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Good Q4CY15 & CY14 Results

BUY

C L A RI S L IFE SC IE N CE S
SUSTAINABLE GROWTH MODEL

Rating

Buy

Retail Desk

04 May 2015
Company Description:
Founded in 1999, CLSL is a multi-business enterprise and the Holding Company of
Claris Injectables, a wholly-owned subsidiary dealing in Specialty Injectables
business, collectively Claris; and Claris Otsuka, a Joint Venture with
Japanese Otsuka Pharmaceutical Factory, Inc. & Mitsui & Co. Ltd. for Infusion
business in India & emerging markets. Claris has identified itself as a company
specialising in sterile injectables technology. Its array of therapies includes
anesthesia, blood products, anti-infectives, and plasma volume expanders. The
plant is located at Vasna, Ahmedabad in Gujarat.

CORP.

CMP (`)

260

Target Price (`)

412

Upside (%)

Key Data
BSE Code
NSE Code
Reuters code
Bloomberg Code
Sensex
Face Value (`)
Mcap (` Cr.)
52 week H/L (`)
2 Wk Avg Qty
Share holding,
March 15
Promoters
FIIs
PCBs
Public
Performance
(%)
3M
Stock-CLSL
20.2
BSE 200
-3.0
BSE 500
-2.8

58

533288
CLAI .BO
CLAR:IN
27490
10
1420
358/141
1304000

Holding %
61.0
28.4
3.4
7.2

CLSL set up its first manufacturing unit in 2000 and its Infusion unit in 2006. The
company originally had 5 plants (Clarion IV) at its manufacturing campus in
Ahmedabad. In carving out its infusions business, it transferred 2 plants (Clarion
2 & 4) to its joint venture (JV) with Otsuka and Mitsui for a cash consideration of
`1.05 billion and 20% stake sale (EV of `1.3 billion). The JV has two state-of-theart plants COPL 1 and COPL 2 at its manufacturing facility located in
Ahmedabad, India. CLSL has the market presence across 100+ countries
worldwide, including regulated markets of US and Europe.
Products Range:
The products range across various therapeutic segments, including anesthesia,
critical care, renal care, infusion therapy, parenteral nutrition, anti-infectives
and plasma volume expanders. It offers injectables in various delivery systems,
such as glass and plastic bottles (EURO Head & Nipple Head), ampoules, and nonPVC/PVC bags. COPL 2 has been approved by foreign regulatory authorities
including ANVISA (Brazil). The laboratory set-up is equipped with facilities for
chemical and instrumental analysis capable of undertaking the most
comprehensive tests.

LTD
6M
48.8
2.4
2.4

12M
65.6
29.5
30.3

Key Financial: (Consolidated)

Year-March

Q4CY14A

(` crore)

Q4CY13A

FY15E

FY16E

FY17E

Ph: 91-22-6760 7700

Sales
182.6
PBIDT
72.9
Interest
11.4
PBDT
61.5
Depreciation
9.0
PBT
52.5
Tax
(37.3)
PAT
89.8
Equity
54.6
Reserves
Book Value (`)
EPS (`)
16.4
CPS (`)
18.1
OP Margin (%)
39.9
NP Margin (%)
23.0
P/E
In view of the reversal in tax, NP
the assumed tax provision at 20%.

Technicals by Niranjan Sane


nbsane@sunidhi.com

The settlement with Fresenius Kabi for its ParaIV challenge in its Propofol ANDA is
not considered while calculating reserves. Dividend assumptions are ignored.

Price Chart: (One-Year)

http://www.clarislifesciences.com
Vijay Dave
vijaydave@sunidhi.com

148.4
36.8
7.7
29.1
10.3
18.8
1.0
17.8
63.8

CY14A

641.8
820.0
750.0
880.0
199.2
266.5
276.0
327.4
37.8
50.0
45.0
45.5
161.4
216.5
231.0
281.9
40.1
49.0
39.0
41.5
121.3
167.5
192.0
240.4
(17.7)
12.3
38.0
52.9
139.0
155.2
154.0
187.5
54.6
54.6
54.6
54.6
1249.5
1404.7
1558.7
1746.2
238.8
267.3
295.5
329.8
25.4
22.7
28.2
34.3
32.8
29.9
35.3
46.2
31.0
32.5
36.8
37.2
15.1
19.0
21.4
22.1
9.8
10.1
9.2
7.6
for Q4CY14A & CY14A is taken considering

(GMDV)

2.8
4.4
24.8
12.0
margin

FY15 will be for 15 months as such FY15 EPS is annualized.

Claris Lifesciences
Two Pronged Startegies

CLSL adopted two-pronged strategy for growth (a) Enhanced focus on


regulated markets by aggressively filing ANDAs in the USA, enhancing
network and product portfolio in Europe and other regulated markets; and
(b) Separated out its successful infusion (IV fluids) business in emerging
markets, by forming new joint venture company, Claris Otsuka Ltd. (Claris
Otsuka) with Japanese partners, Otsuka Pharmaceutical Factory Inc (Otsuka),
and Mitsui & Co. Ltd. (Mitsui).

Regulatory Approvals

CLSL has an in- house development and regulatory capabilities with over
1000+ product registrations filings worldwide. Diversified revenue base
across a range of products offerings sold in a number of countries in
regulated as well as emerging markets.
Claris has a market presence across the globe including Regulated Markets
and Emerging Markets. The major focus in Regulated Markets is in countries
like USA, UK, Australia, New Zealand, Netherlands, Italy, Germany, Canada,
South Africa, Hong Kong, Korea etc., where it has robust sales and
distribution network.
Claris has received approvals by foreign regulatory authorities including the
USFDA, MHRA (UK), TGA (Australia), NAM (Finland), GCC FDCA (Gulf Cooperation Council including Saudi Arabia, U.A.E. and other countries in the
Middle East), ANVISA (Brazil) and INVIMA (Colombia).

Claris Otsuka JV

Claris Otsuka Private Ltd. (Claris Otsuka) is a Joint Venture between Claris
Lifesciences, India, Otsuka Pharmaceutical Factory, Inc., Japan and Mitsui &
Co. Ltd., Japan for Claris' infusion business in India and emerging markets. It
primarily manufactures & markets products across multiple markets and
therapeutic segments.
Claris Otsuka, a leader in intravenous nutrition products is committed to
being the best partner of patients and healthcare professionals in the field of
clinical nutrition. Claris continues to hold a 20% stake in the joint venture
while Otsuka and Mitsui hold 60% and 20% respectively. CLSL retains the
option to sell the balance stake to its partners for at least the same
valuation and reap `250 crore.

Q4CY15 & CY15 Results

During Q4CY14, net profit has jumped 404% to `89.8 crore on 24% higher
sales of `183 crore. Q4CY14 EPS is `16.4. During CY14, net profit rose 65% to
`139 crore on 4% lower sales of `642 crore. EPS stands at `25.4.

Financial

Equity capital is `54.6 crore. With reserves of `1249 crore as at 31 Dec 2014,
the book value of the share works out to `239. Borrowings of `412 crore give
the DER of 0.32:1.Investments, cash and short term/long term loans etc
stood at `847 crore. (`155/share). Net block stood at `1024 crore.

Reduction of Debts & Buy Back of


Shares

In August 2013, Claris received a total cash consideration of `1050 crore as a


part of the transaction from Claris-Otsuka. Claris-Otsuka is valued at `1313
crore.
Claris used the part of the cash consideration towards debt prepayment of
around `360 crore and buyback of shares for which it allocated `230 crore.
With this, the equity capital was reduced by `9.2 crore from `63.8 crore to
`54.6 crore.

Abbreviated New Drug Application

In the USA, CLSL has filed 37 ANDAs (Market Size $2000 million) out of which
13 ANDAs (Market Size $200 million) have been approved and 24 ANDAs
(Market Size $1800 million) under approval pipeline. In Europe, it has already
crossed the mark of 213 product approvals with 69 products under approvals.
Over the next 3 years, CLSL plans to file 18 more ANDAs in the US in 2015-16
and targets to have a total of 100 ANDAs in the US and many EU dossiers
targeting US$4.6 billion market.

Sunidhi Research |

Claris Lifesciences
In the new developments, it has received the supplemental Abbreviated New
Drug Application approval for Fluconazole injection used to treat fungal
infections, in the US.
Expansion

With regard to expansion, the new plant has commercialized in CY14 and the
second line to be operational in the near future.
To meet the growing demands of injectable products in the international
markets, CLSL has commenced projects for capacity expansion to meet the
growing demand of its products in the US and EU and to introduce new
delivery systems. As part of the expansion process, two projects have been
initiated for the year 2014

Narrow Global Competition for Key


Niche Products

(i)

packaging automation for the flagship plant Clarion 1, this will


increase the overall capacities of the plant; and

(ii)

Installation of two manufacturing lines in Clarion 5, these lines


will cater to Aseptic as well as Terminally Sterilised products and
also have the capability to manufacture Lyophilised products

Propofol: On 20 April 2015, CLSL has settled the pending litigation with
Fresenius Kabi for its paraIV challenge in its Propofol ANDA. Under the
settlement terms, CLRS can launch its generic version in October 2016 post
approval. Propofol (brand name Diprivan-generic version of anesthesia) is a
complex product with patent protection in the US (Market Size: US$250
million) till September 2015 and off patent in rest of the world (Market Size:
US$650 million).
This is a difficult product to manufacture and stabilise and utilises highend
fat emulsion technology. Other possible filers include Dr Reddys and Mylan.
Iron Sucrose: Iron sucrose (brand: Venofer) is an offpatent product
worldwide with a global market size of US$530 million (US market US$320
million). It is a complex product that requires a colloidal solution with
suspended particles and limited API supply globally. CLRS has developed its
own API and is awaiting approval in the US market.

Prospects

Coming to prospects, the global pharmaceutical market has witnessed a 6%


CAGR from 2006 to 2012 to reach a US$956 billion market size in 2012.
According to IMS Health, the global pharmaceutical spend is estimated to
touch US$1.2 trillion by CY2016, growing at 4.5% annually. Growth will be
primarily driven by higher generic spending (accounting for 3/4th of the total
increase) and increasing medical expenditure.
Europe is one of the largest global pharmaceutical market (around 17%) after
the US. In Europe, pharmaceutical market is likely to witness growth in the
range of 1% to 2% by 2016. The 5 key EU nations are likely to touch a market
size of US$125-175 billion by 2016.
The emerging markets are likely to double their pharmaceutical spending
from US$ 151 billion 2011 to around US$285-313 billion by 2015 (Source:
CLSA, 2013). Growth is led by gradual economic growth and government
efforts to expand healthcare access. IMS expects the emerging markets to
grow by 13%-plus CAGR from 2011 to 2016, reaching US$357 billion by 2016.

Prospects

The global generic spending is projected to increase to US$400-430 billion by


2016 from USD 242 billion in 2011, primarily driven by emerging markets. In
2012, over 490 ANDA received approvals globally (Source: USFDA).
Growing generic spending in the developed markets over the next five years
will be fuelled by generic competition due to patent expiries, with some
additional increased due to expanded generic use for off-patent molecules.
In emerging markets generic companies will increase most of the spending.

Sunidhi Research |

Claris Lifesciences
Drug shortages in the US present a niche opportunity for generic companies,
particularly in the injectables space. Approximately 80% of drug shortages in
the US pertain to generic injectables drugs (roughly half of the injectables
market) and approximately 60% of the shortage falls in the therapy areas of
oncology, cardiovascular (CVS), central nervous system (CNS), anti-infectives
and pain management out of these 50% shortages were introduced before
2000. IMS Health projects that the global generic sterile injectables market
will grow at 10% CAGR over 20132020 to $70 billion.
Outlook

Claris' long term growth and increased profitability in operations will


continue with the year on year increasing contribution from these Regulated
Markets. The presence in Emerging Markets include the regions of Asia,
Africa, CIS, MEGNA (Middle East, Gulf & North Africa), Russia, and Latin
America, where the marketing strategy is to enhance the company's visibility
at a global forefront and connect with customers & business associates.

Valuation & Recommendation

One of the critical success factors for manufacturing and marketing


pharmaceutical products for international markets is the regulatory
approvals of the manufacturing unit which include US FDA, MHRA (UK), TGA
(Australia), and GCC FDCA. CLSL has achieved significant milestones
including launching niche difficult to develop products and expand into the
regulated markets.
CLSL expects to garner healthy revenue growth in the next 3 years, riding on
a slew of filings/launches in the US/EU and tripling of capacity (currently 100
million units). It is targeting a pipeline addressing US$4.6 billion (100 ANDAs
in the US/multiple dossiers in the EU). The injectables space has become an
attractive destination for participants, given product shortages (FDA action,
nonviable products, etc), limited competition and attractive pricing.
CLSL is currently functioning at high capacity utilization and is adding
capacities in plant-II to service future demands. To sustainably grow,
attaining the required regulatory approvals is one of the key growth drivers;
and the company has a large pipeline of products; which includes the under
approval and the products currently under development.
CLSL has created a differentiated business model by being present in highly
complex sterile injectibles market. Development of complex products such
as Propofol, Iron Sucrose, Hydroxyl Ethyle Starch and Glutamine provides it a
very strong product competitive advantage over its peers.
Currently, only 20% of sales are from USA though it is expected to be the
biggest growth driver going ahead. Over the next 3 years, CLSL expects 510
launches and 1215 ANDA filings every year. By 2017, it expects to file 100
ANDAs and many EU dossiers targeting US$4.6 billion market. With the
Propofol (US$650 million, limited competition opportunity) settlement, the
product could be a vital growth driver in FY17.
Intensifying growth in international markets, especially the regulated
markets through launch of a highvalue product pipeline, organic growth
through capacity expansion and introduction of new delivery systems,
increasing focus on bag products and other niche difficult to manufacture
products, acquisition of ANDAs and additional products for inorganic growth
coupled with focus on enhancing market share of certain key and
highpotential products give strong visibility to revenue going forward.
At the CMP of `260, CLSL share is trading at a P/E of 9.2x on FY16E and 7.6x
on FY17E. We recommend BUY with a target price of `412 at a P/E of 12.0x
on FY17E.

Sunidhi Research |

Claris Lifesciences
Claris Lifesciences Technicals

The stock of Claris Lifesciences has been in a big corrective mode. Prices have support at around `230 where the
previous highs are present. Post-completion of the correction, prices are expected to resume their uptrend. We
recommend a buy with an upside target of `370.

SUNIDHI SECURITIES & FINANCE LTD


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