14 january 2021 sector update pharma - ample catalysts... · 2021. 1. 14. · pharma hsie research...

14 January 2021 Sector Update

Pharma

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

Ample catalysts to sustain luster We see several growth catalysts across key markets and product categories

(inhalers, biosimilars, complex injectables) playing out over the next 2-3 years

for Indian pharma companies. The investments made over the last few years

leave them well placed to capitalise on these opportunities. With cost bases

pruned and operating leverage benefits, the sector is poised to grow at ~21%

earnings CAGR and witness ROCE improvement of 430bps to 15% over FY20-

23e. This, coupled with strong balance sheets (near debt-free), should support

valuations, in our view. BSE HC Index has outperformed Nifty by ~47% in the

past one year and trades at ~29x 1-yr forward, ~30% above its historical

average and ~22% premium to Nifty (vs. 10-yr average of 31%).

India biz remains attractive; chronic leads, vitamins strength could sustain

While chronic therapies continue to lead (Torrent, Lupin, Cipla to benefit), we

see Vitamins as a promising therapy that could sustain higher growth, led by

Covid induced changes in nutrition awareness and habits (Exhibit 17). The

recovery in acute therapies will further consolidate market share gains for

companies with strong therapeutic presence and leading brands (Alkem).

Progress on complex pipeline in US augurs well for growth and profitability

The share of injectables, specialty, biosimilars, and complex products in US

revenues is expected to increase from ~22% in FY20 to ~33% in FY23e, for our

covered universe. Improving quality of pipeline in the US will not only ensure

that the growth rates hold up better but will also drive higher profitability.

API business sees the turn of fortunes, PLI benefits a few years away

The strong performance in 1HFY21 (21% YoY for the covered universe) was

driven by factors such as customer stocking, pricing/currency benefits, which

have largely normalised. However, the broader demand environment remains

strong, driven by structural tailwinds (supply chain de-risk, PLI scheme), and is

likely to drive healthy growth over the next few years. PLI scheme benefits are a

few years away and will majorly benefit MSME players. Sun, Aurobindo, Lupin

are likely to have participated, among covered companies (Exhibit 35).

Covid vaccine monetisation offers upside potential, not factored in estimates

Vaccine monetisation can add material cash flows, although upsides will be for

limited period and contingent on several variables (pricing, competition,

capacity). We see three possible ways of monetising with varying degree of

lucrativeness: a) develop/ manufacture own vaccine; b) undertake third party

manufacturing; c) distribute vaccines. Among covered companies, Aurobindo,

Cadila and Dr. Reddy's are in the race to monetize this opportunity (Exhibit 36).

Cost savings, moderating investments to drive return ratios higher

Investments in R&D/capex have peaked and are likely to be more targeted

towards complex filings/capabilities going forward. With cost bases rationalised,

operating leverage benefits will drive margin expansion of ~350bps over FY20-

23e. We expect sector RoCE to improve by 430bps to ~15% in the same period.

Top picks are Alkem, Aurobindo, Cipla and Lupin

We like Alkem (the best play on acute recovery), Aurobindo (building complex

pipeline, Covid upsides), Cipla (strong India franchise, inhalers monetisation)

and Lupin (chronic focused portfolio, inhalers, operating leverage).

Stock Rating CMP TP

Sun Pharma ADD 510 645

Dr .Reddy's ADD 5,125 5,745

Cipla BUY 773 1,015

Aurobindo BUY 803 1,050

Cadila ADD 465 495

Torrent ADD 2,699 2,875

Lupin BUY 1,005 1,280

Alkem BUY 2,954 3,560

Sector RoCE (%)

Source: Companies, HSIE Research

Consensus Earnings Revision

Source: Bloomberg, HSIE Research, Nifty

Pharma Index

We roll forward our target price to

Mar’23 EPS (from Sep’22). Our

ratings remain unchanged.

Q3Preview – Exhibit 40, pg 16

Key Risks – Slowdown in IPM,

delay in plant resolutions and key

approvals, currency risks

Bansi Desai, CFA

[email protected]

+91-22-6171-7341

Karan Vora

[email protected]

+91-22-6171-7359

21.8

18.516.6

14.2

10.0 9.6 10.1

13.8 13.7 14.5

0

5

10

15

20

25

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21E

FY

22E

FY

23E

Covid-led

cost savings

350

400

450

500

550

600

Jul-

19

Oct-

19

Jan

-20

Ap

r-2

0

Jul-

20

Oct-

20

Jan

-21

FY21e FY22e FY23e

Page | 2

Contents

Focus charts .............................................................................................................. 3

Key Catalysts to Monitor ........................................................................................ 5

India business: Recovery ahead, remains attractive ........................................... 6

US business: Moving up on complexity, profitability ...................................... 10

API: Structural tailwinds to drive longer-term outlook ................................... 12

Covid vaccines can provide a meaningful upside ............................................ 14

EU business to deliver high-single digit growth .............................................. 15

Q3 FY21 Preview: Recovery in India, Stable US ................................................ 16

Sector Valuations ................................................................................................... 17

Revision in Target Price ........................................................................................ 18

Pharma: Sector Update

Page | 3


Focus charts Exhibit 1: IPM growth to be driven by price increase and

recovery in volumes

Exhibit 2: Chronic therapies continue to lead,

Vitamins likely to remain in focus

Source: HSIE Research, AIOCD AWACS Source: HSIE Research, AIOCD AWACS

Exhibit 3: US pharma market – Injectables are growing

faster than oral solids

Exhibit 4: Loss of exclusivity opens up pipeline

opportunities for generic companies

Source: Gland DRHP, MAT Sept'14-19, HSIE Research Source: Company, HSIE Research

Exhibit 5: Key areas of niche filings/ products under

development suggests improving pipeline for the US

Exhibit 6: Share of injectables, complex products,

specialty to increase for our coverage universe

Companies Niche Filings/ Products under development

Sun Specialty, Derma, Injectables

Dr. Reddy's Oncology, Injectables, Biosimilars

Cipla Inhalers, Specialty

Aurobindo Oncology, Injectables, Inhalers, Biosimilars

Cadila Oncology, Injectables, Biosimilars, Transdermal

Lupin Inhalers, Injectables, Biosimilars, Specialty

Source: HSIE Research, Companies

Source: HSIE Research, Companies, *Complex products ex-

injectables

5.5 3.2 2.4 2.6 1.8

-11.1-6.3

-1.9

4.5

2.2

-0.8

3.5 5.44.5 4.6 4.9

5.0

4.4

3.3

3.3 2.4

1.5 2.8 3.4

15.1

9.8

5.0

9.4 9.7

-5.21.1 6.4

-15

-10

-5

0

5

10

15

20

FY16

FY17

FY18

FY19

FY20

1Q F

Y21

2Q F

Y21

3Q F

Y21

%Volume Price New Product IPM Growth

10

6

7

14

8

9

8

11

8

7

12

-6

1

6

6

-6

-6

0

3

-6

-10 -5 0 5 10 15

Cardiac

Anti-Infectives

Gastro

Anti-Diabetic

Vitamins

Respiratory

Pain

Derma

CNS

Gynaec

YTD FY21 4 yr CAGR (FY16-20)

182

(50%)

200

(40%)

122

(33%)

230

(46%)

64

69

368

499

0

100

200

300

400

500

20

14

20

19

USD bnOral Solids Injectables Others

0.8 1.2 1.6 3.18.3 7.4 7.1 6.2 8.7 10.8

20.5 21.5 22.013.3

14.4 14.4 14.923.8

30.2

15.4

21.322.7 23.6

16.4

22.7 21.8 22.0

30.0

38.9

26.2

0

10

20

30

40

20

15

20

16

20

17

20

18

20

19

20

20

E

20

21

E

20

22

E

20

23

E

20

24

E

USD bn

Biologics Small Molecules

USD 139bn opportunity

78% 77% 71% 67%

4% 6%8%

9%

7% 7% 8%9%

11% 10% 12% 15%

0%

20%

40%

60%

80%

100%

FY20 FY21E FY22E FY23E

OSD & Others Complex products Specialty biz Injectables

Page | 4


Exhibit 7: Vaccine plays - Cadila, Dr. Reddy’s and

Aurobindo within our coverage universe

Exhibit 8: We forecast 9% revenue CAGR over FY20-

23e for covered companies…

Company Vaccine

Name

India

capacity

(mn doses)

Stage of dev. Collaborator

Cadila ZyCov-D 100-150 by

2021 Phase-III

Dept. of

Biotechnology

Dr.

Reddy's Sputnik V - Phase-III

Gamaleya,

Russia

Aurobindo UB-612

220

(480 by

Jun'21)

Phase-II Covaxx

Aurobindo NA (Own

vaccine)

Development

stage

DBT-BIRAC

(funding)

Aurobindo NA Development

stage CSIR


Source: HSIE Research, AIOCD AWACS

Exhibit 9: …and ~350bps EBITDA margin expansion

leading to 21% earnings CAGR over FY20-23e….

Exhibit 10: …which is likely to drive RoCEs higher as

capex moderates

Source: HSIE Research, Companies Source: HSIE Research, Companies

Exhibit 11: Earnings revision cycle turned; consensus EPS

increased by ~7-14% in last the six months

Exhibit 12: BSE HC is trading at 1-yr fwd PE of 29x,

~22% premium to Nifty (vs. 10 yr avg. of 31%)

Source: Bloomberg, HSIE Research, Nifty Pharma Index Source: Bloomberg, HSIE Research

25%

30%

12%

6% -1%

10%10%

7%

11% 10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

-

400

800

1,200

1,600

2,000

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY

21

E

FY

22

E

FY

23

E

Rs bn

Revenues % growth

27%24%

26%

24%

20%

20% 20%

23% 23%24%

43%

1%

23%

0%

-27%

7% 9%

32%

15% 17%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

16%

18%

20%

22%

24%

26%

28%

30%

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY

21

E

FY

22

E

FY

23

E

EBITDA Margin PAT growth (RHS)

Covid-led

cost savings

21.8

18.516.6

14.2

10.0 9.6 10.1

13.8 13.7 14.5

0

5

10

15

20

25

-

40

80

120

160

200

240

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

E

FY

22

E

FY

23

E

%Rs bn Capex ROCE

350

400

450

500

550

600

Jul-

19

Oct

-19

Jan-

20

Ap

r-20

Jul-

20

Oct

-20

Jan-

21

FY21e FY22e FY23e

15

20

25

30

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

Jan

-20

Jan

-21

1-yr fwd PE 10-yr avg. +1 SD

-1 SD +2 SD

Page | 5


Key Catalysts to Monitor

Exhibit 13: Indian companies – key catalysts over the next two years for covered companies

FY22e FY23e FY24 and Beyond

Sun

Ramp up of Ilumya, Cequa Progress on Ilumya trials for Psoriatic

arthritis

Outcome of the SEBI probe on a whistleblower

complaint Ramp up of Ilumya in non-US markets

Increased profitability in the specialty

business

Few specialty products to achieve break-even Approval for depot inj.

Resolution of Halol OAI

Dr. Reddy's

Covid vaccine – progress of Sputnik V ph III

trials Approval for complex injectables in the US

Launch of gVascepa, approval of gNuvaring,

gCopaxone Rituximab filing in the US

Approvals for biosimilars in a regulated

market

Rituximab – Phase III studies to be completed

for US/EU Launch of Peg-Filgrastim in the US

Peg-Filgrastim approval -filed by partner

Fresenius in the US

Cipla

Approval/launch of IV Tramadol in US post-

NDA re-submission likely in Feb '21

Launch of the partnered inhaler (partner to

respond to FDA queries by end FY21)

Ramp up in Albuterol Launch of gAdvair Launch of other inhalers

Re-inspection/resolution of warning letter at

Goa Launch of gAbraxane

Aurobindo

Covid vaccine monetisation –Capacity ramp

up from 220mn to 480mn by June 21 Filings of all depot injectables

Progress on Phase III trials of Bevacizumab,

ophthal biosimilar

Approval for first MDI Inhaler (possibly

QVAR)

Launch of biosimilars, onco, inhalers &

complex injectables

Resolution of OAI status (unit I, VII, IX) and

WL (unit XI) PCV vaccine approval in India

Net debt free Peg-Filgrastim approval in EU

Cadila

Approval/launch of Covid vaccine – ZyCov-

D – 100-150mn capacity by 2021

Progress on potential Covid treatments –

Desidustat, Interferon alpha-2b Progress on 505b(2) initiatives Progress on NCE/ NBE molecules

Saroglitazar – complete trials for NASH and

PBC indications in the US

Targets to file 40+ complex generics incl inj.

per year in the US

Saroglitazar - Approval for NASH in the

US

Approval for transdermals

Saroglitazar – Ramp up in India

Resolution of Moraiya WL

Torrent

Further reduction in debt

Re-launches from Levittown facility Complex filings in Derma Progress on NCE molecule

Resolution of Dahej OAI status and WL at

Indrad

Lupin

Ramp up in gProAir, Solosec

gFostair launch in EU Filing of bEnbrel in the US Approval for complex injectables

Scale-up of bEnbrel in EU Approval for gBrovana Approval for Biosimilars

Peg-filgrastim BLA filing in US Launch of gSpiriva (not before June 2022),

gDoxil Launch of Ambisome by 2024

gSpiriva litigation outcome

Progress on cost initiatives

Alkem

Launch of the first biosimilar product in India

Chronic portfolio –significant room for MR

productivity to improve from ~Rs3mn in

FY21

Biosimilars – RoW markets in the near

term. Regulated markets by 2025

Improving FCF generation US business margins to increase from 10-

12% to 20%+


Page | 6


India business: Recovery ahead, remains attractive

Domestic formulations business is the most sustainable and profitable part of

Indian pharma companies. Its contribution to overall revenues has increased from

~30% in FY13 to ~33% in FY20 for our covered companies.

The IPM growth in 1HFY21 (-2.2% YoY) was impacted by Covid-19, which is

expected to recover in 2HFY21, led by continued growth in chronic therapies and

recovery in acute therapies.

Chronic focused players are expected to grow ahead of the industry average.

Volume growth in chronic therapies is twice the IPM average of 2-3%. With a

recovery in acute therapies, companies with strong therapeutic presence and

leading brands are likely to consolidate their market share further.

We prefer companies such as Alkem (volume-driven growth, leadership in acute),

Lupin and Cipla (high chronic exposure) for their ability to grow ahead of peers

among covered companies.

Exhibit 14: IPM growth to be driven by price increase

and recovery in volumes

Exhibit 15: We forecast 10% revenue CAGR for India

business over FY20-23e for covered companies

Source: HSIE Research, AIOCD AWACS Source: HSIE Research, Companies

Exhibit 16: Companies with high contribution from chronic/ therapeutic leadership

are best placed to gain market share

Particulars

FY15-

20

CAGR

FY20-

23e

CAGR

India - %

of sales

Chronic

exposure

Contributi

on from

leading

therapies

Leading therapies (among

top 3 ranks)

Sun 7.7% 8.2% 30% 45.4% 58.8%

Rank 1 - Cardiac, CNS,

Pain; Rank 2 - GI; Rank 3 –

Derma

Dr. Reddy's 10.1% 14.0%* 17% 26.7% NA NA

Cipla 6.7% 14.1% 39% 45.4% 56.4% Rank 1 - Respiratory; Rank

3 - Anti-Infectives

Cadila 6.8% 8.3% 26% 31.2% 28.3% Rank 3 - Pain, Gynaec,

Respiratory

Torrent* 16.9%* 10.5% 44% 56.2% 43.4% Rank 2 - Cardiac, Vitamins

Lupin 11.6% 9.1% 34% 58.5% 59.7% Rank 2 - Respiratory; Rank

3 - Anti-Diabetics, Cardiac

Alkem 13.1% 10.4% 65% 15.1% 69.4% Rank 1 - Anti Infectives;

Rank 3 - GI, Vitamins

Source: HSIE Research, Companies, AIOCD AWACS, *includes acquisitions

5.5 3.2 2.4 2.6 1.8

-11.1-6.3

-1.9

4.5

2.2

-0.8

3.5 5.44.5 4.6 4.9

5.0

4.4

3.3

3.3 2.4

1.5 2.8 3.4

15.1

9.8

5.0

9.4 9.7

-5.21.1 6.4

-15

-10

-5

0

5

10

15

20

FY

16

FY

17

FY

18

FY

19

FY

20

1Q

FY

21

2Q

FY

21

3Q

FY

21

%Volume Price New Product IPM Growth

12%10%

6% 7%

14%

7%

13%11%

0%

2%

4%

6%

8%

10%

12%

14%

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

E

FY

22

E

FY

23

E

%

GST

FDC ban,

Demonetization

Covid

IQVIA projects 8-11% growth

over 2020-24e for India Pharma

Market

Torrent, Lupin, Cipla – chronic

focused portfolio to outperform

Alkem – leadership in Acute

will drive its market share

higher

Page | 7


Exhibit 17: Therapy performance - Chronic to lead, Vitamins strength to continue


Chronic focused players are likely to grow ahead of IPM

Exhibit 18: Key players in chronic therapies and their market share trends

Market Share Cardiac Anti-Diabetics CNS

Mar-13 Mar-20 Mar-13 Mar-20 Mar-13 Mar-20

Indian companies

Sun 12.4% 11.1% 10.0% 7.7% 22.1% 22.7%

Lupin 5.6% 7.1% 7.9% 9.1% 2.9% 3.0%

Torrent 8.4% 7.5% 2.0% 2.7% 7.5% 7.5%

Glenmark 3.0% 5.0% 0.5% 2.1% 0.2% 0.1%

Zydus 5.1% 4.8% 0.3% 0.7% 1.6% 0.7%

Cipla 5.0% 4.8% 0.7% 0.6% 2.0% 2.7%

Alkem 0.4% 1.0% 0.4% 1.5% 2.3% 3.2%

Eris LS 1.6% 2.0% 1.3% 2.8% 2.1% 1.2%

Dr. Reddy’s 3.3% 2.4% 2.0% 1.7% 3.7% 2.7%

Abbott* 5.3% 3.7% 18.7% 12.5% 12.5% 8.6%

Sanofi India 4.3% 2.7% 5.3% 6.8% 3.4% 2.6%

Source: HSIE Research, AIOCD AWACS, *including unlisted entities

Acute recovery puts Alkem in pole position

Exhibit 19: Key players in acute therapies and their market share trends

Market Share Anti-Infectives Gastro-Intestinal Pain/Analgesics

Mar-13 Mar-20 Mar-13 Mar-20 Mar-13 Mar-20

Sun 6.8% 6.3% 8.3% 9.0% 9.3% 8.0%

Alkem 9.1% 10.2% 4.5% 5.6% 1.7% 3.7%

Cipla 7.1% 7.5% 3.0% 2.6% 1.7% 2.1%

Dr. Reddy’s 1.1% 1.5% 4.1% 4.9% 2.7% 3.5%

Torrent 1.9% 1.0% 3.9% 4.5% 2.7% 2.9%

Lupin 5.1% 3.8% 2.3% 2.4% 1.7% 2.1%

Ipca 0.7% 0.8% 1.2% 0.8% 4.4% 6.0%

Cadila 0.6% 0.5% 4.1% 3.2% 0.0% 0.0%

Abbott* 5.3% 4.0% 7.2% 9.6% 4.8% 4.0%

GSK 6.1% 4.8% 2.8% 1.0% 6.1% 3.8%


IPM grew by 1% in YTDFY21

Cardiac, Anti-diabetes and

Vitamins were the top 3

performing therapies in YTD

FY21

We see Vitamins as promising

therapy that could sustain its

higher growth driven by Covid

induced changes in nutrition

awareness and habits

Acute therapies - we expect

growth to recover in 2HFY21

and rebound strongly in FY22

Chronic segment has grown

at ~13.5% and outperformed

the IPM by 250+bps over the

last 7 years

Chronic segment accounts for

~33% market share in IPM

Acute segment has grown at

9.3% CAGR and under-

performed the IPM by ~165bps

over the last 7 years

Acute segment forms ~47% of

IPM

10

6

7

14

8

9

8

11

8

7

12

-6

1

6

6

-6

-6

0

3

-6

-10 -5 0 5 10 15

Cardiac

Anti-Infectives

Gastro

Anti-Diabetic

Vitamins

Respiratory

Pain

Derma

CNS

Gynaec

YTD FY21 4 yr CAGR (FY16-20)

Page | 8


Vitamins – growth trends likely to sustain beyond Covid

Multivitamins, Vitamin C, and Vitamin D have seen increased demand during

1HFY21 as these are considered effective prophylactic measures against Covid.

We expect companies like Alkem, Pfizer, and Torrent with leading brands to

consolidate their share in respective product categories further.

Exhibit 20: Top 3 brands in key vitamins category

Brands Company MAT Mar'20 4-yr CAGR 1H FY21 Growth

Multivitamins

Zincovit Apex 2,281 4.9% 65.9%

A To Z NS Alkem 1,456 15.6% 44.4%

Bevon Emcure 1,393 15.3% 27.0%

Methylcobalamin Combinations

Nurokind Plus RF Mankind 990 6.9% 6.8%

Renerve Plus Eris LS 884 9.2% 12.4%

Nuhenz La Renon 785 20.7% -34.7%

Calcium Products

Shelcal Torrent 2,238 11.3% 17.4%

Gemcal Alkem 925 1.9% -15.0%

Shelcal XT Torrent 841 NA 1.0%

Other Vitamins

Nurokind LC Mankind 1,024 22.0% -0.6%

Uprise D3 Alkem 720 6.0% 55.9%

Calcirol Cadila 613 1.0% -1.1%

B Complex

Becosules Pfizer 3,287 9.5% 22.2%

Neurobion Forte P&G Health 1,053 11.2% 17.7%

Polybion P&G Health 456 5.4% -100.0%


Exhibit 21: Vitamins - Company-wise performance

Company MAT Mar'20 4-yr CAGR Mkt. share Ranks

FY16 FY20 FY16 FY20

Abbott* 9,357 10.6% 6.8% 7.6% 1 1

Mankind 8,027 9.8% 6.0% 6.5% 2 2

Alkem 6,260 8.7% 4.9% 5.1% 3 3

Torrent 5,505 12.8% 3.7% 4.5% 4 4

Sun 4,812 12.1% 3.3% 3.9% 6 5

P&G Health 4,504 7.6% 3.7% 3.7% 5 6

Pfizer 4,069 8.6% 3.2% 3.3% 7 7

Danone 3,649 21.8% 1.8% 3.0% 17 8

Emcure 3,545 9.4% 2.7% 2.9% 9 9

Macleods 3,409 8.9% 2.6% 2.8% 11 10

Dr. Reddy’s 2,354 3.4% 2.2% 1.9% 14 16

Lupin 2,106 3.2% 2.0% 1.7% 16 19

Zydus 1,486 4.5% 1.4% 1.2% 23 24

Cipla 857 -4.8% 1.1% 0.7% 25 35


Vitamins account for 8.8%

market share in IPM (MAT

Nov '20)

Top brands – Becosules,

Zincovit, Shelcal and A to Z

NS

Alkem, Pfizer, Torrent are

likely to gain market share

given they have leading

brands in key categories

Vitamins have grown at ~8-

9% CAGR over FY16-20

Top 5 players have gained

market share

Torrent and Sun have

outperformed peers in the past

Alkem has further gained

75bps market share in YTD

FY21 to 5.8%

Page | 9


Online pharmacies gain traction, limited impact on

manufacturers in the near to medium term

The online pharmacy players cater to the entire outpatient market in India

comprising – (a) pharma (USD20bn); (b) diagnostics (USD8bn); (c) consultation

(USD2-3bn). E-pharmacies have 3% market share in the drug consumption market

(~USD20bn).

Their market share is expected to increase to 7-8% in FY25 and 10-12% by FY30.

Overall, GMV of online players is expected to grow at 35% CAGR from

~USD0.9bn in FY20 to ~USD4bn by FY25.

Exhibit 22: Healthcare spends to grow 2.5x in 5 years Exhibit 23: e-pharmacy to grow 4x in 5 years

Source: Red Seer, HSIE Research Source: FICCI, Frost & Sullivan, HSIE Research

Impact on pharma manufacturers as they gain scale o The pharma supply chain in India is highly fragmented with 80-85k

distributors across the country with the largest distributor having only 2%

market share which compares unfavourably with most major economies in the

world (~95% for top 3 in the US, ~60% for top 7 in EU and ~30% for top 3 in

China).

o Volume-linked discounts offered by pharma manufacturers have led to margin

expansion for large players such as PharmEasy in the last five years. However,

given that the e-pharmacies account for only 3% of the market, the impact on

pharma manufacturers is limited today. Hence, even with their rising scale, we

expect limited impact on pharma companies' profitability, given that offline

stores are likely to dominate the market in the near to medium term.

0.9

4.0

0

1

2

3

4

FY20 FY25e

USD bnIndia e-Pharma Market

Household users (mn) 9 70~8x

E-pharmacies account for 3%

share of the drug consumption

market and their market share

is likely to increase to 10-12%

by FY30

Given fragmented distribution

and domination of offline

stores, e-pharmacies are

unlikely to impact

manufacturers' margins in the

near to medium term

135

353

0

100

200

300

400

FY20 FY25e

USD bn

India's Healthcare exp.

Page | 10


US business: Moving up on complexity, profitability

Indian companies have made good progress in transitioning their portfolio

offerings from plain vanilla generics to niche/ complex generics today (Derma,

injectables, inhalers). The recent approval of Albuterol (Lupin/Cipla), biosimilars

(Biocon) validates capabilities on this front. Sun has further moved up the value

chain with its innovation-led specialty initiatives (yet to break-even). Incremental

investments in R&D are towards developing complex/ differentiated/ innovation-

led products.

The share of injectables, specialty, and complex products in US revenues is

expected to increase from ~22% in FY20 to ~33% in FY23e, for our covered

universe. We expect improving quality of pipeline in the US will not only ensure

that the growth rates hold up better but will also drive higher profitability for

Indian companies.

We forecast 6% sales CAGR in the US over FY20-23e vs. 3% over FY15-20. With a

ramp-up in speciality and increased complex approvals, we expect profitability to

improve and grow at a higher pace.

Exhibit 24: US generics market is expected to post

single-digit growth

Exhibit 25: Loss of exclusivity (LoE) presents a

growth opportunity for generic companies

Source: Lupin, HSIE Research Source: Alkem, HSIE Research

Exhibit 26: Pending ANDA pipeline remains strong for

Indian companies

Exhibit 27: R&D spends have been calibrated, with a

focus on developing complex products

Source: Companies, HSIE Research Source: Companies, HSIE Research

7771 69 73

79 83 86

0

20

40

60

80

100

2016 2017 2018 2019 2020E 2021E 2022E

USD bn

0.8 1.2 1.6 3.18.3 7.4 7.1 6.2 8.7 10.8

20.5 21.5 22.013.3

14.4 14.4 14.923.8

30.2

15.4

21.322.7 23.6

16.4

22.7 21.8 22.0

30.0

38.9

26.2

0

10

20

30

40

20

15

20

16

20

17

20

18

20

19

20

20

E

20

21

E

20

22

E

20

23

E

20

24

E

USD bn

Biologics Small Molecules

USD 139bn opportunity

7292

66

180

96

47

156

56

0

40

80

120

160

200

Su

n

Dr.

Red

dy

's

Cip

la

Au

rob

ind

o

Ca

dil

a

To

rren

t

Lu

pin

Alk

em

6%

7%

8%

8%8%

7%

7%

7% 7% 7%

5%

6%

7%

8%

9%

-

20

40

60

80

100

120

140

FY

14

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20

FY

21

E

FY

22

E

FY

23

E

Rs bnR&D R&D as a % of sales

We expect Dr. Reddy's, Lupin

and Alkem to clock double-

digit growth over FY20-23e

Share of injectables, specialty,

and complex products revenues

is expected to increase from

~22% in FY20 to ~33% in FY23e

for coverage universe

Page | 11


Exhibit 28: US pharma market – Injectables growing

faster than oral solids

Exhibit 29: Volume and price growth favourable for

injectables

Source: Gland DRHP, MAT Sept'14-19, HSIE Research Source: Gland DRHP, MAT Sept'14-19, HSIE Research

Exhibit 30: Share of injectables, complex products,

specialty to increase for our coverage universe

Exhibit 31: Key areas of niche filings/products under

development suggest improving pipeline quality

Companies Niche Filings/ Products under development

Sun Injectables, Specialty, Ophthal, Derma

Dr. Reddy's Oncology, Injectables, Biosimilars

Cipla Inhalers, Specialty

Aurobindo Oncology, Injectables, Inhalers, Ophthal,

Biosimilars

Cadila Oncology, Injectables, Biosimilars, Transdermal

Lupin Inhalers, Injectables, Biosimilars, Specialty,

Ophthal


Source: Companies, HSIE Research, Complex products ex-injectables

Exhibit 32: US business outlook for covered companies

Company US - % of

sales

FY20 (USD

mn)

FY15-20

CAGR

FY20-23e

CAGR

Pending

ANDAs Key Growth Drivers

Sun 33% 1,487 -7.9% 1.7% 72 Specialty business

Dr. Reddy's 39% 910 -3.0% 13.2% 92 Injectables, complex products

Cipla 23% 547 29.9% 8.3% 66 Inhalers and niche launches

Aurobindo 50% 1,622 15.0% 3.2% 180 Natrol divested, injectables to drive growth

Cadila 44% 906 10.3% 3.3% 96 Transdermals, injectables

Torrent 19% 207 8.8% 3.3% 47 Third-party launches, derma products

Lupin 38% 800 -2.1% 12.1% 156 Inhalers, specialty

Alkem 26% 309 23.3% 13.1% 56 OSD launches


182

(50%)

200

(40%)

122

(33%)

230

(46%)

64

69

368

499

0

100

200

300

400

50020

14

2019

USD bnOral Solids Injectables Others

78% 77% 71% 67%

4% 6%8%

9%

7% 7% 8%9%

11% 10% 12% 15%

0%

20%

40%

60%

80%

100%

FY20 FY21E FY22E FY23E

OSD & Others Complex products Specialty biz Injectables

-1.9%

6.9%

-6.2%

3.9%

6.2%

8.2%1.9%

13.6%

1.5%

-10%

-5%

0%

5%

10%

15%

Oral Solids Injectables Others

Vol. Growth Price Growth

Page | 12


API: Structural tailwinds to drive longer-term

outlook

Demand visibility improved; however, 1HFY21 growth to moderate

The API business growth in 1HFY21 (~21% YoY) for the covered universe was

partially driven by higher volumes on the back of increased customer stocking,

better pricing environment and currency benefits. Some of these trends have

normalised, moderating the growth expectation for coming quarters.

The overall demand outlook for Indian companies has improved as a) globally

companies attempt to de-risk their supply chain, and India stands to benefit given

it has proven manufacturing capabilities; b) PLI scheme by the government aims to

localise the manufacturing of critical KSM/ intermediaries/ APIs to reduce

dependence on China. We forecast 12.4% CAGR over FY20-23e vs. 3.5% CAGR

over FY15-20 for the covered companies' API business.

Indian API industry is fragmented and dominated by MSME players

The Indian bulk drug (API and intermediates) industry is estimated to be ~Rs963bn

in size (Domestic consumption – Rs660bn, Exports – Rs303bn). The industry ranks

third globally, next to China and Italy. The API industry is mostly fragmented with

1,500 manufacturing plants dominated mainly by MSMEs. As per KPMG report,

the top 14-16 players account for ~16-17% of the market.

China has an edge, its API costs are 20-30% lower than India’s

China accounts for 20% of global API production. They have more than 7,000 API

manufacturers with an annual production capacity exceeding 2mn tonnes while

the Indian industry has around 1,500 plants that manufacture APIs. Chinese APIs

are ~20-30% cheaper than Indian API cost.

Exhibit 33: China API cost is ~20-30% lower than India

Source: HSIE Research, KPMG/ CII

1HFY21 growth at 21% YoY,

unlikely to sustain

We forecast 12% CAGR

over FY20-23e for covered

companies vs. 3.5% CAGR

in the last five years

The top 14-16 players in

India account for ~16-17%

of the market

China API costs are 20-

30% lower than India

50.0

81.1100.1 95.6 95.6

69.0

6.0

19.0

1.5 6.0 4.4

7.513.5

7.511.6

16.0

0

20

40

60

80

100

120

China API

Production

Cost

Raw Material Electricity Labour Other Costs India API

Production

Cost

UnitsRaw Mat Electricity Labour Other Costs

25-30%

expensive

than China

~20%

expensive

than China

1.8x lower

than China~30%

expensive

than China

Page | 13


PLI scheme to reduce dependence on China; benefits are few years out

India imported USD3.56bn worth of bulk drugs in 2018-19 of which ~70%

(USD2.4bn) was from China (as per Trade Promotion Council of India). The

dependence is very high for certain fermentation-based APIs (antibiotics), vitamins

and many key starting materials (KSM).

To reduce this dependence on imports, the government approved a) Rs69.4bn for a

production linked incentive (PLI) scheme for promoting domestic manufacturing

of critical KSMs/ Intermediates and APIs in the country; b) Rs30bn to set up three

bulk drug parks with common infrastructure facilities over the next five years. The

scheme has identified 41 products covering 53 bulk drugs eligible for the incentives

between 5-20% for 6 years and is expected to generate incremental sales of ~Rs

464bn over the next 6-8 years (as per Ministry of Chemicals and Fertilizers).

Exhibit 34: Key APIs/KSMs under PLI scheme

Particulars

Potential

Incentive

(Rs cr)

% Min. capacity

p.a. (MT)

Max.

selections

(nos.)

Incentive

rate

4 Fermentation based KSMs

Penicillin G

3,600 52%

5,000 2 5-20%

7-ACA 1,000 2 5-20%

Erythromycin Thiocyanate (TIOC) 800 2 5-20%

Clavulanic Acid 1.5 lakh kg 2 5-20%

10 Fermentation based niche KSMs/ APIs 1,000 14% 2-200 2 each 5-20%

4 Chemical Synthesis based KSMs 960 14% 800-8,000 4 each 10%

23 Chemical Synthesis based KSMs/ APIs 1,380 20% 2-750 4 each 10%

Source: HSIE Research, Dept. of Pharmaceuticals

Listed players focus on vertical integration, few to avail PLI benefits

Among the covered universe, Aurobindo, Lupin and Sun are likely to have

participated in the PLI scheme for certain products.

Exhibit 35: Improved outlook for API business – Sun, Aurobindo and Lupin likely to have participated in the PLI

Company API - %

of sales FY20

FY15-20

CAGR

1HFY21

YoY

FY20-23e

CAGR Comments

Sun 6% 19,159 14.1% 14.5% 11.3%

-Primary aim is to become fully vertically integrated into the formulations biz

-Volumes have doubled over the last 4 yrs but majorly consumed captively

-PLI – will evaluate products other than antibiotics with the primary aim of

vertical integration and rest for third party sales

Dr. Reddy's 15% 25,747 -0.1% 46.5% 19.4%

-Grow business in Asia markets

-Complement growth in CDMO opportunities

-Seeking opportunities where the company can act as an alternate supplier

- R&D investment in API will continue, No Capex plans

- PLI scheme is primarily for antibiotics, no plans to invest in it

Cipla 4% 7,510 3.8% 10.0% 8.3%

-Focus is on big APIs and to reduce dependence on China

- List of APIs targeted to optimise costs or provide a different product category

that could add to third party sales as well

Aurobindo 13% 30,834 2.6% 4.6% 5.5%

-Muted growth in 1HFY21 compared to others as ~50-55% of its APIs are

antibiotics which witnessed muted demand

-Planning capacity expansion for external supplies, internal supplies are secured

-Likely to avail PLI for few interesting opportunities, will require separate

investments

-PLI scheme won't shift the entire supply chain in-house as it only consists of 53

products (which itself will take 2-3 yrs) and the co's portfolio is much larger

Cadila 3% 4,530 4.0% 66.9% 18.4% -Planned capacities/ capabilities will drive strong growth momentum

-APIs are primarily used captively, external sales likely to grow in double digits

Lupin 9% 12,999 1.7% 19.7% 14.6%

-Strong presence in Cephs and Penicillins

-Identified 6-7 products including fermentation-based products to ramp up (some

of which are also in the PLI scheme), looking forward to investing in those to

reduce the over-dependence


GoI has received ~215

applications for the PLI

scheme from 83 bulk drug

manufacturers, out of

which 136 application are

to be approved

Out of the total allocation

of Rs 6,940cr for the PLI

scheme, Rs 4,600cr will be

earmarked for

fermentation-based

products and Rs 2,340cr for

chemical synthesis products

Aurobindo, Sun and Lupin

likely to have participated

Page | 14


Covid vaccines can provide a meaningful upside

Vaccine monetisation can add material cash flows for a limited period. We haven't

factored upsides in our estimates as this would be contingent on several variables such

as final approval, pricing, competition, manufacturing capacity/partnerships.

Cadila (ZyCov-D) and Dr. Reddy's (Sputnik V) could benefit if the respective vaccines

get approved in India. Aurobindo is developing its own vaccine (to be rolled out in

2021) and is also building manufacturing capacities for third-party manufacturing. We

see three possible ways of monetising with varying degree of lucrativeness: a) develop/

manufacture own vaccine; b) undertake third party manufacturing; c) distribute

vaccines.

Exhibit 36: Covid vaccines – progress on development and manufacturing capacity for Indian players

Company Vaccine Capacity (mn

doses) Collaborator

Stage of

development Comments

Cadila ZyCov-D 100-150mn by

CY2021 Dept. of Biotechnology Phase-III

DNA vaccine; received DGCI approval to start

Phase-III trials, to hire contract manufacturers

for additional 50-70mn doses

Dr. Reddy's Sputnik V - Gamaleya, Russia Phase-III

Vaccine based on Human adenoviral vector-

based platform; recently met primary

endpoint of safety in Phase-II trial in India,

right to distribute 100mn doses in India

Hetero Biopharma Sputnik V 100+mn Gamaleya, Russia Phase-III Human adenoviral vector-based platform

Serum Institute of

India (SII)

Covishield 500-600mn Astra Zeneca, Oxford Phase-II/III

The vaccine is based on the common cold virus

or the adenovirus that is found in chimpanzees;

Approved by DGCI for 'Emergency use'

NVX-CoV2373 1,000mn Novavax Phase-III Protein sub-unit vaccine

Bharat Biotech

Covaxin 150mn

(aims 700mn p.a.) ICMR Phase-III

Inactivated virus vaccine; approved by DGCI

for 'Emergency use in clinical trial mode.'

NA 500mn

University of

Washington School of

Medicines at St. Louis

Phase-I/II

Based on Chimp-Adenovirus; intra-nasal single

dose vaccine, quicker & easier to administer,

stronger and longer immunity, eco-friendly

NA NA Thomas Jefferson, USA Adv pre-clinical* Based on inactivated rabies vector platform

Aurobindo

UB-612

220mn

(480 by June '21)

Covaxx Phase-II/III

1st 'Multitope Peptide' based vaccine

Non-exclusive rights to manufacture & supply

Covaxx's vaccine to India and UNICEF.

Completed phase I

NA (Own) DBT-BIRAC (funding) Development

stage

Based on its proprietary replication competent

attenuated r-VSV, VesiculoVax platform,

Expected roll out in 2021

NA CSIR Development

stage Aurobindo will do trials and manufacture

Biological E NA NA MIT, USA Phase-I/II Recombinant Protein Antigen based vaccine

Genova (Emcure) HGCO 19 NA HDT, USA Phase-I/II* mRNA based vaccine

Mynvax NA NA IISc, Bangalore NA Recombinant Protein Antigen based vaccine

Indian

Immunologicals NA NA

Griffith University,

Australia NA Innovative codon-deoptimisation technology

Source: Ministry of Health and Family Welfare, HSIE Research, *data as of Dec '20

Exhibit 37: Covid drugs sales in India: ~20-25% of opportunity could sustain in the medium term

Covid Drugs Companies FY20 1H FY21 Comments

Hydroxychloroquine Ipca, Cadila 1,627 1,208 Approved for mild cases and as prophylactic

Favipiravir Glenmark 0 2,824 Oral antiviral for mild to moderate cases

Remdesivir Mylan, Cadila, Cipla 0 1,213* Injectable approved for hospital use

Tocilizumab Cipla 10 537* Injectable approved for hospital use

Dexamethasone Cadila 1,046 676* For cases in late stage, patients on ventilation

Methylprednisolone Pfizer, Sun 2,708 1,317 Used as anti-inflammatory drug

Azithromycin Alembic, Cipla 7,228 3,741 Used for its antiviral properties

12,619 11,520

Source: AIOCD AWACS, HSIE Research, *AIOCD data does not capture the hospital sales, and hence does not reflect true market size

Vaccine plays within

coverage - Cadila, Dr.

Reddy's and Aurobindo

Page | 15


EU markets to deliver high single-digit growth According to IQVIA, the European generic market was estimated to be USD 99bn in

2019 and is expected to grow at a CAGR of ~5.3% from 2019-2024e to reach USD 128bn.

Germany, France, Italy, UK and Spain are the biggest markets within Europe.

Exhibit 38: Snapshot of generic penetration in key European markets

Country Mkt. size

(USD bn)

Growth

(2014-19)

Generic

penetration

(2019)

Market type and drivers of generic penetration

France 35 1.8% 74% -Combination of tender and pure generics market

-Pharmacy level substitution with generic equivalents

Germany 46 4.4% 77% -Tender driven business tends to favour generic players

-Drug prices for branded drugs forced downwards

Italy 32 6.5% 57% -Higher margin to pharmacies while dispensing generics

-Customers have preference for brand

Spain 24 6.3% 60%

-Generic pharmacy market with some elements of the

tender, Customers have preference for brand

-Implemented mandatory INN prescriptions in 2011

transforming the country into a fully unbranded market

-Shortened applications for generics

UK 26 6.4% 80% -Tender driven market

-Strongly encouraged INN prescriptions

Source: Gland DRHP, HSIE Research, MAT Sept' 14-19, INN – International Nonproprietary Names

Exhibit 39: Europe business growth drivers – enhancing presence and leveraging R&D to launch products

Company EU - % of

sales FY20 (Rs mn) 4-yr CAGR FY20-23e CAGR Comments

Sun 9% 30,430** 4.1% 8.9%** -Presence in Western (developed), Eastern and Central European

markets. Key market – Romania

Dr. Reddy's 7% 11,707 10.9% 15.2%

-Enhance EU presence from EU-5 to EU-12

-Key markets - Germany, UK. New markets - France, Italy, Spain,

Austria (Azacitidine launch)

-Scale-up in hospital segment across markets

-Leverage R&D and launch products across markets

Cipla 5% 8,130 7.6% 14.4% -Focus on top 4 ‘Direct-to-Market’ countries in EU.

-20% market share in FPSM pMDI market in Europe

Aurobindo 26% 59,218 17.3%# 6.0%

-Presence in 11 countries (among top 10 in 7), mostly via Actavis and

Apotex acquisitions. Key Markets – France, Spain, UK, Italy,

Netherlands.

-Plans to launch 250+ oral solid products in 3 years , injectables and

biosimilars

-Increased outsourcing to India, the launch of high-end injectables to

drive margins higher

Cadila 1% 1,957 -9.8% 10.7% -Base volumes and new launches to drive growth

Torrent 12% 9,470 9.9% 7.7%

-5th largest generic pharma player in Germany and no. 1 Indian

company in Germany

-Focus to expand via new launches in the tender as well as non-

tender business

Lupin* 8% 12,364 9.3% 9.1%

-Launched 1st biosimilar Nepexto (bEnbrel)in Q2 FY21 in Germany

(key market) with positive CHMP opinion for all indications and in

Finland, Croatia in Oct '20, to be launched in France and Belgium by

Jan '21

-Key therapies - ARVs, Inhalation and CNS

Source: HSIE Research, Companies, * includes EMEA sales, #acquisitions led, **EU revenues derived from subsidiaries financials

EU is expected to grow at 5%

CAGR over 2019-24e

EU markets are a

combination of tender,

generics, branded generics

Presence in tender, hospital,

retail and OTC helps in

gaining scale

Companies are

Page | 16


Q3 FY21 Preview: Recovery in India, Stable US

We expect Q3FY21 sector revenues to grow at 9% YoY and 1% QoQ led by healthy

growth in India business (Covid drugs, strong trade generics, chronic therapies),

and steady US business (+2% QoQ) driven by stable pricing environment and ramp

up in key products (albuterol, specialty).

We forecast EBITDA margin to expand by ~309bps YoY and decline by 92bps QoQ

to 23.1% as export incentives withdrawal offsets cost savings (increased

sequentially but not at normal levels yet).

Exhibit 40: Q3FY21 quarterly summary forecast for covered companies

Rs mn Revenue YoY QoQ EBIDTA YoY QoQ Adj.

PAT YoY QoQ Comments

Aurobindo 63,294 7% -2% 13,292 10% -7% 8,126 14% 1%

Natrol divested (one month impact ), injectables in

US to see sequential uptick. Export incentive

impact of ~Rs750mn on EBITDA

Cipla 50,678 16% 1% 11,149 47% -5% 6,277 79% -6% Ramp up in Albuterol and gMigranal, Covid drug

sales, trade generics in India will drive growth

Dr. Reddy's 49,649 13% 1% 12,784 23% 3% 7,325 16% -13% Wockhardt portfolio in India, new launches in US

to drive topline

Lupin 40,442 7% 5% 7,077 65% 10% 3,574 162%^ 41%

Ramp up in Albuterol, re-launch of Metformin to

drive US. Cost initiatives and operating leverage

to drive margins

Sun Pharma 86,700 6% 1% 22,109 26% -4% 13,943 68% -9%

Increased share for Ilumya and Cequa,

stabilization in Taro portfolio to drive revenues.

Margins are stronger (cost savings, Modafinil

litigation cost in the base)

Torrent 20,468 4% 1% 6,243 16% -2% 3,131 25% 1%

Chronic portfolio in India, growth normalization

in Germany (low base) to offset weakness in Brazil

(currency impact). Operating leverage to drive

margins higher

Cadila 38,657 6% 1% 8,311 19% -4% 4,651 22% -23%

Covid drugs, recovery in acute, consumer

wellness to drive topline. Cost measures to drive

margins

Alkem 23,556 8% 0% 5,418 20% -10% 4,198 10% -11%

Strong trade generics biz, recovery in acute

therapies, market share gains in the US to drive

topline. Margins will be aided by cost saving

measures

Source: HSIE Research, Companies, ^Not comparable as sales are ex-Japan biz

Page | 17


Sector Valuations

At 29x one year forward, the sector is trading at ~30% premium to its 10-yr avg PER

Exhibit 41: BSE Healthcare Index PER trading at + 2 SD above mean

Source: Bloomberg, HSIE Research

Exhibit 42: The sector premium to Nifty is at 22%, lower

than 10-yr historical average levels of ~31%

Exhibit 43: It has significantly outperformed Nifty by

~47% in last one year

Source: Bloomberg, HSIE Research Source: Bloomberg, HSIE Research

A steady increase in EPS revision supported valuations Exhibit 44: Nifty Pharma Index - consensus EPS revision

Source: Bloomberg, HSIE Research

7-14% EPS revisions in

FY21-23 estimates in the

past 6 months

15

20

25

30

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

Jan-

17

Jan-

18

Jan-

19

Jan-

20

Jan-

21

1-yr fwd PE 10-yr avg. +1 SD -1 SD +2 SD

0%

10%

20%

30%

40%

50%

60%

70%

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

Jan-

17

Jan-

18

Jan-

19

Jan-

20

Jan-

21

Sector Premium to Nifty 10-yr avg.

0

50

100

150

200

250

300

350

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

Jan

-20

Jan

-21

BSE Heathcare Index Nifty Index

350

400

450

500

550

600

Jul-

19

Oct

-19

Jan-

20

Ap

r-20

Jul-

20

Oct

-20

Jan-

21

FY21e FY22e FY23e

Page | 18


Revision in Target Price We roll forward our target price to Mar 23 EPS (from Sep 22) and maintain our

estimates and ratings.

BUY ratings – Alkem (TP – Rs 3,560, 22x Mar’23), Cipla (TP – Rs1,015, 23x Mar’23 and

NPV of Rs30/share for gAdvair and Rs40/sh for gRevlimid), Lupin (TP – Rs1,280, 23x

Mar’23), Aurobindo (TP – Rs1,050, 16x Mar’23).

ADD ratings – Dr. Reddy’s (TP – Rs5,745, 22x Mar’23 and NPV of Rs384/sh for

gRevlimid), Sun Pharma (TP – Rs645, 23x Mar’23), Torrent (TP –Rs2,875, 16x Mar’23

EV/EBIDTA).

Exhibit 45: Revision in target price

Domestic cos M.Cap

(Rs bn)

CMP

(Rs./ Sh) RECO Old TP

Revised

TP

Target

Multiple

Recurring EPS CAGR (FY20-23E)

21E 22E 23E EPS Revenue

Alkem 366 3,062 BUY 3,315 3,560 22.0 135.5 139.5 161.9 19.8% 10.9%

Aurobindo 561 958 BUY 1,005 1,050 16.0 55.4 59.7 65.7 10.5% 6.4%

Cadila 502 490 ADD 460 495 20.0 19.0 21.3 24.6 17.9% 8.6%

Cipla^ 680 843 BUY 940 1,015 23.0 30.8 34.9 41.0 30.2% 11.4%

Dr. Reddy's* 890 5,354 ADD 5,390 5,745 22.0 174.0 211.5 243.7 16.6% 14.4%

Lupin 481 1,060 BUY 1,120 1,280 23.0 26.5 42.2 55.6 36.5%@ 10.4%

Sun 1,463 610 ADD 595 645 23.0 21.7 24.0 28.0 18.7% 7.0%

Torrent# 479 2,834 ADD 2,675 2,875 16.0 76.5 86.4 105.3 20.3% 8.7%

Source: Bloomberg, HSIE Research; #TP based on EV/EBIDTA, *TP includes NPV of Rs 384/sh for gRevlimid, ^TP includes NPV of Rs30 for gAdvair and

Rs40 for gRevlimid, @PBT growth

Exhibit 46: Peer-set valuation

Domestic cos M.Cap

(Rs bn)

CMP

(Rs./ Sh) RECO TP

EV/ EBITDA (X) ROE PER(X)

21E 22E 23E 21E 22E 23E 21E 22E 23E

Alkem 370 3,092 BUY 3,560 18.0 17.0 14.0 23.9 20.8 20.7 22.8 22.2 19.1

Aurobindo 555 947 BUY 1,050 10.1 9.3 8.1 17.7 16.3 15.4 17.1 15.9 14.4

Cadila 499 487 ADD 495 16.7 15.0 13.1 17.6 17.5 17.9 25.6 22.9 19.8

Cipla 679 842 BUY 1,015 14.1 12.7 10.7 14.7 14.7 15.0 25.1 22.1 18.8

Dr. Reddy's 880 5,290 ADD 5,745 16.3 13.6 11.6 17.4 18.2 17.9 28.2 23.2 20.1

Lupin 484 1,067 BUY 1,280 19.6 14.1 11.2 9.3 13.4 15.6 40.3 25.3 19.2

Sun 1,445 602 ADD 645 17.7 15.8 13.5 4.8 12.3 12.6 27.7 25.1 21.5

Torrent 468 2,767 ADD 2,875 19.7 17.8 15.4 25.6 26.4 29.2 36.2 32.0 26.3

Glenmark 145 515 NR NA 8.0 7.7 6.9 14.1 13.3 13.5 15.7 14.4 12.5

Ipca Labs 266 2,096 NR NA 16.9 16.6 14.5 26.5 21.6 20.3 23.3 23.1 20.2

JB Chemicals 81 1,054 NR NA 15.9 14.6 12.7 21.8 20.6 20.4 24.1 22.2 18.8

Eris LS 83 614 NR NA 19.7 17.8 16.0 24.6 24.0 24.9 24.1 21.9 19.3

Source: HSIE Research, Bloomberg, price as on Jan 13, 2021, *DRRD and Cipla ratios are adjusted for product specific NPVs (gRevlimid for DRRD,

gRevlimid and gAdvair for Cipla)

Page | 19


HDFC securities

Institutional Equities

Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,

Senapati Bapat Marg, Lower Parel, Mumbai - 400 013

Board: +91-22-6171-7330 www.hdfcsec.com

Rating Criteria

BUY: >+15% return potential

ADD: +5% to +15% return potential

REDUCE: -10% to +5% return potential

SELL: > 10% Downside return potential

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