INSTITUTIONAL EQUITY RESEARCH Pharmaceuticalsbackoffice.phillipcapital.in/Backoffice/Research... ·...

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer.

Pharmaceuticals

Impact Covid19: Worst of lockdown is behind

INDIA | PHARMACEUTICALS | SECTOR UPDATE

7 April 2020

The outbreak of Covid 19 pandemic and consequent lockdown has certainly brought the entire Indian economy to a standstill including Indian Pharma sector (despite of its essential nature). Recognising the potential risk of the supply disruption of pharmaceutical goods and drug shortages within the country as well as in the export market, Government of India has quickly addressed all standing issues by ensuring movement of material/manpower, activating port operations, making sure the ancillary supplies and facilitating export through air cargo. Hence, we believe the worst of lockdown is already behind for Indian Pharma and it will have a limited impact of the Covid19 led lockdown. Factoring the initial impact of the lockdown, we have fine-tuned the earnings of our coverage companies for FY21/FY22 in the range of 5-11%/4-6%. Nonetheless, the relative favourable positioning of Indian Pharma vs. many other sectors (reeling under the heat of lockdown and uncertainty of lockdown extension) makes a great investment case for itself. Simultaneously, favourable currency movement (INR depreciation 6%/4% vs. US$/Euro QoQ), lowest index weight (current 2% from a peak of 9% over last two decades) and a gradual expansion of ROE (as delivered by most leading peers over last couple of years) makes the investment case even stronger for Indian Pharma. Considering the cost conscious nature (pricing competition) of various export markets amidst the economical impact of COVID19, we believe companies with larger portfolio and integrated manufacturing will be the key beneficiaries. Those include – Divis Laboratories, IPCA Laboratories, Cipla, Cadila and Aurobindo pharma. On the other hand, we turn positive on Sun Pharma (upgrade to BUY with TP Rs 510) led by its sector leadership (at a time of lower index weight of Pharma sector) and the visible valuation gap post the stock price correction. We upgrade our rating on Lupin to Neutral (with TP Rs 620). Logistic issues emerged as the biggest fallout of Covid 19 for Indian Pharma... With the fire like spread of COVID-19 pandemic across world impacting people and economies, countrywide lockdown (starting 23rd March 2020) was the only and prudent option with government of India to contain the contagion. Although there were exceptions for the movement essential commodities including pharmaceuticals, the abrupt announcement of lockdown and lack of clarity amongst the ground personnel (those ensuring the lockdown implantation) brought entire Indian economy to a standstill. This has resulted in complete disruption of pharma supply chain for both domestic distribution as well as international supplies. Export restrictions already had jammed port operation prior to lockdown: Indian Pharma (with its exports contributing over 50% of totals trade) was already facing trade issues at the ports before the lockdown announcement due to the export restrictions. In fact, GOI abruptly imposed export restrictions on 13 APIs and their formulations on 3rd March 2020 resulting in inventory pile up in port/godowns worth over US$600mn that choked up the trade channels.

Companies

Aurobindo Pharma BUY CMP, Rs 382 Target Price, Rs 645 Cadila Healthcare BUY CMP, Rs 257 Target Price, Rs 345 Cipla Ltd BUY CMP, Rs 449 Target Price, Rs 510 Divis Labs BUY CMP, Rs 1901 Target Price, Rs 2200 Dr Reddy’s Labs NEUTRAL CMP, Rs 3145 Target Price, Rs 3300 IPCA BUY CMP, Rs 1385 Target Price, Rs 1600 Lupin Ltd NEUTRAL CMP, Rs 655 Target Price, Rs 620 Sun Pharma BUY (UPGRADE) CMP, Rs 376 Target Price, Rs 510 Surya Patra (+ 9122 6246 4121) [email protected]

mailto:[email protected]

Page | 2 | PHILLIPCAPITAL INDIA RESEARCH

PHARMACEUTICALS SECTOR UPDATE

Chaos at Indian ports further hurt Indian pharma’s international trade: Port services, although considered essential and were instructed for normal operations, faced complete disruption immediately after the lockdown with most of the ports invoking force majeure and worker associations getting concerned with health issues. Limited Indian ports continued work with minimal workforce. Such disrupted port operations on the top of inventory piled up situation caused by export restrictions further impacting both the inbound as well as outbound pharma trade flows. Lockdown disrupted domestic manufacturing as well as distribution: With the lockdown announcement the ancillary supplies of inputs like – packaging materials, excipients, utility consumables (like briquettes/gases for boiler) got impacted. Also releasing of materials from ports was not possible and a portion of work force (though limited) was not available due to health concerns, causing downsizing of manufacturing operation. On the distribution front, movement of medicines (though essential) stuck at state boarders. Simultaneously, the courier services which play an important role in the supply chain of medicines became non operational. Critically, the dispatches of medicines from C&F agents to stockiest saw big challenges. As per Mr Dinesh Dua, Chairman Pharmexcil, the lockdown has practically down-sized manufacturing operation to level of 30-35% in leading manufacturing clusters like – Baddi and Jammu (that put together manufactures about 50% of India’s formulation) and Hyderabad/Vizag (those manufacture ~60% of Indian APIs & Over 25% of formulations).

...but the worst of lockdown is behind for Indian Pharma Recognising the potential risk of the supply disruption of pharmaceutical goods and drug shortages within the country as well as in the export market, Government of India has quickly addressed all standing issues one after other. In fact, the corrective measures taken by Govt of India as detailed below: -

20th

March 2020 - Allowed the export of restricted drugs – a) if they were manufactured in a SEZ or b) against an advance license issues on or before the date of the export restriction notification - To resolve the stock pile-up at ports prior to lockdown

26th

March 2020 - Ensured unobstructed movement of raw material, packing material, finished goods as well as manpower related to manufacturing and distribution of drugs. Additionally, created a helpline by DGFT to address the export/import related issues

26th

March 2020 – Issued advisory for not charging container detention charges on import and export shipments as the port are operating at lower workforce

29th

March 2020 – Removed the distinction of essential and non-essential goods for the smooth transportation of goods in general and pharma goods in particular.

1st

April 2020 – issued special permission to conduct cargo operations using passenger category aircrafts during the COVID-19 lockdown period, as ports are struggling with low labor force.

1st

April 2020 – Issued advisory to state authorities to ensure smooth transportation of ancillary supplies (packaging materials, excipients, utility consumables like - briquettes/gases for boiler) and functioning of courier services for the seamless distribution of medicines across the country.

Given the slew of measures taken by GOI and that too in such a short span of time frame, we believe the worst of lockdown is already behind for Indian Pharma. Hence, we believe Indian Pharma could see temporary impact in the late March 2020 and in the month April due the evolving situations immediately after the lockdown.



However, we expect faster recovery in operation/distribution subsequently and expect no major impact on Indian Pharma even in a situation of prolonged lockdown.

Export demand for Indian Pharma is at its peak The Indian pharma market is ranked 13th in terms of value but is the third largest in terms of volume (led by its cost effective manufacturing) with 20,000 formulation units and 5,000 API units and it caters 40% of global pharmaceutical demand. India exported medicines worth US$ 19.13bn (+14% yoy) in FY19 with the USA being the largest trade partner with exports worth US$5.82bn, followed by Africa with 3.43bn (+3%) and EU with US$3bn (+9%). Disrupted manufacturing and supply chain across world boosts export potential of India: As per Pharmexcil, Indian pharma exports saw 12% growth to US$21bn in ytd (till February 2020) despite the material sourcing issues from China recently. The global Pharma industry was anyway facing drug shortage due to the lockdown in China during early 2020 and now the rapid spread of the fatal pandemic caused practical economic lockdown across the US, Europe and various major markets. This has disrupted manufacturing as well as pharma supply chain, creating drug shortages. Being the leading manufacturer generics and having relatively lesser impact of COVID 19, Indian is best positioned to cater the visible unmet need of global pharma industry. In addition, at a time of cost conscious situation of global market, low cost drug manufacturing of India will boost its export potential meaningfully in the medium-long term.

Lockdown across major markets

Location Date of lockdown Uplift Date

China 23rd January 2020 8th April 2020

Italy 9th March 2020 13th April 2020, could extend to July 31

Spain 14th March 2020 25th April, Restrictions in place until April 11

India 24th March 2020 14th April 2020

United Kingdom 23rd March 2020 May End

Australia 16th March 2020 Restrictions in place until April 13

Denmark 11th March 2020 13th April 2020

Ireland 24th March 2020 12th April 2020

France 17th March 2020 Restrictions in place until April 15

UK 23rd March 2020 Restrictions in place until April 13, but will be reviewed

Germany 22nd March 2020 Not before 20th April 2020

The Netherlands 16th March 2020 Restriction in place until April 28

Belgium 18th March 2020 Restrictions in place until at least April 19 Source: Industry

Additionally, India’s improving trade relationships with leading markets like –US, UK, Germany, Spain, Israel, France, Brazil, etc amidst the rapid spread of the contagion should generally favor India’s pharmaceutical export potential in the near- medium term. Chinese supplies resumed: The countrywide lockdown in China as a fall out of COVID 19 during February 2020 caused a 42% decline in India’s import of APIs/intermediates from China. Incidentally, India imports about 60% of its API/intermediate needs from China. As per Pharmexcil, China has already started operating at about 60% utilization and resumed the supply of API/intermediate to India. Minimal port operations could still be a issue but the key concern material availability is timely addressed. Air cargo to counter the visible delay in ports: GOI has already addressed operational issues at Indian ports port but the normalcy in port activities has not



come yet due to labour availability. While we expect gradual recovery in port operations over couple of weeks causing a dent in pharma exports, GOI initiatives to encourage exports through Air Cargo would cover up the potential export loss due to port operational challenges. In fact, GOI has issued special permission to conduct cargo operations using passenger category aircrafts during the COVID-19 lockdown period. Air shipments would be bit more expensive than sea route but it would certainly counter the export challenges through sea ports. As per industry sources, Indian Pharma exported about 50-60% of its overall exports through air cargo in CY19. With the visible challenges at port, leading players like – Divis, Aurobindo and Dr Reddy has enhanced their air export share to over 70% levels in Feb 2020.

Air export share of various Indian Pharma players CY19 Ytd CY20

Name of the Company Air export Share % Air export share %

Aurobindo Pharma 40.28 67.75

Cadila Healthcare 54.79 48.83

Cipla 70.02 58.62

Divis 67.96 77.79

Reddy 66.64 79.92

IPCA Lab 43.88 41.05

Lupin 70.65 68.37

Sun Pharma 56.47 51.64 Source: Industry

Impact of Covid-19 to our estimates Assessing the ground impacts of COVID 19 for Indian Pharma, we believe the worst of lockdown is already behind and the pharma industry operations are all set for a recovery and position it strongly in the global markets. However, considering the immediate impact of the abrupt lockdown across the country and a gradual recovery, we assumed that the lockdown of one month spread over Q4FY20 and Q1FY21. Subsequently, even if the lockdown situation prolongs, we expect Indian Pharma operations will not be impacted meaning fully. Hence, we cut earnings of our coverage companies by 5-11%/4-6% for FY21/FY22, respectively.



Revision of earnings Company Name _______Revised Est. (Rs Bn)_______ __________% Revision__________

FY20E FY21E FY22E FY20E FY21E FY22E

Aurobindo Pharma

Revenues 223.0 235.1 256.2 -1.1 -3.7 -2.3

EBITDA 45.5 48.0 53.3 -1.6 -6.5 -3.3

PAT 26.7 28.0 31.3 -2.0 -8.1 -4.1

Cadila Healthcare

Revenues 140.3 148.1 161.6 -2.2 -5.3 -3.5

EBITDA 25.5 27.5 31.4 -3.8 -8.3 -4.9

PAT 13.6 15.0 17.7 -5.0 -11.2 -6.2

Cipla

Revenues 167.4 176.6 196.0 -1.8 -3.3 -2.5

EBITDA 33.8 32.5 38.2 -2.3 -7.4 -4.0

PAT 16.9 16.4 20.4 -3.4 -11.0 -5.8

Divi's Laboratories

Revenues 54.2 63.4 76.7 -1.1 -3.3 -3.0

EBITDA 18.7 22.3 27.9 -1.6 -5.0 -4.1

PAT 13.1 15.3 19.2 -1.7 -5.4 -4.4

Dr Reddy's Labs.

Revenues 171.7 182.4 201.3 -0.4 -0.6 0.2

EBITDA 40.9 40.9 46.9 -0.4 -2.8 -0.7

PAT 20.7 23.2 27.0 -0.6 -3.8 -1.0

Ipca Laboratories

Revenues 44.7 50.3 58.4 1.3 -0.9 0.9

EBITDA 9.0 10.4 12.6 -3.1 -5.4 -4.1

PAT 6.1 7.2 8.6 -3.8 -6.5 -4.9

Lupin

Revenues 163.3 160.7 178.0 -0.6 -2.8 -2.5

EBITDA 26.3 26.2 30.6 -1.2 -6.2 -4.7

PAT 9.0 10.5 13.9 -2.2 -10.4 -7.6

Sun Pharma

Revenues 325.7 353.2 388.9 -0.9 -2.6 -2.0

EBITDA 72.0 79.1 89.5 -1.7 -5.2 -3.7

PAT 42.3 49.4 61.1 -2.5 -7.4 -4.7 Source: Company, PhillipCapital India Estimates

Multiple triggers make a strong investment case for Indian Pharma While Indian pharma consistently underperformed significantly over last couple of years led by - long standing pricing pressure in US generics, regulatory challenges, lack of any major product opportunity and larger dependency on the long underperforming US generic business. However, the relative favourable positioning of Indian Pharma (being essential in nature and GOI’s active support to smoothen its operations during lockdown) vs. many other sectors (reeling under the heat of lockdown and uncertainty of lockdown extension) makes a great investment case for itself. Simultaneously, favourable currency movement (INR depreciation 6%/4% vs US$/Euro QoQ), lowest index weight (2% from a peak of 9% over last two decades) and a gradual expansion of ROE (as delivered by most leading peers over last couple of years) makes a strong investment case for Indian Pharma. While we don’t expect any major upgrade in the US generic outlook in the near future, we believe improved export potential for Indian Pharma and steady growth in the domestic formulations to sustain earnings momentum. However, considering the cost conscious nature (pricing competition) of various export markets amidst the economical impact of COVID19, we believe companies with larger portfolio and integrated manufacturing will be the key beneficiaries. Those include – Divis Laboratories, IPCA Laboratories, Cipla, Cadila and Aurobindo



pharma. On the other hand, we turn positive on Sun Pharma (upgrade to BUY with TP Rs 510)led by its sector leadership (at a time of lower index weight of Pharma sector) and the visible valuation gap post the stock price correction. We upgrade our rating on Lupin to Neutral (with TP Rs 620).

Revised Valuations

CMP (Rs) Target Multiple Revised target Upside Rationale

Aurobindo Pharma 382 12 645 69% **Large scale integrated manufacturing in the price conscious markets, steady US generic growth led by improved product portfolio and Visible financial deleveraging to sustain healthy earning growth

Cadila Healthcare 275 20 345 25% Large product basket with integrated manufacturing operation, potential opportunity from HCQS and restructuring of domestic operation to drive profitable growth

Cipla 449 20 510 14% "One India strategy" in the domestic formulations, selective differentiated drug focus in US, visible progress in specialty products(completed Ph III gAdvair trial) and

judicious spend in R&D augers well

Divi's Laboratories 1901 30 2200 16% Largest ever capex, ene-to-end integration, steady growing pharma outsourcing makes it as a secular investment bet.

Dr Reddy's Labs. 3145 20 3300 5% Cost containment measures, restructuring of operations, enhanced focus on domestic formulations and strong balance sheet provides enough comfort.

Ipca Laboratories 1385 23 1600 16% Integrated manufacturing strength, potential of HCQS and revival of US supplies and visible capacity expansion makes it the best midcap investment in Indian Pharma

Lupin 655 20 620 -5% While the domestic formulations & emerging markets see steady progress, continued underperformance in the US and elevated cost makes it a market performer

Sun Pharma 376 20 510 36% While the Specialty business in the US sees gradual progress, stronger domestic/ROW performance and the valuation gap augur well.

Source: PhillipCapital India Estimates



Key takeaways from Call with Pharmexcil Chairman – Dinesh Dua: Indian pharma industry is approx. US$40bn with domestic and export mix is

50:50. India has achieved 12% export growth till Feb in FY20 to US$21bn. Domestic growth till feb was 11%

Indian pharma industry with 20,000 formulation units and 5,000 API units caters 40% of global pharmaceutical demand.

Although the unexpected lockdown across country (since 23rd

march) has brought in operational challenges, the trade issue for the Indian Industry emerged on 3

rd March 2020 when Government put export restrictions on 26

drugs (for 13 of which China is the only source of input material). The export restriction (without pre-consultation with industry) resulted in inventory pile up in port/godowns worth over US$600 that choked up the trade channels.

However, subsequent to industry representation, Govt allowed the export of selective drugs out of above 26 if those are manufactured in SEZs. This exemption from restrictions include – Paracetamol, Hydroxy Chloroquin sulphate, Chloroquin phosphate, etc. Hence, IPCA, Cadila, Natco can export the anti-malarial drug.

On the top of the export restrictions, the country-wide lockdown brought the logistics to a standstill and resulted labour problem (as Industry dominated by contract labours).

The lockdown has practically down-sized manufacturing operation to level of 30-35% in leading manufacturing clusters like – Baddi and Jammu (that put together manufactures about 50% of total formulations) and Hyderabad/Vizag (those manufacture ~60% of Indian APIs & Over 25% of formulations).

Although GOI subsequently clarified the entire logistic service (including non-essential products) as essential, there are significant challenges for transportation. This could even cause the issue of distribution of medicines in the domestic market, if lockdown extends (which is most likely). Already, the Freight rates got increased by 3-5 times for both air and ship transport.

Most of the ports in India has taken force measures that disrupted port operation significantly. Largest port – JNPT is completely off now. The pile up of inbound containers as well as out bound containers at the port could cause significant delay in port operations even after the lockdown period.

There are no challenges at US/EU ports and demand situation is robust (13% growth in Jan/Feb 2020). Hence, in order to meet the export demand, leading Indian formulation manufactures are making beeline for booking Air cargo.

China supply situation has come back with manufacturing utilisation at ~60% levels. However, releasing of material from port is a big hurdle. Simultaneously, cartel by Chinese suppliers has pushed the input prices by 20.25%.

Given the robust export demand, India can gain bigway post the lockdown situation. However, Mr Dua expect the industry will take minimum 3 months time reach to 60% utilisation levels post the lockdown phase.

MSME which manufactures about 60% of Indian Pharma industry, will face the biggest hit of lockdown.



Financials (Aurobindo)

Income Statement Y/E Mar, Rs mn FY19 FY20 FY21e FY22e

Net sales 195636 2,26,889 2,45,804 2,64,111 Growth, % 19 16 8 7 Total income 195636 2,26,889 2,45,804 2,64,111 Raw material expenses -87,126 -97,661 -1,01,782 -1,10,929 Employee expenses -25,849 -29,655 -31,733 -34,329 Other Operating expenses -43,141 -50,168 -53,594 -57,642 EBITDA (Core) 39,519 49,404 58,695 61,210 Growth, % 4.3 25.0 18.8 4.3 Margin, % 20.2 21.8 23.9 23.2 Depreciation -6,680 -9,299 -10,174 -11,093 EBIT 32,840 40,105 48,520 50,117 Growth, % 1.7 22.1 21.0 3.3 Margin, % 16.8 17.7 19.7 19.0 Interest paid -1,627 -1,700 -1,689 -1,814 Other Non-Operating Income 1,157 1,115 1,175 1,281 Non-recurring Items -881 0 0 0 Pre-tax profit 30,886 39,520 48,006 49,584 Tax provided -7,269 -8,900 -9,316 -10,415 Profit after tax 23,618 30,619 38,690 39,169 Others (Minorities, Associates) 2 2 2 2 Net Profit 23,620 30,622 38,692 39,171 Growth, % 1.7 7.9 4.7 11.8 Net Profit (adjusted) 24,782 26,730 27,977 31,275 Unadj. shares (m) 582 582 582 582 Wtd avg shares (m) 582 582 582 582

Balance Sheet Y/E Mar, Rs mn FY19 FY20 FY21e FY22e

Cash & bank 19,572 31,416 52,237 80,323 Debtors 34,150 41,048 43,232 47,758 Inventory 72,456 81,307 85,673 94,014 Loans & advances 14,696 12,263 12,928 14,090 Other current assets 15,076 15,076 15,076 15,076 Total current assets 1,55,949 1,81,110 2,09,146 2,51,260 Investments 3,602 3,602 3,602 3,602 Gross fixed assets 96,651 1,13,408 1,24,078 1,35,282 Less: Depreciation -20,228 -29,527 -39,702 -50,795 Add: Capital WIP 25,010 22,325 22,325 22,335 Net fixed assets 1,01,433 1,06,206 1,06,702 1,06,823 Total assets 2,64,544 2,94,478 3,23,009 3,65,244 Current liabilities 52,477 58,705 61,127 67,349 Total current liabilities 52,477 58,705 61,127 67,349 Non-current liabilities 73,143 71,525 71,064 75,811 Total liabilities 1,25,620 1,30,230 1,32,190 1,43,160 Paid-up capital 586 586 586 586 Reserves & surplus 1,38,322 1,63,646 1,90,217 2,21,482 Shareholders’ equity 1,38,924 1,64,248 1,90,819 2,22,084 Total equity & liabilities 2,64,544 2,94,478 3,23,009 3,65,244

Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY19 FY20 FY21e FY22e

Pre-tax profit 30,886 39,520 48,006 49,584 Depreciation 6,680 9,299 10,174 11,093 Chg in working capital -16,423 -7,089 -4,793 -7,806 Total tax paid -7,077 -8,900 -9,316 -10,415 Cash flow from operating activities 14,066 32,830 44,071 42,456 Capital expenditure -27,076 -14,072 -10,670 -11,214 Chg in investments -487 0 0 0 Cash flow from investing activities -27,562 -14,072 -10,670 -11,214 Free cash flow -12,979 14,869 22,688 23,348 Debt raised/(repaid) 21,968 -1,619 -461 4,748 Dividend (incl. tax) -1,603 -1,406 -1,406 -10 Cash flow from financing activities 20,485 -2,963 -1,805 4,810 Net chg in cash 6,989 15,795 31,596 36,052

Valuation Ratios

FY19 FY20 FY21e FY22e

Per Share data EPS (INR) 42.6 45.9 48.1 53.7

Growth, % 1.7 7.9 4.7 11.8 Book NAV/share (INR) 238.7 282.2 327.8 381.6 FDEPS (INR) 42.6 45.9 48.1 53.7 CEPS (INR) 55.6 61.9 65.6 72.8 CFPS (INR) 22.2 54.5 73.7 70.7 DPS (INR) 2.5 2.0 2.0 0.0 Return ratios

Return on assets (%) 10.3 11.3 12.9 11.7 Return on equity (%) 17.0 18.6 20.3 17.6 Return on capital employed (%) 16.0 17.5 19.0 17.3 Turnover ratios

Asset turnover (x) 1.2 1.2 1.2 1.3 Sales/Total assets (x) 0.8 0.8 0.8 0.8 Sales/Net FA (x) 2.1 2.2 2.3 2.5 Working capital/Sales (x) 0.4 0.4 0.4 0.4 Receivable days 63.7 66.0 64.2 66.0 Inventory days 135.2 130.8 127.2 129.9 Working capital days 156.5 146.4 142.2 143.2 Liquidity ratios Current ratio (x) 3.0 3.1 3.4 3.7 Quick ratio (x) 1.6 1.7 2.0 2.3 Interest cover (x) 20.2 23.6 28.7 27.6 Dividend cover (x) 16.9 22.8 23.9 3,127.5 Total debt/Equity (%) 50.2 41.4 35.4 32.6 Net debt/Equity (%) 36.1 22.3 8.0 (3.6) Valuation PER (x) 9.0 8.3 7.9 7.1 PEG (x) - y-o-y growth 5.2 1.1 1.7 0.6 Price/Book (x) 1.6 1.4 1.2 1.0 Yield (%) 0.1 0.0 0.0 0.0 EV/Net sales (x) 1.4 1.1 1.0 0.8 EV/EBITDA (x) 6.9 5.2 4.0 3.5 EV/EBIT (x) 8.3 6.5 4.9 4.3



Financials (Cadila Healthcare) Income Statement Y/E Mar, Rs mn FY19 FY20 FY21e FY22e

Net sales 1,27,484 1,37,314 1,50,878 1,61,671 Growth, % 10 8 10 7 Other income 4,172 3,021 3,319 3,233 Total income 1,31,656 1,40,335 1,54,197 1,64,905 Raw material expenses -47,230 -50,240 -53,003 -57,855 Employee expenses -21,241 -24,559 -26,057 -27,473 Other Operating expenses -33,520 -39,995 -41,455 -44,927 EBITDA (Core) 29,665 25,541 33,683 34,650 Growth, % 4.8 (13.9) 31.9 2.9 Margin, % 23.3 18.6 22.3 21.4 Depreciation -5,986 -6,789 -7,293 -7,752 EBIT 23,679 18,752 26,390 26,898 Growth, % 3.3 (20.8) 40.7 1.9 Margin, % 18.6 13.7 17.5 16.6 Interest paid -1,935 -3,392 -3,104 -2,979 Other Non-Operating Income 1,357 1,403 1,481 1,616 Pre-tax profit 23,167 16,763 24,766 25,535 Tax provided -5,303 -3,353 -3,724 -4,670 Profit after tax 17,864 13,410 21,042 20,865 Others (Minorities, Associates) -499 -317 -444 -530 Net Profit 17,365 13,094 20,598 20,335 Growth, % 1.4 (24.1) 10.4 17.6 Net Profit (adjusted) 17,928 13,610 15,020 17,661 Unadj. shares (m) 1,024 1,024 1,024 512 Wtd avg shares (m) 1,024 1,024 1,024 512


Cash & bank 6,493 11,331 13,212 21,260 Debtors 39,508 42,101 44,416 48,482 Inventory 26,880 30,293 31,802 34,373 Loans & advances 3,551 3,789 3,997 4,363 Other current assets 10,887 10,887 10,887 10,887 Total current assets 87,319 98,400 1,04,315 1,19,365 Investments 6,735 6,735 6,735 6,735 Gross fixed assets 1,04,032 1,13,153 1,21,548 1,29,194 Less: Depreciation -35,285 -42,074 -49,367 -57,119 Add: Capital WIP 61,262 60,390 60,390 60,391 Net fixed assets 1,30,009 1,31,469 1,32,571 1,32,466 Total assets 2,34,831 2,47,372 2,54,388 2,75,760 Current liabilities 32,787 35,084 37,013 40,402 Provisions 3,198 3,518 3,870 4,257 Total current liabilities 35,985 38,602 40,883 44,658 Non-current liabilities 82,054 81,952 75,250 72,341 Total liabilities 1,18,039 1,20,553 1,16,132 1,16,999 Paid-up capital 1,024 1,024 1,024 1,024 Reserves & surplus 1,02,839 1,12,866 1,24,303 1,38,278 Shareholders’ equity 1,16,792 1,26,819 1,38,256 1,52,231 Total equity & liabilities 2,34,831 2,47,372 2,54,388 2,75,760


Pre-tax profit 23,167 16,763 24,766 25,535 Depreciation 5,986 6,789 7,293 7,752 Chg in working capital -8,768 -3,627 -1,752 -3,227 Total tax paid -6,366 -3,353 -3,724 -4,670 Other operating activities -2,142 -2,142 -2,142 -2,142 Cash flow from operating activities 11,877 14,431 24,441 23,248 Capital expenditure -55,897 -8,249 -8,395 -7,647 Chg in investments 722 0 0 0 Cash flow from investing activities -55,175 -8,249 -8,395 -7,647 Free cash flow -40,968 8,523 12,167 0 Debt raised/(repaid) 24,927 -102 -6,702 -2,909 Cash flow from financing activities 36,753 3,288 -3,411 220 Net chg in cash -6,545 9,469 12,635 15,821

Valuation Ratios



Growth, % 1.4 (24.1) 10.4 135.2 Book NAV/share (INR) 101.5 111.3 122.4 272.2 FDEPS (INR) 17.5 13.3 14.7 17.3 CEPS (INR) 23.4 19.9 21.8 49.6 CFPS (INR) 12.4 14.8 24.5 46.4 Return ratios


Asset turnover (x) 0.9 0.8 0.8 0.9 Sales/Total assets (x) 0.6 0.6 0.6 0.6 Sales/Net FA (x) 1.2 1.1 1.1 1.2 Working capital/Sales (x) 0.4 0.4 0.4 0.4 Receivable days 113.1 111.9 107.4 109.5 Working capital days 137.5 138.2 130.9 130.3 Liquidity ratios Current ratio (x) 2.7 2.8 2.8 3.0 Quick ratio (x) 1.8 1.9 2.0 2.1 Interest cover (x) 12.2 5.5 8.5 9.0 Total debt/Equity (%) 76.1 69.3 57.6 49.7 Net debt/Equity (%) 69.8 59.3 47.1 34.5 Valuation PER (x) 15.7 20.7 18.7 8.0 PEG (x) - y-o-y growth 11.5 (0.9) 1.8 0.1 Price/Book (x) 2.7 2.5 2.2 1.0 EV/Net sales (x) 2.8 2.5 2.3 1.2 EV/EBITDA (x) 11.9 13.7 10.1 5.4 EV/EBIT (x) 15.0 18.6 12.9 7.0



Financials (Cipla) Income Statement Y/E Mar, Rs mn FY19 FY20 FY21e FY22e

Net sales 1,63,624 1,67,353 1,76,605 1,96,004 Growth, % 8 2 6 11 Total income 1,63,624 1,67,353 1,76,605 1,96,004 Raw material expenses -57,845 -57,067 -63,931 -70,561 Employee expenses -28,565 -29,956 -31,965 -35,085 Other Operating expenses -46,241 -46,524 -48,213 -52,137 EBITDA (Core) 30,973 33,805 32,495 38,221 Growth, % 9.6 9.1 (3.9) 17.6 Margin, % 18.9 20.2 18.4 19.5 Depreciation -13,263 -11,877 -12,657 -13,336 EBIT 17,710 21,928 19,838 24,885 Growth, % 17.8 23.8 (9.5) 25.4 Margin, % 10.8 13.1 11.2 12.7 Interest paid -1,684 -1,905 -1,911 -1,956 Other Non-Operating Income 4,342 3,347 3,532 3,920 Pre-tax profit 20,792 23,370 21,460 26,849 Tax provided -5,695 -6,777 -5,408 -6,766 Profit after tax 15,096 16,593 16,052 20,083 Net Profit 15,277 16,921 16,380 20,412 Growth, % 0.1 16.3 (3.2) 24.6 Net Profit (adjusted) 14,547 16,921 16,380 20,412 Unadj. shares (m) 803 803 803 808 Wtd avg shares (m) 803 803 803 803


Cash & bank 6,188 24,373 41,338 61,618 Debtors 41,507 41,838 44,151 49,001 Inventory 39,648 40,806 44,033 48,211 Loans & advances 6,468 6,694 7,064 7,840 Other current assets 11,945 11,945 11,945 11,945 Total current assets 1,05,756 1,27,214 1,51,380 1,81,147 Investments 25,561 25,561 25,561 25,561 Gross fixed assets 1,08,637 1,12,047 1,17,197 1,22,347 Less: Depreciation -41,245 -53,122 -65,779 -79,115 Add: Capital WIP 35,453 37,143 37,143 37,153 Net fixed assets 1,02,845 96,068 88,560 80,385 Total assets 2,34,163 2,48,843 2,65,502 2,87,093 Current liabilities 29,606 30,217 31,887 35,934 Provisions 8,582 8,582 8,582 8,582 Total current liabilities 3,81,878 3,87,983 4,04,687 4,45,157 Non-current liabilities 42,533 41,710 40,903 40,113 Total liabilities 80,721 80,508 81,372 84,629 Paid-up capital 1,611 1,611 1,611 1,611 Reserves & surplus 1,48,511 1,62,411 1,75,769 1,93,159 Shareholders’ equity 1,53,443 1,67,342 1,80,700 1,98,090 Total equity & liabilities 2,34,163 2,48,843 2,65,502 2,87,093


Pre-tax profit 20,792 23,370 21,460 26,849 Depreciation 13,263 11,877 12,657 13,336 Chg in working capital -6,842 -1,105 -4,240 -5,757 Total tax paid -5,626 -6,777 -5,408 -6,766 Cash flow from operating activities 21,587 27,365 24,469 27,662 Capital expenditure -6,794 -5,099 -5,150 -5,160 Chg in investments -12,973 0 0 0 Cash flow from investing activities -19,767 -5,099 -5,150 -5,160 Free cash flow 16,852 22,266 19,319 22,502 Debt raised/(repaid) -103 -823 -807 -791 Cash flow from financing activities -18,215 -19,301 -25,669 -21,621 Net chg in cash -16,395 2,965 -6,350 881

Valuation Ratios



Growth, % 0.1 16.3 (3.2) 24.6 Book NAV/share (INR) 187.0 204.3 220.9 242.6 FDEPS (INR) 18.1 21.1 20.4 25.4 CEPS (INR) 34.6 35.9 36.2 42.0 CFPS (INR) 21.5 29.9 26.1 29.6 Return ratios


Asset turnover (x) 1.0 1.0 1.1 1.2 Sales/Total assets (x) 0.7 0.7 0.7 0.7 Sales/Net FA (x) 1.5 1.7 1.9 2.3 Working capital/Sales (x) 0.4 0.4 0.4 0.4 Receivable days 92.6 91.3 91.3 91.3 Inventory days 88.4 89.0 91.0 89.8 Working capital days 156.1 154.4 153.9 150.1 Liquidity ratios Current ratio (x) 3.6 4.1 4.6 4.9 Quick ratio (x) 2.2 2.8 3.2 3.6 Interest cover (x) 10.5 11.5 10.4 12.7 Total debt/Equity (%) 28.8 25.8 23.4 20.9 Net debt/Equity (%) 24.6 10.9 0.1 (10.5) Valuation PER (x) 24.8 21.3 22.0 17.7 PEG (x) - y-o-y growth 265.4 1.3 (6.9) 0.7 Price/Book (x) 2.4 2.2 2.0 1.9 EV/Net sales (x) 2.4 2.2 2.0 1.7 EV/EBITDA (x) 12.8 10.9 10.2 8.5 EV/EBIT (x) 22.4 16.6 16.0 12.8



Financials (Divis) Income Statement Y/E Mar, Rs mn FY19 FY20 FY21e FY22e

Net sales 49,463 54,186 63,400 76,729 Growth, % 26 10 17 21 Total income 49,463 54,186 63,400 76,729 Raw material expenses -18,252 -21,458 -24,853 -29,771 Employee expenses -5,423 -6,340 -7,545 -9,131 Other Operating expenses -7,069 -7,694 -8,686 -9,975 EBITDA (Core) 18,718 18,694 22,317 27,852 Growth, % 48.4 (0.1) 19.4 24.8 Margin, % 37.8 34.5 35.2 36.3 Depreciation -1,689 -2,246 -3,180 -3,549 EBIT 17,029 16,448 19,137 24,304 Growth, % 52.2 (3.4) 16.3 27.0 Margin, % 34.4 30.4 30.2 31.7 Interest paid -35 -39 -45 -55 Other Non-Operating Income 1,248 1,368 1,454 1,562 Pre-tax profit 18,242 17,778 20,546 25,811 Tax provided -5,023 -4,711 -5,239 -6,582 Profit after tax 13,219 13,067 15,307 19,229 Net Profit 13,219 13,067 15,307 19,229 Growth, % 55.7 (1.2) 17.1 25.6 Net Profit (adjusted) 13,219 13,067 15,307 19,229 Unadj. shares (m) 265 265 265 265 Wtd avg shares (m) 265 265 265 265


Cash & bank 1,153 613 4,986 13,476 Debtors 11,634 12,794 14,969 18,116 Inventory 17,723 19,225 22,253 26,475 Loans & advances 355 379 444 537 Other current assets 4,049 4,130 4,212 4,297 Total current assets 34,914 37,141 46,865 62,901 Investments 19,456 18,956 18,956 18,956 Gross fixed assets 32,780 45,839 52,131 58,173 Less: Depreciation -11,903 -14,149 -17,329 -20,877 Add: Capital WIP 4,919 4,000 5,000 5,000 Net fixed assets 25,797 35,690 39,802 42,296 Total assets 80,383 92,003 1,05,839 1,24,369 Current liabilities 7,359 9,031 10,567 12,788 Provisions 143 143 143 143 Total current liabilities 7,501 9,174 10,709 12,931 Non-current liabilities 3,310 3,392 3,585 3,865 Total liabilities 10,811 12,565 14,295 16,796 Paid-up capital 531 531 531 531 Reserves & surplus 69,041 78,907 91,013 1,07,042 Shareholders’ equity 69,571 79,438 91,544 1,07,573 Total equity & liabilities 80,382 92,003 1,05,839 1,24,369


Pre-tax profit 18,242 17,778 20,546 25,811 Depreciation 1,689 2,246 3,180 3,549 Chg in working capital -5,641 -1,094 -3,815 -5,324 Total tax paid -4,902 -4,711 -5,239 -6,582 Other operating activities 0 0 0 0 Cash flow from operating activities 9,388 14,218 14,671 17,453 Capital expenditure -6,326 -12,139 -7,292 -6,043 Chg in investments -563 500 0 0 Cash flow from investing activities -6,889 -11,639 -7,292 -6,043 Free cash flow 3,061 2,079 7,379 11,411 Debt raised/(repaid) 425 82 193 280 Cash flow from financing activities -2,750 -5,013 -4,988 16,308 Net chg in cash -252 -2,433 2,391 27,719

Valuation Ratios



Growth, % 55.7 (1.2) 17.1 25.6 Book NAV/share (INR) 262.1 299.2 344.8 405.2 FDEPS (INR) 49.8 49.2 57.7 72.4 CEPS (INR) 56.2 57.7 69.6 85.8 CFPS (INR) 30.7 48.4 49.8 59.9 Return ratios


Asset turnover (x) 1.1 0.9 0.9 1.0 Sales/Total assets (x) 0.7 0.6 0.6 0.7 Sales/Net FA (x) 2.1 1.8 1.7 1.9 Working capital/Sales (x) 0.5 0.5 0.5 0.5 Receivable days 85.8 86.2 86.2 86.2 Working capital days 194.8 185.2 180.3 174.3 Liquidity ratios Current ratio (x) 4.7 4.1 4.4 4.9 Quick ratio (x) 2.3 2.0 2.3 2.8 Interest cover (x) 486.6 425.1 422.7 443.6 Total debt/Equity (%) 1.5 1.4 1.5 1.5 Net debt/Equity (%) (0.1) 0.7 (4.0) (11.0) Valuation PER (x) 38.2 38.6 33.0 26.2 PEG (x) - y-o-y growth 0.7 (33.6) 1.9 1.0 Price/Book (x) 7.3 6.4 5.5 4.7 EV/Net sales (x) 10.2 9.3 8.0 6.6 EV/EBITDA (x) 27.0 27.0 22.4 17.7 EV/EBIT (x) 27.6 28.3 24.3 19.0



Financials (DR. Reddy) Income Statement Y/E Mar, Rs mn FY19 FY20 FY21e FY22e

Net sales 1,53,851 1,71,694 1,82,445 2,01,261 Growth, % 8 12 6 10 Total income 1,53,851 1,71,694 1,82,445 2,01,261 Raw material expenses -70,421 -78,979 -82,100 -90,567 Other Operating expenses -50,142 -51,852 -59,477 -63,800 EBITDA (Core) 33,288 40,863 40,868 46,894 Growth, % 38.7 22.8 0.0 14.7 Margin, % 21.6 23.8 22.4 23.3 Depreciation -12,400 -16,507 -13,465 -14,492 EBIT 20,888 24,356 27,403 32,402 Growth, % 70.7 16.6 12.5 18.2 Margin, % 13.6 14.2 15.0 16.1 Interest paid 1,117 749 989 793 Non-recurring Items 0 3,500 0 0 Pre-tax profit 22,443 29,105 28,992 33,795 Tax provided -3,648 -3,073 -5,798 -6,759 Profit after tax 18,795 26,033 23,193 27,036 Net Profit 18,795 26,033 23,193 27,036 Growth, % 91.7 38.5 (10.9) 16.6 Net Profit (adjusted) 18,795 20,740 23,193 27,036 Unadj. shares (m) 166 166 166 138 Wtd avg shares (m) 166 166 166 138


Cash & bank 2,228 21,987 37,081 51,860 Debtors 39,982 45,308 48,145 53,111 Inventory 33,579 35,770 38,009 41,929 Other current assets 16,296 17,496 18,356 21,873 Total current assets 92,085 1,20,560 1,41,591 1,68,773 Investments 23,342 26,342 29,342 32,342 Gross fixed assets 1,94,203 2,06,069 2,18,559 2,31,621 Less: Depreciation -96,764 -1,13,271 -1,26,736 -1,41,228 Add: Capital WIP 4,918 5,000 5,000 5,000 Net fixed assets 1,02,357 97,798 96,823 95,393 Non-current assets 3,475 3,475 3,475 3,475 Total assets 2,25,428 2,51,927 2,74,608 3,03,022 Current liabilities 14,553 16,692 17,738 19,567 Provisions 4,467 5,226 6,375 7,878 Total current liabilities 19,020 21,918 24,113 27,445 Non-current liabilities 66,210 67,636 67,543 68,139 Total liabilities 85,230 89,555 91,655 95,584 Paid-up capital 830 830 830 830 Reserves & surplus 1,39,367 1,61,542 1,82,122 2,06,607 Shareholders’ equity 1,40,197 1,62,372 1,82,952 2,07,437 Total equity & liabilities 2,25,428 2,51,927 2,74,608 3,03,023


Pre-tax profit 22,443 29,105 28,992 33,795 Depreciation 12,400 16,507 13,465 14,492 Chg in working capital -1,560 -4,017 -2,946 -8,174 Total tax paid -5,657 -1,026 -4,553 -5,407 Cash flow from operating activities 27,626 40,569 34,957 34,706 Capital expenditure -8,278 -11,948 -12,490 -13,062 Chg in investments -2,463 -3,000 -3,000 -3,000 Cash flow from investing activities -10,303 -14,448 -14,890 -15,462 Free cash flow 27,806 28,747 0 0 Equity raised/(repaid) -1,044 299 1,371 1,442 Debt raised/(repaid) -12,237 -2,004 -1,760 -1,315 Cash flow from financing activities -17,787 -6,090 -4,824 -4,307 Net chg in cash -464 20,032 15,244 14,937

Valuation Ratios



Growth, % 91.7 38.5 (10.9) 16.6 Book NAV/share (INR) 822.8 952.9 1,073.7 1,217.4 FDEPS (INR) 113.2 124.9 139.7 162.9 CEPS (INR) 183.1 208.6 215.1 243.7 CFPS (INR) 161.6 235.1 201.6 200.2 Return ratios


Asset turnover (x) 1.0 1.1 1.2 1.3 Sales/Total assets (x) 0.7 0.7 0.7 0.7 Sales/Net FA (x) 1.5 1.7 1.9 2.1 Working capital/Sales (x) 0.5 0.5 0.5 0.5 Receivable days 94.9 96.3 96.3 96.3 Working capital days 178.2 172.7 170.6 172.0 Liquidity ratios Current ratio (x) 6.2 7.0 7.4 7.6 Quick ratio (x) 4.0 4.9 5.4 5.7 Total debt/Equity (%) 27.4 22.4 18.9 16.1 Net debt/Equity (%) 25.8 8.9 (1.3) (8.9) Valuation PER (x) 27.8 20.1 22.5 19.3 PEG (x) - y-o-y growth 0.3 0.5 (2.1) 1.2 Price/Book (x) 3.8 3.3 2.9 2.6 EV/Net sales (x) 3.6 3.1 2.8 2.1 EV/EBITDA (x) 16.8 13.1 12.7 8.9 EV/EBIT (x) 26.7 22.0 19.0 12.9



Financials (IPCA LAb) Income Statement Y/E Mar, Rs mn FY19 FY20 FY21e FY22e

Net sales 37,197 43,416 49,401 56,816 Growth, % 15 17 14 15 Other income 535 1,302 889 1,591 Total income 37,732 44,719 50,291 58,407 Raw material expenses -12,397 -15,875 -17,350 -19,858 Employee expenses -7,874 -8,854 -10,159 -11,681 Other Operating expenses -10,355 -11,001 -12,422 -14,310 EBITDA (Core) 7,105 8,988 10,360 12,558 Growth, % 56.4 26.5 15.3 21.2 Margin, % 18.8 20.1 20.6 21.5 Depreciation -1,824 -1,920 -2,089 -2,612 EBIT 5,281 7,069 8,271 9,946 Growth, % 91.0 33.9 17.0 20.3 Margin, % 14.2 16.3 16.7 17.5 Interest paid -189 -162 -146 -177 Other Non-Operating Income 577 581 754 876 Pre-tax profit 5,465 7,489 8,878 10,645 Tax provided -1,042 -1,423 -1,687 -2,023 Profit after tax 4,422 6,066 7,192 8,623 Net Profit 4,422 6,066 7,192 8,623 Growth, % 92.9 31.6 18.6 19.9 Net Profit (adjusted) 4,609 6,066 7,192 8,623 Unadj. shares (m) 126 126 126 126 Wtd avg shares (m) 126 126 126 126


Cash & bank 2,823 5,708 9,105 14,753 Debtors 6,815 7,732 8,798 10,274 Inventory 10,725 11,895 13,535 15,722 Loans & advances 3,872 4,342 4,940 5,682 Total current assets 24,235 29,676 36,378 46,430 Investments 1,204 1,204 1,204 1,204 Gross fixed assets 26,329 27,509 30,320 33,117 Less: Depreciation -6,925 -8,844 -10,934 -13,545 Add: Capital WIP 663 2,000 2,200 2,200 Net fixed assets 20,067 20,665 21,586 21,772 Total assets 45,507 51,545 59,168 69,406 Current liabilities 6,862 7,386 8,264 10,222 Provisions 957 957 957 967 Total current liabilities 7,819 8,343 9,221 11,189 Non-current liabilities 6,309 5,910 5,615 5,415 Total liabilities 14,127 14,253 14,836 16,604 Paid-up capital 253 253 253 253 Reserves & surplus 30,971 36,885 43,924 52,394 Shareholders’ equity 31,379 37,293 44,332 52,802 Total equity & liabilities 45,507 51,545 59,168 69,406


Pre-tax profit 5,465 7,489 8,878 10,645 Depreciation 1,824 1,920 2,089 2,612 Chg in working capital -1,361 -2,032 -2,426 -2,437 Total tax paid -1,092 -1,423 -1,687 -2,023 Cash flow from operating activities 0 0 0 0 Capital expenditure 4,836 5,954 6,855 8,797 Chg in investments -1,632 -2,517 -3,011 -2,797 Cash flow from investing activities -336 0 0 0 Free cash flow -1,985 -2,517 -3,011 -2,797 Equity raised/(repaid) 0 0 0 0 Debt raised/(repaid) -1,626 -399 -295 -200 Cash flow from financing activities -1,963 -344 -181 1,345 Net chg in cash 887 3,093 3,663 7,345

Valuation Ratios



Growth, % 92.9 31.6 18.6 19.9 Book NAV/share (INR) 247.1 293.9 349.6 416.7 FDEPS (INR) 36.5 48.0 56.9 68.2 CEPS (INR) 50.9 63.2 73.5 88.9 CFPS (INR) 33.9 42.5 48.3 62.7 Return ratios


Asset turnover (x) 1.1 1.2 1.3 1.4 Sales/Total assets (x) 0.9 0.9 0.9 0.9 Sales/Net FA (x) 1.8 2.1 2.3 2.6 Working capital/Sales (x) 0.4 0.4 0.4 0.4 Receivable days 66.9 65.0 65.0 66.0 Working capital days 142.8 139.4 140.4 137.8 Liquidity ratios Current ratio (x) 3.5 4.0 4.4 4.5 Quick ratio (x) 2.0 2.4 2.8 3.0 Interest cover (x) 28.0 43.8 56.5 56.3 Total debt/Equity (%) 14.9 11.4 9.0 7.1 Net debt/Equity (%) 5.8 (3.9) (11.7) (20.9) Valuation PER (x) 38.0 28.8 24.3 20.3 PEG (x) - y-o-y growth 0.4 0.9 1.3 1.0 Price/Book (x) 5.6 4.7 4.0 3.3 EV/Net sales (x) 4.8 4.0 3.4 2.9 EV/EBITDA (x) 24.9 19.3 16.4 13.1 EV/EBIT (x) 33.5 24.5 20.5 16.5



Financials (LUPIN) Income Statement Y/E Mar, Rs mn FY19 FY20 FY21e FY22e

Net sales 1,63,694 1,63,684 1,63,750 1,79,932 Growth, % 5 0 0 10 Other income 3,488 2,292 3,275 3,599 Total income 1,67,182 1,65,976 1,67,025 1,83,531 Raw material expenses -58,458 -57,818 -57,526 -63,733 Employee expenses -31,513 -31,359 -31,656 -34,537 Other Operating expenses -48,389 -47,855 -45,314 -49,135 EBITDA (Core) 28,822 28,944 32,529 36,126 Growth, % (8.4) 0.4 12.4 11.1 Margin, % 17.6 17.7 19.9 20.1 Depreciation -10,850 -11,660 -11,587 -12,585 EBIT 17,972 17,285 20,942 23,542 Growth, % (12.8) (3.8) 21.2 12.4 Margin, % 11.0 10.6 12.8 13.1 Interest paid -3,078 -3,274 -2,569 -2,470 Other Non-Operating Income 1,972 3,757 3,696 3,917 Pre-tax profit 15,097 17,729 22,031 24,950 Tax provided -9,017 -6,047 -5,192 -5,455 Profit after tax 6,080 11,682 16,840 19,495 Others (Minorities, Associates) -89 -91 -105 -140 Net Profit 5,991 11,591 16,734 19,355 Growth, % (43.6) 15.7 16.1 33.0 Net Profit (adjusted) 7,797 9,018 10,473 13,924 Unadj. shares (m) 453 453 453 453 Wtd avg shares (m) 453 453 453 453


Cash & bank 9,872 2,327 19,133 21,094 Debtors 51,498 52,288 52,309 57,478 Inventory 38,368 38,648 38,663 42,484 Loans & advances 1,063 982 917 1,080 Other current assets 19,413 19,315 18,667 19,793 Total current assets 1,20,214 1,13,560 1,29,690 1,41,929 Investments 22,703 22,703 22,703 22,703 Gross fixed assets 1,63,782 1,72,458 1,71,567 1,85,632 Less: Depreciation -46,452 -58,111 -69,698 -82,283 Add: Capital WIP 10,186 8,000 8,000 8,000 Net fixed assets 1,27,516 1,22,346 1,09,869 1,11,349 Total assets 2,79,494 2,67,670 2,71,323 2,85,042 Current liabilities 42,334 43,194 43,212 47,482 Provisions 10,982 8,588 8,625 9,372 Total current liabilities 53,316 51,782 51,837 56,855 Non-current liabilities 88,286 71,704 67,556 65,081 Total liabilities 1,41,603 1,23,487 1,19,392 1,21,936 Paid-up capital 905 905 905 905 Reserves & surplus 1,36,517 1,42,810 1,50,557 1,61,733 Shareholders’ equity 1,37,891 1,44,183 1,51,930 1,63,106 Total equity & liabilities 2,79,494 2,67,670 2,71,323 2,85,042


Pre-tax profit 15,097 17,729 22,031 24,950 Depreciation 10,850 11,660 11,587 12,585 Chg in working capital -727 -2,425 730 -5,260 Total tax paid -9,831 -6,047 -5,192 -5,455 Cash flow from operating activities 15,389 20,917 29,157 26,820 Capital expenditure -8,552 -6,490 890 -14,065 Chg in investments -20,299 0 0 0 Cash flow from investing activities -28,889 -6,527 853 -14,103 Free cash flow -3,154 0 0 0 Equity raised/(repaid) -1,688 0 0 0 Debt raised/(repaid) 13,534 -16,582 -4,149 -2,475 Dividend (incl. tax) -2,726 -2,726 -2,726 -2,748 Cash flow from financing activities 9,204 -19,293 -6,874 -5,257 Net chg in cash -4,296 -4,903 23,136 7,460

Valuation Ratios



Growth, % (43.7) 15.7 16.1 33.0 Book NAV/share (INR) 303.7 317.6 334.7 359.4 FDEPS (INR) 17.2 19.9 23.1 30.8 CEPS (INR) 41.2 45.7 48.7 58.6 CFPS (INR) 29.7 38.0 56.3 50.7 DPS (INR) 5.0 5.0 5.0 5.0 Return ratios

Return on assets (%) 2.9 5.0 6.8 7.5 Return on equity (%) 4.4 8.1 11.0 11.9 Return on capital employed (%) 8.8 8.5 8.3 - Turnover ratios

Asset turnover (x) 0.8 0.8 0.9 1.0 Sales/Total assets (x) 0.6 0.6 0.6 0.6 Sales/Net FA (x) 1.3 1.3 1.4 1.6 Working capital/Sales (x) 0.4 0.4 0.4 0.4 Receivable days 114.8 116.6 116.6 116.6 Inventory days 85.6 86.2 86.2 86.2 Working capital days 151.6 151.7 150.1 148.8 Liquidity ratios Current ratio (x) 2.8 2.6 3.0 3.0 Quick ratio (x) 1.9 1.7 2.1 2.1 Interest cover (x) 5.8 5.3 8.2 9.5 Dividend cover (x) 3.4 4.0 4.6 6.2 Total debt/Equity (%) 61.8 47.6 42.4 38.0 Net debt/Equity (%) 54.6 46.0 29.8 25.0 Valuation PER (x) 38.0 32.9 28.3 21.3 PEG (x) - y-o-y growth (0.9) 2.1 1.8 0.6 Price/Book (x) 2.2 2.1 2.0 1.8 Yield (%) 0.8 0.8 0.8 0.8 EV/Net sales (x) 2.3 2.2 2.1 1.9 EV/EBITDA (x) 12.9 12.5 10.5 9.3 EV/EBIT (x) 20.7 21.0 16.3 14.3



Financials (Sun Pharma) Income Statement Y/E Mar, Rs mn FY19 FY20 FY21e FY22e

Net sales 2,86,863 3,24,628 3,61,932 3,92,319 Growth, % 10 13 11 8 Total income 2,90,659 3,28,524 3,66,275 4,00,950 Raw material expenses -78,690 -87,601 -94,662 -1,03,064 Employee expenses -59,671 -65,717 -70,644 -77,784 Other Operating expenses -90,155 -1,00,301 -1,08,791 -1,18,621 EBITDA (Core) 62,144 74,904 92,178 1,01,480 Growth, % 11.0 20.5 23.1 10.1 Margin, % 21.7 23.1 25.5 25.9 Depreciation -17,533 -19,540 -20,322 -21,655 EBIT 44,611 55,364 71,856 79,826 Growth, % 8.8 24.1 29.8 11.1 Margin, % 15.6 17.1 19.9 20.3 Interest paid -5,253 -4,268 -4,779 -4,934 Other Non-Operating Income 10,255 8,141 12,716 11,668 Pre-tax profit 50,246 59,237 79,793 86,559 Tax provided -6,009 -8,455 -11,345 -13,416 Profit after tax 44,237 50,782 68,448 73,144 Others (Minorities, Associates) -5,424 -5,636 -5,991 0 Net Profit 38,813 45,146 62,457 73,144 Growth, % 20.4 10.8 16.8 23.7 Net Profit (adjusted) 38,166 42,296 49,420 61,125 Unadj. shares (m) 2,399 2,399 2,399 1,200 Wtd avg shares (m) 2,399 2,399 2,399 2,399


Cash & bank 72,756 1,07,729 1,42,785 1,97,436 Debtors 88,842 97,833 1,09,075 1,18,233 Inventory 78,860 85,937 93,210 1,02,632 Loans & advances 8,537 9,739 10,858 11,770 Other current assets 28,232 31,055 34,161 37,577 Total current assets 2,77,226 3,32,293 3,90,089 4,67,648 Investments 79,025 79,025 79,025 79,025 Gross fixed assets 3,16,870 3,38,701 3,54,076 3,68,911 Less: Depreciation -98,505 -1,18,045 -1,38,367 -1,60,022 Add: Capital WIP 14,112 7,000 6,000 6,010 Net fixed assets 2,32,477 2,27,656 2,21,709 2,14,900 Total assets 6,46,938 6,97,184 7,49,033 8,19,782 Current liabilities 58,629 67,845 73,587 81,025 Provisions 33,627 36,552 37,094 38,657 Total current liabilities 92,256 1,04,397 1,10,681 1,19,683 Non-current liabilities 1,07,456 1,09,024 1,10,926 1,14,446 Total liabilities 1,99,712 2,13,421 2,21,607 2,34,129 Paid-up capital 2,399 2,399 2,399 2,399 Reserves & surplus 4,11,691 4,48,229 4,91,891 5,50,119 Shareholders’ equity 4,47,226 4,83,764 5,27,426 5,85,653 Total equity & liabilities 6,46,938 6,97,184 7,49,033 8,19,782

Source: Company, PhillipCapital India Research


Pre-tax profit 50,246 59,237 79,793 86,559 Depreciation 17,533 19,540 20,322 21,655 Chg in working capital -22,730 -7,953 -16,456 -13,906 Total tax paid -11,590 -8,455 -11,345 -13,416 Cash flow from operating activities 33,458 62,369 72,314 80,893 Capital expenditure -36,831 -14,719 -14,374 -14,846 Chg in investments -7,597 0 0 0 Cash flow from investing activities -44,428 -14,719 -14,374 -14,846 Free cash flow -15,386 0 0 0 Debt raised/(repaid) 1,291 1,568 1,902 3,520 Dividend (incl. tax) -5,777 -5,758 -5,758 -2,918 Cash flow from financing activities 1,827 -9,807 -9,827 623 Net chg in cash -9,142 37,843 48,113 66,670

Valuation Ratios



Growth, % 20.4 10.8 16.8 23.7 Book NAV/share (INR) 172.6 187.8 206.0 230.3 FDEPS (INR) 15.9 17.6 20.6 25.5 CEPS (INR) 23.2 25.8 29.1 34.5 CFPS (INR) 9.7 22.6 24.8 28.9 DPS (INR) 2.0 2.0 2.0 1.0 Return ratios


Asset turnover (x) 0.8 0.9 0.9 1.0 Sales/Total assets (x) 0.4 0.5 0.5 0.5 Sales/Net FA (x) 1.3 1.4 1.6 1.8 Working capital/Sales (x) 0.5 0.5 0.5 0.5 Receivable days 113.0 110.0 110.0 110.0 Inventory days 100.3 96.6 94.0 95.5 Payable days 93.6 97.6 98.0 98.8 Working capital days 185.6 176.2 175.2 176.0 Liquidity ratios Current ratio (x) 4.7 4.9 5.3 5.8 Quick ratio (x) 3.4 3.6 4.0 4.5 Interest cover (x) 8.5 13.0 15.0 16.2 Dividend cover (x) 8.0 8.8 10.3 Total debt/Equity (%) 25.4 23.7 22.0 20.3 Net debt/Equity (%) 7.8 (0.2) (6.9) (15.4) Valuation PER (x) 23.6 21.3 18.2 14.8 PEG (x) - y-o-y growth 1.2 2.0 1.1 0.6 Price/Book (x) 2.2 2.0 1.8 1.6 Yield (%) 0.5 0.5 0.5 EV/Net sales (x) 3.3 2.8 2.4 0.9 EV/EBITDA (x) 15.0 12.0 9.4 3.6 EV/EBIT (x) 20.9 16.3 12.1 4.6



Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. We have different threshold for large market capitalisation stock and Mid/small market capitalisation stock. The categorisation of stock based on market capitalisation is as per the SEBI requirement.

Large cap stocks Rating Criteria Definition

BUY >= +10% Target price is equal to or more than 10% of current market price

NEUTRAL -10% > to < +10% Target price is less than +10% but more than -10%

SELL <= -10% Target price is less than or equal to -10%.

Mid cap and Small cap stocks Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%

SELL <= -15% Target price is less than or equal to -15%.

Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.

Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co-managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report:

Sr. no. Particulars Yes/No



1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No

4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report

No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.

Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.

Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. Investment in securities market are subject to market risks, you are requested to read all the related documents carefully before investing. You should carefully consider whether trading/investment is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by you. You are further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek independent third party trading/investment advice outside PhillipCapital/group/associates/affiliates/directors/employees before and during your trading/investment. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PhillipCapital and any of its employees, directors, associates, and/or employees, directors, associates of PhillipCapital’s group entities or affiliates is not inducing you for trading/investing in the financial market(s). Trading/Investment decision is your sole responsibility. You must also read the Risk Disclosure Document and Do’s and Don’ts before investing.

Kindly note that past performance is not necessarily a guide to future performance.

For Detailed Disclaimer: Please visit our website www.phillipcapital.in IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report is a product of PhillipCapital (India) Pvt. Ltd. which is the employer of the research analyst(s) who has prepared the research report. PhillipCapital (India) Pvt Ltd. is authorized to engage in securities activities in India. PHILLIPCAP is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor.

Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 40 Wall Street 59th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through PHILLIPCAP. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor.

The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account. Ownership and Material Conflicts of Interest Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any material conflict of interest as of the date of this publication Compensation and Investment Banking Activities

http://www.phillipcapital.in/



Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of securities for the subject company in the past 12 months, nor received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or intends to seek compensation for investment banking services from the subject company in the next 3 months. Additional Disclosures This research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to a single recipient. This research report is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to in this research report. Neither PHILLIPCAP nor any of its directors, officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from the use of this research report.

PHILLIPCAP may rely on information barriers, such as “Chinese Walls” to control the flow of information within the areas, units, divisions, groups, or affiliates of PHILLIPCAP.

Investing in any non-U.S. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect within the United States.

The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related financial instruments.

Past performance is not necessarily a guide to future performance and no representation or warranty, express or implied, is made by PHILLIPCAP with respect to future performance. Income from investments may fluctuate. The price or value of the investments to which this research report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation or opinion contained in this research report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein.

No part of the content of this research report may be copied, forwarded or duplicated in any form or by any means without the prior written consent of PHILLIPCAP and PHILLIPCAP accepts no liability whatsoever for the actions of third parties in this respect.

PhillipCapital (India) Pvt. Ltd. Registered office: 18th floor, Urmi Estate, Ganpatrao Kadam Marg, Lower Parel (West), Mumbai – 400013, India.

INSTITUTIONAL EQUITY RESEARCH Pharmaceuticalsbackoffice.phillipcapital.in/Backoffice/Research... ·...

Documents

Transcript of INSTITUTIONAL EQUITY RESEARCH Pharmaceuticalsbackoffice.phillipcapital.in/Backoffice/Research... ·...