Bloomberg Code: SVLS IN

Transcription

1 Pharmaceuticals: CRAMS & DDDSS Suven Life Mar Sciences 7, 215 Ltd India Research Stock Broking Bloomberg Code: SVLS IN Robust Base in CRAMS developing Offshoots Robust base in CRAMS with client stickiness: The company partners with innovators to develop intermediaries. SVLS was involved in over 725 innovation projects from its inception and has developed a secure basket of repeat clients with a min/max partnership of 2-15 years in the different stages trials. Developing recurring revenue streams: Utilizing its strengths of complex intermediaries and innovator clients, the company could carve out independent streams of revenues expected to get base loaded into a constant run rate: A Specialty Intermediate supply: The company has been generating revenues of USD 1 Mn and 2 Mn in FY13 and FY14 respectively; and the company has built a Vizag facility to further enhance production. Commercial supplies: Three molecules from Phase-III CRAMS have moved into commercialization in FY14. The company supplied pre-launch quantities and are expected to generate constant supplies for production from FY16E. Formulations: The company has out-licensed Malathion ANDA and intends to develop 3-4 more such ANDAs with close to 13 ANDAs in pipeline. Self-sustained NCE development: SVLS has a discovery pipeline of 13 molecules in the lucrative Central Nervous System (CNS), Obesity and Pain segments. SUVN-52 is about to enter Phase-IIA, while 331 is in Phase-I and two more to enter US-IND stage. SVLS funds NCE by internal accruals and expenses R&D, leaving unencumbered cash flows to shareholders in case of a success. Step-up in Margins: The EBITDA/PAT margin increased from 9/6.7% in FY11 to 35.2/22.4% in 9M-FY15 in the comparable business. The step up in profitability reflects the improvement in CRAMS offset by higher R&D spends. Valuation and Outlook At CMP of Rs.234, SVLS is trading at 25.8x FY17E EPS of Rs.9.1 (18.4x FY17E Adj. EPS of Rs.12.7). We initiate a Hold recommendation with a target price of Rs.259 which implies an upside of 11% from current levels. We are valuing the base business at 17x adjusted FY17E EPS of Rs.12.7 considering the potential for scaling up in the various segments including the CRAMS segment and Rs. 43 per share for the NCE segment adjusted for R&D investments, benchmarked cash flows and probabilities of success. Key Risks Risk of NCE failure. CRAMS projects concentration and slowdown in regulatory approvals. Foreign currency fluctuations Exhibit 1: Valuation Summary (Rs. Mn) YE Mar FY13 FY14 FY15E FY16E FY17E Net Sales EBITDA EBITDA Margin (%) Adj. Net Profit EPS (Rs.) RoE (%) PE (x)* ; *P/E multiples for FY13 & FY14 are based on historic market price Recommendation (Rs.) HOLD CMP 234 Target Price 259 Upside (%) 11 Stock Information Mkt Cap (Rs.mn/US$ mn) / wk High/Low (Rs.) 266 / 68 3M Avg. daily volume (mn).8 Beta (x).6 Sensex/Nifty / 8937 O/S Shares(mn) Face Value (Rs.) 1 Shareholding Pattern (%) Promoters 59.4 FIIs 2.8 DIIs 6.5 Others 31.3 Stock Performance (%) 1M 3M 6M 12M Absolute (3) Relative to Sensex (5) Relative Performance* Technical View Suven Life Sciences is in a secular uptrend from the levels of making higher highs and higher lows since Jan 12 and clocked a life time high at levels in Feb 15. Currently the stock is trading in an upward sloping channel and is maintaining a bullish bias as indicated by CCI (6). We expect the same positive momentum to continue in the stock in a medium to long term perspective. Analyst Contact Sai Prabhakar Y sai.yadavalli@karvy.com For private circulation only. For important information about Karvy s rating system and other disclosures refer to the end of this material. Karvy Stock Broking is also available on Bloomberg, KRVY<GO>, Thomson Publishers & Reuters Feb-14 Mar-14 Apr-14 May-14 Jun-14 Suven Source: Bloomberg, *Indexed to 1 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Sensex Jan-15 1 Feb-15

2 Company Financial Snapshot (Y/E Mar) Profit & Loss (Rs.mn) FY15E FY16E FY17E Net sales Optg. Exp (Adj for OI) EBITDA Depreciation Interest Other income PBT Tax PAT Profit & Loss Ratios EBITDA margin (%) Net Profit margin (%) P/E (x) EV/EBITDA (x) Dividend yield (%) Company Background Suven Life Sciences has base operations in providing Contract Research and Manufacturing Services (CRAMS) support to New Chemical Entity (NCE) molecules from FY95 and has completed over 725 innovation assistance projects. The company partners innovators and NCE molecule development and currently has 18 active projects as on December, 31, 214. Three molecules have moved into commercialization from CRAMS portfolio and SVLS is expected to supply the regular production orders from FY16E. The company is also supplying a speciality intermediate and has opened a facility in Vizag for Rs.1 million to accommodate the same. The company has been working on NCE molecule development from FY6. It has 14 molecules in pipeline; leading amongst them is SUVN-52 entering Phase-IIA trials and three other molecules in US-IND stages. The company has 7+/37+ product/process patents granted for protecting its NCE, from regulatory authorities across the World. SVLS also plans to enter formulations space with 3-4 ANDA (Abbreviated New Drug Application) and one already out licensed and generating close to USD 2.5 million USD. Balance sheet (Rs.mn) FY15E FY16E FY17E Total Assets Net Fixed assets Current assets Other assets Total Liabilities Networth Debt Current Liabilities Deferred Tax Balance Sheet Ratios RoE (%) RoCE (%) Net Debt/Equity Equity/Total Assets P/BV (x) Cash Flow (Rs.mn) FY15E FY16E FY17E EBITDA Other Income Tax (437) (46) (469) Changes in WC 125 (271) (14) CF from Operations Capex (996) (165) (183) Investment CF from Investing (996) (165) (183) Change in Equity 2 Debt 364 (335) (277) Dividends (342) (7) (74) CF from Financing 223 (45) (351) Change in Cash Exhibit 2: Shareholding Pattern (%) Exhibit 3: Revenue contribution-fy14 (%) FIIs 3% Promoter 59% DIIs 7% Pre-launch 34% CRAMS 43% Others 31% Sp. Intermediate 23% 2

3 Robust base in CRAMS With increasing cost of research and lower probabilities of success in replacing existing medications the market for outsourcing to cost effective and more importantly organization of proven capabilities is increasing. SVLS with its active presence in Drug discovery, a robust and proven CRAMS track record holds that space strongly. SVLS has been into providing CRAMS services to NCE clients since its inception in 95. The segment has gradually added clients and projects to its portfolio, increasing from 43 active projects in 23-4 to 18 as on Q3-FY15. SVLS partners innovator in NCE development around the time when process research begins and delivers intermediaries for the same in different phases of research and clinical testing. Apart from the client, SVSL will be one of 2/3 other suppliers supplying the client in most of projects in CRAMS. SVLS continues to supply the intermediary as it progresses along the phases; in increasing volumes till either the molecule reaches commercialization or is aborted in any of the stages. This leads to client stickiness, which drives the sustainability factor of the segment. The company has reported that more than 75% of FY14 segment revenues were repeat and referral in nature and most of the clients have an average relation of around 15 years. CRAMS segment has had revenue growth of 13% CAGR in the period FY11-14, as the active projects it handled increased from in the same period. The company gains primarily as the concentration of projects increases in higher phases, and gradually that is materializing as the projects in phase-ii increase and also commercialization s which are expected in FY16E. Exhibit 4: CRAMS Revenue & Growth (%) 4 4% Exhibit 5: CRAMS Projects FY11 FY12 FY13 FY14 3 3% 3% Phase-I % 13% 15% 18% 6% FY11 FY12 FY13 FY14 FY15E FY16E FY17E CRAMS Revenue Growth (RHS) 2% 1% % Phase-II Phase-III Active Cumulative Segments Exhibit 6: Revenue streams Formulations CRAMS CRAMS strengths manifesting as revenue streams: The company applied itself across complex molecules for international clients from 95 for CRAMS segment. The company developed strengths across, molecule, process and product development in CRAMS and Drug Discovery & Development Support Services (DDDSS) segments. The company is institutionalizing its strengths as revenue streams gradually. Formulations by ANDA Filings: Utilizing its research strength, the Sp. Intermediate Commercialization company plans to file 4-5 ANDAs. The company has started by out licensing Malathion ANDA to Taro Pharmaceuticals till 226, with an estimated markets size of USD 25-3 million. The company has earned Rs.1 million of sales (Royalty) and an EBIT of Rs.75 million for 9M- FY15. The company s experience in chemistry development and the financial leeway afforded by the significant margins allow the company to pursue such niche spaces with limited scope and also competition. Speciality Intermediate: The company has secured a mandate to supply a complex speciality intermediary (of their own research and CRAMS outcome) for a period of 5-7 years. The segments has scaled up consistently over the period, moving from USD 5 million and reach a cap of USD 36 million by FY17E. It has set up a facility at Vizag at a cost of Rs. 1, million with a Commercial Operations Date (CoD) of Q1-FY16E to ease production bottlenecks. Revenues from commercialization: Although the company has been in CRAMS from FY6, it has reached the commercialization threshold with 3 molecules in the current period. Earlier it had commercial supplies for small quantities in -1. The 3 molecules addressing Diabetes, Depression and Inflammation for US and EU based clients have generated revenues of Rs.175 3

4 million in the prelaunch stages in FY14. We expect the three molecules to generate a consistent run rate of Rs. 8-1 million per year by FY16E and the potential for further scaling up depends on the sales performance. The company is one of 2-3 suppliers for the intermediary and the exclusivity is expected to last unto FY21. The 18 projects portfolio the company holds has the potential to constantly churn out such divisions going forward. Exhibit 7: Diversification in Revenue contribution going ahead 11% 7% 1% 88% 79% 42% 55% 52% 53% Exhibit 8: Revenue Vs Pre-R&D margin contribution 6% 4% 53% 3% -1% 21% 34% 33% 31% 3% 12% % 23% 9% 14% 14% 3% 3% 3% FY11 FY12 FY13 FY14 FY15E FY16E FY17E CRAMS Sp. Intermediate Pre-launch ANDA-mala 2% % 54% 3% 28% 14% 12% 3% 6% CRAMS Sp. Intermediate Pre-launch ANDA-mala FY17E Reveue FY17E Pre-R&D Margin Drug Discovery-Developing a portfolio in NCE s: SVLS has been focussing on drug discovery from FY5 covering discovery, IP creation, clinical development and out-licensing. Even in a cost intensive unit as such, the company followed disciplined method of funding. SVLS has built a pipeline of 13 molecules in therapeutics of CNS, Major Depressive and Obesity in 26 with SUVN-52 as the lead molecule in CNS segment currently about to enter Phase-IIA. The company has 13 molecules and 26 inventions protected across markets with its 7+ product patents and 37+ process patents. SUVN-52: Targeted at Alzheimers Disease (AD), a huge unmet medical condition, with only palliative care addressing relief from symptoms (Donepazil) available currently. The molecule is expected to begin phase-iia PoC trials in Q2-FY16 with an expected term of 2 years. The molecule acts as 5-HT6 serotonin receptor antagonist, the method which is currently regarded in this segment after the recent spate of failures for molecules following the antiamyloid method from Pfizer, GSK and J&J. In 5-HT6 Lundbeck-Otsuka in Phase-III, Pfizer in Phase-II are the other leading molecules along with Roviant (acquired from GSK) and Avineuro in Phase-IIB. Exhibit 9: Other molecules targeting Path Molecule Sponsor Remark 5-HT6 Antiamyloid Beta Lu AE5854 Lundbeck 4 Phase-III trials are underway, considered to be the most prominent of the lot. PF Pfizer Phase 2 initiated in November 212 AVN-322 Avineuro Undergoing Phase-2 SB GSK Missed its primary endpoint in Phase-3, sold to Roviant Pfizer, GSK and J&J Failed to meet targets in Phase-3 or 2. Most have been discontinued after a successful initial deal. The company plans on out-licensing the molecule for an upfront, milestone and royalties subsequently if the molecule gains traction after clearing the proof-of-concept stage it is currently in. Comparatively in this space in June-13 when it cleared Phase-II, Lundbeck received an upfront payment of USD 15 million and is also entitled of upto USD 65 million in regulatory milestones. Apart from this, royalty from sales could be above 1% for Lundbeck. 4

5 Exhibit 1: R&D in P&L FY11 FY12 FY13 FY14 FY15E FY16E FY17E Capitalised (Rs. mn) Expensed (Rs. mn) R&D as % of Op. Expenses (RHS) Unencumbered cash flows IF Successful: The company does not raise debt for NCE development and expenses yearly R&D expenses (average Rs. 3,7 million) instead of capitalizing them. SVLS has structured the NCE development in such a manner as to leave the cash flows from any successful deal directly to shareholders unencumbered by debt pay-offs or R&D amortization. Other Advancements: Apart from 5-HT6, the company is developing other paths as well, one each in 5-HT4 partial antagonists, Histamine-3 and Alpha-4Beta-2 paths namely, SUVN-D41, G331, and 911 respectively. CNS Disorders Design Discovery Pre-Clinical IND Phase I SUVN - 51 (5-HT6 Antagonist) SUVN - 52 (5-HT6 Antagonist) SUVN - 57 (5-HT6 Antagonist) SUVN (5-HT6 Antagonist) SUVN (5-HT6 Antagonist) SUVN - D41 (5-HT4 Partial Antagonist) nachr Alpha - 4 Beta 2 SUVN - G331 (Histamine-3 Antagonist) SUVN - 54 (5-HT6 Antagonist) Histamine - 3 (Antagonist) nachr Alpha - 4 Beta 2 nachr Alpha - 4 Beta - 2 Antagonist (Pain) SUVN (nachr Alpha - 4 Beta - 2) (MDD) CB2 Agonist (Pain) Phase II Phase III Expected Launch Obesity/Metabolic Disorders Pain /Major Depressive Disorder Remarks SUVN-52 is in the final stages of going into P-IIA Undergoing IND trials in preparation for Phase-I SUVN-G331 has entered P-I in Nov-214. Undergoing IND trials in preparation for Phase-I 5

6 Groundwork for next phase of growth: Historically, SVLS has been a one segment operator in CRAMS. The innovative nature and short duration of projects in CRAMS, presented an overhang of uncertainty on the revenues for subsequent periods. Even as the same situation persists, the company has established several paths simultaneously which have the potential to scale up going forward. The formulations segment is expected to contribute to close to 6.5% of the pre-r&d EBITDA with the one molecule-malathion in the next three years. The company targets to develop 3-4 more such products with 13 filings in the pipeline. The current set of products for which the commercial supplies are expected from FY16E, we expect they will have a life of 5 years before SVLS loses the exclusivity. With the existing portfolio of projects in Phase-II and III, we expect the company to replace them in that period and gradually look to commercial supplies as perpetual segment with predetermined churn of supply relations. Similarly, the specialty intermediate is expected to have a lifetime of 5 to 7 years and shares the same chance of repeat as the commercial supplies. The company has developed a fairly diversified approach to NCE development as well. SVLS has built a portfolio of 13 molecules against a common understanding in the industry to have 2 molecules in pre-clinical stages to have one molecule commercialized. Even if a lone payoff from out licensing may not be windfall for the company, the NCE branch may be able to self-sustain the research path it has been treading patiently over the years. Financially as well, the company is gaining strength. We expect significant deleveraging in the next three years, as the company internal accruals and recent round of QIP financing (Rs. 2 mn) are expected to sufficiently accommodate the future research, capital expenditurte and operations. We expect SVLS to scale up from the average PAT margin of 8.6% in FY11-13 to 21.3% in FY15-17E, further strengthening the accruals and cash position of the company. Chemlib/Comb Chemhits Lead identification / characterization Lead Optimization Pre -Clinical Process Research NCE based intermediates/ APIs Formulation Development & Analytical Services Clinical Supplies Manufacturing & Packaging Discovery Research CRAMS 6

7 Exhibit 11: Business Assumptions Y/E Mar (Rs. Mn) FY14 FY15E FY16E FY17E Comments India Business (Standalone) CRAMS The company has a higher number of projects and also in higher phases. Phase-II projects require 1 times the volume of Phase-I. Sp. Intermediate This segment was serviced from existing facilities with a dedicated facility expected to come online form Q1-FY16 Commercialized supplies The company supplied the pre-launch in FY14 and we expect the regular supplies to begin from FY16E. ANDA-Malathion The product sales and also receipts from royalty have started accruing from FY15E. EBITDA Margins Pre-R&D Margins The margins in FY14 were positively impacted by the supply of pre-launch quantities at R&D pricing which will not repeat going forward. R&D Expense as % of sales The spike in R&D expenses in FY16-17 is primarly to fund the SUVN-52 expenses. EBITDA Margins Adjsuted for the R&D expenses related to SUVN-52, the normal EBITDA margins are expected to be around, 34.5%. Consolidated Revenue The revenue jump in FY14 was driven by the 34% one Revenue Growth (%) time contribution from pre-launch. In the rest of the period, the growth will be driven by repeat business only. EBITDA The comapny has maintained a constant return on EBITDA Growth (%) (22.4) margins except for the R&D expenditure. PAT (normalized) Fully Diluted EPS Fully Diluted EPS Growth (%) (27.6) (.4) 2. Capex (ex. Acquisition) - cash capex (379) (996) (165) (183) The company has added vizag facility at a cost of Rs.1 Net CFO million expected to begin production from Q1FY16E. The Net Debt (265) 42 (276) (23) company funded it with a debt of Rs.45 million whose Free Cash Flow repayment is expected from Dec

8 Revenue growth in increments: Exhibit Scale up in margins: FY11 FY12 FY13 FY14 FY15E FY16E FY17E CRAMS Sp. Intermediate Pre-launch ANDA-mala Mar 7, 215 SVLS had a revenue growth of CAGR 5% in FY11-14, aided by the prelaunch supplies in FY14 of Rs.175 million, and an adjusted CAGR of 31% excluding the above as one time. CRAMS segment continues to be the largest contributor to the sales growth and is propped by the higher number of projects overall and in advanced phases (23% CAGR in FY14-17E). Sp. Intermediate (32% CAGR in FY14-17E) has been serviced from existing facilities in FY13-14 and is expected to deliver high scales from its own dedicated facilities from FY16E (USD million). The company has got revenue boost in FY14 from pre-launch supplies and we expect them to be base loaded from FY16E for commercial supplies (Rs.8-1 million). And although revenue contribution from ANDA-Malathion is small (annual USD of 4-5 million from product and royalty), the bottom line impact from the same is expected to be significant We expect the margins to scale up to 42% in the pre-r&d stage compared to 34% in FY13, as the CRAMS segment portfolio improves and better spread of overheads in the other segments which have been added in the period. We expect significant increase in R&D expenses in FY16-17E as SUVN-52 enters Phase-II trials on an expected 5 subjects, which is expected to have a significant bearing on the post R&D EBITDA margins. Adjusted for the same, we expect margins to be in the 34% range by FY17E compared to 2.6% in FY13. In the 9M-FY15 period, the company reported pre and post R&D EBITDA margins of 43% and 35% respectively. Exhibit 13: Pre-R&D EBITDA margin FY12 FY13 FY14 FY15E FY16E FY17E EBITDA (LHS) Margins (%) Growth Exhibit 14: Post-R&D EBITDA margin FY12 FY13 FY14 FY15E FY16E FY17E EBITDA (LHS) Margins (%) growth Sustained efforts in R&D Exhibit % 28% 22% 16% 14% 1% 9% 345 FY9 366 FY1 334 FY FY12 R&D (Rs. mn) 358 FY13 51 FY FY15E 17% 13% 835 FY16E 1,193 FY17E 3% 2% 1% % % of Revenue The company has been investing in R&D which primarily covers NCE development, at an average of Rs.35 million/year or around 9% of annual revenues-which is comparable to the practice of innovator companies. We expect a significant increase in the same in FY16E-17E as the company has raised Rs.2 million through QIP for supporting the Phase-II clinical trials of SUVN-52 over that period, apart from the regular expense of Rs.45-5 million for other research expenses. The company prefers to expense most of the R&D expense at the cost of lower margins (by the average 9% points) so as to unburden the balance sheet of any future write-offs (in case of failure) or amortization (in case of validating results). 8

9 Strengthening Capital Structure Exhibit , , , , ,275 1, , , ,326 1,5 82 FY11 FY12 FY13 FY14 FY15E FY16E FY17E Networth (Rs. mn) Debt (Rs. mn) Debt-Equity (RHS) SVLS has been building a strong balance sheet one which we expect will be de-levered significantly by FY17E. The internal accruals and equity have been funding not only the R&D activities but also the capital expansion of the company partially. The company has raised QIP issue of Rs. 2 million in December, 214 to fund the NCE development further strengthen the balance sheet by doubling the net worth. We expect a fresh debt of Rs. 45 million induced in FY15 to part-fund the expansion in Vizag and concurrently few other debts expiring in the current period. From an already low debt-equity of.3x we expect the ratio to reduce further to.1x by FY17E. Improved operational efficiency Exhibit FY11 FY12 FY13 FY14 FY15E FY16E FY17E Inventory Recivables Creditor Working capital The company reported a significant improvement in inventory held and payables period as the sudden contract of pre-launch supplies was delivered with minimal investment into operating assets. We expect the working capital period to return to normal levels but with improvement over FY13 performance. The base operations in CRAMS are handling higher volumes and the pre-determined nature of supplies to licensees and commercialised partners will lead to lower working capital period compared to the research intensive products in CRAMS segment. Slowdown in returns in the investment phase: The company returns are expected to decline going forward as the company invest in NCE development from equity sources (accruals and QIP) through R&D and declining leverage (as even the new assets are largely funded by internal accruals). We expect the RoE/RoCE to decline to around 16%/ 15% by FY17E compared to the high of 68.8%/55% in FY14 (as the sudden pre-launch sales at R&D pricing boosted the margins and asset utilization efficiency) and FY13 range of 21.9/21.5%. Adjusted for the NCE related R&D expenditure, we expect the RoE to be ~21% by FY17E. All the DuPont factors are expected to decline post FY14 as the sales in that period were a positive surprise and not expected to recur. We expect the financial leverage to continue the decline while the asset utilization to remain range bound to FY13 levels, reflecting fast turnaround of the facility developed in Vizag on debt. The margin performance is expected to be above the FY13 levels driven by high margin business of sp. Intermediate and ANDA, even as the base CRAMS business reports higher margins. Exhibit 18: Du-Pont Break up of RoE 8 3 Exhibit 19: RoE and RoCE FY12 FY13 FY14 FY15E FY16E FY17E Operational efficiency (%) RoE (%) Adj. RoE (%) Asset Efficiency (x) (RHS) Financial leverage (x) (RHS) FY12 FY13 FY14 FY15E FY16E FY17E RoE (%) RoCE (%) 9

10 Exhibit 2: Company Snapshot (Ratings) Low High Quality of Earnings 99 Domestic Sales 99 Exports 99 Net Debt/Equity 99 Working Capital req 99 Quality of Management 99 Depth of Management 99 Promoter 99 Corporate Governance 99 The revenues have been volatile in the previous 8-1 quarters, as the company reported some positive surprises and one-time revenues. Although the surpises have been positive, the volatility in earnings has increased. The company earned close to 9% in FY14 and 84% of FY13 revenues from exports. Even in the remaining domestic sales, a significant portion would be deemed for exports. The company has board composition which is positively independent with only 3% being executive and 7% being nonexecutive independent directors. Valuation & Outlook We are valuing the company based on the base business (CRAMS, Sp. Intermediates, commercial supplies and ANDA out licensing) and NCE on an optional basis. Although the segments other than CRAMS were operational, the company delivered on the sustainability factor of those segments from the second half of FY15 and these segments are now considered recurring. The company can scale up both commercial supplies (as client market expands) and out-licensed ANDAs (as 3-4 more ANDA filings materialize). While the company s portfolio of CRAMS projects in higher phases support the growth of CRAMS, they would also act as feeder for commercialized supplies and speciality intermediates going forward. The company traded in the PE range of 6-9x TTM EPS earlier, before it graduated to trading consistently at higher multiples of 15x in Sept. 214 and above 18x in Oct The company is now trading at 26.2x, 21.8x and 18.4x adj. EPS of FY15E, FY16E and FY17E respectively (adjusted for NCE related R&D expenses). We are valuing the base business at 17x adjusted FY17E EPS of Rs The PE of 17x is after a 1% discount to the average PE traded in the previous half year, which is when the company graduated to a higher rating. Exhibit 21: TTM PE (x) Apr-12 May Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 1

11 Exhibit 22: PE Band (x) Date 25-Apr May-12 8-Jun-12 2-Jul Jul Aug-12 8-Sep-12 3-Oct Oct-12 2-Nov Dec-12 7-Jan Jan-13 2-Feb Mar-13 9-Apr-13 6-May May Jun-13 1-Jul-13 1-Aug Aug Sep Oct-13 6-Nov Nov Dec Jan-14 6-Feb-14 3-Mar Mar Apr May-14 6-Jun-14 3-Jun Jul Aug-14 9-Sep-14 1-Oct-14 3-Oct Nov Dec-14 9-Jan-15 3-Feb Feb-15 12x 24x 17x 8x Exhibit 23: Valuations Summary Parameter Value PAT in FY17E (Rs. Million) 1,155 R&D post Tax (Rs. Million) 462 Adj. PAT (Rs. Million) 1617 Shares outstanding (No s) Adj. EPS (Rs) 12.7 Price of Base PE of 17x (Rs) 216 NCE price per share (Rs) 43 Target price (Rs) 259 Current Market price (Rs) 234 Upside as on 7-Mar-15 (%) 1.7 Source: Karvy Research, Bloomberg We value the NCE conservatively - assuming a pay-off on similar lines to a recent deal in this space, R&D costs as per average industry standards and probability of success according to past statistics. The resulting cash flows are discounted at 1.5x company s discount rate to provide further margin of safety, resulting in a value of Rs. 43 per share for the NCE segment. Key Risks Risk of NCE failure: The company has developed a well diversified portfolio of 13 molecules. Any set back in the long drawn process of the NCE development will have an impact in the short term. It has to be note that the company does not have any downside financial risk in any event of failure or set back of approvals as the financing is by equity sources and balance sheet does not carry any of the assets under development. CRAMS projects concentration: The company has 18 projects currently from a smaller number of clients, increasing the client concentration in the number of projects it handles for each client. Regulatory slowdown in approvals: Even as the company is not involved in the approvals of client products its supplies intermediates to and significant increase in rejections could significantly impact the revenues of the company across streams. Foreign currency fluctuations: As mentioned, the company earns close to 85-9% of revenues from exports exposing it to significant currency fluctuation risk. 11

12 Financials Exhibit 24: Income Statement YE Mar (Rs. Million) FY13 FY14 FY15E FY16E FY17E Revenues Growth (%) Operating Expenses EBITDA Growth (%) (22.4) Depreciation & Amortization Other Income EBIT Interest Expenses PBT Tax Adjusted PAT Growth (%) (25.5) Exhibit 25: Balance Sheet YE Mar (Rs. Million) FY13 FY14 FY15E FY16E FY17E Cash & Equivalents Sundry Debtors Inventory ,27 1,323 Loans & Advances ,2 Investments 1 Gross Block Net Block Miscellaneous Total Assets 3,276 4,866 8,29 9,195 1,18 Current Liabilities & Provisions 1,74 1,551 1,542 1,725 1,831 Long term Debt Other Liabilities Total Liabilities 1,732 2,222 2,561 2,488 2,394 Shareholders Equity Reserves & Surplus 1,428 2,528 5,521 6,579 7,659 Total Networth 1,545 2,644 5,649 6,76 7,786 Total Networth & Liabilities 3,276 4,866 8,29 9,195 1,18 12

13 Exhibit 26: Cash Flow Statement YE Mar (Rs. Million) FY13 FY14 FY15E FY16E FY17E PBT Depreciation Interest Tax Paid (57) (49) (437) (46) (469) Inc/dec in Net WC (187) (573) 97 (3) (46) Other Income (8) (1) Other non cash items (2) (15) Cash flow from operating activities Inc/dec in capital expenditure (21) (379) (996) (165) (183) Inc/dec in investments 45 Others 9 22 Cash flow from investing activities (147) (357) (996) (165) (183) Inc/dec in borrowings 193 (265) 42 (276) (23) Issuance of equity 2 2 Dividend paid (41) (41) (342) (7) (74) Interest paid (128) (76) (56) (59) (47) Others Cash flow from financing activities 26 (382) 223 (45) (351) Net change in cash Exhibit 27: Key Ratios YE Mar (%) FY13 FY14 FY15E FY16E FY17E EBITDA Margin (%) EBIT Margin (%) Net Profit Margin (%) Dividend Payout ratio Net Debt/Equity RoE (%) RoCE (%) Exhibit 28: Valuation Parameters YE Mar FY13 FY14 FY15E FY16E FY17E EPS (Rs.) DPS (Rs.) BV (Rs.) PE (x) P/BV (x) EV/EBITDA (x) EV/Sales (x)

14 Stock Ratings Absolute Returns Buy : > 15% Hold : 5-15% Sell : <5% Connect & Discuss More at research@karvy.com Toll Free: Disclaimer Analyst certification: The following analyst(s), Sai Prabhakar Y, who is (are) primarily responsible for this report and whose name(s) is / are mentioned therein, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. Disclaimer: Karvy Stock Broking Limited [KSBL] is a SEBI registered Stock Broker, Depository Participant and Portfolio Manager and also distributes financial products. Subsidiaries and group companies of KSBL [associates] provide services as Registrar and Share Transfer Agent, Commodity Broker, Currency and forex broker, merchant banker and underwriter, Investment Advisory services, insurance repository services, consultancy and advisory services, realty services, data processing, profiling and related services. Therefore associates of KSBL are likely to have business relations with most of the companies whose securities are traded on the exchange platform. The information and views presented in this report are prepared by Karvy Stock Broking Limited and are subject to change without any notice. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KSBL. While we would endeavor to update the information herein on a reasonable basis, KSBL is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent KSBL from doing so. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KSBL will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither KSBL nor any associate companies of KSBL accepts any liability arising from the use of information and views mentioned in this report. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Past performance is not necessarily a guide to future performance. Forward-looking statements are not predictions and may be subject to change without notice. Actual results may differ materially from those set forth in projections. Associates of KSBL might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. Associates of KSBL might have received compensation from the subject company mentioned in the report during the period preceding twelve months from the date of this report for investment banking or merchant banking or brokerage services from the subject company in the past twelve months or for services rendered as Registrar and Share Transfer Agent, Commodity Broker, Currency and forex broker, merchant banker and underwriter, Investment Advisory services, insurance repository services, consultancy and advisory services, realty services, data processing, profiling and related services or in any other capacity. KSBL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. Compensation of KSBL s Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. KSBL generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. KSBL or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. KSBL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report and have no financial interest in the subject company mentioned in this report. Accordingly, neither KSBL nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that KSBL and Research Analysts primarily responsible for this report and whose name(s) is/ are mentioned therein of this report have not received any compensation from the subject company mentioned in the report in the preceding twelve months. Since associates of KSBL are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. Karvy Stock Broking Limited Karvy Centre, Avenue-4, Road No: 1, Banjara Hills, Hyderabad India. Tel: ; Fax: For More updates & Stock Research, visit 14