You are on page 1of 55

Indian Pharmaceutical

Long Term Drivers Intact; Valuation Stretched

July 12, 2012

Souvik Chatterjee
souvikchatterjee@smcindiaonline.com
+91 22 6651451/ Ext:118
Mitesh Shah
miteshpshah@smcindiaonline.com

Revenue drivers intact; expect CAGR 20%


Our positive outlook is based on the incrementally
balanced growth with a rising contribution from India and
other generic pharmerging markets (GEM), compared
with the largely-US focused growth.
US to continue to be the major revenue driver for Indian
pharma companies. The base business is likely to grow at
CAGR 18-20% over the next 3-5 years.
The Indian domestic pharma market is likely to be strong
(14%-16%, in line with last five years) driven by increasing
affordability, launch of new formulations and increase in
the incidence, diagnosis/treatment of chronic diseases.
Growth in the acute segment (~6%-8%) is substantially
below that of the chronic category (~20%) driven by the
absence of infection outbreak and food price inflation.
Company
Dr reddy
Lupin
Glenmark
Sun Pharma
Torrent Pharma
Cadila
Biocon
Apollo Hospital

CMP (INR)
1,647
548
396
625
623
765
242
653

Rating
Outperformer
Market performer
Under performer
Under performer
Under performer
Under performer
Under performer
Under performer

Target price
1,985
631
435
668
629
705
263
683

MCap (INR bn)


278
245
107
648
53
157
48
81

Geographical breakup
60%
53%
50%
40%

40%
38%
35%

41%
32%
32%

32%

30%
21%

23%

20%
10%
0%
Dr reddy

Cadila

Sun

Domestic

Lupin

Glanmark

US

EPS (INR)
PE (x)
EV/EBITDA (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
104.5
124.4
15.2
12.8
13.8
11.7
28.7
34.6
18.3
15.2
13.3
11.0
24.2
31.6
16.3
12.3
13.0
9.6
27.8
30.0
21.9
20.3
16.3
14.6
44.9
53.1
14.7
12.4
10.2
8.7
35.2
45.0
20.9
16.3
13.7
11.1
16.5
20.5
21.8
17.4
12.3
9.9
23.2
27.80*
27.3
23.15*
15.4
11.87*

* CMP as on 11/07/2012

* Bloomberg

1QFY13 PREVIEW- PHARMACEUTICALS

Strong Earnings Growth; Valuation Stretched


Exports (~65% of revenues) growth of 12-15% will according to us, be key to sustain the strong
revenue and earnings growth of 15% and 18% CAGR in FY12E-FY14E.
We believe the sector valuations are near to peak. Most of the Indian pharma sector stocks are
trading at the higher end of the valuation chart of 17x-21x of 1yr fwd P/E i.e. ~20% premium to
the broader market.
No clarity on the new proposed pricing policy (NPPP) or an acceptable alternative will allow
manufacturers to garner higher margins in the domestic market.
Dr. Reddys Lab and Lupin remains our top pick on account of sharp stock correction resulting
in a severe discount to its peers.
Global pharmaceutical market CAGR of 7% over
2010-14E
1,140

1,200

1,060

USD Bn

800

781

808

875

10%
9%

990

1,000

GEM to drive future generic pharma growth

920

30%
25%

8%
7%

20%

6%
600

5%
4%

400

15%
10%

3%
2%

200

5%

1%
0

0%
2008

2009

2010E

2011E

Total World Market

Source: Company, SMC Research

2012E

2013E

2014E

Growth Rate

0%
China

Russia

India

Brazil

Japan

US

EU

Canada

Pharmaceutical growth in CY11

1QFY13 PREVIEW- PHARMACEUTICALS

FTF attractiveness in US dipping out.


Lower patent expiry opportunity to shrink US opportunity by ~85% post FY12
US generic market turning a volume play with lower margin; Penetration levels are above
80% and negative generic inflation hampers growth
Higher para-IV approval and better than expected US generic market growth act as a
potential risk to our estimates
Expect slower CAGR of 7% for the generic market in the US over FY11-20E
Sharp drop in the US patent expiry opportunity
30

26.5
25

c85% fall in overall patent expiry


opportunity

USD Mn

20

c55% fall in patent expiry


opportunity

15

9.7

10

6.2
5

6.0
4.3

4.0

7.0

13.8

13.0

9.7

8.5
6.9

4.0

2.6

3.2

2.5

1.6

0.8

0
2003

04

05

06

07

2008

09

10

11

12

13

14

2015

1QFY13 PREVIEW- PHARMACEUTICALS

16

17

18

19

Source: Company, SMC Research

2020

. while base revenue to grow


We expect Indian generics firms to retain their importance as low-cost providers of generic
drugs continued market share growth in the critical US generics market
US base business to register CAGR 18-20% over 2011-15 on the back of better product
mix and increased opportunity from the patent expiry regime
Generic TRx in US to grow at a 6.4% CAGR in 2011-14E

USD Mn

Generic TRx share in US has doubled from 7% (2007)


to ~14% (2011)

1QFY13 PREVIEW- PHARMACEUTICALS


Source: Industry, SMC Research

GEM opportunity to drive future growth


We include India, Japan, China, CIS and LatAm to be part of our GEM growth analysis. We
estimate Generic Pharmerging Markets (GEM) to account for ~40% of global healthcare
revenue by 2015 at a 15-17% (CAGR) and to reach USD 200-250bn.
INDIA: The rise income level coupled with a rise in chronic diseases in the tier-II/III cities
are likely to lead 50% rise in healthcare spending by FY15E growing at ~15-16% till
2015.
JAPAN: By 2050 the senior citizen population will account for ~50% (22% currently) of
the total population and is expected to reach 15% of GDP. Generic drugs accounts for
less than ~10% in value terms and we expect the Japanese generic industry to reach
USD10-15bn by 2015 at a CAGR 9-12%.
CHINA: With a GDP (nominal) of USD ~6.5tn and population of 1.4bn is poised to be the
second largest pharmaceutical market the world after the US by 2015. Generic drugs
account to ~63% (USD 29bn) of the total pharmaceutical market and rising at a CAGR of
13% over 2014.
RUSSIA: Expected to reach USD22bn by 2015 (USD8.6bn currently) at CAGR 21%. The
per capita pharmaceutical spend atUSD130 is among the lowest in the CIS suggesting
tremendous growth potential of pharmaceutical industry in Russia.
Latin America: Entire Latin American market is expected to expand at CAGR of 10-12%
over 2010-15. One of the major drivers of growth for the pharmaceutical markets is
national governments stepped up efforts to increase access to healthcare for its citizens.
1QFY13 PREVIEW- PHARMACEUTICALS

Stretched Valuation; Near term upside capped


DRRD and LPC trading at discount to its peers

Near term upside capped; sector at its best


valuation

DRRD and Lupin remain our top pick on account of


sharp stock correction resulting in a severe discount
to its peers

25
Sun

20
1 yr fwd PE

Historically traded in a band of 17x-21x 1yr fwd PE


which is ~20% premium to the broader market.

30

Cadila
Glenmark

15

Lupin
Dr reddy

Biocon Torrent

10
5

We expect these two stocks to deliver the better


earnings growth against their peers

0
5.0

10.0

15.0

20.0

25.0

30.0

35.0

EPS Growth FY12-15E (%)

BSE HC underperformed in June due to overall


improvement in market sentiment

1yr fwd PE reflects stretch valuations


BSETHC index

SENSEX Index

30
25
20
15
10
5
0
Jun-08

Jun-09

1QFY13 PREVIEW- PHARMACEUTICALS


Source: Bloomberg, Company , SMC Research

Jun-10

Jun-11

Jun-12

1QFY13 Preview
Strong revenue growth to sustain; Earnings to remain muted
Revenue growth in 1QFY13 is to be driven by limited competition opportunities in the US, niche
segment launches and favourable currency movement. Expect domestic business to grow at
~16% y-o-y on the back of a recovery in acute segment. We expect our Pharma universe
revenue to grow by robust 32% y-o-y majorly on account of strong growth in SUNP, DRRD and
LPC.
Expect absolute EBITDA to increase by 27% on the back of high margin on exclusivities, niche
segment launches (particularly OCs) and recovery in the domestic market. Operating margin is
expected to remain steady at 23-24%.
We expect Net profit for our pharma coverage stocks to increase by just 8.7% in 1QFY13
majorly impacted by increase in financial cost on account of rupee depreciation and tax
amendment.
Healthcare services (Hospitals) universe is expected to report revenue growth of 29.1% on
account of bed expansion and better occupancy rates.
SMC view: We remain Positive on the Indian pharma sector growth in the near to medium term
on the back of higher patent expiry opportunity in the US and strong domestic growth. However
on the longer run, we expect US FTF opportunities to reduce posing significant challenges for
the industry.
1QFY13 PREVIEW- PHARMACEUTICALS

1QFY13 Preview
Dr Reddy
Sales
EBITDA Margin (%)
PAT
Lupin
Sales
EBITDA Margin (%)
PAT
Glenmark
Sales
EBITDA Margin (%)
PAT
Sun Pharma
Sales
EBITDA Margin (%)
PAT
Torrent
Sales
EBITDA Margin (%)
PAT
Cadila
Sales
EBITDA Margin (%)
PAT
Biocon
Sales
EBITDA Margin (%)
PAT
Apollo Hospital
Sales
EBITDA Margin (%)
PAT

1QFY13
22,815
18
3,445
1QFY13
18,793
24
3,459
1QFY13
10,281
21
1,442
1QFY13
21,344
36
6,653
1QFY13
7,285
19
921
1QFY13
14,090
23
2,212
1QFY13
5,412
26
737
1QFY13
8,257
18
823

1QFY12
19,783
14
2,627
1QFY12
15,432
19
2,101
1QFY12
8,683
34
2,101
1QFY13
16,357
33
5,653
1QFY12
6,134
25
1,025
1QFY12
11,735
26
2,298
1QFY12
4,420
27
701
1QFY12
6,410
17
513

y-o-y (%)
15
377 bps
31
y-o-y (%)
22
503 bps
65
y-o-y (%)
18
(1,324) bps
(31)
y-o-y (%)
30
266 bps
18
y-o-y (%)
19
(626) bps
(10)
y-o-y (%)
20
(281) bps
(4)
y-o-y (%)
22
(123) bps
5
y-o-y (%)
29
194 bps
61

1QFY13 PREVIEW- PHARMACEUTICALS

4QFY12
26,585
19
3,427
4QFY12
18,832
20
1,556
4QFY12
10,659
21
1,504
1QFY13
23,299
41
9,043
4QFY12
6,540
13
637
4QFY12
13,444
21
1,709
4QFY12
6,102
25
978
4QFY12
7,446
16
593

q-o-q (%)
(14)
(99) bps
1
q-o-q (%)
(0)
431 bps
122
q-o-q (%)
(4)
14 bps
(4)
q-o-q (%)
(8)
(492) bps
(26)
q-o-q (%)
11
571 bps
45
q-o-q (%)
5
192 bps
29
q-o-q (%)
(11)
75 bps
(25)
q-o-q (%)
11
234 bps
39

Company Update and 1QFY13 Preview

1QFY13 PREVIEW- PHARMACEUTICALS

Outperformer

1500

15x
12x

1000
500
0
-500

Apr/12

Dec/11

Apr/11

Aug/11

Dec/10

Apr/10

Aug/10

Dec/09

Apr/09

Aug/09

Dec/08

Apr/08

Aug/08

-1000
Dec/07

Headwind in Europe to continue; Betapharm worry


remains (sales down to 5% of revenue in FY12)

20x

Aug/07

Increased contribution from GEM to add traction

2000

Apr/07

Strong biosimilar portfolio to support long-term growth

25x

2500

Dec/06

US base business growth to continue on back of Strong


product pipeline

3000

Aug/06

Gradual improvement in domestic performance; expect


12% growth in FY13

1-year fwd P/E

INR

Apr/06

Attractive valuation; Underperformed the CNX Pharma


index by ~13% over past 6M

TP: INR1,985

Dec/05

Dr Reddys Lab

Value Dr Reddys Lab at 19x FY13 overall earnings to


arrive at our target price of INR 1,985
Particulars

FY11

FY12

FY13E

FY14E

CAGR (%)

Net Sales (INRmn)

74,693

96,737

106,847

119,584

17

EBITDA (INRmn)

12,629

18,252

20,821

24,503

25

EPS (INR)

65.0

84.4

104.5

124.4

24

EV/EBITDA (x)

22.7

15.7

13.8

11.7

NM

ROE (%)

24.8

27.6

27.4

26.3

NM

PE (x)

24.6

18.9

15.2

12.8

NM

Souvik Chatterjee (souvikchatterjee@smcindiaonline.com ) +91 22 6651451/ Ext:118 | Mitesh Shah (miteshpshah@smcindiaonline.com)

Dr Reddys Lab

Outperformer

Under Performed compare to HC and SENSEX

TP: INR1,985

Improvement in the domestic formulation segment

15%

18.0
16.7

16.0

10%

14.0
5%

12.0
10.8

10.0

0%
Feb-12
-5%

Mar-12

Apr-12

May-12

Jun-12

9.5

8.0
6.0
4.0

-10%

5.7

5.1

2.0
0.0

-15%
BSETHC index

SENSEX Index

Q4FY11

DRRD In Equity

Q2FY12

Q3FY12

Q4FY12

US business supported growth; while Europe pulled back

Robust product pipeline in US


200
180
160
140
120
100
80
60
40
20
0

Q1FY12

160
140
79
71

71

100
80

74
68
42

49

71

21

35

48

16
FY05

FY06

FY07

FY08

83

101

60

68
48

40

FY09

FY10

FY11

(5)
Q4FY11

14

(1)
Q1FY12

(11)
Q2FY12

Q3FY12

(10)
Q4FY12

ANDAs Pending
US

1QFY13 PREVIEW- PHARMACEUTICALS


Source: Bloomberg, SMC Research

48

42

20

(20)
ANDAs Approved

133

120

Europe

11

Dr Reddys Lab

Outperformer

3,000

45.0

25.0

Margin Performance

Revenue Performance
40.0

38.9

2,500

TP: INR1,985

35.0

2,000

20.0

30.0

29.5

25.0

1,500

20.0

1,000

19.5

18.9
16.9

15.0

16.5

14.8

20.5
17.6

14.7

15.0
11.9

10.4
500

6.3

FY09

FY10

0.0
FY11

Global Generics

FY12E
PSAI

10.0

5.0

1.2

10.0

FY13E

5.0

FY14E

FY11

Revenue Growth (%)

FY12E
EBITDA

FY13E

FY14E

Net profit

ROCE Vs ROE
30.0%
25.0%

27.6%

27.4%

17.7%

18.5%

24.8%

20.0%
18.2%

26.3%

18.8%

15.0%
10.0%
FY11

FY12E

FY13E
ROCE

ROE

1QFY13 PREVIEW- PHARMACEUTICALS


Source: SMC Research

FY14E

12

Dr Reddys Lab

Outperformer

TP: INR1,985

1QFY13 Preview
Revenue growth driven by strong sales in the US and Russia. Fondaparinux, exclusivity of
gGeodon and strong OTC sales would support the US growth.
Russian growth is likely to be on the back of strong sales in OTC segment.
Expect domestic business to growth (10-12%), lower than industry growth of ~15% due to
product related issues.
INR mn
Net Sales
Other Operating Income
Total Income
Cost of sales
Gross Profit
Gross margin
S,G&A expenses
R&D Expenses
Total Expenditure
EBITDA
EBITDA margin
Amortization & Impairment
Other income / (Loss)
EBIT
Financial Expenses/ (Income)
PBT
Tax
Tax rate, %
Adj. PAT
Adj. PAT Margin

1QFY12
19,783
187
19,970
9,228
10,556
53%
6,757
1,197
17,182
2,789
14.1%
4
2,793
47
2,746
119
4%
2,627
13%

2QFY12
22,679
214
22,893
10,473
12,206
54%
7,216
1,459
19,148
3,745
16.5%
13
3,758
50
3,708
631
17%
3,077
14%

3QFY12
27,692
165
27,857
11,117
16,740
60%
7,678
1,514
20,310
7,547
27.3%
26
7,573
(174)
7,746
2,617
34%
5,130
19%

4QFY12
26,585
26,585
12,614
13,971
53%
7,217
1,740
21,571
5,014
18.9%
1,040
198
4,172
(82)
4,265
838
20%
3,427
13%

1QFY13 PREVIEW- PHARMACEUTICALS

1QFY13
22,815
216
23,030
10,267
12,548
55%
7,433
1,255
18,954
4,076
17.9%
4,076
71
4,006
561
14%
3,445
15%

Y-o-Y
15%
15%
15%
11%
19%
164 bps
10%
5%
10%
46%
27%
NA
NA
46%
50%
46%
371%
967 bps
31%
182 bps

Q-o-Q
-14%
NA
-13%
-19%
-10%
245 bps
3%
-28%
-12%
-19%
-5%
-NA
NA
-2%
-186%
-6%
-33%
-564 bps
1%
221 bps

13

Dr Reddys Lab

Outperformer
Balance sheet (INR mn)

Profit and loss statement (INR mn)


Particulars
Net Sales

FY11

FY12P

FY13E

FY14E

74,693

96,737

106,847

119,584

COGS

62,064

78,485

86,026

95,081

EBITDA

12,629

18,252

20,821

24,503

EBIT

12,629

18,252

20,821

24,503

Interest expenses

Other income

TP: INR1,985

189

(160)

305

85

54

Particulars

FY11

FY12P

FY13E

FY14E

45,990

57,443

71,557

88,357

Long-term debt

5,271

16,335

16,335

16,335

Provisions

1,314

1,973

1,120

1,333

Short-term debt

18,220

15,876

15,876

15,876

Current liabilities

21,481

25,660

22,361

26,349

Other Liabilities

707

2,191

542

693

Total Liabilities

92,983

119,477

127,790

148,942

Intangible Assets

15,246

13,529

12,196

10,863

Net fixed assets

29,642

33,247

40,611

47,552

313

10,541

12,649

15,179

Inventories

16,059

19,352

20,433

21,759

Sundry debtors

17,615

25,339

30,617

34,232

Cash & cash equivalents

5,729

7,978

2,266

10,346

Other Current Assets

8,190

7,109

8,715

8,715

Total current assets

47,593

59,778

62,031

75,052

Deferred tax asset, net

(87)

Other assets

276

2,382

303

296

Total assets

92,983

119,477

127,790

148,942

Shareholder's equity

Investments
Profit before tax

11,040

14,262

20,515

24,418

Provision for tax

(1,403)

(4,204)

(2,872)

(3,419)

Net profit

11,040

14,262

17,643

20,999

Reported PAT

Adjusted Profit

11,040

11,040

14,262

14,262

17,643

17,643

20,999

20,999

1QFY13 PREVIEW- PHARMACEUTICALS

14

Dr Reddys Lab

Outperformer

Cash flow statement (INR mn)


Particulars

Key ratios
FY11

Particulars

FY11

FY12P

FY13E

FY14E

EPS (INR)

65.0

84.4

104.5

124.4

227.2

261.6

299.5

342.0

ROE (%)

24.0

24.8

27.4

26.3

D/E (%)

51.1

56.1

45.0

36.5

Growth (%)

FY11

FY12P

FY13E

FY14E

6.3

29.5

10.5

11.9

EBITDA

529.0

44.5

14.1

17.7

Net profit

933.7

29.2

23.7

19.0

EPS

933.7

29.2

23.7

19.0

Margins (%)

FY11

FY12P

FY13E

FY14E

EBITDA

16.9

18.9

19.5

20.5

FY12P

FY13E

FY14E

11,040

14,262

17,643

20,999

Depreciation/Impairment

4,148

2,640

3,170

3,436

Change in working capital

(6,738)

(12,117)

(740)

305

85

9,002

23,780

Revenues

(5,804)

(6,411)

(7,175)

(10,228)

(2,108)

(2,530)

Net profit

TP: INR1,985

BV Per Share (INR)


(5,098)

Other non-cash adjustments

(441)

(160)

Operating cashflow

8,009

11,644

Capital expenditure
Change in investments
Other investing cashflow
Investing cashflow
Issue of equity
Change in borrowings
Dividend paid
Other financing cashflow
Financing cashflow
Net cash generated during year

(8,718)
3,642
(3,513)

(916)

(712)

(1,861)

(8,589)

(16,949)

(9,231)

(11,566)

29

EBIT

16.9

18.9

19.5

20.5

3,599

8,720

Net profit

14.8

14.7

16.5

17.6

(3,529)

(4,200)

Valuation ratios

FY11

FY12P

FY13E

FY14E

P/E (x)

24.6

18.9

15.2

12.8

(1,955)

66
P/BV(x)

7.0

6.1

5.3

4.7

M cap/sales (x)

3.6

2.8

2.5

2.2

3.8

3.0

2.7

2.4

22.7

15.7

13.8

11.7

4.1

5.3

6.6

7.8

(3,063)
(942)
(377)
(957)

(2,811)
1,644
7,554

(5,483)

(4,134)

2,249

(5,712)

8,081

EV/sales (x)
EV/EBITDA (x)

Cash at beginning of year

6,545

5,729

7,978

2,266

Cash at end of year

5,729

7,978

2,266

10,346

Earnings Yield (%)

1QFY13 PREVIEW- PHARMACEUTICALS

15

Market performer

TP: INR631

Particulars

20x
400
15x
300
12x
200

100

Jun/11

Dec/10

Jun/10

Dec/09

Jun/09

Dec/08

0
Jun/08

Value Lupin at 22x FY13E earnings of INR28.7 to arrive at


our target price of INR631.

500

Dec/07

Expect CAGR 21% earnings over FY12-14 on the back of


strong product pipeline and aggressive marketing strategy

25x

Jun/07

Lupin to command valuation premium on the back of high


earnings visibility and diversified business and aggressive
management

600

Dec/06

Niche segment to boost US revenue. Japan (Kyowa) to


add traction; forecast 15% revenue CAGR over FY12-14

1-year fwd P/E

INR

Jun/06

Strong domestic sales driven by strong volume growth; JV


with Eli Lilly on anti-diab to help boost domestic sales

Dec/05

Lupin

FY11

FY12

FY13E

FY14E

CAGR (%)

Net Sales (INRmn)

58,320

70,829

84,623

100,421

20

EBITDA (INRmn)

11,911

14,447

18,194

21,591

22

EPS (INR)

19.3

19.4

28.7

34.6

21

EV/EBITDA (x)

20.3

17.0

13.3

11.0

NM

ROE (%)

29.5

23.8

28.1

26.9

NM

PE (x)

27.2

27.0

18.3

15.2

NM

Souvik Chatterjee (souvikchatterjee@smcindiaonline.com ) +91 22 6651451/ Ext:118 | Mitesh Shah (miteshpshah@smcindiaonline.com)

Lupin

Market performer

TP: INR631

>40% market share in gGeodon

Steady growth in Suprex

120%

4.5
Weekly sales (USD Mn)

100%
80%
60%
40%

4
3.5
3
2.5
2
1.5
1

20%

0.5
0%

3/2/2012

4/2/2012
Pfizer

5/2/2012

Lupin

Greenstone

6/2/2012
Dr Reddy

Strong Simva sales despite Atorva Patent expired

LPC geographical revenue break-up


120

40%

100

30%

80
%

20%
10%

60
40

0%

20
0
FY09
LUPIN

ZYDUS PHARMA

TEVA

NORTHSTAR RX LL

DR.REDDY

AUROBINDO

US

FY10
EU

Japan

1QFY13 PREVIEW- PHARMACEUTICALS


Source: Bloomberg, SMC Research

FY11
India

FY12
South Africa

FY13E
Others

FY14E
API

17

Lupin

Market performer

TP: INR631

Revenue Performance

Margin Performance

120,000

35

100,000

30

25%
21.5%
20.4%

21.5%

20.4%

19.1%
60,000

20

21.5%

20.2%

20%

25
%

INR Mn

80,000

15.4%
40,000

15%

15

14.8%

14.8%

15.2%

14.0%
20,000

10

12.5%
10%

5
FY08

FY09

Advance Market

FY10

FY11

FY12

Emerging Margin

FY13E
API

12.3%

FY08

FY14E

FY09

FY10

FY11

FY12E

FY13E

FY14E

Revenue Growth
EBITDA

Net Profit

ROCE Vs ROE
45%
40%

39.8%
35.6%

35%

34.1%

30%

29.5%

25%
20%

21.7%

20.4%

22.4%

21.7%

23.8%

28.1%

26.9%

22.1%

22.4%

17.8%

15%
10%
FY08

FY09

FY10

FY11
ROCE

FY12E

FY14E

ROE

1QFY13 PREVIEW- PHARMACEUTICALS


Source: SMC Research,

FY13E

18

Lupin

Market performer

TP: INR631

1QFY13 Preview
Revenue growth driven by ~20% growth in the domestic formulations on the back of JV with Elli
Lilly and the strong performance in chronic segment.
Revenue growth in US sales driven by gGeodon exclusivity sales and strong growth sales from
niche segment portfolio. Expect strong sales of Suprax and Antara to continue.
INR mn
Net sales
Other Operating Income
Total Income
COGS
Gross profit
Gross margin
Staff Cost
Other Expenditure
Total Expenditure
EBITDA
EBITDA margin (%)
Depreciation / Amortisation
Other Income
EBIT
Interest Expenses Net
PBT
Tax
Tax rate, %
Reported PAT
PAT Margin

1QFY12
15,432
246
15,677
6,169
9,508
62%
2,193
4,372
12,734
2,944
19.1%
471
12
2,484
58
2,426
286
12%
2,101
14%

2QFY12
17,417
307
17,724
5,979
11,438
66%
2,276
5,429
13,684
4,040
23.2%
522
16
3,535
66
3,468
751
22%
2,669
15%

3QFY12
17,917
272
18,189
6,259
11,658
65%
2,525
5,671
14,454
3,735
20.8%
576
33
3,192
86
3,106
701
23%
2,351
13%

4QFY12
18,832
407
19,239
7,632
11,200
59%
2,702
5,176
15,510
3,728
19.8%
706
82
3,105
145
2,960
1,348
46%
1,556
8%

1QFY13 PREVIEW- PHARMACEUTICALS

1QFY13
18,793
376
19,169
6,910
11,883
63%
2,456
4,897
14,262
4,531
24.1%
657
250
4,124
91
4,033
574
14%
3,459
18%

y-o-y
22%
53%
22%
12%
25%
162 bps
12%
12%
12%
54%
503 bps
39%
NA
66%
57%
66%
101%
243 bps
65%
479 bps

q-o-q
0%
-8%
0%
-9%
6%
376 bps
-9%
-5%
-8%
22%
431 bps
-7%
203%
33%
-37%
36%
-57%
NA
122%
1014 bps

19

Lupin

Market performer
Balance sheet (INR mn)

Profit and loss statement


Particulars (INR mn)

FY11

FY12P

FY13E

FY14E

Net Sales

58,320

70,829

84,623

100,421

Total operating expenses

46,410

56,382

66,429

78,831

EBITDA

11,911

14,447

18,194

21,591

1,712

2,275

2,628

3,010

Depreciation & Amortization


EBIT

TP: INR631

Particulars

FY11

FY12P

FY13E

FY14E

32,811

40,178

50,956

63,895

515

723

723

723

Long-term debt

1,206

4,330

1,529

1,597

Provisions

2,718

3,287

2,226

2,680

Short-term debt

10,418

10,479

10,701

10,862

Current liabilities

11,800

17,750

15,222

18,063

Shareholder's equity
Minority interests

10,199

12,172

15,566

18,580

325

355

363

332

Total liabilities & equity

59,468

77,479

81,357

97,821

89

144

97

126

Net fixed assets

25,881

31,934

34,908

37,280

Profit before tax and extraordinary

9,963

11,961

15,299

18,375

32

28

28

28

Profit before tax

9,963

11,961

15,299

18,375

Inventories

12,000

17,327

15,619

18,532

Sundry debtors

12,558

17,318

17,081

21,230

tax

1,169

3,086

2,295

2,756
6,208

7,031

9,172

11,966

1,211

1,211

1,211

4,201

4,074

4,781

9,018

Current assets

34,967

46,960

47,864

61,955

Financial Charges
Other income

Investments

Loans & advances


Net profit

8,794

8,875

13,004

15,619
Other current assets

Minority Interest

(148)

(199)

(199)

(199)

20

Reported PAT

8,626

8,677

12,806

15,420

Deferred tax asset, net

(1,411)

(1,442)

(1,442)

(1,442)

Adjusted Profit

8,646

8,677

12,806

15,420

Total assets

59,468

77,479

81,357

97,821

Income from JV/Associates

Cash & cash equivalents

1QFY13 PREVIEW- PHARMACEUTICALS

20

Lupin

Market performer

TP: INR631
Key ratios

Cash flow statement


Particulars (INR mn)

FY11

FY12P

FY13E

FY14E

PAT

8,626

8,677

12,806

15,420

Depreciaiton

1,712

2,275

2,628

3,010

Particulars

FY11

FY12P

FY13E

FY14E

EPS (INR)

19.3

19.4

28.7

34.6

BV per share (INR)

73.5

90.0

114.2

143.2

ROE (%)

29.5

23.8

28.1

26.9

Change in working capital

(1,510)

(5,601)

(3,785)

(6,559)

Growth (%)

FY11

FY12P

FY13E

FY14E

Other non-cash adjustments

(2,195)

(2,700)

(1,932)

(2,425)

Revenues

19.7

21.4

19.5

18.7

EBITDA

21.1

21.3

25.9

18.7

7,969

5,935

12,211

12,401
Net profit

26.5

0.6

47.6

20.4

EPS

26.1

0.6

47.6

20.4

Margins (%)

FY11

FY12P

FY13E

FY14E

EBITDA

20.4

20.4

21.5

21.5

EBIT

17.5

17.2

18.4

18.5

Net profit

14.8

12.2

15.1

15.4

Valuation ratios

FY11

FY12P

FY13E

FY14E

P/E (x)

27.2

27.0

18.3

15.2

Price/BV(x)

7.1

5.8

4.6

3.7

Market cap/sales (x)

4.0

3.3

2.8

2.3

EV/sales (x)

4.1

3.5

2.9

2.4

EV/EBITDA (x)

20.3

17.0

13.3

11.0

Mcap/Sales (x)

4.0

3.3

2.8

2.3

Earnings Yiels (%)

3.7

3.7

5.5

6.6

Operating cashflow
Capital expenditure
Change in investments
Other investing cashflow
Investing cashflow
Free cashflow to firm
Issue of equity
Change in borrowings
Dividend paid
Interest Paid
Financing cashflow

(4,276)

(8,328)

(5,603)

(5,382)

(51)

12

733

(733)

(4,315)

(7,592)

(6,335)

(5,382)

3,693

(2,393)

6,608

7,019

138

3,185

(2,579)

230

(1,432)

(1,508)

(2,226)

(2,680)

(312)

(147)

(363)

(332)

(1,605)

1,530

(5,168)

(2,782)

1QFY13 PREVIEW- PHARMACEUTICALS

21

Under performer

Particulars
Net Sales
EBITDA (INRmn)
EPS (INR)
EV/EBITDA (x)
ROE (%)
PE (x)
BV per share

1-year fwd P/E

INR
800
700
600

25x

500

20x

400
300

15x

200

10x

100

FY11
29,491
5,923
16.8
16.2
20.6
26.4

FY12
40,217
8,470
17.0
13.6
20.7
21.5

FY13E
48,847
9,529
24.2
13.0
22.6
16.3

FY14E
59,060
12,612
31.6
9.6
24.3
12.3

CAGR (%)
26
29
24
NM
NM
NM

75.5

88.9

108.8

136.2

NM

Souvik Chatterjee (souvikchatterjee@smcindiaonline.com ) +91 22 6651451/ Ext:118 | Mitesh Shah (miteshpshah@smcindiaonline.com)

Apr/12

Dec/11

Apr/11

Aug/11

Dec/10

Aug/10

Apr/10

Dec/09

Apr/09

Aug/09

Dec/08

Aug/08

Apr/08

Dec/07

Aug/07

Apr/07

Dec/06

Apr/06

0
Aug/06

Sustainable growth in the US to continue with one of the


highest number of product launches in FY12. Limited
competition in products to drive growth.
US and India to continue to remain key markets in the
specialty and generic segment.
Expect benefits from out-licensing and milestone
payments in the medium to long run on the back of its
strong research pipeline.
Balance sheet concerns easing. Gearing currently at 82%
(vs sectors 58%) against 130% in FY10. Expect it to
reduce further to sector levels by FY14E.
Expect revenue and earning CAGR of 21% and 32%
respectively over FY12-14E.
Value Glenmark at 18x FY13 earnings of INR 24.2 to
arrive at TP of INR435

TP: INR435

Dec/05

Glenmark

Glenmark

Under performer

TP: INR435

Research Pipeline

1QFY13 PREVIEW- PHARMACEUTICALS

23

Glenmark

Under performer

Revenue Performance
70,000

180

35%

120

30%

40,000

100

25%

30,000

60

20,000

40
20

10,000

FY09

Specility Business

FY10

FY11

Generics Business

FY12

FY13E
API

25.0%
21.8%

20.1%

21.1%

15.4%

15%
12.2%

10%

11.4%

9.6%

19.5%
13.4%

21.4%
14.5%

5%

(20)
FY08

32.0%

20%

40.5%

140

50,000

80

Margin Performance

40%

160

60,000

INR Mn

45%

TP: INR435

0%

FY14E

FY08

FY09

Sales Growth (%)

FY10
EBITDA

FY11

FY12P

FY13E

FY14E

Net Profit

ROCE Vs ROE
70
60

57.4

50
%

40
30

25.8
20.6

20
12.8
7.0

10

15.3
9.7

11.3

20.7
15.8

24.2

25.2

12.2

13.7

0
FY08

FY09

FY10

FY11
RoE (%)

Source: SMC Research,

FY12P

FY13E

FY14E

RoCE (%)

1QFY13 PREVIEW- PHARMACEUTICALS

24

Glenmark

Under performer

TP: INR435

1QFY13 Preview
Revenue growth to be supported by the strong growth in domestic market; expect growth of 18% in
1QFY13.
US market growth is likely to be led by limited competitive products. Apart from the core income the
licensing incomes also support the growth.
INR (mn)
Net sales
Other Operating Income
Total Income
COGS
Gross profit
Gross margin
Staff Cost
Other Expenditure
Total Expenditure
EBITDA
EBITDA margin (%)
Depreciation / Amortisation
Other Income
EBIT
Interest Paid
PBT
Tax
Tax rate, %
Reported PAT
PAT Margin

1QFY12
8,683
2
8,685
2,308
6,377
73%
1,346
2,062
5,716
2,969
34%
264
123
2,828
408
2,420
319
13%
2,101
24%

2QFY12
10,554
3
10,557
3,335
7,220
68%
1,575
3,391
8,301
2,256
21%
247
(81)
1,928
291
1,637
(238)
-15%
1,875
18%

3QFY12
10,311
2
10,313
3,703
6,611
64%
1,735
3,847
9,284
1,029
10%
231
105
903
357
545
84
15%
461
4%

4QFY12
10,659
3
10,662
4,109
6,553
61%
1,633
2,703
8,444
2,218
21%
236
23
2,005
410
1,595
73
5%
1,504
14%

1QFY13 PREVIEW- PHARMACEUTICALS

1QFY13
10,281
10,281
3,598
6,683
65%
1,643
2,887
8,128
2,153
21%
272
100
1,982
379
1,602
160
10%
1,442
14%

y-o-y
18%
NA
18%
56%
5%
-845 bps
22%
40%
42%
-27%
-1324 bps
3%
-19%
-30%
-7%
-34%
-50%
-318 bps
-31%
-1017 bps

q-o-q
-4%
NA
-4%
-12%
2%
352 bps
1%
7%
-4%
-3%
14 bps
15%
326%
-1%
-7%
0%
121%
545 bps
-4%
-8 bps

25

Glenmark

Under performer

TP: INR435

Balance sheet (INR mn)

Profit and loss statement (INR mn)


FY11

FY12P

FY13E

FY14E

Particulars (INR mn)

FY11

FY12P

FY13E

FY14E

Net Sales

29,491

40,217

48,847

59,060

Shareholder's equity

20,372

24,016

29,916

37,831

Total operating expenses

23,568

31,747

39,318

46,448

267

250

250

250

6,344

13,125

13,325

13,525

5,923

8,470

9,529

12,612
44

509

695

739

Short-term debt

14,914

6,875

17,259

19,764

Current liabilities

7,560

11,780

7,402

8,988

Total liabilities & equity

49,501

57,334

68,847

81,096

Net fixed assets

22,123

24,856

26,268

26,628

281

182

182

182

8,070

7,877

17,609

21,084

11,308

12,436

16,120

19,490

4,689

685

788

906

5,390

1,949

3,200

5,473

10,852

26,016

29,588

39,990

52,332

1,081

2,674

2,407

1,954

Particulars)

Minority interests
Long-term debt

EBITDA

Provisions
Depreciation

947

979

1,088

1,140

EBIT

4,976

7,491

8,442

11,472

Interest expenses

1,605

1,466

1,517

1,916

Other income

1,444

171

500

500

PBT before extraordinary

4,816

6,197

7,424

10,056

Investments
Inventories
Extraordinary income

(1,317)

PBT

4,816

4,880

7,424

10,056

Tax

237

238

891

1,508

NP

4,578

5,959

6,533

8,547

(46)

(40)

Sundry debtors
Loans & advances
Other current assets
Cash & cash equivalents
Current assets

Minority Interest

Deferred tax asset, net


Reported PAT

4,532

5,919

6,533

8,547

Other assets

34

Adjusted Profit

4,532

7,236

6,533

8,547

Total assets

49,501

57,334

68,847

81,096

1QFY13 PREVIEW- PHARMACEUTICALS

26

Glenmark

Under performer
Key ratios

Cash flow statement (INR mn)


Particulars

FY11

FY12P

FY13E

FY14E

4,816

4,880

7,424

10,056

947

979

1,088

1,140

Changes in working capital

3,528

2,363

(12,321)

(5,333)

Tax

(938)

(238)

(891)

(1,508)

Net Operating Cash Flow

9,303

7,857

(2,915)

6,723

(4,012)

(3,711)

(2,500)

(1,500)

100

(3,670)

(3,645)

(2,466)

(1,500)

41

Debt raised/ (repaid)

8,346

(1,258)

10,584

2,705

Dividends

(126)

(959)

(633)

(633)

PBT
Depreciation

Capex
Investments
Investing cash flows
Increase in equity

Others

(232)

723

(780)

Financing cash flow

(4,356)

(2,959)

7,654

156

Net change in cash

1,277

1,252

2,273

5,379

Closing cash balance

TP: INR435

1,948

3,200

5,473

10,852

Particulars

FY11

FY12P

FY13E

FY14E

EPS (INR)

16.8

17.0

24.2

31.6

BV per share (INR)

75.5

88.9

110.6

139.8

ROE (%)

20.6

20.7

24.2

25.2

Growth (%)

FY11

FY12P

FY13E

FY14E

Revenues

18.9

36.4

21.5

20.9

EBITDA

-4.4

43.0

12.5

32.3

Net profit

49.7

1.6

41.9

30.8

EPS

49.4

1.5

41.9

30.8

Margins (%)

FY11

FY12P

FY13E

FY14E

EBITDA

20.1

21.1

19.5

21.4

EBIT

16.9

18.6

17.3

19.4

Net profit

15.4

11.4

13.4

14.5

Valuation ratios

FY11

FY12P

FY13E

FY14E

P/E (x)

26.4

21.5

16.3

12.3

Price/BV(x)

5.9

4.1

3.3

2.6

Market cap/sales (x)

4.1

2.5

2.0

1.7

EV/sales (x)

3.3

2.9

2.5

2.1

EV/EBITDA (x)

16.2

13.6

13.0

9.6

Mcap/Sales (x)

4.1

2.5

2.0

1.7

Earnings Yiels (%)

3.8

4.7

6.6

8.7

1QFY13 PREVIEW- PHARMACEUTICALS

27

Under performer

Particulars

1-year fwd P/E

INR

30x
25x

600

20x

500
15x

400

300

200

100

Apr/12

Oct/11

Apr/11

Oct/10

Apr/10

Oct/09

Apr/09

Oct/08

Apr/08

Oct/07

Apr/07

0
Oct/06

US base business going strong; exclusivities and better


product mix to propel growth
Taro going strong; however expect current growth not to be
sustainable over the long term
Expect domestic business at CAGR 18% over FY12-14E on
the back of strong product portfolio in the niche segments
Margins remain healthy- steady OPM while marginal drop in
NPM due to tax changes
Do not expect any significant re-rating of the stock on
concerns of diminishing limited opportunities in the US
market (post 2015) and normalize Taro growth.
Value Sun Pharma at 24x FY13 earnings to arrive at our
target price of INR668

TP: INR668

Apr/06

Sun Pharma

FY11

FY12

FY13E

FY14E

CAGR (%)

Net Sales (INRmn)

57,214

80,057

98,899

110,859

25

EBITDA (INRmn)

19,700

32,507

36,263

38,861

25

EPS (INR)

17.5

25.0

27.8

30.0

20

EV/EBITDA (x)

22.4

18.2

16.3

14.6

NM

ROE (%)

21.0

24.5

22.4

20.1

NM

PE (x)

25.2

23.9

21.9

20.3

NM

Souvik Chatterjee (souvikchatterjee@smcindiaonline.com ) +91 22 6651451/ Ext:118 | Mitesh Shah (miteshpshah@smcindiaonline.com)

Sun Pharma

Under performer

Revenue Performance

TP: INR668
Margin Performance

120,000

70

50%

60

45%

47.1%

100,000

40%

40

40.6%
34.0%

35%

30
60,000

42.7%

INR Mn

80,000

43.8%

45.2%

50

20
40,000

33.7%

30%

10

36.7%
34.4%
31.7%

35.1%

32.3%
29.1%

28.0%

25%

0
20,000

20%

-10
0

15%

-20
FY08

FY09

FY10

FY11

FY12

FY13E

FY14E

10%
FY08

Domestic

Export

API

FY09

FY10

FY11

FY12P

FY13E

FY14E

Revenue Growth (%)


EBITDA

Net Profit

ROCE Vs ROE
40

38.3

35
30.2

30
25

25.2

24.5
21.6

20

21.0
18.2

15

19.1

14.7

13.5

22.4
16.7

20.1
15.2

10
5
FY08

FY09

FY10

FY11
RoE (%)

FY12P

FY13E

FY14E

RoCE (%)

1QFY13 PREVIEW- PHARMACEUTICALS

29

Sun Pharma

Under performer

TP: INR668

1QFY13 Preview
Revenue growth to be driven by the continuing sale of gLipodox in US and price increases by
Taro.
Domestic market continues to grow above industry average (~14-16%) in the current quarter.
Expect the company maintain its reach margin of ~30% despite the increase in tax expenses.
INR mn
Net sales
Raw material cost
Gross profit
Gross margin
Staff Cost
Other Expenditure
Total Expenditure
EBITDA
EBITDA margin (%)
Depreciation / Amortisation
Other income
Net interest income / (loss)
PBT
Tax
Tax rate
Reported PAT
PAT Margin

1QFY12
16,357
4,071

2QFY12
18,946
3,639

3QFY12
21,451
3,781

4QFY12
23,299
4,909

1QFY13
21,344
5,403

y-o-y
30%
33%

q-o-q
-8%
10%

12,287
75%

15,307
81%

17,670
82%

18,390
79%

15,941
75%

30%
-43 bps

-13%
-424 bps

2,786
4,026

2,727
4,740

2,885
5,148

3,480
5,346

3,399
4,831

22%
20%

-2%
-10%

10,883
5,474
33%
647
653
316
5,796
143
2%
5,653
35%

11,106
7,840
41%
668
765
417
8,355
1,281
15%
7,074
37%

11,814
9,638
45%
774
(863)
591
8,591
634
7%
7,957
37%

13,735
9,565
41%
823
2,181
(112)
10,811
1,768
16%
9,043
39%

13,633
7,711
36%
761
746
320
8,016
1,363
17%
6,653
31%

25%
41%
266 bps
18%
14%
1%
38%
855%
1454 bps
18%
-339 bps

-1%
-19%
-492 bps
-8%
-66%
-386%
-26%
-23%
64 bps
-26%
-764 bps

1QFY13 PREVIEW- PHARMACEUTICALS

30

Sun Pharma

Under performer

Profit and loss statement (INR mn)


Particulars
Revenue

TP: INR668

Balance sheet (INR mn)


FY10

FY11

FY12P

FY13E

FY14E

40,075

57,214

80,057

98,899

110,859

Particulars

FY10

FY11

FY12P

FY13E

FY14E

78,289

94,833

116,373

140,984

167,824

1,932

8,472

12,326

15,177

18,248

459

2,049

2,049

2,049

2,049

Provisions

3,484

5,030

5,418

5,484

5,519

Short-term debt

1,252

2,207

1,281

1,281

1,281

Current liabilities

4,095

9,203

6,155

9,388

89,512

121,794

143,601

174,362

205,443

10,600

10,227

9,707

9,187

15,090

25,060

28,510

29,475

30,397

30,664

22,310

22,310

22,310

22,310

10,739

14,794

13,458

25,786

28,623

11,748

11,716

22,656

27,989

31,373

11,281

12,973

14,919

17,157

445

490

514

540

21,936

30,462

43,082

67,360

37,121

60,172

80,039

112,289

145,053

890

3,652

2,504

558

(1,539)

89,512

121,794

143,601

174,362

205,443

Shareholder's equity
Minority interests

Total operating expenses


EBITDA
Depreciation & Amortization
EBIT
Other income
Profit before tax and
extraordinary

(26,442)

(37,514)

(47,550)

(62,637)

(71,998)

13,632

19,700

32,507

36,263

38,861

(1,533)

(2,041)

(2,912)

(3,043)

(3,086)

12,099

17,659

29,595

33,220

35,775

2,048

2,699

3,958

4,942

5,337

14,147

20,358

33,554

38,162

41,112

199

Long-term debt

Total liabilities & equity


Net intangible assets
Net fixed assets
Investments

Extraordinary income

Inventories
Profit before tax
Provision for tax

14,347

20,358

33,554

38,162

41,112

(679)

(1,284)

(3,826)

(6,488)

(6,989)

Sundry debtors
Loans & advances
Other current assets

Net profit
Minority Interest
Reported PAT

13,469
41

13,510

19,074

29,727

31,675

34,123

(913)

(3,855)

(2,851)

(3,071)

18,161

25,873

28,824

31,052

Cash & cash equivalents


Current assets
Deferred tax asset, net
Total assets

Adjusted Profit

13,310

18,161

25,873

28,824

5,747

8,488
74
6,073

10,523

31,052

1QFY13 PREVIEW- PHARMACEUTICALS

31

Sun Pharma

Under performer
Key ratios

Cash flow statement (INR mn)


Particulars
Profit before tax
Depreciation
Changes in working capital
Tax
Net Operating Cash Flow
Capex
Investments
Investing cash flows
Debt raised/ (repaid)
Dividends
Others

FY10

FY11

FY12P

FY13E

FY14E

14,148

20,358

33,554

38,162

41,112

1,533
(4,356)

2,041
5,482

2,912
(14,002)

(1,745)

(1,077)

(3,826)

7,811

23,894

(2,841)

(4,454)

3,043
(16,331)

3,086
(7,315)

FY11

FY12P

FY13E

FY14E

EPS (INR)

13.0

17.5

25.0

27.8

30.0

BV per share (INR)

75.6

91.6

112.4

136.1

162.1

ROE (%)

18.2

21.0

24.5

22.4

20.1

Growth (%)

FY10

FY11

FY12P

FY13E

FY14E

Revenues

(5.8)

42.8

39.9

23.5

12.1

EBITDA

(26.9)

44.5

65.0

11.6

7.2

19,785

20,332

31,991

Net profit

(25.7)

34.4

42.5

11.4

7.7

EPS

(25.7)

34.4

42.5

11.4

7.7

(6,000)

(3,500)

(3,500)
Margins (%)

FY10

FY11

FY12P

FY13E

FY14E

EBITDA

34.0

34.4

40.6

36.7

35.1

EBIT

30.2

30.9

37.0

33.6

32.3

Net profit

33.7

31.7

32.3

29.1

28.0

Valuation ratios

FY10

FY11

FY12P

FY13E

FY14E

P/E (x)

27.5

25.2

24.4

21.9

20.3

Price/BV(x)

4.7

4.8

5.4

4.5

3.8

Market cap/sales (x)

9.3

8.0

7.9

6.4

5.7

EV/sales (x)

8.7

7.7

7.6

6.0

5.1

EV/EBITDA (x)

25.7

22.4

18.6

16.3

14.6

Mcap/Sales (x)

9.3

8.0

7.9

6.4

5.7

Earnings Yiels (%)

3.6

4.0

4.1

4.6

4.9

(123,198)

(2,137)

(21,485)

(6,000)

(3,500)

(3,500)

(77)

(3,787)

(927)

(3,328)

(3,314)

(4,333)

(4,213)

(4,213)

(69)

(3,464)

(7,747)

(5,259)

(4,213)

(4,213)

Net change in cash

2,210

(5,338)

8,525

12,620

24,279

21,936

FY10

(6,989)

(165,747)

6,722

Particulars

(6,488)

Financing cash flow

Closing cash balance

TP: INR668

30,462

43,082

67,360

1QFY13 PREVIEW- PHARMACEUTICALS

32

Torrent Pharma

Under performer

Revive in the domestic acute segment and focus toward


emerging markets (GEM) to drive 18% revenue CAGR.

TP: INR629
1-year fwd P/E

INR
800
700

Particulars

400

10x

300

8x

200
100

Apr/12

Dec/11

Apr/11

Aug/11

Dec/10

Apr/10

Aug/10

Dec/09

Aug/09

Dec/08
Apr/09

Apr/08

Aug/08

Dec/07

Aug/07

Dec/06
Apr/07

0
Apr/06

Value Torrent Pharma at 14x FY13 earnings to arrive at


our target price of INR629

12x

500

Aug/06

New markets (US and Mexico) and JV with Novo


Nordisk and AZ provides long term strength

15x
600

Dec/05

Concentrating on lifestyle diseases segment to drive


margins; expect margins to remain steady at 18% over
FY12-14E

FY11

FY12

FY13E

FY14E

CAGR (%)

Net Sales (INRmn)

22,265

26,959

31,620

36,762

18.2

EBITDA (INRmn)

4,092

5,007

5,602

6,492

16.6

EPS (INR)

31.9

33.6

44.9

53.1

18.5

EV/EBITDA (x)

13.8

10.7

10.2

8.7

NM

ROE (%)

29.2

25.6

28.8

28.0

NM

PE (x)

20.6

19.6

14.7

12.4

NM

Souvik Chatterjee (souvikchatterjee@smcindiaonline.com ) +91 22 6651451/ Ext:118 | Mitesh Shah (miteshpshah@smcindiaonline.com)

Torrent Pharma

Under performer

TP: INR629

Margin Performance

Revenue Performance
40,000

25

25%
23.0%

35,000
20

30,000

20%

INR mn

25,000

19.3%

15
%

20,000
10

15,000
10,000

12.7%

12.6%

12.7%

18.2%

12.3%

12.6%

10.9%

10.3%

10%

18.3%
16.3%

15.5%

15%

19.3%

5,000
0

0
FY08

FY09

Domestic

FY10

International

FY11

FY12E

CRAMS

FY13E

5%

FY14E

FY08

FY09

Revenue Growth (%)

FY10

EBITDA

FY11

FY12P

FY13E

FY14E

Net Profit

ROCE Vs ROE
40
35

34.8

30

31.2

29.3

29.2

28.8

28.0

18.3

18.0

25.6

25
20
17.0

15

18.4

20.2
17.5

17.1

10
FY08

FY09

FY10

FY11
RoE (%)

FY12P

FY14E

RoCE (%)

1QFY13 PREVIEW- PHARMACEUTICALS


Source: SMC Research

FY13E

34

Torrent Pharma

Under performer

TP: INR629

1QFY13 Preview
Sales mainly driven by the robust 25-30% growth in Brazilian market and increase in revenue
contribution from the new segment specially US and Mexico.
Recovery in domestic market support margin.
Germany and Russian market revenue to grow at ~15%.
INR mn
Net sales
Other Operating Income
Total Income
COGS
Gross profit
Gross margin
Staff Cost
R&D Expenses
Other Expenditure
Total Expenditure
EBITDA
EBITDA margin (%)
Depreciation / Amortisation
Other Income/(Expenses)
EBIT
Interest Expenses Net
PBT
Tax
Tax rate
Adj. PAT
Adj. PAT Margin

1QFY12
6,134
341
6,475
1,959
4,516
74%
1,115
330
1,540
4,944
1,531
25%
202
24
1,354
41
1,313
287
22%
1,025
17%

2QFY12
6,578
256
6,833
2,221
4,612
70%
1,161
317
1,728
5,427
1,407
21%
201
43
1,249
29
1,219
212
17%
1,000
15%

3QFY12
6,755
211
6,966
2,223
4,743
70%
1,199
349
1,980
5,751
1,215
18%
197
23
1,041
2
1,040
201
19%
832
12%

4QFY12
6,540
203
6,743
2,228
4,515
69%
1,442
352
1,870
5,893
850
13%
218
124
757
89
668
24
4%
637
10%

1QFY13 PREVIEW- PHARMACEUTICALS

1QFY13
7,285
226
7,511
2,404
5,107
70%
1,311
393
2,040
6,148
1,363
19%
202
127
1,288
107
1,181
260
22%
921
13%

y-o-y
19%
-34%
16%
23%
13%
-351 bps
18%
19%
32%
24%
-11%
-626 bps
0%
419%
-5%
164%
-10%
-10%
12 bps
-10%
-407 bps

q-o-q
11%
11%
11%
8%
13%
107 bps
-9%
12%
9%
4%
60%
571 bps
-7%
2%
70%
20%
77%
996%
1845 bps
45%
290 bps

35

Torrent Pharma

Under performer
Balance sheet (INR mn)

Profit and loss statement


Particulars (INR mn)
Net Sales
Total operating expenses

FY11

FY12P

FY13E

FY14E

22,265

26,959

31,620

36,762

21,953

26,018

30,270

4,092

5,007

5,602

6,492

626

817

807

931

3,466

4,189

4,795

5,561

Financial Charges

387

395

428

437

Other income

347

445

506

663

3,427

4,240

4,874

5,786

654

3,427

3,586

4,874

5,786

725

723

1,072

1,273

2,702

2,863

Depreciation & Amortization


EBIT

Profit before tax and extraordinary


Extraordinary income
Profit before tax
Tax
Net profit
Minority Interest

3,802

FY11

FY12P

FY13E

FY14E

Shareholder's equity

10,224

11,938

14,274

17,827

16

35

35

35

Long-term debt

3,481

3,221

3,569

3,565

Provisions

1,427

1,807

1,419

1,567

Short-term debt

2,240

1,381

2,569

2,674

Current liabilities

7,479

11,545

8,513

9,897

38

38

38

24,867

29,964

30,416

35,604

Net fixed assets

8,541

9,157

10,497

12,061

Investments

1,460

1,240

1,240

1,240

Inventories

5,048

5,316

5,727

6,659

Sundry debtors

3,404

5,228

4,881

5,776

Loans & advances

1,428

1,178

2,446

3,203

678

1,155

1,155

1,155

4,788

6,743

4,540

5,581

15,346

19,620

18,750

22,373

(480)

(514)

(514)

(514)

(23)

(23)

(23)

Reported PAT

2,702

2,840

3,779

Adjusted Profit

2,702

3,471

3,756

Other liabilities
Total liabilities & equity

Other current assets


4,513

(0)

Income from JV/Associates

Particulars (INR mn)

Minority interests
18,173

EBITDA

TP: INR629

Cash & cash equivalents


Current assets
Deferred tax asset, net

4,491

Other assets

463

463

463

4,468

Total assets

24,867

29,964

30,416

35,604

1QFY13 PREVIEW- PHARMACEUTICALS

36

Torrent Pharma

Under performer
Key ratios

Cash flow statement


Particulars (INR mn)

Particulars

FY11

FY12P

FY13E

FY14E

EPS (INR)

31.9

33.6

44.9

53.1

120.8

141.1

168.7

210.7

ROE (%)

29.2

25.6

28.8

28.0

Growth (%)

FY11

FY12P

FY13E

FY14E

Revenues

15.8

22.3

18.2

16.3

EBITDA

-2.8

22.3

11.9

15.9

Net profit

16.9

5.1

33.0

18.8

EPS

16.9

5.1

33.0

18.8

Margins (%)

FY11

FY12P

FY13E

FY14E

EBITDA

19.3

19.3

18.3

18.2

EBIT

16.3

16.1

15.6

15.6

Net profit

12.7

10.9

12.3

12.6

Valuation ratios

FY11

FY12P

FY13E

FY14E

P/E (x)

20.6

19.6

14.7

12.4

Price/BV(x)

5.4

4.7

3.9

3.1

Market cap/sales (x)

2.6

2.1

1.8

1.6

EV/sales (x)

2.7

2.1

1.9

1.6

EV/EBITDA (x)

13.8

10.7

10.2

8.7

1,041

Mcap/Sales (x)

2.6

2.1

1.8

1.6

5,581

Earnings Yiels (%)

4.9

5.1

6.8

8.1

FY11

FY12P

FY13E

FY14E

2,702

2,840

3,779

4,491

Depreciation

626

817

807

931

Change in working capital

621

2,762

(5,389)

(1,049)

(3)

223

255

312

Operating cash flow

3,945

6,642

(549)

4,684

Capital expenditure

(2,631)

(1,433)

(2,147)

(2,496)

Change in investments

(1,191)

219

236

(234)

195

148

(3,586)

(1,447)

(1,951)

(2,348)

1,315

5,209

(2,695)

2,189

463

(1,119)

1,536

102

Dividend paid

(591)

(1,780)

(789)

(938)

Interest Paid

(543)

(341)

(450)

(460)

Financing cash flow

(671)

(3,240)

297

(1,296)

Net change in cash

(312)

1,955

(2,203)

Closing cash balance

4,788

6,743

4,540

PAT

TP: INR629

BV per share (INR)

Other non-cash adjustments

Other investing cash flow


Investing cashflow
Free cash flow to firm
Issue of equity
Change in borrowings

1QFY13 PREVIEW- PHARMACEUTICALS

37

Under performer
1200

Synergy benefit from acquisition would generate post


FY14E.

1000

Expect the recent acquisition of Biochem and Nesher to


dent margins on account of high overhead cost.

600

Particulars

800

20x

15x

400

10x

200

Jun/12

Dec/11

Jun/11

Dec/10

Jun/10

Dec/09

Jun/09

Dec/08

Jun/08

Dec/07

0
Jun/07

We value Cadila Healthcare at 20x FY13 earnings to


arrive at our target price of INR705.

25x

Dec/06

USFDA resolution for Moriya facility is a key growth


driver for the near term.

1-year fwd P/E

INR

Jun/06

Domestic formulation is back on track and is expected to


grow at CAGR of 20% over FY 12-14E.

TP: INR705

Dec/05

Cadila

FY11

FY12E

FY13E

FY14E

CAGR (%)

Net Sales (INRmn)

46,302

52,633

58,302

70,262

15

EBITDA (INRmn)

10,262

10,839

11,983

14,636

13

34.7

31.8

35.2

45.0

9.4

15.3

13.7

11.1

NM

ROE (%)

37.4

27.5

25.5

26.8

NM

PE (x)

21.2

23.1

20.9

16.3

NM

EPS (INR)
EV/EBITDA (x)

Souvik Chatterjee (souvikchatterjee@smcindiaonline.com ) +91 22 6651451/ Ext:118 | Mitesh Shah (miteshpshah@smcindiaonline.com)

Cadila

Under performer

Revenue Performance

TP: INR705

Margin Performance
30

80,000

25.0%
70,000

25

21.9%
20.0%

20

50,000

15

40,000

19.7%

11.5%

10,000

0
FY08

FY09

Domestic

FY10
Exports

FY11

FY12P

JVs

FY13E

12.4%

12.4%

20.8%

13.1%

10.4%

10.0%

20.6%

13.7%

10

20,000

20.6%

15.4%

15.0%

30,000

22.2%

20.7%

INR mn

60,000

5.0%

FY14E

FY08

FY09

Revenue Growth (%)

FY10
EBITDA

FY11

FY12E

FY13E

FY14E

Net Profit

ROCE Vs ROE
40
37.4

35.3

35
30
27.7

15.4

25.5

26.8

23.1

21.4

20
15

27.5

26.4

25

20.2

17.2

16.7

17.0

10
5
FY08

FY09

FY10

FY11
RoE (%)

FY12E

FY14E

RoCE (%)

1QFY13 PREVIEW- PHARMACEUTICALS


Source: SMC Research,

FY13E

39

Cadila

Under performer

TP: INR705

1QFY13 Preview
Revenue growth supported by a recovery in the domestic market and JVs.
However margin remain under pressure on the back of increase in operational and financial due to
inorganic growth and increase in taxes.
INR mn
Net sales
Other Operating Income
Total Income
COGS
Gross profit
Gross margin
Staff Cost
Other Expenditure
Total Expenditure
EBITDA
EBITDA margin
Depreciation / Amortisation
Other Income
EBIT
Interest Paid
PBT
Total tax
Tax rate, %
Reported PAT
PAT Margin

1QFY12
11,735
722
12,457
3,620
8,837
75%
1,615
4,198
9,433
3,024
25.8%
347
18
2,695
112
2,584
285
11%
2,298
20%

2QFY12
12,196
168
12,364
3,906
8,291
68%
1,803
4,285
9,993
2,371
19.4%
375
110
2,106
769
1,337
235
18%
1,026
8%

3QFY12
13,525
308
13,832
4,520
9,312
69%
1,922
4,775
11,216
2,616
19.3%
465
182
2,333
594
1,739
174
10%
1,492
11%

4QFY12
13,444
536
13,980
4,748
8,696
65%
1,981
4,424
11,152
2,828
21.0%
391
176
2,613
375
2,238
436
19%
1,709
13%

1QFY13 PREVIEW- PHARMACEUTICALS

1QFY13
14,090
NA
14,090
4,344
9,745
69%
1,808
4,702
10,855
3,235
23.0%
386
250
3,099
402
2,697
486
18%
2,212
16%

y-o-y
20%
NA
13%
20%
10%
-613 bps
12%
12%
15%
7%
-281 bps
11%
1259%
15%
260%
4%
70%
695 bps
-4%
-389 bps

q-o-q
5%
NA
1%
-8%
12%
448 bps
-9%
6%
-3%
14%
192 bps
-1%
42%
19%
7%
21%
11%
-150 bps
29%
299 bps

40

Cadila

Under performer

TP: INR705

Balance sheet (INR mn)

Profit and loss statement


FY10

FY11

FY12P

FY13E

FY14E

Particulars (INR mn)

FY10

FY11

FY12P

FY13E

FY14E

Net Sales

36,868

46,302

52,633

58,302

70,262

Shareholder's equity

16,285

21,715

25,737

30,907

37,979

Total operating expenses

28,782

36,040

41,795

46,320

55,626

392

669

904

1,190

1,476

Long-term debt

8,066

8,052

13,223

15,454

18,989

EBITDA

8,086

10,262

10,839

11,983

14,636
Provisions

1,951

2,233

3,037

5,088

5,197

Depreciation & Amortization

1,339

1,269

1,579

1,543

1,648

Short-term debt

2,839

2,921

6,871

4,636

5,697

EBIT

6,747

8,993

9,260

10,440

12,988

Current liabilities

6,760

8,955

12,379

11,200

12,616

Interest expenses

821

699

1,849

1,607

1,791

Total liabilities & equity

36,293

44,545

62,608

68,476

81,954

Other income

159

131

532

Net fixed assets

19,326

22,636

33,318

34,668

36,437

207

207

242

1,500

1,500

PBT and extraordinary

6,085

8,425

7,942

8,833

11,197
Inventories

7,504

8,119

10,905

10,901

12,973

Extraordinary income

46

Sundry debtors

4,668

7,652

8,863

8,865

10,225

6,131

8,425

7,942

8,833

11,197

Loans & advances

3,120

4,106

5,377

6,990

9,087

741

1,064

1,130

1,325

1,680

421

442

464

Net profit

5,344

7,361

6,812

7,508

9,518

2,507

2,952

4,667

6,294

12,452

Current assets

17,799

22,829

30,233

33,492

45,201

Minority Interest

(238)

(251)

(286)

(286)

(286)
Deferred tax asset, net

(1,141)

(1,127)

(1,185)

(1,185)

(1,185)

Reported PAT

5,097

7,110

6,526

7,222

9,232
102

36,293

44,545

62,608

68,476

81,954

Particulars (INR mn)

Minority interests

Investments

PBT
Provision for tax

Other current assets


Cash & cash equivalents

Miscellaneous expenditure
Adjusted Profit

5,051

7,110

6,526

7,222

9,232

Total assets

1QFY13 PREVIEW- PHARMACEUTICALS

41

Cadila

Under performer

Cash flow statement


Particulars (INR mn)

TP: INR705

Key ratios
FY10

FY11

FY12P

FY13E

FY14E

Particulars

FY10

FY11

FY12

FY13E

FY14E

Net Profit

5,051

7,110

6,526

7,222

9,232

EPS (INR)

24.6

34.7

31.8

35.2

45.0

Depreciaiton

1,339

1,269

1,579

1,543

1,648

BV Per Share (INR)

79.4

105.9

125.5

150.8

185.3

ROE (%)

35.3

37.4

27.5

25.5

26.8

Growth (%)

FY10

FY11

FY12

FY13E

FY14E

Revenues

25.9

25.6

13.7

10.8

20.5

EBITDA

33.5

26.9

5.6

10.6

22.1

Net profit

66.5

40.8

-8.2

10.7

27.8

EPS

66.5

40.8

-8.2

10.7

27.8

Margins (%)

FY10

FY11

FY12

FY13E

FY14E

EBITDA

21.9

22.2

20.6

20.6

20.8

EBIT

18.3

19.4

17.6

17.9

18.5

Net profit

13.7

15.4

12.4

12.4

13.1

Valuation ratios

FY10

FY11

FY12

FY13E

FY14E

P/E (x)

29.8

21.2

23.1

20.9

16.3

Price/BV(x)

9.3

6.9

5.9

4.9

4.0

Market cap/sales (x)

4.1

3.3

2.9

2.6

2.1

EV/sales (x)

2.5

2.1

3.2

2.8

2.3

EV/EBITDA (x)

11.3

9.4

15.3

13.7

11.1

Mcap/Sales (x)

4.1

3.3

2.9

2.6

2.1

Earnings Yields (%)

3.4

4.7

4.3

4.8

6.1

Change in working capital

(1,400)

(2,331)

(1,461)

(760)

(4,027)

Other non-cash adjustments

1,964

648

2,193

1,893

2,077

Operating cashflow

6,954

6,696

8,837

9,898

8,929

Capital expenditure
Change in investments
Other investing cashflow
Investing cashflow
Free cashflow to firm

(2,994)

Dividend paid
Other financing cashflow
Financing cashflow
Net cash generated during year

(12,261)

(5)

(542)
(180)

(35)

(2,892)

(1,258)

(359)

(3,417)

(3,716)

(4,530)

(12,296)

(4,150)

(3,417)

3,960

2,530

(3,425)

7,006

5,512

Issue of equity
Change in borrowings

(4,166)

248

403

9,121

(5)

4,597

(751)

(1,222)

(2,504)

(2,051)

(2,160)

(2,745)

(902)

(1,392)

(2,064)

(1,791)

(3,248)

(1,721)

5,225

(4,120)

645

(10)

445

1,766

1,628

6,157

Cash at beginning of year

2,517

2,507

2,952

4,667

6,294

Cash at end of year

2,507

2,952

4,667

6,294

12,452

1QFY13 PREVIEW- PHARMACEUTICALS

42

Biocon

Under performer

Domestic and the EMs to lead the growth.

TP: INR263
INR

Uncertainty about the Insulin launch in developed


market (company expected 2013 launch in EU and
2015 launch in the US) would be the key area of
concern

600
500
25x
400
20x
300
15x

Particulars

10x
100

Jun/12

Dec/11

Jun/11

Dec/10

Jun/10

Dec/09

Jun/09

Dec/08

Jun/08

Dec/07

Jun/07

Dec/06

0
Jun/06

Value Biocon at 16x FY13 earnings to arrive at our


target price of INR263

200

Dec/05

API growth supported by the steady growth of


Fidaxomicin

FY11

FY12

FY13E

FY14E

CAGR (%)

28,137

20,865

22,563

25,134

(4)

6,296

5,174

5,708

6,681

EPS (INR)

18.4

16.9

16.5

20.5

EV/EBITDA (x)

11.2

14.1

12.3

9.9

NM

ROE (%)

19.4

15.7

13.7

15.2

NM

PE (x)

19.5

21.2

21.8

17.4

NM

Net Sales (INRmn)


EBITDA (INRmn)

Souvik Chatterjee (souvikchatterjee@smcindiaonline.com ) +91 22 6651451/ Ext:118 | Mitesh Shah (miteshpshah@smcindiaonline.com)

Biocon

Under performer

TP: INR263
Margin Performance

Revenue Performance (ex Axicorp)


30,000

30

INR mn

25,000

30.0%
28.2%

25
25.0%

20,000

23.8%

20

21.9%
20.0%

15,000

15

10,000

10

15.0%

5,000

10.0%

0
FY08

FY09

FY10

Biopharma

FY11

FY12

Research Services

FY13E

24.8%
21.4%

26.6%

25.3%

22.4%

18.8%
16.3%

16.2%

14.8%

14.6%
13.1%

5.0%

FY14E

FY08

FY09

FY10

Revenue Growth (%)

EBITDA

FY11

FY12

FY13E

FY14E

Net Profit

ROCE Vs ROE
25.0%
21.0%

20.0%

15.0%

18.1%
16.1%

21.8%
19.4%

17.6%

17.2%

16.8%

15.7%
12.7%

15.2%
13.7%
12.3%
10.8%

10.0%

5.0%
FY08

FY09

FY10

FY11
ROCE

FY12

FY14E

ROE

1QFY13 PREVIEW- PHARMACEUTICALS


Source: SMC Research,

FY13E

44

Biocon

Under performer

TP: INR263

1QFY13 Preview
Revenue
growth
driven
by
consistently
better
performance
in
insulin, immunosuppresants, statins and branded formulations.
Expect 22% growth in revenue and 5% growth in earnings. While EBITDA margin is likely to
remain steady.
Particulars (INR mn)
Net Sales
Raw material cost
Gross Profit
Gross margin
Staff Cost
R&D
Other Expenditure
Total Expenditure
EBITDA
EBITDA margin
Depreciation
Other income
EBIT
Interest exp
PBT
Tax
Tax rate
Reported PAT
PAT Margin

1QFY12
4,420
2,137

2QFY12
5,084
2,369

3QFY12
5,322
2,328

4QFY12
6,102
2,771

1QFY13
5,412
2,489

y-o-y
22%
16%

q-o-q
-11%
-10%

2,283
52%
644
203
229
3,213
1,207
27%
451
120
877
57
820

2,715
53%
724
306
351
3,750
1,334
26%
429
160
1,065
20
1,045

2,994
56%
732
330
508
3,898
1,424
27%
434
990
29
961

3,331
55%
761
726
298
4,556
1,546
25%
431
13
1,128
30
1,098

2,922
54%
645
325
541
4,000
1,411
26%
527
14
898
32
867

119
15%
701
16%

188
18%
857
17%

113
12%
848
16%

120
11%
978
16%

130
15%
737
14%

28%
235 bps
0%
60%
136%
25%
17%
-123 bps
17%
-89%
2%
-45%
6%
9%
3%
5%
-223 bps

-12%
-59 bps
-15%
-55%
82%
-12%
-9%
75 bps
22%
5%
-20%
5%
-21%
8%
37%
-25%
-241 bps

1QFY13 PREVIEW- PHARMACEUTICALS

45

Biocon

Under performer
Balance sheet (INR mn)

Profit and loss statement (INR mn)


Particulars (INR mn)
Revenue

TP: INR263

FY11

FY12

FY13E

FY14E

28,137

20,865

22,563

25,134

Particulars (INR mn)

FY11

FY12

FY13E

FY14E

Shareholder's equity

20,385

22,725

25,312

28,712

377

38

38

38

Long-term debt

2,039

699

1,232

1,532

Short-term debt

1,303

5,832

6,304

6,304

Current liabilities & Provisions

10,998

10,155

5,143

5,689

Minority interests
Total operating expenses
EBITDA
Depreciation

(21,841)

(15,691)

(16,854)

(18,453)

6,296

5,174

5,708

6,681

(1,568)

(1,744)

(2,107)

(2,203)

EBIT

4,728

3,430

3,601

4,478

Total liabilities & equity

35,102

39,449

38,030

42,275

Interest expenses

(257)

(123)

(179)

(192)

Net fixed assets

13,567

15,253

14,243

13,054

618

472

571

Net intangible assets

2,399

1,341

1,341

1,341

Profit before tax and


extraordinary

4,471

3,925

3,894

4,857

Investments

4,605

5,564

4,306

4,306

Inventories

4,137

3,783

3,616

4,028

Profit before tax

4,471

3,925

3,895

4,858
Sundry debtors

5,199

4,917

5,415

6,032

Loans & advances

1,279

95

105

115

Cash & cash equivalents

4,413

5,132

9,005

13,399

15,028

13,927

18,140

23,574

(497)

78

35,102

39,449

38,030

42,275

Other income

Tax
Net profit

(721)

(541)

(604)

(753)

3,750

3,384

3,291

4,105

(75)

Reported PAT

3,675

3,384

3,291

4,105

Deferred tax asset, net

Adjusted Profit

3,675

3,384

3,290

4,104

Total assets

Minority Interest

Current assets

1QFY13 PREVIEW- PHARMACEUTICALS

46

Biocon

Under performer
Key ratios

Cash flow statement (INR mn)


Particulars (INR mn)
Profit before tax
Depreciation
Change in working
capital
Tax
Net Operating Cash
Flow
Capex
Investments
Investing cash flows
Debt raised/ (repaid)
Dividends
Financing cash flow
Net change in cash
Closing cash balance

TP: INR263

FY10

FY11

FY12

FY13E

FY14E

3,887

4,471

3,925

3,895

4,858

1,401

1,568

1,744

2,107

2,203

345

(4,345)

490

721

5,433
(2,417)

94

4,522

494

541

604

753

11,105

6,116

2,084

7,319

(1,582)

(3,687)

(1,097)

(1,014)

Particulars (INR mn)

FY10

FY11

FY12

FY13E

FY14E

EPS (INR)

17.8

18.4

16.9

16.5

20.5

BV per share (INR)

88

102

114

127

144

ROE (%)

22

19

16

14

15

Growth (%)

FY10

FY11

FY12

FY13E

FY14E

Revenues

43.7

17.0

(25.8)

8.1

11.4

EBITDA

29.4

22.3

(17.8)

10.3

17.0

EBIT

30.3

26.2

(27.4)

5.0

24.4

(7.9)

(2.8)

(7.9)

(2.8)

Net profit

630

299

959

(1,258)

(4,306)

(1,787)

(1,283)

(2,728)

(2,355)

(5,320)

11

(702)

(1,794)

3,189

1,005

300

(701)

(1,044)

(703)

(704)

(691)

(2,495)

2,145

2,955

7,328

5,533

1,399

4,413

5,132

303
32

9,005

(403)

123.8

5.1

24.7

Diluted EPS

13.0

3.3

24.7

Margins (%)

FY10

FY11

FY12

FY13E

FY14E

EBITDA

21.4

22.4

24.8

25.3

26.6

EBIT

15.6

16.8

16.4

16.0

17.8

Net profit

14.5

13.1

16.2

14.6

16.3

Valuation ratios

FY10

FY11

FY12

FY13E

FY14E

P/E (x)

16.0

19.5

21.2

21.8

17.4

Price/BV(x)

3.2

3.5

3.2

2.8

2.5

Market cap/sales (x)

2.4

2.5

3.4

3.2

2.8

EV/sales (x)

2.5

2.5

3.5

3.1

2.6

11.8

11.2

14.1

12.3

9.9

1,596
13,399

EV/EBITDA (x)

1QFY13 PREVIEW- PHARMACEUTICALS

47

Under performer

Particulars

INR mn

140,000

1-year fwd EV/EBITDA

120,000
100,000

16x

80,000

13x
60,000

10x
40,000
20,000

FY10

FY11

FY12E

FY13E

CAGR (%)

20,265

23,320

28,001

34,361

19

3,013

3,770

4,644

6,076

26

EPS (INR)

10.6

14.6

18.7

23.2

30

EV/EBITDA (x)

17.0

17.2

19.9

15.4

NM

8.4

10.6

11.9

12.4

NM

34.3

32.4

33.9

27.3

NM

Net Sales (INRmn)


EBITDA (INRmn)

ROE (%)
PE (x)

Souvik Chatterjee (souvikchatterjee@smcindiaonline.com ) +91 22 6651451/ Ext:118 | Mitesh Shah (miteshpshah@smcindiaonline.com)

Jun-12

Dec-11

Jun-11

Dec-10

Jun-10

Dec-09

Jun-09

Dec-08

Jun-08

Dec-07

Jun-07

Dec-06

0
Jun-06

We believe Apollo Hospitals to be the best play in the


Indian healthcare services industry with better focus on
tier II and III growth areas
We expect majority of these projects are to be under
Apollos Reach initiative, focusing on tier-II/III cities
across India.
Expect earnings to continue its strong performance
(CAGR 14%) over the next 2 years on the back of higher
occupancy and increased ARPOB. We expect Apollo's
core operating margin to remain between 16-18% in the
long term.
Value Apollo at 15x FY13 EV/EBITDA to arrive at our
target price of INR683

TP: INR683

Dec-05

Apollo Hospitals

Apollo Hospitals

Under performer

Revenue Performance
40000

TP: INR683
Margin Performance

90%

INR mn

35000

80%

30000

70%
60%

25000

50%

20000
15000

20.0%
18.0%

12.0%
10.0%

40%

8.0%
6.0%

20%

4.0%

5000

10%

2.0%

Healthcare

Pharmacy

FY12E
Others

7.8%

8.4%

8.5%

6.5%

--

0%
FY11

14.9%

14.0%

30%

FY10

16.2%

16.0%

10000

17.7%
16.6%

FY10

FY13E

FY11E
EBITDA

Sales Growth

FY12E

FY13E

Profit Margin

ROCE Vs ROE
13.0%
11.9%
11.0%

12.4%
12.0%

10.6%
9.9%
9.1%

9.0%
8.4%
7.0%

7.3%

5.0%
FY10

FY11

FY12E
RoE

RoCE

1QFY13 PREVIEW- PHARMACEUTICALS


Source: SMC Research

FY13E

49

Apollo Hospitals

Under performer

TP: INR683

1QFY13 Preview
Expect revenue to grow by 18.1% y-o-y on account of better operating efficiency, particularly in its
'Reach' hospitals operating in the tier II/III cities.
We expect occupancy ratios to remain stable at ~78% for its standalone hospital segment.
Apollo intends to add five new specialty hospitals in tier-II/III cities in South and West India, which
are expected to be commissioned by FY13.
INR mn

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

Net Sales
Raw Material Consumed
Employee Expenses
General Administrative Exp
S&D Expenses
Other Expenses
Total Expenditure
EBITDA
EBITDA Margin
Depreciation
Other Income
Interest
PBT
Tax
Tax rate
Reported PAT
PAT Margin

6410
3381
962
752
101
155
5351
1059
17%
198
47
149
759
246
32%
513
8%

6998
3616
1095
790
154
145
5800
1197
17%
228
70
210
829
271
33%
557
8%

7148
3732
1086
858
145
142
5964
1184
17%
243
104
127
918
272
30%
647
9%

7446
3825
1142
0
130
1149
6245
1200
16%
241
65
155
869
276
32%
593
8%

8257
4227
1155
1052
116
183
6732
1524
18%
172
47
170
1229
405
33%
823
10%

1QFY13 PREVIEW- PHARMACEUTICALS

y-o-y

q-o-q

29%

11%

25%

11%

20%

1%

40%

NA

15%

-11%

18%

-84%

26%

8%

44%

27%

194 bps

234 bps

-13%

-28%

0%

-28%

14%

10%

62%

41%

65%

47%

56 bps

125 bps

61%

39%

197 bps

200 bps

50

Apollo Hospitals

Under performer
Balance sheet

Profit and loss statement


Particulars (INR mn)
Income from operations

Total operating expenses

EBITDA

Depreciation

EBIT

FY10
20,265

FY11
23,320

FY12E
28,001

FY13E
34,361

17,252

19,550

23,357

28,285

3,013

3,770

4,644

6,076

757

703

861

989

2,256

3,067

3,783

5,087

Interest expenses

587

587

654

1,310

Other income/Extraordinary
item

322

214

289

389

Profit before tax

1,992

2,693

3,417

4,165

Provision for tax

676

876

1,065

1,249

Net profit

Reported PAT

TP: INR683

1,315

1,315

1,817

1,817

2,352

2,352

2,915

Particulars (INR mn)

FY10

FY11

FY12E

FY13E

Equity Capital

618

624

629

629

Reserves and surplus

15,917

17,098

21,195

24,528

Shareholders funds

16,535

17,722

21,824

25,157

Minorities

241

Borrowings

9,131

7,410

16,381

16,381

Net Deferred Tax

536

1,071

Total Liabilities

26,443

26,203

38,205

41,538

Gross block

17,449

15,930

18,320

21,828

Depreciation

4,231

4,933

5,339

6,502

Net block

13,219

10,997

12,981

15,326

Capital WIP

3,037

2,984

3,664

4,366

Total fixed assets

16,256

13,982

16,645

19,692

Investments

4,166

6,241

6,616

7,012

Total current assets

11,995

11,330

24,455

26,681

Total current liabilities

5,973

5,350

9,510

11,848

Net current assets

6,022

5,980

14,944

14,834

Total Assets

26,443

26,203

38,205

41,538

2,915

1QFY13 PREVIEW- PHARMACEUTICALS

51

Apollo Hospitals

Under performer
Key ratios (%)

Cash flow statement


Particulars (INR mn)
Profit before tax
Depreciation

FY10

FY11

FY12E

FY13E

1,976

2,693

3,417

4,165

752

703

861

989

Changes in working capital

(296)

(1,662)

Tax

(865)

(876)

(1,065)

(1,249)

Net Operating Cash Flow

1,976

858

4,265

2,719

Change In fixed Assets

(3,892)

1,572

(2,891)

(3,509)

Change In Investments

1,664

Investing cash flows


Increase in equity

TP: INR683

(1,975)

(504)

317

(2,446)

(2,556)

(2,940)

869

(630)

Debt raised/ (repaid)

2,368

(1,721)

700

(100)

Dividends

(401)

(494)

(548)

Financing cash flow

2,237

(2,057)

206

(648)

Net change in cash

2,238

(1,702)

2,025

(869)

Closing cash balance

3,117

1,413

3,439

2,570

Particulars (INR mn)

FY10

FY11

FY12E

FY13E

EPS (INR)

10.6

14.6

18.7

23.2

BV per share (INR)

126.3

137.3

157.1

186.6

ROE (%)

8.4

10.6

11.9

12.4

ROCE (%)

7.3

9.9

9.1

12.0

Net debt/Equity

0.6

0.4

0.8

0.7

Growth (%)

FY10

FY11

FY12E

FY13E

Revenues

23.9

15.1

20.1

22.7

EBITDA

21.3

25.1

23.2

30.8

EBIT

22.4

35.9

23.3

34.5

Net profit

25.1

35.2

26.9

21.9

Diluted EPS

10.6

14.6

18.7

23.2

Margins (%)

FY10

FY11

FY12E

FY13E

EBITDA

14.9

16.2

16.6

17.7

EBIT

11.1

13.2

13.5

14.8

Net profit

6.5

7.8

8.4

8.5

Valuation ratios

FY10

FY11

FY12E

FY13E

P/E (x)

34.3

32.4

33.9

27.3

P/BV(x)

2.9

3.4

4.0

3.4

Market cap/sales (x)

2.2

2.5

2.8

2.3

EV/sales (x)

2.5

2.8

3.3

2.7

EV/EBITDA (x)

17.0

17.2

19.9

15.4

1QFY13 PREVIEW- PHARMACEUTICALS

52

Institutional Equities
Board Line : 66651450

Name

Fax : 22877000

Designation

Sector

Land Line

Ext.

email ID

Vipul Sharma

AVP - Sales

NA

22877006

116

vipulsharma@smcindiaonline.com

Anuraj Benara

Sr. Manager

NA

22877003

110

anurajbenara@smcindiaonline.com

Kumudini Shah

Sr. Manager

NA

22877004 / 5

112

kumudinishah@smcindiaonline.com'

Dealer

NA

22877001 & 2

150

kumarsushil@smcindiaonline.com'

Souvik Chatterjee

Sr. Research Analyst

Healthcare

NA

118

souvikchatterjee@smcindiaonline.com

Pritesh Jani

Sr. Research Analyst

Metal

NA

105

priteshujani@smcindiaonline.com

Jaisheel Garg

Sr. Research Analyst

Power

NA

122

jaisheelgarg@smcindiaonline.com

Sushil Pathak

Research Analyst

Auto & Auto Ancillaries

NA

102

sushilpathak@smcindiaonline.com

Vishal Narnolia

Research Analyst

BFSI

NA

107

vishalpnarnolia@smcindiaonline.com

Mitesh Shah

Associate Analyst

Healthcare

NA

141

miteshpshah@smcindiaonline.com

Sales & Dealing

Sushil Kumar

Research

1QFY13 PREVIEW- PHARMACEUTICALS

53

1QFY13 PREVIEW- PHARMACEUTICALS

54