Techno Funda NoteJan 21, 2016 Claris Lifesciences Ltd (CLL) RETAIL RESEARCH Scrip Code Industry CMP Recommendation Sequential Targets Stop Loss* CLALIFEQNR Pharmaceutical Rs.187 Buy at CMP and add on dips in band of Rs. 159-171 Rs. 220 & Rs. 244 Rs. 144 Time Horizon 1-2 quarters *on daily closing basis Claris Lifesciences Limited (CLL) is a Pharma multi-business enterprise and the holding company of Claris Injectables (CIL), a wholly-owned subsidiary engaged in Specialty Injectables business. It also holds 20% in Claris Otsuka Pvt. Ltd, a Joint Venture with Japanese Otsuka Pharmaceutical Factory, Inc. & Mitsui & Co. Ltd. for Infusion business in India & Emerging Markets. Price Chart Triggers Stock Details BSE Code 533288 NSE Code Not Traded Bloomberg Price (Rs) as on 20 Jan, 2016 CLAR:IN 187.0 Equity Capital (Rs Cr) 54.6 Face Value (Rs) 10 Eq. Shares O/s (Cr) 5.46 Market Cap (Rs. Cr.) 1037.4 Book Value (Rs) 241.30 Avg. Volume (52 Week) 195617 52 wk H/L (Rs) 358.0/171.0 Shareholding Pattern Indian Promoters 60.99 Institutions 13.04 Non Institutions 25.97 Zececa Mehta – Fundamental Research Analyst
[email protected] RETAIL RESEARCH Risks/Concerns Regulatory risks Therapy Concentration Corporate governance issues in the past –IT raids Pledged shares by promoters Conclusion and Recommendation Claris is into generic injectables space which are difficult to manufacture and thus there is a real shortage of generic injectables in the regulated markets. The company’s blockbuster drug propofol is going off patent and it will be one of the only manufacturers of propofol in injectables. Claris has decided to concentrate on the regulated markets especially the US and Europe. We feel investors could buy the stock at CMP and add on dips in the band of Rs. 159-171 (~6.5-7x FY17E Adj. EPS) for sequential targets of Rs. 220-244 (~9-10.0x FY17E Adj. EPS) with stop loss of Rs. 144 on daily closing basis, in 1-2 quarters. Financial Summary (Consolidated) (As on Sept 30, 2015) Total 20% holding in JV with Otsuka and Mitsui – can be unlocked at a good price over the medium term CIL - Specialty Injectables business – Good revenue and margins earner Propofol-current flagship product of CIL - robust growth ahead on back of USA launch CIL stake/business could be sold off at a hefty price – resulting in value unlocking. 100 Particulars (Rs in Cr) CY11 CY12 CY13 Total Operating Income Operating Profit OPM (%) Other Income Adjusted Profit After Tax APATM (%) Reported Profit After Tax PATM (%) Adjusted EPS (Rs.) Reported EPS (Rs.) 740.5 245.6 33.2 16.0 126.3 17.1 126.3 17.1 19.8 19.8 767.4 264.8 34.5 10.3 103.9 13.5 103.9 13.5 16.3 16.3 667.8 166.5 24.9 43.4 70.4 10.5 84.4 12.6 11.0 13.2 FY15 (15 months) 799.8 155.5 19.4 86.3 156.7 19.6 149.5 18.7 23.0 21.9 FY16E FY17E 766.9 186.7 24.3 49.3 118.4 15.4 70.3 9.2 21.7 12.9 820.5 211.0 25.7 59.2 133.0 16.2 99.0 12.1 24.4 18.1 (Source: Company, HDFCSec; E-Estimates) Page | 1 Company Profile Claris Lifesciences Limited (CLL) is a Pharma multi-business enterprise and the holding company of Claris Injectables, a whollyowned subsidiary dealing in Specialty Injectables business. It also hold 20% stake in ‘Claris Otsuka’, a Joint Venture with Japanese Otsuka Pharmaceutical Factory, Inc. & Mitsui & Co. Ltd. for Infusion business in India & Emerging Markets. Thus, CLL has three segmental revenues, 1) the Specialty Injectables Business which is housed in a wholly owned subsidiary; Claris Injectables Limited (CIL), 2) 20% stake in the joint venture with Otsuka and Mitsui for the infusion business in India and Emerging Markets and 3) the Treasury and Cash management for the funds in the Holding company. Claris Injectables Limited (CIL) is one of the largest sterile injectables pharmaceutical companies in India. The company manufactures and/or markets products across various therapeutic segments including Anesthesia, Plasma Volume Expanders, Blood Products, Parenteral, Infusion therapy, Anti-infective and Renal Care. A significant majority of these products are generic drugs that are capable of being directly injected into the human body and predominantly used in the treatment of critical illnesses. The company has 3 manufacturing plants at its campus on the out skirts of Ahmedabad. With emphasis on Quality, Technology & Innovation, Claris offers a range of niche technology-driven injectable products across delivery systems such as glass bottles, glass vials and ampoules, and non-PVC/PVC bags. Claris sterile injectables facilities have been approved by regulatory authorities including USFDA, MHRA (UK), TGA (Australia) and GCC FDCA. The company’s manufacturing capabilities have several times received awards from prestigious institutions like Frost & Sullivan and IDMA. Claris Otsuka Private Limited (COL) is a Joint Venture between Claris Lifesciences Ltd, India, Otsuka Pharmaceutical Factory Inc., Japan and Mitsui & Co. Ltd., japan for Claris’s Infusion Business in India and Emerging Markets. The company primarily manufactures & markets products across multiple markets and therapeutic segments and has two manufacturing facilities in Ahmedabad. The company has products ranging across various therapeutic segments including infusion therapy, parenteral nutrition, antiinfectives and plasma volume expanders. The company offers injectables in various delivery systems such as glass and plastic bottles (EURO Head and Nipple Head), ampoules and non PVC/PVC bags. RETAIL RESEARCH Page | 2 which reduces their capacity to fight diseases. Sensinil (lidocaine) and Bupican (bupivacaine). A number of new products are in the pipeline in this category. Blood Products: Claris' blood product range like Norglobin IVIG (human immunoglobulin) caters to the needs of patients with immuno deficiency. Africa and the CIS. Thiojex (thiopentone).Historic evolution of Claris Lifesciences Ltd Products of Claris Injectables Ltd (CIL) Anesthesia & Analgesia: The Company’s expertise in lipid-based technology has made it one of the few companies in the world to manufacture propofol. Marketing Authorization Applications for propofol have been filed in several EU countries. The anesthesia basket has other products including Sedoz (midazolam). RETAIL RESEARCH Page | 3 . Asia. Ketajex (ketamine). 1 brand of propofol in India as well as diverse countries across Latin America. Australia and New Zealand. Provive/Profol is an internationally accepted brand and the no. It improves oxygen transport to all vital organs of the body. Cardiology. anti-malaria. With its focus on drug delivery systems. Products of Claris Otsuka Private Ltd (COL) Infusion therapy: The company has a wide range of common solutions in infusion therapy in India. Parenteral Nutrition: Parenteral nutrition. Claris Oncology currently has a basket of products. The transplant therapy range includes immunosuppresants Cyrin (cyclosporine). acute blood loss. Essamin (essential amino acids). In addition to this. It is used as Plasma Volume Expander/ Blood Substitute to maintain normal blood pressure and volume in shock. hematological malignancies and supportive therapies. Limus (sirolimus) and Mygraft (mycophenolate mofetil) as well as Renograf (multi organ perfusion solution). is a method of getting nutrition into the body through the veins. Renal & Transplant: Claris offers a dialysis and transplant range across systems. TNA-Peri offers the unique advantage of an advanced triple chamber bag system. solutions. CNS. disposables and equipment. Calbin (calcium acetate) and Ostriol (calcitriol). It has Ciproquin/Ciprox under Quinolone. hypotension. which caters to solid tumors. it also plans to launch many more molecules in coming months. The company also plans of establishing a fully operational and GMP compliant. Meriva. Flucanol in the anti-fungal category and Clinbact/Bacimycin under Aminoglycoside Plasma Volume Expanders: TetraHES is CIL’s brand for Tetrastarch. also known as intravenous feeding. Claris Otsuka has a product range encompassing advanced delivery systems in double and triple chamber bags like PNA. Metris (metronidazole IV) is an anaerobic antibacterial belonging to the nitromidazole class of anti-infectives. hypovolemia. haematinics etc.Anti-infectives: Claris has a wide range of broad-spectrum anti-infectives in its product basket. Claris is the first Indian company and one of the few in the world to successfully manufacture Renograf. RETAIL RESEARCH Page | 4 . etc. Anti-infectives: Claris Otsuka has a wide range of broad-spectrum anti-infectives in its product basket. Select Injectables: Claris also offers select injectables across few more therapeutic groups including anti-emetics. medicines. Oncology: Claris launched its Oncology division with a vision and an endeavor to transform lives of cancer patients by offering quality products at affordable price. Zepita under Beta Lactum. innovative molecules and biotech products. Kapstat (calcium polystyrene sulphonate). a variant of Hydroxyethyl Starch. It falls under the category of colloidal Plasma Volume Expanders. The quinolone range has Ciprox (ciprofloxacin IV) and Curadex (ofloxacin IV). dedicated oncology-manufacturing facility which would be equipped with the latest and state-of-the-art equipment. Imira. with the convenience of peripheral administration. Celemix-G and TNA/TNA-Peri. Renal medicines include Epotin (erythropoietin). 99 0. Claris had received a total cash consideration of Rs 1050 crores as a part of the transaction from Claris-Otsuka. Hestar 450 (hetastarch) and Microspan (dextran) in bags and bottles.41 11.29 2.77 0. the following names hold significant stake in the company.Plasma Volume Expanders: The Plasma Volume Expander range from Claris Otsuka covers TetraHES (tetrastarch).0 100. 231 crore were used for this buyback which was open from 8th May 2014 to 22nd May 2014.00 13.0 Mar-15 60.49 11. Claris Lifesciences India (CLL) completed the transfer of its infusion business for India and emerging markets to the joint venture (Claris-Otsuka) with Otsuka Pharmaceutical Factory. RETAIL RESEARCH Page | 5 . Japan (OPF) and Mitsui & Co. Claris will continue to hold a 20 per cent stake in the joint venture while Otsuka and Mitsui will hold 60 per cent and 20 per cent respectively.99 0. 54.23 1. CLL also did a buyback of up to 92.82 crore to Rs.99 0.98 4.25 11. 63. plasma volume expanders and parenteral nutrition therapies for India and emerging markets.0 As on 30th September 2015 shareholding pattern.00 4.88 Triggers 20% holding in JV with Otsuka and Mitsui – can be unlocked at a good price over the medium term During August 2013.29 3. About Rs.48 1.50. The remaining funds net of taxes and deal related expenses are being used to fund future growth of the company.99 0. Shareholding Pattern Particulars (%) Indian Promoters Mutual Funds/UTI/Banks FIIs Foreign Venture Capital Investors Corporate Public & Others Totals Sep-15 60.4 100.1 100.0 Sep-14 60.37 10. Hestar 200 (pentastarch).00 5.06 17. CLL has used the part of the cash consideration towards debt prepayment of around Rs 360 crores.09 12.02 14.29 3. Particulars Government Pension Fund Global Orbimed Partners Mauritius Ltd Privatban Kihng Zurich AG Signet Healthcare Partners QP Partnership III LP Barclays Capital Mauritius Ltd Copthall Mauritius Investment Ltd Total Foreign Funds Holding % of total no.000 equity shares at a price of Rs 250 per share (higher than the then prevailing market price). Claris-Otsuka was valued at Rs 1313 crores. Japan (Mitsui).0 Dec-14 60. Claris has transferred two of its existing plants to the joint venture. anti-infective. Equity share capital fell from Rs.39 2.22 16.0 Jun-15 60.9 100.86 21.99 0.05 11.57 crore.95 0. of shares 2. The infusion business includes common solutions.32 14.00 13.0 100.48 2.29 11. Accordingly then. Now CIL will focus on bagging products and other niche ‘difficult to manufacture’ products as well as work on fast track growth opportunities via organic (capacity expansion and introduction of new delivery systems) and inorganic (acquire products and ANDAs) routes.Specialty Injectables business . OPF to have an opportunity to leverage Claris-Otsuka’s manufacturing infrastructure and supply chain for its global business.Revenue earner CIL is a wholly owned subsidiary company of CLL and is focused in the Specialty Injectables business. CLL would focus on its specialty generic injectables business and shall intensify its growth in all international markets. The Claris-Otsuka business shall be propelled to take advantage of the Infusions opportunity globally with OPF’s and Mitsui’s capabilities and financials strengths. This could bring in cashflows and profits as the book value of the investment is Rs. Claris injectables Limited (CIL). 27% comprise of Anti-Infectives and balance 49% is Critical Care & Renal.2 cr. Claris-Otsuka to work on expanding product basket with speciality Infusion and Clinical Nutrition Products. Once the role of Claris in handholding/handover is complete. marketing & distribution. we think CLL can exit the JV and sell its 20% stake to the other partners at similar or higher valuations. It has a diversified portfolio with a therapeutic focus in segments like Anaesthesia & Analgesics. As per the JV arrangement. RETAIL RESEARCH Page | 6 . Claris-Otsuka shall co-brand its products in India and across Emerging Markets utilizing the manufacturing and marketing competence of Claris. During October 2014. especially the regulated markets (including the US) through new product launches. It has a fully integrated Injectables platform starting from product development to sales. Claris-Otsuka to introduce OPF’s speciality products in India and Emerging Markets. Anti-Infectives and Critical care & Renal. CIL . CLL transferred its Specialty Injectable Business by way of slump sale to its wholly owned subsidiary viz. It has total of 51 products out of which 24% products represent the Anaesthesia & Analgesics. OPF’s global expertise in the Infusions business and Claris’ India advantage to be a huge advantage to Claris-Otsuka. As per FY15. RETAIL RESEARCH Page | 7 . Others (6) Distributors Other Emerging Markets Venezuela. Canada. Korea. the company goes through distributors. As far as the other countries are concerned. Claris Lifesciences Inc. Ukraine. Also in India.. Russia. S. and 26% from Other Regulated Markets. having an estimated addressable market size of $2. CIL has a full –fledged front-end presence in USA though the wholly owned subsidiary viz. Peru. It has a under registration pipeline of 24 ANDAs across 21 molecules. about 30% of its revenue from USA. Colombia.2 billion. managing distributor relationships Registrations in 25 European countries Country manager based in the country Operating business infrastructure in key Latin American countries Country managers based in India. Others (4) Commercial Strategy Distributors Tier 1 Emerging Markets Brazil. Others (58) Distributors Country managers based in India. CIL is capable of developing about 25 products per year including 12-15 products in the US market due to its strong R&D and regulatory capabilities.CIL has a strong global commercial presence across 100 countries. the company garnered about 44% of its revenue from Emerging Markets. managing distributor relationships CIL has 13 ANDAs approved in its name across eight molecules with a total filing of 43 ANDAs in the USA. Mexico. it has its own sales and marketing network. USA which has 11 employees including 2 senior sales executives. Australia. Philippines. The company is targeting a portfolio of 100 products by 2020 in USA. Europe and ORM EU (25). which accounts for 51% of the entire market size. The generic injectables market is estimated to be around US$ 8bn in the USA. During this period the segment grew by 17% as compared to 7% of Oncology and 8% in Beta-lactam antibiotics. CIL’s products target the generic injectables segment which has a US$ 5 bn of market size. It has seen the highest growth between the years 2010 and 2013. this includes General Injectables at 73%. Oncology at 17%. European Union is second with 24% of the total Generic Injectables Market followed by EM at 20% and Other Regulated Markets at 5%. Beta-lactam antibiotics at 8% and others at 2% of the total market.The world generic injectable market is dominated by the USA. Out of these segments. Global Pharma Market : USD 770 bn Global Injectables Market : USD 150 bn Generic Injectables Market : USD 20 bn Cef. Beta-lactam Penam: USD 3 bn Non-Targeted Products: USD 3 bn Selling: USD 1 bn RETAIL RESEARCH General Injectables: USD 8 bn Bio-Tech: USD 4 bn Oncology: USD 5 bn Targeted Products: USD 5 bn Developed/Filed: USD 2 bn Pipeline: USD 2 bn Page | 8 . This growth was on the back of better demand of products and improved pricing due to shortages in the general injectables products. 800 sq. metres Aqueous. a flagship product of Claris is an anaesthetic product which is widely replacing other anaesthetic drugs as recovery from Propofol is more rapid and clear when compared to other anaesthetic drugs. emulsion Bags. the most important medications needed in a health system. metres Aqueous. Hospira and Fresenius Kabi (as Authorized Generic). ampoules Clarion V . ANVISA MHRA Approved Clarion III . meters campus in Ahmedabad.100 sq. Propofol has been referred to as milk of amnesia. Also it has got approvals from other key global regulatory agencies such as MHRA. RETAIL RESEARCH Page | 9 . metres API production for: Iron Sucrose Hydroxyethyl Starch Dexmeditomidine Iron Sucrose . MHRA.Teva Pharmaceuticals. ANVISA and GCC.Manufacturing facility plan CIL has 3 manufacturing units spread across 166.FDF Facility 13. TGA.FDF Facility 14.API Facility 4. The facilities are also compliant with the regulators.4 tons per month Dexmeditomidine FDA Approved Propofol-current flagship product and robust growth ahead on back of USA launch Propofol (generic version of Diprivan). 2 units are for FDF and one is for API manufacturing. TGA.1 ton per month HES . It also happens to be part of an industry wide drug shortage affecting hospitals throughout the US. lypholised Ampoules. Manufacturing Area Capabilities Capacity Key Regulatory Approvals Clarion I .145 sq.400 sq. Propofol is also commonly used in veterinary medicine. vials. because of the milk-like appearance of its intravenous preparation. Currently there are three manufacturers making Propofol for the US market . There have been 3 successful FDA inspections in last three years. vials 5 lines 115 million units (2014) 4 lines (2 already in place) 200 million units (2014) FDA. It has employed 524 full time employees including 249 in manufacturing and 275 in quality. It is on the WHO Model List of Essential Medicines. Inc. CIL does not supply in the USA. 499.The total market size of Propofol is about USD 575 mn with US having market size of USD 251 mn (as per IMS health data as of June 2014) followed by EU & ORM at USD 184 mn and then EM at USD 145 mn. During December 2014. prior to the expiry of December 2024. having over 8 years of experience in manufacturing and marketing Propofol. The company has approval in 86 countries with commercial sales in over 50 countries in 2013. to reach Rs. But in April 2015. Fresenius Kabi USA. Claris reached a settlement and license agreement and ended all the litigation with Fresenius Kabi USA. 369. RETAIL RESEARCH Page | 10 . Thus this would give advantage to CIL as it will be the only emerging market player to have approval and commercial sales in the regulated markets. as opposed to high blood pressure. as per FY15 CIL’s sales of Propofol in EU & ORM was Rs. This gives Claris good opportunity to tap the faster growing market of Propofol with an added advantage of USA sales which will commence soon as it has the capacity to meet ~25% of the regulated markets requirement. 10 mg/ml with USFDA with a Paragraph IV certification. 601 mn. India is home to more than 60 million diabetics. The global dialysis market is estimated at Rs. Many patients with kidney disease cannot get enough iron from food and require injections. However. in EM was Rs. Iron is an important part of one’s red blood cells and is needed to transport oxygen in the body. had filed a suit against the company to prevent it from commercializing its ANDA prior to the expiration of its existing patent. Iron Sucrose-Leading Market position This medicine is used to treat "iron-poor" blood (anemia) in people with long-term kidney disease. the company had filed an ANDA for Propofol for injection. The condition accounts for 30 percent of all CKD cases. Inc. Propofol has grown at a CAGR of 29% while other anaesthesia products have grown at a CAGR of 19% during the same period as above.2 percent from 2013 to 2018. on 1st December 2024. One may need extra iron because of blood loss during kidney dialysis. The total anaesthesia market has grown at a CAGR of 22% during 2010-2013. Diabetes is the primary cause of CKD (Chronic Kidney Disease) in India. 1093 mn. which accounts for 20 percent of all cases. CIL was then granted approval to sell its generic version of Propofol for Injection from 15th October 2016. However.600 crore in 2013 and is poised to grow at a CAGR of 6. In that.260 crore by 2018. thus. syringes and bags. alternative vendor has been appended to the ANDA. Clarion 2. this process was done for redundancy and to ensure a consistent supply of the API for its finished formulation sold in the US. Introduction of Automatic pouch making machines. Claris is reported to have said that the same product has faced supplying issues to the US market last year as well. It was only in January 2014. As far as US is concerned. Claris has USFDA approved own manufacturing of API along with finished formulation. which is used as secondary packaging material for Bags. The injection which is used to treat fluid retention has earlier faced supply issues from its raw material supplied. these are high spread lines with capacities to manufacture around 100 mn units each per year.that had driven many recent transactions both in India and overseas. about onethird of these patients will go on to develop CKD. Claris did sales of about Rs 14 mn of iron sucrose in ORM and about Rs. though on interrupted occasions only. It has a strong international presence and is the only generic player in many countries including Brazil and South Africa. 88 mn in EM. Introduction of new laboratory instruments and software implementations will improve the data capturing and recording process for the company. CLL introduced new technologies in the manufacturing facilities and the testing labs.Should current rates hold. The heightened interest in the business from strategic players also coincided with global supply constraints of injectables -. there was a gap in supplying the product to the US market. as well as pumps used to deliver them and other fluids -. and has also featured in the USFDA shortage list since June 2012. and alcohol consumption. these line can manufacture products in ampoules and vial for a fill volume of up to 10 ml. According to doctors. The global market size of iron sucrose is about USD 530 mn with USA comprising of USD 159 mn and has grown at a CAGR of 8% during 2010-13. With this approval. including Pfizer's $17 billion takeover of Hospira. stress. Claris Lifesciences had received the US health regulator’s nod to market Furosemide injection in the American market. CIL stake/business could be sold off at a hefty price – resulting in value unlocking. However. smoking. the numbers of diabetics in India will be more than double by 2040. It has a capacity to meet ~28% of the requirements of the regulated markets. During FY15 the company has installed two new lines in the new plant. Claris expects to be amongst the three players in this limited competition market. In Feb 2015. Technology Upgradation during FY15 During FY15. The company had filed a PAS application to append an additional supplier to the abbreviated new drug application (ANDA). by FY17 there would a 2-3 players entering the market. there are currently no generic players. has led to a cost reduction and quality enhancement at a higher throughput in bags. this will help the company in the long run with respect to regulatory bodies’ requirements of having systems in place to ensure data integrity. media reported that several Indian pharma giants are competing with their global peers in the race to acquire the generic sterile injectables business of Claris Lifesciences Ltd. The high incidence of kidney diseases can be attributed to inactive lifestyles. During FY15. Packing automation for Propofol vials and other SVP products in ampoules and vials has resulted into significant increase in the packaging capacity. This plant has received approvals from MHRA.drugs that are widely used through vials. this will allow the company to recommence its supplies to the US. Other developments Claris Lifesciences in Aug 2015 got a prior approval supplement (PAS) for resuming the supply of Furosemide injection in the US market. since January 2015. RETAIL RESEARCH Page | 11 . 183 of which involved sterile injectable drugs. Taking a conservative multiple of 3x Sales and 15x EBITDA. Financials Consolidated net sales of CLL has grown from Rs. in the year 2013. the company entered into the Joint venture with Otsuka and Mitsui and it transferred its infusion business for Domestic and certain emerging markets. was at 20x EBITDA and 4x revenue multiple.6 billion in 2013. 132 of which involved sterile injectable drugs. This could lead to value unlocking for the shareholders of CLL.283 cr and EBITDA of Rs.101 cr. as per industry sources. this business recorded sales of Rs. there were 117 new drug shortages. the value of this business could be between Rs. 658.3000 cr.S.3 crore and an EBITDA of Rs.780. In H1FY16. EBITDA margin (including exceptional item in CY13) reduced from 34% for the twelve months ended December 2013 to 31% for the fifteen months ended March 2015. Unexpected adverse development on regulatory front (whether in line with the last Form 483 issued or otherwise) could be the main hindrance to this value unlocking. On July 31.38 crore for the twelve months ended December 2013 to Rs.The reduction in EBITDA margin was on account of transfer of infusion business to COL. 2013. Similarly. Mylan's takeover of Agila was reportedly valued at 24x EBITDA & 8x revenues. In 2012. sales for seven months was inclusive of total infusion and injectable business while remaining five months of year was for speciality injectable business and pass through of the international sales of COL.There are very few injectable businesses left in India that are independently owned after Mylan acquired Agila from Strides Arcolab for $1. 84 of which involved sterile injectable drugs and in 2013. Pfizer-Hospira deal. RETAIL RESEARCH Page | 12 . Profit after tax has changed from 13% for the twelve months ended December 2013 to 19% for the fifteen months ended March 2015.There has been an increase in the profit mainly on account of the reversal of deferred tax due to slump sale. 517. there were 44 new drug shortages. shortage of injectables and interest of global and Indian Pharma companies in acquiring sterile injectables business (though the issue of Form 483 in May 2015 cooled interest to some extent). we feel that the management of CLL will actively seek to sell their entire/part stake in CIL (especially after the launch of propofol in the US in Oct 2016). This excludes the upside from Propofol opportunity. there were 251 drug shortages reported. Food and Drug Administration (FDA). However. Therefore. In 2010. Hospira had acquired Orchid's injectables business for $400 million. In 2011. The generic injectable sector is estimated at around $20 billion as per various industry estimates and is a very attractive piece going forward. 189. for the period of fifteen months there were sales of Speciality Injectable business and pass through sales of COL. 35 of which involved sterile injectable drugs.1700 cr to Rs. Prior to that in 2009. The total global injectable market is estimated at around $150 billion with lion's share being with innovators. the pass through sales continue through Claris without significant margin and therefore result into reduction in EBITDA margin. there were 178 drug shortages reported to the U. The injectable business of CLL had sales during fifteen months ended March 2015 of Rs.11 crore for the fifteen months ended March 2015.8 crore.1050 cr. CLL’s current market cap is ~Rs. Going by the past actions. Moreover. For FY17. However due to an incidence of an extraordinary item in Q2FY16.6%. 820. one is critical in nature and points towards data integrity. In May-15. There were five observations in the letter. 25. operating profit de-grew by 15% YoY to Rs 32. 118. anti-infective and renal therapy. reported PAT will come at Rs. company has received Form 483.Q2FY16 Review For Q2FY16. we expect consolidated revenues to grow by 16% YoY to Rs. 151. 766. Clarion I. This exposes the company to increased risk of compliance with current good manufacturing practices. At the end of inspection. the company has limited diversification and growth plans for fast-growing lifestyle and critical products. the company incurred loss at the bottomline of Rs. Form 483 in itself does not mean that company will not be able to sell products in the US. Claris's only fully operational plant.5 crore. which highlights details about non-compliance at the plant.1 crore. 211 crore.1 crore.8 crore and with tax rate of 22%. it can impact company's financials. if it is followed by a Warning letter (no new ANDA approvals from that plant) or an Import alert (complete stoppage of supplies to US market). of the five observations made. etc on account of various Strategic and Management initiatives of which majority expenses are of prior year/period. professional. Hence. The company’s dependence on select brands exposes it to brand concentration risks. As all the operating expenses as a percentage to sales rose. However in August 2012.8 crore and thus the OPM came in at 16. travelling and consultancy. the risk of an adverse event will remain till the company receives any formal confirmation from the USFDA. adjusted profit after tax is expected at Rs. the changes which were required to get back in compliance are already in place. Therapy Concentration: The company faces product concentration as its branded formulations basket has only three large segments . 149. 99.4 crore. CLL’s consolidated total income rose by 28% to Rs.3%. Risks/Concerns Regulatory Risk: The company derives around 55% of its total revenue from the regulated markets (EU and the US). of which one is of critical nature. The adjusted PAT is expected to report at Rs. PBT came in at Rs. the operating profit is expected to grow by 36% YoY to Rs. was inspected by the USFDA. 2010 issued a warning letter to the company along with an import alert for violation of approved manufacturing norms at the company's Ahmedabad facility and also banned import of products manufactured at the plant to the US. More so.9 crore driven by robust growth of about 35% in the CIL business.83 crore due to the expenses incurred relating to legal. 70. 193. we expect the total income to come in at Rs.7 crore with OPM being 24. 37. due to USA. RETAIL RESEARCH Page | 13 . rise of 19% YoY due to negative tax impact. 24. However due to an extraordinary item of Rs. however. 133. 26.5 crore on the back of launch of Propofol by the company in Oct-Nov 2016 and also due to discontinuation of sales from COL JV as indicated by the management. the USFDA approved the corrective actions taken at its plant in Ahmedabad thereby paving way for resumption of exports to the American market. down by 22% YoY. However. PBT is expected to be at Rs. up by 13% YoY.anaesthesia. The US Food and Drug Administration (USFDA) had on November 1.3 crore as against Rs. The operating profit is expected to come at Rs.0 crore. Company is confident that they will not receive any warning letter or import alert. 186.5 crore (15 months ending March 2015). Due to higher interest cost (up by 31% YoY).0 crore while the reported PAT is expected to come at Rs. Due to the curtailment in the operating costs. Estimates For FY16.7 crore. Adjusted PAT came in at about Rs. 24.1 40.4 12.8 5.8 27.6 282. the company has not faced any major hurdles as far as regulatory compliance is concerned.8 FY15 (15 months) 799.0x FY17E Adj.IT Inspection outcome: During August 2015.7 15. in 1-2 quarters.0 6.9 820. This is without considering the value of Claris Otsuka JV stake and other investments on the books of CLL.66x its FY17E consolidated Adj.6 20.3 250.0 603. Also the company’s another blockbuster drug propofol is going off patent and it will be one of the only manufacturers of propofol in injectables.0 300. Forex fluctuation: Being an export oriented player and presence of substantial portion foreign debt in the balance sheet results in relatively higher vulnerability to forex fluctuations. we feel risk bearing investors could buy the stock at CMP and add on dips in the band of Rs.3 0.0 149.4 38. 21.3 4.7 2056.4 0.3 0.1 857. EPS of Rs. PAT (Rs in Cr) EPS (Rs) CMP as on 190116 (Rs) PE Companies Total Revenue (Rs in Cr) Claris Lifescience Alkem Labs Alembic Pharma Indoco Remedies 799. CLL is available at comparatively lower valuation in terms of P/E.9 56.0 9.7 and 7.4 NA 21. P/B and Market Cap/Sales as shown in the below table. RETAIL RESEARCH Particulars (Rs in Cr) CY11 CY12 CY13 Total Operating Income 740.9 82. Claris has decided to concentrate on the regulated markets' especially the US and Europe. 220-244 (~9-10. EPS) for sequential targets of Rs. Claris is working towards filing 15+ ANDAs every year with an intention to reach a 100 ANDA pipeline in the next 3 years.8% of their holdings (12% of total equity).5 46. Any negative news regarding the search poses a risk to the company’s image and raises doubts on corporate governance practices.8 5.3 5.5 3. the Income Tax department conducted search/survey at the company’s premises.4 FY15 Book value P/BV EV/EBITDA Debt/Equity Mkt Cap/Sales 241. Conclusion and Recommendation The pharma sector has huge potential and CLL is well poised to cater the huge opportunity in domestic and export market.2 33. but till now.8 3788. EPS) with stop loss of Rs. The company extended full support to the authorities. 144 on daily closing basis.5 767.3 4.2 1.9 35. If we compare Claris to some of its peers in the pharma industry. At the current market price (of Rs 187) the company is trading at 8.4 667. 159-171 (~6.2 Looking at the above.2 0.5 462.5 Page | 14 .8 FY16E FY17E 766.62x its FY16E consolidated Adj. Though the company is vulnerable to FDA inspection. EPS of Rs.0 190.0 1357. This poses a risk to its share price. Pledged shares: The promoters have pledged 17.57x FY17E Adj.4.5 0. Claris is into generic injectables space which are difficult to manufacture and thus there is a real shortage of generic injectables in the regulated markets. 4 163.7% 21.5 18.86 20.4 86.0 126.3 59.1% 66.2 99.4 86.8 22.0 -2.0 38.4% 0.4 307.3 21.8% 14.7 59.3% -110.6 32.3 16.0 17.2 47.4 191.3 15.0 22.0 54.7 54.9% 27.13 % chg 21.8 14.9 104.2 13.2 21.61 23.3% 19.5% 0.5% -32.6 16.5% 12.9% 12.15 9.0% bps -666 -1887 Q1FY16 186.1% -116.9 211.09 4.4 38.5 83.4 0.3 49.6 11.3 -2.3 47.3 166.Operating Profit OPM (%) Other Income Adjusted Profit After Tax APATM (%) Reported Profit After Tax PATM (%) Adjusted EPS (Rs.8 -11.5% 10.27 % chg 19.0 13.7 -37.4 70.1 (Source: Company.4 47.5 84.6 21.6 149.1 62.5 0.4 142.8% -79.0 21.5 8.7% -164.5 10.8 19.2% 2.1% 45.04 1.7 75.9% -16.1 11.1 -1.0 20.4 18.6% -22.) 245.8% 24.6% 0.6 25.0 16.6% 30.7 106.52 3.0 12.1 -37.0 18.0 7.3 17.3% 10.2 16.1% 11.2% -24.8 38.) Reported EPS (Rs.5% 14.6 26.6 H1CY14 313.6 57.7 13.0% 4.5 103.6 78.7 19.2 25.9% 19.5 16.5 24.9% 29.1 255.57 % chg 3.6 Q2FY15 162.0% -8.9 77.2 1.2% 20.2 49.6 42.1 19.9 10.8 264.8 34.6 33.3 37.5% 15.3 103.0 164.8% bps 21 -927 (Source: Company.4% -1.3 17.4 12.4% 22.6% -164.3 3.1 14.9 186.3 0.2% -15.9 13.3 21.4 81.5 34.2 -4.7 54.8% -149.9 43.4 10.1 24.4 142.8% -28.4 37.7 32.5 10.4 127.29 12.8 49.1 -1.5% 18.8 21.7 12.6 35.7 10.9 13.9 51.5 19.1 8.4% 3.4 54.0 20. HDFCSec.6 54.6% 9.9% 22.2% -33.4 70.63 -6. HDFCSec) RETAIL RESEARCH Page | 15 .0% -11.7 25.51 5.2 155.9 6.0 22.4% -149.3 54.9 22.7 23.0% 36.3 389.3 67.3 9.3 9.9 22.9 93.83 11.3 35.) Equity OPM (%) PATM (%) Q2FY16 193.9 -13.1 70.9 10. E: Estimates) Financials Quarterly (Consolidated) Particulars (Rs cr) Net Sales Other Operating Income Total Income Raw Material Cost Employee Expenses Other Expenses Total Expenditure Operating Profit Other Income PBIDT Interest PBDT Depreciation PBT Tax (including DT & FBT) Adjusted Profit After Tax Extraordinary Item Reported PAT before share of associates Profit/(Loss) Share of Associates Reported PAT EPS (Rs.3 118.5% -16.1 126.4 15.3 43.4 3.2% 35.7 24.9 197.2 133.3 156.6% -18.0 25.3 19.8 11.4% -70.5 -2.03 9.3% bps -895 -1717 H1FY16 380.58 10.0 166.3 322.7 12.4 -2.8% 20. 3 10.3 9.1 85.9 63.0 291.5 91.5 609.2 526.4 502.5 FY16E FY17E 766.7 216.4 200.9 245.4 6.2 156.5 279.7 54.6 167.3 63.9 580.8 54.0 126.0 103.4 210.0 126.7 -7.4 54.6 105.4 118.1 63.3 192.5 43.8 20.1 136.9 2183.7 227.0 10.0 6. HDFCSec.1 74.7 49.6 13.9 0.3 241.2 472.6 1319.7 0.1 273.0 126.2 126.0 11.8 48.8 988.5 203.6 1262.1 242.8 31.6 55.5 38.6 254.8 20.5 151.0 103.7 381.2 44.3 0.1 1373.0 73.4 92.0 90.3 259.2 66.0 156.2 0.3 155.4 -45.9 126.0 Page | 16 .7 133.6 2002.9 103.4 15.4 1.1 299.0 181.8 253.8 45.2 166.3 275.5 86.4 9.0 103.4 154.7 0.1 514.9 0.0 Current Liabilities Short Term Borrowings Trade Payables Other Current Liabilities Short Term Provisions 426.8 1340.0 261.1 1404.4 -3.3 767.4 18.5 494.0 141.4 -1.8 0.2 -5.9 54.0 84.5 94.0 52.2 70. E: Estimates) Balance Sheet (Consolidated) RETAIL RESEARCH FY15 (12 months) 663.2 -16.5 116.0 99.0 42.6 39.3 1148.0 -4.1 242.4 107.5 211.3 26.1 144.6 264.0 Total Equity & Liabilities 1730.8 1085.2 Non-Current Liabilities Long Term borrowings Deferred Tax Liabilities (Net) Other Long Term Liabilities Long Term Provisions 252.7 60.1 144.4 293.5 -12.0 71.4 22.2 270.5 2409.3 135.1 65.6 1405.4 FY15 (15 months) 799.5 25.9 667.Profit & Loss Account (Consolidated) Particulars (Rs in Cr) CY11 CY12 CY13 Total Operating Income Total Operating Expenses Operating Profit Other Income EBITDA Interest Depreciation PBT Tax (including FBT & DT) Adjusted PAT Exceptional Items/Prior period expenses Reported PAT before share of associates Profit/(Loss) Share of Associates Reported PAT 740.3 0.3 17.0 0.3 1459.8 58.1 70.7 41.8 10.9 125.0 12.6 179.5 1316.1 3.0 (Source: Company.3 2110.0 137.0 141.6 16.8 644.4 574.0 183.2 220.3 236.1 669.5 189.2 186.8 2273.2 65.0 59.8 501.7 151.3 49.8 33.3 820.1 Particulars (Rs in Cr) CY11 CY12 CY13 FY15 (15 months) FY16E FY17E Equity & Liabilities Shareholders’ Funds Share Capital Reserves & Surplus 1052.0 0.0 -30.0 608.2 149.7 46. 2 20.0 1193.6 8.1 18.7 16.6 884.2 67.0 Current Assets Current Investments Inventories Trade Receivables Cash & Cash Equivalents Short Term Loans & Advances Other Current Assets 761.3 19.0 13.6 132.9 20.4 132.0 1.2 929.4 187.3 2.1 5.0 (Source: Company.0 274.1 33.4 18.7 1299.9 1.1 220.8 302.5 187.1 16.0 194.5 187.2 41.9 1004.5 7.8 2273.7 135.6 24.5 251.2 1142.5 164.9 12.5 1037.8 24.0 34.4 1407.3 0. EPS FD EPS Cash EPS (PAT + Depreciation) Adj.2 117. PE (x) PE(x) Book Value (Rs.5 12.8 1077.Assets Non-Current Assets Fixed Assets Gross Block Depreciation Net Block (Tangible Assets) Intangible Assets Capital Work-in-Progress Long -term Loans and Advances Other Non-Current Assets 968.3 0.8 45.0 1020.1 19.0 744.0 206.6 159.7 961.7 31.4 722.5 1149.4 187.5 180.8 202.4 32.1 240.7 1.9 734.6 45.0 1334.7 1044.1 1390.3 21.1 4.5 17.4 36.7 12.0 27.5 8.6 49.5 1063.5 0.0 1193.5 94.0 504.2 894.5 995.4 11.4 171.6 2002.9 FY16E FY17E 5.6 14.5 2409. HDFCSec.2 10.7 0.0 0.3 11.0 64.7 21.8 1002.9 1108.0 Total Assets 1730.2 230.0 156.9 2183.5 180.5 6.1 929.5 11.5 216.6 93.5 257.8 9.9 705.1 663.3 209.0 288.2 1098.8 12.9 0.1 231.9 13.8 806.8 880.3 348.8 19.0 169.2 103.1 14.9 5.3 267.0 331.5 174.3 667.2 82.3 27.4 9.3 2110.0 115.3 1344.4 18.1 11.3 19.2 23.9 73.3 16.8 28.7 13.7 10.2 6.0 184.0 1020.7 165.1 911.8 229.0 1123.8 383.5 194.6 0.8 FY15 (15 months) 5.6 23.9 11.2 1018.5 17.0 262.0 14.4 173.9 Page | 17 .8 19.8 14.9 608.7 24.7 25.1 26.5 17.3 118.1 0.4 187.7 25.7 10.5 9.3 15.0 1193.4 1575.5 187.1 6.0 1020.0 157.8 0.8 241.4 8.9 1.3 228.5 63.) P/BV (x) OPM (%) PBT (%) NPM (%) ROCE (%) RETAIL RESEARCH CY11 CY12 CY13 6. E: Estimates) Key Ratios (Consolidated) Particulars No of Equity Shares Current Market Price Market Capitalization Enterprise Value Adj. 3 4.0 0.8 0. E: Estimates) Technical Outlook on CLARIS LIFESCIENCES LTD: RETAIL RESEARCH Page | 18 .0 0.6 5.7 (Source: Company.5 1.4 1.8 1.8 3.5 1.RONW (%) Debt-Equity Current Ratio Mcap/Sales(x) EV/EBITDA One Year Price Chart 12. HDFCSec.0 0.4 1.9 1.4 5.5 1.7 6.6 5.4 11.3 4.2 3.4 6.4 0.3 1.3 1.4 9.1 0.2 1.3 1.4 1. which is suggesting possibility of emergence of buying interest from the lower levels. We observe a formation of long lower shadows near the support of ascending trend line (lower end of triangle). the weekly RSI is placed at the lower bullish range of 40 levels. Hence. The stock price has been moving in a converging triangle type pattern (green dashed converging trend lines) and currently placed near the lower end of a triangle pattern around Rs. such long lower shadow formation has resulted in a near term bottom reversal pattern in the stock price and led to a sharp upside bounce back in the stock price. The weekly 14 period RSI (weekly RSI data is less) has been moving in a bullish high low range of around 70-40 levels. as per daily closing basis.159-171 levels and hold for the upside targets of around Rs. Currently. Previously.144. one may expect upside rebound in the weekly RSI and that expected pattern of RSI could mean upside bounce back in the stock price for near term. Place a stoploss of Rs. The overall positive chart and momentum pattern is suggesting a long trade setup in Claris Lifesciences Ltd for near term.226-245 for the next 1-2 quarters. One can buy at CMP and add more on dips around Rs.Current Observation: The attached weekly timeframe chart of Claris Lifesciences Ltd is indicating a larger consolidation pattern. which is forming over the last few months. RETAIL RESEARCH Page | 19 .178-180 levels. any company mentioned in this mail and/or its attachments. Research analyst has not served as an officer. or perform broking. The views. HDFC Securities Ltd.B. 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