rating matrix alembic pharma (alepha)

September 28, 2015

Initiating Coverage

ICICI Securities Ltd | Retail Equity Research

Re-writing script with a twist… Alembic Pharma (APL) is one of the oldest domestic pharma companies tracing its roots way back to 1907. The company has remained an active player in the domestic formulations space with a few legacy brands in the anti-infective and cough & cold segments. In 2011, APL was de-merged from Alembic Ltd to provide more thrust to formulations and insulate this business from the vagaries of commoditised APIs. Post this de-merger, APL has demonstrated adaptability and flexibility with the US foray and a recalibrated approach in domestic branded formulations. We are initiating coverage on the company to capture this evolving growth story. US key growth driver for generic exports APL’s generic export revenues grew at ~31% CAGR in FY11-15 mainly on the back of strong growth in the US (71% of export generic sales) on account of consistent product launches including limited competition products. With planned investments in front-end initiatives and eight to ten launches every year in the US, we expect US sales to register a CAGR of 53% in FY15-18E to | 1325 crore. The company’s current ANDA filings are at 68 including 30 pending approvals of which ~50% are Para IV and shared exclusivity filings. Domestic sales growth riding on robust speciality segment growth APL’s domestic formulation sales grew at ~12% CAGR in FY11-15 mainly due to ~22% growth in the speciality segment. Specialty contribution in the domestic branded space has increased to 56% from 42% in FY11. We expect the speciality segment to grow at 24% CAGR in FY15-18E to | 1040 crore on the back of aggressive product launches and constant addition of new speciality segments & sub-segments. Overall, we expect domestic formulations to grow at 16% CAGR in FY15-18E to | 1723 crore. After hive-off, its time tested Indian pharma growth story Brand pedigree in Indian branded formulations and the US foray with few select launches together with a light balance sheet and healthy return ratios are some typical attributes of a well established Indian pharma company. APL is no exception to this case. With domestic formulation growth of around 16% and USFDA approvals forthcoming, the company is well poised to maintain the growth tempo for years to come. The management identified this potential five years back and hived off these businesses well in time. We have ascribed a target price of | 790 based on 22x FY18E EPS of | 36.0.

Exhibit 1: Valuation Metrics (Year End March) FY14 FY15 FY16E FY17E FY18ERevenues (| crore) 1,863.2 2,056.2 2,999.4 3,157.5 3,757.9EBITDA (| crore) 357.7 405.5 816.6 714.8 888.3Net Profit (| crore) 235.5 285.2 610.1 536.0 677.8EPS (|) 12.5 15.1 32.4 28.4 36.0P/E (x) 54.3 44.8 20.9 23.8 18.9P/BV (x) 18.9 14.4 9.7 7.5 5.9EV/EBITDA (x) 36.0 32.1 15.9 18.1 14.6RoCE (%) 39.7 30.8 48.7 34.7 35.2RoE (x) 34.9 32.2 46.3 31.5 31.1

Source: Company, ICICIdirect.com Research

Alembic Pharma (ALEPHA)| 678

Rating Matrix

Rating : BuyTarget : | 790Target Period : 12-18 monthsPotential Upside : 17%

YoY Growth (%) (|crore) FY15 FY16E FY17E FY18ERevenues 10.4 45.9 5.3 19.0EBITDA 13.4 101.4 -12.5 24.3Net Profit 21.1 113.9 -12.1 26.5

Current & Target Multiples FY15 FY16E FY17E FY18E

PE (x) 44.8 20.9 23.8 18.9Target PE (x) 52.3 24.4 27.8 22.0EV to EBITDA (x) 32.1 15.9 18.1 14.6Target EV/EBITDA 37.4 18.5 21.1 17.0P/BV 14.4 9.7 7.5 5.9Target P/BV 16.9 11.3 8.8 6.8

Stock Data ParticularBloomberg/Reuters CodeSensexAverage Volumes (6 months)Market CapitalisationDebt (FY15)Cash & cash equivalents (FY15) EV 52 week H/L 791/381Equity capital | 38 croreFace value | 2 crore

| 27 crore| 13017 crore

AmountALPM IN Equity

| 27680 crore193793

| 12780 crore| 263 crore

Comparative return matrix (%) 1M 3M 6M 1Y

Alembic Pharma -4.0 3.4 52.2 56.4Ajanta Pharma -13.0 -6.5 26.0 104.3Torrent Pharma -14.6 4.1 23.8 63.6

Price movement

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Sep-11 Jun-12 Mar-13 Dec-13 Sep-14 Jun-15

0

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CNX Pharma Alembic Pharma

Research Analyst

Siddhant Khandekar [email protected] Mitesh Shah [email protected] Nandan Kamat [email protected]


Company background Tracing its roots way back to 1907, the company has remained an active player in the domestic formulations space with few legacy brands like Azithral, Althrocin and Wikoryl in the anti-infective and cough & cold segments. In 2011, APL was de-merged from Alembic Ltd to give more thrust to formulations and insulate this business from the vagaries of commoditised APIs. Formulations account for 82%of the business while the rest comes from APIs. As of FY15, the domestic: exports formulation ratio stood at 65:35. Consolidated revenues, EBITDA and PAT have grown at a CAGR of 14%, 30% and 37%, respectively, in FY11-15. Domestic formulations constitute 53% of revenues (FY15). In the domestic market, APL derives ~89% of revenues from branded formulations while the rest come from generic generics and animal healthcare businesses. The domestic branded formulation segment has been further segregated into two sub-segments - 1) acute and 2) speciality (cardiology, diabetology, gynaecology, GI, orthopaedic and dermatology). While the acute portfolio includes some of the legacy brands developed and owned by the company, the specialty portfolio was acquired from Dabur Pharma in 2007. The company’s domestic branded portfolio is gradually shifting to the speciality business segment, which now accounts for ~56% of domestic branded formulations from 42% in FY11. The shift of focus towards speciality has yielded rich dividends as the portfolio has outperformed the industry average. From | 251 crore in FY11, the speciality segment has grown at a CAGR of 21.6% to | 549 crore by FY15. Till date, the company has launched 170 products. The current MR strength is ~5000. Overall, domestic formulations have grown at 12.3% CAGR in FY11-15 to | 1103 crore. Currently, 25-30% of the domestic portfolio is under the National List of Essential Medicines (NLEM) list. Export formulations constitute 28% of revenues (FY15). Of this, ~90% of export formulations are generics catering to the regulated markets of the US, Canada and Europe. In these markets, the company has adopted a partnership approach to push sales. APL owns 67 approved products across developed markets. The company’s generic exports grew at a CAGR of 31% to | 1536 crore during FY11-15 mainly due to strong growth in the US (71% of export generic sales) on the back of consistent product launches including limited competition products. The current ANDA filings stand at 68 including 30 pending approvals of which 50% are Para IV and shared exclusivity filings. APL currently markets 26 products in the US through partners. The branded exports business caters to key emerging markets in South East Asia, CIS and East Africa. The API business accounts for 18% of revenues. Total 70% of APIs have been used for captive consumption. Till date, the company has filed 72 DMFs.

Exhibit 2: Plant details Location Application Approvals

Formulations

Panelav, Gujarat Generic Exports USFDA, MCC, MHRA, ANVISA & TPD

Baddi, Himachal Pradesh Branded Formulations WHO GMP Sikkim Branded Formulations Will be commissioned by end of FY16APIsPanelav, Gujarat API USFDA, EDQM, TGA, WHOKarkhadi, Gujarat API USFDA, EDQM, TGA, WHO


Shareholding pattern (Q1FY16)

Shareholders

Promoter 74.1

FII 6.6

DII 5.6

Others 13.6

Holding (%)

Source: Company

FII & DII holding trend (%)

8.8 9.4 9.6 9.5

6.6

1.8 1.7 1.8 2.5

5.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

(%)

FII DII

Source: Company

Top 10 domestic products (| crore)

Brand Therapy MAT Aug'15 % of Dom SalesAzithral Anti-Infectives 134.9 10.8

Althrocin Anti-Infectives 92.4 7.4Roxid Anti-Infectives 55.4 4.4

Gestofit Gynaecological 46.6 3.7Wikoryl Respiratory 36.5 2.9

Ulgel Gastro 31.4 2.5Rekool D Gastro 27.8 2.2

Zeet Respiratory 24.0 1.9Rekool L Gastro 22.8 1.8

Glisen MF Anti-Diabetic 22.4 1.8

Source: Company, AIOCD data base MAT August 2015 data

Sales break up:

API18%

Export Generic

26%

Export Branded

3%

Domestic Generic

6%

Domestic Branded

47%

Source: Company

Brand-wise Domestic Sales break up:

26%

5%7%

9% 13%

40%

Top 10 11 to 20 21 to 30 31 to 40

41 to 50 Others

Source: Company, AIOCD data base MAT August 2015 data


Exhibit 3: Timeline Year Event

1907 Alembic Ltd starts manufacturing tinctures and alcohol in Vadodara

1940 Starts manufacturing cough syrups, vitamins and sculpture drugs

1961 Inaugurates penicillin plant

1971 Becomes first Indian company to manufacture Erythromycin

1972 Launches Erythromycin under brand 'Althrocin'

2001 Starts manufacturing Cephalosporin C

2003 Formulation facility set up for regulate markets

2004 R&D facility set up at Vadodara

2006 Receives USFDA approval for API and formulation facilities

2007 Acquires non-oncology division of Dabur Pharma; enters high margin segments such as CVS, diabetes, GI and gynaecology

2010 Azithral sales cross | 100 crore; demerger of pharma business from Alembic Ltd; Alembic Pharmaceuticals formed

2011 Receives Anvisa approval

2015 Makes cumulative filings for 68 ANDAs/NDAs and 73 DMFs; 18 marketing divisions for operations in domestic businessSource: Company, ICICIdirect.com Research

Exhibit 4: FY15 revenue break-up – segment & geography wise

Alembic Pharma| 2051.7 crore

Formulations (~82%)| 1685.2 crore

API (~18%)| 366.5 crore

Domestic (~2%)| 40.2 crore

Exports (~16%)| 326.3 crore

Domestic (~53%)| 1103.2 crore

Exports(~28%)| 582 crore

Branded (~47%)| 980.8 crore

Generic & Animal Health (~6%); | 122.7 crore

Branded (~3%)| 63.5 crore

Generic (25%)| 518.5 crore

US (~18%)| 368.1 crore

Europe/Aus (~7%)| 150.4 crore



Exhibit 5: Formulation sales

917.41081.1 1166.1

1510.41685.5

0.0

500.0

1000.0

1500.0

2000.0

FY11 FY12 FY13 FY14 FY15

(| c

rore

)

Total Formulation

16.4% CAGR


Exhibit 6: API sales

274.4

373.4 350.7 341.8 366.5

-50.0

50.0

150.0

250.0

350.0

450.0

550.0


(| c

rore

)

Total API

7.5% CAGR


Exhibit 7: Formulation sales - Geographic bifurcation

693 783 886 978 1,104

224299

280532

582

0200400600800

10001200140016001800


(| c

rore

)

Domestic Export


Exhibit 8: Domestic branded formulation sales therapeutic bifurcation

347.

1

364.

5

392.

5

396.

5

431.

6

251.

3

310.

5

377.

1

465.

5

549.

2

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0


(| c

rore

)

Acute Speciality


Exhibit 9: Revenues grow at ~14% CAGR in FY11-15

1206.61467.8 1525.9

1868.42067.7

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0


(| c

rore

)

Total Sales

14.4% CAGR


Exhibit 10: Profit grows at ~37% CAGR in FY11-15

82.0

130.0165.1

235.5

285.2

0.0

50.0

100.0

150.0

200.0

250.0

300.0


(| c

rore

)

PAT

36.5% CAGR


Exhibit 11: EBITDA & net profit margins (%) trend

19.7

13.913.3

15.0 16.619.2

6.88.9

10.912.6

0.0

5.0

10.0

15.0

20.0

25.0


(%)

EBITDA Margins PAT Margins


Exhibit 12: Return ratios (%) trend

27.722.7

39.732.9 32.8

34.9

32.2

29.3 31.4 30.8

-

10.0

20.0

30.0

40.0

50.0


(%)

RoE (%) RoCE (%)



Investment Rationale Value unlocking via de-merger from Alembic Ltd The combined Alembic Ltd was a cluster of productive as well as slow-moving business segments that were dragging overall corporate profitability. Exhibit 13 demonstrates that while revenues grew at ~16% CAGR in FY06-10, profitability took a severe beating as the pricing pressure on account of Chinese dumping in the flagship Pen G APIs and investments in some non-core businesses took a toll on margins and return ratios.

Exhibit 13: Alembic Ltd sales and EBITDA margins (FY06-10)

625.5 691.6

990.11099.3 1121.216.7

15.4

6.99.2

14.4

0.0200.0400.0600.0800.0

1000.01200.01400.01600.0


(| c

rore

)

0.0

5.0

10.0

15.0

20.0

(%)

Revenues EBITDA%

15.7% CAGR


Exhibit 14: Alembic Ltd return ratios (FY06-10)

23.8

18.4

32.9

3.3

20.911.720.3

19.4

6.6

10.7

0.05.0

10.015.020.025.030.035.0

FY06 FY07 FY08 FY09 FY10(%

)

RONW(%) ROIC(%)


In FY11, the management took a conscious decision to hive off the most profitable and long term sustainable businesses such as domestic and exports formulations along with select APIs that was renamed Alembic Pharma Ltd. The result was visible in financials as the concentration on more lucrative and remunerative formulations business kept on shaping the company. This brought it to a level where the company can look to expand in the US generic space and at the same time push for more specialty products in the domestic formulations space.

Exhibit 15: APL’s sales and EBITDA margins (FY11-15)

1206.61467.8 1525.9

1868.42067.7

11.915.0

16.619.2 19.7

-200.0

300.0

800.0

1300.0

1800.0

2300.0

2800.0


(| c

rore

)

0.0

5.0

10.0

15.0

20.0

25.0

(%)

Revenues EBITDA Margins

14.4% CAGR


Exhibit 16: APL’s return ratios (FY11-15)

27.732.8 34.9 32.2

20.8

41.6

32.9

35.0 33.1 33.8

0.0

10.0

20.0

30.0

40.0

50.0


(%)

RoNW (%) ROIC (%)


Going ahead, we expect the company to keep on improving the formulations franchisee. We expect export formulations to grow at 39% CAGR to | 1578.7 crore in FY15-18E driven by the US. Similarly, domestic formulations are likely to grow at a CAGR of 16% to | 1722.7 crore in FY15-18E to be driven by focus on specialty pharma.


US key growth driver for generic exports APL’s exports generic business (contributed 25% to revenues in FY15) grew at ~31% CAGR in FY11-15 to | 518.5 crore driven by strong traction in the US (71% of export generic sales). The US traction was on the back of consistent product launches including limited competition products. Despite being a late entrant, the company has done reasonably well with a product basket of 68 ANDA filings with 30 pending approvals. Analysing the quality of filings, the company has stepped further from typical Para III filings to more remunerative Para IV and FTFs (as on FY15, the company owned ~34 Para IV filings compared to nil in FY09). The company has already demonstrated the required capabilities by securing approvals of limited completion products such as gAbilify (aripiprazole; CNS), gExforge (Amlodipine and Valsartan; CVS), gCelebrex (Celecoxib; Pain) and gMicardis (Telmisartan; CVS). APL’s FY15 growth in the US was just 11% YoY due to high base, price erosion in some products and lack of new product approvals. However, the company has started FY16 on a strong footing with approved products such as gAbilify (~US$5 billion annual sales; ~10% market share), gExforge (~US$ 400 million) and gCelebrex (~US$ 2.4 billion). The company has launched gAbilify under shared exclusivity. Due to limited competition and with the assumption of ~10% market share during the exclusivity period, we expect gAbilify to contribute ~US$80 million to its revenues for FY16. Even on a normalised basis (ex-gAbilify), with the assumption of eight to ten annual product launches, we expect the company to generate US$ 35-45 million incremental annual sales from the US, which will translate into a CAGR of 46% over FY15-18E in the US. We have not considered any windfall gains like gAbilify in our future projection.

Exhibit 17: US sales trend

74.7 145.1 129.7331.7 368.1

1325.0

1114.4 1019.7

0.0200.0400.0600.0800.0

1000.01200.01400.01600.0

FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

(| c

rore

)

US Sales

49% CAGR

53.2% CAGR


Exhibit 18: ANDA filings & approvals

15 19 24 31 3723

2633

3031

3845

57 6168

01020304050607080


Nos

.

Approved Pending Total Filings



Exhibit 19: List of select Para IV filings

Brand Generic NDA Holder Therapy FTF Comment

Abilify apriprazole Otsuka Limited CNS 4,900 Yes Approved Shared Exclusivity

Exelon rivastigmine tartrate Novartis Limited CNS NA NA Approved

Lyrica pregabalin Pfizer Extensive CNS 4,800 No Any time 4 Approvals and 8 Tentative approvals

Multaq dronedarone hydrochloride Sanofi Limited CVS 350 Yes FY17 7 Para IV filers; Expect Share exclusivity for APL

Pristiq desvenlafaxine Pfizer Extensive CNS 900 Yes Approved 18 Para IV filers; expect share exclusivity for APL

Uloric hyperuricemia Takeda Extensive Nephrology 475 Yes FY19 8 Para IV filers; expect shared exclusivity for APL

Viibryd Vilazodone Hydrochloride Forest Labs Limited CNS 350 Yes FY20 3 Para IV filers; expect shared exclusivity for APL

Vimpat lacosamide UCB Extensive CNS 650 Yes FY18 7 companies have TA & expect Shared exclusivity

Namenda Memantine Hydrochloride Forest Labs Extensive CNS 2,000 No Any time APL has Tentative approval

TOVIAZ Fesoterodine Fumarate Pfizer Extensive Urology 300 No Any time Multiple launched; APL has Tentative approval

Celebrex Celecoxib GD Searle Limited Pain 3,500 No Approved 6 Players have launched

Exp. LaunchCompetition

uSales

(US$m)

Exhibit 20: List of select DMF filings Strong DMF filings

Brand Generic NDA Holder Therapy FTF Comment

Vesicare Solifenacin Succinate Astellas Extensive Urology 1,261 No Any time multiple DMFs

Levitra Vardenafil HCL GSK Limited Sex stimulant 250 No Any timeTeva has launched, Watson has received approval for 10mg

Topamax Topiramate Janssen Pharms Extensive CNS 439 No Any time generics

Prozac Fluoxetine Hydrochloride Eli Lilly Limited CNS 476 No Any timeProzac Weekly Expired; Launched By DRL and Par Pharma

Zomig Zolmitriptan Astrazeneca Extensive CNS 325 No Any time Multiple approvals

Plendil Felodipine AZ Extensive CVS 141 No Any time Multiple approvals

Sular Nisoldipine Shionogi Inc Extensive CVS 106 No Any time Mylan has launched in 2011; 8 DMFs

Plavix Clopidogrel Bisulfate Sanofi Extensive CVS 7,090 No Any time Multiple approvals

Aciphex Rabeprazole Sodium Eisai Inc Extensive GI NA No Any time DRL, Lupin, mylan, torrent, teva have launched

Coumadin Warfarin Sodium Clathrate Bristol Myers Squibb Extensive CVS 884 No Any time Multiple approvals

Coumadin Warfarin Sodium Bristol Myers Squibb Extensive CVS 884 No Any time Multiple approvals

Wellbutrin Bupropion Hydrochloride GSK Extensive CNS 490 No Any time Multiple approvals

Atacand Candesartan Cilexetil Astrazeneca Extensive CVS NA No Any time Apotex and Sandoz launched

Toprol-Xl Metoprolol Succinate Astrazeneca Pharms Extensive CVS 2,423 No Any time Multiple approvals

Mexitil Mexiletine Hydrochloride Boehringer Ingelheim Limited CVS NA No Any timeInnovator and another Generic (Sandoz)discontinued. Only Teva has approval

NA Erythromycin NA Extensive Antibiotic NA No Any time Multiple approvals

Elmiron Pentosan Polysulfate Sodium Janssen Pharms Limited CVS 341 No Any time No Para IV ; only 6 DMF filers

Keppra Levetiracetam UCB Inc. Extensive CNS 3,014 No Any timeMultiple approvals, Market size was USD1b beforegenerics

Fosamax Alendronate Sodium Merck Extensive Osteoporosis 1,392 No Any time Multiple approvals

Biaxin Clarithromycin Abbvie Extensive Antibiotic 267 No Any time Multiple approvals

Pletal Cilostazol Otsuka Pharma Extensive CVS NA No Any time entered

Enablex Darifenacin Hydrobromide Warner Chilcott Llc Limited Urology 148 No FY16Anchan pharma has launched in march 13, 2015; total 4 para IV filers

Zyvox Linezolid Pfizer Extensive Antibiotic 375 No FY16Teva has launched in feb 2015; multiple tentative approvals

Tracleer Bosentan Actelion Pharms Ltd Extensive CVS 129 No FY17 No para IV; many DMFs

Benicar Olmesartan Medoxomil Daiichi Sankyo Extensive CVS 1,174 No FY17 Mylan, Sandoz and Teva has TA

Cialis Tadalafil Eli Lilly Extensive Sex stimulant 2,047 No FY17Synthon Pharma is the only Para IV filer; multiple DMFs

Fanapt Iloperidone Novartis Limited CNS 101 No FY18 2 para IV filers; 5 DMFs

Effient Prasugrel Hydrochloride Eli Lilly Extensive CVS 609 No FY18 Multiple filers

Gilenya Fingolimod Hydrochloride Novartis Extensive CNS 1319 No FY19 3 Para IV filers; first file was done on dec 2014

Pradaxa Dabigatran Etexilate Mesylate Boehringer Ingelheim Extensive CVS 1069 No FY19 3 Para IV filers; first file was done on dec 2014

Brilinta Ticagrelor AZ Extensive CVS 224 No FY19 multiple DMFs

Exjade Deferasirox Novartis Extensive Blood Disorder 240 No FY20 Mylan and actavis has filed Para IV; 13 DMF filings

Saphris Asenapine Maleate Merck Extensive CNS 233 No FY21 2 Para IV

Xarelto Rivaroxaban Janssen Pharms Extensive CVS 2373 No FY21 No para IV; multiple DMF filings

Fibricor Fenofibric Acid Mutual Pharm Co Inc Limited CVS NA No FY27 Only 3 DMFs; nop para IV filers

Exp. LaunchCompetition

uSales

(US$m)

Source: USFDA, Bloomberg, ICICIdirect.com Research


gAbilify windfall can improve financials similar to Torrent Along with three more companies (Teva, Hetero and Torrent), APL has launched gAbilify in the US in May 2015. Abilify registered sales of ~US$5 billion before patent expiry. Piggybacking on the gAbilify launch, Torrent’s Q1FY16 US revenues increased 230% to | 888 crore while EBITDA margins expanded 1570 bps to 46.7%. Similarly, in FY14, Torrent registered strong cash flows thanks to the co-exclusive launch of gCymbalta (~US$5.4 billion annual sales) in December 2013 and generated ~| 350 crore in the exclusivity period. That windfall sharply increased its US sales and EBITDA margins. We expect a similar opportunity to pan out for APL in gAbilify. Assuming revenue sharing, ~10% market share and no major price erosion, we expect APL to generate ~| 500 crore under exclusivity. However, due to overcrowding in the post-exclusivity space, we expect sharp price erosion.

Exhibit 21: Torrent Pharma’s revenues and EBITDA margins

113.0115.0148.0

400.0269.0

167.0171.7224.0

888

31.0

14.0

46.7

21.4 18.4 21.2 28.622.4

20.5

0.0

200.0

400.0

600.0

800.0

1000.0

Q1FY

14

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

(| c

rore

)

0.0

10.0

20.0

30.0

40.0

50.0%

US revenue EBITDA Margin

gCymbalta windfall

gAbilify windfall


Exhibit 22: APL’s revenues and EBITDA margins

85.5

113.7129.6 136.7

113.8 123.5 133.3147.9

167.7

16.7 19.1 21.0 19.7 19.4 19.8 20.0 19.6

17.5

0.020.040.060.080.0

100.0120.0140.0160.0180.0

Q1FY

14

Q2FY

14

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

Q4FY

15

Q1FY

16

(| c

rore

)

10.0

15.0

20.0

25.0

30.0

%

Export generic EBITDA margin


Front-end US team to provide better control The company has struck numerous marketing alliances in developed markets with established players to de-risk its business model. However, for the US, APL is envisaging deploying its own front-end team to maintain a better negotiating channel with distributors and retailers. The team is expected to be operational from FY17. With its own team, we expect the company to have better control on its product launches.

Exhibit 23: Abilify market share in US

0%20%40%60%80%

100%120%

24-A

pr-1

5

1-M

ay-1

5

8-M

ay-1

5

15-M

ay-1

5

22-M

ay-1

5

29-M

ay-1

5

5-Ju

n-15

12-J

un-1

5

19-J

un-1

5

26-J

un-1

5

3-Ju

l-15

10-J

ul-1

5

17-J

ul-1

5

24-J

ul-1

5

31-J

ul-1

5

7-Au

g-15

14-A

ug-1

5

Otsuka Teva Camber Pharma

Torrent Pharmac Trigen Lab/APL Apotex Corp

Torrent and APL gained ~10% market share each during exclusivity period

Source: Bloomberg, ICICIdirect.com Research


Ex-US generic sales to grow at 12% CAGR over FY15-18E Ex-US generic sales business (~7% of revenues) grew at ~11% CAGR over FY11-15. The environment in Europe remains challenging with tenderisation and pricing pressure. We expect the company’s Ex-US generic sales revenue to grow at 12% CAGR in FY15-18E to | 211 crore on the back of new product launches.

The company’s generic contribution to total revenues increased to 30.8% in FY15 from 18.9% in FY11 on account of incremental US contribution. We expect the export generic business to grow at a CAGR of ~40% in FY15-18E to | 1579 crore on the back of strong growth in the US base business and gAbilify launch.

Exhibit 25: Export generics as percentage of sales

14.4 16.5 15.4

25.0 25.1

42.638.1

40.7

0.05.0

10.015.020.025.030.035.040.045.0


(%)

Export Generic as % of Sales


Exhibit 26: Export formulations

224.0 298.5 279.8534.7 582.0

1320.6 1248.8

1578.7

0.0

500.0

1000.0

1500.0

2000.0


(| c

rore

)

Export Formulations

27.0% CAGR

39.5% CAGR


Shaping up domestic branded formulations for fast growth Over the years, APL has developed power brands like Azithral and Althrocin in the anti-infective segment. Historically, the company’s domestic portfolio was tilted more towards acute therapies, especially the anti-infective segment. Anti-infective was in fact the identity for APL. However, most of these products came under price control - some under DPCO 1990 and more under NLEM 2011 later. Hence, to mitigate the price control impact, the erstwhile Alembic Ltd acquired the non-oncology portfolio of Dabur Pharma in 2007. Gradually, the company restricted its anti-infective focus to key legacy brands and diverted the resources

Exhibit 24: Ex-US generic sales

99.1 96.7 106.1134.3

150.4168.4

188.6211.3

0.0

50.0

100.0

150.0

200.0

250.0


(| c

rore

)

Europe

11% CAGR

12% CAGR

Source: Bloomberg, ICICIdirect.com Research


towards speciality segments. Domestic formulation sales (53% of total revenues in FY15) grew at 12% CAGR over FY11-15 to | 1104 crore mainly due to strong growth in the specialty segment. The specialty portfolio grew at ~22% CAGR in FY11-15. At the same time, the anti-infective segment contribution reduced ~915 bps, resulting in an improvement in the acute: speciality ratio to 44:56 in FY15 from 58:42 in FY11.

Exhibit 27: Domestic branded formulations break-up

58 54 51 46 44 39 37 35

42 46 49 54 56 61 63 65

0

20

40

60

80

100

120


(%)

Acute Specility


Exhibit 28: Domestic formulations growth

693.4 782.6 886.3 978.3 1103.51269.6

1477.61722.7

0.0

500.0

1000.0

1500.0

2000.0


(| c

rore

)

Domestic Formulation

12.3% CAGR

16% CAGR


Exhibit 29: Therapy-wise break-up of domestic branded formulations (| crore)

Therapy FY13 FY14 FY15 FY16E FY17E FY18E

Anti-Infectives 355.4 330.3 333.4 337.2 354.1 371.8

GI 126.9 143.8 162.9 185.9 210.6 238.6

Respiratory 116.3 132.0 155.2 180.8 212.6 250.0

Cardiac 78.9 102.1 127.1 164.6 204.9 255.1

Gynaecological 66.7 87.4 109.7 137.7 172.8 216.9

Vitamins 63.9 70.1 72.8 77.0 80.9 84.9

Anti Diabetic 35.4 46.6 57.0 73.6 92.0 114.9

Others 97.3 123.8 147.4 177.2 216.2 263.7

Total 940.9 1,035.9 1,165.5 1,333.9 1,544.0 1796.0

Source: AIOCD data base MAT August 2015 data, ICICIdirect.com Research

Exhibit 30: Fast growing top 10 speciality products (| crore)

Brand Therapy MAT Aug'15 MAT Aug'14 Growth (%)

Gestofit Gynaecological 46.6 36.9 26.3

Ulgel GI 31.4 25.8 21.9

Glisen MF Anti Diabetic 22.4 17.0 31.4

Rekool GI 21.7 17.3 25.2

Sharkoferrol Vitamins 21.7 17.2 26.1

Tellzy Cardiac 16.4 11.6 41.3

Richar Gynaecological 15.2 7.0 118.6

Tellzy AM Cardiac 12.5 8.3 50.6

Tellzy CH Cardiac 12.3 6.3 94.6

Rosave Cardiac 11.2 8.7 29.7

Crina N Gynaecological 8.8 2.1 311.2

Freego GI 7.8 4.6 69.8

Grocapix Derma 7.4 4.5 63.9

Glisen PM Anti Diabetic 7.3 5.2 40.6 Source: AIOCD data base MAT August 2015 data, ICICIdirect.com Research


With 5000 MRs at its disposal, the company enjoys a wide reach among doctors. APL has added ~1400 MRs in the past two years to widen its focus on the specialty segment by introducing more divisions within segments. We expect the domestic speciality segment to maintain its strong growth trajectory backed by its aggressive approach of introducing new divisions and launching products in existing & new therapeutic areas. While the acute segment growth is likely to recover, it would remain in single digits in the near future. We expect domestic branded formulations to grow at a CAGR of 17.3% to | 1584.3 crore in FY15-18E. Exhibit 31: Increase in MR strength

33003600

4000

5000

0

1000

2000

3000

4000

5000

6000

FY12 FY13 FY14 FY15

Nos

.

Field Force


Exhibit 32: APL’s domestic revenue growth vs. I-direct coverage growth (select companies)

13.8

16.8

11.8

15.717.1 17.7 17.0

12.9 13.2

10.4

12.8

15.0 16.4 16.6

0.02.04.06.08.0

10.012.014.016.018.020.0

FY12 FY13 FY14 FY15 FY16 FY17 FY18

(%)

I-Direct Coverage Growth Rate Alembic Pharma Growth Rate


Better product mix to improve margins The EBITDA margins have improved ~470 bps over FY11-15 to 19.7% on the back of a better product mix in the domestic market and incremental shipments to the US. In domestic branded formulations, the share of the high margin speciality segment has gone up from 42% in FY11 to 56% in FY15 at the cost of some acute therapy brands. Similarly, in case of export formulations, the percentage of US sales (including Canada) has gone up from 14.4% in FY11 to 25.1% in FY15. Going ahead, we expect the uptrend in margins to continue as the company keeps on pushing more specialty products in domestic markets and generics in the US. We expect the EBITDA margin to expand ~390 bps to 23.6% by FY18E to be driven by 1) increased exposure of specialty segment to 65% of total domestic branded sales by FY18E from 56% in FY15, 2) lower


outsourcing in the domestic formulation post the commercialisation of the Sikkim facility from FY17, 3) higher US exposure - 35% of total sales by FY18E from 18% in FY15 and 4) launch of own products in the US through front end from FY17 as opposed to partnership model currently.

Exhibit 33: Margin improvement driven by product mix

27.031.0

33.242.7

44.460.1 59.1 62.7

13.3 15.0 16.619.2 19.7

27.2

22.6 23.6

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0


(% o

f Sal

es)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

(%)

US + Domestic Speciality EBITDA Margins


Exhibit 34: EBITDA & PAT margins

19.6

27.2

22.6 23.6

13.8

20.317.0 18.0

13.315.0 16.6

19.2

7.18.9 10.9

12.6

0.0

5.0

10.0

15.0

20.0

25.0

30.0


(%)

EBITDA Margins PAT Margins


Incremental R&D spend to support future growth especially in US

R&D spend as percentage of sales has expanded ~265 bps to 5.9% of sales in FY11-15 mainly to support the US business. The spike was also on account of incremental Para IV and FTF filings as well as due to proposed forays into the dermatology and injectable segments. Henceforth, most filings are likely to be in complex/niche segments with different forms that require higher R&D spend. We expect the company’s R&D spend to further increase ~160 bps to 7.5% over FY15-18E.

Exhibit 35: Higher R&D spend in line with US traction

74.7 145.1 129.7

331.7 368.1

606.3

1,019.7

1,325.0

3.92.2

3.9

6.35.9

6.67.5

7.5

-

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0


(| c

rore

)

0.01.02.03.04.05.06.07.08.0

(%)

US base business sales R&D as % of Sales


Exhibit 36: R&D spend trend

46.8 31.759.8

116.2 121.5

189.0

233.1277.9

3.9

2.2

3.9

6.3 5.96.6

7.5

7.5

0.0

50.0

100.0

150.0

200.0

250.0

300.0


(| c

rore

)

0.01.02.03.04.05.06.07.08.0

(%)

R&D Spend R&D as % of Sales



Financials Revenues to grow at ~22% CAGR in FY15-18E

Total revenues grew at 14.4% CAGR in FY11-15 mainly due to strong growth in the domestic specialty segment and increased export generic contributions. We expect domestic growth to continue to be driven by the specialty segment on the back of new product launches and addition of new specialty segments/sub-segments. On the export front, the US remains a key growth driver backed by a healthy product pipeline to support base business growth. We expect total revenues to grow at 22.3% CAGR in FY15-18E to | 3757.9 crore to be driven by domestic branded formulations and generic exports formulations. Exhibit 37: Revenues to grow at 22.3% CAGR in FY15-18E

1206.61467.8 1525.9

1868.4 2067.7

3014.6 3169.1

3771.6

0.0500.0

1000.01500.02000.02500.03000.03500.04000.04500.0


(| c

rore

)

Total Sales

14.4% CAGR

22.3% CAGR


EBITDA margins to expand ~400 bps over FY15-18E The EBITDA margins have improved ~470 bps in FY11-15 to 19.7% on the back of a better product mix in the domestic market and incremental shipments to the US. We expect the EBITDA margin to expand ~390 bps to 23.6% by FY18E to be driven by 1) increased exposure to specialty segment to 65% of total domestic branded sales by FY18E from 56% in FY15, 2) lower outsourcing in domestic formulations post the commercialisation of the Sikkim facility from FY17, 3) higher US exposure - 35% of total sales by FY18E from 18% in FY15 and 4) launch of own products in the US through front end from FY17 as opposed to the partnership model currently.

Exhibit 38: EBITDA and EBITDA margins trend

160.2219.4 252.0

357.7405.5

816.6714.8

888.3

22.623.6

13.315.0

16.619.2

19.7

27.2

0.0

200.0

400.0

600.0

800.0

1000.0


(| c

rore

)

10.0

15.0

20.0

25.0

30.0

(%)

EBITDA EBITDA Margins



Net profit to grow at ~33% CAGR in FY15-18E The net profit grew at 36.5% CAGR to | 285.2 crore in FY11-15 led by a better operational performance and a reduced interest burden. We expect the net profit to grow at a CAGR of 33.4% over FY15-18E to | 677.8 crore mainly due to a strong operational performance. Exhibit 39: Net profit witnessing healthy CAGR

82.0130.0 165.1

235.5285.2

610.1536.0

677.8

0.0100.0200.0300.0400.0500.0600.0700.0800.0


(| c

rore

)

PAT

36.5% CAGR

33.4% CAGR


Healthy return ratios The company’s RoE has improved 720 bps to 34.9% over FY11-14 mainly due to reduced leverage and an improved operational performance. In FY15, however, the RoE came down to 32.2% mainly due to a sharp increase in capex (| 215 crore) for development of a new formulation plant in Sikkim, de-bottlenecking in API facility and investment in JVs (| 37 crore). We expect the company’s normalised RoE to remain at 30%+ despite the aggressive capex plans. Exhibit 40: DuPont Analysis

FY13 FY14 FY15 FY16E FY17E FY18E

Tax burden (Net income/PBT) (%) 80.1 75.8 78.9 79.0 79.1 79.3

Interest burden (PBT/EBIT) (%) 95.1 97.9 100.1 101.5 103.2 103.4

EBIT margin (EBIT/Revenues) (%) 14.3 17.0 17.6 25.4 20.8 22.0

Asset Turnover (Revenues/ Total Assets) (x) 1.5 1.5 1.4 1.5 1.3 1.2

Leverage (Total Assets/ equtiy) (x) 2.1 1.8 1.7 1.6 1.5 1.4

Du Pont RoE 32.8 34.9 32.2 46.3 31.5 31.1


Exhibit 41: Net profit witnessing healthy CAGR

27.722.7

39.735.2

32.9 32.8

34.9

32.2

46.3

31.5 31.129.3 31.4 30.8

48.7

34.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0


(%)

RoE (%) RoCE (%)



gAbilify to improve free cash flow in FY16 While the gAbilify opportunity is likely to be a windfall in FY16, we expect APL to maintain the high FCFF run rate on the back of a better product mix beyond FY16. Exhibit 42: Free cash flow (| crore) FY14 FY15 FY16E FY17E FY18ENet Profit 235.5 285.2 610.1 536.0 677.8Depreciation 40.5 44.4 55.2 58.4 61.7Change in Working Capi -70.9 -160.4 -106.3 -248.8 -376.2Capex -81.0 -223.5 -220.0 -60.0 -60.0FCFF 124.1 -54.3 339.0 285.6 303.3



Risk & concerns Increased USFDA scrutiny The fallout from the impending patent cliff is the increased intensity of the USFDA scrutiny. As increasing number of drugs were coming out of patent protection, the inspection intensity for hitherto unknown players was bound to increase to comply with required quality standards. Even the pattern of inspection has changed with more surprises and greater focus on data integrity besides quality. With maximum number of USFDA approved plants outside the US, Indian players received maximum number of import alerts and warning letters. Even established players had to contend with the USFDA embargo besides scores of other Indian companies. The company has just a single USFDA approved formulation plant. Hence, any adverse outcome from the USFDA could impact APL’s US business prospects. Secondly, ~70% of its formulation sales are backward integrated. Thus, any adverse observation on its API facilities may also have negative implications.

Exhibit 43: Import alerts to Indian pharmaceutical companies

12 1417

44

20

10

0

72

21

7 5

0

10

20

30

40

50

CY10 CY11 CY12 CY13 CY14 CY15YTD

Nos

.

Total Import Alerts Import Alerts to Indian Facilities

Source: Lupin Presentation, ICICIdirect.com, Research

Exhibit 44: Warning letters to Indian pharmaceutical companies

16

2022 21

18

53

5

1

7 7

3

0

5

10

15

20

25

CY10 CY11 CY12 CY13 CY14 CY15YTD

Nos

.

Total Warning Letters Warning Letters to Indian Facilities

Source: Lupin Presentation, ICICIdirect.com, Research

Extension of NLEM product list may impact domestic branded formulations Around 25-30% of APL’s domestic branded formulations are under the NLEM list. Although most of these products are from the acute segment, recent instances show that specialty segment products have also been included in the extended NLEM list. Also, on account of introduction of uniform pricing from April 2015 the company had to initiate a price cut in its flagship Althrocin brand to the tune of 20%. Note that domestic branded formulations remain the most profitable segment for APL.


Valuation APL’s financial performance has vindicated the decision of the management of value unlocking via hiving off the pharma business. Since then, the company has kept on restructuring, from API to formulation and then from the slow moving acute segment to the fast growing specialty segment in the domestic market. Now, it is moving from the alliance model to front-end in the US. The journey, so far, has been quite lucrative with sound revenue growth, constant margin improvement, leverage free balance sheet with healthy return ratios and strong free cash flows. We expect revenues, EBITDA and PAT to grow at a CAGR of 22%, 30% and 33% in FY15-18E, mainly driven by 1) strong growth in the US on the back of gAbilify like launches and a robust product pipeline and 2) domestic growth on the back of strong growth in the specialty segment. On the EBITDA margin front, we expect ~390 bps expansion in FY15-18E, despite higher R&D spending, on the back of improved quality of earnings. Brand pedigree in Indian branded formulations and US foray with few select launches together with a light balance sheet and healthy return ratios are some typical attributes of a well established Indian pharma company. APL is no exception to the case. With domestic formulation growth staying around 16% and USFDA approvals forthcoming, the company is well poised to maintain the growth tempo for years to come. The management identified this potential five years back and hived off these businesses well in time. We have ascribed a target price of | 790 based on 22x FY18E EPS of | 36.0.

Exhibit 45: Peer comparison

FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E

Alembic Pharma 44.8 20.9 23.8 32.1 15.9 18.1 30.8 48.7 34.7 32.2 46.3 31.5 14.4 9.7 7.5

Ajanta Pharma 41.4 31.6 25.4 25.2 20.8 16.5 50.3 46.9 42.8 37.8 34.8 32.1 15.2 11.0 8.2

Indoco Remedies 36.5 26.1 17.1 18.5 14.8 10.7 19.8 22.3 28.0 16.0 19.0 23.4 5.8 5.0 4.0

Torrent Pharma 31.7 14.9 17.8 25.2 9.7 13.1 20.1 45.5 30.8 30.2 44.4 29.0 9.6 6.6 5.2

Unichem Laboratories 34.1 19.2 13.4 24.8 12.9 9.0 8.4 17.1 21.5 8.7 14.5 18.4 3.0 2.8 2.5

I-Direct Coverage 30.7 28.1 20.7 27.2 22.1 17.3 19.2 22.8 24.7 18.6 21.8 22.7 6.8 5.8 4.7

P/BV (x)P/E (x) EV/EBITDA (x) RoCE (%) RoE (%)



Exhibit 46: Return matrix of APL vis-à-vis peers

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

10/1

/201

1

12/1

/201

1

2/1/

2012

4/1/

2012

6/1/

2012

8/1/

2012

10/1

/201

2

12/1

/201

2

2/1/

2013

4/1/

2013

6/1/

2013

8/1/

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10/1

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3

12/1

/201

3

2/1/

2014

4/1/

2014

6/1/

2014

8/1/

2014

10/1

/201

4

12/1

/201

4

2/1/

2015

4/1/

2015

6/1/

2015

8/1/

2015

x

APL Ajanta Pharma Torrent Pharma Indoco Remedies Unichem Labs

Source: Reuters, ICICIdirect.com Research

Exhibit 47: One year forward P/E on rolling basis

0100200300400500600700800900

Sep-

11

Mar

-12

Sep-

12

Mar

-13

Sep-

13

Mar

-14

Sep-

14

Mar

-15

(|)

Price 25.9x 22.2x 18.5x 16.7x 13.0x



Exhibit 48: One Year Forward PE comparison with CNX Pharma Index and BSE Sensex

0

5

10

15

20

25

30

35

Sep-

11

Feb-

12

Jul-1

2

Dec-

12

May

-13

Oct-1

3

Mar

-14

Aug-

14

Jan-

15

Jun-

15

PE (x

)

APL CNX Pharma BSE Sensex


Exhibit 49: One year forward EV/EBITDA on rolling basis s

0.0

2000.0

4000.0

6000.08000.0

10000.0

12000.0

14000.0

16000.0

Sep-

11

Dec-

11

Mar

-12

Jun-

12

Sep-

12

Dec-

12

Mar

-13

Jun-

13

Sep-

13

Dec-

13

Mar

-14

Jun-

14

Sep-

14

Dec-

14

Mar

-15

Jun-

15

(| c

rore

)

EV 17.4x 14.9x 12.4x 7.4x



Exhibit 50: Profit & Loss Statement (Year-end March) | crore FY15 FY16E FY17E FY18ERevenues 2,056.2 2,999.4 3,157.5 3,757.9Growth (%) 10.4 45.9 5.3 19.0Raw Material Expenses 714.5 853.8 1,071.7 1,237.9Employee Expenses 306.8 354.3 409.8 506.4Other Manufacturing Expenses 507.9 553.9 724.9 844.0Total Operating Expenditure 1,650.8 2,182.7 2,442.7 2,869.6

EBITDA 405.5 816.6 714.8 888.3Growth (%) 13.4 101.4 -12.5 24.3Interest 1.8 1.0 0.2 0.1Depreciation 44.4 55.2 58.4 61.7Other Income 2.3 12.2 21.2 28.3

PBT 361.6 772.6 677.3 854.8Total Tax 76.4 162.5 141.3 176.9

Adjusted PAT 285.2 610.1 536.0 677.8Growth (%) 21.1 113.9 -12.1 26.5EPS (Adjusted) 15.1 32.4 28.4 36.0


Exhibit 51: Balance Sheet (Year-end March) | crore FY15 FY16E FY17E FY18EEquity Capital 37.7 37.7 37.7 37.7Reserve and Surplus 846.9 1,280.4 1,661.2 2,142.9Total Shareholders funds 884.6 1,318.1 1,698.9 2,180.6Total Debt 263.4 238.4 219.6 219.6Deferred Tax Liability 47.7 47.7 47.7 47.7Minority Interest 0.0 0.0 0.0 0.0Source of Funds 1,195.8 1,604.2 1,966.3 2,447.9Gross Block - Fixed Assets 825.8 1,025.8 1,085.8 1,145.8Accumulated Depreciation 314.2 369.4 427.8 489.5Net Block 511.6 656.4 658.0 656.3Capital WIP 83.1 103.1 103.1 103.1Total Fixed Assets 594.7 759.5 761.1 759.4Goodwill on Consolidation 35.3 35.3 35.3 35.3Investments 2.3 142.3 242.3 342.3Inventory 382.8 464.0 586.6 698.1Cash 27.0 24.4 36.1 43.2Debtors 361.2 437.8 553.5 658.7Loans & Advances & Other CA 119.8 234.8 344.8 594.8Total Current Assets 890.7 1,160.9 1,521.0 1,994.8Creditors 310.9 376.8 476.4 567.0Provisions & Other CL 150.7 220.7 220.7 220.7Total Current Liabilities 461.6 597.6 697.2 787.7Net Current Assets 429.1 563.4 823.8 1,207.1LT L& A, Other Assets 118.2 87.6 87.6 87.6Deferred Tax Assets 16.2 16.2 16.2 16.2Application of Funds 1,195.8 1,604.2 1,966.3 2,447.9



Exhibit 52: Cash Flow Statement

(Year-end March) | crore FY15 FY16E FY17E FY18EProfit/(Loss) after taxation 285.2 610.1 536.0 677.8Depreciation 44.4 55.2 58.4 61.7Net Increase in Current Assets -243.0 -242.2 -348.4 -466.7Net Increase in Current Liabilities 82.7 136.0 99.6 90.6CF from operating activities 169.3 559.0 345.6 363.3

(Inc)/dec in Investments -34.2 -140.0 -100.0 -100.0(Inc)/dec in Fixed Assets -223.5 -220.0 -60.0 -60.0Others 2.1 0.0 0.0 0.0CF from investing activities -255.6 -360.0 -160.0 -160.0

Inc / (Dec) in Equity Capital 0.0 0.0 0.0 0.0Inc / (Dec) in Loan 157.1 -25.0 -18.8 0.0Dividend & Dividend Tax -65.5 -176.6 -155.2 -196.2CF from financing activities 91.6 -201.6 -174.0 -196.2

Net Cash flow 5.2 -2.6 11.7 7.1Opening Cash 21.8 27.0 24.4 36.1Closing Cash 27.0 24.4 36.1 43.2


Exhibit 53: Key Ratios

(Year-end March) FY15 FY16E FY17E FY18EPer share data (|)Reported EPS 15.1 32.4 28.4 36.0Cash EPS 10.6 23.0 20.2 25.5BV per share 46.9 69.9 90.1 115.7Dividend per share 4.6 9.4 8.2 10.4Cash Per Share 1.4 1.3 1.9 2.3Operating Ratios (%)EBITDA / Net Sales 19.7 27.2 22.6 23.6EBIT / Net Sales 17.6 25.4 20.8 22.0PAT / Net Sales 13.9 20.3 17.0 18.0Inventory days 67.9 56.5 67.8 67.8Debtor days 64.1 53.3 64.0 64.0Creditor days 55.2 45.9 55.1 55.1Return Ratios (%)RoE 32.2 46.3 31.5 31.1RoCE 30.8 48.7 34.7 35.2RoIC 33.8 52.1 36.2 36.2Valuation Ratios (x)P/E 44.8 20.9 23.8 18.9EV / EBITDA 32.1 15.9 18.1 14.6EV / Net Sales 6.3 4.3 4.1 3.4Market Cap / Sales 6.2 4.3 4.0 3.4Price to Book Value 14.4 9.7 7.5 5.9Solvency RatiosDebt / Equity 0.3 0.2 0.1 0.1Debt / EBITDA 0.6 0.3 0.3 0.2Current Ratio 1.9 1.9 2.1 2.5Quick Ratio 1.0 1.1 1.3 1.6



RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]


ANALYST CERTIFICATION We /I, Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Nandan Kamat MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. 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ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Nandan Kamat MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Nandan Kamat MBA, Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. 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