9 March 2021

ASIAMONEY Brokers Poll 2020 () Today’s top research idea UPL: Adding Rynaxypyr ahead of time in the kitty

❖ UPL has announced a long-term strategic collaboration with FMC Corporation for Rynaxypyr, which allows UPL access to key markets prior to the patent expiry and to commercialize Rynaxypyr Active: FMC's leading insecticide. In CY19, the global Rynaxypyr market was valued at USD1.6b (v/s the global Crop Protection market of USD59.8b). The market is expected to expand at a Market snapshot moderate CAGR (4.4%) over CY18-25 and reach USD2.1b by CY25-end. ❖ The pact also allows UPL to launch Rynaxypyr formulations with its own Equities - India Close Chg .% CYTD.% Sensex 50,441 0.1 5.6 trademark and combination molecule in key markets, thereby enabling the Nifty-50 14,956 0.1 7.0 company to add a new core molecule to its portfolio. Rynaxypyr has a 2.7% Nifty-M 100 24,149 0.3 15.9 market share in the global Crop Protection market. Equities-Global Close Chg .% CYTD.% ❖ As per an industry source, toll manufacturing and supply of Rynaxypyr to FMC S&P 500 3,821 -0.5 1.7 Nasdaq 12,609 -2.4 -2.2 in India will provide UPL with a INR7-8b - a long-term growth opportunity. We FTSE 100 6,719 1.3 4.0 maintain our Neutral view with a TP of INR631/share. DAX 14,381 3.3 4.8 Hang Seng 11,015 -2.5 2.6 Nikkei 225 28,743 -0.4 4.7 Research covered Commodities Close Chg .% CYTD.% Brent (US$/Bbl) 68 -2.2 32.6 Cos/Sector Key Highlights Gold ($/OZ) 1,684 -1.0 -11.3 UPL Adding Rynaxypyr ahead of time in the kitty Cu (US$/MT) 9,019 1.2 16.4 Almn (US$/MT) 2,162 -0.7 9.5 EcoScope Few macro lessons from the 3QFY21 corporate results Currency Close Chg .% CYTD.% USD/INR 73.3 0.3 0.3 India Life Insurance Private players’ Individual WRP grows ~23% YoY in Feb’21 USD/EUR 1.2 -0.6 -3.0 Healthcare IPM growth moderates further in Feb’21 USD/JPY 108.9 0.5 5.5 YIELD (%) Close 1MChg CYTD chg 10 Yrs G-Sec 6.2 -0.01 0.4 Piping hot news 10 Yrs AAA Corp 7.2 0.01 0.6 Flows (USD b) 8-Mar MTD CY21 Life insurance industry bucks recent slump, registers 21% growth in FIIs -0.20 0.55 5.74 February DIIs 0.07 -0.23 -4.18 India’s life insurance sector registered a strong new business premium (NBP) Volumes (INRb) 8-Mar MTD* YTD* Cash 648 789 826 growth of 21% in February, bucking its recent trend where it registered either F&O 34,077 43,514 40,009 tepid or negative growth since November. The NBP which is a key metric to gauge Note: *Average the performance of life insurer grew to Rs22,425.21 crore in February for India’s …

Chart of the Day: UPL (Adding Rynaxypyr ahead of time in the kitty) Expect global Rynaxypyr market to grow at 4.4% CAGR over CY19-25E

Global Rynaxypyr market (USDb)

2.1 1.5 1.6

2017 2019 2025

Source: Industry, MOFSL

Research Team ([email protected]) Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital. In the news today

Kindly click on textbox for the detailed news link

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Life insurance industry bucks DoT demands Rs 21,919 crore as upfront payment for recent slump, registers 21% spectrum from telcom companies growth in February The telecom department has sent notices to Reliance Jio , Bharti India’s life insurance sector Airtel and , demanding around Rs 21,919 crore as registered a strong new business upfront payment for spectrum bought in the just ended auctions. The premium (NBP) growth of 21% in Department of Telecommunications, in separate notices, has sought February, bucking its recent trend Rs 15,019.84 crore from Jio, Rs 6323.98 crore from Airtel and Rs where it registered either tepid or 574.65 from Vodafone Idea, as upfront payment if the telcos choose negative growth since November. the spread their dues over 16 year.… The NBP which is a key metric to gauge the performance of life insurer grew to Rs22,425.21 cr…

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Health chain Aster plans $400 Govt nets Rs 53,346 crore mn bond sale, India from Vivad Se Vishwas expansion scheme till February 22 Aster DM Healthcare Ltd., a Dubai- 5 The government has realised Rs based operator of hospitals and 53,346 crore through direct tax pharmacies that’s expanding LPG price double in 7 years; across India, is revisiting a dispute resolution scheme Vivad Se tax collection on petrol, potential sale of dollar bonds after Vishwas till February 22, Parliament diesel jumps 459%: Oil pushing back a planned issuance was informed on Monday. To a Minister Dharmendra last year. Aster, which runs 26 query in the Lok Sabha on whether Pradhan the government has been able to hospitals and hundreds of clinics The country's non-basmati rice achieve the objective of settling and pharmacies in the Gulf and exports have increased to Rs income tax cases after launching India, will seek to issue about 26,058 crore during April-January the Vivad se Vishwas scheme,… $400 million of securities … 2020-21 as against Rs 11,543 crore in the same period last fiscal, the commerce ministry said on Thursday. Agricultural and 6 7 Processed Food Products Export BPCL Trust to sell up to 4% of its CIL approves 32 mining Development Authority (APEDA) shares projects involving Chairman M Angamuthu said BPCL Trust for Investment in incremental investment of Rs several measures have been Shares (BPCL Trust) will sell up to 47,000 crore taken in terms of ensuring safety and hygiene while ensuring that 4% of its shares in state-owned has approved a record rice exports continue energy company Bharat 32 mining projects this fiscal at uninterrupted… Petroleum Corporation Ltd an investment of Rs 47,300 (BPCL) on Tuesday through a crore. While 24 of the 32 are block deal, according to the expansion of the existing terms of the deal seen by Mint. projects, eight are new The Trust will sell up to 86.77 greenfield projects. Combined million shares or 4% of the… peak capacity of these projects…

9 March 2021 2

8 March 2021 Company Update | Sector: Agri UPL

BSE SENSEX S&P CNX 50,441 14,956 CMP: INR630 TP: INR631 Neutral

Adding Rynaxypyr ahead of time in the kitty

◼ UPL has announced a long-term strategic collaboration with FMC Corporation. It will

toll manufacture and supply Rynaxypyr to FMC in India. FMC will supply the active Bloomberg UPLL IN ingredient (AI) to UPL depending on the market. We have analyzed the market size, Equity Shares (m) 765 use of Rynaxypyr, and impact of the agreement on UPL. M.Cap.(INRb)/(USDb) 481.1 / 6.6 ◼ 52-Week Range (INR) 636 / 240 UPL announces a long-term collaboration with FMC for Rynaxypyr 1, 6, 12 Rel. Per (%) 19/-2/-12 ◼ 12M Avg Val (INR M) 3674 UPL has announced a long-term strategic collaboration with FMC Corporation, Free float (%) 72.2 a leading global agricultural sciences company. ◼ The pact allows UPL access to key markets prior to the patent expiry and to Financials Snapshot (INR b) commercialize Rynaxypyr Active: FMC's leading insecticide. Y/E MARCH FY21E 2022E 2023E Sales 378.7 411.8 443.4 ◼ As per the agreement, UPL will toll manufacture and supply Rynaxypyr to FMC EBITDA 82.3 92.6 102.0 in India. FMC will supply the AI to UPL depending on the market. Adj. PAT 31.7 37.5 43.9 ◼ The deal adds a key portfolio of products to UPL's business and supports FMC EBITDA Margin (%) 21.7 22.5 23.0 in maximizing the penetration of this important AI. Cons. Adj. EPS (INR) 41.4 49.0 57.4 EPS Gr. (%) 19.0 18.2 17.2 ◼ Early access to Rynaxypyr formulations in key markets allows UPL to provide BV/Sh. (INR) 241 425 495 farmers with more sustainable product choices. Ratios Net D:E 1.3 1.0 0.8 RoE (%) 18.2 18.8 18.9 Rynaxypyr accounts for 2.7% of the global Crop Protection market RoCE (%) 10.6 11.3 12.3 ◼ Rynaxypyr AI was first registered in the Philippines in Jun’07 and in 19 Payout (%) 20.0 20.0 20.0 countries in CY08, including the US, Canada, and Australia. Since then, its Valuations approved uses have expanded to over 120 countries. In doing so, it has passed P/E (x) 15.2 12.9 11.0 EV/EBITDA (x) 8.9 7.6 6.6 rigorous regulatory reviews over the past decade. A major regulatory Div. Yield (%) 1.1 1.6 1.8 reassessment is slated to occur in the EU, US, Canada, and Japan within the FCF Yield (%) 5.8 9.9 11.4 next few years.

Shareholding pattern (%) ◼ The molecule was launched in CY07 by DuPont. It had to divest this product As On Dec-20 Sep-20 Dec-19 when it merged with Dow Chemicals due to regulatory issues. FMC acquired Promoter 27.9 27.9 27.9 the AI from DuPont in CY17 and launched the same in CY18. DII 16.7 16.2 11.5 ◼ Rynaxypyr AI is a scientific breakthrough that has become an important tool FII 35.3 37.2 43.5 for growers around the world to protect their crops from harmful insects. The Others 20.2 18.7 17.2 essence of this breakthrough – what scientists call a ‘novel mode of action’ – is FII Includes depository receipts Rynaxypyr AI’s highly selective targeting of these insects. The AI attacks the ryanodine receptor in the insect. Stock Performance (1-year) ◼ About 30% of Rynaxypyr produced is used by the rice industry. Fruits and UPL Sensex - Rebased 850 vegetables/soybean applications account for 22%/24% of consumption volumes. 650 ◼ In CY19, the global Rynaxypyr market was valued at USD1.6b (v/s the global 450 Crop Protection market of USD59.8b). The market is expected to expand at a 250 moderate CAGR (4.4%) over CY18-25 and reach USD2.1b by CY25-end.

◼ Industry sources peg the Rynaxypyr India opportunity at over INR20b (B2C).

Jul-20

Nov-20 Mar-20 Mar-21 The market size for manufacturing the AI in India for UPL is INR7-8b (market

size for technical is 35-40% of the B2C market of INR20b).

9 March 2021 3

◼ Composition of matter patents (product patent) for Rynaxypyr is going to expire globally (Europe, US, Brazil, India, and China) over Aug’22 to Apr’23. Process patents too would expire over Dec’25 to Apr’26 (Refer Exhibit: 5-8). ◼ UPL will launch the formulation with its own trademark in India as well as overseas. It will roll out the combination molecule in key markets globally prior to the patent expiry, which will provide it with a huge opportunity.

Valuation and view  The pact with FMC will allow UPL to launch Rynaxypyr formulations with its own trademark and combination molecule in key markets, thereby enabling the company to add a new core molecule to its portfolio. Rynaxypyr has a 2.7% market share in the global Crop Protection market. As per an industry source, toll manufacturing and supply of Rynaxypyr to FMC in India will provide UPL with a INR7-8b – a long-term growth opportunity.  In its 2QFY21 conference call, the management guided at reducing debt by USD700m in 2HFY21. Of this, USD410m of debt has been repaid as on 28th Dec'20. The debt repayment was from its cash balance of INR80b as of Sep'20 as CFO from 1HFY21 was a mere INR1.4b. The cash balance is aided by issuance of USD denominated senior notes of USD500m in Jun'20.  The company has to repay loans worth USD290m (INR21.2b, assuming a USD:INR conversion rate of 73) by the end of FY21.  It has a current cash balance of INR35.9b as of Dec'20. Cash generation in 4Q would be critical for debt repayment (in 9MFY21, it generated CFO of INR5.5b).  Debt repayment and cash generation would be a key trigger to watch out for going forward.  The stock has traded at an average P/E of 13.5x over the last three years on a one-year forward basis. We have ascribed 11x P/E (~20% discount to its three- year average) as high debt is a key concern for the company.  We maintain our Neutral view with a TP of INR631/share.

9 March 2021 4

8 March 2021

ECOSCOPE The Economy Observer

Few macro lessons from the 3QFY21 corporate results Record-high EBITDA margins fuel equity markets

The RBI released the 3QFY21 financials of listed non-government non-financial (NGNF) companies. Here are the key highlights: ◼ Net sales of the listed NGNF corporate sector (comprising about 2,700 companies) grew for the first time in six quarters by 4% YoY in 3QFY21. After falling for five successive quarters, total expenditure also grew 2.7% YoY in 3Q. Corporate sales are strongly correlated with the WPI measure of inflation (Exhibits 1, 2). ◼ The interest coverage ratio improved to nine-year highs (this data is available only since FY12) of 4.5x in 3Q vis-à-vis 3.4x a year ago (Exhibit 3). ◼ The EBITDA margin also stood at record highs of 22.6% in 3QFY21 vis-à-vis 18.3% a year ago (Exhibit 4). ◼ After contracting in 1HFY21, employee costs grew 2.7% YoY in 3QFY21, implying the fourth successive decline in real terms (Exhibit 5). ◼ The listed corporate sector has gained massively during COVID-19 vis-à-vis decline in the rest of the economy (RoE). The gross value-added1 (GVA) of the listed non-financial companies2 (NFCs) rose 14% YoY each in 2QFY21 and 3QFY21, which implies that GVA of RoE increased 3.4% last quarter (following decline of 6.7% in 2QFY21) (Exhibit 6). ◼ Listed NFC GVA, however, accounts for just ~9% of national GVA (Exhibit 7) and almost a quarter of the entire NFC GVA in the economy. Buoyancy in the former is reflected in the equity markets as well, but this does not necessarily imply the same buoyancy in the economy. ◼ Lastly, the distribution of listed corporate GVA by factors of production reveals that the share of entrepreneurs (measured by PBT) stood at 40.5% of GVA, the highest since the availability of quarterly data from 3QFY12. Consequently, the share of entrepreneurs rose to 32.5% over Apr–Dec’20, from 31% in FY20, while it fell to 37% (from 39%) of GVA for the workers (Exhibit 8).

1 GVA of corporate sector = Value of production – cost of goods sold = Employee costs + Interest payments + depreciation + Profit before taxes (PBT). This must not be compared with total sales. 2 Corporate sector for GVA calculation comprises of about 2,700 NGNF companies in RBI’s sample and 47 non-financial government companies in BSE500. Together, they comprise listed non-financial companies (NFCs).

Exhibit 1: Total sales/expenditure for listed NGNF Exhibit 2: Corporate sales strongly correlated with WPI- companies up after five successive declines measure of inflation

Difference (RHS) Sales Expenses Sales WPI (RHS) 36 (pp) 8.0 40 (% YoY) 10

12 5.0 20 5

(12) 2.0 0 0

(36) -1.0 (20) (5) (% YoY) (% YoY) (60) -4.0 (40) (10) 3QFY12 1QFY14 3QFY15 1QFY17 3QFY18 1QFY20 3QFY21 3QFY12 1QFY14 3QFY15 1QFY17 3QFY18 1QFY20 3QFY21

Average Wholesale Price index for the quarter

9 March 2021 5

Sector Update | 8 March 2021

India Life Insurance

Private players’ Individual WRP grows ~23% YoY in Feb’21 Insurance Tracker LIC grew ~9% YoY, private players’ market share rises to ~60% over FY21 YTD

◼ Private players’ Individual weighted received premium (WRP) saw a strong rebound (23% YoY) in Feb’21 (v/s 7% YoY in Jan’21), while the industry posted a 17.8% YoY growth and LIC grew at 9.4% YoY. The rebound in private players continued, led by a focus on Non-PAR, with ULIPs seeing a recovery. In FY21 YTD, private players’ Individual WRP fell 1.6% YoY. The same for the industry fell 7.5% YoY. ◼ Among listed players, SBILIFE posted a strong rebound (~53% YoY) in Feb’21 after showing muted trends for many months. IPRULIFE too posted a growth of 6.3% after reporting a consecutive decline for the past 13 months. The resilient performance continued at MAXF, up ~32% YoY. However, the growth momentum in HDFCLIFE slowed, up ~16% YoY (v/s 24% in Jan’21). ◼ Mid-sized players reported strong growth, with Bajaj Allianz/Kotak Life reporting a growth of 43%/29% YoY. Birla Sun Life/TATA AIA grew ~13%/3.5% YoY. ◼ LIC reported a growth of ~9% YoY (v/s a decline of 45% YoY in Jan’21) in Individual WRP. During FY21 YTD, LIC’s Individual WRP declined 15.2% YoY. ◼ We expect premium growth to rebound over FY22 after seeing tepid trends, with ULIP showing a revival. Players continue to focus strongly on Non-PAR and Protection segments. Among players, we prefer MAXF and SBILIFE.

Performance of key private players The combined market share of listed players – SBILIFE, ICICI Prudential Life, HDFCLIFE, and MAXF – on an individual WRP basis stood ~60% as of Feb’21 (v/s ~63% in FY20). Tata AIA, Bajaj Allianz, and Birla Sun Life are firmly positioned among the 5-7th largest Private Insurers on individual WRP. Among the key listed players, on the basis of individual WRP – Individual WRP and YoY growth (%) Individual YoY gr ◼ HDFCLIFE reported a 16.1% YoY growth (+10.8% YoY in FY21 YTD). Total un- Feb’21 WRP, INR m (%) weighted premium grew ~20% YoY (+12.5% YoY in FY21 YTD). Grand Total 71,242 17.8 ◼ SBILIFE saw a strong rebound, with 53.4% YoY growth (-4% YoY in FY21 YTD). Total Public 25,436 9.4 Total un-weighted premium grew 61.8% YoY (+16.8% YoY in FY21 YTD). Total Private 45,806 23 ◼ IPRULIFE posted a 6.3% YoY growth (26.9% YoY decline in FY21 YTD). However, SBI Life 9,465 53.4 total un-weighted premium fell 19% YoY (4.3% YoY dip in FY21 YTD). ICICI Prudential 6,246 6.3 ◼ MAXF reported a 32.1% YoY growth (+13.7% YoY in FY21 YTD). Total un- HDFC Life 6,189 16.1 weighted premium grew 30.7% YoY (+16.8% YoY in FY21 YTD). Max Life 5,486 32.1 Tata AIA 3,148 3.5 Private players’ Individual WRP market share rose to ~64% in Feb’21 (60% Bajaj Allianz 2,679 43.2 in FY21 YTD) Kotak Life 2,218 28.8 Private players’ Individual WRP market share improved ~270bp MoM to ~64% in Feb’21 v/s ~62% in Jan’21. LIC’s market share stood at 40% in FY21 YTD. During FY21 Birla Sun Life 1,655 13.4 YTD, SBILIFE (14%) remained the largest Private Insurer in terms of Individual WRP, PNB Met Life 1,432 11.6 followed by HDFCLIFE (9.5%), and IPRULIFE (7.2%). On an un-weighted basis, SBILIFE Source: IRDAI, LIC Council, MOFSL was the largest Private Insurer with a market share of 7.7%, followed by HDFCLIFE

(7.3%), and IPRULIFE (4.6%).

9 March 2021 6

Growth in Protection moderates v/s 1HFY21 After reporting robust growth in the Protection business over 1HFY21, the pace of growth has moderated over the past few months. However, the trend still remains healthy. For Private Insurers, Individual un-weighted non-single premium grew ~22% YoY in Feb’21, while Individual sum assured declined ~19% YoY.

Among listed players ◼ HDFCLIFE reported a 28% decline in sum assured as against 18% growth in total un-weighted Individual non-single premium. ◼ IPRULIFE reported a 26% dip in sum assured v/s a 2% growth in total un- weighted Individual non-single premium. ◼ SBILIFE reported a 29% growth in sum assured as compared to a 52% growth in total un-weighted Individual non-single premium. ◼ MAXF reported a 1% fall in sum assured v/s 32% growth in total un-weighted Individual non-single premium.

Un-weighted new business premium and growth YoY YTD YoY INR m Feb’21 FY21 YTD FY20 growth growth growth (%) Grand Total 2,24,252 21.0% 23,48,612 0.6% 25,88,966 20.6 Total Public 1,29,206 24.2% 15,60,686 -3.0% 17,79,771 25.2 Total Private 95,046 16.9% 7,87,926 8.6% 8,09,196 11.5 HDFC Life 18,959 20.0% 1,72,512 12.5% 1,73,963 16.2 SBI Life 17,507 61.8% 1,80,643 16.8% 1,65,918 20.3 ICICI Prudential 17,370 -19.0% 1,08,751 -4.3% 1,23,482 20.4 Max Life 7,318 30.7% 56,137 16.8% 55,836 8.2 Bajaj Allianz 6,929 50.3% 50,213 9.3% 51,787 5.2 Kotak Life 6,403 35.5% 39,819 -8.7% 51,058 28.4 Birla Sun Life 3,604 -12.7% 38,512 21.2% 36,571 -6.6 Tata AIA 3,541 -0.9% 33,529 17.4% 32,411 30.9 PNB Met Life 2,233 27.6% 15,978 0.6% 17,787 5.8

Source: IRDAI, LIC Council, MOFSL

Individual WRP, growth, and market share YoY Market YTD Market YoY Market INR m Feb’21 FY21 YTD FY20 gr (%) sh (%) gr (%) sh. (%) Gr. (%) Share (%) Grand Total 71,242 17.8 100.0 6,24,274 -7.5 100.0 7,34,885 6.2 100.0 Total Private 45,806 23.0 64.3 3,72,568 -1.6 59.7 4,20,314 4.8 57.2 Total Public 25,436 9.4 35.7 2,51,705 -15.2 40.3 3,14,572 8.3 42.8 SBI Life 9,465 53.4 13.3 87,217 -4.0 14.0 97,711 9.1 13.3 ICICI Prudential 6,246 6.3 8.8 45,065 -26.9 7.2 66,427 -6.4 9.0 HDFC Life 6,189 16.1 8.7 59,389 10.8 9.5 59,646 19.0 8.1 Max Life 5,486 32.1 7.7 40,094 13.7 6.4 40,785 5.2 5.5 Tata AIA 3,148 3.5 4.4 27,049 14.5 4.3 26,918 20.6 3.7 Bajaj Allianz 2,679 43.2 3.8 19,878 17.5 3.2 19,268 10.6 2.6 Kotak Life 2,218 28.8 3.1 13,837 0.4 2.2 16,454 -1.3 2.2 Birla Sun Life 1,655 13.4 2.3 15,959 7.2 2.6 17,018 0.5 2.3 PNB Met Life 1,432 11.6 2.0 11,492 -1.5 1.8 12,964 -5.5 1.8

Source: IRDAI, LIC Council, MOFSL

9 March 2021 7

Sector Update | 8 March 2021

Healthcare

Performance of top companies: Feb’21 IPM growth moderates further in Feb’21 MAT gr Feb’21 Company ◼ IPM growth moderated further to 1.1% YoY in Feb’21 v/s 4.5% YoY in Jan’21 (%) (%) (12.1% in Feb’20). IPM 1.9 1.1 Merck 19.9 22.7 ◼ The Gastro, Derma, and VMN therapies exhibited growth of 9.9% YoY, 9.6% YoY, Wockhardt -14.0 20.0 and 8.6% YoY, respectively. The Anti-Infective therapy declined 11.3% YoY vis-à- Ajanta 10.8 15.7 vis decline of 2.7% YoY in Jan’21. Jb Chemicals 13.7 11.7 ◼ -4.5 9.9 Respiratory sales continued on the downtrend with 20.3% YoY decline in Feb’21. Ipca 11.6 9.7 ◼ NLEM (~16% of IPM) declined 3% YoY, while non-NLEM (~84% of IPM) grew 2% Intas 3.8 6.4 YoY. Torrent 5.5 5.7 ◼ On a MAT basis, industry growth came in at 1.9% YoY. Abbott 3.7 4.9 Usv 8.6 4.8 Price/NP growth offsets volume decline for 3M ended Feb’21 Alkem 0.6 4.0 ◼ For the 3M ended Feb’21, YoY growth stood at 4.7% YoY. YoY price growth of 0.7 3.4 4.9% and NP growth of 2.6% was offset, to some extent, by a YoY drop of 2.8% Zydus 3.0 2.9 Glenmark 14.4 2.9 in volumes. Msd -2.3 2.5 ◼ For the 3M ended Feb’21, NLEM (~17% of IPM) grew 1.4% YoY and non-NLEM 7.3 1.7 (~83% of IPM) was up 5.4% YoY. Mankind 4.3 0.6 Lupin 2.5 0.5 Merck, Wockhardt, Ajanta, JB Chemicals, Biocon, and Ipca outperform Fdc -2.1 -0.2 ◼ In Feb’21, Merck India (+22.7% YoY), Wockhardt (+20% YoY), 5.3 -0.6 (+15.7% YoY), JB Chemicals (+11.7% YoY), Biocon (+10% YoY), and Ipca (+9.7% Eris Ls 7.3 -1.1 Dr Reddy’s -0.5 -2.8 YoY) delivered robust performances. Indoco -5.3 -5.1 ◼ Ajanta grew on a strong offtake in the Cardiac and Pain therapies (~50% of the India 3.0 -5.7 therapy mix) of 20% and 22.7% YoY, respectively. Alembic -0.6 -7.9 ◼ Biocon’s growth was driven by Anti-Infectsives/Anti-Neoplasts (+75%/+22.6% Gsk -6.4 -8.3 Astrazeneca -0.7 -15.0 YoY). Natco -20.2 -43.9 ◼ Ipca posted good traction in the Pain/Analgesics (+20.5% YoY) and Gastro (22.2% YoY) segments. ◼ Lupin / Alembic / Dr Reddy’s reported below industry growth in Feb’21 (+0.5%/- 2.8%/-7.9% YoY) v/s +4.6%/+4.3/-3.6% in Jan’21. ◼ On a MAT basis, JB Chemicals / Merck / Torrent reported the highest price growth (+10.4%/7.5%/7% YoY). Glenmark saw the highest growth in new launches (+14.9% YoY).

Cardiac, Anti-Diabetic, and VMN drive overall sales growth on a MAT basis ◼ Chronic therapies saw strong growth – Cardiac / Anti-diabetic / VMN therapies exhibited growth of 12.5%/7.1%/6.7% YoY. ◼ Respiratory/Pain/Gynaec sales declined 5.4%/3.5%/3.2 YoY, impacting overall growth.

9 March 2021 8

Prices and NP grow, while volumes decline for the 3M ended Feb’21

Volume Growth (%) Price Growth (%) New Product Growth (%) Total Growth (%)

8.5 9.9 10.3 9.5 5.4 5.4 5.3 4.6 4.6 4.8 4.9 5.1 4.7 2.7 2.7 2.7 2.2 3 5.0 3.6 2.6 0.4 1.8 2.2 1.5 1.6 0.2 -3.9 -3.3 -2.8 -6.6 -10.2 3M-May 19 3M-Aug 19 3M-Nov 19 3M- Feb 20 3M-May 20 3M-Aug 20 3M-Nov 20 3M-Feb 21

Source: AIOCD, MOFSL

Acute as a percentage of total sales, and growth rate on a MAT Feb’21 basis

Acute as % of total sales Acute MATVALUE GR Feb 21 22.9 10.7 9.9 5.6 83 2.2 1.2 -2.3 -0.3 -2.5 -0.7 -4.3 -3.5 -6.2 -5.1 -4.0 -5.2

-24.4

45 82 77 70 64 58 56 55 54 53 51 43 42 42 39 38

Fdc

Gsk

IPM

Ipca

Cipla

Pfizer

Zydus

Alkem

Indoco

Abbott

Natco

Alembic

Mankind

Glenmark

Dr. Reddys Dr.

Sanofi India Sanofi Sun Pharma Sun

Source: MOFSL, Company

9 March 2021 9

Indian Pharma market – Feb’21

Performances of top companies – Feb’21 MAT Feb’21 Market Growth Last eight quarters YoY growth (%) 1M Company value share (%) (%) (INR b) May-19 Aug-19 Jan-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 Feb-21 IPM 1,461 100.0 1.9 8.9 10.1 10.2 9.5 (3.0) 0.4 5.2 4.7 1.1 Sun Pharma 119 8.2 3.4 4.6 8.6 10.0 9.6 4.9 (1.0) 4.1 5.5 3.6 Abbott 93 6.4 3.7 7.1 10.4 11.3 7.5 (1.3) 2.4 6.6 6.8 4.9 Cipla 72 4.9 7.3 10.8 8.1 6.4 7.8 (4.7) 8.8 16.8 7.2 1.7 Zydus Cadila 62 4.2 3.0 9.7 14.4 15.3 12.5 (4.3) (0.2) 8.1 7.5 2.9 Mankind 62 4.3 4.3 17.9 14.5 13.2 15.7 8.4 0.5 2.6 6.2 0.6 Alkem 51 3.5 0.6 11.8 16.4 10.6 13.6 (8.4) (4.2) 6.4 7.5 4.0 Lupin 56 3.8 2.5 12.8 13.5 13.0 10.3 (0.9) (0.2) 5.3 5.5 0.5 Torrent Pharma 46 3.1 5.5 8.6 8.9 8.0 14.8 6.1 0.7 7.1 8.2 5.7 Pfizer 35 2.4 5.3 3.4 4.9 16.2 14.8 5.8 10.5 2.4 3.3 (0.6) Glenmark Pharma 37 2.5 14.4 7.3 5.7 12.9 13.5 (0.1) 25.9 23.8 7.2 2.9 Sanofi 33 2.3 3.0 10.0 14.1 6.4 2.1 (2.9) 1.4 10.5 3.0 (5.7) Dr Reddy Labs 42 2.9 (0.5) 41.8 26.1 14.4 14.5 (5.7) (1.6) 2.2 2.5 (2.8) GSK Pharma 38 2.6 (6.4) 10.1 17.8 9.6 5.0 (13.1) (9.1) (1.8) (1.9) (8.3) Alembic Pharma 17 1.2 (0.6) 6.7 2.4 1.7 2.9 (6.0) 1.9 4.7 (3.4) (7.9) Ipca Labs 23 1.6 11.6 12.7 10.5 7.6 9.6 10.3 13.2 9.8 12.9 9.7 Natco 9 0.6 (20.2) 16.0 (11.0) (6.0) 5.2 (2.0) (12.1) (27.6) (35.8) (43.9) Ajanta Pharma 10 0.7 10.8 8.7 5.3 6.5 9.6 (2.0) 9.9 17.7 16.9 15.7 Merck 3 0.2 19.9 (72.5) (73.1) (39.7) 15.7 20.8 19.1 15.5 24.3 22.7 Biocon 5 0.3 (4.5) 14.9 7.5 3.7 (5.5) (15.0) (10.0) (1.4) 9.4 9.9 Astrazeneca 6 0.4 (0.7) 7.4 7.4 9.0 8.9 9.2 (0.1) (2.3) (9.0) (15.0) JB Chemicals 8 0.6 13.7 30.1 27.1 28.0 15.9 11.1 15.9 12.0 15.8 11.7

Performances of top therapies – Feb’21 MAT Feb’21 Market Therapy Growth Last eight quarters YoY growth (%) 1M Value share (%) (INR b) (%) May-19 Aug-19 Jan-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 Feb-21 IPM 1,461 100.0 1.9 8.9 10.1 10.2 9.5 (3.0) 0.4 5.2 4.7 1.1 Anti-Infectives 187 12.8 (4.8) 6.1 12.5 19.0 11.1 (10.6) (10.3) 2.9 (2.8) (11.3) Cardiac 203 13.9 12.5 12.2 8.2 1.6 11.1 11.3 13.3 15.2 10.3 7.3 Gastrointestinal 164 11.2 3.5 5.2 10.9 9.3 6.5 (6.3) (0.7) 7.7 13.4 9.9 Anti-Diabetic 149 10.2 7.1 14.1 11.3 11.0 8.5 9.6 6.0 6.3 6.5 4.3 VMN 131 9.0 6.7 7.8 11.2 9.3 9.8 (6.9) 6.1 15.4 11.6 8.6 Respiratory 103 7.0 (5.4) 6.0 4.7 11.2 15.5 7.8 (3.7) (7.6) (14.2) (20.3) Pain/Analgesics 94 6.4 (3.5) 8.3 10.5 11.0 8.7 (10.9) (5.9) (2.1) 4.4 2.3 Dermatology 99 6.7 1.2 9.6 7.2 8.5 6.9 (11.8) 0.2 5.2 10.0 9.6 Neuro/CNS 90 6.2 4.8 9.6 7.9 10.0 8.6 2.7 4.3 5.1 7.0 5.1 Gynecological 68 4.7 (3.2) 9.1 5.4 7.0 6.2 (15.1) (4.6) 0.1 6.9 6.9 Anti-Neoplastic 29 2.0 (4.2) 13.9 (1.9) 6.9 3.9 (14.6) (5.6) 2.8 0.8 (3.3) Opthal/Otologicals 23 1.6 (9.2) 10.0 7.2 8.1 5.7 (18.4) (10.4) (5.6) (2.0) (2.8) Hormones 27 1.8 1.3 7.6 9.7 12.7 11.1 (1.5) 0.9 3.1 2.3 (0.4) Vaccines 22 1.5 (2.7) (0.5) 5.1 11.5 12.2 (12.7) (1.7) 9.4 (6.6) (16.1)

Source: AIOCD, MOFSL

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In conversation

Lupin: Expect things to normalise as COVID-19 vaccinations ramp up; Vinita Gupta, CEO  See a lot of exciting opportunities in the US business  Complex generic platform investments starting to come to market now  Invested in inhalations, complex generics, women’s health, biosimilars  Expect things to normalise as COVID-19 vaccination ramps up  Got approval for inhaler Albuterol in 2020, ramping up it currently; have multiple inhalation drugs in the portfolio  Albuterol will be a significant growth driver in FY22  Fostair generic approval in the EU will be a growth driver for the company  Essential for the company to have supply continuity  Intend to launch Spiriva generic and will be ready to launch Mid 2022  Saw intense price erosion 3-4 years ago; things have normalised now  Complex generic portfolio coming to market a huge offset and will help grow the business

CONCOR: Not clear with privatisation; expect EOIs soon; V Kalyana Rama, CMD  Expect Expression of Interest to come anytime soon  Process for divestment is currently underway  We’re interested in Western Dedicated Freight Corridor as Easter DFC doesn’t have much container traffic  Some trains have started on the western DFC  Once the DFC is extended to Palampur, by March 31, it will be a game changer  May end FY21 with flat volume. FY22 should be good for company  Increase in rates at Tunghlakabad hasn’t affected volume at all; have seen volume increase in Tukhlagabad despite rate increase  Will take price adjustments if only required  Western DFC will add 25% volume in the region and increase our volumes by 10%  Expect LLF to be Rs. 450 crore, railways have demanded Rs. 1347 crore  We won’t see a negative surprise in empty running in Q4  There has been a traffic shift to rail from road

Easy Trip Planners: Main purpose of launch is the tailwind from public listing; Prashant Pitti, Whole-Time Director  Look to continue growing our market share  Have accumulated over Rs. 220 crore from anchor investors  Company is cash rich and has enough funds  Main purpose of IPO is the tailwind from a public listing  Profitability has been increasing at around 23-24% YoY  For the last 9 months, total air ticket segment was at 3.2 million while the top player commanded 8.5 million

9 March 2021 11

From the think tank

THE RETURN OF PUZZLING NUMBERS FOR INDIA’S GDP GROWTH  A puzzle of sorts has arisen—again—in India’s official gross domestic product (GDP) estimates. They don’t meet the smell test.  Back in 2015, the Central Statistics Office’s practice of using ‘single deflation’ instead of ‘double deflation’ during a period of falling commodity prices had distorted growth prints, as per our analysis. This time, too, there seems to be some distortion in growth numbers, but for a different reason.  What is it? The government’s statistics office reported that the economy expanded far less than expected in the third quarter (October to December 2020), and estimates that it will shrink 1.1% in the fourth quarter from a year ago. This sits oddly with the high-frequency indicators we track, which have been ticking higher. It also sits oddly with another measure of growth, gross value added (GVA), which wasn’t as weak in the third quarter and is estimated by the office to grow 2.5% in the fourth  A careful investigation reveals a new methodological issue in the calculation of growth that is not just distorting current estimates, but could impact our data for the next few years. It could even have altered growth estimates over the past few years. So, what is going on here? What is the quantum of distortion in the numbers? And what is the actual growth on the ground? Let us explain. In national accounting, we know that GDP equals GVA plus indirect taxes minus subsidies. We also know that indirect taxes grew sharply in the third quarter. So, for GDP to grow at a much slower pace than GVA, subsidies would have had to grow strongly, and by more than all the pandemic-related subsidies that the government has announced. But why would that be? Because the budget on 1 February made it all too clear that over the next two years, the government intends to pay off the past dues it owes Food Corporation of India (FCI), which is the intermediary for food subsidies in India. To be precise, it aims to repay the equivalent of 0.9% of GDP in 2020-21 (which runs from April 2020 to March 2021), and 0.3% of GDP in 2021-22. These repayments likely resulted in bloated subsidy growth, thereby depressing third-quarter and fourth-quarter growth estimates.  But shouldn’t the GDP methodology have a way to take care of this without distorting numbers? Yes, it would, if every economic entity used the same accounting methodology. But that is not the case. For simplicity’s sake, let’s look at FCI and the central government. If both did accrual accounting, we would not have a problem. FCI would account for subsidies in the year they accrued, and the government would account for them in the same year too. In this situation, GDP would be a better indicator of underlying growth in the economy, rather than GVA, because it strips out the subsidy payments which tend to inflate GVA.  The problem arises because FCI and the government follow different accounting practices: FCI does ‘accrual accounting’ while the government does ‘cash accounting’. In such a situation, discrepancies arise if the subsidies in FCI’s books accrued, say, last year, but the government only paid up in the current year. To arrive at the GDP number, the statistics office would end up subtracting from current GVA more subsidies than what accrues in the current year. This would lead to an underestimation of GDP growth in the current year.

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 Indeed, the statistics office’s 2020-21 advance estimate for GDP growth is -8%, lower than the GVA advance estimate of -6.5%. About half of the 1.5 percentage point difference, by our calculation, is because of distortions created by the payment of past subsidy dues. Were previous-year growth numbers impacted too? Probably, although it is likely to be a case of growth overestimation. The government has owed money to FCI in recent years, and the amount picked up rapidly from 2017-18. Over this period, FCI would have accounted for the subsidies in its books (following accrual accounting), and this would show up in GVA. However, the government did not pay up on time. As such, a smaller cash subsidy amount was deducted from GVA to arrive at GDP (since the government does cash accounting), thereby potentially overstating the country’s GDP growth in that period.  And by how much could future growth numbers be impacted? The underestimation in 2020-21 GDP growth could inflate 2021-22 numbers because of a low statistical base. However, some of the base effect gains could be offset by the balance payment of past subsidy dues (budgeted at 0.3% of GDP in 2021- 22), which would depress GDP (as it did in 2020-21). We have analysed this carefully and find that, on net, the positive base effect overshadows the negative payment of subsidy dues, leading to GDP growth being overstated by 1 percentage point in 2021-22. Finally, the repayment of balance dues in 2021-22 could impact 2022-23, again due to low base effects. We calculate that GDP growth may be overestimated by half a percentage point in 2022-23.  With all of this going on, what is India’s ‘true’ economic growth? In normal times, GDP is a more wholesome indicator of economic growth than GVA, because it includes the government as well. But with GDP impacted by the payment of previous-year subsidy dues, we think GVA will better reflect economic growth in 2020-21, 2021-22 and 2022-23, or until whenever these puzzling GDP numbers abound.

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