RESULT UPDATE

SUN PHARMACEUTICALS A one-off boost INDUSTRIES India Equity Research| Pharmaceuticals

COMPANYNAME Sun Pharmaceutical (SUNP) reported good Q1FY20 numbers buoyed by a EDELWEISS 4D RATINGS one-time US supply opportunity (USD70-80mn) and acquisition of Pola Absolute Rating REDUCE Pharma in Japan (USD25-30mn). Earnings were further boosted by lower Rating Relative to Sector Underperform R&D spend and tax rate, both of which are expected to rise going ahead. Risk Rating Relative to Sector Medium Domestic business normalised after completion of transfer of India Sector Relative to Market Equalweight distribution from Aditya Medisales (AML) to a wholly-owned subsidiary. For the first time, management disclosed global specialty sales, which stood at USD94mn, in line with our ~USD350mn annual estimate. Going MARKET DATA (R: SUN.BO, B: SUNP IN) forward, we believe, medium-term earnings growth will be challenging CMP : INR 439 given Ilumya’s slow uptake, non-recurrence of one-off sales and increase in Target Price : INR 380 52-week range (INR) : 679 / 345 R&D spend. Maintain ‘REDUCE’ with INR380 TP (20x December 2020E EPS). Share in issue (mn) : 2,399.3 M cap (INR bn/USD mn) : 1,054 / 14,493 One-offs drive performance Avg. Daily Vol.BSE/NSE(‘000) : 9,602.9 US revenue (37% of total) declined 4% in constant currency to USD424mn as it continued to see contribution from a significant supply opportunity worth ~USD70-80, which began SHARE HOLDING PATTERN (%) in Q4FY19. Ex-Taro, sales remained flat at USD263mn. India grew 8% YoY and RoW saw Current Q4FY19 Q3FY19 incremental ~USD45 QoQ, of which ~60% came from the Pola acquisition. EBITDA margin Promoters * 54.4 54.4 54.4 expanded 80bps to 23% as SUNP cut R&D to 5% of sales. MF's, FI's & BK’s 18.0 17.3 17.6 FII's 14.9 15.5 14.9 Specialty ramp-up slower than expected Others 12.7 12.8 13.1 SUNP, with its ~USD1bn investment in US specialty, has built a portfolio of nine products. * Promoters pledged shares : 0.4 (% of share in issue) It launched three of these in FY19. However, a breakeven in this will take long as the company has already lined up more investments. Status of specialty products: i) Illumya: PRICE PERFORMANCE (%) So far, 1,200 doctors have started prescribing, i.e. ~40% of doctors prescribing biologics EW Pharma Stock Nifty for psoriasis. The company also launched a direct-to-customer campaign, which is Index expected to drag the P&L in the near term; ii) Cequa: SUNP expects to launch it in 1 month 11.9 (8.1) (1.3) Q1FY20 and has already readied the field force; iii) Odomzo: A steady market share of 3 months (6.3) (5.6) (10.5) 10.5%; and iv) Xelpros: Launched in January 2019, it is being distributed via cash model. 12 months (26.3) (4.7) (13.7) Management does not view this as a large opportunity in overall specialty.

Outlook and valuation: Risk-reward skewed; maintain ‘REDUCE’ Near-term challenges in specialty eclipse the medium-term outlook as the ramp up has been slow even as competition is intensifying. While the stock price seems to be ascribing a fair value to domestic and EM businesses, it overestimates the opportunity in specialty. Deepak Malik Hence, we maintain ‘REDUCE/SU’ with TP of INR380. +91 22 6620 3147 Financials (Consolidated) (INR mn) [email protected]

Year to March Q1FY20 Q1FY19 % chg Q4FY19 % chg FY19 FY20E FY21E Ankit Hatalkar Net revenue 83,744 72,242 15.9 71,639 16.9 2,90,659 3,25,810 3,53,339 +91 22 2286 3097 [email protected] EBITDA 19,282 16,966 13.7 10,716 79.9 63,076 69,486 79,207 Adj. profit 13,201 11,472 15.1 6,907 91.1 37,346 38,907 45,630 Aashita Jain Adj. dil. EPS 5.5 4.8 15.1 2.9 91.1 15.5 16.2 19.0 [email protected]

P/E (x) 28.2 27.1 23.1 ROAE (%) 9.9 9.7 10.2 August 13, 2019 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL , Thomson First Call, Reuters and Factset. Edelweiss Securities Limited

Pharmaceuticals

Q1FY20 conference call: Key highlights Opening commentary by Mr. Shanghvi

 SUNP continue to focus on specialty business.

 Recent out-licensing of Ilumya and Cequa in China and regulatory filing of Cequa in Japan.

 Specialty includes NCE/NBE/505 (b) (2).

 Global specialty sales: USD94mn.

o This includes only on-patent products.

 Specialty R&D: 15% of total R&D for the quarter.

o Low due to timing differences and will rise in coming quarters.

Guidance

 Expects to incur higher R&D costs in coming quarters. R&D: 8–9% of sales; generic R&D will remain >50%.

 R&D:

o SUNP expects one drug to go in to clinics next year.

o This will be a new product.

 Tax rate will progressively rise.

Financials

 Gross margin down:

o Driven by product mix across geographies and the India distribution transition.

 Staff cost higher due to specialty staff additions.

o Annual increment baked in to the current quarter.

 Other expenses higher due to: i) Pola Pharma consolidation; and i) specialty advertisements (DTC spend).

 Interest costs declined QoQ because of lower INR borrowings.

 India:

o 8% growth YoY. Underlying growth was 12%, excluding the base impact of Aditya Medisales (AML).

o Translation of SUNP’s distribution business has been completed in Q1FY20.

o The company expects chronic to drive growth.

 EM:

o Flat sales in USD.

 US:

o Significant business of generic supply to a customer, which is similar in quantum to Q1FY20.

2 Edelweiss Securities Limited Sun Pharmaceuticals Industries

o 108 ANDAs and six NDAs awaiting approval with the USFDA.

o DTC spends fall in summers.

 RoW:

o Growth of 56% YoY driven by organic and consolidation of Pola Pharma in Japan.

 China:

o Upfront payment came in as deferred revenue on the balance sheet.

 Working capital:

o SUNP is working actively to contain working capital days, which had jumped in FY19.

Specialty

 Ilumya

o Only IL-23 in the medical benefit market (not pharmacy benefit product).

. “Hope that the IL-23 market will grow.”

o Gradually ramping up and performing in-line with expectations.

o Propensity of the doctor to use IL-23 will be the highest. However, in the US, formulary and coverage restrictions may not make it possible.

o Early access patients to paying patients conversion is within industry norms.

o Skyrizi/Tremfya: Currently, the company is looking to substitute its older product.

o SUNP guided that it will be initiating PSA phase-III study.

. Psoriasis is the bigger indication.

 Cequa:

o In final stages of firming up supplies.

. SUNP had certain challenges w.r.t. manufacturing and supply.

o Expected to commercialise in Q3FY20.

o Sales force is now on board.

o In spite of gRestasis, there is still potential for Cequa.

 Odomzo:

o Market share has improved slightly to 12%.

 Levulan:

o After winning the court case, regaining back market share.

3 Edelweiss Securities Limited Pharmaceuticals

Table 1: Actual versus estimates Year to March Actual Q1FY20 Y-o-Y Growth (%) Edel estimates Y-o-Y Growth (%) Deviation from Actual Revenue 83,744 15.9 83,528 15.6 0.3 Raw material costs 24,578 16.7 21,717 3.1 13.2 Gross profit 59,166 15.6 61,811 20.8 (4.3) Gross margins (%) 70.7 74.0 Employee costs 15,404 7.5 15,763 10.0 (2.3) R&D 4,067 (16.1) 6,682 37.8 (39.1) Other expenses 20,413 35.8 21,717 44.5 (6.0) Total operating expenses 39,883 27.2 44,162 92.3 (9.7) EBITDA 19,282 13.7 17,648 4.0 9.3 EBITDA margin (%) 23.0 21.1 Net finance income (exp) 1,041 (20.5) 1,500 14.6 Depreciation 4,571 13.8 4,500 12.0 1.6 Other income 2,130 6.6 2,500 25.2 (14.8) PBT 15,801 15.9 14,148 3.7 11.7 Income tax expense 1,461 64.0 2,547 185.9 (42.6) Tax rate (%) 9.2 18.0 Minorities 1,139 (10.7) 1,200 (5.9) (5.1) Reported Net profit 13,875 31.2 10,402 (1.6) 33.4 Adjusted Net profit 13,201 15.1 10,402 (9.3) 26.9

Table 2: Revenue breakdown Year to March Q1FY20 Q1FY19 % change Q4FY19 % change Total formulations 78,090 67,214 16.2 64,840 20.4 Domestic formulations 23,140 21,520 7.5 11,010 110.2 International formulations 54,950 45,694 20.3 53,830 2.1 US generics 29,680 25,460 16.6 31,010 (4.3) Emerging Market Formulations 13,580 13,065 3.9 12,110 12.1 RoW Formulations 11,690 7,169 63.1 10,710 9.2 Total bulk 4,610 3,940 17.0 4,840 (4.8) Total gross sales 82,593 71,388 15.7 70,443 17.2

Chart 1: Revenue grew 16% while adjusted PAT grew ~15% 100,000 200.0

80,000 140.0

60,000 80.0

(INR mn) (INR 40,000 20.0 Growth (%) Growth

20,000 (40.0)

0 (100.0)

Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q3FY19 Q4FY19 Q1FY20 Q1FY18 Q2FY19 Revenue Adjusted PAT Revenue Adjusted PAT

Source: Company, Edelweiss research

4 Edelweiss Securities Limited Sun Pharmaceuticals Industries

Chart 2: US sales declined 4% sequentially in constant currency 300

240

180

120 (USD mn) (USD

60

0

Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q4FY19 Q1FY20 Q1FY18 Q3FY19

US (Ex-taro) Taro US

Chart 3: Taro’s US business declined 10% sequentially in constant currency 190 125.0

180 90.0

170 55.0 (%)

(USD mn) (USD 160 20.0

150 (15.0)

140 (50.0)

Q1FY18 Q2FY18 Q3FY18 Q1FY19 Q2FY19 Q4FY19 Q1FY20 Q4FY18 Q3FY19 Taro sales YoY growth Taro operating margins (%)

Chart 4: Domestic sales declined grew 8% YoY 25,000 50.0

20,000 30.0

15,000 10.0

(INR mn) (INR 10,000 (10.0) Growth (%) Growth

5,000 (30.0)

0 (50.0)

Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 India YoY growth

Source: Company, Edelweiss research

5 Edelweiss Securities Limited Pharmaceuticals

Table 3: Therapy-wise break-down (INR bn) Contribution (%) MAT Mar'19 MAT Mar' 18 Change (%) Cardiac 17.9 19.4 18.2 6.7 Neuro / CNS 17.0 18.4 17.5 5.3 Gastro-intestinal 12.1 13.1 12.6 4.0 Anti-infectives 9.9 10.7 9.9 7.6 Anti-diabetic 9.3 10.1 9.5 6.9 Pain / Analgesics 6.6 7.1 6.8 4.2 Derma 6.0 6.6 6.4 2.4 Vitamins / Minerals / 4.4 4.8 4.2 13.3 Nutrients Respiratory 4.0 4.3 4.0 7.5 Gynaecological 3.6 3.9 3.6 8.5 Total 108.5 101.7 6.7 Source: AIOCD AWACS, Edelweiss research

Table 4: Top Brands (INR bn) MAT Mar'19 MAT Mar' 18 Change (%) Istamet 2.6 2.3 9.9 Levipil 2.6 2.3 11.8 Rosuvas 2.6 2.2 14.2 Volini 2.4 2.4 2.5 Gemer 2.0 1.9 2.3 Susten 1.8 1.7 11.1 Pantocid 1.7 1.6 2.2 Pantocid dsr 1.5 1.5 0.5 Revital H 1.2 1.2 1.4 Montek-LC 1.2 1.1 6.9 Total 108.5 101.7 6.7 Source: AIOCD AWACS, Edelweiss research

6 Edelweiss Securities Limited Sun Pharmaceuticals Industries

Financial snapshot (INR mn) Year to March Q1FY20 Q1FY19 % change Q4FY19 % change FY19 FY20E FY21E Net revenues 83,744 72,242 15.9 71,639 16.9 290,659 325,810 353,339 Cost of revenue 24,578 21,068 16.7 18,388 33.7 78,690 88,538 90,788 Gross profit 59,166 51,173 15.6 53,251 11.1 211,969 237,272 262,551 R&D 4,067 4,849 (16.1) 5,349 (24.0) 19,129 27,694 30,034 Other expenses 20,413 15,028 35.8 21,498 (5.0) 70,094 74,454 81,108 EBITDA 19,282 16,966 13.7 10,716 79.9 63,076 69,486 79,207 EBITDA margin 23.0 23.5 15.0 21.7 21.3 22.4 Depreciation 4,571 4,016 13.8 4,541 0.7 17,533 18,274 19,016 EBIT 14,711 12,950 13.6 6,176 138.2 45,543 51,212 60,192 Interest 1,041 1,309 (20.5) 1,500 (30.6) 5,553 5,456 6,315 Other income 2,130 1,998 6.6 2,815 (24.3) 10,255 10,781 11,433 Add: Prior period items Add: Exceptional items (674) 899 NA 549 NA (12,144) - - Profit before tax 15,801 13,638 15.9 7,491 110.9 38,102 56,537 65,310 Provision for taxes 1,461 891 64.0 (288) (607.0) 6,009 11,307 13,062 Minority interest 1,139 1,275 (10.7) 872 30.7 5,439 6,323 6,618 Reported net profit 13,875 10,573 31.2 6,359 118.2 26,654 38,907 45,630 Adjusted Profit 13,201 11,472 15.1 6,907 91.1 37,346 38,907 45,630 Diluted shares (mn) 2,409 2,409 2,409 2,407 2,407 2,407 Adjusted Diluted EPS 5.5 4.8 15.1 2.9 91.1 15.5 16.2 19.0

As % of net revenues Cost of revenue 29.3 29.2 25.7 27.1 27.2 25.7 Gross profit 70.7 70.8 74.3 72.9 72.8 74.3 R&D 4.9 6.7 7.5 6.6 8.5 8.5 Total expenses 77.0 76.5 85.0 78.3 78.7 77.6 Operating profit 17.6 17.9 8.6 15.7 15.7 17.0 Reported net profit 16.6 14.6 8.9 9.2 11.9 12.9 Tax rate 9.2 6.5 (3.8) 15.8 20.0 20.0

7 Edelweiss Securities Limited Pharmaceuticals

Company Description Sun Pharmaceuticals is the largest Indian Pharma company with an impressive track record of organic and inorganic growth. Various US acquisitions augment SUNP’s pipeline with differentiated products, where SUNP has turned around business in a highly profitable manner – Taro/ TDPL/Natco’s brands/etc. It has one of the highest return ratios amongst global peers.

Investment Theme Challenging macro environment, regulatory woes and the endeavour to create a specialty business in the US are exerting significant pressure on the business. We believe the two growth triggers from here are: 1) up take for Ilumya and Cequa in FY19; 2) clearance of Halol facility. We believe the risk-reward is unfavourable.

Key Risks 1) Better than expected pick up in Ilumya; 2) Competition failing to take-off in Levulan and Absorica; 3) Surprise launch of product not considered in our forecasts.

8 Edelweiss Securities Limited Sun Pharmaceuticals Industries

Financial Statements Key Assumptions Income statement (INR mn) Year to March FY18 FY19 FY20E FY21E Year to March FY18 FY19 FY20E FY21E Macro Gross revenues 260,659 286,863 321,810 349,339 GDP(Y-o-Y %) 7.2 6.8 6.8 7.1 Net revenue 260,659 286,863 321,810 349,339 Inflation (Avg) 3.6 3.4 4.0 4.5 Other Operating Income 4,235 3,796 4,000 4,000 Repo rate (exit rate) 6.0 6.3 5.3 5.0 Income from operations 264,895 290,659 325,810 353,339 USD/INR (Avg) 64.5 70.0 72.0 72.0 Materials costs 74,247 78,690 88,538 90,788 Employee costs 53,671 59,671 65,638 72,202 R&D Cost 20,669 19,129 27,694 30,034 EBITDA 56,081 63,076 69,486 79,207 Operating profit 56,081 63,076 69,486 79,207 EBIT 41,083 45,543 51,212 60,192 Less: Interest Expense 5,176 5,553 5,456 6,315 Add: Other income 8,387.6 10,254.9 10,781.22 11,432.88 Profit Before Tax 32,245 38,102 56,537 65,310 Less: Provision for Tax 6,566 6,009 11,307 13,062 Less: Minority Interest 4,722 5,439 6,323 6,618 Add: Exceptional items (12,050) (12,144) - - Reported Profit 20,957 26,654 38,907 45,630 Exceptional Items (10,641) (10,692) - - Adjusted Profit 31,598 37,346 38,907 45,630 Shares o /s (mn) 2,407 2,407 2,407 2,407 Adjusted Basic EPS 13.1 15.5 16.2 19.0 Diluted shares o/s (mn) 2,407 2,407 2,407 2,407 Adjusted Diluted EPS 13.1 15.5 16.2 19.0 Adjusted Cash EPS 19.4 22.8 23.8 26.9 Dividend per share (DPS) 3.3 2.0 1.6 1.9 Dividend Payout Ratio(%) 38.1 18.0 10.0 10.0

Common size metrics Year to March FY18 FY19 FY20E FY21E Materials costs 28.0 27.1 27.2 25.7 Staff costs 20.3 20.5 20.1 20.4 Operating expenses 78.8 78.3 78.7 77.6 R & D cost 7.8 6.6 8.5 8.5 Depreciation 5.7 6.0 5.6 5.4 Interest Expense 2.0 1.9 1.7 1.8 EBITDA margins 21.2 21.7 21.3 22.4 Net Profit margins 13.7 14.7 13.9 14.8

Growth ratios (%) Year to March FY18 FY19 FY20E FY21E Revenues (13.9) 10.1 12.2 8.6 EBITDA (44.4) 12.5 10.2 14.0 PBT (64.4) 18.2 48.4 15.5 Adjusted Profit (54.6) 18.2 4.2 17.3 EPS (54.6) 18.2 4.2 17.3

9 Edelweiss Securities Limited Pharmaceuticals

Balance sheet (INR mn) Cash flow metrics As on 31st March FY18 FY19 FY20E FY21E Year to March FY18 FY19 FY20E FY21E Share capital 2,399 2,399 2,399 2,399 Operating cash flow 39,072 21,965 59,702 41,402 Reserves & Surplus 378,606 411,691 445,929 486,084 Financing cash flow (30,158) (2,494) (13,346) (3,858) Shareholders' funds 381,006 414,091 448,329 488,483 Investing cash flow (18,943) (31,624) (14,000) (14,000) Minority Interest 38,842 33,135 39,458 46,076 Net cash Flow (10,029) (12,153) 32,357 23,545 Long term borrowings 17,721 15,226 10,226 5,226 Capex (18,943) (31,624) (14,000) (14,000) Short term borrowings 79,797 83,708 73,708 73,708 Dividend paid (9,758) (14,242) (4,669) (5,476) Total Borrowings 97,518 98,934 83,934 78,934

Long Term Liabilities 4,627 10,047 10,047 10,047 Profitability and efficiency ratios Def. Tax Liability (net) (19,748) (24,506) (24,506) (24,506) Year to March FY18 FY19 FY20E FY21E Sources of funds 502,244 531,701 557,262 599,034 ROAE (%) 8.8 9.9 9.7 10.2 Gross Block 223,728 262,305 276,305 290,305 ROACE (%) 10.0 10.6 11.2 12.2 Depreciation 14,998 17,533 18,274 19,016 Inventory Days 337 342 319 319 Net Block 142,766 163,811 159,537 154,521 Debtors Days 105 106 107 108 Capital work in progress 14,345 9,108 9,108 9,108 Payable Days 225 207 192 192 Intangible Assets 56,067 59,558 59,558 59,558 Cash Conversion Cycle 217 242 234 235 Total Fixed Assets 213,178 232,477 228,203 223,187 Current Ratio 2.7 3.5 3.5 4.2 Non current investments 30,523 39,518 39,518 39,518 Gross Debt/EBITDA 1.7 1.6 1.2 1.0 Cash and Equivalents 140,200 112,263 144,620 168,165 Gross Debt/Equity 0.2 0.2 0.2 0.1 Inventories 68,807 78,860 75,976 82,796 Adjusted Debt/Equity 0.2 0.2 0.2 0.1 Sundry Debtors 78,153 88,842 99,586 108,001 Net Debt/Equity (0.1) - (0.1) (0.2) Loans & Advances 29,199 30,727 30,727 30,727 Interest Coverage Ratio 7.9 8.2 9.4 9.5 Current Assets (ex cash) 176,159 198,429 206,289 221,523

Trade payable 47,662 41,479 51,861 43,851 Operating ratios Other Current Liab 71,184 48,210 48,210 48,210 Year to March FY18 FY19 FY20E FY21E Total Current Liab 118,846 89,689 100,071 92,061 Total Asset Turnover 0.5 0.6 0.6 0.6 Net Curr Assets-ex cash 57,313 108,740 106,219 129,462 Fixed Asset Turnover 1.4 1.4 1.5 1.6 Uses of funds 502,244 531,701 557,262 599,034 Equity Turnover 0.6 0.7 0.7 0.7 BVPS (INR) 158.3 172.1 186.3 203.0

Valuation parameters

Free cash flow (INR mn) Year to March FY18 FY19 FY20E FY21E Year to March FY18 FY19 FY20E FY21E Adj. Diluted EPS (INR) 13.1 15.5 16.2 19.0 Reported Profit 20,957 26,654 38,907 45,630 Y-o-Y growth (%) (54.6) 18.2 4.2 17.3 Add: Depreciation 14,998 17,533 18,274 19,016 Adjusted Cash EPS (INR) 19.4 22.8 23.8 26.9 Interest (Net of Tax) 4,122 4,677 4,365 5,052 Diluted P/E (x) 33.5 28.3 27.1 23.1 Others 5,180 (117,834) 678 (51,539) P/B (x) 2.8 2.6 2.4 2.2 Less: Changes in WC 6,186 (90,935) 2,522 (23,243) EV / Sales (x) 4.0 3.7 3.2 2.9 Operating cash flow 39,072 21,965 59,702 41,402 EV / EBITDA (x) 18.8 17.1 14.9 12.8 Less: Capex 18,943 31,624 14,000 14,000 Dividend Yield (%) 0.8 0.5 0.4 0.4

Free Cash Flow 20,129 (9,659) 45,702 27,402

Peer comparison valuation Market cap Diluted P/E (X) EV / EBITDA (X) ROAE (%) Name (USD mn) FY20E FY21E FY20E FY21E FY20E FY21E Sun Pharmaceuticals Industries 14,493 27.1 23.1 14.9 12.8 9.7 10.2 Cipla 5,742 23.0 20.4 11.2 9.7 10.2 10.5 Dr. Reddy’s Laboratories 6,050 16.6 13.6 10.0 8.2 16.9 17.8 Lupin 4,879 24.7 17.0 10.7 9.1 9.7 13.0 Source: Edelweiss research

10 Edelweiss Securities Limited Sun Pharmaceuticals Industries

Additional Data Directors Data Israel Makov Chairman Dilip S. Shanghvi Managing Director Sudhir Valia Executive Director Sailesh T. Desai Executive Director Hasmukh S. Shah Non-Executive Independent Director Keki M. Mistry Non-Executive Independent Director Ashwin Dani Non-Executive Independent Director S. Mohanchand Dadha Non-Executive Independent Director Rekha Sethi Non-Executive Independent Director Mr. Kalyanasundaram Subramanian Executive Director Mr. Vivek Chand Sehgal Non-Executive and Independent Director

Auditors - Deloitte,Haskins and Sells *as per last annual report

Holding – Top10 Perc. Holding Perc. Holding LIC 5.63 Government Pension Fund 1.61 ICICI Prudential Asset Management 4.78 Norges Bank 1.6 CommonWealth Bank of Australia 3.27 FIL Limited 1.54 HDFC Asset Management 1.98 Vanguard group 1.41 Blackrock 1.61 Reliance capital Trustee 0.8 *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 28 Jun 2019 Sailesh T. Desai Sell 25000.00 28 Jun 2019 Meera Sailesh Desai Sell 25000.00 25 Jun 2019 Meera Sailesh Desai Sell 75000.00 25 Jun 2019 Sailesh T. Desai Sell 75000.00 11 Apr 2019 Jayant S Sanghvi Sell 25000.00

*in last one year

11 Edelweiss Securities Limited RATING & INTERPRETATION

Company Absolute Relative Relative Company Absolute Relative Relative reco reco risk reco reco Risk Aurobindo Pharma HOLD SP H Biocon REDUCE SU H Cadila Healthcare BUY SP M Cipla HOLD SP L Divi's Laboratories BUY SO M Dr.Reddys Laboratories BUY SO M Glenmark Pharmaceuticals HOLD SU H Ipca Laboratories HOLD SP H Lupin BUY SP M Natco Pharma BUY SO M Sun Pharmaceuticals Industries REDUCE SU M Torrent Pharmaceuticals HOLD SP M

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 Sun Pharmaceuticals Industries

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098. Board: (91-22) 4009 4400, Email: [email protected]

Aditya Narain

Head of Research [email protected]

Coverage group(s) of stocks by primary analyst(s): Pharmaceuticals Aurobindo Pharma, Biocon, Cadila Healthcare, Cipla, Divi's Laboratories, Dr.Reddys Laboratories, Glenmark Pharmaceuticals, Ipca Laboratories, Lupin, Natco Pharma, Sun Pharmaceuticals Industries, Torrent Pharmaceuticals

Recent Research

Date Company Title Price (INR) Recos

13 -Aug-19 Divi's Trajectory stable; 1,524 Buy Laboratories Result Update 09-Aug-19 Cadila Challenging quarter; execution 230 Buy Healthcare remains key; Result Update 08-Aug-19 Healthcare Results in-line; strategy on- 106 Buy Global track; Result Update

Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Rating Interpretation

Buy Hold Reduce Total Rating Expected to

Rating Distribution* 161 67 11 240 Buy appreciate more than 15% over a 12-month period * 1stocks under review Hold appreciate up to 15% over a 12-month period > 50bn Between 10bn and 50 bn < 10bn 743 Reduce depreciate more than 5% over a 12-month period Market Cap (INR) 156 62 11 594

One year price chart 446 700

(INR) 297 620 149 540

(INR)

- 460

14

14 14

14 14

14

14

14

14

14

14

14

-

- -

-

-

-

-

- -

- -

- 380

Jul

Jan

Jun

Oct

Apr

Sep Feb

Dec

Aug Nov

Mar May

300

18

18 19 18

19

19 18

19

18 19

19 19

19

-

- -

-

-

-

-

- - -

- -

-

Jul

Jan

Jun

Oct

Apr

Sep Feb

Dec

Aug Aug

Nov Mar May Sun Pharma

13 Edelweiss Securities Limited

Pharmaceuticals

DISCLAIMER Edelweiss Securities Limited (“ESL” or “Research Entity”) is regulated by the Securities and Exchange Board of India (“SEBI”) and is licensed to carry on the business of broking, depository services and related activities. The business of ESL and its Associates (list available on www.edelweissfin.com) are organized around five broad business groups – Credit including Housing and SME Finance, Commodities, Financial Markets, Asset Management and Life Insurance.

This Report has been prepared by Edelweiss Securities Limited in the capacity of a Research Analyst having SEBI Registration No.INH200000121 and distributed as per SEBI (Research Analysts) Regulations 2014. 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. Securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 includes Financial Instruments and Currency Derivatives. The information contained herein is from publicly available data or other sources believed to be reliable. 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 Securities referred to in this document (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.

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 ESL and associates / 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 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. ESL reserves the right to make modifications and alterations to this statement as may be required from time to time. ESL or any of its associates / 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. ESL is committed to providing independent and transparent recommendation to its clients. Neither ESL nor any of its associates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including loss of revenue or lost profits that may arise from or in connection with the use of the information. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. 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. The information provided in these reports remains, unless otherwise stated, the copyright of ESL. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright of ESL 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.

ESL 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 ESL to present the data. In no event shall ESL 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 ESL through this report.

We offer our research services to clients as well as our prospects. Though this report is disseminated to all the customers simultaneously, not all customers may receive this report at the same time. We will not treat recipients as customers by virtue of their receiving this report.

ESL and its associates, officer, directors, and employees, research analyst (including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the Securities, mentioned herein or (b) be engaged in any other transaction involving such Securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company(ies) discussed herein or act as advisor or lender/borrower to such company(ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. ESL may have proprietary long/short position in the above mentioned scrip(s) and therefore should be considered as interested. The views provided herein are general in nature and do not consider risk appetite or investment objective of any particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with ESL.

14 Edelweiss Securities Limited Sun Pharmaceuticals Industries

ESL or its associates may have received compensation from the subject company in the past 12 months. ESL or its associates may have managed or co-managed public offering of securities for the subject company in the past 12 months. ESL or its associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. ESL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report. Research analyst or his/her relative or ESL’s associates may have financial interest in the subject company. ESL and/or its Group Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise in the Securities/Currencies and other investment products mentioned in this report. ESL, its associates, research analyst and his/her relative may have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report or at the time of public appearance. Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs and Currency Derivatives, whose values are affected by the currency of an underlying security, effectively assume currency risk. Research analyst has served as an officer, director or employee of subject Company: No ESL has financial interest in the subject companies: No ESL’s Associates may have actual / beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report. Research analyst or his/her relative has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No ESL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of research report: No Subject company may have been client during twelve months preceding the date of distribution of the research report. There were no instances of non-compliance by ESL on any matter related to the capital markets, resulting in significant and material disciplinary action during the last three years except that ESL had submitted an offer of settlement with Securities and Exchange commission, USA (SEC) and the same has been accepted by SEC without admitting or denying the findings in relation to their charges of non registration as a broker dealer. A graph of daily closing prices of the securities is also available at www.nseindia.com 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.

Additional Disclaimers

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.

15 Edelweiss Securities Limited Pharmaceuticals

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, Edelweiss Financial Services Inc. ("EFSI"). Transactions in securities discussed in this research report should be effected through Edelweiss Financial Services Inc.

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.

Disclaimer for Singapore Persons In Singapore, this report is being distributed by Edelweiss Investment Advisors Private Limited ("EIAPL") (Co. Reg. No. 201016306H) which is a holder of a capital markets services license and an exempt financial adviser in Singapore and (ii) solely to persons who qualify as "institutional investors" or "accredited investors" as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore ("the SFA"). Pursuant to regulations 33, 34, 35 and 36 of the Financial Advisers Regulations ("FAR"), sections 25, 27 and 36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to EIAPL when providing any financial advisory services to an accredited investor (as defined in regulation 36 of the FAR. Persons in Singapore should contact EIAPL in respect of any matter arising from, or in connection with this publication/communication. This report is not suitable for private investors. Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved

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

16 Edelweiss Securities Limited