20 April 2012 - PhillipCapitalbackoffice.phillipcapital.in/Backoffice/Research...Please refer to Disclosures and Disclaimers at the end of the Research Report. Shilpa Medicare A unique

Please refer to Disclosures and Disclaimers at the end of the Research Report.

Shilpa Medicare A unique oncology play but near‐term triggers priced in

PHARMACEUTICALS: Visit Note 18 November 2014

PhillipCapital (India) Pvt. Ltd.

We recently visited Shilpa Medicare (Shilpa) to understand its progress in custom synthesis, oncology APIs, and its business diversification into formulations and HIV/AIDS drugs. The key highlights from our visit are: ‐ USFDA clearance for its API facility at Raichur could multiply oncology APIs sales Shilpa’s main focus is the development and manufacturing of high‐potency oncology APIs — this fetched a revenue of Rs 2bn in FY14 (35% of its total revenue of Rs 5.7bn). It has a broad portfolio of over 25 oncology APIs (with 17 ready DMFs (drug master files) for the US and 9 for the European markets). However, currently, around 80% of these oncology APIs are supplied to Europe because its Raichur‐based units haven’t got USFDA approval yet. The management expects the USFDA clearance for its Raichur units as soon as the authority conducts an inspection (any time now). We believe this could multiply Shilpa’s oncology API opportunity in the near term as it already has a strong pipeline of APIs and established supply associations with many global customers. Also the approval will open the largest global oncology market of the USA for it. It has interesting patent expiry opportunities like —Bendamustine (US expiry ‐ May 2016, annual sales US$ 800mn), Bortezomib (Aug 2017, US$ 600mn), Imatinib (Feb 2016, US$ 1.9bn), Fingolimod (Sep 2017, US$ 1.02bn), and Pemetrexed (Jan 2017, $US 400mn). We expect the USFDA approval to come through in H2FY15 and this could boost oncology API sales from Rs 2bn in FY14 to Rs 3.3bn in FY16 and to Rs 4.3bn in FY17. CRAMS: JV with EU partner, greenfield capacity expansion to ensure sustained growth Custom synthesis is its leading segment with a revenue contribution of Rs 2.5bn (44% of sales). Under CRAMS, it manufactures and supplies only Ursodeoxycholic acid intermediate (used to treat liver ailments) to Italy‐based Industria Chimica Emiliana (ICE). ICE is the global leader in bile acid derivatives such as cholic acid and Urosodeoxycholic acid APIs. In order to scale up the Ursodeoxycholic acid intermediate supply, ICE and Shilpa converted their supply alliance into a 50:50 JV and set up greenfield facility with an investment of about Rs 1.5bn at Raichur. The new plant will be commissioned in FY16 and this will increase Shilpa’s custom synthesis revenues from Rs 2.5bn in FY14 to Rs 2.75bn in FY16 and Rs 3.3b in FY17. We are positive about ICE’s equity participation in the JV. Oncology formulations for advanced markets take Shilpa up the value chain To leverage its strong customer base for oncology APIs, Shilpa has set up a formulation facility with an investment of Rs 1.25bn in Jadcherla, Andhra Pradesh. The new facility has submitted dossiers in various advanced markets and was successfully inspected by UKMHRA, Mexico, and GCC. Especially for the US market, it has filed 9 ANDAs and is awaiting a USFDA inspection. The management expects commercial supply of oncology formulations for semi‐regulated markets to begin in FY16, but meaningful revenues will flow from FY17‐18 (when it expects ANDA approvals). We estimate revenues worth Rs 450mn/600mn/900mn for FY15/FY16/FY17 from this segment. Valuations: At its CMP, the stock trades at 18.9x FY16 EPS and 13.4x FY17 EPS. We believe Shilpa, at such valuations, is fairly valued and near‐term positives are priced in. Also, the uncertainties about regulatory timeline for its plants’ approval remain as a key concern for us. However, its multiple growth triggers such as USFDA clearance of its oncology facilities, incremental flow of oncology formulations sales from advanced markets and diversification into ARVs, etc make Shilpa as an interesting investment idea for medium‐long term.

Not Rated SLPA IN | CMP RS 554 TARGET NA Company Data O/S SHARES (MN) : 39MARKET CAP (RSBN) : 21MARKET CAP (USDMN) : 34252 ‐ WK HI/LO (RS) : 581 / 212LIQUIDITY 3M (USDMN) : 0.3FACE VALUE (RS) : 2

Share Holding Pattern, % PROMOTERS : 55.9FII / NRI : 22.8FI / MF : 0.0NON PROMOTER CORP. HOLDINGS : 6.0PUBLIC & OTHERS : 17.4

Price Performance, % 1mth 3mth 1yr

ABS 7.2 12.1 134.7REL TO BSE ‐0.6 4.3 96.7

Price Vs. Sensex (Rebased values)

50

100

150

200

Apr‐11 Jun‐12 Aug‐13 Oct‐14Shilpa Medi BSE Sensex

Source: Bloomberg, Phillip Capital Research

Other Key Ratios Rs mn FY15E FY16E FY17ENet Sales 6,200 8,100 10,385 EBIDTA 1,252 1,733 2,368 Net Profit 795 1,136 1,608 EPS, Rs 20.6 29.5 41.7 PER, x 27.0 18.9 13.4 EV/EBIDTA, x 17.5 12.6 9.0 P/BV, x (5.0) 0.4 0.3 ROE, % 14.6 17.4 19.9 Source: Phillip Capital India Research Surya Patra (+ 9122 6667 9768) [email protected]

– 2 of 12 –

18 November 2014 / INDIA EQUITY RESEARCH / SHILPA MEDICARE VISIT NOTE

Company overview Shilpa Medicare, incorporated in 1987 and listed in 1995, is an established supplier of niche APIs, intermediates, and formulations. It also undertakes CRAMS. CRAMS (Rs 2.5bn) accounts for 44% of its total revenue of Rs 5.7bn in FY14, followed by oncology‐led APIs at 35% (Rs 2bn) and non‐oncology APIs at 10%. The company has recently developed the capability and facility for oncology‐based formulations, which should drive value growth in the medium to longer term. It has signed a licensing agreement with Gilead and Medicines Patent Pool (MPP) for manufacturing and supplying of HIV/AIDS drugs in the emerging markets, which should strengthen its non‐oncology API operation. Though CRAMS seems to be the largest revenue contributor, manufacturing and supplying of oncology APIs is its prime focus. Its key oncology products are – Gemcitabine, Carboplatin, Oxaliplatin, and Busulfan. Gemcitabine and capacitabine are the leading products in its oncology API basket as of now. Shilpa has eight manufacturing facilities; of these, seven are in India and one is in Austria. It has two R&D centres. Its facilities are approved by UKMHRA, EDQM, TG Australia, PMDA‐Japan, KFDA‐Korea, and TPD‐Canada. On the other hand, its Raichur based API units and oncology formulation unit is waiting for USFDA inspection.

Investment thesis API (oncology) facility at Raichur awaiting USFDA clearance — this could multiply sales Although custom synthesis is the leading revenue contributor for Shilpa Medicare, the development and manufacturing of high‐potency oncology APIs is the prime focus of the company. It has a broad portfolio of over 25 oncology APIs with 17 DMFs filed for the US and 9 for European markets. Its key oncology products are – Gemcitabine, Capecitabine, Carboplatin, Oxaliplatin, and Busulfan. Out of these, Gemcitabine and Capecitabine are its leading products. Its key oncology API customers are – Actavis, Intas Pharma, Dr Reddy’s Lab, Cipla, Fresenius Kabi, Sun Pharma, etc. Shilpa’s oncology API growth almost doubled between FY13 and FY14 (led by the pre‐launch off take by a customer) — its oncology API revenue went from Rs 1.2bn in FY13 to Rs 2.0bn in FY14. About 80% of its oncology API supplies are currently for advanced markets such as Europe. However, it is unable to supply to the US as of now because its Raichur‐based units haven’t got USFDA approval yet. Hence, the anticipated USFDA clearance of its API plants in Raichur (after inspection, which is likely to happen any time now) should multiply Shilpa’s oncology API opportunity in the near term as it already has a strong pipeline of APIs and established supply associations with many global customers; the approval will open the largest global oncology market (USA) for it. It has interesting patent expiry opportunities such as Bendamustine (US expiry ‐ May 2016, annual sales US$ 800mn), Bortezomib (Aug 2017, US$ 600mn), Imatinib (Feb 2016, US$ 1.9bn), Fingolimod (Sep 2017, US$ 1.02bn), and Pemetrexed (Jan 2017, $US 400mn). The USFDA had inspected Shilpa’s two API units in Raichur in 2013 and issued Form 483 with 6 minor observations, which the company rectified. Shilpa received a complete response letter from the USFDA 6 months ago — the management expects a verifying inspection any time now before the final clearance.


We expect the USFDA approval for its Raichur unit to come through in H2FY15 and this could boost oncology API sales from Rs 2bn in FY14 to Rs 3.45bn in FY16 and Rs 4.48bn in FY17.

Shilpa’s DMF fillings Generic Name Brand Name Innovator DMF Filed

date Patent Expiry

Formulation Size $ Mn

No of DMFs and leading filers Generic Players in the market

Temozolomide Temodar Merck 1/22/2010 2/12/2014

390 7 ‐ Sun Pharma, Reliance Life and Chinese players

Teva & Sun Pharma so far

IRINOTECAN HYDROCHLORIDE TRIHYDRATE

Camtosar Pfizer 2/23/2010 Expired 200 >20 ‐ Fresenius Kabi, Sun Pharma, Dr Reddy, Emcure, Cadila, Hetro Labs and multiple Chinese

Accord, Actavis, Akorn, Bedford Labs, Cipla, DRL, Emcure, Fresenius Kabi, Hikma, Hospira, Jiangsu, Mylan, Pliva, Sun, Teva

OXALIPLATIN Eloxatin Sanofi Aventis

2/23/2010 Expired 100 >10 ‐ Teva , Fresenius Kabi, Sun Pharma, Cipla, Cadila, Hospira, Emcure

Actavis, Fresenius Kabi, Ebewe, Sandoz, Hospira, Sun Pharma, Teva, Sandoz

GEMCITABINE HYDROCHLORIDE

Gemzar Eli Lilly 3/4/2011 Expired 512 >15 – Dr Reddy, Sun, Teva, Fresnious Kabi, Hetero, Intas, Emcure, Cadila, Mylan India, Cipla Dishman

Sun, Teva, Hospira, Cipla, DRL, Accord, Actavis, Emcure, Fresenius Kabi, Hameln, Luitpold, Onco Therapies, Jiangsu

CAPECITABINE XELODA Hoffman LaRoche

3/24/2011 Jun 14, 2014

773 >20 ‐ Cipla Hetero, Divis Lab, Dr Reddy, Aarti, Mylan, Reliance Life, Intas, Cadila, Apotex Pharma, Sun Pharma,

Teva & Mylan so far

BICALUTAMIDE Casodex Astra Zeneca

5/11/2011 100 >20 ‐ USV, Hetero, Cipla, , Sumitomo Japan, Lupin, Dr Reddy, Fresenius Kabi, Sun Pharma, Apotex India, Mylan, Emcure, Teva,

Accord, Actavis, Fresenius Kabi, Mylan, Roxane, Sandoz, Sun , Teva, Zydus

BORTEZOMIB Valcade Millennium Pharma

8/23/2011 Aug 8, 2017

600 >10 ‐ Teva, Dr Reddy, Hetero, , Reliance Life, , Natco,

PEMETREXED DISODIUM (HEMIPENTA HYDRATE)

Alimta Eli Lilly 9/21/2011 Jan 24, 2017

400 10 ‐ Dr Reddy, Reliance Life,Neuland, , Sun Pharma.

BENDAMUSTINE HCL

Trenda Cephalon 11/9/2011 May 1, 2016

780 15 ‐ Dr Reddy, Hetero ,Emcure, Fresenius Kabi, Natco Pharma, Sun Pharma,

Teva n Mylan

BUSULFAN USP Busulfex Otsuka 12/8/2011 Expired NA 8 ‐ Fresenius Kabi WB, Emcure ZOLEDRONIC ACID Zometa/Recl

ast 7/18/2012 Expired 200 >10 ‐ Natco, Teva, Cipla, Jubilant, Sun

Pharma, Wockhardt, Mylan, Dr Reddy, , Hikma, , Emcure, Ipca, USV, Hetero

Actavis, Agila, DRL, Hikma, Sun, Emcure etc

AZACITIDINE Vidaza Celgene 9/23/2013 Expired 400 5 ‐ Teva, Laurus Labs, Intas Dr Reddy's Lab DECITABINE (ESUB) Dacogen Eisai Inc 9/26/2013 Expired 240 9 ‐ Dr Reddy, Intas, Fresenius Kabi, Sun

Pharma, Emcure DR Reddy's Labs , Sun Pharma

LETROZOLE USP (ESUB)

Femara Novartis 9/26/2013 Expired 100 >10 ‐ Natco, Cipla, , Actavis, Dr Reddy , Teva, Fresenius Kabi, Cadila, USV, Sun Pharma, Mylan, , Hetero, Apotex

9‐10 players (Sun, DRL, Impax, Teva, Mylan, Natco, Apotex etc)

IMATINIB MESYLATE

Gleevec 3/28/2014 Feb 1, 2016

10 ‐ Sun (2006),DRL, Mylan, Cipla, Cadila,Perrigo, Natco, Teva, Reliance life

FINGOLIMOD HYDROCHLORIDE

Gilenya Novartis 5/30/2014 Feb 18, 2019

1960 >10 ‐ Dr Reddy, Glenmark, Mylan, Alembic, Cadila, Biocon, Apotex, Honour, Emcure, Teva

Source: Company, PhillipCapital India Research

– 3 of 12 –


CRAMS: JV with EU partner, greenfield capacity expansion to ensure sustained growth Custom synthesis is its other leading segment with a revenue contribution of Rs 2.5bn (44% of sales). Under this segment, it manufactures and supplies only Ursodeoxycholic acid intermediate to Italy‐based Industria Chimica Emiliana (ICE) and its subsidiary Prodotti Chimicie Alimentari (PCA) under a long‐term supply contract. ICE is the global leader in bile acid derivatives such as cholic acid and Urosodeoxycholic acid APIs. Ursodeoxycholic acid is used in dissolving gallstones and treating primary biliary cirrhosis. It reduces cholesterol secretion from the liver and reduces fractional reabsorption of cholesterol by the intestines. Custom synthesis contributes to 44% of the company’s revenues — Rs 2.5bn in FY14, up 20% yoy. Though the operation has maintained a healthy growth rate of around 20% over the last few years, the one‐product‐for‐single‐customer nature of the alliance seems a risk (customer/product concentration) for Shilpa. However, the risk was mitigated somewhat when the supplying alliance was converted to a 50:50 JV, which set up a greenfield facility worth Rs 1.5bn at Raichur for the enhanced supply of Ursodeoxycholic acid intermediate. In fact, we believe the conversion to a JV is positive for Shilpa as the dedicated facility opens up the possibility of higher growth (due to larger scale) and there is enough scope for introduction of few more derivatives of Ursodeoxycholic acid in the supply alliance. The new facility will be commissioned in FY16 and the manufacturing of the product will gradually shift from the existing plant to the new plant by FY17. In the mean while, we don’t expect major revenue growth from this segment due to the anticipated gradual shifting of manufacturing from Shilpa’s existing unit to a new facility. We estimate CRAMS revenue to scale up from Rs 2.5bn in FY14 to Rs 2.75bn in FY16 and Rs 3.3b in FY17. Oncology formulations for advanced markets will take Shilpa up the value chain Shilpa has set up a formulation facility with an investment of Rs 1.25bn in Jadcherla, Andhra Pradesh, to make better use of the CRAMS opportunity in oncology formulations and to leverage its strong association with domestic and global formulators for oncology APIs. The facility is constructed in‐line with USFDA standards and comprises of two oncology manufacturing blocks — injectable and orals. The management expects to spend about Rs 500mn more on this facility in FY15 for setting up an additional injectable line. So far, the facility has submitted formulation dossiers in various advanced markets. Specifically, it has filed 9 ANDAs with USFDA, Europe, and many other semi‐regulated markets. The greenfield plant was already inspected by UKMHRA, Mexico, and GCC successfully, and is awaiting USFDA inspection. Shilpa’s formulation initiatives would be under the contract manufacturing model, where the dossier development and manufacturing will be done by Shilpa and the drug will be registered in the customer’s name. Initially, it will be a forward integration for Shilpa’s own oncology APIs, but the company is open to external API sourcing as per customers’ additional product requirements. It also has plans to develop and file selective oncology ANDAs in its own name. In FY14, Shilpa has booked revenue worth Rs 230mn from the supply of validation batches — this should go to Rs 450‐500mn in FY15. While the management expects commercial supply for semi‐regulated markets in FY16, meaningful revenues should flow through in FY17‐18 (when its ANDA approvals come through). Hence, we estimate revenues worth Rs 450mn/600mn/900mn for FY15/FY16/FY17 from this segment.

– 4 of 12 –


Shilpa’s ANDA Pipeline ANDA Brand Innovator Size Patent Expiry Remarks Imatinib Mesylate Gleevec Novartis US $1.94bn and ROW is

$2.75bn US ‐ Feb 2016 EU – 2016, Japan ‐ 2014

Sun Pharma to market a generic version of Gleevec® in the US on February 1, 2016.

Capecitabine Xeloda Genentech (Roche) US ‐ CHF 616mn, EU ‐ CHF CHF315mn, Japan ‐ CHF 107 n ROW ‐CHF471mn

US and EU ‐ Mar 2014

Two generic competitors with Teva holding 80% market share followed by Mylan 10% and Genentech 10% in US.

Fingolimod HCl Gilenya Novartis US ‐ $1.02bn, ROW ‐ $911mn

Under Litigation

Tacrolimus Prograf Astellas Pharma US ‐ Aug 2011 Innovator retains its leadership long after patent expiry in US with 40% market share followed by DRL 23%, Accord Healthcare 12%,Sandoz 11% and Mylan 9%

Bendamustine Treanda Teva/Cephalon US ‐ $780mn US – April 2016 30‐month stay for Actavis till July 2016/ Breckenridge(Natco) expect to be FTF

Gemcitabine HCl Gemzar Lilly US ‐ Nov 2012 7 generic competitors in US market; Accord lead with 53% market share followed by , Sun 25%, DRL 14%, and Lily 6%. Sandoz, Mylan and Teva are marginal players

Azacitidine Vidaza Celgene US ‐ $378mn EU & ROW ‐ $430mn

US ‐ 5/1/2011 Europe ‐ 2018

Limited competition among 3 players in US with innovator ‐ Celgene holding 75% MS followed by Sandoz 18% and DRL 7%, DRL was first generic launched in Oct. 2013

Source: Company, PhillipCapital India Research Diversified into global ARV operations: A new growth initiative In order to tap the unmet need in HIV treatment space in the emerging markets, Shilpa has signed a technology transfer agreement with Gilead and Medicines Patent Pool (MPP) for manufacturing and supplying HIV/AIDS drugs. Gilead is the innovator of the HIV/AIDS drugs in the deal and MPP is a United Nations‐backed organisation that aims to improve access to appropriate and affordable HIV medicines in developing nations. As per the licensing deal, Gilead will transfer its technology and offer non‐exclusive marketing rights of 5 ARV drugs in 112 emerging markets. The ARV drugs covered in this agreement are – tenofovir, emtricitabine, cobicistat, elvitegravir and a combination of all these four known as ‘the Quad.’ Out of listed drugs, cobicistat and elvitegravir are recently USFDA approved (in September 2014) NCEs. Other Indian players with similar licensing arrangements with Gilead for these drugs include Aurobindo, Shasun, Laurus Labs, Hetero, and Emcure. Shilpa has already started producing exhibit batches of drugs and expects to start a second one by December 2014. It believes that the commercial supply of the 5 products would start by mid FY16 and the margin profile of these drugs would be better than its CRAMS revenue stream. We believe ARV API supply is a booster dose for its non‐oncology API business that contributed Rs 544mn (10% of total sales) in FY14 and would add incremental revenue of about Rs 300mn in FY16 and Rs 600mn in FY17.

– 5 of 12 –


Strong financial performance over FY15‐FY17 Shilpa delivered healthy financial performance with sales and profit CAGR of 28% and 49% over the last five years to Rs 5.71bn and Rs 756mn, respectively, in FY14. In FY14, Shilpa reported strong 54% sales growth (led by nearly doubling its oncology APIs revenues and around 20% rise in CRAMS revenues) coupled with 300bps margin expansion (to 21.3%), resulting in a 81% jump in profits to Rs 841mn. Most of the robust FY14 financial performance was led by a unique/lumpy oncology API supply opportunity, which may not sustain in FY15. However, we expect the anticipated USFDA clearance of its oncology API plant to power revenues and earnings growth over FY15‐17. We estimate the ramp up in oncology APIs, launch of oncology formulations, and incremental ARV opportunity to result in 29% and 40% CAGR in consolidated revenue and profits over FY15‐17 to Rs 10.38bn and Rs 1.60bn, respectively, in FY17. While we assumed the USFDA clearance of its Raichur oncology API facility in H2FY15, we believe ramp up in its oncology formulation and CRAMs led by new facilities would drive growth FY17 onwards. However, uncertainty about the timeline of plant approval by USFDA poses a key risk to our estimates. Sales CAGR of 29% over FY15‐17 (Rs mn) FY14 FY15E FY16E FY17ECRAMS with ICE 2,500 2,500 2,750 3,300 % of sales 43.8 40.3 34.0 31.8 Onco API 2,000 2,300 3,450 4,485 % of sales 35.0 37.1 42.6 43.2 formulations 230 450 600 900 % of sales 4.0 7.3 7.4 8.7 Non onco API 544 550 600 700 % of sales 9.5 8.9 7.4 6.7 ARV API opportunity 300 600 % of sales 3.7 5.8 Standalone Sales 5,274 5,800 7,700 9,985 Subsidiaries 440 400 400 400 Consolidated Revenues 5,714 6,200 8,100 10,385

Source: Company, PhillipCapital India Research Estimates

Strong financial performances over FY15‐FY17

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

‐

2,000

4,000

6,000

8,000

10,000

12,000

FY12 FY13 FY14 FY15E FY16E FY17E

Revenue (Rs Mn) y‐o‐y (rhs)

(15.0)

‐

15.0

30.0

45.0

60.0

75.0

90.0

‐

200

400

600

800

1,000

1,200

1,400

1,600

1,800


Net Profit (Rs Mn) y‐o‐y (rhs) EBITDA margins (rhs)


– 6 of 12 –


Steady progress in return ratios; CAPEX to be funded from internal accruals FY14 was powered by unique supply opportunity

0

5

10

15

20

25


ROE (%) ROCE (%)

‐464‐628 ‐652

9 36

707

929

1010 1294

1000

1000

750

0.0

10.0

20.0

30.0

40.0

50.0

‐1000

‐500

0

500

1000

1500


Free cash flow (Rs mn) Capex (Rs Mn)Debt/Equity(%)


Valuations: We estimate Shilpa’s EPS to remain flat in FY15 at Rs 21.1 because of the high base effect of FY14. However, we see healthy progress in FY16 and FY17 to Rs 29.3 and Rs 41.5, respectively. At its CMP, Shilpa trades at 18.9x FY16 EPS and 13.4x FY17 EPS — we believe it is fairly valued and near‐term positives are priced in. The uncertainties about regulatory timeline for its plants’ approval remain as a key concern for us. However, it has multiple growth triggers such as USFDA clearance of its oncology facilities, fresh commercial launch of oncology formulations, and new sales stream of ARV API supply, which will strengthen its medium‐long term earnings growth . Valuation Chart:

0

100

200

300

400

500

600

700

Apr‐10

Jul‐1

0

Oct‐10

Jan‐11

Apr‐11

Jul‐1

1

Oct‐11

Jan‐12

Apr‐12

Jul‐1

2

Oct‐12

Jan‐13

Apr‐13

Jul‐1

3

Oct‐13

Jan‐14

Apr‐14

Jul‐1

4

Oct‐14

Jan‐15

Apr‐15

Shilpa Medicare 10.0 X 15.0 X 20.0 X 25.0 X 30.0 X


– 7 of 12 –


Quarterly financials (Rs mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15Revenue 885 903 940 985 1,137 1,359 1,543 1,674 1,389 1,537Cost of material 424 670 461 536 576 793 937 934 660 844Purchase of stock 18 2 2 4 4 16 28 8 10 19Change in inventory 44 (131) 77 42 (1) (72) (123) 43 85 14Total material cost 486 541 540 582 579 737 842 986 754 877% of Sales 54.9 60.0 57.4 59.0 50.9 54.2 54.6 58.9 54.3 57.1Employee cost 104 112 116 122 141 161 189 187 186 194% of Sales 11.8 12.4 12.4 12.4 12.4 11.8 12.3 11.2 13.4 12.6Other expenses 138 139 117 111 147 182 177 147 154 189% of Sales 15.6 15.4 12.5 11.3 12.9 13.4 11.5 8.8 11.1 12.3Total Expenses 728 792 774 815 867 1,079 1,209 1,320 1,094 1,260EBITDA 157 110 167 170 270 279 334 355 295 277% EBITDA Margin 17.7 12.2 17.7 17.3 23.7 20.6 21.7 21.2 21.3 18.0Depreciation 39 40 41 34 55 58 60 60 55 51EBIT 118 70 126 136 215 221 274 295 240 226Other Income 13 15 6 16 44 14 4 28 10 22% of Sales 1.5 1.6 0.7 1.7 3.9 1.0 0.3 1.7 0.7 1.4Finance Cost 3 4 4 3 8 10 6 12 10 11PBT 127 81 128 150 252 226 273 312 240 237Taxes 31 39 3 22 27 55 58 63 72 65Profit before minority interest 96 42 125 128 225 170 215 249 168 172Minority interest (profit) loss 0 1 1 1 1 5 3 (2) 3 1Profit after minority interest 96 41 124 126 226 175 218 247 171 173Extraordinary income (expenses) (1) ‐ (29) 0 0 0Forex (loss) gain 11 73 1 (56) (39) 17 Reported Net profit 107 114 125 125 169 136 207 247 171 174Core EPS 2.5 1.1 3.2 3.3 5.9 4.6 5.7 6.4 4.4 4.5

Source: Company, PhillipCapital India Research

– 8 of 12 –


Financials Profit & Loss (Rs mn) FY13 FY14 FY15E FY16E FY17ERevenue 3,713 5,714 6,200 8,100 10,385 Growth % 17% 54% 9% 31% 28%Total material cost 2,149 3,144 3,410 4,374 5,504 % of Sales 57.9 55.0 55.0 54.0 53.0 Employee cost 455 678 794 1,013 1,267 % of Sales 12.3 11.9 12.8 12.5 12.2 Other expenses 431 676 744 980 1,246 % of Sales 11.6 11.8 12.0 12.1 12.0 Total Expenses 3,035 4,498 4,948 6,367 8,017 EBITDA 678 1,216 1,252 1,733 2,368 % EBITDA Margin 18.3 21.3 20.2 21.4 22.8 Depreciation 153 232 284 336 388 EBIT 525 983 968 1,397 1,980 Other Income 50 91 81 106 136 Finance Cost 14 35 49 53 60 PBT 561 1,039 1,000 1,451 2,056 Taxes 95 203 210 319 452 Profit before minority interest 465 836 790 1,131 1,603 Minority interest (profit) loss 1 5 5 5 5 Core PAT (Profit after MI) 464 841 795 1,136 1,608 Reported PAT 473.5 756.7 795 1,136 1,608 % Growth 5.6 81.3 (5.4) 42.9 41.5

Source: Company, PhillipCapital India Research Estimates Cash Flow (Rs mn) FY13 FY14 FY15E FY16E FY17EPAT 473 757 795 1,136 1,608 Depreciation 153 232 284 336 388 Change in WC (245) (348) (70) (436) (539)Operating CF 382 641 1,009 1,036 1,457 Capex (1,010) (1,294) (1,000) (1,000) (750)Misc Exp 61 190 Investing CF (950) (1,104) (1,000) (1,000) (750)Equity ‐ 27 750 ‐ ‐Dividends (37) (45) (59) (68) (68)Debt 709 (131) 49 90 183 Investments 177 401 ‐ ‐ ‐Financing CF 849 251 740 22 115Net Change 282 (211) 749 59 822


– 9 of 12 –


Balance Sheet (Rs mn) FY13 FY14 FY15E FY16E FY17EShare Capital 49 74 77 77 77 Reserves 3,155 3,891 5,379 6,453 7,999 Net Worth 3,204 3,964 5,456 6,530 8,076 Minority Interest 87 100 95 90 85 Long‐term Borrowings 705 675 675 675 675 Deferred Tax Liabilities(Net) 209 259 259 259 259 Long Term Provisions 69 99 99 99 99 Other Non‐Current Liabilities 2 12 12 12 12 Short‐Term Borrowings 451 303 558 648 831 Trade payables 524 930 1,033 1,350 1,731 Current Maturities of long term Borrowings 160 207 ‐ ‐ ‐Other Current Liabilities 62 175 190 249 319 Short‐Term provisions 41 54 54 54 54 Total Liabilities 5,514 6,778 8,432 9,966 12,140 Gross Block 2,957 4,353 5,464 6,464 7,464 Less: Accumulated Depreciation 1,202 1,540 1,824 2,160 2,548 Net Block 1,754 2,814 3,640 4,304 4,916 Capital WIP 1,292 1,110 1,000 1,000 750 Goodwill on Consolidation 52 131 131 131 131 Non‐Current Investments 1 2 2 2 2 Long Term Loans and Advances (Old: L&A) 292 382 415 527 675

Other Non‐Current Advances 3 2 2 2 2 Current Investments 503 101 101 101 101 Inventories 743 1,233 1,309 1,710 2,192 Trade receivables 418 680 741 968 1,240 Cash & Cash Equivalents 304 93 842 901 1,723 Short term loans and advances 136 216 235 307 393 Other current assets 16 14 14 14 14 Total Current Assets 2,120 2,337 3,242 4,001 5,665 Total Assets 5,514 6,778 8,432 9,966 12,140

Source: Company, PhillipCapital India Research Estimates Key Ratios (Rs mn) FY13 FY14 FY15E FY16E FY17EPer Share data EPS (INR) 12.0 21.8 20.6 29.5 41.7 Growth, % 5.6 81.3 (5.4) 42.9 41.5 Book Value/share (INR) 83 103 142 169 209 CEPS (INR) 16.2 28.1 28.0 38.2 51.8 DPS (INR) 0.9 1.0 1.3 1.5 1.5 Return ratios Return on assets (%) 16.0 17.4 14.6 17.6 21.5 Return on equity (%) 14.5 21.2 14.6 17.4 19.9 Return on capital employed (%) 11.9 19.5 14.9 18.3 21.3 Turnover ratios Asset turnover (x) 1.3 1.3 1.1 1.3 1.4 Receivable days 41 43 43 43 43 Inventory days 72 78 76 76 76 Payable days 51 59 60 60 60 Working capital days 62 62 59 59 59 Valuation PER (x) 46.3 25.5 27.0 18.9 13.4 PEG (x) ‐ y‐o‐y growth 8.3 0.3 (5.0) 0.4 0.3 Price/Book (x) 6.7 5.4 3.9 3.3 2.7 EV/Net sales (x) 5.8 3.8 3.5 2.7 2.0 EV/EBITDA (x) 31.7 17.8 17.5 12.6 9.0 EV/EBIT (x) 37.4 20.1 20.8 14.6 10.0


– 10 of 12 –

– 11 of 12 –


Management

(91 22) 2300 2999Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946

(91 22) 6667 9735

Research Engineering, Capital Goods Pharma

Dhawal Doshi (9122) 6667 9769 Ankur Sharma (9122) 6667 9759 Surya Patra (9122) 6667 9768Priya Ranjan (9122) 6667 9965 Hrishikesh Bhagat (9122) 6667 9986

Retail, Real EstateInfrastructure & IT Services Abhishek Ranganathan, CFA (9122) 6667 9952

Manish Agarwalla (9122) 6667 9962 Vibhor Singhal (9122) 6667 9949 Neha Garg (9122) 6667 9996Pradeep Agrawal (9122) 6667 9953 Varun Vijayan (9122) 6667 9992Paresh Jain (9122) 6667 9948 Technicals

Midcap Subodh Gupta, CMT (9122) 6667 9762Consumer, Media, Telecom Vikram Suryavanshi (9122) 6667 9951Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Production ManagerManish Pushkar, CFA (9122) 6667 9764 Metals Ganesh Deorukhkar (9122) 6667 9966

Dhawal Doshi (9122) 6667 9769Cement Ankit Gor (9122) 6667 9987 Database ManagerVaibhav Agarwal (9122) 6667 9967 Vishal Randive (9122) 6667 9944

Oil&Gas, Agri InputsEconomics Gauri Anand (9122) 6667 9943 Sr. Manager – Equities SupportAnjali Verma (9122) 6667 9969 Deepak Pareek (9122) 6667 9950 Rosie Ferns (9122) 6667 9971

Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Sidharth Agrawal (9122) 6667 9934 ExecutionBhavin Shah (9122) 6667 9974 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)

Jignesh Shah (Head – Equity Derivatives)

Automobiles

Banking, NBFCs

Contact Information (Regional Member Companies)

SINGAPORE Phillip Securities Pte Ltd

250 North Bridge Road, #06‐00 Raffles City Tower, Singapore 179101

Tel : (65) 6533 6001 Fax: (65) 6535 3834 www.phillip.com.sg

MALAYSIA Phillip Capital Management Sdn Bhd B‐3‐6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG Phillip Securities (HK) Ltd

11/F United Centre 95 Queensway Hong Kong Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN Phillip Securities Japan, Ltd

4‐2 Nihonbashi Kabutocho, Chuo‐ku Tokyo 103‐0026

Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141 www.phillip.co.jp

INDONESIA PT Phillip Securities Indonesia

ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 10220, Indonesia

Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809 www.phillip.co.id

CHINA Phillip Financial Advisory (Shanghai) Co. Ltd.

No 550 Yan An East Road, Ocean Tower Unit 2318 Shanghai 200 001

Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940 www.phillip.com.cn

THAILAND Phillip Securities (Thailand) Public Co. Ltd.

15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok 10500 Thailand

Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921 www.phillip.co.th

FRANCE King & Shaxson Capital Ltd.

3rd Floor, 35 Rue de la Bienfaisance 75008 Paris France

Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017 www.kingandshaxson.com

UNITED KINGDOM King & Shaxson Ltd.

6th Floor, Candlewick House, 120 Cannon Street London, EC4N 6AS

Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835 www.kingandshaxson.com

UNITED STATES Phillip Futures Inc.

141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building

Chicago, IL 60604 USA Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA PhillipCapital Australia

Level 37, 530 Collins Street Melbourne, Victoria 3000, Australia

Tel: (61) 3 9629 8380 Fax: (61) 3 9614 8309 www.phillipcapital.com.au

SRI LANKA Asha Phillip Securities Limited

Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka

Tel: (94) 11 2429 100 Fax: (94) 11 2429 199 www.ashaphillip.net/home.htm

INDIA PhillipCapital (India) Private Limited

No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

http://www.phillip.com.sg/

http://www.poems.com.my/

http://www.phillip.com.hk/

http://www.phillip.co.jp/

http://www.phillip.co.id/

http://www.phillip.com.cn/

http://www.phillip.co.th/

http://www.kingandshaxson.com/

http://www.kingandshaxson.com/

http://www.phillipcapital.com.au/

http://www.ashaphillip.net/home.htm

http://www.phillipcapital.in/


Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may or may not match or may be contrary at times with the views, estimates, rating, target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd. This report is issued by PhillipCapital (India) Pvt. Ltd. which is regulated by SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only and neither the information contained herein nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment or derivatives. The information and opinions contained in the Report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication to future performance. This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax and financial advisors and reach their own regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. In no circumstances it be used or considered as an offer to sell or a solicitation of any offer to buy or sell the Securities mentioned in it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which we believe are reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request. Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst have no known conflict of interest and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific views or recommendations contained in this research report. The Research Analyst certifies that he /she or his / her family members does not own the stock(s) covered in this research report. Independence/Conflict: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it or its employees, directors, or affiliates may hold either long or short positions in such securities. PhillipCapital (India) Pvt. Ltd may not hold more than 1% of the shares of the company(ies) covered in this report. Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic or political factors. Past performance is not necessarily indicative of future performance or results. Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorized use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety. Caution: Risk of loss in trading in can be substantial. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd. which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Marco Polo Securities Inc. ("Marco Polo").Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer. PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

– 12 of 12 –

Documents

20 April 2012 - PhillipCapitalbackoffice.phillipcapital.in/Backoffice/Research...Please refer to Disclosures and Disclaimers at the end of the Research Report. Shilpa Medicare A unique