NOVARTIS INDIA LTD. Target Price: Rs Date: 24 th Marc 2011 BUY

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NOVARTIS INDIA LTD Result Update: Q3 FY 11 C.M.P: Rs.620.00 Target Price: Rs.744.00 Date: 24 th Marc 2011 BUY Stock Data: Sector: Pharma Face Value Rs. Rs.5.00 52 wk. High/Low (Rs.) 735.00/545.

20 Share Holding Pattern SYNOPSIS Novartis India Limited engages in the discovery, development, and marketing of prescription medicine in India and internationally.

1 NOVARTIS INDIA LTD Result Update: Q3 FY 11 C.M.P: Rs Target Price: Rs Date: 24 th Marc 2011 BUY Stock Data: Sector: Pharma Face Value Rs. Rs wk. High/Low (Rs.) / Volume (2 wk. Avg.) BSE Code Market Cap (Rs.In mn) Share Holding Pattern SYNOPSIS Novartis India Limited engages in the discovery, development, and marketing of prescription medicine in India and internationally. Novartis has looking to buy out the remaining stake in US-based eye care group Alcon by the end of this year. The company is planning to enter into consumer health care and generics. 1 Year Comparative Graph Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 18% over 2009 to 2012E respectively. Novartis receives European Commission approval for Gilenya, the first oral multiple sclerosis treatment for use in the EU. Novartis India Ltd BSE SENSEX During the quarter, the company has reported Net Profit increased to Rs million from Rs million in previous year same quarter. Years Net sales EBITDA Net Profit EPS P/E FY FY 11E FY 12E

2 Peer Group Comparison Name of the company CMP(Rs.) Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Novartis India Aurobindo Unichem Dr.Reddys Labs Investment Highlights Q3 FY11 Results Update Novartis India Ltd disclosed results for the quarter ended December Net sales for the quarter moved up 12% to Rs million as compared to Rs million during the corresponding quarter last year. During the quarter, the company has reported Net Profit increased to Rs million from Rs million in previous year same quarter. The Basic EPS of the company stood at Rs for the quarter ended December Quarterly Results - Standalone (Rs in mn) As At Dec-10 Dec-09 %change Net sales % PAT % Basic EPS % 2

3 Basic EPS of the company stood at Rs

4 Particulars Q3 FY11 Q3 FY10 pharmaceuticals Generics OTC Animal Health Total Break up of Expenditure Expenditure for the quarter stood at Rs mn, which is around 3% higher than the corresponding period of the previous year. Purchase of Traded Goods cost of the company for the quarter accounts for 35% of the sales of the company and stood at Rs mn from Rs mn of the corresponding period of the previous year. Other Expenditure cost decreased to Rs.526.4mn from Rs mn and accounts for 27% of the revenue of the company for the quarter. 4

5 OPM and NPM for the quarter stood at 32% and 21% respectively from 22% and 14% respectively of the same period of the last year. 5

6 Acquisition of majority stake in Zhejiang Tianyuan Novartis has completed the transaction to acquire an 85 percent stake in the Chinese vaccines company Zhejiang Tianyuan Bio-Pharmaceutical Co., Ltd. This acquisition provides Novartis with an expanded presence in the Chinese vaccines market and is expected to facilitate the introduction of additional Novartis vaccines into China where there continues to be tens of thousands of new cases of vaccine-preventable diseases each year. Company Profile Novartis India (NIL), incorporated in 1947, is a subsidiary of Swiss giant Novartis -- the world's second largest pharmaceutical company. The company finds its origin from three separate entities namely Geigy, Ciba, and Sandoz. Geigy was founded in 1758; Ciba was founded around 1860 and Sandoz was founded in In the year 1970 Ciba and Geigy merged and formed Ciba-Geigy. Much later in 1996 Sandoz was merged with Ciba-Geigy. Together these three entities became one to form Novartis. Today, Novartis has 100,000 associates working across 140 countries. The company is engaged in manufacturing and marketing of drugs, pharmaceutical products and formulations for consumer healthcare and animal healthcare. 6

7 Business division Pharmaceuticals- Under this the company currently owns 45 key marketed products in therapeutic area. Novartis owns products like Diovan HCT, Gleevec, Lamisil, Zometa are amongst others. Vaccines and Diagnostics- This division is a leader in providing products to fight more than 20 vaccine-preventable viral and bacterial diseases and blood-testing equipment. Currently the company owns vaccines for influenza meningitis, rabies, tick-borne encephalitis, haemophilus influenzae type b (hib), polio, diphtheria, tetanus and pertussis. Sandoz- This is the generic pharmaceutical division of company catering its products to areas like antibiotics, treatments for central-nervous-system disorders, gastrointestinal medicines, cardiovascular treatments and hormone therapies. Over-the-Counter- The Company s over-the-counter (OTC) products cater in area of analgesics, cough, cold, allergy, gastrointestinal, skin care and smoking-cessation treatments, as well as mineral supplements. Animal Health- The company provides products for preventing and treatment of several widespread animal diseases and parasite infestations. The majority of these products are available by prescription through veterinarians. Novartis is also engaged in manufacturing of contact lenses and lens care products. Outlook The company and Medicines for Malaria Venture (MMV) launched a new pediatric formulation of Coartem for treatment of uncomplicated malaria in infants and children. 7

8 Financials Results 12 Months Ended Profit & Loss Account (Standalone) Value(Rs.in million) FY09A FY10A FY11E FY12E 12m 12m 12m 12m Description Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Profit after Tax Equity Capital Reserves Face Value(Rs.) EPS *A=Actual, *E=Estimated 8

9 Quarterly Ended Profit & Loss Account (Standalone) Value(Rs.in million) 30-Jun Sep Dec Mar-11 3m(A) 3m(A) 3m(A) 3m(E) Description Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Profit after Tax Equity Capital Face Value(Rs.) EPS *A=Actual, *E=Estimated 9

10 Key Ratio Particulars FY09 FY10 FY11E FY12E EPS (Rs.) EBITDA Margin (%) 28.74% 27.71% 31.15% 31.05% PAT Margin (%) 16.90% 17.62% 20.78% 20.72% P/E Ratio (x) ROE (%) 20.15% 19.54% 20.75% 18.67% ROCE (%) 33.71% 30.34% 30.76% 27.68% EV/EBITDA (x) Debt-Equity Ratio Book Value (Rs.) P/BV Charts: 10

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13 Outlook and Conclusion At the current market price of Rs , the stock is trading at x FY11E and x FY12E respectively. Price to Book Value of the stock is expected to be at 2.65 x and 2.15 x respectively for FY11E and FY12E. Earning per share (EPS) of the company for the earnings for FY11E and FY12E is seen at Rs and Rs respectively. Novartis has looking to buy out the remaining stake in US-based eye care group Alcon by the end of this year. The company is planning to enter into consumer health care and generics. Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 18% over 2009 to 2012E respectively. Novartis receives European Commission approval for Gilenya, the first oral multiple sclerosis treatment for use in the EU. During the quarter, the company has reported Net Profit increased to Rs million from Rs million in previous year same quarter. 13

14 On the basis of EV/EBITDA, the stock trades at 8.51 x for FY11E and 7.69 x for FY12E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. Industry Overview India s pharmaceutical industry is now the third largest in the world in terms of volume and stands 14th in terms of value. According to data published by the Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers, the total turnover of India's pharmaceuticals industry between September 2008 and September 2009 was US$ billion. Of this the domestic market was worth US$ billion. Moreover, according to an Ernst & Young and industry body study, the increasing population of the higher-income group in the country, will open a potential US$ 8 billion market for multinational companies selling costly drugs by Besides, the report said the domestic pharma market is estimated to touch US$ 20 billion by 2015, making India a lucrative destination for clinical trials for global giants. Exports Export of pharmaceutical products from India increased from US$ 6.23 billion in to US$ 8.7 billion in a combined annual growth rate (CAGR) of per cent. According to Mr Jyotiraditya M Scindia, Minister of State for Commerce, pharmaceutical exports from the country have recorded growth rates of per cent, per cent and cent, respectively, in the three consecutive years of , and Pharmaceutical exports during April-December 2009 were worth US$ 6.33 billion, according to the Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers. 14

15 Growth According to the All India Organisation of Chemists and Druggists (AIOCD), the pharmaceuticals industry in India will grow by over 100 per cent over the next two years. "The people are increasingly becoming health conscious and the sell of all types of medicines, particularly anti-biotic, will zoom up in the coming years. We expect the business to double by 2012", as per JS Shinde, President, AIOCD. According to Shinde, the pharmaceutical industry is currently growing at the rate of 12 per cent, but this will accelerate soon. The sale of all types of medicines in the country stands at US$ 9.61 billion, which is expected to reach around US$ billion by Further, a RNCOS report titled 'Booming Pharma Sector in India' projects the industry to continue growing at a CAGR of around 13 per cent during to The formulations industry is expected to prosper parallel to the pharmaceutical industry. It is expected that the domestic formulations market in India will grow at an annual rate of around 17 per cent in , owing to increasing middle class population and rapid urbanisation. Diagnostics Outsourcing/Clinical Trials According to the research published by RNCOS titled 'Indian Diagnostic Market Analysis' published in January 2010, the Indian diagnostic services are projected to grow at a CAGR of more than 20 per cent during Generics According to Mr Srikant Kumar Jena, Union Minister of State for Chemicals and Fertilisers, India tops the world in exporting generic medicines worth US$ 11 billion and currently, the Indian pharmaceutical industry is one of the world's largest and most developed. Moreover, as per a press release by research firm RNCOS in May 2010, the report titled Booming Generics Drug Market in India' projects the Indian generic drug 15

16 market to grow at a CAGR of around 17 per cent between and Mr Anand Sharma, Union Minister of Commerce and Industry and Lim Hng Kiang, Minister for Trade and Industry, Singapore, have signed a 'Special Scheme for Registration of Generic Medicinal Products from India' in May 2010, which seeks to fast-track the registration process for Indian generic medicines in Singapore. According to Lim Hng Kiang, "What we have agreed is that if your (Indian) generics have already cleared the regulations of one of the five countries/ regions - US, Canada, the European Union, UK or Australia - Singapore will take that as 'already cleared' and we will import it (the generic medicines) without any additional clearances." Mr Sharma said, "This (understanding) will facilitate quick registration and approvals (of Indian generic drugs) in Singapore. It is a major movement forward. One-fourth of the world's generics come from India. This has ensured easy availability of life-saving medicines particularly where affordability has been an issue." Mergers and Acquisitions/ Licensing Deals Orchid Chemicals & Pharmaceuticals Ltd, a Chennai-based pharmaceutical company, has entered into an agreement to acquire US-based generic marketing company Karalex Pharma LLC, in an all-cash deal. In May 2010, Glenmark Pharmaceuticals licensed its chronic pain molecule to Sanofi Aventis for a cumulative deal of US$ million. Dr Reddy Laboratories has signed an agreement with Alchemia, an Australian Pharmaceutical company, for marketing Fondaparinux sodium (which is used for the treatment and prevention of deep vein thrombosis (DVTs)) in all markets outside of North America. According to the agreement, Dr Reddy's will pay to Alchemia a royalty on sales at an agreed proportion. Super Religare Laboratories (SRL), a diagnostic chain has signed a definitive agreement to buy Piramal Healthcare's diagnostic chain for US$ million, making it the country's largest diagnostic player. 16

17 Government Initiative 100 per cent foreign direct investment (FDI) is allowed under the automatic route in the drugs and pharmaceuticals sector including those involving use of recombinant technology. (DIPP) The Government plans to set up a US$ million venture capital (VC) fund to give a boost to drug discovery and strengthen the pharma infrastructure in the country. According to Mr Ashok Kumar, Secretary, Department of Pharmaceuticals, the Government had issued an expression of interest (EoI) for technical and financial bids for the selection of a global level consultant (GLC) for the preparation of a detailed project report (DPR) in order to develop India as a drug discovery and pharma innovation hub by The Drugs and Pharmaceuticals Manufacturers Association has received an inprinciple approval for its proposed special economic zone (SEZ) for pharmaceuticals, bulk drugs, active pharmaceutical ingredients (APIs) and formulations to be located at Nakkapalli mandal in Visakhapatnam district, according to a government press release. According to Mr Srikant Kumar Jena, Union Minister of State for Chemicals and Fertilisers, the Department of Pharmaceuticals has prepared a "Pharma Vision 2020" for making India one of the leading destinations for end-to-end drug discovery and innovation and for that purpose provides requisite support by way of world class infrastructure, internationally competitive scientific manpower for pharma research and development (R&D), venture fund for research in the public and private domain and such other measures. Investment The drugs and pharmaceuticals sector has attracted FDI worth US$ million between April 2000 and April 2010, according to data published by Department of Industrial Policy and Promotion (DIPP) in April Indian Immunologicals Ltd (IIL), a subsidiary of National Dairy Development Board, will launch four new vaccines next year. The company is setting up a 17

18 new manufacturing facility in Hyderabad with an investment of US$ 32.4 million. The manufacturing unit will produce both human and animal vaccine. Road Ahead According to a report by PricewaterhouseCoopers (PwC) in April 2010, India will join the league of top 10 global pharmaceuticals markets in terms of sales by 2020 with the total value reaching US$ 50 billion. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 18

19 Firstcall India Equity Research: C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods B. Prathap IT D. Ashakirankumar Automobile A. Rajesh Babu FMCG H.Lavanya Oil & Gas A.Prathibha Diversified G.Bharani Bhukta Banking Dheeraj Bhatia Diversified Manoj kotian Diversified Nimesh Gada Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai Tel. : / / Telefax : info@firstcallindiaequity.com 19

IPCA Laboratories Ltd Result Update: Q3 FY 11

IPCA Laboratories Ltd Result Update: Q3 FY 11 C.M.P: Rs.282.40 Target Price: Rs.325.00 Date: March 10 th 2011 BUY Stock Data: Sector: Pharma Face Value Rs. 2.00 52 wk. High/Low (Rs.) 350.00/233.00 Volume