Initiating Coverage: BUY Company Background WockhardtLimited is an India-based pharmaceutical and biotechnology company. Wockhardt was founded by HabilKhorakiwala in the early 1960s. It has three research centers and 12 manufacturing plants, with businesses

ranging from the manufacture and marketing of pharmaceutical and bio-

pharmaceutical formulations, active pharmaceutical ingredients (APIs)

.Wockhardt life in last decade has been in a muddle cause of financial

crises in the year between 2008-2011 and USFDA in last 3 years.

USFDA May finally give Green Signal.Risk seems Minimum

Wockhardt is likely to overcome its USFDA issue and could start its sprint in coming time. We believe Wajul and Chikalthana plant import ban could be uplifted anytime in FY 17 and it can start exporting to US and regain20%of its revenue loss. We initiate coverage on Wockhardt on rationales stating following points : 1.WithWaluj facility receiving EIR( Establishment Inspection Report.) from US regulator report few months back ,we expect import ban could be lifted soon. 2. Chikalthana already been cleared by MHRA (Medicines and Healthcare Products Regulatory Agency) in Dec 2015,we assume USFDA could follow the same action. 3. Been the only company globally to have 4 drug receiving QIDP status, signals billions of value to unlock. 4. Wockhardt been relatively cheap comparing to its same size competitors.

Valuation

We Value Wockhardt by creating scenario analysis on Waluj and Chikalthana plant and 10% sales growth to FY 2015-16 sales. With Current price of 945, we see believe Wockhardt to an highly undervalued company, and with a time horizon of next 12 Months Wockhardt can be a sweet pill for the investor.

Risk

1. Delay in USFDA uplift of ban on Waluj and Chikalthana 2. Global growth may effect the company, as most of the revenue company generates from outside. 3. Unsuccessful Clinical Trails

Nifty 8370 Wockhardt 977 Market Cap 10725 Cr

Share Holding Patter as of Mar-2016

Analyst Details

Tausif Shaikh, CFA Level 3 Candidate +919833933383

Promoter74%

Public26%

US58%

South Africa

7%

Russia7%

United Kingdom

7%

Nigeria6%

Kenya3%

Tanzania3% Brazil

3%

Australia3%

Germany3%

Indian Global Export Share

in %

Initiating Coverage: BUY Apple to Apple Peer Set

VALUATION

We have created a peer set ofpharma Midcap

companies to value Wockhardt on relative basis

and creating scenario analysis.We believe

Wockhardt is an highly undervalued stock

through market cap to trailing sales ratio of peer

companies are nearly about 4x. Wockhardt is

well place to get re rating after clearing USFDA

hurdle and adding incremental revenue.

Scenario Analysis

We rate Wockhardt to be an outperformer with its peer group in coming period, we have created

scenario analysis hoping USFDA will uplift ban on its two important plants Waluj and Chikalthana and

company will deliver 10% growth in top line from FY 2015-16,been on the conservative side we assume

that Waluj and Chikalthana will add at least 20 % sales back ,which was lost in FY 2012-13.We assign a

Market cap/ Estimated Sales for FY 2015-16 multiple of 3.25 and we reach target range of 1318-1576 in

coming 12 months.

Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5

No USFDA Approval & No

growth to FY2015-16

No USFDA Approval but

10% Growth to FY2015-16

Waluj Import Ban Uplifted % 10 %

Growth to FY2015-16

Waluj&Chikalthana Import Ban Uplifted

but no Growth to FY2015-16

Waluj&Chikalthana Import Ban Uplifted with 10 % Growth to

FY2015-16

Est. FY 2016-17 Sales 4480 4928 4928 4480 4928 Est. Incremental Sales Waluj 0 0 130 130 130 Est. Incremental Sales Chikalthana 0 0 0 300 300 Expected Sales for FY 2016-17 4480 4928 5058 4910 5358

Target Price 1318 1449 1488 1444 1576

Company Name Map Cap. FY 2016 Sales Map/Sales

Wockhardt 10047 4461 2.25

Abbott India 9538 2580 3.70

Sanofi India 9720 2049 4.74

Pfizer 8540 1995 4.28

Ipca Labs. 6140 2844 2.16

NatcoPharma 10015 1088 9.20

Ajanta Pharma 13321 1705 7.81

Biocon 15006 3406 4.41

Strides Shasun 9749 3014 3.23

Alkem Lab 16585 4877 3.40

Alembic Pharma 10190 3145 3.24

Source :-Capitaline

Initiating Coverage: BUY Catastrophe due to strategy.

In 2005 ,Wockhardth stared to inflate its business across continents

like Europe. In 2007 ,Wockhardt announced the acquisition of Negma

Laboratories, the fourth largest independent, integrated

pharmaceutical group in France .By 2010 half of its revenues came

from overseas business. Nevertheless, Khorakiwala realized European

generic markets lacked growth opportunities ,which lead them to fall

in financial crises.

During its turmoil Wockhardt piled up debts around Rs 4000 Cr and

posted 8 quarter of consecutive losses. Wockhardt restructured its Rs

3,000-crore debt in 2009. It subsequently defaulted on foreign

currency convertible bonds ( FCCBs) to the tune of $110 million. In

2009 Wockhardt corporate debt restructuring (CDR) package had

been finalized in which company sold a number of none core assets

including its nutritional brands business to Danone to pay its debt. .In

2012 Wockhardt was out of the woods of corporate debt

restructuring (CDR).

Period of Crises

Income Stat. 201009 201006 201003 200912 200909 200906 200903 200812 Gross Sales 940.07 921.64 871.98 889.33 922.69 954.15 862.26 977.57

Other Income 3.48 24.2 5.05 7.03 7.64 34.83 10.31 86.64

Total Income 943.55 945.84 877.03 896.36 930.33 988.98 872.57 1064.21

Expenditure 943.34 957.03 1369.54 995.66 890.82 1060.28 748.07 1452.8

PBIDT 0.21 -11.19 -492.51 -99.3 39.51 -71.3 124.5 -388.59

Interest 56.46 64.43 70.46 50.97 47.98 77.9 89.43 81.74

PBDT -56.25 -75.62 -562.97 -150.27 -8.47 -149.2 35.07 -470.33

Depreciation 29.95 29.42 26.47 30.96 29.37 30.23 31.11 36.85

PBT -86.2 -105.04 -589.44 -181.23 -37.84 -179.43 3.96 -507.18

Tax 11.25 8.89 -24.33 - 16.36 10.44 14.2 -149.34

PAT -97.45 -113.93 -565.11 -181.23 -54.2 -189.87 -10.24 -357.84

Balance Sheet 201503 201403 201303 201203 201103 201003 200812

Equity Paid Up 55.04 54.88 54.79 54.72 54.72 54.72 54.72

Networth 3416.8 3282.92 2405.63 709.65 197.89 3.17 1017.73

Capital Employed 5794.62 5539.53 4844.5 4836.97 4381.43 4689.28 5252.85

Total Debt 2010.07 1906.08 2070.47 3281.46 3389.67 4017.53 4235.12

Gross Block 4552.96 4642.81 4295.75 4211.6 4048.63 3834.34 3989.56

Net Working Capital 2182.53 1835.62 2172.97 1064.64 653.23 1357.45 1529.98

Current Assets 3310.36 2957.95 3512 2626.26 2190.49 2445.58 3206.71

Current Liabilities and Provisions

1127.83 1122.33 1339.03 1561.62 1537.26 1088.13 1676.73

Total Assets 6922.45 6661.86 6183.53 6398.59 5918.69 5777.41 6929.58

Debt-Equity Ratio 0.54 0.63 1.28 2.76 4.59 4.88 3.11

Initiating Coverage: BUY Recuperation after Financial Crises.

After unsuccessful Europe acquisition leading to mounting of Debt

and consisting posting losses Wockhardt shifted focus to US

aggressively

It filed 23 abbreviated new drug applications (ANDAs) with the FDA -

the highest among all generic Indian companies in 2008. It launched

six drugs in the US in 2011/12 and eight more in the first half of

2012/13.

Subsequently, the company's revenues soared and its business mix

changed. Wockhardt's US business contributed 41 per cent to its

revenues with growth of 78 per cent in 2011/12. In the first half of the

following financial year, US revenues of Rs 1,081 crore stood at almost

48 per cent of its global revenues. Wockhardt's flagship product in the

US, the generic for high blood pressure drug Toprol XL, gained 21 per

cent market share and generated a revenue of $140 million.

Wockhardtrealisedits potential and earned $500 million from the US

in 2012, up from $100 million three years ago.

USFDA BLOW

When everything was seem good for Wockhardth.In the year 2013

USFDA hit the company very hard by putting ban of export to US from

its two main export oriented plant Waluj and Chikalthana.With

estimated loss of revenue ApproxRs . 2100-2200 Cr from its two

plants, companies share of revenue from US contribution has declined

from 45% of total sales in FY 2013-14 to 22% in FY 2015-16.

0%

10%

20%

30%

40%

50%

FY 2015-16 FY 2014-15 FY 2013-14

Geoprahical Revenue Contribution in %

USA EU INDIA ROW

Initiating Coverage: BUY Price Event Chart

DecodingPharmaMargins.

Indian Pharma Companies have most of the market

share in Branded Generics and having a market size

of around 10 Billion. With Decades of research and

billion of spending in clinical trails of development

of NCE(New Chemical entity) most of the new drug

fail to pass through the Phase II of clinical Trails. .

We believe this trend could be shifting towards

discovering new and niche drugs.

Bulk Drugs and API

Dosage Form

Branded Generics

New Drug Delivery System

New Discoveries Drug

Initiating Coverage: BUY ScrutinyofWockhardt Plants

Waluj (Ex-Cephalosporin)

Waluj(ex-Cephalosporin) was the first plant which came under USFDA scanner in March 2013.This Unit primarily manufactures injectables,with having one oral solid unit and two inject able unit.Management has guided the loss of revenue due to import restriction in US was around annualized $100 million,out of which injectable business was around around $24-25 million and about $75 million in solid dosage form. FDA inspected walujinjectable unit only but import restriction was put in place for its solid dosage unit also , which was never inspected in march 2013.

Management has indicated company has filled around 20-25 ANDA

from this facilities. Generic Zometa was one of the few drug approval

was pending was this facility. Wockhardt USA LLC and others from

producing zoledronic acid, the active ingredient in Reclast and

Zometa, which they purportedly intend to launch on or soon after

March 2 — the day the exclusivity on Novartis' three patents covering

its uses of zoledronic acid were set to expire. Geodon was one the key

product launched with limited competition from this facility and

wochardth was the fifth player in the whole product.

Current Status :- Received EIR report from USFDA ,ban still not uplifted while

MHRA inspection still due.

Inspection History

FDA audited on May 2015.Inspection ended on 5/26/2015 and lasted 9 days.FDA issued Form 483

July 2013 : UK Medicines and Healthcare Products Regulatory Agency import alert on Waluj plant

FDA audited on Mar 2013. Inspection ended on 3/22/2013 and lasted 5 days. FDA issued Form 483 and import ban followed soon .

List of Observation Made

1. Delayed, denied, limited an inspection or refused to permit the FDA inspection. 2. Failed to prepare batch production and control records for each batch of drug product. 3. Failed to ensure that laboratory records and assure compliance with established specifications and standards. 4. Failed to record and justify any deviations from required laboratory control mechanisms. 5. Failed to ensure that each person engaged in the manufacture, processing, packing, or holding of a drug product has the education, training, and experience, to enable that person to perform his or her assigned functions. 6. Failed to provide adequate washing and toilet facilities to working areas.

FDA audited on Jan 2012.Inspection ended on 1/27/2012 and lasted 5 days. FDA issued Form 483.

FDA auditedon Apr 2009.Inspection ended on 4/30/2009 and lasted 11 days. FDA issued form 483.

Initiating Coverage: BUY Chikalthana Chikalthanafacility manufactures both solid and sterile

products.Facility manufactures niche product including Toprol XL

(sold by AstraZeneca Plc.). a cardiac drug for which the company

accounts for 26 per cent of the US market share and Lamictal XL.

Chikalthana facility (catering to US and UK markets) contributed $230

million to the company’s sales.

In July 2013-Plant was jointly inspected by USFDA and MHRA. Plant

got FDA Form 483 had listed 16 so-called observations about

Wockhardt’s factory in Chikalthana. Later in Oct same year MHRA

withdrawns the GMP certification for the Chikalthana factory.

However, continue exporting some critical drugs to the UK .Big Impact

came in Nov 2013 when US FDA issues import alert on Chikalthana

plant.

After two years of ban plant was inspected by MHRA on Oct -2015 and

in same year Dec 2015 MHRA has cleared its troubled Chikalthana

plant by issuing an unrestricted good manufacturing practices (GMP)

certificate following recent inspections.

Current Status :USFDA Banned on the plant still remains intact.

Inspection History

FDA audited on Mar 2015. This inspection ended on 3/17/2015 and lasted 9 days.FDA issued Form 483

FDA on Jul 2013. This inspection ended on 7/31/2013 and lasted 10 days. FDA issued Form 483 followed by Import

Ban

List of Observation Made

1. Failed to ensure that laboratory records included complete data derived from all tests necessary to assure

compliance with established specifications and standards.

2. Failed to exercise appropriate controls over computer or related systems

3. Failed to follow written procedures for production and process control

4. Failed to follow a written testing program designed to assess the stability characteristics of drug products.

FDA audited on Apr 2013. This inspection ended on 4/26/2013 and lasted 5 days. FDA issued Form 483.

FDA audited the facility on Feb 2008. This inspection ended on 2/1/2008 and lasted 4 days. FDA issued Form 483.

Initiating Coverage: BUY Shendra Aurangabad

Shendra facility is one of the large and only facility to make liquids,

ointments, tablets, capsules and injectable and all dosage forms under

one roof.Currently this facility doesn’t not supply to US but the plant is

compliance with UK regulator and has been supplying to the United

Kingdom and Ireland.

About 14-15 filings for products have been made from Shendra with

couple of products that were earlier made at Waluj and Chikalthana

.with management indicated earlier most of the new fillings for there

QIDP drugs would be from Shendra facility.

The long waited inspection led to disappointment:- The U.S. Food & Drug

Administration (FDA) audited the Wockhardt facility in Shendra

Aurangabad on in Jan 2016. This inspection ended on 1/12/2016 and

lasted 9 days.The agency issued inspectional observations (FDA Form

483) with 9 observations with few of them critical in nature.

We expect clearance from USFDA for Shendra would be not to early

and another round of re-inspection could not be ruled out.

Waluj- Cephalosporin Unit

Cephalosporins is a antibiotics is used to treat a wide range of

bacterial infections.These drugs are used to treat bacterial infections

includingSkininfections,Kidneyinfections,Boneinfections,Strep throat

and other throat infections.Total current market size about $750

million (approx) in the US.Wockhardt is one of the key suppliers of

Cephalosporin in US with some Indian competitors like

AurobindoPharma, Biocon, LupinPharmaceuticals,Sun

Pharmaceutical

Inspection History

FDAaudited on Feb 2015.Inspection ended on 2/13/2015 and lasted 8 days. FDA issued Form 483(minor

observation)

FDA audited the on Jul 2013.Inspection ended on 7/30/2013 and lasted 9 days.FDA issues Form 483

FDA audited the facility onJun 2012. Inspection ended on 6/15/2012 and lasted 9 days.FDA issued Form 483

FDA audited the facility on Jan 2008.Inspection ended on 1/29/2008 and lasted 8 days. FDA issued Form 483

Initiating Coverage: BUY Morton Grove Pharmaceuticals

Wockhardt’s Chicago-based Morton Grove Pharmaceuticals unit is the

sole manufacturing site in US- Morton Grove facility is mainly for

Liquids and Solutions and its sales accounts for around half of the

drug makers US revenues .Revenue from US was around Rs 1000 for

FY14-15.

Current Status Wockhardt’s resolved its compliance issue regarding this plant.

Inspection History :-

FDAaudited on Mar 2014. This inspection ended on 3/26/2014 and lasted 64 days. Issued Form 483.

List of Observation Made

1.Quality Unit is not fully monitoring Quality Systems designed.

2.Laboratory controls do not include the establishment of scientifically sound and appropriate test procedures

designed to assure that components, drug product containers, in-process materials, and drug products conform

to appropriate standards of identity, strength, quality and purity

3.Laboratory records do not include a complete record of all data secured in the course ofeach test.

4.Appropriate controls are not exercised over computers or related systems to assure that changes in master

production and control records or other records are instituted only by authorized personnel.

5.The written stability testing program is not followed.

6.There is a failure to thoroughly review any unexplained discrepancy and the failure of a batch or any of its

components to meet any of its specifications whether or not the batch has b1!en already distributed.

7.The quality control unit lacks authority to review production records to assure that no errors have occurred

and fully investigate errors that have occurred.

8.Changes to written procedures are not drafted, reviewed and approved by the appropriate organizational unit

and reviewed and approved by the quality control unit.

9.Buildings used in the manufacture, processing, packing or holding ofdrug products are not maintained in a

clean and sanitary condition.

11.GMP training is not conducted to assure that employees remain familiar with CGMP requirements applicable

to them

12.Production personnel were not practicing good sanitation and health habits.

Initiating Coverage: BUY Kadaiya–(Nani Daman)

Two facilities in Daman which are primarily catering to the UK

market.In October 2013, MHRA had imposed restrictions on import of

medicines made at the Mumbai-headquartered company's

manufacturing plant at Kadaiya over non-compliance issue

The agency, however, later eased restrictions to an extent allowing

the company to supply most of the products manufactured at the said

facility to the UK market.Net impact on the annualized consolidated

revenue was estimated to be around 1 million pound, out of the total

annual consolidated revenue of approximately 18 million pound from

the said facility.Allowingmanufacturing critical product.

Mar-2015-British drug regulator Medicines and Healthcare products

Regulatory Agency (MHRA) has cleared Kadaiya facility at Daman.

Bhimpore(DAMAN)

Plant supplies tablets and capsules to the UK-The Bhimpore facility

has been inspected by UK again in September 2013 and it has been

completed satisfactorily with few non-critical observations.

BaddiFacilitiy

Facility,generatesannualizedrevenue of $3 million(approx.) from US.

Inspection History

FDA audited the facility on in Jul 2015. This inspection ended on 7/23/2015 and lasted 4 days. FDA cleared the facility with no Form 483 was issued.

Ankleshwarunit(Bulk Drug Division)

Industrial area of Ankleshwar is well known hub for bulk drug and manufacturing chemicals. Sun Pharmaceuticals, ZydusCadila, Lupin, Wockhardt, CadilaPharma, JB Chemicals are present in the region. In January 2010, the ministry of environment and forests had imposed a blanket ban on the industries in the region to undertake any expansion, which has made it extremely difficult for pharmaindustries.

Inspection History

FDA audited facility on Dec 2015.Inspection ended on 12/15/2015 and lasted 9 days. Issued Form 483.

FDA audited facility on Feb 2012.Inspection ended on 2/21/2012 and lasted 9 days. Issued Form 483.

FDA audited on Apr 2008.Inspection ended on 4/11/2008 and lasted 9 days. Issued Form 483.

Initiating Coverage: BUY

USFDA INSPECTION HISTORY FOR TOP INDIAN PHARMA COMPANIES SINCE 2015

Company Facility Details Date of inspection Action taken by Regulator

SUN PHARMACEUTICAL Hamdard Nagar, New Delhi (Ranbaxy) Mar-16 FDA Form 483

Tandalja,Vadodara Jan-16 No Form 483 was issued.

AkotaRoad,Vadodara Jan-16 No Form 483 was issued.

Cranbury, NJ Nov-15 No Form 483 was issued.

Panoli, Dist. Bharuch Jul-15 No Form 483 was issued.

Ahmednagar Jun 2015 FDA Form 483

Dadra & Nagar Haveli Jan 2015 FDA Form 483

Halol Sep-14 FDA Form 483

LUPIN Verna, Salcette, Goa Mar-16 FDA Form 483

Chikalthana Jan-16 FDA Form 483

Tarapur, Thane Aug-15 No Form 483 was issued.

Pithampur-(Unit 1) Aug-15 No Form 483 was issued.

Verna, Salcette, Goa Jul-15 FDA Form 483

Santacruz East Jun-15 FDA Form 483

Chikalthana Apr-15 FDA Form 483

Pithampur-(Unit 3 Mar 2015 No Form 483 was issued.

Nagpur Mar-15 No Form 483 was issued.

Pithampur-(Unit 2) Jan-15 FDA Form 483

Dr. Reddy's Labs CTO Unit 1,Hyderabad Medak District Feb-16 FDA Form 483

Rangareddy,Quthbullapur Jun-15 FDA Form 483

Bachupally, Quthbullapur Apr-15 No Form 483 was issued.

Unit IV, Plot No. 9/A, Phase III, IDA, Jeedimetla,Hyderabad Apr-15 No Form 483 was issued.

Plot No. P1 to P9, Phase III, Visakhapatnam Mar-15 FDA Form 483

Peddadevulapalli, MiryalgudaTaluk,Rudraram Jan-15 FDA Form 483

201 Industrial Dr,Bristol, TN Jan-15 No Form 483 was issued.

AurobindoPharma Unit XII, Lactam Formulation PlantQuthbullapur Hyderabad Jul-15 FDA Form 483

Unit III, Quthubullapur (M), RR District.Hyderabad Jun-15 FDA Form 483

Survey No. 61 - 66 IDA,Pydibhimavaram Apr-15 No Form 483 was issued.

Unit VII, Formulation Plant, APIIC,Polepally, Mahaboob Nagar

Mar-15 No Form 483 was issued.

Gundlamachanoor Village, Medak District, Hyderabad Mar-15 FDA Form 483

CIPLA Plot No. 9 & 10 Pharma Zone Phase II, Section III Indore SEZ Aug-15 FDA Form 483

M61-63; Ind. Estate Verna, Salcette Apr-15 FDA Form 483

KIADB, IV Phase, Bommasandra-Jigani Link Road Bangalore Mar-15 No Form 483 was issued.

Plot No. A2 a-33 A-42, Area District Raigad, Patalganga Feb-15 No Form 483 was issued.

Cadila Pharmaceuticals 1389 Trasad Road, Dholka,Ahmedabad Jan-16 FDA Form 483

Plot No 1A/ 1&2, Pharma SEZ, (Zydus Tal Sanand, Ahmedabad

Jan 2016 FDA Form 483

1389 Trasad Road, Dholka Ahmedabad May-15 FDA Form 483

SarkhejBavla National Highway No. 8 A,Ahmedabad Apr 2015 FDA Form 483

Plot No. 26-29, 31, Tal. Padra, District Vadodara Mar 2015 FDA Form 483

Plot No 1A/ 1&2, Pharma SEZ, (Zydus), , Tal Sanand, Ahmedabad

Feb-15 FDA Form 483

Glenmark Pharmaceuticals Clinical Research Div.Mumbai Feb-16 No Form 483 was issued.

10454 160th St,Glencoe, MN, 55336-7420 Oct 2015 FDA Form 483

Phase 2 Pharma Zone, SEZ Pithampur, Dhar District Indore Jul-15 FDA Form 483

Village Kishanpura, BaddiNalagarh Road, BaddiSolan May-15 FDA Form 483

Plot No Z - 103 - I Sez Phase Ii Dahej Apr-15 FDA Form 483

Plot No. 3109-C, G.I.D.C. Industrial Estate,Ankleshwar Feb-15 FDA Form 483

Piramal Enterprises Sy No. 7-70, 70/1 & 70/2, KohirMandalMedak District Mar-16 No Form 483 was issued.

Plot No. 67-70, Sector II,, Dist. DharPithampur Aug-15 No Form 483 was issued.

Plot No. 67-70, Sector II,, Dist. DharPithampur Apr-15 No Form 483 was issued.

Earls Road Grangemouth Jan-15 FDA Form 483

Source :- FDA ZILLA

Initiating Coverage: BUY

After inspections following steps are usually taken by the USFDA

Increasing Compliance Cost By USFDA

Fee category in $ Fee rates for FY 2016

Applications:

Abbreviated New Drug Application (ANDA) Per Filling 76030

Prior Approval Supplement (PAS) to an ANDA 38020

Drug Master File (DMF) 42170

Facilities:

Active Pharmaceutical Ingredient (API)—Domestic (US) 40867

API—Foreign 55867

Source : USFDA

Clear the Facility with no observation

Issue of ‘Form 483’

Warning letter

Import Alert’

Fees for ANDA, PAS, and DMF will increase in FY 2016

over the corresponding fees in FY 2015 due to a drop

in the number of submissions in each of those three

categories over the course of FY 2015. The fees for all

types of facilities will decrease in FY 2016 over the

corresponding fees in FY 2015 due to an increase in

the number of facilities that self-identified for FY

2016.

Initiating Coverage: BUY Top Players Spend on R & D to Sales Trend

Source :- Bloomberg

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015

Aurobindo Phamra

0.00%

5.00%

10.00%

FY2010 FY2011 FY2012 FY2013 FY2014 FY2015

Cadila Healthcare

0.00%

5.00%

10.00%

FY2010 FY2011 FY2012 FY2013 FY2014 FY2015

Cipla

0.00%

5.00%

10.00%

15.00%

FY2010 FY2011 FY2012 FY2013 FY2014 FY2015

Glenmark

0.00%

1.00%

2.00%

FY2012 FY2013 FY2014 FY2015

Divis Lab

0.00%

5.00%

10.00%

FY2010 FY2011 FY2012 FY2013 FY2014 FY2015

Dr .Reddy

7.00%

8.00%

9.00%

10.00%

FY2010 FY2011 FY2012 FY2013 FY2014 FY2015

Lupin

0.00%

5.00%

10.00%

FY2012 FY2013 FY2014 FY2015

Piramal

0.00%

2.00%

4.00%

6.00%

8.00%

FY2010 FY2011 FY2012 FY2013 FY2014 FY2015

Sun Pharma

Initiating Coverage: BUY Wockhardt Spend on R & D to Sales Trend

We believe Wockhardt to be one of of the few players to understand

the changing of the dynamic of Indian Pharma Sector at early days,to

focus on R & D and developing niche high margins molecules.With

Current Spend of R & D 11.50% to sales for FY 2015 ,we rate

Wockhardt as an outlier in the Industry for increasing spend on R & D.

R & D SPEND ON BREAK THROUGH MOLECULES

Wockhardt is only company to have 4 products receiving Qualified

Infectious Disease Product (QIDP) status. QIDP status is granted to

drugs which act against pathogens which have a high degree of unmet

need in their treatment. QIDP status provides fast track clinical

development and review of the drug application by US FDA for drug

approval and a five-year extension of market exclusivity post product

approval in the USA. So far, the US regulator has granted QIDP status

to about 35 products and encouragingly, the list is expanding. Market

launch of this breakthrough molecule may be three to four years away

from now but this has lead Wockhardth in different race with Filing

for this products will be majorly in US and Europe.

WCK 771:-Antibiotic treating diverse staphylococcal infections like

MRSA and VISA. Commenced Phase II human clinical trials. The

company may explore local partnerships since it may not have the

capability to conduct studies and take up regulatory filings at the local

level for this molecule.

WCK 2349 :- Methicillin-resistant Staphylococcus aureus infections;

Skin and soft tissue infections.Will be delivered in oral form.WCK

2349 is in Phase I Clinical trials.

WCK 4873 :-Antibiotic treatment of Community Acquired Bacterial

Pneumonia (CABP).WCK 4873 is in Pre Clinical Trails.

WCK 5222:-Antibiotic for complicated urinary tract infections and

hospital acquired bacterial pneumonia,does not have any plans to out

–license WCK 5222and WCK 4873.

0.00%

5.00%

10.00%

15.00%

FY2010 FY2011 FY2012 FY2013 FY2014 FY2015

Initiating Coverage: BUY Income Statement In Millions of INR except Per Share FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

12 Months Ending 03/31/2012 03/31/2013 03/31/2014 03/31/2015 03/31/2016

Income Statement

Revenues 46,138.0 56,094.2 48,303.6 44,815.4 44,614.3

Operating Expenses

Depreciation Expense 1,225.1 — — — —

Depreciation and Amortization — 1,221.4 1,399.2 1,454.0 1,425.6

Other Operating Expenses 9,025.2 11,156.1 12,756.5 12,980.9 13,946.7

Total Operating Expenses — — — — 40,857.4

Salaries Wages and Employee Benefits 5,893.3 6,559.0 7,686.3 8,688.7 9,443.0

Total Expenditures — — — 39,727.5 —

Purchases Of Merchandise 5,746.4 6,370.6 7,747.1 7,545.1 7,322.3

Change In Merchandise Inventories 1,063.2 1,802.7 -727.0 510.1 -644.1

Cost Of Materials 12,137.6 12,907.7 9,588.4 7,839.8 —

Raw Materials And Consumables Used — — — — 9,363.9

Non-Operating Expenses

Total Exceptional (Income)/Charges — — — — 0.0

Total Financial Costs — — — 552.1 1,012.1

Non-Operating Exceptionals 5,282.1 -615.2 -498.3 0.0 —

Tax On Non-Operating Exceptionals 5,282.1 — — — —

Tax Effect On Extraordinary Items — 73.0 — — —

Income Tax Expense (Benefit) — — — — 254.8

Income Before Income Taxes 5,767.2 18,376.9 8,906.7 5,753.4 3,570.1

Interest Expense - Net 2,144.3 2,153.7 833.5 55,210.0 —

Equity In Earnings of Affiliate/Joint Ventures

-11.2 5.7 0.1 0.0 —

Foreign Exchange 214.6 278.8 -458.8 1,177.0 144.2

Deferred Income Tax Expense (Benefit) 1,730.0 -1,134.4 456.9 613.5 —

Share Profits From Associated Companies — — — — -6.4

Other Non-Operating (Income)/Expense - Net

— — — -66,550.0 -969.5

Business And Capital Taxes -496.4 — -452.3 -589.2 —

Current Taxation - Adjustment — — -80.8 -365.7 —

Current Income Tax Expense (Benefit) 1,117.7 3,716.5 555.0 1,967.9 —

Earnings

Basic EPS 31.31 145.61 76.64 36.81 29.50

Balance Sheet In Millions of INR except Per Share FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

12 Months Ending 03/31/2012 03/31/2013 03/31/2014 03/31/2015 03/31/2016

Stockholder Equity

Minority/Non ControllingInt (StckhldrsEqty) — — 1,361.7 1,439.5 4,703.7

Total Shareholders Equity Excluding Minority — — — — 38,724.1

Total Share Capital 8,160.9 3,533.4 3,534.3 3,535.9 —

Total Reserve 6,549.3 23,508.4 32,280.4 33,617.6 35,186.1

Total Shareholders Equity 14,710.2 27,041.8 35,814.7 37,153.5 —

Common Stock — — — — 3,538.0

Total Liabilities and Shareholders Equity — 60,226.6 66,220.2 69,388.8 79,521.6

Non Current Liabilities

Total Noncurrent Liabilities 28,918.8 15,450.0 11,611.8 13,066.1 17,670.5

Long Term Debt — — — — 16,541.6

Deferred Income Taxes (Liabilities) 1,010.0 — 69.0 525.7 475.9

Other Noncurrent Liabilities 844.9 — — 0.0 0.0

Other Provisions For Liabilities And Charges 844.9 698.5 519.8 692.0 —

Provisions For Liabilities And Charges & Other 1,109.6 1,673.7 275.1 276.9 653.0

Other Liabilities That Are LT Borrowings 27,063.9 14,751.5 11,023.0 11,848.4 —

Noncurrent Assets

Total Non-Current Assets 37,723.3 26,957.3 32,661.0 34,173.2 39,615.9

Deferred Income Tax Asset (Long-Term) — 242.0 0.0 0.0 0.0

Property Plant & Equipment - Net 11,038.6 11,503.8 13,394.9 13,150.8 27,902.2

Total Intangible Assets - Net 14,674.8 8,392.2 9,551.4 8,076.6 —

Long Term Investments 907.5 26.3 26.2 26.2 4.5

Other Noncurrent Assets 2,079.5 50.1 254.6 48.3 32.8

Goodwill — — — 714,520.0 7,930.0

Other Intangible Assets 4,035.4 — — — —

Long-Term Loans And Other Debtors — 1,833.5 2,358.6 2,798.3 3,746.4

Construction In Progress 4,987.5 4,909.4 7,075.3 10,073.0 —

Total Fixed Assets & Materials — — — — —

Total Assets — 60,226.6 66,220.2 69,388.8 79,521.6

Current Assets

Cash and Equivalents 6,999.9 10,960.6 11,258.0 12,345.5 14,781.1

Current Portion Of Long-Term Investments — — 5,739.8 3,387.2 —

Inventories 8,885.6 10,588.3 9,928.9 10,207.8 11,021.6

Accounts Receivable - Trade 7,586.9 9,584.6 4,810.4 7,414.3 12,004.7

Short-Term Loans 1,342.7 2,135.8 1,822.1 1,860.8 2,098.3

Total Current Assets 24,815.1 33,269.3 33,559.2 35,215.6 39,905.7

Initiating Coverage: BUY Ratio Analysis In Millions of INR except Per Share FY 2012 FY 2013 FY 2014 FY 2015 FY 2016

12 Months Ending 03/31/2012 03/31/2013 03/31/2014 03/31/2015 03/31/2016

Returns

Return on Common Equity 75.47 96.66 27.77 11.76 8.94

Return on Assets 5.73 25.97 13.30 5.97 4.37

Return on Capital 10.32 36.79 17.72 7.85 6.86

Return on Invested Capital 17.57 34.58 15.05 8.39 5.55

Margins

EBITDA Margin 31.17 37.31 20.28 18.46 11.62

Operating Margin 28.52 35.09 17.39 15.21 8.42

Pretax Margin 12.52 32.75 18.44 12.84 8.02

Income before XO Margin 7.43 28.15 17.45 9.21 7.45

Net Income Margin 7.43 28.42 17.40 9.04 7.30

Net Income to Common Margin 7.42 28.42 17.40 9.03 7.30

Cash Flow Statement In Millions of INR except Per Share FY 2012 FY 2013 FY 2014 FY 2015

12 Months Ending 03/31/2012 03/31/2013 03/31/2014 03/31/2015

Cash From Operating Activities

+ Net Income 3,427.1 15,941.2 8,407.1 4,049.1

+ Depreciation & Amortization 1,225.1 1,248.4 1,399.2 1,454.0

+ Other Non-Cash Adjustments 8,426.9 -2,645.2 -1,686.5 1,082.2

+ Changes in Non-Cash Capital -2,894.3 -2,669.9 5,879.9 -3,446.2

Cash From Operations 10,184.8 11,874.5 13,999.7 3,139.1

Cash From Investing Activities

+ Disposal of Fixed Assets 12.1 796.3 38.1 97.7

+ Capital Expenditures -3,175.4 -3,414.3 -4,625.1 -4,405.1

+ Increase in Investments 0.0 0.0 -5,739.8 —

+ Decrease in Investments 0.0 687.8 0.0 2,402.3

+ Other Investing Activities 20.4 12,475.8 1,713.1 -310.8

Cash From Investing Activities -3,142.9 10,545.6 -8,613.7 -2,215.9

Cash from Financing Activities

+ Dividends Paid -1.2 -4.7 -1,637.7 -2,454.8

+ Change in Short-Term Borrowings — -788.0 282.0 1,302.3

+ Increase in Long-Term Borrowings 19.8 11.8 0.0 5,617.8

+ Decrease In Long-Term Borrowings -6,529.2 -14,426.7 -4,588.5 -4,663.3

+ Increase in Capital Stocks 0.0 16.4 4.8 1.6

+ Decrease in Capital Stocks 0.0 -3,508.7 0.0 0.0

+ Other Financing Activities 1,672.3 0.0 786.9 0.0

Cash from Financing Activities -4,838.3 -18,699.9 -5,152.5 -196.4

Net Changes in Cash 2,203.6 3,720.2 233.5 726.8

Source :- Bloomberg

Initiating Coverage: BUY