Standalone Quarterly results (YE Mar) 1QFY14 1QFY15 % yoy FY13 FY14 % yoy

India I Equities Healthcare Result Update 15 July 2014 Unichem Laboratories Recovery in sight; Buy Key takeaways Results slightly above our estimates. Unichem Laboratories (Unichem) revenue grew 9.6% yoy, to `2.91bn (slightly above our expected `2.84bn), driven by robust export revenues. Owing to higher input and staff costs, EBITDA margin shrunk 414bps yoy, to 15%, though were in line with our estimates. Reduced margin and other income caused 16.3% yoy decline in adjusted PAT, at `302m, though higher than our estimated `274m. The company reported exchange gain of `14m during the quarter. Export formulations key growth driver. Export formulations grew 32.6% yoy, whereas export APIs started recovering with marginal growth of 1% yoy. Domestic branded formulation grew only 2.5%, as the company continued to be struck by the impact of reduced prices, following implementation of new drug-pricing policy. On a low base, domestic API revenue grew 81.2% yoy, above our estimated 68% yoy. Our take. We believe the higher-than-expected performance was chiefly led by strong export formulations business. EBITDA margin, at 15% for 1QFY15, was in line with our estimates. We, however, expect growth to pick up from 2QFY15 with the impact of lower drug prices settling down, triggering volume growth and annual price increases. We estimate 14.9% revenue and 19% adjusted PAT CAGR over FY14-16 on consolidated basis. Further, Niche Generics (UK subsidiary) has turned around and reported net profit ` of GBP0.10m. We expect consolidated margins to improve 310bps over FY14-16, to 18.8%, led by recovery in domestic formulations and turnaround of Niche Generics. The stock trades at attractive valuations 11.8x FY15e and 9.4x FY16e earnings. We maintain Buy on it with a target price of `240 based on 12x FY16e. Risks. Currency fluctuations and regulatory hurdles. Standalone Quarterly results (YE Mar) 1QFY14 1QFY15 % yoy FY13 FY14 % yoy Sales (`m) 2,656 2,910 9.6 10,808 11,334 4.9 EBITDA (`m) 509 437 (14.1) 1,743 1,778 2.0 EBITDA margin (%) 19.1 15.0 (414)bps 16.1 15.7 (44)bps Interest (`m) 6 7 18.9 33 32 (3.0) Depreciation (`m) 109 85 (22.1) 383 457 19.2 Other income(`m) 78 52 (33.8) 134 423 214.9 PBT (`m) 472 396 (15.9) 1,461 2,123 45.3 Tax (`m) 111 95 (14.6) 325 378 16.4 Tax rate (%) 23.5 23.8 37bps 22.6 20.3 (230)bps PAT (`m) 361 302 (16.3) 1,131 1,282 13.3 Source: Company Rating: Buy Target Price: `240 Share Price: `187 Key data UL IN / UNLB.BO 52-week high / low `241/ `138 Sensex / Nifty 25006 / 7454 3-m average volume US$0.1m Market cap `17bn / US$0..28bn Shares outstanding 90.4m Shareholding pattern (%) Jun 14 Mar 14 Dec 13 Promoters 50.2 50.2 50.2 - of which, Pledged - - - Free Float 49.8 49.8 49.8 - Foreign Institutions 4.3 4.1 3.8 - Domestic Institutions 11.4 11.4 11.4 - Public 34.1 34.3 34.5 Cons. Financials (YE Mar) FY15e FY16e Sales (`m) 13,020 14,970 Net profit (`m) 1,444 1,816 EPS (`) 15.9 20.0 Growth (%) 12.6 25.8 PE (x) 11.8 9.4 PBV (x) 1.9 1.7 RoE (%) 16.8 19.0 RoCE (%) 15.9 17.9 Dividend yield (%) 3.0 3.7 Net gearing (%) (2.4) 0.9 Source: Anand Rathi Research Sriram Rathi +9122 6626 6737 sriramrathi@rathi.com Anand Rathi Shares and Stock Brokers Limited (hereinafter ARSSBL ) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

15 July 2014 Unichem Labs Recovery in sight; Buy Quick Glance Financials and Valuations Fig 1 Income statement (`m) Net revenues 8,755 10,808 11,334 13,020 14,970 Revenue growth (%) 7 23 5 15 15 - Op. expenses 7,571 9,065 9,556 10,765 12,162 EBIDTA 1,183 1,743 1,778 2,255 2,809 EBITDA margin (%) 13.5 16.1 15.7 17.3 18.8 - Interest expenses 41 33 32 26 26 - Depreciation 304 383 457 515 591 + Other income 102 134 423 137 145 - Tax 228 330 430 407 521 Effective tax rate (%) 24 23 20 22 22 Reported PAT 713 1,132 1,693 1,444 1,816 +/- Extraordinary items 0 0 411 0 0 +/- Minority interest 0 0 0 0 0 Adjusted PAT 712 1,131 1,282 1,444 1,816 Adj. FDEPS (`/share) 7.9 12.5 14.1 15.9 20.0 Adj. FDEPS growth (%) (22.4) 58.6 13.1 12.6 25.8 Fig 2 Balance sheet (`m) Share capital 181 181 181 181 181 Reserves & surplus 6,425 7,090 7,985 8,837 9,909 Net worth 6,606 7,271 8,166 9,019 10,091 Minority interest 0 0 0 0 0 Total debt 459 271 257 257 257 Def. tax liab. (net) 384 390 418 418 418 Capital employed 7,449 7,931 8,841 9,694 10,765 Net fixed assets 5,212 5,800 5,098 6,083 6,992 Investments 145 388 114 114 114 - of which, Liquid 145 331 57 57 57 Net working capital 1,860 1,497 3,107 3,071 3,555 Cash and bank bal. 232 246 522 426 104 Capital deployed 7,449 7,931 8,841 9,694 10,765 Net debt 82 (306) (321) (226) 96 WC days 90.8 66.7 84.0 82.2 81.7 Book value (`/sh) 73.1 80.4 90.1 99.5 111.3 Fig 3 Cash-flow statement (`m) PAT 712 1,131 1,693 1,444 1,816 + Non-cash items 311 388 509 515 591 Cash profit 1,023 1,520 2,202 1,959 2,407 - Incr./(Decr.) in WC (436) (363) 1,610 (36) 485 Operating cash-flow 1,459 1,883 593 1,995 1,922 - Capex 1,114 971 (244) 1,500 1,500 Free cash-flow 345 911 837 495 422 - Dividend 213 476 848 591 743 + Equity raised 0 0 0 0 0 + Debt raised (49) (188) (14) 0 0 - Investments (68) 243 (274) 0 0 - Misc. items 70 (10) (26) Net cash-flow 81 14 275 (96) (321) + Op. cash & bank bal. 152 232 246 522 426 Cl. cash & bank bal. 232 246 521 426 105 Fig 4 Ratio analysis @ `187 P/E (x) 23.9 15.1 13.3 11.8 9.4 P/B (x) 2.6 2.3 2.1 1.9 1.7 EV/EBITDA (x) 14.6 9.8 9.5 7.5 6.1 RoE (%) 11.1 16.3 16.6 16.8 19.0 RoCE (%) 10.1 15.1 15.6 15.9 17.9 Dividend yield (%) 1.6 2.4 4.2 3.0 3.7 Dividend payout (%) 38.1 36.0 56.6 35.0 35.0 Asset turnover (x) 1.5 1.7 1.7 1.7 1.6 Net Debt/Equity (x) 0.0 (0.0) (0.0) (0.0) 0.0 Net debt/ebitda (x) 0.1 (0.2) (0.2) (0.1) 0.0 Net debt/op. CF (x) 0.1 (0.2) (0.5) (0.1) 0.1 Interest coverage (x) 21.6 41.3 41.4 67.7 86.3 P/CEPS (x) 16.8 11.3 9.8 8.7 7.1 EV/ sales (x) 2.0 1.6 1.5 1.3 1.2 M-cap/sales (x) 1.9 1.6 1.5 1.3 1.1 Fig 5 PE band Fig 6 Revenue break-up (FY15e) ( ) 300 Niche Generics 8% 250 200 15x 11x Export APIs 8% 150 100 6x Export formulations 24% Domestic formulations 58% 50 0 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Domestic APIs 2% Source: Bloomberg, Anand Rathi Research Source: Anand Rathi Research Anand Rathi Research 2

15 July 2014 Unichem Labs Recovery in sight; Buy Result Highlights Result comparison Unichem s 1QFY15 results were slightly above our estimates. Higher revenue, lower depreciation charge and higher other income led adjusted net profit coming above our estimate by 10%. Net sales were slightly above our estimate by 2.3%, chiefly because of more-than-anticipated revenues from export formulations and export APIs. EBITDA margin, at 15%, was in line with our estimate. Fig 7 Estimates vs Actuals (`m) 1QFY15e 1QFY15 Variance (%) Revenues 2,844 2,910 2.3 EBITDA 427 437 2.4 Margin (%) 15.0 15.0 1bps PAT 274 302 10.0 Margin (%) 9.7 10.4 72bps Revenue growth weak The company s primary business, formulations, improved. This stemmed from the increase in revenue from export formulations, though branded domestic formulation business witnessed subdued growth of 2.5% yoy due to price reduction in the domestic market (consequent to the new drugpricing policy). APIs business improved 11.6% yoy, led by strong growth of 81.2% yoy registered by domestic APIs on account of low base in 1QFY14. Nevertheless, growth in domestic formulations is expected to revive from 2QFY15, as the impact of the new pricing policy would be felt at the base and annual increase in drug prices to be taken by the company. Fig 8 Revenue break-up (` m) 1QFY14 1QFY15 % yoy FY13 FY14 % yoy Domestic 1,796 1,873 4.3 6,562 6,820 3.9 % of total sales 68.5 64.9 65.8 66.3 Formulations 1,756 1,800 2.5 6,353 6,550 3.1 APIs 40 73 81.2 209 270 29.0 Exports 826 1,012 22.5 3,407 3,469 1.8 % of total sales 31.5 35.1 34.2 33.7 Formulations 563 747 32.6 2,527 2,552 1.0 APIs 263 266 1.0 880 917 4.2 Total 2,622 2,885 10.0 9,969 10,289 3.2 Source: Company Anand Rathi Research 3

15 July 2014 Unichem Labs Recovery in sight; Buy Valuation We are positive on the stock, considering greater assurance of growth in domestic formulations and improving consolidated EBITDA margins, along with a drop in losses of subsidiaries. Further, the quicker-than-expected turnaround of international subsidiaries in the UK and Brazil would provide some upside to our estimates of margins and profits. We expect the growth rate to start picking up from 2QFY15, with the impact of lower drug prices settling down triggering volume growth and annual price increases. The stock trades at attractive valuations of 11.8x FY15e and 9.4x FY16e earnings. We maintain Buy on it with a target price of `240 based on 12x FY16e earnings. Risks Currency fluctuations and regulatory hurdles. Impact from implementation of the new drug-pricing policy in India. Anand Rathi Research 4

Appendix Analyst Certification The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter SEBI ) and the analysts compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing whatsoever on any recommendation that they have given in the Research Report. Important Disclosures on subject companies Rating and Target Price History (as of 14 July 2014) 250 210 170 130 2 3 Unichem Labs 4 5 6 7 8 9 Date Rating TP (`) Share Price (`) 1 16-Dec-11 Sell 102 112 2 23-Jan-12 Sell 110 148 3 20-Feb-12 Sell 143 151 4 5-Jul-12 Buy 168 130 5 4-Oct-12 Hold 212 199 6 14-May-13 Buy 236 181 7 25-Jul-13 Buy 214 160 8 21-Jan-14 Buy 242 216 9 14-May-14 Buy 240 209 90 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. 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