Pharma sector analysis_reprot_-_sample

PHARMA SECTOR

September, 2011

Bhavita NagraniResearch [email protected]+91 22 66242486

Ashish ThavkarResearch [email protected]+91 22 66121254

Deepak MalikSenior Research [email protected]+91 22 66121257

• Growth in domestic pharma

industry to slow down to 12-13% in

2011 due to weak macro factors

and increase in competition from

unlisted players and MNC pharma

companies

• Cut down the domestic growth

estimates by 3-7% and earnings

estimates by 2-9% for FY12 for

Cipla, Cadila, Dr. Reddy, IPCA and

Torrent .

• Buy - Glenmark, IPCA

Accumulate - Sun Pharma, Lupin

Hold - Ranbaxy, Cipla, Dr. Reddy,

Cadila, Torrent and Unichem

Domestic

WARNING

CHALLENGESAHEAD

Emkay Research 26 September, 2011

Pharma Sector

2

Contents

Pharma Sector

Synopsis .........................................................................................................................................................................3

Valuation .........................................................................................................................................................................4

Domestic Formulations ...................................................................................................................................................6

Domestic Formulations: Taking a breather ..................................................................................................................7

Performance of Top Pharma companies .....................................................................................................................9

Company specific issues - What management has to say? ..................................................................................... 10

Pharma Industry : Recent Trends ............................................................................................................................. 11

Key Factors Driving The Slowdown................................................................................................................................ 12

Weakening macro factors to impact Indian Pharma growth ................................................................................. 13

Increase in competition has led to ramp-up of sales force ................................................................................... 14

MNCs getting aggressive .................................................................................................................................... 15

Pricing pressure on top brands ............................................................................................................................ 18

Anti-Infective Category – Therapy bifurcation ....................................................................................................... 20

National List of Essential Medicines .............................................................................................................................. 22

Impact of challanges ..................................................................................................................................................... 25

Indian Pharma growth slowing down .................................................................................................................... 26

Stress-Test on the profile of pharma companies .................................................................................................. 28

Rivision of estimates for domestic growth ............................................................................................................ 32

Significance of domestic business - Cash Cow ................................................................................................... 33

Revise in earnings estimates............................................................................................................................... 34

Conclusion and Recommendation ....................................................................................................................... 35

Companies

Cadila Healthcare .......................................................................................................................................................... 37

Cipla Ltd ....................................................................................................................................................................... 41

Dr. Reddy's Lab ............................................................................................................................................................. 45

Glenmark Pharma ......................................................................................................................................................... 49

GlaxoSmithKline Pharma .............................................................................................................................................. 53

Ipca Laboratories Ltd ..................................................................................................................................................... 56

Lupin Ltd. ...................................................................................................................................................................... 60

Pfizer Ltd ...................................................................................................................................................................... 64

Ranbaxy Labs ............................................................................................................................................................... 67

Sun Pharma .................................................................................................................................................................. 71

Torrent Pharma.............................................................................................................................................................. 76

Unichem Labs ............................................................................................................................................................... 80


Pharma Sector

3

Synopsis

Last year, Indian Pharma industry grew by 16%, one of the highest growth rates in the

world Pharma market. In the first two quarters Indian Pharma market growth has slowed

down to 13% from 16% in 2010. Domestic Indian companies are the ones which are

impacted most by this slowdown in growth.

In our report, "Domestic Pharma market", we have diagnose the challenges faced by

the Indian Pharma market, which was valued at USD 12 billion in 2010 and tried to

answer the following questions.

nnnnn What are the reasons for decline in the growth rate of Indian Pharma industry in

the first half of 2011?

nnnnn What is the impact of these factors on different pharma companies?

nnnnn Find out which company will outperform the industry growth rate?

Our analysis shows that there is a high degree of correlation between macro factors,

economic growth and Indian pharma industry growth. When the pace of economic reforms

and economic growth slows down it impacts the pharma industry growth. Other reason

was, every company has increased the strength of MRs in last two years and as a result

there was a spurt of growth last year which is tapering down this year. Impact of slowdown

in growth is more pronounced in mid and small cap companies and the companies

which have more exposure in GP therapies, which is more susceptible to competition.

Competition is increasing from low cost players like Mankind & Alkem labs in the mass

product therapies like anti-infective. MNCs which were focused more on acute categories

till now are increasingly launching products in chronic space & that too at competitive

prices.

To analyse the impact of these challenges on pharma companies’ domestic portfolio, we

have devised the “4 Step Stress Test “ to find out how various companies will get impacted.

Even though domestic business is only 20%-50% of the overall revenues, its contribution

to the base business earnings is higher at 50%- 70%. ROCE of domestic business is

much higher at 40%-60% compared to other businesses which have less than 20% and

as a result multiples are mainly driven by domestic business. Our analysis suggests that

any change in the domestic revenue has an amplified impact on the earnings and multiples

of the companies.

Pharma Companies which are mainly focused on domestic business will be the one

which will get impacted the most like - Cipla, Torrent, IPCA and Unichem. Other pharma

companies which have sizeable opportunities in form of Para IVs and FTF in US will able

to cushion the impact like Ranbaxy and Dr. Reddy. Sun and Lupin have superior portfolio

in domestic business with more focus on Chronic category and good opportunities in

form of Para IV and FTFs.

We have cut down the domestic growth estimates for Cadila, Cipla, Dr. Reddy, IPCA,

Torrent and Unichem for FY12 and FY13 by 3% to 7% and earnings growth estimates by

2% to 9% & retained the growth and earnings estimates for Lupin, Ranbaxy, Sun, GSK

and Pfizer.

nnnnn Buy - Glenmark and IPCA

nnnnn Accumulate – Lupin and Sun Pharma

nnnnn Hold - Cadila, Cipla, Dr. Reddy, Ranbaxy, Torrent and Unichem

Growth in domestic

pharma industry to

slow down to 12-13%

in 2011 due to weak

macro factors and

increase in competition

from unlisted players

and MNCs

Cut down the domestic

growth estimates by 3-7%

and earnings estimates

by 2-9% for FY12 for

Cipla, Cadila, Dr. Reddy,

IPCA and Torrent


Pharma Sector

4

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Pharma Sector

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Pharma Sector

6

Domestic Formulations

Domestic Formulations: Taking a breather

Performance of Top Pharma companies

Company specific issues - What management

has to say?

Pharma Industry : Recent Trends


Pharma Sector

7

Source: AIOCD AWACS, Emkay Research

IPM growth showing downward trend in the recent months

Therapy-wise growth trend

FY10 Q-Mar'11 Q-Jun'11

Chronic 19.2 16.0 16.4

Acute 14.9 12.9 12.2

Overall 16.2 13.9 13.5

Source:Company, Emkay Research

Slowdown in growth is visible across the Chronic and Acute categories even though the

reasons are different for both the categories.

In Acute segment, the therapies which are more commoditized in nature have seen

increased competition and price pressures, whereas in Chronic segment, it has been

more due to macro economic factors. In the last 2 years everybody has increased its MR

strength and as a result, there is an increase in competition which is now taking its toll.

MNC pharma companies are expanding very aggressively in India and have very high

aspirations for their Indian businesses. They are rapidly expanding their field force to

extend their geographical reach. MNCs which have strong foothold in acute therapies, are

now aggressively moving into chronic therapies. In some of the products which are not

core to their business, they are entering with extremely competitive pricing versus Indian

companies. All these factors together with weak macro economic outlook is adding to the

slowdown in growth.

Domestic Formulations: Taking a breather

Indian pharma market (IPM), which had grown by 16% in 2010 has slowed down to 13.5%

in the first half of 2011. This is as per AIOCD data, which is collected from secondary

sources. However, if we see the performance of most of the pharma companies in the

domestic space in the first half of 2011, then everybody has shown considerable decline

growth. Primary data shows that the decline is much steeper.

Most of the pharma

companies have

shown considerable

decline in growth in first

half of 2011

Acute segment - The

therapies which are more

commoditized in nature

have seen increased

competition and price

pressures, whereas in

Chronic segment, it was

more due to macro

economic factors

14.9 14.2 15.0

10.4

16.214.5 13.9 13.5

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2006 2007 2008 2009 2010 MAT

Jul'11

Q - Mar'11 Q - Jun'11


Pharma Sector

8

Top 10 categories growth rate

Rs Cr % Share YoY Growth (%)

MAT' Jul'11 MAT'Jul 11 MAT'Jun 11 Jan'11 Feb'11 Mar' 11 Apr'11 May'11 Jun'11 M-Ju1'11

Anti Diabetic 3358 6% 22.0 21.6 19.3 22.4 25.2 24.2 22.1 17.4

Anti-Infectives 9681 17% 11.3 11.8 9.9 9.3 8.6 9.6 8.0 5.8

Cardiac 6597 12% 18.2 17.1 17.2 17.4 17.6 19.3 17.5 14.6

Derma 2813 5% 13.1 12.7 12.0 11.2 13.2 12.0 11.9 9.2

Gastro intestinal 6563 12% 13.8 12.5 11.7 11.9 12.1 12.8 7.9 5.2

Gynaecological 3538 6% 15.8 12.3 13.2 11.8 9.6 10.8 8.5 10.6

Neuro / CNS 3463 6% 14.2 14.3 13.3 12.3 13.6 14.8 12.1 9.5

Pain / Analgesics 4488 8% 14.1 19.8 11.1 6.7 10.9 13.6 12.2 7.6

Respiratory 4469 8% 11.4 14.7 10.2 12.7 12.2 13.8 7.6 6.3

Vitamins / Minerals 4678 8% 13.9 13.7 12.3 10.2 12.1 13.1 12.4 11.5

Total 56483 14.5 14.7 13.0 12.4 12.8 14.3 12.1 9.6


If we evaluate the performance of the Indian pharma companies w.r.t different therapies,

then anti-infective, pain, gynecology and gastro, show visible slowdown in growth. Anti-

infective, pain and gastro which together contribute ~1/3rd of the total pharma market, are

witnessing lot of competition from un-listed Indian companies such as Mankind. MNCs,

which have strong hold in these categories, are now moving aggressively towards chronic

therapies, due to superior growth rate and higher entry barriers associated with this

category.

Anti-infective, pain,

gynecology and gastro

show visible slowdown

in growth


Pharma Sector

9

15%

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Cipla

Cadila

Ranbaxy

Sun

Glenmark

Lupin

Dr. Reddy

Ipca

Torrent

GSK

Aventis

Pfizer

Astra

Mankind

Q4FY11 Q1FY12

Grow th in Q4'11 & Q1'12

YoY Grow th %

Performance of top pharma companies

Source: Emkay Research

Performance of top pharma companies

From the corporate performance of Indian Pharma companies in last two quarters, mid &

small cap companies, have been the most impacted.

MNC pharma companies continue to grow in line with industry growth of ~13%, except

Astra which has grown by more than 20%. These MNCs are aggressively investing in

branded generics and moving into newer therapies like CVS, CNS and anti diabetes. In a

bid to increase their presence in some of the branded generics, MNCs have aggressively

priced their products below their Indian counterparts. While this has not significantly

dented market share, it is a precursor to the competitive intensity in the future.

In small and mid cap companies - Unichem, IPCA and Torrent are the ones which have

been impacted the most. And in large cap companies - Dr. Reddys, Ranbaxy & Cipla have

been impacted. For the last 3-4 years barring 2009, most of these companies were

growing above or in-line with the market growth on back of strong macro environment.

Now unfavorable macro enviroment coupled with intense competition from unlisted players

in some therapies of acute segment has made the market even more competitive.


Pharma Sector

10

Cadila

Sales in Q1FY12 were lower as the company pushed inventory

into the market in Q4FY11 (registered YoY growth of 23%) in

order to achieve US$1bn revenue target.

Cipla

Growth was below industry rate as the Acute segment

witnessed intense competition from industry peers during the

quarter. Respiratory segment continues to do well for the

company.

Dr. Reddys

India business which contributed 15%, grew at a lower rate of

6% compared to industry rate of 14% due to ongoing issues of

DCGI on the company's top selling pain brand Nise

(nimusulide).

Glenmark

India revenues grew 20% YoY led by market share gains in key

therapies of anti-infectives, cardiac, respiratory, diabetes and

dermatology & 2 new product launches i.e. Doriglen and Vorth

TP in orthopedic segment. Management has guided for

increased competitive pressures from unlisted players. As a

result, growth going ahead is expected to be in the range of 16-

17%.

Ipca

Lower growth was mainly due to decline in Anti bacterial (down

13%) and Cardiac segment (up 6%). Regrouping of sales rep

and brands and high attrition rate also impacted growth.

Lupin

17% growth was on account of new product launches and

improved performance from the company's chronic portfolio.

Pfizer

Above industry growth was led by volume increase (11% growth)

and price increase (3% growth). Although the anti-infective

segment witnessed 12.5% growth on account of 3 new launches

viz. Getex, Getex Suspension and Cefixime, management has

admitted to increased competition in the anti-infectives and

the Vitamins/ Minerals segment.

Ranbaxy

India business (contributed 20%) grew below industry rate at

6% YoY, mainly led by anti-infective and gastro segment, which

witnessed lower traction due to increased competition from its

peers.

Sun Pharma

Domestic branded formulations grew 12% YoY due to

discontinuation of third party sales and netting of VAT. Adjusting

for third-party sales, domestic revenues grew by 18% YoY.

Torrent

The chronic portfolio, which contributes 60% of domestic

portfolio reported strong growth of 17-18% during Q1FY12.

However, acute therapy almost remained flat due to increased

competition mainly in anti-infective and pain segments.

Unichem

Unichem has initiated inventory rationalization at the distributor

level in order to improve internal processes and reduce inventory

by 21-30 days. This has led to 5% YoY decline in domestic

formulation revenues in Q1FY12. Among the company's top 10

brands, 6 brands reported negative YoY growth. Management

admits to increased competitive pressures from local as well

as MNC players.

Company specific issues - What management has to say?


Pharma Sector

11

Key trends

Sun - Merck JV

Sun and Merck have formed a JV to develop, manufacture and

commercialize new combinations and formulations of

innovative, branded generics in the Emerging Markets. The

partnership will use Sun Pharma Advanced Research

Company Ltd's proprietary platform technologies, and Sun

Pharma's world-class manufacturing network. Merck will use

its clinical development and registration expertise to

commercialize the products. Under the JV, Sitagliptin and

Sitagliptin + Metformin have already been commercialized in

the Indian markets.

Lupin -Lilly

Eli Lilly India and Lupin have entered into a strategic

collaboration to promote and distribute Lilly's Huminsulin

range of products. Lupin will promote and distribute the range

of products in India and Nepal and will double the number of

sales representatives behind the diabetes care product.

Cadila - Bayer JV

Cadila and Bayer have formed a JV to distribute medicine in

the Indian market. About 600 employees from both companies

will work for the venture. The venture will sell brands from

both companies, such as Bayer's blood thinner Xarelto and

Cadila's Euglim for diabetes

Biocon - Pfizer

Biocon and Pfizer have entered into a strategic collaboration

to commercialize Biocon's bio-similar version of Insulin and

Insulin analogue products such as recombinant human

insulin, Glargine, Aspart and Lispro. Pfizer will have the

exclusive rights to commercialize these products globally

including co-exclusive rights with Biocon in Germany, India

and Malayasia.

Universal Medicines- Aventis

Sanofi Aventis has acquired Universal Medicines for over

US$100mn. This acquisition is in-line with Sanofi-Aventis

global strategy to expand its foot-print in the Emerging Markets.

Universal Medicare manufactures markets and distributes

branded nutraceutical formulations in India, including its

popular cod liver oil capsules. This will help Sanofi to boost

its over-the-counter business in India.

Pharma Industry : Recent trends


Increase in

MR strengthStrategic tie-ups

Geographical

expansion

Shifting disease

profile

Acquisition by

MNCs

All companies, including

MNCs, have increased

their field force in the

last one year

Indian companies are

entering in to strategic

tie-ups with MNCs to

strengthen their product

portfolio

Expanding their

presence in rural

markets (67% of the

total population)

Increasing prosperity &

changing lifestyle -

propelling higher growth

in the chronic segment

Acquisitions by MNCs to

gain quick foothold in

the fastest growing

Indian pharma market


Pharma Sector

12

Key Factors driving

the slowdown

Weakening macro factors

Increase in competition

nnnnn MNC's getting aggressive

nnnnn Competition from unlisted players

nnnnn Pricing pressure in anti-infectives

National List of Essential Medicines - Future impact

analysis


Pharma Sector

13

9.8% 9.5%

7.6%

7.4%7.2%

8.9%12.6%14.9%

14.2%

15.0%

10.4%

16.2%

6.0%

7.0%

8.0%

9.0%

10.0%

2006 2007 2008 2009 2010 2011 *

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

GDP Gr % (LHS) IPM Gr % (RHS)

* Project numbers based on historic GDP average and Emkay Economics

Rise in disposable income and favorable income demographies are the major catalyst

responsible for the growth of the Indian pharma industry. Within this, increase in disposable

income is a larger contributor (approx. 40%). However, with rise in interest rate scenario,

the Indian economy is slowing down and is expected to grow by 7.6% during 2011 as

compared to 8.9% in 2010. Home loan EMIs are going up, salary growth has slowed

down; as a consequence, the disposable income has also got impacted resulting in

slowing the pace of the Indian pharma industry. According to Mckinsey report on Indian

Pharma, rise in disposable income and upward shift in income demographies account

for 40% of the Indian pharma market growth, as depicted below.

IPM has a strong correlation with India GDP growth

With rising interest rate,

the Indian economy is

slowing down, resulting in

slower growth in Indian

pharma also

IPM growth largely driven by rise in income levels

Source: Mckinsey Report on Indian Pharma

With increase in interest rate, the capital expenditure for new medical infrastructure will

also slow down as it is a capital intensive segment. Growth in insurance penetration will

also slow down resulting in overall slow down in the growth of Indian Pharma.

Rise in interest rates have

impacted disposable

income, which is the largest

growth driver of the Indian

pharma industry

Weakening macro factors impacting Indian pharma growth

15%

10%

15%

20%

40%

Others Increase in prevalence Insurance penetration

Medical Infrastructure Income Grow th


Pharma Sector

14

10%

25%14% 11% 18%

17%10%

15%20% 18%

14%

16%

20%8% 15%

15%

14%

17%

15%12%

0

5000

10000

15000

20000

25000

30000

Cipla Ipca Cadila Ranbaxy Lupin Torrent GSK Sun DRL Glen

FY10 FY11

Dom

estic

Sale

s

28

7

1916 16

8

19

24

12

8

Grow th in domestic revenues in %Domestic Revenues in Rs bn

During the past 2 years, most of the Indian pharma companies have resorted to strong

addition of MRs in order to give a boost to its domestic business. For e.g. Ipca Labs has

added around 1,800 MRs to its force taking the total to 5,000 MRs, which is one of the

highest in the industry. As a result, its domestic formulation business grew by 21% CAGR

over FY09-11 to Rs7bn. Similarly, Cadila added around 1,550 MRs to its field force taking

the total to 4,500 MRs by end of FY11, resulting in its domestic formulations business

growing by 17% CAGR to Rs22bn. In contrast, dispite a meagre addition of just 200 MRs

(taking its field force to 2,700) in last 2 years buy Sun pharma, its domestic formulation

business has grown by 16% CAGR to Rs24bn.

Going ahead, we believe all the domestic companies who have strengthed the field force

to spurt up the growth will eventually witness a slowdown in domestic growth rates. In

order to sustain higher growth rates of 15-16%, companies will have to increasingly focus

on improving MR productivity by expanding to new therapies, newer markets and new

launches. Companies like Sun pharma and Lupin with strong brand equity are likely to

outperform.

Increase in competition has led to ramp-up of sales force

Some of the initiatives adopted by the Indian pharma companies in the domestic business –

Pfizer

The company has launched two new

divisions CNS and Diabetes and has

added 300 people across two

divisions. The company plans to launch

insulin products from Biocon’s portfolio

in the next quarter. This will help the

company focus on branded generics

and fill portfolio gaps.

Ranbaxy

The company launched Project Viraat

in order to ramp up its presence across

the country, especially in rural areas.

This included introduction of new

products, increasing its field force and

targeting more than 350,000 doctors.

Pharma companies have ramped up their field force...

8% 38% 36% 56% 26% 24% 4% 4% 5% 11%

21%

14%13% 12% 47%

7%23% 4% 32%

10%

0

1500

3000

4500

6000

7500

Cipla Ipca Cadila Ranbaxy Lupin Torrent GSK Sun DRL Glen

FY10 FY11

4.8

1

. 4

.4

.

32

6 8 43

Sale

s F

orc

ce N

um

bers

Marketing Representatives Grow th

Rates in %

Sales per MR

in numbers (at top of bar)

...leading to pharma companies clocking good growth


Pharma Sector

15

5% 13% 18%

56%

95% 87% 82%

44%

0%

20%

40%

60%

80%

100%

GSK Pfizer Novartis Aventis

Chronic % Acute %

MNC pharma companies continue to growing in line with industry growth of ~13% except

AstraZeneca which has grown by more than 20%. Major chunk of the portfolio of these

MNCs is from acute category. In acute category, they are able to withstand the competition

because of their superior brand strength. Going forward, competition will hot-up even in

chronic category as these MNC’s are now increasingly focussing on chronic therapies.

MNC Pharma - Currently focussed on acute therapy

MNC pharma companies continue to grow in line with industry growth of ~13%, except

Astra which has grown by more than 20%. These MNCs are aggressively investing in

branded generics and moving into newer therapies like CVS, CNS and anti diabetes. In a

bid to increase their presence in some of the branded generics, MNCs have aggressively

priced their products below their Indian counterparts. While this has not significantly

dented market share, it is a precursor to the competitive intensity in the future.

GSK

GSK derives its strength from anti-infective, dermatology, pain

& vaccines segments. GSK is the leader in the vaccine

segment in India with an effective market share of ~20%. GSK's

strategy has been to create portfolio of high value products.

GSK has 4 business verticals namely, Vaccines, Specialties,

Mass specialties and Mass markets. Glaxo Plc, the parent

company, has outlined one of the most aggressive growth

plans for emerging markets, with India being one of the key

markets. The acute segment (contributes 95% of the domestic

sales) is growing by 12% and the chronic segment (5% of

domestic sales) is growing by 12%. GSK has launched 2

patented products from its parent's portfolio i.e. Revolade (drug

for low platelets) and Votrient (metastatic renal cell carcinoma)

in the oncology segment. Earlier, GSK had successfully

launched an Onco product Tykerb in India in May 2008.

According to the management, within the first year of its launch

it self Tykerb has clocked revenue of Rs70-80mn according to

the management and is expected to gain.

Pfizer

Pfizer's current portfolio derives strength from Respiratory, Anti-

infective and Vitamins/ Minerals segment. The acute segment

(contributes 87% of the domestic sales) is growing by 20%

and the chronic segment (13% of domestic sales) is growing

by 25%. With a view to improve focus on chronic therapy, Pfizer

has recently launched two new divisions - CNS and Diabetes

and has added 300 people across these divisions. The

company will also be launching insulin products from Biocon's

portfolio in FY12. This will help the company focus on branded

generics and fill the gaps in its portfolio. The company's six

key brands are in the list of top 100 in the industry. Becosules

and Corex are ranked # 1 in their respective therapeutic

segments.

MNCs getting aggressive



Pharma Sector

16

Exhibit 5: MNCs are adopting aggressive pricing strategies in many of the new products

Indian Company Brands

MNC Molecules Therapy Brand Name Pricing Company Brand Name Pricing Pack

GSK Atorvastatin Cardio Lilo Rs43 Ranbaxy Storvas Rs180 10 tablets

10 tablets Intas Lipicor Rs125 10 tablets

Dr. Reddys Atocor R Rs110 10 tablets

Cipla Atorlip - 5 Rs157 10 tablets

Pfizer Rabeprazole Gastro Above 5 Rs24 Intas Raium Plus Rs55 15 tablets

7 tablets Cipla Rabicip - 10 Rs64 15 tablets

Dr. Reddys RZ 20 Rs70 10 tablets

Sanofi Metoprolol Cardio Sitelol Rs30 Cipla Metolar-XR Rs39 10 tablets

10 Capsules USV Metzok Rs30 10 tablets

Sun Pharma ProlometXR Rs40 10 tablets

Lupin Topol XL Rs40 10 tablets

Source: CIMS, Emkay Research


Pharma Sector

17

New products launched by MNCs during the last 1 year

New Launches Sales (Rs Cr)

COMPANY BRAND Therapy MAT July 11

GSK Rosutec Hormones 1.80

(17 pdts) Calpol T Pain 1.53

Ansolar SPF Onco 1.28

Lilo 0.67

Modvate 3 Derma - antibiotics 0.43

Modvate AF Derma - antibiotics 0.22

Metlead Anti-diabetic 0.04

Total 5.98

PFIZER LTD Jetex Hormones 1.34

(29 pdts) Dolonat Derma 1.12

My Pal 0.99

Debrit 0.36

Vicon Iron supplements 0.32

Cytosar Onco 0.23

Maxtorin Hormones 0.21

Prostin VR Hormones 0.16

Atubri 0.12

Tuvace 0.12

Levefree 0.11

IMEDIAB M Anti-diebetics 0.10

Aivo 0.08

Imediab Anti-diebetics 0.07

Bidiab Anti-diebetics 0.04

Felban AL Hormones 0.02

Total 5.42

SANOFI-AVENTIS Solian 1.94

(18 pdts) Rejusite AI 0.59

Telsite h CVS 0.55

Multaq GI 0.52

Cardace Protect CVS 0.42

Amaryl P Anti-diabetic 0.41

Sitelol 0.18

Sofrahext 0.14

Sitestat F 0.11

Vitahext Vitamins 0.07

Menomune Onco 0.06

Fasturtec Onco 0.05

Sitelol am CVS 0.03

Cetapin V Anti-diebetics 0.02

Shanchol AI 0.02

Total 5.11

NOVARTIS Pactel CNS 2.05

(16 pdts) Aclasta Onco 0.86

Onbrez Breezhaler 0.85

Tacsant AI 0.11

Macalvit New Vitamins 0.09

Vingose 0.08

Afinitor Onco 0.05

Tminic Cold 0.03

Sacsecure 0.03

Calc(i)ayur 0.02

Certican 0.02

Calc(c)ayur 0.02

Total 4.20



Pharma Sector

18

6754 50

0

10

20

30

40

50

60

70

80

90

Augmentin-GSK Clavam-Alkem Moxikind-Mankind

25% premium

34% premium

8670

54 53 50

0

10

20

30

40

50

60

70

80

90

Mox-

Ranbaxy

Novamox-

Cipla

Moxydil-

Solvay

Lupimox-

Lupin

Glamoxin-

GSK

24% premium73% premium

Top Brands Company Year of Therapy Market MAT YoY

MAT Jul 2011 Launch Share (%) ‘Jul 11 Gr. %

Corex Pfizer 1993 Respiratory 0.5 210 -0.2

Human Mixtard Novo Nordisk 1994 Anti-Diabetic 0.4 196 10.4

Monocef Aristo Pharma 2001 Anti-Infective 0.3 187 11.9

Voveron Novartis 1986 Pain 0.4 185 5.5

Augmentin GSK 1992 Anti-Infective 0.4 177 6.1

Revital Ranbaxy 1989 Vitamins 0.4 151 10.5

Taxim - O Alkem 1998 Anti-Infective 0.3 150 17.7

Taxim Alkem 1990 Anti-Infective 0.3 149 11.2

Dexorange Franco Indian 1990 Vitamins 0.3 143 9.0

Betadine Win Medicare 1990 Derma 0.3 142 10.7

Asthalin Cipla 1993 Respiratory 0.3 142 11.5

Storvas Ranbaxy-Stancare 1999 Cardiac 0.2 138 7.6

Calpol GSK 1995 Pain 0.2 137 6.8

Phensydyl Cough Piramal 1996 Respiratory 0.4 134 -25.8

Zifi FDC 1999 Anti-Infective 0.3 134 6.2

Liv - 52 Himalaya 1989 Gastro 0.3 123 22.4

Becosules Pfizer 1989 Vitamins 0.3 119 13.4

Zinetac GSK 1986 Gastro 0.2 117 5.3

Mox Ranbaxy 1997 Anti-Infective 0.3 115 -2.1

Source: AIOCD, Emkay Research

Growth in Anti-Infective segment has slowed down during the past 2 quarters due to

increase in competition and pricing pressure both from local peers as well as MNCs.

Competition in the top 20 brands in Indian Pharma market is also increasing with average

growth slowing down to single digit.

Most of the products, which feature in the top 20 list belong to acute therapy. Companies

like Mankind are increasingly targeting these products and launching cheaper alternatives.

Not only Mankind Pharma but even MNCs have been launching many drugs at considerably

lower prices.


Pricing pressure in Ranbaxy's Mox (Anti-Infective) -250mg

15 strip capsules

Pricing pressure in GSK's Augmentin (Anti-Infective) -

Amoxcillin + Clavulanic Acid combination

Pricing pressure on top brands


Pharma Sector

19

218

159122

0

50

100

150

200

250

Insuman Rapid-

Sanofi

Human Mixtard Insugen-Biocon

37% premium

79% premium

70 64

45 40

0

20

40

60

80

Phensedyl-

Abbott

Corex Ascoril-

Glenmark

Codocuf-

Zydus

9% premium74% premium


Pricing pressure in NovoNordisk's Human Mixtrad

(Anti-Diabetic) - 70:30 Isophane/ Soluble Insulin

Pricing pressure in Abbotts Phaensedyl & Pfizer's Corex

Syrup - 100ml SYR

Doctor Visit – Key Notables

We visited set of doctors who are providing services in big hospitals in Mumbai and also had their private practice.

During our visit to some of the General Practitioners in Mumbai, we found that for most of the infections and general illness, they

was prescribing Mankind medicines. E.g. most of anti-infective prescribed belonged to penicillin’s and cephalosporin’s category.

During our interaction, we understood that Mankind gives superior incentives for each prescription written by the doctor. If the

patients case is very serious, then higher class of anti-infectives i.e. Penem’s were prescribed by the doctors and that too only

MNC brands. The reason cited was – MNC

brands are original research molecules and so

doctors comfort level is usually higher when

prescribing these medicines.

The line of treatment action begins with

prescribing penicillin’s and cephalosporin’s

(Mankind is the preferred company in the anti-

infective space) and higher treatment uses

penem’s where MNC drugs are preferred.


Pharma Sector

20

Rs Cr YoY Growth % MAT’Jun 11 Gr. Contributors

Groups MAT’ % MAT’ Sept’ 10 Dec’ 10 Mar’11 Jun’11 Vol Price NPJun11 Share Jun11 GR GR GR

Systemic Antibacterials 8,596 91% 11.7 13.0 12.9 10.4 8.2 6.6 0.3 4.8

Cephalosporins 4,191 44% 14.2 19.4 14.6 11.5 10.3 8.8 -0.5 5.9

Broad spectrum penicillins 1,618 17% 9.5 14.4 5.1 9.2 9.4 6.5 -0.8 3.8

Macrolides and similar types 1,092 12% 14.6 20.0 9.9 14.2 14.8 10.0 0.5 4.2

Fluoroquinolones 1,070 11% 4.3 8.6 4.3 5.9 -2.5 -1.2 1.9 3.6

Tetracyclines and combinations 123 1% 9.7 14.0 11.8 7.4 5.1 -2.0 2.8 9

Others 502 5% - -26.3 71.1 6.8 -0.5 - - -

Anti - fungals 237 3% 23.3 15.5 16.6 38.0 27.0 18.8 -2 6.4

Antimyco - bacterials 395 4% 10.5 12.7 6.7 11.6 11.0 8.7 1.2 0.6

Anti - virals 211 2% 19.1 13.8 15.6 25.2 21.9 8.7 0.2 10.2

Total Sales 9,428 100% 12.0 13.0 12.8 11.3 9.1 6.7 0.5 4.8

Anti-infective category – therapy bifurcation

Growth in anti-infective category is mainly coming from volume growth and new product

launches. Failure to launch new products will make it difficult for the companies to match

the industry growth. Cephalosporins which contribute ~ 44% to the Anti-Infective category

was impacted most.

Reasons for the slowdown in Anti Infective category are

n Weather patterns – Heat wave was not that strong in North

n Decline in API prices of Cephalosporins due to dumping in China

n Pricing pressure due to Increase in competition

n Lower success rate of new product launches

Top Companies in the Anti-Infective Category (Rs bn)

Rs bn YoY Gr. (%)

Anti-Infective MAT’Jun 11 MAT’Jun 11 Nov’10 Dec’10 Jan’11 Feb’11 Mar’11 Apr’11 May’11 Jun’11

Ranbaxy 8.6 13.0 11.7 13.7 25.1 16.8 19.2 25.9 21.3 14.7

Alkem 8.4 20.2 20.4 10.6 13.2 9.9 14.8 13.0 14.9 16.2

GSK Pharma 6.6 10.0 7.0 4.9 10.0 13.9 8.5 12.7 14.9 10.4

Cipla 6.4 8.3 15.7 0.1 3.2 2.2 5.2 -0.7 -7.6 -3.8

Mankind 5.4 22.2 27.3 21.4 24.8 19.4 13.2 14.2 17.0 9.2

Lupin 3.1 7.8 5.9 4.8 5.9 5.9 6.4 -0.3 3.5 -4.2

Glenmark 1.5 10.5 6.8 4.3 9.0 15.1 -2.6 -0.8 11.8 1.1

Zydus Cadila 1.2 -6.5 1.2 -7.4 -13.7 -18.4 -15.8 -2.5 -7.0 -8.9

Dr. Reddys 1.1 6.7 7.4 8.3 21.3 9.9 6.2 -7.3 -1.6 -6.7

Total AI 96.3 12.0 11.6 9.0 11.8 9.9 9.3 8.6 9.6 8.0

Most of the companies in Anti infective category barring Ranbaxy have been erratic in their

growth. Ranbaxy, the largest company in category, grew in line with the industry, on the

back of higher volumes (driven by increse in field force and new launches). Industry

growth is mainly driven by unlisted players like Mankind and Alkem - evident from top 10

brand performance in this catagory.




Pharma Sector

21

Top brands in anti-infective in Rs bn

Brand Company Name MAT Value MAT Value YoY Gr. YTD YTD YoY Gr.June 11 June 10 (%) June 11 June 10 (%)

Monocef Aristo Pharma 1.9 1.6 15.5 0.5 0.4 7.6

Augmentin GSK 1.8 1.7 5.4 0.4 0.4 11.4

Taxim O Alkem Lab 1.5 1.2 19.2 0.4 0.3 18.1

Taxim Alkem Lab 1.5 1.3 12.5 0.4 0.3 1.9

Zifi FDC 1.3 1.3 6.2 0.3 0.3 4.5

Clavam Alkem Lab 1.2 1.0 24.9 0.3 0.2 29.5

Mox Ranbaxy Lab 1.2 1.2 -0.3 0.2 0.2 -4.7

Mikacin Aristo Pharma 1.1 1.0 10.9 0.3 0.3 -7.3

Ceftum GSK 1.0 1.0 9.5 0.3 0.2 12.8

Moxikind CV Mankind Pharma 1.0 0.8 20.9 0.2 0.2 20.5

Total 96.3 85.9 12.0 22.3 20.3 9.7

Top brands of Mankind – Strategic pricing has led to intense competition

Other Indian Company Brands

Brand Therapy Pricing Company Brand Name Pricing Pack

Moxikind CV Anti-Infective Rs114 Ranbaxy Moxclav Rs403 10 tablets

6 tablets Aristo Mega CV Rs99 6 tablets

Cipla Novaclav Rs240 6 tablets

Abbott Nuclav Duo Rs206 6 tablets

Bandy Plus Anti Parasitic Rs6 Zydus Biwom Rs11 1 tablet

1 tablet Lupin Lupibend Rs12 1 tablet

Ipca Nemozole Rs12 1 tablet

Dr. Reddy’s Rediout Rs35 5 tablets

Unwanted Kit Gynaec Rs335 Cipla MT Pill Rs331 1 tablet

1 tablet Zydus Mifegest Rs370 10 tablets

FDC Undo Rs367 3 tablets

Nurokind Plus Vitamins Rs36 Lupin Matilda Forte Rs103 10 Capsules

6 Capsules Zuventus Mecovon Rs90 10 Capsules

Manforce Stimulants Rs142 Ranbaxy Caverta Rs173 4 tablets

4 tablets Lupin Enthusia Rs108 4 tablets

Zydus Penegra Rs124 4 tablets

Cipla Progra Rs108 4 tablets

Mankind has been pricing its products at relatively lower rates as compared to other

pharma companies in India. Mankind is particularly strong in commoditized therapies

such as the anti-infectives, gynaecology and gastro which together contribute more than

50% of the domestic revenues.

Mankind Pharma - Therapy-wise Revenue breakup

Rs bn FY11 MAT MAT YoY% Contr. Jul’11 Jul’10 Gr.

Anti-infectives 29.0% 5.4 4.5 19.4%

Gastro 13.1% 2.4 2.0 23.3%

Gynaecology 10.2% 1.9 1.4 30.8%

Vitamins 7.8% 1.4 1.1 26.9%

Stimulants 6.9% 1.3 1.1 15.6%

CVS 5.8% 1.1 0.8 28.4%

Pain 5.0% 0.9 0.8 17.8%

Anti-Diabetic 3.3% 0.6 0.4 37.5%

CNS 2.8% 0.5 0.4 22.2%

Others 99.2% 18.4 14.6 25.7%

Acute 86.4% 16.0 12.8 24.7%

Chronic 13.6% 2.5 1.9 32.0%

Total Sales 100.0% 18.5 14.7 25.7%



Pharma Sector

22

National List of Essential Medicines

What is NLEM?

Essential medicines are those that satisfy the priority healthcare needs of majority of the

population. The essential medicines list needs to be country specific addressing the

disease burden of the nation and the commonly used medicines at primary, secondary

and tertiary healthcare levels.

The medicines in National List of Essential Medicines (NLEM) should be available at

affordable costs and with assured quality. The medicines used in the various national

health programs, emerging and re-emerging infections should be addressed in the list.

The Government of India, Ministry of Health & Family Welfare (MOHFW) is mandated to

ensure quality healthcare by assuring availability of safe and efficacious medicines for

its population.

In a move that could bring more than half the country’s Rs 65,000-crore medicine market

under price control, the health ministry plans to enlarge the scope and size of the

National List of Essential Medicines (NLEM).

Following a Supreme Court directive to include all NLEM drugs under price control, the

central government is working out a new policy incorporating such changes. While the

current NLEM list, prepared in 2003, does not have too many drugs to be included in the

price control list, the revision will bring about a significant change.

According to rough estimate, the government currently controls the prices of about 20

per cent of the domestic drug market. The span of price control will go up to 35 per cent

once the drugs mentioned in the current NLEM gets included.

Main features of NLEM 2011

The medicines have been categorized according to therapeutic area. Therefore, it is

possible that a medicine with more than one indication appears in more than one

category.The issue of mentioning the strength of the medicine dose was deliberated. The

committee took the considered view that the strength should be mentioned in the NLEM.

For essentiality of requirement the medicines have been categorized as follows:

- P, S and T denote essentiality at Primary, Secondary and Tertiary levels respectively

while P, S, T (U in NLEM 2003) indicates essentiality at all the levels.

A total of 348 medicines (excluding repetitions) are present in NLEM 2011.

In the NLEM 2011, 181 medicines fall under the category of P, S and T, 106 medicines fall

under the category of S, T while 61 medicines are categorized as T only.

In comparison to NLEM 2003, number of medicines deleted is 47 and 43 medicines

have been added


Pharma Sector

23

Medicines Cadila Cipla Dr. Reddy Glenmark Ipca Lupin Ranbaxy Sun Torrent Unichem GSK

Amoxicillin+Clavulinic Acid ü ü ü ü ü ü

Atorvastatin ü ü ü

Betamethasone ü ü ü

Carboplatin ü

Cefixime ü ü ü ü ü ü ü

Cetrizen

Chlorambucil ü

Clindamycin

Clopidogrel ü ü ü ü ü

Decarbazine

Daunorubicin ü ü

Diazepam ü ü ü ü

Enoxaparin ü

Famotidine ü ü

Fentanyl

Filgrastim ü

Hydroxychloroquine phosphate ü ü

Ifosfamide ü

Imatinib ü

Ipratropium bromide ü ü

Leflunomide ü ü ü

Lorazepam ü ü ü

Mefloquine ü ü ü

Mesna ü

Misoprostol ü ü ü

N-acetylysteine

Olanzapine ü ü ü ü ü ü

Oxaliplatin ü ü ü

Pantaprazole ü ü ü ü ü

Permethrin

Piperazine ü

Premix Insulin 30/70 Inj

Propofol

Stavudine+Lamivudine

Tramadol ü ü ü ü

Vecuronium ü

Zidovudine+Lamivudine ü ü ü ü

+Nevirapine

Total 15 14 6 4 2 10 5 7 6 4 6

Recently 43 new medicines added to NLEM List



Pharma Sector

24

NLEM Impact Analysis

Category: Oncology

Medicines Added: Imatinib mesylate

Companies Impacted:

The medicines that would be enlisted in the revised NLEM include costly blood cancer

drug, imatinib mesylate, sold by Swiss multinational Novartis under the brand name

Glivec. Other medicines in the list are carboplatin, daunorubicin, filgrastim, ifosfamide,

mesna, oxaliplatin and clorambucil, manufactured by leading companies such as Bristol

Myers Squibb, GlaxoSmithKline, Amgen, Dr Reddys, Intas and Sun Pharma. All the cancer

medicines in the current NLEM list, which was prepared in 2003, have been retained

Category: Anti-Infective

Medicines Added: Amoxicillin + Clavulanic Acid and Cefixime

Companies Impacted:

Amoxicillin + Clavulanic Acid – Augmentin, Clavam and Moxikind are the top 10 brands

in the anti-infective category. These brands are owned by GSK, Alkem and Mankind Pharma

respectively. These 3 brands collectively contribute ~30% of the top 10 brand sales and

~4% to the anti-infective category.

Cefixime – Companies impacted are Alkem (Brand – Taxim) and FDC (Brand – Zifi) which

contribute ~32% to the top 10 brands and ~4% to the anti-infective category.

Category: Cardiovascular

Medicines Added: Atorvastatin

Companies Impacted:

Atorvastatin – Atorva and Strovas are the two brands owned by Cadila and Ranbaxy

Labs. These 2 brands contribute 3% to the Indian pharma CVS category and 27% of the

top 10 brands in the category.

Category: Hormones

Medicines Added: Betamethasone

Companies Impacted: GSK Pharma

Betnesol - N – This is a GSK Pharma product which, falls in the top 10 brands in the

Hormones category. It contributes 9% to the IPM and 16% to the top 10 category.

Category: CVS

Medicines Added: Enoxaparin

Companies Impacted: Lupin

Lupenox – Among our coverage companies, Lupin is the only company having a drug in

this category. Other notable companies are Sanofi Aventis and Biocon.

Category: Gastrointestinal

Medicines Added: Famotidine

Companies Impacted:

Most of the top Indian companies like Alkem, Sun Pharma, Cadila and Torrent Pharma

have an established presence in the gastro segment.


Pharma Sector

25

Impact of challanges

Indian Pharma growth slowing down

4 Step Stress Test

Revision of estimates for domestic growth

Significance of domestic business - Cash Cow

Conclusion and Recommendation


Pharma Sector

26

As discussed earlier, the following factors have been responsible for the slowdown in

IPM-

n Weakening macro factors affecting the growth

n Increasing competition

n MNCs getting aggressive

n Pricing pressures

Indian pharma growth slowing down


Indian Pharma (IPM) Growth Slowing Down

~ -3 %

~ 16.2 %

~ 13%

2010 2011

Growth Forecast

in %

Others

15

40

20

15

10

Increased Competition

Macro factors

Pricing Pressure

MNCs more aggressive

Pessimistic Scenario

Base Case Optimistic Scenario

2011

CAGR 11%

CAGR 15%

2010

5358.5

59.5

60.6

CAGR 13%

Rs bn

Revenue Forecast

Scenario Analysis for Indian Pharma - 2011



Pharma Sector

27


Segmentation of different therapies by way of prescriptions

IPM OTC/ Brands GP’s Specialties

% Contribution

Anti-Infectives

Cardiac

Gastro

Respiratory

Pain

Anti-Diabetic

Vitamins

CNS

Others

Total Contribution 10.0% 45.0% 45.0%

Current Growth Scenario 13.5% 10.0% 15-18%

3-5 Years Growth Scenario 15-16% 12-13% 18-20%

Speciality category contributes ~45% of total Indian pharma market. This includes chronic

therapies and also some of the acute therapies like the opthal, hormones, derma, gynaec

and vaccines. This category will grow by 15-18% in the current scenario and has the

potential to grow by 18-20% once the macro factors improve.

General practitioners (GPs) category includes Anti-Infectives, Pain, Gastrointestinal,

Vitamins and others and contributes ~45% of the total Indian pharma market. Pricing

pressure and competition is intense in this category mainly from unlisted players like

Mankind, Intas, Alkem, etc. Hence, relationship with doctors is of utmost importance for

the companies, so that it becomes easier to push newer products into the market. This

category will grow by 10% in current year and has the potential to grow by 12-13% in the

longer run.

Pricing pressure and

competition is intense

in this category

mainly from unlisted

players like Mankind,

Intas, Alkem, etc.

Acute category- Increase

in competition and pricing

pressures have affected

mass catagaries, anti-

infectives and pain

management. However

speciality therapies remain

unaffected

These factors are affecting the therapies in different ways. One of the most preferred and

widely adopted methodologies to categorize the Indian pharma market is to dissect it into

acute and chronic therapies. However, our view point differs from the conventional

methodology as this approach fails to address the problem areas in the industry and to

forecast how companies will perform under challenging times.

In acute category, increase in competition and pricing pressures are affecting the anti-

infective therapy and to some extent pain management. However, other therapies in acute

category like ophthalmology, gynecology, hormones and vaccines which are specialty in

nature are not affected by competition. Hence another way to dissect Indian pharma

industry is how drugs are being prescribed or sold in the market i.e. addressed to GPs,

Specialties and OTCs. This will be more relevant because competitive companies target

drugs that have huge revenue potential and can be sold easily through existing relationship

with doctors. Specialist categories have high entry barriers and hence lower price pressures

compared to GP category.


Pharma Sector

28

Stress-Test on the profile of pharma companies

Till now, we have identified the challenges faced by pharma industry. Now we will do

“4 step stress test” on the profile of different pharma companies.

Our “4 Step Test “ will help us in identifying the companies which will be able to withstand

the competitive and pricing pressures and continue to depict strong growth.

We have devised the following approach –

Step 1: Companies having strong presence in the specialty therapies - less prone to

competition

Step 2: Companies having fewer top products in the GP category - lower pricing pressure

Step 3: Companies having lower dependance on a single therapy - lower concentration

risk

Step 4: Domestic companies having tied-up with MNCs for launching products in the

specialty category - competitive advantage

Step 1: Identifing companies, which have strong presence in specialtytherapies

Going ahead, we expect companies with niche product portfolio and healthy exposure to

specialty therapies to continue to outperform the industry. Speciality category contributes

45% to the total Indian pharma market. This includes chronic categories and some of the

acute therapies like opthal, hormones, derma, gynaec and vaccines. This category will

grow by 15-18% in the current scenario and has the potential to grow by 18-20% once the

macro factors improve. General practitioners (GPs) category includes Anti-Infectives, Pain

and others and contributes ~45% of the total Indian pharma market. Pricing pressure and

competition is intense in this category mainly from unlisted players like Mankind, Intas,

Alkem, etc. This category is growing by 10% in current year and has the potential to grow

by 12-13% in the longer run.

We expect companies

with niche product

portfolio and healthy

exposure to specialty

therapies to continue to

outperform the industry

Source: Emkay Research Graph not to scale

Expected growth in the domestic portfolio for Indian companies

Company

Cadila 11% 41% 49%

Cipla 10 31% 59%

Dr. Reddys Lab 12 44% 44%

Glenmark 14 23% 63%

Torrent 16 23% 61%

GSK 10 45% 45%

Ipca 9% 56% 35%

Unichem 12 38% 53%

Lupin 13 30% 57%

Pfizer 7% 45% 48%

Ranbaxy 9% 29% 62%

Sun Pharma 8% 24% 69%

OTC/ Brands GP's Specialty


Pharma Sector

29

Pfizer, Sun Pharma, Ranbaxy and Glenmark are best placed to capture the opportunity.

These companies have more than 60% of its sales coming from the specialty segment.

The inherent benefits of specialty segment are –

n Higher entry barriers due to requirement of specialized sales personals

n Lower competition

n Good growth prospects in most of the categories

As a result, growth and margins are better in this segment.

Step 2: Identifing the companies having fewer top products fallinginto the GP category

Below we have highlighted the companies whose brands fall into the GP category. The

brands have been selected from the industry’s Top 10 brands in the respective therapeutic

segments. We rate ‘0-3’ scale as favorable and ‘4& Above’ scale as unfavorable for the

company.

In this step, we have identified companies having fewer top 10 brands in the GP category.

It is well known that the top brands in GP category face the maximum competition making

it difficult for them to grow above the market. Companies having more than top 5 brands

falling into the GP category, will be highly susceptible to competition and price pressures.

Number of brands falling in the GP category

0-1 Sun Pharma

Cadila

Cipla

Lupin

Glenmark

2-3 Torrent

GSK

Pfizer

Dr. Reddy’s

4-5 Ipca

Above 5 Ranbaxy

Companies having

more than top 5

brands falling into

the GP category, will

be highly

susceptible to

competition and

price pressures



Pharma Sector

30

Step 3: Concentration Risk

In this step, we have identified the dependence or reliance of pharma companies on a

single therapy. For example, Cipla has a higher concentration in the Respiratory therapy

(6 products in top 10 brands contribute 19% to domestic sales). Ranbaxy has a higher

concentration in the Anti-Infective therapy (5 products in top 10 brands contribute 18% to

domestic sales) and Ipca has a higher concentration in the Anti-Malarial portfolio (5

products in top 10 brands contribute 21% to domestic sales). We believe, such high

dependence on a single therapy is detrimental for the company’s long term growth

prospects.

Company Therapy % contribution to its Top brands

domestic sales

Cipla Respiratory 19% Asthalin

Sereflo

Foracort

Aerocort

Budecort

Duolin

Dr. Reddys Lab Anti-Infective 18% Omez

Omez D

Razo

Clamp

Ipca Anti-Malarial 21% Lariago

HCQS

Rapither AB

Larinate

Lumerax

Ranbaxy Anti-Infective 18% Mox

Cifran

Zanocin

Sporidex

Cilanem

GSK Anti-Infective 24% Augmentin

Zinetac

Ceftum

Phexin

Neosporin

Augmentin Duo



Pharma Sector

31

Step 4: List down the companies who have tied-up with MNCs to launch products in the specialtycategory

Company JV Company Area Comments

Sun Pharma MSD Manufacture & The partnership will use Sun Pharma Advanced Research Company Ltd’s

Commercialize proprietary platform technologies, and Sun Pharma’s world-class manufacturing

formulation in EM’s network. Merck will will use its clinical development and registration expertise to

commercialize the products. Under the JV, Sitagliptin and Sitagliptin + Metformin

have already been commercialized in the Indian markets

Cadila Bayer Distribute medicines About 600 employees from both companies will work for the venture. The

in the Indian Market venture will sell brands from both companies, such as Bayer’s blood thinner

Xarelto and Cadila’s Euglim for diabetes. Bayer HealthCare will contribute its

existing sales and marketing business in India to the venture, while Cadila will

contribute its women’s health, diagnostic-imaging business and other products

Lupin Lilly Distribute Lilly’s Lupin will promote and distribute the range of products in India and Nepal and

Huminsulin range will double the number of sales representatives in the diabetes care product

of products in

India & Nepal

In this step, we have identified domestic companies having tie ups with MNCs and have

access to their expertise & blockbuster drugs. We believe these companies will always

have an edge vis-à-vis competition because of their alliance with the MNCs, which helps

them club their distribution strength with a superior product portfolio. Sun Pharma has a

tie-up with Merck and under this JV, it has already launched Sitagliptin and

Sitagliptin+Metformin combination in the Indian market. Similarly, Lupin has a tie-up with

Lilly to market Humisulin in India and Nepal. Also, Cadila has a tie-up with Bayer in the

areas of women's health, diagnostic-imaging business and other products.



Pharma Sector

32

Rivision of estimates for domestic growth

Our analysis shows that there is a high degree of correlation between macro factors,

economic growth and Indian pharma industry growth. When the pace of economic reforms

and economic growth slows down it impacts the pharma industry growth. Other reason

was every company has increased the strength of MRs in last two years and as a result

there was a spurt of growth last year which is tapering down this year. Impact of slowdown

in growth is more pronounced in mid and small cap companies and the companies

which have more exposure in GP therapies, which is more susceptible to competition.

Competition is increasing from low cost players like Mankind & Alkem labs in the mass

product therapies like anti-infective. MNCs which were focused more on acute categories

till now are increasingly launching products in chronic space & that too at competitive

prices.

Going forward, 2011 will be a subdued year in terms of growth of pharma industry. The

pharma industry will grow by 12%-13% in 2011 which will rebound in 2012 to normal

growth of 14-15%. Accordingly, we have cut down the growth estimates for various

companies which are listed below.

Indian Pharma – Domestic growth expectations

Company FY12 Earlier Estimates % Change

Domestic Gr. Domestic Gr.

Cadila 12% 15% -3%

Cipla 10% 15% -5%

Dr. Reddys Lab 10% 15% -5%

Glenmark 16% 16% 0%

Ipca 10% 17% -7%

Lupin 19% 19% 0%

Ranbaxy 12% 12% 0%

Sun Pharma 15% 18% -3%

Torrent 12% 12% 0%

Unichem 5% 9% -4%

GSK 13% 13% 0%

Pfizer 14% 14% 0%


On the basis of our “4 step stress test” we conclude Sun, Lupin and MNC pharma

companies will outperform the industry, with rest being underperformers.

We have cut down the domestic growth estimates for Cadila, Cipla, Dr. Reddy, IPCA,

Torrent and Unichem for FY12 and FY13 by 2% to 5% and retained the growth estimates

for Lupin, Ranbaxy, Sun, GSK and Pfizer.


Pharma Sector

33

Snapshot of the domestic business

Companies Domestic Domestic Domestic Domestic Domestic Rest of the Total Co.

Revenues revenue as % EBITDA margins EBITDA as % of ROCE business ROCE

to total revenue total EBITDA ROCE

Sun 23801 41.0% 40% 47.9% 60.2% 20.0% 25.0%

Cadila 21068 38.9% 30% 53.3% 55.2% 20.0% 27.8%

Lupin 15509 27.2% 30% 39.1% 54.7% 17.2% 21.1%

Cipla 31639 45.1% 30% 61.9% 44.7% 8.8% 15.0%

Dr. Reddy 12911 13.7% 30% 20.8% 43.8% 32.4% 25.0%

Ranbaxy 17924 20.4% 25% 24.4% 30.1% 17.5% 16.2%

Glenmark 8447 28.7% 25% 35.8% 44.0% 15.5% 19.3%

Ipca 6964 37.0% 25% 48.4% 48.5% 13.9% 18.8%

Torrent 8416 39.0% 25% 47.6% 45.0% 18.5% 21.2%

Unichem 6072 65.1% 24% 92.8% 30.5% 1.6% 14.9%

GSK 21511 100.0% 35% 98.2% 671.9% 3.6% 41.0%

Pfizer 8359 97.4% 20% 90.9% 118.6% 4.3% 17.1%

Source: Company, Emkay Research

Significance of domestic business - Cash Cow

Below we have highlighted the significance of domestic business in terms of -

n Contribution to the overall revenue and growth

n Contribution to the earnings

n Contribution to the return on capital employed

For most of the pharma companies, domestic business contributes in the range of ~20-

50% of the overall revenues. US business contribution stands at ~20-30% and the

remaining comes from RoW markets. Even though domestic business is only 20%-50%

of the overall revenues, its contribution to the base business earnings is higher at 50%-

70%. ROCE of domestic business is much higher at 40%-60% compared to other

businesses which have less than 20% and as a result multiples are mainly driven by

domestic business. Our analysis suggests that any change in the domestic revenue has

an amplified impact on the earnings and multiples of the companies.

Sun has the highest margins and highest ROCE among the domestic companies because

of its focus on specialist therapies and high per MR productivity.

How deceleration in domestic business impacts the earnings andmultiples

Suppose if domestic business contributes 40% of the company's revenue and has 30%

margins compared to the overall margins 20% of the company. If there is a 5% decline in

the domestic growth than there will be 3% decline in the earnings and ROCE, which

directly impacts the multiples.

Companies present in specialty therapies where competition is less and entry barriers

are high and growth is good, command higher multiple compared to the companies who

have higher exposures to the GP categories.


Pharma Sector

34

Comparison with the consensus estimates

Company EPS (Emkay) EPS (BB Consensus)

FY12E FY13E FY12E FY13E

Cadila 36.4 44.8 40.8 50.8

Cipla 14.2 17.8 14.3 17.0

Dr. Reddys Lab 68.6 90.0 81.2 93.1

Glenmark 24.0 23.8 22.1 22.2

Ipca 22.2 28.0 22.7 27.8

Lupin 21.8 25.3 22.0 26.8

Ranbaxy 31.2 40.9 25.5 32.9

Sun Pharma 21.6 27.3 20.5 24.4

Torrent 36.1 44.2 39.0 47.4

Unichem 10.9 13.2 11.2 15.2

GSK 77.5 86.4 76.8 88.3

Pfizer 66.2 78.7 67.1 82.2


Cipla - We have assumed the supply of API for olazapine and escitalopram which was not

in our earlier assumptions.

The highest cut in earnings is in case of Cadila, where we have cut the earnings estimates

by 9% for FY12 and 12%% for FY13. The cut in estimates is mainly due to lower growth in

domestic business, lower traction from the JVs, USFDA issues due to which new approvals

in US will slow down and de-acceleration in consumer OTC business where volume

growth had slowed down to 10%-12% due to weakening macro factors.

In Ipca Labs, cut in growth estimates for domestic business stands highest at 7% resulting

in 4% cut in earnings. This is mainly led by company's high dependence on the anti

malarial and anti infective therapies. These two therapies contribute 31% of the total

revenue and five of the top10 brands come from these therapies.

In case of Dr. Reddy, we have cut the domestic growth estimates by 5% and earnings

estimates by 7%. This is mainly led by controversy related to one of its top brand Nice in

its anti infective therapy due to which there was a decline in this therapy which brought

down the overall growth. We have also changed the estimate for one of its limited

competition product i.e. Fondaparinux due to which earnings downgrade is steeper than

cut in domestic growth estimates.

Company Domestic Gr. Domestic Gr. % Change EPS EPS % Change

New Est. Earlier Est. New Est. Earlier Est. in Earnings

Cadila 12% 15% -3% 36.4 39.9 -9%

Cipla 10% 15% -5% 14.2 14.2 0%

Dr. Reddys Lab 10% 15% -5% 68.6 70.0 -2%

Glenmark 16% 16% 0% 24.0 24.0 0%

Ipca 10% 17% -7% 22.2 23.1 -4%

Lupin 19% 19% 0% 21.8 21.0 4%

Ranbaxy 12% 12% 0% 31.2 31.2 0%

Sun Pharma 15% 18% -3% 21.6 20.0 8%

Torrent 12% 12% 0% 36.1 36.1 0%

Unichem 5% 9% -4% 9.1 11.3 -20%

GSK 13% 13% 0% 77.5 77.5 0%

Pfizer 14% 14% 0% 66.2 66.2 0%


Revise in earnings estimates


Pharma Sector

35

Conclusion

Pharma sector has outperformed the overall sensex for the past two years. This was

mainly due to

n Strong growth in domestic market

n Para IV opportunities in US market.

Today pharma companies have started facing challenges in the domestic market due to

increase in competition from unlisted players and Multi National companies. Going forward

these players will take increased share of the growth in the pharma industry. In US the

para IVs are not cake walks any more. Innovator Multi National companies provides stiff

challenges and number of Para IVs challengers are very high and is some cases as high

as 7-8, which make the opportunity very small. Once the product goes off patent then the

competition hot up so much that very few companies are able to make up the money.

Companies like Cipla, Torrent, IPCA which are mainly focused on Indian markets are

already feeling the heat of competition. The growth rate of these companies in domestic

market has already come down to single digit. As the domestic growth came down the

multiples at which they were trading has also came down.

Going forward this is also evident in Cadila where domestic growth has come down to

single digit and in US market new approvals will slowdown because of US FDA issues.

Cadila also doesn't have any para-IVs in next 1-2 years.

In case of Dr. Reddy and Ranbaxy domestic growth is coming down due to high exposure

to the anti-infective category but strong growth will come from US market due to strong

para-IV pipeline.

Lupin and Sun are the one which are growing robust in the domestic market due to strong

focus on the specialty therapies where competition is comparatively less and growth

rates are better. In US they have strong para-IV and limited competition pipeline which will

sustain the strong growth.

Change in recommendations

Large Cap Mid Cap

Buy - Glenmark, IPCA

Accumulate Sun Pharma, Lupin -

Hold Cadila, Cipla, Dr. Reddy & Ranbaxy Torrent, Unichem


Pharma Sector

36

Companies

Cadila Healthcare

Cipla Ltd

Dr. Reddy's Lab

Glenmark Pharma

GlaxoSmithKline Pharma

Ipca Laboratories Ltd

Lupin Ltd.

Pfizer Ltd

Ranbaxy Labs

Sun Pharma

Torrent Pharma

Unichem Labs

Y/E, Mar Net EBIDTA EBIDTA APAT EPS EPS RoE P/E EV / P/BV

(Rs mn) Sales (Core) (%) (Rs) % chg (%) (x) EBITDA (x)

FY10 36,580 7,798 21.3 4,799 23.4 50.7 37.0 34.4 21.8 6.5

FY11 45,925 9,885 21.5 6,733 32.9 40.3 39.1 24.5 16.9 7.2

FY12E 51,563 11,495 22.3 7,452 36.4 10.7 31.3 22.1 14.5 5.7

FY13E 60,618 13,581 22.4 9,159 44.7 22.9 30.4 18.0 11.9 4.5


Valuation table

EmkayYour success is our success

©

Cadila HealthcareOpportunities galore but visibility low - Downgrade to Hold

Co

mp

an

y U

pd

ate

Emkay Global Financial Services Ltd.

Reco Previous RecoHold Accumulate

CMP Target Price

Rs806 Rs806

EPS change FY12E/13E (%) -9 / -12

Target price change (%) -21

Nifty 4,868

Sensex 16,162

Price Performance

(%) 1M 3M 6M 12M

Absolute (2) (8) 3 27

Rel. to Nifty (2) 0 20 56

Source: Bloomberg

Relative price chart

26 September, 2011

Source: Bloomberg

Stock details

Sector Pharmaceuticals

Bloomberg CDH@IN

Equity Capital (Rs mn) 1024

Face Value (Rs) 5

No of shares o/s (mn) 205

52 Week H/L (Rs) 984/625

Market Cap (Rs bn/USD mn) 165/3,335

Daily Avg Vol (No of shares) 132996

Daily Avg Turnover (US$ mn) 2.4

Shareholding Pattern (%)

Jun-11 Mar-11 Dec-10

Promoters 74.8 74.8 74.8

FII/NRI 5.9 5.5 5.1

Institutions 12.6 13.3 13.8

Private Corp 1.8 1.5 1.4

Public 4.9 4.9 5.1

Source: Capitaline

nnnnn Domestic business - to grow at lower revenue CAGR of 13%

over FY11-13E on account of increased competition and

pricing pressure from local as well as MNC players

nnnnn US business to show down due to US FDA issues, uncertainity

on new launches. Estimate 22% revenue CAGR over FY11-13E

nnnnn Supply agreement with Abbott and JV's with Hospira, Nycomed

& Bayer provide long term visibility

nnnnn With domestic business under pressure and low visibility in

Europe, Brazil and JVs, we downgrade the stock to Hold with a

revised target price of Rs806 (18xFY13 earnings of Rs45)

Domestic business reeling under pressure

n Domestic formulation (contributes 38%) grew by 19% to Rs17bn in FY11 due to

increase in field force by 13% and launch of 10-12 products. With market share of

3.93%, Cadila is the 6th largest players in India and is a leader in Specialty therapies

like the CVS, gastro and gynecology

n However, with increased competition and pricing pressure, domestic business is set

to grow at lower rate of 12% in FY12. We expect FY13 sales to grow by 15% with

improvement in field force productivity and focus on chronic therapies

Hospira JV, Bayer JV and Abbott agreements - long term opportunities

n Cadila has entered into strategic alliance with Abbott to out-license 24 products for

emerging markets, which is further extended by 8 products this quarter. Revenues

from these products are expected to flow in from FY13 onwards

n For the domestic market, Bayer JV is expected to commence the operations from

H2FY12, with a focus on women's healthcare, metabolic disorders, diagnostic imaging,

CVS, oncology and anti diabetic.

n We expect the decline in profit from Protonix for the existing Nycomed JV to be offset by

the profit from the Hospira JV, set up for the manufacturing of oncology Injectables for

Europe & the US. Hospira JV currently has launched 3 products and 3 are in the

pipeline for launch

n Nesher's acquisition to contribute USD30million and is expected to turn profitable

from FY13. With increasing product basket, the company expects to achieve USD100

million in revenues over next 3 years

Valuation

We expect Cadila to report 12% revenue growth in FY12 and 18% growth in FY13. We

expect EBIDTA margins to move from 21.5% in FY11 to 22.3% in FY12 and 22.4% in FY13.

Earnings will grow by 17% CAGR over FY11-13E. We value the company at 18x FY13 EPS

of 45 with a target price of Rs806 and Hold rating. At current price of Rs806, the stock

trades at 22x FY12E EPS of Rs36 and 18X FY13E EPS of 45.

600

675

750

825

900

975

Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11

Rs

0

14

28

42

56

70%

Cadila Healthcare (LHS) Rel to Nifty (RHS)


Pharma Sector

38

Cadila Healthcare


Growth drivers - Volume/ Price/ New launches Top 10 brand performance

Rs Cr Therapy MATJun'10 MATJun'11 YoY Gr.

Aten CNS 85.7 94.0 9.8%

Deriphyllin Resp 69.0 73.2 6.2%

Atorva CVS 59.6 71.8 20.5%

Pantodac Gyn0aec 53.7 67.0 24.8%

Falcigo AM 62.4 66.7 7.0%

Mifegest Kit Gynaec 21.1 57.7 174.0%

Ocid Gastro 56.3 55.6 -1.3%

Primolut N Gynaec 40.0 46.9 17.3%

Amlodac CVS 36.4 42.7 17.2%

Dexona Hormones 37.8 41.9 10.8%

Total 521.8 617.6 18.3%

n Cadila outpaced industry in volume growth & new product

launches during MAT Jun'11

n Top 10 brands contribute 28% to the domestic formulation sales

n Pantodac and Mifegest Kit registered strong growth of 25% and

174% respectively during MAT Jun'11

Cadila’s – Domestic Metrics

Cadila's therapeutic growth Field force productivity

FY11% MAT MAT YoY

Therapies Contribution Jun'11 Jun'10 Gr. %

CVS 18.1% 4.0 3.4 16.6%

Gastro 18.5% 4.1 3.5 18.3%

Respiratory 10.2% 2.3 1.9 20.5%

Gynecology 14.3% 3.2 2.4 29.8%

Anti-Infective 6.0% 1.3 1.4 -4.2%

Pain Mgmt 7.9% 1.8 1.4 25.0%

CNS 3.3% 0.7 0.7 11.1%

Dermatology 2.5% 0.6 0.4 44.1%

Anti diabetic 1.1% 0.2 0.2 4.8%

Others 18.1% 4.0 3.4 19.5%

Acute 67.3% 1493.1 1245.3 19.9%

Chronic 32.7% 725.8 621.7 16.7%

Total 100.0% 22.2 18.7 18.8%

Jul'11 MAT growth for Cadila is 19%

n AI segment which contributes 6% declined by 4%

n Chronic segment which contributes 33% grew by 17%

n The company has hired ~500 people during FY11 & 1050 during

FY10

n With increase in MR productivity, formulation sales will continue to

grow above industry rates

6.5 5.9

1.72.6

11.35.5

0

4

8

12

16

20

Industry Cadila

Vol Gr. Price Gr. New Pdts Gr.

Total Gr. 14.6%

Total Gr. 18.9%

7.2 5.3 5.4 4.6 4.9

12.916.8

11.314.5

19.9

39

62 60

35

60

0

10

20

30

40

50

60

FY07 FY08 FY09 FY10 FY11

0

1000

2000

3000

4000

5000

Filed Force Productivity

Dom Gr. % New launches


Pharma Sector

39

Financial Overview

Rs mn FY11 Gr(%) FY12E Gr(%) FY13E Gr(%)

Domestic Formulation 17145 18.6% 19236 12.2% 22120 15.0%

Consumer/OTC 3355 25.4% 3758 12.0% 4434 18.0%

Animal Health 1472 23.6% 1678 14.0% 1777 5.9%

Export formulation 17062 29.5% 19977 17.1% 23894 19.6%

US generics 9655 43.8% 11586 20.0% 14483 25.0%

Europe 2755 0.5% 3086 12.0% 3086 0.0%

Japan 422 33.5% 633 50.0% 886.2 40.0%

Brazil 2250 23.8% 2475 10.0% 2846 15.0%

Other emerging markets 1980 24.5% 2198 11.0% 2593 18.0%

JVs 2708 69.6% 2628 -2.9% 3633 38.2%

Nycomed 556 -26.6% 584 5.0% 730 25.0%

Hospira 2152 156.5% 2044 -5.0% 2453 20.0%

Abbott Alliance 0 450

API 3468 17.2% 3824 10.3% 4506 17.8%

Domestic 352 9.5% 334 -5.0% 318 -5.0%

Others 3116 18.1% 3490 12.0% 4188 20.0%

Total Gross Sales 45210 25.4% 51101 13.0% 60364 18.1%

R&D expenses 2502 50.7% 2503 0.1% 2784 11.2%

R&D (NCE) 876 50.7% 876 0.1% 974 11.2%

Base EBITDA 8680 24.7% 10483 20.8% 12522 19.5%

Base EBITDA margin 19% 21% 21%

EBITDA excl NCE 9555 26.7% 11359 18.9% 13497 18.8%

EBITDA margins excl NCE 21% 22% 23%

PAT 6830 42.0% 7452 9.1% 9159 22.9%

PAT excl NCE 8010 43.0% 8622 7.6% 10537 22.2%

EPS 33.3 42.0% 36.4 9.1% 44.7 23.2%

EPS excl NCE 39.1 43.0% 42.1 7.6% 51.4 22.2%

PE @ CMP 24.2 22.2 18.0

PE excl NCE @ CMP 20.6 19.2 15.7


Cadila Healthcare


Pharma Sector

40

Financial Tables

Income Statement (Rs. Mn)

Y/E, Mar (Rs. mn) FY10 FY11 FY12E FY13E

Net Sales 36,580 45,925 51,563 60,618

Growth (%) 25.0 25.5 12.3 17.6

Expenditure 28,782 36,040 40,068 47,037

Raw Materials 11,784 14,754 16,191 19,335

SGA 11,889 13,982 16,239 19,024

Employee Cost 3,930 6,089 6,083 6,891

Other Exp 1,179 1,215 1,554 1,787

EBITDA 7,798 9,885 11,495 13,581

Growth (%) 28.7 26.8 16.3 18.1

EBITDA margin (%) 21.3 21.5 22.3 22.4

Depreciation 1,339 1,269 1,478 1,620

EBIT 6,459 8,616 10,017 11,961

EBIT margin (%) 17.7 18.8 19.4 19.7

Other Income 158 131 146 149

Interest expenses 821 699 758 550

PBT 6,039 8,498 9,405 11,560

Tax 741 1,064 1,693 2,081

Effective tax rate (%) 12.3 12.5 18.0 18.0

Adjusted PAT 4,552 6,482 7,192 8,839

(Profit)/loss from JV's/Ass/MI -247 -251 -260 -320

Adjusted PAT after MI 4,799 6,733 7,452 9,159

Growth (%) 50.7 40.3 10.7 22.9

Net Margin (%) 13.1 14.7 14.5 15.1

E/O items 243 450 0 0

Reported PAT 5,051 7,183 7,452 9,159

Growth (%) 71.7 42.2 3.7 22.9

Balance Sheet (Rs. Mn)


Equity share capital 682 1,024 1,024 1,024

Reserves & surplus 15,501 20,691 26,586 33,828

Net worth 16,183 21,715 27,610 34,852

Minority Interest 392 669 929 1,249

Secured Loans 8,066 8,052 6,052 3,552

Unsecured Loans 2,839 2,921 1,921 1,421

Loan Funds 10,905 10,973 7,973 4,973

Net deferred tax liability 1,142 1,128 1,128 1,128

Total Liabilities 28,622 34,485 37,640 42,203

Gross Block 25,578 28,320 32,828 35,784

Less: Depreciation 8,733 9,994 11,477 13,097

Net block 16,845 18,326 21,351 22,688

Capital work in progress 2,482 4,310 4,310 4,310

Investment 207 207 207 207

Current Assets 17,749 22,902 23,607 28,990

Inventories 7,504 7,028 8,742 10,317

Sundry debtors 4,668 6,624 7,733 9,127

Cash & bank balance 2,507 5,145 3,299 5,022

Loans & advances 3,070 4,106 3,833 4,524

Other current assets 0 0 0 0

Current lia & Prov 8,661 11,260 11,836 13,992

Current liabilities 6,710 8,955 9,386 11,059

Provisions 1,951 2,305 2,450 2,933

Net current assets 9,088 11,642 11,772 14,998

Misc. exp & Def. Assets 0 0 0 0

Total Assets 28,622 34,485 37,640 42,203

Key Ratios

Y/E, Mar FY10 FY11 FY12E FY13E

Profitability (%)

EBITDA Margin 21.3 21.5 22.3 22.4

Net Margin 13.1 14.7 14.5 15.1

ROCE 25.0 28.7 29.1 31.2

ROE 37.0 39.1 31.3 30.4

RoIC 30.1 37.4 38.2 39.7

Per Share Data (Rs)

EPS 23.4 32.9 36.4 44.7

CEPS 30.0 39.1 43.6 52.6

BVPS 79.6 106.1 134.9 170.2

DPS 5.0 6.5 6.5 8.0

Valuations (x)

PER 34.4 24.5 22.1 18.0

P/CEPS 26.8 20.6 18.5 15.3

P/BV 6.5 7.2 5.7 4.5

EV / Sales 5.1 4.1 3.6 2.9

EV / EBITDA 21.8 16.9 14.5 11.9

Dividend Yield (%) 1.0 0.8 0.8 1.0

Gearing Ratio (x)

Net Debt/ Equity 0.5 0.3 0.2 0.0

Net Debt/EBIDTA 1.1 0.6 0.4 0.0

Working Cap Cycle (days) 85 70 77 78

Cash Flow (Rs. Mn)


PBT (Ex-Other income) 5,881 8,367 9,259 11,411

Depreciation 1,339 1,269 1,478 1,620

Interest Provided 821 699 758 550

Other Non-Cash items 0 0 0 0

Chg in working cap -403 12 -1,976 -1,503

Tax paid -741 -1,064 -1,693 -2,081

Operating Cashflow 6,897 9,283 7,826 9,997

Capital expenditure -3,478 -4,578 -4,504 -2,956

Free Cash Flow 3,419 4,705 3,323 7,041

Other income 158 131 146 149

Investments 42 0 0 0

Investing Cashflow -3,278 -4,447 -4,357 -2,807

Equity Capital Raised 57 174 0 0

Loans Taken / (Repaid) -1,768 68 -3,000 -3,000

Interest Paid -821 -699 -758 -550

Dividend paid (incl tax) -1,237 -1,539 -1,557 -1,916

Income from investments 0 0 0 0

Others 140 -202 0 0

Financing Cashflow -3,629 -2,198 -5,315 -5,467

Net chg in cash -10 2,638 -1,846 1,723

Opening cash position 2,517 2,507 5,145 3,299

Closing cash position 2,507 5,145 3,299 5,022


Cadila Healthcare



FY10 56,057 13,742 24.5 10,545 13.1 8.5 21.1 24.7 16.6 3.9

FY11 63,180 13,375 21.2 9,692 12.1 (8.1) 15.6 27.2 17.4 3.4

FY12E 71,863 15,444 21.5 11,395 14.2 17.6 16.0 22.8 15.1 3.0

FY13E 83,325 18,765 22.5 14,169 17.6 24.3 17.5 18.4 12.3 2.6


Valuation table


©

Cipla LtdAPI supplies to boost bottom-line - Upgrade to Hold

Co

mp

an

y U

pd

ate


Reco Previous RecoHold Reduce

CMP Target Price

Rs284 Rs282

EPS change FY12E/13E (%) 0 / 1

Target price change (%) 12

Nifty 4,868

Sensex 16,162

Price Performance

(%) 1M 3M 6M 12M

Absolute 1 (10) (8) (10)

Rel. to Nifty 2 (2) 7 11

Source: Bloomberg


26 September, 2011

Source: Bloomberg

Stock details


Bloomberg CIPLA@IN


Face Value (Rs) 2


52 Week H/L (Rs) 381/274






Promoters 36.8 36.8 36.8

FII/NRI 18.4 19.1 19.3



Public 21.0 21.1 21.1

Source: Capitaline

nnnnn Domestic business loosing steam with acute segment

witnessing intense competition from peers leading to subdued

10% CAGR over FY11-13E in the domestic business

nnnnn Aggressive capex to pressurize margins till assets get fully

productive. Asset turnover has declined from 2.6x in FY05 to

1.8x in FY11

nnnnn Commencement of API supplies to Teva beginning Oct'11 and

Mar'11 to boost topline and bottomline growth

nnnnn Higher revenues from API supplies to Teva would lead to 22%

earnings CAGR - Upgrade to Hold with a target price of Rs282

(16xFY13 EPS)

Domestic sales to remain subdued over FY11-13

n Cipla's domestic business has grown below industry growth rate at 12% in FY11.

Growth was hampered by intense competition from local players and MNCs. Despite

being a market leader (MS 5.4%), Cipla's growth has lagged industry in the past few

quarters.

n In the domestic business the company plans to launch 25-30 new products every

year, however, there are imminent signs of increased competitive pressure. We expect

domestic sales to grow at 10% CAGR over FY11-13 to Rs34bn

n Further, the company's low risk, low return export model, which has worked well for

them in the past, is also lacking major near term growth drivers. Moreover, launch of

combination inhalers in EU markets is also getting delayed

API supplies to Teva are the key performance drivers

n Commencement of supplies of two APIs to Teva during FY12, where Teva has an FTF

would lead to improvement in margins and earnings profile of the company

n Indore SEZ is expected to generate Rs6bn revenue in FY12, resulting in improvement

in margins going forward

Aggressive expansion fails to yield desired results

n Cipla has spent close to Rs25bn in expanding capacities during FY05-10. While this

was taken positively by the street, the same has not been reflected in revenue growth.

Asset turnover has declined from 2.6x in FY05 to 1.8x in FY11.

n The company will further invest Rs6bn to develop API facilities and 2 research centers

in Mumbai. With the capex intensity on the rise, we expect asset turnover to remain

under pressure.

Valuation

We expect Cipla to report 14% revenue growth in FY12 and 17% in FY13. We expect

company's EBITDA margins to improve from 21.2% in FY11 to 21.5% in FY12 and 22.5%

in FY13 as utilization of recently created manufacturing capacities increases. We value

the company at 16XFY13 EPS to arrive at a target price of Rs282 with a Hold rating. At CMP,

the stock is trading at 23x FY12E and 18x FY13E earnings.

250

280

310

340

370

400


Rs

-10

-4

2

8

14

20%

Cipla (LHS) Rel to Nifty (RHS)


Pharma Sector

42

Cipla's - Domestic Metrics

Cipla's therapeutic growth Field force productivity

FY11% MAT MAT YoY


Respiratory 28.2% 860.7 757.4 13.6%

Anti-infective 21.1% 643.6 591.6 8.8%

Gynecology 9.8% 299.5 230.2 30.1%

CVS 12.0% 367.4 332.8 10.4%

Gastro 7.8% 237.7 217.4 9.3%

NSAIDS 2.7% 83.4 76.7 8.7%

CNS 2.4% 73.62 62.37 18.0%

Dermatology 1.6% 47.8 43.2 10.8%

Anti-diabetes 0.7% 20.1 17.1 17.0%

Others 13.7% 419.5 376.0 11.6%

Acute 59.6% 1818.6 1612.2 12.8%

Chronic 40.4% 1234.7 1092.5 13.0%

Total Sales 100.0% 3053.4 2704.7 12.9%

Jun'11 MAT growth for Cipla has been in-line with industry

average

n Acute segment which contributes 60% grew by 15%


n The company has hired ~500-1000 in Q1FY12. Total MR strength

is 6500-7000

n MR productivity declined due to higher base of MRs and lower

growth in the domestic market



n Cipla's growth for the period was below industry growth due to

sharp decrease in prices & lack of new product launches.

n This was mainly due to increased competition in the domestic

market both from local peers as well as MNCs


n MTP Kit registered strong growth with revenues almost doubling to

Rs1bn

Rs Cr Therapies MATJun'10 MATJun'11 YoY Gr.

Seroflo Resp 127 142 11.5%

Novamax Resp 102 114 11.5%

MT Pill Gynaec 56 107 91.6%

Asthalin Resp 76 95 25.3%

Aerocart AI 92 93 0.2%

Foracort AI 83 90 8.3%

Ciplox Resp 78 85 9.8%

Budecort Gynaec 88 80 -8.9%

Amlopres AT Resp 57 66 14.8%

MTP Kit Resp 55 63 15.2%

Total 814.9 935.3 14.8%

Cipla Ltd

5.7 5.7 5.0 5.1 4.8

16.4

13.314.7

10.2

28

12.214

23

31 32

2000

3000

4000

5000

6000


3

10

17

24

31

Field force Productivity

Dom. Gr (%) New launches

0.6

2.6

1.5 5.5

6.5

10.8

Cipla Industry

Vol Gr. Price Gr. New launches

Total Gr. 12.9% Total Gr. 14.5%


Pharma Sector

43

Cipla Ltd

Financial Overview

Rs mn FY10 FY11 YoY Gr. FY12E YoY Gr. FY13E YoY Gr.

Domestic 25111 28178 12% 31032 10% 34036 10%

Export 23205 26756 15% 30769 15% 36734 19%

Formulation 48316 54933 14% 61801 13% 70770 15%

API 5801 6792 17% 8817 30% 11067 26%

Gross Sales 54117 61726 14% 70619 14% 81837 16%

Less: Excise 522 487 -7% 647 33% 745 15%

Net Sales 53595 61238 14% 69972 14% 81093 16%

Technology Income1538 637 -59% 400 -37% 400 0%

Other Operating Income924 1304 41% 1465 12% 1769 21%

Total Sales 56057 63180 13% 71837 14% 83261 16%

EBITDA 13742 13375 -3% 15444 15% 18765 22%

EBITDA margin 24.5% 21.2% 21.5% 22.5%

EBITDA 12204 12738 4% 15044 18% 18365 22%

(excl. Tech. inc)

EBITDA margin 22.4% 20.4% 21.1% 22.2%

PAT 10545 9564 -9% 11395 19% 14169 24%

EPS 13.1 12.1 -8% 14.2 17.6 24%

PE @ CMP 21.6 23.5 20.0 16.1



Pharma Sector

44

Financial Tables



Net Sales 56,057 63,180 71,863 83,325

Growth (%) 7.1 12.7 13.7 16.0

Expenditure 42,315 49,805 56,418 64,560

Raw Materials 24,530 29,146 32,829 37,170

SGA 10,975 15,250 13,370 15,663

Employee Cost 3,191 5,410 5,460 6,087

Other Exp 3,620 0 4,760 5,640

EBITDA 13,742 13,375 15,444 18,765

Growth (%) 12.5 -2.7 15.5 21.5

EBITDA margin (%) 24.5 21.2 21.5 22.5

Depreciation 1,671 2,536 2,770 2,926

EBIT 12,071 10,838 12,675 15,839

EBIT margin (%) 21.5 17.2 17.6 19.0

Other Income 1,075 794 1,397 1,544


PBT 13,263 11,709 13,728 17,071

Tax 2,435 1,910 2,334 2,902


Adjusted PAT 10,545 9,692 11,395 14,169

(Profit)/loss from JV's/Ass/MI 0 0 0 0


Growth (%) 8.5 -8.1 17.6 24.3

Net Margin (%) 18.8 15.3 15.9 17.0

E/O items 346 128 0 0

Reported PAT 10,828 9,799 11,395 14,169

Growth (%) 40.4 -9.5 16.3 24.3



Equity share capital 1,606 1,606 1,606 1,606


Net worth 59,105 66,661 75,791 86,644

Minority Interest 0 0 0 0

Secured Loans 4 480 480 480

Unsecured Loans 47 5,239 5,239 4,239

Loan Funds 51 5,719 5,719 4,719



Gross Block 28,973 42,411 44,487 52,982


Net block 20,112 30,946 30,208 35,285


Investment 2,464 5,904 5,904 5,904

Current Assets 43,673 46,599 56,998 63,875

Inventories 15,126 19,062 22,320 24,331

Sundry debtors 15,666 14,908 17,500 19,478

Cash & bank balance 621 1,010 1,079 1,400

Loans & advances 12,260 11,619 16,100 18,666


Current lia & Prov 12,143 11,791 12,322 14,423


Provisions 2,164 2,210 2,776 3,093


Total Assets 60,948 74,511 83,641 93,495

Key Ratios


Profitability (%)

EBITDA Margin 24.5 21.2 21.5 22.5

Net Margin 18.8 15.3 15.9 17.0

ROCE 22.8 17.2 17.8 19.6

ROE 21.1 15.6 16.0 17.5

RoIC 24.1 18.8 18.3 20.2

Per Share Data (Rs)

EPS 13.1 12.1 14.2 17.6

CEPS 14.8 15.1 17.6 21.3

BVPS 73.5 82.9 94.3 107.8

DPS 2.3 2.1 3.3 4.1

Valuations (x)

PER 24.7 27.2 22.8 18.4

P/CEPS 19.2 18.8 16.1 13.3

P/BV 3.9 3.4 3.0 2.6

EV / Sales 4.1 3.7 3.2 2.8

EV / EBITDA 16.6 17.4 15.1 12.3

Dividend payout (%) 17.3 15.0 20.0 20.0

Gearing Ratio (x)

Net Debt/ Equity -1.0 7.1 6.1 3.8



Cash Flow (Rs. Mn)



Depreciation 1,671 2,536 2,770 2,926



Chg in working cap -1,310 -2,889 -9,799 -4,111

Tax paid -2,285 -1,910 -2,334 -2,902



Free Cash Flow 5,456 -678 -2,389 5,253

Other income 1,075 794 1,397 1,544

Investments -1,664 -3,440 0 0


Equity Capital Raised 6,656 293 -293 1

Loans Taken / (Repaid) -9,352 5,668 0 -1,000

Interest Paid -230 -51 -343 -313



Others 0 -500 4,363 0

Financing Cashflow -4,781 3,713 1,060 -4,628

Net chg in cash 88 390 69 2,169

Opening cash position 533 621 1,010 1,079

Closing cash position 621 1,010 1,079 3,248


Cipla Ltd



FY10 70,310 15,762 22.4 8,435 50.0 101.9 9.6 29.7 16.4 6.6

FY11 76,558 17,121 22.4 12,314 72.8 10.8 30.6 20.4 15.6 5.9

FY12E 86,552 18,008 20.8 11,695 69.1 45.6 24.6 21.5 14.4 4.8

FY13E 97,044 22,407 23.1 15,374 90.9 (5.0) 26.3 16.4 11.1 3.9


Valuation table


©

Dr. Reddy's LabModerate growth Outlook - Hold

Co

mp

an

y U

pd

ate


Reco Previous RecoHold Accumulate

CMP Target Price

Rs1,486 Rs1,583

EPS change FY12E/13E (%) -2 / -7


Nifty 4,868

Sensex 16,162

Price Performance

(%) 1M 3M 6M 12M

Absolute 3 (0) (4) (0)

Rel. to Nifty 3 9 11 22

Source: Bloomberg


26 September, 2011

Source: Bloomberg

Stock details


Bloomberg DRRD@IN


Face Value (Rs) 5


52 Week H/L (Rs) 1,855/1,387






Promoters 25.6 25.7 25.7

FII/NRI 45.4 46.3 48.3



Public 8.6 8.6 8.5

Source: Capitaline

nnnnn Dr. Reddy to witness modest growth of ~12% CAGR (FY11-

FY13) in domestic market, due to issues in pain management

and anti infective therapy

nnnnn New launches, gain in market share in existing products &

limited competition opportunities to drive the growth in US.

nnnnn Upside from Para IV in FY12 and FY13 is Rs 7.2 and Rs 14.5

respectively, mainly driven by launches like ziprasidone,

finasteride, rivastigmine, olanzipine, and clopidogrel

nnnnn Rate the stock as Hold with a price target of Rs1583

Domestic business to witness gradual recovery and Russian businessto show strong growth

n DRL has been witnessing slower growth in the Indian market due to controversy

related to one of its key brand in pain management i.e Nise. Though there has been

favorable ruling by DCGI, but it will take some time to regain lost market share. However

if we exclude, this impact than the domestic business grew at a healthy rate of ~15%

compared to industry rate of 12-14%

n Russia & CIS which contributes 15%, to grow by 18% on back of significant volume

growth in key brands and acquisition of JB Chemicals Rx Russian business

Revenue growth to be led by US business

n North American business which contributes 29%, to witness growth of ~17% CAGR

(FY11- FY13) due to new product launches and increase in market share of existing

products

n Already launched 9 new products including 4 SKU's from its Bristols penicillin

facility acquired from GSK in Sept'11

n Market share gains in key products - Fondaparinux & Fexofinadine OTC

n Para - IV's such as -

n Olanzipine (20mg) - Market size of US$500 mn, expected launch in Oct 11'

(180-days unshared exclusivity)

n Desloratidine (ER, ODT & 5mg) - MS of US$400mn, expected launch in Jan 12'

n Finasteride- Market size of US$500mn, expected launch in Jan 12'

n Ziprazidone - Market Size US$800m, expected in Mar 12' (Shared with 2 cos.)

n Clopidogrel - Market size US$6666mn, expected in May 12' (No Exclusivity

exists, expected day 1 launch with atleast 5 generic companies)

Valuation

We expect Dr. Reddy to report 13%% revenue growth in FY12E and 12% growth in FY13E.

We expect EBIDTA margins to move from 19.9% in FY11 to 20.8% in FY12 and 23.1%% in

FY13. Earnings will grow by 12% CAGR over FY11-13E. We revise our target price on the

stock to Rs1583 (20x base business earnings of Rs77 + NPV of Rs54 from Para IVs) with

an Hold rating. At CMP, the stock is trading at 21.5x FY12E and 16.4x FY13E earnings.

1400

1490

1580

1670

1760

1850


Rs

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-2

6

14

22

30%

Dr. Reddy's Lab (LHS) Rel to Nifty (RHS)


Pharma Sector

46

Dr. Reddy's - Domestic Metrics

Dr. Reddy's therapeutic growth Field force productivity

FY11% MAT MAT YoY


Gastro 24.5% 293.9 262.5 11.9%

CVS 19.2% 229.9 210.2 9.4%

Pain Mgmt 11.4% 137.2 139.8 -1.9%

Anti-infective 9.1% 109.6 104.0 5.4%

Anti-diabetic 6.2% 74.1 63.8 16.1%

Respiratory 2.7% 32.8 24.4 34.6%

Dermatology 6.0% 71.9 52.7 36.4%

Gynecology 1.2% 15.0 15.2 -1.9%

CNS 0.9% 10.7 10.1 6.2%

Others 18.7% 224.4 208.6 7.6%

Acute 69.9% 838.7 765.8 9.5%

Chronic 30.1% 360.9 325.6 10.8%

Total Sales 100.0% 1199.5 1091.4 9.9%

Jul'11 MAT growth for Dr. Reddy has been lower at 10%



n The company has hired ~600 people during FY11

n MR productivity declined due to higher attrition rate, which has

also affected domestic growth



n Dr. Reddy's underperformed industry due to no volume growth in

existing brands during MAT Jul'11

n This was mainly due to increased competition and high attrition

rate in its field force


n Competition is further expected to intensify in the company's top

selling brand Nice

Rs Cr Therapies MATJul'10 MATJul'11 YoY Gr.

Omez Anti-Infective 107.5 117.5 9.2%

Nise Pain 86.2 77.7 -9.9%

Stamlo CVS 54.3 55.3 2.0%

Omez D Anti-Infective 35.2 40.4 14.9%

Stamlo Beta CVS 36.4 38.3 5.3%

Atocor CVS 31.3 35.0 11.7%

Razo Anti-Infective 31.0 33.5 8.3%

Mintop Derma 22.9 27.9 22.2%

Clamp Anti-Infective 21.1 25.6 21.2%

Econorm CVS 21.2 25.4 19.9%

Total 447.1 476.7 6.6%

Dr. Reddy's Lab

2.8

2.67.11

5.5

6.5

Dr. Reddy Industry


Total Gr. 9.9%

Total Gr. 14.5%

5.2 5.2 4.5 5.1 4.5

15.7

19.8

15.1

5.2

16.7

0

500

1000

1500

2000

2500

3000


0

5

10

15

20

25

Field force Productivity Dom Gr. (%)


Pharma Sector

47

Dr. Reddy's Lab

Financial snapshot

(Rs mn) FY11 FY12E YoY % FY13E YoY %

Global Generics 53,340 61,064 14% 68,932 13%

NA 18,996 22,984 21% 25,542 11%

Europe 8,431 8,361 -1% 8,599 3%

India 11,690 12,911 10% 14,744 14%

Russia & Other CIS 10,858 12,769 18% 14,997 17%

Others 3366 4039 20% 5049 25%

PSAI 19,647 21,409 9% 23,541 10%

North America 3170 3329 5% 3528 6%

Europe 7,020 7,792 11% 8,727 12%

India 2619 2698 3% 2860 6%

RoW 6,838 7,591 11% 8,426 11%

Proprietary products 675 844 25% 1013 20%

Others 1030 1184 15% 1303 10%

Gross Revenues 74,692 84,501 13% 94,788 12%

FTF 4,677 3,730 -20% 5,163 38%

Base business 70,015 80,771 15% 89,625 11%

EBITDA 17,121 18,008 5% 22,407 24%

EBITDA % 22.9% 21.3% -161 23.6% 233

FTF - EBITDA 3,180 1,421 -55% 2,855 101%

Base business - EBITDA 13,941 16,586 19% 19,552 18%

Base EBITDA % 19.9% 20.5% - 21.8% -

PAT 12,314 11,695 -5% 15,374 31%

PAT % 16.5% 13.8% -265 16.2% 238

FTF - PAT 1,590 1,222 -23% 2,455 101%

Base business - PAT 10,724 10,472 -2% 12,919 23%

EPS 72.8 69.1 -5% 90.9 31%

FTF - EPS 9.4 7.2 - 14.5 -

Base - EPS 63.5 62.0 -2% 76.4 23%

PE @ CMP 20.4 21.5 - 16.4 -

Base PE @ CMP 23.4 24.0 - 19.4 -


FTF/ Para-IV Opportunities

Product Generic Name EPS Sales EPS Sales Expected Branded Sales Exclusivity

2012 ($ Mn) FY12 2013 ($ Mn) FY13 Launch Date ($ Mn)

Gemzar Gemcitabine 0.4 3.6 0.0 0.0 Launched 634 10+

Effexor XR Venlafaxine HCL 0.9 7.7 0.0 0.0 Launched 2300 10+

Exelon Rivastigmine 0.7 5.3 0.2 1.7 Launched 100 Shared

Zyprexa (20mg) Olanzipine 3.9 24.1 1.0 6.3 Oct-11 500 Sole

Geodon Ziprasidone 0.6 3.6 3.3 20.1 Mar-11 800 Shared

Clarinex Desloratidine 0.5 4.8 0.6 5.3 Jan -12 * 400 Shared¹

Propecia Finasteride 0.0 0.0 2.8 16.8 Jan-12 500 Sole

Avandia Rosiglitazone 0.1 0.8 0.9 9.1 Mar-12 400 Shared

Boniva Ibandronate 0.1 0.6 0.6 6.8 Mar-12 500 Shared

Plavix Clopidogrel 0.0 0.0 3.9 33.3 May-12 6666 Many

Lexapro Escitlopram 0.0 0.0 0.8 6.9 Sep-12 2300 10+

Actos Pioglitazone 0.0 0.0 0.5 3.9 Jan-13 3100 10+

Total 7.2 50.3 14.5 110.2 15545

*Company will launch 5mg in FY13 ¹Shared exclusivity for Clarinex ODT, Unshared Exclusivity for Clarinx ER, 5mg non FTF



Pharma Sector

48

Financial Tables



Net Sales 70,310 76,558 86,552 97,044

Growth (%) 2.2 8.9 13.1 12.1

Expenditure 54,549 59,437 68,545 74,637

Raw Materials 22,688 21,987 26,024 30,221

SGA 18,179 21,576 24,421 25,551

Employee Cost 10,948 12,786 14,189 14,692

Other Exp 2,734 3,088 3,912 4,174

EBITDA 15,762 17,121 18,008 22,407

Growth (%) 6.9 8.6 5.2 24.4

EBITDA margin (%) 22.4 22.4 20.8 23.1

Depreciation 4,131 3,981 4,366 4,756

EBIT 11,631 13,140 13,642 17,651

EBIT margin (%) 16.5 17.2 15.8 18.2

Other Income 1,014 1,259 1,415 1,916


PBT 6,183 14,153 14,262 18,748

Tax 2,668 1,839 2,567 3,375


Adjusted PAT 8,435 12,314 11,695 15,374



Growth (%) 11.0 46.0 -5.0 31.5

Net Margin (%) 12.0 16.1 13.5 15.8

E/O items -6,150 0 0 0

Reported PAT 3,515 12,314 11,695 15,374

Growth (%) -138.3 250.3 -5.0 31.5



Equity share capital 844 846 846 846


Net worth 37,768 42,643 52,339 64,743


Secured Loans 9,275 14,394 13,394 11,894

Unsecured Loans 5,568 9,311 8,311 7,311

Loan Funds 14,843 23,705 21,705 19,205

Net deferred tax liability 71 -224 -224 -224


Gross Block 64,469 79,752 84,752 89,752


Net block 23,522 33,855 34,522 34,766


Investment 3,580 9 9 9

Current Assets 38,202 49,842 57,437 70,139

Inventories 13,394 15,992 16,106 17,877

Sundry debtors 11,599 16,507 16,900 18,958


Loans & advances 0 0 0 0

Other current assets 6,609 9,267 10,140 11,375

Current lia & Prov 20,245 23,628 23,233 26,575


Provisions 3,499 3,440 3,296 4,221



Total Assets 52,682 66,124 73,820 83,724

Key Ratios


Profitability (%)

EBITDA Margin 22.4 22.4 20.8 23.1

Net Margin 12.0 16.1 13.5 15.8

ROCE 23.4 24.2 21.4 24.8

ROE 9.6 30.6 24.6 26.3

RoIC 13.8 21.9 19.0 23.8

Per Share Data (Rs)

EPS 50.0 72.8 69.1 90.9

CEPS 110.9 96.3 94.9 119.0

BVPS 223.7 252.0 309.3 382.6

DPS 11.3 11.3 10.0 15.0

Valuations (x)

PER 29.7 20.4 21.5 16.4

P/CEPS 13.4 15.4 15.7 12.5

P/BV 6.6 5.9 4.8 3.9

EV / Sales 3.7 3.5 3.0 2.6

EV / EBITDA 16.4 15.6 14.4 11.1

Dividend Yield (%) 0.8 0.8 0.7 1.0

Gearing Ratio (x)


Net Debt/EBIDTA 0.5 0.9 0.4 -0.1


Cash Flow (Rs. Mn)



Depreciation 4,131 3,981 4,366 4,756



Chg in working cap 4,709 -6,784 -1,794 -1,721

Tax paid -2,668 -1,839 -2,567 -3,375



Free Cash Flow 9,944 -4,239 9,574 12,012

Other income 1,014 1,259 1,415 1,916

Investments -3,057 3,571 0 0



Loans Taken / (Repaid) -5,133 8,862 -2,000 -2,500

Interest Paid -312 -246 -795 -818



Others 511 -5,757 0 0

Financing Cashflow -6,924 885 -4,774 -6,288

Net chg in cash 977 1,476 6,215 7,640




Dr. Reddy's Lab



FY10 24848 6196 24.9 3287 12.2 8.3 15.6 26.3 15.6 3.7

FY11 29491 5923 20.1 4532 16.8 37.9 20.9 19.1 18.2 4.3

FY12E 36475 9520 26.1 6477 24.0 42.9 27.9 13.4 10.5 3.3

FY13E 39323 9437 24.0 6413 23.8 -1.0 22.0 13.5 10.4 2.7


Valuation table


©

Glenmark PharmaRobust Growth Outlook - Maintain Buy

Co

mp

an

y U

pd

ate


Reco Previous RecoBuy Buy

CMP Target Price

Rs321 Rs401

EPS change FY12E/13E (%) NA

Target price change (%) NA

Nifty 4,868

Sensex 16,162

Price Performance

(%) 1M 3M 6M 12M

Absolute 1 2 15 14


Source: Bloomberg


26 September, 2011

Source: Bloomberg

Stock details


Bloomberg GNP@IN


Face Value (Rs) 1


52 Week H/L (Rs) 390/242






Promoters 48.3 48.3 48.3

FII/NRI 31.9 31.2 31.9



Public 10.7 11.0 10.8

Source: Capitaline

nnnnn Domestic operations are cash cow for the company. Focus on

specialties like derma, respiratory, CVS & gynaec will lead to

16-18% revenue CAGR over FY11-13E

nnnnn In US, strong ANDA basket coupled with limited competition

launches such as the Malorene, Cutivate and Oxycodone

would lead to 15% revenue CAGR over FY11-13E

nnnnn Post restructuring of operations (reducing working capital) in

the SRM markets, we expect SRM sales to grow at 18% CAGR

over FY11-13E

nnnnn On account of good momentum in key business verticals, we

maintain Buy rating on the stock with a target price of Rs401

(18x FY12 Base Business EPS + Adjusted NPV of Rs45)

India business - On a strong footing

n Glenmark is gaining market share in the domestic market driven by steady volume

growth and new product introductions. Focused approach on key specialty segments

like dermatology, cardiology, respiratory, analgesics and gynecology has led to

improvement in overall margins.

n Indian operations are cash cow for the company. Strong performance from key

specialties, new product launches coupled with recent addition to the filed force would

lead to 16-18%+ growth in the Indian business. Total MR strength is ~2400

US Generics - Strong portfolio with limited competition opportunities

n ANDA basket consists of 69 generic products authorized for distribution with 40 pending

for approval with the USFDA including 13 Para IV filings till date

n Malorene - expected launch in Q3FY12 and Cutivate - expected launch in Q4FY12 are

key upside triggers for the stock

n Management has guided for launch of 7 new products in the OCs, oral solids and

semi solids space, as well as exclusive launches. It has already launched 5 OC

products. We expect US business to clock 15% revenue CAGR over FY11-13E

Glenmark's NCE pipeline lends credibility to its research capabilities

n Glenmark currently has a pipe-line of 5 NCE & NBE molecules which are under

various stages of clinical development. This includes Crofelemer, which has been in-

licensed by Glenmark from Napo Pharma

n Glenmark has been successful in monetizing part of its NCE pipeline. While it has

suffered a few setbacks in the past, we believe that overall, Glenmark's ability to derive

value from the NCE pipeline has been credible

Valuation

We expect Glenmark Pharma to report 24% revenue growth in FY12E and 8% growth in

FY13E. We expect EBIDTA margins to move from 20.1% in FY11 to 26.1% in FY12 and

23.8% in FY13. Earnings will grow by 19% CAGR over FY11-13E. Maintain our target price

on the stock at Rs401 (18x FY12 base business earnings + adjusted NPV of Rs45) with

Buy rating. At CMP, the stock is trading at 13.4xFY12E & 13.5x FY13E EPS

250

280

310

340

370

400


Rs

-10

2

14

26

38

50%

Glenmark Pharma (LHS) Rel to Nifty (RHS)


Pharma Sector

50

Glenmark Pharma

Glenmark Pharma - Domestic Metrics

Glenmark Pharma's - therapeutic growth Field force productivity

FY11% MAT MAT YoY


Derma 30.8% 306.6 259.3 18.2%

Respiratory 15.9% 158.7 126.9 25.1%

CVS 17.8% 177.3 128.9 37.5%

Anti-Daibetic 4.8% 48.2 50.2 -3.9%

Anti-infective 15.5% 154.7 141.9 9.0%

Gastro 2.5% 25.3 21.4 18.4%

Gynaec 2.4% 23.9 21.0 13.6%

Opthalmology 2.2% 22.2 18.6 19.6%

Pain 5.3% 52.8 49.1 7.6%

Others 2.7% 26.5 17.3 53.3%

Acute 75.8% 755.4 644.2 17.3%

Chronic 24.2% 240.8 190.3 26.5%

Total Sales 100.0% 996.2 834.5 19.4%

Jul'11 MAT growth for Glenmark has been strong at 19%



n The company has hired ~300 people during last year. Attrition rate

stood at 18-20% for Glenmark

n MR productivity hovers around 3.5 - 3.8x for the last 3 years



n Glenmark out-performed industry due to healthy increase in price

coupled with good growth in new brands during MAT Jun'11


n Telma, Telma-H and the derma brands clocked healthy growth


Telma CVS 45.0 60.0 33.3%

Telma h CVS 43.8 58.2 32.8%

Candid-b Derma 43.5 50.3 15.5%

Ascoril plus Respiratory 40.3 45.9 13.8%

Candid Derma 30.3 35.6 17.4%

Ascoril Resp 28.4 34.9 22.7%

Lizolid Anti-Infective 26.5 22.8 -14.0%

Alex Resp 20.3 21.7 7.0%

Altacef Anti-Infective 17.5 21.1 20.6%

Elovera Derma 17.2 19.1 10.6%

Total 312.8 369.4 18.1%

2.4 2.7 3.5 3.7 3.8

9.0

27.1

16.818.1

12.2

0

500

1000

1500

2000

2500


1

6

11

16

21

26

Field force Productivity Dom Gr (%)

6.5

6.3 2.6

7.5

5.5

5.5

Glenmark Industry


Total Gr. 19.4%

Total Gr. 14.9%


Pharma Sector

51

Glenmark Pharma

Financial snapshot

(Rs mn) FY10 FY11 YoY % FY12E YoY % FY13E YoY %

US Base Business 7230 8352 16% 9578 15% 11069 16%

Limited Competition 677 492 -27% 500 2% 1327 165%

Tarka 0 492 - 0 - 0 -

Malorene 0 0 - 500 - 1001 -

Cutivate 0 0 - 0 - 326 -

Europe 299 544 82% 652 20% 783 20%

Latin America (Argentina) 343 401 17% 421 5% 442 5%

API 2627 3337 27% 3683 10% 4039 10%

1. Total Generics Business 10500 12633 20% 14835 17% 17659 19%

Latin America ( Brazil & Others) 1361 1919 41% 2311 20% 2718 18%

Semi Regulated Markets 3864 4070 5% 4878 20% 5622 15%

Europe 1363 1528 12% 1742 14% 2055 18%

India 7529 8447 12% 9784 16% 11268 15%

2. Speciality Business 14116 15963 13% 18716 17% 21663 16%

Recurring Revenues ( 1 + 2 ) 24616 28596 16% 33550 17% 39323 17%

3. Out-licensing Revenues 232 895 - 2925 - 0 -

Medicis Pharma 232 0 - 0 - 0 -

GRC 15300 (Sanofi) 0 895 - 0 - 0 -

GBR 500 (Sanofi) 0 0 - 2925 - 0 -

Consolidated Revenues ( 1 + 2 + 3 ) 24848 29491 19% 36475 24% 39323 8%

Limited competition 677 492 - 500 - 1327 -

Licensing Revenues 232 895 - 2925 - 0 -

Base (Excl- limited competition) 23939 28103 17% 33050 18% 37996 15%

Reported EBITDA 6,196 5,923 -4% 9,520 61% 9,437 -1%

EBITDA margins % 24.9% 20.1% 26.1% 24.0%

EBITDA - Limited Competition 542 246 - 350 - 1061 -

EBITDA - Licensing Income 186 448 - 1901 - 0 -

EBITDA - Base business 5468 5229 -4% 7269 39% 8376 15%

EBITDA % - Base Business 22.8% 18.6% 22.0% 22.0%

Reported PAT 3,287 4,532 38% 6,477 43% 6,413 -1%

PAT margins % 13.2 15.4 17.8 16.3

PAT - Limited Competition 271 123 - 140 - 424 -

PAT - Licensing Income 74 179 - 1141 - 0 -

PAT - Base business 2942 4230 44% 5197 23% 5989 15%

PAT % - Base Business 12.3% 15.1% 15.7% 15.8%

EPS 12.2 16.8 38% 24.0 43% 23.8 -1%

- Limited Competition 1.0 0.5 - 0.5 - 1.6 -

- Licensing Income 0.3 0.7 - 4.2 - 0.0 -

- Base business 10.9 15.7 44% 19.2 23% 22.2 15%

Total Base EPS 11.9 16.1 35% 19.8 23% 23.8 20%

PE @ CMP 26.4 19.1 13.4 13.5

PE - base 27.0 19.9 16.2 13.5



Pharma Sector

52

Financial Tables



Net Sales 24,848 29,491 36,475 39,323

Growth (%) 17.4 18.7 23.7 7.8

Expenditure 18,653 23,568 26,955 29,885

Raw Materials 8,061 9,918 11,782 12,623

SGA 4,583 5,009 6,493 6,999

Employee Cost 3,425 5,103 4,851 5,505

Other Exp 2,583 3,538 3,830 4,758

EBITDA 6,196 5,923 9,520 9,437

Growth (%) 47.3 -11.6 68.7 -0.3

EBITDA margin (%) 24.9 20.1 26.1 24.0

Depreciation 1,206 947 1,015 1,130

EBIT 4,990 4,976 8,505 8,308

EBIT margin (%) 20.1 16.9 23.3 21.1

Other Income 507 1,359 473 529

Interest expenses 1,640 1,566 1,490 1,291

PBT 3,857 4,770 7,488 7,545

Tax 569 237 1,011 1,132


Adjusted PAT 3,287 4,532 6,477 6,413



Growth (%) 8.3 37.9 42.9 -1.0

Net Margin (%) 13.2 15.4 17.8 16.3

E/O items -249 0 0 0

Reported PAT 3,038 4,532 6,477 6,413

Growth (%) 58.5 49.2 42.9 -1.0





Net worth 23,288 20,372 26,375 32,314


Secured Loans 14,926 14,802 13,302 12,302

Unsecured Loans 3,768 6,314 5,314 4,314

Loan Funds 18,694 21,116 18,616 16,616

Net deferred tax liability 710 -1,081 -1,081 -1,081


Gross Block 21,755 26,952 29,452 31,952


Net block 17,873 22,123 23,608 24,978

Capital work in progress 6,008 0 0 0

Investment 181 319 319 319

Current Assets 24,211 25,978 26,443 29,674

Inventories 7,085 8,070 7,886 8,732

Sundry debtors 10,783 11,308 12,706 13,697

Cash & bank balance 1,070 1,949 927 1,936

Loans & advances 5,273 4,651 4,924 5,309


Current lia & Prov 5,451 7,746 6,192 6,855


Provisions 200 185 365 393



Total Assets 42,822 40,674 44,177 48,117

Key Ratios


Profitability (%)

EBITDA Margin 24.9 20.1 26.1 24.0

Net Margin 13.2 15.4 17.8 16.3

ROCE 13.5 11.5 20.0 18.2

ROE 15.6 20.9 27.9 22.0

RoIC 16.2 12.9 20.9 18.9

Per Share Data (Rs)

EPS 12.2 16.8 24.0 23.8

CEPS 17.7 20.3 27.8 28.0

BVPS 86.0 74.8 97.0 119.0

DPS 0.4 0.5 1.5 1.5

Valuations (x)

PER 26.3 19.1 13.4 13.5

P/CEPS 18.1 15.8 11.6 11.5

P/BV 3.7 4.3 3.3 2.7

EV / Sales 4.2 3.7 2.9 2.6

EV / EBITDA 15.6 18.2 10.5 10.4

Dividend Yield (%) 0.1 0.2 0.5 0.5

Gearing Ratio (x)




Cash Flow (Rs. Mn)



Depreciation 1,206 947 1,015 1,130

Interest Provided 1,640 1,566 1,490 1,291


Chg in working cap -2,441 1,670 -2,927 -1,560

Tax paid -392 -237 -1,123 -1,132



Free Cash Flow -897 4,356 2,969 4,246

Other income 507 1,359 473 529

Investments 0 -138 0 0


Equity Capital Raised 4,092 396 0 0


Interest Paid -1,640 -1,566 -1,490 -1,291

Dividend paid (incl tax) -126 -158 -474 -474


Others 405 -5,529 0 0

Financing Cashflow 745 -4,699 -4,464 -3,766

Net chg in cash 355 879 -1,022 1,009

Opening cash position 715 1,070 1,949 927

Closing cash position 1,070 1,949 927 1,936


Glenmark Pharma

Y/E, Mar Net EBIDTA EBIDTA APAT AEPS EPS RoE P/E EV / P/BV


CY09 19,078 6,741 35.3 5,005 59.1 8.1 30.2 34.0 19.6 9.5

CY10 21,511 7,586 35.3 5,783 68.3 15.5 30.0 29.4 16.9 8.7

CY11E 24,229 8,638 35.7 6,566 77.5 13.5 32.3 25.9 14.8 8.1

CY12E 27,080 9,735 36.0 7,406 86.4 11.5 33.7 23.2 13.1 7.5

Source: AIOCD AWCAS, Emkay Research

Valuation table


©

GlaxoSmithKline PharmaSteady growth ahead - Maintain Hold

Co

mp

an

y U

pd

ate


Reco Previous RecoHold Hold

CMP Target Price

Rs2,006 Rs2,161



Nifty 4,868

Sensex 16,162

Price Performance

(%) 1M 3M 6M 12M

Absolute (7) (14) (4) (3)

Rel. to Nifty (6) (6) 11 18

Source: Bloomberg


26 September, 2011

Source: Bloomberg

Stock details


Bloomberg GLXO@IN


Face Value (Rs) 10


52 Week H/L (Rs) 2,475/1,905






Promoters 50.7 50.7 50.7

FII/NRI 17.1 17.0 16.3



Public 14.5 14.6 15.0

Source: Capitaline

nnnnn Revenue growth to be driven by strong growth in the domestic

formulations business led by dermatology, vaccines &

oncology segment

nnnnn GSK has launched 2 patented products from its parent GSK

PLCs portfolio namely Revolade and Votrient. With success of

Tykerb in India, we expect these products to lead the growth

nnnnn Successful introduction of new products and expansion in field

force will lead to further acceleration in top-line

nnnnn Valuations leave little room for upsides - Maintain Hold on the

stock with a target price of Rs2,161. Performance of Revolade

& Votrient are key upside triggers

Domestic business has strong parent backing

n GSK has access to its parent's product pipeline which is focussed on vaccines and

oncology products. In MAT'Jul 2011, new products accounted for 12.3% of the

incremental growth, with anti-infetives accounting for a large share of the incremental

growth.

n GSK maintain leadership position in the Indian Vaccines segment (6% of total sales,

Source: AIOCD). The increased share of vaccines can be attributed to new launches,

including Boostrix, Infanrix, Rotarix and Cervarix over the past two years.

n GSK has launched 2 patented products from its parent's portfolio i.e. Revolade (drug

for low platelets) and Votrient (metastatic renal cell carcinoma) in the oncology segment.

Earlier, GSK had successfully launched an Onco product Tykerb in India in May 2008.

Within the first year of its launch, the product clocked revenue of Rs70-80mn, according

to management and is expected to ramp up further.

However, with launch of patented products in India, the raw material cost is expected to go

up as a result of which margin expansion may be limited

Strong balance sheet with healthy cash

n GSK has a strong balance sheet with almost zero debt on books and RoE's in excess

of 30%

n It has healthy cash accumulation of Rs21bn translating into cash per share of Rs250

per share. We believe with strong cash on books, the company is well placed to carry

out an acquisition

Valuation

Going ahead, we expect business momentum to be led by 5-6 new launches in the

branded generics space and the recent launch of oncology products from GSK pipeline.

We expect GSK to report 13% revenue growth in FY12 and 12% growth in FY13. We expect

EBIDTA margins to improve from 35.31% in CY10 to 35.7% in CY11 and 36% in CY12.

Earnings will grow at a CAGR of 13% to Rs7.4bn. We maintain our target on the stock at

Rs2,161 with a Hold rating. At CMP, the stock is trading at 26x/23x CY11E/CY12E earnings

respectively. We believe, GSK deserves premium valuations due to its strong product

pipeline and brand-building ability.

2000

2095

2190

2285

2380

2475


Rs

0

8

16

24

32

40%

GlaxoSmithkline Pharma (LHS) Rel to Nifty (RHS)


Pharma Sector

54


GSK Pharma - Domestic Metrics

GSK Pharma - Therapeutic growth Field force productivity

FY11% MAT MAT YoY


Anti-infectives 25.8% 666.0 603.5 10.3%

Dermatology 15.8% 407.4 353.1 15.4%

Pain Mgmt. 10.7% 276.2 252.3 9.5%

Vitamins 8.8% 227.3 203.4 11.7%

Respiratory 7.9% 204.2 182.4 11.9%

Hormones 6.9% 178.4 172.6 3.4%

Vaccines 5.7% 147.46 96.51 52.8%

Gastro 6.4% 164.2 152.6 7.6%

CVS 3.0% 76.9 66.1 16.3%

Others 9.0% 232.4 215.5 7.9%

Acute 94.6% 2442.0 2174.6 12.3%

Chronic 5.4% 138.3 123.4 12.1%

Total Sales 100.0% 2580.3 2298.1 12.3%

Jul'11 MAT growth for GSK has been lower at 12%



n The company has hired ~550 people during CY10

n Sales to grow at a higher clip once the MR productivity improves



n GSK's underperformance to the industry was due to lack of new

product launches during MAT Jun'11


n With its strong field force and strong product pipeline we expect

the domestic business to sustain 14-15% growth


Augmentin CVS 167.0 177.2 6.1%

Calpol CVS 128.6 137.4 6.8%

Zinetac Derma 111.0 116.9 5.3%

Ceftum Respiratory 95.5 106.3 11.3%

Betnesol Derma 66.5 81.1 22.0%

Phexin Resp 86.7 80.5 -7.1%

Eltroxin Anti-Infective 72.4 79.1 9.3%

Neosporin Resp 64.5 70.8 9.9%

Betnovate c Anti-Infective 59.5 70.6 18.6%

Augmentin duo Derma 57.7 66.5 15.2%

Total 909.3 986.3 8.5%

0.5

2.6

1.3 5.5

6.5

10.5

GSK Industry


Total Gr. 12.3%

Total Gr. 14.5%

6.5 6.8 7.26.6

6.7

9.010.0

14.1

0

500

1000

1500

2000

2500

3000

CY07 CY08 CY09 CY10

0

2

4

6

8

10

12

14

16



Pharma Sector

55

Financial Tables


Y/E, Dec (Rs. mn) CY09 CY10 CY11E CY12E

Net Sales 19,078 21,511 24,229 27,080

Growth (%) 12.7 12.8 12.6 11.8

Expenditure 12,337 13,924 15,591 17,345

Raw Materials 7,022 7,881 9,134 10,209

SGA 1,045 1,359 1,320 1,273

Employee Cost 2,093 2,409 2,447 2,735

Other Exp 2,176 2,275 2,689 3,128

EBITDA 6,741 7,586 8,638 9,735

Growth (%) 8.4 14.4 12.3 12.7

EBITDA margin (%) 35.3 35.3 35.7 36.0

Depreciation 164 176 186 200

EBIT 6,577 7,410 8,451 9,535

EBIT margin (%) 34.5 34.4 34.9 35.2

Other Income 1,034 1,306 1,349 1,519


PBT 7,686 8,539 9,800 11,054

Tax 2,607 2,934 3,234 3,648


Adjusted PAT 5,005 5,783 6,566 7,406



Growth (%) 8.1 15.5 13.5 12.8

Net Margin (%) 26.2 26.9 27.1 27.3

E/O items 74 -177 0 0

Reported PAT 5,079 5,606 6,566 7,406

Growth (%) -14.1 10.4 17.1 12.8





Net worth 17,861 19,516 21,105 22,898



Unsecured Loans 0 0 0 0

Loan Funds 54 52 52 52

Net deferred tax liability -449 -566 -566 -566


Gross Block 3,333 3,625 3,833 4,083


Net block 928 1,090 1,069 1,119

Capital work in progress 214 87 87 87

Investment 1,485 1,179 1,179 1,179

Current Assets 21,827 25,096 27,783 30,698

Inventories 2,573 2,856 3,216 3,595

Sundry debtors 537 470 530 592


Loans & advances 1,074 1,203 1,355 1,514


Current lia & Prov 6,987 8,450 9,528 10,700


Provisions 3,815 4,868 5,691 6,412


Total Assets 17,466 19,002 20,591 22,384

Key Ratios


Profitability (%)

EBITDA Margin 35.3 35.3 35.7 36.0

Net Margin 26.2 26.9 27.1 27.3

ROCE 45.1 46.5 48.1 50.1

ROE 30.2 30.0 32.3 33.7

Per Share Data (Rs)

EPS 59.1 68.3 77.5 86.4

CEPS 61.9 68.3 79.7 89.8

BVPS 210.9 230.4 249.2 267.2

DPS 30.0 40.0 50.4 56.8

Valuations (x)

PER 34.0 29.4 25.9 23.2

P/CEPS 32.4 29.4 25.2 22.3

P/BV 9.5 8.7 8.1 7.5

EV / Sales 8.0 7.0 6.1 5.5

EV / EBITDA 19.6 16.9 14.8 13.1

Dividend Yield (%) 1.5 2.0 2.5 2.8

Gearing Ratio (x)

Net Debt/ Equity -1.0 -1.0 -1.0 -1.1

Net Debt/EBIDTA -2.2 -2.2 -2.2 -2.2

Working Cap Cycle (days) 25.0 25.0 28.0 28.0

Cash Flow (Rs. Mn)






Chg in working cap 147 884 438 501

Tax paid -2,607 -2,934 -3,234 -3,648


Capital expenditure -302 -211 -166 -250

Free Cash Flow 4,053 5,149 5,676 6,339

Other income 1,034 1,306 1,349 1,519

Investments 5,811 306 0 0

Investing Cashflow 6,543 1,400 1,183 1,269


Loans Taken / (Repaid) -2 -3 0 0

Interest Paid 0 0 0 0



Others -151 -117 0 0

Financing Cashflow -3,126 -4,070 -4,977 -5,614

Net chg in cash 7,772 2,690 2,048 2,244







FY10 15,596 3,236 20.7 1,991 16.0 20.4 26.6 16.9 11.8 3.9

FY11 18,825 3,598 19.1 2,294 18.4 15.2 23.9 14.7 10.8 3.2

FY12E 21,506 4,276 19.9 2,760 22.2 20.4 23.6 12.2 9.2 2.6

FY13E 25,567 5,336 20.9 3,489 28.0 26.4 24.1 9.6 7.4 2.1


Valuation table


©

Ipca Laboratories LtdStable Business, Reasonable Valuations - Maintain Buy

Co

mp

an

y U

pd

ate


Reco Previous RecoBuy Buy

CMP Target Price

Rs270 Rs392

EPS change FY12E/13E (%) -4 / -4


Nifty 4,868

Sensex 16,162

Price Performance

(%) 1M 3M 6M 12M

Absolute (12) (17) (7) (11)

Rel. to Nifty (11) (9) 8 9

Source: Bloomberg


26 September, 2011

Source: Bloomberg

Stock details


Bloomberg IPCA@IN


Face Value (Rs) 2


52 Week H/L (Rs) 351/255

Market Cap (Rs bn/USD mn) 34/687





Promoters 46.1 46.1 46.1

FII/NRI 10.4 9.1 9.8



Public 11.6 11.8 11.7

Source: Capitaline

nnnnn Pricing pressure, increased competitive intensity & lower anti-

malaria sales would lead to 12% revenue CAGR in the domestic

formulations business

nnnnn Indore SEZ USFDA approval remain key upside catalyst -

approval would pave way for improved profitability and

revenue visibility

nnnnn In the exports business, growth will be led by tender business

in Africa and branded formulations business in CIS, Africa and

Australia

nnnnn Maintain Buy with a target of Rs392 (14xFY13 EPS)

Field force addition and focus on new launches to boost domesticgrowth

n IPCA has doubled its domestic formulations field force in the last two years to 4500

now mainly in key therapies of Pain and CVS segment.

n We expect domestic formulation business to clock 10% growth rates over medium

term. However, as the new field force becomes productive, growth would be back on

track at 15% in FY13 thereby aiding 180bps expansion in EBITDA margins.

USFDA approval for Indore SEZ plant remains the key trigger

n The company is expecting USFDA to visit its Indore SEZ plant post the monsoon and

expects approval by Q4FY12. Till date, Ipca has 24 filings in the US with 13 pending

approvals

n Post the approval, Ipca expects 4-5 launches from this facility in the initial year with

peak revenue potential of Rs3-4bn over the next 2-3 years

Momentum in branded business & anti-malarial tender to drive exports

n Anti malarial business to grow from Rs1.2bn last year to Rs2bn this year and with the

prequalification of Artisunate, company will further be able to participate in the rest of

the 20% of anti malarial tender business (total market $250-$300mn)

n Brnaded business to witness 35% revenue CAGR led by new launches

Future growth drivers

n For FY12, the management has guided for top-line growth of ~18-20% and expects

EBITDA margins to improve from FY11 levels. However, with domestic growth slowing

down top-line would grow at 14% over FY11-12E. Moreover, volatile currency movement

remain the key risk for margin improvements going forward

Valuation

We expect Ipca to report 14% growth in revenues in FY12E and 19% growth in FY13E.

EBIDTA margins are expected to increase from 19.1% in FY11 to 19.9% in FY12E and

20.9% in FY13E. Earnings will grow by 23% CAGR over FY11-13E. Maintain Buy rating on

the stock with a target price of Rs392 (14xFY13E earnings). At CMP, IPCA trades at 12x

FY12E and 10x FY13E EPS.

250

270

290

310

330

350


Rs

-10

-2

6

14

22

30%

Ipca Lab (LHS) Rel to Nifty (RHS)


Pharma Sector

57

Ipca Labs - Domestic Metrics

Ipca Labs therapeutic growth Field force productivity

FY11% MAT MAT YoY

Rs Cr Contribution Jun'11 Jun'10 Gr. %

Anti-Malarial 24.2% 235.8 190.8 23.6%

Gastro 7.7% 75.4 61.0 23.5%

Pain Mgmt 18.9% 183.8 134.7 36.5%

CVS 18.8% 183.5 159.5 15.1%

Anti-diabetic 6.4% 62.6 52.9 18.3%

CNS 3.7% 36.3 36.0 0.8%

Respiratory 3.6% 35.4 29.2 21.4%

Derma 2.4% 23.5 19.4 21.1%

Anti-Infective 9.0% 87.9 88.7 -0.9%

Others 5.2% 50.3 32.6 54.4%

Acute 70.7% 688.8 554.2 24.3%

Chronic 29.3% 285.8 250.5 14.1%

Total Sales 100.0% 974.6 804.7 21.1%

Jul'11 MAT growth for Ipca has been above industry rate at 21%



n Ipca has added 600 people to its field force during FY11

n MR productivity declined due to higher MR additions which are yet

to contribute meaningfully to the top line



n Ipca's out-performance to the industry was due to strong volume

uptake in existing brands coupled with price increase and 4.6%

growth from new launches during MAT Jun'11


n HCQS, Zerodol and Larinate clocked growth in excess of 20%


Lariago Anti-Marial 62.0 65.5 5.6%

Hcqs Anti-Marial 36.0 44.2 22.7%

Zerodol p CNS 25.1 36.0 43.3%

Rapither-ab Anti-Marial 31.7 36.0 13.5%

Larinate Anti-Marial 17.8 33.6 88.7%

Perinorm Gastro 30.1 32.9 9.3%

Zerodol sp CNS 14.1 24.7 75.4%

Zerodol CNS 17.7 23.5 33.0%

Glycinorm m Anti-Diab 20.6 23.5 14.5%

Lumerax Anti-Marial 12.3 21.6 75.8%

Total 267.4 341.5 27.7%


3.2

2.6

4.8

5.5

6.5

13.2

Ipca Industry


Total Gr. 21.1%

Total Gr. 14.9%

1.5 1.7 1.5 1.4 1.4

22.0

10.3

25.4

16.5

21.5

0

900

1800

2700

3600

4500


0.9

3.9

6.9

9.9

12.9

15.9

18.9

21.9

24.9

27.9



Pharma Sector

58

Financial snapshot

FY11 FY12E YoY % FY13E YoY %

Formulations 13,881 16,490 18.8% 20,604 25.0%

Domestic 6,964 7,669 10.1% 8,797 14.7%

Exports 6,917 8,820 27.5% 11,807 33.9%

Branded 1,500 2,010 34.0% 2,833 41.0%

Generics 5418 6811 25.7% 8974 31.8%

Europe 3121 3410 9.2% 4203 23.3%

America 1072 1401 30.6% 2455 75.3%

Malaria tender 1224 2000 63.4% 2000 0.0%

APIs 4778 5017 5.0% 5278 5.2%

Domestic 1,443 1,515 5.0% 1,637 8.0%

Exports 3,335 3,501 5.0% 3,641 4.0%

Other Income 166 0 - 0 -

Total Sales 18,825 21,506 14.2% 25,882 20.3%

EBITDA 3,598 4,276 18.9% 5,336 24.8%

EBITDA margins 19.1 19.9 20.9

APAT 2,294 2,760 20.4% 3,489 26.4%

PAT margins 12.2 12.8 13.6

EPS 18.4 22.2 20.4% 28.0 26.4%

PE @CMP 14.7 12.2 9.6




Pharma Sector

59

Financial Tables



Net Sales 15,596 18,825 21,506 25,567

Growth (%) 20.6 20.7 14.2 18.9

Expenditure 12,360 15,227 17,230 20,231

Raw Materials 6,456 7,764 8,585 10,048

SGA 3,697 4,800 5,570 6,530

Employee Cost 2,207 2,663 3,075 3,653

Other Exp 0 0 0 0

EBITDA 3,236 3,598 4,276 5,336

Growth (%) 21.9 11.2 18.9 24.8

EBITDA margin (%) 20.7 19.1 19.9 20.9


EBIT 2,768 3,040 3,658 4,576

EBIT margin (%) 17.7 16.1 17.0 17.9

Other Income 161 246 244 275


PBT 2,663 3,407 3,539 4,473

Tax 627 784 778 984


Adjusted PAT 2,009 2,299 2,760 3,489



Growth (%) 20.4 15.2 20.4 26.4

Net Margin (%) 12.8 12.2 12.8 13.6

E/O items 63 434 0 0

Reported PAT 2,054 2,628 2,760 3,489

Growth (%) 104.2 28.0 5.0 26.4





Net worth 8,649 10,516 12,902 16,019


Secured Loans 3,791 4,554 4,854 4,754


Loan Funds 4,545 5,308 5,808 5,708

Net deferred tax liability 793 807 807 807


Gross Block 8,812 9,884 12,384 14,384


Net block 6,379 6,992 8,874 10,114

Capital work in progress 383 1,132 1,132 1,132

Investment 325 408 408 408

Current Assets 8,992 10,593 12,256 14,490

Inventories 3,802 4,664 5,355 6,297

Sundry debtors 3,880 4,644 5,355 6,297

Cash & bank balance 108 104 256 361

Loans & advances 1,201 1,182 1,290 1,534

Current liab & Prov 0 0 0 0


Provisions 1,850 2,073 2,677 3,101

Net current assets 241 420 474 508

Misc. exp & Def. Assets 6,900 8,099 9,104 10,880

Total Assets 13,987 16,631 19,518 22,534

Key Ratios


Profitability (%)

EBITDA Margin 20.7 19.1 19.9 20.9

Net Margin 12.8 12.2 12.8 13.6

ROCE 22.7 21.3 21.4 22.9

ROE 26.6 23.9 23.6 24.1

RoIC 22.9 21.5 22.3 23.8

Per Share Data (Rs)

EPS 16.0 18.4 22.2 28.0

CEPS 19.2 19.4 27.1 34.1

BVPS 69.5 84.5 103.6 128.7

DPS 3.3 3.5 3.5 3.5

Valuations (x)

PER 16.9 14.7 12.2 9.6

P/CEPS 14.0 13.9 10.0 7.9

P/BV 3.9 3.2 2.6 2.1

EV / Sales 2.4 2.1 1.8 1.5

EV / EBITDA 11.8 10.8 9.2 7.4

Dividend Yield (%) 1.2 1.3 1.3 1.3

Gearing Ratio (x)



WC Cycle 159 155 152 153

Cash Flow (Rs. Mn)

Y/E, Mar (Rs. mn) FY10 FY11P FY12E FY13E





Chg in working cap -1,664 -1,210 -788 -1,607

Tax paid -485 -784 -778 -984



Free Cash Flow -167 119 210 744

Other income 161 246 244 275

Investments 86 -83 0 0



Loans Taken / (Repaid) -54 763 500 -100

Interest Paid -329 -314 -364 -377



Others 662 -338 0 0

Financing Cashflow -86 -286 -301 -914

Net chg in cash -5 -4 153 105

Opening cash position 113 108 104 256

Closing cash position 108 104 256 361





FY10 48,359 9,728 20.1 6,845 15.4 20.0 34.0 30.9 22.2 8.2

FY11 58,320 11,911 20.4 8,625 19.3 25.6 30.1 24.6 18.6 6.5

FY12E 67,682 13,322 19.7 9,825 22.0 13.9 26.6 21.6 15.0 5.0

FY13E 82,022 16,680 20.3 11,435 25.6 16.4 24.6 18.5 13.0 4.1


Valuation table


©

Lupin Ltd.Opportunities outweigh Risks - Accumulate

Co

mp

an

y U

pd

ate


Reco Previous RecoAccumulate Buy

CMP Target Price

Rs475 Rs513



Nifty 4,868

Sensex 16,162

Price Performance

(%) 1M 3M 6M 12M

Absolute 6 11 17 19


Source: Bloomberg


26 September, 2011

Source: Bloomberg

Stock details


Bloomberg LPC@IN


Face Value (Rs) 2


52 Week H/L (Rs) 520/363






Promoters 47.0 47.0 47.0

FII/NRI 23.9 22.3 23.5



Public 9.0 9.8 9.4

Source: Capitaline

nnnnn Domestic business to grow at 18% CAGR over FY11-13E on

account of 40 new launches, focus on building strong brands

and targeting new therapies

nnnnn US business to clock growth of ~24% CAGR (FY11-FY13) driven

by launch of 10 ANDA's including 3-4 OCs and 2 FTFs in US.

Among these launches, Ziprasidone will be the most lucrative

opportunity

nnnnn We expect an EPS of Rs1.5 & Rs4.0 from its Para IV

opportunities for FY12 and FY13 respectively

nnnnn Recommend Accumulate with a target price of Rs513

Domestic business to continue robust growth

n Domestic business to grow at 16% CAGR over FY11-13E led by new launches, focus

on building strong brands and targeting new therapies.

n Lupin's deal with Lilly will further fuel the domestic growth.

US business to gain momentum in H2FY12

n Launch of 10 new ANDAs (including 3 OCs) for FY12.

n Fortamet (FTF) - US$40mn, likely launch in H2FY12, Company has confirmed the

launch in FY12

n Ziprasidone (FTF) - US$ 800m, likely launch in Mar 2012. Shared with two other

generic players

n Ultram XR - US$ 200mn Lupin holds approval, launch can be expected anytime. 2

Companies have already launched generics

n Clarinex (5mg tablet)- Launch with many other generic player

n Other Para IVs like Requip XL (US branded Sales US$ 10mn), Ambien CR, (US branded

Sales US$ 547mn) and Asacol (US branded Sales US$ 400mn) can bring surprises.

We have not factored in upside from these opportunities in our financials.

n Deal with Medicis will directly inject revenues of ~$20m for the FY12.

n The company's productivity is highest ~approx $10mn per product, vs industry average

of ~$5mn-$6mn per product. (company has launched ~30 products till date in US).

Such high productivity is due to niche launches done by the company.

n Only risk to the US business is its branded portfolio (contributing ~30% of the sales),

viz Antara and Suprax. We belive these brands will soon witness margin pressures on

the back of increase in sales force and probable generic competition.

Valuations

We expect Lupin to report 16.1% revenue growth in FY12E and 21.2% growth in FY13E.

We expect EBIDTA margins to move from 20.4% in FY11 to 19.7% in FY12 and 20.3% in

FY13. Earnings will grow by 15% CAGR over FY11-13E. Recommend Accumulate with a

target price of Rs513. At CMP, the stock is trading at 21.6x FY12E and 18.5x FY13E earnings.

350

385

420

455

490

525


Rs

-10

2

14

26

38

50%

Lupin (LHS) Rel to Nifty (RHS)


Pharma Sector

61

Lupin's - Domestic Metrics

Lupin's therapeutic growth Field force productivity

FY11% MAT MAT YoY

Rs Cr Contribution Jun'11 Jun'10 Gr. %

Gastro 6.8% 114.7 95.3 20.4%

CVS 23.6% 401.1 314.1 27.7%

Pain Mgmt 3.3% 55.6 39.9 39.4%

Anti-infective 18.6% 316.2 298.5 5.9%

Anti-diabetic 7.5% 126.7 96.4 31.4%

Respiratory 11.6% 197.8 164.7 20.1%

Dermatology 0.4% 6.9 9.0 -23.1%

Gynecology 0.5% 7.9 4.9 61.4%

CNS 5.3% 90.4 71.2 27.0%

Others 22.4% 381.3 293.2 30.0%

Acute 53.0% 901.1 763.4 18.0%

Chronic 47.0% 797.5 623.8 27.8%

Total Sales 100.0% 1698.6 1387.2 22.5%

Jun'11 MAT growth for Dr. Reddy has been lower at 10%



n The company has hired ~1400 people during FY11

n MR productivity declined due to higher MR additions which are yet

to contribute meaningfully to the top line



n Lupin's out-performance to the industry was due to strong volume

uptake in existing brands and 9% growth from new launches

during MAT Jun'11

n However, price growth was muted during the same period


n Top 5 products continue to register strong growth in excess of

20%


Tonact CVS 51.67 64.66 25.1%

Gluconorm G Anti-Diab 25.72 38.36 49.1%

Ramistar CVS 29.77 35.18 18.2%

R-cinex Anti-Infective 28.12 34.19 21.6%

Budamate Resp 26.15 33.83 29.3%

L cin Anti-Infective 29.97 31.62 5.5%

Lupenox CVS 28.76 31.34 9.0%

Tazar Anti-Infective 24.88 29.61 19.0%

Esiflo Resp 24.53 28.41 15.8%

Akt 4 Anti-Infective 22.55 27.37 21.3%

Total 292.1 354.6 21.4%

Lupin Ltd.

0.3

2.6

8.9

5.5

6.5

13.2

Lupin Industry


Total Gr. 22.5%

Total Gr. 14.5%

4.1 4.7 4.9 4.63.6

23.9

20.218.3

14.9

22.9

0

900

1800

2700

3600

4500


0

5

10

15

20

25

30



Pharma Sector

62

Financial snapshot

(Rs mn) FY11 YoY % FY12E YoY % FY13E YoY %

Formulations 48479 18.2% 57788 19.2% 71207 23.2%

Domestic 15509 14.9% 18456 19.0% 21778 18.0%

US 20201 20.1% 23964 18.6% 31104 29.8%

Europe 1816 -16.5% 2361 30.0% 2951 25.0%

Japan 6212 16.3% 7082 14.0% 8144 15.0%

SRM 4741 49.3% 5926 25.0% 7230 22.0%

API's 8589 10.5% 9756 13.6% 10749 10.2%

Domestic - API 2431 10.0% 2674 10.0% 2888 8.0%

Export - API 6158 10.7% 7082 15.0% 7861 11.0%

Operating income 1252 137.5 -89.0% 66.2 -51.9%

Total Sales 58320 19.6% 67682 16.1% 82022 21.2%

FTF Sales 0 - 1392 - 3393 -

Base Sales 58320 19.6% 66289 13.7% 78629 18.6%

EBITDA 11,911 22.4% 13,322 11.8% 16,680 25.2%

EBITDA % 20.4% 19.7% 20.3%

FTF EBITDA 0 - 817 - 2,225 -

Base EBITDA 0 - 12,505 - 14,455 15.6%

Base EBITDA % 20.4% 18.9% 18.4%

PAT 8,625 26.0% 9,825 13.9% 11,435 16.4%

PAT% 14.8% 14.5% 13.9%

FTF - PAT 0 - 654 - 1780 -

Base - PAT 8625 - 9171 6.3% 9655 5.3%

EPS 19.3 25.6% 22.0 13.9% 25.6 16.4%

FTF - EPS 0.0 - 1.5 - 4.0 -

Base - EPS 19.3 - 20.6 - 21.6 -

PE @ CMP 24.6 - 21.6 - 18.5 -


Lupin Ltd.


Product Generic Sales EPS Sales EPS Expected Branded ExclusivityName ($ Mn) 2012 ($ Mn) 2013 Launch Date Sales ($ Mn)

EEffexor XR Venlaflaxin HCL 7.7 0.3 2.3 0.0 Launched 2300 10+

Geodon Ziprasidone HCL 5.5 0.4 60.4 3.9 Mar-12 800 3+

Clarinex 5mg Desloratidine 2.3 0.0 2.3 0.1 Jul-12 150 10+

Ultram ER Tramadol ER 10.5 0.6 10.5 0.0 FY12 200 3+

Fortamet Metformin 5.0 0.2 0.0 0.0 FY12 40 Unshared

Total 30.9 1.5 75.4 4.0 3490



Pharma Sector

63

Financial Tables



Net Sales 48,359 58,320 67,682 82,022

Growth (%) 25.5 20.6 16.1 21.2

Expenditure 38,631 46,410 54,360 65,342

Raw Materials 19,694 22,379 27,413 32,792

SGA 11,830 16,353 16,341 19,675

Employee Cost 5,872 7,677 9,338 11,336

Other Exp 1,236 0 1,267 1,538

EBITDA 9,728 11,911 13,322 16,680

Growth (%) 29.4 19.9 23.1 14.8

EBITDA margin (%) 20.1 20.4 19.7 20.3

Depreciation 1,239 1,712 2,046 2,169

EBIT 8,489 10,199 11,276 14,511

EBIT margin (%) 17.6 17.5 16.7 17.7

Other Income 282 89 1,447 271


PBT 8,148 9,963 12,468 14,512

Tax 1,360 1,169 2,494 2,902


Adjusted PAT 6,665 8,457 9,675 11,261

(Profit)/loss from JV's/Ass/MI -180 -168 -150 -174


Growth (%) 28.9 26.0 13.9 16.4

Net Margin (%) 14.2 14.8 14.5 13.9

E/O items -238 0 0 0

Reported PAT 6,607 8,625 9,825 11,435

Growth (%) 31.7 30.5 13.9 16.4





Net worth 25,673 32,811 42,179 52,308


Secured Loans 2,848 3,348 2,848 2,348

Unsecured Loans 8,551 8,277 7,277 5,777

Loan Funds 11,399 11,624 10,124 8,124



Gross Block 26,134 26,389 34,143 39,143


Net block 19,062 17,313 23,332 26,163


Investment 264 32 676 676

Current Assets 27,755 34,967 46,686 56,424

Inventories 9,715 12,000 16,875 20,485

Sundry debtors 11,266 12,558 18,142 22,023


Loans & advances 4,759 6,208 6,336 6,963


Current lia & Prov 11,898 14,518 21,640 25,907


Provisions 2,249 2,718 2,965 3,235


Total Assets 38,761 46,361 54,379 62,682

Key Ratios


Profitability (%)

EBITDA Margin 20.1 20.4 19.7 20.3

Net Margin 14.2 14.8 14.5 13.9

ROCE 26.2 24.0 25.1 25.1

ROE 34.0 30.1 26.6 24.6

RoIC 30.3 29.3 31.6 31.7

Per Share Data (Rs)

EPS 15.4 19.3 22.0 25.6

CEPS 88.5 116.2 139.6 139.6

BVPS 57.7 73.6 94.5 117.2

DPS 2.9 3.7 4.5 5.2

Valuations (x)

PER 30.9 24.6 21.6 18.5

P/CEPS 4.7 3.6 3.0 3.0

P/BV 8.2 6.5 5.0 4.1

EV / Sales 4.1 3.3 2.8 0.0

EV / EBITDA 22.2 18.6 15.0 13.0

Dividend Yield (%) 0.6 0.8 0.9 1.1

Gearing Ratio (x)




Cash Flow (Rs. Mn)



Depreciation 1,239 1,712 2,046 2,169



Chg in working cap -4,478 -2,401 -3,465 -3,852

Tax paid -1,360 -1,169 -2,494 -2,902



Free Cash Flow -2,779 3,446 2,554 4,925

Other income 282 89 1,447 271

Investments -72 175 -645 0


Equity Capital Raised 3,506 138 0 0

Loans Taken / (Repaid) -834 226 -1,500 -2,000

Interest Paid -385 -325 -255 -270

Dividend paid (incl tax) -1,483 -1,658 -470 -1,306


Others 3,003 95 0 1

Financing Cashflow 3,806 -1,524 -2,224 -3,576

Net chg in cash 1,238 2,186 1,132 1,621

Opening cash position 778 2,015 4,201 5,333



Lupin Ltd.



CY09 7,944 1,559 19.6 1,445 48.4 (1.0) 14.4 27.9 22.5 4.1

FY11(16m)*12,446 2,589 20.8 2,294 57.6 19.0 15.7 23.5 17.8 3.5

FY12E 10,642 2,299 21.6 1,974 66.2 14.8 15.9 20.4 14.5 3.1

FY13E 12,345 2,728 22.1 2,349 78.7 19.0 16.7 17.2 11.9 2.7

* Note: Company has changed its results year ended November to year ended March 31st. As a result Q1FY12

numbers are not comparable with the reported period YoY


Valuation table


©

Pfizer LtdSustainable growth trajectory - Maintain Accumulate

Co

mp

an

y U

pd

ate


Reco Previous RecoAccumulate Accumulate

CMP Target Price

Rs1,353 Rs1,574



Nifty 4,868

Sensex 16,162

Price Performance

(%) 1M 3M 6M 12M

Absolute (2) (4) 14 24


Source: Bloomberg


26 September, 2011

Source: Bloomberg

Stock details


Bloomberg PFIZ@IN


Face Value (Rs) 10


52 Week H/L (Rs) 1,636/1,030






Promoters 70.8 70.8 70.8

FII/NRI 2.7 2.7 2.5



Public 17.9 18.2 18.9

Source: Capitaline

nnnnn Revenue growth of 15% CAGR over FY11-13E will be lead by

domestic formulations growing above industry rate and

increasing field force productivity

nnnnn Anti-infectives, CVS, Gastro, NSAID & CNS continue to grow at

a strong rate (Source: AIOCD). Momentum to continue lead by

addition of 300 MRs across 2 new divisions - CNS & Diabetes

nnnnn Most of the growth in the domestic formulation business will

be on account of strong volume uptake

nnnnn On back of good growth in formulations business & launch of

Biocon's Insulin in coming quarters, maintain accumulate with

a target price to Rs1574 (20x FY13 EPS of Rs78.7)

Growth will ramp up going forward

n Company has added 100% field force in last one and a half year to 2500, which has

still to produce the results. While growth in existing products would primarily be volume-

driven, overall growth would be propelled by new product launches across therapeutic

segments and expansion into tier-II and tier-III cities.

n The company has launched two new divisions - CNS and Diabetes and has added

300 people across two divisions. The company has guided for launch of insulin products

from Biocon's portfolio in next quarter. This will help the company to focus on branded

generics and fill the gaps in its portfolio.

n Pfizer is focusing on 4-5 new launches per quarter to sustain 14-15% growth in the

formulations business.

Improved sales force productivity to aid margin expansion

n Pfizer has aggressively increased its field force in the past in order to expand its reach

to tier-II & tier-III cities. With improving field force productivity, EBITDA margin are expected

to increase by ~500bps YoY to 22.1% in FY13E

ROE's to improve going ahead

n Pfizer's return ratios have been subdued over the past years mainly due to inefficient

capital deployment. We believe that a strong earnings growth would lead to an

improvement in return ratios from FY12E/FY13E onwards although at the lower end

Valuation

We expect Pfizer to report 14% revenue growth in FY12E and 16 % in FY13E. We expect

company's EBITDA to improve from 20.8% in FY11 to 21.6% in FY12 and further improve

to 22.1% in FY13. We value Pfizer at 20x FY13 EPS of Rs78.7 to arrive at a target price of

Rs1574 and maintain accumulate rating. At CMP of Rs1471, the stock is trading at 20x

FY12E and 17x FY13E earnings respectively.

1000

1110

1220

1330

1440

1550


Rs

-10

4

18

32

46

60%

Pfizer (LHS) Rel to Nifty (RHS)


Pharma Sector

65

Pfizer Ltd

Pfizer India - Domestic Metrics

Therapeutic growth Field force productivity

FY11% MAT MAT YoY


Respiratory 20.8% 258.6 244.9 5.6%

Anti-Infectives 17.7% 220.6 173.7 27.0%

Vitamins 12.1% 151.0 130.7 15.6%

CVS 9.2% 114.6 93.4 22.6%

Gastro 9.0% 111.7 90.7 23.1%

Hormones 7.9% 98.9 76.0 30.1%

Pain Mgmt 6.9% 85.8 68.1 26.0%

Gynaecology 3.9% 49.1 40.9 20.0%

CNS 3.4% 42.2 31.0 36.0%

Others 9.0% 111.6 80.6 38.5%

Acute 86.7% 1078.7 898.1 20.1%

Chronic 13.3% 165.4 131.9 25.4%

Total Sales 100.0% 1244.1 1030.0 20.8%

Jul'11 MAT growth for Pfizer has been above industry average



n The company has hired ~1800 people during the last 2 years. Total

MR strength is 4500

n MR productivity declined due to higher base of MRs and

restructuring in the domestic business



n Pfizer's growth for the last 12 months was above industry growth

led by strong volume uptake in the Acute portfolio


n The company's top selling product Corex witnessed flat growth

and Becosules is been promoted with lot of marketing push


Corex Resp 209.87 209.46 -0.2%

Becosules Vitamins 105.14 119.25 13.4%

Magnex Anti-Infective 68.22 87.55 28.3%

Gelusil mps Gastro 72.72 86.28 18.6%

Dolonex Pain 63.53 75.06 18.2%

Minipress xl CVS 45.84 55.92 22.0%

Solu medrol Hormones 38.65 53.87 39.4%

Dalacin c Anti-Infective 36.16 37.25 3.0%

Claribid Leprosy 18.10 27.30 50.8%

Corex dx Resp 16.45 26.95 63.8%

Total 674.7 778.9 15.4%

3.3

2.6

2.9

5.5

14.5

6.5

Pfizer India Industry


Total Gr. 20.8 %

Total Gr. 14.9%

4.43.4

10.6

4.8 3.6 3.9

13.3 13.6

1.50.7

0

500

1000

1500

2000

2500

3000


-2

0

2

4

6

8

10

12

14

16



Pharma Sector

66

Financial Tables


Y/E, Mar (Rs. mn) CY09 FY11(16m)* FY12E FY13E

Net Sales 7,944 12,446 10,642 12,345

Growth (%) 12.9 18 14 16

Expenditure 6,385 9,857 8,343 9,616

Raw Materials 2,877 3,905 3,384 3,864

SGA 925 0 0 0

Employee Cost 1,239 2,270 1,873 2,173

Other Exp 1,344 3,682 3,086 3,580

EBITDA 1,559 2,589 2,299 2,728

Growth (%) 3.0 25 18 19

EBITDA margin (%) 19.6 20.8 21.6 22.1


EBIT 1,477 2,469 2,192 2,615

EBIT margin (%) 18.6 19.8 20.6 21.2

Other Income 733 1,007 800 891


PBT 2,209 3,446 2,992 3,505

Tax 840 1,183 1,017 1,157


Adjusted PAT 1,445 2,294 1,974 2,349



Growth (%) 1.4 19 15 19

Net Margin (%) 18.2 18.4 18.6 19.0

E/O items 0 -30 0 0

Reported PAT 1,369 2,263 1,974 2,349

Growth (%) -1.9 24 16 19





Net worth 9,943 11,634 13,147 14,946




Loan Funds 0 0 0 0

Net deferred tax liability -275 -355 -356 -355


Gross Block 1,878 1,927 2,078 2,178

Less: Depreciation 953 1,073 1,160 1,273

Net block 925 854 918 905


Investment 5 0 0 0

Current Assets 10,821 12,617 13,965 16,211

Inventories 1,134 1,593 1,617 1,887

Sundry debtors 644 982 1,011 1,180


Loans & advances 3,721 4,213 4,346 5,072


Current lia & Prov 2,090 2,200 2,100 2,533


Provisions 761 628 669 881



Total Assets 9,668 11,279 12,791 14,591

Key Ratios

Y/E, Mar CY09 FY11(16m)* FY12E FY13E

Profitability (%)

EBITDA Margin 19.6 20.8 21.6 22.1

Net Margin 18.2 18.4 18.6 19.0

ROCE 15.6 17.2 17.7 18.6

ROE 14.4 15.7 15.9 16.7

RoIC 37.4 35.2 36.4 39.8

Per Share Data (Rs)

EPS 48.4 57.6 66.2 78.7

CEPS 51.2 61.4 69.8 82.5

BVPS 333.2 389.9 440.6 500.9

DPS 12.5 16.5 13.2 15.7

Valuations (x)

PER 27.9 23.5 20.4 17.2

P/CEPS 26.4 22.0 19.4 16.4

P/BV 4.1 3.5 3.1 2.7

EV / Sales 4.4 3.7 3.1 2.6

EV / EBITDA 22.5 17.8 14.5 11.9

Dividend Yield (%) 0.9 1.2 1.0 1.2

Gearing Ratio (x)

Net Debt/ Equity -0.5 -0.5 -0.5 -0.5

Net Debt/EBIDTA -3.4 -2.2 -3.0 -2.9


Cash Flow (Rs. Mn)






Chg in working cap -945 -1,190 -318 -785

Tax paid -780 -1,183 -1,017 -1,157

Operating Cashflow 568 1,193 1,763 1,677

Capital expenditure -185 -49 -171 -100

Free Cash Flow 383 1,144 1,592 1,577

Exceptional items 109 0 0 0

Investments 0 5 0 0

Investing Cashflow 492 1,149 1,592 1,577


Loans Taken / (Repaid) 0 0 0 0




Others -218 8 41 0

Financing Cashflow -655 -653 -422 -550

Net chg in cash -162 496 1,170 1,027




Pfizer Ltd



CY09 73,294 22,165 30.2 3,622 8.6 62.4 7.2 55.0 70.5 4.6

CY10 85,355 14,136 16.6 10,347 24.6 185.7 35.0 19.3 14.9 3.6

CY11E 97,660 18,602 19.0 13,147 31.3 27.1 21.0 15.2 9.6 2.8

CY12E 118,963 24,310 20.4 17,206 40.9 30.9 22.1 11.6 8.3 2.3


Valuation table


©

Ranbaxy LabsLipitor ready to strike - Upgrade to Hold

Co

mp

an

y U

pd

ate


Reco Previous RecoHold Reduce

CMP Target Price

Rs474 Rs513



Nifty 4,868

Sensex 16,162

Price Performance

(%) 1M 3M 6M 12M

Absolute 1 (7) 8 (16)


Source: Bloomberg


26 September, 2011

Source: Bloomberg

Stock details


Bloomberg RBXY@IN


Face Value (Rs) 5


52 Week H/L (Rs) 625/414






Promoters 63.8 63.8 63.8

FII/NRI 10.5 9.1 9.8



Public 11.3 11.8 11.6

Source: Capitaline

nnnnn Domestic business to grow by 13% CAGR on back of gradual

ramp-up from Project Viraat. Anti-infective & Gastro therapies

will witnessed competition from its peers

nnnnn Base business (excl. FTFs) to grow at 13% CAGR over FY11-

13E led by 13% growth in domestic business, 27% growth in

base US business & 17%/ 11% growth in Africa/ Asia

nnnnn Current valuations fully factor- in the future potential of FTF

opportunities

nnnnn With Lipitor getting ready to strike, we upgrade the stock to

Hold with a revised target price of Rs513 (20xbase business

earnings + Rs82 Para-IV NPV)

Strong FTF opportunities - All eyes on Lipitor launch

n Ranbaxy has been successful in monetizing the FTF opportunities in the past - Valtrex,

Aricept (on time launch), Imitrex, Prava 80mg, Zocor 80mg (delayed launch but exclusivity

retained) & Flomax (no launch but settled with Impax)

n We believe this has led the street to believe on Ranbaxy's ability to launch Lipitor. With

only the innovator and AG Watson in the market, we believe Lipitor launch can rake in

US$400-500mn in revenues, if Ranbaxy manages an on-time launch i.e. Nov'11,

however, this gain will largely be off-set by the penalty imposed by USFDA

n Going forward, generic Lipitor is expected to rake-in US$100mn in annual revenues

India business to regain momentum with Project Viraat

n India business (contributes 20%) has been growing below industry growth rate for the

past 2 quarters. Lower performance was mainly led by anti-infective, Gastro and Anti

Infective segment which witnessed increased competition from its peers

n Unless company grows the domestic business above industry growth rate of 12-14%,

base business will continue to witness margin pressure. Under Project Viraat,

management has guided for improved growth in the coming quarters

Europe & EMs growth momentum to continue

n Europe business (contributes 15%) to grow at a steady rate of 6% driven by its Romania

operations

n Asia/CIS/Africa (contributes 24%) to grow at a healthy rate of 11%/ 13%/ 17% over

CY10-12E, clocking combined sales of US$567mn

n Nexium approval by USFDA is expected in H2'11and post approval the supply to

AstraZeneca will start

Valuation

We expect Ranbaxy to report 21% base business revenue CAGR over CY10-12E. Base

EBIDTA margins are expected to increase from 10.5% in CY10 to 12.3% in CY11E &

14.9% in CY12E. Base Earnings are expected to register 60% CAGR over CY10-12E to

Rs9.1bn clocking an EPS of Rs21.5 in CY12E. We value the company at 20x CY12E base

business EPS & NPV of P-IV opportunities at Rs82 to arrive at a target price of Rs513. At

CMP, the stock trades at 15x & 12x CY12/13E EPS.

400

445

490

535

580

625


Rs

-20

-14

-8

-2

4

10%

Ranbaxy Labs (LHS) Rel to Nifty (RHS)


Pharma Sector

68

Ranbaxy Labs

Ranbaxy - Domestic Metrics

Therapeutic growth Field force productivity

FY11% MAT MAT YoY


Anti-infectives 32.7% 864.3 767.4 12.6%

CVS 14.5% 383.5 322.0 19.1%

Pain Mgmt 10.6% 280.1 206.9 35.4%

Dermatology 8.6% 227.7 189.9 19.9%

Gastro 6.0% 159.0 155.8 2.1%

CNS 4.1% 107.7 101.3 6.4%

Respiratory 3.7% 99.01 86.09 15.0%

Anti-diabetic 2.9% 77.6 63.9 21.3%

Gynaecology 2.0% 53.2 38.0 40.0%

Others 14.8% 391.6 335.1 16.8%

Acute 76.4% 2019.0 1729.4 16.7%

Chronic 23.6% 624.6 536.9 16.3%

Total Sales 100.0% 2643.7 2266.3 16.7%

Jul'11 MAT growth for Ranbaxy has been in-line with industry

average



n The company has hired ~1800 people during the last 2 years. Total

MR strength is 4500

n MR productivity declined due to higher base of MRs and restructuring

in the domestic business



n Ranbaxy's growth for the last 12 months was in-line with industry

growth led by volume uptake and new product launches


n The company's anti-biotic products - Mox & Cifran continue to report

de-growth in sales during MAT Jul'11 period (similar trend witnessed

in MAT'Jun 11)


Revital Vitamins 136.3 150.6 10.5%

Storvas CVS 128.3 138.0 7.6%

Volini Pain 83.8 129.7 54.7%

Mox Anti-Infective 117.2 114.7 -2.1%

Cifran Anti-Infective 106.0 101.0 -4.7%

Zanocin Anti-Infective 60.4 68.8 13.9%

Cepodem Anti-Infective 51.5 68.8 33.5%

Rosuvas CVS 43.3 64.4 48.6%

Sporidex Anti-Infective 60.3 61.5 1.9%

Cilanem Anti-Infective 37.6 56.9 51.3%

Total 824.8 954.3 15.7%

6.5

1.7

2.6

6

5.5

8.9

Ranbaxy Industry


Total Gr. 16.7%Total Gr. 14.5%

5.64.0 3.9

11.1

7.66.0 5.9

1.2

11.0

8.2

900

1900

2900

3900

CY06 CY07 CY08 CY09 CY10

0

4

8

12

16

20



Pharma Sector

69

Ranbaxy Labs

Financial snapshot

(Rs mn) CY10 CY11E YoY % CY12E YoY %

Sales 85355 97660 14% 118963 22%

Base 70904 82934 17% 103675 25%

FTF 14604 14903 2% 15511 4%

EBITDA 18389 20604 12% 26312 28%

Base 7437 10172 37% 15455 52%

Base EBITDA % 10.5% 12.3% 324 bps 14.9% 200 bps

FTF 10953 10432 -5% 10858 4%

PAT 11733 13147 12% 17206 31%

Base 3519 5323 51% 9063 70%

FTF 8214 7824 -5% 8143 4%

EPS 27.9 31.2 12% 40.9 31%

Base 8.4 12.6 51% 21.5 70%

FTF 19.5 18.6 -5% 19.3 4%

PE 17.0 15.2 11.6

Base 46.9 31.0 18.2



Pharma Sector

70

Financial Tables



Net Sales 73,294 85,355 97,660 118,963

Growth (%) 1.2 16.5 14.4 21.8

Expenditure 51,130 71,219 79,058 94,653

Raw Materials 32,080 31,528 36,148 42,999

SGA 4,875 5,021 4,976 5,702

Employee Cost 10,105 15,060 17,615 21,588

Other Exp 4,070 19,610 20,319 24,364

EBITDA 22,165 14,136 18,602 24,310

Growth (%) -1.1 346.5 31.6 30.7

EBITDA margin (%) 30.2 16.6 19.0 20.4

Depreciation 2,676 3,717 4,034 4,307

EBIT 19,489 10,419 14,567 20,002

EBIT margin (%) 26.6 12.2 14.9 16.8

Other Income 5,078 7,116 3,915 3,915


PBT 10,098 23,217 17,761 23,211

Tax 6,991 5,849 4,440 5,803


Adjusted PAT 3,480 17,369 12,974 17,004

(Profit)/loss from JV's/Ass/MI -142 -2,401 -173 -202


Growth (%) 62.4 185.7 27.1 30.9

Net Margin (%) 4.9 12.1 13.5 14.5

E/O items 5,240 6,365 0 0

Reported PAT 2,965 14,968 13,147 17,206

Growth (%) -131.2 404.7 -12.2 30.9





Net worth 43,432 56,046 70,803 87,003

Minority Interest 533 647 820 1,022

Secured Loans 34,109 40,979 16,421 12,421

Unsecured Loans 2,187 2,369 2,369 1,869

Loan Funds 36,295 43,348 18,790 14,290

Net deferred tax liability -4,746 -227 -227 -227


Gross Block 62,786 67,050 72,145 78,000


Net block 44,906 45,479 49,293 52,140


Investment 5,407 4,985 4,985 4,985

Current Assets 60,086 86,932 91,804 91,843

Inventories 18,407 21,926 21,478 31,394

Sundry debtors 18,399 16,052 21,926 27,642



Other current assets 10,863 16,309 8,106 21,635

Current liab & Prov 41,115 41,399 59,049 50,033


Provisions 8,604 9,534 5,191 6,078


Total Assets 75,515 99,814 90,186 102,088

Key Ratios

Y/E, Dec CY09 CY10 CY11E CY12E

Profitability (%)

EBITDA Margin 30.2 16.6 19.0 20.4

Net Margin 4.9 12.1 13.5 14.5

ROCE 4 16.8 17.5 22.9

ROE 7.2 35.0 21.0 22.1

RoIC 1.1 19.0 29.1 32.2

Per Share Data (Rs)

EPS 8.6 24.6 31.3 40.9

CEPS 2.5 18.3 40.9 51.2

BVPS 103.1 133.2 168.3 206.8

DPS 0.0 0.0 0.0 2.4

Valuations (x)

PER 55.0 19.3 15.2 11.6

P/CEPS 2.5 18.3 40.9 51.2

P/BV 4.6 3.6 2.8 2.3

EV / Sales 3.0 2.5 1.8 1.7

EV / EBITDA 70.5 14.9 9.6 8.3

Dividend Yield (%) 0.0% 0.0% 0.0% 0.5%

Gearing Ratio (x)

Net Debt/ Equity 0.6 0.2 -0.3 0.0

Net Debt/EBIDTA 4.1 0.6 -1.0 0.1

Cash Flow (Rs. Mn)



Depreciation 2,676 3,717 4,034 4,307



Chg in working cap -11,296 -6,332 20,427 -38,176

Tax paid -6,991 -5,849 -4,440 -5,803

Operating Cashflow -7,205 10,357 36,591 -17,666


Free Cash Flow -11,410 7,656 30,232 -24,821

Other income 2,402 2,795 1,912 1,912

Investments 24 423 0 0

Investing Cashflow -1,779 516 -4,448 -5,243

Equity Capital Raised 0 -1,691 0 0


Interest Paid -710 -614 -722 -707

Dividend paid (incl tax) 0 0 0 -1,006

Others 4,707 4,607 785 0

Financing Cashflow -2,557 9,355 -24,494 -6,212

Net chg in cash -11,540 20,228 7,649 -29,121




Ranbaxy Labs



FY10 40,103 13,662 34.1 12,590 12.2 (30.7) 18.1 38.5 35.2 6.2

FY11 57,214 19,890 34.8 18,386 17.8 46.0 22.2 26.4 23.5 5.1

FY12E 73,135 25,204 34.5 22,365 21.6 21.6 22.6 21.7 18.5 4.3

FY13E 88,099 32,364 36.7 28,250 27.3 26.3 23.8 17.2 14.1 3.6


Valuation table


©

Sun PharmaGoing Strong - Upgrade to Accumulate

Co

mp

an

y U

pd

ate


Reco Previous RecoAccumulate Hold

CMP Target Price

Rs468 Rs513



Nifty 4,868

Sensex 16,162

Price Performance

(%) 1M 3M 6M 12M

Absolute 1 (4) 2 24


Source: Bloomberg


26 September, 2011

Source: Bloomberg

Stock details


Bloomberg SUNP@IN


Face Value (Rs) 1


52 Week H/L (Rs) 538/374






Promoters 63.7 63.7 63.7

FII/NRI 18.6 18.5 19.1



Public 5.5 5.6 5.5

Source: Capitaline

nnnnn Domestic formulation to grow at 17% CAGR on back of new

launches in FY12 & leadership in chronic therapies

(psychiatrists, neuro, cardio, ophtho and ortho)

nnnnn North American Business to show robust growth of CAGR of

30.5%, on the back of Para IV opportunities like Taxotere,

Consolidation of Taro and Launch of recently approved 7

ANDAs.

nnnnn We expect an EPS of Rs1.6 & Rs5.2 from its Para IV

opportunities for FY12 and FY13 respectively, major being

Repaglinide, Clopidogrel and Carbidopa, Entacapone,

Levodopa (Stalevo)

nnnnn Upgrade to Accumulate with a target price of Rs513(23xFY13

Core EPS of Rs22.1 + NPV of Rs5)

Domestic business - Focus on Chronic Therapies

nnnnn Domestic formulation (contributes ~40%) is expected to grow at 18% CAGR (FY11-

FY13) on back of new sustained product launches and leadership in chronic therapy.

Sun has already launched Sitagliptin under the Sun-Merck JV and plans to launch

Sitagliptin + Metformin combination in Q2FY12

North America - Revenues from Taxotere and growth in Taro are thekey drivers

nnnnn Sun Pharma launched Taxotere generics during the current year. We expect sales of

~ $40m for full year for SUNP. (Assuming current generic market size of $200m with 4

generic players) Large part of US generics growth is dependent upon the revenue

from this product.

nnnnn Integration of Taro's US business would add a well-established portfolio of dermatology

and pediatric products to Sun's portfolio which do not overlap with Sun's core portfolio.

We have not factored in any synergy due to SUNP's acquition, thus any developments

for Taro will add additional upside to our projections.

nnnnn Further, if there is a USFDA clearance to Caraco (Warning letter given in 2008) there

will be further upside in our projections. Historically Sun has been able to resolve the

warning letters issued to its Cranbury facility and Taro's Canadian facility. These

instances vindicates sooner clearance of Caraco facility as well.

nnnnn It is pertinent to note that the company has 382 ANDA filings (including 6 ANDAs filed

this quarter) till date with 151 ANDAs pending for approval, highest number of filings by

an Indian pharma company. Management has guided for 25 ANDA filings during FY12

Valuation

We expect Sun Pharma to report 26% growth in revenues in FY12E and 20.7% growth in

FY13E. EBIDTA margins are expected to increase from 28.8% in FY11 to 33.4% in FY12E

and 33.8% in FY13E. Earnings will grow by 30% CAGR over FY11-13E. We maintain target

price of Rs 513 (23x FY13E core earnings of Rs22.1). At CMP, the stock trades at 22x

FY12E and 17x FY13E EPS.

350

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Rs

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24

36

48

60%

Sun Pharma (LHS) Rel to Nifty (RHS)


Pharma Sector

72

Sun Pharma - Domestic Metrics

Sun Pharma - Therapeutic growth Field Force Productivity

FY11% MAT MAT YoY


CNS 27.6% 686.1 581.0 18.1%

CVS 19.5% 484.8 390.8 24.1%

Gastro 13.7% 340.8 270.7 25.9%

Gynecology 8.3% 206.4 176.0 17.3%

Pain Mgmt 5.1% 127.1 94.6 34.4%

Respiratory 4.3% 106.0 92.4 14.8%

Ophthalmology 4.8% 120.4 98.6 22.1%

Anti-Neoplastics 0.1% 2.6 2.8 -9.8%

Anti-diabetic 9.2% 227.6 177.3 28.3%

Others 7.3% 181.7 143.0 27.1%

Acute 40.7% 1011.0 818.1 23.6%

Chronic 59.3% 1472.5 1209.1 21.8%

Total Sales 100.0% 2483.5 2027.2 22.5%

Jul'11 MAT growth for Sun Pharma has been above industry

rate at 23%



n Sun Pharma has added just 100 people to its field force during FY11

n Higher MR productivity has resulted into industry out-performance

n Sun has the highest MR productivity amongst its Indian peers

Sun Pharma



Rs Cr Therapies MAT MAT YoY

Jun'10 Jun'11 Gr.

Pantocid CNS 64.10 77.68 21.2%

Susten Gynaec 54.47 60.20 10.5%

Aztor CVS 48.91 58.38 19.4%

Glucored Anti-Diabetes 52.07 56.51 8.5%

Gemer Anti-Diabetes 38.43 50.69 31.9%

Pantocid DSR CNS 32.86 40.67 23.8%

Oxetol CNS 29.75 36.35 22.2%

Clopilet CVS 28.08 34.31 22.2%

Cardivas CVS 26.86 32.43 20.7%

Encorate chronoCVS 30.03 32.20 7.2%

Total 405.6 479.4 18.2%

n Sun Pharma's out-performance was due to strong volume uptake

in existing brands coupled with 8% growth from new launches

during MAT Jul'11


n Pantocid,, Oxetol, Aztor & Cardiva S clocked 20%+ growth during

the period leading to 18% growth from the top 10 brands

1.7

2.6

8

5.5

6.5

12.8

Sun Industry


Total Gr. 22.5%

Total Gr. 14.5%

6.2 7.4 7.8 7.0 8.8

19.2

48

37

4348

38

17.215.425.023.1

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Field force Productivity

Dom Gr (%) New launches


Pharma Sector

73

Sun Pharma

Financial Snapshot

Rs mn FY11 YoY % FY12E YoY % FY13E YoY %

A. Formulations ( 1 + 2 + 3 ) 52783 49.9% 66923 26.8% 80990 21.0%

1. Domestic 23801 30.1% 27440 15.3% 32350 17.9%

2. US ( a + b ) 23954 117.5% 33197 38.6% 40782 22.8%

a. Taro 10062 - 20531 104.0% 22585 10.0%

b. Caraco 13892 26.1% 12666 -8.8% 18197 43.7%

- Base 6148 47.0% 9619 56.5% 8886 -7.6%

- FTF 7743 - 3046 - 9311 -

3. RoW 5029 -14.7% 6286 25.0% 7858 25.0%

B. API 5212 -5.1% 6119 17.4% 7221 18.0%

Domestic 1130 10.6% 1220 8.0% 1342 10.0%

Exports 4082 -8.7% 4899 20.0% 5879 20.0%

C. Others 70 -9.4% 93 32.5% 95 2.0%

Consolidated Revenues ( A + B + C ) 58066 42.4% 73135 26.0% 88306 20.7%

FTF 7743 13.4% 3046 -60.7% 9311 205.6%

Taro 10062 - 20531 104.0% 22585 10.0%

Base (Exlc - FTF) 40261 18.6% 49558 23.1% 56410 13.8%

Reported EBITDA 19,890 45.6% 25,204 26.7% 32,364 28.4%

EBITDA % 34.8% 34.5% 36.7%

- FTF EBITDA 5420 - 1791 - 5875 -

- Taro EBITDA 2516 - 5954 136.7% 6775 13.8%

- Sun Base EBITDA 11954 33.0% 17458 46.0% 19714 12.9%

Total Base EBITDA 14,470 61.0% 23,412 61.8% 26,490 13.1%

EBITDA % - Base Business 28.8% 33.4% 33.5%

Reported PAT 18,386 46.0% 22,365 21.6% 28,250 26.3%

PAT % 32.1% 30.6% 32.1%

- FTF PAT 4987 - 1648 - 5405 -

- Taro PAT 2365 - 5749 143.1% 6324 10.0%

- Sun PAT 11034 21.4% 14968 35.6% 16522 10.4%

Total Base PAT 13399 47.5% 20717 54.6% 22846 10.3%

PAT % - Base Business 26.6% 29.6% 28.9%

Reported EPS 17.8 46.0% 21.6 21.6% 27.3 26.3%

- FTF EPS 4.8 - 1.6 - 5.2 -

- Taro EPS 2.3 - 5.6 143.1% 6.1 10.0%

- Sun EPS 10.7 21.4% 14.5 35.6% 16.0 10.4%

EPS - Base Business 12.9 47.5% 20.0 54.6% 22.1 10.3%

PE @ CMP 26.4 21.7 17.2

Base PE @ CMP 36.2 23.4 21.2


Pharma Sector

74


Product Sales for Sales for Expected Branded

Generic SUNP FY12 SUNP FY13 Launch Sales

Name ($ Milion) EPS 2012 ($ Milion) EPS 2013 Date ($ Million) Exclusivity

Gemzar Gemcitabine 3.57 0.07 0.00 0.00 Launched 634 10+

Taxotere Docetaxel 40.33 1.05 20.17 0.52 Launched 1100 5

Uroxatral Alfuzosin 6.25 0.15 0.00 0.00 Launched 250 8

Exelon Rivastigmine 15.0 0.3 4.5 0.1 Launched 93 2+

Eloxatin Oxaliplatin 0.00 0.00 60.00 1.68 Aug-12 1500 7

Boniva Injectible Ibandronate Sodium 0.00 0.00 3.55 0.15 Aug-12 71 5+

Gabitril (2mg & 4mg) Tiagabine HCL 1.08 0.02 0.00 0.00 Oct-12 18 Unshared

Stalevo Carbidopa, 0.00 0.00 28.70 0.80 Apr-12 205 Unshared

Entacapone, Levodopa

Lexapro Escitalopram Oxalate 0.00 0.00 11.50 0.30 FY13 2300 4+

Plavix Clopidogrel Bisulfate 0.00 0.00 50.00 1.00 May-13 6666 7+

Prandin Repaglinide 0.00 0.00 24.00 0.67 FY13 200 Unshared

Total 66.2 1.6 202.4 5.2 13037

Sun Pharma


Pharma Sector

75

Financial Tables



Net Sales 40,103 57,214 73,135 88,099

Growth (%) -4.2 42.7 27.8 20.5

Expenditure 26,441 37,324 47,932 55,734

Raw Materials 10,977 14,607 19,399 23,963

SGA 9,146 11,695 15,197 16,789

Employee Cost 4,008 7,996 9,115 10,482

Other Exp 2,311 3,027 4,221 4,500

EBITDA 13,662 19,890 25,204 32,364

Growth (%) -26.8 45.6 26.7 28.4

EBITDA margin (%) 34.1 34.8 34.5 36.7

Depreciation 1,533 2,041 2,557 2,871

EBIT 12,129 17,850 22,647 29,493

EBIT margin (%) 30.2 31.2 31.0 33.5

Other Income 1,686 2,733 2,942 2,830


PBT 14,148 20,583 25,589 32,323

Tax 679 1,284 2,047 2,586


Adjusted PAT 13,552 17,472 21,188 26,764

(Profit)/loss from JV's/Ass/MI 962 -913 -1,177 -1,487


Growth (%) -30.7 46.0 21.6 26.3

Net Margin (%) 31.4 32.1 30.6 32.1

E/O items 334 0 0 0

Reported PAT 13,511 18,386 22,365 28,250

Growth (%) -25.7 36.1 21.6 26.3





Net worth 78,289 95,208 113,442 136,473

Minority Interest 1,932 8,472 9,649 11,135

Secured Loans 479 1,179 679 179

Unsecured Loans 1,233 3,077 2,577 2,077

Loan Funds 1,712 4,256 3,256 2,256

Net deferred tax liability -890 -3,652 -3,652 -3,652


Gross Block 27,401 43,947 48,447 53,447


Net block 19,388 33,660 35,603 37,732


Investment 30,664 22,310 22,310 22,310

Current Assets 37,121 60,622 79,507 103,655

Inventories 10,739 14,794 18,284 25,549

Sundry debtors 11,748 11,716 24,135 31,716


Loans & advances 8,562 11,726 14,701 16,902


Current liab & Prov 7,579 14,308 16,726 18,485


Provisions 3,484 5,105 5,943 6,638


Total Assets 81,042 104,284 122,694 146,212

Key Ratios


Profitability (%)

EBITDA Margin 34.1 34.8 34.5 36.7

Net Margin 31.4 32.1 30.6 32.1

ROCE 18 22 22 23

ROE 18 22 23 24

RoIC 29.9 34.0 32.1 33.4

Per Share Data (Rs)

EPS 12.2 17.8 21.6 27.3

CEPS 13.3 19.7 24.1 30.1

BVPS 75.6 91.9 109.5 131.8

DPS 3.2 4.7 5.4 6.0

Valuations (x)

PER 38.5 26.4 21.7 17.2

P/CEPS 35.1 23.7 19.4 15.6

P/BV 6.2 5.1 4.3 3.6

EV / Sales 12.0 8.2 6.4 5.2

EV / EBITDA 35.2 23.5 18.5 14.1

Dividend Yield (%) 0.7 1.0 1.2 1.3

Gearing Ratio (x)

Net Debt/ Equity -0.1 -0.2 -0.2 -0.2

Net Debt/EBIDTA -0.3 -0.8 -0.7 -0.8

Cash Flow (Rs. Mn)



Depreciation 1,533 2,041 2,557 2,871



Chg in working cap -4,675 -458 -16,466 -15,288

Tax paid -1,106 -1,284 -2,047 -2,586



Free Cash Flow 5,295 4,943 2,191 10,491

Other income 1,686 2,733 2,942 2,830

Investments -12,069 8,354 0 0



Loans Taken / (Repaid) -77 2,544 -1,000 -1,000



Others -2,131 1,126 0 0

Financing Cashflow -5,529 283 -5,132 -6,219

Net chg in cash -10,618 16,314 1 7,102




Sun Pharma



FY10 18,890 3,937 20.8 2,665 31.5 13.7 31.2 20.4 14.1 6.5

FY11 21,825 3,652 16.7 2,536 30.0 (4.9) 29.2 21.4 15.1 5.3

FY12E 24,201 4,470 18.5 3,051 36.1 20.3 30.2 17.8 13.0 4.8

FY13E 28,242 5,352 19.0 3,738 44.2 22.5 31.1 14.5 11.0 4.2


Valuation table


©

Torrent PharmaFairly Valued - Maintain Hold

Co

mp

an

y U

pd

ate



CMP Target Price

Rs576 Rs618



Nifty 4,868

Sensex 16,162

Price Performance

(%) 1M 3M 6M 12M

Absolute (2) (6) 10 2


Source: Bloomberg


26 September, 2011

Source: Bloomberg

Stock details


Bloomberg TRP@IN


Face Value (Rs) 5


52 Week H/L (Rs) 687/497






Promoters 71.5 71.5 71.5

FII/NRI 4.3 3.7 3.5



Public 7.7 7.9 7.9

Source: Capitaline

nnnnn Torrent's Pharma domestic business to grow by 13% CAGR

over FY11-13E led by recent expansion in field force, better

contribution of chronic portfolio and 35-40 new launches

nnnnn US business to grow by 38% CAGR over FY11-13E on account

of 7-8 new luanhces per year. Torrent has 32 ANDAs pending

approval and 22 more are under development

nnnnn Formulation supply agreements with Astra Zeneca and

another MNCs for branded emerging markets are expected to

ramp up over the next 2-3 years

nnnnn Maintain Hold with a target price of Rs618 (14x FY13 earnings

of Rs44.2)

Domestic formulations - higher chronic exposure to aid margin erosion

nnnnn Domestic formulations (contributes 40%) to grow by 13% CAGR over FY11-13E -

l Recent expansion in field force, higher concentration of chronic portfolio and 35-40

new launches in FY12E

l The chronic portfolio (CVS, CNS & anti-diabetic constitute 60%), which contributes

60% of domestic portfolio will help Torrent to protect margin erosion as the

company's acute portfolio is witnessing pricing pressure due to increased

competition mainly in anti-infective & pain segments

MNC tie-ups for branded generics adds to long-term growth potential

nnnnn Over the last two years, Torrent Pharma has entered into tie-ups for formulation supplies

with two MNCs, one being AstraZeneca. The agreement with Astra, signed in Mar

2010, involves supply of 18 products for sale in nine branded generic markets

nnnnn Both the deals involve milestone payments. We expect material contribution to take at

least a couple of years to fructify

nnnnn Torrent also has a tie-up with Novo Nordisk to manufacture and supply human insulin

for Indian markets. Increased capacity for Insulin manufacturing will lead higher revenue

traction from this deal

US & EMs - New launches to aid revenue momentum

nnnnn In the US, the company has 60 ANDA filings with 32 pending for approvals and 22

under development. 7-8 new launches expected in FY12E/13E

nnnnn Ramp-up in key markets of Brazil and RoW will lead to 13% CAGR in export revenues

over FY11-13E

Valuation

We expect Torrent to report 11% revenue growth in FY12E and 17% growth in FY13E.

EBIDTA margins are expected to increase from 16.7% in FY11 (adjusted margins 18.5%)

to 18.5% in FY12E and 19% in FY13E. Earnings will grow by 21% CAGR over FY11-13E.

Maintain Hold with a target price of Rs618 (14xFY13E EPS of Rs44.2). At CMP, Torrent

trades at 18x FY12E and 15x FY13E EPS.

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Torrent Pharma (LHS) Rel to Nifty (RHS)


Pharma Sector

77

2.6

5.8

5.5

13.5

6.5

Torrent Industry


Total Gr. 19%

Total Gr. 14.5%


Torrent Pharma – Domestic Metrics

Torrent Pharma - Domestic Metrics Field force productivity

FY11% MAT MAT YoY


Cardiac 31.9 282.4 249.6 13.1

Gastro 18.7 165.6 142.5 16.2

CNS 20.9 185.1 157.4 17.6

Anti-Infective 14.4 127.3 92.9 37.1

Anti-Diabetic 5.7 50.3 43.5 15.6

Pain 3.0 26.1 22.1 18.4

Vit/ Minerals 1.6 14.2 11.5 23.0

Respiratory 0.6 5.0 4.6 9.3

Derma 1.0 9.2 7.4 23.3

Others 2.2 19.2 11.9 61.7

Acute 41.1 363.2 288.2 26.0

Chronic 58.9 521.1 455.2 14.5

Total Sales 100.0 884.3 743.4 19.0

Jul'11 MAT growth for Torrent has been strong at 19%



n The company has hired ~900 people during the last 2 years

n MR productivity declined due to higher attrition rate in FY11



Jun'10 Jun'11 Gr.

Alprax CNS 33.14 36.95 11.5%

Topcef Anti-Infective 23.73 34.06 43.5%

Nikoran Gynaec 29.18 32.61 11.8%

Dilzem CVS 29.96 31.37 4.7%

Domstal CVS 27.56 29.84 8.3%

Nebicard Gastro 17.95 21.56 20.1%

Droxyl Anti-Infective 19.45 20.49 5.3%

Azulix-mf Anti-Diabetics 14.40 18.75 30.2%

Nexpro rd Gastro 12.82 18.32 43.0%

Deplatt-a CVS 14.51 16.71 15.2%

Total 222.7 260.6 17.0%n Torrent's growth during MAT Jul'11 was led by strong volume

uptake and new product launches. The company witnessed

intense pricing pressure from local peers during the period


Torrent Pharma

5.4 5.2 5.2 4.5 5.1

16.7

5.2

15.7 19.8

0

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Pharma Sector

78

Financial Snapshot

Rs mn FY11 FY12E YoY % FY13E YoY %

Formulations 19371 21485 10.9% 24561 14.3%

Domestic 8416 9425 12.0% 10745 14.0%

Exports 10955 12060 10.1% 13816 14.6%

Brazil 3551 3977 12.0% 4574 15.0%

Heumann 2812 2812 0.0% 2952 5.0%

Europe (Without Heumann) 1476 1697 15.0% 1952 15.0%

US 1143 1651 44.4% 2171 31.5%

Russia CIS 620 434 -30.0% 456 5.0%

ROW 1353 1488 10.0% 1712 15.0%

Contract Manufacturing 2199 2499 13.6% 3524 41.0%

Total Sales 21571 23984 11.2% 28084 17.1%

Others 1081 850 -21.4% 650 -23.5%

Gross Sales 22651 24833 9.6% 28734 15.7%

Licensing Income 230 200 - 0 -

Other income 210 0 - 0 -

Core Revenues 22211 24633 10.9% 28734 16.6%

EBITDA 3,652 4,470 22.4% 5,352 19.7%

EBITDA % 16.7 18.5 19.0

Adjusted EBITDA % 18.2 18.5 19.0

PAT 2,536 3,051 20.3% 3,738 22.5%

PAT % 11.6 12.6 13.2

EPS 30.0 36.1 20.3% 44.2 22.5%

PE @ CMP 21.4 17.8 14.5

Torrent Pharma


Pharma Sector

79

Financial Tables



Net Sales 18,890 21,825 24,201 28,242

Growth (%) 15.9 15.5 10.9 16.7

Expenditure 14,953 18,173 19,732 22,890

Raw Materials 5,710 6,965 7,914 9,235

SGA 5,406 6,553 6,861 7,871

Employee Cost 3,162 3,895 4,114 4,801

Other Exp 675 760 842 983

EBITDA 3,937 3,652 4,470 5,352

Growth (%) 31.3 -7.2 22.4 19.7

EBITDA margin (%) 20.8 16.7 18.5 19.0


EBIT 3,331 3,026 3,799 4,622

EBIT margin (%) 17.6 13.9 15.7 16.4

Other Income 216 81 104 104


PBT 2,942 3,427 3,964 4,559

Tax 632 725 714 821


Adjusted PAT 2,665 2,536 3,051 3,738



Growth (%) 13.7 -4.9 20.3 22.5

Net Margin (%) 14.1 11.6 12.6 13.2

E/O items -314 440 200 0

Reported PAT 2,311 2,702 3,251 3,738

Growth (%) 25.3 16.9 20.3 15.0





Net worth 8,310 10,224 11,306 12,768


Secured Loans 3,646 3,946 4,196 4,496

Unsecured Loans 1,578 1,774 1,899 2,049

Loan Funds 5,224 5,721 6,096 6,546



Gross Block 8,129 9,643 13,217 15,717


Net block 5,412 6,355 9,192 10,962


Investment 1,412 1,460 1,460 1,460

Current Assets 11,608 15,346 13,460 13,711

Inventories 3,236 5,048 4,913 4,886

Sundry debtors 2,982 3,404 4,114 4,801


Loans & advances 1,507 2,105 2,029 2,133


Current lia & Prov 5,496 8,907 8,398 8,508


Provisions 1,280 1,427 1,358 1,415



Total Assets 14,033 16,440 17,897 19,809

Key Ratios


Profitability (%)

EBITDA Margin 20.8 16.7 18.5 19.0

Net Margin 14.1 11.6 12.6 13.2

ROCE 28.5 21.1 23.4 25.7

ROE 31.2 29.2 30.2 31.1

RoIC 46.8 41.3 40.2 36.7

Per Share Data (Rs)

EPS 31.5 30.0 36.1 44.2

CEPS 34.5 32.2 41.6 52.8

BVPS 98.2 120.8 133.6 150.9

DPS 6.0 8.0 6.0 0.0

Valuations (x)

PER 20.4 21.4 17.8 14.5

P/CEPS 16.5 14.5 12.3 0.0

P/BV 6.5 5.3 4.8 4.2

EV / Sales 2.9 2.5 2.4 2.1

EV / EBITDA 14.1 15.1 13.0 11.0

Dividend Yield (%) 0.9 1.2 0.9 0.0

Gearing Ratio (x)

Net Debt/ Equity 16.1 9.1 32.7 36.5



Cash Flow (Rs. Mn)






Chg in working cap 348 577 -1,005 -656

Tax paid -705 -725 -714 -821



Free Cash Flow 1,797 1,287 -556 1,376

Other income 216 81 104 104

Investments -17 -48 0 0


Equity Capital Raised 81 -1,190 -1,575 -1,682

Loans Taken / (Repaid) 398 497 375 450

Interest Paid -291 -121 -139 -167



Others -10 1,186 0 0

Financing Cashflow -414 -415 -1,933 -1,992

Net chg in cash 1,583 905 -2,385 -513




Torrent Pharma



FY10 7,473 1,730 23.2 1,249 13.9 19.6 23.4 10.3 7.6 2.3

FY11 8,240 1,500 18.2 951 10.6 (23.8) 16.1 13.5 8.9 2.1

FY12E 9,322 1,403 15.1 817 9.1 (14.1) 12.6 15.7 9.8 1.9

FY13E 10,846 1,915 17.7 1,210 13.4 48.1 16.8 10.6 7.3 1.7


Valuation table


©

Unichem LabsIn Restructuring Phase - Maintain Hold

Co

mp

an

y U

pd

ate



CMP Target Price

Rs143 Rs148

EPS change FY12E/13E (%) -20 / -12


Nifty 4,868

Sensex 16,162

Price Performance

(%) 1M 3M 6M 12M

Absolute (0) 0 (22) (26)

Rel. to Nifty 0 10 (9) (10)

Source: Bloomberg


26 September, 2011

Source: Bloomberg

Stock details


Bloomberg UL@IN


Face Value (Rs) 2


52 Week H/L (Rs) 269/138






Promoters 48.6 48.7 48.4

FII/NRI 7.4 7.5 5.7



Public 26.4 26.0 26.2

Source: Capitaline

nnnnn Restructuring in the domestic market, higher attrition rate &

recruitment of new MR's will take a toll on domestic business

resulting in 11% revenue CAGR over FY11-13E

nnnnn Outsourcing contract with MNC generic company will

commence in H2FY12E; potential revenues of Rs600mn &

Rs1.2bn in FY12/13E respectively

nnnnn Inventory rationalization and addition of new MR's will

continue to pressurize margins

nnnnn Maintain Hold with a target price of Rs148 (11x FY13E EPS of

Rs13.4)

Domestic formulations which contributes 70% to overall sales; willremain subdued in FY12

nnnnn Unichem is restructuring its distribution model in domestic market and moving from

distributors to C&F agents which will result in loss of one month's domestic sales in

FY12. Unichem is one of the few pharma companies, which is following distribution

model (~65% of domestic sales) in the domestic market. The company currently

maintains 60 days of inventory at the distributors, out of which 40 days is an unpaid

inventory. Post restructuring, inventory days will reduce to 20-30 days from current

levels resulting in loss of one -months sale

nnnnn During FY11, Unichem witnessed one of the highest attrition rates in the industry i.e.

30%. This led to negative growth in domestic business in Q4FY11. Going ahead, the

company will be focusing on improving the productivity of newly recruited MRs. As a

result, domestic business will grow at subdued rate of 5% during FY12E

Exports formulations to grow at 8% CAGR over FY11-13E

nnnnn Niche Generics (contributes 8% to sales) to remain flat on account of pruning of

product pipeline and price erosion in the European market

nnnnn US business (contributes 3% to sales) to grow at 23% CAGR over FY11-13E. Unichem

has 17 ANDA filings with 8 pending for approvals and 7 already commercialized

nnnnn Commencement of outsourcing contract with MNC company in H2FY12E will generate

revenues of Rs600mn & Rs1.2bn in FY12/13E respectively

Valuation

We expect Unichem to report 13% revenue growth in FY12E and 16% growth in FY13E.

We expect EBIDTA margins to range from 18.2% in FY11 to 15% in FY12E and 17.7% in

FY13E. Earnings will grow by 13% CAGR over FY11-13E. Revise the target price on the

stock to Rs148 (11x FY13 EPS) with a Hold rating. At current price, the stock trades at 15.7x

FY12E EPS of Rs9.1 and 10.6x FY13E EPS of 13.4

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12

26

40%

Unichem Labs (LHS) Rel to Nifty (RHS)


Pharma Sector

81

Unichem Labs


Growth drivers - Volume/ Price/ New launches

n Unichem's underperformance to the industry during MAT Jul'11

was led by restructuring and key brands reporting de-growth

n This was mainly due to increased competition and high attrition

rate in its field force. Attrition for Unichem stood at 25-30%

Unichem Labs - Domestic Metrics

Unichem's therapeutic growth

FY11% MAT MAT YoY


Cardiac 46.3 299.4 262.9 13.9

Anti-Infective 15.4 99.8 101.2 -1.3

CNS 13.7 88.3 83.7 5.4

Pain 3.8 24.5 25.0 -2.1

Gastro 8.5 55.0 52.4 5.1

Anti- diabetic 3.5 22.7 21.7 4.7

Respiratory 3.0 19.5 17.4 12.1

Vit/ Minerals 2.6 16.9 19.7 -14.3

Derma 2.2 13.9 9.2 51.8

Others 1.0 6.6 5.8 13.0

Acute 36.2 233.8 228.0 2.5

Chronic 63.8 412.8 370.9 11.3

Total Sales 100.0% 646.6 598.9 8.0%

Jun'11 MAT growth for Unichem has been lower at 8%



2.9

2.62.2

5.5

6.52.9

Unichem Industry


Total Gr. 8%

Total Gr. 14.9%

Top 10 brand performance


Jun'10 Jun'11 Gr.

Losar h CVS 59.63 70.68 18.5

Losar CVS 56.64 63.06 11.3

Ampoxin Anti-Infective 65.48 60.60 -7.5

Trika CNS 35.62 34.90 -2.0

Unienzyme Gastro 24.76 27.01 9.1

Tg-tor CVS 16.46 16.08 -2.3

Vizylac Vitamins 15.02 15.67 4.3

Serta CNS 12.82 12.91 0.7

Telsar CVS 10.15 12.24 20.5

Telsar-H CVS 10.24 11.76 14.9

Total 306.8 324.9 5.9


n Competition is expected to increase in the company's top selling

brands


Pharma Sector

82

Revenue Breakup (Consolidated)

Rs mn FY11 FY12E YoY % FY13E YoY %

Formulations 7463 7893 6% 8751 11%

Domestic 5758 6072 5% 6764 11%

Asia & Africa 333 366 10% 410 12%

Europe & UK 1119 1144 2% 1195 4%

Latam 17 19 10% 22 14%

US & Canada 237 293 24% 360 23%

New contracts 0 600 - 1200 -

API 739 790 7% 859 9%

Others 195 38 -80% 34 -11%

Total Sales 8397 9321 11% 10844 16%

EBITDA 1,500 1,403 -6% 1,915 36%

EBITDA margins % 18.2 15.1 17.7

APAT 951 817 -14% 1,210 48%

PAT margins % 11.5 8.8 11.2

EPS 10.6 9.1 -14% 13.4 48%

PE @CMP 13.5 15.7 - 10.6 -

Unichem Labs


Pharma Sector

83

Financial Tables



Net Sales 7,473 8,240 9,322 10,846

Growth (%) 1.6 10.3 13.1 16.4

Expenditure 5,743 6,740 7,919 8,931

Raw Materials 2,579 2,761 3,339 3,997

SGA 1,952 2,353 2,642 2,887

Employee Cost 1,011 1,365 1,535 1,616

Other Exp 202 261 402 431

EBITDA 1,730 1,500 1,403 1,915

Growth (%) 64.7 21.7 -13.3 -6.5

EBITDA margin (%) 23.2 18.2 15.1 17.7


EBIT 1,498 1,208 1,054 1,539

EBIT margin (%) 20.0 14.7 11.3 14.2

Other Income 66 69 9 29


PBT 1,532 1,267 1,048 1,551

Tax 304 316 231 341


Adjusted PAT 1,252 951 817 1,210


Adjusted PAT after MI 1,249 951 817 1,210

Growth (%) 19.5 -23.8 -14.1 48.1

Net Margin (%) 16.7 11.5 8.8 11.2

E/O items -22 0 0 0

Reported PAT 1,231 951 817 1,210

Growth (%) 13.9 -22.7 -14.1 48.1





Net worth 5,629 6,177 6,823 7,549




Loan Funds 358 500 850 1,050



Gross Block 4,646 5,370 7,081 7,822


Net block 3,334 3,773 5,237 5,643


Investment 592 213 213 213

Current Assets 3,445 4,035 4,303 4,996

Inventories 1,095 1,503 1,773 2,047

Sundry debtors 1,670 1,857 2,004 2,316

Cash & bank balance 236 152 -66 10



Current lia & Prov 1,673 1,758 1,880 2,071


Provisions 356 366 326 346


Total Assets 6,334 7,055 8,051 8,977

Key Ratios


Profitability (%)

EBITDA Margin 23.2 18.2 15.1 17.7

Net Margin 16.7 11.5 8.8 11.2

ROCE 27.9 20.2 14.8 19.3

ROE 23.4 16.1 12.6 16.8

RoIC 21.2 14.0 11.0 14.1

Per Share Data (Rs)

EPS 13.9 10.6 9.1 13.4

CEPS 16.5 13.8 13.0 17.6

BVPS 62.5 68.6 75.8 83.9

DPS 4.0 4.0 1.6 4.6

Valuations (x)

PER 10.3 13.5 15.7 10.6

P/CEPS 8.7 10.4 11.0 8.1

P/BV 2.3 2.1 1.9 1.7

EV / Sales 1.8 1.6 1.5 1.3

EV / EBITDA 7.6 8.9 9.8 7.3

Dividend Yield (%) 2.8 2.8 1.1 3.2

Gearing Ratio (x)




Cash Flow (Rs. Mn)






Chg in working cap -91 -591 -362 -426

Tax paid -304 -316 -231 -341

Operating Cashflow 1,312 593 811 1,148

Capital expenditure -435 -887 -1,200 -800

Free Cash Flow 878 -293 -389 348

Other income 66 69 9 29

Investments -582 379 0 0

Investing Cashflow -950 -439 -1,191 -771

Equity Capital Raised -26 18 -8 0

Loans Taken / (Repaid) -40 142 350 200

Interest Paid -10 -9 -15 -17



Others 27 30 0 0

Financing Cashflow -470 -239 163 -301

Net chg in cash -107 -85 -217 76

Opening cash position 344 236 152 -66

Closing cash position 236 152 -66 10


Unichem Labs


Pharma Sector

84

BUY Expected total return (%) (stock price appreciation and dividend yield) of over 25% within the next 12-18 months.ACCUMULATE Expected total return (%) (stock price appreciation and dividend yield) of over 10% within the next 12-18 months.HOLD Expected total return (%) (stock price appreciation and dividend yield) of upto 10% within the next 12-18 months.REDUCE Expected total return (%) (stock price depreciation) of upto (-)10% within the next 12-18 months.SELL The stock is believed to under perform the broad market indices or its related universe within the next 12-18 months.

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