Glenmark Pharmaceuticals Rating: BUY Poised for recoverycontent.indiainfoline.com/wc/research/researchreports/... · 2015. 2. 27. · Glenmark Pharmaceuticals 3 Key launches, high

Sector: Pharmaceuticals

Sector view: Positive

Sensex: 28,747

52 Week h/l (Rs): 840 / 510

Market cap (Rscr) : 20,884

6m Avg vol (‘000Nos): 380

Bloomberg code: GNP IN

BSE code: 532296

NSE code: GLENMARK

FV (Re): 1

Price as on February 26, 2015

Company rating grid

Low High

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Earnings Growth

Cash Flow

B/S Strength

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Share price trend

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Feb‐14 Aug‐14 Feb‐15

Glenmark Sensex

Share holding pattern % Jun‐14 Sep‐14 Dec‐14

Promoters 48.3 48.3 48.3

Insti 41.2 41.0 41.0

Others 10.5 10.7 10.7

Rating: BUY Target: Rs930

CMP: Rs770

Upside: 20.8%

Company Report

Research Analyst: Bhavesh Gandhi

[email protected]

Glenmark Pharmaceuticals

This report is published by IIFL ‘India Private Clients’ research desk. IIFL has other business units with independent research teams separated by 'Chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc. The views and opinions expressed in this document may at times be contrary in terms of rating, target prices, estimates and views on sectors and markets.

February 27, 2015

Initiating Coverage

Poised for recovery

Glenmark Pharmaceuticals’ US business is set to accelerate on the back of key upcoming launches like Tarka, Desmopressin and Welchol as well as large FTF opportunity in Zetia; we forecast ~19% revenue cagr over FY15‐17 and believe impact of channel consolidation have largely played out in current year’s performance. Russia (9% of revenues, ~19% PAT margin) has been buffeted by currency depreciation in H2 FY15 but would benefit from Seretide MDI launch and other large approvals; we factor in 15.5% sales cagr over the next 2 years for Rest of World (ROW) business largely driven by Russia. On the domestic front, company reaffirmed its capability to grow at ~1.5x industry run rate on the back of new product launches, translating in to an estimated 16.5% cagr. In Latin America, Brazil growth has been impacted by lack of approvals (an industry wide issue) but even so company remains confident of strong underlying growth to overcome potential currency depreciation. Overall we project 17.7%/28.5% revenue/EPS cagr and initiate coverage with BUY and 9‐12mth target of Rs930 based on 20x FY17E earnings. Lack of US approvals and large currency depreciation in Russia remain key risks.

US set for revival driven by key launches US business is likely to regain momentum after a tepid FY15 as company lines up important launches over the next 1‐2 years. We highlight sizable opportunities like Tarka, Welchol as well as large first to file (FTF) opportunities like Zetia. Russia business is likely to benefit from launch of generic Seretide, a sizable product and would drive growth for ROW business. 16.6x FY17 PE and 28.5% EPS cagr support our BUY reco We forecast 28.5% EPS cagr over FY15‐17 bolstered by revival in US business, Russia Seretide launch and continued traction in domestic market. In addition, Europe and Lat Am would also remain lively growth engines. Initiate coverage with BUY and 9‐12mth target of Rs930, based on 20x FY17E EPS. Lack of approvals in US and sustained currency depreciation are key risks.

Financial summary Y/e 31 Mar (Rs m) FY14 FY15E FY16E FY17E

Revenues 60,052 67,574 79,202 93,654

yoy growth (%) 19.8 12.5 17.2 18.2

Operating profit 13,179 14,143 17,120 20,749

OPM (%) 21.9 20.9 21.6 22.2

Reported PAT 5,423 7,642 9,753 12,616

yoy growth (%) (12.5) 40.9 27.6 29.4

EPS (Rs) 20.0 28.2 36.0 46.5

P/E (x) 38.5 27.3 21.4 16.6

P/BV (x) 7.0 5.7 4.6 3.6

EV/EBITDA (x) 17.8 16.6 13.5 10.9

Debt/Equity (x) 1.1 0.9 0.7 0.5

ROE (%) 26.9 23.0 23.7 24.5

ROCE (%) 17.5 16.7 18.2 20.7 Source: Company, India Infoline Research


2

US revenues to revive after a lackluster FY15 Glenmark’s US revenues have been impacted in the current fiscal on lack of approvals as well as channel consolidation; company had expected 12 approvals in FY15 and has obtained only four so far. Unsurprisingly 9m FY15 US revenues are down 1.5% yoy and we factor in overall 1.2% yoy decline in the current year. Going ahead we expect key launches like gTarka (anti hypertensive, likely to be a limited competition product) and Desmopressin to help regain momentum in FY16. In Q3 FY15, company received final approval for Omeprazole (for treatment of GERD, arising from excess stomach acids) which has picked up business and would be a decent sized opportunity. Company remains optimistic on at least 2‐3 approvals in Q4 FY15 and Q1 of next fiscal. In US, Glenmark would focus on niche and high entry barriers segments like Immunosuppressants and Complex injectables supported by respective manufacturing capabilities in Indore. Company is also focused on moving away from commodity generics and tweaked its product mix in current fiscal which would drive better margins. ANDA filings breakup

ANDA type Pending approval

Authorized to distribute

Total filings Market size (US$ mn)

Immediate Release 31 47 78 25,392

Hormones 14 11 25 2,462

Modified Release 4 9 13 1,763

Dermatology 10 23 33 2,131

Complex Injectables 5 ‐ 5 1,285

Immunosuppressants 2 ‐ 2 901

Controlled substances 0 4 4 197

Oncology ‐ Injectables 8 ‐ 8 2,919

Total 74 94 168 37,050

Para IV filings 39 ‐ 39 15,988 Source: Company, India Infoline Research Note: pipeline as of December 2014

We expect US revenues to regain vigour on back of key upcoming launches like gTarka, Desmopressin and traction in Omeprazole

US revenues to revive from FY16 onwards Trend in ANDA filings

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3

Key launches, high pending/total filings ratio augur well for US growth Glenmark has highlighted two FTFs where it has the sole exclusivity of which Azelaic Acid launch is dependent on court verdict expected in June 2015 . The other launch is that of Ezetimibe for treatment of high cholesterol; the branded drug Zetia of Schering Plough (now Merck) had 9m CY14 sales of ~US$2bn and Glenmark has settled with the innovator under which it can sell the generic version by December 2016 about four months before its patent expiry in April 2017. Glenmark would share the profits with Par Pharma which has bought the exclusive rights to sell gZetia in US. Welchol is the other key near term launch wherein Glenmark has settled with Daiichi and Genzyme and it can launch generic Colesevelam Hydrochloride (Welchol) by April 2, 2015; based on Daiichi’s latest results, Welchol (both oral and suspension) had sales of US$329mn for 9m FY15. In terms of ANDA pipeline, Glenmark has about 74 pending approvals of which 39 are para IV filings translating in to pending approvals/total filings ratio of 0.44x which is the upper end of industry range (largely in line with Lupin and ahead of Sun, Dr Reddys’ and Torrent Pharma). This indicates sufficiently large headroom for future product approvals which in turn augurs well for US growth.

Key upcoming launches/ANDA status Generic Therapy/Indication Launch date

Tarka Anti hypertensive Launched

Welchol Lower blood sugar in Type 2 Diabetes

Q4 FY15

Desmopressin Diabetes Insipidus May 2015

Azelaic Acid Mild Acne Court verdict awaited in June 2015

Orthotricyclen Oral contraceptive Dec 2015

Ezetimibe High Cholesterol Dec 2016 Source: Company, India Infoline Research

Pending ANDAs/total filings ratio better than that of Sun, DRL and Torrent and largely in line with Lupin

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Source: Company, India Infoline Research Note: Torrent’s 9 tentative approvals included in pending ANDAs

Zetia, Welchol and Orthotricyclen are some of the lucrative opportunities for Glenmark

Glenmark’s pending ANDAs/total filings ratio at 0.44x indicates larger approval backlog than that seen at some of the domestic peers


4

Domestic growth sustainable at ~1.5x industry run rate India is likely to account for ~26% of Glenmark’s consolidated revenues and posted 20.4% revenue cagr over FY12‐15. Indeed Glenmark has consistently outpaced domestic industry run rate with average value growth of 17.2% yoy in the past eight quarters vs IPM growth of 10.6% in the same period. The large delta is on account of new product launches which have helped garner better market shares in key therapeutic areas like cardiac, respiratory and anti diabetes. In dermatology, company’s share has marginally declined by 12bps to ~8% in Q3 FY15. In our meeting, company maintained its confidence on ability to grow sustainably at 1.5x the domestic IPM market and accordingly we model in 16.5% revenue cagr over FY15‐17.

Glenmark remains confident of growing at ~1.5x the industry run rate on the back of product launches and market share gains

India value growth at ~1.5x industry run rate Domestic market share change in key therapies

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India revenues cagr seen at 16.5% over FY15‐17 US, India and Russia account for ~68% of revenues

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5

Russia to bounce back supported by Seretide launch Russia accounts for ~50% of the ROW, ~9% of Glenmark’s total revenues and ~18% of consolidated PAT; its PAT margin of 19% is above the adjusted average for the company. In Q3 FY15, company had deliberately held off supplies and would do so to an extent in Q4 on the back of dramatic Rouble depreciation. Company has not taken any price increase so far in its Russian portfolio and is unlikely to do so in Q4 as this would have a direct impact on the ongoing strong volume growth. Respiratory and dermatology continue to be the key growth drivers of the Russian business. Restricted supplies also mean lower future bad debts even as Russian receivables typically stretch out to five months irrespective of any currency volatility. We expect Russian revenues to be boosted by Seretide (known as Advair in US) MDI inhaler launch, which is the first generic inhaler in that market. After the currency devaluation, Seretide market has been pegged at US$35mn from US$65‐70mn earlier and we expect Russian revenues to gain traction from the inhaler launch. Apart from Seretide, Glenmark mentioned it has also received three large approvals (with say revenue potential of ~Rs1bn/product after 2 years of launch) which would drive the upsurge in FY16/17 revenues.

R&D expenses at the higher end of industry range

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Seretide launch and three other large approvals would drive Russia growth in FY16 in turn translating in to 15.5% ROW revenue cagr over FY15‐17

ROW sales to be driven by traction in Russia & CIS Russia PAT margin better than consolidated level

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6

Latin America: Brazil approvals to be the key driver Latin America is expected to contribute 7.7% to Glenmark’s revenues of which Brazil accounts for 55% share with the rest divided between Mexico, Venezuela and Caribbean subsidiaries. In Q4 FY14, Glenmark launched the generic Seretide in Mexico which combined with general shortages has probably driven the robust growth seen since then on yoy basis. Brazil market has been characterized by lack of approvals which is a common thread running across other domestic peers like Cadila. Indeed since Q2 FY14, Glenmark has received/launched only 4 products/approvals in the Brazil market resulting in moderate 10‐12% yoy quarterly growth in local currency. In our meeting, company expressed confidence that even 3‐4 approvals would be enough to drive robust growth in Brazil supported by a unique respiratory launch in FY15. Currency has been other key determiant of INR growth though underlying growth in Lat Am is strong enough to withstand 10‐15% depreciation in the next fiscal. With lower contribution from US and muted ROW growth, Europe share of revenues is likely to increase to 9.6% in FY15 from 8.4% in previous year with UK, the largest subsidiary, posting robust growth in the past two quarters .

Brazil growth hinges on product approals even as strong underlying performance can weather curency depreciation in next fiscal

Lat Am revenues to sport 14% cagr over FY15‐17 Trend in Europe revenues

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7

Follows out-licensing strategy for own molecules Glenmark has consistently followed strategy of developing and out licensing own molecules to larger MNC pharma companies; the move is understandable given the fact that phase III clinical trials require large upfront investment which even if the balance sheet supports, would be difficult to justify on a single novel molecule on risk adjusted basis. Over the past 10 years, company has undertaken seven out licensing deals with cumulative US$217mn received in upfront and milestone payments. In the ongoing R&D efforts, it has out licensed a Multiple Sclerosis mAB to Sanofi who is conducting phase II studies.

Seven out licensing deals since 2004 with total pay in of US$217mn Year Compound Out Licensor Details

2004 Oglemilast Forest Labs Deal worth US$190mn on Oglemilast US rights; received US$35mn as upfront and milestone payments

2005 Oglemilast Teijin Pharma A US$53mn deal for Oglemilast Japan rights; Teijin Pharma paid an up‐front payment of US$6mn

2006 Melogliptin Merck KGaA

A deal worth US$250mn in October 2006.Received total payments of US$31mn Due to a reduced R&D focus on Diabetes, Merck returned the molecule to Glenmark in April 2008 ;Melogliptin completed Phase II b trials and is ready to enter Phase III

2007 GRC 6211 Eli Lilly

Eli Lilly acquired the rights to a portfolio of TRPV1 antagonist molecules Received an upfront fee of US$45mn; development of the lead compound GRC 6211 has been stalled

2010 GRC 15300 Sanofi‐Aventis

Received US$25mn in upfront and milestone payments for development & commercialization rights of a first in class TRPV3 antagonist; Phase II trial did not meet the Primary endpoint in May 2014

2011 GBR ‐ 500 Sanofi‐Aventis

First novel biologics out licensing deal. Upfront payment of US$50mn; received US$5mn in May 2014. Total deal size of US$613mn

2012 mPGES‐1 Inhibitors

Forest Labs

Received US$15mn payment from Forest labs on an option agreement; Forest has the first right to refusal after Phase I completion


Strategy of out licensing own molecules which protects balance sheet from large upfront investments in late stage trials on a single novel molecule


8

R&D pipeline: focus on anti inflammation, pain and oncology Glenmark’s R&D pipeline appears robust with a portfolio of 3 NCEs and 4 NBEs either in clinical trials or about to enter one including in‐licensed molecule Crofelemer. Focus areas across the R&D spectrum remain inflammation, pain and oncology. Company has filed for Crofelemer in about 14 key markets out of the 140 countries where it has exclusive marketing rights. Based on our understanding, we believe Crofelemer in its current approval for treatment of non infectious Diarrhea in HIV/AIDS patients would not be a meaningful driver of growth. However, Crofelemer for treatment of acute Diarrhea in adults would provide a strong impetus to revenues. Amongst the other clinical candidates, GRC 17356, for treatment of neuropathic pain, has shown much promise in phase IIa and phase IIb studies have been initiated. Glenmark plans to open an IND in Q2 FY16 and is on the lookout for an out licensing partner. Given the large size of pain market globally of ~US$2bn with >40mn patients, we believe the GRC 17356 can garner meaningful out licensing payments. Another key candidate is first in class monoclonal antibody (mAB) targeting Multiple Sclerosis out licensed to Sanofi. Phase II studies are currently being conducted by Sanofi while the market size is pegged at US$3bn with 1.5mn patients globally with ~50% in US. R&D focus to remain on anti inflammatory, pain and oncology indications

GRC 17356 is the most promising clinical candidate with +ve data in phase IIa studies; company is on the lookout for out licensing partner

R&D pipeline: several molecules at promising stage

Compound Therapy/Indications Target Preclinical

PhaseI

PhaseII a

Phase II b

Phase III

Approval

Crofelemer HIV related Diarrhea CFTR Inhibitor

GRC 17536 Neuropathic Pain TRPA1 Inhibitor

Respiratory disorders TRPA1 Inhibitor

GRC 27864

Chronic Inflammatory

conditions inc. pain mPGES‐1 Inhibitor

Vatelizumab (GBR 500, mAB) Multiple Sclerosis VLA ‐ 2 Antagonist

GBR 900* Chronic pain TrkA Antagonist

GBR 830 (mAB)

Autoimmune disorders OX 40 Antagonist

GBR 1302 Breast and Ovarian

Cancer HER2xCD3 Source: Company, India Infoline Research

In licensed for ROW markets

Option agreement with Forest Laboratories

Out‐licensed to Sanofi


9

Anti inflammatory and pain most promising candidates; co on lookout for out licensing partner in pain NCE GRC 17536 Compound Indication/Therapy Program highlights Market size

Crofelemer

HIV related Diarrhea

First‐in‐class molecule for treatment of non‐infectious diarrhea in HIV/AIDS patients on anti‐retro viral therapy; US partner Salix has FDA approval. Glenmark has filed in ~14 markets within the 140 countries. we understand adult diarrhea approval would be a more potent driver of growth

Globally 10mn patients

Adult acute infectious Diarrhea & Cholera

Completed pivotal C‐ Forward trial; results expected in FY15. Submitted the protocol of a proof‐of‐concept pediatric clinical trial for acute watery diarrhea

Emerging market Diarrheal incidence of 3.9bn episodes

GRC 17536

Neuropathic pain

Most promising candidate off the R&D block; completed phase I study in Netherlands; Phase IIa has shown +ve data and phase IIb toxicology studies have been initiated; Glenmark plans to open an IND in Q2 FY16 and is on the lookout for an out licensing partner

>40mn patients worldwide with market size of US$2bn

Respiratory disorders

Shown promising effect in animal models of asthma, cough and COPD. No safety concerns in Phase I enabling toxicity studies via inhalation route. Completed Phase I/ II a for respiratory indications in the UK; recruiting patients for Phase II proof‐of‐concept study in cough indication in UK

300mn patients in a market worth US$15bn

GRC 27864

Chronic Inflammatory conditions including pain

Signed option agreement with Forest Labs. Completed preclinical studies and phase I enabling GLP studies and filed a Phase I application for first‐in‐human trial with the MHRA, UK. A single ascending dose study has been completed with no safety concerns. Multiple ascending dose study is currently on‐going.

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Vatelizumab (mAB,

GBR500) Multiple Sclerosis

Broadly applicable anti‐inflammatory compound in Crohn’s disease and Multiple Sclerosis. A ‘first‐in‐class’ monoclonal antibody, it has established proof of concept in animals. Phase I studies completed in US. Compound has been out licensed to Sanofi. Phase II studies conducted by Sanofi currently on‐going for MS.

>1.5mn patients globally with ~50% in US alone; market: US$3bn

GBR 900* Chronic pain

In licensed from Lay Line Genomics, Italy, for treatment of chronic pain. Pre‐clinical research is being undertaken in Glenmark's Swiss Biologics Research centre and progressing well. Phase I enabling toxicity studies completed successfully and Phase I clinical trial has been initiated in the UK. GBR 900 is the first anti‐TrkA monoclonal antibody to enter clinical development.

>100mn chronic pain patients globally in a market worth >US$3bn

GBR 830 (mAB)

Autoimmune disorders

Phase I enabling toxicity studies for GBR 830 have been completed and Phase I studies is currently on‐going in Netherlands.

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GBR 1302 (biospecific

mAB)

Breast and Ovarian Cancer

First clinical candidate based on Glenmark’s proprietary platform targeting oncology indications. GBR 1302 is presently in preclinical development and Glenmark expects to obtain approval for the initiation of clinical studies during FY 15.

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10

Revenue, earnings set to accelerate over FY15-17E Glenmark is poised to accelerate its revenues over the next two years with compounded growth of 17.7% as compared to ~16% over FY13‐15E. The momentum would be driven by revival in US business on the back of 5‐6 large launches over next 12‐18 months. Moreover, Glenmark has a relatively higher pending approvals/total filings ratio at 0.44x vs 0.24‐0.31x for peers like Torrent Pharma, Lupin and Dr Reddys’. In its post Q3 earnings call, company indicated it does expect 2‐3 approvals in Q4 and Q1 FY16 each. It is also looking to expand capacity in oral solids (May 2015) and injectables (Oct 2015) with an investment of US$20‐25mn. Russia business would get a boost from Seretide and other large approvals wherein company expects these products to garner as much as ~Rs1bn/product in two years after launch. While currency remains the key unknown, we do not envisage depreciation of the order of 40‐50% which was seen in Rouble in Q3 FY15. Domestic growth at 16.5% cagr is well ahead of industry run rate and in our meeting Glenmark reiterated its confidence to grow at ~1.5x the market growth. An improved revenue mix driven by rising share of US would result in ~120bps margin expansion and 28.5% EPS cagr over FY15‐17E. Glenmark is on the lookout for an out licensing partner for its pain NCE GRC 17356 and any upsides accruing from upfront/milestone payments would provide additional trigger for rerating. Revenue forecast FY15‐17E

Geography FY12 FY13 FY14 FY15E FY16E FY17E FY15‐17 CAGR

India 10,021 13,096 15,105 17,522 20,413 23,781 16.5

US 12,137 16,887 20,270 20,027 23,632 28,358 19.0

Europe 3,008 3,724 5,061 6,478 8,097 10,121 25.0

Latin America 3,012 3,468 4,046 7,687 8,686 9,989 14.0

ROW 5,926 8,493 9,869 9,178 10,555 12,244 15.5

APIs 3,094 3,976 5,353 6,317 7,454 8,796 18.0 Source: Company, India Infoline Research

US revival and Russia Seretide launch combined with robust domestic growth would support 17.7% revenue and 28.5% EPS cagr over FY15‐17E Any upfront/milestone payments from out licensing of GRC 17536 would provide additional trigger for rerating

Return ratios above 20% mark Glenmark earnings profile vis‐à‐vis mid cap peers

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11

Attractive 16.6x PE, 28.5% EPS cagr support our BUY reco Glenmark has built its US business based on niche and high barriers to entry kind of filings and would not be interested in just commoditized generics where the overall market may be large but multiple players would lead to price erosion and subpar growth. It spends up to ~10% of sales on R&D to create the niche opportunities and has had a history of out licensing owned molecules. We expect US business to grow at 19% on compounded basis over next two years. Russia revenues would be boosted by generic Seretide launch as well as other large approvals received in FY15. We forecast consolidated revenue and earnings cagr of 17.7% and 28.5% respectively over FY15‐17E along with ~120bps margin expansion on improved revenue mix. Glenmark trades at 16.6x FY17E PE and given the robust growth we expect the stock to rerate from current levels. Initiate coverage with BUY for 9‐12mth target of Rs930, based on 20x FY17E EPS. Lack of approvals in US and significant currency decline (from existing levels) in Russia and Lat Am remain the key risks to our reco.

Forecast revenue and EPS acceleration over FY15‐17 while stock valuation at 16.6x FY17E PE appear inexpensive Initiate coverage with BUY based on 20x FY17E EPS; lack of approvals and FX depreciation remain the key risks in our view

Valuation snapshot PE

Company CMP Target Reco Upside/Downside

(%) EPS cagr FY15‐17E

FY16E FY17E FY17E RoCE

Lupin 1,698 2,000 BUY 17.8 19.7 27.0 22.6 36.1

Sun Pharma 866 970 Accumulate 12.0 15.0 24.6 21.4 26.7

Dr Reddys 3,252 3,950 BUY 21.5 12.9 21.1 18.4 18.0

Cipla 659 680 Accumulate 0.5 23.1 33.2 25.4 18.8

Glenmark 770 930 BUY 20.8 28.5 21.4 16.6 20.6

Cadila 1,513 1,920 BUY 26.9 30.4 21.7 16.6 24.3

Torrent Pharma 1,071 1,320 BUY 23.2 22.8 20.0 16.2 25.9

Biocon 422 450 Accumulate 6.7 16.2 18.6 15.8 12.8 Source: NSE, Companies, India Infoline Research

Glenmark 1‐yr fwd PE bands Glenmark earnings/valuation matrix

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12

Financials Income statement Y/e 31 Mar (Rs m) FY14 FY15E FY16E FY17E

Revenue 60,052 67,574 79,202 93,654

Op. profit 13,179 14,143 17,120 20,749

Depreciation (2,168) (2,484) (2,789) (3,094)

Interest exp (1,820) (1,991) (1,991) (1,691)

Other income 48 48 48 48

PBT 9,240 9,715 12,388 16,012

Taxes (1,513) (2,040) (2,601) (3,363)

Adj. profit 7,727 7,675 9,786 12,650

MI (33) (33) (33) (33)

FX + exceptionals (2,271) ‐ ‐ ‐

Net profit 5,423 7,642 9,753 12,616

Balance sheet Y/e 31 Mar (Rs m) FY14 FY15E FY16E FY17E

Equity capital 271 271 271 271

Reserves 29,562 36,569 45,528 57,193

Net worth 29,833 36,840 45,800 57,464

Minority int 133 133 133 133

Debt 33,191 33,191 33,191 28,191

Def.tax lia 2,071 2,071 2,071 2,071

Total liabilities 65,227 72,235 81,194 87,859

Goodwill 602 602 602 602

Intangibles 12,675 14,200 15,653 17,105

Fixed assets 17,682 18,747 19,532 20,013

Investments 350 350 350 350

Net working cap 26,518 30,936 37,657 42,388

Inventories 9,329 10,497 12,304 14,549

Sundry debtors 21,563 24,264 28,440 33,629

Cash 7,948 7,719 10,445 10,210

Other curr assets 8,787 9,798 11,484 13,580

Sundry creditors (13,626) (15,333) (17,971) (21,250)

Other curr lia (7,483) (6,010) (7,044) (8,330)

Def tax assets 7,400 7,400 7,400 7,400

Total assets 65,227 72,235 81,194 87,859

Cash flow statement Y/e 31 Mar (Rs m) FY14 FY15E FY16E FY17E

PBT 9,240 9,715 12,388 16,012

Depreciation 2,168 2,484 2,789 3,094

Def.tax lia (1,302) ‐ ‐ ‐

Tax paid (1,513) (2,040) (2,601) (3,363)

Working capital ∆ (922) (4,647) (3,995) (4,965)

Other op.items (2,305) (33) (33) (33)

Operating CF 5,367 5,479 8,547 10,745

Capital exp (4,841) (5,074) (5,027) (5,028)

Free cash flow 525 405 3,519 5,718

Equity raised (2,588) ‐ ‐ ‐

MI (111) ‐ ‐ ‐

Debt fin/disp 4,691 ‐ ‐ (5,000)

Dividends (632) (635) (793) (952)

Net ∆ in cash 1,896 (229) 2,726 (234)

Key ratios Y/e 31 Mar FY14 FY15E FY16E FY17E

Growth matrix (%)

Revenue growth 19.8 12.5 17.2 18.2

Op profit growth 25.7 7.3 21.1 21.2

EBIT growth 19.2 5.9 22.8 23.1

Net profit growth (12.5) 40.9 27.6 29.4

Profitability ratios (%)

OPM 21.9 20.9 21.6 22.2

EBIT margin 18.4 17.3 18.2 18.9

Net profit margin 12.9 11.4 12.4 13.5

RoCE 17.9 17.0 18.7 20.9

RoNW 26.9 23.0 23.7 24.5

RoA 13.0 11.2 12.7 14.5

Per share ratios

EPS 20.0 28.2 36.0 46.5

Dividend per share 2.0 2.0 2.5 3.0

Cash EPS 36.5 37.5 46.4 58.0

Book value per share 110.0 135.8 168.9 211.9

Valuation ratios (x)

P/E 38.5 27.3 21.4 16.6

P/BV 7.0 5.7 4.6 3.6

M Cap/Sales 3.5 3.1 2.6 2.2

EV/EBIDTA 17.8 16.6 13.5 10.9

Payout (%)

Tax payout 16.4 21.0 21.0 21.0

Dividend payout 10.0 8.3 8.1 7.5

Liquidity ratios

Debtor days 131 131 131 131

Inventory days 57 57 57 57

Creditor days 83 83 83 83

Leverage ratios

Interest coverage 6.1 5.9 7.2 10.5

Net debt / equity 0.8 0.7 0.5 0.3

Net debt / op. profit 1.9 1.8 1.3 0.9

Du‐Pont Analysis Y/e 31 Mar (Rs m) FY14 FY15E FY16E FY17E

Tax burden (x) 0.84 0.79 0.79 0.79

Interest burden (x) 0.84 0.83 0.86 0.90

EBIT margin (x) 0.18 0.17 0.18 0.19

Asset turnover (x) 1.01 0.99 1.03 1.07

Financial leverage (x) 2.07 2.06 1.86 1.69

RoE (%) 26.9 23.0 23.7 24.5

13

‘Best Broker of the Year’ – by Zee Business for contribution to brokingNirmal Jain, Chairman, IIFL, received the award for The Best Broker of the Year (for contribution to broking in India) at India's Best Market Analyst Awards 2014 organised by the Zee Business in Mumbai. The award was presented by the guest of Honour Amit Shah, president of the Bharatiya Janata Party and Piyush Goel, Minister of state with independent charge for power, coal new and renewable energy.

'Best Equity Broker of the Year' – Bloomberg UTV, 2011IIFL was awarded the 'Best Equity Broker of the Year' at the recently held Bloomberg UTV Financial Leadership Award, 2011. The award presented by the Hon'ble Finance Minister of India, Shri Pranab Mukherjee. The Bloomberg UTV Financial Leadership Awards acknowledge the extraordinary contribution of India's financial leaders and visionaries from January 2010 to January 2011.

'Best Broker in India' – Finance Asia, 2011IIFL has been awarded the 'Best Broker in India' by Finance Asia. The award is the result of Finance Asia's annual quest for the best financial services firms across Asia, which culminated in the Country Awards 2011

Other awards

2012BEST BROKING HOUSE WITH

GLOBAL PRESENCE

2009, 2012 & 2013BEST MARKET

ANALYSTBEST BROKERAGE,

INDIAMOST IMPROVED,

INDIABEST BROKER,

INDIA

2009FASTEST GROWING

LARGE BROKING HOUSE

Recommendation parameters for fundamental reports:

Buy – Absolute return of over +15%

Accumulate – Absolute return between 0% to +15%

Reduce – Absolute return between 0% to ‐10%

Sell – Absolute return below ‐10%

Call Failure ‐ In case of a Buy report, if the stock falls 20% below the recommended price on a closing basis, unless otherwise specified by the analyst; or, in case of a Sell report, if the stock rises 20% above the recommended price on a closing basis, unless otherwise specified by the analyst

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14

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