CHL is our typical Multibagger stock, but a Stock which is a Good Investment under current Market conditions. It has a presence in a space which offers enormous potential and is also trading at reasonable valuations which will deliver superior returns in the long run. Core Investment Thesis : The company is in healthcare space and is one of the fastest growing pharma companies among top-10 domestic peers. It currently ranks as the 4th largest pharmaceutical company in India with a market share of ~4.2%, based on domestic sales of formulations.

2. Content Index
•CHL Limited – Investment Snapshot :- Slide #3
• Pharma Industry – An Overview:- Slide #5
• Investment Arguments :- Slide #21
•P&L - Slide #34
• Concerns & Reasoning :- Slide #37

3. Cadila Healthcare Ltd - Investment Snapshot
(as on Jan 02, 2017)
Recommendation :- BUY
Maximum Portfolio Allocation :- 3%
Investment Phases & Buying Strategy
1st
Phase (Now) of Accumulation :- 50%
Current Accumulation Range :- 350-355Rs
CHLis ourtypical Multibaggerstock, but a Stock which is a
Good Investment under current Market conditions. It has a
presence in a space which offers enormous potential and
is also trading at reasonable valuations which will deliver
superiorreturns in the long run.
Core Investment Thesis :
The company is in healthcare space and is one of the fastest
growing pharma companies among top-10 domestic peers. It
currently ranks as the 4th largest pharmaceutical company in
India with a market share of ~4.2%, based on domestic sales of
formulations.
Current Market Price – Rs.354.00
Current Dividend Yield – 0.90%
Bloomberg Code –CDH. IN
BSE / NSE Code -532321/CADILAHC
Market Cap (In Rs. Cr) - 39772
Equity Share Capital [Cr]– 102.40
Face Value – Rs.1
52 Week High / Low – Rs.460.75/
Rs.304.20
Promoter’s Holding – 74.79%
Other Holdings - 25.21%

4. Key Investment Highlights
1.) Presence in a growing sector:- Company is in a space which is a growing sector which presents growth
opportunities.
2)Strong Domestic Growth: Company is a leading player in the domestic market and is the 4th
largest pharma company
in India.
3.) Strong US Growth :- The company had been increasing its US revenues which has resulted in strong growth
opportunities.
4.) Strong return on Incremental Investments:- The company has strong return on incremental investments with ROE
of 25% across cycles.
5) Diverse Product Basket:- The company has a well-diversified portfolio, with no over-dependence on any single
brand.
6.) USFDA Pipeline:- Company has a very healthy USFDA pipeline with pending ANDA filings with US FDA, and most of
these opportunities provide visibility in the medium term.
7.) Market leader in Chronic segment :- Company has been a dominant chronic player in the Indian market, with
leadership in the chronic therapies.
8) Margin Accretive:- The company’s margins are likely to improve going forward as increasing high margin launches will
enable the company to expand its margins.
9.) Management/ Corporate Governance :- The company has a good management and adhere to strong corporate
governance norms. The company is run professionally by a team of professionals who have a strong understanding of the
business and have a strong vision about its business.
10.) Compelling Valuations :-. The company is quoting at 26.07x its FY16 consolidated EPS which is reasonable given the
product pipeline which provides revenue visibility.

5. Industry Opportunity & Potential
- An Overview

6. Global Pharma Industry
•The pharmaceuticals industry is one of the largest industries in the world and comprises companies that are
involved in the development, production and marketing of pharmaceutical products.
• The global pharma industries continued growth has been driven by factors such as an increase in elderly
populations and a growing middle class in emerging economies that have boosted the demand for
pharmaceuticals.
•The increased focus by governments to improve healthcare infrastructure that provide people with greater
access to treatment and medication has also contributed to the growth in the global pharmaceuticals
industry.
• According to IMS Health, the size of the global pharmaceuticals market is expected to grow at a CAGR of
approximately 4.7% between 2014 and 2019, to reach sales of approximately US$1,334.2 billion by 2019,
compared with US$1,060.7 billion in 2014.

7. Indian Pharma Industry
•According to CRISIL Research dated June 2015, the Indian pharmaceuticals market is estimated to be worth
US$36.8 billion in revenues for the fiscal year 2015.
• The Indian pharmaceuticals market can be broadly classified into the domestic and export segments in
terms of the target geographical sales markets.
•The Indian pharma industry has recorded strong growth in the back of high demand with nearly 80% of
spending on drugs is borne out-of-pocket by patients and nearly 90% of drugs sold are generics, for drugs
which treat acute diseases apart from increased demand for generics in developed continents such as US
and Europe, which has lead to increased exports of formulations and bulk drugs.

8. Indian Pharma Sector-Summary

9. Indian Pharma Sector- Advantage

10. Indian Pharma Structure

11. Indian Pharma Segments

12. Indian Pharma Segments - By Value
•The Anti-infective drugs command the largest share (16 per cent) in the Indian pharma market while the
cardiovascular segment represents 13 per cent of the market share; its contribution is likely to rise due to
the growing number of cardiac cases in India.
• The Gastro-intestinal contributes around 11 per cent of the total value of pharma industry in India. With
increasing number of research in gastroenterology, segment is going to grow at significant pace in coming
years.
•The Top five segments continue to contribute nearly 57 per cent to the total drugs consumption.
• In FY15, anti-infectives grew at 22 per cent, gastrointestinal at 23.4 per cent, pain & analgesics at 16.5 per
cent, cardiovascular at 19.1 per cent, anti- diabetic grew at 32.9 per cent, respiratory segment grew at 27.8
per cent, derma market grew by 19.2 per cent and urology by 29.5 per cent.

13. Generic Drugs
• With 70 per cent of market share (in terms of revenues), generic drugs form the largest segment of the
Indian pharmaceutical sector.
• India supply 20 per cent of global generic medicines market exports in terms of volume, making the
country the largest provider of generic medicines globally and expected to expand even further in coming
years
•The Over the Counter (OTC) medicines and patented drugs constitute 21 per cent and 9 per cent,
respectively, of total market revenues of USD20 billion.

14. Patented vs Generic Drugs
•The share of generic drugs is expected to continue increasing; it could represent about 85 per cent of the
prescription drug market by 2016.
•The Domestic generic drug market is expected to reach USD27.9 billion in 2020.Due to their competence in
generic drugs, growth in this market offers a great opportunity for Indian firms.
•Generic drug market is expected to grow in the next few years, with many drugs going off-patent in the US
and other countries.

15. Acute and Chronic segments
•The Indian domestic formulation market can further be divided into the acute and chronic segments. The
chronic drugs segment, which includes therapy areas such as anti-diabetics, respiratory, cardiac and central
nervous system (“CNS”) therapy has grown significantly. The anti-diabetic, respiratory, cardiac therapy and
CNS areas have grown at a CAGR of 21.1%, 11.4%, 13.3% and 12.8% respectively between fiscal year 2011
and fiscal year 2015. The share of chronic therapies in the overall spend on pharmaceutical products in India
has increased from 27.6% in 2010 to 30.5% in 2014, according to IMS.
•Whilst therapy areas in the chronic drugs segment continue to grow rapidly, acute therapies still comprise a
healthy share of the domestic market, as there remains high demand in the anti-infectives therapy area,
which is expected to grow at a CAGR of 8.9% between 2014 and 2019.

16. Health Insurance Penetration
•The Penetration of health insurance is expected to more than Population with health cover* ( In Million)
double by 2020. Around 439.5 million population has been covered by 2014.
• Increasing penetration of health insurance is likely to be driven by government-sponsored initiatives such
as RSBY and ESIC. Government-sponsored programmes expected to provide coverage to nearly 380 million
people by 2020.
•Private insurance coverage would increase nearly 15 per cent annually till 2020. In FY15, 27 per cent of the
total population has been covered under government sponsored health insurance. Increase in private sector
insurance would play an important role in affordability for high cost.
schemes

17. Formulation Exports
•The Formulations exports grew at a CAGR of approximately 18% in the period from 2009 to 2014. In 2013 to
2014, formulations exports to semi-regulated markets grew at nearly 12%, compared to the regulated
markets, which recorded 10% growth.
• Indian formulations exports are expected to grow at a CAGR between 11% and 13% between financial
years 2015 and 2020, to nearly US$20.0 billion in revenues.
•The Exports to regulated markets are expected to increase at a CAGR between 12% and 14% for the same
period, driven by the expanding penetration of India generic products along with the improving pace of
product approvals. Exports to semi-regulated markets are expected to grow at a CAGR between 10% and
12%. India’s low cost base, well-developed API industry and similarity in disease profiles will be key growth
drivers of exports to the semi-regulated markets.

18. Bulk Drugs Exports
•The India's bulk drug exports are estimated to have grown to nearly US$12.9 billion in revenues fiscal year
2014-15 and are expected to increase at a CAGR of between 10% and 12% from fiscal year 2014-15 to fiscal
year 2019- 20, exceeding US$20.0 billion in revenues, according to CRISIL Research dated June 2015. This
growth will be driven by the recovery of the slowdown in bulk drug exports that occurred in 2013 to 2014,
leading to increased demand for both on-patent and off-patent drugs.
• Bulk drug exports to generic, off-patent regulated markets are seen as a key growth driver. Significant
patent expiries, together with the “pro-generic” environment in the US and Europe, are expected to drive
demand for Indian generic drug formulations.
•The gradual improvement in generic formulation approvals for off-patent “blockbuster drugs” is expected
to drive demand for off-patent drugs, while more outsourcing of API manufacturing by global
pharmaceutical companies could drive the demand for on-patent drug API sales. India continues to be the
preferred sourcing hub for global pharmaceutical companies, and a rising number of Drug Master Files
(“DMFs”), together with the low-cost structure and the superior process chemistry skills of manufacturers in
India, is contributing to improving growth prospects.

19. Porters Five Forces

20. Cost Efficiency

21. CHL – Investment Arguments

22. Company Snapshot
•CHL enjoys leading positions in key therapeutic areas like cardiovascular, gastro intestinal, women’s
healthcare and respiratory segments; notably it climbed up to 4th position in dermatology in the previous
fiscal.
• CHL has launched >75 new products including line extensions in the domestic market of which 19 were first
time launches and included launch of Lipaglyn, the first New Chemical Entity (NCE) developed through in‐
house R&D.
•Recent domestic growth has been impacted by NLEM and discontinuance of BI JV products whose effects
would fade off from the last quarter of current fiscal.

23. US Formulations

24. India Formulations

25. Zydus Wellness ‐ Consumer Care Business
• Zydus Wellness owns three established brands ‘Sugar Free’, a low calorie sugar substitute, ‘EverYuth’, a
range of skincare products and ‘Nutralite’, a cholesterol free table spread.
• Zydus Wellness es Sugar Free has near monopoly in the low calorie sugar substitute market with a share of
>93%.
•Zydus Wellness third key consumer product, Nutralite has maintained its leadership position in the
margarine category despite strong regional competition which would receive further boost with the launch
of a lower priced variant of Nutralite called ‘Nutralite Yummy’ in North India.

26. Biosimilars Portfolio
• CHL owns a promising portfolio of biosimilars which are under various stages of development. It has
launched seven biosimilars in the domestic market and indicated that biosimilars would be initially launched
in emerging markets and EU followed by US.
• CHL Company has initiated phase III clinical trials for one of the monoclonal antibodies (MABs) and also
received regulatory approval to conduct phase III trials for another MAB.
• In addition to 17 biosimilars, CHL is also in the process of developing three novel biologics of which it has
completed phase I trials in India for PEG‐EPO (for treatment of anemia in chronic kidney diseases) and
Rabimabs (for Rabies).

27. NCE Pipeline
• CHL is working on several new chemical entities (NCE) in high growth chronic therapeutic areas like cardio‐
metabolic, inflammation, pain and oncology.
• In September 2013, company launched Lipaglyn (Saroglitazar), its first NCE for treatment of Diabetic
Dyslipidemia (condition of abnormal amount of lipids in blood) and Hypertriglycedemia (high triglycerides
levels in blood). Lipaglyn would initially take market share from Fenofibrate.
• Another molecule named ZYDPLA 1 (a DPP IV inhibitor) is currently in phase I trials in US for treatment of
type 2 diabetes; company estimates sales of DPP IV inhibitors would peak at US$14bn by 2022.

28. JV’s for Oncology, API’s and Formulations
Our flagship service offering, Club Mahindra Holidays, was launched in 1997. Club Mahindra Holidays is our
Zydus Takeda Healthcare: Zydus Takeda Healthcare (formerly Zydus Nycomed Healthcare) is a 50:50 JV
between the Cadila and Japanese pharma major Takeda Pharmaceuticals. It manufactures a range of generic
APIs catering to several therapeutic categories and exports exclusively to the JV partner for its generic portfolio.
APIs manufactured include Pantoprazole and its key inputs, which is the flagship product of the JV.
Zydus Hospira Oncology: Zydus Hospira Oncology is also a 50:50 contract manufacturing JV with Hospira of
US and markets oncology injectable products in respective JV partner markets.
Bayer Zydus Pharma: Bayer Zydus Pharma is a three year old JV with Bayer Schering Pharma of Germany and
markets finished formulations in the domestic market. It has a strong portfolio in women’s healthcare, metabolic
disorders, diagnostic imaging, cardiovascular, anti diabetic treatments and oncology.‐

29. Latin America Formulations

30. JV’s & Alliances

31. Biosimilars & Vaccines

32. NCE Research

33. Infrastructure

34. US FDA Approvals
•CHL’s recent approvals from US FDA have been in the areas of lifestyle and chronic therapies which bode
well from a growth and margin perspective.
• CHL indicated that it does not specifically target any set therapeutic areas but would look for opportunities
across the board.
•CHL has been making transdermal i.e (drug delivery through skin via adhesive patch, ointment )and ANDA
filings since 2011 and so far has made 6‐7 filings so far. These approvals offer huge potential for the
company and provides good visibility in the medium term.
which approvals are awaited

35. P&L

36. Balance Sheet

37. Concerns & Reasoning
1.) Delay in Regulatory Approvals :
CHL’s growth prospects are contingent upon the timely approval of its ANDAs for the US market and any
regulatory delays with authorities such as USFDA, MHRA, and THA may affect new launches, and hence, the
growth outlook.
2.) Currency Fluctuations:
CHL derives more than 63%+ of revenues generated from exports, and CHL’s earnings could be impacted by
currency fluctuations both in USD and EUR terms.
3.) USFDA Inspections :
CHL and other Indian pharma companies are subject to stringent USFDA inspections. Any serious adverse
observations by USFDA may have impact the companies business and its financials.

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39. THANK YOU