date: jan 06, 2020 · leading player in ai and gi therapeutic area expect us business to grow in...

Date: Jan 06, 2020

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Equity Research Pick of the Week – PCG Research

Leading player in AI and GI therapeutic area

Expect US Business to grow in double digits

India Business to outperform IPM in the medium term

Alkem Laboratories

INDUSTRY

CMP

RECOMMENDATION ed

Buying Range

TARGET

TIME HORIZON ed

Pharmaceuticals

Rs. 2094.65

Buy at CMP and add on declines

Rs. 1965 - 2120

Rs. 2380 - 2650 Rs. 1848

4 quarters

Increasing focus on chronic therapy augurs well

Newer products launches to aid in US revenues growth

Estimate 13% revenues and ~25% PAT cagr over FY19-21E

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Shareholding Pattern % (Sep 30, 2019)

Promoters 66.0

Institutions 14.1

Non Institutions 19.9

Total 100.00

HDFC Scrip Code ALKLABEQNR

BSE Code 539523

NSE Code ALKEM

Bloomberg ALKEM:IN

CMP Jan 03, 2019 2094.65

Equity Capital (cr) 23.9

Face Value (Rs) 2

Eq- Share O/S(cr) 11.95

Market Cap (Rs cr) 25069

Book Value (Rs) 455

Avg.52 Wk Volume 48381

52 Week High 2149

52 Week Low 1660.4

Red Flag Price Level 1848

PCG Risk Rating * Yellow

India Business On Firm Footing Alkem Laboratories is the prominent player in Acute therapeutic segment in India. The company is working

to its strengths in the acute segment in domestic market and is focussed on growing its presence in the

chronic therapies as well. It is expected that acute season in India will be better this year, which should lead

to 12-15% growth in the company’s India business and around 100bps margin expansion in FY20. PAT

growth is expected to be 20-25%, aided by lower tax-rate. Alkem remains compliant to US FDA, which

augurs well for the US business. We are bullish on Alkem Laboratories given steady domestic acute business

and gaining traction from Chronic therapeutic segment in domestic market and double digit growth in the

US market in the next two years.

Company Profile:

Alkem Laboratories (Alkem) is a leading Indian pharmaceutical company with global operations. Alkem

produces branded generics, generic drugs, active pharmaceutical ingredients (APIs) and nutraceuticals. It

has a comprehensive portfolio of over 800 brands covering all the major therapeutic segments. Alkem is

ranked as the sixth largest pharmaceutical company in India in terms of market share. The company also

has presence in more than 50 international markets, with the United States being its key focus market. In

the US market, the Company has developed a strong pipeline of products with over 132 ANDA filings of

which half of them are yet to be commercialised. Alkem has an infrastructure comprising 21 manufacturing

facilities, out of which 6 are US FDA approved and 5 R&D centres located across India and the US. Domestic

business contributed 69% to total revenues while the US business contribution stood at 25% and other

international markets contributed to 6% of revenues.

View and valuation:

Last year, Alkem’s India business faced multiple headwinds including the ban on certain Fixed Dose

Combinations (FDCs), a relatively weak anti-infective season and a slow growth in their trade generic

business. However, on the positive side, the company’s chronic business continued to grow significantly

ahead of the market growth rate, leading to improvements in its market share and ranking in therapy

segments of CNS, anti-diabetic, cardiology and dermatology. International Business mainly led by the US,

delivered a robust performance on the back of new product launches and market share gains in the

company’s existing products. Alkem has more than 120 ANDAs filed with the US FDA and own front end to

distribute and market its products. Alkem is amongst the top 10 pharmaceutical companies in India and

during last fiscal, it outperformed the India Pharmaceutical Market (IPM) with growth of 14.3% compared

to IPM growth of 10.5%. We expect 13% cagr in revenues on the back of 15% growth in US business and

13% cagr in India business over FY19-21E. Strong revenues and steady margin expansion and lower tax

rate would lead to robust growth in PAT; estimate 25% PAT cagr over the same period. We recommend buy

on Alkem Labs at CMP of Rs 2095 and add on dips to Rs 1965 for sequential price target of Rs 2380 and Rs

2650 over the next four quarters. The stock trades at ~21x FY21E earnings and we have arrived to sequential

TP of Rs 2380 and Rs 2650 based upon 24x and 26.5x FY21E earnings respectively.

FUNDAMENTAL ANALYST

Kushal Rughani [email protected]

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Key Highlights

Alkem Laboratories (Alkem) produces

branded generics, generic drugs, active pharmaceutical ingredients (APIs) and nutraceuticals. It has a comprehensive portfolio of over 800 brands covering

all the major therapeutic segments.

In the domestic market, company is amongst the prominent players in the acute therapy (~80% of its domestic

revenues) segments of anti-infective, gastro-intestinal, pain/analgesics and

vitamins/minerals/nutrients. In the fast-growing chronic therapy segments of Neuro/CNS, cardiology, anti-diabetes and dermatology, the

company is taking rapid strides to emerge as one of the faster growing companies in the country.

Domestic business contributed 69% to

total revenues while the US revenues contribution stood at 25% and other international markets contributed to 6% of revenues.

With increased government spending,

growth of the insurance and at the backdrop of a rising population, the pharmaceutical industry is bound to do

well in the future.

We expect 13% cagr in revenues on the back of 15% growth in US business and 13% cagr in India business over FY19-21E. Strong revenues and margin

expansion would lead to faster growth in PAT; estimate 25% PAT cagr over the

same period.

Investment Rationale: Strong growth strategy for leadership in domestic market

Alkem has been the No. 1 Anti-infectives company in India for over the last 15 years, it is the No. 3 Gastro-

intestinal and analgesics company in India, it’s brands feature amongst the top 2 ranked brands in India in

their respective molecule category, company has 8 Brands with annual sales of more than Rs 100 Cr, 4

Brands which features amongst the top 50 pharmaceutical brands in India, 14 Brands feature amongst the

top 300 pharmaceutical brands in India. Off late, Alkem has increased its focus on introducing new products

to meet identified therapy gaps across its established therapeutic segments. The company introduced two

novel molecules in India - Arbekacin in Anti-Infective segment and Evogliptin in Anti-Diabetic segment. Both

of these are in-license products and would be exclusively marketed by Alkem, as per the terms of the

agreement. In the gastro-intestinal segment, Alkem offers products to treat disorders like hyperacidity,

gastric ulcers, nausea, vomiting, diarrhoea, GERD (Gastroesophageal Reflux Disease) and worm infestation.

Alkem has also entered the areas of probiotics, prokinetics, laxatives and digestive enzymes. The

differentiated product offerings in these new therapy areas will enable the company to grow and diversify

its portfolio.

Alkem also has several new products lined up in the vitamins, minerals and nutrients segment along with

the nutraceuticals in the areas of pregnancy, bone-health, gastro-segment (GI), among others. Alkem is

consolidating its existing offerings in the pain/analgesic segment through brand building initiatives. Most of

the popular brands are in the high-growth segment and still have ample headroom to grow further. The

demographic and disposal income as well as government ’s spending on healthcare are all in favour of the

sector and the further growth is expected in the company going forward.

In the domestic market, company is amongst the prominent players in the acute therapy (~80% of its

domestic revenues) segments of anti-infective, gastro-intestinal, pain/analgesics and

vitamins/minerals/nutrients. In the fast-growing chronic therapy segments of Neuro/CNS, cardiology, anti-

diabetes and dermatology, the company is taking rapid strides to emerge as one of the faster growing

companies in the country. The Company looks to outperform in the chronic segments on the back of new

product launches including in-licensed products, effective sales and marketing strategies, improved sales

force productivity and building strong brands. Alkem ranks no.1 in Anti-Infectives (AI), no.2 in Gastro-

Intestinal (GI), no.3 in Pain Management and no.4 in Vitamins/Minerals/Nutrients (supplements) (VMS). In

Neuro Science/CNS, company is ranked no.6 and in Dermatology, the company is ranked at 13.

During the second quarter, the Company filed 5 abbreviated new drug applications (ANDAs) with US FDA

and received 7 approvals (including 2 tentative approval). For H1 FY20, the Company filed 7 ANDAs with

the US FDA and received 12 approvals (including 4 tentative approval). As on Sep 30, 2019, the Company

has filed a total of 131 ANDAs and 1 new drug application (NDA) with the US FDA. Of these, it has received

approvals for 77 ANDAs (including 11 tentative approvals) and 1 NDA.

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Strategy for the domestic business

Alkem remains focussed on growing its India business through sustained efforts, to safeguard its dominance in acute therapies (85% of Alkem’s

India business) and create large brands in the chronic segment. It has 12 divisions in the acute segment and 7-8 divisions in the chronic segment.

Alkem plans to add 1,000 MRs in FY20, after 2,000 MRs additions in the past two years. Management believes that such efforts will help Alkem

outperform market growth in India by 200-300bps. Alkem’s India business can grow at 12-15% in the coming years.

Alkem’s India business needs to grow 12-15% in FY20 vs. 9% growth seen in FY19, for the company to deliver its stated margin improvement.

Given the better acute season this year vs. the weakness observed in the past two years, company is likely to deliver better numbers. Tax-rate is

also expected to come down, to 15-16% from 19% in FY18, driven by higher production at the tax-exempt Sikkim facility. All these factors are

expected to translate into 20-25% PAT growth for FY20. We estimate 200bps margin expansion over FY19-21E

Government Initiatives: In September 2018, ‘Ayushman Bharat’ or the National Health Mission Scheme was launched by the Government. The

largest Government-funded healthcare programme, PMJAY provides health insurance cover up to 5 lakh per family, covering 500 million citizens

who are most poor and vulnerable. Major focus of the PMJAY is on tertiary care and includes treatment for cancer, heart, respiratory and kidney

diseases. The PMJAY scheme has an outlay of Rs 6400 Cr. For FY20, Rs 61,398 Cr was earmarked as budgetary allocation for the health sector.

This is the highest in the last two financial years and 16% increase over FY19 allocation. Under the programme, nearly 1.5 lakh sub-centres and

primary health centres will be transformed as health and wellness centres by 2022. These centres will be equipped to provide treatment for

diabetes, cancer and other illnesses. The increased expenditure on healthcare is expected to benefit the pharmaceutical industry. Further, the

thrust on tertiary care and chronic therapy areas augurs well for specialty medicine manufacturers.

Focus on R&D & New Product Launches: Alkem has been focusing on R&D to strengthen its product portfolio and hence the future growth.

Research and Development (R&D) is one of the main pillars of growth for the Company. In the last five years, Alkem has invested over Rs 1500cr

in R&D to develop new products for its key markets. In FY19, company spent Rs 462cr or 6.3% of its revenues on R&D compared to 5.7% in the

previous year. The Company’s R&D team comprises over 500 scientists working across its 5 R&D centres located in India and the US to develop

products for its key focussed markets. It also has a 120 beds clinical research organisation facility for conducting bioequivalence and bioavailability

studies on healthy volunteers to prove the effectiveness of developed formulations. It has also set up new manufacturing facilities that are tax-

efficient as they avail fiscal benefits.

Alkem has increased their rate of ANDA filings to bolster product pipeline. Alkem filed 23 ANDAs during the year and received 21 approvals, which

includes 6 tentative approvals. This is the highest number of filings and approvals received by Alkem in a year. The company has a fairly strong

product pipeline of 127 ANDAs (as on March’19) already filed with the US FDA, with over half of them yet to be commercialised. Timely new product

approvals and commercialisation would be the key growth driver in the US market. The company has also made substantial investments in the

biosimilar segment through its subsidiary Enzene Biosciences - a biotech focussed R&D company situated in Pune, India. Over the medium to long-

term, Enzene aims to launch its biosimilar products, which are presently in preclinical and clinical development stage, in India and key international

markets.

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Biosimilars are very similar, though not identical, to FDA-approved biological products in terms of safety and effectiveness. Alkem is focussing on

providing biosimilars in key areas like oncology, rheumatology and diabetes. While some of the biosimilars are in early stage s of development, a

few have reached advanced clinical stages and the company is also setting up a biosimilar manufacturing facility in Pune, India. The introduction

of biosimilars will be an important future growth driver for the company.

Growth in Developed Markets: Over the last four years (FY14-18), the developed markets have grown at 5.7% CAGR. While growth is expected

to slow down to 3-5% CAGR over the period FY19-23, these countries will continue to cumulatively account for the largest amount of pharmaceutical

spending. The launch of specialty products and orphan drugs (i.e. drugs intended to treat rare diseases) will drive spending in this region. The US

pharmaceutical market is the world’s largest pharmaceutical market with medicine spending exceeding US$ 480 billion in 2018. It is also the largest

importer of drugs in the world and hence the growth and dynamics of the US market has a considerable bearing on the overall g rowth of the

industry. Over the period FY14-18, the US pharmaceutical market has grown at 7.2% CAGR, the fastest amongst the developed markets. However,

in the recent past, increased scrutiny by the government and the public on the price increases, higher number of ANDA approva ls by the US FDA

and channel consolidation has led to deflationary price trends. Over the next five years, branded medicines with sales worth > US$ 80 billion would

be losing exclusivity in the US. This patent expiry provides significant market opportunity for generic manufacturers. After India, US is the second

largest market for Alkem, contributing 25.8% to its total revenues. During FY19, the US business registered operating revenue of Rs 1,898cr, grew

by 39% yoy. The strong growth during the financial year was mainly on account of market share gains in the existing products as well as

contributions from the new product launches. Favourable exchange rate movement also helped the reported yoy growth during the year. Alkem

has cumulatively filed 132 ANDAs including one new drug application (NDA) with the US FDA. Of these, it has received approvals for 77 ANDAs

(including 11 tentative approvals and 1 NDA). In-licensing opportunities, strategic alliances and partnerships, quicker ANDA filings through a strong

focus on R&D will enable Alkem to boost its capabilities and product portfolio and result in more opportunities for growth in the US pharmaceutical

market. The management is confident of sustained growth in the US despite its challenges.

Opportunities in the Domestic Business: During FY19, Alkem’s domestic business registered operating revenue of Rs 4,964.2cr, +8.4% yoy

Revenues during the year was impacted due to ban on selected FDC drugs and relatively slower growth in the acute therapeutic segments of anti-

infectives (AI) and gastro-intestinal (GI) which contributes more than half to the company’s domestic sales. Alkem maintained its rank amongst

the top ten pharmaceutical companies in India with leading position in the acute segments of anti-infective, gastro-intestinal, pain & analgesic and

vitamins/minerals/nutrients (supplements) (VMS). In the chronic therapeutic segments of neurology, dermatology, anti-diabetes and cardiology,

Alkem grew ahead of the market growth rate thereby not only gaining market share but also improving its market ranking. Alkem also has several

new products lined up in the vitamins, minerals and nutrients segment along with the nutraceuticals in the areas of pregnancy, bone-health, gastro-

segment, among others. Alkem is consolidating its existing offerings in the pain/analgesic segment through brand building initiatives. The chronic

segment is also poised to be an important driver of industry growth with cardiology and diabetology being amongst the fastest -growing therapy

areas in the country. Alkem has set up specialised divisions for cardiology, diabetology, urology, CNS and dermatology to focus on the right brands

within each of these segments. Alkem has already exclusively launched Evogliptin (an innovative DPP4 inhibitor for effective control of glucose)

which has received an encouraging response.

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Top Selling Brands in Domestic Market

Pharma Exports registered ~10% growth in FY19

As per IQVIA data, Alkem features amongst the top 7 Neuro/Central Nervous System (CNS) companies in India and ranks amongst the leading

companies in the Alzheimer’s segment. The company has also gained market share and improved its rankings in the areas of dermatology,

cardiology and anti-diabetes. India is also the largest provider of generic medicines globally (20 - 22% of global export volume). Around 55% of

the total pharmaceutical exports from India are to the developed and regulated markets, speaking volumes about the quality, efficacy and pricing

of the Indian drugs. As per Pharmexcil Annual Report, pharmaceutical exports from India stood at ~US$ 19 billion for the financial year 2019 or

almost 10% higher than the previous fiscal. The growth is commendable as it was achieved against the demanding backdrop of increasing

competition in the generics space, price erosion due to competition intensification and channel consolidation, and heightened regulatory

environment, particularly in its key market. Indian pharmaceutical exports are likely to touch $22 billion (+14% yoy) this fiscal largely owing to

improving exports to and stabilising prices in the US market, which accounts for a third of India’s pharma exports, forecasts Pharmaceuticals Export

Promotion Council of India (Pharmexcil). With increased government spending, growth of the insurance and at the backdrop of a rising population,

the pharmaceutical industry is bound to do well in the future. The double digit growth returned in exports after three years, driven by formulation

exports largely to North America.

Alkem has 21 manufacturing facilities located across India and the US to serve its key markets. Six of these are US FDA approved and cater to the

US markets. Over the last three years, the company has invested significantly in these facilities to build sufficient capacit ies to support the

foreseeable demand for formulations and APIs over the next few years. Besides, successful debottlenecking projects have been carried out at the

facilities, which have bolstered production, while reducing production costs. These strategic investments in manufacturing capacities has created

a competitive advantage and will be fundamental in enabling the Company to capture significant market opportunities.

Brand Therapeutic area Sales (Rs cr) Mkt Share (%)

Clavam AI 361 16

Pan GI 283 30

Pan-D GI 267 28

Taxim-O AI 198 21

Taxim AI 138 77

Xone AI 132 14

A To Z NS Vitamins (VMS) 130 9

Gemcal Pain 106 14

Pipzo AI 92 18

Ondem GI 89 28

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On the workforce front, Alkem has more than 14,500+ employees working across the globe, 500+ Scientists, 9,000+ Field force in India, 7,000+

Stockists in India, 40+ Sales depots and warehouses in India. This give the company feet-on-the-street to ensure improved reach of all its products.

Further, this significantly large field force enables each medical representative to focus on fewer products vis -à-vis several, leading to more

productivity.

Key Highlights from Q2 FY20 Concall

India business

Alkem’s Q2 FY20 17.6% yoy India growth stemmed from its acute (15%), and chronic (24%) therapies.

According to IQVIA, in Q2 FY20 Alkem’s anti-infective division sales grew 30.8% yoy vs. therapy growth rate of 19.9% yoy.

As Per IQVIA, Alkem gained one rank and featured among the top-four pharmaceutical companies in India.

During the quarter, the company also improved its ranking in chronic therapies such as neuro/CNS, derma and anti-diabetes.

The present MR strength is 10,000. Of 8,000, 65% is dedicated to acute therapies, the rest to chronic therapies and for remaining

2,000 (acute 1,200 and chronic 800).

US market

Management said that growth of its US business in Q2 FY20 (11.7%) stemmed from product launches and the scale-up of existing

products.

Management guided to ~10-12 product launches during FY20.

Recently, the company received EIR for its formulations manufacturing plants at Daman and Baddi (India), which were inspected

in Aug’19. Major ANDA filings are from the Daman and Baddi plants.

The St Louis facility contributes less than 3% of US sales.

Other highlights

Tax-rate guidance for FY20 was at 10-12%; for FY21, 12-15%.

The higher debt on account of working capital required will contract by end of FY20.

EBITDA margin guidance: – 100bp y/y improvement.

R&D guidance: 5.5 - 6% of sales.

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View & Valuation:

Last year, Alkem’s India business faced multiple headwinds including the ban on certain Fixed Dose Combinations (FDCs), a relatively weak anti-

infective season and a slow growth in their trade generic business. However, on the positive side, the company’s chronic business continued to

grow significantly ahead of the market growth rate, leading to improvements in its market share and ranking in therapy segments of CNS, anti-

diabetic, cardiology and dermatology. International Business mainly led by the US, delivered a robust performance on the back of new product

launches and market share gains in the company’s existing products.

Medicine spending in the US is expected to grow at a steady clip and the region is also expected to witness a large number of products going off-

patent over the next five years. Given this, there is a good headroom for growth in the US market. The demographic and disposal income as well

as the government spending on healthcare trends are all in favour of the sector and the further growth is expected in Alkem going forward. Alkem

has more than 120 ANDAs filed with the US FDA, cGMP compliant manufacturing facilities and own front end to distribute and market its products.

Alkem is amongst the top 10 pharmaceutical companies in India and during last fiscal, it outperformed the India Pharmaceutical Market (IPM) with

growth of 14.3% compared to IPM growth of 10.5%. For FY19, overall revenues grew ~14% yoy to Rs 7357cr. Operating Margin was down 80bps

and stood at 15.2%. Strong revenues and lower tax expenses led to 12% yoy growth in PAT for the year. We expect 13% cagr in revenues on the

back of 15% growth in US business and 13% cagr in India business over FY19-21E. Strong revenues and steady margin expansion would lead to

stellar 25% cagr in PAT. We recommend buy on Alkem Labs at CMP of Rs 2095 and add on dips to Rs 1965 for sequential price target of Rs 2380

and Rs 2650 over the next four quarters. The stock trades at ~21x FY21E earnings and we have arrived to sequential TP of Rs 2380 and Rs 2650

based upon 24x and 26.5x FY21E earnings respectively.

Key Risks

Delay in approvals/launches may impact the US business

Any adverse US FDA action upon inspection of its US dedicated facilities

More number of drugs coming under DPCO coverage, thus impacting domestic business (price erosion)

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Revenues Trend

Source: Company, HDFC sec Research

5853 6431 7357 8219 9430

16

10

14

12

15

5

10

15

20

2000

4000

6000

8000

10000

FY17 FY18 FY19 FY20E FY21E

Revenues Growth

EBITDA and Margin trend over FY19-21E


999 1028 1115 1340 1622

17.1

16.0

15.2

16.3

17.2

5

10

15

20

300

600

900

1200

1500

1800


EBITDA Margin

PAT trend over FY19-21E


892 681 761 925 1191

20

-24

12

22

29

-25

-15

-5

5

15

25

35

300

600

900

1200


PAT Growth

Strong Return Ratios (%)


22

15 1516

18

22

14 1415

17

0

5

10

15

20

25


RoE RoCE

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Domestic Revenues over FY17-21E


4215 4490 4874 5498 6222

16

79

13 13

3

6

9

12

15

18

500

1500

2500

3500

4500

5500

6500


Revenues Growth

US revenues trend over FY17-21E


1203 1367 1897 2061 2502

22

14

39

9

21

0

5

10

15

20

25

30

35

40

45

300

600

900

1200

1500

1800

2100

2400

2700


Revenues Growth

Domestic Therapeutic Split (%)


40

19

12

8

4

33

38

Anti-Infectives (AI)

Gastro Instetinal (GI)

Pain

Vitamins/Minerals

Neuro/CNS

Derma

Anti-Diabetic

Cardiac

Others

ANDA Filings in USA


63

77

91

108

127132

19

3139

50

7077

0

20

40

60

80

100

120

140

FY15 FY16 FY17 FY18 FY19 H1 FY20

Total Filings Approved ANDAs

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Income Statement

(Rs Cr) FY17 FY18 FY19 FY20E FY21E

Net Revenue 5853 6431 7357 8219 9430

Other Income 112 96 88 85 133

Total Income 5965 6527 7445 8303 9563

Growth (%) 15.9 9.9 14.4 11.7 14.7

Operating Expenses 4854 5403 6243 6879 7808

EBITDA 1111 1124 1202 1424 1755

Growth (%) 17.1 2.9 8.4 20.2 21.1

EBITDA Margin (%) 17.1 16.0 15.2 16.3 17.2

Depreciation 101 143 193 222 262

EBIT 1010 981 1009 1203 1493

Interest expenses 45 55 55 56 54

PBT 965 926 955 1147 1438

Tax 60 288 181 206 230

Minority Interest -13 -8 -13 -15 -17

RPAT 892 631 761 925 1191

Growth (%) 20.3 -23.7 11.7 21.7 28.8

EPS 74.6 57.0 63.6 77.4 99.6 Source: Company, HDFC sec Research

Balance Sheet As at March FY17 FY18 FY19 FY20E FY21E

SOURCE OF FUNDS

Share Capital 23.9 23.9 23.9 23.9 23.9

Reserves 4444 4840 5415 6100 6980

Shareholders' Funds 4468 4864 5439 6123 7004

Long Term Debt 209 131 231 206 181

Short Term Debt 451 867 713 713 713

Net Deferred Taxes -696 -654 -707 -707 -707

Long Term Provisions & Others 102 165 214 203 240

Minority Interest 115 122 133 133 133

Total Source of Funds 4649 5494 6023 6670 7564

APPLICATION OF FUNDS

Net Block (incl. CWIP) 1846 2367 2682 2860 2998

Goodwill 366 367 381 381 381

Investments 0 99 96 96 96

Other Non-Current Assets 484 165 126 146 173

Total Non-Current Assets 2696 2997 3285 3482 3647

Cash & Equivalents 952 923 890 1467 2045

Inventories 1206 1442 1500 1696 1818

Trade Receivables 714 1081 1248 1238 1550

Other Current Assets 304 568 578 578 578

Total Current Assets 2224 3091 3327 3513 3947

Trade Payables 741 961 962 1060 1204

Other Current Liab & Provisions 482 556 515 731 871

Total Current Liabilities 1223 1517 1478 1792 2075

Net Current Assets 1000 1574 1849 1721 1872

Total Application of Funds 4649 5494 6023 6670 7564


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Cash Flow Statement (Consolidated)

(Rs Cr) FY17 FY18 FY19 FY20E FY21E

Reported PBT 965 926 955 1,147 1,438

Non-operating & EO items -9 -3 -53 0 0

Interest Expenses -59 -23 -33 -29 -78

Depreciation 101 143 193 222 262

Working Capital Change -263 -564 -251 55 -140

Tax Paid -264 -203 -181 -206 -230

OPERATING CASH FLOW ( a ) 471 276 629 1,188 1,252

Capex -634 -677 -508 -400 -400

Free Cash Flow -163 -401 122 788 852

Investments -42 87 3 0 0

Non-operating income 390 223 61 70 116

INVESTING CASH FLOW ( b ) -286 -367 -445 -330 -284

Debt Issuance / (Repaid) 12 357 -54 -25 -25

Interest Expenses -64 -55 -55 -56 -54

FCFE -215 -99 13 707 773

Share Capital Issuance - - - - 1

Dividend -86 -218 -227 -241 -311

Others -429 530 117 42 0

FINANCING CASH FLOW ( c ) -567 614 -218 -281 -390

NET CASH FLOW (a+b+c) 952 923 890 1,467 2,045 Source: Company, HDFC sec Research

Key Ratios (Rs Cr) FY17 FY18 FY19 FY20E FY21E

EBITDA Margin 17.1 16.0 15.2 16.3 17.2

EBIT Margin 15.3 13.8 12.5 13.6 14.4

APAT Margin 15.2 10.6 10.3 11.3 12.6

RoE 21.9 14.6 14.8 16.0 18.2

RoCE 21.6 14.2 14.0 15.3 17.4

Solvency Ratio

Debt/EBITDA (x) 0.7 1.0 0.8 0.7 0.6

Net D/E -0.1 0.0 0.0 -0.1 -0.2

PER SHARE DATA

EPS 74.6 57.0 63.6 77.4 99.6

BV 374 407 455 512 586

Dividend 15.0 10.1 16.0 17.0 21.9

Turnover Ratios (days)

Debtor days 45 61 62 55 60

Inventory days 75 82 74 75 70

Creditors days 46 55 48 47 47

VALUATION

P/E 27.5 36 32.4 26.7 20.7

P/BV 5.5 5.0 4.5 4.0 3.5

EV/EBITDA 21.1 20.9 19.2 15.6 12.5

EV / Revenues 3.6 3.3 2.9 2.5 2.1

Dividend Yield (%) 0.8 0.6 0.9 1.0 1.2 Source: Company, HDFC sec Research

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Ratings Chart

R E T U R N

HIGH

MEDIUM

LOW

LOW MEDIUM HIGH

RISK

Ratings Explanation:

RATING Risk - Return BEAR CASE BASE CASE BULL CASE

BLUE LOW RISK - LOW RETURN STOCKS

IF RISKS MANIFEST PRICE CAN FALL 20%

OR MORE

IF RISKS MANIFEST

PRICE CAN FALL 15% & IF INVESTMENT

RATIONALE FRUCTFIES

PRICE CAN RISE BY 15%

IF INVESTMENT RATIONALE FRUCTFIES

PRICE CAN RISE BY 20% OR MORE

YELLOW MEDIUM RISK - HIGH RETURN STOCKS


OR MORE

IF RISKS MANIFEST PRICE CAN FALL 20% &




PRICE CAN RISE BY 35% OR MORE

RED HIGH RISK - HIGH RETURN STOCKS


OR MORE

IF RISKS MANIFEST PRICE CAN FALL 30% &




PRICE CAN RISE BY

50% OR MORE

# Explanation of Red-flag Price level: If stock prices starts sustaining below red-flag level, the premise of the investment needs to be reviewed. Risk averse

investors should exit the stock and preserve capital. The downside of following red-flag level is that if the price decline turns out to be temporary and if

it recovers subsequently, one won’t be able to participate in the gains.

15

Page


Price Chart

300

600

900

1200

1500

1800

2100

2400

Rating Definition:

Buy: Stock is expected to gain by 10% or more in the next 1 Year. Sell: Stock is expected to decline by 10% or more in the next 1 Year.

16

Page


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date: jan 06, 2020 · leading player in ai and gi therapeutic area expect us business to grow in...

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