lupin busness model by icici.pdf

8/11/2019 lupin busness model by icici.pdf

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ICICIdirect|Equity Research

xhibit 1:Key Financials (Rs Crore)FY08 FY09 FY10E FY11E FY12E

et Sales 2706.4 3775.9 4867.2 5968.7 7062.0

et Profit 408.3 501.5 632.9 815.2 1002.7

PS 49.8 61.3 71.4 92.0 113.1

E (x) 28.4 23.0 19.8 15.4 12.5

BV (x) 9.1 8.2 6.0 4.2 3.1

V/ EBITDA 28.7 19.8 15.6 11.9 9.3

OCE (%) 22.2 23.6 25.0 26.4 25.2ONW (%) 31.9 35.6 30.3 27.2 24.5

ource: Company, ICICIdirect.com Research

Analysts Name

Raghvendra [email protected] [email protected]

Sales & EPS trend

0

2000

4000

6000

FY08 FY09 FY10E FY11E FY12E

0

30

6090

120

Sales, Rs Cr EPS, Rs

Stock Metrics

Bloomberg Code LUPIN@IN

Face Value (Rs) 10.0

Equity Capital (Rs Cr) 88.7

Market Cap (Rs Cr) 12,758

52W - H/L 1550/537Sensex 17540

Average Volume 48,889

Comparative return metrics

1M 3M 6M 12M

Glenmark 12.1 25.1 22.4 -2.7

Cipla 6.1 29.5 32.4 91.0

Sun Pharma 7.7 19.3 37.1 51.3

Piramal Hlc -2.9 2.0 29.7 69.3

Dr Reddy 8.0 20.4 53.9 150.9

Ranbaxy 23.1 27.0 103.8 140.4

Lupin 10.1 29.1 73.7 147.5

January 11, 2010 | Pharmaceuticals

Initiating Coverage

Lupin Limited (LUPIN)

Predictable growth, good valueLupin has carved a unique and best-in-class business model for itself bycreating a robust branded and generics business in the US, revenuecrucial presence in Japan via inorganic route, competitive API businessand formidable domestic presence. We believe the US market will act as akey growth driver followed by emerging markets in the short to mediumterm while the domestic market will be a long-term growth driver. In theshort-term, we expect the domestic market to grow at ~13-14%. In theUS market, Lupin has performed strongly. A better show is expected,going forward. We initiate coverage on Lupin with a STRONG BUY rating.

Buoyed by US growth, export will likely be a key growth driver

Export, 65% of FY09 sales, is set to be Lupins key growth driver on the

back of 31% growth in advanced markets to Rs 3853 crore and 54% inemerging markets to Rs 868 crore. We estimate exports will grow at28% CAGR over FY09-12E to Rs 5272 crore, 74% of FY12E sales.

US business will likely drive advanced markets revenue

Lupin has a unique US business model, 29% from branded and 71%revenue from generics business. As the branded business achievedcritical mass of US$74 million in FY09, acquisition of Antara (FY08 salesof US$70 million, patent expiry in August 2020 and targeting US$2-3billion market) will take Lupin to the next growth orbit and lead USbranded business growth at 52% CAGR over FY09-12E to US$284million. Generics business will leverage from rich pipeline of16 ANDAs.

Domestic market remains significant despite lower growthLupin continues to remain a formidable play in the domestic marketdespite lower 13.4% CAGR over FY09-12E. Domestic formulationcontributed 35% to FY09 revenues and the contribution is expected todecline to 26% in FY12E due to high growth in other revenue streams.

Valuations

Lupin stands out in the Indian pharma space due to its superior businessmodel, which is formed by strong and gradually strengthening US branded,robust generics business, thriving Japanese business, competitive APIbusiness and growing domestic market. We believe the recent acquisitionof Antara may take Lupin to a new orbit as it targets US$2-3-billion market.

Patent on Antara expires in August 2020. We believe the current valuationof 16x FY11E EPS of Rs 92 does not capture the improvement in businessmodel. We value Lupin at 20x FY11E EPS and 16x FY12E EPS, which givesus a target price of Rs 1840, a 30% upside compared to the current price.

Current PriceRs 1413

Target PriceRs 1840

Potential upside30%

Time Frame12-15 months

STRONG BUY

Stock Chart

0

400

800

1200

1600

2000

Dec-08 May-09 Oct-09


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Company Background

Lupin Ltd (Lupin) was established in 1968 as Lupin Laboratories Ltd. In 1980,the company commissioned a formulations plant and R&D centre inAurangabad to mark the beginning of its formulations business. In 1989, thecompany established a JV by the name of Lupin Chemicals (Thailand). In 2001,Lupin Labs and Lupin Chemicals got amalgamated to form Lupin Ltd. Lupinmanufactures APIs, finished dosages and herbal products.

Business profileLupin Ltd is an innovation led transnational pharmaceutical company producing awide range of generic formulations and APIs for the developed and developingmarkets. Lupins range of finished dosages includes anti-tuberculosis drugs,cephalosporin, cardiovascular drugs, anti-asthma drugs, non-steroidal, and anti-inflammatory drugs. APIs cater to the therapeutic segment of anti-tuberculosis,cephalosporins both in orals and injectable forms, ace inhibitors, statins and prils.The company is focusing more on IPR-led growth and has also forayed into

newer markets such as Japan. It has organised its R&D efforts towards threefocus areas viz., generics, NCE and NDDS.

Manufacturing and R&D facilitiesLupins manufacturing facilities, spread across India, play a critical role inenabling the company to realise its global aspirations. Benchmarked tointernational standards, these facilities are approved by international regulatoryagencies like USFDA, UKMHRA, TGA Australia, WHO and MCC South Africa. Thecompany has leveraged its strong vertical integration in building a globalpharmaceutical powerhouse.

Market position in domestic formulations marketLupin maintained its fifth position in the domestic formulation market with amarket share of 2.73% in March 2009 and a field force of 3000 medicalrepresentatives. The company continues to gain wide market acceptance withmost of its flagship products being market leaders in their respective segments.Six of Lupins products are among the top 300 in India. The leading brands areTonact, Gluconorm, Rcinex, Rablet, AKT, Ramistar, Clopitab, L-Cin, Odoxil andLupenox. CVS, anti-TB and Cephalosporins are the top three therapies for Lupin.The chronic segment contributes ~40% to the domestic formulations revenue.All therapeutic areas are growing at higher than industry norms. In the last threeyears, the company has introduced 12 in-licensed products. Of these, five werefirst-to-launch in India. The company successfully launched Lupisulin, Ismigenand Faximab in FY09. During FY09, Lupin added gynaecology and oncology to its

therapeutic portfolio.

Intellectual property managementDuring FY09, Lupin filed a record 28 ANDAs, which included five first-to-fileopportunities, of which two were exclusive first-to-file. Lupins cumulative filingsstood at 91, with 35 approvals to date, addressing an estimated market size ofUS$90 billion. The company has also ventured into the lucrative oralcontraceptive and ophthalmic space and had filed seven ANDAs in the oralcontraceptive space in FY09. The strength of the intellectual property has helpedthe company to win the Cefdinir litigation against Abbott Labs and AstellasPharma. The company also settled litigation relating to Desloratidine tablets, thegeneric version of Schering-Plough Clarinex tablets. With this Lupin can launch

the drug on July 1, 2012, or earlier subject to conditions being met.

Shareholding pattern (Q2FY10)

Shareholder % holding

Indian P romoters 48.7

MF/Fin Institutions / Banks 18.1

Foreign Institutional Investors 13.5

Insurance C ompanies 8.7

Non-promoters(non-institution) 11.1

Promoter & Institutional holding trend

50.7 50.6 50.4 48.7

25.724.824.523.1

0

15

30

45

60

Q3FY09 Q4FY09 Q1FY10 Q2FY10

Promoters (%) Institutional Holding (%)


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Exhibit 2:Milestones achieved by Lupin2009 Lupin acquired a majority stake in Multicare Pharmaceuticals Philippines Inc, a premium branded generic co, with a presence in WHC & Child HC, strong

distribution alliances, 140 sales force

Lupin expanded its product basket in Japan-Kyowa and received 10 products approval from the Ministry of Health & Labour Welfare, Japan

Lupin acquired Hormosan Pharma GmbH, a generic company in Germany, poised to make its mark in the rapidly evolving INN substitution market

Lupin acquired a stake in Generic Health Pty Ltd, in Australia, which has a range of generic prescription & OTC products

Lupin acquired Pharma Dynamics in South Africa, among the top 6 generic companies, 38% growth in salesLupin acquired Vadodara-based Rubamin Laboratories Ltd (rechristened to Novodigm Ltd) -- API plant

Lupin acquired Kyowa Pharmaceutical Industry Co Ltd, a leading generic company in Japan

Commercial production was started at the new finished dosage facility at Jammu

Lupin received Best new manufacturer of the year award from Amerisource Bergen

A new facility was set up at Jammu

Bonus shares were issued in the ratio of 1:1

Issuance of foreign currency convertible bonds (FCCB) aggregating US$100 million, which are listed on the Singapore Stock Exchange

USFDA and MHRA (UK) approvals were received for Goa

New Lovastatin plant at Tarapur was approved by the USFDA

WHO approval was received for state-of-the-art formulation plants at Goa and Aurangabad

2004 Lupin launched its first brand Suprax

(Suprax) Lupin had successfully implemented SAP ERP across the company to unify all business functions and processes

Introduced collaborative messaging and workflow solution on the intranet

Oral Cefaclor injectible plant at Mandideep was approved by the USFDA

Lupin Pharmaceuticals Inc US, was formed for trading, marketing and developmental activities in the US

Patent filings crossed 100

Five ANDAs were filed

New anti-TB facility was commissioned at Aurangabad

Rablet was rated by ORG-Marg as the second best launch of

FY2002-03

Lupin became the only Asian pharmaceutical company to receive USFDA approvals for its sterile cephalosporin facility

A state-of-the-art USFDA approvable oral cephalosporin bulk active plant was commissioned

State-of-the-art R&D centre at Pune was commissioned

Lupin commenced supply of Cephalosporin bulk actives to its alliance partners in the US

Lupin Laboratories Ltd was amalgamated with Lupin Chemicals Ltd whose name was changed to Lupin LimitedThe companys restructuring operations yielded encouraging results

Work commenced on the R&D centre at Pune

Lupins injectable cephalosporin bulk active plant at Mandideep was approved by UK MCA

1999 Lupins injectable Cephalosporins dosages plant at Mandideep obtained UK MCA approval

Lupins formulations facility at Aurangabad was upgraded

Three plants of Lupin, manufacturing Cefaclor at Mandideep, seven ACCA at Ankleshwar and Rifampicin at Tarapur, got USFDA approvals

ICMA Technology award was given for injectable Cephalosporins

The company received the ICMA Technology award for injectable Cephalosporins

Sterile plant for injectable Cephalosporins (bulk) was commissioned at Mandideep

Lupin Laboratories Ltd and Lupin Chemicals Ltd raised money through IPOs in 1993-94

Won Ficcis award for contribution towards rural development

1991 Lupin won the ICMA technology award for successfully manufacturing Vitamin B6

Joint venture in Thailand Lupin Chemicals (Thailand) Ltd was established

Two Plants Ankleshwar and Mandideep received USFDA approvals for maintaining stringent quality standards

1988 The Lupin Human Welfare and Research Foundation (LHWRF) was founded by Dr Desh Bandhu Gupta to provide an alternative, sustainable and replicable

model of rural development

1987 Cephalexin Plant at Mandideep and seven ADCA plant at Ankleshwar went on stream

1981 Ethambutol production was started

1980 Lupin commissioned a formulations plant and an R&D centre at Aurangabad

1972 Lupin Laboratories Pvt Ltd was incorporated

1968 Lupin commenced business

2008

2007

(Acquired

Kyowa)

2006

(FCCB +

BONUS)2005

1989

1997

1996

1992

2003

2001

2000

2002

Source: Company, ICICIdirect.com Research


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Exhibit 3:Revenue break-up for FY09

LUPIN LIMITED

(FY09)

Gross Revenue: Rs 3823.8 croreRev contribution: 100%

DOMESTIC

Revenue: Rs 1332.4 crore

Rev contribution: 35%

EXPORTS

Revenue: Rs 2491.4 crore


Formulation

Rev: Rs 1141.2 crore


API/Bulk

Rev: Rs 191.2 crore


Formulation-SRM

(RoW)

Rev: Rs 235.4 crore


Formulation-Regulated



EU

Rev: Rs 70.2 crore


US



JAPAN

Rev: Rs 442.4 crore


API/Bulk

Rev: Rs 535.3 crore




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Lupins stock price movement and major developments

0

200

400

600

800

1000

1200

200807 200809 200811 200901 200903 200905 200907 200909

15 manufacturing

deficiencies at

Lupin Limited'sMandideep plant

Received the approval

from DCGI to launchIvabrad tablets, a heart

rate lowering drug

Settled litigationwith Schering-

Plough for generic

Desloratadine tablet

USFDA approval

for Levetiracetam

Tablets

Oscient Pharma

filed a lawsuitagainst Lupin for

infringement of

Patent on ANTARA

(fenofibrate)

capsules.

Completes

acquisitionof Multicare

Pharma

Shire PLC filed a lawsuit

against Natco for

infringement of two

patents for FOSRENOL

Pfizer filed

patent

infringement

suits in respect

of its pain

management

drug lyrica,

Settled litigation

with Wyeth relating

to Venlafaxine XR

Acquisition of

worldwide rights for

the intra-nasal

steroid AllerNaze

USFDA approval to

sell generic

Ethambutol HCL

tablets

Completed acquisition of

a majority stake in

Pharma Dynamics in SA


Lupin entered into an alliance with Natco Pharma to jointly commercialise generic equivalents of Shire plc's Fosrenol tablets. Shire filed a

lawsuit against Natco for infringement of patents on Fosrenol in response to the ANDA filed under Para IV certification by Natco seekingUSFDA approval to market generic versions of Shire's Fosrenol tablets


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Investment rationale

Lupin has carved a unique and best-in-class business by creating astrong business in the US generic and branded market along with EUand Japanese presence and a globally competitive API business anddeep penetration in domestic market. Lupins recent acquisition ofAntara in the US branded business may take the company to a new

orbit. Exploiting synergistic benefit from acquired businesses (Suprax,Allernaze, Aerochamber, Antara in the US branded market and Kyowain Japan), formidable penetration in the domestic market andcommercialisation of rich ANDA pipeline of ANDAs (for the US genericsmarket), we believe Lupin is well set to report sales growth of ~23%CAGR to Rs 7062 crore. The bottomline is expected to almost double toRs 1003 crore during FY09-12E. We expect the US branded business toact as a key growth driver followed by emerging markets. In US dollarterms, US branded revenues are likely to clock more than 50% CAGRover FY09-12E. US generic revenues are expected to register 23.3%CAGR over the period on account of ANDA approval from a stable of 56ANDAs. On account of a change in the revenue mix and scaling up the

value chain, margins are likely to expand from 17.18% to 19.31% overFY09-12E. Though the recent issuance of 483 warning letter on itsMandideep facility remains an overhang on the stock, current USrevenues are would not be impacted.

Exhibit 4:Revenue Model (Rs Crore)

FY07 FY08 FY09 FY10E FY11E FY12E CAGR FY09-12ESales 2071.7 2773.0 3823.8 4906.0 6027.8 7131.7 23.1

(A) Formulations (A1+A2+A3) 1677.1 1941.0 3097.3 4172.2 5286.6 6383.2 27.3

(A1) Domestic 753.0 949.6 1141.2 1299.3 1468.5 1663.1 13.4

(A2) EM's/ RoW 47.8 104.1 235.4 523.0 753.1 867.6 54.5

(A3) Advanced Markets (US+EU+Japan) 876.3 887.3 1720.7 2349.9 3065.0 3852.5 30.8

US (Branded+Generics) 355.3 720.5 1189.4 1690.5 2244.9 2796.5 33.0

Branded 93.4 127.1 347.8 638.5 982.6 1218.5 51.9

Generic 261.9 593.4 841.6 1052.0 1262.4 1578.0 23.3

EU 35.3 70.2 84.3 101.2 121.4 20.0

JAPAN 131.5 442.4 575.1 718.9 934.6 28.3

(B) API (B1+B2) 394.5 832.0 726.5 733.8 741.1 748.5 1.0

(B1) Domestic 103.6 277.4 191.2 193.1 195.0 197.0 1.0

(B2) Exports 290.0 554.6 535.3 540.7 546.1 551.6 1.0


Lupins business model has undergone a complete transformation frombeing a focused API player to a formulations player. API contribution fellfrom 55% to 19%, through FY04-09. Revenue mix from the US increasedto ~32% in FY09 from ~2% in FY05. This led the EBITDA margin toexpand by 660 bps over the period. In the domestic market, the companyhas increased its exposure across therapies.

Excellent growth in the US business andRoW coupled with robust domesticgrowth will set Lupin to report salesgrowth of ~23% CAGR and bottomline toalmost double to Rs 1003 crore duringFY09-12E


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Exhibit 5:From API to formulations (% of sales)

45% 56% 55% 61%

70% 81% 85% 88% 90%

55% 44% 45% 39%

30% 19% 15% 12%

10%

0%

20%

40%

60%

80%

00%

FY04 FY05 FY06 FY07 FY08 FY09 FY10E FY11E FY12E

Formulations API's


Exhibit 6:Shifting trend towards exports (% of sales)

56%65% 70% 72% 74%

44%35% 30% 28% 26%

0%

20%

40%

60%

80%

00%


Exports India


Exhibit 7:Therapeutic exposure in FY01

Others11%

Cephalosporins

48%

Anti-TB

36%

CVS5%


Exhibit 8:Therapeutic exposure in FY12E

Others22%

nti-Diabetic

7%

CNS

7%

Gastro-Intestinal

6%Cephalosporins

13%

Anti-Asthma

12%

Anti-TB

14%

CVS

19%


Exhibit 9:Focus markets in FY02

Others

10%

SEA

19%

US/EU

2%

India

69%


Exhibit 10:Focus shifting towards advanced markets in FY12EOthers

8%

Japan

13%

RoW

12%

US/ EU

41%

India

26%


RoW: Rest of World


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US a unique blend of branded & generic business

We believe the US market will be the key revenue driver for Lupin. Lupinoperates a unique business model in the US markets by catering to bothbranded as well as generics markets. Such business models were tried byRanbaxy and Dr Reddys in the past but Lupin stands out by beingsuccessful. US revenues, which accounted for 31% of FY09 consolidated

revenues, are likely to grow at 33% CAGR, buoyed by 52% CAGR inbranded sales and 23% CAGR in generics business. We believe a richANDA pipeline will drive the generics business while the recent inclusionof Antara (via inorganic route), commencement of sales from Allernazeand addition to the existing brands will drive the branded sales.

Exhibit 11:US revenues to grow at FY09-12E CAGR of ~33% to Rs 2796 crore

93 127348

639983

1219

262593

842

1052

1262

1578

0

600

1200

1800

2400

3000

FY07 FY08 FY09 FY10E FY11E FY12E

Brandes Sales, Rs Cr Generic Sales, Rs Cr


Branded businessFocussed play

We expect the US branded business of Lupin to grow at 52% CAGR inrupee terms and 56% CAGR in US dollar terms (or in constant currencyterms) on expansion in product basket in the branded segment. Thecompany has added Allernaze and Antara to the current offering ofSuprax (a Cefixime brand acquired from Wyeth in the paediatric segment)and Aerochamber. Antara and Suprax are Lupins own brands (purchasedfrom Wyeth and Oscient Pharma, respectively) but the other two are in-licensed brands (from Collegium Pharma and Forest Labs, respectively).We believe the margins on the branded segment will expand, goingahead, as revenue from own products is expected to grow faster.

Antara, a US$70 million product is likely to grow at 25-30%targeting a growing segment of triglyceride reduction

Suprax, currently clocking US$65 million is likely to grow at 12%.Competition is rising in the segment post filings with FDA withplayers like Orchid Chemicals, Nectar Life Sciences filing

Allernaze is for nasal infection in-licensed from Collegium Pharmafor worldwide sales. Allernaze is an intra-nasal steroid product,the market for which is ~US$2.5 billion in the US, according toindustry sources. Lupin is focusing on this lucrative market. Weexpect Lupin to launch it in the US market in FY11

AeroChamber Plus is a Valved Holding Chamber (VHC) device,used with metered dose inhalers to improve the delivery ofmedication to lungs in the treatment of asthma and COPD.

US revenues, which accounted for 31%of FY09 consolidated revenue, are likely

to grow at 33% CAGR, buoyed by 52%CAGR in branded sales and 23% CAGR inthe generics business

Inclusion of Antara and AllerNaze to theUS branded portfolio will catalysegrowth to 52% CAGR over FY09-12E


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Exhibit 12:

Revenue matrix of US branded portfolio

Revenues in US$, mn FY07 FY08 FY09 FY10E FY11E FY12E

Suprax 24.6 41.2 65.0 74.8 82.2 90.5

Aero-Chamber - - 9.0 11.7 15.2 19.8

AllerNaze - - - - 12.8 19.4

Antara - - - 42.0 118.3 153.8


Lupin acquired the Antara (Fenofibrate) brand from the bankrupt OscientPharma for a consideration of US$38.6 million. We believe the acquisitionis value accretive and will place Lupin into a new growth orbit.

The purchase price of US$38.6 million is 0.55x CY08 sales ofUS$70 million, which is a bargain price for Lupin consideringcurrent deals in the range of 1.5-2x sales

Growth could be very high from Antara under Lupin as theproduct recorded growth of 20% when it was under OscientPharma. Oscient Pharma was under financial distress, so thegrowth was coming without promotions. After acquisition byLupin, with promotion the product could log a growth rate fasterthan the current rate till its patent life expires in August 2020

The Antara (Fenofibrate) products market is estimated at ~US$2 billion. Inorder to boost Antaras sales, Lupin plans to increase the sales force from60 to 120 in the next two years.

-- Generic business Gaining market share

In the US generics space, we estimate Lupins sales will grow at 23%CAGR to Rs 1578 crore over FY09-12E on account of commercialisation ofits rich ANDA pipeline of 56 products.

Exhibit 13:Generic business to grow at a CAGR of 23% through FY09-12E

74%

82%

71%

56%56%

62%

0

600

1200

1800

2400

3000


50%

56%

62%

68%

74%

80%

Total US Sales (LHS) Generic Sales (LHS) Generic % contribution (RHS)


Lupin has 22 products in the market of which eight are market leaders.Robust gain in market share across products has seen the generic

business growing at FY07-09 CAGR of ~79% to Rs 842 crore.

We believe Lupin bought Antara at abargain price considering 0.55x CY08sales as such deals were taking place at1.5-2x

We estimate the generic business willgrow at 23% CAGR over FY09-12E onaccount of commercialisation of its rich

ANDA pipeline of 56 products


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Exhibit 14:Market share gains across products (%)

34

23

46

30 3341

29

45

34

66

39 44

0

15

30

45

60

75

Lisinopril

Tabs

Lisinopril

HCTZ Tabs

Ramipril

Caps

Cefadroxil

OS

Cefprozil

OS

Cefprozil

Tabs

Meloxicam

Tabs

FY08 FY09

Market

share

%


During FY09, Lupin launched four products in the US generics market.We believe that, going ahead, growth in the US generic business willprimarily be driven by a combination of the base business as well as newproduct launches. We believe the generic business will grow at a CAGRof 23% over FY09-12E to Rs 1578 crore, contributing over 56% to totalUS sales.

Niche pipeline of filings key to US revenue growth

Lupin has ~56 ANDAs pending for approval (including nine with Para IVcertification) and 35 ANDAs approved (including 13 tentative approvals).The growth will likely be driven on account of approvals on filings underniche areas, such as oral contraceptives, ophthalmology, bio-similars,

controlled-release products and filings with Para IV certification.

With ~US$135 billion worth (on innovator sales) of product going offpatent till 2012, we believe the company would aggressively spend onR&D to participate in the unfolding opportunity.

Exhibit 15:Rising R&D expenses

6.4%

7.1%

7.5%

7.1% 7.1% 7.1% 7.1%

0

100

200

300

400

500

FY06 FY07 FY08 FY09 FY10E FY11E FY12E

4%

6%

8%

R&D Expense (Rs Cr) R&D Expenses (% to Sales)


US$135 billion worth (on innovatorsales) of product going off patent willthrow open a large opportunity from nowtill 2012. We believe the company wouldaggressively spend on R&D toparticipate in the unfolding opportunity


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translating into higher ANDA filings (cumulative)

1836

5162

90

18 15 11

28

0

20

40

60

80

100

FY05 FY06 FY07 FY08 FY09

ANDA Filings Annual Filings

%M

arke

tShare


R&D productivity one of the best among peers

Lupin has exhibited an excellent R&D productivity both in terms of R&Dexpenditure per ANDA approved as well as revenue per ANDA approved.

Exhibit 16:R&D productivity best among peers (FY09)

Company Revenue (US market) R&D Expenditure ANDA's approved R&D (% to sales) Rev/ANDA

Sun Pharma 1589.5 332.0 71 20.9 22.4

Glenmark Pharma 733.8 88.3 45 12.0 16.3

Ranbaxy Labs 1946.5 431.4 137 22.2 14.2

Dr Reddy's 1212.7 409.3 75 33.8 16.2

Lupin 1189.4 266.9 22 22.4 54.1


Oral contraceptive (OC) space a distant but a solid opportunity

Lupin has opportunistically targeted the limited competition OC space,which is a US$4-5 billion market. Barr Labs and Watson Pharma are theonly two players having a presence in the US OC market. Lupin standsout among them with the advantage that it is backward integrated. Lupinhas already filed nine ANDAs as at the end of Q1FY10 in the OC space. Itexpects to file almost 14 products in the next two to three years withproduct approvals expected to kick in post Q2FY11. We believe this willpresent a significant opportunity for Lupin because of low genericpenetration and Lupins backward integration with its own APIs. Lupin isalso setting up a dedicated facility for OC at the Indore SEZ.


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European business Replicating US strategy for growth

We estimate Lupins revenue from EU will grow at ~20% CAGR overFY09-12E to Rs 121 crore on account of improved approvals from its filingpipeline for 54 products. The company has cumulative 54 filings for theEuropean market of which 22 products are pending approval.

Lupin has operations in three European regions viz. Germany, UK andFrance. During FY09, revenues from the European region grew by 99%(on a lower base of Rs 35 crore) and contributed ~3% to the exportsrevenues and ~4% to the regulated markets formulation segment. Lupinis replicating its US strategy in Europe. It is developing a specialtyproducts pipeline in the CVS, CNS, and anti-infective categories.

Exhibit 17:EU revenues set to expand ~20% through FY09-12E

35.370.2 84.3

121.4101.2

3.63.3

3.24.14.0

0

30

60

90

120

150


0

1

2

3

4

5

EU Sales, Rs Cr (LHS) % Contribution to Advanced Market (RHS)


Lupins revenue from its operations inthree European regions of Germany, UKand France is estimated to grow at~20% CAGR over FY09-12E on higher

approvals from its filing pipeline for 54products


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Japan The next growth engine

We expect Kyowa to register sales CAGR of ~28% over FY09-FY12E toRs 935 crore, led by new product launches and ramp-up in existingproduct sales. Lupin is the only Indian company to have significantpresence in the worlds second largest Japanese pharma market. We citethe following main benefits accruing to Lupin from Kyowa:-

Japan is a US$68 billion pharma market, out of which US$4 billionis the generics market, where Kyowa has a significant presenceand ranks among the top 10

Allows Kyowa to leverage low-cost Indian manufacturingadvantage, while Lupin gains access to a large and growingmarket for distribution

While sales have been growing at a strong pace, Lupin intends to shoreup Kyowas profitability by backward integrating its existing and futureproducts predominantly from Lupins in-house APIs. The company hasrecently received approval for 10 products from the Japanese authorities,

which are likely to be launched in the coming quarters.Exhibit 18:Kyowa revenues set to grow at ~28% CAGR through FY09-12E

442.4575.1

718.9934.6

131.5

14.8

24.325.7 24.5 23.5

0

200

400

600

800

1000


0

6

12

18

24

30

Japan, Rs Cr (LHS) % Contribution to Advanced Market (RHS)


We expect Kyowa to register salesCAGR of ~28% over FY09-FY12E to Rs935 crore, led by new product launchesand ramp-up in existing product sales.

Lupin is the only Indian company to havea significant presence in the worldssecond largest Japanese pharma market


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Domestic market niche focus, high margins

During FY09, the domestic formulations business registered a healthygrowth of 21% vis--vis industry growth of ~13%. We expect Lupin tocontinue to deliver decent growth in the domestic market and expect thedomestic formulation business to post 13% CAGR in FY09-12E on

account of new launches and entry into new therapy areas.

Exhibit 19:Domestic formulations business to grow at 13% CAGR (FY09-12E)

753.0949.6

1141.21299.3

1468.51663.1103.6

191.19193.1

195.0

197.0

277.4

-

400

800

1,200

1,600


Rs,

Crore

Domestic formulation, Rs Cr Domestic API, Rs Cr


However, as a result of rapid growth in export formulations, revenuecontribution of the domestic business declined from 50% of total sales inFY05 to 35% in FY09. Going ahead, due to fast growing export revenues,we expect the contribution from the domestic market to decline over

FY09-12E.

Exhibit 20:Domestic market contribution to decline to 26%%

56%65% 70% 72%

74%

44%35% 30% 28%

26%

0%

20%

40%

60%

80%

100%


Exports India


Lupin (FY07-09 growth CAGR 23%) has consistently outperformed theIndian pharma market growth rate over years and is ranked among thetop five companies in India, with overall market share of 2.73%. It has aleadership position in the anti-TB (48% market share) and anti-asthmasegment (12% market share, second after Cipla). During FY09, Lupinintroduced 54 products (including six in-licensed products) which is oneof the highest among its Indian peers.

We expect Lupin to continue to deliverdecent growth in the domestic marketand expect the domestic formulationbusiness to post 13% CAGR in FY09-12Eon account of new launches and entryinto new therapy areas. The APIbusiness is expected to register flatgrowth on account of increased in-houseusage of API

Lupin (FY07-09 growth CAGR 23%), hasconsistently outperformed the Indianpharma market growth rate over yearsand is ranked among the top fivecompanies in India, with overall market

share of 2.73%%. It has a leadershipposition in anti-TB (48% market share)


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Exhibit 21:Lupins therapy-wise exposure, industry vis--vis Lupins growthRevenue Contribution (%) Market Growth % Lupin Growth %

CVS 19.0 13.2 25.5

Anti-TB 14.0 -5.9 5.6

Anti-Asthma 10.0 13.1 48.8

Cephalosporins 14.0 9.8 22.1

GI 7.0 8.2 30.4

CNS 6.0 10.4 48.7

Anti-Diabetic 6.0 16.7 53

Others 24.0 NA NA


Exhibit 22:Product-wise ranking in the domestic marketProduct Therapeutic Segment Segment Ranking

Tonact CVS 2

R-Cinex Anti-TB 1AKT Anti-TB 2

Ramistar CVS 2

Gluconorm Anti-diabetic 3

Odoxil Anti-infective 1

Rablet Gastro Intestinal 1

L-Cin Levofloxacin 1

Lupenox CVS 2

Clopitab CVS 1



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Risks & Concerns

Threat of rising competition to Suprax and Antara

Currently contributing highest to the branded US revenue (US$65 million

in FY09) Suprax is exposed to competition (not covered by any patent)with few of its Indian peers having filed ANDA with the USFDA.

The recently bought Antara (fenofibrate) from Oscient Pharma is coveredunder patent, which is expiring in August 2020. However, a competitiveproduct, Tricor of Abbott, is losing patent expiring in 2011, which maypose competition to Antara. Though the market is large at ~US$2 billion,a rise in competition may dilute the opportunity size.

Warning letter on Mandideep facility to remain an overhang on the stock

USFDA has issued a 483s warning letter on Lupins Mandideep facility onnon-compliance with quality manufacturing standards. Mandideep is a

big facility for Lupin and contributes ~25% to the US revenues. Itmanufactures sterile products, mainly dealing with Cephalosporin. Thisinspection has been going on for the past three quarters.At present, Lupin sells 10 products and has one pending ANDA from thisfacility. Although the FDA warning letter would not impact sales ofcurrently marketed products, it would halt any further approval of ANDAsfrom that facility. If the issue is not resolved quickly, revenues from theUS would be impacted.

Rising competition in the domestic market

Heightened competition in key therapy areas of the domestic market andgreater vulnerability to currency fluctuations (with international business

now accounting for ~65% sales) remain the key concern.


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Financials

Sales to register 23%growth, through FY09-12E

Lupin has exhibited an excellent growth track record in the past on

account of extensive product mix in niche therapies and selective productstrategy for the US and EU market. We expect Lupin to deliver ~23%CAGR on net sales through FY09-12E to Rs 7062 crore. The low pricedacquisition of Kyowa in Japan and Pharma Dynamics in South Africa willalso be significant contributors to growth, as this will help Lupin todiversify its presence across markets.

We expect the US business to report robust growth of ~33% throughFY12E. The generic segment is expected to grow at ~23% CAGR to Rs1578 crore in FY12E on account of higher realisation from key ANDAfilings. Branded segment sales are expected to grow at an FY09-12ECAGR of ~52% to Rs 1219 crore, on account of inclusion of AerochamberPlus, AllerNaze and Antara to the branded portfolio.

The domestic formulation segment is expected to register ~13% CAGRgrowth through FY12E to Rs 1663 crore on account of ~13% growth inCVS and ~20% growth in the anti-asthma, CNS and diabetes segmentcontributing over 23% to FY12E to the total sales.

Exhibit 23:Net sales to witness sturdy growth @23% CAGR over FY09-12E

950 1141 1299 1468 1663

721 1189

1691 2245

2796

1103

1475

1916

2314

2672

0

2000

4000

6000

8000


Domestic Formulations US Others (RoW/EU/Japan/API)



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EBITDA margin will likely witness good expansion in FY12E

Even though Lupins US and India business did exceedingly well in thepast, EBITDA margin expansion was restricted to ~400 bps during FY06-09 on account of higher operating expenditure (~86% of sales).Operating expenditure is high due to a significant presence in the USbranded market, which has a high SG&A expenditure.During FY09-12E, we believe the EBITDA margin will likely be in the rangeof ~19% as Lupin is looking to extend the Suprax brand product line andenhance its focus on the high margin gynaecology and oncologybusiness in the domestic market. Margin expansion will also be aided bya better product mix and higher contribution from differentiated productsfrom US markets. We expect the EBITDA margin to expand by ~214 bpsduring FY09-12E.

Exhibit 24:OPM, NPM to witness good expansion in FY09-12E

16.1% 17.2% 17.8%

18.9% 19.3%

15.1%13.4% 13.0% 13.7%

14.2%

0%

5%

10%

15%

20%

25%


EBITDA Margins Net Profit Margins


Net profit to grow 26%, through FY09-12E

We estimate that net profit will grow at a CAGR of ~26% to Rs 1003 croreover FY09-12E. During FY04-09, Lupins net profit grew by ~42% CAGRto Rs 502 crore due to higher margins on product under the brandedsegment in the US markets and robust performance in the domesticmarket. In spite of robust sales growth, we expect the net profit margin toexpand marginally by 75 bps on account of likely competition on theSuprax brand and higher tax rates.

Exhibit 25:Profit to grow @26% CAGR over FY09-12E

408.3501.5

632.9

815.2

1002.7

0

200

400

600

800

1000

1200


0%

7%

14%

21%

28%

35%

Net Profit, Rs Cr YoY Gr.


The EBITDA margin expansion wasrestricted to ~400 bps during FY06-09on account of higher operatingexpenditure. Operating expenditure washigh due to a significant presence in theUS branded market, which has a highSG&A expenditure

We estimate that net profit will grow at aCAGR of ~26% to Rs 1003 crore overFY09-12E


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Return ratios to remain healthy

Robust organic growth led by an exceedingly good performance from theUS and the Indian market has led Lupin to maintain higher return ratiosduring the past three years. In spite of US$100 million raised throughFCCBs, Lupins RoNW has expanded by ~22% while RoCE expanded by~14% over FY05-09. However, going ahead, increasing net worth, due to

FCCB conversion, will put pressure on RoNW expansion.Exhibit 26:Return ratios to remain healthy

31.935.6

30.327.2

24.5

22.2 23.625.0 26.4 25.2

0

10

20

30

40


RONW (%) ROCE (%)


Exhibit 27:Balance sheet size expanding at 19% CAGR with net worth at 34%over FY08-12E

0

1000

2000

3000

4000

5000

6000


BS Total, Rs Cr Networth, Rs Cr


Balance sheet comfortable leverage

Lupin had issued FCCBs in January 2006 worth US$100 million at aredemption price of Rs 1134/- maturing in January 2011E. Post bonus theconversion price stands at Rs 567/- (FCCBs in the money). We haveincorporated full conversion of outstanding FCCBs in our estimates. Weexpect the debt/equity to be at a comfortable 0.3x during FY12E (FY09 0.9x). Incremental cash flows will likely support capex requirements.

In spite of US$100 million raised throughFCCBs, Lupins RoNW has expanded by~22% and RoCE expanded by ~14%over FY05-09. However, going ahead,increasing net worth, due to FCCBconversion, will put pressure on RoNWexpansion


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Valuationsmore in store

Lupin has carved a unique and best-in-class business model for itself bycreating a robust branded and generics business in the US, revenuecrucial presence in Japan via the inorganic route, competitive APIbusiness and formidable domestic presence. We believe the US market

will act as a key growth driver followed by emerging markets in theshort to medium term while the domestic market will be a long-termgrowth driver. In the short-term, we expect the domestic market togrow at ~13-14%. In the US market, Lupin has demonstrated a strongperformance and, going forward, we expect Lupin to sustain itsperformance.

Excellent branding strategy for Suprax and competitive positioning in thebranded generic segment will help Lupin to achieve a robust growth ratein the US. Till date, Lupin has been able to competitively get its ANDAthrough to the US market, either by way of settlement or on the back ofits rich-IP strength. We believe its formidable market share in niche

therapies in domestic markets and strong pipeline of 56 pending ANDAsapprovals in the US market will likely keep its growth momentum upbeat.

Lupin is currently hunting for more acquisitions in GCC, Japan and LatAmin order to establish a widespread geographical presence. It is alsoscouting for Indian companies specialising in nephrology and urology,since India is a high growth and a high cash generating market. DuringFY09, Lupin acquired four companies for a total consideration of Rs 167crore, which are yet to contribute meaningfully to the bottomline. Theseacquisitions are likely to bring in incremental profits for Lupin and, in turn,drive the return ratios upwards.

Lupin stands out in the Indian pharma space on account of its superiorbusiness model, which is formed by strong and gradually strengtheningUS branded, robust generics business, thriving Japanese business,competitive API business and growing domestic market. We believe therecent acquisition of Antara may take Lupin to a new orbit as it targets theUS$2-3 billion market, the patent on which expires in August 2020. Webelieve the current valuation of 16x FY11E EPS of Rs 92 does not capturethe improvement in the business model. We are valuing Lupin on bothsum of the part (SoTP) and comparative basis. We value the US businessat 5x branded sales and 3x generics sales. The API business is valued atan EV to EBITDA ratio of 12x while the non-US formulation business isvalued on a P/E basis. We got an SoTP value of Lupin at 1868.9. On acomparative basis, the fair value of Lupin works out to 1811. We arrived

at the target price of Rs 1840, which is the average of SoTP andcomparative valuation that is 20x FY11E EPS and 16x FY12E EPS.

We value the US business at 5x branded

sales and 3x generics sales. The APIbusiness is valued at EV to EBITDA ratioof 12x while the non-US formulationbusiness is valued on PE basis


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Exhibit 28:Valuation ratios

0

20

40

60

80

100

FY04 FY05 FY06 FY07 FY08 FY09 FY10E FY11E FY12E

0

2

4

6

Price Earning (P/E, LHS) Price/Cash EPS (P/CEPS, LHS)

EV/EBIDTA (LHS) Market Cap/Sales (RHS)

( X


Moreover, we have also used the sum of the parts (SoTP) valuationapproach to value Lupin, wherein we have valued the branded USbusiness on market cap to sales of 5x, US generics business on marketcap to sales of 3x, API on EV to EBITDA and non-US business on P/Emultiple basis.

Exhibit 29:SoTP Valuation matrixRevenue Basis Multile Valuation

US Branded business 1218.5 Market cap to sales 5 6092.7

US Generics business 1578.0 Market cap to sales 3 4733.9

EBITDA

API Business 59.2 EV to EBITDA 12 710.2

Net profit

India 166.3 PE 14 2328.3

Advanced market other than US 105.6 PE 14 1478.3

Emerging market 86.8 PE 14 1214.7

Total 16558.1

Equity Capital 88.6

Face value 10

Per share value 1868.9


We have also looked at Lupin on a comparative basis to arrive at a fairvalue of 1811.


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Exhibit 30:Peer Valuation (Rs Crore)

CMP (Rs) FY09-11E FY09-11E

FY09 FY10E FY11E CAGR % FY09 FY10E FY11E CAGR % FY09 FY10E FY11E

Cipla * 341 4960.6 6080.8 6959.2 18.4 774.1 1032.2 1177.5 23.3 25.5 23.5 23.4

Ranbaxy * 518 7241.4 7049.6 8033.4 5.3 -310.9 460.3 874.4 NA 7.9 6.2 11.3DRL * 1194 6790.4 7411.0 8232.5 10.1 263.1 797.6 937.4 88.8 21.1 18.9 18.8

SUN 1575 4272.3 4006.0 4536.5 3.0 1824.1 1365.1 1594.1 -6.5 41.0 34.5 35.2

Glenmark 277 2116.0 2547.5 2957.9 18.2 2093.0 2435.7 2827.1 16.2 27.5 30.1 29.9

LUPIN 1413 3775.9 4867.2 5968.7 25.7 501.5 632.9 815.2 27.5 17.2 17.8 18.9

FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E

Cipla 9.9 20.3 15.2 34.4 16.8 22.4 14.2 14.7 12.7 19.2 22.4 21.8 19.9 14.9 14.9

Ranbaxy -24.8 -1.6 10.5 NA NA 49.4 22.0 39.4 18.9 NA 10.3 13.1 NA 4.2 5.4

DRL 31.9 46.4 54.9 37.5 25.7 21.7 6.7 10.5 9.2 11.1 17.9 17.7 13.6 9.3 10.4

SUN 87.8 65.8 75.1 17.9 23.9 21.0 11.9 15.8 13.0 28.1 19.2 19.0 28.2 16.5 16.9

Glenmark 12.4 13.9 18.0 22.4 20.0 15.4 18.2 10.8 8.5 19.4 15.9 20.3 16.4 17.4 21.2

Average 23.4 29.0 34.8 28.0 21.6 26.0 14.6 18.2 12.5 19.5 17.1 18.4 19.5 12.5 13.8LUPIN 61.3 71.4 92.0 23.0 19.8 15.4 19.8 15.6 11.9 35.6 30.3 27.2 23.6 25.0 26.4

Revenues Net Profit EBITDA (%)

RoCE (%)EPS (Rs) PE (x) EV/EBITDA (x) RoE (%)

Source: Company, ICICIdirect.com Research,

* Bloomberg estimates

Averaging the two values, we have arrived at the value of Rs 1840 as thefair value, which is at 20x FY11E EPS and 16x FY12E EPS.


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Exhibit 31:Price to earnings band

16x

13x

10x

7x

0

300

600

900

1200

1500

1800

Apr-03 Aug-04 Dec-05 Apr-07 Aug-08 Dec-09


Exhibit 32:EV to EBITDA band

12x

10x

8x

6x

0

2000

4000

6000

8000

10000

12000

14000

Apr-03 May-04 Jun-05 Jul-06 Aug-07 Sep-08 Oct-09


Exhibit 33:Market cap to sales band

2.5x

2.0x

1.5x

0.5x

0

3000

6000

9000

12000

15000



Exhibit 34:Price to book value band

5x

4x

3x

2x

0

300

600

900

1200




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Exhibit 35: P&L A/c and Key ratiosP&L Statement (Rs Crore) Key ratios (Industry specific cost) (%)

FY08 FY09 FY10E FY11E FY12E FY08 FY09 FY10E FY11E FY12E

Sales 2706.4 3775.9 4867.2 5968.7 7062.0 Raw material 43.0 42.5 41.4 41.8 41.3

Growth (%) 34.4 39.5 28.9 22.6 18.3 Emp Exp 11.4 12.9 11.9 11.4 11.1

Op. Expenditure 2270.5 3127.4 4002.9 4843.2 5698.1 Other mfg exp 0.0 0.0 0.0 0.0 0.0

EBITDA 435.9 648.5 864.3 1125.4 1363.9 SG&A 22.0 20.4 21.9 20.9 21.3

Growth (%) 49.1 48.8 33.3 30.2 21.2 R&D 7.5 7.1 7.1 7.1 7.1

Other Income 206.5 95.4 80.6 93.9 106.7 Average cost of debt 3.1 4.1 4.1 6.5 6.7

Depreciation 64.7 88.0 107.7 136.6 148.5 Effective Tax rate 24.4 16.2 20.0 20.0 20.0

EBIT 577.6 655.9 837.2 1082.7 1322.1 Profitability ratios (%)

Interest 37.4 49.9 46.1 63.7 68.7 EBITDA Margin 16.1 17.2 17.8 18.9 19.3

PBT 540.2 606.0 791.1 1019.0 1253.4 PAT Margin 15.1 13.4 13.0 13.7 14.2

Growth (%) 32.6 12.2 30.5 28.8 23.0 Adj. PAT Margin 15.1 13.3 13.0 13.7 14.2

Tax 131.8 98.3 158.2 203.8 250.7 Per share data (Rs)

Extraordinary Item 0.0 3.3 0.0 0.0 0.0 Revenue per share 329.7 455.9 549.0 673.2 796.5

Rep. PAT before MI 408.4 507.7 632.9 815.2 1002.7 EV per share 1552.1 1577.3 1549.6 1535.7 1455.2

Minority interest (MI) 0.1 2.9 0.0 0.0 0.0 Book Value 155.9 172.0 235.9 338.0 461.1

Rep. PAT after MI 408.3 501.5 632.9 815.2 1002.7 Cash per share 33.4 9.4 17.0 13.7 99.9

Adjustments 0.0 1.0 2.0 3.0 4.0 EPS 49.7 60.6 71.4 92.0 113.1Adj. Net Profit 408.3 501.5 632.9 815.2 1002.7 Cash EPS 57.6 71.9 83.5 107.4 129.8

Growth (%) 32.3 22.9 26.2 28.8 23.0 DPS 10.0 12.5 10.0 10.0 10.0

Costs as % to sales except tax rate and average co


Exhibit 36: Balance sheet & key ratiosBalance Sheet (Rs crore) Key ratios (%)

FY08 FY09 FY10E FY11E FY12E Return ratios FY08 FY09 FY10E FY11E FY12E

Equity Capital 82.1 82.8 88.7 88.7 88.7 RoNW 31.9 35.2 30.3 27.2 24.5

Preference capital 0.0 0.0 0.0 0.0 0.0 ROCE 22.2 23.6 25.0 26.4 25.2

Reserves & Surplus 1197.6 1342.0 2003.2 2907.7 3999.8 ROIC 36.7 48.7 60.5 51.9 62.3

Shareholder's Fund 1279.7 1424.8 2091.8 2996.4 4088.4 Financial health ratio

Minority Interest 0.0 0.0 0.0 0.0 0.0 Operating CF (Rs Cr) 394.4 240.8 495.6 586.8 0.0

Secured Loans 708.1 756.9 797.3 847.3 897.3 FCF (Rs Cr) -519.6 301.9 23.5 32.5 -178.1

Unsecured Loans 494.8 466.4 333.8 131.8 132.7 Cap. Emp. (Rs Cr) 2602.7 2778.8 3353.6 4106.2 5249.1

Deferred Tax Liability 120.1 130.7 130.7 130.7 130.7 Debt to equity (x) 0.9 0.9 0.5 0.3 0.3

Source of Funds 3349.7 4111.9 5150.0 5982.6 7469.1 Debt to cap. emp. (x) 0.5 0.4 0.3 0.2 0.2

Gross Block 1485.9 1820.0 2470.1 2820.1 2920.1 Interest Coverage (x) 14.5 12.2 17.2 16.0 18.2

Less: Acc. Depreciation 469.8 618.8 726.5 863.1 901.1 Debt to EBITDA (x) 2.8 1.9 1.3 0.9 0.8

Net Block 1016.1 1201.2 1743.5 1956.9 2019.0 DuPont ratio analysis

Capital WIP 96.4 224.0 0.0 70.0 90.0 PAT/PBT 0.8 0.8 0.8 0.8 0.8

Net Fixed Assets 1112.5 1425.2 1743.5 2026.9 2109.0 PBT/EBIT 0.9 0.9 0.9 0.9 0.9

Intangible asset 0.0 0.0 0.0 0.0 0.0 EBIT/Net sales 0.2 0.2 0.2 0.2 0.2

Investments 5.8 21.6 21.6 21.6 21.6 Net Sales/ Tot. Asset 0.7 0.7 0.7 0.8 0.7Cash 274.2 77.8 150.9 121.8 886.1 Total Asset/ NW 3.2 3.8 3.3 2.6 2.4

Trade Receivables 743.9 1034.9 1266.8 1553.5 1838.1

Loans & Advances 236.7 278.0 316.4 388.0 459.0

Inventory- Other 789.3 957.2 1333.5 1553.5 1838.1 Spread of RoIC over WACC

Total Current Asset 2044.1 2347.8 3067.6 3616.7 5021.3 RoIC 36.7 48.7 60.5 51.9 62.3

Current Liab. & Prov. 747.0 1333.1 1796.4 1876.4 2220.1 WACC 9.0 8.9 8.8 8.6 8.5

Net Current Asset 1297.1 1014.7 1271.2 1740.3 2801.2 EVA (Rs) 43613.7 53554.9 71587.7 90342.1 114132.8

Application of funds 3162.5 3794.5 4832.7 5665.2 7151.8 RoIC-WACC 27.7 39.8 51.7 43.3 53.8



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Exhibit 37: Cash flow analysisCash Flow Statement (Rs crore)

FY08 FY09 FY10E FY11E FY12E Working Capital FY08 FY09 FY10E FY11E FY12E

Profit after Tax 408.4 507.7 632.9 815.2 1002.7 Working cap./Sales 47.9 26.9 26.1 29.2 39.7

Misc exp w/o 0.0 0.0 0.0 0.0 0.0 Inventory turnover 3.4 3.9 3.7 3.8 3.2

Dividend Paid -96.1 -121.3 -103.9 -103.9 -103.9 Debtor turnover 3.6 3.6 3.8 3.8 3.2

Depreciation 64.7 88.0 107.7 136.6 148.5 Creditor turnover 3.6 3.3 2.7 3.2 2.7

Provision for deferred ta 17.4 10.6 0.0 0.0 0.0 Current Ratio 2.7 1.8 1.7 1.9 2.3

CF before change in WC 394.4 485.0 636.7 847.9 1047.3 Quick ratio 1.7 1.0 1.0 1.1 1.4

Inc./Dec. in Current Liab. 324.8 586.1 463.3 80.0 343.7 Cash to abs. Liab. 0.4 0.1 0.1 0.1 0.4

Inc./Dec. in Current Ass 691.5 500.1 646.6 578.3 640.2 WC (Excl. cash)/sales 0.4 0.2 0.2 0.3 0.3

CF from operations 27.8 571.0 453.3 349.6 750.8

Purchase of Fixed Asset 567.4 530.8 426.1 420.0 230.5

(Inc.)/Dec. in Investment 3.0 15.7 0.0 0.0 0.0 FCF Calculation (Rs Crore)

CF from Investing -570.4 -546.5 -426.1 -420.0 -230.5 EBITDA 435.9 648.5 864.3 1125.4 1363.9

Inc./(Dec.) in Debt 338.1 20.4 -92.1 -152.0 50.8 Less: Tax 131.8 98.3 158.2 203.8 250.7

Inc./(Dec.) in Net worth 94.1 -241.3 138.0 193.3 193.3 NOPLAT 304.1 550.2 706.1 921.6 1113.3

CF from Financing 432.2 -220.9 45.9 41.2 244.1 Capex 567.4 530.8 426.1 420.0 230.5

Opening Cash balance 384.6 274.2 77.8 150.9 121.8 Change in working cap. 256.3 -282.5 256.5 469.2 1060.9

Closing Cash balance 274.2 77.8 150.9 121.8 886.1 FCF -519.6 301.9 23.5 32.5 -178.1

Y-oY Growth (%) FY08 FY09 FY10E FY11E FY12E Valuation

Net sales 34.4 39.5 28.9 22.6 18.3 FY08 FY09 FY10E FY11E FY12E

EBITDA 49.1 48.8 33.3 30.2 21.2 PE (x) 28.4 23.3 19.8 15.4 12.5

Adj. net profit 32.3 22.9 26.2 28.8 23.0 EV/EBITDA (x) 28.7 19.8 15.6 11.9 9.3

Cash EPS 30.4 24.8 16.1 28.5 20.9 EV/Sales (x) 4.6 3.4 2.8 2.2 1.8

FCF 9.3 22.9 31.3 33.2 23.5 Dividend Yield (%) 0.7 0.9 0.7 0.7 0.7

Net worth 46.5 11.3 46.8 43.2 36.4 Price/BV (x) 9.1 8.2 6.0 4.2 3.1

Y-oY Growth (%)



26/26

RATING RATIONALEICICIdirect.com endeavours to provide objective opinions and recommendations.ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. currentmarket price and then categorises them as Strong Buy, Buy, Add, Reduce and Sell. Theperformance horizon is two years unless specified and the notional target price is defined asthe analysts' valuation for a stock.Strong Buy: 20% or more;Buy: Between 10% and 20%;Add: Up to 10%;Reduce: Up to -10%Sell: -10% or more;

Pankaj Pandey Head Research [email protected] Research Desk,ICICI Securities Limited,7th Floor, Akruti Centre Point,MIDC Main Road, Marol Naka,

Andheri (E)Mumbai 400 [email protected]

ANALYST CERTIFICATIONWe /I, Raghvendra Kumar CFA Ashish Thavkar MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research reportaccurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related tothe specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

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ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might havereceived compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings,corporate finance, investment banking or other advisory services in a merger or specific transaction. ICICI Securities and affiliates expect to receive compensation from the companiesmentioned in the report within a period of three months following the date of publication of the research report for services in respect of public offerings, corporate finance, investmentbanking or other advisory services in a merger or specific transaction. It is confirmed that Raghvendra Kumar CFA Ashish Thavkar MBA research analysts and the authors of this report havenot received any compensation from the companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICISecurities, which include earnings from Investment Banking and other business.

ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding thepublication of the research report.

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This report has not been prepared by ICICI Securities, Inc. However, ICICI Securities, Inc. has reviewed the report and, in so far as it includes current or historical information, it is believed to

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