Ajanta Pharmaceuticals (AJAPHA)content.icicidirect.com/mailimages/IDirect_AjantaPharma_Q4FY16.pdfThe...

May 2, 2016

ICICI Securities Ltd | Retail Equity Research

Result Update

Exports drive overall growth… • Revenues grew 14.6% YoY to | 425.7 crore (I-direct estimate: | 437.4

crore) on the back of 20.5% growth in exports to | 300 crore. Domestic sales grew 7.6% to | 122.7 crore

• EBITDA margins declined 210 bps YoY to 33% (I-direct estimates: 36.6%) mainly on account of an increase in employee cost and higher R&D. R&D as a percentage of sales increased to 8.5% from 6.4% in Q4FY15. EBITDA increased 7.7% YoY to | 140.5 crore (I-direct estimate: | 160 crore)

• Adjusted net profit increased 33% YoY to | 106.3 crore, (I-direct estimate: | 103.7 crore) on the back of lower taxation

Domestic formulations - Focus on new launches, few therapies Domestic branded formulations constitute 28.7% of FY16P revenue. The main distinguishing factor is the uncanny knack of launching maximum number of first time launches with focus on new drug delivery system (NDDS). Of ~190 actively marketed brands, ~135 were first in India. The focus on specialty therapies and niche product led APL to post strong growth at 28.5% CAGR in FY11-16P, far higher than industry growth of ~12%. Going ahead, we expect domestic formulations to grow at a CAGR of 21.6% in FY16P-18E to | 786.5 crore driven by a mix of existing products and new launches. Exports traction manly from emerging markets Export formulations constitute 67.2% of FY16P revenues. APL is currently deriving almost its entire export revenues from emerging regions such as Africa (Franco Africa), Asia and LatAm with a presence in more than 35 countries. As opposed to the common practice of forging alliances with regional pharmaceutical players, APL’s front-end marketing team interacts directly with doctors. The company has consistently introduced new products in these markets. Similarly, the African WHO tender business has also provided strong growth traction. Overall export formulations have grown at a CAGR of 32.1% in FY11-16P to | 1162.5 crore. We expect exports to grow at a CAGR of 9.9% in FY16P-18E to | 1404 crore driven by consistent product launches. Low profile but focused; US foray important for scalability With a focus on niche therapies in domestic formulations and a calculated approach in the exports market, APL remains an interesting candidate from the midcap pharma space with high growth rates, strong margins, commendable return ratios and a lighter balance sheet. Defying the normal trend of targeting developed markets for generic generics initially, the company focused on branded generics in the semi-regulated markets. At this juncture, the company is well poised to foray into the US market especially once the newly constructed Dahej plant gets USFDA approval. The company has filed 26 ANDAs with the USFDA and received seven product approvals. Visibility intact amid near term challenges; maintain BUY The company is entering the stretched phase of capex across two to three years to bolster the domestic business and exports franchise, especially the US. This, we believe is a calculated move as Ajanta prepares to scale up in the backdrop of 1) challenges in the domestic Derma space 2) currency translation issues in emerging markets and 3) slower-than-expected offtake in the US. With a strong balance sheet and high return ratios, we believe the time is ripe for the company to enter the capex cycle, the benefit of which is likely to pan out beyond FY18. We maintain our target price of | 1780 based on 28x FY18E EPS of | 63.6.

Rating matrix Rating : Buy

Target : | 1780

Target Period : 15-18 months

Potential Upside : 15%

What’s Changed? Target Unchanged

EPS FY16P Changed from | 44.1 to | 45.7

EPS FY17E Changed from | 49.3 to | 48.9

EPS FY18E Unchanged

Rating Unchanged

Quarterly Performance

Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%)Revenue 425.7 371.5 14.6 472.8 -10.0EBITDA 140.5 130.4 7.7 163.5 -14.1EBITDA (%) 33.0 35.1 -210 bps 34.6 -157 bpsAdj. Net Profit 106.3 79.9 33.0 111.3 -4.5

Key Financials (|crore) FY15 FY16P FY17E FY18E

Revenues 1480.6 1729.4 2011.0 2368.9

EBITDA 505.2 582.3 682.2 791.8

Net Profit 309.9 405.7 431.7 561.5

EPS (|) 36.0 45.7 48.9 63.6

Valuation summary

FY15 FY16E FY17E FY18E

PE (x) 44.0 33.6 31.6 24.3

M.Cap/ Revenues (x) 9.2 7.9 6.8 5.8

EV to EBITDA (x) 26.8 23.3 19.9 16.8

Price to book (x) 16.2 11.6 9.0 6.9

RoNW (%) 37.8 34.4 28.4 28.5

RoCE (%) 50.3 43.7 38.5 36.0

Stock data

Particular

Market Capitalisation

Debt (FY16P)

Cash (FY16P)

EV

52 week H/L 1720/1103

Equity capital

Face value | 2 crore

| 17.6 crore

| 13609 crore

Amount

| 13591 crore

| 73 crore

| 55 crore

Price performance (%) 1M 3M 6M 1Y

Ajanta Pharma 9.1 25.6 -3.5 18.2Alembic Pharma 1.8 3.2 -6.5 31.6Torrent Pharma 3.2 3.4 -9.8 23.3

Ajanta Pharmaceuticals (AJAPHA) | 1543


Variance analysis Q4FY16 Q4FY16E Q4FY15 Q3FY16 YoY (%) QoQ (%) Comments

Revenue 425.7 437.4 371.5 472.8 14.6 -10.0 YoY growth in revenues on account of 20.5% growth in export formulation led by African tender business

Raw Material Expenses 95.5 106.8 89.6 115.5 6.5 -17.3Employee Expenses 69.1 61.2 54.7 64.9 26.3 6.4Other Expenditure 120.7 109.4 96.7 128.9 24.7 -6.4 R&D spend was 8.5% as % of sales against 6.4% in Q4FY15Total Operating Expenditure 285.2 277.4 241.1 309.3 18.3 -7.8EBITDA 140.5 160.0 130.4 163.5 7.7 -14.1EBITDA (%) 33.0 36.6 35.1 34.6 -210 bps -157 bps Decline in EBITDA margins was mainly due to higher employee and R&D expenses.

Miss vis-à-vis I-Direct expectations due to higher-than-expected R&D spend

Interest 1.1 1.5 1.5 1.5 -24.8 -26.8Depreciation 12.1 11.7 13.2 11.7 -8.9 2.7Other income 3.4 1.5 5.0 1.6 -32.1 111.3PBT before EO 130.7 148.2 120.7 151.8 8.3 -13.9Less: Exceptional Items -2.4 0.0 8.5 0.0 PL 0.0PBT 133.1 148.2 112.2 151.8 18.6 -12.3Tax 24.4 44.5 40.8 40.5 -40.1 -39.8 Lower Taxation was mainly due to higher tax benefits on incremental R&D capex

MI & Share of loss/ (gain) asso. 0.0 0.0 0.0 0.0 0.0 0.0Adj. Net Profit 106.3 103.7 79.9 111.3 33.0 -4.5 Strong YoY growth mainly on account of lower taxationKey MetricsDomestic 122.7 127.2 114.0 134.0 7.6 -8.5 YoY growth driven by 22% growth in cardiology segmentExports 300.0 294.9 249.0 332.3 20.5 -9.7 The growth was driven by 30.8% YoY growth in Africa led by tender business

Source: Company, ICICIdirect.com Research Change in estimates

(| Crore) Old New % Change Old New % Change CommentsRevenue 1,904.3 2,011.0 5.6 2,289.4 2,368.9 3.5 Increased on the back of higher African tender business guidanceEBITDA 657.6 682.2 3.7 790.6 791.8 0.2EBITDA Margin (%) 34.5 33.9 -61 bps 34.5 33.4 -111 bps Changed as per management guidancePAT 436.0 462.5 6.1 562.1 561.5 -0.1EPS (|) 49.3 52.4 6.2 63.6 63.6 -0.1 Changed mainly on account of changes in EBITDA and taxation

FY17E FY18E

Source: Company, ICICIdirect.com Research Assumptions

Comments(| crore) FY15 FY16P FY17E FY18E FY17E FY18EBranded - domestic 417.6 496.7 616.1 771.9 608.9 763.6Institutions- domestic 61.4 35.0 14.6 14.6 14.4 14.4Exports Total 978.1 1,162.5 1,274.8 1,404.0 1,243.6 1,466.5

Current Earlier

Source: Company, ICICIdirect.com Research


Company Analysis Established in 1973, APL is mainly into exports as well as domestic formulations. As of FY15, the exports: domestic formulation ratio was at 65:35. The company owns five manufacturing facilities - four in Aurangabad, Maharashtra and one in Mauritius. Of these five facilities, only one in Aurangabad is an API facility, rest all are formulations. Consolidated revenues, EBITDA and PAT have grown at a CAGR of 31.1%, 48.6% and 58%, respectively, in FY11-16P. APL had come out with a maiden IPO in March 2000. It raised | 68 crore, which was earmarked for capacity expansion and debt repayment. Domestic formulations constitute 30.7% of the total consolidated turnover (FY16P). This segment has been further segregated into two sub-segments- 1) Branded formulations and 2) Institutional business. Initially, the company was catering to the institutional business. Institutional sub-segment accounts for ~6.6% of domestic formulations and is mainly confined to government and institutional tenders. It is only in the last 10 years that the focus was shifted to the branded formulations business, which now accounts for ~93.4% of domestic formulations. The company focuses on only a few so called specialty therapies – ophthalmology, dermatology and cardiology. Together, these therapies constitute ~85% of domestic branded formulations. The company invested heavily in the technology and field force especially in the first five years after the changed focus. The focus was also on offering a novel delivery system. From | 17 crore in FY05, branded formulations have grown at a CAGR of 34% to | 496.7 crore in FY16P. Till date, the company has launched ~190 products out of which ~135 are first time launches. The current MR strength is ~3000. Overall, domestic formulations have grown at a CAGR of 28.5% in FY11-16P to | 531.7 crore. The company has only one product under the National List of Essential Medicines (NLEM) 2011 list. Export formulations constitute 67.2% of the total consolidated turnover (FY15). Exports are mainly confined to emerging markets and constitute branded generics. APL exports its products in ~35 emerging markets with a significant presence in Franco African countries and Philippines. Africa accounts for ~59% of export formulations followed by Asia. The company also participates in anti-malarial tenders in Africa. It operates through 450+ MRs in these emerging markets and owns a portfolio of 1481 registered brands in these markets encompassing major therapies such as anti-infectives, anti-malarials, ophthalmic, dermatology, cardiovascular, GI etc. Ajanta also has a marginal presence in Latin America. It has also forayed into regulated markets such as the US where it has filed 26 ANDAs, received approvals for 10 and launched five products. Overall, export formulations have grown at a CAGR of 28.8% in FY11-16P to | 1162.5 crore. Ajanta Pharma has five subsidiaries including one step-down subsidiary in Mauritius, Philippines and the US. The Mauritius subsidiary with an independent manufacturing base mainly caters to the Franco African markets. The subsidiary in Philippines, which is a marketing arm, caters to the Philippines market. The US subsidiary is an administrative office to facilitate US operations. We expect revenues to grow at a CAGR of 17% to | 2368.9 crore in FY16P-18E, on the back of strong growth in both exports and domestic


formulation segments. Exports are likely to grow at a CAGR of 9.9% to | 1404 crore during the same period to be driven by growth in the legacy export markets of Africa and Asia and commencement of US shipments. Similarly, the domestic formulations segment is likely to register a CAGR of 21.6% to | 786.5 crore in the same period, to be driven by branded formulations. Exhibit 1: Revenue growth trend

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Domestic formulations - APL operates in branded (Prescription: Rx, 93.4% of domestic sales) and tender business (6.6% of domestic sales). In the branded space, it has a presence in fast growing specialty therapies viz. ophthalmology, dermatology, chronic therapies like cardiovascular (CVS) while in the acute space it has a marginal presence in pain management and gastrointestinal. APL currently markets ~190 brands through 3000 medical representatives (MRs) covering 3 lakh doctors. Over the years, the company has developed a knack of launching maximum number of first launches with focus on new drug delivery system (NDDS). It was one of the very few companies to launch products such as Metoprolol (CVS), Rosuvastatin + Clopidogrel (CVS), Hydroquinone + Mometasone + Tretinoin (Derma), etc, in the Indian market. The company’s first differentiated (NDDS) product Nimesulide (pain) daily once was launched under brand name Nimlodi in FY02. Out of ~189 actively marketed brands, ~135 were first launches in India. The focus on specialty therapies and niche product led APL to post a strong CAGR of 28.5% in FY11-16P, which is far higher than the industry growth of ~12% (AIOCD data). As per the latest AIOCD data, APL is 42nd in the Indian pharmaceutical market with a market share of 0.48%. Currently, only 12% of total domestic sales are under NLEM and are mainly from CVS category. The company markets CVS, ophthalmology and dermatology products under the divisions of Anvaxx, Illuma and Ansca. The company launches ~20 new products every year including line extensions. We expect Ajanta to continue with 15-20 product launches every year. Overall, we expect domestic sales to grow at a CAGR of 21.6% to | 786.5 crore in FY16P-18E.


Exhibit 2: Domestic formulation growth likely to be at a CAGR of 21.6% in FY16P-18E

170.0227.0

292.0385.0

479.0531.7

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Formulation exports Exports account for 65% of the revenues. APL currently derives almost its entire export revenues from emerging regions like Africa (Franco Africa), Asia and the LatAm having a presence in more than 35 countries. Exports have grown at 32.1% CAGR in FY11-16P. The company markets its products through a team of 450+ MRs. At present, the company is marketing 200+ products in these regions. In all, the company owns 1481 registered brands while another 1887 brands are under registration. APL’s success story in emerging markets was carved out of the so called differentiated approach. According to this, products were developed on the basis of unmet medical needs in a particular geography. As a result, the product basket varied from nation to nation. Similarly, the company resorted to a different strategy of product marketing. As opposed to the common practice of forging alliances with local/regional pharmaceutical players, APL’s front-end marketing team interacts directly with doctors. The company has consistently introduced new products in these markets. Overall, we expect export sales to grow at a CAGR of 9.9% to | 1404 crore in FY16P-18E. Exhibit 3: Exports to grow at a CAGR of 9.9% in FY16P-18E

328.0445.0

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978.11162.5

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Exhibit 4: Derma sales(dom) to grow at CAGR of 19.3% in FY16P-18E

47.062.0

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116.7 121.0143.6

172.3

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FY11 FY12 FY13 FY14 FY15 FY16P FY17E FY18EDermatology


Exhibit 5: Cardio sales(Dom) to grow at CAGR of 25% in FY16P-18E

37.0 46.0 64.085.0

115.3 132.0161.6

201.9

0.0

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Ophthalmology

Source: Company, ICICIdirect.com, Research

Exhibit 6: Ophthalmic sales (domestic) at CAGR of 23.7% in FY16P-18E

37.0 46.0 64.085.0

115.3 132.0161.6

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Ophthalmology


Exhibit 7: Institutional domestic business

39.053.0 54.0 66.0 61.4

35.014.6 14.6

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Exhibit 8: Africa sales exports growth at CAGR 6.2% in FY16P-18E

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Exhibit 9: Asia exports growth at CAGR 15% in FY16P-18E

149.0 179.0263.0

337.0439.4 469.5

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Exhibit 10: EBITDA to grow at CAGR of 16.6% in FY16P-18E

96.3140.7

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Exhibit 11: Net profit to grow at CAGR of 17.7% in FY16P-18E

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Exhibit 12: Trends in return ratios

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RoCE (%) RoNW (%)



Exhibit 13: Trends in quarterly financials (| crore) Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 YoY (%) QoQ (%)Net Sales 315.0 365.8 401.6 363.0 385.7 434.5 465.7 419.2 15.5 -10.0Other Operating Income 6.7 6.1 6.3 8.5 5.7 3.2 7.1 6.5 -23.0 -7.6Total Operating Income 321.7 371.9 407.9 371.5 391.4 437.7 472.8 425.7 14.6 -10.0Raw Material Expenses 79.7 94.8 101.3 89.6 103.4 99.5 115.5 95.5 6.5 -17.3% of Revenue 24.8 25.5 24.8 24.1 26.4 22.7 24.4 22.4 -170 bps -200 bpsGross Profit 242.0 277.1 306.5 281.9 288.0 338.2 357.3 330.3 17.2 -7.6Gross Profit Margin (%) 75.2 74.5 75.2 75.9 73.6 77.3 75.6 77.6 170 bps 200 bpsEmployee Expenses 46.0 47.9 52.1 54.7 59.2 63.8 64.9 69.1 26.3 6.4% of Revenue 14.3 12.9 12.8 14.7 15.1 14.6 13.7 16.2 150 bps 249 bpsOther Expenditure 99.1 100.4 109.7 96.7 106.2 120.5 128.9 120.7 24.7 -6.4% of Revenue 30.8 27.0 26.9 26.0 27.1 27.5 27.3 28.3 230 bps 108 bpsTotal Expenditure 224.8 243.1 263.1 241.1 268.8 283.8 309.3 285.2 18.3 -7.8% of Revenue 69.9 65.4 64.5 64.9 68.7 64.9 65.4 67.0 210 bps 157 bpsEBITDA 96.9 128.8 144.8 130.4 122.6 153.8 163.5 140.5 7.7 -14.1EBITDA Margin (%) 30.1 34.6 35.5 35.1 31.3 35.1 34.6 33.0 -210 bps -157 bpsOther Income 4.5 4.4 4.5 5.0 6.6 5.4 1.6 3.4 -32.1 111.3Interest 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 0.0 0.0Depreciation 12.6 12.7 13.1 13.2 10.3 11.0 11.7 12.1 -8.9 2.7PBT (bef Excep's) 87.8 119.5 135.1 121.1 117.8 147.2 152.3 130.8 8.0 -14.1Less: Exceptional Items 0.0 0.0 0.0 8.5 0.0 0.0 0.0 0.0PBT 87.8 119.5 135.1 129.6 117.8 147.2 152.3 130.8 0.9 -14.1Total Tax 27.7 36.0 41.7 40.8 33.8 47.2 40.5 24.4 -40.1 -39.8Tax rate (%) 31.5 30.2 30.9 31.4 28.7 32.1 26.6 18.7 -1278 bps -794 bpsPAT 59.7 83.0 93.1 71.5 83.8 100.0 111.3 106.3 48.7 -4.5PAT Margin (%) 18.5 22.3 22.8 19.2 21.4 22.8 23.5 25.0 573 bps 143 bps


SWOT Analysis Strengths - Industry beating growth on a consistent basis, Focused approach in the exports space, high return ratios, knack of launching new products on a consistent basis. Weakness - High Product concentration. Opportunities - The US Generics space. Threats - extension of NLEM scope to include some of its flagship products, government driven price controls in some of the export markets.


Conference call highlights

• Africa business included | 113 crore from anti-malarial tenders for Q4FY16 and | 414 crore for FY16 (~| 275 crore tender sales registered in FY15). The company gave a guidance of | 400-410 of African institutional business for FY17.

• The US revenues for FY16 were ~US$ 2 million and the company expects ~US$ 10 million of sales for FY17 and ~US$ 20 million of sales for FY18.

• Total 26 ANDAs have been filed cumulatively in the US market including 16 pending approvals. It has launched 5 products till date.

• In FY16, the company launched 19 brands in domestic market of which eight were first time launches.

• The company has guided for 18-20% of domestic growth and mid teen growth in export markets in FY17. EBITDA margins are expected to be 33-35% in FY17-18E

• It has guided for 7% R&D in FY17E. R&D in FY16 was ~6% • The tax rate during FY16 was ~27% which the company expects

to come down to 25-26% in FY17 and 24-25% in FY18 mainly due to increase in R&D capex

• The company plans to file around 8-12 ANDAs every year • Validation batches from Dahej plant have been started and the

company expects to start US filing from 1HFY17. It expects to commercialise Dahej facility and Phase 1 of Guwahati facility from Q1FY18. Guwahati phase 2 is expected to start from Q1FY19

• MR strength in the domestic market is more than 3000. The company does not plan to add MRs in FY17

• The company has guided for ~| 475 crore of capex for FY17E. This will be towards the development of Guwahati plant (| 300 crore), new corporate office, capitalization of R&D (| 100 crore for next two years) and maintenance capex (| 50-60 crore annually)

Exhibit 14: Brand introduction in export markets

RegionBrands

RegisteredUnder

Registration Major SegmentsAfrica 1137 1351 Antibiotic, Anti-malaria, Cardiac, GynocologyAsia 344 536 Antibiotic, Derma, Pain, OTC, Ophthal, Cardiac, GI


Exhibit 15: Facilities Location Segment Regulatory Approvals TypePaithan, India (3 Aurangabad facilities)

Formulations US FDA, UK MHRA, health authorities of Brazil and Colombia, WHO pre-qualification

tablets, capsules, ointments, injections and dry powder

Mauritius FormulationsDahej (upcoming) FormulationsGuwahati (upcoming) FormulationsAurangabad API WHO



Valuation The company is entering the stretched phase of capex across two to three years to bolster the domestic business as well as exports franchise especially the US. This, we believe, is a calculated move as the company prepares to scale up in the backdrop of 1) challenges in the domestic Derma space 2) currency translation issues in the emerging markets and 3) slower than expected off-take in the US. With strong balance sheet and high return ratios, we believe the time is ripe for the company to enter the capex cycle the benefit of which are likely to pan out beyond FY18. We maintain our target of | 1780 based on 28x FY18E EPS of | 63.6. Exhibit 16: One year forward PE

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Exhibit 17: One year forward PE of company vs. CNX Pharma Index

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Ajanta CNX Pharma


Exhibit 18: Valuation

Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE(| crore) (%) (|) (%) (x) (X) (%) (%)

FY15 1481 23 36.0 32 44.0 26.8 37.8 50.3FY16P 1729 17 45.7 30 33.8 23.3 34.4 43.7FY17E 2011 16 52.4 15 29.5 19.9 30.0 37.9FY18E 2369 18 63.6 21 24.3 16.8 28.2 35.6



Company snapshot

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Target Price: | 1780

Source: Bloomberg, Company, ICICIdirect.com Research Key events Date EventJun-08 Commissions dedicated R&D facility in Kandivali, Mumbai

Mar-09 Enters the Philippines market via incorporation of a subsidiary

Mar-09 USFDA approves Paithan faciliy

Mar-10 Acquires formulation facility near Aurangabad to cater to ROW markets

Dec-12 Enters regulated markets with first product approval in the US and one for Europe.

Mar-13 Launches first product in the US

Jan-15 Board approves subdivision of sharesfrom | 5 to | 2

Source: Company, ICICIdirect.com Research Top 10 Shareholders Shareholding Pattern Rank Investor Name Latest Filing Date % O/S Position Position Change

1 Agrawal (Mannalal B) 31-Dec 9.6 8.5m 3.1m2 Agrawal (Madhusudan B) 31-Dec 9.6 8.5m 3.1m3 Agrawal (Purushottam B) 31-Dec 9.6 8.4m 3.0m4 Gabs Investments Pvt. Ltd. 31-Dec 9.5 8.4m 0.0m5 Agrawal (Manisha Yogesh) 31-Dec 7.8 6.8m 5.1m6 Agrawal (Rajesh) 31-Dec 7.3 6.4m 0.0m7 Agrawal (Yogesh Mannalal) 31-Dec 7.3 6.4m 0.0m8 Matthews International Capital Management, L. 31-Dec 3.6 3.1m 1.1m9 Agrawal (Ravi P) 31-Dec 3.1 2.8m 0.0m

10 Agrawal (Ayush Madhusudan) 31-Dec 2.9 2.6m 0.0m

(in %) Dec-14 Mar-15 Jun-15 Sep-15 Dec-15Promoter 73.8 73.8 73.8 73.8 73.8FII 7.3 7.6 8.6 7.6 8.9DII 1.5 1.6 1.5 1.6 1.8Others 17.4 17.0 17.4 17.0 15.5

Source: Reuters, ICICIdirect.com Research Recent Activity

Investor name Value ($) Shares Investor name Value ($) SharesAgrawal (Manisha Yogesh) 103.4m 5.1m William Blair & Company, L.L.C. -8.1m -0.4mAgrawal (Madhusudan B) 61.9m 3.1m William Blair Investment Management, LLC -7.2m -0.4mAgrawal (Mannalal B) 61.6m 3.1m Motilal Oswal Asset Management Company Ltd. -6.5m -0.3mAgrawal (Purushottam B) 61.1m 3.0m Reliance Capital Asset Management Ltd. -2.5m -0.1mMatthews International Capital Management, L.L.C. 22.5m 1.1m Grandeur Peak Global Advisors, LLC -1.4m -0.1m

Buys Sells

Source: Reuters, ICICIdirect.com Research


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Financial summary

Profit and loss statement | Crore (Year-end March)/ (| crore) FY15 FY16P FY17E FY18ETotal Operating Income 1,480.6 1,729.4 2,011.0 2,368.9Growth (%) 22.5 16.8 16.3 17.8Raw Material Expenses 365.4 413.8 480.1 583.0Gross Profit 1,115.1 1,315.6 1,530.8 1,785.9Gross Profit Margins (%) 75.3 76.1 76.1 75.4Employee Expenses 200.6 257.0 286.4 331.7Other Expenditure 409.3 476.3 562.2 662.4Total Operating Expenditure 975.3 1,147.2 1,328.7 1,577.1EBITDA 505.2 582.3 682.2 791.8Growth (%) 37.0 15.3 17.2 16.1Interest 5.9 4.9 4.4 4.4Depreciation 51.6 45.1 71.2 96.0Other Income 16.8 17.0 10.1 47.4PBT before Exceptional Items 464.5 549.3 616.7 738.9Less: Exceptional Items 8.5 0.0 0.0 0.0PBT after Exceptional Items 456.0 549.3 616.7 738.9Total Tax 146.2 146.0 154.2 177.3PAT before MI 309.9 403.3 462.5 561.5

PAT 309.9 403.3 462.5 561.5Growth (%) 32.5 30.2 14.7 21.4EPS (Adjusted) 36.0 45.7 52.4 63.6


Cash flow statement | Crore (Year-end March)/ (| crore) FY15 FY16E FY17E FY18EProfit/(Loss) after taxation 309.9 403.3 462.5 561.5Add: Depreciation & Amortization 51.6 45.1 71.2 96.0Net Increase in Current Assets -77.3 -165.3 -103.7 -152.4Net Increase in Current Liabilities -6.7 3.2 189.5 98.6Add: Interest Paid 5.9 4.9 4.4 0.0CF from Operating activities 283.5 291.1 623.9 603.7

Long term Loans & Advances -2.0 -12.6 -49.3 0.0Investments -4.5 -46.9 0.0 -200.0(Purchase)/Sale of Fixed Assets -103.6 -278.2 -475.0 -200.0Deferred Tax Liabilities & LT Provisions 1.9 -2.2 0.0 0.0CF from Investing activities -101.9 -339.8 -524.3 -400.0

(inc)/Dec in Loan -58.1 0.3 0.0 0.0Dividend & Dividend tax -41.1 -30.6 -92.3 -112.1Other -6.0 -4.9 -4.4 0.0CF from Financing activities -105.2 -35.2 -96.7 -112.1

Net Cash Flow 76.4 -83.9 2.9 91.6Cash and Cash Equivalent at the beginning 60.4 136.8 52.9 55.8Cash 136.8 52.9 55.8 147.4Free Cash Flow 179.9 13.0 148.9 403.7


Balance sheet | Crore (Year-end March)/ (| crore) FY15 FY16E FY17E FY18E

Equity Capital 17.7 17.7 17.7 17.7Reserve and Surplus 823.4 1,154.4 1,524.6 1,974.0Total Shareholders funds 841.1 1,172.1 1,542.3 1,991.7Total Debt 72.4 72.7 72.7 72.7Deferred Tax Liability 15.2 20.0 20.0 20.0Long-Term Provisions 4.8 2.6 2.6 2.6Other Non Current Liabilities 2.5 0.5 0.5 0.5Source of Funds 935.9 1,267.8 1,638.0 2,087.4

Gross Block 549.9 609.9 809.9 1,109.9Accumulated Depreciation 261.8 306.8 378.0 474.0Net Block 288.1 303.0 431.8 635.8Capital WIP 170.2 388.4 663.4 563.4Fixed Assets 458.3 691.4 1,095.2 1,199.2Investments 59.5 66.4 66.4 266.4Long Term Loans and Advances 9.3 21.9 71.2 71.2Other non-Current Assets 5.3 4.3 4.3 4.3Inventory 159.0 204.6 327.6 392.0Debtors 258.8 372.4 345.5 413.4Loans and Advances 50.5 64.9 71.2 91.2Other Current Assets 8.9 0.7 2.0 2.0Cash 136.8 52.9 55.8 147.4Total Current Assets 613.9 695.4 802.1 1,046.0Creditors 109.1 145.6 297.8 356.4Provisions 64.3 11.4 38.7 58.7Other Current Liabilities 37.1 56.7 66.6 86.6Total Current Liabilities 210.5 213.6 403.2 501.7Net Current Assets 403.5 481.8 398.9 544.3Application of Funds 935.9 1,265.7 1,635.9 2,085.4


Key ratios (Year-end March) FY15 FY16E FY17E FY18EPer share data (|)Reported EPS 35.1 45.7 52.4 63.6Cash EPS 29.1 42.2 41.9 50.9BV per share 95.2 132.7 174.6 225.4Cash per Share 15.5 6.0 6.3 16.7Dividend per share 7.0 3.5 10.5 12.7Operating Ratios (%)Gross Profit Margins 75.3 76.1 76.1 75.4EBITDA margins 34.1 33.7 33.9 33.4PAT Margins 21.5 23.3 23.0 23.7Inventory days 39.2 43.2 59.5 60.4Debtor days 63.8 78.6 62.7 63.7Creditor days 26.9 30.7 54.1 54.9Asset Turnover 1.6 1.4 1.2 1.1EBITDA conversion Rate 56.1 50.0 91.4 76.2Return Ratios (%)RoE 37.8 34.4 30.0 28.2RoCE 50.3 43.7 37.9 35.6RoIC 74.4 70.7 71.7 62.7Valuation Ratios (x)P/E 44.0 33.8 29.5 24.3EV / EBITDA 26.8 23.3 19.9 16.8EV / Net Sales 9.2 7.9 6.8 5.6Market Cap / Sales 9.2 7.9 6.8 5.8Price to Book Value 16.2 11.6 8.8 6.8Solvency RatiosDebt / EBITDA 0.1 0.1 0.1 0.1Debt / Equity 0.1 0.1 0.0 0.0Current Ratio 2.3 3.0 1.9 1.8Quick Ratio 1.5 2.0 1.0 1.0



ICICIdirect.com coverage universe (Healthcare) Company I-Direct CMP TP Rating M Cap

Code (|) (|) (| Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E

Ajanta Pharma AJAPHA 1543 1,780 Buy 13510.8 36.0 45.7 52.4 42.8 33.8 29.5 26.8 23.3 19.9 50.3 43.7 37.9 37.8 34.4 30.0

Apollo Hospitals APOHOS 1312 1,420 Hold 18246.3 23.7 27.6 34.6 55.2 47.5 37.9 27.6 23.9 18.9 9.9 11.2 13.0 10.4 11.1 12.5

Aurobindo Pharma AURPHA 765 990 Buy 44745.0 28.1 33.9 37.7 27.2 22.5 20.3 30.7 25.1 22.0 23.4 24.7 25.0 31.7 28.7 24.7

Alembic Pharma ALEMPHA 607 620 Hold 11450.4 15.1 38.2 19.6 40.3 15.9 31.0 32.2 12.6 23.9 30.7 58.0 24.8 32.1 51.5 22.3

Biocon BIOCON 575 560 Hold 11498.0 20.4 22.1 28.3 28.2 26.1 20.3 8.3 7.6 6.4 10.4 9.1 10.9 12.5 10.9 12.7

Cadila Healthcare CADHEA 327 405 Buy 33476.4 11.2 14.7 15.3 29.2 22.3 21.4 19.9 14.8 14.4 20.7 26.2 24.4 27.0 28.0 23.9Cipla CIPLA 527 690 Buy 42342.4 14.7 21.5 25.7 35.8 24.5 20.5 19.4 15.6 13.1 13.8 14.8 16.5 10.9 14.1 14.8

Divi's Laboratories DIVLAB 1049 1,320 Buy 27850.3 32.1 40.2 46.7 32.7 26.1 22.5 22.3 18.7 15.9 29.4 31.3 31.1 24.4 25.6 25.1

Dr Reddy's Labs DRREDD 3086 3,880 Buy 52657.2 129.0 146.8 143.3 23.9 21.0 21.5 14.5 11.8 11.6 16.7 18.0 16.6 22.3 20.3 16.5

Glenmark Pharma GLEPHA 818 975 Buy 23093.2 23.1 28.9 39.7 35.4 28.4 20.6 20.7 15.7 12.9 13.3 17.7 21.1 21.7 21.7 23.3

Indoco Remedies INDREM 274 390 Buy 2523.1 9.0 9.3 15.6 30.5 29.6 17.6 15.9 14.8 10.7 16.4 15.4 22.2 16.0 14.7 20.8

Ipca Laboratories IPCLAB 493 515 Hold 6222.9 19.9 12.1 24.7 24.8 40.8 19.9 13.5 18.2 12.2 11.5 6.7 11.7 11.4 6.6 12.2

Jubilant Life Sciences VAMORG 398 375 Hold 6344.9 -0.6 31.0 43.0 NA 12.8 9.3 15.9 8.1 6.5 5.8 13.4 15.8 NA 17.1 19.5

Lupin LUPIN 1577 2,200 Buy 71081.7 53.6 50.5 71.2 29.4 31.2 22.1 17.8 19.6 13.3 35.1 22.4 28.7 27.1 21.2 24.0

Natco Pharma NATPHA 494 630 Buy 8607.7 8.3 7.5 11.6 59.5 66.3 42.4 35.3 29.3 21.6 15.4 13.0 16.5 17.9 10.0 13.8

Sun Pharma SUNPHA 803 845 Hold 193152.0 19.8 23.6 28.4 40.5 34.0 28.3 24.1 21.2 17.7 18.8 20.0 21.1 18.6 18.8 19.1

Syngene International SYNINT 399 445 Buy 7971.0 8.8 11.1 15.6 43.3 34.2 24.3 26.6 20.9 17.0 19.5 13.3 16.7 20.7 21.2 23.5

Torrent Pharma TORPHA 1415 1,650 Buy 23952.2 44.4 115.3 67.1 31.9 12.3 21.1 24.4 8.4 13.3 20.1 43.7 24.4 30.2 50.3 24.0

Unichem Laboratories UNILAB 249 310 Buy 2262.0 8.3 11.5 15.9 30.0 21.7 15.7 19.5 12.1 9.8 8.5 13.6 16.7 8.7 11.0 13.8

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



RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]


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