26 March 2019

Update | Sector: Healthcare

Alkem Laboratories
BSE SENSEX S&P CNX
37,809 11,354 CMP: INR1,772 TP: INR2,170(+22%) Buy
FY19 an aberration, but outlook remains promising
New launches in the US, superior execution in India to aid earnings growth

 The price correction of the past six months provides a good buying opportunity in
Alkem Labs (ALKEM), in our view. With compliance in place and ANDA
Stock Info
filings/approvals proceeding at a healthy rate, we expect ALKEM to post revenue
Bloomberg ALKEM IN
CAGR of 16% over FY19-21E and improve profitability from US generics.
Equity Shares (m) 120
 We believe its domestic formulation (DF) segment is in a good position to deliver 14%
M.Cap.(INRb)/(USDb) 204.9 / 3
52-Week Range (INR) 2265 / 1693 CAGR over FY19-21E due to (a) higher number of MRs focusing on chronic therapies,
1, 6, 12 Rel. Per (%) -10/-19/-34 (b) adjustment of few products’ base business for the FDC ban, and (c) the ongoing
12M Avg Val (INR M) 126 momentum in trade generics.
Free float (%) 34.0  We reduce ALKEM’s P/E multiple from 24x to 22x (12M forward basis) to factor in US
generics’ headwinds and the gradual growth downtrend in the DF industry growth.
Financials Snapshot (INR b)
Accordingly, we arrive at PT of INR2,170.
Y/E Mar FY19E FY20E FY21E
 Alkem’s 9MFY19 performance was subdued (3% YoY decline in earnings) due to the
Net Sales 75.1 87.1 99.6
EBITDA 12.5 15.4 18.2
course correction and weak season in the DF business. However, we remain positive
PAT 8.7 11.0 13.1 on ALKEM due to its superior execution in domestic and US generics, thereby driving
EPS (INR) 72.4 91.8 109.4 23% earnings CAGR over FY19-21E. Re-iterate BUY.
Gr. (%) 22.9 26.8 19.2
BV/Sh (INR) 462.9 534.1 618.8 Revenue growth to improve operating leverage in US generics
RoE (%) 16.6 18.4 19.0 ALKEM has ramped up its US sales to 6x over FY13-18 on new launches, reasonable
RoCE (%) 18.7 20.5 21.3
market share gains in existing products, and partly on low base. For 9MFY19,
P/E (x) 24.5 19.3 16.2
P/BV (x) 3.8 3.3 2.9 ALKEM delivered strong 34% YoY growth to ~USD200m. We expect growth in
ALKEM’s US business to remain intact despite competition in one of its key
Shareholding pattern (%) products; newer approvals should offset the decline in base business and aid
As On Dec-18 Sep-18 Dec-17
growth in the US generics segment. Accordingly, we expect ALKEM to garner US
Promoter 66.0 65.9 65.9
DII 5.3 3.8 2.6
sales of USD390m in FY21E.
FII 2.5 2.6 4.0
Others 26.3 27.6 27.6 Well-positioned to outperform industry in the DF segment
FII Includes depository receipts ALKEM had strong 17% revenue CAGR in the DF segment over FY13-18 to INR45b.
The YoY growth over 9MFY19 was under pressure (4% YoY) due to (a) lowering of
Stock Performance (1-year)
receivable days for trade generic business, (b) the FDC ban, and (c) adverse impact
of lower seasonality on anti-infective therapy. We expect the base effect to
smoothen out and ALKEM to be back on track with aggressive growth in its chronic
portfolio and on major therapies in the acute category, thereby aiding 14% revenue
CAGR over FY19-21E.

Valuation and view

We lower ALKEM’s P/E multiple to 22x (from 24x earlier) to factor in the increased
competition in the US generics space and gradual downtrend in the domestic
formulation industry. We arrive at PT of INR2,170 (from INR2,368 earlier). Based on
23% earnings CAGR expected over FY19-21E and led by healthy performance in the
DF segment, enhanced margins in the US generics business, and attractive
valuation, we maintain a BUY rating on the stock.
Tushar Manudhane – Research Analyst (Tushar.Manudhane@MotilalOswal.com); +91 022 6129 1536
Rajat Srivastava – Research Analyst (Rajat.Srivastava@motilaloswal.com); +91 22 6129 1557
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Alkem Laboratories

Robust US momentum led by new launches

In FY18, ALKEM’s US business sales stood at INR13.6b (USD200m), thus witnessing

CAGR of 44% over FY13-18. For 9MFY19, US sales stood at USD200m and saw 34%
YoY growth. Such high growth has come on the back of new product launches and
market share gains in existing products.

Exhibit 1: The US business saw strong CAGR of 44% during FY13-18

US sales (USD m)

34 70 106 150 180 210 290 348 390

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Source: MOFSL, Company

Interesting recent approvals to drive US sales over medium term

Some recent approvals present good business opportunity for ALKEM. For instance:
 ALKEM got approval for Valsartan tablets in Mar’19 amid ongoing recalls from
existing manufacturers. The USFDA prioritized ALKEM’s filing to cover the supply
shortage due to these recalls. Valsartan has a market size of USD160m with 6-8
sellers (out of 14 approvals) at the moment. Thus, ALKEM should benefit from
this unfolded opportunity, and can garner sales of ~USD15-20m on annualized
basis.
 The company has also recently launched g-Suprax and g-Ampyra in the US;
approval for these products came in Jul’18 and Oct’18.
 Suprax has a market size of USD18m, with currently no other generic player.
Ampyra has five other generic players with a market size of ~USD540m. We
expect ALKEM to garner ~USD15-20m sales from both Suprax and Ampyra.
 Further, ALKEM received an approval for g-Colcrys in Feb’19, which has a
market size of ~USD300m, with only two other generic players. ALKEM had
para IV filing for this product. The litigation was settled in July’18; with the
settlement terms and subsequent launches unknown

Healthy ANDA pipeline to cater to future growth

At end-9MFY19, ALKEM filed around ~120 ANDAs (incl. 1 NDA), of which 60 were
approved (eight tentative and one NDA). Thus, ALKEM has a strong pipeline of 60
ANDAs pending for approval.

26 March 2019 2
 Alkem Laboratories

Exhibit 2: Strong pace of filings and approval rate to ensure high growth in the US

Total ANDA filed (Cumulative) Total approved (Cumulative)

120
108
91
77
63 60
49 50
39 39
31 31
13 15 19
11

FY12 FY13 FY14 FY15 FY16 FY17 FY18 9MFY19

Source: MOFSL, Company

Minimal regulatory risk over the medium term

The USFDA conducted inspections at ALKEM’s formulation manufacturing facilities
at Daman and St. Louis in the US. On completion of the inspection, Zero 483’s were
issued to the Daman facility, while the St. Louis facility received form 483 with eight
observations.

Exhibit 3: Consistent compliance history

Facility Scope Inspection Date Update
St. Louis (The US) Formulations Feb-19 Received Form 483 with eight observations
Daman (India) Formulations Jan-19 Successfully closed the inspection with no Form 483
Baddi (India) Formulations Aug-18 Successfully closed the inspection with no Form 483
California (The US) API Aug-18 Successfully closed the inspection with no Form 483
Ankleshwar (India) API Dec-16 EIR received in March 2017
Mandwa (India) API Sep-15 EIR received in March 2016
Source: MOFSL, Company

Earlier in FY18, the company also successfully closed its USFDA inspections at Baddi
and Daman units, which together account for more than 90% of the total ANDA
filings by the company.

With a robust ANDA pipeline, fast pace of filings, increased market share in existing
products and a good compliance history, we expect ALKEM to deliver revenue CAGR
of 16% for FY19-21E to USD390m in the US business.

26 March 2019 3
 Alkem Laboratories

Market share trend of ALKEM’s top-selling drugs

Exhibit 4: ALKEM has 14% market share in Mycophenolate… Exhibit 5: …as compared to 4% last year
Teva Usa
Sandoz Alkem MS
6%
West-War 7%
26%
Ascend 14 14
Labs 10
14%
6
4 4 4 4
Genentech
5%

Nov-17

Nov-18
May-17

May-18
Aug-17

Aug-18
Feb-18

Feb-19
Accord
Strides
34%
8%

Source: MOFSL, Company Source: MOFSL, Company

Exhibit 6: ALKEM has 10% market share in Gabapentin… Exhibit 7: …which has been stable in the last one year
Ascend
Alkem MS
Northstar 10%
7% 10 10
9 9 10
Amneal 7 7 7
Glenmark 9%
16%
Cipla
8%
Aurobindo
18%
Nov-17

Nov-18
May-17

May-18
Aug-17

Aug-18
Feb-18

Feb-19
Actavis Aci
6% 11%

Source: MOFSL, Company Source: MOFSL, Company

Exhibit 8: ALKEM now has 43% share in Dronabinol… Exhibit 9: ...which was launched in Nov‘17
Insys Alkem MS
Actavis 3%
2% 49
Lannett 42 43
26%
31
18
Ascend
43% 0 0 0
Akorn
20%
Nov-17

Nov-18
May-17

May-18
Aug-17

Aug-18
Feb-18

Feb-19

Par Pharma
4%
Source: MOFSL, Company Source: MOFSL, Company

26 March 2019 4
 Alkem Laboratories

Exhibit 11: …which has improved significantly over the last

Exhibit 10: ALKEM has 41% market share in Ibuprofen… two years

Dr. Reddy Alkem MS

14% 42 41

25 28
Ascend 22
Legacy 17 16 17
7% 41%

Nov-17

Nov-18
May-17

May-18
Aug-17

Aug-18
Feb-18

Feb-19
Amneal
25%

Source: MOFSL, Company Source: MOFSL, Company

Exhibit 12: ALKEM has 43% market share in Benzonatate… Exhibit 13: …which is seeing a declining trend

Strides Bionpharma Alkem MS

25% 17% 56
50 51 51 49 47
43 43

Amneal
10%

Ascend
Zydus
Nov-17

Nov-18
May-17

May-18
Aug-17

Aug-18
Feb-18

Feb-19
43%
4%

Source: MOFSL, Company Source: MOFSL, Company

Exhibit 14: ALKEM has 16% market sshare in Triamcinolone

Acetonide… Exhibit 15: …which is witnessing a marginal uptick

Alkem MS
Taro
10%
16
13 13 14 14 13
12 11
Promius
9% Perrigo
29%

Fougera
10%
Nov-17

Nov-18
May-17

May-18
Aug-17

Aug-18
Feb-18

Feb-19

Rising Ascend
7% 16%
Source: MOFSL, Company Source: MOFSL, Company

26 March 2019 5
 Alkem Laboratories

Increased offerings in select markets drives growth in other international

markets
The company also has onshore presence in some select key international markets
like Australia, Chile, the UK, Philippines, Kazakhstan, the Middle East and Africa.
Revenues from these markets stood at INR4.6b in FY18 and saw CAGR of 13% during
FY14-18. This growth was driven by new product launches, including in-licensed
products and improved market share in existing products. Particularly, in FY18, the
growth was led by shortage of few products. At end-FY18, the company had filed
for more than 1,400 dossiers across markets with more than 800 approvals. For
9MFY19, sales growth was subdued at 5% (INR3.6b v/s INR3.5b in 9MFY18) on
account of high base in previous year.

Exhibit 16: Other international markets saw 12% CAGR for FY13-18 and 5% YoY in 9MFY19

82.8 Other international markets sales (INRb) Growth YoY (%)

30.9 28.9
12.7 15.8 13.9
3.4 8.0
-9.5

2.6 3.4 3.1 3.5 3.6 4.7 5.0 5.8 6.7

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Source: MOFSL, Company

ALKEM is confident about its long-term growth in these markets on new product
launches and customers and market share gains. As a strategy, the company now
wants to focus on select regions only and create strong local presence in these
markets, in addition to offering differentiated products. ALKEM is also looking out to
expand by means of acquisitions and partnership agreements for product in-
licensing and out-licensing.

Thus, we expect ALKEM to deliver 14% CAGR in sales over FY19-21E in other
international markets to reach sales of INR6.6b

26 March 2019 6
 Alkem Laboratories

Domestic Formulation on a strong footing

ALKEM’s Domestic Formulation (DF) sales for FY18 stood at INR44.9b and saw CAGR
of 17% for the period FY13-18. This growth was largely driven by chronic therapies
like Cardiac, Diabetes and Neuro/CNS. However, for 9MFY19, DF sales came in at
INR36.5b, growing 4% YoY.

Exhibit 17: Growth expected to pick up

India business (INR b) YoY growth (%)
29.1
19.7
16.8 15.3 15.6 15.0
12.0 14.0
6.5

20.5 23.6 28.3 36.5 42.2 44.9 50.3 57.3 65.9

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Source: MOFSL, Company

For 9MFY19, DF business grew only 4% YoY to INR36.5b on account of:

 Lower trade generic business with respect to company giving up on sales where
the receivables days were too high.
 FDC ban in Sep’18 impacted 2-3% of Alkem’s DF portfolio.
 Low seasonality impact in Anti-Infective segment (39% of sales) further
contributed to the subdued growth.

Outlook remains promising in domestic formulation segment

The chronic therapies, which include Anti-Diabetic, Cardiac, and Neuro/CNS now
form 14% of the overall domestic sales compared to 10% in FY15. This category saw
CAGR of 14% for moving average total (MAT) Feb 15-19, thus driving the overall
revenue growth of the company. Overall, secondary sales of the company witnessed
CAGR of 10.5% for MAT Feb 15-19.

The Anti-Diabetic portfolio saw the strongest CAGR of 30% for MAT Feb 15-19.
Growth in this therapy was driven by top brand Glucoryl – MV (30% of anti-diabetic
sales), which delivered CAGR of 30% during the same period. Olymprix M and
Olymprix launched in FY17 are now amongst the top-5 drugs under this therapy.

The Cardiac therapy too witnessed higher than industry growth with CAGR of 23%
for MAT Feb 15-19. Top-5 brands under this category – Olkem, Olkem trio, Jupiros,
Tsart Trio & Mirabeta Plus — together form 40% of the total cardiac sales and have
seen CAGR of >20%, thus driving overall revenue growth for the therapy. In
particular, Olkem Trio and Tsart Trio have more than tripled their sales over MAT
Feb 16-19.

26 March 2019 7
 Alkem Laboratories

The Neuro/CNS portfolio has seen CAGR of 18% for MAT Feb 15-19, driven by top
brands – Pentanerv NT, Levenue, Ceham P, and Donep M, which delivered CAGR of
37%, 41%, 30% and 35%, respectively, during the same period. Neurokem NT
launched in FY16 is now one of the top drugs under this therapy, growing 30% YoY
during MAT Feb 19. The top-5 brands under this category contributed ~40% to sales
and saw CAGR of 21% during MAT Feb 15-19. Valkem OD, Pentanerv and Neurokem
are some other smaller brands under this therapy, which have seen >30% CAGR for
FY15-18. This high growth was somewhat offset by ALKEM’s drug that was ranked-2
under this therapy – Donep, which saw CAGR of only 5% during the same period.

Exhibit 18: Superior show in major... Exhibit 19: …chronic therapies drove... Exhibit 20: ...overall revenue growth

Anti-Diabetic Cardiac Neuro

33.7 29.2
14.5
10.7
15.1 12.5

Alkem Industry Alkem Industry Alkem Industry

9MFY19 YoY gr. 9MFY19 YoY gr. 9MFY19 YoY gr. 9MFY19 YoY gr. 9MFY19 YoY gr. 9MFY19 YoY gr.

Source: MOFSL, Company Source: MOFSL, Company Source: MOFSL, Company

Base business remains strong with leadership position in key therapeutic

areas
Therapy wise, Anti-infectives (39% of sales) continued to be the largest contributor
to overall sales, followed by Gastrointestinal (20%) and Vitamins (12%). The acute
therapies consisting Anti-infectives, Gastrointestinal, Vitamins, Pain/Analgesics, etc.
form the base business with ~85% contribution to overall sales. Secondary sales
under this category witnessed CAGR of 11% for MAT Feb 15-19 compared to
covered market growth of 9-10% over a similar period. ALKEM continues to remain
industry leader for Anti-Infectives in India.

Exhibit 21: Acute therapies remain major revenue contributors for Alkem

Anti-Infectives

Gastro Intestinal
8%
4%
4% Vitamins / Minerals / Nutrients
6% 39% Pain / Analgesics
7%
Neuro / Cns
12% Anti Diabetic

20% Cardiac

Others

Source: MOFSL, Company

26 March 2019 8
 Alkem Laboratories

Growth in Anti-Infectives impacted due to slow industry growth

In the base business, Anti-Infectives are the largest contributor to domestic sales
(39% of sales). The segment saw subdued CAGR of 7% for MAT Feb 15-19, dragging
overall revenue growth of the company. Overall, the Anti-Infectives industry
witnessed a poor 6.5% CAGR due to seasonality during the same period, despite the
presence of the top-2 brands under this category — Clavam (20% of Anti-Infectives
sales) and Xone (8% of Anti-Infectives sales) – that saw CAGR of 12% each during the
same period. Merosure too saw a surge in sales during this period. This implies that
some of the smaller brands saw slower growth/decline. In particular, Taxim,
Taximax, Alcipro and Zaxter saw decline in sales during MAT Feb 15-19.

Gastrointestinal growing at a much faster pace than industry

Gastrointestinal therapy saw CAGR of 15% during MAT Feb 15-19 — much higher
than industry growth of 10%, driven by ALKEM’s top selling drugs under the
gastrointestinal therapy. For instance, PAN D (31% of gastro sales) saw CAGR of 17%
during MAT Feb 15-19. Other top brands, such as Pan, Ondem, Satrogyl O have also
grown at higher than industry growth rate. Novogermina and Emty, launched in
FY17, are now ALKEM’s top selling drugs under this therapy.

Vitamins too beat industry growth on high growth in top brands

Vitamin sales have seen CAGR of 11% during MAT Feb 15-19, which is also better
than the Industry growth of ~8.5% during the same period. Growth in this therapy
was led by the company’s flagship brand under this therapy – A to Z NS, which saw
CAGR of 16% during MAT Feb 15-19. Other top brands under this therapy, which
saw CAGR >20% were A to Z gold and Gemcal Plus. Uprise D3, another top drug
under this therapy saw 16% CAGR during the same period.

Exhibit 22: Decline in Anti-Infectives… Exhibit 23: …offset by superior show in… Exhibit 24: ... Gastro & Vitamins

Anti-Infectives Gastrointestinal Vitamins

13.9 17.8 13.8

7.8
9
13

Alkem Industry Alkem Industry Alkem Industry

9MFY19 YoY gr. 9MFY19 YoY gr. 9MFY19 YoY gr. 9MFY19 YoY gr. 9MFY19 YoY gr. 9MFY19 YoY gr.

Source: MOFSL, Company Source: MOFSL, Company Source: MOFSL, Company

26 March 2019 9
 Alkem Laboratories

MR productivity on the rise for chronic therapy

At end-9MFY19, ALKEM had ~9,000 MR’s — majority who were dedicated to the
acute therapy. With increased focus on chronic therapies, the company is now
channeling additional MRs towards this category. MR productivity has improved and
is rising for the chronic category. Though MR productivity in the acute therapy
seems to have declined, it is still more than the industry average.

Exhibit 25: Declining MR productivity in Acute therapy Exhibit 26: MR productivity improving in Chronic therapy

MR productivity - Acute (INRlac/MR/month) MR Productivity - Chronic (INRlac/MR/month)

6.2 2.7 2.8

5.7 5.7 2.6

4.5

1.9

FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18

Source: MOFSL, Company Source: MOFSL, Company

MR productivity for acute therapy declined in FY18, but still remains one the highest
in the Industry. In chronic therapy, MR productivity is on a gradual rise.

We expect sales to pick up from FY19 onwards, at 14% CAGR to INR66b in FY21, due
to increased focus on the chronic therapies, new product launches and market share
gains in key therapeutic areas.

26 March 2019 10
 Alkem Laboratories

Valuation and view

We lower our P/E multiple to 22x (from 24x earlier) to factor in increased
competition in the US generics space and gradual downtrend in the DF formulation
industry, to arrive at PT of INR2,170 (from INR2,368 earlier). Based on 23% earnings
CAGR expected over FY19-21E led by healthy performance in the DF segment,
enhanced margins in the US generics business and attractive valuation, we maintain
Buy on the stock.

Key catalysts to drive stock performance over the medium term

 Increased contribution of chronic therapies to overall sales should lead to
superior product mix, thus driving profitability
 Strong pace of ANDA filings and approvals with subsequent launches in the US
 Improved free cash generation

Key risks to our investment thesis

 Delay in approvals/launches may impact the US business
 Any adverse USFDA action upon inspection of its US dedicated facilities
 More number of drugs coming under DPCO coverage, thus impacting domestic
business (price erosion)
 Slowdown in Anti-Infective therapy may impact growth of ALKEM in domestic
formulation business

Exhibit 27: P/E band chart Exhibit 28: P/B band chart
P/E (x) Avg (x) Max (x) P/B (x) Avg (x) Max (x)
42 Min (x) +1SD -1SD 6 Min (x) +1SD -1SD
37.5 5.4
30.5 4.7
32 5
25.4
4.1
22 20.2 4
3.6
19.4
16.2 3.2
3.3
12 3
Jul-16

Jul-16
Jun-17

Jun-17
Nov-16

Nov-18

Nov-16

Nov-18
Apr-16
Dec-15

Apr-18

Apr-16

Apr-18
Feb-17

Sep-17

Jan-18

Aug-18

Dec-15
Feb-19

Feb-17

Sep-17

Jan-18

Aug-18

Feb-19

Source: MOFSL, Company Source: MOFSL, Company

26 March 2019 11
 Alkem Laboratories

Story in charts
Exhibit 29: Base business to grow at 14% CAGR over FY19-21E Exhibit 30: The US business contribution to increase

India business (INR b) YoY growth (%) US sales (USD m)

29.1
19.7
15.3 15.6 14.0 15.0
12.0
6.5

23.6 28.3 36.5 42.2 44.9 50.3 57.3 65.9 70 106 150 180 210 290 348 390

FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: MOFSL, Company Source: MOFSL, Company

Exhibit 31: Better business mix to drive profitability Exhibit 32: High R&D spend to develop pipeline for the US

EBITDA (INR b) EBITDA margin (%) R&D expense (INR b) As % of sales

17.7 18.3 6.2
16.9 17.1 16.4 16.7 5.7 5.9 6
5.5
14.5 14.4 5.0
13.1 4.5 4.3

3.6 4.1 5.4 8.5 10.0 10.6 12.5 15.4 18.2 1.6 1.7 2.1 3.2 3.6 4.4 5.2 6.2

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Source: MOFSL, Company Source: MOFSL, Company

Exhibit 33: Earnings to grow at 23% CAGR over FY19-21E Exhibit 34: ROE and ROCE to improve with better earnings

EPS (INR/sh) RoE (%) RoCE (%)

25.2
21.9 21.3
20.5
19.2 18.4
18.3 18.7
20.1 15.1 18.4 19.0
18.9
16.6
32.1 36.4 38.7 70.4 74.6 58.9 72.4 91.8 109.4 14.3 14.2 14.6 13.0

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Source: MOFSL, Company Source: MOFSL, Company

26 March 2019 12
 Alkem Laboratories

Financials and Valuations

Consolidated - Income Statement (INR m)
Y/E March FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Total Income from Operations 31,260 37,887 50,479 58,525 64,312 75,069 87,069 99,582
Change (%) 25.3 21.2 33.2 15.9 9.9 16.7 16.0 14.4
EBITDA 4,100 5,445 8,533 9,990 10,566 12,537 15,411 18,224
Margin (%) 13.1 14.4 16.9 17.1 16.4 16.7 17.7 18.3
Depreciation 523 703 933 1,012 1,430 1,839 2,081 2,342
EBIT 3,578 4,742 7,599 8,978 9,136 10,698 13,331 15,882
Int. and Finance Charges 931 811 712 452 553 624 535 491
Other Income 1,653 1,810 2,397 1,120 960 715 703 691
PBT bef. EO Exp. 4,300 5,741 9,284 9,646 9,542 10,788 13,499 16,082
EO Items 0 -574 0 0 0 0 0 0
PBT after EO Exp. 4,300 5,167 9,284 9,646 9,542 10,788 13,499 16,082
Current Tax 25 85 1,762 600 2,876 2,050 2,430 2,895
Deferred Tax -79 457 0 0 0 0 0 0
Tax Rate (%) -1.2 10.5 19.0 6.2 30.1 19.0 18.0 18.0
Less: Mionrity Interest 0 0 114 126 75 85 96 108
Reported PAT 4,353 4,625 7,409 8,920 6,309 8,654 10,973 13,079
Adjusted PAT 4,353 5,139 8,419 8,920 7,040 8,654 10,973 13,079
Change (%) 13.4 18.1 63.8 6.0 -21.1 22.9 26.8 19.2
Margin (%) 13.9 13.6 16.7 15.2 10.9 11.5 12.6 13.1

Consolidated - Balance Sheet (INR m)

Y/E March FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Equity Share Capital 120 239 239 239 239 239 239 239
Total Reserves 25,730 29,752 36,681 44,437 48,399 55,104 63,607 73,741
Net Worth 25,850 29,991 36,920 44,676 48,638 55,343 63,846 73,980
Minority Interest 0 857 950 1,152 1,216 1,216 1,216 1,216
Deferred Tax Liabilities 781 1,256 10 5 17 17 17 17
Total Loans 11,284 13,059 5,876 6,539 8,920 8,920 8,920 8,920
Capital Employed 37,915 45,162 43,756 52,373 58,790 65,495 73,998 84,132

Net Fixed Assets 9,797 11,429 10,310 13,945 18,733 22,442 25,221 27,451
Goodwill on Consolidation 1,903 3,421 4,185 4,026 4,103 4,103 4,103 4,103
Capital WIP 0 0 1,724 2,993 3,810 3,262 2,902 2,830
Total Investments 5,880 4,808 5,086 5,530 4,443 4,443 4,443 4,443

Curr. Assets, Loans&Adv. 25,414 33,008 28,878 32,225 39,012 46,374 56,094 67,914
Inventory 6,203 7,842 9,094 12,060 14,422 16,692 19,632 22,290
Account Receivables 3,669 5,271 5,675 7,136 10,805 16,453 20,276 23,190
Cash and Bank Balance 2,063 7,908 7,809 3,993 5,768 9,620 12,000 17,646
Loans and Advances 13,478 11,987 6,300 9,036 8,017 3,609 4,186 4,787
Curr. Liability & Prov. 5,251 7,796 11,589 13,308 17,866 21,685 25,322 29,165
Account Payables 3,057 4,619 5,805 7,414 9,607 10,279 11,779 13,374
Other Current Liabilities 1,267 1,667 3,908 3,628 5,517 6,440 7,470 8,543
Provisions 926 1,510 1,877 2,266 2,742 4,966 6,073 7,248
Net Current Assets 20,163 25,212 17,288 18,917 21,145 24,689 30,773 38,749
Deferred Tax assets 172 292 5,162 6,963 6,556 6,556 6,556 6,556
Appl. of Funds 37,915 45,162 43,756 52,373 58,790 65,495 73,998 84,132

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Financials and Valuations

Ratios
Y/E March FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Basic (INR)
EPS 36.4 38.7 70.4 74.6 58.9 72.4 91.8 109.4
Cash EPS 40.8 48.9 78.2 83.1 70.9 87.8 109.2 129.0
BV/Share 216 251 309 374 407 463 534 619
DPS 2.0 4.0 6.2 12.7 10.0 13.8 17.4 20.8
Payout (%) 6.4 12.3 11.9 20.1 22.5 22.5 22.5 22.5
Valuation (x)
P/E 48.6 45.8 25.1 23.7 30.1 24.5 19.3 16.2
Cash P/E 43.4 36.2 22.6 21.3 25.0 20.2 16.2 13.7
P/BV 8.2 7.1 5.7 4.7 4.4 3.8 3.3 2.9
EV/Sales 7.1 5.7 4.2 3.7 3.3 2.8 2.4 2.0
EV/EBITDA 53.9 39.8 24.6 21.4 20.3 16.8 13.5 11.1
Dividend Yield (%) 0.1 0.2 0.4 0.7 0.6 0.8 1.0 1.2
FCF per share 15.9 16.1 39.5 -22.1 -1.3 48.5 40.0 71.1
Return Ratios (%)
RoE 18.3 18.4 25.2 21.9 15.1 16.6 18.4 19.0
RoCE 14.2 14.6 18.9 20.1 13.0 18.7 20.5 21.3
RoIC 13.7 13.6 20.0 24.4 15.1 18.6 21.3 22.9
Working Capital Ratios
Asset Turnover (x) 0.8 0.8 1.2 1.1 1.1 1.1 1.2 1.2
Inventory (Days) 72 76 66 75 82 81 82 82
Debtor (Days) 41 49 40 45 61 78 83 83
Creditor (Days) 36 45 42 46 55 50 49 49
Leverage Ratio (x)
Debt/Equity 0.4 0.4 0.2 0.1 0.2 0.2 0.1 0.1

Consolidated - Cash Flow Statement

Y/E March FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
OP/(Loss) before Tax 4,300 5,142 9,284 9,646 9,260 10,788 13,499 16,082
Depreciation 523 703 933 1,012 1,430 1,839 2,081 2,342
Interest & Finance Charges -555 -1,196 -599 -592 -406 -90 -168 -200
Direct Taxes Paid -1,111 -1,056 -1,982 -2,640 -2,876 -2,050 -2,430 -2,895
(Inc)/Dec in WC -364 -963 101 -3,639 -453 308 -3,704 -2,329
CF from Operations 2,793 2,630 7,737 3,788 6,955 10,795 9,278 12,999
Others 107 652 -478 -90 0 0 0 0
CF from Operating incl EO 2,900 3,281 7,258 3,698 6,955 10,795 9,278 12,999
(Inc)/Dec in FA -1,004 -1,354 -2,535 -6,344 -7,113 -5,000 -4,500 -4,500
Free Cash Flow 1,897 1,928 4,724 -2,646 -158 5,795 4,778 8,499
(Pur)/Sale of Investments 25 1,028 325 0 1,087 0 0 0
Others -3,814 3,406 4,233 3,484 514 715 703 691
CF from Investments -4,792 3,081 2,023 -2,859 -5,512 -4,285 -3,797 -3,809
Issue of Shares 0 0 0 0 0 0 0 0
Inc/(Dec) in Debt -4,732 871 -6,714 1,134 2,381 0 0 0
Interest Paid -914 -793 -713 -636 -553 -624 -535 -491
Dividend Paid -319 -567 -1,845 -863 -1,421 -1,948 -2,471 -2,945
Others -35 -29 0 0 -75 -85 -96 -108
CF from Fin. Activity -6,000 -518 -9,273 -366 332 -2,657 -3,101 -3,543
Inc/Dec of Cash -7,892 5,845 8 473 1,775 3,853 2,380 5,647
Opening Balance 9,955 2,063 1,262 1,193 1,666 3,441 7,294 9,673
Closing Balance 2,063 7,908 7,809 3,993 5,768 9,620 12,000 17,646

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Explanation of Investment Rating

Investment Rating Expected return (over 12-month)
BUY >=15%
SELL < - 10%
NEUTRAL < - 10 % to 15%
UNDER REVIEW Rating may undergo a change
NOT RATED We have forward looking estimates for the stock but we refrain from assigning recommendation
*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within
following 30 days take appropriate measures to make the recommendation consistent with the investment rating legend.
Disclosures
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
Motilal Oswal Securities Ltd. (MOSL)* is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the
Regulations, is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial
products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed public company, the details in respect of which are available on
www.motilaloswal.com. MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of India Ltd.
(NSE) and Bombay Stock Exchange Limited (BSE), Multi Commodity Exchange of India (MCX) & National Commodity & Derivatives Exchange Ltd. (NCDEX) for its stock broking
activities & is Depository participant with Central Depository Services Limited (CDSL) & National Securities Depository Limited (NSDL) and is member of Association of Mutual
Funds of India (AMFI) for distribution of financial products. Details of associate entities of Motilal Oswal Securities Limited are available on the website at
http://onlinereports.motilaloswal.com/Dormant/documents/List%20of%20Associate%20companies.pdf
MOSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and
buy or sell the securities or derivatives thereof of companies mentioned herein. (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 company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have
any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the
specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOSL even
though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report
MOSL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report should
be aware that MOSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant
banking, investment banking or brokerage service transactions. Details of pending Enquiry Proceedings of Motilal Oswal Securities Limited are available on the website at
https://galaxy.motilaloswal.com/ResearchAnalyst/PublishViewLitigation.aspx
A graph of daily closing prices of securities is available at www.nseindia.com, www.bseindia.com. Research Analyst views on Subject Company may vary based on Fundamental
research and Technical Research. Proprietary trading desk of MOSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from
MOSL research activity and therefore it can have an independent view with regards to Subject Company for which Research Team have expressed their views.
Regional Disclosures (outside India)
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability
or use would be contrary to law, regulation or which would subject MOSL & its group companies to registration or licensing requirements within such jurisdictions.
For Hong Kong:
This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong
Kong Securities and Futures Commission (SFC) pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst
Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of
research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity
to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these
securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not
located in Hong Kong & are not conducting Research Analysis in Hong Kong.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state
laws in the United States. In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together
with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment
services provided by MOSL , including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to
"Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This
document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only
available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the
U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct
business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International
Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S.
registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public
appearances and trading securities held by a research analyst account.
For Singapore
In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets
services license and an exempt financial adviser in Singapore.As per the approved agreement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and
Paragraph 11 of First Schedule of Financial Advisors Act (CAP 110) provided to MOCMSPL by Monetary Authority of Singapore. Persons in Singapore should contact MOCMSPL
in respect of any matter arising from, or in connection with this report/publication/communication. This report is distributed solely to persons who qualify as “Institutional Investors”,
of which some of whom may consist of "accredited" institutional investors as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (“the
SFA”). Accordingly, if a Singapore person is not or ceases to be such an institutional investor, such Singapore Person must immediately discontinue any use of this Report and
inform MOCMSPL.
Specific Disclosures
1 MOSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.
2 MOSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company
3 MOSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months
4 MOSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report
5 Research Analyst has not served as director/officer/employee in the subject company
6 MOSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
7 MOSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months
8 MOSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months
9 MOSL has not received any compensation or other benefits from third party in connection with the research report
10 MOSL has not engaged in market making activity for the subject company
****************************************************************
****************************************************************

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The associates of MOSL may have:

- financial interest in the subject company
- actual/beneficial ownership of 1% or more securities in the subject company
- received compensation/other benefits from the subject company in the past 12 months
- other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever
on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of
MOSL even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.
- acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
- 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
company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies)
- received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.

The associates of MOSL has not received any compensation or other benefits from third party in connection with the research report
Above disclosures include beneficial holdings lying in demat account of MOSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not
consider demat accounts which are opened in name of MOSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOSL also earns DP income from
clients which are not considered in above disclosures.
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the
research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.
Terms & Conditions:
This report has been prepared by MOSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and
may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent
of MOSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature.
The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty,
representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The
report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as
customers by virtue of their receiving this report.
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or
distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for
informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing
in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances.
The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this
document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this
document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views
expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade
securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of
the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and
should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make
modifications and alternations to this statement as may be required from time to time without any prior approval. MOSL, its associates, their directors and the employees may from
time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to
perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a
separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of
information that is already available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or
may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on,
directly or indirectly, 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 MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all
jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither
the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue
or lost profits that may arise from or in connection with the use of the information. The person accessing this information specifically agrees to exempt MOSL or any of its affiliates
or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or employees responsible for any such misuse
and further agrees to hold MOSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing
this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980
4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080
1000. Compliance Officer: Neeraj Agarwal, Email Id: na@motilaloswal.com, Contact No.:022-38281085.
Registration details: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412.
AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual
Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd.
is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. *Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate
products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National
Company Law Tribunal, Mumbai Bench. The existing registration no(s) of MOSL would be used until receipt of new MOFSL registration numbers.

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