research retail equity research natco pharma ltd....

09th April, 2018

Higher emphasis on complex generics and R&D… Natco enjoys an API portfolio of more than 37 US DMFs (submission of details to FDA) with over 10 products under development. The Company has 43 niche ANDA filings including 20 Para IV filings in the US – with 22 approved ANDAs. They allocates 6.0-8.0% of the company’s turnover towards R&D each year with strong task force of 250 personnel’s. They have also recently raised a QIP of around 915 crs for plant expansions, strengthening their R&D and complex generics base. Vertical integration fights pricing pressure… Natco has a strategic advantage with backward integration for critical APIs which equips them to enjoy corresponding gains in terms of cost, quality and logistics. They are integrated across the value chain with major focus in active pharmaceutical ingredients (API) and finished dosage formulations (FDF). Natco’s business model that focuses on innovation in speciality and niche product across select therapy areas as well as strong marketing & distribution network and global partnerships, equips them to manage pricing pressure to a greater extend

Stability in margin led by new launches and operational efficiency… Natco has through their partner Mylan is expecting to generate significant sales from gCopaxone 40mg in FY19. Through their another partner Alvogen which launched gTamiflu suspension for the first time in last year is expected to boost revenue growth during the flu season(typically Nov- March). Doxil sales with partner Dr.Reddy’s and gFosrenol sales with partner Lupin are other profit generators. We therefore expect consolidated revenue to grow at a 17%CAGR over CY18-20E and EBITDA margins to stabilize around 40% for FY 2019 & 20.

Valuations… On a good grip At current CMP of 780 Natco is trading at a P/E of 20x and 16x for FY19E and FY20E EPS respectivley. On back of better performance from molecules like Tamiflu, Copaxone, Doxorubicin and Lanthanum in US and better realisations from domestic and emerging markets, we believe Natco to witness a healthy growth in coming years. We expect international/domestic niche FD segment to grow by 12%&14% resp. for FY 19/20 and factor an earnings outlook of 13%CAGR over FY18-20E. Hence, we value Natco at 19x on FY20E EPS and arrive at a target price of Rs 908 and recommend ‘Buy’ rating.

RETAIL EQUITY RESEARCH

Natco pharma Ltd. Rating as per Mid Cap 12 Month investment period Pharmaceuticals

BSE CODE: 524816 NSE CODE: NATCOPHARM CMP Rs. 780 TARGET Rs. 908 RETURN 16%

Bloomberg CODE: NTCPH:IN SENSEX: 33,627

Company Data

Market Cap (cr) Rs. 14,390

Enterprise Value (cr) Rs. 13,672

Outstanding Shares (cr) 18.4

Free Float 52%

Dividend Yield 1.76%

52 week high Rs. 1,080

52 week low Rs. 671

6m average volume (cr) .038

Beta 1.06

Face value Rs. 2

Shareholding (%) Q1FY18 Q2FY18 Q3FY18

Promoters 51.2 51.2 48.4

FII’s 22 21.5 24.9

MFs/Insti 4.7 4.9 4.9

Public 22.1 22.4 21.8

Total 100.0 100.0 100.0

Price Performance 3 Month 6 Month 1 Year

Absolute Return -22.9% -1.6% -0.5%

Absolute Sensex -1.1% 7.7% 14.5%

Relative Return* -22.1% -8.6% -13.1%

over or under performance to benchmark index

Consolidated (Rs cr) FY18E FY19E FY20E

Sales 2,195 2,550 3,010

Growth (%) 6.3 16.2 18.1

EBITDA 983 1,027 1,228

EBITDA Margins% 45 40.3 40.8

PAT Adj. 692 724 880

Growth (%) 42.4 5.0 25.0

Adj.EPS 37.6 39.3 47.8

Growth (%) 34.9 5.0 21.6

P/E 21.1 20.2 16.6

P/B 4.8 4.0 3.3

EV/EBITDA 14.2 13.8 11.7

ROE (%) 29.3 21.6 22.1

D/E -0.2 -0.1 -0.1

600

900

1200

Mar-17 Jun-17 Sep-17 Dec-17 Mar-18

Natco Sensex Rebased

COMPANY INITIATING

REPORT

GEOJIT BNP PARIBAS

Research

COMPANY INITIATING REPORT

BUY

An emerging player in the niche segment… NATCO Pharma (NATCO) is a R&D focussed, vertically integrated pharmaceutical company with an experienced management team and presence across multiple speciality therapeutic segments.

High emphasis on R&D and complex molecules focusing on long term stability and growth. Recently raised Rs 915crs to fund capacity additions.

Integrated platform makes Natco a low cost manufacturer while strong global presence establishes them as a prospective player.

We expect EBITDA margin to remain stable at 40% over FY18-20E led by new launches in US & India and improvement in operational efficiency.

Consolidated Revenue/PAT to grow at 17%/13% CAGR over FY18-20E led by prime molecules such as Tamiflu, Copaxone, Doxorubicin and Lanthanum and better growth in domestic market.

We value Natco at 19x on FY20E EPS and arrive at a target price of Rs 908 and recommend ‘Buy’ rating.

Dilish K Daniel,

Analyst

198252

634

881

193177

231

837

FY2014 FY2015 FY2016 FY2017

Domestic International

10% 14% 18%22%

83.00%79.00% 76.00% 73.00%

FY2017 FY2018E FY2019E FY2020E

API(%) FD(%)

About the Company

Deliverer of complex molecules

NATCO Pharma (NATCO) is a vertically integrated pharmaceutical company with presence across multiple speciality therapeutic segments. They possess in-built capabilities to manufacture complex products and has the ability to deliver hard to manufacture molecules. Over the years, they have constantly innovated and manufactured speciality medicines and niche pharmaceutical products. With operations in more than 40 countries the company’s revenue is sourced from the three segments namely Active pharmaceutical ingredients, domestic and international formulations.

Active Pharmaceutical Ingredients (API): Company’s core strength is its in-house API development with vertical integration for key formulation products. NATCO develops APIs for captive consumption of its Finished Dosage Formulation portfolio as well as Third Party (TP) sales. Exports are primarily focused in EU, Canada, Latin America and Southeast Asian markets

Domestic formulations (DF): This division is into domestic Oncology and Gastro Hepatology segment with recent entry into hepatology (sub-segment of gastroenterology) as well. They have also recently launched Cardiology and Diabetology divisions, which focuses on niche molecules with high barrier to entry.

International Formulations (IF): This division is primarily focussed in US markets. Their business model is through a partnership agreement with major companies like Mylan, Alvogen, Lupin and Dr Reddy Labs for releases in the US. Besides, the company is operating in Brazil, Canada, Singapore and Australia through its subsidiaries.

API & FD proportion in total sales

Source: Company, Geojit Research

Formulation Business - the key growth driver

As on FY 2017, ~80% of the total sales is towards formulations business while API is only around ~10%. The company has reported a 3 year CAGR of 40% in revenue growth while PAT registered a CAGR of 68% during the same period which looks promising to us. Domestic sales share comprised 45% while international sales was 47% in FY 17 and we expects the proportion of later to grow to ~55% in FY18. We therefore project international/ domestic niche FD to grow by 12%&14% resp. for FY 19/20.

Domestic FD sales vs International (crs)


Experienced Management team

Maintaining robust quality standards is always a priority for Natco. Natco’s management team consists of well talented and experienced people who can guide the company to superior performances such as Mr. V.C. Nannapaneni who was has over 48 years of experience in the Pharmaceutical Industry and has worked in the US for more than a decade in various Pharmaceutical companies; Mr. Rajeev Nannapaneni who has worked at Merrill Lynch and Natco Systems LL.C in USA with wide experience and exposure in General Management, New Business/New Product Development both in India and for International markets. Their board includes eminent persons like Dr B.S. Bajaj who is the Chairman at All India Biotech and served as Chief Executive Officer at Anti Biotech production plant of IDPL and Dr. A.K.S. Bhujanga Rao has worked with IDPL, IDL, Reckitt and Colman, Vera Laboratories Ltd as well as worked as collaborative Research Fellow at University of Hull, UK and University of Texas, USA.

Company Structure Location Particulars

NATCO House Hyderabad,

India

It employs more than 200 employees and functions as the corporate office of NATCO.

Research Center (NRC) Hyderabad, India

Employees more than 250 people with a 70,000 Sq.ft of laboratory space and 15000 Sq.ft of additional laboratory space for high potency compounds.

Subsidiaries

NATCO farma do Brasil Brazil Natcofarma do Brasil, commenced operations in 2011 and operates three business entities - Pharmaceuticals, OTC and Distribution services. The Pharmaceutical division undertakes registration and importation of pharmaceuticals.

NATCO Pharma Canada Toronto, Ontario

Incorporated in the year 2012 and supported by a strong local team comprising of QA, RA and Sales force. We have a total of 15 product approvals (including in-licensed products). We are the first company to launch the first generic version of Oseltamivir capsules in the year 2016.

NATCO Pharma Asia Singapore Involved in the registration and direct sales of NATCO’s products in the Singapore market. Products targeted for breast cancer, blood cancer and supportive care in cancer treatment

NATCO Pharma Australia

Australia

Incorporated in September 2014, the subsidiary is involved in the registration and out-licensing of NATCO’s products in the markets of Australia and New Zealand.

Organisational Structure and Details

Manufacturing Capabilities

Segments Plant Specialities Regulatory approvals

Mekakuda Facility Complex chemistry Peptides

GMP, USFDA, German Health Authority, PMDA (Japan), Cofepris (Mexico)

API Chennai Facility Cytotoxic API’s and

Biotechnology based products

Synthetic chemistry

GMP, USFDA

Domestic Market

Formulations

Kothur Facility Tablets, Capsules, Pellets, Injectables

GMP, USFDA, German Health Authority, ANVISA

Visakhapatnam Facility Cytotoxic & other Oral Solid Dosages

NA

International Market

Formulations

Nagarjuna Sagar Facility

Ampoules ,Vials, yophilized vials, Parenterals, Sterile Dry Powders

GMP

Dehradun Unit 6 Facility

Tablets, Capsules, injectables

GMP

Dehradun Unit 7 Facility

Tablets, Capsules GMP, Public Health Service of the Netherlands (EU GMP)

Guwahati Facility Tablets, Capsules GMP Compliant Facility

389

278

139

34

652

332

127

41

881837

183 177

India USA Europe ROW

2015

2016

2017

2125

3028

55

2011 2013 2015 2016 2020E

2011

2013

2015

2016

2020E

Rationale for Investing

NATCO to outgrow industry at a CAGR of 21%

Over the years, India has become a leading pharmaceutical producer in the industry with a larger presence in the fast growing generics and biosimilar markets. India currently ranks second in contributing global biotech and pharmaceutical workforce and accounts for ~20% of the global generic drug exports. The domestic industry’s long-established position as a world leader in the production of high-quality generic medicines at low costs is expected to reap significant benefits as the patents on a number of blockbuster drugs are scheduled to expire over the next few years.

Revenue of Indian Pharma Sector(US $billion)

Source: Pharmaceuticals, Indian Brand Equity Foundation, March 2018

By 2020, it is predicted that India will be among the top three pharmaceutical markets by incremental growth and sixth largest market globally in absolute size (Pharmaceuticals, IBEF, March 2018). India’s cost of production is significantly lower than that of the US and almost half that of Europe. This gives a competitive edge for Indian companies over developed market players. It should also be noted that drug approvals given by the US Food and Drug Administration (USFDA) to Indian companies are steadily increasing in the recent years. By 2020, the overall industry revenue is expected to reach $55 billion.

NATCO with its increasing India focus and entry into specialty sectors is poised to witness strong traction in growth. In terms of capital allocation they are spending more than 50% of the resources in India and are putting a lot of emphasis in India because once a good brand business is set up, the prospects are high and the company has to deal with less regulatory issues in India than abroad. The company is also naturally hedged (with exports and imports) providing a built-in de-risking against volatility in foreign currency.

Copaxone to drive current sales

The management is optimistic on Copaxone delivering a good performance in the coming quarters. We are expecting the same to be reflected in FY18 and FY19 while Tamiflu will kick in due to the flu season in Q4 numbers. However, with regard to copaxone, they are expecting two competitors to enter by the end of CY 2019. We are closely monitoring how these developments will be affecting the numbers and has accordingly adjusted the financials. To counter these effects they are planning to launch other niche molecules like Lanthanum Carbonate and expand to unexplored territories. Going forward company has put a lot of hope in Revlimid with a market size similar to Copaxone ($4417millions) a para IV candidate, as well as Nexavar and Everolimus. They have also launched a Cardiology and Diabetics division in India last year.

Increasing growth across all geographies

With India as their base market, exports are focussed on US, EU, Canada, Latin America and South East Asia. RoW which witnessed a ~120% growth (YoY) and includes Singapore, Vietnam, Mongolia, Myanmar Australia & Venezuela. The Europe division witnessed an increase in sales of ~300% on a YoY basis (16crs vs 4crs) with 4 approvals in that area. Formulation division which includes both domestic and international sales is the biggest contributor of revenue. Through their partnership driven model, exports are primarily done by out-licensing the products to multinational companies and those companies with strong local presence in the respective geographies. In addition to the partnerships, they operate in certain key geographies through subsidiaries.

Geography wise sales (Crs)


49%

26%

7%

18%

Chemistry FD&Fundamental

Analytical Dev

Process research

others

Strong R&D support wing

NATCO has demonstrated their R&D capabilities by their complex and niche product filings in formulations and API segments. With a talented pool of more than 314 scientists, they operate two well-equipped research facilities, 35 R&D laboratories and allocates around 6% of the standalone revenue towards R&D. With 6.0-8.0% of the company’s turnover being invested towards R&D each year, the business strategy focuses on consolidating the core strengths of research and development.

Analyst allocation to various departments


Capex to focus on building high margin FD plants

A big portion of the CAPEX is going towards building a formulation plant at Visakhapatnam in the SEZ, as a backup to the primary formulation plant in Kothur. Secondly, they are building an enhanced tableting capability for a domestic market in Guwahati and Dehradun, which is worth Rs.70 Crores to Rs.80 Crores. The above facilities primarily caters to the oral side. On the chemical side, they are going to build facilities in Chennai and Hyderabad. Currently plans are being made to extending the API capability to add more products both in onco and non-onco categories. The company has a broad view to spend around Rs400-500 crores in Capex every year. They have also recently raised a QIP of around Rs.915 crs for plant expansions, strengthening their R&D and complex generics base. We believe that the balance of the funds if any will be used towards repayment/prepayment of borrowings, working capital and general corporate purposes.

Presence of a stable product pipeline

NATCO API portfolio has 37 US DMFs with over 10 products under development they expects to launch 10+ products in the domestic market during by the end of FY 2017-2018. On the international FD segment, they have 43 niche ANDA filings including 20 Para IV filings in the US – with 22 approved ANDAs (one of them is yet to be launched). Besides they have 25 product approvals across 14 countries (ROW) with 2 approvals coming from Canada. On the patent front they have filed 185 patents in India of which 83 have been granted while 189 patents were filed internationally with 133 of them getting granted.

Key brands and filings to look for FY 19&20

Key Brand

Therapeutic Segment

Dosage Form

Mrk Size ($million)

Copaxone 20&40mg

Multiple Sclerosis

PFS 4138.4

Tamiflu Influenza Infection

Suspension 213

Vidaza Myelodysplastic Syndrome

Injection 203

Fosrenol Renal Disease

Tablets 119

Revlimid Multiple Myeloma

Capsules 4417

Tracleer Hypertension Tablets 368

Nexavar Liver, Kidney Cancer

Tablets 331

0.6

0.3

0.4

0.10.2

2013 2014 2015 2016 2017

D/E

18.114.3

23.532 28.4 29.2

0

10

20

30

40

50

2015 2016 2017 2018E 2019E 2020E

EBITDA(%) PAT(%)

Financials

Complex generics to drive Revenue growth

NATCO witnessed its top domestic brands registering cumulative growth of 20% over FY 2016-17. We are expecting more niche launches from US and ROW in FY19. Sales from Hepatitis C&B portfolio of drugs is one of the prime driver of sales growth in domestic sector. Their immediate target involves maintaining their current leadership position in Oncology and Hepatitis- C segment and launch 8-10 new products in the domestic market. Natco registered a net revenue CAGR of 33% over 2014-17 period and higher GP margins (300bps) indicating better cost management.

Revenue growth in light of Gross Margin (%)


EBITDA Margins to remain stable going forward

The current strategy of NATCO is to focus more on India business considering the fact that the domestic market is going to provide ample opportunities in the future. Besides Indian government is pushing new health reforms and trying their best to bring more people under insurance coverage signalling a revival in the sector. We believe that EBITDA margin is going to be stabilised around 40% and PAT growth to revamp in FY20. Bringing down the cost of production is the key for EBITDA and PAT growth. EBITDA/ PAT Margins

Source: Bloomberg, Geojit Research

A zero debt company with cash surplus

NATCO’s debt figures are low as they have surplus cash flows in the order of above 800crs. They had plans to raise a debt of 150crs by the end of FY18 to fund the current CAPEX requirement of 400crs. However, the debt figures are expected to be modest going forward. Debt to equity ratio has shown improvement in the last two years on account of better internal accruals and the company is determined to keep it low.

Adjusted Debt/ Equity


US & India launches to drive EBITDA growth

Consolidated EBITDA and PAT grew by 57%/214% in FY17 on a YoY basis while the same has grown at a CAGR of 56% over the last three years while PAT grew at a CAGR of 68% during the same period which looks very impressive to us. Natco currently derives 40% of its sales from US and we believe that their continuous efforts to come up with high margin niche molecules in US is expected to improve their margins. Copaxone, Doxil, Tamiflu and Lanthinum are the leading molecules (~700crs) to perform in US markets. Growing presence in new RoW markets, led by Hep-C franchise products is another strength factor.

EBITDA/PAT figures (Crs)


213 265

683

983 1027

1228

150 155

486

692 724880

2015 2016 2017 2018E 2019E 2020

EBITDA PAT

1212 31

91

6.316.2 18.1

020406080

100

2014 2015 2016 2017 2018E 2019E 2020E

GM(%) Rev Growth (%)

Valuations

Growth supported by healthy numbers

NATCO is currently trading at a 1yr forward P/E of 20x. The company’s sales registered a 57% CAGR during FY2015-17, while adjusted PAT grew by 90% CAGR during the same period (primarily due to Oseltamivir sales in US). A similar trend is noted in operating margin as it rose to 33% in 2017 from 26% in 2015. They have also successfully launched several new products in the USA market that included generic versions of Glatiramer Acetate and Oseltamivir suspension, Liposomal Doxorubicin and Lanthanum Carbonate reaffirming the growth story.

1 Yr fwd P/E band


The management has stating that FY 2018 is going to be a period of slight decline in domestic sales due to a drop in Hep C owning to increasing competition. But the management is optimistic that new launches in South East Asia which will give a cushion to the revenue growth. They have also released the product Dabigatran recently, with an expected run rate of 80-90crs per month and is doing well. As mentioned before Tamiflu, Copaxone, Doxorubicin & Lanthanum to be the four major drivers of growth in FY 19.

ROE/ROCE Trends (%)


Peer Comparison

Company Sales (cr) EBITDA Margin %

FY18E FY19E FY20E FY18E FY19E FY20E

Natco 2,195 2,550 3,010 44.8 40.3 40.8

Glenmark 9,095 9,874 11,052 18.5 18.5 19.2

Ajanta pharma 2,110 2,376 2,712 32 32.4 33.0

Granules 1612 1980 2390 20 20 21

Company Sales CAGR(%) EBITDA CAGR(%)

FY 18-20E FY 18-20E

Natco 17 12

Glenmark 10 13

Ajanta pharma 13 15

Granules 22 27

Company P/E ROE%

FY18E FY19E FY20E FY18 FY19E FY20E

Natco 21.1 20.2 16.6 29.3 21.6 22.1

Glenmark 17.8 15.9 13.1 16.7 16.1 16.6

Ajanta pharma 25.3 21.8 18.3 26 24 25

Granules 17 13 10 14 15 18 Source: Bloomberg, Geojit Research

Key Risks

Price control risk: The increased adoption of tender systems and other forms of price control in the market could reduce revenue/ profit realisation for the products.

Compliance risk: Any unexpected issues from

USFDA inspections or other international bodies could directly impact their sales revenue and share price.

Patent risk: The Company’s inability to defend

patent challenges, could prevent the Company from selling the products or result in financial liabilities.

Business Portfolio risk: Natco is exposed to the risk

of depending on one or very few large products or therapy segments. This could have an impact on the financial viability of the Company.

Geographical risk: Excessive dependence on a few major markets like US (~40%) and India (~45%) could affect the sustainability in the long run.

16.3 1914.5

3329.3

21.1 22.1

0

10

20

30

40

50

2014 2015 2016 2017 2018E 2019E 2020E

ROE ROCE

5

15

25

35

45

55

2014 2015 2016 2017

1yr Fwd PE Avg 1yr Forward P/E

Avg+1SD Avg-1SD

Conclusion: Robust pipeline to boost outlook

NATCO’s production capability is powered by their in house API development and vertically integrated key formulation facilities. They are currently planning to launch around 20 new products in the cardio, gastro and onco segments in the coming year and are expecting good numbers going forward. Management guidance is that Copaxone will be the prime driver of revenue for FY2018 and FY2019. Niche launches from Indian markets and ROW coupled with other Para IVs filings in the US ( Revlimid, Nexavar and Everolimus) will be the revenue drivers for FY 2019-2020. We project ~55% of the total revenue to be generated from niche molecules in the US which in turn will be supported by domestic and ROW sales. We thus expect valuations to improve on back of earnings outlook of 13% CAGR over FY18-20E and value NATCO at 19x on FY20E EPS and arrive at a TP of Rs 908 and recommends ‘Buy’.

Consolidated Financials

Profit & Loss Account

Y.E March (Rs Cr) FY16A FY17A FY18E FY19E FY20E

Sales 1080 2065 2195 2550 3010

% change 30.9 91.2 6.3 16.2 18.1

EBITDA 265 683 983 1027 1228

% change 24.5 157.4 43.9 4.5 19.5

Depreciation 49 53 63 85 106

EBIT 215 629 918 941 1121

Interest 23 19 18 12 8

Other Income 10 14 - - 17

PBT 201 624 900 930 1130

% change 50.2 210.2 44.2 3.3 21.5

Tax 48 140 209 207 251

Tax Rate (%) 23.8 22.4 23.2 22.2 22.2

Reported PAT 155 486 692 724 880

Adj.* - - - - -

Adj. PAT 155 486 692 724 880

% change 3.4 214.2 42.4 4.6 21.6

No. of shares (crs) 17.4 17.4 18.4 18.4 18.4

Adj EPS (Rs) 8.9 27.9 37.6 39.3 47.8

% change (1.3) 213.8 34.9 4.6 21.6

DPS (Rs) 1.25 7.25 8 7 7

Cash flow

Y.E March (Rs Cr) FY16A FY17A FY18E FY19E FY20E

Net inc. + Depn. 25 68 96 101 124 Non-cash adj. (46.2) (209) (46) (104) (153) Changes in W.C (14) (25) (2) (12) (19) C.F.O 11 35 74 69 80 Capital exp. (16) (28) (45) (57) (49) Change in inv. (2) (2) (8) (10) (25) Other invest.CF - (2) (5) (8) (7) C.F - investing (18) (30) (57) (75) (81) Issue of equity 205 (14) 915 - - Issue/repay debt (26) (141) (166) (144) (144) Dividends paid (3) (14) (17) (15) (15) Other finance.CF (25) 107 (124) (51) (41) C.F - Financing 15 (17) 74 (14) (14) Chg. in cash 91 (124) 908 (201) (156) Closing cash 24 24 812 561 365

Balance Sheet Y.E March (Rs Cr) FY16A FY17A FY18E FY19E FY20E

Cash 24 24 812 561 365

Accounts Receivable 262 475 523 629 783

Inventories 357 349 314 446 478

Other Cur. Assets 88 88 90 126 165

Investments 22 32 107 207 457

Gross Fixed Assets 972 1146 1391 1881 2293

Net Fixed Assets 705 827 1009 1414 1720

CWIP 212 336 536 611 686

Intangible Assets 6 6 4 9 14

Def. Tax (Net) (15) (15) (17) (19) (21)

Other Assets 21 12 15 13 11

Total Assets 1807 2303 3611 4295 5033

Current Liabilities 358 365 357 507 544

Provisions 14 24 26 29 35

Debt Funds - - - - -

Other Liabilities 3 13 10 12 12

Equity Capital 35 35 37 37 37

Reserves & Surplus 1261 1614 3048 3623 4353

Shareholder’s Fund 1296 1649 3085 3659 4390

Total Liabilities 1807 2303 3611 4295 5033

BVPS 74 95 168 199239 237

Ratios

Y.E March FY16A FY17A FY18E FY19E FY20E

Profitab. & Return

EBITDA margin (%) 24.6 33.1 44.8 40.3 40.8 EBIT margin (%) 19.9 30.4 41.8 36.9 37.2 Net profit mgn.(%) 14.3 23.5 31.5 28.4 29.2 ROE (%) 14.5 33.0 29.3 21.6 22.0 ROCE (%) 16.6 38.1 30.0 25.3 25.6 W.C & Liquidity Receivables (days) 76.7 65.1 83.0 82.4 85.6 Inventory (days) 97.5 62.4 55.1 54.4 56 Payables (days) 2.4 5.1 2.4 2.0 1.8 Current ratio (x) 2.0 2.5 4.5 3.3 3.1 Quick ratio (x) 1.0 1.6 3.7 2.3 2.1 Turnover &Levg. Gross asset T.O (x) 1.2 2.0 1.7 1.6 1.4 Total asset T.O (x) 0.7 1.0 0.7 0.6 0.6 Int. covge. ratio (x) 9.4 34.0 50.1 81.7 139.9 Adj. debt/equity (x) 0.1 0.2 -0.2 -0.1 -0.1 Valuation ratios EV/Sales (x) 16.9 8.9 6.3 5.5 4.7 EV/EBITDA (x) 68.7 26.8 14.2 13.8 11.6 P/E (x) 117 37.3 21.1 20.2 16.6 P/BV (x) 14.0 11.0 4.8 4.0 3.3

Price History

Dates Rating Target

09th April, 2018 Buy 908

Source: Bloomberg, Geojit Research Investment Rating Criteria

Large Cap Stocks; Mid Cap and Small Cap;

Buy - Upside is above 10%. Hold - Upside is between 0% - 10%. Reduce - Downside is more than 0%.

Neutral - Not Applicable

Buy - Upside is above 15%. Accumulate - Upside is between 10% - 15%. Hold - Upside is between 0% - 10%. Reduce/Sell - Downside is more than 0%. Neutral - Not Applicable

To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and ‘Reduce’ as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. Neutral- The analyst has no investment opinion on the stock under review

General Disclosures and Disclaimers CERTIFICATION

I, Dilish K Daniel, author of this Report, hereby certify that all the views expressed in this research report reflect our personal views about any or all of the subject issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit.

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The research reports do not constitute an offer or solicitation for the purchase or sale of any financial instruments, inducements, promise, guarantee, warranty, or as an official confirmation of any transaction or contractual obligations of any kind. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. We have also reviewed the research report for any untrue statements of material facts or any false or misleading information. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so.

RISK DISCLOSURE

Geojit and/or its Affiliates and its officers, directors and employees including the analyst/authors shall not be in any way be responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Investors may lose his/her entire investment under certain market conditions so before acting on any advice or recommendation in these material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. This report does not take into account the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this report (including the merits and risks involved). The price, volume and income of the investments referred to in this report may fluctuate and investors may realize losses that may exceed their original capital.

FUNDAMENTAL DISCLAIMER

We have prepared this report based on information believed to be reliable. The recommendations herein are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. The stocks always carry the risk of being upgraded to buy or downgraded to a hold, reduce or sell. The opinions expressed are subject to change but we have no

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Geojit Financial Services Ltd. (formerly known as Geojit BNP Paribas Financial Services Ltd.), Registered Office: 34/659-P, Civil Line Road, Padivattom, Kochi-682024, Kerala, India. Phone: +91 484-2901000, Fax: +91 484-2979695, Website: geojit.com. For investor queries: [email protected], For grievances: [email protected], For compliance officer: [email protected].

Corporate Identity Number: L67120KL1994PLC008403, SEBI Regn.Nos.: NSE: INB/INF/INE231337230 I BSE:INB011337236 & INF011337237 | MSEI: INE261337230, INB261337233 & INF261337233, Research Entity SEBI Reg No: : INZ000104737, Investment Adviser SEBI Reg No: INA200002817, Portfolio Manager:INP000003203, NSDL: IN-DP-NSDL-24-97, CDSL: IN-DP-CDSL-648-2012, ARN Regn.Nos:0098, IRDA Corporate Agent (Composite) No.: CA0226. Research Entity SEBI Registration Number: INZ000104737

obligation to tell our clients when our opinions or recommendations change. This report is non-inclusive and does not consider all the information that the recipients may consider material to investments. This report is issued by Geojit without any liability/undertaking/commitment on the part of itself or anyof its entities. We may have issued or may issue on the companies covered herein, reports, recommendations or information which is contrary to those contained in this report.

The projections and forecasts described in this report should be evaluated keeping in mind the fact that these are based on estimates and assumptions and will vary from actual results over a period of time. The actual performance of the companies represented in the report may vary from those projected. These are not scientifically proven to guarantee certain intended results and hence, are not published as a warranty and do not carry any evidentiary value whatsoever. These are not to be relied on in or as contractual, legal or tax advice. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.

JURISDICTION

The securities described herein may not be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies mentioned in this report are organized may have restrictions on investments, voting rights or dealings in securities by nationals of other countries. Distributing/taking/sending/dispatching/transmitting this document in certain foreign jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe any such restrictions. Failure to comply with this restriction may constitute a violation of any foreign jurisdiction laws. Foreign currencies denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. Investors in securities such as ADRs, the value of which are influenced by foreign currencies effectively assume currency risk.

REGULATORY DISCLOSURES:

Geojit’s Associates consists of privately held companies such as Geojit Technologies Private Limited (GTPL- Software Solutions provider), Geojit Credits Private Limited (GCPL- NBFC Services provider), Geojit Investment Services Limited (GISL- Corporate Agent for Insurance products), Geojit Financial Management Services Private Limited (GFMSL) &Geojit Financial Distribution Private Limited (GFDPL), (Distributors of Insurance and MF Units).In the context of the SEBI Regulations on Research Analysts (2014), Geojit affirms that we are a SEBI registered Research Entity and in the course of our business as a stock market intermediary, we issue research reports /research analysis etc that are prepared by our Research Analysts. We also affirm and undertake that no disciplinary action has been taken against us or our Analysts in connection with our business activities.

In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be considered by the reader before making an investment decision:

1. Disclosures regarding Ownership*:

Geojit confirms that: (i) It/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein. (ii) It/its associates have no actual beneficial ownership greater than 1% in relation to the subject company (ies) covered herein.

Further, the Analyst confirms that: (i) he, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material

conflict in the subject company.

(ii) he, his associates and his relatives have no actual/beneficial ownership greater than 1% in the subject company covered

2. Disclosures regarding Compensation:

During the past 12 months, Geojit or its Associates:

(a) Have not received any compensation from the subject company; (b) Have not managed or co-managed public offering of securities for the subject company (c) Have not received any compensation for investment banking or merchant banking or brokerage services from the subject company. (d) Have not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company (e) Have not received any compensation or other benefits from the subject company or third party in connection with the research report (f) The subject company is / was not a client during twelve months preceding the date of distribution of the research report.

3. Disclosure by Geojit regarding the compensation paid to its Research Analyst:

Geojit hereby confirms that no part of the compensation paid to the persons employed by it as Research Analysts is based on any specific brokerage services or transactions pertaining to trading in securities of companies contained in the Research Reports.

4. Disclosure regarding the Research Analyst’s connection with the subject company:

It is affirmed that the I, Dilish K Daniel, Research Analyst(s) of Geojit have not served as an officer, director or employee of the subject company

5. Disclosure regarding Market Making activity:

Neither Geojit/its Analysts have engaged in market making activities for the subject company. Please ensure that you have read the “Risk Disclosure Documents for Capital Market and Derivatives Segments” as prescribed by the Securities and Exchange Board of India before investing.

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