Pharmaceuticals: Ahmedabad Visit Note: Karvy

Ahmedabad Visit Note
In our recent trip to Ahmedabad, we visited three pharmaceutical
companies under our coverage i.e. Cadila Healthcare (Cadila), Torrent
Pharmaceuticals (Torrent Pharma) & Dishman Pharmaceuticals &
Chemicals (Dishman Pharma).
Previous vs. Current Recommendation
Earlier we recommended “BUY” on Cadila & Dishman, and “HOLD” on
Torrent. However, as we believe that most of the positives are captured amid
the price performance of Cadila, we change our rating to a “HOLD” with
marginally reduced target price. Meanwhile, we upgrade Torrent Pharma to a
“BUY” as the stock is quoting at reasonable valuations on FY14E basis, while
we maintain our “BUY” recommendation on Dishman Pharma on the back of
better revenue visibility.

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Recent Observations
Cadila: The triggers in Cadila earlier were traction in domestic formulations
and the US FDA resolution on Moraiya plant. The scale‐up in the US market
was limited due to US FDA restriction on fresh approvals from the Moraiya
facility. In the recent visit, we observed that the Company is awaiting clean
chit from the US FDA for its Moraiya facility as certain observations have
been addressed post US FDA‐inspection. We believe that this will trigger new
launches in the US market, while the full impact of its acquisitions (Biochem &
Nesher) will be reflected in FY13E. We believe multiple revenue streams,
contract manufacturing and diversified geographical reach will aid Cadila in
sustaining its revenues going forward. We believe that Cadila’s margins are
likely to remain stable with upward bias in the aftermath of Prism II measures
taken by the Company in controlling overhead costs.
Torrent Pharma: It is observed from the recent visit that Torrent Pharma is
addressing key concerns on the domestic formulations front, while with better
traction in the US & Brazil its revenue is set to grow at 18.9% CAGR with
earnings CAGR of 39% in FY12‐14E period. We are upgrading margin
estimates of the Company owing to better hedging of forex exposure
reflecting higher realizations, while its EBIDTA would be accretive to the
extent of 150 bps, going forward
Dishman Pharma: Our positive stance on Dishman Pharma has further
strengthened with several of its business engines set to gradually fall in place
from FY13E onwards. The start of Vitamin D3, Disinfectants and Oncology
API unit would also add to the additional revenues streams. Our stance is
supported by renewed traction in Dishman India, new CEO in Carbogen
Amicis and better traction in Vitamin D3 business. We believe that slowdown
in capex would improve the return ratios of the Company from currently 11%
to 13‐15% over next three years.
We prefer Torrent Pharma in the mid‐cap space and Dishman Pharma
in the small‐cap space.