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C O M P A N Y

U P D A T E

India 14 Sep 2012 Sector: Pharma


BSE Code CMP (Sep 13) Nifty Equity Cap (m) Shares (m) Market Cap (m) 526953 287.5 4,842 2,369 9.74 2,816 NSE Code 52W H/L Sensex Face Value Free Float 3M Avg Vol

Venus Remedies
Positive research results
VENUSREM 308/141 18021 10 65.29% 83524

Rs 287

Shareholding Pattern Jun-2012

Venus Remedies has shown good progress from its research development pipeline in recent months, with two of its innovative products getting patent approvals by the US patent office. This marks a big stride in Venus ability show results from its R&D investments, and the market has reacted positively, rerating the stock upwards. We believe these valuations are sustainable, with more upside possible on further research gains valuations. 2 major US Patents approved The company achieved positive vindication of its research efforts, with approval of US patents for two key products: Potentox, suitable for Nosocomial Pneumonia and Febrile Neutopenia infections treatment; and CSE1034, an antibiotic product effective against a range of drug resistant infections. New research product launched

32%

Promoters

35%

FIIs/FVCI Domestic Institutions Corporate Bodies

19% 0%

14%

330 300 270 240 210 180 150 120 90 60 30 Jan-12 Feb12

Price Performance

Venus launched a new research based product, nanotechnology based Taxedol, a single vial Docetaxel product. With market size of Rs 15bn in the domestic market, this is a key product addition to its strong kitty of cancer products. Top-line growth as per expectations Venus has showed growth in revenue of 13.3% in Q1 FY13 (Apr-Jun12) in line with our expectations. The Companys revenue reached Rs 1120mn in Q1FY13 from Rs 988.7 same quarter last year. Its EBITDA grew by 5.7% to Rs 281.2mn this quarter from Rs. 297.2mn in Q1FY12. It registered PAT of Rs. 136.2mn up by 3.1% compared to Q1FY12. EBITDA and net margin are affected with increased SG&A expenses and higher depreciation and financial charges. Valuations Venus scrip has shown strong movement as its US patents for research products came through. The share has increased more 70% since we came up with our last research report in Jun 2012. Venus Remedies is currently trading at 5.4x ttm eps and 4.8x ttm ebitda which is still well below most of its peers. The low valuations, and strong research pipeline, imply current valuations are sustainable, with scope for further re-rating on positive research developments.

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Venus Remedis

Sensex

Consolidated Financials
FY'11 Sales EBITDA PAT EBITDA margin(%) Net margin(%) ROE(%) ROCE(%) P/E Ratio(x) EV/EBITDA(x) EPS (Rs) 3,631 892 462 24.57 12.73 22.65 19.11 3.9 4.1 50.63 FY'12E FY'13E FY'14E

4,196 1,022 493 24.35 11.74


18.07 16.28 5.7 4.8 50.56

4,788 1,186 610 24.78 12.75


18.01 16.37 4.6 4.2 62.65

5,546 1,395 755 25.14 13.62


18.56 17.39 3.7 3.5 77.55 Rs mn

Four-s reports are available on BLOOMBERG, Reuters, Thomson Publishers and Market Publishers

Company Report: Venus Remedies

10 Sep 2012

Steady growth in Q1 FY13, to continue through FY13

Particulars (Rs mn) Net sales Total Operating Income Total Expenditure Consumption of Raw Materials (Inc)/Dec in Stock In Trade & WIP Employees Cost Other Expenditure EBITDA Depreciation EBIT Interest & Finance charges Other Income PBT Tax Expense PAT

Q1 FY'13 1120 1126 829 652 -30 57 149 297 78 220 76 1 145 4 141

Q1 FY'12 989 990 709 622 -78 55 110 281 61 221 61 0 160 24 136

Q4 FY'12 1135 1147 864 647 0 56 162 283 61 221 73 2 151 -5 156

% Chg YoY 13.3 13.7 16.9 4.8 (62.0) 4.6 34.9 5.7 27.9 (0.5) 24.9 207.3 (9.6) (82.4) 3.1

% Chg QoQ (1.3) (1.8) (4.1) 0.9 2.3 (8.0) 5.1 26.7 (0.8) 4.9 (37.3) (4.1) (186.2) (9.7)

*Standalone (Source: Ace Equity, company reports)

Stable growth in Q1 FY13 FY13 growth likely to remain in line with Q1 FY13 growth Venus Remedies reported revenue of Rs 1120mn in Q1 FY13, up from Rs 989mn in same quarter last year, a good 13.3% growth over the last year. Strong domestic market performance has contributed to this growth. Domestic market grew from Rs 376mn in Q1 last year to Rs 442mn in this quarter, a growth of 17.5% Y-o-Y. This gives assurance that efforts taken by the company to boosts revenue in the domestic market are on track. The company believes that it will continue to drive the growth on similar lines of 13-15% through-out the rest of the year with similar performance expected from domestic & international market in the near future. Margins on the expected levels The company has maintained margins in this quarter, EBITDA margin at 26.4%, and 12.5% PAT margin. These margins are at par with its historical figures and are on the expected lines. It clocked EBITDA of Rs 297mn this quarter up from Rs 281mn in the same quarter last year and PAT of Rs 140mn, up from Rs 136mn in Q1 FY12. Companys efforts to improve reach in domestic and international
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Company Report: Venus Remedies

10 Sep 2012

market has pushed the sales and distribution cost which has marginally affected the EBITDA margins for this quarter. The continued expenditure on R&D and other expenses has in effect pushed up the financing cost and depreciation. This has resulted in marginal dip in PAT margins.

Key Ratios EBITDA Margin Net Margin Total Expenditure/Operating Income Raw Material Cost/Operating Income Staff Cost/Operating Income Other Expenditure/Operating Income

Q1 FY'13 26.40% 12.48% 73.60% 55.31% 5.07% 13.22%

Q1 FY'12 28.40% 13.75% 71.60% 54.94% 5.51% 11.14%

Q4 FY'12 24.65% 13.57% 75.35% 56.38% 4.86% 14.11%

*Standalone (Source: Ace Equity, company reports)

Margins compare favourably with peers Maintains strong margins Venus Remedies operating margins continue to be at the higher end of its peer set. Most midcap pharma companies, including injectable companies, have operating margins in the range of 15-25%. Venuss reported EBITDA margin of 27% is better than most of this lot. It must be noted that Venus books more R&D expense through its balance sheet compared to its peers. With recent patents and upcoming research product launches, Venus could see further improvement in the EBITDA margins. We expect this change to manifest from middle of FY14. Better profitability supporting the growth Q1FY13 Total Income 1718 1512 1345 3936 3052 EBITDA Margin 22% 17% 22% 15% 14% Net Income 196 104 168 160 98 Net Income Margin 11% 7% 12% 4% 3%

Company Mid-Cap Peers Ajanta Pharma Indoco Remed Natco Pharma Nectar Life Parabolic Drugs Injectable Peers Strides Arcolab Ahlcon Parenterals Parenteral Drug Claris Life
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EBITDA 371 256 290 604 433

5083 248 716 1949

1313 49 -130 777

26% 20% -18% 40%

905 23 -302 323

18% 9% -42% 17%


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Company Report: Venus Remedies


Kilitch drugs Average Venus 154 1932 1120 -1 390 297 -1% 16% 27%

10 Sep 2012
29 169 140 19% 6% 13%

(Source: Ace Equity, company reports)

R&D investments show greater results Receives 2 US patents for its research products 2 significant US patent awards The innovation cell of Venus Remedies has given some significant results this quarter. The Company received two patents from US patent office for antibiotic products: Elores and Potentox. Both products are from its anti microbial resistance (AMR) product line. The US patents are significant achievement for Venus Remedies as earlier the Company had patents mainly in EU and other regions like Australia, South Africa and the developing world while missing out on the major US market. These patents may further strengthen the markets belief in Companys R&D capability and its ability to achieve growth through its R&D products. Super Bug resistant drug patented in US CSE1034, to be launched as Elores in the Indian market, is the most effective antibiotic formulation today Venus Remedies has received patent from the US Patent Office for a breakthrough antibiotic product CSE1034. The new drug product CSE1034, is an antibiotic adjuvant entity (AAE), has been found to be effective against a wide range of drug resistant infections including the `superbugs like Carbapenemase resistant Metallo Beta Lactamses (MBL) strains. Venus is planning to launch this drug in India under the brand name ELORES and is planning to have a pre IND meeting with US FDA for fast track approval of this product. The drug has been found safe while effectively dealing with hospital acquired (nosocomial) infections involving Metallo Beta Lactamase and other resistant strains such as E. coli, K. pneumoniae, P. aeruginosa & A. baumanni, with reduced drug induced toxicity resulting in lesser adverse effects. US patent for Potentox Venus Remedies has received patent from the US Patent Office for Potentox, the patent protects the composition of Potentox and the method of treatment. The Patent provides an exclusivity period for Potentox until May, 2027. In addition to this new patent grant, Potentox is protected by a number of other patents from across the Globe including India, Australia, New Zealand, South Korea, South Africa and Ukraine. The Company has already been marketing Potentox successfully in India and few of the emerging markets around the globe. The
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Company Report: Venus Remedies

10 Sep 2012

product is growing with a CAGR of 50% since past 3 years and now Venus is planning to have a pre IND meeting with US FDA for fast track approval of this product. Designed novel, patented technology for anti cancer products DPPC is a patented drug delivery platform The Company has established pre-clinical proof of concept for its DrugProtein-Polymer-Conjugate (DPPC). The DPPC concept by Venus is a novel, patent protected technology, which will help in alleviating cancer by specific and selective targeting of tumor cells. This is a platform technology with a novel concept of triple conjugate i.e., Drug -Protein-Polymer- Conjugate (DPPC). New Product launched: Taxedol Taxedol is a ready to use single vial cancer product Venus Remedies Limited has introduced for the first time a nano technology based Ready-to-Use single vial Docetaxel in the domestic market under the brand name TAXEDOL. This one-vial formulation has the advantage of requiring a single dilution step in suitable infusion solutions prior to administration. The product caters to the Rs 15bn Indian Cancer Drug Industry, which is expected to grow at close to 20% over the coming few years.

Valuation: Available at decent bargain even after the upsurge

Company Mid-Cap Peers Ajanta Pharma* Indoco Rem* Natco Pharma Nectar Life Parabolic Drugs* Injectable Peers Strides Arco Ahlcon Parenterals* Parenteral Drugs Claris LIfe Kilitch Drugs* Venus Remedies Stock has seen rerating, but still cheap

Sales 6435 5851 5369 14874 10377 24916 825 3333 7657 914 4181

Price 411 69 348 20 24 886 340 70 219 80 286

Mcap 9629 6322 10849 4496 1507 52026 2448 1806 13986 1057 2785

EV 11228 7191 11918 4496 6285 57982 2616 5502 14817 947 4579

EV/ EBITDA 8.4 8.6 9.8 1.7 3.8 68.0 18.3 -79.5 6.9 14.5 4.8

EV/ Sales 1.7 1.2 2.2 0.3 0.6 2.3 3.2 1.7 1.9 1.0 1.1

P/E 13.2 14.1 17.6 5.3 3.3 6.1 45.8 -2.3 11.4 35.7 5.4

*Standalone (Source: Ace Equity, company reports)

Venus has seen a partial re-rating since we made our initiatial research report. The share price has moved from 161 on 4 th June to around 280-290 now. The driver behind the rerating has been the award of new patents for the US markets, which has bolstered investor confidence in the Companys research capabilities.
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Company Report: Venus Remedies

10 Sep 2012

Venus is currently trading at PE ratio of 5.4x which is still at 68% discount of its peers average. With current US patents approvals, regular product launch schedule and stable financial performance, we believe current valuations are sustainable, with upside based on further positive show from its R&D efforts. We raise our target price expectations to Rs 350 by Sep13, implying an upside potential upside of 22%. At this price the company quotes at 4.5x FY14 expected eps and 4x FY14 expected EV/EBITDA.

Share Price and tt 400 350 300 250 200 150 100 50
May- Aug- May- Aug- May- Nov- Mar- Nov- Mar- Aug- Dec- Dec- Nov- Dec- Apr-09 Sep-09 Feb-10 Sep-10 Feb-11 Sep-11 Mar-

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3x

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Company Report: Venus Remedies

10 Sep 2012

Financial Annexure
Profit & Loss Statement
Income Statement Gross Sales Less : Excise Duty Revenue from Operations Decrease/(Increase) in Stock Raw Materials Consumed Manufacturing/Other expenses Payments to and provision for employees Power & Fuel Cost Selling and Distribution Expenses Administrative & Other expenses Miscellaneous Expenses Total Expenses EBITDA Depreciation EBIT Other Income Financial Expenses Profit before tax and Exceptional Items Exceptional Items Profit before tax Tax Profit after tax before minority interest Reported net profit FY'08 2,165 9 2,156 -48 1336 73 119 19 62 57 25 1,643 512 50 462 19 48 433 433 75 358 358 FY'09 2,692 4 2,688 -82 1668 107 141 20 98 87 23 2,063 625 68 558 3 84 477 477 37 440 440 FY'10 3,144 4 3,140 -62 1885 147 167 17 153 91 14 2,413 728 125 603 2 141 464 464 68 396 396 FY'11 3,637 6 3,631 -39 2054 171 200 27 198 119 9 2,739 892 181 711 4 189 526 526 64 462 462 FY'12E FY'13E FY'14E

4,196 0 4,196 -90 2398 199 253 34 231 150 0 3,174 1,022 249 773 11 256 528 528 36 493 493

4,795 7 4,788 -66 2666 228 301 38 264 171 0 3,602 1,186 275 912 13 256 668 668 58 610 610

5,554 8 5,546 -77 3055 264 362 44 305 198 0 4,152 1,395 307 1,087 15 256 846 846 90 755 755

(Rs mn), consolidated financials

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Company Report: Venus Remedies

10 Sep 2012

Balance Sheet
Balance Sheet Shareholder's Equity Share Capital Reserves and Surplus ESOPs Total equity capital Liabilities Secured Loans Unsecured Loans Deferred Tax Liability Total Liabilities and Owner's Equity Assets Goodwill on consolidation Gross Block Less: Depreciation Net Fixed Assets Work-in-progress Investments Inventory Debtors Cash and Bank Balance Other Current Assets Loans and Advances Total Current Assets Current Liabilities Provision Total Current Liabilities Net Current Assets Total Assets 1,526 138 1388 14 278 169 11 0 183 1,518 86 106 192 449 1889 2,096 192 1905 8 446 330 16 0 239 1,519 113 92 205 825 2762 2,609 314 2295 7 619 283 24 0 260 1,520 98 121 220 967 3281 3,429 496 2933 145 754 357 31 0 378 1,521 116 162 278 1242 4330 4,332 745 3588 200 960 430 42 0 464 1,522 190 145 335 1561 5358 4,930 1019 3911 225 1066 535 67 0 583 1,523 250 175 425 1825 5971 5,653 1326 4327 325 1200 619 95 0 700 1,524 330 220 550 2064 6726 475 482 42 698 618 60 917 577 76 1,648 221 92 1,966 215 94 1,966 215 96 1,966 215 96 85 784 890 85 1,259 1,386 85 1,627 1,712 133 2,236 2,369 188 2,896 3,083 188 3,506 3,693 188 4,261 4,449 FY'08 FY'09 FY'10 FY'11 FY'12E FY'13E FY'14E

1,889

2,762

3,281

4,330

5,358

5,971

6,726

(Rs mn), consolidated financials

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Company Report: Venus Remedies

10 Sep 2012

Cash Flow Statement


Cash Flow Statement Net Profit/(Loss) before Tax Depreciation Deferred Employee Compensations Expenses Amortised Adjustment of excess mat Transferred to gen reserve Adjustment for FBT Operating Cash flow before Wcap Adjustments for increase /decrease in Current Assets Decrease / Increase in Current Liabilities/ Provisions Extraordinary Items Cash Generated from Operations Direct Taxes Paid Operating Cash flow- A FY'08 433 50 4 15 0 -2 500 FY'09 477 52 2 14 0 -3 541 FY'10 464 125 2 13 -15 25 613 FY'11 526 182 0 9 53 4 774 FY'12E FY'13E FY'14E

528 249 0 0 52 0 830 -365 57 0 522 -86 436 -904

668 275 0 0 53 0 996 -329 90 0 756 -109 647 -598

846 307 0 0 50 0 1203 -336 125 0 992 -140 852 -724

-275 -33 -2 190 0 190

-275 -72 -4 189 0 189

-148 -123 0 342 0 342

-327 -73 0 373 0 373

Purchase/Sale of Fixed Assets (net)

-743

-570

-512

-820

Decrease in Capital Work-in-Progress (including capital advances) Interest received Cash from Investing activities- B

403 1 -338

6 0 -564

0 0 -512

-144 0 -964

-55 0 -959 54 166 318 -6

-25 0 -623 0 0 0 0

-100 0 -824 0 0 0 0

Proceeds from Issue of Share Capital proceed from share capital(share premium) Proceeds from Long Term Borrowing( Net) Proceeds from Short term Borrowing( Net)

0 -26 133 22

0 198 160 20

0 0 25 153

48 175 731 -357

Cash from Financing activities- C Change in Cash= A+B+C Opening Balance Closing Balance

129 -19 30 11

379 5 11 16

178 8 13 21

598 7 24 31

533 11 31 42

0 25 42 67

0 28 67 95

(Rs mn), consolidated financials

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Company Report: Venus Remedies

10 Sep 2012

Ratios
Ratios EPS CEPS DPS FY'08 42.4 22.5 2.0 FY'09 52.0 22.4 2.5 FY'10 46.7 40.4 1.0 FY'11 50.6 40.9 1.3 FY'12E 50.6 44.8 1.4 FY'13E 62.6 66.5 1.7 FY'14E 77.5 87.4 2.1

Valuation Ratios P/E Ratio EV/EBITDA EV/Sales 9.1 8.2 2.0 2.9 4.1 1.0 5.5 5.0 1.2 4.0 4.1 1.0 5.7 4.8 1.2 4.6 4.2 1.0 3.7 3.5 0.9

Profitability EBITDA margin Pretax margin Net margin Return on avg. Equity Return on avg. Capital employed 23.8% 20.1% 16.6% 21.7% 18.1% 23.3% 17.7% 16.4% 38.6% 24.5% 23.2% 14.8% 12.6% 25.5% 20.4% 24.6% 14.5% 12.7% 22.7% 19.1% 24.4% 12.6% 11.7% 18.1% 16.3% 24.8% 14.0% 12.7% 18.0% 16.4% 25.1% 15.3% 13.6% 18.6% 17.4%

Growth Ratios Revenue growth EBITDA growth Net profit growth 53.7% 69.3% 52.5% 24.7% 22.0% 10.0% 16.8% 16.3% -2.7% 15.6% 22.6% 16.8% 15.6% 14.5% 6.6% 14.1% 16.1% 23.9% 15.8% 17.6% 23.8%

Activity/Turnover Ratios Asset turnover Working Cap turnover Debtors turnover Debtor Days Inventory turnover Inventory Days Payables turnover Payables Days 0.9 6.2 16.3 22.4 9.4 38.8 32.2 11.3 1.3 4.2 10.8 33.8 7.4 49.2 27.0 13.5 1.1 3.5 10.3 35.6 5.9 61.9 29.7 12.3 1.0 3.3 11.3 32.2 5.3 69.0 33.8 10.8 0.9 3.0 11.3 32.2 4.9 74.6 27.4 13.3 0.9 2.8 9.9 36.8 4.7 77.2 21.8 16.8 0.9 2.9 9.6 38.0 4.9 74.6 19.1 19.1

Liquidity Ratios Current Ratio Cash Ratio 1.4 0.2 1.7 0.1 1.5 0.1 1.7 0.1 1.6 0.1 1.8 0.1 1.8 0.2

Solvency Debt Equity Leverage Ratio Net Debt / EBITDA Interest Coverage 1.1 2.1 1.8 9.7 0.9 2.0 2.1 6.6 0.9 1.9 2.0 4.3 0.8 1.8 2.1 3.8 0.7 1.7 2.1 3.0 0.6 1.6 1.8 3.6 0.5 1.5 1.5 4.2

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Company Report: Venus Remedies


About Four-S Services

10 Sep 2012

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