ERIS LIFESCIENCES LTD… · 2019-01-03 · Company Name (R s.) Rs. in mn. (R s.) Ratio Ratio (% ) Eris Lifesciences Ltd 690.00 94888.80 20.95 32.94 11.02 0.00 Aarti Drugs Ltd 575.20

Document code: FOTL_020120194_2 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved

ERIS LIFESCIENCES LTDResult Update (CONSOLIDATED BASIS): Q2 FY19

CMP: 690.00 JAN 2nd, 2019

Overweight ISIN:INE406M01024

Index DetailsSYNOPSIS

Eris Lifesciences Limited is engaged inmanufacturing, marketing and selling of genericswithin the chronic and acute categories of the IndianPharmaceutical Market.

The company has achieved consolidated Net sales ofRs. 2641.84 mn for Q2 FY19 as against Rs. 2492.34mn in Q2 FY18, up by 6.00%.

In Q2 FY19, consolidated EBITDA was Rs. 1068.40mn as against Rs. 1042.10 mn over the correspondingperiod of last year, up by 2.52%.

Consolidated PBT at Rs. 923.11 mn in Q2 FY19compared to Rs. 989.24 mn in Q2 FY18.

In Q2 FY19 consolidated net profit registered at Rs.855.06 mn from Rs. 931.42 mn in Q2 FY18.

EPS of Rs. 6.22 for the 2nd quarter as against an EPSof Rs. 6.77 in the corresponding quarter of theprevious year.

The Revenue of the company registered a growth of18.53% at Rs. 5149.45 mn in H1 FY19 as against Rs.4344.41 mn in H1 FY18.

During H1 FY19, PAT of the company stood at Rs.1570.65 mn as compared to Rs. 1639.79 mn in H1FY18.

IPM Rank stood at 24 as on 30th Sep, 2018. MedicalRepresentatives of IPM registered at 1937 membersin Q2 FY19.

Net Sales and PAT of the company are expected togrow at a CAGR of 16% and 13% 2017 to 2020E,respectively.

Stock DataSector PharmaceuticalsBSE Code 540596Face Value 1.0052wk. High / Low (Rs.) 896.00/571.50Volume (2wk. Avg.) 2200Market Cap (Rs. in mn.) 94888.80

Annual Estimated Results(A*: Actual / E*: Estimated)YEARS FY18A FY19E FY20E

Net Sales 8556.04 10267.25 11807.34EBITDA 3484.21 4061.63 4561.64Net Profit 2949.78 3187.66 3531.26EPS 21.45 23.18 25.68P/E 32.16 29.77 26.87

Shareholding Pattern (%)

As on Sep 2018 As on June 2018

Promoter 55.92 55.93

Public 44.08 44.07

Others -- --

1 Year Comparative Graph

ERIS LIFESCIENCES LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)Eris Lifesciences Ltd 690.00 94888.80 20.95 32.94 11.02 0.00Aarti Drugs Ltd 575.20 13564.40 37.63 15.29 2.98 10.00Cipla Ltd 520.00 418947.10 17.47 29.77 2.87 150.00Aurobindo Pharma Ltd 731.40 428532.80 37.39 19.56 3.67 250.00


QUARTERLY HIGHLIGHTS (CONSOLIDATED BASIS)

Results updates- Q2 FY19,

Rs. in mn Sep-18 Sep-17 % Change

Net Sales 2641.84 2492.34 6.00%

Net Profit 855.06 931.42 (8.20%)

EPS 6.22 6.77 (8.21%)

EBITDA 1068.40 1042.10 2.52%

The company has achieved net sales of Rs. 2641.84 million which rose by 6.00% for the 2nd quarter of the financial year

2018-19 as against Rs. 2492.34 million in the corresponding quarter of the previous year. EBITDA of Rs. 1068.40 million

in Q2 FY19 as against Rs. 1042.10 million over the corresponding period of last year. In Q2 FY19 net profit registered at

Rs. 855.06 million as against Rs. 931.42 million in Q2 FY18. The company has reported an EPS of Rs. 6.22 for the 2nd

quarter as against an EPS of Rs. 6.77 in the corresponding quarter of the previous year.

Break up of Expenditure

Break up ofExpenditure

Value in Rs. Million

Q2 FY19 Q2 FY18 %Change

Cost of MaterialsConsumed 133.29 117.29 14%

Purchase of Stock inTrade 264.94 129.03 105%

Employee BenefitExpenses 468.95 372.71 26%

Depreciation andAmortization Expenses 82.80 52.69 57%

Other Expenses 760.37 742.29 2%


Growth Trend and Productivity

IPM Rank stood at 24 as on 30th Sep, 2018.

Medical Representatives of IPM registered at 1937 members in Q2 FY19.

Yeild Per Month (YPM) registered at Rs. 4.5 lacs per month as on 30th Sep 2018.

Growth Trend across Categories:

Chronic:

Chronic Category of Eris registered a growth rate of 5% and total revenue of 62% as on 30th Sep, 2018.

Indian Pharmaceutical Market registered a growth rate of 2% and revenue of 31% as on 30th Sep, 2018 under Chroniccategory.

Sub Chronic:

Sub-Chronic Category of Eris registered a growth rate of 2% and total revenue of 23% as on 30th Sep, 2018.


Acute:

Acute Category of Eris registered a growth rate of (4%) and total revenue of 15% as on 30th Sep, 2018.


COMPANY PROFILEEris Lifesciences Limited is engaged in manufacturing, marketing and selling of generics within the chronic and acute

categories of the Indian Pharmaceutical Market. The Company operates within various areas through its seven focused

divisions: Eris, Nikkos, Adura, Montana, Inspira, Victus, Eris Kinedex, Eterna, and Altiza. Its Eris division includes

Atorsave 10, Atorsave 20, Decal, Enoxsave 0.6 and Metaloc XL100 products; its Nikkos division includes Alerfix, Erinac

D, Ezeepam Plus 5, Zenpride OD and Nikotriol products; its Adura division includes Crevast 5, Glitaris M30, Metafort

G1 CP and Olmin 10 products; its Montana division includes Meftaris, Calshine 60K Sachet, Hinder, Rabemon 20 and

Vomisave Syrup products; its Inspira division includes Crevast F 5, Lnbeta 5 and Twichek products, and its Victus

division includes Atorsave D80, Cyblex M 30 XR, Cyblex M 80, Cyblex M 60 XR and Cyblex MV 40.3 products.


FINANCIAL HIGHLIGHT (CONSOLIDATED BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)Balance Sheet as of March 31, 201 7-2020E

FY17A FY18A FY19E FY20EASSETS1) Non-Current Assets

a) Property, plant and equipment 556.77 526.12 568.21 602.30b) Capital Work in Progress 0.74 0.00 30.65 32.18c) Goodwill 378.11 934.74 1168.43 1402.11d) Intangible Assets 1381.59 6250.06 7500.07 8850.08e) Financial Assets

i) Non-Current Investments 2130.52 2716.10 3205.00 3717.80ii) Other Financial Assets 90.72 101.91 91.72 87.13

f) Income Tax Assets (Net) 68.74 79.18 83.14 86.46g) Deferred Tax Assets (net) 498.93 1005.67 1327.48 1699.18Sub - Total Non- Current Assets 5106.12 11613.78 12647.21 14778.07

2) Current Assetsa) Inventories 558.19 654.48 602.12 572.02b) Financial Assets

i) Current Investments 901.78 937.59 993.85 1043.54ii) Trade Receivables 488.59 666.42 1186.23 1636.99iii) Cash and Cash Equivalents 23.43 106.08 146.39 182.99iv) Other Bank Balances 0.78 0.30 0.38 0.46v) Loans 8.14 11.84 33.74 46.57vi) Other Financial Assets 103.50 83.04 87.19 90.68

c) Other Current Assets 76.01 527.32 727.70 960.57Sub - Total Current Assets 2160.42 2987.07 3777.61 4533.81

Total Assets (1+2) 7266.54 14600.85 16424.82 19311.88EQUITY AND LIABILITIES1) EQUITY

a) Equity Share Capital 137.50 137.50 137.50 137.50b) Other Equity 5533.86 8475.57 11663.23 15194.49

Total Equity 5671.36 8613.07 11800.73 15331.992) Non-Controlling Interest 237.93 246.65 254.05 259.133) Non Current Liabilities

a) Financial Liabilitiesi) Long-Term Borrowings 4.94 2741.95 1700.01 1224.01ii) Other Financial Liabilities 25.29 22.59 23.95 25.14

b) Long-Term Provisions 211.52 187.13 217.07 238.78c) Other Non-Current Liabilities 10.78 12.16 12.89 13.53d) Deferred Tax Liabilities (net) 346.54 522.70 470.43 442.20Sub - Total Non Current liabilities 599.07 3486.53 2424.34 1943.67

4) Current Liabilitiesa) Financial Liabilities

i) Borrowings 0.00 0.00 0.00 0.00ii) Trade Payables 385.17 907.74 816.97 760.74iii) Other Financial Liabilities 73.06 1034.36 866.43 779.79

b) Short-Term Provisions 215.01 170.71 145.10 130.59c) Other Current Liabilities 62.09 116.22 98.79 90.88d) Income Tax Liabilities (Net) 22.85 25.57 18.41 15.10Sub - Total Current Liabilities 758.18 2254.60 1945.70 1777.10

Total Equity and Liabilities (1+2+3+4) 7266.54 14600.85 16424.82 19311.88


Annual Profit & Loss Statement for the period of 2017 to 2020E

Value(Rs.in.mn) FY17A FY18A FY19E FY20E

Description 12m 12m 12m 12mNet Sales 7494.96 8556.04 10267.25 11807.34Other Income 251.13 264.08 216.55 190.56

Total Income 7746.09 8820.12 10483.79 11997.90

Expenditure -4804.28 -5335.91 -6422.16 -7436.26

Operating Profit 2941.81 3484.21 4061.63 4561.64Interest -10.33 -105.50 -272.19 -348.40

Gross profit 2931.48 3378.71 3789.44 4213.23

Depreciation -227.61 -256.42 -338.47 -433.25

Profit Before Tax 2703.87 3122.29 3450.97 3779.99

Tax -237.80 -172.51 -263.31 -248.72

Net Profit 2466.07 2949.78 3187.66 3531.26Equity capital 137.50 137.50 137.52 137.52Reserves 5533.86 8475.57 11663.23 15194.49

Face value 1.00 1.00 1.00 1.00

EPS 17.94 21.45 23.18 25.68

Quarterly Profit & Loss Statement for the period of 31st Mar, 2018 to 31st Dec, 2018E

Value(Rs.in.mn) 31-Mar-18 30-June-18 30-Sep-18 31-Dec-18E

Description 3m 3m 3m 3mNet sales 2121.92 2507.61 2641.84 2456.91

Other income 73.05 35.24 61.53 52.30

Total Income 2194.97 2542.85 2703.37 2509.21

Expenditure -1404.64 -1622.10 -1634.97 -1559.89

Operating profit 790.33 920.75 1068.40 949.32

Interest -77.55 -71.05 -62.49 -68.74

Gross profit 712.78 849.70 1005.91 880.58

Depreciation -90.64 -72.75 -82.80 -92.74

Profit Before Tax 622.14 776.95 923.11 787.84

Tax -61.36 -61.36 -68.05 -60.11

Net Profit 560.78 715.59 855.06 727.73

Equity capital 137.50 137.51 137.52 137.52

Face value 1.00 1.00 1.00 1.00

EPS 4.08 5.20 6.22 5.29


Ratio Analysis

Particulars FY17A FY18A FY19E FY20E

EPS (Rs.) 17.94 21.45 23.18 25.68

EBITDA Margin (%) 39.25% 40.72% 39.56% 38.63%

PBT Margin (%) 36.08% 36.49% 33.61% 32.01%

PAT Margin (%) 32.90% 34.48% 31.05% 29.91%

P/E Ratio (x) 38.47 32.16 29.77 26.87

ROE (%) 43.48% 34.25% 27.01% 23.03%

ROCE (%) 47.82% 28.43% 27.58% 24.94%

Debt Equity Ratio 0.00 0.32 0.14 0.08

EV/EBITDA (x) 31.94 27.72 23.50 20.80

Book Value (Rs.) 41.25 62.64 85.81 111.49

P/BV 16.73 11.02 8.04 6.19

Charts


OUTLOOK AND CONCLUSION

At the current market price of Rs. 690.00, the stock P/E ratio is at 29.77 x FY19E and 26.87 x FY20E respectively.

Earning per share (EPS) of the company for the earnings for FY19E and FY20E is seen at Rs. 23.18 and Rs. 25.68

respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 16% and 13% over 2017 to 2020E,

respectively.

On the basis of EV/EBITDA, the stock trades at 23.50 x for FY19E and 20.80 x for FY20E.

Price to Book Value of the stock is expected to be at 8.04 x and 6.19 x for FY19E and FY20E respectively.

Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.

INDUSTRY OVERVIEW

The Indian Pharmaceutical Industry (IPM) with a market size of Rs. 1,218 billion grew at the rate of 11.0 % between

FY13 and FY18. India which is primarily a prescription-based market is dominated by domestic pharmaceutical

companies. Their share in the aggregate revenues of the industry was 79.3% in March 2018. In FY18, top 300 brands

accounted for 30.2% of market share. Chronic therapy areas contributed 35% while acute therapy areas constituted to 65%

to the industry’s revenues.

Company Overview:

Operating efficiency remains the second fundamental. The company has consistently delivered robust growth in revenues

with a CAGR of 16.8% over FY13 to FY18. For the same period the IPM grew with a CAGR of 11.0%. The growth in

revenue came while the profit and return margins also expanded - EBITDA for the same period grew at CAGR of 30.2%

(from 21.9% of revenue in FY13 to 37.6% of revenue in FY18) while Net Profit for the same period grew at a CAGR of

38.2% (from 14.9% of revenue in FY13 to 34.4% of revenue in FY18).


The most significant impetus to the company’s goodwill remains its unique patient care initiatives. These initiatives,

across all of its major therapy areas, are created with the vision of enabling the healthcare community improve health

outcomes. They understand that the nation is burdened with an incredible prevalence of lifestyle induced diseases and at

the same time faces a lack of an adequate set-up that can ease the management of this burden. This set-up can be in the

form of something as simple as counseling patients to cope with the challenges of the disease or latest diagnostics that

meet globally accepted guidelines, so as to help clinicians in their objective of adding to the patients’ wellbeing.

Recognizing its role as a responsible partner in the healthcare delivery ecosystem, the company launched a hypertension

and diabetes management initiative that engages with clinicians and patients to manage this disease burden more

efficiently.

Its ABPM on Call initiative has supported over 3,800 doctors and 36,500 patients as of March 2018 while the Holter on

Call has supported over 2,200 doctors and 18,000 patients. In addition, its Eritel Sleep Study on Call, highlighting the

links between cardiac diseases and sleep disorders, has till date supported over 850 clinicians and 3000 patients to meet

the changing needs of cardiovascular care. For diabetes management, Eris has supported over 3,800 clinicians and over

500,000 patients through various initiatives like CGM on Call and Tendia Vascular Screening.

OUTLOOK

Strengths and Opportunities:

Leading prescription ranks:

The company‘s strong portfolio of mother brands enjoys leading prescription ranks with their respective specialties.

Prescription ranks, implying the growth in new prescriptions, are a leading indicator of growth.

Strong brands:

The company continues to focus on maintaining the strength of its brand portfolio; the Top 15 brands contribute 74.2% of

its revenue. The company derives a significant part of its revenue from molecules in the growth phase.

Patient care initiatives:

Enabling the effort of strengthening brands are the unique patient care initiatives that, while primarily helping the

healthcare community manage the disease burden, create immense brand equity for the company.

Operating efficiency:

The yield per man (YPM) for the company continues to increase with potential of scaling up to industry leading numbers.

With improvement in the YPM metric margin efficiency also improves.

Un-utilized capacity:

The manufacturing facility in Guwahati, Assam currently operating at over 80% capacity utilization on a single shift basis

is capable of being scaled up to triple shift basis.


Strong balance sheet:

The company has consistently generated profits and operating cash flows that it continues to use for calling of operations

and increasing shareholder value.

Demographic tailwinds:

Overall healthcare spending in India is expected to rise due to rise in population, high real GDP growth rate, improving

GDP per capita and rising affordability.

Increased lifestyle related diseases:

Increasingly sedentary lifestyle, changing food habits and rapid urbanization has led to a widespread rise in chronic

diseases. As the market and economy mature, India is expected to see a higher share of chronic segment in line with other

emerging and most developed nations.

Favourable policy measures:

Various initiatives by the Government like the Pharma Vision 2020 (which aims to make India a major hub for end-to-end

drug discovery), National Health Policy 2015 (which focuses on increasing public expenditure on healthcare segment),

and Ayushman Bharat etc. support growth. To ensure increased availability of specialists and super specialist doctors, the

government has announced the creation of additional 5,000 post-graduate seats per year.

Health insurance coverage:

Adoption of health insurance in India is increasing at a fast pace. This in addition to the National Health Protection

Scheme announced in the Union Budget 2018-19 will drive the expansion of healthcare services and pharmaceuticals

market in India.

Awareness:

Enabled by rising medical information portals and healthcare startups, patients are becoming more aware of diseases and

preventive therapies/ medicines.

Penetration of diagnostics:

The government has plans of increasing focus on healthcare, doubling its share of expenditure as a % of GDP.

Going Ahead:

While the existing business remains the main engine of growth for the company, in licensing, exploring newer therapeutic

areas and future patent expiries are some areas that it is exploring.

In licensing of products also remains an exciting opportunity for the company. It is aggressively looking for entering into

partnerships with national and international entities to leverage its sales and marketing, distribution and manufacturing

facilities.


In terms of newer therapy areas, women’s health – IVF with a covered market of Rs.10 billion is seeing enhanced focus

with the acquisition of UTH Healthcare Ltd in October 2017. CNS saw the company’s covered market increase 171% to

Rs. 38 billion in FY18 with the acquisition of the Indian branded formulations business of Strides Shasun Ltd (Strides). In

the Bone Health and mobility related therapeutic area, the company saw its covered market increase to Rs. 52 billion.

Also in the pipeline are efforts in the Cosmeceuticals therapeutic area as research indicates favourable demographics and

other social factors for Aesthetic Dermatology.

The company has also identified various key products whose patents expire in the near future.


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Exposure/Interest tocompany/sector UnderCoverage in the CurrentReport

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Pharma &Diversified

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Documents

ERIS LIFESCIENCES LTD… · 2019-01-03 · Company Name (R s.) Rs. in mn. (R s.) Ratio Ratio (% ) Eris Lifesciences Ltd 690.00 94888.80 20.95 32.94 11.02 0.00 Aarti Drugs Ltd 575.20