indian pharma –august 2015 -...

All set for re‐rating led by Specialty GenericsIndian Pharma – August 2015 All set for re rating led by Specialty Generics

S P t ( 9122 6667 9768)Surya Patra (+ 9122 6667 9768)[email protected]

Mehul Sheth (+ 9122 6667 9996)( )[email protected]

Indian Pharma over last 5 yearsRobust operating results led to BSE HC’s outperformance

29.0 40 EBITDA EBITDA (%)US

400

450 US CAGR 34% over FY10‐15

p g pUS generics was the key driving force behind the overall 22%

sales CAGR of Indian Pharma (top 15 peers) … … Indian Pharma saw steady margin expansion of ~400bps over FY11‐14.

Higher R&D spend & slower ANDA approval hit margins in FY15 temporarily

(rhs)

21 0

23.0

25.0

27.0

20

25

30

35

RoW

India

200

250

300

350

EU CAGR 15% over FY10‐15

RoW CAGR 28% over FY10‐15

IND CAGR 17% over FY10‐15

Rs

Bn

Rs

Bn

15.0

17.0

19.0

21.0

‐

5

10

15

Europe

EuropeRoW

IndiaUS

0

50

100

150

BSE HC BSE Sensex

FY10 FY11 FY12 FY13 FY14 FY15FY10 FY15

… Progressively more numbers of domestic pharma players achieved critical revenue of Rs 10Bn

… With healthy operating performance by Indian Pharma in recent years, BSE HC has outperformed Sensex meaningfully.

25

30

35

14000

16000

18000

20000

f Com

pani

es

2328 28

25

32

15

20

4000

6000

8000

10000

12000

Num

ber o

f

10

FY10 FY11 FY12 FY13 FY14 0

2000

April‐09 April‐10 April‐11 April‐12 April‐13 April‐14 April‐15

2

Indian Pharma over last 5 yearsUS generics was the key driving force

ANDA Approved to Indian firms DMF filed by Indian firms

% of Indian firms

g y gUS generic focus and cost advantage made Indian Pharmagain dominant share in US dossier fillings and approvals …

The US sales of our coverage universe delivered healthy growth in the range of 25‐45% in last 5 years

(rhs)50%450 US sales % growth(rhs)

30%

40%

50%

200

250

300

350

400% of Indian firms

Rs

Bn

(rhs)

30%

35%

40%

45%

200250 300 350 400

0%

10%

20%

0

50

100

150

2009 2010 2011 2012 2013 201410%

15%

20%

25%

‐50 100 150 200

2009 2010 2011 2012 2013 2014

Six Indian pharma peers are amongst the top 20 genericplayers in US

The cumulative market shares of Indian Pharma peers in US has expanded ~5% in 2010 to 14% now

16% Market Size (US$ bn) % of India firms

FY10 FY11 FY12 FY13 FY14 FY15

(rhs)

6%8%10%12%14%16%

8%

10%

12%

14%

40

50

60

70

80 Market Size (US$ bn) % of India firms

ket s

hare

s (%

)

S$ B

n

(rhs)

0%2%4%

Teva

Mylan

Sand

ozAc

tavis

Endo

Pharma

Pfize

rr R

eddy

Lupin

Apotex

nckrod

tAm

neal

Roxane

co La

bsPe

rrigo

esen

ius

erdicus

obindo

s cadila

enmark

Hikm

a

0%

2%

4%

6%

‐

10

20

30

40

Mar

k US

3

Sun P Dr

Mallin A R

Prasc P

Fre Ve

Aur

Zydu

sGle 0%

2008 2009 2010 2011 2012 2013 2014

Indian Pharma over last 5 yearsUS generics was the key driving forceg y gDr Reddy leads among Indian peers in terms of sales generation per prescription and most domestic peers see steady progress

In terms of sales per launched product, Lupin leads due to its branded drug but it sees gradual correction ($ mn)

200

Sun Pharma Lupin Dr Reddy AurobindoCadila Torrent Wockhardt

12.0

14.0

Dr Reddy Lupin Cadila AurobindoGlenmark Torrent Wockhardt Sun Pharma

100

150

4 0

6.0

8.0

10.0

rice inde

x

‐

50

2009 2010 2011 2012 2013 2014‐

2.0

4.0


P

Note: Price Index = TRx $/TRx count

4

Indian Pharma over last 5 yearsSteady growth & value progress in Domestic form. y g p g

Over last five years domestic formulations grew at almost double the rate of Indian GDP

Domestic formulation growth % IndianGDP growth % Company Domestic formulation % of total Last 3 yr

Inorganic moves by Sun Pharma & Torrent boosted their domestic growth in last 3 years but Ajanta Pharma was top

performer and Cadila Healthcare was the laggard

8 6 9.312

16

20Domestic formulation growth % Indian GDP growth % Company Domestic formulation

sales FY15 (Rs mn)% of total

SalesLast 3 yr

CAGR

Sun Pharma 67165 24.6 50.5

Ajanta Pharma 4794.9 33 0 25 78.6 9.3

6.25

6.9 7.3

0

4

8

33.0 25.7

Torrent 16090 34.6 24.7

Cipla 46830 41.3 17.4

Glenmark 174900


Glenmark 17490 26.3 15.6

Indoco 5047.9 58.9 13.7

IPCA 11287.3 36.2 13.2

Relatively rapid growth in the chronic therapies vs. traditional acute leads value progress for Indian formulations

10%

15%

20%

25%Therapeutic Growth over FY10‐15 Alembic 11035 53.4 12.3

Lupin 29,679 23.2 12.0

Domestic Pharma Industry 12.0

0%

5%

10%wockhardt 13796 30.8 11.9

Jubilant life 16690 28.6 11.9

Dr Reddy 17870 12 1 10 8

5

y 12.1 10.8

Cadila 26772 30.9 7.3

Indian Pharma over last 5 yearsROW & EU remained a steady performer despite concernsy p p

Though the austerity measures by various European nations hit sales growth during FY09‐13, Selective drug & in licensing approach led strong growth for Indian peers in recent years

40%120Europe YoY growth(rhs)

20%

25%

30%

35%

40%

60

80

100

120

Rs

Bn

0%

5%

10%

15%

‐

20

40

Despite various uncertainties, heterogeneous market conditions, currency fluctuations, the RoWmarkets supported overall growth of Indian Pharma (top 15)

over last 5 years


( h )over last 5 years

25%

30%

35%

40%

150

200

250 RoW YoY growth

Rs

Bn

(rhs)

5%

10%

15%

20%

50

100

R

6

0%‐


INDIAN PHARMA GOING AHEADINDIAN PHARMA GOING AHEADAll set for re rating led by Specialty GenericsAll set for re rating led by Specialty GenericsAll set for re‐rating led by Specialty GenericsAll set for re‐rating led by Specialty Generics

7

Indian Pharma going aheadUS generics offers enough visibility in the near futureg g y

Over 900 pending ANDAs for lead Indian peers vs. average annual approval of 150 ANDAs indicates about healthy US growth ahead

Similarly, India’s generic share of ~14% in US despite its dominant position in overall dossier fillings talks about healthy US growth ahead

200Pending approval in FY15 Average Approval in last 3 Year (2012‐14) 45%

% of ANDA approval to Indian firms Gneric market Shares

(%)

100

150

200

20%

25%

30%

35%

40%

umbe

r of A

NDAs

oval/m

arket sha

re

0

50

obindo

Cadila

Sun

Lupin

ockhar…

Reddy

enmark

Cipla

ubilant

Ajanta

IPCA

lembic

Torrent

nichem

Indoco

0%

5%

10%

15%

20%N

ANDA ap

pro

US generic market despite price competition is expected to maintain steady growth pace

Auro W Dr

Gl e Ju A T Un


Expiry of key patents continues to support growth momentum

We expect our covered universe to deliver growth in the range of 18‐20% CAGR

34.0

39.0

44.0

49.0

500

600

700 US (Rs Bn) % US sales growth

60.0 80.0 100.0

50

60

70

Patent Cliff Sales opportunity (US$ BN)

% sales growth

8.0

10.0

80

100

120

US generics pharmaceutical market ($ billion)

% US sales growth (rhs)

9.0

14.0

19.0

24.0

29.0

100

200

300

400

(40.0)(20.0)‐20.0 40.0

10

20

30

40

2.0

4.0

6.0

20

40

60

80

8

4.0

9 0

‐

FY13 FY14 FY15 FY16 FY17

(60.0)0‐02012 2013 2014 2015 2016 2017 2018 2019

Indian Pharma going ahead Challenges/ Risk to US growthg / g

Channel consolidation resulted in almost double digit price correction for generic players ANDA approval time peaked to about 42 months

US FDA Scrutiny Post GDUFA implementation ANDA approvalsSlowed down but the nos. of CRLs zoomed indicating robust flow approval ahead

Increase in US FDA warning letter; focusing on Quality

1,251 1,254

1000

1200

1400ANDA Approvals Complete Response

indicating robust flow approval ahead

517440 409

84200

400

600

800

84

0

200

FY12 FY13 FY14

9

Indian Pharma going aheadStepped up R&D and specialty generics drive value growthpp p p y g g

Stepped up in R&D spends matching global generic players

12%14% 2010 2014

Focus on development of specialty generics to lead value growth for Indian Pharma ahead

4%6%8%10%12%

Biologics

R&D % to

sales

High

0%2% Respiratory/Insulin analogs

Complex injectable

DermatologicalsComplexity

bility

R&D at ~34% CAGR to >10% of sales (from ~4‐5%) in last 5 years

% to sales of R&Dspend by Indian Firms

Dermatologicals

Injectables and ophthalmics

Modified‐release dosage

very Sy

stem

C

Profitab

6.5

7.0

7.5

8.0

% to sales of R&D spend by Indian Firms% to sales of R&D spend by Global Firms Delivery system complexity

High potency

Deliv

o sales

Low

4.5

5.0

5.5

6.0

R&D % to

10

4.0


Indian Pharma going aheadInjectables already gained groundj y g g

Huge global opportunity in Injectables Dr Reddy and Sun Pharma has already gained top 10 rank in US generic Injectable space

O h 9

2013 Mkt size $ 872bn $ 264bn $ 100bn

18%20%

Topical 5%

General Injectable

38%

Injectable 31%

Vaccines 5%Others 9% Others 10%

Others 45%

18%

11%10%

6% 6%8%

12%

16%

20%

arket S

hares (%

)

OSD 55% Biologics 47%

Oncology 24%

Antiinfective 20%

Blood 11% 6% 6% 5% 5% 5% 4% 4% 3% 3%

0%

4%

8%

pira

APP

doz

kma

xter

nofi

ddy

fols

n rma

ylan avis

ent

Ma

US Generic Injectable market is expected show CAGR of 30% over 2014‐17

24%

Hosp A

San

Hi k

Bax

San

Dr Red

Grif Su

Phar My

Acta

Sag

13 17 21 24

5 7 7 8 9

12 15

20

100

120

140

160 Branded Branded Generics Generics

Bn

59 63 67 69 74 79 85 89 93 98 7 8 10 10 10 11

13 3 4 5 7

20

40

60

80

US$

B

11

‐

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Indian Pharma going aheadInjectables already gained groundj y g g

While global Injectable generic market sees steady growth,ROW markets are expected to double over 2013 to 2020

DRL and Sun Pharma leads amongs Indian peers in the complex Injectable space, Aurobindo sees rapid value/volume progress

1) Dr Reddy’s Lab, 2) S Ph10

70

80 ROW EU5 US$70bn

S$ Bn

2) Sun Pharma3) Cipla9

10

40

50

60 CAGR 11%

$38bn

US

4) Aurobindo Pharma5) Lupin

25

5167

10

20

30

6) Cadila Healthcare, 7) Glenmark

0

2013 2020

7) Glenmark

12

Indian Pharma going aheadDermatology: A niche drug platform, dominant by mid‐size players gy g p , y p y

U.S. Dermatology Market Dynamics: ‐

Steady growing with low big pharma presence

US Dermatology market is expected to sustain steady growth

Needs brand building as dominated by focusedtarget list of prescribers

Relatively low government reimbursement andhi h f k l di fhigh out of pocket payment leading scope forprice hikes

Predominantly through formulation innovation

Dermatology Market Segmentation

Sun pharma leads amongst Indian peers in US Derma market though Taro, DUSA and Ranbaxy; Dr Reddy sees rapid value progress in US

derma market through its proprietary drugs

1) Sun Pharma(Ranbaxy and Taro Pharma), 2) Glenmark

3) Dr Reddy’s Lab, 4) Lupin

5) Ci l

13

5) Cipla, 6) Cadila Healthcare

Indian Pharma going aheadRespiratory : Complexity in drug/device makes it nichep y p y g/Global respiratory market sees muted growth in the visible future. However, the patent expiry and ready regulatory pathways to drive growth in advanced markets. ROW see healthy volume progress.

Cipla leads amongst Indian names in the global respiratory market and proud top 3 global player in pMDIs. Lupin is next

big aspirant of reparatory portfolio

1) Cipla1) Cipla

2) Lupin

Change in market shares of key brand on patent expiry

2) Lupin3)Glenmark4) Dr Reddy’s Lab 5) Sun Pharma)

6) Cadila Healthcare

14

Indian Pharma going ahead Biosimilars the key future drivers: Patent cliff in biologics is due y g

Biosimilars seems crowded but not in the advanced marketsBiologics growth continues to outstrip growth rate of global pharma

31 originator products losing patent exclusivity in at least one major market through 2020

Product Brand Name Therapeutic area US ($ bn) Global ($ Bn) EU expiry US expiryAdalimumab Humira Immunology 5.4 9.3 2018 2016Bevacizimab Avastin Oncology 2.6 4.4 2019 2019Cetuximab Erbitux Oncology 0.6 1.2 2014 2016EPO alpha Epogen Dialysis / Oncology 3 2 3 4 Expired ExpiredEPO alpha Epogen Dialysis / Oncology 3.2 3.4 Expired ExpiredEtanercept Enbrel Immunology 4.6 7.3 2015 2028Filgrastim (U.S. only) Neupogen Oncology 0.9 0.9 Expired ExpiredInfliximab Remicade Immunology 4 5.8 2015 2018Palivizumab Synagis Other 0.8 1 2015 2015Pegfilgrastim Neulasta Oncology 3 4 4 3 2015 2015

15

Pegfilgrastim Neulasta Oncology 3.4 4.3 2015 2015Rituximab Rituxan Oncology 3.2 5.8 Expired 2016Trastuzumab Herceptin Oncology 1.9 4.1 2014 2019

Indian Pharma going ahead Biosimilars the key future driversy

Biocon with a biosimilar pipeline (including insulin as well as MABs) with potential opportunity of over $60bn and is the clear leader in the

biosimilar space amongst Indian peers. Dr Reddy’s Lab is not the laggard ROW EU5 US

Biosimilars, though at its nascent stage, expects multi‐fold growth globally over next five years

either.

815

20

25

CAGR

$20bn

US$

Bn

1) Biocon2) Dr Reddy’s Lab

16

1

6

1

0

5

1046%

$3bn

U

3) Lupin, 4) Sun Pharma

Geographical distribution of Biosimilar market

2015 2020

4) Sun Pharma

5) Cadila Healthcare, 8%

3%1%

6%3%

2% Europe

US

India

China

h 6)Glenmark, 7) Cipla

44%

13%

8% South Korea

Japan

Australia

Brazil

Mexico

16

12%7% Mexico

Argentina

Ranking of Indian peers in Specialty playg p p y p y

Biosimilars Respiratory Dermatology Injectable

1) Biocon2) D R dd ’

1) Cipla1) S n Pharma

1) Dr Reddy’s Lab2) Dr Reddy’s

Lab3) Lupin,

4) S Ph

) p2) Lupin

3)Glenmark4) Dr Reddy’s

1) Sun Pharma2) Glenmark3) Dr Reddy’s

Lab,

Lab, 2) Sun Pharma3) Cipla4) Aurobindo4) Sun Pharma

5) CadilaHealthcare, 6)Glenmark

4) Dr Reddy s Lab

5) Sun Pharma6) Cadila

,4) Lupin5) Cipla, 6) CadilaH l h

4) AurobindoPharma5) Lupin6) Cadila

6)Glenmark, 7) Cipla

6) CadilaHealthcare

Healthcare Healthcare, 7) Glenmark

17

Indian Pharma going aheadCRAMS ‐ Rising focus CROs drives value growth

Contract Manufacturing of APIs/Intmd.Packaging/labeling and other services

Custom synthesis (mainly focusedon new, branded APIs)Toll manufacturing Figures in $bn

Contract Manufacturing of APIs/Intmd.Packaging/labeling and other services

Custom synthesis (mainly focusedon new, branded APIs)Toll manufacturing

Custom synthesis (mainly focusedon new, branded APIs)Toll manufacturing Figures in $bn

g g

Improved focus on building R&Dcapability, enhanced and quality

Contract Research (CRO)

Contract Manufacturing (CMO)

Packaging/labeling and other services Development of FormulationsContract Manufacturing of Formulations

12.0

Contract Research (CRO)

Contract Manufacturing (CMO)

Packaging/labeling and other services Development of FormulationsContract Manufacturing of Formulations

12.012.0

capability, enhanced and qualityservice offerings at competitive cost tocreate huge opportunity for IndianCRAMS

5.5

30.018

4311.4

% CAGR

5.5

30.01818

4311.4

% CAGR

The global pharma out sourcing togrow at 14% CAGR over FY12‐17 to$136bn and India to see maximum

4.5

7.0

1547

9325

6

4.5

7.0

1547

9325

6

$136bn and India to see maximumramp up at >35% CAGR to $29 bn (21%market share) in 2017.

2000 2012 2017

21 72 136Total Pharma CRAMS 13.6% CAGR

Year

160 India share US' Share

2000 2012 2017

21 72 136Total Pharma CRAMS 13.6% CAGR

Year

160 India share US' Share

Divi’s Lab and Biocon (having the edgeof biologic service capability) leadsamongst Indian names. Players like –

l di if i

India to see maximum ramp up at >35% CAGR to $29 bn (21% market share) in 2017 from $6 bn(8% Market share) in 2012

26.1

32 9

46.9

60

80

100

120

140 China' Share Others

ures

in $bnIndia to see maximum ramp up at

>35% CAGR to $29 bn (21% market share) in 2017 from $6 bn(8% Market share) in 2012

26.1

32 9

46.9

60

80

100

120

140 China' Share Others

ures

in $bn

Granules India, Suven Life Sciences,Shilpa Medicare are next big emergingpeers.

35% CAGR

share) in 2012.

62924.3

348.8

32.9

0

20

40

60

2012 2017

Figu

35% CAGR

share) in 2012.

62924.3

348.8

32.9

0

20

40

60

2012 2017

Figu

18

Indian Pharma going aheadPharma outsourcing remains robust

5.4 6 0200Global R&D Spend (US$ BN) YoY Change (%)

gSteady growth in R&D Spends maintains visibility for pharma

outsourcing Focus on branding or brand creation for new drug launches

become the key driver of pharma outsourcing

129 136 134 137 141 145 148 151 155 158 162

1.0

2.1

3.1 2.5 2.4 2.3 2.2 2.1 2.3

2.0 3.0 4.0 5.0 6.0

100

150

200

US$

Bn

(1.2)

(2.0)(1.0)‐1.0

‐

50

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

( $ ) ( $ )

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Worldwide R&D Spend by Pharma & Biotech Companies

20 0

21.0

22.0

800

1,000

Global R&D Spend (US$ BN) Global generic Sales (US$ BN)% to sales

n o sales

17.0

18.0

19.0

20.0

200

400

600

US$

Bn

R&D % to

16.0 ‐

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

19

Indian Pharma ValuationsLeading peers to see re‐rating as the sector index valuation shifted upg p g p

•Indian Pharma saw its dream run since FY14 to till dateled by earning surprise flowing from – 1) healthy

20,000 (Rs)20x

1 year forward PE band of BSE Healthcare Index

growth in US generics led by patent cliff, 2) multipleexclusive drug opportunities and 3) importantly thecontinued weakness in INR vs. US $.10,000

15,000

5

10x

15x

•The average one‐year forward PE multiple of BSE HCindex for the period 2013 to till date has shifted up to22.5 times from the earlier average valuation multiple

0

5,000

Jan‐08 Jan‐09 Jan‐10 Jan‐11 Jan‐12 Jan‐13 Jan‐14 Jan‐15

5

of 16.7 (2010‐ 2013).

•With the upward shift in valuation multiple of broad35 HC Index 1yr fwd PE Avg PE 2010‐2012 Avg PE 2013 ‐ till date

1 year forward PE Trend of BSE HC

sector index itself to 22.5 times, we believe the leadingphama peers of Indian (trading around the averagemultiple) are all set for re‐rating soon.

25

30

Avg 22.5x (2013 till date)

•Additionally, we believe enhanced focus of Indianpharma peers towards complex generics and recentsharp strengthening of US$ vs. INR would supplement15

20 Avg 16.7x (2010 ‐2012)

The PE of BSE HC index saw correction during FY11‐13, as the patent cliff in US over FY12‐14 boosted earning of

I di h the valuation upgrade further.

20

10 Jan‐10 Jul‐10 Jan‐11 Jul‐11 Jan‐12 Jul‐12 Jan‐13 Jul‐13 Jan‐14 Jul‐14 Jan‐15

Indian Pharma peers meaningfully

Indian Pharma ValuationsINR depreciation to revise earnings upwardp g p

INR has already depreciated ~7% since FY15 closing and would support Indian pharma growth

Favorable earning impact with every Re 1 depreciation vs US$ (%)

50

55

60

65

70 US$ / INR

4.0 5.0 6.0 7.0 8.0

35

40

45

50

Y12

Y12

Y12

Y12

Y13

Y13

Y13

Y13

Y14

Y14

Y14

Y14

Y15

Y15

Y15

Y15

Y16 ow

‐1.0 2.0 3.0

PCA

ndo

mark

Divis dila

upin Sun

Cipla

con

ddy

Q1FY

Q2FY

Q3FY

Q4FY

Q1FY

Q2FY

Q3FY

Q4FY

Q1FY

Q2FY

Q3FY

Q4FY

Q1FY

Q2FY

Q3FY

Q4FY

Q1FY No

Factoring INR depreciation to an average Rs64/US$ (from assumed Rs 62) and recent drug approvals, we have revised the earnings of our covered universe in the following manner

IP

Aurobi

Glen

m D Ca L u C

Bio

Dr Re

d

____Earlier EPS ____ ___Revised EPS___ ___Revision %___ New EPS Company’s FY16E FY17E FY16E FY17E FY16E FY17E FY18EAurobindo 33.2 39.2 34.5 40.8 4.2 4.1 48.8Biocon 25.3 29.9 25.3 29.6 (0.2) (1.0) 37.6Cadila 68 5 83 3 71 5 87 4 4 4 4 9 104 8

g

Cadila 68.5 83.3 71.5 87.4 4.4 4.9 104.8Divis Lab 77.8 92.4 79.4 95.0 2.1 2.8 110.6Dr Reddy 162.8 191.7 168.8 198.8 3.7 3.7 231.1Glenmark 35.2 47.4 36.7 49.3 4.4 3.9 61.8IPCA Lab 26.1 45.9 27.2 47.4 4.2 3.3 64.1

21

Lupin 53.0 69.6 54.4 70.8 2.6 1.7 84.6Sun Pharma 20.9 29.6 22.8 31.9 9.1 8.0 38.5Cipla Ltd. 23.5 28.5 23.5 28.5 33.2

Indian Pharma ValuationsRecommendation Summaryy

Target Recommend

Aurobindo Pharma, Biocon, Dr Reddy and IPCA Laboratories remain as our key Pharma sector picks,While we remain negative on Sun Pharma and Lupin considering their near‐term challenges

__________EPS Est. __________ Valuation Target Price Up Side Recommend

ation

Company FY16 FY17 FY18 (x)FY17 (Rs.)

Aurobindo 34.5 40.8 48.8 22 (21 earlier) 898 21% BUY(21 earlier)

Biocon 25.3 29.6 37.6 20(18 earlier) 591 35% BUY

Cadila 71.5 87.4 104.8 21 (20 earlier) 1,835 ‐4% NEUTRAL

b 22Divis Lab 79.4 95.0 110.6 22 (20 earlier) 2,089 ‐6% NEUTRAL

Dr Reddy 168.8 198.8 231.1 24 (21 earlier) 4,771 15% BUY

Glenmark 36.7 49.3 61.8 22(20 earlier) 1,084 ‐9% NEUTRAL( )

IPCA Lab 27.2 47.4 64.1 18(16 earlier) 853 10% BUY

Lupin 54.4 70.8 84.6 23 (22 earlier) 1,628 ‐14% SELL

Sun Pharma 22 8 31 9 38 5 25 798 12% SELLSun Pharma 22.8 31.9 38.5 (24 earlier) 798 ‐12% SELL

Cipla Ltd. 23.5 28.5 33.2 23 655 3% NEUTRAL

22

Financial Summaryy

Company’s CNX index CMP Mcap EPSFY16‐

PE EV/EBITDA ROE%Company s CNX index CMP Mcap _________EPS__________18E

_________PE_________ ______EV/EBITDA______ ________ROE%________

Weight (%) (Rs) ($ Mn) FY16e FY17e FY18eEPS

CAGR%FY16e FY17e FY18e FY16e FY17e FY18e FY16e FY17e FY18e

Dr Reddy 16.5 4,131 11,314 168.8 198.8 231.1 17.0 24.5 20.8 17.9 16.5 13.8 11.5 20.8 19.8 18.9

Aurobindo 6.1 743 6,975 34.5 40.8 48.8 18.8 21.5 18.2 15.2 14.4 12.0 9.9 28.1 25.3 23.6

Sun Pharma 28.8 903 35,042 22.8 31.9 38.5 30.0 39.6 28.3 23.5 23.3 17.4 14.1 17.8 20.4 20.3

Lupin 18.0 1,898 13,761 54.4 70.8 84.6 24.8 34.9 26.8 22.4 21.7 16.9 14.5 22.4 23.2 22.2

Cipla Ltd. 13.5 634 8,210 23.5 28.5 33.2 19.0 27.0 22.3 19.1 17.0 14.1 12.7 15.2 15.7 15.6

Biocon ‐ 438 1,413 25.3 29.6 37.6 21.9 17.3 14.8 11.6 9.4 7.6 5.7 12.6 13.2 14.7

IPCA Lab ‐ 779 1,573 27.2 46.9 64.1 53.4 28.6 16.6 12.1 16.1 10.4 7.7 13.4 19.1 21.1

Divis Lab 4 2 2 220 4 753 79 4 95 0 110 6 18 0 28 0 23 4 20 1 20 7 17 1 14 6 24 9 24 4 23 2Divis Lab 4.2 2,220 4,753 79.4 95.0 110.6 18.0 28.0 23.4 20.1 20.7 17.1 14.6 24.9 24.4 23.2

Cadila 3.4 1,903 6,284 71.5 87.4 104.8 21.1 26.6 21.8 18.2 18.4 15.3 12.6 26.8 25.5 24.1

Glenmark 4.1 1,194 5,433 36.7 49.3 61.8 29.7 32.5 24.2 19.3 18.9 14.6 11.8 21.1 22.3 22.0

23

COMPANIES SECTIONCOMPANIES SECTION

24

Aurobindo PharmaRobust US sales to drive quality growthq y g

Robust growth momentum in US Generics:We expect ARBP’s US operation to post sustainedgrowth at ~20% CAGR over FYFY15 18 despite its robust growth base of 60% CAGR over last 3

CMP Rs 743 Rating: BUY Target: Rs 900

growth at 20% CAGR over FYFY15‐18 despite its robust growth base of 60% CAGR over last 3years (to $785mn in FY15).

New Launches & ramp up in injectables to drive US growth: ARBP already got 8 ANDAp p j g y gapprovals in Q1FY15 and target action dates for 14 more ANDAs. So the company targets 25‐30 launches in US. Aggressive ANDA filling of ~45 p.a. since last 3 yrs will support growth.

h i d d bli h i j bl f $ 0 (8% f S l ) iMore so, the estimated doubling growth in Injectables from $70mn (8% of US sales) in FY15to $130mn (12% of US sales) in FY17 to improve its quality of earnings. ARBP has 43 pendinginjectable ANDAs (20 are in shortage).

ARBP’s EU acquisition is on track to see turnaround in FY16 and healthy profitable growthFY17 onwards led by – 1) new launches from ARBP portfolio and 2) Site transfer of product toits green‐field integrated plant in Vizag (commissioning in Q3FY16).

BUY with TP Rs 900 : Led by strong US sales with improving product mix, EU seeing profitablegrowth, we estimate >400bps expansion in margins (25.5%) and 20% CAGR in earnings (EPS ofR 48 8) FY15 18 M ARBP i f l t b fi i i f INR d i ti

25

Rs 48.8) over FY15‐18.Moreover, ARBP is one of largest beneficiaries of INR depreciation vs.US$. Factoring that and its fastest ANDA approvals (10 in YTD), we upgrade our PO to Rs 900(22xFY17) from earlier Rs 825 and re‐iterate BUY.

Financials

Income StatementY/E Mar, Rs mn FY15 FY16E FY17E FY18E Net sales 121,205 141,386 155,686 175,080

Balance SheetAs at 31st Mar, Rs mn FY15 FY16E FY17E FY18E Cash & bank 4,691 7,704 10,882 25,864Net sales 121,205 141,386 155,686 175,080

Growth, % 50 17 10 12Total income 121,205 141,386 155,686 175,080Rawmaterial expenses ‐55,056 ‐64,472 ‐70,214 ‐78,261Employee expenses ‐13,023 ‐15,128 ‐16,347 ‐18,033Other Operating expenses 27 490 28 984 31 137 34 141

,Debtors 35,392 43,201 47,571 53,983Inventory 36,113 43,987 47,571 53,497Loans & advances 10,237 9,897 9,341 10,505Other current assets 1,214 743 743 743Total current assets 87 647 105 531 116 107 144 591Other Operating expenses ‐27,490 ‐28,984 ‐31,137 ‐34,141

EBITDA (Core) 25,636 32,802 37,987 44,645Growth, % 20.2 28.0 15.8 17.5 Margin, % 21.2 23.2 24.4 25.5 Depreciation ‐3,326 ‐4,154 ‐4,891 ‐5,622

Total current assets 87,647 105,531 116,107 144,591Investments 198 198 198 198Gross fixed assets 54,461 61,095 67,928 74,966Less: Depreciation ‐17,405 ‐21,559 ‐26,450 ‐32,073Add: Capital WIP 4,196 5,000 5,500 6,000N t fi d t 41 253 44 536 46 978 48 893EBIT 22,310 28,647 33,097 39,023

Growth, % 22.6 28.4 15.5 17.9 Margin, % 18.4 20.3 21.3 22.3 Interest paid ‐843 ‐986 ‐798 ‐852Other Non‐Operating Income 967 1,131 1,245 1,401

Net fixed assets 41,253 44,536 46,978 48,893Total assets 129,145 150,265 163,283 193,682

Current liabilities 30,712 30,394 32,944 36,748Total current liabilities 30,712 30,394 32,944 36,748

Non‐recurring Items 0 0 0 0Pre‐tax profit 21,678 28,792 33,544 39,571Tax provided ‐5,966 ‐8,638 ‐9,728 ‐11,080Profit after tax 15,712 20,155 23,816 28,491Others (Minorities Associates) 45 ‐50 ‐70 ‐100

Non‐current liabilities 46,616 48,129 36,387 36,128Total liabilities 77,328 78,523 69,331 72,876Paid‐up capital 292 292 292 292Reserves & surplus 51,267 71,192 93,401 120,255Shareholders’ equity 51,816 71,741 93,950 120,804Others (Minorities, Associates) 45 ‐50 ‐70 ‐100

Net Profit 15,757 20,105 23,746 28,391Growth, % 18.0 22.4 18.1 19.6 Net Profit (adjusted) 16,422 20,105 23,746 28,391 Unadj. shares (m) 582 582 582 582 W d h ( ) 82 82 82 82

Total equity & liabilities 129,145 150,265 163,283 193,682

26

Wtd avg shares (m) 582 582 582 582

BioconEdge in Biosimilars to do the wonder g

Best placed for global biosimilar opportunity: Biocon has already developed an unique andcomplex pipeline of biosimilar insulins with global opportunity of $18bn and MABs with


complex pipeline of biosimilar insulins with global opportunity of $18bn and MABs withopportunity of $40bn. Simultaneously, its global development & commercialization alliancewith Mylan for its biosimilar pipeline provides better visibility.

Rh‐Insulin, Glargine, Trastuzumab and Peg‐filgrastim are the key earning triggers for FY16‐FY18: The anticipated commercialisation of Biocon’s green‐field insulin plant in Malaysia byQ4FY16 leading to ramp up in insulin in ROW countries ($ 1bn opportunity) and launch ofi li / l i i b Q ld l i h i h finsulin/glargine in Europe by Q4FY17 would catalyze earning growth in the near future. Weestimate 44% sales CAGR (i.e 3 fold jump) for Biocon’s biosimilar operation over FY15‐18.

Monetization of its novel molecules – Itolizumab and Oral Insulin would surprise withMonetization of its novel molecules Itolizumab and Oral Insulin would surprise withmeaningful licensing income in the near future.

Syngene’s entry into contract manufacturing of NCEs to boost earnings quality: Its CRO arm– Syngene signed manufacturing pact for 3 NCEs with global innovators and the first one islikely to commence as early as Q4FY16. This will drive profitable growth for Biocon.

BUY ith TP f R 591 L d b i it bi i il d i t l f t i (f

27

BUY with TP of Rs 591 – Led by ramp up in its biosimilars and incremental manufacturing (forNCEs) sales by Syngene, we estimate 20%/22% CAGR in sales/profits over FY15‐18. Werecommend BUY with target price of Rs 591 (i.e 20x FY17), implying 35% upside.

Financials

Income StatementY/E Mar, Rs mn FY15 FY16E FY17E FY18E

Balance SheetAs at 31st Mar, Rs mn FY15 FY16E FY17E FY18E

h & b kNet sales 30,317 34,911 41,122 51,848Growth, % 6 15 18 26Other income 273 314 411 518Total income 30,590 35,225 41,533 52,366Rawmaterial expenses ‐14,230 ‐15,323 ‐18,025 ‐22,151

Cash & bank 9,375 16,345 18,593 21,464Debtors 7,705 7,431 8,876 11,191Inventory 4,527 5,114 5,974 7,462Loans & advances 4,506 4,579 5,399 7,331Other current assets 2,273 2,500 2,750 3,025,

Employee expenses ‐4,930 ‐5,284 ‐6,064 ‐7,331Other Operating expenses ‐4,580 ‐6,059 ‐7,061 ‐9,426EBITDA (Core) 6,850 8,560 10,383 13,458Growth, % ‐3.7 25.0 21.3 29.6Margin % 22 4 24 3 25 0 25 7

Total current assets 28,386 35,969 41,592 50,473Investments 2,303 2,303 2,303 2,303Gross fixed assets 32,953 37,101 45,956 52,253Less: Depreciation ‐14,056 ‐16,579 ‐19,704 ‐23,518Add Capital WIP 14 156 13 156 8 656 8 156Margin, % 22.4 24.3 25.0 25.7

Depreciation ‐2,210 ‐2,523 ‐3,125 ‐3,814EBIT 4,640 6,037 7,258 9,644Growth, % ‐8.6 30.1 20.2 32.9Margin, % 15.3 17.3 17.7 18.6

Add: Capital WIP 14,156 13,156 8,656 8,156Net fixed assets 33,053 33,678 34,908 36,891Total assets 63,742 71,950 78,803 89,667

Current liabilities 11,355 11,581 13,655 17,360Interest paid ‐90 ‐181 ‐187 ‐260Other Non‐Operating Income 840 1,042 1,038 1,100Non‐recurring Items 1,050 0 0 0Pre‐tax profit 6,240 7,356 8,684 10,483Tax provided ‐960 ‐1,380 ‐1,622 ‐2,306

Provisions 1,731 2,428 2,480 2,550Total current liabilities 13,086 14,009 16,134 19,910Non‐current liabilities 16,140 15,060 15,147 15,996Total liabilities 29,226 29,069 31,281 35,906Paid‐up capital 1 000 1 000 1 000 1 000p , , 2,306

Profit after tax 5,280 5,976 7,062 8,177Others (Minorities, Associates) ‐310 ‐458 ‐575 ‐654Net Profit 4,970 5,518 6,488 7,523Growth, % (4.7) 22.8 16.8 27.2 Net Profit (adjusted) 4 121 5 061 5 913 7 523

Paid‐up capital 1,000 1,000 1,000 1,000Reserves & surplus 31,795 39,229 43,870 50,109Shareholders’ equity 34,517 42,881 47,522 53,761Total equity & liabilities 63,743 71,950 78,803 89,667

28

Net Profit (adjusted) 4,121 5,061 5,913 7,523Unadj. shares (m) 200 200 200 200Wtd avg shares (m) 200 200 200 200

Cadila HealthcareAll hopes on ANDA approvalsp pp

Lack of visibility on ANDA approvals is concern for US growth: Cadila’s US generics sales (40%of sales) saw over 30% YOY growth in last four quarters largely led by 5 6 authorised generic

CMP Rs 1903 Rating: NEUTRAL Target: Rs 1835

of sales) saw over 30% YOY growth in last four quarters, largely led by 5‐6 authorised genericsupply arrangement and one‐off scarcity led price jump in Hydroxychloroquine (HCQ). Butfuture growth is hinges on ANDA approvals, which has been weak (just 5 in FY15) and themanagement lacks visibility on approval timelines. Additionally, a large chunk (~70%) of itsg y pp y, g ( %)pending pipeline is plain vanilla para III filings. We estimate Cadila’s US generics to deliver aCAGR of 20% over FY15‐18 to Rs 58.4bn.Domestic formulations to lag industry growth: Cadila’s domestic formulation (35% of sales)delivered 7% annual growth over last two years. Going ahead, we believe the domesticformulation business to lag industry growth due to larger share acute therapies. However,with selective price increase and improvement in field force productivity, we expectmoderate revenue growth of 14% CAGR over FY15‐18 (v/s 12% CAGR over FY012‐15) to Rsmoderate revenue growth of 14% CAGR over FY15‐18 (v/s 12% CAGR over FY012‐15) to Rs39.7bn in FY18.Complex technology Initiatives ensures strong future growth but lacks visibility: Cadila hasrapidly increased it R&D spend in order to upgrade its drug portfolio to complex technologyp y p pg g p p gyclass ( transdermal, inhalers, controlled release drugs, biologic/biosimilars and NCEs). Suchinitiatives have certainly enhanced the future growth visibility of Cadila but all those lackscommercial visibility.R it t N t l ith TP R 1835 W ti t C dil ’ d fit t t

29

Re‐iterate Neutral with TP Rs 1835: We estimate Cadila’s revenue and profits to grow at amoderate CAGR of 15% and 22% over FY15‐18E. We re‐iterate our NEUTRAL rating withrevised upward target price of Rs 2,097 (22x our FY17 EPS).

Financials

Income StatementY/E Mar, Rs mn FY15 FY16E FY17E FY18E Net sales 84,971 98,900 113,024 128,502

Balance SheetAs at 31st Mar, Rs mn FY15 FY16E FY17E FY18E Cash & bank 6,699 8,816 13,137 23,008Net sales 84,971 98,900 113,024 128,502

Growth, % 19 16 14 14Other income 1,542 2,769 2,826 4,498Total income 86,513 101,669 115,850 132,999Rawmaterial expenses ‐31,867 ‐34,466 ‐38,694 ‐44,156

Debtors 15,884 15,815 18,343 21,058Inventory 15,357 18,622 21,254 24,211Loans & advances 8,779 9,150 11,585 11,970Other current assets 707 851 852 853Total current assets 47 426 53 255 65 171 81 100

Employee expenses ‐12,085 ‐13,725 ‐15,060 ‐17,290Other Operating expenses ‐24,721 ‐31,619 ‐36,261 ‐41,097EBITDA (Core) 17,841 21,859 25,834 30,457Growth, % 44.3 22.5 18.2 17.9 Margin % 21 0 22 1 22 9 23 7

Total current assets 47,426 53,255 65,171 81,100Investments 1,544 1,544 1,544 1,544Gross fixed assets 51,385 59,878 66,477 73,806Less: Depreciation ‐17,863 ‐20,857 ‐24,181 ‐27,871Add: Capital WIP 7,979 6,000 6,000 5,500

Margin, % 21.0 22.1 22.9 23.7 Depreciation ‐2,873 ‐2,994 ‐3,324 ‐3,690EBIT 14,969 18,865 22,511 26,766Growth, % 44.7 26.0 19.3 18.9 Margin, % 17.6 19.1 19.9 20.8


Current liabilities 14,438 16,098 18,665 21,428Provisions 4,729 4,622 4,743 4,944g

Interest paid ‐679 ‐487 ‐451 ‐407Other Non‐Operating Income 554 1,017 1,043 1,330Pre‐tax profit 14,577 19,395 23,102 27,689Tax provided ‐2,594 ‐4,267 ‐4,620 ‐5,538

Total current liabilities 19,167 20,719 23,408 26,372Non‐current liabilities 27,099 22,709 19,778 16,875Total liabilities 46,266 43,428 43,186 43,247Paid‐up capital 1,024 1,024 1,024 1,024Reserves & surplus 41 492 53 679 69 112 88 120Profit after tax 11,983 15,128 18,482 22,151

Others (Minorities, Associates) ‐377 ‐484 ‐591 ‐687Net Profit 11,606 14,644 17,890 21,465Growth, % 49.4 24.2 22.2 20.0 Net Profit (adjusted) 11 795 14 644 17 890 21 465

Reserves & surplus 41,492 53,679 69,112 88,120Shareholders’ equity 44,204 56,391 71,825 90,833Total equity & liabilities 90,471 99,820 115,011 134,080

30

Net Profit (adjusted) 11,795 14,644 17,890 21,465 Unadj. shares (m) 205 205 205 205 Wtd avg shares (m) 205 205 205 205

Divi’s LaboratoriesThe margin leader of Indian Pharmag

Custom Synthesis to show resilience with 25% growth in FY18: Divis, led by its strong trackrecord of project executions and long standing associations with the top 20 global innovators


record of project executions and long standing associations with the top‐20 global innovators,commands the largest custom synthesis pipeline from India. With the improving outlook onpharma outsourcing and Divi’s timely facility expansion would drive sustainable growth for itscustom synthesis operation. We estimate 20% CAGR in its custom synthesis revenue overy p yFY15‐18 to Rs 24.8bn in FY18.Optimal process efficiency to maintain steady Generics growth: Divis, led by its focus oncomplex intermediates/ active ingradients, selective product approach and continuous focus

i i i & d i ffi i i h i i d i lf h l b l l d ion process optimization & production efficiencies, has positioned itself as the global leader incertain products like Naproxen, Diltiazem and Dextromethorphan. Going ahead, we believe itscontinued focus on optimal process development and cost leadership will play a pivotal rolein sustaining annual growth of ~15% over FY15‐18 to Rs 22 9bn in FY18Ein sustaining annual growth of 15% over FY15 18 to Rs 22.9bn in FY18E.Expansion led growth in FY18: Divi’s proposed a greenfield facility with an investment of Rs5bn in the Kakinada SEZ. It expects the project work to commence by Q3FY16 andcommissioning of the plant (for non‐GMP intermediates) in FY18.Reiterate NEUTRAL with TP of Rs 2,090: We expect Divi’s will deliver 17%/19% CAGR inrevenue/profit over FY15‐18E, mainly led by increased order flows and new facility expansion.Looking at its debt free balance sheet, strong return ratios and controlled capex enablinghealthy cash flows we value Divi’s at Rs 2 090 (22x FY17) implying a downside of 5% Hence

31

healthy cash flows, we value Divi’s at Rs 2,090 (22x FY17), implying a downside of 5%. Hence,we retain our NEUTRAL rating.

Financials

Income Statement

Y/E Mar, Rs mn FY15 FY16E FY17E FY18E

Net sales 31 149 37 597 44 330 50 943

Balance Sheet

As at 31st Mar, Rs mn FY15 FY16E FY17E FY18E

C h & b k 652 303 3 614 7 006Net sales 31,149 37,597 44,330 50,943

Growth, % 23 21 18 15

Total income 31,149 37,597 44,330 50,943

Rawmaterial expenses ‐12,132 ‐14,324 ‐16,845 ‐19,104

Employee expenses 2 904 3 346 3 990 4 483

Cash & bank 652 303 3,614 7,006

Debtors 7,416 8,981 10,590 12,311

Inventory 11,626 13,598 15,903 18,273

Loans & advances 1,663 2,857 3,369 4,381

Other current assets 92 92 92 93Employee expenses ‐2,904 ‐3,346 ‐3,990 ‐4,483

Other Operating expenses ‐4,460 ‐5,640 ‐6,428 ‐7,591

EBITDA (Core) 11,652 14,287 17,067 19,766

Growth, % 14.9 22.6 19.5 15.8

Margin, % 37.4 38.0 38.5 38.8

Other current assets 92 92 92 93

Total current assets 21,451 25,831 33,569 42,065

Investments 7,330 8,330 10,330 12,330

Gross fixed assets 19,530 22,689 26,369 29,688

Less: Depreciation 6 441 7 803 9 385 11 166g ,

Depreciation ‐1,360 ‐1,361 ‐1,582 ‐1,781

EBIT 10,292 12,925 15,485 17,985

Growth, % 11.6 25.6 19.8 16.1

Margin, % 33.0 34.4 34.9 35.3

Less: Depreciation ‐6,441 ‐7,803 ‐9,385 ‐11,166

Add: Capital WIP 2,182 3,000 1,500 1,500

Net fixed assets 15,271 17,886 18,484 20,022

Total assets 44,051 52,047 62,384 74,416

Interest paid ‐19 ‐38 ‐44 ‐31

Other Non‐Operating Income 428 628 721 875

Pre‐tax profit 10,721 13,516 16,162 18,829

Tax provided ‐2,206 ‐2,973 ‐3,556 ‐4,142

Current liabilities 4,298 4,177 4,926 5,802

Provisions 3,271 3,367 3,377 3,387

Total current liabilities 7,569 7,545 8,302 9,189

Non‐current liabilities 1,528 2,202 2,370 2,027Profit after tax 8,515 10,542 12,606 14,686

Net Profit 8,515 10,542 12,606 14,686

Growth, % 17.4 22.3 19.6 16.5

Net Profit (adjusted) 8,622 10,542 12,606 14,686

U dj h ( ) 133 133 133 133

Non current liabilities 1,528 2,202 2,370 2,027

Total liabilities 9,098 9,747 10,673 11,216

Paid‐up capital 265 265 265 265

Reserves & surplus 34,688 42,036 51,446 62,936

Shareholders’ equity 34,954 42,302 51,712 63,201

32

Unadj. shares (m) 133 133 133 133

Wtd avg shares (m) 133 133 133 133

q y , , , ,


Dr Reddy’s Laboratories Crowned with complex US generic pipelinep g p p

Strongest near‐term US pipeline compared to peers: DRL has the strongest pipeline of ANDAsfor US market as compared to peers that includes Propofol ($350mn with no generic


for US market as compared to peers that includes –Propofol ($350mn with no genericcompetition), Xeloda ($542mn, limited competition), Angiomax ($609mn), Nexium($2270mn), Namenda ($ 1750mn), Aloxi NDA ($450mn), Copaxone ($990mn, limited comp.),Gleevec ($1600mn, limited comp.) etc. for FY16‐FY18. We estimate 21% sales CAGR over($ , p )FY15‐17 to US$ 1380mn in FY16 and $1564mn in FY17, respectively. De‐risked near‐term drug pipeline from Srikakulam plant: DRL has already respondedadequately to USFDA observations for its Srikakulam facility. Alternatively, it has filed sitetransfer application for 5 ANDAs including Nexium whose APIs linked to Srikakulam unit. Stepped up R&D ensures long term value growth: DRL stepped up R&D spend to ~12% ofsales (highest in generic world) to deal with its pipeline of differentiated R&D projects(strongest amongst peers) comprising ‐ complex generics (multilayer oral solids,liposomal/microspheres Injectales, derma, etc), 11 biosimilars and ~12 NDDS. DRL guidesfresh sales of $150‐200mn from biosimilars in FY20 & $500mn from NDAs by FY22.

i h 0 i %/ 9% C G i S l / S 8 h h hBuy with TP Rs 4770: We estimate 15%/19% CAGR in Sales/EPS over FY15‐18. Though thenear‐term negatives (like ‐ currency fluctuation in Russia/Venezuela and 483 in 1 out of 6API units) kept its valuation under check, DRL’s continued efforts on complex generics,Biosimilars and proprietary drugs will re‐rate further Hence we re‐iterate our conviction

33

Biosimilars and proprietary drugs will re‐rate further. Hence, we re‐iterate our convictionBUY on DRL with upward revised price target of Rs 4770 (24x FY17E).

Financials


Balance Sheet


Net sales 148,189 170,955 196,121 222,066

Growth, % 12 15 15 13

Total income 148,189 170,955 196,121 222,066


Cash & bank 5,394 21,353 38,984 62,765

Debtors 40,755 42,739 49,030 55,517

Inventory 25,529 28,493 32,687 37,011

Other current assets 13,901 16,295 20,270 22,605

T l 85 579 108 880 140 971 177 897Other Operating expenses ‐50,385 ‐57,954 ‐65,505 ‐73,504

EBITDA (Core) 35,018 43,594 50,992 59,070

Growth, % 7.3 24.5 17.0 15.8

Margin, % 23.6 25.5 26.0 26.6


Investments 37,076 42,076 47,076 52,076


Less: Depreciation ‐57,672 ‐65,938 ‐75,066 ‐85,102

Add C it l WIP 6 119 6 000 6 000 6 000Depreciation ‐8,103 ‐8,266 ‐9,129 ‐10,035

EBIT 26,915 35,328 41,863 49,034

Growth, % 3.4 31.3 18.5 17.1

Margin, % 18.2 20.7 21.3 22.1

Add: Capital WIP 6,119 6,000 6,000 6,000

Net fixed assets 64,520 67,889 70,983 73,781

Non‐current assets 1,795 1,795 1,795 1,795

Total assets 194,762 225,854 265,517 309,772

Interest paid 1,682 1,294 1,275 1,143

Non‐recurring Items ‐629 0 0 0

Pre‐tax profit 28,163 36,822 43,348 50,397

Tax provided ‐5,984 ‐8,101 ‐9,537 ‐11,087


Provisions 7,252 7,250 10,668 12,555


Non current liabilities 65 548 66 280 68 404 70 929Profit after tax 22,179 28,721 33,811 39,310

Net Profit 22,179 28,721 33,811 39,310

Growth, % 6.0 25.9 17.7 16.3


Non‐current liabilities 65,548 66,280 68,404 70,929


Paid‐up capital 852 851 851 851


Shareholders’ equity 111 302 138 077 170 101 207 782

34

Unadj. shares (m) 170 170 170 170

Wtd avg shares (m) 170 170 170 170

Shareholders equity 111,302 138,077 170,101 207,782


Glenmark PharmaVisible healthy growth but priced iny g p

US generic pipeline shaping up well, expect niche launches to build up: Glenmark’s US sales


(31% of total sales) remained flat in FY15 due to lack of drug approval. It has already received8 ANDA approvals in FY16 so far and it has got visibility for few limited competitionopportunities like – Welchol ($380mn), Zetia ($1500mn), Finacea ($100mn), etc. Additionally,we expect its focus on differentiated generics in hormones oncology and derma wouldwe expect its focus on differentiated generics in hormones, oncology and derma wouldconsolidate its positioning in US generics. It has pipeline of 65 pending ANDAs (28 Para‐IV).We estimate 25% CAGR over FY15‐FY17E to Rs 37.3bn.

S t i d th i d ti f l ti W b li Gl k ’ f d k ti fSustained growth in domestic formulations: We believe Glenmarks’s focused marketing ofDerma, respiratory, Cardiac and gynecology drugs would help it grow ahead of industrygrowth. We estimate the domestic formulation sales of Glenmark to report CAGR of 17% overFY15‐17 to Rs 23 9bnFY15 17 to Rs 23.9bn.

Deleveraging has improved balance sheet: GNP recently raised Rs 9.45bn by issuing 10.8mnshares to Temasek on a preferential basis at a price of Rs 875, which helped the company tocut its gross debt by Rs 7bn (by 19%) in Q1FY16 Thus D/E improved to 0 6x from 1 3x in FY15cut its gross debt by Rs 7bn (by 19%) in Q1FY16. Thus, D/E improved to 0.6x from 1.3x in FY15.

Neutral with a target price of Rs 1090: Considering the improved ANDA approval flow andfinancial deleveraging for Glenmark, we estimate sales and profit CAGR of 19% and 33%,

l l l k ( ) l d d

35

respectively over FY15‐18. We value Glenmark at 1090 (i.e 22x FY17), implying 9% downside.However, considering strong growth and potential monetization of its innovative R&Dpipeline, we retain our NEUTRAL rating with TP of Rs1090.

Financials



Net sales 65,953 81,046 96,561 113,187Growth, % 10 23 19 17Other income 495 15 15 15Total income 66,448 81,061 96,576 113,202Rawmaterial expenses ‐19,344 ‐23,507 ‐27,041 ‐31,696

Cash & bank 7,681 17,484 16,216 19,162Debtors 25,118 25,894 30,850 36,161Inventory 12,690 14,636 17,437 20,439Loans & advances 12,382 15,401 18,349 21,508Total current assets 57,872 73,415 82,853 97,270a ate a e pe ses 9,3 3,50 ,0 3 ,696


Total current assets 57,872 73,415 82,853 97,270Investments 171 171 171 171Gross fixed assets 39,034 44,876 49,648 53,630Less: Depreciation ‐10,054 ‐13,066 ‐16,403 ‐20,010Add: Capital WIP 4,304 3,000 3,000 3,000

Margin, % 20.9 22.5 23.7 24.3 Depreciation ‐2,600 ‐3,012 ‐3,337 ‐3,607EBIT 11,216 15,227 19,553 23,903Growth, % 2.6 35.8 28.4 22.2 Margin, % 17.0 18.8 20.2 21.1


Current liabilities 24,564 29,272 34,874 40,877Provisions 1,513 1,764 1,834 1,902

Interest paid ‐1,902 ‐1,550 ‐1,150 ‐750Other Non‐Operating Income 69 328 640 713Pre‐tax profit 9,685 14,005 19,044 23,866Tax provided ‐1,190 ‐3,641 ‐5,141 ‐6,443Profit after tax 8,494 10,364 13,903 17,423

, , , ,Total current liabilities 26,077 31,035 36,708 42,780Non‐current liabilities 37,999 30,999 22,999 14,999Total liabilities 64,076 62,035 59,708 57,779Paid‐up capital 271 282 282 282R & l 29 732 48 832 62 032 78 751

Others (Minorities, Associates) 1 3 4 5Net Profit 8,495 10,367 13,907 17,428Growth, % 3.1 38.9 34.1 25.3 Net Profit (adjusted) 7,461 10,366 13,905 17,425 Unadj shares (m) 271 282 282 282


36

Unadj. shares (m) 271 282 282 282 Wtd avg shares (m) 271 282 282 282

IPCA Laboratories Negatives seems bygonesg yg

Resumption of HCQS to more than cover the lost US sales: IPCA in alliance with Ranbaxy (Sun Pharma)resumed the supply of exempted drugs (from Import alert) Hydroxychloroquine Sulfate (HCQS) and


resumed the supply of exempted drugs (from Import alert) ‐ Hydroxychloroquine Sulfate (HCQS) andPropanolol ‐ for US market in Q4FY15 and guides for normalized supply Q2FY16 onwards. We estimateIPCA to generate sale of $30mn in FY16 & $60mn in FY17 (vs. Peak of $37mn in FY14) from US, as itlaunched HCQS at the prevailing price point (i. e. jumped up 4‐5x in the recent months).Q p g p p ( j p p ) USFDA facility issues addressed well: It has already submitted 5 updates of corrective actions for Ratlamand 3 on its formulation facilities with the USFDA and currently undergoing an internal audit by Lachmanconsultant. IPCA expects to approach USFDA for inspection in Q2FY16. Normalcy in institutional supply & EU formulation exports Q2FY16 onwards : IPCA’s Institutional exports(14% sales) saw 40% fall in FY15 mainly due to import alert in its Ratlam facility. However, the companyexpects normalized business Q2FY16 onwards as WHO has cleared its Ratlam plant recently. This could

l i l i i i l l f R 4 4 5b i h d f 30%result in an annual institutional sales of Rs 4‐4.5bn as it has an assured quota of 30%. Likewise, we expects a ramp up in its European exports soon as IPCA has already got EU MedicineAgency (EMEA) clearance for its Ratlam API plant, UK MHRA clearance for its Silvassa/Pithampurformulation plant IPCA guides at +25% growth in formulations exports to EU in the near futureformulation plant. IPCA guides at +25% growth in formulations exports to EU in the near future. Negatives seems overdone; Buy with TP Rs 853 and potential re‐rating further: With the US recoveringmore than lost sales and likely normalcy in institutional as well as European formulation exports, weestimate 45% CAGR in IPCA’s earnings to Rs 64.9/share in FY18. Hence, we expect a gradual re‐rating in

37

estimate 45% CAGR in IPCA s earnings to Rs 64.9/share in FY18. Hence, we expect a gradual re rating inIPCA with the return of normalcy in formulation exports after the recent facility clearances. We re‐rateBUY with upward revised TP of Rs 853 (i.e 18x FY17).

Financials

Income Statement

Y/E Mar, Rs mn FY15 FY16E FY17E FY18E Balance SheetAs at 31st Mar, Rs mn FY15 FY16E FY17E FY18E

Net sales 31,166 35,045 44,254 52,321

Growth, % ‐3 12 26 18

Other income 252 701 885 1,046

Total income 31,418 35,746 45,139 53,368

Cash & bank 1,248 3,905 5,504 8,798Debtors 3,530 4,897 6,426 7,597Inventory 9,266 9,217 11,640 13,761Loans & advances 3,242 3,504 4,425 5,232Total current assets 17 285 21 524 27 995 35 388Rawmaterial expenses ‐11,547 ‐13,047 ‐15,934 ‐18,785

Employee expenses ‐5,651 ‐6,148 ‐7,087 ‐8,005


EBITDA (Core) 5,291 6,970 10,472 13,502

Growth % (34 7) 31 7 50 2 28 9

Total current assets 17,285 21,524 27,995 35,388Investments 162 100 100 100Gross fixed assets 25,463 29,032 31,794 34,665Less: Depreciation ‐7,459 ‐9,331 ‐11,381 ‐13,619Add: Capital WIP 2,672 1,600 1,610 1,610N fi d 20 676 21 301 22 022 22 657Growth, % (34.7) 31.7 50.2 28.9

Margin, % 16.8 18.1 22.1 24.4

Depreciation ‐1,796 ‐1,872 ‐2,051 ‐2,237

EBIT 3,495 5,099 8,422 11,265

Growth, % (50.6) 45.9 65.2 33.8


Current liabilities 4,406 5,267 6,428 7,450Provisions 540 620 704 758, ( )

Margin, % 11.2 14.5 19.0 21.5 Interest paid ‐284 ‐316 ‐339 ‐326

Other Non‐Operating Income 358 250 316 374

Pre‐tax profit 3,562 5,043 8,409 11,323

Total current liabilities 4,946 5,887 7,132 8,209Non‐current liabilities 11,093 11,586 12,337 11,907Total liabilities 16,039 17,473 19,469 20,116Paid‐up capital 252 252 252 252Reserves & surplus 21,832 25,199 30,396 37,777

Tax provided ‐1,019 ‐1,133 ‐1,975 ‐2,703

Profit after tax 2,542 3,910 6,434 8,619

Net Profit 2,542 3,910 6,434 8,619

Growth, % (49.2) 27.4 72.1 36.8

Net Profit (adjusted) 2 677 3 410 5 867 8 028


38


Unadj. shares (m) 125 125 125 125

Wtd avg shares (m) 125 125 125 125

Lupin Weak US pipeline and higher R&D spend drags downp p g p g

Weaker drug pipeline and price correction to moderate US growth: Considering the limited visibleopportunities likely delayed launch of key drugs and ~12% price correction in its base business we expect

CMP Rs 1898 Rating: SELL Target: Rs 1700

opportunities, likely delayed launch of key drugs and 12% price correction in its base business, we expectLupin to see moderated 11% like‐to‐like US generics growth in FY15‐18 (vs 22% Sales CAGR over FY12‐15).However, the acquisition of Gavis could support growth but would not match earlier growth momentum.

USFDA’s 483 with 9 observations on its Goa plant might require re‐inspection leading to approvalUSFDA s 483 with 9 observations on its Goa plant might require re‐inspection leading to approvaldelays: Lupin’s Goa plant is an important unit for its US business; the USFDA has raised 9 observationsrelated to its manufacturing process, quality control, and SOPs.

Lupin’s acquisition of Gavis to be earning dilutive in FY16 and neutral in FY17: Lupin acquired US‐basedLupin s acquisition of Gavis to be earning dilutive in FY16 and neutral in FY17: Lupin acquired US basedGavis Pharma (Novel Labs) for US$ 880mn at 9.2x CY14 sales. Lupin guides for 3x jump in Gavis’ sales inFY18 led by ~50 ANDA approval (out of 66 pending), which we doubt considering the age‐profile of itsANDAs. Moreover we believe this leveraged buyout will drag earning in the near future.

Ambitious R&D initiatives to depress profitability: Targeting long term growth in US, it has laid out arobust ANDA filling agenda covering – inhalation, injectable, derma and biosimilars drugs over FY15‐18. Ithas also stepped up its R&D toward drug discovery. These initiatives push the R&D spend up by 200‐300b l di tti ll i i th t300bps leading putting pressure on overall margins in the near‐term.

Lowers FY16 guidance: The company guided to miss its FY16 sales growth guidance of 15‐16%.

No near term trigger makes it expensive; Sell with TP Rs 1700: Considering Lupin’s strong growth track

39

record, we expect it to trade at premium to broad index (trades at 22x FY17). Hence, we value Lupin atRs 1700 (i.e. 24x FY17 EPS), implying a downside of 10%. Re‐iterate Sell.

Financials



h b kNet sales 125,997 142,467 173,088 194,398Growth, % 14 13 21 12Other income 1,703 2,137 2,596 2,916Total income 127,700 144,604 175,684 197,314Rawmaterial expenses ‐41,570 ‐46,852 ‐55,867 ‐62,154

Cash & bank 4,814 45,096 50,571 66,789Debtors 26,566 29,681 36,060 40,500Inventory 25,036 27,702 33,656 37,800Loans & advances 6,166 11,255 15,405 16,524Other current assets 1,929 3,562 4,327 6,804


, , , ,Total current assets 64,510 117,295 140,019 168,415Investments 16,584 26,584 36,584 46,584Gross fixed assets 67,011 79,537 87,190 95,226Less: Depreciation ‐23,329 ‐28,184 ‐33,629 ‐39,692Add C it l WIP 5 760 3 500 3 500 3 000Margin, % 28.7 27.8 29.1 29.6

Depreciation ‐4,347 ‐4,855 ‐5,445 ‐6,063EBIT 31,849 34,766 44,977 51,552Growth, % 16.2 9.2 29.4 14.6 Margin, % 25.3 24.4 26.0 26.5 Interest paid 98 1 498 1 498 1 520


Current liabilities 27,634 29,681 36,060 40,500Interest paid ‐98 ‐1,498 ‐1,498 ‐1,520Other Non‐Operating Income 2,398 2,152 2,649 3,576Pre‐tax profit 34,148 35,420 46,127 53,609Tax provided ‐9,704 ‐10,626 ‐13,838 ‐15,010Profit after tax 24,444 24,794 32,289 38,598

Provisions 7,363 8,471 9,147 10,048Total current liabilities 34,997 38,152 45,207 50,548Non‐current liabilities 7,399 51,960 51,973 52,687Total liabilities 42,396 90,112 97,181 103,235Paid up capital 899 899 899 899Others (Minorities, Associates) ‐412 ‐372 ‐484 ‐579

Net Profit 24,032 24,422 31,805 38,019Growth, % 30.9 1.6 30.2 19.5 Net Profit (adjusted) 24,032 24,422 31,805 38,019 Unadj. shares (m) 450 450 450 450

Paid‐up capital 899 899 899 899Reserves & surplus 87,842 108,322 136,185 170,000Shareholders’ equity 88,982 109,462 137,325 171,140Total equity & liabilities 131,377 199,574 234,506 274,375

40

Wtd avg shares (m) 450 450 450 450

Sun PharmaWeighed down by facility issues and RBXY mergerg y y g

Facility issues & pricing pressure is the key near term concern: SUNP’s US business(comprising of Taro Pharma & Ranbaxy) is the dominant revenue stream with 50%

CMP Rs 903 Rating: SELL Target: Rs 798

(comprising of Taro Pharma & Ranbaxy) is the dominant revenue stream with 50%contribution. After seeing a dream growth run with 48% over FY11‐FY14 (largely led byunique supply opportunity of Doxil/Doxycicline and price hikes by Taro), Sun’s like‐to‐like USsales was flat in FY15 and will remain same in FY16 as well. Primarily the price erosion in itsy pUS portfolio and continuing supply issues at its Halol plant (its largest facility) caused byUSFDA’s form 483 would continue to impact overall performance in the visible future.

b i i i i dil i i b li b ’ iRanbaxy integration to remain earning dilutive in near term:We believe Ranbaxy’s operatinginefficiency, unabsorbed overheads in its 3 plants with import alerts and 16.2% equity dilutionled by the merger to drag earning efficiency of SUNP in the visible future. Though themanagement guides for a synergy benefit of US$280‐300mn in FY18 which (if achieved)management guides for a synergy benefit of US$280‐300mn in FY18, which (if achieved)would largely be negated by 16.2% equity dilution.

Limited visibility on facility issues & earning triggers ; Sell with TP Rs 798: Considering itsrobust US generic track record, special focus on complex/technology‐led generics and effortstowards biologics, we believe SUNP to retain its valuation leadership going ahead. Hence, wevalue SUNP at Rs 798 (i.e. 25x FY17), implying a downside of 12%. Moreover, Ranbaxyi t ti bi h ll f th H it t SELL ith d d

41

integration seems a big challenge for the company. Hence we re‐iterate SELL with downwardrevised TP of Rs 798

FinancialsIncome Statement


Net sales 272,865 295,908 340,656 383,921

Balance Sheet


Cash & bank 109,980 148,772 207,444 281,342Growth, % 70 8 15 13

Other income 1,469 1,500 1,700 1,900

Total income 274,334 297,408 342,356 385,821


, , , ,

Debtors 53,123 57,560 66,265 75,732

Inventory 56,680 61,960 71,324 81,451

Loans & advances 48,738 51,784 59,615 71,025

Other current assets 28,883 31,771 34,948 38,443Employee expenses ‐44,299 ‐49,072 ‐53,065 ‐59,802


EBITDA (Core) 80,636 89,222 116,401 138,896

Growth, % 11.1 10.6 30.5 19.3

M i % 29 6 30 2 34 2 36 2


Investments 27,163 27,163 27,163 27,163


Less: Depreciation ‐68,475 ‐82,388 ‐97,457 ‐113,504Margin, % 29.6 30.2 34.2 36.2

Depreciation ‐12,948 ‐13,913 ‐15,069 ‐16,047

EBIT 67,688 75,310 101,332 122,849

Growth, % (1.2) 11.3 34.6 21.2

Margin % 24 8 25 5 29 7 32 0

Add: Capital WIP 8,000 8,000 5,000 5,010

Net fixed assets 147,211 148,125 145,476 142,476

Total assets 490,280 547,136 637,235 742,644

Margin, % 24.8 25.5 29.7 32.0

Interest paid ‐5,790 ‐5,744 ‐6,004 ‐6,275

Other Non‐Operating Income 4,521 4,461 5,135 5,787

Pre‐tax profit 66,419 74,027 100,463 122,361

Tax provided ‐9,147 ‐8,883 ‐12,056 ‐15,907


Provisions 58,687 62,671 71,400 82,858


Non‐current liabilities 79,709 83,037 86,756 90,624

Profit after tax 57,272 65,144 88,408 106,454

Others (Minorities, Associates) ‐9,363 ‐10,322 ‐11,626 ‐13,839

Net Profit 47,909 54,822 76,782 92,615

Growth, % (16.5) 14.7 40.1 20.6


Paid‐up capital 2,071 2,406 2,406 2,406


Shareholders’ equity 293,582 338,641 407,754 487,710

T t l it & li biliti 490 280 547 136 637 235 742 644

42


Unadj. shares (m) 2,406 2,406 2,406 2,406

Wtd avg shares (m) 2,406 2,406 2,406 2,406


CiplaRe‐Engineered for value growth aheadg g

Entry of its Respiratory franchise in advanced markets to drive value growth: Cipla led by its competitive advantage ind


the area of respiratory generics has already emerged the 3rd largest manufacturer of pMDIs in the world. Its recentlaunch of Advair pMDI in advanced market of Germany, Sweden, Romania, etc has already enhanced EU respiratorysales visibility. The anticipated launch of Advair pMDI in the UK (~$500mn opportunity) in near future will be the keyearning catalyst for Cipla We estimate Advair pMDI in EU region to contribute about Euros 60‐70mn in FY17earning catalyst for Cipla. We estimate Advair pMDI in EU region to contribute about Euros 60‐70mn in FY17.

Leveraging it competitive advantage in the respiratory generics (for the entire range metered dose inhalers (pMDIs), drypowder inhalers (DPIs), nasal sprays, nebulisers and a range of inhalation devices), Cipla expect over 3 fold growth in itsrespiratory business from current $350mn to $1.2bn by 2020 and believes 50% of this growth would be led by India,p y y g y ,South Africa and Emerging markets.

US business to be next growth driver: Cipla has about 22 manufacturing partnerships for US market and the companyexpects at least 1 big ticket supply opportunity (like nexium, pulmicort, etc) every year for next five years. So the supplybased revenue to US would see a steady growth. Apart from the B2B business, its recent front‐end initiatives in US willgradually focus on the key areas of its strength like – Respiratory, HIV, Oncology, etc and would drive long‐term growthin its US business. CIPLA aspires over $1bn sales from US in 2020 from $150mn currently. We estimate 26% sales CAGRfor Cipla’s US business to $296mn over FY15 18for Cipla’s US business to $296mn over FY15‐18.

Initiate our NEUTRAL rating on Cipla with TP of Rs 655: On improved visibility in its respiratory business, US genericlaunches, and strong performance in core markets of India/ South Africa, we estimate Cipla’s revenue and profits togrow at CAGR of 17% and 28% over FY15‐18E and EBITDA margin would expand by 400bps over FY15‐18E Considering

43

grow at CAGR of 17% and 28% over FY15 18E and EBITDA margin would expand by 400bps over FY15 18E. ConsideringCipla’s business transition from pure contract manufacturing to front‐end in the advanced markets (US/EU) and itsprogress in complex respiratory space globally, we value Cipla at Rs 655 (i.e 23x FY17) and initiate our Neutral rating withTP Rs 655.

FinancialsIncome Statement


Net sales 1,01,001 1,13,454 1,37,281 1,55,887

Balance Sheet


Cash & bank 5 643 7 758 18 478 34 5961,01,001 1,13,454 1,37,281 1,55,887Growth, % 22 12 21 14Total income 1,01,001 1,13,454 1,37,281 1,55,887Rawmaterial expenses ‐38,748 ‐41,897 ‐50,108 ‐56,899Employee expenses ‐15,430 ‐19,737 ‐22,514 ‐24,942

5,643 7,758 18,478 34,596Debtors 20,043 24,447 27,761 31,642Inventory 37,806 47,014 53,386 60,407Loans & advances 10,043 11,257 12,003 13,124Other current assets 2,666 2,590 2,776 2,967

Other Operating expenses ‐25,496 ‐30,204 ‐34,320 ‐38,192EBITDA (Core) 21,328 21,617 30,339 35,854Growth, % (3.0) 1.4 40.3 18.2 Margin, % 21.1 19.1 22.1 23.0 D i i

, , , ,Total current assets 76,201 93,067 114,404 142,737Investments 6,398 6,398 6,398 6,398Gross fixed assets 70,031 78,633 87,924 97,958Less: Depreciation ‐27,319 ‐32,981 ‐39,311 ‐46,364

Depreciation ‐3,726 ‐5,047 ‐5,662 ‐6,331EBIT 17,602 16,570 24,678 29,523Growth, % (5.7) (5.9) 48.9 19.6 Margin, % 17.4 14.6 18.0 18.9 Interest paid 1 457 1 683 1 564 1 351


Interest paid ‐1,457 ‐1,683 ‐1,564 ‐1,351Other Non‐Operating Income 2,654 1,656 2,059 2,338Pre‐tax profit 18,799 16,543 25,173 30,511Tax provided ‐4,634 ‐4,000 ‐5,790 ‐7,017Profit after tax 14,165 12,542 19,383 23,493

Current liabilities 21,199 23,713 28,200 32,351Provisions 5,806 7,781 8,618 9,478Total current liabilities 270,049 314,940 368,184 418,294Non‐current liabilities 19,880 18,488 16,358 17,695

, , , ,Net Profit 14,165 12,542 19,383 23,493Growth, % (10.2) (8.7) 48.0 21.4 Net Profit (adjusted) 13,939 12,729 18,834 22,870 Unadj. shares (m) 803 803 803 803

Total liabilities 46,885 49,982 53,177 59,525Paid‐up capital 1,606 1,606 1,606 1,606Reserves & surplus 108,214 125,991 147,878 173,653Shareholders’ equity 109,820 127,597 149,484 175,259T t l it & li biliti

44

Wtd avg shares (m) 803 803 803 803 Total equity & liabilities 156,704 177,579 202,661 234,784

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45

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Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. The recipient should carefully consider whether trading/investment is appropriate for therecipient in light of the recipient’s experience, objectives, financial resources and other relevant circumstances. PCIPL and any of its employees, directors, associates, group entities, or affiliates shall not beliable for losses, if any, incurred by the recipient. The recipient is further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek trading/investment advicebefore investing. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PCIPL and any of its employees, directors, associates, group entities, affiliates are not inducingthe recipient for trading/investing in the financial market(s). Trading/Investment decision is the sole responsibility of the recipient.

For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., 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 supervisionby 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.

This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act)and interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then itand interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then itshould not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated, and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor.

In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors,PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research reportshould be effected through Marco Polo or another U.S. registered broker dealer

PhillipCapital (India) Pvt. Ltd.p p ( )Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

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