EVENT UPDATE
TORRENT PHARMACEUTICALS Aggressive M&A valuations to strain ROCE India Equity Research| Pharmaceuticals
Torrent Pharmaceuticals (TRP) has acquired Elder Pharma’s (Elder) India business (sales of INR4bn and 35% EBITDA margin) for INR20bn. The deal valued at 4.8x EV/sales and 14x EV/EBITDA, gives TRP a ready brand portfolio to aggressively entrench in new focus specialties of women care, pain management and nutraceuticals. While the acquired portfolio is complementary and synergistic, it is likely to result in earnings cut of 11% and 14% for FY14E and FY15E, respectively, add leverage of 1.2x from zero net debt and hit RoCEs of TRP. Ergo, we downgrade to ‘HOLD’ and believe TRP will have to harness strong execution capability to scale up the acquired portfolio to currently generated returns level.
Acquisition offers deep synergies and established brands Elder’s specialty portfolio offers multiple synergies to TRP such as addition of leading brands—Shelcal, Chymoral, Carnisure—strengthening its presence in gynecology, pain and vitamin segments. It also renders deeper access to tier II-IV markets with 1,100 market representatives and adds distribution network of 2,900 stockists to its existing base of 1,700, thereby enabling better penetration in North and West India. However, we believe it comes at a dearer value (5x sales) with projected payback of over 10 years and additional strain on balance sheet, limiting future expansion capacity.
Strong scale up potential, but earnings accretion could be delayed Elder sales have declined sharply due to lack of product supplies in market. Thus, we perceive strong scale up potential with leveraging of key brands such as Shelcal to Torrent’s existing portfolio. However, TRP will have to scale up EBITDA of the acquired business over 2x (INR3.0bn from INR1.5bn) to make it earnings accretive by FY15E.
Outlook and valuations: Execution critical; downgrade to ‘HOLD’
EDELWEISS 4D RATINGS Absolute Rating
HOLD
Rating Relative to Sector
Performer
Risk Rating Relative to Sector
High
Sector Relative to Market
Overweight
MARKET DATA (R: TORP.BO, B: TRP IN) CMP
: INR 480
Target Price
: INR 508
52-week range (INR)
: 522 / 323
Share in issue (mn)
: 169.2
M cap (INR bn/USD mn)
: 81/ 1,310
Avg. Daily Vol.BSE/NSE(‘000) : 117.3 SHARE HOLDING PATTERN (%) Current
Q1FY14
Q4FY13
Promoters *
71.5
71.5
71.5
MF's, FI's & BK’s
8.9
9.4
9.7
FII's
7.9
7.6
7.0
Others
11.7
11.5
11.8
:
* Promoters pledged shares (% of share in issue)
NIL
PRICE PERFORMANCE (%) Stock
Nifty
EW Pharma Index
1 month
12.1
(0.2)
0.3
3 months
16.9
15.3
10.5
12 months
43.3
6.4
35.0
TRP generates 45% RoCE, while the acquisition yields less than 10% RoCE. Thus, the company will have to scale up the acquired entity 4-5x to achieve similar level of returns. Moreover, execution risk is higher as it is a large buyout for TRP with no historical precedence. Hence, we do not expect significant upside from current level and downgrade to ‘HOLD’ with TP of INR508 valued at 14x 12m fwd (Sept -15E) EPS. Financials Year to March Revenues (INR mn) Rev growth (%) EBITDA (INR mn) Adjusted net profit (INR mn) Adj. Diluted EPS (INR) EPS growth (%) P/E (x) EV/EBITDA (x) ROCE (%)
FY12 26,959 20.7 5,216 4,653 27.5 65.6 17.5 15.3 42.9
FY13 31,696 17.6 6,555 4,382 25.9 (5.8) 18.5 12.5 45.9
Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL
, Thomson First Call, Reuters and Factset.
FY14E 42,685 34.7 9,216 4,975 29.4 13.5 16.3 10.9 28.8
FY15E 49,961 17.0 11,249 5,470 32.3 10.0 14.8 8.7 23.5
Anshuman Gupta +91 22 6623 3399
anshuman.gupta @edelweissfin.com Perin Ali +91 22 6620 3032 [email protected]
December 23, 2013 Edelweiss Securities Limited
Pharmaceuticals Torrent acquires Elder India portfolio TRP has announced that it has entered into a definitive agreement to acquire domestic business of Elder Pharma for INR20bn. The acquisition values the business at 4.8x EV/sales (Elder’s acquired portfolio posted INR4bn sales in FY13 and yields over 35% margin) and 14x EV/EBITDA, which is in the higher range of 3-4x sales paid for recent transactions in the M&A space in the domestic market. The company is acquiring Elder’s India business comprising a portfolio of 30 key brands in therapies of women care, pain management and vitamin supplements or nutraceuticals. The acquisition primarily relates to product portfolio and related operations, including field force of 1,100 and 2,900 stockists. Post acquisition, torrent would have field force of 4,500 people (versus existing base of 3,400) and distribution network of 4000 stockists (excluding 400-600 common stockists). However, TRP has entered into contract manufacturing arrangement with Elder to entail supplies for three years. The acquisition is expected to close in H1CY14.
Table 1: Transaction value Transaction value Enterprise Value Sales EBITDA Margin (%) Transaction Multiples EV / sales EV / EBITDA
FY13 20,040 4,140 1,449 35.0
FY14E 4,761 1,666 35.0
4.8 13.8
4.2 12.0
Source: Edelweiss research
Table 2: Historical M&A deals Acquirer
Target
Year of Consideration EV ($ mn) EV (INR mn) Sales EBITDA (INR acquisition ($ mn) (INR mn) mn) 4,900 9,182 403,992 48,848 8,229 2010 3,720 3,720 178,100 18,100 5,773 2012 5,000 2,600 286 2012 193 13,125 4,293 1,674
Daiichi Abbott Cadila Mitsui; Otsuka
Ranbaxy Piramal Biochem Claris Infusion business in India and EM
Adcock Ingram
Cosme Farma
2012
87
4,800
1,150
Sanofi
Universal Medicare Nutraceutical business
2011
109
5,000
1,100
Piramal
i-Pill
2011
950
309
EV/sales EV/EBITDA (X) (X) 8.3 49.1 9.8 30.9 1.9 17.5 3.1 7.8 4.2
NA
108
4.5
3.1
NA
8.8
Source: Edelweiss research
Portfolio expansion critical for future growth The acquisition reflects TRP’s strategy to add more brands to its existing portfolio, which is critical for growth, given that most of the products are mature and new launches have slowed. We highlight that the company’s growth in domestic market has stagnated in the 10-12% range over FY12-13. We believe TRP’s field force and execution capability would likely result in higher growth and margin on the acquired business. Also, Elder has strong presence in tier-II/III towns and its women care and pain management brands would boost TRP’s growth in the segments.
2
Edelweiss Securities Limited
Torrent Pharmaceuticals
10,829
17.0
9,370
14.0
7,912
11.0
6,453
8.0
4,994
5.0 FY09
FY10 FY11 Domestic sales
Growth (%)
(INR mn)
Chart 1: Torrent’s growth momentum in domestic market has slowed in FY12-13 20.0 12,288
FY12 FY13 Torrent growth Source: Company, Edelweiss research
Acquisition complementary and synergistic While TRP has strong presence in the chronic segment of CNS, CVS and diabetes, Elder’s business has complementary portfolio in niche therapeutic segments such as women’s healthcare, wound care, pain management and nutraceuticals/vitamin supplements, which are new therapies for TRP. Elder’s India business ranks 30th in the IPM with market share of 0.84%. It has created strong brands, with five of its key products garnering leading market share in respective segments.
•
Shelcal (sales of INR2.14bn or ~50% acquired portfolio) is 25th largest brand among Top 300 in India and is the largest in the calcium supplements markets with market share of 56%. Its extension Shelcal HD (calcium + vitamin D combination) is one of the strongest growing brands (58% CAGR) and is first line treatment for Osteoporosis.
•
Chymoral (INR820mn or ~20% of acquired portfolio) is key brand in pain management with 85% market share in the covered market.
•
Carnisure (INR220mn or 5% of acquired portfolio) has 52% market share.
•
The ElderVit range has >35% market share in the vitamin supplement segment. This segment is growing at 17-18% per annum.
Together, these acquired brands would scale up TRP’s overall ranking in IPM to 12th with combined market share of 2.7% from the current 17th rank with2% market share.
3
Edelweiss Securities Limited
Pharmaceuticals Table 3: Elder’s key brands and therapeutic segments Key therapies
Sales (INR mn)
Key brands
2013
Women Healthcare
SHELCAL (Incl Line Extensions) SHELCAL SHELCAL CT SHELCAL OS SHELCAL HD SHELCAL M B LONG (incl extension) B LONG B LONG F DEVIRY
Wound Care / Pain
Nutraceuticals
2012
Comments 2011 CAGR (%) This category address the therapeutic needs of a woman ranging from Premenstrual, infertility to menopause as well as problems related to vitamin necessities, labor/parturition and hormonal imbalance through dosage of supplements.
1,963 1,177 314 223 154 95 97 43 54 116
2,219 1,353 364 266 132 104 140 56 83 116
2,103 1,309 344 281 62 108 125 50 75 107
(3.4) (5.2) (4.5) (10.8) 57.7 (6.5) (12.0) (7.3) (15.3) 4.2
CHYMORAL (Incl line extensions) CHYMORAL FORTE CHYMORAL PLUS TANTUM ORAL
68 57 11 5
83 64 19 7
78 59 19 7
(6.5) (1.8) (23.2) (13.0)
Chymoral is a market leader in its segment and has a robust 85% market share
ELDERVIT ELDERVIT ZC
19 10
24 13
21 13
(5.2) (12.0)
This segment include vitamin supplements & vitamin combination specialized products capable of handling problems of diabetes, arthritis, neurological issues & cardiac ailments
Source: Elder Pharma, AIOCD, Edelweiss research
Chart 2: Torrent and Elder therapeutic mix Torrent Pharma Mix (%) Vitamins / Gyneacology 3% Anti-Infectives 10%
Pain 4%
Elder Pharma Mix (%)
Others 2%
Gastro 4% Pain 21%
CVS and Diabetes 44%
Gastro 16% CNS 21%
Vitamins / Gyneacology 73%
Torrent (Inclduing Elder) Mix (%) Others 6% Pain 8%
CVS and Diabetes 33%
Vitamins / Gyneacology 18% Anti-Infectives 7% Gastro 13%
CNS 15%
Source: Company, Edelweiss research 4
Edelweiss Securities Limited
Torrent Pharmaceuticals From chart 3, it is evident that sales of Elder products (absolute terms) are declining sharply due to lack of execution. Thus, there is an opportunity to ramp up sales from the current level, which would be management’s key focus, in our view.
Sales
Sep-13
(%)
Nov-13
Jul-13
Mar-13
May-13
Jan-13
Sep-12
Nov-12
(58.0)
Jul-12
254
Mar-12
(41.0)
May-12
370
Jan-12
(24.0)
Sep-11
486
Nov-11
(7.0)
Jul-11
601
Mar-11
10.0
May-11
717
Jan-11
(INR mn)
Chart 3: Elder’s sales and growth have dipped sharply over past six months 833 27.0
Growth (%) Source: AIOCD, Edelweiss research
Earnings under stress despite strong scale up potential The acquired asset posted 35% margin in FY13, similar to TRP’s existing business. However, we expect higher loss from amortisation of goodwill (to be amortized over 10-15 years) and increased interest expense (at interest rate on INR borrowings) which would make the transaction earnings dilutive. We highlight that the accretion to EBITDA is expected to be INR1.03bn (in FY14E), while the cash loss from interest expense and amortisation is likely to be INR2.25bn, resulting in deeper cut in earnings. While management has indicated that the acquisition would be cash accretive in second year (FY15) and earnings accretive in third year of operations (FY16), it would require the acquired business to yield 2x the current profitability and more than 25% CAGR in acquired business, which would be challenging, in our view. Moreover, we expect ~11-12 years of payback assuming consistent revenue CAGR of 15% over the period. Thus, execution would be critical.
Table 4: Proforma earnings FY14E
Sales EBITDA Margin (%) Depreciation and amortization EBIT Net interest expense / (income) PBT Tax (%) PAT EPS (adj.) Shares o/s EPS accretive (dilutive)
Torrent 39,235 8,173 20.8% 1,081 7,093 191 6,902 23.00 5,314 33.0 169.22
Torrent + Elder Proforma Elder 3,450 42,685 1,035 9,208 30% 21.6% 675 1,756 1,035 7,453 1,298 1,489 1,035 5,964 23.00 23.00 797 4,592 4.7 29.4 169.22 169.22 (11.02)
FY15E Torrent 44,671 9,449 21.2% 1,411 8,038 (269) 8,307 23.00 6,396 37.8 169.22
Torrent + Elder Proforma Elder 5,290 49,961 1,852 11,301 35% 22.6% 1,000 2,411 1,852 8,890 2000 1,731 1,852 7,158 23.00 23.00 1,426 5,512 8.4 32.3 169.22 169.22 (14.47)
FY16E Torrent 51,094 10,863 21.3% 1,645 9,217 (449) 9,667 23.00 7,443 44.0 169.22
Elder Proforma 6,084 2,129 35% 1,000 2,129 2000 2,129 23.00 1,640 9.7 169.22
Torrent + Elder 57,178 12,992 22.7% 2,645 10,347 1,551 8,796 23.00 6,773 40.0 169.22 (9.05)
Source: Edelweiss research 5
Edelweiss Securities Limited
Pharmaceuticals Funding to increase leverage on Torrent’s books TRP is planning to fund the acquisition with cash and internal accruals and borrowings. The company has zero net debt on its balance sheet (as on end September 2013, it has INR9.4bn cash and current investments and INR9.1bn debt) and generates ~INR5-6bn cash from operations each year (FCF of INR2-3bn). We expect the company to primarily fund the acquisition via debt. Post acquisition, we expect TRP’s debt to equity to increase 1.2x. Moreover, this would also constraint its ability to pursue aggressive capital expansion.
Outlook and valuations: Execution critical; downgrade to ‘HOLD’ Though we are positive on the acquired product portfolio, we expect it to be dilutive to business RoCE. Currently, TRP’s overall business generates more than 40% RoCE; however, the acquisition yields less than 10% RoCE. Ergo, the company will have to increase profitability 4-5x to achieve the level of returns generated historically. Moreover, we believe execution risk is higher as it is TRP’s first large buyout with no historical precedence, suggesting integration and turnout capability of management. Hence, we do not expect significant upside to current valuations and downgrade to ‘HOLD/Sector Performer’ rating. At, CMP stock is trading at 16.6x revised FY15E and 13.4x FY16E EPS.
Table 5: Peer valuations
INR 579 402 455 773 2,513 921
HOLD BUY HOLD BUY BUY BUY
526 480 706 378 195
BUY HOLD BUY BUY NC
142 81 89 110 18
21.4 25.9 29.3 14.5 12.5
25.5 29.4 39.5 28.9 15.8
32.5 32.3 45.5 34.3 17.6
23.4 11.7 24.7 53.9 18.6
BUY NC HOLD
19 8 157
19.8 10.7 44.7
18.4 14.9 51.9
28.8 17.1 63.6
20.7 26.5 19.3
Reco Sun Pharma Cipla Ranbaxy Cadila Dr. Reddy's Lupin Large Cap coverage Glenmark Torrent pharma IPCA Aurobindo Unichem Mid Cap coverage Jubilant Dishman Divis CRAMS Overall - Generics
CAGR (FY13-15E) (%) FY15E 28.8 28.0 16.8 22.3 25.0 14.8 17.5 47.6 18.4 130.9 27.1 46.5
Market cap (INR bn) 1199 323 192 158 427 411
CMP
121 95 1,186
Core EPS (INR) FY13 16.9 16.4 9.5 34.5 93.4 28.8
FY14E 25.2 18.2 9.1 36.0 122.2 39.1
P/E based on Core EV/EBITDA core EPS (x) FY14E FY15E FY14E FY15E 22.5 20.3 19.5 16.0 22.1 18.0 12.4 11.1 43.5 26.9 19.5 13.8 21.5 16.2 13.8 10.9 20.4 19.0 15.5 13.8 23.1 19.4 13.0 11.2 25.5 20.0 15.6 12.8 19.4 15.2 13.3 11.1 16.3 14.9 10.9 8.7 17.8 15.5 11.4 9.9 13.1 11.0 7.9 6.7 12.3 11.1 9.9 8.7 15.8 13.5 10.7 9.0 4.7 3.5 6.6 4.2 6.4 5.5 5.2 4.5 13.2 10.6 22.8 18.6 11.9 9.5 7.7 6.2 20.7 16.7 13.2 10.9
ROAE (%) FY14E 33.4 16.3 9.5 22.2 26.5 33.6
FY15E 29.4 15.7 13.2 24.4 24.9 27.5
23.0 30.7 25.3 27.7 18.6
23.5 27.1 27.1 25.8 19.5
13.7 8.8 25.1
17.3 11.1 25.6
Source: Edelweiss research Note: Ranbaxy financials are annualised to fiscal year march ending from reported calendar year ending December Price to earning for Sun, Ranbaxy, Dr. Reddy's and Glenmark is adjusted for NPV value Price to earning for Jubilant is proforma for R&D expenses capitalized
6
Edelweiss Securities Limited
Torrent Pharmaceuticals Company Description Torrent is a strong formulation focused company. The company has products in the cardiovascular and central nervous system therapeutic areas. Domestic formulations account for more than 50% of its total revenues. Over the past few years, the company is slowly making its presence felt in the Latin American market, which contributes ~13% to its total revenues. In June 2005, Torrent acquired Heumann Pharma (Heumann) in Germany, a manufacturer of generic products for the German market. This business contributed ~21% to Torrent's total FY07 sales. Torrent's R&D efforts have been fruitful, encouraged by which it licensed one molecule to Novartis in 2001. Currently, Torrent has seven discovery projects in the pipeline.
Investment Theme TRP is at a critical juncture as most of the consolidation phase is over and margins are improving traction to historical level of 21-22% over FY14-15E. Further, capex plan of INR11bn supports next phase of expansion, primarily for exports. We believe that improved growth visibility from India and Brazil are key for long term growth. The recent acquisition of Elder brands suggests aggressive expansion intent of management in domestic market which has remained docile for a decade. However, we believe that trading growth for ROCE would likely result in an overhang and limit multiple re-rating from current levels.
Key Risks •
Risk to scalability of Elder business could delay the earnings accretion from anticipated timelines
•
Delay in product launches in Brazil and US geographies
could restrict growth in these key
Change in Estimates
Net Revenue
New 42,685
FY14E Old 39,235
% change 8.8
New 49,961
FY15E Old 44,671
% change Comments 11.8 Incorporating Elder for 9months in FY14 and 12 months in FY15
EBITDA
9,216
8,174
21.6
20.8
4,975
5,592
12.8
11,248
9,449
22.5
21.2
5,470
6,396
19.0 Elder portfolio has 35% margin accretive to base business
EBITDA Margin Core profit
(11.0)
(14.5) Higher interest expense and amortization results in earnings dilution
PAT Margin Capex
12.0
14.7
3,500
3,500
7
0.0
11.3
14.8
3,500
3,500
0.0
Edelweiss Securities Limited
Pharmaceuticals
Financial Statements Key Assumptions Year to March
Income statement FY13E
FY14E
FY15E
FY16E
Macro GDP(Y-o-Y %) Inflation (Avg)
5.0 7.4
4.8 6.0
6.0 6.0
-
Repo rate (exit rate)
7.5
7.8
7.0
-
54.4
62.0
60.0
60.0
14.1
10.0
15.0
15.0
USD/INR (Avg) Sector India pharma market growth (Y-o-Y) % Company Domestic Formulations (INR mn)
Year to March
FY13
FY14E
FY15E
FY16E
31,696 9,308
42,685 12,805
49,961 14,714
57,178 16,753
Employee costs
6,549
8,711
10,192
11,720
R&D Cost
1,111
1,921
2,298
2,630
Total SG&A expenses
8,172
10,031
11,509
13,168
EBITDA
6,555
9,216
11,249
12,906
Core EBITDA
6,555
9,216
11,249
12,906
827
1,756
2,311
2,545
5,729
7,460
8,938
10,360
Income from operations Materials costs
Depreciation & Amortization 10,240 14,758 18,306 21,083
(INR mn)
EBIT
% change
12.7
44.1
24.0
15.2
Other income
(30)
(190)
300
300
Brazil (Real mn)
181
195
224
258
Interest expenses
(77)
1,299
2,133
1,869
% change (real terms)
8.4
8.0
15.0
15.0
Profit before tax
5,776
5,971
7,105
8,791
Germany (EUR mn)
59
59
66
74
Provision for tax
1,476
1,403
1,634
2,022
% of change
6.0
0.3
12.0
12.0
Net profit
4,382
4,975
5,470
6,769
6
5
7
7
40
130
-
-
64
92
107
118
4,349
4,698
5,470
6,769
64.0
92.2
106.5
117.5
Minority interest
(22)
-
-
-
3,000
3,460
3,851
4,188
Profit after minority interest
4,328
4,698
5,470
6,769
9.3
8.3
7.9
7.5
Adjusted PAT
4,382
4,975
5,470
6,769
EBITDA margins (%)
20.7
21.6
22.5
22.6
Basic EPS (INR)
26.0
29.4
32.3
40.0
Domestic
34.0
34.3
34.4
34.4
Shares outstanding (mn)
169
169
169
169
Brazil
20.0
20.0
20.0
20.0
Diluted EPS (INR)
25.9
29.4
32.3
40.0
US (pre R& D)
4.0
8.0
12.0
12.0
Core EPS
25.9
25.1
30.2
40.0
Germany
4.0
4.0
3.0
3.0
CEPS (INR)
30.9
39.8
46.0
55.0
ROW
22.0
22.0
22.0
22.0
Dividend per share (INR)
11.5
5.9
6.9
8.5
CRAMS
11.0
10.0
10.0
10.0
3.5
4.5
4.6
4.6
3
8
8
8
Year to March
FY13
FY14E
FY15E
FY16E
USD/INR (Avg)
55.5
62.0
60.0
60.0
Real/INR
27.8
27.8
28.0
28.0
Materials costs R & D cost
29.4 3.5
30.0 4.5
29.4 4.6
29.3 4.6
Tax rate (%)
25.4
23.0
23.0
23.0
EBITDA margins
20.7
21.6
22.5
22.6
49
56
58
58
Net profit margins
14.4
12.0
11.3
12.2
(0.1)
0.6
0.9
0.6 Year to March
FY13
FY14E
FY15E
FY16E
Revenues EBITDA
17.6 25.7
34.7 40.6
17.0 22.1
14.4 14.7
Net profit
(5.8)
13.5
10.0
23.7
EPS
(5.8)
13.5
10.0
23.7
No of launches US (USD mn) % change CRAMs and Partnerships % of sales
R&D (% of sales) ANDA filings (per annum)
Capex (USD mn) Net debt to equity ratio(x)
Extraordinary income/ (loss) Profit After Tax
Common size metrics
Growth ratios (%)
8
Edelweiss Securities Limited
Torrent Pharmaceuticals Balance sheet As on 31st March
(INR mn)
Cash flow metrics
FY13
FY14E
FY15E
FY16E
FY13
FY14E
FY15E
FY16E
Equity capital Reserves & surplus
423 13,796
846 17,320
846 21,423
846 26,500
Operating cash flow Investing cash flow
2,100 (2,123)
5,098 (22,865)
6,225 (2,600)
8,135 (2,600)
Shareholders funds
14,219
18,166
22,269
27,346
Financing cash flow
569
18,150
(3,007)
(2,446)
4
4
4
4
Net cash flow
546
383
618
3,089
Short term debt
1,246
1,246
1,246
1,246
Capex
(2,721)
(3,500)
(3,500)
(3,500)
Long term debt
5,684
24,585
22,946
22,193
Dividends paid
(2,273)
(1,175)
(1,368)
(1,692)
Borrowings
6,930
25,832
24,192
23,439
Minority interest (BS)
Deferred tax liability
Year to March
Profitability & efficiency ratios
258
258
258
258
Sources of funds
21,410
44,259
46,722
51,046
Year to March
FY13
FY14E
FY15E
FY16E
Tangible assets Intangible assets
7,972 226
12,569 19,591
13,758 18,691
14,713 17,791
ROAE (%) ROACE (%)
33.7 45.9
30.7 28.8
27.1 23.5
27.3 26.2 336
CWIP (incl. intangible)
2,853
-
-
-
Inventory day
285
298
322
Total net fixed assets
11,051
32,160
32,449
32,504
Debtors days
70
66
71
74
-
-
-
-
Payable days
378
342
369
385
Cash conversion cycle (days)
(23)
22
24
25
Non current investments Current Investments
604
604
604
604
Cash and equivalents
6,270
6,653
7,271
10,360
Current ratio
1.6
1.6
1.6
1.7
Inventories
9,239
11,642
14,337
16,483
Debt/EBITDA
1.1
2.8
2.2
1.8
Sundry debtors
6,878
8,661
10,788
12,475
Debt/Equity
0.5
1.4
1.1
0.9
Loans and advances
1,377
1,377
1,377
1,377
Other current assets
Operating ratios
2,098
2,098
2,098
2,098
Total current assets (ex cash)
19,592
23,777
28,600
32,433
Year to March
FY13
FY14E
FY15E
FY16E
Trade payable
10,667
13,335
16,422
18,880
Others current liabilities
5,440
5,602
5,780
5,976
Total asset turnover Fixed asset turnover
1.5 3.0
1.3 3.5
1.1 3.6
1.1 3.8
Total current liabilities &
16,107
18,936
22,202
24,856
Equity turnover
2.3
2.6
2.4
2.2
3,485
4,841
6,397
7,577
21,410
44,259
46,722
51,046
84.0
107.4
131.6
161.6
Year to March
FY13
FY14E
FY15E
FY16E
Diluted EPS (INR) Y-o-Y growth (%)
25.9 (5.8)
29.4 13.5
32.3 10.0
40.0 23.7
FY16E
CEPS (INR)
30.9
39.8
46.0
55.0
Diluted PE (x)
18.5
16.3
14.9
12.0
Net current assets (ex cash) Uses of funds Book value per share (INR) Free cash flow Year to March
(INR mn) FY13
FY14E
FY15E
Net profit Depreciation
4,328 827
4,698 1,756
5,470 2,311
6,769 2,545
Others
(244)
-
-
-
Gross cash flow
4,911
6,454
7,781
9,315
Less: Changes in WC
2,811
1,356
1,557
1,179
Operating cash flow
2,100
5,098
6,225
8,135
Less: Capex
2,721
3,500
3,500
3,500
Free cash flow
(622)
1,598
2,725
4,635
Valuation parameters
Price/BV (x)
5.7
4.5
3.6
3.0
18.4
18.9
15.8
11.9
NPV
4.3
4.3
4.3
4.3
EV/Sales (x)
2.6
2.4
2.0
1.6
EV/EBITDA (x)
12.4
10.8
8.7
7.3
Core EV/EBITDA (x) Dividend yield (%)
12.3 2.4
10.8 1.2
8.6 1.4
7.2 1.8
PE based on core EPS
Peer comparison valuation Market cap Name
Core EV/EBITDA (X)
(USD mn)
FY14E
Torrent Pharmaceuticals
1,310
Cadila Healthcare
2,552
Glenmark Pharmaceuticals Ipca Laboratories
PE based on core EPS
ROAE (%)
FY15E
FY14E
FY15E
FY14E
FY15E
10.8
8.6
18.9
15.8
30.7
27.1
14.6
11.6
21.4
16.2
22.2
24.4
2,299
11.8
9.8
19.7
15.4
23.2
23.7
1,436
11.9
10.3
17.8
15.5
25.3
27.1
Median
-
11.8
10.0
19.3
15.6
24.2
25.7
AVERAGE
-
12.2
10.1
19.5
15.7
25.4
25.6
Source: Edelweiss research
9
Edelweiss Securities Limited
Pharmaceuticals
Additional Data Directors Data Sudhir Mehta Sanjay S Lalbhai Chaitanya Dutt Shailesh Haribhakti Haigreve Khaitan
Chairman Director Director (Research & Devplmnt) Director Director
Samir Mehta Prasanna Chandra Markand Bhatt Leena Srivastava Pradeep Bhargava
Executive Vice Chairman Director Director Director Additional Director
Auditors *as per last annual report
Holding – Top10 Perc. Holding 50.89 4.49 3.17 2.92 1.07
Torrent pvt ltd Mehta sudhir uttamla Mehta sapna s Templeton asset mgmt Prudential icici ass
Perc. Holding 6.11 3.75 3.15 1.87 1.04
Mehta samir uttamlal Mehta anita sudhir Franklin resources Hdfc asset managemen Mehta jinal s
*in last one year
Bulk Deals Data
Acquired / Seller
B/S
Qty Traded
Price
No Data Available
*in last one year
Insider Trades Reporting Data
Acquired / Seller
B/S
Qty Traded
No Data Available
*in last one year
10
Edelweiss Securities Limited
RATING & INTERPRETATION
Company
Absolute
Relative
Relative
reco
reco
risk
HOLD
None
None
Cadila Healthcare
BUY
SP
Divi's Laboratories
HOLD
SP
Glenmark Pharmaceuticals
BUY
SO
H
Ipca Laboratories
BUY
SO
L
Jubilant Life Sciences
BUY
SP
M
Lupin
BUY
SO
M
Ranbaxy Laboratories
HOLD
SP
H
Sun Pharmaceuticals Industries
HOLD
SP
L
BUY
SO
H
Apollo Hospitals Enterprise
Torrent Pharmaceuticals
Company
Absolute
Relative
Relative
reco
reco
Risk
Aurobindo Pharma
BUY
SP
H
L
Cipla
BUY
SO
L
M
Dr.Reddys Laboratories
BUY
SO
M
ABSOLUTE RATING Ratings
Expected absolute returns over 12 months
Buy
More than 15%
Hold
Between 15% and - 5%
Reduce
Less than -5%
RELATIVE RETURNS RATING Ratings
Criteria
Sector Outperformer (SO)
Stock return > 1.25 x Sector return
Sector Performer (SP)
Stock return > 0.75 x Sector return Stock return < 1.25 x Sector return
Sector Underperformer (SU)
Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe within the sector
RELATIVE RISK RATING Ratings
Criteria
Low (L)
Bottom 1/3rd percentile in the sector
Medium (M)
Middle 1/3rd percentile in the sector
High (H)
Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTOR RATING Ratings
Criteria
Overweight (OW)
Sector return > 1.25 x Nifty return
Equalweight (EW)
Sector return > 0.75 x Nifty return
Underweight (UW)
Sector return < 0.75 x Nifty return
Sector return < 1.25 x Nifty return
11
Edelweiss Securities Limited
Pharmaceuticals Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098. Board: (91-22) 4009 4400, Email: [email protected] Vikas Khemani
Head Institutional Equities
[email protected]
+91 22 2286 4206
Nischal Maheshwari
Co-Head Institutional Equities & Head Research
[email protected]
+91 22 4063 5476
Nirav Sheth
Head Sales
[email protected]
+91 22 4040 7499
Coverage group(s) of stocks by primary analyst(s): Apollo Hospitals Enterprise, Aurobindo Pharma, Cadila Healthcare, Cipla, Divi's Laboratories, Dr.Reddys Laboratories, Glenmark Pharmaceuticals, Ipca Laboratories, Jubilant Life Sciences, Lupin, Ranbaxy Laboratories, Sun Pharmaceuticals Industries, Torrent Pharmaceuticals
Recent Research Date
Company
17-Dec-13
Title
Price (INR)
Ranbaxy Receives approval for generic Laboratories Felodipine ; EdelFlash
Recos
418
Hold
17-Dec-13
Cipla
Receives approval for generic Xopenex; EdelFlash
376
Buy
12-Dec-13
Cadila Healthcare
Settlement of patent dispute with Actavis a positive; EdelFlash
723
Buy
Distribution of Ratings / Market Cap Rating Interpretation
Edelweiss Research Coverage Universe
Rating Distribution* * 1 stocks under review > 50bn Market Cap (INR)
112
Buy
Hold
127
44
Reduce
Total
8
180
Between 10bn and 50 bn
< 10bn
54
14
12
Rating
Expected to
Buy
appreciate more than 15% over a 12-month period
Hold
appreciate up to 15% over a 12-month period
Reduce
depreciate more than 5% over a 12-month period
Edelweiss Securities Limited
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Edelweiss Securities Limited
Pharmaceuticals Disclaimer for U.S. Persons This research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. 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