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Ritik Gupta | Pee Aar Securities Ltd. 1
Ritik Gupta | Pee Aar Securities Ltd.
SUM PHARMASUTICALS INDS LTD.
Healthcare | Drugs & Pharma | Research & Development
Sun Pharma has shown great results from April 2020 to March 2021. As per my fundamental analysis the investors who are long in Sun Pharma should HOLD it for long term investment (at least 3 years). Sun Pharma can give you close to 13% CAGR in 3 years and those investors who are thinking of going long on Sun Pharma should wait for the dip. It can show a little correction in some time then it will be the right opportunity to ENTER. Investors who are long can go for COST AVERAGING that time.
RITIK GUPTA: 10th June 2021
Premium Coverage
Ritik Gupta | Pee Aar Securities Ltd. 2
un-Pharmaceuticals, the country's largest pharma company has seen a meteoric rise to the top of the
pharma world in its four-decade history. A successful track record of acquisitions has today made it the
world's fourth largest generic pharma company. In the last five years though, hit by near simultaneous
knocks, Sun lost the market's favor. It still trades 40 per cent lower from its peak last seen in 2015. Sun's
investments in specialty drugs have now started to pay-off (specialty drugs are complex and expensive). The
move requires heavy upfront investments. Returns are uncertain till the end. Sun is estimated to have spent
$2 billion in specialty drugs. Without going anywhere. Until now, earnings from specialty drugs have just
begun. Sun has a lot of scope for multi-year gains. It is now selling more specialty drugs than before the
pandemic. Furthermore, Sun's domestic business is growing faster than its peers. On the chance that
specialty takes time to scale up, the stock has already priced in a number of negatives. From quality issues at
its Halol manufacturing facility, to the increased competition in US generics space. From the infamous
whistleblower complaint (now resolved) to price-fixing issues in the US (now settled). From lower sales of its
Israeli subsidiary to the impact of covid-19. The downside in Sun therefore is limited, especially when its
formidable domestic business provides a cushion to earnings growth. Sun is thus set to go up from current
levels. We recommend you buy Sun Pharma before earnings start gaining momentum.
Why we like Sun Pharma
The only Indian company to make inroads into the difficult specialty market. Sun has a portfolio of nine
specialty drugs - the highest among Indian pharma companies. Market leader. Sun is the market leader in
India with a share of 8.2 per cent. What's more, it is the leader in nine therapies.
Why you should buy Sun Pharma now
Specialty bet paying off. Sun's investments in specialty drugs have started paying off. These will drive earnings
up going forward. Domestic business growing faster than industry. Sun's domestic business is no slouch
either. The market leader has been growing faster than its peers.
What's special about Sun Pharma?
World's 4th largest generic pharma company. Sun has improved its global generic pharma ranking from 5th
largest, five years ago, to one place up. With revenue worth over $ 4.4 billion today, it also ranks 11th in the
US generic market. It has 43 manufacturing sites across the world and is present in more than 100 countries.
Diversified revenue base: Over the years, Sun has diversified its business away from the US and into other markets. Five years ago, US formulations brought in 50 per cent of revenue. Today, it makes up just 33 per cent. India, five years ago, brought in 24 per cent of revenue, but today accounts for 30 per cent.
India's largest domestic pharma company: Sun is the largest domestic pharma company with a market share of 8.2 per cent. What's more, it has held on to its market leadership position even with the tumultuous years of late. The following graphic shows Sun's position today.
S
Ritik Gupta | Pee Aar Securities Ltd. 3
COMPANY DETAILS
DIRECTORS DETAILS
DIN Director Name Designation Appointment Date
00005561 SUDHIR VRUNDAVANDAS VALIA Director 31 January 1994
00179072 KALYANASUNDARAM IYER NATESAN
SUBRAMANIAN
Wholetime
Director
01 April 2010
00004612 GAUTAM BHAILAL DOSHI Director 25 May 2018
00005443 SAILESH TRAMBAKLAL DESAI Wholetime
Director
20 September 2006
05299764 ISRAEL MAKOV Director 29 May 2012
00291126 VIVEK CHAAND SEHGAL Director 14 November 2017
00005588 DILIP SHANTILAL SHANGHVI Managing
Director
01 April 2008
06809515 REKHA SETHI Director 13 February 2014
CIN L24230GJ1993PLC019050
Company Name SUN PHARMACEUTICAL INDUSTRIES LIMITED
Company Status Active
ROC ROC-Ahmedabad
Registration Number 19050
Company Category Company limited by Shares
Company Sub Category Non-govt company
Class of Company Public
Date of Incorporation 01 March 1993
Age of Company 28 years, 3 month, 2 days
Ritik Gupta | Pee Aar Securities Ltd. 4
Ritik Gupta | Pee Aar Securities Ltd. 5
RED FLAGS RELATED TO THE MANAGEMENT AND OTHER KMP’S
Mr. Sudhir Valia stepped down from the position of Whole-time Director of the Company to Non-Executive
Director of the Company, with effect from May 29, 2019. He continues to be a Non-Promoter, Non-Executive
and Non-Independent Director of the Company. He is part of Promoter Group but not a promoter.
The reason given behind the stepped down was the business of Mr. Sudhir Valia personal business is growing
and it is taking most of the time. Mr. Sudhir Valia’s main business is from “Suraksha Asset Reconstruction
Limited” which was related party to “Suraksha Realty” whose was under the impression of taking loans from
“Sun Pharmaceutical Industries Limited”
Sun Pharma did not disclose a $325 million loan to an employee and for a whistle-blower letter sent to the
SEBI which makes several allegations of insider trading and questionable real estate and stock market
transactions involving Valia. Sun Pharma has denied these allegations.
Interestingly, till recently Valia-owned companies Lakshdeep Investments and Finance Private Limited
(LIFPL), Suraksha Realty and Surakhsa Asset Management Company were in news for making a bid for Jaypee
Infratech which owns vast tracks of land bank on both sides of Delhi-Agra Expressway. Jaypee was sent to
the NCLT after it defaulted to bank debt worth Rs 100 billion and Lakshdeep was one of the five bidders.
Sun insiders said Valia, who joined Sun Pharma in 1994 and is a chartered accountant, has been involved with
taxation and finance at the company since the company's initial years. But over the years, he was more
involved in investing in other companies. Insiders said it is Shanghvi and Valia who take all the calls on how
to run Sun Pharma. "Whatever decision Valia takes, it is in concurrence with Shanghvi," said a former
employee.
Many have speculated it was Shanghvi who has pumped his own money through Lakshdeep. But Valia, in
earlier interviews to this denied allegations that Shanghvi invested in his personal investment companies.
Lenders said Suraksha Realty and Lakshdeep raised funds against Sun Pharma and Sun Pharma Advanced
Research Company Limited (SPARC) shares held by LIFPL, its subsidiary and the individual directors. The
borrowings were not to exceed Rs 35 billion.
Analysts said while calculating this limit, entire borrowing, as well as all contingent exposures of LIFPL and
its subsidiaries, was taken into account. The cover (i.e., the ratio of market value of Sun Pharma and SPARC
shares held by Valia Group to total borrowings) was always be at least 1.75 times at all times.
Ritik Gupta | Pee Aar Securities Ltd. 6
RED FLAGS RELATED TO THE RELATED PARTY
SEBI had received two whistleblower complaints, wherein allegations were made against Sun
Pharmaceutical Industries Ltd (SPIL) and its wholly-owned subsidiary Sun Pharmaceutical Laboratories Ltd
(SPLL), alleging that the firms had been diverting funds through its sole distributor in India, Aditya Medisales
Ltd. Further, it was alleged that transactions with Aditya Medisales Ltd (AML) were ongoing for several years.
However, the firm did not disclose as a related party of SPIL before financial year 2017-18.
Shanghvi, Valia, Desai, and Subramanian, by virtue of their positions, were in charge of the firm's operations
and decision-making process, therefore allegedly violated provisions of Listing Obligation and Disclosure
Requirements (LODR) norms. SEBI noted that they allegedly failed to ensure conformity with the regulatory
provisions applicable to the listed entity.
The panel of whole-time members of SEBI approved the recommendation and the entities remitted their
respective settlement amounts in January 2021, Sebi noted in separate settlement orders. According to
separate settlement orders, Sun Pharmaceutical paid over Rs 56.11 lakh towards settlement charges and
Shanghvi paid Rs 62.35 lakh. Besides, the firm's whole-time directors -Sudhir V Valia and Sailesh T Desai- paid
Rs 37.41 lakh each, and Kalyanasundaram Subramanian had to remit a settlement amount of Rs 36.97 lakh.
In addition, Chief Financial Officer Uday Baldota and compliance officers -Sunil Ajmera and Ashok I Bhuta-
paid their respective settlement amounts which were in the range of Rs 18.48 lakh to Rs 24.65 lakh.
The most important Factor here is AML’s Director, Mr. Bhushan Prakash Mehta was director in Suraksha
Realty Ltd. (where Mr. Sudhir Valia was the director) for just 7 days starting from 24th June 2015 to 30th June
2015 and in Vijay Suraksha Realty Ltd. for 8 months.
For the complete penalty imposed by the SEBI, refer this link given below:
https://www.sebi.gov.in/enforcement/orders/feb-2021/settlement-order-in-respect-of-shri-sudhir-v-
valia-in-the-matter-of-sun-pharmaceutical-industries-limited_49096.html
One another most important fact I would like to mention here, Directors of Sun Pharma Pharmaceuticals
Limited, are somewhere related to Suraksha Realty, Suraksha Asset Reconstruction Limited, or any other
company related to construction and infrastructural development. There are not less than 7-8 small
companies registered under the similar address, similar names by the director of Sun Pharma, Mr. Raksha
Sudhir Valia (Son of Sudhir Valia) and Mr. Sudhir Valia.
Ritik Gupta | Pee Aar Securities Ltd. 7
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Ritik Gupta | Pee Aar Securities Ltd. 11
GROUND REPORT
I visited some of the retail and wholesale medical stores of East Delhi to find out the actual market share of
the company. I interviewed 5 massive wholesale and retail stores owners and asked about the performance
of Sun Pharma and its other competitors. Given below is the table showing ground data collected about the
market share of the pharma companies.
East Delhi Pharmacy Store Data (Market Share in %)
Store Name Sun Pharma Cipla Dr. Reddy Wockhardt
Prem Medicos 45 30 15 10
Vishal Medicos 40 30 20 10
Vishnu Medicos 50 25 20 5
Anand Medicos 40 35 15 10
Hans Medicos 55 30 10 5
Average 46 30 16 8
After conducting a short interview, I found out the average market share of all the companies. The result
shows, Sun Pharma has the largest market share of 46% followed by Cipla 30%, Dr. Reddy 16%, Wockhardt
8%.
Please note the above conducted ground report is based on only 4 major companies. There are a lot more companies in the market. Thus, the
actual market share may vary with the calculated one. This representation is just for basic understanding of the most immediate competitors of
Sun Pharma.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
PremMedicos
VishalMedicos
VishnuMedicos
AnandMedicos
HansMedicos
Average
45 4050
40
5546
3030
2535
30
30
15 2020 15
1016
10 10 5 10 5 8
Mar
ket
Shar
e
Name of the Medical Store
East Delhi Pharma Store (Market Share)
Sun Pharma Cipla Dr. Reddy wockhardt
Ritik Gupta | Pee Aar Securities Ltd. 12
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Ritik Gupta | Pee Aar Securities Ltd. 14
HOW BIG IT CAN BECOME
Entry into specialty drugs. With a rush of global competitors, the once-lucrative US generics
business lost its profitability. Indian firms that had minted money in generics began to find the
going tough. The only way to make more money was to go up the value chain into specialty drugs.
In one word, specialty means expensive drugs. These are high-cost medicines used to treat
chronic or complex diseases such as cancer, HIV, epilepsy, arthritis, etc. These medicines are
often biologics or derived from living cells that need to be handled carefully. And they are
expensive, often over $1000 for a month's treatment.
The global specialty generics market is worth $ 57.3 billion (2020). Specialty generics are generic
versions of specialty drugs, once they go off-patent. This industry is expected to be worth $88.9
billion by 2024 (Source: IMARC). It is in this market that many Indian pharma firms have tried
their hands at in the last 6-7 years. Among them. Dr. Reddy's, Lupin, Cipla, Cadila and Aurobindo
Pharma. But none of them have either invested as much or been as successful as Sun Pharma. Of
the $2.5-3.0 billion Indian firms have invested in specialty drugs, Sun alone is estimated to have
spent up to $2 billion.
It also has the largest portfolio of specialty drugs at nine compared to any other Indian firm.
Global specialty drug sales of $429 million in FY20 constituted nine per cent of Sun's revenue in
FY20. Sun is now near the end of its investment phase in specialty drugs. It is now looking at
extending its existing product lines to new dosages to expand the market. Specialty drugs
took a hit of 17 per cent in Q1 of FY21 on account of the pandemic. In later quarters, specialty
drugs have bounced back - up 19 per cent year-on-year in Q2 and up 25 per cent in Q3. Sales of
its key drugs like Illumya, Cequa and Absorica now exceed pre-covid levels. As these and other
specialty drugs begin to grow in scale, Sun's earnings will go up in the years to come.
Domestic
While specialty gains ground, Sun's domestic business, worth over Rs. 10,000 crore per year is its
bedrock. Over the last couple of years, Sun has increasingly focused on India with a bevy of
new launches. As a result of these efforts, India sales now bring in 30 per cent of total revenue,
up from 25 per cent five years ago.
Sun has a portfolio for both acute and chronic illnesses. Acute illnesses are those that develop
suddenly and often last a few days or weeks like burns, broken bones, cold or asthma attacks.
Chronic diseases develop slowly and often worsen with time. These include diabetes, heart
diseases, high blood pressure and high cholesterol.
Focus on India and expansion of its field force over the past couple of years has resulted in higher
than industry growth. Domestic business was up nine per cent (y-o-y) in Q3, higher than peers
who reported 5-7 per cent base growth (excluding covid sales). Sun launched 23 products in
India in Q3 of FY21. It has targeted further 20-25 launches including line extensions going
forward to drive sales up.
Ritik Gupta | Pee Aar Securities Ltd. 15
Management
Dilip Shanghvi, managing director, founded Sun in 1983. He and his associates hold 54.48 per
cent in the company. Shanghvi has followed a successful strategy of acquisitions from Sun's early
days. It made several acquisitions and licensing deals, the most famous of which were Ranbaxy
and Israel-based Taro Pharmaceuticals. Sun's more recent acquisitions have allowed it to gain
a foothold into the difficult to enter Japanese market.
Efficiency
Sun's operating margin averaged at 24 per cent in the last three years. Margins have scaled
higher at 26 per cent as the specialty drugs improved performance in the last 12 months.
Specialty drugs by nature need large investments in the initial phase. Any returns are back-
ended only after the investments in R&D, manpower and sales and marketing. Sun's return on
equity as a result has languished at eight per cent levels in the last five years. As it nears the
end of its investment phase and specialty drugs begin to scale up, returns will trend higher.
Risks
Slow scale-up of specialty drugs: For sustained earnings growth, specialty drugs need to scale
up. Some like the Illumya have not done so fast enough while others like Absorica face stiff
competition. The company is countering these by launching new indications (new uses of the
medication).
US generic sales to remain under pressure: Besides specialty drugs, Sun continues to sell
generic drugs (accounting for six per cent of its 9MFY21 revenue). Stiff competition in this
segment, especially in dermatology, is likely to keep this segment under pressure.
Taro Pharmaceutical: Taro is Sun's Israel-based subsidiary that specialises in dermatology and
sells predominantly in the US. For some time in the past, Taro reported strong growth but it
came under pricing pressure as more competitors came in. As a result, Taro's contribution to
Sun's US revenue has declined from 42 per cent in FY16 to 33 per cent in FY20. With a narrowing
product pipeline, Taro's share could continue to shrink going forward as specialty scales up.
Near-term covid impact: The severity of the pandemic, both in India and the globe could impact
Sun going forward. Last year, as hospitals focused on covid care, many patients deferred non-
emergency treatments. A similar pattern could play out in the near term.
Valuation and outlook
Looking at Sun on a simple price-to-earnings ratio does not give a true picture of the change
playing out. After an investment-heavy phase that saw little returns, specialty business has just
started paying off. As they gain scale, earnings will follow. At the same time, investments and
launches in India will drive domestic growth. Sun is investing for multi-year growth. Investors in
Sun will also need to have the same frame of mind. Buy with a long-term horizon.
Ritik Gupta | Pee Aar Securities Ltd. 16
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Maximum number of shareholdings is with the promoters of the company (54.69%) then followed by UTI and
Mutual Fund Companies (10.94%), Banks, FII’s (8.54%), Corporate FPI (12.81%), then approximately (7.70%)
by Indian public.
54.69%
32.37%
12.94%
0.00%
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%
Promoter
Institution
Non-Institution
Custodian (ADR & GDR)
SHAREHOLDING PATTERN
Ritik Gupta | Pee Aar Securities Ltd. 19
Ritik Gupta | Pee Aar Securities Ltd. 20
Key Highlights:
1. LIC has increased its stake in Sun Pharma by 0.48% which resulted in total holdings of 6.37%.
2. India’s leading Mutual Fund houses, ICICI Prudential Value Discovery Fund, HDFC Balanced Advantage
Fund, Aditya Birla Sun Life Equity Fund and Nippon India Arbitrage Fund (Former name Reliance
Mutual Fund) are heavy on Sun Pharma by 0.04%, 0.76%, 0.67%, 0.01% respectively.
3. UTI hike stake in Sun Pharma holdings by 0.06% resulting to 0.91%.
4. Government of India Pension Fund has increased its stake by 0.46%.
5. Government of Singapore is the only major shareholder from the list of top 10 who has reduced its
stake by 057% in Sun Pharma.
PENALTIES AND INDEBTNESS
Ritik Gupta | Pee Aar Securities Ltd. 21
Details of issuance date, due dates and actual dates and amounts of repayment of listed unsecured commercial paper:
ISIN No Issuance Date Due Date of Payment Actual Date of
Repayment
Redemption Amount
(In Million)
INE044A14542 11-Feb-20 11-May-20 11-May-20 5,000.0
INE044A14567 18-Mar-20 17-Jun-20 17-Jun-20 5,000.0
INE044A14575 10-Jun-20 09-Sep-20 09-Sep-20 3,000.0
INE044A14583 26-Aug-20 15-Jun-21 N/A 4,000.0
INE044A14591 03-Sep-20 01-Dec-20 01-Dec-20 5,000.0
INE044A14609 01-Dec-20 29-Dec-20 29-Dec-20 2,500.0
INE044A14617 29-Jan-21 28-Jan-22 N/A 7,300.0
INE044A14625 02-Feb-21 26-Feb-21 26-Feb-21 5,000.0
INE044A14633 02-Feb-21 19-Mar-21 19-Mar-21 4,000.0
INE044A14641 26-Feb-21 28-May-21 N/A 3,000.0
PENALTIES
Total of Rs 14073.80 (millions) is pending against the Income tax dues, Sales tax dues, Excise duty, interest
charged on them and penalty imposed on them. Major amount is from 2006-07 to 2011-12 from Income tax.
The matter is pending in ITAT.
FINANCIALS
Ritik Gupta | Pee Aar Securities Ltd. 22
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Key Highlights:
1. From the above given data we can clearly see that Gross margin has fallen by 2% i.e., from 73% of sales to 71% of the sales. It is mainly due to the increase in the cost of direct cost. Sun's overall material cost is up by 2% as compared to the previous year. Therefore, increase in cost of its materials has directly shown impact on gross margin.
2. EBITDA has fallen by 1% from the previous year but overall fall in EBITDA is much more than 1% if we compare it from the past 5-year data. Company is able to generate 10% less EBITDA now as compared to 2015, 2016.
3. Fall in EBITDA is clear indication of fall in net margin and obviously EPS.
4. Net margin and ROE is all time low. It is constant from past 3 years i.e., 13% and 9% respectively.
5. Although company's Sales CAGR is 25% and NP CAGR is 17% but it is only the increase on amount not the growth factor. Market price does not justify the increase because of the static growth.
6. CAGR of Operating cash flow of the company is 21% but there is an outlier (FY 2018-19) where operating cash flows are very less. Almost 75% low as compared to the previous year.
7. CAGR of Free Cash Flow of the company is 23% but there is an outlier (FY 2018-19) where free cash flows are in negative which means extensive Capital Expenditure (CAPEX) is done by the company in FY 2018-2019. Its clear outcome can be seen in year 2020 where Free Cash Flow are skyrocketing.
8. CAGR of EPS is 17% but rolling return on the EPS from past 11 years is close to 3% which is very low. Money invested in the FD would have given the higher rolling return.
9. ROE, ROA, ROCE of the company is all time low. Company is not able to employ its capital effectively. It is able to generate 8% of the sales even after the accusation of Ranbaxy and Taro.
Ritik Gupta | Pee Aar Securities Ltd. 26
12.10
15.70
11.108.70
29.00
18.9018.90
15.20
28.80
25.70
17.50
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
2010 2012 2014 2016 2018 2020 2022
PR
ICE
YEARS
EPS TREND
Ritik Gupta | Pee Aar Securities Ltd. 27
INCOME STATEMENT (31.03.2021)
Sun Pharmaceutical Industries Limited
Registered Office: Sun Pharma Advanced Research Centre, Tandalja, Vadodara - 390012.
Corporate Office: Sun House, CTS No. 201 B/1, Western Express Highway, Goregaon (E),
Mumbai - 400063 Tel.: +91 22 4324 4324.
CIN: L24230GJ1993PLC019050, Website: www.sunpharma.com
Statement of Audited Consolidated Financial Results
for the Year ended March 31,2021 (in Millions)
Particulars
Year ended
31.03.2021 31.03.2020
Audited Audited
I Revenue from operations
a. Revenue from contracts with customers 3,31,391.8 3,23,251.7
b. Other operating revenues 3,589.6 5,123.3
Total revenue from operations (I) 3,34,981.4 3,28,375.0
II Other income 8,355.2 6,359.8
III Total income (I+II) 3,43,336.6 3,34,734.8
IV Expenses
Cost of materials consumed 61,531.3 55,152.3
Purchases of stock-in-trade 31,751.7 34,143.7
Changes in inventories of finished goods, stock-in-
trade
and WIP
(6,382.2) 3,008.5
Employee benefits expense 68,622.3 63,623.5
Finance costs 1,414.3 3,027.3
Depreciation and amortisation expense 20,799.5 20,527.8
Other expenses 94,781.1 1,02,705.5
Net (gain) / loss on foreign currency transactions (236.5) (156.1)
Total expenses (IV) 2,72,281.5 2,82,032.5
V Profit / (loss) before exceptional items and tax (III-IV) 71,055.1 52,702.3
VI Exceptional items (Refer Note 4) 43,061.4 2,606.4
VII Profit / (loss) before tax (V-VI) 27,993.7 50,095.9
VIII (i) Tax expense/(credit) for period / year 9,242.0 8,228.0
Ritik Gupta | Pee Aar Securities Ltd. 28
(ii) Tax expense/(credit) - Exceptional (Refer Note 4
and 8) (4,095.1) -
IX Profit / (loss) for the period before share of profit / (loss)
of associates and joint venture (VII-VIII) 22,846.8 41,867.9
X Share of profit / (loss) of associates and joint venture (net) (123.3) (148.3)
XI Net Profit / (loss) after taxes and share of profit / (loss) of
associates and joint venture but before non-controlling
interests (IX+X)
22,723.5 41,719.6
Non-controlling interests (6,314.7) 4,070.3
XII Net Profit / (loss) after taxes, share of profit / (loss) of
associates and joint venture and non-controlling interests 29,038.2 37,649.3
XIII Other comprehensive income (OCI)
A. (i) Items that will not be reclassified to profit or loss 3,233.9 (1,314.1)
(ii) Income tax relating to items that will not be
reclassified to profit or loss (145.4) 159.4
B. (i) Items that may be reclassified to profit or loss (4,031.6) 21,941.9
(ii) Income tax relating to items that may be
reclassified to profit or loss (517.2) 421.1
Total other comprehensive income (A+B) (XIII) (1,460.3) 21,208.3
XIV Total comprehensive income for the period (XI+XIII) 21,263.2 62,927.9
Attributable to:
- Owners of the Company 28,133.4 56,068.4
- Non-controlling interests (6,870.2) 6,859.5
XV Paid-up equity share capital - face value ' 1 each 2,399.3 2,399.3
XVI Other equity 4,62,228.5 4,50,245.2
XVII Earnings per equity share of ' 1 each (not annualised for
quarters)
' (Basic) 12.1 15.7
' (Diluted) 12.1 15.7
See accompanying notes to the audited consolidated financial
results
Research and development expenses incurred (included
above) 21,028.2 19,251.7
Ritik Gupta | Pee Aar Securities Ltd. 29
BALANCE SHEET (31.03.2021)
Sun Pharmaceutical Industries Limited
Registered Office: Sun Pharma Advanced Research Centre, Tandalja, Vadodara - 390012.
Corporate Office: Sun House, CTS No. 201 B/1, Western Express Highway, Goregaon (E),
Mumbai - 400063 Tel.: +91 22 4324 4324.
CIN: L24230GJ1993PLC019050, Website: www.sunpharma.com
Statement of Audited Consolidated Financial Results for the Year ended March 31,2021
(in Millions)
Particulars
As at
31.03.2021
As at
31.03.2020
Audited Audited
ASSETS
(1) Non-current assets
(a) Property, plant and equipment 1,02,349.9 1,05,674.3
(b) Capital work-in-progress 9,365.2 6,589.1
(c) Goodwill (Net) 62,876.4 64,814.6
(d) Other intangible assets 50,303.5 57,980.2
(e) Intangible assets under development 6,303.1 5,614.3
(f) Investments in associates 2,327.3 2,153.9
(g) Investments in joint venture 278.3 275.7
(h) Financial assets
(I) Investments 62,218.3 50,027.9
(II) Loans 7.1 7.9
(III) Other financial assets 957.8 1,048.8
(i) Deferred tax assets (Net) 35,564.4 31,752.9
(j) Income tax assets (Net) 34,327.8 33,842.5
(k) Other non-current assets 5,367.4 6,200.9
Total non-current assets 3,72,246.5 3,65,983.0
(2) Current assets
(a) Inventories 89,970.2 78,749.9
(b) Financial assets
(i) Investments 31,300.6 48,973.6
(ii) Trade receivables 90,614.0 94,212.4
(iii) Cash and cash equivalents 62,730.3 56,766.1
(iv) Bank balances other than (iii) above 1,724.8 8,109.4
(v) Loans 560.1 1,483.8
(vi) Other financial assets 8,759.3 9,293.4
Ritik Gupta | Pee Aar Securities Ltd. 30
(c) Other current assets 18,761.5 18,953.0
Total current assets 3,04,420.8 3,16,541.6
TOTAL ASSETS 6,76,667.3 6,82,524.6
EQUITY AND LIABILITIES
Equity
(a) Equity share capital 2,399.3 2,399.3
(b) Other equity 4,62,228.5 4,50,245.2
Equity attributable to owners of the Company 4,64,627.8 4,52,644.5
Non-controlling interests 30,170.5 38,602.4
Total equity 4,94,798.3 4,91,246.9
Liabilities
(1) Non-current liabilities
(a) Financial liabilities
(i) Borrowings 8,981.3 20,289.2
(ii) Other financial liabilities 195.8 424.1
(b) Provisions 3,271.2 5,110.0
(c) Deferred tax liabilities (Net) 445.1 581.4
(d) Other non-current liabilities 7,519.3 7,808.7
Total non- current liabilities 20,412.7 34,213.4
(2) Current liabilities
(a) Financial liabilities
(i) Borrowings 24,449.0 55,493.8
(ii) Trade payables 39,736.6 35,836.4
(iii) Other financial liabilities 42,373.5 18,887.3
(b) Other current liabilities 7,279.9 6,462.9
(c) Provisions 45,826.5 38,363.6
(d) Current tax liabilities (Net) 1,790.8 2,020.3
Total current liabilities 1,61,456.3 1,57,064.3
Total liabilities 1,81,869.0 1,91,277.7
TOTAL EQUITY AND LIABILITIES 6,76,667.3 6,82,524.6
Ritik Gupta | Pee Aar Securities Ltd. 31
CASH FLOW STATEMENT (31.03.2021)
Sun Pharmaceutical Industries Limited
Registered Office: Sun Pharma Advanced Research Centre, Tandalja, Vadodara - 390012.
Corporate Office: Sun House, CTS No. 201 B/1, Western Express Highway, Goregaon (E),
Mumbai - 400063 Tel.: +91 22 4324 4324.
CIN: L24230GJ1993PLC019050, Website: www.sunpharma.com
Statement of Audited Consolidated Financial Results for the Year ended March 31,2021
(in Millions)
Particulars As At 31.03.2021
As At
31.03.2020
Audited Audited
A. Cash flow from operating activities
Profit before tax 27,993.7 50,095.9
Adjustments for:
Depreciation and amortisation expense 20,799.5 20,527.8
Net (Gain) / Loss on sale / write off /
impairment of property, PPE and other intangible
assets
16.7 53.7
Finance costs 1,414.3 3,027.3
Interest income (2,111.3) (3,546.2)
Dividend income on investments (2,560.4) (561.8)
Net gain arising on financial assets measured
at fair value through profit or
Loss (2,197.6) (571.9)
Net gain on sale of financial assets measured
at fair value through profit or
Loss (138.2) (246.7)
Net (gain)/ loss on sale of financial assets
measured at fair value through
OCI (260.0) (0.4)
Provision / write off /(reversal) for doubtful
trade receivables / advances
43.1 1,068.1
Sundry balances written back, net (122.8) (52.2)
Effect of exchange rate changes 3,215.2 227.7
Operating profit before working capital
changes
46,092.2 70,021.3
Movements in working capital:
Ritik Gupta | Pee Aar Securities Ltd. 32
(Increase) / Decrease in inventories (10,802.9) 2,567.7
(Increase) / Decrease in trade receivables 937.3 (3,740.5)
(Increase) / Decrease in other assets 1,166.2 (1,751.9)
Increase / (Decrease) in trade payables 3,814.6 (2,101.1)
Increase / (Decrease) in other liabilities 24,983.5 3,124.2
Increase / (Decrease) in provisions 5,542.2 10,887.1
Cash generated from operations 71,733.1 79,006.8
Income tax paid (net of refund) (10,029.4) (13,459.1)
Net cash generated from operating activities
(A) 61,703.7 65,547.7
B. Cash flow from investing activities
Payments for purchase of property, plant and
equipment (including capital
(11,701.3) (15,420.0)
Work-in-progress, other intangible assets and
intangible assets under Development
Proceeds from disposal of property, plant and
equipment and other Intangible assets
971.0 920.3
Loans / inter corporate deposits given / placed - (191.3)
Loans / inter corporate deposits received back
/ matured 882.2 1,875.4
Purchase of investments (includes investment
in associate) (1,85,417.4) (3,34,453.9)
Proceeds from sale of investments 1,97,088.0 3,18,936.3
Bank balances not considered as cash and cash
equivalents:
Fixed deposits / margin money placed (2,818.7) (9,694.5)
Fixed deposits / margin money matured 4,880.8 8,192.9
Net cash outflow on acquisition of subsidiary (616.0) -
Interest received 717.7 3,384.6
Dividend received 1,375.9 561.8
Net cash from / (used in) investing activities
(B) 5,362.2 (25,888.4)
C. Cash flow from financing activities
Proceeds from borrowings 66,028.7 1,05,515.7
Repayment of borrowings (Lease obligation) (1,09,198.7) (1,38,934.6)
Ritik Gupta | Pee Aar Securities Ltd. 33
Payment for buy-back of equity shares of
parent and buy-back of equity (1,854.2) (2,124.8)
Shares held by non-controlling interests of
subsidiaries
- -
Net increase / (decrease) in working capital
demand loans (1,726.4) 2,189.0
Refund from / (Transfer to) escrow account for
buy-back 4,250.0 (4,250.0)
Finance costs (1,442.5) (2,718.9)
Dividend payment to non-controlling interests (267.0) (201.4)
Dividend paid (15,594.7) (13,791.9)
Dividend distribution tax - (2,834.5)
Net cash used in financing activities (C) (59,804.8) (57,151.4)
Net (decrease) / increase in cash and cash
equivalents (A+B+C) 7,261.1 (17,492.1)
Cash and cash equivalents at the beginning of
the year 56,766.1 70,623.0
Effect of exchange differences on restatement
of foreign currency cash
and cash equivalents
(1,296.9) 3,635.2
Cash and cash equivalents at the end of the
year 62,730.3 56,766.1
Ritik Gupta | Pee Aar Securities Ltd. 34
TRAILING 12 MONTHS DATA
Sun Pharma’s Operating Profit are not good if we look at the 5 years TTM returns. The company is able to
generate only 1.13% of the operating profit from the past 5 years. This is also been reflected in the Income
statement of the company (EPS and NP). But from past 1 year Sun Pharma has drastically improved its TTM
return on Operating Profit. Company’s debt is under control. Its TTM debt equity is just 0.2 which is very low
as compared to its competitors also. They have more debt obligations.
Ratios and their reason for change shown by the company
Ritik Gupta | Pee Aar Securities Ltd. 35
RATIO ANALYSIS
Financials TTM 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
Adjusted EPS (Rs) 12.1 15.69 11.11 8.73 29.03 18.89 21.92 15.17 14.83 12.83 8.78
Cash EPS (Rs) 12.1 26.01 20.68 16.95 37.93 27.82 32.27 20.7 18.4 16.1 10.21
Adjusted Book Value (Rs)
193.65 188.66 172.59 159.69 152.7 137.03 123.49 89.44 72.37 59.08 45.79
Dividend per Share (Rs)
0.59 4 2.75 2 3.5 1 3 1.5 5 4.25 3.5
Cash Flow per Share (Rs)
-- 27.32 9.15 16.28 29.52 27.78 27.11 19.12 32.41 21.58 22.05
Free Cash Flow per Share (Rs)
-- 23.32 -3.94 7.9 20.84 14.7 21.79 17.33 27.89 15.61 21.06
KEY HIGHLIGHTS:
• After 3 years company has start showing revival in terms of EPS. In 2021 EPS of the company was Rs 12.1 same as it’s previous TTM. It shows company has maintained its EPS in the stringent times of COVID.
• BVPS of the company is increasing constantly from year 2011. It is good for calculating intrinsic value for determining the stock actual valuation. But the rate it is increasing is constantly decreasing from double digit growth to single digit. There could be three possible reasons for it that is the stock splits, bonus given and accusations made by the company in the recent years.
• Free cash flow in year in 2019 is in negative because of the CAPEX. Now in 2021 we can see the impact of that CAPEX. Sun is able to generate all time high free cash flows.
Profitability Ratio TTM 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
ROCE (%) - 10.07 8.68 8.4 - 18.64 25.06 25.46 31.39 30.13 23.6
ROE (%) 4.99 9.66 8.05 6.85 - 19.32 24.89 23.15 25.53 28.02 22.07
ROA (%) 3.36 6.58 5.17 4.24 - 11.39 14.6 16.21 19.61 22 18.43
Operating Margin (%) 27.84 23.22 25.23 24.41 34.22 31.37 30.72 46.96 46.76 45.84 40.47
Net Margin (%) 6.63 12.5 10.65 9.4 24.23 19.66 19.58 23.27 29.65 35.75 31.31
Cash Profit Margin (%) - 10.5 8.81 7.94 28.82 23.5 24.16 26.35 33.24 41.03 36.39
KEY HIGHLIGHTS:
• TTM ROE of the company is in very low because company’s in not able to generate sufficient net profits in the recent years.
• Although we can see the TTM Operating Margin at 27.84% and 2020 Operating Margin at 23.22% which is a good sign. Sun pharma has successfully maintained its Operating margin ratio above 25%.
Ritik Gupta | Pee Aar Securities Ltd. 36
• Net Margin of the company is very stringent from past 12 months but if we look at the annual data it is acceptable.
• Company is not able to utilize its assets optimally. It is only generating returns less than 5% from past 5 years.
Solvency Ratio TTM 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
Debt to Equity 0.02 0.18 0.25 0.27 0.27 0.26 0.35 0.14 0.02 0.03 0.04
Current Ratio 1.89 2.02 1.79 1.59 1.84 2.28 1.79 3.12 4.05 3.93 4.39
Quick Ratio 1.33 1.51 1.34 1.25 1.46 1.79 1.44 2.6 3.14 3.14 3.53
Interest Coverage 20.79 17.55 7.86 7.72 23.63 13.56 12.06 104.67 101.13 120.02 28.6
KEY HIGHLIGHTS:
• Sun’s Debt Equity is all time low from past 12 months. It is lowest amongst its competitors. There is very less debt obligation in the company as compared to the equity.
• Current ratio of the company is on the higher side but still a little improvement can be seen from 2020 and past 12 months data. It shows either the current liabilities have gone down or the current assets have been increased. Both the situation of the company is favorable from the investor’s point of view.
• Quick ratio eliminating the effect of funds blocked in the inventories is also on the favorable side.
• After attaining the all-time low Debt Equity ratio, it was obvious that debt obligation of the company would have definitely gone down. Interest coverage ratio is on the best side from 6 years. Interest obligations can be covered 20.79 times.
Efficiency Ratio TTM 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
Debtors to sales (%) 27.05 28.69 30.57 29.59 23.01 24.11 18.64 13.68 21.35 25.92 19.29
Asset Turnover 0.49 0.93 0.91 0.85 0.54 0.57 0.74 0.68 0.65 0.59 0.56
Receivable days - 56.22 54.1 53.53 83.25 76.12 48.2 51.72 71.46 71.49 71.57
Inventory Days - 48.4 47.84 48.88 78.98 77.46 57.99 63.92 74.22 80.31 80.48
Payable days - 63.32 77.81 90.19 85.47 75.24 52.05 56.33 65.15 64.51 51.06
Cash Conversion Cycle - 41.3 24.13 12.23 76.75 78.34 54.14 59.31 80.53 87.29 100.98
KEY HIGHLIGHTS:
• Overall efficiency of generating cash from the sales has drastically gone up by approximately 70%. Now the money will be received after adding 70% delay i.e., 42 days form the usual conversion time.
• There is no change in inventory holding period which procuring inventories are smooth.
• These is a fall in conversion of debtors into sales and rise in average collection period.
• 20% faster payments have been realized by the company as compared to the previous payable period.
Ritik Gupta | Pee Aar Securities Ltd. 37
Valuation TTM 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
Price / Earnings 55.71 22.44 43.14 56.72 23.69 43.38 46.64 37.8 14.17 11.1 12.57
Price / Book Value 3.48 1.87 2.78 3.1 4.5 5.98 8.28 6.41 5.65 4.82 4.82
Dividend Yield (%) 0.59 1.14 0.57 0.4 0.51 0.12 0.29 0.26 0.61 0.75 0.79
EV/EBITDA 17.01 11.32 16.12 18.51 14.91 21.84 24.92 15.06 15.32 15.22 18.97
KEY HIGHLIGHTS:
• TTM P/E of the company is all time high. It is even Higher from the industry average i.e., 45. I have done intrinsic value analysis and as per my understanding and best judgement I could say that stock price of the Sun Pharma is a little overvalued but it is also justified by its strong financials.
• TTM P/B ratio is more than 1, even more than 2 which clearly shows stock is overvalued as compared to its intrinsic value. CMP is 3.48 times of its Book Value per Share (BVPS).
• Dividend yield of the company is 1.14% in 2020, which was all time high in 10 years.
Ratios and Formulae (Declared by the Company) As at
31.03.2021 As at
31.03.2020
(i) Debt equity ratio = (Long-term borrowings + Short-term borrowings + Current maturities of long-term borrowings and lease liabilities) / (Total equity)
0.27 0.26
(ii) Debt service coverage ratio = Profit after tax but before finance costs, depreciation and exceptional item / (Finance costs + Short-term borrowings + Current maturities of long-term borrowings and lease liabilities)
1.45 0.75
(iii) Interest service coverage ratio = Profit before finance costs, exceptional item and tax / Finance costs
9.73 8.97
(iv) Asset cover = (Total assets - Intangible assets - Current liabilities excluding Short-term borrowings and Current maturities of long-term borrowings and lease liabilities) / (Long-term borrowings + Short-term borrowings + Current maturities of long-term borrowings and lease liabilities)
4.76 4.97
Ritik Gupta | Pee Aar Securities Ltd. 38
Fund houses invested in the stock Fund Mar-21 Dec-20 Sep-20 Jun-20 Mar-20
ICICI Prudential Mutual Fund 3.338 3.142 3.202 3.208 3.484
SBI Mutual Fund 2.000 1.974 1.898 1.658 1.151
Nippon India Mutual Fund 1.489 1.414 1.382 1.493 1.297
HDFC Mutual Fund 1.387 1.148 0.780 0.608 1.021
UTI Mutual Fund 0.673 0.816 0.947 0.895 0.911
Aditya Birla Sun Life Mutual Fund 0.612 0.661 0.587 0.763 0.893
Mirae Asset Mutual Fund 0.542 0.335 0.344 0.435 0.430
Kotak Mahindra Mutual Fund 0.299 0.336 0.248 0.113 0.440
L&T Mutual Fund 0.282 0.280 0.349 0.417 0.278
IDFC Mutual Fund 0.210 0.259 0.206 0.242 0.320
DSP Mutual Fund 0.202 0.175 0.107 0.086 0.074
Invesco Mutual Fund 0.183 0.159 0.190 0.208 0.192
Tata Mutual Fund 0.163 0.127 0.073 0.066 0.042
Canara Robeco Mutual Fund 0.139 0.105 0.131 0.040 -
Franklin Templeton Mutual Fund 0.128 0.128 0.128 0.103 0.170
Edelweiss Mutual Fund 0.089 0.122 0.034 0.038 0.093
Sundaram Mutual Fund 0.069 0.072 0.094 0.094 0.031
PPFAS Mutual Fund 0.058 0.050 0.050 0.041 0.014
Baroda Mutual Fund 0.047 0.034 0.012 0.005 0.011
HSBC Mutual Fund 0.036 0.036 0.054 0.041 0.013 Figures given above are % of equity capital
0
0.5
1
1.5
2
2.5
3
3.5
ICICIPrudential
MutualFund
SBI MutualFund
NipponIndia
MutualFund
HDFCMutual
Fund
UTI MutualFund
Aditya BirlaSun LifeMutual
Fund
Mirae AssetMutual
Fund
% H
old
ing
in S
un
Ph
arm
a
Mutual Fund Companies
TOP MUTUAL FUND HOUSES HOLDING (in %)
Mar-21 Dec-20 Sep-20 Jun-20 Mar-20
Ritik Gupta | Pee Aar Securities Ltd. 39
PEER COMPARISON
Name P/E P/B D/E Profit
Growth % Divid
Yield % ROCE % OPM % ROE %
PAT 12M
(Rs.Cr.)
EPS 12M (Rs.)
Mkt Cap (Rs.Cr.)
Sun Pharma Industries
55.69 3.48 0.07 -26.02 0.82 14.02 25.35 6.33 2903.82 12.1 161703.18
Dr Reddy's Labs
44.79 4.95 0.17 -3.88 0.48 15.48 20.32 11.71 1951.6 117.35 87414.04
Cipla 31.74 4.16 0.08 55.5 0.32 17.83 22.19 14.11 2404.87 29.82 76326.53
Cadila Health
28.42 5.02 0.28 60.24 0.55 15.14 22.12 19.63 2293.07 20.84 65161.22
Aurobindo Pharma
10.53 2.56 0.24 88.45 0.42 18.49 21.3 27.54 5334.85 91.05 56194.44
Torrent Pharma
38 8.15 0.62 24.96 1.24 18.7 31.04 23.49 1252 73.99 47577.05
Biocon 63.15 6.06 0.48 4.77 0 10.74 22.14 10.21 731.74 6.17 46211.09
Given below are the charts showing Peer Comparison more efficiently and effectively. Kindly refer these charts for better understanding of the performance and financial position of the Sun Pharma as compared to the other industry leading companies.
0 10 20 30 40 50 60 70
Sun Pharma.Inds.
Dr Reddy's Labs
Cipla
Cadila Health.
Aurobindo Pharma
Torrent Pharma.
Biocon
55.69
44.79
31.74
28.42
10.53
38
63.15
P/E COMPARISON
Ritik Gupta | Pee Aar Securities Ltd. 40
0 1 2 3 4 5 6 7 8 9
Sun Pharma.Inds.
Dr Reddy's Labs
Cipla
Cadila Health.
Aurobindo Pharma
Torrent Pharma.
Biocon
3.48
4.95
4.16
5.02
2.56
8.15
6.06
P/B COMPARISON
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7
Sun Pharma.Inds.
Dr Reddy's Labs
Cipla
Cadila Health.
Aurobindo Pharma
Torrent Pharma.
Biocon
0.07
0.17
0.08
0.28
0.24
0.62
0.48
D/E COMPARISON
Ritik Gupta | Pee Aar Securities Ltd. 41
-26.02
-3.88
55.560.24
88.45
24.96
4.77
-40
-20
0
20
40
60
80
100
PROFIT GROWTH % COMPARISON
Sun Pharma.Inds.
Dr Reddy's Labs
Cipla
Cadila Health.
Aurobindo Pharma
Torrent Pharma.
Biocon
0.82
0.48
0.32
0.55
0.42
1.24
0
0.2
0.4
0.6
0.8
1
1.2
1.4
DIVIDEND YIELD % COMPARISON
Sun Pharma.Inds.
Dr Reddy's Labs
Cipla
Cadila Health.
Aurobindo Pharma
Torrent Pharma.
Biocon
Ritik Gupta | Pee Aar Securities Ltd. 42
14.02
15.48
17.83
15.14
18.49 18.7
10.74
0
2
4
6
8
10
12
14
16
18
20
ROCE % COMPARISON
Sun Pharma.Inds.
Dr Reddy's Labs
Cipla
Cadila Health.
Aurobindo Pharma
Torrent Pharma.
Biocon
25.35
20.3222.19 22.12
21.3
31.04
22.14
0
5
10
15
20
25
30
35
OPERATING PROFIT MARGIN % COMPARISON
Sun Pharma.Inds.
Dr Reddy's Labs
Cipla
Cadila Health.
Aurobindo Pharma
Torrent Pharma.
Biocon
Ritik Gupta | Pee Aar Securities Ltd. 43
6.33
11.71
14.11
19.63
27.54
23.49
10.21
0
5
10
15
20
25
30
ROE % COMPARISON
Sun Pharma.Inds.
Dr Reddy's Labs
Cipla
Cadila Health.
Aurobindo Pharma
Torrent Pharma.
Biocon
Sun Pharma.Inds.17%
Dr Reddy's Labs12%
Cipla14%
Cadila Health.14%
Aurobindo Pharma32%
Torrent Pharma.7%
Biocon4%
PAT 12M (Rs.Cr.)
Ritik Gupta | Pee Aar Securities Ltd. 44
Sun Pharma.Inds.3%
Dr Reddy's Labs33%
Cipla9%Cadila Health.
6%
Aurobindo Pharma26%
Torrent Pharma.21%
Biocon2%
EPS 12M (Rs.)
Sun Pharma.Inds.30%
Dr Reddy's Labs16%
Cipla14%
Cadila Health.12%
Aurobindo Pharma10%
Torrent Pharma.9%
Biocon9%
Mkt Cap (Rs.Cr.)
Ritik Gupta | Pee Aar Securities Ltd. 45
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