Torrent Pharma Bsmedia

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Torrent Pharmaceuticals (TRP) has acquired Elder Pharmas (Elder) India business (sales of INR4bn and 35% EBITDA margin) for INR20bn. The deal valued at 4.8x EV/sales and 14x EV/EBITDA, gives TRP a ready brand portfolio to aggressively entrench in new focus specialties of women care, pain management and nutraceuticals. While the acquired portfolio is complementary and synergistic, it is likely to result in earnings cut of 11% and 14% for FY14E and FY15E, respectively, add leverage of 1.2x from zero net debt and hit RoCEs of TRP. Ergo, we downgrade to HOLD and believe TRP will have to harness strong execution capability to scale up the acquired portfolio to currently generated returns level. Acquisition offers deep synergies and established brands Elders specialty portfolio offers multiple synergies to TRP such as addition of leading brandsShelcal, Chymoral, Carnisurestrengthening its presence in gynecology, pain and vitamin segments. It also renders deeper access to tier II-IV markets with 1,100 market representatives and adds distribution network of 2,900 stockists to its existing base of 1,700, thereby enabling better penetration in North and West India. However, we believe it comes at a dearer value (5x sales) with projected payback of over 10 years and additional strain on balance sheet, limiting future expansion capacity.

Strong scale up potential, but earnings accretion could be delayed Elder sales have declined sharply due to lack of product supplies in market. Thus, we perceive strong scale up potential with leveraging of key brands such as Shelcal to Torrents existing portfolio. However, TRP will have to scale up EBITDA of the acquired business over 2x (INR3.0bn from INR1.5bn) to make it earnings accretive by FY15E.

Outlook and valuations: Execution critical; downgrade to HOLD TRP generates 45% RoCE, while the acquisition yields less than 10% RoCE. Thus, the company will have to scale up the acquired entity 4-5x to achieve similar level of returns. Moreover, execution risk is higher as it is a large buyout for TRP with no historical precedence. Hence, we do not expect significant upside from current level and downgrade to HOLD with TP of INR508 valued at 14x 12m fwd (Sept -15E) EPS.

EVENT UPDATE

TORRENT PHARMACEUTICALSAggressive M&A valuations to strain ROCE

EDELWEISS 4D RATINGS

Absolute Rating HOLD

Rating Relative to Sector Performer

Risk Rating Relative to Sector High

Sector Relative to Market Overweight

MARKET DATA (R: TORP.BO, B: TRP IN)

CMP : INR 480

Target Price : INR 508

52-week range (INR) : 522 / 323

Share in issue (mn) : 169.2

M cap (INR bn/USD mn) : 81/ 1,310

Avg. Daily Vol.BSE/NSE(000) : 117.3

SHARE HOLDING PATTERN (%)

Current Q1FY14 Q4FY13

Promoters * 71.5 71.5 71.5

MF's, FI's & BKs 8.9 9.4 9.7

FII's 7.9 7.6 7.0

Others 11.7 11.5 11.8 * Promoters pledged shares (% of share in issue)

: NIL

PRICE PERFORMANCE (%)

Stock Nifty

EW Pharma Index

1 month 12.1 (0.2) 0.3

3 months 16.9 15.3 10.5

12 months 43.3 6.4 35.0

Anshuman Gupta +91 22 6623 3399 anshuman.gupta @edelweissfin.com Perin Ali +91 22 6620 3032 [email protected]

India Equity Research| Pharmaceuticals

December 23, 2013

FinancialsYear to March FY12 FY13 FY14E FY15ERevenues (INR mn) 26,959 31,696 42,685 49,961 Rev growth (%) 20.7 17.6 34.7 17.0 EBITDA (INR mn) 5,216 6,555 9,216 11,249 Adjusted net profit (INR mn) 4,653 4,382 4,975 5,470 Adj. Diluted EPS (INR) 27.5 25.9 29.4 32.3 EPS growth (%) 65.6 (5.8) 13.5 10.0 P/E (x) 17.5 18.5 16.3 14.8 EV/EBITDA (x) 15.3 12.5 10.9 8.7 ROCE (%) 42.9 45.9 28.8 23.5

Pharmaceuticals

2 Edelweiss Securities Limited

Torrent acquires Elder India portfolio TRP has announced that it has entered into a definitive agreement to acquire domestic business of Elder Pharma for INR20bn. The acquisition values the business at 4.8x EV/sales (Elders acquired portfolio posted INR4bn sales in FY13 and yields over 35% margin) and 14x EV/EBITDA, which is in the higher range of 3-4x sales paid for recent transactions in the M&A space in the domestic market. The company is acquiring Elders India business comprising a portfolio of 30 key brands in therapies of women care, pain management and vitamin supplements or nutraceuticals. The acquisition primarily relates to product portfolio and related operations, including field force of 1,100 and 2,900 stockists. Post acquisition, torrent would have field force of 4,500 people (versus existing base of 3,400) and distribution network of 4000 stockists (excluding 400-600 common stockists). However, TRP has entered into contract manufacturing arrangement with Elder to entail supplies for three years. The acquisition is expected to close in H1CY14. Table 1: Transaction value

Source: Edelweiss research

Table 2: Historical M&A deals


Portfolio expansion critical for future growth The acquisition reflects TRPs strategy to add more brands to its existing portfolio, which is critical for growth, given that most of the products are mature and new launches have slowed. We highlight that the companys growth in domestic market has stagnated in the 10-12% range over FY12-13. We believe TRPs field force and execution capability would likely result in higher growth and margin on the acquired business. Also, Elder has strong presence in tier-II/III towns and its women care and pain management brands would boost TRPs growth in the segments.

Transaction value FY13 FY14EEnterprise Value 20,040

Sales 4,140 4,761 EBITDA 1,449 1,666

Margin (%) 35.0 35.0 Transaction MultiplesEV / sales 4.8 4.2 EV / EBITDA 13.8 12.0

Acquirer Target Year of acquisition

Consideration ($ mn)

EV ($ mn) EV (INR mn) Sales (INR mn)

EBITDA (INR mn)

EV/sales (X)

EV/EBITDA (X)

Daiichi Ranbaxy 4,900 9,182 403,992 48,848 8,229 8.3 49.1 Abbott Piramal 2010 3,720 3,720 178,100 18,100 5,773 9.8 30.9 Cadila Biochem 2012 5,000 2,600 286 1.9 17.5 Mitsui; Otsuka Claris Infusion business in

India and EM2012 193 13,125 4,293 1,674 3.1 7.8

Adcock Ingram Cosme Farma 2012 87 4,800 1,150 4.2

Sanofi Universal Medicare Nutraceutical business

2011 109 5,000 1,100 NA 4.5 NA

Piramal i-Pill 2011 950 309 108 3.1 8.8

Torrent Pharmaceuticals


Chart 1: Torrents growth momentum in domestic market has slowed in FY12-13

Source: Company, Edelweiss research

Acquisition complementary and synergistic While TRP has strong presence in the chronic segment of CNS, CVS and diabetes, Elders business has complementary portfolio in niche therapeutic segments such as womens healthcare, wound care, pain management and nutraceuticals/vitamin supplements, which are new therapies for TRP. Elders India business ranks 30th in the IPM with market share of 0.84%. It has created strong brands, with five of its key products garnering leading market share in respective segments.

Shelcal (sales of INR2.14bn or ~50% acquired portfolio) is 25th largest brand among Top 300 in India and is the largest in the calcium supplements markets with market share of 56%. Its extension Shelcal HD (calcium + vitamin D combination) is one of the strongest growing brands (58% CAGR) and is first line treatment for Osteoporosis.

Chymoral (INR820mn or ~20% of acquired portfolio) is key brand in pain management with 85% market share in the covered market.

Carnisure (INR220mn or 5% of acquired portfolio) has 52% market share.

The ElderVit range has >35% market share in the vitamin supplement segment. This segment is growing at 17-18% per annum.

Together, these acquired brands would scale up TRPs overall ranking in IPM to 12th with combined market share of 2.7% from the current 17th rank with2% market share.

5.0

8.0

11.0

14.0

17.0

20.0

4,994

6,453

7,912

9,370

10,829

12,288

FY09 FY10 FY11 FY12 FY13

Gro

wth

(%)

(INR

mn)

Domestic sales Torrent growth

Pharmaceuticals


Table 3: Elders key brands and therapeutic segments

Source: Elder Pharma, AIOCD, Edelweiss research

Chart 2: Torrent and Elder therapeutic mix

Source: Company, Edelweiss research

Comments

2013 2012 2011 CAGR (%)

Women Healthcare SHELCAL (Incl Line Extensions) 1,963 2,219 2,103 (3.4) SHELCAL 1,177 1,353 1,309 (5.2) SHELCAL CT 314 364 344 (4.5) SHELCAL OS 223 266 281 (10.8) SHELCAL HD 154 132 62 57.7 SHELCAL M 95 104 108 (6.5)

B LONG (incl extension) 97 140 125 (12.0) B LONG 43 56 50 (7.3) B LONG F 54 83 75 (15.3)

DEVIRY 116 116 107 4.2

Wound Care / Pain CHYMORAL (Incl line extensions) 68 83 78 (6.5) CHYMORAL FORTE 57 64 59 (1.8) CHYMORAL PLUS 11 19 19 (23.2) TANTUM ORAL 5 7 7 (13.0)

Nutraceuticals ELDERVIT 19 24 21 (5.2) ELDERVIT ZC 10 13 13 (12.0)

This segment include vitamin supplements & vitamin combination specialized products capable of handling problems of diabetes, arthritis, neurological issues & cardiac ailments

Key therapies Key brandsSales (INR mn)

This category address the therapeutic needs of a woman ranging from Pre-menstrual, infertility to menopause as well as problems related to vitamin necessities, labor/parturition and hormonal imbalance through dosage of supplements.

Chymoral is a market leader in its segment and has a robust 85% market share

CVS and Diabetes

44%

CNS21%

Gastro16%

Anti-Infectives10%

Vitamins / Gyneacology

3%

Pain4%

Others2%

Torrent Pharma Mix (%)

CVS and Diabetes

33%

CNS15%

Gastro13%

Anti-Infectives7%


18%

Pain8%

Others6%

Torrent (Inclduing Elder) Mix (%)

Gastro4%


73%

Pain21%

Elder Pharma Mix (%)



From chart 3, it is evident that sales of Elder products (absolute terms) are declining sharply due to lack of execution. Thus, there is an opportunity to ramp up sales from the current level, which would be managements key focus, in our view. Chart 3: Elders sales and growth have dipped sharply over past six months

Source: AIOCD, Edelweiss research

Earnings under stress despite strong scale up potential The acquired asset posted 35% margin in FY13, similar to TRPs existing business. However, we expect higher loss from amortisation of goodwill (to be amortized over 10-15 years) and increased interest expense (at interest rate on INR borrowings) which would make the transaction earnings dilutive. We highlight that the accretion to EBITDA is expected to be INR1.03bn (in FY14E), while the cash loss from interest expense and amortisation is likely to be INR2.25bn, resulting in deeper cut in earnings. While management has indicated that the acquisition would be cash accretive in second year (FY15) and earnings accretive in third year of operations (FY16), it would require the acquired business to yield 2x the current profitability and more than 25% CAGR in acquired business, which would be challenging, in our view. Moreover, we expect ~11-12 years of payback assuming consistent revenue CAGR of 15% over the period. Thus, execution would be critical.

Table 4: Proforma earnings


(58.0)

(41.0)

(24.0)

(7.0)

10.0

27.0

254

370

486

601

717

833

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep-

11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep-

12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep-

13

Nov

-13

(%)

(INR

mn)

Sales Growth (%)

Torrent Elder ProformaTorrent +

Elder Torrent Elder ProformaTorrent +

Elder Torrent Elder ProformaTorrent +

ElderSales 39,235 3,450 42,685 44,671 5,290 49,961 51,094 6,084 57,178 EBITDA 8,173 1,035 9,208 9,449 1,852 11,301 10,863 2,129 12,992 Margin (%) 20.8% 30% 21.6% 21.2% 35% 22.6% 21.3% 35% 22.7%Depreciation and amortization 1,081 675 1,756 1,411 1,000 2,411 1,645 1,000 2,645 EBIT 7,093 1,035 7,453 8,038 1,852 8,890 9,217 2,129 10,347 Net interest expense / (income) 191 1,298 1,489 (269) 2000 1,731 (449) 2000 1,551 PBT 6,902 1,035 5,964 8,307 1,852 7,158 9,667 2,129 8,796 Tax (%) 23.00 23.00 23.00 23.00 23.00 23.00 23.00 23.00 23.00 PAT 5,314 797 4,592 6,396 1,426 5,512 7,443 1,640 6,773 EPS (adj.) 33.0 4.7 29.4 37.8 8.4 32.3 44.0 9.7 40.0 Shares o/s 169.22 169.22 169.22 169.22 169.22 169.22 169.22 169.22 169.22EPS accretive (dilutive) (11.02) (14.47) (9.05)

FY14E FY15E FY16E

Pharmaceuticals


Funding to increase leverage on Torrents books TRP is planning to fund the acquisition with cash and internal accruals and borrowings. The company has zero net debt on its balance sheet (as on end September 2013, it has INR9.4bn cash and current investments and INR9.1bn debt) and generates ~INR5-6bn cash from operations each year (FCF of INR2-3bn). We expect the company to primarily fund the acquisition via debt. Post acquisition, we expect TRPs debt to equity to increase 1.2x. Moreover, this would also constraint its ability to pursue aggressive capital expansion. Outlook and valuations: Execution critical; downgrade to HOLD Though we are positive on the acquired product portfolio, we expect it to be dilutive to business RoCE. Currently, TRPs overall business generates more than 40% RoCE; however, the acquisition yields less than 10% RoCE. Ergo, the company will have to increase profitability 4-5x to achieve the level of returns generated historically. Moreover, we believe execution risk is higher as it is TRPs first large buyout with no historical precedence, suggesting integration and turnout capability of management. Hence, we do not expect significant upside to current valuations and downgrade to HOLD/Sector Performer rating. At, CMP stock is trading at 16.6x revised FY15E and 13.4x FY16E EPS.

Table 5: Peer valuations


Note: Ranbaxy financials are annualised to fiscal year march ending from reported calendar year ending December

Price to earning for Sun, Ranbaxy, Dr. Reddy's and Glenmark is adjusted for NPV value

Price to earning for Jubilant is proforma for R&D expenses capitalized

CMP

INR FY13 FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15ESun Pharma 579 HOLD 1199 16.9 25.2 28.0 28.8 22.5 20.3 19.5 16.0 33.4 29.4 Cipla 402 BUY 323 16.4 18.2 22.3 16.8 22.1 18.0 12.4 11.1 16.3 15.7 Ranbaxy 455 HOLD 192 9.5 9.1 14.8 25.0 43.5 26.9 19.5 13.8 9.5 13.2 Cadila 773 BUY 158 34.5 36.0 47.6 17.5 21.5 16.2 13.8 10.9 22.2 24.4 Dr. Reddy's 2,513 BUY 427 93.4 122.2 130.9 18.4 20.4 19.0 15.5 13.8 26.5 24.9 Lupin 921 BUY 411 28.8 39.1 46.5 27.1 23.1 19.4 13.0 11.2 33.6 27.5 Large Cap coverage 25.5 20.0 15.6 12.8 Glenmark 526 BUY 142 21.4 25.5 32.5 23.4 19.4 15.2 13.3 11.1 23.0 23.5 Torrent pharma 480 HOLD 81 25.9 29.4 32.3 11.7 16.3 14.9 10.9 8.7 30.7 27.1 IPCA 706 BUY 89 29.3 39.5 45.5 24.7 17.8 15.5 11.4 9.9 25.3 27.1 Aurobindo 378 BUY 110 14.5 28.9 34.3 53.9 13.1 11.0 7.9 6.7 27.7 25.8 Unichem 195 NC 18 12.5 15.8 17.6 18.6 12.3 11.1 9.9 8.7 18.6 19.5 Mid Cap coverage 15.8 13.5 10.7 9.0 Jubilant 121 BUY 19 19.8 18.4 28.8 20.7 6.6 4.2 4.7 3.5 13.7 17.3 Dishman 95 NC 8 10.7 14.9 17.1 26.5 6.4 5.5 5.2 4.5 8.8 11.1 Divis 1,186 HOLD 157 44.7 51.9 63.6 19.3 22.8 18.6 13.2 10.6 25.1 25.6 CRAMS 11.9 9.5 7.7 6.2 Overall - Generics 20.7 16.7 13.2 10.9

Reco Market cap (INR

bn)

Core EPS (INR) CAGR

(FY13-15E) (%)

ROAE (%) Core EV/EBITDA

(x) P/E based on

core EPS



Company Description Torrent is a strong formulation focused company. The company has products in the cardiovascular and central nervous system therapeutic areas. Domestic formulations account for more than 50% of its total revenues. Over the past few years, the company is slowly making its presence felt in the Latin American market, which contributes ~13% to its total revenues. In June 2005, Torrent acquired Heumann Pharma (Heumann) in Germany, a manufacturer of generic products for the German market. This business contributed ~21% to Torrent's total FY07 sales. Torrent's R&D efforts have been fruitful, encouraged by which it licensed one molecule to Novartis in 2001. Currently, Torrent has seven discovery projects in the pipeline. Investment Theme TRP is at a critical juncture as most of the consolidation phase is over and margins are improving traction to historical level of 21-22% over FY14-15E. Further, capex plan of INR11bn supports next phase of expansion, primarily for exports. We believe that improved growth visibility from India and Brazil are key for long term growth. The recent acquisition of Elder brands suggests aggressive expansion intent of management in domestic market which has remained docile for a decade. However, we believe that trading growth for ROCE would likely result in an overhang and limit multiple re-rating from current levels.

Key Risks Risk to scalability of Elder business could delay the earnings accretion from anticipated

timelines

Delay in product launches in Brazil and US could restrict growth in these key geographies

Change in Estimates FY14E FY15E New Old % change New Old % change Comments Net Revenue 42,685 39,235 8.8 49,961 44,671 11.8 Incorporating Elder for 9months in

FY14 and 12 months in FY15

EBITDA 9,216 8,174 12.8 11,248 9,449 19.0 Elder portfolio has 35% margin

accretive to base business

EBITDA Margin 21.6 20.8 22.5 21.2

Core profit 4,975 5,592 (11.0) 5,470 6,396 (14.5) Higher interest expense and

amortization results in earnings

dilution

PAT Margin 12.0 14.7 11.3 14.8

Capex 3,500 3,500 0.0 3,500 3,500 0.0


Pharmaceuticals

Financial Statements

Income statement (INR mn)

Year to March FY13 FY14E FY15E FY16E

Income from operations 31,696 42,685 49,961 57,178

Materials costs 9,308 12,805 14,714 16,753

Employee costs 6,549 8,711 10,192 11,720

R&D Cost 1,111 1,921 2,298 2,630

Total SG&A expenses 8,172 10,031 11,509 13,168

EBITDA 6,555 9,216 11,249 12,906

Core EBITDA 6,555 9,216 11,249 12,906

Depreciation & Amortization 827 1,756 2,311 2,545

EBIT 5,729 7,460 8,938 10,360

Other income (30) (190) 300 300

Interest expenses (77) 1,299 2,133 1,869

Profit before tax 5,776 5,971 7,105 8,791

Provision for tax 1,476 1,403 1,634 2,022

Net profit 4,382 4,975 5,470 6,769

Extraordinary income/ (loss) 40 130 - -

Profit After Tax 4,349 4,698 5,470 6,769

Minority interest (22) - - -

Profit after minority interest 4,328 4,698 5,470 6,769

Adjusted PAT 4,382 4,975 5,470 6,769

Basic EPS (INR) 26.0 29.4 32.3 40.0

Shares outstanding (mn) 169 169 169 169

Diluted EPS (INR) 25.9 29.4 32.3 40.0

Core EPS 25.9 25.1 30.2 40.0

CEPS (INR) 30.9 39.8 46.0 55.0

Dividend per share (INR) 11.5 5.9 6.9 8.5

Common size metrics


Materials costs 29.4 30.0 29.4 29.3

R & D cost 3.5 4.5 4.6 4.6

EBITDA margins 20.7 21.6 22.5 22.6

Net profit margins 14.4 12.0 11.3 12.2

Growth ratios (%)


Revenues 17.6 34.7 17.0 14.4

EBITDA 25.7 40.6 22.1 14.7

Net profit (5.8) 13.5 10.0 23.7

EPS (5.8) 13.5 10.0 23.7

Key Assumptions

Year to March FY13E FY14E FY15E FY16E

Macro

GDP(Y-o-Y %) 5.0 4.8 6.0 -

Inflation (Avg) 7.4 6.0 6.0 -

Repo rate (exit rate) 7.5 7.8 7.0 -

USD/INR (Avg) 54.4 62.0 60.0 60.0

Sector

India pharma market growth (Y-o-Y) % 14.1 10.0 15.0 15.0

Company

Domestic Formulations (INR mn) 10,240 14,758 18,306 21,083

% change 12.7 44.1 24.0 15.2

Brazil (Real mn) 181 195 224 258

% change (real terms) 8.4 8.0 15.0 15.0

Germany (EUR mn) 59 59 66 74

% of change 6.0 0.3 12.0 12.0

No of launches 6 5 7 7

US (USD mn) 64 92 107 118

% change 64.0 92.2 106.5 117.5

CRAMs and Partnerships 3,000 3,460 3,851 4,188

% of sales 9.3 8.3 7.9 7.5

EBITDA margins (%) 20.7 21.6 22.5 22.6

Domestic 34.0 34.3 34.4 34.4

Brazil 20.0 20.0 20.0 20.0

US (pre R& D) 4.0 8.0 12.0 12.0

Germany 4.0 4.0 3.0 3.0

ROW 22.0 22.0 22.0 22.0

CRAMS 11.0 10.0 10.0 10.0

R&D (% of sales) 3.5 4.5 4.6 4.6

ANDA filings (per annum) 3 8 8 8

USD/INR (Avg) 55.5 62.0 60.0 60.0

Real/INR 27.8 27.8 28.0 28.0

Tax rate (%) 25.4 23.0 23.0 23.0

Capex (USD mn) 49 56 58 58

Net debt to equity ratio(x) (0.1) 0.6 0.9 0.6



Peer comparison valuation

Market cap Core EV/EBITDA (X) PE based on core EPS ROAE (%)

Name (USD mn) FY14E FY15E FY14E FY15E FY14E FY15E

Torrent Pharmaceuticals 1,310 10.8 8.6 18.9 15.8 30.7 27.1

Cadila Healthcare 2,552 14.6 11.6 21.4 16.2 22.2 24.4

Glenmark Pharmaceuticals 2,299 11.8 9.8 19.7 15.4 23.2 23.7

Ipca Laboratories 1,436 11.9 10.3 17.8 15.5 25.3 27.1

Median - 11.8 10.0 19.3 15.6 24.2 25.7

AVERAGE - 12.2 10.1 19.5 15.7 25.4 25.6


Cash flow metrics


Operating cash flow 2,100 5,098 6,225 8,135

Investing cash flow (2,123) (22,865) (2,600) (2,600)

Financing cash flow 569 18,150 (3,007) (2,446)

Net cash flow 546 383 618 3,089

Capex (2,721) (3,500) (3,500) (3,500)

Dividends paid (2,273) (1,175) (1,368) (1,692)

Profitability & efficiency ratios


ROAE (%) 33.7 30.7 27.1 27.3

ROACE (%) 45.9 28.8 23.5 26.2

Inventory day 285 298 322 336

Debtors days 70 66 71 74

Payable days 378 342 369 385

Cash conversion cycle (days) (23) 22 24 25

Current ratio 1.6 1.6 1.6 1.7

Debt/EBITDA 1.1 2.8 2.2 1.8

Debt/Equity 0.5 1.4 1.1 0.9

Operating ratios


Total asset turnover 1.5 1.3 1.1 1.1

Fixed asset turnover 3.0 3.5 3.6 3.8

Equity turnover 2.3 2.6 2.4 2.2

Valuation parameters


Diluted EPS (INR) 25.9 29.4 32.3 40.0

Y-o-Y growth (%) (5.8) 13.5 10.0 23.7

CEPS (INR) 30.9 39.8 46.0 55.0

Diluted PE (x) 18.5 16.3 14.9 12.0

Price/BV (x) 5.7 4.5 3.6 3.0

PE based on core EPS 18.4 18.9 15.8 11.9

NPV 4.3 4.3 4.3 4.3

EV/Sales (x) 2.6 2.4 2.0 1.6

EV/EBITDA (x) 12.4 10.8 8.7 7.3

Core EV/EBITDA (x) 12.3 10.8 8.6 7.2

Dividend yield (%) 2.4 1.2 1.4 1.8

Balance sheet (INR mn)

As on 31st March FY13 FY14E FY15E FY16E

Equity capital 423 846 846 846

Reserves & surplus 13,796 17,320 21,423 26,500

Shareholders funds 14,219 18,166 22,269 27,346

Minority interest (BS) 4 4 4 4

Short term debt 1,246 1,246 1,246 1,246

Long term debt 5,684 24,585 22,946 22,193

Borrowings 6,930 25,832 24,192 23,439

Deferred tax liability 258 258 258 258

Sources of funds 21,410 44,259 46,722 51,046

Tangible assets 7,972 12,569 13,758 14,713

Intangible assets 226 19,591 18,691 17,791

CWIP (incl. intangible) 2,853 - - -

Total net fixed assets 11,051 32,160 32,449 32,504

Non current investments - - - -

Current Investments 604 604 604 604

Cash and equivalents 6,270 6,653 7,271 10,360

Inventories 9,239 11,642 14,337 16,483

Sundry debtors 6,878 8,661 10,788 12,475

Loans and advances 1,377 1,377 1,377 1,377

Other current assets 2,098 2,098 2,098 2,098

Total current assets (ex cash) 19,592 23,777 28,600 32,433

Trade payable 10,667 13,335 16,422 18,880

Others current liabilities 5,440 5,602 5,780 5,976

Total current liabilities & 16,107 18,936 22,202 24,856

Net current assets (ex cash) 3,485 4,841 6,397 7,577

Uses of funds 21,410 44,259 46,722 51,046

Book value per share (INR) 84.0 107.4 131.6 161.6

Free cash flow (INR mn)


Net profit 4,328 4,698 5,470 6,769

Depreciation 827 1,756 2,311 2,545

Others (244) - - -

Gross cash flow 4,911 6,454 7,781 9,315

Less: Changes in WC 2,811 1,356 1,557 1,179

Operating cash flow 2,100 5,098 6,225 8,135

Less: Capex 2,721 3,500 3,500 3,500

Free cash flow (622) 1,598 2,725 4,635


Pharmaceuticals

Insider Trades Reporting Data Acquired / Seller B/S Qty Traded No Data Available

*in last one year

Bulk Deals Data Acquired / Seller B/S Qty Traded Price No Data Available

*in last one year

Holding Top10 Perc. Holding Perc. Holding

Torrent pvt ltd 50.89 Mehta samir uttamlal 6.11Mehta sudhir uttamla 4.49 Mehta anita sudhir 3.75Mehta sapna s 3.17 Franklin resources 3.15Templeton asset mgmt 2.92 Hdfc asset managemen 1.87Prudential icici ass 1.07 Mehta jinal s 1.04

*in last one year

Additional Data Directors Data Sudhir Mehta Chairman Samir Mehta Executive Vice ChairmanSanjay S Lalbhai Director Prasanna Chandra Director Chaitanya Dutt Director (Research & Devplmnt) Markand Bhatt Director Shailesh Haribhakti Director Leena Srivastava Director Haigreve Khaitan Director Pradeep Bhargava Additional Director

Auditors -

*as per last annual report


Company Absolute

reco

Relative

reco

Relative

risk

Company Absolute

reco

Relative

reco

Relative

Risk

Apollo Hospitals Enterprise HOLD None None Aurobindo Pharma BUY SP H

Cadila Healthcare BUY SP L Cipla BUY SO L

Divi's Laboratories HOLD SP M Dr.Reddys Laboratories BUY SO M

Glenmark Pharmaceuticals BUY SO H Ipca Laboratories BUY SO L

Jubilant Life Sciences BUY SP M Lupin BUY SO M

Ranbaxy Laboratories HOLD SP H Sun Pharmaceuticals Industries HOLD SP L

Torrent Pharmaceuticals BUY SO H

RATING & INTERPRETATION

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria

Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria

Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return


Pharmaceuticals

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai 400 098. Board: (91-22) 4009 4400, Email: [email protected]

Vikas Khemani Head Institutional Equities [email protected] +91 22 2286 4206

Nischal Maheshwari Co-Head Institutional Equities & Head Research [email protected] +91 22 4063 5476

Nirav Sheth Head Sales [email protected] +91 22 4040 7499

Coverage group(s) of stocks by primary analyst(s): Apollo Hospitals Enterprise, Aurobindo Pharma, Cadila Healthcare, Cipla, Divi's Laboratories, Dr.Reddys Laboratories, Glenmark Pharmaceuticals, Ipca Laboratories, Jubilant Life Sciences, Lupin, Ranbaxy Laboratories, Sun Pharmaceuticals Industries, Torrent Pharmaceuticals

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Rating Distribution* 127 44 8 180* 1 stocks under review

Market Cap (INR) 112 54 14

Date Company Title Price (INR) Recos

Recent Research

17-Dec-13 Ranbaxy Laboratories

Receives approval for generic Felodipine ; EdelFlash

418 Hold

17-Dec-13 Cipla Receives approval for generic Xopenex; EdelFlash

376 Buy

12-Dec-13 Cadila Healthcare

Settlement of patent dispute with Actavis a positive; EdelFlash

723 Buy

> 50bn Between 10bn and 50 bn < 10bn

Buy Hold Reduce Total

Rating Interpretation

Buy appreciate more than 15% over a 12-month period

Hold appreciate up to 15% over a 12-month period

Reduce depreciate more than 5% over a 12-month period

Rating Expected to



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Pharmaceuticals

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