RESULT UPDATE

CADILA HEALTHCARE Status quo

India Equity Research| Pharmaceuticals

Cadila Healthcare’s (CDH) Q4FY13 numbers were mixed with higher EDELWEISS 4D RATINGS growth in India consumer, EU and ROW markets, while US and Brazil Absolute Rating BUY continued to face challenges from lack of approvals. Revenue grew 16.5% Rating Relative to Sector Performer YoY, in line. EBITDA margin recovered to 18.8% (estimated 16.8%) from Risk Rating Relative to Sector Low 14.5% in Q3FY13 as fixed overheads came off, while gross margins were Sector Relative to Market Overweight lower by 220bps YoY due to higher price erosion in US and lower growth in Brazil and India. Adjusted PAT of INR1.9bn was higher than estimated MARKET DATA (R: CADI.BO, B: CDH IN) INR1.4bn. The company is catapulting on its intended strategy and CMP : INR 775 expects momentum from key launches in nasal and transdermal by FY15. Target Price : INR 910 We estimate earnings to scale up with a lag, while pick up in US will offset 52-week range (INR) : 975 / 705 pressure from pricing policy. Maintain ‘BUY’ and TP of INR910/share. Share in issue (mn) : 204.7 M cap (INR bn/USD mn) : 159/ 2,826 India, EU, ROW spur revenue; US, Brazil lag on approval delays Avg. Daily Vol.BSE/NSE(‘000) : 117.6

Revenue growth of 16.5% YoY was led by domestic (14%), EU (36%), ROW (86%) and SHARE HOLDING PATTER N (%) Zydus Wellness (26%). US and Brazil lagged with 10% and 5% growth, respectively, on delay in approvals. JV sales were flat due to higher price erosion in Docetaxel. Going Current Q3FY13 Q2FY13 forward, CDH expects Hospira JV to ramp up from supply of additional products. Promoters * 74.8 74.8 74.8

MF's, FI's & BK’s 11.2 11.4 11.6 US, domestic formulation key growth pillars FII's 5.4 4.9 4.8 Others 8.7 8.9 8.8 US and India constitute 60% of sales and are key growth levers. CDH expects India to * Promoters pledged shares : NIL grow ahead of the industry with ~2-3% impact from pricing policy. US generics would (% of share in issue) see higher traction from 22 approvals in FY14, while nasal/transdermal would drive two thirds growth over FY15-16E. We estimate 27% CAGR in US over FY13-16. PRIC E PERFORMANCE (%) EW Pharma Stock Nifty Core margin to improve despite pricing policy impact Index We estimate margin (ex-other operating income) to improve 120bps over FY13-15 as 1 month (1.3) 3.3 0.3 ramp up in US, recovery in Brazil and launches from Nesher will more than offset the 3 months 1.9 7.6 10.5 pricing policy impact. 12 months 5.9 23.7 35.0

Outlook and valuations: Long-term play; Maintain ‘BUY’

CDH is a long-term play with earnings scalability over FY15-16. We maintain our earnings estimates and believe that despite near-term pressure on operational performance, the company has multiple growth levers. We maintain ‘BUY /SP’.

Financials (Consolidated) (INR mn) Year to March Q4FY13 Q4FY12 % change Q3FY13 % change FY13 FY14E FY15E Manoj Garg Net revenue 16,212 13,980 16.0 15,924 1.8 63,081 73,795 87,162 +91 22 6623 3302 EBITDA 3,054 3,063 (0.3) 2,314 32.0 11,433 13,323 16,289 [email protected] Adj. net profit 1,917 1,902 0.8 1,226 56.4 7,064 8,150 10,346 Perin Ali Adj. dilu.EPS (INR) 9.4 9.3 0.8 6.0 56.4 34.5 39.8 50.5 +91 22 6620 3032 Diluted P/E (x)- core 22.5 19.5 15.3 [email protected]

Core EV/EBITDA (x) 15.7 13.5 11.0 ROAE (%) 25.2 24.3 25.2 May 30, 2013 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL , Thomson First Call, Reuters and Factset. Edelweiss Securities Limited

Pharmaceuticals

Table 1: Actual vs. Estimate (INR mn) Actual Y-o-Y Estimates Y-o-Y Deviation from Year to March Comments Q4FY13 Growth (%) Q4FY13 Growth (%) Actual (%) Net revenue 15,658 16.5 15,686 16.7 (0.2) Growth led by EU and ROW markets Other operating income 554 3.4 350 (34.8) 58.4 Recognition of royalty income Net revenue (incl other operating inc) 16,212 16.0 16,036 14.7 1.1 Raw material costs 6,086 29.7 5,647 20.4 7.8 Gross profit 10,126 9.0 10,389 11.8 (2.5) Price erosion in US and moderation in Gross margins(%) 61.1 64.0 Brazil imapcted margins Employee costs 2,115 11.7 2,340 23.5 (9.6) Other expenses 4,957 14.4 5,348 23.5 (7.3) Non recurring expenses come off QoQ Total operating expenses 7,072 13.6 7,688 23.5 (8.0) EBITDA 3,054 (0.3) 2,701 (11.8) 13.1 Lower fixed costs resulted in margin EBITDA margin (%) 18.8 16.8 expansion EBITDA margin excl other op inc. (%) 16.0 15.0 Net finance expense (income) 328 (5.4) 340 (1.8) (3.6) Depreciation 466 19.1 480 22.8 (3.0) Other income 87 (43.2) 150 (2.5) (41.8) PBT 2,348 (5.3) 2,031 (18.1) 15.6 Income tax expense 398 (8.7) 508 16.4 (21.5) Tax rate 17.0 25.0 Lower tax from MAT creit Extraordinaries (loss)/gain (177) 0 Forex gain Minority interest 128 76 Net profit 1,644 (3.8) 1,447 (15.3) 13.6 Adusted PAT 1,917 0.8 1,447 (23.9) 32.5 Lower fixed costs and taxes drive earnings Adjusted EPS 9.4 0.8 7.1 (23.9) 32.5 Source: Company, Edelweiss research

Chart 1: Margins recover from decline in fixed costs 3,761 29.0

3,205 24.4

Earnings have bottomed and we 2,649 19.8

expect strong momentum in FY14 (%) 2,092 15.2 (INR mn) (INR

1,536 10.6

980 6.0 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13

EBITDA Adjusted PAT EBITDA margin Adj PAT margin

Source: Company, Edelweiss research

2 Edelweiss Securities Limited Cadila Healthcare

Table 2: Revenue mix by segment (quarter) (INR mn) Year to March Q4FY13 Q4FY12 % change Q3FY13 % change Comments Domestic formulations 5,708 4,988 14.4 5,699 0.2 Management sees continued growth momentum ahead of industry Export formulations 6,600 5,486 20.3 6,562 0.6 US 3,882 3,533 9.9 3,920 (1.0) Growth impacted from lower pace of approvals and price erosion in base business EU 961 706 36.1 1,119 (14.1) Strong growth led by product launches in France Brazil 586 556 5.4 666 (12.0) Growth imapcted from slack of approvals in Brazil Japan 141 136 3.7 180 (21.7) Emerging markets 1,030 555 85.6 677 52.1 JVs 1,153 1,141 1.1 1,263 (8.7) Flat growth from price erosion in Hospira JV API 859 744 15.5 778 10.4 Zydus Wellness 1,084 857 26.5 1,018 6.5 Double digit growth in sugar free and revamping of Everyouth resulted in higher growth Animal health 589 576 2.3 622 (5.3) Total gross sales 15,993 13,792 16.0 15,942 0.3 Source: Company, Edelweiss research

Table 3: Revenue mix by segment (Consolidated annual) (INR mn) Year to March FY12 % change FY13 % change FY14E % change FY15E % change Domestic formulations 18,950 10.5 23,232 22.6 26,044 12.1 30,205 16.0 Export formulations 20,298 19.0 24,886 22.6 30,840 23.9 37,517 21.7 US 12,431 28.8 15,068 21.2 18,827 24.9 23,038 22.4 EU 2,983 8.3 3,697 23.9 4,067 10.0 4,473 10.0 Brazil 2,473 9.9 2,384 (3.6) 2,765 16.0 3,319 20.0 Japan 522 23.7 603 15.5 724 20.0 868 20.0 Emerging markets 1,889 (4.6) 3,134 65.9 4,458 42.2 5,819 30.6 JVs 3,510 21.9 3,948 12.5 4,123 4.4 4,917 19.3 API 2,854 (17.7) 3,099 8.6 3,280 5.8 3,473 5.9 Zydus Wellness 3,446 2.7 4,100 19.0 4,920 20.0 5,756 17.0 Animal health 2,024 37.5 2,462 21.6 2,809 14.1 3,159 12.5 Total gross sales 51,082 12.6 61,727 20.8 72,015 16.7 85,028 18.1 Source: Company, Edelweiss research

3 Edelweiss Securities Limited Pharmaceuticals

Chart 2: Domestic growth came-off sequentially 35.0 The base effect of Biochem has receded and 14% growth in domestic represents underlying growth 28.0

During FY13 growth ex-Biochem was 21.0 16% and company launched 90 new products including brand extension (%) 14.0 (of which 21 were first time launches) 7.0

0.0 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Revenue growth Revenue growth(ex Biochem)

Source: Company, Edelweiss research

Table 4: Top 10 brands continue to grow at strong double-digits (%) Q4FY13 FY13 Growth Cont. to Cont. to Brands Therapy % of total Mkt. share rate growth Growth rate growth Atorva Chronic 3.7 15.2 28.4 4.3 25.2 4.1 Pantodac Acute 3.0 16.3 6.4 1.0 16.9 2.9 Skinlite Chronic 4.6 69.6 76.0 10.5 92.5 9.8 Aten Chronic 2.7 56.5 20.5 2.6 26.7 3.7 Deriphyllin Acute 2.9 90.7 9.6 1.4 9.5 1.5 Mifegest Kit Acute 3.1 26.7 22.9 3.8 3.8 0.6 Dexona Acute 2.6 47.1 41.9 3.9 27.9 2.9 Amlodac Chronic 2.0 17.7 25.7 2.2 31.6 3.0 Falcigo Acute 0.9 33.9 (25.6) (1.6) (4.6) (0.6) Dulcolax Acute 1.7 97.7 15.0 1.2 36.4 2.7 Total 27.2 24.5 29.4 23.8 30.7 Source: Company, AIOCD, Edelweiss research

Table 5: Cadila maintained leadership in CVS, gyneacology, respiratory and outpaced market growth (%) Q4FY13 FY13 Market Cadila Industry Cont. to Cadila Industry Cont. to Therapeutic area % of total share growth Growth growth growth Growth growth CVS 19.7 6.0 19.0 9.5 17.0 22.2 14.2 20.9 Gastro 15.6 5.9 8.8 7.9 6.7 11.0 13.4 9.7 Gyneacology 12.8 9.4 21.5 10.3 12.5 9.9 8.6 6.4 Respiratory 9.8 5.3 25.7 6.6 11.0 20.5 8.3 9.0 Pain management 7.8 4.6 24.7 5.9 8.2 28.1 8.9 10.2 Dermatology 7.1 5.8 58.2 7.2 13.7 66.3 12.3 13.8 Anti-Infectives 6.7 1.7 18.9 4.9 5.5 13.1 9.8 4.4 Neurologicals 2.2 1.4 29.8 9.4 2.7 32.1 11.4 3.1 Anti diabetic 1.0 0.6 93.6 10.9 2.5 60.4 16.4 1.8 Chronic cont. 22.8 22.2 25.8 Source: Company, AIOCD, Edelweiss research

4 Edelweiss Securities Limited Cadila Healthcare

Chart 3: Lack of approvals and higher price erosion impacted growth in US Cadila launched 7 new products 91.0 during FY13 of which 7 were in Q4FY13; Going forward it expects 81.2 to launch 22 products in FY14 that could drive 22% growth in the 71.4 region

Cadila filed 33 ANDAs during the mn) (USD 61.6 fiscal including 8 injectibles and 2 topicals; it expects one 51.8 transdermal approval by end of this fiscal 42.0

US pipeline: 173 cumulative filings

and 97 pending approvals Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 (including 3 Transdermals) Source: Company, Edelweiss research

Table 6: USFDA approvals received during the quarter Brand Market Sales Date Generic Innovator Company Key players Name (Potential) (USD mn) 13-Feb-13 Actos Pioglitazone Hcl 2500 Takeda Pharma 10-11 players 22-Feb-13 Zantac Ranitidine Hcl 5.4 GSK sole player Source: Company, Edelweiss research

Chart 4: Brazil: Lack of new approvals and poor off-take impacted growth Cadila launched 2 new products in Brazil during FY13 and filed 18 new 38.0 48.0 dossiers 33.0 32.4 Cumulative approvals stand at 39 products 28.0 16.8

(%) Mexico will ramp-up as company 23.0 1.2 received 3 approvals during FY13; Total 6 dossiers filed in FY13 and (Brazilian Reals mn) mn) Reals (Brazilian cumulative filings stand at 20 18.0 (14.4)

13.0 (30.0) Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Brazil Growth YoY Source: Company, Edelweiss research

5 Edelweiss Securities Limited Pharmaceuticals

Chart 5: ROW is pacing at a strong rate More than 30 new products were 44.0 54.0 launched in Asia pacific and Africa during the year 39.2 31.0

34.4 8.0

29.6 (15.0) (USD mn) (USD Growth (%) Growth 24.8 (38.0)

20.0 (61.0) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY12A Q2FY12A Q3FY12A Q4FY12A ROW YoY growth Source: Company, Edelweiss research

6 Edelweiss Securities Limited Cadila Healthcare

Financial snapshot (INR mn) Year to March Q4FY13 Q4FY12 % change Q3FY13 % change FY13 FY14E FY15E Net revenues 15,658 13,444 16.5 15,610 0.3 61,554 72,421 85,740 Other operating income 554 536 3.4 314 76.6 1,527 1,374 1,423 Net sales (incl other oper inc) 16,212 13,980 16.0 15,924 1.8 63,081 73,795 87,162 Raw material costs 6,086 4,691 29.7 5,746 5.9 22,529 26,518 31,007 Gross profit 10,126 9,289 9.0 10,178 (0.5) 40,553 47,277 56,156 Employee expenses 2,115 1,894 11.7 2,323 (8.9) 9,032 10,260 12,077 Other expenses 4,957 4,332 14.4 5,542 (10.6) 20,088 23,694 27,789 Other operating expenses 7,072 6,226 13.6 7,865 (10.1) 29,120 33,954 39,867 EBITDA 3,054 3,063 (0.3) 2,314 32.0 11,433 13,323 16,289 Operating margin (%) 18.8 21.9 14.5 18.1 18.1 18.7 EBITDA margin (excl other operating income) (%) 16.0 18.8 12.8 16.1 16.5 17.3 Depreciation 466 391 19.1 496 (6.1) 1,828 2,194 2,504 Other income 87 154 (43.2) 123 (29.1) 370 352 406 Net finance expense 328 346 (5.4) 361 (9.2) 1,261 1,360 1,190 Profit before tax 2,348 2,480 (5.3) 1,580 48.6 8,713 10,121 13,001 Tax 398 436 (8.7) 630 (36.8) 1,195 1,518 2,080 Core profit 1,950 2,043 (4.6) 949 105.4 7,518 8,603 10,921 Minority interest 128 93 38.7 86 49.0 364 453 575 Extraordinaries (loss)/gain (177) (242) NA (166) NA (600) Net profit 1,644 1,709 (3.8) 1,029 59.8 6,554 8,150 10,346 Adjusted net profit 1,917 1,902 0.8 1,226 56.4 7,064 8,150 10,346 Adj. EPS (INR) 9.4 9.3 6.0 34.5 39.8 50.5

As % of net revenues COGS 38.9 34.9 36.8 36.6 36.6 36.2 Gross profit 64.7 69.1 65.2 65.9 65.3 65.5 Employee cost 13.5 14.1 14.9 14.7 14.2 14.1 Other expenses 31.7 32.2 35.5 32.6 32.7 32.4 Total expenses 45.2 46.3 50.4 47.3 46.9 46.5 EBITDA 18.8 21.9 14.8 18.1 18.1 18.7 Reported net profit 10.1 12.2 6.5 10.4 11.0 11.9 Tax rate 17.0 17.6 39.9 13.7 15.0 16.0

7 Edelweiss Securities Limited Pharmaceuticals

Company Description Cadila Healthcare (CDH), founded in 1952 and headed by second generation entrepreneur Pankaj R Patel, is the sixth largest company in Indian pharma market with 3.8% market share. The domestic franchise, with widespread field force (4,500) and pan-India presence constitute 37% of total sales. The chronic segment accounts for ~23% of total domestic business with largest contribution from cardio vascular therapy (CVS), where CDH has leading market share (6.0%) after Sun Pharma and Lupin. Apart from prescription products, CDH has built a formidable presence in nutraceuticals through its listed entity Zydus Wellness (owns 72% of total share holding). CDH has successfully build its international operations, with presence in branded generics emerging markets of Brazil, Asia-Pac and Africa and plain generics regulated markets of US, EU and Japan, which together account for 36% of CDH’s total business. Moreover, management’s strategic focus on building strong partnerships in the US through Hospira and Nycomed JVs has been significantly accretive to business over the past five years.

Investment theme We expect CDH’s sales to post 18% CAGR(FY13-FY15E) to INR98bn by FY15E, led by 14% CAGR in domestic branded formulation and 24% CAGR in US formulations business. We believe that CDH is readying itself for the next leg of growth by investing in future technology and pipeline. Moreover, the cost optimization initiative along with niche opportunities should lead to margin expansion. Overall, we expect net profit to post 21% CAGR over FY13-15E.

Key risks • Pricing Policy impact on FY14E and FY15E earnings is expected to be 7% and 6% respectively.

• Regulatory risks

• Currency appreciation could hit profitability

8 Edelweiss Securities Limited Cadila Healthcare

Financial Statements

Key Assumptions Income statement (INR mn) Year to March FY12 FY13E FY14E FY15E Year to March FY12 FY13 FY14E FY15E Macro Income from operations 52,276 63,081 73,795 87,162 GDP(Y -o-Y %) 6.5 5.0 6.5 7.0 Materials costs 17,002 22,529 26,518 31,007 Inflation (Avg) 8.8 7.8 6.0 6.0 Employee costs 7,512 9,032 10,260 12,077 Repo rate (exit rate) 8.5 7.5 6.8 6.0 Total SG& A expenses 9,584 10,699 13,398 15,862 USD/INR (Avg) 47.9 54.5 55.0 53.0 EBITDA 10,482 11,433 13,323 16,289 Sector Core EBITDA 10,482 11,433 13,323 16,289 India pharma market growth (Y -o-Y) % 16.0 14.1 13.0 15.0 Depreciation & Amortization 1,579 1,828 2,194 2,504 Company EBIT 8,903 9,604 11,129 13,785 India sales (INR mn) 18,950 23,232 26,044 30,205 Other income 509 370 352 406 % change 10.5 22.6 12.1 16.0 Interest expenses 1,047 1,261 1,360 1,190 ex -Biochem 6 14 12 16 Profit before tax 8,365 8,713 10,121 13,001 Biochem - - 12 13 Provision for tax 1,130 1,195 1,518 2,080 % of sales 36.6 37.0 35.4 34.7 Extraordinary income/ (loss) (424) (600) - - Respiratory 2,103 2,440 2,794 3,185 Profit After Tax 6,524 6,554 8,150 10,346 % change 14.7 16.0 14.5 14.0 Minority interest 286 364 453 575 Gastro Intestinal 3,146 3,649 4,178 4,784 Adjusted PAT 6,889 7,064 8,150 10,346 % change 5.4 16.0 14.5 14.5 Shares outstanding (mn) 205 205 205 205 Cardiovascular 3,711 4,379 5,167 6,097 Diluted EPS (INR) 33.6 34.5 39.8 50.5 % change 17.5 18.0 18.0 18.0 Core EPS 33.6 34.5 39.8 50.5 Anti -infectives 3,108 4,711 5,371 6,069 CEPS (INR) 41.7 43.9 50.5 62.8 % change 77.7 51.6 14.0 13.0 Dividend per share (INR) 7.5 7.5 7.5 7.5 US generics (USD mn) 259 290 349 443

Growth (YoY)% 19.6 11.9 20.3 27.1 Common size metrics US base business 238 228 278 352 Year to March FY12 FY13 FY14E FY15E JV sales (USD terms) 106 104 119 144 Operating expenses 79.9 81.9 81.9 81.3 % change 11.3 (1.4) 13.9 21.8 Materials costs 32.5 35.7 35.9 35.6 Zydus Wellness (INR terms) 3,446 4,100 4,920 5,756 R & D cost 6.9 7.5 6.9 6.8 % change 2.7 19.0 20.0 17.0 EBITDA margins 20.1 18.1 18.1 18.7 EBITDA margins (%) 20.1 18.1 18.1 18.7 Net profit margins 14.2 12.2 11.9 12.7 Domestic 20.0 21.0 21.5 22.4

Exports 17.0 18.7 20.0 21.7 Growth ratios (%) API 12.0 12.0 13.0 13.4 Year to March FY12 FY13 FY14E FY15E Consumer 21.0 22.0 22.0 22.0 Revenues 13.7 20.7 17.0 18.1 Animal health 9.0 10.0 10.0 11.0 EBITDA 2.0 9.1 16.5 22.3 Hospira JV 80.0 45.0 45.0 45.0 Net profit (1.9) 3.9 14.4 26.9 Nycomed JV 45.0 42.0 42.0 35.0 EPS (3.3) 2.6 15.4 26.9 R&D (INR mn) 3,608 4,705 5,063 5,919

R&D (% of sales) 7.6 8.2 7.5 7.4 ANDA filings (per annum) 21 30 30 30 USD/INR (Avg) 48.0 52.0 54.0 52.0 Capex (USD mn) 145 136 111 115 Net debt (INR mn) 18,285 20,993 21,353 19,159

9 Edelweiss Securities Limited Pharmaceuticals

Balance sheet (INR mn) Cash flow metrics As on 31st March FY12 FY13E FY14E FY15E Year to March FY12 FY13E FY14E FY15E Equity capital 1,024 1,024 1,024 1,024 Operating cash flow 4,498 7,448 7,436 9,991 Reserves & surplus 24,743 29,379 35,732 44,281 Investing cash flow (12,496) (7,983) (6,000) (6,000) Shareholders funds 25,767 30,403 36,756 45,305 Financing cash flow 9,505 1,945 (2,297) (3,297) Minority interest (BS) 904 1,193 1,646 2,221 Net cash flow 1,507 1,410 (860) 694 Short term debt 9,728 12,554 12,054 11,054 Capex (6,954) (7,081) (6,000) (6,000) Long term debt 13,223 14,260 14,260 13,760 Dividends paid (1,797) (1,797) (1,797) (1,797)

Borrowings 22,951 26,814 26,314 24,814 Deferred tax liability 1,185 1,005 1,005 1,005 Profitability & efficiency ratios Sources of funds 50,807 59,415 65,721 73,345 Year to March FY12 FY13E FY14E FY15E Tangible assets 17,526 27,617 31,424 34,920 ROAE (%) 29.0 25.2 24.3 25.2 Intangible assets 10,953 10,953 10,953 10,953 ROACE (%) 23.1 19.5 19.9 21.9 CWIP (incl. intangible) 4,839 - - - Inventory day 201 184 179 181 Total net fixed assets 33,318 38,570 42,377 45,873 Debtors days 57 53 51 51 Non current investments 212 212 212 212 Payable days 118 96 97 98 Current Investments 30 933 933 933 Cash conversion cycle (days) 140 141 133 133 Cash and equivalents 4,666 5,821 4,961 5,655 Current ratio 2.3 2.3 2.3 2.3 Inventories 10,905 12,136 14,231 16,863 Debt/EBITDA 2.2 2.3 2.0 1.5 Sundry debtors 8,863 9,551 11,222 13,297 Debt/Equity 0.9 0.9 0.7 0.5 Loans and advances 5,377 6,900 8,106 9,605 Adjusted debt/equity 0.9 0.9 0.7 0.5

Other current assets 421 668 785 931 Total current assets (ex cash) 25,566 29,255 34,344 40,695 Operating ratios Trade payable 5,455 6,558 7,704 9,129 Year to March FY12 FY13E FY14E FY15E Others current liabilities 7,530 8,818 9,401 10,893 Total asset turnover 1.2 1.1 1.2 1.2 Total current liabilities & 12,985 15,376 17,105 20,022 Fixed asset turnover 2.4 2.0 2.1 2.3 Net current assets (ex cash) 12,581 13,879 17,239 20,673 Equity turnover 2.1 2.2 2.2 2.1

Uses of funds 50,807 59,415 65,721 73,345 Book value per share (INR) 130.2 154.3 187.6 232.1 Valuation parameters Year to March FY12 FY13E FY14E FY15E

Free cash flow (INR mn) Diluted EPS (INR) 33.6 34.5 39.8 50.5 Year to March FY12 FY13E FY14E FY15E Y-o-Y growth (%) (3.3) 2.6 15.4 26.9 Net profit 6,889 7,064 8,150 10,346 CEPS (INR) 41.7 43.9 50.5 62.8 Depreciation 1,579 1,828 2,194 2,504 Diluted PE (x) 23.0 22.5 19.5 15.3 Others (79) (146) 453 575 Price/BV (x) 6.0 5.0 4.1 3.3 Gross cash flow 8,389 8,746 10,796 13,425 PE based on core EPS 23.0 22.5 19.5 15.3 Less: Changes in WC 3,891 1,298 3,360 3,434 EV/Sales (x) 3.4 2.8 2.4 2.1 Operating cash flow 4,498 7,448 7,436 9,991 EV/EBITDA (x) 17.0 15.7 13.6 11.0 Less: Capex 6,954 7,081 6,000 6,000 Core EV/EBITDA (x) 17.0 15.7 13.6 11.0 Free cash flow (2,456) 367 1,436 3,991 Dividend yield (%) 1.0 1.0 1.0 1.0

Peer comparison valuation Market cap Core EV/EBITDA (X) PE based on core EPS ROAE (%) Name (USD mn) FY14E FY15E FY14E FY15E FY14E FY15E Cadila Healthcare 2,826 13.6 11.0 19.5 15.3 24.3 25.2 Cipla 5,475 14.4 12.0 22.8 18.9 14.2 15.5 Dr.Reddys Laboratories 6,371 13.7 11.9 19.4 17.3 25.2 24.4 Lupin 6,101 15.0 11.5 24.5 18.3 27.9 26.3 Sun Pharmaceuticals Industries 19,772 21.4 18.8 28.6 26.0 25.8 22.8 Median - 14.4 11.9 22.8 18.3 25.2 24.4 AVERAGE - 15.6 13.0 22.9 19.2 23.5 22.9 Source: Edelweiss research

10 Edelweiss Securities Limited Cadila Healthcare

Additional Data

Directors Data Pankaj R. Patel Chairman and Managing Director Dr. Sharvil P. Patel Deputy Managing Director Mukesh M. Patel Director Pranlal Bhogilal Director H. Dhanrajgir Director A.S. Diwanji Director Nitin Raojibhai Desai Director

Auditors - M/s. Mukesh M. Shah & Co., Chartered Accountants *as per last annual report

Holding - Top10 Perc. Holding Perc. Holding Life Insurance Corp Of India 3.70 Sbi Funds Management 1.55 Templeton Asset Mgmt 1.54 Hdfc Life Insurance Co Ltd 1.08 Prudential Icici Asset Mgmt Co 1.00 Franklin Templeton Investments 0.93 Uti Asset Management Co Ltd 0.69 Vanguard Group Inc 0.51 Hdfc Asset Management Co Ltd 0.28 Jpmorgan Funds Asia Ltd 0.27 *as per last available data

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

No Data Available

*in last one year

11 Edelweiss Securities Limited RATING & INTERPRETATION

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

12 Edelweiss Securities Limited Cadila Healthcare

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 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

29 -May -13 Cipla Disappointing performance; 402 Hold Result Update 28 -May -13 Sun Performance skewed to US; 996 Hold Pharma Result Update 23 -May -13 Ranbaxy Fluid situation; 431 Under Laboratories Company Update Review

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe Rating Interpretation

Buy Hold Reduce Total Rating Expected to

Rating Distribution* 120 49 17 186 Buy appreciate more than 15% over a 12-month period * - 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 56 12

13 Edelweiss Securities Limited Pharmaceuticals

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14 Edelweiss Securities Limited Cadila Healthcare

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15 Edelweiss Securities Limited