RESULT UPDATE

IPCA LABORATORIES In a sweet spot

India Equity Research| Pharmaceuticals

IPCA Labs’ Q3FY14 adjusted PAT beat ou r estimate by 16% on better - EDELWEISS 4D RATINGS than-expected gross margin (440bps higher than our estimate) despite Absolute Rating BUY higher overheads. Management has guided for sustaining EBITDA margin Rating Relative to Sector Outperformer at 25% going forward, which we believe is achievable given the Risk Rating Relative to Sector Low impending ramp up in US ( facility commercialisation), bounce- Sector Relative to Market Overweight back in (back to mid-teen growth) and corresponding operating leverage benefits. We are revising our earnings up 4%/9%/10% for FY14E/FY15/FY16E and raising our target price to INR975/share (INR885 MARKET DATA (R: IPCA.BO, B: IPCA IN) CMP : INR 796 earlier). Maintain ‘BUY’; IPCA is our top mid-cap pick. Target Price : INR 975 52-week range (INR) : 803 / 440 Improvement in gross margin drives earnings beat Share in issue (mn) : 126.2 IPCA’s Q3FY14 revenue grew 18% plus YoY on strong all round growth—India (16%), EU M cap (INR bn/USD mn) : 100 / 1,532 (66%) and Institutional business (20%). The big surprise came from the 190bps QoQ Avg. Daily Vol.BSE/NSE(‘000) : 171.3 gross margin expansion primarily on better product mix. We had expected gross margin to decline QoQ given the stable currency, after the sharp INR depreciation had SHARE HOLDING PATTER N (%) aided gross margin in Q2FY14. Accordingly, EBITDA margin expanded to 25.7% (up Current Q2FY14 Q1FY14

314bps YoY). Adjusted PAT (up 35%) beat our estimate by 16% on strong EBITDA Promoters * 45.9 45.9 45.9 growth (up 35%) despite higher effective tax rate (up 310bps YoY). MF's, FI's & BK’s 12.0 12.3 13.5 FII's 25.4 25.2 23.0 US business scale up the next trigger; Indore supplies in March ‘14 Others 16.7 16.6 17.6 * Promoters pledged shares : NIL US is set to get a fillip as Indore SEZ commences supplies from March 2014. This will be (% of share in issue) on account of new launches (17 ANDAs approved, only 8 marketed, 21 pending) and site transfers from Silvassa facility. IPCA expects to add another USD20mn in FY15E PRIC E PERFORMANCE (%) (current base of USD40mn) and is targeting USD200mn revenue from US by FY18 EW Pharma Stock Nifty through its existing and new partnerships (now five partners). Moreover, clinical trials Index for the 505b2 product are going as per plan and positive results could spring a surprise. 1 month 11.0 2.0 0.3 3 months 10.4 3.6 10.5 Outlook and valuations: Multiple levers for growth; reiterate ‘BUY’ 12 months 47.0 3.7 35.0

We are forecasting 21% earnings CAGR over FY14-16 on growth revival in India, sharp ramp up in US, robust growth across other markets coupled with operating leverage and improving product mix benefits (Read our detailed visit note). We are raising our FY14-16E earnings by 4-10% on Q3FY14 earnings beat and higher EBITDA margin guidance, which we believe is achievable. Our target price now moves to INR975/share (16x FY16E). Current valuations at 13x FY16E are attractive and we maintain ‘BUY/SO’ . Financials (Consolidated) (INR mn) Year to March Q3FY14 Q3FY13 % change Q2FY14 % change FY13 FY14E FY15E Anshuman Gupta Net revenue 8,290 7,010 18.2 8,467 (2.1) 28,059 33,812 39,897 +91 22 6623 3399 EBITDA 2,133 1,584 34.7 2,175 (1.9) 6,232 8,348 9,868 [email protected]

Adj. net profit 1,380 1,021 35.1 1,420 (2.8) 3,694 5,263 6,338 Perin Ali Adj. diluted EPS (INR) 10.9 8.1 11.3 29.3 41.7 50.2 +91 22 6620 3032 Diluted P/E (x) 27.2 19.1 15.8 [email protected]

Core EV/EBITDA (x) 17.0 12.7 10.6 ROAE (%) 27.8 26.6 29.3 January 28, 2014 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL , Thomson First Call, Reuters and Factset. Edelweiss Securities Limited

Pharmaceuticals

Table 1: Actual versus estimate (INR mn) Y-o-Y Y-o-Y Deviation Actual Growth Estimates Growth from Year to March Q3FY14 (%) Q3FY14 (%) Actual (%) Comments Net Revenue 8,290 18.2 8,325 18.8 (0.4) Net Revenue (excl other op. inc.) 8,152 17.7 8,203 18.5 (0.6) Raw material costs 2,781 0.7 3,158 14.4 (12.0) Gross profit 5,371 5,045 4.1 6.5 Gross margin(%) 65.9 61.5 Higher product mix and productivity improvement yielded higher margins Employee costs 1,243 26.5 1,244 26.6 (0.0) Other expenses 2,132 26.8 2,019 20.0 5.6 Strog ramp-up in overheads (including R&D) Total operating expenses 3,376 26.7 3,262 46.6 3.5 EBITDA 2,133 34.7 1,905 20.3 12.0 EBITDA margin (%) 25.7 22.9 Higher gross realizations resulted in strong operating performance EBITDA margin (ex. op inc) (%) 24.5 21.7 Net finance expense (income) 54 (26.5) 60 (18.9) (9.3) Depreciation 256 18.5 285 32.1 (10.2) Other income 54 36.5 30 (24.4) 80.7 PBT 1,877 40.8 1,590 19.2 18.1 Income tax expense 502 86.6 405 50.7 23.8 PAT 1,375 29.2 1,184 11.2 16.1 Adj. PAT 1,380 35.1 1,184 16.0 16.5 Adjusted diluted EPS (INR) 10.9 9.4 16.0 16.5 Source: Company, Edelweiss research

Table 2: Revenue mix by segment (INR mn) Q3FY14 Q3FY13 % chg Q2FY14 % chg Comments Formulations 6,281 5,302 18.5 6,019 4.4 Domestic 2,463 2,127 15.8 2,628 (6.3) Growth driven by Pain (26%YoY), CVS (12%YoY), Derma, CNS and cough/cold divisions; anti-mlaria declined 2%YoY Export 3,818 3,175 20.3 3,392 12.6 Institutional anti-malaria 1,360 1,134 19.9 1,299 4.7 Ex-anti-malaria exports 2,459 2,041 20.5 2,093 17.5 - Branded generic 1,001 876 14.3 756 32.5 Decline in CIS markets impacted growth - Generic 1,455 1,164 25.0 1,337 8.8 EU growth of 66%YoY with supplies from Indore SEZ API 1,870 1,622 15.3 1,556 20.2 Domestic 419 373 12.3 304 37.8 International 1,451 1,249 16.2 1,252 15.9 Hormone facility started API supplies to US Net sales (excl Other Oper Inc) 8,152 6,924 17.7 7,575 7.6 Source: Company, Edelweiss research

2 Edelweiss Securities Limited Ipca Laboratories

Chart 1: Robust growth from India and generics business Growth has been strong across 10,161 37.0 geographies, notably India (16%), EU (66%), institutional 9,027 31.0 anti-malaria tender (20%) and branded formulations (14%) 7,892 25.0

API grew 15% led by exports 6,758 19.0 mn) (INR Growth (%) Growth 5,623 13.0

4,489 7.0 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14

Net Revenue Revenue growth

Source: Company, Edelweiss research

Strong margin trajectory led by Chart 2: IPCA sustains strong margin performance 2,611 31.0 gross margin improvement (580bps YoY) from improved 2,196 26.4 mix, higher productivity and better realisations 1,780 21.8

(%) 1,365 17.2 Management has guided 25% mn) (INR margin for FY14 and expects 949 12.6 the same to sustain despite increase in fixed costs including 534 8.0 R&D (5% guided for FY15 from 4% in FY14)

Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 EBITDA Adj. PAT EBITDA margin PAT margin

Source: Company, Edelweiss research

3 Edelweiss Securities Limited Pharmaceuticals

Chart 3: Domestic sales recovery reflected in secondary growth for Oct-Dec; Company expects continued momentum

Primary growth 32.0 Secondary growth 3,315 25.0 25.2 2,888 20.8

2,461 16.6 18.4 (%) 2,035 12.4 11.6 (INR mn) (INR Growth (%) Growth 1,608 8.2 4.8

1,181 4.0 (2.0) 13 13 13 13 13 13 13 13 13 13 13 13 ------Jul Jan Jun Oct Apr Feb Sep Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Dec Aug Nov Mar May India YoY growth Company growth Industry growth

Source: AIOCD, Company, Edelweiss research

Higher sales from spill over of Chart 4: Institutional anti-malaria sales impacted from postponement of consignment shipment worth INR400mn 1,632 53.0 from Q2FY14 1,440 37.0 Management expects long-term orders to remain strong while 1,248 21.0 new product approvals including dispersible tablets and 1,055 5.0 (%) Growth injectibles would add to the mn) (INR base 863 (11.0)

IPCA reinstates its guidance of 671 (27.0) achieving INR8bn sales in Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 institutional business by FY18, while it would attain INR4.5bn Institutional malaria YoY growth by end of current fiscal Source: Company, Edelweiss research

4 Edelweiss Securities Limited Ipca Laboratories

Chart 5: US growth accelerated due to higher currency realisations Indore SEZ facility is expected 728 32.0 to commence supplies March 2014 with commercialisation of 657 27.0 3 products . IPCA expects to add INR1.25bn in FY15E and expects to ramp-up sales to 586 22.0

USD90mn by FY16E mn) (INR 516 17.0 (%) Growth Incrementally, additional 8-9 approvals per annum are 445 12.0 expected over FY15-16 to aid higher growth 374 7.0 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Total ANDA filings are 37 and US YoY growth 17 are approved (of these 8 have been commercialised) Chart 6: EU scale-up with supplies commencing from Indore SEZ 1,041 80.0

901 53.4

761 26.8

622 0.2 (INR mn) (INR Growth (%) Growth 482 (26.4)

342 (53.0) Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14

Europe YoY growth

Chart 7: There has been high base effect of sales within the CIS region

Branded generics grew 14%; CIS 1,202 84.0 region was flat; however, sales have normalised at current 1,034 68.4 base 866 52.8

mn) (INR 699 37.2 Growth (%) Growth Going forward, management 531 21.6 expects continued 25-30% growth in branded sales 363 6.0 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14

Branded generics YoY growth

Source: Company, Edelweiss research

5 Edelweiss Securities Limited Pharmaceuticals

Financial snapshot (INR mn) Year to March Q3FY14 Q3FY13 % change Q2FY14 % change YTD14 FY14E FY15E Net revenues 8,290 7,010 18.2 8,467 (2.1) 24,812 33,812 39,897 Net Revenue (excl other operating income) 8,152 6,924 17.7 8,343 (2.3) 24,420 33,236 39,215 Raw material costs 2,781 2,762 0.7 3,004 (7.4) 9,023 11,965 14,117 Gross profit 5,509 4,249 29.7 5,463 0.8 15,790 21,847 25,779 Employee expenses 1,243 983 26.5 1,208 3.0 3,594 4,780 5,497 Other expenses 2,132 1,682 26.8 2,080 2.5 6,176 8,720 10,415 Total expenditure 3,376 2,665 26.7 3,288 2.7 9,771 13,499 15,911 EBITDA 2,133 1,584 34.7 2,175 (1.9) 6,019 8,348 9,868 Operating margin (%) 25.7 22.6 25.7 24.3 24.7 24.7 EBITDA margin (excl other operating income) (%) 24.5 21.6 24.6 23.0 23.4 23.4 Depreciation 256 216 18.5 252 1.4 749 1,076 1,317 Other income 54 40 36.5 53 1.7 152 100 150 Net finance expense 54 74 (26.5) 57 (5.1) 183 260 250 Profit before tax 1,877 1,334 40.8 1,919 (2.2) 5,239 7,112 8,451 Tax 502 269 86.6 396 26.9 1,143 1,614 2,113 Core profit 1,375 1,065 29.2 1,524 (9.7) 4,096 5,497 6,338 Extraordinary items 16 (186) (108.5) (229) (106.9) (693) (903) - Net profit 1,391 879 58.3 1,295 7.5 3,403 4,595 6,338 Adjusted net profit 1,380 1,021 35.1 1,420 (2.8) 3,858 5,263 6,338 Adj. EPS (INR) 10.9 8.1 11.3 30.7 41.7 50.2

As % of net revenues COGS 33.5 39.4 35.5 36.4 35.4 35.4 Gross profit 66.5 60.6 64.5 63.6 64.6 64.6 Employee cost 15.0 14.0 14.3 14.5 14.1 13.8 Other expenses 25.7 24.0 24.6 24.9 25.8 26.1 Total expenses 40.7 38.0 38.8 39.4 39.9 39.9 EBITDA 25.7 22.6 25.7 24.3 24.7 24.7 Reported net profit 16.8 12.5 15.3 13.7 13.6 15.9 Tax rate 26.7 20.2 20.6 21.8 22.7 25.0

Change in Estimates FY14E FY15E New Old % change New Old % change Comments Net revenue 33,812 33,769 0.1 39,897 39,217 1.7 EBITDA 8,348 8,081 3.3 9,868 9,288 6.2 Building in higher operating margin performance EBITDA margin 24.7 23.9 24.7 23.7 Core profit 4,595 4,415 4.1 6,338 5,824 8.8 PAT margin 13.8 13.3 16.2 15.1 Capex 3,200 3,200 0.0 3,500 3,500 0.0 Guided INR3.5bn for FY15E

6 Edelweiss Securities Limited Ipca Laboratories

Company Description IPCA is a vertically integrated company with a diverse presence across geographies including India, Africa, , Australia, Europe and the US. It is a fully-integrated business model that offers higher margins and leadership in various segments. Domestic formulations account for ~32% of total sales where it has grown at 16% CAGR over last five years. IPCA is a therapy leader in Rheumatology with a leading market share. Exports formulations account for 44% of total business with branded generics accounting for 26% of total export formulations while generics including the US, EU and Institutional business constitute the balance 74%. IPCA has successfully leveraged its global strength in anti-malarial APIs and is the only company having WHO prequalification for both API and formulation to participate in global institutional business in malaria endemic counties.

Investment theme IPCA’s domestic business is gaining traction, and on the other, historical investments in regulated markets is set to pay off. Now, post FDA approval of Indore SEZ, IPCA is likely to gain higher traction in US and Canada, as operations will scale up in these markets. Further, the company is leveraging its cost competency to gain incremental higher market share under anti-malaria tenders from multilateral agencies. Also, domestic business (contributing 32% to total sales), core to the company’s growth and profitability, will continue to grow at a sustainable 16-17% over the next two years.

Key risks • Currency appreciation to hurt earnings: Currency realisations have high beta on the company’s margins, as ~60% of its revenue comes from exports. Any scenario of USDINR appreciation could have negative bearing on margins

• Potential funding risks to Institutional anti-malarial business

7 Edelweiss Securities Limited Pharmaceuticals

Financial Statements

Key Assum ptions Income statement (INR mn) Year to March FY13 FY14E FY15E FY16E Year to March FY13 FY14E FY15E FY16E Macro Income from operations 28,059 33,812 39,897 46,761 GDP(Y -o-Y %) 5.0 4.8 5.4 6.3 Materials costs 10,966 11,965 14,117 16,559 Inflation (Avg) 7.4 6.2 5.5 6.0 Employee costs 3,918 4,780 5,497 6,321 Repo rate (exit rate) 7.5 8.0 7.3 7.0 R&D Cost 777 1,420 1,995 2,338 USD/INR (Avg) 54.5 62.0 60.0 58.0 Total SG&A expenses 6,166 7,299 8,420 9,714 Sector Total operating expenses 21,828 25,464 30,029 34,932 India pharma market growth (Y -o-Y) % 14.1 10.0 15.0 15.0 EBITDA 6,232 8,348 9,868 11,829 Company Core EBITDA 6,232 8,348 9,868 11,829 India sales (INR mn) 8,781 9,847 11,350 13,166 Depreciation & Amortization 867 1,076 1,317 1,529 % change 16.6 12.1 15.3 16.0 EBIT 5,365 7,272 8,551 10,300 Cardiovascular and Diabetics 2,195 2,349 2,701 3,149 Other income 58 (803) 150 150 % change 12.1 7.0 15.0 16.6 Interest expenses 248 260 250 220 Pain management 2,810 3,540 4,249 5,038 Profit before tax 5,174 6,209 8,451 10,230 % change 24.4 26.0 20.0 18.6 Provision for tax 1,299 1,614 2,113 2,558 Anti Malaria 1,493 1,403 1,473 1,568 Net profit 3,875 4,595 6,338 7,673 % change 16.6 (6.0) 5.0 6.4 Extraordinary income/ (loss) (631) - - - Anti -infectives 527 564 603 654 Profit after minority interest 3,236 4,595 6,338 7,673 % change - 7.0 7.0 8.5 Adjusted PAT 3,694 5,263 6,338 7,673 Institutional anti -malaria (INR mn) 3,916 4,531 5,251 5,821 Basic EPS (INR) 30.8 36.4 50.2 60.8 % change 30.7 15.7 15.9 10.9 Shares outstanding (mn) 126 126 126 126 AL 3,916 4,131 4,751 5,321 Diluted EPS (INR) 29.3 41.7 50.2 60.8 AS -AQ - 400 500 500 Core EPS 29.3 41.7 50.2 60.8 US generics (USD mn) 36 38 57 85 CEPS (INR) 37.6 44.9 60.7 72.9 Growth (YoY)% 7.5 6.0 50.0 50.0 Dividend per share (INR) 4.0 6.2 9.0 10.9 No of launches 8 8 13 20 Dividend payout (%) 13.7 14.9 17.9 17.9 Branded generics exports (INR mn) 2,881 3,950 4,913 5,988

% change 31.0 37.1 24.4 21.9 Common size metrics R&D (% of sales) 2.8 4.2 5.0 5.0 Year to March FY13 FY14E FY15E FY16E ANDA filings (per annum) 10 12 15 16 Operating expenses 77.8 75.3 75.3 74.7 USD/INR (Avg) 54.5 62.0 60.0 58.0 Materials costs 39.1 35.4 35.4 35.4 Capex (USD mn) 52 52 58 60 Employee expenses 14.0 14.1 13.8 13.5 Net debt to equity ratio(x) 0.4 0.3 0.2 0.1 SG&A expenses 22.0 21.6 21.1 20.8 R & D cost 2.8 4.2 5.0 5.0 Depreciation 3.1 3.2 3.3 3.3 Interest expenditure 0.9 0.8 0.6 0.5 EBITDA margins 22.2 24.7 24.7 25.3 Net profit margins 14.1 13.8 16.2 16.7

Growth ratios (%) Year to March FY13 FY14E FY15E FY16E Revenues 19.1 20.5 18.0 17.2 EBITDA 21.4 34.0 18.2 19.9 PBT 42.0 20.0 36.1 21.1 Net profit 39.8 18.6 37.9 21.1 EPS 16.5 42.5 20.4 21.1

8 Edelweiss Securities Limited Ipca Laboratories

Balance sheet (INR mn) Cash flow metrics As on 31st March FY13 FY14E FY15E FY16E Year to March FY13 FY14E FY15E FY16E Equity capital 252 252 252 252 Operating cash flow 3,075 4,089 6,201 7,239 Reserves & surplus 15,285 18,961 23,968 30,030 Investing cash flow (2,589) (3,200) (3,500) (3,500) Shareholders funds 15,538 19,213 24,221 30,282 Financing cash flow 478 (1,119) (1,831) (2,111) Short term debt 1,571 2,709 2,709 2,709 Net cash flow 964 (230) 870 1,627 Long term debt 4,599 3,262 2,762 2,262 Capex (2,815) (3,200) (3,500) (3,500) Borrowings 6,170 5,970 5,470 4,970 Dividends paid (589) (919) (1,331) (1,611) Deferred tax liability 1,311 1,621 2,044 2,555

Sources of funds 23,019 26,805 31,735 37,808 Profitability & efficiency ratios Tangible assets 10,763 14,222 16,405 18,377 Year to March FY13 FY14E FY15E FY16E Intangible assets 279 236 236 236 ROAE (%) 27.8 26.6 29.3 28.3 CWIP (incl. intangible) 1,292 - - - ROACE (%) 19.1 21.7 22.0 22.3 Total net fixed assets 12,334 14,458 16,641 18,612 Inventory day 134 125 125 135 Investments 89 89 89 89 Debtors days 59 60 55 55 Non current investments 89 89 89 89 Payable days 97 95 95 100 Current Investments 3 3 3 3 Cash conversion cycle (days) 96 90 85 90 Cash and equivalents 581 351 1,221 2,849 Current ratio 3.7 3.5 3.9 3.9 Inventories 7,410 8,721 10,284 12,920 Debt/EBITDA 1.0 0.7 0.6 0.4 Sundry debtors 4,178 5,558 6,012 7,046 Debt/Equity 0.4 0.3 0.2 0.2 Loans and advances 893 956 1,075 1,344 Adjusted debt/equity 0.4 0.3 0.2 0.2 Other current assets 1,481 1,481 1,481 1,481

Total current assets (ex cash) 13,963 16,716 18,852 22,791 Operating ratios Trade payable 2,684 3,545 3,804 5,269 Year to March FY13 FY14E FY15E FY16E Others current liabilities 1,267 1,267 1,267 1,267 Total asset turnover 1.3 1.3 1.3 1.3 Total current liabilities & 3,950 4,811 5,071 6,536 Fixed asset turnover 2.5 2.5 2.6 2.6 Net current assets (ex cash) 10,013 11,904 13,781 16,255 Equity turnover 2.0 1.9 1.8 1.7 Uses of funds 23,019 26,805 31,735 37,808

Book value per share (INR) 123.1 152.2 191.9 240.0 Valuation parameters Year to March FY13 FY14E FY15E FY16E

Free cash flow (INR mn) Diluted EPS (INR) 29.3 41.7 50.2 60.8 Year to March FY13 FY14E FY15E FY16E Y-o-Y growth (%) 16.5 42.5 20.4 21.1 Net profit 3,236 4,595 6,338 7,673 CEPS (INR) 37.6 44.9 60.7 72.9 Depreciation 867 1,076 1,317 1,529 Diluted PE (x) 27.2 19.1 15.9 13.1 Others 380 310 423 512 Price/BV (x) 6.5 5.2 4.1 3.3 Gross cash flow 4,483 5,981 8,078 9,713 PE based on core EPS 27.2 19.1 15.9 13.1 Less: Changes in WC 1,408 1,892 1,877 2,474 EV/Sales (x) 3.8 3.1 2.6 2.2 Operating cash flow 3,075 4,089 6,201 7,239 EV/EBITDA (x) 17.0 12.7 10.6 8.7 Less: Capex 2,815 3,200 3,500 3,500 Core EV/EBITDA (x) 17.0 12.7 10.6 8.7 Free cash flow 260 889 2,701 3,739 Dividend yield (%) 0.5 0.8 1.1 1.4

Peer comparison valuation Market cap Core EV/EBITDA (X) PE based on core EPS ROAE (%) Name (USD mn) FY14E FY15E FY14E FY15E FY14E FY15E Ipca Laboratories 1,532 12.7 10.6 19.1 15.9 26.6 29.3 2,655 15.4 12.2 22.7 17.2 22.2 24.4 2,298 12.4 10.6 20.7 16.1 23.5 24.0 1,460 10.7 9.4 17.6 15.2 35.6 30.0 Median - 12.6 10.6 19.9 16.0 25.0 26.9 AVERAGE - 12.8 10.7 20.0 16.1 27.0 26.9 Source: Edelweiss research

9 Edelweiss Securities Limited Pharmaceuticals

Additional Data

Directors Data R S Hugar Director Premchand Godha Chairman & Managing Director A K Jain Joint Managing Director M R Chandurkar Director Babulal Jain Director V V Subba Rao Director Anand T Kusre Director Pranay Godha Executive Director Prashant Godha Executive Director Dev Parkash Yadava Additional Director

Auditors - Natvarlal Vepari & Co *as per last annual report

Holding – Top10 Perc. Holding Perc. Holding Kaygee investments p 21.41 Exon laboratories pv 6.42 Chandurkar investmen 5.53 Paschim chemicals pv 3.99 Hdfc asset managemen 3.36 William blair & comp 2.65 Lavender investments 2.64 Godha premchand 2.13 Wasatch advisors inc 2.01 Govt pension fund gl 1.99

*in last one year

Bulk Deals Data Acquired / Seller B/S Qty Traded Price

No Data Available

*in last one year

Insider Trades Reporting Data Acquired / Seller B/S Qty Traded

*in last one year

10 Edelweiss Securities Limited RATING & INTERPRETATION

Company Absolute Relative Relative Company Absolute Relative Relative reco reco risk reco reco Risk Enterprise HOLD None None HOLD SP H Cadila Healthcare BUY SP L BUY SO L Divi's Laboratories HOLD SP M Dr.Reddys Laboratories BUY SO M Glenmark Pharmaceuticals BUY SO H Ipca Laboratories BUY SO L Jubilant Life Sciences BUY SP M Lupin BUY SO M Ranbaxy Laboratories HOLD SP H Sun Pharmaceuticals Industries HOLD SP L Torrent Pharmaceuticals HOLD SP H

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return

11 Edelweiss Securities Limited Pharmaceuticals

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, – 400 098. Board: (91-22) 4009 4400 , Email : [email protected] Vikas Khemani Head Institutional Equities vikas.khemani@edel weissfin .com +91 22 2286 4206

Nischal Maheshwari Co-Head Institutional Equities & Head Research [email protected] +91 22 4063 5476

Nirav Sheth Head Sales [email protected] +91 22 4040 7499

Coverage group(s) of stocks by primary analyst(s): Pharmaceuticals Apollo Hospitals Enterprise, Aurobindo Pharma, Cadila Healthcare, Cipla, Divi's Laboratories, Dr.Reddys Laboratories, Glenmark Pharmaceuticals, Ipca Laboratories, Jubilant Life Sciences, Lupin, Ranbaxy Laboratories, Sun Pharmaceuticals Industries, Torrent Pharmaceuticals

Recent Research

Date Company Title Price (INR) Recos

27 -Jan -14 Glenmark On a strong footing; 536 Buy Pharma Result Update 24 -Jan -14 Ranbaxy Another import alert worsens 336 Reduce Laboratories regulatory woes ; Company Update 22 -Jan -14 Torrent Upbeat quarter; 512 Hold Pharma Result Update

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe Rating Interpretation

Buy Hold Reduce Total Rating Expected to

Rating Distribution* 122 47 14 184 Buy appreciate more than 15% over a 12-month period * 1 stocks under review Hold appreciate up to 15% over a 12-month period > 50bn Between 10bn and 50 bn < 10bn

Reduce depreciate more than 5% over a 12 -month period Market Cap (INR) 118 54 12

12 Edelweiss Securities Limited Ipca Laboratories

DISCLAIMER

General Disclaimer: This report has been prepared by Edelweiss Securities Limited (Edelweiss). Edelweiss, its holding company and associate companies are a full service, integrated investment banking, portfolio management and brokerage group. Our research analysts and sales persons provide important input into our investment banking activities. This report does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. Edelweiss or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this report (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors. We and our affiliates, group companies, officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as advisor or lender/borrower to such company (ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. 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 Edelweiss and affiliates/ group companies to any registration or licensing requirements within such jurisdiction. The distribution of this report in certain jurisdictions may be restricted by law, and persons in whose possession this report comes, should inform themselves about and observe, any such restrictions. The information given in this report is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. Edelweiss reserves the right to make modifications and alterations to this statement as may be required from time to time. However, Edelweiss is under no obligation to update or keep the information current. Nevertheless, Edelweiss is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither Edelweiss nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Past performance is not necessarily a guide to future performance. The disclosures of interest statements incorporated in this report are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. Edelweiss Securities Limited generally prohibits its analysts, persons reporting to analysts and their dependents from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information provided in these reports remains, unless otherwise stated, the copyright of Edelweiss. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright Edelweiss and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright holders.

Analyst Certification: The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Analyst holding in the stock: No.

Edelweiss shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including network (Internet) reasons or snags in the system, break down of the system or any other equipment, server breakdown, maintenance shutdown, breakdown of communication services or inability of the Edelweiss to present the data. In no event shall the Edelweiss be liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or expenses arising in connection with the data presented by the Edelweiss through this presentation.

13 Edelweiss Securities Limited Pharmaceuticals

Disclaimer for U.S. Persons This research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by Edelweiss Securities Limited only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Edelweiss Securities Limited has entered into an agreement with a U.S. registered broker-dealer, Enclave Capital, LLC ("Enclave"). Transactions in securities discussed in this research report should be effected through Enclave Capital, LLC. Disclaimer for U.K. Persons The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA"). In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”). This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other person. Disclaimer for Canadian Persons This research report is a product of Edelweiss Securities Limited ("ESL"), which is the employer of the research analysts who have prepared the research report. The research analysts preparing the research report are resident outside the Canada and are not associated persons of any Canadian registered adviser and/or dealer and, therefore, the analysts are not subject to supervision by a Canadian registered adviser and/or dealer, and are not required to satisfy the regulatory licensing requirements of the Ontario Securities Commission, other Canadian provincial securities regulators, the Investment Industry Regulatory Organization of Canada and are not required to otherwise comply with Canadian rules or regulations regarding, among other things, the research analysts' business or relationship with a subject company or trading of securities by a research analyst. This report is intended for distribution by ESL only to "Permitted Clients" (as defined in National Instrument 31-103 ("NI 31-103")) who are resident in the Province of Ontario, Canada (an "Ontario Permitted Client"). If the recipient of this report is not an Ontario Permitted Client, as specified above, then the recipient should not act upon this report and should return the report to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any Canadian person. ESL is relying on an exemption from the adviser and/or dealer registration requirements under NI 31-103 available to certain international advisers and/or dealers. Please be advised that (i) ESL is not registered in the Province of Ontario to trade in securities nor is it registered in the Province of Ontario to provide advice with respect to securities; (ii) ESL's head office or principal place of business is located in India; (iii) all or substantially all of ESL's assets may be situated outside of Canada; (iv) there may be difficulty enforcing legal rights against ESL because of the above; and (v) the name and address of the ESL's agent for service of process in the Province of Ontario is: Bamac Services Inc., 181 Bay Street, Suite 2100, Toronto, Ontario M5J 2T3 Canada.

Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved

Access the entire repository of Edelweiss Research on www.edelresearch.com

14 Edelweiss Securities Limited