Result Update February 13, 2015 Rating matrix Rating Target Target Period Potential Upside : : : : Glenmark Pharmaceuticals (GLEPHA) Hold | 824 12 months 8% | 765 Performance hurt by forex loss; outlook promising What’s Changed? Target EPS FY15E EPS FY16E EPS FY17E Rating Changed from | 75 to | 824 Changed from | 28 to | 22.1 Changed from | 33.4 to | 34.7 Changed from | 45.2 to | 45.4 Unchanged Quarterly Performance Revenue EBITDA EBITDA (%) Net Profit Q3FY15 1,701.3 265.7 15.6 114.8 Q3FY14 YoY (%) 1,601.8 6.2 365.0 -27.2 22.8 -717 bps 216.2 -46.9 Q2FY15 QoQ (%) 1,680.7 1.2 335.8 -20.9 20.0 -437 bps 165.1 -30.5 FY14 6007.3 1310.4 542.6 20.0 FY15E 6623.5 1243.3 599.2 22.1 FY16E 7890.4 1682.3 939.8 34.7 FY17E 9286.0 2092.9 1231.5 45.4 FY14 38.2 41.2 15.0 5.8 18.3 16.0 FY15E 34.6 37.3 16.1 5.1 17.7 17.4 FY16E 22.1 23.8 11.8 4.2 23.1 23.8 FY17E 16.8 18.2 9.2 3.4 25.1 28.6 Key Financials (| Crore) Revenues EBITDA Net Profit EPS (|) Valuation summary PE (x) Target PE (x) EV to EBITDA (x) Price to book (x) RoNW (%) RoCE (%) Stock data Amount | 20741 crore | 3267 crore | 803 crore | 23205 crore 641/488 |27.1 crore |1 Particular Market Capitalisation Debt (FY14) Cash (FY14) EV 52 week H/L Equity capital Face value Price performance (%) Glenmark Pharma Divi's Labs Cadila Healthcare 1M 1.6 -4.2 -10.3 3M -3.1 -6.3 1.8 6M 13.4 8.7 37.7 1Y 32.7 18.9 63.5 Research Analyst Siddhant Khandekar [email protected] Mitesh Shah [email protected] Nandan Kamat [email protected] ICICI Securities Ltd | Retail Equity Research • Revenues grew 6.2% YoY to | 1701 crore in line with I-direct estimate of | 1680.3 crore. India, LatAm and RoW sales grew 13.6%, 105.8% and 27.3% YoY to | 433 crore, | 234 crore and | 173 crore, respectively. On the other hand, US and RoW declined 2.7% and 31.3% YoY to | 507 crore and | 207 crore, respectively • EBITDA margins declined 718 bps to 15.6%, lower than I-direct estimate of 20.5% mainly due to forex losses. EBITDA declined 27.2% YoY to | 265.7 crore, less than I-direct estimate of | 344.2 crore • Net profit declined 47% YoY to | 115 crore, lower than I-direct estimate of | 179.2 crore on the back of a lower margins US generics business provide impetus after R&D setbacks After toying with R&D success and subsequent setbacks, the company has successfully developed and nurtured the US generics franchise. US generics now comprise ~30% of total turnover and have grown at a CAGR of 23% in the last five years. Total USFDA filings as on date are 169 and so far the company has received approvals for 94. From the pending ANDAs, 33 are Para IV applications. Key therapies in the US are oral contraceptives, pain management and CVS. The new focus areas in the US will be oncology, respiratory and dermatology. However, the management remains guarded on growth prospects in the US due to slower pace of product approvals in the US and consolidation in the distribution space. We expect US sales to grow at a CAGR of 16% in FY14-17E to | 3125 crore. Targeting specific therapies in IPM Glenmark ranks 16th in domestic formulations with a market share of 2.19%. It is market leader in dermatology and is improving its presence in therapies such as respiratory, CVS and anti-infectives. It has defied muted growth in IPM in FY14 by growing at 16% vis-à-vis IPM growth of 6% by churning the portfolio. We expect sales from India to grow at a CAGR of 16% in FY14-17E to | 2353 crore. US generics, India formulations main growth drivers; R&D can wait The R&D setback in 2008-10 has, in fact, benefited the company as the focus has shifted to more productive segments such as the US, India and RoW markets. The changed focus has improved operating cash flows as well as leverage situation as the debt-EBITDA has improved from a high of 4.6x in FY09 to 2.5x in FY14. Glenmark has also focused more on niche therapies such as dermatology, oral contraceptives and respiratory where competition is relatively less intense. Management optimistic on US, RoW markets, going ahead After languishing for a few quarters, the US franchisee is likely to get some momentum, thanks to the interesting approvals lined up in FY16-17. Taking into account the product pipeline (including 33 Para IVs) the prospects are certainly to improve in FY16E and FY17E if indeed the momentum improves. Indian formulation growth is likely to remain at elevated level (Q3 was slightly muted), going ahead. Other geographies such as Europe, Latin America are emerging as new growth drivers but these geographies are slightly lumpy in nature. Respiratory launches in Russia despite adversaries bode well for RoW traction. We have valued the company at | 824 on SOTP basis. We ascribe | 817 to base business based on 18x FY17E EPS of | 45.4 and we have calculated NPV of | 7 for gZetia. Variance analysis (| crore) Revenue Q3FY15 Q3FY15E 1,701.3 1,680.3 Q3FY14 1,601.8 Q2FY15 1,680.7 YoY (%) 6.2 QoQ (%) 1.2 Raw Material Expenses Employee Expenses Other expenditure Total Expenditure EBITDA EBITDA (%) Interest Depreciation Other income EO expenses PBT Tax PAT MI Net Profit 556.0 316.5 563.1 1,435.6 265.7 15.6 51.3 65.5 2.1 0.0 151.0 36.3 114.8 0.0 114.8 534.8 341.8 459.6 1,336.2 344.2 20.5 51.5 65.9 3.0 0.0 229.8 50.6 179.2 0.1 179.2 537.3 273.5 426.0 1,236.8 365.0 22.8 47.3 61.1 5.1 0.0 261.7 47.4 214.3 -1.9 216.2 548.9 3.5 1.3 355.3 15.7 -10.9 440.7 32.2 27.8 1,344.9 16.1 6.7 335.8 -27.2 -20.9 20.0 -717 bps -437 bps 51.6 8.6 -0.6 65.0 7.1 0.7 1.0 -58.2 119.1 0.0 0.0 0.0 220.2 -42.3 -31.4 55.2 -23.4 -34.3 165.0 -46.5 -30.5 -0.1 NA NA 165.1 -46.9 -30.5 Key Metrics USA 507.2 516.1 521.4 507.6 -2.7 -0.1 India Europe 433.1 173.0 476.5 135.8 381.2 135.8 478.2 130.6 13.6 27.3 -9.4 32.5 Latin America RoW markets 234.4 207.1 199.4 180.6 113.9 301.0 230.9 174.0 105.8 -31.2 1.5 19.0 API Out-licensing income 146.5 0.0 162.7 0.0 147.9 0.0 159.5 0.0 -1.0 0.0 -8.2 0.0 Comments Slow growth was mainly due to muted growth in the US (-2.7%) on account of lack of new product approvals and 31% de-growth in RoW due to currency related issues in Russia. Includes | 106 crore of forex loss. contraction in margin mainly due to higher forex loss. Decline in net profit was synch with operational performance and higher taxation. YoY de-growth on the back of lack of new product launches and channel consolidation. Growth was mainly driven by new product launches including gSeretide. Despite currency volatility, 200%+growth in Mexico and Venezuela drove the growth in Latin America Subdued growth was mainly due to adverse currency movement in Russia Source: Company, ICICIdirect.com Research Change in estimates (| Crore) Revenues EBITDA EBITDA Margin (%) Net Profit EPS (|) Old 6,822.0 1,465.6 21.5 759.4 28.0 FY15E New % Change 6,623.5 -2.9 1,243.3 -15.2 18.8 599.2 22.1 -271 bps -21.1 -21.1 Old 7,940.2 1,688.7 FY16E New % Change 7,890.4 -0.6 1,682.3 -0.4 21.3 907.1 33.4 21.3 939.8 34.7 5 bps 3.6 3.7 Comments Reduction in FY15 EBITDA estimates after incorporating margin fall in H2FY15 due to forex losses especially in Russia. Reduction in estimates in synch with reduction in EBITDA in FY15 Source: Company, ICICIdirect.com Research Assumptions (| crore) USA India Europe Latin America RoW markets API Out-licensing income FY13 1,688.7 1,309.6 372.4 346.8 FY14 2,027.1 1,510.5 506.1 404.6 812.2 397.6 49.3 986.0 529.2 36.5 Current FY15E FY16E 2,019.3 2,373.8 1,760.3 2,077.2 584.8 792.1 795.4 1,002.0 798.0 626.6 29.9 922.7 720.6 0.0 Earlier FY15E FY16E 2,043.5 2,402.6 1,777.1 2,097.0 639.6 767.5 634.7 825.1 1,045.9 650.2 29.9 1,098.2 747.8 0.0 Comments Change in FY16 estimates to factor abnormal growth in Venezuela, Mexico and growth recovery in Brazil on the back of new product launches. Reduction in estimates to factor in currency volatility in Russia Source: Company, ICICIdirect.com Research ICICI Securities Ltd | Retail Equity Research Page 2 Company Analysis Incorporated in 1977 Glenmark was never a mass-market player with a clear focus on niche areas such as dermatology, respiratory and cardiology. The company was one of the few Indian players (like DRL) to identify the importance of dedicated R&D efforts in the nineties. Post its maiden IPO in 2000, the company started ramping up API business via small acquisitions. In 2005 it struck its first out-licensing R&D seal with US based Forest Laboratories for COPD/asthma molecule with Oglemilast. Similar R&D deals were struck with Innovator companies such as Eli Lily and Merck KGaA (Germany). It received a substantial amount in the nature of upfront – milestone payments. However, it received a setback in most of these deals, one after another during 2007-09, as clients were unsatisfied with the progress or not interested to pursue the same any further due to changed priorities or budgetary constraints. This had hit the company hard during that period as, unlike other Indian players which hived off the risky R&D ventures into separate companies to protect core balance-sheet, Glenmark hived off the generic business. Its balance sheet got stretched with huge debts with the D/E and debt/EBITDA ratio swelled to 2x and 4x, respectively. However, post the R&D debacle the company refocused on the generics business especially in the US and Indian formulations putting R&D on the backburner. The changed has worked going by the performance in the last two-three years as the strong traction in the US, backed by forays into niche areas such as oral contraceptives and dermatology, robust growth in Indian formulations and strong tractions from ROW and Latam markets have improved the balance sheet and operating cash-flows significantly. The R&D deals are still active but the focus on the innovative R&D and generic R&D is almost equal. The company has almost fully recovered the amount spent on innovative R&D which is almost US$200 million in the last nine years. With other geographies also chipping in, the growth, going ahead is likely to be broad based with India and the US, the largest geographies growing at a decent pace and emerging segments such as RoW markets and Latin America showing greater traction. The company also remains committed to API exports. We expect sales to grow at a CAGR of 16% to | 9286 crore between FY14 and FY17E. Exhibit 1: Revenues to grow at CAGR of 16% in FY14-17E 10000 9286 7890 (| crore) 8000 6007 6000 4000 2093 2485 4022 4022 FY12 FY13 6624 2954 2000 0 FY09 FY10 FY11 FY14 FY15E FY16E FY17E Revenues Source: Company, ICICIdirect.com Research Glenmark has reclassified it operations into six categories - India, US, Europe, Latin America, ROW markets and APIs. Earlier the classification was on the basis of - 1) specialty businesses and 2) generics businesses. ICICI Securities Ltd | Retail Equity Research Page 3 India (25% of overall sales) – In India it operates through over 20 divisions with focus on dermatology, cardiology, respiratory and anti-infectives among all. The company markets over 350 products in India. As AIOCD MAT 2014, Glenmark ranks sixteenth in IPM with a market share of 2.19%. Among therapies, it ranks second in dermatology, sixth in respiratory and tenth in cardiology. The current MR strength of the company is ~3200 and the MR productivity is | 47.2 lakh per MR. The acute: chronic ratio for Glenmark is 63: 37. Exhibit 2: India business major growth driver… 2500 2353.2 2046.2 2000 1779.3 (| crore) 1510.5 1500 1309.6 1000 614.2 752.9 844.7 1002.1 500 0 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E India Source: Company, ICICIdirect.com Research The US (34% of overall sales) – The US generic business is being operated through its subsidiary Glenmark Generics Limited. It focuses on developing, manufacturing and the distribution of generics through wholesalers, retailers and pharmacy chains. Glenmark’s US strategy is to focus on less crowded therapies such as oral contraceptives, dermatology, oncology, etc. Typically, the company focuses on small ticket but niche opportunities. Till date, the company has filed 169 ANDAs with the USFDA. Of these, it has received approval for 94 ANDAs. It is currently awaiting USFDA approval for 75 ANDAs, of which 33 are Para IV applications. Exhibit 3: … so is the US 3500 3125.2 3000 2681.4 2301.0 (| crore) 2500 2027.1 2000 1688.7 1500 1000 1213.7 733.8 723.0 FY09 FY10 835.2 500 0 FY11 FY12 FY13 FY14 FY15E FY16E FY17E USA Source: Company, ICICIdirect.com Research The drug discovery business is focusing on areas of inflammation (asthma/COPD, rheumatoid arthritis, etc.), metabolic disorders (diabetes, obesity, etc.) and pain (neuropathic pain and inflammatory pain). ICICI Securities Ltd | Retail Equity Research Page 4 Glenmark has a pipeline of six molecules – 3 NCEs and 4 NBEs in various stages of preclinical and preclinical development. Of these, five are in clinical trials. Glenmark has been following a strategy of out-licensing research-staged molecules in clinical development to MNCs. So far Glenmark has struck seven deals in the last nine years booking ~US$ 200 million as upfront and milestone payments. Exhibit 4: Higher R&D spend here to stay…. 1000 6.5 8 625.7 538.6 6 4.7 4.2 400 6.5 261.3 3.1 88.3 76.8 FY09 FY10 10 (%) (| crore) 600 882.09.5 749.4 9.0 800 200 9.5 9.4 4 261.3 138.0 2 0 0 FY11 FY12 R & D cost FY13 FY14 FY15E R & D cost (% revenue) FY16E FY17E Source: Company, ICICIdirect.com Research Exhibit 5: Margins remains under pressure due to higher R&D spend 2400 2000 1682.3 21.7 20.2 1200 21.1 847.1 455 619.6 596.8 FY10 FY11 1310.4 1243.3 21.1 21.8 847.1 22.5 21.3 26 22 (%) (| crore) 1600 800 2092.9 24.9 18.8 18 400 14 0 FY09 FY12 EBITDA FY13 FY14 FY15E FY16E FY17E EBITDA Margins (%) Source: Company, ICICIdirect.com Research ICICI Securities Ltd | Retail Equity Research Page 5 Exhibit 6: Net profit to grow at CAGR of 31% in FY14-17E on lower base 1500 18 13.1 11.4 900 9.4 600 453.2 460.3 12 8 6 324.5 300 14 10 599.29.0 542.6 9.0 460.3 13.3 939.8 11.9 11.4 16 (%) 15.3 1200 (| crore) 1231.5 4 196.1 2 0 0 FY09 FY10 FY11 FY12 FY13 Net Profit FY14 FY15E FY16E FY17E Net Profit Margins (%) Source: Company, ICICIdirect.com Research Exhibit 7: Return ratios to improve, going ahead… 31 28.6 28 23.8 (%) 25 22.5 22.5 22 19 19.7 16 16.5 14.8 14.1 13 19.3 16.3 18.8 15.3 17.7 18.3 25.1 23.1 17.4 16.0 10 FY09 FY10 FY11 FY12 FY13 RoNW (%) FY14 FY15E RoCE (%) FY16E FY17E Source: Company, ICICIdirect.com Research ICICI Securities Ltd | Retail Equity Research Page 6 Exhibit 8: Trends in quarterly financials (| crore) Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Net Sales 1031.1 1065.9 1040.4 1255.2 1381.3 1335.5 1237.9 1463.0 1601.2 1681.7 1477.8 1671.5 1692.1 5.7 1.2 0.2 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.5 21.8 9.1 9.2 9.2 1638.2 0.2 1031.3 1066.2 1040.7 1255.6 1381.6 1335.9 1238.2 1463.4 1601.8 1703.6 1486.9 1680.7 1701.3 6.2 1.2 370.3 410.9 366.3 442.6 467.7 377.0 405.0 486.9 537.3 443.9 447.2 548.9 556.0 3.5 1.3 35.9 38.5 35.2 35.2 33.9 28.2 32.7 33.3 33.5 26.1 30.1 32.7 32.7 -86.5 2.2 661.1 655.3 674.4 813.0 913.9 958.9 833.3 976.5 1064.4 1259.7 1039.7 1131.8 1145.3 7.6 1.2 64.1 61.5 64.8 64.8 66.1 71.8 67.3 66.7 66.5 73.9 69.9 67.3 67.3 86.5 -2.2 Employee cost 173.4 163.3 165.6 201.6 212.4 208.7 210.8 264.5 273.5 277.4 276.4 355.3 316.5 15.7 -10.9 % to revenues 16.8 15.3 15.9 16.1 15.4 15.6 17.0 18.1 17.1 16.3 18.6 21.1 18.6 152.6 -253.5 384.8 270.3 343.7 340.1 381.4 495.4 374.7 396.4 426.0 600.7 421.0 440.7 563.1 32.2 27.8 37.3 25.4 33.0 27.1 27.6 37.1 30.3 27.1 26.6 35.3 28.3 26.2 33.1 649.6 687.9 928.5 844.4 875.6 984.2 1061.5 1081.1 990.5 1147.7 1236.8 1321.9 1144.6 1344.9 1435.6 16.1 6.7 90.0 79.2 84.1 78.4 76.8 80.9 80.0 78.4 77.2 77.6 77.0 80.0 84.4 717.1 436.7 102.9 221.8 165.1 271.3 320.2 254.8 247.8 315.7 365.0 381.6 342.3 335.8 265.7 -27.2 -20.9 10.0 20.8 15.9 21.6 23.2 19.1 20.0 21.6 22.8 22.4 23.0 20.0 15.6 -717.8 -436.7 Other operating income Revenues Raw material cost % to revenues Gross Profit Gross Profit Margin (%) Other expenditure % to revenues Total Expenditure % to revenues EBIDTA EBITDA margin (%) YoY (%) QoQ (%) Depreciation 23.1 23.6 27.5 32.1 35.6 31.8 34.9 60.5 61.1 60.3 65.1 65.0 65.5 7.1 0.7 Interest 35.9 41.0 38.0 38.4 40.0 43.6 46.4 48.5 47.3 46.4 48.1 51.6 51.3 8.6 -0.6 Other income 10.8 2.3 2.6 6.6 5.2 -5.0 3.3 13.4 5.1 -12.1 3.5 1.0 2.1 -58.2 119.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 217.5 0.0 0.0 0.0 PBT 54.5 159.5 102.2 207.4 249.7 174.4 169.8 220.1 261.7 45.3 232.6 220.2 151.0 -42.3 -31.4 Tax 8.4 7.3 21.8 47.7 36.6 4.6 39.2 62.8 47.4 1.9 47.7 55.2 36.3 -23.4 -34.3 -46.5 -30.5 -46.9 -30.5 Exceptional items Tax Rate (%) 15.4 4.6 21.3 23.0 14.7 2.6 23.1 28.5 18.1 4.1 20.5 25.1 24.0 PAT 46.1 152.2 80.4 159.7 213.0 169.8 130.6 157.3 214.3 43.4 184.9 165.0 114.8 4.5 14.3 7.7 12.7 15.4 12.7 10.5 10.7 13.4 2.5 12.4 9.8 6.7 PAT Margin (%) Minority Interest Net Profit EPS (|) 1.3 1.9 2.1 3.0 0.1 3.0 1.9 3.0 -1.9 0.3 0.1 -0.1 0.0 44.8 150.4 78.3 156.8 212.9 166.8 128.7 154.3 216.2 43.1 184.8 165.1 114.8 1.7 5.6 2.9 5.8 7.9 6.2 4.8 5.7 8.0 1.6 6.8 6.1 4.2 Source: Company, ICICIdirect.com Research SWOT Analysis Strengths- Prudent geographical mix covering high opportunity emerging markets as well as developed markets. Presence in niche therapies in the US such as oral contraceptives, dermatology which is relatively less crowded. Time tested R&D focused business model with a portfolio of Innovative products. Well placed to monetise the R&D pipeline in with product in various stages of completion. Weakness- High debt level; Presence of substantial intangibles in the Balance sheet. Higher R&D spends likely to put pressure on the margins. Opportunities- In the US Generics space lot of opportunities are panning out in the Oral Contraceptives and Respiratory space. Threats- Increased USFDA scrutiny across the globe regarding cGMP issues and consolidation in the US pharmacy space. ICICI Securities Ltd | Retail Equity Research Page 7 Conference call highlights • • • • • • • • • • • Gross debt and cash stood at ~| 3160 crore and ~| 406 crore respectively in Q3FY15. In Q3, the company has received 1 USFDA approval (gPrilosec) and filed 4 products. Cumulatively, it has 94 products in the US and has 75 pending approvals including 33 Para IV application. It also expects to file 4 ANDA in Q4FY15. It expects acceleration in the USFDA approvals from Q4 onwards. It has also taken some price hikes in the US. R&D stood at | 176 crore in Q3 FY15 (10.4% of total sales). The company has spent ~US$ 40-45 million in R&D for innovative products in CY14. Going ahead, the proportion of Innovative R&D in the total R&D is likely to go down. CIS is contributing 50-55% of the company’s total ROW sales. Venezuela is contributing 25-30% of company’s total Latin American sales. In Russia, the company has not taken any price hike despite sharp Rouble depreciation. During the quarter the company has received 3-4 products approval including gSeretide (for asthma; US$ 60-70 million sales). The company is holding back some Russian sales to avoid bad-debts. Russian margins are normally above the company’s blended margins. The company has also filed gSeretide in 4-5 other emerging markets and plans to file 5-6 more respiratory products in these markets. It expects strong European sales from Q4FY15 mainly due to launches of 3-4 products including gTarka The company expects ~18% growth in the domestic market. In Latin America, despite currency volatility it expects 10-15% growth due to incremental product launches. Capex expected to be ~| 500 crore for FY16. Market Share: Domestic Cardiac Respiratory Anti-Infectives Anti-Diabetic Gynacology Derma MAT Dec 2014 (%) 3.81 3.82 1.81 1.97 1.42 8.04 MAT Dec 2013 (%) 3.50 3.58 1.63 1.50 1.48 8.16 Source: Company, ICICIdirect.com Research ICICI Securities Ltd | Retail Equity Research Page 8 Valuation After languishing for few quarters, the US franchisee is likely to get some momentum, thanks to the interesting approvals lined up in FY16-17. Taking into account the product pipeline (including 33 Para IVs) the prospects are certainly to improve in FY16E and FY17E if indeed the momentum improves. Indian formulations growth is likely to remain at elevated level (Q3 was slightly muted) going ahead. Other geographies such as Europe, Latin America are emerging as new growth drivers but these geographies are slightly lumpy in nature. Respiratory launches in Russia despite adversaries bode well for ROW traction. We have valued the company at | 824 on SOTP basis- We ascribe | 817 to base business based on 18x FY17E EPS of | 45.4 and we have calculated NPV of | 7 for gZetia. 19.0x Dec-14 Oct-13 Mar-13 Aug-12 Jan-12 21.4x May-14 23.8x Jun-11 Nov-10 Apr-10 Sep-09 Feb-09 Jul-08 May-07 Dec-07 26.2x Dec-14 Price May-14 Oct-06 1000 900 800 700 600 500 400 300 200 100 0 Mar-06 | Exhibit 9: One year forward PE 16.6x [ Source: Company, ICICIdirect.com Research Exhibit 10: One year forward PE of company vs. BSE Healthcare Index 60 50 (x) 40 30 20 10 0 Oct-13 Mar-13 Aug-12 Jan-12 Jun-11 Nov-10 Apr-10 Sep-09 Feb-09 Jul-08 Dec-07 May-07 Oct-06 Mar-06 Glenmark Pharma BSE Healthcare Index Source: Company, ICICIdirect.com Research Exhibit 11: Valuation FY14 FY15E FY16E FY17E Revenues (| crore) 6007 6624 7890 9286 Growth (%) 49 10 19 18 EPS (|) 20.0 22.1 34.7 45.4 Growth (%) 17.9 10.4 56.8 45.4 P/E EV/EBITDA (x) (X) 31.8 15.0 28.8 16.1 18.4 11.8 14.0 9.2 RoNW (%) 18.3 17.7 23.1 25.1 Source: Company, ICICIdirect.com Research ICICI Securities Ltd | Retail Equity Research Page 9 RoCE (%) 16.0 17.4 23.8 28.6 Company snapshot Target Price: | 824 900 800 700 600 500 400 300 200 100 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 Aug-09 Event Forest & Glenmark Pharma announce Phase IIb results for Oglemilast. The molecule did not show satisfactory results compare to its Placebo. Oct-09 Launches four products in the UK market through its subsidiary Glenmark Generics Europe. Mar-10 Receives USFDA approval for its new drug application for Oxycodone Hydrochloride capsules and liquid solutions filed as an NDA with USFDA under 505b2 route. May-10 Enters into an agreement with Sanofi to out-license its GRC 15300 molecule. Receives US$ 20 million as an upfront payment. Jan-11 Sanofi & Abbott win patent litigation case of generic Tarka. A Federal jury asks Glenmark to pay US$ 16 million as damages for launching at risk in the US market. Apr-11 Enters into an exclusive agreement with a Canadian base company ImmanenceIntegrale Dermo Correction (IDC) to market high end dermatology products in eight countries including India & Brazil. Out-licenses monoclonal antibody GBR 500 to Sanofi. Receives US$ 50 million as upfront payment. May-11 Aug-12 Jul-13 The International Center for Dispute resolution rules in favor of Glenmark on the arbitration claim it filed against Napo Pharma. Glenmark will have rights to develop, commercialise and distribute Crofelemer in 140 emerging markets. Conforms filing of ANDA for Lacosamide tablets and oral solutions with the USFDA under Para IV certification. Mar-14 Provided | 213 crore for Tarka liability Jan-15 Company has received shareholders' nod to raise up to $300 million (around Rs 1,890 crore) through issue of securities. Source: Company, ICICIdirect.com Research Top 10 Shareholders Rank 1 2 3 4 5 6 7 8 9 10 Shareholding Pattern Name Saldanha Family Trust Life Insurance Corporation of India OppenheimerFunds, Inc. HSBC Global Asset Management (Hong Kong) Limited Capital International, Inc. Bellevue Asset Management AG Macquarie Investment Management Ltd. Capital Research Global Investors The Vanguard Group, Inc. General Insurance Corporation of India Latest Filing Date % O/S Position (m)n Change (m) 31-Dec-14 47.27 128.2 0.0 31-Dec-14 3.37 9.2 -0.2 31-Dec-14 2.06 5.6 0.0 31-Dec-14 1.82 5.0 -0.6 30-Sep-14 1.44 3.9 -0.1 31-Jul-13 1.33 3.6 3.6 30-Sep-14 1.24 3.4 0.3 31-Dec-14 1.22 3.3 -0.7 31-Jan-15 1.07 2.9 0.0 31-Dec-14 1.05 2.9 -0.1 (in %) Promoter FII DII Others Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 48.3 48.3 48.3 48.3 48.3 33.1 33.2 34.4 35.1 34.6 7.5 7.8 6.8 5.9 6.4 11.1 10.7 10.5 10.7 10.7 Source: Reuters, ICICIdirect.com Research Recent Activity Buys Investor name Bellevue Asset Management AG APG Asset Management Baron Capital Management, Inc. Wasatch Advisors, Inc. Tata Asset Management Limited Value 34.13m 29.36m 12.53m 12.45m 12.23m Shares 3.60m 2.40m 1.03m 1.02m 1.00m Sells Investor name ICICI Prudential Asset Management Co. Ltd. RCM Asia Pacific Ltd. Capital Research Global Investors HSBC Global Asset Management (Hong Kong) Limited William Blair & Company, L.L.C. Value -11.56m -8.05m -7.95m -7.47m -6.52m Shares -0.95m -0.68m -0.66m -0.61m -0.56m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd | Retail Equity Research Page 10 Financial summary Profit and loss statement (Year-end March) Revenues Growth (%) Raw Material Expenses Employee Expenses R & D cost Other expenditure Total Operating Expenditure EBITDA Growth (%) Depreciation Interest Other Income PBT EO Total Tax Profit After Tax MI Net Profit Growth (%) EPS (|) | Crore FY14 6,007.3 49.4 1,873.0 1,026.1 538.6 1,259.1 4,696.9 1,310.4 54.7 216.8 188.6 9.8 914.8 217.5 151.3 546.0 3.3 542.6 17.9 20.0 FY15E 6,623.5 10.3 2,119.3 1,295.0 625.7 1,340.2 5,380.2 1,243.3 -5.1 270.3 203.3 9.6 779.3 0.0 180.1 599.2 -0.1 599.2 10.4 22.1 FY16E 7,890.4 19.1 2,524.3 1,554.0 749.4 1,380.5 6,208.1 1,682.3 35.3 285.6 196.1 12.0 1,212.5 0.0 272.8 939.7 -0.1 939.8 56.8 34.7 FY17E 9,286.0 17.7 2,924.5 1,808.4 882.0 1,578.3 7,193.1 2,092.9 24.4 309.5 170.1 12.0 1,625.3 0.0 365.7 1,259.6 28.1 1,231.5 31.0 45.4 Source: Company, ICICIdirect.com Research Cash flow statement (Year-end March) Profit after Tax Add: Depreciation Inc/(dec) in CL and Provisions (Inc)/dec in Current Assets Others CF from operating activities (Inc)/dec in Investments (Inc)/dec in Fixed Assets Inc/(dec) deffered tax liability (Inc)/dec deffered tax liability CF from investing activities Issue/(Buy back) of Equity Inc/(dec) in loan funds Dividend paid & dividend tax Inc/(dec) MI Others CF from financing activities Net Cash flow Opening Cash Closing Cash | Crore FY14 546 217 721 -839 0 644.4 0 -484 30 -164 -618.1 0 502 -54 -11 -271 165.7 192 611 803.0 FY15E 599 270 200 -650 0 419.3 0 -460 0 0 -460.0 0 -100 -95 0 -111 -306.0 -347 803 456.3 FY16E 940 286 93 -378 0 940.7 0 -500 0 0 -500.0 0 -300 -108 0 -141 -549.2 -109 456 347.7 FY17E 1,260 309 435 -889 0 1,114.9 0 -300 0 0 -300.0 0 -500 -108 0 -206 -814.7 0 348 347.9 FY14 FY15E FY16E FY17E 20.0 28.0 110.0 2.0 29.6 22.1 32.1 124.5 3.5 16.8 34.7 45.2 150.0 4.0 12.8 45.4 56.8 184.8 4.0 12.8 21.8 15.2 9.0 131 57 120 18.8 11.8 9.0 130 80 120 21.3 15.4 11.9 110 75 110 22.5 17.5 13.3 110 75 110 18.3 16.0 21.3 17.7 17.4 17.5 23.1 23.8 21.4 25.1 28.6 24.6 31.8 15.0 3.3 2.9 5.8 28.8 16.1 3.0 2.6 5.1 18.4 11.8 2.5 2.2 4.2 14.0 9.2 2.1 1.9 3.4 2.5 1.1 2.2 1.8 2.5 0.9 2.2 1.5 1.7 0.7 2.2 1.5 1.1 0.5 2.2 1.5 Source: Company, ICICIdirect.com Research Balance sheet | Crore (Year-end March) Liabilities Equity Capital Reserve and Surplus Total Shareholders funds Total Debt Deferred Tax Liability Minority Interest Total Liabilities FY14 FY15E FY16E FY17E 27.1 2,956.5 2,983.7 3,267.0 207.1 13.3 6,471.0 27.1 3,349.7 3,376.8 3,167.0 207.1 13.3 6,764.2 27.1 4,040.2 4,067.3 2,867.0 207.1 13.3 7,154.7 27.1 4,985.1 5,012.2 2,367.0 207.1 13.3 7,599.6 Assets Gross Block Less: Acc Depreciation Net Block Capital WIP Total Fixed Assets Investments Inventory Debtors Loans and Advances Other Current Assets Cash Total Current Assets Creditors Provisions Total Current Liabilities Net Current Assets Differed tax assets Application of Funds 3,632.6 743.0 2,889.7 206.2 3,095.9 18.1 932.9 2,156.3 906.4 0.0 803.0 4,798.7 1,903.0 260.0 2,163.0 2,635.7 721.3 6,471.0 3,892.6 1,013.2 2,879.4 406.2 3,285.6 18.1 1,443.7 2,346.0 856.3 0.0 456.3 5,102.2 2,165.5 197.6 2,363.1 2,739.1 721.3 6,764.2 4,292.6 1,298.9 2,993.8 506.2 3,500.0 18.1 1,620.9 2,377.3 1,025.5 0.0 347.7 5,371.4 2,377.3 78.9 2,456.2 2,915.2 721.3 7,154.7 4,492.6 1,608.3 2,884.3 606.2 3,490.5 18.1 1,907.7 2,797.9 1,206.9 0.0 347.9 6,260.4 2,797.9 92.8 2,890.8 3,369.6 721.3 7,599.6 Source: Company, ICICIdirect.com Research Key ratios (Year-end March) Per share data (|) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA margins PBT margins Net Profit margins Debtor days Inventory days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Revenues Market Cap / Revenues Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio Source: Company, ICICIdirect.com Research . ICICI Securities Ltd | Retail Equity Research Page 11 ICICIdirect.com coverage universe (Healthcare) ICICIdirect Healthcare coverage Universe I-Direct CMP TP Rating M Cap EPS (|) PE(x) EV/EBITDA (x) RoCE (%) RoNW (%) Company Code (|) (|) (| Cr) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E Ajanta Pharma AJAPHA 2517 3220 BUY 8820.5 66.2 75.0 85.6 38.0 33.6 29.4 24.0 20.9 17.2 44.9 40.6 38.1 39.4 32.8 28.9 Apollo Hospitals APOHOS 1295 1075 HOLD 17951.7 22.8 27.5 35.1 56.9 47.2 36.9 28.1 24.0 18.2 11.6 12.7 14.9 10.6 Aurobindo Pharma AURPHA 1124 1303 HOLD 32672.9 47.3 57.4 70.5 23.8 19.6 15.9 17.0 14.0 11.4 24.1 23.4 24.4 31.3 11.8 13.58 31.6 28.65 Biocon BIOCON 420.5 410 HOLD 8378.7 20.7 20.0 22.6 20.3 21.0 18.6 12.4 12.4 10.9 13.4 11.6 12.9 13.7 12.3 Cadila Healthcare CADHEA 1545 1634 HOLD 31520.0 39.2 51.1 66.2 39.4 30.2 23.3 28.0 20.9 16.3 15.9 19.0 21.7 23.4 24.6 25.4 Cipla CIPLA 660.7 585 HOLD 52850.1 17.3 15.9 21.7 38.2 41.5 30.4 25.1 22.8 18.3 15.5 14.8 17.2 13.8 11.5 13.7 Divi's Laboratories DIVLAB 1644 1633 HOLD 21744.2 56.0 62.4 81.7 29.4 26.3 20.1 21.3 18.1 15.0 29.6 28.1 29.7 26.1 23.2 25.1 Dr Reddy's Labs DRREDD 3237 3332 HOLD 56545.6 126.7 128.3 151.0 26.3 26.0 22.1 17.1 15.8 13.9 19.2 18.7 20.1 23.7 19.9 19.5 Glenmark Pharma GLEPHA 765 824 HOLD 20193.6 20.0 22.1 34.7 38.2 34.6 22.1 17.3 18.4 12.0 16.0 17.4 23.8 18.3 17.7 23.1 Indoco Remedies INDREM 319.7 375 BUY 2935.1 6.3 9.5 13.3 50.9 33.7 24.0 24.9 16.9 13.1 16.6 21.8 28.1 12.6 16.4 19.4 Ipca Laboratories IPCLAB 670.2 16.0 Jubilant Life Sciences VAMORG 155.3 Lupin LUPIN 12.9 622 HOLD 8425.7 37.9 25.6 31.8 17.7 26.2 21.1 11.0 14.5 14.0 27.6 16.1 17.8 24.4 14.7 138 SELL 2463.6 6.8 -6.5 20.0 22.7 -24.0 7.8 6.3 11.4 5.5 10.1 4.5 7.6 4.2 -3.5 7.6 1618 1866 BUY 72401.8 41.0 54.4 61.0 39.5 26.5 24.9 19.0 17.1 34.5 34.7 32.0 26.5 27.4 24.6 Natco Pharma NATPHA 1402 1354 HOLD Sun Pharma SUNPHA 923.6 1036 BUY Torrent Pharma TORPHA 1152 1165 HOLD Unichem Laboratories UNILAB 215 206 HOLD 29.7 4643.5 30.3 32.5 44.9 36.3 33.8 24.4 27.2 22.5 17.9 15.3 16.7 18.7 14.1 13.5 16.1 190580.5 29.0 34.8 39.9 31.8 26.5 23.2 19.4 18.8 16.0 32.4 31.2 28.8 27.0 25.3 23.1 19413.5 39.2 47.2 50.4 29.4 24.4 22.9 20.6 18.3 14.7 28.5 21.4 26.7 34.9 32.4 28.0 1946.2 18.7 6.4 13.2 11.5 33.9 16.3 10.8 17.9 11.1 15.7 6.5 12.8 20.7 7.1 14.0 Source: Company, ICICIdirect.com Research ICICI Securities Ltd | Retail Equity Research Page 12 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 13 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: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, 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 available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking 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 prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. 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. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. 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 in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation 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. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. 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 company/companies mentioned in this report. 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. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. ICICI Securities Ltd | Retail Equity Research Page 14
© Copyright 2024