dr reddy's laboratories drredd) - icici...

ICIC

I S

ecurit

ies –

Retail E

quit

y R

esearch

Result

Update

CMP: | 2586 Target: | 2840 (10%) Target Period: 12 months

Dr Reddy's Laboratories (DRREDD)

HOLD

July 30, 2019

One-off settlement income drives profitability

Revenues grew 3.3% YoY to | 3858 crore (I-direct estimate: | 4359 crore).

Domestic revenues grew 14.6% YoY to | 696 crore (I-direct estimate: | 656

crore). US revenues grew 2.6% YoY to | 1632 crore (I-direct estimate: | 1487

crore). EBITDA margins contracted 93 bps to 19.6% (I-direct estimate:

23.4%). The decline in gross margins was largely offset by lower other

expenditure. EBITDA de-grew 1.4% YoY to | 758 crore against I-direct

estimate of | 1019.7 crore. Net profit grew 45.4% YoY to | 692.2 crore (I-

direct estimate: | 640.1 crore). Delta vis-à-vis EBITDA was mainly due to

higher other income. Other income includes settlement income of | 350 core

received from Celgene.

US going through rough patch but promising launches ahead

Despite a challenging time, US remains a key driver for the company,

contributing ~42% to total revenues. The company has a strong pending

pipeline comprising 104 (58 Para IV filings, 34 FTFs) and three NDAs under

505 (b)(2) route. We expect US sales to grow at a CAGR of 11% to | 7395

crore in FY19-21E on the back of new launches specially NuvaRing.

Russia CIS, India to provide more stability

These two markets are more or less identical in nature (branded generics,

OTC) with similar growth potential and similar kinds of risks. Dr Reddy’s is

well versed with the dynamics of Russia by virtue of being an early mover.

We expect strong growth in these markets on the back of a stabilising

currency, geographical expansion, robust biological portfolio and ramp up

in institutional business. For India, growth is expected to be largely from

launches in the oncology, biosimilars space, UCB like acquisitions besides

an improvement in productivity.

Valuation & Outlook

Revenues were driven by strong growth in India, Europe and RoW markets.

After weeding out one-offs, exceptional items, postponements etc, the

current narrative of the company remains intact- 1) focus on few

remunerative products and 2) control over cost and capital. The

management remains committed to working on cost rationalisation,

especially on the SGN&A front and calibrating of R&D spend more towards

global generics front (30+ US launches targeted in FY20) and biosimilars

and lower towards proprietary products. We expect EBITDA margins to

improve in FY19-21 due to key launches in the US, control on overheads and

likely reduction in the regulatory spend. Overall, it is still a work in progress

for the company with product/segment identification for growth and cost

rationalisation drive likely to continue for the next few quarters. We arrive at

our new target price of | 2840 based on 18x FY21E EPS of ~| 157.7.

Key Financial Summary

(|crore) FY18 FY19 FY20E FY21E CAGR (FY19-21E) %

Revenues 14281.0 15448.2 16837.0 18104.4 8.3

EBITDA 2351.2 3151.6 3839.9 4113.3 14.2

EBITDA Margins (%) 16.5 20.4 22.8 22.7

Adjusted PAT 946.8 1906.3 2714.2 2619.4 17.2

EPS (Adjusted) 57.0 114.8 163.4 157.7

PE (x) 46.8 23.3 16.3 16.9

EV to EBITDA (x) 20.1 14.3 11.4 10.1

RoE (%) 7.2 13.6 16.6 14.2

RoCE (%) 6.1 11.1 16.1 15.6

Source: ICICI Direct Research; Company

Particulars

Particular Amount

Market Capitalisation | 44338 crore

Debt (FY19) | 3413 crore

Cash & equivalents (FY19) | 223 crore

EV | 47528 crore

52 week H/L (|) 2965/1873

Equity capital | 83.0 crore

Face value | 5

Key Highlights

After weeding out one-offs,

exceptional items, postponements

etc, the current narrative of the

company remains intact- 1) focus on

few remunerative products and 2)

control over cost and capital

The management remains

committed to working on cost

rationalisation

However, overall, it is still work in

progress for it with product/segment

identification for growth, cost

rationalisation drive likely to continue

for next few quarters

Maintain HOLD

Research Analyst

Siddhant Khandekar

[email protected]

Mitesh Shah

[email protected]

ICICI Securities | Retail Research 2

ICICI Direct Research

Result Update | Dr Reddy's Laboratories

Exhibit 1: Variance Analysis

Q1FY20 Q1FY20E Q1FY19 Q4FY19 YoY (%) QoQ (%) Comments

Revenue 3,858.2 4,359.1 3,736.5 4,029.6 3.3 -4.3

Strong growth in India, Europe and RoW was largely offset by decline

in PSAI segment. US revenues grew 2.6% YoY to | 1632 crore. Miss

vis-à-vis I-direct estimates was mainly due to postponement of

proprietary income from sale of CNS brands

Raw Material Expenses 1,206.9 1,363.6 1,004.9 1,262.4 20.1 -4.4

A 439 bps YoY decline in gross margins mainly due to lower gross

margins in PSAI segment and one-off inventory adjustment (80 bps) in

Global Generics

Gross Profit 2,651.3 2,995.5 2,731.6 2,767.2 -2.9 -4.2

Employee expenses 861.5 937.2 837.1 841.5 2.9 2.4

Other expenses 1,031.8 1,038.6 1,125.7 1,106.8 -8.3 -6.8

EBITDA 758.0 1,019.7 768.8 818.9 -1.4 -7.4

EBITDA (%) 19.6 23.4 20.6 20.3 -92.9 -67.6

YoY decline mainly due to lower gross margins. Miss vis-à-vis I-direct

estimates mainly due to postponement of proprietary income from

sale of brands

Other Income 430.1 90.4 50.4 83.3 753.4 416.3 Included settlement income of | 350 core received from Celgene

Interest 29.8 20.4 19.5 24.5 52.8 21.6

Depreciation 289.0 247.5 278.7 287.2 3.7 0.6

PBT 869.3 842.1 521.0 590.5 66.9 47.2

Tax 192.8 168.4 53.2 150.8 262.4 27.9

Net Profit 692.2 640.1 476.1 455.4 45.4 52.0

Adjusted PAT 692.2 640.1 476.1 455.4 45.4 52.0

Delta vis-à-vis EBITDA and beat I-direct estimates was mainly due to

one-off settlement income

Key Metrics

US 1,632.2 1,486.9 1,590.3 1,495.7 2.6 9.1YoY growth mainly due to improvement in base business volumes and

new launches

Europe 240.4 221.8 201.6 191.2 19.2 25.7YoY growth primarily on account of new products and volume traction

on account of improvement in supplies

India 696.0 656.0 607.4 650.5 14.6 7.0YoY growth on the back of volume traction, improved realisations in

base business and new product launches

Russia & Other CIS 520.0 575.0 500.0 480.0 4.0 8.3YoY growth primarily driven by new launches and better volume

traction better realisations in some key molecules

RoW 209.6 213.6 164.3 221.0 27.6 -5.2YoY growth primarily on account of new launches and volume traction

in key products

PSAI 453.9 567.9 540.9 676.5 -16.1 -32.9YoY decline and miss via-a-vis I-direct estimates due to decline in

sales volume of certain products

Source: ICICI Direct Research

Exhibit 2: Change in Estimates

(| Crore) Old New % Change Old New % Change

Revenue 17,124.3 16,837.0 -1.7 18,952.3 18,104.4 -4.5

EBITDA 3,587.2 3,839.9 7.0 4,230.1 4,113.3 -2.8Changed mainly due to incorporation of additional proprietary

income from sale of brands

EBITDA Margin (%) 20.9 22.8 186 bps 22.3 22.7 40 bps

Adjusted PAT 2,131.9 2,714.2 27.3 2,642.8 2,619.4 -0.9Changed mainly due to change additional settlement in come in

Q1FY20 and expected proprietary income in Q2FY20

EPS (|) 128.4 163.4 27.3 159.2 157.7 -0.9

FY20E FY21E


Exhibit 3: Change in Estimates

Current

(| crore) FY18 FY19 FY20E FY21E FY20E FY21E

US 5,982.4 5,995.7 6,575.3 7,394.9 6,824.8 7,491.5

Europe 821.6 787.3 884.7 973.1 872.2 959.4

India 2,332.1 2,618.4 2,948.3 3,302.1 2,960.2 3,315.5

Russia & Other CIS 1,650.0 2,050.0 2,250.5 2,520.6 2,327.1 2,676.2 Reduced mainly due to lower-than-expectcted Q1FY20 revenues

RoW 614.7 838.9 985.4 1,133.2 1,005.6 1,156.5

PSAI 2,199.2 2,414.0 2,199.5 2,309.5 2,480.7 2,604.8 Reduced mainly due to lower-than-expected Q1FY20 revenues

Earlier





Conference Call Highlights

Sale of Zembrace brands (US$70 million) will get reflected in Q2 as

the permission from FTC, US came in July

As per the management, gross margins in global generics were

impacted (80 bps) by slow moving inventory provision on a specific

product

R&D during the quarter was at | 361 crore (9.4% of sales), which the

management expects to go up in remaining quarters

Capex during the quarter was | 106 crore while free cash flow

generation was | 850 crore

FY20 tax guidance- 22%

As per the management, the overall US market environment has

been relatively stable, with this base price erosion consistent with

the past few quarters

The company has launched 10 products in the US since March 2019

which include – Daptomycin (anti-infective), Vitamin K injection

(thrombotic), Carboprost injection (obstetrical emergency), OTC

Guaifenesin (cough), Malathion (dermatology) and re-launch of

Isotretinoin (dermatology)

The management expects to launch ~30 products in the US in FY20

The company is open to inorganic deals in India and other emerging

markets

The management has hinted that there only one known competitor

for the NuvaRing market in the US

As per the management, the innovator’s share in gSuboxone market

in the US is still ~50%. DRL’s share in the generic pie is ~20%

As per the management, the time taken from product filing to actual

launch is ~18 months in China




Exhibit 4: Trends in quarterly financials

| Crore Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 YoY (%) QoQ (%)

Total Operating Income 3244.7 3616.3 3723.2 3611.9 3333.2 3559.8 3834.1 3553.9 3736.5 3817.5 3864.6 4029.6 3858.2 3.3 -4.3

Raw Material Expenses 756.4 867.4 815.9 1005.2 959.2 1036.9 1036.7 1006.7 1004.9 1051.7 1175.8 1262.4 1206.9 20.1 -4.4

% of Revenues 23.3 24.0 21.9 27.8 28.8 29.1 27.0 28.3 26.9 27.5 30.4 31.3 31.3 439 bps -5 bps

Gross Profit 2488.3 2748.9 2907.3 2606.7 2374.0 2522.9 2797.4 2547.2 2731.6 2765.8 2688.8 2767.2 2651.3 -2.9 -4.2

Gross Profit Margins (%) 76.7 76.0 78.1 72.2 71.2 70.9 73.0 71.7 73.1 72.5 69.6 68.7 68.7 -439 bps 5 bps

Employee expenses 805.0 816.1 814.6 671.1 807.3 789.0 818.1 800.5 837.1 872.2 805.4 841.5 861.5 2.9 2.4

% of Revenues 24.8 22.6 21.9 18.6 24.2 22.2 21.3 22.5 22.4 22.8 20.8 20.9 22.3 -7 bps 145 bps

Other expenses 1293.1 1305.8 1228.2 1345.1 1243.5 1064.5 1186.6 1183.1 1125.7 1134.3 1078.8 1106.8 1031.8 -8.3 -6.8

% of Revenues 39.9 36.1 33.0 37.2 37.3 29.9 30.9 33.3 30.1 29.7 27.9 27.5 26.7 -338 bps -72 bps

Total Expenditure 2854.5 2989.3 2858.7 3021.4 3010.0 2890.4 3041.4 2990.3 2967.7 3058.2 3060.0 3210.7 3100.2 4.5 -3.4

% of Revenues 88.0 82.7 76.8 83.7 90.3 81.2 79.3 84.1 79.4 80.1 79.2 79.7 80.4 93 bps 68 bps

EBITDA 390.2 627.0 864.5 590.5 323.2 669.4 792.7 563.6 768.8 759.3 804.6 818.9 758.0 -1.4 -7.4

EBITDA Margins (%) 12.0 17.3 23.2 16.3 9.7 18.8 20.7 15.9 20.6 19.9 20.8 20.3 19.6 -93 bps -68 bps

Total Depreciation NA 262.2 266.5 254.3 259.2 270.2 271.5 276.3 278.7 278.6 290.3 287.2 289.0 3.7 0.6

EBITDA NA 364.8 598.0 336.2 64.0 399.2 521.2 287.3 490.1 480.7 514.3 531.7 469.0 -4.3 -11.8

Interest 14.8 12.6 16.4 19.6 21.5 22.3 17.2 17.8 19.5 20.8 24.1 24.5 29.8 52.8 21.6

Exceptional Items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 NA NA

EBT NA 352.2 581.6 316.6 42.5 376.9 504.0 269.5 470.6 459.9 490.2 507.2 439.2 -6.7 -13.4

Total Tax 52.6 95.6 138.5 9.7 23.7 112.3 252.8 49.2 53.2 80.7 101.1 150.8 192.8 262.4 27.9

Tax % NA 27.1 23.8 3.1 55.8 29.8 50.2 18.3 11.3 17.5 20.6 29.7 43.9

Net Profit 153.5 256.6 443.1 306.9 18.8 264.6 251.2 220.3 417.4 379.2 389.1 356.4 246.4 -41.0 -30.9

Adjusted PAT 153.5 308.9 492.3 337.6 66.6 305.4 302.7 272.1 476.1 518.3 500.3 455.4 692.2 45.4 52.0





Company Background

Established in 1984, Dr Reddy’s Laboratories (DRL) is one of India’s

pedigreed players having a firm footing in the US and other export markets

with deep rooted product and market knowledge across therapies. Like

Cipla, DRL also recognised the importance of having good manufacturing

practices (GMP) accreditation in the eighties and eventually got USFDA

approval (first of its kind approval for a formulation facility in India) in 1987.

The company owns 22 manufacturing facilities and four developing centres

across the globe. The facilities have been approved by various agencies

such as the USFDA, WHO-Geneva, UKMHRA, TGA-Australia, MCC-South

Africa, DMA Denmark, Brail Anvisa, among others. Over the years, along

with generics, the company also established itself in the field of discovery of

new chemical entities (NCEs) but with little success.

DRL’s business can be classified into three broad segments- 1) Global

Generics (GG), 2) Pharmaceutical services and active ingredients (PSAI) and

3) Proprietary Products (PP). Global Generics (80% of revenues) includes

branded and unbranded prescription and over-the-counter (OTC) products

business. It also includes the operations of the biologics business. This

segment comprises formulation sales to regulated markets of the US,

Europe and emerging markets such as Russia/CIS, India and RoW.

Pharmaceutical services and active ingredients (16% of revenues) consist of

the active pharmaceutical ingredients (API) business and custom

pharmaceutical services (CPS) business. Proprietary products (PP, 4% of

revenues) consists of NCEs, differentiated formulations and dermatology

focused specialty business operated through Promius Pharma.

DRL is one of the few Indian companies to foray into new drug discovery &

development (NDDS) and new chemical entity (NCE) research. The

company started research operations in 1992 through a non-profit

organisation, Dr Reddy’s Research Foundation, which was later merged into

the company. Despite being an early entrant, the company is yet to taste

success in it. DRL is also the first Indian company to out-license molecules

to big pharma companies.

DRL has spent ~13% of the turnover on R&D in FY18 and is likely to be in

~11% going ahead. Besides ANDAs, it has also filed three new drug

applications (NDAs) in the 505(b)(2) route that are awaiting approval.

It also has Sernivo, a prescription topical steroid spray, used for mild to

moderate plaque psoriasis.

The company entered into a license agreement with XenoPort for exclusive

US rights for XP23829 on milestone and double digit royalty basis. DRL plans

to develop XP23829 as a potential treatment for moderate-to-severe chronic

plaque psoriasis and may potentially develop XP23829 for relapsing forms

of multiple sclerosis (MS). In September 2015, XenoPort announced results

of a Phase II clinical trial of XP23829 as a potential treatment for moderate-

to-severe chronic plaque-type psoriasis.




Exhibit 5: Revenues to grow at CAGR of 8% over FY19-21E

Source: ICICI Direct Research, Company

Exhibit 6: US to grow at CAGR of 11% over FY19-21E


Exhibit 7: India to grow at CAGR of 12% over FY19-21E


Exhibit 8: Europe to grow at 11% CAGR over FY19-21E


Exhibit 9: EBITDA & margins trend


Exhibit 10: Net profit & margins trend


15023.315568.3

14196.1 14281.0

15448.2

16837.0

18104.4

0.0

5000.0

10000.0

15000.0

20000.0

FY15 FY16 FY17 FY18 FY19 FY20E FY21E

Revenues (| crore)

CAGR 0.7% CAGR 8.3%

6473.4

7544.5

6360.1

5982.4 5995.7

6575.3

7394.9

3000.0

4000.0

5000.0

6000.0

7000.0

8000.0


(|

crore)

US (| crore)

CAGR -1.9% CAGR 11.1%

1787.0

2129.2

2313.2 2332.1

2618.4

2948.3

3302.1

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0


(|

crore)

India (| crore)

CAGR 10.0%

CAGR 12.3%

718.1773.2 760.5

821.6787.3

884.7

973.1

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0


(|

crore)

Europe (| crore)

CAGR 2.3%

CAGR 11.2%

3493.63585.3

2472.22351.2

3151.6

3839.9

4113.3

23.3 23.0

17.416.5

20.4

22.8 22.7

0.0

5.0

10.0

15.0

20.0

25.0

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0

4000.0

4500.0


(|

crore)

EBITDA EBITDA Margins (%)

2336.4

2130.6

1292.1

946.8

1906.3

2714.22619.4

15.6

13.7

9.1

6.6

12.3

16.1

14.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0


(|

crore)

Net Profit NPM (%)




Exhibit 11: R&D and R&D as percentage of sales


Exhibit 12: RoE & RoCE trend


Exhibit 13: Revenue break-up

(| crore) FY15 FY16 FY17 FY18 FY19 FY20E FY21E CAGR (FY19-21E) %

US 6473.4 7544.5 6360.1 5982.4 5995.7 6575.3 7394.9 11.1

Europe (| crore) 718.1 773.2 760.5 821.6 787.3 884.7 973.1 11.2

India (| crore) 1787.0 2129.2 2313.2 2332.1 2618.4 2948.3 3302.1 12.3

Russia & Other CIS (| crore) 1771.4 1419.1 1520.0 1650.0 2050.0 2250.5 2520.6 10.9

RoW (| crore) 1305.7 940.2 587.1 614.7 838.9 985.4 1133.2 16.2

PSAI 2545.7 2238.0 2127.7 2199.2 2414.0 2199.5 2309.5 -2.2


Exhibit 14: One year forward PE of company vs. NSE500 Index

Source: ICICI Direct Research, Bloomberg

Exhibit 15: Financial Summery

Revenues Growth Adj. EPS Growth P/E EV/EBITDA RoNW RoCE

(| crore) (%) (|) (%) (x) (X) (%) (%)

FY18 14281.0 0.6 57.0 -26.7 46.8 20.1 7.2 6.1

FY19 15448.2 8.2 114.8 101.3 23.3 14.3 13.6 11.1

FY20E 16837.0 9.0 163.4 42.4 16.3 11.4 16.6 16.1

FY21E 18104.4 7.5 157.7 -3.5 16.9 10.1 14.2 15.6


1744.8 1783.4

1955.1

1821.7

1562.0

1787.71901.0

11.6 11.5

13.8

12.8

10.110.6 10.5

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

0.0

500.0

1000.0

1500.0

2000.0

2500.0


(|

crore)

R&D Expenditure R&D as % of Sales

15.5 15.3

7.36.1

11.1

16.1 15.6

21.6

17.0

10.5

7.2

13.6

16.6

14.2

0.0

5.0

10.0

15.0

20.0

25.0


(%

)

RoCE (%) RoNW (%)

0.0

10.0

20.0

30.0

40.0

50.0

7/29/2016

10/29/2016

1/29/2017

4/29/2017

7/29/2017

10/29/2017

1/29/2018

4/29/2018

7/29/2018

10/29/2018

1/29/2019

4/29/2019

7/29/2019

(x)

Dr Reddy's NSE500 Index

0% Premium




Exhibit 16: Recommendation history vs. Consensus

Source: ICICI Direct Research; Reuters

Exhibit 17: Top 10 Shareholders

Rank Top Investors (As of Latest Filing) Filing Date % O/S Position Change

1 Dr Reddys Holdings Pvt. Ltd. 31-Mar-19 24.9 41.3m 0.0m

2 Commonwealth Bank of Australia 31-Dec-18 7.7 12.8m 12.8m

3 Stewart Investors 31-May-19 5.7 9.5m 0.0m

4 Life Insurance Corporation of India 31-Mar-19 3.9 6.5m -0.6m

5 BlackRock Institutional Trust Company, N.A. 30-Jun-19 2.2 3.6m 0.0m

6 Reliance Nippon Life Asset Management Limited 31-Mar-18 2.1 3.5m -0.2m

7 Aditya Birla Sun Life AMC Limited 31-Mar-19 2.1 3.4m -0.3m

8 First State Investments (Singapore) 31-Mar-19 2.0 3.3m 2.8m

9 First State Investments (U.K.) Ltd 30-Nov-18 1.7 2.8m 0.0m

10 SBI Funds Management Pvt. Ltd. 30-Jun-19 1.4 2.3m 0.0m

Source: ICICI Direct Research, Reuters

Exhibit 18: Recent Activity

Investor name Value ($) Shares Investor name Value ($) Shares

Commonwealth Bank of Australia 482.4m 12.8m Franklin Templeton Asset Management (India) Pvt. Ltd. -93.2m -2.3m

First State Investments (Singapore) 112.8m 2.8m Templeton Asset Management Ltd. -41.6m -1.0m

Norges Bank Investment Management (NBIM) 26.3m 0.7m Life Insurance Corporation of India -24.8m -0.6m

Baron Capital Management, Inc. 27.5m 0.7m Aditya Birla Sun Life AMC Limited -10.7m -0.3m

Buys Sells

Source: ICICI Direct Research, Reuters

Exhibit 19: Shareholding Pattern

(in %) Jun-18 Sep-18 Dec-18 Mar-19 Jun-19

Promoter 26.8 26.8 26.8 26.8 26.8

Others 73.2 73.2 73.2 73.2 73.2


0.0

10.0

20.0

30.0

40.0

50.0

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Jul-19May-19Feb-19Dec-18Sep-18Jul-18Apr-18Feb-18Dec-17Sep-17Jul-17Apr-17Feb-17Dec-16Sep-16Jul-16

(%

)

(|

)

Price Idirect target Consensus Target Mean % Consensus with BUY




Financial summary

Exhibit 20: Profit & Loss (| crore)

(Year-end March) FY18 FY19 FY20E FY21E

Revenues 14,281.0 15,448.2 16,837.0 18,104.4

Growth (%) 0.6 8.2 9.0 7.5

Raw Material Expenses 4,039.5 4,494.8 4,845.9 5,159.8

Employee expenses 3,214.9 3,356.2 3,517.2 3,671.6

Other expenses 4,675.4 4,445.6 4,634.1 5,159.8

Total Operating Expenditure 11,929.8 12,296.6 12,997.1 13,991.1

EBITDA 2,351.2 3,151.6 3,839.9 4,113.3

Growth (%) -4.9 34.0 21.8 7.1

Interest 78.8 88.9 91.0 53.5

Depreciation 1,077.2 1,134.8 1,031.6 1,035.6

PBT before Exceptional Items 1,350.4 2,248.3 3,407.0 3,277.7

Share of profit/ (loss) of equity accounted investees0.0 0.0 0.0 0.0

PBT 1,350.4 2,248.3 3,407.0 3,277.7

Total Tax 438.0 385.8 755.6 721.1

PAT 946.8 1,906.3 2,714.2 2,619.4

Adjusted PAT 946.8 1,906.3 2,714.2 2,619.4

Growth (%) -26.7 101.3 42.4 -3.5

EPS 57.0 114.8 163.4 157.7

EPS (Adjusted) 57.0 114.8 163.4 157.7


Exhibit 21: Cash Flow Statement (| crore)


Profit/(Loss) after taxation 1,074.3 1,807.9 2,714.2 2,619.4

Add: Depreciation & Amortization 1,077.2 1,134.8 1,031.6 1,035.6

Net Increase in Current Assets -754.3 -669.9 -711.9 -656.2

Net Increase in Current Liabilities -142.3 92.8 -253.7 211.8

CF from operating activities 1,803.0 2,870.4 2,871.1 3,264.1

(Inc)/dec in Fixed Assets -1,090.4 -622.6 -800.0 -800.0

(Inc)/dec in Investments -425.3 -228.2 -500.0 -500.0

Others 34.0 72.0 -22.1 -23.0

CF from investing activities -1,481.7 -778.8 -1,322.1 -1,323.0

Inc / (Dec) in Equity Capital 0.1 -53.5 0.0 0.0

Inc / (Dec) in Loan 88.2 -1,518.2 -500.0 -1,200.0

Dividend & Dividend Tax -399.2 -400.2 -433.5 -418.3

Others -133.1 -160.7 -91.0 -53.5

CF from financing activities -444.0 -2,132.6 -1,024.4 -1,671.8

Net Cash flow -122.7 -41.0 524.6 269.3

Opening Cash 386.5 263.8 222.8 747.4

Closing Cash 263.8 222.8 747.4 1,016.7

Free Cash Flow 712.6 2,247.8 2,071.1 2,464.1


Exhibit 22: Balance Sheet (| crore)


Equity Capital 83.0 83.0 83.0 83.0

Net Networth 12,982.8 13,940.6 16,221.3 18,422.4

Total Shareholders funds 13,065.8 14,023.6 16,304.3 18,505.4

Total Debt 5,065.1 3,412.5 2,912.5 1,712.5

Deferred Tax Liability 195.0 47.3 49.2 51.2

Other Non Current Liabilities 293.3 218.1 226.8 235.9

Long term Provisions 81.7 79.3 82.5 85.8

Source of Funds 18,700.9 17,780.8 19,575.3 20,590.7

Gross Block - Fixed Assets 16,903.2 14,532.7 15,232.7 15,932.7

Accumulated Depreciation 10,468.3 7,807.6 8,839.2 9,874.8

Net Block 6,434.9 6,725.1 6,393.5 6,057.9

Capital WIP 3,470.5 2,933.5 3,033.5 3,133.5

Net Fixed Assets 9,905.4 9,658.6 9,427.0 9,191.4

Goodwill 533.1 465.9 465.9 465.9

Investments 2,298.3 2,587.1 3,087.1 3,587.1

Inventory 2,908.9 3,357.9 3,659.8 3,935.3

Cash 263.8 222.8 747.4 1,016.7

Debtors 4,052.7 3,986.9 4,345.3 4,672.4

Loans & Advances & Other CA 1,440.0 1,289.6 1,341.2 1,394.8

Total Current Assets 8,665.4 8,857.2 10,093.7 11,019.3

Creditors 1,334.5 1,367.1 980.7 1,054.5

Provisions & Other CL 2,508.9 3,317.7 3,450.4 3,588.4

Total Current Liabilities 3,843.4 4,684.8 4,431.1 4,642.9

Net Current Assets 4,822.0 4,172.4 5,662.6 6,376.3

LT L& A, Other Assets 601.6 465.1 483.7 503.1

Deferred Tax Assets 540.5 431.7 449.0 466.9

Application of Funds 18,700.9 17,780.8 19,575.3 20,590.7


Exhibit 23: Key Ratios (| crore)


Per share data (|)

EPS 57.0 114.8 163.4 157.7

BV per share 787.1 844.5 981.8 1,114.4

Operating Ratios (%)

Gross Profit Margins 71.7 70.9 71.2 71.5

EBITDA margins 16.5 20.4 22.8 22.7

Net Profit margins 6.6 12.3 16.1 14.5

Inventory days 74.3 79.3 79.3 79.3

Debtor days 103.6 94.2 94.2 94.2

Creditor days 34.1 32.3 21.3 21.3

Asset Turnover 0.8 1.1 1.1 1.1

EBITDA conversion Rate 76.7 91.1 74.8 79.4

Return Ratios (%)

RoE 7.2 13.6 16.6 14.2

RoCE 6.1 11.1 16.1 15.6

RoIC 11.3 18.8 24.7 26.8

Valuation Ratios (x)

P/E 46.8 23.3 16.3 16.9

EV / EBITDA 20.1 14.3 11.4 10.1

EV / Revenues 3.3 2.9 2.6 2.3

Market Cap / Revenues 3.1 2.9 2.6 2.4

Price to Book Value 3.4 3.2 2.7 2.4

Solvency Ratios

Debt / Equity 0.4 0.2 0.2 0.1

Debt / EBITDA 2.2 1.1 0.8 0.4

Current Ratio 2.2 1.8 2.1 2.2





Exhibit 24: ICICI Direct Coverage Universe (Healthcare) (| crore)

Company I-Direct CMP TP Rating M Cap

Code (|) (|) (| cr) FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E FY18 FY19FY20EFY21E

Ajanta Pharma AJAPHA 890 1,060 Hold 7766 53.0 43.5 47.5 60.2 16.8 20.4 18.7 14.8 30.0 21.8 20.8 22.4 23.0 17.1 16.4 18.0

Alembic PharmaALEMPHA 537 560 Hold 10123 21.9 31.3 27.4 25.4 24.5 17.1 19.6 21.2 18.0 19.6 17.5 15.8 18.6 21.7 17.1 14.2

Apollo HospitalsAPOHOS 1354 1,450 Buy 18838 8.5 17.7 35.3 48.1 160.1 76.6 38.3 28.2 6.3 8.8 12.1 15.7 3.6 7.4 13.2 15.7

Aurobindo PharmaAURPHA 566 715 Buy 33166 41.6 42.1 48.6 54.3 13.6 13.4 11.6 10.4 20.0 15.9 14.6 15.3 20.7 17.7 17.1 16.5

Biocon BIOCON 236 330 Buy 28338 3.1 6.2 8.2 9.1 76.1 38.0 28.9 26.0 8.1 10.9 13.4 16.1 7.2 12.2 13.4 15.2

Cadila HealthcareCADHEA 225 272 Hold 22998 17.5 18.1 16.3 18.7 12.8 12.4 13.8 12.0 16.7 13.0 11.4 12.3 20.5 17.8 14.2 14.5

Cipla CIPLA 521 580 Hold 41972 18.3 18.8 24.0 29.1 28.4 27.7 21.7 17.9 9.6 10.9 13.7 14.5 10.4 10.1 12.0 12.5

Divi's Lab DIVLAB 1652 1,760 Hold 43842 33.3 51.0 56.2 67.8 49.6 32.4 29.4 24.3 20.0 25.5 23.0 24.4 14.9 19.4 17.8 18.8

Dr Reddy's LabsDRREDD 2586 2,840 Hold 42943 57.0 114.8 163.4 157.7 45.3 22.5 15.8 16.4 6.1 11.1 16.1 15.6 7.2 13.6 16.6 14.2

Glenmark PharmaGLEPHA 432 565 Hold 12202 28.5 26.9 34.2 40.3 15.2 16.1 12.6 10.7 14.6 14.5 15.3 16.1 15.6 13.5 14.8 15.0

Hikal HIKCHE 153 205 Buy 1886 6.3 8.4 9.9 13.9 24.4 18.3 15.4 11.0 12.2 15.0 16.2 18.1 11.5 13.6 15.3 16.9

Ipca Laboratories IPCLAB 965 1,130 Buy 12193 19.0 35.1 45.6 56.4 50.8 27.5 21.2 17.1 9.1 15.4 21.3 20.5 8.9 14.2 18.2 17.1

Jubilant Life JUBLIF 438 710 Buy 6983 41.3 52.1 54.1 64.9 10.6 8.4 8.1 6.8 14.9 14.4 15.9 17.1 15.7 16.9 15.8 16.5

Lupin LUPIN 785 810 Hold 35532 20.8 16.5 30.6 40.4 37.8 47.4 25.7 19.4 10.4 9.4 12.1 13.9 6.9 5.4 9.3 11.1

Narayana HrudalayaNARHRU 221 250 Buy 4524 2.5 2.3 6.2 9.0 88.4 97.6 35.5 24.5 6.3 7.6 11.9 14.7 4.9 4.3 10.5 13.3

Natco Pharma NATPHA 528 595 Hold 9655 37.7 34.9 37.1 26.7 14.0 15.1 14.2 19.8 27.4 21.3 19.8 13.4 22.7 18.5 16.5 10.9

Sun Pharma SUNPHA 431 460 Hold 103385 13.0 15.9 17.9 23.4 33.2 27.2 24.1 18.4 9.8 10.4 10.5 12.8 8.2 9.2 8.4 11.2

Syngene Int. SYNINT 308 358 Hold 12338 7.6 8.3 9.9 10.3 40.6 37.4 31.3 30.0 15.1 14.8 14.5 13.8 17.7 16.8 16.8 15.0

Torrent Pharma TORPHA 1675 1,940 Buy 28344 40.1 48.9 57.9 77.6 41.8 34.2 28.9 21.6 11.2 14.2 16.0 19.8 14.7 17.5 17.1 20.1

RoE (%)EPS (|) PE(x) RoCE (%)

Source: ICICI Direct Research, Bloomberg




RATING RATIONALE

ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its

stocks according to their notional target price vs. current market price and then categorises them as Buy, Hold,

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

Buy: >15%;

Hold: -5% to 15%;

Reduce: -5% to -15%;

Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]




ANALYST CERTIFICATION

We /I, Siddhant Khandekar, Inter CA, Mitesh Shah, MS (Finance), CFA (ICFAI), 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. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report

in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI

Securities Limited is a SEBI registered Research Analyst with SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. ICICI

Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance,

general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment

banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons

reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

Recommendation in reports based on technical and derivative analysis centre on studying charts of a stock's price movement, outstanding positions, trading volume etc as opposed to focusing

on a company's fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical

Research Reports.

Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.

ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The views and opinions

expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Research.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly

confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or

reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no

obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate

that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where

ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness

guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe

for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat

recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy

is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own

investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent

judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign

exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily

a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ

materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other

assignment in the past twelve months.

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report

for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or

specific transaction.

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did

not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI

Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.

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 or their relatives 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.

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.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such

distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such

jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come

are required to inform themselves of and to observe such restriction.

dr reddy's laboratories drredd) - icici...

Documents