Syngene International (SYNINT) | 577content.icicidirect.com/mailimages/IDirect_Syngene_Q1FY... · 2018-07-27 · dedicated research centre, with four of the world’s leading global

July 27, 2018

ICICI Securities Ltd | Retail Equity Research

Result Update

Revenues upbeat but one-off dent in margins

Revenues grew 39.5% YoY to | 406 crore (I-direct estimate: | 426

crore) mainly on the back of 1) | 40 crore of one-off raw material

pass through 2) traction in biologics manufacturing, discovery

services and chemical development services, 3) lower base of

Q1FY18 (fire incident impact) and 4) favourable currency movement

EBITDA margins declined 608 bps to 26.9% YoY (I-direct estimate:

32.2%) mainly due to pass through of raw material billing

Net profit increased 6.5% YoY to | 66 crore (I-direct estimate of | 91

crore). Lower growth was mainly due to lower operational

performance, higher interest cost and tax rate

Integrated business model, customer stickiness to the fore

SIL’s revenues grew at ~21% CAGR in FY13-18 to | 1423 crore due to

new client addition on a regular basis and scaled up revenues from

existing clients led by integrated service offerings, high data integrity

ethos and continuous endeavour to move up the value chain. The

capabilities have been vindicated by proven customer stickiness as eight

of the top 10 global pharma companies have been availing the services

for the last five years. The proposed foray into contract manufacturing

(CMO) services will further strengthen its service offering. It owns a pool

of ~3500 scientists. As of FY18, the company had a client base of 316.

Global pharma landscape conducive to incremental R&D outsourcing

Global pharmaceutical players are facing structural issues from the

impending patent cliff, a shrinking product pipeline, rising R&D costs and

growing competition. On the one hand, these companies are shrinking in

size due to loss of blockbuster exclusivities while, on the other hand, new

product approvals by the USFDA are also on the rise. Hence, to maintain

the structural balance and improve probability of success, they are

inclined to outsource a substantial part of the R&D work. Similarly, the

innovative/virtual companies that are extensively working on new

products, which may not have the required capital/manpower also tend to

outsource a substantial part of their R&D. As per a Frost & Sullivan report,

global pharma R&D spend in CY14 was at ~US$140 billion, which is

expected to grow to $152 billion in CY18. Total 75% of the R&D spend can

be potentially outsourced.

Traction from client addition, improving operating leverage to provide

margin comfort…

The company has kicked off FY19 earnings on a mixed footing- strong

revenues growth but weaker margins (partly due to one-off). On the

margins front, the company is witnessing some pressure due to

development and compliance related expenses besides employee

addition, which, we believe, are attributable to increasing scalability. We

expect operating leverage to pan out gradually which, in turn, is likely to

hold the EBITDA margins in the 31- 33% band. The company has recently

added some elite clients like Amgen, Zoetis, Herbalife, GSK and multiple

year extension of BMS and Baxter contracts. This is likely to keep the

growth tempo intact, going ahead. Another important aspect is the

optically higher capex plans of >US$100 million, over and above the

earlier version of US$200 million. This, we believe, can be attributed to

higher client requirements pertaining to scalability. Overall, the company

remains well poised to capture opportunities in the global CRO space on

account of strategic outsourcing by global innovators. We ascribe a target

price of | 685 based on ~35x FY20 EPS of | 19.6.

Rating matrix

Rating : Buy

Target : | 685

Target Period : 12 months

Potential Upside : 19%

What’s Changed?

Target Changed from | 735 to | 685

EPS FY19E Changed from | 18.6 to | 17.6

EPS FY20E Changed from | 20.4 to | 19.6

Rating Unchanged

Quarterly Performance

Q1FY19 Q1FY18 YoY (%) Q4FY18 QoQ (%)

Revenue 406.0 291.1 39.5 409.1 -0.8

EBITDA 109.2 96.0 13.8 129.1 -15.4

EBITDA (%) 26.9 33.0 -608.2 31.6 -466.1

Net Profit 66.0 62.0 6.5 84.5 -21.9

Key Financials

(|crore) FY17 FY18 FY19E FY20E

Revenues 1200.9 1423.1 1673.2 1975.8

EBITDA 407.6 464.4 525.9 641.8

Net Profit 287.3 305.1 352.0 391.9

EPS (|) 14.4 15.3 17.6 19.6

Valuation summary

FY17 FY18 FY19E FY20E

PE (x) 40.2 37.8 32.8 29.4

M.Cap/ Revenues (x) 9.6 8.1 6.9 5.8

EV to EBITDA (x) 28.7 23.9 21.5 17.7

P/B (x) 8.2 6.7 5.6 4.8

ROE (%) 20.3 17.7 17.1 16.1

RoCE (%) 16.0 15.9 17.0 17.4

Stock data

Particular

Market Capitalisation

Debt (FY18)

Cash (FY18)

EV

52 week H/L 700/430

Equity capital

Face value | 10

| 967 crore

| 11183 crore

| 200.0 crore

Amount

| 11486 crore

| 664 crore

Price performance (%)

1M 3M 6M 1Y

Syngene Int. 0.0 -9.9 -7.1 19.5

Divi's Laboratories 3.1 -8.2 -4.0 60.3

Research Analyst

Siddhant Khandekar

[email protected]

Mitesh Shah

[email protected]

Syngene International (SYNINT) | 577

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis

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

Revenue 406.0 425.9 291.1 409.1 39.5 -0.8 YoY growth mainly on the back of 1) | 40 crore of one-off raw material pass

through 2) traction in biologics manufacturing, discovery services and chemical

development services, 3) lower base of Q1FY18 (fire incident impact) and 4)

favourable currency movement. Excluding one-off raw material benefit revenues

grew 26% YoY

Raw Material Expenses 128.8 126.5 69.3 125.6 85.9 2.5 Increased mainly due to | 40 crore of one-off raw material pass through

charges

Employee Expenses 105.6 108.4 86.0 104.1 22.8 1.4 YoY increase mainly due to increase in workforce in the newly commercialised

facilities

Other Expenditure 62.4 54.1 39.8 50.3 56.8 24.1 Included | 10.6 crore of forex gain vs | 16.1 crore in Q1FY18 and | 30.9 crore

in Q4FY18

EBITDA 109.2 136.9 96.0 129.1 13.8 -15.4

EBITDA (%) 26.9 32.2 33.0 31.6 -608 bps -466 bps Decline in EBITDA margins mainly due to one-off, increased workforce and

increased spending in compliance, safety issues and business development.

Excluding one-off EBITDA margins were 29.6%

Interest 7.9 7.0 5.3 7.1 49.1 11.3

Depreciation 37.3 34.6 31.9 34.2 16.9 9.1

Other Income 18.8 17.0 17.2 16.6 9.3 13.3

PBT before EO & Forex 82.8 115.4 76.0 104.4 8.9 -20.7

Forex & EO 0.0 0.0 0.0 0.0 NA NA

PBT 82.8 115.4 76.0 104.4 8.9 -20.7

Tax 16.8 21.9 14.0 19.9 20.0 -15.6

PAT before MI 66.0 91.0 62.0 84.5 6.5 -21.9

Net Profit 66.0 91.0 62.0 84.5 6.5 -21.9 Lower net profit profit and miss via-a-vis I-direct estimates was mainly due to

lower operational performance, higher interest cost and tax rate

Source: Company, ICICI Direct Research

Change in estimates

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

Revenue 1,703.5 1,673.2 -1.8 2,011.5 1,975.8 -1.8

EBITDA 560.9 525.9 -6.2 673.5 641.8 -4.7

EBITDA Margin (%) 32.9 31.4 -147 bps 33.5 32.5 -102 bps Trimmed mainly due to lower Q1FY19 margins and increase in fixed cost

PAT 371.4 352.0 -5.2 408.3 391.9 -4.0

EPS (|) 18.6 17.6 -5.4 20.4 19.6 -4.0 Declined in sync with EBITDA

FY19E FY20E



Company Analysis

Incorporated in 1993 as a subsidiary of Biocon, Syngene International

(SIL) is a leading contract research organisation (CRO), which supports

R&D programmes of global innovative companies. SIL offers outsourced

services to support discovery and development for organisations across

industrial sectors like pharmaceuticals, biopharmaceuticals,

neutraceuticals, animal health, agro-chemicals, etc. It currently caters to

293 global players including Bristol-Myers Squibb (BMS), Abbott, Baxter

and Amgen, among others.

SIL derives ~95% of its revenues from exports. In terms of classification

on a contractual basis, it derives ~33% of revenues from long term

dedicated contracts with a contractual commitment of five years and

more. In this case, the company offers a dedicated, customised and ring-

fenced infrastructure in line with client’s requirements. These dedicated

centres are generally multi-disciplinary, full time engagements, which

support the R&D requirements of clients.

The remaining comes from 1) discovery services (27% of revenues; full

time equipment (FTE)) and 2) development & manufacturing services

[40% of revenues; fee for service (FFS)].

The discovery services vertical consists of multiple client engagements

across discovery chemistry and discovery biology based service

offerings. It entails an in-depth understanding of discovery chemistry and

discovery biology pertaining to small and large molecules.

The development and manufacturing segment encompasses the services,

which support a molecule once it moves beyond in-vivo testing to

preclinical studies and clinical development. It also includes

manufacturing of molecules for clinical supplies and commercialisation.

In FTE contracts, the company does billing based on the number of

scientists deployed. In this case, there is an agreement with clients for

minimum utilisation of a specific number of scientists dedicated to their

work. The scope of services and deliverables under FTE contracts

generally evolves over time. FTE contracts are generally renewable

annually. FFS contracts are mostly short-term in nature. In FFS contracts,

the agreement is for fixed price for agreed services within a defined

scope.

Revenue Bifurcation

Dedicated

Services

(FTEs), 33%

Discovery

Services

(FTEs), 27%

Development &

Manufacturing

Services (FFSs),

40%


Facilities

Lab Segment

Regulatory

Approvals

Biocon SEZ, Bommasandra,

Bengaluru

CRO USFDA & Others

Bommasandra Industrial

Area, Bengaluru

APIs &

Intermediates

USFDA & Others

Mangaluru (SEZ) CMO



Exhibit 1: Revenues to grow at CAGR of 18% in FY18-20E

550.0

699.5

859.9

1107.01200.9

1423.1

1673.2

1975.8

0

500

1000

1500

2000

2500

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E

(|

crore)

Revenues


SIL’s revenues grew at 21% CAGR in FY13-18 to | 1423 crore mainly due

to a sharp increase in new client addition and scaled up revenues from

existing clients led by integrated service offerings, high data integrity

ethos and continuous endeavour to scale up the value chain. The client

base has grown to 316 in FY18 from 152 in FY13. A sharp increase in

clientele was mainly due to offering of complete basket of services from

discovery, development and pilot manufacturing under one roof through

flexible business models customised to client’s requirements. Also, a

flexible business model allows SIL to meet the discovery and

development needs of a wide range of clients, from small biotechnology

companies to large pharmaceutical companies. The company has been

able to take advantage of India’s large, low-cost scientific talent pool to

deliver its services to multinational companies at competitive rates,

especially when compared with costs for comparable services in

developed countries.

The company has developed long-term relationships with many clients,

including four long-duration multi-disciplinary partnerships, each with a

dedicated research centre, with four of the world’s leading global

healthcare organisations Bristol-Myers Squibb Company (BMS), Abbott

Laboratories (Singapore) Pte Ltd (Abbott), Baxter International Inc.

(Baxter) and Amgen.

BMS – The first dedicated centre was set up for BMS in 2009 and engages

over 400 of scientists. Under the new agreement in Q3FY18, Syngene will

set up an additional new facility. It will put up a dedicated team of

Syngene scientists within that and support the future R&D requirements

of BMS. The duration of the collaboration has been extended to 2026

Baxter – Dedicated centre developed in 2013. The Baxter Global Research

Centre has a multidisciplinary team of about 150 of scientists who work

on product and analytical development, preclinical evaluation in

parenteral nutrition and renal therapy. The company has recently

expanded its contract with Baxter till 2024. Under the new extension of

contract, Syngene will set up additional infrastructure as well as increase

the size of its scientific team.

Amgen– In Q2FY17, the company announced the establishment of a

dedicated centre for Amgen, Inc in Bengaluru. This centre, named

Syngene Amgen Research and Development Centre (SARC), will be

Syngene’s fourth such exclusive R&D centre and first for a biologics

company. SARC will be staffed by a team of more than 100 Syngene

scientists, working with Amgen researchers around the world on the

20.9% CAGR

17.8% CAGR


discovery and development of innovative medicines. In Q1FY18, the

company expanded its SARC collaboration to 50000 square feet floor

space and ~185 Syngene scientists

Herbalife- in Q3FY17, Herbalife announced the opening of its first R&D

centre in India in Partnership with Syngene. The 3000 sq ft facility will be

located inside the Syngene Bengaluru campus.

The company owns the largest CRO facility in India, spread over

1,300,000 sq ft, in Bengaluru. The facility has been accredited with major

regulatory compliance. It operates laboratory and manufacturing facilities

to standards that are consistent with the requirements of its large global

clients. In the last three years, the USFDA has cleared five audits without

483 observations.

Apart from this, it is in the process of establishing a new commercial-

scale facility in Mangaluru (SEZ) to manufacture novel small molecules for

innovator companies as it plans to foray into commercial manufacturing

for customers.

The company has signed commercial contracts for late stage products

with existing clients. Of this, two molecules have already been

commercialised while the company has started supply of intermediaries

for these products. The company’s existing facility at Bengaluru would

initially support SIL’s CMO business. It has also started developing the

new CMO facility at Mangalore at a capex of US$100 million. This novel

CMO business would extend the company’s services to existing

customers. The CMO business is expected to start meaningful

contribution from FY18E. In addition, the company is in the process of

setting up a new unit for biologic manufacturing in Bengaluru. We believe

the CMO business would be an add-on driver for the company over

medium to long term.

The company intends to evolve from a CRO into a contract research and

manufacturing services (CRAMS) organisation with commercial-scale

manufacturing capabilities. This is in keeping with SIL’s plan to leverage

its existing relationships with clients and provide forward integration on

the discovery and development continuum.

Exhibit 2: Trends in EBITDA margins

168.5

214.4

281.1

380.4407.6

464.4

525.9

641.8

30.6 30.7

32.7

34.433.9

32.6

31.4

32.5

0

100

200

300

400

500

600

700


(|

crore)

25

27

29

31

33

35

(%

)

EBITDA EBITDA Margins (%)



Exhibit 3: Net profit to grow at CAGR of 13% in FY18-20E

102.1

134.8

175.0

287.3305.1

352.0

391.9

240.8

0

50

100

150

200

250

300

350

400

450

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E(|

crore)

Net Profit


Exhibit 4: Return ratios

19.6

17.8

19.5

14.6

16.0 15.9

17.0

23.5

17.4

19.7

20.4

20.7

20.3

17.7

17.116.1

10

12

14

16

18

20

22

24

26


(%

)

RoCE (%) RoNW (%)


SWOT Analysis

Strengths - Strong pool of scientists to support long clientele, time tested

infrastructure with major approvals and dedicated centres for customised,

ring-fenced infrastructure.

Weakness - Low presence in development phases of research

Opportunities - Starting the commercialisation business would complete

SIL’s chain of business from discovery and development to now

commercialisation of products.

Threats - High dependency on limited customers, client consolidation,

CMO business prone to higher USFDA scrutiny


Exhibit 5: Trends in quarterly performance

(| Crore) Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 YoY (%) QoQ(%)

Total Operating Income 274.5 303.0 332.1 291.0 291.1 335.2 387.7 409.1 406.0 39.5 -0.8

Raw Material Expenses 71.4 78.5 91.1 88.0 69.3 80.0 106.8 125.6 128.8 85.9 2.5

% to revenues 26.0 25.9 27.4 30.2 23.8 23.9 27.5 30.7 31.7

Gross Profit 203.1 224.5 241.0 203.0 221.8 255.2 280.9 283.5 277.2 25.0 -2.2

Gross Profit Margin (%) 74.0 74.1 72.6 69.8 76.2 76.1 72.5 69.3 68.3 -792 bps -102 bps

Employee Expenses 73.9 76.7 80.1 78.0 86.0 93.7 95.8 104.1 105.6 22.8 1.4

% to revenues 26.9 25.3 24.1 26.8 29.5 28.0 24.7 25.4 26.0 -353 bps 56 bps

Other Manufacturing Expenses 40.4 42.2 48.1 25.0 39.8 48.0 58.9 50.3 62.4 56.8 24.1

% to revenues 14.7 13.9 14.5 8.6 13.7 14.3 15.2 12.3 15.4 170 bps 307 bps

Total Expenditure 185.7 197.4 219.3 191.0 195.1 221.7 261.5 280.0 296.8 52.1 6.0

% to revenues 67.7 65.1 66.0 65.6 67.0 66.1 67.4 68.4 73.1

EBIDTA 88.8 105.6 112.8 100.0 96.0 113.5 126.2 129.1 109.2 13.8 -15.4

EBITDA Margin (%) 32.3 34.9 34.0 34.4 33.0 33.9 32.6 31.6 26.9 -608 bps -466 bps

Depreciation 26.6 27.8 28.8 31.0 31.9 30.3 35.0 34.2 37.3 16.9 9.1

Interest 5.2 2.7 6.8 3.0 5.3 5.2 5.1 7.1 7.9 49.1 11.3

Other Income 15.9 16.3 14.6 24.0 17.2 16.4 11.6 16.6 18.8 9.3 13.3

PBT 72.9 91.4 91.8 90.0 76.0 94.4 97.7 104.4 82.8 8.9 -20.7

Total Tax 13.1 16.7 17.4 12.0 14.0 17.5 15.7 19.9 16.8 20.0 -15.6

PAT 59.8 74.7 74.4 78.0 62.0 76.9 82.0 84.5 66.0 6.5 -21.9

PAT Margin (%) 21.8 24.7 22.4 26.8 21.3 22.9 21.2 20.7 16.3 -504 bps -440 bps



Valuation

The company has kicked off FY19 earnings on a mixed footing- strong

revenues growth but weaker margins (partly due to one-off). On the

margins front, the company is witnessing some pressure due to

development and compliance related expenses besides employee

addition, which, we believe, are attributable to increasing scalability. We

expect operating leverage to pan out gradually which, in turn, is likely to

hold the EBITDA margins in the 31- 33% band. The company has recently

added some elite clients like Amgen, Zoetis, Herbalife, GSK and multiple

year extension of BMS and Baxter contracts. This is likely to keep the

growth tempo intact, going ahead. Another important aspect is the

optically higher capex plans of >US$100 million, over and above the

earlier version of US$200 million. This, we believe, can be attributed to

higher client requirements pertaining to scalability. Overall, the company

remains well poised to capture opportunities in the global CRO space on

account of strategic outsourcing by global innovators. We ascribe a target

price of | 685 based on ~35x FY20 EPS of | 19.6.

Exhibit 6: One year forward PE

[

220.0

290.0

360.0

430.0

500.0

570.0

640.0

710.0

7/10/201

5

10/10/20

15

1/10/201

6

4/10/201

6

7/10/201

6

10/10/20

16

1/10/201

7

4/10/201

7

7/10/201

7

10/10/20

17

1/10/201

8

4/10/201

8

7/10/201

8

|

Syngene Int. 36.6x 33.9x 33.1x 29.5x 27.7x

Exhibit 7: One year forward PE of company vs. CNX Pharma Index

0

7

14

21

28

35

42

49

7/10/201

5

10/10/20

15

1/10/201

6

4/10/201

6

7/10/201

6

10/10/20

16

1/10/201

7

4/10/201

7

7/10/201

7

10/10/20

17

1/10/201

8

4/10/201

8

7/10/201

8

x

Syngene Int. CNX Pharma

44% Premium

Exhibit 8: Valuation

Revenues Growth Adj. EPS Growth P/E EV/EBITDA RoE RoCE

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

FY17 1201 8.5 14.4 19.3 40.2 28.7 20.3 16.0

FY18 1423 18.5 15.3 6.2 37.8 23.9 17.7 15.9

FY19E 1673 17.6 17.6 15.4 32.8 21.5 17.1 17.0

FY20E 1976 18.1 19.6 11.3 29.4 17.7 16.1 17.4



Recommendation history vs. Consensus

0

100

200

300

400

500

600

700

800

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

(|

)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

(%

)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICI Direct Research; *Initiated on March 3, 2016

Key events

Period Event

Jul-05 Baxter International Inc collaborates with Syngene to establish ‘Baxter Global Research Center’, the third dedicated R&D centre

Jul-05 Acceptance of the control testing laboratory by Department of Health & Human Services, FDA

Jul-05 Bristol Myers Squibb and Syngene extend collaboration for its dedicated R&D centre till 2020

Jul-05 Establishes a 75,000 square feet centre to provide stability and analytical services

Jul-05 Clinigene International amalgamated with Syngene

Jul-05 Syngene raises | 550 crore through its IPO

Mar-16 Raises US$100 million ECB loan for the development of Mangalore facility and other capex projects

Sep-16 Acquires bioinformatics services of Strand Life Sciences along with a team of data scientists.

Oct-16 Establishes dedicated centre for Amgen, Inc. in Bangalore.

Mar-17 Syngene partners with Herbalife to set up its fifth dedicated R&D Center.

Jul-17 Syngene expands partnership with Amgen to increase existing 25000 sq ft facility to 50000 sq ft

Jul-17 Syngene CMO business ties up with a major Japanese Pharmato support an NCE launch in Japan

Oct-17 Syngene incorporates wholly owned overseas subsidiary in the US: Syngene USA Inc

Oct-17 Syngene sets up additional 76 beds in Human Pharmacology Unit (HPU) in Bangalore, taking the total to 190 beds

Dec-17 Syngene signs new agreement with BMS and extends partnership to 2026

Jan-18 Entered into a multi-year development and manufacturing relationship with Zoetis

Mar-18 Signs a multi-year R&D pact with GSK to provide drug discovery services

Apr-18 extended a collaboration with Merck kGaA until 2019 to work on various discovery research projects.

Jul-18 Expands collaboration with Baxter untill 2024 as well as increase the size of its scientific team working on Baxter projects


Top 10 Shareholders Shareholding Pattern

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

1 Biocon Ltd. 16-May-18 70.7 141.5m -3.8m

2 Camas Investment Pte. Ltd. 31-Mar-18 2.4 4.8m 0.0m

3 UTI Asset Management Co. Ltd. 30-Jun-18 1.2 2.5m 0.1m

4 Aberdeen Asset Management (Asia) Ltd. 31-May-18 1.0 2.0m 1.1m

5 Biocon India Ltd Employee Welfare Trust 18-Jun-18 0.9 1.8m 0.0m

6 OppenheimerFunds, Inc. 31-May-18 0.7 1.4m 0.0m

7 HSBC Global Asset Management (Hong Kong) Limited 31-Mar-18 0.7 1.3m -0.3m

8 The Vanguard Group, Inc. 31-May-18 0.6 1.3m 0.1m

9 Jupiter Asset Management Ltd. 31-Mar-18 0.4 0.9m 0.0m

10 Canara Robeco Asset Management Company Ltd. 30-Apr-18 0.3 0.5m 0.0m

(in %) Jun-17 Oct-17 Dec-17 Mar-18 Jun-18

Promoter 74.5 74.5 74.5 74.5 71.7

Public 23.2 23.1 23.9 24.0 26.9

Others 2.3 2.4 2.4 1.5 1.5

Total 100.0 100.0 100.7 100.0 100.0

Source: Reuters, ICICI Direct Research

Recent Activity

Investor Name Value ($) Shares Investor Name Value ($) Shares

Aberdeen Asset Management (Asia) Ltd. 9.5m 1.1m Biocon Ltd. -33.5m -3.8m

Tata Asset Management Limited 1.3m 0.2m HSBC Global Asset Management (Hong Kong) Limited -2.6m -0.3m

J.P. Morgan Asset Management (Hong Kong) Ltd. 1.3m 0.1m Invesco Asset Management (India) Private Limited -0.9m -0.1m

UTI Asset Management Co. Ltd. 1.1m 0.1m Lazard Asset Management, L.L.C. -0.7m -0.1m

The Vanguard Group, Inc. 0.8m 0.1m Principal PNB Asset Management Company Ltd. -0.6m -0.1m

BUYS SELLS

Source: Reuters, ICICI Direct Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) FY17 FY18 FY19E FY20E

Total Operating Income 1,200.9 1,423.1 1,673.2 1,975.8

Growth (%) 8.5 18.5 17.6 18.1

Raw Material Expenses 321.8 381.7 443.4 513.7

Gross Profit 879.1 1,041.4 1,229.8 1,462.1

Gross Profit Margins (%) 73.2 73.2 73.5 74.0

Employee Expenses 308.6 376.9 478.1 563.5

Other Expenditure 407.6 464.4 525.9 641.8

Total Operating Expenditure 1,038.0 1,223.0 1,447.3 1,719.0

Operating Profit (EBITDA) 407.6 464.4 525.9 641.8

Growth (%) 7.2 13.9 13.2 22.0

Interest 17.5 22.7 9.9 6.9

Depreciation 114.3 131.4 123.3 173.8

Other Income 70.7 61.8 41.8 25.7

PBT after Exceptional Items 346.5 372.1 434.5 486.8

Total Tax 59.2 67.0 82.6 94.9

PAT before MI 287.3 305.1 352.0 391.9

Minority Interest 0.0 0.0 0.0 0.0

PAT 287.3 305.1 352.0 391.9

Growth (%) 19.3 6.2 15.4 11.3

EPS (Adjusted) 14.4 15.3 17.6 19.6


Cash flow statement | Crore


Profit/(Loss) after taxation 287.3 305.1 352.0 391.9

Add: Depreciation & Amortization 114.3 131.4 123.3 173.8

Other operating activities -39.6 -79.4 0.0 0.0

Net Increase in Current Assets -117.2 -145.1 70.6 -84.2

Net Increase in Current Liabilities 136.0 210.9 -89.2 73.5

CF from operating activities 398.3 445.6 466.6 561.9

(Inc)/dec in Fixed Assets -158.6 -363.7 -622.0 -596.0

(Inc)/dec in Investments -309.6 -4.3 0.0 0.0

Other Investing Activities -205.0 76.6 -658.8 -628.3

CF from investing activities -514.6 72.3 -658.8 -628.3

Inc / (Dec) in Equity Capital 0.0 4.8 0.0 0.0

Inc / (Dec) in Loan funds -104.0 -36.7 -200.0 -150.0

Dividend & Dividend Tax -24.1 -24.1 -17.5 -19.5

Others 51.8 -22.7 -9.9 -6.9

CF from financing activities -76.3 -78.7 -227.4 -176.4

Net Cash flow -192.6 439.2 -419.6 -242.7

Opening Cash 719.9 527.3 966.5 546.9

Closing Cash 527.3 966.5 546.9 304.2

Free Cash Flow 239.7 81.9 -155.4 -34.1


Balance sheet | Crore


Equity Capital 200.0 200.0 200.0 200.0

Reserve and Surplus 1,213.1 1,520.1 1,854.5 2,226.9

Total Shareholders funds 1,413.1 1,720.1 2,054.5 2,426.9

Total Debt 787.0 663.6 463.6 313.6

Long Term Provisions 19.9 29.0 27.6 26.2

Other Non Current Liabilities 51.7 70.5 67.0 63.6

Source of Funds 2,271.7 2,483.2 2,612.7 2,830.3

Gross Block 1,331.9 1,660.7 1,580.7 2,228.7

Accumulated Depreciation 521.5 630.3 753.6 927.4

Net Block 810.4 1,030.4 827.1 1,301.3

Capital WIP 174.9 155.4 857.4 805.4

Fixed Assets 985.3 1,185.8 1,684.5 2,106.7

Investments 646.0 158.0 158.0 158.0

Other Non current asets 51.8 210.6 235.1 254.7

Inventory 32.2 86.0 101.1 119.4

Debtors 198.7 266.8 313.7 370.4

Loans and Advances 107.1 0.0 0.0 0.0

Other Current Assets 117.4 242.3 109.6 118.8

Cash 527.3 966.5 546.9 304.2

Total Current Assets 982.7 1,561.6 1,071.4 912.8

Creditors 102.5 203.4 239.1 282.4

Provisions 13.4 13.5 13.5 13.5

Deferred tax assets 100.2 72.4 79.6 87.6

Other Current Liabilities 378.4 488.3 363.4 393.6

Total Current Liabilities 494.3 705.2 616.0 689.5

Net Current Assets 488.4 856.4 455.4 223.3

Application of Funds 2,271.7 2,483.2 2,612.7 2,830.3


Key ratios


Per share data (|)

EPS 14.4 15.3 17.6 19.6

BV 70.7 86.0 102.7 121.3

DPS 1.2 1.1 0.9 1.0

Cash Per Share 26.4 48.3 27.3 15.2

Operating Ratios (%)

Gross Profit Margins 73.2 73.2 73.5 74.0

EBITDA margins 33.9 32.6 31.4 32.5

Net Profit margins 23.9 21.4 21.0 19.8

Inventory days 9.8 22.1 22.1 22.1

Debtor days 60.4 68.4 68.4 68.4

Creditor days 31.2 52.2 52.2 52.2

EBITDA Conversion Rate 97.7 96.0 88.7 87.6

Return Ratios (%)

RoE 20.3 17.7 17.1 16.1

RoCE 16.0 15.9 17.0 17.4

RoIC 22.4 36.2 54.7 38.3

Valuation Ratios (x)

P/E 40.2 37.8 32.8 29.4

EV / EBITDA 28.7 23.9 21.5 17.7

EV / Revenues 9.7 7.8 6.8 5.8

Market Cap / Revenues 9.6 8.1 6.9 5.8

Price to Book Value 8.2 6.7 5.6 4.8

Solvency Ratios (x)

Debt / Equity 0.6 0.4 0.2 0.1

Debt / EBITDA 1.9 1.4 0.9 0.5

Current Ratio 0.9 0.8 0.9 0.9

Asset Turnover (x) 0.8 0.8 0.7 0.7



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 1044 1,190 Hold 9185.3 57.4 53.0 46.4 59.6 18.2 19.7 22.5 17.5 42.3 31.0 23.3 24.8 33.7 23.8 18.0 19.7

Alembic Pharma ALEMPHA 558 460 Hold 10510.7 21.2 21.9 22.6 25.5 26.3 25.5 24.7 21.9 25.3 17.9 14.6 16.5 21.0 18.5 16.6 16.3

Apollo Hospitals APOHOS 937 1,230 Hold 13040.9 15.9 10.3 23.8 31.6 59.0 91.1 39.4 29.7 6.1 6.8 9.3 10.8 6.0 3.8 8.2 10.0

Aurobindo Pharma AURPHA 582 640 Hold 34120.3 38.8 41.8 36.7 40.7 15.0 13.9 15.9 14.3 24.4 20.5 16.7 16.9 24.2 21.0 15.7 15.0

Biocon BIOCON 558 740 Buy 33495.0 8.5 6.2 9.3 14.0 65.8 89.9 60.0 39.9 9.6 8.4 11.3 14.7 10.5 7.2 9.8 13.0

Cadila Healthcare CADHEA 371 380 Hold 37991.1 14.5 17.5 16.8 19.0 25.5 21.2 22.1 19.5 13.1 17.1 14.7 15.5 21.4 21.5 17.8 17.5

Cipla CIPLA 628 640 Hold 50553.9 12.5 18.3 21.3 26.4 50.2 34.2 29.5 23.8 7.7 9.9 12.0 14.5 8.0 10.8 11.4 12.7

Divi's Lab DIVLAB 1076 1,070 Hold 28556.5 39.9 32.8 41.0 48.6 26.9 32.8 26.2 22.1 25.3 19.8 21.1 21.9 19.8 14.8 16.3 16.9

Dr Reddy's Labs DRREDD 2133 2,170 Hold 35391.4 78.0 57.0 80.3 120.5 27.4 37.4 26.6 17.7 7.3 6.1 7.5 9.3 10.5 7.2 9.4 12.6

Glenmark Pharma GLEPHA 569 500 Hold 16061.0 42.2 28.5 30.4 33.3 13.5 19.9 18.7 17.1 19.5 14.2 13.8 14.0 26.5 15.4 14.2 13.6

Indoco Remedies INDREM 192 190 Hold 1771.1 8.4 4.5 8.2 13.5 23.0 43.0 23.4 14.2 8.7 5.7 8.8 13.9 11.8 6.0 10.2 15.0

Ipca Laboratories IPCLAB 626 760 Buy 9621.1 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 780 1,090 Buy 12427.1 36.9 41.3 61.2 77.0 21.1 18.9 12.7 10.1 13.8 14.9 18.9 21.1 16.8 16.0 19.4 19.8

Lupin LUPIN 813 760 Hold 36753.3 56.7 13.3 34.0 40.4 14.3 61.3 23.9 20.1 16.6 10.6 11.0 12.6 19.0 4.4 10.4 11.2

Narayana Hrudalaya NARHRU 250 310 Buy 5109.0 4.1 2.5 6.4 9.9 60.5 99.4 39.0 25.2 12.5 6.4 12.7 16.4 8.8 5.1 11.4 15.1

Natco Pharma NATPHA 780 860 Hold 14390.5 26.3 37.7 42.7 27.5 29.6 20.7 18.3 28.3 33.6 27.3 27.3 16.1 29.5 22.6 21.5 12.6

Sun Pharma SUNPHA 555 510 Hold 133255.2 29.0 13.0 18.1 21.6 19.1 42.8 30.6 25.8 20.3 9.8 11.5 12.7 19.0 8.1 10.4 11.2

Syngene Int. SYNINT 577 685 Buy 11538.0 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 1495 1,420 Hold 25292.8 55.2 40.1 46.5 64.6 27.1 37.3 32.1 23.1 18.9 11.6 13.7 17.4 21.5 13.8 14.3 17.2

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



RATING RATIONALE

ICICI Direct Research endeavours to provide objective opinions and recommendations. ICICI Direct Research

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;

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ICICI Direct Research Desk,

ICICI Securities Limited,

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Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


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