CMP 301.30

Target Price 335.00

ISIN: INE10A01028

MAY 13th

. 2015

SHASUN PHARMACEUTICALS LTD

Result Update (CONSOLIDATED BASIS): Q4 FY15

BUYBUYBUYBUY

Index Details

Stock Data

Sector Pharmaceuticals

BSE Code 524552

Face Value 2.00

52wk. High / Low (Rs.) 391.50/134.20

Volume (2wk. Avg. Q.) 40000

Market Cap (Rs. in mn.) 18123.20

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY15A FY16E FY17E

Net Sales 13166.30 14548.76 15945.44

EBITDA 1218.10 1421.18 1587.25

Net Profit 237.60 289.39 362.30

EPS 3.95 4.81 6.02

P/E 76.28 62.63 50.02

Shareholding Pattern (%)

1 Year Comparative Graph

SHASUN PHARMACEUTICALS LTD BSE SENSEX

SYNOPSIS

Shasun Pharmaceuticals Ltd is an integrated,

leading global supplier of development and

manufacturing services for intermediates, API and

Formulations to the Pharmaceutical Industry.

In Q4 FY15, Consolidated Net profit jumps to Rs.

221.60 million an increase of 113.08% y-o-y against

Rs. 104.00 million in Q4 FY14.

During the quarter, Net sales stood at Rs. 3579.50

million compared to Rs. 3632.60 million during the

corresponding quarter of previous year.

Operating profit is at Rs. 450.40 million, a growth of

3.83% y-o-y in 4th quarter of FY15 as against Rs.

433.80 million in 4th quarter of FY14.

Profit before tax (PBT) rose by 100.97% y-o-y at Rs.

270.50 million in Q4 FY15 compared to Rs. 134.60

million in Q4 FY14.

Formulations sales for Q4 FY15 were Rs. 793.00

million as compared to Rs. 591.00 million for Q4

FY14, sales growth of 34% y-o-y, driven by North

America business.

For Q4 FY15, API sales were at Rs. 2553.00 million,

representing 76% of total Q4 FY15 revenues.

CRAMS business has strong product pipeline of 9

products in phase-3, 12 products in phase-2 and

other 14 products in Phase-1.

Net Sales and PAT of the company are expected to

grow at a CAGR of 10% & 6% over 2014 to 2017E

respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Shasun Pharmaceuticals Ltd 301.30 18123.20 3.95 76.28 5.05 0.00

Aarti Drugs Ltd 679.25 16449.50 33.32 20.39 15.12 130.00

Anuh Pharma Ltd 642.75 5368.20 27.18 23.65 6.25 155.00

Suven Life Sciences Ltd 282.15 35912.80 9.76 28.91 13.53 250.00

QUARTERLY HIGHLIGHTS (CONSOLIDATED BASIS)

Results updates- Q4 FY15,

Shasun Pharmaceuticals Ltd is primarily engaged in

manufacturing of Active Pharmaceutical Ingredients

(APIs), their intermediates and finished dosage. The

Company is also into product development, trading

of branded formulations and provides contract

research and manufacturing services. Reported its

financial results for the quarter ended 31st

March, 2015.

The company has achieved a turnover of Rs. 3579.50 million for the 4th quarter of the financial year 2015 as

against Rs. 3632.60 million in the corresponding quarter of the previous year. EBITDA of Rs. 450.40 million in Q4

FY15 and increase of 3.83% y-o-y against the corresponding period of last year. For Q4 FY15, Net profit was at

Rs. 221.60 million against Rs. 104.00 million in the corresponding quarter of the previous year. The company has

reported an EPS of Rs. 3.68 for the 4th quarter as against an EPS of Rs. 1.84 in the corresponding quarter of the

previous year.

Break up of Expenditure

During the quarter, total Expenditure decreased by 3 per cent mainly on account of decreased Depreciation&

amortization by 20%, Purchase of stock in trade by 20% down along with foreign exchange loss down by 35%,

are the primary attribute for the growth of expenditure when compared to corresponding quarter of previous

year. Whereas other expenditure raised by 4%, Cost of material consumed rose by 6% and Employee benefits

Expenses 8%. Total expenditure in Q4 FY15 stood to Rs. 3303.30 million as against Rs. 3391.50 million in Q4

FY14.

Break up of Expenditure

(Rs. In millions)

Q4 FY15 Q4 FY14

Cost of materials consumed 1881.20 1771.20

Purchase of stock in trade 15.10 23.10

Employees Benefit Expenses 597.20 552.20

Depreciation & Amortization

Expenses 129.40 161.60

Foreign exchange loss, net 1.20 13.50

Other expenses 781.30 753.60

Rs. In million Mar-15 Mar-14 % Change

Net Sales 3579.50 3632.60 (1.46)

PAT 221.60 104.00 113.08

EPS 3.68 1.84 100.68

EBITDA 450.40 433.80 3.83

Latest Updates

• Formulation business delivered robust growth in FY15 led by strong performance in regulated markets.

• API (including CRAMS) reported flat growth due to delay in parents ANDA approvals, UK CRAMs business

turned around during the quarter and the momentum is expected to continue.

Formulations Q4 FY15:

• Formulations sales for Q4 FY15 were Rs. 793.00 million as compared to Rs. 591.00 million for Q4 FY14, sales

growth of 34% y-o-y, driven by North America business.

API (including CRAMS) Q4 FY15:

• For Q4 FY15, API sales were at Rs. 2553.00 million, representing 76% of total Q4 FY15 revenues.

• CRAMS business has strong product pipeline of 9 products in phase-3, 12 products in phase-2 and other 14

products in Phase-1.

COMPANY PROFILE

Shasun Pharmaceuticals Limited was incorporated in 1976 and is headquartered in Chennai, India. Shasun is an

integrated, leading global supplier of development and manufacturing services for intermediates, API (Active

Pharmaceutical Ingredients) and Formulations to the Pharmaceutical Industry. Head office in Chennai India with

locations in India, UK, USA. API CRAMS includes Shasun Pharma Solutions Limited, UK and Shasun

Pharmaceuticals Ltd, India.

Shasun has extensive experience and expertise in Contract, Research and Manufacturing Services (CRAMS),

Formulations CRAMS includes finished dosages facility in Pondicherry, which caters to contract manufacturing

and contract development of finished dosages for Innovator, Emerging and Generic pharma companies.

Formulation research centre in Pondicherry provides support for development of new formulation products.

API (Active Pharmaceutical Ingredient) products manufacturing, Intermediates, Enteric coating excipients,

Strong presence in key generic products – Shasun is one of the largest producers of Ibuprofen worldwide and

Supplies its products to North America, Europe, Asia and Latin America. Shasun’s unique technologies and

reliable GMP compliant facilities provide high quality products. Partnering with global pharmaceutical and retail

companies, Shasun provides wide range of OTC & Rx Products and services. By integrating its facilities in India

and UK, Shasun offers the benefits of worldwide services to provide the best solutions for its customers.

Products & Services

Shasun Offer’s a full range of development and manufacturing services for intermediates, API and formulations,

covering the entire life cycle of a product at any scale – from grams to tonnes – from pre-clinical to validation and

commercial supply, with all the associated supporting services.

All of these services can be offered from its USFDA, PMDA and MHRA approved sites, eliminating risk, time and

cost associated with technology transfer from one service provider to another.

Shasun Research Center (SRC)

Shasun’s state-of-the-art research & development center established at Keelakottaiyur, around 35 km from

Chennai. This facility is spread over 9.3 Acres of land approximately 377150 sq. ft. This project is executed in 3

Phases. The first phase was completed in 2005 and has been fully functional. In the 2nd phase, SRC plans to

double the organic and analytical infrastructure by building another organic block and an additional floor of the

analytical department.

Subsidiaries

• Shasun USA Inc., USA

• Shasun Life Sciences Private Limited, India

• SVADS Holdings SA, Switzerland

• Shasun Pharma Solutions Limited, UK (100% subsidiary of SVADS Holdings SA)

• Shasun Pharma Solutions Inc., USA (100% subsidiary of SVADS Holdings SA)

FINANCIAL HIGHLIGHT (CONSOLIDATED BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2014 -2017E

FY14A FY15A FY16E FY17E

I. EQUITY AND LIABILITIES:

A. Shareholders’ Funds

Share Capital 113.30 120.30 120.30 120.30

Reserves and Surplus 2912.90 3471.90 4062.12 4630.82

Money received against Share Warrants 0.00 195.30 132.80 143.43

Foreign currency monetary Item Translation diffr A\C -6.00 -4.20 -3.15 -2.77

Sub-Total-Net worth 3020.20 3783.30 4312.08 4891.78

B. Non-Current Liabilities:

a) Long-term borrowings 1817.40 1885.00 1941.55 1980.38

b) Deferred tax Liabilities 0.00 23.40 30.02 36.63

c) Other Long Term Liabilities 11.40 0.30 0.16 0.10

d) Long Term Provisions 40.20 63.70 84.08 107.63

Sub-Total-Long term liabilities 1869.00 1972.40 2055.81 2124.74

C. Current Liabilities:

a) Short-term borrowings 4428.80 4687.00 4893.23 5059.60

b) Trade Payables 2665.90 2837.80 2991.04 3122.65

c) Other Current Liabilities 1176.10 1462.90 1696.96 1943.02

d) Short Term Provisions 114.40 98.30 103.61 111.90

Sub-Total-Current Liabilities 8385.20 9086.00 9684.84 10237.17

TOTAL-EQUITY AND LIABILITIES (A+B+C) 13274.40 14841.70 16052.73 17253.68

II. ASSETS:

D. Non-Current Assets:

a) Fixed Assets 4970.20 6055.00 6872.41 7532.17

b) Non Current Investments 74.40 157.10 182.24 204.10

c) Deferred tax assets 171.40 146.00 127.02 111.27

d) Long Term Loans and Advances 1231.20 626.70 357.22 221.48

e) Other non-current assets 15.60 13.20 14.26 15.26

Sub-Total-Non-Current Assets 6462.80 6998.00 7553.15 8084.28

E. Current Assets:

a) Inventories 2047.40 2379.80 2629.68 2882.13

b) Trade Receivables 3500.50 3475.50 3565.86 3729.89

c) Cash and Bank Balances 127.80 29.90 34.39 40.57

d) Short Term Loans and Advances 753.20 1606.50 1907.09 2137.57

e) Other Current Assets 382.70 352.00 362.56 379.24

Sub-Total-Current Assets 6811.60 7843.70 8499.58 9169.40

TOTAL-ASSETS (D+E) 13274.40 14841.70 16052.73 17253.68

Annual Profit & Loss Statement for the period of 2014 to 2017E

Value(Rs.in.mn) FY14A FY15A FY16E FY17E

Description 12m 12m 12m 12m

Net Sales 12126.90 13166.30 14548.76 15945.44

Other Income 229.40 122.30 140.89 152.16

Total Income 12356.30 13288.60 14689.65 16097.60

Expenditure -11117.90 -12070.50 -13268.47 -14510.35

Operating Profit 1238.40 1218.10 1421.18 1587.25

Interest -415.10 -525.30 -575.73 -621.79

Gross profit 823.30 692.80 845.45 965.46

Depreciation -593.60 -469.60 -488.38 -519.64

Extraordinary Items 0.00 78.50 0.00 0.00

Profit Before Tax 229.70 301.70 357.07 445.82

Tax 72.70 -63.30 -66.41 -82.03

Profit After Tax 302.40 238.40 290.65 363.79

Share of Profit & Loss of Asso -0.30 -0.80 -1.26 -1.49

Net Profit 302.10 237.60 289.39 362.30

Equity capital 113.30 120.30 120.30 120.30

Reserves 2913.20 3471.90 4062.12 4630.82

Face value 2.00 2.00 2.00 2.00

EPS 5.33 3.95 4.81 6.02

Quarterly Profit & Loss Statement for the period of 30 SEPT, 2014 to 30 JUNE, 2015E

Value(Rs.in.mn) 30-Sep-14 31-Dec-14 31-Mar-15 30-Jun-15E

Description 3m 3m 3m 3m

Net sales 3199.60 3250.00 3579.50 3651.09

Other income 42.60 15.80 44.80 32.26

Total Income 3242.20 3265.80 3624.30 3683.35

Expenditure -3005.60 -2923.20 -3173.90 -3333.45

Operating profit 236.60 342.60 450.40 349.90

Interest -123.60 -156.90 -129.00 -135.45

Gross profit 113.00 185.70 321.40 214.45

Depreciation -99.80 -117.60 -129.40 -113.87

Extraordinary Items 0.00 0.00 78.50 0.00

Profit Before Tax 13.20 68.10 270.50 100.58

Tax -0.20 0.00 -63.10 0.00

Profit After Tax 13.00 68.10 207.40 100.58

Share of Profit & Loss of Asso -10.50 -6.70 14.20 4.54

Net Profit 2.50 61.40 221.60 105.12

Equity capital 120.30 120.30 120.30 120.30

Face value 2.00 2.00 2.00 2.00

EPS 0.04 1.02 3.68 1.75

Ratio Analysis

Particulars FY14A FY15A FY16E FY17E

EPS (Rs.) 5.33 3.95 4.81 6.02

EBITDA Margin (%) 10.21% 9.25% 9.77% 9.95%

PBT Margin (%) 1.89% 2.29% 2.45% 2.80%

PAT Margin (%) 2.49% 1.81% 2.00% 2.28%

P/E Ratio (x) 56.50 76.28 62.63 50.02

ROE (%) 9.99% 6.64% 6.95% 7.66%

ROCE (%) 19.76% 16.60% 17.33% 17.87%

Debt Equity Ratio 2.06 1.83 1.63 1.48

EV/EBITDA (x) 18.72 20.25 17.54 15.83

Book Value (Rs.) 53.42 59.72 69.53 78.99

P/BV 5.64 5.05 4.33 3.81

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 301.30, the stock P/E ratio is at 62.63 x FY16E and 50.02 x FY17E

respectively.

� Earning per share (EPS) of the company for the earnings for FY16E and FY17E is seen at Rs.4.81 and Rs.6.02

respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 10% & 6% over 2014 to 2017E

respectively.

� On the basis of EV/EBITDA, the stock trades at 17.54 x for FY16E and 15.83 x for FY17E.

� Price to Book Value of the stock is expected to be at 4.33 x and 3.81 x respectively for FY16E and FY17E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.335.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

The Indian pharmaceuticals market is third largest in terms of volume and thirteen largest in terms of value, as

per a pharmaceuticals sector analysis report by equity master. The market is dominated majorly by branded

generics which constitute nearly 70 to 80 per cent of the market. Considered to be a highly fragmented industry,

consolidation has increasingly become an important feature of the Indian pharmaceutical market.

India has achieved an eminent global position in pharma sector. The country also has a huge pool of scientists

and engineers who have the potential to take the industry to a very high level.

The UN-backed Medicines Patents Pool has signed six sub-licences with Aurobindo, Cipla, Desano, Emcure,

Hetero Labs and Laurus Labs, allowing them to make generic anti-AIDS medicine Tenofovir Alafenamide (TAF)

for 112 developing countries.

Market Size

The Indian pharmaceutical industry is estimated to grow at 20 per cent compound annual growth rate (CAGR)

over the next five years, as per India Ratings, a Fitch Group company. Indian pharmaceutical manufacturing

facilities registered with US Food and Drug Administration (FDA) as on March 2014 was the highest at 523 for

any country outside the US.

Gujarat clocked the highest growth rate in pharmaceuticals market at 22.4 per cent during November 2014,

surpassing the industry growth rate, which grew by 10.9 per cent, as per data from the market research firm

AIOCD Pharma softtech AWACS.

Also, growing at an average rate of about 20 per cent, India's biotechnology industry comprising bio-

pharmaceuticals, bio-services, bio-agriculture, bio-industry and bioinformatics may reach the US$ 7 billion mark

by the end of FY15, according to an industry body. Biopharma is the largest sector contributing about 62 per cent

of the total revenue, with revenue generation to the tune of over Rs 12,600 crore (US$ 2.03 billion). The bio-

pharma sector comprises vaccines, therapeutics and diagnostics.

Investments

The Union Cabinet has given its approval to amend the existing FDI policy in the pharmaceutical sector in order

to cover medical devices. The Cabinet has allowed FDI up to 100 per cent under the automatic route for

manufacturing of medical devices subject to specified conditions.

The drugs and pharmaceuticals sector attracted cumulative foreign direct investment (FDI) inflows worth US$

12,813.02 million between April 2000 and December 2014, according to data released by the Department of

Industrial Policy and Promotion (DIPP).

Some of the major investments in the Indian pharmaceutical sector are as follows:

• Stelis Biopharma has announced the ground-breaking for construction of its customised, multi-product,

biopharmaceutical manufacturing facility at Bio-Xcell Biotechnology Park in Nusajaya, Johor, Malaysia's park

and ecosystem for industrial and healthcare biotechnology at a total project investment amount of US$ 60

million.

• Pharma major Strides Arcolab has entered into a licensing agreement with US-based Gilead Sciences Inc to

manufacture and distribute the latter's low-cost Tenofovir Alafenamide (TAF) product used for HIV

treatment in developing countries. The licence to manufacture Gilead's low-cost drug extends to 112

countries.

• Apollo Hospitals Enterprise (AHEL) plans to add another 2,000 beds over the next two financial years, at a

cost of around Rs 15000.00 mn (US$ 242.57 million), as per Founder and Executive Chairman, Apollo

Hospitals.

• CDC, the UK’s development finance institution, has invested US$ 48 million in Narayana Hrudayalaya

hospitals, a multi-speciality healthcare provider. With this investment, Narayana Health will expand

affordable treatment in eastern, central and western India.

• Torrent Pharmaceuticals has entered into an exclusive licensing agreement with Reliance Life Sciences for

marketing three biosimilars in India — Rituximab, Adalimumab and Cetuximab.

• Piramal Enterprises Ltd has acquired US-based Coldstream Laboratories for US$ 30.6 million in an all-cash

transaction.

• Indian Immunologicals Ltd (IIL) plans to set up a new vaccine manufacturing facility in Pondicherry with an

investment of Rs 3000.00 mn (US$ 48.53 million).

• SRF Ltd has acquired Global DuPont Dymel, the pharmaceutical propellant business of DuPont, for US$ 20

million.

Government Initiatives

The Government of India has unveiled 'Pharma Vision 2020' aimed at making India a global leader in end-to-end

drug manufacture. It has reduced approval time for new facilities to boost investments. Further, the government

has also put in place mechanisms such as the Drug Price Control Order and the National Pharmaceutical Pricing

Authority to address the issue of affordability and availability of medicines.

Romania is keen to tie up with the Indian pharmaceutical companies for research and develop new drugs.

"Romania will collaborate with India for license acquisition to sale India's drugs in Europe," reported by,

Counselor in Ministry of health in Romania at GCCI. The country will tie up with the Indian pharmaceutical

companies for research and develop new drugs.

Some of the major initiatives taken by the government to promote the pharmaceutical sector in India are as

follows:

� Indian and global companies have expressed 175 investment intentions worth Rs 10000.00 mn (US$ 161.78

million) in the pharmaceutical sector of Gujarat. The memorandums of understanding (MoUs) would be

signed during the Vibrant Gujarat Summit.

� Telangana has proposed to set up India's largest integrated pharmaceutical city spread over 11,000 acres

near Hyderabad, complete with effluent treatment plants and a township for employees, in a bid to attract

investment of Rs 300000.00 mn (US$ 4.85 billion) in phases. Hyderabad, which is known as the bulk drug

capital of India, accounts for nearly a fifth of India's exports of drugs, which stood at Rs 900000.00 mn (US$

14.56 billion) in 2013-14.

Road Ahead

The Indian pharma market size is expected to grow to US$ 85 billion by 2020. The growth in Indian domestic

market will be on back of increasing consumer spending, rapid urbanisation, raising healthcare insurance and so

on.

Going forward, better growth in domestic sales will depend on the ability of companies to align their product

portfolio towards chronic therapies for diseases such as such as cardiovascular, anti-diabetes, anti-depressants

and anti-cancers are on the rise.

Moreover, the government has been taking several cost effective measures in order to bring down healthcare

expenses. Thus, governments are focusing on speedy introduction of generic drugs into the market. This too will

benefit Indian pharma companies. In addition, the thrust on rural health programmes, life saving drugs and

preventive vaccines also augurs well for the pharma companies.

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in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. Firstcall Research and/ or its affiliates and/or employees will not be liable for

the recipients’ investment decision based on this document.

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