alembic pharmaceuticals ltd. absolute: short ), tp( ), rating( … · 2018. 12. 19. · alembic...

December 12, 2018 Analyst: Bharat Celly (+91-9998580991/+91-7961909524), Praful Bohra(+91-9819915604/+91-7961909532) of 10

Before reading this report, you must refer to the disclaimer on the last page.

Alembic Pharmaceuticals Ltd. Absolute: Short

Relative: Underweight

Update Note: Estimate(), TP(), Rating() Regular Coverage 13% downside in 16 Months

Near-to-mid term pipeline completely factored in — assign SHORT Pharmaceuticals

© 2017EquirusAll rights reserved

Rating Information

Price (Rs) 617

Target Price (Rs) 514

Target Date 31stMar’20

Target Set On 12th Dec'18

Implied yrs of growth (DCF) 20

Fair Value (DCF) 500

Fair Value (DDM) 153

Ind Benchmark BSETHC

Model Portfolio Position NA

Stock Information

Market Cap (Rs Mn) 1,16,380

Free Float (%) 27.04 %

52 Wk H/L (Rs) 664/412.4

Avg Daily Volume (1yr) 1,05,847

Avg Daily Value (Rs Mn) 58

Equity Cap (Rs Mn) 377

Face Value (Rs) 2

Bloomberg Code ALPM IN

Ownership Recent 3M 12M

Promoters 73.0 % 0.0 % 0.3 %

DII 5.6 % 0.0 % 1.8 %

FII 9.3 % 0.6 % -1.1 %

Public 12.2 % -0.6 % -1.0 %

Price % 1M 3M 12M

Absolute 4.2 % -3.7 % 17.6 %

Vs Industry 9.4 % 9.5 % 19.1 %

Vs IPCA 10.8 % 2.4 % 43.1 %

Vs Torrent 7.5 % 0.9 % 32.3 %

Consolidated Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (18A) 3.5 6.4 6.9 5.0

EPS (19E) 4.8 10.6 7.7 5.7

Our analysis of Alembic’s (ALPM) US pipeline suggests that (a) the near-term pipeline is

weak and majorly commoditized, (b) filings from newly-built facilities of oncology,

injectables, dermatology and ophthalmic are yet to pick up, and (c) key niche launches

are lined up only towards FY20/FY21-end. A weak pipeline, long gestation periods for

newly-build facilities, along with receding tailwinds from high-value Valsartan

revenues indicate pressures and muted return ratios for ALPM in the near-to-mid term.

At current valuations (22x/25x FY19E/FY20E P/E), the stock fully factors in the

company’s near-to-mid term pipeline, leading us to assign a SHORT rating (REDUCE

earlier) with a Mar’20 TP of Rs 514 (Rs 536 earlier) set at 21x P/E.

US near-to-mid term pipeline bleak: ALPM has 79 ANDAs pending approval (incl. 13

tentative approvals). Our analysis of the pipeline suggests that most products are

commoditized and a few niche ANDAs (gAdempas, gViibryd, gBosufil) are expected

towards FY20/FY21E-end; besides, the long-awaited niche ANDA gElmiron launch could

see further delays owing to the product’s inherent complexity. Also, as new filings from

injectable facilities and the Aleor plant (only two filed) haven’t begun yet, the US

business would likely see near-to-mid term pressure. We expect injectable launches to

begin sometime during FY22, by when competitive intensity in the overall injectables

market could heighten significantly with smaller players already targeting the space.

Capex nearing end; monetization still a while away: ALPM would complete its

Rs 20bn investment (Rs 6bn to be invested in FY19E) by FY20E-end, which is allocated

towards new facilities, viz. oncology injectables, general injectables, dermatology and

oral solid plants. However, we believe monetization is still far away as the filings from

these plants are yet to pick up. Through the Aleor plant (USFDA approved), ALPM has

filed only two products till Sep’18; this apart, batch studies from injectable facilities

(general and oncology) would begin from 2HFY19 and filings would be done thereafter.

This implies monetization would begin from the fag-end of FY21E.

Returns to be suppressed; valuations discount mid-to-near term pipeline: We

expect ALPM’s ROEs/ROICs to decline from 20%/17% in FY18 to 16/13% in FY20E owing

to (a) a dearth of high-value products in the pipeline, (b) new project monetization

still being a while away, and (c) base business likely seeing sharp erosion as high-value

Valsartan revenues decline. We feel current valuations (22x/25x FY19E/FY20E) fully

factor in the near-to-mid term pipeline. Assign SHORT (vs. REDUCE earlier) with a

Mar’20 TP of Rs 514 (Rs 536 earlier) set at 21x P/E.

Estimate Revision

Forecasts % Change

(Rs mn) FY19E FY20E FY19E FY20E

Sales 39,829 43,945 0% 2%

EBITDA 8,394 7,769 -1% -2%

PAT 5416 4618 -1% -4%

EPS 29 24 -1% -4%

Consolidated Financials

Rs. Mn YE Mar FY18A FY19E FY20E FY21E

Sales 31,308 39,829 43,945 48,070

EBITDA 6,413 8,394 7,769 8,605

Depreciation 1,055 1,198 1,714 1,968

Interest Expense 34 119 212 279

Other Income 88 64 78 123

Reported PAT 4,131 5,416 4,618 5,055

Recurring PAT 4,131 5,416 4,618 5,055

Total Equity 22,201 26,349 29,886 33,758

Gross Debt 7,078 9,078 7,078 5,078

Cash 899 1,030 701 1,928

Rs. Mn YE Mar FY18A FY19E FY20E FY21E

Earnings 21.9 28.7 24.5 26.8

Book Value 118 140 159 179

Dividends 4.0 5.7 4.9 5.4

FCFF -30.2 -2.7 15.5 24.5

P/E (x) 28.2 21.5 25.2 23.0

P/B (x) 5.2 4.4 3.9 3.4

EV/EBITDA (x) 19.3 14.9 15.9 14.0

ROE (%) 20 % 22 % 16 % 16 %

Core ROIC (%) 17 % 17 % 13 % 14 %

EBITDA Margin (%) 20 % 21 % 18 % 18 %

Net Margin (%) 13 % 14 % 11 % 11 %

Alembic Pharma Absolute – Short Relative – Underweight 13% downside in 16 Months


Exhibit I: Para IV filings:

Brand name Generic Name

Addressable

Market

(US$)

No of generic

companies

targeting

Likely launch

date

Annualised

Alembic sales

(US$)

Comments

Gilenya Fingolimod 1709 Commoditized Feb-19 4.3

Mylan stated there are multiple Para-IVs & FTFs who filed on the latest patent, but

as none was litigated, their litigation cases are not showing up. Some Para-IV filers

include Actavis, Hec, Mylan, Apotex, Torrent and Ezra Ventures. Apotex and Torrent

had filed PTAB on patent ‘283 expiring in 2026. IPR ruled the patent invalid and thus

generics can enter post expiry of patent ‘229 (Feb’19).

Cialis Tadalafil 1359 Commoditized Mar-19 6.8

Teva is FTF, while other Para-IV filers include Actavis, Alembic, Aurobindo, Accord,

Ajanta, Apotex, Cipla, Cadila, Mylan and Sun. IPR invalidated patents ‘975 and ‘958,

with only ‘166 (expiring in Apr’20) being contested. All players settled their

litigation and as per settlement, all will launch in Mar’19 while Teva (FTF) could

launch in Sep’18.

Lyrica Pregabalin 3463 Commoditized Jun-19 8.7

Para-IVs were filed by 11 companies, viz. Sun, Lupin, Novel (now lupin), Apotex,

Teva, Actavis, Cobalt, Wockhardt, Mylan (Alpharm) and Alembic. All companies lost

the litigation on the latest patent, except Apotex whose litigation got dismissed.

Since dismissal came after the Federal Circuit’s verdict, we don't see Apotex

launching before patent expiry. We expect all companies to launch the generic

together in Jun’19.

Adempas Riociguat 164 3 Oct-20 24.6

Alembic, Teva and MSN are FTFs. Alembic has patent litigation over ‘798 (expiring in

Jul’19) , while Teva and MSN filed on ‘037 expiring in Apr’23. Alembic wasn't sued

for 037 and is no longer contesting the patent. Thus, we believe Alembic can launch

soon after the ODE expires in Oct’20. While Teva’s litigation was settled, the terms

are unknown. MSN’s litigation is still ongoing.

Saphris Asenapine Maleate 167 5 Nov-20 6.3

Forest was notified about the Para-IV filing on Saphris one year after the Para-IV

notification to FDA. Sigma, Hikma, Breckenridge seem to be FTFs and filed Para-IVs

over patent ‘476 (on 9 Jun’20). Sigma and Hikma were also litigated for ‘358 (on 6

Apr’26), while Alembic and Amneal filed Para-IV and were litigated for ‘476. A

judgment was issued in favor of Forest where the District Court ruled patent ‘476 as

valid and infringed by all defendants. It was later appealed, and the case is still sub-

judice. Alembic will launch the generic six months after FTFs.

Viibryd Vilazodone

Hydrochloride 333 5 Jan-22 20.0

Apotex, Accord, Teva, Alembic and Cipla (Invagen) are the first to file Para-IVs over

patents ‘020, ‘195, ‘804 and ‘921 — with all expiring on 5 Jun’22. Argentum filed

IPR, which was denied. Cases for all generic players (except Argentum) were

dismissed. Settlement allows companies to launch six months prior to last patent

expiring in Jun’22, i.e. during Jan’22.




Addressable

Market

(US$)

No of generic

companies

targeting

Likely launch

date

Annualised

Alembic sales

(US$)

Comments

Toviaz FESOTERODINE

FUMARATE 215 Commoditized Jan-22 0.5

13 companies had filed Para-IVs, of which 8 companies settled the litigation

(including Cadila, Lupin Alkem, Wockhardt, Mylan Dr Reddy's), but terms are

unknown. Rest, Sandoz, Accord, Amerigen, Amneal continued with their Para-IV

litigations but ended up losing. Alkem and Sandoz are FTFs and will continue to hold

180-day exclusivity as the innovator never contested patents expiring in 2027.

Mylan, Torrent, Alembic and Amerigen also contested ‘650 in IPR, but lost. We

expect Fesoterodine Fumarate to be a genericized launch in Jan’22, six months

prior to patent expiry, mainly owing to the settlement.

Vimpat Lacosamide 620 Commoditized Mar-22 1.6

12 companies are FTFs, including Cadila, Alembic, Amneal, Aurobindo, Sun, and

Hetero. Other Para-IV filers are Ranbaxy, Glenmark and Sciegen. Sciegen, Hetero,

Teva, Ranbaxy and Glenmark converted their Para-IV into Para-III filings. Sandoz has

settled the litigation. Generis lost in District Court but later appealed to Federal

Circuit, which also affirmed the District Court’s decision. No player can launch

before patent expiry in Mar’22.

Aubagio Teriflunomide 1084 Commoditized Mar-23 2.7

18 companies are FTFs, including Torrent, Alembic, Cadila, Aurobindo, Biocon,

Emcure, Glenmark and MSN. All companies were sued with their 30-month stay

expiring in Mar’20. Cadila has not filed Para-IV on earliest patent ‘410 (expiring in

Sep’26). All companies have settled to launch on 12 Mar’23.

Uloric Febuxostat 430 Commoditized Aug-23 1.1

9 companies are FTFs, including Alembic, DRL, Lupin, Sun and Unimark. Two other

ANDA filers are Prinston and Macleods. All companies settled the litigation but the

terms of settlement are unknown. We expect Alembic to launch 6 months before

the patent ‘676 expires i.e. in Feb’24. We expect it to be a commoditized launch.

Myaln and Alembic have TA.

Xarelto RIVAROXABAN 750 Commoditized After 2024 1.9

7 companies, viz. Torrent, Sigpharm, Aurobindo, Micro, Breckenridge, Mylan,

Prinston are Para-IV filers and FTFs. Later, Invagen, Teva, Taro, Lupin and Alembic

also filed Para-IVs. Teva, Alembic, Taro, Lupin filed Para-IVs only on patent ‘218

expiring in 2034, while all FTFs had filed Para-IVs on patents expiring earlier but

ended by losing the litigation. Case on ‘218 against every company (except Mylan) is

ongoing, while the case with Mylan was dismissed. Mylan had filed IPR on patents

‘456, ‘860 and ‘339, but was not institutionalized. In the best case, Alembic can't

launch before 2024.




Addressable

Market

(US$)

No of generic

companies

targeting

Likely launch

date

Annualised

Alembic sales

(US$)

Comments

Staxyn Vardenafil

Hydrochloride 8 Commoditized Dec-28 0.8

Watson is the FTF with Para-IV over patents '178 and '206 (both expiring on 31

Oct’18), and was subsequently litigated by Bayer. Par also filed Para-IV over same

patents as Watson. Further, a new patent was listed for Staxyn viz. '950 (23 Dec’28).

Thus, Par and Watson filed a new Para-IV over patent '950 and were subsequently

litigated. Almost three years after first-time filers, Macleods and Alembic filed Para-

IVs on patent '950 (23 Dec’28) and were subsequently litigated. On the expiry of a

30-month stay, the court ruled in favor of Bayer, stating all three patents in issue

are valid and infringed by Actavis and Par. Later, cases for Alembic and Macleods

also got dismissed. We do not expect any generic launch prior to '950 expiry i.e.

Dec’28.

Multaq Dronedarone

Hydrochloride 326 Commoditized Apr-29 2.3

9 companies filed Para-IVs including Alembic, Sun, First Time US generics, and

Aurobindo. All generics lost the litigation on patents '800 and '167 and thus can't

launch any time prior to Apr’29. Later, Federal Circuit also affirmed the District

Court ruling.

Brilinta Ticagrelor 509 Commoditized Settled; terms

unknown. 3.6

8 ANDA filers are FTFs (including Alembic among Indian players). Other Para-IV filers

include Amneal. Litigations with Micro, Alembic, Sandoz, Prinston, Mylan and Sigma

were later dismissed. Terms of settlement are unknown. Patents under litigation

were '910, '060, '419, '124 and '934, with all of them expiring between Jul’18 and

Apr’30.

Trintellix Vortioxetine 591 Commoditized Litigation Ongoing 4.1

Multiple players (~14 generic players) filed ANDA (incl. Unichem, Alembic, Lupin,

Cadila, Torrent, and Hetero); of this, 8 players including Alembic, Cadila, Alkem are

FTFs. All companies are under a 30-month stay which will be lifted by May’20.

Therefore, no company can launch their generic version prior to that.

Latisse Bimatoprost 75 4 to 5 Litigation Ongoing 3.4

Sandoz has already launched its generic version. Sandoz is litigated for ‘270 patent

which was issued later in Mar’17. Alembic filed in Aug’17, and its 30-month stay will

last till Feb’20. Apotex and Hi-tech already have an approval. Actavis (now Teva)

also have won litigations and can launch on approval.

Bosulif Bosutinib

Monohydrate 156 2 Litigation Ongoing 19.5

Sun and Alembic are the first to file Para-IVs on patents on '148 (Jan 23, 2026) and

'678 (Nov 23, 2026), and were subsequently litigated. The 30-month stay over FTFs

expires in May’19. Later, MSN filed Para-IV over '678 (Nov 23, 2026). MSN’s case was

dismissed.

JARDIANCE/GLYXAMBI/SYNJARDY EMPAGLIFLOZIN 290 Commoditized Litigation Ongoing 0.7 15 companies have filed Para-IVs and all are FTFs. Litigation against all companies is

still ongoing. The 30-month stay expires in Mar’21.



Exhibit II: DMF filings

Brand name Generic Name Addressable Market (US$) Annualised Alembic sales

(US$) Comments

Zithromax AZITHROMYCIN 132 3.2 Patents expired. 7 companies are present in the market.

Elmiron PENTOSAN POLYSULFATE SODIUM 300 27.0 All patents expired. No generic could launch yet.

Aciphex RABEPRAZOLE SODIUM 72 1.9 No patent protecting the drug. Alembic can launch on approval. A handful of companies

(~10) have already launched the product.

Plavix CLOPIDOGREL BISULFATE USP 131 2.1 A handful of companies (~16) have approval. Innovator is no longer protecting the

patent, and players can launch on approval.

Tracleer BOSENTAN 70 0.4

All patents have already expired. Natco's commentary suggested there will be a handful

of companies in the product. Actavis, Apotex, Lupin (Natco) and Westward are targeting

the drug.

Sular NISOLDIPINE 20 6.4 Long-awaited product for Alembic. Mylan has launched its generic version. All patents

have already expired.

Plendil FELODIPINE USP 111 1.8 All patents expired and a handful of companies (12) have already launched the product.

Vesicare SOLIFENACIN SUCCINATE 1100 2.8 Teva launched in Oct’18 as per settlement. Cipla and Auro converted from Para-IV to

Para III. Alembic will launch on patent expiry. 11 companies have tentative approvals.

Effient PRASUGREL HYDROCHLORIDE 607 3.0 6 companies have already launched. Patents invalidated. Alembic can launch on

approval. There were 17 ANDA filers in total.

Exjade DEFERASIROX 515 5.4 3 ANDA filers. All have settled their litigations. We believe Alembic will launch after

ODE expires in Jan’20. 4 companies viz. Torrent, Bionpharm, Zydus and Actavis have TA.

Rapaflo SILODOSIN 199 3.0 Currently, 6 players are present in the market. All patents have already expired.

Alembic can launch on approval.

Toprol-XL METOPROLOL SUCCINATE USP 464 4.6 All patents have expired. 7 players have already got approvals.

Topamax TOPIRAMATE USP 156 0.9 A handful of companies (13) already have approval and have launched the product.

Alembic can also launch on approval.



Company Snapshot

How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY19E 28.7 29.3 -2 % We expect monetization of new facilities

in FY21. FY20E 24.5 33.3 -26 %

Sales FY19E 39,829 42,873 -7 %

FY20E 43,945 42,297 4 %

PAT FY19E 5,416 5,493 -1 %

FY20E 4,618 6,340 -27 %

Investment Argument

• There could be a further delay in the launch of high-value products like Elmiron,

Sular and Toprol XL, which are expected to drive revenue and earnings growth.

• Declining domestic market focus may impact growth. The number of first-time

launches has been very thin in the recent past whereas ALPM’s big brands (Azithral)

have seen price declines. The combined impact could result in lower growth.

Risk to Our View

• USD/INR below 70

• Approvals earlier than expected by us

• Regulatory issues related to USFDA

Key Triggers:

• FDC ban implementation as well as more product addition under NLEM may impact

domestic sales

Sensitivity to Key Variables % Change % Impact on EPS

Revenue -1 % 1 %

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

7.7 % 0.7 11.9 % 2.5 % 13.4 %

- FY19E FY20E FY21-23E FY24-28E FY29-38E

Sales Growth 27 % 10 % 8 % 8 % 6 %

NOPAT Margin 14 % 11 % 11 % 12 % 13 %

IC Turnover 1.13 1.19 1.41 1.70 1.70

RoIC 17.0 % 13.1 % 15.0 % 21.1 % 22.0 %

Years of strong growth 1 2 5 10 20

Valuation as on date (Rs) 321 230 300 395 432

Valuation as of 31st Mar’20 371 266 348 457 500

Based on DCF, assuming 20 years of ~10% CAGR sales growth and ~20% average ROIC, we

derive current fair value of Rs 432 and 31Mar’20 fair value of Rs500.

Company Description: Alembic is one of the oldest pharmaceutical companies in India,

started in 1907. Over the last 4 years, the company has launched new specialty (chronic)

therapies like ophthalmology, cardiology, diabetology, GI, gynaecology and derma in

domestic market which are likely to sustain its domestic growth momentum. The

company has 1 USFDA approved formulation facility and 3 USFDA approved API plants.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY18A FY18E FY20E FY18A FY18E FY20E FY18A FY18E FY18A FY18E FY20E FY18A FY18E

Alembic Pharma Reduce 617 1,16,380 514 31stMar’20 21.9 28.7 24.5 28.2 21.5 25.2 117.8 4.4 20 % 22 % 16 % 0.6 % 0.9 %

IPCA Ltd ADD 788 99,565 879 31st Mar’20 20.1 31.2 41.8 37.4 24.1 18.0 213.0 3.1 10 % 14 % 16 % 0.1 % 0.4 %

Torrent Pharma ADD 1,768 2,99,176 1,730 31st Mar’20 39.9 47.6 64.1 40.9 34.3 25.4 271.9 5.4 15 % 17 % 20 % 0.9 % 0.8 %



Consolidated Quarterly Earnings Forecast and Key Drivers

Rs in Mn 1Q18A 2Q18A 3Q18A 4Q18A 1Q19A 2Q19A 3Q19E 4Q19E 1Q20E 2Q20E 3Q20E 4Q20E FY18A FY19E FY20E FY21E

Revenue 6,482 7,893 8,400 8,533 8,625 11,271 10,300 9,633 10,617 11,249 11,158 10,921 31,308 39,829 43,945 48,070 Cost of Goods Sold (COGS) 1,820 2,133 2,264 2,638 2,554 2,721 3,090 2,890 3,185 3,375 3,348 3,276 8,856 11,255 13,183 14,290

Employees' Cost 1,585 1,595 1,474 1,573 1,650 1,826 1,800 1,800 1,847 2,064 2,034 2,034 6,228 7,076 7,979 8,937

Other Expenditure 1,122 1,392 1,805 1,379 1,697 2,253 2,000 2,100 2,300 2,300 2,300 2,400 5,698 8,050 9,300 10,230

R&D Expenses 940 981 981 1,211 1,215 1,447 1,236 1,156 1,380 1,462 1,451 1,420 4,113 5,054 5,713 6,009

EBITDA 1,014 1,792 1,875 1,732 1,510 3,023 2,174 1,687 1,904 2,048 2,026 1,791 6,413 8,394 7,769 8,605 Depreciation 218 257 264 316 276 286 318 318 429 429 429 429 1,055 1,198 1,714 1,968 EBIT 796 1,535 1,611 1,417 1,234 2,737 1,856 1,369 1,475 1,620 1,598 1,362 5,359 7,196 6,055 6,637 Interest 9 4 8 13 16 58 23 23 53 53 53 53 34 119 212 279 Other Income 2 77 3 6 1 24 20 20 20 20 20 20 88 64 78 123 PBT 789 1,608 1,606 1,410 1,219 2,703 1,853 1,366 1,442 1,586 1,564 1,329 5,413 7,141 5,921 6,480 Tax 155 366 298 385 315 703 408 301 317 349 344 292 1,204 1,727 1,303 1,426 PAT bef. MI & Assoc. 634 1,243 1,308 1,024 904 2,000 1,445 1,066 1,125 1,237 1,220 1,036 4,209 5,414 4,618 5,055 Minority Interest 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Profit from Assoc. 33 -27 0 -85 1 1 0 0 0 0 0 0 -78 2 0 0 Recurring PAT 667 1,216 1,308 940 904 2,001 1,445 1,066 1,125 1,237 1,220 1,036 4,131 5,416 4,618 5,055 Extraordinaries 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Reported PAT 667 1,216 1,308 940 904 2,001 1,445 1,066 1,125 1,237 1,220 1,036 4,131 5,416 4,618 5,055

EPS (Rs) 3.54 6.45 6.94 4.99 4.80 10.61 7.67 5.65 5.97 6.56 6.47 5.50 21.91 28.73 24.50 26.81

Key Drivers

Total Domestic Formulations 2,360 3,850 3,490 3,040 3,310 3,850 3,650 3,405 3,707 4,312 4,088 3,813 12,740 14,215 15,921 17,831 Total International Formulations 2,820 2,620 3,110 3,520 3,520 5,870 5,050 4,628 5,019 5,309 5,390 5,427 12,070 19,068 21,147 23,018 API 1,300 1,420 1,800 1,980 1,800 1,550 1,600 1,600 1,890 1,628 1,680 1,680 6,500 6,825 6,878 7,221 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

Sequential Growth (%)

Revenue -12 % 22 % 6 % 2 % 1 % 31 % -9 % -6 % 10 % 6 % -1 % -2 % - - - - Cost of Goods Sold (COGS) -9 % 17 % 6 % 16 % -3 % 7 % 14 % -6 % 10 % 6 % -1 % -2 % - - - - EBITDA -25 % 77 % 5 % -8 % -13 % 100 % -28 % -22 % 13 % 8 % -1 % -12 % - - - - EBIT -29 % 93 % 5 % -12 % -13 % 122 % -32 % -26 % 8 % 10 % -1 % -15 % - - - - Recurring PAT -28 % 82 % 8 % -28 % -4 % 121 % -28 % -26 % 6 % 10 % -1 % -15 % - - - -

EPS -28 % 82 % 8 % -28 % -4 % 121 % -28 % -26 % 6 % 10 % -1 % -15 % - - - -

Yearly Growth (%)

Revenue -11 % -10 % 9 % 16 % 33 % 43 % 23 % 13 % 23 % 0 % 8 % 13 % 0 % 27 % 10 % 9 % EBITDA -35 % 1 % 29 % 29 % 49 % 69 % 16 % -3 % 26 % -32 % -7 % 6 % 4 % 31 % -7 % 11 % EBIT -42 % -2 % 30 % 26 % 55 % 78 % 15 % -3 % 20 % -41 % -14 % -1 % 1 % 34 % -16 % 10 % Recurring PAT -35 % 2 % 51 % 2 % 36 % 65 % 10 % 13 % 24 % -38 % -16 % -3 % 3 % 31 % -15 % 9 %

EPS -36 % 1 % 51 % 1 % 36 % 65 % 10 % 13 % 24 % -38 % -16 % -3 % 3 % 31 % -15 % 9 %

Margin (%)

EBITDA 16 % 23 % 22 % 20 % 18 % 27 % 21 % 18 % 18 % 18 % 18 % 16 % 20 % 21 % 18 % 18 % EBIT 12 % 19 % 19 % 17 % 14 % 24 % 18 % 14 % 14 % 14 % 14 % 12 % 17 % 18 % 14 % 14 % PBT 12 % 20 % 19 % 17 % 14 % 24 % 18 % 14 % 14 % 14 % 14 % 12 % 17 % 18 % 13 % 13 %

PAT 10 % 15 % 16 % 11 % 10 % 18 % 14 % 11 % 11 % 11 % 11 % 9 % 13 % 14 % 11 % 11 %



Consolidated Financials P&L (Rs Mn) FY18A FY19E FY20E FY21E Balance Sheet (Rs Mn) FY18A FY19E FY20E FY21E Cash Flow (Rs Mn) FY18A FY19E FY20E FY21E

Revenue 31,308 39,829 43,945 48,070 Equity Capital 377 377 377 377 PBT 5,413 7,141 5,921 6,480

Op. Expenditure 24,895 31,435 36,175 39,465 Reserve 21,824 25,972 29,509 33,381 Depreciation 1,055 1,198 1,714 1,968

EBITDA 6,413 8,394 7,769 8,605 Networth 22,201 26,349 29,886 33,758 Others -183 0 0 0

Depreciation 1,055 1,198 1,714 1,968 Long Term Debt 7,078 9,078 7,078 5,078 Taxes Paid 1,351 1,727 1,303 1,426

EBIT 5,359 7,196 6,055 6,637 Def Tax Liability 971 971 971 971 Change in WC -1,809 -1,215 -1,081 -1,113

Interest Expense 34 119 212 279 Minority Interest 3 3 3 3 Operating C/F 3,124 5,397 5,252 5,910

Other Income 88 64 78 123 Account Payables 7,593 9,650 11,304 12,253 Capex -8,858 -6,000 -2,500 -1,500

PBT 5,413 7,141 5,921 6,480 Other Curr Liabi 1,564 1,315 1,315 1,315 Change in Invest 0 0 0 0

Tax 1,204 1,727 1,303 1,426 Total Liabilities & Equity 39,410 47,367 50,558 53,379 Others 14 -2 0 0

PAT bef. MI & Assoc. 4,209 5,414 4,618 5,055 Net Fixed Assets 20,035 24,837 25,623 25,155 Investing C/F -8,844 -6,002 -2,500 -1,500

Minority Interest 0 0 0 0 Capital WIP 0 0 0 0 Change in Debt 6,191 2,000 -2,000 -2,000

Profit from Assoc. -78 2 0 0 Others 1,128 1,128 1,128 1,128 Change in Equity 0 -2 0 0

Recurring PAT 4,131 5,416 4,618 5,055 Inventory 7,339 9,251 10,836 11,745 Others -1,164 -1,265 -1,081 -1,183

Extraordinaires 0 0 0 0 Account Receivables 5,263 6,696 7,388 8,081 Financing C/F 5,026 733 -3,081 -3,183

Reported PAT 4,131 5,416 4,618 5,055 Other Current Assets 4,746 4,425 4,883 5,341 Net change in cash -693 128 -329 1,227

FDEPS (Rs) 21.9 28.7 24.5 26.8 Cash 899 1,030 701 1,928 RoE (%) 20 % 22 % 16 % 16 %

DPS (Rs) 4.0 5.7 4.9 5.4 Total Assets 39,410 47,367 50,558 53,379 RoIC (%) 16 % 17 % 13 % 14 %

CEPS (Rs) 27.5 35.1 33.6 37.3 Non-cash Working Capital 8,191 9,406 10,487 11,599 Core RoIC (%) 17 % 17 % 13 % 14 %

FCFPS (Rs) -30.2 -2.7 15.5 24.5 Cash Conv Cycle 95.5 86.2 87.1 88.1 Div Payout (%) 22 % 23 % 23 % 23 %

BVPS (Rs) 117.8 139.8 158.5 179.1 WC Turnover 3.8 4.2 4.2 4.1 P/E 28.2 21.5 25.2 23.0

EBITDAM (%) 20 % 21 % 18 % 18 % FA Turnover 1.6 1.6 1.7 1.9 P/B 5.2 4.4 3.9 3.4

PATM (%) 13 % 14 % 11 % 11 % Net D/E 0.3 0.3 0.2 0.1 P/FCFF -20.4 -226.3 39.9 25.1

Tax Rate (%) 22 % 24 % 22 % 22 % Revenue/Capital Employed 3.2 2.7 2.3 1.9 EV/EBITDA 19.3 14.9 15.9 14.0

Sales Growth (%) 0 % 27 % 10 % 9 % Capital Employed/Equity 1.3 1.2 1.1 1.2 EV/Sales 3.9 3.1 2.8 2.5

FDEPS Growth (%) 3 % 31 % -15 % 9 % Dividend Yield (%) 0.6 % 0.9 % 0.8 % 0.9 %

TTM P/E vs. 2 yr forward EPS growth TTM EV/EBITDA vs. 2 yr forward EBITDA growth TTM P/B vs. 2 yr forward RoE



Historical Consolidated Financials P&L (Rs Mn) FY15A FY16A FY17A FY18A Balance Sheet (Rs Mn) FY15A FY16A FY17A FY18A Cash Flow (Rs Mn) FY15A FY16A FY17A FY18A

Revenue 20,561 31,404 31,160 31,308 Equity Capital 377 377 377 377 PBT 3,591 9,356 5,291 5,413

Op. Expenditure 16,532 21,344 25,013 24,895 Reserve 8,469 15,597 18,634 21,824 Depreciation 444 722 830 1,055

EBITDA 4,030 10,060 6,147 6,413 Networth 8,846 15,974 19,011 22,201 Others 2 -149 0 -183

Depreciation 444 722 830 1,055 Long Term Debt 2,385 1,137 802 7,078 Taxes Paid 694 1,970 1,180 1,351

EBIT 3,585 9,338 5,318 5,359 Def Tax Liability 536 840 1,067 971 Change in WC -1,625 1,346 -1,656 -1,809

Interest Expense 18 37 46 34 Minority Interest 0 0 0 3 Operating C/F 1,718 9,304 3,286 3,124

Other Income 23 55 19 88 Account Payables 3,109 5,657 5,232 7,593 Capex -2,235 -3,036 -4,907 -8,858

PBT 3,591 9,356 5,291 5,413 Other Curr Liabi 1,535 678 753 1,564 Change in Invest -342 -81 36 0

Tax 763 2,160 1,222 1,204 Total Liabilities & Equity 16,412 24,286 26,866 39,410 Others 21 13 12 14

PAT bef. MI & Assoc. 2,827 7,196 4,069 4,209 Net Fixed Assets 6,300 8,006 11,957 20,035 Investing C/F -2,556 -3,105 -4,859 -8,844

Minority Interest 0 0 0 0 Capital WIP 0 0 0 0 Change in Debt 1,572 -1,262 -386 6,191

Profit from Assoc. 0 0 -39 -78 Others 23 834 1,199 1,128 Change in Equity 0 0 0 0

Recurring PAT 2,827 7,196 4,030 4,131 Inventory 3,828 5,698 6,328 7,339 Others -705 -697 -903 -1,164

Extraordinaires 0 0 0 0 Account Receivables 3,612 3,505 3,374 5,263 Financing C/F 867 -1,959 -1,289 5,026

Reported PAT 2,827 7,196 4,030 4,131 Other Current Assets 2,381 1,735 2,413 4,746 Net change in cash 28 4,240 -2,862 -693

EPS (Rs) 15.0 38.2 21.4 21.9 Cash 268 4,508 1,596 899 RoE (%) 36 % 58 % 23 % 20 %

DPS (Rs) 3.5 4.0 4.0 4.0 Total Assets 16,412 24,286 26,866 39,410 RoIC (%) 29 % 49 % 21 % 16 %

CEPS (Rs) 17.4 42.0 25.8 27.5 Non-cash Working Capital 5,177 4,603 6,129 8,191 Core RoIC (%) 29 % 57 % 25 % 17 %

FCFPS (Rs) -4.4 33.0 -8.2 -30.2 Cash Conv Cycle 91.9 53.5 71.8 95.5 Div Payout (%) 27 % 0 % 0 % 22 %

BVPS (Rs) 46.9 84.7 100.8 117.8 WC Turnover 4.0 6.8 5.1 3.8 P/E 41.2 16.2 28.9 28.2

EBITDAM (%) 20 % 32 % 20 % 20 % FA Turnover 3.3 3.9 2.6 1.6 P/B 13.2 7.3 6.1 5.2

PATM (%) 14 % 23 % 13 % 13 % Net D/E 0.2 -0.2 0.0 0.3 P/FCFF -141.1 18.7 -75.7 -20.4

Tax Rate (%) 21 % 23 % 23 % 22 % Revenue/Capital

Employed 3.3 4.7 4.2 3.2 EV/EBITDA 29.7 11.4 19.1 19.3

Sales growth (%) 10 % 53 % -1 % 0 % Capital Employed/Equity 1.8 1.5 1.2 1.3 EV/Sales 5.8 3.7 3.8 3.9

FDEPS growth (%) 20 % 155 % -44 % 3 % Dividend Yield (%) 0.5 % 0.5 % 0.5 % 0.6 %



Equirus Securities

Research Analysts Sector/Industry Email Equity Sales E-mail

Abhishek Shindadkar IT Services [email protected] 91-22-43320643 Vishad Turakhia [email protected] 91-22-43320633

Ashutosh Tiwari Auto, Metals & Mining [email protected] 91-79-61909517 Subham Sinha [email protected] 91-22-43320631

Bharat Celly Healthcare [email protected] 91-79-61909524 Viral Desai [email protected] 91-22-43320635

Depesh Kashyap Mid-Caps [email protected] 91-22-43320671 Viraj Mehta [email protected] 91-22-43320634

Dhaval Dama FMCG, Mid-Caps [email protected] 91-79-61909518 Ruchi Bhadra [email protected] 91-22-43320601

Manoj Gori Consumer Durables [email protected] 91-79-61909523 Cash Dealing Room E-mail

Maulik Patel Oil and Gas [email protected] 91-79-61909519 Ashish Shah [email protected] 91-22-43320662

Pranav Mehta Building Materials [email protected] 91-79-61909514 Manoj Kejriwal [email protected] 91-22-43320663

Praful Bohra Healthcare [email protected] 91-22-43320611 Dharmesh Mehta [email protected] 91-22-43320661

Rohan Mandora Banking & Financial Services [email protected] 91-79-61909529 Sarit Sanyal [email protected] 91-22-43320666

Associates E-mail Vikram Patil [email protected] 91-22-43320677

Ankit Choudhary [email protected] 91-79-61909533 Gaurav Mehta [email protected] 91-22-43320680

Dhairya Dhruv [email protected] 91-79-61909528 Compliance Officer E-mail

Harshit Patel [email protected] 91-79-61909522 Jay Soni [email protected] 91-79-61909561

Nishant Bagrecha [email protected] 91-79-61909526 Corporate Communications E-mail

Prateeksha Malpani [email protected] 91-79-61909532 Mahdokht Bharda [email protected] 91-22-43320647

Ronak Soni [email protected] 91-79-61909525 Quant Analyst

Rushabh Shah [email protected] 91-79-61909520 Kruti Shah [email protected] 91-22-43320632

Shreepal Doshi [email protected] 91-79-61909541 F&O Dealing Room

Varun Baxi [email protected] 91-79-61909527 Kunal Dand [email protected] 91-22-43320678

Vikas Jain [email protected] 91-79-61909531 Dhananjay Tiwari [email protected] 91-22-43320668

Mukesh Jain [email protected] 91-22-43320667

Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

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Disclosures

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