pharmaceutical sector_quinque pillars of evolution_11mar2015 1

March 2015

AnalystHemanshu [email protected]: +91-22-3083778

make money. not mis takes.Bonanza

PHARMA SECTORQuinque pillars of evolution

SUNPHARMA(Turnaround Specialist)

DR. REDDYS(Industry Stalwart) LUPIN

(Quality Emperor)CIPLA

(King of Affordability)

AUROBINDO(The Whiz kid)

Growth Booster

PHARMACEUTICAL SECTOR

Institutional Research 11 March 2015 | Page 2

CONTENTS

SECTOR (3-18)

US markets: The biggest chunk of the pie 6

IPM: Vibrant and stiff 9

Biosimilars: The next frontier for growth 11

EMs: Boulevard for burgeoning expansion 13

Developed Markets: Penetration the key for success 14

Covered Company Summary 16

COMPANIES (21-98)

Cipla Ltd. (CIPLA) 21

Sun Pharmaceuticals Industries Ltd. (SUNP) 35

Lupin Ltd. (LPC) 53

Dr Reddys Laboratories (DRRD) 69

Aurobindo Pharma (ARBP) 85

India Research 11 March 2015

PHARMACEUTICAL SECTOR Thematic Pharmaceutical Sector

For private circulation only. For important information about Bonanzas rating system and other discloser refer to the end of this material.

Cipla Ltd. Current Price: INR 718 Target Price: INR 962

Expected Upside (%) 34%

Sun Pharma Current Price: INR 1,012

Target Price: INR 1,196


Lupin Ltd. Current Price: INR 1,867



Dr. Reddy Labs Current Price: INR 3,477



Aurobindo Pharma Current Price: INR 1,109 Target Price: INR 1,707 Expected Upside (%) 54%

Stock Performance Return (%) 1 Mth 6 Mths 1 Yr

SUNP 11% 27% 75%

LPC 21% 39% 95%

CIPLA 16% 27% 95%

DRRD 12% 17% 29%

AURO 7% 28% 120%

BSEHC 12% 24% 69%

Analyst Hemanshu Srivastava [email protected] Tel: 022-30863778

Quinque pillars of evolution

US markets: The biggest chunk of the pie US, the worlds largest pharmaceutical market is projected to grow at a CAGR of 6% over FY14-17E period to reach USD 439bn in FY17E. US market presents the most striking opportunity for generic players due to a large patent cliff lasting till 2016, an ageing population, a rapid thrust towards specialty drugs targeting complex ailments and an improved healthcare access reforms (especially PPACA) driving future growthprospects.

IPM: Vibrant and stiff IPM is estimated to reach USD 27bn by 2017. A highly competitve marketplace which an HHI value of 260 portrays the kind of intense competition existing in the IPM. The main growth drivers on cards are rural penetration, rising household income and higher incidence of chronic disease.

Biosimilars: The next frontier for growth The global biologics market stands currently at USD 82bn in 2013 from 18 biologics alone comprising of Humira, Avastin, Remicade, Lantus, etc. All the major biologics are projected to go off-patent during the next 5 years, opening up a massive ocean of opportunities for biosimilars. We expect the biosimilars market size to be USD 20bn by 2020 in key markets of US, China, Japan, EU5 and South Korea.

EMs: Boulevard for burgeoning expansion EMs (including China, Brazil and Russia) are expected to be the principal growth driver of the global pharma industry, enhancing their MS from 39% in 2012 at USD 371bn to 48% in 2017 at USD 558bn growing at a cumulative 8.5% CAGR over 2012 2017.

Developed Markets: Penetration the key for success EU5 markets are subjected towards inferior growth impacted by patent cliff; governments austerity measures due to economic crisis witnessed in the region and restricted meaningful innovative launches in the province. JPMs market size was USD 116bn in 2012. Amid recent healthcare reforms embarked by the Japanese government with an aim to increase generic penetration in the nation and governments biennial price cuts, we anticipate the JPM to de-grow at (1.4%)CAGR to reach USD 108bn in 2017.

We initiate coverage on SUNP, AURO, DRRD, LPC and CIPLA; AURO, CIPLA and DRRD emerge as our topmost picks.

CIPLA with an array of gears in place to propel its growth over FY14-17E is reliant on its integration efforts ongoing across various acquired distribution businesses; ramping up of ANDA pipeline in US as well as executing a well-structured front-end model; elevated dominance of its tender business and debottlenecking of its API facilities infested with capacity constraints.

SUNP possesses a robust US portfolio capable of higher leverage, a sound management at the helm capable of turning around stressed businesses (RBXY), long-term growth drivers in form of RBXYs RoW markets in place, a healthy domestic business and opportunities in form of Mercks in-licensed psoriasiss investigational compound.

LPC with its robust and rich ANDA pipeline, restructuring of US Bx business, turnaround in its Japanese operations, high return ratios, debt free status and with abundant growth drivers at place is expected to generate healthy returns going forward. LPC with its various strategic tie-ups and partnerships in place is bound to witness a substantial momentum going forward.

DRRD with its rich ANDA pipeline, turnaround in the PSAI segment and vigorous momentum in RoW markets, is likely to remain on a higher end of its PE band plus DRRDs key forte lies in its drug discovery pipeline, NCE division and biosimilar portfolios.

ARBP with its multiple growth levers in place is set to witness a rampant growth phase over FY15-FY19E dependent on unfolding of its heavily ramped up ADNA portfolio in US, foray into US OTC markets, strong footprint in the EU markets, a CS portfolio targeting addressable market of ~USD 500mn, a germinating injectables pipeline and a broad spectrum peptides business unfolding in longer run, providing a stark essence to ARBPs non-institutional business.



Exhibit 1: Valuation Summary Table

Company CMP TP Return FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E

EPS PE Ratio EV/EBITDA

SUNP 1,012 1,196 18% 30 40 50 34 25 21 27 28 24

LPC 1,867 2,420 30% 56 87 110 34 22 17 23 19 16

DRRD 3,477 4,909 41% 143 170 223 24 20 16 16 15 13

CIPLA 718 962 34% 17 33 46 43 22 16 25 20 14

AURO 1,109 1,707 54% 54 70 95 16 16 12 13 11 9

Source: Company, Bonanza Research

Exhibit 2: Sensex vs. BSEHC index returns chart


Exhibit 3: Revenue growth over 10 years for the Indian pharma cos (in INR bn)


Exhibit 4: 10 Year performance of the Indian Pharma cos


-20%

30%

80%

130%

180%

Apr-10Jun-10Aug-10O

ct-10D

ec-10Feb-11Apr-11Jun-11Aug-11O

ct-11D


ct-12D


ct-13D


ct-14D

ec-14Feb-15

SENSEX BSEHC

020

4060

80100120

140160180

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

SunRXBYLupinDRLAurobindoCipla

32%

9%

25%21%

19% 19%

0%

5%

10%

15%

20%

25%

30%

35%

Sun RXBY Lupin DRL Aurobindo Cipla



Operations Matrix

TOPIC SUNP RBXY LPC DRRD CIPLA AURO ANDA Story

ANDA Filed 358 135 200 220 90 378 ANDA Pending 139 55 95 68 40 181

Geographic Breakdown

US 59% 33% 44% 43% 7% 41% EU 9% 3% 5% 6% 8% India 24% 18% 23% 12% 39% CIS + Russia 16% 16% API 5% 6% 10% 18% 8% 45% JPM 12% Others 7%

SA 8% RoW 12% 18% 8% 6% 25% 6% Financial Health

Gross Margins 82.5% 63% 67.7% 73.5% 61.4% 59% OPM 44% 3.8% 25.2% 20.5% 20% 22.3% EBITDAM 46% 7.5% 27.6% 25.5% 24% 26.6% PATM 24% (8.3%) 16.5% 14.6% 14% 14.4% R&D% 6% 4% 8.6% 9.4% 5.4% 3% Material Cost 17.5% 37% 32.3% 26.5% 38.6% 41% Capex INR 9bn - INR 4.6bn INR 1bn INR 4bn INR 3.5bn BVPS INR 89.4 INR 77.4 INR 154.7 INR 422.7 INR 125.2 INR 128.7 SG&A% 8.6% 24.2% 6.8% 18.4% 12.2% 7.5% Debt: Equity 0.14 2.01 0.01 0.57 0.12 1.01 RoE 23% (29.3%) 30.8% 27.6% 15% 36.7% EPS INR 15.2 INR (25.4) INR 41 INR 115.4 INR 17.3 INR 40.2 Growth Rate (CAGR; 4Yr.) 41.3% 15% 23.4% 17% 17.2% 23%

Product Pipeline

FTF gCoreg CR NONE gRenagel, gRenvela, gGlumetza gMozobil NONE NONE

Drugs Awaited

gNamenda, gCrestor, gNexium, gAbilify, gGleevec, gLunesta, gMultaq,

gOnglyza

gNexium, gValcyte, gOpana ER

gCelebrex,gPrezista, gWelchol, gPristiq, gEffient, gAsacol,

gDetrol LA

gCopaxone, gNexium, gNamenda, gGleevec,

gLunesta, gTreanda, gPristiq

gAdvair, gSymbicort, gNasonex,

gAbilify, gTamiflu, gPrezista

gEffient, gOnglyza,

gNamenda, gNexium, gAmpyra

Investigational Compounds

IL23 ( Merck Plaque Psoriasis

Compound) NONE NONE NONE NONE NONE

Think Tank

Strategic Success Rate Turnaround of

Taro, URL, DUSA and Caraco

-

Marginal growth of US Bx business &

Successful acq. of Kyowa in Japan

Unproductive Betapharm Acquisition of Germany

Strong run-rate of Medpro

(South Africa, 49% stake acq.)

-

Decision Tree

Controlled Substance YES NO NO NO NO In Development

Biosimilars NO YES YES YES YES NO NCE YES YES YES YES NO NO

Peptides NO NO NO NO NO YES M&A Activity

Recent Acquisition Pharmalucence, GSKs Australian Opiate business

NONE Grin Labs, Mexico Habitrol

Cipla Medpro; Iranian, Sri

Lanka etc acq, of distributors

Actaviss Western EU

operations, Natrol Acquistion

Recent Mergers Ranbaxy Labs NO NO NO NO NO

Tie-Ups Intrexon, Merck & Co.

EPIRUS Biopharmaceuticals for Infliximab biosimilar in India, Gilead for Hep C

USD 1.2bn contract with Merck, Strategic tie-up with Celon Pharma for

gAdvair and collaboration with

InspiRX for VHC in US Bx business

Curis

Teva, Gilead (Hep C), MMV,

BioQuiddity, Serum Institute

of India (Vaccines) and

Hetero Labs (Biosimilar)

Vaccine development with Tergene Biotech




US Markets: The biggest chunk of the pie US is the worlds largest pharmaceutical market, with a market size of USD 368bn in FY14 and it is estimated to grow at a CAGR of 6% over FY14-17E period to reach USD 439bn in FY17E from USD 368bn in FY14.But, USAs contribution to the global spending pie is expected to decrease from 34% in 2012 to 31% by 2017. Overall growth in US will continue to be impacted by patent expiries and low cost generics rampant penetration in the markets. The rate of ANDA approval has been fairly torpid over the past 7 years with a constant declining trend except in 2012 at the peak of patent cliff when the approvals touched a high of 490. US FDA is in the process of implementing the Generic Drug UserFee Amendments of 2012 (GDUFA) program, which is designed specifically to speed access to safe and effective generic drugs. Indian generic manufacturers only received ~34% of ADNA approvals (excluding Tentative and other final ANDAs approval) totalling at 76 out of 222 approvals.

US market is the most striking opportunity for generic players due to a large patent cliff lasting till 2016, an ageing population, a rapid thrust towards specialty drugs targeting complex ailments and an improved healthcare access reforms (especially PPACA or ACA i.e. Patients Protection and Affordable Care Act extending insurance to ~30mn uninsured US citizens) driving growth prospects and re-rating outlook in the worlds most attractive pharma landscape.

Exhibit 5: Drug Approvals obtainted over 2003-2014

Source: Bloomberg, Bonanza Research

Exhibit 6: Value of Drugs to go off patent in US (USD bn)


.

Exhibit 7: ANDA approvals by Global, US, EU and Indian generic cos over 2003-2014


.

199

305 300337

460 449 425 433 437490

397 414

0

100

200

300

400

500

600

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

1916

19 20

35

1519

2217

05

10152025303540

2008 2009 2010 2011 2012 2013 2014 2015 2016

66

11195 101

138131

97

115124

133

88

107

25 2737

56

118111 105

94103

114 108

76

0

20

40

60

80

100

120

140

160

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Global Majors

US Generics

European Generics

Indian Generics

We expect the US markets to grow at 6% CAGR over FY14-17E to reach USD 439bn in FY17E from USD 368bn in FY14.



Exhibit 8: Grouping of therapies in the pharma landscape according to their sales


SUNP obtains 59% of its revenues from US markets, making it most attractive firm amongst its peer on the basis of revenues attainable and its presence in the complex to manufacture derma space, but LPC on the other hand, has a roubst Bx and Gx business coupled with a strong field force dominating 5.3% MS in US genericspace. Hence in our view, LPC and SUNP remain an attractive buy in contemplation to their US revenues.

Exhibit 9: High value disease classes in terms of USD bn


Exhibit 10: Percentage of contribution from US by Indian cos.


2% 3% 3%4%

5% 2%

5%5%

2%2%

2%

4%8%

7%5%

3%2%2%

6%

2%

2%

26%

Angiotensin II Antagonists

Antibiotics

Anti-Coagulation

Anti-Convulsants

Anti-Depressants

Antinauseants

Antipsychotics

Anti-TNF Agents

DPP-4 Inhibitors

ESAs

HCV: Direct Acting Antivirals (DAA)

HIV

Hypercholesterolaemia

Inhaled Bronchodilators/Steroids

Insulin Analogs

MS: Immunomodulators

Neurostimulants

Opioids

Proton Pump Inhibitors

Targeted Immunosuppresants

WBC Stimulants

Others

31%

44%

12%13%

Asthma/COPD Diabetes Hepatitis C Multiple Sclerosis

59%

44% 43%

7%

41%

0%

10%

20%

30%

40%

50%

60%

70%

SUNP LPC DRRD CIPLA AURO

Diabetes is one of the largest therapeutic categories in the world, with USD 41bn in market size in CY2013 followed by Asthma/COPD market with USD 28bn in market size



Exhibit 11: Medicinal categories and market size for CY2013 Medicinal Categories in USD mns ACE Inhibitors 4,145 Alpha Blockers 2,330 Alzhemiers 3,512 ALK- Positive Lungs 167 Anabolic Hormones 1,066 Androgen Receptor Agonists 2,299 Angiotensin II Antagonists 7,973 Anthracyclines 52 Anti-Androgens 1,153 Antibiotics 9,015 Anti-Coagulation 9,349 Anti-Convulsants 13,005 Anti-Depressants 16,163 Anti-Fungal 1,267 Anti-Hemophilic Factors 847 Antihistamines 1,172 Antihyperlipidemics 2,205 Anti-IgE 838 Antinauseants 5,581 Antineoplastics 1,305 Anti-Parkinson: Dopamine Agents 1,263 Antipsychotics 16,317 Anti-Resorptives 3,972 Anti-TNF Agents 14,820 Aromatase Inhibitors 1,151 Benzodiazepines 1,709 BPH Agents 2,697 BTK-protein-inhibitors 11 Calcimimetics 802 Calcium Channel Blockers 3,644 COX-2 Inhibitors 2,438 DPP-4 Inhibitors 5,504 EGFR Inhibitor 1,562 ESAs 5,060 Folic Acid Analogs 1,345 Glaucoma Miotics 2,072 Glitazones 1,270 GLP-1 Analogs 2,095 Glutarimide Agent 1,859 GRH Analogs 2,347 HCV: Direct Acting Antivirals (DAA) 6,959 Hedgehog Cell Signalling Inhibitor 74 HER2 Agents 2,798 HIV 13,843 Human Insulins 1,648 Hypercholesterolaemia 26,792 Influenza Antivirals 602 Inhaled Bronchodilators/Steroids 24,445 Insulin Analogs 14,839 Interferons 586 Intra-Occular Anti-Proliferatives 1,904 I.V. Irons 546 JAK Inhibitors 145 Leukotrine Agents 2,619 Lupus: Immunomodulators 223 Melanoma Targeted Therapy 726 MS: Anti-Spasmodics 318 MS: Immunomodulators 8,456 MTOR Inhibitors 827 Neurostimulants 6,820 Opioids 6,536 PDE5 Inhibitors 3,078 Phosphate Binders 1,178 Proteasome Inhibitor 1,049 Proton Pump Inhibitors 18,153 Pulmonary Artery Vasodilators 534 Pyrimidine Agents 1,837 SGLT-2 Inhibitors 400 Subcutaneous Neuromodulators 357 Synthetic Amylin Analogs 96 Systemic Enzymes 408 Systemic Immunosuppressants 1,825 Targeted Anti-Proliferatives 2,212 Targeted Immunosuppresants 6,017 Taxoids 1,491 Thrombopoietin Receptor Agonists 415 Urinary Tract Anti-Spasmodics 2,179 VEGF Inhibitors 3,766 WBC Stimulants 6,166 Total 328,246 Source: Bloomberg, Bonanza Research



IPM: Vibrant and stiff The IPM (Indian Pharma Market) is estimated to reach USD 27bn by 2017 compared to USD 15bn in 2012 growing at 12% CAGR over 2012-17 period, establishing India as the 11th largest pharma market by 2017, compared to its 13th position in 2012. Exports from India during FY13 IPM is the 4th largest pharma market amongst the pharmerging nations in terms of market size and is one of the foremost exporters to US having the highest number of US FDA approved manufacturing facilities outside USA. Indian pharma companies received 108 approvals in 2014 accounting for ~34% of the ANDA approvals received in 2014. IPM till date has received a cumulative FDI inflow worth ~USD11.6bn over Apr-00 to Feb-14. The IPM market is a highly competitive market with a market size of INR 830bn in FY14.

Exhibit 12: IPM therapeutic market share


Demand drivers

A. Rising spend on healthcare: Total annual healthcare spending is expected to more than double to USD 201.4bn, growing at an average annual rate of 15.8% during 2012-2017. Healthcare spending is estimated to be around 0.5% of GDP in 2013.

B. Growing health insurance coverage: The Indian government plans to bring 80% of Indias population under health insurance cover under its Health Insurance Vision 2020. This will lead to higher volumes for the pharmaceuticals industry.

C. Growing incidence of chronic diseases: Chronic therapies have grown at a faster pace than that of traditional acute therapies over the past four years. Their contribution in the Indian pharmaceutical market escalated from 27% in 2010 to 30% in 2013. Lifestyle changes, rapid urbanization which are expected to drive it further

D. Rapid urbanisation: An increase in urban population from 31% to 40% or more by 2030 will see better accessibility, with which will come with rapid urbanization and the growth of the pharmaceutical industry.

Industry concerns:

A. Regulatory challenges: The IPM has its own set of regulatory challenges in the form of: Government-mandated price controls Delay in new product approvals Delay in clinical trial approvals Uncertainties over FDI policy

These concerns act as a deterrent to the growth of the industry. B. Manufacturing quality: India is attracting greater scrutiny from the US FDA in relation

to cGMP compliance, owing to the fact that it is the largest drugs supplier to the US. Indian companies will have to conform to standards at par with the global benchmarks. This will involve continuous improvement in systems and processes and training of the workforce to ensure compliance to such standards.

Anti-infectives16%

CVS12%

GI11%

Vitamins/Minerals 9%Respiratory

8%

Anti-diabetic

8%

Pain 7%

CNS6%

Derma6%

Gynaecology 5%

Ophthal2%

Hormones 2%

Anti-neoplastics2%

Vaccines 1%

Blood related

1%

Others 1%

Urology 1%

Anti-malarials1% Sex

Stimulants1%

Stomatologicals0%

HHI of Indian Pharma Market (IPM) is at 260 in FY14 demonstrating the extensive competition present in the IPM. Abbott labs occupys the largest share of 6.2% followed by SUNP with 5.5%.

Market size of IPM according to AIOCD AWACS is INR 830bn in CY2014.



Exhibit 13: IPM Segmentation


Exhibit 14: IPM Therapy distribution from 2010-2014


Exhibit 15: Indian Pharma export and import data


SUNP obtains 24% of its revenues from IPM having 5.5% MS, CIPLA 39% through IPM having 5% MS, LPC 23% through IPM having 3.3% MS and DRRD obtains 12% through IPM having 2.1% MS. Amongst the 4 giants, DRRD is more vulnerable towards NLEM price control whereas SUNP is the least vulnerable due to DRRDs high dependence on acute segment.

Exhibit 16: IPM trajectory (in INR bn)

Source:AIOCD AWACS, Bonanza Research

Exhibit 17: Percentage of revenues obtained from IPM


Generic Drugs 72%

Patented Drugs

9%

OTC Medicines

19%

73%

27%

69%

31%

Acute Chronic

23

45 5

7

910

11.6

0.4 0.6 0.7 0.9 1.11.2 1.7 1.8

2.1

0

2

4

6

8

10

12

14

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Exports

Imports

45

50

55

60

65

70

75

80

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

CY12

CY13

CY14

CY15

24% 23%

12%

39%

0%5%

10%15%20%25%30%35%40%45%

SUNP LPC DRRD CIPLA



Biosimilars: The next frontier for growth The global biologics market stands currently at USD 85bn in 2013 from 20 biologics alone comprising of Humira, Avastin, Remicade, Lantus, etc. All the major biologics are projected to go off-patent during the next 5 years, opening up a massive ocean of opportunities for biosimilars. We expect the biosimilars market size to be USD 20bn by 2020 in key markets of US, China, Japan, EU5 and South Korea. On the whole we anticipate the biosimilars market to evolve with time, and entry of biosimilars will be at significantly truncated pricing discounts in tune of 20% - 30% due to considerable manufacturing expense and expertise coupled with difficulties in reverse engineering process constraints.

Other factors curbing the growth prospects for the biosimilars are the high manufacturing complexities and costs; stringent regulatory environment in the U.S. and Europe; innovative strategies used by biologic drug manufacturers to protect their intellectual property and costly purification process; arrival of biobetters, and the presence of low priced biogenerics that compete with biosimilars in the market.

The biosimilars market is segment into 3 main divisions of recombinant non-glycosylated proteins, recombinant glycosylated proteins, and recombinant peptides.Of all these segments, the key traction segment that is estimated to grow at a faster rate of 25% CAGR over 2013 2018 is the recombinant glycosylated proteins segment. This progression is mainly attributable to the investments made to develop biosimilar versions of mAbs (more than 50 biosimilars in the pipeline); the introduction of the new biosimilar drug Ovaleap (follitropin) to treat infertility and the budding demand for erythropoietin and mAbs to treat cancer.

Exhibit 18: Biosimilars market segmentation


Biosimilars

Recombinant non -glycosylated

proteints (rNGP)

Insulin

Human growth hormone (HGH)

Interferons

Granuloctye colony stimulating factor

(G-CSF)

Recombinant glycosylated

proteins (rGP)

Erythropoietin

Monoclonal antibodies (mAbs)

Follitropin

Recombinant peptides (RP)

Calcitonin

Glucagon

20 biologics encompass a market size of USD 85bn in 2013, which are about to go off -patent over the next 5 years.



mAbs is the most lucrative markets for drug manufacturers and is estimated to be the fastest growing market at 42% CAGR from 2013 to 2018. mAbs such as Rituxan, Remicade, Herceptin, Humira, Avastin, Synagis, Erbitux, and Lucentis are expected to become off-patent products from 2013 to 2018.

Following mAbs, insulin is expected to be the steadiest emergent segment growing at 36% CAGR from 2013 to 2018. The growth is attributed to the rise in incidences of diabetes; on-going patent expirations of biologic drugs such as Lantus, Humalog, and Novorapid; and the cost effectiveness of the biosimilars of insulin.

Exhibit 19: Foremost biologic drugs (according to their market size)

Biologics Originator US Patent Expiry UK Patent Expiry FY14 Sales (in USD bn) Launched in US Launched in UK

Avastin Roche 219 2022 7.3 No No

Enbrel Pfizer, Amgen 2029 Feb-15 8.5 No No

Herceptin Roche 2018/19 2015 6.8 No No

Humira AbbVie Dec-16 Apr-18 12 No No

Lantus Sanofi Feb-15 May-15 8.7 No Substitutable product launched by Sanofi (Toujeo)

Rituxan Roche 2018 Jul-05 7.9 No No

Remicade J&J, Merck & Co. 2018 Feb-18 9 No Yes; Celltrion/Hospira


With the latest updates flowing through from the US and EU regulators following the most anticipated launch of the 1st highly awaited biosimilars into these markets, guidelines and market response remains to be observed. Remsima (biosimilar of Remicade of J&J) from Celltrion launched in EU and Zarxio (biosimilar of Amgens Neupogen) from Sandoz launched in US are the only biosimilars launches in developed markets of US and EU till date. This paves the way for more biosimilar launches in the foreseeable future.

Exhibit 20: Overall Biologics (Sales in USD mn)

Biologics FY14 Sales

Avastin 7,300

Enbrel 8,500

Herceptin 6,800

Humira 12,000

Lantus 8,700

Rituxan 7,900

Remicade 9,000

Avonex 1,955

Stelara 1,800

Neulasta 5,000

Lucentis 1,900

Novolog 4,000

Synagis 500

Erbitux 700

Humalog 2,700

Novorapid 500

Interferons 586

Pegasys 477

Tysabri 770

Others 3,620

Total 84,708




EMs: Boulevard for burgeoning expansion EMs (including China, Brazil and Russia) are expected to be the principal growth driver of the global pharma industry, enhancing their market share from 39% in 2012 of USD 371bn to 48% in 2017 to USD 558bn growing at a cumulative 8.5% CAGR over 2012 2017. Chinese pharma market is estimated to grow at 15% CAGR over 2012-2017 period from USD 87bn in 2012 to USD 175bn in 2017, Brazilian pharma market is anticipated to grow at 12% CAGR from USD 24bn in 2012 to USD 43bn in 2017 and the Russian pharma market is likely to grow at ~9% CAGR from USD 18bn in 2012 to USD 28bn in 2017. RoW pharma markets are projected to grow at 5.3% CAGR over 2012-2017 from USD 241bn in 2012 to USD 312bn in 2017. Rampant economic growth in the region on back of rising household income, escalating incidence of chronic ailments and various governments healthcare reforms seeking increased access towards affordable medicines are the chief growth drivers for the EMs whose spending on generics is projected to enhance from 58% in 2012 to 63% in 2017 of the overall pharma market spend.

Exhibit 21: Key therapeutic segments in the Pharmerging economies


Exhibit 22: Market size of the BRIC and other pharmerging nations


Exhibit 23: Market Segments of the BRICS economies


0 5 10 15 20 25Pain

AntibioticsHypertension

DermaCholesterol

Anti-EpilepticsImmunosuppresAntidepressants

Antipsychotics

175

43 28 27

115

15%

12%

9%

12%

7%

0%2%4%6%8%10%12%14%16%

020406080

100120140160180200

Chi

na

Braz

il

Rus

sia

Indi

a

Oth

er

Market Size (USD bns)CAGR

31%

26%

58%

63%

11%

11%

2012

2017

Branded Generic Others

BRICS pharma market stood at USD 148bn in 2012 poised to grow at 13.5% CAGR over 2012-2017 to reach USD 279bn in 2017.



Developed Markets: Penetration the key for success JPM: JPMs market size was USD 116bn in 2012 contributing 12% to the global pharma pie. With the recent healthcare reforms embarked by the Japanese government with an aim to increase generic penetration in the nation and governments biennial price cuts, we anticipate the JPM to de-grow at (1.4%) CAGR over 2012 2017 to reach USD 108bn in 2017, contributing 9% to the global pharma pie.

On the contrary the worlds 2nd largest pharma landscape (excluding EU5) provides bounteous opportunity to the global generic players looking to capitalize the opportunity at hand by targeting the relatively higher ageing Japanese population (~24.2% of the overall population accounting 49% of the medical costs amongst the whole healthcare costs which is ~9.5% of the Japans GDP), governments austerity measures (biennial price cuts averaging 5.64% on a drug price from 2014) and a relatively lower generics penetration in the JPM. Increasing generic substitution and biennial pricing reviews restrict the quantum of growth of the JPM market but provides a cloaked opportunity for many generics players.

Exhibit 24: Market segments in the Developed economies


EU Markets: The EU5 members market size comprising of France, Germany, Italy, Spain and UK in 2012 was USD 145bn with estimates anticipating its contribution to the global spending pie to come down from 15% in 2012 to 13% in 2017 with its market growing at 1.5% CAGR over 2012 2017 period to USD 156bn in 2017. EU5 markets are subjected towards inferior growth impacted by patent cliff; governments austerity measures due to economic crisis witnessed in the region and restricted meaningful innovative launches in the province.

Exhibit 25: Market size of the EU5 markets


Exhibit 26: Therapeutic segments prevalent in Developed markets


72%

67%

16%

21%

12%

12%

2012

2017

Branded Generic Others

France23%

Germany 30%

Italy 18%

UK17%

Spain 12%

0 10 20 30 40 50 60 70 80 90Oncology

PainHypertension

DermaAnti-EpilepticsAnitulcerants

ADHD

We anticipate the JPM markets to de-grow at (1.4%) CAGR over 2012-2017 to reach USD 108bn in 2017.

We expect the EU5 markets to grow at 1.5% CAGR over 2012-2017 to reach USD 156bn in 2017.



API & Other opportunities API: The global API market stood at USD 113bn in 2012as against USD 91bn in 2008. It is expected to grow at 8% CAGR over 2012-2017 reaching USD 166bn in 2017 owing to extensive patent expiries, increase in outsourcing and demand for potent and biogeneric APIs. With the stiff competition in the global API markets, a significant portion of the API production is outsourced to China and India (two of the largest API markets inthe world), providing ample opportunities for vertically integrated generic firms and specialty API manufacturers. AURO derives 45% of its overall revenues through API, SSP, NBL and Cephs; thereby in a position to gain heavily from the patent expiries (in-tune of USD 60bn till 2019), followed by DRRD (which obtains 18% from its PSAI segment).

Exhibit 27: Percentage of API contribution to revenues of the top Indian cos.


Other opportunities: Increased USFDA vigilance in China may benefit Indian generic players, as Chinas

DMF filings indicate stricter US FDA vigilance thereby increasing shortages of antibiotics, chemo and CVS drugs. India and USare two largest buyers of Chinese pharmaceutical raw materials, amounting to USD 6bn annually. LPC and AURO have strong manufacturing capabilities in China, which can benefit from the supply vacuum created through enhanced vigilance on Chinese pharma firms as Indian generic firms rely on many APIs from China.

Argentina has fully unbolted its USD 6bn pharma market to the Indian generic players, whose scope was earlier limited to only APIs. According to estimates, Argentina's pharma market is expected to cross USD 15bn by 2020. More clarity will emerge with the Latam nation coming out with its regulations which could throw light on the amount of time required for product registrations.

Southeast Asia to grow at twice the global average, driven by population growth, rising incomes and improved access to healthcare.

The global population aged 65 and over will grow faster than any other age segment, and will account for almost 30% of overall population growth in the next five years

Oncology Patent Expiries over 2018/2019 as over USD17bn drugs including Herceptin, Alimta and Velcade will be at risk due to loss of their patent or exclusivity protection.

Global asthma market to touch USD 18bn by 2018 dependent on two key marketed drugs, Advair (GlaxoSmithKline) and Symbicort (AstraZeneca), which will also face erosion due to the arrival of Breo from GlaxoSmithKline, Boehringer Ingelheims Spiriva and generics emerging from the pipeline.

Key downside risks: A significant downside risk to our estimates is the uneven economic recovery in

Europe, political tension in Russia and recent political events in Africa and the Middle East.

Lack of proper guidelines from US FDA can negatively affect the biosimilars market and condense its magnetism going forward.

Stern vigilance towards many Indian generic manufactures and import alerts encompassing firms such as Wockhardt, Sun, Lupin, IPCA, etc can hurt the growth sentiment going ahead and dampen the bright prospects at hand of the Indian manufactures.

5%10%

18%

8%

45%

0%

10%

20%

30%

40%

50%

SUNP LPC DRRD CIPLA AURO

Opening up of Argentinas USD 6bn pharma market to Indian generic manufactures provides plentiful opportunity to tap early into the market.

Patent cliff of USD 39-50bn over FY15-17E offers the Indian pharma cos with an ample opportunity to enhance their API supply.

Stern vigilance from US FDA towards Indian generic cos manufacturing process raises the concerns of an import alert.



Covered Company Summary Cipla Ltd. (CIPLA) At the tipping point of acceleration

CIPLA with an array of gears in place to propel its growth over FY14-17E is reliant on its integration efforts ongoing across various acquired distribution businesses including South Africa, Iran, Yemen, Sri Lanka, Myanmar, etc; ramping up of ANDA pipeline in US as well as constructing a well structured frontend model; elevated dominance of its tender business (~25% of Ciplas total Export business); an imminent respiratory portfolio in EU market and debottlenecking of its API facilities infested with capacity constraints. CIPLA has multiple levers in place to accelerate growth over FY14-17E plus multiple in-licensing deals and partnership agreements to boost its growth trajectory further.

Investment Rationale US markets: The golden goose Domestic front presenting stimulus for sustainability South African markets to demonstrate superior growth International markets glistening with prospects Strategic & Tie-up: Inorganic expansion drive

We expect CIPLA to demonstrate a whopping growth progression of 21.6% CAGR over FY14-17E from INR 101bn in FY14 to INR 182bn in FY17E with EBITDA margins enhancing by 390bps from ~21% in FY15E to ~25% in FY17E as in our opinion improvement in margins will take place steadily as effects of integration and expansion drive will be inlayed from FY16E onwards.

We assign a BUY rating to CIPLA valuing its base business at a 21x FY17E EPS of INR 45.8 (including base EPS of INR 36.4 and key ANDA opportunities at INR 9.4) to arrive at a TP of INR 962 with a potential upside of 34%.

Initiate with BUY; TP- INR 962

Sun Pharmaceuticals Industries Ltd. (SUNP) Amalgamation: Key to limitless opportunities

SUNP possesses a robust US portfolio capable of higher leverage, a sound management at the helm capable of turning around stressed businesses, long-term growth drivers in form of RBXYs RoW markets in place, a healthy domestic business and opportunities in form of Mercks in-licensed psoriasiss investigational compound. SUNP has structured growth drivers in place to propel its growth from FY16E onwards spanning enhanced presence in the RoW markets of Russia, Brazil, Africa, and developed markets of Europe and Japan; access to an investigational drug (in-licensing from Merck) and a solid NCE pipeline (SPARC NCE pipeline plus Synriam from RBXY for malaria).

Investment Rationale US: Dynamic growth engine Domestic markets on the cusp of escalation RBXY assimilation a key to unlock potential Other Segment complement growth Strategic Alliances and Tie-Ups: Engineering a promising future

We expect SUNP to post a revenue growth of 15% CAGR over FY14-17E from INR 160bn in FY14 to INR 244bn in FY17E on account of stronger US operations and enhanced focus on RoW markets and post a PAT growth of 29% CAGR over FY14-17E from INR 39bn in FY14 to INR 83bn in FY17E. Post-merger, we believe the combined entity to post revenue of INR 392bn and a PAT of INR 102bn in FY17E.

We assign a BUY rating to the stock valuing it at 9% premium to its peers at 24x FY17E EPS of INR 49.8 (post-merger base business EPS at INR 41.9, ANDA opportunities at INR 6.9 and GSK opiates business to add INR 1) to arrive at a TP of INR 1,196 with a potential upside of 18%.

Initiate with BUY; TP- INR 1,196



Lupin Ltd. (LPC) Invigorating ascent

LPC has a rich ANDA pipeline comprising of niche launches such as gCelebrex, gRenagel, gRenvela, gGlumetza, g Namenda, gSeroquel XR etc; a strong branded portfolio in US; improvement in Japan business; strong domestic operations; pulsating RoW markets comprising of South Africa, Australia, Philippines etc.; Latam markets access through commencement of Mexican operations and multiple strategic alliances in place to propel the stock towards a sustained growth trajectory.

Investment Rationale US: The impetus of evolution Domestic front presenting ample of opportunities Turnaround to decide the fortune in JPM International markets shimmering with optimism Strategic Alliances and Tie-Ups: Engineering a promising future

We expect LPC to register a revenue growth of 18.7% CAGR over FY14 17E from INR 112bn in FY14 to INR 187bn in FY17E posting a growth of 23.2% CAGR in PAT over the period from INR 18.6bn in FY14 to INR 34.9bn in FY17E.

We assign a BUY rating to LPC valuing its base business at a 22x FY17E EPS of INR 110 (base EPS at INR 78, key ANDAs at INR 29.5 and strategic acquisitions to add INR 2.5) to arrive at a TP of INR 2,420 with a potential upside of 30%.


Dr. Reddys Laboratories (DRRD) Ripe for gains

DRRD with its robust and rich ANDA pipeline and abundant growth drivers at place such as traction in US markets sustained by newer launches, turnaround in the PSAI segment and vigorous momentum in RoW markets, is likely to remain on a higher end of its PE band as we remain convinced of its execution competence and new catalysts in place to drive further earning upgrades and re-rating. DRRDs key forte lies in its drug discovery pipeline, NCE division and its robustUS operations.

Investment Rationale US roadmap a baseline for progress Domestic front presenting stimulus for sustainability Russia & CIS markets amidst hurdles International markets glistening with prospects PSAI segment to gradually turnaround

We expect DRRD to register a growth of 14.6% CAGR over FY14 FY17E from INR 132bn in FY14 to INR 198bn in FY17E posting a PAT growth of ~16% CAGR over the period from INR 19.6bn in FY14 to INR 30.4bn in FY17E with a consistent EBITDA margins of ~25% in FY17E.

We assign a BUY rating to DRRD valuing its base business at a 22x FY17E EPS of INR 223.1 (Base business at INR 178.7, Habitrol acquisition to add INR 6.6 and key ANDA opportunities at INR 37.8) to arrive at a TP of INR 4,909 with a potential upside of 41%.




Aurobindo Pharma (ARBP) Inorganic methodology to fuel growth engine

ARBP with its multiple growth levers in place will witness a rampant growth phase over FY15-FY19E dependent on unfolding of its heavily ramped up ADNA portfolio in US, foray into US OTC markets, strong footprint in the EU markets, a CS portfolio targeting addressable market of ~USD 500mn, a germinating injectables pipeline and a broad spectrum peptides business unfolding in longer run, providing a stark essence to ARBPs non-institutional business.

With a large chunk of the ANDA pie still to unfold coupled with a stronger base business, improvement in injectables sales and strong growth in Aurolife (largely dependent on CS releases and non-institutional business portfolio)as ARBPs presence in these high margins segment of CS, injectables, penems and peptides will boost its next growth phase since ~60% of the pipeline in these segments is still yet to unfold.

Investment Rationale US Operations: Unlocking potential Enhancing growth in EU: Actavis Deal Natrol Acquisition: A sublime match Other segments geared up for progression

We expect ARBP to post a staggering revenue growth of 28.1% CAGR over FY14-17E from INR 81bn in FY14 to INR 170bn in FY17E and a whopping 33.1% CAGR growth in PAT from INR 11.7bn in FY14 to INR 27.5bn in FY17E enhancing its EBITDA margins by 330bps from 22.6% in FY15E to 25.9% in FY17E as in our opinion, improvement in margins will be witnessed gradually as effects of integration will kick in from FY16E onwards.

We assign a BUY rating to ARBP valuing its base business at a 18x FY17E EPS of INR 94.8 (base EPS at INR 88.8, key ANDAs at INR 3.5 and Natrol acquisition at INR 2.5) to arrive at a TP of INR 1,707 with a potential upside of 54%.




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COMPANIES


Cipla Ltd.| BUY

INITIATING COVERAGE Bloomberg Code: CIPLA:IN | Reuters Code: CIPL.NS

For private circulation only. For important information about Bonanzas rating system and other discloser refer to the end of this material.

Pharmaceuticals Current Price: INR 718

Target Price: INR 962


Stock Details Bloomberg Code CIPLA: IN

Reuters Code CIPL.NS

Shares O/S (mn) 802.9

M Cap (INR mn) 576,482

52 week H/L (INR) 753 / 368

Shareholding Pattern (%) Promoter Group 36.8%

FII 23.93%

DII 11.38%

Others 27.89%

Stock Performance Chart

Stock Performance Return (%) 1 Mth 6 Mths 1 Yr

Absolute 16% 27% 95%

Relative* 4% 3% 28% (Note: * - w.r.t BSE Healthcare Index)

Analyst Hemanshu Srivastava [email protected] Tel: 022-30863778

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100%

Nov-13

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May-14

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Nov-14

Jan-15

Mar-15

CIPLA BSEHC

At the tipping point of acceleration

Cipla Limited (CIPLA) CIPLA with an array of gears in place to propel its growth over FY14-17E is reliant on its integration efforts ongoing across various acquired distribution businesses; ramping up of ANDA pipeline in US as well as constructing a well structured front-end model and an imminent respiratory portfolio in EU market. CIPLA has multiple levers in place to accelerate growth over FY14-17E plus multiple in-licensing deals and partnership agreements to boost its growth trajectory further.We expect CIPLA to demonstrate a whopping growth progression of 21.6% CAGR over FY14-17E from INR 101bn in FY14 to INR 182bn in FY17E. We assign a BUY rating to CIPLA valuing its base business at a 21x FY17E EPS of INR 45.8 (including key ANDA opportunities and acquisitions churn out) to arrive at a TP of INR 962 with a potential upside of 34%.

US markets: The golden goose CIPLA intends to mark its presence in the US markets initially through plain vanilla products such as Meloxicam, Topiramate, Valaciclovir and Doxycycline, with plans to commercialize it owns ANDAs targeting only vanilla products within a span of 12-18 months in an attempt to establish structured presence in US markets. CIPLA intends to focus on oncology, respiratory, injectables and anti-infective therapies in US markets. We believe US markets to be the key constituency towards CIPLAs growth agenda, as with the commencement of a front-end model in US; existing partnerships with Teva (for gNexium and gViread), Roxane (for gLotronex) and other such partnerships and Dymistas constant broad based penetration in the markets of EU and US (contributing ~USD 123mn in FY17Ein revenues to CIPLA)

Domestic front presenting stimulus for sustainability CIPLAs domestic revenues contribute ~39% to its overall revenues with a sturdy foundation in respiratory portfolio. We expect CIPLA to enhance its domestic operations base and demonstrate a significant growth of ~15% CAGR over FY14-17E from ~INR 39.7bn in FY14 to ~INR 60.6bn in FY17E on back of a healthy demand trajectory, numerous launches such as gOnbrez (expected in FY16E) etc., enrichment of biosimilars portfolio and an enhanced field force productivity catering a wider market.

South African markets to demonstrate superior growth CIPLA has established a front-end model in its 2nd home market of South Africa, which contributed 14.4% in overall export revenues at INR 7.7bn in FY14 showcasing a sturdy growth of ~27% on YoY basis from INR 6.1bn in FY13. We expect CIPLA to post a massive growth of ~31% CAGR over FY14-17E on constant currency basis from ZAR 2.8bn in FY14 to ZAR 6.3bn in FY17E on back of recent ARV tender approvals gradual pickup in institutional business, distribution agreements with Teva and stronger product offering in the SA markets.

International markets glistening with prospects CIPLA has been restructuring its EU operations, creating a massive sales force to promote and drive its respiratory portfolio products comprising of gAdvair/gSeretide MDI in the EU markets which could act as a catalyst for growth. CIPLA is also gearing up for a gSymbicort (USD 1.3bn in EU) launch post patent-expiry in EU markets in FY16E. We expect CIPLA to launch gAdvair pMDI in UK (~USD 400mn market) in Q1FY16E becoming the first entrants in UK, triggering a revenue realization in-tune of USD 64mn in FY16E. CIPLA has a strong global footprint encompassing various geographies which CIPLA is now integrating into constructing a frontend operational base in a bid to rationalize distribution channels, leverage its superior capabilities and drive growth through finer field force efficiency and ramp-up in products launches.

Strategic Alliances & Tie Ups: Inorganic expansion drive Key Financials

Year FY14A FY15E FY16E FY17E CAGR (%) Net Sales(INR bn) 101 111 141 181 21.6 PAT (INR bn) 14 13 19 29 27 PATM% 14 12 13 16 NA RoE % 14.9 13.5 17.7 22.7 NA EPS (INR) 17.3 16.6 23.5 36.4 28 BV (INR) 125 122 143 177 12 P/E (x) 42 43 31 20 NA Source: Bonanza Research, Company data

Cipla Ltd.


Cipla Ltd. (CIPLA) CIPLA with an array of gears in place to propel its growth over FY14-17E is reliant on its integration efforts ongoing across various acquired distribution businesses including South Africa, Iran, Yemen, Sri Lanka, Myanmar, etc; ramping up of ANDA pipeline in US as well as constructing a well structured frontend model; elevated dominance of its tender business (~25% of Ciplas total Export business); an imminent respiratory portfolio in EU markets and debottlenecking of its API facilities infested with capacity constraints. CIPLA has multiple levers in place to accelerate growth over FY14-17E plus multiple in-licensing deals and partnership agreements to boost its growth trajectory further.

Investment Rationale US markets: The golden goose Domestic front presenting stimulus for sustainability South African markets to demonstrate superior growth International markets glistening with prospects Strategic & Tie-up: Inorganic expansion drive

We expect CIPLA to demonstrate a whopping growth progression of 21.6% CAGR over FY14-17E from INR 101bn in FY14 to INR 182bn in FY17E with EBITDA margins enhancing by 390bps from ~21% in FY15E to ~25% in FY17E as in our opinion improvement in margins will take place steadily as effects of integration and expansion drive will be inlayed from FY16E onwards.

We assign a BUY rating to CIPLA valuing its base business at a 21x FY17E EPS of INR 45.8 (including base EPS of INR 36.4 and key ANDA opportunities at INR 9.4) to arrive at a TP of INR 962 with a potential upside of 34%.

Initiate with BUY; TP- INR 962

Cipla Ltd.


Business Mix CIPLA derives its revenues from 3 major markets, Indian, South Africa and RoW. CIPLA has grown at a 17% CAGR over FY04-14 from USD 463mn in FY04 to USD 2,203mn in FY14 on back of sturdy US operations coupled with rampant launches in the US markets, strategic prominence towards Russian and RoW markets coupled with valuable launches in the Indian markets encompassing biosimilars.

Exhibit 1: Dosage form wise breakup


Exhibit 2: Overall geographic revenue spread for FY14


Exhibit 3: Annual domestic revenue trend (INR bn)


Exhibit 4: Annual export revenue trend (INR bn)


Exhibit 5: Ciplas revenue mix


Exhibit 6: FY13 and FY14 revenue mix


Exhibit 7: Sales vs. PAT (INR bn)


Tablets60%

Bulk Drugs 11%

Aerosols10%

Injections 10%

Creams 2%

Liquids6%

Others 1% India

39%

RoW25%

SA8%

NA7%

EU6%

API8%

Others7%

25 2832 34

40 37

-

10.0

20.0

30.0

40.0

50.0

FY10 FY11 FY12 FY13 FY14 9MFY15

2934

3843

5442

0102030405060


0%

2%

4%

6%

8%

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12%

87%88%89%90%91%92%93%94%95%96%

Q1F

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Y14

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Y15

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Y15

Formulations API

4 6

19

6

34

6 66 7

25

8

40

8 6

41%

19%

30%29%

17%

27%

1%0%5%10%15%20%25%30%35%40%45%

05

1015202530354045

EU NA RoW API Dom SA OtherFY13(INR bn) FY14(INR bn) Y-o-Y %

20 22 21 19

25 25 26 2426 26 28

4 5 3 35 4 3 3 3 3 3

22% 21%18% 1%

25%14% 22% 27% 6% 7% 2%

58%58%

26%

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18%

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15%

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0

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20

25

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Y14

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Y15

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Y15

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Y15

Sales (All) PAT Y-o-Y% Y-o-Y %

Cipla Ltd.


US markets: The golden goose CIPLAs revenues from US markets have been a minor contributor to its overall sales, as a consequence of lack of front-end model in US and inferior ANDA filings as compared to its peers, resulting in laggard US revenues, contributing ~7% to overall sales in FY14 and growing at a pace of ~19% YoY from INR 6.2bn in FY13 to INR 7.4bn in FY14.

CIPLA has around 90 product approvals in US, of which 45 were commercialized with the help of its partners. CIPLA has gone live i.e. operational through its front-end model in US in Q3FY15 focusing on its niche core strengths of respiratory, oncology and ARV and establishing its presence in the US markets. CIPLA intends to mark its presence in the US markets initially through plain vanilla products such as Meloxicam, Topiramate, Valaciclovir and Doxycycline, with plans to commercialize it owns ANDAs targeting only vanilla products within a span of 12-18 months in an attempt to establish structured presence in US markets. CIPLA intends to focus on oncology, respiratory, injectables and anti-infective therapies in US markets.

CIPLA is the solo partner for Meda for development and manufacturing of Dymista. The potential market for Dymista in the US and Europe is estimated to be ~USD 6bn. Patents for the Dymista drug expires in between 2023-2026. Meda launched Dymista in the US market in Sept-12 and10 countries in the EU market in Q1FY14. We expect CIPLA to register sales of USD 55mn in FY15E, USD 82mn in FY16E and USD 123mn in FY17E based on our assumption of 20% Meda sales contributing to CIPLAs revenues (For FY14 Dymista sales were in tune of USD 182.35mn).

Exhibit 8: CIPLAs API Tie-Ups and Partners

Partners Product Details

Teva Viread The patent of the drug will expire in 2018. Teva will be launching the generic drug on December 15, 2017 as per settlement with Gilead.

Roxane Lotronex The patents of Lotronex expire in January 2013 and October 2018. Till date, Roxane has not received approval from USFDA for the drug.

Teva Nexium The patent of the drug will expire in 2015. However, as per patent settlement with innovator, Teva can launch generic after May 2014. Teva Celebrex CIPLAs Country-wise Partners US Teva, Sandoz, Actavis, Roxane, Bedford, Watson, Eon Labs, Pentech Pharma, Three River, Edenbridge Pharma, Arkon, EU Teva, Stada, Neolabs, Hexal Africa Medpro Australia Sigma, Aspen Source: Company, Bonanza Research

We believe US markets to be the key constituency towards CIPLAs growth agenda, as with the commencement of establishing a front-end model in US; existing partnerships with Teva (for gNexium and gViread), Roxane (for gLotronex) and other such partnerships; Dymistas constant broad based penetration in the markets of EU and US (contributing ~USD 123mn in FY17Ein revenues to CIPLA) and potential high value ANDA launches going forward, CIPLA can grow at a run-rate of ~25% CAGR over FY14-17E from INR 7.4bn in FY14 to INR 14.4bn in FY17E.

CIPLAs possesses worlds 3rd largest inhalers portfolio under the respiratory segment. CIPLA intends to leverage its superior capabilities in the respiratory domain to launch DPI and pMDI devices under its inhalers program in the lucrative US markets. We expect CIPLA to launch its DPI device (targeting ~USD 4.5bn market opportunity, with limited competition) in the US markets within a span of ~4-5 years (FY19E/ FY20E) given the low extent of substitutability and the extent of pharmacokinetic and pharmacodynamic studies required for interchangeability in the US markets. pMDI launch in US (~USD 1bn market) to be a possibility within a span of ~2-3 years. We expect Mylan, Actavis, Sandoz and Teva to be the only competitors in near future for CIPLAs US combination inhalers portfolio, even though they may enter the market earlier than CIPLA. gAdvair and gSymbicort remains a long-term opportunity for capitalization.

CIPLAs previous business model in US is of low-risk export partnership model insulating it from regular fluctuations in the market and forex impacts but at the same time, it has road blocked CIPLAs growth potential in the market, where its peers have capitalized on the opportunities presented by the patent cliff. CIPLA, with its renewed strategic plans for the US markets, has filed significant ANDAs and has established its own frontend business model in US.

CIPLA with commencement of its front-end model in US intends to launch plain vanilla drugs in the market initially and will target complex to manufacture and low competition products later on.

Cipla Ltd.


We expect CIPLA to obtain a total of USD 331mn over FY15-17E through high value ANDA launchesby its partners in US of gAbilify (USD 4.4bn), gCelebrex (USD 3.3bn), gTamiflu (USD 975mn), gReyataz (USD 892mn), gPrezista (USD 1.1bn), gBaraclude (USD 352mn), gEvista (USD 900mn), etc coupled with potential respiratory portfolio launch encompassing of gAdvair (USD 4bn), gSymbicort (USD 2.8bn; USD 1.5bn in US), gNasonex (USD 1.6bn), etc over FY15-17E. Exhibit 9: CIPLAs global product and ANDA pipeline

Drugs Market Size (in USD mn) Release Date FTF

Advair pMDI (Rest of EU) 400 Sep-14 NO

Advair UK pMDI 400 FY16 NO

Advair DPI EU 2,000 NO

Advair US 4,500 FY18/19 NO

Symbicort US 1,500 FY18/22 NO

Nasonex 1,600 NO

Nexium 4,000 FY16 NO

Celebrex 3,220 FY16 NO

Viramune 128 FY15 YES

Avelox 44 FY16 NO

Baraclude 352 FY16 NO

Abilify 4,430 FY16 NO

Evista 900 FY16 NO

Tamiflu 975 FY17 NO

Reyataz 892 FY17 NO

Viread 706 FY17 NO

Lotronex 96 H2FY18 NO

Ranexa 726 FY19 NO

Sancuso 38 FY24 NO

Optinate/ Atelvia 103 FY16 NO

Plumicort 900 FY18/FY19 NO

Xopenex HFA 98 FY24 NO

Foradil HFA 139 FY19/20 NO

Brovana 140 FY21 NO

Prezista 1,090 Jan-16 NO

Symbicort EU 1,300 Unknown NO

Sustiva 185 Unknown NO Source: Bloomberg, Bonanza Research

CIPLA has a strong respiratory pipeline in place to target US and EU markets.

Cipla Ltd.


Domestic front presenting stimulus for sustainability CIPLAs respiratory therapy accounts for ~20% of its revenues, where it is the market leader in this therapy coupled with leadership positions in gynaecology, anti-infectives and gastrointestinal. CIPLAhascarved out a niche space in the respiratory segment offering a wideproduct basket and commanding ~70% market share in the inhaler space.CIPLAs key brands in the IPM include Asthalin, Foracort and Serroflo. Exhibit 10: India therapy wise segmentation


CIPLAs new offerings include biosimilars, targeting the oncology, respiratory and anti-arthritis therapeutic space. CIPLA has invested ~USD 165mn in India and China to acquire facilities. CIPLA launched its first biosimilar product under the brand name of Etacept for the treatment of rheumatic disorders, which is manufactured by Shanghai CP Guojian Pharmaceutical Co. Ltd and marketed by CIPLA in IPM.CIPLA enjoys a ~5% market share in the INR 830bn Indian Pharma market, growing at ~12% CAGR over FY10-14 period from INR 25.1bn in FY10 to INR 39.7bn in FY14 on back of a strong domestic business model, deeper market penetration across both the rural and urban backdrop and a strong field force efficiency; enabling CIPLA to attain the 3rd rank in the IPM.

Exhibit 11: Annual domestic revenue trend (INR bn)


We expect CIPLA to enhance its domestic operations base and demonstrate a significant growth of ~15% CAGR over FY14-17E from ~INR 39.7bn in FY14 to ~INR 60.6bn in FY17E on back of a healthy demand trajectory, numerous launches such as gOnbrez (expected in Q1FY16E) etc., enrichment of biosimilars portfolio and an enhanced field force productivity catering a wider market. With more thrust towards magnification ofglobal revenues, we believe CIPLA to trim down it dependence from domestic operations towards overall revenues from 39% in FY14 to 32% in FY17E.

Exhibit 12: Domestic QoQ revenue trend (INR bn)


Respiratory 29%

Anti-Infective 25%

Cardiac12%

Gynaecological10%

GI8%

CNS3%

Ophthalmologic3%

Anti-Diabetic1%

Anti-Neoplastics1%Derma

2%Vitamins

2%Pain 3%

Others 1%

25 2832 34

40 37

01020304050


10 9 98

1110 10

9

13 13 1230%

10%7%

1%

17%11% 13%

19%14%

20%15%

0%5%10%15%20%25%30%35%

02468

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India Y-o-Y %

Cipla Ltd.


South African markets to demonstrate superior growth CIPLA has witnessed a strong traction in the South African markets through its channel partner Cipla Medpro (CM) which it acquired in H1FY15 for ZAR 4.5bn (USD 512mn) to establish its own front end operations in the South African markets. CM is the 2nd fastest growing company in the SA market with a product basket comprising of anti-infectives, ARV, oncology and respiratory products coupled with a mix of OTC products ranging from allergy, asthma, etc. CM has grown by ~17% CAGR over FY09-14 period from ZAR 1.3bn in FY09 to ZAR 2.8bn in FY14 on back of strengthened product pipeline, staunch focus on triple combination ARV products and entrance into high margin Oncology products. Exhibit 13: Cipla Medpro breakup in forms


SA market contributed 14.4% in overall export revenues to CIPLA at INR 7.7bn in FY14 showcasing a sturdy growth of ~27% on YoY basis from INR 6.1bn in FY13. CIPLA has signed an exclusive agreement with Teva for sales and distribution of the latters broad product portfolio encompassing oncology, ophthalmologic, CNS, CVS, womens health and specialty products enabling a complementary partnership giving access to ~70 molecules to over 200 over time enhancing its overall presence in SA markets and facilitating CIPLAs ascension to the 2nd largest pharma company in SA.

We expect CIPLA to post a massive growth of ~31% CAGR over FY14-17E on constant currency basis from ZAR 2.8bn in FY14 to ZAR 6.3bn in FY17E on back of recent ARV tender approvals (1 amounting to ZAR 2bn for 3 years starting from Apr-15 coupled with 2 other tenders from SA government in-tune of ZAR 345mn and ZAR 280mn for 2.75 years and 2 years respectively), gradual pickup in institutional business, distribution agreements with Teva and stronger product offering in the SA markets.

Exhibit 14: Cipla Medpros South African annual revenue (ZAR mns)

Source:Company, Bonanza Research

Exhibit 15: Ciplas South African revenue annual trend (INR mn)


Gx75%

OTC18%

Others 7%

26.9% 14.7% 22.2% 30.0%-5.8%

28.3%10.0%

134.7%78.5%

-50%

0%

50%

100%

150%

0

10,000

20,000

30,000

40,000

FY09

FY10

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FY13

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E

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E

FY17

E

Revenue YoY%

1,262 1,447 1,768 2,297 2,164 2,778

27%

15%

22%

30%

-6%

28%

-10%-5%0%5%10%15%20%25%30%35%

0

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CIPLA to post colossal growth of 31% CAGR over FY14-17E on constant currency basis from ZAR 2.8bn in FY14 to ZAR 6.3bn in FY17E on back of recent ARV tender approvals.

Cipla Ltd.


International markets glistening with prospects EU Markets on a brink of acceleration CIPLA has been restructuring its EU operations, creating a massive sales force to promote and drive its respiratory portfolio products comprising of gAdvair/gSeretide MDI in the EU markets (USD 800mn opportunity with limited competition) with 10 more EU countries to follow, which could act as a catalyst for growth. CIPLA has launched it gAdvair pMDI at a ~50% discounted rate to the originator product in Germany (USD 40mn market), Sweden (USD 25mn market), Croatia, Czech and Slovakia, with anticipation of a possible UK launch (~USD 400mn market) in Q1FY16. We expect CIPLA to obtain revenues in tune USD 20mn/ USD 40mn from EU markets (excluding UK) in H2FY15E/FY16E.

Exhibit 16: MDI inhalars market in EU


Exhibit 17: EU inhalers market (USD mn)


CIPLA is also gearing up for a gSymbicort (USD 1.3bn in EU) launch post patent-expiry in EU markets in FY16E. CIPLA intends to launch gSeretide (Serroflo) across all EU markets by the end of FY16E, where currently uptake of Serroflo has been slower in markets of Germany and Sweden. CIPLA won its first tender in German markets of gSeretide (~50% discounted) and expects to win all major tenders in Germany (~12-18 months is the tender cycle) thereby capturing probably the entire pMDI market in Germany.

We expect CIPLA to launch gAdvair pMDI in UK (~USD 400mn market) in Q1FY16E becoming the first entrants in UK, triggering a revenue realization in-tune of ~USD 64mn in FY16E on account of superior market share opportunity present in this untapped therapeutic segment. The global market size of respiratory therapy is USD 35bn in CY13, of this inhalers hold around ~50% (USD 17bn). The US and EU account for more than 80% of the total market size.

Exhibit 18: Global Inhalers market (USD mn)

Source:Bloomberg, Bonanza Research

Italy4%

Spain 7%

Germany 7%

France9%

UK51%

Others 22%

180 230 140

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Advair pMDI(EU)

Advair DPI(EU)

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Advair DPI(US)

Symbicort(EU)

Symbicort(US)

Others Total

We anticipate CIPLA to realize revenues in tune of USD 64mn through gAdvair pMDI launch in UK in Q1FY16E on being the first generic entrant in the UK market.

gAdvair pickup has not been substantial in German and Swedish markets, but we expect the pick-up in sales to kick start in FY16E with uptake in tender business.

Cipla Ltd.


We expect CIPLA to grow at ~22% CAGR over FY14-17E period from INR 5.8bn in FY14 to INR 10.5bn in FY17E, on back of a superior respiratory portfolio coupled with gAdvair/gSeretide and gSymbicort launches, rationalization of distribution model in EU, superior field force productivity and ramp-up of product pipeline along EU region encompassing biosimilars, vaccines and oncology product launches over FY14-17E. Exhibit 19: Asthma/COPD global market


Exhibit 20: ICS Market segmentation


Exhibit 21: LABA + ICS market segmentation


RoW Markets CIPLA has grown at ~30% YoY from INR 19.3bn in FY13 to INR 25bn in FY14 enhancing its contribution towards overall revenues from 23% in FY13 to 25% in FY14 on back of strong traction witnessed in the RoW markets. The overall export formulations sales have grown by ~17% CAGR over FY10-14 period from INR 29bn in FY10 to INR 54bn in FY14.

CIPLA has presence in ~170 countries globally, with no front end models initially. The management has guided towards increasing CIPLAs presence in ~35-40 markets, increasing its pace of acquisition, establishing front-end models across major geographies in a bid to rationalize distribution channels, leverage its superior capabilities and drive growth through finer field force efficiency and ramp-up in products across all the geographies. CIPLA holds strong position in Sri Lanka, Yemen, Iran, Myanmar, South Africa, and Uganda creating front-end models in these regions, in order to capture a superior market share infused with its philosophy of affordable healthcare and medication to all.

On the African front, CIPLA remains optimistic given the positive trend witnessed in the Institutional Business i.e. the generics tender business of HIV, malaria, reproductive health coupled with an enticing opportunity present in the TB segment, where we believe with the innate capabilities with CIPLA at hand can be capitalized efficiently creating growth.

ICS27%

LABA2%

LAMA14%

LABA+LAMA0%

LABA+ICS33%

SABA13%

SAMA2%

SAMA+SABA2%

Other Asthma/COPD

7%

Aerobid (Forest)

0%

Alvesco (Dainippon/Su

novion)1%

Asmanex (Merck)

4%Beclovent

0%Flovent (GSK)

18%Pulmicort

(AstraZeneca)6%

Qvar (Teva)11%

Generics60%

Advair (GSK)64%

Dulera (Merck/Schering-Plough)

8%

Symbicort (AstraZenec

a)28%

We expect the RoW markets to showcase a staggering run-rate of ~24% CAGR over FY14-17E from INR 25bn in FY14 to INR 47.5bn in FY17E.

Cipla Ltd.


CIPLA has formed a JV in Morocco with Cooper Pharma, holding 60% stake for an investment of USD 15mn in the JV, in order to establish a front-end model in the Northern African country of Morocco focusing exclusively on respiratory and neurology products initially and couple of years down the line intends to institute a manufacturing facility. CIPLAs Indore facility contributes 10%-15% of its overall export.

We expect the RoW markets to showcase a staggering run-rate of ~24% CAGR over FY14-17E from INR 25bn in FY14 to INR 47.5bn in FY17E on back of aggressive expansion into RoW markets through front-end models, ramp-up in product portfolio across various therapeutic segments and finer field force efficiency.

API segment to gradually turnaround CIPLA has seen a temperate growth in API of ~7% over FY10-14 period from INR 5.8bn in FY10 to INR 7.7bn in FY14 on account of higher internal captive consumption, capacity constraints across API plants, notably reduced 3rd party API business and lower growth trajectory observed in the industry due to subdued demand. API segment of CIPLA witness a massive traction demonstrating a YoY growth rate of ~29% from INR 6bn in FY13 to INR 7.7 in FY14, riding on the massive API supplies to its various channel partners like Teva, Meda etc in US and other markets on account of the Patent Cliff.

Exhibit 22: API annual trend (INR bn)


API capacity constraints still hamper CIPLAs growth prospects along all geographies on account of lagging capacity issues, migration of systems to SAP due to challenges faced by their previous legacy systems and transition from a B2B to a frontend model. We expect CIPLA to take a couple of quarters (~2-3 Quarters) to resolve these taxing issues on account of extensive business transformation.

We expect CIPLA to exhibit a rugged API growth of ~11% CAGR over FY14-17E from INE 7.7bn in FY14 to INR 10.5bn in FY17E on back of de-bottlenecking of its API plants, multiple orders flowing in and aligning processes for integration in order to condense complexity and eliminate capacity constraints. Exhibit 23: Ciplas QoQ API trend


67 7

6

8

0123456789

FY10 FY11 FY12 FY13 FY14

-1.8%9.4%

-16.5%-23.9%

-13.1%

17.2% 14.6%

36.6%

-4.1%

-33.3%

-10.4%

-40%-30%-20%-10%0%10%20%30%40%50%

0

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Q1F

Y13

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Y-o-Y %

We expect CIPLA to exhibit a rugged API growth of ~11% CAGR over FY14-17E from INE 7.7bn in FY14 to INR 10.5bn in FY17E.

Cipla Ltd.


Strategic Alliances& Tie Ups: Inorganic expansion drive As part of its in-licensing strategy for EU markets, CIPLA has an agreement with US-based BioQuiddity to market the latters regional anaesthesia products in EU. The first product OneDoseReadyfusOR (ropivacaine) for post-surgical pain is expected to be launched in FY16E into the German market.

CIPLA has ventured into the vaccines segment though an alliance with Serum Institute of India (SII) to market paediatric vaccines in Europe. While SII will manufacture paediatric vaccines, CIPLA will seek approvals and market the products in European Medicines Agencys (EMA) approval and market the products in Europe. The vaccines will be manufactured in SIIs production facilities approved by WHO.

CIPLA has partnered with Hetero Labs to launch biosimilar drug under the Actorise brand for treatment of anaemia caused due to chronic kidney disease.The collaboration stands as a multi-partner co-marketing deal which offers CIPLA a license to make the drug accessible to a wide number of patients in India. Actorise is a biosimilar of Darbepoetin alfa (Biologic of Amgen) and is available in the pre-filled syringes (PFS) in the strengths of 25 mcg and 40 mcg priced at Rs 1,500 and Rs 2,200 respectively, with a patients pool totalling 100,000 patients per year.

CIPLA has entered into collaboration with Medicines for Malaria Venture (MMV) for the development of rectal artesunate for pre-referral treatment of children with severe malaria. The collaborations, established under the MMV-led "Improving Severe Malaria Outcomes" project funded by UNITAID, aims to develop a rectal artesunate product for submission to WHO prequalification. CIPLA will develop the product building on the clinical studies led by TDR (Research and Training in Tropical Diseases), with an aim to achieve pre-qualification by 2016.

CIPLA has signed an agreement with Salix Pharmaceuticals Inc granting Salix exclusive worldwide rights excluding Asia (excluding Japan) and Africa under certain patent applications in the Rifaximin Complexes patent family controlled by CIPLA. Salix is required to make an upfront payment and additional regulatory milestone payments to CIPLA in respect of the new license agreement regarding the Rifaximin Complexes patent rights plus a royalty on net sales of products covered by the Rifaximin Complexes patents licensed to Salix.

CIPLA has entered into a licensing agreement with Gilead (8 companies given this license including RBXY, Hetero Labs, Strides Acrolab etc.) to amplify access to Hepatitis C treatment through manufacturing and distribution of the fixed dose combination of Ledipasvir/Sofosbuvir in 91 emerging countries including South Africa, India and Egypt (with high incidence of Hepatitis C).

Exhibit 24: R&D as a % of sales


4.5% 4.5%4.1% 4.4%

5.1% 5.4% 5.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

FY09 FY10 FY11 FY12 FY13 FY14 9MFY15

CIPLA has an extensive assortment of strategic tie-ups and partnerships like with Meda (for Dymista), Salix Pharma and Hep C licensing with Gilead to propel its growth going forward.

Cipla Ltd.


Valuation and Outlook Conscious de-focus on low margin business and rationalization of product portfolio, CIPLA is de-risking its business model, acquiring distributors in markets with sound presence and enhancing margins, focusing on the business growth and leveraging capabilities across all verticals of geographies. CIPLA has also entered into multiple in-licensing deals and partnership agreements to boost its growth trajectory.

CIPLA with an array of gears in place to propel its growth over FY14-17E, is reliant on its integration efforts ongoing across various acquired distribution businesss, ramping up of ANDA pipeline in US, elevated dominance of its tender business (~25% of CIPLAs total Export business) and debottlenecking of its API facilities flooded with capacity constraints. We assign a BUY rating to CIPLA valuing its base business at a 21x FY17E EPS of INR 45.8 (including base EPS of INR 36.4 and key ANDA opportunities at INR 9.4) to arrive at a TP of INR 962 with a potential upside of 34%. We expect CIPLA to demonstrate a whopping growth progression of 21.6% CAGR over FY14-17E from INR 101bn in FY14 to INR 182bn in FY17E with EBITDA margins enhancing by 390bps from ~21% in FY15E to ~25% in FY17E as in our opinion improvement in margins will take place steadily as effects of integration and expansion drive will be inlayed from FY16E onwards. Exhibit 25: PE band of CIPLA


Key Catalysts:

Earlier than expected traction in the US markets on back of unfolding of ANDAs filings and a successful frontend model

Earlier than expected gAdvair/ gSeretide in US markets. Earlier than expected turnaround of the API section and robust traction in the IPM.

Key Concerns: Adverse foreign exchange fluctuation, especially the depreciation of ZAR, can cause

immense downside to our estimates. Sluggish growth in the IPM and slow uptick in gAdvair in EU markets of Germany

and Sweden can upset our estimates. A potential holdup in the launch of gAdvair/ gSeretide due to interchangeability

issues in the EU and US markets could hamper CIPLAs growth prospects.

0

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Holdup in gAdvair launch in UK and other prominent EU markets can cause a downside to our estimates.

Cipla Ltd.


Financials

P&L

P&L FY14 FY15E FY16E FY17E

Gross Sales 102,175 112,707 142,757 183,865 Net Sales 101,004 111,324 141,004 181,608 Expenditure 79,673 90,842 112,995 139,532 Operating Profit (including OI) 21,331 20,481 28,009 42,076 OI 2,654 2,723 2,793 2,866 EBIDTA 23,984 23,204 30,803 44,942 Interest 1,457 1,479 1,501 1,524 Depreciation 3,727 3,950 4,187 4,438 PBT 18,800 17,775 25,114 38,980 Tax 4,634 4,444 6,279 9,745 PAT 14,167 13,331 18,836 29,235 EPS 17.3 16.6 23.5 36.4 Source: Company, Bonanza Research

Balance Sheet

Balance Sheet (in INR mn.) FY14 FY15E FY16E FY17EASSETS Gross Block 86,763 95,706 121,222 156,130 Net block 64,965 73,472 92,763 120,841 Long term investment 3,971 4,381 5,549 7,147 Long Term Loans and Advances 15,524 17,124 21,690 27,936 Current Investment 3,114 3,435 4,351 5,604 Inventories 28,953 31,937 40,452 52,100 Cash and Bank 1,752 2,556 3,175 4,145 Other Current Assets 355 1,928 2,127 2,694 Short Term loan and advances 5,951 6,565 8,315 10,709 Sundry Debtors 16,389 18,078 22,898 29,492 Capital Work in Progress 3,536 3,901 4,941 6,364 Total Assets 145,392 164,350 207,493 268,618 LIABILITIES Share Capital 1,606 1,606 1,606 1,606 Total Reserves 98,681 111,548 128,778 156,407 Long Term Borrowing 20,281 22,371 34,835 51,367 Trade Payable 9,795 10,805 13,686 17,627 Other Current Liabilities 4,087 4,508 6,974 10,273 Short Term Borrowing 9,105 10,043 17,221 25,680 Short Term provisions 2,649 2,922 3,701 4,767 Minority Interest 496 547 693 892 Total Liabilities 146,699 164,350 207,493 268,618 Source: Company, Bonanza Research

Ratio Analysis

RATIOS FY14 FY15E FY16E FY17EShares 802.9 802.9 802.9 802.9 EPS (in INR.) 17.3 16.6 23.5 36.4 Adj. EPS (in INR.) 17.3 16.6 23.5 36.4 DPS (in INR.) 2 2 2 2CEPS ((in INR.) 22.3 21.5 28.7 41.9 Book Value (in INR.) 125.2 140.9 162.4 196.8 Adj. BV (in INR.) 125.2 140.9 162.4 196.8 Effective Tax Rate (in%) 24.6% 25.0% 25.0% 25.0%Cash Flow/Share (in INR.) 19.5 14.9 19.9 30.1 PATM% 13.9% 11.8% 13.2% 15.9%ROE% 14.9% 12.5% 15.5% 20.3%EBIDTAM% 23.7% 20.8% 21.8% 24.7%ROA% 11.3% 9.3% 10.7% 12.8%OPM% 19.8% 17.1% 18.6% 22.0%Total Debt (in INR. mn) 12,479 13,550 28,162 46,272 P/E Ratio 42. 43.0 30.7 20.0 P/BV Ratio 5.8 5.3 4.2 3.2 PEG Ratio 1.9 4.3 1.2 0.7 Source: Company, Bonanza Research

Cash Flow

Cash Flow Tables FY14 FY15E FY16E FY17E

PBT 18,800 17,775 25,114 38,980Adjustments 5,528 4,849 4,954 5,016Net Profit 24,328 22,624 30,068 43,996Changes in WC (5,619) (6,198) (7,850) (10,111)Cash Flow after changes in WC 18,710 16,426 22,218 33,885Cash from Operating Activities 15,627 11,983 15,939 24,140Cash Flow from Investing Activities (12,499) (13,787) (17,463) (22,491)Cash from Financing Activities (2,656) (1,847) 10,402 15,121Net Cash Inflow/Outflow 472 (3,652) 8,878 16,770Opening Cash & Cash Equivalents 1,430 1,752 (1,900) 6,978Closing Cash & Cash Equivalent 1,752 (1,900) 6,978 23,748Source: Company, Bonanza Research

Cipla Ltd.


Company Profile Cipla is a global pharmaceutical company which uses cutting edge technology and innovation to meet the everyday needs of all patients. For more than 70 years, Cipla has emerged as one of the most respected pharmaceutical names in India as well as across more than 150 countries. Ciplas portfolio includes over 1500 products in various therapeutic categories with one quality standard globally. Whilst delivering a long-term sustainable business, Cipla recognizes its duty to provide affordable medicines. Ciplas emphasis on access for patients was recognized globally for the pioneering role played in HIV/AIDS treatment as the first pharmaceutical company to provide a triple combination anti-retroviral (ARV) in Africa at less than one dollar a day and thereby treating many millions of patients since 2001. Ciplas research and development focuses on developing innovative products and drug delivery systems and has given India and the world many firsts for instance Triomune. In a tightly regulated environment, the companys manufacturing facilities have approvals from all the main regulators including US FDA, UKMHRA, WHO, MCC, ANVISA, and PMDA which means the company provides one universal standard both domestically and internationally.


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