Download Sun Pharmaceuticals (SUNPHA)

Result Update
May 31, 2016
Sun Pharmaceuticals (SUNPHA)
Rating matrix
Rating
Target
Target Period
Potential Upside
:
:
:
:
Hold
| 785
12-15 months
2%
Numbers in line but guidance conservative…
What’s Changed?
Target
EPS FY16P
EPS FY17E
EPS FY18E
Rating
Changed from | 845 to | 785
Changed from | 22.7 to | 23.4
Changed from | 28.2 to | 25.9
Changed from | 35.2 to | 31.3
Unchanged
Quarterly Performance
Revenue
EBITDA
EBITDA (%)
Adj. Net Profit
Q4FY16
7,634.2
2,520.3
33.0
1,713.7
Q4FY15 YoY (%)
6,157.0
24.0
792.4
218.1
12.9 2014 bps
886.9
93.2
Q3FY16
7,082.1
2,169.0
30.6
1,416.6
QoQ (%)
7.8
16.2
239 bps
21.0
Key Financials
(| Crore)
Net Sales
EBITDA
Adj. Profit
Adj. EPS (|)
FY15
27433.4
7866.7
4777.1
19.8
FY16P
28563.0
8724.3
5652.6
23.4
FY17E
31525.9
9670.1
6248.8
25.9
FY18E
34205.3
11132.8
7557.7
31.3
FY15
40.9
23.1
7.2
18.6
18.8
FY16E
37.4
20.6
5.9
18.0
18.6
FY17E
29.7
17.8
5.1
17.1
19.3
FY18E
24.6
14.9
4.3
17.6
20.1
Valuation summary
PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
RoCE (%)
Stock data
Amount
| 184143 crore
| 8338 crore
| 17022 crore
| 175460 crore
965/706
| 240.7 crore
|1
Particular
Market Capitalisation
Debt (FY16P)
Cash & Cash Equivalents (FY16P)
EV (| Cr)
52 week H/L (|)
Equity capital
Face value
Price performance (%)
Sun Pharma
Dr Reddy's
Lupin
1M
0.1
2.6
-8.7
3M
-4.9
4.4
-16.3
| 770
6M
11.3
2.0
-17.9
1Y
-15.9
-10.3
-19.9
Research Analyst
Siddhant Khandekar
[email protected]
Mitesh Shah
[email protected]
Nandan Kamat
[email protected]
ICICI Securities Ltd | Retail Equity Research
• Revenues grew 7.8% QoQ to | 7634 crore (I-direct estimate: | 7605
crore) due to 22.2% QoQ increase in US sales to | 3910 crore (Idirect estimate: | 3642 crore). US sales growth was due to gGleevec
launch under exclusivity & Taro sales (US$265 million). Domestic
sales fell 4.4% QoQ to | 1807 crore (I-direct estimate: | 1914 crore)
• EBITDA margins increased 239 bps QoQ to 33% (I-direct estimate:
33.3%) due to strong margins in Taro. Taro’s EBITDA margins
improved 119 bps QoQ to 69.8%. EBITDA grew 16.2% QoQ to | 2520
crore (I-direct estimate: | 2531 crore)
• Net profit grew 21% QoQ to | 1714 crore (I-direct estimate: | 1817
crore) mainly due to a better operational performance and lower
taxation. The beat vis-à-vis I-direct estimate was due to forex losses
• The board of directors has contemplated a buyback of shares
US business key lever for growth; Ranbaxy benefits back-loaded
US business that constitutes ~47% of turnover has grown at 57.7%
CAGR in FY11-16P on the back of successful acquisitions such as Caraco,
Taro (recently Dusa, URL) and timely product launches (recent launch of
gGleevec under exclusivity). US product basket remains robust- 572
ANDAs filed, 413 approvals received; some niche launches include
Lipodox/ Doxil, Doxycycline, Nystatin, etc, besides complex/limited
competition products and plain vanilla generics. US growth is also being
backed by extensive infrastructure- Out of the 50 global manufacturing
facilities more than 20 are approved by USFDA. The only blot in an
otherwise smooth journey is the warning letter to the Halol plant.
The Ranbaxy acquisition will also drag margins initially though it is
expected to bring benefits of scalability in the long run. Ranbaxy’s
stronghold in the fast growing emerging markets (50% of Ranbaxy's
sales) will complement Sun’s presence in this space. Regarding US, it is
determined to address Ranbaxy’s cGMP issues as four out of five US
centric facilities remain under USFDA embargo. Sun will gain leadership
position in the niche generic derma space and also get entry into branded
and OTC segments. In the domestic space the acquisition is likely to
provide more therapeutic diversification to Sun’s portfolio and improve its
market share in key segments in the domestic space. Its domestic market
share has substantially improved to 8.9% from 5.5% with a leadership in
as many as 11 therapies. The management expects ~US$300 million
synergy benefits by FY18. We expect US sales to grow at a CAGR of 6.7%
to | 15381.7 crore in FY16P-18E. Similarly, Indian formulations business is
likely to grow at a CAGR of 15.9% to | 9799.7 crore in FY16P-18E.
Halol resolution key amid near term headwinds in the US; maintain HOLD
Adjusting for robust Taro Q4 numbers and gGleevec exclusivity, the US
numbers were subdued. The management guidance for revenue growth
of 8-10% also looks a bit conservative given the residual traction from
gGleevec (four months exclusivity), Japanese traction from H2 and likely
product launches in H2FY17 from Halol (assuming USFDA resolution).
This indicates that the management is expecting some genuine pricing
pressure in the US base business. The proposed buy-back is also likely to
be perceived negatively given the company’s knack of deploying cash for
successful acquisitions in the past. On the Tildrakizumab front, the
progress is encouraging but back-loaded. In the near term, Halol and US
base business headwinds are likely to weigh. We have ascribed a target
price of | 785 based on 25x FY18E EPS of | 31.3.
Variance analysis
Q4FY16 Q4FY16E
7,634.2 7,604.8
Q4FY15
6,157.0
Q3FY16
7,082.1
Raw Material Expenses
Employee Expenses
Other Expenditure
Total Expenditure
EBITDA
EBITDA (%)
1,452.0
1,181.2
2,480.7
5,113.9
2,520.3
33.0
1,673.1
1,233.0
2,167.4
5,073.4
2,531.4
33.3
1,597.4
1,128.6
2,638.6
5,364.7
792.4
12.9
1,755.4
-9.1
-17.3
1,148.3
4.7
2.9
2,009.4
-6.0
23.5
4,913.1
-4.7
4.1
2,169.0
218.1
16.2
30.6 2014 bps 239 bps
Interest
Depreciation
Other income
EO
PBT
Tax
MI
Adj. Net Profit
88.6
264.3
-35.0
0.0
2,132.5
170.6
248.2
1,713.7
117.0
250.8
212.9
0.0
2,376.5
285.2
274.1
1,817.3
124.8
461.8
382.5
0.0
588.3
-599.9
301.2
886.9
117.0
250.8
219.2
0.0
2,020.5
202.0
401.9
1,416.6
-29.0
-42.8
LP
NA
262.5
-128.4
-17.6
93.2
-24.3
5.4
-115.9
NA
5.5
-15.6
-38.2
21.0
Key Metrics
India formulations
1806.5
1,914.2
1,569.0
1,890.3
15.1
-4.4
QoQ decline due to continued impact of withdrawal of bonus offers in acute segment
US formulations
3,910.3
3,642.1
3,047.7
3,200.3
28.3
22.2
YoY growth mainly due to gGleevec launch under exclusivity and strong growth in Taro
sales. Beat vis-à-vis our expectations mainly due to higher-than-expected Taro sales
RoW formulations
1,369.7
1,552.2
1,294.8
1,551.0
5.8
-11.7
392.5
462.2
298.2
461.2
31.6
-14.9
Muted YoY growth due to currency depreciation in emerging markets and exit from low
margin businesses. Miss vis-à-vis our expectations mainly due to lower-than-expected
constant currency growth
Increased due to consolidation of opiates business in Australia
APIs
YoY (%) QoQ (%)
24.0
7.8
Comments
YoY growth was mainly due to gGleevec launch under exclusivity and strong growth in
Taro sales
Revenue
QoQ increased mainly due to increase in R&D and higher marketing expenses
YoY growth in EBITDA margins was mainly due to gGleevec exclusivity and ~530 bps
YoY improvement in Taro's margins to 69.8%
Negative other income mainly on account of Taro's forex loss
Sharp YoY increase mainly due to strong operational performance, partly offset by forex
loss
Source: Company, ICICIdirect.com Research; *LP: Loss to Profit
Change in estimates
(| Crore)
Total Operating Income
FY17E
Old
New
32,294.9 31,525.9
EBITDA
EBITDA Margin (%)
Adjusted PAT
EPS (Adjusted)
10,201.3
31.6
6,793.9
28.2
9,670.1
30.7
6,324.5
26.2
FY18E
% Change
Old
New
-2.4 37,976.6 34,205.3
% Change
-9.9
-5.2 12,360.7 11,132.8
-93 bps
32.5
32.5
-6.9 8,497.6 7,557.7
-6.9
35.4
31.3
-9.9
5 bps
-11.1
-11.5
Decline mainly due to higher-than-expected pricing pressure in US base business
and factoring of FDC and NLEM impact in the domestic market
Changed due to increased R&D guidance
Changed mainly in sync with EBITDA
Source: Company, ICICIdirect.com Research
Assumptions
| crore
Indian Formulations
US Formulations
RoW markets
APIs
FY15
6,716.6
13,719.6
6,064.6
1,070.2
FY16P
7,299.2
13,516.9
5,746.1
1,475.2
Current
FY17E
FY18E
8,304.9
9,799.7
14,936.1 15,381.7
6,334.2
6,967.6
1,742.0
1,829.1
Earlier
FY17E
FY18E
8,703.3 10,269.9
14,960.6 18,288.2
6,535.0
7,188.5
1,883.7
1,977.9
Factoring of FDC and NLEM impact
Reduced due to higher-than-expected pricing pressure in base business
Changed due to increase in captive consumption
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 2
Company Analysis
Established in 1983, Sun Pharma is the largest Indian pharmaceutical
company both in terms of market capitalisation and turnover (FY15).
The company manufactures and markets a large basket of pharmaceutical
formulations in India, the US and several other markets across the world.
However, the US and Indian formulations are by far the core strengths
and growth drivers for the company.
The US business has been built mostly on acquisitions and generic focus.
It owns the largest product basket among Indian players with as many as
572 product (ANDA) filings.
In Indian formulations, the company is a leader in niche therapy areas of
psychiatry, gastroenterology, neurology, cardiology, nephrology,
orthopaedics & ophthalmology.
The company completed the $3.2 billion acquisition of Ranbaxy
Laboratories after almost a year of navigating the regulatory gauntlet to
create the world’s fifth-biggest generic pharmaceutical company by
revenue.
The company is planning a capex of US$250 million for Tildrakizumab,
the IL-23 monoclonal anti-body in-licensed from MSD (US) over a period
of 4-5 years to be utilized for its psoriasis trials.
A snapshot of galloping performance in the last five years- Sales grew at
a CAGR of 38% to | 28563 crore; EBIDTA grew at a CAGR of ~35% to |
8724.3 crore; Adjusted PAT grew at a CAGR of 22.3% to | 4967.5 crore.
Going ahead, we expect revenues to grow at a CAGR of 9.4% in FY16P18E to | 34205.3 crore after considering Ranbaxy acquisition.
Exhibit 1: Revenues to grow to at CAGR of 9.4% in FY16P-18E
9.4% CAGR
40000
35000
(| crore)
30000
28,563.0
FY15
FY16P
34,205.3
37.9% CAGR
25000
20000
16,080.4
15000
10000
27,433.4
31,525.9
11,299.9
5,721.4
8,011.6
5000
0
FY11
FY12
FY13
FY14
FY17E
FY18E
Total Operating Income
Source: Company, ICICIdirect.com Research
US business constitutes ~47% of the turnover has grown at a CAGR of
57.7% during FY11-16P on the back of successful acquisitions such as
Caraco and Taro (recently Dusa and URL) and timely product launches
(recent gGleevec launch under exclusivity). US product basket remains
robust- 572 ANDAs filed, 413 approvals received; some niche launches
include Lipodox/ Doxil (~US$ 150 million), Doxycycline (~US$ 100
million) and Nystatin (~US$ 90 million), etc, besides complex/limited
competition products and plain vanilla generics. US growth has also
ICICI Securities Ltd | Retail Equity Research
Page 3
being backed by extensive infrastructure- Out of the 50 global
manufacturing facilities more than 20 are approved by the USFDA. The
only blot in an otherwise smooth journey is the warning letter to the Halol
plant. We expect US business to grow at a CAGR of 6.7% to | 15381.7
crore on a higher base during FY16P-18E backed by new launches and
base business growth.
Exhibit 2: US business to grow at CAGR of 6.7% in FY16P-18E
18000
16000
13,719.6
14000
57.7% CAGR
(| crore)
12000
10000
8000
15,381.7
9,784.4
6,153.8
6000
3,471.6
4000
2000
6.7% CAGR
14,936.1
13,516.9
1,386.9
0
FY11
FY12
FY13
FY14
FY15
FY16P
FY17E
FY18E
US
Source: Company, ICICIdirect.com Research
Indian formulations, which form 26% of the turnover, have grown at a
CAGR of 24.2% in FY11-16P. With a market share of 8.9%, the company is
ranked one (standalone) in domestic formulations. The acute, chronic and
sub-chronic segments were at 41%, 45% and 14% of revenues,
respectively. It is a leader in at least seven therapeutic categories. Five of
them are chronic therapies. Indian formulation growth was unaffected
despite NLEM 2011 implementation vagaries and channel disturbances
due to trade margin issues with wholesalers/distributors. Revenues
coming under the price control list are just ~9.7% of Indian formulations
sales. We expect Indian formulations to grow at a CAGR of 15.9% to
| 9799.7 crore in FY16P-18E backed by new launches and price hikes.
Exhibit 3: India sales to grow at CAGR of 15.9% in FY16P-18E
12000
15.9% CAGR
10000
24.2% CAGR
8,304.9
8000
(| crore)
9,799.7
6,716.6
7,299.2
6000
4000
2,468.3
2,915.4
2,965.7
FY12
FY13
3,691.8
2000
0
FY11
FY14
FY15
FY16P
FY17E
FY18E
Domestic
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 4
Exhibit 4: Sales from RoW markets to grow at CAGR of 10.1% in FY16P-18E
10.1% CAGR
8000
7000
6,064.6
(| crore)
6000
6,967.6
6,334.2
5,746.1
60.7% CAGR
5000
4000
3000
2000
535.8
1000
1,908.4
1,527.1
1,112.4
0
FY11
FY12
FY13
FY14
FY15
FY16P
FY17E
FY18E
ROW
Source: Company, ICICIdirect.com Research
Exhibit 5: Sales from API business to grow at CAGR of 11.3% in FY16P-18E
2000
1,829.1
11.3% CAGR
1,742.0
1800
1600
1,475.2
22.8% CAGR
1400
1,070.2
(| crore)
1200
1000
800
600
614.7
527.3
754.9
801.0
FY13
FY14
400
200
0
FY11
FY12
FY15
FY16P
FY17E
FY18E
API & Others
Source: Company, ICICIdirect.com Research
Exhibit 6: EBITDA to grow at CAGR of 13% in FY16P-18E
44.7
12000
(| crore)
10000
34.4
44.0
40.7
7866.7
8724.3
40.0
30.5
30.7
28.7
6000
32.5
35.0
30.0
25.0
4967.2
1967.2
50.0
45.0
9670.1
7195.6
8000
4000
11132.8
20.0
3258.0
15.0
10.0
2000
5.0
-
0
FY11
FY12
FY13
EBITDA
FY14
FY15
FY16P
FY17E
FY18E
EBITDA margins (%)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 5
Exhibit 7: Net profit to grow at CAGR of 23.3% in FY16P-18E
8000
31.7
7,557.7
32.3
7000
26.6
(| crore)
19.9
4,539.4
16.5
5000
3000
2000
2,587.3
30.0
6,248.8
6000
4000
35.0
3,008.1
19.8
4,967.5
3,204.4
25.0
22.1
17.4
20.0
15.0
1,816.1
10.0
5.0
1000
-
0
FY11
FY12
FY13
FY14
FY15
PAT
FY16P
FY17E
FY18E
Net Profit Margins (%)
Source: Company, ICICIdirect.com Research
Exhibit 8: Trends in return ratios
40
35
34.3
30
27.8
25
(| crore)
34.3
21.9
19.2
20
21.3
21.3
17.0
18.6
18.0
18.8
18.6
17.6
17.1
19.3
15
20.1
10
5
0
FY11
FY12
FY13
RoCE(%)
FY14
FY15
FY16P
FY17E
FY18E
RoNW (%)
Source: Company, ICICIdirect.com Research
SWOT Analysis
Strengths - Above average profitability margins, Healthy return ratios
despite higher cash component, one of the first companies to identify
potential of innovative R&D and generic R&D, robust infrastructure to
scale up US business, India business built around chronic focus, one of
the few companies defying the slowdown in Indian formulations
Weakness - Pending Ranbaxy compliance issues
Opportunities - The US generics space, the biosimilars space where Sun
is yet to make meaningful foray
Threats - Increased USFDA scrutiny across the globe regarding cGMP
issues and consolidation in the US pharmacy space. Halol facility has
received the warning letter from the USFDA
ICICI Securities Ltd | Retail Equity Research
Page 6
Exhibit 9: Trends in quarterly financials
(| Crore)
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
YoY (%)
Total Operating Income
6525.4
6341.2
8039.4
6929.5
6157.0
6757.6
6837.6
7082.1
7634.2
24.0
7.8
Raw Material Expenses
1596.1
1645.2
1817.2
1712.7
1597.4
1717.4
1558.3
1755.4
1452.0
-9.1
-17.3
4.7
2.9
-6.0
23.5
-4.7
4.1
218.1
16.2
Gross Profit Margin (%)
QoQ (%)
75.5
74.1
77.4
75.3
74.1
74.6
77.2
75.2
81.0
1021.5
1096.0
1114.3
1090.9
1128.6
1227.0
1208.8
1148.3
1181.2
15.7
17.3
13.9
15.7
18.3
18.2
17.7
16.2
15.5
1892.4
1661.9
2041.7
1961.3
2638.6
1963.5
2136.8
2009.4
2480.7
29.0
26.2
25.4
28.3
42.9
29.1
31.3
28.4
32.5
4510.0
4403.1
4973.2
4765.0
5364.7
4907.9
4903.9
4913.1
5113.9
69.1
69.4
61.9
68.8
87.1
72.6
71.7
69.4
67.0
2015.4
1938.1
3066.2
2164.5
792.4
1849.7
1933.7
2169.0
2520.3
30.9
30.6
38.1
31.2
12.9
27.4
28.3
30.6
33.0
Depreciation
201.4
235.4
269.1
228.4
461.8
240.1
271.1
250.8
264.3
-42.8
5.4
Other Income
373.5
181.9
-30.9
-73.3
382.5
105.4
191.3
219.2
-35.0
LP
-115.9
2187.5
1884.6
2766.2
1862.8
713.0
1715.0
1853.9
2137.5
2221.0
211.5
3.9
Interest
117.5
148.9
161.7
152.9
124.8
123.0
148.4
117.0
88.6
-29.0
-24.3
Less: Exceptional Items
156.0
237.8
0.0
0.0
0.0
685.2
0.0
0.0
0.0
NA
NA
1914.1
1497.9
2604.5
1709.9
588.3
906.8
1705.5
2020.5
2132.5
262.5
5.5
-15.6
Employee Expenses
% of Revenue
Other Expenditure
% of Revenue
Total Expenditure
% of Revenue
EBITDA
EBITDA Margin (%)
Profit before Interest & Tax
PBT
Total Tax
PAT
Minority Interest
PAT after MI
EPS (|)
Share Capital (cr)
229.8
206.3
279.3
1029.0
-599.9
226.8
335.5
202.0
170.6
-128.4
1684.3
1291.6
2325.2
680.9
1188.2
680.0
1370.0
1818.5
1961.9
65.1
7.9
171.7
87.1
274.9
285.6
301.2
201.1
263.3
401.9
248.2
-17.6
-38.2
1512.6
1204.6
2050.3
395.3
886.9
479.0
1106.7
1416.6
1713.7
93.2
21.0
6.3
5.0
8.5
1.6
3.7
2.0
4.6
5.9
7.1
93.2
21.0
241.1
241.1
241.1
241.1
241.1
241.1
241.1
241.1
241.1
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 7
Conference call highlights
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ICICI Securities Ltd | Retail Equity Research
The Board of Directors has contemplated a buy-back of equity
shares of the company
The company recently received a grand jury subpoena from the
United States Department of Justice, Antitrust Division seeking
documents from its subsidiary Sun Pharmaceutical Industries Inc.
(SPII) and its affiliates relating to corporate and employee records,
generic pharmaceutical products and pricing, communications
with competitors regarding sale of generic products and certain
other related matters
Sun’s cumulative ANDAs were at 572 including 159 pending
approvals (includes 13 tentative approvals). In FY16, it has filed 22
(including 10 filings from Taro pharma) ANDAs and received 14
approvals. During FY16, the company did not file for any complex
generic products
The company is planning a re-inspection request to USFDA for
Halol facility in Q1FY17. It received one product approval from the
facility in Japan. The company filed a few products from Halol
during FY16
The company received USFDA approval for its NDA BromSite
(bromfenac ophthalmic solution; market size of ~US$400 million)
used for the treatment of postoperative inflammation and
prevention of ocular pain in patients undergoing cataract surgery.
The company plans to launch the product in Q2FY17. It expects
approval for another NDA for ophthalmic product. The company
currently has MR strength of 100 for this portfolio.
The company expects a pricing impact of 5-10% for its US base
business in FY17 on account of increased competition.
The company plans to offer one Ranbaxy facility to the USFDA for
re-certification
Sun is planning a capex of US$250 million for Tildrakizumab, the
IL-23 monoclonal anti-body in-licensed from MSD (US) over four
to five years to be utilised for its psoriasis trials
The company expects some impact of WPI based price cut on
NLEM products and regulatory ban on FDCs on its domestic
business
Sun expects domestic business to grow better than the market in
FY17
The company is in the process of receiving marketing
authorisation for a portfolio of 14 brands, which it acquired from
Novartis for ~US$293 million in Japan. It expects the business to
contribute to the total turnover from H2FY17.
Sun’s capex for FY16 was less than | 1000 crore
R&D spend for FY16 was at 8.3% of sales. In FY17, the company
guided for R&D spend of 9% of the turnover
Sun gave a revenue guidance of 8-10% for FY17
The company gave a tax rate guidance of 14-15% for FY17
Page 8
Exhibit 10: Trends in return ratios
Location
Samba J&K
Segmant
Formulations
Jammu, J&K
Formulations
Baddi Himachal Prdesh
Formulations
Batamandi, Himachal Pradesh
Formulations
Mohali, Punjab
Formulations
Paonta Sahib, Himachal Pradesh
Formulations
Taonsa, Punjab
API
Sikkim
Formulations
Guwahati, Assam
Formulations
Malanpur, Madhya Pradesh
API
Dewas, Madhya Pradesh
Formulations
Regulatory Approvals
Halol, Gujarat
Formulations
Baska, Gujrat
Formulations
USFDA, UKMHRA
Karkhadi, Gujrat
Formulations, API
Ankleshwar, Gujrat
API
ISO 9002, WHO GMP
Panoli, Gujarat
API
USFDA, TGA, EU GMP, DKMA
USFDA, EU GMP
Ahmadnagar, Maharashtra
API
USFDA, EU GMP
Dadra, Dadra & Nagar Haveli
Formulations
USFDA
Silvassa, Dadra & Nagar Haveli
Formulations
Goa
Formulations
Madhuramthakam, Tamil Nadu
API
Sungai Patani, Malasia
Formulations
Dhaka, Bangladesh
Formulations
Be-Tabs, South Africa
Formulations
Lagos, Nigeria
Formulations
Morocco, Africa
Formulations
Egypt, Africa
Formulations
Haifa, Isreal
Formulations
Terapia S.A., Cluj, Romania
Formulations
Tiszavasvari, Hungary
Formulations
Cashel, Isreal
Formulations
Jardin Pompeia, Brazil
Formulations
Soa Paolo, Brazil
Formulations
ISO 9002, WHO GMP
USFDA
USFDA, EU GMP
Del. Iztapalapa, Mexico
Formulations
Chattanooga, TN, USA
API
USFDA
Philladelphia, PA, USA
Formulations
USFDA
Wilmington, MA, USA
Formulations
USFDA
Cranbery, New Jersey, USA
Formulations
USFDA
New Brunwick, NJ, USA
Formulations
North Brunswick, NJ, USA
Formulations
Brampton, Canada
Formulations
USFDA
Detriot, MI, USA
Formulations
USFDA
Chicago, IL, USA
Formulations
USFDA
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 9
Valuation
Adjusting for robust Taro Q4 numbers and gGleevec exclusivity, the US
numbers were subdued. The management guidance for revenue growth
of 8-10% also looks a bit conservative given the residual traction from
gGleevec (four months exclusivity), Japanese traction from H2 and likely
product launches in H2FY17 from Halol (assuming USFDA resolution).
This indicates that the management is expecting some genuine pricing
pressure in the US base business. The proposed buy-back is also likely to
be perceived negatively given the company’s knack of deploying cash for
successful acquisitions in the past. On the Tildrakizumab front, the
progress is encouraging but back-loaded. In the near term Halol, US base
business headwinds likely to weigh. We have ascribed a target price of
| 785 based on 25x FY18E EPS of | 31.3.
Exhibit 11: One year forward PE
2500
2000
(|)
1500
1000
500
0
Mar06
Dec06
Sep07
Jun08
Price
Mar09
Dec09
68.2x
Sep10
Jun11
55.7x
Mar12
Dec12
34.9x
Sep13
Jun14
18.2x
Mar15
Dec15
9.8x
[
Source: Company, ICICIdirect.com Research
Exhibit 12: One year forward PE of company vs. CNX Pharma
90
80
70
60
(x)
50
40
30
20
10
0
Mar06
Dec06
Sep07
Jun08
Mar09
Dec09
Sep10
Jun11
Sun Pharma
Mar12
Dec12
Sep13
Jun14
Mar15
Dec15
CNX Pharma
Source: Company, ICICIdirect.com Research
Exhibit 13: Valuation
FY15
FY16P
FY17E
FY18E
Revenues
(| crore)
27433
28563
31526
34205
Growth
(%)
2.1
4.1
10.4
8.5
EPS
(|)
19.8
23.4
26.2
31.3
Growth
(%)
199.3
18.3
11.9
19.5
P/E EV/EBITDA
(x)
(X)
40.9
23.1
37.4
20.6
29.4
17.8
24.6
14.9
RoE
(%)
18.6
18.0
17.3
17.6
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 10
RoCE
(%)
18.8
18.6
19.5
20.1
Company snapshot
1,600
1,400
1,200
1,000
Target Price:| 785
800
600
400
200
Apr-17
Jan-17
Oct-16
Jul-16
Apr-16
Jan-16
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
0
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date
Jun-09
Event
USFDA seizes more than 33 generic drugs from Caraco for failing to meet FDA cGMP requirements
Aug-10
Manufacturing facility in Cranbury, New Jersey receives warning letter from USFDA
Sep-10
Increases stake in Taro Pharma to 48.7% with voting rights of 65.8%
Apr-11
Sep-11
Forms joint venture with Merck & Co Inc to develop, manufacture and commercialise new combinations, novel formulations and branded generics in emerging
markets
Receives establishment inspection report (EIR) from USFDA for its Cranbury, New Jersey facility
Feb-12
USFDA grants special approval to Sun Pharma to supply short supply oncology product Doxil to the US market
Aug-12
USFDA gives approval to Caraco Pharma’s manufacturing facility & packaging sites to resume production for two drugs
Nov-12
Acquires US based dermatology company Dusa Pharma, which was marketing innovative drug & device Levulan (aminolevulinic acid HCl)
Dec-12
Acquires generic business of URL Pharma from Takeda Pharmaceuticals
Feb-13
Receives final approval for Doxorubicin Hcl Liposome injection (Doxil)
May-14
Karkhadi unit receives warning letter from the USFDA
Sep-14
Mar-15
Halol unit receives Form 483 observation letter from the USFDA
Sun Pharma acquires GSK's Opiates Business in Australia with two Opiates manufacturing facilities in Port Fairy & Latrobe
Apr-15
Completes Ranbaxy merger
Dec-15
Receives warning letter from the USFDA for its Halol manufacturing facility.
Source: Company, ICICIdirect.com Research
Top 10 Shareholders
Rank
1
2
3
4
5
6
7
8
9
10
Investor Name
Shanghvi (Dilip Shantilal)
Viditi Investment Pvt. Ltd.
Tejaskiran Pharmachem Industries Pvt. Ltd.
Family Investment Pvt. Ltd.
Quality Investment Pvt. Ltd.
Virtuous Finance, Ltd.
Virtuous Share Investment Pvt. Ltd.
Life Insurance Corporation of India
Aditya Medisales, Ltd.
GIC Private Limited
Shareholding Pattern
Latest Filing Date % O/S
31-Mar-16 0.10
31-Mar-16 0.08
31-Mar-16 0.08
31-Mar-16 0.08
31-Mar-16 0.08
31-Mar-16 0.04
31-Mar-16 0.03
31-Mar-16 0.03
31-Mar-16 0.02
31-Mar-16 0.02
Positionsition Change
231.14m
0.00m
201.39m
0.00m
195.34m
0.00m
182.93m
0.00m
182.87m
0.00m
97.10m
0.00m
83.98m
0.00m
68.88m
(11.95)m
40.20m
0.00m
39.78m
(0.60)m
(in %)
Promoter
FII
DII
Others
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16
54.7
54.7
54.7
54.7
55.0
18.8
23.8
27.6
30.3
26.4
5.2
7.8
8.1
5.2
9.0
21.3
13.8
9.7
9.8
9.7
Source: Reuters, ICICIdirect.com Research
Recent Activity
Buys
Investor name
Sanghvi (Jayant S)
Norges Bank Investment Management (NBIM)
J.P. Morgan Asset Management (Hong Kong) Ltd.
UBS Asset Management (UK) Ltd.
APG Asset Management
Value ($)
95.7m
92.8m
56.5m
31.7m
18.5m
Shares
7.6m
7.5m
4.6m
2.5m
1.5m
Sells
Investor name
Life Insurance Corporation of India
Lakshdeep Investments & Finance Pvt. Ltd.
T. Rowe Price International (UK) Ltd.
Genesis Investment Management, LLP
T. Rowe Price Hong Kong Limited
Value ($)
-147.9m
-129.7m
-55.2m
-36.6m
-33.2m
Shares
-11.9m
-10.5m
-4.5m
-3.0m
-2.7m
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 11
Financial summary
Profit and loss statement
(Year-end March)
Revenues
Growth (%)
Raw Material Expenses
Employee Expenses
Other Expenditure
Total Operating Expenditure
EBITDA
Growth (%)
Depreciation
Interest
Other Income
PBT
Less: Exceptional Items
Total Tax
PAT
Minority Interest
Adjusted PAT
Growth (%)
EPS (Adjusted)
| Crore
FY15
27,433.4
2.1
6,739.2
4,429.9
8,397.7
19,566.7
7,866.7
102.7
1,194.7
578.9
547.7
6,640.7
237.8
914.7
4,539.4
936.4
4,777.1
199.3
19.8
FY16P
28,563.0
4.1
6,483.2
4,765.2
8,590.3
19,838.7
8,724.3
10.9
1,026.3
476.9
481.0
7,702.0
685.2
934.9
4,967.5
1,114.5
5,652.6
18.3
23.4
FY17E
31,525.9
10.4
7,608.3
5,359.4
8,888.0
21,855.7
9,670.1
10.8
1,039.8
230.9
626.3
9,025.8
0.0
1,353.9
6,324.5
1,347.4
6,324.5
11.9
26.2
FY18E
34,205.3
8.5
8,535.2
5,472.8
9,064.4
23,072.4
11,132.8
15.1
1,089.3
167.2
679.6
10,555.9
0.0
1,583.4
7,557.7
1,414.8
7,557.7
19.5
31.3
Source: Company, ICICIdirect.com Research
| Crore
FY15
241.0
25,382.6
25,638.5
8,996.1
98.5
2,851.2
2,718.7
40,303.0
16,705.9
7,724.4
8,981.5
2,038.6
11,020.1
2,716.3
1,850.2
3,701.0
2,736.0
10,998.3
5,312.3
2,193.3
5,668.0
2,832.9
27,004.7
3,153.8
5,571.5
8,725.3
18,279.4
40,302.9
(Year-end March)
Profit/(Loss) after taxation
Depreciation
(Inc)/Dec in Current Assets
(Inc)/Dec in Current Liabilities
Others
CF from operation
Purchase of Fixed Assets
(Inc)/Dec in Investments
Others
CF from Investing Activities
Inc / (Dec) in Loan Funds
Inc / (Dec) in Equity Capital
Dividend and dividend tax
Other Financial Activities
CF from Financing Activities
Cash generation during the year
Op bal Cash & Cash equivalents
Closing Cash/ Cash Equivalent
Free Cah Flow
| Crore
FY15
4539.4
1194.7
-1087.0
1047.8
251.3
5946.2
-3161.4
708.7
3418.0
965.2
-547.9
75.0
-363.3
-251.3
-1087.5
5824.0
5722.1
11546.1
2784.8
FY16E
4967.5
1026.3
-153.6
-699.0
476.9
5618.1
-3366.9
1407.7
417.0
-1542.1
-658.0
-14.2
-233.5
-179.3
-1085.0
2990.9
10998.3
13989.2
2251.2
FY17E
6324.5
1039.8
400.6
298.9
230.9
8294.8
-900.0
-305.4
1120.1
-85.3
-2902.5
-0.7
-1081.1
-230.9
-4215.2
3994.3
13989.2
17983.5
7394.8
FY18E
7557.7
1089.3
-2081.8
881.8
167.2
7614.3
-900.0
-305.4
1187.5
-17.9
-1500.0
0.0
-1291.9
-167.2
-2959.1
4637.3
17983.5
22620.8
6714.3
FY15
FY16E
FY17E
FY18E
19.8
106.3
1.5
45.6
23.4
130.2
1.0
58.0
26.2
152.0
4.5
74.6
31.3
178.0
5.4
93.8
75.4
28.7
17.4
75.4
70.7
42.0
0.7
75.6
77.3
30.5
19.8
82.1
86.8
44.6
0.6
64.4
75.9
30.7
20.1
80.1
58.1
38.1
0.7
85.8
75.0
32.5
22.1
80.1
58.1
38.1
0.6
68.4
18.6
18.8
28.6
18.0
18.6
30.6
17.3
19.5
35.0
17.6
20.1
38.7
40.9
23.1
6.6
6.8
7.2
37.4
20.6
6.3
6.5
5.9
29.4
17.8
5.5
5.9
5.1
24.6
14.9
4.9
5.4
4.3
1.1
0.4
1.8
1.0
0.3
2.0
0.6
0.1
1.9
0.4
0.1
1.9
Source: Company, ICICIdirect.com Research
Balance sheet
(Year-end March)
Equity Capital
Reserve and Surplus
Total Shareholders funds
Total Debt
Deferred Tax Liability
Minority Interest
Other LT Liabitlies & LT Provision
Total Liabilities
Gross Block
Accumulated Depreciation
Net Block
Capital WIP
Total Fixed Assets
Investments
Deferred tax assets
Goodwill on Consolidation
LT Loans & Advances & Assets
Cash
Debtors
Loans and Advances
Inventory
Other current assets
Total Current Assets
Creditors
Provisions & other current liability
Total Current Liabilities
Net Current Assets
Application of Funds
Cash flow statement
FY16E
240.7
31,163.6
31,404.9
8,338.1
61.6
4,085.3
2,303.4
46,193.3
18,005.9
8,750.8
9,255.2
4,105.5
13,360.6
1,308.6
2,187.5
4,181.1
3,032.4
13,989.3
6,795.9
2,640.4
6,423.6
300.1
30,149.3
3,489.6
4,536.7
8,026.3
22,123.0
46,193.3
FY17E
240.7
36,407.0
36,647.6
5,435.6
86.5
5,432.6
2,303.4
49,905.8
18,905.9
9,790.6
9,115.3
4,105.5
13,220.8
1,614.0
2,439.7
4,181.1
3,032.4
17,983.5
5,021.3
3,017.6
6,918.3
802.2
33,742.9
3,292.2
5,033.0
8,325.2
25,417.7
49,905.8
Source: Company, ICICIdirect.com Research
FY18E
240.7
42,672.8
42,913.5
3,935.6
111.4
6,847.4
2,303.4
56,111.3
19,805.9
10,879.9
8,926.0
4,105.5
13,031.5
1,919.4
2,691.9
4,181.1
3,032.4
22,620.8
5,447.9
3,475.1
7,506.2
1,412.0
40,462.0
3,571.9
5,635.1
9,207.0
31,254.9
56,111.3
Key ratios
(Year-end March)
Per share data (|)
Adjusted EPS
BV per share
Dividend per share
Cash Per Share
Operating Ratios (%)
Gross Margin
EBITDA Margin
PAT Margin
Inventory days
Debtor days
Creditor days
Asset Turnover
EBITDA Conversion rate
Return Ratios (%)
RoE
RoCE
RoIC
Valuation Ratios (x)
P/E
EV / EBITDA
EV / Net Sales
Market Cap / Sales
Price to Book Value
Solvency Ratios
Debt / EBITDA
Debt / Equity
Current Ratio
Source: Company, ICICIdirect.com Research
.
ICICI Securities Ltd | Retail Equity Research
Page 12
ICICIdirect.com coverage universe (Healthcare)
Company
I-Direct
Code
CMP
(|)
TP
(|)
Ajanta Pharma
AJAPHA
1529 1,780
Apollo Hospitals
Aurobindo Pharma
AURPHA
764
990
Alembic Pharma
ALEMPHA 543
EPS (|)
FY15 FY16E FY17E FY15
PE(x)
EV/EBITDA (x)
RoCE (%)
RoE (%)
FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E
Rating
M Cap
(| Cr)
Buy
13456.4
36.0
45.7
52.4
42.4
33.5
29.2
26.8
23.3
19.9
50.3
43.7
37.9
37.8
34.4
APOHOS 1346 1,420 Hold
18724.9
23.7
22.2
35.0
56.7
60.6
38.5
27.5
26.7
19.3
9.9
8.2
10.9
10.4
8.9
12.6
44704.0
28.1
33.9
37.7
27.2
22.5
20.3
30.7
25.1
22.0
23.4
24.7
25.0
31.7
28.7
24.7
Buy
30.0
620
Hold
10243.1
15.1
38.2
19.6
36.0
14.2
27.7
32.2
12.6
23.9
30.7
58.0
24.8
32.1
51.5
22.3
Biocon
BIOCON
699.4 560
Hold
13987.0
20.4
22.1
28.3
34.2
31.7
24.7
8.3
7.6
6.4
10.4
9.1
10.9
12.5
10.9
12.7
Cadila Healthcare
Cipla
CADHEA 327 390
CIPLA 473.7 470
Buy
Hold
33512.2
38055.7
11.2
14.7
15.0
18.8
15.5
19.9
29.2
32.2
21.9
25.3
21.1
23.8
20.3
17.8
14.5
16.7
14.4
14.8
20.7
13.8
27.9
12.1
24.6
13.1
27.0
10.9
28.6
12.7
24.4
12.1
Divi's Laboratories
DIVLAB
1083 1,320
Buy
28762.2
32.1
40.2
46.7
33.8
27.0
23.2
22.3
18.7
15.9
29.4
31.3
31.1
24.4
25.6
25.1
Dr Reddy's Labs
DRREDD
2974 3,480
Buy
53103.3
129.0 142.1 139.2
23.0
20.9
21.4
14.4
12.6
12.3
16.7
15.1
15.1
22.3
18.9
16.1
Glenmark Pharma
GLEPHA
858 1,000
Buy
24678.3
23.1
37.1
26.7
20.7
22.2
16.8
13.8
13.3
16.2
18.8
21.7
21.2
21.7
Indoco Remedies
INDREM 290.2 365
Buy
2674.2
9.0
9.3
15.1
32.3
31.2
19.2
16.7
16.2
11.7
16.4
13.2
19.7
16.0
14.7
20.9
Ipca Laboratories
IPCLAB
Hold
5501.7
19.9
12.1
24.7
21.9
36.0
17.6
13.5
18.2
12.2
11.5
6.7
11.7
11.4
6.6
12.2
Jubilant Life Sciences
Lupin
436
515
VAMORG 346.9 405
LUPIN
1481 1,850
32.2
41.4
Buy
5525.3
-0.6
26.0
41.6
NA
13.3
8.3
14.3
7.5
6.1
5.8
12.0
15.1
NA
14.2
18.9
Buy
66734.7
53.6
50.4
66.0
27.6
29.4
22.4
18.3
19.8
13.8
35.1
18.6
22.5
27.1
20.7
22.1
Natco Pharma
NATPHA 463.3 600
Buy
8068.6
8.3
8.9
10.9
55.7
52.0
42.3
39.2
30.0
26.9
15.4
16.1
16.4
17.9
12.0
13.0
Sun Pharma
SUNPHA
770
785
Hold
184677.6
19.8
23.4
25.9
38.9
32.8
29.7
23.1
20.6
17.8
18.8
18.6
19.3
18.6
18.0
17.1
Syngene International
SYNINT
399
445
Buy
7971.0
8.8
11.1
15.6
43.3
34.2
24.3
26.6
20.9
17.0
19.5
13.3
16.7
20.7
21.2
23.5
Torrent Pharma
TORPHA
1381 1,650
Buy
23363.4
44.4
115.5
67.8
31.1
12.0
20.4
23.7
8.0
13.5
20.1
51.1
27.0
30.2
57.7
27.0
Unichem Laboratories
UNILAB
263
Buy
2389.6
8.3
12.3
15.5
31.7
21.4
16.9
23.3
14.7
11.7
8.5
13.8
16.2
8.7
11.7
13.4
310
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 13
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]
ICICI Securities Ltd | Retail Equity Research
Page 14
ANALYST CERTIFICATION
We /I, Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Nandan Kamat MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed
in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report.
Terms & conditions and other disclosures:
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engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various
subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are
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and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts
and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
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Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended
temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this
company, or in certain other circumstances.
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ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned
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or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any
material conflict of interest at the time of publication of this report.
It is confirmed that Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Nandan Kamat MBA, Research Analysts of this report have not received any compensation from the companies
mentioned in the report in the preceding twelve months.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
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Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject
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It is confirmed that Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Nandan Kamat MBA, Research Analysts do not serve as an officer, director or employee of the companies mentioned in
the report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
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We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.
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ICICI Securities Ltd | Retail Equity Research
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