sec pharma mosl 090712

8/13/2019 Sec Pharma Mosl 090712

1/98

1July 2012

Healthcare

Nimish Desai ([email protected]); +91 22 3982 5406

Amit Shah ([email protected]); +91 22 3982 5423

Health is wealth

Sector update | July 2012


2/98

2July 2012

Health is wealthKey arguments .... 3-14

Expect 28% EPS CAGR . 4-6

Base US business to report healthy growth .. 5

US product pipeline getting stronger . 6

Strong backward integration .. 7

Generics: Patent expiries to drive growth .... 8

India formulations Sustained growth ... 9

Strong/Improving return ratios ........ 10-11

Our top picks to grow PAT at 28% .......................... 12

Companies at inflexion point ... 13-14

Our estimates v/s Mgmt guidance . 15

FY13 guidance management quotes ...16Our top picks ....... 17

FY12 performance & guidance highlights . 18-19

Forex impact on key companies ...20

NPPP 2011: Impact .. 21

Companies .....22-84

Dr. Reddys Labs .23

Divis Labs ..29

Lupin .34

Cadila Healthcare ....40

Glenmark ...46

IPCA Labs 54

Torrent Pharma ..60

Sun Pharma .....66

Cipla ..72

Ranbaxy Labs .....79

ANNEXURES ... 85-91

CRAMS ......92-96

Healthcare


3/98

3July 2012

Healthcare


4/98

4July 2012

US & India businesses to be the key growth & profitability drivers

Return ratios to remain strong for most companies

Our top picks basket to clock 28% core PAT CAGR over FY12-14

Many companies are at inflexion point

Most managements guiding for strong growth street is in disbelief

mode valuations will look cheap if managements achieve their

guidances

Top picks: Dr Reddys, Lupin, Cadila, Divis. In mid-caps we like

Glenmark, Ipca and Torrent; our target returns on these stocks range

from 20-50%

Core US business to report healthy growth We expect core US revenues to grow by 15-20% for key companies in

USD-terms led by:

1) Strong pipeline of products pending US FDA approval

2) Large number of patent expiries USD74b worth of drugs going off-

patent in 2012-15

3) Strong and differentiated US pipeline to help counter patent cliff with

leading Indian companies having invested significant resources over the

past few years to build capabilities/pipeline in this area.

Growth in INR-terms could be higher if currency remains favorable

Our current estimates are based on INR52.5/USD for FY13 and

INR50/USD for FY14.

Strong earnings growth ahead Expect 28% EPS CAGR

Health is wealth

Healthcare


5/98

5July 2012

Base US business to report healthy growth (USD M)Healthcare


6/98

6July 2012

US product pipeline getting strongerHealthcare


7/987July 2012

India has strong DMF pipeline India accounts for about 30-40%

of global DMF filings with the US

FDA.

Strong backward integration

enables cost-competitiveness

Indian companies have thrived in

the US despite an intensely

competitive business

environment.

Strong positioning led by aunique combination of:

1) Superior chemistry skills By

virtue of having significant

presence in India (a low-cost &

competitive market), Indian

companies chemistry skills are

honed to exploit the generics

market.

2) Regulatory capabilities With

100+ US FDA approved facilities,

India has the highest number of

US FDA compliant facilities

outside the US.

Strong backward integrationHealthcare


8/988July 2012

USD74b worth of products going

off-patent by 2015 in the US

Strong pipeline of Indian

companies should help them

exploit this opportunity.

Incidentally, most large

companies are guiding for 20-30

new launches per year for next

two years.

Strong Indian pipeline

Companies like Lupin (109 ANDAspending approval), Dr. Reddys

(80 ANDAs) and Sun Pharma (147

ANDAs) have a fairly strong

pipeline targeted at the US

market.

Generic penetration in many

markets still in single digits

Penetration likely to increase

over the next 5 years as various

governments are trying to reduce

their healthcare budgets

resulting in encouraging of

generic penetration.

Generics Patent expiries to drive growth in regulated markets

Healthcare


9/989July 2012

India Growth for the domestic

formulations market is likely to

improve in FY13 led by: Most companies have enhanced

their sales force in the past 18

months & focus will now shift to

productivity improvement for

this sales force over the next two

years. Attrition rates for MRs has

also come down which will

favorably impact the productivity.

Low base effect 1HFY12 saw

the industry growth at muted

levels due to low incidence of

infectious diseases.

Chronic segments like CVS,Diabetology, etc continue to

record strong double-digit

growth given the changing life-

style of the populations,

especially in large cities.

India formulations Sustained growthHealthcare


10/9810July 2012

Dr Reddy's:Higher contribution

from one-off upsides led to higher

return ratios in FY12

Lupin: Better profitability & workingcapital to improve return ratios

Divis Labs:Improvement led by

improving utilization at new SEZ

Cadila:Improved operational

performance & reversal of forex

losses to improve RoCE

Glenmark:Debt reduction &

reversal of forex losses to improvereturn ratios.

Strong/Improving return ratiosHealthcare


11/9811July 2012

IPCA:Better Op performance &

reversal of forex losses to improve

return ratios

Torrent: Improvement led by betterprofitability & increasing other

income

Sun Pharma:Expected decline in

Taro profitability to impact return

ratios

Cipla:Underutilization of large

capex impacting return ratios

Ranbaxy: Core RoCE continues tobe muted due to low profitability.

Strong/Improving return ratiosHealthcare


12/9812July 2012

Our top picks to report PAT CAGR of 28% (FY12-14)

We have upgraded ratings for Dr. Reddys, Cadila and Glenmark to BUY. We continue to be positive on Divis

Labs, Lupin, IPCA & Torrent Pharma

Our basket of these 7 companies likely to report 28% PAT CAGR for FY12-14E excluding one-off upsides

Currency assumption INR52.5/USD for FY13E and INR50/USD for FY14E is conservative

Many managements are guiding for strong growth not fully captured in consensus estimates street is in

disbelief mode

Most managements enjoy good credibility with strong track record

Past forex hedges has prevented any major benefit of depreciating currency. But gradually, future hedges will

be at better rates if INR remains at current levels

Our top picks consists of companies at inflexion point in terms of growth and/or companies whose

valuations have corrected/become reasonable.

Healthcare


13/98

13July 2012

Dr. Reddys Labs:One year forward

P/E is 17% below the average P/E of

last five years

Lupin: Valuations at premium to5-year average

Divis Labs: One year forward P/E at

12% discount to 5-year average

Cadila: Valuations at premium to

5-year average

Glenmark: One year forward P/E at

25% discount to 5-year average.

Companies at inflexion pointHealthcare


14/98

14July 2012

IPCA: 1-year forward P/E is in-line

with average P/E of last five years

Torrent:Valuations at slight

premium to 5-year average Sun Pharma: One year forward P/E

at 25% premium to 5-year average

& near to peak valuations

Cipla: One year forward P/E at 12%

discount to 5-year average

Ranbaxy:One year forward P/E at

significant discount to 5-year

average may not be correct due toUS FDA issues in past.

Companies at inflexion point

Healthcare


15/98

15July 2012

Guidance given by the companies (our buys) is significantly above our current estimates. Consensus

estimates also not fully capturing management guidance

Dr Reddys Significant variance in consensus estimates v/s guidance due to a few US opportunities whichare not reflected in estimates due to lower visibility

Lupin & Cadila Both these companies aspire to reach USD3b topline with implied CAGR of 25-27% which

street finds aggressive. However, both these managements have delivered on their past aggressive

guidances.

If the companies manage to achieve the guidance, it will lead to significant upgrade in our estimates.

Our estimates v/s management guidanceHealthcare


16/98

16July 2012

Glenmark:Topline growth targeted at 22-25% (ex-NCE), EBITDA at INR9-9.25b, US business to grow

by 20%, Expect ~12 ANDA approvals with 3-4 OCs, India formulations to grow by 18-20%, To launch

20-25 products in India, Interest cost to average INR390m/qtr, Central & Eastern European marketswill continue to be challenging, Will target some debt reduction, working capital to remain at FY12

levels.

Cadila: Targeting USD3b revenues by FY16, Will grow India formulations business in-line with

average industry growth, Consumer business to grow in double-digits, Positive US FDA response for

its Gujarat facility can lead to clearance of back-log of pending approvals and drive growth, Targets 30

filings in US, Brazil to do well while France may not.

Dr. Reddys:Expect overall 30% topline growth, Will be able to record moderate growth in FY14

despite the high base of FY13, Patent cliff may impact FY15 performance, Planning to launch generic

Lipitor in US subject to US FDA approval, In discussion with potential partners for biosimilars business,

Expects some delay in scale-up of the GSK alliance, Expect India formulations to grow in-line with

industry & momentum in PSAI business to sustain.

Lupin: Targeting USD3b revenues by FY15, Planning to launch 120 products in US over next 3 years

with over 20 targeted in FY13 of which 50% will be OCs, Generic Tricor launch likely in FY13, Does notexpect Suprax generic over next 9-12 months, Expect EBITDA margins to improve by 50-75bps.

Divis: Strong growth visibility; to grow topline by 25% and maintain EBITDA margins at 37%. Capex

guidance raised based on better revenue visibility.

FY13 guidance management quotesHealthcare


17/98

17July 2012

Comparative valuation table with target price

Our top picksHealthcare


18/98

18July 2012

FY12 performance & guidance highlights

Dr Reddys Lab:Higher tax (22.8% v/s 11.3%) & INR 1b impairment for Germany Lupin:Lower margins (Irom), higher tax (25.8% v/s 11.8%)

Cadila:High base (extra sales booked in 4QFY11, increased interest cost due to acquisition & forex losses

Glenmark:MTM forex losses of INR1.75b

Divis Lab:Tax rate increased to 21.7% from 9%

Torrent Pharma:Provision of INR654m for date expired products & lower other income

IPCA Labs:Forex losses of INR527m

Sun:Profitability mainly driven by Taro extra sales of INR1.8b in India but tempered by higher tax rate at 11% v/s 6%

Healthcare


19/98

19July 2012

Guidance highlights - Strong guidance & aspirations

Sun expects 18-20% topline growth for FY13 on a high base.

Divishas guided for 25% topline growth for FY13 on a high base.

DRLexpects 30% topline growth for FY13.

Lupintargets USD3b topline over next three years with implied CAGR of 24%.

Cadilatargets USD3b topline by FY16 with implied CAGR of 27%.

Glenmarkhas guided for 22-25% topline growth for FY13 and INR9-9.25b EBITDA.

Ciplahas given a muted guidance of 10% topline growth for FY13.

EBITDA Margins- Most of the companies target to either sustain or improve EBITDA margins in FY13.

Tax rateguidance for many companies is higher and most companies are now near to MAT rate.

FY12 performance & guidance highlights

Healthcare


20/98

20July 2012

We feel that Divis Lab and Cipla will be the leading beneficiary of the depreciation of INR v/s USD and other

currencies given low hedges, limited expenses in foreign currency and absence of forex denominated debt

on the books.

Ranbaxy and Jubilant will get adversely impacted as INR depreciates given the high forex denominated debt

and forex hedges on the books.

For remaining companies, the positive impact of a depreciating currency will be visible only after a year

when existing forex hedges run out and new hedges come in at better rates. Existing hedges have been

taken at an average of INR46-49/USD.

Forex impact on key companiesHealthcare


21/98

21July 2012

NPPP 2011: Impact

National Pharma Pricing Policy (NPPP), 2011 Key proposals and impact

Significant increase in span of price control:All 348 drugs in the NLEM will come under price control as

compared to the current 74 drugs. Span of price control will increase from current 20% to 60% Market-based pricing: Govt notified ceiling price to be the wt average prices of top 3 brands by value.

Inflation-linked prices: Price increases up to the Wholesale Price Index (WPI) to be allowed every year

Exemptions:Drugs with ceiling price up to INR3/unit exempted from NPPP coverage.

Imported drugs: NPPP to apply to imported drugs also. No separate price calculations

Patented drugs: NPPP will not cover patented drugs as a separate pricing mechanism is being worked out

GoM decision awaited: Multiple feedbacks have been made to the NPPP.

Healthcare


22/98

22July 2012

Healthcare


23/98

23July 2012

Entering a high-growth year, Valuations have corrected

Traction in the US, branded formulations and PSAI businesses will be the

key growth drivers for DRRD over next two years. We believe that DRRD is

entering FY13 with strong growth traction. Management has guided for

~30% topline growth for FY13E. Significant gap between guidance and

consensus implies some product opportunities in US not visible to

investors as of now. The stock price has remained almost flat for the last 12

months, thus undergoing a reasonable time-correction. We believe that

with strong growth visibility for FY13, the stock is poised to give

reasonable returns for investors in a risk-averse market sentiment. DRRDstock trades at 17.4x FY13E and 15.7x FY14E core earnings. BUY with TP of

INR2,056.

Core sales to record 15% CAGR for FY12-14E despite on-set of patent cliff

US business to record 17% core CAGR

Company has a track record of at least one Para-IV/low competition

upside every year for past few years.

Branded formulation business to record 18% CAGR PSAI business to record 15% CAGR led by new API launches linked to

patent expiries

Core earnings to grow at 19% CAGR for FY12-14 excluding one-offs and

MTM forex gains

Valued at 17.4x FY13E and 15.7x FY14E core earnings. Including one-

offs, stock is valued at 13.5x FY13E earnings.

Dr. Reddys Labs Buy [DRRD IN; CMP: INR1,610; MCap:USD4.8B]


24/98

24July 2012

US business to record 17% CAGR

for core portfolio.

Core US business growth will be

led primarily by OTC segment on

the back of new launches and

market share gain in other

product categories. We expect

market share ramp-up in for

Omeprazole OTC and the

recently launched Lansoprazole

OTC. Full ramp-up in sales fromthe ex-GSK facilities is also likely

to drive growth.

We estimates USD220m in

revenues from one-off/low

competition product

opportunities during FY13 led

by generic Arixtra, Geodon,

Propecia etc. Few more low competition

product opportunities are likely

to be commercialized in FY13

which are not visible as of now.

US core revenues to grow by 18% CAGRDr. Reddys Labs

- FY13


25/98

25July 2012

Expanding presence in Russian

OTC biz. along with other growth

drivers like in-licensed products

Ramp-up in the biogeneric

portfolio in emerging markets

management expects revenues of

USD100m in the next 2-3 years

v/s the current USD30m.

Ramp-up in revenues from the

companys GSK partnership

arrangement in emergingmarkets

In India, the company redeployed

its experienced urban sales force

in rural areas, which resulted in a

decline in urban doctor coverage

and loss of business in the

metros.

Management has takencorrective action and the results

should be visible in the next few

quarters

Branded formulations sales to grow at 17% CAGRDr. Reddys Labs

dd b


26/98

26July 2012

Dr. Reddys Labs Buy [DRRD IN; CMP: INR1,610; MCap:USD4.8B]Dr. Reddys Labs

D R dd L b


27/98

27July 2012

Dr. Reddys Labs FinancialsIncome Statement (INR Million)

Y/E March 2011 2012 2013E 2014E

Net Sales 74,693 96,737 101,638 113,965

Change (%) 6.3 29.5 5.1 12.1Other Income 1,115 768 842 980

Tota l Exp en di tu re 59,073 72,997 79,379 89,007

EBITDA 15,620 23,740 22,259 24,958

Margin (%) 20.9 24.5 21.9 21.9

Depreciat ion & Amortization 4,107 6,254 6,093 6,592

EBIT 11,513 17,486 16,166 18,367

Net Interest Exp 132 529 685 785

Forex (Gains)/Los ses 57 -689 -114 228PBT & EO Expense 12,439 18,414 16,437 18,334

Change (%) 505.9 48.0 -10.7 11.5

PBT after EO Expense 12,439 18,414 16,437 18,334

Tax 1,403 4,204 3,616 4,022

Tax Rate (%) 11.3 22.8 22.0 21.9

Adjusted Net Profit 11,099 16,911 15,700 17,365

Change (%) 939.2 52.4 -7.2 10.6

Margin (%) 14.9 17.5 15.4 15.2

Balance Sheet (INR Million)

Y/E March 2011 2012 2013E 2014E

Equity Share Capi tal * 846 848 848 848

Reserves 45,144 56,595 64,839 74,090

Net Worth 45,990 57,443 65,687 74,937

Loans 23,572 34,401 30,401 30,401

Deferred Liabi l i ties/Tax 87 0 0 0

Capital Employed 69,649 91,844 96,089 105,339

Net Fixed Assets 29,955 35,628 43,128 48,128

Investments 309 368 368 368

Goodwill/Intangible Assets 15,246 13,529 13,529 13,529

Curr. Assets 47,560 69,952 62,441 67,247

Inventory 16,059 19,352 20,328 22,793

Account Receivables 17,615 25,339 25,409 28,491

Ca s h a nd Ban k Bala nce 5,729 18,152 9,081 7,415

Others 8,157 7,109 7,623 8,547

Curr. Liability & Prov. 23,421 27,633 23,377 23,933

Acco unt Pa ya bl e s 8,480 25,660 11,180 11,396

Other Current Liabil it ies 14,941 1,973 12,197 12,536

Net Current Assets 24,139 42,320 39,064 43,314

Appl. of Funds 69,649 91,844 96,089 105,339

* IFRS reporting from FY09 onwards. Financials prior to FY09 are as per US GAAP

E: MOSL Estima tes

Dr. Reddys Labs

D R dd L b


28/98

28July 2012

Dr. Reddys Labs FinancialsRatios 1 1.03754

Y/E March 2011 2012 2013E 2014E

Basic (INR)

EPS 65.6 99.7 92.6 102.4

Cash EPS 89.9 136.6 128.5 141.3

BV/Share 271.8 338.8 387.4 442.0

DPS 8.2 12.4 11.5 12.8

Payout (%) 29.2 29.2 29.2 29.2

Valuation (x)

P/E 24.5 16.1 17.4 15.7

Cas h P/E 17.9 11.8 12.5 11.4

P/BV 5.9 4.8 4.2 3.6

EV/Sa les 3.9 3.0 2.9 2.6EV/EBITDA 18.6 12.1 13.2 11.8

Dividend Yield (%) 0.5 0.8 0.7 0.8

Return Ratios (%)

RoE 24.1 29.4 23.9 23.2

RoCE 16.7 19.6 17.5 18.2

Working Capital Ratios

Fixed As set Turnover (x) 2.8 3.0 2.6 2.5Debtor (Days) 86 96 91 91

Inventory (Days) 78 73 73 73

Working Capital (Days) 90 91 108 115

Leverage Ratio

Current Ratio (x) 2.0 2.5 2.7 2.8

Debt/Equity (x) 0.5 0.6 0.5 0.4

Cash Flow Statement (INR Million)

Y/E March 2011 2012 2013E 2014E

Op. Profit/(Loss ) before Tax 15,620 23,740 22,259 24,958

Interes t/Divi dends Recd. 926 928 271 -33

Di re ct Ta xe s Pa i d -1,403 -4,204 -3,616 -4,022

(I nc)/De c i n WC -6,531 -5,758 -5,815 -5,916

CF from Operations 8,612 14,707 13,098 14,988

CF from Operating incl EO Expe 8,612 14,707 13,098 14,988

(i nc)/dec i n FA -12,566 -10,210 -13,593 -11,592

(Pur)/Sa le of Investments 3,534 -59 0 0

CF from Investments -9,032 -10,269 -13,593 -11,592

Change in networth -4,726 2,172 0 0

(Inc)/Dec in Debt 8,877 10,829 -4,000 0

Other Items -1,351 -87 0 0

Di vi dend Pa id -3,235 -4,930 -4,576 -5,062

CF from Fin. Activity -435 7,985 -8,576 -5,062

Inc/Dec of Cash -855 12,423 -9,071 -1,666

Add: B egi nni ng Ba l ance 6,584 5,729 18,152 9,081

Closing Balance 5,729 18,152 9,081 7,415

Note: Reported cashflow differs due to acquisitions & change to IFRS reporting

from FY09 onwards

Dr. Reddys Labs


29/98

29July 2012

Best CRAMS play - Entering a high-growth phase

Divi's is well positioned in the CRAMS space, given its strong relationships

with innovators, presence across the CRAMS value chain, and its ability to

support the innovator in late life-cycle strategies. Divi's earns strong

margins in API business due to its global cost and market leadership in

some APIs, its ability to increase prices, and strong backward integration. It

has undertaken a large capex at its new SEZ, implying positive prospects

for outsourcing business. We estimate 22% revenue & EPS CAGR for FY12-

14 led by both Generics and CRAMS business segments and ramp-up in

Neutraceutical revenues. The stock trades at 19.4x FY13E and 16.5x FY14Eearnings. Reiterate Strong Buy, with TP of INR1,202 (20x FY14E EPS).

Topline & EPS to record 22% CAGR over FY12-14

CRAMS business to grow at 24% CAGR led by execution of new contracts

Generic API business to record 18% CAGR led by new launches

Carotenoids to record 57% CAGR albeit on a low base

Strong topline guidance of 25% growth for FY13 led by execution of new

CRAMS contracts, launch of new APIs and improving utilization of the

strong capex done in the past 2 years.

Increase in capex guidance to INR1.5-2b for FY13 is a positive as Divis

does not undertake capex without revenue visibility

Will benefit from depreciated currency

Valued at 19.4x FY13E and 16.5x FY14E earnings. Reiterate Strong Buy,

with TP of INR1,202 (20x FY14E EPS).

Divis Labs Buy [DIVI IN; CMP: INR991; MCap:USD2.3B]


30/98

Divis Labs


31/98

31July 2012

Divis Labs Buy [DIVI IN; CMP: INR991; MCap:USD2.3B]Divi s Labs

Divis Labs


32/98

32July 2012

Divis Labs FinancialsIncome Statement (INR Million)

Y/E March 2011 2012 2013E 2014E

Net Sales 13,071 18,586 23,708 28,019

Change (%) 38.8 42.2 27.6 18.2EBITDA 4,915 6,850 8,849 10,431

Margin (%) 37.6 36.9 37.3 37.2

Depreciation 534 621 742 836

EBIT 4,381 6,229 8,106 9,594

Int. and Finance Charges 22 37 49 49

Other Income - Rec. 365 615 617 680

PBT before EO Expense 4,724 6,806 8,675 10,225


Current Tax 405 1,474 1,908 2,250

Deferred Tax 26 0 0 0

Tax Rate (%) 9.1 21.7 22.0 22.0

Reported PAT 4,293 5,333 6,766 7,976

PAT Adj for EO Items 4,293 5,333 6,766 7,976

Change (%) 26.1 24.2 26.9 17.9

Margin (%) 32.8 28.7 28.5 28.5


Y/E March 2011 2012 2013E 2014E

Equity Share Capi tal 265 266 266 266

Total Res erves 17,710 21,050 25,150 29,990Net Worth 17,975 21,315 25,416 30,255

Deferred l iabi l i ties 500 609 609 609

Tota l Loans 230 590 590 590


Gros s Block 8,857 11,519 13,519 14,519

Less : Accum. Deprn. 2,958 3,569 4,311 5,147

Net Fixed Assets 5,899 7,950 9,208 9,371

Capi tal WIP 1,293 1,293 1,293 1,293Inves tments 5,256 4,770 4,770 7,170

Curr. Assets 10,299 13,553 17,993 21,463

Inventory 5,717 6,790 9,483 11,208


Cas h and Bank Ba lance 177 309 213 449

Loans & Advances 731 1,498 1,897 2,242


Account Payables 2,424 2,954 3,793 4,483Provis ions 1,618 2,099 2,857 3,361


Appl. of Funds 18,706 22,514 26,615 31,454

E: MOSL Estimates

Divi s Labs

Divis Labs


33/98

33July 2012

Divis Labs FinancialsRatios

Y/E March 2011 2012 2013E 2014E

Basic (INR)

EPS 32.4 40.2 51.0 60.1

Cas h EPS 36.4 44.8 56.6 66.4

BV/Share 135.6 160.6 191.5 227.9

DPS 10.0 13.0 17.2 20.2

Payout (%) 36.2 37.8 39.4 39.3

Valuation (x)

P/E 30.6 24.7 19.4 16.5

Cash P/E 27.2 22.1 17.5 14.9

P/BV 7.3 6.2 5.2 4.3

EV/Sales 10.1 7.1 5.6 4.7

EV/EBITDA 26.8 19.3 14.9 12.6

Dividend Yield (%) 1.0 1.3 1.7 2.0

Return Ratios (%)

RoE 25.9 27.1 29.0 28.7

RoCE 28.2 34.1 36.4 36.1


Fixed As set Turnover (x) 2.2 2.7 2.8 3.0

Debtor (Days) 104 98 99 99

Inventory (Days) 160 133 146 146Working Capital Turnover (D 170 161 171 172

Leverage Ratio (x)

Current Ratio 2.5 2.7 2.7 2.7

Debt/Equi ty 0.0 0.0 0.0 0.0


Y/E March 2011 2012 2013E 2014E

Op.Profit/(Los s) bef. Tax 4,915 6,850 8,849 10,431

Interes t/Dividends Recd. 365 615 617 680Direct Taxes Paid -405 -1,474 -1,908 -2,250

(Inc)/Dec in WC -813 -2,111 -2,940 -2,039


EO Expense / (Income) 0 0 0 0

CF from Operations incl EO Ex 4,062 3,880 4,618 6,821

(inc)/dec in FA -1,591 -2,563 -2,000 -1,000

(Pur)/Sale of Inves tments -844 486 0 -2,400


Change in networth 57 25 0 0

Inc/(Dec) in Debt -98 360 0 0

Interest Pa id -22 -37 -49 -49

Dividend Paid -1,553 -2,017 -2,666 -3,136

CF from Fin. Activity -1,616 -1,670 -2,715 -3,185

Inc/Dec of Cash 12 133 -97 236

Add: Beginning Balance 165 177 309 213

Closing Balance 177 310 213 449

Divi s Labs


34/98

34July 2012

Strong growth traction ahead led by US, India & Japan

Key growth drivers for future will be: (1) Increased traction in India

formulations and emerging markets, (2) Strong launch pipeline for US, and

(3) contribution from oral contraceptives in US. We expect Lupins core

operations (ex one-off upsides) to record 20% revenue CAGR and 27% EPS

CAGR over FY12-14. Significant internationalization of operations without

dilution of return ratios has been Lupins key achievement over the past 4-

5 years. We expect it to sustain this in future as well. The stock is valued at

20.6x FY13 and 16.7x FY14 EPS. BUY with TP of INR600 (20x FY14 EPS).

EPS to record 27% CAGR over FY12-14

US growth at 18% CAGR despite potential Suprax generic competition

led by strong pace of new launches. Planning to launch 120 products

over next 3 years. Our estimates budget only 60 launches over next 3

years. Lupins US portfolio has a pragmatic mix of normal, niche (OCs,

Ophthalmology) and para-IV filings which are likely to get

commercialized over the next 3 years.

Best positioned to exploit Japanese generics opportunity - to grow at

27% CAGR partly aided by Irom acquisition Core growth is 14%

Expect 28% CAGR for formulations exports to emerging markets & 18%

for India formulations

Valued at 20.6x FY13E and 16.7x FY14E earnings. BUY with TP of INR628

(20x FY14 EPS).

Lupin Buy [LPC IN; CMP: INR523; MCap:USD4.1B]

Lupin


35/98

35July 2012

US growth at 18% CAGR despite

Suprax generic competition

led by strong pace of new

launches. Planning to launch 120 products

over next 3 years. We are

budgeting for 20-25 launches

per year hence there is upside

risk to our estimates. We also

budget for generic competition

for Suprax in FY14 despite whichLupins US business is expected

to record 18% CAGR.

Pragmatic mix of normal, niche

(OCs, Ophthalmology) and para-

IV filings for US operations.

Branded portfolio Antara

acquisition yet to deliver results.

As per the management,generic competition is not

visible at least for next one year

in Suprax. Further, Suprax

prescriptions being shifted to

new dosages to counter

potential generic competition.

US core revenues to grow at 18% CAGR for FY12-14Lupin

Lupin


36/98

36July 2012

India

Expect 18% CAGR for India

formulations

Aggressive new launches - 30 inFY12. Includes few in-licensed

products

Increasing geographical

penetration and Field force

addition - total MR strength at

4,800 660 added in FY12

Japan Best positioned to exploit

Japanese generics opportunity -

to grow at 27% CAGR partly

aided by Irom acquisition

Japanese govt targeting to

double generic penetration over

next few years to reduce

healthcare costs Imperative to have local

presence

Lupin has acquired two

companies over last two years

Best positioned amongst Indian

companies

India & Japan are other key growth driversLupin

Lupin


37/98

37July 2012

Lupin Buy [LPC IN; CMP: INR523; MCap: USD4.1B]Lupin

Lupin


38/98

38July 2012

Lupin FinancialsIncome Statement (INR Million)

Y/E March 2011 2012 2013E 2014E

Net Sales 57,068 69,597 86,287 98,574

Change (%) 20.4 22.0 24.0 14.2To ta l Exp en di tu re 46,410 56,382 69,652 78,669

EBITDA 10,659 13,215 16,635 19,905

Margin (%) 18.7 19.0 19.3 20.2

Depreciation 1,755 2,275 2,639 2,976

EBIT 8,903 10,940 13,996 16,928


Othe r I ncome - Re c. 1,341 1,376 1,468 1,753

PBT b efo re EO i te m 9,920 11,961 15,057 18,361

PBT after EO item 9,920 11,961 15,057 18,361

Tax 1,169 3,086 3,463 4,040

Tax Rate (%) 11.8 20.0 23.0 22.0

Reported PAT 8,750 9,817 11,594 14,322

PAT Adj for EO items 8,750 8,875 11,594 14,322

Change (%) 25.1 1.4 30.6 23.5

Margin (%) 15.3 12.8 13.4 14.5

Less : Minori ty Interest 168 199 270 300Adj Net Profit 8,582 8,676 11,324 14,022

Consolidated Balance Sheet (INR Million)

Y/E March 2011 2012 2013E 2014E

Equi ty Share Ca pi ta l 892 893 893 893

Ful ly Di lute d Equi ty Ca pi ta l 889 893 893 893

Othe r Re se rve s 31,918 39,236 47,247 57,168

Tota l Re se rve s 31,918 39,236 47,247 57,168

Net Worth 32,811 40,129 48,141 58,061

Minori ty Interes t 515 723 723 723

De fe rre d l ia bi li ti es 1,411 1,442 1,442 1,442

Tota l Loans 11,624 15,542 12,542 9,542


Gros s Block 26,389 32,932 37,432 41,932

Le s s : Accu m. D ep rn . 9,075 11,350 13,989 16,965

Net Fixed Assets 17,313 21,582 23,443 24,967

Capi ta l WIP 5,312 5,312 5,312 5,312


Go od wi l l & I nta ngi bl e s 3,255 5,040 5,040 5,040

Curr. Assets 34,967 46,911 51,958 58,967

Inventory 12,000 17,327 18,983 21,686

Acco un t R ece i va b le s 12,558 17,318 19,846 22,672

Ca s h a nd Ba nk Ba l ance 4,201 4,025 4,500 4,751

Others 6,208 8,241 8,629 9,857


Acco un t Pa ya bl e s 11,800 17,750 18,983 19,715

Provis ions 2,718 3,287 3,950 4,832


Appl. of Funds 46,361 57,836 62,847 69,768

E: MOSL Estima tes

Lupin

Lupin


39/98

39July 2012

Lupin FinancialsRatios

Y/E March 2011 2012 2013E 2014E

Basic (INR)

EPS (Fully Diluted) 19.3 19.4 25.4 31.4Cash EPS (Ful ly Di luted) 23.2 24.5 31.3 38.1

BV/Share 73.5 89.8 107.8 130.0

DPS 3.2 4.9 6.3 7.8

Payout (%) 18.9 25.9 28.6 28.6

Valuation (x)

P/E (Fully Dil uted) 27.1 26.9 20.6 16.7

Cas h P/E (Full y Dil uted) 22.5 21.3 16.7 13.8

P/BV 7.1 5.8 4.9 4.0

EV/Sales 4.2 3.5 2.8 2.4

EV/EBITDA 22.6 18.5 14.5 12.0

Dividend Yield (%) 0.6 0.9 1.2 1.5

Return Ratios (%)

RoE 29.3 23.8 25.7 26.4

RoCE 25.1 24.6 26.6 29.1

Working Capital RatiosFixed Asset Turnover (x) 2.3 2.3 2.5 2.5

Debtor (Days) 87 105 103 100


Wkg. Capital Turnover (Days) 131 136 123 127

Leverage Ratio

Debt/Equity (x) 0.4 0.4 0.3 0.2


Y/E March 2011 2012 2013E 2014E

Oper. P/(L) before Tax 10,659 13,215 16,635 19,905

I n te re s t/Di vi d e nd s R ecd . 1,341 1,376 1,468 1,753Di re ct Ta xe s Pa id -1,193 -3,055 -3,463 -4,040

(I nc)/De c i n WC -2,401 -5,601 -2,675 -5,145

CF from Op. incl EO Exp. 8,405 5,935 11,965 12,473

(i nc)/dec i n FA -4,996 -7,386 -4,500 -4,500

(Pur)/Sa le of Inves tments 233 4 0 0


Cha nge in Net Worth 300 247 -270 -300

Inc/(Dec) in Debt 226 3,917 -3,000 -3,000Interes t Pa id -325 -355 -407 -320

Dividend Pa id -1,658 -2,538 -3,312 -4,101

CF from Fin. Activity -1,457 1,272 -6,989 -7,722

Inc/Dec of Cash 2,186 -176 475 252

Ad d: Be gi nn in g B al a nce 2,015 4,201 4,025 4,500

Closing Balance 4,201 4,025 4,500 4,751

p


40/98

40July 2012

Strong growth traction ahead led by US, India, emerging markets

Cadilas future growth will be led by increased traction in its international

businesses and sustained double-digit growth in domestic formulationsand consumer businesses. We estimate strong 18% revenue CAGR and 37%

EPS CAGR for FY12-14 for the core operations (excluding one-offs) and RoE

of ~27% over the next two years. Sustaining strong growth without diluting

return ratios has been the key USP of the company over the past few years.

The company has chalked out a detailed plan to achieve USD3b in

revenues in FY16 (implying topline CAGR of 27%). The stock trades at 19.1x

FY13E and 14.8x FY14E consolidated EPS. BUY with TP of INR1037 (20xFY14E EPS).

EPS to record 37% CAGR over FY12-14 led by:

Expect 20% CAGR for domestic formulations partly helped by the

Biochem acquisition, 23% growth for formulation exports to emerging

markets and 27% for Japanese operations (albeit on a low base)

US business to grow at 20% CAGR; Growth can be faster if USFDA issues

resolved Management expects resolution in near future Management confident of achieving annual revenue of USD3b by FY16

implying topline CAGR of 27% - street estimates not aligned with this.

Could lead to significant upgrades if consensus estimates start factoring-

in this target.

Valued at 19.1x FY13E and 14.8x FY14E earnings. BUY with TP of

INR1037 (20x FY14 EPS).

Cadila Healthcare Buy [CDH IN; CMP: INR765; MCap: USD2.8B]

Cadila Healthcare


41/98

41July 2012

US growth at 20% CAGR despite

Suprax generic competition

led by strong pace of new

launches. Building niche product pipeline

but early resolution of USFDA

issues imperative

Commenced development and

filing of potential low-

competition products with

delivery advantages (e.g.transdermal patches, nasal,

injectable and respiratory

products) and is focusing on

developing a pipeline of such

niche products.

Acquisition of Nesher Pharma

opens up opportunities in niche

area of controlled substance. Management has guided for

resolution of USFDA Warning

Letter in the near future re-

inspection of facility already

completed.

US core revenues to grow at 20% CAGR for FY12-14

Cadila Healthcare


42/98

42July 2012

Branded formulations will be

key growth driver; India growth

back on track

After reporting muted growthrate for last few quarters,

Cadilas domestic formulation

business seems to be coming

back on growth track.

With the acquisition of

Biochem, the company has

strengthened its positioning inacute therapeutic segments as

well.

We expect 20% CAGR for this

business over FY12-14.

Emerging markets likely to do

well led by Brazil and RoW

markets led by new product

launches and geographicexpansion to key emerging

markets which the company has

identified.

We expect the emerging

markets portfolio to record 23%

CAGR over FY12-14

India & emerging markets to grow at 20%+ CAGR

Cadila Healthcare


43/98

43July 2012

Cadila Healthcare Buy [CDH IN; CMP: INR765; MCap: USD2.8B]

Cadila Healthcare


44/98

44July 2012

Cadila FinancialsIncome Statement (INR Million)

Y/E March 2011 2012 2013E 2014E

Net Sales 46,302 52,633 63,618 73,258

Change (%) 25.6 13.7 20.9 15.2

Tota l Exp en di tu re 36,040 41,385 50,084 57,145

EBITDA 10,262 11,248 13,535 16,114

Ma rgin (%) 22.2 21.4 21.3 22.0

Depreciation 1,269 1,579 1,904 2,154

EBIT 8,993 9,670 11,631 13,960

I nt. a nd Fi na nce Ch arge s 699 1,069 1,129 1,026

Other Income - Rec. 131 -658 152 809



Current Ta x 1,064 1,130 2,131 2,749

Tax 1,064 1,130 2,131 2,749

Tax Rate (%) 12.6 14.2 20.0 20.0

Reported PAT 7,361 6,812 8,523 10,994

Less : Mionrity Interes t 251 286 340 408

Net Profit 7,110 6,526 8,183 10,586

PAT Adj for EO Items 6,334 5,660 8,183 10,586


Y/E March 2011 2012 2013E 2014E

Equity Share Capita l 1,024 1,024 1,024 1,024

Tota l Reserves 20,691 24,743 31,237 39,436

Net Worth 21,715 25,767 32,261 40,460

Minority Interest 669 904 904 904

Deferred l i abi l i ties 1127 1185 1185 1185

Total Loans 10,973 20,520 20,520 20,520


Gross Block 28,320 40,835 47,335 52,335

Less : Accum. Deprn. 9,994 11,826 13,730 15,884

Net Fixed Assets 18,326 29,008 33,605 36,451

Capi ta l WIP 4,310 4,310 4,310 4,310

Investments 207 242 1,707 1,707

Curr. Assets 22,829 30,232 33,981 41,903

Inventory 8,119 10,905 13,095 15,099


Cash and Bank Balance 2,952 4,666 2,801 5,593

Loans & Advances 4,106 5,798 6,236 6,831


Account Payables 8,955 12,379 14,966 16,537Provis ions 2,233 3,037 3,766 4,764


Appl. of Funds 34,484 48,376 54,870 63,069

Cadila Healthcare


45/98

45July 2012

Cadila FinancialsRatios

Y/E March 2011 2012 2013E 2014E

Basic (INR)

EPS 30.9 27.6 40.0 51.7Cas h EPS 40.9 39.6 49.3 62.2

BV/Share 106.1 125.9 157.6 197.6

DPS 6.3 6.1 8.5 11.7

Payout (%) 20.8 21.6 23.8 25.4

Valuation (x)P/E 24.7 27.7 19.1 14.8

Cas h P/E 18.7 19.3 15.5 12.3

P/BV 7.2 6.1 4.9 3.9

EV/Sales 3.5 3.3 2.7 2.3

EV/EBITDA 16.0 15.3 12.7 10.5

Dividend Yield (%) 0.8 0.8 1.1 1.5

Return Ratios (%)RoE 37.5 27.5 28.2 29.1

RoCE 30.5 22.8 23.8 26.0

Working Capital RatiosFixed As set Turnover (x) 2.6 2.2 2.0 2.1

Debtor (Days ) 60 60 67 71

Inventory (Days) 64 76 75 75Working Capital Turnover (D 68 70 71 75

Leverage Ratio (x)Current Ratio 2.0 2.0 1.8 2.0

Debt/Equity 0.4 0.6 0.6 0.4

* Ratios adjusted for bonus is sue


Y/E March 2011 2012 2013E 2014E

Oper. Profit/(Loss ) before Ta 10,262 11,248 13,535 16,114

Interes t/Di vi dends Recd. 131 -658 152 809

Di re ct Ta xe s Pa id -1,064 -1,130 -2,131 -2,749

(Inc)/De c i n WC -2,108 -1,461 -2,298 -2,561


CF from Operating incl EO Expe 7,222 7,999 9,258 11,613

(i nc)/de c i n FA -4,579 -12,261 - 6,500 - 5,000

(Pur)/Sa le of Investments 0 -35 -1,465 0


Change in Networth -301 -1,288 0 0

Inc/(Dec) in Debt 345 9,783 0 0

Interest Paid -699 -1,069 -1,129 -1,026

Di vi dend Pa id -1,529 -1,471 -2,029 -2,795

Others -14 58

CF from Fin. Activity -2,198 6,012 -3,158 -3,821

Inc/Dec of Cash 445 1,714 -1,865 2,792

Ad d: Begin nin g Bala nce 2,507 2,952 4,666 2,801

Closing Balance 2,952 4,666 2,801 5,593


46/98

46July 2012

Trying to build a differentiated business model

Glenmark is the most successful NCE research company from India having

out-licensed 5 NCEs & generating upfront & milestone income of US$207mtill date. Requirement of higher working capital to fund strong growth had

led to significant increase in debt in the past which now seems to be

correcting. A differentiated US pipeline coupled with improved working

capital and moderate capex will give the management flexibility to target

debt reduction. The stock trades at 17.7x FY13E and 13.6x FY14E EPS. BUY

with TP of INR442 (16x FY14E EPS + INR12 DCF value for Crofelemer and

Para-IV upsides).

EPS to record 54% CAGR over FY12-14 on a low base led by:

Expect overall topline to grow at 16% CAGR (19% CAGR excl NCE

licensing income) led by 22% CAGR for emerging market revenues, 18%

for India formulations and 18% for core US business. EPS CAGR of 54%

driven by EBITDA margin expansion and reversal of forex losses.

Management has guided for 22-25% topline growth for FY13 and EBITDA

at INR9-9.25b We believe this is achievable. Over FY12-14, we expect RoCE to increase from 12.1% to 20.1%, and

RoE from 13.5% to 20.5% led by improved working capital and gradual

debt reduction.

Our estimates exclude NCE licensing income.


(16x FY14E EPS + INR12 DCF value for Crofelemer and Para-IV upsides).

Glenmark Buy[GNP IN; CMP: INR366; MCap: USD1.8B]

Glenmark


47/98

47July 2012

GNP currently has ~38 ANDAs

pending US FDA approval. It has

already launched 7 oral

contraceptives (OCs) in the USover the past few quarters but is

yet to record meaningful

revenues from them. It expects

3-4 more OC approvals over the

next 12 months.

The company has commenced

filings for niche opportunities inthe Dermatology, Controlled

Substances and Hormones

categories and has also started

receiving some approvals in

these categories, which is a

long-term positive.

The management has, in the

past, guided that ~75% of thepending ANDAs are in the

niche/low-competition category,

and will thus, result in a

differentiated portfolio in the

long-term.

US core revenues to grow at 18% CAGR for FY12-14

Glenmark


48/98

48July 2012

Glenmark has recorded a strong

18% CAGR for its India

formulations (DF) business in

the last five years.

We believe that the company

will be able to sustain the

growth momentum into FY13 as

well, although higher base

effect may become visible from

FY14 onwards.

However, we expect the

company to outperform the

average industry growth of 14-

15% over the next two years.

We expect the emerging

markets portfolio to record 22%

CAGR over FY12-14 led byLatam, Russia & Africa regions.

India & emerging markets to grow at 20%+ CAGR

Glenmark


49/98

49July 2012

High working capital required to

fund past growth had led to

increase in debt for Glenmark.

We believe that the balancesheet concerns are now

receding with the company

managing to reduce working

capital substantially in FY12

compared to past years.

Current working capital days

stand at 128days v/s 203 days inFY11

Further net debt has gone down

YoY by INR2b to INR17.5b in

FY12. We estimate further debt

reduction of INR4b over next 2

years.

Return ratios are likely to

gradually improve over the nexttwo years.

Over FY12-14, we expect RoCE

to increase from 12.1% to

20.1%, and RoE from 13.5% to

20.5%.

Balance sheet concerns receding

Glenmark


50/98

50July 2012

Glenmark remains the frontrunner in NCE Research in India

Most successful NCE operations from India

Glenmark


51/98

51July 2012

Glenmark Buy[GNP IN; CMP: INR366; MCap: USD1.8B]

l k lGlenmark


52/98

52July 2012

Glenmark FinancialsIncome Statement (INR Million)

Y/E March 2011 2012 2013E 2014E

Net Sales 29,491 40,206 47,905 53,854

Change (%) 19.8 36.3 19.1 12.4Materia l s Consumed 9,918 13,454 16,541 18,234

Personnel Expenses 5,103 6,289 7,673 9,207

R&D Expens es 1,386 2,637 3,353 3,285

Other Expens es 7,161 7,966 10,725 11,798

Total Expenditure 23,568 30,346 38,292 42,524

EBITDA 5,923 9,860 9,613 11,330

Change (%) -0.7 66.5 -2.5 17.9

Margin (%) 20.1 24.5 20.1 21.0

Adjusted EBITDA 5,028 7,325 9,376 11,105

Margin (%) 17.6 19.4 19.7 20.7

Depreciation 947 979 1,112 1,236

EBIT 4,976 8,882 8,500 10,094

Interes t 1,566 1,466 1,462 1,280

OI & forex gains/losses 1,405 -1,218 10 300


Change (%) 25.4 28.7 13.7 29.3

PBT after EO Exp. 4,816 4,881 7,049 9,114Tax 237 238 977 1,276

Tax Rate (%) 4.9 4.9 13.9 14.0

Reported PAT 4,578 4,643 6,071 7,838

Adj PAT** 3,548 3,244 5,866 7,642

Change (%) 7.2 -8.6 80.8 30.3

Margin (%) 12.4 8.6 12.3 14.3

**Excl NCE upsides & incl adj ustment for R&D exp capital ization


Y/E March 2011 2012 2013E 2014E

Equity Share Capita l 270 271 271 271

Ful ly Di luted Eq Cap 284 284 284 284

Reserves 20,102 23,746 29,500 36,975

Net Worth 20,372 24,016 29,770 37,246

Minori ty Interest 267 250 250 250

Loans 21,258 20,779 19,279 15,779

Deferred l i abi l i ties -1081 -2674 -2674 -2674


Gross Block 25,899 29,645 32,145 34,645

Less : Accum. Deprn. 4,876 5,855 6,967 8,203

Net Fixed Assets 21,023 23,790 25,178 26,443

Capital WIP 1,100 1,100 1,100 1,100


Intangibles (net) 10,329 9,606 8,934 8,308

Curr. Assets 25,988 29,588 33,741 38,132

Inventory 8,070 7,877 9,843 11,066


Cash and Bank Ba lance 1,959 3,201 2,242 2,721

Others 4,651 6,075 6,562 7,377


Account Payables 7,560 11,780 13,125 14,754Provis ions 44 509 450 500


Appl. of Funds 40,816 42,371 46,626 50,601

E: MOSL Estima tes

l k i i lGlenmark


53/98

53July 2012

Glenmark FinancialsRatios

Y/E March 2011 2012 2013E 2014E

Basic (INR)

EPS (Fully diluted)* 12.5 11.4 20.6 26.9

Cas h EPS 15.8 14.9 24.6 31.2BV/Share 75.4 88.8 110.0 137.7

DPS 3.7 10.0 5.0 5.7

Payout (%) 5.2 13.6 5.2 4.6

Valuation (x)

P/E (Fully dil uted) 29.3 32.1 17.7 13.6

PEG (x) 4.1 -3.7 0.2 0.4

Cas h P/E 23.1 24.6 14.9 11.7

P/BV 4.9 4.1 3.3 2.7

EV/Sales 4.0 2.9 2.4 2.1

EV/EBITDA 19.9 11.8 12.0 9.9

Dividend Yield (%) 1.0 2.7 1.4 1.6

Return Ratios (%)

RoE 17.4 13.5 19.7 20.5

RoCE 13.4 12.1 17.7 20.1


Fixed Asset Turnover (x) 1.5 1.8 2.0 2.1

Debtor (Days) 140 113 115 115



Leverage Ratio (x)


Debt/Equity 1.0 0.9 0.6 0.4


Y/E March 2011 2012 2013E 2014E

Op. Profit/(Loss) before Tax 5,923 9,860 9,613 11,330

I nte re st/Di vi de nd s Re cd. 1,405 - 1,218 10 300

Di re ct Ta xes Pa id -2,029 - 1,830 -977 - 1,276(Inc)/Dec i n WC 1,530 2,326 -3,825 -2,232


CF frm Op.incl EO Exp. 6,829 7,821 4,820 8,121

(Inc)/Dec in FA 810 -3,746 -2,500 -2,500

CF from Investments 682 -3,618 -2,500 -2,500

Change in Networth -7,521 -366 0 0

Inc/(Dec) in Debt 2,701 -496 -1,500 -3,500

Interes t Pa id -1,566 -1,466 -1,462 -1,280

Dividend Paid -236 -633 -317 -363

CF from Fin. Activity -6,621 -2,961 -3,279 -5,142

Inc/Dec of Cash 890 1,242 -959 479

Ad d: Be gi nn in g Ba l an ce 1,069 1,959 3,201 2,242

Closing Balance 1,959 3,201 2,242 2,721

b


54/98

54July 2012

Sustained exports growth, domestic business recovery augur well

IPCA is amongst the better managed mid-cap companies which has

transitioned from a predominantly anti-malaria player to a diversifiedcompany. Diversification and scale-up of operations without dilution of

return ratios is a key positive. We expect IPCA to maintain this capital

discipline in coming years as well. We estimate 31% earnings CAGR over

FY12-14 on the back of 17% revenue CAGR and 20% EBITDA CAGR. The

stock is currently valued at 11.3x FY13E EPS and 9.2x FY14E EPS. BUY with

TP of INR528 (14x FY14E EPS).


Expect overall topline to grow at 17% CAGR led by sustained growth for

international formulations and recovery of growth for India

formulations. The expected US FDA approval for Indore SEZ will address

a key capacity constraint to drive 35% CAGR for the US business. EPS

CAGR of 31% is driven by EBITDA margin expansion and partly due to

reversal of forex losses.

Expect 22% CAGR for international formulation business led by both

generic and branded formulation businesses.

India formulations growth to recover in FY13 post a muted FY12. We

estimate 16.5% CAGR for this business over FY12-14.

Valued at 11.3x FY13E and 9.2x FY14E earnings. BUYwith TP of INR528

(14x FY14E EPS).

IPCA Labs Buy[IPCA IN; CMP: INR348; MCap: USD0.8B]

i & b d d d i i lIPCA Labs


55/98

55July 2012

US market will be the key

growth driver for the future

with likely USFDA approval for

the companys Indore SEZ.Currently the company is not

able to ramp up supplies to US

due to severe capacity

constraint. Expect 35% revenue

CAGR for US over FY12-14.

Institutional business is scaling

up strongly with revenue

expected to move up from

INR1.22b in FY11 to INR4b in

FY14. IPCA is set to become one

of the largest players in anti-

malaria tender business and this

is the most profitable business

for the company.

Branded formulation marketsare expected to grow at 25%

CAGR led by increasing

geographic penetration and new

product launches.

US generic & branded exports to drive intl revenues

di b i h f 3 dIPCA Labs


56/98

56July 2012

The company has consistently

outperformed the average

industry in the past led by rising

share of chronic segments,product selection, increase in

field force and brand building

ability

Contribution from lucrative and

fast growing chronic business

segments on the rise; Currently

contributes 65% to domestic

formulation business.

The recent expansion in field

force to 4500MRs to drive

growth and start contributing

to the bottom-line

The performance in FY12 was

impacted by lower incidences of

Malaria, high attrition in thefield force and restructuring of

marketing divisions; Corrective

measures are in place.

Management guides for double-

digit growth going forward.

India business growth to recover from FY13 onwards

IPCA L b BIPCA Labs


57/98

57July 2012

IPCA Labs Buy[IPCA IN; CMP: INR344; MCap: USD0.8B]

IPCA L b Fi i lIPCA Labs


58/98

58July 2012

IPCA Labs FinancialsIncome Statement (INR Million)

Y/E March 2011 2012 2013E 2014E

Net Revenues 18,969 23,587 27,948 32,278

Change (%) 21.4 24.3 18.5 15.5EBITDA 3,761 5,135 6,352 7,371

Margin (%) 19.8 21.8 22.7 22.8

Depreciation 558 671 834 984

EBIT 3,203 4,464 5,518 6,387


Other Income - Rec. 518 -408 70 380


EO Expense/(Income) 0 0 0


Current Tax 770 881 1,032 1,268

Deferred Tax 14 0 258 317

Tax 784 881 1,290 1,585

Tax Rate (%) 23.0 24.2 25.0 25.0

Reported PAT 2,623 2,762 3,871 4,756

Less: Minority Interest -5 0 0 0Net Profit 2,628 2,762 3,871 4,756

Adj PAT 2,628 2,762 3,871 4,756


Y/E March 2011 2012 2013E 2014E

Equi ty Share Capi ta l 251 252 252 252

Tota l Re se rve s 10,265 12,288 15,385 19,189

Net Worth 10,516 12,540 15,637 19,442


Tota l Loans 5,308 5,326 5,326 5,326


Gross Block 9,884 12,890 15,390 17,890

Le ss : Accum. De prn. 2,892 3,563 4,398 5,382

Net Fixed Assets 6,992 9,326 10,992 12,508

Capi ta l WIP 1,132 1,132 1,132 1,132Investments 408 341 341 341

Curr. Assets 10,586 12,475 15,061 18,494

Inventory 4,664 6,699 6,810 8,034

Account Re ce iva bl es 4,637 3,491 5,296 6,113

Cash and Ba nk Ba lance 104 122 382 1,379

Loa ns & Adva nces 1,182 2,163 2,573 2,969


Account Pa ya bl es 2,073 4,099 4,842 5,589

Provis ions 420 377 530 611


Appl. of Funds 16,625 18,798 22,153 26,275

E: MOSL Estimates

IPCA L b Fi i lIPCA Labs


59/98

59July 2012

IPCA Labs FinancialsRatios

Y/E March 2011 2012 2013E 2014EEPS (INR) 20.9 21.9 30.7 37.7Ca s h EPS 25.3 27.2 37.3 45.5BV/Sha re 83.7 99.4 124.0 154.1

Valuation (x)P/E 16.6 15.9 11.3 9.2Cas h P/E 13.7 12.8 9.3 7.6P/BV 4.2 3.5 2.8 2.3EV/Sales 2.6 2.1 1.7 1.5EV/EBITDA 13.0 9.5 7.7 6.5Dividend Yield (%) 1.1 1.3 1.8 2.2FCF per Share 3.9 8.5 11.6 18.8

Return Ratios (%)

EBITDA Ma rgi ns (%) 19.8 21.8 22.7 22.8Net Profi t Ma rgi ns (%) 13.9 11.7 13.9 14.7RoE 27.4 24.0 27.5 27.1RoCE 25.6 24.1 28.8 29.6

Working Capital RatiosAs s et Turnover (x) 1.9 1.8 1.8 1.8Fi xed As s et Turnover (x) 2.8 2.9 2.8 2.7Debtor (Da ys ) 87 54 69 69Inventory (Da ys ) 90 104 89 91Worki ng Ca pi ta l Tu rn ove r 154 122 122 123

Growth (%)Sa l es 21.4 24.3 18.5 15.5EBITDA 12.8 36.5 23.7 16.0PAT 26.2 5.1 40.2 22.8

Leverage Ratio (x)Current Ra ti o 4.2 2.8 2.8 3.0Interes t Cover Ra ti o 10.2 10.8 12.9 15.0Debt/Equi ty 0.5 0.4 0.3 0.3


Y/E March 2011 2012 2013E 2014E

Oper. Profit/(Loss ) before 3,761 5,135 6,352 7,371

Interes t/Di vi dends Recd. 518 -408 70 380

Di rect Ta xes Pa id -770 -757 -1,032 -1,268

(Inc)/Dec i n WC -1,203 111 -1,429 -1,609



CF from Operating incl EO E 2,307 4,082 3,961 4,874

(i nc)/de c i n FA -1,821 -3,006 -2,500 -2,500

(Pur)/Sale of Investments -83 68 0 0


Issue of shares 1 1 0 0

(Inc)/Dec in Debt 762 25 0 0

Interest Paid -314 -413 -426 -426

Dividend Pa id -468 -554 -774 -951

Others -388 -185 0 0

CF from Fin. Activity -407 -1,126 -1,200 -1,377

Inc/Dec of Cash -4 18 260 997

Add: Beginning Balance 108 104 122 382Closing Balance 104 122 382 1,379

T t Ph B


60/98

60July 2012

A play on chronic segments in India and emerging markets

Over the last seven years , Torrent has delivered 33% EPS CAGR and has

consistently improved its profitability, with RoCE increasing from 14.5% inFY05 to 28.5% in FY12. We believe that current valuations do not reflect

the improvement in business profitability, the turnaround of international

operations, and Torrent's strong positioning in the domestic formulations

business particularly in chronic therapeutic segments. We expect 25% EPS

CAGR over FY12-14, led by strong operational performance. The stock

trades at 11.7x FY13E and 9.8x FY14E earnings estimates. BUY with TP of

INR895 (15x FY14E EPS).


TRP is a play on highly profitable and fast growing lifestyle segments in

domestic formulation business. It enjoys strong positioning in some of

the most lucrative and fastest growing chronic therapy segments of CVS

and CNS. Expect 15% CAGR in India formulation revenue over FY12-14.

International formulations business to record 20% CAGR led mainly by

US generics as the company scales-up its presence in US. Latamoperations to record 18.5% CAGR

Investments in international operations have started paying off and we

expect profit margins to expand as operations scale up.


(15x FY14E EPS).

Torrent Pharma Buy[TRP IN; CMP: INR587; MCap: USD0.9B]

l b l d h d f b l

Torrent Pharma


61/98

61July 2012

Investments in international

operations have started paying

off and we expect profit margins

to expand as operations scaleup.

Healthy revenue growth

expected in markets like US

(35% CAGR over FY12-14),

Europe (21.5% CAGR ex-

Germany), Latam (18.5% CAGR).

Entry into some of the large

branded generics markets like

Mexico, will also drive revenue

growth in the coming years.

Next phase of growth will be

driven by regulated markets likeUS and Europe (ex-Germany).

Expect revenue from regulated

markets (ex-Germany) to grow

at a CAGR of 28% over FY12-14,

led by the US market.

Intl business to lead growth and improvement in profitability

I di b i th t f FY13 dTorrent Pharma


62/98

62July 2012

A Play on highly profitable and

fast growing lifestyle segments

in domestic formulation

business.

TRP derives its strength from

being the leader in some of the

most lucrative and fastest

growing chronic therapy

segments of CVS and CNS

It has consistently maintained

strong positioning in thesetherapeutic classes, with strong

brands and new launches

We believe that the recent

slowdown in business in FY12 is

transitory with corrective

measures in place. We expect

growth to come back on trackfrom 2HFY13 onwards

Has the potential to grow better

than industry in the coming

years on the back of strong

therapeutic portfolio.

India business growth to recover from FY13 onwards

T t Ph BTorrent Pharma


63/98

63July 2012

Torrent Pharma Buy[TRP IN; CMP: INR585; MCap: USD0.9B]

Torrent Pharma FinancialsTorrent Pharma


64/98

64July 2012

Torrent Pharma FinancialsIncome Statement (INR Million)

Y/E March 2011 2012 2013E 2014E

Net Sales 22,049 26,959 32,208 37,425

Change (%) 15.8 22.3 19.5 16.2

To ta l Exp en di tu re 18,173 21,953 25,907 29,963

% of Sa les 82.4 81.4 80.4 80.1

EBITDA 3,876 5,007 6,300 7,462

Ma rgin (%) 14.4 15.4 16.6 17.0

Deprecia tion 626 817 985 1,198

EBIT 3,251 4,189 5,316 6,264

Int. a nd Fi na nce Cha rges 387 395 348 348

Other Income - Rec. 562 445 534 641

PBT before EO Expense 3,427 4,240 5,502 6,557EO Expens e/(Income) 0 654 0 0


Current Tax 740 723 1,265 1,508

Deferred Ta x -15 0 0 0

Tax 725 723 1,265 1,508

Ta x Ra te (%) 21.2 17.1 23.0 23.0

Reported PAT 2,702 2,863 4,236 5,049

Adj PAT 2,702 3,251 4,236 5,049


Y/E March 2011 2012 2013E 2014E

Equi ty Share Capita l 423 423 423 423

Tota l Re se rve s 9,801 11,515 14,777 18,665

Net Worth 10,224 11,938 15,200 19,088


Tota l Loans 5,721 4,640 4,640 4,640


Gross Block 9,643 11,538 14,724 17,224

Le ss : Accum. De prn. 3,287 4,105 5,089 6,287

Net Fixed Assets 6,355 7,433 9,634 10,936

Capita l WIP 2,186 2,186 1,500 1,500

Investments 1,460 1,240 1,240 1,240

Curr. Assets 15,346 19,620 23,747 28,899

Inventory 5,048 5,316 6,477 7,928

Account Re ce iva bl es 3,404 5,228 6,392 7,433

Ca s h a nd Ba nk Ba l a nce 4,788 6,743 7,980 9,971

Loa ns & Adva nces 2,106 2,333 2,898 3,568


Acco un t Pa ya bl e s 7,479 11,545 13,210 15,361Provis ions 1,427 1,807 2,557 2,973


Appl. of Funds 16,440 17,127 20,354 24,242

E: MOSL Estimates

Torrent Pharma FinancialsTorrent Pharma


65/98

65July 2012

Torrent Pharma FinancialsRatios

Y/E March 2011 2012 2013E 2014E

Basic EPS (INR)

EPS 31.9 38.4 50.1 59.7

Cas h EPS 39.3 43.5 61.7 73.8BV/Share 120.8 141.1 179.6 225.6DPS 9.3 7.4 11.5 13.7Payout (%) 29.1 21.8 23.0 23.0

Valuation (x)

P/E 18.4 15.3 11.7 9.8Cas h P/E 14.9 13.5 9.5 7.9P/BV 4.9 4.2 3.3 2.6EV/Sales 2.3 1.8 1.4 1.2EV/EBITDA 13.0 9.5 7.3 5.9

Dividend Yield (%) 1.6 1.3 2.0 2.3FCF pe r Share 0.0 0.0 0.0 0.0

Return Ratios (%)

EBITDA Margins (%) 14.4 15.4 16.6 17.0Ne t Profi t Ma rgi ns (%) 12.3 12.1 13.2 13.5RoE 29.2 29.3 31.2 29.4RoCE 25.9 28.5 32.1 31.7


Ass et Turnover (x) 1.3 1.6 1.6 1.5Fixed As set Turnover (x) 3.7 3.9 3.8 3.6Debtor (Days ) 55 71 72 72Inventory (Days) 84 72 73 77Working Ca pita l Turnove 27 -6 0 6

Leverage Ratio (x)

Current Ratio 1.7 1.5 1.5 1.6Interest Cover Ratio 8.4 10.6 15.3 18.0Debt/Equity 0.6 0.4 0.3 0.2


Y/E March 2011 2012 2013E 2014E

Oper. Profit/(Loss) before 3,876 5,007 6,300 7,462

Interes t/Di vi dends Recd. 562 445 534 641

Di rect Ta xes Pa id -744 -689 -1,265 -1,508(Inc)/Dec in WC 577 2,126 -475 -595



CF from Operating incl EO E 4,271 6,235 5,094 6,000

(i nc)/dec i n FA -2,601 -1,895 -2,500 -2,500

(Pur)/Sa l e of Investment -48 219 0 0


(Inc)/Dec in Debt 513 -1,062 -35 0

Interest Pa i d -387 -395 -348 -348

Dividend Pa id -787 -625 -974 -1,161

Others -57 -524 0 0

CF from Fin. Activity -717 -2,605 -1,357 -1,509

Inc/Dec of Cash 905 1,955 1,237 1,991

Ad d: Be gi n ni n g Ba l a nce 3,883 4,788 6,743 7,980Closing Balance 4,788 6,743 7,980 9,971

Sun Pharma Neutral


66/98

66July 2012

Best play on India & US generics but fairly valued

An expanding US generic portfolio coupled with sustained double-digit

growth in high-margin life-style segments in India is likely to bring in long-

term benefits for SUNP. Its ability to sustain superior margins even on ahigh base is a clear positive. Key drivers for future include: (a) Ramp-up in

US business and resolution of Caraco's cGMP issues; (b) Monetization of

the Para-IV pipeline in the US; (c) Launch of controlled substances in the

US; (d) Sustaining Taro's high profitability. The stock is valued at 25.9x

FY13E and 24.1x FY14E core earnings. While we are positive on SUNP's

business outlook, rich valuations have tempered down our bullishness. We

maintain Neutral with target price of INR647 (25x FY14 EPS). Inorganicinitiatives (SUNP has cash of ~USD1b) are a key risk to our rating.

Muted core EPS growth led by lower Taro profitability & higher tax:

Taros profitability in US has improved significantly over past 6 quarters

(EBITDA margins have doubled to 45%) due to price increases for some

derma products due to temporary reduction in competitive pressures.

We believe that this is not sustainable in the long-term.

Expect 15% CAGR for India formulations business driven by strongpositioning in high-growth chronic segments and 32% CAGR in emerging

markets led by increased penetration in key markets.

Expect core topline and PAT growth at 16% and 7% respectively over

FY12-14. Estimates budget for potential decline in Taro profitability and

higher tax rate. Valued at 25.9x FY13E and 24.1x FY14E core earnings.

Maintain Neutral with TP of INR647 (25x FY14E EPS).

Sun Pharma Neutral[SUNP IN; CMP: INR623; MCap: USD11.6B]

US business high profitability is at riskSun Pharmaceuticals


67/98

67July 2012

Post Taros acquisition, Sun

becomes largest Indian generic

company in US

Successful acquisition of Tarohas given it significant leverage

in niche therapeutic segment of

Dermatology in US

Across Sun Pharma, Taro and

Caraco 148 products awaiting

approval one of the strongest

pipelines globally

Signed consent decree with US

FDA with respect to cGMP

issues at Caraco. Resolution and

sales ramp-up will be gradual.

Taros profitability in US has

improved significantly over past

6 quarters (EBITDA margins

have doubled to 45%) due toprice increases for some derma

products due to temporary

reduction in competitive

pressures. We believe that this

is not sustainable in the long-

term.

US business high profitability is at risk

India & emerging mkts business on a strong footingSun Pharmaceuticals


68/98

68July 2012

Sun Pharma is the 4th largest

company in domestic

formulation space. It is also

among the fastest growingcompanies with CAGR of 24%

over the past few years.

Quality of portfolio is the best

with leadership in key, fast

growing and highly profitable

therapeutic segments like CVS,

CNS, GI, Diabetology,

Orthopedics, Gynecology,

Oncology.

Its ability to sustain superior

margins even on a high base is a

clear positive driven by strong

doctor relationships.

We factor in 15% CAGR for this

business over FY12-14 partlyimpacted by extra sales of

INR1.8b booked in 4QFY12

Emerging market business is

also expected to record a strong

32% CAGR driven by increased

penetration into key markets

India & emerging mkts business on a strong footing

Sun Pharma Neutral [ ]Sun Pharmaceuticals


69/98

69July 2012

Sun Pharma Neutral[SUNP IN; CMP: INR623; MCap: USD11.6B]

Sun Pharma FinancialsSun Pharmaceuticals


70/98

70July 2012

Sun Pharma FinancialsConsolidated Income Statement (INR Million)

Y/E March 2011 2012 2013E 2014E

Net Sales 57,214 80,057 89,407 99,762

Change (%) 39.5 39.9 11.7 11.6

Total Expenditure 37,514 47,550 57,021 66,087

% of Sa les 65.6 59.4 63.8 66.2

EBITDA 19,700 32,507 32,386 33,674

Margin (%) 34.4 40.6 36.2 33.8

Depreciation 2,041 2,912 3,354 3,639

EBIT 17,659 29,595 29,031 30,035


Other Income - Rec. 3,276 4,240 5,506 7,285PBT 20,358 33,554 34,373 37,155

Tax 1,284 3,826 6,187 7,431

Tax Rate (%) 6.3 11.4 18.0 20.0

Profit after Tax 19,074 29,727 28,186 29,724

Change (%) 41.6 55.9 -5.2 5.5

Margin (%) 33 37 32 30

Less : Mionri ty Interest 913 3855 3315 2984

Net Profit 18,161 25,873 24,871 26,741Adj. PAT 14,041 23,228 24,871 26,741

Consolidated Balance Sheet (INR Million)

Y/E March 2011 2012 2013E 2014E

Eq ui ty Sha re Ca pi ta l 1,036 1,036 1,036 1,036

Tota l Reserves 93,798 120,628 139,281 158,802

Net Worth 94,833 121,664 140,317 159,837

Mi no ri ty I nte re s t 8,472 11,615 14,930 17,913

De fe rre d Li abi li ti es -3652 -5199 -5199 -5199

Secured Loan 1,804 1,644 1,644 1,644

Uns ecured La on 2,452 1,096 1,096 1,096

Tota l Loa ns 4,256 2,739 2,739 2,739


Gros s Bl ock 45,520 53,407 58,407 62,907Less : Accum. Deprn. 20,286 23,198 26,552 30,192

Net Fixed Assets 25,234 30,210 31,855 32,716

Ca pi ta l WIP 2,706 2,706 2,706 2,706

Goodwi l l 7,720 10,218 10,218 10,218

Inve stments 22,310 22,129 22,129 22,129

Curr. Assets 60,172 90,506 114,621 142,672

Inventory 14,794 20,870 21,521 26,102

Account Receivables 11,716 19,261 19,596 21,866Cash and Bank Balance 21,936 33,672 55,133 74,206

L & A a n d Oth ers 11,726 16,703 18,371 20,499



Provi s ions 5,030 10,541 12,405 14,651


Appl. of Funds 103,908 130,819 152,787 175,291

Sun Pharma FinancialsSun Pharmaceuticals


71/98

71July 2012

Sun Pharma FinancialsRatios

Y/E March 2011 2012 2013E 2014E

Basic (INR)

EPS 13.6 22.4 24.0 25.8

Fully Diluted EPS 13.6 22.4 24.0 25.8

Cash EPS 19.5 27.8 27.3 29.3

BV/Share 91.6 117.5 135.5 154.3

DPS 3.5 4.2 5.1 6.0

Payout (%) 22.1 17.3 22.1 24.3

Valuation (x)

P/E 45.9 27.8 25.9 24.1

Cash P/E 31.9 22.4 22.9 21.2

P/BV 6.8 5.3 4.6 4.0EV/Sales 10.6 7.4 6.4 5.5

EV/EBITDA 30.7 18.2 17.6 16.4

Dividend Yield (%) 0.6 0.7 0.8 1.0

Return Ratios (%)

RoE 16.2 21.5 19.0 17.8

RoCE 23.4 30.3 25.8 24.4


Fixed Ass et Turnover (x) 2.8 2.9 2.9 3.1

Debtor (Days) 75 88 80 80

Inventory (Days ) 94 95 88 96

Working Capital T/O (Days) 293 299 351 393

Leverage Ratio

Debt/Equity (x) 0.0 0.0 0.0 0.0


Y/E March 2011 2012 2013E 2014E

OP/(Lo s s) b ef. Ta x 19,700 32,507 32,386 33,674

I nt./Di vi de nds Re cd . 3,276 4,240 5,506 7,285


(Inc)/Dec i n WC -533 -7,882 1,138 -2,571


(i nc)/d ec i n FA -16,864 -10,386 -5,000 -4,500

(Pur)/Sa le of Invest. 8,354 181 0 0

CF from investments -8,510 -10,205 -5,000 -4,500

Change in networth 8,223 5,395 0 0

(Inc)/Dec in Debt 2,545 -1,517 0 0Interest Pa id -577 -282 -164 -164

Di vi dend Pa id -4,213 -5,149 -6,218 -7,220

CF from Fin. Activity 5,977 -1,553 -6,382 -7,384

Inc/Dec of Cash 15,864 11,736 21,461 19,073

Add: Beginning Balance 6,072 21,936 33,672 55,133

Closing Balance 21,936 33,672 55,133 74,206

Note: Cashflows do not tally due to acquisition

Cipla Neutral [CIPLA IN CMP INR308 MC USD4 4B]


72/98

72July 2012

Large capex is long-term positive but export visibility still poor

Cipla continues to face short-term headwinds in ramping up its

formulation exports business despite a favorable currency. Its mutedgrowth guidance for overall business raises uncertainty on the timelines of

ramp-up at Indore SEZ. While large capex (for past few years) is a long-

term positive, we believe it is imperative for the company to improve asset

utilization at Indore to drive future growth and derive benefits of

operating leverage (overhead expenses continue to adversely impact

performance). The stock trades at 19.2x FY13E and 16.9x FY14E core

earnings. Maintain Neutral with target price of INR365 (20x FY14E EPS).

Expect core EPS to record 15% CAGR led by:

Core topline to record 12% CAGR for FY12-14 led by 14% CAGR for India

formulations business but impacted by a muted 11% CAGR for exports.

Cipla continues to face short-term headwinds in ramping up its

formulation exports business despite a favorable currency mainly due to

rationalization of ARV exports.

Management has guided for topline growth guidance of 10% and PAT

growth guidance of 10-15% for FY13E.

Improvement in asset utilization is imperative to enhance return ratios

Expect core EPS growth at 16% over FY12-14 driven by slight margin

improvement and lower interest costs.

Cipla Neutral[CIPLA IN; CMP: INR308; MCap: USD4.4B]

Domestic formulations Outperforming industry growth is a challenge

Cipla


73/98

73July 2012

Cipla is a dominant player in

domestic formulations (DF)

market and enjoys No 2 ranking

in the industry. This businesscontributes ~45% of Cipla's

overall revenues and is a key

earnings driver.

The company has reported

14%YoY growth in this business

in FY12, post muted

performance in FY10 and FY11.

Given the high base and

increasing competition in acute

therapy segments, we believe it

will be challenging for Cipla to

sustain 15-16% growth in this

business

We think that the company is

likely to underperform industry

growth rate in next couple of

years and hence, we model in a

more moderate 14% CAGR over

FY12-14.

Domestic formulations Outperforming industry growth is a challenge

Export visibility remains poorCipla


74/98

74July 2012

Cipla's formulation exports

performed below expectations

with growth of ~7% in FY12. This

was particularly disappointinggiven favorable currency in

FY12.

Management indicated that it

has not benefited from the

currency, and that it has also

undertaken a product-cum-

geographical rationalization of

this business to ensure focus

only on profitable products/

geographies. This rationalization

will last for the next 2-3

quarters.

We believe that it is imperative

for Cipla to get regulatory

clearances for products fromIndore SEZ to record higher

growth in exports.

We estimate 11% CAGR for

export revenues as the visibility

on increased utilization at

Indore remains poor

Export visibility remains poor

Inhalers Large underutilized capacities but poor growth visibility

Cipla


75/98

75July 2012

Cipla is a dominant player in

domestic inhaler market with

more than 50% market share

Large global-sized capacities Over 140m inhaler devices per

annum.

Developing 9 different inhalers -

Expect these inhalers to be

commercialized in Europe in

phases over next 2-3 years.

Visibility on launch-time lines is

still poor.

We dont expect any significant

upside from supplies to Meda in

short term for its product

approval of Azelastine &

Fluticasone nasal spray in US.

Can become partner of choice

for large MNCs given the strongexpertise and capacities in the

inhalers space.

Inhalers Large underutilized capacities but poor growth visibility

Cipla Neutral [CIPLA IN; CMP: INR310; MCap: USD4 5B]Cipla


76/98

76July 2012

Cipla Neutral [CIPLA IN; CMP: INR310; MCap: USD4.5B]

Cipla FinancialsCipla


77/98

77July 2012

Cipla FinancialsIncome Statement (INR Million)

Y/E March 2011 2012 2013E 2014E

Gross Sales 61,798 69,049 76,573 87,061

Change (%) 14.2 11.7 10.9 13.7

Exports 33,548 36,920 39,946 45,307Net Domestic Sa les 27,755 31,157 35,560 40,539

Other Operating Income 1,842 1,698 1,828 1,936

Net Income 63,145 69,775 77,334 87,781

Change (%) 12.6 10.5 10.8 13.5

Tota l Expenditure 49,927 53,956 59,328 67,570

EBITDA 13,218 15,819 18,006 20,211

Margin (%) 20.9 22.7 23.3 23.0

Depreciation 2,542 2,821 3,194 3,444

EBIT 10,677 12,998 14,812 16,767


Other Income - Rec. 1,122 1,483 1,422 1,565

PBT before EO Items 11,625 14,215 16,124 18,303

Extra Ordinary Expense 0 0 0 0

PBT but after EO Exp. 11,625 14,215 16,124 18,303

Tax 1,954 2,975 3,225 3,661

Tax Rate (%) 16.8 20.9 20.0 20.0

Reported PAT 9,671 11,240 12,899 14,642Adj PAT 9,671 10,821 12,899 14,642

Change (%) -3.8 11.9 19.2 13.5

Margin (%) 15.3 15.5 16.7 16.7


Y/E March 2011 2012 2013E 2014E

Eq ui ty Sh are Ca pi ta l 1,606 1,606 1,606 1,606

Res erves 64,966 73,500 83,174 94,156

Reva luation Res erves 90 90 90 90Net Worth 66,661 75,196 84,870 95,851

Loans 5,719 3,219 480 480

Deferred Liabi l i ti es 2131 2131 1325 410


Gros s Bl ock 42,411 47,411 52,411 56,911

Less: Accum. Deprn. 11,465 14,286 17,480 20,924

Net Fixed Assets 30,946 33,125 34,931 35,987

Capi ta l WIP 2,853 2,853 2,853 2,853

Inves tments 5,904 5,904 5,904 10,904

Curr. Assets 46,599 53,800 59,178 65,435

Inventory 19,062 20,143 21,928 23,990

Account Rece ivables 14,908 17,593 18,881 20,752

Ca s h a n d Ba n k Ba l a nce 1,010 1,666 3,161 3,419

Others 11,619 14,398 15,208 17,274



Net Current Assets 34,808 38,663 42,986 46,997Appl. of Funds 74,511 80,546 86,674 96,741

Cipla FinancialsCipla


78/98

78July 2012

Cipla FinancialsRatiosY/E March 2011 2012 2013E 2014E

Basic (INR)

EPS 12.0 13.5 16.1 18.2

Cash EPS 15.2 17.0 20.0 22.5BV/Share 82.9 93.5 105.6 119.3

DPS 6.5 5.8 6.9 7.8

Payout (%) 30.8 24.1 25.0 25.0

Valuation (x)

P/E 25.6 22.9 19.2 16.9

PEG (x) -6.8 1.9 1.0 1.3

Cash P/E 20.3 18.2 15.4 13.7

P/BV 3.7 3.3 2.9 2.6

EV/Sales 4.0 3.6 3.2 2.8EV/EBITDA 19.1 15.8 13.6 12.1

Dividend Yield (%) 2.1 1.9 2.2 2.5

Return Ratios (%)

RoE 14.5 14.4 15.2 15.3

RoCE 15.8 18.0 18.7 18.9


Fixed Asset Turnover (x) 2.5 2.2 2.3 2.5

Debtor (Days) 86 92 89 86Inventory (Days) 110 105 103 100


Leverage Ratio (x)


Debt/Equity 0.1 0.0 0.0 0.0


Y/E March 2011 2012 2013E 2014E

Op. Profit/(Loss) before T 13,218 15,819 18,006 20,211

Interest/Dividends Recd. 1,122 1,483 1,422 1,565


(I nc)/De c i n WC -2,889 -3,199 -2,828 -3,752


EO expense 0 0 0 0

CF from Oper. incl EO Expe 9,837 11,127 12,570 13,447

(i nc)/de c i n FA -9,386 -5,000 -5,000 -4,500

(Pur)/Sa le of Inves tments -3,440 0 0 -5,000


Issue of Shares 867 0 0 0

Inc/(Dec) in Debt 5,668 -2,500 -2,739 0

Interest Pa id -173 -266 -111 -29

Di vi dend Pa id -2,983 -2,705 -3,225 -3,661

CF from Fin. Activity 3,379 -5,472 -6,075 -3,689

Inc/Dec of Cash 390 656 1,495 258

Add: Be gi nni ng Ba l ance 621 1,010 1,666 3,161

Closing Balance 1,010 1,666 3,161 3,419

Ranbaxy Neutral [RBXY IN; CMP: INR487; MCap: USD3 7B]


79/98

79July 2012

Imperative to improve core business profitability

Ranbaxys core business profitability continues to be under pressure due

to higher fixed costs (partly due to US FDA issues at its two India sites) and

high front-end expenses in various markets. The US FDA/DoJ settlementand subsequent filing of the consent decree in the US court is a positive

development but the penalty of USD500m seems to be fairly high. Signing

of the consent decree is likely to delay the full recovery of supplies from

India into CY13 compared to our previous assumption of the benefits

coming through in CY12. We believe that current valuations already factor-

in a potential improvement in core profitability for CY13E. The stock is

valued at 19.4x CY13E core EPS (ex-one offs). Maintain Neutral with TP of

INR495 (20x CY13E EPS + INR61/sh DCF value of Para-IV pipeline).

EPS CAGR of 25% due to margin improvement & reversal of forex losses

Core topline to record 16% CAGR for CY11-13 led by recovery of the US

business (25% CAGR), few emerging markets to grow

sec pharma mosl 090712

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