Apollo Hospitals (APOHOS) 1016

Transcription

1 Result Update Rating matrix Rating : Hold Target : 1060 Target Period : months Potential Upside : 4% What s Changed? Target Changed from 1440 to 1060 EPS FY18E Changed from 11.6 to 12.9 EPS FY19E Changed from 22.3 to 23.8 EPS FY20E Introduced at 33.9 Rating Unchanged Standalone Quarterly Performance Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%) Revenue 1, , , EBITDA EBITDA (%) bps bps Adj. Net Profit Key Financials ( Crore) FY17 FY18E FY19E FY20E Revenues EBITDA Adjusted PAT Adj. EPS ( ) Valuation summary FY17 FY18E FY19E FY20E PE (x) EV to EBITDA (x) Target EV/EBITDA (x) Price to book (x) RoNW (%) RoCE (%) Stock data Particular Amount Market Capitalisation crore Debt (FY17) 2949 crore Cash (FY17) 285 crore EV crore 52 week H/L ( ) 1358/957 Equity capital 69.6 crore Face value 5 Price performance (%) 1M 3M 6M 1Y Apollo Hospitals Fortis Healthcare Research Analyst Siddhant Khandekar siddhant.khandekar@icicisecurities.com Mitesh Shah mitesh.sha@icicisecurities.com Harshal Mehta harshal.mehta@icicisecurities.com November 16, 2017 Apollo Hospitals (APOHOS) 1016 Regulation, new hospitals impact margins Revenues increased 13% YoY to 1852 crore (I-direct estimate: 1835 crore) led by 11% YoY increase in healthcare business to 1024 crore (I-direct estimate: 1002 crore) and 17% YoY increase in pharmacy business to 828 crore (I-direct estimate: 794 crore) EBITDA margins declined 163 bps YoY to 11.9% (I-direct estimate: 12.1%) mainly due to higher employee and other expenditure. EBITDA remained flat YoY at 221 crore Adjusted net profit declined 23% to 71 crore (I-direct estimate: 82 crore) mainly due to lower other income and higher taxation Expansions to drive healthcare but margins to remain under pressure The healthcare services segment (57% of FY17 consolidated revenues) has grown at 14% CAGR in FY13-17 on account of incremental hospital addition in all three clusters i.e. Chennai, Hyderabad and others. Rapid expansion and maturity of older hospitals has kept the overall growth tempo at 12-14% per annum. In the past three years, the company has added 2,430 beds at 13 locations. This is likely to put some pressure on EBITDA margins and return ratios in the short to medium term. Similarly, existing hospital margins are likely to get compressed due to 1) regulation on stent pricing, 2) increase in competition and 3) higher guarantee fees to doctors. Although the company has demonstrated its ability to balance between expansion and profitability, the current scenario remains challenging. We expect more focus on improvement of important parameters like average length of stay (ALOS) and average revenue per operating bed (ARPOB), which were flat in the last few quarters due to incremental bed additions. We expect healthcare sales to grow at 10% CAGR in FY17-20E to 5549 crore as the company keeps on investing in new assets. Pharmacy business EBITDA continues to improve The pharmacy business (40% of FY17 consolidated revenues) has grown at ~30% CAGR in the last five years on the back of consistent addition of new pharmacies and timely closure of non-performing pharmacies. This business has become EBITDA positive as old stores are maturing and making a contribution. FY17 margins were at 3.6%. We expect the pharmacy business to grow at 15% CAGR in FY17-20E to 4417 crore on the back of higher sales from existing stores. The company added 99 stores in Q2FY18 taking total stores to Margin improvement unlikely in near term; maintain HOLD The new hospitals and AHLL contributed 14% of total revenues but continue to drag the overall EBITDA margins (new hospital EBITDA margin of 5.8% and AHLL EBITDA loss of 23 crore vs. mature hospitals EBITDA margins of 22.6%). Margins for mature hospitals are expected to remain under pressure due to stent pricing regulation, higher competition and recruitment of skilled doctors (laparoscopic surgeons, etc). The Chennai cluster occupancy continues to languish, which is further affecting the profitability of the healthcare business. On the pharmacy front, margins have showed a substantial improvement in the last few quarters. The trend is likely to continue. The RoCE for pharmacy has also improved to ~15%. To sum up, lower profitability of the healthcare business is likely to weigh on the stock in the near term. We continue to value the stock on an SOTP basis by valuing the healthcare business (existing hospitals & JV) at 12x FY20E EV/EBITDA, healthcare business (new hospitals) at 1.0x FY20E EV/sales and pharmacy business at 1.0x FY20E EV/sales. We have ascribed a target of ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q2FY18 Q2FY18E Q2FY17 Q1FY18 YoY (%) QoQ (%) Comments Revenue 1, , , , Growth mainly driven by 17% growth in the pharmacy segment and 11% growth in the healthcare segment Raw Material Expenses Employee Expenses Other expenditure EBITDA EBITDA (%) bps 164 bps YoY margins impacted due to 1) ~ 9 crore of net loss at Navi Mumbai hospital, 2) ~ 10 crore of impact due to government regulation on stent pricing 3) ~ 5 crore impact due to GST and 4) ~ 10 crore of impact due to increase in doctor guarantee fees Interest Increase in interest cost mainly due to new hospital capex Depreciation Higher depreciation due to new hospital capex Other Income LP PBT before EO & Forex EO PBT after Exceptional Items Tax Tax rate (%) Adj. Net Profit YoY decline due to lower operational performance, higher interest cost, depreciation and taxation. Miss vis-à-vis I-direct estimates was mainly due to higher taxation EPS ( ) Key Metrics Healthcare Services YoY growth was mainly due to 33% YoY growth in new hospitals to 245 crore. Existing hospitals grew ~5% YoY Pharmacy Growth was driven by 99 stores (net) addition Change in estimates FY18E FY19E ( Crore) Old New % Change Old New % Change Revenue 8, , , , EBITDA , EBITDA Margin (%) bps bps Increased due to faster-than-expected improvement in existing as well as new hospital margins PAT EPS ( ) Changed mainly in sync with operational perfromance Assumptions Current Earlier (% Growth) FY16 FY17E FY18E FY19E FY18E FY19E Healthcare Services 3, , , , , ,461.2 Pharmacy 2, , , , , ,728.2 ICICI Securities Ltd Retail Equity Research Page 2

3 Company Analysis Established in 1983, the company is one of the few listed players in the healthcare space. It derives revenues from two broader segments in the standalone accounts - 1) healthcare services i.e. hospitals and 2) standalone pharmacies. In the consolidated accounts, other reporting segments are 1) hospital revenues from JVs/subsidiaries and associates, 2) Apollo-Munich Health insurance JV, 3) Apollo Health & Lifestyle Ltd, which is the retail healthcare business of Apollo Hospitals. Apollo owns 70 hospitals with a total bed capacity of 9957 beds. Of these 70 hospitals, 43 are owned by the company (including JVs, subsidiaries and associates) while six are managed by the company with 1084 beds while 11 are day care/short surgical stay centres with 229 beds and 10 cradles with 311 beds. In case of managed hospitals, the company charges 5-6% management fees for third party hospitals for project management and consultancy covering all facets of development and operation of a hospital, including market research, technical design, arranging finance, hiring manpower and running the facility. The healthcare segment has been divided into four clusters- 1) Tamil Nadu region (Chennai and others), 2) AP, Telangana Region (Hyderabad and others) 3) Karnataka Region (Bangalore and others) and 3) others that include hospitals in Bhubaneswar, Bilaspur, Nashik and Navi Mumbai. In June 2015, the company acquired a 51% stake in Assam Hospitals Ltd, which runs a 220 bed hospital in Guwahati. The Apollo Healthcare & Lifestyle Ltd (AHLL) subsidiary covers the retail healthcare business of the Apollo group, comprising Apollo Clinics, Apollo Sugar, White Dental, Apollo Day Surgery centres and Apollo Cradle. AHLL reported 244 crore of sales in FY17. Apollo Sugar Clinics is a one stop shop for diabetics and offer packages to better manage diabetes through a combination of prescriptions, dietary, exercise regimens and other lifestyle changes apart from management of diabetes related complications. Sanofi has 20% stake in Apollo Sugar Clinics business. The company has 26 Apollo Sugar Clinics. Apollo Day Surgery centres focus on planned surgeries done in a day/short stay basis. The company has 11 centres as of FY17. Apollo Cradle denotes lifestyle birthing centres. It launched the first Apollo Cradle in Delhi a decade ago and currently has three centres in the network, and plans to add five more centres - two in Hyderabad, two in Delhi and one in Bengaluru. In FY15, AHLL acquired 11 day and short stay surgery centres (over 350 beds) from Nova Specialty Hospitals with a presence in eight cities across India. This acquisition provides APL an opportunity to provide quality healthcare delivery closer to home and also entry in new markets such as Mumbai, Jaipur and Kanpur. In case of standalone pharmacies, which are basically drug stores chain selling prescription, OTC and private label FMCG products, the company owns 2742 stores. In FY15, the company acquired Hyderabad-based ICICI Securities Ltd Retail Equity Research Page 3

4 Hetero Med Solutions Ltd (HMSL). HMSL has ~320 stores across Telangana, Andhra Pradesh and Tamil Nadu. Overall, we expect revenues to grow at 13% CAGR in FY17-20E to crore. Exhibit 1: Revenues to grow at CAGR of 13% in FY17-20E ( crore) % CAGR % CAGR FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Revenues The healthcare services segment (57% of consolidated revenues) has grown at a CAGR of 14% in FY13-17 on account of incremental hospital addition in all three clusters i.e. Chennai, Hyderabad and others. Rapid expansion and maturity of older hospitals has kept the overall growth tempo at 12-14% per annum. In the past three years, the company has added 2,430 beds at 13 locations. This includes commissioning of the Navi Mumbai hospital in Q3FY17. This is likely to put some pressure on EBITDA margins and return ratios in the short to medium term. Similarly, existing hospital margins are likely to get compressed due to 1) regulation on stent pricing, 2) increase in competition and 3) higher guarantee fees to the doctors. Although the company has demonstrated its ability to balance between expansion and profitability, the current scenario remains challenging. We expect more focus on improvement of important parameters like average length of stay (ALOS) and average revenue per operating bed (ARPOB), which were flat in the last few quarters due to incremental bed additions. We expect healthcare sales to grow at a CAGR of 10% in FY17-20E to 5549 crore as the company keeps on investing in new assets. ICICI Securities Ltd Retail Equity Research Page 4

5 Exhibit 2: Healthcare services to grow at CAGR of 10% in FY17-20E ( crore) % CAGR % CAGR FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Healthcare Services The pharmacy business (40% of consolidated revenues) has grown at ~30% CAGR in the last five years on the back of consistent addition of new pharmacies and timely closure of non-performing pharmacies. This business has become EBITDA positive as old stores are maturing and making a contribution. FY17 margins are at 3.6%. We expect the pharmacy business to grow at 15% CAGR in FY17-20E to 4417 crore on the back of higher sales from existing stores. The company added 99 stores in Q2FY18 taking total stores to The company added 230 stores in FY17 taking total stores to In the last five years, we have seen a strong improvement in revenues per store from 73 lakh in FY13 to 1.1 crore in FY17. The Hetero acquisition may put some pressure on margins initially but augurs well in the long run. The pharmacy business is also a candidate for possible value unlocking. Exhibit 3: Pharmacy business to grow at CAGR of 15% in FY17-20E ( crore) % CAGR % CAGR FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Pharmacy Source: Company, ICICIdirect.com Resear ICICI Securities Ltd Retail Equity Research Page 5

6 ( crore) (%) Exhibit 4: EBITDA to grow at CAGR of 15.8% in FY17-20E FY14 FY15 FY16 FY17 FY18E FY19E FY20E EBITDA EBITDA Margins (%) Exhibit 5: Net profit to grow at CAGR of 29% in FY17-20E ( crore) FY14 FY15 FY16 FY17 FY18E FY19E FY20E Net Profit Net Profit Margins (%) (%) Exhibit 6: Trends in return ratios (%) FY14 FY15 FY16 FY17 FY18E FY19E FY20E RoCE (%) RoNW (%) ICICI Securities Ltd Retail Equity Research Page 6

7 Exhibit 7: Trends in standalone quarterly financials ( crore) Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 YoY (%) QoQ (%) Total Operating Income Raw Material Expenses as % revenues Gross Profit GPM (%) Employee Expenses as % revenues Marketing Expenses #DIV/0! #DIV/0! as % revenues 13.8 Other expenditure as % revenues Total expenditure EBITDA EBITDA Margins (%) bps 164 bps Depreciation Interest Other Income PBT Less: Exceptional Items Total Tax Tax rate (%) Net Profit Net Profit Margin (%) EPS (Adjusted) Exhibit 8: Standalone healthcare service performance ( Crore) Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 YoY (%) QoQ (%) Sales EBITDA NA NA NA EBITDA Margins (%) NA NA NA Exhibit 9: Standalone pharmacy performance Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 YoY (%) QoQ (%) Sales ( crore) EBITDA ( crore) NA NA NA NA NA NA EBITDA Margins (%) NA NA NA NA NA NA No of Stores Rev per store ( lakh) SWOT Analysis Strengths - Early mover in the healthcare space. Strong balance sheet despite being in a business with higher gestation period. Strong brand value - a significant aspect in this business Weakness - Presence in the low margin pharmacy space Opportunities - Under-penetrated Indian healthcare space with favourable demographics and disease pattern Industry specific threats Government regulations on device pricing 2) increase in competition and 3) increase in guarantee fees to the doctors Company specific threats - Too much capacity build-up may lead to lower capacity utilisation and the cost associated with it ICICI Securities Ltd Retail Equity Research Page 7

8 Conference call Highlights New hospitals revenues grew 33% YoY to 245 crore in Q2FY18. New Hospitals EBITDA (excluding Navi Mumbai loss of 9 crore) of 18 crore in Q2FY18 During H1FY18, Apollo Munich s gross written premium grew ~30% YoY to 598 crore The group has 70 hospitals with a total bed capacity of 9957 beds as on Sept 30, Of these 70 hospitals 1) 43 are owned hospitals including JVs/ Subsidiaries and Associates with 8333 beds 2) 11 are Day care/ short surgical stay centres with 229 beds and 10 Cradles with 311 beds 3) 6 are managed hospitals with 1084 beds Of the 8,333 owned hospital beds capacity, 7014 beds were operational and had an occupancy of 65% The total pharmacy count was at 2742 as on September 30, 2017 Excluding the new hospitals, RoCE of existing healthcare services is at 19.3% as on September 30, 2017 The international patients, during the quarter, grew 8% YoY on a blended basis. For the Chennai cluster, the international patients grew 21% At Navi Mumbai hospital, 120 beds were occupied in Q2FY18 out of 150 operational beds (~80% occupancy rate). By the end of FY18, operational bed count can go to 200 On the AHLL front, the management has indicated a growth of 24% in the diagnostic segment, whereas Spectra is growing at 10-12% and Cradle at 25%. The management expects the Spectra growth to pick up in the near future The company is witnessing volume growth across its network. The management states that its due to 1) successful closure of agreements with GIPSA and other corporates, 2) greater international penetration (8% YoY growth) 3) strong retail push (ask Apollo app, GP connect etc) 4) intake of good clinical talent (are paid guaranteed money) The management has hinted for 2-3% price hike due to inflation till Q4FY18. The management estimates the GST impact on the pharmacy business in Q2FY18 to be ~50 bps on the consolidated EBITDA Till now, the management has incurred 400 crore on the proton therapy and expects to capitalise it in two phases The company has exited a managed hospital in Goa in this quarter ICICI Securities Ltd Retail Equity Research Page 8

9 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 ( crore) Valuation The new hospitals and AHLL contributed 14% of total revenues but continue to drag the overall EBITDA margins (new hospital EBITDA margin of 5.8% and AHLL EBITDA loss of 23 crore vs. mature hospitals EBITDA margins of 22.6%). Margins for mature hospitals are expected to remain under pressure due to stent pricing regulation, higher competition and recruitment of skilled doctors (laparoscopic surgeons, etc). The Chennai cluster occupancy continues to languish, which is further impacting the profitability of the healthcare business. On the pharmacy front, margins have showed a substantial improvement in the last few quarters and the trend is likely to continue. The RoCE for pharmacy has also improved to ~15%. To sum up, lower profitability of the healthcare business is likely to weigh on stock in the near term. We continue to value the stock on SOTP basis by valuing the healthcare business (existing hospitals & JV) at 12x FY20E EV/EBITDA, healthcare business (new hospitals) at 1.0x FY20E EV/sales and pharmacy business at 1.0x FY20E EV/sales. We have ascribed a target price of Exhibit 10: One year forward EV/EBITDA [ EV 17.0x 15.8x 13.4x 9.9x 7.5x Exhibit 11: Valuation Particulers Valuation Matrix Multiple (x) Enterprise value ( cr) Healthcare (Existing Hospitals & JV) EV/EBITDA ,228 Healthcare (New Hospitals) EV/Sales 1.0 1,608 Pharmacy EV/Sales 1.0 4,417 Others EV/Sales Net Debt FY20E ( cr) 2,049.8 EV ( cr) 14,732 No of shares (cr) 13.9 Per Share Value ( ) 1,060 Exhibit 12: Valuation Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE ( crore) (%) ( ) (%) (x) (X) (%) (%) FY FY18E FY19E FY20E ICICI Securities Ltd Retail Equity Research Page 9

10 (%) ( ) Recommendation history vs. Consensus 1, , ,200 1, Nov-15 0 Jan-16 Apr-16 Jun-16 Aug-16 Nov-16 Jan-17 Apr-17 Jun-17 Sep Nov-17 Source: Reuters, Company, ICICIdirect.com Research Price Idirect target Consensus Target Mean % Consensus with BUY Key events Date Sep-08 Jun-09 May-11 Sep-12 Dec-12 Jan-13 May-13 Sep-14 Jan-15 Jun-15 Nov-16 Dec-16 Event Opens first reach hospital at Karimnagar, Andhra Pradesh Issues 1500 unsecured foreign currency convertible bonds of US$10000 each to International Finance Corporation aggregating to US$15 million. IFC also granted a loan Pharmacy business of company turns profitable for first time Government allows foreign direct investment in multi brand retail. Pharmacy business of Apollo Hospitals falls into this category Sells stake in its BPO company Apollo Health Street to US based company Sutherland Global Services. It holds 39.4% in Apollo Health Street Plans to establish a proton therapy centre in India. It will be first of its kind across South East Asia, Africa and Australia. Apollo Hospitals and Yash Birla Group call off their JV & shut down their plans to set up super specialty hospitals in Thane, Mumbai Enters into agreement to acquire 320 pharmacy stores from Hetero for 146 crore Acquires Bengaluru-based Nova Specialty Hospitals at an estimated cost of crore Acquires 51% stake in Assam Hospitals Commisions 480 bed super speciality tertiary care hospital in Navi Mumbai International Finance Corporation invests 450 crore in AHLL for global expansion Top 10 Shareholders Rank Investor Name Latest Filing Date % O/S Position Position Chan 1 PCR Investments, Ltd. 30-Sep m m 2 OppenheimerFunds, Inc. 30-Sep m m 3 Schroder Investment Management (Hong Kong) Ltd. 31-Jul m m 4 Reddy (Prathap C) 30-Sep m m 5 Reddy (Suneeta) 30-Sep m m 6 AllianceBernstein L.P. 30-Sep m 0.4m 7 The Vanguard Group, Inc. 30-Sep m m 8 Reddy (Sangita) 30-Sep m m 9 MEAG Munich ERGO Kapitalanlagegesellschaft mbh 30-Sep m m 10 SBI Funds Management Pvt. Ltd. 30-Sep m m Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Promoter Others Recent Activity Buys Sells Investor name Value ($) Shares Investor name Value ($) Shares Reddy (Sindoori) 8.3m 0.5m Deutsche Asset Management Americas -27.3m -1.7m AllianceBernstein L.P. 5.8m 0.4m Driehaus Capital Management, LLC -6.8m -0.4m Kotak Mahindra Asset Management Company Ltd. 4.0m 0.3m Lyxor Asset Management -5.1m -0.3m Morgan Stanley Investment Management (Singapore) 3.8m 0.2m Carnegie Fonder AB -4.3m -0.3m Affin Hwang Asset Management Berhad 3.3m 0.2m Fidelity Management & Research Company -2.7m -0.2m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 10

11 Financial summary Profit and loss statement Crore (Year-end March) FY17 FY18E FY19E FY20E Revenues 7, , , ,493.7 Growth (%) Raw Material Expenses 3, , , ,324.9 Employee Expenses 1, , ,401.6 Other expenditure 1, , , ,914.4 Total Operating Expenditure 6, , , ,239.3 EBITDA , ,254.4 Growth (%) Depreciation Interest Other Income PBT Total Tax MI & Profit from Associates Adjusted PAT Growth (%) EPS (Adjusted) Cash flow statement Crore (Year-end March) FY17 FY18E FY19E FY20E Profit/(Loss) after taxation Add: Depreciation & Amortization Working Capital Changes CF from operating activities Change in Capex (Inc)/dec in Investments Others CF from investing activities Issue of Equity Inc/(dec) in loan funds Dividend paid & dividend tax Others CF from financing activities Net Cash flow Opening Cash Closing Cash Free Cash Flow Balance sheet Crore (Year-end March) FY17 FY18E FY19E FY20E Equity Capital Reserve and Surplus 3, , , ,387.6 Total Shareholders funds 3, , , ,457.2 Total Debt 3, , , ,748.7 Deferred Tax Liability Minority Interest Long term provisions Other Non Current Liabilities Total Liabilities 7, , , ,592.4 Gross Block - Fixed Assets 5, , , ,180.9 Accumulated Depreciation , , ,869.8 Net Block 4, , , ,311.2 Capital WIP Net Intangible assets Goodwill on Consolidation Total Fixed Assets 4, , , ,874.8 Investments Inventory Debtors ,082.3 Loans & Advances, & other CA Cash Total Current Assets 2, , , ,809.0 Creditors Provisions & Other CL Total Current Liabilities , , ,176.1 Net Current Assets 1, , , ,632.9 Long term loans & advances Deferred Tax Assets Application of Funds 7, , , ,592.4 Key ratios (Year-end March) FY17 FY18E FY19E FY20E Per share data ( ) Adjusted EPS BV per share Dividend per share Cash Per Share Operating Ratios (%) Gross Profit Margins EBITDA margins Net Profit margins Inventory days Debtor days Creditor days Asset Turnover EBITDA Conversion Rate Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt / EBITDA Debt / Equity Net Debt / Equity Current Ratio ICICI Securities Ltd Retail Equity Research Page 11

12 ICICIdirect.com coverage universe (Healthcare) Company I-Direct CMP TP Rating M Cap EPS ( ) PE(x) RoCE (%) RoE (%) Code ( ) ( ) ( Cr) FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E Ajanta Pharma AJAPHA ,300 Hold Alembic Pharma ALEMPHA Hold Apollo Hospitals APOHOS ,060 Hold Aurobindo Pharma AURPHA Hold Biocon BIOCON Hold Cadila Healthcare CADHEA Hold Cipla CIPLA Hold Divi's Lab DIVLAB ,090 Hold Dr Reddy's Labs DRREDD ,520 Hold Glenmark Pharma GLEPHA Hold Indoco Remedies INDREM Hold Ipca Laboratories IPCLAB Hold Jubilant Life JUBLIF Buy Lupin LUPIN Hold Natco Pharma NATPHA 910 1,190 Buy Sun Pharma SUNPHA Hold Syngene Int. SYNINT Buy Torrent Pharma TORPHA ,365 Hold ICICI Securities Ltd Retail Equity Research Page 12

13 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 13

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Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities Ltd Retail Equity Research Page 14