Healthcare ARathi 090713

Healthcare
India I Equities
Result preview
8 July 2013
India Healthcare
Exports to drive revenues
Key takeaways Revenue growth to take a hit. Companies under our coverage are likely to post 9.4% yoy revenue growth, lower than high double-digit growth in the past few quarters due to slowdown in domestic industry with implementation of new drug pricing policy and high base because of FTFs. However, exports (ex FTFs) would remain strong with ~20% growth. Excluding FTFs, we expect overall 14.3% revenue growth during the quarter. Sun, Lupin, Glenmark, DRL, and Ipca are expected to drive most of the revenue growth. Margin stable, adj. PAT higher. We expect EBITDA margins to be stable at 22-23% during the quarter. However, ex the impact of Lipitor exclusivity for Ranbaxy in 1QFY13, we estimate 100bps improvement in EBITDA margin. Adjusted PAT growth could be 10.9% yoy, higher than revenue growth due to higher other income and reduced interest cost. Sun, DRL, Lupin, Glenmark, Pfizer and Ipca would register higher net profit growth. Domestic business may surprise negatively. Considering AIOCD AWACS data, domestic pharma industry has grown at single digit in AprMay13 against mid teens in the past few years. The slowdown has been across therapeutic categories, including chronic. Further, implementation of new drug pricing policy could also hit growth. Our take. Led by strong revenues in export formulations and stable margin, we expect continued momentum in India healthcare. Domestic formulations may surprise negatively in FY14e due to new drug pricing policy. We remain Overweight on the sector. Top picks. Cipla, Cadila, Natco, and Unichem.
Healthcare sector: 1QFY14 estimates
Company Revenue (`m) YoY chg (%) QoQ chg (%) Adj PAT (`m) YoY chg (%) QoQ chg (%)
Overweight Sensex: 19496 Nifty: 5868
Sensex vs Healthcare
135 130 125 120 115 110 105 100 95 90
BSE Healthcare
Sensex
Source: Bloomberg
Sun Pharma Dr Reddy's Lab Cipla Lupin Ranbaxy Lab* Cadila Health care Wockhardt Glenmark Pharma Apollo Hospitals Ipca Laboratories Fortis Healthcare Pfizer Unichem Natco Pharma Elder Pharma Indoco Remedies
Source: Anand Rathi Research
33,092 32,848 21,586 27,145 25,790 17,384 13,702 13,082 8,793 7,313 11,521 2,690 2,689 1,661 3,681 1,745
24.5 29.3 10.2 20.4 (20.1) 12.3 2.1 25.7 13.1 15.3 (18.3) 10.9 1.5 17.9 4.0 11.8
7.7 (1.7) 9.8 5.0 3.1 7.2 (7.8) (2.0) 3.7 8.9 (28.5) (4.5) 10.4 (1.1) 13.9 9.8
11,161 4,774 3,163 4,002 1,304 1,937 3,241 1,673 734 1,047 (646) 517 319 195 205 163
40.3 34.5 (17.4) 42.7 (62.6) 6.4 (7.1) 31.0 5.3 19.3 7.0 25.1 (3.6) 14.3 2.8 3.7
10.3 (16.4) 18.2 (14.2) 45.8 8.2 (12.6) (9.3) 3.4 47.8 (44.2) (10.1) 0.9 62.6 21.9 7.5
Note: *Ranbaxy data for 2QCY13e
Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities
Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13
Sriram Rathi
+9122 6626 6737 sriramrathi@rathi.com
Sanjeev Chiniwar
+9122 6626 6716 sanjeevchiniwar@rathi.com
8 July 2013
India Healthcare Exports to drive revenue
Fig 1 1QFY14: Key estimates

Revenue (`m) Company 1QFY14e YoY Chg (%) EBITDA Margin (%) 1QFY14e YoY Chg (bps) Adjusted PAT (`m) 1QFY14e YoY Chg (%)
Sun Pharma Dr Reddy's Lab Cipla Lupin Ranbaxy Lab* Cadila Health care Wockhardt Glenmark Pharma Apollo Hospitals Ipca Laboratories Fortis Healthcare Pfizer Unichem Natco Pharma Elder Pharma Indoco Remedies
33,092 32,848 21,586 27,145 25,790 17,384 13,702 13,082 8,793 7,313 11,521 2,690 2,689 1,661 3,681 1,745
24.5 29.3 10.2 20.4 (20.1) 12.3 2.1 25.7 13.1 15.3 (18.3) 10.9 1.5 17.9 4.0 11.8
44.0 22.5 22.0 24.1 9.6 18.0 32.5 20.5 16.5 22.5 7.5 19.0 18.0 21.0 15.0 16.0
(180) 280 (560) 380 (620) (150) (40) (60) (30) 20 (530) 570 40 (80) (40)
11,161 4,774 3,163 4,002 1,304 1,937 3,241 1,673 734 1,047 -646 517 319 195 205 163
40.3 34.5 (17.4) 42.7 (62.6) 6.4 (7.1) 31.0 5.3 19.3 7.0 25.1 (3.6) 14.3 2.8 3.7
Source: Anand Rathi Research Note: *Ranbaxy data for 2QCY13e
Fig 2 Valuation summary

Market cap Company Rating CMP (`) Target (`) (US$ m) PE FY15 (x) EV/EBITDA FY15 (x) P/BV FY15 (x) RoE FY15e RoCE FY15e Net Gearing (%) FY15e
Sun Pharma.Inds. Dr Reddy's Labs Cipla Lupin Ranbaxy Lab* Cadila Health care Wockhardt Glenmark Pharma. Apollo Hospitals Ipca Labs. Fortis Health. Pfizer Unichem Labs. Natco Pharma Elder Pharma Indoco Remedies
Hold Buy Buy Hold Hold Buy Buy Buy Hold Hold Hold Buy Buy Buy Buy Buy
1035 2235 399 836 345 782 930 585 960 684 87 1075 170 460 365 63
1,006 2,280 472 770 465 900 1,672 602 1,015 653 105 1,232 236 540 468 86
17,864 6,327 5,339 6,236 2,432 2,668 1,696 2,641 2,248 1,439 675 535 256 241 125 97
23.0 18.4 17.2 20.4 14.2 14.7 7.6 17.0 28.6 15.2 76.6 13.2 9.3 12.9 5.4 6.4
15.2 12.4 11.1 12.3 9.2 10.8 5.6 12.7 15.5 10.1 13.8 6.2 6.0 8.7 6.0 4.7
5.2 3.6 2.7 4.7 2.9 3.5 2.3 3.7 3.9 3.6 0.9 1.6 1.7 2.0 0.8 1.1
24.5 21.3 16.8 25.4 19.0 26.6 34.6 24.1 14.6 25.9 1.2 12.9 19.0 16.8 14.9 18.1
22.5 17.6 15.3 23.7 11.5 19.8 28.1 13.5 12.0 20.7 3.7 13.2 17.9 16.3 10.9 17.0
(43.5) 4.2 (24.8) 10.9 24.3 48.1 14.3 39.5 33.2 17.0 65.1 (86.5) 0.7 24.7 109.4 22.0
Note: *Ranbaxy data for CY14e
Anand Rathi Research
Healthcare
India I Equities
Result preview
8 July 2013
Sun Pharmaceutical Industries

Positives factored in; Hold
Key takeaways Strong quarter. We expect Sun Pharma to register a healthy 24.5% yoy revenue growth, led by strong growth in the US generics and domestic brandnamed formulations businesses. EBITDA margin is expected to have declined 180bps yoy, to 44%, on the higher R&D expenditure. Strong revenue growth and EBITDA margin improvement would aid 40.3% yoy rise in adjusted PAT. However, we expect EBITDA margin to have narrowed due to expected margin pressure in the Taro subsidiary. US generics, India formulations key growth drivers. We expect US generics to be the key growth driver, with 20% yoy rise in revenue led by Taros continued strong performance, the integration of DUSA Pharma and URL generics (URL Pharma recently acquired) and approval for Lipodox. Its India formulations business is expected to have been strong, with 48.9% yoy revenue growth on a low base and on like-to-like basis we estimate 18% growth led by its strong operations in the chronic segment. ROW formulations would also continue on its strong trajectory, with a 25% yoy increase in revenue. Integration of DUSA Pharma, URL Pharma. During 3QFY13, Sun Pharma acquired DUSA Pharma and URL Pharma, which were amalgamated in 4QFY13. For this quarter we have factored in revenue of US$20m from DUSA Pharma. We believe that URL Pharma could surprise positively on the revenue and margin fronts due to a possible price rise in doxycycline.
Key data
Rating: Hold Target Price: `1,006 Share Price: `1,036
SUNP IN / SUN.BO
52-week high / low Sensex / Nifty 3-m average volume Market cap Shares outstanding
`1,116 / `580 19496 / 5868 US$14.6m `1,071bn / US$18bn 1,036m
Shareholding pattern (%)
Mar'13 Dec 12 Sep 12
Promoters - of which, Pledged Free Float - Foreign Institutions - Domestic Institutions - Public
63.7 0.3 36.3 22.6 3.4 10.3
63.7 0.4 36.3 21.5 4.5 10.4
63.7 0.4 36.3 20.4 5.2 10.7
Financials (YE Mar)
Sales (`m) Net profit (`m) EPS (`) Growth (%) PE (x) PBV (x) RoE (%) RoCE (%) Dividend yield (%) Net gearing (%)
FY14e 135,756 40,213 38.8 15.5 26.7 6.2 25.6 23.8 1.3 (43.2)
FY14e 158,350 46,619 45.0 15.9 23.0 5.2 24.5 22.5 1.6 (49.8)
` take. We are positive on the business model and growth outlook of the Our company. However, we believe that present valuations factor in the positives. Taros continued strong performance, further acquisitions and profitability expansion in URL Pharma could offer upside to our estimates. We maintain Hold, with a price target of `1,006 based on 24x Sep14e earnings. Risks. Currency fluctuations, regulatory hurdles.
Quarterly results (YE Mar) 1QFY13 1QFY14e % yoy FY12 FY13 % yoy
Sales (`m) EBITDA (`m) EBITDA margin (%) Interest (`m) Depreciation (`m) Other income (`m) PBT (`m) Tax (`m) Tax rate (%) PAT (`m)
Source: Company
26,581 12,169 45.8 212 801 (19) 11,136 1,925 17.3 7,956
33,092 14,561 44.0 111 918 2,044 15,575 3,115 20.0 11,161
24.5 19.7 (180)bps (47.7) 14.5 NA 39.9 61.8 270bps 40.3
80,195 32,043 40.0 282 2,912 4,715 33,565 3,826 11.4 25,873
112,999 49,673 44.0 443 3,362 3,117 43,149 8,206 19.0 34,807
40.9 55.0 400bps 57.2 15.5 (33.9) 28.6 114.4 760bps 34.5
Sriram Rathi
8 July 2013
Sun Pharmaceutical Industries Positives factored in; Hold
Quick Glance Financials and Valuations

Fig 1 Income statement (`m)
Year-end: Mar FY11 FY12 FY13 FY14e FY15e
Fig 2 Balance sheet (`m)

Net revenues Revenue growth (%) - Op. expenses EBIDTA EBITDA margin (%) - Interest expenses - Depreciation + Other income - Tax Effective tax rate (%) Reported PAT +/- Extraordinary items +/- Minority interest Adjusted PAT Adj. FDEPS (`/share) Adj. FDEPS growth (%)
57,291 43.0 37,711 19,580 34.2 739 2,049 3,566 1,286 6.3 18,161 0 913 18,161 17.5 27.5
80,195 40.0 48,152 32,043 40.0 282 2,912 4,715 3,826 11.4 25,873 0 3,855 25,873 25.0 42.5
112,999 40.9 63,326 49,673 44.0 443 3,362 3,117 8,206 19.0 30,081 (5,836) 4,863 34,807 33.6 34.5
135,756 20.1 78,696 57,060 42.0 443 3,843 3,991 11,353 20.0 40,213 0 5,198 40,213 38.8 15.5
158,350 16.6 93,667 64,683 40.8 443 4,263 4,900 12,975 20.0 46,619 0 5,282 46,619 45.0 15.9
Share capital Reserves & surplus Net worth Minority interest Total debt Def. tax liab. (net) Capital employed Net fixed assets Investments - of which, Liquid Net working capital Cash and bank balance Capital deployed Net debt WC days Book value (`/sh)
1,036 93,798 94,833 8,472 4,256 (3,652) 103,908 35,660 22,310 18,324 24,002 21,936 103,908 (36,005) 172.8 92
1,036 120,628 121,663 11,614 2,650 (5,199) 130,729 42,960 22,129 16,239 31,968 33,672 130,729 (47,261) 173.1 117
1,036 140,412 141,447 16,351 1,982 (7,112) 152,668 62,101 24,116 13,052 25,864 40,587 152,668 (51,657) 166.8 137
1,036 1,036 171,215 206,926 172,251 207,961 21,549 26,831 1,982 1,982 (7,112) (7,112) 188,669 229,662 66,258 69,995 24,116 24,116 13,052 13,052 34,881 43,009 63,414 92,541 188,669 229,662 (74,484) (103,611) 148.4 153.0 166 201
Source: Company, Anand Rathi Research
Fig 3 Cash-flow statement (`m)

Fig 4 Ratio analysis @ `1,036

PAT + Non-cash items Cash profit - Incr./(decr.) in WC Operating cash-flow - Capex Free cash-flow - Dividend + Equity raised + Debt raised - Investments - Misc. items Net cash-flow + Op. cash & bank bal. Cl. cash & bank bal.
19,074 2,482 21,555 533 21,022 2,650 18,372 4,213 0 0 (8,354) 6,643 15,871 6,073 21,936
29,738 2,076 31,815 8,297 23,517 7,877 15,640 5,115 0 (1,001) (169) (1,932) 11,625 22,046 33,672
34,943 3,362 38,305 (6,104) 44,409 15,800 28,609 7,039 (668) 1,987 12,000 6,916 33,672 40,587
45,411 3,843 49,254 9,017 40,237 8,000 32,237 9,410 0 0 22,827 40,587 63,414
51,901 4,263 56,164 8,128 48,036 8,000 40,036 10,909 0 0 29,127 63,414 92,541
P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net Debt/Equity (x) Net debt/EBITDA (x) Net debt/Op. CF (x) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x)
59.0 11.3 53.8 21.0 20.4 0.6 20.0 2.8 (0.4) (1.8) (1.7) 28.9 18.4 18.7
41.4 8.8 32.5 23.9 22.3 0.7 17.0 1.6 (0.4) (1.5) (2.0) 103.3 21.4 13.0 13.4
30.8 7.6 20.8 26.5 24.8 1.0 17.3 1.8 (0.4) (1.0) (1.2) 104.4 15.7 9.1 9.5
26.7 6.2 17.7 25.6 23.8 1.3 20.0 1.9 (0.4) (1.3) (1.9) 120.0 13.6 7.4 7.9
23.0 5.2 15.2 24.5 22.5 1.6 20.0 2.0 (0.5) (1.6) (2.2) 136.3 11.7 6.2 6.8
Fig 5 PE band
Rs
Fig 6 Revenue break-up (FY14e)
1,100 1,000 900 800 700 600 500 400 300 200 Aug-11 Aug-12 Apr-11 Apr-12 Dec-10 Dec-11 Dec-12 Apr-13
US 56%
24x 20x 16x 12x
APIs 6% ROW 13% India 25%
Source: Bloomberg, Anand Rathi Research
Healthcare
India I Equities
Result preview
8 July 2013
Dr Reddys Laboratories
Strong growth to continue; Buy
Key takeaways Strong quarter. We expect 29.3% yoy revenue growth, led by strong growth in its US and Russia generics and steady growth in domestic formulations (in line with industry). EBITDA margin is expected to improve 280bps yoy, to 22.5%, led by higher revenue from the US and favourable currency. We expect adjusted PAT to grow at 34.5% yoy, driven by strong revenue growth and margin improvement. US, Russia key drivers. We estimate US revenue at US$201m during 1QFY14, representing a growth of 34% yoy. This growth would be driven by launch of Propecia, Zometa, Reclast and Accutane. We estimate a steady 12% yoy increase in its domestic formulations, in line with industry. Russia is expected to continue with high growth and we estimate 23.6% yoy increase in revenue from Russian generic business. PSAI segment is expected to report robust 51.6% yoy increase in revenue on low base. Product launches encouraging. We expect growth momentum to continue in the near-to-mid term, led by launches and market share gain in key products in the US market such as Toprol XL, Propecia, Azacitidine, Zometa, Accutane, Reclast etc. We believe that higher revenue from these products and market share gain in key products along with favourable currency scenario would lead to better profitability. Our take. We expect Dr. Reddys to report strong 29.3% yoy revenue growth, led by strong growth in its US and Russia generics and steady growth in ` domestic formulations (in line with industry). Its adjusted PAT would grow 34.5% yoy, chiefly led by revenue growth and margin improvement. We remain positive on near-to-mid term growth outlook, considering niche product launches in the US market. The stock is currently trading at 20.9x FY14e and 18.4x FY15e earnings. We maintain Buy, with price target of `2,280 based on 20x Sep14 earnings. Risks. Currency fluctuations, regulatory hurdles.
Quarterly results (YE Mar) 1QFY13 1QFY14e % yoy FY12 FY13 % yoy Key data
Rating: Buy Target Price: `2,280 Share Price: `2,235
DRRD IN / REDY.BO
`2288 / `1528 19496 / 5868 US$13.5m `378bn / US$6.3bn 169.8m
Mar 13 Dec 12 Sep 12
25.56 0 74.44 29.66 11.03 33.75
25.56 0 74.44 26.17 13.98 34.29
25.56 0 74.44 24.52 15.23 34.69
Financials (YE Mar)
FY14e
FY15e
131,127 18,146 106.8 10.9 20.9 4.3 22.5 16.5 0.7 19.8
145,290 20,584 121.2 13.4 18.4 3.6 21.3 17.6 0.8 4.2
Sales (`m) EBITDA (`m) EBITDA margin (%) Interest (`m) Depreciation (`m) Other income(`m) PBT (`m) Tax (`m) Tax rate (%) PAT (`m)
Source: Company
25,406 4,996 19.7 44 1,296 278 3,725 365 9.8 3,549
32,848 7,391 22.5 127 1,472 1,739 6,120 1,346 22.0 4,774
29.3 47.9 280bps 187.6 13.6 525.7 64.3 268.9 1220bps 34.5
96,737 23,741 24.5 (160) 5,214 819 18,466 4,204 22.8 15,065
116,266 24,763 21.3 (460) 5,549 1,471 21,677 4,900 22.6 16,365
20.2 4.3 (320)bps 187.5 6.4 79.7 17.4 16.6 (20)bps 8.6
Sriram Rathi
8 July 2013
Dr Reddys Laboratories Strong growth to continue; Buy


74,693 6.3 59,032 15,661 21.0 362 4,147 926 1,403 11 11,040 365 0 10,763 63.6 16.8
96,737 29.5 72,996 23,741 24.5 690 5,214 1,669 4,204 23 14,262 (1,040) 0 15,065 88.8 40.0
116,266 20.2 91,503 24,763 21.3 0 5,549 1,931 4,900 23 16,777 532 0 16,365 96.4 8.6
131,127 12.8 103,111 28,017 21.4 506 5,888 1,641 5,118 22 18,146 0 0 18,146 106.8 10.9
145,290 10.8 114,262 31,028 21.4 256 6,188 1,805 5,806 22 20,584 0 0 20,584 121.2 13.4
846 45,144 45,990 0 23,503 2022 71,515 44,888 33 0 20,865 5,729 71,515 17,774 49.8 272
848 56,596 57,444 0 32,210 1132 90,786 46,775 10,773 0 25,859 7,379 90,786 24,831 72.3 339
849 72,255 73,105 0 36,791 1132 111,027 51,836 16,963 0 37,092 5,136 111,027 31,654 84.2 430
849 87,177 88,026 0 26,791 1132 115,949 51,948 16,963 0 37,691 9,347 115,949 17,444 79.2 518
849 104,104 104,953 0 16,791 1132 122,876 51,760 16,963 0 41,793 12,359 122,876 4,432 79.2 618


11,040 2,744 13,784 6,534 7,250 9,000 (1,750) 2,583 0 8,847 (3,564) 8,933 (855) 6,584 5,729
14,262 6,254 20,516 4,909 15,607 8,141 7,466 2,709 0 8,707 10,795 1,019 1,650 5,729 7,379
16,777 6,237 23,014 11,129 11,885 11,298 587 2,981 0 4,581 6,294 (1,865) (2,242) 7,379 5,137
18,146 5,888 24,033 599 23,434 6,000 17,434 3,224 0 (10,000) 0 4,211 5,136 9,347
20,584 6,188 26,771 4,102 22,669 6,000 16,669 3,657 0 (10,000) 0 3,012 9,347 12,359
35.1 8.2 25.2 24.2 17.4 0.6 20.0 1.7 0.4 1.1 2.5 31.8 25.4 5.3 5.1
25.2 6.6 17.0 29.1 19.6 0.6 16.3 2.1 0.4 1.0 1.6 26.9 18.7 4.2 3.9
23.2 5.2 16.6 25.1 16.4 0.7 15.2 2.2 0.4 1.3 2.7 NA 17.3 3.5 3.3
20.9 4.3 14.2 22.5 16.5 0.7 15.2 2.5 0.2 0.6 0.7 43.7 15.8 3.0 2.9
18.4 3.6 12.4 21.3 17.6 0.8 15.2 2.8 0.0 0.1 0.2 96.9 14.2 2.6 2.6
Fig 5 PE band
500 450 400 350 300 250 200 150 100 50 0 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 5x Natco 10x 15x

Other operating inc 7% US retail 13% APIs 33%
Export Form 18%
Domestic Form 29%
Healthcare
India I Equities
Result preview
8 July 2013
Cipla
High base to hit growth; Buy
Key takeaways Modest quarter. We expect 10.1% yoy revenue growth, largely driven by strong growth in exports formulations. However, domestic formulations growth would be impacted by high base and slowdown in industry growth. EBITDA margin is expected to decline 560bps yoy, to 22%, due to high base and increased R&D expenses. We expect adjusted PAT to decline 17.4% yoy, mainly due to high base effect and decrease in EBITDA margin. Export formulations key growth driver. Formulations for export are expected to grow 18% yoy, led by higher capacity utilization at its Indore SEZ and favourable currency. However, we expect just 5% yoy increase in revenue from domestic formulations, mainly due to high base effect and general slowdown in domestic pharma industry growth. API revenues are expected to remain flat during the quarter. Long-term outlook intact. The company could face near-term headwinds due to implementation of new drug pricing policy in India and increased R&D spend. We expect it to report 13.8% revenue and 11% adjusted PAT CAGR over FY13-15. Ramp up in revenue from Dymista in the US and launch of combination inhalers in the EU would be key triggers, going forward, and would provide upside to our estimates. Our take. We expect 10.2% yoy revenue growth, led by strong growth in exports formulations. We estimate its adjusted PAT to decline 17.4% yoy, due to high base effect and decline in EBITDA margin. Cipla is one of our top ` picks from the long-term perspective, considering its steady growth assurance and possible upside from ramp up in Dymista sales in the US and approval for combination inhalers in the EU. The stock is currently trading at 19.9x FY14e and 17.2x FY15e earnings. We maintain Buy, with a price target of `472. Risks. Currency fluctuations, regulatory hurdles.
Key data
Rating: Buy Target Price: `472 Share Price: `399

CIPLA IN / CIPL.BO
`435 / `314 19496 / 5868 US$13.8m `317bn / US$5.3bn 803m
36.8 0 63.2 23.89 10.19 29.12
36.8 0 63.2 22.24 11.84 29.12
36.8 0 63.2 20.79 13.36 29.05
Financials (YE Mar)
FY14e
FY15e
93,898 16,123 20.1 6.4 19.9 3.1 16.7 15.0 0.8 (19.0)
107,263 18,635 23.2 15.6 17.2 2.7 16.8 15.3 0.9 (24.8)
Quarterly results (YE Mar)
1QFY13
1QFY14e
% yoy
FY12
FY13
% yoy
Source: Company
19582 5399 27.6 11 728 301 5190 1182 22.8 3,830
21586 4749 22.0 133 806 464 4274 1111 26.0 3,163
10.2 -12.0 (560)bps 1,119.8 10.6 54.3 (17.6) (6.0) 320bps (17.4)
70,207 16,957 24.2 383 3,122 353 14,478 3,065 21.2 10,911
82,793 21,978 26.5 339 3,305 2,221 20,953 5,443 26.0 15,155
17.9 29.6 230bps (11.6) 5.8 529.3 44.7 77.6 480bps 38.9
Sriram Rathi
8 July 2013
Cipla High base to hit growth; Buy

Year-end: Mar FY11 FY12 FY13e FY14e FY15e

63,145 12.6 49,878 13,267 21.0 173 2,542 945 1,952 16.8 9,896 0 (224) 9,791 12.2 (7.3)
70,207 11.2 53,250 16,957 24.2 383 3,122 353 3,065 21.2 11,442 0 (29) 10,911 13.6 11.4
82,793 17.9 60,816 21,978 26.5 339 3,305 2,221 5,443 26.5 15,448 398 62 15,155 18.9 38.9
93,898 13.4 70,891 23,007 24.5 532 3,580 2,319 5,091 24.0 16,123 0 0 16,123 20.1 6.4
107,263 14.2 81,035 26,229 24.5 483 3,781 2,555 5,885 24.0 18,635 0 0 18,635 23.2 15.6
1,606 65,056 66,661 0 5,719 2,131 74,511 33,799 5,904 2,465 33,798 1,010 74,511 2,244 154.6 83.0
1,606 74,784 76,389 0 135 2,332 78,856 35,867 12,745 9,405 29,340 905 78,856 10,175) 159.5 95.1
1,606 88,581 90,187 0 9,669 2,805 102,662 39,878 25,376 21,168 35,978 1,430 102,662 (12,928) 152.6 112.3
1,606 1,606 101,677 117,063 103,283 118,669 0 0 9,669 9,669 2,805 2,805 115,757 131,144 41,798 42,017 25,376 25,376 21,168 21,168 40,488 45,794 8,097 17,958 115,757 131,144 (19,595) (29,456) 155.2 154.9 128.6 147.8

Fig 4 Ratio analysis @ `399

9,896 2,874 12,769 3,029 9,741 9,468 273 2,615 5,668 3,253 (329) 402 608 1,010
11,442 3,323 14,766 (4,458) 19,224 5,194 14,030 1,866 (5,584) 6,841 (156) (105) 1,010 905
15,448 3,305 18,752 6,638 12,114 7,316 4,798 1,866 9,535 12,631 (689) 525 905 1,430
16,123 3,580 19,703 4,509 15,193 5,500 9,693 2,811 0 216 6,667 1,430 8,097
18,635 3,781 22,416 5,306 17,110 4,000 13,110 3,249 0 9,861 8,097 17,958
32.7 4.8 23.7 15.6 14.7 0.7 22.7 0.9 0.0 0.2 0.2 61.9 31.8 5.0 4.9
29.4 4.2 18.3 15.3 14.6 0.5 14.0 0.9 (0.1) (0.6) (0.5) 36.1 27.1 4.4 4.6
21.1 3.6 14.0 18.2 16.8 0.5 10.4 1.0 (0.1) (0.6) (1.1) 55.1 20.3 3.7 3.9
19.9 3.1 13.1 16.7 15.0 0.8 15.0 0.9 (0.2) (0.9) (1.3) 36.5 19.2 3.2 3.4
17.2 2.7 11.1 16.8 15.3 0.9 15.0 0.9 (0.2) (1.1) (1.7) 46.4 16.8 2.7 3.0
Fig 5 PE band
500 450 400 350 300 250 200 150 100 50 0 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Apr-13 Cipla 20x 16x 12x 24x
Fig 6 Revenue break-up (FY13)

Other operating income 3% Export APIs 8% Domestic formulations 44% Export formulations 45%
Source: Company
Healthcare
India I Equities
Result preview
8 July 2013
Lupin
Growth momentum to continue; Hold
Key takeaways Strong quarter. We expect Lupin to report a strong 20.4% yoy revenue growth, led by strong growth in the US, India and emerging markets. EBITDA margin is expected to improve 380bps yoy, to 24.1%, on the back of Tricor opportunity and favourable currency. We expect adjusted PAT to grow 42.7% yoy, driven by strong growth in revenue and EBITDA margin. Strong revenue growth across segments. We expect Lupin to report strong revenue growth across its business segments during 1QFY14. The US business would be the key growth driver with 40.3% yoy increase in revenue, led by product launches including oral contraceptives and Tricor in addition to currency gain. Its domestic formulations business is expected to grow 15% yoy on a high base, driven by higher growth in chronic segments. We expect revenues from Japan to decline 10% yoy due to currency factor. Emerging markets are expected to report 25% yoy increase in revenue. Margin expansion led by Tricor, favourable currency. Tricor faces limited competition from just three generic players, with Lupin holding 30%+ market share in the product. We expect Lupin to generate ~US$30m revenue from this product during the quarter with higher EBITDA margins. However, Mylan has also entered the market now and we expect Lupins market share to go down gradually and prices to also erode. Out take. We remain positive on business model and growth outlook of the company. We expect 15.8% revenue and 16% adjusted net profit CAGR over ` FY13-15 without considering currency gain. However, we do not expect any major improvement in the base business margin and threat persists in terms of generic launch of Suprax. We believe current valuations do not provide much upside potential. The stock is trading at an expensive valuation of 23.1x FY14e and 20.4x FY15e earnings. We maintain Hold, with price target of `770 based on 20x FY14e earnings. Risks. Currency fluctuations, regulatory hurdles.
Rating: Hold Target Price: `770 Share Price: `836
LPC IN / LUPN.BO
`855 / `496 19496 / 5868 US$9.9m `378bn / US$6.3bn 447.7m
46.84 0 53.16 28.8 14.33 10.03
46.85 0 53.15 27.76 15.64 9.75
46.89 0 53.11 27.99 15.38 9.74
Financials (YE Mar)
FY14e
FY15e
112,188 16,164 36.1 18.4 23.1 5.8 27.7 25.2 0.8 (1.6)
129,159 18,299 40.9 13.2 20.4 4.7 25.4 23.7 0.9 (11.5)
Source: Company
22,537 4,576 20.3 101 654 236 4,058 1,208 29.8 2,804
27,145 6,545 24.1 93 690 73 5,835 1,750 30.0 4,002
20.4 43.0 380bps (7.5) 5.6 (69.0) 43.8 44.9 20bps 42.7
70,650 14,669 20.8 355 2,275 145 11,961 3,086 25.8 8,899
96,413 22,700 23.5 410 2,586 279 19,246 5,842 30.4 13,654
36.5 54.7 270bps 15.6 13.7 92.7 60.9 89.3 460bps 53.4
Sriram Rathi
8 July 2013
Lupin Growth momentum to continue; Hold


58,056 20.2 46,319 11,737 20.2 325 1,712 262 1,169 11.7 8,626 0 148 8,626 19.3 29.4
70,650 21.7 55,981 14,669 20.8 355 2,275 145 3,086 25.8 8,676 (223) 199 8,899 19.9 3.1
96,413 36.5 73,713 22,700 23.5 410 2,586 279 5,842 30.4 13,142 (736) 263 13,654 30.5 53.1
112,188 16.4 85,611 26,576 23.7 372 2,936 293 7,068 30.0 16,164 0 329 16,164 36.1 18.4
129,159 15.1 99,405 29,753 23.0 329 3,168 473 8,019 30.0 18,299 0 411 18,299 40.9 13.2
892 31,918 32,811 515 13,035 1,411 46,361 25,881 32 0 16,248 4,201 46,361 8,834 99.3 74
893 39,236 40,129 723 14,809 1,442 57,103 31,934 28 0 21,116 4,025 57,103 10,784 97.6 90
895 51,146 52,041 595 9,739 1,632 64,007 33,109 21 0 26,529 4,349 64,007 5,390 93.9 116
895 63,906 64,801 923 8,739 1,632 76,096 35,173 21 0 31,097 9,805 76,096 (1,066) 97.0 145
895 78,352 79,247 1,334 7,600 1,632 89,813 37,004 21 0 36,064 16,723 89,813 (9,123) 97.4 177


8,626 1,685 10,311 2,401 7,909 5,243 2,666 1,658 0 226 (233) (719) 2,186 2,015 4,201
8,676 2,605 11,281 6,207 5,074 4,213 860 1,777 0 4,932 (4) 2,384 1,634 4,201 5,836
13,142 2,586 15,728 5,413 10,315 4,871 5,444 2,094 0 (5,070) (7) (2,037) 324 4,025 4,349
16,164 2,936 19,100 4,568 14,531 5,000 9,531 3,404 0 (1,000) 0 (329) 5,456 4,349 9,805
18,299 3,168 21,468 4,967 16,501 5,000 11,501 3,854 0 (1,139) 0 (411) 6,918 9,805 16,723
43.2 11.4 32.4 29.5 20.9 0.4 16.5 1.4 0.3 0.8 1.1 30.9 36.1 6.6 6.4
42.0 9.3 26.3 24.4 20.9 0.4 17.1 1.5 0.3 0.7 2.1 34.9 33.4 5.5 5.3
27.4 7.2 16.8 29.6 25.9 0.5 13.1 1.7 0.1 0.2 0.5 49.0 23.0 3.9 3.9
23.1 5.8 14.1 27.7 25.2 0.8 18.0 1.7 (0.0) (0.0) (0.1) 63.5 19.6 3.3 3.3
20.4 4.7 12.3 25.4 23.7 0.9 18.0 3.6 (0.1) (0.3) (0.6) 80.8 17.4 2.8 2.9
Fig 5 PE band
( `) 1 00 0 90 0 80 0 70 0 60 0 50 0 40 0 30 0 20 0 10 0 0 M ay-0 7 M ay-1 0 N o v-0 8 A u g-0 6 S e p-0 7 A u g-0 9 S e p-1 0 F e b-0 8 Ju n-0 8 F e b-1 1 D e c-0 6 D e c-0 9 Ju n-1 1 M ar-0 6 M ar-0 9 O ct-1 1 M ar-1 2 D e c-1 2 A pr-1 3 Jul-1 2 1 0x Lu p in 2 0x 1 5x
APIs 9% ROW 10% US 41%
India 25% Japan 12%

EU 3%
10
Healthcare
India I Equities
Result preview
8 July 2013
Wockhardt
Import alert to cut into growth; Buy
Key takeaways Revenues, EBITDA margin constrained. We expect a meagre 2.1% yoy revenue growth for Wockhardt due to an import alert on its Waluj plant by the US FDA. This would hit its US supplies. Hence, we expect EBITDA margin to decline 40bps yoy, to 32.5%. Constrained revenue growth and decline in EBITDA margin, along with higher effective tax rate, could cause 7.1% dip in adjusted PAT. Import alert likely to hit growth momentum. We expect flat growth in the US business, as product supply was hit owing to an import alert at the companys Waluj facility. However, Toprol XL and Flonase would remain the top contributors to revenue. Growth would become negative in the coming quarters for US market as base effect kicks in. However, we expect 10% yoy increase in revenue from domestic formulations, in line with the industry growth. EU and ROW would continue to grow steadily at ~10%. Margins and return ratios to remain strong. We expect EBITDA margin to stabilize at ~30% (higher than industry), led by higher contribution from limited competition products and cost efficiencies. We expect it to become a net-cash company in FY15, from debt-equity of 5.7x in FY12 and ~1x in FY13. This should buoy RoCE from 12% in FY12 to 28% in FY15 and ROE to 34.6% in FY15. Our take. In the past two years, Wockhardt has commendably turned around, largely driven by its balance-sheet restructuring, scale-up in its US business and rationalising of its overall operations. However, recent import alert would hit momentum temporarily for one year. We remain positive on the companys long-term outlook. We maintain Buy, at a target of `1,672 based on 14x Sep14e earnings. The stock is currently trading at 8x FY14e and 7.6x FY15e, implying a significant discount to large-cap peers. Risks. Currency fluctuations, regulatory hurdles.
Rating: Buy Target Price: `1,672 Share Price: `901
WPL IN / WCKH.BO
`2166 / `878 19496 / 5868 US$7m `110bn / US$1.9bn 109.6m
Mar 13 Dec 12 Sep 12 73.54 73.55 73.64 87.06 87.06 87.06 26.46 26.45 26.36 9.07 6.8 6.76 3.25 3.81 3.66 14.14 15.84 15.94
Financials (YE Mar)
FY14e
FY15e
55,132 12,675 115.8 (18.2) 8.0 3.0 43.8 30.0 2.5 19.5
60,594 13,466 123.0 6.2 7.6 2.3 34.6 28.1 2.6 (1.9)
Source: Company
13,414 4,418 32.9 463 281 91 3,511 243 6.9 3,490
13,702 4,453 32.5 312 330 48 3,858 617 16.0 3,241
2.1 0.8 (40)bps (32.7) 17.6 (48.0) 9.9 154.3 910bps -7.1
46,138 12,671 27.5 2,144 1,225 246 4,050 2,351 58.1 5,382
56,094 20,904 37.3 2,154 1,221 506 18,371 2,582 15,500
21.6 65.0 980bps 0.4 -0.3 106.0 353.6 9.8 188.0
Sriram Rathi
14.1 (4400)bps
Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix Anand Rathi Research India Equities
8 July 2013
Wockhardt Import alert to cut into growth; Buy


37,512 4.2 29,263 8,249 22.0 2,671 1,166 108 86 56.3 67 (4,366) 0 1,977 18.1 (32.5)
46,138 23.0 33,467 12,671 27.5 2,144 1,225 246 2,351 58.1 1,699 (5,497) 0 5,382 49.2 172.3
56,094 21.6 35,191 20,904 37.3 2,154 1,221 506 2,582 14.1 15,789 336 0 15,500 141.6 188.0
55,132 (1.7) 37,817 17,315 31.4 1,039 1,376 190 2,414 16.0 12,675 0 0 12,675 115.8 (18.2)
60,594 9.9 42,460 18,134 29.9 396 1,556 240 2,956 18.0 13,466 0 0 13,466 123.0 6.2
547 1,432 1,979 0 45,947 (748) 47,178 34,676 896 0 6,776 4,829 47,178 41,119 50.3 18.1
547 6,549 7,097 0 40,428 1,010 48,534 34,736 908 0 5,891 7,000 48,534 33428 88.0 64.8
547 23,508 24,056 0 22,402 0 46,457 24,805 26 0 10,424 10,961 46,216 11,441 95.9 219.8
547 33,217 33,764 0 9,557 0 43,321 27,926 26 0 12,411 2,957 43,321 6,600 105.4 308.5
547 43,532 44,079 0 6,306 0 50,385 29,370 26 0 13,847 7,142 50,385 (836) 101.2 402.8


(185) 914 730 (2,852) 3,581 3,942 (360) 0 0 (914) (52) (1,743) 521 3,470 4,829
3,429 2,955 6,384 3,701 2,683 2,025 658 3 0 (1,083) 11 (2,610) 2,171 4,829 7,000
15,789 1,221 17,011 4,409 12,602 3,000 9,602 3,201 (4,628) (13,398) (881) (14,705) 3,961 7,000 10,961
12,675 1,376 14,051 2,023 12,028 3,000 9,028 2,966 0 (12,845) 0 1,221 (8,003) 10,961 2,957
13,466 1,556 15,023 1,235 13,787 3,000 10,787 3,151 0 (3,251) 0 200 4,185 2,957 7,142
P/E (x) P/B (x) EV/EBITDA (x) RoE (%) RoCE (%) Dividend yield (%) Dividend payout (%) Asset turnover (x) Net debt/equity (x) Net debt/EBITDA (x) Net debt/op. CF (x) Interest coverage (x) P/CEPS (x) EV/ sales (x) M-cap/sales (x)
51.5 51.4 17.3 196.6 11.7 0.0 0.0 1.0 33.4 5.0 11.5 2.7 32.4 3.8 2.7
18.9 14.3 10.7 118.6 12.7 0.0 0.0 1.1 4.1 2.6 12.5 5.3 15.4 2.9 2.2
6.6 4.2 5.4 99.5 32.1 2.7 17.7 1.8 0.5 0.5 0.9 9.1 6.1 2.0 1.8
8.0 3.0 6.3 43.8 30.0 2.5 20.0 2.4 0.2 0.4 0.5 15.3 7.2 2.0 1.8
7.6 2.3 5.6 34.6 28.1 2.6 20.0 2.3 (0.0) (0.0) (0.1) 41.9 6.8 1.7 1.7
Fig 5 Valuation chart (P/E)

3 ,000 2 ,500 2 ,000 1 ,500 1 ,000 5 00 0 A pr-0 5 A pr-0 6 A pr-0 7 A pr-0 8 A pr-0 9 A pr-1 0 A pr-1 1 A pr-1 2 A pr-1 3 W PL 2x 1 0x 1 8x
Fig 6 Share of revenue, by segment (FY14e)
ROW 8%
EU 27 %
US 4 5%
Ind ia 20%
12
Healthcare
India I Equities
Result preview
8 July 2013
Ranbaxy Laboratories
Recovery in sight; Hold
Key takeaways Sequential improvement. Adjusting for exclusive Lipitor sales in 2QCY12, we expect 11.6% yoy revenue growth led by steady growth in the US, India and additional revenue from Absorica. On reported basis, revenue would decline 20.1% yoy during the quarter. Its base business, EBITDA margin is expected to decline 60bps yoy to 9.6% due to non-recurring expenses incurred for productivity improvement and consent decree process expenses. We expect adjusted PAT to decline 62% yoy due to high base with Lipitor exclusivity in 2QCY12 and lower base business margin. We have not factored in any forex gain/loss on currency fluctuation. Steady revenue growth to continue. We expect revenue from the base business (excl. Para IV) to grow 11.6% yoy, led by 15% yoy growth in US generics and 8% yoy increase in domestic formulations. Africa and APIs are expected to report ~10% yoy growth in revenue. In-licensing with Alembic a positive. Ranbaxy recently announced an inlicensing agreement with Alembic Pharma to exclusively market in the US, desvenlaflaxine, an NDA (new drug application) filing of Alembic and the bioequivalent of Pfizers Pristiq. The US market for this product is US$538m annually and we do not expect any generic competition for at least two years. The product has already been launched and ramp-up would happen at gradual pace. Our take. We expect gradual ramp up in revenues and base business margin, together with progress on consent decree, to result in resolution of USFDA ` issues. We expect 10.1% revenue and 38% adjusted PAT CAGR over CY12-15 with base business margin expansion of more than 300bps. The stock trades at 15.1x CY13e and 14.2x CY14e earnings. We maintain Hold on it, with a price target of `465 based on 20x one-year forward earnings. Risks. Currency fluctuations, regulatory hurdles.
Key data
RBXY IN / RANB.BO
`578 / `301 19496 / 5868 US$7.9m `146bn / US$2.4bn 423.1m
63.52 0 36.48 10.55 10.03 15.9
63.54 0 36.46 10.65 10.39 15.42
63.64 0 36.36 10.57 10.63 15.16
Financials (YE Mar)
CY13e
CY14e
105,886 9,680 22.9 (25.2) 15.1 3.4 21.5 11.9 0.6 (15.3)
115,333 10,240 24.2 5.8 14.2 2.9 19.0 11.5 0.6 (22.5)
Quarterly results (YE Dec)
2QCY12
2QCY13e
% yoy
1HCY12
1HCY13e
% yoy
Source: Company
32,285 5,113 15.8 483 783 697 (5,119) 683 (13.3) 3,489
25,790 2,477 9.6 523 816 605 1,743 349 20.0 1,304
(20.1) (51.6) (620)bps 8.3 4.2 (13.2) 134.1 (48.9) NA (62.6)
70,153 15,266 21.8 670 1,581 2,063 8,862 2,057 23.2 12,851
50,796 4,383 1,049 1,612 1,229 3,413 702 20.6 2,197
(27.6) (71.3) 56.5 1.9 (40.4) 61.5 (65.9) (260)bps (82.9)
8.6 (1320)bps
Sriram Rathi
8 July 2013
Ranbaxy Labs Recovery in sight; Hold

Year-end: Mar CY11 CY12 CY13e CY14e CY15e

101,614 16.7 84,686 16,928 16.7 768 3,156 4,274 2,137 281 (28,997) (44,209) 97 15,044 35.6 13.7
124,597 22.6 105,218 19,379 15.6 1,796 3,202 2,732 2,939 21 9,228 (4,663) 282 12,933 30.6 (14.2)
105,886 (15.0) 91,913 13,974 13.2 1,938 3,399 3,463 2,420 20 9,680 0 0 9,680 22.9 (25.2)
115,333 8.9 100,906 14,428 12.5 1,938 3,453 3,763 2,560 20 10,240 0 0 10,240 24.2 5.8
128,830 11.7 110,974 17,857 13.9 1,938 3,502 4,063 3,296 20 13,183 0 0 13,183 31.2 28.7
2,110 26,584 28,694 810 44,532 (375) 74,036 51,228 982 3,962 (8,856) 30,681 74,036 9,889 105.7 68
2,115 38,718 40,832 890 48,462 (357) 89,838 52,156 790 20 (9,113) 46,004 89,838 2,437 137.2 97
2,115 47,265 49,379 890 48,462 (357) 98,385 52,757 790 20 (11,155) 55,993 98,385 (7,551) 114.3 117
2,115 56,306 58,421 890 48,462 (357) 107,427 53,305 790 20 (8,225) 61,557 107,427 (13,116) 104.4 138
2,115 67,947 70,062 890 48,462 (357) 119,067 53,803 790 20 (4,769) 69,244 119,068 (20,802) 104.6 166


(29,002) 19,749 (9,253) (21,745) 12,492 5,040 7,452 (3) 0 1,559 (4,002) 5,299 7,717 32,644 30,681
9,510 6,006 15,516 709 14,807 4,786 10,022 0 0 8,135 (192) 2,981 15,368 30,637 46,004
9,680 3,399 13,078 2,546 10,532 4,000 6,532 1,133 0 0 0 (4,589) 9,988 46,004 55,992
10,240 3,453 13,692 (1,849) 15,542 4,000 11,542 1,198 0 0 0 4,780 5,564 55,993 61,557
13,183 3,502 16,685 (2,302) 18,987 4,000 14,987 1,542 0 0 0 5,759 7,686 61,557 69,243
9.7 5.9 9.4 35.5 15.7 (0.0) 10.0 2.0 0.3 0.6 0.8 17.9 9.3 1.6 1.4
11.3 4.1 7.7 37.2 18.0 0.0 0.0 2.4 0.1 0.1 0.2 9.0 10.5 1.2 1.2
15.1 3.4 9.9 21.5 11.9 0.6 10.0 2.0 (0.2) (0.5) (0.7) 5.5 12.9 1.3 1.4
14.2 2.9 9.2 19.0 11.5 0.6 10.0 2.2 (0.2) (0.9) (0.8) 5.7 12.4 1.2 1.3
11.1 2.4 7.0 20.5 13.0 0.8 10.0 4.8 (0.3) (1.2) (1.1) 7.4 10.1 1.0 1.1
Fig 5 PE band
( `) 1,200
Fig 6 Revenue break-up (CY13e)

Canada 4% Romania 6% Latam 3% India 23%
900
45x 40x 30x
ROW 6% CIS 6% APIs 8% Africa 11%
600
300
20x
US 22% EU 11%
0 May-09 Feb-08 Oct-09 Dec-05 Nov-06 Dec-08 Nov-11 Sep-07 Aug-10 Sep-12 Feb-13 Jun-06 Jan-11 Jun-11 Apr-07 Jul-08 Mar-10 Apr-12
14
Healthcare
India I Equities
Result preview
8 July 2013
Cadila Healthcare
Steady growth, US launches key; Buy
Key takeaways Revenue growth modest. We expect 12.3% yoy revenue growth for the company, led by steady growth in its US generics and India formulations. EBITDA margin is expected to decline 150bps yoy to 18%. However, this represents an improvement from low margins in the previous two quarters. We expect adjusted PAT to grow 6.4% yoy, below revenues, due to lower EBITDA margin and higher interest cost. US, India key drivers. We expect its US revenue to grow 15.3% yoy, led by new product launches and ramp up in existing products. We expect its domestic formulations business to grow at 14% yoy, including Biochem. Overall, exports revenues are expected to grow 13% yoy. However, we expect 5.3% dip in revenue from JVs due to increased competition in products. Strong growth ahead. We expect the company to report strong growth ahead, led by more product approvals for the US market as the Moraiya plant has received clearance from the US FDA. Over FY13-15, we expect CAGR of 15.8% in revenue and 24.4% in adjusted PAT, with the best-in-class RoE and RoCE of ~26% and ~20%, respectively, by FY15e. Our take. We expect EBITDA margin to revive in 1QFY14 (3QFY13 and 4QFY13 were severely hit by several one-time expenses and unfavourable revenue mix). We estimate 12.3% yoy revenue growth, led by steady growth in the US generics and India. However, we estimate its adjusted net profit to grow ` 6.4% yoy due to lower EBITDA margin yoy and higher interest cost. The just stock is currently trading at 18.7x FY14e and 14.7x FY15e earnings. We maintain Buy, with a price target of `900 based on 18x Sep14e earnings (exWellness) and `123 per share for Zydus Wellness. Risks. Currency fluctuations, regulatory hurdles.
Key data
CDH IN / CADI.BO
`975 / `715 19496 / 5868 US$1.5m `160bn / US$2.7bn 205m
Mar '13 Dec '12 Sep '12
74.79 0 25.21 5.35 11.18 8.68
74.79 0 25.21 4.88 11.44 8.89
74.79 0 25.21 4.83 11.61 8.77
Financials (YE Mar)
FY14e
FY15e
72,839 8,561 41.8 21.2 18.7 4.3 25.4 18.5 1.1 49.6
84,314 10,926 53.4 27.6 14.7 3.5 26.6 19.8 1.4 30.6
1QFY13
1QFY14e
% yoy
FY12
FY13
% yoy
Source: Company
15,485 3,016 19.5 183 434 95 2,238 654 24.5 1,820
17,384 3,136 18.0 319 493 80 2,403 360 15.0 1,937
12.3 4.0 (150)bps 74.4 13.5 (16.4) 7.4 -44.9 (950)bps 6.4
52,633 10,839 20.6 672 1,579 532 7,942 1,130 14.2 7,536
63,081 11,432 18.1 1,261 1,828 370 8,112 1,195 14.7 7,065
19.9 5.5 (250)bps 87.7 15.8 (30.4) 2.1 5.7 50bps (6.2)
Sriram Rathi
8 July 2013
Cadila Healthcare Steady growth, US launches key; Buy


46,302 25.6 36,040 10,262 22.2 780 1,269 131 1,064 14 7,361 81 251 7,110 34.7 39.1
52,633 13.7 41,795 10,839 20.6 672 1,579 532 1,130 14 6,812 (1,177) 286 7,536 36.8 6.0
63,081 19.9 51,649 11,432 18.1 1,261 1,828 370 1,195 15 6,917 (600) 364 7,065 34.5 (6.2)
72,839 15.5 59,472 13,367 18.4 1,139 2,054 398 1,586 15 8,986 424 8,561 41.8 21.2
84,314 15.8 68,046 16,267 19.3 1,027 2,259 456 2,016 15 11,422 496 10,926 53.4 27.6
1,024 20,691 21,715 669 10,973 1,127 34,484 22,636 207 0 8,689 2,952 34,484 8021 30.8 106.0
1,024 24,712 25,736 904 22,893 1,185 50,749 33,318 242 30 12,523 4,666 50,749 18197 74.5 125.7
1,024 29,379 30,403 1,193 26,814 1,005 59,415 38,570 1,145 933 13,879 5,821 59,415 20060 77.5 148.5
1,024 35,937 36,961 1,618 23,814 1,005 63,397 42,516 1,145 933 15,686 4,051 63,397 18830 72.8 180.5
1,024 44,306 45,330 2,113 21,814 1,005 70,263 44,256 1,145 933 18,143 6,719 70,263 14162 71.5 221.4


7,361 1,259 8,620 2,108 6,512 4,072 2,440 1,529 0 68 0 534 445 2,507 2,952
6,812 1,637 8,449 3,891 4,558 12,438 (7,880) 2,066 0 11,977 35 282 1,714 2,952 4,666
6,917 1,828 8,746 1,356 7,390 6,880 510 1,533 0 3,921 903 840 1,154 4,666 5,820
8,986 2,054 11,040 1,807 9,234 6,000 3,234 2,003 0 (3,000) 0 0 (1,770) 5,821 4,051
11,422 2,259 13,681 2,457 11,224 4,000 7,224 2,557 0 (2,000) 0 0 2,668 4,051 6,719
22.5 7.4 16.4 37.4 22.5 0.8 18.0 1.6 0.4 0.8 1.2 8.1 19.1 3.6 3.5
21.3 6.2 16.5 31.8 20.9 1.0 23.5 1.3 0.7 1.7 4.0 6.9 19.8 3.4 3.0
22.7 5.3 15.8 25.2 17.5 0.8 20.0 1.3 0.6 1.8 2.7 6.3 19.1 2.9 2.5
18.7 4.3 13.5 25.4 18.5 1.1 20.0 1.4 0.5 1.4 2.0 6.5 15.1 2.5 2.2
14.7 3.5 10.8 26.6 19.8 1.4 20.0 1.5 0.3 0.9 1.3 7.2 12.1 2.1 1.9
Fig 5 PE band
1,400 1,200 1,000 800 600 400 200 0 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 6x Cadila 14x 22x

Animal Health 4% Emerging APIs Markets 4% 5% Japan 1% Brazil 4%
Wellness 7% Domestic formulations 37%
EU 6% JVs 8% US generics 24%
Source: Company
16
Healthcare
India I Equities
Result preview
8 July 2013
Glenmark Pharmaceuticals
Growth momentum intact; Buy
Key takeaways Revenue growth impressive. We expect 25.7% yoy base business revenue growth, led by strong growth in its US generics, India formulations and semiregulated markets. We estimate slight decline of 60bps in EBITDA margin to 20.5% on higher other operating expenses. Its strong revenue growth and no major increase in interest cost would result in strong 31% yoy adjusted PAT growth during the quarter. US generics, domestic formulations key drivers. We expect its global generics to report robust 18.5% yoy growth, largely driven by 21% yoy rise in its US generics revenues and 52% yoy growth in EU business. Domestic formulations would be another driver, with a 20% yoy increase in revenue led by its operations in niche segments like dermatology & cardiac and product launches. Apart from India, Latin America and ROW markets would also show decent double-digit revenue growth in the specialty segment. Consistent growth momentum. We expect Glenmark Pharma to report 16% base business revenue CAGR and 22% adjusted PAT CAGR over FY13-15, led by strong growth in key markets like US and India, along with marginal 30bps EBITDA margin improvement over this period. Higher PAT growth with improved working capital cycle would result in decent free cash flow generation. This would help in bringing down debt-equity from the current level of 0.8x to 0.4x by FY15e. Any positive news on NCE (new chemical entity) would provide upside to our estimates. Our take. We expect the company to report 25.7% yoy revenue growth in ` 1QFY14, led by strong growth in its US generics and domestic branded formulations. We estimate its adjusted PAT to grow 31% yoy, led by strong revenue growth and no major increase in interest cost. We maintain Buy with a price target of `602 based on 18x Sep14e core earnings, `27 for its NCE pipeline and `12 for the Zetia opportunity. Risks. Currency fluctuations, regulatory hurdles.
GNP IN / GLEN.BO
`610 / `360 19496 / 5868 US$5.8m `156bn / US$2.6bn 270.9m
48.31 0 51.69 32.4 8.12 11.17
48.32 0 51.68 33.28 6.73 11.67
48.33 0 51.67 33.12 6.73 11.82
Financials (YE Mar)
FY14e
FY15e
57,768 7,629 28.2 13.9 20.8 4.6 24.4 12.5 0.5 59.3
66,646 9,331 34.5 22.3 17.0 3.7 24.1 13.5 0.6 39.7
Source: Company
10,404 2,198 21.1 380 275 29 1,022 218 13.9 1,278
13,082 2,682 20.5 402 343 55 1,992 319 16.0 1,673
25.7 22.0 (60)bps 5.6 25.0 90.3 94.9 46.1 210bps 31.0
40,206 7,445 18.5 1,466 979 182 4,881 238 4.9 7,302
50,123 10,157 20.3 1,600 1,270 107 7,337 1,107 15.1 6,697
24.7 36.4 180bps 9.2 29.8 (40.9) 50.3 365.5 1020bps (8.3)
Sriram Rathi
8 July 2013
Glenmark Pharma Growth momentum intact; Buy


29,491 22.2 23,568 5,923 20.1 1,566 947 1,405 237 4.9 4,532 46 4,532 16.8 39.6
40,206 36.3 30,226 9,980 24.8 1,466 979 182 238 4.9 4,603 (2,837) 40 7,302 27.0 61.0
50,123 24.7 39,474 10,650 21.2 1,600 1,270 107 1,107 15.1 6,230 (550) 6,697 24.7 (8.4)
57,768 15.3 45,926 11,843 20.5 1,607 1,374 220 1,453 16.0 7,629 7,629 28.2 13.9
66,646 15.4 52,817 13,829 20.8 1,329 1,499 242 1,911 17.0 9,331 9,331 34.5 22.3
270 20,102 20,372 267 21,116 (1,081) 40,674 22,123 309 3 16,284 1,958 40,674 19,155 163.1 76.4
271 23,746 24,016 250 23,225 (2,674) 44,817 24,856 332 3 16,409 3,219 44,817 20,003 112.8 89.7
271 27,359 27,630 244 27,500 (3,803) 51,571 28,286 360 3 16,873 6,052 51,571 21,445 100.7 102.9
271 34,095 34,366 244 21,948 (3,803) 52,756 30,162 420 3 20,600 1,574 52,756 20,372 108.0 127.8
271 42,335 42,606 244 18,948 (3,803) 57,995 31,663 484 3 23,810 2,039 57,995 16,907 108.2 158.2


PAT + Non-cash items Cash profit - Incr./(decr.) in WC Operating cash-flow - Capex Free-cash-flow - Dividend + Equity raised + Debt raised - Investments - Misc. items Net cash-flow + Op. cash & bank bal. Cl. cash & bank bal.
4,311 947 5,257 (2,325) 7,583 3,709 3,874 127 41 (2,580) 232 89 888 1,070 1,958
3,535 979 4,514 139 4,374 2,733 1,641 629 0 2,108 23 1,828 1,270 1,949 3,219
6,230 1,270 7,500 1,378 6,122 4,705 1,418 634 0 4,275 62 2,146 2,851 3,201 6,052
7,629 1,374 9,002 3,900 5,102 3,250 1,852 893 0 (5,552) 59 (174) (4,478) 6,052 1,574
9,331 1,499 10,831 3,400 7,431 3,000 4,431 1,092 0 (3,000) 64 (190) 464 1,574 2,038
34.9 7.7 29.9 19.5 13.7 0.1 2.4 1.3 0.9 3.2 2.5 3.2 28.9 6.0 5.4
21.7 6.5 17.9 32.5 15.8 0.3 7.4 1.7 0.8 2.0 4.6 6.1 19.1 4.4 3.9
23.7 5.7 16.9 25.7 12.5 0.3 8.1 1.9 0.8 2.0 3.5 5.9 19.9 3.6 3.2
20.8 4.6 15.1 24.4 12.5 0.5 10.0 2.0 0.6 1.7 4.0 6.5 17.6 3.1 2.7
17.0 3.7 12.7 24.1 13.5 0.6 10.0 2.2 0.4 1.2 2.3 9.3 14.6 2.6 2.4
Fig 5 PE band
( `) 85 0 75 0 65 0 55 0 45 0 15 x 35 0 25 0 15 0 50 M ay-0 9 M ay-1 0 M ay-1 1 N o v-0 9 N o v-1 0 N o v-1 1 Ju n-1 2 D e c-1 2 A pr-0 7 M ar-0 6 O ct-0 6 O ct-0 7 A pr-0 8 O ct-0 8 10 x 25 x 20 x
APIs 8% Other generics 4%
NCE 1% Domestic formulations 26%
Other specialty formulations 27% US generics 34%
Source: Company
18
Healthcare
India I Equities
Result preview
8 July 2013
Apollo Hospitals
Steady momentum to continue, rich valuations; Hold
Key takeaways Revenue growth healthy. We expect 13.1% yoy revenue growth, led by steady rise in its domestic hospitals and continued ramp-up in pharmacy business. EBITDA margin is expected to decline marginally 30bps yoy, to 16.5%, due to commercialization of new beds which will have low margins initially. We expect its adjusted PAT to grow just 5.3% yoy, slower than revenues, due to lower EBITDA margin and higher interest cost. Hospitals, pharmacy growth drivers. We expect ~12% growth to continue in the hospitals business, led by rising occupancy levels and a steady increase in average revenue per operating bed. Its pharmacy business is expected to increase 24% yoy on account of continuous increase in the number of pharmacies and rise in revenue per store (with more pharmacies maturing). EBITDA margin of pharmacy business is rising consistently, which could result in better overall margins going forward. Expansion plans on track. The companys plan of adding ~2,700 beds over the next three years is on track (to the existing capacity of 5,550 operational beds). This includes 525 additional beds under REACH (tier II and tier III cities) hospitals category. Total investment for this expansion is estimated at `22bn, of which, the company has already incurred `5bn till Mar13. Our take. In 1QFY14, we expect Apollo Hospitals to report 13.1% yoy revenue growth, led by steady performance in hospitals and ramp-up in ` pharmacy businesses. We estimate its adjusted PAT to grow just 5.3% yoy, due to slight margin decline and higher interest cost. The stock currently trades at 19.1x FY14e and 15.5x FY15e EV/EBITDA. We maintain Hold with a price target of `1,015, based on 15x FY14e hospitals EBITDA and 1x FY14e pharmacy sales. Risks. High capex and delay in executing expansion projects.
Key data
Rating: Hold Target Price: `1,015 Share Price: `960
APHS IN / APLH.BO
`1,097 / `607 19496 / 5868 US$7.5m `134bn / US$2.2bn 139.5m
Mar '13 Dec '12 Sep '12
34.35 40.72 65.65 41.8 2.89 20.96
34.35 40.71 65.65 38.28 2.54 24.83
34.35 41.26 65.65 38.11 2.98 24.56
Financials (YE Mar)
FY14e
FY15e
44,859 3,539 25.2 18.7 38.1 4.4 12.2 10.0 0.4 37.4
53,008 4,709 33.5 33.1 28.6 3.9 14.6 12.0 0.5 33.2
9MFY12
9MFY13
% yoy
4QFY12
4QFY13e
% yoy
Source: Company
7,774 1,304 16.8 137 251 41 957 259 27.1 697
8,793 1,451 16.5 229 289 59 992 258 26.0 734
13.1 11.3 (30)bps 67.3 15.0 44.4 3.7 (0.5) (110)bps 5.3
28,001 4,644 16.6 636 911 278 3,375 1,065 31.6 2,310
33,178 5,536 16.7 726 1,085 310 4,035 989 24.5 3,046
18.5 19.2 10bps 14.2 19.1 11.5 19.5 (7.2) (710)bps 31.9
Sriram Rathi
8 July 2013
Apollo Hospitals Steady momentum to continue, rich valuations; Hold


26,054 28.6 21,865 4,189 16.1 814 948 187 873 32.4 1,839 (15) 1,839 14.7 32.4
31,475 20.8 26,344 5,131 16.3 891 1,239 259 1,150 34.5 2,194 (12) 2,194 16.3 19.3
37,687 19.7 31,605 6,082 16.1 1,033 1,423 302 1,050 25.8 3,044 63 (17) 2,981 21.2 35.9
44,859 19.0 37,345 7,514 16.8 1,137 1,830 140 1,243 26.0 3,539 3,539 25.2 18.7
53,008 18.2 43,732 9,276 17.5 1,137 2,034 154 1,655 26.0 4,709 4,709 33.5 33.1
624 18,366 18,989 249 8,907 845 28,990 18,905 5,020 1,159 3,284 1,781 28,990 7,126 3.4 151
672 24,396 25,068 126 7,494 1551 34,238 22,205 5,642 1,220 4,023 2,368 34,238 5,125 37.6 186
696 26,772 27,468 173 11,368 2294 41,303 27,440 5,267 3,788 5,396 3,201 41,303 8,167 38.8 195
696 29,690 30,385 173 11,368 2294 44,221 30,110 5,267 3,788 6,412 2,433 44,221 8,935 36.7 216
696 33,573 34,268 173 11,368 2294 48,104 33,075 5,267 3,788 7,577 2,185 48,104 9,183 36.7 244


PAT + Non-cash items Cash profit - Incr./(decr.) in WC Operating cash-flow - Capex Free-cash-flow - Dividend + Equity raised + Debt raised - Investments - Misc. items Net cash-flow + Op. cash & bank bal. Cl. cash & bank bal.
1,824 1,254 3,078 1,057 2,020 3,566 (1,546) 544 982 453 854 (174) (1,336) 3,117 1,781
2,181 1,239 3,420 739 2,681 3,865 (1,184) 625 4,433 (1,414) 622 1 587 1,781 2,368
3,027 1,423 4,450 1,372 3,078 6,555 (3,478) 534 0 3,874 (374) (595) 832 2,368 3,201
3,539 1,830 5,369 1,016 4,353 4,500 (147) 621 0 0 0 (0) (768) 3,201 2,432
4,709 2,034 6,744 1,165 5,579 5,000 579 826 0 0 0 (0) (248) 2,433 2,185
71.9 6.4 30.4 10.4 8.0 0.4 25.4 1.4 0.5 1.7 3.5 4.0 43.0 4.9 4.6
60.3 5.1 26.3 10.0 8.4 0.4 24.5 1.4 0.3 1.0 1.9 4.4 37.6 4.3 4.1
45.3 4.9 23.5 11.3 9.3 0.3 15.3 1.4 0.4 1.3 2.7 4.5 30.6 3.8 3.6
38.1 4.4 19.1 12.2 10.0 0.4 15.0 1.4 0.4 1.2 2.1 5.0 25.1 3.2 3.0
28.6 3.9 15.5 14.6 12.0 0.5 15.0 1.4 0.3 1.0 1.6 6.4 20.0 2.7 2.5
Fig 5 EV / EBITDA band

180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Apr-13 APHS 16x 12x 20x
Pharmacy 33%
Chennai 29%
Hyderabad 12% Other hospitals 26%
20
Healthcare
India I Equities
Result preview
8 July 2013
Ipca Laboratories
Valuations expensive; Hold
Key takeaways Growth momentum intact. We expect 15.3% yoy revenue growth, led by strong growth in its export and domestic formulations. We also expect EBITDA margin to remain flat at 22.5%, though currency factor may lead to better margins. Led by revenue growth and decrease in interest cost, we estimate adjusted PAT growth of 19.3% yoy. The company would be reporting MTM loss on its derivative contracts for hedging and foreign currency loans, which we have not factored in our estimates. Formulations to be key growth driver. Export formulations are expected to register 25% yoy rise in revenue, led by anti-malarial tenders in Africa and new product launches across geographies. We expect its domestic formulations business to grow at 15% yoy, led by improvement in field force productivity and new product launches. However, we estimate marginal revenue growth of just 1% yoy in API business segment due to use of most of the APIs for captive purpose in formulations. US FDA re-inspection of Indore plant. The company had voluntarily informed the US FDA about some non-compliance activities at its Indore SEZ plant, which was approved in Jul12. The US FDA has already reinspected the plant in Apr13 and re-approval is expected by Sep13. Post reapproval, commercial production for the US market would resume, which we expect to start by 4QFY14 at the earliest.
Key data
IPCA IN / IPCA.BO
`701 / `355 19496 / 5868 US$1.3m `86bn / US$1.4bn 126.2m
45.89 6.05 54.11 20.79 15.77 17.55
45.91 9.98 54.09 18.11 17.61 18.37
45.91 11.76 54.09 12.3 21.5 20.29
Financials (YE Mar)
FY14e
FY15e
32,239 4,636 36.7 23.0 18.6 4.4 26.3 20.1 0.8 23.7
38,289 5,672 44.9 22.3 15.2 3.6 25.9 20.7 1.0 12.5
` Our take. We expect Ipca to register strong 17.4% revenue and 22.6% adj. net
profit CAGR over FY13-15, along with EBITDA margin improvement of 60bps to 23%. We believe that re-approval of Indore SEZ plant would be a key trigger in the near term, and expect US$20m revenue from it in FY15e. On fair valuations, we maintain Hold on the stock, with a price target of `653 based on 16x Sep13e earnings. Risks. Currency fluctuations, regulatory hurdles.
Source: Company
6,344 1,418 22.3 95 199 30 565 135 23.9 878
7,313 1,645 22.5 78 235 44 1,377 331 24.0 1,047
15.3 16.1 20bps (18.4) 17.9 48.5 143.9 144.8 10bps 19.3
23,301 5,135 22.0 394 653 129 3,690 888 24.1 3,203
27,784 6,213 22.4 313 840 187 4,614 1,300 28.2 3,768
19.2 21.0 40bps (20.5) 28.6 44.4 25.0 46.4 410bps 17.7
Sriram Rathi
Anand Rathi Share and Stock Brokers Limited does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Disclosures and analyst certifications are located in Appendix 1 Anand Rathi Research India Equities
8 July 2013
Ipca Labs Valuations expensive; Hold


18,989 21.2 15,215 3,774 19.9 314 558 71 747 21.9 2,629 434 1 2,326 18.5 15.4
23,301 22.7 18,166 5,135 22.0 394 653 129 888 24.1 2,802 (527) 3,203 25.4 37.7
27,784 19.2 21,571 6,213 22.4 313 840 187 1,300 28.2 3,314 (633) 3,768 29.9 17.7
32,239 16.0 24,938 7,301 22.6 311 1,067 177 1,464 24.0 4,636 4,636 36.7 23.0
38,289 18.8 29,487 8,802 23.0 311 1,228 200 1,791 24.0 5,672 5,672 44.9 22.3
251 10,265 10,516 0 5,308 807 16,631 8,124 408 2 7,989 104 16,631 5,203 152.0 83.7
252 12,370 12,623 0 5,315 931 18,869 10,073 428 2 7,533 93 18,869 5,221 141.2 100.1
252 15,446 15,699 0 5,234 1304 22,236 12,045 219 2 8,574 547 22,236 4,685 134.6 124.4
252 19,269 19,521 0 5,234 1304 26,058 14,478 219 2 9,926 604 26,058 4,628 134.6 154.7
252 23,945 24,198 0 5,234 1304 30,735 15,750 219 2 11,743 2,219 30,735 3,014 134.3 191.7


2,326 572 2,899 1,203 1,696 1,821 (125) 468 0 763 83 91 (4) 108 104
2,802 785 3,588 830 2,757 3,163 (406) 468 0 736 20 (147) (11) 104 92
3,314 1,213 4,527 1,150 3,377 2,500 877 582 0 (82) (209) (32) 454 93 547
4,636 1,067 5,703 1,332 4,371 3,500 871 814 0 0 0 0 57 547 604
5,672 1,228 6,900 1,790 5,110 2,500 2,610 995 0 0 0 0 1,615 604 2,219
37.0 8.2 24.2 24.3 16.8 0.2 0.1 2.8 0.5 1.4 3.1 10.2 29.8 4.8 4.5
26.9 6.8 17.8 27.7 20.1 0.2 0.0 2.9 0.4 1.0 1.9 11.4 22.4 3.9 3.7
22.9 5.5 14.6 26.6 19.3 0.6 0.1 2.7 0.3 0.8 1.4 17.2 18.7 3.3 3.1
18.6 4.4 12.5 26.3 20.1 0.8 0.2 2.6 0.2 0.6 1.1 20.1 15.1 2.8 2.7
15.2 3.6 10.1 25.9 20.7 1.0 0.2 2.7 0.1 0.3 0.6 24.4 12.5 2.3 2.3
Fig 5 PE band
700 600 500 400 300 200 100 0 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Apr-13 8x 4x 16x
Export APIs 19%
12x
Domestic Form 32%
Export Form 44%
Domestic APIs 5%
Source: Company
Healthcare
India I Equities
Result preview
8 July 2013
Fortis Healthcare
Balance sheet improvement key; Hold
Key takeaways Consolidated revenues to decline. We expect Fortis Healthcares (Fortis) revenues (consolidated) to decline 18.3% yoy, due to divestment of Dental Corp. (Australia). Excluding the Australian subsidiary, we expect 16.5% yoy revenue growth, driven by strong growth in the India hospital business and steadily increasing revenues from international subsidiaries. EBITDA margin is likely to drop to 7.5%, down 530bps yoy, due to payment of service fees and lease rentals to Religare Health Trust (RHT, owner of the companys hospital infrastructure. We expect net loss of `646m against adjusted net loss of `604m in 1QFY13. Increase in net loss would be primarily on account of lower margins, though interest cost would also be lower. International subsidiaries slow down. We expect contribution from international subsidiaries to reduce to 31% (of total revenues) from 53%, yoy, due to divestment of Dental Corp. Business in Vietnam is expected to grow at 15% yoy, and HongKong and Singapore at 10% (each). The Vietnam business would also be divested soon and the process will be over by Sep13, as per the company. Strong show to continue in hospitals. We estimate hospitals to grow 20%, led by more beds, higher occupancy and steady rise in average revenue per operating bed. Super Religare Laboratories is expected to grow 15% yoy, led by rise in diagnostic centres and greater number of patients.
Key data
FORH IN / FOHE.BO
`120 / `83 19496 / 5868 US$0.5m `41bn / US$0.68bn 444.5
81.47 63.77 18.53 5.05 0.85 12.63
81.48 85.48 18.52 4.79 0.84 12.89
81.48 86.8 18.52 4.84 0.85 12.83
Financials (YE Mar)
FY14e
FY15e
49,969 (612) (1.3) NA (66.2) 0.9 (1.5) 2.2 0.0 70.5
57,438 529 1.1 NA 76.6 0.9 1.2 3.7 0.0 65.1
` Our take. We believe that management focus is back on India healthcare, which
is a positive. The stock is trading at 17.2x FY14e and 13.8x FY15e EV/EBITDA. We maintain Hold on it, with a price target of `105, based on 14x Sep14 EV/EBITDA and `15 per share for its stake in RHT. Risks. Slower ramp up in new hospitals and stretched balance sheet.
1QFY13
1QFY14e
% yoy
FY12
FY13
% yoy
Source: Company
14,093 1,799 12.8 1,783 666 364 (287) 197 (68.5) (604)
11,521 864 7.5 1,144 760 392 (648) (646)
(18.3) (52.0) (530)bps (35.9) 14.1 7.9 125.6 (100.0) NA NA
29,840 4,033 13.5 2,970 1,822 1,773 1,078 408 37.9 683
60,516 6,787 11.2 6,340 3,706 1,570 7,957 2,313 29.1 (1,842)
102.8 68.3 (230)bps 113.5 103.4 (11.5) 638.4 466.3 (880)bps NA
Sriram Rathi
8 July 2013
Fortis Healthcare Balance sheet improvement is key; Hold


14,830 58.1 12,750 2,079 14.0 696 1,045 925 152 10.1 1,363 252 (31) 1,067 2.4 53.5
29,840 101.2 25,807 4,033 13.5 2,970 1,822 1,773 408 37.9 669 63 (27) 683 1.6 (36.0)
60,516 102.8 53,729 6,787 11.2 6,340 3,706 1,570 2,313 29.1 5,644 9,646 809 (1,842) (4.0) NA
49,969 (17.4) 46,002 3,968 7.9 3,269 3,041 1,570 (154) 20.0 (618) 0 (6) (612) (1.3) NA
57,438 14.9 52,571 4,866 8.5 2,669 3,100 1,570 134 20.0 534 0 5 529 1.1 NA
4,094 28,820 32,914 304 10,913 (58) 44,073 27,820 983 625 13,638 1,633 44,073 9,280 (36.8) 80.2
4,095 28,444 32,539 8,308 70,474 (416) 110,905 97,488 2,412 64 6,856 4,149 110,905 66,325 (13.8) 79.5
4,095 33,013 37,109 16,912 64,650 261 118,932 95,179 11,874 3,893 6,762 5,117 118,932 59,533 (13.8) 90.6
4,655 38,800 43,455 9,906 30,650 261 84,272 63,138 11,874 3,893 6,184 3,076 84,272 27,574 (13.7) 93.4
4,655 39,328 43,983 9,911 28,650 261 82,806 62,538 11,874 3,893 6,432 1,961 82,806 26,689 (12.7) 94.5


1,425 1,045 2,470 13,212 (10,742) 3,583 (14,325) 0 12,949 (43,823) (33,583) 135 (11,480) 13,113 1,633
669 1,822 2,491 (6,782) 9,274 71,491 (62,217) 0 0 59,561 1,429 6,602 2,517 1,633 4,150
5,644 3,706 9,350 (94) 9,444 1,396 8,047 0 0 (5,824) 9,463 8,207 968 4,149 5,117
(618) 3,041 2,423 (578) 3,001 2,500 501 0 5,298 (34,000) 0 26,160 (2,041) 5,117 3,076
534 3,100 3,634 249 3,385 2,500 885 0 0 (2,000) 0 (1,115) 3,076 1,961
33.4 1.1 21.7 4.1 2.9 0.0 0.0 0.8 0.3 4.5 (0.9) 1.5 16.9 3.0 2.4
52.2 1.1 25.3 2.1 3.4 0.0 0.0 0.5 2.2 16.4 7.2 0.7 14.2 3.4 1.2
(19.3) 1.0 14.0 (5.3) 2.5 0.0 0.0 0.6 1.7 8.8 6.3 0.5 19.1 1.6 0.6
(66.2) 0.9 17.2 (1.5) 2.2 0.0 0.0 0.5 0.7 6.9 9.2 0.3 16.7 1.4 0.8
76.6 0.9 13.8 1.2 3.7 0.0 0.0 0.5 0.7 5.5 7.9 0.7 11.2 1.2 0.7
Fig 5 EV/EBITDA band

250,000 200,000 150,000 100,000 50,000 0 Sep-09 09/30/1 Aug-12 Dec-08 Dec-10 Mar-12 May-07 Feb-08 Feb-10 May-09 May-11 Jan-13 Oct-07 Jul-08 Jul-10 30x 25x 20x 15x
Vietnam 6% Hongkong 22%
Singapore 3%
India Hospitals 56%
SRL 13%
24
Healthcare
India I Equities
Result preview
8 July 2013
Pfizer India
Margin recovery to sustain; Buy
Key takeaways Modest revenue, higher PAT growth. We expect a modest 10.9% yoy revenue growth in 1QFY14, led by slow growth in domestic branded formulations business. Lower growth would be primarily on account of continued pressure on its key high-value brands. EBITDA margin is expected to improve 570bps yoy to 19%, chiefly on account of a very low base in 1QFY13 and higher proportion of domestic branded formulations revenue. We expect its adjusted PAT to grow 25.1% yoy due to its expanded margin and higher other income on free cash. Muted revenue growth. We expect its pharmaceutical segment revenue to grow 10% yoy due to lower growth in overall industry during the quarter and continued pressure on its key high-value products like Corex and Becolues. Clinical services & other income segment would continue to grow strong and we expect 30% yoy on a low base; however, margins are lower in this business compared with the pharma division. Inorganic growth is key. The company has over `12bn cash in its balance sheet lying idle, with interest income of just 6-7%. The management has been talking about the possibility of inorganic move to utilize the cash and accelerate the growth momentum in domestic market for quite some time now. We believe that inorganic move would be a key growth trigger for the company, which would also help it improve return ratios. Our take. We expect 8.7% revenue CAGR and 17.6% adjusted PAT CAGR over FY13-15. EBITDA margin is expected to improve 170bps to 19.5% ` over this period on account of higher proportion of domestic formulations revenue. The net cash position is expected to increase to ~`17bn by FY15, offering opportunity for inorganic move. The stock is currently trading at 14.9x FY14e and 13.2x FY15e earnings. We maintain Buy, with target of `1,232, based on 16x Sep14e core earnings and `435 cash per share. Risks. Implementation of the proposed pharma pricing policy in India.
Rating: Buy Target Price: `1,232 Share Price: `1,068
PFIZ IN / PFIZ.BO
`1399 / `995 19496 / 5868 US$0.1m `32bn / US$0.53bn 29.8m
70.75 0 29.25 2.2 7.28 19.77
70.75 0 29.25 2.24 7.21 19.8
70.75 0 29.25 1.97 7.47 19.81
Financials (YE Mar)
FY14e
FY15e
11,403 2,150 72.1 22.6 14.9 1.8 12.3 12.6 3.2 (85.2)
12,410 2,427 81.3 12.9 13.2 1.6 12.9 13.2 1.5 (86.5)
Source: Company
2,426 323 13.3 6 21 252 4,359 1,070 24.5 413
2,690 511 19.0 20 283 774 257 33.2 517
10.9 58.2 570bps (100.0) (4.1) 12.4 (82.2) (76.0) 870bps 25.1
10,924 1,958 17.9 19 96 936 2,775 929 33.5 1,849
10,501 1,871 17.8 2 80 1,052 6,938 1,906 27.5 1,754
(3.9) (4.4) (10)bps (87.4) (16.1) 12.4 150.0 105.1 (600)bps (5.1)
Sriram Rathi
8 July 2013
Pfizer India Margin recovery to sustain; Buy


12,435 12.2 9,832 2,602 20.9 25 120 1,019 1,183 34 2,263 (30) 0 2,283 76.5 20.7
10,924 17.1 8,966 1,958 17.9 19 96 936 929 33 1,846 (4) 0 1,849 61.9 8.0
10,501 (3.9) 8,630 1,871 17.8 2 80 1,052 1,906 27 5,032 4097 0 1,754 58.8 (5.1)
11,403 8.6 9,236 2,167 19.0 0 80 1,133 1,069 33 2,150 0 0 2,150 72.1 22.6
12,410 8.8 9,990 2,420 19.5 0 80 1,294 1,207 33 2,427 0 0 2,427 81.3 12.9
298 11,336 11,634 0 0 (355) 11,279 862 0 0 4,647 5,770 11,279 (5770) 27.5 389.9
298 12,749 13,047 0 0 (371) 12,676 797 1 1 3,216 8,663 12,676 (8663) 47.6 437.2
298 16,646 16,944 0 0 (399) 16,545 719 0 0 1,497 14,329 16,545 (14329) 47.6 567.8
298 17,602 17,901 0 0 (399) 17,502 739 0 0 1,506 15,257 17,502 (15257) 41.4 599.9
298 19,465 19,764 0 0 (399) 19,365 759 0 0 1,514 17,091 19,365 (17091) 41.8 662.3


2,183 40 2,223 1,190 1,032 (177) 1,209 572 0 0 (5) 146 496 5,274 5,770
1,831 80 1,911 (1,775) 3,685 (519) 4,205 434 0 0 1 893 2,878 5,785 8,663
5,032 80 5,112 (1,864) 6,976 11 6,965 434 0 0 (1) 865 5,667 8,663 14,330
2,150 80 2,230 9 2,221 100 2,121 1,193 0 0 0 0 927 14,329 15,257
2,427 80 2,507 8 2,499 100 2,399 564 0 0 0 0 1,835 15,257 17,091
14.0 2.7 13.4 15.9 16.4 1.0 16.2 5.2 (0.5) (2.2) (5.6) 100.7 17.7 2.1 2.6
17.2 2.4 11.9 15.0 15.6 1.2 20.2 7.6 (0.7) (4.4) (2.4) 97.5 16.4 2.1 2.9
18.2 1.9 9.4 11.7 12.1 1.2 21.3 8.9 (0.8) (7.7) (2.1) 746.1 17.4 1.7 3.0
14.9 1.8 7.7 12.3 12.6 3.2 47.8 9.2 (0.9) (7.0) (6.9) NA 14.3 1.5 2.8
13.2 1.6 6.1 12.9 13.2 1.5 20.0 9.3 (0.9) (7.1) (6.8) NA 12.7 1.2 2.6
Fig 5 PE band
1,600 PFIZ 1,400 1,200 1,000 800 600 400 200 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 20x 16x 12x
Clinicals services and other 12%
Pharmaceuticals 88%
26
Healthcare
India I Equities
Result preview
8 July 2013
Unichem Laboratories
Margin recovery to stay; Buy
Key takeaways Modest quarter. We expect just 1.5% yoy revenue growth, mainly due to slowdown in domestic pharma and potential impact of new drug pricing policy. Further, high base of export formulations would also have its impact on growth. EBITDA margin is expected to remain flat at 18% as the revenue mix would be largely similar. We expect adjusted PAT to decline 3.7% yoy, due to muted revenues, lower other income and higher depreciation charges. Muted growth across segments. We expect the domestic formulations business to grow at just 5% yoy, lower than the industry growth rate, due to industry slowdown and impact of new drug pricing policy. We expect the high growth in export formulations in previous year to have a bearing on growth in FY14 and expect 4.6% yoy decline in revenue from this segment. Its API business is expected to register just 1% yoy increase in revenue because of the high base effect of 1QFY13. Improving financials. We expect revenue and adjusted net profit to record 14.2% and 21% adjusted CAGR, respectively, over FY13-15, led by recovery in domestic formulations and strong growth in exports on capacity addition. Its EBITDA margin is expected to improve 140bps over FY13-15, chiefly due to a recovery in its high-margin domestic formulations and expected turnaround of Niche Generics subsidiary. Sale of formulations unit at Indore SEZ. The company recently announced an agreement with Mylan to sell its formulations unit at Indore SEZ for ` ` 1.6bn. The deal is expected to close by 2QFY14. Further, the company has bought an adjacent land at existing Goa plant, already approved by USFDA. Our take. We remain positive on long term out look of the company considering strong product portfolio for domestic market and expected turnaround of Niche Generics subsidiary. The stock is trading at 11x FY14e and 9.3x FY15e earnings. We maintain Buy, with a price target of `236 based on 14x Sep14e earnings. Risks. Currency fluctuations and regulatory hurdles.
Key data
UL IN / UNLB.BO
`217 / `126 19496 / 5868 US$0.1m `15.4bn / US$0.26bn 90.4m
50.0 0.0 50.0 3.9 10.0 36.1
49.5 0.0 50.5 3.8 10.2 36.5
49.5 0.0 50.5 4.0 9.9 36.5
Financials (YE Mar)
FY14e
FY15e
12,378 1,398 15.5 23.6 11.0 1.9 18.1 17.0 2.7 (3.8)
14,101 1,657 18.3 18.5 9.3 1.7 19.0 17.9 3.2 (8.5)
Source: Company
2,649 478 18.0 9 83 69 455 124 27.2 331
2,689 484 18.0 6 99 35 414 95 23.0 319
1.5 1.3 150bps (29.0) 19.0 (49.1) (9.0) (23.0) (380)bps (3.7)
8,755 1,183 13.5 41 304 102 941 222 24.2 712
10,052 1,836 18.3 25 348 139 1,624 330 20.3 1,272
14.8 55.1 480bps (39.2) 14.4 36.4 72.7 48.8 (390)bps 78.7
Sriram Rathi
8 July 2013
Unichem Laboratories Margin recovery to stay; Buy


8,171 10 6,745 1,426 17.5 24 292 111 316 25 950 47 0 916 10.2 (25.7)
8,755 7 7,571 1,183 13.5 41 304 102 228 24 713 0 0 712 7.9 (22.4)
10,808 23 9,065 1,743 16.1 33 383 134 330 23 1,132 0 0 1,131 12.5 58.6
12,378 15 10,285 2,093 16.9 24 411 134 394 22 1,398 0 0 1,398 15.5 23.6
14,101 14 11,627 2,474 17.5 24 459 134 467 22 1,657 0 0 1,657 18.3 18.5
180 5,997 6,177 0 878 378 7,055 4,564 213 213 2,296 152 7,225 514 75.8 68.5
181 6,425 6,606 0 459 384 7,449 5,212 145 145 1,860 232 7,449 82 90.8 73.1
181 7,090 7,271 0 271 390 7,931 5,800 388 331 1,497 246 7,931 (306) 66.7 80.4
181 7,997 8,178 0 271 390 8,838 6,389 388 331 1,798 264 8,839 (324) 65.7 90.4
181 9,073 9,254 0 271 390 9,914 6,680 388 331 2,086 760 9,914 (820) 65.3 102.3


952 323 1,275 591 685 879 (195) 420 0 142 (379) (9) (85) 236 152
712 311 1,023 (201) 1,224 1,121 103 213 0 (49) 0 (240) 81 152 233
1,131 383 1,515 (345) 1,860 971 888 476 0 (188) (57) 267 14 232 247
1,398 411 1,809 300 1,508 1,000 508 491 0 0 0 18 246 264
1,657 459 2,116 288 1,828 750 1,078 582 0 0 0 496 264 760
16.7 2.5 11.0 15.5 14.0 2.1 39.4 1.6 0.1 0.4 0.8 47.4 12.7 1.9 1.9
21.6 2.3 13.2 11.1 10.1 1.8 38.1 1.5 0.0 0.1 0.1 21.6 15.1 1.8 1.8
13.6 2.1 8.8 16.3 15.1 2.6 36.0 1.7 (0.0) (0.2) (0.2) 41.3 10.2 1.4 1.4
11.0 1.9 7.3 18.1 17.0 2.7 30.0 1.7 (0.0) (0.2) (0.2) 69.1 8.5 1.2 1.2
9.3 1.7 6.0 19.0 17.9 3.2 30.0 1.7 (0.1) (0.3) (0.4) 82.7 7.3 1.1 1.1
Fig 5 PE band
300 UL 250 200 150 100 4x 50 0 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 10x 16x
Fig 6 Share of revenue, by segment (FY14e)

Niche Generics 7% Export APIs 8%
Export formulations 24%
Domestic formulations 59%
Domestic APIs 2%
28
Healthcare
India I Equities
Result preview
8 July 2013
Natco Pharma
Steady growth continues; Buy
Key takeaways Revenue growth to remain robust. We expect 17.9% yoy revenue growth, led by strong growth in API business and export formulations. EBITDA margin is expected to improve 40bps yoy, to 21%, due to a change in the revenue mix (higher proportion from high-margin API). Led by steady revenue growth and higher EBITDA margin, we expect adjusted net profit to grow 14.3% yoy. APIs, export formulations to drive growth. We expect a strong 78% yoy growth in the API business, led by increased supply of niche category APIs to both domestic & export markets and on a low base of 1QFY13. We expect its export formulations business to register 80% yoy increase in revenue, led by Lansoprazole approval (a prescription product) and low base effect. Approval for Lansoprazole OTC version would help accelerate growth in export formulations Improving financials. We expect 11.1% revenue CAGR over FY13-15, and 18% in adjusted net profit, along with better EBITDA margin of 100bps during this period to 22%. We expect RoCE to improve from 14% in FY13 to 16.3% in FY15 and D/E to drop from 0.5x to 0.2x by FY15. Successful monetization of para IV opportunities (Lansorazole OTC, Revlimid, Tamiflu, Copaxone, Fosrenol etc) would provide substantial upside to our estimates. Our take. We expect steady growth to continue in the base business, driven by export formulations and API segment. Recent Supreme Court ruling on Glivec case is favourable for Natco as it accounts for ~`250m of Natcos ` total sales. Approval for para IVs would provide significant upside to export formulations revenue. We maintain Buy on the stock, with price target of `540, based on 12x Sep14e earnings (and `147 a share for Para IV opportunities). Risks. Currency fluctuations, regulatory hurdles.
Key data
NTCPH IN / NATP.BO
`525 / `330 19496 / 5868 US$0.5m `144bn / US$0.24bn 31.4m
56.66 0 43.34 9.23 10.07 24.04
56.64 0 43.36 7.73 9.6 26.03
57.05 0 42.95 7.52 10.36 25.07
Financials (YE Mar)
FY14e
FY15e
7,451 939 29.9 17.1 15.4 2.3 16.3 14.7 0.8 27.9
8,208 1,117 35.6 18.9 12.9 2.0 16.8 16.3 0.9 16.8
1QFY13
1QFY14e
% yoy
FY12
FY13
% yoy
Source: Company
1,408 290 20.6 47 44 18 217 49 22.7 171
1,661 349 21.0 65 66 22 240 48 20.0 195
17.9 20.3 40bps 38.4 48.9 22.2 10.8 (2.3) (270)bps 14.3
5,200 1,064 20.5 230 159 67 803 211 26.3 558
6,647 1,499 22.6 263 221 124 1,023 350 34.2 802
27.8 40.9 110bps 14.2 39.1 85.3 27.4 66.1 790bps 43.7
Sriram Rathi
8 July 2013
Natco Pharma Steady growth continues; Buy


4,559 (0.2) 3,691 868 19.0 142 159 64 132 20.3 535 20 (16) 519 18.4 4.0
5,200 14.1 4,137 1,064 20.5 230 159 67 211 26.3 596 61 (11) 558 17.9 (2.8)
6,647 27.8 5,148 1,499 22.6 263 221 124 350 34.2 726 (116) (53) 802 25.6 42.7
7,451 12.1 5,812 1,639 22.0 259 264 87 265 22.0 939 939 29.9 17.1
8,208 10.2 6,402 1,806 22.0 201 269 96 315 22.0 1,117 1,117 35.6 18.9
281 3,243 3,524 11 2,451 251 5,986 3,689 626 0 1,337 333 5,986 2,117 47.8 125.2
312 4,425 4,736 9 2,586 293 7,625 4,840 618 0 1,801 366 7,625 2,220 77.4 152.1
314 5,029 5,342 112 2,856 429 8,739 6,886 15 0 1,712 127 8,739 2,729 79.4 170.3
314 5,837 6,150 112 2,256 429 8,947 6,922 15 0 1,589 421 8,947 1,835 79.5 196.1
314 6,798 7,112 112 1,756 429 9,408 7,153 15 0 1,749 491 9,408 1,265 71.7 226.7


502 141 643 469 174 766 (592) 66 0 1,005 20 75 252 81 333
630 197 827 443 384 1,390 (1,006) 109 675 387 0 (86) 33 333 366
673 221 894 (89) 983 300 683 101 269 603 488 (240) 366 127
939 264 1,203 (123) 1,326 300 1,026 131 (600) 0 295 127 421
1,117 269 1,386 160 1,225 500 725 156 (500) 0 70 421 491
24.9 3.7 18.5 15.8 12.0 0.7 10.8 1.2 0.6 2.4 12.1 5.0 19.1 3.5 3.2
25.7 3.0 15.2 13.5 11.6 0.7 16.7 1.3 0.4 2.1 5.8 3.9 20.0 3.1 2.8
18.0 2.7 11.4 15.9 14.1 0.6 10.9 1.1 0.5 1.8 2.8 4.9 14.1 2.6 2.2
15.4 2.3 9.9 16.3 14.7 0.8 12.0 1.1 0.3 1.1 1.4 5.3 12.0 2.2 1.9
12.9 2.0 8.7 16.8 16.3 0.9 12.0 1.2 0.2 0.7 1.0 7.7 10.4 1.9 1.8
Fig 5 PE band
500 450 400 350 300 250 200 150 100 50 0 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 5x Natco 10x 15x

Other operating inc 7% US retail 13% APIs 33%
Export Form 18%
Domestic Form 29%
30
Healthcare
India I Equities
Result preview
8 July 2013
Elder Pharmaceuticals
Recovery in sight; Buy
Key takeaways Sequential recovery. We expect Elder Pharma to register 4% yoy revenue growth (from the steady rise in its Indian formulations) compared with a decline in 4QFY13. EBITDA margin is expected to decline 80bps yoy, but will improve 250bps qoq as the company had reported disappointing performance in 4QFY13. We expect its adjusted PAT to grow 13.5% yoy, to `205m, led by growth recovery and lower effective tax rate. Domestic formulations a key growth driver. We expect domestic formulations to aid 12% yoy rise in revenue. Growth would be driven by the womens-healthcare, pain-management and lifestyle-disease segments. Revenue from its international subsidiaries (NeutraHealth and Biomeda) would remain largely flat as the focus is largely to turn them around, instead of merely expanding revenue. API business could report 5% yoy increase in revenue. Joint venture with Russia Holding PharmaEco. The company recently announced MoU with Russia Holding PharmaEco to set up manufacturing facilities for pharmaceutical APIs and formulations across most therapeutic segments. This would drive its long-term growth once the plants are set up and commercial production begins. Partnership with KOSE Corporation of Japan. Another JV has been formed with KOSE Corporation of Japan for manufacturing and marketing of cosmetic products in India. Elder will own 40% stake in this JV. This would provide additional revenue stream to the company and would help in ` sustaining 15%+ revenue growth over long term. Our take. We believe that recovery would gradually continue in terms of growth and margins pick up led by domestic formulations business. The stock is currently trading at attractive valuation of 7.4x FY14e and 5.4x FY15e earnings. We maintain a Buy, with a price target of `468 based on 8x Sep14e earnings Risks Currency fluctuations regulatory hurdles
ELDP IN / ELDP.BO
`474 / `202 19496 / 5868 US$0.4m `7.5bn / US$0.13bn 20.5m
40.0 80.1 60.0 16.8 6.2 37.0
39.9 85.5 60.1 16.7 6.2 37.2
39.9 85.5 60.1 16.8 6.6 36.7
Financials (YE Mar)
FY14e
FY15e
16,403 1,017 49.5 25.3 7.4 0.9 12.4 9.2 1.4 126.8
18,514 1,387 67.5 36.4 5.4 0.8 14.9 10.9 1.8 108.8
Source: Company
3,540 560 15.8 266 86 52 235 55 23.4 199
3,681 552 15.0 268 90 61 256 51 20.0 205
4.0 (1.5) (80)bps 0.4 4.2 16.9 8.7 (6.9) (340.0) 2.8
13,348 1,990 14.9 1,016 340 265 915 193 21.1 711
14,566 2,156 14.8 1,070 359 304 1,032 219 21.3 812
9.1 8.3 (10.0) 5.4 5.7 14.7 12.8 13.9 20.0 14.3
Sriram Rathi
8 July 2013
Elder Pharmaceuticals Recovery in sight; Buy


9,595 33.0 7,890 1,705 17.8 655 287 87 177 21.8 642 (37) (7) 671 32.6 16.0
13,348 39.1 11,358 1,990 14.9 1,016 340 265 193 21.1 723 15 711 34.6 5.9
14,566 9.1 12,410 2,156 14.8 1,070 359 304 219 21.3 813 1 812 39.5 14.3
16,403 12.6 13,778 2,624 16.0 1,114 385 163 270 21.0 1,017 1,017 49.5 25.3
18,514 12.9 15,459 3,055 16.5 1,068 411 181 369 21.0 1,387 1,387 67.5 36.4
206 6,101 6,307 31 8,321 35 14,693 7,425 102 80 4,495 2,671 14,693 5,571 114 296.6
206 6,800 7,006 0 9,773 66 16,846 8,973 205 182 6,128 1,540 16,846 8,051 149 340.6
206 7,581 7,786 0 12,255 55 20,096 9,113 32 27 9,792 1,160 20,096 11,068 151 378.6
206 8,479 8,685 0 11,755 55 20,494 9,428 32 27 10,387 648 20,494 11,080 147 422.3
206 9,704 9,910 0 11,255 55 21,219 9,716 32 27 11,088 384 21,219 10,844 147 481.8


635 284 919 1,292 (372) 2,867 (3,239) 72 0 3,272 (557) (1,366) 1,884 786 2,671
722 312 1,034 1,976 (941) 1,996 (2,938) 72 0 1,795 103 (185) (1,131) 2,671 1,540
813 359 1,172 2,631 (1,459) 700 (2,159) 95 0 1,449 (173) (632) 1,540 908
1,017 385 1,402 596 807 700 107 119 0 (500) 0 (512) 1,160 648
1,387 411 1,799 700 1,099 700 399 162 0 (500) 0 (264) 648 384
11.2 1.2 8.1 12.3 8.6 0.8 9.2 1.4 0.9 3.3 (15.0) 2.2 7.8 1.4 0.8
10.6 1.1 8.4 10.7 7.8 0.8 8.7 1.5 1.1 4.0 (8.6) 1.6 7.1 1.3 0.6
9.2 1.0 8.6 11.0 8.7 1.1 10.0 1.5 1.4 5.1 (7.6) 1.7 6.4 1.3 0.5
7.4 0.9 7.1 12.4 9.2 1.4 10.0 1.6 1.3 4.2 13.7 2.0 5.4 1.1 0.5
5.4 0.8 6.0 14.9 10.9 1.8 10.0 1.7 1.1 3.5 9.9 2.5 4.2 1.0 0.4
Fig 5 PE band
( `) 1000 800 600 400 6x Elder 200 0 Mar-08 Aug-07 May-09 Mar-11 Apr-05 Jun-06 Jan-07 May-12 Nov-05 Dec-09 Dec-12 Oct-08 Jul-10 Oct-11
Neutrahealth 21%
14x
10x
Biomeda 4% APIs 10% Export Formulations 3% Domestic Formulations 62%
32
Healthcare
India I Equities
Result preview
8 July 2013
Indoco Remedies
Modest quarter, ramp-up from 2HFY14; Buy
Key takeaways Steady revenue, lower PAT growth. We expect revenues to grow 11.8% yoy in 1QFY14, driven by export of formulations to regulated markets and steady growth in domestic formulations. However, revenues from export formulations to semi-regulated markets could be flat. EBITDA margin is expected to decline slightly by 40bps yoy, to 16%, on higher other operating expenses. We expect its adjusted PAT to grow 4% yoy, lower than revenues, due to margin decline and higher effective tax rate. Formulations likely to drive growth. We expect India formulations business to grow at a modest 12% yoy due to general slowdown in industry; growth would be driven by new product launches and focus on chronic therapies. We estimate a strong 18.4% yoy increase in revenues from export formulations, largely driven by exports to regulated markets. However, exports to semi-regulated markets are expected to grow just 5% yoy. API revenues are expected to grow 17% yoy on a low base. Improving financials. We expect the company to register a strong 18.7% revenue and 30.1% adjusted PAT CAGR over FY13-15, led by commercial supplies to Watson for the US market and steady growth in domestic formulations. EBITDA margin is expected to improve 90bps over the period. Strong growth would help improve its return ratios to 18.1% RoE and 17% RoCE by FY15 from current levels of 14.1% and 13.4 respectively. Our take. We expect Indoco Remedies to report 11.8% yoy revenue growth in ` 1QFY14, led by steady growth in domestic formulations business and strong revenue increase in export formulations. We estimate adjusted PAT to grow 4% yoy, lower than revenues, mainly due to slight margin decline and higher effective tax rate. We maintain Buy on the stock, with price target of `806, based on 10x Sep14e earnings. Risks. Currency fluctuations, regulatory hurdles.
INDR IN / INRM.BO
`75 / `52 19496 / 5868 US$0.1m `5.8bn / US$0.1bn 92.2m
59.2 0.0 40.8 2.4 14.0 24.3
59.2 0.0 40.8 1.6 14.1 25.1
59.2 0.0 40.8 2.0 14.1 24.7
Financials (YE Mar)
FY14e
FY15e
7,432 679 7.4 26.5 8.6 1.2 15.4 14.7 2.3 16.9
8,890 908 9.8 33.8 6.4 1.1 18.1 17.0 3.1 11.6
Source: Company
1,561 256 16.4 22 58 2 117 14 11.5 157
1,745 279 16.0 25 64 2 192 29 15.0 163
11.8 9.2 (40)bps 13.4 10.3 63.8 112.9 (60)bps 4.0
5,688 846 14.9 163 193 23 513 49 9.6 463
6,308 933 14.8 99 237 9 485 55 11.3 536
10.9 10.3 (10)bps (39.5) 23.2 (60.6) (5.3) 12.0 170bps 15.7
Sriram Rathi
8 July 2013
Indoco Remedies Modest quarter, ramp-up from 2HFY14; Buy


4,785 20.1 4,140 645 13.5 24 135 80 55 9.7 511 0 0 511 5.5 21.4
5,688 18.9 4,842 846 14.9 163 193 23 49 9.6 463 0 0 463 5.0 (9.3)
6,308 10.9 5,375 933 14.8 99 237 9 55 11.3 427 (120) 0 536 5.8 15.7
7,432 17.8 6,309 1,123 15.1 100 256 32 120 15.0 679 0 0 679 7.4 26.5
8,890 19.6 7,497 1,393 15.7 100 263 38 160 15.0 908 0 0 908 9.8 33.8
123 3,379 3,502 0 1,257 257 4,759 2,948 0 0 1,540 270 4,759 985.9 76.2 57.0
123 3,725 3,848 0 1,142 294 5,283 3,372 1 0 1,805 105 5,283 1036.9 88.3 62.6
184 3,957 4,142 2 1,179 348 5,671 3,593 1 0 1,936 140 5,671 1039.0 86.8 44.9
184 4,478 4,663 2 1,179 348 6,192 3,637 1 0 2,221 333 6,192 845.9 83.2 50.6
184 5,175 5,359 2 1,179 348 6,888 3,774 1 0 2,598 515 6,888 663.9 82.2 58.2


511 149 660 187 473 799 (326) 114 0 339 (0) 4 (105) 375 270
463 229 693 243 450 581 (131) 118 0 142 30 (4) (133) 238 105
430 292 722 153 568 488 80 99 37 (29) 13 35 105 139
679 256 935 284 650 300 350 158 0 0 193 140 333
908 263 1,171 377 794 400 394 211 0 0 1 182 333 515
11.4 1.1 10.2 15.5 12.3 0.4 28.8 1.7 0.3 1.5 2.1 21.2 6.0 1.4 1.2
12.6 1.0 8.1 12.6 10.6 2.6 32.8 2.2 0.3 1.2 2.3 4.0 5.9 1.2 1.0
10.8 1.4 7.4 13.4 14.1 1.5 15.9 2.0 0.2 1.1 1.8 7.0 7.5 1.1 0.9
8.6 1.2 5.9 15.4 14.7 2.3 20.0 2.3 0.2 0.8 1.3 8.7 6.2 0.9 0.8
6.4 1.1 4.7 18.1 17.0 3.1 20.0 2.6 0.1 0.5 0.8 11.3 5.0 0.7 0.7
Fig 5 PE band
100 90 80 70 60 50 40 30 20 10 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 4x INDR 8x 12x

Export APIs 3%
Domestic APIs 2%
Export formulations 34% Domestic formulations 61%
34
Appendix
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Anand Rathi Research Ratings Distribution (as of 28 Feb 2013) Buy Anand Rathi Research stock coverage (184) 65% % who are investment banking clients 4%
Hold 27% 2%
Sell 8% 0%
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Healthcare ARathi 090713

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Healthcare

Overweight Sensex: 19496 Nifty: 5868

Note: *Ranbaxy data for 2QCY13e

India Healthcare Exports to drive revenue

Fig 1 1QFY14: Key estimates

Source: Anand Rathi Research Note: *Ranbaxy data for 2QCY13e

Fig 2 Valuation summary

Note: *Ranbaxy data for CY14e

Anand Rathi Research

Sun Pharmaceutical Industries

Rating: Hold Target Price: `1,006 Share Price: `1,036

`1,116 / `580 19496 / 5868 US$14.6m `1,071bn / US$18bn 1,036m

Shareholding pattern (%)

Mar'13 Dec 12 Sep 12

63.7 0.3 36.3 22.6 3.4 10.3

63.7 0.4 36.3 21.5 4.5 10.4

63.7 0.4 36.3 20.4 5.2 10.7

Financials (YE Mar)

24.5 19.7 (180)bps (47.7) 14.5 NA 39.9 61.8 270bps 40.3

Sun Pharmaceutical Industries Positives factored in; Hold

Quick Glance Financials and Valuations

Fig 2 Balance sheet (`m)

Source: Company, Anand Rathi Research

Source: Company, Anand Rathi Research

Fig 3 Cash-flow statement (`m)

Fig 4 Ratio analysis @ `1,036

Source: Company, Anand Rathi Research

Source: Company, Anand Rathi Research

Fig 6 Revenue break-up (FY14e)

24x 20x 16x 12x

APIs 6% ROW 13% India 25%

Source: Bloomberg, Anand Rathi Research

Source: Anand Rathi Research

Anand Rathi Research

Rating: Buy Target Price: `2,280 Share Price: `2,235

`2288 / `1528 19496 / 5868 US$13.5m `378bn / US$6.3bn 169.8m

Shareholding pattern (%)

Mar 13 Dec 12 Sep 12

25.56 0 74.44 29.66 11.03 33.75

25.56 0 74.44 26.17 13.98 34.29

25.56 0 74.44 24.52 15.23 34.69

Financials (YE Mar)

25,406 4,996 19.7 44 1,296 278 3,725 365 9.8 3,549

Dr Reddys Laboratories Strong growth to continue; Buy

Quick Glance Financials and Valuations

Fig 2 Balance sheet (`m)

Source: Company, Anand Rathi Research

Source: Company, Anand Rathi Research

Fig 3 Cash-flow statement (`m)

Fig 4 Ratio analysis @ `2,235

Source: Company, Anand Rathi Research

Source: Company, Anand Rathi Research

Fig 6 Revenue break-up (FY14e)

Export Form 18%

Domestic Form 29%

Source: Bloomberg, Anand Rathi Research

Source: Anand Rathi Research

Anand Rathi Research

Rating: Buy Target Price: `472 Share Price: `399

`435 / `314 19496 / 5868 US$13.8m `317bn / US$5.3bn 803m

Shareholding pattern (%)

Mar 13 Dec 12 Sep 12