Financials/Valuation. 1Mn 3Mn 1Yr P/B (X) Absolute (7.8) (6.3) (5.3) P/E (x) Rel.to Nifty (6.5) (8.6) (25.0) Recent Developments:

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1 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb Feb-18 Bloomberg- INDUSTRY - CIPLA IN BSE Code NSE Code - NIFTY - PHARMACEUTICAL CIPLA Comapany Data CMP 569 Target Price 637 Previous Target Price Upside 52wk Range H/L Mkt Capital (Rs Cr) Av. Volume (,000) Return Ratios 18% 16% 12% 10% 8% 6% 4% 2% 0% 17% ROE 11% Share Holding patterns % 13% 12% 633/479 45,728 1,130 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Key Highlights of the Report: Cipla Q3FY18 earning numbers missed our estimates. Top line was up by 7.3% YoY to Rs.3914 Cr (vs our estimate of Rs.4246 Cr) backed by strong growth aross key markets including India, South Africa among others; India recorded healthy double digit growth with South Africa delivering its highest ever quarter in terms of sales. Company filed 2 products in Q3FY18 taking the 9months count to 10 filings and expecting to file 10+ products in Q4FY18. FY16 FY17 FY18E FY19E Net Sales 13,678 14,281 15,986 19,554 EBITDA 2,501 2,476 3,203 3,936 EBIT 1,959 1,153 1,751 2,422 PAT 1,506 1,035 1,715 2,048 3QFY18 2QFY18 3QFY17 EPS (Rs) Promoters EPS growth (%) 28% -23% 47% 19% Public ROE (%) 13% 8% 12% 13% Total ROCE (%) 17% 7% 10% 12% Stock Performance % BV Mn 3Mn 1Yr P/B (X) Absolute (7.8) (6.3) (5.3) P/E (x) Rel.to Nifty (6.5) (8.6) (25.0) 135 Recent Developments: CIPLA NIFTY As on 17th Nov 2017 cipla receives a USFDA approval for Budesonide 125 inhalation suspension with a market potential of US$ 536mn. This is the 115 generic equivalent of a branded product-pulmicort Respules.Only five companies sell this drug in the US Ritika Jalan ritika.jalan@narnolia.com Pramila Lakra 8% In 3QFY18 management concluded a deal with Adcock Ingram to commercialise their comprehensive over the counter portfolio in Uganda and expand our footprint in Sub-Saharan Africa. We value CIPLA at 25x FY19E expected EPS and recommend ACCUMULATE with the target price of Rs 637. Financials/Valuation Key milestones achieved for initiating gadvair trials; two additional trials expected to begin soon.hikma/ Vectura (US generic version of Advair Diskus) will be launched in 2HCY19 once the clinical endpoint trials will end with no FDA s objection. Cipla plans to focus on specialty product pipeline in the US for respiratory and central nervous system (CNS) ailments.this will increase the R&D expenditure to 7-8% in 2H FY18 (6% in 1HFY18) with clinical trials starting for a respiratory product of the company. Phase 1A study for Tizanidine patch progressing smoothly; in advanced stages of discussion for assets in Neurology and Respiratory Please refer to the Disclaimers at

2 3,594 3,751 3,647 3,582 3,525 4,082 3,914 Quarterly Performance Financials 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 YoY % QoQ% FY16 FY17 YoY % Net Sales 3,647 3,583 3,526 4,082 3,914 7% -4% 13,759 14,632 6% Other Income % -53% % COGS 1,301 1,315 1,177 1,553 1,378 6% -11% 5,118 5,317 4% Employee Cost % -1% 2,447 2,634 8% Other Expenses 1,035 1,121 1,029 1,064 1,059 2% 0% 3,612 4,204 16% EBITDA % 2% 2,501 2,476-1% Depreciation % 73% 542 1, % Interest % -78% % PBT 514 (137) % -41% 2,007 1,222-39% Tax 128 (76) (64) -150% -147% % PAT 375 (62) % -7% 1,506 1,035-31% Margins under Margin % 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-) Gross Margin 64% 63% 67% 1% 5% 63% 64% 2% EBITDA Margin 19% 18% 20% 21% 13% 6% 18% 17% -7% PAT Margin 10% -2% 12% 11% 10% 0% -3% 11% 7% -36% Gross Margin grew by 1 % YoY and 5% QoQ to 64.8% on account of Better Product Mix. EBITDA margin for this quarter expanded by 200 bps YoY to 20.9% on the back of better gross margin. Employee and other expenses declined by 60 and 130 bps YoY respectively in Q3FY18 PAT margin was flat YoY to 10.3% while PAT growth for this quarter remained 7.6%to Rs 403 Cr. Tax provisioning for this quarter declined YoY to -18.9% Deferred Tax of Rs Cr reflecting the changes in the US Tax rates and drop in value of intangibles.pat impacted by one-off related to changes in US tax rates and drop in value of intangibles for US; Adjusted PAT growth of 25% on a year on year basis. EBITDA EBITDA Margin Net Sales Gross Margin 25% 20% 17% 18% 19% 18% 20% 21% 67% 66% 64% 63% 64% 63% 67% 10% 5% 0% QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 61% 60% 59% 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 Please refer to the Disclaimers at the end of this Report

3 Concall Highlights: Company filed 2 products in Q3FY18 taking the 9months count to 10 filings; expecting to file 10+ products in Q4. The company expects 20 ANDA filings in the US in 2019 and at least one differentiated product launches every quarter. Investment Rationale: US business to drive better revenue growth momentumcipla has a strong pipeline of pending ANDA for the next 12-18months (HIV, Oncology, Nasal Sprays).These are are considered as long-term growth opportunity for the company.also Management foresees limited competition for Pulmicort; expect 3-4 more approvals by the end of FY18.There are 12 first-to-file opportunities under 98 pending ANDAs. Cipla grew ahead in South Africa private market at 11.1% in the private market vs 10.3% market growth; as per IMS MAT Dec 17. Guided for 8%-9% R&D spending of total sales for FY18 (FY17-7%-7.5%). Ramp-up in R&D investments is mainly due to certain clinical trial to begin in H2FY18 Cipla flagship respiratory product, FPSM, its in Australia is gaining traction; targeting to increase market share in FY19 Advair trials progressing smoothly, two additional clinical trials in US to begin soon Company is tapering down its Capital Expenditure. Guided for Rs Crore of capex for FY18.Till now Rs750Cr Spent. Focus on building a strong Specialty portfolio for US continues with certain assets in advanced stages of discussion in Neurology and Respiratory space Accelerating development in the respiratory Space around CY2019:Cipla expects sales from its respiratory portfolio to more than double by 2020 and remains on track to achieve that.company launch its flagship respiratory product FPSM in Australia in 1QFY18 and has received positive response from its launch.as per the mnanagement it will continue to focus on improving respiratory franchise in other emerging markets as well. Potential launches in HIV space by Cipla:Receives final approval for Generic Viread tablets (US sales 725 USD million).there are 9 tentative approvals for this compund.cipla has a strong pipeline of pending key launches in HIV Space. Revenue From Tender Win as part of the global drug access initiative:as on 24th January 2018 Cipla has been awarded a contract by the Global Fund ARV Tender to supply anti-aids medicines worth $ million.cipla has a long-term association with Global Fund since And last year, Cipla was one of the suppliers awarded with a long-term contract for supplying anti-malarial drugs. View & Valuation CIPLA continues to revive its US Business and is expected to witness a strong growth on the back of few limited competition products and meaningful product launches over next few quarters. Further the company has 12 first to file opportunities in ANDA pipeline pending for approval with US FDA. However we expect lower than expected sales growth in US in near term factoring the changes in regulatory environment and ongoing price erosion in US. We roll forward our earnings to FY19 and increased our Sales and PAT estimates for FY19 owing to expected recovery in the US Business and strong growth in key markets like South Africa and Rest of World (ROW). Keeping in mind, near term headwind related to delay in approvals of key products, increased gestation period of limited competition drug and volatility of currencies. We value CIPLA at 25x FY19E expected EPS and recommend ACCUMULATE with the target price of Rs 637.

4 Income Statement Rs in Crores Cash Flow Statement in Rs Crores Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17 FY18E FY19E Revenue from Operation 13,678 14,630 15,986 19,554 PBT 2,007 1,222 2,017 2,528 Change (%) 21% 7% 9% 22% (inc)/dec in Working Capital (424) 231 (150) (395) EBITDA 2,501 2,476 3,203 3,936 Non Cash Op Exp 542 1,323 1,452 1,514 Change (%) 16% -1% 29% 23% Int Paid (+) Margin (%) 18% 17% 20% 20% Tax Paid (508) (450) (303) (480) Depr & Amor ,323 1,452 1,514 others 16 (103) - - EBIT 1,959 1,153 1,751 2,422 CF from Op. Activities 1,794 2,382 3,121 3,272 Int. & other fin. Cost (inc)/dec in FA & CWIP (1,053) (1,098) (2,565) (2,914) Other Income Free Cashflow 717 1, EBT 2,007 1,222 2,017 2,528 (Pur)/Sale of Inv (3) (43) (122) 34 Exp Item others (3,524) (171) (8) - Tax CF from Inv. Activities (4,579) (1,313) (2,694) (2,880) Minority Int & P/L share of Ass. 37 (7) - - inc/(dec) in NW Reported PAT 1,506 1,035 1,715 2,048 inc/(dec) in Debt 3,442 (1,080) (144) 43 Adjusted PAT 1,506 1,035 1,715 2,048 Int. Paid (161) (159) (105) (106) Change (%) 28% -31% 66% 19% Div Paid (inc tax) (181) (194) (193) (193) Margin(%) 11% 7% 11% 10% others CF from Fin. Activities 3,103 (1,324) (442) (256) Inc(Dec) in Cash 317 (254) (15) 136 Balance Sheet Rs in Crores Add: Opening Balance Y/E March FY16 FY17 FY18E FY19E Closing Balance Share Capital Reserves 11,356 12,365 13,886 15,741 Networth 11,516 12,525 14,047 15,901 Key Ratios Debt , , ,011.4 FY16 FY17 FY18E FY19E Other Non Cur Liab ROE 13% 8% 12% 13% Total Capital Employed 16,708 16,638 18,016 19,913 ROCE 17% 7% 10% 12% Net Fixed Assets (incl CWIP) 8,725 8,478 9,591 10,991 Asset Turnover Non Cur Investments Debtor Days Other Non Cur Asst Inv Days Non Curr Assets 12,287 12,147 13,267 14,667 Payable Days Inventory 3,808 3,485 3,485 3,485 Int Coverage Debtors 2,356 2,497 2,729 3,338 P/E Cash & Bank Price / Book Value Other Curr Assets 1, ,191 EV/EBITDA Curr Assets 8,841 8,737 9,195 10,219 FCF per Share Creditors 1,476 1,571 1,717 2,100 Div Yield 0.4% 0.3% 0.4% 0.4% Provisons Other finicial liabilities Other Curr Liab Curr Liabilities 2,806 2,841 3,041 3,568 Net Curr Assets 6,035 5,896 6,154 6,651 Total Assets 21,128 20,970 22,548 24,972 Financials Snap Shot Please refer to the Disclaimers at the end of this Report

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