Indian Pharma Sector's Time to Bounce Back

Indian Pharmaceutical sector – Time to Bounce back
Indian Pharmaceutical sector is classified into four main segments.
CRAMS
API Pharmaceutical Industry Biosimilars
Formulations
CRAMS - Contract Research and Manufacturing Services (CRAMS) is an outsourcing process

i.e. outsourcing of research and product manufacturing services at a lower cost. Similar like
other IT outsourcing business for which India is considered to be a popular destination.
Formulations - The process in which different chemical substances, including the active
drug, are combined to produce a final medicinal product. These are basically medicines
which we can purchase & consume directly.
API (Active Pharmaceutical Ingredients) - There are various chemicals included in the drugs
and the portion that actually works in treating the condition i.e. the active part is known as
API.
Biosimilars - Biosimilar (also known as follow-on biologic or subsequent entry biologic) is a

biologic medical product that is almost an identical copy of an original product that is
manufactured by a different company.
India pharmaceutical industry has various advantages over its global counterparts.
 Cost Effectiveness – Cost of production is 50% less in India when compared with
Industry leading countries like US, UK.
 Economic growth – Growing Indian economy coupled with increase in per capita
income & high penetration of health insurance in the sector.
 R&D Investment – High R&D investment by Indian companies have fuelled the
growth of the sector & led to the increase in US FDA approvals.
Ajinkya Surve
Email – ajinkyasurve90@gmail.com
Twitter Link - https://twitter.com/ajinkyasurve90

Indian pharmaceutical industry holds a robust position in Global market with production
volumes of 10% & more than 2% in terms of value.
Indian pharmaceutical industry is mainly driven by Generics as more than 70% of its
revenues are contributed by the same.
Indian pharmaceutical industry revenues are significantly driven by exports. Below chart
shows Indian pharma sector export by country.
1.8%
Indian Export (%)
19.0%
America
40.5% Europe
Africa
19.1% Asia
Oceania
19.7%
USA plays a major role in Indian Pharmaceutical industry as majority of exports is done
there & any slowdown in the US Industry impacts the Indian market.
India exports drugs worth $16.5 billion to the US annually. Industry body Assocham expects
this figure to rise to $20 billion by 2020—a compounded annual growth rate of 30%.
Indian Pharmaceutical exports

($bn) 16.9 16.8 17.3
14.5 14.9
12.5
FY13 FY14 FY15 FY16 FY17 FY18
Ajinkya Surve

Indian pharmaceutical sector grew at an average CAGR of 14% from 2008 to 2013, growth
faced a slowdown to 10% CAGR in the next 5 years (2013 to 2018) on account of pricing
regulations & slowing growth from US given the relatively moderate proportion of large size
drugs going off patent, increased competition leading to price erosion.
Government policies for Indian Pharmaceutical Industry
Latest introduction of Ayuhsman Bharat by Indian govt will boost the growth of this sector.
Ayushman Bharat aims to benefit more than 10 crore poor Indian families with a medical
cover of Rs 5lakh per family.
Post implementation of GST, logistics cost for the industry is likely to reduce. Earlier
companies use to pay 2% CST on sales between two states. To control this cost, pharma
companies use to maintain warehouse in each state. After GST implementation CST will get
included in GST thus companies can maintain their warehouse as per their need & not as
per the govt regulations.
Pricing regulations by government has impacted the revenues of most of the pharma
companies.
Government are steadily increasing the healthcare expenditure as % of GDP which is well
below the global standards.
Indian Government Healthcare 35.07 34.91

Expenditure($bn)
23.12 23.58
21.57
19.55
FY13 FY14 FY15 FY16 FY17 FY18
Ajinkya Surve

US FDA approvals are the vital part of the business for Indian companies. List of Indian
companies which have received US FDA approval recently are as follows:
Source: (Pharmabiz)
US FDA Approvals Jan-June 2018 Tentative Approvals Jan-June 2018

Jan-June
AUROBINDO PHARMA USA 6
Company 2018
LUPIN LTD 3
AUROBINDO PHARMA LTD 22
AJANTA PHARMA LTD 2
ZYDUS PHARMS USA INC 16
Cipla 2
STRIDES PHARMA 12
MICRO LABS LTD 2
CIPLA LTD 11
SUN PHARMA GLOBAL 2
LUPIN LTD 8
TARO PHARMA USA INC 2
DR REDDYS LABS SA 7
ALKEM LABS LTD 1
GLENMARK PHARMS LTD 7
GLAND PHARMA LTD 1
HETERO LABS LTD III 5
ZYDUS PHARMS USA INC 1
TARO 5
Indian companies 22
GLAND PHARMA LTD 4
Total tentative approvals 71
MACLEODS PHARMS LTD 4
ALEMBIC PHARMS LTD 3
GRANULES PHARMS 3
MICRO LABS LTD INDIA 3
SUN PHARMA GLOBAL 3
TORRENT PHARMS LTD 3
ALKEM LABS LTD 2
JUBILANT GENERICS 2
VIVIMED GLOBAL 2
AJANTA PHARMA LTD 1
LAURUS LABS PVT 1
UNICHEM LABS LTD 1
Indian Companies 125
Total approvals 323
Ajinkya Surve

Porters Five Force Work Analysis (Indian Pharmaceutical sector)
Bargaining power of Supplier – Moderate
Distributors are increasingly pushing

branded products in a bid to earn higher
margins.
Threat to New Entrants – Low Threat of Substitute – High

Industry Rivalry – High
High R&D Cost Generics drugs can be easily
High & Fragmented due made available with lower cost
Stringent Government to many small players in & without major approvals.
regulations. the industry.
Bargaining power of Buyer – High
Fragmented market has led to huge

competition in almost all product types.
Prices are controlled by DPCO.
Ajinkya Surve

Fundamental Analysis of Indian Pharmaceutical Sector
We will be considering following companies for analysis:
 Sun Pharma
 Aurobindo Pharma
 Dr Reddys Labs
 Cipla
 Lupin
Ajinkya Surve

Sun Pharma Mar-18 Mar-17 Mar-16 Mar-15 Mar-14

Net Sales Growth (%) -15.63% 11.38% 2.62% 70.34% 42.31%
EBITDA Margin (%) 20.95% 30.93% 29.02% 28.39% 43.28%
Interest 517.57 399.8 523.24 578.99 44.19
Net Profit Margin (%) 8.28% 22.21% 16.17% 16.62% 19.54%
EPS 9 29 18.9 18.9 15.2
Cash from Op Activities 3,907.15 7,082.21 6,685.86 5,615.74 3,959.20
ROE 7.05% 22.51% 19.32% 24.89% 23.15%
ROCE 8.42% 21.48% 18.64% 25.06% 25.46%
Total Debt/Equity 0.27 0.27 0.26 0.35 0.14
Cipla Mar-18 Mar-17 Mar-16 Mar-15 Mar-14

Net Sales Growth (%) 5.29% 5.88% 19.83% 11.52% 22.88%
EBITDA Margin (%) 16.19% 14.06% 18.24% 19.05% 20.97%
Interest 114.23 159.38 206.63 168.29 145.74
EPS 17.53 12.52 16.93 14.71 17.29
ROE 0.65% 8.72% 12.61% 12.10% 14.89%
ROCE 10.20% 8.28% 13.24% 15.33% 19.05%
Aurobindo Pharma Mar-18 Mar-17 Mar-16 Mar-15 Mar-14

Net Sales Growth (%) 10.42% 8.08% 13.81% 49.64% 38.33%
EBITDA Margin (%) 22.91% 23.03% 23.11% 21.15% 26.34%
Interest 77.72 66.72 256.7 159.87 310.16
EPS 41.36 39.33 34.67 27.03 40.27
Cash from Op Activities 1,954.82 3,278.58 1,419.76 1,236.81 646.28
ROE 22.99% 27.57% 32.51% 35.29% 36.79%
ROCE 22.72% 24.92% 27.35% 27.18% 27.18%
Ajinkya Surve

Dr Reddys Labs Mar-18 Mar-17 Mar-16 Mar-15 Mar-14

Net Sales Growth (%) 0.60% -8.81% 3.63% 11.99% 12.78%
EBITDA Margin (%) 16.46% 17.41% 23.03% 23.25% 24.23%
Interest 78.8 63.4 82.6 108.2 126.7
EPS 57.08 77.53 124.93 137.18 115.45
ROE 7.40% 10.20% 18.95% 26.63% 27.88%
ROCE 8.21% 9.77% 19.55% 22.69% 24.77%
Lupin Mar-18 Mar-17 Mar-16 Mar-15 Mar-14

Net Sales Growth (%) -9.66% 22.72% 11.63% 13.14% 17.06%
EBITDA Margin (%) 19.92% 25.68% 25.85% 28.34% 26.60%
Interest 204.35 152.53 59.47 9.81 26.65
EPS 5.56 56.69 50.25 53.54 40.99
Cash from Op Activities 1,751.19 4,113.51 -382.39 2,733.05 2,003.93
ROE 1.91% 20.98% 22.80% 31.09% 30.89%
ROCE 3.54% 18.53% 24.38% 40.30% 40.97%
Considering the Net profit Margin, EBITDA margin Aurobindo Pharma looks attractive
among all of them. Operation efficiency & Profitability of Aurobindo Pharma looks stable in
these tough times for Pharmaceutical Sector. The stock which can withstand the slowdown
in difficult times will no doubt boom when the sector starts showing revival.
Interest as % of net sales plays an important part when the sector faces slowdown & profits
declines. It ultimately affects the profitability of the company if the interest cost is high.
Interest as % of Sales
 Cipla – 0.10%
 Lupin – 0.33%
 Aurobindo Pharma – 0.52%
 DR Reddys Labs – 0.67%
 Sun Pharma – 4.9%
EPS growth shows the stability & strength in company’s products & revenue generation
capacity. It also assures of the better earnings prospects in the future.
Aurobindo Pharma & DR Reddys are the best among these when EPS growth & stability is
considered.
Ajinkya Surve

A high ROCE indicates that a larger chunk of profits can be invested back into the company for the
benefit of shareholders. The reinvested capital is employed again at a higher rate of return, which
helps to produce higher earnings-per-share growth. A high ROCE is, therefore, a sign of a
successful growth company.
High & Stable ROCE in Aurobindo Pharma indicates better usage of capital employed for
earning profit.
Negligible debt to equity ratio of all the companies gives them a better edge over the other
competitors in the industry.
A high Net Profit Margin means that a company is able to effectively control its costs and/or
provide goods or services at a price significantly higher than its costs. Therefore, a high ratio
can result from:
 Efficient management
 Low costs (expenses)
 Strong pricing strategies
Net profit margin is stable in Aurobindo Pharma & Cipla signalling efficient management.
Overall my fundamental picks among these companies would be as follows:
1. Aurobindo Pharma
2. Dr Reddys Labs
3. Cipla
4. Sun Pharma
5. Lupin
Ajinkya Surve

FY10 FY17
Companies R&D Expense Revenues R&D as % of Revenues R&D Expense Revenues R&D as % of Revenues
Sun Pharma 208.2 3808.6 5.5% 2145.8 30264 7.1%
Cipla 228.1 5359 4.3% 1071 14280 7.5%
Aurobindo Pharma 97.2 3575 2.7% 543 14844 3.7%
Dr Reddys Labs 379.3 7027 5.4% 1955 14080 13.9%
Lupin 343.5 4,773.31 7.2% 2310 17119 13.5%
Commerce and Industry Minister Suresh Prabhu today asked pharma firms to increase R&D
investments and develop new markets to boost the exports. He also called for finding ways
to make healthcare more affordable to people by reducing costs.
Regions like Latin America and Africa hold huge export potential for Indian pharmaceutical
products, Prabhu said here while inaugurating the international exhibition of pharma and
healthcare (iPHEX) here.
"Make more investments in R&D activities so that the pipeline (for new medicines) does not
get dry," he said, adding that research and development investments will domestic growth.
(Source: India Today)
Generic products witnessed a price erosion of nearly 20% on an average over the last couple
of years in the US market; the branded products saw an increase of more than 16% in the
same period. The price erosion in generics to continue in high single digits in the coming
years, so developing new products by increasing R&D expenditure is the only way out for
Indian pharmaceuticals.
Dr Reddys Labs & Lupin are continuously increasing R&D expenditure to develop new
complex drug which can give them better market penetration & edge over its competitors.
Ajinkya Surve

Technical Analysis of Indian Pharmaceutical Industry
NSE TAME Analysis shows a bright future for Pharmaceutical sector & Pharma Stocks.
Stocks to consider based on Tame Analysis – Sunpharma, Cipla &Aurobindo Pharma.
Ajinkya Surve

Technical Analysis of Indian Pharmaceutical Stocks
CNX Pharma
Aurobindo Pharma
Ajinkya Surve

Sun Pharma
Dr. Reddys Labs
Ajinkya Surve

Cipla
Lupin
Ajinkya Surve

Overall my fundamental picks among these companies would be as follows:
1. Aurobindo Pharma
2. Dr Reddys Labs
3. Lupin
4. Cipla
5. Sun Pharma
Ajinkya Surve
Contact no – 7738816215
Disclaimer – Information & Opinions contained in the reports are submitted solely for
information purposes by the qualified professional analyst. The information used and
statements of fact made have been obtained from sources considered reliable but neither
guarantee nor representation is made as to the completeness or accuracy. Views mentioned
should be strictly considered for educational purpose. Any trades taken on this study should
be initiated with help of financial advisor.
Ajinkya Surve

Indian Pharma Sector's Time to Bounce Back

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Indian Pharma Sector's Time to Bounce Back

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Indian Pharmaceutical sector – Time to Bounce back

Indian Pharmaceutical sector is classified into four main segments.

API Pharmaceutical Industry Biosimilars

CRAMS - Contract Research and Manufacturing Services (CRAMS) is an outsourcing process

Biosimilars - Biosimilar (also known as follow-on biologic or subsequent entry biologic) is a

Twitter Link - https://twitter.com/ajinkyasurve90

Indian Pharmaceutical exports

FY13 FY14 FY15 FY16 FY17 FY18

Twitter Link - https://twitter.com/ajinkyasurve90

Government policies for Indian Pharmaceutical Industry

Indian Government Healthcare 35.07 34.91

FY13 FY14 FY15 FY16 FY17 FY18

Twitter Link - https://twitter.com/ajinkyasurve90

US FDA Approvals Jan-June 2018 Tentative Approvals Jan-June 2018

Twitter Link - https://twitter.com/ajinkyasurve90

Porters Five Force Work Analysis (Indian Pharmaceutical sector)

Bargaining power of Supplier – Moderate

Distributors are increasingly pushing

Threat to New Entrants – Low Threat of Substitute – High

Bargaining power of Buyer – High

Fragmented market has led to huge

Prices are controlled by DPCO.

Twitter Link - https://twitter.com/ajinkyasurve90

Fundamental Analysis of Indian Pharmaceutical Sector

We will be considering following companies for analysis:

Twitter Link - https://twitter.com/ajinkyasurve90

Sun Pharma Mar-18 Mar-17 Mar-16 Mar-15 Mar-14

Cipla Mar-18 Mar-17 Mar-16 Mar-15 Mar-14

Aurobindo Pharma Mar-18 Mar-17 Mar-16 Mar-15 Mar-14

Twitter Link - https://twitter.com/ajinkyasurve90

Dr Reddys Labs Mar-18 Mar-17 Mar-16 Mar-15 Mar-14

Lupin Mar-18 Mar-17 Mar-16 Mar-15 Mar-14

Twitter Link - https://twitter.com/ajinkyasurve90

Overall my fundamental picks among these companies would be as follows:

Twitter Link - https://twitter.com/ajinkyasurve90

Twitter Link - https://twitter.com/ajinkyasurve90

Technical Analysis of Indian Pharmaceutical Industry

Stocks to consider based on Tame Analysis – Sunpharma, Cipla &Aurobindo Pharma.

Twitter Link - https://twitter.com/ajinkyasurve90

Technical Analysis of Indian Pharmaceutical Stocks

Twitter Link - https://twitter.com/ajinkyasurve90

Dr. Reddys Labs

Twitter Link - https://twitter.com/ajinkyasurve90

Twitter Link - https://twitter.com/ajinkyasurve90

Overall my fundamental picks among these companies would be as follows:

Twitter Link - https://twitter.com/ajinkyasurve90

Twitter Link - https://twitter.com/ajinkyasurve90

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