Dr. Reddy'S Laboratories: Niche Launches Add A Brighter Picture

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Edelweiss Securities Limited

We are revisiting our earnings on Dr Reddys (DRRD) based on recent
niche launches (not build in estimates) that offer upside to US sales in
FY14. Moreover, enhanced visibility on potential launches lends further
upside to FY15E. These niche products offer superior margin that will
more than offset price erosion in mature portfolio. Apart from US, Russia
continues to post robust growth, offering flexibility to invest in complex
opportunities while Indias growth is also on the rise. Hence, we revise up
our FY15E earnings 6%. With improved earnings CAGR of 16.6% over
FY13-15E (earlier estimate 12.6%) and modest valuations (trading at 10%
discount to peers), we upgrade to BUY with TP of INR2, 200 per share.

Niche products, potential launches add sizeable upside to US sales
DRRD has bagged limited competition product approvals such as Isotretinoin and
Reclast that have market size of USD300m each. Additionally, potential launches like
Vidaza, Dacogen and Sumatriptan auto-injector (USD700mn market opportunity) will
add ~USD100mn in annual sales to the US base over FY14-15E. On back of these
triggers, we estimate US sales at USD940mn by FY15 (15% CAGR). These launches
offset price erosion in larger products such as Tacrolimus and Lansoprazole.

India business on a growth path
The Companys focus on field force productivity is propelling India growth. Secondary
growth has also surged to double digits (12-14%), outpacing market growth of 8-9% in
Q4FY13. Though management is confident of delivering above industry growth, we
estimate 13% CAGR over FY13-15E, in line with the industry. We have build in
INR540mn negative impact (3% of domestic sales) from pricing policy.

Outlook and valuations: Lucrative launches; upgrade to BUY
We revise up FY15E earnings 6% factoring in: (a) higher US sales; (b) improved traction
in domestic market; and (c) better currency realisation. We expect core margin to
improve by 55bps (FY13-15) as improved mix offsets negative impact from pricing
policy. Our SOTP-based TP at INR2,200 values base business at 18x FY15E core EPS and
assigns NPV value of INR74 for Para-IVs (including INR50 per share for Fondaparinaux-
10x FY15E EPS of INR5). We upgrade to BUY from HOLD and rate it SO.
COMPANY UPDATE
DR. REDDYS LABORATORIES
Niche launches add a brighter picture

EDELWEISS 4D RATINGS
Absolute Rating BUY
Rating Relative to Sector Outperformer
Risk Rating Relative to Sector Medium
Sector Relative to Market Overweight

MARKET DATA (R: REDY.BO, B: DRRD IN)
CMP : INR 1,924
Target Price : INR 2,200
52-week range (INR) : 1,970 / 1,526
Share in issue (mn) : 169.8
M cap (INR bn/USD mn) : 327/ 6,024
Avg. Daily Vol.BSE/NSE(000) : 356.1

SHARE HOLDING PATTERN (%)
Current Q2FY13 Q1FY13
Promoters *

25.6 25.6 25.6
MF's, FI's & BKs 14.0 15.2 14.4
FII's 26.2 24.5 25.9
Others 34.3 34.7 34.1
* Promoters pledged shares
(% of share in issue)
: 1.2

PRICE PERFORMANCE (%)

Stock Nifty
EW Pharma
Index
1 month 4.4 (6.5) 4.5
3 months (0.5) (6.9) 4.0
12 months 10.8 6.0 30.2

Manoj Garg
+91 22 6623 3302
manoj.garg@edelweissfin.com

Perin Ali
+91 22 6620 3032
perin.ali@edelweissfin.com

India Equity Research| Pharmaceuticals
April 16, 2013

Financials
Year to March FY12 FY13E FY14E FY15E
Revenues (INR mn) 97,121 115,829 133,016 148,651
Operati ng profi t (INR mn) 20,497 21,602 25,406 30,028
Adjusted net profi t (INR mn) 14,538 16,473 19,254 22,899
Recurri ng EPS 64.2 86.6 103.2 117.6
EPS growth (%) 16.0 34.9 19.3 13.9
P/E (x) based on recurri ng EPS 28.8 21.4 17.9 15.7
ROE (%) 28.1 25.9 25.0 24.6

Pharmaceuticals
2

US sales to scale up from spill over of niche opportunities
DRRD is expected to under deliver its earlier revenue guidance of USD750-800mn in US by
FY13 end, primarily due to: (a) delay in approval of anticipated high-value launches; and (b)
higher-than-estimated price erosion in base business. However, post a prolonged dearth of
approvals, the company has, over the past three months, launched a few limited
competition products which were not built in our estimates. These include Isotretinoin
(Accutane in March 2013) and Zoledronic acid (Reclast for Osteoprosis indication), which
are estimated to contribute USD30-35mn per annum over FY14-15E. Moreover, a few other
limited competition launches which are expected to be approved by H2FY14 including
Vidaza (expected between June and December 2013), Dacogen (expected launch between
May and November 2013 as Orphan drug exclusivity expires in May 2013) and Sumatriptan
auto injector (delay in launch due to supply chain issues for the device which is supplied by
consort; expect launch any time in 2013). We expect these opportunities to add USD190mn
annual sales by end FY15E from USD30mn in FY13, contributing ~70% to incremental
growth in US over the same period. We estimate US sales to post 15% CAGR over FY13-15
versus 12% earlier.

Table 1: Key limited competition launches in US

Source: Company, Edelweiss research

Management expects growth momentum to sustain over FY15-17 on back of its strategy to
focus on limited competition and complex generics (table 2). The recent Octoplus
acquisition gives DRRD a strong technology platform to develop complex generics in a
timely manner, thereby reducing launch delays. We estimate R&D costs to remain high at
7% of sales, as incremental costs will be more than offset by better realisations from limited
competition launches.

FY15
Sales
(USD mn)
No of
months
Sales
(USD mn)
No of
months
Sales
(USD mn)
Jul -12 Li pitor Atorvastati n 5,200 7 97.0 15.0 16 Eight 20 19
Sep-12 Toprol XL Metoprol ol XL 500 6 25.0 15.0 14 Six 56 48
Mar-13 Accutane Isotreti noi n 300 7 30.0 10.0 21 Annual 19
Apr-13 Recl ast Zoledroni c aci d 355 2 13 El even 13
Jul -13 Vidaza Azaci tidi ne 320 - 40.0 25.0 36 Ni ne 43
Nov-13 Dacogen Deci tabi ne 220 - 40.0 30.0 13 Four 36
Jun-13 Sumatri ptan
Auto Injector
Imi trex 180 2 30.0 15.0 9 Si x 17
Total sal es 30 169 194
Total US sales 714 821 939
Growth contribution (%) 73
Brand
Launch
date
FY13 FY14
Peak
Market
share (%)
Price
erosion
(%)
No of
players
Market size
(USD mn)
Generic

Celgene, in its recent conference
call, indicated that it expects
generic entry into Vidaza by H2CY13

Dr.Reddys Laboratories
3

Table 2: Incremental filings focus into limited competition products


Portfolio expansion, field force focus to spur domestic traction
Post relative underperformance in FY11-12, DRRDs India growth during 9mFY13 has
reverted to industry level (13%). Also, management is confident of delivering growth in line
with the market during FY13. The company has initiated a series of measures that reinforce
management focus on revitalising its domestic franchise and investing in the next phase of
growth. These key measures include: (a) portfolio expansion with more new launches
including line extensions to address therapeutic gaps; and (b) continued focus on improving
field force productivity.

Chart 1: Domestic growth traction on the rise

Filing date Generic Brand Patent Expiry
No of DMF
filers
Revenue Innovator Dosage
Mar-12 Asenapi ne Mal eate Saphri s Aug-14 2 142 OrganonSub
Merck
Tabl et
Mar-12 Gl ati ramer Acetate Copaxone Sep-15 3 2500 Teva Inj ecti bl es
Mar-12 Esomeprazol e Magnesi um Nexi um Nov-14 15 2695 AZN Oral /Sol uti on
Mar-12 Mi l naci pran HCL Savel l a Jan-23 7 130 Cypress
Bi osci ence
Oral
Mar-12 Lenal i domi de Revl i mi d Oct-19 3 1500 Cel gene Oral
Mar-12 Esci tal opram Oxal ate Lexapro Generi c;
Mul ti pl e
pl ayers
15 2700 Forest Oral /Sol uti on
Mar-12 Bazedoxi fene Acetate NA NA 1 NA NA NA
May-12 Ri vasti gmi ne Exel on Feb-14
Jan-19
15 442 Novarti s ER/ Transdermal
Omeprazol e; Sodi um
Bi carbonate
Zegeri d Jul -16 48 Santarus Oral
Xabepi l one Ixempra Jan-22 Onl y fi l er 83 BMS Inj ecti bl e
Oct-05 Zol pi dem Tartrate Intermezzo Apr-27 Mul ti pl e fi l ers NM Purdue Pharma Oral
Nov-12 Fi ngol i mod Hydrochl ori de Gi l enya Feb-14 Onl y fi l er 727 Novarti s Oral
Nov-12 Pl eri xafor Mozobi l Jul -23 2 170 Genzyme Oral sol uti on
Jun-05/Oct-12 Dutasteri de Avodart Nov-15 8 361 GSK Oral
0.0
5.0
10.0
15.0
20.0
25.0
FY10 FY11 FY12 9MFY13 FY13E FY14E FY15E
(

G
r
o
w
t
h

%
)
Domestic growth Market growth

Pharmaceuticals
4

As shown in chart above, DRRD has historically underperformed the domestic market due to
lower focus on business and higher dependency on mature brands. These mature brands
have reached a critical scale where growth will remain in high single digits. Thus, going
forward, managements focus is to gain higher traction from new launches by addressing
the therapeutic gaps in focus therapies of derma, CVS, gastro, respiratory and oncology.

Table 3: Mature brands are growing in single digit (%)

Source: AIOCD, Company, Edelweiss research

To improve traction in tier II and III markets, DRRD has realigned its field force strategy by
reducing contractual field force to 400 from 1,000 (added during FY10-11). The focus is to
bring sales force on regular payroll to enhance accountability. Moreover, the company is
targeting growth of its prescription share in high-value brands (mature brands) and non-
DPCO products in these markets. Overall, DRRD is confident that its reach and penetration
based approach will spur higher-than-industry growth over the next two to three years.

Chart 2: Focus on sales force realignment to improve overall productivity


While maintaining focus on existing therapies, DRRD is also planning to venture into the
over-the-counter (OTC) business with potential products like Velocit gel, Nice gel, among
others, in the pipeline. Moreover, it has created a formidable biosimilars portfolio with
strong brands such as Reditux. Its future pipeline will include more such brands that will
further scale up the sales potential from this niche business.
FY11 FY12 YTD13
Omez 9.9 (2.6) (0.0)
Staml o 2.4 11.2 5.3
Ni se (8.9) (27.9) 2.1
Omez D 14.7 21.3 11.7
Staml o Beta 4.9 9.9 (3.4)
Razo 7.9 11.1 14.4
Econorm 21.7 25.8 36.7
Mi ntop 20.3 38.7 11.5
Atocor 11.6 11.3 0.7
Total 6.2 3.6 6.2
0.0
1.4
2.8
4.2
5.6
7.0
0
800
1,600
2,400
3,200
4,000
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
S
a
l
e
s

p
e
r

r
e
p

(
I
N
R

m
n
)
(
N
o

o
f

m
e
d
i
c
a
l

r
e
p
s
)

Field force Contractual field force Productivity
Mature brands have reached a scale
where growth can be in high single
digit, thus company plans to reduce
dependence on mature portfolio to
augment growth
Management does not expect to
ramp-up field force from current
level

5

Surging competition, pricing policy may singe domestic margin
Despite a sharp growth focus, DRRDs gross margin is likely to come under pressure given
the rising competition in the business and price control of NLEM drugs that could cover 17%
of the companys sales (INR2.5bn). We have estimated INR720mn impact of pricing policy
on DRRD (INR540mn in FY14) and have built the same into our earnings estimates. Over the
long term, the companys strategic target is to sustain profitability of business by sharpening
focus on portfolio mix and improving field force productivity.

.that would be offset by improved mix and currency realizations
We expect DRRDs core EBITDA margin to improve 40-50bps led by higher gross margin
from better currency realisation (average USD/INR of 55/53 over FY14-15E versus earlier
estimated 54/52) and higher mix from incremental niche launches in the US and healthy
growth in India and Russia. This will more than offset increase in R&D costs (from 6% in
FY12 to 7% in FY15E), price erosion in mature portfolio in US and negative impact of
domestic pricing policy.

Table 4: Gross margins expansion to offset impact from higher R&D and pricing policy


Outlook and Valuations
Since our last downgrade of DRRD in May 2012, it has relatively underperformed the peers
by 13% (10% return versus sector return of 23%). We believe that the negatives that were
foreseen earlier (in terms of lower growth visibility) are behind and we see better earnings
growth (16.6% CAGR versus earlier 12.6% CAGR over FY13-15E) on back of spill over of
some limited competition opportunities in US that add upside to our earlier estimates.
Moreover, incremental pipeline of niche launches, discussed above, add further upsides to
FY15 growth.

We, thus, revise up FY15E earnings by 6% factoring in: (a) higher US sales growth of 15%
(17% core sales); (b) improved traction in domestic market; and (c) better currency
realisation (up 1.8%). We expect core margin to improve by 55bps (over FY13-15) as
improved mix from healthy growth in India, US and Russia offsets negative impact from
pricing policy and increase in R&D costs.

With improved earnings outlook and modest valuations (trading at 10% discount to peers),
we upgrade to BUY with TP of INR2, 200 per share rate it Sector Outperformer. Our
SOTP-based TP at INR2,200 values base business at 18x FY15E core EPS and assigns NPV
value of INR74 for Para-IVs (including INR50 per share for Fondaparinaux-10x FY15E EPS of
INR5).

% of sales FY10 FY11 FY12 FY13E FY14E FY15E
GM 52.1 54.4 55.3 54.3 54.6 55.1
SG&A 28.4 29.8 29.1 29.0 28.7 27.9
R&D 5.3 6.7 6.1 6.6 6.8 7.0
EBITDA margi ns 22.2 21.9 24.8 22.0 22.2 23.2
Core EBITDA margi ns 18.7 19.6 20.7 19.5 19.6 20.0

Pharmaceuticals
6

Table 5: SOTP value (INR)

Source: Edelweiss research

Base busi ness EPS March-15 118
Target P/E 18
Value of base business (Rs per share) 2,126
NPV per share for one-off sal es 24
Fondapari nux (FY15 EPS) 5
Target P/E 10
Val ue of Fonda 50
Total target price 2,200

7

Company description
Promoted by Dr. K Anji Reddy, Dr. Reddys Laboratories (DRRD) is a professionally managed
company with revenue of USD 2bn in FY12. Operating in 40 plus countries, revenue from
international operations has gone up to 84% currently from 40% in FY08 with US/Russia
contributing 40% of FY12 sales. The company has set itself an internal target of USD 2.5 bn
revenue and ROCE of 30% by FY13E. The companys key strength has been its vertical
integration through its Pharmaceutical Services & Active Ingredients (PSAI) operations and
16 manufacturing bases (10 USDFDA approved) which enable it to have one of the best
gross margin ratios in the Indian pharmaceutical industry. This is actively supported by an
extensive R&D programme which spans CRAMs to drug discovery. It also has one of the
deepest pipelines of bio-similars amongst leading global generic companies, addressing
global brand sales of USD30bn.

Investment theme
DRRDs base business is expected to grow at 14% CAGR in FY13-15E, on back of 15% CAGR in
US sales. Domestic formulation growth is expected to post ~13% CAGR, while Russian
operations are expected to post 20% CAGR in FY13-15E. US is likely to report strong growth
in FY14/15E, driven by limited competition products such as Vidaza, Reclast, Dacogen,
Toprol XL etc. amongst others. Management sees higher pace of growth over FY15-17E
based on its strategy to focus on complex generics

Key risks
Pricing policy impact is expected to be 2.8% on FY14E earnings
Slow ramp-up on new launches in US.
Delay in key approvals.

8

Pharmaceuticals
Financial Statements

Income statement (INR mn)
Income from operations 97,121 115,829 133,016 148,651
Materials costs 43,432 52,992 60,389 66,744
R&D Cost 5,911 7,645 9,045 10,406
Total SG&A expenses 27,282 33,590 38,176 41,474
EBITDA 20,497 21,602 25,406 30,028
Depreciation and amortisation 2,626 1,642 1,762 1,881
EBIT 17,871 19,960 23,644 28,147
Other income 365 562 402 402
Interest expenses 603 (67) (354) (681)
Profit before tax 17,633 20,588 24,400 29,230
Provision for tax 4,204 3,965 5,246 6,431
Net profit 13,429 16,623 19,154 22,799
Extraordinary income/ (loss) (904) (761) - -
Profit After Tax 14,333 17,384 19,154 22,799
Adjusted PAT 14,538 16,473 19,254 22,899
Shares outstanding (mn) 170 170 170 170
Diluted EPS (INR) 85.5 96.9 113.3 134.7
Recurring EPS (INR) fully diluted 64.2 86.6 103.2 117.6
CEPS (INR) 94.7 107.7 123.3 145.5
Dividend per share (INR) 16.0 22.7 26.5 31.5
Dividend payout (%) 18.8 23.4 23.4 23.4

Common size metrics
Operating expenses 78.9 81.3 80.9 79.8
Materials costs 44.7 45.8 45.4 44.9
S G & A expenses 28.1 29.0 28.7 27.9
R & D cost 6.1 6.6 6.8 7.0
Depreciation 2.7 1.4 1.3 1.3
Interest expenditure 0.6 (0.1) (0.3) (0.5)
Operating margins 21 19 19 20
Net profit margins 13.9 14.4 14.5 15.4

Growth ratios (%)
Revenues 28.6 19.3 14.8 11.8
EBITDA 51.3 5.4 17.6 18.2
PBT 41.9 16.8 18.5 19.8
Net profit 31.3 13.3 16.9 18.9
EPS 16.0 34.9 19.3 13.9

Key Assumptions
Macro
GDP(Y-o-Y %) 6.5 5.0 6.5 7.0
Inflation (Avg) 8.8 7.8 6.0 6.0
Repo rate (exit rate) 8.5 7.5 6.8 6.0
USD/INR (Avg) 47.9 54.5 55.0 53.0
Sector
India pharma market growth (Y-o-Y) % 16.0 14.1 12.0 15.0
Company
India sales (INR mn) 12,931 14,695 16,312 18,717
% change 10.6 13.6 11.0 14.7
1)Gastro Intestinal 3,235 3,753 4,316 4,963
% change 13.2 16.0 15.0 15.0
2)Cardiovascular 2,771 3,103 3,538 4,068
% change 16.0 12.0 14.0 15.0
3)Pain management 1,318 1,450 1,624 1,852
% change (6.8) 10.0 12.0 14.0
4)Anti-infectives 1,017 1,139 1,276 1,442
% change (6.5) 12.0 12.0 13.0
5)Dermatology 852 1,005 1,186 1,400
% change 31.6 18.0 18.0 18.0
US generics (USD mn) 670 714 821 939
Growth (YoY)% 57.3 6.6 14.9 14.4
US base business 499 563 693 771
No of launches 16 14 11 10
Fondaparinaux 14 51 52 49
Omeprazole OTC 44 52 55 53
Para IV and one-offs 113 48 21 65
Russia and CIS growth (YoY) % 22.4 24.0 19.2 17.5
Top 5 brands 23 13 13 13
Others 57 49 30 24
PSAI growth (YoY) % 13.6 9.4 4.3 11.6
EBITDA margins (%) 24.8 22.0 22.2 23.2
India 25.0 24.9 25.0 0.3
Russia 27.0 27.0 26.0 0.3
US (Base business) 25.0 25.0 25.0 0.2
Para-IV/FTFs 80.0 60.0 80.0 0.8
ROW 24.0 24.0 25.0 0.3
PSAI 13.3 12.3 12.3 0.1
R&D (% of sales) 6.1 6.6 6.8 7.0
USD/INR (Avg) 47.6 53.0 55.0 53.0
Capex (USD mn) 207 154 150 168
Net debt to equity ratio(x) 0.3 0.1 0.0 (0.1)

9


Peer comparison valuation
Market cap Diluted PE (X)( Core EPS) Core EV/EBITDA (X) ROAE (%)
Name (USD mn) FY14E FY15E FY14E FY15E FY14E FY15E
Dr.Reddys Laboratories 5,780 17.9 15.7 12.8 10.9 25.0 24.6
Cadila Healthcare 2,748 18.8 14.4 12.0 9.3 23.8 25.5
Cipla 5,857 19.3 16.4 12.7 10.8 17.6 18.3
Lupin 5,407 21.7 16.1 13.0 10.0 28.8 27.5
Sun Pharmaceuticals Industries 16,589 25.6 23.2 16.6 14.8 24.7 23.1
Median - 19.3 16.1 12.8 10.8 24.7 24.6
AVERAGE - 20.7 17.2 13.4 11.2 23.9 23.8
Source: Edelweiss research
Cash flow metrics
Operating cash flow 15,494 19,463 19,703 24,093
Investing cash flow (8,337) (6,500) (6,500) (7,000)
Financing cash flow 5,629 (8,637) (9,305) (10,158)
Net cash flow 12,786 4,327 3,897 6,934
Capex (9,858) (8,142) (8,262) (8,881)
Dividends paid (2,728) (3,855) (4,505) (5,358)

Profitability & efficiency ratios
ROAE (%) 28.1 25.9 25.0 24.6
ROACE (%) 30.4 29.8 33.1 36.3
Inventory day 149 143 144 148
Debtors days 81 81 77 78
Payable days 198 182 171 164
Cash conversion cycle (days) 32 42 51 62
Current ratio 2.5 2.7 2.9 3.1
Debt/EBITDA 1.6 1.3 0.9 0.6
Debt/Equity 0.6 0.4 0.3 0.2
Adjusted debt/equity 0.6 0.4 0.3 0.2

Operating ratios
Total asset turnover 1.2 1.2 1.3 1.3
Fixed asset turnover 3.1 3.3 3.6 3.7
Equity turnover 1.9 1.8 1.7 1.6

Valuation parameters
CEPS (INR) 94.7 107.7 123.3 145.5
Diluted PE (x) based on Core EPS 28.8 21.4 17.9 15.7
Price/BV (x) 5.7 4.7 3.9 3.2
EV/Sales (x) 3.5 2.8 2.4 2.1
Core EV/EBITDA (x) 18.2 15.49 12.8 10.9
Dividend yield (%) 0.8 1.2 1.4 1.6
Market Capitalisation 326,183 326,260 326,260 326,260

Balance sheet (INR mn)
As on 31st March FY12 FY13E FY14E FY15E
Equity capital 848 848 848 848
Reserves & surplus 56,596 68,712 83,460 101,001
Shareholders funds 57,444 69,560 84,308 101,849
Borrowings 32,210 27,210 22,210 17,210
Deferred tax (net) (833) (833) (833) (833)
Other term liabilities 1,059 1,168 1,268 1,368
Sources of funds 89,880 97,105 106,953 119,594
Net block 33,246 35,908 38,290 40,895
Intangible assets 13,529 11,887 10,124 8,244
Investments 785 785 785 785
Cash and equivalents 18,152 22,479 26,376 33,310
Inventories 19,352 22,214 25,510 28,508
Sundry debtors 25,339 26,022 29,883 33,396
Other current assets 7,109 7,109 7,109 7,109
Total current assets 69,952 77,823 88,878 102,324
Sundry creditors and others 25,659 27,325 29,151 30,680
Provisions 1,973 1,973 1,973 1,973
Total current liabilities & 27,632 29,298 31,124 32,653
Net current assets 42,320 48,525 57,754 69,670
Uses of funds 89,880 97,105 106,953 119,594
Book value per share (INR) 338.8 410.1 497.1 600.5

Free cash flow (INR mn)
Net profit 14,333 17,384 19,154 22,799
Depreciation 2,626 1,642 1,762 1,881
Others 3,628 2,316 4,118 4,395
Gross cash flow 20,587 21,342 25,034 29,075
Less: Changes in WC 5,093 1,879 5,331 4,982
Operating cash flow 15,494 19,463 19,703 24,093
Less: Capex 9,858 8,142 8,262 8,881
Free cash flow 5,636 11,321 11,441 15,212

10

Pharmaceuticals

Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded
*in last one year

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

No Data Available
*as per last available data

Holding Top10
Perc. Holding Perc. Holding
Life Insurance Corp. of India 7.45 ICICI Prudential Life Insurance Co. Ltd. 2.48
Abu Dhabi Investment Authority (Investment Management) 1.82 FIL Investment Management (Hong Kong) Ltd. 1.68
Eastspring Investments (Singapore) Ltd. 1.58 Franklin Templeton Asset Management (India) Pvt Ltd. 1.42
FIL Fund Management Pvt Ltd. 1.30 JF Asset Management Ltd. 1.28
Schroder Investment Management Ltd. 1.03 ICICI Prudential Asset Management Co. Ltd. 0.96
*as per last available data

Additional Data
Directors Data
G V Prasad Chairman and Chief Executive Officer Satish Reddy Managing Director & Vice Chairman
Dr. Omkar Goswami Independent and non whole time director Ravi Bhoothalingam Independent and non whole time director
Dr. Bruce LA Carter Independent and non whole time director Anupam Puri Independent and non whole time director
Ms.Kalpana Morparia Independent and non whole time director J.P. Moreau Independent and non whole time director
Sridar Iyengar Independent and non whole time director Dr. Ashok Ganguly Independent and non whole time director

Auditors - B S R & Co., Chartered Accountants, and KPMG India
*as per last annual report

11


Company Absolute
reco
Relative
reco
Relative
risk
Company Absolute
reco
Relative
reco
Relative
Risk
Apollo Hospitals Enterprise HOLD None None Aurobindo Pharma BUY SP H
Cadila Healthcare BUY SO L Cipla BUY SO L
Divi's Laboratories BUY 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 HOLD SO H Sun Pharmaceuticals Industries HOLD SO L
Torrent Pharmaceuticals BUY SO H

RATING & INTERPRETATION
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

Pharmaceuticals

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai 400 098.
Board: (91-22) 4009 4400, Email: research@edelcap.com
Vikas Khemani Head Institutional Equities vikas.khemani@edelweissfin.com +91 22 2286 4206
Nischal Maheshwari Co-Head Institutional Equities & Head Research nischal.maheshwari@edelweissfin.com +91 22 4063 5476
Nirav Sheth Head Sales nirav.sheth@edelweissfin.com +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

Distribution of Ratings / Market Cap
Edelweiss Research Coverage Universe

Rating Distribution* 120 49 17 186
* - stocks under review

Market Cap (INR) 118 56 12
Date Company Title Price (INR) Recos

Recent Research
11-Apr-13 Pharma Premiums to sustain;
Result Preview

03-Apr-13 Sun Pharma Drug shortages to firm up US
sales;
Company Update
864 Hold
01-Apr-13 Aurobindo
Pharma
Overcomes the last hurdle;
Company Update
152 Buy

> 50bn Between 10bn and 50 bn < 10bn
Buy Hold Reduce Total
Rating Interpretation

Buy appreciate more than 15% over a 12-month period
Hold appreciate up to 15% over a 12-month period
Reduce depreciate more than 5% over a 12-month period
Rating Expected to

13


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