CMP* (Rs) 1,033 Upside/ (Downside) (%) (0.3) Bloomberg Ticker Market Cap. (Rs bn) 467 Free Float (%) 53 Shares O/S (mn) 452

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1 2QFY18 Result Update October 31, 2017 Market Cap. (Rs bn) 467 Free Float (%) 53 Shares O/S (mn) 452 US Biz to Remain Weak; Maintain Led by weak performance in the US markets, (LPC) has delivered a weak performance in 2QFY18 on all counts. Its revenues, EBITDA and net profit declined by 8% YoY, 17% YoY and 31% YoY, respectively. Notably, LPC s US sales declined by 30% YoY to US$204mn vis-à-vis US$292mn and US$238mn in 2QFY17 and 1QFY18, respectively primarily owing to decline in gglumetza/gfortamet sales and end of Minastrin exclusivity coupled with price erosion in base business owing to channel consolidation. Its US branded business sales stood at US$24mn, while generics sales came in at US$180mn. Its domestic sales rose by 16.4% YoY to Rs11.6bn due to inventory re-stocking post GST disruptions. APAC/EMEA/LatAM sales rose by 15.2% YoY, 17.1% YoY and 41.5% YoY, respectively. EBITDA margin dipped to ~21.6% in 2QFY18 vs. 24.0% in 2QFY17 due to weak sales and adverse product-mix. Considering weak quarterly performance, likely decline in revenue growth to single-digit in FY18E and pricing pressure in the US business, we maintain our recommendation on the stock with a revised Target Price of Rs1,030 (from Rs950 earlier). Conference Call Key Highlights US (35% of Sales) Biz: The Management envisages FY18 to be challenging due to price erosion and high base in FY17. However, it highlighted that the US sales have bottomed out and price erosion have peaked out as well. It looks forward to a strong recovery in FY19 led by new launches (Axiron, Ranexa & Levothyroxine). LPC plans to file >30 ANDAs (including injectables and derma), expects 30 ANDA approvals and launches in FY18. Overall product pipeline includes: 152 pending ANDAs including 49 FTFs and 25 exclusive FTFs opportunities. Key product for FY19 i.e. Levothyroxine would be launched by FY18-end. LPC has received EIR for its most plants except for Goa and Indore. India (30% of Sales) Biz: Sales grew owing to re-stocking post GST disruption and new launches. Adjusted for Excise Duty, domestic sales grew by 20% YoY. The Management expects the domestic business to witness 12-15% YoY growth in FY18 (15% growth in 2HFY18). FY18 Guidance: The Management envisages 2HFY18 to be better than 2QFY18, while FY19 growth would be higher than FY18. Price erosion in the US is pegged at high single digit in FY18. LPC re-iterated EBITDA margin at 21-23% of sales (factoring Symbiomix acquisition). R&D spend is pegged at Rs5bn/quarter, while eective tax rate is seen at 25-28% for FY18. Outlook & Valuation Looking ahead, LPC s long-term fundamentals remain intact on the back of pending pipeline of 152 ANDAs worth US$76bn brand value. However, we expect its US business to remain weak led by price erosion in base business, increase in competition to its Metformin franchise, channel consolidation and lack of any new launches, which will lead to decline in sales and profitability in FY18. We further expect LPC s returns ratios to remain lower due to higher capex. Hence, we maintain our recommendation on the stock (19xFY19E EPS of Rs54.2/share) with a revised Target Price of Rs1,030. Share price (%) 1 mth 3 mth 12 mth Absolute performance (30.9) Relative to Nifty (3.8) (2.5) (50.7) Shareholding Pattern (%) Jun 17 Sept'17 Promoter Public Year Stock Price Performance 1,600 1,500 1,400 1,300 1,200 1,100 1, Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Oct-17 Note: * CMP as on October 30, 2017 Key Financials (Rs mn) FY16 FY17 FY18E FY19E Sales 142, , , ,609 EBITDA 36,854 44,931 36,923 44,166 Adj. PAT 21,686 25,575 19,293 24,477 EPS (Rs) P/E (x) EV/Sales (x) EV/EBITDA (x) ROE (%) ROCE (%) Source: Company, RSec Research Research Analyst: Krishnanath.Munde Contact: (022) Krishnanath.Munde@relianceada.com 1

2 Risks to the View Downside Risks: Any inordinate delay in getting product approvals and adverse currency movement. Upside Risk: USFDA final clearance to Goa and Indore facilities. Exhibit 1: Result Summary (Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%) Net Sales 39,520 42,905 (7.9) 38, Cost of Revenues 12,865 12, , Gross Profit 26,654 30,477 (12.5) 26, Gross Profit margin (359bps) 68.1 (70bps) Employee expenses 7,250 7, , Other Expenses 10,874 13,072 (16.8) 11,506 (5.5) Total operating expenses 30,989 32,624 (5.0) 31,012 (0.1) EBITDA 8,531 10,281 (17.0) 7, EBITDA margin (%) (238bps) bps Depreciation 2,722 2, , EBIT 5,809 8,169 (28.9) 5, Other Income Interest PBT 6,070 8,177 (25.8) 4, Total tax 1,541 1,589 (3.1) 1, Tax Rate (%) Minority Interest (21) (34) 11 Adj PAT before extraordinary 4,550 6,622 (31.3) 3, Adj. PAT margin (%) (392bps) bps Reported PAT 4,550 6,622 (31.3) 3, Adj. EPS (Rs) (31.3) Source: Company RSec Research Exhibit 2: Segment-wise sales performance (Rs mn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%) India 11,593 9, , US 13,611 19,978 (31.9) 16,018 (15.0) APAC 6,357 5, , Japan 5,387 4, , Philippines EMEA 2,758 2, , South Africa 1,204 1, Germany LATAM 1, , Brazil Mexico RoW (5.5) 416 (9.1) API 2,650 2,916 (9.1) 2,793 (5.1) Total 38,742 42,110 (8.0) 38, US (USD mn) (30.1) 238 (14.3) Source: Company RSec Research 2

3 Profit & Loss Statement Net Sales 142, , , ,609 Growth YoY (%) (1.8) 11.6 Total Expenditure 105, , , ,443 Cost of Materials 43,326 50,014 55,813 61,315 R&D Expense 17,318 23,101 20,608 22,993 Personnel 21,416 28,495 29,538 32,478 Others 23,642 28,401 28,851 30,657 EBITDA 36,854 44,931 36,923 44,166 Margin Depreciation& Amortisation 4,871 9,122 9,925 10,728 EBIT 31,983 35,809 26,997 33,438 Interest & other Charges 595 1,525 1,393 1,110 Other Income 931 1,065 1,065 1,065 PBT 32,318 35,349 26,669 33,393 Tax 10,593 9,785 7,467 9,016 Tax Rate Minority Interest 39 (11) (91) (100) Adj. PAT 21,686 25,575 19,293 24,477 Growth YoY (%) (4.0) 17.9 (24.6) 26.9 Less: Extraordinary item(ei) (921) Reported PAT after MI 22,608 25,575 19,293 24,477 EPS (Rs) Growth YoY (%) (4.2) 17.7 (24.6) 26.9 Balance Sheet SOURCES OF FUNDS Equity Share Capital Reserves& Surplus 110, , , ,088 Shareholders Funds 111, , , ,991 Total Loans 71,775 79,661 72,767 57,967 Minority Interest Deferred Tax liability 3,267 3,949 3,949 3,949 Other long-term liabilities 4,777 6,032 6,636 7,299 Total Liabilities 191, , , ,361 APPLICATION OF FUNDS Gross Block 86, , , ,284 Less: Acc. Depreciation 4,951 13,624 23,549 34,277 Net Block 81, , , ,007 Capital Work-in-Progress 9,812 7,150 10,525 13,900 Goodwill on consolidation 22,654 23,100 23,100 23,100 Investments Current Assets 98, , , ,628 Cash & Cash Equivalents 7,802 27,995 39,184 36,281 Current liabilities 34,476 41,110 44,033 48,385 Net Current Assets 64,399 78,432 83,283 86,243 Deferred Tax liability 3,359 5,076 5,076 5,076 Other non-current assets 9,679 7,953 8,351 8,768 Total Assets 191, , , ,361 3

4 Cash Flow Statement Profit before tax 33,288 35,431 26,669 33,393 Depreciation 4,871 9,122 9,925 10,728 Interest provided 595 1,525 1,393 1,110 Change in Working Capital (31,264) 5,059 6,544 (5,618) Tax paid (11,701) (11,490) (7,467) (9,016) Others 388 1, Cash Flow from Operations (3,824) 41,148 37,065 30,597 (Inc.)/ Dec. in Fixed Assets (58,217) (26,368) (13,500) (13,500) (Inc.)/ Dec. in Investments (22) (24) Others (11,408) Cash Flow from Investing (69,617) (25,287) (13,522) (13,524) Issue of Equity Inc./(Dec.) in loans 62,081 9,479 (6,894) (14,800) Dividend Paid (4,055) (4,066) (4,066) (4,066) Interest provided (585) (1,507) (1,393) (1,110) Others Cash Flow from Financing 58,364 4,332 (12,353) (19,976) Inc./(Dec.) in Cash (15,077) 20,193 11,190 (2,903) Opening Cash & Cash Equivalents 20,951 7,802 27,995 39,184 Closing Cash & Cash Equivalents 7,802 27,995 39,184 36,281 Key Ratios Y/E March FY16 FY17 FY18E FY19E Valuation Ratio (x) P/E P/CEPS (121.7) P/BV Dividend yield (%) EV/Sales EV/EBITDA Per Share Data (Rs) EPS Cash EPS DPS Book Value Returns (%) RoCE RoIC RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days)

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