RBSA Indian Pharma

Valuation Analysis of Indian
Pharmaceutical Sector
Contents
Background of Indias Pharmaceutical Industry
Current Trends and Performance
Valuation Multiples Analysis
Regulatory Issues
Industrys Major Players Performance
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Financial Advisory Services Team RBSA
Valuation
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1
Background of Indias Pharmaceutical Industry

The Indian pharmaceutical industry accounts for over 8 per
cent of global pharmaceutical production. The industry has
over 60,000 generic brands across 60 therapeutic categories
and manufactures more than 400 different active
pharmaceutical ingredients (APIs).
The Indian pharma industry has been growing at a
compounded annual growth rate (CAGR) of more than 15
per cent over the last five years and has significant growth
opportunities.
The Pharmaceutical & Chemical industry in India is an
extremely fragmented market with severe price
competition and government price control.
Growth Drivers
Drivers of Growth
High Burden
of diseases
Low Cost
destination
(with rising
medical tourism
possibilities)
Higher
Disposable
Income
Improvement
in Healthcare
Infrastructure
Vaccine market
expected to
grow at 20% p.a.
in next decade
Improved
Healthcare
Financing
Growth Mode of Achievement

Inorganic opportunities like Licensing and partnerships, acquisitions, etc
Cost reductions to drive volumes leading to market penetration & new market discoveries.
Expansion of portfolios & adding many therapy areas & products
Penetration in Tier II & III cities
Creating patient awareness & education for chronic diseases to boost uptake
Increasing investments by MNCs reflecting their renewed interest in the Indian market
Reduced approval time for new facilities
Over 160,000 hospital beds expected to be added each year in the next decade
Current Trends and Performance

Biotech
The Indian biotech industry has registered 18.5 percent growth in
FY12.
Indian Biotech Industry
Bio Pharma and the healthcare sector are the largest

component of the Indian biotech industry with a market share
of 62 percent.
14
Bio Pharma has shown a historical growth of 19 percent and is

expected to continue mainly due to pharma companies facing
increasing development cost and pressure on profit margins.
As per an IMS Report, the global Bio similar market is estimated

to assume a size of $ 2.5 billion by 2015.
(USD Bn)
11.6
12
10
4.3
0
FY 2012
FY 2017
Source: News Report
Medical Equipment
The medical technology segment has tremendous potential. This potential is being recognized by the
government and there have been many initiatives to promote the sector. In the Union Budget 2012-2013,
customs duty has been reduced from 16 percent to 8 percent for medical and veterinary furniture. The sector is
expected to grow at a CAGR of 13.4 percent with a Market size of USD 4,957.8 million by 2016 as per IBEF
Research.
Formulations
Bulk drugs (active pharmaceutical
ingredients API)
CAGR 14-17%
US $ ~ 23 Billion
Growth
FY2020
The products manufactured by the

Indian pharmaceutical industry can
be broadly classified into
Market Size
Domestic
US $ ~
12 Billion
12%
Projected
FY 2013
The Indian Pharmaceutical Industry

(IPI) is globally the 3rd largest in
terms of volume and 13th largest in
terms of value.
Indian Pharmaceutical
Industry
Pharma
Export
US $ ~
11 Billion
27%
Historical
* Source: Care Report Indian Pharmaceutical IndustryMarch 2013
Market Dominance by 2015
Formulation: Indian Formulation industry can be classified in

Generic and Patented products.
10%
90%
Generics
Patented Products
As per ICRA Report, the domestic formulation market has been

growing steadily at CAGR of 14- 15% over the past five years.
With some of the major drugs losing patent protection, the
generics market is likely to maintain a strong growth momentum
in the near term.
It is estimated that 90% of Formulation market will be
dominated by Indian Generic product.
Source: News Report
Bulk Drug/ API: According to Indian research journal, out of the total number of pharmaceutical manufacturers,
about 77% produce formulations, while the remaining 23% manufacture bulk drugs.
Mergers and Acquisitions in Pharmaceutical Sector
Global pharma firms have been under significant pressure to reduce prices due to limited growth opportunities in
their home markets, dwindling product pipelines, and regulatory constraints. These factors are pushing foreign firms
to look for growth outside their home markets.
India is seen as a attractive market for the global pharma firms because of its billion plus population, increasing GDP
& per capita income, growing incidence of lifestyle diseases and greater coverage of medical insurance.
Due to the above two reasons , pharma MNCs are willing to pay a significant premium for high-quality pharma assets
in India. Thus, the Indian pharma industry is attracting premium valuation from the MNC`s.
Acquirer
Target
Sector
Stake
Mylan
Agila Specialities
Pharmaceuticals
NA
USD 1.6 Mn
Transasia
Drew Scientific and JAS Diagnostics
Healthcare
NA
USD 6.5 Mn
Trivitron Healthcare
Ani Labsystems
Healthcare
NA
INR 110 Cr
Shalby Hospitals
Krishna Hospitals
Healthcare
86.00%
INR 75 Cr
Mylan
SMS Pharmaceuticals
Pharmaceuticals
NA
USD 33 Mn
Mitsui & Co
Arch Pharmalabs
Pharmaceuticals
25.00%
INR 372 Cr
Hospira Inc.
Orchid Chemicals and

Pharmaceuticals
Pharmaceuticals
NA
United Drug Plc.
Bilcare Limited - GCS Unit
Healthcare
NA
Sun Pharmaceutical
Taro Pharma
Pharmaceuticals
Adcock Ingram Healthcare

Private Limited
Cosme Farma
Healthcare
NA
Serum Institute of India
Netherlands Vaccine Institute
Healthcare
NA
INR 224 Cr
Piramal Healthcare
Decision Resources Group
Pharmaceuticals
NA
USD 635 Mn
Strides Arcolab
Star Drugs - Manufacturing Plant
Pharmaceuticals
NA
INR 125 Cr
Origio A/s
Trivector Scientific
Healthcare
51.00%
USD 3.3 Mn
Aanjaneya
Apex Drugs & Intermediates
Pharmaceuticals
NA
INR 250 Cr
Buy-Out
Size
USD 200 Mn
USD 61 Mn
USD571
INR 70.8 Cr
Table Source: News Reports
Industry Players Performance and Valuation Multiples
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
The generic makers (largely Indian) have been winning

a series of administrative and judicial victories against
patent-holders (all MNCs) which has led to a sharp
increase in the revenue of Indian pharma companies.
As shown in historical PAT margin graph, the pharma
industry had been hit by recession during the year
2008, but recovered quickly and had a steady profits
overall.
16.19%
12.25%
11.41%
11.03%
11.28%
8.51%
FY 07-08 FY 08-09 FY 09-10 FY 10-11 FY 11-12 FY 12-13
Margin Comparison
Historical PAT Margin
PAT Margin
Margin Comparison - FY 2013 Vs FY 2012

50%
46%
45%
42%
40%
35%
30%
37%
33%
31%
29%28%
26%
25%24%
25%
20%
40%40%
21%
24%
18%
17%17%
13%13%
15%
22%
19%
21%
14%
13%
13%
11%
10%
5% 6%
5%
0%
Glaxosmith
Pharma
Dr Reddy's Labs
EBITDA Margin 2012
Lupin
Sun Pharma.Inds.
EBITDA Margin 2013
The overall EBIDTA margin in 2013 remained more or

less similar as in the year 2012.
The EBIDTA margin of Dr Reddy`s Lab & Sun Pharma
has fallen in 2013 as compared to 2012 but there has
been an increase in EBIDTA margins of other
companies.
Although there is an increase in the top line, the
EBITDA margins of almost all companies considered in
our analysis were below industry expectations. The
reason was higher other expenses on account of an
increase in
Freight costs,
Power cost,
Marketing spend
R&D expenses.
Elder Pharma
PAT Margin 2012
Divi's Lab
Cadila Healthcare
PAT Margin 2013
There is no significant change in the PAT margin for

2013 viz-a-viz 2012. PAT margins have remained more
or less similar to that of 2012.
The mandatory applicability of MAT to SEZs and
partnership firms in backward regions had negative
impact on the PAT margins of some companies.
As per industry sources, competitive pressures will
continue to have a negative impact on margins and
will offset part of the effect of beneficial factors.
The negative impact of pricing pressures will be lower
for large backward integrated companies than for
non-integrated smaller to mid-size companies. This
will adversely affect the overall profitability multiple
of the companies.

EV/ Sales
Relationship between EBITDA Margins and EV/Sales Multiple FY 2013

Sun Pharma
8.00 x
7.00 x
Glaxosmit
Divi`s Lab
6.00 x
EV/Sales
5.00 x
4.00 x
Cadila
3.00 x
Lupin
Dr Reddy
2.00 x
Elder Pharma
1.00 x
0.00 x
10%
15%
20%
25%
30%
EBIDTA Margin
The above chart represents the relationship between

EBITDA Margins and EV/Sales Multiple. It is clearly
evident that EBITDA margin is a strong factor on how
market prices the sales of each company.
Amongst the Large Cap Sun Pharma Industries and
amongst the Mid Cap Divis Lab, are the leaders in
terms of EBIDTA margins.
These companies also enjoy highest EV/Sales Multiple
compared to its peers in its space. This clearly
demonstrates that markets are pricing volumes or sales
based on their margins.
35%
40%
45%
Market perception on EV/Sales multiple of Lupin,

Cadila Healthcare and Dr. Reddys falls in same
quartile, even though Lupin has a higher EBIDTA
margin than the other two companies. As per industry
reports, Lupin, Dr. Reddy`s and Cadila are aggressive
in product filings in the US thereby, ensuring
sustainable growth in that market.
Elder Pharma has lowest EV / Sales multiple since it
has the lowest operating efficiency amongst its peers.
Elder Pharma also has a higher interest cost than its
peers reducing its Net Profit, affecting its overall
valuation multiple.
As compared to Sun Pharma , Glaxosmith has a lower

EBIDTA margin and total sales. Hence, the EV/sales
multiple of GSK is also low.
This multiple takes into account the earnings from

the operating business irrespective of the impact of
capital structure and taxes applicable. Hence, this
multiple represents the companys performance in
terms of its earning efficiency of its core business
operations only.
EV/ EBIDTA Multiple
EV/ EBITDA multiple is used for comparing different

companies in the same industry and identifying
those that could be undervalued.
EV/ EBIDTA
8.65 x
Industry Average
8.99 x
14.96 x
Cadila Healthcare
15.37 x
15.18 x
Divi's Lab
13.65 x
Sun Pharma:
On account of impressive revenue and profit
growth, benefits from overseas acquisitions,
currency depreciation and healthy sales of its newly
launched drugs, Sun Pharma commands premium
valuation compared to others.
2012
5.71 x
Elder Pharma
6.69 x
17.58 x
Sun
Pharma.Inds.
Divis Lab:
The EBITDA margins have remained constant due to
better gross margins (indicating superior sales mix),
lower employee costs and other expenses
compared to its peers. Thus, the operational
efficiency of Divis lets it command premium
valuation.
2013
15.54 x
12.51 x
Lupin
17.11 x
11.21 x
Dr Reddy's Labs
12.91 x
Lupin & Glaxosmith Pharma:

Lupins EBITDA margin expansion in FY 13 was
mainly on account of (1) Least impacted by
potential slower growth in domestic market &
National Pharma Pricing Policy, (2) better product
mix in the US and (3) lower other expenses and
employee costs (operating leverage benefit).
Glaxosmith Pharma commands premium valuations
due to strong parentage (giving access to large
product pipeline), brand building ability and likely
positioning in post patent era. It is one of the few
companies with an ability to drive reasonable
growth without any major capital requirement.
Despite strong operational performance, the

market has not reacted to the efficiency depicted
by the company management.
Thereby,
undervaluing the stocks.
Glaxosmith
Pharma
19.34 x
27.81 x
Dr. Reddys, Elder Pharma & Cadila Healthcare:

Dr. Reddys EBITDA margin was lower due to:
(1) adverse sales mix on higher-than-expected
contribution from PSAI segment, (2) an undisclosed
amount of one-time inventory write-off taken on
discontinued products and (3) OctoPlus acquisition
related expenses.
The EBITDA margins of Elder Pharma and Cadila
Healthcare remained constant and declined
respectively.
Consequent,
to the reduction in operating
efficiency of these companies, there was minor
reduction in the EV/ EBITDA multiple.

Price Earning Multiple
PE Multiple
By comparing price and earnings per share for a

company, one can analyze the market's stock
valuation of a company and its shares relative to
the income the company is actually generating.
13.63 x
Industry Average
Companies with higher (or more certain)

forecast earnings growth will usually have a higher
P/E, and those expected to have lower (or riskier)
earnings growth will usually have a lower P/E.
15.90 x
21.94 x
Cadila Healthcare
22.85 x
There is an overall decrease in the PE ratio of the

industry is due to pricing pressure and reduced
operating margins.
21.69 x
Divi's Lab
19.09 x
Sun Pharma:
Sun Pharma has the highest market capitalization
amongst its peers. The PE ratio of Sun Pharma has
increased compared to FY 12 because of its
improvement in sequential growth and also a sharp
increase of 63% YoY in its export business, which
contributed close to 57% to its sales.
2013
7.18 x
Elder Pharma
2012
9.62 x
24.25 x
Divi's Lab:
Divi's earns strong margins due to its global cost
and market leadership in some APIs (global market
share of 50-70%), pricing power and strong
backward integration. Due to promising growth
prospect in near future Divis Lab PE ratio is greater
than FY 12.
Sun Pharma.Inds.
GlaxoSmith Pharma:
Despite significant increase in the EBIDTA and PAT
margins of Glaxosmith Pharma, there has been a
fall in its PE multiple which indicates that the stock
is undervalued.
Dr Reddy's Labs
19.84 x
21.00 x
Lupin
26.66 x
19.65 x
22.92 x
33.00 x
Glaxosmith Pharma
45.27 x
Dr. Reddys Lab:

The PAT margin of the company in FY 13 remained
nearly constant as compared to FY 12 which led to
reduction in its PE ratio.
Lupin:
There has been a reduction in interest cost due to
repayment of debt. There has been a drastic fall in
effective tax rate that has led to increase in PAT.
Despite a marginal increase in PAT margin, the PE
multiple has seen a reduction as compared to FY
12.
Elder Pharma:
The high interest cost burden and overall negative
sentiment in the stock market about the company
management has led to reduction in the P/E
multiple in FY 13.
Cadila :
The reduction in operating efficiency and increase
in depreciation has led to marginal reduction in the
P/E multiple in FY 13.
Note: All Financial data for calculation of multiple has been taken from public sources, annual reports or Capital Line.
Regulatory Issues & Government Initiatives

The Department of Pharmaceuticals, under the Ministry of Chemicals
and Fertilizers, formulates policies and implements programs for
achieving growth and development of the Indian Pharmaceutical
Industry.
Pricing Policy
Pricing Policy
National pharma pricing policy 2012 (NPPP) replaces the
long standing Drugs Price Control Order 1995. The new
policy regulates prices of essential drugs (formulations) as
prescribed in National List of Essential Medicines (NLEM)
and would not regulate the bulk drug manufacturer.
The current regulation fixes the ceiling price of
formulations through Market Based pricing, which earlier
was Cost Based pricing.
Compulsory
Licensing
International
Regulation
Regulations
Budgetary
FDI
Manufacturers are free to fix any price for their product

equal to or below the ceiling price.
NLEM-2011 contains 614 formulations of specified
strengths and dosage, spread over 27 therapeutic
categories and satisfy the priority healthcare needs of
majority of the population of the country.
Clinical Trials
Compulsory Licensing
A compulsory licence is a provision under the Indian Patent Act which allows the government to mandate a
generic drug maker to produce inexpensive medicine in public interest even when the patent on product is valid.
This provision provides a flexibility on patent protection included in the World Trade Organization's agreement on
intellectual property.
This section allows any one who feels that the drug covered under the patent is 1) Not available to the public at a
reasonable cost 2) does not meet the requirements of the public or 3) is not sufficiently worked in India, can
appeal for compulsory license.
Recent ruling of the Supreme Court & IPAB upholding compulsory licensing has cleared the way for
production of generic drugs in India.
Intellectual Property Appellate Board (IPAB)
Supreme Court.
Bayer Vs NATCO, ruling March 2013.

Bayer`s Nexavar is priced at Rs 280,000 for a pack
of 120 tablets, a months dosage.
Novartis Vs Union of India , ruling April 2013.

Novartis had filed an application for patent for an
updated version of its anti-cancer drug Gleevec.
IPAB upheld the order of the Controller of Patents,

India permitting a generic version of Nexavar
This application was rejected by the Controller of

Patents, India and later by IPAB.
NATCO will now manufacture and sell the same

anti cancer drug at Rs 8800 per month and will also
pay a royalty of 6% of its sales to Bayer. Thus,
making the life saving drug affordable to the
public.
Supreme Court upheld the IPAB decision to deny

patent protection to Novartis.
The judgment would ensure that the prices of
lifesaving drugs would come down as many more
companies would now produce generic versions.
9
4
3.23
100% FDI for investments in existing companies in the pharma sector

through FIPB approval route.
FDI up to 100% under the automatic route was continued for

Greenfield investments in the pharma sector.
3
2
1.1
1
0.209
0
FY 2011
FY 2012
April 12- Feb 13
Source: Dept. of Industrial Policy
According to the Department of Industrial Policy and Promotions website,

the Drugs & Pharmaceuticals Sector has attracted a total of USD 10.3 billion
or INR 48828 crores in Foreign Direct Investment (FDI) from April 2000 to
February 2013.
Government & Budgetary Initiatives

In the budget of FY 13-14, a total of INR 37,330 Crores has been allocated for Health & Family Welfare. This amount
can bifurcated broadly in the below mentioned categories:
National Health Mission has been allocated INR 21,239 crores, a 24.3% increase over the Revised Estimate of last
year.
National Program for the Health Care of Elderly has been allocated INR 150 crores.
Medical education & AIIMS like institutes has been allocated INR 6,377 crores to improve medical education,
training and research
Clinical Trials
The government is now starting to develop an infrastructure for clinical trials in India, with amendments made
recently to Schedule Y of the Drugs and Cosmetics Rules of 1945. Among other developments, Good Clinical
Practice guidelines have been published and made mandatory.
Regulatory Issues & Government Initiatives
FDI in Indian Pharmaceutical Industry Foreign Direct Investment

Government amended the FDI policy in November 2011.
(USDbn)
International Regulatory & Other Issues
US: A Number of patent would expire in the US during the years 2013-2015,
opportunities on account of patent expiries will amount to around USD125bn
as per India Rating.
The patent expirations, and also healthcare reforms initiated by the US
Government, are likely to provide impetus to growth in the generics market.
Europe: In Europe, most Governments have implemented austerity measures
reducing healthcare spending, this will benefit the overall generic companies.
Source: India Rating
A large number of domestic players are seeking international regulatory approvals from agencies like USFDA, MHRA UK, EMA European Union, TGA Australia and MCC South Africa in order to export their products,
mostly generics, in these markets. A large number of Indian firms are increasingly seeking at least WHO GMP
approval in order to compete for exports to CIS countries and other Asian markets.
India has over 120 USFDA - approved and 84 UK MHRA approved
manufacturing facilities, thus providing a better reach to US & European market.
The Bottom Line: The overall regulatory environment, that

includes compulsory licensing, a conducive FDI policy , budgetary
initiatives and international patent cliff will fuel the growth of
generic pharma industry in India.
10
Industry Players Performance

Sun Pharmaceuticals Limited
Stock Performance viz-a-viz Index
Sun Pharmaceuticals Limited is an

international specialty pharma company
having four business segments - Indian
Branded Generics, US Generics,
International Branded Generics and
Active Pharmaceutical Ingredients (API).
20%
15%
10%
The Company closed the acquisition of:

- URL Pharma Incs generic business in
the US with the portfolio of 107
products represented by over 230
Abbreviated New Drug Applications
(ANDA).
- DUSA Pharmaceutical Inc, a specialty
dermatology company in the US.
INR in
Crores
5%
0%
-5%
-10%
BSE Healthcare
11238.89
In FY 2013, India branded generic sales were at Rs 2,966

crores. Also, US finished dosage sales at US$ 1,132 million
grew by 56% (in US$ terms) over previous year whereas
International formulation sales at US$ 281 million grew by
21%.
10000
8019.49
8000
5727.9
3674.72
4000
2000
Sun Phama
The annual sales of the company has grown by 40% in FY

2012 whereas the EBITDA & PAT margins have jumped by
59% & 56% respectively.
Sales and Profitability Analysis
12000
6000
BSE Index
4695.4
3494.34
2972.73
2314.68
1907.37
0
FY 2011
Total Net Sales
FY 2012
EBITDA
FY 2013
PAT
Although there has been increase in the Sales &

Profitability in FY 2013, there is a reduction in
EBITDA & PAT margins compared to FY 2012.
Sun Pharma plans to file about 25 ANDAs for FY14.
R&D expenses are expected to be around 6-8% of
sales while the management expects an overall
capex at Rs.800 crores.
Recently, Sun Pharma announced that it will pay
Pfizer Inc and Japan-based Takeda $550 million to
settle a patent infringement suit in the US on
generic pantoprazole.
The management has stated that despite the out

performance by a wide margin for eight consecutive
quarters ending December 2012 by its Israels subsidiary
Taro Pharmaceuticals, the current growth rate is clearly
unsustainable. The price hike in specific products has been
a function of capacity glut and the management does not
expect the dynamic to sustain.
Profitability Ratio Analysis
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
46%
40%
42%
FY 2011
31%
37%
33%
FY 2012
PAT Margin (%)
FY 2013
EBITDA Margin (%)
11

Dr Reddy Laboratories Limited
Dr Reddy's Laboratories is into three businesses Pharmaceutical Services and Active Ingredients
(PSAI), Global Generics and Proprietary Products
Generics.

6.00%
4.00%
During the fiscal year 2013, Dr. Reddy's launched

14 new products and filed 18 ANDAs and 1 New
Drug applications (NDA) with the US Food and
Drug Administration (FDA). The company has 65
ANDAs pending approval with the FDA, of which
38 are Para IV filings and 8 are first-to-file.
During FY2013, the Company globally launched
104 new generic products, and filed 56 new
product registrations and 47 new drug master
files (DMF).
In FY 2012, it had launched a blockbuster generic
in the USA, olanzapine 20 mg tablets, the generic
version of the brand Zyprexa.
INR in Crores
14,000
11,832.60
9,761.10
10,000
8,000
7,435.20
6,000
2,823.30
4,000
2,000
1,613.20
998.90
2,436.60
1,300.90
1,526.80
0
FY 2011
Total Net Sales
FY 2012
EBITDA
0.00%
-2.00%
-4.00%
-6.00%
BSE Healthcare
BSE Index
Dr. Reddy
-8.00%
Revenues at the Global Generics segment in FY 2013 were

up by 18%. Strong sales in North America with a growth of
19% in the current fiscal.
The emerging markets marked a growth of 31% whereas
Revenue from India grew by 13%. These were primarily
responsible for the growth displayed by the Global Generics
division.
12,000
2.00%
FY 2013
Pharmaceutical Services and Active Ingredients (PSAI)

segment showed a growth of 29% in FY 2013. This was due
to increased sales to generic customers and higher orders in
the Custom Pharmaceutical Service business.
Dr. Reddy's expects continued growth in this segment on the
back of new product launches and new contracts.
PAT
The EBITDA & PAT margins are consistently

maintained at 24% & 13% respectively .
30%
25%
25%
22%
24%
20%
In FY2013 Dr. Reddys invested approximately

Rs.767 crores in R&D activities, which accounted
for 6.6% of consolidated revenues, versus Rs. 591
crores in FY2012, or 6.1% of consolidated
revenues. This represents a growth of 30% over
the previous year, and is mainly attributable to
increasing spends on complex molecules and a
greater focus on biosimilars and proprietary
research.
15%
10%
13%
13%
13%
5%
0%
FY 2011
FY 2012
PAT Margin (%)
FY 2013
EBITDA Margin (%)
12

Lupin Limited
Lupin Limited, is engaged in producing a range of
generic and branded formulations and bulk drugs. It
manufactures Active Pharmaceutical Ingredients (APIs)
and several drug formulations. It has 12 manufacturing
sites (5 US FDA approved) (2 sites in Japan)
8.00%

6.00%
4.00%
It is the fifth largest

generics player in
the US & fourth
largest
Pharmaceutical
company in India.
Lupin is expected to
launch
20-25
products in the
American market in
the near future.
Lupin has filed 15 Drug Master Files (DMFs) and 21
ANDAs in the US; received approvals for 16 ANDAs
including 2 NDAs (New Drug Applications) during FY
2013.
INR in
Crores
11,832.60
12,000
9,761.10
10,000
8,000
2,000
-2.00%
-4.00%
BSE Healthcare
BSE Index
Lupin
-6.00%
The Net sales of the company grew by 36% during FY2013.

EBITDA margins grew to 24% during FY13 from 21%.
7,435.20
6,000
4,000
0.00%
The companys revenue has grown across all geographies in

FY 2013:
US business (including IP) grew by 49%
India Region Formulation sales grew at 24%
Japan grew by 52% and South Africa grew by 26%
14,000
2.00%
2,436.60
1,613.20
998.90
2,823.30
1,526.80
1,300.90
Lupins branded business in US grew by 13% while generics

grew by 70%. It received approval for Suprax drops in FY
2013.
0
FY 2011
FY 2012
FY 2013

Total Net Sales
EBITDA
PAT
The Companys R&D expenditure is approximately

7.5% of net sales. In last six years, the company has
spent Rs. 277. 75 cores on Research & Development.
It is also investing prudently in expanding its
manufacturing operations by setting up new facilities
and plants to meet future demand. As a result, the
Companys capital expenditure increased to Rs. 487.1
Crores for FY 2013.
30%
25%
21%
21%
24%
20%
15%
10%
14%
15%
13%
5%
0%
FY 2011
PAT Margin (%)
FY 2012
FY 2013
EBITDA Margin (%)
13

Glaxo Smith Kline Pharmaceuticals Limited
Glaxo Smiths product portfolio includes prescription
medicines and vaccines. The prescription medicines
range across therapeutic areas such as anti
infectives, dermatology,
gynaecology, diabetes,
oncology, cardiovascular disease and respiratory
diseases. It also offers a range of vaccines, for the
prevention of hepatitis A, hepatitis B, invasive
disease caused by H, influenza, chickenpox,
diphtheria, pertussis, tetanus, rotavirus, cervical
cancer, streptococcus pneumonia and others.

6.00%
4.00%
2.00%
0.00%
-2.00%
-4.00%
The Company has two R&D units, namely Chemistry

Research
&
Development
(CR&D)
and
Pharmaceutical Research & Development (PR&D).
INR in
Crores
BSE Healthcare
2650.54
2414.40
2151.06
Although the Sales has increased only by 10% in

FY2012, the EBITDA has jumped by 36%
whereas PAT by 31%.
1,500
500
Glaxo
The Net Sales have arisen from Rs. 2414 crores

for the year ended Dec 2011 to Rs. 2650
crores in Dec 2012.
2,000
1,000
BSE Index
-8.00%
3,000
2,500
-6.00%
863.36
852.53
625.54
560.57
561.88
428.59
Sales of the Pharmaceuticals business grew by

12.5% supported by good growth in all of the
Companys diversified business units i.e. in the
Mass Markets, Mass Specialty, Vaccines and
Specialty segments such as dermatological,
oncology, etc.
0
FY Dec 2010
FY Dec 2011
Total Net Sales
FY Dec 2012
EBITDA
PAT
Mass markets which comprise of the traditional health

care solutions of the Company contributed to 47% of
the Companys share in Indian Pharmaceutical Market
(IPM) in 2012.

45%
40%
40%
35%
A range of new products were introduced in the year

FY Dec 2012 which include :
Altago - for tropical treatment of bacterial skin
infection
Volibris for treatment of pulmonary arterial
hypertension
Seretide Evohaler a Metered Dose Inhaler which
helps patients keep track of drug doses taken.
Hycamtin For treatment of relapsed small cell
lung cancer.
30%
32%
26%
25%
20%
21%
26%
15%
18%
10%
5%
0%
FY Dec 2010
FY Dec 2011
PAT Margin (%)
FY Dec 2012
EBITDA Margin (%)
14

Divis Laboratories Limited
Divis Laboratories Limited is focused on developing
new processes for the production of Active Pharma
Ingredients (APIs) & Intermediates. The company in a
matter of short time expanded its breadth of
operations to provide complete turnkey solutions to
the domestic Indian pharmaceutical industry.
Divis operates predominantly in export markets and
has a product portfolio under generics and custom
synthesis.
The companys portfolio comprises of two broad
segments
Generic APIs (active pharma ingredients) and
Nutraceuticals and
Custom Synthesis of APIs, intermediates and
specialty ingredients for innovator pharma
giants.
INR in Crores
1316.55
859.97
747.31
429.27
500
602.01
533.26
0
FY 2011
FY 2012
Total Net Sales
Divis
The exports in FY 2013 is approximately 85%

of the gross sales as against 89% in FY 2012.
Majority of the exports are to the advances
markets of Europe & America.
1864.04
528.04
BSE Index
During the year 2012, the Company added

eight products to its product portfolio of
which three were generic APIs and
intermediates and five were custom synthesis
APIs and intermediates.
2139.9
2,000
1,000
BSE Healthcare
2,500
1,500
14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
FY 2013
EBITDA
The Net Revenue of the company has

increased by 15% over the previous year.
Whereas the EBITDA & PAT margins are
maintained at same level of 40% & 28%.
PAT
Generics accounts for half the companys revenues.

Using its research capabilities, Divis has developed
patent non-infringing process for manufacturing APIs.
It has tied up with innovators to manufacture costeffective API for their patented drugs which are on the
verge of losing patent protection.
The company has invested Rs 200 crore in setting up
the DSN-SEZ at Vizag. The SEZ houses five production
blocks. The facility became operational last fiscal and
two of the total five production blocks have been
inspected by US FDA.
With the approval of production block at DSN-SEZ unit
at Vizag and new launches, the management targets 50
per cent growth in the segments revenues in FY14.
45%
40%
40%
40%
40%
35%
30%
25%
28%
33%
29%
20%
15%
10%
5%
0%
FY 2011
PAT Margin (%)
FY 2012
FY 2013
EBITDA Margin (%)
15

Cadila Healthcare Limited
Cadila Healthcare Limited, the flagship of Zydus
Cadila Group operates in United States, Europe and
Japan.
15.00%
10.00%
The Company has maintained its dominant position

in the segments like cardiology, diabetology,
respiratory and women's healthcare. The Company is
in the process of establishing its presence in the
neurological segment.
5.00%
0.00%
In FY 2012, the Company launched new specialty

divisions & forayed into new therapeutic areas.
In the same year, the Company launched over 90
new products, including over 40 line extensions.
The Company acquired 100% stake in Biochem
Pharmaceutical Industries Limited in FY 2012.
INR in
Crores
-10.00%
BSE Healthcare
The Zydus Group announced a breakthrough in its

research efforts with Lipaglyn, a novel drug targeted
at bridging an unmet healthcare need for treating
Diabetic Dyslipidemia or Hypertriglyceridemia in
Type II diabetes. This drug has been approved for
launch in India by the Drug Controller General of
India.
5,263.30
4,630.60
4,000
3,000
1,000
Cadila
-15.00%
6,155.38
6,000
2,000
BSE Index
7,000
5,000
-5.00%
1,039.30
736.10
1,162.69
1,137.00
691.73
681.20
0
FY 2011
Total Net Sales
FY 2012
EBITDA
FY 2013
In May 2013, the company launched a migraine

drug, Zolmitriptan in the US market.
PAT
During the year, the company has done capex of Rs.

49. 5 crores in Research & Development.
25%
22%
22%
20%
The Net Sales of the company has increased by 17%

in FY 2013 compared to he previous year. However,
the PAT & EBITDA margins were only 11% & 19%
respectively.
The Company has launched over 15 new products
including line extensions in India.
19%
15%
16%
11%
13%
10%
5%
0%
FY 2011
PAT Margin (%)
FY 2012
FY 2013
EBITDA Margin (%)
16

Elder Pharmaceuticals Limited
Elder Pharmaceuticals Limited is engaged in the
business of:
Manufacturing
of
wide
range
of
pharmaceutical products through research and
development,
Manufacturing and marketing of diverse
products through licensing agreements with
international pharmaceutical companies and
Manufacturing of active pharmaceutical
ingredients.
25%
20%
15%
10%
5%
0%
-5%
-10%
Elder Pharma has geographically diversified

manufacturing facilities in six locations in India.
INR in
Crores
30%
-15%
BSE Healthcare
BSE Index
Elder Pharma
1,600
The Company has strong presence in womens

healthcare. Shelcal, a calcium supplement is a
leading brand in the Indian pharma industry.
1454.28
1334.78
1,400
1,200
1,000
965.28
800
600
400
200
246.19
81.31
227.06
174.65
63.55
72.26
0
FY 2011
Total Net Sales
FY 2012
EBITDA
FY 2013
PAT
During the year, the companys sales have grown by

9% as compared to last year. The EBITDA & PAT
margins has been maintained consistently at 17% and
6% respectively.
Elder Pharma has acquired 100% stake
NeutraHealth, UK and in Biomeda, Bulgaria.
in
The company has formed a joint venture with Japan's

Kose Corporation to manufacture and sell cosmetics in
India. Kose Corporation is one of the leading Japanese
cosmetic companies. Kose will hold 60 per cent stake in
the JV. With this JV the company expects incremental
revenues could run between Rs 30-40 crore in the first
year.
Other segment contributing to the total revenues

include Nutraceuticals, Wound care & pain
management, Anti-infectives and Lifestyle Disease
Care Portfolio.
Elder is a domestic centric Company and derives
more than 90 percent of its revenue from the
domestic market. Elder has been ranked 27th by
IMS ORG.

20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
17%
18%
17%
7%
5%
6%
FY 2011
PAT Margin (%)
FY 2012
FY 2013
EBITDA Margin (%)
17
Glossary
AIIMS
All-India Institute of Medical Sciences
API
Active Pharmaceutical Ingredients
ANDA
Abbreviated New Drug Applications
BV
Book Value
Bn / bn
Billion (s)
CAGR
Compounded Annual Growth Rate
CIS
Commonwealth of Independent States
Capex
Capital Expenditure
EBITDA
Earnings before interest, tax, depreciation and amortization
EBIT
Earnings before interest and tax
EMA
The European Medical Agency
EV
Enterprise Value
GCP
Good Clinical Practice
GDP
Gross Domestic Product
GMP
Good Manufacturing Practice
IBEF
Indian Brand Equity Foundation
ICRA
An associate of Moody`s Investor service(formerly Investment Information
and Credit Rating Agency)
INR
Indian National Rupees
IPAB
Intellectual Property Appellate Board
Mn.
Million(s)
Market Cap Market capitalization
MAT
Minimum Alternate Tax
MCC
Medicines Control Council
MHRA-UK Medicines and Healthcare products Regulatory Agency
MI
Minority Interest
n/a
Data either not applicable or not available
n.p.
Data not provided
NAV
Net Asset Value
NLEM
National List of Essential Medicines
NPPP
National pharma pricing policy 2012
No
Number of
PSAI
Pharmaceutical Services and Active Ingredients
PAT
Profit after tax
ROW
Rest of the World
SEZ
Special Economic Zone
TGA
Therapeutic Goods Administration
UK
The United Kingdome
US
The United States of America
USD
United States Dollar
US-FDA
United States- Food and Drugs Administration
WHO
World Health Organization.
Note: All Financial data for calculation of multiple has been taken from public sources, annual reports or Capital Line,
18
Contact Us
INDIA OFFICES:
Mumbai Office:
21-23, T.V. Industrial Estate, 248-A,
S.K. Ahire Marg, Off. Dr. A. B. Road,
Worli, Mumbai 400 030
Tel : +91 22 2494 0150-54
Fax: +91 22 2494 0154
Delhi Office :
602, Ashoka Estate,
24 Barakhambha Road,
New Delhi 110 001
Tel : +91 11 2335 0635
Bangalore Office:
Unit No.:116, Level I,
Prestige Centre Point,
Cunningham Road,
Bangalore 560 052
Tel : +91 97243 43842
Ahmedabad Office:
912, Venus Atlantis Corporate Park,
Anand Nagar Rd, Prahaladnagar,
Ahmedabad 380 015
Tel : +91 79 4050 6000
Fax : +91 79 4050 6001
Surat Office:
37, 3rd Floor, Meher Park,
A, Athwa Gate, Ring Road,
Surat 395 001
Tel : +91 261 246 4491
Fax : +91 261 301 6366
Jaipur Office:
Karmayog, A-8, Metal Colony,
Sikar Road,
Jaipur 302 023
Tel : +91 141 233 5892
Fax : +91 141 233 5279
Bahrain Office :
Villa # 901, Road 5631, Block 356,
Manama,
Kingdom of Bahrain
Tel: +973 3848 3439
Tel: +91 90040 50600
Dubai Office :
PO Box 32665
Suite: 1801, City Tower 2,
Sheikh Zayed Road, Dubai
Tel: +971 5 5478 6464
Tel: +91 90040 50600
OUR GLOBAL OFFICES:

Singapore Office:
17,Phillip Street ,
#05-01,Grand Building,
Singapore-048 695
Tel no: +65 3108 0250,9420 9154
Contact:
Tel: +91 90040 50600
Tel: +971 5 5478 6464
Email: [email protected]
www.rbsa.in
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To the extent this report relates to information prepared by RBSA Advisors, it is furnished to the recipient for advertising and
general information purposes only. This report and other research material may also be found on our website at www.rbsa.in.
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Valuation Analysis of Indian

Financial Advisory Services Team RBSA

Background of Indias Pharmaceutical Industry

Growth Mode of Achievement

Current Trends and Performance

Indian Biotech Industry

Bio Pharma and the healthcare sector are the largest

Bio Pharma has shown a historical growth of 19 percent and is

As per an IMS Report, the global Bio similar market is estimated

Source: News Report

The products manufactured by the

The Indian Pharmaceutical Industry

* Source: Care Report Indian Pharmaceutical IndustryMarch 2013

Market Dominance by 2015

Formulation: Indian Formulation industry can be classified in

As per ICRA Report, the domestic formulation market has been

Source: News Report

Mergers and Acquisitions in Pharmaceutical Sector

Drew Scientific and JAS Diagnostics

Orchid Chemicals and

United Drug Plc.

Bilcare Limited - GCS Unit

Adcock Ingram Healthcare

Serum Institute of India

Netherlands Vaccine Institute

Decision Resources Group

Star Drugs - Manufacturing Plant

Apex Drugs & Intermediates

Table Source: News Reports

Industry Players Performance and Valuation Multiples

The generic makers (largely Indian) have been winning

FY 07-08 FY 08-09 FY 09-10 FY 10-11 FY 11-12 FY 12-13

Historical PAT Margin

Margin Comparison - FY 2013 Vs FY 2012

EBITDA Margin 2013

The overall EBIDTA margin in 2013 remained more or

PAT Margin 2012

PAT Margin 2013

There is no significant change in the PAT margin for

Industry Players Performance and Valuation Multiples

Relationship between EBITDA Margins and EV/Sales Multiple FY 2013

The above chart represents the relationship between

Market perception on EV/Sales multiple of Lupin,

As compared to Sun Pharma , Glaxosmith has a lower

Industry Players Performance and Valuation Multiples

This multiple takes into account the earnings from

EV/ EBIDTA Multiple

EV/ EBITDA multiple is used for comparing different

Lupin & Glaxosmith Pharma:

Despite strong operational performance, the

Dr. Reddys, Elder Pharma & Cadila Healthcare:

Industry Players Performance and Valuation Multiples

By comparing price and earnings per share for a

Companies with higher (or more certain)

There is an overall decrease in the PE ratio of the

Dr. Reddys Lab:

Regulatory Issues & Government Initiatives

Manufacturers are free to fix any price for their product

Bayer Vs NATCO, ruling March 2013.

Novartis Vs Union of India , ruling April 2013.