Result Update

July 27, 2016

Ajanta Pharmaceuticals (AJAPHA)

Rating matrix
:

Hold

Target

Target Period

| 1780
12-15 months

Potential Upside

5%

Rating

Registers strongest ever gross margins

Whats Changed?
Target

Unchanged

EPS FY16

Changed from | 45.7 to | 45.4

EPS FY17E

Changed from | 52.4 to | 52.8

EPS FY18E

Unchanged

Rating

Unchanged

Quarterly Performance
Revenue
EBITDA
EBITDA (%)
Adj. Net Profit

Q1FY17
471.0
166.6
35.4
119.6

Q1FY16
391.4
122.5
31.3
89.6

YoY (%)
20.4
36.0
406 bps
33.5

Q4FY16
425.7
140.6
33.0
107.5

QoQ (%)
10.6
18.5
234 bps
11.2

Key Financials
(|crore)

FY15

FY16

FY17E

FY18E

1480.6

1727.5

2024.2

2405.8

EBITDA

505.2

580.4

684.0

803.4

Net Profit

309.9

401.4

463.2

561.3

36.0

45.4

52.8

63.5

FY15

FY16

FY17E

FY18E

0.1

0.1

0.1

0.0

48.4

37.4

32.2

26.7

Revenues

EPS (|)

Valuation summary
Debt / Equity
PE (x)
M.Cap/ Revenues (x)

10.1

8.7

7.4

6.2

EV to EBITDA (x)

29.5

25.8

21.6

18.3

Price to book (x)

17.8

12.8

9.7

7.5

RoNW (%)

37.8

34.2

30.2

28.1

RoCE (%)

50.3

42.9

37.2

35.3

Stock data
Particular

Amount

Market Capitalisation

| 14858 crore

Debt (FY16)

| 93 crore

Cash (FY16)

| 55 crore

EV

| 14896 crore

52 week H/L

1720/1103

Equity capital

| 17.6 crore

Face value

| 2 crore

Price performance (%)

Ajanta Pharma
Alembic Pharma
Torrent Pharma

1M
15.1
10.4
10.6

3M
10.3
-3.0
2.3

| 1701

6M
39.7
-5.6
4.5

1Y
9.1
-21.0
7.1

Research Analyst
Siddhant Khandekar
siddhant.khandekar@icicisecurities.com
Mitesh Shah
mitesh.sha@icicisecurities.com

ICICI Securities Ltd | Retail Equity Research

Revenues grew 20.4% YoY to | 471 crore (I-direct estimate: | 455

crore) on the back of 18.6% growth in exports to | 287 crore (I-direct
estimate: | 292 crore). Domestic sales grew 9.5% to | 162 crore (Idirect estimate: | 149 crore)
EBITDA margins increased 406 bps YoY to 35.4% (I-direct estimates:
32.0%) on account of gross margin expansion. Gross margins
increased 532 bps YoY to 78.9% ((I-direct estimates: 75.5%). EBITDA
increased 36.0% YoY to | 166.6 crore
Net profit increased 33.5% YoY to | 120 crore, (I-direct estimate:
| 101 crore) on the back of a robust operational performance
Domestic formulations- Focus on new launches, few therapies
Domestic branded formulations constitute 28.7% of FY16 revenues. The
main distinguishing factor is the uncanny knack of launching maximum
number of first time launches with focus on new drug delivery system
(NDDS). Of ~190 actively marketed brands, ~135 brands were introduced
for the first time in India. The focus on specialty therapies and niche
product led APL to post a strong growth at a CAGR of 28.5% in FY11-16,
far higher than industry growth of ~12%. Going ahead we expect
domestic formulations to grow at a CAGR of 21.1% in FY16-18E to | 786
crore driven by a mix of existing products + new launches.
Exports traction manly from emerging markets
Export formulations constitute 67.2% of FY16 revenues. The company is
currently deriving almost entire export revenues from emerging regions
such as Africa (Franco Africa), Asia and LatAm having a presence in more
than 35 countries. As opposed to the common practice of forging
alliances with regional pharmaceutical players, APLs front-end marketing
team interacts directly with doctors. The company has consistently
introduced new products in these markets. Similarly, African WHO tender
business has also provided strong growth traction. Overall export
formulations have grown at a CAGR of 32.1% in FY11-16 to | 1162.5
crore. We expect exports to grow at a CAGR of 11.3% in FY16-18E to
| 1441 crore driven by consistent product launches.
US foray important for scalability
With focus on niche therapies in domestic formulations and a calculated
approach in exports market, APL remains an interesting candidate from
the midcap pharma space with high growth rates, strong margins,
commendable return ratios and lighter balance sheet. Defying the normal
trend of targeting developed markets for generic generics initially, APL
focused on branded generics in semi-regulated markets. At this juncture
the company is well poised to foray in the US market especially once the
newly constructed Dahej plant gets USFDA approval. The company has
filed 26 ANDAs with the USFDA and received 11 product approvals.
Maintains strong margins despite challenges
Q1 witnessed strongest gross margins ever, which was primarily due to a
better product mix. The company is currently passing through a stretched
phase of capex across two to three years to bolster the domestic
business as well as exports franchise especially the US. With a strong
balance sheet and high return ratios, we believe the time is ripe for the
company to enter the capex cycle the benefit of which are likely to pan
out beyond FY18. We maintain our target price of | 1780 based on 28x
FY18E EPS of | 63.5. At the current level, the stock has already factored in
the near term upside.

Variance analysis
Q1FY17 Q1FY17E
471.0
454.7

Revenue

Raw Material Expenses

Q1FY16
391.4

Q4FY16
425.7

95.5

YoY (%) QoQ (%)

20.4
10.6

-3.9

4.1

Comments
YoY growth in revenues on account of 18.9% growth in domestic branded
formulations and 18.6% growth in export formulations led by African tender
business

99.4

111.4

103.4

532 bps YoY improvement in gross margins on account of better product mix

Employee Expenses
Other Expenditure
Total Operating Expenditure
EBITDA
EBITDA (%)

70.3
134.8
304.5
166.6
35.4

65.9
131.9
309.2
145.5
32.0

59.2
106.2
268.8
122.5
31.3

69.0
18.7
2.0
120.7
26.9
11.7
285.1
13.3
6.8
140.6
36.0
18.5
33.0 406 bps 234 bps

Interest
Depreciation
Other income
PBT before EO
Less: Exceptional Items
PBT
Tax
MI & Share of loss/ (gain) asso.
Adj. Net Profit
Key Metrics
Domestic
Exports

1.0
13.0
2.4
158.0
0.0
158.0
38.5
0.0
119.6

1.1
12.2
2.3
134.5
0.0
134.5
33.6
0.0
100.9

1.2
10.3
8.0
122.6
0.0
122.6
33.0
0.0
89.6

1.1
12.1
2.6
132.4
0.0
132.4
24.9
0.0
107.5

-13.7
26.1
-69.7
28.9
0.0
28.9
16.6
0.0
33.5

-9.8
7.9
-7.7
19.3
0.0
19.3
54.5
0.0
11.2

YoY growth was mainly in sync with EBITDA

162.0
287.0

149.1
292.0

148.0
242.0

122.7
300.0

9.5
18.6

32.1
-4.3

YoY growth mainly driven by 32% growth in cardiology segment

The growth was mainly driven by 32% YoY growth in Africa led by tender business

R&D spend was 6.8% as percentage of sales against 4.6% in Q1FY16

Increase in EBITDA margins was mainly due to robust gross margins performance.
Miss vis--vis I-direct expectations due to higher-than-expected gross margins

Source: Company, ICICIdirect.com Research

Change in estimates
(| Crore)
Revenue
EBITDA
EBITDA Margin (%)
PAT
EPS (|)

Old
2,011.0
682.2
33.9
462.5
52.4

FY17E
New % Change
2,024.2
0.7
684.0
0.3
33.8
-11 bps
466.2
0.8
52.8
0.7

Old
2,368.9
791.8
33.4
561.5
63.6

FY18E
New % Change
2,405.8
1.6
803.4
1.5
33.4
0 bps
561.3
0.0
63.5
-0.1

Source: Company, ICICIdirect.com Research

Assumptions
(| crore)
Branded - domestic
Exports Total

FY15
417.6
978.1

FY16
500.7
1,162.5

Current
FY17E
FY18E
614.3
769.2
1,242.5 1,441.1

Earlier
FY17E
FY18E
616.1
771.9
1,274.8 1,404.0

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 2

Company Analysis
Established in 1973, APL is mainly into exports as well as domestic
formulations. As of FY15, the exports: domestic formulation ratio stood at
65:35. The company owns five manufacturing facilities- four in
Aurangabad, Maharashtra and one in Mauritius. Of these five facilities,
only one in Aurangabad is an API facility. The rest are all formulations.
Consolidated revenues, EBITDA and PAT have grown at a CAGR of
31.1%, 48.6% and 58%, respectively, in FY11-16. APL had come out with
a maiden IPO in March 2000. It raised | 68 crore, which was earmarked
for capacity expansion and debt repayment.
Domestic formulations constitute 30.7% of the total consolidated turnover
(FY16). This segment has been further segregated into two subsegments- 1) Branded formulations and 2) Institutional business. Initially
the company was catering to the institutional business. Institutional subsegment accounts for ~6.6% of domestic formulations and mainly
confined to government and institutional tenders. It is only in the last 10
years that the focus has shifted to the branded formulations business,
which now accounts for ~93.4% of the domestic formulations.
The company focuses on only few so-called specialty therapies
ophthalmology, dermatology and cardiology. Together, these therapies
constitute ~85% of domestic branded formulations. The company
invested heavily in the technology and field force especially in the first
five years after the changed focus. The focus was also to offer novel
delivery system. From | 17 crore in FY05, the branded formulations have
grown at a CAGR of 34% to | 496.7 crore in FY16. Till date, the company
had launched ~190 products out of which ~135 are first time launches.
The current MR strength is ~3000. Overall, domestic formulations have
grown at a CAGR of 28.5% in FY11-16 to | 531.7 crore. The company has
only one product under the National List of Essential Medicines (NLEM)
2011 list.
Export formulations constitute 67.2% of the total consolidated turnover
(FY15). Exports are mainly confined to emerging markets and constitute
branded generics. APL exports its products in ~35 emerging markets
with significant presence in Franco African countries and Philippines.
Africa accounts for ~59% of export formulations followed by Asia. The
company also participates in anti-malarial tenders in Africa. It operates
through 450+ MRs in these emerging markets and owns a portfolio of
1481 registered brands in these markets encompassing major therapies
such as anti-infectives, anti-malarials, ophthalmic, dermatology,
cardiovascular, GI etc. The company also has a marginal presence in Latin
America. It has also forayed into regulated markets such as the US where
it has filed 26 ANDAs, received approvals for 10 and launched five
products. Overall export formulations have grown at a CAGR of 28.8% in
FY11-16 to | 1162.5 crore.
Ajanta Pharma has five subsidiaries including one step down subsidiary in
Mauritius, Philippines and the US. The Mauritius subsidiary with an
independent manufacturing base mainly caters to the Franco African
markets. The subsidiary in Philippines, which is a marketing arm, caters to
the Philippines market. The US subsidiary is an administrative office to
facilitate US operations.
We expect revenues to grow at a CAGR of 17% to | 2368.9 crore in FY1618E, on the back of strong growth in both exports and domestic

ICICI Securities Ltd | Retail Equity Research

Page 3

formulation segments. Exports are likely to grow at a CAGR of 9.9% to

| 1404 crore during the same period to be driven by growth in the legacy
export markets of Africa and Asia and commencement of US shipments.
Similarly, the domestic formulations segment is likely to register a CAGR
of 21.1% to | 785.6 crore during the same period, to be driven by
branded formulations.
Exhibit 1: Revenues growth trend
3000
2405.8

2500

2024.2

(| crore)

2000
1480.6

1500

1208.3
930.8

1000
500

1727.5

504.9

677.4

0
FY11

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

Revenues

Source: Company, ICICIdirect.com Research

Domestic formulations- APL operates in branded (prescription: Rx, 93.4%

of domestic sales) and tender business (6.6% of domestic sales). In the
branded space, it has presence in fast growing specialty therapies viz.
ophthalmology, dermatology, chronic therapies such as cardiovascular
(CVS). In the acute space, it has a marginal presence in pain management
and gastrointestinal. APL currently markets ~190 brands through 3000
medical representatives (MRs) covering 3 lakh doctors.
Over the years, the company developed a knack of launching maximum
number of first launches with focus on New Drug Delivery System
(NDDS). It was one of the very few companies to launch products such as
Metoprolol (CVS), Rosuvastatin + Clopidogrel (CVS), Hydroquinone +
Mometasone + Tretinoin (Derma) etc in the Indian market. The
companys first differentiated (NDDS) product Nimesulide (Pain) daily
once was launched under the brand name of Nimlodi in FY02. Out of
~189 actively marketed brands, ~135 brands were first launches in India.
The focus on specialty therapies and niche product led APL to post a
strong CAGR of 28.5% in FY11-16, which is far higher than the industry
growth of ~12% (AIOCD data).
As per the latest AIOCD data, APL ranks 42nd in Indian pharmaceutical
market with market share 0.48%. Currently only 12% of total domestic
sales are under NLEM and they are mainly from CVS category.
The company markets CVS, Ophthalmology and Dermatology products
under the divisions of Anvaxx, Illuma and Ansca. The company launches
~20 new products every year including line extensions. We expect the
company to continue with 15-20 product launches every year. Overall, we
expect domestic sales to grow at a CAGR of 21.1% to | 785.6 crore in
FY16-18E.

ICICI Securities Ltd | Retail Equity Research

Page 4

Exhibit 2: Domestic formulation growth likely to be at CAGR of 21.1% in FY16-18E

900.0
800.0
700.0
600.0
500.0
400.0
300.0
200.0
100.0
0.0

785.6
630.7
479.0

535.7

385.0
170.0

FY11

227.0

FY12

292.0

FY13

FY14

FY15

FY16

FY17E

FY18E

Total Domestic

Source: Company, ICICIdirect.com Research

Formulation Exports
Exports account for 65% of the revenues. APL currently derives almost its
entire export revenues from emerging regions like Africa (Franco Africa),
Asia and the LatAm having a presence in more than 35 countries. Exports
have grown at 32.1% CAGR in FY11-16.
The company markets its products through a team of 450+ MRs. At
present, the company is marketing 200+ products in these regions. In all,
the company owns 1524 registered brands while another 1887 brands are
under registration.
APLs success story in emerging markets was carved out of the so called
differentiated approach. According to this, products were developed on
the basis of unmet medical needs in a particular geography. As a result,
the product basket varied from nation to nation. Similarly, the company
resorted to a different strategy of product marketing. As opposed to the
common practice of forging alliances with local/regional pharmaceutical
players, APLs front-end marketing team interacts directly with doctors.
The company has consistently introduced new products in these markets.
Overall, we expect export sales to grow at a CAGR of 11.3% to | 1441
crore in FY16-18E.
Exhibit 3: Exports to grow at CAGR of 11.3% in FY16-18E
1600.0

1441.1

1400.0

1162.5

1200.0

978.1

1000.0

793.0

800.0
600.0
400.0

1242.5

629.0
328.0

445.0

200.0
0.0
FY11

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

Total Exports

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 5

Exhibit 4: Derma Sales(dom) to grow at CAGR of 20.1% in FY16-18E

200.0

175.9

Exhibit 5: Cardio Sales(dom) to grow at CAGR of 24.0% in FY16-18E

400.0
310.5

146.6
100.0
47.0

62.0

248.4

122.0

116.7

202.0
200.0

79.0

149.7
35.0

49.0

FY11

FY12

72.0

104.0

0.0

0.0
FY11

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

FY13

FY14

Dermatology

FY15

FY16

FY17E

FY18E

16.4

16.4

FY17E

FY18E

Cardiology

Source: Company, ICICIdirect.com Research

Source: Company, ICICIdirect.com, Research

Exhibit 6: Ophthalmic sales (domestic) at CAGR of 22.8% in FY16-18E

Exhibit 7: Institutional domestic business

400.0

200.0

200.0
37.0

46.0

64.0

85.0

115.3

134.0

161.6

201.9
39.0

53.0

54.0

66.0

61.4
35.0

0.0

0.0
FY11

FY12

FY13

FY14

FY15

FY16

FY17E

FY11

FY18E

FY12

FY13

FY14

FY15

FY16

Institutions- domestic

Ophthalmology

Source: Company, ICICIdirect.com, Research

Source: Company, ICICIdirect.com, Research

Exhibit 8: Africa sales exports growth at CAGR of 9.0% in FY16-18E

Exhibit 9: Asia exports growth at CAGR of 15.0% in FY16-18E

800.0

1000.0

810.3

800.0

682.4

600.0
400.0
200.0

170.0

256.0

340.0

440.0

693.9

527.3

600.0
400.0
200.0

149.0

179.0

FY11

FY12

263.0

439.4

469.5

FY15

FY16P

539.9

620.9

337.0

0.0

0.0
FY11

FY12

FY13

FY14

FY15

FY16

FY17E FY18E

Africa

Source: Company, ICICIdirect.com, Research

ICICI Securities Ltd | Retail Equity Research

FY13

FY14

FY17E FY18E

Asia

Source: Company, ICICIdirect.com, Research

Page 6

Exhibit 10: EBITDA to grow at CAGR of 17.7% in FY16-18E

34.1

800

30.5

700

(| crore)

600
19.1

24

505.2

20.8

20

368.8

400
300
100

580.4

23.8

500

200

36
33.8 803.433.4
32
684.0
28

33.6

16
12

221.6
96.3

(%)

900

140.7

8
4
0

0
FY11

FY12

FY13

FY14

FY15

EBITDA

FY16

FY17E

FY18E

EBITDA Margins (%)

Source: Company, ICICIdirect.com Research

Exhibit 11: Net profit to grow at CAGR of 18.3% in FY16-18E

600

(| crore)

20

309.9

300
10.0

200

50.7

12.0

11.4

16

233.9

12
8

112.1

77.3

(%)

19.4

400

23.3 24

23.2 466.223.0
20.9 401.4

500

100

28

561.3

4
0

0
FY11

FY12

FY13

FY14

FY15

Net Pr ofit

FY16

FY17E

FY18E

Net Profit Margins (%)

Source: Company, ICICIdirect.com Research

Exhibit 12: Trends in return ratios

58
50.3

50

(%)

42
35.8

34
26
18

22.2
17.3

45.1
39.4

42.9
37.8

34.2

28.5

25.9
22.0

37.2

35.3

30.2

28.1

10
FY11

FY12

FY13

FY14
RoCE (%)

FY15

FY16

FY17E

FY18E

RoNW (%)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 7

Exhibit 13: Trends in quarterly financials

(| crore)
Net Sales
Other Operating Income
Total Operating Income
Raw Material Expenses
% of Revenue
Gross Profit
Gross Profit Margin (%)
Employee Expenses
% of Revenue
Other Expenditure
% of Revenue
Total Expenditure
% of Revenue
EBITDA
EBITDA Margin (%)
Other Income
Interest
Depreciation
PBT (bef Excep's)
Less: Exceptional Items
PBT
Total Tax
Tax rate (%)
PAT
PAT Margin (%)

Q1FY15
315.0
6.7
321.7
79.7
24.8
242.0
75.2
46.0
14.3
99.1
30.8
224.8
69.9
96.9
30.1
4.5
1.1
12.6
87.8
0.0
87.8
27.7
31.5
59.7
18.5

Q2FY15
365.8
6.1
371.9
94.8
25.5
277.1
74.5
47.9
12.9
100.4
27.0
243.1
65.4
128.8
34.6
4.4
1.1
12.7
119.5
0.0
119.5
36.0
30.2
83.0
22.3

Q3FY15
401.6
6.3
407.9
101.3
24.8
306.5
75.2
52.1
12.8
109.7
26.9
263.1
64.5
144.8
35.5
4.5
1.1
13.1
135.1
0.0
135.1
41.7
30.9
93.1
22.8

Q4FY15
363.0
8.5
371.5
89.6
24.1
281.9
75.9
54.7
14.7
96.7
26.0
241.1
64.9
130.4
35.1
5.0
1.1
13.2
121.1
8.5
129.6
40.8
31.4
71.5
19.2

Q1FY16
385.7
5.7
391.4
103.4
26.4
288.0
73.6
59.2
15.1
106.2
27.1
268.8
68.7
122.5
31.3
8.0
1.1
10.3
119.1
0.0
119.1
33.0
27.7
89.6
22.9

Q2FY16
434.5
3.2
437.7
99.5
22.7
338.2
77.3
63.8
14.6
120.5
27.5
283.8
64.9
153.8
35.1
5.4
1.1
11.0
147.2
0.0
147.2
47.2
32.1
100.0
22.8

Q3FY16
465.7
7.1
472.8
115.5
24.4
357.3
75.6
64.9
13.7
128.9
27.3
309.3
65.4
163.5
34.6
1.6
1.1
11.7
152.3
0.0
152.3
40.5
26.6
111.3
23.5

Q4FY16
419.2
6.5
425.7
95.5
22.4
330.3
77.6
69.0
16.2
120.7
28.3
285.1
67.0
140.6
33.0
2.6
1.1
12.1
130.1
0.0
130.1
24.9
19.1
107.5
25.3

Q1FY17
454.2
16.8
471.0
99.4
21.1
371.7
78.9
70.3
14.9
134.8
28.6
304.5
64.6
166.6
35.4
2.4
1.1
13.0
154.9
0.0
154.9
38.5
24.8
119.6
25.4

YoY (%)
25.1
98.2
26.8
10.9
-303 bps
31.9
303 bps
28.6
21 bps
39.3
257 bps
26.3
-26 bps
27.7
26 bps
-51.6
0.0
-1.7
27.9
19.6
-5.6
-662 bps
67.3
614 bps

Source: Company, ICICIdirect.com Research

SWOT Analysis
Strengths - Industry beating growth on a consistent basis, focused
approach in the exports space, high return ratios, knack of launching new
products on a consistent basis
Weakness - High product concentration.
Opportunities - The US generics space.
Threats - Extension of NLEM scope to include some of its flagship
products, government driven price controls in some of the export markets

ICICI Securities Ltd | Retail Equity Research

Page 8

Conference call highlights

Africa business included | 120 crore from anti-malarial tenders for

Q1FY17
Total 26 ANDAs have been filed cumulatively in the US market
including 15 pending approvals. It has launched eight products till
date
The company has reiterated guidance for 18-20% of domestic
growth and mid-teen growth in export markets in FY17. EBITDA
margins are expected to be around 33-34%
The company plans to file around eight to 12 ANDAs every year
Validation batches from Dahej plant have been started. The
company expects to start US filing from Q3FY17
The company has guided for | 300-350 crore of capex for FY17E.
This will be towards the development of Guwahati plant, new
corporate office, capitalisation of R&D and maintenance capex
The company expects 12-15% market share in gZegerid (GI) with
70-75% price erosion

Exhibit 14: Brand Introduction in export markets

Region
Africa
Asia

Brands Registered
1190.0
334.0

Major Segments
Antibiotic, Anti-malaria, Cardiac, Gynocology
Antibiotic, Derma, Pain, OTC, Ophthal, Cardiac, GI

Source: Company, ICICIdirect.com Research

Exhibit 15: Facilities

Location
Paithan, India (3
Aurangabad facilities)

Segment
Formulations

Mauritius
Dahej (upcoming)
Guwahati (upcoming)
Aurangabad

Formulations
Formulations
Formulations
API

Regulatory Approvals
US FDA, UK MHRA, health authorities
of Brazil and Colombia, WHO prequalification

Type
tablets, capsules,
ointments, injections and
dry powder

WHO

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 9

Valuation
Q1 has witnessed the strongest ever gross margins, which were primarily
due to a better product mix. The company is currently passing through a
stretched phase of capex across two or three years to bolster the
domestic business as well as exports franchise, especially the US. With a
strong balance sheet and high return ratios, we believe the time is ripe for
the company to enter the capex cycle the benefit of which are likely to
pan out beyond FY18. We maintain our target of | 1780 based on 28x
FY18E EPS of | 63.5. At the current level, the stock has already factored in
the near term upside.
Exhibit 16: One year forward PE
[

3000
2500
2000

(|)

1500
1000
500

Price

45.7x

36.1x

26.5x

Jan-16

Jul-15

Jan-15

Jul-14

Jan-14

Jul-13

Jan-13

Jul-12

Jan-12

Jul-11

Jan-11

Jul-10

Jan-10

Jul-09

Jan-09

Jul-08

Jan-08

Jul-07

Jan-07

Jul-06

16.9x

Source: Company, ICICIdirect.com Research

Exhibit 17: One year forward PE of company vs. CNX Pharma Index
45
40
35
30
25
20
15
10
5
0

Ajanta

Jan-16

Jul-15

Jan-15

Jul-14

Jan-14

Jul-13

Jan-13

Jul-12

Jan-12

Jul-11

Jan-11

Jul-10

Jan-10

Jul-09

Jan-09

Jul-08

Jan-08

Jul-07

Jan-07

Jul-06

Premium 26.7%

CNX Pharma

Source: Company, ICICIdirect.com Research

Exhibit 18: Valuation

FY15
FY16
FY17E
FY18E

Revenues
(| crore)
1481
1728
2024
2406

Growth
(%)
22.5
16.7
17.2
18.8

EPS
(|)
36.0
45.4
52.8
63.5

Growth
(%)
32.5
29.5
15.4
21.2

P/E EV/EBITDA
(x)
(X)
48.4
29.5
37.4
25.8
32.2
21.6
26.7
18.3

RoNW
(%)
37.8
34.2
30.2
28.1

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 10

RoCE
(%)
50.3
42.9
37.2
35.3

Company snapshot
2,500

80.0
70.0
60.0
50.0

1,500

40.0
1,000

(%)

(|)

2,000

30.0
20.0

500

10.0

0.0
Jul-14

Sep-14

Dec-14
Price

Feb-15

May-15

Idirect target

Jul-15

Sep-15

Dec-15

Consensus Target Mean

Feb-16

May-16

Jul-16

% Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research; Initiated on September 22, 2014

Key events
Date
Jun-08

Event
Commissions dedicated R&D facility in Kandivali, Mumbai

Mar-09

Enters the Philippines market via incorporation of a subsidiary

Mar-09

USFDA approves Paithan faciliy

Mar-10

Acquires formulation facility near Aurangabad to cater to ROW markets

Dec-12

Enters regulated markets with first product approval in the US and one for Europe.

Mar-13

Launches first product in the US

Jan-15

Board approves subdivision of sharesfrom | 5 to | 2

Source: Company, ICICIdirect.com Research

Top 10 Shareholders

Shareholding Pattern

Rank
1
2
3
4
5
6
7
8
9
10

(in %)
Promoter
Others

Investor Name
Latest Filing Date % O/S Position
Position Change
Agrawal (Mannalal B)
30-Jun
9.6
8.5m
0.0m
Agrawal (Madhusudan B)
30-Jun
9.6
8.5m
0.0m
Agrawal (Purushottam B)
30-Jun
9.6
8.4m
0.0m
Gabs Investments Pvt. Ltd.
30-Jun
9.5
8.4m
0.0m
Agrawal (Manisha Yogesh)
30-Jun
7.8
6.8m
5.1m
Agrawal (Rajesh)
30-Jun
7.3
6.4m
0.0m
Agrawal (Yogesh Mannalal)
30-Jun
7.3
6.4m
0.0m
Agrawal (Mansiha Yogesh & Richa Ravi & Aayu
31-Mar
5.8
5.1m
0.0m
Matthews International Capital Management, L.
31-Mar
3.5
3.1m
0.0m
Agrawal (Ravi P)
30-Jun
3.1
2.8m
0.0m

Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

73.8
73.8
73.8
73.8
73.8
26.2
26.2
26.2
26.2
26.2

Source: Reuters, ICICIdirect.com Research

Recent Activity
Buys
Investor name
Agrawal (Manisha Yogesh)
Norges Bank Investment Management (NBIM)
Reliance Nippon Life Asset Management Limited
Artisan Partners Limited Partnership
The Vanguard Group, Inc.

Sells
Value ($)
Shares
Investor name
114.3m
5.1m William Blair Investment Management, LLC
1.7m
0.1m Matthews International Capital Management, L.L.C.
0.9m
0.0m JM Financial Asset Management Pvt. Ltd.
0.9m
0.0m Fidelity Management & Research Company
0.9m
0.0m Acadian Asset Management LLC

Value ($)
Shares
-7.2m
-0.4m
-1.0m
0.0m
-0.8m
0.0m
-0.2m
0.0m
-0.2m
0.0m

Source: Reuters, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 11

Financial summary
Profit and loss statement
(Year-end March)/ (| crore)
Total Operating Income
Growth (%)
Raw Material Expenses
Gross Profit
Gross Profit Margins (%)
Employee Expenses
Other Expenditure
Total Operating Expenditure
EBITDA
Growth (%)
Interest
Depreciation
Other Income
PBT before Exceptional Items
Less: Exceptional Items
PBT after Exceptional Items
Total Tax
PAT before MI
PAT
Growth (%)
EPS (Adjusted)

| Crore
FY15
1,480.6
22.5
365.4
1,115.1
75.3
200.6
409.3
975.3
505.2
37.0
5.9
51.6
16.8
464.5
8.5
456.0
146.2
309.9

FY16
1,727.5
16.7
413.8
1,313.7
76.0
257.0
476.3
1,147.2
580.4
14.9
4.9
45.1
17.0
547.4
0.0
547.4
146.0
401.4

FY17E
2,024.2
17.2
485.2
1,539.1
76.0
290.4
564.6
1,340.2
684.0
17.9
5.2
75.8
10.2
613.2
0.0
613.2
150.0
463.2

FY18E
2,405.8
18.8
592.3
1,813.6
75.4
336.8
673.3
1,602.4
803.4
17.5
5.6
107.4
48.1
738.6
0.0
738.6
177.3
561.3

309.9
32.5
36.0

401.4
29.5
45.4

463.2
15.4
52.8

561.3
21.2
63.5

Source: Company, ICICIdirect.com Research

Cash flow statement

| Crore

(Year-end March)/ (| crore)

Profit/(Loss) after taxation
Add: Depreciation & Amortization
Net Increase in Current Assets
Net Increase in Current Liabilities
Add: Interest Paid
CF from Operating activities

FY15
309.9
51.6
-77.3
-6.7
5.9
283.5

FY16
401.4
45.1
-172.1
-17.1
4.9
262.2

FY17E
466.2
75.8
-103.7
189.5
5.2
633.0

FY18E
561.3
107.4
-152.4
98.6
0.0
614.9

Long term Loans & Advances

Investments
(Purchase)/Sale of Fixed Assets
Deferred Tax Liabilities & LT Provisions
CF from Investing activities

-2.0
-4.5
-103.6
1.9
-101.9

-12.6
-6.9
-244.0
-2.2
-277.5

-49.3
0.0
-300.0
0.0
-349.3

0.0
-200.0
-375.0
0.0
-575.0

(inc)/Dec in Loan
Dividend & Dividend tax
Other
CF from Financing activities

-58.1
-41.1
-6.0
-105.2

20.6
-82.1
-4.9
-66.5

0.0
-93.1
-5.2
-98.3

0.0
-112.1
0.0
-112.1

Net Cash Flow

Cash and Cash Equivalent at the beginning
Cash
Free Cash Flow

76.4
60.4
136.8
179.9

-81.8
136.8
55.0
18.2

185.5
55.0
240.4
333.0

-72.1
240.4
168.3
239.9

FY15

FY16

FY17E

FY18E

35.1
29.1
95.2
15.5
7.0

45.4
36.1
132.7
6.2
9.3

52.8
42.2
174.9
27.2
10.5

63.5
50.8
225.7
19.0
12.7

75.3
34.1
21.5
39.2
63.8
26.9
1.6
56.1

76.0
33.6
23.2
43.2
78.7
30.8
1.3
45.2

76.0
33.8
23.0
59.1
62.3
53.7
1.2
92.5

75.4
33.4
23.3
59.5
62.7
54.1
1.1
76.5

37.8
50.3
74.4

34.2
42.9
57.8

30.2
37.2
59.9

28.1
35.3
55.2

48.4
29.5
10.1
10.1
17.8

37.4
25.8
8.7
8.7
12.8

32.2
21.6
7.3
7.4
9.7

26.7
18.3
6.1
6.2
7.5

0.1
0.1
2.3
1.5

0.2
0.1
3.3
2.3

0.1
0.1
1.9
1.1

0.1
0.0
1.9
1.1

Source: Company, ICICIdirect.com Research

Balance sheet

| Crore

(Year-end March)/ (| crore)

FY15

FY16

FY17E

FY18E

Equity Capital
Reserve and Surplus
Total Shareholders funds
Total Debt
Deferred Tax Liability
Long-Term Provisions
Other Non Current Liabilities
Source of Funds

17.7
823.4
841.1
72.4
15.2
4.8
2.5
935.9

17.7
1,154.4
1,172.1
92.9
20.0
2.6
0.5
1,288.0

17.7
1,527.5
1,545.2
92.9
20.0
2.6
0.5
1,661.2

17.7
1,976.8
1,994.4
92.9
20.0
2.6
0.5
2,110.4

Gross Block
Accumulated Depreciation
Net Block
Capital WIP
Fixed Assets
Investments
Long Term Loans and Advances
Other non-Current Assets
Inventory
Debtors
Loans and Advances
Other Current Assets
Cash
Total Current Assets
Creditors
Provisions
Other Current Liabilities
Total Current Liabilities
Net Current Assets
Application of Funds

549.9
261.8
288.1
170.2
458.3
59.5
9.3
5.3
159.0
258.8
50.5
8.9
136.8
613.9
109.1
64.3
37.1
210.5
403.5
935.9

724.2
272.6
451.6
239.8
691.4
66.4
21.9
4.3
204.6
372.4
64.9
0.7
55.0
697.5
145.6
11.4
36.5
193.4
504.1
1,288.0

924.2
348.5
575.7
339.8
915.5
66.4
71.2
4.3
327.6
345.5
71.2
2.0
240.4
986.7
297.8
38.7
46.4
382.9
603.8
1,661.2

1,224.2
455.9
768.3
414.8
1,183.1
266.4
71.2
4.3
392.0
413.4
91.2
2.0
168.3
1,066.9
356.4
58.7
66.4
481.5
585.4
2,110.4

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Key ratios
(Year-end March)
Per share data (|)
Reported EPS
Cash EPS
BV per share
Cash per Share
Dividend per share
Operating Ratios (%)
Gross Profit Margins
EBITDA margins
PAT Margins
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
Quick Ratio

Source: Company, ICICIdirect.com Research

Page 12

ICICIdirect.com coverage universe (Healthcare)

Company

I-Direct
Code

CMP
(|)

TP
(|)

Rating

M Cap
(| Cr)

EPS (|)
PE(x)
EV/EBITDA (x)
RoCE (%)
RoE (%)
FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E

Ajanta Pharma

AJAPHA 1701 1,780 Hold

14968.3

45.4

52.8

63.5

37.4

32.2

26.8

25.8

21.6

18.3

42.9

37.2

35.3

34.2

30.2

Apollo Hospitals

APOHOS 1353 1,420 Hold

18823.6

22.2

33.1

48.2

60.9

40.9

28.1

26.4

19.7

15.4

8.2

10.4

13.2

8.9

12.0

28.1
15.2

Aurobindo Pharma

AURPHA

785

990

Buy

45909.5

33.9

37.0

39.8

23.1

21.2

19.7

24.8

22.7

20.9

25.0

24.3

23.9

28.1

23.9

20.8

Alembic Pharma

ALEMPHA 594

620

Hold

11191.3

38.2

20.0

25.7

15.6

29.6

23.1

12.4

22.3

18.0

51.5

22.8

25.0

44.9

20.2

21.9

Biocon

BIOCON

806

800

Hold

16111.0

22.5

33.3

37.2

35.8

24.2

21.6

10.5

7.9

6.6

9.1

12.4

13.0

11.1

14.7

14.7

Cadila Healthcare
Cipla

CADHEA
CIPLA

375
523

390
470

Buy
Hold

38390.4
42032.9

15.0
18.8

16.4
19.1

20.7
25.4

25.1
27.9

22.9
27.4

18.1
20.6

14.7
17.9

13.9
16.6

11.0
13.1

26.7
12.1

24.8
12.5

28.3
15.6

28.6
12.7

25.4
11.7

26.0
13.7

Divi's Laboratories

DIVLAB

1184 1,260

Buy

31435.5

41.7

45.9

52.6

28.4

25.8

22.5

21.0

18.4

15.8

30.6

29.2

28.5

25.8

23.6

22.7

Dr Reddy's Labs

DRREDD 2974 3,480

Buy

56720.4

142.1 136.3 166.3

20.9

21.8

17.9

14.7

14.2

11.6

17.3

17.0

20.1

20.7

17.1

17.3

Glenmark Pharma

GLEPHA

858 1,000

Buy

23789.4

32.2

41.2

51.1

26.7

20.8

16.8

15.8

13.1

10.7

16.2

19.0

20.9

21.2

21.6

21.3

Indoco Remedies

INDREM

316

365

Buy

2912.4

9.0

14.9

20.7

35.1

21.3

15.3

15.4

10.8

8.3

12.5

19.0

25.0

14.2

19.8

22.6

IPCLAB

483

455

Hold

6096.7

10.0

25.2

33.4

48.2

19.2

14.5

19.8

11.9

9.2

5.7

12.2

15.8

5.5

12.7

15.0

VAMORG

328

405

Buy

5221.9

26.0

36.4

46.1

12.6

9.0

7.1

7.2

6.2

5.2

12.0

14.0

15.6

14.2

16.9

17.8

Buy

76660.0

50.4

67.9

75.0

33.7

25.0

22.7

20.4

13.9

12.3

18.6

23.0

23.3

20.7

22.6

20.0

Ipca Laboratories
Jubilant Life Sciences
Lupin

LUPIN

1700 1,850

Natco Pharma

NATPHA

591

600

Buy

10285.0

8.9

10.9

12.9

66.3

54.1

45.8

36.8

33.2

28.1

16.1

16.4

17.1

12.0

13.0

13.6

Sun Pharma

SUNPHA

800

785

Hold

192444.1

23.4

26.6

30.8

34.1

30.0

26.0

20.4

17.4

15.0

18.6

19.9

19.9

18.0

17.5

17.3

Syngene International

SYNINT

418

445

Buy

8364.0

11.1

15.8

18.5

38.4

26.9

23.0

23.5

18.8

14.9

13.2

17.4

17.9

21.0

23.6

22.1

Torrent Pharma

TORPHA 1462 1,650

Buy

24735.7

107.8

70.6

76.0

13.6

20.7

19.2

9.0

14.0

13.0

46.7

29.5

28.4

53.8

27.8

24.5

Buy

2600.4

12.3

15.3

21.1

23.2

18.8

13.6

16.3

13.2

9.5

13.8

15.7

18.9

11.7

12.9

15.5

Unichem Laboratories
UNILAB 286 340
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

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research

Page 14

ANALYST CERTIFICATION
We /I, Siddhant Khandekar, CA Inter and Mitesh Shah, MS (finance), 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 is a SEBI registered Research Analyst having registration no. INH000000990. 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 Indias 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
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