Goodquarter;ripeforreratingonregulatory

clearanceatAPIfacility
Q3FY16ResultUpdates

February12,2016

Current
CMP:Rs.403
Rating:BUY
Target:Rs.517

Previous

Rating:HOLD
Target:Rs.345

STOCKINFO
Bse
Nse
Bloomberg
Reuters
Sector
FaceValue(Rs)
EquityCapital(Rsmn)
MktCap(Rsmn)
52wH(Rs)
52wLl(Rs)
AvgDailyVol(Bse+Nse)

530549
SHILPAMED
SLPAIN
SHME.BO
Pharmaceutical
2
37
31,034
624
355
103,051

SHAREHOLDINGPATTERN
(asonDec.2015)

Promoters
Public

53.05
46.95

ShilpaMedicare(SLPAIN)adjustedPATwasbetterthanestimatesledbybetter
than expected yy sales growth for the quarter. On Yy basis, sales growth
momentum is maintained with growth in oncoAPI, nonOnco API as well as
CRAMSsegment.Recently,SLPAreceivedletterofcompliancefromUSFDAforits
RaichurAPI facility. This event opens opportunity for business from US market.
Given the scenario, where, business has been adversely impacted by regulatory
hurdle for other pharma companies, letter of compliance is major positive for
SLPA.Hence,weraiseourPEmultipleforSLPAfrom16xto18x.Wenowawait
clearance of regulatory hurdle at its Jadcherla formulation facility. We cut our
EPS estimate for FY16E and FY17E by 20% and 19% to factor delay in getting
regulatoryclearanceforitsRaichurfacility.WeexpectFY18tohaveconsiderable
businessfromAPIaswellasformulationfacility.WeintroduceFY18Eestimates
and roll forward our valuation to 18x FY18E EPS of Rs29. Accordingly, we raise
our price target to Rs517 from Rs345 earlier. We upgrade SLPA from HOLD to
BUY,basedonpotentialupsideof28%fromcurrentlevels.

Source:BSE

Rs.mn
Revenue
EBIDTA
AdjustedPAT
PAT

STOCKPER.(%)
1m
3m 12m

ShilpaMedicareLtd (11.6) (22.8) (13.5)

Sensex
(6.9) (11.1) (20.2)
Source:Capitaline,IndiaNiveshResearch

ShilpaMedicareLtdv/sSENSEX
SHILPAMEDICARE

SENSEXIndex

140
120
100
80
60
40
20

Source:Capitaline,IndiaNiveshResearch

Q3FY16
1,982
389
249
249

Q3FY15
1,545
337
203
169

yoy(%)
28.3
15.6
22.5
47.0

Q2FY16
1,733
375
225
201

qoq(%) INSLEst
14.4 1,777
3.8 388
10.8 236
24.1 236

DaljeetS.Kohli
HeadofResearch
Tel:+912266188826
daljeet.kohli@indianivesh.in

Variance(%)
11.6
0.3
5.5
5.5

Robustsalesgrowthdrivesearningsforthequarter:NetsalescameinatRs2bn,
up28.3%yy,ledbyhealthyyygrowthinallthemajorsegmentsOncoAPI,non
OncoAPIaswellasCRAMSsegment.3QFY16isthefourthconsecutivequarterto
showuptrendinyygrowthinsalesevenaftersmootheningofbaseeffect.Gross
margin and EBITDA margin slipped 221bps yy and 217bps yy due to higher raw
materialcost.SLPAmaintaineditsR&Dspentat4.5%ofnetsalesforthequarter.
AdjustedPATgrewby47%yytoRs249mnforthequarter.AdjustedPATgrewat
higher rate than EBITDA due to higher tax in 3QFY15. SLPA guided for capex of
Rs1.5bnforFY16.
Valuation:WeraiseourPEmultipleforSLPAfrom16xto18xtofactorclearanceof
regulatory hurdle for its API facility for US market. We now await clearance of
regulatoryhurdleatitsJadcherlaformulationfacility.WecutourEPSestimatefor
FY16EandFY17Eby20%and19%tofactordelayingettingregulatoryclearancefor
itsRaichurfacility.WeexpectFY18tohaveconsiderablebusinessfromAPIaswell
as formulation facility. We introduce FY18E estimates and roll forward our
valuationto18xFY18EEPSofRs29.Accordingly;weraiseourpricetargettoRs517
fromRs345earlier.WeupgradeSLPAfromHOLDtoBUY,basedonpotentialupside
of28%fromcurrentlevels.

Keychangesinestimates:
Rsmn
Sales
EBITDA
PAT
EPS(Rs)
PT(Rs)

TusharManudhane
ResearchAnalyst
Tel:+912266188835
tushar.manudhane@indianivesh.in

IndiaNiveshResearch

ShilpaMedicare

Oldestimates
FY16E
FY17E
7,672 11,032
1,661 2,438
1,125 1,623
14.6 21.1
345

Newestimates
FY16E
FY17E
6,997 9,897
1,449 2,091
901 1,313
11.7 17.0

Change(%)
FY16E
FY17E
(8.8) (10.3)
(12.8) (14.2)
(20.0) (19.1)
(20.0) (19.1)

Introducing
FY18E
14,980
3,281
2,202
29
514

IndiaNiveshSecuritiesLimited|ResearchAnalystSEBIRegistrationNo.INH000000511
601&602,SukhSagar,N.S.PatkarMarg,GirgaumChowpatty,Mumbai400007.Tel:(022)66188800
IndiaNiveshResearchisalsoavailableonBloombergINNS,ThomsonFirstCall,ReutersandFactivaINDNIV.

Q3FY16ResultUpdate(contd...)

Quarterlyresultssummary
Particulars(RsMnexceptEPS)

Q3FY16

Q3FY15

YoY(%)

Q2FY16

QoQ(%)

9MFY16

9MFY15

YoY

NetSales

1,982 1,545 28.3 1,733 14.4 5,200 4,471 16.3

Consumptionofrawmaterial

1,092 817 33.7 875 24.7 2,767 2,447 13.1

EmpoyeeCost

252 195 29.2 218 15.5 677 575 17.8

OtherExpenditure

250 197 27.0 264 (5.6) 709 539 31.5

TotalExpenditure

1,593 1,208 31.9 1,358 17.3 4,154 3,562 16.6

EBITDA

389 337 15.6 375 3.8 1,046 909 15.1

Depreciation&Ammortization

84 54 57.2 65 30.4 202 160 26.5

EBIT

305 283 7.7 310 (1.8) 844 749 12.7

OtherIncome

25 8 209.9 18 41.0 45 40 12.0

Interest

23 10 125.8 15 55.3 47 31 50.3

PretaxProfit

306 281 9.1 313 (2.1) 842 758 11.1

Tax

57 113 (49.0) 88 (34.9) 211 249 (15.5)

Adjnetprofit

249 169 47.0 225 10.8 631 514 22.9

NM (24)
NM (24) (1)
NM
ForeignExchangeGain/(loss),oth (0)
249 169 47.4 201 24.1 607 513 18.3
NetProfit(Reported)
3.2 2.2 47.0 2.9 10.8 8.2 6.7 22.9

EPS(Dil)
O/Share(InMillion)

77

77

77

77

77

Keyratios
Q3FY16

Particulars(%)

55.1 52.9 221 50.5 455 53.2 54.7 (153)

EmployeeCost/NetSales

12.7 12.6 9 12.6 12 13.0 12.9 17

OtherExpenditure/NetSlaes

12.6 12.7 (13) 15.3 (266) 13.6 12.1 158

TaxRate

18.7 40.1 (2,141) 30.5 (1,181) 25.8 33.0 (720)

40.0

40

35.0

30

30.0

20

25.0

10

20.0

15.0

10

10.0

21.7

21.2

44.9

21.2

21.8

22.7
19.0

18.0

21.6

2QFY16

50

41.1

49.5
46.1

1QFY16

45.0

47.1
42.9

4QFY15

60

45.7

45.4

3QFY15

50.0

2QFY15

3QFY16

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

70

Grossmargin(%)
52.1

1QFY15

(0.4)

55.0

4QFY14

6.9

12.8

80

19.6

3QFY16

EBITDAmargin(%)

28.3
13.1

Increasedrawmaterialcostlowersgrossmargin

22.2

3QFY14

Bps

12.6 10.9 167 13.0 (41) 12.1 11.4 77

Yygrowth(%)RHS

0.1

9MFY15

Materialcost/NetSales

1,500

500

9MFY16

19.6 21.8 (217) 21.6 (201) 20.1 20.3 (21)

2,000

1,000

Bps

NetMargin

70.0

64.1

Q2FY16

EBITDAmargin

3QFY14

Sales(Rsmn)

Bps

44.9 47.1 (221) 49.5 (455) 46.8 45.3 153

Salesmomentumcontinuesin3QFY16aswell
2,500

Q3FY15

GrossMargins

(contd...)

February12,2016|2

Q3FY16ResultUpdate(contd...)

FinancialStatements(Consolidated)
Incomestatement
YEMarch(Rsm)
Netsales
Growth%
Expenditure
RawMaterial
Employeecost
Otherexpenses
EBITDA
Growth%
EBITDAMargin%
Depreciation
EBIT
EBITMargin%
OtherIncome
Interest
PBT
Tax
Effectivetaxrate%
Extraordinaryitems
AdjustedPAT
Growth%
PATmargin%
ReportedPAT
Growth%

Balancesheet
YEMarch(Rsm)
ShareCapital
Reserves&Surplus
NetWorth
MinorityInterest
NonCurrentLiabilities
Longtermborrowing
DeferredTaxliabilities
LongtermProvisions

FY13
FY14
FY15
FY16E
FY17E
FY18E
3,713 5,714 6,138 6,997 9,897 14,980
16.7%
53.9%
7.4%
14.0%
41.4%
51.4%
2,149
455
421
689
13.6%
18.5%
153
535
14.4%
50
14
571
95
16.8%
(2)

3,144
678
731
1,160
68.5%
20.3%
232
928
16.2%
91
35
984
203
21.4%
(34)

3,247
823
782
1,286
10.9%
21.0%
214
1,072
17.5%
48
41
1,080
352
32.9%
(11)

3,709
936
904
1,449
12.6%
20.7%
275
1,174
16.8%
60
64
1,170
269
23.0%

5,295
1,306
1,204
2,091
44.4%
21.1%
368
1,724
17.4%
72
68
1,728
415
24.0%

8,164
1,841
1,694
3,281
56.9%
21.9%
406
2,875
19.2%
86
64
2,897
695
24.0%

476 781 728 901 1,313 2,202

17.0%
64.1%
6.8%
23.8%
45.8%
67.7%
12.8%
13.7%
11.9%
12.9%
13.3%
14.7%
473 746 717 901 1,313 2,202
14.8%
57.6%
3.9%
25.6%
45.8%
67.7%

Source:Companyfilings,IndiaNiveshResearch

CurrentLiabilities
Shorttermborrowings
Tradepayables
Othercurrentliabilities
Shorttermprovisions

TotalLiabilities
Assets
NetBlock
NonCurrentInvestments
Longtermlaons&Advances
CurrentAssets
CurrentInvestments
Inventories
SundryDebtors
Cash&BankBalances
Loans&Advances
Totalassets

FY13
49
3,155
3,204
87

FY14
74
3,891
3,964
100

FY15
74
5,392
5,466
144

FY16E
FY17E
FY18E
74 74 74
6,248 7,496 9,587
6,322 7,569 9,661
144 144 144

705
209
71
985

675
259
111
1,045

1,023
378
135
1,536

1,223
378
135
1,736

1,223
378
135
1,736

1,223
378
135
1,736

451
513
234
41
1,238
5,514

303
930
382
54
1,668
6,778

585
755
499
58
1,896
9,041

585
862
569
58
2,073
10,274

585
1,231
804
58
2,678
12,126

585
1,898
1,218
58
3,758
15,298

3,098
1
295

4,054
2
384

5,377
2
389

6,501
2
389

7,123
2
389

7,616
2
389

503
743
418
169
287
2,120
5,514

101
1,233
680
93
231
2,337
6,778

653
1,308
814
180
319
3,274
9,040

653
1,491
805
75
358
3,382
10,274

653
2,109
1,139
222
489
4,612
12,126

653
3,192
1,724
1,003
720
7,292
15,298

Source:Companyfilings,IndiaNiveshResearch

Cashflow
YEMarch(Rsm)
PBT
Depreciation
Interest
Othernoncashcharges
Changesinworkingcapital
Tax
Cashflowfromoperations
Capitalexpenditure
FreeCashFlow
Otherincome
Investments
Cashflowfrominvestments
Equitycapitalraised
Loansavailedor(repaid)
Interestpaid
Dividendpaid(incltax)
CashflowfromFinancing
Netchangeincash
Cashatthebeginningoftheyear
Cashattheendoftheyear

FY13
570
153
14
(54)
(139)
(110)
435
(974)
(539)
(19)
42
(952)
44
666
(22)
(25)
663
146
23
169

FY14
954
232
35
(71)
(233)
(216)
702
(1,068)
(366)
16
563
(489)
2
(213)
(35)
(37)
(283)
(75)
169
93

FY15
1,080
214
41
9
(393)
(254)
697
(1,416)
(719)
57
(592)
(1,952)
860
586
(50)
(45)
1,350
95
93
188

Source:Companyfilings,IndiaNiveshResearch

FY16E
1,170
275
64

(36)
(269)
1,203
(1,399)
(196)

(1,399)

200
(64)
(45)
91
(105)
180
75

FY17E
1,728
368
68

(478)
(415)
1,270
(990)
281

(990)

(68)
(66)
(133)
147
75
222

FY18E
2,897
406
64

(818)
(695)
1,854
(899)
955

(899)

(64)
(110)
(174)
781
222
1,003

Keyratios
YEMarch
EPS(Rs)Core
EPSReported
CashEPS(Rs)
DPS(Rs)
BVPS(Rs)
ROCE
ROE

FY13
FY14
FY15
FY16E
FY17E
FY18E
6.2
10.2
19.1
11.7
17.0
28.6
12.9
20.6
19.1
11.7
17.0
28.6
17.1 27.7 24.7 15.2 21.8 33.8
0.7 1.0 1.0 0.6 0.9 1.4
87 108 142 82 98 125
11.1%
14.8%

15.3%
19.8%
79
43
108

10.2%
13.5%
78
48
85

11.0%
14.2%
78
42
85

13.9%
17.4%
78
42
85

19.1%
22.8%

InventoriesDays
SundryDebtorsDays
TradesPayableDays

73
41
87

78
42
85

PER(x)
P/BV(x)
EV/EBITDA(x)
DividendYield%
mcap/sales(x)

21.0
23.1
21.0
34.5
23.7
14.1
3.1 4.6 2.8 4.9 4.1 3.2
15.5 16.6 13.0 22.5 15.5 9.6
0.3%
0.2%
0.2%
0.1%
0.2%
0.4%
2.7 3.2 2.5 4.4 3.1 2.1

netdebt/equity(x)

0.2

0.3

0.2

0.3

0.2

0.1

netdebt/ebitda(x)

1.1

1.0

1.0

1.1

0.7

0.2

Source:Companyfilings,IndiaNiveshResearch

(contd...)

February12,2016|3