venus remedies research report: initiating coverage

C O M P A N Y R E P O R T

India

4 Jun 2012 Venus Remedies Rs 166.1

Sec to r : Phar ma Bu i ld ing a un ique fo r mu la t io n

Four-s reports are available on BLOOMBERG, Reuters, Thomson Publishers and Market Publishers

BSE Code 526953 NSE Code VENUSREM CMP (Jun 1) 166.1 52W H/L 276/141 Nifty 4,842 Sensex 15965 Equity Cap (m) 2,369 Face Value 10 Shares (m) 9.74 Free Float 65.29% Market Cap (m) 1,618 Avg Vol

(weekly) 9,514

Rs

Consolidated Financials

FY'11 FY'12E FY'13E FY'14E

Sales 3,631 4,196 4,788 5,546

EBITDA 892 1,022 1,186 1,395

PAT 462 493 610 755

EBITDA margin(%) 24.57 24.35 24.78 25.14

Net margin(%) 12.73 11.74 12.75 13.62

ROE(%) 22.65 18.07 18.01 18.56

ROCE(%) 19.11 16.28 16.37 17.39

P/E Ratio(x) 3.99 3.28 2.65 2.14

EV/EBITDA(x) 4.12 3.60 3.10 2.64

EPS (Rs) 50.63 50.56 62.65 77.55

Rs mn

Promoter 35%

FII 14%

DII 0%

Others 32% Bodies

Corporate 19%

Shareholding Pattern (March 31,

2012)

140.00

150.00

160.00

170.00

180.00

190.00

200.00

30-Dec 30-Jan 29-Feb 31-Mar 30-Apr 31-May

Price Performance (Last 6 months)

Venus Remedies Nifty

Venus Remedies (Venus), a high-growth mid-sized

pharma company in the injectables space, has two key

differentiators: presence in high value therapeutic

segments and a strong research focus. This has allowed

the company to maintain robust revenue CAGR of

around 18% over last 4 years, at healthy operating

margins. The company’s growth rates and margins

could get a boost as its growing repository of research

products and patents comes into play.

In highly attractive injectables segment

Venus is among top 10 players globally in combination

drugs space. This is a high margin space within injectables.

Venus has further focussed on highly specialised products

within this space, helping it maintain high profitability and

robust top-line growth.

Concentrated focus on IP development

The Company has maintained high focus on IP

development. Its R&D spends reached a high of 19% of its

revenue for FY11, growing from a level of 5% in FY07. The

company expects to maintain spends in double digits. This

puts Venus Remedies among top 5 pharma companies in

R&D investment as ‘% of sales’ and top 15 by total amount.

The Company has developed many path breaking products

such as Sulbactomax, a novel combination product with

market potential of US$400mn in India, and patents in

more than 42 countries including EU and Australia. Venus is

currently exploring out licensing deals for Sulbactomax for

global markets and has hired a leading global consulting

firm for the same.

Antimicrobial Resistance: A winning strategy

Venus correctly identified anti-microbial resistance (AMR)

as its core area for R&D efforts around 10 years ago. AMR

has emerged as the biggest threat to global health in

recent years, so much that even WHO has proposed a

global strategy to fight AMR. Venus Remedies’ entire

antibiotic research product chain caters to the AMR

segment including Sulbactomax, Vancoplus, Potentox and

Tobracef.

Low Valuations

At current price, Venus Remedies quotes at around 3.3x

FY12 and around 2.6x FY13e earnings, below peer

averages. These are values below its historical trading

range. We expect Venus’s price to cross Rs 200 over a 12

month period. Any big out licensing deal will give further

upside. This is an upside of 23% from current levels.

Company Report: Venus Remedies 4 Jun 2012

Four-S Research 2

Investment Rationale

A top player in the attractive injectables space

Venus is among top 10 players globally in combination drugs space

with the biggest capacity in Asia in manufacturing for injectables.

The US$200bn injectable market is higher on margins and faces

lower pricing pressure compared to oral pharmaceuticals.

A consistent focus on injectables, the highest end of the formulation

value chain marked by stringent manufacturing standards,

demanding quality parameters and low competition (only 1% of

India’s over 10,000 pharmaceutical companies produce injectables)

gives Venus a better ability to deliver higher margins.

High growth segments

Focussed on

high growth,

high margin

segments within

injectables

Venus Remedies has focused on high growth segments like anti-

infective (33% of revenue) and oncology (30.7%) which are

considered to be the fastest growing segments and expected to

contribute 50 to 60% of product launches globally by 2015.

With changing demography and overall changes in lifestyle, anti-

infective, oncology, cardiovascular and neurology segments are

expected to benefit the most in the coming years, not only in India

but globally.

Venus has been investing strongly in R&D for all of these segments

which will sooner than later start benefiting the company. Venus has

already launched products in segments like anti-biotic, oncology, and

neurology in last few years.

Maintains high margin with highly specialised products

Venus Remedies’ reported operating margins are better than the

peer set, reflecting its focus on high margin segments within

injectables. The company has margins better than all peers except

Claris. The reason behind this is Venus Remedies’ conscious strategy

to move away from its me-too products to enter high margin

specialised segment with the backing of strong R&D process.

Better profitability supporting the growth

FY11 Margin (%) TTM Margin (%)

Company EBIDTA PAT EBIDTA PAT

Mid-Cap Peers

Ajanta Pharma 19% 10% 21% 12%

Indoco 13% 11% 14% 9%


Four-S Research 3

Natco Pharma 19% 12% 23% 12%

Nectar 20% 9% 18% 6%

Parabolic Drugs 15% 8% 18% 6%

Average 17% 10% 19% 9%

Injectable Peers Strides Arcolab 21% 7% 21% 32%

Ahlcon 16% 6% 16% 7%

Parenteral Drugs 10% 1% -2% -20%

Claris 31% 19% 32% 17%

Kilitch 15% 7% 17% 9%

Average 19% 8% 17% 9%

Industry Average 18% 9% 18% 9%

Venus 25% 13% 22% 13%

(Source: Ace Equity, company reports)

Profitability set to improve

The company is confident that it can improve margins going forward.

The key reason behind this is the high revenue flow expected from

out-licensing of the already developed technology. This revenue will

add to the top-line without putting much strain on cost side of the

company’s profit and loss sheet.

Creating significant opportunities through R&D

Focus on formulation R&D products to beat me-too generic

products competition

Research

pipeline based

on novel

formulations

Venus has evolved an innovative approach to its R&D investments to

overcome competition in generic drugs. Its R&D is focussed on

creating new drug candidates through formulation focused research,

where it aims to combine two or more already patented APIs into a

new formulation or a dosage form. Venus aims to make formulations

that are more effective than alternatives available in the market. It

aims to offer a therapeutic advantage and differ from me-too generic

products.

This strategy offers a low-risk, low-cost alternative to the traditional

pharmaceutical development of new medicines, due to their shorter

development timeline. New Chemical Entities (NCEs) take a long time

to develop, often at a cost of over US$1bn. Conversely, the

development of new therapies through Venus’ method is cheaper and

less time consuming, as it has a known mechanism of action and an

established safety and efficacy profile. This offers products a less

complex clinical development process.

It also has a simpler pathway to patent approval that can potentially

save pharmaceutical sponsors both time and money.


Four-S Research 4

Some of its key products like Sulbactomax and Vancoplus are novel

formulations of previously approved APIs.

Concentrating on future epidemic : Anti-Microbial Resistance

Venus has maintained strong focus on Antimicrobial resistance (AMR)

while developing research products. Antimicrobial resistance (AMR) is

the resistance of a microorganism to an antimicrobial medicine to

which it was previously sensitive. These resistant organisms are able

to withstand attack by antimicrobial medicines, such as antibiotics,

antivirals, and antimalarials, so that standard treatments become

ineffective and infections persist and may spread to others.

Infections caused by resistant microorganisms often fail to respond to

the standard treatment, resulting in prolonged illness and greater risk

of death. Once resistance evolves, it can spread very rapidly across

borders and around the world. This drug resistance threatens to

erase gains made in disease treatment and control in developing

countries.

Venus Remedies is one of the few R&D led companies which has

innovated and developed a comprehensive range of novel antibiotic

combinations which not just provide relief from the aggravated

problem of antibiotic resistance but also are cost-effective and have

reduced side effects.

The Company could foresee the potential of antibiotics fading 10

years back and it is the result of its focused approach that today it

has some SUPER BUG tackling solutions under patent protection. The

entire antibiotic research products of Venus like Vancoplus,

Sulbactomax, Potentox, Tobracef and many more cater to the

Antimicrobial Resistance segment.

Sulbactomax – a key growth driver

Sulbactomax, a

likely winner

The biggest product from Venus’s R&D initiative is Sulbactomax, an

anti-infective product, used to combat beta-lactamase generated

drug resistance, the only product in its category to prevent growth

and spread of bacterial resistance.

Sulbactomax is a combination of Ceftriaxone and Sulbactam with

VRP1034. Venus’s tests show that Sulbactomax is much more

effective than all the existing third generation cephalosporins and

their combinations.

Research

launches

beginning to hit

the market

Research pipeline robust, several launches ahead

Besides Sulbactomax, Venus’s R&D has come up with several new

unique formulations like Vancoplus, Potentox, and Tobracef.

Achnil, launched in FY11, is a revolutionary once-a-day pain killer,

given Product of the Year award by Biospectrum Asia for its

uniqueness in addressing critical health conditions.


Four-S Research 5

Many new products like Tumatrek, Trois and Stermex were lauched in

FY12 and many more to be launched in coming years. These new

products are estimated to generate revenue of 5-10% for the

company in the next 2-3 years. Venus Remedies is coming up with

constant flow of research products mainly due to its well thought out

R&D process which looks for novel solutions that fill the vast gap

between challenging ailments and available molecules.

Aims to create Sizeable IP wealth by 2015

Venus now has 80+ global patents out of more than 360+ filed for its

13 research products. There is a clear indication that the company

has created strong traction in R&D as well as Global presence.

Rightly positioned to capitalise IP wealth

Licensing

discussions on

for Sulbactomax

Sulbactomax itself is patented in 42 countries including the EU

countries; patents are awaited from 8 more countries including US

and Japan. Sulbactomax has US$400mn market in India itself,

according to Venus. Global potential is indicated by third generation

cephalosporins and carbapenems, a close substitute, which have

market of around US$2bn globally. Venus Remedies has already out-

licensed Sulbactomax successfully to a South Korean pharma

company to monetise the South Korean US$585mn market.

In a similar way, Venus Remedies is looking to capitalise its IP wealth

from its range of research products by striking deals with global

pharma companies for specific geographies.

Venus Remedies has already shortlisted a number of companies and

is very close to finalising the deal with these companies. The

company has hired renowned external agencies to make sure these

deals are executed in the best interest of Venus Remedies’

stakeholders.

Market authorisation in regulated markets

Venus Remedies has marketing authorisations for EU markets for

multiple products like Meropenem. It is the first Indian company to

get GCC market authorisation for its oncology and Carbepenem

products. This authorisation will further increase market reach of its

products, pushing revenue growth.

Vast pool of patented R&D products to capitalise on

Since Venus Remedies has reorganized its priorities and started

investing in R&D, it has developed respectable IP wealth within a

very short period. Venus currently has more than 13 research

products in development, with 11 products already under patent

protection. 7 of these products are already commercialised not only

in India but are also launched in emerging export markets through

various alliances, and are selling in 12 countries.

Overall, Venus Remedies boasts of 80+ patents out of more than


Four-S Research 6

360+ filed in over 51 countries. It has 44 product registered in

developed countries and has filed 108 CTDs for 7 products. Venus

Remedies also has more than 375 market authorizations in semi-

regulated market. Strong IP wealth with patented technology and

ready to launch products along with EU GMP certified plant will enable

Venus Remedies to monetise this wealth in the near future.

Traction from research products to grow

Revenue from

R&D products

could grow 20-

25% annually

With ever growing investment in R&D by Venus Remedies (from

14.5% of revenue in 2009 to 19% in 2011) and a strong R&D team

of 60 scientists, in-licensing and R&D alliances with many

international universities, Venus Remedies is on right path to grow its

IP wealth. This is also evident from range of their products in phase

II & III of research.

Research products contributed around 25% of Venus’ total revenue in

FY12. Revenue from research products is expected to grow at a rate

of 20-25%, higher than the generics in its portfolio. This strong

traction is expected in near future because of new research products

and established products.

Superior operational efficiencies

Better working capital management

The chart below shows debtor turnover for the latest financial year.

Venus Remedies performance here is above peer averages.

Running business with higher capital efficiency

Venus remedies is utilizing its capital efficiently, resulting in better

profitability ratio and better returns to its stakeholders. It can be

seen from Venus remedies having highest ROE and ROCE ratios

compared to most of its peers and much higher than industry

average.

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Four-S Research 7

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Venus

ROE

Valuations – have trended down in FY12

High discount compared to its peers

Valuations

ignoring steady

growth, and

R&D results

Venus is currently traded at discounted valuations as compared to its

pharma peers. When we divide peers among injectable segment and

mid-cap segment, within injectable segment, Venus Remedies is at

lowest multiple compare to its all injectable peers.

Venus is also at lower range of valuations amongst Pharma

companies of similar scale. Currently, Venus is traded at a PE ratio of

3.3 whereas mid-cap Pharma companies are traded at an average of

9.5 and injectables are traded at an average PE of 13.4.

Given Venus’ steady growth performance, and reasonable return on

capital, this gap will get bridged, at least partially, if not wholly. If it

gets revenue from out-licensing, the process of narrowing of the

valuation gap could get accelerated, giving a major upside for the

stock.


Four-S Research 8

Peer Benchmarking

The peer set: mid-cap pharma companies & injectable players

Venus Remedies is among the leading injectable manufacturers in

India. We have compared it to its injectable peers, as well as midcap

pharma peers. We find its performance is within peer averages, and

better on some parameters. The strategy of Venus Remedies to focus

on niche injectables segment has benefitted company, which is

evident from its growth in last few years and margins it has managed

through out.

Company Market Cap

EV TTM Sales

TTM Sales 4-yr CAGR

TTM EBITDA

TTM EBITDA

4-yr CAGR

TTM PAT

TTM PAT 4-yr

CAGR

Mid-Cap Peers

Ajanta Pharma 7456 8633 6714 21% 1407 29% 773 37%

Indoco 4981 5980 5389 19% 735 15% 460 11%

Natco Pharma 11517 13717 4831 10% 1095 20% 602 10%

Nectar 4339 12299 13412 15% 2453 18% 804 2%

Parabolic 1253 5997 9288 33% 1666 37% 574 18%

Average 5909 9325 7927 19% 1471 24% 642 16%

Injectable Peers

Strides Arcolab 39986 64181 25645 26% 5399 67% 1,689 15%

Ahlcon 3089 3341 848 9% 139 1% 43 -2%

Parenteral Drugs 1441 7329 3083 10% -52 NA 50 NA

Claris 10674 14376 7625 0% 2446 5% 1,414 4%

Kilitch 570 1100 1414 5% 235 1% 105 2%

Average 11152 18065 7723 10% 1633 19%

660 5%

Industry Average 8531

13,695 7825 15%

1552 21%

651 10%

Venus 1617 3486 4049 18% 896 15% 493 9%

Better P&L

growth numbers

than injectables

peer average

Venus Remedies has performed better than its injectable peers in the

last 4 years as peers’ overall profit declined. Venus managed to

improve PAT at a CAGR of 9%.

Peer revenues have grown at an average of 15%, while Venus has

delivered growth rates of 18% over last four years.

Among the best organic growths

Among the companies performing better than Venus on growth,

Strides Arcolab revenue was boosted by its acquisitions of Ascent

Pharmahealth. Ascent Pharmahealth, one of the biggest branded

generic drug manufacturer in Australia, had sales of US$140mn in

FY10. Strides recently sold out 94% of its stake in Ascent to refocus

Source: Company Data, Four-S Research


Four-S Research 9

on speciality injectables.

As can be seen in the table below, Venus Remedies is among the

outperformers in its peer group on standalone basis as well, signifying

success of Venus Remedies to grow organically at very comfortable

rate. Venus Remedies has managed to propel its growth organically

using its strong product portfolio and strong presence in highly

growing injectable space.

Company Revenue CAGR (FY08-FY11)

Ahlcon Parenterals 11%

Ajanta Pharma 17%

Claris Lifesciences 4%

Indoco Remedies 22%

Kilitch Drugs 8%

Natco Pharma 16%

Nectar Lifesciences 13%

Parabolic Drugs 31%

Parenteral Drugs 22%

Strides Arcolab 9%

Industry Avg 15%

Venus Remedies 19%

Standalone revenues, Rs mn

Comparing key P&L items

Better profitability parameters

Focus on high

margin products

has boosted

margins

Venus Remedies has outperformed most of its peers in profitability in

midcap as well as injectable peers while generating strong growth

numbers in last few years.

While injectable peers have EBITDA margins of 17% on average and

9% PAT margins, Venus Remedies has managed to clock 22% EBITDA

margin for TTM and 12% PAT TTM margins.

Venus Remedies has better margins among its mid-cap peer

companies which are averaging 19% EBITDA and 9% PAT margins

compared to 22% EBITDA and 12% PAT TTM margins of Venus

Remedies.



Four-S Research 10

FY11 Margin (%) TTM Margin (%)

Company EBIDTA PAT EBIDTA PAT

Mid-Cap Peers

Ajanta Pharma 19% 10% 21% 12%

Indoco 13% 11% 14% 9%

Natco Pharma 19% 12% 23% 12%

Nectar 20% 9% 18% 6%

Parabolic Drugs 15% 8% 18% 6%

Average 17% 10% 19% 9%

Injectable Peers

Strides Arcolab 21% 7% 21% 32%

Ahlcon 16% 6% 16% 7%

Parenteral Drugs 10% 1% -2% -20%

Claris 31% 19% 32% 17%

Kilitch 15% 7% 17% 9%

Average 19% 8% 17% 9%

Industry Average 18% 9% 18% 9%

Venus 25% 13% 24% 12%

Balance sheet ratios

Reasonable leverage

Debt Equity (x) Interest Coverage (x)

Company FY10 FY11 FY10 FY11

Mid-Cap Peers Ajanta Pharma 0.83 0.8 2.87 4.02

Parabolic 2.65 1.25 2.03 2.27

Indoco 0.21 0.29 14.3 21.22

Nectar 0.97 1.1 2.59 2.35

Natco Pharma 0.39 0.62 4.88 4.99

Average 1.01 0.81 5.33 6.97

Injectable Peers Ahlcon 0.29 0.66 7.35 3.17

KIlitch Drugs 0.57 0.63 4.27 4.94

Parenteral Drugs 0.62 0.75 3.17 1.3

Claris 0.39 0.38 4.07 4.07

Strides Arcolab 1.57 1.74 1.79 0.97

Average 0.69 0.83 4.13 2.89

Industry Average 0.85 0.82 4.73 4.93

Venus 0.87 0.79 4.28 3.77

Although Venus Remedies has investing heavily in its R&D and

capacity ramp up in last 3-4 years, its debt condition is in line with

industry scenario. Its financial position is pretty much on par



Four-S Research 11

compared to most of its peers as can be seen table above.

Liquidity ratios on par

Current Ratio (x) Cash Ratio (x)

Company FY9 FY10 FY11 FY10 FY11

Mid-Cap Peers

Ajanta Pharma 1.62 1.85 1.55 0.16 0.12

Indoco 2.7 2.79 2.63 0.48 0.31

Nectar 1.26 2.11 1.72 0.17 0.13

Natco Pharma 1.27 1.31 1.53 0.08 0.31

Average 1.71 2.02 1.86 0.21 0.2

Injectable Peers

Ahlcon 1.11 1.58 1.37 0.36 0.1

KIlitch Drugs 1.68 1.42 1.08 0.17 0.38

Claris 1.54 2.53 3.43 1.08 1.04

Strides Arcolab 1.39 2.12 1.86 0.37 0.19

Average 1.43 1.91 1.94 0.43 0.36

Industry Average 1.57 1.96 1.90 0.32 0.28

Venus 1.65 1.50 1.67 0.11 0.11

Venus Remedies is maintaining liquidity status similar to peers in the

industry even though it has under taken high capex in last few years

in R&D and capacity up-gradation.

In March 2012, ICRA has assigned a BBB- rating to Venus Remedies

on its debt facilities, citing comfortable financial risk profile marked

by healthy size of net worth.


Four-S Research 12

Comparing Peer Valuation

Dividing peer set into two parts

In the table below, as earlier, we have presented two sets of peers:

mid-cap pharma companies and companies in injectable space.

Valuation* EV/

EBIDTA (TTM)

CAGRs 4 year Ratios

Company P/E P/E (TTM)

EV/ EBIDTA

EV/ TTM Sales

TTM Sales

TTM NP

D/E ROCE (FY11)

ROE (FY11)

Mid-Cap Peers

Ajanta Pharma 4.62 9.72 8.96 6.13 1.69 17% 32% 0.80 22% 27%

Indoco 10.70 10.84 9.28 8.13 1.24 21% 19% 0.29 14% 15%

Natco Pharma 14.48 19.13 15.80 12.52 2.97 11% 10% 0.62 16% 16%

Nectar 5.35 5.41 5.58 5.58 1.10 13% 11% 1.10 14% 15%

Parabolic 5.00 2.18 5.95 3.60 0.89 31% 21% 1.25 15% 20%

Average 8.03 9.45 9.11 7.19 1.58 19% 19% 0.81 16% 19%

Injectable Peers

Strides Arcolab 9.59 4.85 13.80 11.89 2.53 35% 31% 1.74 12% 17%

Ahlcon 10.83 53.63 31.17 24.11 4.98 4% -11% 0.66 17% 12%

Parenteral Drugs 88.27 -2.29 14.78 -139.91 1.51 32% -36% 0.75 4% 2%

Claris 7.24 7.24 6.07 6.07 1.90 7% 19% 0.38 16% 15%

Kilitch 7.48 4.58 4.97 4.69 0.75 8% -3% 0.63 13% 13%

Average 24.68 13.60 14.16 11.69 2.33 17% 0% 0.83 12% 12%

Industry Average 16.4

11.53 11.6

9.44

1.96 18% 9%

0.82 14% 15%

Venus 3.98 3.28 3.91 4.06 0.96 19% 9% 0.79 19% 23%

*based on latest financial year, +excluding Parenteral Drugs

Venus Remedies is discounted lower compared to all its peers

Sharp valuation

discount to both

injectables and

pharma peers

Venus Remedies is valued at a sharp discount by the market

compared to all of its peers. While Venus Remedies’ PE is ~3x FY12,

industry average is hovering at 8-9x. Amongst the peer set listed

above, parenteral peers get similar valuation compared to pharma

companies, but within the parenteral set as well, Venus is getting a

low valuation.

On a ttm basis Venus Remedies trades at discount of 70%, with a PE

ratio of 3 compared to industry average of 10.63x. Venus Remedies’

EV/EBITDA is at discount of 43% and EV/Sales shows a discount of

38% with respect to industry average.


Four-S Research 13

Valuation and Price Target

Scope for higher valuations

Business

performance

supports better

valuation

In terms of business ratios, like growth rates, operating margins,

balance sheet ratios, Venus is doing as well as its peers.

It is likely Venus’ valuations are still suffering from the resettlement

of FCCB redemptions in FY10. This FCCB was issued in 2006, and

given the bear phase the Indian markets were going through in

FY10, the prevailing share price was much lower than the market

price. Accordingly, investors wanted redemption. However,

ultimately both parties agreed for a settlement at a lower price.

Liquidity situation continues to remain reasonable. The company’s

current rating is BBB-, as awarded by ICRA in March 2012.

Another reason for the low valuation is the high R&D spends, some

of which is passed through the balance sheet. Investors may be

wanting to see more tangible results from the investment on R&D.

We believe this scenario may change going forward as the market

begins to see more results from Venus’s R&D pipeline. We also

expect bottom-line growth to robust over FY12-14, as the company

derives greater share of sales from high margin products. Any

significant deal on Sulbactomax can be a further driver of rerating.

Price Target

3 year P/E band chart

Even if Venus

maintains

current ttm

Venus is currently trading at around 3.3x FY12 eps and 2.6x

expected FY13 eps. This is below its historic trading range of the last

3 years, and around the valuation at the depth of the 2009 bear

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Four-S Research 14

valuations,

Mar’13 price

could touch

around Rs 225

market. These values are also much below peer levels. Similarly, its

EV/EBITDA for FY13 works out to 3.1x, which is much less than peer

levels.

We expect Venus to rerate upwards as market realises the strides it

has made it its R&D portfolio. We expect Venus’s price to cross Rs

200 over a 12 month period, implying a rating of 3.3x expected FY13

earnings. This is an upside of 23% from current levels.


Four-S Research 15

Venus Remedies’ Business

As we noted in the valuation section, the low valuation given to

Venus could partly derive from a lack of understanding of its

business model. Its research model is quite unique compared to

most Indian pharma companies.

Second, inventors might not be giving much weight to its research

capability, and assigning much value to its research pipeline.

All of the above could arise because while Venus Remedies’ focus on

R&D has resulted in significant investments, strong returns are yet to

flow in. As a result, the company has not come close to generating

free cash flows in recent years.

These issues are discussed in detail below.

A vision to break-out from me-too companies

R&D push from

2006

Till year 2000, Venus Remedies was part of the cluttered generic

injectables products segment. At the time, Venus Remedies was

involved in generics injectables only. Realising generic products

would have a limited scope in the future with patent regime coming

into place in India from 2005; Venus Remedies changed its strategy

and decided to focus on innovation to drive its growth.

Venus Remedies started investing in R&D from year 2001. In a short

time of 4 years, they filed for their first patent for Sulbactomax. The

R&D effort is beginning to show steady results since then.

Understanding Venus’ R&D

R&D spends

above peer

levels

Venus Remedies is ranked 3rd among all Indian listed

pharmaceutical companies in terms of R&D spends as a share of

revenues. It is ranked among the top 15 R&D spenders in absolute

terms.

Rank Companies R&D Spend (FY11)

1 Dr Reddy’s Laboratories 8464

2 Sun Pharmaceutical Inds. 2860

3 Matrix Laboratories 2820

4 Cadila Healthcare 2686

5 Cipla 2598

6 Biocon 1725

7 Ranbaxy Laboratories 1670

8 Torrent Pharmaceuticals 1527

9 Lupin 1268

10 Glenmark Pharmaceuticals 983

11 Aurobindo Pharma 815


Four-S Research 16

12 Panacea Biotec 772

13 Piramal Healthcare 716

14 Venus Remedies 696

15 Jupiter Bioscience 567

(Rs mn)

Rank Companies % of revenue

1 Vivo Bio Tech 49

2 Suven Life Sciences 22

3 Venus Remedies 19

4 Jupiter Bioscience 17

5 KDL Biotech 16

6 Sun Pharma Advanced Research Company 14

7 Zenotech Laboratories 12

8 Dr Reddys Laboratories 11

9 Auromed 11

Venus Remedies has invested more than Rs 1.5bn in the last 3

years, which is around 16.5% of its revenue in this period. For last

three years, all the capex is done is also mainly in R&D, up-gradation

and modernisation.

R&D capability of Venus Remedies

A multi-pronged

approach

In licensed

tumour

detection

technology from

University of

Illinois

The Company has proven its R&D capability with the gradual

increase of revenue from the research products and 80+ patents in

hand from over 51 countries. Venus has, in all, 11 testing labs

working together to develop first-of-its kind product through highly

sophisticated technology. It has developed 13 research products in

short span of 9-10 years. At any time, R&D has a pipeline of 20+

products. On average, the Company comes out with 1-2 new

developed products every year.

In FY10, Venus Remedies launched Mebatic, an infusion therapy and

Ampucare, a wound healing therapy, a first of its kind product in

India. In FY12 Venus Remedies launched Achnil, a once-a-day

painkiller.

Venus has a well developed R&D centre with high tech capabilities at

par with stringent cGLP standards. Its R&D centre has a strong 60

member scientist team; 70% of them are PhDs and post graduates.

The Company also benefits from in-licensing alliances with various

innovative companies and university. It has in-licensed solid tumour

detection technology for early detection from University of Illinois.

Such alliances have enhanced company’s R&D capabilities and have

helped to improvise its R&D process.

As of now, Venus is preparing to file more than 100 CTDs and ACTDs


Four-S Research 17

Research Capabilities

Process developme

nt and technology

transfer Analytical research division (ARD)

Chemical and

stability testing

Pre-clinical division (PCD)

Natural product research

Office of research support (ORS)

Clinical research services

each in the coming 3 years to take its present count of 600 ACTDs to

700 and 108 CTDs to 200 by 2015.

Key Research areas

Nano-tech

based sustained

release

formulations

Novel Drug Delivery System (NDDS): Venus has achieved success in

development of nanotechnology-based, sustained release and

targeted delivery formulations with NDDS. This has resulted in

developing formulations with reduced adverse drug reaction and side

effects in therapeutics areas of oncology, NSAID, neuroscience,

arthritic disorders, stress and lifestyle-related diseases, immune

chemistry, infectious diseases and wound healing. NDDS is advance

drug delivery system which improves drug potency, control

drug release to give a sustained therapeutic effect and provide

greater safety. It is used to target a drug specifically to a desired

tissue.

Non-infringing

formulations

Formulation Development: Venus is building its IP through

developing non-infringing formulations. Company is developing

various formulations to revitalise established brands, fill product

pipeline gaps and enhance patient compliance. With the help of

strong regulatory team, Venus has managed to gain early mover

advantage in many leading generic markets.

Research Capabilities:

Process development and technology transfer: Ability to

transfer technology from laboratory to pilot and to manufacturing

scale. This is vital in technology transfer required to scale a


Four-S Research 18

successful molecule and technology transfer in out-licensing deals.

Analytical research division: Capable in developing novel

formulations, analytical development and drug design support.

Chemical and stability testing division: Capability to perform

stability tests as per ICH guidelines provides analytical services to

research dept and meets international quality and regulatory

standards.

Pre-clinical division: Performs pre-clinical trials and oxicological

studies under GLP environment.

Natural product research: screens natural products and drug

development as per pharmacopial and medicine standards.

Office of research support: Bridges the gap between research

and marketing through interactions with the field force, training

marketing teams, addressing queries raised by the PMT team and

designing experiments for research value-addition.

Clinical research services: Division involved in Phase-I, II, III, IV

and BA/ BE clinical studies monitoring, as per GCP, for its research

products to accelerated the delivery of safe and effective

therapeutics.

Key Initiatives in R&D

Cell Culture Molecular Biology (CCMB) laboratory

Working on a

novel cancer

treatment

Venus has setup CCMB laboratory in affiliation with some other

pharma companies to fasten the cancer drugs testing. The company

has 4-5 such products which are expected launched in next 4-5

years. Company is also working on novel cancer drug for target-

specific treatment (90% of the drug will go to the affected area

against the present 10%). This will reduce the side effects of these

drugs and also brings down the costs.

Tie-ups with renowned research institutes

A typhoid

testing kit

through a

research tie-up

Company has tie-ups with IMTECH, a renowned research center of

CSIR and Punjab University. Through this alliance, company is

developing a typhoid diagnostic kit. This kit will reduce detection

time from 48 hrs to few minutes. Company has the authorisation to

market this kit worldwide.

Products conforming to ASEAN CTD

Venus has upgraded its entire product pipeline of 75 products to

ASEAN CTD preparing the entire portfolio for international.


Four-S Research 19

Capitalising the IP

Seeking out

licensing deals

to monetise IP

Venus Remedies understands that it is not easy to capitalise the IP

wealth they are creating in the huge global market. So to maximise

the potential of this IP development, it has a clear strategy in place.

Venus Remedies has appointed a leading consulting firm to seek tie-

ups with international pharma companies for Sulbactomax.

Venus Remedies plans to out-license the patented products to multi-

national and regional companies with specific geographical interest

considered. This will help Venus Remedies to garner the benefits

from market across the globe without having to invest in market

development.

Venus Remedies has already closed an out-licensing alliance with a

major South-Korean Pharma company for Sulbactomax. For FY12,

Venus Remedies expects to get 25% of its revenue from its own

research products.

Venus Remedies’ Manufacturing excellence

Among global leaders in fixed dosage injectable

manufacturing

Venus Remedies is among world’s top 10 injectable manufacturers

and has the largest super specialty injectable manufacturing capacity

in Asia. Venus has strong presence in relatively uncluttered,

specialised, higher margin fixed dosage injectable space. Global

injectable market is pegged at US$200bn in 2010 with generic

market contributing US$20bn of it.

There are limited numbers of players in the injectable space and high

investment is required in setting up the complex plants. This will

keep margins in this segment high with lesser competition to face in

the market.

Prominent Products

15% of FY11

revenue

Sulbactomax: It is the top product in Venus Remedies kitty with

15% revenue contribution in FY12. The company holds patents for

Sulbactomax in South Africa, India, 37 countries of the European

Union, Russia, Ukraine, Mexico, Australia and New Zealand while

patent is still awaited in six countries including US and Brazil.

Sulbactomax is the only product in its category to prevent bacterial

resistance. Sulbactomax is a formulation of ceftriaxone and

sulbactam with VRP1034. The global injectable antibiotic market is

US$200bn of which Ceftriaxone alone accounts around US$1.2bn.

Sulbactomax aims to target a significant share of this market

because of the growing bacterial resistance. Venus is currently

marketing this product in India and seven other countries.

Potentox: It is ranked second in Venus Remedies with respect to


Four-S Research 20

4.2% of FY11

revenue

revenue contribution (4.6% in FY12). Company has patents in South

Africa, New Zealand, South Korea, Australia, Ukraine and India.

Patents awaited from 44 other countries including EU and US.

Potentox, a research-based super-specialty product is used for

treating hospital and community acquired pneumonia and febrile

neutropenia. It reduces pneumonia treatment time from 21-30 days

to 7-10 days and reduces drug and disease-induced toxicities. This is

the only solution to growing flouroquinolene and aminoglycoside

resistance.

3% of FY11

revenue

Vancoplus: It is third biggest product of Venus with 3% of revenue

in FY11. The company holds patent in US, Japan, Australia, South

Africa, New Zealand and Ukraine. Patents awaited from 44 other

countries including EU and Brazil.

It is the only remedy after vaccination to treat superbug like MSRA,

VRSA, VRE and multi-drug-resistant microbes causing meningitis.

The product effectively stops the spread of resistance by preventing

bacterial conjugation.

2% of FY11

revenue

Tobracef: Tobracef contributed 2% of revenue in FY11. It’s a

research-based anti-infective product catering to Pseudomonal

infections caused in Cystic Fibrosis and HAP with patents in South

Africa and patents awaited from other countries. Once company get

patents and authorisation in major regulated market, this could also

turn out to be major blockbuster project for Venus Remedies.

Neurotol: Neurotol is an innovative product which contains mannitol

and glycerine. Neurotol is used in the management of raised

intracranial pressure and brain oedema associated with cerebral

infraction, intracerebral hemorrhage, head injury, subdural

hematoma, brain tumour, encephalitis and toxemia. Neurotol is

widely accepted by medical fraternity like neurosurgeons and

neurophysicians. The synergy of mannitol and glycerin in Neurotol

prevents the chances of rebound oedema. Mannitol is known to

provide immediate effect while glycerin is helpful for sustained

effect. Venus is the first company to introduce this product. Neurotol

offers improved patient compliance with no side-effects when

compared with plain generic mannitol.

Launched in

FY11

Achnil: Achnil is an NDDS based controlled and sustained release

NSAID (non steroidal anti-inflammatory drug) injection. It is the

world’s first once-a-day pain killer injection which replaces the three

injections per day therapy. It has already got patent application in

EU and India while patent in US in under process. Achnil was

launched in FY11 in the domestic market. The product prevents post

surgical adhesion and has high levels of safety.

Venus Research Product portfolio


Four-S Research 21

Products Therapy Nature

Sulbactomax Caters to ESBL, NMD-1, Penem Resistance Injection

Vancoplus Caters to MRSA, VRSA & VRE Injection

Potentox Caters to HAP, Febrile Neutropenia Injection

Tobracef Developed for Cystic fibrosis Injection

Zydotum For Pseudomonas Infections In Burns Injection

Supime Intra-abdominal infections caused by various pathogens and post-operative infections

Injection

Pirotum Treatment of peritonitis and complicated intra-abdominal infections, pirotum is indicated. continuous ambulatory pulmonary dialysis, management of lower respiratory tract infections and febrile neutropenia

Injection

Neurotol For raised intracranial pressure and brain oedema associated with cerebral infraction, intracerebral hemorrhage, head injury, subdural hematoma, brain tumour, encephalitis and toxemia.

Infusion

Mebatic For pre and post surgical procedures, pelvic infections, urinary tract infections, urogenital tract infections, typhoid and prevention of ICU infections due to anaerobes.

Infusion

AMR compatible research products

AMR has rapidly

emerged as a

big global

health threat

Antibiotic Resistance is spreading faster than expected throughout

world and the poor R&D pipeline for new antibiotics is further adding

up this menace. Recently, World Health Organisation (WHO) has also

taken this issue with vigour by making this as main theme for World

Health Day. According to WHO, AMR results in prolonged illness and

greater risk of death. AMR not only increase overall health cost bur

WHO feels world may end up in pre anti-biotic era.

AMR has become serious problem for treatment for many major

diseases like HIV, tuberculosis, malaria, gonorrhoea and many more.

Risk factor involved in the infectious diseases has grown much more

than it even existed and if it would keep on growing at the same

pace, the world will soon reach the pre-antibiotic era again.

The situation has deteriorated to an extent that even a mild infection

can be deadly in today's world. The rising misuse and under usage

has made the life saving antibiotics ineffective against the microbes.

Reports say that US households lost approximately US$35bn in 2000

to antibiotic resistant infections including lost wages, extended

hospital stays and premature deaths. The annual cost to the US

health care system of antibiotic resistant infections is US$21bn to

US$34bn and more than 8mn additional hospital days.

In 29 countries of European union, an estimated 25,000 people die

every year because of the infections related to antibiotics resistance.

The medical cost per patient suffering from an antibiotic resistance

(ABR) infections ranges from US$18,588 to US$ 29,069. According

to the BCC Research report, the global market for infectious disease

treatments was valued at $90.4 billion in 2009. This market is

expected to increase at a compound annual growth rate (CAGR) of


Four-S Research 22

Products Category Dose Indications

Sulbactomax Antibiotic Once daily IM/ IV injection in mild to moderate infections and twice daily in severe infections

Infections caused by ESBL resistant

pathogens:

Lower respiratory tract infection

Urinary tract infection Skin infections Surgical prophylaxis Bone and Joint infections Acute bacterial septicemia Acute Otitis media

Potentox Antibiotic Twice Daily Multi-drug resistance of:

Nosocomial Pneumonia

Febrile Neutropenia Other severe hospital acquired

infections

Vancoplus Antibiotic Twice Daily IV injection in mild to

moderate infections and thrice daily in severe infections.

Infections caused by resistant pathogens

such as MRSA:

Meningitis

Septicemia Skin and skin structure infections Bone and joint infections Post operative infections

Tobracef Antibiotic Twice Daily injection Acute pulmonary exacerbations due to:

Cystis fibrosis

Pneumonia COPD

Presence in highly specialised generics

Within generics, which were around 75% of revenue in FY11, Venus

has shifted focus to high margin products. Currently, Venus sells

around 75+ products, with around 20+ products under development

8.8% to reach US$138bn in 2014. The antibiotics market generated

sales of US$42bn in 2009 globally, representing 46 percent of sales

of anti-infective agents (which also include antiviral drugs and

vaccines) and five percent of the global pharma market.

Inception of new antibiotics is getting difficult because of the present

drug development scenario which is fraught with financial,

regulatory, ethical and scientific bottlenecks. Due to huge investment

in R&D and less output (financially) out of the product dejects the

pharmaceutical companies to invest in it.

Today, Venus Remedies is one of the few R&D led companies to have

innovated and developed a comprehensive range of novel antibiotic

combinations which not just provide relief from the aggravated

problem of antibiotic resistance but also are cost-effective and have

reduced side effects. All products which came out of Venus research

efforts do cater to antimicrobial resistance.


Four-S Research 23

Carbapenams, a

key part of

generics folio

Oncology

generics are

about 29% of

revenue

phase at any point of time.

Meropenem is one such generic product (carbapenem injection).

Venus Remedies has received market authorisation for Meropenem

in EU. This represents a €150mn market opportunity, putting Venus

among the top 3 EU-GMP manufacturers globally of carbapenem

antibiotics.

The Company has also received market authorisation for

Imipenem+Cilastatin, Docitaxel and Irinotecan in the European

Union. Similarly Venus also has market authorisation in for

Gemcitabine for U.K., Germany, Poland Slovania, Portugal and

Macedonia.

Venus also has strong presence in oncology segment with 21

injectables in its portfolio. Oncology segment contributed more than

30% to FY11 revenues, with extremely good margins. These are

much specialised products and high technology is required in

manufacturing these products.

A key oncology product for Venus Remedies is Gemcitabine, for

which it has marketing authorisation for in EU and UK. Gemcitabine

is established as a gold standard therapy in treating pancreatic

cancer.

Venus understands the importance of this highly specialised, high

technology, high margin oncology business. Hence, the Company has

setup a dedicated sub-business unit for oncology business covering

almost all cancer types just to further strengthen the focus on it.

Oncology segment is likely to remain high growth has patents of

oncology injectables, currently worth US$8.3bn, are set to expire by

FY2015.

Products kitty

As can be seen, Venus has a strong kitty of 8 R&D products

marketed in 12 nations. In the high margin oncology segment, it has

19 products with presence in 23 nations. Carbapenem and

Cephalosporin has 20 products, with Carbapenem products sold in 23

nations.

Category No. of products Presence

R&D products 8 products 12 nations

Oncology liquid 10 products (in various dosage forms)

19 nations

Oncology lyphilised 9 products 23 nations

Carbapenem 3 products 23 nations

Cephalosporin and other 17 products 18 nations

injectables

PFS and infusions 5 products 11 nations


Four-S Research 24

Bigger the pipeline, greater the in-flow in future

Typhoid and

tumour

detection kits

part of IP

pipeline

Venus Remedies has strong R&D product pipeline as of now with

more than 10 products at various stages of research. This comprises

of products from therapeutic segments such as oncology, anti-

infection and neuro.

Some of the products close to commercialisation include a Typhoid

detection kit. With 17mn patients every year for typhoid, this

detection kit has the potential to be a key revenue generator for

Venus Remedies in future. The kit reduces the time taken for a

typhoid test sharply, from 48 hours to few minutes.

Similarly Venus has Tumatrek, an early tumour detection test in

phase III and DPPC, a novel triple conjugate for targeted delivery of

anticancer drug in preclinical phase. Venus also has products on

oral, breast and ovarian cancer under pre-clinical tests.

This strong pipeline creates strong prospects for Venus Remedies to

drive the growth with its research products.

Accolades & Awards showcasing research efforts

Venus has received number of awards and accolades in last few

years affirming the efforts and path chosen by the company. Venus

has won awards for its research products and patents filed by

company and as emerging company & manufacturing excellence.

List of awards won by Venus Remedies:

BioSpectrum Product of the Year 2012 award for its novel research

product 'ACHNIL', a once-a-day painkiller.

Gold Patent award 2011 for the novel research drugs presented by

Pharmexcil.

The Bizz- Business Excellence Award 2011 received in US.

'Silver Certificate of Merit' in the Economic Times' India

Manufacturing Excellence Awards (IMEA), 2011 held in Mumbai.

'Emerging Company of the Year 2011' award in the 4th annual

Pharmaceutical Leadership Summit & Award 2011.

Best SMB Award 2008

Emerging India Award 2007 presented by Dr. Manmohan Singh

Prime Minister of India.

Ampucare Gold Medal 2010 'India Innovation Program- 2010' organized by Lockheed Martin (USA), FICCI and DST (India)‏.

Trois: Gold Medal 2011 'India Innovation Programme - 2011'

organized by Lockheed Martin (USA), FICCI.

Quality Award 2011 in Gold category from BID International

convention at Geneva.

2011 Spotlight award for the Annual Report in the LACP's (League

of American Communications Professionals) Global Communication

Competition In Bronze category in San Diego, USA.

Marketing & Distribution


Four-S Research 25

Pan India

distribution

reach

Venus has established a pan-India marketing presence covering 24

States and two Union Territories, supported by over 700 marketing

professionals.

Venus Remedies has reach of 2,000 stockists and 40 distributors

across India for the domestic market. These help target over 40,000

Pharmacies and 120,000 medical practitioners. The company has

strong emphasis is on developing network of medical practitioners in

critical care segment to address their specialised product market.

Marketing Alliances to expand the reach

Enhanced by

tie-ups with

other pharma

companies

To improve the reach within the domestic market, Venus Remedies

has entered into tie-ups with many renowned Indian Pharma

companies like Abbot, IPCA, Glenmark, Lupin, Elder, etc. To target

the international markets in a better way, Venus Remedies has 11

overseas offices to cover 60 countries. Venus Remedies sells 44

products internationally with 3 research products launched till now.

Similar to its domestic market strategy, Venus Remedies has made

20+ international alliances for its international market.

Global Presence

Direct overseas

presence in 11

countries

To capitalise on its IP pipeline, Venus Remedies has developed multi-

regional presence across the globe. Venus has setup 11 overseas

marketing offices covering 60 countries up from 19 countries in

FY08. The 22 member team promotes 52 products across the globe.

It has export presence in 25 countries with the help of these offices.

World Class manufacturing capacities

3 manufacturing

plants, 2 in

India, one in

Germany

Venus Remedies has state of the art manufacturing facilities with the

latest technology. The company has invested more than Rs 2bn for a

100mn units injectable manufacturing facility at its unit in Baddi,

Himachal Pradesh. This has resulted in more than 20 international

GMP certifications from more than 50 countries. This facility

manufactures in all 75+ super specialty products.

In all, Venus Remedies has 3 manufacturing locations: Baddi,

Panchkula (India) and one in Germany. All are with EU-GMP and

WHO-GMP certification along with other certifications.

Its Panchkula site has 7.5mn units capacity for large volume

parenterals accredited with WHO-GMP. Products manufactured at

this facility include Mebatic, Calridol, Moximicin, Neurotol, Glutapep,

among others.

The Baddi campus has eight small volume parenteral facilities. It

manufactures oncology injections, oncology lyophilised, lyophilised

injections, pre-filled syringes and cephalosphorins. It has been

accredited with more than 20GMPs. Recently; its Baddi plant has

received GCC certification for oncology and carbepenem products,

the first in India.


Four-S Research 26

Venus Pharma GmbH (Germany)

With the goal in mind to be a true global Pharma company, Venus

acquired the German Pharma company in 2006. It’s strategically

located in the second largest Pharma market and largest in Europe,

Germany. This acts as an entry vehicle for Venus Remedies products

in European market.

Venus Pharma GmbH helps Venus Remedies to generate export

orders for its products, executes site transfer projects and supports

in CTDs filing.

Revenue distribution

Dry powder and

oncology are

the two key

segments

Venus Remedies has a strong existence in dry powder segment

constituting 33% of revenue in FY11. Cehpalosporin and penem

products constitute this dry powder segment. Venus Remedies has

strong presence in this segment in both generic products and also in

research products. With multiple countries GMP certification for its

manufacturing plant, the export market may grow at very good rate

for this segment.

With many products still new in the market and in the process of

developing its market, high growth in all the segments especially in

oncology, dry powder is very much visible in the coming few years

31%

33%

12%

24%

Revenue Distribution

Anti-cancer

Cephalosporin (Inc Carbapenem)

Infusions

SVP & Others


Four-S Research 27

Focus on higher margin products

Dry power share

coming down

In line with focus on high margin products, share of revenue of dry

powder products is coming down.

Increasing higher margin oncology segment

Oncology is a

focus segment

for Venus

Oncology segment contributes almost 31% of overall revenue of

Venus Remedies. Due to complex products, critical nature and

sophisticated technology involved in this segment, margins are

better here.

Venus Remedies has successfully managed to improve oncology

contribution. Oncology segment has grown CAGR of 30% in last 4

years. With more than 300 market authorisations from 25 countries,

0%

10%

20%

30%

40%

50%

60%

1,000

1,050

1,100

1,150

1,200

1,250

1,300

1,350

FY08 FY09 FY10 FY11 FY12E

INR m

n

Dry Powder Revenues

Dry Powder % of Total Revenues

0%

5%

10%

15%

20%

25%

30%

35%

0

200

400

600

800

1,000

1,200

1,400


Oncology biz growth

Oncology Segment % of Revenue


Four-S Research 28

the company should be able to maintain this thrust.

Risk Factors

Venus Remedies has the policy of capitalising major portion of its

R&D expenditure. In FY11, Venus Remedies capitalised Rs 557mn of

R&D expenditure out of its Rs 686mn R&D expenditure. R&D

expenditure capitalisation is not new for pharma companies as most

of Indian pharma companies do capitalise part of their R&D

expenditure. Yet amount of R&D expenditure capitalised is much

higher compared to many other major pharma companies.

The Company attributes this to expenditure on research which is yet

to be commercialised; around 360 patent applications are still

pending. The Company is capitalising expenditure on R&D, IPR, CTD

/ACTD and other product registration expenses, R&D activities like

clinical trials, process development & technology transfer, in

licensing and formulation development from in-licensed technology,

expenses on analytical & chemical research on products under

commercialization, etc.

This R&D expenditure capitalisation is also reflected in cash flow.

Though Venus has good positive operation cash flow, company is

suffering from negative free cash flow.


Four-S Research 29

Financial Analysis and Growth Outlook

15% CAGR for revenue expected during FY’12-14

The Company’s net revenues have grown at a CAGR of 18% over

FY’08-’12E (for FY12 only stand alone results declared so far,

consolidated are our estimates) to Rs 4.78bn from Rs 2.15bn in FY08.

4 year revenue

CAGR is 18%, 3

year growth is

12%

(Rs mn)

The top line of Venus is expected to grow at CAGR of 15% over FY11-

14.

Growth to be

driven by newly

launched

products and

expansion in

regional

presence

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

FY'08 FY'09 FY'10 FY'11 FY'12E

Revenue Growth

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

FY'11 FY'12E FY'13E FY'14E

Revenue Growth Expected


Four-S Research 30

Segment Performance

Oncology and Dry powder are major revenue contributors, making up

30.7% and 33% of revenues in FY12 respectively. One can see the

growing contribution of oncology segment to Venus Remedies.

Strong growth

seen in

Oncology

segment

Oncology segment

Oncology segment is growing at handsome rate of 42% in last 4 years

growing from Rs 269mn in FY07 to Rs 1,047mn in FY11. This growth

was driven by increasing demand from the segment, more than 375

market authorisations across the globe and more than 21 injectable

products.

Cephalosporin (Dry powder)

Cephalosporic segment has grown at stable rate of 10% CAGR in last 5

years. This is mainly driven by new research products which are

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E

Revenue Mix

Anti- Cancer

Dry Powders

IV fluids

S.V.P(Injections/Amp/PFS)

Others

0

200

400

600

800

1,000

1,200

1,400


Growth in oncology segment


Four-S Research 31

increasing their revenue contribution as the time passes and are

expected to add high value in the years to come.

Margins expected to move up

Venus Remedies has maintained good margins historically. It has

managed to maintain EBITDA margins of 20-25% through out last few

years. With the range of products launched recently and increasing

contribution from oncology, this segment is further expected to

improve.

Venus Remedies EBITDA is expected to grow from Rs 303mn in FY07

to Rs 1022 in FY12 at CAGR of 28%.

Net profit is expected to grow from Rs 238mn in FY07 to Rs 493mn at

the CAGR of more than 16%.

Net profit has

grown at 16%

CAGR over

FY07-12

20%

21%

21%

22%

22%

23%

23%

24%

24%

25%

25%

-

200

400

600

800

1,000

1,200

FY'07 FY'08 FY'09 FY'10 FY'11 FY'12E

Impressive EBITDA performance

EBITDA EBITDA Margin

250

300

350

400

450

500

550

FY'07 FY'08 FY'09 FY'10 FY'11 FY'12E

Net Profit Growth


Four-S Research 32

Financial Annexure

Profit & Loss Statement

Income Statement FY'08 FY'09 FY'10 FY'11 FY'12E FY'13E FY'14E

Gross Sales 2,165 2,692 3,144 3,637 4,196 4,795 5,554

Less : Excise Duty 9 4 4 6 0 7 8

Revenue from Operations 2,156 2,688 3,140 3,631 4,196 4,788 5,546

Decrease/(Increase) in Stock -48 -82 -62 -39 -90 -66 -77

Raw Materials Consumed 1336 1668 1885 2054 2398 2666 3055

Manufacturing/Other expenses 73 107 147 171 199 228 264 Payments to and provision for employees 119 141 167 200 253 301 362

Power & Fuel Cost 19 20 17 27 34 38 44

Selling and Distribution Expenses 62 98 153 198 231 264 305

Administrative & Other expenses 57 87 91 119 150 171 198

Miscellaneous Expenses 25 23 14 9 0 0 0

Total Expenses 1,643 2,063 2,413 2,739 3,174 3,602 4,152

EBITDA 512 625 728 892 1,022 1,186 1,395

Depreciation 50 68 125 181 249 275 307

EBIT 462 558 603 711 773 912 1,087

Other Income 19 3 2 4 11 13 15

Financial Expenses 48 84 141 189 256 256 256 Profit before tax and Exceptional Items 433 477 464 526 528 668 846

Exceptional Items

-

-

-

- - - -

Profit before tax 433 477 464 526 528 668 846

Tax 75 37 68 64 36 58 90 Profit after tax before minority interest 358 440 396 462 493 610 755

Reported net profit 358 440 396 462 493 610 755

(Rs mn), consolidated financials


Four-S Research 33

Balance Sheet

Balance Sheet FY'08 FY'09 FY'10 FY'11 FY'12E FY'13E FY'14E

Shareholder's Equity

Share Capital 85 85 85 133 188 188 188

Reserves and Surplus 784 1,259 1,627 2,236 2,896 3,506 4,261

ESOPs - - - - - - -

Total equity capital 890 1,386 1,712 2,369 3,083 3,693 4,449

Liabilities

Secured Loans 475 698 917 1,648 1,966 1,966 1,966

Unsecured Loans 482 618 577 221 215 215 215

Deferred Tax Liability 42 60 76 92 94 96 96

Total Liabilities and Owner's Equity 1,889 2,762 3,281 4,330 5,358 5,971 6,726

Assets

Goodwill on consolidation - - - - - - -

Gross Block 1,526 2,096 2,609 3,429 4,332 4,930 5,653

Less: Depreciation 138 192 314 496 745 1019 1326

Net Fixed Assets 1388 1905 2295 2933 3588 3911 4327

Work-in-progress 14 8 7 145 200 225 325

Investments - - - - - - -

Inventory 278 446 619 754 960 1066 1200

Debtors 169 330 283 357 430 535 619

Cash and Bank Balance 11 16 24 31 42 67 95

Other Current Assets 0 0 0 0 0 0 0

Loans and Advances 183 239 260 378 464 583 700

Total Current Assets 1,518 1,519 1,520 1,521 1,522 1,523 1,524

Current Liabilities 86 113 98 116 190 250 330

Provision 106 92 121 162 145 175 220

Total Current Liabilities 192 205 220 278 335 425 550

Net Current Assets 449 825 967 1242 1561 1825 2064

Total Assets 1889 2762 3281 4330 5358 5971 6726

(Rs mn)


Four-S Research 34

Cash Flow Statement

Cash Flow Statement FY'08 FY'09 FY'10 FY'11 FY'12E FY'13E FY'14E

Net Profit/(Loss) before Tax 433 477 464 526 528 668 846

Depreciation 50 52 125 182 249 275 307

Deferred Employee Compensations 4 2 2 0 0 0 0

Expenses Amortised 15 14 13 9 0 0 0 Adjustment of excess mat Transferred to gen reserve 0 0 -15 53 52 53 50

Adjustment for FBT -2 -3 25 4 0 0 0

Operating Cash flow before Wcap 500 541 613 774 830 996 1203

Adjustments for increase /decrease in Current Assets -275 -275 -148 -327 -365 -329 -336 Decrease / Increase in Current Liabilities/ Provisions -33 -72 -123 -73 57 90 125

Extraordinary Items -2 -4 0 0 0 0 0

Cash Generated from Operations 190 189 342 373 522 756 992

Direct Taxes Paid 0 0 0 0 -86 -109 -140

Operating Cash flow- A 190 189 342 373 436 647 852

Purchase/Sale of Fixed Assets (net) -743 -570 -512 -820 -904 -598 -724

Decrease in Capital Work-in-Progress (including capital advances) 403 6 0 -144 -55 -25 -100

Interest received 1 0 0 0 0 0 0

Cash from Investing activities- B -338 -564 -512 -964 -959 -623 -824

Proceeds from Issue of Share Capital 0 0 0 48 54 0 0

proceed from share capital(share premium) -26 198 0 175 166 0 0

Proceeds from Long Term Borrowing( Net) 133 160 25 731 318 0 0

Proceeds from Short term Borrowing( Net) 22 20 153 -357 -6 0 0

Cash from Financing activities- C 129 379 178 598 533 0 0

Change in Cash= A+B+C -19 5 8 7 11 25 28

Opening Balance 30 11 13 24 31 42 67

Closing Balance 11 16 21 31 42 67 95

(Rs mn)


Four-S Research 35

Ratios

Ratios FY'08 FY'09 FY'10 FY'11 FY'12E FY'13E FY'14E

EPS 42.4 52.0 46.7 50.6 50.6 62.6 77.5

CEPS 22.5 22.4 40.4 40.9 44.8 66.5 87.4

DPS 2.0 2.5 1.0 1.3 1.4 1.7 2.1

Valuation Ratios

P/E Ratio 9.1 2.9 5.5 4.0 3.3 2.6 2.1

EV/EBITDA 8.2 4.1 5.0 4.1 3.7 3.1 2.7

EV/Sales 2.0 1.0 1.2 1.0 0.9 0.8 0.7

Profitability

EBITDA margin 23.8% 23.3% 23.2% 24.6% 24.4% 24.8% 25.1%

Pretax margin 20.1% 17.7% 14.8% 14.5% 12.6% 14.0% 15.3%

Net margin 16.6% 16.4% 12.6% 12.7% 11.7% 12.7% 13.6%

Return on avg. Equity 21.7% 38.6% 25.5% 22.7% 18.1% 18.0% 18.6%

Return on avg. Capital employed 18.1% 24.5% 20.4% 19.1% 16.3% 16.4% 17.4%

Growth Ratios

Revenue growth 53.7% 24.7% 16.8% 15.6% 15.6% 14.1% 15.8%

EBITDA growth 69.3% 22.0% 16.3% 22.6% 14.5% 16.1% 17.6%

Net profit growth 52.5% 10.0% -2.7% 16.8% 6.6% 23.9% 23.8%

Activity/Turnover Ratios

Asset turnover 0.9 1.3 1.1 1.0 0.9 0.9 0.9

Working Cap turnover 6.2 4.2 3.5 3.3 3.0 2.8 2.9

Debtors turnover 16.3 10.8 10.3 11.3 11.3 9.9 9.6

Debtor Days 22.4 33.8 35.6 32.2 32.2 36.8 38.0

Inventory turnover 9.4 7.4 5.9 5.3 4.9 4.7 4.9

Inventory Days 38.8 49.2 61.9 69.0 74.6 77.2 74.6

Payables turnover 32.2 27.0 29.7 33.8 27.4 21.8 19.1

Payables Days 11.3 13.5 12.3 10.8 13.3 16.8 19.1

Liquidity Ratios

Current Ratio 1.4 1.7 1.5 1.7 1.6 1.8 1.8

Cash Ratio 0.2 0.1 0.1 0.1 0.1 0.1 0.2

Solvency

Debt Equity 1.1 0.9 0.9 0.8 0.7 0.6 0.5

Leverage Ratio 2.1 2.0 1.9 1.8 1.7 1.6 1.5

Net Debt / EBITDA 1.8 2.1 2.0 2.1 2.1 1.8 1.5

Interest Coverage 9.7 6.6 4.3 3.8 3.0 3.6 4.2


Four-S Research 36

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