April10,2014

Pharmaceuticals

InstitutionalEquities
IndiaResearch

QUARTERLYPREVIEW

KeyHighlightsoftheQuarter

Mar14QtrlyPAT
InRs.Mn

Karvy Thedomesticformulationsmarkethasbeenimprovingmonthonmonthandhas

shown a positive growth for the last couple of months. Select companies such as
Sun,Lupin,Ipca,AlembicandIndocowillcontinuetooutperform.
Ranbaxy

1637
Rupee movement: Rupee depreciation will continue to help export oriented
Cadila

2502 pharmacompaniesinthisquarter.Ithasdepreciatedby13.8%YoYoverQ4FY13
Lupin

5100 and appreciated by 0.75 % QoQ over Q3FY14. Yen has depreciated 2% YoY,.
Dr.ReddysLabs

5496 however,onprecedingquarteryenappreciationhasbeen3.7%.
Domesticformulations:IPMgrowthfor4QFY14(Jan14+Feb14)isat6.6%YoY,
Source:KarvyInstitutionalResearch
Companies that have witnessed higher than industry growth in 2M are Sun
Pharma (+17.8%), Torrent (+15.7%), Zydus Cadila (+5.9%), Ipca (+26.6%), DRL

(+4.5%),Cipla(+5.5%),Lupin(+12.4%),andAlembicPharma(+12.1%).

USmarket:Overall,therewere21ANDAapprovalsintheUSmarket.Lupinhas
MajorchangesinTargetPrice(TP) gotmaximum5approvalsinourspace,ZydusCadilahas4approvalswhileDRL
New
% and Sun Pharma has got 3 approvals each. In midcaps, Ipca Labs has received 2

Rating
TP Change approvalswhileAlembicandUnichemhavealsogot1approvaleach.
SunPharma

AlembicPharma

13157

BUY

346

44.6

IpcaLab

HOLD

871

3.4

CadilaHC

HOLD

1120

Lupin

BUY

1110

Cipla

SELL

394

BUY

3024

SELL

588

14.1

BUY

1596

7.0

SELL

2283

26

DrReddys

ResultExpectations
Weexpect23.2%YoYimprovementinrevenuesforQ4FY14forcompaniesinour

7.7 space. Revenue growth for Sun Pharma (+48.9% YoY), Lupin (+21% YoY) and
4.2 Cadila Healthcare is at (+20.3% YoY). Net Profit growth for the companies (ex
2.4 Ranbaxy)willbetothetuneof15.5%forthequarter.
3.9 RatingChange&RevisionofPriceTarget:WerolloverourtargetpricetoFY16E

asagainstDec15Eearlierformajorityofthecompanies.WeintroduceFY16Enos
forTorrentPharma,DivisLabsandAlembicPharmaandrolloverourtargetprice
toFY16E.WeupgradeourmultipleforCadilaHCfrom18xto18.5xduetobetter
visibility.
Wefactorrevenuegrowthof18%forFY16EforTorrentPharmaonthebackofa
13.8 % growth in domestic formulations and US clockingagrowth of 23 %.With
EBDITAMat20%andEPSgrowthat13.8%whichdoesnotincludeamortization
ofgoodwill,wecontinuewithourSELLratingonthestockwithapricetargetofRs
588 based on 15x FY 16E. In Divis, the USFDA approval will pave for regulated
salesinFY15E,thefullimpactwillbeseeninFY16Ewitharevenuegrowthof20
% and margins of 40 %. With EPS of Rs 88.5 we roll over to FY 16E with a price
targetofRs1596basedon18xFY2016EandcontinueourBUYratingonthestock.
WeupgradeourratingonAlembicPharmatoBUYwithatargetpriceofRs346
basedon15xFY16Eduetoaseriesopportunitieswhichareexpectedtounfoldin
FY15E and FY16E. We upgrade our EPS estimates for FY15E by 3 % to Rs 138.3
and by 8% to Rs 151.2 for FY16E for Dr Reddys Labs on account of inclusion of
opportunities. We upgrade our price target by 3.9 % to Rs 3024 based on 20x
FY16E.OnaccountofclosureofbuybackbyGSKPharmaPlc,wereduceourtarget
price for GSK Pharma India by 26 % to Rs 2283 based on 30x CY 2015E which
impliesadividendyieldof4.8%duetosaleofThaneplantbeingdistributedinthe
formofdividend

Valuation&Recommendations

TorrentPharma
DivisLabs
GSKPharma

Source:KarvyInstitutionalResearch

ChangeinRating
Old

New

AlembicPharma

HOLD

BUY

Sanofi

HOLD

UR

DrReddys

HOLD

BUY

SELL

UR

Ranbaxy

Source:KarvyInstitutionalResearch

AnalystsContact
RahulSharma
02261844310
rahul.sharma@karvy.com

WelikeSunPharma,DrReddylabs&LupininthelargecapspacewhileUnichem
LabsandIndocoRemediesremainsourtoppickinthemidcapcapspace.

April10,2014

Pharmaceuticals
Mar14QuarterlyEstimates
Mar14E

Mar13

Dec13

YoY(%)

QoQ(%)

Comment

SunPharmaceuticalInds.Ltd.(SUNPINEQUITY,BUY,CMP:Rs.630,TP:Rs.684,Mcap:Rs1305bn)
Sales(Rsmn)

45,958

30,870

43,124

48.9

6.6

EBITDA(Rsmn)

19,625

12,754

20,009

53.9

(1.9)

42.8

41.5

46.7

PBT(Rsmn)

19,038

12,814

20,235

48.6

(5.9)

PAT(Rsmn)

13,157

10,116

15,310

30.1

(14.1)

EBITDAmargin(%)

Domesticformulationsgrowat20%YoY.USbusiness
willgrowby64%toRs29bncomparedtoRs17.8bnin
Q4FY13.Doxil,Cymbalta,TemodarandDesvenlafaxine
tocontributeinthisquarter.
Marginstoremainhigheronyoyby130bps

Dr.ReddysLaboratoriesLtd.(DRRDINEQUITY,BUY,CMP:Rs.2624,TP:Rs.3024,Mcap:Rs446bn)
Sales(Rsmn)

36,065

33,394

35,338

8.0

2.1

9,470

8,917

9,940

6.2

(4.7)

26.3

26.7

28.1

PBT(Rsmn)

7,529

7,845

8,706

(4.0)

(13.5)

PAT(Rsmn)

5,496

5,704

6,185

(3.6)

(11.1)

EBITDA(Rsmn)
EBITDAmargin(%)

Revenue growth is likely to be 8 %YoY. Generics

growthof31%YoYandPSAIdegrowthof45%YoY.US
generics market growth of 48%YoY Dacogen,
Divaloproex, Vidaza and Sumatriptan would be
incremental revenue drivers. While Europe will show
flatgrowth,Russiaisexpectedtogrow20%YoY
MarginsarelikelytoremainmarginallylowerYoYdue
tohigerSG&AandR&D.

RanbaxyLabs(RBXYINEQUITY,UR,CMP:Rs.467,Mcap:Rs189bn)
Sales(Rsmn)

28,554

25,005

28,940

14.5

1.4

2,380

1,905

2,703

24.9

(12.0)

8.3

7.6

9.3

PBT(Rsmn)

1731

1,670

(603)

3.7

(387)

PAT(Rsmn)

1,637

1,257

(1,589)

30.2

(203)

EBITDA(Rsmn)
EBITDAmargin(%)

Weexpectthecompanytowitnessflatgrowthindollar
terms.USwillclocklowergrowthduetoToansaissue.
LATAM region will see growth of 10%. Absorica
continuestodowellwithmktshareof22%.

MarginstodeclineonQoQbasisduetoToansaissue.
Forexgainonaccountofderivativesandloanstothe
tuneofRs1.3bn

Lupin(LPCINEQUITY,BUY,CMP:Rs.973,TP:Rs.1110,Mcap:Rs436bn)
Sales(Rsmn)
EBITDA(Rsmn)
EBITDAmargin(%)

31,051

25,674

30,220

20.9

2.8

7,930

6,403

7,733

23.8

2.5

25.5

24.9

25.6

PBT(Rsmn)

7,400

5,042

7,379

46.8

0.3

PAT(Rsmn)

5,100

3,897

4,762

30.9

7.1

DomesticgrowthforLupinwillbeat14%YoYwhileUS
businesswillgrowby28%YoY.Trizivir,Duloxetineand
Zymaxid would be incremental revenue drivers. Japan
shoulddobetteronQoQ.
Margins will be maintained QoQ due to better
realizationsandscaleinnicheproducts.

GlaxoSmithKlinePharmaceuticalsLtd.(Standalone)(GLXOINEQUITY,SELL,CMP:2545,TP:Rs2283,Mcap:Rs216bn)
Sales(Rsmn)

6373

6369

6373

0.1

0.0

(29.9)

(0.6)

EBITDA(Rsmn)

1175

1676

1182

EBITDAmargin(%)

18.4

26.3

18.6

PBT(Rsmn)

1945

2404

1603

(19.1)

21.4

PAT(Rsmn)

1313

1690

1169

(22.3)

12.4

NegativeimpactofNLEMpolicycontinuesduetohigh
exposuretoNLEMlisteddrugs.

EBITDAmarginsareloweronYoYonthebackof
NLEMpolicy.Profitshigherduetodividendreceipt.

CadilaHealthcareLtd.(CDHINEQUITY,HOLD,CMP:Rs.1015,TP:Rs.1120,Mcap:Rs208bn)
Sales(Rsmn)

19,395

16,119

18,716

20.3

3.6

3,774

2,864

2,951

31.8

27.9

19.5

17.8

15.8

PBT(Rsmn)

3,102

2,170

2,394

43.0

29.6

PAT(Rsmn)

2,502

2,625

1,858

(4.7)

32.2

EBITDA(Rsmn)
EBITDAmargin(%)

Domestic formulations to grow by 6.3%YoY. US

revenue growth of 70% YoY to provide a fillip to
domesticwoes. Frenchbusiness isexpectedtogrowby
10%YoY.
EBITDAMhigherby170bpsduetolowcompetition
opportunities.

SanofiIndiaLimited:(Standalone)(SANLINEQUITY,UR,CMP:Rs.2943,Mcap:Rs68bn)
Sales(Rsmn)

4,316

3,881

4,883

11.2

(11.6)

EBITDA(Rsmn)

834

720

1,139

15.8

(26.8)

EBITDAmargin(%)

19.3

18.6

23.3

PBT(Rsmn)

707

657

1,018

7.6

(30.6)

PAT(Rsmn)

477

444

927

7.5

(48.5)

Sanofisalestogrowat11%YoYowingtolowerbase

MarginswillmoveupduetosavingsinGrossMargins

April10,2014

Pharmaceuticals
IpcaLabsLtd.(IPCAINEQUITY,HOLD,CMP:Rs.820,TP:Rs.871,Mcap:Rs103bn)
Sales(Rsmn)

8072

6717

8245

20.2

(2.1)

EBITDA(Rsmn)

2019

1423

2089

41.9

(3.3)

25

21.2

25.3

PBT(Rsmn)

1754

1255

1808

39.8

(3.0)

PAT(Rsmn)

1289

754

1391

71.0

(7.3)

EBITDAmargin(%)

Domestic formulations to grow at 15% yoy. Exports

formulationstogrowby28%duetostrongperformance
ininstitutionalandGenericBusiness.
MarginsimprovedYoYduetolowerCOGS

TorrentPharmaceuticalsLtd.(TRPINEQUITY,SELL,CMP:Rs.559,TP:Rs.588,Mcap:Rs95bn)
Sales(Rsmn)

9,992

8,420

10,150

18.7

(1.6)

EBITDA(Rsmn)

1,963

1,680

2,150

16.8

(8.7)

19.6

20

21.2

PBT(Rsmn)

1,678

1,670

1,880

0.5

(10.8)

PAT(Rsmn)

1,292

1,110

1,580

16.4

(18.2)

EBITDAmargin(%)

Domestic Formulations to grow by 15 % YoY. In

Exports, US will witness growth of 112% YoY due to
bettertractioninCymbalta
Marginsarelowerduetogreatercostpush

Cipla.(CIPINEQUITY,SELL,CMP:Rs.401,TP:Rs.394,Mcap:Rs322bn)
Sales(Rsmn)

25448

19667

25808

29.39

(1.39)

EBITDA(Rsmn)

4564

4095

4673

11.46

(2.33)

EBITDAmargin(%)

17.9

22.9

18.1

PBT(Rsmn)

3444

3720

3952

(7.41)

(12.85)

PAT(Rsmn)

2461

2676

2843

(8.02)

(13.43)

Domestic market is expected to grow at 15% YoY this

Quarter,exportstogrowby42%.
MarginswillbeloweronYoYduetohigherstaffcost
andoverheads.

DivisLabsLtd.(Standalone)(DIVIINEQUITY,BUY,CMP:Rs.1361,TP:Rs.1596,Mcap:Rs181bn)
Sales(Rsmn)

7,890

6,513

6,893

21.2

14.5

EBITDA(Rsmn)

3,265

2,524

2,878

29.4

13.4

41.4

38.8

41.8

PBT(Rsmn)

3,086

2,391

2,721

29.1

13.4

PAT(Rsmn)

2,407

1,818

2,190

32.4

9.9

EBITDAmargin(%)

CustomsSynthesisandGenericstogrowat20%YoY.

Marginsarehigheronthebackofhighergrossmargins
andlowerpowercost.

UnichemLabs(Standalone)(ULINEQUITY,BUY,CMP:Rs.220,TP:Rs.311,Mcap:Rs20bn)
Sales(Rsmn)

2,656

2,435

2,649

9.1

0.3

EBITDA(Rsmn)

495

418

481

18.3

2.8

EBITDAmargin(%)

18.6

17.2

18.2

PBT(Rsmn)

414

348

407

19.0

1.6

PAT(Rsmn)

320

310

742

3.3

(56.8)

Domestic formulations to witness growth of 13%YoY.

Exports to degrow by 1.5%YoY mainly due to 7% de
growthinformulations.

MarginsareexpectedtoimproveQoQduetosavingsin
staffcostandoverheads.ProfitslowerQoQduetosale
ofplanttoMylaninQ3FY14

AlembicPharma(ALPMINEQUITY,BUY,CMP:Rs.277,TP:Rs.346,Mcap:Rs52bn)
Sales(Rsmn)

4,655

3,781

4,856

23.1

(4.1)

EBITDA(Rsmn)

987

621

1,022

59.0

(3.4)

EBITDAmargin(%)

21.2

16.5

21.1

PBT(Rsmn)

829

552

888

50.2

(6.6)

PAT(Rsmn)

647

437

659

48.1

(1.9)

Exports formulations to see high growth of 75 % YoY

due to Telmisartan HCTZ launch, while domestic
formulationwillgrowat12.5%YoY.
MarginswillbeflatQoQ

IndocoRemediesLtd.(INDRINEQUITY,BUY,CMP:Rs.137,TP:Rs.200,Mcap:Rs13bn)
Sales(Rsmn)

1932

1590

1878

21.5

2.9

EBITDA(Rsmn)

304

254

299

19.5

1.8

EBITDAmargin(%)

15.7

16

15.9

PBT(Rsmn)

202

143

181

41.9

11.9

PAT(Rsmn)

160

129

141

24.4

13.2

Export formulation to grow by 22% YoY while

Domesticformulationgrowthwillbeat18%YoY.
Marginstoremainsteadyonaqoqbasis

Source:KarvyInstitutionalResearch

April10,2014

Pharmaceuticals

EstimatesRevision

Pharmaceuti
cals
Dr.Reddys
Lab

Revenues(Rsmn)
Old

EBITDA(Rsmn)

New

Old

PAT(Rsmn)

New

Old

New

FY15E

FY16E

FY15E

FY16E

FY15E

FY16E

FY15E

FY16E

FY15E

FY16E

FY15E

FY16E

148,046

158,459

151,183

165,366

36,459

37,120

37,344

39,505

22,852

23,808

23,563

25,724

23,003

28,290

4,415

4,896

6,280

2,905

3,287

4,355

Alembic
21,673

Source:KarvyInstitutionalResearch

ChangeinEstimates
We upgrade our FY15E Revenues, EBDITA and profits for Alembic Pharma on
account of limited competition opportunities of Telmisartan HCTZ, Metprolol
SuccinateandCymbalta.WeintroduceFY16Eestimatesafterincorporatingthese
opportunities. We roll over our price target to FY16E and upgrade the stock to
BUYwithapricetargetofRs346basedon15xFY2016E.
WeupgradeourrevenuesforDrReddysby2%toRs151bnforFY15Edueto
incorporationofLunestaandNamendawhileupgradeourrevenuesby4.4%toRs
1.65bnforFY16EduetoincorporationofDoxil,NamendaandAloxi.Weupgrade
ourEPSestimatesforFY15Eby3%toRs138.3andby8%toRs151.2forFY16Efor
Dr Reddys Labs. We upgrade our price target by 3.9% to Rs 3024 based on 20x
FY16E.
OnaccountofclosureofbuybackbyGSKPharmaPlc,wereduceourtargetprice
forGSKPharmaIndiaby26%toRs2283basedon30xCY2015Ewhichimpliesa
dividendyieldof4.8%duetosaleofThaneplantbeingdistributedintheformof
dividend.

April10,2014

Pharmaceuticals
ValuationSummary
CompanyName

CMP

TP

Up/

(Rs)

(Rs)

Down%

FY14E

FY15E

FY16E

FY14E

FY15E

FY16E

FY14E

FY15E

FY16E

FY14E

FY15E

FY16E

FY14E

FY15E

FY16E

Buy

277

346

24.9

18,614

23,003

28,290

3,623

4,896

6,280

11.9

17.4

23.1

23.4

15.9

12.0

14.6

10.5

7.7

UR

2,943

UR

18,089

20,177

22,467

3,979

4,470

4,870

104.1

115.3

131.8

28.3

25.5

22.3

16.4

13.9

12.3

Cadila
Healthcare

Hold

1,015

1,120

10.3

71,949

88,537

100,074

12,187

16,721

18,671

39.9

53.0

60.0

25.4

19.2

16.9

18.2

13.2

11.7

Cipla

SELL

401

394

(1.7)

101,257

116,179

130,652

21,801

24,512

26,439

17.5

19.4

21.3

23.0

20.7

18.8

15.0

13.0

11.8

DivisLabs

Buy

1,361

1,596

17.3

25,624

31,656

38,035

10,655

13,110

15,154

62.7

74.1

88.5

21.7

18.4

15.4

16.7

13.1

10.9

Dr.ReddysLabs

Buy

2,624

3,024

15.2

133,428

151,183

165,366

34,289

37,344

39,505

130.8

138.5

151.2

20.1

18.9

17.4

13.1

11.7

10.6

GlaxoSmithKline
Pharma*

Sell

2,545

2,283

(10.3)

25,462

26,973

30,178

5,221

6,208

7,930

56.2

62.6

76.1

45.3

40.7

33.5

37.4

31.5

24.6

Indoco
Remedies

Buy

137

200

46.2

7,372

9,038

12,218

945

1,388

2,446

4.4

9.8

16.7

31.0

14.0

8.2

13.4

8.9

4.8

IpcaLabs.

Hold

820

871

6.3

33,264

38,134

44,632

8,218

9,454

10,770

36.0

47.2

54.4

22.8

17.4

15.1

13.3

11.5

9.9

Buy

973

1,110

14.0

112,760

135,388

154,380

28,690

34,994

40,299

38.8

46.2

55.0

25.1

21.1

17.7

15.2

12.1

10.2

RanbaxyLabs

UR

467

136,561

135,891

144,018

10,620

11,056

14,254

(16.0)

6.6

11.9

71.0

39.3

22.9

22.7

17.6

SunPharma.

Buy

630

684

8.6

165,941

191,849

357,296

73,340

82,915

100,926

25.6

28.2

30.4

24.6

22.4

20.7

16.8

14.3

14.2

TorrentPharma

Sell

559

588

5.1

39,022

52,082

61,546

7,423

10,432

12,369

29.9

34.4

39.2

18.7

16.2

14.3

12.8

11.2

9.3

UnichemLabs

Buy

220

311

41.4

11,827

14,122

17,060

1,908

2,664

3,530

13.6

18.3

25.7

16.2

12.0

8.6

10.0

7.3

5.2

AlembicPharma
SanofiIndia*

LupinLabs.

Rating

Source:Company,KarvyInstitutionalResearch

Revenue(Rsmn)

EBITDA(Rsmn)

EPS(Rs)

PE(x)

EV/EBITDA(x)

StockRatings
Buy
Hold
Sell

:
:
:

AbsoluteReturns
>15%
515%
<5%

Forfurtherenquiriespleasecontact:

research@karvy.com
Tel:+912261844300

INSTITUTIONAL SALES
Celine Dsouza: +91 22 61844341; celine.dsouza@karvy.com
Edelbert Dcosta: +91 22 61844302; edelbert.dcosta@karvy.com

DisclosuresAppendix

Analystcertification
Thefollowinganalyst(s),whois(are)primarilyresponsibleforthisreport,certify(ies)thattheviewsexpressedhereinaccuratelyreflect
his(their)personalview(s)aboutthesubjectsecurity(ies)andissuer(s)andthatnopartofhis(their)compensationwas,isorwillbe
directlyorindirectlyrelatedtothespecificrecommendation(s)orviewscontainedinthisresearchreport.
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based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness
thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments
discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions
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actinguponanyinformationoranalysismentionedinthisreport,investorsmaypleasenotethatneitherKarvynorKarvyStockBroking
nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and
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The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned
companies from time to time. Every employee of Karvy and its associate companies are required to disclose their individual stock
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relatedtosuchsecurities.

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