Indoco Remedies (INDREM) | 197 - ICICI...
Transcript of Indoco Remedies (INDREM) | 197 - ICICI...
May 29, 2017
ICICI Securities Ltd | Retail Equity Research
Result Update
Dismal domestic sales weigh on numbers…
Revenues grew 5% YoY to | 277 crore (I-direct estimate: | 293
crore). YoY growth of 10% in export formulations to | 122 crore (I-
direct estimate: | 119 crore) was partly offset by 2.2% decline in
domestic formulations to | 130 crore (I-direct estimate: | 153 crore)
EBITDA margins declined 373 bps YoY to 11.8% (I-direct estimate of
15.7%) mainly on account of higher raw material and employee
expenditure. EBITDA declined 20%YoY to | 33 crore (I-direct
estimate: | 46 crore)
Net profit declined 10% YoY to | 18 crore (I-direct estimate: | 21
crore), primarily due to lower operational performance
MNC deals, US filings core to overall growth
Exports formulations (~39% of overall sales) have grown at a CAGR of
18% in FY12-17 driven by 19% growth in regulated markets. The growth
in regulated markets was driven by growth in the US, Europe and South
Africa. German Metformin tenders also contributed to regulated markets
growth. It has filed 42 ANDAs with USFDA and received approval for 10
products. Of these, 18 were filed under the Actavis deal. The Aspen deal
for semi-regulated market is also likely to drive exports albeit slowly. We
expect exports to grow at 13% CAGR in FY17-19E to | 529 crore, driven
by growth in regulated markets.
Indian formulation growth slowly picking up
Domestic formulations (~55% of overall sales) have grown at 12% CAGR
in FY17-16. The subdued growth can be attributed to high concentration
of acute therapies, which account for ~90% of overall formulations. With
a market share of ~0.7% and overall rank of 31, the company is still a
marginal player with some top brands in smaller categories such as
stomatologicals. However, with positive outcome of restructuring
exercise and improvement in MR productivity we expect Indian
formulations to deliver growth of 11% in FY17-19E to | 719 crore.
Consistency in margin improvement to be crucial
After languishing at 13-15% for quite some time, EBITDA margins
improved from FY15. However, in FY17, margins once again saw a
slowdown due to higher R&D spend and staff costs. Margins are still
lumpy but operating leverage is expected to pan out by way of improved
capacity utilisation.
Margin improvement, warning letter resolution key for multiple
The Q4 numbers were affected on account of dent in domestic
formulations, which is the key segment, both for growth and margin
improvement. The growth scenario is unlikely to improve till H1FY18 due
to GST implementation blues. Secondly, the Goa plant warning letter is
likely to weigh deep as it is likely to cause a substantial dent in the
prospects of the evolving US business. Note that most pending ANDAs
are from unit 2. Secondly, the Watson deal, which is at the core of US
business prospects, is also likely to witness a slowdown as the
development may lead to a delay in approval for products that are part of
the deal. The deal covers 18 pending ANDAs. The US business has grown
at a CAGR of 53% in FY12-16 to | 125 crore. Although other segments
such as domestic formulations and exports (ex-US) are likely to maintain
growth continue growth tempo, US growth is likely to remain flat for want
of fresh approvals from the core unit 2. Our new target price is at | 180
based on 15x FY19E EPS of | 12.0.
Rating matrix
Rating : Hold
Target : | 180
Target Period : 12-15 months
Potential Upside : -9%
What’s Changed?
Target Changed from | 235 to | 180
EPS FY18E Changed from | 12.7 to | 8.3
EPS FY19E Changed from | 15.6 to | 12
Rating Unchanged
Quarterly Performance
Q4FY17 Q4FY16 YoY (%) Q3FY17 QoQ (%)
Revenue 276.9 263.4 5.1 278.2 -0.4
EBITDA 32.6 40.8 -20.2 39.5 -17.6
EBITDA (%) 11.8 15.5 -373.4 14.2 -244.9
Net Profit 17.9 20.0 -10.3 17.6 2.0
Key Financials
(| Crore) FY16 FY17E FY18E FY19E
Revenues 1007.3 1096.8 1193.7 1333.7
EBITDA 175.8 156.5 174.6 221.0
Adjusted PAT 86.5 77.1 76.6 110.8
EPS (Adjusted) 9.4 8.4 8.3 12.0
Valuation summary
a
FY16 FY16 FY18E FY19E
PE (x) 21.1 21.1 23.8 16.4
Target PE (x) 19.2 21.5 21.6 15.1
EV to EBITDA (x) 11.1 11.1 11.4 8.9
Price to book (x) 3.1 3.1 2.6 2.3
RoNW (%) 14.8 14.8 10.9 14.0
RoCE (%) 12.9 12.9 9.4 12.6
Stock data
Market Capitalisation
Debt (FY16)
Cash (FY16)
EV
52 week H/L (|) 362/186
Equity capital
Face value | 2
MF Holding (%) 10.9
FII Holding (%) 8.3
Amount
| 1821 crore
| 2009 crore
| 251 crore
| 62 crore
| 18.4 crore
Price performance (%)
1M 3M 6M 1Y
Indoco Remedies -13.3 -27.0 -27.0 -32.7
Unichem Labs -9.4 -1.9 -7.3 -6.0
Natco Pharma -2.5 10.8 49.9 93.4
Indoco Remedies (INDREM) | 197
Research Analyst
Siddhant Khandekar
Mitesh Shah
Harshal Mehta
ICICI Securities Ltd | Retail Equity Research Page 2
Company Analysis
The company was established in 1947. It is a small-sized pharma
company engaged in manufacture, marketing and distribution of
pharmaceutical products and services in the domestic and international
markets. The company, through its eight marketing divisions namely-
Indoco, Spade, Warren, Xtend, Excel, Eterna, Indoco CND and Spera
serves a range of doctor specialties. The company has signed supply
agreement with companies like Watson, Aspen and DSM to supply
formulations for advanced and emerging markets.
Domestic formulations account for ~59% of the revenues. Major
therapies and their respective contribution to the domestic formulations-
Respiratory- 19%, Anti-infectives- 17%, Stomatologicals- 16%,
Gastrointestinals (GI)- 14%. With a market share of 0.67% the company
ranks 31st in the domestic formulations. The Acute : Chronic ratio for the
company stands at 93 :07.
Formulation exports account for ~34% of the revunues. Of these, exports
to regulated markets constitute ~87% of the formulation exports while
the rest 13% come from emerging markets.
Watson (Actavis) deal- The company licenses out technology to US based
Watson (now Actavis). Under the terms of profit sharing agreement,
Indoco will develop, manufacture and supply a basket of sterile products
to Watson for the US market. Currently 9 products are under
development.
Aspen deal- Under the Aspen (South Africa) deal the company licenses
out dossier for marketing its products in emerging markets covering 30
countries, including South Africa, Brazil, Mexico, Venezuela, Russia &
Australia.
DSM deal – The company has also signed an agreement with Holland
based DSM for the commercialisation of eight APIs according to which
DSM will market the APIs manufactured by INDOCO.
Overall we expect revenues to grow at a CAGR of 23.7% in FY15-17E to |
1314 crore.
Exhibit 1: Revenues to grow at a CAGR of 23.7% in FY15-17E
354.6402.8
486.5
564.5
634.3
727.7
853.6
1099.7
1366.2
0
200
400
600
800
1000
1200
1400
1600
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
(|
crore)
Revenues
Source: Company, ICICIdirect.com Research
Variance analysis
Q4FY17 Q4FY17E Q4FY16 Q3FY17 YoY (%) QoQ (%) Comments
Revenue 276.9 292.5 263.4 278.2 5.1 -0.4 Strong growth in the US and Europe was partly offset by a decline in India and
RoW markets. Miss vis-à-vis I-direct estimates was mainly due to longer-than-
expected demonetisation impact in India
Raw Material Expenses 97.2 102.4 82.4 98.3 17.9 -1.1 YoY increase due to adverse product mix
Employee Expenses 56.8 55.6 49.9 55.1 13.8 3.2
Other Expenditure 76.5 76.1 71.4 71.5 7.2 7.0
R&D 13.9 12.5 18.9 13.8 -26.7 0.3
EBITDA 32.6 46.0 40.8 39.5 -20.2 -17.6
EBITDA (%) 11.8 15.7 15.5 14.2 -373 bps -245 bps Lower EBITDA margins mainly due to higher raw material and employee
expenditure. Miss vis-à-vis I-direct estimates due to higher employee and other
expenditure
Interest -1.6 2.7 4.7 2.9 -133.3 -152.9
Depreciation 15.4 16.8 15.3 14.4 1.0 7.2
Other Income 1.7 1.0 0.5 1.1 209.3 46.5
PBT before EO & Forex 20.4 27.5 21.5 23.4 -5.0 -12.8
Forex & EO 0.0 0.0 0.0 0.0 NA NA
PBT 20.4 27.5 21.5 23.4 -5.0 -12.8
Tax 2.4 6.6 1.4 5.8 69.4 -57.7
Net Profit 17.9 20.9 20.0 17.6 -10.3 2.0 Decline and miss vis-a-vis I-direct estimates was mainly due to lower operational
performance
Key Metrics
Domestic Formulations 130.1 153.1 133.0 144.2 -2.2 -9.8 Slow YoY growth was mainly due to demonetisation impact. Miss vis-à-vis I-direct
estimates was mainly due to longer-than-expected demonetisation impact
Export formulations 121.5 118.9 110.5 108.0 9.9 12.5 YoY growth was mainly due to 22% growth in Europe to | 54 crore and 15.5%
gorwht in the US to | 33 crore. However, 28% decline in South Africa, Australia
and New Zealand to | 16.2 crore has partly offset overall growth
APIs 12.0 14.4 12.6 18.2 -4.7 -34.0
Source: Company, ICICIdirect.com Research
Change in estimates
(| Crore) Old New % Change Old New % Change Comments
Revenue 1,356.8 1,193.7 -12.0 1,569.4 1,333.7 -15.0 Cut down domestic growth mainly due to lower-than-expected sales in Q4FY17 and
expected GST impact in H1FY18. Also, reduced US sales on account of higher-than-
expected price erosion
EBITDA 245.5 174.6 -28.9 298.5 221.0 -26.0
EBITDA Margin (%) 18.1 14.6 -347 bps 19.0 16.6 -245 bps Changed mainly due to adverse product mix
PAT 131.1 76.6 -41.5 170.8 110.8 -35.1
EPS (|) 14.2 8.3 -41.5 18.5 12.0 -35.1 Changed mainly in sync with EBITDA and change in depreciation assumption
FY18E FY19E
Source: Company, ICICIdirect.com Research
Assumptions
(| crore) FY16 FY17E FY18E FY19E FY18E FY19E
Domestic Formulations 533.0 585.2 641.9 718.9
699.4 804.4 Declined mainly due to lower-than-expected sales in Q4FY17 and
expected GST impact in H1FY18
US Formulations 106.3 124.9 97.5 103.9 163.5 204.3 Trimmed US sales on account of higher-than-expected price erosion
Export Formulations(Ex US) 282.9 293.2 369.4 424.8 409.7 475.4
APIs 53.0 61.5 60.9 64.0 61.5 64.6
Current Earlier
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 3
Company Analysis
The company was established in 1947. Indoco is a small-sized pharma
company engaged in manufacture, marketing and distribution of
pharmaceutical products and services in the domestic & international
markets. Through its eight marketing divisions namely - Indoco, Spade,
Warren, Xtend, Excel, Eterna, Indoco CND and Spera, the company
serves a range of doctor specialties. The company has signed supply
agreements with companies like Watson, Aspen and DSM to supply
formulations to advanced and emerging markets.
Domestic formulations account for ~55% of revenues. Major therapies
and their respective contribution to domestic formulations are:
respiratory - 18%, anti-infectives - 18%, stomatologicals - 16%,
gastrointestinals (GI) - 14%. With a market share of 0.7%, the company is
ranked thirty-first in domestic formulations. The acute-chronic-sub
chronic ratio for the company is 82:6:12.
Formulation exports account for ~39% of revenues. Of these, exports to
regulated markets constitute ~84% of formulation exports while the
remaining 16% comes from emerging markets.
Watson (Actavis) deal - The company licenses out technology to US
based Watson (now Actavis). Under the terms of profit sharing
agreement, Indoco will develop, manufacture and supply a basket of
sterile products to Watson for the US market. Currently, nine products are
under development.
Aspen deal - Under the Aspen (South Africa) deal, the company licenses
out dossiers for marketing its products in emerging markets covering 30
countries, including South Africa, Brazil, Mexico, Venezuela, Russia and
Australia.
DSM deal – The company has also signed an agreement with Netherlands
based DSM for the commercialisation of eight APIs according to which
DSM will market the APIs manufactured by Indoco.
Overall, we expect revenues to grow at a CAGR of 10% in FY17-19E to
| 1334 crore.
Exhibit 1: Revenues to grow at CAGR of 10% in FY17-19E
564.2630.4
727.7
857.0
1007.3
1096.8
1193.7
1333.7
0
200
400
600
800
1000
1200
1400
1600
FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(|
crore)
Revenues
Source: Company, ICICIdirect.com Research
14.2% CAGR
10.3% CAGR
ICICI Securities Ltd | Retail Equity Research Page 4
Domestic formulations (~55% of overall sales) have grown at a CAGR of
11.6% in the last five years vis-à-vis overall sales growth of 14.2% during
the same period. The subdued growth can be attributed to high
concentration of acute therapies that account for 82% of overall
formulations. With a market share of 0.7% and overall rank of 31, the
company is still a marginal player with some top brands in smaller
categories such as stomatologicals. NLEM blues, distributor issues are
likely overhangs in the short-term. We expect Indian formulations to grow
at a CAGR of 11% in FY17-19E to | 719 crore on the back of new
launches.
Exhibit 2: Domestic formulations sales to grow at CAGR of 11% in FY17-19E
338.2
390.4
438.6
504.8533.0
585.2
641.9
718.9
0
200
400
600
800
FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(|
crore)
Domestic Formulations
Source: Company, ICICIdirect.com Research
Export formulations (~38% of overall sales) have grown at a CAGR of
18% in FY12-17 driven by 19% growth in regulated markets. The growth
in regulated markets was driven by growth in the US, UK and South
Africa. German Metformin tenders also contributed to regulated markets
growth. It has filed 42 ANDAs with the USFDA and received approval for
13 products (including three tentative approvals). Of these, 18 were filed
under the Actavis deal. The Aspen deal for the semi-regulated market is
also likely to drive exports. We expect exports to grow at a CAGR of 13%
to | 529 crore in FY17-19E, driven by 1) growth in regulated market base
business and 2) revenues under CRAMS deal with Watson (Allergan).
Exhibit 3: Watson deal, own filings to cause healthy exports growth
185.5200.9
231.1
290.3
389.2418.1
466.9
528.8
0
100
200
300
400
500
600
700
FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(|
crore)
Export formulations
Source: Company, ICICIdirect.com Research
17.7% CAGR
12.5% CAGR
11.6% CAGR
10.8% CAGR
ICICI Securities Ltd | Retail Equity Research Page 5
Exhibit 4: APIs to grow at CAGR of 2% in FY17-19E
35.5 34.4
46.0
51.8 53.0
61.5 60.964.0
0
20
40
60
80
FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(|
crore)
APIs
Source: Company, ICICIdirect.com Research
Exhibit 5: EBITDA to grow at CAGR of 19% in FY17-19E
76.7
93.1
120.1
167.2175.8
156.5
174.6
221.0
13.6
14.8
16.5
19.5
17.5
14.3 14.6
16.6
0
50
100
150
200
250
FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(|
crore)
0
5
10
15
20
25
(%
)
EBITDA EBITDA Margins (%)
Source: Company, ICICIdirect.com Research
Exhibit 6: Adjusted net profit to grow at CAGR of 20% in FY17-19E
46.142.7
57.9
86.5
77.1 76.6
110.8
82.8
0
20
40
60
80
100
120
FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(|
crore)
Net Profit
Source: Company, ICICIdirect.com Research
17% CAGR
25.5% CAGR
11.6% CAGR
2.0% CAGR
ICICI Securities Ltd | Retail Equity Research Page 6
Exhibit 7: Trends in return ratios
9.0
10.2
13.3
10.9
16.0
12.9
8.4
9.4
12.612.0
10.3
12.7 16.0
14.8
12.0 14.0
0
2
4
6
8
10
12
14
16
18
FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(%
)
RoCE (%) RoNW (%)
Source: Company, ICICIdirect.com Research
Exhibit 8: Trends in quarterly financials
(| Crore) Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 YoY (%) QoQ (%)
Net Sales 185.9 198.0 226.4 212.9 211.6 216.0 251.2 258.1 255.0 252.7 276.4 272.2 265.6 4.2 -2.4
Other Operating Income -2.2 4.0 2.0 3.7 -1.7 7.4 7.3 4.0 8.5 4.7 4.6 6.0 11.4 34.3 90.5
Revenues 183.6 202.0 228.4 216.7 209.9 223.4 258.4 262.1 263.4 257.4 281.0 278.2 276.9 5.1 -0.4
Raw Material Expenses 61.3 72.9 79.7 77.7 68.5 76.4 88.2 92.4 82.4 89.1 97.1 98.3 97.2 17.9 -1.1
% of Revenues 33.4 36.1 34.9 35.9 32.6 34.2 34.1 35.2 31.3 34.6 34.5 35.3 35.1 381 bps -23 bps
Gross Profit 122.3 129.1 148.7 139.0 141.4 147.0 170.3 169.8 181.0 168.3 183.9 179.9 179.7 -0.7 -0.1
Gross Profit Margin (%) 66.6 63.9 65.1 64.1 67.4 65.8 65.9 64.8 68.7 65.4 65.5 64.7 64.9 -381 bps 23 bps
Employee Expenses 34.6 33.7 36.0 34.7 35.0 41.5 46.1 45.4 49.9 50.7 53.4 55.1 56.8 13.8 3.2
% of Revenues 18.8 16.7 15.7 16.0 16.7 18.6 17.9 17.3 19.0 19.7 19.0 19.8 20.5 157 bps 72 bps
Research & Development 4.2 4.3 4.9 5.0 7.5 6.5 8.9 8.9 18.9 12.0 12.0 13.8 13.9 -26.7 0.3
% of Revenues 2.3 2.1 2.1 2.3 3.5 2.9 3.5 3.4 7.2 4.7 4.3 5.0 5.0 -217 bps 4 bps
Other Manufacturing Expenses 50.7 52.5 59.2 56.6 61.7 57.4 66.0 68.9 71.4 63.8 76.5 71.5 76.5 7.2 7.0
% of Revenues 27.6 26.0 25.9 26.1 29.4 25.7 25.5 26.3 27.1 24.8 27.2 25.7 27.6 52 bps 192 bps
Total Expenditure 150.8 163.4 179.8 174.0 172.6 181.8 209.2 215.5 222.6 215.6 239.1 238.7 244.4 9.8 2.4
% of Revenues 82.1 80.9 78.7 80.3 82.2 81.4 80.9 82.2 84.5 83.8 85.1 85.8 88.2 373 bps 245 bps
EBITDA 32.9 38.6 48.6 42.7 37.3 41.6 49.3 46.6 40.8 41.8 42.0 39.5 32.6 -20.2 -17.6
EBITDA Margin (%) 17.9 19.1 21.3 19.7 17.8 18.6 19.1 17.8 15.5 16.2 14.9 14.2 11.8 -373 bps -245 bps
Depreciation 7.9 11.5 13.2 12.0 12.5 15.0 14.9 15.2 15.3 16.8 16.7 14.4 15.4 1.0 7.2
Interest 3.5 2.7 2.7 2.7 2.2 2.2 2.6 2.8 4.7 2.4 1.6 2.9 -1.6 -133.3 -152.9
Other Income 1.0 0.6 0.6 0.2 0.4 0.2 0.3 0.2 0.5 0.3 1.0 1.1 1.7 209.3 46.5
PBT 22.6 25.0 33.4 28.2 22.9 24.7 32.0 28.8 21.5 22.9 24.7 23.4 20.4 -5.0 -12.8
Total Tax 4.0 5.0 11.0 6.6 4.2 5.4 5.9 4.9 1.4 3.1 2.6 5.8 2.4 69.4 -57.7
Tax Rate (%) 17.8 19.8 32.8 23.3 18.3 21.9 18.5 16.9 6.7 13.5 10.5 24.7 12.0 526 bps -1273 bps
Net Profit 18.6 20.0 22.4 21.6 18.8 19.3 26.1 23.9 20.0 19.8 22.1 17.6 17.9 -10.3 2.0
PAT Margin (%) 10.1 9.9 9.8 10.0 8.9 8.6 10.1 9.1 7.6 7.7 7.9 6.3 6.5 -112 bps 15 bps
EPS (|) 2.0 2.2 2.4 2.3 2.0 2.1 2.8 2.6 2.2 2.1 2.4 1.9 1.9 -10.3 2.0
Source: Company, ICICIdirect.com Research
SWOT Analysis
Strengths - Tie-ups with the MNCs. Leader in stomatologicals in the
domestic formulations
Weakness - Higher acute composition in domestic formulations and one
of the least productive sales force (MR productivity- | 18.0 lakh)
Opportunities - The US generics space in which the company intends to
launch products via Watson tie-up and on its own
ICICI Securities Ltd | Retail Equity Research Page 7
Threats - Increased USFDA scrutiny across the globe regarding cGMP
issues, pricing pressure due to client consolidation in the US, pricing
probe by the Department of Justice (DoJ) in the US, proposed tightening
by the new regime by adapting to the bidding process and imposition of
border adjustment tax on imported drugs in the US. There is intense
competition in acute therapies in domestic formulations. Any alteration or
cancellation of Watson deal altogether could adversely impact earnings
as well as multiple.
Conference call highlights
During the quarter, the company launched four new products in
India. FY17 it launched 31 new products, 10 in Chronic, 12 in sub
chronic and nine in acute
Domestic business was impacted due to lag effect of
demonetisation
During the quarter, the company filed four ANDAs in the US, of
which three are in first to file (FTF) category. For FY17, the
company filed nine ANDAs. The company expects to file 12
ANDAs in FY18
USFDA warning letter related issues at Goa Plant II are being
resolved with the help of a US based consultant
The company received approval from UK-MHRA for its solid
dosage plant at Goa I, which was inspected in December 2016.
The plant contributes to 40% of the company’s international
business.
The company has received a couple of product approvals in
Australia and won a tender in New Zealand during Q4FY17
During the quarter, the company submitted/filed two active
substance master file (ASMF) in Europe
Anacipher CRO, Hyderabad was inspected by the USFDA twice
during the quarter, in January 2017 (bio-analytical department). In
the second week of February 2017 (clinical department), it had
zero 483 observation
During the quarter, the company received patent grant for
manufacturing process of Linezolid and Brinzolamide (FDFs).
Cumulatively, the company has filed total 24 patents for finished
dosages and 52 for APIs
The company will commence ophthalmology supplies to the US
from Q2FY18 onwards
The company has guided for R&D spend of 4.5% of overall
revenues in FY18
The company has guided for capex of | 90 crore in FY18
ICICI Securities Ltd | Retail Equity Research Page 8
Exhibit 9: Major Facilities
Location Regulatory Approvals Type
Baddi Plant UKMHRA, WHO, Ministry of Health-Nepal,
Ministry of Health-Slovenia
Solid Orals(Tablets), Liquid Orals, External
Preparations (Creams, Ointments), Oral
Hygene Preparations
Baddi Plant
(Microlabs Ltd)
Solid Orals (Tablets)
Goa Plant 1 USFDA, UKMHRA, MCC-SA, TGA-Aus,
Darmstadt Germany
Solid Orals (Tablets Coated / Uncoated), Liquid
Orals, Creams & Ointments, Capsules (Hard
Gelatin)
Goa Plant 2 USFDA, MCC-SA, Ministry of health-Tanzania Ophthalmics and Injectables
Goa Plant 3 USFDA, TGA-Aus, Bavarian Health Authority-
Germany
Tablets
Waluj Plant WHO, national Drug Authority-Uganda, Ministry
of Health-ukraine, Drug Regulatory Unit-
Botswana
Solid Orals (Tablets), liquid Orals, External
Preparations
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 9
Valuation
The Q4 numbers were affected on account of the dent in domestic
formulations, which is the key segment, both for growth and margin
improvement. The growth scenario is unlikely to improve till H1FY18 due
to GST implementation blues. Secondly, the Goa plant warning letter is
likely to weigh deep as it is likely to cause a substantial dent in the
prospects of the evolving US business. Note that most of the pending
ANDAs are from unit 2. Secondly, the Watson deal, which is at the core of
US business prospects, is also likely to witness slowdown as the
development may lead to a delay in approval for products, which are part
of the deal. The deal covers 18 pending ANDAs. The US business has
grown at a CAGR of 53% in FY12-16 to | 125 crore. Although other
segments such as domestic formulations and exports (ex-US) are likely to
maintain growth continue growth tempo, US growth is likely to remain
flat for want of fresh approvals from the core unit 2. Our new target price
is | 180 based on 15x FY19E EPS of | 12.0.
Exhibit 10: One year forward PE
-20
20
60
100
140
180
220
260
300
340
380
420
460
500
May-1
1
Nov-1
1
May-1
2
Nov-1
2
May-1
3
Nov-1
3
May-1
4
Nov-1
4
May-1
5
Nov-1
5
May-1
6
Nov-1
6
May-1
7
|
Price 43.9x 26.5x 20.7x 9.1x 3.3x
[
Source: Company, ICICIdirect.com Research
Exhibit 11: One year forward PE of company vs. CNX Pharma
0
5
10
15
20
25
30
35
40
45
May-1
1
Nov-1
1
May-1
2
Nov-1
2
May-1
3
Nov-1
3
May-1
4
Nov-1
4
May-1
5
Nov-1
5
May-1
6
Nov-1
6
May-1
7
(x)
Indoco CNX Pharma
22% Premium
Source: Company, ICICIdirect.com Research
Exhibit 12: Valuation
Revenues Growth Adj. EPS Growth P/E EV/EBITDA RoNW RoCE
(| crore) (%) (|) (%) (x) (X) (%) (%)
FY16 1007 59.8 9.4 102.7 21.1 11.1 14.8 12.9
FY17E 1097 8.9 8.4 -10.9 23.6 12.8 12.0 8.4
FY18E 1194 8.8 8.3 -0.6 23.8 11.4 10.9 9.4
FY19E 1334 11.7 12.0 44.6 16.4 8.9 14.0 12.6
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 10
Recommendation history vs. Consensus
200
300
400
500
Apr-17Feb-17Dec-16Sep-16Jul-16Apr-16Feb-16Nov-15Sep-15Jul-15Apr-15
(|
)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
(%
)
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date Event
Oct-05 Signs agreement with Watson Pharmaceuticals to manufacture and supply sterile products for the US market
Feb-11 Enters into a long term drug supply agreement with Aspen Pharmaceuticals for emerging markets
Aug-13 Enters into a strategic business alliance with DSM Pharmaceutical to supply eight active pharma ingredients to be marketed in Europe
Sep-13 Proposes stock split and bonus issue (1:2)
Oct-13 & Nov-13 Receives approval for its first ANDA of anti-diabetic product Glimepride tablets from the USFDA
Jul-14 Receives EIR from the USFDA for sterile manufacturing facility (plant II) and approval for solid dosage manufacturing facility (plant III) at Goa
Apr-15 Indoco buys Piramal's Clinical/Contract Research Organisation (CRO) business
Mar-16 Receives establishment inspection report (EIR) from USFDA for its sterile and solid dosages facility (Goa Plant I)
May-16 Receives establishment inspection report (EIR) from USFDA for its sterile and solid dosages facility (Goa Plant II)
Sep-16 Acquires solid dosage manufacturing facility located at Baddi of Microlabs Ltd.
Source: Company, ICICIdirect.com Research
Top 10 Shareholders Shareholding Pattern
Rank Investor Name Latest Filing Date % O/S Position Position Change
1 SPA Holdings Pvt. Ltd. 31-Mar-17 19.90 18.3 0.0
2 Shanteri Investment Pvt. Ltd. 31-Mar-17 17.12 15.8 0.0
3 Stewart Investors 31-Mar-17 6.09 5.6 0.0
4 Panandikar (Aditi Milind) 31-Mar-17 6.03 5.6 0.0
5 Ramani (Madhura Anup) 31-Mar-17 5.63 5.2 0.0
6 Kare (Aruna Suresh) 31-Mar-17 5.20 4.8 0.0
7 Kare (Suresh Govind) 31-Mar-17 4.41 4.1 0.0
8 DSP BlackRock Investment Managers Pvt. Ltd. 31-Mar-17 4.24 3.9 1.6
9 Barclays Mercantile Business Finance Limited 31-Mar-17 3.02 2.8 0.0
10 First State Investments (HK) Ltd. 31-Mar-17 2.79 2.6 0.8
(in %) Mar-16 Jun-16 Sep-16 Dec-16 Mar-17
Promoter 59.3 59.2 59.2 59.2 59.1
Others 40.8 40.8 40.8 40.9 40.9
Source: Reuters, ICICIdirect.com Research
Recent Activity
Investor name Value ($ mn) Shares Investor name Value ($ mn) Shares
DSP BlackRock Investment Managers Pvt. Ltd. 6.1 1.6 Reliance Nippon Life Asset Management Limited -3.2 -0.9
Kotak Mahindra Asset Management Company Ltd. 4.2 1.1 Birla Sun Life Asset Management Company Ltd. -0.3 -0.1
First State Investments (HK) Ltd. 3.0 0.8 BOI AXA Investment Managers Private Limited -0.2 0.0
First State Investments (Singapore) 1.4 0.4 - 0.0 0.0
BlackRock Institutional Trust Company, N.A. 0.0 0.0 - 0.0 0.0
Buys Sells
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 11
.
Financial summary
Profit and loss statement | Crore
(Year-end March) FY16 FY17E FY18E FY19E
Revenues 1,007.3 1,096.8 1,193.7 1,333.7
Growth (%) 59.8 8.9 8.8 11.7
Raw Material Expenses 341.4 383.3 411.7 456.2
Employee Expenses 182.6 216.7 229.6 248.1
Other Manufacturing Expenses 264.2 288.6 324.1 348.4
Total Operating Expenditure 831.4 940.3 1,019.1 1,112.8
EBITDA 175.8 156.5 174.6 221.0
Growth (%) 88.9 -11.0 11.6 26.6
Interest 12.5 6.2 10.0 10.0
Depreciation 60.4 63.3 72.2 78.2
Other Income 1.1 4.0 6.0 9.3
PBT 104.1 90.9 98.2 142.1
Total Tax 17.6 13.9 21.6 31.3
PAT 86.5 77.1 76.6 110.8
Adjusted PAT 86.5 77.1 76.6 110.8
Growth (%) 102.7 -10.9 -0.6 44.6
EPS 9.4 8.4 8.3 12.0
EPS (Adjusted) 9.4 8.4 8.3 12.0
Source: Company, ICICIdirect.com Research
Cash flow statement | Crore
(Year-end March) FY16 FY17E FY18E FY19E
Profit/(Loss) after taxation 73.2 77.1 76.6 110.8
Add: Depreciation & Amortization 60.4 63.3 72.2 78.2
Net Increase in Current Assets -69.7 -113.0 -29.5 -57.6
Net Increase in Current Liabilities 33.6 48.9 2.0 28.1
Other 15.9 0.0 0.0 0.0
CF from operating activities 113.3 76.2 121.4 159.5
(Inc)/dec in Investments -15.1 15.3 0.0 -20.0
(Inc)/dec in Fixed Assets -97.3 -163.8 -90.0 -80.0
Others -0.5 27.0 0.7 -1.7
CF from investing activities -112.9 -121.6 -89.3 -101.7
Inc / (Dec) in Equity Capital 0.0 0.0 0.0 0.0
Proceeds/(Repayment) Loan 44.4 110.5 -50.0 0.0
Others -45.9 -16.9 -16.8 -24.3
CF from financing activities -1.5 93.6 -66.8 -24.3
Net Cash flow -1.1 48.2 -34.7 33.5
Opening Cash 15.1 14.0 62.2 27.5
Closing Cash 14.0 62.2 27.5 61.0
Free Cash flow 16.0 -87.6 31.4 79.5
Source: Company, ICICIdirect.com Research
Balance sheet | Crore
(Year-end March) FY16 FY17E FY18E FY19E
Equity Capital 18.4 18.4 18.4 18.4
Reserve and Surplus 565.9 626.0 685.8 772.3
Total Shareholders funds 584.3 644.4 704.2 790.7
Total Debt 140.1 250.7 200.7 200.7
Deferred Tax Liability 24.1 39.7 44.5 49.3
Other Non Current Liabilities 9.7 9.9 10.1 10.3
Long term Provisions 17.2 18.2 19.2 20.2
Source of Funds 775.5 962.9 978.7 1,071.2
Gross Block - Fixed Assets 641.9 769.9 849.9 919.9
Accumulated Depreciation 267.1 330.4 402.6 480.8
Net Block 374.8 439.5 447.3 439.1
Capital WIP 54.8 90.6 100.6 110.6
Net Fixed Assets 429.6 530.2 547.9 549.7
Investments 15.3 0.0 0.0 20.0
Inventory 165.2 186.9 195.8 218.7
Cash 14.0 62.2 27.5 61.0
Debtors 188.8 215.7 223.8 250.0
Loans & Advances & Other CA 79.9 144.4 156.9 165.3
Total Current Assets 448.0 609.2 604.0 695.1
Creditors 131.3 164.0 155.6 173.9
Provisions & Other CL 56.9 73.1 83.6 93.4
Total Current Liabilities 188.2 237.2 239.2 267.2
Net Current Assets 259.7 372.1 364.8 427.8
LT L& A, Other Assets 70.6 60.3 65.7 73.4
Deferred Tax Assets 0.0 0.0 0.0 0.0
Application of Funds 775.5 962.9 978.7 1,071.2
Source: Company, ICICIdirect.com Research
Key ratios
(Year-end March) FY16 FY17E FY18E FY19E
Per share data (|)
EPS 9.4 8.4 8.3 12.0
BV per share 63.4 69.9 76.4 85.8
Dividend per share 1.9 1.8 1.8 2.6
Operating Ratios (%)
EBITDA margins 17.5 14.3 14.6 16.6
Net Profit margins 8.6 7.0 6.4 8.3
Inventory days 60 62 60 60
Debtor days 68 72 68 68
Creditor days 48 55 48 48
Asset Turnover 1.1 1.0 1.0 1.1
EBITDA conversion rate 64.5 48.7 69.6 72.2
Return Ratios (%)
RoE 14.8 12.0 10.9 14.0
RoCE 12.9 8.4 9.4 12.6
RoIC 18.2 12.4 13.0 17.3
Valuation Ratios (x)
P/E 21.1 23.6 23.8 16.4
EV / EBITDA 11.1 12.8 11.4 8.9
EV / Net Sales 1.9 1.8 1.7 1.5
Market Cap / Sales 1.8 1.7 1.5 1.4
Price to Book Value 3.1 2.8 2.6 2.3
Solvency Ratios
Debt / Equity 0.2 0.4 0.3 0.3
Debt / EBITDA 0.8 1.6 1.1 0.9
Current Ratio 2.3 2.3 2.4 2.4
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 12
ICICIdirect.com coverage universe (Healthcare)
Company I-Direct CMP TP Rating M Cap
Code (|) (|) (| Cr) FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E
Ajanta Pharma AJAPHA 1602 1,880 Buy 14099.7 45.4 58.5 61.7 72.4 35.3 27.4 26.0 22.1 42.9 40.6 33.8 31.7 34.2 32.6 27.0 25.2
Alembic Pharma ALEMPHA 558 615 Hold 10522.0 38.2 21.4 23.4 30.2 14.6 26.1 23.9 18.5 51.5 26.1 22.3 24.7 44.9 21.4 20.0 21.8
Apollo Hospitals APOHOS 1217 1,440 Buy 16936.4 26.7 20.9 24.2 35.6 45.6 58.3 50.4 34.2 9.2 7.5 8.4 11.4 10.8 7.9 8.4 11.2
Aurobindo Pharma AURPHA 533 965 Buy 31198.2 33.9 38.7 39.5 49.1 15.7 13.8 13.5 10.8 23.3 23.6 20.9 22.6 28.1 24.6 20.3 20.5
Biocon BIOCON 940 1,020 Hold 18792.0 23.1 31.0 25.5 40.8 40.6 30.3 36.8 23.0 9.1 11.4 10.4 15.3 11.4 13.5 10.2 14.5
Cadila Healthcare CADHEA 444 425 Hold 45449.1 15.0 12.2 16.9 21.5 29.7 36.3 26.2 20.7 26.7 15.2 20.1 23.0 28.6 19.9 22.9 23.8
Cipla CIPLA 489 470 Hold 39334.4 18.5 12.9 19.3 26.1 26.4 38.0 25.4 18.7 12.0 8.0 11.7 14.9 12.5 8.1 11.1 13.4
Divi's Lab DIVLAB 545 700 Hold 14476.0 41.5 39.7 42.8 47.8 13.1 13.7 12.8 11.4 30.5 26.6 24.6 23.9 25.7 21.0 19.4 18.7
Dr Reddy's Labs DRREDD 2414 2,610 Hold 40000.7 141.4 68.6 106.1 137.3 17.1 35.2 22.8 17.6 17.3 6.3 10.8 13.7 20.6 9.4 13.0 14.7
Glenmark Pharma GLEPHA 621 910 Buy 17514.2 32.2 46.9 47.2 50.5 19.3 13.2 13.1 12.3 16.2 19.2 18.6 18.0 21.2 25.9 20.9 18.4
Indoco Remedies INDREM 198 180 Hold 1820.9 9.4 8.4 8.3 12.0 21.1 23.6 23.8 16.4 12.9 8.4 9.4 12.6 14.8 12.0 10.9 14.0
Ipca Laboratories IPCLAB 502 560 Hold 6332.5 10.0 15.0 24.1 31.1 50.1 33.4 20.9 16.1 5.7 9.8 12.7 14.8 5.5 7.8 11.3 13.0
Jubilant Life JUBLIF 709 810 Buy 11294.6 26.0 36.1 48.8 66.0 27.3 19.7 14.5 10.7 12.0 13.3 15.1 18.4 14.2 16.8 18.7 20.4
Lupin LUPIN 1113 1,335 Buy 50250.7 50.4 56.6 56.2 66.8 22.1 19.6 19.8 16.7 18.6 17.2 16.7 19.0 20.7 19.1 16.4 16.8
Natco Pharma NATPHA 898 870 Buy 15644.1 8.5 25.3 14.8 18.2 105.8 35.5 60.8 49.4 16.0 33.0 17.6 19.2 11.9 27.2 14.0 15.0
Sun Pharma SUNPHA 568 765 Buy 136192.4 23.4 29.0 20.9 25.7 24.2 19.6 27.2 22.1 18.6 19.8 14.0 15.2 18.0 19.0 12.3 13.4
Syngene Int. SYNINT 463 515 Hold 9262.0 11.1 14.3 14.4 18.4 40.5 31.2 31.0 24.3 13.2 16.8 16.0 18.1 21.0 21.9 18.4 19.1
Torrent Pharma TORPHA 1224 1,475 Buy 20717.2 107.9 57.4 61.2 76.6 11.4 21.3 20.0 16.0 46.8 21.5 23.4 26.2 53.9 23.6 21.1 22.0
Unichem Lab UNILAB 246 285 Hold 2234.4 12.3 12.9 17.4 23.5 20.0 19.0 14.1 10.5 13.8 14.3 16.1 18.8 11.7 11.1 13.3 15.6
RoE (%)EPS (|) PE(x) RoCE (%)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 13
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,
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Mumbai – 400 093
ICICI Securities Ltd | Retail Equity Research Page 14
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