Plethico Pharmaceuticals Ltd

Margins under pressure, delays cause concern

Fundamental Grade Valuation Grade Industry 3/5 (Good fundamentals) 5/5 (CMP has strong upside) Pharmaceuticals

April 25, 2011

Fair Value Rs 530 CMP Rs 340

CFV MATRIX
Excellent Fundamentals

Plethico Pharmaceuticals Ltds (Plethicos) CY2010 earnings were marginally lower than CRISIL Equities expectations. While revenues were in line with our expectations, profitability took a hit with higher-than-expected returns of unsold goods from the US. The shift in focus from the US to rest of the world (ROW) markets resulted in volatility in performance, along with an increase in debtor days to 155 from 135. While we are positive on Plethicos plans of launching Travisil in the US, we remain cautious on the delay in commissioning of the UAE plant. Further, the US$75 mn FCCB redemption in October 2012 is likely to temporarily increase the companys funding requirements. Consequently, we reduce our estimates for CY11 and CY12. However, we maintain the fundamental grade of 3/5. Q4CY10 result analysis Plethicos revenues were flat q-o-q at Rs 4,134 mn due to return of unsold goods from the US, it being the last quarter of the year. While herbals were flat, nutraceuticals grew 36% q-o-q, due to better sale of essential pure ingredients (EPIs) in the US. EBITDA margin declined 862 bps q-o-q to 14.6% (and declined 991 bps yo-y) due to higher employee costs and selling expenses - with increase in headcount in the previous quarter. PAT margin fell ~1,625 bps q-o-q (declined ~2,076 bps y-o-y) to 4.9% due to higher interest burden and increased depreciation from impairment cost on two products from the Natrol range. EPS for the quarter was Rs 5.5.

Fundamental Grade

5 4 3 2 1

Poor Fundamentals

Valuation Grade
Strong Downside Strong Upside

KEY STOCK STATISTICS

NIFTY / SENSEX NSE / BSE ticker Face value (Rs per share) Shares outstanding (mn) Market cap (Rs mn)/(US$ mn) Enterprise value (Rs mn) /(US$ mn) 52-week range (Rs) (H/L) Beta Free float (%) Avg daily volumes (30-days) Avg daily value (30-days) (Rs mn) 5885/19062 PLETHICO 10 34.1 11,589/262 17,288/390 449/313 1.0 13.0% 5,055.0 1.7

CY10 result analysis Plethicos revenues grew 22% y-o-y to Rs 15,192 mn mainly driven by volume growth in herbals (18%) and nutraceuticals (35%). The allopathic segment (including API trading) degrew 16% due to lower demand. EBITDA margin was 156 bps higher at 20.6% due to lower expenses. PAT (adjusted towards premium on FCCB) grew 8% to Rs 2,144 mn. Adjusted EPS for the year was Rs 62.9.

Further delay in commissioning of the UAE plant We are extremely vigilant about the continued delay in the commissioning of Plethicos UAE plant. The commissioning, earlier planned for August 2010, was delayed to December and now to June 2011. While the company claims that the delays are due to technical bottlenecks, any further delays in the commissioning will mean a further downward revision of our estimates. Valuations: Current market price has strong upside We continue to value Plethico using the price to earnings method, using a P/E multiple of 7x CY12 EPS and maintain the fair value of Rs 530 per share. Consequently, we assign the valuation grade of 5/5.

SHAREHOLDING PATTERN
100% 98% 96% 94% 92% 90% 88% 86% 84% 82% 80%
87.0% 87.0% 87.0% 87.0% 4.3% 4.4% 4.4% 4.5% 3.9% 4.4% 4.6% 4.5% 4.7% 4.3% 4.1% 4.0%

KEY FORECAST
(Rs mn) Operating income EBITDA Adj PAT Adj EPS-Rs EPS growth (%) Dividend yield RoCE (%) RoE (%) PE (x) P/BV (x) EV/EBITDA (x) CY08 9,068 1,379 890 26.1 (44.1) 0.6 13.4 13.5 14.8 3.1 13.9 CY09 12,487 2,430 1,876 55.1 110.8 0.6 17.4 22.9 7.3 2.3 7.2 CY10 15,192 3,144 2,144 62.9 14.3 0.7 25.1 21.2 5.4 1.4 5.2 CY11E 17,623 3,172 2,271 66.7 5.9 0.7 26.6 18.6 5.1 1.1 4.6 CY12E 20,385 3,873 2,601 76.4 14.5 0.7 26.6 17.7 4.5 0.9 3.7

Jun-10 Promoter

Sep-10 FII

Dec-10 DII

Mar-11 Others

PERFORMANCE VIS--VIS MARKET

Returns Plethico NIFTY 1-m 8% 10% 3-m 4% 3% 6-m -2% -4% 12-m -4% 12%

ANALYTICAL CONTACT
Chetan Majithia (Head) Charulata Gaidhani Client servicing desk +91 22 3342 3561 clientservicing@crisil.com chetanmajithia@crisil.com cgaidhani@crisil.com

NM: Not meaningful; CMP: Current Market Price Source: Company, CRISIL Equities estimate

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