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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Contents
Executive Summary
Uitt e pt Sr r e i n g ai s io e t vd u n a s g e c c n p
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3
1 0
1 0 1 1 1 2 1 3 1 4
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1 6 1 8 2 0 2 2 2 5 2 7
Valuations
2 9
Key risks
33
Company Section
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Executive Summary
We expect a significant change in business strategy of large cap Indian generic pharmaceutical companies as we forecast US attractiveness is likely to get reduced post the patent cliff dips off. The Indian generic drug makers should now shift focus to the domestic and Pharma-emerging markets which provides exciting growth opportunities. We believe the next phase of valuation of the Indian pharmaceutical companies will be driven by the Pharma-emerging markets opportunities, robust product pipeline and strong domestic growth. We initiate coverage on DRRD IN (Out-performer), LPC IN (Out-performer) and CDH IN (Out-performer); we upgrade our rating on SUNP IN from Market-performer to Out-performer.
Except ~48% drop in patent expiry post 2014 in the US: The golden era of patent expiry opportunity
(USD71bn) is likely to come to end post 2015, however we expect 2013 to be the beginning of the end on the back of a ~74% drop in patent expiry opportunity. We see a sharp drop of ~85% in the patent expiry opportunity for the generic players in the US over 2016-20 (USD10.7bn) from USD71bn over 2011-15.
Generic growth to slow down post 2015: Generic market in the US over the past 10 years suggests that as
the level of penetration increased there has been sharp drop in the growth rate for generic pharma market. The high growth during 2000-05 was mainly attributed to the lower penetration of generics coupled with expiry of blockbuster drugs during 2002-06. We expect CAGR 7% for generic pharma market in the US as against 12% in the previous decade.
US becoming a pure volume play: Generic penetration in the US is at its peak (80-85%) and we estimate stiff
erosion of generic drug prices owing to sharp increase in competition thus resulting in lower margins. We anticipate slower generic prescription sales growth in the US, at CAGR of 9% over 2010-20 vs. 12% over 200009, putting pressure on the margins of the generic drug manufacturers.
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
2 op 2to % pe o u fa l t l a t He u s g t e i dc o m d .c e Ie ma ar n s d e n a6sn b yu o et v ai e r g 0p pe rr eo s n s u Ge o n v t e ' r s n m H ee. u sm g t a e i n dc d od m G el s o nit v ti o e p r o n c me N :ax em p a P i r te t e e r r ny t o nr p iw pto oy r t u t h U b5 Sn1 Dy i 82 00 b n t sal c ef au r P as mI n o Ve r h . Fmp a :a h r L a t r r e g m r e a s t mhp a i rtt rh ce k y io e e t ; ge v gd e r nu eg r s i c
Opportunities
L an a rIe r kr ge a e t s m e .c ra p eeh g hm ue a lt a t r L an i a rIe r kr n ge a e t s m e .c ha n er d a e .o l sL t pw he c ih i s ni ss cc e rd oe na aih ng d e r a i s l nh m pI ane r dc k rt e o t a tP cii so h ss i r d ps o e re na v c e d g pt e ei n nn e e r to i r c a ph re ou vg i e d ae wt as r o e n s r wte i sa fi glt o h t r ti r g h pt l a n u oy c gr . et on pi u a ve n rn dn G t o e m on pi pt oy r . t u p si rer ou vp i e d o r cn p oiao mdd p ni a e re s v g fr e ag nv eo r i i cn g r o w t h go n r pi o pt w ty t o. hu r ptl oo l se i h c p i e ih i s ni s cc e rd oe na g. r o w t h
Pn re e ist cs e i e v m a r k e t . Challenges Ge o n v t e r n m dr . rp ui gn s g i c Ln a. ee r s r n s iw g as e c e s M dd ol t r ri o e ea in s n w c
Lu fa am l r bo g ec e r no l p a iu l rn n al w yo h e g s t Roky ei l c gn lt u ar l s a a ci t R rl i eoa gys udn l e a y t raatt ee k c g m u a n c a a an u r rr lde e nsn r t tu s dp ae psg t a n r r d ae y pa i r l w o oh v l t ps es re n ot d vr o i e u d m c tn ott w mo p n e e i i o fiet on r ts e r. ga n n L XC N PY D A C,R ,BL R ,H D DN R P R ,N DG , S P U GRP N, N PS ,R D D U s trn uoe b fu j te e q c t ce h a n g s Ge o n v t e s r n m pi p. rt o o ls ts i e c c m i e
Hp a ic tn g e l h i o ot n m g i o w rra ic o e tt a w h tc . u pr t hi M0 on r r 9c e % t h p a i e e aa rnp of t st e i en or t e. x p i r y
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Indian presence
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Al ls m o t a l
SMC Comment
Dt t 1a g 2r 5 n g R ao u nt s i r s m i a p i s a n t EJ t i xa d p ar e nv Ube c o t p e S ni 1 r0 e 2 2 .n %1 o -O v 1 e 5 0 ll l 5 iy d k e% ea t 0 o s npe uim t b l r n m ho sa o t t i v o a i uw o ais a t e m r tgt khg e t w r e h f mr t ea h pf e h ns xe t o t jdo h re e r f o v r ha iie r s ae el nc t h t a ha h ntr e e e n a ts h i ol c pls o .u tas eR n i t i a n g fe r or o re wn t g h i c g fh r o or we t t h sib5 p yE e F n Y d 1 n g . iau dt pcak n c ioh he m frrlu r t we s e b t u l l e a u as r t r m a l e i c t i atr n nr a u s g f a h c v u pcak he m a ua r t r m a l e i c t s Wh me i ea fc e ot rt e s pcl ri hem au k r i a z eeeSn m e a t a t s e xd c 2 ptaD eo U cr t h2 b Iar nh da ip n a C1 r1 m A2 F G% 1 Ro 9v - e Y ia gm sove nl en t o t i nr s an b5 rtG ( c tDb y . e a Rf u S n 2 fcA r rU ) 0 oC 1 e W s or 8 y m e . n6 b ma aot r m 1 k ii e n 5 t t a n see t t do eu t p fs p f o p r 1 oe3 2 C % 8v n e 0 A. -% e a 1 G 2r x r 0t t s 5R e h y a 2 t 1 iun tra sen ct u r a nl ie c n at c co r e a s s s e tu 8 2 o Un1 th 0 0 oS b5 c b . Dy g td r ro oe w f tn h ha i er t a es l f t o hr c ~i 0 12 6 1 %5 t . l l cs in t . i z e
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Out-performer
TP: INR557
S a Une as r p s ems. ev u mi e ms a p i pcae e n aP o or e- l r h a la b P( ) hS s f r N o h gve an a u c le t s el c y t he p t g i g ae r t i c W i e S it o d e ie ot ntc pt t S g U itg c l we n t al p in .r N s p p l a m h tf o i e o P s r t i l b o o e o nht , t r oi n w nu e h p bt e l i z e i e p f ry U n t u S n diu ps o oir nr s s w l c o bs i s rv ni l e . e e d n mno ut len oo e p aa e s rep a t t p W r t h s i t c ev p s d t oi e a a t l a o t i n e o ud n u c n tinr( IdIe k U wg e sa e a e k r t I i t e N try di r p w t I i c hog s i p m n a i ari ) y P h g e te s n et e S r t I s t s o an mk t to m eh t e ce t . W b St v a lp io 1 e 2nb o e e U a rb o fSnF 3we e le o a e o n~0r - ale f k i e N e k pt U o 1 d ot y vP hm t a r y Dv 1 i e t u b Y E l n h bie e tf o . ea t al p i ni f P i pt e s fr h c r y i co t f e on n t u
Wn em rm ee c d o Out-performer r m f a egR o 1 W e e n s as o v 1 e c n oi r C 2 r - . o d rt m a e gn t i oc ni A 3 F 3 n G% f e 1 Y E e S oti eh s s nhe aWs x U a tai ck m e s r e a n pN i i s e a e e t o m f s g e Pn l r r y t c t t m a d n s o e s di k o t ps g i n m e rto t c t . e r c di o cuit a i sag 2 A r0 o g tn e hb ( r ry ( RY . m t o , lg s n T o2 GF 3 e wt h e u e ) w Cv s t c hi r o en ee np bs x t b%o1 s o o . 5 ) e 1 E
Financial Summary
Particulars Rsm e ( n v I ) e N nR u e R g( e r % v o) e w n t u h e E(m BN I I n TR D ) A ER P S () I N R o E ( % ) P E ( x ) FY10 4 0 ,5 0 7 () 5 . 8 1 3 ,2 6 3 1 3 . 0 1 8 . 2 3 6 . 0 FY11 5 7 ,4 2 1 4 2 . 8 1 9 ,0 7 0 1 7 . 5 2 3 . 0 2 6 . 7 FY12E 8 8 ,1 6 1 5 4 . 9 2 7 ,2 5 8 2 7 . 0 3 0 . 1 1 7 . 1 FY13E 9 7 ,8 3 9 9 . 9 3 0 ,2 9 6 3 0 . 5 2 6 . 0 1 5 . 1
Out-performer
TP: INR1,864
D ' aR e rp tnepcaeo a r d ( D oos enihe s dt d .e L ) n t i i I g a u ae s R b i d Do u c h y R s s f p ndn r t p t ty o k i ae m r c a l c i c u e i s I nsr , rUedn u l iu n o I no g s S s eg c i ng b a dm ttg s acp p c a e r i di o o bs x r t e lnm a ae w t c h nu ni o i nd u f V i n i t d p e i r p o nt S pi i e ptn . oe U ri h t s u
Financial Summary
Particulars Rsm e ( n v I ) e N nR u e G% r( o) w t h E (m BN I I n TR D ) A ER P S () I N R o E ( % ) P E ( x ) FY10 7 0 ,7 2 7 1 . 2 2 ,8 0 0 () 6 . 7 () 2 . 6 N A FY11 7 4 ,3 6 9 6 . 3 1 2 ,9 6 2 4 9 . 5 1 8 . 3 3 2 . 3 FY12E 8 6 ,4 1 2 1 5 . 3 1 6 ,2 9 0 6 9 . 6 2 0 . 4 2 1 . 6 FY13E 9 7 ,1 2 9 1 3 . 0 2 2 ,9 4 3 9 1 . 8 2 1 . 2 1 6 . 2
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Out-performer
L P o or ena e h n a aeh u Cf ms n i p s e pc la C p) i n o h as ddl r I ( ne gva- p i nhe s. Le t s eI m y t da u c a t g i i can i ar t p m i c L P s t f elo g dan ar t p i s lr d r r i fm u pagf u l r ab d a df b bu t i r o i a t i e e n t r e lrl o ed l n w aa s o s m e ia nk y n g t t m yh e a o e s zb e n poa akC % s s . ecdi r tt o i Saa y 1 o bse t o f u o r nd bbR diu We s m t f U p e A i mn xh t o l i nndG n t i J c 9 e ce s p m ln e t e c a oi o dtg w R e1oa y a n i )it r u ti C %1 ry d opsy a ifr w A o -s l c K a b e i v e h G v 1 gk wa irt n e r t u o h 1 r 4 bby s a m a 9F t Y n e ( J u ds g tg C % oeG r r R e a1 i s A t 5
Lr d l net S u ~ f t Uuee P nr t bs e ctr% t S e xd Cdm s iha s 4i o r s pt ' af u u n (oo o ae ) e o s e a i b oi on s U n 5sl v i c f t e sc n t c u ee titao p s r )d lt ot oto h h hc e d l a s i e p n m g w u n ul z o i c t t e t r r i b rt o t e h r t e am m o w h n w ( N l f o Ae c ne de m i i o n on pi. pt oe ri t s u
Wn e m r e e d c o Out-performer o t f aeg oo1 W m n c c asR v 1 e L t o s r C 2r - . v P h oi n G% 1 a C e rt s eg k ni A3F 3 l n f e Y E u e aFeg R a t t t eR p p lsf t Yrs 2 ra a rf 5 lg n io 2 3n 0E x a o 9 r o e o 8 ia t p 2 1 i f .o n I 2vu p I 0n e N t i er r i N you 2 g c i m tad % i e f tM rh oC m e P .
Financial Summary
Particulars Rsm e ( n v I ) e N nR u e G% r( o) w t h E(m BN I I n TR D ) A ER P S () I N R o E ( % ) P E ( x ) FY10 4 8 ,8 7 0 2 6 . 0 9 ,9 8 3 1 5 . 3 3 4 . 1 3 1 . 3 FY11 5 8 ,0 3 2 1 9 . 7 1 1 ,1 9 1 1 9 . 3 2 9 . 5 2 4 . 8 FY12E 6 9 ,6 5 8 1 9 . 3 1 5 ,9 4 3 2 4 . 7 2 9 . 4 1 9 . 4 FY13E 8 2 ,0 8 4 1 9 . 0 1 8 ,2 1 4 2 9 . 2 2 7 . 2 1 6 . 4
Out-performer
C e r H r eno eim h n a a a a e ) u r oa t md tnhe d la i l t ( i re u n e ia e pc l a h D p de g r H Cof c r c s e r tm hg - i I e nc g p da u n i ar t m i c s m us gf e aam r ea e p i b orml dh e m f s s r a n st o o o d ag k o C p c le f t i d e p- r a e y es ac i n e a xv nm g t rt p r ei n e eD t . W H c x o C 2 r1 e t o bs H t ite l rs A7 F 4 p diuo wa o e n G%1nc mnCld n oeg R o -a e a v 1 xh s s f t e Y dt e t i e c e Dd o v a s i l r ac t r i t h l n a g a e A o1 r o bs yg r tvl r n a R e1 t mn b s m r o d s 1r -f e s s l il h u e w rt t f h c G v 1 diu e s i oC % 7F 4 Yo e i h t ce s df pl n t af a t oi oc i a w 1r t p iAo s e t G v ar h 5t t i C% R e eo hd . e d
Waonh s wr ma i hl i t e cab o f t i p-e m twh e J te f a ggm g e ed h x p p n ot s r e t ee t o h e n ag r n o t e a r ei nk t s r w G e cd tde h r t bC p i s a o n e f o eig c s e D n s e v t r e r t s e eW H b t e 'n r s af e h n i s o u r a c ev ' au o m er t c i nh . la t o les i e J s b an e l t g w 4r1 om i A o1 n r tGv - . g o h 0F 4 e w Re 1 r t C% h Y E
Financial Summary
Particulars Rsm e ( n v I ) e N nR u e G% r( o) w t h E (m BN I I n TR D ) A ER P S () I N R O E ( % ) P E ( x ) FY10 3 6 ,8 8 6 2 5 . 9 8 ,6 0 8 2 4 . 6 3 5 . 3 3 0 . 8 FY11 4 6 ,2 3 0 2 5 . 6 1 0 ,2 2 6 3 4 . 7 3 7 . 4 2 1 . 9 FY12E 5 5 ,3 5 7 2 0 . 0 1 1 ,9 0 7 3 7 . 3 3 1 . 1 2 0 . 3 FY13E 6 6 ,0 2 8 1 9 . 3 1 3 ,1 3 3 4 5 . 6 3 0 . 2 1 6 . 6
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Dr reddy
Cadila Domestic US
Sun
Lupin
S: m Inst. Research oo, u p r c a e n Cy SMC
1 e ta 1 ()d 1cg E )e d t R c i vev) zF D)u UR en t e P E R L or 1) USFDA warning letter to i f P i e a R a flm r nD n t h a U a vo t p so M s o Mexican unit for S p l r t a ur ati F p f s Dr Ao a e t l eiv en t te r ( k z f e e the g x R d ir) ee D, rP P 2 e L .2 e U no) li ) e a v , c i v it e p o R d1 O i manufacturing violation. c i v Sm a 3 t n 0 h , U a vo pohoMa e Zydus Cadila acquires S p l r rtui r a ge 2) F p f aa n i 2 e g n Dr Ao a p lc t ) r o ag v l L p k r t t i n m e gtEt8 o iih ) i Sio S Ul w (r tnS t a f C rr o R 1 ts x a a i 0 v )t . wn r German company, Bremer h A ne a t a U ho 3 f N d k xi D A s p s i i . Pharma GmbH. 3) Zydus a e ct R l rts d Pn y te v m l y R l a t r t he ag i r i ns u D g a oi l s se r u i c np p rn. e iS tg aU i n l i plans to buy US drug cos for USD60 mn E sG3 asG3 rsG2rsR o a C f %n R6n A 3 i C 3r r n A 2r C f % g R %g o v i n R g o E nA i g o E Cf a i n o E A2 a n G% n f e o1 v1 e r 1 F3 Y o1 v1 e r 1 F3 Y o1 v1 e r 1 F3 Y F3 Y 1 1 1 3 6 % 1 % 2 1 % 3 1 %
1 s ea1 h d x o o s B n ui ) b ms L oa 1 s eaa d s l Rdi l ) n o i oo s u s e a f p ) b mse ZC t t c u Fa c nu r n Rdi l y u s e r t t c ay a dd a g.)o di hw do )u nn t t a r 2g c tU 1 g. L o j ho n o Sp w nu t t rt h r o n S 8 r 2c e a s e i 0 w n wn e e t h a t a f o d uw y h h i s p pe t U ev) r n p s p pa cJ i i i h t xi 2e Ou rer e l o p n S c yA t e l n e ol t u s i. g e m rt eC c o t o hc a i d oi v a u d m sn t i t cl o g w mt g t i 3 V n a eh r i u t f o wo a e i d p ne iz t n tj s o r r npn I t a i e i e h c F o h oa ) a t n i Fs l i l e dt c J t o h . t nr i u a e o n ) r i ee k tre eg p i 3o na a pt 6 t t p r o. ry T t u a o J s e odei h et am n . p h rs o un vg n i a p g t ii reta n or r n vo c i w d h t o on pi pt o. ry t u tS h e U .
Negative catalysts
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
FY 12
FY 13
FY 11
FY 12
1 8 x 1 6 x 1 5 x 1 0 x 1 4 x 15x 15x 1 6 x 1 2 x 6 x 7 x 9x 10x 1 4 x 1 3 x 9 x 6 x 11x 10x 7 x 7 x 7 x 6 x 3 x 7x 6x N/A 9 x 7 x 9 x 6 x 8x 8x
FY 13
1 6 x 1 2 x 1 3 x 1 2 x 1 2 x 12x 13x 1 3 x 1 0 x 5 x N A 10x 10x 1 1 x 1 0 x 8 x 5 x 9x 9x 7 x 7 x 7 x 5 x 3 x 7x 6x N/A 8 x 7 x 8 x 5 x 7x 7x 6 x 5 x 4 x N A 5x 5x 5 x 6 x 6 x 6x 6x 1 0 x 1 4 x 9 x 4 x N A 10x 10x 5 x 7 x 9 x 6 x N A N A 7 x 1 0 x 5 x 9 x 6 x 7x 7x
FY 11
0 . 4 1 . 1 0 . 3 0 . 6 0 . 4
FY 12
FY 13
FY 11
FY 12
FY 13
1 0 1 . 7 0 . 04 3 7 5 . 8 8 6 1 4 . 6 3 1 1 . 72 %8 x 5 . 2 6 2 . 6 8 0 3 . 7 7 4 5 9 . 6 8 3 2 . 63 %1 x 5 . 0 5 3 . 9 0 0 3 . 3 4 4 0 0 . 8 3 6 1 . 81 %8 x 4 . 4 5 3 . 9 4 1 4 . 2 6 3 6 8 . 4 7 7 1 . 3 %4 x 4 . 4 4 2 . 4 6 4 3 . 7 4 4 3 0 . 1 3 3 8 . 22 %x Median 21% 18x Mean 20% 16x 3 . 6 1 . 8 0 . 8 0 . 4 3 . 8 2 . 2 1 . 8 1 . 0 2 2 8 2 . 0 4 2 5 9 . 5 4 4 9 . 31 %x 1 3 1 1 . 6 9 2 3 3 . 8 8 5 1 . 83 %6 x 2 0 9 2 . 9 0 2 5 4 . 5 4 8 . 6 %7 x 9 9 1 . 4 1 1 9 5 . 3 6 5 8 . 12 %x Median 19% 9x Mean 20 10x 9 7 1 . 9 3 1 7 7 . 8 2 3 2 . 73 %0 x 1 3 9 1 . 9 2 1 8 5 . 2 9 7 1 . 6 %1 x 1 4 6 1 . 7 5 1 2 8 . 8 3 2 1 . 31 %0 x 3 4 . 6 4 6 . 15 4 2 9 . 8 6 x % Median 19% 10x Mean 19% 12x
0 . 6 0 8 2 1 7 . 62 %0 9 x x x1 1 . 5 2 6 3 2 6 . 03 %2 1 x x x1 0 . 3 0 5 2 2 7 . 41 %3 0 x x x1 0 . 7 0 8 1 1 6 . 6 %9 5 x x x1 0 . 5 0 3 2 1 6 . 62 %2 9 x x x1 Median 23% 22x 19x 16x Mean 22% 23x 19x 16x 0 . 2 0 () 2 2 8 . 52 8 3 2 x % x x1 0 . 4 0 1 2 1 3 . 52 %6 6 x x x1 0 . 4 0 8 . 5 %7 7 6 x x x 1 . 0 1 2 9 6 5 . 23 %x x x Median 14% 16x 12x 9x Mean 8% 16x 13x 10x 0 . 8 1 0 2 1 5 . 03 %6 9 x x x1 0 . 4 0 3 1 1 5 . 51 %9 8 x x x1 0 . 4 0 0 1 1 9 . 51 %2 2 x x x 0 . 2 0 4 7 7 5 . 31 %x x x Median 13% 16x 15x 12x Mean 16% 16x 14x 11x 2 . 3 2 2 1 8 8 . 51 %0 x x x 4 . 2 4 0 1 1 9 . 71 %0 0 x x x 5 . 6 6 8 1 1 1 . 21 %5 2 x x x1 1 . 2 1 9 2 1 2 . 52 %0 5 x x x1 3 . 3 3 4 . 6 %8 8 8 x x x Median 12% 10x 10x 9x Mean 15% 13x 11x 9x 5 . 8 6 1 8 7 6 . 21 %x x x 0 . 8 1 6 1 1 2 . 01 %7 4 x x x1 N N N 31 2 A A A1 3 x x x1 0 . 7 0 9 1 1 1 . 82 %8 3 x x x1 3 . 8 4 4 9 8 7 . 31 %x x x Median 15% 13x 13x 11x Mean 17% 13x 11x 10x 7 . 2 8 3 1 1 2 . 52 %7 4 x x x1 1 . 9 2 6 1 1 1 . 42 %8 4 x x x1 4 . 3 4 3 1 1 0 . 4 %0 0 x x x1 0 . 3 0 N 21 0 . 4 A2 2 x x x1 Median 23% 18x 13x 11x Mean 17% 17x 13x 11x
0 . 9 0 . 4 0 . 4 0 . 7
2 . 0 1 . 4 0 . 7 0 . 1
1 . 9 1 . 5 1 . 2 0 . 4
0 . 6 0 . 4 0 . 4 0 . 2
US generics M y l a n H o s p i r a W a t s o n Ix m p a P a r
8 . 3 6 . 7 8 . 8 1 . 2 1 . 0
2 . 0 3 . 9 4 . 4 0 . 9 3 . 3
GLobal generics T e v a A s p e n R ie c h t r H ia k m S t a d a
5 . 0 0 . 7 N A 0 . 5 3 . 3
Japanese generics S a w a i N ic h i i k o T o w a N in p p o
5 . 6 1 . 5 4 . 1 0 . 2
Japanese Formulation T a k e d a A s ts e l l a D a ii i c h
3 8 2 6 . 1 7 ,5 6 . 2 2 6 . 4, 1 , 0 6 5 5 4 . 21 7 4 . 1 %x 1 7 1 2 . 3 5 ,1 2 . 1 1 6 . 7, 1 , 1 1 7 5 2 7 6 . 45 1 x . 5 % 1 4 1 2 . 2 3 ,7 2 . 2 1 6 . 4, 4 , 3 6 0 2 6 4 . 41 . 6 %6 x Median 6% 6x Mean 3% 6x 2 4 2 1 . 0 4 ,6 2 . 9 8 2 . 5, 0 , 1 1 1 0 2 6 2 . 99 2 3 . 0 % x 8 . 9 8 ,5 1 . 51 5 6 . 1 , 24 3 8 7 . 70 4 4 . 0 5 x % 6 . 3 6 ,1 7 6 . 41 1 6 . 57 8 8 . 3 2 2 6 . 2 3 x % 2 . 5 2 3 . 8 2 0 3 . 0 9 4 1 8 . 9 9 4 7 . 32 %x N 2 3 A . 1 5 1 3 . 2 8 6 N N 9 . 0 A A x Median (6%) 7x Mean (8%) 8x 1 4 1 37 , 7 , 9 0 2 7 1 . 3 8 , 9 1 33%5 . 7 3 32 0 0 . 2 1 5 4 . . x 1 7 1 23 , 4 , 1 8 4 7 0 . 3 3 , 9 2 28%8 . 5 4 26 7 3 . 3 3 2 6 . . x 1 4 1 12 , 3 , 6 1 9 7 8 . 0 0 , 0 8 16%9 . 3 2 17 3 5 . 6 8 0 5 . . x 9 8 1 17 , 4 , 2 . 61 5 8 . 6 , 4 8 10 % x 7 17 8 3 6 6 . 8 7 7 6 . . 1 0 3 4 10 , 8 N N 0 . 76 7 . 4 ,4 7 1 10 A A x 1 . 3 2 . 8 6 6 20 , 1 N N 0 . 8 2 0 . 4 ,3 8 1 10 A A x 9 . 3 0 . 7 8 9 12 , 3 , 8 7 . 6 1 1 . 3 , 0 2 13%8 2 12 7 6 . 0 2 5 8 . . x 5 7 5 4 . 7 6 ,5 4 . 4 3 8 . 8, 8 , 9 1 1 8 5 4 4 . 51 1 3 . 0 % x 5 8 6 10 , 0 , 5 . 2 7 4 . 6 , 6 3 14 % x 8 11 3 8 4 3 . 0 2 3 6 . . 5 0 4 7 . 2 6 ,2 5 . 9 2 3 . 3, 2 , 7 5 5 9 0 . 76 1 7 . 06 x % 4 1 4 7 . 7 3 ,8 6 . 8 4 5 . 7, 8 , 4 5 7 4 0 . 71 3 6 . 8 %x Median 0% 6x Mean (0%) 6x
4 . 6 4 . 8 3 () 1 1 3 . 61 2 0 0 x % x x1 2 . 2 2 . 5 2 3 1 1 3 . 81 %6 5 x x x1 1 . 3 1 . 1 1 4 1 1 5 . 4 %5 8 x x x1 Median 4% 15x 15x 13x Mean 2% 14x 14x 14x 3 . 6 4 . 4 8 . 1 5 . 0 0 . 7 4 . 2 4 6 2 1 6 . 91 %1 8 x x x1 3 . 7 1 () 7 92 . 34 6 %x x 6 x 5 . 1 4 () 1 1 9 . 22 8 0 6 x % x x1 5 . 6 6 7 9 8 6 . 81 %x x x 0 . 9 N N N AN A A AN A Median (6%) 9x 12x 18x Mean (11%) 12x 13x 17x 2 . 3 2 3 . 4 %8 8 8 x x x 5 . 3 5 7 1 1 1 . 7 %3 2 x x x1 5 . 8 6 2 1 9 9 . 0 %0 x x x 3 . 9 3 2 . 9 %9 8 8 x x x 3 . 5 N N 31 N A A1 2 A x x 4 . 2 4 N 7 8 7 . 5 A x x x 5 . 0 5 7 1 1 0 . 3 %1 0 x x x1 6 . 0 6 4 1 1 4 . 91 %9 7 x x x1 6 . 2 6 8 6 7 7 . 2( % x x x ) 2 . 0 2 6 1 1 5 . 0( %3 4 x ) x x1 3 . 7 4 3 8 1 9 . 0( % x 0 x ) x Median 2% 10x 10x 9x Mean 2% 10x 10x 10x Source: Bloomberg
Specialty pharma A la l n e r g F o r e s t Cn e p h a l o U n i t e d K i n g
2 . 3 5 . 0 5 . 7 3 . 7 3 . 2 4 . 7 4 . 6 5 . 3 7 . 3 2 . 3 4 . 3
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
We ring the alarm bell foreseeing the challenges emerging on the Indian pharmaceutical industry post 2015 on the back of sharp drop in patent expiries in the US. The Indian pharmaceutical industry is been bullish for long on the USD70bn US patent expiry (generic opportunity of ~USD14-20bn) overlooking the stiff downfall thereafter. We expect the patent expiry opportunity to fall ~48% over 2012-14 and 85% post 2015 (2016-20) creating serious challenge for the Indian generic pharmaceutical industry.
48% drop in patent expiry post 2012-14; is it the beginning of the end?
T e o t io n Dsym o 5v s h n p x p i U )i t ed 0 ee e e a p o ( 7 ll c o s , w e g r te pt Sn o a e r ry 0 k oe t l d f ny t u b e i o t p1 e e n 2o w hr 2 bbn eo o n t a a d pe 0 e e g e t p io b ~ r a x 1 t g o n i pt h o 4 i t p 3 hn f t o e n t d so n c 7 p e i i i h f h ry e f % t u k o ny nt r o n r 2rMt lo . 0t a o l b p io 1 e e e os ( 9 m t o t pt e .st d lSn 2a jt hkr o v r y2 p t u 0 A e oh hc H uI a t , c ) a rf bu i n 0, o e d i y c e s b d t a t p w1 u ke eo n r dp r oee 1t s i t a lp io a ra e e b 2 E h h t n uns x e 0 hin rbo f d g t e i t ne e s t r e 1sn m pt 5 rg k a ry e t u g d t S Ub 2 t D v1sn0n e rn f S n 0 o- o 6 u 0 l nu eo 7o 1 Un 0a g % e g U D v 1 S r s i c i h m r 1e 4r 1 1 e - s 8 f 5 2r 2m a b2 ( i 0 9i l pWr p % ax p i o ep i e e r. e s d ~n te o n t nan o i) s ho 5e t i ptrg l r hv c e e a o i p p o fhr y t S s e pf a r 8h t e r ry e i e U ny t u e c s r 2 E 0 o 7e1 0 ( 1f U o 1 1 Ub Sn0 . 6S n D r 2 0 . )m v 1 D r 7 1 2E b 5
13.0
8.5
1.6
0.8
10
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Street over estimating patent expiry opportunity; generic opportunity to increase by mere USD1.6bn over 2010-15
According to our analysis, we believe the street has been over estimating patent expiry opportunity in the US over 2010-15. Branded drugs worth USD70bn is likely to face patent expiry over 2010-15 only to add USD1.64bn to the US generic (base) market after ~95-98% price erosion post expiry. We see this opportunity to be very miniscule (10-20% addition over 2011-15) in order of addition to the USD31bn US generic market.
Exhibit-8: Patent expiry of USD70bn to add only 10-20% generic market in the US
1 2 0 1 0 0 8 0 6 0 4 0 2 0 0
U S D B n
2001
2002
2004
2005
2003
2006
2007
2008
2009
2000
2010
2011E
2012E
2013E
2014E 2020
USD bn
2015E
11
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
9 . 2 7 . 4 5 . 3 5 . 5
6 . 3
6 . 9
5 . 2
4 . 7
4 . 9
4 . 9
2 0 0 8
2 0 0 9
B rd a n d e
G e n e r i c
12
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
2,000
90% 70%
2,000
1,500
49%
1,000 0% 500 0% 0% 2% 0% 11% -
1,500
USD mn
30% 15% 11% 10% 10% 2005 2006 Teva US Revenue Rev Growth (%) (LHS) 2007 2008
0% -10% -30%
4%
0
500
1 -% 2005
Mylan US Revenue Rev Growth (%) (LHS) US Revenue Watson Rev Growth (%) (LHS)
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Name of drug US Sales in 2009 (USD mn) Crestor Zetia Vytorin Spiriva Nasonex Lyrica 2,626 1,111 1,233 1,436 1,098 1,566
14
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Our assessment
We believe the loss of patent expiry opportunity in the US will hit the generic pharma industry hard post 2015. Though there will be a flood of generic products in US market by then, we expect a cut-throat price war environment to prevail significantly reducing the profit margin. With lower new drug approval trend in the US we expect pharma companies will have to revisit their growth strategy in the wake of lowering opportunities.
Exhibit-14: Decline in new product approval to reduce generic opportunity in the long run
40
30
20
10
0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Indian generic drug makers, according to us will emerge as likely winners because of their diverse geographical presence and strategic alliances. LPC (currently 41% revenue from the US) will compensate the patent expiry opportunity loss post 2015 in the US through its strong domestic presence (currently 35% of revenue) and concentrating in Japan and other key markets through its aggressive organic and inorganic expansion plans. DRRD (currently 35% of revenue from US) is likely to gain for the GSK marketing agreement in the emerging markets and through its plans to enter in to other key markets including Japan. SUNP according to us is likely to be runners-up predominantly on account of their US dependency. SUNP is expected to have ~40% US dependency (including Taro) in FY12E and we expect the US contribution to come down to 36% by FY14E on the back of strong domestic and emerging market sales.
15
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
pharma companies
@ Japan, APAC, CIS and LatAm to fuel future growth for Indian pharma companies
We believe more focus on domestic and emerging markets will help drive growth for the Indian pharmaceutical companies over medium to long term. Japan being the second biggest pharma market (~USD80bn) after the USA, has <10% generic penetration by value terms to provide tremendous opportunity for the Indian generic drug manufacturers. APAC according to us, have a high growth potential with increased government healthcare spending and high generic penetration levels.
Emerging markets to lead generic growth; to account for ~40% of global healthcare revenue by 2015
The emerging countries are forecasted to grow at a 15-17% rate over 2010-15, to USD200-250bn. The APAC healthcare market is projected to grow by ~13-15% over 2010-15 to USD560bn contributing ~30-40% of the global healthcare revenue. Currently APAC countries spend ~7-10% of GDP on healthcare and is expected to increase to ~12-15% by 2020 putting tremendous pressure on respective governments exchequer. Indian pharmaceutical market is expected to reach USD 30bn at CAGR 23% by 2020. Russian pharmaceutical market is expanding at a CAGR of 10-12% and is estimated to reach USD50bn (Ruble 1.5tn) by 2020. We expect the Japanese generic industry to reach USD10-15bn by 2015 at a CAGR 9-12%. China, which is predicted to grow 25-27% to more than USD50bn next year, is now the world's third-largest pharmaceutical market. We expect the governments across the world will emphasis more on the low cost generic drug going forward, in order to curtail the ever rising healthcare cost. As countries recover from the global economic crisis there will be growing divergence in the pace of pharmaceutical growth among major markets.
8% 7% 6% 5% 4% 3% 2011E 2012E
16
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
9 2 4
T h a id l a n In na d o e s i R o m a n i a E g y p t P a k in s t a
< 2
1 5
1 5
V ia e t n m U k r a i n e
17
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
USD bn
30
2005
2009
2015E
Source: McKinsey, SMC Inst. research
5 1 . 0 . 2 9 0 2 0 0 8
2 0 0 9 C a r d i c D it a b e i c
2 0 1 2 E O n c o l o g y
2 0 1 5 E
S: Ht Me o O y I rr u , dS s a r c e I s Ceh Wr n, u n c t .s
18
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Exhibit-19: Per capita income in India is much lower at 7% vs. 10% of the world 2 5 %
1 6 % 1 4 %
2 5
2 0 % 1 2 % 1 5 % 1 0 %
1 8
1 5 %
1 6 1 3 7
1 0 % 1 0 %
5 % 5 %
0 % 2 0 0 8 2 0 1 0 E
0 % 2 0 1 2 E 2 0 1 5 E 2 0 2 0 E
S: D I s Me o RY r Ceh u An, r c , , dS s a e E u I &t y I rr n c t .s
A ld M li I n aEI ) U (n ea S x d i A We oe r r lv dg A a
S: D I s Me o RY r Ceh u An, r c , , dS s a e E u I &t y I rr n c t .s
H uho eesw e t oi r i sn en e e ot agg n el n e t d asc b n f t i s t h i scu li r a m h t hn c a s eo s r e s n f t o gi e n m n n un a f ad e n r y hn etole h r s w la n e e i r r ptwu goyr a ettae gsc en r i i r et d h e h v h ae i os e n r i u n a ul d n p io h r . t hp e n a t s I ls t s c e p ns n t y e scmr to I b 0 I 6 0 A e a up hwd N 2 t R 2 . s a l n e i a nl o7 0 o b 0 l r t r rm e f R s h n ug n mn 0 6 , h i ae s o- r f n 1 Nn 0, i 2 n8o i 9 io n h a et hn ei s hi e co n t ol h r i bt sc vh e a lt tu f e la l yh n ds d s i i r i cs t fi d c oa e s s hc c a y a upr e n i n e r re li a o a l c n n pr ea t r s z. o h ii wp o a i a dt t s an o l
7 0 %
6 0 %
6 % % 2 5 2 %6 2 0 2 % 2 % 2
3 0 %
3 2 % 3 0 % 2 0 %
19
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
% of GDP
8.7 8 4 0
UK
8.5
8.5
7.5
6.5
5.9
7.0
(USD bn)
12
11.2
10.5
0 1990
Australia Japan France Germany Norway Korea Mexico India USA
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Exhibit-24: Japan has one of the lowest generic penetrations among the developed countries
90% 71% 70% 52% 50% 30% 10% - 0% 1 28% 23% 41% 75% 60% 89%
In 2003, Japan announced incentive for selling generic products to doctors and pharmacists
20%
16%
14%
20% 6%
15%
5% 0%
UK
Germany
USA
France
Spain
Japan
Value (sales)
Volume (prescription)
Japan's healthcare expenses to reach JPY 95tn by 2035 having deficit of 47%
According to McKinsey report, Japan's healthcare budget is expected to increase from 6.7% in 2005 to 13.5% of the GDP by 2035. We expect Japan's healthcare spend to rise at CAGR 3.6% to JPY 63tn by 2020 and JPY 95tn by 2035 while the conventional sources of funds (copayments, insurance premiums, and government subsidies) are expected to generate revenues of JPY 43tn by 2020 and JPY 50tn by 2035. Hence, in our view, the snowballing gap between the healthcare expenses and the NHI (National Healthcare Insurance) revenues reinforce the need to stress on the generic drugs in order to reduce the deficit.
21
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
22
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Generic advantage
Generic drugs are the back bone of the Chinese pharmaceutical industry. Generic drugs account to ~63% (USD 29bn) of the total pharmaceutical market and rising at a CAGR of 13% over 2014.
Exhibit-29: Generic drugs account to ~63% of the total Chinese pharmaceutical market
1 2 0 1 0 0 ( % ) 8 0 6 0 4 0 2 0 0 2 2 2 2 2 2 2 2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 5 6 7 8 9 0 1 2 3 4 B rd G a n d e e n e r i c O T C
S: dS s e o n, C eh u uM a r s c t e r IR I y n r ts . c
We believe Indian generic players have a better opportunity in China than their MNC counterparts because of low cost model and proven expertise in the US and other pharma-emerging markets.
Current situation
Chinese healthcare system is marked by: 1) growing demand of superior drugs and 2) wide disparities between the urban and rural healthcare system. To regulate and restructure the local pharmaceutical industry and to cut the rising drug cost, Government of China (GoC) has implemented NEDL (National Essential Drug List) and NERDL (National Essential Reimbursement Drug List). Currently the medicines listed under NEDL and also those drugs having monopoly in the market are subject to price control by the Government.
G, e n e r i c s 2 2 %
USD34bn
O T C , % 6 4
P a td e n t e D% r1 u g s , 4
23
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Pharmaceutical companies
Wholesalers
Hospitals 80%
Pharmacies 20%
Patient
S: Il e I R o M Ss e u ,e M a r c D C eh e Bo i t t , n r ts . c
Sanofi Nycomed
NA 214
24
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
3 5 %
3 0 %
2 5 %
20 1% % 2 1 6 %
1 6 %
1 5 %
1 0 % 5 %
0 0 % 2 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 1 2 0 0 1 2 1 0 E 1 2 E
PM( b h ai U a r zD r k S mS ae t e n ) G% r ( o ) Source: IQS, SMC Inst. Research w t h
Current environment
I rd m gaatfi 0h c c n e me edg c nc 0 t c n e n p v nul ni e n w ee w l o e tr u m t t a l no i t pn e oe f 2i hpo E rt i o e 9 et f t aa a sa s t i D ( )n osm y aa et a d lo r sLi gg mW s nm r c uE s f r eb n s t ee u s gD s d c n H L , i t ct o i nu r e d O e s bnn o e d d s y s a s s nm d gi o iu n ac ca 2re t aidt a u rge nur .r 0 gto p co rr do ds ii o 0 r r ne r r i f rt e o r m us n r e i e e ub xn F 1 l i t e , dg i i d a cl n q o s a a ed iu t D no L c n . ldE dh e e
C yd dc tt sh m m irR d u b p s p h t he aT os r r r r d cc w opcak m s u e a rt u - d e a l r o v i n n oo o f t l e u y i r au r t i c e pu g t . ea n p i t g e si a ot ap mstl e r t hen d on o t d, e r h n l f a lm eoa b u c o v n a ei m e f d t sgio s t il rc eyr - t a d t w n ii hl t c a t n i m e u cg sr o mc ara ds at i sn e id rt t n ni s i s nr R ln n u t eo y a c s . u d s uxvgr n o d v ra f a n , dp c u i a i i e es e o l f a f o c g due oa e l Ten t ao a nr a uo a frh hr t s o m at pca a0 k e e n a g dil u d a l r 5 a a g e el o v h m ao sy f er ts c %e s f e m r t c l a he t h o tr c u m i c e m s b (r a 2 iie ldg rn arm y c t o % l s ar g e cga 2 r y dT b th o t h o . 0 er 0s t e ue p ip s 2 nu ) w u o v 0 l n. u h l i m t hm s g n unr r
Exhibit-35: Ratio of Original & Generic in real term is 1:2; while opposite in value term (2:1)
1 2 0 1 0 0 ( % ) 8 0 6 0 4 0 2 0 0 H a om Ba go ke s r p k e r i t a e ny Oor l t e du ck f i c r t pa i uf m t cg o v e r a e G e n e r i c s Or r lu ia s g g id n 8 7 7 3 6 5
4 3 2 2 H a om s r p k i t ae l t 3 6
Ia nr re em l t 1 3
I lt ne v r am u e
2 7
3 5
5 7 7 8
6 4
Ba g u or e r ny e d O ck f i cr i u t- ke - pa o m f t cg o v e r a e
G e n e r i c s
Or r lu ia s g g id n
Source: Pharma Expert, SMC Inst. Research
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Market segmentation
Russian pharmaceutical market has come out of the domination of the state owned companies and pharmacies. Currently private sector accounts for nearly 70% of the market value. Commercial segment This segment includes retail drug sales and 'Para-Pharmaceuticals' (health and beauty products and other non-medicinal products) but excludes medical drug sales under the Federal Reimbursement program (FRP). The segment forms about 70 % of the market by value.
State-owned segment
26
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
CAGR 2007-12
Source: BMI, SMC Inst. Research
Brazil
Brazil being one of the largest emerging into a world power and is already the largest market in Latin America, representing 38% of the market compared with 21% for Mexico, 16% for Venezuela, and 9% for Argentina. Brazil's healthcare spending represents almost 8% of GDP and of its population of nearly 200 million people (20% have private insurance) make use of both private and public-health services with demand for pharmaceutical products is growing 10% per year.
Brazilian, 88%
S: dS s e o n, C eh u uM a r s c t e r IR I y n r ts . c
27
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Brazil, according to Osec, a Swiss Bank, houses are 270 private and 20 state-owned pharmaceutical laboratories in business. This growing local business has been driven by the government's industrial policy, enhanced regulations, and the introduction of generics. The government supports investments through special credits and encourages innovation through subsidies and strong IP protection. A number of global pharmaceutical companies are using Brazil as a production platform, and there are small, but growing R&D opportunities in the country.
Mexico
Mexico is the second-largest pharmaceutical market in Latin America after Brazil. Mexico after signing the North American Free Trade (NAFTA) has opened the door to trade with large pharmaceutical markets. Enforcement of patent protection laws has also increased foreign investment. It also enables foreign manufacturers to register their patents with the Mexican regulatory authorities and manufacture their products in Mexico. Branded products are purchased primarily by population with higher income, while generics are bought by population with lower income. Expiry of patents of blockbuster products is also expected to spark an increase in the growth of generics. Mexico is one of the most attractive destinations for foreign manufacturers, however, the research and development sector has not matured and so the majority of foreign investment in Mexico is targeted at its manufacturing industry.
Argentina
Argentina's pharmaceutical market is dominated by local players accounting for ~60% of the market value. Despite the increasing inflation and manufacturing costs, the pharmaceutical industry has managed to keep the price of its drugs low. The Government in order to increase affordability and to maintain growth gave discount of approximately 30% was given on 600 drugs. Demand continues to rise significantly in Argentina's pharmaceutical market propelled by the efforts of the government and its commitment to increasing access to healthcare.
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Valuations
expect a re-look in the valuation multiple on the back of changing industry fundamentals We Domestic and emerging market growth would help Indian pharma companies command
SoTP methodology
Indian generic pharma companies have always traded at a premium to its global peers on the back of strong growth and high revenue visibility both in the domestic market and also in the regulated market. We value the Indian generic players on SOTP basis to assess the various parts of the business. We value the base business on earnings multiple to capture the relative growth and the product pipeline on NPV based on the opportunity. We assign premium multiple to the Indian players vis--vis the global players.
0%
1 0 % 0 0 0 1 1 1 1 1 11 1 1 01 1 1 1 1 1 1 1 1 1 1 1 1t r y n l g p v c n b a r p c o e a e e O N D J F Mp a J J A S A Mu u u e S B Ix S n Ed Te H C DE Rq Ru Di I t N y CE Du Ht Iq N i y LE Pu Ci Iq N t y
SN Uq N i P t I u E y
S: o gI R o l b C eh u o, r m ne c e e Br Ss a M r ts . c
PE band chart of all the above companies Exhibit-41: SUNP 1-year fwd P/E
I N R 6 0 0 5 0 0 4 0 0 3 0 0 2 0 0 1 0 0
J u l 0 9 O c t 0 9 J0 a n 1 A p r 1 0 A p r 0 6 J u l 0 6 O c t 0 6 J7 a n 0 A p r 0 7 J u l 0 7 O c t 0 7 J8 a n 0 A p r 0 8 J u l 0 8 O c t 0 8 J9 a n 0 A p r 0 9 J u l 1 0 O c t 1 0 J1 a n 1 A p r 1 1 J u l 1 1 O c t 1 1
2 5 x
3 0 0 0 2 5 0 0
3 0 x 2 5 x
0 0 2 2 0 0 x 1 5 0 0 0 0 1 1 5 0 x 5 0 0
2 0 x
1 5 x
1 0 x
0 5 0 0 D e c 0 5 J7 a n 0 J8 a n 0 J9 a n 0 J0 a n 1 J1 a n 1 -0 1 0 0 -0 1 5 0
S: o gI R o l b C eh u o, r m ne c e e Br Ss a M r ts . c
S: o gI R o l b C eh u o, r m ne c e e Br Ss a M r ts . c
29
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
A p r 0 9
A p r 0 6
O c t 0 6
O c t 0 7
A p r 0 7
A p r 0 8
O c t 0 8
O c t 0 9
A p r 0 9
A p r 0 6
O c t 0 6
O c t 0 7
A p r 0 7
A p r 0 8
O c t 0 8
O c t 0 9
A p r 1 0
O c t 1 0
A p r 1 1
1 0 0 0
S: o gI R o l b C eh u o, r m ne c e e Br Ss a M r ts . c
S: o gI R o l b C eh u o, r m ne c e e Br Ss a M r ts . c
A p r 1 0
O c t 1 0
A p r 1 1
2 0 0
30
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
SUNP
Out-performer
DRRD
Out-performer
Target price calculation BE a P s S e b i z T aP a s / r eE g b( e i x t B z ) Tr a i s a i bs ) r c ee ge b e ( u t Ps n s Limited competition opportunities (NPV) Total Target Price (INR)
LPC
Out-performer
CDH
Out-performer
Target price calculation Base biz EPS T aP a s / r eE g b( e i x t B z ) Total Target Price (INR)
31
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Mcap INR bn
Revenue INR bn
PE FY12E FY13E
USD bn
1 5 0 0 . 6 4 3 . 0 7 95 . 2 3 1 4 . 4 1 7 7 2 . 5 5 . 7 2 2 8 0 1 . 7 . 4 8 . 6 1 6 . 6 5 2 . 2 5 9 0 . 5 4 47 . 1 2 1 0 . 8 4 4 9 6 . 5 9 . 6 9 3 1 2 2 . 8 . 3 1 . 3 1 6 . 1 4 2 . 8 2 4 9 . 5 1 26 . 3 2 0 2 . 1 1 8 2 1 . 3 4 . 3 1 2 7 0 1 . 0 . 0 6 . 8 1 4 . 7 4 2 . 3 0 1 4 . 2 9 08 . 6 2 1 0 . 9 3 2 5 3 . 6 3 . 0 2 1 9 4 1 . 7 . 7 6 . 3 1 1 . 0 4 2 . 5 1 4 5 . 2 7 15 . 0 2 7 1 . 1 1 4 9 2 . 3 4 . 7 2 2 9 1 1 . 2 . 8 7 . 9 1 6 . 4 3 1 . 5 7 9 0 . 1 4 74 . 6 1 5 9 . 8 3 9 4 3 . 7 7 . 3 4 2 5 2 2 . 6 . 8 2 . 1 1 8 . 1 2 9 . 0 7 6 . 7 1 7 3 . 0 3 7 8 . 1 3 2 2 3 . 4 7 . 5 4 1 6 9 1 . 9 . 7 5 . 7 1 3 . 5 1 8 . 8 8 7 . 4 2 1 9 . 4 2 9 0 . 0 1 8 6 1 . 8 9 . 7 2 2 4 6 1 . 5 . 4 6 . 3 1 3 . 1 1 6 . 4 6 1 . 6 2 5 3 . 0 2 1 4 . 6 1 0 8 1 . 4 9 . 4 2 1 3 9 1 . 4 . 5 8 . 5 1 5 . 3 1 6 . 2 0 7 . 3 2 6 5 . 1 0 4 . 7 5 6 7 3 1 . 7 9 . 3 2 1 1 8 1 . 3 . 7 7 . 0 1 2 . 3 5 . 7 5 . 0 9 . 1 7 . 2 N A 6 . 2 4 . 3
0 3 . 8 7 0 . 9 4 8 3 . 8 2 1 2 . 0 1 5 9 1 . 6 8 . 6 2 2 . . 97 0
0 3 . 7 5 5 . 4 1 6 8 . 8 2 3 0 . 2 2 0 1 2 . 0 2 . 7 2 1 7 2 1 . 9 . 4 0 . 1 0 3 . 7 4 3 . 5 3 1 4 . 3 1 3 6 . 4 1 3 4 1 . 4 7 . 6 2 1 2 2 . 8 . 3 9 . 5 0 1 . 3 7 7 . 4 1 9 6 . 9 1 6 9 . 2 2 6 6 4 . 1 4 . 1 5 6 . . 26 8 0 1 . 3 4 0 . 2 1 0 6 . 8 2 4 0 . 4 2 9 2 2 . 2 0 . 8 2 8 . . 49 7 0 . 1 . 15 1 2 9 . 9 1 1 6 . 7 9 . 9 9 . 1 1 1 . . 87 0 5 . 3 7 . 1 5 . 4
Source: Bloomberg
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
F r sp s n e ycu m r t g e a u s f r d oat cl oc p sl ln n t eoa e n i os ce eu o e d u l oo e t b s s m ru e et t i n d p ht u l l i ey r f i a oi b r l i d z c n gs a i c oetai &s l dyt a t n ei ce t s n u Ds d sf t b cu lnm hm rR co v a ht o d g r e e ie r g. l np caee s F r o ue f e y t e r l c i on e oc l i i eo m v p i a l l y ss r tdl oi u l d op i. cu c v rb c ps e f l e oa r i t s u f n l t y a a Increase in competition, and higher than expected fall in prices of generic products
Ae c t ihc r tew iu tc ac i n a ot nu p c r ls c o e ne y s m ta d c gie i ni p c ne r e i i o e hdt y u t a wee n l e u o r nr r a d n n oa l l t t pr hi da r s mr s re g a nii oo .u mm ah ae ch i da f c n r e n e r a dy it r ke v fn gp l t m e n a e t t s he f u s e e nrb h a r m l t m oi af t e y c d y t y p O o a t i og t aee u on t pc do n d i h a dyt e r e d p f g b an u ty v edo t x r ro (h e g) s i e fe t e p i i r f dm s c l he n a c o er t a n r s u r d e t ne b d e c el g v iaoeni et m rn eg a p u u as e c r e r s s t i ne a n t . gv d nm i
Regulatory risk
Delay in regulatory approvals and timely launch of products is a key risk to our call
Tm n a aau d t re ln ahu h i n por tai o gthe mp e so pn gy r e u ta e r e c s sfa tt e r h s a a s k r t uo b i al i o l i c u t t n a tct e o o o y o n e i ot t d w nra rc ei (i1 su w S n t iet a r e t Fe ndct i h AH l g p l s o F h 8 ev te u a l rd u b et y pt T a 0xi h F dc a i c i eh l l nt f l v d gal yt D y s i) U eh r W o . ch ao we a drs r p, a A 8 ai yso u t dlo ea r x c9 hr m1at t i e n mo a f 4u m i n t E o ym p t rr s r y u n v s e e / aeo a a qn i ne r t t o f g p l e hr t a b pin o Te t ta a s v e o aaer ne t h tna r vb e n u ld a e o u e a o p ay n a c r e o arn t k b p r w ds y p ph e nv d tc y i h r . m e o i nvi o e l c ye y f s n ey oda t Ti tp obe ao o s lam f l i h to e u t r k i toas t a po r r rs n g l e xhve tu a s r nt r m e r ho c. i g ns l ms r t f e r t pn e i o e i a s a c s i eh o ein d d seh io l ss s ns os v g r t i eh a l t b cu c t s olnp s nsi tw a u l e r e u e e u c t s w bt c l l a c s e t f o w ar t d p o na r c e ke t l eo s l n e ey f s ed u ps c rt ho n u w. c
Tu rr t d l so s gs a sn nto hlr u st o ni olry e ci n r e aem h iain um be on r t qe e y e a p d g o i n e e p f a aml, c e n i c n rt oe o t t e a st i u r i s are s o u c s r r o at r nd f r yo c d p no rn r , e c r n bd b f qre f t e.sshi e io i t u e a te t r a t n e ae a eo h s e e dro aA l e r s o e s u i t s a kn s e ci ese oic eg e ohn tso e o c uu ,h l ao n cuso n a mi c l nhl t v t r t a e t , w pwra w d l a t ht n h g sc i o d e - e d nr i s u on n so d a s l r e d wh n l m f c a i o ry ua a ed s tlga gy v n u t h o o aps ws h dd r t pf p . e w h i n l f lr r o r t e e o or o l c
Market risk
Demand slowdown in key markets adversely impact our recommendation
33
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Company Section
34
India | Pharmaceutical
Institutional Equities
Company Review
Sun Pharma (SUNP) according to us is one of the most aggressive large-cap players in the Indian pharmaceutical space. We believe SUNP, with its strong product pipeline will be able to monetize on the patent cliff opportunity in the US. We recommend on SUNP as OUT-PERFORMER, forecasting an earning CAGR of 25%.
Stock details
Bloomberg code Shares O/S (mn) M Cap (INR mn) M Cap (USD mn) 52 week H/L (INR) Avg. 6M daily vol SUNP IN 1,030 479,988 9,711 540 / 390 1,038,859
Stock chart
50% 40% 30% 20% 10% 0% -10% -20% -30%
SN U4 N 1 N 2 i= P I 6 f5 = t ,5 y 0
Summary financials
Particulars (INR mn) N( m e I n ts ) SN aR l e E (m BN I I n TR D ) A ER P S () I N ED VA / ( E x B) I T R O E ( % ) P E ( x ) Bh Vr pe e r s a FY10 FY11 FY12E FY13E CAGR (%) (FY 10-13E) 3 4 . 4 3 1 . 4 3 2 . 8 N M N M N M N M 4 0 , 57 8 0 5 7 , 48 9 2 1 , 17 6 1 ,8 3 9 1 3 , 29 2 6 1 3 , 07 3 7 0 , 20 5 8 ,2 9 6 1 3 . 0 1 7 2 . 5 7 3 . 0 0 . 5 2 5 . 7 1 7 1 . 8 7 1 . 0 4 . 4 1 8 . 2 2 3 3 . 0 0 2 . 1 6 . 0 3 6 . 0 2 6 1 . 7 7 1 . 1 5 . 1 7 5 . 6 7 1 7 0 1 . 0 2 3 . 0 3 . 1
Analyst
Souvik Chatterjee +91 22 22877009 souvikchatterjee@smcindiaonline.com Mitesh Shah miteshpshah@smcindiaonline.com October 03, 2011
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Financial statements
Profit and loss statements
Particulars FY10 FY11 FY12E FY13E
Cash Flow
Particulars FY10 FY11 FY12E FY13E 1 1 3 8 2 3 , 0, 1 , 6, 3 5 1 7 1 1 6 9 6 1 2 1 2 , 3, 1 , 8, 9 5 0 2 2 3 4 8 9 5 1
Dt&a(32 (52 e i A t 1 (4 2 (1 Operating cashflow po oo 3, 1 , 8, 9 r n ri , ) 0 e c i a m t n i z 5 ) 8 9 ) ) EBIT Om ti e h e r n c o 12,099 17,659 24,724 28,043 C xt a pr pee ie i t n a d l u
2 , 8 , 9 , 4, 9 0 2 4 6 4 5 9 9 5 7 9
P r e iy 4 0 2 3 r farn , 7 , 8 , 8, 1 o ex a 1 2 fo td1 i t ar4 t bx o e& r 3 9 3 5 6 6 9 4 Edn x iy e t no r a m 1 ar o i r c 9 9 P ft re x or f o i e t ba Pn roa of x vo i sr i t N ei tf p r o t Me i in n tt o r r e t ys I Reported PAT Adjusted Profit -
(4,500) 17,337 -
3(8 0 ,7 67 3 )
tf c h h ic w 4 ( ) e nf r i n a a go ( ) 6 l 4 2 4 7 1 3 1 , 9 , 4 , 6, 3 O n s 4 9 2 3 6 0 7 1 7 9 6 1 2 4 () 19 1 3 13,510 13,311 18,161 18,161 31,623 31,623 Financing cashflow Netcashgeneratedduringyear 27,916 27,916 Cash at beginning of year Cash at end of year (3,457) (8,733) 14,634 5,901 (7,747) (5,338) 12,196 6,858
Balance sheets
Particulars Soe hdu aei r r t e 'q h l sy Me i in n tt o r r e t ys i s L rb om nd ge t e t Pn ro os v i s i Seb hm o d r e t t r t Cli s uil r a r b e i nt t i e FY10 FY11 FY12E FY13E
Key ratio
Particulars FY10 FY11 FY12E FY13E
S () I N 7 8 7 1 1 , 9 , 5 , 3, 3 ER 2 9 0 3 8 7 5 7 5 6 8 4 4 P Bh R Vr ) pe e ( r I s N a 1 , 2 , 2 , 2, 2 9 8 3 4 8 8 7 4 4 7 7 R O E ( % ) 4 2 5 , 9 , 9, 9 90 2 2 4 0 0 4 4 Growth (%) 3 , 4 , 0 , 6, 2 4 5 8 0 3 3 3 3 3 6 8 Rs e v e n u e 1 , 2 , 7 , 7, 7 E 2 2 5 2 2 2 0 2 2 0 0 B I T D A 4 , 5 , 3 , 2, 3 N 0 9 9 2 8 9 0 9 7 8 8 ei tf p r o t
1 3 . 01 7 2 . 5 7 0 . 03 . 5 7 5 . 67 1 1 7 0 3 . 0 2 3 . 0 . 1 1 8 . 22 3 3 . 0 0 6 . 12 . 0
() 5 4 . 8 2 5 . 8 4 9 . 9 . 9 (4 4 1 4 . ) 6 5 . 4 1 0 . 81 . 3 (9 4 2 6 . ) 4 4 . 5 0 2 . 01 . 3 (5 4 3 0 . ) 6 4 . 0 0 3 . 01 . 4
3 4 . 03 4 3 . 4 1 1 . 13 . 8 3 0 . 23 0 2 . 9 7 8 . 92 . 8 3 5 . 33 5 3 . 6 3 4 . 53 . 5
FY10
FY11
FY12E
FY13E
3 6 2 . 0 6 1 1 . 7 7 5 . 1 . 1 6 . 2 6 . 1 4 3 . 6 . 5 1 2 . 1 8 . 5 5 5 . 5 . 0 8 . 7 6 . 1 5 4 . 3 . 6 2 5 1 . 7 7 1 1 . 8 7 4 . 0 . 4 1 2 . 1 8 . 5 5 5 . 5 . 0 2 . 8 3 . 7 5 6 . 7 . 5
Source: Company, SMC Inst. Research
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Others, 8%
NeuroPsychiatry, 28%
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
38
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
S:o , Ceh o m IR u p r c a ne e n s a Cy ts S . M r c
Taro, a long term growth driver; effective integration holds the key
Taro compliments SUNP's product portfolio through its presence in key dermatology products (~60% of revenue) and steroids. Taro has over 153 ANDAs and 30 active DMFs filed with the USFDA and manufacturing sites in Israel and Canada. Taro in our view, would also give SUNP access to Europe with more than 100 filings in the EU. With Caraco still shackled with regulatory issues, Taro's manufacturing facilities would provide necessary support to SUNPs US manufacturing strategy. We expect revenue CAGR of 18% over FY11-14E from Taro on account of improvements in execution.
39
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
153 Taro
224
215
173
158
127
106
40
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Rg e r v o e w n t u h e
Source: Company, SMC Inst. Research
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
42
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
5 0 0 4 0 0 3 0 0 2 0 0 1 0 0 0
J u l 0 9 O c t 0 9 J0 a n 1 A p r 1 0 J u l 0 6 O c t 0 6 J7 a n 0 A p r 0 7 J u l 0 7 O c t 0 7 J8 a n 0 A p r 0 8 A p r 0 6 J u l 0 8 O c t 0 8 J9 a n 0 A p r 0 9 J u l 1 0 O c t 1 0 J1 a n 1 A p r 1 1 J u l 1 1 O c t 1 1
10x
200,000
D e c 0 5
J7 a n 0
J8 a n 0
J9 a n 0
S: o gIR o l b Ceh u o, r m na c e e Br S se M r t s c
S: o gIR o l b Ceh u o, r m na c e e Br S se M r t s c
J0 a n 1
J1 a n 1
100,000
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Financial statements
Profit and loss statement
Year ending 31 March Ge re s on s u s e r v Lc ei s s s e : E x Net revenues Ce s ov s e t n ou f r e Gf rr oi s t s p o Ee n mp p xs le s o e y ee Or ee tonn h ax s e t p r i p e gs e Tp oe t n a s l E x e EBITDA Dt e i po r n e c i a EBIT Om ti e h e r n c o PBT Im na c x oe e t s PE oO s I t t a x Me i in n tt o r r e t ys i Reported net profit FY10 4 1 ,9 7 8 6 9 4 40,075 1 0 ,8 9 7 2 9 ,6 0 9 4 ,0 7 4 1 ,3 3 5 1 5 ,4 4 6 13,632 1 ,3 5 3 12,099 2 ,8 0 4 14,147 6 7 9 () 1 9 9 ( 4 1 ) 13,311 FY11 5 9 ,6 4 0 8 5 7 57,214 1 4 ,7 6 0 4 2 ,7 6 0 7 ,9 8 1 1 ,2 0 3 2 2 ,8 9 0 19,700 2 ,1 0 4 17,659 2 ,9 6 9 20,358 1 ,4 2 8 9 1 3 18,161 FY12E 8 9 ,3 6 1 1 ,2 0 0 88,611 2 3 ,2 9 5 6 4 ,9 6 5 1 1 ,9 6 6 2 5 ,8 4 0 3 7 ,7 0 7 27,582 2 ,8 8 5 24,724 4 ,4 9 7 29,698 1 ,2 7 8 27,916 FY13E 9 8 ,2 4 3 1 ,7 1 7 97,398 2 6 ,8 0 8 7 1 ,9 3 0 1 3 ,7 0 1 2 7 ,0 3 3 4 0 ,7 3 4 30,962 2 ,9 9 1 28,043 5 ,9 5 9 33,641 2 ,8 0 1 31,623
Source: Company, SMC Inst. Research
Balance sheet
Year ending 31 March EC qa up i t i ya t l R ap es u s nl e ds r s v r e u Sofs hdn a ed r r es h' l u Me i in n tt o r r e t ys i s Bn og r s r o w i Total Liabilities I gs nls ti A a n e bt es Gc rl ok s s b o Dt&a e i At po oo r n ri e c i a m t n i z N ek tc b l o C I a P p iW t a l Te t od tx e aa l f s i s s Is t nn v s e t m e In ni ve es t o r Sd ue nb dt r o yr s Cu s a ie s v ha el qn t Ors tc te he t e ns r u s ra Tra or s t ee a ns l ct t u s Scr ur s nd di r t yo e Pn ro os v i s i Trli s or a t e l a nt l ct i ui i b e Net current assets Dts e e at f ds t e x, r a r e e n Total Assets FY10 1 ,6 0 3 7 7 ,4 2 5 7 8 ,9 2 8 1 ,2 9 3 1 ,2 7 1 81,932 5 ,7 7 4 2 0 ,0 8 8 8 ,3 0 1 1 3 ,2 6 4 1 ,8 4 4 1 5 ,0 0 9 3 0 ,4 6 6 1 0 ,9 7 3 1 1 ,8 7 4 6 ,3 0 7 7 4 3 7 ,1 1 2 4 ,5 0 9 3 ,4 4 8 7 ,9 5 7 29,542 8 9 0 81,932 FY11 1 ,6 0 3 7 8 ,9 7 1 7 9 ,5 7 5 8 ,2 4 7 4 ,6 2 5 92,482 1 0 ,0 6 0 3 9 ,1 1 7 2 0 ,6 2 8 2 2 ,4 3 5 2 ,6 7 0 2 5 ,0 0 6 2 2 ,0 3 1 1 4 ,4 7 9 1 1 ,6 7 1 6 ,8 8 5 4 4 5 4 5 ,4 0 9 9 ,3 2 0 5 ,0 0 3 1 4 ,4 2 3 30,860 3 ,3 6 5 92,482 FY12E
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Key ratios
Particulars (INR mn) EPS (INR) CEPS Book Value per share RoE (%) RoCE (%) Valuation Ratios P/E (x) P/Sales (x) P/B EV/Sales (x) EV/ EBIDTA (x) MCap/Sales Du Pont Analysis Tax burden (Net income/PBT) (%) Interest burden (PBT/EBIT) (%) EBIT margin (EBIT/Revenues) (%) Asset Turnover (Revenues/Avg TA) (%) Leverage (Avg TA/Avg equtiy) (%) Du Pont RoE (%) 36.0 12.1 6.2 8.7 25.7 12.1 FY10 95.5 116.9 30.2 46.9 114.9 18.2 26.7 8.5 6.1 6.1 17.8 8.5 FY11 89.2 115.3 30.9 58.3 124.2 23.0 17.1 5.5 4.6 5.3 17.0 5.5 FY12E 94.0 120.1 27.9 74.6 128.1 30.1 15.1 5.0 3.5 4.6 14.4 5.0 FY13E 94.0 120.0 28.8 66.2 120.9 26.0
Source: Company, SMC Inst. Research
46
India | Pharmaceutical
Institutional Equities
Initiating Coverage
Dr. Reddy's Lab (DRRD) is one of our top picks in the Indian generic pharmaceutical space due to its steady Indian domestic growth, strong US business and exciting product pipeline including a number of para IV opportunities in the US. We initiate on the stock with an OUT-PERFORMER rating, forecasting 36% CAGR in EPS
Stock details
Bloomberg code Shares O/S (mn) M Cap (INR mn) M Cap (USD mn) 52 week H/L (INR) Avg. 6M daily vol DRRD IN 169 252,427 5,103 1855 / 1386 365,269
over FY11-13.
A l leo ee s s ih fqse fta r rcheu n s u w thu r a t o bs e e r ec e c p n di i r k e e s f t m i n mnt a t ce s p t w, x a t e p r e t D di s c6RYo ai e c t R iu t o C e1 t cn fs e R a e e %v - n kr o h D b od Ar 1 e o au 'ns r 1 o 1 h f s o s I n s r GF 4 b c e n tIc nn s o i / i dsf s . eIee io f r iaa I t I s xol r I p n ac ee
W aD i J (V jl) s tii oi ev Dno i w i ae np n bt R t tp e h ' r anh m nn s le R y a i e t s n n i us t h t i e J F t i F n gg t d e si r o n tCkhc i o h'R eldt t e hm ta t f C l x sl doh e a i h io Bi sbs a c o I r te s Se t w qn u i Je m u wr n c a s i i n ti a t c ng r . e tae m R g d o 'om e J t a a r D e d m t g Wp kro b 3a p n o a y e w p n ek R t r i s r t xa b l h e c o ye tD n I n f e i hn p c nr ad t a he g pca h o ( L C n c e ne he a m P a h or dn a u r p t C io k t my a a e nl a f d ) e f eo e r t a bt m r m ui s c a l i c o nr p ih pte o t ry t u e
Stock chart
30% 20% 10% 0% -10% -20% -30% Sep-10 Dec-10 Mar-11 Jun-11 Sep-11
DRRD IN Equity NIFTY Index
DRRD IN = 1,483 Nifty = 5,015
W s iDhsef d cg Fr y e p w ' e t l ou l n T t a rd R r p r e t R o ii p s de p i e s h s b n oiu Fpt i m e D u e t p rt c it n ho n o u c a t Se D a mUon r 4 atn . ec D t o ~be o 1 ns e d ih ie U x R b n S f e v d W R lo t p e t i e e D ru F s i z 3 v e e n e Y tu Tii ecg re ay. hi Fn Uiga d gx r t p n iuA G n r o F e t S n t o de g h i e s p h l l n dr, i g nZ c o , p a
Ao 4R s6 3 g ii c gh t P 1 D a x e s n o os CI 8 t M 3 r t. Fa . e t v no f ND d 2 RRe a 1 1i W e t t Yn r n i er t a a e e c k r m t oe g g oo1 e D e e O m e sR v 1 v R c nurrt a C 3r - W D o d p f a r A6F 3 l R m i ne oi n G% 1 a gr f c s ni n f e Y . u a e t 23gR dg f 3h t iio n 0 e s 9 a NRsf e nr i x a o1 d P 0a h e t e F r f .n Y i I 8d V p e p p i 1n n N a i no e o p pt I N r r r e o s l u trt t t e 1 p p lsf7 t M o aarf , 4ne p 2oC a o e o 8 lg n io f h r u pI 6 ia t d . r e i vr e r i Ni y o u 5m g c Rm ta e % i P .
Summary financials
Particulars (INR mn) N( m e I n ts ) SN aR l e E (m BN I I n TR D ) A ER P S () I N ED VA / ( E x B) I T R O E ( % ) P E ( x ) Bh Vr pe e r s a FY10 FY11 FY12E FY13E CAGR (%) 1 1 . 5 1 2 3 . 6 N A 7 0 ,7 4 2 7 7 ,3 8 6 9 6 ,4 7 1 9 2 ,1 2 9 2 ,8 2 0 1 0 ,9 1 6 2 6 ,2 2 9 2 0 ,9 4 3 () 6 . 7 1 3 5 . 3 () 2 . 6 4 9 . 5 2 1 . 5 1 8 . 3 6 9 . 6 9 1 . 8 1 6 . 1 1 2 . 1 2 0 . 4 2 1 . 2 2 1 . 3 1 6 . 2 2 5 7 2 . 8 9 2 . 4
Analyst
Souvik Chatterjee +91 22 22877009 souvikchatterjee@smcindiaonline.com Mitesh Shah miteshpshah@smcindiaonline.com October 03, 2011
N M
N M
N 3 A 2 . 3 1 7 5 2 . 8 2 7 . 2
N M
N M
47
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Financial statements
Profit and loss statements
Particulars N e ts S a l e FY10 FY11 FY12E FY13E
Cash Flow
Particulars FY10 FY11 FY12E FY13E (3 8 1 1 1 , 1 , 3 , 6, 2 1 ) 4 1 5 1 7 4 5 9
ei tf p r o t 7 0 7 , 7 , 3 , 4, 1 N 2 4 8 9 7 6 6 7 9 1 2 2 9
13,226
8,009
17,804
15,940
(6 (1(65 4 , 8 , 8 , 7, 7 0 8 ) 7 5 (3 ) 1 8 ) )
Pr ei rf x o oexn ( ) 9 1 1 fo t a 1 i t r r 4 , 6 , 2, 4 Investing cashflow t aa y 6 8 3 8 b& e r d 1 4 3 5 9 Edn x iy e t no r a m ar o i r c Profit before tax Pn roa of x vo i sr i t N ei tf p r o t Me i in n tt o r r e t ys I Reported PAT Adjusted Profit 8,413 11,756 15,492 Ie i sf t se uu oy q
1 7
2 9
(1,131)
Cio g (6 3 (1 4 h bi a rn n r s 3 g o e w n , 2 , 9, 7 , 9 5 ) 5 7 9 3 ) 3 3 Dp iei v a id dd n (3 (6 1 ,3 ,3 2 3 ) 0 ) -
Ons tf c h h ic w2 ( ) ( ) ( ) e nf r i n a a go ( ) l 5 9 9 4 5 2 2 5 9 6 1 Financing cashflow Cash generated during year Cash at beginning of year Cash at end of year (5,307) 921 5,378 6,545 (377) (957) 6,545 5,729 (7,876) (2,609) 5,729 3,120 4,048 8,188 3,120 11,309
Balance sheets
Particulars Soe hdu aei r r t e 'q h l sy Me i in n tt o r r e t ys i s L rb om nd ge t e t Pn ro os v i s i Seb hm o d r e t t r t Cli s uil r a r b e i nt t i e FY10 FY11 FY12E FY13E
Key ratio
Particulars FY10 FY11 FY12E FY13E
S () I N 4 2 4 , 5 , 0 , 4, 6 ER 9 5 5 7 1 9 7 3 9 7 2 4 3 P Bh R Vr ) Pe e ( r I SN a
() 6 4 . 7 9 6 9 . 5 9 1 . 6 . 8 1 7 2 5 2 2 2 . 8 7 5 9 . 2 7 2 . 8 . 4 () 2 1 . 6 8 2 2 . 3 0 1 . 4 . 2 2 5 5 . 5 1 2 2 . 1 8 8 . 0 . 0
O E ( % ) 5 , 5 , 1 , 8, 4 R 3 5 8 2 6 8 7 6 3 1 9 / E ( % ) 1 , 4, 4 9 1 0 1 9 3 1 7 ,0 D 92 9 5 1 , 5 , 0 , 6, 9 Growth (%) 5 8 6 2 9 1 2 5 2 5 1 1
e v e n u e 2 2 2 , 4 , 1 , 2, 4 Rs 3 1 1 2 2 4 9 2 8 7 3 9 0 E B I T D A Ob tLe hi s el r i i t a i 2 8 7 8 0 3 5 7 9 0 3 7 N ei tf p r o t Total Liabilities 77,571 92,983 95,082 117,850 E P S I gs nls ti A a n e bt es 1 3 1 , 3 , 6 , 7, 9 9 5 1 2 7 2 7 1 4 9 1 3 2 Margins (%) Na e s td f s i xe et s 2 2 2 , 9 , 2 , 3, 5 4 9 3 3 5 6 1 4 4 5 8 4 2 E B I T D A Is t nn v s e t m e 3 ,0 3 4 5 9 1 1 , 5, 0 3 6 6 7 1 E B I T In ni ve es t o r 1 3 1 , 1 , 9 , 3, 7 3 6 1 1 7 0 7 8 5 2 1 3 5 N ei tf p r o t Sd ue nb dt r o yr s 1 1 1 , 0 , 5 , 8, 8 9 7 1 1 6 6 2 7 1 4 8 7 8 Valuation ratios Ca ie a s v s h ls 6 he n & a cq t u , 5 , 9 , 0, 9 5 5 4 7 3 1 2 1 1 2 3 0 P / E ( x ) Or s tCA h ee e ns r t t u s r 6 , 8 , 0 , 3, 5 5 8 4 1 7 8 9 9 7 2 1 P /) B V ( x Tra or s t ee a ns l ct t u s 3 8 4 , 4 , 3 , 4, 9 4 7 4 5 2 5 0 6 9 7 0 5 6 M( c lx as p ) / s a e Dts e (3 ( e at f ds t e x, r a r e e n 1 ,8 8 ( 4 ) 7 8 ( ) 7 8 ) 7 ) Es Vx / ( s ) a l e Oe ta ht es r s s 2 4 2 3 7 2 3 6 5 0 9 3 ED VA / ( E x B) I T Total assets 77,571 92,983 95,082 117,850 Es ( a Y r i % ne i nd g ) l
Source: Company, SMC Inst. Research
1 . 2 6 1 1 . 3 5 3 . 3 . 0 (. 1 7 5 0 2 9 9 3 3 ) . 0 3 2 . 8 . 8 (6 8 4 . ) (7 8 4 . ) N 3 3 A 9 1 . 7 . 8 N 4 3 A 0 1 . 5 . 9
2 1 . 9 6 1 2 . 9 9 3 . 6 . 1 () 0 1 . 3 3 1 1 . 4 5 9 . 9 . 3 () 1 1 . 6 1 1 1 . 3 3 5 . 7 . 9
N3 A 2 2 1 . 3 1 6 . 6 . 2 8 . 6 6 . 6 5 5 . 8 . 1 3 . 6 3 . 4 2 2 . 9 . 6 3 . 9 3 . 6 3 2 . 2 . 8 1 3 5 2 . 3 1 1 1 . 5 6 2 . 1 . 1
N3 A . 1 4 6 %. 6 . %1 %
Source: Company, SMC Inst. Research
48
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Domestic growth the way ahead with CAGR 16% revenue growth
We expect the domestic business to get back on focus as a key driver to DRRD's growth on the back of new launches and more emphasis towards tier II/III cities. DRRD's domestic formulations business is back in to the double digit growth due to additional investments in the sales force and increased rate of new launches. We forecast DRRD's India formulations revenue to grow by 16% (CAGR) over FY11-14 up from CAGR 13% over FY08-11.
20,000
20
INRMn
15,000
15 (%)
10,000
10
5,000
FY09
FY10
FY11
FY12E
FY13E
FY14E
1,786
49
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
RO u tC s h s i ae &I r S
50
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
15,000
30
INR mn
10,000
20
5,000
10
S:o , Ceh o m IR u p r c a e n ne Cy s a S ts M r . c
(%)
51
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
1 0 U S D b n
st x t ar o le f m o ei a o e l n tls au c r o i m
2 t sa 0 oi lm 1r n 1v c Aa i a c t u
8
6
6
4
P xh ldp eelm r e i ro No r h a o d r i ni I e m y i i l p e o e ph n dc h oe g Bg ne i
4 2 0
r f h ld C ll ano e h il l ed r o yo x ie c r i h uL gi a y i E Ah sP ts m ea l l r a a N o v a r t i s
No e lm i ni r h pe I e ph n or g Bge n i
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
53
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
5 6
5 4
5 5
5 6
3 6
s i )o o d d r ryac d Dr y uu u yc ne u s l doln .Rr h p s b i u b p s ekm ci s ss r d c ve t i onDta r t irf e a r t d a d nof e e l a i s c l s o oa r o g t oR n f u e od r c e ii r t r i h tnr e mrdi xn ofnteao i c feem p t de te l c o r or et a s u iw cuPb r h a n po d g c g r f h e hm n f se s i r i a bc t o s .
t am d iu r ,iibe A P aP P h ce ei nFt R , a e f di s r sr a oc wl ia t ar t la g t o h t r m h d s u D i a e e r i a l i z c e i h c l m g x mp bn n f i o -r . m a l m g i a um
D2 R L 1 7 8 2
54
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
4 5 4
4 4 2
4 6 7
4 9 6
55
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
INR mn
300,000 250,000
2 5 x
2 200,000 0 x 1 150,000 5 x
100,000 50,000 0
D e c 0 5 J9 u n 0 D e c 0 6 D e c 0 7 D e c 0 8 D e c 0 9 J6 u n 0 J7 u n 0 J8 u n 0 J0 u n 1 D e c 1 0 J1 u n 1
- 50,000 -100,000
56
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Financial statements
Revenue Mix
Particulars Global Generics Ne S a o r & r iU d t hc C A( a m a n a ) E u r o p e I n d i a RO u tC s h s e i a r &I S R O W PSAI Ne S a o r & r iU d t hc C A( a m a n a ) E u r o p e I n d i a R O W Others Total Revenue FY10 48,605 1 6 ,7 8 1 9 ,3 6 4 1 0 ,8 1 5 9 ,9 1 1 2 ,8 8 6 20,404 3 ,2 6 7 6 ,3 6 5 2 ,6 6 4 7 ,3 4 3 1,268 70,277 FY11 53,340 1 8 ,6 9 9 8 ,1 4 3 1 1 ,0 6 9 1 0 ,8 8 5 3 ,5 3 6 19,647 3 ,0 1 7 7 ,0 0 2 2 ,9 6 1 6 ,8 8 3 1,705 74,692 FY12E 63,059 2 4 ,0 6 3 8 ,1 5 4 1 3 ,2 4 5 1 2 ,9 8 1 3 ,7 6 1 20,964 3 ,2 2 9 7 ,2 3 2 2 ,8 7 0 7 ,3 6 4 2,102 86,124 FY13E 72,387 2 9 ,3 0 6 8 ,2 7 1 1 5 ,4 8 7 1 4 ,2 8 3 3 ,6 9 0 22,340 3 ,6 4 5 7 ,8 6 8 2 ,9 7 8 8 ,7 4 0 2,564 97,291
Source: Company, SMC Inst. Research
57
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Balance sheet
Particulars Equity Capital Reserves and surplus Shareholder's equity Long-term debt Short-term debt Total Debts Other liabilities Current liabilities Provisions Total Current liabilities & Provisions Total Liabilities N ia e gs t ns i bt nl e t es a Gc rl ok s s b o Dt&a e i At po oo r n ri e c i a m t n i z N ek tc b l o Capital WIP Net fixed assets Investments Inventories Sundry debtors Other current assets Cash & cash equivalents Total Current assets Working Capital Dts e e at f ds t e x, r a r e e n Oe ta ht es r s s Total assets FY10 844 42,071 42,915 5,385 5,565 10,950 288 22,324 1,094 23,418 77,571 1 3 ,3 9 7 2 9 ,9 6 7 1 2 ,7 0 8 1 7 ,2 5 9 4,867 36,432 3,910 13,371 11,960 6,548 6,545 38,424 15,006 (3 1 ,8 4 ) 2 4 3 77,571 FY11 844 45,146 45,990 5,271 18,220 23,491 707 21,481 1,314 22,795 92,983 1 5 ,6 2 4 3 8 ,9 3 5 1 4 ,4 7 1 2 3 ,5 6 4 5,997 44,888 313 16,059 17,615 8,190 5,729 47,593 24,798 ( 8 7 ) 2 7 6 92,983 FY12E 844 56,900 57,744 6,618 9,556 16,174 393 19,792 979 20,771 95,082 1 7 ,7 9 3 4 3 ,6 5 2 1 7 ,1 9 2 2 5 ,5 6 0 5,938 49,481 4,675 17,233 12,478 7,923 3,120 40,754 19,983 ( 8 7 ) 2 5 9 95,082 FY13E 844 72,392 73,236 8,394 12,119 20,513 507 22,304 1,290 23,594 117,850 2 1 ,9 1 2 4 9 ,4 3 6 2 1 ,0 5 6 2 7 ,4 8 0 7,021 55,955 5,610 18,157 17,888 8,715 11,309 56,069 32,475 ( 8 7 ) 3 0 3 117,850
Source: Company, SMC Inst. Research
58
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Psp t mm (7 rd a ) L r a o ( yf o L c Re e e n n o e / m r g o T n 3 e ,9 4 ) I ed np tt ea r i s D p ln ieing v a ux id c t d d ia ni de , s O t h e r s Cashflow from financing N ee n eg d y tha re c nd a ae u r s r t i g Fasp oil) a r ni c e/ m x( g s t o Cash at beginning of year Cash at end of year () 4 4 9 (3 1 ,3 2 ) ( 8 0 ) (5,307) 9 2 1 2 4 6 5,378 6,545
59
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Key ratios
Particulars Key Operating Ratios ER P S () I N C E P S Blp e ouh oe a k e Vs ar r R o E ( % ) R o C E ( % ) Valuation Ratios P / E ( x ) P( / x S) a l e s P / B Es Vx /( S) a l e ED VA /T E( B) I x M Cs a p / S a l e Du Pont Analysis T e i m) a n cP x (n B bNe( ue / % r t d oT ) I edT ( nb( /) tt e E ) eu B % r rP T s nB I E rE v ) Bg T u Ia Be ( T ( /n ) m Rs i Ie % n e Ar r eA% su ( n g ) s n e sT e o v/ A t v T R e u e ) v( L eTe ( e ( A u) v A vt% e vAi r gg) a g /q y Do u E P ( o % n ) t R 7 7 4 . 7 7 6 . 4 () 0 . 3 8 9 . 8 1 8 4 . 2 () 2 . 7 8 5 . 7 9 8 . 1 1 3 . 4 8 7 . 6 1 9 1 . 8 1 8 . 9 8 7 . 4 9 8 . 2 1 5 . 9 9 1 . 6 1 8 1 . 3 2 2 . 7 8 4 . 2 9 7 . 8 1 9 . 3 9 1 . 4 1 6 2 . 6 2 3 . 7
Source: Company, SMC Inst. Research
FY10
FY11
FY12E
FY13E
() 6 . 7 3 8 . 8 2 5 4 . 2 () 2 . 7 () 2 . 1
4 9 . 5 3 3 . 9 2 7 2 . 4 1 8 . 9 1 3 . 9
6 9 . 6 1 8 . 5 3 4 2 . 0 2 2 . 7 1 6 . 7
9 1 . 8 6 7 . 0 4 3 3 . 7 2 3 . 7 1 9 . 0
N A 3 . 0 5 . 0 1 . 3 1 0 8 . 9 3 . 0
3 2 . 3 3 . 6 5 . 9 1 . 5 2 2 . 8 3 . 6
2 1 . 6 2 . 9 4 . 4 1 . 0 1 5 . 8 2 . 9
1 6 . 2 2 . 6 3 . 5 0 . 8 1 1 . 7 2 . 6
60
India | Healthcare
Institutional Equities
Initiating Coverage
Lupin (LPC) according to us is one of the most aggressive Indian pharmaceutical players in the generic space. LPC has transformed itself from being a bulk drug play to an integrated formulations player with a sizeable branded portfolio in US and Japan. We recommend on LPC as OUT-PERFORMER forecasting an earning CAGR of 23% over FY11-14 on account of strong growth in OC and limited competition opportunities.
Stock details
Bloomberg code Shares O/S (mn) M Cap (INR mn) M Cap (USD mn) 52 week H/L (INR) Avg. 6M daily vol LPC IN 446 214,207 4,321 520 / 363 1,057,609
L d u a t~ f le 1t gR o Pi r t c f2o s 1 r C 1 r C f l n n 7t lnr e A7 'nm c o os F g a o v s oi I a a or% a Y s o u s t ai ei i n G% f e F 1 a u i i r t t ri moe t Y L gl h s u o h r h h i 0 P r l f to i whni r c 7 C a sd dx d a r t p 1 hd t p ms . s a e y c agg na i cc e u al no h l ao haf is a r i e g t o n ee p m g B e e ry h g w a a a s kh,p od nl p ol y mt r o l a m ' s h r tr n t o t s not i T m h m ah h . n t e s ha%si i R a dw ie c nm es 9 k c i od r a I b e i nc m 4k n 2 r 6e tr t Nm .
L os ir o m da i e ei t Pu s i K a eat o p x g Cg u y a ah r n e p h t hb w hi s r t d y a hd s asm r e t a g s ln t s i o e nr p l f agw i he mC nd o s a hoe pcak 'J s i taJ ' i g g e on r n t i p ht n a u aLa u y s h cm e r t r a l r P as i c e s t . p ir b a c u % u1 eaeA5F 4 ot1e iY w t n R o1 t ns o e 1 f s u o v 1 h t e fe Fn r r e f r ~ r i b 0v na o e C 1r -o n d e v G% 1e c e Yn bnn d s ctit os n a e cn a u p h et c ws n gi p e t g k l hi efs n s m o a a r o a hi f u e c i n ng p e a l .
Stock chart
40% 30% 20% 10% 0% -10% -20% -30% Sep-10 Dec-10 Mar-11 Jun-11 Sep-11
LPC IN Equity NIFTY Index
LPC IN = 480 Nifty = 4,924
L bcuanai sow A t S P e clesS ( c f F a n h Ce e ni g x e r u) hn s s hp- n m ati e a ss s u i t i une f b l r l d j sda U i i a nr a n m ' r d l n sh c f4ttS u a Pnr tbse o r% a v r Cd u ui Un 5 t U e k s e a s n a t ~ f or s e b f t . Lao i m i on e tS s c o o l e u i s e n a e i c u eeti hc e d l a nxt otoh h e h p s r ) dpoi e t g w u n ul z w tn m r t l ec e t t r b rt o h n w ( N o w tao r t e f o Ae c a ed t o n n ltot p i . d i e p pt s me oic i m m oe i o ri nt s u
Summary financials
Particular N( m e I n ts ) SN aR l e E (m BN I I n TR D ) A ER P S () I N ED VA / ( E x B) I T R O E ( % ) P E ( x ) Bh Vr pe e r s a FY 10 FY 11 FY 12E FY 13E CAGR(%) 1 9 . 4 2 2 . 6 2 4 . 0 N M N M N M N M 4 8 , 88 7 5 0 ,0 6 3 2 9 , 68 5 8 2 ,0 8 4 9 , 91 8 1 3 ,1 1 9 1 5 , 91 4 3 8 ,2 1 4 1 5 . 3 1 9 . 3 2 2 . 6 1 8 . 6 3 4 . 1 2 9 . 5 3 1 . 3 2 4 . 8 5 7 . 7 7 3 . 5 2 4 . 7 1 4 . 3 2 9 . 4 1 9 . 4 2 9 . 2 1 2 . 0 2 7 . 2 1 6 . 4
Analyst
Souvik Chatterjee +91 22 22877009 souvikchatterjee@smcindiaonline.com Mitesh Shah miteshpshah@smcindiaonline.com October 03, 2011
9 4 1 . 7 2 0 . 2
61
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Financial statements
Profit and loss statements
Particulars N e ts S a l e FY10 FY11 FY12E FY13E
Cash Flow
Particulars FY10 FY11 FY12E FY13E
T 4 8 5 , 8 , 0 , 6, 0 P 7 8 6 8 0 3 9 2 2 5 8 8 4 A
6 , 6 , 6 , 9, 2 8 8 1 1 1 6 1 3 2 0 0 3 4 1 , 9 , 2 , 7, 0 2 1 3 7 1 2 1 9 3 7 3
tn a n, 6 , 5 , 5, 0 hc jm4 2 e a st 1 r s t s o d n u ) 1 1 (5 ) 6 9 ) ) Di At et m p nro , 9 , 2 , 7, 0 O-h e(6 (9(11 r o o n2 1 e& i c i a t i z a 1 3 7 1 2 1 9 3 7 3 E B I T Fag i ca nC ah n r i l e s Om ti e h e r n c o 8 1 , 0 , 9 , 2, 2 Operating cashflow 6 0 1 1 0 1 3 5 9 4 8 6 1 pee ie i t n a d l u 3 8 3 5 2 3 3 5 6 8 C xt 2 1 a pr 1 4 2 8 9 a n s n e g t e m n e 8 1 5 1 Ci v n 1 h i st 6,764 7,969 9,743 10,399
ti tc w 1 h i s e nf r n v e h go l Pr ei rf x o oexn 8 fo t a , 7 , 3 , 5, 2 O s a i t r r 3 9 1 1 t aa y 5 9 3 5 b& e r d 6 1 5 8 4 Profit before tax t a x N ei tf p r o t Me i in n tt o r r e t ys I 8,357 9,963 13,185 15,542 Investing cashflow (6,802) 72
(4,315) 3,693
(7,022) 2,722 -
1 0 1 7 3 8 2 ,5 8 9
1 9 3 1 4 0 0
Im/c nrVa c o st o mis 6 eJse f A o 9 Reported PAT Adjusted Profit 6,816 6,885
8,626 8,646
11,039 11,059
Balance sheets
Particulars Soe hdu aei r r t e 'q h l sy Me i in n tt o r r e t ys i s L rb om nd ge t e t Pn ro os v i s i Seb hm o d r e t t r t Cli s uil r a r b e i nt t i e Total liabilities & equity Na e s td f s i xe et s Is t nn v s e t m e In ni ve es t o r Sd ue nb dt r o yr s L ae od a v na s n &s c Ors tc te he t e ns r u s ra Ca ie a s v s h ls he n & a cq t u Ca us r s r e e t ns t Dts e e at f ds t e x, r a r e e n Total assets FY10 FY11 FY12E FY13E
Key ratio
Particulars FY10 FY11 FY12E FY13E
i dN l ER uS t () eI 2 5 3 , 8 , 1 , 6, 3 DP 6 2 4 5 7 8 2 3 1 2 6 3 4 2 5 5 5 1 5 5 5 1 1 5 5 1 , 8 , 6 , 2, 9 3 1 1 2 1 1 0 5 6 5 0 2 , 9 , 8 , 0, 2 2 2 2 7 2 2 1 2 2 4 6 Bh R Vr ) pe e ( r I s N a R O E ( % ) Growth (%) Rs e v e n u e
1 5 . 31 9 2 . 3 4 9 . 72 . 2 5 7 . 77 3 9 1 . 5 4 2 . 7 0 . 2 3 4 . 12 9 2 . 5 9 7 . 42 . 2
2 6 . 01 9 1 . 7 9 9 . 31 . 0 3 3 . 12 1 2 . 1 9 7 . 61 . 5 4 1 . 42 6 2 . 5 8 8 . 01 . 1 3 1 . 72 6 2 . 1 8 8 . 01 . 1
2 2 2 , 0 , 1 , 5, 7 6 5 3 3 4 8 0 4 8 9 1 2 2 2 6 4 3 2 3 3 2 2
2 0 . 22 0 2 . 4 2 1 . 22 . 9 1 7 . 71 7 1 . 5 9 9 . 31 . 1 1 4 . 01 4 1 . 8 5 5 . 91 . 7
9 1 , 5 , 0 , 3, 6 7 2 1 1 1 0 2 5 0 8 2 4 8
2 , 5 , 1 , 8, 1 0 4 1 2 5 8 0 6 7 8 1
62
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
F Y 0 Y 8F 0 Y F 9F 1 Y F 0 1 Y F 1 1 Y F 2 1 Y E 3 1 E 4 E I n d i a G r o w t h
Source: Company, SMC Inst. Research
The company is among the top five within the cardiology market registering a growth of over 21% in FY11 as against the relevant market growth rate of 16%. LPC's cholesterol lowering drug Tonact is rated amongst the highest prescribed brand in the Atorvastatin category with prescription share of over 11%.
63
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Partnering with Eli Lilly in insulin helps complete LPC's product basket
LPC has entered in a partnership to promote and distribute Eli Lilly's insulin products in India and Nepal. We believe the deal will complete LPC's diabetes portfolio and increase Eli Lilly's reach of insulin products in India. India is likely to be the diabetes capital of the world with the largest diabetic patient population and large global players in the diabetes space will increasingly focus on India. We are not factoring this opportunity in our estimates for LPC as we believe the benefit, to begin with, will be small compared to LPC's overall business. However we believe this opportunity will provide traction in LPC's domestic sales and marketing competencies and improves the overall domestic business growth outlook.
64
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
65
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
S:IA o K u M r c e H
66
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
IM N R n
2 8 ,0 0 0
2 1 ,0 0 0
1 4 ,0 0 0
7 ,0 0 0
0 F Y 0 Y 8F 0 Y F 9F 1 Y F 0 1 Y F 1 1 Y F 2 1 Y E 3 1 F E 4 Y E 1 5 E G e n B (apd a e r i c r dr r Ae a A un N nn a l z dt S ae ) e a x l , r
S:o , Ceh o m IR u p r c a e n ne Cy s a S ts M r . c
U S D B n
1 2
0 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 E 2 0 1 4 E 2 0 1 5 E
Px i U a p E te s ei n ni t r e
S: dS s e o n, Ceh u uM a r s c t e r IR I y n r ts . c
67
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
U S D b n
1 2
0 2 0 1 0 2 0 1 1 2 0 1 2 E 2 0 1 3 E 2 0 1 4 E 2 0 1 5 E
Px i U a p E te s ei n ni t r e
S: dS s e o n, Ceh u uM a r s c t e r IR I y n r ts . c
4 ,0 4 0
2 ,0 4 5 1 ,9 8 2 1 ,7 2 5
68
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Exhibit-85: LPC to clock 23% of revenue CAGR in ROW formulations over FY10-14E
1 2 ,0 0 0 1 1 ,4 4 0
Im N R n
8 ,8 6 2 9 ,0 0 0 6 ,6 5 3 6 ,0 0 0 3 ,3 7 6 3 ,0 0 0 9 9 9 0 F Y 0 F 8 Y 0 F 9 Y 1 F 0 Y 1 F 1 Y 1 F 2 Y E 1 F 3 Y E 1 4 E Rr Oe W m a k t
Source: Company, SMC Inst. Research
4 ,6 9 5
1 ,1 6 9
69
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
25x
300,000
10x
1 0 0 0
D e c 0 5
J7 a n 0
J8 a n 0
J9 a n 0
S: o gIR o l b Ceh u o, r m na c e e Br S se M r t s c
S: o gIR o l b Ceh u o, r m na c e e Br S se M r t s c
J0 a n 1
J1 a n 1
50,000
70
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Financial statements
Revenue Mix
Particulars U S S a l e s B (apd a r d aaAe a A unN nn r dt S ae ) e r xl z , l r G e n e r i c Es U S a l e J( y aw po a a n ) K Advance Market Sales I n d i a Sf or uc t i h A a O t h e r s E gts m ra eM r a l g k i ne S e Rr Oe W m a k t Total Formulation A P I D o m e s t i c E x p o r t Total FY10 1 6 ,2 5 4 6 ,1 1 2 1 0 ,1 4 2 1 ,7 2 5 5 ,1 3 4 23,140 1 3 ,2 5 0 1 ,8 3 2 2 ,5 4 3 1 7 ,5 2 6 3 ,3 7 6 40,405 7 ,6 6 9 2 ,4 1 3 5 ,2 5 6 48,101 FY11 2 0 ,0 0 8 6 ,4 0 2 1 4 ,6 0 5 1 ,9 8 2 6 ,2 2 1 28,121 1 5 ,2 7 3 1 ,9 8 2 3 ,7 1 2 2 0 ,8 6 8 4 ,6 9 5 48,809 8 ,3 6 1 2 ,2 6 8 5 ,1 9 3 57,422 FY12E 2 3 ,3 3 7 6 ,6 5 0 1 6 ,7 8 6 2 ,0 4 5 7 ,5 2 2 33,048 1 8 ,2 6 4 2 ,9 5 1 4 ,7 0 1 2 5 ,8 1 7 6 ,6 5 3 58,226 9 ,6 6 9 3 ,1 3 7 6 ,4 3 2 67,922 FY13E 2 7 ,7 3 9 7 ,7 1 5 2 0 ,1 2 4 3 ,3 2 8 8 ,9 3 0 38,989 2 2 ,1 3 7 3 ,9 4 6 5 ,9 1 5 3 0 ,9 9 9 8 ,8 6 2 69,988 1 0 ,1 9 8 4 ,7 2 3 6 ,4 7 4 80,970
Source: Company, SMC Inst. Research
71
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Balance sheet
Year ending 31 March EC qa up i t i ya t l R ap es u s nl e ds r s v r e u Shareholders' funds Me i in n tt o r r e t ys i s Bn og r s r o w i O t h e r s Total Liabilities I gs nls ti A a n e bt es Gc rl ok s s b o Dt&a e i At po oo r n ri e c i a m t n i z N ek tc b l o C I a P p iW t a l Te t od tx e aa l f s i s s Is t nn v s e t m e In ni ve es t o r Sd ue nb dt r o yr s Cu s a ie s v ha el qn t Total current assets Scr ur s nd di r t yo e Pn ro os v i s i Trli s or a t e l a nt l ct i ui i b e Net current assets Dts e e at f ds t e x, r a r e e n Total Assets 37,332 4 ,2 9 3 2 0 ,9 6 9 6 ,9 5 6 1 4 ,0 1 3 3 ,9 5 7 2 2 ,0 6 4 2 6 4 9 ,5 7 1 1 1 ,6 2 6 2 ,5 0 1 27,755 9 ,3 6 6 2 ,9 2 2 1 1 ,3 8 9 15,862 (3 1 ,5 4 ) 37,332 44,950 5 ,8 1 6 2 3 ,4 1 8 7 ,3 7 8 1 5 ,1 4 0 5 ,2 3 1 2 5 ,1 8 8 3 2 1 2 ,0 0 0 1 2 ,8 5 5 4 ,1 2 0 34,967 1 1 ,0 8 0 2 ,8 7 1 1 4 ,8 5 1 20,449 (1 1 ,1 4 ) 44,950 55,285 5 ,4 1 0 2 9 ,6 6 0 9 ,4 1 8 2 0 ,2 4 2 5 ,0 4 0 3 0 ,5 9 2 3 2 1 2 ,3 8 4 1 3 ,4 8 3 5 ,8 6 8 40,464 1 2 ,4 4 8 2 ,0 2 4 1 4 ,4 7 2 25,740 (1 1 ,1 4 ) 55,285 67,032 4 ,5 8 3 3 4 ,0 7 5 1 0 ,8 8 5 2 3 ,2 8 9 5 ,0 4 0 3 4 ,7 1 2 3 2 1 5 ,6 2 8 1 6 ,5 8 7 8 ,1 7 1 51,438 1 4 ,1 8 9 2 ,2 2 6 1 7 ,3 1 5 34,285 (1 1 ,1 4 ) 67,032
Source: Company, SMC Inst. Research
FY10 8 8 9 2 4 ,9 7 8 25,678 2 5 5 1 1 ,9 3 9
FY11 8 9 2 3 1 ,8 9 1 32,811 5 1 5 1 1 ,4 6 2
FY12E 8 9 2 4 1 ,4 3 4 42,236 5 1 5 1 2 ,4 5 3
FY13E 8 9 2 5 2 ,0 7 5 53,643 5 1 5 1 2 ,4 8 7
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
73
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Key ratios
Particulars (INR mn) Key Operating Ratios EPS (INR) CEPS BV per share RoE (%) RoCE (%) Valuation Ratios P/E (x) P/Sales (x) P/B EV/Sales (x) EV/ EBIDTA (x) MCap/Sales Du Pont Analysis Tax burden (Net income/PBT) (%) Interest burden (PBT/EBIT) (%) EBIT margin (EBIT/Revenues) (%) Asset Turnover (Revenues/Avg TA) (%) Leverage (Avg TA/Avg equtiy) (%) Du Pont RoE (%) 31.3 4.4 8.3 4.6 22.6 4.4 FY10 81.6 97.2 17.7 109.2 223.4 34.1 24.8 3.7 6.5 3.8 18.6 3.7 FY11 86.6 97.7 17.5 107.3 185.8 29.5 19.4 3.1 5.1 3.2 14.3 3.1 FY12E 83.7 97.9 19.3 107.5 172.5 29.4 16.4 2.6 4.0 2.6 12.0 2.6 FY13E 83.9 98.3 19.1 107.4 160.8 27.2
Source: Company, SMC Inst. Research
FY10
FY11
FY12E
FY13E
74
India | Healthcare
Institutional Equities
Initiating Coverage
We prefer Cadila Healthcare (CDH) among the emerging mid-cap Indian pharmaceutical company mainly because of its strong mix of developed and pharmaemerging market. We forecast CHD's export CAGR at 27% over FY11-14 and expect the domestic business of CDH will add traction to the overall earnings growth and forecast CAGR 17% over FY11-14. We initiate coverage on CDH with a OUT-PERFORMER rating, forecasting earnings CAGR of 14.7% over FY11-13.
Stock details
Bloomberg code Shares O/S (mn) M Cap (INR mn) M Cap (USD mn) 52 week H/L (INR) Avg. 6M daily vol CDH IN 205 155,138 3,174 987 / 651 119,347
CDH was one of the first Indian companies to enter in to Japan to tap the huge generic opportunity there. We expect Japan to be one of the fastest growing pharma-emerging markets in the world with the Government's increased effort to reduce the rising healthcare cost. We believe CDH's Japan business to add traction to its long term growth with CAGR 40% over FY1114E.
Stock chart
60% 50% 40% 30% 20% 10% 0% -10% -20% -30%
CDH IN = 759 Nifty = 5,015
Summary financials
Particular N( m e I n ts ) SN aR l e E (m BN I I n TR D ) A FY 10 FY 11P FY 12E FY 13E CAGR(%) 2 1 . 6 1 8 . 1 2 2 . 8
3 6 ,8 4 8 6 6 ,2 5 3 0 5 ,3 6 5 7 6 ,0 2 8 8 ,6 1 0 8 0 ,2 1 2 6 1 ,9 1 0 7 3 ,1 3 3 2 4 . 6 1 1 . 3 3 5 . 3 3 0 . 8 7 9 . 4 3 4 . 7 9 . 4 3 7 . 4 2 1 . 9 1 0 5 . 9 3 7 . 3 1 4 . 8 3 1 . 1 2 0 . 3 1 3 3 . 9 4 5 . 6 1 2 . 1 3 0 . 2 1 6 . 6 1 6 8 . 3
Analyst
Souvik Chatterjee +91 22 22877009 souvikchatterjee@smcindiaonline.com Mitesh Shah miteshpshah@smcindiaonline.com October 03, 2011
ER P S () I N ED VA / ( E x B) I T R O E ( % ) P E ( x ) Bh Vr pe e r s a
N M
N M
N M
N M
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Financial statements
Profit and loss statements
Particulars N e ts S a l e FY10 FY11 FY12E FY13E
Cash Flow
Particulars FY10 FY11 FY12E FY13E 5 , 1 , 0 , 4, 7 0 7 5 1 7 9 1 6 3 5 4 1 , 9 , 9 , 3, 0 3 1 3 2 1 1 6 1 2 3 3
ei tf P r o t 3 6 4 , 8 , 2 , 3, 0 N 8 6 5 6 6 3 5 6 0 5 2 7 8 Di e t po r n e c i a
6,954
6,696
7,741
9,153
8 2 6 1 9 7 1 9 9 , 0 Ci v n 40 0 h i st a n s n e g t e m n e
P err Bx i y 6 Tt d ar n no d aa , 5 , 5 , 0, 2 Investing cashflow 0 8 8 4 9 1 2 3 1 0 2 9 Edn x iy e t no r a m ar o i r c PBT Pn roa of x vo i sr i t N ei tf p r o t Me i in n tt o r r e t ys I Reported PAT Adjusted Profit 4 6 6,131 9,300 11,292 Free cashflow to firm Cio g h bi a rn n r s g o e w n Dp iei v a id dd n 7 1 4 , 4 , 5, 4 1 0 1 1 6 3 6 9 9 5 , 4 , 1 , 5, 8 3 7 4 3 7 9 6 9 5 0 9
(5,462) 2,278
8,425
2 4 4 2 3 8 0 , 5, 0 3 8 5 9 7 ( ) (2(22 7 1 5 , 2 , 5, 2 1 2 1 (8 ) 9 2 ) )
Ons tf c h (4 ( ) ( ) (0 h ic w 5 9 e nf r i n a a go 2 l , ) 7 0 7 1 2 9 ,0 40 ) Financing cashflow (3,248) (10) 2,517 2,507 (1,721) 445 2,507 2,952 177 2,455 2,952 5,407 288 6,529 5,407 11,936
() () () () 2 3 2 8 5 2 2 1 5 5 Cash generated during year 1 1 5,097 5,051 7,110 7,110 7,654 7,654 9,347 9,347 Cash at beginning of year Cash at end of year
Balance sheets
Particulars Soe hdu aei r r t e 'q h l sy Me i in n tt o r r e t ys i s L rb om nd ge t e t Pn ro os v i s i Seb hm o d r e t t r t Cli s uil r a r b e i nt t i e Total liabilities & equity Na e s td f s i xe et s Is t nn v s e t m e In ni ve es t o r Sd ue nb dt r o yr s L ae od a v na s n &s c Ca ie a s v s h ls he n & a cq t u Ca us r s r e e t ns t Dts e e at f ds t e x, r a r e e n FY10 FY11 FY12E FY13E
Key ratio
Particulars FY10 24.6 79.4 35.3 FY11 34.7 105.9 37.4 FY12E 37.3 133.9 31.1 FY13E 45.6 168.3 30.2
1 6 2 , 5 , 5 , 4, 9 EPS (INR) 2 1 2 3 8 7 7 4 1 4 5 4 0 3 9 6 2 6 9 1 9 2 ,1 01 7 8 , 6 , 2 , 6, 6 0 8 1 1 6 0 0 2 5 1 7 7 9 1 , 1 , 3 , 9, 6 9 2 5 2 2 2 3 6 9 1 7 BV Per Share (INR) ROE (%) Growth (%) Revenues
2 , 9 , 1 , 2, 2 EBITDA 8 2 3 9 3 4 2 6 6 9 4 6 , 0 , 5 , 3, 3 Net profit 7 8 6 9 9 1 5 7 2 7 7 3 36,293 44,545 54,624 68,828 EPS Margins (%) EBITDA 2 0 2 7 0 2 2 7 0 0 7 7 EBIT 7 , 4 , 9 , 6, 4 Net profit 5 8 1 1 0 1 0 2 1 4 4 3 1 4 , 8 , 2 , 3, 9 Valuation ratios 6 7 6 6 7 1 5 6 0 0 0 7 3 , 0 , 6 , 3, 2 P/E (x) 1 4 2 1 5 6 0 1 6 3 7 2 , 7 , 2 , 7, 6 5 2 0 9 5 1 5 4 1 0 9 3 1 7 2 , 9 , 9 , 9, 1 7 2 2 4 9 8 8 1 2 5 1 7 0 (4 1 (21 1 (2 1 (2 , 1 , 7 , 7, 7 1 ) 1 ) 1 1 ) ) 54,624 68,827 Price/BV(x) Market cap/sales (x) EV/sales (x) EV/EBITDA (x) Mcap/Sales (x) Earnings Yields (%)
1 9 2 , 6 , 6 , 5, 6 3 2 2 2 2 6 6 8 3 9 6 6 4
44,545
76
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Domestic revenue
Europe
LatAm
Japan
77
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
INR mn
800
20 10 0
Growth (YoY)
Emerging markets to add long term growth traction; LatAm to grow at 20%
CDH emerging markets business has grown at a CAGR of 23% over the past four years. CDH has a formidable presence in the LatAm market with Brazil being the main stay. CDH entered Brazil in 2005 and acquired Nikko's manufacturing and distribution operations in 2008. CDH currently has 16 products in the Brazilian market with 64 filings with 23 approvals. Brazil being one of the fastest growing pharma market and is already the largest market in Latin America, representing 38% of the market share. We expect CDH to demonstrate strong sales CAGR of ~21% over FY1114 contributing ~5% of sales in FY12.
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
INR mn
Europe
Growth (%)
79
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
INR mn
1 ,7 5 9 1 ,0 5 0 1 ,0 0 0 5 0 0 0 F Y 0 9 Zy y c do um s e N d F Y 1 0 Zo y s dp ui s r H a 9 9 9 8 3 9
2 ,2 1 5
7 5 8
5 5 6 F Y 1 1
Exhibit-94
Project ZYH1 ZYH2 ZYH7 ZYI1 ZY01 ZYT1 ZYOG1 ZYD1 ZYGL241 ZYGK1 ZYG19 ZYPH0907 Targets PPAR Alpha gamma PPAR Alpha gamma PPAR Alpha Multi-Modal CB-1 aatagonist TR-beta agonist Oral GLP-1 agonist GLP-1 agonist Oral GLP-1 agonist Glucokinase activator GPR-119 agonist PTH agonist Indication Dyslipidemia Diabetes Dyslipidemia Pain Obesity Dyslipidemia Diabetes Obesity Diabetes Obesity Diabetes Obesity Diabetes Diabetes Osteoprosis Drug Discovery Pre-Clinical Lead Optimization Development IND Phase I Phase II Phase III NDA
80
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Exhibit-97:1-year EV/EBITDA
300,000 250,000 INR mn 25x 20x 15x
INR mn
200,000 150,000
10x 100,000
A p r 0 9
A p r 0 6
O c t 0 6
O c t 0 7
A p r 0 7
A p r 0 8
O c t 0 8
O c t 0 9
A p r 1 0
O c t 1 0
A p r 1 1
2 0 0 0
50,000
D e c 0 5
J7 a n 0
J8 a n 0
J9 a n 0
S: o gIR o l b Ceh u o, r m na c e e Br S se M r t s c
S: o gIR o l b Ceh u o, r m na c e e Br S se M r t s c
J0 a n 1
J1 a n 1
81
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Financial statements
Revenue Mix
Particulars (INR mn) A. Domestic 1. Formulations adm . aFa B ot rd l n nr i e u o s b i rt .n m Goi eFa e u r c ln o s 2 .I A P s 3e .e W ls ls n 4 la t .i H h AeO n l m& at hr e s B. Exports 1. Formulations a . U S be .r E u o p cn .p J a a dg r . eM Egt m k r a i ne s L e a r tm i nc A i a O t h e r s 2. APIs C. JV 1H0 . d p% Z o5 ys ui s r ) a ( 2 N( ) . do 0 Zy 5 yc um s e d % Total FY10 18,724 14,458 1 3 ,5 6 2 8 3 3 3 1 8 2 ,5 6 7 1 ,3 2 7 15,821 13,179 6 ,5 7 1 2 ,0 7 4 3 1 6 3 ,8 4 0 1 ,8 8 1 1 ,0 5 9 2,642 1,597 8 3 9 7 5 8 36,142 FY11 22,325 17,146 1 6 ,0 2 0 9 4 6 3 5 2 3 ,5 3 5 1 ,2 4 7 20,178 17,062 9 ,5 6 5 2 ,5 7 5 4 2 2 4 ,0 2 3 2 ,0 2 5 1 ,0 9 8 3,116 2,708 2 ,2 1 5 5 5 6 45,211 FY12E 26,201 20,014 1 8 ,4 9 5 1 ,0 0 6 3 8 7 4 ,3 0 9 1 ,8 7 0 25,202 21,618 1 3 ,4 0 3 3 ,1 0 3 5 9 1 4 ,3 9 6 2 ,5 7 4 2 ,8 2 1 3,583 3,150 2 ,2 5 8 5 6 7 54,552 FY13E 30,763 23,363 2 2 ,6 1 7 1 ,7 1 8 4 2 6 4 ,4 9 9 1 ,1 9 8 31,710 27,590 1 7 ,6 5 9 3 ,4 3 3 8 2 7 5 ,3 8 3 3 ,9 3 4 2 ,4 4 8 4,121 3,806 3 ,8 2 2 5 7 8 66,280
Source: Company, SMC Inst. Research
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Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Balance sheet
Particulars (INR mn) Equity Capital Reserves and surplus Shareholders' funds Minority interests Long-term debt Short-term debt Total Debts Others Total Liabilities Intangible Assets Gross block Depreciation & Amortization Net block Capital WIP Total fixed assets Investments Inventories Sundry debtors Cash equivalents Other current assets Total current assets Sundry creditors Provisions Total current liabilities Net current assets Deferred tax asset, net Miscellaneous expenditure Total Assets 27,582 5,818 14,890 4,403 10,487 2,111 19,326 207 7,504 4,668 2,507 17,799 6,760 1,951 8,711 9,088 (1,141) 102 27,582 33,357 5,654 17,285 5,255 12,030 3,441 22,636 207 8,119 7,652 2,952 22,829 8,955 2,233 11,188 11,641 (1,127) 33,357 42,232 7,044 23,276 6,065 17,212 1,199 26,965 207 10,436 7,603 5,407 28,579 9,773 2,619 12,392 16,187 (1,127) 42,232 53,118 7,276 25,544 6,884 18,660 1,199 28,646 207 12,414 10,079 11,936 41,101 12,733 2,976 15,709 25,392 (1,127) 53,118
Source: Company, SMC Inst. Research
83
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
84
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Key ratios
Particulars Key Operating Ratios EPS (INR) CEPS Book Value per share RoE (%) RoCE (%) Valuation Ratios P/E (x) P/Sales (x) P/B EV/Sales (x) EV/ EBIDTA (x) MCap/Sales Du Pont Analysis Tax burden (Net income/PBT) (%) Interest burden (PBT/EBIT) (%) EBIT margin (EBIT/Revenues) (%) Asset Turnover (Revenues/Avg TA) (%) Leverage (Avg TA/Avg equtiy) (%) Du Pont RoE (%) 30.8 4.2 9.6 2.5 11.3 4.2 FY10 83.6 89.5 18.3 107.7 239.1 35.3 21.9 3.4 7.2 2.1 9.4 3.4 FY11 84.4 93.7 19.4 114.6 212.7 37.4 20.3 2.8 5.7 3.0 14.8 2.8 FY12E 82.3 93.5 17.9 112.1 201.7 31.1 16.6 2.3 4.5 2.4 12.1 2.3 FY13E 82.8 93.3 18.3 107.4 199.3 30.2
Source: Company, SMC Inst. Research
FY10
FY11
FY12E
FY13E
85
Pharmaceuticals | Thematic | India Research Wind of change - US opportunity dips; India and EMs shine Institutional Equities
Key to ratings
Ratings Outperformer Underperformer Definition ESR is greater than EMR + 5% ESR is lesser than EMR - 5%
Notes: ESR = Expected Security Return EMR = Expected Market Return, defined as 1 year domestic yield + 5% (as a proxy for market risk premium)
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