November 5, 2018 Cadila Healthcare (CADHEA)static-news.moneycontrol.com/.../Cadila-Healthcare... · ICICI Securities Ltd ... acquisition of Heinz India portfolio under the Zydus Wellness

November 5, 2018

ICICI Securities Ltd | Retail Equity Research

Result Update

Focus shifts to acquisition…

Q2FY19 results were stronger-than-expected on the operational front

likely due to slower-than-expected price erosion in gLialda (ulcerative

colitis). Revenues were in line with I-direct estimates

Revenues de-grew 8.4% YoY to | 2961.2 crore (I-direct estimate:

| 2986.6 crore) mainly due to high base of gLialda (ulcerative colitis),

exclusivity in the US in Q2FY18

EBITDA margins contracted 323 bps to 23.2% (I-direct estimate:

20.5%), mainly on account of higher employee cost. EBITDA de-grew

19.8% YoY to | 687.8 crore (I-direct estimate: | 611.3 crore). PAT de-

grew 17% YoY to | 417.5 crore (I-direct estimates: | 375.4 crore)

Steep price erosion to impact growth in US

The US (49% of revenues) has grown at a CAGR of 31% in FY13-18

backed by aggressive filings and product launches. Launches of

authorised generics also contributed to overall growth. The US pipeline

(cumulative) consists of 330 filed ANDAs, 144 pending final approvals.

The USFDA cleared Moraiya in February 2017. The new Ahmedabad SEZ

and Baddi facilities have also started getting approvals. Acquisition of US

based Sentynl has paved the way for speciality pain management

segment. However, steep competition, base business pricing pressure

can be near term headwinds. We expect US sales to grow mere 4% to

| 6318 crore in FY18-20E on a high base.

Indian formulations growth backed by incremental new launches

With a market share of ~4%, Cadila is the fourth largest player in the

domestic formulations market, as per AIOCD. The acute: chronic:

subchronic ratio for the company is 23:9:68. Domestic formulation grew

at a CAGR of 8% in FY13-18 backed by new launches and acquisition of

Biochem. Recently, the company acquired six brands from MSD and eight

brands from AstraZeneca We expect Indian formulations to grow at a

CAGR of 11.4% in FY18-20E to | 4136 crore.

US, India main growth drivers; wellness to strengthen mix

US and India together account for 68% of the turnover. However, with the

acquisition of Heinz India portfolio under the Zydus Wellness staple,

wellness as a segment is likely to become another major contributor with

13% share. This will also add some differentiated products to the existing

wellness portfolio. With this acquisition and planned forays into

biosimilars and vaccines, we may see priorities shifting towards these

high investment/niche segments. The company owns a pipeline of 20

biosimilars and four novel biologics. Similarly, it owns 13 vaccines in

different stages of development.

Acquisition to dent near term earnings but bodes well in long run

The main talking point of the quarter was the proposed acquisition of

Heinz India portfolio (four products). At 4x sales the acquisition is neither

cheap nor costly with fairly straightforward funding arrangements.

Although it is early days to gauge the success, prima facie it looks

beneficial from overall revenues point of view with India focused FMCG

addition in the overall portfolio mix. The US is likely to stabilise in the near

term with continuing momentum of product launches in the in FY19 (vis-

à-vis 20 in FY18) including products such Toprol XL (CVS) and Androgel

AG (Hormonal). The Indian formulations business, on the other hand,

remains a stable growth engine. We upgrade the stock to BUY as we

assign higher multiple post this acquisition. Our new target price is | 415

based on 22x FY20E EPS of | 18.9.

Rating matrix

Rating : Buy

Target : | 415

Target Period : 12-15 months

Potential Upside : 15%

What’s Changed?

Target Changed from | 365 to | 415

EPS FY19E Changed from | 20.3 to | 16.5

EPS FY20E Changed from | 26.1 to | 18.9

Rating Changed from Hold to Buy

Quarterly Performance

Q2FY19 Q2FY18 YoY (%) Q1FY19 QoQ (%)

Revenue 2,961.2 3,234.0 -8.4 2,893.7 2.3

EBITDA 687.8 857.1 -19.8 645.0 6.6

EBITDA (%) 23.2 26.5 -328 bps 22.3 94 bps

Net Profit 417.5 503.3 -17.0 461.0 -9.4

Key Financials

(|crore) FY17 FY18 FY19E FY20E

Revenues 9625.3 11936.4 12561.3 15478.8

EBITDA 1903.6 2847.5 2626.8 3495.2

Net Profit 1488.0 1794.6 1690.6 1937.2

EPS (|) 14.5 17.5 16.5 18.9

Valuation summary

FY17 FY18 FY19E FY20E

PE (x) 24.9 20.6 21.9 19.1

Target PE (x) 28.6 23.7 25.1 21.9

EV to EBITDA (x) 21.3 14.3 15.3 12.6

Price to book (x) 5.3 4.2 3.7 3.2

RoNW (%) 21.4 20.5 16.8 16.8

RoCE (%) 13.1 16.7 14.2 13.1

Stock data

Particular Amount

Market Capitalisation

Debt (FY18)

Cash (FY18)

EV

52 week H/L

Equity capital

Face value

MF Holding (%)

FII Holding (%)

| 1

6.7

8.0

| 36978 crore

| 5113 crore

| 1315 crore

| 40775 crore

511/331

| 102 crore

Price performance (%)

1M 3M 6M 1Y

Cadila Healthcare -4.3 -4.1 -6.2 -26.4

Glenmark Pharma 7.1 5.3 17.5 0.4

Torrent Pharma 1.0 0.2 17.0 24.8

Cadila Healthcare (CADHEA) | 361

Research Analyst

Siddhant Khandekar

[email protected]

Mitesh Shah

[email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis

Q2FY19 Q2FY19E Q2FY18 Q1FY19 YoY (%) QoQ (%) Comments

Revenue 2961.2 2986.6 3234.0 2893.7 -8.4 2.3

YoY decline mainly due to high base of gLialda (ulcerative colitis) exclusivity in the

US in Q2FY18 and impact of restocking post GST implementation in India

Raw Material Expenses 991.9 1069.2 1100.7 986.6 -9.9 0.5

Employee Expenses 521.2 522.7 459.2 526.6 13.5 -1.0

Other expenditure 760.3 783.5 817.0 735.5 -6.9 3.4

EBITDA 687.8 611.3 857.1 645.0 -19.8 6.6

EBITDA (%) 23.2 20.5 26.5 22.3 -328 bps 94 bps

Contracted YoY mainly on account of higher employee cost. Beat vis-à-vis I-Direct

estimates likely due to slower-than-expected price erosion in gLialda (ulcerative

colitis).

Interest 35.7 36.9 40.6 35.0 -12.1 2.0

Depreciation 147.5 147.0 126.7 141.8 16.4 4.0

Other Income 30.4 34.8 22.5 101.3 35.1 -70.0

PBT before EO & Forex 535.0 462.2 712.3 569.5 -24.9 -6.1

EO 0.0 0.0 0.0 0.0 0.0 0.0

PBT 535.0 462.2 712.3 569.5 -24.9 -6.1

Tax 124.7 92.4 212.3 120.3 -41.3 3.7

Tax rate (%) 23.3 20.0 29.8 21.1 -21.8 10.3

Net Profit 417.5 375.4 503.3 461.0 -17.0 -9.4 YoY decline mainly in sync with EBITDA

EPS (|) 4.1 3.7 4.9 4.5 -17.0 -9.4

Key Metrics

India 893.2 921.335 894.5 892.6 -0.1 0.1 Muted growth led by impact of restocking post GST implementation

US 1320.4 1310.76 1643.6 1229.6 -19.7 7.4

YoY decline mainly due to high base of gLialda (ulcerative colitis) exclusivity

Europe 52.0 65.28 54.4 61.8 -4.4 -15.9

EMs 203.4 208.32 198.4 196.3 2.5 3.6

Wellness 134.8 125.79 119.8 128.8 12.5 4.7

JVs 16.7 25.596 23.7 25.4 -29.5 -34.3

APIs 89.0 102.19 92.9 109.5 -4.2 -18.7

Animal Health & Others 134.6 140.36 127.6 124.9 5.5 7.8

Source: Company, ICICI Direct Research

Change in estimates

(| Crore) Old New % Change Old New % Change

Revenue 12,649.6 12,561.3 -0.7 13,848.8 15,478.8 11.8 Incorporated acquired portfolio of Heinz India in Zydus welness

EBITDA 2,772.3 2,626.8 -5.2 3,165.3 3,495.2 10.4

EBITDA Margin (%) 21.9 20.9 -99 bps 22.9 22.6 -32 bps Incorporated acquired portfolio of Heinz India in Zydus welness

PAT 1,835.2 1,690.6 -7.9 2,078.4 1,937.2 -6.8

EPS (|) 17.9 16.5 -7.9 20.3 18.9 -6.8 Acquisation related amortization and interest cost expected to impact net profit

FY19E FY20E


Assumptions

Comments

(| crore) FY17 FY18 FY19E FY20E FY19E FY20E

India 3,244.1 3,332.7 3,692.5 4,135.6 3,911.1 4,380.4 Changed as per guidance

US 3,709.1 5,834.8 5,720.9 6,318.3 5,604.8 6,041.8

Europe 262.1 240.3 248.2 273.0 261.4 287.6 Changed mainly due to lower-than-expected sales in Q2FY19

EMs 749.4 761.9 840.9 955.8 862.3 980.1

Wellness 459.3 491.9 534.0 2,084.1 525.0 551.2 Incorporated acquisation

JVs 159.1 159.3 144.2 155.7 153.1 165.3 Changed mainly due to lower-than-expected sales in Q2FY19

APIs 379.5 365.5 412.4 433.0 420.9 442.0

Animal Health & Others 453.0 480.3 531.2 584.3 537.0 590.7

Current Earlier



Company Analysis

The company was established in 1952 and restructured in 1995 post a

family split. Cadila is one of the old generation family owned pedigree

companies which, after establishing a strong base in domestic

formulations, shifted focus to exports markets. Over the last decade

(FY09-18), revenues, EBITDA and PAT have grown by 4.1x, 4.7x and 5.9x,

respectively. US has been the key driver for the company in the past five

years and grew at 31% CAGR in FY13-18, though the annual growth was

volatile due to warning letters. It has received repeated warning letters (in

FY12, FY16) from USFDA for its Moraiya facility (Gujarat). We believe that

despite the headwinds, the US is likely to remain a key growth driver for

the company due to aggressive filings and robust pending approvals.

Domestic growth remained steady in the past five years though JVs,

wellness and other segments growth were volatile. On the margins front,

base business EBITDA margins have been hovering in the range of 17-

22% in the past five years. We believe the US and Indian formulations will

remain main growth drivers, going ahead. Overall, we expect revenues to

grow at a CAGR of 9% in FY18-20E to | 15479 crore on a higher base of

FY18.

Exhibit 1: Overall growth to be driven by India as US base effect to pan out

6357.8

7224.0

8635.8

9617.0 9625.3

11936.412561.3

15478.8

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E

(|

crore)

Revenues


Exhibit 2: Other than US, India, growth likely to be subdued

(| crore) FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E

India 2,324 2,465 2,677 2,983 3,244 3,333 3,692 4,136

US 1,507 2,170 3,393 4,022 3,709 5,835 5,721 6,318

Europe 370 390 338 295 262 240 248 273

EMs 557 594 641 690 749 762 841 956

Wellness 410 430 443 432 459 492 534 2,084

JVs 501 458 471 263 159 159 144 156

Total APIs 310 350 372 365 380 366 412 433

Animal Healthcare 246 286 322 320 453 480 531 584


13.5% CAGR

9.0% CAGR


Exhibit 3: US growth to impact due to high base and price erosion in base business

1,507

2,170

3,393

4,022

3,709

5,835 5,721

6,318

0

1000

2000

3000

4000

5000

6000

7000


(|

crore)

US


Exhibit 4: New launches, line extensions to drive Indian growth

2,3242,465

2,677

2,983

3,244 3,333

3,911

4,380

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000


(|

crore)

India


Exhibit 5: EBITDA to grow at CAGR of 7.1% in FY18-20E

1177.1 1200.1

1740.2

2330.5

1903.6

2847.5

3495.2

2626.8

18.5

16.6

20.2

24.2

19.8

23.9

20.922.6

0

500

1000

1500

2000

2500

3000

3500

4000


(|

crore)

10

13

16

19

22

25

EBITDA EBITDA Margins (%)


31.1% CAGR

4.1% CAGR

7.5% CAGR

11.4% CAGR


Exhibit 6: Net profit to grow at CAGR of 2.6% in FY18-20E

655.0

792.0

1150.6

1958.2

1487.7

1794.61690.6

1937.2

10.311.0

13.3

20.4

15.515.0

13.512.5

0

500

1000

1500

2000

2500


(|

crore)

6

12

18

24

Net Profit Net Profit Margins (%)


Exhibit 7: Trends in return ratios

24.023.5

27.0

34.4

21.420.5

16.8 16.8

16.4 16.1

20.7

24.9

13.1

16.7

14.213.110

15

20

25

30

35

40


RoNW (%) RoCE (%)



Exhibit 8: Trends in quarterly financials

(| Crore) Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 YoY (%) QoQ (%)

Total Operating Income 2394.9 2408.9 2387.1 2333.1 2403.5 2363.8 2524.9 2228.8 3234.0 3259.6 3250.2 2893.7 2961.2 -8.4 2.3

Raw Material Expenses 802.4 810.8 830.7 820.1 893.6 952.1 975.1 860.9 1100.7 1124.6 1083.3 986.6 991.9 -9.9 0.5

% of revenue 33.5 33.7 34.8 35.2 37.2 40.3 38.6 38.6 34.0 34.5 33.3 34.1 33.5

Gross Profit 1592.5 1598.1 1556.4 1513.0 1509.9 1411.7 1549.8 1367.9 2133.3 2135.0 2166.9 1907.1 1969.3 -7.7 3.3

Gross Profit Margin (%) 66.5 66.3 65.2 64.8 62.8 59.7 61.4 61.4 66.0 65.5 66.7 65.9 66.5 54 bps 60 bps

Employee Expenses 313.3 298.0 347.7 357.2 371.5 371.0 400.5 428.8 459.2 460.8 491.5 526.6 521.2 13.5 -1.0

% of revenue 13.1 12.4 14.6 15.3 15.5 15.7 15.9 19.2 14.2 14.1 15.1 18.2 17.6

Other Expenditure 668.5 708.3 658.5 631.9 622.4 636.4 685.7 661.8 817.0 833.0 805.0 735.5 760.3 -6.9 3.4

% of revenue 27.9 29.4 27.6 27.1 25.9 26.9 27.2 29.7 25.3 25.6 24.8 25.4 25.7

Total Expenditure 1784.2 1817.1 1836.9 1809.2 1887.5 1959.5 2061.3 1951.5 2376.9 2418.4 2379.8 2248.7 2273.4 -4.4 1.1

% of revenue 74.5 75.4 77.0 77.5 78.5 82.9 81.6 87.6 73.5 74.2 73.2 77.7 76.8

EBITDA 610.7 591.8 550.2 523.9 516.0 404.3 463.6 277.3 857.1 841.2 870.4 645.0 687.8 -19.8 6.6

EBITDA Margins (%) 25.5 24.6 23.0 22.5 21.5 17.1 18.4 12.4 26.5 25.8 26.8 22.3 23.2 -328 bps 94 bps

Depreciation 72.5 74.1 76.4 84.3 86.4 89.8 114.5 122.0 126.7 147.3 144.0 141.8 147.5 16.4 4.0

Interest 13.0 12.1 15.8 14.0 18.7 6.6 9.9 21.9 40.6 13.5 15.4 35.0 35.7 -12.1 2.0

Other Income 20.0 32.2 39.3 15.3 23.6 16.6 73.1 21.0 22.5 41.1 28.7 101.3 30.4 35.1 -70.0

Forex & EO -0.3 -0.9 0.8 -0.2 0.0 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0

PBT 544.9 536.9 498.1 440.7 434.5 324.4 412.3 154.4 712.3 721.5 739.7 569.5 535.0 -24.9 -6.1

Total Tax 77.8 90.6 -62.7 54.4 64.5 8.1 1.9 29.3 212.3 178.6 144.2 120.3 124.7 -41.3 3.7

Tax rate (%) 14.3 16.9 -12.6 12.3 14.8 2.5 0.5 19.0 29.8 24.8 19.5 21.1 23.3 -649.6 218.5

PAT 467.1 446.3 560.8 386.3 370.0 316.3 410.4 125.1 500.0 542.9 595.5 449.2 410.3 -17.9 -8.7

Minority Interest 9.9 9.2 3.8 6.1 9.1 6.9 7.0 6.9 9.3 10.1 8.3 8.8 10.7 15.1 21.6

PAT after MI 446.2 427.1 548.0 372.2 353.9 303.4 398.4 114.2 486.7 529.8 585.2 439.4 399.6 -17.9 -9.1

EPS (|) 4.4 4.2 5.4 3.6 3.5 3.0 3.9 1.1 4.8 5.2 5.7 4.3 3.9 -17.9 -9.1


SWOT Analysis

Strengths - US product pipeline, one of the best MR productivity (| 49

lakh) in the industry. It was the first Indian company to launch unique NCE

(combination of CVS + anti-diabetic) in India. It has strong return ratios

Weakness - Too many revenue heads, struggling to cope up with margin

pressure, higher acute presence in domestic formulations

Opportunities - US generics space

Industry specific threats - Increased USFDA scrutiny across the globe

regarding cGMP issues, pricing pressure due to client consolidation in the

US. There is continued currency volatility in some emerging markets


Conference call highlights

Acquired portfolio of Heinz India is likely to be funded through

mix of debt: equity in the ratio of 33:67. On the equity front,

Cadila will infuse | 1000-1200 crore and remaining is likely to be

raised from private equity. US sequential price erosion was 2% in Q2FY19. US business price

erosion is expected to be in the range of 8-10% in FY19

Key products update – 1) gAsacol HD (ulcerative colitis) was

completely switched from authorised generic to own product, 2)

competitors are struggling to gain market share in gLialda

(ulcerative colitis) due to manufacturing complexity and 3)

launched authorised generic of AndoGel (hormones) in October,

2019 (size -~US$ 1 billion). Parrigo has launched this drug under

exclusivity, 4) the company has 5% market share in gToprol (CVS)

and 5) the company has some assured business in gTamiflu (Flu)

in H2FY19

Guided for 30+ launches in H2FY19 including couple of

transdermal launches gExelon (CNS)

On the biosimilars front, the company will initially focus only in

India and Emerging markets

GST impact in H1FY19 was 1.5-2%

Guided for 7-8% of R&D for FY19 and FY20

Exhibit 9: Facilities

Location Segment Regulatory Approvals Type

Moraiya, Ahmadabad Formulations USFDA Oral Solids

Baddi Formulations USFDA Oral Solids

Sikkim Formulations Oral Solids

Goa Formulations Oral Solids

Brazil Formulations Oral Solids

Dabhasa API USFDA

Ankleshwar API USFDA

Ahmadabad (SEZ) Formulations Transdermal

Ahmadabad (SEZ) Formulations Oncology & fine chemicals

Ahmadabad Formulations USFDA

Ahmadabad Formulations Topicals & Vaccines

Ahmadabad API Biologics

Cytotoxic, HospiraJV Formulations MHRA, USFDA Injectibles

Cytotoxic , BSV JV API Injectibles

Nesher, USA Formulations USFDA Controlled Substances

Near Moraiya, India Formulations Oilnment, Injectibles

Hercon Pharma Formulations USFDA Transdermal

Germany Formulations Animal Health

Nycomed, Mumbai API



Exhibit 10: One year forward PE

0.0

100.0

200.0

300.0

400.0

500.0

600.0

Nov-13

May-14

Nov-14

May-15

Nov-15

May-16

Nov-16

May-17

Nov-17

May-18

Nov-18

|

Series1 25.7x 21.2x 19.8x 13.8x 10.8x[


Exhibit 11: One year forward PE of company vs. BSE Healthcare Index

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Nov-13

May-14

Nov-14

May-15

Nov-15

May-16

Nov-16

May-17

Nov-17

May-18

Nov-18

x

Cadila Healthcare CNX Pharma

15% Discount


Exhibit 12: Valuation

Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE

(| crore) (%) (|) (%) (x) (X) (%) (%)

FY17 9625 0.1 14.5 -24.1 24.9 21.3 21.4 13.1

FY18 11936 24.0 17.5 20.6 20.6 14.3 20.5 16.7

FY19E 12561 5.2 16.5 -5.8 21.9 15.3 16.8 14.2

FY20E 15479 23.2 18.9 14.6 19.1 12.6 16.8 13.1



Recommendation history vs. Consensus

0

100

200

300

400

500

600

Oct-18Aug-18May-18Mar-18Dec-17Oct-17Aug-17May-17Mar-17Dec-16Oct-16Aug-16May-16Mar-16Dec-15Oct-15

(|

)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

(%

)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICI Direct Research

Key events

Date Event

May-09 Zydus Hospira JV launches two oncology injectable products in the Europe region

Jan-10 Cadila Healthcare receives approval from DGCI to conduct clinical trials for the H1N1 (swine flu) vaccine

May-10 Cadila & Abbott sign an agreement in which Abbott will be marketing 24 branded generics of Cadila in 15 emerging markets

Jun-10 Cadila Healthcare launches India’s first vaccine for treating Swine flu (H1N1)

Jul-11 Cadila Healthcare receives a warning letter for injectable facility in Ahmedabad

Dec-11 Cadila acquires privately held company Biochem. Biochem has a strong presence in antibiotics, CVS, anti-diabetic and oncology segments

Jun-13 Cadila becomes first Indian company to discover, develop and launch new chemical entity Lipaglyn in Indian market. The drug is used for treating diabetic

dyslipidemia combines lipid and glucose lowering effects in one single molecule

Dec-14 Launches biosimilar of Adalimumab, used for treatment of auto immune disorders, at a price much lower than the innovator drug Humira of AbbVie in India

Sep-15 Three manufacturing facilities including two API plants at Ankaleshwar and Dabhasa successfully complete USFDA inspection

Jan-16 Receives warning letter from the USFDA for its Moraiya formulation facility and Ahmedabad API facility (Zyfine). Inspections for these facilities were

conducted in September 2014 and December 2014, respectively

Jul-16 Receives establishment inspection report (EIR) from USFDA for Moraiya facility

Jan-17 Cadila acquires eight brands from Astrazeneca India

Jan-17 Cadila acquires six brands from Merck and its subsidiaries

Jan-17 Cadila acquires Sentynl Therapeutics (US) for $171 million

Feb-17 The company receives establishment inspection report (EIR) for Moraiya manufacturing facility from USFDA

Oct-18 Zyuds wellness enters into definitive agreement to acquire Heinz India four products at a valuation of | 4595 crore


Top 10 Shareholders Shareholding Pattern

Rank Investor Name Latest Filing Date % O/S Position Position Change

1 Zydus Family Trust 30-Sep-18 74.8 765.5m 0.0m

2 Life Insurance Corporation of India 30-Sep-18 2.8 28.8m 0.0m

3 Franklin Templeton Asset Management (India) Pvt. Ltd. 30-Sep-18 1.5 15.9m -0.1m

4 Norges Bank Investment Management (NBIM) 30-Sep-18 1.1 10.9m 0.0m

5 Kotak Mahindra Asset Management Company Ltd. 31-Aug-18 0.9 9.2m 1.2m

6 The Vanguard Group, Inc. 30-Sep-18 0.8 8.6m 0.0m

7 UTI Asset Management Co. Ltd. 30-Sep-18 0.8 8.0m -0.1m

8 BlackRock Institutional Trust Company, N.A. 30-Sep-18 0.6 6.1m 0.1m

9 Reliance Nippon Life Asset Management Limited 30-Sep-18 0.4 4.5m 0.3m

10 IDFC Asset Management Company Private Limited 31-Aug-18 0.3 2.6m 0.0m

(in %) Sep-17 Dec-17 Mar-18 Jun-18 Sep-18

Promoter 74.8 74.8 74.8 74.8 74.8

Others 25.2 25.2 25.2 25.2 25.2

Source: Reuters, ICICI Direct Research

Recent Activity

Investor name Value ($) Shares Investor name Value ($) Shares

Kotak Mahindra Asset Management Company Ltd. 6.7m 1.2m APG Asset Management -12.1m -2.1m

OrbiMed Advisors, LLC 4.7m 0.9m Kotak Mahindra (UK) Ltd -8.8m -1.6m

L&T Investment Management Limited 4.5m 0.8m Franklin Advisers, Inc. -7.9m -1.5m

Aditya Birla Sun Life AMC Limited 3.4m 0.6m DSP Investment Managers Pvt. Ltd. -7.0m -1.2m

Reliance Nippon Life Asset Management Limited 1.8m 0.3m BNP Paribas Asset Management India Pvt. Ltd. -1.4m -0.3m

Buys Sells

Source: Reuters, ICICI Direct Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) FY17 FY18 FY19E FY20E

Revenues 9,625.3 11,936.4 12,561.3 15,478.8

Growth (%) 0.1 24.0 5.2 23.2

Raw Material Expenses 3,640.9 4,153.5 4,556.5 5,706.5

Employee Expenses 1,500.2 1,854.5 2,120.8 2,341.8

Other expenses 2,580.6 3,080.9 3,257.3 3,935.3

Total Operating Expenditure 7,721.7 9,088.9 9,934.6 11,983.6

EBITDA 1,903.6 2,847.5 2,626.8 3,495.2

Growth (%) -18.3 49.6 -7.8 33.1

Depreciation 375.0 538.8 583.3 955.7

Interest 45.0 91.1 152.5 222.1

Other Income 128.6 113.2 209.8 59.8

Less: Exceptional Items 0.3 0.0 0.0 0.0

PBT after Exceptional Items 1,611.9 2,330.8 2,100.8 2,377.2

Total Tax 128.9 564.4 444.3 475.4

Minority Interest 29.1 34.6 35.1 35.0

PAT 1,487.7 1,794.6 1,690.6 1,937.2

Adjusted PAT 1,488.0 1,794.6 1,690.6 1,937.2

Growth (%) -24.1 20.6 -5.8 14.6

EPS (Adjusted) 14.5 17.5 16.5 18.9


Cash flow statement | Crore


Profit/(Loss) after taxation 1,487.7 1,710.2 1,690.6 1,937.2

Add: Depreciation 375.0 540.5 583.3 955.7

Net Increase in Current Assets -987.1 -2,026.3 -313.4 -1,452.4

Net Increase in Current Liabilities 670.0 607.5 159.8 546.3

Other Operating Activities -196.1 87.4 152.5 222.1

CF from operating activities 1,349.5 919.3 2,272.8 2,208.9

(Inc)/dec in Fixed Assets -2,671.5 -1,035.3 -1,106.0 -1,119.7

Loan & Advances -57.8 0.0 -38.7 -42.2

(Inc)/dec in MI 20.3 0.0 35.1 35.0

Other Investing Activities -627.8 -373.9 -39.0 -4,467.7

CF from investing activities -3,336.8 -1,409.2 -1,148.6 -5,594.6

Inc/(dec) in loan funds 2,765.2 157.4 0.0 2,331.7

Dividend paid & dividend tax -394.3 -1.0 -401.9 -422.2

Inc/(dec) in forex reserve 0.0 0.0 0.0 0.0

Interest Paid -45.0 104.9 -152.5 -222.1

Other Financing Activities 566.2 0.0 0.0 0.0

CF from financing activities 2,892.1 261.3 -554.4 1,687.5

Net Cash flow 904.8 -228.6 569.8 -1,698.3

Opening Cash 638.7 1,543.5 1,314.9 1,884.7

Closing Cash 1,543.5 1,314.9 1,884.7 186.4

Free Cash Flow -1,322.0 -116.0 1,166.8 1,089.1


Balance sheet | Crore s


Equity Capital 102.4 102.4 102.4 102.4

Reserve and Surplus 6,857.6 8,642.1 9,930.8 11,445.9

Total Shareholders funds 6,960.0 8,744.5 10,033.2 11,548.3

Total Debt 5,207.2 5,112.6 5,112.6 7,444.3

Deferred Tax Liability 128.0 282.1 307.5 335.2

Minority Interest 156.1 191.0 226.1 261.1

Other Non Curr.Liab. & LTP 214.0 209.6 228.5 249.0

Total Liabilities 12,665.3 14,539.8 15,907.8 19,837.9

Gross Block - Fixed Assets 6,938.6 7,938.9 9,044.9 10,164.6

Less: Acc Depreciation 2,332.9 2,841.6 3,424.9 4,380.6

Net Block 4,605.7 5,097.3 5,620.0 5,784.1

Capital WIP 1,543.3 1,527.2 1,527.2 1,527.2

Total Fixed Assets 6,149.0 6,624.5 7,147.2 7,311.3

Goodwill on Consolidation 1,149.4 1,385.3 1,385.3 5,810.6

Investment 697.9 745.7 745.7 745.7

Inventory 1,803.7 2,385.3 2,478.7 3,054.4

Debtors 2,277.5 3,206.3 3,331.9 4,105.8

Other Current Assets 348.5 1,048.4 1,142.8 1,245.6

Cash 1,543.5 1,314.9 1,884.7 186.4

Total Current Assets 5,973.2 7,954.9 8,838.1 8,592.2

Creditors 1,673.6 1,888.4 1,962.4 2,418.1

Provisions 57.3 100.2 109.2 119.0

Other Current Liabililties 824.5 1,536.9 1,613.7 1,694.4

Total Current Liabilities 2,555.4 3,525.5 3,685.3 4,231.6

Deferred Tax Assets 966.7 924.6 1,007.8 1,098.5

Net Current Assets 3,417.8 4,429.4 5,152.8 4,360.6

Long term Loans and advances 284.5 430.3 469.0 511.2

Application of Funds 12,665.3 14,539.8 15,907.8 19,837.9


Key ratios


Per share data (|)

Adjusted EPS 14.5 17.5 16.5 18.9

BV per share 68.0 85.4 98.0 112.8

Dividend per share 3.9 4.2 3.9 4.1

Cash Per Share 15.1 12.8 18.4 1.8

Operating Ratios (%)

Gross Profit Margins 62.2 65.2 63.7 63.1

EBITDA margins 19.8 23.9 20.9 22.6

Net Profit margins 15.5 15.0 13.5 12.5

Inventory days 68.4 72.9 72.0 72.0

Debtor days 86.4 98.0 96.8 96.8

Creditor days 63.5 57.7 57.0 57.0

Asset Turnover 1.4 1.5 1.4 1.5

EBITDA Conversion Ratio 57.9 32.3 86.5 63.2

Return Ratios (%)

RoE 21.4 20.5 16.8 16.8

RoCE 13.1 16.7 14.2 13.1

RoIC 16.0 19.8 16.4 14.0

Valuation Ratios (x)

P/E 24.9 20.6 21.9 19.1

EV / EBITDA 21.3 14.3 15.3 12.6

EV / Net Sales 4.2 3.4 3.2 2.9

Market Cap / Sales 3.8 3.1 2.9 2.4

Price to Book Value 5.3 4.2 3.7 3.2

Solvency Ratios

Debt / EBITDA 2.7 1.8 1.9 2.1

Debt / Equity 0.7 0.6 0.5 0.6

Current Ratio 1.7 1.9 1.9 2.0



ICICI Direct coverage universe (Healthcare)

Company I-Direct CMP TP Rating M Cap

Code (|) (|) (| Cr) FY17 FY18 FY19E FY20E FY17 FY18 FY19E FY20E FY17 FY18 FY19E FY20E FY17 FY18 FY19E FY20E

Ajanta Pharma AJAPHA 1081 1,205 Hold 9515.3 57.4 53.0 47.4 60.0 18.8 20.4 22.8 18.0 41.3 30.0 22.2 23.2 32.3 23.0 17.0 18.4

Alembic Pharma ALEMPHA 591 560 Hold 11147.9 21.2 21.9 27.9 31.2 27.9 27.0 21.2 19.0 25.3 18.0 18.6 19.4 21.0 18.6 19.9 19.0

Apollo Hospitals APOHOS 1180 1,190 Buy 16413.3 15.9 8.5 24.2 38.6 74.3 139.5 48.7 30.6 6.1 6.3 9.1 12.0 6.0 3.6 9.6 13.6

Aurobindo Pharma AURPHA 777 915 Buy 45522.1 38.8 41.6 42.6 49.5 20.0 18.7 18.2 15.7 24.4 20.0 18.1 15.7 24.2 20.7 17.8 17.3

Biocon BIOCON 630 740 Buy 37797.0 8.5 6.2 11.5 15.4 74.3 101.5 54.5 40.8 9.4 8.1 13.1 16.2 10.5 7.2 11.7 13.7

Cadila Healthcare CADHEA 361 365 Hold 36977.6 14.5 17.5 16.9 19.6 24.8 20.6 21.4 18.5 13.1 16.7 14.7 15.7 21.4 20.5 17.1 17.2

Cipla CIPLA 611 620 Hold 49175.3 12.5 18.3 20.1 26.0 48.9 33.3 30.4 23.4 7.7 9.6 12.3 15.3 8.0 10.4 10.4 12.2

Divi's Lab DIVLAB 1476 1,700 Buy 39185.8 39.9 33.3 55.0 65.5 37.0 44.3 26.8 22.5 25.3 20.0 26.8 26.3 19.8 14.9 20.7 20.5

Dr Reddy's Labs DRREDD 2413 2,700 Hold 40054.1 78.0 57.0 97.1 135.0 31.0 42.3 24.8 17.9 7.3 6.1 8.9 11.9 10.5 7.2 11.2 13.7

Glenmark Pharma GLEPHA 624 555 Hold 17618.6 42.2 28.5 32.4 34.1 14.8 21.9 19.3 18.3 19.5 14.6 15.2 14.3 26.5 15.6 15.2 13.9

Indoco Remedies INDREM 189 190 Hold 1740.7 8.4 4.5 3.7 12.2 22.6 42.3 51.3 15.5 8.7 6.2 5.9 12.5 11.8 6.1 4.8 14.3

Ipca Laboratories IPCLAB 687 845 Buy 8680.4 15.4 19.0 29.1 42.3 44.5 36.2 23.6 16.3 8.7 9.1 13.0 17.3 7.9 8.9 12.3 15.5

Jubilant Life JUBLIF 715 945 Buy 11393.4 36.9 41.3 62.5 76.6 19.4 17.3 11.5 9.3 13.8 14.9 19.4 21.3 16.8 15.7 19.4 19.4

Lupin LUPIN 854 870 Hold 38609.5 56.7 20.8 27.6 39.1 15.0 41.1 30.9 21.8 16.6 10.4 10.4 12.4 19.0 6.9 8.6 11.0

Narayana Hrudalaya NARHRU 248 270 Buy 5068.1 4.1 2.5 2.3 6.6 60.1 99.1 106.7 37.6 12.5 6.3 7.1 12.0 8.8 4.9 4.4 11.1

Natco Pharma NATPHA 777 860 Hold 14337.8 26.3 37.7 43.9 26.7 29.5 20.6 17.7 29.1 33.6 27.3 27.7 15.6 29.5 22.6 22.0 12.2

Sun Pharma SUNPHA 577 690 Buy 138365.6 29.0 13.0 16.5 24.9 19.9 44.5 34.9 23.2 20.3 9.8 11.6 15.0 19.0 8.1 9.5 12.8

Syngene Int. SYNINT 578 685 Buy 11550.0 14.4 15.3 17.6 19.6 40.2 37.8 32.8 29.4 16.0 15.9 17.0 17.4 20.3 17.7 17.1 16.1

Torrent Pharma TORPHA 1623 1,850 Hold 27466.4 55.2 40.1 41.9 62.5 29.4 40.5 38.8 26.0 18.9 11.2 12.9 16.9 21.5 14.7 13.7 17.8

RoE (%)EPS (|) PE(x) RoCE (%)



RATING RATIONALE

ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct 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]

ICICI Direct 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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