1 | P a g e

ICICIdirect | Equity Research

Exhibit 1: Key Financials (Rs Crore)
FY08 FY09 FY10E FY11E FY12E
Net Sales 2706.4 3775.9 4867.2 5968.7 7062.0
Net Profit 408.3 501.5 632.9 815.2 1002.7
EPS 49.8 61.3 71.4 92.0 113.1
PE (x) 28.4 23.0 19.8 15.4 12.5
PBV (x) 9.1 8.2 6.0 4.2 3.1
EV/ EBITDA 28.7 19.8 15.6 11.9 9.3
ROCE (%) 22.2 23.6 25.0 26.4 25.2
RONW (%) 31.9 35.6 30.3 27.2 24.5
Source: Company, ICICIdirect.com Research
Analysts Name
Raghvendra Kumar
raghvendra.kumar@icicisecurities.com
Ashish Thavkar
ashish.thavkar@icicisecurities.com

Sales & EPS trend

0
2000
4000
6000
FY08 FY09 FY10E FY11E FY12E
0
30
60
90
120
Sales, Rs Cr EPS, Rs

Stock Metrics

Bloomberg Code LUPIN@IN
Face Value (Rs) 10.0
Equity Capital (Rs Cr) 88.7
Market Cap (Rs Cr) 12,758
52W - H/L 1550/537
Sensex 17540
Average Volume 48,889

Comparative return metrics

1M 3M 6M 12M
Glenmark 12.1 25.1 22.4 -2.7
Cipla 6.1 29.5 32.4 91.0
Sun Pharma 7.7 19.3 37.1 51.3
Piramal Hlc -2.9 2.0 29.7 69.3
Dr Reddy 8.0 20.4 53.9 150.9
Ranbaxy 23.1 27.0 103.8 140.4
Lupin 10.1 29.1 73.7 147.5
January 11, 2010 | Pharmaceuticals
Initiating Coverage
Lupin Limited (LUPIN)
Predictable growth, good value
Lupin has carved a unique and best-in-class business model for itself by
creating a robust branded and generics business in the US, revenue
crucial presence in Japan via inorganic route, competitive API business
and formidable domestic presence. We believe the US market will act as a
key growth driver followed by emerging markets in the short to medium
term while the domestic market will be a long-term growth driver. In the
short-term, we expect the domestic market to grow at ~13-14%. In the
US market, Lupin has performed strongly. A better show is expected,
going forward. We initiate coverage on Lupin with a STRONG BUY rating.
Buoyed by US growth, export will likely be a key growth driver
Export, 65% of FY09 sales, is set to be Lupins key growth driver on the
back of 31% growth in advanced markets to Rs 3853 crore and 54% in
emerging markets to Rs 868 crore. We estimate exports will grow at
28% CAGR over FY09-12E to Rs 5272 crore, 74% of FY12E sales.
US business will likely drive advanced markets revenue
Lupin has a unique US business model, 29% from branded and 71%
revenue from generics business. As the branded business achieved
critical mass of US$74 million in FY09, acquisition of Antara (FY08 sales
of US$70 million, patent expiry in August 2020 and targeting US$2-3
billion market) will take Lupin to the next growth orbit and lead US
branded business growth at 52% CAGR over FY09-12E to US$284
million. Generics business will leverage from rich pipeline of16 ANDAs.
Domestic market remains significant despite lower growth
Lupin continues to remain a formidable play in the domestic market
despite lower 13.4% CAGR over FY09-12E. Domestic formulation
contributed 35% to FY09 revenues and the contribution is expected to
decline to 26% in FY12E due to high growth in other revenue streams.
Valuations
Lupin stands out in the Indian pharma space due to its superior business
model, which is formed by strong and gradually strengthening US branded,
robust generics business, thriving Japanese business, competitive API
business and growing domestic market. We believe the recent acquisition
of Antara may take Lupin to a new orbit as it targets US$2-3-billion market.
Patent on Antara expires in August 2020. We believe the current valuation
of 16x FY11E EPS of Rs 92 does not capture the improvement in business
model. We value Lupin at 20x FY11E EPS and 16x FY12E EPS, which gives
us a target price of Rs 1840, a 30% upside compared to the current price.
Current Price
Rs 1413
Target Price
Rs 1840
Potential upside
30%
Time Frame
12-15 months

STRONG BUY
Stock Chart
0
400
800
1200
1600
2000
Dec-08 May-09 Oct-09



2 | P a g e
Company Background
Lupin Ltd (Lupin) was established in 1968 as Lupin Laboratories Ltd. In 1980,
the company commissioned a formulations plant and R&D centre in
Aurangabad to mark the beginning of its formulations business. In 1989, the
company established a JV by the name of Lupin Chemicals (Thailand). In 2001,
Lupin Labs and Lupin Chemicals got amalgamated to form Lupin Ltd. Lupin
manufactures APIs, finished dosages and herbal products.

Business profile
Lupin Ltd is an innovation led transnational pharmaceutical company producing a
wide range of generic formulations and APIs for the developed and developing
markets. Lupins range of finished dosages includes anti-tuberculosis drugs,
cephalosporin, cardiovascular drugs, anti-asthma drugs, non-steroidal, and anti-
inflammatory drugs. APIs cater to the therapeutic segment of anti-tuberculosis,
cephalosporins both in orals and injectable forms, ace inhibitors, statins and prils.
The company is focusing more on IPR-led growth and has also forayed into
newer markets such as Japan. It has organised its R&D efforts towards three
focus areas viz., generics, NCE and NDDS.

Manufacturing and R&D facilities
Lupins manufacturing facilities, spread across India, play a critical role in
enabling the company to realise its global aspirations. Benchmarked to
international standards, these facilities are approved by international regulatory
agencies like USFDA, UKMHRA, TGA Australia, WHO and MCC South Africa. The
company has leveraged its strong vertical integration in building a global
pharmaceutical powerhouse.

Market position in domestic formulations market
Lupin maintained its fifth position in the domestic formulation market with a
market share of 2.73% in March 2009 and a field force of 3000 medical
representatives. The company continues to gain wide market acceptance with
most of its flagship products being market leaders in their respective segments.
Six of Lupins products are among the top 300 in India. The leading brands are
Tonact, Gluconorm, Rcinex, Rablet, AKT, Ramistar, Clopitab, L-Cin, Odoxil and
Lupenox. CVS, anti-TB and Cephalosporins are the top three therapies for Lupin.
The chronic segment contributes ~40% to the domestic formulations revenue.
All therapeutic areas are growing at higher than industry norms. In the last three
years, the company has introduced 12 in-licensed products. Of these, five were
first-to-launch in India. The company successfully launched Lupisulin, Ismigen
and Faximab in FY09. During FY09, Lupin added gynaecology and oncology to its
therapeutic portfolio.

Intellectual property management
During FY09, Lupin filed a record 28 ANDAs, which included five first-to-file
opportunities, of which two were exclusive first-to-file. Lupins cumulative filings
stood at 91, with 35 approvals to date, addressing an estimated market size of
US$90 billion. The company has also ventured into the lucrative oral
contraceptive and ophthalmic space and had filed seven ANDAs in the oral
contraceptive space in FY09. The strength of the intellectual property has helped
the company to win the Cefdinir litigation against Abbott Labs and Astellas
Pharma. The company also settled litigation relating to Desloratidine tablets, the
generic version of Schering-Plough Clarinex tablets. With this Lupin can launch
the drug on July 1, 2012, or earlier subject to conditions being met.



Shareholding pattern (Q2FY10)

Shareholder % holding
Indian Promoters 48.7
MF/Fin Institutions / Banks 18.1
Foreign Institutional Investors 13.5
Insurance Companies 8.7
Non-promoters(non-institution) 11.1


Promoter & Institutional holding trend

50.7 50.6 50.4
48.7
25.7 24.8 24.5
23.1
0
15
30
45
60
Q3FY09 Q4FY09 Q1FY10 Q2FY10
Promoters (%) Institutional Holding (%)



3 | P a g e


Exhibit 2: Milestones achieved by Lupin
2009 Lupin acquired a majority stake in Multicare Pharmaceuticals Philippines Inc, a premium branded generic co, with a presence in WHC & Child HC, strong
distribution alliances, 140 sales force
Lupin expanded its product basket in Japan-Kyowa and received 10 products approval from the Ministry of Health & Labour Welfare, Japan
Lupin acquired Hormosan Pharma GmbH, a generic company in Germany, poised to make its mark in the rapidly evolving INN substitution market
Lupin acquired a stake in Generic Health Pty Ltd, in Australia, which has a range of generic prescription & OTC products
Lupin acquired Pharma Dynamics in South Africa, among the top 6 generic companies, 38% growth in sales
Lupin acquired Vadodara-based Rubamin Laboratories Ltd (rechristened to Novodigm Ltd) -- API plant
Lupin acquired Kyowa Pharmaceutical Industry Co Ltd, a leading generic company in Japan
Commercial production was started at the new finished dosage facility at Jammu
Lupin received Best new manufacturer of the year award from Amerisource Bergen
A new facility was set up at Jammu
Bonus shares were issued in the ratio of 1:1
Issuance of foreign currency convertible bonds (FCCB) aggregating US$100 million, which are listed on the Singapore Stock Exchange
USFDA and MHRA (UK) approvals were received for Goa
New Lovastatin plant at Tarapur was approved by the USFDA
WHO approval was received for state-of-the-art formulation plants at Goa and Aurangabad
2004 Lupin launched its first brand Suprax
(Suprax) Lupin had successfully implemented SAP ERP across the company to unify all business functions and processes
Introduced collaborative messaging and workflow solution on the intranet
Oral Cefaclor injectible plant at Mandideep was approved by the USFDA
Lupin Pharmaceuticals Inc US, was formed for trading, marketing and developmental activities in the US
Patent filings crossed 100
Five ANDAs were filed
New anti-TB facility was commissioned at Aurangabad
Rablet was rated by ORG-Marg as the second best launch ofFY2002-03
Lupin became the only Asian pharmaceutical company to receive USFDA approvals for its sterile cephalosporin facility
A state-of-the-art USFDA approvable oral cephalosporin bulk active plant was commissioned
State-of-the-art R&D centre at Pune was commissioned
Lupin commenced supply of Cephalosporin bulk actives to its alliance partners in the US
Lupin Laboratories Ltd was amalgamated with Lupin Chemicals Ltd whose name was changed to Lupin Limited
The companys restructuring operations yielded encouraging results
Work commenced on the R&D centre at Pune
Lupins injectable cephalosporin bulk active plant at Mandideep was approved by UK MCA
1999 Lupins injectable Cephalosporins dosages plant at Mandideep obtained UK MCA approval
Lupins formulations facility at Aurangabad was upgraded
Three plants of Lupin, manufacturing Cefaclor at Mandideep, seven ACCA at Ankleshwar and Rifampicin at Tarapur, got USFDA approvals
ICMA Technology award was given for injectable Cephalosporins
The company received the ICMA Technology award for injectable Cephalosporins
Sterile plant for injectable Cephalosporins (bulk) was commissioned at Mandideep
Lupin Laboratories Ltd and Lupin Chemicals Ltd raised money through IPOs in 1993-94
Won Ficcis award for contribution towards rural development
1991 Lupin won the ICMA technology award for successfully manufacturing Vitamin B6
Joint venture in Thailand Lupin Chemicals (Thailand) Ltd was established
Two Plants Ankleshwar and Mandideep received USFDA approvals for maintaining stringent quality standards
1988 The Lupin Human Welfare and Research Foundation (LHWRF) was founded by Dr Desh Bandhu Gupta to provide an alternative, sustainable and replicable
model of rural development
1987 Cephalexin Plant at Mandideep and seven ADCA plant at Ankleshwar went on stream
1981 Ethambutol production was started
1980 Lupin commissioned a formulations plant and an R&D centre at Aurangabad
1972 Lupin Laboratories Pvt Ltd was incorporated
1968 Lupin commenced business
2008
2007
(Acquired
Kyowa)
2006
(FCCB +
BONUS)
2005
1989
1997
1996
1992
2003
2001
2000
2002

Source: Company, ICICIdirect.com Research





4 | P a g e

Exhibit 3: Revenue break-up for FY09
LUPIN LIMITED
(FY09)
Gross Revenue: Rs 3823.8 crore
Rev contribution: 100%
DOMESTIC
Revenue: Rs 1332.4 crore
Rev contribution: 35%
EXPORTS
Revenue: Rs 2491.4 crore
Rev contribution: 65%
Formulation
Rev: Rs 1141.2 crore
Rev contribution: 30%
API/Bulk
Rev: Rs 191.2 crore
Rev contribution: 5%
Formulation-SRM
(RoW)
Rev: Rs 235.4 crore
Rev contribution: 6%
Formulation-Regulated
Rev: Rs 1720.7 crore
Rev contribution: 45%
EU
Rev: Rs 70.2 crore
Rev contribution: 2%
US
Rev: Rs 1189.4 crore
Rev contribution: 31%
JAPAN
Rev: Rs 442.4 crore
Rev contribution: 12%
API/Bulk
Rev: Rs 535.3 crore
Rev contribution: 14%

Source: Company, ICICIdirect.com Research



5 | P a g e
Lupins stock price movement and major developments
0
200
400
600
800
1000
1200
200807 200809 200811 200901 200903 200905 200907 200909
15 manufacturing
deficiencies at
Lupin Limited's
Mandideep plant
Received the approval
from DCGI to launch
Ivabrad tablets, a heart-
rate lowering drug
Settled litigation
with Schering-
Plough for generic
Desloratadine tablet
USFDA approval
for Levetiracetam
Tablets
Oscient Pharma
filed a lawsuit
against Lupin for
infringement of
Patent on ANTARA
(fenofibrate)
capsules.
Completes
acquisition
of Multicare
Pharma
Shire PLC filed a lawsuit
against Natco for
infringement of two
patents for FOSRENOL
Pfizer filed
patent
infringement
suits in respect
of its pain
management
drug lyrica,
Settled litigation
with Wyeth relating
to Venlafaxine XR

Acquisition of
worldwide rights for
the intra-nasal
steroid AllerNaze
USFDA approval to
sell generic
Ethambutol HCL
tablets
Completed acquisition of
a majority stake in
Pharma Dynamics in SA

Source: Company, ICICIdirect.com Research

Lupin entered into an alliance with Natco Pharma to jointly commercialise generic equivalents of Shire plc's Fosrenol tablets. Shire filed a
lawsuit against Natco for infringement of patents on Fosrenol in response to the ANDA filed under Para IV certification by Natco seeking
USFDA approval to market generic versions of Shire's Fosrenol tablets






6 | P a g e
Investment rationale
Lupin has carved a unique and best-in-class business by creating a
strong business in the US generic and branded market along with EU
and Japanese presence and a globally competitive API business and
deep penetration in domestic market. Lupins recent acquisition of
Antara in the US branded business may take the company to a new
orbit. Exploiting synergistic benefit from acquired businesses (Suprax,
Allernaze, Aerochamber, Antara in the US branded market and Kyowa
in Japan), formidable penetration in the domestic market and
commercialisation of rich ANDA pipeline of ANDAs (for the US generics
market), we believe Lupin is well set to report sales growth of ~23%
CAGR to Rs 7062 crore. The bottomline is expected to almost double to
Rs 1003 crore during FY09-12E. We expect the US branded business to
act as a key growth driver followed by emerging markets. In US dollar
terms, US branded revenues are likely to clock more than 50% CAGR
over FY09-12E. US generic revenues are expected to register 23.3%
CAGR over the period on account of ANDA approval from a stable of 56
ANDAs. On account of a change in the revenue mix and scaling up the
value chain, margins are likely to expand from 17.18% to 19.31% over
FY09-12E. Though the recent issuance of 483 warning letter on its
Mandideep facility remains an overhang on the stock, current US
revenues are would not be impacted.

Exhibit 4: Revenue Model (Rs Crore)
FY07 FY08 FY09 FY10E FY11E FY12E CAGR FY09-12E
Sales 2071.7 2773.0 3823.8 4906.0 6027.8 7131.7 23.1
(A) Formulations (A1+A2+A3) 1677.1 1941.0 3097.3 4172.2 5286.6 6383.2 27.3
(A1) Domestic 753.0 949.6 1141.2 1299.3 1468.5 1663.1 13.4
(A2) EM's/ RoW 47.8 104.1 235.4 523.0 753.1 867.6 54.5
(A3) Advanced Markets (US+EU+Japan) 876.3 887.3 1720.7 2349.9 3065.0 3852.5 30.8
US (Branded+Generics) 355.3 720.5 1189.4 1690.5 2244.9 2796.5 33.0
Branded 93.4 127.1 347.8 638.5 982.6 1218.5 51.9
Generic 261.9 593.4 841.6 1052.0 1262.4 1578.0 23.3
EU 35.3 70.2 84.3 101.2 121.4 20.0
JAPAN 131.5 442.4 575.1 718.9 934.6 28.3
(B) API (B1+B2) 394.5 832.0 726.5 733.8 741.1 748.5 1.0
(B1) Domestic 103.6 277.4 191.2 193.1 195.0 197.0 1.0
(B2) Exports 290.0 554.6 535.3 540.7 546.1 551.6 1.0

Source: Company, ICICIdirect.com Research

Lupins business model has undergone a complete transformation from
being a focused API player to a formulations player. API contribution fell
from 55% to 19%, through FY04-09. Revenue mix from the US increased
to ~32% in FY09 from ~2% in FY05. This led the EBITDA margin to
expand by 660 bps over the period. In the domestic market, the company
has increased its exposure across therapies.
Excellent growth in the US business and
RoW coupled with robust domestic
growth will set Lupin to report sales
growth of ~23% CAGR and bottomline to
almost double to Rs 1003 crore during
FY09-12E


7 | P a g e

Exhibit 5: From API to formulations (% of sales)
45%
56% 55%
61%
70%
81%
85%
88% 90%
55%
44% 45%
39%
30%
19%
15%
12% 10%
0%
20%
40%
60%
80%
100%
FY04 FY05 FY06 FY07 FY08 FY09 FY10E FY11E FY12E
Formulations API's

Source: Company, ICICIdirect.com Research

Exhibit 6: Shifting trend towards exports (% of sales)
56%
65%
70%
72% 74%
44%
35%
30%
28% 26%
0%
20%
40%
60%
80%
100%
FY08 FY09 FY10E FY11E FY12E
Exports India

Source: Company, ICICIdirect.com Research

Exhibit 7: Therapeutic exposure in FY01
Others
11%
Cephalosporins
48%
Anti-TB
36%
CVS
5%

Source: Company, ICICIdirect.com Research

Exhibit 8: Therapeutic exposure in FY12E
Others
22%
Anti-Diabetic
7%
CNS
7%
Gastro-Intestinal
6%
Cephalosporins
13%
Anti-Asthma
12%
Anti-TB
14%
CVS
19%

Source: Company, ICICIdirect.com Research

Exhibit 9: Focus markets in FY02
Others
10%
SEA
19%
US/EU
2%
India
69%

Source: Company, ICICIdirect.com Research

Exhibit 10: Focus shifting towards advanced markets in FY12E
Others
8%
Japan
13%
RoW
12%
US/ EU
41%
India
26%

Source: Company, ICICIdirect.com Research
RoW: Rest of World



8 | P a g e

US a unique blend of branded & generic business
We believe the US market will be the key revenue driver for Lupin. Lupin
operates a unique business model in the US markets by catering to both
branded as well as generics markets. Such business models were tried by
Ranbaxy and Dr Reddys in the past but Lupin stands out by being
successful. US revenues, which accounted for 31% of FY09 consolidated
revenues, are likely to grow at 33% CAGR, buoyed by 52% CAGR in
branded sales and 23% CAGR in generics business. We believe a rich
ANDA pipeline will drive the generics business while the recent inclusion
of Antara (via inorganic route), commencement of sales from Allernaze
and addition to the existing brands will drive the branded sales.

Exhibit 11: US revenues to grow at FY09-12E CAGR of ~33% to Rs 2796 crore
93 127
348
639
983
1219
262
593
842
1052
1262
1578
0
600
1200
1800
2400
3000
FY07 FY08 FY09 FY10E FY11E FY12E
Brandes Sales, Rs Cr Generic Sales, Rs Cr

Source: Company, ICICIdirect.com Research

Branded businessFocussed play
We expect the US branded business of Lupin to grow at 52% CAGR in
rupee terms and 56% CAGR in US dollar terms (or in constant currency
terms) on expansion in product basket in the branded segment. The
company has added Allernaze and Antara to the current offering of
Suprax (a Cefixime brand acquired from Wyeth in the paediatric segment)
and Aerochamber. Antara and Suprax are Lupins own brands (purchased
from Wyeth and Oscient Pharma, respectively) but the other two are in-
licensed brands (from Collegium Pharma and Forest Labs, respectively).
We believe the margins on the branded segment will expand, going
ahead, as revenue from own products is expected to grow faster.

Antara, a US$70 million product is likely to grow at 25-30%
targeting a growing segment of triglyceride reduction

Suprax, currently clocking US$65 million is likely to grow at 12%.
Competition is rising in the segment post filings with FDA with
players like Orchid Chemicals, Nectar Life Sciences filing

Allernaze is for nasal infection in-licensed from Collegium Pharma
for worldwide sales. Allernaze is an intra-nasal steroid product,
the market for which is ~US$2.5 billion in the US, according to
industry sources. Lupin is focusing on this lucrative market. We
expect Lupin to launch it in the US market in FY11

AeroChamber Plus is a Valved Holding Chamber (VHC) device,
used with metered dose inhalers to improve the delivery of
medication to lungs in the treatment of asthma and COPD.
US revenues, which accounted for 31%
of FY09 consolidated revenue, are likely
to grow at 33% CAGR, buoyed by 52%
CAGR in branded sales and 23% CAGR in
the generics business
Inclusion of Antara and AllerNaze to the
US branded portfolio will catalyse
growth to 52% CAGR over FY09-12E


9 | P a g e


Exhibit 12: Revenue matrix of US branded portfolio
Revenues in US$, mn FY07 FY08 FY09 FY10E FY11E FY12E
Suprax 24.6 41.2 65.0 74.8 82.2 90.5
Aero-Chamber - - 9.0 11.7 15.2 19.8
AllerNaze - - - - 12.8 19.4
Antara - - - 42.0 118.3 153.8
Source: Company, ICICIdirect.com Research

Lupin acquired the Antara (Fenofibrate) brand from the bankrupt Oscient
Pharma for a consideration of US$38.6 million. We believe the acquisition
is value accretive and will place Lupin into a new growth orbit.

The purchase price of US$38.6 million is 0.55x CY08 sales of
US$70 million, which is a bargain price for Lupin considering
current deals in the range of 1.5-2x sales

Growth could be very high from Antara under Lupin as the
product recorded growth of 20% when it was under Oscient
Pharma. Oscient Pharma was under financial distress, so the
growth was coming without promotions. After acquisition by
Lupin, with promotion the product could log a growth rate faster
than the current rate till its patent life expires in August 2020

The Antara (Fenofibrate) products market is estimated at ~US$2 billion. In
order to boost Antaras sales, Lupin plans to increase the sales force from
60 to 120 in the next two years.

-- Generic business Gaining market share

In the US generics space, we estimate Lupins sales will grow at 23%
CAGR to Rs 1578 crore over FY09-12E on account of commercialisation of
its rich ANDA pipeline of 56 products.

Exhibit 13: Generic business to grow at a CAGR of 23% through FY09-12E
74%
82%
71%
56%
56%
62%
0
600
1200
1800
2400
3000
FY07 FY08 FY09 FY10E FY11E FY12E
50%
56%
62%
68%
74%
80%
Total US Sales (LHS) Generic Sales (LHS) Generic % contribution (RHS)

Source: Company, ICICIdirect.com Research

Lupin has 22 products in the market of which eight are market leaders.
Robust gain in market share across products has seen the generic
business growing at FY07-09 CAGR of ~79% to Rs 842 crore.
We believe Lupin bought Antara at a
bargain price considering 0.55x CY08
sales as such deals were taking place at
1.5-2x
We estimate the generic business will
grow at 23% CAGR over FY09-12E on
account of commercialisation of its rich
ANDA pipeline of 56 products


1 0 | P a g e


Exhibit 14: Market share gains across products (%)
34
23
46
30
33
41
29
45
34
66
39
44
0
15
30
45
60
75
Lisinopril
Tabs
Lisinopril
HCTZ Tabs
Ramipril
Caps
Cefadroxil
OS
Cefprozil
OS
Cefprozil
Tabs
Meloxicam
Tabs
FY08 FY09
M
a
r
k
e
t

s
h
a
r
e

(
%
)

Source: Company, ICICIdirect.com Research

During FY09, Lupin launched four products in the US generics market.
We believe that, going ahead, growth in the US generic business will
primarily be driven by a combination of the base business as well as new
product launches. We believe the generic business will grow at a CAGR
of 23% over FY09-12E to Rs 1578 crore, contributing over 56% to total
US sales.

Niche pipeline of filings key to US revenue growth
Lupin has ~56 ANDAs pending for approval (including nine with Para IV
certification) and 35 ANDAs approved (including 13 tentative approvals).
The growth will likely be driven on account of approvals on filings under
niche areas, such as oral contraceptives, ophthalmology, bio-similars,
controlled-release products and filings with Para IV certification.

With ~US$135 billion worth (on innovator sales) of product going off
patent till 2012, we believe the company would aggressively spend on
R&D to participate in the unfolding opportunity.

Exhibit 15: Rising R&D expenses
6.4%
7.1%
7.5%
7.1% 7.1% 7.1% 7.1%
0
100
200
300
400
500
FY06 FY07 FY08 FY09 FY10E FY11E FY12E
4%
6%
8%
R&D Expense (Rs Cr) R&D Expenses (% to Sales)

Source: Company, ICICIdirect.com Research

US$135 billion worth (on innovator
sales) of product going off patent will
throw open a large opportunity from now
till 2012. We believe the company would
aggressively spend on R&D to
participate in the unfolding opportunity


1 1 | P a g e


translating into higher ANDA filings (cumulative)
18
36
51
62
90
18
15
11
28
0
20
40
60
80
100
FY05 FY06 FY07 FY08 FY09
ANDA Filings Annual Filings
%

M
a
r
k
e
t

S
h
a
r
e

Source: Company, ICICIdirect.com Research

R&D productivity one of the best among peers
Lupin has exhibited an excellent R&D productivity both in terms of R&D
expenditure per ANDA approved as well as revenue per ANDA approved.

Exhibit 16: R&D productivity best among peers (FY09)
Company Revenue (US market) R&D Expenditure ANDA's approved R&D (% to sales) Rev/ANDA
Sun Pharma 1589.5 332.0 71 20.9 22.4
Glenmark Pharma 733.8 88.3 45 12.0 16.3
Ranbaxy Labs 1946.5 431.4 137 22.2 14.2
Dr Reddy's 1212.7 409.3 75 33.8 16.2
Lupin 1189.4 266.9 22 22.4 54.1

Source: Company, ICICIdirect.com Research

Oral contraceptive (OC) space a distant but a solid opportunity
Lupin has opportunistically targeted the limited competition OC space,
which is a US$4-5 billion market. Barr Labs and Watson Pharma are the
only two players having a presence in the US OC market. Lupin stands
out among them with the advantage that it is backward integrated. Lupin
has already filed nine ANDAs as at the end of Q1FY10 in the OC space. It
expects to file almost 14 products in the next two to three years with
product approvals expected to kick in post Q2FY11. We believe this will
present a significant opportunity for Lupin because of low generic
penetration and Lupins backward integration with its own APIs. Lupin is
also setting up a dedicated facility for OC at the Indore SEZ.



1 2 | P a g e

European business Replicating US strategy for growth
We estimate Lupins revenue from EU will grow at ~20% CAGR over
FY09-12E to Rs 121 crore on account of improved approvals from its filing
pipeline for 54 products. The company has cumulative 54 filings for the
European market of which 22 products are pending approval.
Lupin has operations in three European regions viz. Germany, UK and
France. During FY09, revenues from the European region grew by 99%
(on a lower base of Rs 35 crore) and contributed ~3% to the exports
revenues and ~4% to the regulated markets formulation segment. Lupin
is replicating its US strategy in Europe. It is developing a specialty
products pipeline in the CVS, CNS, and anti-infective categories.

Exhibit 17: EU revenues set to expand ~20% through FY09-12E
35.3
70.2
84.3
121.4
101.2
3.6
3.3
3.2
4.1
4.0
0
30
60
90
120
150
FY08 FY09 FY10E FY11E FY12E
0
1
2
3
4
5
EU Sales, Rs Cr (LHS) % Contribution to Advanced Market (RHS)

Source: Company, ICICIdirect.com Research

Lupins revenue from its operations in
three European regions of Germany, UK
and France is estimated to grow at
~20% CAGR over FY09-12E on higher
approvals from its filing pipeline for 54
products


1 3 | P a g e

Japan The next growth engine
We expect Kyowa to register sales CAGR of ~28% over FY09-FY12E to
Rs 935 crore, led by new product launches and ramp-up in existing
product sales. Lupin is the only Indian company to have significant
presence in the worlds second largest Japanese pharma market. We cite
the following main benefits accruing to Lupin from Kyowa:-

Japan is a US$68 billion pharma market, out of which US$4 billion
is the generics market, where Kyowa has a significant presence
and ranks among the top 10

Allows Kyowa to leverage low-cost Indian manufacturing
advantage, while Lupin gains access to a large and growing
market for distribution

While sales have been growing at a strong pace, Lupin intends to shore
up Kyowas profitability by backward integrating its existing and future
products predominantly from Lupins in-house APIs. The company has
recently received approval for 10 products from the Japanese authorities,
which are likely to be launched in the coming quarters.

Exhibit 18: Kyowa revenues set to grow at ~28% CAGR through FY09-12E
442.4
575.1
718.9
934.6
131.5
14.8
24.3
25.7
24.5
23.5
0
200
400
600
800
1000
FY08 FY09 FY10E FY11E FY12E
0
6
12
18
24
30
Japan, Rs Cr (LHS) % Contribution to Advanced Market (RHS)

Source: Company, ICICIdirect.com Research
We expect Kyowa to register sales
CAGR of ~28% over FY09-FY12E to Rs
935 crore, led by new product launches
and ramp-up in existing product sales.
Lupin is the only Indian company to have
a significant presence in the worlds
second largest Japanese pharma market


1 4 | P a g e
Domestic market niche focus, high margins
During FY09, the domestic formulations business registered a healthy
growth of 21% vis--vis industry growth of ~13%. We expect Lupin to
continue to deliver decent growth in the domestic market and expect the
domestic formulation business to post 13% CAGR in FY09-12E on
account of new launches and entry into new therapy areas.

Exhibit 19: Domestic formulations business to grow at 13% CAGR (FY09-12E)
753.0
949.6
1141.2
1299.3
1468.5
1663.1
103.6
191.19
193.1
195.0
197.0
277.4
-
400
800
1,200
1,600
FY07 FY08 FY09 FY10E FY11E FY12E
R
s
,

C
r
o
r
e
Domestic formulation, Rs Cr Domestic API, Rs Cr

Source: Company, ICICIdirect.com Research

However, as a result of rapid growth in export formulations, revenue
contribution of the domestic business declined from 50% of total sales in
FY05 to 35% in FY09. Going ahead, due to fast growing export revenues,
we expect the contribution from the domestic market to decline over
FY09-12E.

Exhibit 20: Domestic market contribution to decline to 26%%
56%
65%
70%
72% 74%
44%
35%
30%
28% 26%
0%
20%
40%
60%
80%
100%
FY08 FY09 FY10E FY11E FY12E
Exports India

Source: Company, ICICIdirect.com Research

Lupin (FY07-09 growth CAGR 23%) has consistently outperformed the
Indian pharma market growth rate over years and is ranked among the
top five companies in India, with overall market share of 2.73%. It has a
leadership position in the anti-TB (48% market share) and anti-asthma
segment (12% market share, second after Cipla). During FY09, Lupin
introduced 54 products (including six in-licensed products) which is one
of the highest among its Indian peers.

We expect Lupin to continue to deliver
decent growth in the domestic market
and expect the domestic formulation
business to post 13% CAGR in FY09-12E
on account of new launches and entry
into new therapy areas. The API
business is expected to register flat
growth on account of increased in-house
usage of API
Lupin (FY07-09 growth CAGR 23%), has
consistently outperformed the Indian
pharma market growth rate over years
and is ranked among the top five
companies in India, with overall market
share of 2.73%%. It has a leadership
position in anti-TB (48% market share)


1 5 | P a g e



Exhibit 21: Lupins therapy-wise exposure, industry vis--vis Lupins growth
Revenue Contribution (%) Market Growth % Lupin Growth %
CVS 19.0 13.2 25.5
Anti-TB 14.0 -5.9 5.6
Anti-Asthma 10.0 13.1 48.8
Cephalosporins 14.0 9.8 22.1
GI 7.0 8.2 30.4
CNS 6.0 10.4 48.7
Anti-Diabetic 6.0 16.7 53
Others 24.0 NA NA

Source: Company, ICICIdirect.com Research

Exhibit 22: Product-wise ranking in the domestic market
Product Therapeutic Segment Segment Ranking
Tonact CVS 2
R-Cinex Anti-TB 1
AKT Anti-TB 2
Ramistar CVS 2
Gluconorm Anti-diabetic 3
Odoxil Anti-infective 1
Rablet Gastro Intestinal 1
L-Cin Levofloxacin 1
Lupenox CVS 2
Clopitab CVS 1

Source: Company, ICICIdirect.com Research




1 6 | P a g e


Risks & Concerns
Threat of rising competition to Suprax and Antara
Currently contributing highest to the branded US revenue (US$65 million
in FY09) Suprax is exposed to competition (not covered by any patent)
with few of its Indian peers having filed ANDA with the USFDA.

The recently bought Antara (fenofibrate) from Oscient Pharma is covered
under patent, which is expiring in August 2020. However, a competitive
product, Tricor of Abbott, is losing patent expiring in 2011, which may
pose competition to Antara. Though the market is large at ~US$2 billion,
a rise in competition may dilute the opportunity size.

Warning letter on Mandideep facility to remain an overhang on the stock
USFDA has issued a 483s warning letter on Lupins Mandideep facility on
non-compliance with quality manufacturing standards. Mandideep is a
big facility for Lupin and contributes ~25% to the US revenues. It
manufactures sterile products, mainly dealing with Cephalosporin. This
inspection has been going on for the past three quarters.
At present, Lupin sells 10 products and has one pending ANDA from this
facility. Although the FDA warning letter would not impact sales of
currently marketed products, it would halt any further approval of ANDAs
from that facility. If the issue is not resolved quickly, revenues from the
US would be impacted.

Rising competition in the domestic market
Heightened competition in key therapy areas of the domestic market and
greater vulnerability to currency fluctuations (with international business
now accounting for ~65% sales) remain the key concern.



















1 7 | P a g e
Financials
Sales to register 23%growth, through FY09-12E
Lupin has exhibited an excellent growth track record in the past on
account of extensive product mix in niche therapies and selective product
strategy for the US and EU market. We expect Lupin to deliver ~23%
CAGR on net sales through FY09-12E to Rs 7062 crore. The low priced
acquisition of Kyowa in Japan and Pharma Dynamics in South Africa will
also be significant contributors to growth, as this will help Lupin to
diversify its presence across markets.

We expect the US business to report robust growth of ~33% through
FY12E. The generic segment is expected to grow at ~23% CAGR to Rs
1578 crore in FY12E on account of higher realisation from key ANDA
filings. Branded segment sales are expected to grow at an FY09-12E
CAGR of ~52% to Rs 1219 crore, on account of inclusion of Aerochamber
Plus, AllerNaze and Antara to the branded portfolio.

The domestic formulation segment is expected to register ~13% CAGR
growth through FY12E to Rs 1663 crore on account of ~13% growth in
CVS and ~20% growth in the anti-asthma, CNS and diabetes segment
contributing over 23% to FY12E to the total sales.

Exhibit 23: Net sales to witness sturdy growth @23% CAGR over FY09-12E
950
1141
1299
1468
1663
721
1189
1691
2245
2796
1103
1475
1916
2314
2672
0
2000
4000
6000
8000
FY08 FY09 FY10E FY11E FY12E
Domestic Formulations US Others (RoW/EU/Japan/API)

Source: Company, ICICIdirect.com Research



1 8 | P a g e

EBITDA margin will likely witness good expansion in FY12E
Even though Lupins US and India business did exceedingly well in the
past, EBITDA margin expansion was restricted to ~400 bps during FY06-
09 on account of higher operating expenditure (~86% of sales).
Operating expenditure is high due to a significant presence in the US
branded market, which has a high SG&A expenditure.
During FY09-12E, we believe the EBITDA margin will likely be in the range
of ~19% as Lupin is looking to extend the Suprax brand product line and
enhance its focus on the high margin gynaecology and oncology
business in the domestic market. Margin expansion will also be aided by
a better product mix and higher contribution from differentiated products
from US markets. We expect the EBITDA margin to expand by ~214 bps
during FY09-12E.
Exhibit 24: OPM, NPM to witness good expansion in FY09-12E
16.1%
17.2%
17.8%
18.9%
19.3%
15.1%
13.4%
13.0%
13.7%
14.2%
0%
5%
10%
15%
20%
25%
FY08 FY09 FY10E FY11E FY12E
EBITDA Margins Net Profit Margins

Source: Company, ICICIdirect.com Research

Net profit to grow 26%, through FY09-12E
We estimate that net profit will grow at a CAGR of ~26% to Rs 1003 crore
over FY09-12E. During FY04-09, Lupins net profit grew by ~42% CAGR
to Rs 502 crore due to higher margins on product under the branded
segment in the US markets and robust performance in the domestic
market. In spite of robust sales growth, we expect the net profit margin to
expand marginally by 75 bps on account of likely competition on the
Suprax brand and higher tax rates.

Exhibit 25: Profit to grow @26% CAGR over FY09-12E
408.3
501.5
632.9
815.2
1002.7
0
200
400
600
800
1000
1200
FY08 FY09 FY10E FY11E FY12E
0%
7%
14%
21%
28%
35%
Net Profit, Rs Cr YoY Gr.

Source: Company, ICICIdirect.com Research
The EBITDA margin expansion was
restricted to ~400 bps during FY06-09
on account of higher operating
expenditure. Operating expenditure was
high due to a significant presence in the
US branded market, which has a high
SG&A expenditure
We estimate that net profit will grow at a
CAGR of ~26% to Rs 1003 crore over
FY09-12E


1 9 | P a g e


Return ratios to remain healthy
Robust organic growth led by an exceedingly good performance from the
US and the Indian market has led Lupin to maintain higher return ratios
during the past three years. In spite of US$100 million raised through
FCCBs, Lupins RoNW has expanded by ~22% while RoCE expanded by
~14% over FY05-09. However, going ahead, increasing net worth, due to
FCCB conversion, will put pressure on RoNW expansion.
Exhibit 26: Return ratios to remain healthy
31.9
35.6
30.3
27.2
24.5
22.2
23.6
25.0
26.4
25.2
0
10
20
30
40
FY08 FY09 FY10E FY11E FY12E
RONW (%) ROCE (%)

Source: Company, ICICIdirect.com Research

Exhibit 27: Balance sheet size expanding at 19% CAGR with net worth at 34%
over FY08-12E
0
1000
2000
3000
4000
5000
6000
FY08 FY09 FY10E FY11E FY12E
BS Total, Rs Cr Networth, Rs Cr

Source: Company, ICICIdirect.com Research

Balance sheet comfortable leverage
Lupin had issued FCCBs in January 2006 worth US$100 million at a
redemption price of Rs 1134/- maturing in January 2011E. Post bonus the
conversion price stands at Rs 567/- (FCCBs in the money). We have
incorporated full conversion of outstanding FCCBs in our estimates. We
expect the debt/equity to be at a comfortable 0.3x during FY12E (FY09
0.9x). Incremental cash flows will likely support capex requirements.
In spite of US$100 million raised through
FCCBs, Lupins RoNW has expanded by
~22% and RoCE expanded by ~14%
over FY05-09. However, going ahead,
increasing net worth, due to FCCB
conversion, will put pressure on RoNW
expansion


2 0 | P a g e
Valuationsmore in store
Lupin has carved a unique and best-in-class business model for itself by
creating a robust branded and generics business in the US, revenue
crucial presence in Japan via the inorganic route, competitive API
business and formidable domestic presence. We believe the US market
will act as a key growth driver followed by emerging markets in the
short to medium term while the domestic market will be a long-term
growth driver. In the short-term, we expect the domestic market to
grow at ~13-14%. In the US market, Lupin has demonstrated a strong
performance and, going forward, we expect Lupin to sustain its
performance.

Excellent branding strategy for Suprax and competitive positioning in the
branded generic segment will help Lupin to achieve a robust growth rate
in the US. Till date, Lupin has been able to competitively get its ANDA
through to the US market, either by way of settlement or on the back of
its rich-IP strength. We believe its formidable market share in niche
therapies in domestic markets and strong pipeline of 56 pending ANDAs
approvals in the US market will likely keep its growth momentum upbeat.

Lupin is currently hunting for more acquisitions in GCC, Japan and LatAm
in order to establish a widespread geographical presence. It is also
scouting for Indian companies specialising in nephrology and urology,
since India is a high growth and a high cash generating market. During
FY09, Lupin acquired four companies for a total consideration of Rs 167
crore, which are yet to contribute meaningfully to the bottomline. These
acquisitions are likely to bring in incremental profits for Lupin and, in turn,
drive the return ratios upwards.

Lupin stands out in the Indian pharma space on account of its superior
business model, which is formed by strong and gradually strengthening
US branded, robust generics business, thriving Japanese business,
competitive API business and growing domestic market. We believe the
recent acquisition of Antara may take Lupin to a new orbit as it targets the
US$2-3 billion market, the patent on which expires in August 2020. We
believe the current valuation of 16x FY11E EPS of Rs 92 does not capture
the improvement in the business model. We are valuing Lupin on both
sum of the part (SoTP) and comparative basis. We value the US business
at 5x branded sales and 3x generics sales. The API business is valued at
an EV to EBITDA ratio of 12x while the non-US formulation business is
valued on a P/E basis. We got an SoTP value of Lupin at 1868.9. On a
comparative basis, the fair value of Lupin works out to 1811. We arrived
at the target price of Rs 1840, which is the average of SoTP and
comparative valuation that is 20x FY11E EPS and 16x FY12E EPS.

We value the US business at 5x branded
sales and 3x generics sales. The API
business is valued at EV to EBITDA ratio
of 12x while the non-US formulation
business is valued on PE basis


2 1 | P a g e


Exhibit 28: Valuation ratios
0
20
40
60
80
100
FY04 FY05 FY06 FY07 FY08 FY09 FY10E FY11E FY12E
0
2
4
6
Price Earning (P/E, LHS) Price/Cash EPS (P/CEPS, LHS)
EV/EBIDTA (LHS) Market Cap/Sales (RHS)
( X

Source: Company, ICICIdirect.com Research

Moreover, we have also used the sum of the parts (SoTP) valuation
approach to value Lupin, wherein we have valued the branded US
business on market cap to sales of 5x, US generics business on market
cap to sales of 3x, API on EV to EBITDA and non-US business on P/E
multiple basis.

Exhibit 29: SoTP Valuation matrix
Revenue Basis Multile Valuation
US Branded business 1218.5 Market cap to sales 5 6092.7
US Generics business 1578.0 Market cap to sales 3 4733.9
EBITDA
API Business 59.2 EV to EBITDA 12 710.2
Net profit
India 166.3 PE 14 2328.3
Advanced market other than US 105.6 PE 14 1478.3
Emerging market 86.8 PE 14 1214.7
Total 16558.1
Equity Capital 88.6
Face value 10
Per share value 1868.9

Source: Company, ICICIdirect.com Research

We have also looked at Lupin on a comparative basis to arrive at a fair
value of 1811.


2 2 | P a g e


Exhibit 30: Peer Valuation (Rs Crore)

CMP (Rs) FY09-11E FY09-11E
FY09 FY10E FY11E CAGR % FY09 FY10E FY11E CAGR % FY09 FY10E FY11E
Cipla * 341 4960.6 6080.8 6959.2 18.4 774.1 1032.2 1177.5 23.3 25.5 23.5 23.4
Ranbaxy * 518 7241.4 7049.6 8033.4 5.3 -310.9 460.3 874.4 NA 7.9 6.2 11.3
DRL * 1194 6790.4 7411.0 8232.5 10.1 263.1 797.6 937.4 88.8 21.1 18.9 18.8
SUN 1575 4272.3 4006.0 4536.5 3.0 1824.1 1365.1 1594.1 -6.5 41.0 34.5 35.2
Glenmark 277 2116.0 2547.5 2957.9 18.2 2093.0 2435.7 2827.1 16.2 27.5 30.1 29.9
LUPIN 1413 3775.9 4867.2 5968.7 25.7 501.5 632.9 815.2 27.5 17.2 17.8 18.9
FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E
Cipla 9.9 20.3 15.2 34.4 16.8 22.4 14.2 14.7 12.7 19.2 22.4 21.8 19.9 14.9 14.9
Ranbaxy -24.8 -1.6 10.5 NA NA 49.4 22.0 39.4 18.9 NA 10.3 13.1 NA 4.2 5.4
DRL 31.9 46.4 54.9 37.5 25.7 21.7 6.7 10.5 9.2 11.1 17.9 17.7 13.6 9.3 10.4
SUN 87.8 65.8 75.1 17.9 23.9 21.0 11.9 15.8 13.0 28.1 19.2 19.0 28.2 16.5 16.9
Glenmark 12.4 13.9 18.0 22.4 20.0 15.4 18.2 10.8 8.5 19.4 15.9 20.3 16.4 17.4 21.2
Average 23.4 29.0 34.8 28.0 21.6 26.0 14.6 18.2 12.5 19.5 17.1 18.4 19.5 12.5 13.8
LUPIN 61.3 71.4 92.0 23.0 19.8 15.4 19.8 15.6 11.9 35.6 30.3 27.2 23.6 25.0 26.4
Revenues Net Profit EBITDA (%)
RoCE (%) EPS (Rs) PE (x) EV/EBITDA (x) RoE (%)

Source: Company, ICICIdirect.com Research,
* Bloomberg estimates

Averaging the two values, we have arrived at the value of Rs 1840 as the
fair value, which is at 20x FY11E EPS and 16x FY12E EPS.


2 3 | P a g e


Exhibit 31: Price to earnings band
16x
13x
10x
7x
0
300
600
900
1200
1500
1800
Apr-03 Aug-04 Dec-05 Apr-07 Aug-08 Dec-09

Source: Company, ICICIdirect.com Research

Exhibit 32: EV to EBITDA band
12x
10x
8x
6x
0
2000
4000
6000
8000
10000
12000
14000
Apr-03 May-04 Jun-05 Jul-06 Aug-07 Sep-08 Oct-09

Source: Company, ICICIdirect.com Research



Exhibit 33: Market cap to sales band
2.5x
2.0x
1.5x
0.5x
0
3000
6000
9000
12000
15000
Apr-03 May-04 Jun-05 Jul-06 Aug-07 Sep-08 Oct-09

Source: Company, ICICIdirect.com Research

Exhibit 34: Price to book value band
5x
4x
3x
2x
0
300
600
900
1200
Apr-03 May-04 Jun-05 Jul-06 Aug-07 Sep-08 Oct-09

Source: Company, ICICIdirect.com Research



2 4 | P a g e




















































Exhibit 35: P&L A/c and Key ratios
P&L Statement (Rs Crore) Key ratios (Industry specific cost) (%)
FY08 FY09 FY10E FY11E FY12E FY08 FY09 FY10E FY11E FY12E
Sales 2706.4 3775.9 4867.2 5968.7 7062.0 Raw material 43.0 42.5 41.4 41.8 41.3
Growth (%) 34.4 39.5 28.9 22.6 18.3 Emp Exp 11.4 12.9 11.9 11.4 11.1
Op. Expenditure 2270.5 3127.4 4002.9 4843.2 5698.1 Other mfg exp 0.0 0.0 0.0 0.0 0.0
EBITDA 435.9 648.5 864.3 1125.4 1363.9 SG&A 22.0 20.4 21.9 20.9 21.3
Growth (%) 49.1 48.8 33.3 30.2 21.2 R&D 7.5 7.1 7.1 7.1 7.1
Other Income 206.5 95.4 80.6 93.9 106.7 Average cost of debt 3.1 4.1 4.1 6.5 6.7
Depreciation 64.7 88.0 107.7 136.6 148.5 Effective Tax rate 24.4 16.2 20.0 20.0 20.0
EBIT 577.6 655.9 837.2 1082.7 1322.1 Profitability ratios (%)
Interest 37.4 49.9 46.1 63.7 68.7 EBITDA Margin 16.1 17.2 17.8 18.9 19.3
PBT 540.2 606.0 791.1 1019.0 1253.4 PAT Margin 15.1 13.4 13.0 13.7 14.2
Growth (%) 32.6 12.2 30.5 28.8 23.0 Adj. PAT Margin 15.1 13.3 13.0 13.7 14.2
Tax 131.8 98.3 158.2 203.8 250.7 Per share data (Rs)
Extraordinary Item 0.0 3.3 0.0 0.0 0.0 Revenue per share 329.7 455.9 549.0 673.2 796.5
Rep. PAT before MI 408.4 507.7 632.9 815.2 1002.7 EV per share 1552.1 1577.3 1549.6 1535.7 1455.2
Minority interest (MI) 0.1 2.9 0.0 0.0 0.0 Book Value 155.9 172.0 235.9 338.0 461.1
Rep. PAT after MI 408.3 501.5 632.9 815.2 1002.7 Cash per share 33.4 9.4 17.0 13.7 99.9
Adjustments 0.0 1.0 2.0 3.0 4.0 EPS 49.7 60.6 71.4 92.0 113.1
Adj. Net Profit 408.3 501.5 632.9 815.2 1002.7 Cash EPS 57.6 71.9 83.5 107.4 129.8
Growth (%) 32.3 22.9 26.2 28.8 23.0 DPS 10.0 12.5 10.0 10.0 10.0
Costs as % to sales except tax rate and average cos

Source: Company, ICICIdirect.com Research

Exhibit 36: Balance sheet & key ratios
Balance Sheet (Rs crore) Key ratios (%)
FY08 FY09 FY10E FY11E FY12E Return ratios FY08 FY09 FY10E FY11E FY12E
Equity Capital 82.1 82.8 88.7 88.7 88.7 RoNW 31.9 35.2 30.3 27.2 24.5
Preference capital 0.0 0.0 0.0 0.0 0.0 ROCE 22.2 23.6 25.0 26.4 25.2
Reserves & Surplus 1197.6 1342.0 2003.2 2907.7 3999.8 ROIC 36.7 48.7 60.5 51.9 62.3
Shareholder's Fund 1279.7 1424.8 2091.8 2996.4 4088.4 Financial health ratio
Minority Interest 0.0 0.0 0.0 0.0 0.0 Operating CF (Rs Cr) 394.4 240.8 495.6 586.8 0.0
Secured Loans 708.1 756.9 797.3 847.3 897.3 FCF (Rs Cr) -519.6 301.9 23.5 32.5 -178.1
Unsecured Loans 494.8 466.4 333.8 131.8 132.7 Cap. Emp. (Rs Cr) 2602.7 2778.8 3353.6 4106.2 5249.1
Deferred Tax Liability 120.1 130.7 130.7 130.7 130.7 Debt to equity (x) 0.9 0.9 0.5 0.3 0.3
Source of Funds 3349.7 4111.9 5150.0 5982.6 7469.1 Debt to cap. emp. (x) 0.5 0.4 0.3 0.2 0.2
Gross Block 1485.9 1820.0 2470.1 2820.1 2920.1 Interest Coverage (x) 14.5 12.2 17.2 16.0 18.2
Less: Acc. Depreciation 469.8 618.8 726.5 863.1 901.1 Debt to EBITDA (x) 2.8 1.9 1.3 0.9 0.8
Net Block 1016.1 1201.2 1743.5 1956.9 2019.0 DuPont ratio analysis
Capital WIP 96.4 224.0 0.0 70.0 90.0 PAT/PBT 0.8 0.8 0.8 0.8 0.8
Net Fixed Assets 1112.5 1425.2 1743.5 2026.9 2109.0 PBT/EBIT 0.9 0.9 0.9 0.9 0.9
Intangible asset 0.0 0.0 0.0 0.0 0.0 EBIT/Net sales 0.2 0.2 0.2 0.2 0.2
Investments 5.8 21.6 21.6 21.6 21.6 Net Sales/ Tot. Asset 0.7 0.7 0.7 0.8 0.7
Cash 274.2 77.8 150.9 121.8 886.1 Total Asset/ NW 3.2 3.8 3.3 2.6 2.4
Trade Receivables 743.9 1034.9 1266.8 1553.5 1838.1
Loans & Advances 236.7 278.0 316.4 388.0 459.0
Inventory- Other 789.3 957.2 1333.5 1553.5 1838.1 Spread of RoIC over WACC
Total Current Asset 2044.1 2347.8 3067.6 3616.7 5021.3 RoIC 36.7 48.7 60.5 51.9 62.3
Current Liab. & Prov. 747.0 1333.1 1796.4 1876.4 2220.1 WACC 9.0 8.9 8.8 8.6 8.5
Net Current Asset 1297.1 1014.7 1271.2 1740.3 2801.2 EVA (Rs) 43613.7 53554.9 71587.7 90342.1 114132.8
Application of funds 3162.5 3794.5 4832.7 5665.2 7151.8 RoIC-WACC 27.7 39.8 51.7 43.3 53.8

Source: Company, ICICIdirect.com Research



2 5 | P a g e



Exhibit 37: Cash flow analysis
Cash Flow Statement (Rs crore)
FY08 FY09 FY10E FY11E FY12E Working Capital FY08 FY09 FY10E FY11E FY12E
Profit after Tax 408.4 507.7 632.9 815.2 1002.7 Working cap./Sales 47.9 26.9 26.1 29.2 39.7
Misc exp w/o 0.0 0.0 0.0 0.0 0.0 Inventory turnover 3.4 3.9 3.7 3.8 3.2
Dividend Paid -96.1 -121.3 -103.9 -103.9 -103.9 Debtor turnover 3.6 3.6 3.8 3.8 3.2
Depreciation 64.7 88.0 107.7 136.6 148.5 Creditor turnover 3.6 3.3 2.7 3.2 2.7
Provision for deferred tax 17.4 10.6 0.0 0.0 0.0 Current Ratio 2.7 1.8 1.7 1.9 2.3
CF before change in WC 394.4 485.0 636.7 847.9 1047.3 Quick ratio 1.7 1.0 1.0 1.1 1.4
Inc./Dec. in Current Liab. 324.8 586.1 463.3 80.0 343.7 Cash to abs. Liab. 0.4 0.1 0.1 0.1 0.4
Inc./Dec. in Current Asse 691.5 500.1 646.6 578.3 640.2 WC (Excl. cash)/sales 0.4 0.2 0.2 0.3 0.3
CF from operations 27.8 571.0 453.3 349.6 750.8
Purchase of Fixed Assets 567.4 530.8 426.1 420.0 230.5
(Inc.)/Dec. in Investment 3.0 15.7 0.0 0.0 0.0 FCF Calculation (Rs Crore)
CF from Investing -570.4 -546.5 -426.1 -420.0 -230.5 EBITDA 435.9 648.5 864.3 1125.4 1363.9
Inc./(Dec.) in Debt 338.1 20.4 -92.1 -152.0 50.8 Less: Tax 131.8 98.3 158.2 203.8 250.7
Inc./(Dec.) in Net worth 94.1 -241.3 138.0 193.3 193.3 NOPLAT 304.1 550.2 706.1 921.6 1113.3
CF from Financing 432.2 -220.9 45.9 41.2 244.1 Capex 567.4 530.8 426.1 420.0 230.5
Opening Cash balance 384.6 274.2 77.8 150.9 121.8 Change in working cap. 256.3 -282.5 256.5 469.2 1060.9
Closing Cash balance 274.2 77.8 150.9 121.8 886.1 FCF -519.6 301.9 23.5 32.5 -178.1
Y-oY Growth (%) FY08 FY09 FY10E FY11E FY12E Valuation
Net sales 34.4 39.5 28.9 22.6 18.3 FY08 FY09 FY10E FY11E FY12E
EBITDA 49.1 48.8 33.3 30.2 21.2 PE (x) 28.4 23.3 19.8 15.4 12.5
Adj. net profit 32.3 22.9 26.2 28.8 23.0 EV/EBITDA (x) 28.7 19.8 15.6 11.9 9.3
Cash EPS 30.4 24.8 16.1 28.5 20.9 EV/Sales (x) 4.6 3.4 2.8 2.2 1.8
FCF 9.3 22.9 31.3 33.2 23.5 Dividend Yield (%) 0.7 0.9 0.7 0.7 0.7
Net worth 46.5 11.3 46.8 43.2 36.4 Price/BV (x) 9.1 8.2 6.0 4.2 3.1
Y-oY Growth (%)
Source: Company, ICICIdirect.com Research




2 6 | P a g e

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations.
ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current
market price and then categorises them as Strong Buy, Buy, Add, Reduce and Sell. The
performance horizon is two years unless specified and the notional target price is defined as
the analysts' valuation for a stock.
Strong Buy: 20% or more;
Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;

Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
7th Floor, Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (E)
Mumbai 400 093

research@icicidirect.com


ANALYST CERTIFICATION
We /I, Raghvendra Kumar CFA Ashish Thavkar MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report
accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to
the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.
Disclosures:
ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with
affiliates are leading underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship
with a significant percentage of companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other
business selection processes. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the
securities or derivatives of any companies that the analysts cover.
The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly
confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or
reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities, its subsidiaries
and associated companies, their directors and employees (ICICI Securities and affiliates) are under no obligation to update or keep the information current. Also, there may be regulatory,
compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such
suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in
certain other circumstances.
This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness
guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe
for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not
treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or
strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their
own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent
judgement by any recipient. The recipient should independently evaluate the investment risks. The value and return of investment may vary because of changes in interest rates, foreign
exchange rates or any other reason. ICICI Securities and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is not
necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual
results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.
ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have
received compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings,
corporate finance, investment banking or other advisory services in a merger or specific transaction. ICICI Securities and affiliates expect to receive compensation from the companies
mentioned in the report within a period of three months following the date of publication of the research report for services in respect of public offerings, corporate finance, investment
banking or other advisory services in a merger or specific transaction. It is confirmed that Raghvendra Kumar CFA Ashish Thavkar MBA research analysts and the authors of this report have
not received any compensation from the companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI
Securities, which include earnings from Investment Banking and other business.
ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the
publication of the research report.
It is confirmed that Raghvendra Kumar CFA Ashish Thavkar MBA research analysts and the authors of this report or any of their family members does not serve as an officer, director or
advisory board member of the companies mentioned in the report.
ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act
upon or make use of information contained in the report prior to the publication thereof.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where
such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within
such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may
come are required to inform themselves of and to observe such restriction.
This report has not been prepared by ICICI Securities, Inc. However, ICICI Securities, Inc. has reviewed the report and, in so far as it includes current or historical information, it is believed to
be reliable, although its accuracy and completeness cannot be guaranteed.