ICICI Securities Ltd. | Retail Equity Research November 18, 2015 Monthly Update DRL warning letter, India slowdown in Q2… For Q2FY16, the I-direct pharma universe (ex-Sun Pharma) registered YoY revenue growth of 15.8% to | 27744 crore, driven by strong growth in the US. US growth, in turn, was driven by one-off opportunities of Torrent Pharma and Alembic Pharma for gAbilify and Cipla for gNexium. However, slow growth in the domestic acute segment owing to withdrawal of bonus offers to distributors and a poor monsoon spell kept the overall pharma universe growth in check. The quarter also witnessed currency headwinds in emerging markets like Russia, Venezuela, Franco Africa and Latin America. The EBITDA for the universe grew 34.4% YoY to | 6958 crore. Higher growth vis-à-vis revenue growth was on account of margin expansion as stronger US traction nullified the currency impact in emerging markets and even higher R&D spends. Adjusted net profit also grew 34.4% YoY to | 4279.8 crore. On the revenue front, Alembic Pharma (~84% YoY), Torrent Pharma (~39% YoY) and Cipla (~25% YoY) registered strongest growth driven by robust US sales. Apart from these, Ajanta, Cadila and Apollo Hospitals also reported strong revenue growth. On the other hand Lupin, Glenmark, Ipca, Dr Reddy’s, Sun Pharmaceuticals, Indoco and Jubilant reported a weak set of numbers due to lack of product approvals, impact of currency volatility and lack of launches for want of regulatory issues at the plant level. In a major blow to DRL, USFDA has slapped a warning letter on three of its plants. These include two API facilities at Srikakulam, Andhra Pradesh & Miryalaguda, Telangana and one oncology formulation facility at Duvvada, Vishakhapatnam. The management indicated that together these three facilities contribute 10-12% to revenues. Cipla's Indore facility also received nine 483 observations from USFDA related to quality control and product safety. On the domestic front, the Indian pharmaceutical market (IPM) registered robust growth of 21.8% YoY to | 8601 crore for October. Growth was mainly driven by volume growth – 13.2% (albeit on a lower base), price hikes – 5.5% and new product launches – 3.2%. On a MAT basis, IPM growth was at 14.7% YoY to | 94495 crore. Among our covered companies, Glenmark registered highest growth of 43.6% YoY followed by Alembic, Unichem, Ipca, Lupin and Cadila registering growth of 31.4%, 26.6%, 25.8%, 22.2% and 22.1% respectively. Compliance issues, subdued numbers likely to keep pharma fleet grounded The DRL warning letter and a possibility of a similar kind of embargo for Sun Pharma have somewhat dampened the mood in the pharma space besides subdued numbers from Lupin and Sun. Similarly, the slowdown in Indian branded formulations was also a negative surprise as this segment was supposed to be a safe haven. Most companies cited the seasonality aspect and poor monsoon as the main reason, which predominantly affected the anti-infective segment. Despite these odds we continue to maintain our long term bullish view on the sector on the back of earning visibility, consistent operating cash flows and strong balance sheets besides thrust for higher R&D spend. We believe current USFDA issues will strengthen the quality compliance aspects of most companies, which own US franchisees. EM currency issues and domestic formulation slowdown seem to be temporary issues. Lupin and DRL are our top picks from the large cap pharma space whereas Cadila, Torrent and Ajanta Pharma are our preferred picks from the midcap space, among others. Health Check Sector view Outperformer Index performance as on November 17, 2015 Return (%) 1M 3M YTD 1Y CNX 500 -4 -8 -3 -4 Nifty -5 -8 -6 -7 CNX Pharma -11 -9 7 6 Return (%) Stock performance Mcap Company 1M 3M YTD 1Y 17-Nov Sun Pharma.Inds. -15 -15 -9 -13 214053 Lupin -13 3 26 24 92336 Dr Reddy's Labs -21 -19 4 -2 71509 Cipla -6 -6 2 5 54563 Aurobindo Pharma 3 5 46 45 48408 Cadila Health. -2 3 28 33 43970 Glenmark Pharma. -4 -15 27 24 28376 Divi's Lab. 5 -2 31 31 28924 Glaxosmit Pharma -6 -15 -3 9 27944 Torrent Pharma. 2 -3 37 56 26567 Apollo Hospitals -9 -3 16 14 19800 Wockhardt 1 -4 60 97 17551 Ajanta Pharma -10 -18 46 56 13763 Alembic Pharma -8 -10 49 46 12789 Pfizer -1 5 12 44 11460 Ipca Labs. -1 -7 4 13 9520 Natco Pharma -4 11 63 80 8970 Biocon 0 -6 6 2 8907 Strides Arcolab 7 3 42 88 7815 Jubilant Life 5 14 237 193 6549 Indoco Remedies -7 -16 -2 -1 3095 Unichem Labs. -6 18 17 22 2572 Return (%) M Market cap in | crore Price movement 5000 6000 7000 8000 9000 10000 11000 12000 13000 14000 15000 Nov-14 Feb-15 May-15 Aug-15 Nov-15 4000 6000 8000 10000 12000 CNX Pharma Nifty (RHS) Research Analyst Siddhant Khandekar [email protected]Mitesh Shah [email protected]Nandan Kamat [email protected]
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ICICI Securities Ltd. | Retail Equity Research
November 18, 2015
Monthly Update
DRL warning letter, India slowdown in Q2… For Q2FY16, the I-direct pharma universe (ex-Sun Pharma) registered YoY revenue growth of 15.8% to | 27744 crore, driven by strong growth in the US. US growth, in turn, was driven by one-off opportunities of Torrent Pharma and Alembic Pharma for gAbilify and Cipla for gNexium. However, slow growth in the domestic acute segment owing to withdrawal of bonus offers to distributors and a poor monsoon spell kept the overall pharma universe growth in check. The quarter also witnessed currency headwinds in emerging markets like Russia, Venezuela, Franco Africa and Latin America. The EBITDA for the universe grew 34.4% YoY to | 6958 crore. Higher growth vis-à-vis revenue growth was on account of margin expansion as stronger US traction nullified the currency impact in emerging markets and even higher R&D spends. Adjusted net profit also grew 34.4% YoY to | 4279.8 crore. On the revenue front, Alembic Pharma (~84% YoY), Torrent Pharma (~39% YoY) and Cipla (~25% YoY) registered strongest growth driven by robust US sales. Apart from these, Ajanta, Cadila and Apollo Hospitals also reported strong revenue growth. On the other hand Lupin, Glenmark, Ipca, Dr Reddy’s, Sun Pharmaceuticals, Indoco and Jubilant reported a weak set of numbers due to lack of product approvals, impact of currency volatility and lack of launches for want of regulatory issues at the plant level. In a major blow to DRL, USFDA has slapped a warning letter on three of its plants. These include two API facilities at Srikakulam, Andhra Pradesh & Miryalaguda, Telangana and one oncology formulation facility at Duvvada, Vishakhapatnam. The management indicated that together these three facilities contribute 10-12% to revenues. Cipla's Indore facility also received nine 483 observations from USFDA related to quality control and product safety. On the domestic front, the Indian pharmaceutical market (IPM) registered robust growth of 21.8% YoY to | 8601 crore for October. Growth was mainly driven by volume growth – 13.2% (albeit on a lower base), price hikes – 5.5% and new product launches – 3.2%. On a MAT basis, IPM growth was at 14.7% YoY to | 94495 crore. Among our covered companies, Glenmark registered highest growth of 43.6% YoY followed by Alembic, Unichem, Ipca, Lupin and Cadila registering growth of 31.4%, 26.6%, 25.8%, 22.2% and 22.1% respectively. Compliance issues, subdued numbers likely to keep pharma fleet grounded The DRL warning letter and a possibility of a similar kind of embargo for Sun Pharma have somewhat dampened the mood in the pharma space besides subdued numbers from Lupin and Sun. Similarly, the slowdown in Indian branded formulations was also a negative surprise as this segment was supposed to be a safe haven. Most companies cited the seasonality aspect and poor monsoon as the main reason, which predominantly affected the anti-infective segment. Despite these odds we continue to maintain our long term bullish view on the sector on the back of earning visibility, consistent operating cash flows and strong balance sheets besides thrust for higher R&D spend. We believe current USFDA issues will strengthen the quality compliance aspects of most companies, which own US franchisees. EM currency issues and domestic formulation slowdown seem to be temporary issues. Lupin and DRL are our top picks from the large cap pharma space whereas Cadila, Torrent and Ajanta Pharma are our preferred picks from the midcap space, among others.
Exhibit 1: Summary of USFDA approvals for October 2015
[5
Company Drug Name Therapeutic Area Innovator company Generic Version of Market SizeAlembic Pharma Memantine Hydrochloride CNS Forest Labs Namenda US$ 1.1 billionAurobindo Pharma Tramadol Hydrochloride Anti-inflammatory Valeant Intl Ultram ER US$ 132 millionAurobindo Pharma Memantine Hydrochloride CNS Forest Labs Namenda US$ 1.1 billionAurobindo Pharma Aripiprazole CNS Otsuka Abilify US$ 7.8 billionGlenmark Pharma Betamethasone Dipropionate; Clotrimazole Dermatology Merck Sharp Dohme Lotrisone NAJubilant Life Sciences Rizatriptin Benzoate CNS Merck Maxalt - MLT NAJubilant Life Sciences Memantine Hydrochloride CNS Forest Labs Namenda US$ 1.1 billionJubilant Life Sciences Indomethacin Anti-Inflammatory Iroko Pharma Tivorbex NALupin Donepezil Hydrochloride CNS Eisai Inc. Aricept US$ 52.3 millionLupin Blisovi 24 FE Sex-stimulant Warner Chilcott Estrostep 21 NATorrent Pharma Esomeprazole Magnesium GI Astrazeneca Nexium US$ 7.3 billionTorrent Pharma Memantine Hydrochloride CNS Forest Labs Namenda US$ 1.1 billionUnichem Labs Memantine Hydrochloride CNS Forest Labs Namenda US$ 1.1 billionUnichem Labs Montelukast Sodium Anti-asthama Merck Singulair US$ 3.5 billion
Company Drug Name Therapeutic Area Innovator company Generic Version of Market SizeAjanta Pharma Irbesartan Anti-Hypertensive Sanofi Aventis Avapro US$ 50 millionAjanta Pharma Omeprazole; Sodium Bicarbonate GI Santarus Zegerid NAAurobindo Pharma Tadalafil CVS Eli Lilly Adcirca NAGlenmark Pharma Lacosamide Epilepsy UCB Inc Vimpat US$ 365 millionLupin Milnacipran Hydrochloride CNS Forest Labs Fetzima NATorrent Pharma Olmesartan Medoxomil CVS Daiichi Sankyo Benicar NA
Final Approvals
Tentative Approvals
CNS: Central Nervous System; CVS: Cardiovascular, NA: Not available; Source: USFDA, ICICIdirect.com Research
M&As, demergers and JVs
Sun Pharma completes InSite Vision acquisition Sun Pharma has completed the acquisition of US-based eye care company InSite Vision. In September, the company had announced its plan to acquire InSite Vision for around US$48 million plus related debt and other transaction costs to strengthen its branded ophthalmic portfolio in the US. Natco launches Hepatitis C drug in Nepal Natco Pharma launched chronic Hepatitis C drug Hepcinat in Nepal. Natco had signed a non-exclusive licensing agreement with Gilead Sciences earlier in 2015, to manufacture and sell generic versions of its chronic hepatitis C medicines, including Harvoni in India and other 100 developing countries. Cipla to sell Biomab stake Cipla plans to sell its entire 25% stake in Biomab Holding, Hong Kong to Biomab Brilliant, which holds the remaining 75% stake in BHL, for a total consideration of US$25.8 million. Glenmark enters into agreement with Celon Pharma Glenmark Pharma entered into an agreement with Celon Pharma to develop and market a generic version of GSK's Seretide Accuhaler in Europe used for treatment of lung diseases. Capex/Investments/Fund raising
FIPB rejects Apollo Hospitals’ proposal FIPB has rejected Apollo Hospitals' proposal seeking to allow foreign direct investment (FDI) into the company through a | 750 crore rights issue. Lawsuits/court rulings/settlements
Sun Pharma settles litigation with Acorda Therapeutics Sun Pharma has settled a patent litigation with US-based Acorda Therapeutics over Ampyra extended-release tablets (multiple sclerosis). As a result of the settlement agreement, Sun will be permitted to market gAmpyra in US in 2027, or potentially earlier under certain circumstances.
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Price cuts/ New Launches / Recalls
DPCO revises prices of 18 new products Prices of 18 formulation packs have been fixed/revised under the Drug Price Control Order (DPCO), 2013. Cipla, Alembic Pharma and Unichem Laboratories will be impacted by the government's move on prices fixation and revision. Sun Pharma initiates Class-III recall Sun Pharma has recalled over 10 lakh boxes of its anti-allergic Loratadine drug from the US market as the lot was found to be 'super potent' and 'out of specification'. The recall has been put under Class-III. Import alerts/Warning letters/483 observations
DRL receives warning letters for three of its facilities Dr Reddy’s (DRL) has received a warning letter from the USFDA for three of its manufacturing facilities. These include two API facilities at Srikakulam, Andhra Pradesh and Miryalaguda, Telangana and one oncology formulation facility at Duvvada, Vishakhapatnam. Inspections for these facilities were conducted in November 2014, January 2015 and February 2015, respectively. The management has indicated that together these three facilities contribute 10-12% to revenues. Cipla receives 483 observations Cipla's Indore facility has received nine 483 Observations from the USFDA. The observations related to quality control and product safety. Others
Torrent Pharma commences new facility Torrent Pharma has commenced production in phase I from its new plant in Dahej, Gujarat. The facility has been set up in two phases, the first phase of which has come up at an investment of | 650 crore. Cadila Healthcare to start Phase II clinical trials for Saroglitazar USFDA has endorsed Zydus Cadila’s plan to initiate Phase II clinical trials for Hypertriglyceridemia drug Saroglitazar for three dosages (1 mg, 2 mg & 4 mg). More than four million adults in the US suffer from severe Hypertriglyceridemia. Q2FY16 results
Adverse product mix hits Apollo margins Revenues increased 20% YoY to | 1265 crore on the back of 34.7% YoY increase in pharmacy business to | 520.1 crore. The healthcare business grew 11.6% to | 745 crore to | 745 crore. EBITDA margins declined only 52 bps to 14.3% on account of an adverse product mix. EBITDA increased 15.8% YoY to | 181.1 crore. Net profit rose 9.8% to | 90.8 crore. US driven growth continues for Aurobindo Pharma Revenues grew 15.7% YoY to | 3333.5 crore on account of 25.8% growth in the US to | 1477.5 crore. The Europe business remained flat at | 764.3 crore. EBITDA margins increased 115 bps YoY to 23.3% due to lower employee cost and other expenditure. EBITDA grew 21.7% to | 775.6 crore. Adjusted net profit (ex-forex loss) grew 23.0% YoY to | 456.5 crore owing to a better operational performance and lower taxation.
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Ajanta Pharma maintains growth tempo Revenues grew 17.7% YoY to | 437.7 crore on the back of 20.8% growth in exports to | 302 crore. Domestic sales grew 14.9% to | 131 crore. EBITDA margins improved 51 bps YoY to 35.1% on account of 280 bps improvement in gross profit margins to 77.3%. EBITDA increased 19.4% YoY to | 153.8 crore. Net profit increased 20.4% YoY to | 100 crore on the back of a robust operational performance. Alembic Pharma witnesses blow-out quarter driven by gAbilify Revenues grew 84.4% YoY to | 1008.8 crore, mainly on account of windfall gains from gAbilify (CNS) exclusivity launch in the US. Export generic formulation sales grew 352.8% to | 559.3 crore. On the other hand, domestic formulation sales grew just 0.6% to | 309.7 crore on account of de-growth in Acute segment and animal health business. EBITDA margins increased 1748 bps YoY to 37.3% owing to gAbilify exclusivity sales. EBITDA grew 247.2% YoY to | 376.0 crore. Net profit grew 269.3% YoY to | 288.5 crore owing to a robust operational performance. Biocon registers steady growth driven by Syngene Revenues grew 10.5% YoY to | 836.9 crore. The growth was driven by ~30% growth in the research segment (Syngene) to | 250.4 crore. The biopharma segment grew 2.3% YoY to | 442.8 crore while the branded formulations segment grew 2.6% to | 119 crore. EBITDA margins improved 73 bps YoY to 23.6%. EBITDA grew 14% to | 197.4 crore. Adjusted net profit increased 0.7% to | 102.9 crore. The company generated net exceptional income of ~| 203 crore due to Syngene IPO proceeds and one-time provision. High margins come as surprise for Cadila Healthcare Revenues grew 16.7% YoY to | 2459.5 crore mainly on the back of 25.2% YoY growth in the US formulations business to | 1003.8 crore. Domestic formulations grew 10.4% to | 751.3 crore. EBITDA margins improved 529 bps to 25.3% due to better gross margins. Gross margins improved from 61% to 67.2%. EBITDA grew 47.6% YoY to | 621.3 crore. PAT grew 40.6% YoY to | 390.9 crore boosted mainly by a strong operational performance. Cipla registers growth on back of gNexium Revenues grew 24.8% YoY to | 3452.4 crore, on account of 50.8% growth in export formulation to | 1874 crore. Domestic formulations grew only 0.9% YoY to | 1262 crore. EBITDA margins increased 269 bps to 22.9% mainly on account of better gross margins and lower other expenditure. EBITDA grew 41.4% YoY to | 789.4 crore. Net profit grew 44.4% YoY to | 431.2 crore on account of a better operational performance. Divi’s Labs maintains growth tempo Revenues grew 15.7% YoY to | 964.3 crore. The generic business grew 19.5% to | 483.0 crore. The CS business grew 13.4% to | 432.8 crore. EBITDA margins improved ~217 bps YoY to 39.0% mainly due to operational leverage and volume expansion. EBITDA grew 22.6% YoY to | 376.0 crore. Net profit grew 28.8% YoY to | 295.7 crore mainly on the back of a robust operational performance. Despite headwinds margin improvement continues for DRL Revenues grew 11.2% YoY to | 3989.0 crore mainly due to strong growth in developed market sales. US sales grew 29.9% to | 1856.3 crore due to Habitrol acquisition, new products launches and market share gain. EBITDA margins increased 592 bps YoY to 29.4% mainly due to lower raw material and SG&A expenses as percentage of sales. EBITDA increased 39.2% to | 1172.4 crore. Net profit increased 25.7% YoY to | 721.9 crore.
ICICI Securities Ltd. | Retail Equity Research
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Glenmark delivers strong all-round performance Revenues grew 11.5% YoY to | 1874.6 crore mainly due to 27.3% YoY growth in domestic markets to | 608.5 crore and 21.2% YoY growth in RoW markets to | 210.9 crore. US sales grew 17.9% YoY to | 598.4 crore. EBITDA margins rose 146 bps YoY to 21.4% due to better gross profit margins. Gross profit margins increased 335 bps YoY to 70.7%. EBITDA increased 19.7% YoY to | 401.9 crore. Net profit increased 21.5% YoY to | 200.4 crore due to a robust operational performance. Restructuring hurts Indoco’s domestic sales Revenues grew 11.6% YoY to | 254.9 crore due to 23.7% YoY growth in export formulations to | 92.9 crore. Domestic formulations grew just 0.5% to | 138.1 crore. EBITDA margins declined 334 bps YoY to 17.9% mainly on account of an increase in employee expenses. EBITDA de-grew 6% to | 45.8 crore. Net profit grew 0.9% YoY to | 22.6 crore. Another washed out quarter for Ipca as export uncertainty remains Revenues de-grew 4% YoY to | 749.2 crore mainly due to 26% YoY de-growth in export formulations to | 227.43 crore. Domestic formulations grew a meagre 1% to | 330.8 crore. EBITDA margins declined 536 bps YoY to 11.9% mainly due to lower gross margins and higher employee cost as percentage of sales. EBITDA de-grew 33.8% to | 89.2 crore. Net profit de-grew 82.7% YoY to | 11.7 crore due to low operational performance and foreign exchange transaction loss of | 23.9 crore. Jubilant maintains margins momentum Revenues increased 6.7% YoY to | 1463.1 crore. Revenue in the pharmaceutical business grew 21.8% YoY to | 748 crore while life science ingredients (LSI) revenue de-grew 5.8% YoY to | 715 crore. EBITDA margins improved ~1382 bps YoY to 21.9% on the back of 1755 bps YoY increase in pharmaceutical EBITDA margins to 28.8% and 839 bps YoY increase in life science ingredients (LSI) margins to 16.5%. EBITDA increased 188.8% YoY to | 320.6 crore. Adjusted net profit was at | 113.5 crore on the back of a robust operational performance. US slowdown hits Lupin performance Revenues grew 4.7% YoY to | 3321.3 crore. US sales de-grew 9.2% to | 1155 crore on the back of a slowdown in product approvals and increased competition. Domestic revenues grew 9.4% to | 873.8 crore. Despite an adverse product mix, the company maintained gross profit margins at 66% YoY. EBITDA margins declined 600 bps to 20.2% mainly on account of higher employee expenses and other expenditure. Net profit declined 35.1% YoY to | 408.8 crore owing to a poor operational performance. Domestic prospects add to global opportunities for Natco Pharma Revenues grew 7.1% YoY to | 234.9 crore. Formulation sales grew 32.8% to | 191.2 crore while API sales de-grew 40.1% to | 39 crore. EBITDA margins declined 193 bps YoY to 24.9% mainly on account of higher employee expenses. EBITDA remained flat at | 58.5 crore. Adjusted net profit declined 8.6% YoY to | 29.6 crore. Remediation, integration work hurt Sun’s numbers Revenues de-grew 14.8 YoY to | 6837.6 crore mainly due to a decline in US sales. US sales declined 23.4% YoY to | 3315.8 crore primarily due to competitive pressure in existing products and temporary supply constraints from Halol facility. Domestic sales increased mere 1.3% YoY to | 1818.7 crore due to inventory adjustment and slow growth in the acute segment led by withdrawal of bonus offers and a soft season. EBITDA margins declined 837 bps YoY to 28.3% due to an increase in employee cost & other expenditure. EBITDA declined 34.3% YoY to | 1933.7 crore. Net profit declined 45.4% YoY | 1106.7 crore mainly due to a below par operational performance.
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gAbilify drives growth for Torrent Pharma Revenues grew 39% YoY to | 1691 crore mainly due to 326% YoY growth in the US to | 711.4 crore on the back of gAbilify launched under exclusivity. Domestic revenues remained flat YoY at | 442 crore due to discontinuance of certain promotional schemes to improve margins. EBITDA margins increased 1979 bps to 42.2%. EBITDA grew 161.5% YoY to | 714.0 crore. Net profit posted growth of 187% YoY to | 568 crore owing to a strong operating performance. Unichem revenues in line but margins still tepid Revenues grew 9.9% YoY to | 305.6 crore on account of 13.1% YoY growth in domestic formulations to | 188.5 crore and 43% growth in US sales to | 51 crore. EBITDA margins declined 73 bps YoY to 11.3%. GPM was at 60.4%. EBITDA increased 3.1% YoY to | 34.4 crore. Net profit increased a mere 3.5% YoY to | 23.1 crore.
ICICI Securities Ltd. | Retail Equity Research
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Q2FY16 Results Review For Q2FY16, the I-direct pharma universe (ex-Sun Pharma) registered YoY revenue growth of 15.8% to | 27744 crore, driven by strong growth in the US. US growth, in turn, was driven by one-off opportunities of Torrent Pharma and Alembic Pharma for gAbilify and Cipla for gNexium. However, slow growth in the domestic acute segment owing to withdrawal of bonus offers to distributors and poor monsoon spell kept the overall pharma universe growth in check. The quarter also witnessed currency headwinds in emerging markets such as Russia, Venezuela, Franco Africa and Latin America. EBITDA for the universe grew 34.4% YoY to | 6958 crore. Higher growth vis-à-vis revenue growth was on account of margin expansion as stronger US traction nullified the currency impact in emerging markets and even higher R&D spends. Adjusted net profit also grew 34.4% YoY to | 4279.8 crore.
On the revenue front, Alembic Pharma (~84% YoY), Torrent Pharma (~39% YoY) and Cipla (~25% YoY) registered strongest growth driven by robust US sales. Apart from these Ajanta, Cadila and Apollo Hospitals also reported strong revenue growth. On the other hand Lupin, Glenmark, Ipca, Dr Reddy’s, Sun Pharma, Indoco and Jubilant reported a weak set of numbers due to lack of product approvals, impact of currency volatility and lack of launches for want of regulatory issues at the plant level. Revenues from the US (ex-Sun Pharma) grew ~27% YoY to | 6803 crore during the quarter driven by gAbilify exclusivity for Torrent. Note that the US growth has not captured gNexium traction for Cipla and gAbilify for Alembic for want of non-disclosure of specific traction by the respective companies. Companies such as Aurobindo, Cadila and DRL have also registered strong YoY growth whereas Lupin and Sun Pharma were laggards on account of slowdown in product approvals and regulatory issues. The Indian formulations business (ex-Sun Pharma) witnessed growth of ~9% to | 5693 crore. Slow growth in domestic sales can be attributed to withdrawal of bonus offers to distributors and seasonality impact in acute segment. Among companies Ajanta, Alembic and Glenmark beat the trend and witnessed strong growth during the quarter.
Aurobindo Pharma BUY BUY Inline Alembic Pharma BUY BUY Above Windfall gain from gAbilify exclusivity launchBiocon HOLD HOLD Inline
Cadila Healthcare BUY BUY Inline
Cipla HOLD BUY Below lower-than-expected gNexium sales in the US and flat growth in domestic formulations
Divi's labs HOLD BUY Above Revenue and EBITDA margins were in-line; beat in net profit growth due to higher-than-expected other income.
Dr Reddy's Labs BUY BUY Above Revenue was in-line; Beat on profitability due to strong gross margin and Lower SG&A expenses
Glenmark Pharma HOLD BUY Above Higher than expected growth across geographies (except LatAm); Better Gross profit margins accounted for better Operational performance
Indoco Remedies BUY BUY Inline
Ipca labs HOLD HOLD Below Miss vis-à-vis our expectations was mainly due to lower-than-expected institutional sales
Jubilant Life Sciences HOLD HOLD Inline
Lupin BUY BUY Below Revenue was in-line; margins were impacted mainly due to higher than expected employee cost and other expenditure
Natco Pharma BUY HOLD Below Miss vis-à-vis our expectation on account of lower-than- expected export sales due to absence of Venezuelan tender sales and slow growth in Brazil
Sun Pharma HOLD HOLD Inline
Torrent Pharma BUY BUY Below Lower than expected gAbilify growth
Unichem Labs HOLD BUY Below Revenue in-line; miss in profitability vis-à-vis our expectations was mainly due to adverse product mix and higher employee cost
Source: Bloomberg, ICICIdirect.com Research
ICICI Securities Ltd. | Retail Equity Research
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Exhibit 9: Patent litigations in last 12 months [5
Month Innovator ANDA Filer Brand Name API Used for Oct-14 Novartis Pharma Dr. Reddy's Labs Gleevec Imatinib LeukemiaOct-14 Braintree Laboratory Inc. Taro Pharma Suprep Sodium Sulphate Bowel PreparationOct-14 Cephalon Inc. Wockhardt Treanda Bendamustine LeukemiaNov-14 Biomarin Pharma Dr. Reddy's Labs Kuvan Sapropterin Dihydrochloride phenylketonuriaNov-14 Otsuka Pharma Cadila Healthcare Abilify Aripiprazole CNSNov-14 Otsuka Pharma Alembic Pharma Abilify Aripiprazole CNS
IPM grows 21.8% in October… • The Indian pharmaceutical market (IPM) registered robust growth of
21.8% YoY to | 8601 crore for October. Growth was mainly driven by volume growth – 13.2% (albeit on lower base), price hikes – 5.5% and new product launches – 3.2%
• Drugs under NLEM list witnessed growth of 15.4% YoY to | 1072 crore while non-NLEM drugs posted growth of 22.9% to | 7157 crore. Volume growth in NLEM and non-NLEM was 13.4% and 11.7%, respectively
• Among our covered companies, Glenmark registered highest growth of 43.6% YoY followed by Alembic, Unichem, Ipca, Lupin and Cadila registering growth of 31.4%, 26.6%, 25.8%, 22.2% and 22.1% respectively
• Therapy wise, eight therapies have outpaced IPM growth. Notable among them with growth rates- anti-diabetic – 29.8%, dermatology – 23.2%, gastro intestinal 22.4%, anti-infective – 22.1%, respiratory – 21.8% and CVS – 21.1%
• In all, 223 new brands were launched in October 2015 • On a MAT basis, IPM growth was at 14.7% YoY to | 94495 crore • Domestic companies have grown 21.4% while MNC companies have
grown 23.5% in October 2015 Exhibit 10: Domestic formulations - growth trend
8.1
12.8 15
.3
14.0
19.9 21
.7
12.8
18.4
12.5
20
12.7
9.6
21.8
-5
0
5
10
15
20
25
Oct-1
4
Nov
-14
Dec-
14
Jan-
15
Feb-
15
Mar
-15
Apr
-15
May
-15
Jun-
15
Jul-1
5
Aug
-15
Sep-
15
Oct-1
5
(%)
Indian Pharma Market[
Source: AIOCD data base, ICICIdirect.com Research
Exhibit 11: Companies growth in domestic market in October, 2015
RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Add, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Sector view: Over weight compared to index Equal weight compared to index Under weight compared to index Index here refers to BSE 500
ANALYST CERTIFICATION We /I, Siddhant Khandekar CA-INTER Mitesh Shah MS (Finance) Nandan Kamat MBA Finance, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
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Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Siddhant Khandekar CA-INTER Mitesh Shah MS (Finance) Nandan Kamat MBA Finance, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Siddhant Khandekar CA-INTER Mitesh Shah MS (Finance) Nandan Kamat MBA Finance, Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. 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