glenmark pharmaceuticals (glepha) | 539content.icicidirect.com/mailimages/idirect... · ·...
TRANSCRIPT
February 12, 2018
ICICI Securities Ltd | Retail Equity Research
Result Update
Margin contraction intensifies on US pricing
Revenues declined 13% YoY to | 2204 crore (I-direct estimate: | 2224
crore). The 40% YoY de-growth in the US to | 736 crore (I-direct
estimate: | 719 crore) was mainly due to high gZetia exclusivity base
in Q3FY17. India business grew 12% YoY to | 579 crore (I-direct
estimate: | 672 crore) and 15% YoY growth in Europe to | 225 crore
(I-direct estimate: | 235 crore)
EBITDA margins fell 1554 bps YoY to 14.6% (I-direct estimate: 19%)
due to lower gross margins (64.5% in Q3FY18 vs. 76.4% in Q3FY17).
EBITDA fell 58% YoY to | 323 crore (I-direct estimate: | 423 crore)
Adjusted net profit declined 78% YoY to | 105 crore on a weak
operational performance and lower other income
US growth now mainly dependant on new launches
US generics comprise ~44% of total revenues and have grown at a CAGR
of ~17% in FY13-17. Total USFDA filings as on date are 188. So far, the
company has received approvals for 130. Out of the 58 pending ANDAs,
~26 are Para IV applications. Key therapies in the US, going forward, will
be oncology, dermatology and respiratory. The company expects to file
20-25 ANDAs. We expect US sales to remain subdued in FY17-20E to
| 2907 (CAGR -8%), mainly due to higher base, delay in product launches
and acute pricing pressure in base business.
Targeting specific therapies in IPM
Glenmark is ranked fourteenth in domestic formulations with market
share of 2.3%. It is a market leader in dermatology and improving its
presence in therapies like respiratory, CVS, anti-infectives and even anti-
diabetics. It has defied industry growth consistently for the last 60 months
by continuous churning of the portfolio. In FY17, Glenmark’s growth was
14% vis-à-vis IPM growth of 9% as per IMS MAT. We expect India sales
to grow at 12% CAGR in FY17-20E to | 3201 crore.
Clear roadmap but headwinds in US unlikely to subside anytime soon
The R&D setback in 2008-10 has actually benefited the company as the
focus shifted to more productive segments like the US generics, India and
Europe. The changed focus has improved the leverage situation as the
debt/EBITDA has improved from a high of 4.6x in FY09 to 1.8x in FY17.
With a 10-year roadmap, the company has a well thought out strategy in
place encompassing only three core therapy areas oncology,
dermatology and respiratory across geographies and covering both
specialty and generics. However, continued subdued growth in the US
and volatile growth in ex-India/US geographies is likely to impact near
term free cash flows.
US pricing pressure, gearing to keep sentiments subdued
Glenmark’s management still expects ~13% US base business price
erosion for the next four to five quarters despite hints of some easing up
in the pricing scenario by larger peers. Similarly, from the 61 pending
approvals in the US, we do not expect any meaningful launches for the
company in the near term. Ex-US, the company has guided for 15%+
growth mainly due to new launches and stabilization of currency in
emerging markets. However, historically, ex-US growth is always volatile.
There is little solace on the gearings front (1.1x of D/E in FY17) as well.
These are some of the main concerns that are likely to weigh on the
sentiments for some time. We arrive at our new target price of | 535
based on 14x FY20E EPS of | 38.2.
Rating matrix
Rating : Hold
Target : | 535
Target Period : 12-15 months
Potential Upside : -1%
What’s Changed?
Target Changed from | 730 to | 535
EPS FY18E Changed from | 36.8 to | 33.4
EPS FY19E Changed from | 36.9 to | 31.5
EPS FY20E Changed from | 41.9 to | 38.2
Rating Unchanged
Quarterly Performance
Q3FY18 Q3FY17 YoY (%) Q2FY18 QoQ (%)
Revenue 2,203.7 2,535.0 -13.1 2,256.6 -2.3
EBITDA 322.7 765.0 -57.8 388.4 -16.9
EBITDA (%) 14.6 30.2 -1,553.5 17.2 -256.8
Adj. Net Profit 104.7 477.0 -78.0 214.1 -51.1
Key Financials
(| Crore) FY17 FY18E FY19E FY20E
Revenues 9185.7 9161.0 9497.9 10343.2
EBITDA 2036.7 1824.0 1709.6 1965.2
Adjusted PAT 1189.8 941.8 887.5 1075.7
EPS (|) 42.2 33.4 31.5 38.2
Valuation summary
FY17 FY18E FY19E FY20E
PE (x) 13.7 16.1 17.1 14.1
Target PE (x) 12.7 16.0 17.0 14.0
EV to EBITDA (x) 9.2 10.1 10.6 9.1
Price to book (x) 3.4 2.8 2.4 2.1
RoNW (%) 26.5 17.5 14.3 14.9
RoCE (%) 19.5 16.2 14.3 15.5
Stock data
Particular
Market Capitalisation
Debt (FY17)
Cash (FY17)
EV
52 week H/L (|) 968/524
Equity capital
Face value | 1
| 18855 crore
Amount
| 15188 crore
| 4724 crore
| 1056 crore
| 28.2 crore
Price performance (%)
1M 3M 6M 1Y
Glenmark Pharma -8.6 -17.4 -13.3 -9.8
Divi's Labs -5.9 1.2 66.0 38.8
Cadila Healthcare -9.2 -5.3 10.5 -24.8
Glenmark Pharmaceuticals (GLEPHA) | 539
Research Analyst
Siddhant Khandekar
Mitesh Shah
Harshal Mehta
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis
Q3FY18 Q3FY18E Q3FY17 Q2FY18 YoY (%) QoQ (%) Comments
Revenue 2,203.7 2,224.2 2,535.0 2,256.6 -13.1 -2.3 YoY decline mainly due to high base of gZetia exclusivity
Raw Material Expenses 781.6 689.5 599.0 751.3 30.5 4.0 YoY increase mainly due to adverse product mix
Employee Expenses 465.9 467.1 401.7 557.2 16.0 -16.4
Other Expenditure 633.5 645.0 769.3 559.7 -17.7 13.2 Included forex loss of | 48 crore
EBITDA 322.7 422.6 765.0 388.4 -57.8 -16.9
EBITDA (%) 14.6 19.0 30.2 17.2 -1554 bps -257 bps YoY decline and miss vis-à-vis I-direct estimates was mainly due to high base
of gZetia exclusivity, adverse product mix and forex loss
Interest 70.5 69.8 61.7 69.8 14.1 0.9
Depreciation 75.4 75.2 62.5 75.2 20.6 0.2
Other Income -23.2 11.1 14.6 29.7 -259.0 -177.9
PBT before EO & Forex 153.7 288.6 655.3 273.1 -76.5 -43.7
PBT 153.7 288.6 655.3 273.1 -76.5 -43.7
Tax 48.9 77.9 178.2 58.9 -72.5 -17.0 Included one-off deferred tax pertaining to US was |5.2 crore
PAT before MI 104.7 210.7 477.1 214.1 -78.0 -51.1
Adj. Net Profit 104.7 210.7 477.0 214.1 -78.0 -51.1 YoY decline and miss vis-à-vis I-direct estimates was on account of a subdued
operational performance
Key Metrics
US 735.9 719.4 1,230.8 727.1 -40.2 1.2 YoY decline mainly due to high base of gZetia exclusivity
Europe 224.8 234.9 195.7 200.0 14.8 12.4 YoY strong growth was mainly due to geographical expansion and new
product launches
India 578.5 671.9 516.9 710.7 11.9 -18.6 Adjusting for GST impact the like-to-like growth was 14.5% YoY
Latin America 89.8 104.2 94.7 104.7 -5.2 -14.2 YoY decline and miss vis-à-vis I-Direct estimates was due to weak
performance of the Brazilian subsidiary
RoW markets 322.1 263.7 251.1 252.1 28.3 27.8 Registered better-than-expected growth in most of the geogrophies
API 231.6 201.7 192.1 236.6 20.6 -2.1
Source: Company, ICICIdirect.com Research
Change in estimates
(| Crore) Old New % Change Old New % Change
Revenue 9,282.3 9,161.0 -1.3 9,852.8 9,497.9 -3.6
EBITDA 1,906.0 1,824.0 -4.3 1,897.4 1,709.6 -9.9
EBITDA Margin (%) 20.5 19.9 -62 bps 19.3 18.0 -126 bps Changed mainly due to change in product mix
PAT 1,035.5 941.8 -9.0 1,039.3 887.5 -14.6
EPS (|) 36.8 33.4 -9.0 36.9 31.5 -14.6 Decline mainly due to a below expected operational performance and increased
financial expenses due to a delay in debt repayment
FY18E FY19E
Source: Company, ICICIdirect.com Research
Assumptions
Comments
(| crore) FY16 FY17 FY18E FY19E FY18E FY19E
US 2,420.4 3,700.7 3,236.1 2,849.8 3,307.5 3,110.0 Reduced mainly due to higher-than-expected price erosion in base business
Europe 717.1 710.1 851.1 978.8 872.7 1,047.2 Redused as per management guidance
India 2,101.8 2,303.8 2,551.7 2,858.0 2,645.2 2,962.6
Latin America 749.5 518.1 406.4 459.7 420.7 475.5
RoW markets 903.3 988.8 1,133.0 1,302.9 1,074.5 1,235.7
API 668.3 809.4 882.7 926.9 852.7 895.4
Current Earlier
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 3
Company Analysis
Incorporated in 1977, Glenmark was never a mass-market player with a
clear focus on niche areas like dermatology, respiratory and cardiology.
The company was one of the few Indian players (like Dr Reddy’s) to
identify the importance of dedicated R&D efforts in the nineties. Post its
maiden IPO in 2000, the company started ramping up the API business
via small acquisitions. In 2005, it struck its first out-licensing R&D seal with
US based Forest Laboratories for COPD, asthma molecule with
Oglemilast. Similar R&D deals were struck with innovator companies such
as Eli Lily and Merck KGaA (Germany). It received a substantial amount in
the nature of upfront – milestone payments.
However, it received a setback in most deals, one after another in 2007-
09, as clients were unsatisfied with the progress or uninterested in
pursuing the same any further due to changed priorities or budgetary
constraints. This had hit the company hard during that period as unlike
other Indian players, which hived off the risky R&D ventures into separate
companies to protect the core balance sheet, Glenmark hived off the
generic business. Its balance sheet got stretched with huge debts.
However, post the R&D debacle, the company refocused on the generics
business, especially in the US and Indian formulations putting R&D on the
backburner. The change has worked going by the performance in the last
two or three years as the strong traction in the US, backed by forays into
niche areas such as oral contraceptives and dermatology, robust growth
in Indian formulations and strong tractions from RoW and LatAm markets
have improved the balance sheet and operating cash flows significantly.
The R&D deals are still active but the focus on innovative R&D and generic
R&D is almost equal. The company has almost fully recovered the amount
spent on innovative R&D, which is almost US$200 million in the last nine
years. We expect US sales to remain subdued in FY17-20E to | 2907
(CAGR: 8%), mainly due to higher base, delay in product launches and
acute pricing pressure in base business. However, ex-US other
geographies have started showing greater traction. The company also
remains committed to API exports. We expect revenues to grow at a
CAGR of 4% to | 10343 crore in FY17-20E.
Exhibit 1: Revenues to grow at CAGR of 7% in FY17-20E
5013.7
6007.3
6644.8
7649.6
9185.7 9161.09497.9
10343.2
0
2000
4000
6000
8000
10000
12000
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
(|
crore)
Revenues
Source: Company, ICICIdirect.com Research
Glenmark has reclassified it operations into six categories - India, US,
Europe, Latin America, RoW markets and APIs. Earlier, the classification
was on the basis of - 1) specialty businesses and 2) generics businesses.
12.9% CAGR
4.0% CAGR
ICICI Securities Ltd | Retail Equity Research Page 4
India (26% of overall sales) – In India, it operates through over 20
divisions with focus on dermatology, cardiology, respiratory and anti-
infectives among all. The company markets over 400 products in India. As
per AIOCD MAT September, 2017, Glenmark ranks thirteenth in IPM with
a market share of 2.3%. Among therapies, it ranks first in dermatology,
fifth in respiratory and seventh in cardiology. The current MR strength of
the company is ~3200 (FY17). The acute: chronic: sub-chronic ratio for
Glenmark is 45: 30: 25.
Exhibit 2: India business major growth driver…
1309.6
1510.5
1749.0
2101.8
2303.8
2551.7
2858.0
3200.9
0
1000
2000
3000
4000
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
(|
crore)
India
Source: Company, ICICIdirect.com Research
The US (44% of overall sales) – US generics comprise ~44% of total
revenues and have grown at a CAGR of ~17% in FY13-17. Total USFDA
filings as on date are 188. So far, the company has received approval for
130. Out of the 58 pending ANDAs, ~26 are Para IV applications. Key
therapies in the US, going forward, will be oncology, dermatology and
respiratory. The company expects to file 20-25 ANDAs and launch 10-15
ANDAs annually in the US. We expect US sales to remain subdued in
FY17-20E to | 2907 (CAGR -8%), mainly due to higher base, delay in
product launches and acute pricing pressure in base business.
Exhibit 3: US scenario to show subdued growth on the back of higher price erosion
1688.7
2027.1 2039.8
2420.4
3700.7
3236.1
2849.8 2906.8
0
1000
2000
3000
4000
5000
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
(|
crore)
US
Source: Company, ICICIdirect.com Research
The drug discovery business is focusing on areas of inflammation
(asthma/COPD, rheumatoid arthritis etc), metabolic disorders (diabetes,
obesity, etc) and pain (neuropathic pain and inflammatory pain).
Glenmark has a pipeline of seven molecules – two NCEs and five NBEs in
various stages of preclinical and preclinical development. Of these, five
14.3% CAGR
11.6% CAGR
17% CAGR
-7.7% CAGR
ICICI Securities Ltd | Retail Equity Research Page 5
molecules are in clinical trials. Glenmark has been following a strategy of
out-licensing research-staged molecules in clinical development to MNCs.
So far, Glenmark has struck seven deals in the last nine years booking
~US$200 million as upfront and milestone payments.
Exhibit 4: Higher R&D spends here to stay….
387.0
538.6
626.5
766.0
1089.01049.4
1139.7
1241.2
7.7
9.09.4
10.0
11.9 11.5 12.0 12.0
0
200
400
600
800
1000
1200
1400
1600
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
(|
crore)
0
2
4
6
8
10
12
(%
)
Recurring R&D Expenditure R & D as % of Sales
Source: Company, ICICIdirect.com Research
Exhibit 5: Margins remain strong despite higher R&D spend
1011.4
1310.41225.2
1437.1
2036.7
1824.01709.6
1965.2
20.2
21.8
18.4 18.8
22.2
19.9
18.019.0
0
500
1000
1500
2000
2500
3000
3500
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
(|
crore)
0
5
10
15
20
25
(%
)
EBITDA EBITDA Margins (%)
Source: Company, ICICIdirect.com Research
Exhibit 6: Net profit to de-grow at CAGR of 1% in FY17-20E
623.0
542.6
463.8
1108.8
941.8
887.5
1075.7
743.2
0
200
400
600
800
1000
1200
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
(|
crore)
Net Profit
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 6
Exhibit 7: Return ratios to improve, going ahead…
15.5
16.9
13.3
15.7
19.5
16.2
25.5
21.720.5
17.5
15.5
22.4
26.5
14.9
0
5
10
15
20
25
30
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
(%
)
RoCE (%) RoNW (%)
Source: Company, ICICIdirect.com Research
Exhibit 8: Trends in quarterly financials
(| Crore) Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 YoY (%) QoQ (%)
Total Operating Income 1701.3 1775.8 1647.7 1874.6 1778.3 2281.3 1969.4 2224.1 2535.0 2457.2 2363.0 2256.6 2203.7 -13.1 -2.3
Raw Material Expenses 556.0 381.8 484.5 549.4 513.3 743.9 623.6 614.8 599.0 776.9 721.5 751.3 781.6 30.5 4.0
% of revenue 32.7 21.5 29.4 29.3 28.9 32.6 31.7 27.6 23.6 31.6 30.5 33.3 35.5
Gross Profit 1145.3 1394.0 1163.3 1325.2 1265.0 1537.3 1345.8 1609.4 1936.0 1680.2 1641.6 1505.3 1422.1 -26.5 -5.5
Gross Profit Margin (%) 67.3 78.5 70.6 70.7 71.1 67.4 68.3 72.4 76.4 68.4 69.5 66.7 64.5 -1184 bps -218 bps
Employee Expenses 316.5 254.2 286.3 398.4 345.1 348.2 372.0 482.4 401.7 384.7 384.4 557.2 465.9 16.0 -16.4
% of revenue 18.6 14.3 17.4 21.3 19.4 15.3 18.9 21.7 15.8 15.7 16.3 24.7 21.1
Other Manufacturing Expenses563.1 858.4 517.7 524.9 549.3 886.8 594.7 678.2 769.3 851.7 679.7 559.7 633.5 -17.7 13.2
% of revenue 33.1 48.3 31.4 28.0 30.9 38.9 30.2 30.5 30.3 34.7 28.8 24.8 28.7
Total Expenditure 1435.6 1494.4 1288.4 1472.8 1407.7 1978.9 1590.3 1775.3 1770.0 2013.3 1785.6 1868.2 1881.0 6.3 0.7
% of revenue 84.4 84.2 78.2 78.6 79.2 86.7 80.8 79.8 69.8 81.9 75.6 82.8 85.4
EBITDA 265.7 281.4 359.3 401.9 370.6 302.4 379.1 448.8 765.0 443.8 577.5 388.4 322.7 -57.8 -16.9
EBITDA Margins (%) 15.6 15.8 21.8 21.4 20.8 13.3 19.2 20.2 30.2 18.1 24.4 17.2 14.6 -1554 bps -257 bps
Depreciation 65.5 64.5 65.4 63.4 51.5 58.4 64.2 68.7 62.5 68.9 77.7 75.2 75.4 20.6 0.2
Interest 51.3 39.7 41.9 42.6 46.9 47.5 43.0 62.9 61.7 69.7 70.9 69.8 70.5 14.1 0.9
Other Income 2.1 0.3 5.4 0.8 2.1 11.7 75.9 -1.8 14.6 -51.3 15.3 29.7 -23.2 -259.0 -177.9
Forex & EO 0.0 -187.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -80.9 0.0 0.0 0.0
PBT 151.0 -9.5 257.4 296.7 274.4 208.2 347.7 315.4 655.3 173.0 444.2 273.1 153.7 -76.5 -43.7
Total Tax 36.3 -20.1 74.5 96.2 78.3 59.4 120.9 91.8 178.2 -10.7 110.8 58.9 48.9 -72.5 -17.0
Tax rate (%) 24.0 211.5 28.9 32.4 28.5 28.5 34.8 29.1 27.2 -6.2 24.9 21.6 31.8 465 bps 1026 bps
PAT 114.8 10.6 182.9 200.4 196.1 148.7 226.8 223.6 477.1 183.8 333.4 214.1 104.7 -78.0 -51.1
Minority Interest 0.0 0.0 0.0 0.0 0.0 -0.1 0.0 0.0 0.1 0.0 0.0 0.0 0.0 NA NA
PAT after MI 114.8 10.6 182.9 200.4 196.2 148.8 226.8 223.6 477.0 183.8 333.4 214.1 104.7 -78.0 -51.1
EPS (|) 4.1 0.4 6.5 7.1 7.0 5.3 8.1 7.9 16.9 6.5 11.8 7.6 3.7 -78.0 -51.1
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 7
SWOT Analysis
Strengths - Prudent geographical mix covering high opportunity
emerging markets as well as developed markets. Presence in niche
therapies in the US such as oral contraceptives, dermatology, which is
relatively less crowded. Time tested R&D focused business model with a
portfolio of Innovative products. Well placed to monetise the R&D pipeline
in with product in various stages of completion
Weakness - High debt level, presence of substantial intangibles on the
balance sheet. Higher R&D spends likely to put pressure on margins
Opportunities - In the US generics space, a lot of opportunities are
panning out in the oral contraceptives and respiratory space
Industry specific threats - Increased USFDA scrutiny across the globe
regarding cGMP issues, pricing pressure due to client consolidation in the
US, pricing probe by the Department of Justice (DoJ) in the US and
proposed tightening by the new regime by adapting to the bidding
process
Company specific threat: Currency volatility in LatAm and RoW markets
ICICI Securities Ltd | Retail Equity Research Page 8
Conference call highlights
The company has reported positive results of Ryaltris (GSP 301)
Phase 3 safety trial in perennial allergic rhinitis. Glenmark plans to
submit its first New Drug Application (NDA) to the USFDA for
Ryaltris in the first half of CY18. Peak sales for GSP 301 is in the
range of US$ 80-100 million
Glenmark’s domestic OTC business driven by its 3 major brands
Candid, VWash Plus and Scalpe+. According to IMS data, Candid
Powder has jumped 2.3x in sales, within three years, post OTC
promotion. All three brands have a dominant market share in
each of its operating markets as per IMS ORG data consistently
for last couple of years.
Glenmark has closed the centralised registration procedure for
generic Seretide Accuhaler in the Nordic region. It is the
company’s first inhaled respiratory product approval in Europe.
The commercialisation of the product would depend on national
approval as well as substitution and pricing approvals
As of end of Q3FY18, gross debt was at | 4638 crore. Cash was at
| 3603 crore
The management expects ~13% price erosion in the US base
business in next five quarters
The company expects Phase 1 outcome for Xolair (Omalizumab,
oncology) biosimilar in the US. The company plans to approach
USFDA for PII/III study in Q4FY19
Guided for 11.5-12% of R&D in FY18 and 12% of R&D in FY19.
From total R&D budget the company spend ~8% R&D as
percentage of sales in specialty and innovative pipeline
The company plans to file NuvaRing (gynaecology) and gConcerta
(CVS) in FY19 in the US
The company expects multiple out-licensing deals in the next 12-
15 months
The management expects 15%+ revenue growth in ex-US
geographies in FY19 with improvement in margins
The company has target action date (TAD) on gWelchol and
gVoltaren gel (dermatology) in the US
The management expects double digit margins with strong
growth in LatAm from FY19 onwards due to new launches
The company responded to observations from the USFDA on the
Baddi facility
The company is working with three consulting firms to reduce
overall cost
Glenmark is the first company to receive substitution status on
gSalmax DPI inhalation in Norway. Europe market size of Salmax
is US$700-800 million
Market Share: Domestic
MAT Dec 2017 (%) MAT Dec 2016 (%)
Cardiac 4.2 4.0
Respiratory 4.7 4.4
Anti Diabetic 1.6 1.8
Derma 9.2 9.2
Source: IMS, Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 9
Exhibit 9: Facilities
Location Segment Regulatory Approvals Type
Nashik, India Formulations WHO GMP, ANVISA, NDA-Uganda, MOH-Nigeria, TFDA-Tanzania, MOH-Ethopia, MOH,
Congo, MCC-SA, MOH-Oman, MOH-Ukraine, INVIMA-Colombia
solid & liquid orals, external creams &
powders
Baddi, India Formulations USFDA, WHO GMP, ANVISA Brazil, UKMHRA, MCC SA, TGA Australia, NDA Uganda,
Ukraine GMP, DDA Nepal, TPD Canada, FDA Ghana, CHMP Kenya
solid orals, semi-solid and liquid orals as well
as external preparations like lotions, creams,
etc
Nalagarh, India Formulations ANVISA (Brazil), UGANDA, WHO GMP, Local FDA Liquid, Ointment/Cream, and Lotion
Sikkim, India Formulations Oral solids (Tablets and Capsules) Ointments,
Creams, Lotions and Liquids
Vysoke Myto, Czech Formulations Manufacturing licence for medicinal products (issued by SUKL), Distribution licence for
medicinal products (issued by SUKL), Certificate of GMP Compliance of Manufacturer
(issued by SUKL), Certificate of GMP Compliance of a Manufacturer (issued by USKVBL)
solid-orals and semi-solids (ointments)
Sao Paulo, Brazil Formulations WHO-GMP, ANVISA Brazil
Bardez, Goa Formulations USFDA, TPD (Canada), MCC (South Africa), WHO-GMP, ANVISA (Brazil), MHRA (UK),
ISO 14001:2004
Oral Solids, Semi Solids & Hormones
Solan, HP Formulations
Pithampur, Indore Formulations USFDA, UKMHRA solid oraldosage forms
Buenos Aires, Argentina Formulations cytotoxics, anti hormonals,
lyophilizedinjectables and supportive
therapies
Aurangabad, Maharashtra Formulations
Monroe, USA Formulations
Ankleshwar, Bharuch, Gujarat API WHO GMP, USFDA, MHRA - UK, MHRA - Romania and EMEA
Solapur, Maharashtra API
Pune Maharashtra API
Bharuch, Gujarat API
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 10
Valuation
Glenmark’s management still expects ~13% US base business price
erosion for the next four to five quarters despite hints of some easing up
in the pricing scenario by larger peers. Similarly, from the 61 pending
approvals in the US, we do not expect any meaningful launches for the
company in the near term. Ex-US, the company has guided for 15%+
growth mainly due to new launches and stabilisation of the currency in
emerging markets. However, historically, ex-US growth is always volatile.
There is little solace on the gearings front (1.1x of D/E in FY17) as well.
These are some of the main concerns, which are likely to weigh on the
sentiments for some time. We arrive at our new target price of | 535
based on 14x FY20E EPS of | 38.2.
Exhibit 10: One year forward PE
0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
1400.0
2/12/201
1
8/12/201
1
2/12/201
2
8/12/201
2
2/12/201
3
8/12/201
3
2/12/201
4
8/12/201
4
2/12/201
5
8/12/201
5
2/12/201
6
8/12/201
6
2/12/201
7
8/12/201
7
2/12/201
8
|
Series1 27.2x 25.8x 21.7x 18.9x 17.5x
[
Source: Company, ICICIdirect.com Research
Exhibit 11: One year forward PE of company vs. BSE Healthcare Index
0.00
10.00
20.00
30.00
40.00
50.00
2/12/201
1
8/12/201
1
2/12/201
2
8/12/201
2
2/12/201
3
8/12/201
3
2/12/201
4
8/12/201
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5
2/12/201
6
8/12/201
6
2/12/201
7
8/12/201
7
2/12/201
8
(x)
Glenmark Pharma CNX Pharma Index
32% Discount
Source: Company, ICICIdirect.com Research
Exhibit 12: Valuation
Revenues Growth Adj. EPS Growth P/E EV/EBITDA RoNW RoCE
(| crore) (%) (|) (%) (x) (X) (%) (%)
FY17 9186 20.1 42.2 60.1 13.7 9.2 26.5 19.5
FY18E 9161 -0.3 33.4 -20.8 16.1 10.1 17.5 16.2
FY19E 9498 3.7 31.5 -5.8 17.1 10.6 14.3 14.3
FY20E 10343 8.9 38.2 21.2 14.1 9.1 14.9 15.5
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 11
Recommendation history vs. Consensus
0
200
400
600
800
1,000
1,200
1,400
Feb-18Nov-17Sep-17Jul-17Apr-17Feb-17Nov-16Sep-16Jul-16Apr-16Feb-16Nov-15Sep-15Jun-15Apr-15Feb-15
(|
)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
(%
)
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Reuters, Company, ICICIdirect.com Research
Key events
Aug-09 Forest & Glenmark Pharma announce Phase IIb results for Oglemilast. The molecule did not show satisfactory results compare to its Placebo.
Oct-09 Launches four products in the UK market through its subsidiary Glenmark Generics Europe.
Mar-10 Receives USFDA approval for its new drug application for Oxycodone Hydrochloride capsules and liquid solutions filed as an NDA with USFDA under 505b2 route.
May-10 Enters into an agreement with Sanofi to out-license its GRC 15300 molecule. Receives US$ 20 million as an upfront payment.
Jan-11 Sanofi & Abbott win patent litigation case of generic Tarka. A Federal jury asks Glenmark to pay US$ 16 million as damages for launching at risk in the US market.
Apr-11 Enters into an exclusive agreement with a Canadian base company ImmanenceIntegrale Dermo Correction (IDC) to market high end dermatology products in eight
countries including India & Brazil.
May-11 Out-licenses monoclonal antibody GBR 500 to Sanofi. Receives US$ 50 million as upfront payment.
Aug-12 The International Center for Dispute resolution rules in favor of Glenmark on the arbitration claim it filed against Napo Pharma. Glenmark will have rights to develop,
commercialise and distribute Crofelemer in 140 emerging markets.
Jul-13 Confirms filing of ANDA for Lacosamide tablets and oral solutions with the USFDA under Para IV certification.
Mar-14 Provided | 213 crore for Tarka liability
Jan-15 Receives shareholders' approval to raise up to $300 million (around | 1,890 crore) through issue of securities
Oct-15 Sanofi calls off its deal with Glenmark related to the development of Vatelizumab drug (GBR 500), a monoclonal antibody (MaB) for multiple sclerosis.The drug is in
Phase II clinical trials
Dec-16 Launched gZetia (CVS) in the US under exclusivity
Dec-16 Goa formulation facility receives four form 483 observations from the USFDA
Mar-17 Announces positive phase-III clinical trials result for GSP 301 (nasal spray) conducted in the US
Mar-17 USFDA clears investigational new drug (IND) application to begin a Phase II study of GSP 304 (tiotropium bromide; COPD)
Source: Company, ICICIdirect.com Research
Top 10 Shareholders Shareholding Pattern
Rank Investor Name Latest Filing Date % O/S PositionPosition Change
1 Saldanha Family Trust 30-Sep-17 45.4 128.2 0.0
2 Aranda Investments (Mauritius) Pte. Ltd. 30-Sep-17 4.0 11.3 0.0
3 OppenheimerFunds, Inc. 30-Sep-17 3.7 10.4 0.0
4 Templeton Asset Management Ltd. 30-Sep-17 2.4 6.7 3.2
5 HSBC Global Asset Management (Hong Kong) Limited 30-Sep-17 1.8 5.0 1.5
6 Franklin Templeton Investment Management Ltd. 30-Sep-17 1.7 4.9 1.6
7 The Vanguard Group, Inc. 30-Sep-17 1.7 4.7 -0.2
8 BlackRock Institutional Trust Company, N.A. 30-Sep-17 1.4 3.9 0.0
9 Life Insurance Corporation of India 30-Sep-17 1.3 3.7 0.0
10 T. Rowe Price International (UK) Ltd. 30-Jun-17 1.1 3.0 -1.0
(in %) Dec-16 Mar-17 Jun-17 Sep-17 Dec-17
Promoter 46.5 46.5 46.5 46.5 46.5
Others 53.5 53.5 53.5 53.5 53.5
Source: Reuters, ICICIdirect.com Research
Recent Activity
Investor name Value ($ mn) Shares Investor name Value ($ mn) Shares
Templeton Asset Management Ltd. 29.1 3.2 T. Rowe Price International (UK) Ltd. -9.9 -1.0
Franklin Templeton Investment Management Ltd. 14.3 1.6 Mirae Asset Global Investments (Hong Kong) Limited -7.1 -0.8
HSBC Global Asset Management (Hong Kong) Limited 13.7 1.5 Unigestion -5.7 -0.6
Mirae Asset Global Investments (India) Pvt. Ltd. 6.6 0.7 BNP Paribas Asset Management USA, Inc. -6.8 -0.5
Franklin Templeton Asset Management (India) Pvt. Ltd. 3.6 0.4 Wasatch Advisors, Inc. -4.8 -0.5
Buys Sells
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 12
. Financial summary
Profit and loss statement | Crore
(Year-end March) FY17 FY18E FY19E FY20E
Revenues 9,185.7 9,161.0 9,497.9 10,343.2
Growth (%) 20.1 -0.3 3.7 8.9
Raw Material Expenses 2,614.3 3,032.6 3,134.3 3,413.3
Employee Expenses 1,640.8 1,851.7 1,804.6 1,965.2
Other Manufacturing Expenses 2,893.9 2,452.7 2,849.4 2,999.5
Total Operating Expenditure 7,149.0 7,337.1 7,788.3 8,378.0
EBITDA 2,036.7 1,824.0 1,709.6 1,965.2
Growth (%) 41.7 -10.4 -6.3 15.0
Interest 237.3 281.6 260.9 242.5
Depreciation 264.4 303.7 331.9 360.9
Other Income 37.4 28.9 66.5 72.4
PBT before Exceptional Items 1,572.4 1,267.5 1,183.3 1,434.3
PBT 1,491.4 1,267.5 1,183.3 1,434.3
Total Tax 382.7 325.7 295.8 358.6
PAT before MI 1,108.8 941.8 887.5 1,075.7
PAT 1,108.8 941.8 887.5 1,075.7
Adjusted PAT 1,189.8 941.8 887.5 1,075.7
Growth (%) 60.1 -20.8 -5.8 21.2
EPS (Adjusted) 42.2 33.4 31.5 38.2
Source: Company, ICICIdirect.com Research
Cash flow statement | Crore
(Year-end March) FY17 FY18E FY19E FY20E
Profit/(Loss) after taxation 1,108.8 941.8 887.5 1,075.7
Add: Depreciation & Amortization 345.3 303.7 331.9 360.9
Net Increase in Current Assets -890.0 -63.4 -201.3 -541.4
Net Increase in Current Liabilities 28.5 38.6 100.3 213.7
Others 64.8 281.6 260.9 260.9
CF from operating activities 657.4 1,502.4 1,379.3 1,369.8
(Inc)/dec in Investments 1.5 0.0 0.0 0.0
(Inc)/dec in Fixed Assets -748.5 -600.0 -600.0 -600.0
Others -254.2 -135.2 -148.8 -163.6
CF from investing activities -1,001.2 -735.2 -748.8 -763.6
Inc / (Dec) in Equity Capital 0.3 0.0 0.0 0.0
Inc / (Dec) in Loan Funds 794.3 -571.0 -306.0 -271.7
Other -251.5 -347.5 -326.8 -326.8
CF from financing activities 543.0 -918.6 -632.8 -598.5
Net Cash flow 199.2 -151.4 -2.2 7.7
Opening Cash 857.1 1,056.4 904.9 902.7
Closing Cash 1,056.4 904.9 902.7 910.4
Free Cash Flow -91.1 902.4 779.3 769.8
Source: Company, ICICIdirect.com Research
Balance sheet | Crore
(Year-end March) FY17 FY18E FY19E FY20E
Equity Capital 28.2 28.2 28.2 28.2
Reserve and Surplus 4,464.3 5,340.2 6,161.8 7,171.6
Total Shareholders fund 4,492.5 5,368.4 6,190.0 7,199.9
Total Debt 4,723.7 4,152.6 3,846.7 3,575.0
Deferred Tax Liability 25.7 28.2 31.0 34.2
Minority Interest -0.4 -0.5 -0.5 -0.6
Other Non Current Liabilities 32.8 36.0 39.6 43.6
Source of Funds 9,274.2 9,584.8 10,106.9 10,852.0
Gross Block - Fixed Assets 4,722.0 5,222.0 5,722.0 6,222.0
Accumulated Depreciation 2,014.8 2,318.5 2,650.4 3,011.3
Net Block 3,415.3 3,711.6 3,979.7 4,218.8
Goodwill on Consolidation 47.9 47.9 47.9 47.9
Intangible Assets 0.0 0.0 0.0 0.0
Investments 15.7 15.7 15.7 15.7
Inventory 2,139.1 2,162.4 2,236.4 2,435.4
Cash 1,056.4 904.9 902.7 910.4
Debtors 2,404.3 2,430.5 2,513.7 2,737.4
Other Current Assets 1,274.9 1,288.8 1,332.9 1,451.5
Total Current Assets 6,874.6 6,786.6 6,985.7 7,534.8
Creditors 1,903.5 1,924.3 1,990.1 2,167.3
Provisions & Other CL 586.2 604.1 638.5 675.1
Total Current Liabilities 2,489.7 2,528.3 2,628.6 2,842.3
Net Current Assets 4,384.9 4,258.3 4,357.0 4,692.4
LT L& A, Other Assets 99.1 109.0 119.9 131.8
Deferred Tax Assets 1,311.3 1,442.4 1,586.6 1,745.3
Source: Company, ICICIdirect.com Research
Key ratios
(Year-end March) FY17 FY18E FY19E FY20E
Per share data (|)
Adj EPS 42.2 33.4 31.5 38.2
BV 159.5 190.6 219.8 255.7
DPS 2.4 2.3 2.3 2.3
Cash Per Share 71.5 82.3 94.1 106.9
Operating Ratios (%)
Gross Margin 71.5 66.9 67.0 67.0
EBITDA margins 22.2 19.9 18.0 19.0
Net Profit margins 13.0 10.3 9.3 10.4
Inventory days 85 86 86 86
Debtor days 96 97 97 97
Creditor days 76 77 76 76
Asset Turnover 1.9 1.8 1.7 1.7
EBITDA conversion Rate 32.3 82.4 80.7 69.7
Return Ratios (%)
RoE 26.5 17.5 14.3 14.9
RoCE 19.5 16.2 14.3 15.5
RoIC 29.3 24.2 21.1 22.9
Valuation Ratios (x)
P/E 13.7 16.1 17.1 14.1
EV / EBITDA 9.2 10.1 10.6 9.1
Market Cap / Sales 1.7 1.7 1.6 1.5
Price to Book Value 3.4 2.8 2.4 2.1
Solvency Ratios
Debt / Equity 1.1 0.8 0.6 0.5
Debt / EBITDA 2.3 2.3 2.3 1.8
Current Ratio 2.3 2.3 2.3 2.3
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 13
ICICIdirect.com coverage universe (Healthcare)
Company I-Direct CMP TP Rating M Cap
Code (|) (|) (| Cr) FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E
Ajanta Pharma AJAPHA 1441 1,515 Hold 12680.2 57.4 57.0 63.5 75.7 25.1 25.3 22.7 19.0 42.3 34.6 31.5 30.2 33.7 26.8 24.4 23.9
Alembic Pharma ALEMPHA 555 570 Hold 10459.8 21.2 23.7 23.0 28.6 26.2 23.5 24.1 19.4 25.3 19.6 17.6 19.7 21.0 19.9 16.8 18.0
Apollo Hospitals APOHOS 1136 1,060 Hold 15810.9 15.9 13.4 24.2 34.4 71.6 84.5 46.9 33.1 6.1 7.5 9.9 12.1 6.0 4.9 8.2 10.7
Aurobindo Pharma AURPHA 609 665 Hold 35683.2 38.8 42.6 38.0 41.5 15.7 14.3 16.0 14.7 24.4 23.5 18.4 17.9 24.2 21.3 16.1 15.2
Biocon BIOCON 615 680 Buy 36870.0 8.5 8.4 11.9 16.9 72.5 73.5 51.8 36.3 9.6 10.2 13.9 17.1 10.5 9.6 12.3 15.4
Cadila Healthcare CADHEA 426 405 Hold 43637.0 14.5 16.6 18.1 20.3 29.3 25.6 23.6 21.0 13.1 17.6 16.7 17.3 21.4 20.7 19.2 18.6
Cipla CIPLA 629 640 Hold 50638.2 12.5 19.6 26.8 32.1 50.2 32.2 23.5 19.6 7.7 9.7 14.5 16.0 8.0 11.4 13.9 14.7
Divi's Lab DIVLAB 1027 1,070 Hold 27257.0 39.9 32.7 40.7 48.7 25.7 31.4 25.2 21.1 25.3 19.3 21.2 22.2 19.8 14.7 16.2 16.9
Dr Reddy's Labs DRREDD 2224 2,520 Hold 36887.7 78.0 59.4 93.4 140.2 28.5 37.4 23.8 15.9 7.3 6.8 9.5 12.1 10.5 7.5 10.8 14.2
Glenmark Pharma GLEPHA 539 535 Hold 15217.3 42.2 33.4 31.5 38.2 12.8 16.1 17.1 14.1 19.5 16.2 14.3 15.5 26.5 17.5 14.3 14.9
Indoco Remedies INDREM 277 280 Hold 2553.5 8.4 4.8 12.2 15.4 33.1 57.4 22.7 18.0 8.7 5.4 11.2 13.8 11.8 6.5 14.5 16.0
Ipca Laboratories IPCLAB 626 715 Buy 8116.0 15.4 21.4 37.6 44.7 40.6 29.2 16.7 14.0 8.7 9.6 15.5 16.7 7.9 10.1 15.4 15.9
Jubilant Life JUBLIF 940 1,090 Buy 14966.1 36.1 46.9 68.0 85.3 26.0 20.0 13.8 11.0 13.8 14.7 18.4 20.4 16.8 18.1 21.0 21.0
Lupin LUPIN 840 850 Hold 37950.2 56.7 30.2 35.1 45.2 14.8 27.8 23.9 18.6 16.6 10.0 10.9 13.7 19.0 9.3 10.0 11.6
Narayana Hrudalaya NARHRU 314 360 Buy 6415.9 4.1 3.8 6.4 9.7 76.0 83.0 48.8 32.3 12.5 10.5 14.1 18.4 8.8 7.4 11.2 14.5
Natco Pharma NATPHA 827 910 Hold 15257.6 26.3 34.8 41.5 26.7 31.4 23.8 19.9 30.9 33.6 26.7 28.1 16.7 29.5 21.4 21.9 12.9
Sun Pharma SUNPHA 594 485 Hold 142515.4 29.0 14.7 18.2 22.2 20.5 40.5 32.6 26.7 20.3 10.7 12.2 13.5 19.0 9.1 10.3 11.4
Syngene Int. SYNINT 598 680 Buy 11960.0 14.4 13.6 19.0 22.7 41.6 41.6 31.4 26.3 16.8 16.2 20.3 21.7 20.3 16.4 18.8 18.5
Torrent Pharma TORPHA 1420 1,369 Hold 24030.2 55.2 39.4 66.7 79.8 25.7 36.1 21.3 17.8 18.9 19.4 21.2 22.9 21.5 13.7 19.8 20.1
RoE (%)EPS (|) PE(x) RoCE (%)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 14
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, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey Head – Research [email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
ICICI Securities Ltd | Retail Equity Research Page 15
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