Company report venus remedies ltd

C O M P A N Y R E P O R T

India

4 Jun 2012
Venus Remedies Rs 166.1
Sector: Pharma Building a unique formulation

BSE Code 526953 NSE Code VENUSREM Venus Remedies (Venus), a high-growth mid-sized
CMP (Jun 1) 166.1 52W H/L 276/141 pharma company in the injectables space, has two key
Nifty 4,842 Sensex 15965 differentiators: presence in high value therapeutic
Equity Cap (m) 2,369 Face Value 10
Shares (m) 9.74 Free Float 65.29% segments and a strong research focus. This has allowed
Market Cap (m) 1,618 Avg Vol 9,514 the company to maintain robust revenue CAGR of
(weekly)
around 18% over last 4 years, at healthy operating
Rs
margins. The company’s growth rates and margins
could get a boost as its growing repository of research
Shareholding Pattern (March 31, products and patents comes into play.
2012)
In highly attractive injectables segment

Promoter
FII Venus is among top 10 players globally in combination
14%
35% drugs space. This is a high margin space within injectables.
DII Venus has further focussed on highly specialised products
0% within this space, helping it maintain high profitability and
robust top-line growth.
Others
Bodies 32% Concentrated focus on IP development
Corporate
19% The Company has maintained high focus on IP
development. Its R&D spends reached a high of 19% of its
revenue for FY11, growing from a level of 5% in FY07. The
company expects to maintain spends in double digits. This
puts Venus Remedies among top 5 pharma companies in
Price Performance (Last 6 months)
R&D investment as ‘% of sales’ and top 15 by total amount.
Venus Remedies Nifty The Company has developed many path breaking products
200.00 such as Sulbactomax, a novel combination product with
190.00 market potential of US$400mn in India, and patents in
180.00 more than 42 countries including EU and Australia. Venus is
170.00 currently exploring out licensing deals for Sulbactomax for
160.00 global markets and has hired a leading global consulting
150.00 firm for the same.
140.00 Antimicrobial Resistance: A winning strategy
30-Dec 30-Jan 29-Feb 31-Mar 30-Apr 31-May
Venus correctly identified anti-microbial resistance (AMR)
as its core area for R&D efforts around 10 years ago. AMR
Consolidated Financials has emerged as the biggest threat to global health in
recent years, so much that even WHO has proposed a
FY'11 FY'12E FY'13E FY'14E
global strategy to fight AMR. Venus Remedies’ entire
Sales 3,631 4,196 4,788 5,546
antibiotic research product chain caters to the AMR
EBITDA 892 1,022 1,186 1,395
segment including Sulbactomax, Vancoplus, Potentox and
PAT 462 493 610 755
Tobracef.
EBITDA margin(%) 24.57 24.35 24.78 25.14
Net margin(%)
Low Valuations
12.73 11.74 12.75 13.62
ROE(%) 22.65 18.07 18.01 18.56 At current price, Venus Remedies quotes at around 3.3x
ROCE(%) 19.11 16.28 16.37 17.39 FY12 and around 2.6x FY13e earnings, below peer
P/E Ratio(x) 3.99 3.28 2.65 2.14
averages. These are values below its historical trading
EV/EBITDA(x) range. We expect Venus’s price to cross Rs 200 over a 12
4.12 3.60 3.10 2.64
EPS (Rs) 50.63 month period. Any big out licensing deal will give further
50.56 62.65 77.55
Rs mn upside. This is an upside of 23% from current levels.

Four-s reports are available on BLOOMBERG, Reuters, Thomson Publishers and Market Publishers

Company Report: Venus Remedies 4 Jun 2012

Investment Rationale

A top player in the attractive injectables space

Venus is among top 10 players globally in combination drugs space
with the biggest capacity in Asia in manufacturing for injectables.
The US$200bn injectable market is higher on margins and faces
lower pricing pressure compared to oral pharmaceuticals.
A consistent focus on injectables, the highest end of the formulation
value chain marked by stringent manufacturing standards,
demanding quality parameters and low competition (only 1% of
India’s over 10,000 pharmaceutical companies produce injectables)
gives Venus a better ability to deliver higher margins.

High growth segments

Focussed on Venus Remedies has focused on high growth segments like anti-
high growth, infective (33% of revenue) and oncology (30.7%) which are
high margin considered to be the fastest growing segments and expected to
segments within contribute 50 to 60% of product launches globally by 2015.
injectables
With changing demography and overall changes in lifestyle, anti-
infective, oncology, cardiovascular and neurology segments are
expected to benefit the most in the coming years, not only in India
but globally.
Venus has been investing strongly in R&D for all of these segments
which will sooner than later start benefiting the company. Venus has
already launched products in segments like anti-biotic, oncology, and
neurology in last few years.

Maintains high margin with highly specialised products

Venus Remedies’ reported operating margins are better than the
peer set, reflecting its focus on high margin segments within
injectables. The company has margins better than all peers except
Claris. The reason behind this is Venus Remedies’ conscious strategy
to move away from its me-too products to enter high margin
specialised segment with the backing of strong R&D process.

Better profitability supporting the growth
FY11 Margin (%) TTM Margin (%)
Company EBIDTA PAT EBIDTA PAT
Mid-Cap Peers

Ajanta Pharma 19% 10% 21% 12%
Indoco 13% 11% 14% 9%

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Natco Pharma 19% 12% 23% 12%
Nectar 20% 9% 18% 6%
Parabolic Drugs 15% 8% 18% 6%
Average 17% 10% 19% 9%
Injectable Peers
Strides Arcolab 21% 7% 21% 32%
Ahlcon 16% 6% 16% 7%
Parenteral Drugs 10% 1% -2% -20%
Claris 31% 19% 32% 17%
Kilitch 15% 7% 17% 9%
Average 19% 8% 17% 9%

Industry
Average 18% 9% 18% 9%
Venus 25% 13% 22% 13%
(Source: Ace Equity, company reports)

Profitability set to improve

The company is confident that it can improve margins going forward.
The key reason behind this is the high revenue flow expected from
out-licensing of the already developed technology. This revenue will
add to the top-line without putting much strain on cost side of the
company’s profit and loss sheet.

Creating significant opportunities through R&D

Focus on formulation R&D products to beat me-too generic
products competition

Venus has evolved an innovative approach to its R&D investments to
overcome competition in generic drugs. Its R&D is focussed on
creating new drug candidates through formulation focused research,
where it aims to combine two or more already patented APIs into a
Research new formulation or a dosage form. Venus aims to make formulations
pipeline based that are more effective than alternatives available in the market. It
on novel aims to offer a therapeutic advantage and differ from me-too generic
formulations products.
This strategy offers a low-risk, low-cost alternative to the traditional
pharmaceutical development of new medicines, due to their shorter
development timeline. New Chemical Entities (NCEs) take a long time
to develop, often at a cost of over US$1bn. Conversely, the
development of new therapies through Venus’ method is cheaper and
less time consuming, as it has a known mechanism of action and an
established safety and efficacy profile. This offers products a less
complex clinical development process.
It also has a simpler pathway to patent approval that can potentially
save pharmaceutical sponsors both time and money.

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Some of its key products like Sulbactomax and Vancoplus are novel
formulations of previously approved APIs.

Concentrating on future epidemic : Anti-Microbial Resistance

Venus has maintained strong focus on Antimicrobial resistance (AMR)
while developing research products. Antimicrobial resistance (AMR) is
the resistance of a microorganism to an antimicrobial medicine to
which it was previously sensitive. These resistant organisms are able
to withstand attack by antimicrobial medicines, such as antibiotics,
antivirals, and antimalarials, so that standard treatments become
ineffective and infections persist and may spread to others.
Infections caused by resistant microorganisms often fail to respond to
the standard treatment, resulting in prolonged illness and greater risk
of death. Once resistance evolves, it can spread very rapidly across
borders and around the world. This drug resistance threatens to
erase gains made in disease treatment and control in developing
countries.
Venus Remedies is one of the few R&D led companies which has
innovated and developed a comprehensive range of novel antibiotic
combinations which not just provide relief from the aggravated
problem of antibiotic resistance but also are cost-effective and have
reduced side effects.

The Company could foresee the potential of antibiotics fading 10
years back and it is the result of its focused approach that today it
has some SUPER BUG tackling solutions under patent protection. The
entire antibiotic research products of Venus like Vancoplus,
Sulbactomax, Potentox, Tobracef and many more cater to the
Antimicrobial Resistance segment.

Sulbactomax – a key growth driver

The biggest product from Venus’s R&D initiative is Sulbactomax, an
anti-infective product, used to combat beta-lactamase generated
Sulbactomax, a
drug resistance, the only product in its category to prevent growth
likely winner
and spread of bacterial resistance.
Sulbactomax is a combination of Ceftriaxone and Sulbactam with
VRP1034. Venus’s tests show that Sulbactomax is much more
effective than all the existing third generation cephalosporins and
their combinations.

Research pipeline robust, several launches ahead
Research Besides Sulbactomax, Venus’s R&D has come up with several new
launches unique formulations like Vancoplus, Potentox, and Tobracef.
beginning to hit
Achnil, launched in FY11, is a revolutionary once-a-day pain killer,
the market
given Product of the Year award by Biospectrum Asia for its
uniqueness in addressing critical health conditions.

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Many new products like Tumatrek, Trois and Stermex were lauched in
FY12 and many more to be launched in coming years. These new
products are estimated to generate revenue of 5-10% for the
company in the next 2-3 years. Venus Remedies is coming up with
constant flow of research products mainly due to its well thought out
R&D process which looks for novel solutions that fill the vast gap
between challenging ailments and available molecules.

Aims to create Sizeable IP wealth by 2015

Venus now has 80+ global patents out of more than 360+ filed for its
13 research products. There is a clear indication that the company
has created strong traction in R&D as well as Global presence.

Rightly positioned to capitalise IP wealth

Licensing Sulbactomax itself is patented in 42 countries including the EU
discussions on countries; patents are awaited from 8 more countries including US
for Sulbactomax and Japan. Sulbactomax has US$400mn market in India itself,
according to Venus. Global potential is indicated by third generation
cephalosporins and carbapenems, a close substitute, which have
market of around US$2bn globally. Venus Remedies has already out-
licensed Sulbactomax successfully to a South Korean pharma
company to monetise the South Korean US$585mn market.
In a similar way, Venus Remedies is looking to capitalise its IP wealth
from its range of research products by striking deals with global
pharma companies for specific geographies.
Venus Remedies has already shortlisted a number of companies and
is very close to finalising the deal with these companies. The
company has hired renowned external agencies to make sure these
deals are executed in the best interest of Venus Remedies’
stakeholders.

Market authorisation in regulated markets

Venus Remedies has marketing authorisations for EU markets for
multiple products like Meropenem. It is the first Indian company to
get GCC market authorisation for its oncology and Carbepenem
products. This authorisation will further increase market reach of its
products, pushing revenue growth.

Vast pool of patented R&D products to capitalise on

Since Venus Remedies has reorganized its priorities and started
investing in R&D, it has developed respectable IP wealth within a
very short period. Venus currently has more than 13 research
products in development, with 11 products already under patent
protection. 7 of these products are already commercialised not only
in India but are also launched in emerging export markets through
various alliances, and are selling in 12 countries.
Overall, Venus Remedies boasts of 80+ patents out of more than

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360+ filed in over 51 countries. It has 44 product registered in
developed countries and has filed 108 CTDs for 7 products. Venus
Remedies also has more than 375 market authorizations in semi-
regulated market. Strong IP wealth with patented technology and
ready to launch products along with EU GMP certified plant will enable
Venus Remedies to monetise this wealth in the near future.

Traction from research products to grow

Revenue from With ever growing investment in R&D by Venus Remedies (from
R&D products 14.5% of revenue in 2009 to 19% in 2011) and a strong R&D team
could grow 20- of 60 scientists, in-licensing and R&D alliances with many
25% annually international universities, Venus Remedies is on right path to grow its
IP wealth. This is also evident from range of their products in phase
II & III of research.
Research products contributed around 25% of Venus’ total revenue in
FY12. Revenue from research products is expected to grow at a rate
of 20-25%, higher than the generics in its portfolio. This strong
traction is expected in near future because of new research products
and established products.

Superior operational efficiencies

Better working capital management

The chart below shows debtor turnover for the latest financial year.
Venus Remedies performance here is above peer averages.

Debtors Turnover
12.00
10.00
8.00
6.00
4.00
2.00
0.00

Running business with higher capital efficiency

Venus remedies is utilizing its capital efficiently, resulting in better
profitability ratio and better returns to its stakeholders. It can be
seen from Venus remedies having highest ROE and ROCE ratios
compared to most of its peers and much higher than industry
average.

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ROE ROCE
30% 25%
25% 20%
20%
15%
15%
10%
10%
5% 5%
0% 0%
Indoco

Ahlcon
Ajanta Pharma

Nectar
Natco Pharma

Industry Average
Parenteral Drugs
Strides Arcolab
Parabolic

Claris

Venus
Kilitch

Indoco

Ahlcon
Ajanta Pharma

Nectar
Natco Pharma

Industry Average
Parenteral Drugs
Strides Arcolab
Parabolic

Claris

Venus
Kilitch
Valuations – have trended down in FY12

High discount compared to its peers

Valuations Venus is currently traded at discounted valuations as compared to its
ignoring steady pharma peers. When we divide peers among injectable segment and
growth, and mid-cap segment, within injectable segment, Venus Remedies is at
R&D results lowest multiple compare to its all injectable peers.
Venus is also at lower range of valuations amongst Pharma
companies of similar scale. Currently, Venus is traded at a PE ratio of
3.3 whereas mid-cap Pharma companies are traded at an average of
9.5 and injectables are traded at an average PE of 13.4.
Given Venus’ steady growth performance, and reasonable return on
capital, this gap will get bridged, at least partially, if not wholly. If it
gets revenue from out-licensing, the process of narrowing of the
valuation gap could get accelerated, giving a major upside for the
stock.

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Peer Benchmarking

The peer set: mid-cap pharma companies & injectable players

Venus Remedies is among the leading injectable manufacturers in
India. We have compared it to its injectable peers, as well as midcap
pharma peers. We find its performance is within peer averages, and
better on some parameters. The strategy of Venus Remedies to focus
on niche injectables segment has benefitted company, which is
evident from its growth in last few years and margins it has managed
through out.

Company Market EV TTM TTM TTM TTM TTM TTM PAT
Cap Sales Sales 4- EBITDA EBITDA PAT 4-yr
yr CAGR 4-yr CAGR
CAGR
Mid-Cap Peers

Ajanta Pharma 7456 8633 6714 21% 1407 29% 773 37%
Indoco 4981 5980 5389 19% 735 15% 460 11%
Natco Pharma 11517 13717 4831 10% 1095 20% 602 10%
Nectar 4339 12299 13412 15% 2453 18% 804 2%
Parabolic 1253 5997 9288 33% 1666 37% 574 18%

Average 5909 9325 7927 19% 1471 24% 642 16%
Injectable Peers
Strides Arcolab 39986 64181 25645 26% 5399 67% 1,689 15%
Ahlcon 3089 3341 848 9% 139 1% 43 -2%
Parenteral Drugs 1441 7329 3083 10% -52 NA 50 NA
Claris 10674 14376 7625 0% 2446 5% 1,414 4%
Kilitch 570 1100 1414 5% 235 1% 105 2%

Average 11152 18065 7723 10% 1633 19% 660 5%
Industry
Average 8531 13,695 7825 15% 1552 21% 651 10%

Venus 1617 3486 4049 18% 896 15% 493 9%

Better P&L Venus Remedies has performed better than its injectable peers in the
growth numbers last 4 years as peers’ overall profit declined. Venus managed to
than injectables improve PAT at a CAGR of 9%.
peer average
Peer revenues have grown at an average of 15%, while Venus has
delivered growth rates of 18% over last four years.

Among the best organic growths

Among the companies performing better than Venus on growth,
Strides Arcolab revenue was boosted by its acquisitions of Ascent
Pharmahealth. Ascent Pharmahealth, one of the biggest branded
generic drug manufacturer in Australia, had sales of US$140mn in
FY10. Strides recently sold out 94% of its stake in Ascent to refocus

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on speciality injectables.
As can be seen in the table below, Venus Remedies is among the
outperformers in its peer group on standalone basis as well, signifying
success of Venus Remedies to grow organically at very comfortable
rate. Venus Remedies has managed to propel its growth organically
using its strong product portfolio and strong presence in highly
growing injectable space.

Company Revenue CAGR (FY08-FY11)
Ahlcon Parenterals 11%
Ajanta Pharma 17%
Claris Lifesciences 4%
Indoco Remedies 22%
Kilitch Drugs 8%
Natco Pharma 16%
Nectar Lifesciences 13%
Parabolic Drugs 31%
Parenteral Drugs 22%
Strides Arcolab 9%
Industry Avg 15%
Venus Remedies 19%
Standalone revenues, Rs mn

Comparing key P&L items

Better profitability parameters

Focus on high Venus Remedies has outperformed most of its peers in profitability in
margin products midcap as well as injectable peers while generating strong growth
has boosted numbers in last few years.
margins
While injectable peers have EBITDA margins of 17% on average and
9% PAT margins, Venus Remedies has managed to clock 22% EBITDA
margin for TTM and 12% PAT TTM margins.
Venus Remedies has better margins among its mid-cap peer
companies which are averaging 19% EBITDA and 9% PAT margins
compared to 22% EBITDA and 12% PAT TTM margins of Venus
Remedies.

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FY11 Margin (%) TTM Margin (%)
Company EBIDTA PAT EBIDTA PAT
Mid-Cap Peers

Ajanta Pharma 19% 10% 21% 12%
Indoco 13% 11% 14% 9%
Natco Pharma 19% 12% 23% 12%
Nectar 20% 9% 18% 6%
Parabolic Drugs 15% 8% 18% 6%
Average 17% 10% 19% 9%
Injectable Peers
Strides Arcolab 21% 7% 21% 32%
Ahlcon 16% 6% 16% 7%
Parenteral Drugs 10% 1% -2% -20%
Claris 31% 19% 32% 17%
Kilitch 15% 7% 17% 9%
Average 19% 8% 17% 9%
Industry Average 18% 9% 18% 9%
Venus 25% 13% 24% 12%

Balance sheet ratios

Reasonable leverage

Debt Equity (x) Interest Coverage (x)
Company FY10 FY11 FY10 FY11
Mid-Cap Peers
Ajanta Pharma 0.83 0.8 2.87 4.02
Parabolic 2.65 1.25 2.03 2.27
Indoco 0.21 0.29 14.3 21.22
Nectar 0.97 1.1 2.59 2.35
Natco Pharma 0.39 0.62 4.88 4.99

Average 1.01 0.81 5.33 6.97
Injectable Peers
Ahlcon 0.29 0.66 7.35 3.17
KIlitch Drugs 0.57 0.63 4.27 4.94
Parenteral Drugs 0.62 0.75 3.17 1.3
Claris 0.39 0.38 4.07 4.07
Strides Arcolab 1.57 1.74 1.79 0.97

Average 0.69 0.83 4.13 2.89
Industry Average 0.85 0.82 4.73 4.93
Venus 0.87 0.79 4.28 3.77

Although Venus Remedies has investing heavily in its R&D and
capacity ramp up in last 3-4 years, its debt condition is in line with
industry scenario. Its financial position is pretty much on par

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compared to most of its peers as can be seen table above.

Liquidity ratios on par

Current Ratio (x) Cash Ratio (x)
Company FY9 FY10 FY11 FY10 FY11
Mid-Cap Peers

Ajanta Pharma 1.62 1.85 1.55 0.16 0.12
Indoco 2.7 2.79 2.63 0.48 0.31
Nectar 1.26 2.11 1.72 0.17 0.13
Natco Pharma 1.27 1.31 1.53 0.08 0.31

Average 1.71 2.02 1.86 0.21 0.2
Injectable Peers
Ahlcon 1.11 1.58 1.37 0.36 0.1
KIlitch Drugs 1.68 1.42 1.08 0.17 0.38
Claris 1.54 2.53 3.43 1.08 1.04
Strides Arcolab 1.39 2.12 1.86 0.37 0.19

Average 1.43 1.91 1.94 0.43 0.36
Industry
Average 1.57 1.96 1.90 0.32 0.28
Venus 1.65 1.50 1.67 0.11 0.11

Venus Remedies is maintaining liquidity status similar to peers in the
industry even though it has under taken high capex in last few years
in R&D and capacity up-gradation.

In March 2012, ICRA has assigned a BBB- rating to Venus Remedies
on its debt facilities, citing comfortable financial risk profile marked
by healthy size of net worth.

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Comparing Peer Valuation

Dividing peer set into two parts

In the table below, as earlier, we have presented two sets of peers:
mid-cap pharma companies and companies in injectable space.

Valuation* EV/ CAGRs 4 year Ratios
EBIDTA
Company P/E P/E EV/ EV/ TTM TTM D/E ROCE ROE
(TTM)
(TTM) EBIDTA TTM Sales NP (FY11) (FY11)
Sales
Mid-Cap Peers

Ajanta Pharma 4.62 9.72 8.96 6.13 1.69 17% 32% 0.80 22% 27%
Indoco 10.70 10.84 9.28 8.13 1.24 21% 19% 0.29 14% 15%
Natco Pharma 14.48 19.13 15.80 12.52 2.97 11% 10% 0.62 16% 16%
Nectar 5.35 5.41 5.58 5.58 1.10 13% 11% 1.10 14% 15%
Parabolic 5.00 2.18 5.95 3.60 0.89 31% 21% 1.25 15% 20%
Average 8.03 9.45 9.11 7.19 1.58 19% 19% 0.81 16% 19%
Injectable Peers
Strides Arcolab 9.59 4.85 13.80 11.89 2.53 35% 31% 1.74 12% 17%
Ahlcon 10.83 53.63 31.17 24.11 4.98 4% -11% 0.66 17% 12%
Parenteral Drugs 88.27 -2.29 14.78 -139.91 1.51 32% -36% 0.75 4% 2%
Claris 7.24 7.24 6.07 6.07 1.90 7% 19% 0.38 16% 15%
Kilitch 7.48 4.58 4.97 4.69 0.75 8% -3% 0.63 13% 13%

Average 24.68 13.60 14.16 11.69 2.33 17% 0% 0.83 12% 12%

Industry Average 16.4 11.53 11.6 9.44 1.96 18% 9% 0.82 14% 15%

Venus 3.98 3.28 3.91 4.06 0.96 19% 9% 0.79 19% 23%
*based on latest financial year, +excluding Parenteral Drugs

Venus Remedies is discounted lower compared to all its peers

Sharp valuation Venus Remedies is valued at a sharp discount by the market
discount to both compared to all of its peers. While Venus Remedies’ PE is ~3x FY12,
injectables and industry average is hovering at 8-9x. Amongst the peer set listed
pharma peers above, parenteral peers get similar valuation compared to pharma
companies, but within the parenteral set as well, Venus is getting a
low valuation.
On a ttm basis Venus Remedies trades at discount of 70%, with a PE
ratio of 3 compared to industry average of 10.63x. Venus Remedies’
EV/EBITDA is at discount of 43% and EV/Sales shows a discount of
38% with respect to industry average.

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Valuation and Price Target

Scope for higher valuations

Business In terms of business ratios, like growth rates, operating margins,
performance balance sheet ratios, Venus is doing as well as its peers.
supports better
It is likely Venus’ valuations are still suffering from the resettlement
valuation
of FCCB redemptions in FY10. This FCCB was issued in 2006, and
given the bear phase the Indian markets were going through in
FY10, the prevailing share price was much lower than the market
price. Accordingly, investors wanted redemption. However,
ultimately both parties agreed for a settlement at a lower price.
Liquidity situation continues to remain reasonable. The company’s
current rating is BBB-, as awarded by ICRA in March 2012.
Another reason for the low valuation is the high R&D spends, some
of which is passed through the balance sheet. Investors may be
wanting to see more tangible results from the investment on R&D.

We believe this scenario may change going forward as the market
begins to see more results from Venus’s R&D pipeline. We also
expect bottom-line growth to robust over FY12-14, as the company
derives greater share of sales from high margin products. Any
significant deal on Sulbactomax can be a further driver of rerating.

Price Target

3 year P/E band chart
400
PE
350
7x
300

250
5x
200

150 3x

100

50

0
1-Apr-09

1-Aug-09

1-Apr-10

1-Aug-10

1-Apr-11

1-Aug-11
1-Feb-10

1-Feb-11

1-Feb-12
1-Dec-09

1-Dec-10

1-Dec-11
1-Jun-09

1-Oct-09

1-Jun-10

1-Oct-10

1-Jun-11

1-Oct-11

PE PE PE

Even if Venus Venus is currently trading at around 3.3x FY12 eps and 2.6x
maintains expected FY13 eps. This is below its historic trading range of the last
current ttm 3 years, and around the valuation at the depth of the 2009 bear

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valuations, market. These values are also much below peer levels. Similarly, its
Mar’13 price EV/EBITDA for FY13 works out to 3.1x, which is much less than peer
could touch levels.
around Rs 225
We expect Venus to rerate upwards as market realises the strides it
has made it its R&D portfolio. We expect Venus’s price to cross Rs
200 over a 12 month period, implying a rating of 3.3x expected FY13
earnings. This is an upside of 23% from current levels.

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Venus Remedies’ Business

As we noted in the valuation section, the low valuation given to
Venus could partly derive from a lack of understanding of its
business model. Its research model is quite unique compared to
most Indian pharma companies.
Second, inventors might not be giving much weight to its research
capability, and assigning much value to its research pipeline.
All of the above could arise because while Venus Remedies’ focus on
R&D has resulted in significant investments, strong returns are yet to
flow in. As a result, the company has not come close to generating
free cash flows in recent years.
These issues are discussed in detail below.

A vision to break-out from me-too companies

R&D push from Till year 2000, Venus Remedies was part of the cluttered generic
2006 injectables products segment. At the time, Venus Remedies was
involved in generics injectables only. Realising generic products
would have a limited scope in the future with patent regime coming
into place in India from 2005; Venus Remedies changed its strategy
and decided to focus on innovation to drive its growth.
Venus Remedies started investing in R&D from year 2001. In a short
time of 4 years, they filed for their first patent for Sulbactomax. The
R&D effort is beginning to show steady results since then.

Understanding Venus’ R&D

R&D spends Venus Remedies is ranked 3rd among all Indian listed
above peer pharmaceutical companies in terms of R&D spends as a share of
levels revenues. It is ranked among the top 15 R&D spenders in absolute
terms.

Rank Companies R&D Spend (FY11)
1 Dr Reddy’s Laboratories 8464
2 Sun Pharmaceutical Inds. 2860
3 Matrix Laboratories 2820
4 Cadila Healthcare 2686
5 Cipla 2598
6 Biocon 1725
7 Ranbaxy Laboratories 1670
8 Torrent Pharmaceuticals 1527
9 Lupin 1268
10 Glenmark Pharmaceuticals 983
11 Aurobindo Pharma 815

Four-S Research 15


12 Panacea Biotec 772
13 Piramal Healthcare 716
14 Venus Remedies 696
15 Jupiter Bioscience 567
(Rs mn)

Rank Companies % of revenue
1 Vivo Bio Tech 49
2 Suven Life Sciences 22
3 Venus Remedies 19
4 Jupiter Bioscience 17
5 KDL Biotech 16
Sun Pharma Advanced Research
6 Company 14
7 Zenotech Laboratories 12
8 Dr Reddys Laboratories 11
9 Auromed 11

Venus Remedies has invested more than Rs 1.5bn in the last 3
years, which is around 16.5% of its revenue in this period. For last
three years, all the capex is done is also mainly in R&D, up-gradation
and modernisation.

R&D capability of Venus Remedies

A multi-pronged The Company has proven its R&D capability with the gradual
approach increase of revenue from the research products and 80+ patents in
hand from over 51 countries. Venus has, in all, 11 testing labs
working together to develop first-of-its kind product through highly
sophisticated technology. It has developed 13 research products in
short span of 9-10 years. At any time, R&D has a pipeline of 20+
products. On average, the Company comes out with 1-2 new
developed products every year.
In FY10, Venus Remedies launched Mebatic, an infusion therapy and
Ampucare, a wound healing therapy, a first of its kind product in
India. In FY12 Venus Remedies launched Achnil, a once-a-day
painkiller.
Venus has a well developed R&D centre with high tech capabilities at
par with stringent cGLP standards. Its R&D centre has a strong 60
member scientist team; 70% of them are PhDs and post graduates.
In licensed The Company also benefits from in-licensing alliances with various
tumour innovative companies and university. It has in-licensed solid tumour
detection detection technology for early detection from University of Illinois.
technology from Such alliances have enhanced company’s R&D capabilities and have
University of helped to improvise its R&D process.
Illinois
As of now, Venus is preparing to file more than 100 CTDs and ACTDs

Four-S Research 16


each in the coming 3 years to take its present count of 600 ACTDs to
700 and 108 CTDs to 200 by 2015.

Key Research areas

Nano-tech Novel Drug Delivery System (NDDS): Venus has achieved success in
based sustained development of nanotechnology-based, sustained release and
release targeted delivery formulations with NDDS. This has resulted in
formulations developing formulations with reduced adverse drug reaction and side
effects in therapeutics areas of oncology, NSAID, neuroscience,
arthritic disorders, stress and lifestyle-related diseases, immune
chemistry, infectious diseases and wound healing. NDDS is advance
drug delivery system which improves drug potency, control
drug release to give a sustained therapeutic effect and provide
greater safety. It is used to target a drug specifically to a desired
tissue.

Non-infringing Formulation Development: Venus is building its IP through
formulations developing non-infringing formulations. Company is developing
various formulations to revitalise established brands, fill product
pipeline gaps and enhance patient compliance. With the help of
strong regulatory team, Venus has managed to gain early mover
advantage in many leading generic markets.

Research Capabilities:

Process
developme
nt and
technology
transfer
Analytical
Clinical
research
research
division
services
(ARD)

Research
Capabilities
Office of Chemical
research and
support stability
(ORS) testing

Pre-
Natural
clinical
product
division
research
(PCD)

Process development and technology transfer: Ability to
transfer technology from laboratory to pilot and to manufacturing
scale. This is vital in technology transfer required to scale a

Four-S Research 17


successful molecule and technology transfer in out-licensing deals.
Analytical research division: Capable in developing novel
formulations, analytical development and drug design support.
Chemical and stability testing division: Capability to perform
stability tests as per ICH guidelines provides analytical services to
research dept and meets international quality and regulatory
standards.
Pre-clinical division: Performs pre-clinical trials and oxicological
studies under GLP environment.
Natural product research: screens natural products and drug
development as per pharmacopial and medicine standards.
Office of research support: Bridges the gap between research
and marketing through interactions with the field force, training
marketing teams, addressing queries raised by the PMT team and
designing experiments for research value-addition.
Clinical research services: Division involved in Phase-I, II, III, IV
and BA/ BE clinical studies monitoring, as per GCP, for its research
products to accelerated the delivery of safe and effective
therapeutics.

Key Initiatives in R&D

Cell Culture Molecular Biology (CCMB) laboratory

Working on a Venus has setup CCMB laboratory in affiliation with some other
novel cancer pharma companies to fasten the cancer drugs testing. The company
treatment has 4-5 such products which are expected launched in next 4-5
years. Company is also working on novel cancer drug for target-
specific treatment (90% of the drug will go to the affected area
against the present 10%). This will reduce the side effects of these
drugs and also brings down the costs.

Tie-ups with renowned research institutes

A typhoid Company has tie-ups with IMTECH, a renowned research center of
testing kit CSIR and Punjab University. Through this alliance, company is
through a developing a typhoid diagnostic kit. This kit will reduce detection
research tie-up time from 48 hrs to few minutes. Company has the authorisation to
market this kit worldwide.

Products conforming to ASEAN CTD

Venus has upgraded its entire product pipeline of 75 products to
ASEAN CTD preparing the entire portfolio for international.

Four-S Research 18


Capitalising the IP

Seeking out Venus Remedies understands that it is not easy to capitalise the IP
licensing deals wealth they are creating in the huge global market. So to maximise
to monetise IP the potential of this IP development, it has a clear strategy in place.
Venus Remedies has appointed a leading consulting firm to seek tie-
ups with international pharma companies for Sulbactomax.

Venus Remedies plans to out-license the patented products to multi-
national and regional companies with specific geographical interest
considered. This will help Venus Remedies to garner the benefits
from market across the globe without having to invest in market
development.
Venus Remedies has already closed an out-licensing alliance with a
major South-Korean Pharma company for Sulbactomax. For FY12,
Venus Remedies expects to get 25% of its revenue from its own
research products.

Venus Remedies’ Manufacturing excellence

Among global leaders in fixed dosage injectable
manufacturing

Venus Remedies is among world’s top 10 injectable manufacturers
and has the largest super specialty injectable manufacturing capacity
in Asia. Venus has strong presence in relatively uncluttered,
specialised, higher margin fixed dosage injectable space. Global
injectable market is pegged at US$200bn in 2010 with generic
market contributing US$20bn of it.
There are limited numbers of players in the injectable space and high
investment is required in setting up the complex plants. This will
keep margins in this segment high with lesser competition to face in
the market.

Prominent Products

15% of FY11 Sulbactomax: It is the top product in Venus Remedies kitty with
revenue 15% revenue contribution in FY12. The company holds patents for
Sulbactomax in South Africa, India, 37 countries of the European
Union, Russia, Ukraine, Mexico, Australia and New Zealand while
patent is still awaited in six countries including US and Brazil.
Sulbactomax is the only product in its category to prevent bacterial
resistance. Sulbactomax is a formulation of ceftriaxone and
sulbactam with VRP1034. The global injectable antibiotic market is
US$200bn of which Ceftriaxone alone accounts around US$1.2bn.
Sulbactomax aims to target a significant share of this market
because of the growing bacterial resistance. Venus is currently
marketing this product in India and seven other countries.

Potentox: It is ranked second in Venus Remedies with respect to

Four-S Research 19


revenue contribution (4.6% in FY12). Company has patents in South
Africa, New Zealand, South Korea, Australia, Ukraine and India.
4.2% of FY11
Patents awaited from 44 other countries including EU and US.
revenue
Potentox, a research-based super-specialty product is used for
treating hospital and community acquired pneumonia and febrile
neutropenia. It reduces pneumonia treatment time from 21-30 days
to 7-10 days and reduces drug and disease-induced toxicities. This is
the only solution to growing flouroquinolene and aminoglycoside
resistance.

3% of FY11 Vancoplus: It is third biggest product of Venus with 3% of revenue
revenue in FY11. The company holds patent in US, Japan, Australia, South
Africa, New Zealand and Ukraine. Patents awaited from 44 other
countries including EU and Brazil.
It is the only remedy after vaccination to treat superbug like MSRA,
VRSA, VRE and multi-drug-resistant microbes causing meningitis.
The product effectively stops the spread of resistance by preventing
bacterial conjugation.

2% of FY11 Tobracef: Tobracef contributed 2% of revenue in FY11. It’s a
revenue research-based anti-infective product catering to Pseudomonal
infections caused in Cystic Fibrosis and HAP with patents in South
Africa and patents awaited from other countries. Once company get
patents and authorisation in major regulated market, this could also
turn out to be major blockbuster project for Venus Remedies.

Neurotol: Neurotol is an innovative product which contains mannitol
and glycerine. Neurotol is used in the management of raised
intracranial pressure and brain oedema associated with cerebral
infraction, intracerebral hemorrhage, head injury, subdural
hematoma, brain tumour, encephalitis and toxemia. Neurotol is
widely accepted by medical fraternity like neurosurgeons and
neurophysicians. The synergy of mannitol and glycerin in Neurotol
prevents the chances of rebound oedema. Mannitol is known to
provide immediate effect while glycerin is helpful for sustained
effect. Venus is the first company to introduce this product. Neurotol
offers improved patient compliance with no side-effects when
compared with plain generic mannitol.

Achnil: Achnil is an NDDS based controlled and sustained release
NSAID (non steroidal anti-inflammatory drug) injection. It is the
Launched in
FY11 world’s first once-a-day pain killer injection which replaces the three
injections per day therapy. It has already got patent application in
EU and India while patent in US in under process. Achnil was
launched in FY11 in the domestic market. The product prevents post
surgical adhesion and has high levels of safety.

Venus Research Product portfolio

Four-S Research 20


Products Therapy Nature

Sulbactomax Caters to ESBL, NMD-1, Penem Resistance Injection
Vancoplus Caters to MRSA, VRSA & VRE Injection
Potentox Caters to HAP, Febrile Neutropenia Injection
Tobracef Developed for Cystic fibrosis Injection
Zydotum For Pseudomonas Infections In Burns Injection
Supime Intra-abdominal infections caused by various pathogens and post- Injection
operative infections
Pirotum Treatment of peritonitis and complicated intra-abdominal infections, Injection
pirotum is indicated. continuous ambulatory pulmonary dialysis,
management of lower respiratory tract infections and febrile
neutropenia
Neurotol For raised intracranial pressure and brain oedema associated with Infusion
cerebral infraction, intracerebral hemorrhage, head injury, subdural
hematoma, brain tumour, encephalitis and toxemia.
Mebatic For pre and post surgical procedures, pelvic infections, urinary tract Infusion
infections, urogenital tract infections, typhoid and prevention of ICU
infections due to anaerobes.

AMR compatible research products

AMR has rapidly Antibiotic Resistance is spreading faster than expected throughout
emerged as a world and the poor R&D pipeline for new antibiotics is further adding
big global up this menace. Recently, World Health Organisation (WHO) has also
health threat taken this issue with vigour by making this as main theme for World
Health Day. According to WHO, AMR results in prolonged illness and
greater risk of death. AMR not only increase overall health cost bur
WHO feels world may end up in pre anti-biotic era.
AMR has become serious problem for treatment for many major
diseases like HIV, tuberculosis, malaria, gonorrhoea and many more.
Risk factor involved in the infectious diseases has grown much more
than it even existed and if it would keep on growing at the same
pace, the world will soon reach the pre-antibiotic era again.
The situation has deteriorated to an extent that even a mild infection
can be deadly in today's world. The rising misuse and under usage
has made the life saving antibiotics ineffective against the microbes.
Reports say that US households lost approximately US$35bn in 2000
to antibiotic resistant infections including lost wages, extended
hospital stays and premature deaths. The annual cost to the US
health care system of antibiotic resistant infections is US$21bn to
US$34bn and more than 8mn additional hospital days.

In 29 countries of European union, an estimated 25,000 people die
every year because of the infections related to antibiotics resistance.
The medical cost per patient suffering from an antibiotic resistance
(ABR) infections ranges from US$18,588 to US$ 29,069. According
to the BCC Research report, the global market for infectious disease
treatments was valued at $90.4 billion in 2009. This market is
expected to increase at a compound annual growth rate (CAGR) of

Four-S Research 21


8.8% to reach US$138bn in 2014. The antibiotics market generated
sales of US$42bn in 2009 globally, representing 46 percent of sales
of anti-infective agents (which also include antiviral drugs and
vaccines) and five percent of the global pharma market.

Inception of new antibiotics is getting difficult because of the present
drug development scenario which is fraught with financial,
regulatory, ethical and scientific bottlenecks. Due to huge investment
in R&D and less output (financially) out of the product dejects the
pharmaceutical companies to invest in it.

Today, Venus Remedies is one of the few R&D led companies to have
innovated and developed a comprehensive range of novel antibiotic
combinations which not just provide relief from the aggravated
problem of antibiotic resistance but also are cost-effective and have
reduced side effects. All products which came out of Venus research
efforts do cater to antimicrobial resistance.

Products Category Dose Indications

Sulbactomax Antibiotic Once daily IM/ IV injection in Infections caused by ESBL resistant
mild to moderate infections and pathogens:
twice daily in severe infections  Lower respiratory tract infection
 Urinary tract infection
 Skin infections
 Surgical prophylaxis
 Bone and Joint infections
 Acute bacterial septicemia
 Acute Otitis media

Potentox Antibiotic Twice Daily Multi-drug resistance of:
 Nosocomial Pneumonia
 Febrile Neutropenia
 Other severe hospital acquired
infections

Vancoplus Antibiotic Twice Daily IV injection in mild to Infections caused by resistant pathogens
moderate infections and thrice such as MRSA:
daily in severe infections.  Meningitis
 Septicemia
 Skin and skin structure infections
 Bone and joint infections
 Post operative infections

Tobracef Antibiotic Twice Daily injection Acute pulmonary exacerbations due to:
 Cystis fibrosis
 Pneumonia
 COPD

Presence in highly specialised generics

Within generics, which were around 75% of revenue in FY11, Venus
has shifted focus to high margin products. Currently, Venus sells
around 75+ products, with around 20+ products under development

Four-S Research 22


phase at any point of time.

Carbapenams, a Meropenem is one such generic product (carbapenem injection).
key part of Venus Remedies has received market authorisation for Meropenem
generics folio in EU. This represents a €150mn market opportunity, putting Venus
among the top 3 EU-GMP manufacturers globally of carbapenem
antibiotics.
The Company has also received market authorisation for
Imipenem+Cilastatin, Docitaxel and Irinotecan in the European
Union. Similarly Venus also has market authorisation in for
Gemcitabine for U.K., Germany, Poland Slovania, Portugal and
Macedonia.
Venus also has strong presence in oncology segment with 21
Oncology injectables in its portfolio. Oncology segment contributed more than
generics are 30% to FY11 revenues, with extremely good margins. These are
about 29% of much specialised products and high technology is required in
revenue manufacturing these products.
A key oncology product for Venus Remedies is Gemcitabine, for
which it has marketing authorisation for in EU and UK. Gemcitabine
is established as a gold standard therapy in treating pancreatic
cancer.
Venus understands the importance of this highly specialised, high
technology, high margin oncology business. Hence, the Company has
setup a dedicated sub-business unit for oncology business covering
almost all cancer types just to further strengthen the focus on it.
Oncology segment is likely to remain high growth has patents of
oncology injectables, currently worth US$8.3bn, are set to expire by
FY2015.

Products kitty

As can be seen, Venus has a strong kitty of 8 R&D products
marketed in 12 nations. In the high margin oncology segment, it has
19 products with presence in 23 nations. Carbapenem and
Cephalosporin has 20 products, with Carbapenem products sold in 23
nations.
Category No. of products Presence
R&D products 8 products 12 nations
Oncology liquid 10 products (in various dosage 19 nations
forms)
Oncology lyphilised 9 products 23 nations
Carbapenem 3 products 23 nations
Cephalosporin and other 17 products 18 nations
injectables
PFS and infusions 5 products 11 nations

Four-S Research 23


Bigger the pipeline, greater the in-flow in future

Venus Remedies has strong R&D product pipeline as of now with
more than 10 products at various stages of research. This comprises
of products from therapeutic segments such as oncology, anti-
infection and neuro.
Typhoid and Some of the products close to commercialisation include a Typhoid
tumour detection kit. With 17mn patients every year for typhoid, this
detection kits detection kit has the potential to be a key revenue generator for
part of IP Venus Remedies in future. The kit reduces the time taken for a
pipeline typhoid test sharply, from 48 hours to few minutes.
Similarly Venus has Tumatrek, an early tumour detection test in
phase III and DPPC, a novel triple conjugate for targeted delivery of
anticancer drug in preclinical phase. Venus also has products on
oral, breast and ovarian cancer under pre-clinical tests.
This strong pipeline creates strong prospects for Venus Remedies to
drive the growth with its research products.

Accolades & Awards showcasing research efforts

Venus has received number of awards and accolades in last few
years affirming the efforts and path chosen by the company. Venus
has won awards for its research products and patents filed by
company and as emerging company & manufacturing excellence.
List of awards won by Venus Remedies:
 BioSpectrum Product of the Year 2012 award for its novel research
product 'ACHNIL', a once-a-day painkiller.
 Gold Patent award 2011 for the novel research drugs presented by
Pharmexcil.
 The Bizz- Business Excellence Award 2011 received in US.
 'Silver Certificate of Merit' in the Economic Times' India
Manufacturing Excellence Awards (IMEA), 2011 held in Mumbai.
 'Emerging Company of the Year 2011' award in the 4th annual
Pharmaceutical Leadership Summit & Award 2011.
 Best SMB Award 2008
 Emerging India Award 2007 presented by Dr. Manmohan Singh
Prime Minister of India.
 Ampucare Gold Medal 2010 'India Innovation Program- 2010'
organized by Lockheed Martin (USA), FICCI and DST (India)‫‏‬ .
 Trois: Gold Medal 2011 'India Innovation Programme - 2011'
organized by Lockheed Martin (USA), FICCI.
 Quality Award 2011 in Gold category from BID International
convention at Geneva.
 2011 Spotlight award for the Annual Report in the LACP's (League
of American Communications Professionals) Global Communication
Competition In Bronze category in San Diego, USA.

Marketing & Distribution

Four-S Research 24


Pan India Venus has established a pan-India marketing presence covering 24
distribution States and two Union Territories, supported by over 700 marketing
reach professionals.
Venus Remedies has reach of 2,000 stockists and 40 distributors
across India for the domestic market. These help target over 40,000
Pharmacies and 120,000 medical practitioners. The company has
strong emphasis is on developing network of medical practitioners in
critical care segment to address their specialised product market.

Marketing Alliances to expand the reach

Enhanced by To improve the reach within the domestic market, Venus Remedies
tie-ups with has entered into tie-ups with many renowned Indian Pharma
other pharma companies like Abbot, IPCA, Glenmark, Lupin, Elder, etc. To target
companies the international markets in a better way, Venus Remedies has 11
overseas offices to cover 60 countries. Venus Remedies sells 44
products internationally with 3 research products launched till now.
Similar to its domestic market strategy, Venus Remedies has made
20+ international alliances for its international market.

Global Presence

Direct overseas To capitalise on its IP pipeline, Venus Remedies has developed multi-
presence in 11 regional presence across the globe. Venus has setup 11 overseas
countries marketing offices covering 60 countries up from 19 countries in
FY08. The 22 member team promotes 52 products across the globe.
It has export presence in 25 countries with the help of these offices.

World Class manufacturing capacities

3 manufacturing Venus Remedies has state of the art manufacturing facilities with the
plants, 2 in latest technology. The company has invested more than Rs 2bn for a
India, one in 100mn units injectable manufacturing facility at its unit in Baddi,
Germany Himachal Pradesh. This has resulted in more than 20 international
GMP certifications from more than 50 countries. This facility
manufactures in all 75+ super specialty products.
In all, Venus Remedies has 3 manufacturing locations: Baddi,
Panchkula (India) and one in Germany. All are with EU-GMP and
WHO-GMP certification along with other certifications.
Its Panchkula site has 7.5mn units capacity for large volume
parenterals accredited with WHO-GMP. Products manufactured at
this facility include Mebatic, Calridol, Moximicin, Neurotol, Glutapep,
among others.
The Baddi campus has eight small volume parenteral facilities. It
manufactures oncology injections, oncology lyophilised, lyophilised
injections, pre-filled syringes and cephalosphorins. It has been
accredited with more than 20GMPs. Recently; its Baddi plant has
received GCC certification for oncology and carbepenem products,
the first in India.

Four-S Research 25


Venus Pharma GmbH (Germany)

With the goal in mind to be a true global Pharma company, Venus
acquired the German Pharma company in 2006. It’s strategically
located in the second largest Pharma market and largest in Europe,
Germany. This acts as an entry vehicle for Venus Remedies products
in European market.
Venus Pharma GmbH helps Venus Remedies to generate export
orders for its products, executes site transfer projects and supports
in CTDs filing.

Revenue distribution

Dry powder and Venus Remedies has a strong existence in dry powder segment
oncology are constituting 33% of revenue in FY11. Cehpalosporin and penem
the two key products constitute this dry powder segment. Venus Remedies has
segments strong presence in this segment in both generic products and also in
research products. With multiple countries GMP certification for its
manufacturing plant, the export market may grow at very good rate
for this segment.

Revenue Distribution

24% Anti-cancer
31%
Cephalosporin (Inc
Carbapenem)
Infusions
12%
SVP & Others

33%

With many products still new in the market and in the process of
developing its market, high growth in all the segments especially in
oncology, dry powder is very much visible in the coming few years

Four-S Research 26


Focus on higher margin products

Dry Powder Revenues

1,350 60%

1,300 50%
1,250
40%
1,200
30%
INR mn

1,150
20%
1,100

1,050 10%

1,000 0%
FY08 FY09 FY10 FY11 FY12E

Dry Powder % of Total Revenues

Dry power share In line with focus on high margin products, share of revenue of dry
coming down powder products is coming down.

Increasing higher margin oncology segment

Oncology biz growth
1,400 35%
Oncology Segment % of Revenue
1,200 30%

1,000 25%

800 20%

600 15%

400 10%

200 5%

0 0%
FY08 FY09 FY10 FY11 FY12E

Oncology is a Oncology segment contributes almost 31% of overall revenue of
focus segment Venus Remedies. Due to complex products, critical nature and
for Venus sophisticated technology involved in this segment, margins are
better here.
Venus Remedies has successfully managed to improve oncology
contribution. Oncology segment has grown CAGR of 30% in last 4
years. With more than 300 market authorisations from 25 countries,

Four-S Research 27


the company should be able to maintain this thrust.

Risk Factors

Venus Remedies has the policy of capitalising major portion of its
R&D expenditure. In FY11, Venus Remedies capitalised Rs 557mn of
R&D expenditure out of its Rs 686mn R&D expenditure. R&D
expenditure capitalisation is not new for pharma companies as most
of Indian pharma companies do capitalise part of their R&D
expenditure. Yet amount of R&D expenditure capitalised is much
higher compared to many other major pharma companies.
The Company attributes this to expenditure on research which is yet
to be commercialised; around 360 patent applications are still
pending. The Company is capitalising expenditure on R&D, IPR, CTD
/ACTD and other product registration expenses, R&D activities like
clinical trials, process development & technology transfer, in
licensing and formulation development from in-licensed technology,
expenses on analytical & chemical research on products under
commercialization, etc.
This R&D expenditure capitalisation is also reflected in cash flow.
Though Venus has good positive operation cash flow, company is
suffering from negative free cash flow.

Four-S Research 28


Financial Analysis and Growth Outlook

15% CAGR for revenue expected during FY’12-14

The Company’s net revenues have grown at a CAGR of 18% over
FY’08-’12E (for FY12 only stand alone results declared so far,
consolidated are our estimates) to Rs 4.78bn from Rs 2.15bn in FY08.

Revenue Growth
4,500

4,000
4 year revenue 3,500
CAGR is 18%, 3
3,000
year growth is
12% 2,500

2,000

1,500

1,000

500

-
FY'08 FY'09 FY'10 FY'11 FY'12E

(Rs mn)

The top line of Venus is expected to grow at CAGR of 15% over FY11-
14.

Revenue Growth Expected
6,000
Growth to be 5,500
driven by newly
5,000
launched
products and 4,500
expansion in 4,000
regional
3,500
presence
3,000

2,500

2,000

1,500
FY'11 FY'12E FY'13E FY'14E

Four-S Research 29

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