Unichem Laboratories (UNILAB) | 241 - ICICI...

August 14, 2017

ICICI Securities Ltd | Retail Equity Research

Result Update

GST transition impacts domestic formulations

Revenues declined 8% YoY to | 314 crore (I-direct estimate: | 339

crore) mainly due to the impact of GST transition in domestic

formulations. Domestic formulations declined 23% YoY to | 171 crore

(I-direct estimate: | 188 crore). Export sales grew 21% to | 118 crore

(I-direct estimate: | 124 crore)

EBITDA loss was at | 23 lakh (I-direct estimate: profit of | 24 crore) vs.

profit of | 44 crore in Q1FY17, due to a steep decline in domestic

formulation sales

Net profit declined 94% YoY to | 2 crore, and came in below I-direct

estimate of | 12 crore. Tax credit of | 5 crore led to positive PAT

Domestic formulations crawling back to normal post NLEM, realignment

Domestic formulations, which constitute 60% of total revenues, are at the

core of the overall performance. The acute: chronic: sub-chronic ratio for

the company was 36:57:6. Despite having a higher proportion of chronic

therapies, the core business has grown at a CAGR of just ~10% in FY12-

17 on account of 1) restructuring exercise & inventory rationalisation and

2) NLEM implementation & the resulting channel disturbances in FY13,

FY14. The situation is likely to change, going ahead, as the company

plans to convert from a distribution-driven model to C&F driven model for

better working capital management. It plans to realign its portfolio to

minimise losses on account of NLEM by rationalising the MR team and

pushing for more non-NLEM and OTC products. However, it is taking

much more time than earlier estimated. We expect branded formulations

to grow at a CAGR of ~11% to | 1039 crore in FY17-19E.

Formulation exports still evolving but growing

Export formulations (~32% of total revenues) have grown at ~23% CAGR

in FY12-17 on the back of significant investment in infrastructure to push

exports. New product launches in the US and a ramp-up in CRAMS for

US, EU based customers have contributed to growth. CRAMS business,

of late, has struggled though, with customers postponing or cancelling

requirements. For the rest of exports, Unichem is looking for US generics

traction. It has filed 39 ANDAs with USFDA and received approval for 24

ANDAs. We expect formulation exports to grow at a CAGR of 19% in

FY17-19E to | 637 crore on the back of incremental US launches.

Despite revenue traction, optimum operating leverage still wanting

The Q1 performance was a wash-out due to GST transition. It was more

so for companies like Unichem, which has higher proportion revenues

derived from domestic formulations. In the long run, however the

management’s focus on restructuring the matured portfolio, which

comprises legacy but slow moving brands, seems to be working. Also,

the foray into the OTC segment (Unienzyme) in the domestic market

augurs well to grow in the non-prescription space. Export formulations

are likely to maintain the growth tempo mainly on the back of incremental

US launches. In export, the company has de-focused other markets and

only concentrating on the US. Despite challenging pricing environment,

the management is bullish on this geography. However, EBITDA margin

constraints continue due to 1) manpower addition at Goa plant, 2)

increase in R&D, 3) foray into domestic OTC and 4) pricing pressure and

high cost base in the US. Improvement in margins is the only trigger for

re-rating in future amid challenging environment. We have a target price

of | 235 (12x FY19E EPS of | 19.4). We maintain HOLD recommendation.

Rating matrix

Rating : Hold

Target : | 235

Target Period : 12-15 months

Potential Upside : -1%

What’s Changed?

Target Unchanged

EPS FY18E Changed from | 14.3 to | 12.2

EPS FY19E Unchanged

Rating Unchanged

Quarterly Performance

Q1FY18 Q1FY17 YoY (%) Q4FY17 QoQ (%)

Revenue 314.1 342.0 -8.1 343.9 -8.7

EBITDA -0.2 44.2 PL 33.7 PL

EBITDA (%) -0.1 12.9 -1301 bps 9.8 -988 bps

Adj. Net Profit 1.5 25.7 -94.2 31.5 -95.3

Key Financials

(| crore) FY16 FY17 FY18E FY19E

Revenues 1348.3 1535.5 1670.1 1975.1

EBITDA 163.9 178.6 168.7 265.1

Adj. Net Profit 111.6 108.7 110.5 175.9

Adj. EPS (|) 12.3 12.0 12.2 19.4

Valuation summary

FY16 FY17 FY18E FY19E

PE (x) 20.0 19.9 19.5 12.3

Target PE (x) 19.1 19.6 19.3 12.0

EV to EBITDA (x) 13.2 12.5 13.0 8.3

Price to book (x) 2.3 2.0 1.9 1.7

RoNW (%) 11.7 10.2 9.5 13.5

RoCE (%) 13.8 11.8 10.7 15.7

Stock data

Particular

Market Capitalisation

Debt (FY16)

Cash (FY16)

EV

52 week H/L (|) 320/189

Equity capital

Face value | 2

| 18.2 crore

| 2248 crore

Amount

| 2166 crore

| 98 crore

| 16 crore

Price performance (%)

1M 3M 6M 1Y

Unichem Labs -8.3 -5.8 -8.3 -10.3

Indoco Remedies -0.5 -15.3 -29.2 -39.5

Alembic Pharma 2.1 -12.1 -5.3 -16.9

Research Analyst

Siddhant Khandekar

[email protected]

Mitesh Shah

[email protected]

Harshal Mehta

[email protected]

Unichem Laboratories (UNILAB) | 241

ICICI Securities Ltd | Retail Equity Research Page 2

mpany Analysis

Established in 1944, the company has five subsidiaries and one associate

company. It remained confined to selected therapeutic groups such as

Anti-hypertensives, Anti-infectves, Neurology, Gastrointerology etc. with

some legacy products Losar, Telsar and Trika. Despite having higher

proportion of chronic therapies in domestic market, slow growth in

domestic Pharma over past five years was mainly due to restructuring

and NLEM impact. However, as per the management, the situation is

likely to change going ahead as the company has converted majority of

its domestic business from distribution-driven model to C&F driven model

for better working capital management. Also, It focus on restructuring the

matured portfolio which accounts for 46% of the overall pie and

comprises of legacy but slow moving brands started providing traction.

Export business is largely driven by the US followed by Europe and Brazil.

Despite being in the business for a long period, the company is yet to

achieve the kind of scalability achieved by other Indian peers with similar

pedigree given the infrastructure it owns i.e. four formulation plants (two

USFDA, UKMHRA approved) with no critical observations from USFDA

and two USFDA approved API plants. However, US sales have started

giving tractions, which increased more six fold to US$ 33 million from 12-

16 mainly due to enhanced USFDA approvals and improvement in

product pipeline. Emerging traction especially from the US is likely to

neutralize the self-inflicted pains in the domestic formulations. Overall we

expect revenues to grow at a CAGR of 17.1% in FY16-FY19E to | 2141.9

crore.

Variance analysis

Q1FY18 Q1FY18E Q1FY17 Q4FY17 YoY (%) QoQ (%) Comments

Revenue 314.1 339.4 342.0 343.9 -8.1 -8.7 Growth was mainly impacted due to GST transition

Raw Material Expenses 121.7 132.4 123.8 125.9 -1.8 -3.4

Employee Expenses 73.3 62.7 63.2 64.9 16.0 13.0 YoY increase mainly due to addition of manpower at Goa plant

Other Expenditure 119.3 120.5 110.7 119.4 7.8 -0.1

EBITDA -0.2 23.8 44.2 33.7 PL PL

EBITDA (%) -0.1 7.0 12.9 9.8 -1301 bps -988 bps Negative margins and lower vis-a-vis I-direct estimates was mainly due to sharp

increase in employee cost and other expenditure

Interest 0.7 0.5 0.6 0.4 10.8 88.7

Depreciation 10.4 11.8 9.8 10.4 6.2 -0.3

Other Income 8.2 4.0 5.0 0.1 62.6 11,613.6

PBT before Exceptional Items -3.1 15.5 38.9 23.1 PL PL

EO 0.0 0.0 0.2 0.0 0.0 0.0

PBT after Exceptional Items -3.1 15.5 38.7 23.1 PL PL

Tax -4.5 3.7 13.2 -8.4 PL NA Negative mainly due to deferred tax

Effective Tax Rate (%) 148.6 24.0 34.0 10.0 337.1 1,386.4

Adj. Net Profit 1.5 11.8 25.7 31.5 -94.2 -95.3 Sharp decline mainly due to negative operational income

EPS (|) 0.2 1.3 2.8 3.5 -94.2 -95.3

Key Metrics

Domestic formulations 170.6 188.3 221.5 187.4 -23.0 -9.0 Sharp decline was mainly due to GST transition. Miss vis-à-vis I-Direct estiamtes

was due to higher-than-expected GST impact

Exports formulations 117.9 124.2 97.1 118.5 21.4 -0.5 In constant currency terms, US, UK and Brazil revenues grew 31%, -7.4% and -

14.3% to US$12.6 million, £2.5 million and Real 0.8 million, respectively. Miss in I-

direct estimates mainly due lower-than-expected growth in UK

APIs 21.9 21.8 20.8 31.4 5.5 -30.1

Source: Company, ICICIdirect.com Research

Change in estimates

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

Revenue 1,739.6 1,670.1 -4.0 1,997.4 1,975.1 -1.1

EBITDA 207.8 168.7 -18.8 268.5 265.1 -1.3

EBITDA Margin (%) 11.9 10.1 -180 bps 13.4 13.4 2 bps Reduced mainly due to higher-than-expected GST impact in margins in Q1FY18

PAT 129.3 110.5 -14.5 176.5 175.9 -0.4 Changed in sync with EBITDA

EPS (|) 14.3 12.2 -14.7 19.5 19.4 -0.5

FY18E FY19E


Assumptions

(| crore) FY16 FY17 FY18E FY19E FY18E FY19E

Domestic formulations 748.9 839.5 878.3 1,039.4 931.3 1,043.0 Reduced mainly due to impact of GST transition

Exports formulations 368.1 452.4 517.3 637.4 528.4 650.6

APIs 94.2 102.1 107.3 112.6 107.2 112.5

Current Earlier



Company Analysis

Established in 1944, the company has five subsidiaries and one associate

company. It remained confined to select therapeutic groups such as anti-

hypertensives, anti-infectives, neurology, gastroenterology, etc. with

some legacy products Losar, Telsar and Trika. Despite having higher

proportion of chronic therapies in the domestic market, slow growth in

domestic pharma over the past five years was mainly due to restructuring

and NLEM impact. However, as per the management, the situation is

likely to change, going ahead, as the company has converted a majority

of its domestic business from distribution-driven model to C&F driven

model for better working capital management.

Also, its focus on restructuring the matured portfolio, which accounts for

46% of the overall pie and comprises legacy but slow moving brands,

started providing traction. The export business is largely driven by the US

followed by Europe and Brazil. Despite being in the business for a long

time, the company is yet to achieve the kind of scalability achieved by

other Indian peers with similar pedigree given the infrastructure it owns

i.e. four formulation plants (two USFDA, UKMHRA approved) with no

critical observations from USFDA and two USFDA approved API plants.

However, US sales have started showing traction, which increased more

than sevenfold to US$41 million from FY12-17 mainly due to enhanced

USFDA approvals and improvement in product pipeline. Emerging

traction, especially from the US, is likely to neutralise the self-inflicted

pain in domestic formulations. Overall, we expect revenues to grow at a

CAGR of 13% in FY17-19E to | 1975 crore.

Exhibit 1: Traction from formulation exports to drive revenue growth

875.5

1080.81133.4

1201.8

1348.3

1535.5

1670.1

1975.1

0

500

1000

1500

2000

2500

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E

(| crore)

Revenue


Domestic formulations - The company is ranked 24th in IPM with a market

share of 0.9%. Domestic formulations constitute ~60% of the standalone

turnover. The acute: chronic: sub-chronic ratio for the company is

36:57:6. Despite having a higher proportion of chronic therapies, the core

business has grown at a CAGR of 10% in FY12-17 on account of 1)

restructuring exercise and inventory rationalisation and 2) NLEM

implementation and the resulting channel disturbances in FY13, FY14.

The situation is likely to change, going ahead, as the company plans to

convert from a distribution-driven model to C&F driven model for better

working capital management. It plans to realign its portfolio to minimise

losses on account of NLEM by strengthening the MR team and pushing

for more non-NLEM and OTC products. However, it is taking much more

time than earlier estimated. We expect branded formulations to grow at

11% CAGR to | 1039 crore in FY17-19E.

11.9% CAGR

13.4% CAGR


Formulation exports

Export formulations (~31% of total revenue) have grown at a CAGR of

23% in FY12-17 on the back of significant investments in the

infrastructure to push exports. New product launches in the US and a

ramp-up in CRAMS for US and EU based customers have contributed to

growth. CRAMS business, of late, has struggled though, with customers

postponing or cancelling requirements. For the rest of exports, the

company is looking at US generics traction. Unichem has filed 39 ANDAs

with the USFDA and received approval for 24. It has, so far, launched 14

products. We expect formulation exports to grow at a CAGR of 19% in

FY17-19E to | 637 crore on the back of incremental US launches.

Exhibit 3: US to provide impetus for formulation exports growth

161.9

252.7 255.2

312.8

368.1

452.4

517.3

637.4

0

100

200

300

400

500

600

700


(| c

rore

)

Export Formulations


Exhibit 2: Domestic formulation growth likely to improve, going ahead

534.3

635.3 655.0 651.0

748.9

839.5878.3

1039.4

0

200

400

600

800

1000

1200


(| c

rore

)Domestic Formulations


Exhibit 4: API to grow at 5% CAGR in FY17-FY19E es

98.7

108.9

118.7113.1

94.2

102.1107.3

112.6

0

20

40

60

80

100

120

140


(| c

rore

)

APIs


22.8% CAGR

18.7% CAGR

9.5% CAGR

11.3% CAGR


Exhibit 6: Adjusted net profit to grow at CAGR of 12.2% in FY17-19E

71.2

113.1

136.5

75.3

111.6 108.7 110.5

175.9

8.1

10.5

12.0

6.3

8.3

7.16.6

8.9

0

2

4

6

8

10

12

14

0

40

80

120

160

200


(%

)

(| crore)

Adj. Net profit Adj. Net profit margins (%)


Exhibit 7: Trends in return ratios

8.5

11.7

10.2

13.5

18.0

19.0

10.8

15.6

16.7

9.5

12.6

8.3

13.8

11.8

10.7

15.7

6

12

18

24


RoNW (%) RoCE (%)


Exhibit 5: EBITDA to grow at CAGR of 21.8% in FY17-19E

es

118.3

174.3 177.8

101.3

163.9

178.6168.7

265.1

13.5

16.115.7

8.4

12.211.6

10.1

13.4

0

2

4

6

8

10

12

14

16

18

0

50

100

150

200

250

300


(%)

(| c

rore

)

EBITDA EBITDA margins (%)



Exhibit 8: Trends in quarterly financials

(| crore) Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 YoY (%) QoQ (%)

Net Sales 288.5 274.9 262.9 250.6 304.5 303.5 303.9 304.9 334.9 364.9 359.9 343.9 310.4 -7.3 -9.7

Other Operating income 2.5 3.2 3.0 5.4 4.3 2.0 2.3 9.4 2.5 3.2 7.6 7.3 3.7 46.3 -49.4

Revenues 291.0 278.2 265.9 256.0 308.8 305.6 306.3 314.3 337.4 368.0 367.6 351.2 314.1 -6.9 -10.6

Raw Material Expenses 114.66 110.32 106.24 96.58 118.27 121.15 108.37 111.60 123.84 135.77 129.44 125.89 121.67 -1.8 -3.4

% to revenues 39.4 39.7 40.0 37.7 38.3 39.6 35.4 35.5 36.7 36.9 35.2 35.8 38.7 203 bps 289 bps

Gross Profit 176.3 167.8 159.6 159.4 190.5 184.4 197.9 202.7 213.6 232.3 238.1 225.3 192.5 -9.9 -14.6

Gross Profit Margin (%) 60.6 60.3 60.0 62.3 61.7 60.4 64.6 64.5 63.3 63.1 64.8 64.2 61.3

Employee Expenses 49.9 46.1 49.0 46.3 54.8 55.5 58.9 56.7 63.2 69.0 70.8 64.9 73.3 16.0 13.0


Other Expenditure 82.7 88.3 102.1 98.3 96.4 94.4 104.9 105.8 110.7 123.7 115.3 119.4 119.3 7.8 -0.1


Total Expenditure 247.3 244.8 257.4 241.2 269.5 271.1 272.2 274.1 297.7 328.5 315.5 310.2 314.4 5.6 1.3

% to revenues 85.0 88.0 96.8 94.2 87.3 88.7 88.9 87.2 88.2 89.2 85.8 88.3 100.1

EBITDA 43.7 33.4 8.5 14.8 39.3 34.4 34.1 40.2 39.7 39.6 52.1 41.0 -0.2 -100.6 -100.6

EBITDA margins ( %) 15.0 12.0 3.2 5.8 12.7 11.3 11.1 12.8 11.8 10.8 14.2 11.7 -0.1 -1184 bps -1176 bps

Other Income 5.2 5.6 5.0 5.5 6.2 6.1 4.6 5.7 5.0 3.5 4.1 0.1 8.2 62.6 11613.6

Interest 0.7 0.6 0.7 0.4 0.5 0.5 0.4 0.8 0.6 0.6 0.5 0.4 0.7 10.8 88.7

Depreciation 8.5 10.7 10.5 8.0 8.8 8.7 8.7 8.8 9.8 10.5 10.4 10.4 10.4 6.2 -0.3

EO 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

PBT 39.6 27.6 2.3 11.9 36.2 31.3 29.5 36.3 34.4 32.0 45.3 30.4 -3.1 -108.9 -110.1

Total Tax 9.5 5.3 0.2 2.1 10.8 8.2 6.2 -0.8 13.2 11.4 11.5 -8.4 -4.5 NA LP

Tax rate (%) 23.8 19.3 9.1 17.7 29.8 26.2 21.0 -2.1 38.3 35.8 25.5 -27.7 148.6

PAT 30.2 22.3 2.1 9.8 25.4 23.1 23.3 37.1 21.2 20.5 33.8 38.8 1.5 -93.0 -96.2

PAT Margin (%) 10.4 8.0 0.8 3.8 8.2 7.6 7.6 11.8 6.3 5.6 9.2 11.0 0.5

EPS (|) 3.3 2.5 0.2 1.1 2.8 2.5 2.6 4.1 2.3 2.3 3.7 4.3 0.2 -93.0 -96.2


SWOT Analysis

Strengths - Chronic focus, clean balance sheet, decent dividend payout

ratio, availability of facilities to scale up operations

Weakness - One of the lowest MR productivity, matured domestic

portfolio. US traction still in a nascent state

Opportunities - The US generics space

Industry Specific Threats - Increased USFDA scrutiny across the globe

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

US, pricing probe by the Department of Justice (DoJ) in the US. Increased

competition in the domestic formulations space


Conference Call Highlights

On the USFDA filings front, the management expects one to two

filings each quarter. It also expects three to four product launches

in FY18

Cumulative ANDA filing was at 39 of which, the company has

received approval for 24 products. The company also reported

cumulative DMF filings of 50.

NLEM portfolio grew 3.9% while non-NLEM portfolio grew 13.9%

(MAT June 2017; AIOCD-AWACS)

The company has guided for ~| 125-150 crore of capex for FY18.

The company has incurred | 45-50 crore in Q1FY18

Approximately, two-third of the export formulations revenues

comes from North Africa and rest from other geographies

Unienzyme sales were also impacted during the quarter due to

GST transition

R&D guidance for the FY18 was at 7%

The company is facing US base price erosion in high single digits

Exhibit 9: Facilities

Location Segment Regulatory Approvals Type

Goa Formulations USFDA, MCC-SA, UKMHRA, TGA-Aus,

ANVISA-Brazil, WHO Genev

Tablets, Capsules

Baddi Formulations WHO (Geneva), MCC-SA, UKMHRA Tablets, Capsules, Dry Syrup, Vials

Ghaziabad Formulations USFDA, UKMHRA, ANVISA-Brazil, WHO-

Geneva

Tablets, Capsules, Injectables, Liquid

Syrup

Sikkim Formulations Tablets, Capsules

Roha API ISO 9001 - 2000, WHO cGMP, TGA, USFDA,

ISO 14001 - 2004, ISO 18001 – 1999, EDQM

Pithampur API USFDA , EUGMP, COFEPRIS

Ireland Formulations Irish Medical Board and Kazakhstan



Valuation

The Q1 performance was a wash-out due to GST transition. It was more

so for companies like Unichem, which has higher proportion revenues

derived from domestic formulations. In the long run, however the

management’s focus on restructuring the matured portfolio, which

comprises legacy but slow moving brands, seems to be working. Also,

the foray into the OTC segment (Unienzyme) in the domestic market

augurs well to grow in the non-prescription space. Export formulations

are likely to maintain the growth tempo mainly on the back of incremental

US launches. In export, the company has de-focused other markets and

only concentrating on the US. Despite challenging pricing environment,

the management is bullish on this geography. However, EBITDA margin

constraints continue due to 1) manpower addition at Goa plant, 2)

increase in R&D, 3) foray into domestic OTC and 4) pricing pressure and

high cost base in the US. Improvement in margins is the only trigger for

re-rating in future amid challenging environment. We have a target price

of | 235 (12x FY19E EPS of | 19.4). We maintain HOLD recommendation.

Exhibit 10: One year forward PE [

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

8/11/2011

2/11/2012

8/11/2012

2/11/2013

8/11/2013

2/11/2014

8/11/2014

2/11/2015

8/11/2015

2/11/2016

8/11/2016

2/11/2017

8/11/2017

|

Unichem 24.1x 14.3x 21.6x 19.2x 16.8x

Source: Bloomberg, ICICIdirect.com Research

Exhibit 11: One year forward PE of company vs. CNX Pharma

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

8/11/2011

2/11/2012

8/11/2012

2/11/2013

8/11/2013

2/11/2014

8/11/2014

2/11/2015

8/11/2015

2/11/2016

8/11/2016

2/11/2017

8/11/2017

(x)

Unichem CNX Pharma

29% discount

Source: Bloomberg, ICICIdirect.com Research

Exhibit 12: Valuation

Revenues Growth Adj. EPS Growth P/E EV/EBITDA RoNW RoCE

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

FY16 1348.3 12.2 12.3 43.4 20.0 13.2 11.7 13.8

FY17 1535.5 13.9 12.0 0.5 19.9 12.5 10.2 11.8

FY18E 1670.1 8.8 12.2 1.7 19.5 13.0 9.5 10.7

FY19E 1975.1 18.3 19.4 59.1 12.3 8.3 13.5 15.7



Recommendation history vs. Consensus

0

50

100

150

200

250

300

350

400

Aug-17Jun-17Mar-17Jan-17Oct-16Aug-16May-16Mar-16Jan-16Oct-15Aug-15

(|

)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

(%

)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Reuters, Company, ICICIdirect.com Research

Key events

Date Event

May-09 Launches new divisions for nephrology and cardiology segments

Nov-09 Pithampur (Indore) API manufacturing facility receives USFDA approval

Feb-10 Ghaziabad formulation facility receives UK MHRA approval

May-10 Commissions manufacturing facilities at Baddi (oral dosages) and Sikkim (oral dosages)

Nov-10 Kick starts inventory rationalisation at the distributor level to improve internal process and reduce tax related issues for GST rollout

Sep-11 Finalises contract manufacturing businesses from Ghaziabad facility with two Europe customers

Dec-11 Completes inventory rationalisation at the distribution level

Feb-13 Mylan acquires Unichem’s Indore SEZ formulation facility for | 160 crore on a slump sales basis

Oct-13 Completes sale of Indore SEZ formulation facility

Jun-14 The European Commission imposes fines of | 324 crore to prevent entry of generic version of Perindopril in the EU

Apr-15 USFDA successfully inspects Ghaziabad and Goa facilities for formulations and Roha API facility

Feb-16 Goa and Ghaziabad plants receive establishment inspection report (EIR) from USFDA


Top 10 Shareholders Shareholding Pattern

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

1 Mody (Prakash Amrut) 31-Mar-17 46.5 42.3m 0.0

2 ICICI Prudential Asset Management Co. Ltd. 28-Feb-17 6.6 6.0m 0.0

3 Reliance Nippon Life Asset Management Limited 28-Feb-17 2.3 2.1m 0.0

4 General Insurance Corporation of India 31-Mar-17 1.7 1.5m 0.0

5 Mody (Anita Prakash) 31-Mar-17 1.5 1.3m 0.0

6 L&T Investment Management Limited 31-Mar-17 1.3 1.2m 0.0

7 Dimensional Fund Advisors, L.P. 28-Feb-17 1.2 1.1m 0.0

8 Nordea Funds Oy 31-Mar-17 1.2 1.1m 1.1

9 DSP BlackRock Investment Managers Pvt. Ltd. 31-Mar-17 1.1 1.0m 1.0

10 Mody (Suparna Prakash) 31-Mar-17 1.0 0.9m 0.0

(in %) Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

Promoter 50.1 50.1 50.1 50.1 50.1

Others 49.9 49.9 49.9 49.9 49.9

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor Name Value ($) Shares Investor Name Value ($) Shares

Nordea Funds Oy 4.7m 1.1m Taurus Asset Management Co. Ltd. -0.2m -0.1m

DSP BlackRock Investment Managers Pvt. Ltd. 4.6m 1.0m ICICI Prudential Asset Management Co. Ltd. 0.0m 0.0m

BlackRock Institutional Trust Company, N.A. 0.0m 0.0m Dimensional Fund Advisors, L.P. 0.0m 0.0m

Segall Bryant & Hamill, LLC 0.0m 0.0m Goldman Sachs Asset Management (India) Private Ltd. 0.0m 0.0m

BlackRock Advisors (UK) Limited 0.0m 0.0m

BUYS SELLS

Source: Reuters, ICICIdirect.com Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) FY16 FY17 FY18E FY19E

Revenues 1,348.3 1,535.5 1,670.1 1,975.1

Growth (%) 12.2 13.9 8.8 18.3

Raw Material Expenses 473.5 529.1 617.1 723.5

Employee Expenses 272.2 319.3 333.5 364.3

Other Expenditure 438.7 508.5 550.8 622.1

Total Operating Expenditure 1,184.4 1,356.9 1,501.4 1,710.0

EBITDA 163.9 178.6 168.7 265.1

Growth(%) 61.7 9.0 -5.5 57.1

Depreciation 38.8 45.2 48.3 57.2

Interest 2.9 3.4 3.4 3.4

Other Income 19.1 11.0 22.6 26.9

PBT before Exceptional Items 141.3 141.1 139.6 231.4

Less: Exceptional Items 3.5 0.0 0.0 0.0

PBT 137.8 141.1 139.6 231.4

Total Tax 29.3 32.6 29.1 55.5

PAT 108.1 108.7 110.5 175.9

Growth(%) 43.4 0.5 1.7 59.1

Adjusted PAT 111.6 108.7 110.5 175.9

EPS (Adjusted) 12.3 12.0 12.2 19.4


Cash flow statement | Crore


Profit/(Loss) after taxation 106.4 108.7 110.5 175.9

Add: Depreciation 38.8 45.2 48.3 57.2

(Inc)/dec in Current Assets -80.7 -163.6 43.0 -107.8

Inc/(dec) in CL and Provisions 46.5 63.8 -17.1 36.7

Others 0.6 0.0 0.0 0.0

CF from operating activities 111.7 54.1 184.6 161.9

(Inc)/dec in Investments 29.9 -0.2 0.0 0.0

(Inc)/dec in Fixed Assets -140.4 -139.1 -125.0 -125.0

Inc/(dec) Deferred tax liability 0.0 -2.6 5.0 5.0

Others 25.3 49.4 -10.0 -10.0

CF from investing activities -85.1 -92.6 -130.0 -130.0

Inc / (Dec) in Total Debt 9.9 62.2 0.0 0.0

Dividend paid & dividend tax -43.3 -27.7 -16.5 -26.3

Others 0.0 0.0 0.0 0.0

CF from financing activities -33.4 34.5 -16.5 -26.3

Net Cash flow -6.8 -4.0 38.1 5.6

Opening Cash 27.0 20.1 16.1 54.2

Closing Cash 20.1 16.1 54.2 59.8

Free Cash Flow -28.7 -85.0 59.6 36.9


Balance sheet | Crore


Liabilities

Equity Capital 18.2 18.2 18.1 18.1

Reserve and Surplus 936.2 1,045.4 1,139.4 1,289.0

Total Shareholders funds 954.3 1,063.6 1,157.5 1,307.1

Total Debt 35.9 98.1 98.1 98.1

Net Deferred Tax Liability 21.2 18.6 23.6 28.6

Other 31.9 45.5 55.5 65.5

Total Liabilities 1,043.3 1,225.7 1,334.6 1,499.2

Assets

Gross Block - Fixed Assets 438.5 564.8 689.8 816.8

Accumulated Depreciation 37.4 75.3 123.6 180.8

Net Block 401.1 489.5 566.2 636.0

Capital WIP 237.1 250.0 250.0 248.0

Total Fixed Assets 638.2 739.4 816.1 884.0

Goodwill 1.5 1.5 1.5 1.5

Investments 13.5 13.7 13.7 13.7

Other long term assets 28.1 13.3 33.3 53.3

Inventory 230.6 281.7 282.5 334.1

Debtors 220.1 320.5 269.7 318.9

Cash 20.1 16.1 54.2 59.8

Loans and Advances 0.2 0.1 5.1 10.1

Other current assets 121.2 133.4 135.4 137.4

Total Current Assets 592.2 751.8 747.0 860.3

Creditors 164.0 218.0 200.9 237.6

Provisions 5.8 7.3 7.3 7.3

Other Current Liabilities 60.6 68.8 68.8 68.8

Net Current Assets 361.9 457.7 470.0 546.7

Application of Funds 1,043.3 1,225.7 1,334.7 1,499.2


Key ratios


Per share data (|)

Adjusted EPS 12.3 12.0 12.2 19.4

BV per share 105.3 117.4 127.7 144.2

Dividend per share 2.3 3.1 1.8 2.9

Operating Ratios (%)

Gross Margin 64.9 65.5 63.0 63.4

EBITDA margin 12.2 11.6 10.1 13.4

PAT Margin 9.3 8.7 7.2 10.5

Inventory days 62.4 67.0 61.7 61.7

Debtor days 59.6 76.2 58.9 58.9

Creditor days 44.4 51.8 43.9 43.9

Asset Turnover 1.3 1.3 1.3 1.3

EBITDA Conversion Rate 68.2 30.3 109.4 61.1

Return Ratios (%)

RoE 11.7 10.2 9.5 13.5

RoCE 13.8 11.8 10.7 15.7

RoIC 16.1 14.0 11.8 17.6

Valuation Ratios (x)

P/E 20.0 19.9 19.5 12.3

EV / EBITDA 13.2 12.5 13.0 8.3

EV / Net Sales 1.6 1.5 1.3 1.1

Market Cap / Sales 1.6 1.4 1.3 1.1

Price to Book Value 2.3 2.0 1.9 1.7

Solvency Ratios

Debt / EBITDA 0.2 0.5 0.6 0.4

Debt / Equity 0.0 0.1 0.1 0.1

Current Ratio 2.5 2.5 2.5 2.6



ICICIdirect.com coverage universe (Healthcare)

Company I-Direct CMP TP Rating M Cap

Code (|) (|) (| Cr) FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E

Ajanta Pharma AJAPHA 1224 1,420 Buy 10774.6 110.0 56.6 57.1 71.0 11.1 21.6 21.4 17.3 46.2 41.8 33.1 32.4 37.3 33.2 26.5 26.0

Alembic Pharma ALEMPHA 515 570 Hold 9708.6 38.2 21.2 19.1 28.6 13.5 24.3 26.9 18.0 52.2 25.3 18.7 23.9 45.1 21.0 16.5 20.8

Apollo Hospitals APOHOS 1217 1,400 Buy 16935.0 13.2 12.8 16.5 33.3 92.2 94.8 73.6 36.5 6.6 6.0 6.7 10.8 5.3 4.9 5.9 10.9

Aurobindo Pharma AURPHA 705 745 Hold 41304.7 33.9 38.8 46.8 41.4 20.8 18.2 15.1 17.0 23.1 24.4 25.5 19.6 27.2 24.2 22.9 17.1

Biocon BIOCON 340.6 380 Hold 20433.0 7.7 11.0 7.8 13.5 44.1 31.0 43.8 25.3 9.3 11.9 10.1 15.9 11.5 13.6 9.0 13.9

Cadila Healthcare CADHEA 483 440 Hold 49395.6 15.0 14.5 19.3 22.0 32.3 33.2 25.0 22.0 24.9 13.1 17.2 19.2 34.4 21.4 23.4 22.2

Cipla CIPLA 541.4 470 Hold 43565.0 18.5 12.9 17.8 25.3 29.3 42.1 30.3 21.4 12.0 8.0 11.0 14.5 12.5 8.1 10.4 13.1

Divi's Lab DIVLAB 627 665 Hold 16650.2 41.5 39.3 34.6 41.5 15.1 15.9 18.1 15.1 30.5 25.0 20.3 21.5 25.7 19.5 15.4 16.4

Dr Reddy's Labs DRREDD 2011 2,400 Hold 33336.0 141.4 70.6 72.4 126.2 14.2 28.5 27.8 15.9 15.3 6.1 6.8 11.9 19.2 9.5 9.0 13.9

Glenmark Pharma GLEPHA 617 730 Hold 17398.5 32.2 46.0 38.7 40.6 19.2 13.4 15.9 15.2 16.2 18.9 15.9 15.5 21.2 25.5 17.9 15.9

Indoco Remedies INDREM 192.8 180 Hold 1776.2 9.4 8.4 4.9 12.1 20.5 23.0 39.6 15.9 12.9 8.4 5.5 12.0 14.8 12.0 6.6 14.5

Ipca Laboratories IPCLAB 409 525 Hold 5166.1 7.4 15.4 17.6 27.9 55.5 26.6 23.2 14.7 4.5 8.7 9.3 13.2 4.1 7.9 8.4 12.0

Jubilant Life JUBLIF 680.9 845 Buy 10845.5 26.0 36.1 44.3 59.1 26.2 18.9 15.4 11.5 12.0 13.3 14.8 17.6 14.2 16.8 17.3 19.0

Lupin LUPIN 941 1,070 Hold 42505.0 50.4 56.6 41.4 53.4 18.7 16.6 22.7 17.6 17.8 16.6 12.4 15.5 20.3 18.9 12.4 14.2

Natco Pharma NATPHA 699.1 955 Hold 12185.9 9.0 27.0 25.5 16.0 77.3 25.9 27.4 43.6 16.0 33.0 27.6 16.2 12.2 28.8 22.6 12.8

Sun Pharma SUNPHA 451 445 Hold 107966.1 23.4 29.0 14.8 20.3 19.2 15.5 30.4 22.2 18.6 19.8 9.8 12.4 18.0 19.0 9.2 11.4

Syngene Int. SYNINT 449 490 Hold 8987.0 11.1 14.3 14.3 17.4 43.6 33.6 33.6 27.7 14.1 16.8 16.2 17.8 21.6 20.3 17.2 17.4

Torrent Pharma TORPHA 1216 1,250 Hold 20577.6 110.9 55.2 48.3 65.8 11.0 22.0 25.2 18.5 46.5 18.9 17.6 20.7 53.7 21.5 16.5 19.2

Unichem Lab UNILAB 240.7 235 Hold 2188.4 12.3 12.0 12.2 19.4 19.5 20.1 19.7 12.4 13.8 11.8 10.7 15.7 11.7 10.2 9.5 13.5

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



RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


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