Recommend BUY

CMP 1353.00

Target Price 1488.00

ISIN: INE358A01014 AUGUST 23rd

, 2013

ABBOTT INDIA LTD Q2 CY13

STOCK DETAILS

Sector Pharmaceuticals

BSE Code 500488

Face Value 10.00

52wk. High / Low (Rs.) 1650.00/1300.05

Volume (2wk. Avg ) 435

Market Cap ( Rs in mn ) 28751.25

Annual Estimated Results (A*: Actual / E*: Estimated)

Years CY12A CY13E CY14E

Net Sales 16526.90 18179.59 19706.68

EBITDA 2345.00 2524.55 2715.90

Net Profit 1447.00 1554.23 1676.40

EPS 68.09 73.14 78.89

P/E 19.87 18.50 17.15

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX ABBOTT INDIA LTD

SYNOPSIS

Abbott India Ltd is a development, manufacture and

marketing of pharmaceutical, diagnostic, nutritional

& hospital products in India.

Abbott has completed the separation of its research-

based pharmaceuticals business, which became

AbbVie, a new independent biopharmaceutical

company.

During the quarter, the company has posted

standalone Net Profit is increased by 0.64% to Rs.

297.10 million.

Revenue for the quarter rose by 6.89% to

Rs.4402.10 million from Rs.4118.20 million, when

compared with the prior year period.

EBITDA is Rs.491.90 millions as against Rs.501.80

millions in the corresponding period of the previous

year.

EPS of the company stood at Rs.13.98 a share during

the quarter, registering 0.64% increase over

previous year period.

During the year 2012, Net Sales for the year

increased to Rs. 16526.90 million as against Rs.

14774.80 million in 2011.

During the year 2012, the Company launched Adiza

(Ilaprazole) and entered the large PPI (Proton Pump

Inhibitors) segment.

Net Sales and PAT of the company are expected to

grow at a CAGR of 10% and 12% over 2011 to

2014E respectively.

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

COMPANY NAME (Rs.) Rs. in Mn. (Rs.) Ratio Ratio (%)

Abbott India Ltd 1353.00 28751.25 68.09 19.87 4.44 170.00

Dr. Reddys Lab Ltd 2094.70 357526.50 67.78 31.02 4.59 300.00

GlaxoSmithKline Pharmaceuticals Ltd 2298.00 193969.90 37.87 33.74 9.65 500.00

Divi’s Laboratories Ltd 938.85 124504.80 46.84 20.03 4.88 750.00

FINANCIAL HIGHLIGHTS

Results updates- Q2 CY13,

Abbott India Ltd is a development, manufacture and

marketing of pharmaceutical, diagnostic, nutritional

& hospital products in India, reported its financial

results for the quarter ended 30th June, 2013.

Months Jun-13 Jun-12 % Change

Net Sales 4402.10 4118.20 6.89

PAT 297.10 295.20 0.64

EPS 13.98 13.89 0.64

EBITDA 491.90 501.80 (1.97)

The company net profit jumps to Rs.297.10 million against Rs.295.20 million in the corresponding quarter

ending of previous year, an increase of 0.64%. Revenue for the quarter rose by 6.89% to Rs. 4402.10 million from

Rs.4118.20 million, when compared with the prior year period. Reported earnings per share of the company

stood at Rs.13.98 a share during the quarter, registering 0.64% increase over previous year period. Profit before

interest, depreciation and tax is Rs.491.90 millions as against Rs.501.80 millions in the corresponding period of

the previous year.

Expenditure:

During the quarter the total expenditure rose by 8

per cent mainly on account of increase in Cost OF

Material Consumed along with consideration of

Purchase of Stock in Trade. Total expenditure in Q2

CY13 was at Rs. 4025.20 million as against Rs.

3712.70 million in Q2 CY12. Purchase of Stock in

Trade is Rs. 2246.00 millions against Rs. 1805.80

millions in the corresponding period of the previous

year. Other expenditure was at Rs. 765.60 million

and Material Consumed cost is Rs. 702.40 millions in

Q2 CY13 are the primarily attributable to growth of

expenditure.

Latest Updates

• During the year 2012, the Company launched Adiza (Ilaprazole) and entered the large PPI (Proton Pump

Inhibitors) segment. In 2012, 40% of the base business sales growth in 2012 came from products launched

during the last 3 years demonstrating the success of their new product initiatives.

• Abbott has Introduced Nutrition for Active Kids - Kidz ZonePerfect® Nutrition Bars. Kidz ZonePerfect

features five grams of protein, 23 vitamins and minerals and three grams of fiber, providing a nutritious

snack option that meets kids' selective tastes.

• Abbott has received U.S. Food and Drug Administration (FDA) approval for XIENCE Xpedition™ Everolimus

Eluting Coronary Stent System. XIENCE Xpedition features a new stent delivery system designed to optimize

deliverability, particularly in challenging coronary anatomies.

• Abbott has completed the separation of its research-based pharmaceuticals business, which became AbbVie

Inc., a Delaware corporation, a new independent biopharmaceutical company.

• Abbott has received ‘Frost & Sullivan Healthcare Excellence Award’ for Multinational Corporation

Pharmaceutical Company of the year in 2012.

Company Profile

Formerly known as Knoll Pharmaceuticals Limited, Abbott India Limited (AIL) is a subsidiary of Abbott Capital

India Limited. It is involved in the discovery, development, manufacture and marketing of pharmaceutical,

diagnostic, nutritional and hospital products in India. Abbott India Limited offers products in the areas of pain

management and gastroenterology primarily under the 'Brufen', 'Digene', and 'Cremaffin' brand names. In

addition, it offers various solutions in the areas of thyroid, obesity, diabetes, and benign prostratic hyperplasia.

The company also provides various products in the neurology and psychiatric segments as well as in the field of

anesthesiology and neonatology. Abbott India Limited employs over 2,600 people and reaches customers

through a wide network of 35 distribution points, catering to over 4,500 stockists and 150,000 retail outlets. It

was founded in 1944 and is based in Mumbai.

In 2010, Abbott became India’s largest pharmaceutical company by acquiring Solvay Pharmaceuticals and the

domestic formulations business of Piramal Healthcare Limited. With this, Abbott expects its pharmaceutical sales

in India to exceed $2.5 billion by 2020.

The company is a global, broad-based health care company devoted to discovering new medicines, new

technologies and new ways to manage health. The company products span the continuum of care, from

nutritional products and laboratory diagnostics through medical devices and pharmaceutical therapies. AIL

comprehensive line of products encircles life itself - addressing important health needs from infancy to the

golden years. Abbott has CE Marking (Conformité Européenne) for the Abbott ARCHITECT HbA1c (IA) Assay.

Abbott today is a global, diversified health care company devoted to the discovery, development, manufacture

and marketing of pharmaceutical, diagnostic, nutritional and hospital products. Abbott has sales, manufacturing,

research and development, and distribution facilities around the world.

Products by Category

• Pharmaceutical products

Pharmaceutical products include treatments for people with HIV; therapies for sufferers of rheumatoid

arthritis, Crohn's Disease and other autoimmune disorders; drugs for the treatment of people with migraines,

epilepsy and mania associated with bipolar disorder; antibiotics; and specialized medicines for managing

obesity, thyroid disease, high cholesterol, hypertension, dyslipidemia and cancer.

• Nutritional

Abbott is behind some of the world's most trusted names in infant, adult and healthy living nutritional

products, including Similac, Ensure, Glucerna, AdvantEdge, Body-for-LIFE and ZonePerfect.

• Diagnostic instruments and tests

Diagnostic instruments and tests are used worldwide in hospitals, reference labs, blood banks, physician

offices, clinics and at home to diagnose a range of serious health. Molecular diagnostics help physicians detect

genetic mutations in patients' genes and chromosomes to detect and manage disease. Hand-held point of care

diagnostics and blood glucose monitoring devices provide health care professionals and patients with fast,

convenient and accurate test results.

• Medical and surgical

The company offering of medical and surgical devices includes minimally invasive treatment options that

improve the care of people with vascular disease. Vascular offerings include vessel closure devices, carotid

and coronary stents, catheters and other interventional tools and devices.

• Animal Health

The foundation of the company line of veterinary products is built on the expertise of Abbott's

pharmaceutical and medical product businesses. Products serving the veterinary market include anesthetic

and wound care products, nutritional supplements, and intravenous sets and solutions.

• Vision Technologies

Focus on improving the quality of vision by improving the science of vision. Market-leading technologies,

products and services are designed to meet the needs of patients who live with vision challenges and seek

greater freedom from the limitations of eyeglasses.

Financial Highlight STANDALONE

Balance sheet as at December 31st, 2011-2014E

(A*- Actual, E* -Estimations & Rs. In Millions)

CY11A CY12A CY13E CY14E

SOURCES OF FUNDS (Rs.in.mn)

Shareholder's Funds

Share Capital 212.50 212.50 212.50 212.50

Reserves and Surplus 5228.93 6256.10 7507.32 8708.49

1. Sub Total - Net worth 5441.43 6468.60 7719.82 8920.99

Non Current Liabilities

Deferred Tax Liability (net) 0.00 12.52 13.15 13.67

Long Term Provisions 148.21 294.30 353.16 395.54

2. Sub Total - Non Current Liabilities 148.21 306.82 366.31 409.21

Current Liabilities

Trade Payables 1208.96 1013.35 891.75 820.41

Other Current Liabilities 412.81 441.21 454.45 463.54

Short Term Provisions 763.46 841.12 883.18 909.67

3. Sub Total - Current Liabilities 2385.23 2295.68 2229.37 2193.61

Total Liabilities (1+2+3) 7974.87 9071.10 10315.50 11523.82

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 792.04 1038.68 1277.58 1481.99

Intangible assets 4.56 47.98 59.98 69.57

Capital Work in Progress 3.56 5.09 6.26 7.26

a) Sub Total - Fixed Assets 800.16 1091.75 1343.81 1558.82

b) Long Term loans and advances 250.05 228.82 251.70 271.84

c) Deferred tax assets 62.03 0.00 0.00 0.00

1. Sub Total – Non Current Assets 1112.24 1320.57 1595.51 1830.66

Current Assets

Inventories 2548.97 2636.34 2794.52 2955.23

Trade receivables 1326.14 1410.33 1494.95 1599.60

Cash and Bank Balances 2589.46 3245.15 3890.16 4512.58

Short-terms loans & advances 351.73 427.93 504.96 585.75

Other current assets 46.33 30.78 35.40 40.00

2. Sub Total - Current Assets 6862.63 7750.53 8719.98 9693.16

Total Assets (1+2) 7974.87 9071.10 10315.50 11523.82

Annual Profit & Loss Statement for the period of 2011 to 2014E

Value(Rs.in.mn) CY11A CY12A CY13E CY14E

Description 12m 12m 12m 12m

Net Sales 14774.80 16526.90 18179.59 19706.68

Other Income 193.30 223.10 252.10 272.27

Total Income 14968.10 16750.00 18431.69 19978.95

Expenditure -13016.30 -14405.00 -15907.14 -17263.05

Operating Profit 1951.80 2345.00 2524.55 2715.90

Interest -0.30 -0.20 -0.75 -0.80

Gross profit 1951.50 2344.80 2523.80 2715.10

Depreciation -150.00 -194.90 -214.39 -231.54

Profit Before Tax 1801.50 2149.90 2309.41 2483.56

Tax -597.60 -702.90 -755.18 -807.16

Net Profit 1203.90 1447.00 1554.23 1676.40

Equity capital 212.50 212.50 212.50 212.50

Reserves 5228.90 6256.10 7507.32 8708.49

Face value 10.00 10.00 10.00 10.00

EPS 56.65 68.09 73.14 78.89

Quarterly Profit & Loss Statement for the period of 31st

Dec, 2012 to 30th Sep, 2013E

Value(Rs.in.mn) 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13E

Description 3m 3m 3m 3m

Net sales 4480.10 4196.80 4402.10 4490.14

Other income 55.10 63.70 67.20 69.89

Total Income 4535.20 4260.50 4469.30 4560.03

Expenditure -3751.90 -3737.70 -3977.40 -3928.87

Operating profit 783.30 522.80 491.90 631.16

Interest 0.00 -0.10 -0.30 -0.27

Gross profit 783.30 522.70 491.60 630.89

Depreciation -47.70 -52.30 -47.80 -54.97

Profit Before Tax 735.60 470.40 443.80 575.92

Tax -237.90 -153.40 -146.70 -186.60

Net Profit 497.70 317.00 297.10 389.32

Equity capital 212.50 212.50 212.50 212.50

Face value 10.00 10.00 10.00 10.00

EPS 23.42 14.92 13.98 18.32

Ratio Analysis

Particulars CY11A CY12A CY13E CY14E

EPS (Rs.) 56.65 68.09 73.14 78.89

EBITDA Margin (%) 13.21% 14.19% 13.89% 13.78%

PBT Margin (%) 12.19% 13.01% 12.70% 12.60%

PAT Margin (%) 8.15% 8.76% 8.55% 8.51%

P/E Ratio (x) 23.88 19.87 18.50 17.15

ROE (%) 22.12% 22.37% 20.13% 18.79%

ROCE (%) 38.63% 39.27% 35.48% 33.04%

EV/EBITDA (x) 13.40 10.88 9.85 8.92

Book Value (Rs.) 256.07 304.40 363.29 419.81

P/BV 5.28 4.44 3.72 3.22

Charts

Outlook and Conclusion

� At the current market price of Rs.1353.00, the stock P/E ratio is at 18.50 x CY13E and 17.15 x CY14E

respectively.

� Earning per share (EPS) of the company for the earnings for CY13E and CY14E is seen at Rs.73.14 and

Rs.78.89 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 12% over 2011 to 2014E

respectively.

� On the basis of EV/EBITDA, the stock trades at 9.85 x for CY13E and 8.92 x for CY14E.

� Price to Book Value of the stock is expected to be at 3.72 x and 3.22 x respectively for CY13E and CY14E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.1488.00 for Medium to Long term

investment.

Industry Overview

India is now among the top five pharmaceutical emerging markets globally and is a front runner in a wide range

of specialties involving complex drugs' manufacture, development, and technology. The Indian pharmaceutical

industry is a highly knowledge based industry which is growing steadily and plays a major role in the Indian

economy. As a highly organised sector, the numbers of pharmaceutical companies are increasing their operations

in India. The industry is expected to touch US$ 35.9 billion by 2016.

The Department of Pharmaceuticals has prepared a 'Pharma Vision 2020' document for making India one of the

leading destinations for end-to-end drug discovery and innovation. The department provides requisite support

by way of world class infrastructure, internationally competitive scientific manpower for pharma research and

development (R&D), venture fund for research in the public and private domain and such other measures.

Sector Structure/ Market Size

The domestic pharma market has reported total sales of Rs 6,370 crore (US$ 1.03 billion) in the month of May

2013, registering a growth of 6.8 per cent, as per IMS Health. The major factors responsible are increasing sales

of generic medicines, continued growth in chronic therapies and a greater penetration in rural markets.

The cumulative drugs and pharmaceuticals sector has attracted foreign direct investments (FDI) worth US$

11,304.91 million during April 2000 to April 2013, according to the latest data published by Department of

Industrial Policy and Promotion (DIPP).

Growth

The Indian pharmaceutical industry would continue to experience strong growth as structural growth drivers

continue to remain impervious. The industry is expected to revert a growth of 10-12 percent in 2013-14,

according to a study by ICRA. It is also expected that in-organic investments will gain momentum in the medium-

term as companies plan to create stronger presence in emerging markets and build expertise in select therapy

areas.

Among the top 10 companies, Cipla with total sales of Rs 302 crore (US$ 49.13 million), Sun Rs 297 crore (US$

48.32 miliion), Alkem Rs 222 crore (US$ 36.12 million) and Sanofi Rs 186 crore (US$ 30.26 million) were the

fastest growing corporations for the month of May 2013.

Exports

Pharmaceutical exports from the country during 2012-13 stood at US$14.6 billion, up from US$13.2 billion the

previous year, as per P V Appaji, Director General, Pharmexcil.

The Ministry of Commerce has targeted Indian pharma sector exports at US$ 25 billion by 2016. The Government

has also planned a ‘Pharma India’ brand promotion action plan spanning over a three-year period to give an

impetus to generic exports.

In order to boost the export capability, Export-Import Bank of India (Exim Bank), has decided to expand the

scope of its finance to pharmaceutical companies for extended repayment periods. Eligible export oriented

companies can avail finance from Exim Bank for a maximum repayment period of 10 years with a moratorium of

up to 36 months.

“Of the export markets, Indian pharma will focus on the US market which presents significant opportunities for

the next two years for generics, due to patent cliffs and recent changes in healthcare policies,” said the India

Ratings report on outlook for Indian pharmaceuticals for 2013.

Generics

Generics will continue to dominate the market while patent-protected products are likely to constitute 10 per

cent of the pie till 2015, according to McKinsey report 'India Pharma 2015- Unlocking the potential of Indian

Pharmaceuticals market'.

Global demand for generic drugs from Indian companies is booming as developed nations battle rising healthcare

costs. As a result, generics companies are increasingly focusing on expanding presence in relatively under-

penetrated markets (i.e. France, Spain & Italy), branded generic markets of East Europe and niche areas like

complex generics, OTCs etc.

Diagnostics Outsourcing/ Clinical Trials

India is fast becoming the preferred destination for high-end pathology and diagnostic services. The highly

fragmented diagnostics and pathology labs market in India is pegged at US$ 3.4 billion, according to a report by

PricewaterhouseCoopers.

An increasing number of hospitals from the UK, US, Middle East and neighbouring countries are tying up with

Indian diagnostic centres to conduct laboratory tests. The Indian diagnostic services market is expected to grow

at a compound annual growth rate (CAGR) of around 26 per cent during 2012-2015 on back of huge investments,

fast expansion into tier II & III cities, and strong government support strengthening the healthcare infrastructure

in the country.

According to RNCOs research report “Booming Clinical Trials Market in India”, the number of clinical studies by

domestic and global players has sharply risen. India, over the last decade, has developed significant capabilities

in clinical trials, along with certain capabilities in project management and data management.According to

RNCOs research report “Booming Clinical Trials Market in India”, the number of clinical studies by domestic and

global players has sharply risen. India, over the last decade, has developed significant capabilities in clinical

trials, along with certain capabilities in project management and data management.

Investments

Some of the investments in the sector are:

• Piramal’s healthcare vertical plans to invest US$ 2.5 million to upgrade their antibody drug conjugate

(ADC) manufacturing suites. The upgrade will give Piramal two commercial grade ADC suites at the

Grangemouth facility, while retaining clinical phase manufacturing capacity in other suites on-site

• Dr Reddy's Laboratories (DRL) has launched Donepezil Hydrochloride tablets in the US market following

the approval by the United States Food and Drug Administration (USFDA)

• US-based drug maker MSD has tied up with Mumbai-based Lupin to market MSD's 23-valent

Pneumococcal Polysaccharide Vaccine in India. Lupin would have a non-exclusive licence to market,

promote and distribute the vaccine under a different brand name

• Aurobindo Pharma, Natco Pharma and Glenmark have received approvals from the US Food and Drug

Administration (USFDA) to launch their migraine drugs in the US market

• Elder Pharmaceuticals has acquired UK-based Max Healthcare. The acquisition is through Elder's fully-

owned UK subsidiary, NutraHealth, and will mark the re-entry of Elder Pharma into the over-the-counter

(OTC) pharmaceutical category

• Zydus Group has launched LipaglynTM (Saroglitazar), a novel drug targeted for treating diabetic

dyslipidemia or hypertriglyceridemia in Type II diabetes. The drug has been approved for launch in India

by the Drug Controller General of India (DCGI)

Government Initiatives

The Foreign Investment Promotion Board (FIPB) has cleared seven FDI proposals for investment in the Indian

pharmaceutical companies. Currently, 100 per cent FDI in pharma sector is permitted through automatic

approval route in the new projects but the foreign investment in the existing pharma companies requires FIPB

approval.

In the Union Budget 2013-14, investment allowance of 15 per cent on new plant and machinery has been

allowed. The allowance is expected to increase investments in new projects while simultaneously providing tax

benefit to the industry.

In order to provide relief to the common man in the area of healthcare, a countrywide campaign in the name of

‘Jan Aushadhi Campaign’ has been initiated by the Department of Pharmaceuticals, Government of India, in

collaboration with the State Governments, by way of opening up of Jan Aushadhi Generic Stores in the

Government Hospitals by way of supply of generic medicines through Central Pharma Public Sector

Undertakings, to make available quality generic medicines at affordable prices to all.

Road Ahead

In spite of some recent adverse developments, with the support of Pharmexcil and the Government in the form of

Brand India Pharma project iPHEX, the sector would continue to grow and meet the healthcare requirements of

the developing world.

The country will see the largest number of merger and acquisitions (M&A) in the pharmaceutical and healthcare

sector, according to consulting firm Grant Thornton. A survey conducted across 100 companies has revealed that

one-fourth of the respondents were optimistic about acquisitions in the pharmaceutical sector.

The pharma companies such as Cipla, Ranbaxy, Dr Reddy's Labs and Lupin might soon be part of the

government's ambitious 'Jan Aushadhi' project. In an attempt to commercialise the project, the Government is

likely to rope in the private sector to bulk-procure generic drugs from them.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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