ADD. Lupin (LPC) Pharmaceuticals

Transcription

1 Lupin (LPC) Pharmaceuticals Margin surprise drives beat. Lupin delivered a strong quarter on both sales and EBITDA margin fronts. Multiple launches in US were the key driver for the sales beat. Margin beat was driven by lower other expense but we remain cautious on extrapolating the quarterly trend. Lupin has acquired Nanomi to enter the complex injectables segment. We increase FY2014/15E EPS by 7%/3% and maintain ADD rating with TP at `970 (from `950 earlier) 22X FY2015E EPS. Our positive stance reflects the visible near-term US generics pipeline and strong franchise in India/Japan while efforts to diversify the US R&D efforts (beyond oral solids) remain crucial to longer term visibility. ADD FEBRUARY 03, 2014 RESULT Coverage view: Attractive Price (`): 922 Target price (`): 970 BSE-30: 20,209 Company data and valuation summary Lupin Stock data Forecasts/Valuations E 2016E 52-week range (Rs) (high,low) EPS (Rs) Market Cap. (Rs bn) EPS growth (%) Shareholding pattern (%) P/E (X) Promoters 46.8 Sales (Rs bn) FIIs 31.9 Net profits (Rs bn) MFs 4.7 EBITDA (Rs bn) Price performance (%) 1M 3M 12M EV/EBITDA (X) Absolute (1.2) ROE (%) Rel. to BSE Div. Yield (%) Strong quarter on most counts; cost structure remains volatile on a quarterly basis Lupin reported profit at `4.8 bn (42% yoy) is 13% ahead of estimates driven by beat in both sales and operating performance fronts. Sales at `29.8 bn (21% yoy) is 5% ahead beat driven primarily by US generics. Beat at the EBITDA level (at `7.3 bn; 29% yoy) was stronger at 14% driven by improved margin. EBITDA margin at 24.6% (150 bps higher yoy) was at all-time high and higher by 194 bps versus estimates. However, we remain cautious on extrapolating the quarterly margin trend given the cost structure has been volatile over the past few quarters. The beat in EBITDA was driven by lower other expense at `7.5 bn (16% yoy) other expense margin at 25.1% versus KIE estimate at 29% (2QFY14: 30.4%; 3QFY13: 26.1%). While there may be operating leverage benefit during the quarter, the trend appears stable for the 9 months period. Gross margin at 62.4% was stable yoy but was 260 bps lower versus estimate. The company attributed the lower gross margin to `300 mn in forex loss in the current quarter and higher R&D raw material cost. This was offset by a favorable product mix in US due to limitedcompetition launches (Zymaxid, Trizivir and Cymbalta). For 9MFY14, gross margin at 64.7% has expanded by 290 bps yoy driven by improving US product mix and currency benefit. US generics delivers; branded markets stable The US generics ramp-up was the key highlight for the quarter, which was driven by a strong launch period. We expect the growth momentum in US generics to sustain over the medium term driven by date-certain launches and ramp-up/full-year impact of recent launches. Growth in India (at 14% yoy) posted a recovery following the weak performance in 1HFY14. Sales trends in Japan were mixed 16% JPY growth in Kyowa while I rom posted another quarter of decline (at 5% yoy). The company has acquired Nanomi B.V. (private company based in Netherlands) to enter the complex injectable segment. Lupin did not disclose the financial details of the deal, but is not likely to be significant. Krishna Prasad krishna.p@kotak.com Mumbai: For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Kotak Institutional Equities Research kotak.research@kotak.com Mumbai:

2 Pharmaceuticals Lupin Key highlights of 3QFY14 results Exhibit 1: Lupin 3QFY14 consolidated results, March fiscal year-ends (` mn) (% chg.) yoy 3QFY14 3QFY14E 3QFY13 2QFY14 3QFY14E 3QFY13 2QFY14 9MFY14 9MFY13 (% chg.) FY2014E Sales 29,830 28,450 24,659 26, ,351 69, ,913 Total expenditure 22,487 21,998 18,961 20, ,436 54, ,203 Raw material 11,209 9,958 9,357 8, ,370 26, ,372 Staff cost 3,787 3,798 3,165 3,682 (0.3) ,751 9, ,721 Other expenditure 7,490 8,243 6,440 7,988 (9.1) 16.3 (6.2) 22,315 19, ,109 EBITDA 7,343 6,452 5,698 6, ,915 14, ,711 Other operating income ,310 1,312 (0.2) 1,660 Other income , ,197 Non recurring expense/(income) Interest Depreciation ,867 2,032 2,517 Pretax profits 7,379 6,182 5,550 6, ,360 14, ,856 Tax 2,542 1,855 2,116 2,582 7,295 4,762 9,244 Minority interest Net income 4,761 4,208 3,352 4, ,834 9, ,261 EPS (Rs) Tax rate (%) R&D expenditure 2,710 2,276 2,382 2,172 6,838 5, ,283 Segment wise sales Formulations 26,857 25,862 22,306 23, ,088 62, ,971 Domestic 6,504 6,393 5,708 6, (2.0) 19,033 17, ,484 US (including licensing income) 13,567 12,659 10,390 10, ,906 26, ,535 Japan 3,720 3,694 3,658 3, ,736 10,288 (5.4) 12,820 South Africa ,004 (1.4) 18.3 (2.1) 2,733 2, ,820 EU (7.9) 10.5 (10.8) 2,406 1, ,165 ROW 1,422 1,401 1,121 1, (12.8) 4,274 3, ,147 API 2,973 2,588 2,353 2, ,264 7, ,944 Total sales 29,830 28,450 24,659 26, ,352 69, ,915 % margin Raw material Staff cost Other expenditure EBITDA R&D expenditure Source: Company, Kotak Institutional Equities Nanomi acquisition first step in complex injectables We view the acquisition of Nanomi by Lupin as part of the efforts to diversify from a primarily oral solid portfolio in US generics. Nanomi has a platform technology for developing longacting injectables and peptides (usually delivered as injectables). Financial detail on Nanomi/consideration paid has not been disclosed but we expect minimal impact on EPS for Lupin on account of Nanomi consolidation. Nanomi is an R&D outfit with limited sales and profit. The current sales are generated from contract research services to innovator companies. This is the second acquisition by an Indian company in the complex injectables segment following the acquisition of OctoPlus by Dr. Reddy s in October 2012 (for EUR27.4 mn). Most Indian generics initiated R&D efforts in non-oral delivery system in the period CY In this period, Lupin stayed focused on building presence in the oral contraceptive segment in the US. Over the past 3-4 years, Lupin has been working to build a pipeline in ophthalmology and dermatology in US. The company has also established R&D presence in US to focus on inhalation products and controlled substances. We believe the acquisition is an extension of this strategy to expand beyond oral solids. The company expects first injectable filing in the next years and a potential approval may be at least 5 years away. 2 KOTAK INSTITUTIONAL EQUITIES RESEARCH

3 Lupin Pharmaceuticals While the current efforts to diversify are credible, we believe the company may be late in entering a few of these segments. In particular, we highlight injectables (including the complex injectables) as an area where they have been significant efforts by Sun Pharma and Dr. Reddy s over the past five years. These companies have already ramped up their injectable presence with launch of complex injectables (Sun Pharma Doxil, Imitrex Statdose, Dr. Reddy s Arixtra, Vidaza). Given the timelines indicated and limited organic efforts in injectables till date, we believe the path to complex injectables is likely to be more challenging for Lupin. Operational highlights for the quarter There has been a recovery in India sales growth at 14% yoy broadly in line with expectations. The company expects the growth in 4QFY14 to remain at 14-16% given the higher base. The company has not settled the trade margin issues with the channel but there has been no major impact on this account during the current quarter. Exhibit 2: Lupin - India formulation sales, March fiscal year-ends, 1Q13-4Q14E (` mn) 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14E Domestic sales 6,212 6,064 5,708 5,659 5,894 6,635 6,504 6,451 % yoy growth (5.1) US generic sales (including licensing income) at US$196 mn (27% yoy) were US$20 mn ahead of estimates. The current quarter sales include US$5 mn in licensing income. The strong growth on a yoy basis is driven by sole FTF launches (Zymaxid October 2013 and Trizivir December 2013), lower-than-expected competition in Cymbalta and single-digit growth in base business. The sequential growth was driven by the above launches and seasonality. There has been some channel filling due to recent launches but Lupin expects the contribution in 4QFY14 from these launches to remain significant. Lupin expects to launch 20 products over the next 12 months. Cymbalta the opportunity for early entrants has been better than expected. Given the expectation of over 10 generics, many players were not prepared for the launch. This has led to shortages in the market and a benign pricing environment. Lupin believes this could sustain for a few more months until more players enter the market. Trilipix Lupin does not expect any further generic competition in the near term. There are currently 4 generics in the market including Lupin with 2 more known generic filers (Sandoz and Actavis). Tricor Lupin believes there has been no market share loss in Tricor as indicated by IMS. There has been a decline in the fenofibrate market, which has impacted sales. Yaz there has been no update from the US FDA on approval for generic Yaz. Loestrin Fe Amneal has launched the authorized generic version of Loestrin Fe in January The original market (at US$300 mn) has been shifting to Lo Loestrin Fe and Minstrin Fe and the innovator has stopped promoting the original brand. While competition in Loestrin Fe may be limited, actual upside may be constrained given the competitive landscape. KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

4 Pharmaceuticals Lupin US brand sales at US$24 mn (declined by 36% yoy) were lower than KIE estimate at US$30 mn. On a yoy basis, brand sales declined due to (1) entry of generics for Antara and (2) strong flu season in the base period impacting Suprax growth. The current quarter sales primarily reflect Suprax sales while the impact of new brands (Alinia and Locoid) and low dose Antara, which were launched in 3QFY14, has been limited. Brand sales in US contributed 11% of total US sales. Lupin has launched the Suprax drops formulation but expects no major shift during the current flu season. The company had earlier indicated that there will be an aggressive shift to the drops formulation during the flu season. The aspirational target for the brand business remains at 15-20% of total US sales. However, this may depend largely on acquisitions to drive branded sales growth and to a lesser extent on partnered products. The competitive landscape for M&A remains challenging in US brands. The company has also initiated organic efforts in US brands since FY2014 two respiratory and one dermatology product. The earliest launch may be in FY2017. Exhibit 3: Lupin quarterly US sales by segment, March fiscal year-ends, 1QFY13-3QFY14 (US$ mn) (US$ mn) Total Generics Brands QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 Source: Company, Kotak Institutional Equities Exhibit 4: Lupin US sales by segment, March fiscal year-ends, E (US$ mn) (US$ mn) Total Brands Generics 1,200 1,070 1, E 2015E 2016E Source: Company, Kotak Institutional Equities 4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

5 Lupin Pharmaceuticals Japan sales in JPY terms grew by 10% yoy versus estimate of 6% yoy. The beat was primarily due to better Kyowa sales at 16% yoy while I rom sales continue to decline (at 5% yoy). I rom sales remain weak and the company expects the sales to recover in FY2015. The bi-annual price cuts in Japan are expected to be implemented from April The company expects long-term incentives to boost generic usage and lower discounts on new generics to drive the growth in Japan. Lupin has guided for a full-year growth of 12% in JPY terms for Kyowa in FY2014. Exhibit 5: Lupin Japan sales growth, March fiscal year-ends, 1Q12-4QFY14E (JPY mn) 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14E Total Japan sales 3,037 3,301 3,855 4,283 4,921 4,692 5,497 4,675 5,151 4,849 6,046 4,951 Kyowa 3,037 3,301 3,360 2,941 3,368 3,310 3,910 3,396 3,772 3,616 4,530 3,736 I'rom 495 1,342 1,553 1,382 1,587 1,279 1,379 1,233 1,516 1,215 % yoy growth Total Japan sales Kyowa I'rom (4.7) (11.2) (10.8) (4.5) (5.0) Lupin has guided for R&D spend to remain at 8.5-9% of sales. There has been an increase in R&D spend for 9MFY14 and the company expects this trend to sustain. The increase in R&D is driven by the shift in focus to complex generics - inhalers, controlled substances, injectables and dermatology. Litigation expense has remained stable during this period. There have been 2-3 filings in dermatology till date. The company has recently appointed a resource for clinical development, which will accelerate the dermatology filings. The targeted products are a mix of generics with some of them requiring clinical trials for bioequivalence. Exhibit 6: Lupin R&D trend, March fiscal year-ends, MFY14 (` mn) (Rs mn) R&D expense (LHS) % of sales (RHS) (%) 9 9, , ,838 7, ,228 4, , , ,000 2,318 2,038 1,359 1, MFY14 Source: Company, Kotak Institutional Equities KOTAK INSTITUTIONAL EQUITIES RESEARCH 5

6 Pharmaceuticals Lupin Tax rate for 9MFY14 at 35.8% was higher by 2% on account of the dividend payment by the subsidiary to parent. The comp any has guided for a tax rate of 33-34% for FY the higher tax rate will be due to (1) tax on unrealized gains due to inventory in the US subsidiary and (2) higher tax rate in certain export markets. Lupin turned net cash during the current quarter. The company is open to leveraging its balance sheet and target larger acquisitions. The target markets include Latin America (Brazil/ Mexico), Eastern Europe, Russia, Poland, Turkey and China. Lupin did evaluate the Actavis injectable business (recently sold to Aurobindo) but backed out given the challenging pricing environment in Western Europe and higher barriers to turn around the business. Exhibit 7: Lupin list of key US launches expected in FY2014/15 Market size Brand name Molecule name (US$ mn) Expected launch Competition Comments Niaspan Niacin 920 Mar-14 Renagel Sevelamer HCl 150 Mar-14 Teva, Sun, Sandoz, Cadila, Amneal, Mylan, Kremers Urban and Watson are other known filers. Entry of generics is likely to be staggered. Sandoz, Impax and Endo are other known filers. We expect other generics to enter in September 2014, after patent expiry. Teva is the FTF and has launched on September 20, Lupin will have limited period of semi-exclusivity. Lupin has not received the tentative approval within 30 months - not clear if they still hold the exclusivity (sole). Yaz Ethinyl estradiol; drospirenone 360 4QFY14 Teva, Watson, Sandoz Oral contraceptive. In Mar-12, district court held the '564 patent valid which was overturned by appeals in April Lupin will launch on US FDA approval. Lunesta Eszopiclone 750 May-14 Shared FTF along with multiple filers. Patent expires in August Celebrex Celecoxib 1,750 May-14/Dec-15 Teva, Mylan, Apotex, Watson are other filers. The generics have been sued on the reissued patent expiring in Dec-15. Other filers may have a P-III against this patent. Renvela Sevelamer Carbonate 500 Mar-14 (on suspension) / Sep-14 (tablet) Impax is the FTF on tablets. Watson has filed for suspension; Watson, Endo, invagen and Sandoz have filed for tablets. We expect other generics to enter in September 2014 after patent expiry. Impax/Lupin have not received the tentative approval within 30 months - not clear if they hold the exclusivity. Suspension market may be US$50 mn. Loestrin 24Fe Ethinyl estradiol; norethindrone 300 Jul-14 Amneal has launched the AG in January Mylan is the other known filer. Other generics may have filed a PIII. Oral contraceptive filing.market has shifted to Lo loestrin Fe and Minstin Fe - innovator has stopped promoting Loestrin Fe. Coreg CR Carvedilol Phosphate 250 FY2015 Sun Pharma (URL) is the FTF. Anchen/Impax are the other known filers. All generics have settled, terms unknown. No tentative approvals so far. Source: Company, Bloomberg, US FDA, Kotak Institutional Equities Exhibit 8: Lupin US generic filings summary, March fiscal year-ends, QFY14 > Q13 2Q13 3Q13 4Q Q14 2Q14 3Q14 No of ANDA's filed during the period Total no of ANDA filings Total ANDA approvals till date Pending ANDA approvals till date Of which para IV filings Of which FTF filings Source: Company, Kotak Institutional Equities 6 KOTAK INSTITUTIONAL EQUITIES RESEARCH

7 Lupin Pharmaceuticals Increase FY2014/15E EPS by 7%/3% respectively We increase FY2014/15 EPS by 7%/3% driven by the following changes The increase in FY2014E EPS is driven primarily by the beat in 3QFY14. For FY2015, we increase sales by 1.4% driven by higher US generic sales. We remain conservative in our estimates for FY2015 US generic sales the period of semi-exclusivity in Niaspan will be a key variable for reported US generic sales for Lupin in FY2015. However, we note that a higher Niaspan sales may not have any meaningful impact on the adjusted EPS given multiple generics are expected over the next 12 months. The 5.7% increase in EBITDA is offset by higher tax rate (at 33% versus 30%) in FY2015 resulting in 2.8% increase in EPS. Exhibit 9: Change in sales estimates, March fiscal year-ends, E (` mn) Old estimates New estimates % change 2014E 2015E 2014E 2015E 2014E 2015E Domestic formulation 25,260 29,807 25,484 29, Total US sales 46,130 57,103 48,535 58, US generics 38,834 49,259 43,050 52, US brands 7,296 7,844 5,485 6,615 (24.8) (15.7) Japan 12,793 14,712 12,820 14, (3.2) South Africa 3,834 4,601 3,820 4,584 (0.4) (0.4) Europe 3,255 3,580 3,165 3,640 (2.8) 1.7 ROW 6,126 7,473 6,147 7, API 10,559 11,615 10,944 12, Total 107, , , , Source: Kotak Institutional Equities estimates Exhibit 10: Change in earnings estimates, March fiscal year-ends, E (` mn) Old estimates New estimates % change 2014E 2015E 2014E 2015E 2014E 2015E Sales 107, , , , Raw material 37,059 44,466 38,872 45, Staff cost 14,732 17,384 14,721 17,371 (0.1) (0.1) R&D 8,723 10,246 9,283 11, Others 23,000 26,767 21,825 25,450 (5.1) (4.9) EBITDA 25,563 30,776 27,370 32, PAT -reported 16,094 19,168 17,261 19, PAT -adjusted 16,094 19,168 17,261 19, EPS -adjusted KOTAK INSTITUTIONAL EQUITIES RESEARCH 7

8 Pharmaceuticals Lupin Exhibit 11: Sales summary, March fiscal year-ends, E (` mn) E 2015E 2016E Formulations 39,865 48,479 61,106 85,118 99, , ,892 Domestic 13,008 15,509 19,058 23,644 25,484 29,817 34,885 US 16,873 20,670 25,303 37,695 48,535 58,905 66,340 Japan 5,341 6,212 8,607 13,040 12,820 14,236 15,831 South Africa 1,328 1,829 2,554 3,210 3,820 4,584 5,501 EU 1,396 1,809 1,975 2,356 3,165 3,640 4,186 Others 1,919 2,450 3,609 5,173 6,147 7,499 9,148 API 7,917 8,589 8,491 9,498 10,944 12,038 13,242 Total 47,782 57,068 69,597 94, , , ,133 % of sales Formulations Domestic US Japan South Africa EU Others API yoy growth, % Formulations Domestic US Japan (1.7) South Africa EU Others API (1.1) Total Exhibit 12: Financial summary, March fiscal year-ends, E (` mn) E 2015E 2016E Net sales 56,478 68,204 93, , , ,133 yoy growth, % Sales from exclusivity launches 1, Core sales 56,478 67,100 92, , , ,133 yoy growth EBITDA (including other operational income) 11,056 12,923 21,497 27,370 32,536 36,841 yoy growth, % margin, % EBITDA - exclusivity launches 1,049 1,836 Base EBITDA 11,056 11,874 19,662 27,370 32,536 36,841 yoy growth, % margin, % Adj Net Profit 7,900 6,583 11,863 17,261 19,696 23,497 yoy growth, % 18.7 (16.7) Adj EPS yoy growth, % 18.3 (16.7) KOTAK INSTITUTIONAL EQUITIES RESEARCH

9 Lupin Pharmaceuticals Exhibit 13: Lupin balance sheet, March fiscal year-ends, HFY14 (` mn) FY2011 FY2012 FY2013 1HFY14 Share capital Reserves and surplus 31,918 39,236 51,147 60,313 Total equity 32,811 40,129 52,042 61,209 Minority interest Long term borrowings 2,992 4,330 2,471 2,299 Deferred tax liabilities 1,792 1,910 2,337 2,107 Other long term liabilities Long term provisions ,125 1,287 Total non current liabilities 5,716 7,642 6,433 6,479 Short term borrowings 7,911 10,479 7,268 6,917 Trade payables 9,930 13,978 15,431 13,667 Other current liabilities 2,010 3,772 3,810 3,490 Short term provisions 2,350 2,617 3,560 1,901 Total current liabilities 22,201 30,846 30,069 25,976 Total equity and liabilities 61,244 79,340 89,139 94,429 Fixed assets 22,218 26,894 28,036 29,883 Goodwill 3,255 5,040 5,073 6,023 Non current investments Deferred tax assets Long term loans and advances 3,144 3,939 3,874 3,345 Other non current assets Total non current assets 29,074 36,369 37,707 40,094 Current investments 17 Inventories 12,000 17,327 19,489 22,109 Trade receivables 12,556 17,318 21,870 19,846 Cash and cash equivalents 4,201 4,025 4,349 6,410 Short term loans and advances 2,284 3,092 3,397 3,481 Other current assets 1,128 1,211 2,327 2,472 Total current assets 32,170 42,972 51,431 54,335 Total assets 61,244 79,340 89,139 94,429 Source: Company, Kotak Institutional Equities Exhibit 14: Profit and loss statement, March fiscal year-ends, E (` mn) E 2015E 2016E Net sales 47,405 56,478 68,204 93, , , ,133 Materials (19,445) (21,977) (25,513) (34,696) (38,872) (45,098) (51,451) Employee cost (5,872) (7,677) (9,695) (12,488) (14,721) (17,371) (19,977) R&D (3,650) (4,660) (5,228) (7,099) (9,283) (11,013) (12,625) Others (8,990) (11,108) (14,844) (17,915) (20,666) (24,700) (28,239) Total expenditure (37,956) (45,422) (55,281) (72,197) (83,543) (98,182) (112,292) EBITDA 9,449 11,056 12,923 21,497 27,370 32,536 36,841 Depreciation and amortisation (1,239) (1,712) (2,275) (2,586) (2,517) (2,917) (3,317) EBIT 8,210 9,344 10,648 18,911 24,854 29,619 33,524 Net finance cost (336) (261) (274) (294) (195) Other income , Non-recurring income , Pretax profits 8,358 9,963 11,961 19,246 26,856 30,069 34,424 Current tax (1,360) (1,169) (3,086) (5,842) (9,244) (9,923) (10,327) Reported net profit 6,997 8,794 8,875 13,404 17,612 20,146 24,097 Minority Interests (180) (168) (199) (263) (351) (450) (600) Reported net profit after minority interests 6,817 8,626 8,677 13,142 17,261 19,696 23,497 Adjusted Net profit 6,654 7,900 6,583 11,863 17,261 19,696 23,497 Adjusted EPS KOTAK INSTITUTIONAL EQUITIES RESEARCH 9

10 Pharmaceuticals Lupin Exhibit 15: Balance sheet, cash model, March fiscal year-ends, E (` mn) E 2015E 2016E Balance sheet Total equity 25,678 32,811 40,129 52,042 65,850 81, ,404 Total debt 11,399 11,624 16,400 11,645 9,645 7,645 5,645 Current liabilities 11,893 14,518 20,178 22,521 25,321 28,576 31,603 Minority Interests Deferred tax liabilities 1,435 1,411 1,442 1,633 1,633 1,633 1,633 Total equity and liabilities 50,659 60,879 78,872 88, , , ,880 Cash and cash equivalents 2,015 4,201 4,025 4,349 8,106 13,745 23,212 Current assets 25,739 30,766 42,886 50,957 58,825 67,615 75,789 Net fixed assets 19,062 20,568 27,497 30,002 32,985 35,568 37,751 Capital -WIP 3,579 5,312 4,437 3,107 3,107 3,107 3,107 Investments Total assets 50,659 60,879 78,872 88, , , ,880 Free cash flow Operating cash flow, excl. working capital 8,130 9,575 11,407 18,004 19,972 22,663 26,814 Working capital (1,366) (1,596) (5,816) (5,494) (5,068) (5,535) (5,146) Capital expenditure (6,709) (4,287) (5,099) (5,511) (5,500) (5,500) (5,500) Acquisitions (80) (2,289) (102) Free cash flow 56 3,613 (1,797) 6,897 9,405 11,628 16,167 Exhibit 16: Key ratios, March fiscal year-ends, E (` mn) E 2015E 2016E Cost margins Materials Employee cost R&D Others EBITDA EBITDA (including other op.income) Working capital (no of days) Debtor Inventory Creditor Return ratios (adjusted, %) ROE ROCE (post tax) KOTAK INSTITUTIONAL EQUITIES RESEARCH

11 Disclosures "I, Krishna Prasad, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report." Kotak Institutional Equities Research coverage universe Distribution of ratings/investment banking relationships 70% Percentage of companies covered by Kotak Institutional Equities, within the specified category. 60% 50% 40% 30% 20% 10% 0% 39.5% 27.2% 19.1% 14.2% 4.3% 4.9% 0.0% 1.9% BUY ADD REDUCE SELL Percentage of companies within each category for which Kotak Institutional Equities and or its affiliates has provided investment banking services within the previous 12 months. * The above categories are defined as follows: Buy = We expect this stock to deliver more than 15% returns over the next 12 months; Add = We expect this stock to deliver 5-15% returns over the next 12 months; Reduce = We expect this stock to deliver -5-+5% returns over the next 12 months; Sell = We expect this stock to deliver less than - 5% returns over the next 12 months. Our target prices are also on a 12-month horizon basis. These ratings are used illustratively to comply with applicable regulations. As of 31/12/2013 Kotak Institutional Equities Investment Research had investment ratings on 162 equity securities. Source: Kotak Institutional Equities As of December 31, 2013 Ratings and other definitions/identifiers Definitions of ratings BUY. We expect this stock to deliver more than 15% returns over the next 12 months. ADD. We expect this stock to deliver 5-15% returns over the next 12 months. REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months. SELL. We expect this stock to deliver <-5% returns over the next 12 months. Our target prices are also on a 12-month horizon basis. Other definitions Coverage view. The coverage view represents each analyst s overall fundamental outlook on the Sector. The coverage view will consist of one of the following designations: Attractive, Neutral, Cautious. Other ratings/identifiers NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. CS = Coverage Suspended. Kotak Securities has suspended coverage of this company. NC = Not Covered. Kotak Securities does not cover this company. RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. NA = Not Available or Not Applicable. The information is not available for display or is not applicable. NM = Not Meaningful. The information is not meaningful and is therefore excluded. KOTAK INSTITUTIONAL EQUITIES RESEARCH

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