Buy

Initiating Coverage Dr. Reddy’s Target Price

8th Sep 2020 Laboratories Ltd 5,270
Pharmaceutical

Dr. Reddy’s Laboratories Ltd (DRRD) – Accelerating the Transformation (CMP as of Sep 7, 2020)
We are initiating coverage on DRRD with BUY rating and a target price of Rs 5,270 CMP (Rs) 4,430
(PE of 25x for FY23E earnings) which implies an upside of 19% from the current levels. Upside /Downside (%) 19%
DR REDDY (DRRD) is an integrated global pharmaceutical enterprise that operates through
High/Low (Rs) 4,754 / 2,498
three core business segment Global Generic (GG), Pharmaceutical Services and Active
Market cap (Rs Cr) 73,600
Ingredients (PSAI) and Proprietary Products (PP). DRRD’s renewed strategy that was adopted
by new management to focus on SBUs like US, India, Russia, China and API has resulted into Avg. daily vol. (6m) Shrs. 339,411
strong revenue growth of 14% and 320 bps improvements in EBITDA marginin FY20. The No. of shares (Cr) 16.63
strategy focusses on 1) launch of high value new products by leveraging the portfolio of 100
pending ANDAs 2) strengthen existing brands and focus on new brands in selected therapeutic
areas 3) launch of existing global portfolio in new geographies 4) size capability, cost structure
Shareholding (%)
in India and access to intermediate to gain global leadership.
Dec-19 Mar-20 Jun-20
We expect consolidated revenue and EBITDA CAGR of 10.2% and 12.2% respectively
Promoter 26.76 26.75 26.74
over the period of FY20-FY23E.
FIIs 30.04 30.15 29.33
Our Investment Thesis Is Based On The Following Premises MFs / UTI 9.29 8.75 9.96

New Leadership has leveraged the existing capabilities to drive growth Banks / FIs 0.2 0.15 0.08
Others 33.71 34.2 33.89
In DRRD, there is change in leadership Mr. Erez Israeli joined as CEO of the company in April
2018. Mr. Erez Israeli spent 23 years in TEVA Pharmaceuticals where he held several
leadership positions. Further, Mr. Marc Kikuchi (from AmerisourceBergen) joined as head of
North America Generic (NAG) business, Mr. Sandeep Khandelwal (from Abbott India) joined as Financial & Valuations
India Business Head and Mr. Dmitry Sovetkin (Sandoz) joined as the Russia Business Head. Y/E Mar (Rs. bn) FY21E FY22E FY23E
We expect consolidated revenue CAGR 10.2% and 130 bps EBITDA improvement in margins
Net Sales 19,095 21,121 23,426
based onthe strategy implemented by new team whichalready has started to deliver results.
EBITDA 4,621 5,175 5,857
Gaining momentum in the US business based on new product launch and Net Profit 2,740 3,094 3,504
stable pricing in base business EPS (Rs.) 165 186 211
DRRD has leveraged its 100 ANDAs portfolio and launched high value products with limited PER (x) 26.9 23.9 21.1
competition in last 2 years. Further, commentary from top 6 Generic pharma players in NAG EV/EBITDA (x) 15.9 13.8 11.6
reveals pricing stability in generic pharma business. In the next 2 years, DRRD has healthy P/BV (x) 4.1 3.6 3.1
pipeline to launch drugs like gRemodulin, gDexilant, gNuvaring, gCopaxone and gKuvan and ROE (%) 15.3 15.0 14.7
potentially gVascepa that could be a gSuboxone kind opportunity. We expect revenue CAGR of
8.7% in constant currency for North America Generic business over FY20-FY23E.
Continued growth momentum in Europe Generics and Emerging markets
Relative performance
There isa turnaround happening in the Europe Generic business; revenue of $ 148mn grew by 200
52% in FY20. This was due to increased revenues in base markets of Germany and the UK, and
was aided by expansion in the new markets of Italy, France and Spain. Emerging Markets 150
comprises major geographies like Russia, China, Brazil, South Africa and Ukraine. This
100
segment reported strong growth of 14% (YoY) on account of increased revenues from base
business, new product launches and scaling up of business in new markets. Europe Generic 50
and Emerging Market business could deliver revenue CAGR 15.7% and 8.3% based on launch
of global portfolio with the expansion in geographies. 0
Sep-19 Mar-20 Aug-20
In India, DRRD has outpaced the industry growth by 170 bps via strengthening of existing
Dr Reddy's Labs BSE Sensex
brands and focus on new brands in selected therapeutic areas. Further in India, API industry
size is INR 79,800 crore (9.0% CAGR over FY20-FY24E) that comprises Chinese import of INR Source: Capitaline, Axis Securities
18,900 crore (70% of total Import) and export of INR 25,000 crore. We believe, DRRD is well
positioned to grab this opportunity based on strong product portfolio in APIs as compare to
peers.

Key Financials (Consolidated)

(Rs. Crore) FY20A FY21E FY22E FY23E
Net Sales 17,517 19,095 21,121 23,426
EBITDA 6,717 4,621 5,175 5,857
Net Profit 4,540 2,740 3,094 3,504
EPS (Rs.) 163 165 186 211
PER (x) 27.3 26.9 23.9 21.1 Ankush Mahajan
Research Analyst
EV/EBITDA (x) 18.2 15.9 13.8 11.6
P/BV (x) 4.7 4.1 3.6 3.1
email: ankush.mahajan@axissecurities.in
ROE (%) 17.3 15.3 15.0 14.7
Source: Company, Axis Research

1
Story in Charts
Exhibit 2: DR REDDY: Strong growth momentum in NAG region from
Exhibit 1: DRDD has large exposure to US, Emerging and last 5 quarters based on stable pricing and launch of high value
India market products

Strong moment in last 5 quarters

Revenue Breakup (FY20)
250
237 234 230
225
PP 206 209 213 203
PSAI 6%
15%
North America
37%
Emerging Markets
19%

Europe
India 7%
16%

North America Revenue ($ Mn)

Source: Axis Securities

Exhibit 4: *North America Generics is stabilizing due to launch of new

Exhibit 3: US pharma market expects CAGR 5.6% over 2019-2024. products and stable pricing regime. Commentary from Mylan, TEVA &
Generic pharma comprises 56% of overall market size. DRREDDY is supporting for same.

US market - Pharmaceutical spending & Growth *North America Generics is stabilising

15,734
635 14,655 14,770
13,046 13,011
510 12,472
466 486
462
430

2015 2016 2017 2018 2019 2024

FY15 FY16 FY17 FY18 FY19 FY20
US (In US$ Bn) US (In US$ Mn)

Source: Annual Report, Axis Securities Research

*North America Generics (NAG) comprises revenue of companies Mylan, TEVA, DRREDDY, AURO, TARO& Sunpharma

2
Exhibit 5: India pharma market expects CAGR 10.7% over 2019-2024. Exhibit 6: DRRD falls under top 10 companies in India Pharma market.
Generic pharma comprises 85% of overall market size. DRRD comprises 2.8% of market share in domestic pharma market

India market - Pharmaceutical spending & Growth India Pharma Industry (IPM) - Market Share (%)
33

Dr Reddy; Sun
2.8 GSK; 2.8 Pharma; 7.5
22
19 20 Torrent; 3.1
17 Abbott; 6.3
16
Lupin; 3.8

Alkem; 3.5
Cipla; 4.7
Mankind,
4.3 Zydus
2015 2016 2017 2018 2019 2024 Cadila;
4.1
India (In US$ Bn)

Source: Annual Report, Axis Securities Research

Exhibit 7: Europe Generics: We expect revenue CAGR 8.3% in India Exhibit 8: Emerging Markets: We expect revenue CAGR 8.3% based
business over FY20-FY23E based on launch of new brands. Covid-19 on expansion in new geographies with launch of global portfolioover
has adverse impact on growth of FY21E. FY20-FY23E.Covid-19 has adverse impact on growth of FY21E.

India (INR Crore) India (INR Crore)

1814
3678
1581 3343
1392 3039
2895
2618
1171

787

FY19 FY20 FY21E FY22E FY23E FY19 FY20 FY21E FY22E FY23E

India (INR Crore) India (INR Crore)

Source: Annual Report, Axis Securities Research

3
Exhibit 9: Cost optimization, productivity gains and prioritization of Exhibit 10: Profitability improvement and stable asset turnover led to
projects led to improvement in EBITDA margins high RoIC (%). We expect RoIC in range of ~25%.

EBITDA margins (%) RoIC (%)

25.0% 26.4%
23.7% 24.2% 24.5%
23.5%
20.6% 21.3%
19.0%

12.6%

FY19 FY20 FY21E FY22E FY23E FY19 FY20 FY21E FY22E FY23E

EBITDA margins (%) RoIC (%)

Source: Annual Report, Axis Securities Research

Exhibit 12: Strong FCFF generation which is 60% of EBITDA.

Exhibit 11: Stable asset turnover due to stable capex in the business FCFF/EBITDA = ~60%

Asset/ Turnover (x) FCFF (INR Crore)

1.7 3,636

1.6 2,946
1.6 1.6
2,244
2,023

1.5

FY19 FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E

Asset/ Turnover (x) FCFF (INR Crore)

Source: Annual Report, Axis Securities Research

4
DR REDDY (DRRD) – Accelerating the Transformation
New Leadership has leveraged the existing capabilities to drive growth

DRRD is an integrated global pharmaceutical enterprise that operates through three core business segment Global Generic (GG), Pharmaceutical
Services and Active Ingredients (PSAI) and Proprietary Products (PP). GG includes branded and unbranded prescription medicine in multiple
therapeutic areas like (i) gastrointestinal, (ii) oncology, (iii) cardiovascular, (iv) pain management, (v) central nervous system (CNS), (vi)
respiratory, and (vii) anti-infective. PSAI comprises APIs and Custom Pharmaceutical Services.

In DRRD, there is change in leadership Mr. Erez Israeli joined as CEO of the company in April 2018. Mr. Erez Israeli spent 23 years in TEVA
Pharmaceuticals where he held several leadership positions. Further, Mr. Marc Kikuchi (from AmerisourceBergen) joined as head of North
America Generic (NAG) business, Mr. Sandeep Khandelwal (from Abbott India) joined as India Business Head and Mr. Dmitry Sovetkin (Sandoz)
joined as the Russia Business Head. The efforts of the above team have led to strong cosol. revenue growth of 14% and 310 bps margins
improvement in FY20. DRRD witnessed robust operational and financial performance, despite pricing pressure challenges the company was able
to grow across all its businesses.

DRRD has put a strategy to focus on different SBUs like US, India, Russia, China and API in order to derive growth in the business. This includes
1.) launch of high value new products by leveraging the portfolio of 100 pendingANDAs 2.) strengthen existing brands and focus on new brands in
selected therapeutic areas 3.) launch of existing global portfolio in new geographies 4.) size capability, cost structure in India and access to
intermediate to gain global leadership.

Exhibit 13: DRDD has large exposure to US, Emerging and India market

Revenue Breakup (FY20)

PP
PSAI 6%
15%
North America
37%
Emerging Markets
19%

Europe
India 7%
16%

Source: Axis Securities

5
North America Generics (NAG) – Gaining momentum based on launch of high value products and stable pricing regime

DRRD has leveraged its 100 ANDAs portfolio and launched high value products with limited competition in last 2 years. Further, commentary from
top 6 Generic pharma players in NAG reveals pricing stability in generic pharma business. High value products launched last year like vitamin K1,
gHemabate, Zenatane, gGeodon, gEmend are not necessarily large markets but have limited competition. In next 2 years, DRRD has healthy
pipeline to launch drugs like gRemodulin, gDexilant, gNuvaring, gCopaxone and gKuvan and potentially gVascepa that could be a gSuboxone kind
opportunity.

In FY2020, DRDD filed eight new Abbreviated New Drug Applications (ANDAs) with the USFDA. As on31 March 2020, the company had 100
generic filings pending approval from the USFDA. Of the 97 ANDAs, 54 are Para IV applications, and we believe 30 of these have ‘First to File’
status.

We expect revenue CAGR 8.7% in constant currency for North America Generic business over FY20-FY23E.

Exhibit 14: US pharma market expects CAGR 5.6% over Exhibit 15: *North America Genericsis stabilizing due to launch of new
2019-2024. Generic pharma comprises 56% of products and stable pricing regime. Commentary from Mylan, TEVA &
overall market size. DRREDDY is supporting for same.

US market - Pharmaceutical spending & Growth *North America Generics is stabilising

15,734
635 14,655 14,770
13,046 13,011
510 12,472
466 486
462
430

2015 2016 2017 2018 2019 2024

FY15 FY16 FY17 FY18 FY19 FY20
US (In US$ Bn) US (In US$ Mn)

Source: Annual Report, Axis Securities Research

*North America Generics (NAG) comprises revenue of companies Mylan, TEVA, DRREDDY, AURO, TARO& Sunpharma

Exhibit 17: DR REDDY: Strong growth momentum in NAG region from

Exhibit 16: DR REDDY: High value products launched with limited last 5 quarters based on stable pricing and launch of high value
competition in NAG in last 2 years products

High Value products launched in last 2 years Strong moment in last 5 quarters
27
24 250
237 234 230
225
206 209 213 203

15
12
10

FY15 FY16 FY17 FY18 FY19 FY20

New products launched (No.) North America Revenue ($ Mn)

Source: Company, Axis Securities Research

6
Exhibit 18: DR REDDY: We expect revenue CAGR 8.7% in constant currency for North America Generic business over
FY20-FY23E based on healthy pipeline of drugs

North America ($ Mn)

1162 1170
1060 1064
951 924 912 967
865

FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

North America ($ Mn)

Source: Axis Securities

7
India business: Strengthen the existing brands and focus on new brands

In India, DRRD has outpaced the industry growth by strengthening the existing brands and focus on new brands in selected therapeutic areas.
DRRD has launched 21 brands last year including Versavo and Celevida which added growth. DRRD will continue to drive productivity
improvement and focus on core therapeutic areas and big brands.

We expect revenue CAGR 8.3% in India business over FY20-FY23E based on launch of new brands. Covid-19 could have adverse impact on
growth of FY21E.

Exhibit 19: India pharma market expects CAGR 10.7% over Exhibit 20: DRRD falls under top 10 companies in India Pharma
2019-2024. Generic pharma comprises 85% of overall market. DRRD comprises 2.8% of market share in domestic pharma
market size market

India market - Pharmaceutical spending & Growth India Pharma Industry (IPM) - Market Share
33

Sun
GSK
Pharma
Dr Reddy 7%
17%
22 6%
19 20
Torrent
17 7%
16
Lupin Abbott
9% 15%

Alkem
8%
Cipla
Mankind 11%
2015 2016 2017 2018 2019 2024 Zydus
10%
Cadila
India (In US$ Bn) 10%

Source: Annual Report, Axis Securities Research

Exhibit 21: We expect revenue CAGR 8.3% in India business over FY20-FY23E based on launch of new brands. Covid-19 has adverse
impact on growth of FY21E

India (INR Crore)

3,678
3,343
2,895 3,039
2,618
2,313 2,332
2,129
1,776

FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E

India (INR Crore)

Source: Company, Axis Securities

8
Continued growth momentum in Europe Generics and Emerging markets

There is turnaround in Europe Generic business; revenue $ 148mn grew by 52% in FY20. This was due to increased revenues in base markets of
Germany and the UK, and was aided by expansion in the new markets of Italy, France and Spain. The increase in revenues was propelled by high
volume growth and improvement in supplies, as well as new product launches across all markets.DRRD has strategy to grow by leveraging in-
house portfolio, seeking in-licensing opportunities, and further scaling up business in the three new markets. We expect revenue CAGR 12.6% in
constant currency over the period of FY20-FY23E.

Emerging Markets comprises major geographies like Russia, China, Brazil, South Africa and Ukraine. This segment reported strong growth of 14%
(YoY) on account of increased revenues from base business, new product launches and scaling up of business in new markets. Pharma market
size of Russia is $ 16bn that expects to grow by 8%-11% over CY19-CY24; DRRD has reported strong growth of 10% in this segment and
comprises 52% revenue of emerging market business. DRRD has received tender to supply of Olanzapine in China (Pharma market size $142 bn)
as part of strategy to expand in geographies. We expect revenue CAGR 8.3%over the period of FY20-FY23E.

Exhibit 22: Europe Generics: We expect revenue CAGR 15.7% in India business over FY20-FY23E based on launch of new brands. Covid-
19 has adverse impact on growth of FY21E.

India (INR Crore)

1,814
1,581
1,392
1,171

787

FY19 FY20 FY21E FY22E FY23E

India (INR Crore)

Source: Company, Axis Securities

Exhibit 23: Emerging Markets: We expect revenue CAGR 8.3% in India business over FY20-FY23E based on launch of new brands. Covid-19
has adverse impact on growth of FY21E.

India (INR Crore)

3,678
3,343
3,039
2,895
2,618

FY19 FY20 FY21E FY22E FY23E

India (INR Crore)

Source: Company, Axis Securities

9
PSAI: A structural story over next 3-4 years

In India, API industry size is INR 79,800 crore (9.0% CAGR over FY20-FY24E) that comprises Chinese import of INR 18,900 crore (70% of total
Import) and export of INR 25,000 crore. At present, the domestic APIs manufacturers have seen the spurt in APIs demand due to import
substitution (lower import from China) and global supply chain disruption. Further, GoI has launched the production-linked INR 100 bn incentive
scheme for 53 products that could strenghten the domestic APIs manufacturing and less import from China. DRRD has selected to manufacture 4-
5 products under the above incentive scheme over the next 2 years. We believe,DRRD is well positioned to grab this opportunity based on strong
product portfolio in APIs as compare to peers.

Exhibit 24: PSAI: We expect revenue CAGR 18.6% in India business over FY20-FY23E

India (INR Crore)

4,297
3,711
3,206

2,414 2,575

FY19 FY20 FY21E FY22E FY23E

India (INR Crore)

Source: Company, Axis Securities

10
Financials: Continuous improvement in operating profits and return ratios
Exhibit 25: Cost optimization, productivity gains and prioritization of Exhibit 26: Profitability improvement and stable asset turnover led to
projects led to improvement in EBITDA margins high RoIC (%). We expect RoIC in range of ~25%.

EBITDA margins (%) RoIC (%)

25.0% 26.4%
23.7% 24.2% 24.5%
23.5%
20.6% 21.3%
19.0%

12.6%

FY19 FY20 FY21E FY22E FY23E FY19 FY20 FY21E FY22E FY23E

EBITDA margins (%) RoIC (%)

Source: Annual Report, Axis Securities Research

Exhibit 28: Strong FCFF generation which is 60% of EBITDA.

Exhibit 27: Stable asset turnover due to stable capex in the business FCFF/EBITDA = ~60%

Asset/ Turnover (x) FCFF (INR Crore)

1.7 3,636

1.6 2,946
1.6 1.6
2,244
2,023

1.5

FY19 FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E

Asset/ Turnover (x) FCFF (INR Crore)

Source: Annual Report, Axis Securities Research

11
Exhibit 29: Key management team

Key Management Personnel Experience

Mr. Erez Israeli Mr. Erez Israeli joined as CEO of the company in April 2018. Mr. Erez Israeli spent 23 years in TEVA
Chief Executive Officer Pharmaceuticals where he held several leadership positions.

Mr. Marc Kikuchi

He heads as CEO of North America Generics (NAG). He heads Global Generics business in
Chief Executive Officer, North AmerisourceBergen in his previous role.
America Generics

Mr. Sandeep Khandelwal He is heading the India Business at Dr Reddy’s. Sandeep had held various positions in Abbott India and
Head - India Business Marico Ltd in his previous role.

Mr. Dmitry Sovetkin

He was heading generic business in Sandoz in his previous role.
Head - Russia

Saumen Chakraborty Saumen Chakraborty is President and Chief Financial Officer of Dr. Reddy´s. He has over 34 years of
Chief Financial Officer experience in both strategic and operational aspects of management.

Source: Company, Axis Research

12
 Valuations and Outlook
We believe in DRRD structural growth story based on

 Strong growth in NAG business due to launch of high value products and stable pricing in base business

 Turnaround of Europe business with the launch of global portfolio.

 Entering into the new geographies of emerging markets.

 Strong porfolio in the APIs segment to drive future growth.

 Strong FCFF at 60.0% of EBITDA on a yearly

 Highest RoIC in the range of ~25%.

Therefore, we recommend “BUY” on DR. Reddy Laboratories Ltd (DRRD) with TP of INR 5,270 (PE multiple 25x for FY23E earnings).

Exhibit 30: Peers comparison

CMP Mcap PE (X) EV/EBITDA (x) RoE (%)
(INR
(INR) FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E FY20 FY21E FY22E FY23E
Cr)
SUN PHARMA 530 123,000 30.9 25.9 21.3 17.5 16.3 13.6 11.3 10.1 8.7 10.1 11.2 12.3

TORRENT PHAR 2,793 46,723 45.6 39.3 32.1 26.6 22.8 19.7 16.9 15.0 15.4 22.1 23.4 24.3

AUROBINDO 796 47,745 16.9 14.9 13.8 13.2 10.3 9.0 8.0 6.9 18.4 17.6 16.4 15.1

LUPIN 925 43,684 44.5 30.4 21.1 18.2 17.2 13.4 9.7 8.5 3.0 10.8 14.1 14.4

CIPLA 718 59,443 38 27.4 23.9 21.8 18.7 15.1 13.1 11.6 10.1 12.8 13.0 12.7

DR REDDY 4,430 72,463 26.8 26.4 23.4 20.4 17.9 15.6 13.5 11.4 17.3 15.3 15.0 14.9

Average 33.8 27.4 22.6 19.6 17.2 14.4 12.1 10.6 12.2 14.8 15.5 15.6
Source: Company, Axis Securities Research

Key Risks
 Increase in raw material prices due to supply chain disruptions at global level

 Price war in generic pharma business with the entry of new playears in NAG business.

 Lockdown extension could impact the incremental sales due to Covid -19 across the global.

 Delay in regulatory approval to launch gloal portfolio in China market. As company has big plan to tap this market.

13
Financials (Consolidated)
Profit & Loss (Rs Cr)
Y/E March FY20P FY21E FY22E FY23E
Net sales 17,517 19,095 21,121 23,426
Other operating income 0 0 0 0
Net Revenue 17,517 19,095 21,121 23,426

Cost of goods sold 2,985 6,015 6,632 7,309

Contribution (%) 17.04% 31.50% 31.40% 31.20%
Other operating costs 7,816 8,459 9,314 10,261

EBITDA 6,717 4,621 5,175 5,857

Other income 621 358 378 398

PBIDT 7,337 4,979 5,552 6,254

Depreciation 1,163 1,267 1,372 1,477
Interest & Fin Chg. 98 107 109 112
E/o income / (Expense) -1,677 0 0 0
Pre-tax profit 4,399 3,605 4,071 4,666
Tax provision -140 865 977 1,162
(-) Minority Interests 0 0 0 0
Associates 0 0 0 0
Adjusted PAT 4,540 2,740 3,094 3,504
Other Comprehensive Income 0 0 0 0
Reported PAT 4,540 2,740 3,094 3,504
Source: Company, Axis Securities

Balance Sheet (Rs Cr)

Y/E March FY20P FY21E FY22E FY23E
Total assets 23,225 25,595 28,669 32,415
Net Block 4,778 4,511 4,139 3,663
CWIP 436 436 436 436
Investments 2,402 2,402 2,402 2,402
Wkg. cap. (excl cash) 5,180 6,053 6,683 7,181
Cash / Bank balance 205 1,950 4,435 7,566
Misc. Assets 0 0 0 0

Capital employed 23,225 25,595 28,669 32,415

Equity capital 83 83 83 83
Reserves 15,516 17,864 20,566 23,678
Pref. Share Capital 0 0 0 0
Minority Interests 0 0 0 0
Borrowings 1,784 1,783 1,823 1,863
Def tax Liabilities 2 2 2 2
Source: Company, Axis Securities

14
Cash Flow (Rs Cr)
Y/E March FY20P FY21E FY22E FY23E
Sources
Cash profit 4,646 5,703 4,006 4,466
(-) Dividends (392) (392) (392) (392)
Retained earnings 0 0 0 0
Issue of equity 0 0 0 0
Change in Oth. Reserves 0 0 0 0
Borrowings (1,629) (0) 40 40
Others (1,570) (0) (0) 0

Applications 627 495 645 645

Capital expenditure 553 (1,000) (1,000) (1,000)
Investments (67) (0) 0 0
Net current assets 0 0 0 0
Change in cash (471) 1,950 4,435 7,566
Source: Company, Axis Securities

Ratio Analysis (%)

Y/E March FY20P FY21E FY22E FY23E
Sales growth 13.4 9.0 10.6 10.9

OPM 23.7 24.2 24.5 25.0

Oper. profit growth 30.0 11.4 12.0 13.2
COGS / Net sales 31.7 31.5 31.4 31.2
Overheads/Net sales 44.6 44.3 44.1 43.8
Depreciation / G. block 10.5 10.5 10.5 10.5
Effective interest rate (7.4) 24.0 24.0 24.9

Net wkg.cap / Net sales 0.3 0.3 0.3 0.3

Net sales / Gr block (x) 1.6 1.6 1.6 1.7

RoCE 19.0 21.3 23.5 26.4

Debt / equity (x) 0.1 0.1 0.1 0.1
Effective tax rate (7.4) 24.0 24.0 24.9
RoE 17.3 15.3 15.0 14.7
Payout ratio (Div/NP) 471.2 471.2 471.2 471.2

EPS (Rs.) 162.6 164.8 186.2 210.8

EPS Growth 38.6 1.4 12.9 13.2
CEPS (Rs.) 232.6 241.1 268.7 299.7
DPS (Rs.) 23.6 23.6 23.6 23.6
Source: Company, Axis Securities

15
About the analyst

Analyst: Ankush Mahajan

Contact Details: ankush.mahajan@axissecurites.in

Sector:Midcaps/ Pharma Sector

Analyst Bio: Ankush Mahajan is MBA (Finance) from SMVDU with over 12 years of research experience in the
Midcaps/ Pharma Sector

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the
Regulations, is engaged in the business of providing Stock broking services, Depository participant services & distribution of various financial products. ASL is a
subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed public company and one of India’s largest private sector bank and has its various subsidiaries
engaged in businesses of Asset management, NBFC, Merchant Banking, Trusteeship, Venture Capital, Stock Broking, the details in respect of which are
available on www.axisbank.com.
2. ASL is registered with the Securities & Exchange Board of India (SEBI) for its stock broking & Depository participant business activities and with the Association
of Mutual Funds of India (AMFI) for distribution of financial products and also registered with IRDA as a corporate agent for insurance business activity.
3. ASL has no material adverse disciplinary history as on the date of publication of this report.
4. I/We, Ankush Mahajan, MBA - (Finance), author/s and the name/s subscribed to this report, hereby certify that all of the views expressed in this research report
accurately reflect my/our views about the subject issuer(s) or securities. I/We (Research Analyst) also certify that no part of my/our compensation was, is, or will
be directly or indirectly related to the specific recommendation(s) or view(s) in this report. I/we or my/our relative or ASL does not have any financial interest in the
subject company. Also I/we or my/our relative or ASL or its Associates may have beneficial ownership of 1% or more in the subject company at the end of the
month immediately preceding the date of publication of the Research Report. Since associates of ASL are engaged in various financial service businesses, they
might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. I/we or my/our
relative or ASL or its associate does not have any material conflict of interest. I/we have not served as director / officer, etc. in the subject company in the last 12-
month period. Any holding in stock – No
5. 5. ASL has not received any compensation from the subject company in the past twelve months. ASL has not been engaged in market making activity for the
subject company.
6. In the last 12-month period ending on the last day of the month immediately preceding the date of publication of this research report, ASL or any of its associates
may have:

Received compensation for investment banking, merchant banking or stock broking services or for any other services from the subject company of this research report
and / or;
Managed or co-managed public offering of the securities from the subject company of this research report and / or;
Received compensation for products or services other than investment banking, merchant banking or stock broking services from the subject company of this research
report;
ASL or any of its associates have not received compensation or other benefits from the subject company of this research report or any other third-party in connection
with this report.

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This report has been prepared by ASL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly
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 DEFINITION OF RATINGS

Ratings Expected absolute returns over 12-18 months

BUY More than 10%

HOLD Between 10% and -10%

SELL Less than -10%

NOT RATED We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NO STANCE We do not have any forward looking estimates, valuation or recommendation for the stock

Disclaimer:
Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to the
recipient’s specific circumstances. The securities and strategies discussed and opinions expressed, if any, in this report may not be suitable for all investors, who must
make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient.

This report may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this report should make such investigations as
it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this report (including the merits and risks
involved), and should consult its own advisors to determine the merits and risks of such an investment. Certain transactions, including those involving futures, options
and other derivatives as well as non-investment grade securities involve substantial risk and are not suitable for all investors. ASL, its directors, analysts or employees
do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report,
including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income,
etc. Past performance is not necessarily a guide to future performance. Investors are advice necessarily a guide to future performance. Investors are advised to see
Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in
projections. Forward-looking statements are not predictions and may be subject to change without notice.

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distinct and independent of each other. The recipient should take this into account before interpreting this document.

ASL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this
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on any specific merchant banking, investment banking or brokerage service transactions. ASL may have issued other reports that are inconsistent with and reach
different conclusion from the information presented in this report. The Research reports are also available & published on AxisDirect website.

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United States or Canada or distributed or redistributed in Japan or to any resident thereof. If this report is inadvertently sent or has reached any individual in such
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be contrary to law, regulation or which would subject ASL to any registration or licensing requirement within such jurisdiction. The securities described herein may or
may not be eligible for sale in all jurisdictions or to certain category of investors.

The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the
views expressed in the report. The Company reserves the right to make modifications and alternations to this document as may be required from time to time without
any prior notice. The views expressed are those of the analyst(s) and the Company may or may not subscribe to all the views expressed therein.
Copyright in this document vests with Axis Securities Limited.
Axis Securities Limited, Corporate office: Unit No. 2, Phoenix Market City, 15, LBS Road, Near Kamani Junction, Kurla (west), Mumbai-400070, Tel No. – 022-
40508080/ 022-61480808, Regd. off.- Axis House, 8th Floor, Wadia International Centre, PandurangBudhkar Marg, Worli, Mumbai – 400 025. Compliance Officer:
AnandShaha, Email: compliance.officer@axisdirect.in, Tel No: 022-42671582.SEBI-Portfolio Manager Reg. No. INP000000654

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