Result Update May 2, 2016

Rating matrix Ajanta Pharmaceuticals (AJAPHA) | 1543

Rating : Buy Target : | 1780 Target Period : 15-18 months Exports drive overall growth… Potential Upside : 15% • Revenues grew 14.6% YoY to | 425.7 crore (I-direct estimate: | 437.4 crore) on the back of 20.5% growth in exports to | 300 crore. What’s Changed? Domestic sales grew 7.6% to | 122.7 crore Target Unchanged • EBITDA margins declined 210 bps YoY to 33% (I-direct estimates: EPS FY16P Changed from | 44.1 to | 45.7 36.6%) mainly on account of an increase in employee cost and EPS FY17E Changed from | 49.3 to | 48.9 higher R&D. R&D as a percentage of sales increased to 8.5% from EPS FY18E Unchanged 6.4% in Q4FY15. EBITDA increased 7.7% YoY to | 140.5 crore (I- Rating Unchanged direct estimate: | 160 crore) • Adjusted net profit increased 33% YoY to | 106.3 crore, (I-direct Quarterly Performance estimate: | 103.7 crore) on the back of lower taxation Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%) Revenue 425.7 371.5 14.6 472.8 -10.0 Domestic formulations - Focus on new launches, few therapies EBITDA 140.5 130.4 7.7 163.5 -14.1 Domestic branded formulations constitute 28.7% of FY16P revenue. The EBITDA (%) 33.0 35.1 -210 bps 34.6 -157 bps main distinguishing factor is the uncanny knack of launching maximum Adj. Net Profit 106.3 79.9 33.0 111.3 -4.5 number of first time launches with focus on new drug delivery system

(NDDS). Of ~190 actively marketed brands, ~135 were first in India. The Key Financials focus on specialty therapies and niche product led APL to post strong (|crore) FY15 FY16P FY17E FY18E growth at 28.5% CAGR in FY11-16P, far higher than industry growth of Revenues 1480.6 1729.4 2011.0 2368.9 ~12%. Going ahead, we expect domestic formulations to grow at a CAGR EBITDA 505.2 582.3 682.2 791.8 of 21.6% in FY16P-18E to | 786.5 crore driven by a mix of existing Net Profit 309.9 405.7 431.7 561.5 products and new launches. EPS (|) 36.0 45.7 48.9 63.6 Exports traction manly from emerging markets

Export formulations constitute 67.2% of FY16P revenues. APL is currently Valuation summary deriving almost its entire export revenues from emerging regions such as FY15 FY16E FY17E FY18E Africa (Franco Africa), Asia and LatAm with a presence in more than 35 PE (x) 44.0 33.6 31.6 24.3 countries. As opposed to the common practice of forging alliances with M.Cap/ Revenues (x) 9.2 7.9 6.8 5.8 regional pharmaceutical players, APL’s front-end marketing team interacts EV to EBITDA (x) 26.8 23.3 19.9 16.8 directly with doctors. The company has consistently introduced new products in these markets. Similarly, the African WHO tender business Price to book (x) 16.2 11.6 9.0 6.9 has also provided strong growth traction. Overall export formulations RoNW (%) 37.8 34.4 28.4 28.5 have grown at a CAGR of 32.1% in FY11-16P to | 1162.5 crore. We expect RoCE (%) 50.3 43.7 38.5 36.0 exports to grow at a CAGR of 9.9% in FY16P-18E to | 1404 crore driven by consistent product launches. Stock data Low profile but focused; US foray important for scalability Particular Amount With a focus on niche therapies in domestic formulations and a calculated Market Capitalisation | 13591 crore approach in the exports market, APL remains an interesting candidate Debt (FY16P) | 73 crore from the midcap pharma space with high growth rates, strong margins, Cash (FY16P) | 55 crore commendable return ratios and a lighter balance sheet. Defying the EV | 13609 crore normal trend of targeting developed markets for generic generics initially, 52 week H/L 1720/1103 the company focused on branded generics in the semi-regulated markets. Equity capital | 17.6 crore At this juncture, the company is well poised to foray into the US market Face value | 2 crore especially once the newly constructed Dahej plant gets USFDA approval.

Price performance (%) The company has filed 26 ANDAs with the USFDA and received seven 1M 3M 6M 1Y product approvals. Ajanta Pharma 9.1 25.6 -3.5 18.2 Visibility intact amid near term challenges; maintain BUY Alembic Pharma 1.8 3.2 -6.5 31.6 Torrent Pharma 3.2 3.4 -9.8 23.3 The company is entering the stretched phase of capex across two to three years to bolster the domestic business and exports franchise,

especially the US. This, we believe is a calculated move as Ajanta prepares to scale up in the backdrop of 1) challenges in the domestic Derma space 2) currency translation issues in emerging markets and 3) slower-than-expected offtake in the US. With a strong balance sheet and high return ratios, we believe the time is ripe for the company to enter the capex cycle, the benefit of which is likely to pan out beyond FY18. We maintain our target price of | 1780 based on 28x FY18E EPS of | 63.6.

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Variance analysis Q4FY16 Q4FY16E Q4FY15 Q3FY16 YoY (%) QoQ (%) Comments Revenue 425.7 437.4 371.5 472.8 14.6 -10.0 YoY growth in revenues on account of 20.5% growth in export formulation led by African tender business Raw Material Expenses 95.5 106.8 89.6 115.5 6.5 -17.3 Employee Expenses 69.1 61.2 54.7 64.9 26.3 6.4 Other Expenditure 120.7 109.4 96.7 128.9 24.7 -6.4 R&D spend was 8.5% as % of sales against 6.4% in Q4FY15 Total Operating Expenditure 285.2 277.4 241.1 309.3 18.3 -7.8 EBITDA 140.5 160.0 130.4 163.5 7.7 -14.1 EBITDA (%) 33.0 36.6 35.1 34.6 -210 bps -157 bps Decline in EBITDA margins was mainly due to higher employee and R&D expenses. Miss vis-à-vis I-Direct expectations due to higher-than-expected R&D spend

Interest 1.1 1.5 1.5 1.5 -24.8 -26.8 Depreciation 12.1 11.7 13.2 11.7 -8.9 2.7 Other income 3.4 1.5 5.0 1.6 -32.1 111.3 PBT before EO 130.7 148.2 120.7 151.8 8.3 -13.9 Less: Exceptional Items -2.4 0.0 8.5 0.0 PL 0.0 PBT 133.1 148.2 112.2 151.8 18.6 -12.3 Tax 24.4 44.5 40.8 40.5 -40.1 -39.8 Lower Taxation was mainly due to higher tax benefits on incremental R&D capex

MI & Share of loss/ (gain) asso. 0.0 0.0 0.0 0.0 0.0 0.0 Adj. Net Profit 106.3 103.7 79.9 111.3 33.0 -4.5 Strong YoY growth mainly on account of lower taxation Key Metrics Domestic 122.7 127.2 114.0 134.0 7.6 -8.5 YoY growth driven by 22% growth in cardiology segment Exports 300.0 294.9 249.0 332.3 20.5 -9.7 The growth was driven by 30.8% YoY growth in Africa led by tender business

Source: Company, ICICIdirect.com Research

Change in estimates FY17E FY18E (| Crore) Old New % Change Old New % Change Comments Revenue 1,904.3 2,011.0 5.6 2,289.4 2,368.9 3.5 Increased on the back of higher African tender business guidance EBITDA 657.6 682.2 3.7 790.6 791.8 0.2 EBITDA Margin (%) 34.5 33.9 -61 bps 34.5 33.4 -111 bps Changed as per management guidance PAT 436.0 462.5 6.1 562.1 561.5 -0.1 EPS (|) 49.3 52.4 6.2 63.6 63.6 -0.1 Changed mainly on account of changes in EBITDA and taxation Source: Company, ICICIdirect.com Research

Assumptions Current Earlier Comments (| crore) FY15 FY16P FY17E FY18E FY17E FY18E Branded - domestic 417.6 496.7 616.1 771.9 608.9 763.6 Institutions- domestic 61.4 35.0 14.6 14.6 14.4 14.4 Exports Total 978.1 1,162.5 1,274.8 1,404.0 1,243.6 1,466.5 Source: Company, ICICIdirect.com Research

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Company Analysis Established in 1973, APL is mainly into exports as well as domestic formulations. As of FY15, the exports: domestic formulation ratio was at 65:35. The company owns five manufacturing facilities - four in Aurangabad, and one in Mauritius. Of these five facilities, only one in Aurangabad is an API facility, rest all are formulations. Consolidated revenues, EBITDA and PAT have grown at a CAGR of 31.1%, 48.6% and 58%, respectively, in FY11-16P. APL had come out with a maiden IPO in March 2000. It raised | 68 crore, which was earmarked for capacity expansion and debt repayment.

Domestic formulations constitute 30.7% of the total consolidated turnover (FY16P). This segment has been further segregated into two sub- segments- 1) Branded formulations and 2) Institutional business. Initially, the company was catering to the institutional business. Institutional sub- segment accounts for ~6.6% of domestic formulations and is mainly confined to government and institutional tenders. It is only in the last 10 years that the focus was shifted to the branded formulations business, which now accounts for ~93.4% of domestic formulations.

The company focuses on only a few so called specialty therapies – ophthalmology, dermatology and cardiology. Together, these therapies constitute ~85% of domestic branded formulations. The company invested heavily in the technology and field force especially in the first five years after the changed focus. The focus was also on offering a novel delivery system. From | 17 crore in FY05, branded formulations have grown at a CAGR of 34% to | 496.7 crore in FY16P. Till date, the company has launched ~190 products out of which ~135 are first time launches. The current MR strength is ~3000. Overall, domestic formulations have grown at a CAGR of 28.5% in FY11-16P to | 531.7 crore. The company has only one product under the National List of Essential Medicines (NLEM) 2011 list.

Export formulations constitute 67.2% of the total consolidated turnover (FY15). Exports are mainly confined to emerging markets and constitute branded generics. APL exports its products in ~35 emerging markets with a significant presence in Franco African countries and Philippines.

Africa accounts for ~59% of export formulations followed by Asia. The company also participates in anti-malarial tenders in Africa. It operates through 450+ MRs in these emerging markets and owns a portfolio of 1351 registered brands in these markets encompassing major therapies such as anti-infectives, anti-malarials, ophthalmic, dermatology, cardiovascular, GI etc. Ajanta also has a marginal presence in Latin America. It has also forayed into regulated markets such as the US where it has filed 26 ANDAs, received approvals for 10 and launched five products. Overall, export formulations have grown at a CAGR of 28.8% in FY11-16P to | 1162.5 crore.

Ajanta Pharma has five subsidiaries including one step-down subsidiary in Mauritius, Philippines and the US. The Mauritius subsidiary with an independent manufacturing base mainly caters to the Franco African markets. The subsidiary in Philippines, which is a marketing arm, caters to the Philippines market. The US subsidiary is an administrative office to facilitate US operations.

We expect revenues to grow at a CAGR of 17% to | 2368.9 crore in FY16P-18E, on the back of strong growth in both exports and domestic

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formulation segments. Exports are likely to grow at a CAGR of 9.9% to | 1404 crore during the same period to be driven by growth in the legacy export markets of Africa and Asia and commencement of US shipments. Similarly, the domestic formulations segment is likely to register a CAGR of 21.6% to | 786.5 crore in the same period, to be driven by branded formulations. Exhibit 1: Revenue growth trend 2500 2368.9

2011.0 2000 1729.4 1480.6 1500 1208.3

(| crore)(| 930.8 1000 677.4 504.9 500

0 FY11 FY12 FY13 FY14 FY15 FY16P FY17E FY18E Revenues

Source: Company, ICICIdirect.com Research

Domestic formulations - APL operates in branded (Prescription: Rx, 93.4% of domestic sales) and tender business (6.6% of domestic sales). In the branded space, it has a presence in fast growing specialty therapies viz. ophthalmology, dermatology, chronic therapies like cardiovascular (CVS) while in the acute space it has a marginal presence in pain management and gastrointestinal. APL currently markets ~190 brands through 3000 medical representatives (MRs) covering 3 lakh doctors.

Over the years, the company has developed a knack of launching maximum number of first launches with focus on new drug delivery system (NDDS). It was one of the very few companies to launch products such as Metoprolol (CVS), Rosuvastatin + Clopidogrel (CVS), Hydroquinone + Mometasone + Tretinoin (Derma), etc, in the Indian market. The company’s first differentiated (NDDS) product Nimesulide (pain) daily once was launched under brand name Nimlodi in FY02. Out of ~189 actively marketed brands, ~135 were first launches in India. The focus on specialty therapies and niche product led APL to post a strong CAGR of 28.5% in FY11-16P, which is far higher than the industry growth of ~12% (AIOCD data).

As per the latest AIOCD data, APL is 42nd in the Indian pharmaceutical market with a market share of 0.48%. Currently, only 12% of total domestic sales are under NLEM and are mainly from CVS category.

The company markets CVS, ophthalmology and dermatology products under the divisions of Anvaxx, Illuma and Ansca. The company launches ~20 new products every year including line extensions. We expect Ajanta to continue with 15-20 product launches every year. Overall, we expect domestic sales to grow at a CAGR of 21.6% to | 786.5 crore in FY16P-18E.

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Exhibit 2: Domestic formulation growth likely to be at a CAGR of 21.6% in FY16P-18E

900.0 786.5 800.0 700.0 630.7 600.0 531.7 479.0 500.0 385.0 400.0 292.0 300.0 227.0 170.0 200.0 100.0 0.0 FY11 FY12 FY13 FY14 FY15 FY16P FY17E FY18E

Total Domestic

Source: Company, ICICIdirect.com Research

Formulation exports Exports account for 65% of the revenues. APL currently derives almost its entire export revenues from emerging regions like Africa (Franco Africa), Asia and the LatAm having a presence in more than 35 countries. Exports have grown at 32.1% CAGR in FY11-16P.

The company markets its products through a team of 450+ MRs. At present, the company is marketing 200+ products in these regions. In all, the company owns 1481 registered brands while another 1887 brands are under registration.

APL’s success story in emerging markets was carved out of the so called differentiated approach. According to this, products were developed on the basis of unmet medical needs in a particular geography. As a result, the product basket varied from nation to nation. Similarly, the company resorted to a different strategy of product marketing. As opposed to the common practice of forging alliances with local/regional pharmaceutical players, APL’s front-end marketing team interacts directly with doctors. The company has consistently introduced new products in these markets. Overall, we expect export sales to grow at a CAGR of 9.9% to | 1404 crore in FY16P-18E.

Exhibit 3: Exports to grow at a CAGR of 9.9% in FY16P-18E

1600.0 1404.0 1400.0 1274.8 1162.5 1200.0 978.1 1000.0 793.0 800.0 629.0 600.0 445.0 328.0 400.0 200.0 0.0 FY11 FY12 FY13 FY14 FY15 FY16P FY17E FY18E

Total Exports

Source: Company, ICICIdirect.com Research

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Exhibit 4: Derma sales(dom) to grow at CAGR of 19.3% in FY16P-18E Exhibit 5: Cardio sales(Dom) to grow at CAGR of 25% in FY16P-18E 200.0 172.3 400.0 143.6 116.7 121.0 100.0 201.9 79.0 200.0 161.6 62.0 115.3 132.0 47.0 85.0 64.0 37.0 46.0

0.0 0.0 FY11 FY12 FY13 FY14 FY15 FY16P FY17E FY18E FY11 FY12 FY13 FY14 FY15 FY16P FY17E FY18E Dermatology Ophthalmology

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com, Research

Exhibit 6: Ophthalmic sales (domestic) at CAGR of 23.7% in FY16P-18E Exhibit 7: Institutional domestic business

400.0 200.0

201.9 200.0 161.6 66.0 61.4 132.0 53.0 54.0 115.3 39.0 35.0 85.0 64.0 14.6 14.6 37.0 46.0 0.0 0.0 FY11 FY12 FY13 FY14 FY15 FY16P FY17E FY18E FY11 FY12 FY13 FY14 FY15 FY16P FY17E FY18E Institutions- domestic Ophthalmology

Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research

Exhibit 8: Africa sales exports growth at CAGR 6.2% in FY16P-18E Exhibit 9: Asia exports growth at CAGR 15% in FY16P-18E 600 561.5 28 800.0 24 500 23.3 462.523.0 23.7 620.9 20.9 403.3 539.9 19.4 20 600.0 400 439.4 469.5 309.9 16 337.0 300 400.0 233.9 (%) 263.0 11.4 12.0 12 (| cr or e) 10.0 179.0 200 200.0 149.0 112.1 8 77.3 100 50.7 4 0.0 0 0 FY11 FY12 FY13 FY14 FY15 FY16P FY17E FY18E FY11 FY12 FY13 FY14 FY15 FY16P FY17E FY18E Asia Net Pro fit Net Profit Margins (%)

Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research

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Exhibit 10: EBITDA to grow at CAGR of 16.6% in FY16P-18E 900 36 34.1 33.7 33.9 791.833.4 800 32 30.5 682.2 700 28 582.3 600 23.8 505.2 24 20.8 500 19.1 20 368.8 400 16 (%) (| crore)(| 300 221.6 12 200 140.7 8 96.3 100 4 0 0 FY11 FY12 FY13 FY14 FY15 FY16P FY17E FY18E EBITDA EBITDA Margins (%)

Source: Company, ICICIdirect.com Research

Exhibit 11: Net profit to grow at CAGR of 17.7% in FY16P-18E 600 561.5 28

24 500 23.3 462.523.0 23.7 20.9 403.3 20 400 19.4 309.9 16 300 233.9 (%) 11.4 12.0 12 (| cr or e) 200 10.0 112.1 8 77.3 100 50.7 4

0 0 FY11 FY12 FY13 FY14 FY15 FY16P FY17E FY18E Net Pro fit Net Profit Margins (%)

Source: Company, ICICIdirect.com Research

Exhibit 12: Trends in return ratios

58

50 50.3 45.1 42 43.7 39.4 37.8 37.9 34 35.8 34.4 35.6 28.5 30.0 (%) 28.2 26 25.9 22.2 22.0 18 17.3 10 FY11 FY12 FY13 FY14 FY15 FY16P FY17E FY18E

RoCE (%) RoNW (%)

Source: Company, ICICIdirect.com Research

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Exhibit 13: Trends in quarterly financials (| crore) Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 YoY (%) QoQ (%) Net Sales 315.0 365.8 401.6 363.0 385.7 434.5 465.7 419.2 15.5 -10.0 Other Operating Income 6.7 6.1 6.3 8.5 5.7 3.2 7.1 6.5 -23.0 -7.6 Total Operating Income 321.7 371.9 407.9 371.5 391.4 437.7 472.8 425.7 14.6 -10.0 Raw Material Expenses 79.7 94.8 101.3 89.6 103.4 99.5 115.5 95.5 6.5 -17.3 % of Revenue 24.8 25.5 24.8 24.1 26.4 22.7 24.4 22.4 -170 bps -200 bps Gross Profit 242.0 277.1 306.5 281.9 288.0 338.2 357.3 330.3 17.2 -7.6 Gross Profit Margin (%) 75.2 74.5 75.2 75.9 73.6 77.3 75.6 77.6 170 bps 200 bps Employee Expenses 46.0 47.9 52.1 54.7 59.2 63.8 64.9 69.1 26.3 6.4 % of Revenue 14.3 12.9 12.8 14.7 15.1 14.6 13.7 16.2 150 bps 249 bps Other Expenditure 99.1 100.4 109.7 96.7 106.2 120.5 128.9 120.7 24.7 -6.4 % of Revenue 30.8 27.0 26.9 26.0 27.1 27.5 27.3 28.3 230 bps 108 bps Total Expenditure 224.8 243.1 263.1 241.1 268.8 283.8 309.3 285.2 18.3 -7.8 % of Revenue 69.9 65.4 64.5 64.9 68.7 64.9 65.4 67.0 210 bps 157 bps EBITDA 96.9 128.8 144.8 130.4 122.6 153.8 163.5 140.5 7.7 -14.1 EBITDA Margin (%) 30.1 34.6 35.5 35.1 31.3 35.1 34.6 33.0 -210 bps -157 bps Other Income 4.5 4.4 4.5 5.0 6.6 5.4 1.6 3.4 -32.1 111.3 Interest 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 0.0 0.0 Depreciation 12.6 12.7 13.1 13.2 10.3 11.0 11.7 12.1 -8.9 2.7 PBT (bef Excep's) 87.8 119.5 135.1 121.1 117.8 147.2 152.3 130.8 8.0 -14.1 Less: Exceptional Items 0.0 0.0 0.0 8.5 0.0 0.0 0.0 0.0 PBT 87.8 119.5 135.1 129.6 117.8 147.2 152.3 130.8 0.9 -14.1 Total Tax 27.7 36.0 41.7 40.8 33.8 47.2 40.5 24.4 -40.1 -39.8 Tax rate (%) 31.5 30.2 30.9 31.4 28.7 32.1 26.6 18.7 -1278 bps -794 bps PAT 59.7 83.0 93.1 71.5 83.8 100.0 111.3 106.3 48.7 -4.5 PAT Margin (%) 18.5 22.3 22.8 19.2 21.4 22.8 23.5 25.0 573 bps 143 bps

Source: Company, ICICIdirect.com Research

SWOT Analysis Strengths - Industry beating growth on a consistent basis, Focused approach in the exports space, high return ratios, knack of launching new products on a consistent basis. Weakness - High Product concentration.

Opportunities - The US Generics space.

Threats - extension of NLEM scope to include some of its flagship products, government driven price controls in some of the export markets.

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Conference call highlights

• Africa business included | 113 crore from anti-malarial tenders for Q4FY16 and | 414 crore for FY16 (~| 275 crore tender sales registered in FY15). The company gave a guidance of | 400-410 of African institutional business for FY17. • The US revenues for FY16 were ~US$ 2 million and the company expects ~US$ 10 million of sales for FY17 and ~US$ 20 million of sales for FY18. • Total 26 ANDAs have been filed cumulatively in the US market including 16 pending approvals. It has launched 5 products till date. • In FY16, the company launched 19 brands in domestic market of which eight were first time launches. • The company has guided for 18-20% of domestic growth and mid teen growth in export markets in FY17. EBITDA margins are expected to be 33-35% in FY17-18E • It has guided for 7% R&D in FY17E. R&D in FY16 was ~6% • The tax rate during FY16 was ~27% which the company expects to come down to 25-26% in FY17 and 24-25% in FY18 mainly due to increase in R&D capex • The company plans to file around 8-12 ANDAs every year • Validation batches from Dahej plant have been started and the company expects to start US filing from 1HFY17. It expects to commercialise Dahej facility and Phase 1 of Guwahati facility from Q1FY18. Guwahati phase 2 is expected to start from Q1FY19 • MR strength in the domestic market is more than 3000. The company does not plan to add MRs in FY17 • The company has guided for ~| 475 crore of capex for FY17E. This will be towards the development of Guwahati plant (| 300 crore), new corporate office, capitalization of R&D (| 100 crore for next two years) and maintenance capex (| 50-60 crore annually)

Exhibit 14: Brand introduction in export markets Brands Under Region Registered Registration Major Segments Africa 1137 1351 Antibiotic, Anti-malaria, Cardiac, Gynocology Asia 344 536 Antibiotic, Derma, Pain, OTC, Ophthal, Cardiac, GI

Source: Company, ICICIdirect.com Research

Exhibit 15: Facilities Location Segment Regulatory Approvals Type Paithan, India (3 Formulations US FDA, UK MHRA, health authorities tablets, capsules, Aurangabad facilities) of Brazil and Colombia, WHO pre- ointments, injections and qualification dry powder Mauritius Formulations Dahej (upcoming) Formulations Guwahati (upcoming) Formulations Aurangabad API WHO

Source: Company, ICICIdirect.com Research

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Valuation The company is entering the stretched phase of capex across two to three years to bolster the domestic business as well as exports franchise especially the US. This, we believe, is a calculated move as the company prepares to scale up in the backdrop of 1) challenges in the domestic Derma space 2) currency translation issues in the emerging markets and 3) slower than expected off-take in the US. With strong balance sheet and high return ratios, we believe the time is ripe for the company to enter the capex cycle the benefit of which are likely to pan out beyond FY18. We maintain our target of | 1780 based on 28x FY18E EPS of | 63.6.

Exhibit 16: One year forward PE

3000

2500

2000

1500 (|) 1000

500

0 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16

Price 43.5x 34.3x 25.2x 16.0x

[ Source: Company, ICICIdirect.com Research

Exhibit 17: One year forward PE of company vs. CNX Pharma Index

45 40 35 30 25 20 15 10 5 0 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16

Ajanta CNX Pharma

Source: Company, ICICIdirect.com Research

Exhibit 18: Valuation Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE (| crore) (%) (|) (%) (x) (X) (%) (%) FY15 1481 23 36.0 32 44.0 26.8 37.8 50.3 FY16P 1729 17 45.7 30 33.8 23.3 34.4 43.7 FY17E 2011 16 52.4 15 29.5 19.9 30.0 37.9 FY18E 2369 18 63.6 21 24.3 16.8 28.2 35.6 Source: Company, ICICIdirect.com Research

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Company snapshot

2,000 Target Price: | 1780 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Source: Bloomberg, Company, ICICIdirect.com Research

Key events Date Event Jun-08 Commissions dedicated R&D facility in Kandivali, Mar-09 Enters the Philippines market via incorporation of a subsidiary Mar-09 USFDA approves Paithan faciliy Mar-10 Acquires formulation facility near Aurangabad to cater to ROW markets Dec-12 Enters regulated markets with first product approval in the US and one for Europe. Mar-13 Launches first product in the US Jan-15 Board approves subdivision of sharesfrom | 5 to | 2

Source: Company, ICICIdirect.com Research

Top 10 Shareholders Shareholding Pattern Rank Investor Name Latest Filing Date % O/S Position Position Change (in %) Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 1 Agrawal (Mannalal B) 31-Dec 9.6 8.5m 3.1m Promoter 73.8 73.8 73.8 73.8 73.8 2 Agrawal (Madhusudan B) 31-Dec 9.6 8.5m 3.1m FII 7.3 7.6 8.6 7.6 8.9 3 Agrawal (Purushottam B) 31-Dec 9.6 8.4m 3.0m DII 1.5 1.6 1.5 1.6 1.8 4 Gabs Investments Pvt. Ltd. 31-Dec 9.5 8.4m 0.0m Others 17.4 17.0 17.4 17.0 15.5 5 Agrawal (Manisha Yogesh) 31-Dec 7.8 6.8m 5.1m 6 Agrawal (Rajesh) 31-Dec 7.3 6.4m 0.0m 7 Agrawal (Yogesh Mannalal) 31-Dec 7.3 6.4m 0.0m 8 Matthews International Capital Management, L. 31-Dec 3.6 3.1m 1.1m 9 Agrawal (Ravi P) 31-Dec 3.1 2.8m 0.0m 10 Agrawal (Ayush Madhusudan) 31-Dec 2.9 2.6m 0.0m

Source: Reuters, ICICIdirect.com Research

Recent Activity Buys Sells Investor name Value ($) Shares Investor name Value ($) Shares Agrawal (Manisha Yogesh) 103.4m 5.1m William Blair & Company, L.L.C. -8.1m -0.4m Agrawal (Madhusudan B) 61.9m 3.1m William Blair Investment Management, LLC -7.2m -0.4m Agrawal (Mannalal B) 61.6m 3.1m Motilal Oswal Asset Management Company Ltd. -6.5m -0.3m Agrawal (Purushottam B) 61.1m 3.0m Reliance Capital Asset Management Ltd. -2.5m -0.1m Matthews International Capital Management, L.L.C. 22.5m 1.1m Grandeur Peak Global Advisors, LLC -1.4m -0.1m

Source: Reuters, ICICIdirect.com Research

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Financial summary

Profit and loss statement | Crore Cash flow statement | Crore (Year-end March)/ (| crore) FY15 FY16P FY17E FY18E (Year-end March)/ (| crore) FY15 FY16E FY17E FY18E Total Operating Income 1,480.6 1,729.4 2,011.0 2,368.9 Profit/(Loss) after taxation 309.9 403.3 462.5 561.5 Growth (%) 22.5 16.8 16.3 17.8 Add: Depreciation & Amortization 51.6 45.1 71.2 96.0

Raw Material Expenses 365.4 413.8 480.1 583.0 Net Increase in Current Assets -77.3 -165.3 -103.7 -152.4 Gross Profit 1,115.1 1,315.6 1,530.8 1,785.9 Net Increase in Current Liabilities -6.7 3.2 189.5 98.6 Gross Profit Margins (%) 75.3 76.1 76.1 75.4 Add: Interest Paid 5.9 4.9 4.4 0.0 Employee Expenses 200.6 257.0 286.4 331.7 CF from Operating activities 283.5 291.1 623.9 603.7 Other Expenditure 409.3 476.3 562.2 662.4 Total Operating Expenditure 975.3 1,147.2 1,328.7 1,577.1 Long term Loans & Advances -2.0 -12.6 -49.3 0.0 EBITDA 505.2 582.3 682.2 791.8 Investments -4.5 -46.9 0.0 -200.0 Growth (%) 37.0 15.3 17.2 16.1 (Purchase)/Sale of Fixed Assets -103.6 -278.2 -475.0 -200.0 Interest 5.9 4.9 4.4 4.4 Deferred Tax Liabilities & LT Provisions 1.9 -2.2 0.0 0.0 Depreciation 51.6 45.1 71.2 96.0 CF from Investing activities -101.9 -339.8 -524.3 -400.0 Other Income 16.8 17.0 10.1 47.4 PBT before Exceptional Items 464.5 549.3 616.7 738.9 (inc)/Dec in Loan -58.1 0.3 0.0 0.0 Less: Exceptional Items 8.5 0.0 0.0 0.0 Dividend & Dividend tax -41.1 -30.6 -92.3 -112.1 PBT after Exceptional Items 456.0 549.3 616.7 738.9 Other -6.0 -4.9 -4.4 0.0 Total Tax 146.2 146.0 154.2 177.3 CF from Financing activities -105.2 -35.2 -96.7 -112.1 PAT before MI 309.9 403.3 462.5 561.5 Net Cash Flow 76.4 -83.9 2.9 91.6 PAT 309.9 403.3 462.5 561.5 Cash and Cash Equivalent at the beginning 60.4 136.8 52.9 55.8 Growth (%) 32.5 30.2 14.7 21.4 Cash 136.8 52.9 55.8 147.4 EPS (Adjusted) 36.0 45.7 52.4 63.6 Free Cash Flow 179.9 13.0 148.9 403.7

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

Balance sheet | Crore Key ratios (Year-end March)/ (| crore) FY15 FY16E FY17E FY18E (Year-end March) FY15 FY16E FY17E FY18E Per share data (|) Equity Capital 17.7 17.7 17.7 17.7 Reported EPS 35.1 45.7 52.4 63.6 Reserve and Surplus 823.4 1,154.4 1,524.6 1,974.0 Cash EPS 29.1 42.2 41.9 50.9

Total Shareholders funds 841.1 1,172.1 1,542.3 1,991.7 BV per share 95.2 132.7 174.6 225.4 Total Debt 72.4 72.7 72.7 72.7 Cash per Share 15.5 6.0 6.3 16.7 Deferred Tax Liability 15.2 20.0 20.0 20.0 Dividend per share 7.0 3.5 10.5 12.7 Long-Term Provisions 4.8 2.6 2.6 2.6 Operating Ratios (%) Other Non Current Liabilities 2.5 0.5 0.5 0.5 Gross Profit Margins 75.3 76.1 76.1 75.4 Source of Funds 935.9 1,267.8 1,638.0 2,087.4 EBITDA margins 34.1 33.7 33.9 33.4 PAT Margins 21.5 23.3 23.0 23.7 Gross Block 549.9 609.9 809.9 1,109.9 Inventory days 39.2 43.2 59.5 60.4 Accumulated Depreciation 261.8 306.8 378.0 474.0 Debtor days 63.8 78.6 62.7 63.7 Net Block 288.1 303.0 431.8 635.8 Creditor days 26.9 30.7 54.1 54.9 Capital WIP 170.2 388.4 663.4 563.4 Asset Turnover 1.6 1.4 1.2 1.1

Fixed Assets 458.3 691.4 1,095.2 1,199.2 EBITDA conversion Rate 56.1 50.0 91.4 76.2 Investments 59.5 66.4 66.4 266.4 Return Ratios (%) Long Term Loans and Advances 9.3 21.9 71.2 71.2 RoE 37.8 34.4 30.0 28.2 Other non-Current Assets 5.3 4.3 4.3 4.3 RoCE 50.3 43.7 37.9 35.6 Inventory 159.0 204.6 327.6 392.0 RoIC 74.4 70.7 71.7 62.7 Debtors 258.8 372.4 345.5 413.4 Valuation Ratios (x) Loans and Advances 50.5 64.9 71.2 91.2 P/E 44.0 33.8 29.5 24.3 Other Current Assets 8.9 0.7 2.0 2.0 EV / EBITDA 26.8 23.3 19.9 16.8 Cash 136.8 52.9 55.8 147.4 EV / Net Sales 9.2 7.9 6.8 5.6 Total Current Assets 613.9 695.4 802.1 1,046.0 Market Cap / Sales 9.2 7.9 6.8 5.8 Creditors 109.1 145.6 297.8 356.4 Price to Book Value 16.2 11.6 8.8 6.8 Provisions 64.3 11.4 38.7 58.7 Solvency Ratios

Other Current Liabilities 37.1 56.7 66.6 86.6 Debt / EBITDA 0.1 0.1 0.1 0.1 Total Current Liabilities 210.5 213.6 403.2 501.7 Debt / Equity 0.1 0.1 0.0 0.0 Net Current Assets 403.5 481.8 398.9 544.3 Current Ratio 2.3 3.0 1.9 1.8 Application of Funds 935.9 1,265.7 1,635.9 2,085.4 Quick Ratio 1.5 2.0 1.0 1.0

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research .

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ICICIdirect.com coverage universe (Healthcare)

Company I-Direct CMP TP Rating M Cap EPS (|) PE(x) EV/EBITDA (x) RoCE (%) RoE (%) Code (|) (|) (| Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E Ajanta Pharma AJAPHA 1543 1,780 Buy 13510.8 36.0 45.7 52.4 42.8 33.8 29.5 26.8 23.3 19.9 50.3 43.7 37.9 37.8 34.4 30.0

Apollo Hospitals APOHOS 1312 1,420 Hold 18246.3 23.7 27.6 34.6 55.2 47.5 37.9 27.6 23.9 18.9 9.9 11.2 13.0 10.4 11.1 12.5

Aurobindo Pharma AURPHA 765 990 Buy 44745.0 28.1 33.9 37.7 27.2 22.5 20.3 30.7 25.1 22.0 23.4 24.7 25.0 31.7 28.7 24.7

Alembic Pharma ALEMPHA 607 620 Hold 11450.4 15.1 38.2 19.6 40.3 15.9 31.0 32.2 12.6 23.9 30.7 58.0 24.8 32.1 51.5 22.3

Biocon 575 560 Hold 11498.0 20.4 22.1 28.3 28.2 26.1 20.3 8.3 7.6 6.4 10.4 9.1 10.9 12.5 10.9 12.7

Cadila Healthcare CADHEA 327 405 Buy 33476.4 11.2 14.7 15.3 29.2 22.3 21.4 19.9 14.8 14.4 20.7 26.2 24.4 27.0 28.0 23.9 CIPLA 527 690 Buy 42342.4 14.7 21.5 25.7 35.8 24.5 20.5 19.4 15.6 13.1 13.8 14.8 16.5 10.9 14.1 14.8 Divi's Laboratories DIVLAB 1049 1,320 Buy 27850.3 32.1 40.2 46.7 32.7 26.1 22.5 22.3 18.7 15.9 29.4 31.3 31.1 24.4 25.6 25.1 Dr Reddy's Labs DRREDD 3086 3,880 Buy 52657.2 129.0 146.8 143.3 23.9 21.0 21.5 14.5 11.8 11.6 16.7 18.0 16.6 22.3 20.3 16.5 Glenmark Pharma GLEPHA 818 975 Buy 23093.2 23.1 28.9 39.7 35.4 28.4 20.6 20.7 15.7 12.9 13.3 17.7 21.1 21.7 21.7 23.3 Indoco Remedies INDREM 274 390 Buy 2523.1 9.0 9.3 15.6 30.5 29.6 17.6 15.9 14.8 10.7 16.4 15.4 22.2 16.0 14.7 20.8 IPCLAB 493 515 Hold 6222.9 19.9 12.1 24.7 24.8 40.8 19.9 13.5 18.2 12.2 11.5 6.7 11.7 11.4 6.6 12.2 Jubilant Life Sciences VAMORG 398 375 Hold 6344.9 -0.6 31.0 43.0 NA 12.8 9.3 15.9 8.1 6.5 5.8 13.4 15.8 NA 17.1 19.5 Lupin LUPIN 1577 2,200 Buy 71081.7 53.6 50.5 71.2 29.4 31.2 22.1 17.8 19.6 13.3 35.1 22.4 28.7 27.1 21.2 24.0 NATPHA 494 630 Buy 8607.7 8.3 7.5 11.6 59.5 66.3 42.4 35.3 29.3 21.6 15.4 13.0 16.5 17.9 10.0 13.8 SUNPHA 803 845 Hold 193152.0 19.8 23.6 28.4 40.5 34.0 28.3 24.1 21.2 17.7 18.8 20.0 21.1 18.6 18.8 19.1 Syngene International SYNINT 399 445 Buy 7971.0 8.8 11.1 15.6 43.3 34.2 24.3 26.6 20.9 17.0 19.5 13.3 16.7 20.7 21.2 23.5 Torrent Pharma TORPHA 1415 1,650 Buy 23952.2 44.4 115.3 67.1 31.9 12.3 21.1 24.4 8.4 13.3 20.1 43.7 24.4 30.2 50.3 24.0 Unichem Laboratories UNILAB 249 310 Buy 2262.0 8.3 11.5 15.9 30.0 21.7 15.7 19.5 12.1 9.8 8.5 13.6 16.7 8.7 11.0 13.8 Source: Company, ICICIdirect.com Research

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RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 [email protected]

ICICI Securities Ltd | Retail Equity Research Page 14

ANALYST CERTIFICATION We /I, Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Nandan Kamat MBA Research Analysts, 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. Terms & conditions and other disclosures: ICICI Securities Limited is a SEBI registered Research Analyst having registration no. INH000000990. 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 is a wholly-owned 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.

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.

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ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities 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 have any material conflict of interest at the time of publication of this report.

It is confirmed that Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance), Nandan Kamat MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.

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 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.

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