Alembic Pharma (ALEPHA) | 597static-news.moneycontrol.com/static-mcnews/2017/05/I...Alembic Pharma...

May 4, 2017

ICICI Securities Ltd | Retail Equity Research

Result Update

Q4 driven by exports and domestic specialty

Revenues increased 18% YoY to | 741 crore (I-direct estimate: | 783

crore) on account of 54% YoY growth in the US to | 200 crore.

Domestic formulations grew 10% YoY to | 286 crore (I-direct

estimates: | 304 crore) driven by 13% growth in speciality portfolio

EBITDA margins contracted 471 bps YoY to 18.2% (I-direct estimate:

19.2%) due to higher raw material and employee cost. EBITDA

declined 6% YoY to | 135 crore (I-direct estimate: | 151 crore)

Net profit increased 2% YoY to | 93 crore (I-direct estimate of | 106

crore) mainly due to lower taxation

US key growth driver for generic exports

APL’s exports generic business (52% of FY17 revenues) grew at ~33%

CAGR in FY12-17 to | 1237 crore driven by strong traction in the US (76%

of export sales). The US traction was on the back of consistent product

launches including limited competition products. Despite being a late

entrant, the company has done reasonably well with a product basket of

92 ANDA filings with 40 pending approvals of which ~40% are Para IV

and shared exclusivity filings. The company has already demonstrated

the required capabilities by securing approvals of limited completion

products such as gAbilify (CNS), gExforge (CVS), gCelebrex (Pain) and

gMicardis (CVS). Also, APL now has its own front-end team, which gives

company better control on its product launches. Now, with its front-end

initiatives and six to eight launches every year in the US, we expect US

sales to register a CAGR of 27% in FY17-19E to

| 1470 crore.

Domestic sales growth riding on speciality segment growth

APL’s domestic formulation sales (37% of total revenues) grew at ~10%

CAGR in FY12-17 mainly due to ~17% growth in the speciality segment.

Specialty contribution in the domestic branded space increased to 59% in

FY16 from 44% in FY12. With ~5000 marketing team at its disposal, the

company enjoys a wide reach among doctors. We expect the speciality

segment to grow ~ 20% CAGR in FY17-19E on the back of aggressive

product launches and constant addition of new speciality segments &

sub-segments. Overall, we expect domestic branded formulations to

grow at 13% CAGR in FY17-19E to | 1255 crore.

High capex, R&D to drive long term growth plans

The company has spent more than | 1000 crore in FY16 and FY17 and

also guided for ~| 700 capex for FY 18 for setting up injectable and oral

solid oncology facilities, API capacity ramp-up and to set up a plant under

the Derma JV (orbicular). R&D guidance also sharply increased to | 500

crore i.e. ~14% of sales for FY18, which is one of the highest in the

industry in percentage term. Both heads are likely to witness above-

normal outflows.

R&D, capex benefits back-loaded; maintain HOLD

Base effect of gAbilify weighed on FY17 numbers. The numbers were

further impacted by NLEM and demonetisation impact in the domestic

market. With the announcement of aggressive R&D and capex plans, the

management has signalled the strategy for the next five to six years,

especially on the US front. This includes a foray into niche areas like

oncology, injectables, derma, etc. This, we believe, is fraught with a new

set of challenges and the benefits are most likely to be back-loaded.

Immediate cash-burn is likely to weigh on sentiments in the near term.

We have maintained a target price of | 615 based on 20x FY19E EPS of |

30.6.

Rating matrix

Rating : Hold

Target : | 605

Target Period : 12-15 months

Potential Upside : -1%

What’s Changed?

Target Changed from | 700 to | 605

EPS FY17E Changed from | 20.3 to | 21.4



Rating Unchanged

Quarterly Performance

Q4FY17 Q4FY16 YoY (%) Q3FY17 QoQ (%)

Revenue 741.4 626.6 18.3 777.0 -4.6

EBITDA 134.6 143.3 -6.1 145.4 -7.4

EBITDA (%) 18.2 22.9 -471.4 18.7 -55.8

Net Profit 93.0 91.2 2.0 86.5 7.4

Key Financials

(|crore) FY16 FY17E FY18E FY19E

Revenues 3140.4 3125.8 3417.1 4017.3

EBITDA 1006.0 614.7 649.1 854.2

Net Profit 719.4 403.0 440.9 568.5

EPS (|) 38.2 21.4 23.4 30.2

Valuation summary

FY16 FY17E FY18E FY19E

PE (x) 16.0 28.5 26.1 20.2

Target PE (x) 15.9 28.3 25.9 20.1

EV to EBITDA (x) 11.1 18.6 17.8 13.3

ROIC (%) 72.9 36.8 35.2 33.7

RoNW (%) 44.9 21.4 20.0 21.8

RoCE (%) 51.5 26.1 22.3 24.7

Stock data

Particular

Market Capitalisation

Debt (FY16)

Cash & cash equivalents (FY16P)

EV

52 week H/L 709/515

Equity capital | 38 crore

Face value | 2

| 155 crore

| 11515 crore

Amount

| 11589 crore

| 80 crore

Price performance (%)

1M 3M 6M 1Y

Alembic Pharma 5.0 6.5 -7.7 -0.8

Ajanta Pharma -8.4 -4.8 -16.8 7.4

Torrent Pharma 0.5 8.6 -1.1 -2.3

Research Analyst

Siddhant Khandekar

[email protected]

Mitesh Shah

[email protected]

Harshal Mehta

[email protected]

Alembic Pharma (ALEPHA) | 597


Variance analysis

Q4FY17 Q4FY17E Q4FY16 Q3FY17 YoY (%) QoQ (%) Comments

Revenue 741.4 782.6 626.6 777.0 18.3 -4.6 YoY growth mainly on account of low base of gAbilify sales in the US. Miss vis-

à-vis I-direct estimate was mainly due to lower-than-expected domestic acute

business and Ex-US export sales

Raw Material Expenses 204.0 213.4 123.9 211.6 64.6 -3.6

Employee Expenses 137.9 133.0 96.9 130.5 42.2 5.6 Sequential increase mainly due to new recruitment in India for projects, which

are in advance stages of completion

R&D Expenditure 109.0 113.5 111.0 116.7 -1.8 -6.6

Other Expenditure 155.9 172.2 151.4 172.8 3.0 -9.8

EBITDA 134.6 150.5 143.3 145.4 -6.1 -7.4

EBITDA (%) 18.2 19.2 22.9 18.7 -471 bps -56 bps YoY decline mainly due to adverse product mix and increase in employee cost.

Miss vis-à-vis I-Direct estimate mainly due to higher-than-expected employee

cost

Interest 1.8 1.0 1.3 0.8 39.2 141.3

Depreciation 21.8 20.6 24.4 21.1 -10.5 3.4

Other Income 0.9 0.2 2.6 0.2 -66.0 456.3

PBT before EO & Forex 111.8 129.0 120.2 123.7 -7.0 -9.6

Forex & EO 0.0 0.0 0.0 0.0 NA NA

PBT 111.8 129.0 120.2 123.7 -7.0 -9.6

Tax 16.5 23.2 28.6 39.3 -42.3 -58.0

PAT before MI 95.3 105.8 91.6 84.4 4.1 13.0

Net Profit 93.0 105.8 91.2 86.5 2.0 7.4 Delta vis-à-vis EBITDA was mainly due to lower taxation

Key Metrics

Domestic Formulation 286.0 304.7 259.6 294.0 10.2 -2.7 YoY growth due to ~13% growth in Specialty segment. Acute segment

declined 8% YoY. Miss vis-à-vis I-Direct estimate mainly due to lower-than-

expected acute business sales

Total Exports 273.0 309.3 190.2 303.0 43.5 -9.9 YoY growth mainly on account of low base of gAbilify sales in the US. Miss vis-

à-vis I-direct estimate was mainly due to lower-than-expected sales in ex US

export markets

APIs 181.0 166.9 167.0 166.0 8.4 9.0 Strong growth mainly due to additional orders from existing customers

Common size (%)

Source: Company, ICICIdirect.com Research

Change in estimates

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

Revenue 3,516.6 3,417.1 -2.8 4,134.9 4,017.3 -2.8

EBITDA 678.0 649.1 -4.3 855.6 854.2 -0.2

EBITDA Margin (%) 19.3 19.0 -28 bps 20.7 21.3 57 bps

PAT 463.5 440.9 -4.9 579.3 568.5 -1.9

EPS (|) 24.6 23.4 -4.9 30.7 30.2 -1.9

FY18E FY19E


Assumptions

Comments

(| crore) FY16 FY17E FY18E FY19E FY18E FY19E

Domestic Formulation 1,186.4 1,255.1 1,406.3 1,593.3 1,428.2 1,618.8

Export sales 1,458.3 1,236.5 1,461.4 1,845.2 1,508.0 1,904.6

APIs 522.2 639.2 543.4 570.6 573.9 602.6 Change as per management guidance

Current Earlier



Company Analysis

Tracing its roots way back to 1907, the company has remained an active

player in the domestic formulations space with a few legacy brands like

Azithral, Althrocin and Wikoryl in the anti-infective and cough & cold

segments. In 2011, APL was de-merged from Alembic Ltd to give more

thrust to formulations and insulate this business from the vagaries of

commoditised APIs. Formulations account for 80%of the business while

the rest comes from APIs. As of FY17, the domestic: exports formulation

ratio was at 50:50. Consolidated revenues, EBITDA and PAT have grown

at a CAGR of 17%, 37% and 25%, respectively, in FY12-17.

The company’s domestic branded portfolio is gradually shifting to the

speciality business segment, which now accounts for ~55% of domestic

branded formulations in FY17 from 42% in FY11.

Export formulations constitute 39% of revenues (FY17). Of this, ~74% of

export formulations are generics catering to the regulated market of the

US. In these markets, the company has adopted a partnership approach

to push sales. APL owns 52 approved ANDA across US markets, of 95

pending ANDA.

Total revenues grew at 17% CAGR in FY12-17 mainly due to strong

growth in the domestic specialty segment and increased export generic

contributions. We expect domestic growth to continue to be driven by the

specialty segment on the back of new product launches and addition of

new specialty segments/sub-segments. On the export front, the US

remains a key growth driver backed by a healthy product pipeline to

support base business growth. We expect total revenues to grow at 14%

CAGR in FY17-19E to | 4106 crore to be driven by domestic branded

formulations and generic exports formulations.

Exhibit 1: Revenues to grow at CAGR of 14% in FY17-19E

1467.8 1525.9

1868.42067.7

3191.5 3158.0

3451.2

4057.4

0.0

900.0

1800.0

2700.0

3600.0

4500.0

FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

(| crore)

Total Sales


APL’s FY15 growth in the US was just 11% YoY due to high base, price

erosion in some products and lack of new product approvals. However,

the company started FY16 on a strong footing with approved products

such as gAbilify (~US$5 billion annual sales; ~10% market share),

gExforge (~US$400 million) & gCelebrex (~US$2.4 billion). The company

has launched gAbilify under shared exclusivity. With the assumption of

eight to ten annual product launches, we expect the company to generate

US$35-45 million incremental annual sales from the US, which will

translate into a CAGR of 27% in FY17-19E in the US. We have not

considered any windfall gains like gAbilify in our future projection.

17% CAGR

14% CAGR


Exhibit 2: US Sales trend (US growth to be 27% in FY17-19E)

145.1 129.7

331.7368.1

1248.1

916.0

1131.0

1470.3

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

1600.0


(| crore)

US Sales


Ex-US export business (~9% of revenues) grew at 23% CAGR in FY12-17.

The environment in Europe remains challenging with tenderisation and

pricing pressure. We expect the company’s ex-US export sales revenue

to grow at 9% CAGR in FY17-19E to | 322 crore on the back of new

product launches.

Exhibit 3: Ex-US export sales trend

96.7106.1

134.3150.4

168.4

272.7280.1

322.2

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0


(| crore)


The company’s generic contribution to total revenues increased to 38% in

FY17 from 18.9% in FY11 on account of incremental US contribution. We

expect the export generic business to grow at a CAGR of 23% in FY17-

19E to | 1793 crore.

Over the years, APL has developed power brands like Azithral and

Althrocin in the anti-infective segment. Historically, the company’s

domestic portfolio was tilted more towards acute therapies, especially the

anti-infective segment. Anti-infective was in fact the identity for APL.

However, most of these products came under price control - some under

DPCO 1990 and more under NLEM 2011 later. Hence, to mitigate the price

control impact, the erstwhile Alembic Ltd acquired the non-oncology

portfolio of Dabur Pharma in 2007. Gradually, the company restricted its

anti-infective focus to key legacy brands and diverted the resources

towards speciality segments. Domestic formulation sales (40% of total

revenues in FY17) grew at 10% CAGR over FY12-17 to | 1255 crore

mainly due to strong growth in the specialty segment. The specialty

portfolio grew at 17% CAGR in FY12-17. At the same time, the anti-

infective segment contribution reduced ~1297 bps, resulting in an

23% CAGR

9% CAGR


improvement in the acute: speciality ratio to 41:59 in FY17 from 54:46 in

FY12.

With 5000+ MRs at its disposal, the company enjoys a wide reach among

doctors. APL has added ~1000 MRs in the past three years to widen its

focus on the specialty segment by introducing more divisions within

segments. We expect the domestic speciality segment to maintain its

strong growth trajectory backed by its aggressive approach of introducing

new divisions and launching products in existing & new therapeutic areas.

While the acute segment growth is likely to recover, it would remain in

single digits in the near future. We expect domestic branded formulations

to grow at a CAGR of 14% to | 1509 crore in FY17-19E.

Exhibit 4: Domestic sales trend

675.0

769.7

862.0

980.8

1095.2

1171.4

1323.7

1509.0

0.0

400.0

800.0

1200.0

1600.0


(| crore)

Branded Domestic Formulation


Exhibit 5: EBITDA trend reflecting augmented R&D impact in FY17-19E

220.3251.8

357.7404.6

1006.0

614.7649.1

854.2

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0


(| crore)

EBITDA


12% CAGR

14% CAGR

23% CAGR 18% CAGR


Exhibit 6: Net profit to grow at CAGR of 19% in FY17-19E

130.0165.1

235.5

284.3

719.4

403.0440.9

568.5

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0


(| crore)

PAT


Exhibit 7: EBITDA & PAT margins

15.0

16.6

19.2 19.7

32.0

19.719.0

21.3

8.9

10.912.6

13.8

22.9

12.9 12.914.2

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0


(%

)

EBITDA Margins PAT Margins


Exhibit 8: Trends in return ratios

32.9

32.8 34.9

32.1

44.9

21.4 20.0

21.8

29.3 31.4

39.7

30.7

51.5

26.1 22.3

24.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0


(%

)

RoE (%) RoCE (%)


25% CAGR 19% CAGR


Exhibit 9: Trends in quarterly financials

(| Crore) Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 YoY (%) QoQ(%)

Revenues 464.0 494.3 547.1 511.8 503.0 583.3 1008.8 921.7 626.6 728.0 879.4 777.0 741.4 18.3 -4.6

Raw Material Cost 176.2 177.0 189.7 174.3 173.6 213.2 226.3 206.0 123.9 190.9 247.0 211.6 204.0 64.6 -3.6

% to revenues 38.0 35.8 34.7 34.1 34.5 36.6 22.4 22.4 19.8 26.2 28.1 27.2 27.5

Gross Profit 287.8 317.3 357.5 337.5 329.5 370.1 782.5 715.7 502.7 537.1 632.4 565.4 537.3 6.9 -5.0

Gross Profit Margin (%) 62.0 64.2 65.3 65.9 65.5 63.4 77.6 77.6 80.2 73.8 71.9 72.8 72.5 -774 bps -28 bps

Employee cost 67.2 75.6 76.8 79.2 75.2 87.8 119.6 117.0 96.9 116.3 118.7 130.5 137.9 42.2 5.6

% to revenues 14.5 15.3 14.0 15.5 15.0 15.1 11.9 12.7 15.5 16.0 13.5 16.8 18.6 313 bps 180 bps

R & D 31.2 29.5 31.1 30.5 30.5 48.0 78.0 70.1 111.0 79.5 108.7 116.7 109.0

% to revenues 6.7 6.0 5.7 6.0 6.1 8.2 7.7 7.6 17.7 10.9 12.4 15.0 14.7 -302 bps -31 bps

Other Expenditure 98.2 116.2 141.3 126.2 125.1 132.3 208.9 144.0 151.4 184.4 227.3 172.8 155.9 3.0 -9.8

% to revenues 21.2 23.5 25.8 24.7 24.9 22.7 20.7 15.6 24.2 25.3 25.8 22.2 21.0 -314 bps -121 bps

Total Expenditure 372.7 398.3 438.8 410.2 404.3 481.3 632.7 537.1 483.3 571.1 701.6 631.6 606.8 25.6 -3.9

% to revenues 80.3 80.6 80.2 80.2 80.4 82.5 62.7 58.3 77.1 78.4 79.8 81.3 81.8

EBIDTA 91.3 96.0 108.3 101.6 98.7 102.0 376.0 384.6 143.3 157.0 177.8 145.4 134.6 -6.1 -7.4

EBITDA Margin (%) 19.7 19.4 19.8 19.8 19.6 17.5 37.3 41.7 22.9 21.6 20.2 18.7 18.2 -471 bps -56 bps

Depreciation 11.0 10.7 10.8 11.9 11.0 12.9 13.3 21.7 24.4 19.4 20.6 21.1 21.8 -10.5 3.4

Interest 2.3 0.6 1.0 -0.2 0.4 0.6 0.7 1.0 1.3 1.1 1.0 0.8 1.8 39.2 141.3

OI 2.8 0.2 0.1 0.1 1.9 0.0 0.1 2.8 2.6 0.4 0.5 0.2 0.9

PBT 80.8 84.9 96.6 90.0 89.2 88.6 362.1 364.7 120.2 136.9 156.7 123.7 111.8 -7.0 -9.6

Tax 19.5 20.3 18.4 19.3 18.3 18.8 73.5 95.1 28.6 33.3 33.2 39.3 16.5 -42.3 -58.0

Tax Rate (%) 24.1 23.9 19.1 21.5 20.5 21.2 20.3 26.1 23.8 24.3 21.2 31.8 14.7

PAT 61.3 64.6 78.1 70.7 70.9 69.8 288.5 269.6 91.6 103.6 123.6 84.4 95.3 4.1 13.0

PAT Margin (%) 13.2 13.1 14.3 13.8 14.1 12.0 28.6 29.2 14.6 14.2 14.0 10.9 12.9

Exceptional Items (EI) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net Profit before MI 61.3 64.6 78.1 70.7 70.9 69.8 288.5 269.6 91.6 103.6 123.6 84.4 95.3 4.1 13.0

Add/(less) MI 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net Profit 61.3 64.6 78.1 70.7 70.9 69.8 288.5 269.6 91.6 103.6 123.6 84.4 95.3 4.1 13.0

Net Profit (excl.EI) 61.3 64.6 78.1 70.7 70.9 69.8 288.5 269.6 91.6 103.6 123.6 84.4 95.3 4.1 13.0


SWOT Analysis

Strengths- Speciality focus in domestic market, high operating margins,

high return ratios and US pipeline

Weakness- Relatively late US entrant, still higher presence of acute

therapies in the domestic branded formulations

Opportunities- The US generics space

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, proposed tightening

by the new regime by adapting to the bidding process and imposition of

border adjustment tax on imported drugs in the US. Also, extension of

NLEM product list may impact domestic branded formulations.


Conference call Highlights

The capex for FY17 stood at | 478 crore and the company has

guided for | 700 crore of capex in FY18 (inclusive of maintenance

capex of ~| 200 crore). FY18 would see capex on new

formulations plant (for the US market) and some capacity

expansion.

The company incurred | 113 crore on R&D in Q4FY17 and has

provided for R&D guidance of | 500 crore in FY18.

The oncology facility for oral and injectable formulations is

expected to be ready for exhibit batches by H1FY18 and general

injectable and derma facilities will be ready by H2FY18. Work

could also commence for new oral solid dosage facility in FY18

The company has filed 10 ANDAs during Q4FY17 and

cumulatively 25 ANDAs for FY17. The management expects 20-30

ANDA filing for FY18

Bioequivalence facility was inspected during the quarter without

any observations

The board has recommended dividend of | 4 per share for FY17

Exhibit 10: Facilities

Location Segment Regulatory Approvals

Sikkim Formulations

Panelav, Gujarat API USFDA, EDQM

Panelav, Gujarat Formulations USFDA, MCC, MHRA, ANVISA & TPD

Baddi, Himachal Pradesh Formulations WHO GMP

Karkhadi, Gujarat API USFDA, EDQM, TGA, WHO



Valuation

Base effect of gAbilify weighed on FY17 numbers. The numbers were

further impacted by NLEM and demonetisation impact in the domestic

market. With the announcement of aggressive R&D and capex plans, the

management has signalled the strategy for the next five to six years,

especially on the US front. This includes a foray into niche areas like

oncology, injectables, derma, etc. This, we believe, is fraught with a new

set of challenges and the benefits are most likely to be back-loaded.

Immediate cash-burn is likely to weigh on sentiments in the near term.

We have maintained a target price of | 615 based on 20x FY19E EPS of |

30.6.

Exhibit 11: One year forward PE

0

200

400

600

800

1000

1200

May-12

Nov-12

May-13

Nov-13

May-14

Nov-14

May-15

Nov-15

May-16

Nov-16

May-17

(|)

Price 38.5x 32.7x 26.8x 23.8x 18.0x

[


Exhibit 12: One year forward PE of company vs. BSE Healthcare Index

0

5

10

15

20

25

30

35

40

45

May-12

Nov-12

May-13

Nov-13

May-14

Nov-14

May-15

Nov-15

May-16

Nov-16

May-17

PE (x)

Alembic CNX Pharma


Exhibit 13: Valuation

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

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

FY16 3140 52.7 38.2 153.0 16.0 11.1 44.9 51.5

FY17E 3126 -0.5 21.4 -44.0 28.5 18.6 21.4 26.1

FY18E 3417 9.3 23.4 9.4 26.1 17.8 20.0 22.3

FY19E 4017 17.6 30.2 28.9 20.2 13.3 21.8 24.7


101% premium


Recommendation history vs. Consensus

0

100

200

300

400

500

600

700

800

900

Apr-17Feb-17Dec-16Sep-16Jul-16Apr-16Feb-16Nov-15Sep-15Jul-15Apr-15

(|

)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

(%

)

Price Idirect target Consensus Target Mean % Consensus with Hold

Source: Bloomberg, Company, ICICIdirect.com Research. Initiated on September 28, 2015

Key events

Year Event

1907 Alembic Ltd starts manufacturing tinctures and alcohol in Vadodara

1940 Starts manufacturing cough syrups, vitamins and sculpture drugs

1961 Inaugurates penicillin plant

1971 Becomes first Indian company to manufacture Erythromycin

1972 Launches Erythromycin under brand 'Althrocin'

2001 Starts manufacturing Cephalosporin C

2003 Formulation facility set up for regulate markets

2004 R&D facility set up at Vadodara

2006 Receives USFDA approval for API and formulation facilities

2007 Acquires non-oncology division of Dabur Pharma; enters high margin segments such as CVS, diabetes, GI and gynaecology

2010 Azithral sales cross | 100 crore; demerger of pharma business from Alembic Ltd; Alembic Pharmaceuticals formed

2011 Receives Anvisa approval

2015 USFDA successfully inspects formulation and API plants

Oct-16 Panelav facility receives EIR from USFDA

Mar-17 Bioequivalence facility (Vadodara) was inspected during the quarter without any observations


Top 10 Shareholders Shareholding Pattern

Rank Investor Name Latest Filing Date % O/S Position Position Change

1 Alembic Ltd Mar-17 29.2 55.0m 0.0

2 Shreno, Ltd. Mar-17 11.0 20.7m 2.3

3 Whitefield Chemtech Pvt. Ltd. Mar-17 9.7 18.3m 0.0

4 Sierra Investments, Ltd. Mar-17 9.2 17.3m 0.2

5 Nirayu Pvt. Ltd. Mar-17 7.3 13.7m -2.5

6 Amin (Chirayu Ramanbhai) Mar-17 2.4 4.5m 0.0

7 ICICI Prudential Asset Management Co. Ltd. Mar-17 2.3 4.4m 0.0

8 Amin (Malika C) Mar-17 1.6 3.0m 0.0

9 Matthews International Capital Management, L.L.C. Dec-16 1.5 2.9m 0.0

10 Elara Capital Plc Mar-17 1.4 2.6m 0.0

(in %) Mar-16 Jun-16 Sep-16 Dec-16 Mar-17

Promoter 74.1 74.1 74.4 74.4 72.7

Others 25.9 25.9 25.7 25.7 27.3

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor Name Value ($ mn) Shares Investor Name Value ($ mn) Shares

Shreno, Ltd. 22.5 2.3 Nirayu Pvt. Ltd. -24.2 -2.5

Schroder Investment Management (Singapore) Ltd. 4.7 0.5 SBI Funds Management Pvt. Ltd. -0.6 -0.1

Sierra Investments, Ltd. 1.6 0.2 Edelweiss Asset Management Ltd. -0.5 -0.1

TIAA Global Asset Management 0.8 0.1 Elara Capital Plc -0.3 0.0

Fidelity Management & Research Company 0.4 0.0 Baroda Pioneer Asset Management Company Limited -0.1 0.0

Buys Sells

Source: Reuters, ICICIdirect.com Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) | crore FY16 FY17E FY18E FY19E

Revenues 3,140.4 3,125.8 3,417.1 4,017.3

Growth (%) 52.7 -0.5 9.3 17.6

Raw Material Expenses 769.4 853.6 939.7 1,084.7

Employee Expenses 421.4 503.4 598.2 692.4

R&D Expenditure 307.1 413.8 478.4 522.3

Other Manufacturing Expenses 636.6 740.3 751.8 863.7

Total Operating Expenditure 2,134.4 2,511.1 2,768.1 3,163.1

EBITDA 1,006.0 614.7 649.1 854.2

Growth (%) 148.7 -38.9 5.6 31.6

Interest 3.7 4.6 8.9 8.4

Depreciation 72.2 83.0 91.1 137.7

Other Income 5.5 1.9 2.1 2.5

PBT 935.6 529.1 551.2 710.6

Total Tax 216.0 122.2 110.2 142.1

Tax Rate (%) 23.1 23.1 20.0 20.0

Adjusted PAT 719.4 403.0 440.9 568.5

Growth (%) 153.0 -44.0 9.4 28.9

EPS (Adjusted) 38.2 21.4 23.4 30.2


Cash flow statement | Crore


Profit/(Loss) after taxation 719.4 403.0 440.9 568.5

Depreciation 72.2 83.0 91.1 137.7

Net Increase in Current Assets -153.8 -96.3 -38.9 -188.9

Net Increase in Current Liabilities 292.6 -0.8 57.5 112.0

CF from operating activities 930.4 388.9 550.6 629.3

(Inc)/dec in Investments 0.2 -48.0 48.2 0.0

(Inc)/dec in Fixed Assets -302.6 -455.0 -600.0 -300.0

Others 2.1 -8.0 -13.1 0.0

CF from investing activities -300.4 -511.0 -564.9 -300.0

Inc / (Dec) in Equity Capital 0.0 0.0 0.0 0.0

Inc / (Dec) in Loan -130.0 -52.3 152.3 0.0

Dividend & Dividend Tax -65.2 -116.7 -127.6 -164.6

CF from financing activities -195.2 -168.9 24.6 -164.6

Net Cash flow 434.8 -291.1 10.4 164.8

Opening Cash 26.1 450.8 154.7 178.1

Closing Cash 460.9 159.8 165.0 342.8

Free Cash flow 627.8 -66.1 -49.4 329.3


Balance sheet | Crore


Equity Capital 37.7 37.7 37.7 37.7

Reserve and Surplus 1,563.4 1,849.7 2,163.0 2,566.9

Total Shareholders funds 1,601.1 1,887.4 2,200.7 2,604.6

Total Debt 132.5 80.2 232.5 232.5

Deferred Tax Liability 50.1 50.1 50.1 50.1

Long Term Provisions 28.2 28.2 28.2 28.2

Source of Funds 1,811.9 2,046.0 2,511.5 2,915.4

Gross Block - Fixed Assets 1,119.0 1,219.0 1,519.0 2,119.0

Accumulated Depreciation 387.8 470.8 561.9 699.7

Net Block 731.2 748.3 957.1 1,419.4

Capital WIP 92.5 447.5 747.5 447.5

Total Fixed Assets 823.7 1,195.8 1,704.6 1,866.9

Goodwill on Consolidation 43.6 43.6 43.6 43.6

Investments 2.1 50.2 2.0 2.0

Inventory 577.6 632.8 614.6 722.6

Cash 450.8 154.7 178.1 342.8

Debtors 350.5 337.5 381.3 448.3

Loans & Advances & Other CA 127.7 177.7 186.6 196.0

Total Current Assets 1,506.7 1,302.6 1,360.6 1,709.6

Creditors 566.4 562.1 616.0 724.3

Provisions & Other CL 68.3 71.7 75.3 79.1

Total Current Liabilities 634.7 633.9 691.4 803.3

Net Current Assets 872.0 668.8 669.2 906.3

LT L& A, Other Assets 83.6 87.7 92.1 96.7

Deferred Tax Assets 0.0 0.0 0.0 0.0

Application of Funds 1,825.0 2,046.0 2,511.5 2,915.4


Key ratios

(Year-end March) FY16 FY17E FY18E FY19E

Per share data (|)

Adjusted EPS 38.2 21.4 23.4 30.2

BV per share 84.9 100.1 116.7 138.2

Dividend per share 11.0 6.2 6.8 8.7

Operating Ratios (%)

EBITDA Margins 32.0 19.7 19.0 21.3

PAT Margins 22.9 12.9 12.9 14.2

Inventory days 67.1 73.9 65.6 65.6

Debtor days 40.7 39.4 40.7 40.7

Creditor days 65.8 65.6 65.8 65.8

Asset Turnover 1.7 1.5 1.4 1.4

EBITDA conversion Rate 92.5 63.3 84.8 73.7

Return Ratios (%)

RoE 44.9 21.4 20.0 21.8

RoCE 51.5 26.1 22.3 24.7

RoIC 72.9 36.8 35.2 33.7

Valuation Ratios (x)

P/E 16.0 28.5 26.1 20.2

EV / EBITDA 11.1 18.6 17.8 13.3

EV / Net Sales 3.6 3.7 3.4 2.8

Market Cap / Sales 3.7 3.7 3.4 2.9

Price to Book Value 7.2 6.1 5.2 4.4

Solvency Ratios

Debt / Equity 0.1 0.0 0.1 0.1

Debt / EBITDA 0.1 0.1 0.4 0.3

Current Ratio 1.7 1.8 1.7 1.7



ICICIdirect.com coverage universe (Healthcare)

ICICIdirect Healthcare coverage Universe

Company I-Direct CMP TP Rating M Cap

Code (|) (|) (| Cr) FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16

Ajanta Pharma AJAPHA 1642 1,180 Buy 14448.7 45.4 58.5 61.7 72.4 36.1 28.1 26.6 22.7 42.9 40.6 33.8 31.7 34.2 32.6 27.0 25.2 25.2

Alembic Pharma ALEMPHA 596 615 Hold 11230.8 38.2 21.4 23.4 30.2 15.6 27.9 25.5 19.8 51.5 26.1 22.3 24.7 44.9 21.4 20.0 21.8 3 11.1

Apollo Hospitals APOHOS 1244 1,440 Buy 17300.2 22.2 22.5 35.2 50.0 56.0 55.2 35.3 24.9 8.2 8.1 11.1 14.7 8.9 8.4 11.8 14.7 16 23.2

Aurobindo Pharma AURPHA 592 965 Buy 34669.6 33.9 38.7 39.5 49.1 17.4 15.3 15.0 12.0 23.3 23.6 20.9 22.6 28.1 24.6 20.3 20.5 63 13.6

Biocon BIOCON 1055 1,020 Hold 21108.0 23.1 31.0 25.5 40.8 45.6 34.0 41.3 25.9 9.1 11.4 10.4 15.3 11.4 13.5 10.2 14.5 -3.4 27.5

Cadila Healthcare CADHEA 458 425 Hold 46866.9 15.0 12.2 16.9 21.5 30.6 37.5 27.0 21.3 26.7 15.2 20.1 23.0 28.6 19.9 22.9 23.8 -7 19.8

Cipla CIPLA 550 575 Hold 44244.0 18.5 17.2 24.3 31.4 29.7 32.0 22.6 17.5 12.0 10.5 13.9 16.4 12.5 10.6 13.2 14.9 5 20.7

Divi's Lab DIVLAB 627 700 Hold 16642.2 41.8 41.1 42.8 47.8 15.0 15.2 14.6 13.1 30.7 26.8 24.4 23.7 25.9 21.6 19.3 18.6 12 11.3

Dr Reddy's Labs DRREDD 2606 2,930 Hold 43175.1 141.4 74.7 114.7 154.5 18.4 34.9 22.7 16.9 17.3 7.0 11.5 15.1 20.6 10.0 13.6 15.8 12 11.5

Glenmark Pharma GLEPHA 859 1,155 Buy 24243.9 32.2 61.9 54.0 60.4 26.7 13.9 15.9 14.2 16.2 26.9 20.7 21.9 21.2 29.3 20.5 18.8 34 17.0

Indoco Remedies INDREM 225.7 235 Hold 2079.4 9.4 8.7 12.7 15.6 24.0 25.9 17.7 14.4 12.9 9.5 13.9 16.1 14.8 12.4 15.8 16.8 4 13.3

Ipca Laboratories IPCLAB 546 560 Hold 6887.7 10.0 15.0 24.1 31.1 54.5 36.3 22.7 17.6 5.7 9.8 12.7 14.8 5.5 7.8 11.3 13.0 3 25.3

Jubilant Life JUBLIF 734.4 810 Buy 11697.6 26.0 37.0 51.1 68.0 28.3 19.9 14.4 10.8 12.0 14.1 15.6 18.5 14.2 17.1 19.4 20.7 10 13.6

Lupin LUPIN 1262 1,760 Buy 56985.1 50.4 61.7 67.2 83.6 25.0 20.4 18.8 15.1 18.6 20.2 20.8 23.9 20.7 20.9 19.2 19.9 39 19.1

Natco Pharma NATPHA 893.5 870 Buy 15573.5 8.5 25.3 14.8 18.2 105.3 35.3 60.5 49.1 16.0 33.0 17.6 19.2 11.9 27.2 14.0 15.0 -3 52.0

Sun Pharma SUNPHA 632 765 Buy 151511.5 23.4 30.3 29.9 35.3 26.9 20.9 21.1 17.9 18.6 19.3 17.3 17.9 18.0 19.4 16.5 16.8 21 18.3

Syngene Int. SYNINT 487 515 Hold 9747.0 11.1 14.3 14.0 18.4 45.0 34.7 35.5 27.1 13.2 16.8 16.0 19.9 21.0 21.9 17.9 19.4 6 27.5

Torrent Pharma TORPHA 1329 1,475 Buy 22491.4 107.8 57.0 62.1 77.4 12.3 23.3 21.4 17.2 46.7 21.5 23.7 26.4 53.8 23.5 21.4 22.2 11 9.6

Unichem Lab UNILAB 271.9 285 Hold 2471.6 12.3 12.9 17.4 23.5 22.1 21.1 15.6 11.6 13.8 14.3 16.1 18.8 11.7 11.1 13.3 15.6 5 15.7

RoE (%) EV/EBITDA (x)EPS (|) PE(x) RoCE (%)



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;

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ICICIdirect.com Research Desk,

ICICI Securities Limited,

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