Equity Research INDIA October 11, 2020

ICICI Securities Limited Pharmaceuticals & Healthcare is the author and distributor of this report Visible recovery from COVID-19 outbreak impact Q2FY21 result preview We expect pharma and healthcare companies under our coverage to report sequential improvement during the quarter ended Sep'20. We expect easing of lockdown to support some recovery in acute portfolio and injectable products. US revenues may witness marginal growth sequentially led by improvement in Recommendations volumes of injectables, specialty portfolio and new launches. We estimate India Abbott India (BUY) business to report marginal growth as seen in secondary sales data. We forecast Alembic Pharma (ADD) the EBITDA margin of covered companies at ~20% (+70bps YoY) led by revenue Alkem (BUY) growth and cost control measures. Hospitals and diagnostic centres can report Apollo Hospital (BUY) significant recovery QoQ with rise in occupancy levels and pathology test Aster DM (BUY) volumes. Overall, we expect our coverage universe to report ~5% revenue growth. Aurobindo (BUY)  India secondary sales: The Indian pharma market witnessed a growth of 4.5% in Biocon (ADD) value terms for Sep’20 (source: AWACS). Volumes declined 4.0%, while prices and Cadila Healthcare (ADD) new introductions grew 4.6% and 3.8%, respectively. We expect positive primary Cipla (ADD) sales growth YoY for under coverage companies similar or faster than the industry. Dr Lal Pathlabs (BUY)  US generics: US sales may grow ~6% QoQ in Q2FY21. Alkem and Glenmark will Dr Reddy’s (ADD) have largely flattish sales. We expect Sun Pharma, Dr Reddy’s, Glenmark and Lupin to show QoQ growth in US sales led by injectables, specialty products and new Fortis Healthcare (BUY) launches. Other companies would remain largely flattish in a stable environment. Glenmark (ADD)  Companies to watch: We expect relatively better results from: 1) Aurobindo with GSK Pharma (HOLD) new product approvals and stable pricing; 2) Dr Reddy’s & Biocon with new product Healthcare Global (BUY) launches in the US; 3) Sun & Alembic with traction in existing and specialty products Jubilant Life Sciences and 4) strong recovery in diagnostics and hospitals with easing of restrictions. (ADD)  Key factors to watch out during management commentary: i) Growth outlook in Lupin (HOLD) India for the industry and respective companies, ii) update on restart of USFDA Metropolis (ADD) inspections, iii) price scenario in base US business on increased competition, iv) Natco (BUY) growth in emerging markets with demand outlook and v) sustainability of recovery in Pfizer (HOLD) diagnostics and hospitals. Sanofi India (HOLD) Quarterly summary Shilpa Medicare (ADD) Company Sales EBITDA Adj. PAT Strides Pharma Science % Chg % Chg % Chg (Rs mn) Q2FY21E (YoY) (QoQ) Q2FY21E (YoY) (QoQ) Q2FY21E (YoY) (QoQ) (BUY) Abbott India 11,181 6.0 5.1 2,460 20.5 5.4 1,971 10.6 9.3 Sun Pharma (BUY) Alembic Pharma 13,659 10.1 1.8 3,380 (2.2) (17.0) 2,247 (8.8) (25.5) Thyrocare Technologies Alkem 23,106 2.1 15.3 5,141 13.6 (3.6) 3,783 2.0 (10.3) Apollo Hospital 24,698 (13.1) 13.7 1,976 (52.2) 456.9 (562) (165.2) (73.0) (HOLD) Aster DM 19,811 (5.1) 12.5 1,981 (19.1) 38.8 (523) (1,777) (36.9) Torrent Pharma (ADD) Aurobindo 60,675 8.3 2.4 12,438 6.5 (1.1) 7,280 8.7 (4.8) Biocon 18,208 15.8 8.9 4,622 14.7 11.8 2,007 20.0 34.3 Cadila 35,897 6.8 (1.0) 7,299 18.3 (9.1) 6,050 90.8 37.1 Cipla 45,852 4.3 5.5 9,170 0.8 (12.6) 4,808 2.0 (16.8) Dr Lal Pathlabs 3,657 0.0 37.5 922 (15.3) 90.9 629 (21.9) 121.5 Dr Reddy's 48,056 17.8 8.8 11,392 34.6 2.4 6,354 51.7 9.7 Fortis Health. 9,695 (20.0) 60.0 824 (55.3) (179.8) (230) (137.8) (87.2) Glenmark 28,621 1.7 22.1 4,843 7.5 1.3 1,945 (1.1) (5.5) GSK 8,203 (7.0) 26.5 1,878 (3.2) 64.7 1,346 (15.6) 70.1 HCG 2,385 (14.3) 23.3 286 (37.2) 47.8 (328) 47.3 (17.4) Jubilant Life 25,327 11.8 33.8 5,509 17.6 82.3 2,640 5.9 200.0 Lupin 38,010 1.7 7.7 6,006 21.0 23.0 2,827 9.5 164.4 Metropolis 2,786 24.8 94.6 786 25.5 549.3 512 19.2 1,665.6 Research Analysts: Natco Pharma 5,051 4.0 (10.4) 1,591 18.5 (7.0) 1,220 2.5 (0.6) Pfizer 6,068 7.0 17.8 2,058 25.3 10.5 1,539 (0.2) 23.7 Sriraam Rathi Sanofi India** 8,025 3.0 12.9 2,082 18.7 17.5 1,552 (5.5) 14.5 [email protected] Shilpa Medicare 2,676 (7.7) 20.1 662 (2.6) 0.7 435 (14.4) 6.4 +91 22 6637 7574 Strides Pharma 7,931 10.9 1.5 1,602 9.3 6.1 554 3.0 1.5 Vinay Bafna Sun Pharma 85,554 6.0 12.8 19,891 14.3 7.9 11,725 14.5 2.3 [email protected] Thyrocare 1,592 37.0 183.0 481 (7.7) 468.8 315 (10.1) 13,603 +91 22 6637 7339 Torrent Pharma 21,076 5.1 2.5 6,217 14.9 (5.9) 3,135 28.5 (2.3) Source: I-Sec research; Note: Q3CY20 estimates for Sanofi India Please refer to important disclosures at the end of this report

Pharmaceuticals & Healthcare ICICI Securities

Domestic market trends: Secondary data

AWACS data for Sep’20 shows India Pharma Market (IPM) had a growth rate of 3.5% in value terms over the year (MAT Sep’20). Adjusting for seasonality and free samples, industry grew at similar levels (3.6%) for the 12 months ended Sep’20. Chronic products portfolio grew at 8.2%, while acute portfolio declined 1.2% over the year in MAT terms.

Top-growing categories (MAT Sep’20):  Anti-infectives declined 0.7%, while respiratory grew 6.1%, YoY.  Chronic products segment continued to drive sales in the markets growing at an overall 8.2% rate with 12.0% YoY growth in cardiovascular and 7.7% YoY growth in anti-diabetic segments.  Gastro-intestinal and derma sales grew 1.5% and 0.4% YoY, respectively, while VMN and Neuro/CNS grew 4.9% and 5.7%, respectively.  Pain/Analgesics, anti-neoplastics and gynaec declined 1.0%, 2.9% and 2.1% YoY, respectively.  Urology grew 6.9%, while ophthalmology declined 5.5% YoY, respectively. Winners in domestic sales growth (top 20 companies in the Indian market) with MAT in excess of 8% (with bonus units): Mankind, Aristo, Glenmark, Pfizer and USV. Losers in domestic sales growth (sales growth less than 5%): Sun, Abbott, Zydus, Lupin, Dr Reddy’s, GSK, Sanofi and Micro. Table 1: Domestic growth rate of key companies YoY Growth (%)

Jul'20 Aug'20 Sep'20 Avg. Jul-Sep'20 MAT Sep'20

Industry 0.2 (2.2) 4.5 0.8 3.5 Sun + Ranbaxy (3.2) (5.0) (1.8) (3.3) 3.3 Abbott + Abbott HC + Novo 2.2 (1.9) 7.0 2.4 4.3 Cipla 10.8 7.4 15.7 11.3 5.5 Mankind 1.9 (3.7) 4.5 0.9 8.4 Zydus (0.4) (1.1) 4.2 0.9 4.5 Lupin (1.3) (2.9) 3.3 (0.3) 4.2 Alkem + Cachet + Indchemie (3.1) (7.7) 3.7 (2.4) 1.2 Torrent (2.6) (2.8) 8.6 1.1 7.1 Intas (0.2) (1.6) 10.8 3.0 6.1 Macleods (1.5) 0.2 6.9 1.9 6.8 Dr. Reddys 2.6 (3.7) 0.6 (0.2) 4.0 Aristo 7.4 5.0 7.1 6.5 13.0 Glaxo (10.8) (11.9) (7.8) (10.2) (4.8) Emcure + Zuventus 3.1 3.2 15.6 7.3 7.0 Glenmark 30.3 31.6 34.5 32.1 15.4 Pfizer 11.5 6.4 4.4 7.4 11.3 Sanofi India (1.4) 1.0 7.2 2.3 1.4 USV 9.1 4.3 8.1 7.2 9.4 Micro 0.6 (3.7) 2.2 (0.3) 4.5 Ipca 11.5 9.8 8.8 10.0 10.1 Note: Abbott includes Novo, Cadila includes Biochem, Alkem includes Cachet and Indchemine and Emcure includes Zuventus Source: AWACS data, I-Sec research

Pharmaceuticals & Healthcare ICICI Securities

Chart 1: Growth drivers for Sep’20

Vol growth Price growth New product growth 10.0

8.0 4.1 3.8 1.5 6.0 3.6 4.0

2.0 4.6 4.8

(%) 3.6 0.0

(2.0) (4.0) (4.9) (4.0)

(6.0) IPM (4.5) NLEM (8.7) NON-NLEM (4.0)

Source: AIOCD AWACS data, I-Sec research

Chart 2: Quarterly growth drivers (YoY)

Vol growth Price growth New product growth

2.9 2.9 2.8 2.8 1.5 2.9 5.5 5.2 5.3 5.1 3.3 4.5 4.6 1.2 1.8 (%) - (11.6) (6.5)

Qtr Jun'19 Qtr Sep'19 Qtr Dec'19 Qtr Mar'20 Qtr Jun'20 Qtr Sep'20

Source: AIOCD AWACS data, I-Sec research

Pharmaceuticals & Healthcare ICICI Securities

Company-specific factors

 Abbott India: i) Domestic business will remain weak although easing of restrictions would help footfalls at clinics resulting in sequential improvement, ii) costs would remain in check as sales promotion, transportation costs, etc. would remain low, and iii) lower sales would restrict EBITDA margin.  Alembic Pharma: i) US revenue will witness marginal growth QoQ with some short term business opportunity offsetting the decline in base business, while new launches supporting growth, ii) domestic performance would remain weak in sync with the industry, and iii) rise in R&D spend can keep EBITDA margin under pressure.  Alkem Labs: i) Domestic business will remain weak with lockdown restricting footfalls at clinics although sequentially it may improve, ii) expect US revenues to be flat sequentially despite competition in few key products aided by new launches, and iii) lower India sales can keep EBITDA margin in check.  Apollo Hospitals: i) Improvement in occupancy and some pent-up demand in elective surgeries, which was delayed due to lockdown, may reflect in sequential revenue growth in hospitals, ii) pharmacies will remain steady with consistent demand for medicines, iii) AHLL may continue to remain weak in the current environment and iv) recovery in hospitals supported by pharmacies and cost- saving initiatives can lift margins.  Aster DM Healthcare: i) Improvement in occupancy and some pent-up demand in elective surgeries, which was delayed due to lockdown, may reflect in sequential revenue growth in hospitals and clinics, ii) pharmacies will remain steady with consistent demand for medicines and iii) weak performance in hospitals and clinics offset by cost-saving initiatives can keep EBITDA margin stable.  Aurobindo: i) New launches will support US generics growth; however, it may be offset by weak outlook for injectables in the current environment, ii) EU would depict moderate performance with easing of lockdown restrictions, iii) stable growth in EM and APIs, while ARV will continue to see strong growth, and iv) lower sales offset by cost control measures can keep margins stable.  Biocon: i) Generics is expected to report stable growth with high demand for its API and higher generics sales in the US, ii) new launches in developed as well as emerging markets will support growth in biologics, iii) research services revenue may remain stable with existing clients and v) favourable mix with controlled expenses can aid margins.  Cadila Healthcare: i) Market share gain in new launches offset by base business erosion will keep US growth stable, ii) India business growth is expected to remain weak in sync with the industry, iii) consumer business may report stable growth with demand in key products, and iv) margins can improve with product mix and implementation of cost control measures.  Cipla: i) US to witness marginal growth sequentially with market share gain in existing products and new launches, ii) growth in respiratory portfolio in EU may improve with high demand, while SAGA can remain stable, iii) domestic growth in- line with the industry, and iv) higher R&D cost can keep EBITDA margin in check.

Pharmaceuticals & Healthcare ICICI Securities

 Dr Lal Pathlabs: i) Patient volume to see sharp jump sequentially with easing of restrictions, some pent-up demand, high seasonality and rise in COVID-19 testing, and ii) sequential growth in ex-COVID sales can aid margins.  Dr Reddy’s: i) US to grow sequentially driven by new launches, ii) India business growth will be strong with sequential improvement after easing of restrictions as well as spill over sales from the previous quarter and iii) favourable revenue mix coupled with controlled costs can support margins.  Fortis Healthcare: i) Improvement in occupancy and some pent-up demand in elective surgeries, which was delayed due to lockdown, may reflect in sequential revenue growth in hospitals, ii) SRL may witness sequential improvement in patient volume with easing of lockdown and benefit from rise in COVID-19 testing and iii) QoQ improving performance can lift EBITDA margin.  Glenmark: i) Stable environment with market share gain in existing products can support marginal growth in US sequentially, ii) emerging markets may grow with steady demand, iii) domestic business outpaces industry growth led by key products, and iv) higher R&D costs can keep margins in check.  GSK Pharma: i) Domestic business will remain weak although easing of restrictions may help footfalls at clinics resulting in sequential improvement, ii) costs may remain in check as sales promotion, transportation costs, etc. would remain low, and iii) lower sales can restrict EBITDA margin.  Healthcare Global: i) Improvement in occupancy and easing of lockdown would reflect in sequential revenue growth in hospitals, ii) fertility segment will continue to witness muted growth in the current environment and iii) QoQ improving performance can support EBITDA margin.  Jubilant Life: i) Pharma revenue growth will be led by specialty segment and demand surge in certain products in the US market, ii) LSI segment growth would be driven by higher demand in products, and iii) higher revenue with controlled expenses can lift margins.  Lupin: i) Steady ramp-up in Solosec, market share gain in existing products and new launches may support QoQ growth in the US, ii) domestic business will be in sync with the industry, and iii) favourable revenue mix with effective cost-control measures can lift EBITDA margin.  Metropolis: i) Patient volume to see sharp jump sequentially with easing of restrictions, some pent-up demand, high seasonality and rise in COVID-19 testing and ii) sequential growth in ex-COVID sales can aid margins.  Natco Pharma: i) Market share gain in existing products and stable environment will support export sales, ii) domestic performance may outpace the industry led by traction in C&D therapy segments and recovery in oncology therapy, and iii) margins will improve YoY with effective cost control measures.  Pfizer: i) Domestic business will outpace the industry driven by VMN segment, ii) costs will remain in check as sales promotion, transportation costs, etc. are likely to remain low, and iii) higher sales can support EBITDA margin.

Pharmaceuticals & Healthcare ICICI Securities

 Sanofi: i) Domestic business will grow sequentially with easing of lockdown improving footfalls at clinics, ii) costs will remain in check as sales promotion, transportation costs, etc. would remain low, iii) export sales may remain stable excluding the Zentiva deal and iv) EBITDA margin can remain stable.  Shilpa Medicare: i) API may see steady growth supported by stable demand, ii) formulation business will grow with new launches and market share gain in existing products, and iii) increasing revenue contribution from formulations can support EBITDA margin.  Strides Pharma: i) US revenue growth should continue aided by new launches and potential market share gain in existing products; ii) other regions will remain steady led by stable demand, and iii) stable profitability with consistent revenue mix.  Sun Pharma: i) US revenues will gain with improving traction in specialty portfolio and some recovery in Taro, ii) growth in domestic business may outpace the industry led by chronic portfolio, and iii) EBITDA margin can improve with better revenue mix.  Thyrocare Technologies: i) Patient volume will see sharp jump sequentially with easing of restrictions, some pent-up demand, high seasonality and rise in COVID- 19 testing and ii) sequential growth in ex-COVID sales can aid margins.  Torrent Pharma: i) US sales growth will be muted without new launches on account of FDA issues; ii) performance across other international geographies will be supported by stable demand, iii) India business growth to outpace the industry led by higher chronic portfolio, and iv) EBITDA margin can improve with domestic business and effective cost control measures.

Pharmaceuticals & Healthcare ICICI Securities

Table 2: Estimates for Q2FY21 (Rs mn) Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21E % YoY % QoQ Comments Abbott India i) Domestic business will remain Revenue 10,548 10,783 9,612 10,643 11,181 6.0 5.1 weak although easing of EBITDA 2,041 2,397 1,384 2,334 2,460 20.5 5.4 restrictions would help footfalls at EBITDA Margin (%) 19.4 22.2 14.4 21.9 22.0 260bps 10bps clinics resulting in sequential PAT 1,783 1,867 1,110 1,804 1,971 10.6 9.3 improvement, ii) costs would EPS (Rs) 83.9 87.9 52.2 84.9 92.8 10.6 9.3 remain in check as sales promotion, transportation costs, etc. would remain low, and iii) lower sales would restrict EBITDA margin. Alembic Pharma i) US revenue will witness marginal Revenue 12,409 12,091 12,068 13,413 13,659 10.1 1.8 growth QoQ with some short term EBITDA 3,455 3,251 3,275 4,074 3,380 (2.2) (17.0) business opportunity offsetting the EBITDA Margin (%) 27.8 26.9 27.1 30.4 24.8 (300)bps (560)bps decline in base business, while new launches supporting growth, ii) PAT 2,463 2,342 2,329 3,015 2,247 (8.8) (25.5) domestic performance would EPS (Rs) 12.5 11.9 11.9 15.3 11.4 (8.8) (25.5) remain weak in sync with the industry, and iii) rise in R&D spend can keep EBITDA margin under pressure. Alkem i) Domestic business will remain Revenue 22,640 21,818 20,490 20,035 23,106 2.1 15.3 weak with lockdown restricting EBITDA 4,526 4,533 3,030 5,332 5,141 13.6 (3.6) footfalls at clinics although EBITDA Margin (%) 20.0 20.8 14.8 26.6 22.3 230bps (430)bps sequentially it may improve, ii) expect US revenues to be flat PAT 3,709 3,820 2,034 4,220 3,783 2.0 (10.3) sequentially despite competition in EPS (Rs) 31.0 32.0 17.0 35.3 31.6 2.0 (10.3) few key products aided by new launches, and iii) lower India sales can keep EBITDA margin in check. Apollo Hospital i) Improvement in occupancy and Revenue 28,407 29,117 29,224 21,715 24,698 (13.1) 13.7 some pent-up demand in elective EBITDA 4,135 4,300 3,801 355 1,976 (52.2) 456.9 surgeries, which was delayed due EBITDA Margin (%) 14.6 14.8 13.0 1.6 8.0 (660)bps 640bps to lockdown, may reflect in PAT 862 921 211 (2,082) (562) (165.2) (73.0) sequential revenue growth in EPS (Rs) 6.2 6.6 1.5 (15.0) (4.0) (165.2) (73.0) hospitals, ii) pharmacies will remain steady with consistent demand for medicines, iii) AHLL may continue to remain weak in the current environment and iv) recovery in hospitals supported by pharmacies and cost-saving initiatives can lift margins. Aster DM i) Improvement in occupancy and Revenue 20,869 23,217 23,014 17,606 19,811 (5.1) 12.5 some pent-up demand in elective EBITDA 2,448 3,851 4,040 1,427 1,981 (19.1) 38.8 surgeries, which was delayed due EBITDA Margin (%) 11.7 16.6 17.6 8.1 10.0 (170)bps 190bps to lockdown, may reflect in sequential revenue growth in PAT 31 1,565 1,574 (829) (523) (1,776.7) (36.9) hospitals and clinics, ii) pharmacies EPS (Rs) 0.1 3.1 3.1 (1.6) (1.0) (1,776.7) (36.9) will remain steady with consistent demand for medicines and iii) weak performance in hospitals and clinics offset by cost-saving initiatives can keep EBITDA margin stable. Aurobindo i) New launches will support US Revenue 56,005 58,950 61,584 59,248 60,675 8.3 2.4 generics growth; however, it may EBITDA 11,675 12,080 13,424 12,574 12,438 6.5 (1.1) be offset by weak outlook for EBITDA Margin (%) 20.8 20.5 21.8 21.2 20.5 (30)bps (70)bps injectables in the current environment, ii) EU would depict PAT 6,695 7,084 8,608 7,646 7,280 8.7 (4.8) moderate performance with easing EPS (Rs) 11.4 12.1 14.7 13.0 12.4 8.7 (4.8) of lockdown restrictions, iii) stable growth in EM and APIs, while ARV will continue to see strong growth, and iv) lower sales offset by cost control measures can keep margins stable.

Pharmaceuticals & Healthcare ICICI Securities

(Rs mn) Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21E % YoY % QoQ Comments Biocon i) Generics is expected to report Revenue 15,722 17,481 15,575 16,713 18,208 15.8 8.9 stable growth with high demand for EBITDA 4,028 4,442 3,370 4,133 4,622 14.7 11.8 its API and higher generics sales in EBITDA Margin (%) 25.6 25.4 21.6 24.7 25.4 (20)bps 70bps the US, ii) new launches in PAT 1,673 2,028 1,418 1,494 2,007 20.0 34.3 developed as well as emerging EPS (Rs) 1.4 1.7 1.2 1.2 1.7 20.0 34.3 markets will support growth in biologics, iii) research services revenue may remain stable with existing clients and v) favourable mix with controlled expenses can aid margins. Cadila i) Market share gain in new Revenue 33,618 36,228 37,288 36,273 35,897 6.8 (1.0) launches offset by base business EBITDA 6,170 6,719 7,650 8,027 7,299 18.3 (9.1) erosion will keep US growth stable, EBITDA Margin (%) 18.4 18.5 20.5 22.1 20.3 190bps (180)bps ii) India business growth is expected to remain weak in sync PAT 3,171 3,586 4,170 4,413 6,050 90.8 37.1 with the industry, iii) consumer EPS (Rs) 3.1 3.5 4.1 4.3 5.9 90.8 37.1 business may report stable growth with demand in key products, and iv) margins can improve with product mix and implementation of cost control measures. Cipla i) US to witness marginal growth Revenue 43,958 43,710 43,762 43,462 45,852 4.3 5.5 sequentially with market share gain EBITDA 9,095 8,108 7,210 10,487 9,170 0.8 (12.6) in existing products and new EBITDA Margin (%) 20.7 18.5 16.5 24.1 20.0 (70)bps (410)bps launches, ii) growth in respiratory portfolio in EU may improve with PAT 4,714 3,877 3,106 5,779 4,808 2.0 (16.8) high demand, while SAGA can EPS (Rs) 5.9 4.8 3.9 7.2 6.0 2.0 (16.8) remain stable, iii) domestic growth in-line with the industry, and iv) higher R&D cost can keep EBITDA margin in check. Dr Lal Pathlabs i) Patient volume to see sharp jump Revenue 3,656 3,279 3,017 2,660 3,657 0.0 37.5 sequentially with easing of EBITDA 1,089 823 573 483 922 (15.3) 90.9 restrictions, some pent-up demand, EBITDA Margin (%) 29.8 25.1 19.0 18.2 25.2 (460)bps 700bps high seasonality and rise in COVID-19 testing, and ii) PAT 805 541 325 284 629 (21.9) 121.5 sequential growth in ex-COVID EPS (Rs) 9.7 6.5 3.9 3.4 7.6 (21.9) 121.5 sales can aid margins. Dr Reddy's i) US to grow sequentially driven by Revenue 40,780 43,838 44,318 44,175 48,056 17.8 8.8 new launches, ii) India business EBITDA 8,463 10,188 9,406 11,129 11,392 34.6 2.4 growth will be strong with EBITDA Margin (%) 20.8 23.2 21.2 25.2 23.7 290bps (150)bps sequential improvement after easing of restrictions as well as PAT 4,188 5,231 6,384 5,793 6,354 51.7 9.7 spill over sales from the previous EPS (Rs) 25.2 31.5 38.5 34.9 38.3 51.7 9.7 quarter and iii) favourable revenue mix coupled with controlled costs can support margins. Fortis i) Improvement in occupancy and Revenue 12,122 11,689 11,129 6,060 9,695 (20.0) 60.0 some pent-up demand in elective EBITDA 1,845 1,570 1,258 (1,033) 824 (55.3) (179.8) surgeries, which was delayed due EBITDA Margin (%) 15.2 13.4 11.3 (17.0) 8.5 (670)bps 2550bps to lockdown, may reflect in sequential revenue growth in PAT 610 257 -445 (1,793) (230) (137.8) (87.2) hospitals, ii) SRL may witness EPS (Rs) 0.8 0.3 -0.6 (2.4) (0.3) (137.8) (87.2) sequential improvement in patient volume with easing of lockdown and benefit from rise in COVID-19 testing and iii) QoQ improving performance can lift EBITDA margin. Glenmark i) Stable environment with market Revenue 28,150 27,356 27,675 23,448 28,621 1.7 22.1 share gain in existing products can EBITDA 4,504 4,401 4,657 4,781 4,843 7.5 1.3 support marginal growth in US EBITDA Margin (%) 16.0 16.1 16.8 20.4 16.9 90bps (350)bps sequentially, ii) emerging markets may grow with steady demand, iii) PAT 1,967 1,908 1,733 2,057 1,945 (1.1) (5.5) domestic business outpaces EPS (Rs) 7.0 6.8 6.1 7.3 6.9 (1.1) (5.5) industry growth led by key products, and iv) higher R&D costs can keep margins in check.

Pharmaceuticals & Healthcare ICICI Securities

(Rs mn) Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21E % YoY % QoQ Comments GSK i) Domestic business will remain Revenue 8,820 7,786 7,758 6,486 8,203 (7.0) 26.5 weak although easing of EBITDA 1,940 1,244 1,736 1,141 1,878 (3.2) 64.7 restrictions may help footfalls at EBITDA Margin (%) 22.0 16.0 22.4 17.6 22.9 90bps 530bps clinics resulting in sequential improvement, ii) costs may remain PAT 1,594 894 1,293 791 1,346 (15.6) 70.1 in check as sales promotion, EPS (Rs) 9.4 5.3 7.6 4.7 7.9 (15.6) 70.1 transportation costs, etc. would remain low, and iii) lower sales can restrict EBITDA margin. HCG i) Improvement in occupancy and Revenue 2,785 2,779 2,704 1,935 2,385 (14.3) 23.3 easing of lockdown would reflect in EBITDA 456 457 360 194 286 (37.2) 47.8 sequential revenue growth in EBITDA Margin (%) 16.4 16.5 13.3 10.0 12.0 (440)bps 200bps hospitals, ii) fertility segment will continue to witness muted growth PAT (223) (228) (436) (398) (328) 47.3 (17.4) in the current environment and iii) EPS (Rs) (2.6) (2.7) (5.1) (4.7) (3.9) 47.3 (17.4) QoQ improving performance can support EBITDA margin. Jubilant Life i) Pharma revenue growth will be Revenue 22,659 23,152 23,914 18,929 25,327 11.8 33.8 led by specialty segment and EBITDA 4,685 5,074 5,366 3,022 5,509 17.6 82.3 demand surge in certain products EBITDA Margin (%) 20.7 21.9 22.4 16.0 21.8 110bps 580bps in the US market, ii) LSI segment growth would be driven by higher PAT 2,494 2,380 2,605 880 2,640 5.9 200.0 demand in products, and iii) higher EPS (Rs) 15.7 14.9 16.4 5.5 16.6 5.9 200.0 revenue with controlled expenses can lift margins. Lupin i) Steady ramp-up in Solosec, Revenue 37,381 37,693 38,457 35,279 38,010 1.7 7.7 market share gain in existing EBITDA 4,965 4,291 5,253 4,881 6,006 21.0 23.0 products and new launches may EBITDA Margin (%) 13.3 11.4 13.7 13.8 15.8 250bps 200bps support QoQ growth in the US, ii) domestic business will be in sync PAT 2,582 1,090 3,241 1,069 2,827 9.5 164.4 with the industry, and iii) favourable EPS (Rs) 5.7 2.4 7.2 2.4 6.3 9.5 164.4 revenue mix with effective cost- control measures can lift EBITDA margin. Metropolis i) Patient volume to see sharp jump Revenue 2,233 2,229 2,070 1,431 2,786 24.8 94.6 sequentially with easing of EBITDA 626 636 514 121 786 25.5 549.3 restrictions, some pent-up demand, EBITDA Margin (%) 28.0 28.5 24.8 8.5 28.2 20bps 1970bps high seasonality and rise in COVID-19 testing and ii) sequential PAT 430 421 272 29 512 19.2 1,665.6 growth in ex-COVID sales can aid EPS (Rs) 8.6 8.4 5.4 0.6 10.2 19.2 1,665.6 margins. Natco Pharma i) Market share gain in existing Revenue 4,857 4,822 4,548 5,634 5,051 4.0 (10.4) products and stable environment EBITDA 1,343 1,437 1,283 1,711 1,591 18.5 (7.0) will support export sales, ii) EBITDA Margin (%) 27.7 29.8 28.2 30.4 31.5 380bps 110bps domestic performance may outpace the industry led by traction PAT 1,190 1,167 941 1,228 1,220 2.5 (0.6) in C&D therapy segments and EPS (Rs) 6.5 6.4 5.2 6.7 6.7 2.5 (0.6) recovery in oncology therapy, and iii) margins will improve YoY with effective cost control measures. Pfizer i) Domestic business will outpace Revenue 5,671 5,382 5,020 5,149 6,068 7.0 17.8 the industry driven by VMN EBITDA 1,642 1,334 1,087 1,863 2,058 25.3 10.5 segment, ii) costs will remain in EBITDA Margin (%) 29.0 24.8 21.7 36.2 33.9 490bps (230)bps check as sales promotion, transportation costs, etc. are likely PAT 1,543 1,129 980 1,245 1,539 (0.2) 23.7 to remain low, and iii) higher sales EPS (Rs) 33.7 24.7 21.4 27.2 33.6 (0.2) 23.7 can support EBITDA margin. Sanofi India** i) Domestic business will grow Revenue 7,791 8,263 7,845 7,105 8,025 3.0 12.9 sequentially with easing of EBITDA 1,755 1,782 1,767 1,772 2,082 18.7 17.5 lockdown improving footfalls at EBITDA Margin (%) 22.5 21.6 22.5 24.9 26.0 350bps 110bps clinics, ii) costs will remain in check as sales promotion, transportation PAT 1,642 1,093 1,174 1,355 1,552 (5.5) 14.5 costs, etc. would remain low, iii) EPS (Rs) 71.4 47.5 51.0 58.9 67.5 (5.5) 14.5 export sales may remain stable excluding the Zentiva deal and iv) EBITDA margin can remain stable.

Pharmaceuticals & Healthcare ICICI Securities

(Rs mn) Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21E % YoY % QoQ Comments Shilpa Medicare i) API may see steady growth Revenue 2,899 2,369 2,200 2,229 2,676 (7.7) 20.1 supported by stable demand, ii) EBITDA 680 737 456 657 662 (2.6) 0.7 formulation business will grow with EBITDA Margin (%) 23.5 31.1 20.7 29.5 24.8 130bps (470)bps new launches and market share gain in existing products, and iii) PAT 508 551 346 409 435 (14.4) 6.4 increasing revenue contribution EPS (Rs) 6.3 6.9 4.3 5.1 5.4 (14.4) 6.4 from formulations can support EBITDA margin. Strides Pharma i) US revenue growth should Revenue 7,151 7,324 6,186 7,818 7,931 10.9 1.5 continue aided by new launches EBITDA 1,466 1,808 837 1,510 1,602 9.3 6.1 and potential market share gain in EBITDA Margin (%) 20.5 24.7 13.5 19.3 20.2 (30)bps 90bps existing products; ii) other regions will remain steady led by stable PAT 538 787 -251 546 554 3.0 1.5 demand, and iii) stable profitability EPS (Rs) 6.0 8.8 -2.8 6.1 6.2 3.0 1.5 with consistent revenue mix. Sun Pharma i) US revenues will gain with Revenue 80,734 81,549 81,849 75,853 85,554 6.0 12.8 improving traction in specialty EBITDA 17,397 18,414 13,630 18,435 19,891 14.3 7.9 portfolio and some recovery in EBITDA Margin (%) 21.5 22.6 16.7 24.3 23.3 180bps (100)bps Taro, ii) growth in domestic business may outpace the industry PAT 10,237 9,135 6,605 11,460 11,725 14.5 2.3 led by chronic portfolio, and iii) EPS (Rs) 4.3 3.8 2.8 4.8 4.9 14.5 2.3 EBITDA margin can improve with better revenue mix. Thyrocare i) Patient volume will see sharp Revenue 1,162 1,058 1,014 563 1,592 37.0 183.0 jump sequentially with easing of EBITDA 522 438 310 85 481 (7.7) 468.8 restrictions, some pent-up demand, EBITDA Margin (%) 44.9 41.4 30.5 15.0 30.2 (1470)bps 1520bps high seasonality and rise in COVID-19 testing and ii) sequential PAT 351 275 50 2 315 (10.1) 13,603.0 growth in ex-COVID sales can aid EPS (Rs) 6.6 5.2 0.9 0.0 6.0 (10.1) 13,603.0 margins. Torrent Pharma i) US sales growth will be muted Revenue 20,050 19,660 19,460 20,560 21,076 5.1 2.5 without new launches on account EBITDA 5,410 5,400 5,480 6,610 6,217 14.9 (5.9) of FDA issues; ii) performance EBITDA Margin (%) 27.0 27.5 28.2 32.1 29.5 250bps (260)bps across other international geographies will be supported by PAT 2,440 2,510 2,610 3,210 3,135 28.5 (2.3) stable demand, iii) India business EPS (Rs) 14.4 14.8 15.4 19.0 18.5 28.5 (2.3) growth to outpace the industry led by higher chronic portfolio, and iv) EBITDA margin can improve with domestic business and effective cost control measures. Source: Company data, I-Sec research; Note: CY ending estimates for Sanofi India

Pharmaceuticals & Healthcare ICICI Securities

Price charts Abbott India Alembic Pharma Alkem Apollo Hospital 20000 1200 3200 2400 18000 1100 3000 2200 16000 1000 2800 2000 2600 14000 900 1800 12000 800 2400 1600 (Rs) 10000(Rs) 700 (Rs) 2200 (Rs) 1400 8000 600 2000 6000 500 1800 1200 4000 400 1600 1000 1400 2000 300 800 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20

Aster DM Aurobindo Biocon Cadila 250 1000 500 600 900 450 200 400 500 800 350 400 150 700 300 250 300

600 (Rs) (Rs) (Rs) (Rs) 100 500 200 200 150 50 400 100 100 50 300 0 0 200 0 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Jul-18 Apr-19 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Jan-20 Feb-18 Nov-18 Aug-19 May-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Cipla Dr Lal Pathlabs Dr Reddy’s Fortis Healthcare 180 880 2400 6,000 2200 5,500 780 2000 5,000 160 680 1800 4,500 1600 4,000 140 580

(Rs) 1400 (Rs) (Rs) 3,500 (Rs) 480 1200 3,000 120 1000 2,500 380 800 2,000 280 600 1,500 100 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20

Glenmark GSK Pharma HCG Jubilant Life 800 2,000 400 1200 350 1,800 1000 600 300 1,600 250 800 400 1,400 200 (Rs) (Rs) (Rs) 600 (Rs) 1,200 150 200 400 1,000 100 50 200 0 800 0 0 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Lupin Metropolis Natco Pharma Pfizer 1200 2250 1100 6000 1100 1000 2050 5000 1000 900 1850 900 800 4000 800 1650 700 3000 (Rs) (Rs) 700 (Rs) 1450 600 (Rs) 600 500 2000 500 1250 400 400 1050 1000 300 300 850 0 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Apr-19 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Jan-20 Aug-19 May-20

Pharmaceuticals & Healthcare ICICI Securities

Sanofi India Shilpa Medicare Strides Pharma Science Sun Pharma 10000 800 1000 800 9000 700 700 800 8000 600 600 7000 500 600 (Rs) (Rs) (Rs) 500

6000 400 (Rs) 5000 300 400 400 4000 200 200 300 3000 100 200 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Thyrocare Torrent Pharma 1200 3500 1100 3100 1000 2700 900 800 2300 (Rs) (Rs) 700 1900 600 1500 500 1100 400 700 300 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20

Source: Bloomberg

Pharmaceuticals & Healthcare ICICI Securities

In case of industry/sector reports or a report containing multiple stocks, the rating/recommendation for a particular stock may be based on the last released stock

specific report for that company.

This report may be distributed in Singapore by ICICI Securities, Inc. (Singapore branch). Any recipients of this report in Singapore should contact ICICI Securities, Inc. (Singapore branch) in respect of any matters arising from, or in connection with, this report. The contact details of ICICI Securities, Inc. (Singapore branch) are as follows: Address: 10 Collyer Quay, #37-16 Ocean Financial Tower, Singapore - 049315, Tel: +65 6232 2451 and email: [email protected], [email protected].

"In case of eligible investors based in Japan, charges for brokerage services on execution of transactions do not in substance constitute charge for research reports and no charges are levied for providing research reports to such investors."

New I-Sec investment ratings (all ratings based on absolute return; All ratings and target price refers to 12-month performance horizon, unless mentioned otherwise) BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return

ANALYST CERTIFICATION I/We, Sriraam Rathi, CA; Vinay Bafna, MBA; authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts are not registered as research analysts by FINRA and are not associated persons of the ICICI Securities Inc. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a SEBI registered Research Analyst with SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities 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. Recommendation in reports based on technical and derivative analysis centre on studying charts of a stock's price movement, outstanding positions, trading volume etc as opposed to focusing on a company's fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Institutional Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Retail Research. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. 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 ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. 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. 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. ICICI Securities 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. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates 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. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates 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. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives 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. Since associates of ICICI Securities 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. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. This report has not been prepared by ICICI Securities, Inc. However, ICICI Securities, Inc. has reviewed the report and, in so far as it includes current or historical information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.