mailers.sparkcapital.inmailers.sparkcapital.in/uploads/Daily/Spark Research 15 Jun 2015.pdfPage 1 SPARK RESEARCH 15 June 2015 US Sales to nearly double for Indian filers by FY18E on

Page 1

SPARK RESEARCH

15 June 2015

Page 1

US Sales to nearly double for Indian filers by FY18E on GDUFA targets

Source: Company, Spark Capital Research

Indian market share to reach 16% by FY18E in US

Source: IMS, Spark Capital Research

DEALER’S COMMENTS

Amidst a volatile session & after slipping several times below the neutral

line, market recouped all its losses and concluded the session with modest

gains. Strong gains in select index heavyweights, private financial stocks

and RIL was negated on account of weakness in IT & metal shares. Caution

prevailed ahead of retail inflation and IIP data. Market breadth was negative.

Among BSE sectoral indices, banking index was up (1.09%), followed by

power (0.43%), oil & gas (0.27%) and PSU (0.07%). IT index fell the most

(1.62%), followed by metal (1.42%), consumer durables (1.13%) and TECk

(1.12%). India VIX was down 1.8% at 17.4775. Mere nine stocks touched a

new 52-week high while 154 stocks registered a new 52-week low.

WHAT’S INSIDE

Pharmaceuticals Initiating Coverage – Sector Outlook - Overweight

Exchange and Currency Performance

Spark Focus Stocks

Technical Indicators

Spark Model Portfolio

Today’s News & Announcements

Find Spark Research on Bloomberg (SPAK <go>),

Thomson First Call, Reuters Knowledge and Factset

27 29 32 34 38 40

43 50

81

5% 5% 6% 5%

7% 8%

10% 10%

16%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

20

40

60

80

100

2006

2007

2008

2009

2010

2011

2012

2013

2018E

US

$ B

n

US Generic Market Indian Players - Market share (%)

1.9

1.3

1.8

1.3

1.5

1.5

2.4

1.6

2.3

1.4

1.8

1.8

0

0.5

1

1.5

2

2.5

3

Aurobindo Dr Reddy's Lupin Sun Glenmark Total

US

sale

s X

tim

es

FY15 FY18E* FY18E**

Page 2 Page 2

SPARK RESEARCH

15 June 2015


Today 1d 5d 1m 3m 6m 12m Today 1d 5d 1m 3m 6m 12m

US (Dow Jones) 17,899 -0.8 0.3 -2.0 0.8 4.2 6.7 -2.5 12.9 Dollar Index# 95.3 0.3 0.0 2.3 -5.0 7.7 18.3 -5.1 19.5

UK (FTSE100) 6,785 -0.9 -0.3 -2.5 0.7 9.7 0.1 -4.7 11.7 Pound 1.6 -0.2 1.2 -1.2 4.8 -0.6 -8.5 -9.6 6.7

Japan (Nikkiei 225) 20,361 -0.2 -0.5 3.2 5.7 19.1 34.9 -1.4 40.1 Yen 123.5 -0.1 0.8 -3.5 -1.7 -4.6 -17.5 -1.9 22.2

Germany (DAX) 11,196 -1.2 0.0 -2.2 -5.9 20.0 12.9 -9.6 34.0 Euro 1.1 -0.5 -0.8 -2.1 6.1 -9.9 -17.4 -18.2 7.1

Brazil (IBOV) 53,348 -0.6 0.7 -6.8 9.8 13.5 -2.7 -14.4 16.3 Real 3.1 -1.0 0.7 -3.2 1.5 -14.9 -28.5 -5.9 42.5

Russia (Micex) 1,652 -0.1 0.9 -3.1 -0.7 13.2 10.1 -10.6 26.4 Ruble 55.2 0.1 1.5 -10.2 12.7 16.4 -37.2 -30.3 64.4

India (Sensex) 26,425 0.2 -1.3 -3.3 -7.3 -3.3 4.7 -12.0 6.2 Rupee 64.1 -0.1 -0.5 0.2 -2.4 -2.8 -7.5 -0.3 7.6

China (SHCOMP) 5,145 -0.4 0.3 19.4 52.5 74.2 148.5 -0.6 155.9 Renminbi 6.2 0.0 0.0 0.0 0.9 -0.2 0.3 -1.1 1.6

South Africa (Jalsh) 51,829 -0.1 0.3 -4.1 0.1 9.3 2.1 -6.4 12.5 Rand 12.4 -0.5 0.2 -5.2 -0.4 -5.5 -13.6 -2.1 18.9

HK (H S I) 26,949 -1.2 -1.3 -3.1 13.1 17.0 15.6 -5.7 19.6 HK Dollar 7.8 0.0 0.0 0.0 0.1 0.0 0.0 -0.3 0.0

Korea (Kospi) 2,045 -0.4 -1.0 -2.9 3.0 6.5 2.7 -6.6 9.0 Won 1,117.4 -0.2 0.5 -2.8 1.3 -1.6 -8.7 -1.8 10.8

Singapore (Straits) 3,317 -1.1 -0.1 -4.2 -1.4 0.7 0.7 -6.6 5.3 SG Dollar 1.3 -0.3 0.4 -2.0 3.1 -2.6 -7.2 -3.3 9.0

Malaysia (KLCI) 1,734 0.0 -0.3 -4.3 -2.7 2.2 -7.6 -8.6 3.7 Ringgit 3.8 -0.1 0.2 -5.3 -1.6 -7.1 -14.4 -0.2 19.9

Indonesia (Jakarta) 4,898 -0.8 -2.3 -6.3 -9.7 -4.1 -0.6 -11.3 1.3 Ind Rupiah 13,334.0 0.0 0.4 -1.9 -0.7 -4.6 -11.4 -0.5 16.1

Commodities Commodities

Brent ($/bbl) 63.5 -0.5 1.3 -4.9 16.2 4.0 -44.0 -45.1 40.6 Indonesian Coal ($/MT) 59.6 NA NA -2.4 -12.1 -7.8 -19.1 -19.1 0.0

WTI ($/bbl) 59.8 -0.3 2.8 -1.3 18.8 2.8 -37.1 -38.6 25.9 S Africa Coal ($/MT) 61.0 NA -3.7 -7.6 -6.9 -16.7 -26.4 NA NA

Copper ($/MT) 5,893 0.5 -0.6 -8.6 0.4 -9.9 -11.3 -18.0 9.3 Australia Coal ($/MT) 61.8 NA -1.0 -0.6 -4.4 -11.9 -25.4 NA NA

Zinc ($/MT) 2,113 0.2 -0.2 -10.7 6.0 -3.0 2.5 -12.7 6.4 Gold Spot $/Oz 1,182 0.0 0.6 -3.5 2.3 -1.0 -7.1 -12.2 4.4

Aluminium ($/MT) 1,702 -0.7 -0.6 -8.6 -2.1 -11.1 -5.7 -19.5 0.6 GOLD INDEX (Rs./10g) 26,700.0 0.0 0.3 -2.6 3.2 -0.7 -1.3 -7.2 5.4

Iron Ore ($/MT) 65 1.1 2.4 9.3 7.5 -7.4 -28.2 -31.7 28.6 Silver Spot $/Oz 15.9 -0.2 -0.3 -8.9 1.9 -1.4 -18.9 -26.1 10.6

Lead ($/MT) 1,849 -0.2 -2.0 -9.4 1.9 -6.7 -9.7 -18.5 9.8 MCX Silver (Rs./KG) 36,545.0 0.7 -0.8 -6.8 3.4 -3.7 -12.0 -20.4 8.8

Currency

Currency Performance (%)

Performance (%) Performance (%)

Asian Asian

Chg.

from

52WH

Chg.

from

52WL

Developed Developed

BRICS BRICS

Global Indices

Equity Performance (%) Chg.

from

52WH

Chg.

from

52WL

Page 3 Page 3

SPARK RESEARCH

15 June 2015

109 69 81 70 70 66

36

24 32

30 28 31

53

55

66 55 60 51

-

50

100

150

200

250

1M avg12-Jun11-Jun10-Jun9-Jun8-Jun

Rs. b

n

FII DII Others

NSE / BSE Category wise turnover

Last 5 Day FII Buy FII Sell Net DII Buy DII Sell Net

12-Jun-15 31.2 37.9 -6.7 15.4 8.3 7.1

11-Jun-15 37.5 43.8 -6.2 18.8 12.9 5.9

10-Jun-15 32.8 37.6 -4.8 19.1 11.2 7.9

9-Jun-15 31.5 38.0 -6.5 17.7 10.8 6.9

8-Jun-15 29.3 36.8 -7.5 18.1 12.8 5.3

Market Activity FII & DII - Provisional (INR Bn)

Particulars Today 1D 1M 3M 6M 12M

Reverse Repo - - 66 34 27 83

Repo 110 134 201 173 142 162

MSF - 1 10 4 4 5

Net liquidity (110) (135) (145) (143) (119) (83)

Change in BPS

NSE MIBOR 7.25 (9) (50) (38) (81) (90)

1M CP 8.01 (5) (41) (125) (41) (64)

3M CP 8.14 (4) (59) (80) (36) (73)

6M CP 8.43 (2) (47) (52) (31) (70)

3M CD 7.80 (0) (48) (76) (49) (74)

6M CD 8.04 (1) (31) (52) (42) (70)

12M CD 8.22 (1) (19) (30) (34) (65)

Change in BPS

India 10 yr 7.89 1 (6) 16 2 (66)

US 10 yr 2.34 (5) 20 23 22 (26)

Spread (India 10Y-US10Y) 555

India 10YR AAA corp 8.58 5 8 22 5 (64)

Spread (India 10Y-AAA10Y) 69

91D T.Bills 7.69 - (29) (54) (54) (83)

1Y T.Bills 7.72 1 (23) (30) (45) (84)

Call rate 7.15 (2) (9) (28) (74) (98)

Change in BPS

LIBOR 0.17 (9) (19) (46) (68) (147)

MIFOR 8.07 (19) 22 49 157 148

OIS 8.08 (15) 15 40 80 101

12m OIS fw d 7.60 - 7 (7) (16)

Money Market Rates

Liquidity (Rs. Bn)

LIBOR, MIFOR

Bond Market


Bulk Deals (INR Mn)

Date Script Client Type Qty Price

No Bulk Deals Data

Rank Company Delivery % 30D Del. % Price Chg

1 TATA CONSULTANCY SVCS LTD 79.9 70.2 1.5%

2 HCL TECHNOLOGIES LTD 72.6 63.2 3.4%

3 HDFC BANK LIMITED 69.8 55.5 1.4%

4 HOUSING DEVELOPMENT FINANCE 69.6 66.0 0.1%

5 HERO MOTOCORP LTD 67.8 66.5 0.6%

6 NTPC LTD 67.1 67.3 0.7%

7 GRASIM INDUSTRIES LTD 67.1 50.6 0.2%

8 BHARTI AIRTEL LTD 66.8 63.2 1.7%

9 TATA MOTORS LTD 66.1 58.0 1.5%

10 COAL INDIA LTD 65.7 60.9 0.9%

Nifty Top 10 Deliveries

Page 4 Page 4

SPARK RESEARCH

15 June 2015

Spark Focus Stocks

1D 1M 3M 1Y FY16E FY17E FY16E FY17E

ASHOK LEYLAND LTD 65.8 0.2 (5.9) (9.1) 100.0 6723.6 0.7 43.1 30.7 20.8 12.1 9.3 Sell

AMARA RAJA BATTERIES LTD 846.6 (3.3) 0.8 (1.6) 71.7 148.1 0.3 49.1 26.4 21.9 16.1 13.3 Add

GATEWAY DISTRIPARKS LTD 364.3 1.4 1.4 (17.8) 61.4 37.2 (0.8) 71.7 17.6 13.7 10.5 8.6 Buy

KAVERI SEED CO LTD 782.5 (2.8) (9.2) (15.0) 21.5 47.8 0.3 29.8 14.4 11.4 13.7 10.9 Buy

SUNDRAM FASTENERS LTD 155.7 (1.2) (10.5) (14.7) 69.0 40.9 (0.1) 71.6 13.6 11.0 8.7 7.3 NA

WABCO INDIA LTD 5324.3 (2.6) (4.1) (5.0) 95.2 1.6 (0.8) 59.1 46.3 32.3 31.0 22.2 Add

CHOLAMANDALAM INVESTMENT AND 591.8 (3.0) 2.0 1.6 58.6 10.9 (0.6) 49.2 2.6 2.1 2.6 2.1 Buy

CITY UNION BANK LTD 99.4 (1.2) (0.5) 1.0 38.6 400.5 (0.3) 55.1 2.1 1.8 2.1 1.8 Buy

DCB BANK LTD 122.3 (1.3) (2.4) 11.4 75.7 664.9 (0.2) 52.7 2.2 1.9 2.2 1.9 Buy

FEDERAL BANK LTD 131.8 (0.2) (5.1) (3.1) 7.3 547.8 (0.5) 36.1 1.4 1.2 1.4 1.2 Buy

KARUR VYSYA BANK LTD 454.8 (0.2) (3.7) (23.1) (4.1) 53.9 (0.3) 76.4 1.3 1.1 1.3 1.1 Buy

REPCO HOME FINANCE LTD 583.0 (0.7) (5.3) (12.1) 42.2 42.7 (0.4) 55.7 4.0 3.4 4.0 3.4 Buy

SHRIRAM CITY UNION FINANCE 1600.5 0.0 (9.0) (18.1) 8.8 32.1 0.0 92.9 2.3 2.1 2.3 2.1 Buy

SOUTH INDIAN BANK LTD 23.6 1.7 (3.1) (8.5) (15.1) 1189.7 (0.5) 59.6 0.9 0.8 0.9 0.8 Buy

DALMIA BHARAT LTD 586.5 (0.1) 16.3 34.8 22.2 24.5 (0.7) 36.5 22.1 15.6 2.0 1.5 Buy

RAMCO CEMENTS LTD/THE 314.4 0.5 7.9 (1.4) 4.5 269.9 1.9 87.9 12.9 10.0 3.5 2.6 Add

BLUE STAR LTD 327.9 (0.5) 1.6 1.0 7.8 14.6 (0.8) 41.1 29.9 20.0 17.4 12.8 Sell

TTK PRESTIGE LTD 3686.3 (1.2) (9.3) 1.3 (0.4) 1.4 (0.9) 25.1 31.9 26.1 20.1 16.6 Sell

VA TECH WABAG LTD 691.5 (1.1) (0.9) (17.0) 2.6 45.3 (0.4) 66.6 25.6 19.9 14.6 11.6 Add

V-GUARD INDUSTRIES LTD 884.1 0.3 (4.9) (5.6) 62.0 4.6 (0.3) 50.1 27.9 21.5 16.6 13.2 Buy

CYIENT LTD 537.0 1.5 5.0 (1.5) 65.2 6.3 (0.9) 69.1 15.8 13.8 11.0 10.2 Add

FIRSTSOURCE SOLUTIONS LTD 29.0 0.2 (6.8) (6.0) (16.1) 360.8 (0.4) 60.9 6.9 6.0 13.3 12.1 Buy

HEXAWARE TECHNOLOGIES LTD 272.2 0.1 2.2 (2.6) 85.4 418.4 0.0 21.2 17.6 15.5 13.3 11.8 Reduce

INTELLECT DESIGN ARENA LTD 98.7 (1.0) (10.6) (14.2) NA 52.5 0.1 50.4 NA 78.5 NA 50.2 Buy

POLARIS CONSULTING & SERVICE 161.3 (4.9) (5.8) 1.7 (23.6) 383.7 (0.1) 47.6 7.9 7.6 5.8 5.8 Add

REDINGTON INDIA LTD 104.9 (2.2) (11.6) (17.1) 10.4 93.0 (0.7) 60.8 9.2 7.9 6.5 5.5 Reduce

BAJAJ CORP LTD 417.0 (1.7) (7.6) (9.4) 78.5 24.4 (0.7) 66.8 23.5 20.6 19.7 17.2 Buy

BERGER PAINTS INDIA LTD 180.7 (4.7) (14.0) (14.5) 37.9 63.2 (0.7) 50.3 31.1 25.1 9.3 7.6 Add

INDIAN TERRAIN FASHIONS LTD 619.0 1.6 (9.9) (2.2) 306.5 15.1 0.9 96.5 15.2 13.0 9.9 7.7 Buy

JYOTHY LABORATORIES LTD 296.5 4.7 22.0 9.6 64.8 73.9 (0.1) 57.1 32.7 27.2 23.5 19.6 Buy

KEWAL KIRAN CLOTHING LTD 2200.0 (0.9) 0.3 8.0 54.0 0.7 (0.3) 77.6 32.2 25.5 19.5 15.6 Add

LA OPALA RG LTD 351.6 1.3 (10.4) (7.7) 100.4 59.8 1.0 57.7 34.8 26.7 21.8 16.5 Add

RELAXO FOOTWEARS LTD 842.4 (0.3) 4.6 25.7 118.2 7.2 (0.6) 83.7 44.1 33.0 22.2 17.7 Add

Consumption

Returns (%)

Auto, Agri &

logistics

Financials

Cement

Top Del. % Company Price

IT Services

Delivery

Volume

('000)

Rating

PE for all sectors &

P/ABV for banksEV/EBITDA (x)

Capital Goods

% inc/dec

to 30D avgDelivery %

Page 5 Page 5

SPARK RESEARCH

15 June 2015

0

100

200

300

8000

8100

8200

8300

8400

8500

8600

8700

8800

8900

9000

9100

9200

9300

9400

9500O

I ('0

00)c

on

tracts Call Put

0150300450600

7800

7850

7900

7950

8000

8050

8100

8150

8200

8250

8300

8350

8400

8450

8500

8550

8600

8650

8700

8750

8800

8850

8900

8950

9000

Rs. b

n

Total Call Value Total Put Value

Nifty Open Interest (‘000 contracts)

Technical Indicators

0.6 0.8 1.0 1.2 1.4

30-A

pr

2-M

ay

4-M

ay

6-M

ay

8-M

ay

10-M

ay

12-M

ay

14-M

ay

16-M

ay

18-M

ay

20-M

ay

22-M

ay

24-M

ay

26-M

ay

28-M

ay

30-M

ay

1-J

un

3-J

un

5-J

un

7-J

un

9-J

un

11-J

un

Nifty PCR Nifty PCR (30D avg)

FII Open Interest 6-5 6-8 6-9 6-10 6-11 Delta 6-12 Delta Delta

Index Futures 146 151 146 147 141 (5.9) 152 11.1 12.2

Stock Futures 493 492 485 483 487 3.7 476 (11.6) 6.0

Stock Options 13 16 17 18 19 0.5 20 1.3 0.8

Index Options 466 488 519 548 564 16.1 586 21.8 6.5

Total (Rs. Bn) 1118 1147 1166 1196 1210 14.4 1233 22.6 25.5

Top CompanyPrice

Change

OI

Change

Close

Price

(Rs. / sh)

Oracle Financial Services Soft 2.3% 34.6% 3,611

Kotak Mahindra Bank Ltd 2.4% 8.6% 1,311

Bank of India 0.1% 7.3% 173

IndusInd Bank Ltd 2.0% 4.1% 811

Tata Pow er Co Ltd 3.8% 3.7% 73

Canara Bank 0.5% 3.5% 295

Cipla Ltd/India 1.3% 3.3% 582

Dabur India Ltd 0.2% 2.2% 252

Unitech Ltd 5.6% 2.1% 8

Maruti Suzuki India Ltd 1.0% 2.1% 3,737

Wipro Ltd -1.6% 7.0% 537

Bank of Baroda -1.0% 5.1% 147

Housing Development & Infrastr -2.9% 4.7% 88

Punjab National Bank -0.4% 4.2% 132

Hindustan Unilever Ltd -0.3% 3.1% 815

Jaiprakash Associates Ltd -5.3% 2.6% 11

JSW Steel Ltd -3.4% 2.3% 843

Tata Global Beverages Ltd -4.7% 2.3% 128

Adani Enterprises Ltd -4.0% 2.3% 94

McLeod Russel India Ltd -0.9% 2.1% 232

Sun TV Netw ork Ltd 0% -4% 287

Bharat Petroleum Corp Ltd -1% -4% 838

Bata India Ltd 0% -3% 992

Siemens Ltd 0% -3% 1,293

Hero MotoCorp Ltd 0% -3% 2,504

Indian Oil Corp Ltd 3.2% -4.8% 351

Allahabad Bank 1.7% -4.8% 92

Arvind Ltd 2.1% -3.9% 235

Bajaj Auto Ltd 3.3% -3.2% 2,286

ITC Ltd 0.2% -3.1% 298

Lo

ng

Un

win

dS

ho

rt

Co

veri

ng

Lo

ng

Bu

ild

up

Sh

ort

Bu

ild

up

Nifty PCR

Max Pain Theory (based on Index Options) – Indicative Nifty closing for next Expiry

Page 6 Page 6

SPARK RESEARCH

15 June 2015

Spark Portfolio returns vs. BSE 200 returns

0

50

100

150

Oct-

13

No

v-1

3

Dec-1

3

Jan

-14

Feb-1

4

Mar-

14

Ap

r-14

May-1

4

Jun

-14

Jul-

14

Aug

-14

Sep

-14

Oct-

14

No

v-1

4

Dec-1

4

Jan

-15

Feb-1

5

Mar-

15

Ap

r-15

May-1

5

Jun

-15

%

Spark Portfolio BSE 200 INDEX

Spark Model Portfolio

CompanyBSE 200

Weights

Spark

Weights

Mcap

(Rs. Bn)

6M Avg

(Rs. Mn)

Fina nc ia ls - OW 2 9 .6 % 3 3 .0 %

HDFC Bank Ltd 6.0% 2532 2016

Kotak Mahindra Bank Ltd 4.0% 1197 1607

IndusInd Bank Ltd 5.0% 431 893

Power Finance Corp 3.0% 342 696

Yes Bank Ltd 6.0% 337 3019

Federal Bank Ltd 3.0% 113 419

Karur Vysya Bank 3.0% 55 81

Cholamandalam Inv. 3.0% 85 73

Consume r - OW 13 .1% 17 .0 %

Asian Paints Ltd 4.0% 677 1302

Dabur India Ltd 3.0% 443 316

Bajaj Corp Ltd 2.0% 62 94

Bata Ltd 3.0% 64 295

Redington Ltd 2.0% 42 149

Whirlpool Ltd 3.0% 90 97

Auto - OW 10 .8 % 15 .0 %

Tata Motors Ltd 4.0% 1335 2975

Maruti Suzuki India Ltd 3.0% 1129 1304

Hero Motocorp Ltd 3.0% 500 2049

Exide Industries Ltd 3.0% 121 464

Wabco India Ltd 2.0% 101 54

He a lthc a re - UW 7 .1% 6 .0 %

Sun Pharma Ltd 4.0% 1958 5353

Torrent Pharma 2.0% 217 135

Informa tion Te c hnology - UW 12 .8 % 6 .0 %

Wipro Ltd 4.0% 1327 1155

Cyient Ltd 2.0% 60 51

Oil & Ga s - UW 7 .6 % 6 .0 %

BPCL Ltd 4.0% 606 1088

GSPL Ltd 2.0% 66 121

Infra struc ture - UW 10 .7 % 10 .0 %

Gujartat Pipavav Port Ltd 3.0% 100 327

Cummins India Ltd 2.0% 248 211

Sadbhav Engineering Ltd 2.0% 49 98

Shree Cement Ltd 3.0% 369 346

Othe rs 2 .0 %

Kaveri Seed Ltd 2.0% 54 157

Ca sh & Othe rs 8 .3 % 5 .0 %

Tota l 10 0 .0 %

Spark Portfolio returns vs. BSE 200 returns

-3.6% -3%

11%

26%

83%

-3.4% -3%

6%11%

42%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

1M 3M 6M 1 yr Since Oct'13

Spark BSE 200

Page 7 Page 7

SPARK RESEARCH

15 June 2015

Today’s News

Today’s News

Sector News

Macro Rainfall 5 per cent above normal till now: MET

April IIP rises 4.1%; May CPI rises marginally to 5.01%

FDI inflows in services sector increased by 46 per cent in 2014-15:

Department of Industrial Policy and Promotion data

Centre proposes stringent appraisal system for all public sector banks to

infuse efficiency

Five-time jump in gold smuggling; seizure worth Rs 1,120 crore

Government asks top Income Tax officers to ideate for widening tax base

Banking Public sector banks advised to lend more for housing

Departing Deutsche Bank co-CEO Anshu Jain to work for free in advisory

role

LIC improves performance in April

Interviews for CEO posts at 5 large PSU banks start Monday

Banks will further trim interest rates soon, says Jaitley

Banks with higher bad debt levels will have to give reasons, says Finance

Minister

BoB opens e-Lobby in Kolkata

IRDAI slaps Rs 50-lakh penalty on Future Generali Life Insurance

IT US government goes tough on Indian IT outsourcing; deals with Disney,

Fossil under lens

Blackstone drops out of race to buy Serco BPO

Tata Consultancy Services says to get $500 million in revenue from cloud

platforms

H-1B visa row: Nasscom sees attempts to portray Indian IT negatively

Housing.com acquires Realty BI in ₹10 cr dea

Today’s News

Sector News

Pharma HC dismisses Sun Pharma's plea in trademark dispute

Jubilant's Spokane facility successfully concludes USFDA inspection

Elder Pharma eyes Rs 100cr from global sales of Shelcal

Cap Goods BHEL commissions 82.5 MW hydro power unit in Uttarakhand

Auto Hero MotoCorp, Honda Motors extend lead over Bajaj, TVS in two-wheeler

market

Mahindra to launch Jeeto mini truck to take on Tata Ace Zip

Mercedes Benz confident of retaining top slot in luxury car market with 40

per cent sales growth

Honda banks on new Jazz, eyes double digit car sales growth

Luxury car-makers eyeing women and youth in a bid to boost sales

Oil & Gas Cairn India to merge into Vedanta Ltd; board approves merger

RIL to invest Rs 2-lakh cr in oil business: Mukesh Ambani

Increase production, ramp up exploration: Dharmendra Pradhan to ONGC

http://economictimes.indiatimes.com/news/economy/indicators/rainfall-5-per-cent-above-normal-till-now-met/articleshow/47664995.cms

http://economictimes.indiatimes.com/news/economy/indicators/april-iip-rises-4-1-may-cpi-rises-marginally-to-5-01/articleshow/47644117.cms

http://economictimes.indiatimes.com/news/economy/finance/fdi-inflows-in-services-sector-increased-by-46-per-cent-in-2014-15-department-of-industrial-policy-and-promotion-data/articleshow/47662695.cms




http://economictimes.indiatimes.com/news/economy/policy/centre-proposes-stringent-appraisal-system-for-all-public-sector-banks-to-infuse-efficiency/articleshow/47670166.cms

http://economictimes.indiatimes.com/news/economy/policy/centre-proposes-stringent-appraisal-system-for-all-public-sector-banks-to-infuse-efficiency/articleshow/47670166.cms

http://economictimes.indiatimes.com/news/economy/foreign-trade/five-time-jump-in-gold-smuggling-seizure-worth-rs-1120-crore/articleshow/47663532.cms

























http://economictimes.indiatimes.com/news/economy/policy/government-asks-top-income-tax-officers-to-ideate-for-widening-tax-base/articleshow/47663001.cms

http://www.thehindubusinessline.com/industry-and-economy/banking/public-sector-banks-advised-to-lend-more-for-housing/article7315359.ece?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication

















http://www.thehindubusinessline.com/industry-and-economy/banking/departing-deutsche-bank-coceo-anshu-jain-to-work-for-free-in-advisory-role/article7315206.ece?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication



























http://www.thehindubusinessline.com/industry-and-economy/banking/lic-improves-performance-in-april/article7315110.ece?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication

http://www.thehindubusinessline.com/industry-and-economy/banking/retirement-planning-an-important-goal-survey/article7291914.ece?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication2

http://www.thehindubusinessline.com/industry-and-economy/banking/interviews-for-ceo-posts-at-5-large-psu-banks-start-monday/article7315024.ece?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication

http://www.thehindubusinessline.com/economy/mat-cases-cbdt-directs-assessments-on-foreign-companies-to-be-put-on-hold/article7193852.ece?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication

http://www.thehindubusinessline.com/industry-and-economy/banking/banks-will-further-trim-interest-rates-soon-says-jaitley/article7310214.ece?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication

http://www.thehindubusinessline.com/industry-and-economy/banking/banks-will-further-trim-interest-rates-soon-says-jaitley/article7310214.ece?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication


http://www.thehindubusinessline.com/industry-and-economy/banking/banks-with-higher-bad-debt-levels-will-have-to-give-reasons-says-finance-minister/article7310169.ece?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication

http://www.thehindubusinessline.com/industry-and-economy/banking/banks-with-higher-bad-debt-levels-will-have-to-give-reasons-says-finance-minister/article7310169.ece?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication


http://www.thehindubusinessline.com/news/states/bob-opens-elobby-in-kolkata/article7309183.ece?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication




http://www.thehindubusinessline.com/industry-and-economy/banking/irdai-slaps-rs-50lakh-penalty-on-future-generali-life-insurance/article7308848.ece?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication






http://economictimes.indiatimes.com/articleshow/47669451.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst



http://economictimes.indiatimes.com/tech/ites/blackstone-drops-out-of-race-to-buy-serco-bpo/articleshow/47650426.cms

http://economictimes.indiatimes.com/tech/ites/blackstone-drops-out-of-race-to-buy-serco-bpo/articleshow/47650426.cms











http://www.thehindubusinessline.com/features/smartbuy/tech-news/housingcom-acquires-realty-bi-in-10-cr-deal/article7305865.ece




http://www.business-standard.com/article/companies/hc-dismisses-sun-pharma-s-plea-in-trademark-dispute-115061201311_1.html

http://www.business-standard.com/article/news-cm/jubilant-s-spokane-facility-successfully-concludes-usfda-inspection-115061200233_1.html



http://www.moneycontrol.com/news/business/elder-pharma-eyes-rs-100crglobal-salesshelcal_1447521.html?utm_source=ref_article

http://www.moneycontrol.com/news/business/elder-pharma-eyes-rs-100crglobal-salesshelcal_1447521.html?utm_source=ref_article

http://indianpowersector.com/2015/06/bhel-commissions-82-5-mw-hydro-power-unit-in-uttarakhand/

http://indianpowersector.com/2015/06/bhel-commissions-82-5-mw-hydro-power-unit-in-uttarakhand/

http://economictimes.indiatimes.com/industry/auto/news/two-wheelers/motorcycles/hero-motocorp-honda-motors-extend-lead-over-bajaj-tvs-in-two-wheeler-market/articleshow/47669510.cms






http://economictimes.indiatimes.com/industry/auto/news/commercial-vehicle/lcvs/mahindra-to-launch-jeeto-mini-truck-to-take-on-tata-ace-zip/articleshow/47664344.cms




http://economictimes.indiatimes.com/industry/auto/news/passenger-vehicle/cars/mercedes-benz-confident-of-retaining-top-slot-in-luxury-car-market-with-40-per-cent-sales-growth/articleshow/47663947.cms

http://economictimes.indiatimes.com/industry/auto/news/passenger-vehicle/cars/mercedes-benz-confident-of-retaining-top-slot-in-luxury-car-market-with-40-per-cent-sales-growth/articleshow/47663947.cms

http://economictimes.indiatimes.com/industry/auto/news/passenger-vehicle/cars/honda-banks-on-new-jazz-eyes-double-digit-car-sales-growth/articleshow/47662696.cms

http://economictimes.indiatimes.com/industry/auto/news/passenger-vehicle/cars/luxury-car-makers-eyeing-women-and-youth-in-a-bid-to-boost-sales/articleshow/47650522.cms





































http://www.financialexpress.com/article/economy/increase-production-ramp-up-exploration-dharmendra-pradhan-to-ongc/84748/






Page 8 Page 8

SPARK RESEARCH

15 June 2015

Today’s Announcements

RBI Interest Rate Futures (Reserve Bank) (Amendment) Directions, 2015

RBI RBI releases Data on International Banking Statistics of India: March 2014 to December 2014

Persistent Outcome of Board Meeting (AGM on July 24, 2015)

Infosys reply to clarification sought by the exchange

Today’s Announcements

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=9784&Mode=0

https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=34174

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=82D7AB57-B2D6-4964-A01B-2A0B7E2278FC

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=274C4EF9-1B15-4EC9-A2A2-A260C74D090D

Pharmaceuticals – Initiating Coverage Sector Outlook

Overweight

Page 9 ASHISH RATHI [email protected] +91 22 4228 8158

KRISHNA KIRAN KONDURI [email protected] +91 44 4344 0037

Index performance

1m 3m 12m

BSE HC -6% -10% 43%

Sensex -2% -9% 3%

Date 15 June 2015

Market Data

SENSEX 26425

Nifty 7983

BSETHC 15435

Relative performance

Initiating Coverage

-10% 0%

10% 20% 30% 40% 50% 60% 70% 80%

Jun-1

4

Aug-1

4

Oct-

14

Dec-1

4

Feb-1

5

Apr-

15

Jun-1

5

Sensex

BSE Healthcare

Its not the end of an era its just the start of a new one – Stronger and more robust

The top six Indian Pharmaceutical companies generated ~$11bn of cash flows over the past 5 years capitalizing

on the 2010-2014 patent cliff in the US market vis-a-vis just ~$2bn over the preceding 5 year period. Close to 25-30%

has been smartly invested into R&D which would help propel future growth. Not only has the R&D contribution as a

percentage of sales jumped (~5% in FY11 to ~7% in FY15), but over the past 5 years each company seems to have

narrowed down its areas of therapeutic focus to identify future growth drivers.

Specifically, in the US, Indian generics market share should catapult to 16% by FY18E from ~10% currently (see

page 6). Indian players have 25% market share in the recently launched generics (671 drugs analysed by us). Indians

have ANDA filings in almost all drugs where Para IV patent challenges have been filed and our analysis shows 1 out of

every 4 ANDAs filed with the USFDA is by an Indian company.

Moreover, we believe that with GDUFA timelines in place (USFDA targeting to drastically reduce approval backlogs by

2017) US sales of top Indian companies will nearly double by FY18E. We see Aurobindo and Lupin emerging as the

largest beneficiaries of this trigger (see page 7).

Beyond FY18E, our analysis shows Biosimilars space offers enough to keep the growth momentum going. M&A

analysis on Indian companies indicate that Sun, Lupin, Dr Reddy are capable of doing acquisitions > $15bn on

their net cash balance sheets today. The domestic market continues to be robust with favorable demographics and we

believe price control issues are over hyped.

We initiate coverage with a positive view and believe the sector should continue to generate superior returns.

Indian Pharma companies have the best ROEs, highest EPS CAGRs and lowest PEGs, (see page 16).

We have analysed all formulation coverage companies (9 of them out of total 12 coverage stocks) on a common

qualitative and quantitative framework. At one end, Sun Pharma and Lupin emerge Rank 1 and 2, respectively on

sum total weighted averages, Aurobindo and Glenmark (our top picks) emerge 4th and 5th, respectively, just behind

a close 3rd Dr Reddy.

Stock Calls

We have a BUY on Lupin and Dr Reddy on long term fundamentals but advocate caution on Sun Pharma because of

Halol plant related event risk in near term.

Aurobindo Pharma and Glenmark Pharma are our top picks from mid to large category with strong EPS CAGRs and

multiple re-rating possibilities. We like Ajanta Pharma’s business model but in the near term valuations cap upside.

We advise a SELL on Ipca as we believe the stock has been reduced to a domestic market play with huge costs

associated in regulated markets. We do not see a resolution of import alert over the next 2 years. We also initiate on

Neuland Labs as a small cap multi-bagger stock idea over a 2-3 year time horizon.


Overweight

Page 10

Pharmaceuticals coverage universe


Financial Summary

Company Revenues (Rs. mn) EBITDA (Rs. mn) Adj. PAT (Rs. Mn) Adj. EPS (Rs.) EBITDA Margin

FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E

Ajanta Pharma 14,806 17,536 21,196 5,052 5,971 7,221 3,183 3,842 4,834 35.9 43.3 54.5 34% 34% 34%

Aurobindo Pharma 121,205 139,930 160,520 25,636 32,880 39,719 16,194 20,765 25,365 55.5 71.1 86.9 21% 23% 25%

Divi's Laboratories 31,149 35,700 43,170 11,653 13,729 16,792 8,515 10,216 12,616 64.2 77.0 95.0 37% 38% 39%

Dr Reddy's Lab 148,189 166,929 194,910 33,535 39,319 45,908 22,179 25,923 30,774 130.3 152.3 180.8 23% 24% 24%

Glenmark Pharma 66,448 80,609 98,992 14,466 18,943 24,253 8,025 11,212 15,463 28.5 39.8 54.9 22% 24% 25%

Granules India 12,929 15,562 18,333 2,086 2,776 3,414 909 1,239 1,631 4.5 6.1 8.1 16% 18% 19%

Indoco Remedies 8,570 10,390 13,134 1,655 2,130 2,824 828 1,118 1,654 9.0 12.1 18.0 19% 21% 22%

Ipca Laboratories 31,418 35,952 41,680 5,291 6,135 8,365 2,509 3,061 4,741 19.9 24.3 37.6 17% 17% 20%

Lupin 127,700 149,423 183,160 36,196 42,569 55,099 24,032 28,326 36,894 53.5 63.0 82.1 28% 28% 30%

Neuland Laboratories 4,699 5,702 7,065 674 884 1,159 159 282 456 17.8 31.4 50.9 14% 16% 16%

Sun Pharmaceuticals 2,74,334 2,97,196 3,56,169 86,093 1,03,858 1,33,433 53,241 64,529 86,727 22.1 26.8 36.0 31% 35% 37%

Unichem Laboratories 12,018 13,554 16,037 1,013 1,381 2,009 754 809 1,290 8.3 8.9 14.3 8% 10% 13%

Company P/E EV/EBITDA RoE CMP

(Rs.)

M.Cap (Rs.

Mn)

Target %Absolut

e return Rating

FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E P/E Price

Ajanta Pharma 40.5 33.6 26.7 25.3 21.3 17.3 44% 39% 36% 1,456 1,29,065 25 1,363 -6% Reduce

Aurobindo Pharma 23.0 18.0 14.7 15.9 12.3 9.9 36% 34% 31% 1,278 3,73,178 20 1,737 36% Buy

Divi's Laboratories 27.5 22.9 18.6 19.4 16.4 13.2 26% 27% 27% 1,764 2,34,143 23 2,186 24% Buy

Dr Reddy's Lab 25.5 21.8 18.3 16.9 14.3 11.9 23% 21% 21% 3,317 5,64,686 22 3,977 20% Buy

Glenmark Pharma 30.9 22.1 16.0 18.6 13.6 10.3 27% 27% 25% 880 2,38,392 20 1,120 27% Buy

Granules India 17.3 12.7 9.6 9.3 7.1 5.4 13% 24% 23% 78 15,722 12 97 24% Add

Indoco Remedies 39.3 29.1 19.7 20.1 15.7 11.6 17% 19% 23% 353 32,529 20 360 2% Add

Ipca Laboratories 32.4 26.5 17.1 16.7 14.2 10.2 12% 13% 18% 644 81,273 14 526 -18% Sell

Lupin 33.1 28.1 21.6 21.5 18.1 13.7 30% 28% 29% 1,772 7,96,514 25 2,052 16% Buy

Neuland Laboratories 19.6 11.1 6.9 7.2 6.4 5.3 11% 17% 24% 350 3,133 12 611 75% Buy

Sun Pharmaceuticals 36.8 30.4 22.6 18.9 14.8 10.9 23% 22% 24% 814 16,85,957 25 901 11% Add

Unichem Laboratories 21.6 20.1 12.6 15.7 11.9 7.7 9% 9% 13% 180 16,282 16 228 27% Buy


Overweight

Serial. No Sectors Page

A USA 4

B India 12

C Emerging markets 14

D Peer Valuation 16

E Business and Financial Analysis 17

1 Ajanta Pharma 26

2 Aurobindo Pharma 33

3 Divi’s Laboratories 43

4 Dr Reddy’s Laboratories 49

5 Glenmark Pharmaceuticals 56

6 Granules India 65

7 Indoco Remedies 71

8 Ipca Laboratories 78

9 Lupin 84

10 Neuland Laboratories 91

11 Sun Pharma 97

12 Unichem Laboratories 105

Table of Contents

Page 12

USA

Page 13

USA

Cash flow generation has helped R&D filings which leads to stronger growth ahead

Cash flows R&D spend ↑

Source: Company, Spark Capital Research; Companies

considered Sun, Lupin, DRL, Aurobindo, Cadila, Glenmark

Another patent cliff awaits us


Pool of ANDAs to capitalize on expiries ahead

Source: Company, Spark Capital Research; Companies

considered Sun, Lupin, DRL, Aurobindo, Cadila, Glenmark

Indian market share to reach 16% by FY18E in US


Well thought and planned areas of focus for each company


Targeted

GI# Inhalers Topical Ophthalmic

LA

Injection*

Trans-

dermal Nasal Others^

Market Size ($ bn) 17 17 7 7 6 4.7 3 24

Sun Pharma Targeting Selling Selling Selling Selling OC, CS, Peptides

Lupin Targeting Targeting Targeting Selling Targeting Targeting OC

Dr Reddy's Selling Targeting Targeting Peptides

Cipla Targeting Targeting Targeting -

Cadila Targeting Targeting Selling Targeting Targeting -

Aurobindo Targeting CS, Penem, Peptides,

Hormones

Glenmark Targeting Selling CS, OC, Hormones

# Targeted Gastrointestinal products, * Long acting injectables, ̂includes

1,2

41

1,6

29

1,7

88

2,0

31

2,5

32

2,6

93

268

397

483

593

741

867

0

500

1,000

1,500

2,000

2,500

3,000

FY10 FY11 FY12 FY13 FY14 FY15

US

$ M

n

CFO (Pre R&D) R&D

27 29 32 34 38 40

43 50

81

5% 5% 6% 5%

7% 8%

10% 10%

16%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

20

40

60

80

100

2006

2007

2008

2009

2010

2011

2012

2013

2018E

US

$ B

n

US Generic Market Indian Players - Market share (%)

28

19

11

21 20

16

-

5

10

15

20

25

30

2015 2016 2017 2018 2019 2020

US

$ B

n

Patent Expiries

131 140 124

142

198

155

0

50

100

150

200

250


No

. O

f fi

lin

gs

ANDA filings

Page 14

USA

1 out of every 4 pending ANDAs by Indian (CY14)

Source: USFDA, Company, Spark Capital Research;

*ANDAs as on CY14

25% Indian market share in recent US launches

Source: Spark Capital Research; Analyzed 671 products of

Indian pharma companies

25%

75%

Indian companies Other companies

High filing share in select 43 drugs worth $40 bn

Source: Spark Capital Research

CRs bunched up already – ANDAs to follow

Source: USFDA

FY12 FY13 FY14

ANDA approvals 517 440 409

PAS approvals 275 535 659

Tentative approval (TA) 102 95 91

Complete Response (CR) 84 1251 1254

Total actions 978 2321 2413

Indian generics sales in the US to more than double in 3 years

US Generic

market Size

Share of Indian

companies

50.0

81.3

5.2

13.0

US generic market size expected to reach $

81.3 bn by FY18E

Indian companies sales to go up to $13 bn

Market share of Indian companies to go up to

16% from 10%

FY13

FY18E

US$ 114 bn worth of drugs are going off patent in

2015-2020

Analysed 43 products with market size of US$ 40

bn, where Indian companies have presence

For 32 out of the 43 products, Indian ANDA filings

are >25%

Total ANDAs: 4000*

Indian Co.: 943

US$ Bn 6

9

17

11 10

0

2

4

6

8

10

12

14

16

18

>75% 50%-75% 25%-50% <25% Indian FTFs

No

. o

f p

rod

uc

ts

10%

16%

MS

24%

76%

Indian Companies Others

Page 15

USA

Per ANDA contribution for Indian companies improved significantly already

Source: Company, Spark Capital Research; considered Aurobindo, DRL, Lupin, Sun,

Ranbaxy, Cadila, Glenmark and Torrent calculations

GDUFA requirements led to bunching up of filings in CY14

Source: USFDA

Sharp reduction in timelines for approvals indicated by FDA

Source: USFDA

Sales to nearly double for Indian filers by FY18E on GDUFA targets

Source: Company, Spark Capital Research; * assumes GDUFA to achieve 60% approval for

pending ANDAs within 12 months; ** assumes 90% approval for pending ANDAs within 12

months; Actual GDUFA target in 90% clearance in 10 months by 2017

GDUFA implementation to deliver bumper growth for Indian filers ahead – Aurobindo and Lupin to be biggest beneficiary

30 32 31 32

42

10

0

5

10

15

20

25

30

35

40

45

CY10 CY11 CY12 CY13 CY14 CY17*

No

. o

f M

on

ths

827

850

798

885

1077

925

1418

56% 57% 53% 54%

51% 51%

32%

0%

10%

20%

30%

40%

50%

60%

70%

0

200

400

600

800

1,000

1,200

1,400

1,600

CY08 CY09 CY10 CY11 CY12 CY13 CY14

No

. o

f F

ilin

gs

Filings % approvals to filings

3.8 4.2

4.5

5.4 5.9

6.3

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0


US

$ M

n

1.9

1.3

1.8

1.3

1.5

1.5

2.4

1.6

2.3

1.4

1.8

1.8

0

0.5

1

1.5

2

2.5

3

Aurobindo Dr Reddy's Lupin Sun Glenmark Total

US

sale

s X

tim

es

FY15 FY18E* FY18E**

Page 16

USA

Indian players ready to capitalize with filings in place

Source: Company, Bloomberg, Spark Capital Research

>10% price increases taken in CY14 for 39% of total 3500 drugs analyzed; 6% drugs see >100% price increase!


4%

11%13%

23%

19%

8% 8%6% 6%

2%

10% 9%

12%10%

18%

22%

11%

6%

0%

5%

10%

15%

20%

25%

-25% to -100% -10% to -25% -5% to -10% 0% to -5% 0% to 5% 5% to 10% 10% to 25% 25% to 100% More than 100%

Dec'13 Vs Dec'12 Dec'14 Vs Dec'13

Analysis of 3500 generic drug

prices over last 3 years

indicates..

>10% price hikes happened

for 39% of total drugs in CY14

vs. 20% in CY13

Around 28% of drugs

witnessed 0-10% price hikes in

last two year

For 12% of drugs, price

declined up to 5% in CY14

against 23% in CY13

>10% price decline happened

for 12% of total drugs in CY14

vs. 15% in CY13

Price increases giving another important leg to the growth

Year Brand Market size

$Mn Indian players

FY16 Nexium 6,000 Aurobindo, Dr Reddy's,

Lupin

FY16 Gleevec 2,000 Sun Pharma

FY16 Abilify 7,800 Torrent, Aurobindo, Sun

Pharma, Cadila, Alembic

FY16 Copaxone

20mg 1,500

Natco Pharma and Dr

Reddy's

FY16 Lipoderm 1,200 Cadila

FY16 Pristiq 600 Cadila

FY16 Aloxi 420 Dr Reddy's

FY16 Renvela 450 Lupin

FY16 Zyvox 450 Glenmark

FY16 Lialda 380 Cadila

Year Brand Market

size $Mn Indian players

FY16 Coreg CR 300 Sun Pharma, Lupin

FY17 Crestor 3,100 Sun Pharma, Aurobindo,

Glenmark

FY17 Namenda 1,800

Aurobindo, Jubilant, Torrent,

Unichem, Wockhardt, Alembic,

Lupin

FY17 Zetia 1,300 Glenmark

FY17 Seroquel

XR 800 Torrent, Lupin

FY17 Alimta 1,230 Sun Pharma

FY17 Prezista 800 Lupin

FY17 Norvir 500 Aurobindo

FY17 Epzicom 500 Lupin

FY17 Nuvigil 400 Lupin

Year Brand Market size

$Mn Indian players

FY17 Strattera 384

Sun Pharma, Glenmark,

Cadila, Aurobindo, Dr

Reddy's

FY17 Multaq 320 Glenmark

FY17 Kaletra 258 Aurobindo, Cipla

FY17 Zegerid 35 Dr Reddy's, Cadila

FY18 Truvada 2,000 Aurobindo, Lupin

FY18 Viagra 1,132 Dr Reddy's, Torrent

FY18 Reyataz 770 Aurobindo

FY18 Viread 550 Aurobindo, Lupin, Aurobindo,

Cipla

FY18 Solodyn 370 Cadila

FY18 Tykerb 114 Lupin

Page 17

USA

Biosimilars: Indian Pharma growth story to continue even beyond our estimates of FY18

Top Biologics & Patent expiries


Biologics Patent Cliff


Brand APIs

Global

sales

US$ bn

Patent expiry

US EU

Humira Adalimumab 12.5 Dec-16 Apr-18

Remicade Infliximab 9.2 Sep-18 Expired

Rituxan Rituximab 8.7 Sep-16 Expired

Enbrel Etanercept 8.5 Expired Expired

Lantus Glargine 7.3 Expired Expired

Avastin Bevacizumab 6.9 Jul-19 Jan-22

Herceptin Trastuzumab 6.8 Jul-19 Expired

Neulasta Pegfligrastim 4.5 Expired Aug-17

Avonex Interferon

beta-1a 3.0 2019 2025

Novolog Insulin Aspart

Recombinant 2.2 Expired Expired

Epogen Epoetin Alfa 2.1 Expired Expired

Aranesp Darbepoetin 2.0 May-24 Jul-16

Erbitux Cetuximab 1.2 Feb-16 Expired

Synagis Pavilizumab 1.2 Oct-15 Aug-15

Neupogen Fligrastim 1.0 Expired Expired

Apidra Insulin

glulisine 0.4 Jun-18 Sep-19

Biosimilar opportunity estimated at US$ 44 Bn in US by 2018E

Source: Sandoz presentation, Spark Capital Research

15 13

5

29

0

5

10

15

20

25

30

35

2015 2016 2017 2018

US

$ B

n

Biologics

Single drug revenue potential very sizeable


Brand revenue at expiry (US$ Mn) 3,500

Approved players 4

Assuming high price erosion (conservative

view) 60%

Revenue potential from drug for each player

(US$ Mn) 350

Patented 87%

Off patent- US

10%

Off patent- Rest of world 3%

Patented 61%

Off patent- US

23%

Off patent- Rest of world 16%

2018E 2013

US$ 124 Bn US$ 190 Bn

Page 18

USA

TEVA MYLAN ACTAVIS

Year Acquired Cost Rationale

2003 Sicor 3 Injectable pipeline & capacity

and API capacity

2006 Ivax 7.5

Respiratory business +

Proprietary technologies; 122

pending ANDAs

2009 Barr Pharma 8.8 Women Health + Proprietary

products

2010 Ratiopharm 5

Biosimilar pipeline + R&D team;

Became leader in many Europe

countries

2011 Cephalon 6.5

Enhanced Branded product

basket in CNS (Provigil, Nuvigil)

and Oncology (Trenda)

What it took for biggies to become BIG, are the Indians on the right track? Yes!


2007 Matrix 0.9 API manufacturing capabilities

2008

Merck

Generics

product

basket

6.6

Geographic reach (90 countries

presence); R&D &

manufacturing capabilities

2010 Bioniche 0.6 Injectable business +

Institutional business in US

2011

Respiratory

platform

from Pfizer

NA Platform for developing Advair

and others

2013 Agila

Specialties 1.6

Injectable capacity with healthy

pipeline

2014

Developed

market

branded

generic

business

from Abbott

5.6

Improves ex-US tax structure;

2000+ Representatives;

Branded generics product

basket


2006 ANDRx 1.5 Controlled release technology;

Generic distributions

2009 Arrow 1.8 Improved presence in Ex-US,

Biologic/Biosimilar base

2011 Specifar 0.5 Improved manufacturing base

& distribution in Europe

2012 Actavis

Group 6

3rd largest global generic

company; 10% market share in

US

2013 Warner

Chilcott 9

Specialty brand products and

pipeline particularly in Women

Health, Gastroenterology,

Urology and Dermatology; Irish

domicile/Tax efficiency

2014 Forest

Laboratories 21

Improved product basket in

CNS, CVS, GI, Respiratory and

Cystic fibrosis

2014 Allergan 65 Ophthalmic

No M&As in last 3 years, Mcap

remains flat over 5 years M.cap: 1.3x in 4 Yr

0

10

20

30

40

50

60

0

5

10

15

20

25

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

US

$ B

n

US

$ B

n

Base sales Acquisitions - sales Mcap

0

5

10

15

20

25

0

2

4

6

8

10

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

US

$ B

n

US

$ b

n

Base sales Acquisition sales Mcap

0

10

20

30

40

50

60

70

80

0

2

4

6

8

10

12

14

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

US

$. B

n

US

$. B

n

Base sales Acquisition sales Mcap

Page 19

USA

Total M&A deals size in the last 10 years


Majority deals by top 3 Indian companies are for technologies


Relatively lower ANDA pipeline compared to biggies

Source: Company, Spark Capital Research;

Top 3 players are capable of doing acquisitions >$15Bn

Source: Company, Spark Capital Research; *Assuming 10% equity dilution for Lupin & Sun,

**Debt raising capability was calculated on assumption i) Debt to EBITDA of 2.5x and ii)

Acquired business’ EBITDA is 20% of acquirer’s EBITDA

Company Year Type Acquired /Partner Rationale

Lupin FY15 JV YL Biologics Biosimilars development

Lupin FY14 M&A Laboratorios Grin SA de CV Mexico entry + Ophthalmic presence

Lupin FY14 M&A Nanomi BV Complex injectables

Lupin FY12 M&A I'rom Pharmaceutical Co Ltd Injectables presence in Japan

Sun Pharma FY15 M&A GSK opiates business Control substances

Sun Pharma FY14 M&A Pharmalucence Inc Sterile injectables

Sun Pharma FY13 M&A URL Pharma Inc Expanded US generic drug basket

Sun Pharma FY15 M&A Ranbaxy Laboratories Ltd Emerging market presence

Sun Pharma FY14 JV Intrexon Development of Ophthalmology products

Sun Pharma Tie up Merck tie up In-licensed phase-3 psoriasis molecule

Dr Reddy's FY13 M&A OctoPlus NV Complex injectables

Dr Reddy's FY15 M&A Novartis' Habitrol brand Brand in US

Dr Reddy's FY16 M&A USB Indian brands portfolio Enhancement of Indian drug basket

Indian players have remained conservative in M&As so far – It’s a question of WHEN they will, not WHETHER they will..

105

34

16

5 1 0 0

20

40

60

80

100

120

Actavis Teva Mylan Sun Pharma Dr Reddy's Lupin

US

$ B

n

1

4

1

4

2

2

0

1

2

3

4

5

6

7

8

9

Sun Pharma Lupin Dr Reddy

US

$ B

n

Cash in Hand Equity Dilution* Debt**

230

120

283

159

99

68

0

50

100

150

200

250

300

Actavis Teva Mylan Sun Pharma Lupin Dr Reddy's

No

. o

f A

ND

As

Page 20

INDIA

Page 21

INDIA

Price control issues over hyped; Volume growth is THE most important metric

Price controls impacted growth in FY13 & FY14….


… but strong increase in volumes seen in FY15


Chronic therapies remains strong


Chronic penetration steadily improving


Acute & Chronic profile of our coverage


Prefer domestic companies over MNCs

Source: Spark Capital Research; Companies considered for

calculations – Sun, Cipla, Cadila, Lupin, DRL, GSK, Pfizer, Sanofi, Abbott and

Novartis

Value

(Rs. Bn) % total

Growth (%)

FY12 FY13 FY14 FY15

Anti-infective 138 16% 12.0 9.0 1.0 9.7

Cardiac 107 12% 18.0 15.0 9.0 13.0

GI 99 12% 13.0 14.0 6.0 14.2

Vitamin 78 9% 20.0 14.0 6.0 12.2

Respiratory 68 8% 13.0 9.0 9.0 14.1

Anti Diabetic 67 8% 27.0 18.0 15.0 25.0

Pain 60 7% 12.0 7.0 4.0 11.3

CNS 52 6% 16.0 12.0 8.0 9.3

Derma 50 6% 19.0 14.0 11.0 16.6

Total 864 100 15.0 11.6 6.4 12.9

Last 5 yr growth of MNCs companies is mere 7% v/s strong

growth of ~15% by Indian companies

100% privately held entities remain biggest risk

High product concentration: Percentage of sales from top

10 products for leading domestic companies is 26% vs.

52% for MNC companies

Compulsory Licensing remains a big threat – Natco

received CS for Bayer Nexavar

Drug pipeline of parent MNCs choking

Scapegoat of all regulatory action by Government - Anti

MNC lobby, populism factor, Swadeshi - Videshi

Delisting/ Buyback opportunities: Only positive for MNC

investors as low free float creates a delisting case

Depreciation of rupee hits margins as MNC companies

import 20-30% of sales on an average

560

644

719

765

864

12.6

14.9

11.6

6.4

12.9

0

2

4

6

8

10

12

14

16

0

200

400

600

800

1,000

FY11 FY12 FY13 FY14 FY15

Rs. B

n

Indian Pharma Growth (%)

2.0 2.4 3.9

2.2 3.7

7.2 8.0 4.2

1.1

6.3

3.4

4.5

3.5

3.1

2.9

0

2

4

6

8

10

12

14

16


(%)

Price Volume New product launches

51% 70% 63%

93% 73%

53% 57% 42%

49% 30% 37%

7% 27%

47% 43% 58%

Aja

nta

DR

L

Gle

nm

ark

Indoco

Ipca

Lupin

Sun

Unic

hem

Acute Chronic

73% 73% 72% 71% 70%

27% 27% 28% 29% 30%


Acute Chronic

Page 22

Emerging Markets

Page 23

Emerging Markets

0

50

100

150

200

250

300

350

400

450

2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E

US

$ M

n

Emerging markets to grow double the growth rate of developed markets

Source: IMS Health Market Prognosis, September 2014, Spark Capital Research

EMs: Similar characteristics to Indian markets, Indian Cos. are best placed to capitalize

Generic penetration to improve in EMs

Source: IMS Health, Spark Capital Research

Currency fluctuation impacts growth; but volume growth remains good

Source: Bloomberg, Spark Capital Research; Indexed to 100 , 28-03-2014 is base date for

calculation

Strong foothold across different countries amongst all players


Company % of total

sales

CAGR Key Geographies

FY11-15 FY15-17E

Ajanta 67% 32% 22.3% Africa, CIS, Middle East, South East Asia

Aurobindo 5% 30% 20.2% Brazil, China, Australia, New Zeland

Dr Reddy's 21% 21% 5.2% Russia, CIS & Venezuela, China

Glenmark 25% 26% 19.5% Asia, Africa & Russia

Indoco 29% 15% 7.1% South East Asia, Africa, LatAm & CIS

Ipca 27% 30% 26.0% Africa, CIS, New Zealand, Australia

Lupin 9% 25% 39.3% South Africa, LatAm, Australia & Philippines

Sun 11% 33% 14.3% Brazil, CIS, Africa & Asia Pacific

Unichem 16% 17% 20.0% LatAm, South Africa & CIS

31 26

57 52

58 63

27 31

11 11 16 17

0

20

40

60

80

100

2012 2018E 2012 2018E

Pharma emerging RoW

(%)

Brand Generic Others

40

50

60

70

80

90

100

110

120

Mar/14 May/14 Jul/14 Sep/14 Nov/14 Jan/15 Mar/15 May/15

Ind

exed

CHFINR AUDINR BRLINR ZARINR RUBINR

Page 24

Peer Valuation

Better CAGRs, higher ROEs, lower PEGs of Indians versus global players; Chinese valuations extremely rich!

Source: Bloomberg, Spark Capital Research, *PE/g calculated on FY15 trailing PE and FY15-17E EPS CAGR

USA US$ MN Sales Net Profit CY14 CY15 CY15 PE/g*

Teva 50,829 -3% 20% 12 17 10 0.85

Mylan 34,572 16% 14% 14 20 14 1.37

Actavis 117,761 37% 24% -6 21 17 0.90

Hospira 15,263 6% 14% 10 34 18 2.37

Impax 3,247 24% 31% 5 34 17 1.11

Perrigo 28,631 23% 16% 2 31 21 1.86

Shire 51,257 9% 52% 49 44 17 0.86

Pfizer 210,038 2% 2% 13 15 11 7.41

GSK 106,667 4% 78% 145 77 12 0.98

Novartis 272,545 0% 15% 28 25 8 1.60

Eli Lilly 82,465 4% 12% 13 27 16 2.18

Mean 11% 25% 26 31 15 1.95

Median 6% 16% 13 27 16 1.37

Means Sales CAGR

15-17E

PAT CAGR

15-17E FY15 ROE FY15 PE

FY16 EV /

EBITDA PE/g*

Indian 19% 31% 24 29 15 1.10

US 11% 25% 26 31 15 1.95

Chinese 21% 27% 17 63 34 2.45

Medians Sales CAGR

15-17E

PAT CAGR

15-17E FY15 ROE FY15 PE

FY16 EV /

EBITDA PE/g*

Indian 19% 26% 23 28 15 1.03

US 6% 16% 13 27 16 1.37

Chinese 21% 27% 16 61 33 2.19

Company M. Cap

US$ MN

Sales CAGR

15-17E

PAT CAGR

15-17E

FY15

ROE

FY15

PE

FY16 EV /

EBITDA PE/g*

Ajanta Pharma 2,054 21% 25% 43 41 21 1.67

Aurobindo Pharma 6,375 15% 22% 34 25 14 1.10

Divi's Laboratories 3,941 20% 24% 26 29 17 1.20

Dr Reddy's Lab 9,744 13% 17% 22 27 16 1.58

Glenmark Pharma 3,755 20% 39% 21 32 15 0.82

Granules India 280 18% 31% 23 19 8 0.61

Indoco Remedies 571 22% 43% 18 41 16 0.96

Ipca Laboratories 1,333 16% 27% 17 24 11 0.89

Lupin 12,708 18% 19% 30 33 18 1.76

Neuland Lab 52 22% 65% 11 20 6 0.30

Sun Pharma 38,583 25% 19% 28 33 23 1.73

Unichem Lab 287 14% 40% 9 24 11 0.60

Mean 19% 31% 24 29 15 1.10

Median 19% 26% 23 28 15 1.03

China US$ MN Sales Net Profit CY14 CY15 CY15 PE/g*

Kangmei Pharma 17,795 27% 28% 18 48 27 1.75

Jiangsu Hengrui 14,827 26% 32% 22 61 34 1.90

Shanghai Fosun 12,607 20% 22% 13 39 38 1.78

Tasly Pharma 9,382 15% 25% 26 41 23 1.66

Beijing Tongrentang 9,064 13% 15% 13 71 30 4.79

Guangzhou Baiyunshan 8,781 14% 21% 16 50 32 2.34

Zhangzhou

Pientzehuang 5,367 29% 23% 16 76 53 3.29

Tonghua Dongbao 5,346 25% 40% 15 119 47 3.02

Zhejiang Conba 4,768 18% 15% 20 44 27 2.90

Guizhou Yibai 4,395 23% 28% 15 57 30 2.02

Zhejiang Huahai 3,688 26% 47% 10 86 33 1.81

Jiangsu Kanion 3,285 20% 28% 15 62 37 2.19

Mean 21% 27% 17 63 34 2.45

Median 21% 27% 16 61 33 2.19

Unlike popular opinion, truth is Indian companies trade relatively cheaper to global peers!

Page 25

Business and Financial Analysis

Page 26


Critical Success Factors

Parameters Regulatory compliance R&D Portfolio Complexity Market coverage Management

Weightage 25% 25% 20% 20% 10%

Su

b-c

rite

ria

Past adverse actions R&D as a % of sales Complex therapeutic

categories presence Developed market presence

Expertise and experience of

top management

Consultants / proactive

cleansing NDDS / NCE R&D

Complex delivery platform

capabilities B2B vs. B2C

2nd Generation promoter

presence

Plant sales diversification /

No. of plants Areas of R&D spend

Limited competition launches

in the past including FTFs

Front end presence in

emerging / ROW markets Corporate governance

Geographical diversification of

plants Biosimilars spend Strength of brands

Geographical diversification of

sales Promoter Holding

Financial Health (Weighted average of FY13-17E)

Parameters Cash Generation Performance & Return

Ratios Valuation Metrics Growth & Margins Leverage and WC Ratios

Weightage 25% 25% 20% 20% 10%

Su

b-c

rite

ria

OCF / Sales ROE P/E Sales Growth Debt / Equity

FCF / Sales ROIC EV/EBITDA EBITDA Margins Debt / EBITDA

Fixed Asset Turnover P/B EPS Growth WC cycle


Page 27


Combined Rankings Ranking by Critical Success Factors

Company/Parameters Regulatory

Compliance R&D

Existing

Portfolio

complexity

Market

coverage Management Overall

Ajanta Pharma 5 5 6 4 4 6

Aurobindo Pharma 3 7 5 6 6 5

Dr Reddy's Laboratories 2 1 3 5 3 3

Glenmark Pharma 4 3 4 3 5 4

Indoco Remedies 8 8 7 7 8 7

Ipca Laboratories 9 6 8 8 7 8

Lupin 1 2 1 2 1 1

Sun Pharmaceuticals 6 4 1 1 2 2

Unichem Laboratories 7 9 9 9 9 9

Ranking by Financial Parameters

Company/Parameters Cash

Generation

Performance &

Return ratios

Valuation

metrics

Growth &

Margins

Leverage and

WC ratios Overall

Ajanta Pharma 2 1 9 1 1 4

Aurobindo Pharma 7 2 2 2 2 2

Dr Reddy's Laboratories 5 7 3 8 8 6

Glenmark Pharma 6 4 5 6 6 5

Indoco Remedies 8 6 8 5 5 8

Ipca Laboratories 9 8 4 7 7 7

Lupin 3 3 7 4 4 3

Sun Pharmaceuticals 1 5 6 3 3 1

Unichem Laboratories 4 9 1 9 9 9


1

2

3

4

5

6

7

8

9

Page 28


AJANTA

GLENMARK

INDOCO

LUPIN

AUROBINDO

DR REDDY’S

IPCA

SUN

UNICHEM

AJANTA

AUROBINDO

DR REDDY’S

GLENMARK

INDOCO

IPCA

LUPIN

SUN PHARMA

UNICHEM

Regulatory Compliance R&D

Resolved warning letter issues in only 8 months

USFDA inspected and cleared 5 facilities in FY15

Total 6 USFDA approved plants

12 formulation facilities - India (7), USA (2) and UK (1)

10 USFDA approved plants (API + formulation)

No observations found in recent FDA inspections at Unit

7, Unit 9 and Unit 11

22 manufacturing facilities (11 facilities each for API and

formulations) across India, USA and Brazil

11 formulation facilities across 3 continents

No regulatory issues so far

No regulatory issues so far

US presence yet to scale up

Karkhadi Import alert, Halol (unresolved 483s) and 3

facilities of acquired Ranbaxy under import alert

High geographical diversification of plants (45 facilities

across globe)

High plant concentration risk

No regulatory issues in the past

High facility concentration (Only one sterile facility &

majority of growth dependent on the same)

Previous 483 had a long list of observations

3 facilities under import alert

Highest R&D cost as a % to sales (11.8% in FY15)

among peers

Robust pipeline of complex injectables

Building healthy biosimilars pipeline

Building niche pipeline in Respiratory, dermatology and

Ophthalmic

R & D cost as a % to sales stands at ~8.7% in FY15

Development of 10 biosimilars just started

Developing new molecules including 3 NCE and 4 NBE

High spend on dermatology space for US; 10.2% R&D as

a % of sale in FY15

Strong presence in Topicals, Ophthalmic and complex

injectables

Not developing any biosimilars; MK-3222 inlicensed

Focus on Novel delivery system products

US R&D strength yet to be known

Lower R&D cost as it is developing plain vanilla generics

No plans to develop Biosimilars

505 b(2) projects are currently on hold

Not developing any Biosimilars/ NCE products

Lower R&D cost as % to sales (3%) but spending majorly

on injectables, oncology, hormonals and peptides

Not spending on differentiated product basket in India

Low R&D spend, bulk of which is capitalized

Building sterile pipeline for the US market

Developing only plain vanilla products resulting in low

R&D cost (5% of sales)

No plans for novel product basket

RANK METER


Page 29


UNICHEM

IPCA

INDOCO

AJANTA

AUROBINDO

GLENMARK

AJANTA

DR REDDY’S

GLENMARK

LUPIN

SUN PHARMA

Portfolio Complexity Market Coverage

AUROBINDO

DR REDDY’S

Robust product basket in the niche therapies like topicals, Opthalmic,

oral contraceptives, nasal and injectables etc

Strong track record of launching differentiated/FTFs products like

gDoxil, gProtonix etc

Presence in US branded business

Vertically integrated in OC segment

Strong injectable product basket- Injectable contributes 27% of US

sales

Strong track record of monetizing FTF opportunities

Healthy product pipeline in dermatology, control substances and Oral

contraceptives

FTF opportunities in sight

Increasing presence in injectables, oncology, hormonals, penems and

peptides

No presence in branded segments across geographies

Presence in few therapies

Attains high market share as majority of its products are new delivery

system

High brand concentration (top 10 brands contribute 40% of Indian

sales) in India but there are no differentiated products.

Not having any presence in high end products of Respiratory,

ophthalmic and derma segments

Major contribution from ‘low-value’ anti-malarial products

Current portfolio does not contain any differentiated products

Not having any presence complex therapies

Barring losar and ampoxin, no other big brands in Indian market

Diversified geographical presence

Having own front end presence in emerging and advance markets

Strong presence in developed markets like US, EU and Japan

Promotes its branded products in the US through MRs

Having own front end presence in emerging and advance markets

Own front end in emerging / RoW markets

Presence across 80 countries

No B2B sales

Having front end presence in emerging/RoW markets

Strong foothold in Gx & OTC in the US

Higher B2B sales contribution (APIs contributes 18% of total sales)

Strong presence in developed markets like US and EU

No front end presence in emerging markets

Low geographic diversification- Majority of sales comes from India

Limited presence in advanced markets

No front end presence in the US market; generics also under import

alert

Higher dependence on B2B

Don’t have much presence in emerging markets

Low geographic diversification- Majority of sales comes from India

Robust product basket in the niche therapies like topicals, Opthalmic,

oral contraceptives, nasal and injectables etc

Strong track record of launching differentiated/FTFs products like

gDoxil, gProtonix etc

Presence in US branded business

Presence in complex therapies and niche drugs


Page 30


Cash Generation- Sun tops the list while Ipca lags ( Weighted average of FY13-17E)


22%

11%

14%

9% 11%

13%

19%

25%

13%

6%

3% 5%

2% 2% 2%

7%

21%

1%

0%

5%

10%

15%

20%

25%

30%

Ajanta Aurobindo Dr Reddy's Glenmark Indoco Ipca Lupin Sun Unichem

OCF/Sales FCF/Sales

2 7 5 6 8 9 3 1 4

Management expertise


Low

Moderate

High

2nd Generation

Promoter Presence

Ajanta Pharma

Aurobindo Pharma

Dr Reddy's Laboratories

Glenmark Pharma

Indoco Remedies

Ipca Laboratories Lupin

Sun Pharma

Unichem Laboratories

Co

rpo

rate

Go

vern

an

ce

Management Expertise

Bubble size indicates

promoter holding

Page 31


Valuation metrics - Unichem tops the list while Ajanta lags (Weighted average of FY13-17E)


Growth & Margins - Ajanta tops the list while Unichem lags (Weighted average of FY13-17E)


36.1

19.0 22.3 23.2

31.3

22.6

28.1 29.8

17.0

22.9

13.1 14.5 14.7 17.2

12.7

17.8 18.3

10.8 12.8

5.8 4.6 5.2 5.3 3.4

7.3 5.7

1.8

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x


P/E EV/EBITDA P/B

9 2 3 5 8 3 7 6 1

23% 26%

14%

20% 21%

12%

19%

31%

13%

33%

23% 23% 23% 20% 19%

28%

37%

12%

37%

46%

17%

28%

34%

20%

29% 26%

19%

0%

10%

20%

30%

40%

50%


Sales Growth EBITDA Margins EPS Growth

1 2 8 6 5 7 4 3 9

Page 32


Leverage and WC ratios - Ajanta tops the list while Unichem lags (Weighted average of FY13-17E)


0.1

0.7

0.3

0.7

0.2 0.3

0.1 0.2

0.0 0.2

1.4

1.1

1.8

0.6

1.1

0.1

0.5

0.1

68

158

115

145

113 112

89

110

74

0

20

40

60

80

100

120

140

160

180

0.0x 0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x 1.8x

2.0x


Days

Debt/Equity Debt/ EBITDA WC cycle

1 2 8 6 5 7 4 3 9

Performance & Return ratios - Ajanta tops the list while Unichem lags (Weighted average of FY13-17E)


40% 34%

23% 26% 19% 18%

29% 25%

12%

35%

20% 16% 16% 16% 14%

26% 19%

11%

2.7

2.3

1.2

1.8 1.7 1.4

2.4

1.7 1.7

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

0%

10%

20%

30%

40%


RoE RoIC Fixed asset turnover

1 2 7 4 6 8 3 5 9

Page 33

Companies

Page 34

Ajanta Pharma (AJP) CMP

Rs.1,456

Target

Rs. 1,363

Rating

REDUCE

Stock performance

1m 3m 12m

AJP 17% 11% 170%

Sensex -2% -9% 3%

BSEHC -6% -10% 43%

Financial Summary

Year Revenues (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) P/E(x) EV/EBITDA(x) ROE (%) ROIC (%)

FY14 12,083 3,688 2,339 26.4 55.1 35.0 47.4% 37.5%

FY15 14,806 5,052 3,183 35.9 40.5 25.3 44.4% 39.1%

FY16E 17,536 5,971 3,842 43.3 33.6 21.3 38.9% 36.1%

FY17E 21,196 7,221 4,834 54.5 26.7 17.3 36.4% 33.9%

Date 15 June 2015

Market Data

SENSEX 26425

Nifty 7983

Bloomberg AJP IN

Shares o/s 88mn

Market Cap Rs. 128bn

52-wk High-Low Rs. 1,672-498

3m Avg. Daily Vol Rs. 335mn

Index member BSE200

Latest shareholding (%)

Promoters 73.8

Institutions 9.1

Public 17.0

Initiating Coverage Ajanta Pharma (AJP) focuses on fast growing therapies like CVS, Dermatology, Ophthalmology and Pain management

in Indian market and has a differentiated country specific product basket in emerging markets (EMs). Currently AJP

has a limited presence in the US, but is in the process of scaling up its operations. AJP follows a strategy of launching

differentiated products in each country of its presence. In India, of the 181 products launched so far, 127 (70%)

products were ‘first-to-market’, which gives the company an edge to attain high market share. AJP operates in

emerging markets like Africa, Asia and LatAm through its own front end. It has more than 1400 product registrations

and over 1600 products under development. It also participates in anti-malarial tender business in African market. AJP

registered Revenues / EBITDA / PAT CAGR of 31% / 54% / 58% over FY11-15. We expect growth momentum to continue

driven by incremental product launches across geographies. We expect Revenues / EBITDA / PAT CAGR of 20% / 20%

/ 23% over FY15-17E. However the stock has railed ~67% in the last 6 months leaving no room for upside. We initiate a

REDUCE rating on the stock with a TP of Rs.1363, based on 25x FY17E EPS of Rs 54.5. However, we continue to like

the long term fundamentals of the stock. Risks: Delay in product approvals & addition of new products to price control.

Focus on fast growing therapies: AJP’s strength has been that it has delivered higher than industry growth in the faster

growing segments (CVS, dermatology and ophthalmology). In the last 5 years, AJP has consistently grown (33%) above

industry growth (11%). Deriving ~32% of company sales from India, AJP has displayed remarkable capabilities in launching

‘first-to-market’ drugs in the past. Currently, AJP markets 181 brands out of which 127 brands (70%) are first-to-market in

India. We believe AJP can launch 15-20 products annually over next three years and expect these product launches coupled

with increase in market share of existing products to drive India sales growth at a CAGR of 22% over FY15-17E.

Follows selective product approach for EMs: AJP currently gets entire export revenues (68% of total sales) from emerging

markets like Africa (19 countries), Asia (12 countries) and LatAm (4 countries). It follows a strategy of country specific product

portfolio in these geographies. The company operates though their own front end in these geographies as these markets are

similar to Indian market (branded generics). So far, the company has registered 1445 brands, and over 1600 brands are

under registration. Besides branded generics, AJP also participates in anti-malarial tenders in Africa. Exports sales have

grown at a CAGR of 32% over FY11-15 primarily driven by tender business (43%). However, we expect growth acceleration

to slow down to 18% CAGR in FY15-17E as growth in tender business is expected to be muted.

US sales to pick from FY17: AJP is relatively a late entrant to the US market. Despite that, it has set up its own front end

team by hiring two senior employees of Dr. Reddy’s. So far, it has filed 25 ANDAs with USFDA, received approval for 2

products and launched one product Risperidone (6% market share). It is planning to file and launch 5-6 products every year.

We expect meaningful revenue contribution from US to start only from FY17E.

Differentiated play leading to supernormal growth; Priced ahead of time

ASHISH RATHI [email protected] +91 22 4228 8158


Page 35


Rs.1,456

Target

Rs. 1,363

Rating

REDUCE Business Overview

Super-normal growth in recent past


Sales break up (FY15)


Sales forecast (Consolidated)


FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY15-17E CAGR

Domestic 1,749 2,270 2,920 3,850 4,780 5,807 7,117 22%

Branded 1,346 1,724 2,380 3,190 4,170 5,197 6,507 25%

Ophthalmology 378 459 640 850 1,140 1,482 1,927

Dermatology 480 607 790 1,000 1,180 1,310 1,454

Cardiac 365 539 720 1,040 1,450 1,885 2,451

Others 123 119 230 300 400 520 676

Institutional 403 546 540 660 610 610 610 0%

Exports 2,862 3,717 5,370 6950 8,499 9,935 11,915 18%

Asia 1,043 1,054 2,390 3,110 3,815 4,364 4,931 14%

Africa 1,747 2,563 2,720 3,680 4,508 5,315 5,921 15%

Latin America 72 100 260 160 130 132 132

US 0 0 0 0 46 124 930

Subsidiary sales 417 731 911 983 1,244 1,542 1,912 24%

Domestic-Branded

29%

Domestic-institutional

4% Africa -

Branded 17%

Africa - institutional

19%

Asia 30%

Latam 1%

USA 0%

4,9

88

6,7

74 9,3

08

12,0

83

14,8

06

18% 19%

24%

31%

34%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000


Rs. M

n

Revenues EBITDA margin (%)

Page 36


Rs.1,456

Target

Rs. 1,363

Rating

REDUCE Strong foothold in Ophthalmology, Dermatology and Cardiology

Leading through innovation

Source: Company, Spark Capital Research; Total Launches at end of FY15

Generating strong & sustainable growth


Plugging gaps within the India Pharma market (IPM ) – Table


In the right segments with superior growth


Growth CAGR (%)

Ranking

1YR 5YR

Industry Ajanta Industry Ajanta Mar-05 Mar-12 Mar-15

Ophthalmology 19% 31% 17% 25% 28 6 5

Cardiology 10% 37% 15% 34% 38 29 22

Dermatology 18% 11% 13% 29% 98 14 13

Overall 12% 26% 9% 28% 88 45 36

Drug Rank FY08 FY09 FY10 FY11 FY12 FY13

Pimecrolimus 1 0% 94% 44% 47% 40% 56%

Rosuvastatin + Clopidogrel 1 0% 0% 0% 0% 100% 100%

Difluoro Prednisolone Acetate 1 0% 0% 0% 79% 58% 53%

Amitriptyline + Ketamine 1 0% 0% 0% 100% 100% 100%

Hydroquinone + Tretinoin + Fluticasone 1 0% 0% 0% 0% 100% 100%

Besifloxacin 1 0% 0% 0% 0% 100% 100%

Kojic Acid + Vitamin C + Arbutin + Lactic Acid 1 94% 94% 100% 100% 100% 100%

Moxifloxacin + Prednisolone 1 0% 70% 38% 44% 61% 64%

61

32

58

30

51

11

40

25

Ophthalmology Cardiology Dermatology Others

Total launches First in market

2,920

3,850

4,780

5,807

7,117

8,793

0

2,000

4,000

6,000

8,000

10,000

FY13 FY14 FY15 FY16E FY17E FY18E

Rs. M

n

Domestic

Page 37


Rs.1,456

Target

Rs. 1,363

Rating

REDUCE Emerging markets – a growth driver

Select markets; selective products

Presence in 25+ emerging markets with own front end

Exports contributed ~63% to total revenues in FY15

Grown at a CAGR of 31% in FY11-15

Launched 48 products in FY15

Field force strength increased to 572 at end of FY15 from 450 in FY14

Country specific brand portfolio enabling growth

Brands gaining further ground in many markets

Ranked among Top 5 companies in Franco Africa

Amongst fastest growing companies in Philippines

Got anti-malaria WHO pre-qualification even before leader Ipca

Source: WHO , Spark Capital Research

Strong existing portfolio with healthy launches going ahead


Artemether + Lumefantrine tablets

Company Date of Approval

Novartis Pharma 26-Apr-04

Ajanta Pharma 16-Dec-08

Cipla 22-May-09

Ipca Laboratories 15-Dec-09

Strides Arcolab 24-Jun-13

Macleods Pharma 21-Oct-13

Artemether + Lumefantrine Dispersible tablets

Company Date of Approval

Novartis Pharma 27-Feb-09

Ajanta Pharma 12-Dec-12

Strong growth expected


30 23

14 13

23

35

22 18

11 17

-38

-19

2 0 0

-50

-40

-30

-20

-10

0

10

20

30

40

FY14 FY15 FY16E FY17E FY18E (%)

Asia Africa Latin America

Region Brands

Registered

Under

registration

MR

strength Major therapies

Africa 1,118 1,106 257 Anti-biotic, Anti-Malaria, Ortho

Asia 294 360 315 Anti-biotic, Derma, Ortho,

OTC, Ophthalmic, Cardio, GI

Lat-Am 33 143 0 Ophthalmic, Med, GI

Total 1,445 1,609 572

Page 38


Rs.1,456

Target

Rs. 1,363

Rating

REDUCE USA entry – Set for the next leap

ANDA filings in place


Stage set for US expansion

Front-end team in the US already set - Two senior employees from Dr

Reddy’s:- John Adams (ex-Vice President Sales & Marketing) and Jeff

Burd,(ex- head of Rx sales) brought on-board

Filed 25 ANDAs, mix of Para II, Para III & Para IV; estimated generic market

size of ANDAs filed ~$1.5 bn

Received approvals for 2 products

Re-launched Risperidone with own front end team – already gaining ground

Levetiracetam (already approved) launch plan in place

Filing target every year > 6 products

Setting up USFDA compliant formulation facility at Dahej SEZ - Expected to be

commissioned end of FY16 / early FY17

Driven by R&D cost


Product launches to pick up from FY16 onwards


2

0

7

5

9

2

0

2

4

6

8

10


Nu

mb

er

of

fili

ng

s

ANDA filings

0 46 124

930

1,612

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

FY14 FY15 FY16E FY17E FY18E

Rs.M

n

US Sales

200 250

370 373

499

700

4.9% 5.0% 5.5%

4.1% 4.2%

5.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

0

100

200

300

400

500

600

700

800


Rs. M

n

R & D cost R & D cost (% of sales)

Page 39


Rs.1,456

Target

Rs. 1,363

Rating

REDUCE Financials

Best in class return ratios…


Revenues to grow at a CAGR of 20% in FY15-17E


EBITDA to grow at a CAGR of 20% in FY15-17E


12,083

14,806

17,536

21,196

26,162 30%

23%

18% 21%

23%

0%

5%

10%

15%

20%

25%

30%

35%

0

5,000

10,000

15,000

20,000

25,000

30,000


Rs. M

n

Revenues Growth (%)

47.4%

44.4%

38.9% 36.4%

34.9%

37.5% 39.1%

36.1% 33.9%

32.5%

20%

25%

30%

35%

40%

45%

50%


RoNW (%) RoIC (%)

…Highest among peers

Source: Company, Spark Capital Research; * RoNW is

average of last 3 years

1 Yr PE/graph

Source: Bloomberg, Spark Capital Research

3,688

5,052

5,971

7,221

8,998

31%

34% 34% 34%

34%

28%

29%

30%

31%

32%

33%

34%

35%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000


Rs. M

n

EBITDA EBITDA margin (%)

20%

34%

43%

12%

31%

28%

20%

28%

28%

15%

23%

26%

0%

10%

20%

30%

40%

50%

FY15-17E Revenue CAGR

(%)

FY15 Margins RoNW*

Ajanta Pharma Sun Pharma Lupin Dr Reddy's

0

500

1,000

1,500

2,000

2,500

Nov-1

0

Mar-

11

Jul-

11

Nov-1

1

Mar-

12

Jul-

12

Nov-1

2

Mar-

13

Jul-

13

Nov-1

3

Mar-

14

Jul-

14

Nov-1

4

Mar-

15

12M fwd P/E

CM

P (

Rs.)

40x

10x

16x

22x

28x

34x

Page 40


Rs.1,456

Target

Rs. 1,363

Rating

REDUCE Financial Summary

Abridged Financial Statements (Consolidated) Key metrics

Rs. mn FY14 FY15 FY16E FY17E FY14 FY15 FY16E FY17E

Profit & Loss Growth ratios

Revenue 12,083 14,806 17,536 21,196 Revenue 29.8% 22.5% 18.4% 20.9%

EBITDA 3,688 5,052 5,971 7,221 EBITDA 66.4% 37.0% 18.2% 20.9%

Depreciation 439 516 601 862 Adjusted PAT 82.9% 36.1% 20.7% 25.8%

EBIT 3,249 4,536 5,369 6,358 Margin ratios

Other Income 137 168 126 126 EBITDA 30.5% 34.1% 34.0% 34.1%

Interest expense 87 59 69 81 Adjusted PAT 19.4% 21.5% 21.9% 22.8%

Exceptional items / Forex gain / (loss) 0 85 0 0 Performance ratios

PBT 3,299 4,645 5,426 6,403 RoE 47.4% 44.4% 38.9% 36.4%

PAT (after minority interest) 2,339 3,099 3,842 4,834 RoIC 37.5% 39.1% 36.1% 33.9%

Adjusted PAT (after MI) 2,339 3,183 3,842 4,834 Core RoIC 39.8% 44.5% 44.0% 20.4%

Balance Sheet Fixed asset turnover (x) 2.7 2.9 2.8 2.6

Net Worth 5,934 8,411 11,365 15,162 Total asset turnover (x) 1.4 1.4 1.3 1.2

Total debt 1,129 512 834 1,078 Financial stability ratios

Other liabilities and provisions 283 224 206 266 Net Debt to Equity (x) (0.0) (0.1) (0.2) (0.3)

Current liabilities & provisions 2,149 2,317 3,175 3,837 Current ratio (x) 2.6 2.8 2.9 3.3

Total Networth and liabilities 9,494 11,464 15,579 20,343 Inventory and debtor days 108 103 108 108

Gross Fixed assets 4,903 5,273 7,273 9,273 Working capital days 69 63 68 68

Net fixed assets 3,729 4,583 4,046 5,184 Interest cover (x) 0.0 0.0 0.0 0.0

Investments 85 401 401 401 Valuation metrics

Cash and bank balances 1,154 1,562 2,707 4,989 Fully Diluted Shares (mn) 88.6

Other Long term assets 88 53 1,988 1,988 Market cap (Rs.mn) 1,29,065

Current assets 4,438 4,865 6,438 7,782 Adjusted EPS (Rs.) 26.4 35.9 43.3 54.5

Total assets 9,494 11,464 15,579 20,343 P/E (x) 55.2 40.5 33.6 26.7

Cash Flows EV (Rs.mn) 1,29,039 1,28,014 1,27,192 1,25,153

Cash flows from Operations 2,124 3,356 3,728 5,015 EV/ EBITDA (x) 35.0 25.3 21.3 17.3

Cash flows from Investing -1,878 -1,651 -2,000 -2,000 BV/ share (Rs.) 66.9 94.9 128.2 171.0

Cash flows from Financing -201 -1,297 -584 -733 Price to BV (x) 21.8 15.3 11.4 8.5

Page 41

Aurobindo Pharma (APL) CMP

Rs. 1,278

Target

Rs. 1,737

Rating

BUY

Stock performance

1m 3m 12m

ARPB -3% 11% 82%

Sensex -2% -9% 3%

BSEHC -6% -10% 43%

Financial summary


FY14 80,998 21,320 13,751 47.1 27.1 19.1 43.3% 21.3%

FY15 1,21,205 25,636 16,194 55.5 23.0 15.9 36.4% 19.9%

FY16E 1,39,930 32,880 20,765 71.1 18.0 12.3 34.0% 21.0%

FY17E 1,60,520 39,719 25,365 86.9 14.7 9.9 30.8% 21.3%

Date 15 June 2015

Market Data

SENSEX 26425

Nifty 7983

Bloomberg ARBP IN

Shares o/s 292mn


52-wk High-Low Rs. 1,432-644

3m Avg. Daily Vol Rs. 2,069mn

Index member BSETHC


Promoters 54.0

Institutions 35.8

Public 10.2

Initiating Coverage Aurobindo Pharma (APL) has seen a sharp change in its business mix over the past 3 years. The company has

increased its presence in US, Europe and other formulation businesses and sharply reduced contribution from its API

business (44% of sales in FY12 to 22% in FY15). Once a relatively insignificant Indian player in the US market (FY12,

<$250mn sales), APL is now comparable to Lupin (4Q15 sales: Lupin $211mn versus Auro $215mn). Over the past 3

years, not only has the business mix changed, but it has also helped improve key metrics for the company. Over FY12

to FY15 formulations contribution (56% to 78%), EBITDA margin (13.2% to 21.2%), Net debt to EBITDA (4.1x to 1.3x),

Return on Equity (17.6% to 36.4%) have all seen a sharp improvement. Despite 3 years of robust performance, we

believe the story has just begun for APL and the best is yet to come in terms of financial delivery. The company has in

the recent past also displayed best USFDA compliance track record when compared to larger peers (recent inspections

all through without any major observations). We are building in Sales / EBITDA / PAT CAGR of 15% / 24% / 25% over

FY15-17E. We also believe that there is further scope for re-rating of the PE multiple of the stock with reducing

leverage, improving cash flow and improving quality of niche products in the US market. We initiate coverage on

Aurobindo with a BUY rating and a TP of Rs. 1737 (20x FY17E EPS of Rs. 86.9). Key risks to our call remain slower

approvals, adverse regulatory action and adverse currency fluctuations.

US business mix changing for the better: APL’s US business is going through a transformation stage. There has been a

ramp up of injectable and controlled substance products for APL in the US over the past 3 years. We believe going ahead the

pick up in injectables should be extremely sharp ($68mn in FY15 to $166mn in FY17E). The company has 43 injectables

pending for approval with ~100 more to be filed over the next 3 years. We also believe complexity of product portfolio and

profitability from each product should increase going ahead as the company is preparing on Peptides, Penems, Oncology and

Hormonal product filings. We are building in a sales CAGR of 23% in the US business over FY15-FY17E.

EU turnaround so far so good: APL acquired West European commercial operations of Actavis (~$410mn sales) for just

$45mn (practically free). At the time of acquisition the operations were loss making at EBITDA level but by the end of FY15

the same is now at break-even. We believe APL can derive significant benefits on manufacturing costs over the next 18-24

months as it implements site transfers for more than 200 products. Management has guided for a PAT breakeven by FY16E.

We are building in a conservative 2% EBITDA margin for these operations by FY17E.

EBITDA margin improvement and ROE stability in sight: We believe APL’s improving business mix and healthy sales

growth should help expand the bottom line even more than the top line. We are building in EBITDA margin expansion of

~360bps over FY15-17E. We believe ROEs should remain in the healthy range of 30-35%. We are building in an EPS CAGR

of 25% over FY15-17E and believe there is upside risks to the same on improving product approval timelines by the USFDA.



Once a ‘Dark Horse’ now the ‘Torch Bearer’

Page 42


Rs. 1,278

Target

Rs. 1,737

Rating

BUY

Sharp increase in Gross Margins from increasing formulation contribution


Sales break up - FY15




Business Overview

Rs. Mn FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY15-17E CAGR

Formulations 24,231 26,074 33,872 53,784 95,586 115,533 13,6270 19%

USA 11,897 11,836 17,526 34,028 48,317 61,149 74,540 24%

Europe 3,359 3,815 4,679 6,721 31,947 35,604 39,194 11%

RoW 2,039 2,556 4,164 4,634 5,683 6,924 8,309 21%

ARVs 6,936 7,867 7,503 8,402 9,639 11,856 14,227 21%

APIs 18,021 20,620 25,362 28,642 27,062 27,842 28,223 2%

SSPs 5,647 6,289 7,652 9,778 8,640 8,778 8,778 1%

Cephs 8,473 7,461 9,373 8,755 9,300 9,621 9,814 3%

Non-Betalactam 3,901 6,870 8,337 10,109 9,122 9,442 9,631 3%

Dossier 2,556 5,99 760 165 104 140 140 16%

54 46 43 44 43

35 22

46 54 57 56 57

65 78

47%

52% 50%

46%

49%

56%

55%

30%

35%

40%

45%

50%

55%

60%

0

20

40

60

80

100

FY09 FY10 FY11 FY12 FY13 FY14 FY15

APIs Formulations Gross Profit Margins (%)

USA, 39%

EU, 26%

RoW, 5%

ARVs, 8%

APIs, 22%

Dossiers, 0%

Page 43


Rs. 1,278

Target

Rs. 1,737

Rating

BUY

Adding few more niche therapies to pipeline


Robust pipeline of ANDAs pending approval


Highest among peer group


Oral Gx, 69% SSP Injectables

, 3%

Control Substance , 4%

Oral contraceptive ,

4%

Ophthalmic, 3%

Respiratory , 1%

Penems, 1%

Oral Gx FTFs, 2%

General Liquid parenteral ,

13%

Current pipeline therapy

wise Future basket includes

Oncolytics

Peptides

Steroids

Branded Gx

Dry powder Inhaler

Becoming a stronger player each passing day in the US market

Near term launches

Source: Company, Spark Capital Research; *Brand value in

US$ Mn

API Product Expected Brand

Value*

Known

players

Esomeprazole Nexium 2QFY16 6,000 8

Memantine Namenda 2QFY16 2,000 <10

Aripiprazole Abilify Q3FY16 7,800 8

Efavirenz Sustiva Q3FY16 1,500 9

Emtricitabine Emtriva Q4FY16 25 5

Abacavir

sulfate/Lamivudine Epzicom Q4FY16 500 5

Palonosetron HCL Aloxi FY16 420 4

Rosuvastatin Crestor Q1FY17 3,100 10

Paricalcitol Zemplar Q3FY17 300 6

Lopinavir/Ritonavir Kaletra Q3FY17 256 5

Ritonavir Norvir Q3FY17 500 3

Atomoxetine Strattera FY17 384 6

Tenofovir Disporoxil Viread 2QFY18 550 6

Emtricitabine +

tenofovir Truvada 3QFY18 2,000 6

Atazanavir Reyataz FY18 770 5

Tigecycline Tygacil FY18 120 3

Bivalirudin Angiomax Q4FY20 450 4

Ibandronate sodium Boniva FY20 450 6

Lacosamide Vimpat FY22 353 8

84 102 119 155 165 166

29 32

28 26 26 27

59 75

92 88

145 183

0

50

100

150

200

250

300

350

400


AN

DA

fil

ing

s

Final approval Tentative approval Waiting for approval

68 70

99

159 161

183

0

40

80

120

160

200

DR

L

Gle

nm

ark

Lupin

Sun

Cadila

Auro

bin

do

AN

DA

fil

ing

s

Page 44


Rs. 1,278

Target

Rs. 1,737

Rating

BUY Injectable pipeline – A booster dose

Already built a diversified Injectable basket ….


…. And still improvising on product complexity


Injectable sales – ~3x every 2 years!


Oral pipeline also equally strong


Strengthening of OTC business with Natrol acquisition

Source: Company, Spark Capital Research; Natrol consolidation towards 3Q15 end, effectively ~100 days sales in FY15

Enhanced OTC presence with Natrol acquisition

for US$ 132.5mn

Natrol is amongst top 20 nutraceuticals cos in US

It sells nutraceutical brands like Natrol, MRI,

Prolab, Laci Le Beau

Annual sales ~US$ 100mn with margins ~13-14%

APL is also developing 35 OTC products

Relationship with distributor and retailer to drive

own label products

7

2 2

17

6 6

36

0

5

10

15

20

25

30

35

40

Ophth

al

Resp.

Penem

Oncolo

gy

Ste

roid

s

Peptid

e

Genera

l

No

. o

f P

rod

uc

ts

53 51

27 18 17

39

10

84

0

30

60

90

CN

S

CV

S

AR

V

GI

CS

Anti-in

fec.

Dia

betics

Oth

ers

No

. o

f p

rod

uc

ts

ANDA filed (LHS)

Total addressable market size US$

85 Bn

30

116 128

140

0

20

40

60

80

100

120

140

160

FY15 FY16E FY17E FY18E

US

$ M

n

Natrol

37

67

98

166

246

0

50

100

150

200

250

300


US

$ M

n

10 8 10 5 2

43

0

10

20

30

40

50

60

SSP Ophthal Resp. Penem General

No

of

Pro

du

cts

Approved Under approval

$0.6

Bn

$3.8

Bn

$8.4

Bn

$0.6

Bn

$4.1Bn

Page 45


Rs. 1,278

Target

Rs. 1,737

Rating

BUY Acquisition of Actavis’ Europe operations enables strong front end business

High chronic portfolio presence


Geographical contribution of acquired Actavis business


Margins to improve consistently in Actavis acquired business


Strategy in place to turnaround the business

Gross profit margin should be improved by sourcing low cost APIs /

manufacture those internally

Site transfer for majority of products or replace the products with its own

products

Increase own labelled product launches through the front end

infrastructure

To supply high margin oncology & hormonal injectables to the

established hospital infrastructure in key geographies


FY15-17E CAGR 8%

25,013 27,158

29,060 31,966

-545

8 436 1,439

-2%

0%

2%

5%

-4%

-2%

0%

2%

4%

6%

8%

10%

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

FY15P FY16E FY17E FY18E

US

$ M

n

Sales EBITDA Margins (%)

France, 34%

Germany, 24%

Netherlands, 14%

Spain, 10%

Portugal, 5%

UK, 7%

Italy, 6%

CVS & Respiratory,

28%

CNS, 21%

Anti-infectives, 15% Digestive, 13%

Anti-neoplastic, 9%

Dermatological, 5%

Other, 9%

Page 46


Rs. 1,278

Target

Rs. 1,737

Rating

BUY

Steady growth in the ROW markets


4,634 5,683

6,924

8,309

9,971

0

2,000

4,000

6,000

8,000

10,000

12,000


Rs. M

n

RoW

ARV business lumpy in nature – focus now on only profitable tenders


8,402 9,639

11,856

14,227

17,073

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000


Rs. M

n

ARVs

RoW & ARVs also growing

Largely focused on select geographies


Strong improvement in Net debt to equity


Focus

markets Filed Approved Industry dynamics

Brazil 89 35

6th largest Pharma market globally

Largely branded Gx in nature; Gx subs increasing

Govt’s supporting Gx penetration

APL is building strong product pipeline

South

Africa 336 144

World’s largest HIV population

New Pricing system for innovators and

benchmarking for Gx players being introduced

APL is enhancing presence on private oral &

Injectable

Canada 80 60 Healthcare system is govt funded; looking to

consolidate its presence

34,553 33,748

32,254

20,837

5,720

0.9

0.7

0.5

0.2

0.0 0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000


(X)

Rs. M

n

Net Debt Net debt to equity

Page 47


Rs. 1,278

Target

Rs. 1,737

Rating

BUY Comparison with Large Cap peers: Scale and ratios comparable, Valuations not

FY15 Return on Equity better than Sun, Lupin and DRL


Net debt/EBITDA comfortably below 1x; In line with peers


Strongest growth outlook

Source: Company, Spark Capital Research; * Sun numbers includes acquired Ranbaxy

RoICs in line with peers


Net debt/EBITDA <1

Company

Revenues EBITDA EPS

FY12-

FY15

FY15-

FY17E

FY12-

FY15

FY15-

FY17E

FY12-

FY15

FY15-

FY17E

Aurobindo 37% 15% 61% 24% 56% 25%

Sun Pharma* 50% 19% 39% 33% 26% 37%

Lupin 21% 20% 35% 23% 40% 24%

Dr Reddy's 15% 15% 11% 17% 15% 18%

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

FY12 FY13 FY14 FY15 FY16E FY17E

(X)

Aurobindo Sun Pharma Lupin Dr Reddy's

15%

20%

25%

30%

35%

40%

45%



0%

5%

10%

15%

20%

25%

30%



Page 48


Rs. 1,278

Target

Rs. 1,737

Rating

BUY Heading towards front line players

Focusing on complex products like Sun, Lupin and DRL


Lupin, DRL and APL US sales comparable


Regulatory risk low – Best compliance recently



Ophthalmic Topical Oral Contraceptive Biosimilars

Control Substance Control Substance Ophthalmic Long acting

Injectables

Inhalers Long acting

Injectables

Long acting

Injectables Transdermals

Oncology Ophthalmic Nasal & Inhalers Topicals

Penems Nasal & Inhalers Long acting

Injectables Peptides

Peptides Peptides Topicals

Inorganic growth capability in place like others

*Assuming 10% equity dilution for APL, Lupin & Sun, i) Debt

to EBITDA assumed 2.5x ii) Acquired business EBITDA

assumed 20% of acquirer’s EBITDA

Multiples at sharp discount to larger peers


Sun Pharma ( Halol )

Lupin (Indore)

Dr Reddy's (Srikakulam)

Aurobindo Pharma (Unit IV)

Company Recent

acquisitions

Acquisition

Capability

Aurobindo

Actavis Western

Europe operations &

Natrol

US$ 1.6 Bn

Sun Pharma

Ranbaxy, URL

generic portfolio &

Dusa

US$ 8.6 Bn

Lupin

Medquimica,

Laboratorios Grin,

Nanomi

US$ 3.8 Bn

Dr Reddy's OctoPlus US$ 2.1 Bn

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FY11 FY12 FY13 FY14 FY15 FY16E FY17E

US

$ M

n


18

26 27

21

0

5

10

15

20

25

30

35

Mar/11 Mar/12 Mar/13 Mar/14 Mar/15

(x)

APL Sun Lupin DRL

Page 49


Rs. 1,278

Target

Rs. 1,737

Rating

BUY Financial summary

EBITDA margins to expand going ahead


Revenues to grow at a CAGR of 15% over FY15-17E


1yr-forward PE graph


Return rations remains strong


80,998

121,205

139,930

160,520

185,351

38%

50%

15% 15% 15%

0%

10%

20%

30%

40%

50%

60%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000


Rs. M

n

Revenues Growth (%)

21,320

25,636

32,880

39,719

47,484 26%

21% 23%

25%

26%

0%

5%

10%

15%

20%

25%

30%

0

10,000

20,000

30,000

40,000

50,000


Rs. M

n

EBITDA EBITDA Margins (%)

43%

36% 34%

31% 28%

21% 20% 21% 21% 21%

0%

10%

20%

30%

40%

50%


RoNW (%) RoIC (%)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Jan

-09

Apr-

09

Jul-09

Oct-

09

Jan

-10

Apr-

10

Jul-10

Oct-

10

Jan

-11

Apr-

11

Jul-11

Oct-

11

Jan

-12

Apr-

12

Jul-12

Oct-

12

Jan

-13

Apr-

13

Jul-13

Oct-

13

Jan

-14

Apr-

14

Jul-14

Oct-

14

Jan

-15

Apr-

15

12M fwd P/E

CM

P (

Rs.)

25x

5x

9x

13x

17x

21x

Page 50


Rs. 1,278

Target

Rs. 1,737

Rating

BUY Financial Summary




Revenue 80,998 1,21,205 1,39,930 1,60,520 Revenue 38.3% 49.6% 15.4% 14.7%

EBITDA 21,320 25,636 32,880 39,719 EBITDA 139.8% 20.2% 28.3% 20.8%

Depreciation 3,125 3,326 4,845 5,482 Adjusted PAT 200.7% 17.8% 28.2% 22.2%



Interest expense 1,079 843 793 766 Adjusted PAT 17.0% 13.4% 14.8% 15.8%

Exceptional items / Forex gain / (loss) 2,022 436 0 0 Performance ratios

PBT 17,348 22,275 28,061 34,277 RoE 43.3% 36.4% 34.0% 30.8%





Total debt 36,339 38,636 39,632 38,300 Financial stability ratios

Other liabilities and provisions 2,146 2,349 0 0 Net Debt to Equity (x) 0.9 0.7 0.5 0.2


Total Networth and liabilities 94,898 1,29,145 1,47,493 1,74,419 Inventory and debtor days 225 215 210 210





Other long term assets 185 350 350 350 Market cap (Rs.mn) 3,73,178

Current assets 62,416 82,653 94,855 1,08,679 Adjusted EPS (Rs.) 47.1 55.5 71.1 86.9

Total assets 94,898 1,29,145 1,47,493 1,74,419 P/E (x) 27.1 23.0 18.0 14.7




Cash flows from Financing 1,749 410 -2,977 -3,211 Price to BV (x) 10.0 7.2 5.3 4.0

Page 51

Divi’s Laboratories (DIVI) CMP

Rs.1,764

Target

Rs. 2,186

Rating

BUY

Stock performance

1m 3m 12m

Divi 1% -2% 32%

Sensex -2% -9% 3%

BSEHC -6% -10% 43%

Financial summary


FY14 25,321 10,145 7,733 58.3 30.3 22.6 28.3% 27.1%

FY15 31,149 11,653 8,515 64.2 27.5 19.4 26.4% 25.3%

FY16E 35,700 13,729 10,216 77.0 22.9 16.4 26.6% 25.4%

FY17E 43,170 16,792 12,616 95.0 18.6 13.2 27.3% 25.8%

Date 15 June 2015

Market Data

SENSEX 26425

Nifty 7983

Bloomberg DIVI IN

Shares o/s 133mn


52-wk High-Low Rs. 1,969-1,311


Index member BSE100


Promoters 52.2

Institutions 27.2

Public 20.6

Initiating Coverage Divi’s Laboratories (DIVI) is a leading player in CRAMS space with strong R&D capabilities, successful track record of

project execution, India centric manufacturing base and IPR compliance. These factors have differentiated Divis from

other CRAMS players. It follows a selective approach in developing generic APIs. It scales up only those products

where it can reduce costs significantly lower than peers. Divis has the highest profit margins and the best return ratios

amongst CRAMS players. We believe the existing mature product pipeline should drive growth in API segment while

increase in outsourcing from MNCs should boost Custom Synthesis (CS) business sales. We expect Divis to post

revenues, EBITDA and net profit CAGR of 18%, 20%, and 22% respectively over FY15-17E. We initiate coverage with a

BUY rating and a TP of Rs 2186, based on 23x FY17E EPS of Rs 95.

Follows a selective approach in API business: Divis follows a selective approach in identifying and developing APIs. Thus,

it has filed only 38 DMFs with USFDA, 214 EDMFs and 18 CoS with EU authorities despite a long ~20 years of existence. It

identifies molecules with complex chemistries and focuses on cost optimisation by improving both process & production

efficiencies. This has made them attain global leadership in APIs like Naproxen, Dextromethorphan and Diltiazem. We believe

the existing matured product pipeline and the products under development should drive growth in API business. We expect

revenues from generic API segment to grow at a CAGR of 14% in FY15-17E.

Custom synthesis (CS); A key margin driver: Divis is the preferred go-to partner for CRAMS business to most MNC

players due to its key strengths like strong R&D capabilities, successful track record of project execution, India centric

manufacturing base and IPR compliance. CS business contributes nearly 50% of total top line and its profitability is superior to

generics & API segment. We believe declining profitability, increase in R&D costs and poor R&D output should continue to

force innovator companies to outsource manufacturing of intermediates / APIs and early stage discovery molecules and Divis

should continue to be a key beneficiary of this trend. We expect CS business to grow at a CAGR of 19% over FY15-17E.

Market share improvement a top priority in Nutraceuticals: The sales from Nutraceuticals / Carotenoids segment has

started picking up from FY14 (CAGR growth of 35% in FY13-15) onwards as nutraceutical plant at Vizag received FSSC

22000 certification. The accreditation has enabled nutraceuticals supplies for pharmaceutical use. Currently, this segment

contributes ~5% of sales. The global market size of carotenoids is ~US$ 1.2 bn in FY14 and is expected to reach US$ 1.4 bn

by FY19. We expect improvement in market share of existing products and new product launches to drive Carotenoids sales

in FY15-17E by 48% (CAGR).

New facility to drive next leg of growth: Divis is setting up its 5th manufacturing facility for APIs / intermediates at Kakinada

with an investment of Rs 5 bn. Historically, Divis has followed a measured approach, adding capacity only when it has clear

visibility on utilisation and therefore new capacity is a good indicator of mid-term growth, in our view.

‘Right Chemistry’



Page 52


Rs.1,764

Target

Rs. 2,186

Rating

BUY

Manufacturing facilities


Geography wise sales break up (FY14)


Segmental sales break up (FY15)




Business overview

Custom synthesis

47% Generics

48%

Neutraceuticals

5% Asia 7%

Europe 36%

America 44%

RoW 4%

India 9%

Unit

Name Place

Production

blocks Reactors

Capacity

m3

Unit 1 Hyderabad 13 356 1,697

EOU Visakhapatanam 8 186 1,359

SEZ

Unit Visakhapatanam 9 324 2,567

DSM

SEZ

Unit

Visakhapatnam 5 234 2,245

(Rs. Mn) FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY15-17E

CAGR

Custom synthesis 6,067 8,953 10,220 11,994 14,298 16,725 20,236 19%

Generics 6,308 8,685 10,152 12,306 14,601 16,420 19,100 14%

Neutraceuticals 634 815 920 1,280 1,690 2,440 3,720 48%

Page 53


Rs.1,764

Target

Rs. 2,186

Rating

BUY Preferred custom synthesis partner for MNCs

Gained largest market share despite being a late entrant

Source: USFDA, Spark Capital Research

Shasun’s Gabapentin sales witness sharp decline post Divi’s launch


Steadily adding new products to custom synthesis pipeline


New products introduction to boosts API and CS segments

Best patent compliant track record, no conflict of interest with customers

Follows selective approach in identifying and developing active ingredients

(APIs) & intermediates.

Filed only 38 DMFs with USFDA, 214 EDMFs and 18 CoS with various EU

authorities despite ~ 20 years of operations.

Maximum focus on cost optimization by improving both the process and

production.

Attained global leadership in some of the APIs like Naproxen, Dextromethorphan

and Diltiazem.

Preferred custom synthesis (CS) partner for most MNC players due to strong

R&D capabilities, successful track record of project executions and IPR

compliance.

Enjoys higher margins for the segment compared to generics.

Naturally growing business with successful execution of projects in the segment.

Source: Company , Spark Capital Research

11

5 5 5

13

5 6

5

0

2

4

6

8

10

12

14

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

No

. o

f p

rod

uc

ts

1,137 1,287

1,931

1,056

847

0

500

1,000

1,500

2,000

2,500


Rs. M

n

API Therapy Nth Player

to file DMF

Total DMF

filers

Naproxen Anti-Inflammatory 19 24

Dextromethophan Hydrobromide Anti-cough 7 19

Phenylephrine Hydrochloride Anti-cough 7 18

Levodopa CNS 11 15

Nabumetone Anti-Inflammatory 10 18

Page 54


Rs.1,764

Target

Rs. 2,186

Rating

BUY Carotenoids business to grow faster on a low base

Highest EBITDA margins

Source: Company, Spark Capital Research; * Syngene : 9MFY15 numbers shown for FY15

…. And Return on Equity amongst peers

Source: Company, Spark Capital Research; * Syngene : 9MFY15 numbers shown for FY15

Carotenoids on a strong growth trajectory


Carotenoids industry estimated to reach $1.4 bn

by FY19


Apo-carotenal

2% Beta-

carotene 24%

Lutein 22%

Astaxanthin

18%

Capsanthin

10%

canthaxanthin 5%

Lycopene 6%

Others 13%

1,280 1,690

2,440

3,720

5,000

0

1,000

2,000

3,000

4,000

5,000

6,000


Rs. M

n

Market share improvement to drive growth…

Divis offers a full range of carotenoids including

Beta-caratene, Lutein, Astaxanthin, and vitamins for

food & poultry purposes

Global market size of carotenoids is ~US$ 1.2 bn in

FY14 and is expected to reach US$ 1.4 bn by FY19

Segment contributes ~5% of sales currently

Sales started picking up from FY14 as it received

FSSC 22000 certification for nutraceuticals plant

Accreditation enabled company to supply

nutraceuticals to pharmaceutical use

We expect improvement in market share of existing

products and new product launches to boost growth

in Carotenoids business

44%

38% 37% 38% 40%

37%

10% 9% 13%

11% 9% 8%

23% 23%

21%

24% 24% 20%

32.5% 30.8% 32.9% 30.6% 30.7% 32.5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%


Divi's Laboratories Shasun Dishman Pharma Syngene*

25% 26%

27% 26% 26%

26%

26% 26%

48%

22%

11%

6%

15.8%

9.6%

6.3%

10.2% 9.9%

9.4%

15.7% 12.3% 23.9%

19.7% 20.4% 20.2%

0%

10%

20%

30%

40%

50%


Divi's Laboratories Shasun Dishman Pharma Syngene

Page 55


Rs.1,764

Target

Rs. 2,186

Rating


Improved capacity utilization to boost return ratios




EBITDA to grow at a CAGR of 20% over FY15-17E


Trades at 30-40% premium compare to others (1yr forward PE Graph)


25,321

31,149 35,700

43,170

52,216

18%

23%

15%

21%

21%

0%

5%

10%

15%

20%

25%

0

10,000

20,000

30,000

40,000

50,000

60,000


Rs. M

n

Revenues Growth (%)

10,145 11,652

13,729

16,792

20,792 40%

37%

38%

39%

40%

36.0%

36.5%

37.0%

37.5%

38.0%

38.5%

39.0%

39.5%

40.0%

40.5%

0

5,000

10,000

15,000

20,000

25,000


Rs. M

n

EBITDA EBITDA margins (%)

28%

26% 27%

27%

28%

27%

25% 25% 26%

26%

23%

24%

25%

26%

27%

28%

29%


RoNW (%) RoIC (%)

0

500

1,000

1,500

2,000

2,500

3,000

Jan-0

9

May-0

9

Sep-0

9

Jan-1

0

May-1

0

Sep-1

0

Jan-1

1

May-1

1

Sep-1

1

Jan-1

2

May-1

2

Sep-1

2

Jan-1

3

May-1

3

Sep-1

3

Jan-1

4

May-1

4

Sep-1

4

Jan-1

5

May-1

5

12M fwd P/E

CM

P (

Rs.)

30x

5x

10x 15x

20x

25x

Page 56


Rs.1,764

Target

Rs. 2,186

Rating





Revenue 25,321 31,149 35,700 43,170 Revenue 18.1% 23.0% 14.6% 20.9%

EBITDA 10,145 11,653 13,729 16,792 EBITDA 24.5% 14.9% 17.8% 22.3%

Depreciation 921 1,360 1,327 1,327 Adjusted PAT 28.5% 10.1% 20.0% 23.5%





PBT 9,909 10,721 12,932 15,970 RoE 28.3% 26.4% 26.6% 27.3%





Total debt 179 261 1,026 1,405 Financial stability ratios

Other liabilities and provisions 1,182 1,332 1,498 2,050 Net Debt to Equity (x) (0.2) (0.2) (0.2) (0.3)







Other long term assets 0 0 0 0 Market cap (Rs.mn) 2,34,143


Total assets 37,105 44,052 55,118 67,206 P/E (x) 30.3 27.5 22.9 18.6




Cash flows from Financing -2,887 -2,963 -2,485 -2,796 Price to BV (x) 7.9 6.7 5.6 4.6

Page 57

Dr Reddy’s Laboratories (DRL) CMP

Rs. 3,317

Target

Rs. 3,977

Rating

BUY

Stock performance

1m 3m 12m

DRRD -4% -3% 36%

Sensex -2% -9% 3%

BSEHC -6% -10% 43%

Financial Summary


FY14 1,34,153 32,508 19,632 115.3 28.8 17.6 27.6% 18.7%

FY15 1,48,189 33,535 22,179 130.3 25.5 16.9 23.4% 14.8%

FY16E 1,66,929 39,319 25,923 152.3 21.8 14.3 21.3% 14.8%

FY17E 1,94,910 45,908 30,774 180.8 18.3 11.9 21.3% 15.6%

Date 15 June 2015

Market Data

SENSEX 26425

Nifty 7983

Bloomberg DRRD IN

Shares o/s 170mn


52-wk High-Low Rs. 3,809-2,386


Index member BSE100


Promoters 25.5

Institutions 44.3

Public 30.2

Initiating Coverage Dr Reddy’s Laboratories (DRL) has changed its positioning over the years from an API company to a formulations

company and now to a specialty generics company focused primarily on complex drugs. Over the past few years DRL

has seen increasing stability in US business on the back of these complex products’ market shares. DRL continues to

maintain high market shares in drugs even post several quarters of launch viz Decitabine (83%), Fondaparinux (51%),

Azacitidine (60%), Ziprasidone (43%), Valganciclovir (59%) etc. We believe the same has been achieved through

meticulously planned launches and a well spent R&D expense. DRL has the highest R&D expense amongst peer Indian

companies (11.8% of FY15 sales). We believe DRL’s US pipeline continues to offer promise with multiple key launches

ahead like gNexium, gDiovan, gPropofol, gPristiq etc over the next 2 years. DRL’s domestic business has seen a sharp

revival of growth with 14% sales growth in line with industry for FY15. The only disappointment in FY15 has been

Russia business because of currency headwinds, but we also take note of the fact that constant currency growth in

Russian market for DRL was at a healthy 13%. We believe now with Rouble showing signs of stability, DRL would

benefit from its Russian operations as well. We like the long term R&D pipeline and vision of the company with spends

on Biosimilars, Dermatology, soft gels and other complex areas. We forecast a Sales / EBITDA / EPS CAGR of 14% /

17% / 18% over FY15-17E and initiate coverage with a BUY with a TP of Rs. 3,977 (22x FY17E EPS of Rs. 181).

US business strong and steady: DRL has shown an ability to launch complex drugs in the past and retain market share

over the years on its launches. We like the approach of the company and believe its high spend on R&D would continue to

support growth through complex product launches going ahead. The company expects its contribution from complex generics

(non-oral solids) to increase from 33% to 51% by 2020. DRL has 68 pending ANDAs out which 43 are Para IVs and 14 FTFs.

Pending filings include 2 transdermals and 2 topicals whereas the company will file its first liposomal in FY16E and the next in

FY17E. Assuming 8-10 launches in the US each year going ahead till FY17E, we forecast a sales CAGR of 17% over FY15-

17E.

India business on a healthy recovery path already: DRL’s India business underperformed industry growth in the past few

years because of lower growth in mature brands. However, FY15 growth of 14% has been in line with the industry. We

believe the growth recovery has been largely volume-led and represents improved portfolio mix and healthy share expansion,

especially for major products covered under the NLEM list. We believe this growth to be sustainable and forecast a sales

CAGR of 15% in this market over FY15-17E for DRL.

Russia constant currency growth remains robust; currency headwinds appear to be stabilizing: The sharp

depreciation of Rouble impacted DRL’s growth in FY15, however constant currency growth of 13% indicated inherent strength

continues in this market. We believe Russia remains an important market for DRL as a growth driver in the long term.

Choosing complexity and long term stability over anything else



Page 58


Rs. 3,317

Target

Rs. 3,977

Rating

BUY Business Overview

R&D cost highest among peers


Geographical sales breakup (FY15)




(Rs. Mn) FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY15-17E CAGR

Global Generics 53,341 70,244 82,564 105,166 120,556 135,544 159,908 15%

North America 18,996 31,889 37,846 55,302 64,734 73,340 88,008 17%

Europe 8,431 8,259 7,716 6,970 7,181 11,358 14,197 41%

India 11,690 12,931 14,560 15,714 17,870 20,551 23,633 15%

Russia & Other CIS 10,858 13,260 16,908 19,820 17,714 14,907 17,143 -2%

RoW 3,366 3,904 5,533 7,359 13,057 15,388 16,926 14%

PSAI 19,647 23,814 30,703 23,964 25,456 28,886 32,127 12%

Proprietary products 1,705 2,682 3,001 3,034 2,174 2,500 2,875 15%

North America 44%

Europe 5%

India 12%

Russia & Other CIS 12%

RoW 9%

PSAI 18%

6.8% 6.1%

6.7%

9.4%

11.8%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000


Rs. M

n

R&D cost R&D cost % revenues

Page 59


Rs. 3,317

Target

Rs. 3,977

Rating

BUY Building a niche product portfolio

Strong visibility in US pipeline

Source: USFDA, Company, Spark Capital Research; * 20mg

Market Share of complex products stable


Complex drugs to drive sales growth



Value

Known

players



Valsartan Diovan Any time 2,500 10

Palonosetron HCL Aloxi FY16 420 4

Propofol Diprivan FY16 100 4

Desvenlafaxine Pristiq FY16 600 3

Omeprazole/Sodium

Bicarbonate Zegerid FY17 30 4

Glatiramer Acetate Copaxone* FY17 1,500 4


Imatinib Gleevec FY17 1,939 4

Clofarabine Clolar FY18 80 2

Sildenafil Viagra FY18 1,132 3

Ixabepilone Ixempra FY19 150 3

Bivalirudin Angiomax FY20 450 6

Plerixafor Mozobil FY20 720 4

Dexlansoprazole Dexilant FY21 250 4

Prasugrel Effient FY22 377 11

Sumatriptan; Naproxen

Sodium tablet Treximet FY25 100 1

Icosapent Ethyl Vascepa FY30 40 3

Naproxen And

Esomeprazole

Magnesium

Vimovo Unknown 50 1

Febuxostat Uloric Unknown 300 8

Bendamustine HCL Treanda Unknown 530 8

ANDA pipeline more complex than peers


Focused on complex generics


12

21

17 18

13 13 12

18

11

21

12

7

0

5

10

15

20

25


AN

DA

fil

ing

s

Filed Approved

Complex injectables

13

Softgel 5

Topicals 4

Oral solids 28

Complex orals

9

Injectable 9

Aug’14 May’15

Decitabine 94% 83%

Azacitidine 54% 60%

Divalproex ER 20% 21%

Zoledronic Acid (Reclast) 65% 61%

Sumatriptan Autoinjector 21% 24%

912 1,054

1,183

1,419

1,653

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800


US

$ M

n

Page 60


Rs. 3,317

Target

Rs. 3,977

Rating

BUY India business on recovery path; Currency remains a key risk for Russia & Venezuela

India business sales growth back on track


Turnaround on the back of

Currency risk remains but business growth phenomenal


Ruble growth in Russia still strong


3,493

4,207 3,913 4,101 3,999

4,799 4,328

4,744

0%

4%

8%

12%

16%

20%

0

1,000

2,000

3,000

4,000

5,000

6,000

Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15

Rs. M

n

India business sales Growth

19% 22%

28%

17%

-11%

12% 15%

18%

11% 13%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%


Gro

wth

Russian sales growth (INR) Russian sales growth (Ruble)

26 26 35

48

136

0 0% 35% 37%

183%

0%

40%

80%

120%

160%

200%

0

20

40

60

80

100

120

140

160


US

$ M

n

Venezuela Sales ($mn) Growth (%)

DRL took a conservative approach

with a write-off of Rs843mn in Q4FY15

Focused sales & marketing efforts on mega brands

Improving new launch productivity

Scale-up in institutions sales

Focus on Chronic and Super-specialty therapies

Strategic business development and M&A efforts

Differentiated assets in relevant therapies

Growth through inorganic opportunities

Page 61


Rs. 3,317

Target

Rs. 3,977

Rating

BUY Entry into biosimilars & focus on mAbs development

Complex drugs WIP


Biosimilars which DRL is targeting….


Biosimilar opportunity +15bn even conservatively


Current

pipeline

Future

products

Addressable

market Key developments

Microspheres 2 2 $2.5bn Full Integration of Octoplus synergies with Global injectable platform completed

Liposomals 2 1 $1bn Two near term filings i.e. One each in FY’16 and FY’17

Particulate systems 2 2 $2bn Early POC work through academic partnerships

Ready to use 4 Multiple $3.1bn Four near terms filings, working on 505b(2) approach on a large number of candidates

Derma 7 >5 $3.5bn Filed Three ANDAs in FY’15

Transdermal 3 1 $1.9bn Two patches filed till date.

Acquisition of Habitrol

Soft gels 3 3 $1bn Commercialised Isotretinoin in US both as a branded and generic product

Respiratory 3 2 $3bn Launched Levalbuterol

S No Molecule 2014 Sales ($Bn)

1 Adalimumab 12.5

2 Cetuximab 1.9

3 Infliximab 9.2

4 Ustekinumab 2.1

5 Tocilizumab 1.4

6 Denosumab 2.3

7 Aflibercept 2.8

8 Pertuzumab 1.0

9 Abatacept 1.6

10 Omalizumab 1.6

$70bn+ of Biologics Losing Patent Protection

30% biosimilar penetration in the US, 40-50%

biosimilar penetration ex-US

30-40% Pricing Discount to Brand

$15bn+ biosimilars Market

Individual revenue potential very

sizeable and relevant


Brand revenue at expiry 3,500

Approved players 4

Assuming high price erosion

(conservative view) 60%

Revenue potential from drug for

each player 350

Present sales of DRL in US ($bn) 1,053

% of present sales 33%

Page 62


Rs. 3,317

Target

Rs. 3,977

Rating

BUY Financials

Return ratios to be steady




EBITDA to grow at a CAGR of 17% over FY15-17E


1Yr forward P/E graph


134,1

53

148,1

89

166,9

29

194,9

10

222,6

62

13%

10%

13%

17%

14%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

50,000

100,000

150,000

200,000

250,000


Rs. M

n

Revenues Growth (%)

32,5

08

33,5

66

39,3

19

45,9

08

52,4

51

24.2%

22.7%

23.6% 23.6%

23.6%

21.5%

22.0%

22.5%

23.0%

23.5%

24.0%

24.5%

0

10,000

20,000

30,000

40,000

50,000

60,000


Rs. M

n


28%

23% 21% 21% 21%

19%

15% 15% 16% 16%

0%

5%

10%

15%

20%

25%

30%


RoNW (%) RoIC (%)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Jan

-09

Apr-

09

Jul-09

Oct-

09

Jan

-10

Apr-

10

Jul-10

Oct-

10

Jan

-11

Apr-

11

Jul-11

Oct-

11

Jan

-12

Apr-

12

Jul-12

Oct-

12

Jan

-13

Apr-

13

Jul-13

Oct-

13

Jan

-14

Apr-

14

Jul-14

Oct-

14

Jan

-15

Apr-

15

12M fwd P/E

CM

P (

Rs.)

25x

10x

13x

16x

19x

22x

Page 63


Rs. 3,317

Target

Rs. 3,977

Rating





Revenue 1,34,153 1,48,189 1,66,929 1,94,910 Revenue 12.8% 10.5% 12.6% 16.8%

EBITDA 32,508 33,535 39,319 45,908 EBITDA 19.5% 3.2% 17.2% 16.8%



Other Income 1,697 917 1,600 1,600 EBITDA 24.2% 22.6% 23.6% 23.6%

Interest expense 1,267 -1,682 -863 -863 Adjusted PAT 14.6% 15.0% 15.5% 15.8%


PBT 26,463 27,968 32,635 38,840 RoE 27.6% 23.4% 21.3% 21.3%




Net Worth 78,652 1,11,302 1,32,104 1,57,211 Total asset turnover (x) 0.9 0.8 0.8 0.8


Other liabilities and provisions 2,985 5,158 7,402 7,402 Net Debt to Equity (x) 0.1 0.0 (0.0) (0.1)


Total Networth and liabilities 1,60,296 1,94,762 2,31,560 2,65,244 Inventory and debtor days 156 163 170 170

Gross Fixed assets 1,19,176 1,35,686 1,48,186 1,60,686 Working capital days 94 111 125 126

Net fixed assets 52,796 61,140 64,494 67,464 Interest cover (x) 0.0 (0.1) (0.0) (0.0)

Investments 4 3,851 3,851 3,851 Valuation metrics


Other long term assets 1,917 9,934 9,934 9,934 Market cap (Rs.mn) 5,64,686

Current assets 71,909 80,184 1,08,148 1,26,817 Adjusted EPS (Rs.) 115.3 130.3 152.3 180.8

Total assets 1,60,296 1,94,762 2,31,560 2,65,245 P/E (x) 28.8 25.5 21.8 18.3




Cash flows from Financing 6,611 14,603 -4,980 -5,577 Price to BV (x) 7.2 5.1 4.3 3.6

Page 64

Glenmark Pharmaceuticals (GPL) CMP

Rs. 880

Target

Rs. 1,120

Rating

BUY

Stock performance

1m 3m 12m

GNP 1% 5% 52%

Sensex -2% -9% 3%

BSEHC -6% -10% 43%

Financial summary


FY14 60,069 13,101 7,099 25.2 34.9 20.8 24.7% 13.9%

FY15 66,448 14,466 8,025 28.5 30.9 19.2 26.8% 14.0%

FY16E 80,609 18,943 11,212 39.8 22.1 14.1 26.8% 15.5%

FY17E 98,992 24,253 15,463 54.9 16.0 10.7 24.8% 17.6%

Date 15 June 2015

Market Data

SENSEX 26425

Nifty 7983

Bloomberg GNP IN

Shares o/s 282mn


52-wk High-Low Rs. 941-531


Index member BSE100


Promoters 48.3

Institutions 40.8

Public 10.9

Initiating Coverage Glenmark Pharma is at an interesting stage of transition where the year gone by (FY15) was dull (11% sales growth and

13% adj. PAT growth), but the future should to be bright on the back of bunching up of high quality approvals in the US

in particular. The company got severely impacted due to sharp depreciation of the Ruble in its Russia business (ROW

sales declined 19% in FY15). However, 5 approvals received towards the latter part of FY15 including the launch of

gSeretide inhaler provides visibility on future growth. India business continues to tread on a steady path (FY15 sales

growth 16%). We believe Glenmark is on the cusp of a revival with visible growth across the board and the same is

reflected in company’s FY16 guidance of 18-20% sales growth and 22.5% EBITDA margins. Having received 6

approvals in US in the last 6 months and Ruble coming back to some stability, we believe the guidance though healthy

remains conservative. We initiate with a BUY and a TP of Rs 1120 (20x FY17E EPS + Rs 22 for gZetia FTF sales).

US sales to see sharp pick up: Glenmark has 70 ANDAs pending for approval and bulk of these are more than 30 months

old filings. We believe important launches going ahead like gFinacea, Ortho Tri-Cyclen Lo, gZetia and gWelchol would see

limited competition and create significant delta in sales and profitability. We are not building in gFinacea in our estimates

(leaving upside risk) because of pending litigations. We are factoring in cash of $100mn from gZetia FTF opportunity.

ROW, Lat-Am, EU and India business to deliver strong growth: We believe ROW sales would grow at a CAGR of 20%

over FY15-17E on the back of new product launches. EU business continues to do well with improved penetration and new in-

licensed molecules seeing launches. Company’s own products have also started to ramp up in EU markets. India business is

on a steady path and we expect growth to further improve to 19% CAGR over FY15-17E in line with the improvement in the

market itself. Lat-AM business has seen pick up in Brazil approvals and Venezuela growth. Although write-offs on account of

Venezuelan Bolivar devaluation continue to pose a risk to this geography.

Balance sheet issues in the vicinity of waning off: Glenmark’s PE has historically been lower because of balance sheet

issues (high debt, high working capital days and intangibles on the book). However, we also realize that Glenmark’s NCE

business R&D expense (~4% of FY15 sales) dilutes its EBITDA margins, without fetching any value to stock price. These two

factors hence neutralize each other. We believe the PE for the stock which is at a discount to sector leaders is hence justified.

However, Glenmark has displayed remarkable success in its NCE pipeline completing 7 out-licensing deals with a cumulative

payment of $217mn received. We present our take on the net impact of writing off intangibles completely versus the NCE

income. We believe Glenmark’s stock price should benefit materially whenever it writes off the intangibles against one-time

cash inflows like out-licensing income / FTF opportunities (gFinacea / gZetia). Management in the past has indicated an

interest is taking such a step and we foresee Glenmark having multiple opportunities over the next 2 years to write off

intangibles completely. The same poses a material upside risk to our target price.



At an inflection point; Balance sheet cleansing opportunities in sight

Page 65


Rs. 880

Target

Rs. 1,120

Rating

BUY

Complex products filings lead to increase in R & D cost


Geographical sales break up FY15




Business Overview

Rs. Mn FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY15-17E CAGR

India 8,623 10,021 13,096 15,105 17,490 20,813 24,975 19%

USA 8,352 12,137 16,887 20,270 20,398 25,431 31,789 25%

RoW 4,141 5,926 8,122 9,856 8,123 9,641 11,762 20%

Europe 2,112 3,008 3,724 5,907 7,265 9,524 12,978 34%

Latin America 2,360 3,012 3,468 4,046 7,687 9,164 1,1452 22%

API 2,746 3,094 3,976 5,291 6,053 6,035 6,035

Out-licensing 895 2,535 493 118 299 0 0

Others 271 474 357 62 0 0 0

India26.0%

USA30.3%

RoW12.1%

Europe10.8%

Latin America11.4%

API9.0%

Out-licensing 0.4%

Others0.0%

Innovator : Generic break up – 43: 57 in FY15

773 1,380

2,916 4,116

5,998 6,760

3%

5%

7% 8%

10% 10%

0%

2%

4%

6%

8%

10%

12%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000


Rs. M

n

R&D Cost R & D cost % sales

Page 66


Rs. 880

Target

Rs. 1,120

Rating

BUY US approvals & launches remain key

New inspections / issues unlikely in facilities in FY16 / 1HFY17


US sales remained flat over 6 quarters on account of…


Differentiated product filings to drive growth and profitability


...delay in product approvals

Source: Company, Spark Capital Research; *as on 31st May 2015

Focus Area Pending

approval

Authorized to

Distribute

Total

filings

Market size

($Mn)

Immediate release 31 47 78 25,391

Hormones 11 14 25 2,467

Modified release 4 9 13 1,763

Dermatology 9 24 33 2,131

Complex injectables 5 0 5 1,284

Immunosuppressant 2 0 2 901

Oncology-Injectables 8 0 8 2,919

Controlled substances 0 4 4 197

Total 70 94 168 37,056

Para IV filings 33 0 33

80.1

90.1

85.0

81.1 81.7 81.7 81.8

86.2

74.0

76.0

78.0

80.0

82.0

84.0

86.0

88.0

90.0

92.0 Q

1F

Y14

Q2F

Y14

Q3F

Y14

Q4F

Y14

Q1F

Y15

Q2F

Y15

Q3F

Y15

Q4F

Y15

US

$ M

n

3

6

3

7

10

1

4 3

4 4

0 0 1

2 1

2 3

0

2

4

6

8

10

12

Q1F

Y14

Q2F

Y14

Q3F

Y14

Q4F

Y14

Q1F

Y15

Q2F

Y15

Q3F

Y15

Q4F

Y15

Q1F

Y16*

Nu

mb

er

of

AN

DA

s

Filed Approved

Approvals beginning

to pick up

Type of facility City Inspection year

API Ankleshwar Feb 2015

Formulations Baddi, Himachal Pradesh State Apr 2015

Formulations Indore 25-Oct-13

Formulations Pilar, Argentina May 2014

API Goa May 2014

Page 67


Rs. 880

Target

Rs. 1,120

Rating

BUY

336 331

417

521

615

0

100

200

300

400

500

600

700


US

$ M

n

US sales

US launches – Interesting and assured launches ahead

Key US opportunities


gZetia – Cash flow enhancement opportunity

Settled the patent infringement lawsuit with Merck

Will launch the drug on 16th Dec 2016 with 180 days

of exclusivity

Tied up with Par Pharma to markets the generic in

US

Par and Glenmark will share the profits

Expect cash inflow of US$ 100 mn from this product,

which should be used for repayment of debt


US sales at an inflection point

Source: Company, Spark Capital Research; Sales exclude gZetia

API Brand Innovator Therapy Brand size

US$ Mn

Expected

launch

Fenofibrate (Choline) Trilipix AbbVie Cardiovascular 215 Up on

approval

Linezolid Zyvox Pfizer Anti-infective 450 H1FY16

Colesevelam HCl Welchol Daiichi High cholesterol and type 2

diabetes 300 Q1FY16

Rosuvastatin Crestor Pfizer CVS 3,100 Q1FY17

Norgest + Ethiny Estradiol Ortho Tri Cyclen Lo Johnson &

Johnson Oral contraceptive 400 Q3FY16

Darifenacin Enablex Warner Chilcott Urology 180 Q2FY17

Ezetimibe Zetia Merck CVS 1,860 Q3FY17

Bosentan Tracleer Actelion Pharma Respiratory 35 Q3FY17

Lacosamide Tablets Vimpat UCB Inc Partial-onset seizures 353 FY17/FY22

Pemetrexed Alimta Elilly Oncology 1230 Jan-17/

FY'21

Prasugrel Effient Eli Lilly CVS 377 Q1FY18

Atomoxetine HCL Strattera Eli Lilly Attention-deficit hyperactivity

disorder 384

FY17/Q1FY1

8

Dronedarone HCL Multaq Sanofi Atrial fibrillation 320 2018

Mycophenolic Acid Myfortic Novartis Organ rejection 149 Q4FY18

Azelaic Acid Gel Finacea Bayer Rosacea 111 Q3FY19

Solifenacin Vesicare Astellas Urology 350 Q4FY19

Aprepitant Emend Merck Oncology 200 2019

Deferasirox Exjade Novartis Oncology 310 2019

Nebivolol Bystolic Forest CVS 400 Q3FY22

Bortezomib Velcade Millennium Pharma Oncology 693 Q4FY22

Rufinamide Banzel Eisai Epilepsy 78 Q4FY23

Milnacipran HCl Savella Cypress

Biosciences Leukemia 106 Q1FY24

Desmopressin Acetate DDAVP Ferring Anti-diuretic 100 FY24

Bendamustine HCL Treanda Teva Leukemia 530 Unknown

Saxagliptin Onglyza AstraZeneca CVS 516 Unknown

Carvedilol Coreg GSK CVS NA Unknown

Page 68


Rs. 880

Target

Rs. 1,120

Rating

BUY Steady growth in India + Recovery in ROW

New launches in Brazil, Venezuela & Mexico to support growth


India: Consistently growing above industry



Company Gr. (%) 21.7% 23.9% 26.4% 18.0% 17.7% 16.0%

Industry Gr. (%) 17.7% 15.3% 15.0% 10.1% 10.1% 13.0%

Market share 1.46% 1.56% 1.69% 1.82% 1.95% 2.04%

Cardiology 2.00% 2.35% 2.86% 3.28% 3.62% 3.80%

Dermatology 8.00% 8.34% 8.69% 8.69% 8.05% 8.04%

Respiratory 2.22% 2.67% 2.84% 3.33% 3.48% 3.80%

Gynecology 1.08% 1.25% 1.43% 1.38% 1.52% 1.42%

gSeretide + stabilizing Ruble + other launches to drive growth

Source: Company Spark Capital Research

Currency remains a risk – Although stability emerging in recent quarter


0.4

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15

INRRUB

Forex loss

3QFY15: Rs 1,060 mn

4QFY15: Rs 510 mn

Venezuela and

Mexico

boosted sales

in FY15

3,468 4,046

7,687 9,164

11,452

14,312

15 17

90

19 25 25

0

20

40

60

80

100

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000


(%)

Rs. M

n

Latin America Gr. (%)

9,856

8,123

9,641

11,762

14,350

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000


Rs. M

n

RoW

Page 69


Rs. 880

Target

Rs. 1,120

Rating

BUY Novel pipeline could surprise

Type Molecule Indication Out/In license Current status Remarks

NCE Crofelemer HIV Related Diarrhea In-licensed from

Napo Pharma

Waiting for

approval in RoW

markets

The company has already filed the drug in 13 countries and received

approval in Ecuador, Zimbabwe and Botswana.

It has exclusive marketing and distribution rights for 140 countries.

We expect approvals are one year away.

The Aurangabad API manufacturing site received US FDA approval

in August 2014.

NCE GRC 17536

Neuropathic pain None Phase IIa Positive data in Phase IIa studies conducted in EU & India.

It has started out-licensing discussions but is also open to conduct

Phase IIb on its own.

The side effect profile of molecule for Neuropathic pain is better than

competing molecules like Pregablin, Cymbalta.

Expects to file IND in 2QFY16. Respiratory disorders None Phase IIa

NCE GRC 27864 Chronic inflammatory conditions

including pain

Collaboration with

Forest Laboratories Phase I

Filed for Phase I human trials with UKMHRA

Single ascending dose study has been completed and multiple

ascending dose study is currently on-going

Received $15 mn as upfront and milestone payment from Forest

NBE GBR 500

Vatelizumab Multiple Sclerosis

Out-license to

Sanofi Phase II

Sanofi is conducting Phase II and data is expected in CY16.

So far it has received $55 mn as milestone and upfront payment

NBE GBR 900 Chronic Pain In-licensed from

Lay Genom Phase I

Phase I enabling toxicity studies have been completed and clinical

trial has been initiated in the UK.

NBE GBR 830 Autoimmune Disorders None Phase I Phase I clinical trial has been initiated in Netherlands, EU.

NBE GBR 1302 Breast & Ovarian cancer None Pre-Clinicals

IND enabling studies initiated for the molecule.

The company expects to obtain approval for the initiation of clinical

studies during 1QFY16

Page 70


Rs. 880

Target

Rs. 1,120

Rating

BUY CMP indicates 40% discount to sector leader on core EPS

Writing off intangibles on balance sheet against NCE out-licensing income / FTF cash inflows would mean 40% upside (even without any PE multiple re-rating)


Intangibles on Balance Sheet can be written off against NCE out-licensing income / FTF cash inflows Scenario Today FY16E Assuming intangibles

are written off by FY17E

Reported numbers lowered on account of NCE R&D spend $ mn $ mn

Annual NCE R&D spend run-rate 47 47

Tax benefit on NCE R&D @ effective tax rate (Not 200% deduction as IP based out of Swiss subsidiary) 11 11

Unadjusted PAT (including NCE R&D expense) 181 249

PAT should be higher by 36 36

Inflation of reported numbers by Capitalization of Intangibles

Net Intangibles on balance sheet (FY15) 200 0

Ideal amortization run-rate for intangibles to be written off completely in 5 years 40 0

Actual amortization in FY15 23 0

PAT should be lower by (adjusted for tax deduction on higher amortization) 13 0

Combined net impact of NCE spend and Intangibles amortization, PAT should be higher by 23 36

Adjusted PAT 204 285

Adjusted EPS (Rs) 44.9 62.8

CMP (Rs) ~850

Implied PE 19 19

Sector leaders 1 year forward Bloomberg P/E average (Sun, Lupin, DRL) 25 25

Implied Discount 32% 32%

Implied Stock Price assuming discount remains same to sector leaders 1,188

CMP discount to fair value on Core EPS (excluding NCE spend and excluding Intangibles) 40%

Page 71


Rs. 880

Target

Rs. 1,120

Rating

BUY Financial summary

EBITDA margins to expand going ahead




1 yr-forward PE graph


Return rations remains strong


Sharp improvement in Net debt/EBITDA


60,069 66,448

80,609

98,992

120,206

20%

11%

21% 23%

21%

0%

5%

10%

15%

20%

25%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000


Rs. M

n

Revenues Growth (%)

13,101 14,466

18,943

24,253

29,450

22% 22%

24%

25% 25%

20%

21%

22%

23%

24%

25%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000


Rs. M

n

EBITDA EBITDA Margin (%)

1.9 2.1

1.0

0.5

0.1

0.1

0.6

1.1

1.6

2.1

2.6


X t

imes

Net Debt/ EBITDA

25%

27% 27%

25% 24%

14% 14% 16%

18% 20%

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%


RoNW (%) RoIC (%)

0

200

400

600

800

1,000

1,200

Jan-0

9

Jun-0

9

Nov-0

9

Apr-

10

Sep

-10

Fe

b-1

1

Jul-11

Dec-1

1

May-1

2

Oct-

12

Mar-

13

Aug

-13

Jan-1

4

Jun-1

4

Nov-1

4

Apr-

15

12M fwd P/E

CM

P (

Rs.)

25x

10x 13x

16x 19x

22x

Page 72


Rs. 880

Target

Rs. 1,120

Rating





Revenue 60,069 66,448 80,609 98,992 Revenue 19.8% 10.6% 21.3% 22.8%

EBITDA 13,101 14,466 18,943 24,253 EBITDA 29.5% 10.4% 30.9% 28.0%




Interest expense 1,886 1,902 1,551 1,151 Adjusted PAT 11.8% 12.1% 13.9% 15.6%

Exceptional items / Forex gain / (loss) 1,676 3,271 0 -3,100 Performance ratios

PBT 9,144 10,034 14,656 20,213 RoE 24.7% 26.8% 26.8% 24.8%






Other liabilities and provisions 2,592 3,606 3,604 2,771 Net Debt to Equity (x) 0.8 1.0 0.3 0.2


Total Networth and liabilities 86,336 96,465 1,12,370 1,20,777 Inventory and debtor days 188 208 186 187





Other Long term assets 7,420 5,400 5,400 5,400 Market cap (Rs.mn) 2,47,896


Total assets 86,336 96,465 1,12,370 1,20,778 P/E (x) 34.9 30.9 22.1 16.0


Cash flows from Operations 7,315 794 4,464 13,694 EV/ EBITDA (x) 20.8 19.2 14.1 10.7


Cash flows from Financing 1,420 1,628 5,543 -9,318 Price to BV (x) 8.0 7.9 4.4 3.4

Page 73

Granules India (GIL) CMP

Rs. 78

Target

Rs. 97

Rating

ADD

Stock performance

1m 3m 12m

GRAN -10% -8% 88%

Sensex -2% -9% 3%

BSEHC -6% -10% 43%

Financial Summary


FY14 10,959 1,584 753 3.7 20.9 12.2 23.9% 13.1%

FY15 12,929 2,086 909 4.5 17.3 9.3 12.9% 13.3%

FY16E 15,562 2,776 1,239 6.1 12.7 7.1 23.9% 16.2%

FY17E 18,333 3,414 1,631 8.1 9.6 5.4 23.1% 18.3%

Date 15 June 2015

Market Data

SENSEX 26425

Nifty 7983

Bloomberg GRAN IN

Shares o/s 205mn

Market Cap Rs. 16bn



Index member BSE200


Promoters 48.6

Institutions 4.1

Public 47.3

Initiating Coverage Till day, Granules India has been recognized globally as a low-end paracetamol API player. But, in our view, the

company has metamorphosed from merely being an API manufacturer into a high-end intermediates and formulations

supplier. The company’s key products include paracetamol, ibuprofen, and metformin. Its strong presence across the

value-chain makes Granules a preferred integrated player for global customers. Recently, it has acquired Auctus

Pharma, which has a USFDA-approved manufacturing facility and several products. This acquisition would help the

company to diversify its product basket. Its recent entry into the CRAMS business through the Ajinomoto OmniChem

JV bodes well for its long-term profitability, besides helping to upgrade the business quality a notch above peer pure

play API manufacturers. Granules ROEs have improved from 10% in FY11 to 13% in FY15, while ROICs have improved

from 11% to 13% during the same period. We believe the increased capacity utilization of the recently added capacity

and improvement in EBITDA margins in the coming years would help improve ROEs and ROICs to 23% and 18%,

respectively, by FY17E. We like the long term story although believe near term valuations do not allow significant room

for upside. We initiate with an ADD rating with a TP of Rs 97.

Strong positioning as an API player: Granules has invariably enjoyed a stronghold in the API market for the drugs it

supplies. The key APIs in the company’s kitty, wherein it has a good market share, include paracetamol, guaifenesin,

ibuprofen and metformin. We believe Granules’ positioning in these products has been advantageous vis-à-vis competition,

both in terms of quality and pricing. Granules management indicates that the company only produces those products for which

it feels it has a sustainable competitive advantage, whether it be a competitive cost position or the ability to offer multiple

products across the value-chain, including APIs, PFIs and FDs to its customers.

PFIs and finished dose contribution to increase: Realizing the need to move into higher value and higher profitability

business segments, Granules, over the years, has deliberately stepped up its contribution of finished dose products to total

sales. Also, PFI sales contributions have increased from 22% to around 24% in FY15. Incidentally, Granules is among the few

Indian players to have scaled up pharmaceutical formulation intermediates (PFI) to a meaningful level. PFIs is a novel concept

for large-volume blockbuster drug molecules within the pharmaceutical production, and offers significant savings for the

dosage form manufacturers, besides presenting fewer handling issues, fewer regulatory hurdles and better overall efficiency.

As an alternative to active pharmaceutical ingredients, the PFI concept is expected to transform the conventional

pharmaceutical manufacturing model, since an increasing number of companies are switching over to compounding of PFIs.

Creating long term value through JVs / acquisitions: In recent times, Granules has scaled up its top-line. It now intends to

improve profitability through some of the JVs and acquisitions it has made. The company also seeks to mitigate concentration

risks on select products.

Moving towards the right mix



Page 74


Rs. 78

Target

Rs. 97

Rating

ADD Business Overview




Source: Company, Spark Capital Research; PFIs; Pharmaceutical

formulations intermediate



FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY15-17E GAGR

APIs 1,523 1,817 2,534 3,236 4,884 2,607 2,296 -31%

PFIs 1,563 2,006 2,223 3,263 3,034 3,618 4,878 27%

Formulations 1,036 1,883 2,035 3,518 4,215 6,811 8,322 41%

Auctus Pharma 0 0 0 72.7 1,153.0 1,384 1,660 20%

Granules Biocause 630 803 799 986 1,111 1,143 1,177 3%

APIs 44%

PFIs 24%

Formulation Dosage

32%

Product

Category

Facility

Location Product

Capacity

(MTPA) Approvals

API Bonthapally Paracetamol 14,400 USFDA, EDQM, WHO GMP

API

Jeedimetla

Metformin 2,000

USFDA, KFDA, TGA, EDQM Guaifenesin 1,200

Methocarbamol 360

API (Biocause

JV) Jingmen, China Ibuprofen 4,800

USFDA, MHRA, EDQM, TGA, KFDA, Health

Canada

PFI Gagillapur Multiple PFIs 17,200 USFDA, EDQM, TGA, GHCA

PFI Jeedimetla Multiple PFIs 1,200 HHA (Germany)

FD Gagillapur Tablets &

Capsules

18 bn

Units USFDA, EDQM, TGA, GHCA

API (CRAMS) Vizag Multiple Products NA Construction completed (USFDA & EDQM

Compliant)

API (Auctus) Vizag Multiple Products NA USFDA, EDQM, WHO GMP, KFDA, Health Canada

Intermediates Bonthapally Multiple Products NA NA

Page 75


Rs. 78

Target

Rs. 97

Rating

ADD Forward integration to improve margins

Strong presence in regulated markets


Product mix improving towards FDs


Strong foothold in key molecules


Market (TPA) Demand Supply Supply Gap

Regulated markets 46,500 44,200 2,300

RoW markets 53,500 97,000 -43,500

Paracetamol Suppliers (TPA) Supply Market share

Mallinckrodt 25,000 56%

Granules 14,400 30%

Novocel 6,000 14%

Ibuprofen Suppliers (TPA)

Shasun 6,000 20%

IOL Chemicals 6,000 20%

Albemarle 5,200 17%

BASF 5,000 17%

Granules Biocause 4,800 16%

Metformin Suppliers (TPA)

Granules 2,000 5%

USV 10,100 28%

Wanbary 9,000 25%

Harman 6,000 17%

Methocarbamol Suppliers (TPA)

Granules 360 31%

Synthochem 250 22%

Guaifenesin Suppliers (TPA)

Granules 1,200 26%

Synthochem 800 17%

Market demand growth globally

Paracetamol 4%

Ibuprofen 2%

Metformin 9%

Pioneer in commercializing PFIs Pharmaceutical Formulation intermediates (PFIs) is the

intermediate product between API and finished

dosage.GIL is pioneer in commercializing PFIs

GIL’s concept is based on ‘ready-to-compress’ mix of

APIs and excipients that could help compress &

manufacture finished dosage into a one-step process.

This process is known as granulation

Expenditure to build granulation facility account 80% of

formulation facility capex and the process contributes

80% of total process cost

Outsourcing PFIs significantly save capex, time and

resource utilization for companies

GIL has a 6-ton batch size, which is highest amongst

others. This helps company tp manufacture tablets

more efficiently

As majority of formulation manufacturing process is

handled by company, it is difficult for customer switch to

other suppliers

Capacity ramp up progressing well


12,9

30

5,4

70

2,0

01

14,1

12

7,5

90

3,4

49

17,7

34

7,7

08

3,7

40

19,9

06

10,1

62

5,7

13

21,3

82

10,2

26

6,2

15

-

5,000

10,000

15,000

20,000

25,000

APIs (MT) PFIs (MT) FDs (Mn)

Cap

acit

y


10% 10% 7% 14% 10%

24% 23% 31% 30% 32%

29% 42% 34% 29% 31%

19%

14% 12% 15% 11%

18% 11% 15% 13% 16%

0%

20%

40%

60%

80%

100%

FY 11 FY 12 FY 13 FY 14 FY15

% t

o s

ale

s

AMEA N. America Europe LATAM India

46% 40% 44% 39% 44%

33% 31%

29% 29% 24%

21% 29% 27% 32% 32%

32%

34%

36%

38%

40%

42%

44%

0%

20%

40%

60%

80%

100%


% t

o s

ale

s

API PFIs FDs GPM (%)

Page 76


Rs. 78

Target

Rs. 97

Rating

ADD

JV sales to pick up from FY17E onwards


206 300

700

1,000

0

200

400

600

800

1,000

1,200


Rs. M

n

Omnichem JV

Auctus sales grow 20% CAGR over FY15-17E


73

1,153

1,384

1,660

1,992

0

500

1,000

1,500

2,000

2,500


Rs. M

n

Auctus sales

Strategic decisions of Auctus acquisition & Omnichem JV to pay off

Auctus acquisition improves….

Acquired Auctus Pharma for Rs 1.2 bn

Auctus has a product basket of 12 high value APIs

Addition of one USFDA approved API facility and an

intermediate facility

Auctus filed 22 DMFs including 8 in EU and 4 in the US

Majority of Auctus current sales comes from domestic

market

Realisations should significantly improve going ahead as

it is planning to expand reach to regulated markets. eg:

Demand of Valsartan in RoW and US is ~240 MT and

307 MT. However, the estimated market size is $4.1bn

and $2.3bn

Planning to file ANDAs for these molecules

Aiming to raise the FD contribution to 65% from current

32% over the next 5 years


…. product basket and….


…reduces product concentration


Omnichem JV enables CRAMS opportunity

Granules has set up a 50-50 JV with Omnichem in July

2011

The JV allow Granules to enter CRAMS business

without making significant investment in R&D

The JV has recently commissioned facility in Vizag SEZ

to manufacture high-value APIs for existing customers of

Omnichem

Facility will take 18 months to get regulatory approvals.

Till that time, JV will manufacture API intermediates

Omnichem will initially shift 6-7 products

The JV will also develop second generation

manufacturing processes to boost efficiency

Expect sales to pick up from FY17E onwards


Product Val - $bn Vol - MT

Valsartan 8.7 1,054

Clopidogrel 5.2 572

Pregabalin 4.8 342

Olmesartan 4.5 97

Pantoprazole 3.4 338

Losartan 3.2 662

Telmisartan 3.1 259

Cetrizine 1 58

Flu Conazole 1 87

Rifaximin 0.8 85

Levocetrizine 0.6 15

Doxylamine 0.6 40

Total 36.9 3,609

16% 11%

5% 5%

41%35%

36%

27%

3%20%

0%

20%

40%

60%

80%

100%

FY14 FY15

Guaifenesin Metformin Methocarbamol

Paracetamol Ibuprofen others

Page 77


Rs. 78

Target

Rs. 97

Rating

ADD Financials



Change in product mix should improve margins steadily


Return ratios to improve going ahead


Debt to EBITDA to improve further


1 Yr forward PE


2.3

1.8

1.4

0.8

0.3

1.0 0.9

0.7

0.4

0.1 0.0

0.5

1.0

1.5

2.0

2.5


(X)

Net Debt/EBITDA Net Debt/ Equity

24%

13%

24% 23% 25%

13% 13%

16% 18% 19%

0%

5%

10%

15%

20%

25%

30%


RoNW (%) RoIC (%)

10,959 12,929

15,562

18,333

21,203 43%

18% 20%

18% 16%

0%

10%

20%

30%

40%

50%

0

5,000

10,000

15,000

20,000

25,000


Rs. M

n

Revenues Growth (%)

1,584

2,086

2,776

3,414

4,160

14%

16%

18%

19%

20%

12%

15%

18%

21%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500


Rs. M

n


0

20

40

60

80

100

120

140

Sep-1

2

Nov-1

2

Jan-1

3

Mar-

13

May-1

3

Jul-13

Sep-1

3

Nov-1

3

Jan-1

4

Mar-

14

May-1

4

Jul-14

Sep-1

4

Nov-1

4

Jan-1

5

Mar-

15

May-1

5

12M fwd P/E

CM

P (

Rs.)

19x

4x

7x

10x

13x

16x

Page 78


Rs. 78

Target

Rs. 97

Rating

ADD Financial Summary




Revenue 10,959 12,929 15,562 18,333 Revenue 43.4% 18.0% 20.4% 17.8%

EBITDA 1,584 2,086 2,776 3,414 EBITDA 84.0% 31.7% 33.1% 23.0%






PBT 1,124 1,280 1,850 2,434 RoE 23.9% 12.9% 23.9% 23.1%

PAT (after minority interest) 753 909 1,239 1,631 RoIC 13.1% 13.3% 16.2% 18.3%

Adjusted PAT (after MI) 753 909 1,239 1,631 Core RoIC 13.2% 15.5% 25.2% 23.8%




Other liabilities and provisions 303 493 0 0 Net Debt to Equity (x) 1.0 0.9 0.7 0.4






Cash and bank balances 418 653 332 1,492 Fully Diluted Shares (mn) 201.6

Other long term assets 35 28 28 28 Market cap (Rs.mn) 15,722


Total assets 9,920 11,971 12,129 13,875 P/E (x) 20.9 17.3 12.7 9.6

Cash Flows EV (Rs.mn) 19,406 19,400 19,721 18,561


Cash flows from Investing -2,537 -1,235 -900 -900 BV/ share (Rs.) 17.7 21.4 26.8 34.1

Cash flows from Financing 1,608 263 -634 -165 Price to BV (x) 4.4 3.6 2.9 2.3

Page 79

Indoco Remedies (INDOCO) CMP

Rs.353

Target

Rs. 360

Rating

ADD

Stock performance

1m 3m 12m

INDR 8% 1% 121%

Sensex -2% -9% 3%

BSEHC -6% -10% 43%

Financial summary


FY14 7,326 1,204 666 7.2 48.8 27.5 15.3% 13.2%

FY15 8,570 1,655 828 9.0 39.3 20.1 17.0% 14.6%

FY16E 10,390 2,130 1,118 12.1 29.1 15.7 19.3% 16.8%

FY17E 13,134 2,824 1,654 18.0 19.7 11.6 22.8% 19.3%

Date 15 June 2015

Market Data

SENSEX 26425

Nifty 7983

Bloomberg INDR IN

Shares o/s 92mn

Market Cap Rs. 32bn



Index member BSE200


Promoters 59.3

Institutions 19.2

Public 21.6

Initiating Coverage Indoco Remedies is a very fast growing pharma company with healthy presence in India and increasing presence in

regulated markets. Indoco Remedies has placed itself amongst players with a unique US presence through a very

interesting and profitable deal with Watson for ophthalmic products. Indoco’s deal with Watson for supplies of

ophthalmic drugs has kicked off and its sales should gain further traction in FY16E and FY17E. Not only does this deal

put Indoco’s sales and profitability to a new orbit but also highlights the company’s ability in manufacturing complex

sterile ophthal drugs in its plants. The company came out strong from a long list of 483 issues for its Goa II plant when

it was cleared in August 2014. Although this did delay the launch of ophthal drugs by a few quarters, we do not see as

the opportunity to be lost. We are positive on Indoco’s US prospects and believe the best is yet to come from this deal.

We like Indoco’s domestic business with a very strong positioning in the stomatology and respiratory segments in

particular. Aspen deal for supplies into Non-US regulated markets and DSM API deal for supplies into emerging

markets are also strong growth drivers ahead. We do not like the company’s policy of capitalizing a part of its R&D

expenditure, but believe the company with improving profitability and cash flows going ahead should be able to take a

more aggressive write-off policy. We build in a Sales / EBITDA / EPS CAGR of 23% / 30% / 41% over FY15-17E and

initiate with an ADD with a TP of Rs. 360.

Watson deal to provide strong growth: Indoco has a contract for 23 drugs with Watson and has filed for 16 with 2 approvals

so far. The two drugs launched are gCostopt and gTrusopt. The company also has 3 Tentative approvals. Going ahead we

foresee a sharp ramp-up on this deal with the launch of gVigamox, gPatanol and gPataday over the next 12 months. We

believe the deal would fetch very high EBITDA margins to the company and should change profitability metrics significantly.

We are building in a sales CAGR of 136% from this deal over FY15-17E and sales of $39mn in FY17E with a launch

assumption of 6-8 drugs by then.

Domestic business steady: Indoco’s domestic business presence has been steady and the company has consistently done

well against industry growth over the past 3 years. Top brands of the company contribute more than 50% of its sales and key

segments like stomatology and respiratory enjoy better growth rates than overall industry. We forecast improving MR

productivity going ahead and new launches to help growth being maintained in the range of 18-20% for this business.

Aspen deal and DSM deal add another leg to the high growth: Indoco has deals in place with Aspen (for supplies to non-

US regulated markets) and DSM (API supplies for emerging markets) which are about to pick up their growth rates in FY16E

and FY17E. We believe these two add should another leg to the high growth trajectory for the company ahead. The company

did ~Rs200mn sales from Aspen deal in FY17E and we are building in a sales CAGR of 67% over FY15-17E for this deal.



Strong sales growth with super-normal PAT growth ahead

Page 80


Rs.353

Target

Rs. 360

Rating

ADD



Sales Break up FY15


Sales forecast


Business Overview

Unit Name Form Compliance with

Goa I Tablets, Creams

& Ointments

USFDA, EU-GMP, TGA Australia, MCC South

Africa, Anvisa-Brazil

Goa II Sterile products USFDA, EU-GMP, TGA Australia, MCC South

Africa, Anvisa-Brazil

Goa III Tablets USFDA, EU-GMP, TGA Australia

Waluj Tablets Emerging markets

Baddi Tablets, Liquid orals & Toothpastes

Patalanga APIs USFDA, TGA Australia

Kilolab APIs USFDA, TGA Australia

(Rs. Mn) FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY15-FY17E

CAGR

Domestic 3,220 3,575 4,070 4,614 5,301 6,302 7,533 19%

Formulations 3,073 3,382 3,904 4,386 5,048 5,998 7,169 19%

APIs 147 193 166 228 253 303 364 20%

Exports 1,565 2,017 2,187 2,544 3,168 3,996 5,509 32%

Regulated markets formulations 1,111 1,495 1,814 2,005 2,516 3,259 4,671 36%

Semi-Regulated markets formulations 305 360 195 307 387 458 545 19%

APIs 149 163 178 232 266 279 293 5%

Analytical & Testing income 2 7 7 15 25 28 28

India 59%

Regulated 30%

Semi-regulated 5%

APIs 6%

Others 0%

Page 81


Rs.353

Target

Rs. 360

Rating

ADD Domestic formulations business: Steady

Top 10 brands continue to drive growth

Source: Spark Capital Research; sales of FY15 & FY14 in Rs. Mn

Respiratory and stomatology segments drive growth


Rs. Mn FY12 FY13 FY14 FY15P FY16E FY17E FY18E

Respiratory 678 731 804 883 971 1,067 1,173

Stomatologicals 596 699 802 920 1,056 1,212 1,390

Anti-Infectives 559 624 676 757 847 949 1,063

Gastro Intestinal 454 550 610 677 751 833 924

Pain 219 303 350 420 505 605 727

Ophthalmic 185 225 248 272 299 329 362

Gynaec. 189 219 234 250 268 287 307

Vitamins 168 209 0 0 0 0 0

Others 335 345 663 868 1,302 1,888 2,586

To outpace industry growth


Consistently launching new products in India market


Brand Therapy % sales FY'15 FY'14 Var.(%)

Febrex Plus Respiratory 10.9% 727 666 9.2

Cyclopam Gastro Intestinal 6.2% 412 365 12.7

Sensodent-K Stomatologicals 5.9% 391 320 22.0

Oxipod Anti-Infectives 4.5% 300 240 25.3

Cital Urology 4.4% 293 243 20.6

Atm Anti-Infectives 4.1% 276 246 12.0

Sensoform Stomatologicals 3.3% 218 171 27.2

Cloben G Derma 3.0% 199 190 4.7

Sensodent-KF Stomatologicals 3.0% 202 167 21.0

Cyclopam Gastro Intestinal 2.7% 181 153 18.3

4,386 5,048

5,998

7,169

8,531

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000


Rs. M

n

Domestic formulations

19

14

37

24

19

0

5

10

15

20

25

30

35

40


No

. o

f p

rod

uc

ts

New launches in India

Page 82


Rs.353

Target

Rs. 360

Rating

ADD

Product pipeline to the US market under Actavis deal

Source: USFDA, Bloomberg, Spark Capital Research

API Brand Innovator Used for Size Patent Competitions Indoco Presence

Dorzolamide + Timolol Cosopt Merck Glaucoma 14 Expired 6 Launched

Dorzolamide Trusopt Merck Glaucoma 444 Expired 7 Launched

Azelastine Hydrochloride Optivar Meda Allergy 50 Expired 4 Likely

Travoprost Travatan Z Alcon Pharma Glaucoma 462.3 Expired 1 Likely

Dorzolamide Trusopt Merck Glaucoma 444 Expired 7 Likely

Brinzolamide Azopt Alcon Pharma Glaucoma 110.1 Expired 1 Likely

Olopatadine Hydrochloride Pataday Alcon Pharma Allergy 259 2015 3 Para IV

Olopatadine Hydrochloride Patanol Novartis Allergy 223.8 2015 3 Likely

Moxifloxacin Hydrochloride Vigamox Novartis Infection 287.8 2019 4 Likely

Ciprofloxacin; Dexamethasone Ciprodex Novartis Infection 327.7 2020 NA Likely

Brimonidine Alphagan P Allergan Glaucoma 184.9 2021 2 Likely

Brimonidine/Timolol Combigan Allergan Glaucoma 142.5 2022 3 Likely

Olopatadine Hydrochloride Patanase Novartis Allergy 100.2 2023 2 Likely

Bimatoprost Lumigan Allergan Glaucoma 417 2027 6 Likely

Bimatoprost/Timolol Maleate Ganfort Allergan Glaucoma 185 NA NA Likely

Ophthal launches in US to boost Reg. market sales


Actavis (Watson) deal to be key growth driver in both Sales and EBITDA

Revenue from Actavis deal to pick from FY16 onwards

We expect majority revenues from regulated markets would come from Actavis (Watson) deal. The company has a

partnership with Actavis for 23 ophthalmic products in the US market. The addressable market size of these drugs is

~US$ 3 bn. So far, it has filed 16ANDAs and received approval for 2 products gTrusopt and gCosopt, which were

launched in the US market in Q3FY15. We expect company to launch 3-4 products each year over FY15-FY17E.

Acquisition of Allergan by its partner Actavis should not have any immediate impact on the deal. There were four

products overlap which are to be commercialized only after 2020. Apart from this deal, it also filed seven more ANDAs

(oral products) on their own name and received approval for one product. We believe, US should be the key growth

driver going ahead. We expect sales from this deal to grow at a CAGR of >100% over FY15-17E

Deal structure: Indoco will develop and manufacture these products, while Watson (Actavis) will file for regulatory

approvals in US. Watson will also have the sole right for marketing them in the US. Another interesting component of

the deal is that as per the agreement Watson has committed to achieving a minimum 15% market share per product,

failing which Indoco has the right revoke the marketing right from Watson and also get ANDAs transferred to its name.

We believe this gives Indoco an upper hand when it comes to ownership rights of the products. Indoco and Watson

would share 50% of profits post-covering the manufacturing and marketing costs, respectively. The exact mark-up on

manufacturing costs for Indoco as well as the mark-down on marketing costs for Watson would vary from product to

product.

2,005 2,516

3,259

4,671

6,762

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000


Rs. M

n

Regulated markets projections

Page 83


Rs.353

Target

Rs. 360

Rating

ADD Emerging markets

Sales from Semi regulated market to grow at a CAGR of 19% in FY15-17E


Sales from Aspen & DSM deals to pick up slowly due to delay in approvals

Aspen deal:

Indoco also has a contract manufacturing deal with Aspen Pharma for about 30

countries (mainly Latin America). This deal is for ~50-55 products, where Indoco

will charge both development and manufacturing fees. So far, it has filed ~30

products across geographies and received approval for only 4 products.

Currently, company is facing delay in product approvals from South Africa,

Mexico and Venezuela. It generated sales of Rs. 200mn from this deal in FY15.

DSM deal

The contract manufacturing deal was signed by the company with DSM, Austria

in Jan’12 for APIs supply in Emerging Markets. Till date, the company has not

generated any revenue from this deal but intends to do so in future.


Pick up in domestic APIs sales to drive overall API sales


Unlike peers, majority R&D spend taken to BS rather than P&L


460 518

582 656

744

0

100

200

300

400

500

600

700

800

900

1,000

FY13 FY14 FY15 FY16E FY17E

Rs. M

n

APIs

195

307

387

458

545

649

0

100

200

300

400

500

600

700


Rs. M

n

Semi-Regulated markets

2.5% 1.9% 1.9% 2.0% 2.0%

2.5% 3.0%

3.5% 3.5%

0.6% 0.4%

1.6% 2.0%

3.1% 3.2% 3.0% 3.0% 2.5%

3.1%

2.4%

3.5% 4.0%

5.1% 5.7%

6.0% 6.5%

6.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

% t

o s

ale

s

Charged to P & L Taken to BS Total

Page 84


Rs.353

Target

Rs. 360

Rating


Change in product mix to enhance margins




1-Yr forward PE Graph


Return rations to improve going ahead


7,326 8,570 10,390

13,134

16,779

16% 17%

21%

26% 28%

0%

5%

10%

15%

20%

25%

30%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000


Rs. M

n

Revenues Growth (%)

1,204 1,655

2,130 2,824

3,607

16%

19% 21%

22% 22%

10%

12%

14%

16%

18%

20%

22%

24%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


Rs. M

n


15% 17%

19%

23% 25%

13% 15%

17%

19%

22%

5%

10%

15%

20%

25%

30%


RoNW (%) RoIC (%)

0

50

100

150

200

250

300

350

400

450

Jan-0

9

Apr-

09

Jul-

09

Oct-

09

Jan-1

0

Apr-

10

Jul-

10

Oct-

10

Jan-1

1

Apr-

11

Jul-

11

Oct-

11

Jan-1

2

Apr-

12

Jul-

12

Oct-

12

Jan-1

3

Apr-

13

Jul-

13

Oct-

13

Jan-1

4

Apr-

14

Jul-

14

Oct-

14

Jan-1

5

Apr-

15

12M fwd P/E

CM

P (

Rs.)

30x

5x

10x

15x

20x

25x

Page 85


Rs.353

Target

Rs. 360

Rating





Revenue 7,326 8,570 10,390 13,134 Revenue 16.1% 17.0% 21.2% 26.4%

EBITDA 1,204 1,655 2,130 2,824 EBITDA 29.1% 37.5% 28.7% 32.6%


EBIT 895 1,184 1,572 2,206 Margin ratios



Exceptional items / Forex gain / (loss) 86 0 -312 -394 Performance ratios

PBT 809 1,096 1,398 2,068 RoE 15.3% 17.0% 19.3% 22.8%

PAT (after minority interest) 580 828 1,430 2,048 RoIC 13.2% 14.6% 16.8% 19.3%

Adjusted PAT (after MI) 666 828 1,118 1,654 Core RoIC 12.9% 14.4% 16.8% 16.5%



Total debt 718 882 1,357 1,163 Financial stability ratios







Cash and bank balances 134 154 413 808 Fully Diluted Shares (mn) 92.2

Other Long term assets 1 3 3 3 Market cap (Rs.mn) 32,529


Total assets 7,294 8,456 10,702 12,644 P/E (x) 48.8 39.3 29.1 19.7


Cash flows from Operations 708 913 1,025 1,718 EV/ EBITDA (x) 27.5 20.1 15.7 11.6

Cash flows from Investing -414 -801 -1,250 -700 BV/ share (Rs.) 49.6 56.3 69.5 88.2

Cash flows from Financing -301 -91 484 -624 Price to BV (x) 7.1 6.3 5.1 4.0

Page 86

IPCA Laboratories (IPCA) CMP

Rs. 644

Target

Rs. 526

Rating

SELL

Stock performance

1m 3m 12m

IPCA -1% -13% -22%

Sensex -2% -9% 3%

BSEHC -6% -10% 43%

Financial summary


FY14 32,818 8,106 5,508 43.6 14.8 10.5 31.4% 23.9%

FY15 31,418 5,291 2,509 19.9 32.4 16.7 12.0% 9.4%

FY16E 35,952 6,135 3,061 24.3 26.5 14.2 13.3% 10.0%

FY17E 41,680 8,365 4,741 37.6 17.1 10.2 18.4% 13.9%

Date 15 June 2015

Market Data

SENSEX 26425

Nifty 7983

Bloomberg IPCA IN

Shares o/s 126mn

Market Cap Rs. 82bn



Index member BSE200


Promoters 45.9

Institutions 33.0

Public 21.1

Initiating Coverage Ipca labs ran into trouble in Jun-2014 when the USFDA inspected its Ratlam facility and saw severe deviation from

cGMP guidelines. Since then three facilities of Ipca have been banned by USFDA for imports in the US markets.

Troubles further aggravated when taking cues from the USFDA, the WHO also intensified its regulatory scrutiny on the

plants and Ipca’s sales were severely impacted for the anti-malarial tender business (4Q15 sales of Rs 290mn versus a

run-rate of Rs 1,150-1,125mn couple of quarters back). Although one can only make guesses on the timelines of

resolution, we believe with three facilities under import alert, limited critical dependence on the plants from US

perspective (except HCQ APIs which have already been exempted) and from past track records of issue resolution

timelines (Ranbaxy / Wockhardt), clearance of facilities over the next 24 months is unlikely. Although the HCQs

supplies in the near term (2QFY16) may provide a fillip to the reported numbers, we believe growth on the same next

year would be a challenge as price erosion in prices because of re-entry of Ipca in HCQS remains a possibility.

Although one cannot argue that outlook on FY17E remains better than FY16E (because of low base primarily), we want

to highlight that Ipca’s US growth story has gone for a toss and Institutional generics business has growth constraints

on account of WHO programme funding limitations. Basically Ipca has become a domestic market play with high costs

associated for supplies resumption in exports over the next 2 years. We see the stock underperforming peers until

resolution of plants materialize. We initiate with a SELL rating and advocate a stay away approach on the stock.

HCQ supports not enough, US ANDA story gone for a toss: Although an increase in prices of HCQ post Ipca exit from the

market by peers, would help Ipca get short term fillip on numbers in FY16, we believe the whole Ipca ANDA filings and US

market presence story has gone for a toss with the import alerts. Ipca has 25 ANDAs pending for approval and we do not

foresee approvals coming through over the next 24 months. Also, Ipca’s filings stand to lose relevance with delay in launches,

plus the company may find it challenging to get back to pre-alert sales run-rate having lost market shares to others. We are

building in normalcy in sales resumption only in FY18E.

Institutional generics business also take a temporary knock: Ipca’s strong presence in anti-malarial market of Africa also

took a knock on account of heightened regulatory scrutiny by the WHO at the plants. We believe the same though temporary

has impacted margins, lowered sales and effectively led to increase in leverage on the company’s balance sheet. We are

building in Rs 4000mn and Rs 5000mn from this business in FY16E and FY17E. Growth on an high base remains a challenge

in this business for Ipca because of funding constraints for the anti-malaria programme.

India business remains the only saving grace: In light of the issues, effectively Ipca is reduced to a domestic market player

with significant costs associated with export markets. We continue to like Ipca’s domestic business and project a 16% sales

CAGR in this business over FY15-17E.



Uncertainty continues: Underperformance on the anvil; Stay Away

Page 87


Rs. 644

Target

Rs. 526

Rating

SELL







Business Overview

Locations Dosage Form Approvals/ Inspections

Athal -

Silvassa Tablets & Capsules

UK-MHRA, TGA-Australia, MCC-South Africa, HPB-Canada,

WHO-Geneva

Ratlam Tablets, Inj. & Ointments MCC-South Africa

Kandla Betalactum-Tablets UK MHRA, MCC-South Africa

Silvassa Tablets & Capsules UK MHRA, USFDA, TGA-Australia, HPB-Canada

Dehradun Tablets &

Ceph.Injectables WHO-GMP

Indore (SEZ) Tablets & Capsules UKMHRA, USFDA

Sikkim Tablets & Capsules GMP

Pithampur High Potency oral solids WHO-GMP, Invima Colombia

Locations Approvals/ Inspections

Ratlam USFDA, TGA-Australia, EDQM, PMDA-Japan, WHO-GMP

Indore WHO-GMP

Ankleshwar PMDA-Japan

Aurangabad WHO-GMP

Mahad GMP

FY11 FY12 FY13 FY14 FY15 FY16E FY17E CAGR

FY15-17E

Domestic formulations 6,964 7,534 8,781 9,694 11,287 13,093 15,188 16%

Export formulations 6,917 9,962 11,939 14,724 12,392 15,911 19,070 24%

Domestic APIs 1,443 1,439 1,433 1,645 1,783 1,872 1,966 5%

Exports APIs 3,335 4,058 5,232 6,002 5,137 4,679 5,060 -1%

Domestic formulations

37%

Export formulations

40%

Domestic APIs 6%

Exports APIs 17%

FO

RM

UL

AT

ION

S

AP

Is

Page 88


Rs. 644

Target

Rs. 526

Rating

SELL Lack of capacity despite healthy pipeline for US market

cGMPs issues remains a major concerns


Place Type of

facility Timeline What happened Current Status Our View

Ratlam API

18-Jul-14

USFDA inspected facility from July 14-18th

Issued 483 letter with six observations

Two of them were related to data integrity

So far Ipca has send five updates to USFDA

Requested USFDA for a meeting to give presentation on the

remedial measures and current status update

Facility was inspected by EMEA, TGA-Australia, WHO & Berlin

Agency in Q4FY15 and received approval from EMEA, TGA *

Berlin

Waiting WHO approval, which is expected in next one month

Consultant is preparing a comprehensive compliance plan and

will be submitting to company by end of June

Disappointed with management’s lack of focus on

compliance

Ipca will take minimum 2-3 quarters for implementing

remedial measures suggested by consultant

Post that, it will request FDA for an inspection

Looking at the past track record FDA, we don’t

expect clearance for the facility in next 2 years

Don’t see any compelling reason for FDA to prioritize

reviews for Ipca

24-Jul-14 Voluntarily stopped shipments to the US

19-Sep-14 Health Canada issued Import alert

21-Jan-15

FDA issued Import alert

But excluded five molecules: Hydroxychloroquine Sulfate

(HCQS), Sulfamethoxazole/ Trimethoprim, Ondansetron

and Propranolol HCl

Piparia Formulations

19-Dec-14 Received 483 with five observations from USFDA Ipca has re-started manufacturing HCQS and Propranolol HCl

General corrective measures started

Facility specific remedial measures will start only after

communication from FDA

Started supplying HCQS in the US from Q4FY15

We expect US to get a bump up from HCQS &

Propranolol HCL in 2Q16


expect clearance for the facility in next 2 years

24-Mar-14 USFDA issued import alert

Import alert excludes HCQS & Propranolol HCl

Indore

SEZ Formulations

6-Nov-14 Received 483 with six observations from USFDA Started corrective measures at the facility

So far company has send 3 updates to USFDA on remedial

measures


expect clearance for the facility in next 2 years 24-Mar-14 USFDA issued import alert

Pipeline though healthy becomes irrelevant


API Brand # players Filings

Chloroquine Phosphate Aralen 4 Approved

Hydrochlorothiazide Microzide 12 Approved

HCTZ Losartan Potassium Hyzaar 13 Approved

Losartan Potassium Cozaar 17 Approved

Ondansetron Hydrochloride Zofran 11 Approved

Tramadol Hydrochloride Ultram 15 Approved

Warfarin Sodium Coumadin 10 Approved

Etodolac Lodine/ Lodine XL 4 Likely

Mesalamine Asacol/ Asasol HD Likely

Fluconazole Diflucan >12 Likely

Valsartan Diovan/ Diovan HCT >11 Likely

Ramp up in R&D on developing 505 b(2) drugs - Project hangs in uncertainty


Developing lower strength of Clopidogreal

Ipca is developing 3 molecules to file in 505 b

(2) route

Clopidogrel is close to filing while remaining

molecules are at nascent stage

Clopidogrel is currently available in 75mg and

300 mg.

Ipca is working on reducing dosage strength by

90%, thereby reducing side effects

The development of the drug is on hold as

company prioritising to resolve the issues of

manufacturing facilities

Ipca is scouting for a partner, we feel it might be

a tall ask under current scheme of things

780

1007

1232

1621

3.3

3.6 3.8

5.2

3.0

3.5

4.0

4.5

5.0

5.5

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

FY12 FY13 FY14 FY15

Rs. M

n

R&D cost R&D cost % sales

Page 89


Rs. 644

Target

Rs. 526

Rating

SELL

Artesunate injection launch to support growth in institutional business - Funding side a challenge


2,996

3,911 4,370

2,599

4,000

5,000

0

1,000

2,000

3,000

4,000

5,000

6,000

FY

12

FY

13

FY

14

FY

15

FY

16E

FY

17E

Rs. M

n

India business – the only saving grace

Diversified product basket in India


Relatively lower number of launches among peers


Focus on key brands


Rs. Mn FY15 FY14 Growth

(%)

% of India

Sales

Zerodol SP 652 476 37% 5.4%

Zerodol P 589 486 21% 4.9%

HCQS 574 431 33% 4.8%

Larinate 429 343 25% 3.6%

Rapither-AB 399 420 -5% 3.3%

Lariago 371 369 1% 3.1%

Glycinorm M 320 273 17% 2.7%

Folitrax 292 231 26% 2.4%

Lumerax 269 227 19% 2.2%

Azibact 267 220 22% 2.2%

Huge demand for malaria products globally

As per UN malaria report, annual funding for malaria

control and elimination in 2013 was US$ 2.7 bn, which

is significantly below the requirement of US$ 5.1 bn

African region accounted 72% of total spending and ~

25% of African spent was on treatment

The procurement of the drugs is being done through

tenders by institutions like The Global fund, UN

donation etc.

Artemisinin based combination (ACTs) is the most

preferred treatment in Africa (~US$ 250 mn)

In our view, market can be doubled if the funding

constraints are addressed appropriately


IPCA participates in anti-malarial tenders floated by

AMFM program, US donations and others

FY15 sales was impacted due to cGMP issues at Ratlam

API facility

WHO has recently inspected the facility and acceptance

letter is expected to come in next one month

Institutional business is expected to pick up from Q2FY16

Artesunate Injection

Artesunate injection can be an important growth driver for

the company

The injection has relatively less side effects compare to

present treatments

Ipca is setting up a manufacturing facility for injection

Expected to launch the injection in FY17E

NSAID 35%

CVS & Anti-

diabetics 24%

Anti-Malarials

14%

Anti-Bacterial

6%

Gastro-Intestinal

5%

Neuro Psychiatry

3%

Cough preparatio

ns 4%

Dermatology 4%

Others 5%

5

8

25

5 6

13

0

5

10

15

20

25

30


No

. o

f p

rod

uc

ts

India product launches

Page 90


Rs. 644

Target

Rs. 526

Rating

SELL Financials

EBITDA to grow at a CAGR 25% over FY15-17E on a low base


Revenues to grow at a CAGR of 15% over FY15-FY17E


1 Yr forward PE graph


Return ratios: On recovery path


32,818

31,418 35,952

41,680

51,614

17%

-4%

14% 16%

24%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

0

10,000

20,000

30,000

40,000

50,000

60,000


Rs. M

n

Revenues Growth (%)

8,106

5,291 6,135

8,365

10,886 25%

17% 17%

20%

21%

0%

5%

10%

15%

20%

25%

30%

0

2,000

4,000

6,000

8,000

10,000

12,000


Rs. M

n

EBITDA EBITDA margin

31%

12% 13%

18% 22%

24%

9% 10%

14% 17%

0%

5%

10%

15%

20%

25%

30%

35%


RoNW (%) RoIC (%)

0

200

400

600

800

1,000

1,200

Jan-0

9

Apr-

09

Jul-09

Oct-

09

Jan-1

0

Apr-

10

Jul-10

Oct-

10

Jan-1

1

Apr-

11

Jul-11

Oct-

11

Jan-1

2

Apr-

12

Jul-12

Oct-

12

Jan-1

3

Apr-

13

Jul-13

Oct-

13

Jan-1

4

Apr-

14

Jul-14

Oct-

14

Jan-1

5

Apr-

15

12M fwd P/E

CM

P (

Rs.)

20x

5x 8x 11x 14x 17x

Page 91


Rs. 644

Target

Rs. 526

Rating

SELL Financial Summary




Revenue 32,818 31,418 35,952 41,680 Revenue 16.7% -4.3% 14.4% 15.9%

EBITDA 8,106 5,291 6,135 8,365 EBITDA 30.1% -34.7% 16.0% 36.3%

Depreciation 1,031 1,796 2,315 2,335 Adjusted PAT 42.4% -54.4% 22.0% 54.9%




Exceptional items / Forex gain / (loss) 722 -33 0 0 Performance ratios

PBT 7,028 3,569 4,034 6,244 RoE 31.4% 12.0% 13.3% 18.4%






Other liabilities and provisions 1,633 1,964 1,964 1,964 Net Debt to Equity (x) 0.2 0.3 0.3 0.2






Cash and bank balances 764 1,248 2,260 3,826 Fully Diluted Shares (mn) 126.2

Other Long term assets 436 446 349 352 Market cap (Rs.mn) 81,273


Total assets 32,103 38,124 41,430 46,140 P/E (x) 14.8 32.4 26.5 17.1




Cash flows from Financing -1,377 4,133 -1,191 -1,181 Price to BV (x) 4.1 3.7 3.4 3.0

Page 92

Lupin (LPC) CMP

Rs. 1,772

Target

Rs. 2,052

Rating

BUY

Stock performance

1m 3m 12m

LPC -2% -9% 74%

Sensex -2% -9% 3%

BSEHC -6% -10% 43%

Financial Summary


FY14 1,12,866 30,028 18,364 41.0 43.3 26.3 30.3% 25.4%

FY15 1,27,700 36,196 24,032 53.5 33.1 21.5 30.4% 27.1%

FY16E 1,49,423 42,569 28,326 63.0 28.1 18.1 28.2% 25.9%

FY17E 1,83,160 55,099 36,894 82.1 21.6 13.7 29.0% 27.0%

Date 15 June 2015

Market Data

SENSEX 26425

Nifty 7983

Bloomberg LPC IN

Shares o/s 450mn


52-wk High-Low Rs. 2,115-968


Index member BSE100


Promoters 46.6

Institutions 43.4

Public 10.0

Initiating Coverage Lupin (LPC) is in the process of transforming itself from a generic company to a speciality company. The company is

building a niche product pipeline through enhancing R&D capabilities towards complex therapies areas like

ophthalmic (7-8 products), Dermatology (10-15 products), Injectables (15-20 products), controlled substance (11

products), Respiratory and Biosimilars. We believe the meaningful contribution from these niche products would start

from FY17E onwards. The near-term growth would be driven by product launches in the US and Indian market. LPC is

currently awaiting approvals for 99 ANDAs, which includes 34 FTFs (15 sole FTFs). We expect the company to launch

15-20 products in FY16 followed by ramp up in approvals in FY17 and FY18 in line with improving approval timelines by

USFDA. In domestic market, the company has grown higher than industry over the last 5 years thanks to chronic

therapies. We expect growth momentum to continue in this market. Overall, we expect revenues, EBITDA and net profit

to grow at a CAGR of 20%, 23% and 24%, respectively over FY15-17E. Despite short term concerns like delay in

product approvals, price erosion in US branded business basket, we believe company’s long term prospects remain

intact and robust. We initiate coverage with a BUY rating with TP Rs. 2052 based on 25xFY17E EPS of Rs. 82.1.

Product approvals to drive growth: In the past two years, the US growth has been slowing down (16% in FY14 & 11% in

FY15 in $ terms) despite robust generic pipeline mainly because of slow product approvals, price erosion in existing products

and genericization of Antara brand. We expect generic business to pick up from 2HFY16 driven by new launches. So far,

Lupin has filed 210 ANDAs, received approval for 111 products and launched 77 products. Of 99 pending approvals, it holds

‘first-to-file’ status on 34 products (15 sole FTFs). We expect the company to launch 15-30 products per annum over the next

three years. The key product launches (near-term) are gGlumetza (sole FTF), gWelchol, gRenvela, gNexium and gLoestrin

24Fe. The branded business is expected to be under pressure due to genericization of Suprax suspension. However, we

expect business to improve from FY17 on the back of sales pick up from Antara (low strength), Inspira chamber (recently

launched) and Suprax drops (plans to launch in next 3-4 months). We also believe LPC is actively scouting for brand

acquisition as it has no plans to reduce filed force count despite genericization of leading franchises. We expect US generic

business to grow at a CAGR 22%in FY15-17E.

Continue to outpace industry growth in India: Lupin is ranked 7th in domestic formulation with market share of 3.4%. Over

the last decade, it has transformed from acute therapy focus (Anti-TB) company to chronic focus company (chronic:acute:-

66:34 in FY15 v/s 31:69 in FY06). The domestic sales grew at a CAGR of 17% over FY11-15, which is higher than industry

growth of 11% due to focus on chronic therapies and improvement in field force productivity (Rs. 3.9 mn in FY11 to Rs. 5.4

mn in FY15). We expect growth momentum to continue. We expect domestic sales to grow at a CAGR of 18% over FY15-

17E.

Near term outlook tepid, but long term as robust as ever



Page 93

Lupin (LPC) CMP

Rs. 1,772

Target

Rs. 2,052

Rating

BUY Business Overview

R&D spend stepped up


Geographical sales breakup (FY15)




(Rs. Mn) FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY15-17E CAGR

India 15,509 19,059 23,643 24,796 29,680 35,022 41,388 18%

US 20,297 24,363 37,695 49,015 56,593 65,321 84,861 22%

EU 1,831 1,975 2,357 2,791 3,262 3,804 4,260 14%

Japan 6,211 8,608 13,040 12,954 13,239 14,067 15,636 9%

South Africa 1,788 2,554 3,210 3,800 4,218 5,472 7,113 30%

Rest of World 3,534 2,843 3,609 5,175 6,333 9,176 11,844 37%

API 8,589 8,491 9,498 11,178 11,941 12,538 13,165 5%

India 24%

US 45%

EU 3%

Japan 10%

South Africa 3%

Rest of World 6%

API 9%

4,660 5,228

6,875

9,294

10,988

8.0%

7.4%

7.1%

8.2%

8.7%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

0

2,000

4,000

6,000

8,000

10,000

12,000


Rs. M

n

R&D cost R&D cost % revenues

Page 94

Lupin (LPC) CMP

Rs. 1,772

Target

Rs. 2,052

Rating

BUY US remains key growth driver

Developing niche pipeline for future


Strong visibility in US pipeline

Source: Company, Bloomberg, USFDA, Spark Capital

Research; * US$ Mn

Robust pipeline….


…. to drive growth in generics



Value*

Known

players

Colesevelam Welchol

suspension 1QFY16 30 4



Norethindrone/

Ethinyl Estradiol /

Ferrous Fumarate

Generess Fe 3QFY16 115 4

Sevelamer Renagel 2Q/

3QFY16 200 4

Colesevelam Welchol tabs 3Q/

4QFY16 300 4

Lansoprazole ODT Prevacid ODT 4QFY16 400 5

Metformin ER Glumetza 4QFY16 140 1

Norgestimate/

Estradiol

OrthoTricycle

n Lo

3Q/

4QFY16 400 8

Norethindrone and

Ethinyl Estradiol and

Ferrous Fumarate

Loestrin 24

Fe

On

Approval 300 5

Bromfenac Prolensa 1QFY17 30 2

Darunavir Prezista 1Q/

3QFY17 800 4

Doxycycline Oracea 2QFY17 300 2

Quetiapine ER Seroquel XR 3QFY17 800 6

Armodafinil Nuvigil 3QFY17 400 6

Lapatinib ditosylate Tykerb 2QFY18 100 1

Tenofovir Disporoxil Viread 2QFY18 550 6

Emtricitabine +

tenofovir Truvada 3QFY18 2,000 6

Mesalamine ER Apriso 1QFY19 80 3

Pregabalin Lyrica 3QFY19 2,200

Area Update on development efforts Area of focus US market

size

Desired portfolio

by 2020

NDDDs 10 NCEs across therapies in development

Biosimilars 10 under development; Japan trials started Generic 8.4 Beyond 2020

Respiratory Developments of Nasal sprays, MDIs and DPIs Brand &

Generic 15

2-3 sprays, at least

1 MDI & 1 DPI

Injectables Developing a basket of general & Complex Gx Generic 16.6

15-20 products &

1st product from

Nanomi

Dermatology Filings commenced; FDA inspected facility Brand &

Generic 2.8 10-15 products

Ophthalmology Products launched in US Generic 1.8 7-8 products

Controlled substance First filing made; 11 products in pipeline Brand &

Generic 7.4 11 products

OC's 30 filings and 15 products in market Generic 2.3 30 products

40 48

64

78

99

111

87

100 109

98 93

99

0

20

40

60

80

100

120


No

. o

f A

ND

As

Approved Pending approvals

803 892

1,052

1,367

1,638

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800


US

$ M

n

US sales

Page 95

Lupin (LPC) CMP

Rs. 1,772

Target

Rs. 2,052

Rating

BUY US branded business: Near term pain, long term gain

Celon tie up for respiratory device

Signed an agreement with Celon for co-development

of Advair DPI

Celon device is similar to the innovator product and

already launched in Poland

Intends to develop and commercialise the inhaler for

US

The device prototype has a clearance from USFDA

Celon has small manufacturing facility 0.2mn units

per month and plans to expands capacity to 1mn

units per month

Teva, Mylan, Sandoz, Cipla and Adamis are other

players developing this DPI

We believe Lupin can launch gAdvair even before

Cipla in the US market


Robust growth on a low base


US branded business: near term pain

Targeting paediatric and high prescribing primary

care physicians

150+ filed force in US market

In-licensed Alinia and Locoid in the last two years

FY16 sales would be impacted as Aurobindo has

recently launched gSuprax suspension

Suprax suspension accounts 60% of Suprax sales

Recently launched Antara (lower strength) and

Inspira chamber and plans to launch Suprax drops

Actively scouting for brand acquisitions


Pickup up in recent launches to drive growth


145

80 83

64

84

98

0

20

40

60

80

100

120

140

160


US

$ M

n

Branded

Antara genericized

Suprax

genericized

5,175 6,333

9,176

11,844

15,297

0

3,000

6,000

9,000

12,000

15,000

18,000


Rs. M

n

RoW markets

Foray into Brazil

Foray into the high growth Brazilan market with

Medquimica acquisition

2nd acquisition in LatAm region after Laboratories

Grin, Mexico acquisition in FY14

Brazil is 6th largest market in India with ~4% global

sales and Industry has doubled from 2009-13

Pharmaceutical industry estimated BRAL 58 bn

Medquimica has a presence in branded generics,

generic-generic and OTC products

It has over 550 employees

Annual sales of BRL 94 Mn (US$ 31Mn)


RoW: Value driver…

South Africa:

Remained focused on CNS & OTC segment

Consolidate branded presence through new

product launches and in-licensing

Planning to enter hospitals segment through a

speciality injectable basket

Australia:

Presence in both Rx and OTC segment

Planning to build niche product portfolio in

Ophthalmic and respiratory segment

Philippines:

Launched Oncology division

Aiming to attain leadership in therapies CNS, GI,

diabetics and Oncology

Page 96

Lupin (LPC) CMP

Rs. 1,772

Target

Rs. 2,052

Rating

BUY Steady growth in India and Japan

New product introductions to drive growth...


Recovery started in I’rom business


India business - Continues to outpace Industry growth….


India - Improving chronic presence….


Recovery started in I’rom business

Patents of CVS drugs worth of ~$10

bn set to expire in next 5-6 years,

which benefits Lupin as Kyowa has

significant presence in CVS

It is also planning to build Oncology

and specialty injectable product

basket

Backward integration should

improve margins going ahead

Currency remains a concern

Planning to increase specialty

product portfolio; including products

in new therapies like insulin and

dermatology

To enhance penetration in Tier II

cities and rural areas

Step up in-licensing launches from

global players

All these initiatives to improve sales

force productivity

69% 56%

37% 36% 34%

31% 44%

63% 64% 66%

0%

20%

40%

60%

80%

100%


% o

f In

dia

n s

ale

s

Acute Chronic

24,796 29,680

35,022

41,388

48,987

0

10,000

20,000

30,000

40,000

50,000

60,000


Rs. M

n

India

12 9 16 18 19

29

9 5

-11 -11 -4

-28

-4 2

-26

6 5 3 10

2

13

22

0 5

-40

-30

-20

-10

0

10

20

30

40

Q1F

Y14

Q2F

Y14

Q3F

Y14

Q4F

Y14

Q1F

Y15

Q2F

Y15

Q3F

Y15

Q4F

Y15

Gro

wth

(%

)

Kyowa i'rom Total Japan

Business impacted

due to restructuring Discontinued tender

business 21,399

23,443

26,051

28,955

32,190

15,000

19,000

23,000

27,000

31,000

35,000


JP

Y. M

n

Page 97

Lupin (LPC) CMP

Rs. 1,772

Target

Rs. 2,052

Rating

BUY Financials

Return ratios remains strong




EBITDA to grow at a CAGR of 22.7% in FY15-18E




112,8

66

127,7

00

149,4

23

183,1

60

217,2

20

17%

13%

17%

23%

19%

0%

5%

10%

15%

20%

25%

0

50,000

100,000

150,000

200,000

250,000


Rs. M

n

Revenues Growth (%)

30,0

28

36,1

96

42,5

69

55,0

99

67,4

43

27%

28% 28%

30%

31%

24.0%

25.0%

26.0%

27.0%

28.0%

29.0%

30.0%

31.0%

32.0%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000


Rs. M

n


30% 30%

28% 29%

28%

25%

27%

26%

27% 26%

20%

22%

24%

26%

28%

30%

32%


RoNW RoIC

0

500

1,000

1,500

2,000

2,500

Jan-0

9

Apr-

09

Jul-09

Oct-

09

Jan-1

0

Apr-

10

Jul-10

Oct-

10

Jan-1

1

Apr-

11

Jul-11

Oct-

11

Jan-1

2

Apr-

12

Jul-12

Oct-

12

Jan-1

3

Apr-

13

Jul-13

Oct-

13

Jan-1

4

Apr-

14

Jul-14

Oct-

14

Jan-1

5

Apr-

15

12M fwd P/E

CM

P (

Rs.)

32x

12x

16x

20x 24x

28x

Page 98

Lupin (LPC) CMP

Rs. 1,772

Target

Rs. 2,052

Rating





Revenue 1,12,866 1,27,700 1,49,423 1,83,160 Revenue 17.1% 13.1% 17.0% 22.6%

EBITDA 30,028 36,196 42,569 55,099 EBITDA 32.3% 20.5% 17.6% 29.4%



Other Income 1,165 2,398 2,500 2,500 EBITDA 26.6% 28.3% 28.5% 30.1%



PBT 28,317 34,148 39,913 51,813 RoE 30.3% 30.4% 28.2% 29.0%




Net Worth 69,316 88,741 1,11,808 1,42,392 Total asset turnover (x) 1.2 1.1 1.0 1.1









Other long term assets 7,287 17,326 12,851 14,851 Market cap (Rs.mn) 7,94,522


Total assets 1,02,060 1,31,377 1,55,531 1,92,995 P/E (x) 43.3 33.1 28.1 21.6




Cash flows from Financing -8,571 -6,456 -5,259 -6,310 Price to BV (x) 11.5 9.0 7.1 5.6

Page 99

Neuland Laboratories CMP

Rs. 350

Target

Rs. 611

Rating

BUY

Stock performance

1m 3m 12m

NLL 0% -9% 20%

Sensex -2% -9% 3%

BSEHC -6% -10% 43%

Financial summary


FY14 4,691 731 268 34.7 10.1 6.1 24.0% 14.7%

FY15 4,699 674 159 17.8 19.6 6.6 11.2% 9.9%

FY16E 5,702 884 282 31.4 11.1 5.9 17.3% 13.1%

FY17E 7,065 1,159 456 50.9 6.9 4.9 24.4% 14.5%

Date 15 June 2015

Market Data

SENSEX 26425

Nifty 7983

Bloomberg NLL IN

Shares o/s 9mn

Market Cap Rs. 3bn



Index member BSE200


Promoters 51.7

Institutions 2.5

Public 45.7

Initiating Coverage Neuland Laboratories (NLL) is a small-sized Pharma company with a presence in the active pharmaceutical ingredients

(APIs) and contract manufacturing service (custom synthesis, CS) businesses. We believe NLL has adopted a very

interesting route of playing the niche and complex generics patent expiry story, but through the API route. At one end

where APIs have lower margins, formulations have constraints on market shares of individual companies. However, in

APIs companies could go up to 75% market share in even genericized molecules with cost and process advantage. We

believe this is where NLL is positioned to benefit significantly going ahead. It is also scaling-up its CS business and

has a contract with Mitsubishi APIC and an API supply tie up with two Japanese based innovator companies for their

NCE products. Over the years, NLL has built a strong pipeline, which includes 48 DMFs filings with USFDA and 378

DMFs with EU. Our analysis on API pipeline reveals several interesting opportunities including Propofol, Salmeterol,

Entacapone, Paliperidone and so on over next 3-4 years. NLL also has displayed sound regulatory practices having

cleared inspection by USFDA, COFEPRIS and KFDA in 2014 on one of its plants. We believe monetisation of niche API

pipeline coupled with ramp up in CS business should boost sales and profitability to a new level going ahead. We

expect revenues, EBITDA and net profit to grow at CAGR 23%, 31% and 69%, respectively over FY15-17E. Currently,

NLL is trading at 60-70% discount to industry leader Divis. However, we expect valuation discount to narrow down as

all growth drivers are in place. We initiate NLL with a BUY rating with a TP of Rs 611, 12x FY17E EPS of Rs 50.9.

API- Niche pipeline in place; close to reaping benefits: NLL derives ~85% of total sales from API business. Over the

years, NLL has built a strong pipeline (75 products), which includes 48 DMFs filings with USFDA, 378 DMFs with European

Union, 23 with Health Canada and 84 in RoW markets. Of 75 products, the company has commercialised 42 products till date

and plans to launch remaining 23 products over next 3-4 years. Our analysis on API pipeline reveals several interesting

opportunities including Propofol, Salmeterol, entacapone, paliperidone and so on. NLL believes they have competitive

advantage in terms of production methodology in most of their filings to help them garner strong market share. In our

assumption, the current pipeline can generate peak revenue of $70 mn by FY18E, subject to timely product approvals.

Custom synthesis (CS):- a game changer: CS currently contributes ~15% of total sales, scaled up from 3% in FY12.

Management has guided contribution from CS business to reach 30% of total sales by FY18E. NLL has an intermediates

supply tie up with APIC and it has setup a dedicated manufacturing facility at Unit II for the same. The supplies have just

begun and we expect meaningful revenues to start only from FY17E. The revenue potential from this deal can be Rs. 1.0-1.5

bn over next 2-3 years. NLL also has an API supply agreements with two Japanese innovator companies for their NCE

products. As these supplies are for branded products, the company gets relatively higher margins to other contracts. We

expect sales from CS to grow at a CAGR of 57% over FY15-17E.



Solid API pipeline about to unfold – Multi- bagger in the making

Page 100


Rs. 350

Target

Rs. 611

Rating

BUY

Strengthened balance sheet


Change in business mix improved profitability


Healthy product pipeline


Business Overview

Diversified geographic presence


Lower product & client concentration


Regulatory No. Of DMFS

USFDA 48

Canada 23

EU 378

EDQM (COS) 19

Japan 5

Korea 9

RoW 84

4,502 4,640 4,691 4,699

11%

13%

16%

14%

8%

9%

10%

11%

12%

13%

14%

15%

16%

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

FY12 FY13 FY14 FY15

Rs. M

n

Revenues EBITDA Margins (%)

292

592

743

285

87

53 142

92

250 368

561 662

329

6

-137

-94

-206

-126

1.3

2.0

2.6

3.4 3.2

2.9

2.1

1.5 1.1

-2

-1

0

1

2

3

4

-400

-200

0

200

400

600

800

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Rs. M

n

Capex Inc/ (Dec) Debt D/E

India 29%

US 15%

Europe 44%

Japan 4%

RoW 8%

15

47

43

0

5

10

15

20

25

30

35

40

45

50

Largest Product Top 5 products Top 5 clients

% o

f sale

s

Page 101


Rs. 350

Target

Rs. 611

Rating

BUY Change in product mix to be key growth driver

Current pipeline


DMF filings are in place


Target pipeline


Proportion of Custom Synthesis & High value API to improve further


APIC tie up – a game changer in CS business

Custom synthesis (CS) contributes ~15% to sales,

company aims to improve contribution to 30% by FY18E

Experience in technology transfer from process research

to commercial scale

NLL has two manufacturing sites consisting of 11

production blocks including one block for peptides

Expertise in manufacturing deuterium exchanged APIs

Tied up supply arrangement with Japanese company API

corporation (APIC), a subsidiary of Mitsubishi Chemicals

in FY13. This partnership translate into long-term

business gains

NLL commissioned dedicated manufacturing facility for

APIC at Unit 2 in FY14

Received first set of revenues from APIC in Q4FY15


8

4

6

0

1

2

3

4

5

6

7

8

9

>20 market share >40 market share > Rs. 200 Mn

No

. p

rod

uc

ts

FY14

20

12

17

0

5

10

15

20

25

>20 market share >40 market share > Rs. 200 Mn

No

. p

rod

uc

ts

FY18E

2015

APIs (High volume)

70%

APIs (High value) 15%

Custom Synthesis

15%

2018E

APIs (High volume)

50%

APIs (High value) 20%

Custom Synthesis

30%

2

4 4

3

6

3

1

2

0

1

2

3

4

5

6

7

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

No

. o

f fi

lin

gs

Page 102


Rs. 350

Target

Rs. 611

Rating

BUY

Riche pipeline of products


Product pipeline in place to boost API growth…

Brand API Therapy Status DMF Filing

date

Sales

$mn

DMF from

India/China

Total

filers

Probable

launch

Estimated

sales $Mn

Abilify Aripiprazole Antipsychotic Development 24-Jun-09 5,200 25 33 2015 0.9

Alimta Pemetrexed Disodium Oncology 22-Dec-11 1,200 13 15 2017 1.6

Aloxi Palonosetron Hydrochloride Anti-emetic 11-Dec-07 478 11 15 2015 0.3

Aricept Donepezil Hydrochloride Anti-Alzheimer Commercial 11-Dec-07 2,400 23 27 NA NA

Atrovent / Atrovent HFA Ipratropium Bromide Antiarrhythmic Commercial 6-Nov-00 220 2 5 NA NA

Comtan Entacapone Antiparkinsonian Commercial 11-Apr-08 60 12 17 NA NA

Diprivan Propofol Anesthetic Commercial 13-Aug-13 120 2 7 2015 1.3

Eliquis Apixaban Anti-Coagulant Early Development To be filed 115 1 1 2019 1.0

Emend Fosaprepitant Anti-emetic Early Development To be filed 419 3 3 2019 4.4

Exjade Deferasirox Chelating agent Development 26-Jan-12 240 7 10 2017 1.3

Invega Sustenna Paliperidone Palmitate Anti-Psychotic Development 2-Jul-12 525 4 5 2019 6.9

Lexapro Escitalopram Oxalate Antidepressant Commercial 7-Aug-06 1,800 18 18 NA

Onglyza Saxagliptin Base/Hydrochloride Anti-Diabetic Early Development To be filed 558 9 11 2021 0.4

Pradaxa Dabigatran Etexilate mesilate Antithrombotic Development To be filed 859 8 10 2018 0.9

Rapaflo Silodosin BPH alpha-adrenergic

antagonists Early Development To be filed 146 5 5 2016 0.4

Requip Ropinirole base Antiparkinsonian Development 14-Sep-12 300 1 1 NA

Requip Ropinirole Hydrochloride Antiparkinsonian Commercial 10-Jul-06 300 11 13 NA

Serevent/Advair Salmeterol Xinafoate Bronchodilator Commercial 22-Jul-09 5,500 10 12 2017 19.3

Spiriva Tiotropium Bromide Bronchodilator Development 6-Feb-09 3,027 1 5 2021 15.9

Vigamox / Avelox Moxifloxacin Hydrochloride Antibacterial Development 19-Sep-05 277 / 204 12 13 NA

Xarelto Rivaroxaban Anti-Coagulant Early Development To be filed 850 5 8 2020 1.5

Zetia Ezetimibe Antilipemic Development 1-Dec-11 1350 9 10 2016 5.7

Zyprexa Olanzapine Anti-Psychotic Commercial 24-Mar-06 2,000 20 23 NA

Zyvox Linezolid Antibacterial Development 29-Dec-10 430 12 17 2015 0.1

Page 103


Rs. 350

Target

Rs. 611

Rating

BUY Financials

Return ratios to improve….




EBITDA to grow at a CAGR of 31% in FY15-18E




4,691 4,699

5,702

7,065

7,928

1.1% 0.2%

21.3% 23.9%

12.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000


Rs. M

n

Revenues Gr. (%)

731 674

884

1,159

1,340

15.6%

14.3%

15.5% 16.4%

16.9%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

26.0%

0

200

400

600

800

1,000

1,200

1,400

1,600


Rs. M

n


24.0%

11.2%

17.3%

24.4% 23.8%

14.7%

9.9%

13.1% 14.5% 13.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%


RoE (%) RoIC (%)

0

100

200

300

400

500

600

700

800

Mar-

10

Jun

-10

Sep-1

0

Dec-1

0

Mar-

11

Jun

-11

Sep-1

1

Dec-1

1

Mar-

12

Jun

-12

Sep-1

2

Dec-1

2

Mar-

13

Jun

-13

Sep-1

3

Dec-1

3

Mar-

14

Jun

-14

Sep-1

4

Dec-1

4

Mar-

15

12M fwd P/E

CM

P (

Rs.)

19x

4x

7x

10x

13x

16x

Page 104


Rs. 350

Target

Rs. 611

Rating





Revenue 4,691 4,699 5,702 7,065 Revenue 1.1% 0.2% 21.3% 23.9%

EBITDA 731 674 884 1,159 EBITDA 18.5% -7.8% 31.1% 31.1%

Depreciation 149 153 175 208 Adjusted PAT 93.4% -40.5% 76.5% 61.8%

EBIT 582 521 709 950 Margin ratios




PBT 346 247 391 633 RoE 24.0% 11.2% 17.3% 24.4%

PAT (after minority interest) 268 159 282 456 RoIC 14.7% 9.9% 13.1% 14.5%

Adjusted PAT (after MI) 268 159 282 456 Core RoIC 15.0% 10.1% 13.3% 13.6%





Current liabilities & provisions 1,525 1,493 917 1,129 Current ratio (x) 1.9 2.3 3.5 3.6





Cash and bank balances 7 70 23 163 Fully Diluted Shares (mn) 9.0

Other long term assets 75 0 0 0 Market cap (Rs.mn) 2,704


Total assets 4,687 5,115 5,110 6,351 P/E (x) 10.1 19.6 11.1 6.9


Cash flows from Operations 161 -167 63 166 EV/ EBITDA (x) 6.1 6.6 5.9 4.9

Cash flows from Investing -85 -70 -400 -600 BV/ share (Rs.) 138.5 180.3 184.2 232.2

Cash flows from Financing -81 301 289 574 Price to BV (x) 2.5 1.9 1.9 1.5

Page 105

Sun Pharmaceutical Industries (SUN) CMP

Rs. 814

Target

Rs. 901

Rating

ADD

Stock performance

1m 3m 12m

SUNP -14% -21% 29%

Sensex -2% -9% 3%

BSEHC -6% -10% 43%

Financial summary


FY14 1,60,804 71,956 57,218 23.8 34.2 26.2 33.9% 26.2%

FY15 2,74,334 86,093 53,241 22.1 36.8 22.1 23.5% 17.7%

FY16E 2,97,196 1,03,858 64,529 26.8 30.4 17.4 21.8% 16.8%

FY17E 3,56,169 1,33,433 86,727 36.0 22.6 13.0 23.9% 18.7%

Date 15 June 2015

Market Data

SENSEX 26425

Nifty 7983

Bloomberg SUNP IN

Shares o/s 2,406mn

Market Cap Rs. 1,958bn

52-wk High-Low Rs. 1,201-616


Index member BSE100


Promoters 63.6

Institutions 24.5

Public 11.9

Initiating Coverage Sun Pharma has been the best Indian Pharma company over the past many years both in terms of financial delivery

and in terms of stock returns. However, Sun Pharma’s recent quarter (4Q15) performance has come as a negative

surprise to the street as the company delivered numbers significantly below estimates. The numbers also indicated

that resolution of Halol issues are not fully over. We believe Halol remains the most important multi-dosage facility for

Sun Pharma. We believe key drugs like gDoxil and gGleevec are filed from this facility. Although one is taking some

comfort from the approval of Elepsia from Halol facility for SPARC, we remain cautious and keep a close watch on

incremental approvals to ascertain whether the issue is really over. Although at this stage it remains anybody’s guess

when the facility will be cleared, but one cannot deny that any adverse outcome of USFDA regulatory scrutiny could

drastically impact financial performance and stock returns. We hence advise caution on Sun Pharma. We are building

in a resolution of Halol issues from 2HFY16 (assuming pick-up in US sales) and hence the downside risk remains to

our numbers. We however also believe that Sun Pharma could materially benefit from Ranbaxy’s integration in the long

run. Overall, we expect revenues, EBITDA and net profit to grow at a CAGR of 19%, 23% and 23%, respectively over

FY15-17E. Despite short term concerns we believe company’s long term prospects remain intact and robust. We

initiate coverage with an ADD rating with a TP Rs. 901 based on 25xFY17E EPS of Rs. 36.

Ranbaxy integration the key ahead: Sun Pharma acquired Ranbaxy in 2014. The company has guided to achieve benefits

of $250mn in synergies over the next 3 years. We believe the guidance is conservative as a large portion of the benefits can

accrue from just reduction in remediation measures of the plants over time and also from some employee costs related

rationalisation. We believe Sun could possibly benefit significantly from sales synergies whereas the guidance factors most of

the benefits on the costs front itself. We are positive that given Sun’s track record on acquisitions, it would emerge as a larger

and a much stronger company over the next 3 years

gGleevec to keep US sales strong in FY17: We believe Sun has 180 day exclusivity on gGleevec (not certain). However,

we believe gGleevec might turn out to be a low competition opportunity even post the 180 day exclusivity. Limited known

ANDA filings and most of them in 2014 indicates Sun Pharma could have an extended period of low competition with

authorized generic, innovator and Apotex in the market at best. There remains an out of court settlement possibility for other

filers which could risk our assumptions. We expect US sales to be subdued in FY16E on account of Halol issues and base

price erosion, but on this base FY17E is expected to be a very strong year with 28% growth (including gGleevec).

ROW and emerging markets presence an opportunity for Sun Pharma: Sun Pharma could see huge benefits of cross

selling its products in markets where it gets a new and direct entry thanks to Ranbaxy’s presence. We foresee high teens

growth in most of the markets ex-US for Sun+Ranbaxy in FY17E.



Halol resolution to decide near term stock direction – Long term steady

Page 106


Rs. 814

Target

Rs. 901

Rating

ADD

5th largest generic company globally


Sales break up - FY15




Business Overview

Rs. Mn FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY15-17E

CAGR

India 23,801 29,154 29,657 36,918 67,166 74,689 83,348 11%

US 22,531 34,716 61,538 97,844 137,196 140,870 179,664 14%

Emerging markets 0 0 0 10,308 37,326 43,869 51,403 17%

RoW 6,452 11,124 15,271 8,777 23,320 23,613 26,435

APIs 5,212 6,147 7,549 8,010 9,910 13,976 15,806

Others 70 31 73 138 792 0 0

India 24.4%

US 49.8%

Emerging markets 13.5%

RoW 8.5%

APIs 3.6%

Others 0.3% 9.8

8.5

6.4 6.4

5.1

3 2.6 2.4 2.3 2 1.8 1.7

0

2

4

6

8

10

12

Te

va

Sandoz

Acta

vis

Myla

n

Sun P

harm

a

Aspen

Hospira

Fre

seniu

s

Sanofi

Lupin

DR

L

Cip

la

US

$ B

n

Page 107


Rs. 814

Target

Rs. 901

Rating

ADD Halol facility remediation critical for US growth

Remediation efforts at Halol impacts US sales


Halol facility resolution critical

US sales ex-Taro & Ranbaxy declined >US$ 50 mn

sequentially due to disruption in supplies from Halol facility

The facility is currently undergoing remediation measure to

address 483 observations

USFDA issued 483 with 23 observations (10 for the

injectable unit, 4 for the oral solid unit and remaining for the

quality control lab)

There were no data integrity issues but majority issues were

procedural, which may take longer time to resolve

Any adverse outcome should significantly impact US sales

as facility contributes ~50% of US (ex-taro) sales and 25% of

consolidated EBITDA (in our view)

Key products exported from the facility are gDoxil,

gCymbalta. gAstelin, gImitrex auto-injector and gCardizem.

gGleevec is also filed from this facility

We have assumed supplies to pick up from Q2FY16


Gleevec – A key near term opportunity

Sun Pharma has settled patent litigation over generic

Gleevec with Novartis in March 2014

Annual sales of the drug is ~ US$ 2 bn in US

Gleevec is used to treat chronic myeloid leukemia

As per settlement, the company will launch generic on 1st

February 2016

Sun holds 180 days marketing exclusivity

Low competition product as there are only 3 more known

players (Apotex, Dr Reddy’s& Breckenridge)

Sun has filed ANDA from Halol facility; Site transfer

underway

We expect sales of US$ 67 mn and US$ 300 mn in FY16E &

FY17E, respectively


Spike in R&D cost on MK-3222 development


Tildrakizumab sales should be promising

Sun has in-licensed anti-psoriasis biologic molecule

tildrakizumab (IL-23, MK-3222) from Merck last year

Molecule is in Phase III clinical trials

This would be first novel drug from an Indian company to

launch in regulated markets once approved

Sun paid US$ 80 mn upfront to license the product and

management indicated for a total spend of US$ 300 mn to

get product to the market

Psoriasis market in US is estimated ~US$ 6.8 bn in 2014,

which includes sales from biologics of ~US$ 4.3 bn

Sun Pharma has not finalised any marketing strategy for the

drug

We are not modelling any revenues from this product


Tildrakizumab competitive landscape


243

291

253

204

149

0

50

100

150

200

250

300

350

Q4F

Y14P

Q1F

Y15P

Q2F

Y15P

Q3F

Y15P

Q4F

Y15P

US

$ M

n

US sales ex Taro & Ranbaxy

2898

2936

2437

2919

3651

4430

6.8% 7.3% 6.2%

6.1% 8.5%

12.3%

0%

2%

4%

6%

8%

10%

12%

14%

0

1,000

2,000

3,000

4,000

5,000

Q3F

Y14

Q4F

Y14

Q1F

Y15

Q2F

Y15

Q3F

Y15

Q4F

Y15*

Rs. M

n

R&D cost R&D % sales

Type

Brand/

Molecule

Name

Ingredient Status Innovator

IL 12/23 Stelara Ustekinumab Launched J & J

IL 17 AIN 457 Secukinumab Launched Novartis

IL 17 AMG 827 Brodalumab Phase III AstraZenec

a/Amgen

IL 17 LY2439821 Lexkinzumab Phase II Eli Lilly

IL 23 MK-3222 Tildrakizumab Phase III Sun/ Merck

IL 23 BI 655066 Phase II Boehringer

Ingelheim

IL 23 CNTO1959 Guselkumab Phase II J & J

Page 108


Rs. 814

Target

Rs. 901

Rating

ADD India: Productivity and market share improvement holds key

Leader in India Pharma market (IPM)

Ranked No. 1 with market share of 8.9%

Holds 12.8% market share in chronic therapies

while 7.2% market share in acute therapies

Specializes in technically complex products and

presence across therapies

Has a diversified product basket as top 10

brands contribute only ~17% of India sales

More than 9000 medical representatives

covering over 6 lakh doctors


Highest market share in IPM


Significant presence in chronic therapies

Source: Spark Capital Research; sales in Rs. Mn

Diversified product basket

Source: Spark Capital Research; sales in Rs. Mn

Productivity improvement – first priority

Source: Company, Spark Capital Research; * including

Ranbaxy

New launches + MS expansion to drive growth


8.9

6.2

5 4.2

3.6 3.5 3.4 3.0 3.0 2.6

0

2

4

6

8

10

Sun

Abott

Cip

la

Cadila

Mankin

d

Gla

xo

Lupin

Pfizer

Macle

ods

Inta

s

(%)

Market share (%)

Therapy Sun % India sales IPM MS (%)

CNS 13,580 18% 60,380 22%

Cardiac 13,070 17% 1,07,080 12%

Anti-Infectives 9,190 12% 1,37,640 7%

Gastro Intestinal 8,860 12% 99,380 9%

Anti Diabetic 6,450 8% 66,92, 10%

Pain 5,600 7% 60,380 9%

Vitamins 3,540 5% 77,980 5%

Derma 3,300 4% 49,550 7%

Gynaecological 3,180 4% 43,470 7%

Respiratory 2,950 4% 68,340 4%

Ophthal 1,930 3% 12,570 15%

Brand Therapy FY15 % to sales FY14 Gr. (%)

Volini Pain 2,121 3% 2,239 -5

Revital Vitamins 1,596 2% 2,655 -40

Gemer Anti Diabetic 1,318 2% 1,148 15

Rosuvas Cardiac 1,290 2% 9,38 38

Pantocid GI 1,257 2% 1,097 15

Susten Gyne 1,202 2% 1,202 0

Istamet Anti Diabetic 1,165 2% 1,165 0

Levipil Neuro 1,159 2% 873 33

Mox Anti-

Infectives 1,067 1% 951 12

Storvas Cardiac 1,034 1% 906 14

7.1

9.2

11.1 10.1

11

7.4

0

2

4

6

8

10

12

FY10 FY11 FY12 FY13 FY14 FY15*

Rs. M

n

Sales per representative Industry average

Rs. 5.5 Mn

36,918

67,166 74,689

83,348 93,178

0

20,000

40,000

60,000

80,000

100,000

120,000


Rs. M

n

India

Page 109


Rs. 814

Target

Rs. 901

Rating

ADD Taro: Pipeline in place to compensate price erosion, if any

Sharp jump in Taro margins on price hikes


Healthy pipeline to compensate price erosion


New launches to drive Taro sales


Expanded footprints through M&As in the past


Scouting for acquisitions

Sun’s inorganic strategy is acquiring either sub-

optimally managed or financially distressed

companies

Strong track record of turning around the acquired

businesses eg: Taro, URL

Actively scouting for acquisitions as Ranbaxy

acquisition was an all stock deal and huge cash on the

books remain (net cash US$ 1 bn)

In our view, Sun Pharma is capable of doing

acquisition > US$ 9 bn

High possibility of acquiring companies which have

presence in Biosimilars and NDDS pipeline

Management bandwidth can be a key concern


Capable of funding acquisitions > US$ 9bn

Source: Company, Spark Capital Research; *Assuming 10% equity

dilution, **Debt raising capability was calculated on assumption i) Debt to EBITDA of

2.5x and ii) Acquired business EBITDA margins are 20% of companies EBITDA

411

543

671 759

871

59%

67%

74% 76% 79%

24%

44% 49%

57% 61%

20%

30%

40%

50%

60%

70%

80%

90%

0

100

200

300

400

500

600

700

800

900

1,000


US

$ M

n

Sales GPM (%) EBITDA Margins (%)

759 871

1,024 1,121

1,227

0

200

400

600

800

1,000

1,200

1,400


US

$ M

n

4

9 11 12

16

21

27

35

0

5

10

15

20

25

30

35

40

FY12 FY13 FY14 FY15

No

. o

f A

ND

As

ANDA filed Pending for Approval

Year M & As/ In-licensing Areas of enhancement

2015 Ranbaxy Merger Improved global presence

2015 GSK’s Opiates Business

(Proposed) Controlled substances

2014 In-licensed MK-3222 from

Merck NBE

2014 Pharmalucence Sterile injectable capacity in

the US

2013 URL’s generic business US product portfolio (107

products)

2012 DUSA Pharma, Inc. Branded dermatology products

2010 Taro Pharma Dermatology & Topical

Products in the US

0.9

3.6

4.1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Net Cash Equity Debt

US

$ B

n

Page 110


Rs. 814

Target

Rs. 901

Rating

ADD

…. to drive US sales growth


Clear visibility in near term launches; price erosion in existing basket a concern

Near term launches

Source: Company, Bloomberg, USFDA, Spark Capital

Research


Value

Known

players


Dexmedetomidine Precedex Q3FY16 150 4

Aripiprazole Abilify Q3FY16 7,800 8

Carvedilol CR Coreg CR Q3FY16 300 2

Esomeprazole Nexium 2HFY16 6,000 8

Lansoprazole ODT Prevacid ODT Q4FY16 400 5

Imatinib Gleevec Q4FY16 2,000 4

Metformin ER Glumetza 4QFY16 140 1

Desvenlafaxine Pristiq FY16 600 3


Rosuvastatin Crestor Q1FY17 3,100 10

Sitagliptin

phosphate Januvia Q1FY18 2,800 4

Dronedarone HCL Multaq 2018 320 4

Pregabalin Lyrica 3QFY19 2,200 4

Bivalirudin Angiomax FY20 450 6

Lacosamide Vimpat FY22 353 8

Sirolimus Rapamune Unknown 200 4

Oxymorphone Opana ER Unknown 300 5

Febuxostat Uloric Unknown 300 8

Ranbaxy synergies of US$ 250 mn by FY18E

appears conservative

We believe management’s guidance on synergies of US$ 250

mn by FY18E is conservative as there are many areas for

improvement including

Operating cost rationalisation and control of high overheads

in Ranbaxy

Cross selling in various emerging markets

Filing more ANDAs using Ranbaxy APIs

Capacity rationalisation: Site transfer of ANDAs from US

(Ohm facility) to other manufacturing facilities

Rationalisation of field force in India (9000+) will improve

productivity and market share in India

Resolution of consent decree saves costs (US$ 50mn)


Cross selling products to boost EM sales


Strong product pipeline….


1,620

2,244 2,272

2,898 3,063

0

500

1,000

1,500

2,000

2,500

3,000

3,500


US

$ M

n

10,308

37,326 43,869

51,403

60,612

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000


Rs. M

n

Emerging markets

225 250

311 344

438

152 147 138 134 159

0

50

100

150

200

250

300

350

400

450

500


No

. o

f p

rod

uc

ts

ANDAs approved Awaiting approval

Page 111


Rs. 814

Target

Rs. 901

Rating

ADD Financial summary

EBITDA margins to pick up from FY16E onwards

Source: Company, Spark Capital Research; FY15 includes Ranbaxy numbers



1-Yr forward PE graph


Ranbaxy acquisition impacts return ratios in short term


160,804

274,334 297,196

356,169 390,273

42%

71%

8%

20%

10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000


Rs. M

n

Revenues Growth (%)

71,9

56

86,0

93

103,8

58

133,4

33

152,4

94

44.7%

31.4% 34.9%

37.5% 39.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000


Rs. M

n


33.9%

23.5% 21.8%

23.9% 22.6%

26.2%

17.7% 16.8% 18.7% 18.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%


RoNW (%) RoIC (%)

0

200

400

600

800

1,000

1,200

1,400

Jan-0

9

Apr-

09

Jul-09

Oct-

09

Jan-1

0

Apr-

10

Jul-10

Oct-

10

Jan-1

1

Apr-

11

Jul-11

Oct-

11

Jan-1

2

Apr-

12

Jul-12

Oct-

12

Jan-1

3

Apr-

13

Jul-13

Oct-

13

Jan-1

4

Apr-

14

Jul-14

Oct-

14

Jan-1

5

Apr-

15

12M fwd P/E

CM

P (

Rs.)

32x

12x 16x

20x 24x 28x

Page 112


Rs. 814

Target

Rs. 901

Rating





Revenue 1,60,804 2,74,334 2,97,196 3,56,169 Revenue 42.3% 70.6% 8.3% 19.8%

EBITDA 71,956 86,093 1,03,858 1,33,433 EBITDA 47.0% 19.6% 20.6% 28.5%

Depreciation 4,094 12,948 11,102 12,963 Adjusted PAT 60.1% -7.0% 21.2% 34.4%

EBIT 67,862 73,145 92,756 1,20,470 Margin ratios

Other Income 5,081 4,521 5,986 6,584 EBITDA 44.7% 31.4% 34.9% 37.5%

Interest expense 442 5,790 8,951 7,959 Adjusted PAT 35.6% 19.4% 21.7% 24.4%

Exceptional items / Forex gain / (loss) 25,174 7,835 0 0 Performance ratios

PBT 72,501 71,876 89,791 1,19,096 RoE 33.9% 23.5% 21.8% 23.9%




Net Worth 1,88,005 2,65,250 3,26,210 3,98,862 Total asset turnover (x) 0.6 0.7 0.6 0.6



Current liabilities & provisions 31,858 92,382 1,26,468 1,54,313 Current ratio (x) 6.2 3.4 3.3 3.4


Gross Fixed assets 92,956 1,94,870 2,02,870 2,10,870 Working capital days 156 126 93 90

Net fixed assets 58,244 1,47,211 1,44,109 1,39,146 Interest cover (x) 0.0 0.1 0.1 0.1

Investments 7,876 5,989 5,989 5,989 Valuation metrics

Cash and bank balances 95,886 1,31,155 2,17,001 2,86,936 Fully Diluted Shares (mn) 2,071.2

Loans & advances and other assets 30,214 19,055 19,055 19,055 Market cap (Rs.mn) 19,58,647

Current assets 1,00,610 1,86,870 2,02,254 2,41,899 Adjusted EPS (Rs.) 23.8 22.1 26.8 36.0

Total assets 2,92,831 4,90,279 5,88,407 6,93,025 P/E (x) 34.2 36.8 30.4 22.6


Cash flows from Operations 16,946 42,107 1,05,416 1,00,010 EV/ EBITDA (x) 26.2 22.1 17.4 13.0


Cash flows from Financing 43,309 82,031 -11,569 -22,075 Price to BV (x) 9.0 6.4 5.2 4.2

Page 113

Unichem Laboratories (ULL) CMP

Rs. 180

Target

Rs. 228

Rating

BUY

Stock performance

1m 3m 12m

ULL -10% -18% -11%

Sensex -2% -9% 3%

BSEHC -6% -10% 43%

Financial summary


FY14 11,334 1,778 1,112 12.3 14.6 9.0 14.4% 13.0%

FY15 12,018 1,013 754 8.3 21.6 15.6 9.0% 8.4%

FY16E 13,554 1,381 809 8.9 20.1 11.8 9.0% 8.5%

FY17E 16,037 2,009 1,290 14.3 12.6 7.7 13.4% 12.7%

Date 15 June 2015

Market Data

SENSEX 26425

Nifty 7983

Bloomberg UL IN

Shares o/s 91mn

Market Cap Rs. 16bn



Index member BSE200


Promoters 50.1

Institutions 18.1

Public 31.7

Initiating Coverage Unichem laboratories (ULL) is among the leading players in the CVS and CNS therapies in India. Over the last five

years, ULL performance was impacted due to restructuring in distribution model, NLEM impact and lower growth in

power brands in India and slower product approvals in the US. We expect India business to turnaround from FY16 as

company has taken various initiatives such as re-aligning field force and product basket, improving its reach to tier II to

tier IV cities and launching new products in fast growing Musculoskeletal, Gynaecology & dermatology therapies. On

US front, we believe product approvals should accelerate from FY16 (~40% of pending ANDAs age >3 years) and expect

6-7 product launches including key products like gNamenda ($1.7bn) and gAbilify ($7.8 bn) over the next two years. We

believe that the worst is behind in terms of performance and ULL is gearing up for a strong growth recovery in the near

term. We expect revenues, EBITDA and net profit to grow at a CAGR of 16%, 41%, and 31%, respectively over FY15-17E.

We initiate coverage on ULL with Buy rating with TP of Rs. 228, 16xFY17E EPS of Rs. 14.3.

Initiatives are in place to bring back growth in India: ULL has underperformed vis-a-vis Industry (UL: 3.1% vs IPM: 11%) in

last five years due to i) restructuring of distribution model and inventory rationalisation, ii) muted growth in power brands

(Sartans contributes 30% of India sales, up only 1% CAGR), and iii) addition of new products to price control list. India

business contributes ~55% of sales. To bring back the growth in Indian business, UL has re-aligned its product basket into

‘growth portfolio’ and ‘mature portfolio’ segments. It is focusing on growth in ‘growth portfolio’ segment by launching new

products in fast growing therapies like Musculoskeletal, Gynaecology and dermatology. On the other hand, it is also arresting

de-growth in ‘mature portfolio’ by enhancing its reach to GPs in tier III/IV cities. We believe these initiatives would bring back

growth in the India business. We expect domestic sales to grow at a CAGR of 9% over FY15-17E.

US business to lead exports growth: In the last 4-5 years, ULL’s focus has been on enhancing its presence in exports,

especially to regulated markets like US and EU. Currently, export formulations contribute ~37% of sales. We believe US to be

the key growth driver in exports as Unichem has a healthy drug pipeline. It has filed 34 ANDAs (primarily CVS & CNS),

received approvals for 17 products (including two tentative approvals) and launched 14 products. It is also developing 15

ANDAs including few complex generics. ULL is facing significant delay in product approvals as it has received only 2

approvals in FY14 & FY15. Despite that, the US sales have doubled (US$ 24.9mn in FY15 vs.US$ 12.4 mn in FY14) and

EBTIDA turned into green in FY15. This was primarily due to increase in the market share of existing products. We believe

product approvals should accelerate from FY16 as 5-6 products out of the 17 pending ANDAs are having filing age > 36

months. We expect Unichem to launch 6-7 products in next two years including key products like gNamenda and gAbilify. We

expect US sales to grow at a CAGR of 37% on a low base over FY15-FY17E and EBITDA margins jump sharply on account

of operating leverage



On the cusp of a recovery; Strong growth visible next 2 years

Page 114


Rs. 180

Target

Rs. 228

Rating

BUY



Sales Break up FY15




Business Overview

Plant Cater to Regulatory approvals

Formulation

Baddi India UK MHRA, ANVISA & WHO

Ghaziabad Regulated & Developing markets USFDA, ANVISA, TGA, UKMHRA &

WHO

Goa Regulated & Developing markets USFDA, ANVISA, TGA, UKMHRA &

WHO

Sikkim India

Ireland Packing facility Irish Medical Board & Kazakhstan

regulatory

API

Roha Across geographies USFDA, EDQM, WHO, PMDA, EU

GMP, KFDA, ISO, OHSGS & M-FDA

Pithampur Across geographies USFDA, EU GMP, WHO, Cofepris

FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY15-17E

CAGR

Formulations

India 5,758 5,333 6,349 6,551 6,510 7,095 7,805 9%

Exports 1,118 1,619 2,536 2,552 3,128 4,038 5,289 30%

APIs

India 220 209 219 269 232 208 188

Exports 483 778 865 919 900 821 728

India formulations

61%

Export formualtions

29%

India APIs2%

Export APIs8%

Page 115


Rs. 180

Target

Rs. 228

Rating

BUY

India sales to grow at a CAGR of 9% in FY15-17E


Muted sales growth over five years…


Strategy in place for domestic turnaround

Focus to improve MS in sartan…

Source: Company, Spark Capital Research; Sales in Rs. Mn

Rs. Mn FY11 FY12 FY13 FY14 FY15

Losartan & Combo

IPM 5,280 5,360 5,530 5,240 5,100

ULL 1,635 1,599 1,757 1,677 1,663

MS (%) 31% 30% 32% 32% 33%

Telmisartan & Combo

IPM 4,860 7,150 9,400 11,820 14,490

ULL 295 367 421 464 500

MS (%) 6% 5% 4% 4% 3%

Olmesartan & Combo

IPM 1,850 2,890 3,950 4,860 5,840

ULL 168 246 271 313 321

MS (%) 9% 9% 7% 6% 5%

Restructuring largely over…


Productivity to improve going ahead


Strategy in place

Re-aligned product basket into mature portfolio

(~40% domestic sales) and growth portfolio

(~60% of sales)

Also re-aligned MR strength to improve

productivity

Expanding portfolio in high growth therapies

like Musculoskeletal, Gynecology and

dermatology

Looking to expand in non-urban areas, mainly

GPs in Tier III/IV

Increasing focus towards OTC segment

5,758 5,333

6,349 6,551 6,510

9%

-7%

19%

3%

-1%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000


Rs. M

n

India Gr (%)

100% 95%

57% 45%

20%

0% 5%

43% 55%

80%

0%

20%

40%

60%

80%

100%


% t

o In

dia

n s

ale

s

Distributors CNF

1700

1800

2100

2736

2675

2825

2975

3125

3.4

3.0 3.0

2.4 2.4 2.5 2.6

2.8

1.5

2.0

2.5

3.0

3.5

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16E

FY

17E

FY

18E

Rs. M

n

Nu

mb

er

of

MR

s

Field force productivity

6,510 7,095

7,805 8,742

0

2,000

4,000

6,000

8,000

10,000


Rs. M

n

India

Page 116


Rs. 180

Target

Rs. 228

Rating

BUY

9

11

15

17 17

8

14 14 14

17

0

2

4

6

8

10

12

14

16

18


No

. o

f A

ND

As

Approved Pending approval

Key product launches in the next two years

Source: USFDA, Company, Spark Capital Research

Product launches in US hold the key

API Therapy Brand Market

size $ mn

Players in

market

Memantine HCl CNS Namenda 1700 No

Irbesartan CVS Avapro 50 17

Irbesartan HCTZ CVS Avalide 20 14

Aripiprazole CNS Abilify 7800 5

Tiagabine HCl CNS Gabitril 20 2

Zolmitriptan CNS Zomig 30 8

Zolmitriptan ODT CNS Zomig-ZMT 10 4

Tolterodine Tartarate CNS Detrol 15 4

Donepezil HCl CNS Aricept 300 26

Donepezil HCl ODT CNS Aricept ODT 3 5

Timely product approvals can double US sales


US to boost overall exports


Niche Generics UK disappoints again in FY15


Bunching up of approvals expected


Healthy pipeline in place…

Entered US market in FY10

Launched 14 products in the US through its own

front end

Till date 34 ANDAs have been filed; majority are

CVS and CNS drugs. Received approval for 17

drugs

In the process of developing 15 ANDAs including a

few complex products

US sales doubled in FY15 mainly due to expansion

in market shares

Expanding capacity in Goa facility to cater to

increased sales

12.3

24.9

34.1

46.7

64.0

7%

13%

15%

18%

22%

0%

5%

10%

15%

20%

25%

0

10

20

30

40

50

60

70


US

$ M

n

US formulations % revenues

3,128

4,038

5,289

6,295

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000


Rs. M

n

Exports

10.0 10.3 10.8 10.5 9.3

-0.7 -0.2

0.1 0.2

-0.5 -2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0


GB

P. M

n

Sales Profitability

Page 117


Rs. 180

Target

Rs. 228

Rating


Margins to pick up on domestic recovery


New launches US and recovery in domestic business to drive growth


1-Yr forward PE


Return ratios to move northwards


1,778

1,013

1,381

2,009

2,356 15.7%

8.4%

10.2%

12.5%

13.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

500

1,000

1,500

2,000

2,500


Rs. M

n


11,334 12,018 13,554

16,037

18,133

5% 6% 13%

18%

13%

0%

4%

8%

12%

16%

20%

0

4,000

8,000

12,000

16,000

20,000


Rs. M

n

Revenues Growth (%)

14.4%

9.0% 9.0%

13.4% 14.7%

13.0%

8.4% 8.5%

12.7% 14.0%

0%

4%

8%

12%

16%


RoNW (%) RoIC (%)

0

50

100

150

200

250

300

350

400

Jan-0

9

Apr-

09

Jul-09

Oct-

09

Jan-1

0

Apr-

10

Jul-10

Oct-

10

Jan-1

1

Apr-

11

Jul-11

Oct-

11

Jan-1

2

Apr-

12

Jul-12

Oct-

12

Jan-1

3

Apr-

13

Jul-13

Oct-

13

Jan-1

4

Apr-

14

Jul-14

Oct-

14

Jan-1

5

Apr-

15

12M fwd P/E

CM

P (

Rs.)

19x

4x

7x 10x 13x

16x

Page 118


Rs. 180

Target

Rs. 228

Rating





Revenue 11,334 12,018 13,554 16,037 Revenue 4.9% 6.0% 12.8% 18.3%

EBITDA 1,778 1,013 1,381 2,009 EBITDA 2.0% -43.0% 36.3% 45.4%

Depreciation 457 413 461 502 Adjusted PAT -1.7% -32.2% 7.3% 59.4%

EBIT 1,321 601 921 1,507 Margin ratios



Exceptional items / Forex gain / (loss) -581 0 0 0 Performance ratios

PBT 1,542 774 1,037 1,624 RoE 14.4% 9.0% 9.0% 13.4%

PAT (after minority interest) 1,693 754 809 1,290 RoIC 13.0% 8.4% 8.5% 12.7%

Adjusted PAT (after MI) 1,112 754 809 1,290 Core RoIC 11.4% 6.5% 7.5% 17.5%



Total debt 257 220 188 188 Financial stability ratios

Other liabilities and provisions 731 690 509 509 Net Debt to Equity (x) (0.0) (0.0) 0.0 (0.1)






Cash and bank balances 578 620 94 1,061 Fully Diluted Shares (mn) 90.5

Other long term assets 0 152 1,028 1,088 Market cap (Rs.mn) 16,258


Total assets 11,446 11,687 12,892 13,433 P/E (x) 14.6 21.6 20.1 12.6


Cash flows from Operations 698 1,218 1,928 2,552 EV/ EBITDA (x) 9.0 15.6 11.8 7.7

Cash flows from Investing 357 -854 -1,976 -1,160 BV/ share (Rs.) 90.3 95.9 101.9 111.5

Cash flows from Financing -949 -322 -479 -423 Price to BV (x) 2.0 1.9 1.8 1.6


Overweight Disclaimer

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Absolute

Rating

Interpretation

BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% – -10% over a 1-year

horizon

ADD Stock expected to provide positive returns of >5% – <15% over a 1-year

horizon SELL Stock expected to fall >10% over a 1-year horizon


Overweight Disclaimer (Cont’d)

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Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report:

Disclosure of interest statement Yes/No

Analyst financial interest in the company No

Group/directors ownership of the subject company covered No

Investment banking relationship with the company covered No

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Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months:

Managing/co-managing public offering of securities

Investment banking/merchant banking/brokerage services

products or services other than those above

in connection with research report

No

Whether Research Analyst has served as an officer, director or employee of the subject company covered No

Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company; No

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