Bird s Eye View of Indian Pharma

Bird s Eye View of Indian Pharma

Classification of Pharma Industry Pharma industry Formulations Active Pharmaceuticals Ingredients Branded Generics Bulk drugs Pfizer Abbott GSK BMS Teva Mylan Dr Reddy Ranbaxy Dishman Divis Lab Shasun

Size & Growth of the Industry 2,500 2,000 1,500 1,000 500-158 144 131 971 119 844 108 716 86 98 587 67 473 59 398 422 45 257 294 29 30 31 212 304 326 341 400 454 509 555 522 598 682 774 878 992 128 152 172 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11e FY12e FY13e FY14e FY15e Domestic Market (in Rs Bn) Export Imports Source: Department of Pharmaceutical Ministry (GOI), Pharmexcil, IndiaNivesh Research India ranks 3 rd in terms of drugs volume production (10% of global share) & 14 th largest by value ~$24.8 billion (3% of global size of ~$810 billion). Exports have expanded @ 18.7% to $ 9 billion & Domestic market has grown @ 13.5% CAGR to $13.8 billion during FY05 to FY10.

Global Pharma market: Global Pharma Market (in 2010): $308 bn $810 bn Source: IndiaNivesh Research US Generics Market US Pharma Market Global Pharma Merket Global Generic Drug market Size ($bn): 160 140 120 100 80 60 40 20 0 89 135 2010 2015e Source: Teva, IndiaNivesh Research

Global generic market: Regional Share of Global Generic Market : India s pharma exports to major regions: Source: Sun Pharma, IndiaNivesh Research Source: Pharmexcil, IndiaNivesh Research

India s Exports Drivers: Patent expiry of major drugs: ANDAs Approvals by India: 35 30 28 28 30 160 140 25 20 15 10 15 21 22 120 100 80 5 60 0 2010 2011 2012e 2013e 2014e 2015e Drugs likely to go Off-patent globally ($ bn): Source: Industry 40 20 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: US FDA India has received ~1/3 rd ANDA approval of total ANDA approved by USFDA in the last 3 year. Further, India contributes ~27% of total DMF filings with USFDA. Indian companies are expanding their wings to new geographies including Japan, Africa & many other emerging countries.

Domestic Market: Increasing income level would lead to high expenditure on health Increasing government expenditure on health. Increasing health penetration Improved healthcare infrastructure Highly fragmented & competitive industry, largest player has market size of ~7% of total market. Domestic pharmaceutical industry is expected to clock 14-15% CAGR to reach at $25 billion in FY15E. Chronic therapies (contributes 35-40%) viz, ant diabetic, cardiac CNS are growing/likely to grow at higher rate than acute therapies.

Therapeutic Classification: Pharma industry Chronic (35%) Acute (65%) Antidiabeties CNS CVS Antibiotics Gastro Pain killers

Sensex V/s Healthcare index: 200.0 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 1-Jan-08 1-Mar-08 1-May-08 1-Jul-08 1-Sep-08 1-Nov-08 1-Jan-09 1-Mar-09 1-May-09 1-Jul-09 1-Sep-09 1-Nov-09 1-Jan-10 1-Mar-10 1-May-10 1-Jul-10 1-Sep-10 1-Nov-10 1-Jan-11 1-Mar-11 1-May-11 1-Jul-11 1-Sep-11 1-Nov-11 1-Jan-12 1-Mar-12 1-May-12 1-Jul-12 1-Sep-12 1-Nov-12 Healthcare Sensex

Sector Outlook: Domestic formulation business is likely to witness revenue CAGR of 13-15% for next 2-3 years mainly lead by chroninc therapies. Increase in affordability, infrastructure & insurance penetration are the key drivers. Regulatory approvals, ramp up in new manufacturing facilities & improvement in productivity would improve efficiencies, however increasing fuel cost may impact certain companies in short term. GDUFA fee, dues for ANDA back logs in Q3FY13E may have one time negative impact on the margins. Going forward this would improve ANDA approval efficiency. ~ $50 billion worth of drugs are likely to go off-patent in next 5 years in US market & more than 600 pending ANDAs from Indian Pharma companies would drive the revenue in the region. Increasing cost efficient pressure on MNC s would drive Contract Research & Manufacturing Services (CRAMS) & API businesses. Strategic deals & formation of JVs with Pharma majors would help in expanding wings for Indian companies. We are of the view that overall industry may take a gentle pause in FY14 before resuming at high trajectory in FY15-16 onwards on the back of bio-similars approval in US market. Industry is likely to transform from simple generic players to complex molecules research driven in the next few years.

Valuations & Recommendation: Company's Name Market Cap (Rs Mn) Sales (Rs Mn) PE PEG M Cap/Sales ROE(%) FY14E FY14E FY14E FY14E FY14E x EBITDA Margin (%) Net D/E CMP (Rs) Target Price Reco Ajanta Pharma 8,587 10,073 6.1 0.2 0.85 26.5 22.5 0.8 364 540 BUY Aurobindo Pharma 50,925 65,300 8.9 0.3 0.78 16.9 16.7 1.0 175 189 BUY Alembic Pharma 12,253 19,409 6.5 0.2 0.63 16.9 15.5 0.7 65 79 ACCUMULAT E Biocon 55,788 28,217 12.2 0.8 1.98 16.6 25.9 (0.1) 282 273 HOLD *Cadila 162,973 94,033 16.8 0.6 1.73 28.5 16.7 0.4 796 958 BUY *Cipla 307,511 92,615 16.0 1.0 3.32 16.6 25.1 0.1 383 440 BUY Divis Lab 155,211 28,721 18.7 0.9 5.40 25.3 37.4 (0.3) 1,167 1,250 HOLD Dr Reddy 295,352 125,130 18.3 2.0 2.36 25.0 20.9 0.4 1,734 1,983 BUY Glenmark 115,446 57,692 16.6 0.7 2.00 20.1 19.9 0.9 426 465 BUY *#Ranbaxy 217,769 116,285 17.4-0.8 1.87 20.0 16.2 0.2 516 UR Neutral Dishman 9,281 14,616 7.6 0.2 0.63 8.0 22.0 0.9 115 145 BUY Shasun Pharma 8,659 14,564 10.1 1.0 0.59 34.0 14.4 1.9 157 233 BUY #Strides Arcolab 55,130 26,825 14.7 0.3 2.06 20.0 25.1 1.0 944 900 HOLD Lupin 251,214 106,568 17.7 0.7 2.36 22.0 22.3 0.4 562 610 HOLD *Sun Pharma 712,768 116,015 21.5 3.3 6.14 21.5 39.2 (18.2) 688 681 HOLD Ipca Lab 52,857 32,160 11.1 0.5 1.64 24.7 23.2 0.5 419 527 BUY Torrent 55,088 38,220 12.4 0.5 1.44 28.0 15.4 (1.5) 651 UR HOLD

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