› ewwebimages › WebFiles › ... Pharmaceutical Vrijesh Kasera - EdelweissPharmaceutical Vrijesh Kasera Realigning to ground realities Research Analyst [email protected]

Pharmaceutical Realigning to ground realities

Vrijesh Kasera Research Analyst

[email protected] +91 (22) 6141 2725

2

Executive Summary

Pharma companies had a dream run over the past few years (FY11-15) with the industry clocking a revenue growth of 41% in the US led

by large patent expiries. However, with Para IV opportunities drying up substantially and multiple FTF players, it has become challenging

for companies to sustain historical growth as was seen in FY16, where the growth slowed down to 10%.

Moreover, heightened USFDA scrutiny on foreign facilities along with increasing approval rates in adherence to GDUFA norms and

channel consolidation have led to heightened pricing pressures on companies with generic me-too portfolios

Our analysis of recent events and data in the pharmaceutical industry highlight the following trends:

Regulatory Actions

• Incidence of 483s issued on inspections is higher in case of Indian facilities (60%) vis-à-vis US counterparts (48%)

• Indian facilities have higher share of warning letters (WL) with respect to data integrity (64% in CY15)

• Globally, only 7 of the 45 WL with data integrity have been resolved between CY11 and CY16 (till date)

Pricing

• Generic pricing in the US, according to Express Scripts, has seen a deflationary trend with prices plummeting ~20% in CY15

• USFDA’s approval pace has catapulted to ~79 /month vis-à-vis ~32 a year ago, thus increasing competition

• Consolidation in the distribution channel has led to the top 4 players now accounting for over 80% of the generic drug sourcing

Outlook

With the environment for pure-play generic companies becoming increasingly challenging, we believe it is imperative for Indian players

to move up the value chain (Specialty Pharma/Complex Generics). Ergo, the sector will be in a transformational phase over the next few

years as companies reinvent themselves to maintain or improve growth rates in the US market. Our deep dive analysis indicates that

some companies are well poised to take on these challenges bolstered by their balance sheet strength, proven execution capabilities

and early investments in higher entry barriers segments. We believe Sun Pharma among large caps and Natco Pharma & Biocon among

mid caps fall under our framework to play the US story

3

India: A Vital Cog

4

India: Cornering lion’s share of US pharma pie

123

226 168

66 37

392 171

44

26 51

0

100

200

300

400

500

600

USA India China Italy Germany

(No

. o

f fa

cilitie

s)

India has the highest No. of USFDA facilities outside US...

(CY15)

API Formulations

90%

82%

10%

18%

CY10 CY15

India's share in the US generic market has increased by

volume....

Others India

88.4%

83.5%

11.6%

16.5%

CY10 CY15

....as well as value

Others India

...and account for a large share of ANDA approvals (~500 approvals out of

2900 approvals between CY10-16)

5% 4%

8%

3%

1% 5%

3%

2% 5%

2%

61%

Actavis/Watson Teva Mylan Sandoz Hospira Sun Lupin Dr Reddy Aurobindo Cadila Others

21% Approvals by top 5 Generic Companies

(ex- India)

17% Approvals by top 5 Indian Generic Companies

Source: Industry, Edel Invest Research.

Note: The above data only includes front end sales by Indian companies, it doesn’t include third party and Institutional sales. As per industry estimates Indian companies Rx share is ~40% of the total generic prescription in US

5

Sharpening Regulatory Might

6

Higher fund flows utilised to add teeth to regulatory bite

78% 76% 71% 69% 62% 64% 58%

22% 24% 29% 31% 38% 36% 42%

2010 2011 2012 2013 2014 2015 2016 (to

Date)

… leading to % increase in foreign facility inspections

US Drug Inspections Foreign Drug Inspections

47% 41% 43%

18% 23% 26%

FY 13 FY 14 FY 15

Increasing budgetary resources used for foreign facility

inspections...

Funds utilised for US drug inspections Funds utilised for Foreign drug inspections

Source: USFDA, Edel Invest Research. Note: FY=September ending year. Data post implementation of GDUFA

• Post implementation of FDASIA in 2012, the number of foreign facility inspections has increased

• With USFDA collecting a substantial amount in fees from GDUFA and other programmes post 2012, the money was used primarily to increase hiring and training staff for conducting inspections for foreign facilities

• This trend is reflected in ORA’s (Office of Regulatory Affairs) budgetary spend, where 26% of the money used to

fund GMP inspections was for foreign inspections v/s 18% in FY13

• Accordingly, the number of foreign inspections catapulted to 42% in 2016 from 22% in 2010

7

Tightening regulatory girdle: USFDA inspections on the rise

22 11 16

24 36

57

38

76

96

134

108

150

178

164

199

270

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Rising No. of USFDA inspections at Indian facilities

Source : USFDA,

In line with the increase in scrutiny of foreign facilities, Indian facilities have witnessed similar trend over the past few years. While the number of USFDA approved Indian facilities has remained relatively stable, the number of inspections have jumped 2.5x over CY10-15.

8

India and China: Tripping the most on inspection hurdle

45%

46%

47%

48%

49%

50%

51%

52%

0

500

1,000

1,500

2,000

2,500

3,000

2010 2011 2012 2013 2014 2015 2016 (to

Date)

USA- 48% inspections result in Form 483’s

No of Inspections 483's as a % of inspections

50%

55%

60%

65%

70%

75%

0

20

40

60

80

100

120

140

160

2010 2011 2012 2013 2014 2015 2016 (to

Date)

China- 63% inspections result in Form 483’s


45%

50%

55%

60%

65%

70%

75%

0

100

200

300

400

500

600

700

800

900

2010 2011 2012 2013 2014 2015 2016 (to

Date)

Others - 54% inspections result in Form 483’s


52%

54%

56%

58%

60%

62%

64%

66%

68%

0

50

100

150

200

250

300

2010 2011 2012 2013 2014 2015 2016 (to

Date)

India- 61% inspections result in Form 483’s

No of Inspections 483's as a % of inspections (RHS) (RHS)

(RHS) (RHS)

(LHS) (LHS)

(LHS) (LHS)

Source : USFDA

9

Data integrity: India under the lens

28% 11%

50%

27%

58%

72% 89%

50%

73%

42%

2011 2012 2013 2014 2015

Increasing Contribution of Warning Letters issued to Indian

facilities

India Others

1% 2%

1% 2% 2%

6%

3%

9%

6%

8%

2011 2012 2013 2014 2015

Conversion of 483s to WL higher for India

Others India

Source : USFDA, Edel Invest Research


Globally, over the past five years, ~2% of 483s issued to drug manufacturers (excl. India) escalated to a WL. However, in India, over the same period, ~6% of 483s

resulted in a WL

Accordingly, Indian facilities account for a higher share

of WL issued to drug manufacturers. In CY15, Indian facilities accounted for ~58% of all WL issued to drug manufacturers globally, up from 28% in CY11

10

Data integrity: India in the line of fire

28% 11%

50%

27%

58%

72% 89%

50%

73%

42%

2011 2012 2013 2014 2015

Increasing Contribution of Warning Letters issued to Indian

facilities

India Others

40%

0%

88%

50% 64%

2011 2012 2013 2014 2015

Indian facilities account for most of the WL’s with data

integrity

India Others



Of the WL issued globally citing data integrity, incidence of Indian companies also on the rise, with Indian facilities accounting for 64% of such WLs in CY15

In cases where the severity of observations is higher, the

USFDA has issued an Import Alert (IA) without a corresponding WL. Of the 41 IAs issued to Indian facilities between 2009 and 2016, only ~49% had a corresponding WL

11

Regulatory stranglehold: Impact & outlook

We anticipate the regulatory overhang on Indian companies to remain considering: ● Delay in resolution of WLs with data integrity (only 7 of 45 WLs resolved between CY11and CY16) and an average

resolution time of 1.5-2.0 years

● Of the companies impacted by WL/IA (Sun Pharma, Dr. Reddy’s, Cadila Healthcare and Ipca Laboratories) we

believe the severity of observations is higher in case of Dr. Reddy’s and Ipca and will take longer to resolve vis-a-vis Sun Pharma and Cadila Healthcare

Outlook

The USFDA has issued a draft guidance on data integrity in April 2016 outlining various processes to be followed while maintaining records to ensure data is accurate and consistent. In particular, the agency has emphasised on proper maintenance and monitoring of electronic data used to fulfil cGMP requirements We believe the guidance will provide more clarity to Indian firms on record-keeping procedures and encourage them

to take corrective action to ensure compliance with stricter norms. While companies have become more proactive in this regard, we believe Indian players are still in a transition phase, and it will require a paradigm shift in culture and mindset at the organisation level for them to evolve their quality parameters to match global standards

12

Generics Pricing: On Shaky Ground

13

Generics pricing: In a free fall

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

Q311

Q411

Q112

Q212

Q312

Q4

12

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

Q215

Q315

Q415

Q116

Deflationary trend in generic prices in US

Branded Drug Price Generic Drug Price

Source : Bloomberg, Symphony Health

Over the past few quarters, generic drugs’ prices have been clocking deflationary trend in the US, led by: ● Ongoing consolidation among pharmaceutical distributors, with top 4 players now accounting for 80% of generic

market

● Adherence to strict timelines for ANDA approvals as a result of implementation of GDUFA, leading to higher competitive intensity among generic players

● Consolidation among large generic manufacturers with deals like Hospira-Pfizer and Teva-Allergan leading to significant pricing pressure on smaller peers to maintain market share

● Enhanced scrutiny from the government post November 2014 probe on soaring generic prices in the past

14

Generics pricing: In a free fall

-2.1 -2.7 -1.6 -4.0

-2.3 1.0

3.5 3.7 0.5

7.2 8.2 2.8

8.4

6.0

1.6

-0.4

1.4

1.7

3.5

2011 2012 2013 2014 2015

Older Generics Volume Older Generics Price New Generics Branded Generics

Contribution to Generic Spending Growth US$bn

Source : IMS

$37.8 $44.1 $50.3 $60.1 $68.0

• According to IMS, the industry’s pricing power on old generics has been severely impacted over 2015, where the company was able to take negligible price hikes and growth in the generic market was primarily driven by new products going generic. The US generic market thus grew by USD 7.7 bn to ~USD 68 bn in 2015

• With lower number of products going off-patent over the next few years, this contribution of new generics is expected to fall substantially

• Interestingly, contribution of branded generics continued to grow YoY, a trend that is expected to sustain

Total US Generic Market Size

15

Consolidation wave worsening generic players’ woes

Wholesalers Retailers PBMS (1) Key Global

Distributors Wholesalers Retailers PBMS (1)

2007 Today

Source : TEVA

Cardinal

Health/CVS

27%

Amerisource

Bergen, 22%

McKesson

Onestop, 19%

Econdisc

Contracting

Solution, 12%

All Other

Buyers, 20%

Share of US Generic Purchasing Volume, By

Organisation, 2015*

*Note: Does not include 2015 mergers Source: Industry

• The past 2-3 years have seen significant consolidation among pharmaceutical distributors across the value chain

• The top 4 players now account for over 80% of generic drug sourcing v/s 7 players accounting for 85% of the

market in 2013

• Recent announcement of Mckesson and Walmart inking a sourcing agreement for generic pharmaceuticals is expected to further squeeze margins of pure play generic companies

16

GDUFA: Alleviating backlog malaise – Leading to Increased Competition

452

609

151

1384

69

201

2414

GDUFA progress on track

Pending Applications

First Action Taken

Approval

Tentative Approval

CRL with Inspection

Refuse to Receive

Withdrawn Applications

Source : USFDA

Under GDUFA, the USFDA is committed to review and act on the backlog of ANDA applications that

was pending on 1st Oct 2012. As on Dec 2015, 84% of the backlog (2,414 of 2,866 ANDA applications)

has already seen some form of action and USFDA is on track to achieve its goal of acting on 90% of

the backlog by 30th September 2017

17

GDUFA: Fuelling ANDA approval engine

0

10

20

30

40

50

60

70

80

90 Ja

n-1

4

Fe

b-1

4

Ma

r-14

Ap

r-14

Ma

y-

14

Ju

n-1

4

Ju

l-14

Au

g-1

4

Se

p-1

4

Oc

t-14

No

v-1

4

De

c-1

4

Ja

n-1

5

Fe

b-1

5

Ma

r-15

Ap

r-15

Ma

y-

15

Ju

n-1

5

Ju

l-15

Au

g-1

5

Se

p-1

5

Oc

t-15

No

v-1

5

De

c-1

5

(No

. o

f a

pp

rova

ls)

Final ANDA approvals/month

Source : USFDA

● GDUFA has also been instrumental in improving ANDA approval rates, which have catapulted to

~79 approvals/month since April 2015 from ~32

● The consequent increase in competitive intensity due to successful and timely implementation of

GDUFA norms has contributed majorly to generic price slide. Going forward, GDUFA norms are

expected to further negate any pricing benefits that Indian companies may have enjoyed on

account of low competition

18

Generics pricing: Weighing the impact

56%

44%

Majority of the Medicaid portfolio has seen price

decreases

Price Decreases Price Increases

20

60

100

140

180

220

260

Ja

n 0

8

Ja

n 0

9

Ja

n 1

0

Ja

n 1

1

Ja

n 1

2

Ja

n 1

3

Ja

n 1

4

Ja

n 1

5

Ja

n 1

6

Axis

Title

Generic Rx seeing substantial price declines

Brand Prescription Price Index

Generic Prescription Price Index

Consumer Price Index – US Bureau of Labor Statistics

$264.33

$112.05

$29.73

Source : Express scripts Source : Medicaid

● According to Express Scripts, prices of generic products, on average, dipped 19.9% between 2014

and 2015

● Analysis of ~4,700 drugs under the Medicaid programme indicates similar trend—average price

decline of ~11% in ~56% of the drugs between May 2015 and April 2016

19

Generics pricing: Impact on Indian companies

Lupin Dr Reddy Sun Pharma Aurobindo

Product Concentration (Top 10

products % of Sales) 60% 52% 40% 44%

% of Sales witnessing price decline

(CY15) 78% 67% 61% 51%

Average quantum of decline (in %)

(CY15) (33%) (22%) (43%) (29%)

% of Sales witnessing price hike

(CY15) 22% 33% 39% 49%

Average quantum of increase (in %)

(CY15) 68% 52% 31% 57%

Total Portfolio Impact (CY15) (11.7%) 2.8% (14.5%) 12.5%

Average Increase/(Decrease) in

portfolio over last 4 years 12.8% 16.6% 11.0% 24.4%

Remarks

Excluding one-offs (increased

competition in Cymbalta, Suprax,

Antara & price hikes in Metformin

franchisee) the portfolio would

have declined by 9.1%

Excluding gValcyte the

portfolio declined by

4.0%

Excluding one-offs (increased

competition in gCymbalta,

gDiovan) the portfolio declined

by 5.5%

The company has been able to

take away market share in

various key products helping

the company sustain growth in

base portfolio

Source : Industry, Edel Invest Research

● As per Teva & Mylan (two of the largest generic companies operating in US) US generic companies have historically seen a

price erosion of 4-5% in the base portfolio

● Last year, all Indian companies have witnessed significant price erosion in their base portfolios, negatively impacting ~50-

80% of their US revenues. The quantum of price erosion was in the 20-40% range

20

Generics pricing: Bleak outlook

FY13 FY14 FY15 FY16E FY17E

McKesson Sees generic Inflation Rates Slowing

Adverse market trends centred around

generic pricing have become more acute

than we anticipated. While generic inflation

has been nominal, the rate of generic drug

deflation is slowly increasing and is higher

than the level we previously expected in

fiscal 2016 and expected to get slightly worse

by year-end.

- Tim Guttman, CFO, Amerisource Bergen

We have seen a steep and rapid price

erosion caused by payor consolidation that

has been even more profound than

anticipated. Its effect has exceeded what

might have been expected from an ordinary

downturn in the industry's traditional pricing

cycle.

- Paul Campanelli, President, Par

Pharmaceuticals

Over a very long period, our generic

pharmaceutical portfolio has experienced

deflation and continues to do so today. As

we think about fiscal 2017, we expect a

nominal contribution from those generic

pharmaceuticals that will increase in price

- John Hammergan, CEO, Mckesson

Corporation

Source : Company

With tightening USFDA timelines for ANDA approvals and affordable healthcare being a key focus area for upcoming

elections, the outlook for prices of generic drugs continues to remain bleak in the near future. Industry experts expect generic

drug pricing to moderate in the upcoming year, with specialty pharma expected to lead the next leg of growth for distributors

as well as drug manufacturers

21

Moving Up Specialty Value Chain: The Imperative

22

Specialty value chain: A bird’s eye view

24% 25% 28% 29% 33% 35%

2010 2011 2012 2013 2014 2015

Speciality medicines now contribute more than 1/3rd

of the market....

Other Speciality

22.6 24.1 25.6 28.1 33.1 39.1 11.3 13.1 15.2

18.3 23.5

30.2

9.4

12.2

18.8

25.4

7.8 9.1

11.9

15

17.7

1

10.1 11.1

12.2

14

16.2

6.4 24.8

24.1

24.9

26.3

28.9

2010 2011 2012 2013 2014 2015

Spending on Specialty Medicines US$bn

Oncology Autoimmune Viral Hepatitis

Multiple Sclerosis HIV Antivirals Other Speciality

75.0 82.0

88.0

97.3

124.1

150.8 Source : IMS

Source : IMS

• Specialty medicine products are often injectable, high-cost, biologics or require cold-chain distribution. They are often initiated by specialists and include treatments for cancer and other chronic conditions, requiring complex patient follow-up and monitoring

• Spending on specialty medicines has been the key

growth driver of the US pharmaceutical market, contributing 70% of overall medicine spending growth between 2010 and 2015

• Spending on specialty medicines has doubled in the past five years—from ~USD 76 bn in CY10 to ~USD 151 bn in CY15—and they now account for ~35% of the overall US pharmaceutical market (USD 425 bn). This has largely been driven by treatments for hepatitis,

autoimmune diseases and oncology

23

Complex generics: God’s in the detail

Complex Generics

Complex Active Ingredients (peptides, complex mixtures, and

natural source products)

Complex Formulations (liposomes, iron colloids)

Complex Route of Delivery (locally acting drugs)

Complex Drug-Device Combinations

(DPI (dry powder inhalers), MDI (metered-dose inhalers), and

transdermal system—a medicated adhesive patch)


24

Indian players increasing R&D spends to scale specialty value chain

Source : Company, Edel Invest Research

● In order to tap the opportunity in specialty/complex generics, Indian companies have made

significant investments in R&D over the past two years

● Companies have invested ~9-12% of their sales on R&D versus ~5-6% in FY11

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Sun DRL Lupin Aurobindo Mylan Teva

R&D Spending Seeing an Uptick

FY 11 FY 12 FY 13 FY 14 FY 15 FY 16

25

Taking the acquisition route to scale specialty value chain

Name of Company Target Company Access/Thearapeutic Skill Specialty/Complex/Generic

Aurobindo Natrol Nutraceuticals Generic

Actavis Western European Business Europe Generic

Dr Reddy

Octoplus Advanced drug delivery system and Injectables Complex

Habitrol Brand OTC - Transdermals Complex

6 OTC Brands from Ducere Pharma OTC Branded Specialty

Lupin

Gavis Pharma Controlled Substances, Derma and Gastro Complex

Celon Respiratory Complex

InspiRx Respiratory Complex

Yoshido Biosimilars Complex

Laboratories Grin Opthalmology Complex

Nanomi Complex Injectables Complex

Locoid Lotion Branded Drug Specialty

Alinia Branded Drug Specialty

Sun Pharma

In-site Vision Opthalmic Specialty Complex

GSK Opiates Biz in Australia Controlled Substances Complex

Pharmalucence Injectables Complex

Intrexon (JV) Opthalmology Complex

URL Generic Portfolio Generic

Dusa Dermatology Device Complex

MK-3222 Innovator biologic molecule Specialty

Novartis Japanese Branded Business Branded Business in Japan Specialty


● Indian pharma majors have also acquired companies abroad to get the required skill set to catapult into the next league

● Focus has been to acquire companies with complex generic focus in the US market. Also, Sun, Dr. Reddy’s and Lupin have tried to expand their specialty (branded) pharma business in the US market to lend stability and sustainability to revenues & margins

26

Moving up the specialty value chain

Biosimilars

Inhalation

505 (B) (2) / Brands

Complex Injectables

Controlled Substances

Dermatology

Ophthalmology

Oral Solids, Oral Suspension and Oral

Contraceptives

NCE/NBE

Sun, DRL, Lupin, Glenmark, Natco

Biocon, DRL, Lupin

Lupin, Cipla

Sun, DRL, Lupin

Sun, DRL, Lupin, Auro, Natco, Torrent

Sun, Glenmark, Lupin

Sun, DRL, Glenmark, Lupin, Torrent

Sun, Lupin

Sun, Lupin, DRL, Glenmark, Auro, Natco, Torrent

USD ~250 bn

USD ~45 bn

USD ~25 bn

USD ~17 bn

USD ~12 bn

USD ~7 bn

USD ~6 bn

USD ~2 bn

USD ~40 bn


27

ANDA filings of Indian companies moving towards complex products

65%

35%

Me too products Complex products

Key Focus Areas • Injectables • Ophthalmology • Controlled Substances • Penems • Peptides

64%

36%


Key Focus Areas • Dermatology/Topicals • Inhalers • OC • Ophthalmology • Controlled Substances

Pending ANDA filings: Dr Reddy Pending ANDA filings: Sun Pharma

Pending ANDA filings: Aurobindo Pharma Pending ANDA filings: Lupin Pharma

Key Focus Areas • Complex OSD • Softgel • Topical

• Transdermal • Sterile Injectables

47%

53%*


Key Focus Areas

• Dermatology • Ophthalmology • Controlled Substances • Oncology

* Does not include branded and novel portfolio

27%

73%



28

US narrative: Zeroing on preferred plays

Companies Compliance Complexity Visibility of

Pipeline PEG

Sun Pharma *** **** **** 0.9

Lupin **** **** *** 1.3

Dr. Reddy *** ***** **** 1.1

Aurobindo **** *** *** 1.3

Natco **** **** **** 0.8

Biocon ***** ***** **** 1.8

Source : Edel Invest Research

● We believe operating in the US generic market will be challenging over the medium term given the regulatory and pricing risks. However, some companies are well poised to take on these challenges given their complex pipeline, balance sheet strength and proven execution capabilities

● We prefer companies where there is clear visibility in terms of US pipeline and which are in advanced stage of

monetising investments made in the complex generic/specialty pharmaceutical space

● We believe Sun Pharmaceuticals, Natco Pharma and Biocon fit into our framework for playing the US story

Note: ***** = highest rating

Comparing Indian Companies on Compliance & Visibility Matrix

29

Companies

30

Natco Pharma Ltd. (CMP INR 528, Target INR 620) BUY

66% 10%

23%

1%

Target Price Break-up

Core Pharma

Copaxone (40 mg)

Revlimid

Others

Share Holding Pattern (%)

Promoter 51.28

Public 48.72

Others –


Pipeline visibility & complexity ● Natco has 24 pending approvals (including 3 tentative approvals)

with the USFDA, with a focus on oncology; they include 16 Para IVs, of which 11 are FTF opportunities. We believe, over ~40% of pending filings are complex generics. We estimate Natco to clock 88% revenue CAGR over FY16-18 led primarily by launch of gCopaxone

20mg, gTamiflu, gEntocort, gNuvigil, gBosentan and gFosrenol.

Compliance history ● Though the company has received 483 observations in the past, it

successfully resolved them. Currently, Natco has received 483s on its Kothur (Formulation plant) and Chennai (Cyto-toxic API plant) facilities, which in our view are resolvable and should not escalate into WL/IA

Risks ● Natco is yet to bag approval for a complex generic in the US and

the delay may prune the company’s potential opportunity size

Valuations ● Natco is one of the best plays in the mid-cap space and is in an

advanced stage to tap the complex generic opportunity in the US. We have built-in only gCopaxone 20mg & gTamiflu in our estimates and believe there will be significant upside from other incremental launches over the next two years. We value Natco’s core business at INR 412/share (16x FY18E earnings) and NPV of US pipeline at INR 208/share, to arrive at a target price of INR 620/share

31

Natco Pharma: Financials

Source : IMS

Year to March FY14 FY15 FY16 FY17E FY18E

Net revenue 739 825 1,142 1,868 1,846

Materials costs 233 242 341 486 504

Gross profit 506 583 801 1,382 1,342

Employee costs 113 137 187 217 236

R & D Expenses 14 13 17 27 27

SG & A Expenses 199 220 328 375 408

EBITDA 179 213 270 763 671

Depreciation & Amortization 30 47 51 58 70

EBIT 149 166 219 705 602

Other income 21 19 12 12 12

EBIT incl. other income 170 185 231 717 614

Interest expenses 37 32 23 12 12

Profit before tax 134 154 208 705 602

Provision for tax 31 4 53 179 153

Adj. Net profit 103 150 155 526 449

Reported Net Profit 103 150 155 526 449

Basic shares outstanding (crs) 17.42 17.42 17.42 17.42 17.42

EPS (Rs.) 5.9 8.6 8.9 30.2 25.8

Dividend per share (Rs.) 1.1 1.1 1.1 1.1 1.1

Dividend payout (%) 18.8% 13.4% 12.9% 3.8% 4.5%

Common Size


Materials costs 31.6% 29.4% 41.3% 58.9% 61.1%

Employee expenses 15.3% 16.6% 22.6% 26.3% 28.6%

Manufacturing & Other Expenses 27.0% 26.6% 39.7% 45.5% 49.4%

Research & Development Expenses 1.9% 1.5% 2.0% 3.3% 3.2%

Depreciation 4.1% 5.7% 4.5% 3.1% 3.8%

EBITDA margins 24.3% 25.9% 23.6% 40.8% 36.4%

EBIT margins 20.2% 20.1% 19.2% 37.7% 32.6%

Net profit margins 13.9% 18.1% 13.6% 28.1% 24.3%

Growth Ratios


Revenues 11.9% 11.7% 38.3% 63.6% -1.2%

EBITDA 19.6% 19.0% 26.4% 182.9% -12.0%

PBT 11.4% 15.0% 35.3% 238.8% -14.6%

Net profit 23.0% 45.8% 3.6% 238.8% -14.6%

Balance Sheet

As on 31st March FY14 FY15E FY16E FY17E FY18E

Equity capital 33 33 35 35 35

Reserves & surplus 700 818 1,296 1,805 2,237

Borrowings 240 312 112 112 112

Deferred Tax Liabilities (Net) 43 12 12 12 12

Sources of funds 1,016 1,175 1,454 1,963 2,395

Net Fixed Assets 769 839 921 983 1,063

Investments 2 2 22 22 22

Inventories 181 220 357 472 467

Sundry debtors 119 192 262 371 367

Cash & Bank Balances 11 13 19 288 648

Loans and advances 114 118 166 232 229

Total current assets 425 543 804 1,363 1,711

Sundry creditors and others 167 198 276 388 383

Provisions 13 11 17 17 17

Total current liabilities & provisions 179 209 293 405 400

Net current assets 246 334 511 958 1,310

Uses of funds 1,016 1,175 1,454 1,963 2,395

Book value per share (Rs.) 42 49 76 105 130

Free cash flow

Year to March FY14 FY15E FY16E FY17E FY18E

Net profit 103 135 155 526 449

Add : Depreciation 30 47 51 58 70

Others 22 (8) 12 2 2

Gross cash flow 155 174 218 585 520

Less: Changes in WC (12) (86) (177) (179) 8

Operating cash flow 143 88 41 407 528

Less: Capex 111 125 133 120 150

Free cash flow 32 (37) (93) 287 378

CasH Flow Statement


Cash flow from operations 143 88 41 407 528

Cash Flow from investing activities (109) (115) (143) (109) (139)

Cash Flow from financing activities (35) 29 108 (29) (29)

Capex (111) (125) (133) (120) (150)

Dividends (17) (17) (17) (17) (17)

Profitability & Efficiency Ratios


ROAE (%) 16.1% 18.9% 14.2% 33.2% 21.8%

ROACE (%) 17.9% 16.9% 17.6% 42.2% 28.3%

ROIC (%) 17.5% 16.9% 17.6% 42.0% 28.2%

Inventory day 81 89 92 92 92

Debtors days 61 69 73 73 73

Payable days 77 81 76 76 76

Cash conversion cycle (days) 65 77 89 89 89

Current ratio 2.4 2.6 2.7 3.4 4.3

Debt/Equity 0.3 0.4 0.1 0.1 0.0

Turnover Ratios


Total asset turnover 0.6 0.6 0.7 0.9 0.7

Fixed asset turnover 1.0 1.0 1.3 2.0 1.8

Equity turnover 1.2 1.0 1.0 1.2 0.9

Du Pont Analysis


NP margin (%) 13.9% 18.1% 13.6% 28.1% 24.3%

Total assets turnover 0.6 0.6 0.7 0.9 0.7

Leverage multiplier 1.8 1.6 1.4 1.3 1.3

ROAE (%) 16.1% 18.9% 14.2% 33.2% 21.8%

Valuation Parameters


Diluted EPS (Rs.) 5.9 8.6 8.9 30.2 25.8

Y‐o‐Y growth (%) 23.0% 45.8% 3.6% 238.8% -14.6%

Diluted PE (x) 89.1 68.0 59.0 17.4 20.4

Price/BV (x) 12.6 10.8 6.9 5.0 4.0

EV/Sales (x) 12.6 11.3 8.1 4.8 4.7

EV/EBITDA (x) 52.4 44.3 34.3 11.8 12.8

Dividend yield (%) 0.2% 0.2% 0.2% 0.2% 0.2%

32

Biocon Ltd. (CMP INR 726, Target INR 760) BUY


Promoter 60.72

Public 48.72

Others –

Source : IMS

Pipeline visibility & complexity ● Biocon investments target the biologic space and it has 10 products

under development in the biosimilar space, of which 8 are tied up with Mylan for marketing and development. Investments in biosimilars over the previous decade are expected to bear fruit as the company is expected to file four products under the Mylan tie

up in FY17E

Compliance history ● The company had received 483 observations in the past. However,

it has gone through routine USFDA inspections and has not faced any adverse action till date

Risks ● Monetisation of opportunities in biosimilar space will be challenging

given that it will be a branded market. Given the lack of interchangeability status of a biosimilar so far, it will be difficult for Biocon to convince doctors to prescribe its biosimilar versus the innovator product

Valuations ● Biocon boasts of the most advanced biosimilar pipeline in India

which will be able to tap the US market in the first wave of biosimilar launches. We believe biosimilar revenues from regulated markets will be back ended with the first product being launched by end FY18E. However, considering the opportunity size and branded nature of the market, even a 2-3% market share will entail substantial earnings bonanza for Biocon over the long term. We, thus, value the company at 25x FY18E earnings, at a premium to peers on account of its superior pipeline and arrive at a target price of INR 760/share

Competitive Landscape for Biosimilars

33

Biocon Ltd.: Financials

Source : IMS

Year to March FY14 FY15 FY16E FY17E FY18E

Net revenue 2,877 3,090 3,485 4,012 4,627

Materials costs 1,186 1,256 1,330 1,663 1,918

Gross profit 1,691 1,834 2,155 2,349 2,709

Employee costs 421 485 562 629 726

R & D Expenses 131 169 275 263 297

SG & A Expenses 414 465 534 592 676

EBITDA 725 716 784 865 1,011

Depreciation & Amortization 204 221 242 253 303

EBIT 521 495 543 613 708

Other income 56 53 119 63 63

EBIT incl. other income 577 548 662 676 772


Exceptional Items 38 20 - - -

Profit before tax 576 539 652 662 759


Net profit 469 443 395 530 607

Adj. Net Profit 452 422 438 530 607

Basic shares outstanding (crs) 20.00 20.00 20.00 20.00 20.00

EPS (Rs.) 23.4 22.2 19.7 26.5 30.3

Dividend per share (Rs.) 5.9 6.5 6.5 6.5 6.5

Dividend payout (%) 25.0% 29.3% 32.9% 24.5% 21.4%

Common Size


Materials costs 41.2% 40.6% 38.2% 47.7% 55.0%

Employee expenses 14.6% 15.7% 16.1% 15.7% 15.7%

Manufacturing & Other Expenses 14.4% 15.0% 15.3% 14.7% 14.6%

Research & Development Expenses 4.6% 5.5% 7.9% 6.5% 6.4%

Depreciation 7.1% 7.2% 6.9% 6.3% 6.5%

EBITDA margins 25.2% 23.2% 22.5% 21.6% 21.9%

EBIT margins 18.1% 16.0% 15.6% 15.3% 15.3%

Net profit margins 16.3% 14.3% 11.3% 13.2% 13.1%

Growth Ratios


Revenues 15.8% 7.4% 12.8% 15.1% 15.3%

EBITDA 27.2% -1.3% 9.6% 10.3% 16.9%

PBT 32.2% -6.3% 20.9% 1.7% 14.5%

Net profit 38.7% -5.4% -11.0% 34.3% 14.5%

Balance Sheet

As on 31st March FY14 FY15 FY16E FY17E FY18E

Equity capital 100 100 100 100 100

Reserves & surplus 3,009 3,343 4,248 4,648 5,125

Borrowings 864 1,117 2,467 2,367 2,267

Deferred Tax Liabilities (Net) 45 42 42 42 42

Sources of funds 4,018 4,602 6,857 7,157 7,534

Net Fixed Assets 2,731 3,307 3,815 4,212 4,559

Investments 765 230 429 429 429

Inventories 377 453 511 550 634

Sundry debtors 600 771 823 912 1,052

Cash & Bank Balances 804 938 2,272 2,065 1,866

Loans and advances 474 678 598 736 849

Total current assets 2,255 2,839 4,204 4,263 4,401

Sundry creditors and others 1,549 1,601 1,473 1,630 1,737

Provisions 184 173 118 118 118

Total current liabilities & provisions 1,733 1,774 1,591 1,747 1,855

Net current assets 522 1,065 2,613 2,516 2,546

Uses of funds 4,018 4,602 6,857 7,157 7,534

Book value per share (Rs.) 151 164 202 222 246

Free cash flow


Net profit 431 528 970 530 607

Add : Depreciation 204 221 242 253 303

Others (342) (129) (100) (50) (50)

Gross cash flow 292 621 1,112 733 859

Less: Changes in WC 269 (410) (158) (110) (229)

Operating cash flow 561 211 954 623 630

Less: Capex 1,116 806 750 650 650

Free cash flow (555) (595) 204 (27) (20)

CasH Flow Statement


Cash flow from operations 561 211 954 623 630

Cash Flow from investing activities (938) (509) (829) (587) (587)

Cash Flow from financing activities 53 509 431 1,210 (244)

Capex (1,116) (806) (750) (650) (650)

Dividends (17) (30) (130) (130) (130)

Profitability & Efficiency Ratios


ROAE (%) 14.1% 15.2% 23.0% 11.7% 12.2%

ROACE (%) 16.7% 13.0% 11.9% 9.8% 10.6%

ROIC (%) 16.3% 12.7% 11.5% 9.6% 10.5%

Inventory day 49 49 50 50 50




Current ratio 1.3 1.6 2.6 2.4 2.4

Debt/Equity 0.3 0.3 0.6 0.5 0.5

Turnover Ratios


Total asset turnover 0.6 0.5 0.5 0.5 0.5

Fixed asset turnover 1.3 1.0 1.0 1.0 1.1

Equity turnover 1.0 0.9 0.9 0.9 0.9

Du Pont Analysis


NP margin (%) 14.4% 16.1% 25.7% 13.2% 13.1%

Total assets turnover 0.6 0.5 0.5 0.5 0.5

Leverage multiplier 1.7 1.9 1.9 1.9 1.8

ROAE (%) 14.1% 15.2% 23.0% 11.7% 12.2%

Valuation Parameters


Diluted EPS (Rs.) 23.4 22.2 19.7 26.5 30.3

Y‐o‐Y growth (%) 38.7% -5.4% -11.0% 34.3% 14.5%

Diluted PE (x) 32.2 34.4 33.2 27.4 23.9

Price/BV (x) 4.8 4.4 3.6 3.3 3.0

EV/Sales (x) 6.7 6.5 6.2 5.6 5.0

EV/EBITDA (x) 20.1 20.5 18.8 17.1 14.8

Dividend yield (%) 0.8% 0.9% 0.9% 0.9% 0.9%

34

Sun Pharmaceuticals Industries Ltd (CMP INR 724, Target INR 910) BUY

Ramping up Speciality Pipeline

In‐licensed MK‐3222 (a monoclonal antibody undergoing Phase‐III trials targeting IL‐23) from MSD for treating chronic plaque psoriasis

Entered into a joint venture with Intrexon Corporation for developing gene‐based therapies for ocular diseases

Acquired Dusa Pharma in US – Gets access to patented drug‐device combination useful for treating Actinic Keratosis, a dermatology ailment

Branded Businesses in US, India and RoW

Ranked no. 3 branded dermatology company in the US market Market leader in specialty chronic segments in India

Amongst the largest Indian companies in branded emerging markets

Complex Generics in US

Firmly established as the no. 1 supplier of generic dermatology products in the US

Current product offering in US includes many specialty generics across different dosage forms. Future product development targeted at complex generics

One of the few companies globally to have farm‐to‐market capabilities for controlled substances

Key focus areas include dermatology, ophthalmics, oncology, controlled substances, amongst others


Promoter 54.97

Public 45.02

Others 0.01

Source : Company

Pipeline visibility & complexity ● Sun Pharma has focused specifically on Derma, Opthal and Injectables

and its inorganic strategy too is aligned to the same. It is one of the largest Derma players in the US and has taken various initiatives to enhance its presence in Opthal and Injectables. Along with its ~150 pending ANDA approvals, the company has also invested in branded business and has in its kitty in-licensed products like Tildrakizumab from Merck, Xelpros & Elepsia from SPARC and Bromsite from Insite Vision. We estimate Sun Pharma’s US revenue to clock 16% CAGR over FY16-18 riding ramp up in gGleevec along with launch of gCrestor, gNamenda XR, gNiaspan, g Zytiga and gAbilify, among others

Compliance history ● Sun Pharma has a tainted history of USFDA compliance with a number

of WL/IA issued to its facilities (including erstwhile Ranbaxy). The recent WL to its Halol facility has taken a toll on the company’s FY16 growth; resolution of the same is expected in FY17

Risks ● Regulatory delay in terms of clearance of its Halol facility and ramp up

of its branded specialty products will be key challenges

Valuations ● Specialty and branded products will drive next leg of Sun Pharma’s

growth given that it has one of the most advanced pipelines of specialty products among domestic players. We believe resolution of the WL on Halol will be a key catalyst to drive US revenues over the next few years. We value the stock at 22x FY18E earnings to arrive at a target price of INR 910/share

35

Sun Pharmaceuticals Industries Ltd: Financials


Income statement FY14 FY15 FY16 FY17 FY18

Gross revenues 16,004 27,245 27,744 32,388 38,697

Net Revenue 16,004 27,245 27,744 32,388 38,697

Other Operating Income 75 146 525 336 430

Income from operations 16,080 27,392 28,269 32,725 39,128

Materials costs 2,779 6,739 6,483 7,118 8,891

Employee costs 2,074 4,502 4,797 5,276 5,804

R&D Cost 1,042 1,837 2,224 2,945 3,521

EBITDA 6,999 7,963 8,481 11,353 13,884

Operating profit 6,999 7,963 8,481 11,353 13,884

EBIT 6,590 6,768 7,468 10,289 12,767

Other income 552 450 459 805 886


Exceptionals (before PBT) -2,517 -237 -685 0 0

Profit before tax 4,581 6,402 6,765 10,799 13,428

Provision for tax 702 914 934 1,511 2,685

Minority interest (before Core Profit) 737 948 1,114 854 781

Reported PAT 3,141 4,539 4,715 8,432 9,961

Less: Exceptional Items (Net of Tax) -2,268 -205 -599 0 0

Adjusted PAT 5,409 4,744 5,315 8,432 9,961

Basic shares outstanding (mn) 207 207 240 240 240

Adjusted basic EPS (INR) 26.1 22.9 22 35 41.3

Diluted equity shares (mn) 207 207 240 240 240

Adjusted diluted EPS (INR) 26.1 22.9 22 35 41.3

CEPS (INR) 28 28.6 26.2 39.4 46

Dividend per share (INR) 1.4 3.4 1 3.5 4.1

Dividend payout (%) 9.8 15.9 5.1 10 10

Common size metrics FY14 FY15 FY16 FY17 FY18

Operating expenses (Common Size Metrics) 56.4 70.9 69.9 65.3 64.5

Materials costs (Common Size Metrics) 17.2 24.6 22.9 21.7 22.7

Employee expenses (Common Size Metrics) 12.9 16.4 16.9 16.1 14.8

R & D cost (Common size metrics) 6.4 6.7 7.8 9 9

Depreciation (Common Size Metrics) 2.5 4.3 3.5 3.2 2.8

Interest expenditure (Common Size Metrics) 0.2 2.1 1.6 0.9 0.5

EBITDA margins (Common Size Metrics) 43.5 29 30 34.6 35.4

Net profit margins (Common Size Metrics) 38.2 20.7 22.7 28.3 27.4

Growth ratios (%) FY14 FY15 FY16 FY17 FY18

Revenues Growth 42.4 70.2 1.8 16.7 19.4

EBITDA Growth 42.9 13.7 6.5 33.8 22.2

PBT Growth 6.1 39.7 5.6 59.6 24.3

Net profit Growth 55.8 -12 12 58.6 18.1

EPS Growth 55.8 -12 -4 58.6 18.1

Balance sheet FY14 FY15 FY16 FY17 FY18

Equity capital 207 207 240 240 240


Shareholders funds 18,524 25,623 31,404 38,824 47,591

Minority interest (BS) 1,921 2,866 4,085 2,538 2,538

Short term debt 48 1,368 3,116 2,616 2,116

Long term debt 2,440 6,227 5,221 4,221 3,221

Borrowings 2,489 7,596 8,338 6,838 5,338

Long Term Liabilities & Provisions 2,610 2,718 2,303 2,303 2,303

Deferred Tax liability -911 -1,751 -2,125 -2,125 -2,125

Sources of funds 24,634 37,052 44,005 48,379 55,645

Gross block 8,650 15,043 18,397 19,397 20,397

Depreciation 409 1,194 1,013 1,064 1,117

Net block 4,982 8,981 11,321 11,257 11,140

Capital work in progress 841 2,038 2,038 2,038 2,038

Intangible assets 1,834 3,700 4,181 1,133 1,133

Total fixed assets 7,658 14,721 17,541 14,429 14,311

Non current investments 2,786 598 593 2,945 2,945

Cash and equivalents 7,590 13,115 14,704 19,683 23,072

Inventories 3,123 5,667 6,423 6,853 9,730

Sundry debtors 2,200 5,106 6,795 6,981 9,491

Loans and advances 3,774 5,026 2,940 2,940 2,940

Total current assets (ex cash) 9,097 15,800 16,160 16,776 22,162

Trade payable 1,328 3,286 3,489 3,950 5,342

Others current liabilities 2,220 6,632 4,536 4,536 4,536


Net current assets (ex cash) 5,548 5,881 8,133 8,288 12,283

Uses of funds 24,634 37,052 44,005 48,379 55,645

Book value per share (INR) 89.4 123.7 130.4 161.3 197.7

Free cash flow FY14 FY15 FY16 FY17 FY18

Net profit (Free Cash Flow) 3,141 4,539 4,715 8,432 9,961

Depreciation (Free Cash Flow) 409 1,194 1,013 1,064 1,117

Interest (Net of Tax) (Free Cash Flow) 37 496 410 254 180

Others (Free Cash Flow) 307 -4,400 -4,895 -563 -8,170

Less: Changes in WC (Free Cash Flow) -63 -3,492 -2,242 -154 -3,994

Operating cash flow (Free Cash Flow) 3,959 5,321 3,487 9,342 7,083

Less: Capex (Free Cash Flow) 1,156 6,390 3,354 1,000 1,000

Free Cash Flow (Free Cash Flow) 2,802 -1,068 133 8,342 6,083

Cash flow metrics FY14 FY15 FY16 FY17 FY18

Operating cash flow (Cash Flow Metrics) 3,959 5,321 3,487 9,342 7,083

Investing cash flow (Cash Flow Metrics) -2,366 -2,670 -3,348 -3,352 -1,000

Financing cash flow (Cash Flow Metrics) 506 -1,087 2,852 -1,010 -2,695

Net Cash Flow (Cash Flow Metrics) 2,099 1,563 2,991 4,979 3,388

Capex -1,156 -6,390 -3,354 -1,000 -1,000

Dividend paid -363 -868 -288 -1,011 -1,195

Profitability and efficiency ratios FY14 FY15 FY16 FY17 FY18

ROAE (%) 33.1 23.2 20 24.1 23.4

ROACE (%) 35.6 23.9 19.6 24 26.2

Inventory day 374 238 340 340 340


Payable days 176 124 190 190 190


Current ratio 4.7 2.9 3.8 4.2 4.5

Gross Debt/EBITDA 0.3 0.9 0.9 0.6 0.3

Gross Debt/Equity 0.1 0.2 0.2 0.1 0.1

Adjusted debt/equity 0.1 0.2 0.2 0.1 0.1

Net Debt/Equity 0 0 0 0 0

Interest coverage 149.1 11.6 15.6 34.8 56.6

Operating ratios FY14 FY15 FY16 FY17 FY18

Total asset turnover (Operating ratios) 0.7 0.8 0.6 0.7 0.7

Fixed asset turnover (Operating ratios) 2.5 2.7 1.9 2.3 3.1

Equity turnover (Operating ratios) 0.8 1.1 0.8 0.8 0.8

Du pont analysis FY14 FY15 FY16 FY17 FY18

NP Margin % (Du Pont Analysis) 38.4 20.8 23.1 28.6 27.7

Total Assets Turnover (Du Pont Analysis) 0.7 0.8 0.6 0.7 0.7

Leverage multiplier (Du Pont Analysis) 1 1.2 1.2 1.2 1.1

ROAE % (Du Pont Analysis) 33.1 23.2 20 24.1 23.4

Valuation parameters FY14 FY15 FY16 FY17 FY18

EPS (INR) diluted 26.1 22.9 22 35 41.3

Y-o-Y growth (%) 55.8 -12 -4 58.6 18.1

Cash EPS 28 28.6 26.2 39.4 46

Diluted PE (x) 27.7 31.6 32.7 20.6 17.5

Price/BV (x) 8 5.8 5.5 4.4 3.6

EV/Sales (x) 10.3 6.1 6.9 5.7 4.6

EV/EBITDA (x) 20.9 18.5 20.2 14.4 11.4

Dividend yield (%) 0.2 0.4 0.1 0.4 0.5

36

Lupin Ltd. (CMP INR 1419, Target INR 1530) HOLD

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

FY13 FY14 FY15 FY16 FY17E FY18E

(%)

ROCE on a declining trend


Promoter 46.52

Public 53.48

Others –


Pipeline visibility & complexity ● Lupin has, over the past few years, buttressed its capability in

complex generics and specialty business predominantly through the inorganic route. We estimate the US business to clock ~37% CAGR over FY16-18 mainly driven by ramp up in Gavis; ex-Gavis, the company is estimated to post ~22% CAGR. Some of the major

approvals expected over the next two years are gWelchol, gRenvela, gRenagel, gBenicar, gTruvada and gZetia

Compliance history ● Lupin has, in the past, successfully resolved observations received

during routine inspections. Regulatory action on the company has been limited to a WL on its Mandideep facility in 2009. Recently, the company successfully completed inspections of two of its facilities—Mandideep and Aurangabad—where it has received EIR status in

May 2016. Currently, the resolution of 483 on its Goa facility is a key monitorable

Risks ● US growth largely hinges on ramp up in Gavis, wherein there is no

visibility of product pipeline and is entirely dependent on management guidance

Valuations ● Specialty will drive next leg of Lupin’s growth. While earnings are

estimated to post 23% CAGR over FY16‐18, RoCE is expected to dip

to 22% in FY18E from 40% in FY15 due to inorganic initiatives. We believe current valuations (20x FY18E EPS) capture most of the upside and thus have a HOLD rating on the stock with a target price of INR 1530/share

37

Lupin Ltd: Financials



Net Revenue 11,103 12,599 13,701 17,776 21,378

Other Operating Income 182 170 506 450 469


Materials costs 3,817 4,157 4,309 5,801 6,936

Employee costs 1,464 1,747 2,107 2,423 2,787

R&D Cost 929 1,098 1,603 2,369 3,058

Total SG&A expenses 2,072 2,147 2,434 2,916 3,495

EBITDA 3,002 3,619 3,753 4,715 5,569


EBIT 2,741 3,184 3,289 3,825 4,542

Other income 116 239 187 370 450


Exceptionals (before PBT) -106 0 0 0 0


Provision for tax 962 970 1,153 1,136 1,359

Minority interest (before Core Profit) 33 41 8 58 69

Reported PAT 1,836 2,403 2,270 2,863 3,425

Less: Exceptional Items (Net of Tax) 103 226 0 0 0

Adjusted PAT 1,732 2,176 2,270 2,863 3,425


Adjusted basic EPS (INR) 38.6 48.4 50.3 63.5 76


Adjusted diluted EPS (INR) 38.6 48.4 50.3 63.5 76

CEPS (INR) 44.4 58 60.6 83.2 98.8

Dividend per share (INR) 5.9 7.5 7.4 9.4 11.3

Dividend payout (%) 14.6 14 14.8 14.8 14.8




Employee expenses (Common Size Metrics) 12.9 13.6 14.8 13.2 12.7

S G & A expenses (Common Size Metrics) 18.3 16.8 17.1 16 16



Interest expenditure (Common Size Metrics) 0.2 0 0.3 0.7 0.6

EBITDA margins (Common Size Metrics) 26.6 28.3 26.4 25.8 25.4

Net profit margins (Common Size Metrics) 15.6 17.3 16 16 16


Revenues Growth 17.3 13.4 8.7 29.7 20.2

EBITDA Growth 32.2 20.5 3.6 25.6 18.1

PBT Growth 47.1 20.5 0.5 18.2 19.6

Net profit Growth 34.4 25.6 4.3 26.1 19.6

EPS Growth 34.2 25.3 4 26.1 19.6





Minority interest (BS) 66 24 32 32 32

Short term debt 402 369 1,745 1,745 1,745

Long term debt 150 101 5,373 5,373 5,373

Borrowings 553 470 7,119 7,119 7,119

Long Term Liabilities & Provisions 178 206 455 455 455

Deferred Tax liability 177 118 123 123 123

Sources of funds 7,908 9,693 18,715 21,083 23,917

Gross block 4,645 5,052 11,434 12,934 14,434

Depreciation 260 434 463 889 1,026

Net block 2,717 2,720 8,637 9,248 9,721

Capital work in progress 284 575 0 0 0

Intangible assets 657 1,648 2,964 2,964 2,964


Non current investments 2 2 5 5 5

Cash and equivalents 797 2,137 839 969 1,910

Inventories 2,129 2,503 3,178 4,279 5,116

Sundry debtors 2,464 2,656 4,549 5,836 6,995

Loans and advances 709 534 1,210 1,210 1,210


Trade payable 1,594 1,956 2,191 2,950 3,528

Others current liabilities 633 1,404 1,449 1,449 1,449



Uses of funds 7,908 9,693 18,715 21,083 23,917




Depreciation (Free Cash Flow) 260 434 463 889 1,026


Others (Free Cash Flow) -517 -316 -4,694 -3,356 -2,937

Less: Changes in WC (Free Cash Flow) -406 -204 -2,332 -1,628 -1,419

Operating cash flow (Free Cash Flow) 2,003 2,733 401 2,124 3,033

Less: Capex (Free Cash Flow) 459 728 5,805 1,500 1,500

Free Cash Flow (Free Cash Flow) 1,544 2,004 -5,403 624 1,533


Operating cash flow (Cash Flow Metrics) 2,003 2,733 401 2,124 3,033

Investing cash flow (Cash Flow Metrics) -858 -1,054 -5,808 -1,500 -1,500

Financing cash flow (Cash Flow Metrics) -857 -196 4,109 -495 -592

Net Cash Flow (Cash Flow Metrics) 288 1,481 -1,297 129 940

Capex -459 -728 -5,805 -1,500 -1,500

Dividend paid -293 -405 -392 -495 -592


ROAE (%) 28.7 27.9 22.8 23.9 23.6

ROACE (%) 40.3 39.6 24.8 21.3 22.4

Inventory day 194 203 240 234 247

Debtors days 75 73 92 103 107

Payable days 149 155 175 161 170


Current ratio 2.7 2.3 2.6 2.7 3


Gross Debt/Equity 0 0 0.6 0.5 0.4

Adjusted debt/equity 0 0 0.6 0.5 0.4

Net Debt/Equity 0 0 0.5 0.4 0.3

Interest coverage 102.8 324.6 73.7 27.8 33


Total asset turnover (Operating ratios) 1.5 1.4 1 0.9 0.9

Fixed asset turnover (Operating ratios) 3.5 3.2 1.7 1.5 1.7



NP Margin % (Du Pont Analysis) 15.6 17.3 16 16 16

Total Assets Turnover (Du Pont Analysis) 1.5 1.4 1 0.9 0.9

Leverage multiplier (Du Pont Analysis) 1.1 1.1 1.4 1.6 1.5

ROAE % (Du Pont Analysis) 28.7 27.9 22.8 23.9 23.6


EPS (INR) diluted 38.6 48.4 50.3 63.5 76

Y-o-Y growth (%) 34.2 25.3 4 26.1 19.6

Cash EPS 44.4 58 60.6 83.2 98.8

Diluted PE (x) 36.7 29.3 28.1 22.3 18.6

Price/BV (x) 9.1 7.1 5.8 4.7 3.9

EV/Sales (x) 6.5 5.6 5.6 4.4 3.6

EV/EBITDA (x) 21.1 17.1 18.7 14.8 12.4

Dividend yield (%) 0.4 0.5 0.5 0.6 0.7

38

Dr Reddys Laboratories Ltd (CMP INR 3151, Target INR 3000) HOLD

-10%

-5%

0%

5%

10%

15%

20%

25%

0

200

400

600

800

1000

1200

1400

FY13 FY14 FY15 FY16 FY17E FY18E (U

S$

mn

)

US Revenues expected to taper off

US Revenues Growth


Promoter 25.58

Public 74.42

Others –


Pipeline visibility & complexity ● Dr Reddy’s has invested in various therapies and delivery forms in a

bid to tap the complex generic space and hone its specialty pharma business. It has one of the highest number of filings (64%) in the complex/specialty space among Indian players. The company has products like Copaxone, Diprivan, Ixempra, Fentanyl, Xeloda,

among others, awaiting USFDA approval. However, FY17 is anticipated to be a subdued year as a few of its niche products are facing competition in the US. Ergo, we estimate US revenue to clock mere 4% CAGR over FY16-18

Compliance history ● The company has recently received WL on three of its facilities—

Srikakulam, Duvvada and Miryalguda—with observations related to documentation & control, lab practices, standard operating

procedures and incident investigating practices. Dr Reddy’s has begun remediation process and hired third party consultants for the same. We anticipate resolution of WL to be a long-drawn process

Risks ● Delay in resolution or further escalation of WL will impact US revenue

growth. Also, scaling up of specialty products may be challenging

Valuations ● We believe Dr Reddy’s pipeline could spring positive surprises in

terms of niche product launches. However, regulatory overhang due to the WL on three of its facilities clouds earnings visibility. The stock is currently trading at 19x FY18E earnings. We have a HOLD rating on the stock with a target price of INR 3000/share

39

Dr Reddys Laboratories Ltd: Financials



Net Revenue 13,217 14,818 15,470 15,557 17,884


Materials costs 5,636 6,278 6,242 6,588 7,243

R&D Cost 1,240 1,744 1,783 1,944 2,280

Total SG&A expenses 3,218 3,448 3,535 3,422 3,845

EBITDA 3,121 3,346 3,908 3,601 4,515


EBIT 2,411 2,536 2,874 2,517 3,323

Other income 208 111 110 251 300

Interest expenses -40 -168 270 -80 -80

Exceptionals (before PBT) 49 24 413 0 0



Reported PAT 2,151 2,217 2,001 2,279 2,815

Less: Exceptional Items (Net of Tax) 49 24 413 0 0

Adjusted PAT 2,111 2,198 1,696 2,279 2,815


Adjusted basic EPS (INR) 123.5 128.6 99.2 133.6 165.5


Adjusted diluted EPS (INR) 123.5 128.6 99.2 133.6 165.5

CEPS (INR) 165 176 159.8 197.1 235.7

Dividend per share (INR) 17.9 19.9 20 20 24.8

Dividend payout (%) 14.2 15.3 17 15 15




S G & A expenses (Common Size Metrics) 24.3 23.2 22.8 22 21.5

R & D cost (Common size metrics) 9.3 11.7 11.5 12.5 12.7


Interest expenditure (Common Size Metrics) 0 -1 1.7 0 0

EBITDA margins (Common Size Metrics) 23.6 22.5 25.2 23.1 25.2



Revenues Growth 13.6 12.1 4.3 0.5 14.9

EBITDA Growth 67.5 7.2 16.7 -8 25.3

PBT Growth 21.9 4.8 10 -9 30

Net profit Growth 29 4.1 -23 34.3 23.5

EPS Growth 29 4.1 -23 34.5 23.9





Short term debt 2,400 2,881 2,282 2,282 2,282

Long term debt 2,074 1,430 1,068 1,068 1,068

Borrowings 4,474 4,312 3,351 3,351 3,351


Deferred Tax liability -331 -401 -423 280 280

Sources of funds 13,410 15,379 16,083 18,724 21,117

Depreciation 709 810 1,034 1,083 1,192

Net block 4,442 4,809 5,396 5,896 6,396

Intangible assets 1,469 1,643 2,464 2,464 2,464



Cash and equivalents 3,353 3,965 3,995 5,528 6,633

Inventories 2,399 2,552 2,557 2,535 2,791

Sundry debtors 3,303 4,075 4,130 4,278 4,918



Trade payable 1,050 1,066 1,230 1,058 1,165

Others current liabilities 1,955 2,451 2,951 2,951 2,951



Uses of funds 13,410 15,379 16,083 18,724 21,117

Book value per share (INR) 531.4 651.4 751.1 865.8 1,009.60



Depreciation (Free Cash Flow) 709 810 1,034 1,083 1,192

Interest (Net of Tax) (Free Cash Flow) -32 -132 209 -64 -60

Others (Free Cash Flow) -1,340 -1,281 -1 -530 -1,516

Less: Changes in WC (Free Cash Flow) -481 -909 104 -297 -788

Operating cash flow (Free Cash Flow) 1,969 2,523 3,139 3,065 3,218

Less: Capex (Free Cash Flow) 1,438 1,349 2,442 1,893 1,692

Free Cash Flow (Free Cash Flow) 531 1,173 696 1,171 1,526


Operating cash flow (Cash Flow Metrics) 1,969 2,523 3,139 3,065 3,218

Investing cash flow (Cash Flow Metrics) -1,694 -2,264 -2,359 -1,893 -1,692

Financing cash flow (Cash Flow Metrics) -24 -433 -700 361 -422

Net Cash Flow (Cash Flow Metrics) 251 -174 79 1,533 1,104

Capex -1,438 -1,349 -2,442 -1,893 -1,692

Dividend paid -306 -340 -341 -341 -422


ROAE (%) 25.8 21.7 14.1 16.5 17.6

ROACE (%) 21.4 18.3 18.9 16 18.4

Inventory day 147 143 149 141 134




Current ratio 3.4 3.4 2.8 3.3 3.7




Net Debt/Equity 0.1 0 0 0 0

Interest coverage -60 -15 10.6 -31 -42


Total asset turnover (Operating ratios) 1 1 0.9 0.8 0.8

Fixed asset turnover (Operating ratios) 2.3 2.3 2.1 1.9 2




Total Assets Turnover (Du Pont Analysis) 1 1 0.9 0.8 0.8


ROAE % (Du Pont Analysis) 25.8 21.7 14.1 16.5 17.6


EPS (INR) diluted 123.5 128.6 99.2 133.6 165.5

Y-o-Y growth (%) 29 4.1 -23 34.5 23.9

Cash EPS 165 176 159.8 197.1 235.7

Diluted PE (x) 25.5 24.4 31.7 23.5 19

Price/BV (x) 5.9 4.8 4.1 3.6 3.1

EV/Sales (x) 3.9 3.4 3.2 3.1 2.6

EV/EBITDA (x) 17.6 16.1 13.6 14.3 11.1

Dividend yield (%) 0.5 0.6 0.6 0.6 0.7

40

Aurobindo Pharma Ltd (CMP INR 779, Target INR 770) HOLD

119 155 165 166

215 28

26 26 27

36

91

88

145 183

147

1-Jan-12 1-Jan-13 1-Jan-14 1-Jan-15 1-Jan-16

Final Approval Tentative Approval Under Review

239 269

336

376 398

Cumulative ANDA Fillings and Approvals


Promoter 53.79

Public 46.21

Others –

Source : Company

Pipeline visibility & complexity ● Aurobindo has doggedly focused on cost efficiencies and building

up scale to garner higher share in US market. The company has successfully achieved this goal in its me-too product filings and is now moving up the value chain by filing Complex Injectables, Hormonal products, Peptides, among others. The company has ~147

pending approvals as well as ~15 non-PEPFAR tentative approvals in the US currently. We estimate Aurobindo’s US business to post ~14% earnings CAGR over FY16-18 led by launch of gNexium, gValcyte, gCrestor, among others

Compliance history ● Though Aurobindo has, in the past, faced regulatory actions, off late

it has been compliant with USFDA’s cGMP norms. It has recently received EIR on most of its facilities, barring Unit XII (Orals &

Injectables). In addition, the company expects the inspection of its Unit IV injectable facility in the next twelve months

Risks ● Aurobindo largely has Para III filings, thus lacking pipeline visibility.

Also, with the pace of approvals far exceeding that of filings, the company may face growth issues in the US going forward

Valuations ● Aurobindo lacks branded/specialty business. The company’s

fortunes remain largely tied to the US generic market, where we believe it will find it difficult to grow on a higher base. The current market price factors in most of the upside, thus we have a HOLD rating on the stock with a target price of INR 770/share (16x FY18E EPS).

41

Aurobindo Pharma Ltd: Financials


Gross revenues 8,259 12,272 14,056 15,977 17,361

Net Revenue 8,099 12,120 13,896 15,658 17,014


Materials costs 3,606 5,505 6,157 7,202 7,826

Employee costs 802 1,302 1,550 1,705 1,876

R&D Cost 255 350 477 939 1,191

EBITDA 2,134 2,563 3,205 3,931 4,418


EBIT 1,821 2,231 2,812 3,300 3,802

Other income 21 80 68 100 50


Exceptionals (before PBT) -203 -59 -66 0 0



Minority interest (before Core Profit) -3 -4 -3 0 0

Reported PAT 1,172 1,575 1,982 2,478 2,815

Less: Exceptional Items (Net of Tax) -162 -43 -66 0 0

Adjusted PAT 1,334 1,619 2,048 2,478 2,815


Adjusted basic EPS (INR) 22.9 27.7 35 42.4 48.2


Adjusted diluted EPS (INR) 22.8 27.7 35 42.4 48.2

CEPS (INR) 28.2 33.4 41.7 53.2 58.7

Dividend per share (INR) 1.5 2.2 2.5 2.9 3.3

Dividend payout (%) 7.4 8.3 7.3 7 7


Operating expenses (Common Size Metrics) 73.6 78.8 76.9 74.8 74

Materials costs (Common Size Metrics) 44.5 45.4 44.3 46 46

Employee expenses (Common Size Metrics) 9.9 10.7 11.1 10.8 11


Depreciation (Common Size Metrics) 3.8 2.7 2.8 4 3.6

Interest expenditure (Common Size Metrics) 1.3 0.6 0.6 0.6 0.5

EBITDA margins (Common Size Metrics) 26.3 21.1 23 25.1 25.9



Revenues Growth 38.3 49.6 14.6 12.6 8.6

EBITDA Growth 140 20.1 25 22.6 12.4

PBT Growth 309.6 41.4 25.5 21.4 13.5

Net profit Growth 517.5 21.3 26.4 21 13.5

EPS Growth 517.5 21 26.4 21 13.5





Minority interest (BS) 25 25 59 59 59

Short term debt 1,279 1,361 847 522 -127

Long term debt 2,354 2,502 3,229 3,229 3,229

Borrowings 3,633 3,863 4,076 3,751 3,101


Deferred Tax liability 205 205 236 236 236

Sources of funds 7,624 9,275 11,452 13,398 15,327

Gross block 3,741 4,401 6,604 7,804 8,304

Depreciation 312 332 392 630 616

Net block 2,512 2,864 4,674 5,244 5,128

Capital work in progress 309 419 500 500 500

Intangible assets 209 840 88 88 88



Cash and equivalents 178 488 834 1,336 3,105

Inventories 2,367 3,611 4,088 4,918 4,868

Sundry debtors 2,636 3,539 4,171 4,516 4,924


Other current assets 71 91 261 261 261


Trade payable 1,351 2,051 2,526 2,828 2,909

Others current liabilities 514 1,583 1,720 1,720 1,720



Uses of funds 7,624 9,275 11,452 13,398 15,327




Depreciation (Free Cash Flow) 312 332 392 630 616


Others (Free Cash Flow) -2,017 -2,179 266 -1,120 43

Less: Changes in WC (Free Cash Flow) -1,096 -1,446 -633 -873 -276

Operating cash flow (Free Cash Flow) 646 1,236 3,342 2,934 3,825

Less: Capex (Free Cash Flow) 174 1,093 1,138 569 -116

Free Cash Flow (Free Cash Flow) 472 142 2,203 2,364 3,942


Operating cash flow (Cash Flow Metrics) 646 1,236 3,342 2,934 3,825

Investing cash flow (Cash Flow Metrics) -818 -1,408 1,138 569 -116

Financing cash flow (Cash Flow Metrics) 117 93 255 -533 -886

Net Cash Flow (Cash Flow Metrics) -54 -78 4,736 2,970 2,822

Capex -174 -1,093 -1,138 -569 116

Dividend paid -102 -156 -175 -208 -236


ROAE (%) 41.6 36 33.2 30 26.3

ROACE (%) 27.3 27.7 28.1 27.6 27

Inventory day 217 198 228 228 228

Debtors days 95 92 101 101 101

Payable days 117 112 135 135 133


Current ratio 3.4 2.4 2.4 2.6 3




Net Debt/Equity 0.9 0.6 0.4 0.2 0

Interest coverage 16.8 26.4 30.3 34.5 38.6


Total asset turnover (Operating ratios) 1.1 1.4 1.3 1.2 1.1

Fixed asset turnover (Operating ratios) 3 3.7 3.2 3.1 3.2




Total Assets Turnover (Du Pont Analysis) 1.1 1.4 1.3 1.2 1.1


ROAE % (Du Pont Analysis) 41.6 36 33.2 30 26.3


EPS (INR) diluted 22.8 27.7 35 42.4 48.2

Y-o-Y growth (%) 517.5 21 26.4 21 13.5

Cash EPS 28.2 33.4 41.7 53.2 58.7

Diluted PE (x) 34 28 22.2 18.3 16.1

Price/BV (x) 12.1 8.8 6.4 4.8 3.8

EV/Sales (x) 5.7 3.8 3.3 2.9 2.5

EV/EBITDA (x) 22.8 19 15.2 12.2 10.3

Dividend yield (%) 0.1 0.2 0.3 0.3 0.4

42

Price Charts

0

200

400

600

800

Ja

n-1

2

Ap

r-1

2

Ju

l-1

2

Oc

t-1

2

Ja

n-1

3

Ap

r-1

3

Ju

l-1

3

Oc

t-1

3

Ja

n-1

4

Ap

r-1

4

Ju

l-1

4

Oc

t-1

4

Ja

n-1

5

Ap

r-1

5

Ju

l-1

5

Oc

t-1

5

Ja

n-1

6

Ap

r-1

6

Natco Pharma 5 year price chart

0

200

400

600

800

Ja

n-1

2

Ap

r-1

2

Ju

l-1

2

Oc

t-1

2

Ja

n-1

3

Ap

r-1

3

Ju

l-1

3

Oc

t-1

3

Ja

n-1

4

Ap

r-1

4

Ju

l-1

4

Oc

t-1

4

Ja

n-1

5

Ap

r-1

5

Ju

l-1

5

Oc

t-1

5

Ja

n-1

6

Ap

r-1

6

Biocon 5 year price chart

0

500

1000

1500

Ja

n-1

2

Ap

r-1

2

Ju

l-1

2

Oc

t-1

2

Ja

n-1

3

Ap

r-1

3

Ju

l-1

3

Oc

t-13

Ja

n-1

4

Ap

r-1

4

Ju

l-1

4

Oc

t-1

4

Ja

n-1

5

Ap

r-15

Ju

l-1

5

Oc

t-1

5

Ja

n-1

6

Ap

r-1

6

Sun Pharmaceuticals 5 year price chart

0

2000

4000

6000

Ja

n-1

2

Ap

r-1

2

Ju

l-1

2

Oc

t-1

2

Ja

n-1

3

Ap

r-1

3

Ju

l-1

3

Oc

t-1

3

Ja

n-1

4

Ap

r-1

4

Ju

l-1

4

Oc

t-1

4

Ja

n-1

5

Ap

r-1

5

Ju

l-1

5

Oc

t-1

5

Ja

n-1

6

Ap

r-16

Dr Reddy's 5 year price chart

0

200

400

600

800

1000

Ja

n-1

2

Ap

r-1

2

Ju

l-1

2

Oc

t-1

2

Ja

n-1

3

Ap

r-1

3

Ju

l-1

3

Oc

t-1

3

Ja

n-1

4

Ap

r-1

4

Ju

l-1

4

Oc

t-1

4

Ja

n-1

5

Ap

r-1

5

Ju

l-1

5

Oc

t-1

5

Ja

n-1

6

Ap

r-1

6

Aurobindo Pharma 5 year price chart

0

500

1000

1500

2000

2500

Ja

n-1

2

Ap

r-1

2

Ju

l-1

2

Oc

t-1

2

Ja

n-1

3

Ap

r-13

Ju

l-1

3

Oc

t-1

3

Ja

n-1

4

Ap

r-1

4

Ju

l-1

4

Oc

t-1

4

Ja

n-1

5

Ap

r-1

5

Ju

l-1

5

Oc

t-15

Ja

n-1

6

Ap

r-1

6

Lupin Ltd 5 year price chart

43

Disclaimer

Edelweiss Broking Limited (“EBL” or “Research Entity”) is regulated by the Securities and Exchange Board of India (“SEBI”) and is licensed to carry on the business of broking, depository services and related activities. The business of EBL and its Associates (list available on www.edelweissfin.com) are organized around five broad business groups – Credit including Housing and SME Finance, Commodities, Financial Markets, Asset Management and Life Insurance. Broking services offered by Edelweiss Broking Limited under SEBI Registration No.: INZ000005231; Name of the Compliance Officer: Mr. Dhirendra Rautela, Email ID: [email protected] Corporate Office: Edelweiss House, Off CST Road, Kalina, Mumbai - 400098; Tel. (022) 4009 4400/ 4088 5757/4088 6278 Disclosures under the provisions of SEBI (Research Analysts) Regulations 2014 (Regulations) Edelweiss Broking Limited ("EBL" or "Research Entity") is regulated by the Securities and Exchange Board of India ("SEBI") and is licensed to carry on the business of broking, depository services and related activities. The business of EBL and its associates are organized around five broad business groups – Credit including Housing and SME Finance, Commodities, Financial Markets, Asset Management and Life Insurance. There were no instances of non-compliance by EBL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years. This research report has been prepared and distributed by Edelweiss Broking Limited ("Edelweiss") in the capacity of a Research Analyst as per Regulation 22(1) of SEBI (Research Analysts) Regulations 2014 having SEBI Registration No.INH000000172 This Report has been prepared by Edelweiss Broking Limited in the capacity of a Research Analyst having SEBI Registration No.INH000000172 and distributed as per SEBI (Research Analysts) Regulations 2014. This report does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors. This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject EBL and associates / group companies to any registration or licensing requirements within such jurisdiction. The distribution of this report in certain jurisdictions may be restricted by law, and persons in whose possession this report comes, should observe, any such restrictions. The information given in this report is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. EBL reserves the right to make modifications and alterations to this statement as may be required from time to time. EBL or any of its associates / group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. EBL is committed to providing independent and transparent recommendation to its clients. Neither EBL nor any of its associates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including loss of revenue or lost profits that may arise from or in connection with the use of the information. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. Past performance is not necessarily a guide to future performance .The disclosures of interest statements incorporated in this report are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The information provided in these reports remains, unless otherwise stated, the copyright of EBL. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright of EBL and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright holders. EBL shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including network (Internet) reasons or snags in the system, break down of the system or any other equipment, server breakdown, maintenance shutdown, breakdown of communication services or inability of the EBL to present the data. In no event shall EBL be liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or expenses arising in connection with the data presented by the EBL through this report. We offer our research services to clients as well as our prospects. Though this report is disseminated to all the customers simultaneously, not all customers may receive this report at the same time. We will not treat recipients as customers by virtue of their receiving this report. EBL and its associates, officer, directors, and employees, research analyst (including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company(ies), mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company(ies) discussed herein or act as advisor or lender/borrower to such company(ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. EBL may have proprietary long/short position in the above mentioned scrip(s) and therefore should be considered as interested. The views provided herein are general in nature and do not consider risk appetite or investment objective of any particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with EBL. EBL or its associates may have received compensation from the subject company in the past 12 months. EBL or its associates may have managed or co-managed public offering of securities for the subject company in the past 12 months. EBL or its associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. EBL or its associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. EBL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report. Research analyst or his/her relative or EBL’s associates may have financial interest in the subject company. EBL, its associates, research analyst and his/her relative may have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs and Currency Derivatives, whose values are affected by the currency of an underlying security, effectively assume currency risk. Research analyst has served as an officer, director or employee of subject Company: No EBL has financial interest in the subject companies: No EBL’s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report. Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No EBL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No Subject company may have been client during twelve months preceding the date of distribution of the research report. There were no instances of non-compliance by EBL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years. A graph of daily closing prices of the securities is also available at www.nseindia.com Analyst Certification: The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Additional Disclaimer for U.S. Persons Edelweiss is not a registered broker – dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United States. In addition Edelweiss is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Edelweiss, including the products and services described herein are not available to or intended for U.S. persons. This report does not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be considered as an advertisement tool. "U.S. Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US Persons" under certain rules. Transactions in securities discussed in this research report should be effected through Edelweiss Financial Services Inc. Additional Disclaimer for U.K. Persons The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA"). In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”). This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person. Additional Disclaimer for Canadian Persons Edelweiss is not a registered adviser or dealer under applicable Canadian securities laws nor has it obtained an exemption from the adviser and/or dealer registration requirements under such law. Accordingly, any brokerage and investment services provided by Edelweiss, including the products and services described herein, are not available to or intended for Canadian persons. This research report and its respective contents do not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services.

› ewwebimages › WebFiles › ... Pharmaceutical Vrijesh Kasera - EdelweissPharmaceutical Vrijesh Kasera Realigning to ground realities Research Analyst [email protected]

Documents