Result Update

June 1, 2016

Aurobindo Pharma (AURPHA)

Rating matrix
Rating
Target
Target Period
Potential Upside

:
:
:
:

Buy
| 990
15-18 months
29%

In line results; US driven growth continues

Whats Changed?
Target
EPS FY16P
EPS FY17E
EPS FY18E
Rating

Unchanged
Changed from | 33.0 to | 32.8
Changed from | 37.7 to 38.0
Unchanged
Unchanged

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

Q4FY16
3,746.8
882.3
23.5
558.3

Q4FY15
3,162.1
656.1
20.7
402.6

YoY (%)
18.5
34.5
280.0
38.7

Q3FY16
3,495.5
823.0
23.5
522.0

QoQ (%)
7.2
7.2
0.4
6.9

FY15
12120.5
2563.6
1575.8
1635.4
27.1
28.1

FY16P
13831.2
3140.7
1915.6
1981.6
32.8
33.9

FY17E
15543.9
3524.3
2200.6
2200.6
37.7
37.7

FY18E
17652.7
4109.8
2627.8
2627.8
45.1
45.1

FY15
28.4
36.6
30.7
8.7
31.7
23.4

FY16E
23.5
30.2
24.8
6.4
28.1
25.0

FY17E
20.4
26.3
22.0
5.0
24.3
24.6

FY18E
17.1
21.9
18.5
3.9
22.9
26.4

Key Financials
(| Crore)
Revenues
EBITDA
Net Profit
Adjusted PAT
EPS (|)
Adjusted EPS (|)

Valuation summary
PE (x)
Target PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
RoCE (%)

Stock data
Amount
| 45050 crore
| 3867 crore
| 834 crore
| 48082 crore
892/582

Particular
Market Capitalisation
Debt (FY16P)
Cash (FY16P)
EV
52 week H/L
Equity capital
Face value

| 58.5 crore
|1

Price performance (%)

Aurobindo Pharma
Sun Pharma
Lupin
Dr Reddy's

1M
-0.7
0.1
-8.7
2.6

3M
15.1
-4.9
-16.3
4.4

| 770

6M
-6.8
11.3
-17.9
2.0

1Y
9.8
-15.9
-19.9
-10.3

Research Analyst
Siddhant Khandekar
siddhant.khandekar@icicisecurities.com
Mitesh Shah
mitesh.sha@icicisecurities.com
Nandan Kamat
nandan.kamat@icicisecurities.com

ICICI Securities Ltd | Retail Equity Research

Revenues grew 18.5% YoY to | 3747 crore (I-direct estimate: | 3645

crore) on account of 24.3% growth in the US to | 1666 crore (I-direct
estimate: | 1678 crore). The Europe business grew 9.3% to | 841
crore (I-direct estimate: | 825 crore)
EBITDA margins increased 280 bps YoY to 23.5% (I-direct estimate:
23.8%) on account of lower other expenditure. EBITDA grew 34.5%
to | 882 crore (I-direct estimate: | 866 crore)
Adjusted PAT grew 38.7% YoY to | 558 crore (I-direct estimate:
| 557 crore) mainly due to a better operational performance
Galloping US business reduces stress
After filing first ANDA in the US in 2003, the company has come a long
way as current ANDA filings are at 398. The US revenue run rate has
grown from ~US$100 million in FY09 to ~US$805 million as on FY16P.
Note that this was despite the USFDA embargo during FY12-13 on unit VI
and unit III. In rupee term, US sales have grown at a CAGR of 39% to
| 6144 crore in FY11-16P. US formulations now constitute 44% of the
total turnover, up from 27% in FY11. US traction has also boosted
investors confidence, which was affected by warning letters, pilling debts
besides non-business political adversaries. We expect US sales to grow at
a CAGR of 20.4% on a higher base to | 8906.5 crore in FY16P-18E.
Transformation, capacity optimisation to improve margins and cash flows
The API: formulations ratio has improved from 43:57 in FY11 to 22:78 in
FY16P. Another USP of the company is its vertically integrated model with
huge capacity, unmatched by most peers. The company owns a network
of 19 manufacturing facilities (eight formulations, 11 API & intermediates)
in India and abroad. These can be optimised by 1) continuous US filings
and launches, 2) incremental launches and filings in the RoW markets and
3) site transfers and supplies for products covered under the Actavis deal.
Higher capacity utilisation is likely to have a positive impact on margins,
which are likely to be under some pressure after the Actavis deal.
Debt no more a fear factor
The companys debts kept on pilling up in the last few years as the
capacity build up was in full flow. Working capital loans form 60-65% of
overall debt. A depreciating rupee worsened matters even further as most
debt was US$ denominated. However, with consistent and incremental
US cash flows the situation has improved markedly. While the D/E ratio
improved from 1.9x to 0.5x, the Debt/EBITDA have improved from 4.5x to
1.2x during FY09-16P. As the capex cycle moderates by FY18, the
company expects to utilise maximum FCF for debt repayment.
Robust product basket bodes well for future; maintain BUY
FY16 numbers have largely driven by strong US sales on the back of
extensive product launches even as the base business declined
marginally (3%). The company continues to thrive in the US, backed by a
robust product pipeline and niche launches. Despite a sharp increase in
approvals in FY16 (49 final approvals and nine tentative approvals), the
filing to final approval gap (147 at present) still bodes well for future US
growth. We expect initial margin pressure on account of Actavis and now
Natrol, to ease further on the back of incremental high margin US
launches. With the USFDA expected to hasten the approval process (90%
of approvals by September 2017) companies like Aurobindo will stand to
benefit the most. We maintain our target price of | 990, based on 22x
FY18E EPS of | 45.1.

Variance analysis
Revenue

Q4FY16 Q4FY16E
3,746.8 3,644.7

Q4FY15
3,162.1

Q3FY16
3,495.5

Raw Material Expenses

1,627.1

1,606.2

1,373.6

1,553.6

18.5

4.7

Employee Expenses
Other Expenditure

408.8
828.5

425.4
747.2

373.3
759.1

401.0
717.9

9.5
9.1

1.9
15.4

EBITDA
EBITDA (%)

882.3
23.5

865.9
23.8

656.1
20.7

823.0
23.5

34.5
280 bps

7.2
0 bps

Interest
Depreciation
Other Income

25.1
111.3
20.6

22.7
99.5
7.2

22.6
84.7
6.7

22.7
99.5
6.9

11.1
31.4
205.5

10.6
11.9
199.7

PBT before EO & Forex

Forex & EO
PBT
Tax
Tax Rate (%)
PAT before MI
MI
Net Profit
Adj. Net Profit
Key Metrics
US

766.5
-4.6
771.1
209.7
27.2
561.4
-1.4
562.9
558.3

750.9
0.0
750.9
193.8
25.8
557.1
-0.3
557.4
557.4

555.6
-1.2
556.8
153.4
27.6
403.4
-0.5
403.8
402.6

707.7
-12.9
720.6
186.0
25.8
534.7
-0.3
535.0
522.0

38.0
282.4
38.5
36.7
-36.4
39.2
213.3
39.4
38.7

8.3
-64.8
7.0
12.7
138.0
5.0
370.0
5.2
6.9

1,666.3

1,678.3

1,340.5

1,570.6

24.3

6.1

840.7
175.6
328.4
774.6

824.8
176.0
307.1
696.8

769.1
140.8
267.0
676.5

778.6
182.2
305.4
695.2

9.3
24.7
23.0
14.5

8.0
-3.6
7.5
11.4

Europe
RoW
ARV
API

YoY (%) QoQ (%)

18.5
7.2

Comments
YoY growth on account of 24.3% growth in the US led by Natrol acquisation and
incremental product launches
Despite strong sales in the US, muted YoY growth in gross margins due to adverse
segment mix
Sequential increase in other expenses due to higher R&D and selling expenses

YoY expansion mainly due to lower employee cost and other expenditure

YoY growth mainly in sync with EBITDA

Growth mainly due to consolidation of Natrol business and new product launches

Source: Company, ICICIdirect.com Research

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

Old
15,639.3
3,546.7
22.7
2,202.2
37.7

FY17E
New % Change
15,543.9
-0.6
3,524.3
-0.6
22.7
-3 bps
2,200.6
-0.1
37.7
0.0

Old
17,912.8
4,169.5
23.3
2,627.4
45.1

FY18E
New % Change
17,652.7
-1.5
4,109.8
-1.4
23.3
-2 bps
2,627.8
0.0
45.1
0.1

Source: Company, ICICIdirect.com Research

Assumptions
(| crore)
US
Europe
ARV
RoW
API

FY15
4,831.7
3,194.7
963.9
568.3
2,706.2

FY16P
6,143.8
3,125.3
1,199.9
696.4
2,883.9

Current
FY17E
FY18E
7,422.1 8,906.5
3,239.6 3,498.8
1,293.6 1,423.0
777.2
893.8
3,028.1 3,179.5

Earlier
FY17E
FY18E
7,436.2 8,923.4
3,261.2 3,522.1
1,236.5 1,360.1
769.5
885.0
3,055.4 3,237.1

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 2

Company Analysis
Aurobindo Pharma was set up by first generation entrepreneurs PV
Ramprasad Reddy and K Nithyananda Reddy in 1986. Based in
Hyderabad, the company is an integrated pharmaceutical company,
which started as an API manufacturer. In 2001, it moved up the value
chain by foraying into formulations while from 2007 onwards it started
scaling up the formulation business. APL's manufacturing facilities are
approved by several leading regulatory agencies like USFDA, UKMHRA,
WHO, Health Canada, MCC South Africa, ANVISA Brazil. The company
owns 19 manufacturing facilities in India and the US. Of these 19 facilities,
eight are for formulations, 10 for APIs while one is for intermediates. The
company owns three R&D centres. The current employee strength is
more than 8000, which includes more than 750 scientists.
In FY16P, the API: formulations ratio was at 22:78. US formulations
constitute 44% of revenues followed by APIs & RoW formulations (26%),
Europe (23%) and ARV formulations (9%).
The company faced a USFDA embargo in 2011 for two of its units for
non-compliance of cGMP. It also went through political turmoil due to
Telangana issue and alleged favours received by the promoters through
political connections.
Aurobindo acquired commercial operations in seven Western European
countries from Actavis. The company has acquired personnel,
commercial infrastructure, products, marketing authorisation and dossier
license rights in these seven countries. The acquisition brought in a
pipeline of approximately 1200 products from different segments and an
additional pipeline of over 200 products under its foray. Net sales for the
acquired businesses were ~320 million. GPMs were ~30%. They were
fetching losses of ~23 million at the EBITDA level.
Aurobindo has acquired the assets of nutritional supplement maker Natrol
Inc for a consideration of ~US$132.5 million. With this acquisition, the
company has forayed into the nutritional OTC business in the US and
other international markets.
Overall, we expect revenues to grow at a CAGR of 13% in FY16P-18E to
| 17653.1 crore on the back of Actavis consolidation and incremental US
launches.
Exhibit 1: Revenues to grow at CAGR of 13% in FY16P-18E
20000

13% CAGR

18000
16000

13831.2

25.8% CAGR

14000
(| crore)

17652.7

15543.9
12120.5

12000
10000

8099.9

8000
6000

4381.5

4627.4

FY11

FY12

5855.3

4000
2000
0
FY13

FY14

FY15

FY16P

FY17E

FY18E

Total Operating Income

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 3

After filing an ANDA in the US in 2003, the company has come a long way
as the current ANDA filings are at 398. US revenue run rate has grown
from ~US$100 million in 2009 to ~US$805 million as on 2016. Note that
this was despite the USFDA embargo in FY12-13 on unit VI and unit III.
The much hyped Pfizer deal, which eventually fell apart, also had an
impact on US sales as the company had to invest in the front-end
network. In rupee term, US sales have grown at a CAGR of 38.9% to
| 6143.8 crore in FY11-16P. US formulations now constitute 44% of the
total turnover, up from 27% in FY11. The US traction has also boosted
investors confidence, which was affected by warning letters, pilling up
debts besides non-business political adversaries. We expect US sales to
grow at 20.4% CAGR on a higher base to | 8906.5 crore in FY16P-18E.
Exhibit 2: US growth on the back of robust pipeline, Natrol acquisition
10000

7422.1

8000

38.9% CAGR

(| crore)

7000

6143.8

6000

4831.7

5000
3446.8

4000
3000
2000

8906.5

20.4% CAGR

9000

1189.7

1183.6

FY11

FY12

1752.6

1000
0
FY13

FY14

FY15

FY16P

FY17E

FY18E

US

Source: Company, ICICIdirect.com Research

From being a prominent API supplier and participant in global ARV

tenders to a leading formulations vendor, the company has virtually
changed its identity. The API: formulations ratio has improved from 43:57
in FY11 to 22:78 in FY16P. Another USP of the company is its vertically
integrated model with huge capacity, unmatched by most peers. The
company owns a network of 19 manufacturing facilities (eight
formulations and 11 API & intermediates) in India and abroad. These can
be optimised by 1) continuous US filings and launches, 2) incremental
launches and filings in the RoW markets and 3) site transfers and supplies
for products covered under the Actavis deal. Higher capacity utilisation is
likely to have a positive impact on margins, which are likely to be under
some pressure after the Actavis deal.

ICICI Securities Ltd | Retail Equity Research

Page 4

Exhibit 3: Acquisition of Actavis Europe business boosts sales in Europe

5.8% CAGR

4000
3194.7

3125.3

3239.6

FY15

FY16P

FY17E

3498.8

3000
(| crore)

41.1% CAGR
2000

1000

559.1

647.48

FY11

FY12

467.9

672.1

0
FY13

FY14

FY18E

Europe

Source: Company, ICICIdirect.com Research

Exhibit 4: Aurobindo to concentrate on high margins tender business

8.9% CAGR

1600
1400

12.3% CAGR

1199.9

1200
963.9

(| crore)

1000
800

1423.0

1293.6

673

766.7

750.3

FY12

FY13

840.2

600
400
200
0
FY11

FY14

FY15

FY16P

FY17E

FY18E

ARV

Source: Company, ICICIdirect.com Research

Exhibit 5: API business to see muted growth due to higher captive consumption
4000

5% CAGR

9.9% CAGR

(| crore)

3000

2000

2536.2
1802.1

2828.9

2706.2

FY14

FY15

2883.9

3028.1

3179.5

2067.6

1000

0
FY11

FY12

FY13

FY16P

FY17E

FY18E

Total API

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 5

Exhibit 6: Impact on margins due to acquisitions to be neutralised by US growth

4000

26.3

3500

21.9

3000
(| crore)

2000
1000

3524.3
21.2
2563.6

2500
1500

30

4109.8

15.2

13.2
959.8

3140.7
22.7

23.3

22.7

20

2132.9

15
10

889.2

610.1

25

(%)

4500

500
0

0
FY11

FY12

FY13

FY14

FY15

FY16P

Operating Profit (EBITDA)

FY17E

FY18E

EBITDA Margins (%)

Source: Company, ICICIdirect.com Research

Exhibit 7: Net profit to grow at CAGR of 17.1% in FY16P-18E

3000

17.1% CAGR

2500

2200.6

(| crore)

1915.6

27.7% CAGR

2000
1500
1000

2627.8

1575.8
1173.0

563.4
293.9

500
-123.5
0
-500

FY11

FY12

FY13

FY14

FY15

FY16P

FY17E

FY18E

PAT

Source: Company, ICICIdirect.com Research

Exhibit 8: Trends in return ratios

40
36.7

35

31.7

30
25
(%)

20
15

23.8

21.5
16.3

18.0

23.4

28.1
25.0

24.6
24.3

26.4
22.9

17.6
10.9

10

7.9

5
0
FY11

FY12

FY13

FY14
RoCE (%)

FY15
FY16P
RoNW (%)

FY17E

FY18E

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 6

Exhibit 9: Trends in quarterly financials

(| Crore)
Q4FY13
Total Operating Income
1570.4
Raw Material Expenses
804.7
% of revenue
51.2
Gross Profit
765.7
GPM (%)
48.8
Employee Expenses
175.2
% of revenue
11.2
350.4
Other Manufacturing Exp
% revenues
22.3
Total Expenditure
1330.3
% of revenue
84.7
EBITDA
240.1
EBITDA Margins (%)
15.3
Depreciation
69.3
Interest
31.6
Other Income
14.1
1.3
Less: Forex & Exceptiona
PBT
152.0
Total Tax
44.5
Tax rate (%)
29.3
PAT
107.5
Minority Interest
-1.1
Net Profit
108.6
EPS (|)
1.9

Q1FY14
1715.6
891.3
52.0
824.3
48.0
188.9
11.0
327.7
19.1
1407.9
82.1
307.7
17.9
71.9
25.4
3.9
172.4
41.9
24.5
58.3
17.5
-1.1
18.6
0.3

Q2FY14
1914.0
919.2
48.0
994.8
52.0
196.0
10.2
360.3
18.8
1475.5
77.1
438.5
22.9
76.6
24.6
5.1
68.3
274.1
40.1
14.6
234.0
-1.1
235.1
4.0

Q3FY14
2140.6
897.7
41.9
1242.8
58.1
213.4
10.0
385.6
18.0
1496.8
69.9
643.8
30.1
76.0
23.7
3.6
-2.1
549.7
133.6
24.3
416.1
-1.4
417.5
7.1

Q4FY14
2329.8
897.8
38.5
1432.0
61.5
233.6
10.0
455.4
19.5
1586.9
68.1
743.0
31.9
88.0
34.2
10.7
-35.6
666.9
165.3
24.8
501.6
-0.2
501.8
8.6

Q1FY15
2911.1
1380.6
47.4
1530.4
52.6
308.4
10.6
563.9
19.4
2252.9
77.4
658.2
22.6
90.8
18.9
10.8
-1.4
560.7
146.4
26.1
414.3
-1.2
415.4
7.1

Q2FY15
2881.2
1264.7
43.9
1616.5
56.1
337.0
11.7
642.4
22.3
2244.0
77.9
637.2
22.1
89.9
21.0
27.3
42.0
511.7
140.4
27.4
371.2
-1.0
372.2
6.4

Q3FY15
3166.2
1538.5
48.6
1627.6
51.4
368.0
11.6
647.4
20.4
2554.0
80.7
612.2
19.3
67.3
21.9
35.9
20.2
538.7
156.3
29.0
382.4
-2.0
384.4
6.6

Q4FY15
3162.1
1373.6
43.4
1788.5
56.6
373.3
11.8
759.1
24.0
2506.0
79.3
656.1
20.7
84.7
22.6
6.7
-1.2
556.8
153.4
27.6
403.4
-0.5
403.8
6.9

Q1FY16
3255.5
1507.8
46.3
1747.6
53.7
365.1
11.2
722.8
22.2
2595.7
79.7
659.8
20.3
89.1
20.9
29.1
25.6
553.3
186.5
33.7
366.8
0.8
366.1
6.3

Q2FY16
3333.5
1469.0
44.1
1864.4
55.9
375.9
11.3
712.9
21.4
2557.9
76.7
775.6
23.3
92.8
24.1
11.7
57.9
612.5
162.2
26.5
450.3
-1.5
451.8
7.7

Q3FY16
3495.5
1553.6
44.4
1942.0
55.6
401.0
11.5
717.9
20.5
2672.5
76.5
823.0
23.5
99.5
22.7
6.9
-12.9
720.6
186.0
25.8
534.7
-0.3
535.0
9.2

Q4FY16 YoY (%) QoQ(%)

3746.8
18.5
7.2
1627.1
18.5
4.7
43.4
-1 bps -102 bps
2119.6
18.5
9.1
56.6
1 bps 102 bps
408.8
9.5
1.9
10.9 -89 bps -56 bps
828.5
9.1
15.4
22.1 -189 bps 157 bps
2864.4
14.3
7.2
76.5 -280 bps
0 bps
882.3
34.5
7.2
23.5 280 bps
0 bps
111.3
31.4
11.9
25.1
11.1
10.6
20.6
205.5
199.7
-4.6
771.1
38.5
7.0
209.7
36.7
12.7
27.2 -36 bps 138 bps
561.4
39.2
5.0
-1.4
213.3
370.0
562.9
39.4
5.2
9.6

Source: Company, ICICIdirect.com Research

SWOT Analysis

Strengths - US product pipeline, huge capacity, vertically integrated

business model
Weakness - No presence in Indian domestic formulations, substantial
debt, loss making Actavis European business
Opportunities - The US generics space, foray into oncology
Threats - Increased USFDA scrutiny across the globe regarding cGMP
issues and consolidation in the US pharmacy space. The companys unit
VII plant has received four USFDA observations. Any adverse outcome
may harm the future prospects as well as investors confidence

ICICI Securities Ltd | Retail Equity Research

Page 7

Conference call highlights

The company received EIR for Unit III (January 2016 inspection),
Unit VII, Auronext, Unit XI (API facility) and Unit VIII (API facility).
Unit XII (July 2015 inspection) is pending EIR. Unit IV (September
2014 inspection) is expected to be inspected within the next 12
months
Aurobindos cumulative filings were at 398 ANDAs including 215
final approvals, 36 tentative approvals and 147 pending approvals.
Tentative approvals include 21 ANDAs approved under PEPFAR,
not for commercialisation in the US market
In FY16, it received nine tentative approvals and 49 final USFDA
approvals including 20 injectable approvals. The company has
filed 78 ANDAs with USFDA under injectables segment (including
ophthalmic) of which 29 have received approvals. In Q4FY16, the
company received USFDA approvals for 23 ANDAs
The company plans to start filing oncology and hormonal
products in the US in the next four quarters while injectable filings
are expected to be same as FY16
The company launched 28 products in the US during FY16. It
expects 30-40 launches in FY17
Auromedics garnered sales of US$36.3 million registering growth
of 98% YoY on account of new product launches
The company expects Nexium launch in H2FY17 though traction
from the product is expected to be low
The company is planning expansion of its injectable capacity and
de-bottlenecking of capacity at unit VII
For the Natrol business, the company guided for 15% YoY
revenue growth with margin expansion. Natrols current margins
are higher than the companys consolidated margins. Natrol
recorded revenue growth of ~15% in FY16 to US$110 million
The company is now net profit positive in Europe. It has guided
for high single digit EBITDA margins for Europe
The R&D cost for Q4FY16 was 4.3% of turnover at | 160 crore
while for FY16 it was 3.4% of turnover at | 477 crore. The
company guided 4-4.5% of R&D spending in FY17E
Net debt was US$584 million in FY16 with cash of ~US$127
million
Capex for FY16 was US$212 million (US$18 million intangible and
US$194 million tangible). The company has guided for | 1200
crore of capex in FY17E and | 500 crore in FY18E. On account of
low capex deployment in FY18, it plans to utilise funds for debt
reduction

Exhibit 10: US pipeline

Units
III
VII
Aurolife
IV
XII
VI
Auronext
Total

Therapies
Oral non-betalactam products
Oral non-betalactam products
Oral non-betalactam products
General Injectables and Ophthalmic
Semisynthetic penicillin
Cephalosporin
Penem injectable products

Filings
124
148
26
67
19
11
3
398

Approvals
112
69
10
30
19
11
251

Pending
12
79
16
37
0
0
3
147

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 8

Exhibit 11: Major facilities

Unit No.
Aurolife

Segment
Formulations

Approvals
USFDA

Type
Oral Dosages

Location
USA

Unit-I

India

Unit-II

India

Unit-III

Formulations

USFDA

Oral dosage

India

Unit-IV

Formulations

USFDA

Injectables & Opthalmics

India

Unit-VI

Formulations

USFDA

Cephalosporins Orals

India

Unit-VII (SEZ)

Formulations

USFDA

Oral dosage

India

Unit-V

India

Unit-VIII

India

Unit-IX

India

Unit-X *

Facilities under construction/development

Unit-XI
Unit-XII

India
India

Formulations

USFDA

Penicillin Oral Injectables

India

Facilities under construction/development

India

Unit-XVI *

Facilities under construction/development

India

Unit-XVII *

Facilities under construction/development

India

APLRC-I @

Research and Development Centers

India

APLRC-II @

Research and Development Centers

India

Penem Injecables

India

Unit-XIV *
Unit-XV

Bhiwadi Unit

India

Formulations

USFDA

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 9

Valuation
FY16 numbers have been largely driven by strong US sales on the back of
extensive product launches even as the base business declined
marginally (3%). The company continues to thrive in the US, backed by a
robust product pipeline and niche launches. Despite a sharp increase in
approvals in FY16 (49 final approvals and nine tentative approvals), the
filing to final approval gap (147 at present) still bodes well for future US
growth. We expect initial margin pressure on account of Actavis and now
Natrol, to ease further on the back of incremental high margin US
launches. With the USFDA expected to hasten the approval process (90%
of approvals by September 2017) companies like Aurobindo will stand to
benefit the most. We maintain our target price of | 990, based on 22x
FY18E EPS of | 45.1.
Exhibit 12: One year forward PE
1000
800

600
400
200

Price

16.6x

13.6x

7.7x

Feb-16

Jul-15

Dec-14

May-14

Oct-13

Mar-13

Aug-12

Jan-12

Jun-11

Nov-10

Apr-10

Sep-09

Feb-09

Jul-08

Dec-07

May-07

Oct-06

Mar-06

4.7x

Source: Company, ICICIdirect.com Research

Exhibit 13: One year forward PE of company vs. CNX Pharma

45
40
35

30
25
20
15
10
5

Aurobindo

Feb-16

Jul-15

Dec-14

May-14

Oct-13

Mar-13

Aug-12

Jan-12

Jun-11

Nov-10

Apr-10

Sep-09

Feb-09

Jul-08

Dec-07

May-07

Oct-06

Mar-06

CNX Pharma

Source: Company, ICICIdirect.com Research

Exhibit 14: Valuation

FY15
FY16P
FY17E
FY18E

Revenues
(| crore)
12121
13831
15544
17653

Growth
(%)
50
14
12
14

Adj. EPS
(|)
27.1
32.8
37.7
45.1

Growth
(%)
19
21
11
19

P/E EV/EBITDA
(x)
(X)
28.4
30.7
23.5
24.8
20.4
22.0
17.1
18.5

RoNW
(%)
31.7
28.1
24.3
22.9

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 10

RoCE
(%)
23.4
25.0
24.6
26.4

Company snapshot
1,200
Target Price: | 990

1,000
800
600
400
200

May-17

Jan-17

Sep-16

May-16

Jan-16

Sep-15

May-15

Jan-15

Sep-14

May-14

Jan-14

Sep-13

May-13

Jan-13

Sep-12

May-12

Jan-12

Sep-11

May-11

Jan-11

May-10

Sep-10

Source: Bloomberg, Company, ICICIdirect.com Research

Key events
Date
Mar-10

Event
Starts contract manufacturing business Aurolife

Sep-10

Signs an agreement with AstraZeneca to supply generic drugs for emerging markets

Jan-11

Sells stake in API unit of China for US$23 million

Feb-11

USFDA issues import alert for Unit VI

May-11

Redeems FCCB bonds

May-11

Receives warning letter for Unit VI & concerns on packing division of Unit III

Apr-12

CBI raids company premises

May-12

Ramprasad Reddy & Nithyananda Reddy step down from CEO and MD posts. Govindarajan appointed Managing Director

Mar-13

USFDA withdraws import alert for Unit VI

Jan-14

Acquires Actavis's Western European operations in 7 countries for ~EUR 30 million

Nov-14

Highest bidder for US nutritional supplement market Natrol with a bid of US$ 132.5 million

Dec-14

Acquires manufacturing assets, personnel, commercial infrastructure including the well established nutraceuticals brands in USA of Natrol along with an agreement to
take on certain liabilities, with a bid of $ 132.5 million
Gets approval for setting up JV with Tergene Biotech Pvt Ltd for development of Pneumococcal Conjugate Vaccine with a global market of more than US$5 billion. The
company holds majority stake in the JV
The USFDA inspected Unit III and Unit VII facilities of the company. There was no 483 issued to Unit III. There were certain observations with regard to Unit VII.

Feb-15
Feb-16

Source: Company, ICICIdirect.com Research

Top 10 Shareholders
Rank
1
2
3
4
5
6
7
8
9
10

Investor Name
Rani (Suneela P)
Reddy (Nityananda K)
HDFC Asset Management Co., Ltd.
Kambam (Kirthi Reddy)
Reddy (Ramaprasad P V)
Sivakumaran (M)
Trident Chemphar, Ltd.
Invest AD
Kambam (Spoorthi)
APG Asset Management

Shareholding Pattern
Latest Filing Date % O/S Position (%) Position Chan
31-Mar-16 35.0
205.04m
0.00m
31-Mar-16
4.7
27.52m
0.00m
31-Mar-16
4.0
23.18m
1.40m
31-Mar-16
3.5
20.70m
0.00m
31-Mar-16
3.1
18.00m
0.00m
31-Mar-16
2.5
14.69m
0.00m
31-Mar-16
2.1
12.15m
0.00m
31-Mar-16
1.6
9.26m
1.44m
31-Mar-16
1.3
7.60m
0.00m
31-Mar-16
1.3
7.45m
(1.64)m

(in %)
Promoter
FII
DII
Others

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

54.0
53.9
53.9
53.9
53.8
29.6
29.5
28.9
28.8
27.4
6.2
6.3
6.1
6.4
7.3
10.2
10.3
11.1
10.9
11.5

Source: Reuters, ICICIdirect.com Research

Recent Activity
Buys
Investor name
Invest AD
HDFC Asset Management Co., Ltd.
Norges Bank Investment Management (NBIM)
Govindarajan (N)
BlackRock Institutional Trust Company, N.A.

Value ($)
16.2m
15.8m
14.5m
6.1m
5.5m

Shares
1.4m
1.4m
1.1m
0.5m
0.5m

Sells
Investor name
APG Asset Management
Principal Global Investors (Equity)
IDFC Asset Management Company Private Limited
PGGM Vermogensbeheer B.V.
UTI Asset Management Co. Ltd.

Value ($)
-18.4m
-6.3m
-6.2m
-5.1m
-2.8m

Shares
-1.6m
-0.6m
-0.6m
-0.4m
-0.3m

Source: Reuters, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 11

Financial summary
Profit and loss statement
(Year-end March)
Revenues
Growth (%)
Raw Material Expenses
Employee Expenses
Other Manufacturing Expenses
Total Operating Expenditure
EBITDA
Growth (%)
Interest
Depreciation
Other Income
PBT before Exceptional Items
Less: Forex & Exceptional Items
PBT
Total Tax
PAT before MI
Minority Interest
PAT
Adjusted PAT
Growth (%)
EPS (Diluted)

| Crore
FY15
12,120.5
49.6
5,557.5
1,386.7
2,612.8
9,556.9
2,563.6
20.2
84.3
332.6
80.8
2,227.5
59.6
2,167.9
596.6
1,571.3
-4.5
1,575.8
1,635.4
18.8
27.1

FY16P
13,831.2
14.1
6,157.5
1,550.8
2,982.1
10,690.5
3,140.7
22.5
92.7
392.6
68.2
2,723.6
66.0
2,657.6
744.4
1,913.2
-2.4
1,915.6
1,981.6
21.2
32.8

FY17E
15,543.9
12.4
6,967.8
1,865.3
3,186.5
12,019.6
3,524.3
12.2
66.2
484.0
78.9
3,053.0
0.0
3,053.0
855.1
2,197.9
-2.8
2,200.6
2,200.6
11.1
37.7

FY18E
17,652.7
13.6
7,805.8
2,118.3
3,618.8
13,542.9
4,109.8
16.6
43.7
510.0
89.6
3,645.7
0.0
3,645.7
1,021.1
2,624.5
-3.3
2,627.8
2,627.8
19.4
45.1

Source: Company, ICICIdirect.com Research

Cash flow statement

| Crore

(Year-end March)
Profit/(Loss) after taxation
Add: Depreciation & Amortization
Net Increase in Current Assets
Net Increase in Current Liabilities
CF from operating activities

FY15
1,575.8
332.6
-2,357.5
1,316.5
867.4

FY16E
1,915.6
392.6
-1,357.0
1,409.3
2,360.5

FY17E
2,200.6
484.0
-400.3
-710.8
1,573.6

FY18E
2,627.8
510.0
-1,215.5
376.7
2,299.0

(Purchase)/Sale of Fixed Assets

(Inc)/dec in Investments
Others
CF from investing activities

-1,373.1
0.0
337.7
-1,035.4

-1,530.9
19.6
114.9
-1,396.4

-1,200.0
-200.0
2.8
-1,397.2

-500.0
-200.0
3.3
-696.7

Issue of Equity Shares

Inc / (Dec) in Debt
Dividend & Dividend Tax
Adjustments in Reserve and Surplus
CF from financing activities

0.1
681.9
-136.3
-87.3
458.4

0.0
-584.1
-165.4
0.0
-598.9

0.0
-557.8
-190.0
0.0
-747.8

0.0
-1,122.0
-217.7
0.0
-1,339.7

Net Cash flow

Opening Cash
Closing Cash
Free Cash Flow

290.4
178.7
469.1
-505.6

365.3
469.1
834.3
829.6

-571.4
834.3
262.9
373.6

262.5
262.9
525.5
1,799.0

FY15

FY16E

FY17E

FY18E

2.3
88.6
2.3
8.1

2.8
120.8
2.8
14.3

3.3
155.3
3.3
4.5

3.7
197.1
3.7
9.0

54.1
21.2
13.5
108.8
106.6
61.8
1.2
33.8

55.5
22.7
14.3
107.9
110.1
66.7
1.2
75.2

55.2
22.7
14.2
100.0
100.0
60.0
1.2
44.6

55.8
23.3
14.9
100.0
100.0
60.0
1.3
55.9

31.7
23.4
24.9

28.1
25.0
29.4

24.3
24.6
27.4

22.9
26.4
30.5

28.4
30.7
6.5
6.2
8.7

23.5
24.8
5.6
5.4
6.4

20.4
22.0
5.0
4.8
5.0

17.1
18.5
4.3
4.2
3.9

0.9
1.7
2.6

0.5
1.2
2.1

0.4
0.9
2.6

0.2
0.5
2.6

Source: Company, ICICIdirect.com Research

Balance sheet

| Crore

(Year-end March)
Equity Capital
Reserve and Surplus
Total Shareholders funds
Total Debt
Deferred Tax Liability
Minority Interest
Long term Provisions
Source of Funds

FY15
29.2
5,126.7
5,155.9
4,451.1
210.5
25.8
24.4
9,867.7

FY16E
58.5
6,998.2
7,056.7
3,867.0
236.5
59.6
23.5
11,243.3

FY17E
58.5
9,008.9
9,067.4
3,309.2
236.5
62.3
23.5
12,698.9

FY18E
58.5
11,419.0
11,477.5
2,187.2
236.5
65.6
23.5
13,990.3

Gross Block - Fixed Assets

Accumulated Depreciation
Net Block
Capital WIP
Net Fixed Assets
Total Intangible Assets
Investments
Inventory
Cash
Debtors
Loans & Advances & Other CA
Total Current Assets
Creditors
Provisions & Other CL
Total Current Liabilities
Net Current Assets
LT L& A, Other Assets
Deferred Tax Assets
Application of Funds

4,401.9
1,536.9
2,865.0
407.2
3,272.2
853.1
19.8
3,611.3
469.1
3,539.2
659.6
8,279.2
2,051.1
995.7
3,046.8
5,232.4
485.5
4.8
9,867.7

5,251.9
1,861.8
3,390.0
949.4
4,339.5
924.1
0.2
4,088.1
834.4
4,171.9
907.0
10,001.5
2,526.8
1,929.4
4,456.1
5,545.3
434.1
0.1
11,243.3

6,301.9
2,271.5
4,030.4
1,049.4
5,079.9
899.7
200.1
4,258.6
262.9
4,258.6
1,050.1
9,830.2
2,555.2
1,190.2
3,745.3
6,084.9
434.1
0.1
12,698.9

6,651.9
2,703.8
3,948.1
1,149.4
5,097.5
872.1
400.1
4,836.3
525.5
4,836.3
1,110.1
11,308.3
2,901.8
1,220.2
4,122.0
7,186.3
434.1
0.1
13,990.3

Source: Company, ICICIdirect.com Research

Key ratios
(Year-end March)
Per share data (|)
Adjusted EPS (Diluted)
BV per share
Dividend per share
Cash Per Share
Operating Ratios (%)
Gross Profit Margins
EBITDA margins
Net Profit margins
Inventory days
Debtor days
Creditor days
Asset Turnover
EBITDA Conversion Rate
Return Ratios (%)
RoE
RoCE
RoIC
Valuation Ratios (x)
P/E
EV / EBITDA
EV / Net Sales
Market Cap / Sales
Price to Book Value
Solvency Ratios
Debt / Equity
Debt / EBITDA
Current Ratio

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 12

ICICIdirect.com coverage universe (Healthcare)

Company

I-Direct
Code

CMP
(|)

TP
(|)

Ajanta Pharma

AJAPHA

1529 1,780

Apollo Hospitals
Aurobindo Pharma

AURPHA

764

990

Alembic Pharma

ALEMPHA 543

EPS (|)
FY15 FY16E FY17E FY15

PE(x)
EV/EBITDA (x)
RoCE (%)
RoE (%)
FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E

Rating

M Cap
(| Cr)

Buy

13456.4

36.0

45.7

52.4

42.4

33.5

29.2

26.8

23.3

19.9

50.3

43.7

37.9

37.8

34.4

APOHOS 1346 1,420 Hold

18724.9

23.7

22.2

35.0

56.7

60.6

38.5

27.5

26.7

19.3

9.9

8.2

10.9

10.4

8.9

12.6

44704.0

28.1

33.9

37.7

27.2

22.5

20.3

30.7

24.8

22.0

23.4

25.0

24.6

31.7

28.1

24.3

Buy

30.0

620

Hold

10243.1

15.1

38.2

19.6

36.0

14.2

27.7

32.2

12.6

23.9

30.7

58.0

24.8

32.1

51.5

22.3

Biocon

BIOCON

699.4 560

Hold

13987.0

20.4

22.1

28.3

34.2

31.7

24.7

8.3

7.6

6.4

10.4

9.1

10.9

12.5

10.9

12.7

Cadila Healthcare
Cipla

CADHEA 327 390

CIPLA 473.7 470

Buy
Hold

33512.2
38055.7

11.2
14.7

15.0
18.8

15.5
19.9

29.2
32.2

21.9
25.3

21.1
23.8

20.3
17.8

14.5
16.7

14.4
14.8

20.7
13.8

27.9
12.1

24.6
13.1

27.0
10.9

28.6
12.7

24.4
12.1

Divi's Laboratories

DIVLAB

1083 1,320

Buy

28762.2

32.1

40.2

46.7

33.8

27.0

23.2

22.3

18.7

15.9

29.4

31.3

31.1

24.4

25.6

25.1

Dr Reddy's Labs

DRREDD

2974 3,480

Buy

53103.3

129.0 142.1 139.2

23.0

20.9

21.4

14.4

12.6

12.3

16.7

15.1

15.1

22.3

18.9

16.1

Glenmark Pharma

GLEPHA

858 1,000

Buy

24678.3

23.1

37.1

26.7

20.7

22.2

16.8

13.8

13.3

16.2

18.8

21.7

21.2

21.7

Indoco Remedies

INDREM 290.2 365

Buy

2674.2

9.0

9.3

15.1

32.3

31.2

19.2

16.7

16.2

11.7

16.4

13.2

19.7

16.0

14.7

20.9

Ipca Laboratories

IPCLAB

Hold

5501.7

19.9

10.0

24.0

21.9

43.5

18.2

12.1

18.0

11.2

11.5

5.8

12.3

11.4

5.5

11.9

Jubilant Life Sciences

Lupin

436

470

VAMORG 346.9 405

LUPIN

1481 1,850

32.2

41.4

Buy

5525.3

-0.6

26.0

41.6

NA

13.3

8.3

14.3

7.5

6.1

5.8

12.0

15.1

NA

14.2

18.9

Buy

66734.7

53.6

50.4

66.0

27.6

29.4

22.4

18.3

19.8

13.8

35.1

18.6

22.5

27.1

20.7

22.1

Natco Pharma

NATPHA 463.3 600

Buy

8068.6

8.3

8.9

10.9

55.7

52.0

42.3

39.2

30.0

26.9

15.4

16.1

16.4

17.9

12.0

13.0

Sun Pharma

SUNPHA

770

785

Hold

184677.6

19.8

23.4

25.9

38.9

32.8

29.7

23.1

20.6

17.8

18.8

18.6

19.3

18.6

18.0

17.1

Syngene International

SYNINT

399

445

Buy

7971.0

8.8

11.1

15.6

43.3

34.2

24.3

26.6

20.9

17.0

19.5

13.3

16.7

20.7

21.2

23.5

Torrent Pharma

TORPHA

1381 1,650

Buy

23363.4

44.4

115.5

67.8

31.1

12.0

20.4

23.7

8.0

13.5

20.1

51.1

27.0

30.2

57.7

27.0

Unichem Laboratories

UNILAB

263

Buy

2389.6

8.3

12.3

15.5

31.7

21.4

16.9

23.3

14.7

11.7

8.5

13.8

16.2

8.7

11.7

13.4

310

ICICI Securities Ltd | Retail Equity Research

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RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey

Head Research

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

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

ICICI Securities Ltd | Retail Equity Research

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ANALYST CERTIFICATION
We /I, Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Nandan Kamat 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 views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report.

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