biocon ltd biocon) · | biocon ltd icici direct researchresult update exhibit 1: variance analysis...

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Result

Update

CMP: | 295 Target: | 310 ( 5%) Target Period: 12 months

Biocon Ltd (BIOCON)

HOLD

January 24, 2020

Strong growth in biologics segment continues…

Q3 revenues grew 13.5% YoY to | 1748.1 crore (I-direct estimate: | 1774.4

crore) mainly due to 31% YoY growth in biologics to | 588 crore (I-direct

estimate: | 561.3 crore). EBITDA margins grew 70 bps YoY to 25.4% (I-direct

estimate: 25.1%). Improvement in gross margins and other expenditure was

largely offset by higher R&D cost and employee cost. EBITDA grew 16.7%

YoY to | 444.2 crore against I-direct estimate of | 446.0 crore. Adjusted net

profit declined 4.5% to | 202.8 crore (I-direct estimate: | 211.1 crore). Delta

vis-à-vis EBITDA was due to higher tax rate.

Well placed to capture global biosimilar opportunities

The biologics segment (28% of FY19 revenues) includes biosimilars and

insulin. The company is heavily spending in this space. The progress has

been encouraging with approvals and launches in the US, EU, Japan,

Australia, and Emerging Markets. Post the Mylan Upjohn (Pfizer) merger, the

scope has been extended to China as well. We expect biologics to grow at

~57% CAGR to | 5813 crore in FY19-22E mainly due to strong US pipeline

[Pegfilgrastim (launched), Trastuzumab (launched), Glargine (expected by

the end of FY21E, Aspart (expected in FY22E) and Bevacizumab (expected

in FY22E)], besides launches across the globe.

Research services (Syngene) to maintain growth momentum

Biocon’s contract research organisation (CRO) arm Syngene contributes

33% of total revenues. The company caters to 331 clients including eight out

of global top 10 global players. We expect revenues to grow at a CAGR of

~15% to | 2745 crore in FY19-22E.

Small molecules growth steady

Small molecules (32% of FY19 total revenue) comprise APIs like statins,

immunosuppressants, specialty APIs & also include generic formulations

business. The company is exploring fewer opportunities but with higher

profitability in this segment. We expect small molecules segment to grow at

a CAGR ~14% CAGR to | 2607 crore in FY19-22E.

Valuation & Outlook

Backed by a strong pipeline (28 products under development) and expected

new launches, we expect biologics growth momentum to sustain. The

management is confident of achieving US$1 billion biological revenues by

end of FY22. With better visibility, the company has optically accelerated the

scalability capex and R&D, which is likely to push related expenses higher in

the near term. Timely launches and ramp up of biosimilars in the developed

as well as EMs and Syngene’s performances remain key levers for the

company. That said, concerns about lower-than-expected PE valuation in

biologics and holding company discount are likely to weigh in the near term.

On an SoTP basis, we maintain target price of | 310 per share.

Key Financial Summary

(Year End March) FY19 FY20E FY21E FY22E CAGR (FY19-22E) %

Revenues (| crore) 5514.4 6777.5 9024.4 11910.2 29.3

EBITDA (| crore) 1361.2 1846.8 2551.9 3524.8 37.3

EBITDA margins (%) 24.7 27.2 28.3 29.6

Net Profit (| crore) 744.8 904.5 1237.4 1881.3 36.2

EPS (|) 6.2 7.5 10.3 15.7

P/E (x) 39.1 25.9 28.6 18.8

RoCE (%) 10.9 12.9 15.1 19.4

RoE (x) 26.4 19.7 14.4 10.3

Particulars

Particular

Market Capitalisation

Debt (FY19)

Cash (FY19)

EV

52 week H/L 341/211

Equity capital (|Crore)

Face value (|) | 5

| 600 crore

| 36736 crore

Amount

| 35370 crore

| 2423 crore

| 1057 crore

Key Highlights

Strong growth in Biologics segment

and improvement in product mix

drives Q3.

Backed on the strong product

pipeline and expected new launches,

biologics segment remained as a key

driver for the stock.

That said, concerns about lower than

expected PE valuation in Biologics

and holding company discount is

likely to weigh in the near term.

Downgrade from BUY to HOLD

Research Analyst

Siddhant Khandekar

[email protected]

Mitesh Shah, CFA

[email protected]

Sudarshan Agarwal

[email protected]

ICICI Securities | Retail Research 2

ICICI Direct Research

Result Update | Biocon Ltd

Exhibit 1: Variance Analysis

Q3FY20 Q3FY20E Q3FY19 Q2FY20 YoY (%) QoQ (%) Comments

Revenue 1,748.1 1,774.4 1,540.8 1,572.2 13.5 11.2 YoY growth mainly driven by strong 31% growth in biologics segment

Raw Material cost 577.3 554.9 528.1 477.9 9.3 20.8 YoY improvement mainly due to better product mix

Employee cost 376.1 363.8 294.4 353.3 27.8 6.5

R & D Expenditure 131.0 109.6 77.0 104.0 70.1 26.0R&D spend increase across all segments. Gross R&D spend was | 155

crore in Q3FY20

Other Expenditures 219.5 300.1 260.6 234.2 -15.8 -6.3

Total Expenditure 1,303.9 1,328.4 1,160.1 1,169.4 12.4 11.5

EBITDA 444.2 446.0 380.7 402.8 16.7 10.3

EBITDA (%) 25.4 25.1 24.7 25.6 70 bps -21 bpsImprovement in gross margins largely offset by increase in R&D and

employee cost

Interest 17.7 13.8 18.6 13.8 -4.8 28.3

Depreciation 144.0 131.6 116.7 131.6 23.4 9.4

Other income 35.8 28.4 25.6 38.4 39.8 -6.8

EO 0.0 0.0 -5.8 -67.5 0.0 0.0

PBT 318.3 329.0 276.8 363.3 15.0 -12.4

Tax 84.8 75.7 46.1 100.1 83.9 -15.3

MI 27.5 32.9 26.0 38.1 5.8 -27.8

Adj. PAT 202.8 211.1 212.4 189.0 -4.5 7.3Delta vis-à-vis EBITDA was mainly due to higher depreciation and tax

rate

Key Metrics

Small Molecules 535.0 531.3 462.0 522.6 15.8 2.4YoY growth led to strong performance of generic formulations and APIs

businesses. FDF sales were at | 100 crore

Biologics 588.0 561.3 449.0 516.1 31.0 13.9YoY growth led by higher traction in sales of key biosimilars in

developed and emerging markets

Branded Formulations 157.0 137.8 212.0 128.3 -25.9 22.4YoY decline mainly due to pricing pressure and other headwinds, which

continued to weigh on both India and UAE businesses

Contract Research 519.0 537.1 467.0 464.6 11.1 11.7

YoY growth mainly due to strong growth in discovery services

business, combined with consistent performances in dedicated R&D

centres and development services business

Licensing income 9.0 7.0 7.0 7.0 28.6 28.6

Source: ICICI Direct Research

Exhibit 2: Change in Estimates

(| Crore) Old New % Change Old New % Change

Revenues 6,718.1 6,777.5 0.9 8,796.0 9,024.4 2.6

EBITDA 1,855.3 1,846.8 -0.5 2,451.1 2,551.9 4.1

EBITDA Margin (%) 27.6 27.2 -35 bps 27.9 28.3 38 bps

Net Profit 906.1 904.5 -0.2 1,272.0 1,237.4 -2.7

EPS (|) 7.6 7.5 -0.8 10.6 10.3 -2.7

FY20E FY21E


Exhibit 3: Change in Estimates

Comments

Growth (%) FY18 FY19 FY20E FY21E FY20E FY21E

Small Molecules 1,484.9 1,749.0 2,065.4 2,327.4 2,047.7 2,293.4

Biologics 770.2 1,517.0 2,270.6 3,633.0 2,153.7 3,445.8 Changed mainly due to better-than-expected growth in 9MFY20

Branded Formulations 611.5 656.0 577.9 655.5 532.1 574.7 Changed mainly due to better-than-expected growth in Q3FY20

Contract Research 1,423.1 1,826.0 2,016.0 2,373.4 2,081.2 2,451.3

EarlierCurrent





Conference Call Highlights

Increase in gross R&D expenses to | 155 crore was mainly

attributable to biosimilar developments, novel molecules R&D and

ANDA filings. Net R&D was | 131 crore

Growth in small molecules segment was attributable to growth in

immunosuppressant demand, APIs and generic formulations

crossing | 100 crore in revenues. Currently, three molecules have

been commercialised in the US

During the quarter, Biocon Biosphere was incorporated. The Vizag

facility will be set up under this entity to benefit from a lower tax rate

of 15% applicable to manufacturing facilities set up after October

2019

The company is looking for additional funding of US$200-300 million

for future capex through private equity

As per management, Biocon biologics will be publicly listed (IPO)

within the next three years

R&D is on an upward trajectory. For FY20, R&D is expected to remain

between 12% and 15% of sales ex-Syngene

Capex for 9MFY20 was | 1500 crore. The management has guided

for capex for FY20, FY21 at ~| 2000 crore

The company expects to maintain its single digit filings annual run

rate in the US

The company has reiterated its target of achieving US$1 billion of

biologics sales by FY22

The management expects US launches and ramp-up to be a major

factor in achieving this target

In the US, growth will be driven by ramp up of Ogivri and Fulphila,

along with early mover advantage of Insulin Glargine launch

(expected approval mid CY20) and launch of Bevacizumab (filed,

approval by end FY21) and Aspart (to be filed in CY20)

Biocon’s margins in Q3FY20 remained flat at 25% as the initial

launch benefit of Ogivri launch was offset by increase in R&D

expenditure, deferred sales and regulatory costs at the Malaysian

facility

The company expects margins to increase in Q4FY20 as secondary

sales for Ogivri and Fulphila will come in the next quarter




Exhibit 4: Trends in quarterly performance

(| Crore) Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 YoY (%) QoQ(%)

Revenues 1044.4 931.1 933.7 968.6 1057.9 1169.5 1123.8 1321.0 1540.8 1528.8 1465.9 1572.2 1748.1 13.5 11.2

Raw Material Cost 374.7 348.4 365.8 377.6 423.8 475.2 433.8 446.7 528.1 487.9 424.5 477.9 577.3 9.3 20.8

% to revenues 35.9 37.4 39.2 39.0 40.1 40.6 38.6 33.8 34.3 31.9 29.0 30.4 33.0

Gross Profit 669.7 582.7 567.9 591.0 634.1 694.3 690.0 874.3 1012.7 1040.9 1041.4 1094.3 1170.8 15.6 7.0

Gross Profit Margin (%) 64.1 62.6 60.8 61.0 59.9 59.4 61.4 66.2 65.7 68.1 71.0 69.6 67.0 125 bps -263 bps

Employee cost 194.2 193.9 213.3 225.5 235.3 257.0 261.4 288.9 294.4 320.6 341.0 353.3 376.1 27.8 6.5

% to revenues 18.6 20.8 22.8 23.3 22.2 22.0 23.3 21.9 19.1 21.0 23.3 22.5 21.5 241 bps -96 bps

R & D 85.0 65.0 58.2 53.9 52.9 51.0 44.0 77.0 77.0 92.0 79.0 104.0 131.0

% to revenues 8.1 7.0 6.2 5.6 5.0 4.4 3.9 5.8 5.0 6.0 5.4 6.6 7.5 250 bps 88 bps

Other Expenditure 114.4 136.3 104.3 129.3 124.2 153.3 146.7 168.8 260.6 225.3 183.9 234.2 219.5 -15.8 -6.3

% to revenues 11.0 14.6 11.2 13.3 11.7 13.1 13.1 12.8 16.9 14.7 12.5 14.9 12.6-436 bps -234 bps

Total Expenditure 768.3 743.6 741.6 786.3 836.2 936.5 885.9 981.4 1160.1 1125.8 1028.4 1169.4 1303.9 12.4 11.5

% to revenues 73.6 79.9 79.4 81.2 79.0 80.1 78.8 74.3 75.3 73.6 70.2 74.4 74.6

EBIDTA 276.1 187.5 192.1 182.3 221.7 233.0 237.9 339.6 380.7 403.0 437.5 402.8 444.2 16.7 10.3

EBITDA Margin (%) 26.4 20.1 20.6 18.8 21.0 19.9 21.2 25.7 24.7 26.4 29.8 25.6 25.4 70 bps -21 bps

Depreciation 70.3 72.5 98.8 93.6 97.4 95.3 99.1 112.2 116.7 119.8 124.2 131.6 144.0 23.4 9.4

Interest 8.8 5.0 16.1 13.8 14.7 16.9 17.6 18.8 18.6 15.9 16.6 13.8 17.7 -4.8 28.3

OI 47.5 43.2 54.0 50.8 33.9 67.5 68.8 54.4 25.6 28.2 24.1 38.4 35.8 39.8 -6.8

PBT 244.5 153.2 131.2 125.7 143.5 188.3 190.0 263.0 271.0 295.5 320.8 295.8 318.3 17.5 7.6

Tax 54.4 10.3 37.6 42.5 36.1 40.7 52.1 73.2 46.1 40.9 85.2 100.1 84.8 83.9 -15.3

Tax Rate (%) 22.2 6.7 28.7 33.8 25.2 21.6 27.4 27.8 17.0 13.8 26.6 33.8 26.6

PAT 190.1 142.9 93.6 83.2 107.4 147.6 137.9 189.8 224.9 254.6 235.6 195.7 233.5 3.8 19.3

PAT Margin (%) 18.2 15.3 10.0 8.6 10.2 12.6 12.3 14.4 14.6 16.7 16.1 12.4 13.4

Exceptional Items (EI) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -188.8 -5.8 0.0 0.0 -67.5 0.0

Net Profit before MI 190.1 142.9 93.6 83.2 107.4 147.6 137.9 378.6 230.7 254.6 235.6 263.2 233.5 1.2 -11.3

Add/(less) MI 19.5 20.9 16.4 20.3 21.7 22.3 18.6 23.0 26.0 29.7 21.4 38.1 27.5

Net Profit after MI 170.6 122.0 77.2 62.9 85.7 125.3 119.3 355.6 204.7 224.9 214.2 225.1 206.0 0.6 -8.5

Net Profit (excl.EI) 170.6 122.0 77.2 62.9 85.7 125.3 119.3 166.8 198.9 224.9 214.2 157.6 206.0 3.6 30.7





Company Background

Biocon was established in 1978 by first generation entrepreneur Dr Kiran

Mazumdar-Shaw. Unlike most pharma companies that are chemical based,

Biocon has carved out its niche in the more complex biotechnology field.

Over the decades, Biocon has successfully evolved into an emerging global

biopharma enterprise, serving its partners and customers in over 75

countries. As a fully integrated biopharma company, it delivers innovative

biopharmaceutical solutions, ranging from discovery to development &

commercialisation. In 2004, it came out with its maiden IPO.

The company has initiated filings and launches of biosimilars in the US, EU,

Australia, Canada, Japan besides some developing markets. It has entered

into a partnership with Mylan for six biosimilar programs (Trastuzumab,

Pegfilgrastim, Adalimumab, Bevacizumab, Etanercept and Filgrastim) and

three insulin analog programmes (Glargine, Lispro and Aspart).

Recently, the company also entered into a partnership with Sandoz, a

Novartis division and a global leader in biosimilars, for an exclusive portfolio

of next-generation biosimilars in the area of immunology and oncology. This

synergistic partnership will leverage the capabilities of both partners for an

‘end to end’ play encompassing development, manufacturing, regulatory

approval and commercialization globally. This collaboration addresses

some of the long term biosimilars opportunities beyond the near term

opportunities being addressed by existing partnership with Mylan.

Exhibit 5: Progress in Biosimilar

Date Event

Dec-19 PE fund True North acquires 2.44% stake in Biocon Biologics

Dec-19 Mylan and Biocon Launched Trastuzumab Biosimilar, Ogivri in the US

Oct-19 Biocon Biologics and Just - Evotec Biologics Sign Licensing Deal for a early stage Biosimilar Asset

Oct-19 Biocon and Mylan Launch First Insulin Glargine Biosimilar, Semglee in Australia

Aug-19 Mylan and Biocon Launch First Trastuzumab Biosimilar, Ogivri in Australia

May-19 Biocon-Mylan has received health Canada approval for bTrastuzumab

Nov-18 Biocon-Mylan has launched Insulin Glargine in EU

Nov-18 Biocon-Mylan has received EU approval for bPegfilgrastim and bTrastuzumab

Jul-18 Biocon-Mylan has launched Fulphila (pegfilgrastim-jmdb) in the US

Jun-18Mylan entered into a commercialisation agreement with Lupin for bEtanercept for certain markets. Biocon has retained its economic interest

in this arrangement vis-à-vis Mylan and would benefit from the accelerate commercialisation of this product

Jun-18Biocon-Mylan has received USFDA approval for Fulphila (pegfilgrastim-jmdb) as the first biosimilar of Neulasta. Mylan has launched Fulphila

in the US

Apr-18 Biocon-Mylan in-license Humira biosimilar from Fujifilm and expects to launch in Europe in H2CY18

Mar-18 Mylan and Biocon receive approval for Semglee biosimilar Insulin Glargine in EU and Australia

Jan-18 Collaborates with Sandoz for a global partnership to develop, manufacture and commercialize a number of next generation biosimilars

Dec-17 USFDA approval for Ogivri, a biosimilar Trastuzumab co-developed by Biocon and Mylan

Jul-17 Biocon's partner Fujifilm launches insulin Glargine in Japan

Jul-17USFDA Oncologic Drugs Advisory Committee (ODAC) recommends approval of Biocon-Mylan's proposed biosimilar Trastuzumab in all eligible

indications

Jan-17 USFDA accepts Biocon’s biologics licence application for its biosimilar oncology drug Trastuzumab

Aug-16 European Medicines Agency accepts Biocon-Mylan Proposed Biosimilar Trastuzumab (gHerceptin) for review

Jul-16 European Medicines Agency accepts Biocon-Mylan Proposed Biosimilar Pegfilgrastim (gNeulasta) for review

Jul-16 Launches Biocon's Insulin Glargine in Japan

Jun-16 Biocon and Mylan to present Phase 3 Trastuzumab Biosimilar Data at the American Society of Clinical Oncology (ASCO) Annual Meeting

Mar-16 Biocon's Insulin Glargine receives regulatory approval in Japan

Mar-16 Biocon inks co-development & commercialisation agreement with Lab PiSA for Rh-insulin in US

May-15Biocon-Mylan's PEG-G-CSF and Adalimumab enter Phase III clinical trials; patient recruitment for one Insulin Glargine Phase III study

completed

Source: ICICI Direct Research, Company




Exhibit 6: Revenues to grow at 29% CAGR over FY19-22E


Exhibit 7: Biologics to grow at 56% CAGR over FY19-22E


Exhibit 8: Syngene to grow at 14% CAGR over FY19-22E


Exhibit 9: EBITDA & EBITDA margins trend


Exhibit 10: Net profit & profit margins trend


Exhibit 11: RoCE & RoE (%) trend


Exhibit 12: Revenue break-up

| crore FY16 FY17 FY18 FY19 FY20E FY21E FY22E CAGR FY16-19CAGR 19-22E

Small Molecules 1387.0 1607.5 1484.9 1749.0 2065.4 2327.4 2606.7 8.0 14.2

Biologics 342.0 622.5 770.2 1517.0 2270.6 3633.0 5812.7 64.3 56.5

Branded Formulations 440.0 548.9 611.5 656.0 577.9 655.5 707.9 14.2 2.6

Contract Research 1060.0 1192.7 1423.1 1826.0 2016.0 2373.4 2744.2 19.9 14.5

Licensing income 108.0 144.2 22.8 24.0 32.0 35.2 38.7 (39.4) 17.3

Total Revenues 3381.0 3921.6 4129.7 5514.4 6777.5 9024.4 11910.2 17.7 29.3


3381.03921.6 4129.7

5514.4

6777.5

9024.4

11910.2

0.0

2000.0

4000.0

6000.0

8000.0

10000.0

12000.0

14000.0

FY16 FY17 FY18 FY19 FY20E FY21E FY22E

Revenues (| crore)

CAGR 17.7%

CAGR 29.3%

342.0622.5

770.2

1517.0

2270.6

3633.0

5812.7

0.0

1000.0

2000.0

3000.0

4000.0

5000.0

6000.0

7000.0


Biologics (| crore)

CAGR 64.3%

CAGR 56.5%

1060.01192.7

1423.1

1826.0

2016.0

2373.4

2744.2

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0


Contract Research (| crore)

CAGR 19.9%

CAGR 14.5%

635.8

851.2 829.1

1361.2

1846.8

2551.9

3524.8

18.8

21.7

20.1

24.7

27.2

28.3

29.6

18

20

22

24

26

28

30

32

0

500

1000

1500

2000

2500

3000

3500

4000


EBITDA (| crore) EBITDA margins (%)

550.4612.1

372.4

905.4

1366.3

1237.4

1881.3

16.3

15.6

9.0

16.4

20.2

13.7

15.8

0

5

10

15

20

25

0

200

400

600

800

1000

1200

1400

1600

1800

2000


Net Profit (| crore) NPM %

12.5

7.8

10.5

7.2

12.2 12.3

14.7

18.6

10.4

6.5

9.4

8.1 10.9

12.9

15.1

19.4

0.0

5.0

10.0

15.0

20.0

25.0

FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E

RoE RoCE




x

Exhibit 13: Valuation

Particulers FY22E EPS (| cr) Multiple (x) Per share (| )

Biocon (ex Syngene) 13.2 15.0 197.9

Syngene

Targeted Market Cap 14400

Biocon's Holding 71.1%

Holding Company Discount 20.0%

Syngene valuation 8186

Per share valuation 68

NPV (BIosimilars) 40

SOTP valuation 310


Exhibit 14: One-year rolling forward PE vs. NSE 500

Source: ICICI Direct Research, Bloomberg

Exhibit 15: Financial Summary

Revenues Growth EPS Growth P/EEV/EBITDA RoNW RoCE

(| crore) (%) (|) (%) (x) (X) (%) (%)

FY19 5514 33.5 6.2 100.0 39.1 26.4 12.2 10.9

FY20E 6777 22.9 7.5 21.4 25.9 19.7 12.3 12.9

FY21E 9024 33.2 10.3 36.8 28.6 14.4 14.7 15.1

FY22E 11910 32.0 15.7 52.0 18.8 10.3 18.6 19.4


0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

10/24/2016

1/24/2017

4/24/2017

7/24/2017

10/24/2017

1/24/2018

4/24/2018

7/24/2018

10/24/2018

1/24/2019

4/24/2019

7/24/2019

10/24/2019

1/24/2020

(x)

Biocon NSE 500

32% Premium




Exhibit 16: Recommendation history vs Consensus

Source: ICICI Direct Research; Bloomberg

Exhibit 17: Top 10 Shareholders

Rank Investor Name Filing Date % O/S Position (m) Change

1 Shaw Kiran Mazumdar 30-Jun-19 39.6 475.73m 0.0m

2 Glentec International 30-Jun-19 19.8 237.21m 0.0m

3 Massachusetts Mutual 22-Dec-17 5.0 60.47m 60.5m

4 Invesco Ltd 17-Jan-20 1.5 17.47m (28.8)m

5 Standard Life Aberde 31-Dec-19 1.5 17.42m 0.0m

6 Biocon India Ltd Emp 26-Sep-19 1.3 15.93m 0.9m

7 Chandavarkar Arun Su 30-Jun-19 1.1 13.20m 0.0m

8 National Westminster 30-Jun-19 1.1 13.14m 13.1m

9 ICICI Prudential AMC 31-Dec-19 1.1 12.97m 0.4m

10 Franklin Resources 17-Jan-20 1.0 12.42m (1.0)m


Exhibit 18: Shareholding Pattern

(in %) Dec-18 Mar-19 Jun-19 Sep-19 Dec-19

Promoter 60.7 60.7 60.7 60.7 60.7

Others 39.3 39.3 39.3 39.3 39.3


20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

65.0

0

50

100

150

200

250

300

350

400

Jan-20

Dec-19

Nov-19

Oct-19

Sep-19

Aug-19

Jul-19

Jun-19

May-19

May-19

Mar-19

Feb-19

Jan-19

Jan-19

Dec-18

Nov-18

Oct-18

Sep-18

Aug-18

Jul-18

Jun-18

May-18

Apr-18

Mar-18

Feb-18

Jan-18

Dec-17

Nov-17

Oct-17

Sep-17

Aug-17

Jul-17

Jun-17

May-17

Apr-17

Mar-17

Feb-17

Jan-17

(%

)(|

)

Price Idirect target Consensus Target Mean % Consensus with BUY




Financial Summary

Exhibit 19: Profit and loss statement | crore

Year-end March FY19 FY20E FY21E FY22E

Total Operating Income 5514.4 6777.5 9024.4 11910.2

Growth (%) 33.5 22.9 33.2 32.0

Raw Material Expenses 1896.5 2075.4 2697.6 3474.1

Employee Expenses 1165.3 1488.0 1982.6 2616.2

R&D Expenditure 290.0 436.2 598.6 779.1

Other Expenditures 801.4 931.1 1193.7 1516.1

Total Operating Expenditure 4153.2 4930.7 6472.5 8385.4

Operating Profit (EBITDA) 1361.2 1846.8 2551.9 3524.8

Growth (%) 64.2 35.7 38.2 38.1

Depreciation 447.8 543.8 752.1 895.1

Interest 70.9 65.8 77.8 70.8

Other Income 177.0 139.1 90.2 119.1

PBT before Exceptional Items 1019.5 1376.3 1812.2 2678.0

Less: Exceptional Items -194.6 -603.7 0.0 0.0

Total Tax 212.3 465.6 416.8 615.9

PAT before MI 1001.8 1514.4 1395.4 2062.0

Minority Interest 97.3 124.4 145.3 167.9

Adjusted PAT 744.8 904.5 1237.4 1881.3

Growth (%) 100.0 21.4 36.8 52.0

EPS (Adjusted) 6.2 7.5 10.3 15.7


Exhibit 20: Cash Flow Statement | crore


Profit/(Loss) after taxation 711.1 1366.3 1237.4 1881.3

Add: Depreciation & Amortization 447.8 543.8 752.1 895.1

Net Increase in Current Assets -637.4 -690.2 -1145.5 -1466.0

Net Increase in Current Liabilities 608.3 530.9 803.0 1015.3

Other Operating Activities 24.8 65.8 77.8 70.8

CF from operating activities 1154.6 1816.6 1724.8 2396.5

(Purchase)/Sale of Fixed Assets -1491.6 -2000.0 -2000.0 -1500.0

(Increase)/Decrease in Investments 768.5 500.0 100.0 0.0

Increase/ (Decrease) in Minority Interest0.0 60.9 67.0 73.7

Other Investing Activities -385.2 -68.8 -95.8 -130.6

CF from investing activities -1108.3 -1508.0 -1928.8 -1556.9

Proceeds from issues of Equity Shares-69.2 0.0 0.0 0.0

Inc/(dec) in loan funds 7.5 -200.0 0.0 -200.0

(Payment) of Dividend and Dividend Tax-79.3 -136.6 -123.7 -188.1

Interest Paid -100.7 -65.8 -77.8 -70.8

Other Financing Activities 0.0 0.0 0.0 0.0

CF from financing activities -241.7 -402.4 -201.5 -458.9

Net Cash flow -195.4 -93.8 -405.5 380.7

Opening Cash 1252.6 1057.2 963.4 557.9

Closing Cash 1057.2 963.4 557.9 938.6

Free Cash Flow 1923.1 2316.6 1824.8 2396.5


Exhibit 21: Balance Sheet | crore


Liabilities

Equity Capital 300.0 600.0 600.0 600.0

Reserve and Surplus 5798.0 6727.7 7841.3 9534.5

Total Shareholders funds 6098.0 7327.7 8441.3 10134.5

Total Debt 2423.0 2223.0 2223.0 2023.0

Minority Interest 608.9 669.8 736.8 810.4

Other NCL & LT Provisions 906.3 996.9 1096.6 1206.3

Source of Funds 10036.2 11217.4 12497.7 14174.2

Assets

Gross Block - Fixed Assets 7068.6 9221.5 11571.5 13771.5

Accumulated Depreciation 2624.0 3167.8 3919.9 4815.1

Net Block 4444.6 6053.7 7651.6 8956.4

Capital WIP 1898.9 1746.0 1396.0 696.0

Total Fixed Assets 6343.5 7799.7 9047.6 9652.4

Goodwill on Consolidation 26.4 26.4 26.4 26.4

Investments 1011.8 511.8 411.8 411.8

Inventory 1031.6 1267.9 1688.2 2228.1

Debtors 1291.8 1587.7 2114.1 2790.1

Cash 1057.2 963.4 557.9 938.6

Other Current Assets 612.9 771.0 969.8 1219.8

Total Current Assets 3993.5 4589.9 5329.9 7176.6

Creditors 1198.3 1472.8 1961.0 2588.1

Provisions 80.5 110.7 140.8 171.0

Other Current Liabilities 877.4 1103.7 1388.3 1746.3

Total Current Liabilities 2156.2 2687.1 3490.1 4505.4

Net Current Assets 1837.3 1902.8 1839.8 2671.2

Deferred Tax Assets 324.7 357.2 392.9 432.2

Other Non Current assets 492.5 619.5 779.3 980.2

Application of Funds 10036.2 11217.4 12497.7 14174.2


Exhibit 22: Ratio Analysis | crore


Per share data (|)

Reported EPS 7.5 11.4 10.3 15.7

BV per share 50.8 61.1 70.3 84.5

Dividend per share 0.6 1.1 1.0 1.6

Cash Per Share 8.8 8.0 4.6 7.8

Operating Ratios (%)

Gross Margin 65.6 69.4 70.1 70.8

EBITDA margin 24.7 27.2 28.3 29.6

EBIT Margin 16.6 19.2 19.9 22.1

PAT Margin 13.5 13.3 13.7 15.8

Inventory days 68.3 68.3 68.3 68.3

Debtor days 85.5 85.5 85.5 85.5

Creditor days 79.3 79.3 79.3 79.3

Asset Turnover 0.5 0.6 0.7 0.8

EBITDA Conversion Ration 84.8 98.4 67.6 68.0

Return Ratios (%)

RoE 12.2 12.3 14.7 18.6

RoCE 10.9 12.9 15.1 19.4

RoIC 15.5 16.7 18.2 22.2

Valuation Ratios (x)

P/E 39.1 25.9 28.6 18.8

EV / EBITDA 26.4 19.7 14.4 10.3

EV / Net Sales 6.5 5.4 4.1 3.0

Market Cap / Sales 6.4 5.2 3.9 3.0

Price to Book Value 5.8 4.8 4.2 3.5

Solvency Ratios

Debt / EBITDA 1.8 1.2 0.9 0.6

Debt / Equity 0.4 0.3 0.3 0.2

Current Ratio 1.4 1.3 1.4 1.4





Exhibit 23: ICICI Direct Coverage Universe (Healthcare)

Company I-Direct CMP TP Rating M Cap

Code (|) (|) (| cr) FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E FY19FY20EFY21EFY22E

Ajanta Pharma AJAPHA 1176 1,180 Buy 10262 43.5 43.5 52.3 64.4 27.0 27.0 22.5 18.3 21.8 21.8 20.8 21.9 17.1 17.1 16.0 17.2

Alembic PharmaALEMPHA 598 620 Hold 11273 31.4 31.4 26.6 31.0 19.0 19.0 22.5 19.3 19.6 19.6 13.4 14.9 21.8 21.8 13.3 13.8

Apollo HospitalsAPOHOS 1659 1,800 Buy 23076 17.0 17.0 43.7 68.1 97.8 97.8 37.9 24.3 8.8 8.8 14.8 17.5 7.1 7.1 14.9 19.6

Aurobindo PharmaAURPHA 496 475 Hold 29080 42.1 42.1 55.4 59.5 11.8 11.8 9.0 8.3 15.9 15.9 15.7 16.1 17.7 17.7 16.7 15.4

Biocon BIOCON 295 310 Hold 35370 6.2 6.2 10.3 15.7 47.5 47.5 28.6 18.8 10.9 10.9 15.1 19.4 12.2 12.2 14.7 18.6

Cadila HealthcareCADHEA 271 260 Hold 27774 18.1 18.1 16.6 18.7 15.0 15.0 16.4 14.5 13.0 13.0 11.7 12.4 17.8 17.8 13.5 13.6

Cipla CIPLA 461 520 Hold 37139 18.6 18.6 25.3 30.0 24.8 24.8 18.2 15.4 10.9 10.9 13.6 14.8 10.0 10.0 11.2 11.9

Divi's Lab DIVLAB 1910 1,850 Hold 50699 51.0 51.0 59.1 71.2 37.5 37.5 32.3 26.8 25.5 25.5 22.1 22.8 19.4 19.4 17.0 17.6

Dr Reddy's LabsDRREDD 3039 3,000 Hold 50488 114.8 114.8 140.0 166.7 26.5 26.5 21.7 18.2 11.1 11.1 13.9 16.9 13.6 13.6 12.7 13.5

Glenmark PharmaGLEPHA 353 410 Hold 9961 26.9 26.9 36.7 46.1 13.1 13.1 9.6 7.7 15.3 15.3 15.0 17.0 13.5 13.5 14.0 15.1

Hikal HIKCHE 132 140 Buy 1255 6.3 8.4 9.7 11.7 21.1 15.8 13.6 11.4 12.2 14.3 13.0 14.2 11.5 13.6 14.2 14.8

Ipca Laboratories IPCLAB 1230 1,355 Buy 15541 35.1 35.1 60.7 75.3 35.1 35.1 20.3 16.3 15.0 15.0 19.9 21.2 14.2 14.2 18.0 18.9

Lupin LUPIN 740 810 Hold 33517 16.5 16.5 35.0 37.1 44.7 44.7 21.1 20.0 9.4 9.4 9.9 12.1 5.4 5.4 8.4 8.3

Narayana HrudalayaNARHRU 356 360 Buy 7276 2.9 2.9 9.8 13.3 122.6 122.6 36.4 26.7 7.7 7.7 13.9 16.5 5.5 5.5 14.5 16.7

Natco Pharma NATPHA 658 595 Hold 11974 34.9 34.9 23.7 22.0 18.8 18.8 27.8 29.9 21.3 21.3 12.2 10.5 18.5 18.5 10.0 8.6

Sun Pharma SUNPHA 452 470 Hold 108543 15.9 15.9 20.2 24.7 28.5 28.5 22.4 18.3 10.3 10.3 11.3 12.5 9.2 9.2 9.9 11.3

Syngene Int. SYNINT 306 360 Buy 12238 8.3 8.3 9.6 12.0 37.0 37.0 31.7 25.6 14.8 14.8 13.1 15.1 16.8 16.8 14.1 14.9

Torrent Pharma TORPHA 2050 2,020 Buy 34696 48.9 48.9 74.0 91.8 41.9 41.9 27.7 22.3 14.2 14.2 18.7 21.2 17.5 17.5 19.6 20.6

RoE (%)EPS (|) PE(x) RoCE (%)





RATING RATIONALE

ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its

stocks according to their notional target price vs. current market price and then categorises them as Buy, Hold,

Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as

the analysts' valuation for a stock

Buy: >15%;

Hold: -5% to 15%;

Reduce: -5% to -15%;

Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]




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