equity report on healthcare india mo

8/11/2019 Equity Report on Healthcare India MO

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9 July 2014 1

Alok Dalal([email protected]); +91 22 3982 5584

Hardick Bora([email protected]); +91 22 3982 5423

Aggregate core EBITDA to grow 13%, adj. PAT to grow 11%

INR depreciation to aid operations; higher taxes to impact PAT growth

Expect aggregate core EBITDA to grow 13% YoY

For 1QFY15, we expect core sales growth of 16% YoY and core EBITDA growth of

13% YoY for our Healthcare Universe (excluding one-offs). Adjusted PAT is likely to

grow 11% YoY, mainly due to higher taxes. High base effect would impact

operational performance for most companies.

Higher contribution from recently launched products in the US and better sales mix

would drive growth for Dr Reddys, Lupin, Cadila Healthcare, and Alembic Pharma.

Increasing contribution from branded business is likely to drive operational

performance for IPCA Labs. Biocon is likely to report high growth due to lower R&Dexpenses. Both MNCs under our coverage, Sanofi India and GSK Pharma, would

report healthy operational performance due to increase in prices of products exiting

price control and low base.

Favorable currency movement should favorably impact operating performance for

the rest of our Healthcare Universe. A sequentially flat INR against the USD may lead

to insignificant MTM impact from monetary forex liabilities. Yet, due to higher taxes,

adjusted PAT would grow slower than core EBITDA.

Expected quarterly performance summary (INR m)

Sector CMP Sales EBDITA Net Profit(INR)

4.7.14RECO Jun-14

Var %

YoY

Var %

QoQJun-14

Var %

YoY

Var %

QoQJun-14

Var %

YoY

Var %

QoQ

Alembic Pharma 310 Buy 5,051 18.3 8.9 909 27.2 -0.4 612 31.1 -0.2

Biocon 543 Sell 8,052 15.9 11.4 1,771 21.2 4.2 1,149 22.9 1.7

Cadila Health 1,105 Buy 20,131 23.0 2.3 3,621 26.7 1.0 2,419 23.7 -4.3

Cipla 448 Neutral 29,744 20.7 18.1 5,795 -14.2 41.6 3,559 -25.1 36.5

Divis Labs 1,527 Buy 5,967 15.7 -19.1 2,130 8.7 -17.8 1,581 -9.5 -18.1

Dr Reddy s Labs 2,679 Buy 34,343 23.1 -1.3 8,071 61.2 6.4 5,257 60.6 9.2

Glenmark Pharma 602 Buy 14,185 14.6 -13.5 2,494 0.8 -22.7 1,082 -15.9 -37.9

GSK Pharma 2,548 Neutral 6,878 8.0 14.7 1,277 12.4 30.8 1,167 22.7 20.8

IPCA Labs. 881 Buy 9,583 19.0 27.8 2,304 34.7 26.4 1,526 112.6 11.3

Lupin 1,088 Buy 28,309 22.7 0.5 6,567 44.4 2.1 3,943 69.1 -4.2

Ranbaxy Labs 534 Buy 27,484 2.4 11.4 1,714 -34.7 13.7 361 -73.0 164.9Sanofi India 3,270 Buy 4,929 13.3 10.8 1,016 16.2 25.4 655 27.9 26.6

Sun Pharma 709 Buy 37,797 14.8 5.9 14,639 6.2 4.1 12,213 8.4 -6.3

Torrent Pharma 696 Neutral 10,819 11.3 11.3 2,057 -1.1 18.8 1,247 -16.3 34.9

Sector Aggregate 243,274 16.4 5.1 54,366 13.3 6.5 36,769 11.4 0.9

Note: Above numbers exclude one-offs to aid comparison of core operations.

Expected quarterly performance summary (Incl. upside from one-off opportunities, INR m))

Sector CMP Sales EBDITA Net Profit

(INR)

4.7.14RECO Jun-14

Var %

YoY

Var %

QoQJun-14

Var %

YoY

Var %

QoQJun-14

Var %

YoY

Var %

QoQ

Glenmark Pharma 602 Buy 14,484 17.0 -13.9 2,792 12.9 -22.4 1,351 5.0 213.6

Lupin 1,088 Buy 29,775 23.0 -2.4 7,593 42.2 -6.0 4,823 20.3 -12.8

Sun Pharma 709 Buy 43,328 24.4 7.2 19,064 24.6 6.8 15,310 -220.0 -3.5Torrent Pharma 696 Neutral 12,815 31.8 4.6 3,454 66.1 -1.3 2,444 64.0 0.2

Company name

Alembic Pharmaceuticals

Biocon

Cadila Health

Cipla

Divi's Laboratories

Dr Reddy s Labs

Glenmark Pharma

GSK Pharma

Ipca Laboratories

Lupin

Ranbaxy Labs

Sanofi India

Sun Pharma

Torrent Pharmaceuticals

June 2014 Results Preview | 9 July 2014

Healthcare

Investors are advised to refer through disclosures made at the end of the Research Report.


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9 July 2014 2

1QFY15 Aggregates excluding one-offs

Healthcare Universe YoY growth (%) EBITDA Margin Net Profit Margin

Aggregates Sales EBITDA Adj PAT Jun-14 Jun-13 CHG (BP) Jun-14 Jun-13 CHG (BP)

MNC Pharma 10.1 14.1 24.5 19.4 18.8 67 15.4 13.6 178

Big 5 Generics 16.5 12.4 10.3 23.3 24.2 -84 16.1 17.0 -90

CRAMS 15.7 8.7 -9.5 35.7 38.0 -228 26.5 33.9 -737

Second Tier generics 17.5 16.4 17.3 19.4 19.6 -17 11.8 11.9 -2

Sector Aggregate 16.4 13.3 11.4 22.3 23.0 -61 15.1 15.8 -69

Source: MOSL; Big-5 Generics include Sun, Ranbaxy, Cipla, Dr Reddy's and Lupin.

Core 1QFY15 performance: Key highlights

We expect Dr Reddys, Lupin, Cadila Healthcare, IPCA Labs, Biocon, and Alembic

Pharma to record strong operational performance. We attribute the following

company-specific reasons for this performance:

Dr Reddys: We expect Dr Reddys to report strong growth of 61% in core

EBITDA, driven by a robust 33% growth in US base business and higher

contribution from low competition launches like gDacogen, gReclast, gVidaza.

The company will also benefit from low base effect. We expect core EBITDA

margin to expand 550bp YoY to 23.5%.

Lupin: Lupin is likely to witness 44% YoY growth in core EBITDA, as improving

product mix in the US started driving up margins post 2QFY14.

Cadila Healthcare: Uptick in recent launches and contribution from authorized

generics opportunities is likely to result in 50% growth in US sales. EBITDA

margin is likely to expand 50bp YoY due to benefit of operating leverage and

improving sales mix.

IPCA Labs: We expect sales growth momentum to continue, aided by 27%

growth in export formulations. Improving sales mix aided by higher contribution

from branded exports could result in EBITDA margin expansion of 280bp YoY.

Biocon: Slowdown in R&D activity is yet again likely to result in lower R&D

expenses. As such, we expect Biocons EBITDA margin to expand 100bp YoY.

Alembic Pharma: We expect revenue to grow 18% YoY, driven by increasing

contribution from recent launches in the US generics market. With improving

business mix, EBITDA could grow 27%.

MNCs: We expect GSK Pharma and Sanofi India to report healthy operational

performance due to price increases in products exiting price control and low

base effect.

Key developments

Sun Pharma announced acquisition of 100% stake in Ranbaxy for USD4b

The transaction would be an all-stock deal, resulting in 16.3% dilution for Sun

Pharma shareholders. Promoter stake would reduce to 54.7%. Ranbaxy

shareholders would receive 0.8 shares of Sun Pharma for each Ranbaxy share.

Consequently, Daiichi Sankyo would become the largest shareholder in Sun

Pharma, with a stake of 9%.

This transaction would make Sun Pharma the largest pharma company in India,

the largest Indian pharma company in the US, and strengthen its presence in

emerging markets. The transaction is likely to be closed by the end of 2014. The acquisition would

add to Sun Pharmas cash earnings per share in the first full year. Sun Pharma

June 2014 Results Preview | Sector: Healthcare


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9 July 2014 3

expects to realize revenue and operating synergies of USD250m by the third

year post closing of the transaction.

Ranbaxys exclusive copy to finally see light of day

Ranbaxy received FDA approval for its generic version of Diovan on 26 June

2014. This approval paves the way for the company to exercise its 180-day

exclusivity on the USD2.2b opportunity.

We estimate that the product could generate one-off sales of ~USD100m and

INR7/share of one-time profit for Ranbaxy over the exclusivity period. Our

expectation is based on the assumption that Novartis will introduce an

authorized generic version through its generics unit, Sandoz.

This development also increases the likelihood of Ranbaxy capitalizing on other

FTF opportunities gValcyte and gNexium.

INR depreciation to aid operations; minor MTM impact from forex liabilities

On an average, in 1QFY15, the INR depreciated 7% YoY against the USD. Weexpect companies with largely unhedged net exports to realize the benefit of

favorable currency at the EBITDA level. Companies that are likely to benefit the

most include Alembic Pharma, Biocon, Cadila, Divis Labs, IPCA, and Dr Reddys.

The INR/USD exchange rate has remained flat QoQ. There would be no

significant MTM impact for companies with large forex liabilities.

Currency movement (INR/USD)

Source: Bloomberg, MOSL

Comparative valuation

Sector / Companies CMP Rating EPS (INR) PE (x) EV/EBIDTA (x) RoE (%)

(INR) FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17EHealthcare

Alembic Pharma 310 Buy 16.3 21.7 26.5 19.0 14.3 11.7 13.2 10.0 8.0 38.9 38.3 35.2

Biocon 543 Sell 23.0 26.8 31.8 23.6 20.3 17.1 14.7 12.3 10.4 13.7 14.4 15.2

Cadila Health 1,105 Buy 46.4 56.8 64.3 23.8 19.5 17.2 17.0 12.2 10.5 25.2 30.1 27.4

Cipla 448 Neutral 17.4 23.4 28.5 25.8 19.1 15.7 15.0 11.5 9.4 12.4 14.6 15.3

Divis Labs 1,527 Buy 65.4 78.8 92.1 23.4 19.4 16.6 16.6 13.8 11.8 27.1 28.2 28.6

Dr Reddy s Labs 2,679 Buy 127.1 146.4 169.2 21.1 18.3 15.8 13.6 11.6 9.9 19.9 19.2 18.6

Glenmark Pharma 602 Buy 26.8 33.7 42.0 22.4 17.9 14.3 13.0 10.9 8.4 19.8 20.0 19.7

GSK Pharma 2,548 Neutral 61.9 84.8 98.0 41.2 30.1 26.0 33.8 22.8 19.3 26.3 34.6 37.6

IPCA Labs. 881 Buy 48.8 59.6 72.7 18.1 14.8 12.1 12.4 10.2 8.2 27.7 26.8 26.1

Lupin 1,088 Buy 41.2 53.0 61.5 26.4 20.5 17.7 15.4 12.5 10.4 23.8 24.7 23.4

Ranbaxy Labs 534 Buy 9.4 18.1 28.1 56.8 29.5 19.0 11.3 17.3 12.5 34.2 16.6 21.4

Sanofi India 3,270 Buy 125.0 152.8 177.5 26.2 21.4 18.4 15.7 12.8 10.7 19.5 21.4 22.4

Sun Pharma 709 Buy 26.6 31.1 35.3 26.6 22.7 20.1 17.4 15.5 13.8 25.7 23.7 21.8

Torrent Pharma 696 Neutral 36.4 43.1 55.7 19.1 16.2 12.5 10.5 9.7 8.1 28.1 27.2 29.1

Sector Aggregate 25.6 20.8 17.6 15.4 13.3 11.2 20.1 20.6 20.4

46

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June 2014 Results Preview | Sector: Healthcare


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9 July 2014 4

Quarterly Performance (Consolidated) (INR Million)

Y/E March FY14 FY15E FY14 FY15E

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Net Sales 4,272 4,864 4,857 4,640 5,051 5,730 5,627 5,610 18,632 22,018

YoY Change (%) 16.5 19.5 31.5 22.7 18.3 17.8 15.9 20.9 22.5 18.2

Total Expenditure 3,557 3,937 3,834 3,727 4,142 4,526 4,411 4,425 15,055 17,505

EBITDA 715 927 1,022 913 909 1,203 1,215 1,185 3,577 4,513

Margins (%) 16.7 19.1 21.1 19.7 18.0 21.0 21.6 21.1 19.2 20.5

Depreciation 95 99 101 110 115 125 130 136 405 506

Interest 15 26 35 23 25 30 35 44 98 134

Other Income 0 2 2 28 5 5 5 5 32 20

PBT before EO expense 605 805 888 808 774 1,053 1,055 1,010 3,106 3,893

Extra-Ord expense 0 0 0 0 0 0 0 0 0 0

PBT 605 805 888 808 774 1,053 1,055 1,010 3,106 3,893

Tax 139 189 229 195 163 221 222 212 751 818

Rate (%) 22.9 23.4 25.8 24.1 21.0 21.0 21.0 21.0 24.2 21.0

Minority Interest. 0 0 0 0 0 0 0 0 0 0

Reported PAT 466 616 659 613 612 832 834 798 2,355 3,075

Adj PAT 466 616 659 613 612 832 834 798 2,355 3,075

YoY Change (%) 51.3 45.1 36.6 40.4 31.1 35.0 26.5 30.2 42.5 30.6

Margins (%) 10.9 12.7 13.6 13.2 12.1 14.5 14.8 14.2 12.6 14.0

E: MOSL Estimates

June 2014 Results Preview | Sector: Healthcar

Alembic PharmaceuticalsCMP: INR310 Buy

We expect sales to grow 18% YoY to INR5.1b, led by 60% growth in

international generics. While the domestic formulations business is

likely to grow 10% YoY, total API revenues would be flat.

EBITDA is likely to grow 27% YoY to INR909m, with EBITDA margin up

130bp to 18%, aided by recently launched products in the US generics

market and improving sales mix in domestic formulations.

We expect adjusted PAT to grow just 31% YoY to INR612m, primarily

driven by strong operational performance.

We believe ALPM has a focused management team in place and has

stepped into its next phase of high growth. The strong improvement

in operational performance over the last few quarters, we believe, is

but an undertone of this transformation.

Business mix is likely to improve further, with higher contribution

from US generics and specialty therapies in India, while low-margin

APIs and acute therapies may continue to face slowdown.

The stock trades at 19x FY15E and 14.3x FY16E EPS. Maintain Buy.

Key issues to watch for

Upside from Micardis HCT launch

Outlook for domestic formulations and US generics business

Bloomberg ALPM IN

Equity Shares (m) 188.5

M. Cap. (INR b)/(USD b) 58 / 1

52-Week Range (INR) 317 / 1181,6,12 Rel Perf. (%) 21 / 23 / 87

Financial Snapshot (INR billion)

Y/E March 2014 2015E 2016E 2017E

Sales 18.6 22.0 26.8 31.8

EBITDA 3.6 4.5 5.9 7.1

NP 2.4 3.1 4.1 5.0

EPS (INR) 12.5 16.3 21.7 26.5

EPS Gr. (%) 42.7 30.4 32.8 22.3

BV/Sh. (INR) 35.8 48.1 65.0 85.7

RoE (%) 40.0 38.9 38.3 35.2

RoCE (%) 43.2 42.9 42.7 40.4

Valuation

P/E (x) 24.8 19.0 14.3 11.7

P/BV (x) 8.7 6.5 4.8 3.6

EV/EBITDA (x) 16.6 13.2 10.0 8.0

EV/Sales (x) 3.2 2.7 2.2 1.8


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9 July 2014 5



1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Net Sales 6,948 7,339 7,000 7,230 8,052 8,052 7,734 8,456 28,517 32,294

YoY Change (%) 21.7 23.9 10.4 14.7 15.9 9.7 10.5 17.0 17.5 13.2


EBITDA 1,462 1,689 1,680 1,700 1,771 1,812 1,702 1,919 6,531 7,204

Margins (%) 21.0 23.0 24.0 23.5 22.0 22.5 22.0 22.7 22.9 22.3

Depreciation 483 500 510 540 560 575 590 666 2,033 2,391

Interest 4 3 0 10 24 24 24 25 17 97

Other Income 284 187 190 230 285 290 300 315 891 1,190PBT 1,259 1,373 1,360 1,380 1,472 1,503 1,388 1,543 5,372 5,906

Tax 297 319 260 190 294 301 278 309 1,066 1,181

Rate (%) 23.6 23.2 19.1 13.8 20.0 20.0 20.0 20.0 19.8 20.0

Minority Interest 27 31 50 60 29 30 31 33 168 123

PAT 935 1,023 1,050 1,130 1,149 1,172 1,079 1,202 4,138 4,602

YoY Change (%) 18.7 14.2 14.5 69.0 22.9 14.6 2.8 6.4 -18.7 11.2

Margins (%) 13.5 13.9 15.0 15.6 14.3 14.6 14.0 14.2 14.5 14.3

Licensing income 76 34 40 0 74 73 73 73 150 292

YoY Change (%) -45.3 - -54.5 - -2.1 113.2 81.3 - -39.0 94.6

Contract research 1,546 1,881 1,830 1,880 1,942 2,060 2,020 2,082 7,137 8,104

YoY Change (%) 26.3 45.7 31.0 13.3 25.6 9.5 10.4 10.7 28.1 13.5

E: MOSL Estimates; Note - Quarterly nos will not add up to full-year nos due to restatements


BioconCMP: INR543 Sell

We expect sales to grow 16% YoY to INR8b, led by 26% growth in CRO

division. The Biopharma division is likely to grow 13%.

We estimate licensing income at INR74m (INR76m in 1QFY14).

EBITDA is likely to grow 21% YoY to INR1.8b, with EBITDA margin

expanding 100bp to 22%. BIOS R&D activity has been moderating

since 3QFY14, which is likely to result in lower R&D spend YoY.

We expect adjusted PAT to grow just 23% YoY to INR1.1b, in line with

operational performance.

Key growth drivers for FY15/FY16 would be (1) traction in insulin

initiative in RoW, (2) ramp-up in CRO division, (3) contribution from

immuno-suppressant supplies, and (4) branded formulations.

However, high R&D costs and long-term capex in the near term would

put pressure on profitability and return ratios.

The stock trades at 23.6x FY15E and 20.3x FY16E earnings. Option

values for the future include separate listing of Contract Research

business and potential out-licensing of the Oral Insulin NCE by BMS.

Return ratios are likely to remain subdued, with both RoE and RoCE in

the 13-14% range from FY13 to FY15. Maintain Sell.


Update on initiatives to out-license Anti-CD6

Progress on product registration for Rh-Insulin in Europe/US

Outlook for listing of Syngene

Bloomberg BIOS IN


M. Cap. (INR b)/(USD b) 109 / 2

52-Week Range (INR) 554 / 2771,6,12 Rel Perf. (%) 15 / -12 / 59


Y/E March 2014 2015E 2016E 2017E

Sales 28.5 32.3 38.5 45.6

EBITDA 6.5 7.2 8.8 10.5

Net Profit 4.1 4.6 5.4 6.4

Adj. EPS (INR) 20.7 23.0 26.8 31.8

EPS Gr. (%) 26.5 11.2 16.5 18.8

BV/Sh. (INR) 151.3 167.6 186.5 209.1

RoE (%) 13.7 13.7 14.4 15.2

RoCE (%) 11.7 11.6 12.2 13.2

Payout (%) 28.1 29.3 29.3 29.3

Valuations

P/E (x) 26.3 23.6 20.3 17.1

P/BV (x) 3.6 3.2 2.9 2.6

EV/EBITDA (x) 15.5 14.7 12.3 10.4

Div. Yield (%) 0.9 1.1 1.2 1.5


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9 July 2014 6



1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Net Revenues 16,371 17,468 18,717 19,685 20,131 20,156 20,535 21,614 72,240 82,436

YoY Change (%) 5.7 12.9 16.7 22.1 23.0 15.4 9.7 9.8 13.6 14.1


EBITDA 2,858 2,605 2,953 3,586 3,621 3,673 3,542 3,523 12,001 14,359

Margins (%) 17.5 14.9 15.8 18.2 18.0 18.2 17.2 16.3 16.6 17.4

Depreciation 466 518 496 528 550 575 600 617 2,012 2,342

Interest 278 319 301 271 250 275 250 236 1,170 1,011

Other Income 125 248 239 162 125 150 125 191 775 591

PBT after EO Income 2,239 2,017 2,360 2,812 2,946 2,973 2,817 2,861 9,422 11,597

Tax 203 101 408 348 442 446 423 429 1,060 1,739

Rate (%) 9.1 5.0 17.3 12.4 15.0 15.0 15.0 15.0 11.3 15.0

Min. Int/Adj on Consol 80 82 92 72 85 87 87 91 326 350

Reported PAT 1,956 1,834 1,860 2,392 2,419 2,440 2,307 2,341 8,036 9,507

Adj PAT 1,956 1,834 1,894 2,529 2,419 2,440 2,307 2,341 8,207 9,507

YoY Change (%) 0.4 92.9 84.1 -3.7 23.7 33.1 21.8 -7.4 25.2 15.8

Margins (%) 11.9 10.5 10.1 12.8 12.0 12.1 11.2 10.8 11.4 11.5

Domestic formulation sales 6,252 6,263 5,883 6,247 6,877 7,015 6,765 7,184 24,645 27,841

YoY Change (%) 7.5 4.1 3.2 9.4 10.0 12.0 15.0 15.0 6.1 13.0

US sales 3,874 4,730 6,316 6,783 5,792 6,145 6,795 7,287 21,703 26,019

YoY Change (%) 7.9 28.7 61.1 74.7 49.5 29.9 7.6 7.4 44.0 19.9

E: MOSL Estimates


Cadila HealthcareCMP: INR1,105 Buy

We expect revenue to grow 23% YoY to INR20.1b, led by 50% YoY

growth in the US formulations. Total export formulations would grow

37% YoY to INR8.6b. Domestic formulations would grow 10% YoY to

INR6.9b, impacted by the new drug policy.


inching up 50bp YoY, aided by improving sales mix in the US.

Adjusted PAT is likely to grow 24% YoY to INR2.4b, slower than

EBITDA due to higher taxes.

We believe CDH has made investments in the right areas and will

unlock value at the appropriate time. We expect FY15 to be a year of

recovery for CDH.

New launches in the US would be an important trigger for the

company for FY15.

We estimate 17% EPS CAGR over FY14-17, with improving return

ratios over the next three years.

The stock trades at 23.8x FY15E and 19.5x FY16E EPS. Maintain Buy.


Update on US launches from the Moraiya facility

Outlook for recovery in domestic formulations

Progress on improvement in balance sheet

Bloomberg CDH IN


M. Cap. (INR b)/(USD b) 226 / 4

52-Week Range (INR) 1,144 / 6311,6,12 Rel Perf. (%) 16 / 17 / 8


Y/E March 2014 2015E 2016E 2017E

Sales 72.2 82.4 97.8 111.4

EBITDA 12.0 14.4 19.5 22.7

Net Profit 8.2 9.5 11.6 13.2

Adj. EPS (INR) 40.1 46.4 56.8 64.3

EPS Gr. (%) 25.6 15.8 22.3 13.2

BV/Sh. (INR) 168.0 200.5 247.6 300.1

RoE (%) 25.2 25.2 30.1 27.4

RoCE (%) 18.7 20.8 26.0 26.9

Payout (%) 26.5 28.9 29.2 29.2

Valuations

P/E (x) 27.6 23.8 19.5 17.2

P/BV (x) 6.6 5.5 4.5 3.7

EV/EBITDA (x) 20.3 17.0 12.2 10.5

Div. Yield (%) 0.8 1.0 1.5 1.7


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9 July 2014 7

Quarterly Performance (INR Million)


1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Net Revenues 24,639 25,124 25,808 25,195 29,744 28,501 28,944 29,299 101,003 116,489

YoY Change (%) 25.8 14.6 24.6 28.1 20.7 13.4 12.2 16.3 22.0 15.3

EBITDA 6,754 5,642 4,673 4,093 5,795 5,677 5,864 6,199 21,330 23,535

Margins (%) 27.4 22.5 18.1 16.2 19.5 19.9 20.3 21.2 21.1 20.2

Depreciation 789 914 912 1,050 1,100 1,125 1,150 1,200 3,726 4,575

Interest 408 450 333 341 350 350 350 350 1,457 1,400

Other Income 691 756 524 775 400 400 400 400 2,654 1,600

PBT after EO expense 6,249 5,034 3,952 3,477 4,745 4,602 4,764 5,049 18,800 19,160Tax 1,500 1,358 987 753 1,186 1,151 1,191 1,262 4,634 4,790

Rate (%) 24.0 27.0 25.0 21.7 25.0 25.0 25.0 25.0 24.6 25.0

Minority Interest 0.0 95.7 122.2 116.9 65.0 65.0 140.0 140.0 282.5 410.0

Reported PAT 4,749 3,581 2,843 2,607 3,559 3,387 3,433 3,647 14,166 13,960

Adj PAT 4,749 3,581 2,843 2,607 3,559 3,387 3,433 3,647 14,166 13,960

YoY Change (%) 80.4 1.3 -16.1 -2.6 -25.1 -5.4 20.7 39.9 23.8 -1.5

Margins (%) 19.3 14.3 11.0 10.3 12.0 11.9 11.9 12.4 14.0 12.0

Domestic formulation sales 11,039 10,398 10,443 9,080 12,906 11,958 12,009 10,351 41,242 47,224

YoY Change (%) 17.6 11.4 13.0 16.7 16.9 15.0 15.0 14.0 14.9 14.5

Export formulations 10,344 12,190 13,520 12,820 14,362 14,140 15,177 16,356 48,874 60,036

YoY Change (%) 27.7 17.3 39.5 34.4 38.8 16.0 12.3 27.6 29.6 22.8

E: MOSL Estimates; Note: Quarterly numbers 2QFY14 onwards and annual numbers are consolidated


CiplaCMP: INR448 Neutral

We expect revenue to grow 21% YoY to INR29.7b.

The domestic formulations business would grow 14% YoY to

INR12.9b, while export formulations revenue would grow 39% YoY to

INR14.4b, aided by consolidation of Cipla Medpro.

EBITDA is likely to decline 14% YoY to INR5.8b, with EBITDA margin

likely to contract 7.9% YoY to 19.5% from a high base.

We expect adjusted PAT to decline 25% YoY to INR3.6b on account of

higher depreciation and lower other income.

We believe the next few quarters would remain an investment phase,

the benefits of which would come through only in FY16.

The stock trades at 25.8x FY15E and 19.1x FY16E EPS. Maintain

Neutral.


Update on launch of inhalers in Europe

Improvement in profitability at Cipla Medpro

Bloomberg CIPLA IN


M. Cap. (INR b)/(USD b) 360 / 6

52-Week Range (INR) 453 / 3671,6,12 Rel Perf. (%) 10 / -10 / -20


Y/E March 2014 2015E 2016E 2017E

Sales 101.0 116.5 134.4 153.8

EBITDA 21.3 23.5 29.7 34.9

Net Profit 14.2 14.0 18.8 22.9

Adj. EPS (INR) 17.6 17.4 23.4 28.5

EPS Gr. (%) 23.8 -1.5 34.7 21.8

BV/Sh. (INR) 125.1 140.1 160.9 186.5RoE (%) 14.1 12.4 14.6 15.3

RoCE (%) 17.4 16.0 18.7 19.8

Payout (%) 13.5 13.5 11.2 10.2

Valuations

P/E (x) 25.4 25.8 19.1 15.7

P/BV (x) 3.6 3.2 2.8 2.4

EV/EBITDA (x) 17.4 15.3 11.7 9.6

Div. Yield (%) 0.4 0.4 0.5 0.6


8/18

9 July 2014 8



1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Net Op Revenue 5,159 5,659 6,874 7,380 5,967 6,453 7,830 8,751 25,072 29,000

YoY Change (%) 10.1 19.7 28.9 13.6 15.7 14.0 13.9 18.6 17.2 15.7


EBITDA 1,959 2,477 2,859 2,592 2,130 2,646 3,398 3,448 9,887 11,622

Margins (%) 38.0 43.8 41.6 35.1 35.7 41.0 43.4 39.4 39.4 40.1

Depreciation 209 225 233 254 260 270 285 305 921 1,120

Interest 4 4 4 9 4 4 4 4 21 14

Other Income 547 376 98 120 160 160 160 160 1,140 640PBT 2,293 2,624 2,721 2,449 2,027 2,532 3,270 3,299 10,086 11,127

Tax 546 574 531 518 446 557 719 726 2,169 2,448

Rate (%) 23.8 21.9 19.5 21.2 22.0 22.0 22.0 22.0 21.5 22.0

Reported PAT 1,747 2,049 2,190 1,931 1,581 1,975 2,550 2,573 7,917 8,679

Adj PAT 1,747 2,049 2,190 1,931 1,581 1,975 2,550 2,573 7,917 8,679

YoY Change (%) 4.4 73.7 51.8 6.2 -9.5 -3.6 16.4 33.3 31.5 9.6

Margins (%) 33.9 36.2 31.9 26.2 26.5 30.6 32.6 29.4 31.6 29.9

E: MOSL Estimates; Quarterly numbers are standalone


Divi's LaboratoriesCMP: INR1,527 Buy

We expect revenue to grow 16% YoY to INR6b on increased capacity

utilization at new the SEZ unit and favorable currency impact. Growth

would be driven by both CCS and API businesses.

EBITDA is likely to grow 9% YoY to INR2.1b, with 230bp YoY decline in

margins as contribution of generics in near term is likely to remain

higher.

We expect PAT to decline 10% YoY to INR1.6b due to lower other

income (forex gain of INR430m in 1QFY14).

DIVI expects FY15 revenue to grow more than 20%, with EBITDA

margin sustaining at 40%. Revenue growth would be aided by

capacity utilization at DSN SEZ.

We estimate 17% revenue, EBITDA, PAT CAGR over FY14-16, with

EBITDA margin stabilizing at ~40%.

We expect the balance sheet to continue strengthening, and expect

dividend payout to go up from 40% in FY14 to 45% in FY15.

The stock trades at 23.4x FY15E and 19.4x FY16E EPS. Buy.


Ramp-up at Vizag SEZ

Outlook for growth beyond FY15

Bloomberg DIVI IN


M. Cap. (INR b)/(USD b) 203 / 3

52-Week Range (INR) 1,546 / 9051,6,12 Rel Perf. (%) 19 / -2 / 25


Y/E March 2014 2015E 2016E 2017E

Sales 25.3 29.0 34.6 40.6

EBITDA 10.1 11.6 13.9 16.2

Net Profit 7.7 8.7 10.5 12.2

Adj. EPS (INR) 58.3 65.4 78.8 92.1

EPS Gr. (%) 28.5 12.2 20.5 16.9

BV/Sh. (INR) 223.3 259.2 298.6 344.7

RoE (%) 28.3 27.1 28.2 28.6

RoCE (%) 36.0 34.6 36.1 36.6

Payout (%) 40.2 45.0 50.0 50.0

Valuations

P/E (x) 26.2 23.4 19.4 16.6

P/BV (x) 6.8 5.9 5.1 4.4

EV/EBITDA (x) 20.1 17.3 14.6 12.6

Div. Yield (%) 1.3 1.6 2.2 2.6


9/18

9 July 2014 9

Quarterly Performance - IFRS (INR Million)


1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Gross Sales 28,449 33,575 35,338 34,809 34,343 35,894 37,666 37,323 132,171 145,226

YoY Change (%) 12.0 16.5 23.3 4.2 20.7 6.9 6.6 7.2 13.7 9.9


EBITDA 5,398 8,456 9,762 7,586 8,071 8,794 8,286 8,323 31,202 33,474

Margins (%) 19.0 25.2 27.6 21.8 23.5 24.5 22.0 22.3 23.6 23.0

Amortization 1,603 1,733 1,793 1,956 1,800 1,850 1,900 2,096 7,085 7,646Other Income 342 972 735 437 300 300 300 302 2,486 1,203

Profit before Tax 4,137 7,695 8,704 6,067 6,571 7,244 6,687 6,529 26,602 27,031

Tax 528 792 2,521 1,252 1,314 1,449 1,337 1,306 5,093 5,406

Rate (%) 12.8 10.3 29.0 20.6 20.0 20.0 20.0 20.0 19.1 20.0

Net Profit 3,609 6,903 6,183 4,815 5,257 5,795 5,349 5,224 21,510 21,625

One-off/low-competition PAT in US 335 0 0 0 0 0 0 0 335 0

Adjusted PAT 3,273 6,903 5,686 4,815 5,257 5,795 5,349 5,224 21,174 21,625

YoY Change (%) 23.8 97.9 56.5 22.9 60.6 -16.0 -5.9 8.5 54.8 2.1

Margins (%) 11.5 20.6 16.1 13.8 15.3 16.1 14.2 14.0 16.0 14.9

E - MOSL Estimates


Dr Reddys LabsCMP: INR2,679 Buy

We expect 20% YoY growth in core revenue for 1QFY15 to INR34.2b.

Growth would be led by 27% YoY growth in US revenue and 22% YoY

growth in Russia/CIS. Revenue growth would be restricted by 12%

growth in domestic formulations and 13% growth in PSAI segment.

Core EBITDA is likely to grow 49% YoY to INR80b due to base effect

and improving product mix in the US. Consequently, we expect

EBITDA margin to expand 450bp YoY to 23.5%.

PAT could see a growth of 46% YoY to INR5.2b, slower than EBITDA

growth due to higher taxes.

Adjusted for one-off contribution from gActos in 1QFY14, core sales

should grow 23%, while core EBITDA and PAT grow 61%.

Though FY15 is likely to be a muted year for DRRD, we believe

accelerated launches in the US in FY16 could drive strong double-digit

growth in FY16.

The stock trades at 21.1x FY15E and 18.3x FY16E core earnings.

Maintain Buy.


View on pipeline of products in the US

FY16 outlook for both generics and PSAI businesses

Bloomberg DRRD IN


M. Cap. (INR b)/(USD b) 456 / 8

52-Week Range (INR) 2,940 / 20251,6,12 Rel Perf. (%) 11 / -17 / -13


Y/E March 2014 2015E 2016E 2017E

Sales 132.2 145.2 162.9 183.5

EBITDA 31.2 33.5 38.3 44.0

Net Profit 21.2 21.6 24.9 28.8

Adj. EPS (INR) 124.5 127.1 146.4 169.2

EPS Gr. (%) 54.5 2.1 15.1 15.6

BV/Sh. (INR) 533.8 639.9 763.9 907.5RoE (%) 23.3 19.9 19.2 18.6

RoCE (%) 18.0 17.9 17.9 18.1

Payout (%) 16.7 17.6 17.6 17.6

Valuation

P/E (x) 21.5 21.1 18.3 15.8

P/BV (x) 5.0 4.2 3.5 3.0

EV/EBITDA (x) 14.9 13.6 11.6 9.9

Div. Yield (%) 0.7 0.7 0.8 0.9


10/18

9 July 2014 10

Quarterly performance (INR Million)


1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Net Revenues (Core) 12,379 14,630 16,012 16,817 14,484 16,000 18,488 19,419 59,839 68,391

YoY Change (%) 19.0 16.6 15.9 25.9 17.0 9.4 15.5 15.5 19.4 14.3

EBITDA 2,474 3,153 3,644 3,598 2,792 3,299 4,148 4,328 12,870 14,566

Margins (%) 20.0 21.6 22.8 21.4 19.3 20.6 22.4 22.3 21.5 21.3

Depreciation 349 605 611 603 620 650 680 700 2,168 2,650

Interest 464 485 473 464 500 500 500 500 1,886 2,000

Other Income 37 138 56 97 80 80 80 82 328 322

PBT before EO Expense 1,698 2,201 2,617 2,628 1,752 2,229 3,048 3,210 9,144 10,238

Extra-Ord Expense 0 0 0 2,175 0 0 0 0 2,175 0

PBT after EO Expense 1,698 2,201 2,617 453 1,752 2,229 3,048 3,210 6,969 10,238

Tax 392 628 474 19 385 490 670 706 1,513 2,252

Rate (%) 23.1 28.5 18.1 4.1 22.0 22.0 22.0 22.0 21.7 22.0

Reported PAT (incl one-offs) 1,306 1,573 2,143 434 1,367 1,738 2,377 2,504 5,456 7,986

Minority Interest 19 30 -19 3 16 16 16 16 33 64

Adj PAT (excl one-offs) 1,287 1,330 2,130 1,520 1,082 1,722 2,361 2,383 4,964 7,549

YoY Change (%) 154.1 -6.6 35.3 2.2 -15.9 29.5 10.9 56.8 -0.5 52.1

Margins (%) 10.4 9.1 13.3 9.0 7.5 10.8 12.8 12.3 8.3 11.0

E: MOSL Estimates


Glenmark PharmaCMP: INR602 Buy

We expect Glenmark Pharmaceuticals (GNP) to post 15% YoY growth

in core revenue (excluding one-offs and R&D income) to INR14.2b,

led primarily by high growth in emerging markets and APIs. Reported

sales would grow 17% YoY to INR14.5b.

The branded business is likely to grow 20% YoY, while the generics

segment would grow just 5% due to slowdown in the US. We expect

R&D licensing income of INR299m from Sanofi (nil in 1QFY14).

Core EBITDA is likely to be flat YoY at INR2.5b, with core EBITDA

margin down 240bp YoY, impacted by adverse sales mix. Reported

EBITDA would grow 13% YoY to INR2.8b.

Adjusted PAT is likely to decline 16% YoY to INR1.1b, mainly due to

higher depreciation. Reported PAT is likely to grow 5% YoY.

We expect GNP to gradually reduce its net debt over FY14-16,

resulting in improvement in D/E from 1.1x in FY14 to 0.7x by FY16.

We also expect gradual improvement in return ratios.



Product pipeline for US

Update on free cash generation and debt repayment schedule

Progress of NCE/NBE pipeline

Bloomberg GNP IN


M. Cap. (INR b)/(USD b) 163 / 3

52-Week Range (INR) 640 / 4891,6,12 Rel Perf. (%) 7 / -8 / -29


Y/E March 2014 2015E 2016E 2017E

Sales 59.8 68.4 79.8 94.0

EBITDA 12.9 14.6 17.4 22.1

Net Profit 4.6 7.3 9.1 11.4

Adj. EPS 16.8 26.8 33.7 42.0

EPS Gr. (%) -8.8 59.9 25.5 24.8

BV/Sh. (INR) 110.0 135.7 168.0 212.8RoE (%) 15.3 19.8 20.0 19.7

RoCE (%) 17.7 17.4 19.3 21.6

Payout (%) 11.6 11.9 9.7 7.2

Valuations

P/E (x) 35.8 22.4 17.9 14.3

P/BV (x) 5.5 4.4 3.6 2.8

EV/EBITDA(x) 14.6 13.0 10.9 8.4

Div. Yield (%) 0.3 0.5 0.5 0.5


11/18

9 July 2014 11


Y/E December CY13 CY14 CY13 CY14E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Net Sales 6,321 6,369 6,205 6,306 5,999 6,878 7,037 7,290 25,202 27,204

YoY Change (%) 1.5 -2.3 -7.2 -4.0 -5.1 8.0 13.4 15.6 -3.1 7.9


EBITDA 1,629 1,137 1,080 1,116 977 1,277 1,645 1,968 4,961 5,867

Margins (%) 25.8 17.9 17.4 17.7 16.3 18.6 23.4 27.0 19.7 21.6

Depreciation 42 50 50 58 43 44 44 43 199 174Other Income 817 454 455 544 549 508 509 609 2,269 2,175


Tax 698 590 468 518 517 575 696 836 2,274 2,624

Rate (%) 29.1 38.3 31.5 32.3 34.9 33.0 33.0 33.0 32.4 33.4

Adjusted PAT 1,706 951 1,017 1,085 966 1,167 1,414 1,698 4,755 5,244

YoY Change (%) -8.1 -44.0 -37.8 -31.3 -43.4 22.7 39.0 56.6 -29.8 10.3

Margins (%) 27.0 14.9 16.4 17.2 16.1 17.0 20.1 23.3 18.9 19.3

Extra-Ord Expense 16 -201 8 -84 0 0 0 0 371 0

Reported PAT 1,690 1,151 1,010 1,169 966 1,167 1,414 1,698 4,384 5,244

E: MOSL Estimates


GSK PharmaCMP: INR2,548 Neutral

We expect GLXO to report 8% YoY growth in 2QCY14 sales to INR6.9b.


expanding 70bp YoY to 18.6% on a low base.

Growth and profitability would remain impacted by supply chain

issues highlighted in CY13 and price revisions taken due to fresh price

control implemented last year.

We expect adjusted PAT to grow 23% YoY to INR1.2b, faster than

EBITDA due to lower taxes.

GLXO deserves premium valuations due to strong parentage (giving

access to large product pipeline), brand-building ability, and likely

positioning in the post patent era. It is one of the few companies with

the ability to drive reasonable growth without any major capital

requirement, leading to high RoCE of 45-50%.

At 41.2x CY14E and 30.1x CY15E EPS, current valuations adequately

reflect the recovery in business over this period. Maintain Neutral.


Update on supply chain related issues

Market performance of products impacted by DPCO 2013

Bloomberg GLXO IN


M. Cap. (INR b)/(USD b) 216 / 4

52-Week Range (INR) 3,054 / 2,1751,6,12 Rel Perf. (%) -1 / -39 / -36


Y/E Dec 2013 2014E 2015E 2016E

Sales 25.2 27.2 31.2 35.9

EBITDA 5.0 5.9 8.7 10.3

Net Profit 4.8 5.2 7.2 8.3

Adj. EPS (INR) 56.2 61.9 84.8 98.0

EPS Gr. (%) -29.8 10.3 36.9 15.7

BV/Sh. (INR) 238.1 235.8 244.7 260.9

RoE (%) 23.6 26.3 34.6 37.6

RoCE (%) 34.8 39.3 51.6 56.0

Payout (%) 101.5 101.3 87.5 81.4

Valuations

P/E (x) 45.4 41.2 30.1 26.0

P/BV (x) 10.7 10.8 10.4 9.8

EV/EBITDA (x) 39.3 33.8 22.8 19.3

Div. Yield (%) 2.0 2.2 2.6 2.7


12/18

9 July 2014 12



1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q


YoY Change (%) 27.0 9.8 18.8 11.6 19.0 15.5 12.5 21.7 16.7 15.4

EBITDA 1,710 2,345 2,173 1,823 2,304 2,441 2,293 2,255 8,106 9,292

Margins (%) 21.2 27.7 26.1 24.3 24.0 25.0 24.5 24.7 24.7 24.5

Depreciation 241 252 256 260 300 310 320 336 1,031 1,266

Interest 71 57 54 63 72 71 70 72 269 285

Other Income -435 -346 30 244 315 320 100 102 -500 837

PBT after EO Expense 963 1,690 1,893 1,745 2,247 2,380 2,003 1,949 6,306 8,578

Tax 245 396 502 375 539 571 481 468 1,524 2,059

Rate (%) 25.4 23.4 26.5 21.5 24.0 24.0 24.0 24.0 24.2 24.0

Reported PAT 718 1,295 1,391 1,370 1,708 1,808 1,522 1,481 4,782 6,520

YoY Change (%) 67.0 3.5 58.3 81.7 138.0 39.7 9.4 8.1 47.4 36.3

Margins (%) 8.9 15.3 16.7 18.3 17.8 18.5 16.2 16.2 14.6 17.2

Domestic formulation 2,504 2,762 2,463 1,966 2,904 3,204 2,857 2,280 9,694 11,245

YoY Change (%) 11.7 5.1 15.8 10.2 16.0 16.0 16.0 16.0 10.4 16.0

Export formualtions 3,300 3,626 3,818 3,732 4,176 4,297 4,266 4,402 14,476 17,141

YoY Change (%) 47.0 6.9 20.3 19.2 26.5 18.5 11.7 18.0 21.2 18.4

E: MOSL Estimates


Ipca LaboratoriesCMP: INR881 Buy

We expect revenue to grow 19% YoY to INR9.6b, led by 27% growth

in export formulations. Domestic formulations would grow 16% YoY

on a low base, while total API sales would grow 12% YoY.

EBITDA is likely to grow 35% YoY to INR2.3b, aided by 280bp YoY

expansion in EBITDA margin to 24%. This would be driven by higher

contribution from international formulations.

We expect adjusted PAT to grow 113% YoY to INR1.5b, boosted by

higher other income (forex loss in 1QFY14).

We expect significant ramp-up in IPCA's international formulations

revenue, led by 36% CAGR in US generics and 33% CAGR in US

business over FY13-16. Domestic formulations growth is likely to be

maintained at 16%.

We expect IPCA to clock EPS CAGR of 24% over FY14-17 on the back

of 18% revenue CAGR, aided by 80-100bp EBITDA margin expansion

and reversal of MTM losses.

The stock trades at 18.1x FY15E EPS and 14.8x FY16E EPS. Buy.


Ramp-up at recently approved Indore SEZ for US

Outlook for institutional tender business after FY14

Bloomberg IPCA IN


M. Cap. (INR b)/(USD b) 111 / 2

52-Week Range (INR) 907 / 6091,6,12 Rel Perf. (%) 6 / 1 / -5


Y/E March 2014 2015E 2016E 2017E

Sales 32.8 37.9 45.2 53.4

EBITDA 8.1 9.3 11.3 13.7

Net Profit 4.8 6.2 7.5 9.2

Adj. EPS (INR) 37.9 48.8 59.6 72.7

EPS Gr. (%) 47.4 28.8 22.1 22.0

BV/Sh. (INR) 155.3 196.8 247.4 309.2

RoE (%) 27.2 27.7 26.8 26.1

RoCE (%) 29.4 31.5 31.4 31.3

Payout (%) 15.4 15.0 15.0 15.0

Valuation

P/E (x) 23.3 18.1 14.8 12.1

P/BV (x) 5.7 4.5 3.6 2.9

EV/EBITDA (x) 14.2 12.4 10.2 8.2

Div. Yield (%) 0.7 0.8 1.0 1.2


13/18

9 July 2014 13



1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Net Sales 24,207 26,315 29,830 30,516 29,775 29,156 32,841 33,578 110,866 125,350

YoY Change (%) 9.1 17.5 21.0 20.3 23.0 10.8 10.1 10.0 17.2 13.1

EBITDA 5,340 6,232 7,343 8,080 7,593 6,793 8,374 8,462 28,029 31,222

Margins (%) 22.1 23.7 24.6 26.5 25.5 23.3 25.5 25.2 25.3 24.9

Depreciation 624 606 637 743 700 725 750 787 2,610 2,962

Interest 54 49 42 122 45 45 45 45 267 180

Other Income 565 1,178 714 742 500 500 500 500 2,164 2,000

PBT 5,226 6,755 7,379 7,957 7,348 6,523 8,079 8,130 27,317 30,081

Tax 2,172 2,582 2,542 2,327 2,425 2,153 2,666 2,683 9,622 9,927

Rate (%) 41.6 38.2 34.4 29.2 33.0 33.0 33.0 33.0 35.2 33.0

EO Exp/(Inc) -1,000 0 0 0 0 0 0 0 -1,000 0


Recurring PAT 2,331 3,383 4,001 4,115 4,808 4,268 5,311 5,345 13,831 19,732

YoY Change (%) 30.7 22.9 42.3 37.2 106.2 26.2 32.7 29.9 33.7 42.7

Margins (%) 9.6 12.9 13.4 13.5 16.1 14.6 16.2 15.9 12.5 15.7

Advanced mkt formulations 13,917 14,183 17,948 18,712 17,669 15,726 19,649 20,631 64,760 73,172

YoY Change (%) 17.7 20.8 22.5 25.8 27.0 10.9 9.5 10.3 22.0 13.0

Emerging mkt formulations 7,861 9,270 8,909 8,889 9,253 10,509 10,132 9,938 34,966 39,763

YoY Change (%) -2.3 12.3 16.3 10.2 17.7 13.4 13.7 11.8 9.2 13.7

E: MOSL estimates; Quarterly nos will not add up to full year nos due to restatement of past quarters


LupinCMP: INR1,088 Buy

We expect revenue to grow 23% YoY to INR30b, driven mainly by 27%

YoY growth in advanced market formulations. Domestic formulations

would grow 16% YoY, while RoW markets are likely to grow 23%.

Core revenue excluding one-off upsides from generic Tricor, Trizivir

and Niaspan is likely to grow 23% YoY to INR28.3b.

EBITDA would grow 42% YoY to INR7.6b, with EBITDA margin

expanding by 340bp YoY to 25.5%. Core EBITDA would be INR6.6b,

with core EBITDA margin at 23.2%, up 350bp YoY, aided by improving

sales mix in the US.

Reported PAT is likely to grow 20% to INR4.8b, while adjusted PAT is

likely to grow 69% to INR3.9b on a low base.

Key growth drivers for FY15/FY16 would be strong product pipeline

for the US, and higher contribution from oral contraceptives. Growth

in India formulations is likely to rebound to 16% in FY15.



Outlook on future launches in the US

Revival in constant currency sales growth in Irom

Outlook on domestic formulations business post DPCO 2013

Bloomberg LPC IN


M. Cap. (INR b)/(USD b) 487 / 8

52-Week Range (INR) 1,102 / 7421,6,12 Rel Perf. (%) 13 / -8 / -6


Y/E March 2014 2015E 2016E 2017E

Sales 109.3 125.3 146.2 167.4

EBITDA 26.5 31.2 37.7 43.9

Rep. PAT 18.4 19.8 24.0 28.0

Rep.EPS (INR) 41.0 44.1 53.6 62.5

Adj. PAT 13.8 18.5 23.8 27.6

Adj. EPS (INR) 30.8 41.2 53.0 61.5

EPS Gr. (%) 33.4 33.4 28.8 16.0

BV/Sh. (INR) 154.6 191.6 237.0 289.9

RoE (%) 22.8 23.8 24.7 23.4

RoCE (%) 40.1 36.2 35.9 34.4

Payout (%) 16.0 15.9 15.3 15.0

Valuations

P/E (x) 35.3 26.4 20.5 17.7

P/BV (x) 7.0 5.7 4.6 3.8

EV/EBITDA (x) 18.3 15.4 12.5 10.4

Div. Yield (%) 0.6 0.6 0.6 0.7


14/18


15/18

9 July 2014 15


Y/E December CY13 CY14 CY13 CY14E

1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE

Net Sales 3,881 4,351 4,974 4,883 4,449 4,929 5,689 5,532 18,089 20,598

YoY Change (%) 12.3 10.8 19.6 15.5 14.6 13.3 14.4 13.3 21.1 13.9

EBITDA 720 874 1,246 1,147 810 1,016 1,368 1,269 3,987 4,462

Margins (%) 18.6 20.1 25.1 23.5 18.2 20.6 24.0 22.9 22.0 21.7

Depreciation 223 227 234 247 240 245 250 255 931 990

Interest 3 1 0 0 2 1 1 1 4 5Other Income 163 145 153 118 215 200 200 200 579 815

PBT before EO Items 657 791 1,165 1,018 783 970 1,316 1,213 3,631 4,282

Extra-Ord Expense 0 0 0 -254 0 0 0 0 -254 0

PBT after EO Items 657 791 1,165 1,272 783 970 1,316 1,213 3,885 4,282

Tax 213 279 396 191 266 315 428 394 1,079 1,403

Effective tax Rate (%) 32.4 35.3 34.0 18.8 34.0 32.5 32.5 32.5 27.8 32.8

Reported PAT 444 512 769 1,081 517 655 889 818 2,806 2,879

Adj PAT 444 512 769 827 517 655 889 818 2,552 2,879

YoY Change (%) 10.7 26.4 49.9 84.6 16.4 27.9 15.6 -1.0 34.7 12.8

Margins (%) 11.4 11.8 15.5 16.9 11.6 13.3 15.6 14.8 14.1 14.0

E: MOSL Estimates


Sanofi IndiaCMP: INR3,270 Buy

We expect revenue to grow 13% YoY in 2QCY14 to INR4.9b, led by the

export formulations business.

EBITDA is likely to grow 16% YoY to INR1b, with EBITDA margin

expanding 50bp due to increasing contribution from exports and

price increases in key products.

We expect PAT to grow 28% YoY to INR655m. Growth is likely to be

higher than EBITDA due to higher other income and lower taxes.

We believe SANL is witnessing a phase of change in margin profile,

led by (a) pricing benefit under new DPCO, and (b) discontinuation of

some loss-making projects that had hurt margins in the past.

We expect increasing momentum in earnings growth over the next

few years.

The stock trades at 26.2x CY14E and 21.4x CY15E EPS. Maintain Buy.


Amortization of goodwill and brands acquired from Universal

Medicare

Impact of Drug Price Control Order (DPCO), 2013

Bloomberg SANL IN


M. Cap. (INR b)/(USD b) 75 / 1

52-Week Range (INR) 3,540 / 2,2801,6,12 Rel Perf. (%) -7 / -7 / -2


Y/E Dec 2013 2014E 2015E 2016E

Sales 18.1 20.6 23.6 26.9

EBITDA 4.0 4.5 5.3 6.2

Net Profit 2.4 2.9 3.5 4.1

Adj. EPS (INR) 104.1 125.0 152.8 177.5

EPS Gr. (%) 35.7 20.1 22.3 16.1

BV/Sh. (INR) 580.3 641.5 713.2 792.1

RoE (%) 17.9 19.5 21.4 22.4

RoCE (%) 26.3 28.1 30.9 32.4

Payout (%) 45.9 51.0 53.1 55.5

Valuations

P/E (x) 31.4 26.2 21.4 18.4

P/BV (x) 5.6 5.1 4.6 4.1

EV/EBITDA (x) 18.2 15.7 12.8 10.7

Div. Yield (%) 1.4 1.7 2.1 2.6


16/18


17/18

9 July 2014 17

Quarterly performance (INR Million)Y/E March FY14 FY15E FY14 FY15E

1Q 2Q 3Q 4Q 1Q 2Q 3QE 4Q


YoY Change (%) 26.7 26.9 27.3 40.6 31.8 39.2 30.6 7.7 30.3 26.2

EBITDA 2,080 1,790 2,150 3,500 3,454 2,986 3,188 3,252 9,520 12,881

Margins (%) 21.4 18.4 21.2 28.6 27.0 22.1 24.1 24.7 22.8 24.4

Depreciation 210 220 210 230 250 450 500 550 870 1,750

Interest 80 150 160 200 200 560 560 580 590 1,900

Other Income 80 100 100 100 90 90 85 80 380 345


Extra-Ord Expense 0 0 0 0 0 0 0 0 0 0

PBT after EO Expense 1,870 1,520 1,880 3,170 3,094 2,066 2,213 2,202 8,440 9,576Tax 380 390 300 730 650 434 465 462 1,800 2,011

Rate (%) 20.3 25.7 16.0 23.0 21.0 21.0 21.0 21.0 21.3 21.0

Reported PAT 1,490 1,130 1,580 2,440 2,444 1,632 1,749 1,740 6,640 7,565


Adj PAT 1,490 1,130 1,324 924 1,247 1,457 1,573 1,568 4,869 5,845

YoY Change (%) 46.3 17.4 17.9 -22.3 -16.3 28.9 18.8 69.6 3.5 20.1

Margins (%) 15.3 11.6 13.0 7.5 9.7 10.8 11.9 11.9 11.6 11.1

Dom. formulations sales 3,120 2,970 2,970 2,560 3,619 4,632 4,632 4,157 11,620 17,040

YoY Change (%) 12.3 9.6 14.9 17.4 16.0 56.0 56.0 62.4 13.5 46.6

Intl. formulations sales 5,390 5,720 6,390 8,820 8,195 7,530 7,765 7,889 26,320 31,379

YoY Change (%) 28.0 31.1 42.3 67.7 52.0 31.6 21.5 -10.6 43.5 19.2

E: MOSL Estimates; Consolidation of Elder Pharma brands from 2QFY15


Torrent PharmaceuticalsCMP: INR696 Neutral

We expect 32% YoY growth in 1QFY15 reported sales to INR12.8b

over a high base, led by ~3x growth in US business due to one-off

launches. Domestic formulations would grow 16% YoY, while export

formulations are likely to grow 52% YoY.

Core sales (excluding one-offs) are likely to grow 11% YoY.

Reported EBITDA would grow 66% YoY to INR3.5b, with EBITDA

margin expanding 560bp YoY, aided by one-off opportunities. Core

EBITDA would remain flat at INR2b, with core EBITDA margin

declining 240bp YoY.

We expect reported PAT to grow 64% YoY to INR2.4b, in line with

operational performance. Adjusted PAT would decline 16% YoY to

INR1.2b, impacted by higher interest costs.

We expect 17% CAGR in core earnings over FY14-16, slower than the

27% growth witnessed over the last two years. However, the stock

trades at 19.1x FY15E and 16.2x FY16E EPS, which is at 18-20%

premium over its last 5-year average valuations. Maintain Neutral.


Sustained recovery in domestic formulations

Performance of Brazilian operations amidst market pressures

Outlook for US business

Bloomberg TRP IN


M. Cap. (INR b)/(USD b) 118 / 2

52-Week Range (INR) 724 / 3861,6,12 Rel Perf. (%) 8 / 24 / 32


Y/E March 2014 2015E 2016E 2017E

Sales 41.8 52.8 60.4 69.2

EBITDA 9.5 12.9 13.6 15.9

Net Profit 5.2 6.2 7.3 9.4

Adj. EPS 31.0 36.4 43.1 55.7

EPS Gr. (%) 11.4 17.6 18.4 29.1

BV/Sh. (INR) 115.0 144.0 173.3 209.8

RoE (%) 31.0 28.1 27.2 29.1

RoCE (%) 36.3 29.9 23.8 26.3

Payout (%) 29.8 35.1 35.1 35.1

Valuation

P/E (x) 22.5 19.1 16.2 12.5

P/BV (x) 6.1 4.8 4.0 3.3

EV/EBITDA 12.2 10.5 9.7 8.1

Div. Yield (%) 1.4 1.9 1.9 2.4


18/18

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