack of new product approvals. gastro.42 9.299 27. signed the Nycomed JV .367 532321 CADILAHC CDH IN CADI.one of the most profitable JV by an Indian player (70%+ net margin) to manufacture pantoprazole intermediates.4% 35.736 18.6% 7.633 13. However. However.87 Cadila Sensex Financials Year FY12 FY13 FY14E FY15E Net Sales# % Growth EBIDTA OPM % Adj. domestic formulations growth has been impacted on account of implementation of new pharma pricing policy.5 17.5 16.864 17.PAT % Growth EPS (`)* % Growth PER (x) ROANW(%) ROACE (%) 52.9 Figures in ` mn.7% 6. women health care and respiratory (52% of the portfolio). the company offset the loss in sales through Hospira JV (oncology injectables) and currently sells six products in EU & three in US under this arrangement. Bayer.553 -10.4% 14. Joint ventures – corrective measures to ramp-up the biz The company has been proactive in identifying and capitalizing on partnership opportunities since FY07. 2013 Aug-13 Oct-12 Feb-13 Jun-13 Cadila Healthcare 27 . However. the JV biz has been impacted due to lack of new product approvals.9% 35.1 24.0 63. With increasing genericisation of Protonix. Investment Rationale Domestic biz – Going through a rough patch CDH has a 3.7 11.9% 18.5% 7. Volume (no) BSE Code NSE Symbol Bloomberg Code Reuters Code ` 1024mn ` 5/` 131bn USD 1962mn ` 964 / 650 130. Shareholding Pattern as on June’13(%) Promoter FIIs MF/Banks/FIs Public / Others Cadila relative to Sensex 105 100 95 90 85 80 75 70 65 60 Aug-12 Apr-13 Dec-12 74.7% 10. Abbott) which has in turn positioned itself as a preferred contract manufacturer for Big Pharma companies. in the near term domestic formulations growth has been impacted on account of destocking by stockists. We estimate domestic formulation sales to record 13% CAGR over FY13-15E aided by incremental revenue contribution from Biochem and new launches. # Includes Other Operating Income.BO 18235 5341 DOLAT CAPITAL Target Price: ` 727 On a recovery mode Accumulate Cadila’s (CDH) thrust on export formulations and contract manufacturing is well complemented with a strong domestic franchise.6% 12.3% 20.Cadila Healthcare CMP: ` 642 BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High / Low Avg.9% share and has a leading position in key therapies of CVS.0% 9. Nycomed/Takeda.5 69. Also.8% 11. CDH entered into several joint ventures (Hospira.4% 45. * Adjusted for exceptional items September 4.5 23. lack of new product approvals and launch of authorized generics in the older product basket.302 11.0 22.4 18. The implementation of new pharma pricing policy would have an impact of ` 900mn on domestic formulation sales in FY14E.7 3.199 17. has impacted the performance.

1x FY15E consolidated EPS. The company expects to grow by 20% in FY15E led by 10-15 new product approvals. In the near term. The company expects 5-8 new product approvals in FY14 (compared to earlier guidance of 20+ approvals). complex product filings and cost competencies (back-ended domestic manufacturing).DOLAT CAPITAL Export formulations The company’s export formulations business has grown at 31% CAGR over last five years. We estimate this division to grow by 15% CAGR over FY13-15E. September 4. We estimate a strong 19% EPS CAGR for FY13 -15E with RoCE and RoE in the range of 19-20% and 24-25% in FY14E/15E respectively. 2013 Cadila Healthcare 28 . Valuations We believe that FY14 will be a year of recovery for CDH.0x FY14E and 14. The stock trades at 18. growth has been impacted on account of lack of new product approvals and launch of authorized generics in their older product basket (impacting the margins). We remain positive on the long term prospects of the company and initiate coverage with ‘Accumulate’ with a target price of ` 727 (16x FY15E EPS). through its distribution tie-ups.

635 Mar13 8.600 25.828 1.039 2.794 7.155 41.643 65.4 Interest / Sales 3.4 36.031 9.5 19.2 1.8 1.633 532 53.374) (17) 9.306 Mar13 61.5 23.470 11.0 0.776 48. in Working Capital Other (A) CF from Opt. in Investments Others (Bal Fig) (B) CF from Invt.031 2.4 7.9 Applications of Funds Gross Block 40.0 25.970 Total Assets E-estimates 50.6 18.720 9.370 1.855 3.635 5.8 8.4 18.709 500 70.366) (3.953 (6.911 7.553 Mar14E 67.985 Net Current Assets 16.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 31.510 25.518 11.0 18.500) (1.209 57.256 22.699 1.2 5.870 26.5 16.814 15.355 7.0 75.314 13.0 146.105) (35) (123) (12.178 25.841 2.449 2.346) (1.627 1.2 9.0 24.6 149.204 9.185 904 50.521 1.761 12.655 9.462 22.5 14.750 Net Block 28.324 23.998) (17) 5.950 28. 2013 Cadila Healthcare 29 .229 Less: Accumulated Depreciation 11.195 6.814 18.302 0 7.449 131.482 153.7 18.849 9.909 17. Non Operating Income Total Income Total Expenditure Raw Material Employee Expenses Other Expenses EBIDTA (Excl.DOLAT CAPITAL INCOME STATEMENT Particulars Net Sales Operating Income Net Sales/Income From Opet.6 0.479) (5.112 8.2 17.350) (1.100 81.181 2.552 3.609 2.1 2.1 10.431 (4.3 3.1 131.695 1.200 1.839 11.635 Loans and Advances 5.2 36.031 1.599 (1. Tax) (C) CF from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates IMPORTANT RATIOS Particulars Mar12 (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl.500) 3.o.550 1.864 500 82.581 370 63.9 23.952 4.299 0 9.244) 0 5.) (E) Valuation Ratios CMP ( `) P/E (x) Market Cap.808 17.130 6.0 32.062 11.6 EBIDTA Margin (incl.850 61.737 151.962 5.7 35.2 1.9 Tax/PBT 14.728 39.355) (1.4 45.027 63.6 1.764 2.579 7.108 22.0 0. Other Income) EBIDTA (Incl.9 6.686 2.200 2.0 18.948 Provisions 3.511 Mar12 50.024 40.0 14.686) (2.453 0 288 (6.708 35.5 2.942 1.951 52.7 10.9 14.500 242 14.8 170.296 22.5 65 80 4.649 4.951 1.8 1.100 69.1 18.2 74.4 64 76 4.0 10.703 14.395) (1.0 18.447 60.583 70.849) (2.5 1.986 2.491 10.203) 1.5 76.088 11.775 45.024 33.3 33.631 606 38.7 September 4.2 15.397) (6.795 16.4 2.500 242 13.085 Investments 242 Current Assets.328 Mar14E 1.081 11.8 13.9 8.416 (6.942 1.130) (3.268 61.9 1.517 6.677 375 7. EPS (`) (excl EO) EPS (`) CEPS (`) DPS (`) Dividend Payout (%) Profit Ploughback (%) Book Value (`) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.2 1.8 2.024 29.489 10.I.8 15.4 5.946 1.941 1.095 10.0 20.500) 4.9 64 78 4.517 Mar14E 9.131 Other Current Assets 421 sub total 29.112 1. Activities Issue of Equity/ Preference Inc.712 25.849 (1.5 14. (` Mn.9 19.086 18.0 11.197 14.3 5.578 34.106 10.9 15.900 1.631 505 37.7 31.911 Mar15E 11.686 9.078 11.6 10.084) 0 256 (6.828 8.579 1.554 2.518) (2.2 3.977 (1.424 1.449 131.7 17.212) 0 (1.000) (1.9 6.086 3.257 11.776 Mar13 1.7 46.600 8.333 32.199 12.) in Debt Interest exp net Dividend Paid (Incl.103) 3.400 11.683 2.129 29.1 22.512 17.7 16.5 17./(Dec.2 Net Profit Margin 13.2 64 76 4.606) 5.7 1.024 24.364 67.4 3.911 2. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Profit Before Tax Tax Reported Net Profit Adjustments on consolidation Net Profit Extraordinary & Forex Items Adjusted Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Other Reserves Net Worth Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Minority Interest Total Capital Employed Mar12 1.1 11.942 7.736 15.2 31.1 24.165 41.449 131.2 1.178 16.7 (B) As Percentage of Net Sales Raw Material Employee Expenses Other Expenses (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (` Mn) (D) Measures of Investment Adj.8 3.511 642 642 642 642 18.483 3.307 12.) MCap/ Sales (x) EV (` Mn.2 0.553 0 6.736 3.1 1.5 14.517 3. Net Interest Exp Direct taxes paid Chg.518 (1.9 6.1 4.6 Gross Profit Margin 17.5 125.749 450 9.3 3.) 20.9 13.930) (17) 6.7 15.955 Less : Current Liabilities & Provisions Current Liabilities 9.979 15.3 35.8 201.600 27.5 23. O.5 22.5 18.328 54.2 75.470 1.720) (4.9 43.000 242 16.619 65.4 1.447 Mar15E 1.917 364 6.709 881 4.7 12.7 27.529 17.195) (4.0 25.366 13.029) (6.600 9.885 34.905 Sundry Debtors 8.302 ` mn Mar15E 79.3 2.863 Cash and Bank Balance 4.631 727 42. Activities Capex Free Cash Flow (Inc)/ Dec.2 2.366 (1.470 2.) 21.686 (1.5 32.400 1.870 2.292 (12.066) 7.138) 0 (2.4 57.299 CASH FLOW Particulars Profit before tax Depreciation & w.6 11.608 13.150 1.765 154.733 52.067) (17) 9. O.5 32.236 1.112 1.032 20.093 70.0 25.0 14.812 286 6.037 sub total 12.600 9.0 12.555) (116) 11.2 Mar13 Mar14E Mar15E Mar12 7.736 13.335 35. Loans & Advances Inventories 10.062 30.526 780 7.I.808 8.479 Capital Work in Progress 5.0 40.931 0 362 (4.150 9.128 42.

DOLAT CAPITAL Int en tio na lly Le ft B lan k Cadila Healthcare September 4. 2013 30 .

1 13.80 23.073 40.28 Cipla relative to Sensex 115 110 105 100 95 90 Aug-12 Apr-13 Dec-12 Aug-13 Oct-12 Feb-13 Jun-13 Cipla Sensex Financials Year FY12 FY13 FY14E FY15E Net Sales % Growth EBIDTA OPM % Adj. Cipla’s sizable presence in these segments makes it an attractive play in the domestic formulations business.5 92. Volume (no) BSE Code NSE Symbol Bloomberg Code Reuters Code ` 1606mn ` 2/` 326bn USD 4862mn ` 435 / 350 1454719 500087 CIPLA CIPLA IN CIPL.1 22.3 16. strong chemistry skills and huge inhaler capacity make it a partner of choice for global MNCs that are ramping up their generics presence in emerging markets.212 14. CVS and gynecology segments.0 17.9 11.81 29.609 26.4 17. implying that this will be a lowcompetition.1 30.4 20. 2013 Cipla 31 . Cipla’s large manufacturing infrastructure.1% over FY08-13) and has consistently improved its market share.7 Figures in ` mn September 4. Spain and Portugal.0 21.1 20.2 16.154 17. Shareholding Pattern as on June’13(%) Promoter FIIs MF/Banks/FIs Public / Others 36.1 24.341 DOLAT CAPITAL Target Price: ` 480 On a Transformation Path.6 18.8 27.4 11.2 10. Cipla is the market leader in two of the largest therapy segments.3 19. the visibility of launch timelines is poor.0 17. contribute ~70% of Cipla’s domestic formulation revenue. high-margin opportunity.4 80. This. We expect Cipla’s domestic formulations business to post 14% CAGR over FY13-15E.PAT % Growth EPS (`) % Growth PER (x) ROANW(%) ROACE (%) 68.9 14. though dependence on antiinfectives has fallen over the years. led by one of the largest field forces and new launches but might get impacted by 2-3% on account of new pharma pricing policy.11 10. anti-infectives.respiratory.4 19.144 26. along with its low-risk strategy and a strong capex (currently underutilized) should ensure good long-term potential. we believe Cipla’s CFCfree inhaler pipeline is likely to be gradually commercialized in Europe and upsides from high-margin opportunities like Seretide can potentially come through over the next two years.8 40..0 18.1 21. Investment Rationale Domestic formulations The top four therapeutic segments .4 15.769 11. We believe Cipla has one of the strongest generic pipelines among Indian companies.Cipla CMP: ` 406 BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High / Low Avg. It has commercialized some of its inhalers in the UK.. After a long delay.240 15. anti-infectives and respiratory segments.6 104. The management expects its range of eight inhalers to be commercialized in Europe over the next 2-3 years and it expects 3-6 players for each product in this category. Accumulate Cipla has outperformed market growth over the past five years (CAGR of 13.262 25.BO 18. Germany. While the launch of these inhalers is a key long-term trigger.193 26.949 13. Cipla derives 58% of its revenue from acute therapies and the rest from chronic therapeutic areas. CFC-free inhalers a key long-term trigger Cipla is developing eight inhalers and has the third largest inhaler manufacturing capacity globally.0 19.4 23.797 11.477 12.3 20.4 17.235 5.

Valuation We believe Cipla has one of the strongest generic pipelines among Indian companies. At CMP. The growth will be led by 13% CAGR for the international business.DOLAT CAPITAL Developed markets – Moving away from partnership model In the developed markets. We estimate EPS CAGR at 17% over FY13-15 with potential upsides from MNC supplies and CFC-free inhalers. We initiate coverage on Cipla with ‘Accumulate’ recommendation and a target price of ` 480 (20x FY15E EPS).4x FY14E & 17. the stock trades at 19. Cipla is building its own front-end operations for selling generic medicines through its own distribution network rather than supplying it through its partners.0x FY15E earnings. 2013 Cipla 32 . we believe Cipla’s CFC-free inhaler pipeline is likely to be gradually commercialized in Europe and upsides from highmargin opportunities like Seretide can potentially come through over the next two years. September 4. After a long delay. We believe this strategy to yield higher margins going ahead. tempered by reducing technology licensing income.

203 3.690) 17.730 70.655 (6.674 25.430 Mar14E 21.) 25.5 34.0 23.144 2440 26.6 45.173 6 9.451 (5.984 200 (5.2 0.478 3.420 1.7 1.301 5.291 23.769 Mar13 81.207 52.380 384 (5.) MCap/ Sales (x) EV (` Mn.859) 8.451 324 (4.989 3.478 14.073 Mar14E 92.7 1.536 Cash and Bank Balance 905 Loans and Advances 9.664 9.284 3.291 90.954 11.4 17.0 19.342) (3.150 3.1 24.810) (345) (3.606 14.6 19.1 2.5 2.4 89.093 2.0 1.5 21.2 Net Profit Margin 16.975) 9.3 0.0 0.7 11.025 60.6 Gross Profit Margin 25.154 1.512 25.664 10.606 14.8 15.355) 9. Net Interest Exp Direct taxes paid Chg.805 102./ (Dec.5 2.613 316.638 64.9 September 4.9 23.212 19.279 17.120 5.332 78.1 28.773 4.278 104.954 31.222 3.6 Mar13 Mar14E Mar15E Mar12 14.718 18.783) (11.474 12.642 Net Current Assets 30.582 406 406 406 406 28.688 1.648 Mar15E 1.7 4.240 1.2 27.2 79 100 3.648 61.0 95.3 38.597 27.606 14.510 21.3 18.767 (30) 16.595 4.048 15. (` Mn.3 3.095 50.3 31.065) 4.000) 0 (210) (3.442 10.1 73.760 94.984 22.719) 14.261 25. O.5 4.393 7.0 11.6 26.1 325.760 106.301 22.069 2.7 0.6 1.6 Interest / Sales 0.4 12.725 17.1 79 100 3.173 132.7 17.1 140.330 19.805 116.676) 0 (200) (2.4 27.478 3.6 40.669 2.1 20.609) 9.000 25.777 325.2 3.) in Debt Interest exp net Dividend Paid (Incl.6 0.104 10.0 Applications of Funds Gross Block 46.6 EBIDTA Margin (incl.9 3.379 116.122 14.389 33 102 135 2.193 2./(Dec.262 722 17.376 11.7 25.8 21.187 6 9. O.684 526 905 1. Activities Inc.684 36.512 4.7 0.525 sub total 14.8 4.016 324.962 (5. Activities Capex Free Cash Flow Inc.916 37.475 (12.797 ` mn Mar15E 104.9 13.6 11.2 3.545 36.827 17.8 13.777 325.8 27.709 79.9 25.734 5.430 10.125) 3.1 2.6 85.279) (370) (3.299 Total Assets E-estimates 78.000) 12.413 (29) 11.417 17.850 10.2 23.512 6.0 18.871 16.279 24.662 57. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Profit Before Tax Tax Net Profit Minority Interest Net Profit Adj.600 3.664 9.1 83 99 3.182 (30) 19.313 74 66.9 1.460 102. Other Income) Other Income EBIDTA (Incl.000 28.1 Tax/PBT 21.8 39.315 24.797 16.5 23.394 13.9 20.212 120.662 Mar14E 1.073 15.832 30.1 16.945 27.059 286 29.777 325.634 40.484 26.450 30.107 6 9.1 0.313 74 81.I.1 130.854 3.0 14.4 27.4 19.3 2.501 Sundry Debtors 15.669 2.967 10.2 27.529 20.856 Mar13 1.DOLAT CAPITAL INCOME STATEMENT Particulars Net Sales Other Operational income Income for Operations Total Expenditure Raw Material Employee Expenses Manufacturing & Other Expenses EBIDTA (Excl.7 0.271 19.484 334 23.753 22.669 2.3 85.674 25.3 0.5 3.3 17.477 1.822) (5.606 14.2 2.469 3.0 14.290 88.712 Investments 12.117 Provisions 2.664 9.3 20.6 7.9 25.290 74.4 11.000) 12.4 14.000) (6.219 23.374 (4.871 82.6 0.4 23.000 69.805 132.584) (383) (1.4 149.030 20.4 1.290 60.0 86.856 53.3 18.7 25.850 18.) 24.824 13.3 26.691 Current Assets.3 29.3 25.535 (384) (2.073 0 15.2 36.122 383 (3.065 11.949 1.430 9.4 2.494 76.5 3.693 20.088) (3.029 24.7 1.7 129.5 33.155 Capital Work in Progress 3.9 29.261 210 (5.5 0. Loans & Advances Inventories 18.279 20. in Working Capital (A) CF from Opt.5 14.850 Mar15E 25.6 17.629 9.3 23.) (E) Valuation Ratios CMP ( `) P/E (x) Market Cap.324 23.8 76 108 3.582 Mar12 68.120 20.926) (55) 960 905 Mar13 24.266 Less: Accumulated Depreciation 14.783 23.405 Other Current Assets 594 sub total 44.866) (92) (7.0 325.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 1.811 14.962 (1.6 112. Tax) Other (bal fig.) (C) CF from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates IMPORTANT RATIOS Particulars Mar12 (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl.) in Investments (B) CF from Invt.076 36.290 104.2 27.007 334.533 16.455 19.6 3.o. 2013 Cipla 33 .502) (5.500) 17.106 16.148) (6.553 12.0 46.3 38.584 300 26.636) 16.3 (B) As Percentage of Net Sales Excise Duty % of Gross Sales Raw Material Employee Expenses Other Expenses (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (` Mn) (D) Measures of Investment EPS (`) (excl EO) EPS (`) CEPS (`) DPS (`) Dividend Payout (%) Profit Ploughback (%) Book Value (`) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.633) (19.940 Less : Current Liabilities & Provisions Current Liabilities 12.450 (6.1 21.5 1.212 CASH FLOW Particulars Profit before tax Depreciation & w.004 4.777 4.674 26.7 1.762 35.I.111 Net Block 32.5 10.Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Share Premium Other Reserves Net Worth Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Mar12 1.984 383 17.1 3.313 74 51.

DOLAT CAPITAL Int en tio na lly Le ft B lan k Cipla September 4. 2013 34 .

9 Net Sales# % Growth EBIDTA OPM % Adj.7 35.BO 18235 5341 DOLAT CAPITAL Target Price: ` 1141 The Art Of Synthesis. Revenue contribution from this segment declined in FY10 in line with the overall slowdown in CRAM industry.000 7.5% CAGR over FY13-15E.1 Figures in `mn. Accumulate Divi’s Laboratories (Divi’s) has positioned itself as India’s leading player in CRAMs segment. The company currently has 41 DMF filings and plans to add 3-4 filings every year going forward.132 9. to demonstrate its strict adherence to IP policies.1 22.1 67.2 49. Further.2 37.907 41. A lean portfolio of APIs to provide stable growth We believe Divi’s strategy to focus only on high-yielding API products positions it as the dominant supplier to the innovators. Divi’s maintains dominant market share of 70% in Naproxene and Dexthromethorphan. We expect the CS division to grow by 20. But we anticipate this business to witness high growth in near future on account of increasing cost-pressure faced by innovator companies and low R&D productivity.6 24.904 7.2 -6.3 35.7 26.Divi’s Laboratories CMP: ` 956 BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High / Low Avg.448 25.50 Investment Rationale Strong chemistry skills to drive growth and check competition Divi’s has marked its presence in the CS business through effective demonstration of its inherent chemistry skill sets.333 5.6 14. We like its focus on high value low competition products.3 17. led by increased capacity utilization at Vizag SEZ.6 40.50 20. Its key business segments viz. Shareholding Pattern as on June’13(%) Promoter FIIs MF/Banks/FIs Public / Others Divi's relative to Sensex 110 105 100 95 90 85 80 75 70 Aug-12 Apr-13 Dec-12 52. Further aided by increased genericization of pharma markets of US and Europe. This has consequently translated into strong relationships with major pharma MNCs. This is a reason in itself for its large MNC clientele (20 innovators) to grow their relationship with Divi’s. 2013 Aug-13 Oct-12 Feb-13 Jun-13 Divi’s Lab 35 .453 8. Gradual scale up in its carotenoids portfolio shall aid overall growth momentum.1 28.1 19.15 14.includes other operating income September 4.85 12. Volume (no) BSE Code NSE Symbol Bloomberg Code Reuters Code ` 265mn ` 2/` 127bn USD 1894mn ` 1233 / 905 194116 532488 DIVISLAB DIVI IN DIVI.912 24.2 49.0 33. we believe revenue from APIs to grow by 18% CAGR over FY13-15E.PAT % Growth EPS (`) 6.894 11. adding comfort to its clients.8 27. We estimate 19..2 -6. # .370 29.3 39.6 15.7 56.2 28. % Growth PER (x) ROANW(%) ROACE (%) 24.. Notably.2 Divi's Sensex Financials Year FY12 FY13 FY14E FY15E 18. The API segment is expected to sustain growth as it leverages on selective patent expirations in US. Divi’s is one of the few CRAMs players that have refrained from entering the formulation space.0 39. Custom synthesis (CS) & APIs (95% of sales) is expected to register 18% CAGR over FY13-15E. post the USFDA inspection and increased order inflows.1 19.8 33.1% CAGR in revenue over FY13-15E aided by turnaround in the CRAMs industry.649 37.1 18.640 21.3 17.1 27.0 5. the company has kept itself from entering the formulation business. The CS division is expected to be the major growth driver led by ramp up in new Vizag SEZ operations and increased order inflows.

Debt free balance sheet and controlled capex enables Divis to generate healthy cash flows which in turn reflects in its high return ratios.0x FY14E and 14. Valuation We expect 19% revenue growth over FY13-15E mainly led by increased order flows and ramp up in its new facility at Vizag SEZ (translates into higher operating leverage).DOLAT CAPITAL Increasing contribution from carotenoids adding to growth momentum The global market for carotenoids is estimated at USD 1bn and is dominated by DSM and BASF with 60% combined share. Canathaxanthin. Apocarotenal. 2013 Divi’s Lab 36 . At CMP. The company has created an extensive portfolio of carotenoids like Astaxanthin.2x FY15E earnings. September 4. aided by gradual volume off-take. We initiate coverage on Divi’s Laboratories with a ‘Accumulate’ recommendation and a target price of ` 1141 (17x FY15E EPS). the stock trades at 17. We expect the segment sales to reach `1. Carotenoids contribute 4% of Divi’s total sales in FY13.3bn in FY15E and contribute 5% of the total sales.

745 (242) 1.3 0.856 5.132 7.4 17.772 24.0 29.0 32.897 14.441) 4.479 Mar13 265 965 22.662) (3.016 Mar14E 265 965 27.5 1.528) 1.780 67.392 29.8 22.4 1.901 6.937 865 1.0 4.889) (456) 865 410 Applications of Funds Goodwill On Consolidation Gross Block 10.615 2.468) (2.3 26.2 Gross Profit Margin 40.5 218.276 10.3 42.045 350 30 380 609 36.315 527 27 554 609 22. O. Activities Net Change in Cash Opening Cash balances Closing Cash balances E-estimates IMPORTANT RATIOS Particulars Mar12 (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl./ (Dec.3 0.040 35 (2.317 7.0 28.5 Inventory Turnover Ratio (x) 2.7 28.041 20.3 4.6 27.2 16.4 (0.258 11.8 10.535 2.400 0 0 5.871 6.0 13.2 105 145 125.433 (3.5 425.0 8.9 12.480) (557) 309 (242) Mar14E 9.5 61.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 40. Tax) (C) CF from Fin.987 350 30 380 609 29.034 (C) Measures of Financial Status Interest Coverage (x) 199.764 2.907 18.016 15.448 448 21.453 ` mn Mar15E 29.2 44.912 CASH FLOW Particulars Profit before tax and EOI Depreciation & w.8 5.574 1.009 21.757 28.609 930 9.550 (3.000) (4.4 38.088 Net Current Assets 7.1 35.770 Current Assets.790 Sundry Debtors 4.8 38.904 7.000) 0 (25) (35) (2. (` Mn.5 38.614 1.0 14.136 (1.4 23.744 37.861 8.5) 8.1 35.5 27.643) 133 177 309 Mar13 6.901 126.857 50 29.474) (1.003 375 30 405 609 25.226 2.574 2. Activities Issue of Equity/ Preference Inc.980 Cash and Bank Balance 309 Loans and Advances 834 Other Current Assets 5 sub total 12.0 5.0 Interest / Sales 0.806 621 37 (1.0 11.862 8.7 Fixed Assets Turnover (x) 1.4 3.0 27. Other Income) EBIDTA (Incl.) 40.7 Working Capital Turnover (x) 2.9 23.0 304.989 Provisions 2.0 2.636 (500) 5.792) (1.306 8.562 770 6.6 (B) As Percentage of Net Sales Raw Materials Consumed (Increase)/Decrease in Stocks Employees Cost Other Expenses 41.830 Total Assets E-estimates 22.854) (2.0 14.034 Mar12 18.327 5.2 15.921 4.2 126.120 15.000 Mar14E 25.005) (1.641) (76) (149) (18) (2. Activities Capex Free Cash Flow Inc.0 0.5 8. Net Interest Exp Direct taxes paid Change in Working Capital (A) CF from Opt.000 9.9 12.502 25.o.3 35./(Dec.000 11.121 5.792 5.333 Mar13 21.) in Debt Interest exp net Dividend Paid (Incl.1 41.736 6. pending allocation 4 Advances for Capital Works 674 Investments 4.6 1.5 1.9 13.I.300) 5.237) (2.364 3.792 1.918 Less : Current Liabilities & Provisions Current Liabilities 2.5 14.782) 5.679 2.3 35.792 770 18 (1.6 160.885 700 0 0 7.286 486 (2.320 50 25.6 Average Cost Of Debt (%) 9.175 15.7 14.4 28.8 3.7 43.644 35 10.658 (730) (2.370 750 26.548 126.384 Capital WIP 1.640 561 19.719 3.679 930 35 (2.816 Unallocated Exp.416 126.2 23.1 33.4 67.7 1. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Tax Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Share Premium Other Reserves Net Worth Secured Loans Unsecured Loans Loan Funds Net Deferred Tax Liability Total Capital Employed Mar12 265 1.4 Non Cash Working Capital (` Mn) 7.580 18 7.901 126.2 18.949 7.6 72.226) (2.8 35.327 12.264) 1.099 sub total 5.815 35.108 (242) 865 Mar15E 11.9 6.9 100 140 130.7 39.0 Tax/PBT 21.1 28.1 63.8 25.DOLAT CAPITAL INCOME STATEMENT Particulars Net Sales Other Operational income Income from Operations Other Income Total Income Total Expenditure EBIDTA (Excl.254) 6.5 Debtors Period (days) 98 Closing stock (days) 133 Creditor (days) 135.0 18.4 264.500 5 22.4 9.000 30.7 98 134 133.0 5.5 71.000 5 14.6 1.0 4.500 7.536 Net Block 7.0 42.399 49 21.0 Mar13 Mar14E Mar15E Mar12 6.621 6.649 12.0 29.7 1.3 0.223) 4.894 10.364 4. O.476 9.0 2.3 127.775) 76 324 (37) (2.9 September 4.236 9.226 7.9 5.0 9. 2013 Divi’s Lab 37 .6 956 956 956 956 23.901 126.201 11.976 16.479 33.589 410 1.0 0.1 75.I. Loans & Advances Inventories 6.146 127.) in Investments (B) CF from Inv.7 2.1 42.649 35 12.7 Net Profit Margin 28.1 14.907 1.8 361.040 11.8 2.8 6.2 33.921 Less: Accumulated Depreciation 3.300) 0 0 (35) (2.) (E) Valuation Ratios CMP ( `) P/E (x) Market Cap.) MCap/ Sales (x) EV (` Mn.0 EBIDTA Margin (incl.712 6.662 8.564 (1.806 1.733 (1.0 9.521 (D) Measures of Investment EPS (`) CEPS (`) DPS (`) Dividend Payout (%) Profit Ploughback (%) Book Value (`) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.0 2.563 6.500) (2.427 621 6.906) 2.586 54 18.526 56.) 37.474 5.7 2.1 8.189 36.465 37 7.7 39.5 180.2 35.976 Mar15E 265 965 33.345 500 0 0 10.3 0.4 17.0 42.200 5 18.

DOLAT CAPITAL Int en tio na lly Le ft B lan k Divi’s Lab September 4. 2013 38 .

4 23.533 12.9 Figures in ` mn. gPropecia) with limited competition shall add fuel to the base business growth momentum. gXeloda and gAvelox.745 21. of which 38 are Para IVs and 8 FTF opportunities. we expect the revival process to be gradual and have estimated 10% CAGR over FY13-15E.BO 18235 5341 DOLAT CAPITAL Target Price: ` 2382 US Dose for Healthy Future.2 29.0 129. # Includes Other Operating Income * Adjusted for Forex & Exceptional Items September 4. Volume (no) BSE Code NSE Symbol Bloomberg Code Reuters Code ` 849mn ` 5/` 375bn USD 5602mn ` 2401 / 1617 453415 500124 DRREDDY DRRD IN REDY.5 21. Reddy’s Laboratories (DRL) continues to build upon its generics capability on selective niche products and biosimilars.3 24. making it a dominant player in the global generics market. As per company.94 Dr.84 32. gDacogen. DRL has gained traction in biosimilars in emerging markets and is gearing itself for the next wave of opportunity in the regulated markets (2014E onwards) Investment Rationale US biz. We estimate US sales to register USD 870mn in FY14E and USD 930mn in FY15E.7 21. Accumulate Dr. Going ahead.growth to driven by in-licensing/partnership arrangements We expect DRL’s formulation exports to emerging markets to record 18% CAGR over FY13-15E led by a) Russian OTC market.9 74 12.. EPS (`)% Growth PER (x) ROANW(%) ROACE (%) 97. Reddy’s 39 .502 28.4 118. Domestic formulations – multiple growth challenges persist DRLs domestic formulation business is impacted by low volume off take due to implementation of new pricing policy and trade strike in Maharashtra. gReclast. Shareholding Pattern as on June’13(%) Promoter FIIs MF/Banks/FIs Public / Others 25. 2013 Dr. In the near term.9 146.9 24.6 21. new pricing policy would have an impact of ` 550mn on domestic sales.6 20.304 7.1 12.9 119 16.227 16.0 16.9 23. Reddy’s Laboratories CMP: ` 2210 BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High / Low Avg. company expects to grow in-line with market growth rate (12-14%).347 23. Recent launches (gPropecia. growth would be supported by recent launches such as gDacogen.Reddy's relative to Sensex 140 130 120 110 100 90 80 Apr-13 Aug-12 Dec-12 Aug-13 Oct-12 Feb-13 Jun-13 Dr.5 102 7. The company is focusing on complex molecules and therapies including dermatology and injectables which offer strong visibility in the long term.PAT* % Growth Adj.4 95 28. gToprol XL and niche opportunites such as gVidaza.506 25.2 24. gAccutane.Dr.53 32. b) ramp-up in revenues from partnership arrangement in emerging markets.focusing on niche and complex therapies We anticipate US generics segment (30% of sales) to be the key growth driver in the near future.addition of more products and in-licensing arrangements to expand its product portfolio.568 13. Emerging markets .7 21. However.6 17. Reddys Sensex Financials Year FY12 FY13 FY14E FY15E Net Sales# % Growth EBIDTA OPM % Adj.6 24.090 28. The company’s key strength lays in its complex chemistry skills supported by a captive mine of APIs.701 9.172 22..9 29.6 20.69 8.9 18.8 27. gReclast.292 22. The company has 65 ANDAs pending approval.0 33.

Cresp. 2013 Dr. Reddy’s with ‘Accumulate’ recommendation and a target price of ` 2382 (20x to FY15E EPS). Notably. and is unlikely to be a further drag on overall financials. The company has built significant API capabilities that support its fast growing generic formulations business. and PeGrafeel – in 12 countries and is constantly working towards expanding its product offerings. the stock trades at 21. DRL has already launched three products – Reditux. dependence on Betapharm has reduced significantly (14% of sales). Valuation DRL leverages on its chemistry skills to identify and capitalize on niche opportunities with limited competition. The company is well positioned to benefit from the opening up of the biosimilar entry in the US.6x FY15E earnings. At CMP.DOLAT CAPITAL Preparing for the next-big-thing: Biosimilars The much discussed patent-cliff will phase out after FY14 and will be succeeded by a wave of generic opportunity in the Biosimilars space.7x FY14E & 18. Reddy’s 40 . We initiate coverage on Dr. September 4.

0 84.8 13.931 Mar13 116.304 ` mn Mar15E 147.7 24.210 2.934 85.012 98.671) 5.9 138. Reddy’s 39 .279) (2.931 2.262 Adj.9 101.839 (2.568 146.9 23.346 3.227 CASH FLOW Particulars Profit before tax Depreciation & w.879 3.304 17.4 26.761 Other Expenses (R&D) 5.502 Total Expenditure 72.050 90.7 21.997 COGS 40. PAT (Excl.934 50.267 0 26.707 (2.723 Tax 4.346 375.5 14. Activities Issue of Equity/ Preference Inc.701 129.208 (7.3 83.347 27.6 (B) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (` Mn) (C) Measures of Investment Adj.000 11. Other Income) 24.506 EBIDTA (incl.7 18.267 6.299 Capital Work in Progress 7.5 16.5 2.396 63.378) 269 (4.637 366. Other Income) 24.268 (700) 146.379 Loans and Advances & Other Current Assets 6.596 Less : Current Liabilities & Provisions Trade Payables 9.573 5.647 (440) 101.050 Mar14E 849 20.261 688 21.2 85.874 40./ (Dec.546 (460) (4.167 0 60 20.662 57.240 27.4 14.1 119.276 7.1 36.7 0.1 23.304 4.821 83.573 4.723 5.0 24.631 7.368 2.060 71.077 33.4 22.1 3.368 2.210 2.091 39.800) 0 1.761 (6.141 Goodwill 2.000 130.691 Net Current Assets 30.) 25.244 0 60 17.532 EBIDTA (excl.379 Mar13 21.276 30.010 17.934 66.I.1 3.6 21.502 Total Income 97.207 (440) 130.4 13.2 85.3 14. Net Interest Exp Direct taxes paid Chg.077 Mar15E 26.6 Mar13 Mar14E Mar15E Mar12 17. 2013 Dr.7 16.216 sub total 28.331) (1.502 Provisions & Other Liabilities 1.7 Gross Profit Margin 24.3 0.459) 1 (2. Tax) Other (Bal.210 (833) 88.701 100.432 29.) (D) Valuation Ratios CMP ( `) P/E (x) P/Core EPS Market Cap.100 20.283 18.9 2.DOLAT CAPITAL INCOME STATEMENT Particulars Mar12 Net Sales 96.164 3.000 11.777 16.0 90 75 4.040 15.906 28.714 6.968 11.463) 882 (8.0 0.519 0 22.195 578 (5.866 50.7 Applications of Funds Gross Block 76.6 87.8 131.367 31.5 23.6 Tax/PBT 23.650 5.6 33.5 22.860) 4.221 101.3 50.350 Net Block 37.526 86.794 591 81.267 6.012 Mar15E 849 20.479 118.401 (700) 129.800) 15.5 399.1 23.6 374.794 591 105.783 20.010 6.5 21.338 7.754) 253 8.444 29.7 22.964 12.2 13.6 0.249 23.232) 10.085 22.290 11.8 14.882 31.213 529 (4.1 0.781 33. Loans & Advances Inventories 19.8 29.745 118.573 70.519 5.0 12.668 13.172 17.572 33.208 Current Assets.1 3.429 51.051 6.506 Core EBITDA# 24.012 1.900 16.210 25.909) 1.280) 12.o.896 38.568 113.3 22.3 13.325 38.542 0 (7.959) 7.6 21.546 22.795) (18.563) (2.7 Net Profit Margin 14.1 22.000 11.1 90 71 5.348 32.) in Investments (B) CF from Inv.6 Core Net Profit Margin 14.900) (5.379 13.149 44.880 2.3 3.Fig) (C) CF from Fin.208 28.5 5.9 3.292 578 0 578 28.8 98.4 14.729 7.366 15.444 16.904 10.342 (7.1 Interest / Sales 0.346 375.6 2.0 14.3 14. O.9 25.040 Profit Before Tax 17.208 25.844 11.686) 688 16.213 Profit Before Tax & EO Items 18.7 21.301 88.352 Sundry Debtors 25.816 375.626 36.809) 0 20. (` Mn) MCap/ Sales (x) EV (` Mn) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 0.807 5.9 3.424 24./(Dec.2 24. in Working Capital Impairment Charges (A) CF from Opt.905 Total Assets E-estimates 88.0 20.347 27.292 31.068 13.6 0.339 Cash and Bank Balance 7.5 0.347 0 (460) (460) 27.928 0 (7.266 2.4 22.195 22.3 2.) in Debt Dividend Paid (Incl.275 17.977 Depreciation & Amortization 5.704 SGA 26.548) 1.1 0.7 2.533 BALANCE SHEET Particulars Sources of Funds Equity Capital Share Premium / Allotment Other Reserves Net Worth Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Mar12 848 20.210 2.1 159.844 32.1 114.072 33.737 Other Operating Income/(Expense) 765 Income from Operations 97.7 18.8 518.784 26. Activities Net Change in Cash Opening Cash balance Closing Cash balance E-estimates IMPORTANT RATIOS Particulars Mar12 (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (incl.6 0.172 34.0 2.506 Interest Expense 690 Interest Income (161) Net Interest Exp 529 Gross Profit 23.647 391.591 16.313 33.2 2.519 6.4 90 71 5.098 110.6 35.984 380.208 23. EPS (`) (excl EO) EPS (`) CEPS (`) DPS (`) Dividend Payout (%) Profit Ploughback (%) Book Value (`) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.433 (10.4 2.368 2.4 21.339 631 16. Activities Capex Free Cash Flow Inc.312 29.021 101.8 0.8 423.9 27.730) 0 23.100) (3. Fx & EOI) 12.821 Mar13 849 20.204 Profit After Tax 13.617) 5.381 107.090 Mar14E 130.355 7.227 20.085 4.368 (440) 110.077 6.7 September 4.6 26.2 4.649 Less: Accumulated Depreciation 39.1 14.229 57.973 Other Current Liabilities 17.0 11.268 Investments 11.519 Forex Losses / (Gains) (689) Profit / (loss) from associates 54 Net Profit 14.5 96 73 5.745 91.794 Other Current Assets 591 sub total 59.764 Exceptional Items 1.0 23.574 13.751 119.249 6.335 18.212 102.392 (7.6 3.0 15.253 7.275) (3.0 2.747 42.0 6.934 35.7 338.010 Mar14E 22.172 121 0 121 33.673 0 104 16.0 25.827 17.398 52.204) (4.409 56.280) 0 (7.935 591 72.9 2.4 0.867 35.6 0.2 274.290 3.784 121 (6.209 16.4 631.7 14.154 17.529 (227) (6.

DOLAT CAPITAL Int en tio na lly Le ft B lan k Dr. 2013 42 . Reddy’s September 4.

3 % Growth PER (x) ROANW(%) ROACE (%) 8. GSK has launched two patented products namely Revolade and Votrient from its parent GSK Plc’s portfolio. * Adjusted September 4.Major risk The new DPCO 2013 policy poses a major risk for GSK. However.6 32.4bn i.08 GSK Sensex Financials Year CY11 CY12 CY13E CY14E Net Sales# % Growth EBIDTA OPM % Adj.824 32.1 7. # Includes Operating Income.4 33. we are unlikely to see a share buy-back.6 7.303 10. the lack of adequate opportunities to deploy these funds is a significant issue and given the current valuations. the new DPCO 2013 is expected to have 5% impact on revenues in CY13E.7 8.3 31. Cash balances unutilised GSK has a cash/bank balance of ` 20.3 79.PAT* % Growth EPS (`) 23.7 75.182 7. Valuations GSK revenues have been impacted due to supply constraints and inventory rationalisation. Of its top five products.9 28. the new DPCO 2013 is expected to have 5% impact on revenues in CY13E.BO 18234 5341 DOLAT CAPITAL Target Price: ` 1900 Sell GSK Pharma has access to its parent’s product pipeline which is focussed on vaccines and oncology products.8 7. 2013 Aug-13 Oct-12 Feb-13 Jun-13 GSK Pharma 43 .1x CY14E) and declining trend in margins.1 8. Augmentin.593 12.5 26.9 6. Volume (no) BSE Code NSE Symbol Bloomberg Code Reuters Code ` 847mn ` 10/` 193bn USD 2885mn ` 2899 / 1931 12245 500660 GLAXO GLXO IN GLAX. It’s tiered pricing approach and significant domestic potential for these drugs facilitates gradual scalability. ~` 241 per share. sales have been impacted on account of supply constraints and inventory rationalisation.5 40.191 31.1 6.772 7.6 14.311 14.759 10.711 27. In addition.5 26. As per management.8 40.59 15. Given the premium valuations (26.3 28. DPCO 2013 impact . Moreover. However. About 30% of the company’s products are now under price control. The Company’s recent launches of the parent’s shelf include Synflorix (paediatric pneumococcal vaccine).7 30. Calpol. Votrient (pazopanib hydrochloride) for renal carcinoma and Revolade (eltrombopag) for platelet depletion.5 42. Investment Rationale GSK India beneficiary of its parent’s commitment GSK Plc has firm commitments towards launching patented products in India through the listed entity. price control is expected to have an impact of 5% of revenues.1 Figures in ` mn.314 8.6 30.0 36.66 10.e. Ceftum and Eltroxin together contribute ~ 20% of its domestic revenue.5 34.7 7. we recommend ‘Sell’ with a target price of ` 1900 (22x CY14E earnings).GlaxoSmithkline Pharma CMP: ` 2282 BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High / Low Avg.6 74.4 31.385 -5.3 -5.6 6. compared to 25% earlier.67 23.489 26. Shareholding Pattern as on June’13(%) Promoter FIIs MF/Banks/FIs Public / Others GSK relative to Sensex 120 115 110 105 100 95 90 85 80 Aug-12 Apr-13 Dec-12 50.5 86.

044 -8 -4.4 193.100 3.420 204 9.126 178 9.4 39.276 Dec13E 847 20.882 8.317 150 0 1.I.282 Price / Earnings Ratio .2 171.3 193.4 78.283 310 31.208 2.0 23.623 sub total 11.150 30.948 999 8.318 193.427 5 -2.440 7.6 1.5 40.317 839 27.216 204 0 -2.276 4.6 September 4.047 3.902 608 0 7.538 3.6 2.0 32.403 102 20.061 310 10.100 3.386 20.545 Provisions 7.235 21.005 6. Activities Inc.o.751 0 10.824 9.5 30.0 60.7 13.675 13.253 20.913 539 19.472 10.894 1.389 0 9.026 2.6 35.891 2.258 Dec14E 847 21.902 4.Average (x) 30.300 5.9 Dec13E Dec14E 26.4 26.332 20.544 7.2 19.238 18.3 42.943 22.) 39.7 13.154 2.3 55. Loans & Advances Inventories 3.008 7.2 32.634 3.440 309 0 7.0 60.1 9.5 19.517 925 30.5 35.489 9.279 0 0 -650 0 -5.5 50.126 301 7.6 Gross Profit Margin 39. O.652 22.7 8.303 1.935 28. in Investments Others (Bal Fig) (B) CF from Invt.496 -400 6.593 2.385 ` mn Dec14E 31.956 EV/Sales (x) 7.864 20.329 17.5 42.948 178 0 -3.171 2.905 -4.1 (B) Measures of Financial Status Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) (C) Measures of Investment EPS (`) (excl EO) EPS (`) CEPS (`) DPS (`) Dividend Payout (%) Profit Ploughback (%) Book Value (`) RoANW (%) RoACE (%) Return on Avg.I.350 33.6 Dividend Yield (%) 2.505 2.5 21.217 -1.600 1.3 90.5 265.3 7.6 226.440 16.1 38.191 10.0 73.6 34.864 Dec12 9.3 Net Profit Margin 18.711 11.4 75.8 40.783 19.5 14.1 Dec11 9.999 304 26.112 8.6 1.182 2.820 1.1 -630.2 23.306 Dec12 25.176 5.935 7.675 Dec11 23.904 1.282 2.403 2.634 Dec12 847 19.301 Sundry Debtors 853 Cash and Bank Balance 19.069 20.751 3. 2013 GSK Pharma 44 ./(Dec.159 20.282 26.641 20.417 383 19.9 172.693 7.9 (D) Valuation Ratios Market Price .171 2.081 3.3 7.5 38.790 Total Assets E-estimates 18. (` Mn.176 -454 0 6.639 9.374 0 -5.718 21.5 Average Market Cap.0 33.4 Enterprise Value (` Mn.355 15.199 49 49 -615 18. Cap.6 -413.717 Less: Accumulated Depreciation 1. Tax) (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates IMPORTANT RATIOS Particulars Dec11 (A) Measures of Performance (%) Operating Profit Margin (excl.318 6.403 Dec13E 9.7 86.6 33.380 379 23.017 500 0 1.) in Debt Dividend Paid (Incl.) 173.8 1.2 E-estimates 2.896 11.943 8.632 -2.096 572 -1.1 23.773 Dec13E 27.8 74.481 19.9 Operating Profit Margin (incl.415 -4.9 31.389 250 0 -3.2 70.6 8.2 2.1 Market Price to Book Value (x) 10.326 -3 -4.403 20.283 7.8 79.879 -1.0 73.4 2.959 Less : Current Liabilities & Provisions Current Liabilities 3.082 41 41 -865 20.707 150 0 1.7 9.0 27.005 245 0 6. Employed (%) Dec12 31.318 Market Capitalisation to Sales (x) 8.6 237.468 5.8 75.9 68.403 -5.505 Dec14E 10.1 9.949 3.420 9.114 21.5 16.929 -650 7.2 45.7 -297.499 41 41 -865 21.751 310 0 -3.864 Loans and Advances 2.8 53.208 1. OI) Operating Profit (incl.3 34.579 -74 0 -1.6 Tax/PBT 40. Activities Capex Free Cash Flow (Inc)/ Dec.0 248.126 10. Net Interest Exp Direct taxes paid Chg.0 22.311 CASH FLOW Particulars Profit before tax Depreciation & w.882 300 28.3 50.0 36.282 30.352 19. O.0 33.3 86.100 41 41 -865 19.0 35.503 172.DOLAT CAPITAL INCOME STATEMENT Particulars Net Sales Operating Income Income From Operations Other income Total Income Total Expenditure Operating Profit (excl.) 32.4 6.0 2.389 3. OI) Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Reserves (excl Rev Res) Net Worth Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Dec11 847 18.251 Other Current Assets 690 sub total 26.759 1.2 21.Average (`) 2.061 11.7 EV/EBDITA (x) 22.464 2.2 34.) 193.505 21. in Working Capital Other (A) CF from Opt.7 11.598 Current Assets.6 8.386 12.6 28.7 32.221 1.7 27.216 2.258 5.7 1.3 31.0 69.639 250 9.417 881 28.854 6.891 Applications of Funds Gross Block 2.725 Net Block 991 Capital Work in Progress 254 GOODWILL 0 Investments 1.318 6.168 Net Current Assets 15.596 25.755 16.893 -5.3 -321.

We expect Glenmark to sustain revenue CAGR of 18% over FY13-15E.642 21.840 17. Volume (no) BSE Code NSE Symbol Bloomberg Code Reuters Code ` 271mn ` 1/` 139bn USD 2079mn ` 612 / 386 374912 532296 GLENMARK GNP IN GLEN.579 21.. Accumulate Glenmark continues to build upon branded generics market across emerging markets including India and focus on specialty products such as oral contraceptives (OC) and dermatology in the US/Europe generics market. Glenmark has a strong track record of monetizing molecules in early phase of R&D. the company has 53 ANDAs pending approval. We estimate US sales to register 18% CAGR over FY13-FY15E.8 22. Moreover.0 FY15E 68.4 FY13 50.BO 18235 5341 DOLAT CAPITAL Target Price: ` 561 All Round Growth.5 17.Glenmark Pharmaceuticals CMP: ` 514 BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High / Low Avg.6 18. Glenmark is focusing on oncology and controlled substances for future growth.7 23. Going ahead.1 22.73 GPL Sensex Financials Year Net Sales % Growth EBIDTA OPM % Adj.3 23.08 10.8 12.6 14. R&D status – Focus back on out-licensing income Glenmark is likely to report the NCE clinical data for various NCEs commencing with Asthma trial data for GRC 4039 (Revamilast) and three other NCEs by end of FY14E.6 FY14E 58.2 Figures in ` mn September 4. of which 26 are Para IVs.4 6.1 20. Shareholding Pattern as on June’13(%) Promoter FIIs MF/Banks/FIs Public / Others GPL relative to Sensex 150 140 130 120 110 100 90 80 Aug-12 Apr-13 Dec-12 48.. Currently.207 20.6 21.6 17. Moreover. GRC15300 and mPGES-1 inhibitor) are currently out-licensed and may bring further milestone based payments in FY14E.7 10.123 24.1 19. Domestic biz – Sustained momentum Glenmark has recorded a robust 20% CAGR on its domestic formulation biz over FY08-13. gLocoid and 4-5 oral contraceptives. 2013 Aug-13 Oct-12 Feb-13 Jun-13 Glenmark Pharma 45 .201 17.147 3.89 7.919 80.2 8.146 20.0 24. Investment Rationale US biz – focusing on specialty products for growth We anticipate US generics segment (34% of sales) to be the key growth driver in the near future. respiratory and CVS segments.1 26. The company is focusing on specialty therapies including dermatology and oral contraceptives which offer strong visibility in the long term.944 24.2 15.7 22.3 8. we anticipate Glenmark to sustain 18% CAGR over FY1315E in domestic sales. Glenmark has gained three ranks to be 19th in the industry with dominant position in dermatology.5 5.30 33.2 33. we believe the company would continue to outperform industry growth led by launch of inhalers in the Indian market and entry into women’s healthcare. Moreover.9 29.. our estimates exclude potential upsides from these.6 23.7 3. However. As per ORG IMS Mat June 2013.548 16. growth would be supported by niche opportunites such as gVanos.206 36. Going ahead. Three molecules (GBR500. In the near term.7 7.PAT % Growth Adj. the new pricing policy is expected to have negligible impact on domestic sales.4 23.EPS (`) % Growth PER (x) ROANW(%) ROACE (%) FY12 40.5 20.

At CMP. 2013 Glenmark Pharma 46 .6x FY15E earnings.8% over FY13-15E on the back of: a) strong pipeline of 53 ANDA’s pending approval in US b) 18% CAGR in domestic formulation biz and 20% CAGR in semi-regulated markets and c) higher contribution from FTF and high margin products.3x FY14E & 15. September 4.DOLAT CAPITAL Valuation We expect Glenmark to post revenue CAGR of 18% and PAT CAGR of 19. We initiate coverage on Glenmark with ‘Accumulate’ recommendation and a target price of ` 561 (17x to FY15E EPS). the stock trades at 19.

0 39.600 7.8 0.197 1.9 92.016 250 6.7 5.060 Investments 181 Current Assets.600 8.2 0.881) (1.) 0 (C) Cash Flow from Financing (3.201 7.0 15.0 29.000) (1.334 Less: Accumulated Depreciation 4.044 100 8.803 4.147 Net Block 22.689 20.958 Closing Cash balances 3.011 19.630 244 3.052 5.603 5.030 0.1 3.750 1.500) (3.500 1.431 2.462 21.3 514 514 23.107 Mar12 40.2 127.840 4.046 100 12.7 27.) (E) Valuation Ratios CMP (`) P/E (x) Market Cap.1 1.359 27.784 603 38.705) 2.917 24.6 29.119 50.500 8.107 139.391 1.113 94 10.1 1.281) (212) 6. 2013 Glenmark Pharma 47 .667 25.270 7.6 26.952 31.436 Cash and Bank Balance 3.802 603 39.272) 6.6 32.614 0 (5.803) 46.6 26.6 139.242) 9.875 13.891 1.808 17.905 156.231 Less : Current Liabilities & Provisions Current Liabilities 12.354 Capex (3.000 181 10.607 1.800 12.718 33.3 33.1 12.207 1./ (Dec.4 151.206 10 40.5 39.417 4.9 20.779 1.8 89.999 20.840 7.6 4.1 102.) 21.689 2.1 10.705) 2.4 1.107) (2.5 94.006 34.560 Provisions 509 sub total 13.201 ` mn Mar15E 68.755 10. Other Income) Other Income EBIDTA (Incl.470 171 8.230 83 6.1 22.800) (555) (100) (5.3 139.317 4.834 5.4 0.720 16.466 7.643 40 4.600) (1.8 0.000 181 8.703 21. in Working Capital (1.0 13.I.3 21.5 1.843 5.0 18.5 26.000 20.2 31.9 33. O.265 181 8.5 158.5 23.167 9.5 15.203 22.197 Depreciation & w.674) 41.840 54.678 19.4 5.5 119 61 5.600 (1.291 90 7.277 244 5.703 3.417 23. Tax) (554) Other (bal fig.029 1.029 1.9 Net Profit Margin 11.972 603 44.3 20.334 6.666 244 5.7 15.746 24.3 32.6 18.147 6.187 Capital Work in Progress 2.235) (2.107 1.1 8.5 2.579 1. Loans & Advances Inventories 7.2 7.882 (1.1 20.840 Mar15E 11.163 Total Assets E-estimates 41.1 EBIDTA Margin (incl.114 (5.9 21.069 0 (4.5 17.1 113 72 5.803) 56.999 (2.455) (841) 5.235) 5.147 Mar14E 58. Activities (2.548 0 58.123 14 50.9 1.8 155.125 19.1 9.7 22.271 3.146 1.7 105 53 6.4 Tax/PBT 4. (` Mn.2 17.985 9.7 20.461 19.6 18.4 September 4.216 31.803) 50.9 1. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Minority Interest Net Profit Adj.024 10.0 12.242 Opening Cash balances 1./(Dec.068 Net Current Assets 17.304 (4.000 17.000 12.7 1.548 46.0 33.7 31.I.0 0.) in Investments 128 (B) CF from Invt.877 Sundry Debtors 12.2 7.103) Free Cash Flow 4.952 Mar14E 271 34.052 6.2 15.8 93.6 12.8 8.4 18.176 979 6.5 33.337 1.109 Other Current Assets 609 sub total 30.000 22.7 1.985) (2.137) Net Change in Cash 1. 979 Net Interest Exp 1.224 0.642 1.201 6.592 28.) 21.502 12.891 1.201 E-estimates IMPORTANT RATIOS Particulars Mar12 (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl.999 8.0 15.8 7.100 3.1 Gross Profit Margin 17.1 18.466) Dividend Paid (Incl.834 8.718 Mar15E 271 42.9 33.7 139.758 56.187 19.4 15.3 30.0 Applications of Funds Gross Block 26.4 0.4 22.880 238 4.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates Mar13 Mar14E Mar15E Mar13 7.828 (4.851 3.480) 10.6 20.944 CASH FLOW Particulars Mar12 Profit before tax 6.4 514 19.755) (555) (90) (5.0 146.000 19.2 105 54 6.2 91.050) (A) CF from Operating Activities 7.4 23.3 29.337 0 7.6 0.117) Interest exp net (1.052 Mar14E 8.337 1.083 19.9 23.0 33.3 27.029 0 11.4 (B) As Percentage of Net Sales Excise Duty % of Gross Sales Raw Material Employee Expenses Other Expenses (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (` Mn) (D) Measures of Investment EPS (`) (excl EO) EPS (`) CEPS (`) DPS (`) Dividend Payout (%) Profit Ploughback (%) Book Value (`) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.592 Mar13 271 27.746 8.6 1.8 5.968 0.0 1.000 (3.DOLAT CAPITAL INCOME STATEMENT Particulars Net Sales Other Operational income Income for Operations Total Expenditure EBIDTA (Excl.9 1.107 6.8 2.435 16.123 0 (4.Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Other Reserves Net Worth Minority Interest Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Mar12 271 23.400 6.137 40.755 (1.276 18. O.881 (3.4 23.800 (1.270 1.417 6.479 100 14.0 0.891 0 8.176 1.975) Inc.6 33.840 0 68.o.3 1.8 6.395 42.4 514 15.600) (555) 0 728 2.1 1.944 8.000 (3.362 14.272 2.000 15.271 2.201 Loans and Advances 6.5 22.466 Direct taxes paid (238) Chg.) MCap/ Sales (x) EV (` Mn.0 21.500) 4.6 17.2 20.089 46.919 Mar13 50.) in Debt (1.251 Inc.3 0.271 2.750 11.5 1.9 3.

DOLAT CAPITAL Int en tio na lly Le ft B lan k Glenmark Pharma September 4. 2013 48 .

8 25.65 IPCA relative to Sensex 160 150 140 130 120 110 100 90 80 Aug-12 Apr-13 Dec-12 Aug-13 Oct-12 Feb-13 Jun-13 IPCA Sensex Financials Year FY12 FY13 FY14E FY15E Net Sales# % Growth EBIDTA OPM % Adj. emphasis on branded formulations with front end presence in fast growing emerging markets and is a preferred supplier for generics (APIs/ formulations) to its partners based in the regulated markets and thus stays away from any patent litigation.IPCA Laboratories CMP: ` 647 BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High / Low Avg.3 26.6 25. led by increasing contribution from CVS and pain segment.2 21.681 22.3 26.8 26. # Includes other operating income .582 18. However. Accumulate IPCA has transformed itself from a leading API manufacturer to a fully integrated formulation company.867 17. US business.7 Shareholding Pattern as on June’13(%) Promoter FIIs MF/Banks/FIs Public / Others 45. The company follows a two pronged growth strategy viz.50 17.131 19.3 30.7% market share in the domestic pharma market (MAT June’13).3 6.135 21.7 28.711 16.3 38.4 43. Anti-malarials. CVS and pain management constitute more than 50% of the domestic business.2 3.1 28.5% price hike taken in portfolios common to DPCO 1995 and 2013 and existing products outside price control.7 Figures in ` mn. Moreover.587 24.3 7. 2013 IPCA Labs 49 . We anticipate the company to witness a growth of 14% in FY14E and 16% in FY15E. 7.8 3.1 18.3 26.7 5. We anticipate Indore % Growth PER (x) ROANW(%) ROACE (%) 49.4 17..5 17.2 4.4 14.6 32. Investment Rationale Integrated Generic Play . In addition.515 20.2 20.8 24. Domestic business.7bn from ` 710mn (under DPCO 1995).2 8. Volume (no) BSE Code NSE Symbol Bloomberg Code Reuters Code ` 252mn ` 2/` 82bn USD 1217mn ` 708 / 389 168437 524494 IPCALAB IPCA IN IPCA.5 36. As per company.96 13.1 27. Formulations constitute 76% of the product mix with APIs mainly for captive consumption.0 26. commercialization of Indore SEZ shall do away with capacity constraints and pave way for market share gains in existing products and facilitate new launches.232 22..89 22.BO 18235 5341 DOLAT CAPITAL Target Price: ` 743 Entering the Big League. The domestic formulations segment is expected to record 15% CAGR over FY13-15E. the impact could be partially set off by 10% price hike in the portfolio coming out of DPCO 2013.322 17.2 5. new pricing policy will not have any material impact on domestic sales. The company has a dominant position in the anti-malaria segment in India with 48% market share in FY13.growth to be driven by Indore SEZ commercialization: Ipca faces capacity constraints and has not been able to launch new products/increase market share in existing products. the new DPCO 2013 coverage is expected to increase to `1..PAT % Growth EPS (`) 23. We anticipate export formulations to register 24% growth over FY13-15E mainly driven by increasing contribution from institutional based sales and ramp up in its US generics biz.No material impact of new pricing policy: IPCA holds 1.274 22.298 50.IPCA has transformed itself from an API manufacturer to a fully integrated formulation company. September 4.

Over next 2-3 years. b) sustained growth in its institutional business and c) gradual recovery in domestic formulations hereon shall add to growth momentum. At CMP. the stock trades at 17.6bn in FY14 over the next three years. led by incremental revenues due to Indore SEZ commercialization (USD 10mn in FY14E and USD 30mn in FY15E). We estimate adjusted earnings to record 22% CAGR over FY13-15E.DOLAT CAPITAL SEZ to be commercialized in Q4FY14 and growth to revive from FY15E onwards. September 4.Malaria) programs and increased off take of Artermether-Lumefantrine (AL) formulation ensures revenue visibility in its institutional business. Institutional business to sustain growth: Currently. We estimate US business to grow by 51% CAGR over FY13-15E to `4. 2013 IPCA Labs 50 .8x FY14E and 14. We recommend ‘Accumulate’ on the stock with a target price of ` 743 (17x FY15E EPS).8x FY15E earnings. incremental revenue of USD 80mn is expected from Indore SEZ as per management. on the back of strong order book position and is expected to pick-up in H2FY14E. Notably. The management believes the institutional business can grow to ` 8bn from guided sales of ` 4. funding commitment over AMFm (Affordable Medicines Facility. Valuation We expect acceleration in export formulation revenues mainly led by a) uptick in US revenues-commercialization of Indore SEZ in Q4FY14E.2bn. ~95% of institutional business is primarily focused on malaria and sold in African countries where the incidence of malaria is very high. The company has guided for 17% revenue growth in FY14E.

3 36.0 14.8 1.6 25.5 0.800) 1.258 1.3 21.472 22.699 Sundry Debtors 3.3 0.2 22.437 7.930 11.fig) (C) Cash Flow from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates IMPORTANT RATIOS Particulars Mar12 (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl. Tax) Other (Bal.8 81.3 26.601 2.135 5.027 6.4 1.140 448 23.452 5.) 21.3 0.0 88.2 21.8 81.5 99.1 4.9 24.771 Mar13 27.966 5.834 36.1 3.4 24. Net Interest Exp Direct taxes paid Chg.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 38.822 500 38.834 19.2 25.292) 149 (3.1 Net Profit Margin 14.3 26.258 0 7.8 11.9 22.812 11.4 28.681 8.I.460 (2.) 22.032 1.7 2.5 17.403 Provisions 377 sub total 3.1 0.4 39.963 1.274 21.0 6.680 686 5.2 22.569 3.232 6.025 Other Current Assets sub total 12.386 800 236 341 10.4 Tax/PBT 21.3 10.391 540 4.1 81.468 3.256 (496) 2.010 15.780 Net Current Assets 8.9 1.0 1.063 1.6 37.7 81.338 26.9 1.952 7.281 (644) 2.7 26.115 2.0 6.8 27.) in Debt Interest exp net Dividend Paid (Incl. Other Income) EBIDTA (Incl.059 15.7 647 21.027 415 (1.934 Mar12 23.867 631 3.9 10.1 21.7 26.2 22.556 Total Assets E-estimates 19.564 (503) 2.8 71 94 3.6 25.1 5.045 6.787 Mar14E 252 436 18.0 14.899 7.587 120 23.292) 0 87 (334) (660) (0) (907) (758) 122 (644) Mar14E 6.248 (2.635) 3.582 ` mn Mar15E 37.5 85.3 Interest / Sales 1.839 13.6 2.493 1.8 17.322 150 38.707 18.5 4.7 43.934 September 4.0 26.289 (9) 3.305 4.582 0 4.258 1.172 402 (1.299) (1.2 14.022 932 19. O.515 0 5.6 647 17.084 4.059 1.170 671 413 (881) (435) 3.070 30.596 5. Loans & Advances Inventories 6.5 15.172 7.125 13.601 3.5 Mar13 Mar14E Mar15E Mar12 4.7 73 97 3. in Working Capital (A) CF from Opt.016 5.312) 148 (644) (496) Mar15E 7.1 190.5 3.7 13.396 24.0 Applications of Funds Gross Block 13./(Dec.493 16.472 29.5 13.3 55 106 3.9 0.DOLAT CAPITAL INCOME STATEMENT Particulars Net Sales Operating Income Income from Operations Other income Total Income Total Expenditure Other Expenses EBIDTA (Excl.493 Mar13 252 436 15. 2013 IPCA Labs 51 .1 84.9 24.150 Less: Accumulated Depreciation 3.426 22.9 154.032 1.174 0 5.171 30.2 0.236 Mar14E 32.7 14.1 25.800) 1.375 334 6.435 26.9 85.779 3.353 3.299 3.945 Net Block 9.7 22. Activities Issue of Equity/ Preference Inc.131 143 28.6 82. Activities Capex Free Cash Flow (B) CF from Invt.747 5.8 Gross Profit Margin 20.831 402 8.) (E) Valuation Ratios CMP (`) P/E (x) Market Cap.8 EBIDTA Margin (incl. (` Mn.o.7 39.0 13.) MCap/ Sales (x) EV (` Mn.515 0 5.032 0 6.764) 4.7 7.108 932 22.015 6.538 4.7 23.7 1.3 44.I.938 (3.448 (2. O.4 124.298 527 2.268 4.0 (B) As Percentage of Net Sales Raw Material Employee Expenses Other Expenses (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (` Mn) (D) Measures of Investment EPS (`) (excl EO) EPS (`) CEPS (`) DPS (`) Dividend Payout (%) Profit Ploughback (%) Book Value (`) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.441 (3.0 6.396 7.5 12.515 CASH FLOW Particulars Profit before tax Depreciation & w.800) 0 (100) (402) (953) (0) (1.105 5.522 4.022 2.292 236 341 7.041 867 5.9 24.3 18.4 5.5 70 93 3.450) (1.758 800 236 341 8.170 881 3.0 6.283 6.161 550 32.5 647 24.367 14.225 16.255 413 4.641 9.474 415 7.7 12.1 13.0 39.674 43.450 4.852 12.055 6.918 932 30.2 88.174 867 334 (1.4 25.8 2.4 19.170 0 4.8 25.455) (7) (496) (503) 22.425 19.711 200 32.743) (2.5 24.537 595 28.841) 4.4 25.5 88.051 7.813 1.7 14.5 87.274 7.7 2.787 19.5 1.491 Cash and Bank Balance 122 Loans and Advances 2.852 500 4.155 Goodwill 236 Investments 341 Current Assets.743 5.2 5.233 8.2 0.5 14.911 25.174 1.540 5.260 (2.289) 649 (3.2 25.018 932 26.842 671 4.430 1.2 647 14. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Share of associates Adj.2 14.601 2.800) 0 (90) (415) (807) (0) (1.582 0 4.289) 13 703 (413) (468) (466) (631) 18 104 122 Mar13 5.1 22.875 8 3.337 Less : Current Liabilities & Provisions Current Liabilities 3.7 8.205 Capital Work in Progress 1.353 9.Net Profit Forex Losses/(Gains) PAT BALANCE SHEET Particulars Sources of Funds Equity Capital Share Premium Other Reserves Net Worth Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Mar12 252 436 11.0 31.472 Mar15E 252 436 23.8 1.038 984 6.7 53.

2013 52 .DOLAT CAPITAL Int en tio na lly Le ft B lan k IPCA Labs September 4.

2 34.572 16. launch of Seasonique and Yasmin in July’13.1 22. We estimate Japan biz to record 16% CAGR over FY13-15E to USD 275mn. Accumulate Lupin is our preferred pick on account of successful transformation from a Tier-II API manufacturer to a fully integrated global generic player. Trizivir.7 111.6 30.4 26. While CVS. We estimate US sales to register USD 740mn in FY14E and USD 850mn in FY15E. TriLipix and Asacol) to aid growth trajectory. Renagel. Japan biz – Increasing profitability Lupin has built up a sizeable presence in the Japan market through the acquisition of Kyowa and I’rom.9 19.9 41.12 Aug-13 Lupin Sensex Domestic Formulation business – Shifting focus from acute to chronic Lupin expects its strategy to focus on chronic therapies (60% contribution to domestic business.990 15.3 24.155 23.4 8.7 128.. Volume (no) BSE Code NSE Symbol Bloomberg Code Reuters Code ` 895mn ` 2/` 376bn USD 5613mn ` 908 / 540 1274208 500257 LUPIN LPC IN LUPN. Investment Rationale US generics – targeting niche opportunities Lupin has differentiated itself from other Indian generic companies in the US by a) focusing on branded innovator products b) launching lowcompetition/patent challenge product in the US and c) in-licensing products. of which 38 are Para IVs and 8 FTF opportunities. We expect the export formulation business to grow by 14% CAGR over FY13-15E led by monetization of its generic pipeline (FTF’s and OC’s) in the US market and consolidation of its position in the Japanese market.BO 18235 5341 DOLAT CAPITAL Target Price: ` 965 Fundamentally Healthy.2 29.5 13. dermatology and ophthalmology.0 30.9 31. Zymar. Lunesta. In addition. The company aims to increase its profitability with captive API sourcing.1 Figures in ` mn. 20% CAGR in domestic formulations over FY0813 aided by selective launches in niche fast-growing therapeutic areas.0 51. It has managed to deliver superior growth of 44% CAGR in export formulations.7 14. The company is focusing on complex molecules and therapies including OC’s. Shareholding Pattern as on June’13(%) Promoter FIIs MF/Banks/FIs Public / Others Lupin relative to Sensex 140 130 120 110 100 90 80 Oct-12 Feb-13 Dec-12 Aug-12 Apr-13 Jun-13 46..5 20.829 21.0 17. 2013 Lupin 53 .299 15.8 30. metabolic.1 24. aims to increase it to 70% in next couple of years) to help it grow faster than industry growth of 12%.Lupin CMP: ` 840 BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High / Low Avg.3 23. We anticipate limited competition generic launches in US (Niaspan.2 15.8 16.3 30.885 24.4 96. to further ramp-up sales in US going ahead.4 26. Financials Year FY12 FY13 FY14E FY15E Net Sales# % Growth EBIDTA OPM % Adj.0 27.67 12.40 10.2 23.81 30.8 0.PAT* % Growth EPS (`) % Growth PER (x) ROANW(%) ROACE (%) 70.413 36. Growth in domestic formulations (16% CAGR over FY13-15E) business will be primarily driven by new launches and incremental sales from Eli Lilly alliance.875 0. * Adjusted.700 23.5 40.# Includes income from Operations September 4.5 15.404 51.447 20.689 15. The company has 65 ANDAs pending approval.

September 4. The company continues to seek high-potential. increase in its field force and new launches. low-risk acquisitions in key markets which shall further complement its organic growth momentum. Valuations We expect Lupin to register earnings CAGR of 14% over FY13-15E. We recommend ‘Accumulate’ on the stock with a target price of ` 965 (24x FY15E earnings). led by limited competition generic launches in US (Niaspan.2x FY14E and 20. Renagel. Lunesta. led by a rapidly expanding presence in fast growing chronic therapeutic areas like CVS and anti-diabetes. women healthcare and IV fluids would provide growth opportunities. the stock trades at 24. Trizivir. TriLipix and Asacol). We believe Lupin will continue its out-performance of the industry as historically it has grown much faster than the industry. 2013 Lupin 54 . Zymar. We expect Lupin’s domestic formulations to post revenue of 16% CAGR over FY13-15E. clocking revenue CAGR of 20% over FY08-13. respiratory and gastro would remain. At CMP.9x FY15E earnings. Its business model enables healthy cash flow generation and augments requisite growth funding. We continue to have Lupin in our preferred picks list.DOLAT CAPITAL ophthalmology.

Other Income) 14.236 Depreciation 2.2 51.3 5.040 28 22.9 36.692 73.171 19.817 3.434 78.776 (355) (1.9 375.8 0.885 31.000) 11.5 13.055 526 26./(Dec.885 575 31.6 34.792 56.637 8.3 2.708) 1.010 21.1 35.663) (6.199 85.552 22.898) 0 (3.128 5.700 22.582 Mar14E 22.4 41.136 (6.544 25.500 1.9 88 84 4.1 24.852 17. (` Mn.2 51.9 29. Activities Capex Free Cash Flow Inc.5 12.182 26.5 27.5 Gross Profit Margin 20.896) 11. Other Income) 14.8 6.5 23. Net Interest Exp Direct taxes paid Chg in Working Capital (A) CF from Opt.500 5.944) (526) (2.6 85 87 4.990 CASH FLOW Particulars Profit before tax Depreciation & w.638 42.249 33.040 28 25.944 84.211 22.607) 13.500 1.529 4.422 Net Block 22.DOLAT CAPITAL INCOME STATEMENT Particulars Mar12 Net Sales 69.) in Investments Other (Bal.797 96.4 7.0 37.875 Share of Associates 0 Minority Interest 0 Net Profit 8.4 86.500 5.785 0 102 (5.8 4.3 30.2 2.746 30.6 144.346 (8.358 10.838 18.322 410 (5.2 0.2 2.689 97.9 85.1 55.000) 7.0 3.1 2.468 376.128 26.0 0.086 Net Profit before Minority Interest 8.) MCap/ Sales (x) EV (` Mn.8 24.374 Less : Current Liabilities & Provisions Current Liabilities 16.444 1.457 Capital Work in Progress 4.352 7.430) 3.568 3.804 34.5 0.241 (5./ (Dec. Tax) (C) CF from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates Mar12 11.0 24.2 16.2 24.144 30.318 526 (6.4 4.8 34.000) (575) (2.961 379.649 69.532 923 69.040 Investments 28 Current Assets.744 27.741 0 (29) (5.761 14.532 1.7 22.1 83.323 93.0 36. O.598 29.6 114.3 30.) 20.790 2.875 BALANCE SHEET Particulars Sources of Funds Equity Capital Share Premium Other Reserves Net Worth Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Minority Interest Total Capital Employed Mar12 894 5.) in Debt Interest exp net Dividend Paid (Incl.442 723 58.3 56.123 78.852 27.155 27.5 23.196 Total Assets E-estimates 58.) (E) Valuation Ratios CMP ( `) P/E (x) Market Cap.361 34.073 22.318 Cash and Bank Balance 4.1 2.597 Operating income 1.133 30.414 4.170 8.500) 5.807 69.100 128.582 8.570) 4 1.I.500 11.240 5.7 September 4.955 24.4 0.2 40.4 EBIDTA Margin (incl.000 3.025 6.119 840 840 840 840 42.1 178.099 376.0 14.0 13.310 5.211 6.532 1.616 1.838 372.5 24.7 29. Loans & Advances Inventories 17.051 26.8 19.794) 52 4.201 4.9 26.582 7.608 2.086) (5.249 58.5 27.) 20.842) (5.2 20.557 4.6 Interest / Sales 0.764 7.844 384.7 0.155) 2.931) 5.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 36.040 28 29.500 3.3 0.674 34.695 Mar13 895 5.5 23.961 2.025 Loans and Advances 7.275 355 (3.282 51.0 24.5 5.4 85.761 Mar15E 26.838) (6.071 26.287 sub total 20.413 279 96.785 (6.299 2.5 2.8 Net Profit Margin 12.5 91 91 4.8 13.648 EBIDTA (Excl.4 28.260) 6.318 22.0 1. O.8 13.000 129.2 88 84 4.4 25.891 Provisions 3.0 35.244 29.663 15.4 23.911) 17.179 6.761 9.685) (4.8 17.0 14.4 30.099 376.1 3.067 30.9 89.1 9.841 60.591 Interest 355 Gross Profit 14.943 93.325 Mar14E 895 5.099 5.278) 0 (1.136 0 (278) (6.9 31.325 50.0 14.6 4.7 0.6 0.182 575 (7.4 5.8 25.973 Total Expenditure 56.322 19.713 25.0 2.792 Mar15E 895 5.230 16.4 4. 2013 Lupin 55 .4 26.547 (300) 275 15.597 7.7 33.426 10.3 23.4 3.829 Other Income 144 Total Income 70.961 Profit Before Tax 11.4 3.5 24.0 13.249 73.246 19.299 900 112.290 0 300 17.8 30.382 Other Expenses 20.154 26.025 Mar13 19.358 23.1 Tax/PBT 25.7 28.I.178 Net Current Assets 26. Activities Issue of Equity/ Preference Inc.465 15.987 40.852 22.878 Less: Accumulated Depreciation 14.4 13.494 64.961 Tax 3.0 14.589 2.246 5.3 2.1 2.129 8.012 55.034 6.572 ` mn Mar15E 126.620 79.119 IMPORTANT RATIOS Particulars Mar12 (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl.567 4.7 34.978 410 22.790) (3.404 Mar14E 109.7 Applications of Funds Gross Block 36.8 44.585 40.447 EBIDTA (Incl.211 4.000 111.574 (10.Fig) (B) CF from Invt.842 13.327 Sundry Debtors 17.238) (6.745 22.249 45.000 10.5 (B) As Percentage of Net Sales Raw Material Employee Expenses Other Expenses (C) Measures of Financial Status Debt / Equity (x) Interest Coverage (x) Average Cost Of Debt (%) Debtors Period (days) Closing stock (days) Inventory Turnover Ratio (x) Fixed Assets Turnover (x) Working Capital Turnover (x) Non Cash Working Capital (` Mn) (D) Measures of Investment EPS (`) (excl EO) EPS (`) CEPS (`) DPS (`) Dividend Payout (%) Profit Ploughback (%) Book Value (`) RoANW (%) RoACE (%) RoAIC (%) (Excl Cash & Invest.o.044 (176) 4.8 0.062 28.529) 2 (956) (410) (1.400 1.404 0 0 13.689 1.695 44.8 30.3 41.705 sub total 46.128 7.0 3.275 Profit Before Tax & EO Items 11.9 2.144) (4.232 Income from Operations 70.4 Mar13 Mar14E Mar15E Mar13 94.0 26.108 2.979 4.520 14.0 387.0 30.0 0.500 5.974 Goodwill on consolidation 5.246 3.0 14.

2013 Int en tio na lly Le ft B lan k Lupin 56 .DOLAT CAPITAL September 4.

512 42.653 24. Sun has strengthened its presence in the US market by acquisition of URL Pharma (adds 107 products to US portfolio).1 35.182 17.4 21.2 31.7 112.5% over FY03-13) and has consistently improved its market share. US generics – Niche filings We anticipate US generics segment excl. Prandin has market size of USD200mn. In July 2013.197 40. Investment Rationale Domestic Formulations – Growth led by chronic therapies SUNP has recorded a robust 17.7 23.022 524715 SUNPHARMA SUNP IN SUN. The company has dominant position in CVS.5% over FY13-15E.648 40.295 43.6 133.673 44. The company expects increased R&D investments to strengthen Taro’s generic pipeline. dermatology and injectables which offer strong visibility in the long term.7 22. We anticipate SUNP to sustain 18% CAGR over FY13-15E in domestic sales.7 Figures in ` mn.2% 32. In addition. DUSA pharma (gives access to branded dermatology product portfolio) and Taro (dermatology and topical products).1% market share in the Indian pharma market.7 33.6 -37. It also indicated that competition for its top product.7 29.1 11. We estimate Sun to report revenue CAGR of 19. Moreover.9% 58. 2013 Sun Pharma 57 .696 24.916 58.6 34.9 24.7 160.24 10.8 24. Nystatin. As per AIOCD-AWACS June 2013.9% 49. #Includes Other Operating Income September 4. SUNP expects entry of atleast 3 generic players post conclusion of 180 day exclusivity.999 40.Sun Pharmaceuticals CMP: ` 510 BSE Sensex NSE Nifty Scrip Details Equity Face Value Market Cap 52 week High / Low Avg.3 35. Going ahead. The company is focusing on complex molecules and therapies including controlled substances. the new pricing policy is expected to have negligible impact on domestic sales.6 14.76 3. Financials Year FY12 FY13 FY14E FY15E Net Sales# % Growth EBIDTA OPM % Adj. z Shareholding Pattern as on June’13(%) Promoter FIIs MF/Banks/FIs Public / Others 63.3 22.8 44. Taro (30% of sales) to be the key growth driver in the near future.BO 18235 5341 DOLAT CAPITAL Target Price: ` 603 Firing on all cylinders Accumulate Sun Pharma (SUNP) has outperformed market growth over the past seven years (CAGR of 17.5% CAGR on its domestic formulation biz over FY06-13.8 29.977 11.8 21. SUNP launched gPrandin with 180 day exclusivity in US. Volume (no) BSE Code NSE Symbol Bloomberg Code Reuters Code ` 1036mn ` 1/` 1057bn USD 16bn ` 581 / 321 1.68 22.8 23.PAT % Growth EPS (`) % Growth PER (x) ROANW(%) ROACE (%) 80.6 49. has increased with Sandoz re-entering the market.7 21.7 35.5% over FY13-15E and earnings CAGR of 18.562. CNS and gastro portfolio. we believe the company would continue to outperform industry growth led by new product launches and market share gain in existing product portfolio.8% 68.838 20. SUNP is ranked 2nd and holds 5.0 35.7 58.32 SUN Pharma relative to Sensex 160 150 140 130 120 110 100 90 80 Oct-12 Dec-12 Feb-13 Aug-12 Apr-13 Jun-13 Aug-13 Sun Pharma Sensex Taro Pharma: Management has reiterated that the price increase undertaken by Taro for some of its dermatology products may not be sustainable in the long-term.

3) Higher R&D expenditure productivity 4) Competition in Taro products leading to price normalization. 2013 Sun Pharma 58 . While the company has not disclosed the revenue size of URL Pharma. it had earlier indicated that the profit margins are well below the consolidated entity.2x FY15E earnings.5% and PAT CAGR of 18. 5) Increased visibility in US on account of upsides from URL and DUSA acquisitions. Valuation We expect SUNP to post revenue CAGR of 19.DOLAT CAPITAL z URL Pharma and Dusa Acquisition: SUNP indicated that the performance of URL Pharma/DUSA Pharma has been above expectations so far.5% over FY13-15E on the back of: 1) Superior revenue mix. September 4. At CMP. We initiate coverage on SUNP with ‘Accumulate’ recommendation and a target price of ` 603 (25x FY15E EPS). 2) Domestic market growth rate to be higher than the market @ 18%. the stock trades at 23. We expect US biz to grow at 15% CAGR over FY13-15E.7x FY14E & 21.

036 129.408 40.7 35.818) (9. Direct taxes paid Chg.433 15.624 45.346 3.000 30.064 150.969 (D) Measures of Investment EPS (`) (excl EO) 21.057.887 58.512 4.0 5.057 141 80.811) (6.036 0 (450) (9.836 123.312 451 72.4 1.891 1.326 49.377 965.048 1.4 Gross Profit Margin 45.835 Total Assets E-estimates 127.466 90.943 140.6 497.118 16.261 Cash and Bank Balance 33.567 22.587 39.224 216.6 43.973 Net Block 29.5 DPS (`) 3.6 1.330 32.197 47.174 31. Tax) (C) CF from Financing Net Change in Cash Opening Cash balances Closing Cash balances E-estimates IMPORTANT RATIOS Particulars Mar12 (A) Measures of Performance (%) Contribution Margin EBIDTA Margin (excl.737 (13.2 Non Cash Working Capital (` Mn)31.554 3.153 830 1.858 (21.6 33.737 68.8 1.338 6.849 84.695 450 61.) EV/Sales (x) EV/EBDITA (x) P/BV (x) Dividend Yield (%) E-estimates 510 510 510 510 23.982 (7.869 9.) in Debt Interest exp net Dividend Paid (Incl.088 41.4 4.206 34.768 93.2 81.778 18.622 1.916 Mar14E 132.422 3.071 177. O.1 Applications of Funds Gross Block 54.985 5.236 49.2 12.9 September 4.982 56.488 350 160.0 46.039 Mar13 38.9 0.295 Capital Work in Progress 3.554 1.872 5.) 45.4 11.487 0 (10. Other Income) Interest Gross Profit Depreciation Profit Before Tax & EO Items Extra Ordinary Exps/(Income) Profit Before Tax Tax Net Profit Minority Interest Net Profit Adjusted Net Profit BALANCE SHEET Particulars Sources of Funds Equity Capital Other Reserves Net Worth Minority Interest Secured Loans Unsecured Loans Loan Funds Deferred Tax Liability Total Capital Employed Mar12 1.667) 0 (668) (443) (4.9 EPS (`) 25.977 CASH FLOW Particulars Profit before tax Depreciation & w.636 127.6 18.7 8.981 66.116 25.117 52.3 0.600 490.467 Mar15E 2.7 23.4 46.6 6.9 Dividend Payout (%) 15.455 25.3 14.7 CEPS (`) 28.699 2.124 12. (` Mn.329 21.583 Mar12 80.191 36.855 26.977 49.3 (E) Valuation Ratios CMP ( `) P/E (x) Market Cap.9 17.696 ` mn Mar15E 160.129 Current Assets.638 26.877 sub total 90.930 32. Loans & Advances Inventories 20.447 Investments 22.7 EBIDTA Margin (incl.579 167.5 Mar13 Mar14E Mar15E Mar12 29.874) 1.017 1.149 8.4 1.179 (1.0 26.2 119.I.7 60 83 4.211 188.8 Fixed Assets Turnover (x) 1.2 38.096 2.564) 38.648 4.0 4.5 Tax/PBT 9.8 0.980) 4.7 21.126 39.999 63.278) 40.4 15.351 1.6 0.519) 17.DOLAT CAPITAL INCOME STATEMENT Particulars Net Sales Other Operational income Income from Operations Total Expenditure EBIDTA (Excl.719) 0 (1.849 25.3 4.269 Less: Accumulated Depreciation 24.3 18.013.804 17.8 RoACE (%) 29.309 Mar15E 62.5 14.081 35.550 32.124 0 68.8 4.014 22.557) (5.7 RoAIC (%) (Excl Cash & Invest.391 25.1 26.680) 15.800 73.040 Net Current Assets 65.9 125.790 443 52.982 2.992 22.148 8./(Dec.6 RoANW (%) 22. Other Income) Other Income EBIDTA (Incl.6 29.153 830 1.039) (5.9 162.264 25.9 0.650 1.) 39.346 74.982 3.046 28.262 55.7 4.4 7.640 Deferred Tax Asset 6.5 5.242) 36.3 19.8 5.789 45.6 4.505 21.322) 5.5 1.244 6.000 36.295 3.636 132.842 49.844) 18. 2013 Sun Pharma 59 .088 6.o.583 (C) Measures of Financial Status Interest Coverage (x) 130.153 830 1.437 (8.7 29.973 28.861 5.888 31.437) 46.090 6.3 67.987) (23.1 84.673 3.747 282 36.113) (9.7 0.8 Book Value (`) 107.6 31.899 21.6 5.741 4.767) (5.071 137.362 (8.3 Net Profit Margin 33.451 9.0 31.218 24.861 4.912 (3.712 33.256 33.1 22.7 53./ (Dec.3 Average Cost Of Debt (%) 9.346 Mar13 1.9 0.672 Loans and Advances 16. O.884 49.1 24.1 4.3 45.541 sub total 25.8 46.2 9.1 19.7 49.729 (10.8 61 83 4.3 46.0 42.1 (B) As Percentage of Net Sales Raw Material Employee Expenses R&D Expenses Other Expenses 20.925 55.523 44.855 24.514 Mar14E 2.4 13.882 45.622 528.838 92.286 3.0 137.448 (884) (9.6 48.832 350 133.554 0 33.0 15.948 (9.410 111.7 23.928 Mar14E 25.) 40.514 81.653 Mar13 112.083 46.863 30.615 1.0 Debtors Period (days) 88 Closing stock (days) 95 Inventory Turnover Ratio (x) 3.465 2.943 4.244 1.036 110.9 4.1 25. Activities Capex Free Cash Flow Inc.082 130.2 4.182 74.100 36.4 46.806 4.0 14.870 Sundry Debtors 19. in Working Capital (A) CF from Opt.587 21.668) 8.389 610 112.0 32.6 9.680 Less : Current Liabilities & Provisions Current Liabilities 14.912 33.056 77.8 12.887) 9.6 6.5 Working Capital Turnover (x) 1.7 31.001) (282) (4.7 25.499 Provisions 10.430 28.2 528.176 150.400 61.981 24.4 14.1 35.864 34.132 30.2 6.8 86.4 1.176 167.990) 8.3 35.061 169 (9.836 43.748 9.528) (1.0 20.057.982 2.) MCap/ Sales (x) EV (` Mn.8 Interest / Sales 0.240 4.7 56.4 18.965 24.0 6.445 11.242) 0 0 (451) (9.6 45.245 4.176 216.113) (8.1 7.660 106.326 68.1 60 84 4.362 48.2 Profit Ploughback (%) 84.6 22.258 179.349 19.9 5.672 41.) in Investments (B) CF from Investing Activities Issue of Equity/ Preference Inc.I.731 44.

com manishr@dolatcapital. Rajabahadur Mansion. CFA Amit Purohit Milind Bhangale Nehal Shah Priyank Chandra Rahul Jain Rajiv Pathak Ram Modi Prachi Save Sector/Industry/Coverage Co-Head Equities and Head of Research Consumer Pharma Midcaps & Agrochem Oil & Gas IT Services Financials Metals & Mining Derivatives E-mail amit@dolatcapital. While all reasonable care has been taken to ensure that the facts stated are accurate and the opinion given are fair and reasonable. Sridhar Chirag Makati Chandrakant Ware Aadil R. Thomson Publishers and Bloomberg (DCML <GO>) .com ram@dolatcapital.FII Head Sales Trading AVP .Institutional Sales AVP .com aadil@dolatcapital. Mumbai .com kapil@dolatcapital.Institutional Sales Institutional Sales .com rajiv@dolatcapital.com prachi@dolatcapital.com E-mail Equity Sales/Trading Designation Purvag Shah Vikram Babulkar Kapil Yadav Parthiv Dalal Jatin Padharia P.com Dola t Capital Market Pvt.com sridhar@dolatcapital.com milindb@dolatcapital.com jatin@dolatcapital. Our Research reports are also available on Reuters. For Pvt.com parthiv@dolatcapital.com priyank@dolatcapital.com vikram@dolatcapital. Ambalal Doshi Marg.com rahul@dolatcapital.com chandrakant@dolatcapital. Dolat 20.400 001 This report contains a compilation of publicly available information.+91-22-4096 9797 91-22-40969747 91-22-40969746 91-22-40969735 91-22-40969705 91-22-40969748 91-22-40969728 91-22-40969702 91-22-40969707 91-22-40969708 purvag@dolatcapital. Sethna Principal Co-Head Equities and Head of Sales AVP .+91-22-4096 9700 91-22-40969706 91-22-40969725 91-22-40969726 pranavj@dolatcapital. Circulation & Research Purpose only.com Tel. Fort. internally developed data and other sources believed to be reliable. Ltd. 1st Floor.+91-22-4096 9700 91-22-40969745 91-22-40969724 91-22-40969731 91-22-40969753 91-22-40969737 91-22-40969754 91-22-40969750 91-22-40969756 91-22-40969733 Associates Pranav Joshi Manish Raj Afshan Sayyad Sector/Industry/Coverage Financials Metals & Mining Economy E-mail Tel.DOLAT CAPITAL BUY ACCUMULATE REDUCE SELL Upside above 20% Upside above 5% and up to 20% Upside of upto 5% or downside of upto 15% Downside of more than 15% Analyst Amit Khurana.com afshans@dolatcapital.com nehals@dolatcapital.Sales Trading Senior Sales Trader Head of Derivatives Tel.com chiragm@dolatcapital.com amitp@dolatcapital. we do not take any responsibility for inaccuracy or omission of any information and will not be liable for any loss or damage of any kind suffered by use of or reliance placed upon this information.

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