Divi’s Laboratories (DIVLAB) | 1198

August 6, 2018

ICICI Securities Ltd | Retail Equity Research

Result Update

Q1 numbers indicate normalising trend…

Revenues grew 21.2% YoY to | 995.3 crore (I-direct estimate:

| 1151.2 crore) mainly due to lower base of import alert in Q1FY18,

currency tailwinds and strong growth in the carotenoid segment

EBITDA margins improved 554 bps to 35.4% (I-direct estimate: 36%)

mainly due to strong gross margins, lower other expenditure. EBITDA

grew 43.7% YoY to | 351.9 crore (I-direct estimate: | 414.4 crore)

Net profit grew 50.8% to | 266.2 crore (I-direct estimate: | 308.1

crore) mainly due to a strong operational performance

Established CRAMS player

The company has two main segments - generics (~56% of FY18

revenues) and custom synthesis (CRAMS; 44% of FY18 revenues). The

custom synthesis (CS) business is a margin accretive one but at times

lumpy as it depends on offtake from customers (global top 20 big

pharma). This business had a difficult time in FY10 and FY11 as most

customers resorted to de-stocking due to the global slowdown. However,

this business has shown a good recovery on account of an improved

business environment. Strong R&D capabilities and India cost arbitrage

along with IP adherence are some legacy strengths, which will drive

incremental assignments from MNCs. The recent lifting of import alert has

led to improved sentiments in the near future. We expect CS to grow at a

CAGR of ~14% to | 2181 crore in FY18-20E.

Focus on few niche generics

The company remains committed to only a few research driven niche

opportunities as was the case when it started commercial operations in

early nineties. Thus, it has filed just ~42 DMFs with USFDA and does not

want to increase its count drastically. Two generics, Naproxen (pain

management) and Dextromethorphan (cough suppressant) account for

~26% of overall revenues. Divi’s enjoys ~70% global market share in

these two products. These products are already mature with limited

competitors having other priorities. DLL is also increasing its presence in

another niche area of carotenoids after acquiring requisite capabilities. It

has developed various types of carotenoids including beta-carotene, the

largest in the group. With focus on brownfield expansion the

management is committed to address the capacity constraints. We expect

sales from generics (includes Carotenoids) segment to grow at a CAGR of

~15% to | 2815 crore in FY18-20E.

Regulatory issues addressed; capacity constraints waning slowly

After a turbulent FY18 due to import alert, the company’s financials seem

to be back on track. Another aspect was capacity utilisation, which

reached an optimum level by FY17. However, thanks to persistent

brownfield expansion to the tune of nearly ~| 1000 crore in the past three

years, the current utilisation is now at ~85%, which can still provide room

for decent growth in the next two to three years. The greenfield

expansion at Kakinada is still some time away but this delay is unlikely to

have a material impact on growth due de-bottlenecking at existing plants

expansion. On the margins front, the management expects normalisation

of margins trajectory as besides operating leverage there will be savings

on the regulatory expenses front. We ascribe a target price of | 1380

based on 26x FY20E EPS of | 53.1. We upgrade the stock to BUY on the

back of likely normalisation of margins and growth trajectory on the back

of brownfield expansion besides fastest resolution of USFDA regulatory

issues.

Rating matrix

Rating : Buy

Target : | 1380

Target Period : 12-15 months

Potential Upside : 15%

What’s Changed?

Target Unchanged

EPS FY19E Changed from | 40.7 to | 44.9

EPS FY20E Changed from | 48.7 to | 53.1

Rating Changed from Hold to Buy

Quarterly Performance

Q1FY19 Q1FY18 YoY (%) Q4FY18 QoQ (%)

Revenue 995.3 821.2 21.2 1,088.0 -8.5

EBITDA 351.9 244.8 43.7 386.5 -9.0

EBITDA (%) 35.4 29.8 554 bps 35.5 -17 bps

Net Profit 266.2 176.5 50.8 261.6 1.7

Key Financials

(|crore) FY17 FY18 FY19E FY20E

Revenues 4064.3 3912.8 4386.3 5000.4

EBITDA 1446.0 1268.4 1578.1 1825.1

Adj. Net Profit 1060.4 883.7 1193.3 1409.6

Adjusted EPS (|) 39.9 33.3 44.9 53.1

Valuation summary

FY17 FY18 FY19E FY20E

PE (x) 30.0 36.0 26.6 22.6

Target PE (x) 34.5 41.5 30.7 26.0

EV to EBITDA (x) 20.8 23.4 18.6 15.8

Price to book (x) 5.9 5.4 4.7 4.0

RoNW (%) 19.8 14.9 17.6 17.9

RoCE (%) 25.3 20.0 22.7 23.2

Stock data

Particular

Market Capitalisation

Debt (FY18)

Cash & cash equivalents (FY18)

EV

52 week H/L 1223/606

Equity capital

Face value | 2

Amount

| 29851 crore

| 31790 crore

| 63 crore

| 2002 crore

| 53.1 crore

Price performance (%)

1M 3M 6M 1Y

Divi's Labs 11.6 0.5 19.4 77.7

Aurobindo 1.4 2.2 5.1 -13.4

Dr Reddy's Labs 0.2 8.0 8.5 1.6

Research Analyst

Siddhant Khandekar

[email protected]

Mitesh Shah

[email protected]

Divi’s Laboratories (DIVLAB) | 1198

saket.karan

Highlight

nasir.sheikh

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ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis

Q1FY19 Q1FY19E Q1FY18 Q4FY18 YoY (%) QoQ (%) Comments

Revenue 995.3 1,151.2 821.2 1,088.0 21.2 -8.5 YoY growth owing to lower base of import alert in Q1FY18, currency tailwinds and

robust growth in Carotenoid segment. Miss vis-à-vis I-direct estimates due to lower-

than-expected sales in Generics and CS segment

Raw Material Expenses 381.4 443.2 331.6 407.6 15.0 -6.4

Employee Expenses 121.3 126.6 95.3 125.8 27.3 -3.5

Other Expenditure 140.7 166.9 149.5 168.1 -5.9 -16.3 YoY, QoQ decline mainly due to lower remedial cost

Total Expenditure 643.5 736.8 576.4 701.5 11.6 -8.3

EBITDA 351.9 414.4 244.8 386.5 43.7 -9.0

EBITDA (%) 35.4 36.0 29.8 35.5 554 bps -17 bps YoY improvement mainly due to improvement in gross margins and lower other

expenditure

Interest 0.6 0.3 0.5 -0.2 30.6 -476.5

Depreciation 41.6 38.0 32.3 38.8 28.8 7.2

Other income 48.8 40.3 29.7 48.2 64.4 1.3 Included forex gains of | 26.7 crore vs. | 7 crore, | 23 crore in Q1FY18, Q4FY18,

respectively

PBT Before EO 358.4 416.4 241.7 396.1 48.3 -9.5

EO 0.0 0.0 0.0 0.0 NA NA

PBT 358.4 416.4 241.7 396.1 48.3 -9.5

Tax 92.3 108.3 65.2 134.5 41.6 -31.4

Net Profit 266.2 308.1 176.5 261.6 50.8 1.7 YoY growth was mainly due to strong operational performance and higher forex

gain. Miss vis-à-vis I-direct estimates was in sync with revenue performance

Key Metrics

Generic 475.3 543.9 402.9 532.3 18.0 -10.7

CS 428.0 487.8 361.3 478.7 18.5 -10.6

Carotenoid 92.0 77.0 57.0 77.0 61.4 19.5

Source: Company, ICICI Direct Research

Change in estimates

(| Crore) Old New % Change Old New % Change

Revenue 4,284.3 4,386.3 2.4 4,798.4 5,000.4 4.2 Increased mainly due to higher-than-expected sales in Carotenoid

EBITDA 1,463.3 1,578.1 7.8 1,692.2 1,825.1 7.9

EBITDA Margin (%) 34.2 36.0 178 bps 35.3 36.5 123 bps Improved mainly due to decline in remedial cost

Net Profit 1,080.3 1,193.3 10.5 1,292.2 1,409.6 9.1

EPS (|) 40.7 44.9 10.4 48.7 53.1 9.0 Improved mainly in sync with operational performance

FY19E FY20E


Assumptions

(| Crore) FY17 FY18 FY19E FY20E FY19E FY20E

Generic API & Intermediates 2,027.8 1,886.8 2,128.4 2,426.4 2,142.4 2,434.5

Carotenoids 218.0 260.7 340.6 388.3 255.4 286.1 Increased mainly due to higher-than-expected sales in Q1FY9

Custom Synthesis 1,799.8 1,687.1 1,912.9 2,180.7 1,877.4 2,132.0

Current Earlier


nasir.sheikh

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nasir.sheikh

Highlight


Company Analysis

Established in 1990, Divi’s Laboratories is engaged in the manufacture of

generic APIs and intermediates, custom synthesis of active ingredients

and advanced intermediates for pharma MNCs, other speciality chemicals

like Carotenoids and complex compounds like peptides and Nucleotides.

After successfully developing and marketing generics and intermediates

for generic players, the company started custom synthesis of NCEs

developed by MNCs by providing generics and advanced intermediates.

The company started Carotenoid supplies in FY09. Promoted by Dr Murali

K Divi, the company raised | 17 crore through its maiden IPO in March

2003.

DLL’s product portfolio comprises two broad segments- (i) generics

including neutraceuticals and (ii) custom synthesis of generics,

intermediates and speciality ingredients for innovator pharma MNCs. It

also includes peptide building blocks.

To enter the custom synthesis space in the nineties, the company made

its own case to innovators, which, until then, were relying on services

provided by major players such as BASF, Degussa, etc. As these players

grew and became as big as the innovators themselves, companies like

Divi’s, on account of their capabilities and commitment towards the strict

IP regime, started getting assignments.

The custom synthesis business is a high margin business but at times

lumpy as it depends on offtake from customers (global top 20 big

pharma). This business had a difficult time during FY10 and FY11 as most

customers resorted to de-stocking due to the global slowdown. However,

this business has shown a good recovery due to improved business

environment. Strong R&D capabilities and India based cost arbitrage

along with IP adherence are some key strengths of Divi’s, which will drive

incremental assignments from MNCs. We expect CS to grow at a CAGR

of 13.7% to | 2181 crore in FY18-20E.

In the generics segment, two generics, Naproxen (pain management) and

Dextromethorphan (cough suppressant) account for ~30% of overall

revenues. Divi’s enjoys ~70% global market share in these two products.

These products are already mature with limited competitors having other

priorities. DLL is also increasing its presence in another niche area of

Carotenoids after acquiring the requisite capabilities. It has developed

various types of Carotenoids including Beta-carotene, the largest in the

group. We expect sales from generics (includes Carotenoids) segment to

grow at a CAGR of 14.5% to | 1815 crore in FY18-20E.

Overall, we expect revenues to grow at a CAGR of 13% in FY18-20E to

| 5000 crore.

Exhibit 1: Higher APIs, carotenoids offtake to drive growth

2128.9

2514.0

3114.9

3776.4

4064.33912.8

4386.3

5000.4

0

1000

2000

3000

4000

5000

6000

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E

(| c

rore

)

Revenues


12.5% CAGR

13.0% CAGR

sowmya.s

Highlight


Exhibit 2: EBITDA to grow at CAGR of 20.0% in FY18-20E

812.0

995.5

1165.2

1417.4 1446.0

1268.4

1578.1

1825.1

38.1

39.6

37.4

36.036.5

37.5

35.6

32.4

0

500

1000

1500

2000

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E(|

crore)

26

34

42

(%

)

EBITDA EBITDA Margins (%)


Exhibit 3: Net profit to grow at CAGR of 26.3% in FY18-20E

611.4

791.7851.5

1125.81060.4

883.7

1193.3

1409.6

28.7

31.5

27.3

29.8

26.1

22.6

27.2

28.2

0

500

1000

1500


(|

crore)

20

25

30

35

40

(%

)

Net Profit Net Profit Margins (%)


Exhibit 4: Trends in return ratios

29.3

31.6

25.3

20.0

22.723.2

26.1 26.2

19.8

17.6 17.9

31.8

27.2

23.7 22.3

15

20

25

30

35

40


(%

)

RoCE (%) RoNW(%)



Exhibit 5: Trends in quarterly financials

(| crore) Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 YoY (%) QoQ (%)

Net Sales 806.9 961.9 851.8 1101.4 1006.0 1003.1 973.4 1063.1 821.2 887.5 1037.9 1088.0 995.3 21.2 -8.5

Other Operating Income 1.9 2.5 1.1 2.0 2.1 2.4 3.0 3.5 2.2 2.7 0.0 0.0 0.0 -100.0 NA

Total Operating Income 808.8 964.3 852.9 1103.4 1008.1 1005.4 976.5 1066.7 823.4 890.2 1037.9 1088.0 995.3 20.9 -8.5

Raw Material Expenses 320.5 385.4 317.5 471.1 385.2 384.7 350.6 421.0 331.6 357.3 408.4 407.6 381.4 15.0 -6.4

% of revenues 39.6 40.0 37.2 42.7 38.2 38.3 35.9 39.5 40.3 40.1 39.3 37.5 38.3 -194.5 85.6

Gross Profit 488.2 579.0 535.4 632.3 622.9 620.7 625.9 645.6 491.8 532.9 629.5 680.3 613.9 24.8 -9.8

Gross Profit Margin (%) 60.4 60.0 62.8 57.3 61.8 61.7 64.1 60.5 59.7 59.9 60.7 62.5 61.7 194.5 -85.6

Employee Expenses 78.3 86.0 91.2 98.7 96.1 179.6 98.1 99.9 95.3 104.8 115.0 125.8 121.3 27.3 -3.5

% of revenues 9.7 8.9 10.7 8.9 9.5 17.9 10.0 9.4 11.6 11.8 11.1 11.6 12.2 61.2 63.0

Other Expenses 108.0 117.0 121.9 134.4 132.2 149.8 146.9 183.7 149.5 150.9 188.4 168.1 140.7 -5.9 -16.3

% of revenues 13.4 12.1 14.3 12.2 13.1 14.9 15.0 17.2 18.1 16.9 18.2 15.4 14.1 -401.5 -131.2

Total Expenditure 506.9 588.3 530.6 704.2 613.4 714.2 595.7 704.7 576.4 613.0 711.7 701.5 643.5 11.6 -8.3

% of revenues 62.7 61.0 62.2 63.8 60.9 71.0 61.0 66.1 70.0 68.9 68.6 64.5 64.6 -534.9 17.4

EBITDA 301.8 376.0 322.3 399.2 394.6 291.2 380.8 362.0 247.1 277.2 326.1 386.5 351.9 42.4 -9.0

EBITDA Margins (%) 37.3 39.0 37.8 36.2 39.1 29.0 39.0 33.9 30.0 31.1 31.4 35.5 35.4 534.9 -17.4

Interest 0.2 0.3 0.2 2.2 0.4 0.4 0.4 1.0 0.5 0.8 0.3 -0.2 0.6 30.6 -476.5

Depreciation 28.9 30.1 29.9 29.2 30.1 30.8 31.0 31.4 32.3 33.9 37.4 38.8 41.6 28.8 7.2

Other Income 34.2 29.6 15.2 17.3 16.3 20.3 18.5 20.9 29.7 33.6 17.0 48.2 48.8 64.4 1.3

PBT before forex & EO 306.9 375.2 307.4 385.1 380.5 280.3 367.9 350.5 243.9 276.1 305.5 396.1 358.4 46.9 -9.5

Total Tax 61.7 79.5 60.8 63.1 87.8 56.5 99.6 91.2 65.2 69.3 80.8 134.5 92.3 41.6 -31.4

Tax rate (%) 20.1 21.2 19.8 16.4 23.1 20.2 27.1 26.0 26.7 25.1 26.5 33.9 25.7 -97.3 -820.9

PAT 245.2 295.7 246.6 322.0 292.7 223.9 268.3 259.3 178.8 206.8 224.7 261.6 266.2 48.9 1.7

PAT Margin (%) 30.3 30.7 28.9 29.2 29.0 22.3 27.5 24.3 21.7 23.2 21.6 24.0 26.7 503.0 269.6

EPS (|) 9.2 11.1 9.3 12.1 11.0 8.4 10.1 9.8 6.7 7.8 8.5 9.9 10.0


SWOT Analysis

Strengths - Despite being in the CRAMS space, the company is a zero-

debt cash rich company. Its EBITDA margins are among the best in the

industry

Weakness - The CRAMS business, which a high-margin high risk business

comprises ~50% of the business. This segment is lumpy at times

Opportunities - The US generics space for generic shipment.

Opportunities in the Carotenoid space

Threats - Increased USFDA scrutiny across the globe regarding cGMP

issues. The company’s Vizag plant has recently received import alert from

the USFDA.

Exhibit 6: Facilities

Location Segment Regulatory Approvals

Hyderabad API USFDA

Vizag, Vishakapatnam API USFDA



Conference call highlights

1. Revenue bifurcation between Generic (including Carotenoid) and

Custom synthesis (CS) was at 57:43 in Q1FY19. Carotenoid sales

were at | 92 crore in Q1FY19

2. As per the management, raw material imports from China are not

a significant part of the company’s total raw material cost

3. As per the management, the Kakinada greenfield expansion is still

a year away

4. Guided for | 400 crore of capex. Q1FY19 capex was at | 116 crore

5. Guided for 26% of tax rate

6. Guided for normalised margins of FY17 (~36%) for FY19

7. Current capacity utilisation is ~85%


Valuation

After a turbulent FY18 due to import alert, the company’s financials seem

to be back on track. Another aspect is the capacity utilisation, which

reached an optimum level by FY17. However, thanks to persistent

brownfield expansion to the tune of nearly ~| 1000 crore in the past three

years, the current utilisation is now at ~85%, which can still provide room

for decent growth over the next two to three years. The greenfield

expansion at Kakinada is still some time away but this delay is unlikely to

have material impact on the growth due de-bottlenecking at existing

plants expansion. On the margins front, the management expects

normalisation of margins trajectory as besides operating leverage there

will be savings on the regulatory expenses front. We ascribe a target price

of | 1380 based on 26x FY20E EPS of | 53.1. We upgrade to BUY on the

back of likely normalisation of margins and growth trajectory on the back

of brownfield expansion besides fastest resolution of USFDA regulatory

issues.

Exhibit 7: One year forward PE

0.0

400.0

800.0

1200.0

1600.0

8/6/2012

2/6

/2013

8/6

/2013

2/6

/2014

8/6

/2014

2/6

/2015

8/6

/2015

2/6/2016

8/6

/2016

2/6

/2017

8/6

/2017

2/6/2018

8/6/2018

|

Price 25.4x 24.1x 22.9x 18.0x 17.8x

[


Exhibit 8: One year forward PE of company vs. CNX pharma

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

8/6

/2012

2/6

/2013

8/6

/2013

2/6

/2014

8/6

/2014

2/6

/2015

8/6

/2015

2/6

/2016

8/6

/2016

2/6

/2017

8/6

/2017

2/6

/2018

8/6

/2018

x

Divi's CNX Pharma

8.5% Premium


Exhibit 9: Valuation

Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE

(| crore) (%) (|) (%) (x) (X) (%) (%)

FY17 4064 7.6 39.9 -5.8 30.0 20.8 19.8 25.3

FY18 3913 -3.7 33.3 -16.7 36.0 23.4 14.9 20.0

FY19E 4386 12.1 44.9 35.0 26.6 18.6 17.6 22.7

FY20E 5000 14.0 53.1 18.1 22.6 15.8 17.9 23.2



Recommendation history vs. Consensus

0

200

400

600

800

1,000

1,200

1,400

1,600

Jul-18May-18Feb-18Dec-17Sep-17Jul-17May-17Feb-17Dec-16Sep-16Jul-16May-16Feb-16Dec-15Sep-15Jul-15

(|

)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

(%

)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Reuters, Company, ICICI Direct Research

Key events

Date Event

Feb-08 USFDA inspects Unit 1 manufacturing facility without any observations

Jul-08 Gives sales warning on possible slowdown at the client’s end after it posts strong growth of 45% in net profit and 17% growth in sales for the quarter ending

June 2008

Jun-09 Issues bonus shares in the ratio of 1:1

Apr-10 Receives approval from the development commissioner of Visakhapatnam SEZ for setting up and development a new manufacturing facility

Mar-12 USFDA inspects neutracetical and API units at the Vizag’s DSN SEZ unit and gives approval for the same

Jun-14 Receives USFDA clearance for all four facilities

Aug-15 Issues bonus shares in the ratio of 1:1

Dec-16 Receives five Form 483 observations from USFDA for its active pharmaceutical ingredient plant in Visakhapatnam

Mar-17 Divi’s Lab’s unit-II of Vizag API plant in Andhra Pradesh received an import alert from the USFDA

Jul-17 USFDA lifts Import Alert 99-32 Vizag unit 2

Sep-17 USFDA revisits unit 2 (Visakhapatnam) and issues new 5 observations. Earlier issued 6 observations are cleared by the USFDA

Nov-17 USFDA informs Divis its intention to lift Import Alert 66-40 and close out the warning letter

May-18 USFDA clears unit I at Hydrabad without any observations


Top 10 Shareholders Shareholding Pattern

Rank Investor Name Latest Filing Date % O/S Position Position Change

1 Motaparti (Nilima) 30-Jun-18 20.3 54.0m 0.0m

2 Divi (Satchandra Kiran) 30-Jun-18 17.3 46.0m 0.0m

3 Divi (Murali Krishna Prasad) 30-Jun-18 5.9 15.6m 0.0m

4 SBI Funds Management Pvt. Ltd. 30-Sep-17 5.3 14.0m 0.8m

5 Divi (Swarna Latha) 30-Jun-18 5.3 14.0m 0.0m

6 Reliance Nippon Life Asset Management Limited 30-Sep-17 5.1 13.6m -1.9m

7 Divis Biotech Pvt. Ltd. 30-Jun-18 3.0 8.0m 0.0m

8 Norges Bank Investment Management (NBIM) 30-Jun-18 1.7 4.6m 0.1m

9 Goldman Sachs Asset Management International 31-May-18 1.5 4.0m 0.0m

10 DSP BlackRock Investment Managers Pvt. Ltd. 30-Jun-18 1.4 3.6m 0.5m

(in %) Jun-17 Sep-17 Dec-17 Mar-18 Apr-18

Promoter 52.1 52.1 52.1 52.1 52.0

Others 47.9 47.9 47.9 48.0 48.0

Source: Reuters, ICICI Direct Research

Recent Activity

Investor name Value ($) Shares Investor name Value ($) Shares

ICICI Prudential Asset Management Co. Ltd. 17.5m 1.2m PineBridge Investments Asia Limited -49.0m -3.2m

Axis Asset Management Company Limited 10.0m 0.7m BlackRock Institutional Trust Company, N.A. -15.2m -1.0m

DSP BlackRock Investment Managers Pvt. Ltd. 8.1m 0.5m Aditya Birla Sun Life AMC Limited -8.7m -0.6m

Kotak Mahindra Asset Management Company Ltd. 7.4m 0.5m BlackRock Asset Management Ireland Limited -2.0m -0.1m

IDFC Asset Management Company Private Limited 4.7m 0.3m Tata Asset Management Limited -1.9m -0.1m

Buys Sells

Source: Reuters, ICICI Direct Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) FY17 FY18 FY19E FY20E

Revenues 4,064.3 3,912.8 4,386.3 5,000.4

Growth (%) 7.6 -3.7 12.1 14.0

Raw Material Expenses 1,534.0 1,548.7 1,697.1 1,925.2

Employee Expenses 468.7 456.1 509.4 575.0

Other Expenses 615.6 639.7 601.7 675.1

EBITDA 1,446.0 1,268.4 1,578.1 1,825.1

Growth (%) 2.0 -12.3 24.4 15.7

Depreciation 123.3 142.5 166.4 178.4

Interest 2.3 1.3 1.6 1.6

Other Income 74.9 113.4 201.2 259.8

PBT 1,395.3 1,238.0 1,611.3 1,904.9

Total Tax 334.9 354.3 418.0 495.3

Adjusted PAT 1,060.4 883.7 1,193.3 1,409.6

Growth (%) -5.8 -16.7 35.0 18.1

EPS (Adjusted) 39.9 33.3 44.9 53.1


Cash flow statement | Crore

(Year-end March)/(| crore) FY17 FY18 FY19E FY20E

Profit/(Loss) after taxation 1,060.4 960.1 1,193.3 1,409.6

Add: Depreciation & Amortization 123.3 142.5 166.4 178.4

(Inc)/dec in Current Assets -150.3 -184.1 -226.7 -382.6

Inc/(dec) in CL and Provisions 148.3 9.7 79.9 89.5

Other Operating Activities -32.3 -152.3 1.6 1.6

CF from operating activities 1,149.3 775.9 1,214.5 1,296.5

(Inc)/dec in Fixed Assets -376.7 -273.8 -400.0 -300.0

(Inc)/dec in Investments -231.1 -67.1 -828.9 -255.9

Other Investing Activities -713.3 -87.1 340.6 -330.7

CF from investing activities -1,321.1 -428.0 -888.3 -886.6

inc/(dec) in Loan -6.2 6.4 0.0 0.0

Dividend & Dividend tax 0.0 -319.2 -319.5 -319.5

Others 175.0 -1.3 -1.6 -1.6

CF from financing activities 168.8 -314.2 -321.2 -321.2

Net Cash flow -3.0 33.7 5.1 88.7

Opening Cash 81.7 78.7 112.5 117.5

Closing Cash 78.7 112.5 117.5 206.2

Free Cash Flow 772.6 502.1 814.5 996.5

FCF Yield % 2.4 1.6 2.6 3.1


Balance sheet | Crore

(Year-end March)/(| crore) FY17 FY18 FY19E FY20E

Liabiltlies

Equity Capital 53.1 53.1 53.1 53.1

Reserve and Surplus 5,304.3 5,871.7 6,745.5 7,835.5

Total Shareholders funds 5,357.4 5,924.8 6,798.5 7,888.6

Total Debt 35.7 63.1 63.1 63.1

Deferred Tax Liability 126.4 192.7 215.8 241.7

Non CL & Long Term Provisions 15.3 15.0 16.7 18.8

Total Liabilities 5,534.8 6,195.5 7,094.2 8,212.2

Assets

Gross Block - Fixed Assets 2,433.9 2,373.5 2,773.5 2,973.5

Accumulated Depreciation 874.7 377.4 543.8 722.2

Net Block 1,559.2 1,996.2 2,229.8 2,251.4

Capital WIP 443.6 119.8 119.8 219.8

Total Fixed Assets 2,002.8 2,116.0 2,349.6 2,471.1

Investments 1,630.7 1,889.3 2,389.3 2,989.3

Inventory 1,319.9 1,350.7 1,412.3 1,610.1

Debtors 898.5 1,014.4 1,159.2 1,321.5

Loans and Advances 0.3 0.2 0.2 0.2

Other Current Assets 82.5 168.2 188.4 211.0

Cash 78.7 112.5 117.5 206.2

Total Current Assets 2,379.8 2,645.8 2,877.6 3,348.9

Creditors 383.9 411.2 469.9 535.7

Provisions 1.3 0.9 1.1 1.2

Other current Liabilities 238.6 175.5 196.5 220.1

Total Current Liabilities 623.7 587.6 667.5 757.0

Net Current Assets 1,756.1 2,058.2 2,210.1 2,592.0

Other Non CA & LT L & A 145.3 132.1 145.3 159.8

Application of Funds 5,534.8 6,195.5 7,094.2 8,212.2


Key ratios

(Year-end March) FY17 FY18 FY19E FY20E

Per share data (|)

Adjusted EPS 39.9 33.3 44.9 53.1

BV per share 201.8 223.2 256.1 297.2

Dividend per share 12.0 12.0 12.0 12.0

Cash Per Share 3.0 4.2 4.4 7.8

Operating Ratios (%)

Gross margins 62.3 61.5 61.3 61.5

EBITDA margins 35.6 32.4 36.0 36.5

Net Profit margins 26.1 22.6 27.2 28.2

Inventory days 118.5 126.0 117.5 117.5

Debtor days 80.7 94.6 96.5 96.5

Creditor days 34.5 38.4 39.1 39.1

Asset Turnover 1.7 1.6 1.6 1.7

EBITDA conversion rate 79.5 61.2 77.0 71.0

Return Ratios (%)

RoE 19.8 14.9 17.6 17.9

RoCE 25.3 20.0 22.7 23.2

RoIC 39.1 28.6 31.9 33.2

Valuation Ratios (x)

P/E 30.0 36.0 26.6 22.6

EV / EBITDA 20.8 23.4 18.6 15.8

Price to Book Value 5.9 5.4 4.7 4.0

EV / Net Sales 7.4 7.6 6.7 5.8

Market Cap / Sales 7.8 8.1 7.2 6.4

Solvency Ratios

Debt / EBITDA 0.0 0.0 0.0 0.0

Debt / Equity 0.0 0.0 0.0 0.0

Current Ratio 3.7 4.3 4.1 4.2



ICICI Direct coverage universe (Healthcare)

Company I-Direct CMP TP Rating M Cap

Code (|) (|) (| Cr) FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E FY17 FY18E FY19E FY20E

Ajanta Pharma AJAPHA 1156 1,205 Hold 10176.4 57.4 53.0 48.9 60.3 20.2 21.8 23.6 19.2 41.3 30.0 23.8 24.3 32.3 23.0 18.3 19.3

Alembic Pharma ALEMPHA 581 525 Hold 10958.4 21.2 21.9 25.9 29.2 27.4 26.6 22.4 19.9 25.3 18.0 16.8 18.0 21.0 18.6 18.7 18.1

Apollo Hospitals APOHOS 962 1,230 Hold 13377.6 15.9 10.3 23.8 31.6 60.5 93.5 40.4 30.5 6.1 6.8 9.3 10.8 6.0 3.8 8.2 10.0

Aurobindo Pharma AURPHA 625 640 Hold 36619.2 38.8 41.8 36.7 40.7 16.1 14.9 17.0 15.4 24.4 20.5 16.7 16.9 24.2 21.0 15.7 15.0

Biocon BIOCON 590 740 Buy 35373.0 8.5 6.2 8.8 13.3 69.5 95.0 66.6 44.4 9.4 8.1 10.9 14.2 10.5 7.2 9.4 12.5

Cadila Healthcare CADHEA 380 380 Hold 38876.6 14.5 17.5 16.8 19.0 26.1 21.7 22.6 19.9 13.1 17.1 14.7 15.5 21.4 21.5 17.8 17.5

Cipla CIPLA 643 640 Hold 51811.7 12.5 18.3 21.3 26.4 51.5 35.1 30.2 24.3 7.7 9.9 12.0 14.5 8.0 10.8 11.4 12.7

Divi's Lab DIVLAB 1194 1,070 Hold 31696.9 39.9 32.8 41.0 48.6 29.9 36.4 29.1 24.6 25.3 19.8 21.1 21.9 19.8 14.8 16.3 16.9

Dr Reddy's Labs DRREDD 2275 2,170 Hold 37753.6 78.0 57.0 80.3 120.5 29.2 39.9 28.3 18.9 7.3 6.1 7.5 9.3 10.5 7.2 9.4 12.6

Glenmark Pharma GLEPHA 597 500 Hold 16842.6 42.2 28.5 30.4 33.3 14.1 20.9 19.7 17.9 19.5 14.2 13.8 14.0 26.5 15.4 14.2 13.6

Indoco Remedies INDREM 205 190 Hold 1888.2 8.4 4.5 8.2 13.5 24.5 45.9 25.0 15.1 8.7 5.7 8.8 13.9 11.8 6.0 10.2 15.0

Ipca Laboratories IPCLAB 626 760 Buy 9642.6 15.4 19.0 30.4 42.2 40.6 33.0 20.6 14.8 8.7 9.1 13.7 17.2 7.9 9.0 12.9 15.6

Jubilant Life JUBLIF 748 930 Buy 11915.0 36.9 41.3 59.5 77.5 20.2 18.1 12.6 9.6 13.8 14.9 18.9 21.5 16.8 16.0 18.9 20.0

Lupin LUPIN 883 760 Hold 39931.9 56.7 13.3 34.0 40.4 15.6 66.6 26.0 21.9 16.6 10.6 11.0 12.6 19.0 4.4 10.4 11.2

Narayana Hrudalaya NARHRU 253 310 Buy 5178.5 4.1 2.5 6.4 9.9 61.4 100.8 39.5 25.5 12.5 6.4 12.7 16.4 8.8 5.1 11.4 15.1

Natco Pharma NATPHA 804 860 Hold 14833.3 26.3 37.7 42.7 27.5 30.5 21.3 18.8 29.2 33.6 27.3 27.3 16.1 29.5 22.6 21.5 12.6

Sun Pharma SUNPHA 587 510 Hold 140752.9 29.0 13.0 18.1 21.6 20.2 45.2 32.3 27.2 20.3 9.8 11.5 12.7 19.0 8.1 10.4 11.2

Syngene Int. SYNINT 604 685 Buy 12088.0 14.4 15.3 17.6 19.6 40.2 37.8 32.8 29.4 16.0 15.9 17.0 17.4 20.3 17.7 17.1 16.1

Torrent Pharma TORPHA 1545 1,675 Hold 26144.8 55.2 40.1 47.8 69.7 28.0 38.6 32.3 22.2 18.9 11.2 15.0 18.9 21.5 14.7 15.5 19.3

RoE (%)EPS (|) PE(x) RoCE (%)



RATING RATIONALE

ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its

stocks according to their notional target price vs. current market price and then categorises them as Strong

Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is

defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


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