CADILA HEALTHCARE LTD.

4 ISIN: INE010BO1019 FEBRUARY 22 nd 2014 STOCK DETAILS Sector CADILA HEALTHCARE LTD. BSE Code 532321 Face Value 5.00 Result Update: Q3 FY14 Pharmaceuticals 52wk. High / Low (Rs.) 985.20/631.00 Volume (2wk. Avg ) 34000 Market Cap ( Rs in mn ) 194605.37 ANNUAL ESTIMATED RESULTS (A*: ACTUAL / E*: ESTIMATED) Years FY13A FY14E FY15E Net Sales 63580.70 71646.54 78094.73 EBITDA 11626.90 12075.54 13497.14 Net Profit 6553.00 7743.82 8686.28 EPS 32.01 37.82 42.43 P/E 29.70 25.13 22.40 SHAREHOLDING PATTERN (%) 1 YEAR COMPARATIVE GRAPH CADILA HEALTHCARE LTD. BSE SENSEX Recommend BUY CMP 950.50 Target Price 1036.00 Highlights Cadila Healthcare Ltd. has posted 81% jump in its net profit from Rs. 1024.40 mn to Rs. 1859.70 mn in current December quarter. Total Income i.e net sales of the company improved by 16.68% and stood at Rs. 18716.90 mn compared to Rs. 16041.10 mn in Q3 FY13. EBDITA of the company stood at Rs. 3080.40 mn rising by 13.23% YOY and the total expenditure rose by 16% YOY at Rs. 16260 mn in Q3 FY14. PBT rose at even higher rate of 35% from Rs. 1740.90 mn to Rs. 2360.20 mn in current December quarter. Zydus Cadila has received the final approval from the USFDA to market Sirolimus Tablets 0.5 mg with 180 days of marketing exclusivity, Etodolac Extended- release Tablets for treatment of Juvenile arthritis, rheumatoid arthritis & osteoarthritis and Bupropion Hydrochloride Extended- release Tablets USP which is in the anti-depressants segment. Finance costs in the current quarter fell by 52% compared to the corresponding quarter in the previous year. In the present quarter, the company s business in the US and Europe was up by 61% and 6% respectively. Exports to emerging markets grew by 30% at Rs. 832 mn in Q3 FY14. During the quarter, the company filed 31 additional ANDAs with the US FDA taking the cumulative ANDA filings for the period April- December 2013 to 49. Net Sales and PAT of the company are expected to grow at a CAGR of 14% & 10% over 2012 to 2015E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND COMPANY NAME (Rs.) Rs. in Mn. (Rs.) Ratio Ratio (%) Cadila Healthcare Ltd 950.50 194605.37 32.01 29.70 6.40 150.00 Cipla Ltd 369.30 296518.90 17.18 21.50 3.34 100.00 Sun Pharmaceuticals Ltd 614.30 1272316 0.95 646.63 14.75 250.00 Divis Laboratories 1421.30 188655.20 58.80 24.17 7.39 750.00

Analysis & Recommendation- BUY Cadila Healthcare Ltd. is on the rise from the last six months. The scrip has risen 1.5 times since last September 2013. As per market expectations, Net Profit galloped by 81% YOY at Rs. 1859.70 mn against Rs. 1024.40 mn in the corresponding quarter of the previous year. Net Sales grew at 17% and stood at Rs. 18716.90 mn in Q3 FY14 compared to Rs. 16041 mn in Q3 FY13. Expenses rose by 16% YOY at Rs. 16260 mn in the current December quarter. With low expenditure and finance costs declining by 52% (Rs. 189.80mn)YOY, company reported Profit Before Tax of Rs 2360 mn compared to Rs. 1740.90 mn in the same period previous year, rising by 35% YOY. Cadila s domestic business has grown by 3.8% whereas exports grew by 38% YOY. Global Business in US, Emerging Markets and Europe rose by 61%, 30% and 6% respectively. During the quarter, the company filed 31 additional ANDAs with the US FDA taking the cumulative ANDA filings for the period April- December 2013, to 49. During the December quarter, the company received US FDA approval for initiating Phase I clinical trials of ZYDPLA1 a novel, next generation orally active, small molecule DPP-4 inhibitor to treat Type 2 Diabetes. In addition to that, Cadila Healthcare has received the final approval from the USFDA to market Sirolimus Tablets 0.5 mg with 180 days of marketing exclusivity, Etodolac Extended- release Tablet for treatment of Juvenile arthritis, rheumatoid arthritis & osteoarthritis and Bupropion Hydrochloride Extendedrelease Tablets USP which is in anti-depressants segment. Cadila Healthcare with its strong fundamentals is poised for higher growth with low debt equity ratio of 0.88 as on 31 st March 2013. Thus we recommend BUY for the scrip with target price of Rs. 1036.00. COMPANY PROFILE Zydus Cadila, a global healthcare provider was founded by Late Mr. Ramanbhai B. Patel in 1952. In 1995, the group restructured its operations and emerged with a new identity under the aegis of Zydus group as Cadila Healthcare Ltd. Cadila Healthcare is the flagship company of Zydus Cadila group. The group, headquartered in Ahmedabad develops, manufactures and markets broad range of healthcare products ranging from API to formulations, animal health products and cosmeceuticals. The Zydus Cadila group has global operations in four continents spread across USA, Europe, Japan, Brazil, South Africa and 25 other emerging markets. Zydus Cadila is a leading player in the cardiovascular, gastrointestinal and women's healthcare segments. The group has strong presence in respiratory, pain management, CNS, anti-infectives, oncology, neurosciences, dermatology and nephrology segments. It has been able to maintain overall position and market share through faster growing lifestyle segments. The group has several in-licensing alliances with global multinationals such as Schering AG, Boehringer Ingelheim, Viatris, etc. The portfolio of products of the group is over 200 which are marketed by a specialized field force of about 3,000. With one of the strongest distribution channels in the industry, the group reaches out to 1,00,000 chemists and serves 2,00,000 doctors including physicians, specialists and super specialists.

Zydus Wellness Ltd., spearheads the group's presence in the consumer and wellness segment. The products of the company comprises of Sugar Free Gold India s No.1 sweetener with a market share of over 70%, Sugar Free Natura a zero calorie sucralose based sugar substitute, Sugar Free D lite a low calorie healthy drink and Nutralite a premium cholesterol-free table spread. Nutralite has emerged as the second largest brand in the category of butter and butter substitutes. In addition to that the company also caters to the skincare segment with its Everyuth and Dermacare brands, which occupy a unique distinction of being a skincare brand from a healthcare company. Enriched with the power of natural ingredients, EverYuth has a strong presence in advanced skincare segments like soap-free, face washes, face masks, scrubs etc. Quarterly Highlights Q3 FY14 Months Dec -13 Dec-12 % Change Total Income 18716.90 16041.10 16.68% Net Profit 1859.70 1024.40 80.71% Net Profit Margin 9.93% 6.41% 352 BP EBITDA 3080.40 2720.60 13.23% EBITDA Margin 16.46% 16.96% (50BP) Other Income 127.80 123.10 3.81% Profit Before Tax 2360.20 1740.90 35.57% Total income of the company rose by 17% and stands at Rs. 18716.90 mn from Rs. 16041.10 mn in Q3 FY13. Net profit of the company galloped at 80% to Rs. 1859.70 mn from Rs. 1029.10 mn. EBDITA increased by 13.23% from Rs. 2720.60 mn to Rs. 3080.40 mn in Q3 FY14. EBDITA margin fell by 50 basis points. Net profit margin jumped by 352 basis points mainly due to decline in tax expenditure and finance costs. Other income of Cadila Healthcare Ltd rose by 89% from Rs. 64.60 mn to Rs. 122.30 mn in current September quarter. Profit Before Tax also rose by 35.57% at Rs. 2360.20 mn in Q3 FY14. Break up of Expenditure Rs. In Mn Q3 FY14 Q3 FY13 CHNG % Material Consumed 4105.80 3982.40 3.10% Stock in Trade 3113.60 2274.00 36.92% Employee Benefit Exp. 2614.70 2325.50 12.44% Dep. & Amortz. Exp. 495.70 501.40-1.14% Other Exp. 5945.90 5540.70 7.31%

Cost of material consumed rose by just 3% at Rs 4105.80 mn. Purchase of stock in trade rose by 36.92% from Rs. 2274 mn to Rs. 3113.60 mn in Q3 FY14. The highest rise in expenditure was from stock in trade and employee benefit expenses by 37% and 12.44% respectively. Employee benefit expenses rose from Rs. 2325.50 mn to Rs. 2614.70 mn in Q3 FY14. Depreciation and amortization fell by 1.14% to Rs. 495.70 mn from Rs. 501.40 mn in Q3 FY13. Other expenses grew by 7.31% at Rs. 5945.90 mn in the current December quarter. Revenue Segment Domestic sales (In Rs. Mn) Q3 FY14 Q3FY13 % change Formulations 5883 5692 3.36% API 112 160-30.00% Wellness 1034 1018 1.57% Animal Health and Others 622 500 24.40% Total Domestic Sales 7651 7370 3.81% Important Updates (In Rs. Mn) Q3 FY14 Q3 FY13 % change Exports 10061 7265 38.49% Formulations: US 6316 3920 61.12% Europe 1186 1119 5.99% Japan 145 180 (19.44%) Brazil 639 666 (4.05%) Mexico 49 0 100% Emerging markets 832 640 30.00% API: 731 618 18.28% Animal Health & Others: 163 122 33.61% Zydus Cadila received the final approval from the USFDA to market Sirolimus Tablets 0.5 mg with 180 days of marketing exclusivity. As per IMS data in 2013, the sales of Sirolimus 0.5mg was estimated at $11.7 million and the total market for Sirolimus was approximately $203.8 million. The group also received Duloxetine delayed release capsules in different strengths of 20 mg, 30 mg and 60 mg. The sales for Duloxetine were estimated at $5.5 billion in 2013. While Sirolimus tablets are immunosuppressant

drugs used to prevent rejection in organ transplantation, Duloxetine delayed release capsules fall in the anti-depressants segment. During the quarter, the company filed 31 additional ANDAs with the US FDA taking the cumulative ANDA filings for the period April-December 2013, to 49. In Mexico, the company launched 2 new products during the quarter, taking the cumulative launches to 6 and filed 8 dossiers with the Mexican regulatory authority, taking the cumulative filings to 36. The company filed 9 dossiers with the ANVISA, taking the cumulative filings to 113. In the European market, the company received the approval for 15 new product dossiers and launched 2 new products in France and 3 new products in Spain. 7 new products were launched in the different Emerging Markets during the quarter. During the quarter, the company received the US FDA approval for initiating Phase I clinical trials of ZYDPLA1 a novel, next generation orally active, small molecule DPP-4 inhibitor to treat Type 2 Diabetes. For Biosimilars, the company initiated Phase III clinical trials for one of the mabs and completed Phase I clinical trials completed for both the novel biologics, PEGEPO and Rabimabs. Zydus Cadila has received the final approval from the USFDA to market Etodolac Extended- release Tablet USP, 400 mn, 500 mn and 600 mg. The drug is prescribed for treatment of Juvenile arthritis, rheumatoid arthritis and osteoarthritis. Zydus Cadila has received the final approval from the USFDA to Bupropion Hydrochloride Extended- release Tablets USP (XL) in the strength of 300 mg. The drug falls in the anti-depressants segment. Cadila Healthcare Limited and Zydus Pharmaceuticals (USA), Inc. have entered into an agreement in principle with Warner Chilcott Company LLC to settle all outstanding patent litigation related to Asacol HD (mesalamine) delayed-release tablets. The agreement remains subject to preparation and execution of definitive documentation. Under the terms of the agreement in principle, Warner Chilcott Company will grant Cadila and Zydus a royalty bearing license to market a generic version of Asacol HD beginning on November 15, 2015 or earlier under certain circumstances, following receipt by Zydus of final approval from the U.S. Food and Drug Administration (FDA) of its Abbreviated New Drug Application (ANDA) for generic Asacol HD. Alternatively, if Zydus does not receive FDA approval of its generic Asacol HD by July 1, 2016, Zydus will be permitted to launch an authorized generic version of Asacol HD beginning on July 1, 2016.

FINANCIAL STATEMENTS & ESTIMATIONS (CONSOLIDATED) Balance Sheet as on March 31 st, 2012 to 2015E (A*- Actual, E* -Estimations & Rs. In Millions) Cadila Healthcare Ltd FY12A FY13A FY14E FY15E EQUITY AND LIABILITIES: Shareholders Funds: Share Capital 1023.70 1023.70 1023.70 1023.70 Reserves and Surplus 24835.20 29379.10 37122.92 45809.20 Net worth (a) 25858.90 30402.80 38146.62 46832.90 Minority Interest (b) 904.30 1193.30 1551.29 2016.68 Non-Current Liabilities: Long-term borrowings 13223.40 14260.20 15971.42 18526.85 Deferred Tax Liabilities [Net] 1145.60 1004.60 1014.65 1075.52 Other Long Term Liabilities 426.00 469.60 525.95 657.44 Long Term Provisions 756.20 644.80 696.38 779.95 Long term liabilities (c) 15551.20 16379.20 18208.41 21039.77 Current Liabilities: Short-term borrowings 6871.00 12553.80 14060.26 16169.29 Trade Payables 5455.10 6557.60 8393.73 11331.53 Other Current Liabilities 7309.20 5105.50 6228.71 7785.89 Short Term Provisions 2280.50 2598.40 779.52 857.47 Current Liabilities (d) 21915.80 26815.30 29462.21 36144.19 Total Liabilities (a+b+c+d) 64230.20 74790.60 87368.53 106033.53 ASSETS: Non-Current Assets: Tangible Assets 24788.20 29952.00 35677.63 43883.48 Goodwill on consolidation (net) 8622.10 8618.10 9049.01 9772.93 Non Current Investments 211.50 211.50 211.50 211.50 Long Term Loans and Advances 2478.40 4106.90 5338.97 7047.44 Total Non Current Assets (e) 36100.20 42888.50 50277.11 60915.35 Current Assets: Current Investments 30.40 933.20 326.62 391.94 Inventories 10905.00 12135.70 14562.84 17475.41 Trade Receivables 9209.00 9551.40 11939.25 14789.57 Cash and Bank Balances 4666.20 5820.80 6402.88 8003.60 Short Term Loans and Advances 2745.80 2792.60 3211.49 3757.44 Other Current Assets 573.60 668.40 648.35 700.22 Total Current Assets (f) 28130.00 31902.10 37091.43 45118.18 Total Assets (d+e) 64230.20 74790.60 87368.53 106033.53

Annual Profit & Loss Statement for the period of 2012to 2015E Value(Rs.in.mn) FY12A FY13A FY14E FY15E Description 12m 12m 12m 12m Net Sales 52633.10 63580.70 71646.54 78094.73 Other Income 531.50 370.10 509.59 611.51 Total Income 53164.60 63950.80 72156.13 78706.23 Expenditure -41794.50-52323.90-60080.58-65209.10 Operating Profit 11370.10 11626.90 12075.54 13497.14 Interest -1849.00-1686.40-832.32-665.86 Gross profit 9521.10 9940.50 11243.22 12831.28 Depreciation -1578.80-1828.30-1999.39-2239.31 Profit Before Tax 7942.30 8112.20 9209.14 10591.97 Tax -1130.40-1194.90-1114.41-1535.84 Profit After Tax 6811.90 6917.30 8094.73 9056.13 Minority Interest -286.00-364.30-350.91-369.86 Net Profit 6525.90 6553.00 7743.82 8686.28 Equity capital 1023.70 1023.70 1023.70 1023.70 Reserves 24712.20 29379.10 37122.92 45809.20 Face value 5.00 5.00 5.00 5.00 EPS 31.87 32.01 37.82 42.43 Quarterly Profit & Loss Statement for the period of 30 th June, 2013 to 31 st March, 2014E Value(Rs.in.mn) 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14E Description 3m 3m 3m 3m Net sales 16370.50 17467.90 18716.90 19091.24 Other income 125.30 122.30 127.80 134.19 Total Income 16495.80 17590.20 18844.70 19225.43 Expenditure -13512.60-14862.50-15764.30-15941.18 Operating profit 2983.20 2727.70 3080.40 3284.24 Interest -278.40-193.30-189.80-170.82 Gross profit 2704.80 2534.40 2890.60 3113.42 Depreciation -465.60-517.60-495.70-520.49 Profit Before Tax 2239.20 2016.80 2360.20 2592.94 Tax -203.10-101.10-408.30-401.91 Profit After Tax 2036.10 1915.70 1951.90 2191.03 Minority Interest -79.90-82.00-92.20-96.81 Net Profit 1956.20 1833.70 1859.70 2094.22 Equity capital 1023.70 1023.70 1023.70 1023.70 Face value 5.00 5.00 5.00 5.00 EPS 9.55 8.96 9.08 10.23

Ratio Analysis Particulars FY12A FY13A FY14E FY15E EPS (Rs.) 31.87 32.01 37.82 42.43 EBITDA Margin (%) 21.60% 18.29% 16.85% 17.28% PBT Margin (%) 15.09% 12.76% 12.85% 13.56% PAT Margin (%) 12.94% 10.88% 11.30% 11.60% P/E Ratio (x) 29.82 29.70 25.13 22.40 ROE (%) 26.47% 22.75% 21.22% 19.34% ROCE (%) 28.25% 23.52% 20.64% 19.30% Debt Equity Ratio 0.78 0.88 0.79 0.74 EV/EBITDA (x) 18.88 19.04 18.60 16.99 Book Value (Rs.) 125.70 148.49 186.32 228.74 Charts P/BV 7.56 6.40 5.10 4.16

INDUSTRY OVERVIEW Indian pharmaceutical industry is a branded generics market, growing at a CAGR of 12.5% over the past five years. The pharmaceutical industry is expected to grow at a fast rate on the basis of high growth in exports and stable domestic market. Growth in the domestic pharma is mainly driven by improved medical infrastructure, increase in per capita income and increase in health insurance coverage. The export market of Indian pharmaceutical industry is driven by patent expiries of branded drugs all over the world. Pharma industry in India is highly fragmented and the entry of more players has made the industry highly competitive. At present there are 250 large units and 8000 small scale units. Before 1970, India was dependent on foreign companies for various drug requirements, but now India is completely self sufficient and imports are done only due to quality and economic reasons and not because of non- availability of pharmaceutical products. Indian pharmaceutical industry has undergone a wave of mergers and acquisitions. Starting from Ranbaxy acquired by Daiichi Sankyo, Shanta Biotech by Sanofi-aventis, Primal Healthcare by Abbot to name a few. The pharma sector has attracted foreign direct investments (FDI) worth US$ 11,304.91 million during April 2000 to April 2013, according to the latest data published by Department of Industrial Policy and Promotion (DIPP). India ranks 4 th worldwide and accounts for 8% of world's production by volume and 1.5% by value. It ranks 17th in terms of export value of bulk actives and dosage forms. The Indian pharmaceutical industry will continue its growth story and is expected to grow at 10-12 percent in 2013-14 and touch $29 billion by 2016. OUTLOOK AND CONCLUSION At the current market price of Rs.950.50 the stock P/E ratio is at 25.13 x FY14E and 22.40 x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs. 37.82 and Rs 42.43 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 10% over 2012 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at 18.60 x for FY14E and 16.99 x for FY15E. Price to Book Value of the stock is expected to be at 5.10 x and 4.16 x respectively for FY14E and FY15E. We recommend BUY in this particular scrip with a target price of Rs.1036.00 for Medium to Long term investment.

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