february cadila healthcare (cadhea) | 324static-news.moneycontrol.com/static-mcnews/2019/02/... ·...

February 08, 2019

ICICI Securities Ltd | Retail Equity Research

Result Update

Robust US sales drive strong beat…

Q3FY19 results were stronger-than-expected on all fronts due to

strong US growth. Revenues grew 9.8% YoY to | 3578 crore (I-direct

estimate: | 3222 crore) due to 22.1%, 46.5% YoY, QoQ growth in the

US to | 1934 crore (I-direct estimate: | 1563.4 crore)

EBITDA margins contracted 234 bps to 23.5% (I-direct estimate:

23.3%), due to an adverse product mix. EBITDA remained flat at

| 840 crore but higher than I-direct estimate of | 750.7 crore

PAT de-grew 6.1% YoY to | 510.4 crore (I-direct estimate: | 375.4

crore). Delta vis-à-vis EBITDA was due to higher interest cost and

lower other income

US expected to grow on new launches

The US (49% of revenues) has grown at a CAGR of 28% in FY14-18

backed by aggressive filings and product launches. Launches of

authorised generics also contributed to overall growth. The US pipeline

(cumulative) consists of 338 filed ANDAs, 129 pending final approvals.

The USFDA cleared Moraiya in February 2017. The new Ahmedabad SEZ

and Baddi facilities have also started getting approvals. Acquisition of US

based Sentynl has paved the way for speciality pain management

segment. We expect US sales to grow 8% to | 7357 crore in FY18-21E on

the back of new launches.

Indian formulations growth backed by incremental new launches

With a market share of ~4%, Cadila is the fourth largest player in the

domestic formulations market, as per AIOCD. The acute: chronic:

subchronic ratio for the company is 23:9:68. Domestic formulation grew

at a CAGR of 8% in FY13-18 backed by new launches and acquisition of

Biochem. Recently, the company acquired six brands from MSD and eight

brands from AstraZeneca We expect Indian formulations to grow at a

CAGR of ~10% in FY18-21E to | 4410 crore.

US, India main growth drivers; Wellness to strengthen mix

US and India together account for 68% of the turnover. However, with the

acquisition of Heinz India portfolio under the Zydus Wellness staple,

wellness as a segment is likely to become another major contributor with

13% share. This will also add some differentiated products to the existing

wellness portfolio. With this acquisition and planned forays into

biosimilars and vaccines, we may see priorities shifting towards these

high investment/niche segments. The company owns a pipeline of 20

biosimilars and four novel biologics. Similarly, it owns 13 vaccines in

different stages of development.

Acquisition to dent near term earnings but bodes well in long run

Q3 numbers received a substantial boost on account of robust US sales,

which were way ahead of expectations. We expect the launch momentum

to continue given the huge amount of pending ANDAs. The Indian

formulations business, on the other hand, is going through major

restructuring but is likely stabilise from Q1FY20. The third major segment

i.e. Wellness (post acquisition) will be keenly watched as the company

ventures into slightly unchartered territory. At 4x sales the Heinz

acquisition is neither cheap nor costly with fairly straightforward funding

arrangements. Although it is early days to gauge the success, prima facie

it looks beneficial from overall revenues point of view with India focused

FMCG addition in the overall portfolio mix. The balance sheet expansion,

nonetheless, is likely to have major bearing on the sentiment in the near

term. Our new target price is | 370 based on 18x FY21E EPS of | 20.6.

Rating matrix

Rating : Buy

Target : | 370

Target Period : 12-15 months

Potential Upside : 14%

What’s Changed?

Target Changed from | 415 to | 370

EPS FY19E Changed from | 18.9 to | 17.8

EPS FY20E Changed from | 26.1 to | 18.4

EPS FY21E Unchanged

Rating Unchanged

Quarterly Performance

Q3FY19 Q3FY18 YoY (%) Q2FY19 QoQ (%)

Revenue 3,577.9 3,259.6 9.8 2,961.2 20.8

EBITDA 839.6 841.2 -0.2 687.8 22.1

EBITDA (%) 23.5 25.8 -234 bps 23.2 24 bps

Net Profit 510.4 543.3 -6.1 417.5 22.3

Key Financials

(|crore) FY18 FY19E FY20E FY21E

Revenues 11936.4 13381.3 15830.7 17115.9

EBITDA 2847.5 3003.7 3501.2 3785.7

Net Profit 1794.6 1825.2 1878.8 2104.7

EPS (|) 17.5 17.8 18.4 20.6

Valuation summary

FY18 FY19E FY20E FY21E

PE (x) 18.5 18.2 17.7 15.8

Target PE (x) 21.1 20.8 20.2 18.0

EV to EBITDA (x) 13.0 13.7 11.6 10.4

Price to book (x) 3.8 3.3 2.9 2.5

RoNW (%) 20.5 18.0 16.2 15.9

RoCE (%) 16.7 13.3 12.7 13.6

Stock data

Particular Amount

Market Capitalisation

Debt (FY18)

Cash (FY18)

EV

52 week H/L

Equity capital

Face value | 1

| 33180 crore

| 8113 crore

| 212 crore

| 41080 crore

434/311

| 102 crore

Price performance (%)

1M 3M 6M 1Y

Cadila Healthcare -7.2 -8.7 -13.8 -19.3

Glenmark Pharma -3.8 -5.4 7.5 8.9

Torrent Pharma -1.1 7.8 4.5 31.4

Cadila Healthcare (CADHEA) | 324

Research Analyst

Siddhant Khandekar

[email protected]

Mitesh Shah

[email protected]


Variance analysis

Q3FY19 Q3FY19E Q3FY18 Q2FY19 YoY (%) QoQ (%) Comments

Revenue 3577.9 3222.2 3259.6 2961.2 9.8 20.8

YoY growth and beat with I-direct estimates mainly due to 22.1%, 46.5% YoY,

QoQ, respectively, growth in the US

Raw Material Expenses 1352.5 1079.5 1124.6 991.9 20.3 36.4

Lower gross profit due to negative Indian formulations growth and higher

authorised generics (AG) component in the US

Employee Expenses 524.0 515.5 460.8 521.2 13.7 0.5

Other expenditure 861.8 876.5 833.0 760.3 3.5 13.3

EBITDA 839.6 750.7 841.2 687.8 -0.2 22.1

EBITDA (%) 23.5 23.3 25.8 23.2 -234 bps 24 bpsContracted YoY mainly on account of lower gross margins.

Interest 45.5 34.5 13.5 35.7 237.0 27.5

YoY spurt mainly due to 1) higher LIBOR rate, 2) higher borrowings and 3) forex

losses

Depreciation 153.7 147.5 147.3 147.5 4.3 4.2

Other Income 31.0 33.1 41.1 30.4 -24.6 2.0

PBT before EO & Forex 671.4 601.7 721.5 535.0 -6.9 25.5

EO 0.0 0.0 0.0 0.0 0.0 0.0

PBT 671.4 601.7 721.5 535.0 -6.9 25.5

Tax 158.6 126.4 178.6 124.7 -11.2 27.2

Tax rate (%) 23.6 21.0 24.8 23.3 -4.6 1.3

Net Profit 510.4 473.7 543.3 417.5 -6.1 22.3 YoY decline mainly in sync with EBITDA

EPS (|) 5.0 4.6 5.3 4.1 -6.1 22.3

Key Metrics

India 845.7 861.8 916.8 893.2 -7.8 -5.3

Negative growth on the back of impact of restocking post GST implementation

and rationalisation of the portfolio

US 1934.1 1563.4 1583.8 1320.4 22.1 46.5

YoY growth on the back of new launches. QoQ traction on the back of AndoGel AG

(Hormones) traction besides new launches and almost flattish base business

erosion

Europe 59.5 61.7 64.9 52 -8.3 14.4

EMs 224.3 206.2 196.4 203.4 14.2 10.3

Wellness 141.9 135.6 129.1 134.8 9.9 5.3

JVs 52.5 21.2 53 16.7 -0.9 214.4

APIs 130.0 108.0 113.7 89 14.3 46.1

Animal Health & Others 128.1 136.9 134.2 134.6 -4.5 -4.8

Source: Company, ICICI Direct Research

Change in estimates

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

Revenue 12,561.3 13,381.3 6.5 15,478.8 15,830.7 2.3 Incorporated acquired portfolio of Heinz India in Zydus welness and higher-than-

expected sales in the US

EBITDA 2,626.8 3,003.7 14.3 3,495.2 3,501.2 0.2

EBITDA Margin (%) 20.9 22.4 155 bps 22.6 22.1 -48 bps Changed mainly in line with 9MFY19 margins and management guidance

PAT 1,624.4 1,825.2 12.4 1,937.2 1,878.8 -3.0 Changed mainly in sync with operational perfromance

EPS (|) 15.9 17.8 12.4 18.9 18.4 -2.9

FY19E FY20E


Assumptions

Comments

(| crore) FY17 FY18 FY19E FY20E FY19E FY20E

India 3,244.1 3,332.7 3,515.3 3,937.1 3,692.5 4,135.6 Changed as per guidance

US 3,709.1 5,834.8 6,422.9 7,006.6 5,720.9 6,318.3 Changed mainly due to higher-than-expected sales in Q3FY19

Europe 262.1 240.3 239.5 263.5 248.2 273.0

EMs 749.4 761.9 843.1 969.6 840.9 955.8

Wellness 459.3 491.9 914.5 2,110.3 534.0 2,084.1 Incorporated acquisition

JVs 159.1 159.3 139.4 150.6 144.2 155.7

APIs 379.5 365.5 423.0 444.2 412.4 433.0

Animal Health & Others 453.0 480.3 511.7 562.8 531.2 584.3

Current Earlier



Company Analysis

The company was established in 1952 and restructured in 1995 post a

family split. Cadila is one of the old generation family owned pedigree

companies which, after establishing a strong base in domestic

formulations, shifted focus to exports markets. Over the last decade

(FY09-18), revenues, EBITDA and PAT have grown by 4.1x, 4.7x and 5.9x,

respectively. US has been the key driver for the company in the past five

years and grew at 28% CAGR in FY14-18, though the annual growth was

volatile due to warning letters. It has received repeated warning letters (in

FY12, FY16) from USFDA for its Moraiya facility (Gujarat). We believe that

despite the headwinds, the US is likely to remain a key growth driver for

the company due to aggressive filings and robust pending approvals.

Domestic growth remained steady in the past five years though JVs,

wellness and other segments growth were volatile. On the margins front,

base business EBITDA margins have been hovering in the range of 17-

22% in the past five years. We believe the US and Indian formulations will

remain main growth drivers, going ahead. Overall, we expect revenues to

grow at a CAGR of 13% in FY18-21E to | 17116 crore on a higher base of

FY18.

Exhibit 1: Overall growth to be driven by India as US base effect to pan out

7224.0

8635.8

9617.0 9625.3

11936.4

13381.3

15830.7

17115.9

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

(|

crore)

Revenues


Exhibit 2: Other than US, India, growth likely to be subdued

(| crore) FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

India 2,465 2,677 2,983 3,244 3,333 3,515 3,937 4,410

US 2,170 3,393 4,022 3,709 5,835 6,423 7,007 7,357

Europe 390 338 295 262 240 240 263 290

EMs 594 641 690 749 762 843 970 1,115

Wellness 430 443 432 459 492 915 2,110 2,279

JVs 458 471 263 159 159 139 151 163

Total APIs 350 372 365 380 366 423 444 466

Animal Healthcare 286 322 320 453 480 512 563 619


13.4% CAGR

12.8% CAGR


Exhibit 3: US growth to impact due to high base and price erosion in base business

2,170

3,393

4,0223,709

5,835

6,423

7,0077,357

0

1000

2000

3000

4000

5000

6000

7000

8000


(|

crore)

US


Exhibit 4: New launches, line extensions to drive Indian growth

2,4652,677

2,983

3,244 3,3333,515

3,937

4,410

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000


(|

crore)

India


28.0% CAGR

9.8% CAGR

7.8% CAGR

9.8% CAGR


Exhibit 5: EBITDA to grow at CAGR of 10% in FY18-21E

1200.1

1740.2

2330.5

1903.6

2847.53003.7

3785.7

3501.2

16.6

20.2

24.2

19.8

23.9

22.422.1 22.1

0

500

1000

1500

2000

2500

3000

3500

4000


(|

crore)

10

13

16

19

22

25

EBITDA EBITDA Margins (%)


Exhibit 6: Net profit to grow at CAGR of 5.5% in FY18-21E

792.0

1150.6

1958.2

1487.7

1794.6 1825.21878.8

2104.7

11.0

13.3

20.4

15.515.0

13.6

11.912.3

0

500

1000

1500

2000

2500


(|

crore)

6

12

18

24

Net Profit Net Profit Margins (%)


Exhibit 7: Trends in return ratios

23.5

27.0

34.4

21.420.5

18.0

16.2 15.9

16.1

20.7

24.9

13.1

16.7

13.3 12.713.610

15

20

25

30

35

40


RoNW (%) RoCE (%)



Exhibit 8: Trends in quarterly financials

(| Crore) Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 YoY (%) QoQ (%)

Total Operating Income 2408.9 2387.1 2333.1 2403.5 2363.8 2524.9 2228.8 3234.0 3259.6 3250.2 2893.7 2961.2 3577.9 9.8 20.8

Raw Material Expenses 810.8 830.7 820.1 893.6 952.1 975.1 860.9 1100.7 1124.6 1083.3 986.6 991.9 1352.5 20.3 36.4

% of revenue 33.7 34.8 35.2 37.2 40.3 38.6 38.6 34.0 34.5 33.3 34.1 33.5 37.8

Gross Profit 1598.1 1556.4 1513.0 1509.9 1411.7 1549.8 1367.9 2133.3 2135.0 2166.9 1907.1 1969.3 2225.4 4.2 13.0

Gross Profit Margin (%) 66.3 65.2 64.8 62.8 59.7 61.4 61.4 66.0 65.5 66.7 65.9 66.5 62.2 -330 bps -430 bps

Employee Expenses 298.0 347.7 357.2 371.5 371.0 400.5 428.8 459.2 460.8 491.5 526.6 521.2 524.0 13.7 0.5

% of revenue 12.4 14.6 15.3 15.5 15.7 15.9 19.2 14.2 14.1 15.1 18.2 17.6 14.6

Other Expenditure 708.3 658.5 631.9 622.4 636.4 685.7 661.8 817.0 833.0 805.0 735.5 760.3 861.8 3.5 13.3

% of revenue 29.4 27.6 27.1 25.9 26.9 27.2 29.7 25.3 25.6 24.8 25.4 25.7 24.1

Total Expenditure 1817.1 1836.9 1809.2 1887.5 1959.5 2061.3 1951.5 2376.9 2418.4 2379.8 2248.7 2273.4 2738.3 13.2 20.4

% of revenue 75.4 77.0 77.5 78.5 82.9 81.6 87.6 73.5 74.2 73.2 77.7 76.8 76.5

EBITDA 591.8 550.2 523.9 516.0 404.3 463.6 277.3 857.1 841.2 870.4 645.0 687.8 839.6 -0.2 22.1

EBITDA Margins (%) 24.6 23.0 22.5 21.5 17.1 18.4 12.4 26.5 25.8 26.8 22.3 23.2 23.5 -234 bps 24 bps

Depreciation 74.1 76.4 84.3 86.4 89.8 114.5 122.0 126.7 147.3 144.0 141.8 147.5 153.7 4.3 4.2

Interest 12.1 15.8 14.0 18.7 6.6 9.9 21.9 40.6 13.5 15.4 35.0 35.7 45.5 237.0 27.5

Other Income 32.2 39.3 15.3 23.6 16.6 73.1 21.0 22.5 41.1 28.7 101.3 30.4 31.0 -24.6 2.0

Forex & EO -0.9 0.8 -0.2 0.0 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

PBT 536.9 498.1 440.7 434.5 324.4 412.3 154.4 712.3 721.5 739.7 569.5 535.0 671.4 -6.9 25.5

Total Tax 90.6 -62.7 54.4 64.5 8.1 1.9 29.3 212.3 178.6 144.2 120.3 124.7 158.6 -11.2 27.2

Tax rate (%) 16.9 -12.6 12.3 14.8 2.5 0.5 19.0 29.8 24.8 19.5 21.1 23.3 23.6 -113.2 31.4

PAT 446.3 560.8 386.3 370.0 316.3 410.4 125.1 500.0 542.9 595.5 449.2 410.3 512.8 -5.5 25.0

Minority Interest 9.2 3.8 6.1 9.1 6.9 7.0 6.9 9.3 10.1 8.3 8.8 10.7 10.9 7.9 1.9

PAT after MI 426.1 547.0 371.2 352.9 302.4 397.4 113.2 486.7 528.8 584.2 438.4 398.6 501.9 -5.1 25.9

EPS (|) 4.2 5.3 3.6 3.4 3.0 3.9 1.1 4.8 5.2 5.7 4.3 3.9 4.9 -5.1 25.9


SWOT Analysis

Strengths - US product pipeline, one of the best MR productivity (| 49

lakh) in the industry. It was the first Indian company to launch unique NCE

(combination of CVS + anti-diabetic) in India. It has strong return ratios

Weakness - Too many revenue heads, struggling to cope up with margin

pressure, higher acute presence in domestic formulations

Opportunities - US generics space

Industry Specific Threats - Increased USFDA scrutiny across the globe

regarding cGMP issues, pricing pressure due to client consolidation in the

US. There is continued currency volatility in some emerging markets


Conference call highlights

Acquired portfolio of Heinz India is likely to be funded through

mix of debt: equity in the ratio of 33:67. On equity front, Cadila

will infuse | 1000-1200 crore and remaining is likely to be raised

from private equity. US sequential price erosion was 2% in Q2FY19. US business price

erosion is expected to be in the range of 8-10% in FY19

Key products update – 1) gAsacol HD (ulcerative colitis) was

completely switched from authorised generic to own product 2)

Competitors are struggling to gain market share in gLialda

(ulcerative colitis) due to manufacturing complexity 3) launched

authorized generic of AndoGel (Hormones) in October, 2019 (size

-~US$ 1 billion). Parrigo has launched this drug under exclusivity

4) The company has 5% market share in gToprol (CVS) 5) The

company has some assured business in gTamiflu (Flu) in H2FY19

Guided for 30+ launches in H2FY19 including couple of

transdermal launches gExelon (CNS)

On the biosimilars front, the company will initially focus only on

India and Emerging markets

GST impact in H1FY19 was 1.5-2%

Guided for 7-8% of R&D for FY19 and FY20

Exhibit 9: Facilities

Location Segment Regulatory Approvals Type

Moraiya, Ahmadabad Formulations USFDA Oral Solids

Baddi Formulations USFDA Oral Solids

Sikkim Formulations Oral Solids

Goa Formulations Oral Solids

Brazil Formulations Oral Solids

Dabhasa API USFDA

Ankleshwar API USFDA

Ahmadabad (SEZ) Formulations Transdermal

Ahmadabad (SEZ) Formulations Oncology & fine chemicals

Ahmadabad Formulations USFDA

Ahmadabad Formulations Topicals & Vaccines

Ahmadabad API Biologics

Cytotoxic, HospiraJV Formulations MHRA, USFDA Injectibles

Cytotoxic , BSV JV API Injectibles

Nesher, USA Formulations USFDA Controlled Substances

Near Moraiya, India Formulations Oilnment, Injectibles

Hercon Pharma Formulations USFDA Transdermal

Germany Formulations Animal Health

Nycomed, Mumbai API



Exhibit 10: One year forward PE

0.0

100.0

200.0

300.0

400.0

500.0

600.0

Feb-16

Aug-16

Feb-17

Aug-17

Feb-18

Aug-18

Feb-19

|

Series1 25.4x 21.0x 19.6x 13.8x 10.9x[


Exhibit 11: One year forward PE of company vs. BSE Healthcare Index

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Feb-16

Aug-16

Feb-17

Aug-17

Feb-18

Aug-18

Feb-19

x

Cadila Healthcare CNX Pharma

16% Discount


Exhibit 12: Valuation

Revenues Growth EPS Growth P/E EV/EBITDA RoE RoCE

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

FY18 11936 24.0 17.5 20.6 18.5 13.0 20.5 16.7

FY19E 13381 12.1 17.8 1.7 18.2 13.7 18.0 13.3

FY20E 15831 18.3 18.4 2.9 17.7 11.6 16.2 12.7

FY21E 17116 8.1 20.6 12.0 15.8 10.4 15.9 13.6



Recommendation history vs. Consensus

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

0

100

200

300

400

500

600

Feb-19Nov-18Sep-18Jul-18Apr-18Feb-18Nov-17Sep-17Jul-17Apr-17Feb-17Nov-16Sep-16Jun-16Apr-16Feb-16

(%)(|

)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICI Direct Research

Key events

Date Event

May-09 Zydus Hospira JV launches two oncology injectable products in the Europe region

Jan-10 Cadila Healthcare receives approval from DGCI to conduct clinical trials for the H1N1 (swine flu) vaccine

May-10 Cadila & Abbott sign an agreement in which Abbott will be marketing 24 branded generics of Cadila in 15 emerging markets

Jun-10 Cadila Healthcare launches India’s first vaccine for treating Swine flu (H1N1)

Jul-11 Cadila Healthcare receives a warning letter for injectable facility in Ahmedabad

Dec-11 Cadila acquires privately held company Biochem. Biochem has a strong presence in antibiotics, CVS, anti-diabetic and oncology segments

Jun-13 Cadila becomes first Indian company to discover, develop and launch new chemical entity Lipaglyn in Indian market. The drug is used for treating diabetic

dyslipidemia combines lipid and glucose lowering effects in one single molecule

Dec-14 Launches biosimilar of Adalimumab, used for treatment of auto immune disorders, at a price much lower than the innovator drug Humira of AbbVie in India

Sep-15 Three manufacturing facilities including two API plants at Ankaleshwar and Dabhasa successfully complete USFDA inspection

Jan-16 Receives warning letter from the USFDA for its Moraiya formulation facility and Ahmedabad API facility (Zyfine). Inspections for these facilities were conducted

in September 2014 and December 2014, respectively

Jul-16 Receives establishment inspection report (EIR) from USFDA for Moraiya facility

Jan-17 Cadila acquires eight brands from Astrazeneca India

Jan-17 Cadila acquires six brands from Merck and its subsidiaries

Jan-17 Cadila acquires Sentynl Therapeutics (US) for $171 million

Feb-17 The company receives Establishment Inspection Report (EIR) for Moraiya manufacturing facility from USFDA

Oct-18 Zyuds wellness entered into a definitive agreement to acquire Heinz India four products at a valuation of | 4595 crore


Top 10 Shareholders Shareholding Pattern

Rank Investor Name Latest Filing Date % O/S Position Position Change

1 Zydus Family Trust 31-Dec-18 74.8 765.5m 0.0m

2 Life Insurance Corporation of India 31-Dec-18 2.8 28.8m 0.0m

3 Franklin Templeton Asset Management (India) Pvt. Ltd. 31-Dec-18 1.6 15.9m 0.0m

4 Norges Bank Investment Management (NBIM) 30-Sep-18 1.1 10.9m 0.0m

5 Kotak Mahindra Asset Management Company Ltd. 31-Dec-18 0.9 9.0m 0.0m

6 The Vanguard Group, Inc. 31-Dec-18 0.9 8.7m 0.0m

7 UTI Asset Management Co. Ltd. 31-Dec-18 0.8 8.4m 0.4m

8 BlackRock Institutional Trust Company, N.A. 31-Dec-18 0.6 6.4m 0.1m

9 IDFC Asset Management Company Private Limited 31-Dec-18 0.5 5.1m 0.0m

10 Reliance Nippon Life Asset Management Limited 31-Dec-18 0.4 4.5m 0.0m

(in %) Dec-17 Mar-18 Jun-18 Sep-18 Dec-18

Promoter 74.8 74.8 74.8 74.8 74.8

Others 25.2 25.2 25.2 25.2 25.2

Source: Reuters, ICICI Direct Research

Recent Activity

Investor name Value ($) Shares Investor name Value ($) Shares

Aditya Birla Sun Life AMC Limited 3.3m 0.6m Axis Asset Management Company Limited -4.1m -0.8m

UTI Asset Management Co. Ltd. 1.8m 0.4m Schroder Investment Management Ltd. (SIM) -3.9m -0.7m

Sjunde AP-fonden 0.6m 0.1m BNP Paribas Asset Management Asia Limited -2.9m -0.6m

Parametric Portfolio Associates LLC 0.4m 0.1m Principal Asset Management Private Limited -2.7m -0.5m

BlackRock Institutional Trust Company, N.A. 0.3m 0.1m Tredje AP Fonden -1.8m -0.3m

Buys Sells

Source: Reuters, ICICI Direct Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) FY18 FY19E FY20E FY21E

Revenues 11,936.4 13,381.3 15,830.7 17,115.9

Growth (%) 24.0 12.1 18.3 8.1

Raw Material Expenses 4,153.5 4,816.4 5,703.1 6,166.0

Employee Expenses 1,854.5 2,124.6 2,394.9 2,589.3

Other expenses 3,080.9 3,436.6 4,231.4 4,575.0

Total Operating Expenditure 9,088.9 10,377.6 12,329.5 13,330.3

EBITDA 2,847.5 3,003.7 3,501.2 3,785.7

Growth (%) 49.6 5.5 16.6 8.1

Depreciation 538.8 684.7 966.8 1,028.5

Interest 91.1 197.3 324.5 264.5

Other Income 113.2 204.2 77.2 58.4

Less: Exceptional Items 0.0 0.0 0.0 0.0

PBT after Exceptional Items 2,330.8 2,325.8 2,287.2 2,551.1

Total Tax 564.4 533.5 457.4 510.2

Minority Interest 34.6 34.1 19.2 5.8

PAT 1,794.6 1,825.2 1,878.8 2,104.7

Adjusted PAT 1,794.6 1,825.2 1,878.8 2,104.7

Growth (%) 20.6 1.7 2.9 12.0

EPS (Adjusted) 17.5 17.8 18.4 20.6


Cash flow statement | Crore


Profit/(Loss) after taxation 1,710.2 1,825.2 1,878.8 2,104.7

Add: Depreciation 540.5 684.7 966.8 1,028.5

Net Increase in Current Assets -2,026.3 -737.7 -1,270.0 -713.1

Net Increase in Current Liabilities 607.5 303.1 484.7 298.4

Other Operating Activities 87.4 197.3 324.5 264.5

CF from operating activities 919.3 2,272.6 2,384.7 2,983.0

(Inc)/dec in Fixed Assets -1,035.3 -1,275.7 -1,119.7 -950.0

Loan & Advances 0.0 -38.7 -42.2 -46.0

(Inc)/dec in MI 0.0 34.1 19.2 5.8

Other Investing Activities -373.9 -4,464.2 -42.5 -46.3

CF from investing activities -1,409.2 -5,744.6 -1,185.2 -1,036.5

Inc/(dec) in loan funds 157.4 3,000.0 0.0 -1,500.0

Dividend paid & dividend tax -1.0 -433.9 -409.4 -458.6

Inc/(dec) in forex reserve 0.0 0.0 0.0 0.0

Interest Paid 104.9 -197.3 -324.5 -264.5

Other Financing Activities 0.0 0.0 0.0 0.0

CF from financing activities 261.3 2,368.8 -733.9 -2,223.1

Net Cash flow -228.6 -1,103.2 465.5 -276.6

Opening Cash 1,543.5 1,314.9 211.7 677.2

Closing Cash 1,314.9 211.7 677.2 400.6

Free Cash Flow -116.0 996.9 1,265.0 2,033.0


Balance sheet | Crore s


Equity Capital 102.4 102.4 102.4 102.4

Reserve and Surplus 8,642.1 10,033.4 11,502.7 13,148.8

Total Shareholders funds 8,744.5 10,135.8 11,605.1 13,251.2

Total Debt 5,112.6 8,112.6 8,112.6 6,612.6

Deferred Tax Liability 282.1 307.5 335.2 365.3

Minority Interest 191.0 225.1 244.2 250.0

Other Non Curr.Liab. & LTP 209.6 228.5 249.0 271.4

Total Liabilities 14,539.8 19,009.4 20,546.2 20,750.6

Gross Block - Fixed Assets 7,938.9 9,214.6 10,334.4 11,284.4

Less: Acc Depreciation 2,841.6 3,526.3 4,493.0 5,521.5

Net Block 5,097.3 5,688.4 5,841.4 5,762.9

Capital WIP 1,527.2 1,527.2 1,527.2 1,527.2

Total Fixed Assets 6,624.5 7,215.6 7,368.6 7,290.1

Goodwill on Consolidation 1,385.3 5,810.6 5,810.6 5,810.6

Investment 745.7 745.7 745.7 745.7

Inventory 2,385.3 2,659.7 3,157.6 3,414.0

Debtors 3,206.3 3,575.2 4,244.5 4,589.1

Other Current Assets 1,048.4 1,142.8 1,245.6 1,357.7

Cash 1,314.9 211.7 677.2 400.6

Total Current Assets 7,954.9 7,589.4 9,324.9 9,761.4

Creditors 1,888.4 2,105.7 2,499.9 2,702.8

Provisions 100.2 109.2 119.0 129.8

Other Current Liabililties 1,536.9 1,613.7 1,694.4 1,779.2

Total Current Liabilities 3,525.5 3,828.6 4,313.3 4,611.7

Deferred Tax Assets 924.6 1,007.8 1,098.5 1,197.4

Net Current Assets 4,429.4 3,760.7 5,011.6 5,149.7

Long term Loans and advances 430.3 469.0 511.2 557.3

Application of Funds 14,539.8 19,009.4 20,546.2 20,750.6


Key ratios


Per share data (|)

Adjusted EPS 17.5 17.8 18.4 20.6

BV per share 85.4 99.0 113.4 129.4

Dividend per share 4.2 4.2 4.0 4.5

Cash Per Share 12.8 2.1 6.6 3.9

Operating Ratios (%)

Gross Profit Margins 65.2 64.0 64.0 64.0

EBITDA margins 23.9 22.4 22.1 22.1

Net Profit margins 15.0 13.6 11.9 12.3

Inventory days 72.9 72.5 72.8 72.8

Debtor days 98.0 97.5 97.9 97.9

Creditor days 57.7 57.4 57.6 57.6

Asset Turnover 1.5 1.5 1.5 1.5

EBITDA Conversion Ratio 32.3 75.7 68.1 78.8

Return Ratios (%)

RoE 20.5 18.0 16.2 15.9

RoCE 16.7 13.3 12.7 13.6

RoIC 19.8 13.5 13.9 14.7

Valuation Ratios (x)

P/E 18.5 18.2 17.7 15.8

EV / EBITDA 13.0 13.7 11.6 10.4

EV / Net Sales 3.1 3.1 2.6 2.3

Market Cap / Sales 2.8 2.5 2.1 1.9

Price to Book Value 3.8 3.3 2.9 2.5

Solvency Ratios

Debt / EBITDA 1.8 2.7 2.3 1.7

Debt / Equity 0.6 0.8 0.7 0.5

Current Ratio 1.9 1.9 2.0 2.0



ICICI Direct coverage universe (Healthcare)

Company I-Direct CMP TP Rating M Cap

Code (|) (|) (| Cr) FY17 FY18 FY19E FY20E FY17 FY18 FY19E FY20E FY17 FY18 FY19E FY20E FY17 FY18 FY19E FY20E

Ajanta Pharma AJAPHA 965 1,100 Hold 8494.2 57.4 53.0 43.1 50.5 16.8 18.2 22.4 19.1 41.3 30.0 21.6 21.7 32.3 23.0 16.4 16.8

Alembic Pharma ALEMPHA 575 620 Hold 10838.7 21.2 21.9 30.4 27.1 27.1 26.3 18.9 21.2 25.3 18.0 19.9 17.2 21.0 18.6 21.4 16.6

Apollo Hospitals APOHOS 1265 1,440 Buy 17605.6 15.9 8.5 26.6 48.2 79.7 149.6 47.5 26.2 6.1 6.3 9.8 13.7 6.0 3.6 10.4 16.4

Aurobindo Pharma AURPHA 758 915 Buy 44408.9 38.8 41.6 44.2 52.9 19.5 18.2 17.1 14.3 24.4 20.0 18.5 17.0 24.2 20.7 18.4 18.3

Biocon BIOCON 649 760 Buy 38958.0 8.5 6.2 12.8 17.3 76.6 104.6 50.8 37.5 9.4 8.1 13.1 15.4 10.5 7.2 12.8 15.0

Cadila Healthcare CADHEA 324 370 Buy 33179.5 14.5 17.5 17.8 18.4 22.3 18.5 18.2 17.7 13.1 16.7 13.3 12.7 21.4 20.5 18.0 16.2

Cipla CIPLA 540 545 Hold 43542.3 12.5 18.3 17.5 20.4 43.2 29.5 30.9 26.5 7.7 9.6 10.9 12.5 8.0 10.4 9.2 9.8

Divi's Lab DIVLAB 1672 1,800 Buy 44398.3 39.9 33.3 53.5 60.5 41.9 50.2 31.2 27.6 25.3 20.0 26.4 25.2 19.8 14.9 20.2 19.3

Dr Reddy's Labs DRREDD 2768 2,870 Hold 45950.4 78.0 57.0 107.1 128.6 35.5 48.5 25.8 21.5 7.3 6.1 9.5 11.9 10.5 7.2 12.2 13.1

Glenmark Pharma GLEPHA 630 660 Hold 17766.7 42.2 28.5 32.9 36.8 14.9 22.1 19.2 17.1 19.5 14.6 16.0 15.2 26.5 15.6 14.9 14.5

Indoco Remedies INDREM 175 195 Hold 1611.7 8.4 4.8 -1.8 7.4 20.9 36.2 -95.9 23.6 8.7 6.5 -0.1 8.3 11.8 6.6 -2.6 9.4

Ipca Laboratories IPCLAB 735 845 Buy 9291.3 15.4 19.0 32.4 42.3 47.7 38.7 22.7 17.4 8.7 9.1 13.8 17.1 7.9 8.9 13.5 15.4

Jubilant Life JUBLIF 754 905 Buy 12003.4 36.9 41.3 59.7 73.9 20.4 18.3 12.6 10.2 13.8 14.9 18.8 20.7 16.8 15.7 18.7 19.0

Lupin LUPIN 810 840 Hold 36648.6 56.7 20.8 19.6 31.3 14.3 39.0 41.3 25.9 16.6 10.4 9.7 11.1 19.0 6.9 6.3 9.2

Narayana Hrudalaya NARHRU 195 250 Buy 3986.1 4.1 2.5 2.3 6.6 47.2 77.9 83.9 29.6 12.5 6.3 7.1 12.0 8.8 4.9 4.4 11.1

Natco Pharma NATPHA 682 860 Buy 12591.5 26.3 37.7 41.7 24.9 25.9 18.1 16.3 27.4 33.6 27.4 26.6 14.8 29.5 22.7 21.2 11.6

Sun Pharma SUNPHA 428 460 Hold 102796.7 29.0 13.0 14.7 21.1 14.8 33.0 29.2 20.3 20.3 9.8 10.2 13.3 19.0 8.2 8.8 11.5

Syngene Int. SYNINT 614 675 Buy 12278.0 14.4 15.3 16.3 17.5 40.8 38.4 35.9 33.5 16.0 15.9 16.8 16.5 20.3 17.7 16.1 14.8

Torrent Pharma TORPHA 1784 2,175 Buy 30184.1 55.2 40.1 52.3 64.9 32.3 44.5 34.1 27.5 18.9 11.2 14.2 17.1 21.5 14.7 16.7 17.9

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



RATING RATIONALE

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

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

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


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