BSE IMP project report

BSE INSTITUTE LIMITED
2013
Authored by: Shubham Jain
Pharmaceutical Industry
An Indian Perspective

1
PharmaceuticalIndustry|6/28/2013
Index
1 Global Pharma Industry 2
2 Global Sales 2
3 Global R&D 4
4 Global M&A 6
5 Future Projections 7
6 Growth Drivers 9
7 SWOT Analysis 9
8 India Pharma Industry 11
9 Indian Sales 12
10 Growth Drivers of Indian Pharma Industry 15
11 M&A in India Pharma Industry 18
12 Opportunity in Indian Pharma Industry 18
13 Threats to Indian Pharma Industry 20
14 Dr Reddy Company Information and Financials 22
15 Glenmark Company Information and Financials 34
16 Comparable Analysis of Glenmark and Dr Reddy 46
17 Indian Pharma Industry Comparison 49

2
Pharmaceutical Industry
An Indian Perspective
Global Pharma Industry
According to the newly-released World Preview report from market intelligence firm Evaluate Ltd, the
worst of the patent cliff is behind us. While the pharmaceutical industry is feeling the effects of last year’s
decline in performance with worldwide prescription drug sales down 1.6% sales are forecast to start
growing slowly in 2013 and then steadily increase, reaching $895 billion by 2018.
The industry will benefit from improved investor confidence and R&D productivity. Of the $227bn of
global drug sales that will be at risk from generic erosion following patent expirations, only $110bn is
forecast to be lost over the next five years. The main reason for this is the growing contribution of
biological products to global sales. By 2018, 50% of sales of the top 100 products are predicted to come
from biological products which are expected to experience less sales erosion from bio similar competition
than traditional small molecules have from generic products.
Sales
2012 was the year of patent-cliff. With more than a dozen patent expirations, it was the year most dreaded
by much of Pharma Industry. The biggest blockbuster lost patent protection in 2011, Pfizer's Lipitor, but
in 2012, a whole list of big sellers dropped. A breathtaking 90% free-fall in Singulair sales for Merck
within four weeks of patent expiration. A Plavix bloodbath for Bristol-Myers Squibb with sales slashed by
96% and a depressing 83% slide in Seroquel IR sales for AstraZeneca .No wonder, then, that the drug
industry's 2012 results were pale. The year consists of ups and down for various Pharma companies, but
they ended up in roughly the same place.
GlaxoSmithKline for instance, reported a -3.48% drop in sales, but, adjusting for the sale of some over-
the-counter products, turnover was nearly flat.
Novartis also ended 2012 with a 0% change from 2011, in constant currencies at least. In U.S. dollars,
sales fell by -3.24%. Pharma sales alone were also pretty flat a 1% decline, or 2% rise in constant
currencies--despite a $1.6 billion hit from generic competition.

3
Sanofi's pharma sales slid by 0.4%, in constant currencies (as reported, they rose by 4.67%). Overall, sales
grew by 0.5%, currency-adjusted. That's almost as close to flat as you can get.
Merck, meanwhile, dropped 2%, including a 3% negative currency effect; ex-currency, that's a decline of
1%. Considering Singular’s spectacular fall, a 1% overall slide looks pretty static by comparison. Its
Pharma sales did drop 6%, however, with Januvia and Janumet picking up some of the Singulair slack.
Now, to the growth category, Bayer HealthCare sales were up 8.4%, while Roche's rose by 5.73% and
Johnson & Johnson's grew 3.38% .Abbott Laboratories posted overall growth of 2.63%. The same four
companies were the only groups on the list whose branded drug sales grew.
AstraZeneca, with generics taking billions out of its Seroquel franchise and little else to soften the blow the
company ended 2012 with more than $5 billion less or around 17% on its top line than in 2011.
In the end, 2012 provided plenty of dramatic patent-loss swoons, but much of Pharma weathered the year
without eye-popping sales declines overall. Some companies managed to move past the carnage and into
positive territory.
Company Ticker 2012 2011 % Increase Major Product
Johnson & Johnson JNJ.N 67.20 65.00 3.38% Zytiga
Pfizer Inc PFE.N 58.98 65.25 -9.61% Prevenar 13
Novartis AG NVS.N 56.67 58.57 -3.24% Alcon
Roche RHHBY.PK 47.80 45.21 5.73% Rituxan
Merck & Co Inc MRK 47.27 48.05 -1.62% Singulair
Sanofi SA SNY 46.41 44.34 4.67% Lovenox
GlaxoSmithKline PLC GSK 39.93 41.37 -3.48% Advair Diskus
Abbott Laboratories ABT.N 39.87 38.85 2.63% Humira
AstraZeneca PLC AZN.N 27.97 33.59 -16.73% Seroquel
Bayer AG BAYGn.DE 24.30 22.42 8.39% Eylea
Sales of Major Pharma Company in 2012 (in Rs. Billion)

4
Research & Development
Need for R&D? Patent Expiration lead to dramatic fall in the sales and thus continuous innovation is the key
to sustained growth.
Effect of patent expiration on global sales of selected “blockbuster” drugs
On R&D front, it takes 10 to 15 years to develop a medicine or vaccine and thus
market is shifting towards generic drugs.
Research and Development process

5
The research-based pharmaceutical industry currently spends over USD 135 billion on R&D per year.
Pharmaceutical R&D spending (USD billion)
In 2011, 35 new pharmaceuticals were launched, out of more than 3,200 compounds in development. In
2007 - 2011, the number of new chemical or biological entities launched on the world market fell to 149
from 196 a decade earlier. It costs an average of USD 1.38 billion to develop a single drug. In 2011, 5 of
the 10 leading global R&D firms were pharmaceutical companies. In 2011, the numbers of drugs in
development for particular disease areas were shown in Table 1.
Cancer 948
Cardiovascular disorders 252
Diabetes mellitus 212
HIV/AIDS 88
Rare diseases 460

6
M&A activities
The 15 largest acquisitions in the prescription drug market that have either been announced or completed in
2012. The acquisitions – which have a potential combined value of around $36 billion – span a number of
segments within the prescription pharmaceutical space and also reflect a number of underlying strategies.
 Gilead Sciences and Pharmasset - $11 billion
 BMS/AstraZeneca and Amylin - $7 billion
 Watson and Actavis - $6 billion
 BMS and Inhibitex - $2.5 billion
 Novartis and Fougera - $1.5 billion
 AstraZeneca and Ardea - $1.3 billion
 Amgen and Micromet - $1.2 billion
 Alexion and Enobia - $1.1 billion
 Celgene and Avila Therapeutics - $925 million
 Takeda and URL Pharma - $800 million
 Jazz Pharmaceuticals and EUSA Pharma - $730 million
 Amgen and Mustafa Nevzat - $700 million
 Biogen Idec and Stromedix - $563 million
 Upsher Smith and Proximagen - $555 million
 Valeant and Orapharma - $426 million
Two of the largest acquisitions – Gilead Sciences' purchase of Pharmasset (completed in January) and
Bristol-Myers Squibb's acquisition of Inhibitex (completed in February) – centre on the hepatitis C market
and the chase to develop an all-oral treatment. These two players remain locked in a development race and
commercial results over the next five years will shape how the value of these acquisitions will be perceived;
Gilead's purchase of Pharmasset is clearly a bold move, but one that has advanced its abilities in the HCV
space.
Consolidation in the generics market is also in evidence, primarily via the proposed acquisition of Actavis by
Watson (announced in April) and also Novartis' purchase of Fougera Pharmaceuticals, which positions the
Swiss company's Sandoz unit as the leading global generics player in dermatology. The generics market
remains on the cusp of change, key landmarks being the passing of the patent cliff – and a reduction in the
number of branded blockbuster products losing patent exclusivity (thereby reducing the number of
lucrative first-to-file opportunities in the US market) – and the likely emergence of biosimilars.

7
Therapeutic diversification, pipeline enhancement and generic mitigation continue to be the key strategic
drivers of acquisitions that come in at the top end of the value scale. Global biotech merger volume has
reached levels not seen in four years as big pharmaceutical companies pursue deals to get access to new
drugs, with bankers saying therapeutic areas such as cancer, inflammation and autoimmune diseases are
proving to be especially attractive. Large pharmaceutical companies that have expired patents are looking
for products to supplement their drug development efforts and sometimes to also give their primary-care
sales forces more drugs to sell. Big drug makers are facing one of the worst patent cliffs in history. They are
also flush with cash and have easy access to debt, allowing them to make aggressive bids for promising
biotech companies and other targets.
Future Projections
The IMS Institute for Healthcare Informatics predicts that the pharmaceutical market will reach nearly USD
1,200 billion by 2016, an increase of nearly USD 250 billion from the USD 956 billion recorded in 2011.98
This growth is coming mainly from market expansion in the leading emerging countries and from generics.
Global brand spending is forecast to increase from USD 596 billion in 2011 to USD 615–645 billion in
2016. Global generic spending is expected to increase from USD 242 billion to USD 400–430 billion by
2016, of which USD 224–244 billion of the increase is from low-cost generics in emerging markets.

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The US share of global spending will decline from 41% in 2006 to 31% in 2016, while the European share
of spending will decline from 26% to 18%. Meanwhile, the leading emerging countries will account for
30% of global spending in 2016 from 14% in 2006.

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Growth Drivers
Major Growth drivers include:-
 Huge demand originating from emerging markets.
 Acceptance of medical treatment brings more awareness.
 Sedentary life style leading to various diseases.
 Innovation will drive the sales to next level of growth.
 More Insurance coverage will result in more spending on Pharma.
 High level of disposable income in emerging markets.
 Spending expansion from government schemes.
 High cost of hospitalization will result in more effective drug development and in turn Pharma
sales.
SWOT Analysis
Strength
 Skilled labor force available.
 Funding available to R&D projects if they are viable.
 High level of Insurance penetration in developed market.
 Low entry barrier to various segments.
Weakness
 Intense competition as entry barriers in certain segment is at low level.
 Regulatory Hindrance as more stringent norms for drug approval.
 High failure rate of R&D projects and huge cost involved in development.
 Other hidden cost impact sales like transportation and country specific taxes.
 Steady increase in R&D development cost.
Opportunity
 High government spending in emerging markets like India, China and other BRIC will lead to new
growth trajectory.
 Awareness among people will lead to more consumption.

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 High disposable income of people.
 Demand for innovation from developed as well as developing markets.
 Lucrative Pharma policy in some country for drug manufacturers.
 Very low level of penetration in various emerging market.
Threat
 Regulatory approvals.
 Generic drug flooded market upon patent expired.
 Higher Raw material cost.
 Failure rate of R&D projects.
 Huge cost of one drug to launch into market.
 Economic turmoil in various countries.
 Challenges from Traditional drug manufacturers.

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India Pharma Industry
There is a major shift in the growth story of World Pharma and the shift is towards the emerging markets
and in them India is a hot story. It is the country with one of the biggest consumer base, low level of
penetration and with very low production cost. It has got the highest number of FDA approved production
facility outside USA. The major advantage which the country has been shown in the below picture.

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The below picture shows the business segment in which major of the Indian companies are operating. The
major revenue contributor is the APIs and India being the nation to be the largest producer of APIs.
Domestic market continue to flourish as well with double digit of growth rate.
The Indian Pharma industry is on right growth track with a current annual growth rate of
17.8%.

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There would be rapid growth in exports over the next five year as shown below.
India Pharma market segmented by value as shown below.

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Top Players of Indian Pharma industry are as shown below.
Other Major trends in Indian Pharma industry.

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Growth drivers
Demand-side drivers
 Over USD200 billion to be spent on medical infrastructure in the next decade.
 New business models expected to penetrate tier-2 and 3 cities.
 Over 160,000 hospital beds expected to be added each year in the next decade.
 Rising levels of education to increase the acceptability of pharmaceuticals.
 Patients to show greater propensity to self medicate, boosting the OTC market.
 Acceptance of biologics and preventive medicines to rise.
 Vaccine market could grow 20 per cent per year in the next decade.
 Rising income could drive 73 million households to the middle class over the next ten years.
 Over 650 million people expected to be covered by health insurance by 2020.
 Government-sponsored programmes set to provide health benefits to over 380 million BPL people
by 2017.
 By 2017, the government also plans to provide free generic medicines to half the population at an
estimated cost of USD 5.4 billion.
 Patient pool expected to increase over 20 per cent in the next ten years mainly due to a rise in
population.
 Newer diseases and changes in lifestyle to boost demand.

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Policy support
Supply-side drivers
 Following the introduction of product patents, several multinational companies are expected to
launch patented drugs in India. Growth in the number of lifestyle related diseases in India could
boost the sale of drugs in this segment.
 Due to its cost advantage, India has emerged as a major producer of generic drugs with several
companies focusing on this sector. With an expected market size of USD26.1 billion in 2016 vis-à-
vis USD11.3 billion in 2011, there is immense potential for growth in India’s generic market.
 Pharma companies have increased spending to tap rural markets and develop better medical
infrastructure. Hospitals’ market share is expected to increase from 13.1 per cent in 2009 to 26 per
cent in 2020.
 Increased penetration of chemists, especially in the rural parts of India would make OTC drugs
easily available.
 The manufacturing cost of Indian Pharma companies is up to 65 per cent lower than that of US
firms and almost half of that of European manufacturers.
 India a major hub for the manufacture of generics.
 Over 120 USFDA-approved facilities.

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M&A activities in India
Opportunity

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The major growth in the generic and OTC business will be the major opportunity areas to look for growth.

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Threats
The major threat are as follows
 Regulatory changes will hurt pricing power of the manufacturers and business may become
unviable for new players.
 Increase in labor cost.
 Economic inactivity.
 High interest cost hurting the profit margins.

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DrReddy
The Company’s purpose is to provide affordable and innovative medicines for healthier lives, which it does
through:
 Pharmaceutical Services and Active Ingredients (PSAI), comprising of Active Pharmaceutical
Ingredients (API) and Custom Pharmaceuticals Services (CPS).
 Global Generics (GG) businesses, which includes branded and unbranded prescription and over
the counter (OTC) pharmaceutical products.
 Proprietary Products (PP), comprising of Biosimilars, Differentiated Formulations and New
Chemical Entities (NCEs).
Key Highlight for FY’12
 Dr. Reddy’s became the fastest Indian pharmaceutical company to cross USD 2 billion in sales,
which it did within four years of crossing the USD 1 billion milestone.
 Revenues were up 30% and profits up by 45% over previous year.
 Limited Competition generics were key differentiators and contributed 32% of US sales.
 Over-the-counter (OTC) pharmaceutical portfolio becoming a key part of the Company’s
diversification strategy.
 Strong presence in Russia and other Pharmerging markets.
Sales
The Company’s consolidated revenues increased by 30% to Rs. 96.7 billion in FY2012.
Revenues from Global Generics rose by 32%to Rs. 70.2 billion on account of:
(i) Strong growth in North America driven by successful launches of 16 new products including the
Company’s opportunity for first-to-file launches of olanzapine (generic version of the brand
Zyprexa®) and ziprasidone (generic version of the brand Geodon®)
(ii) Robust growth in Russia driven by key brands.
PSAI showed a healthy growth of 21%, to Rs. 23.8 billion, primarily driven by new product launches in the
US and European markets.
In FY 2012, 83% of the Company’s consolidated revenue was generated from locations outside India, with
the remaining 17% coming from India. The share of business from North America (including Canada) grew
to 39% of total revenue. This was followed by Europe at 18%; India at 17%; Russia and other countries of
the former Soviet Union (CIS) at 14%; and the rest of the world at12%. Chart C plots the data of the
Company’s global revenue shares.

21
Table 1 gives the consolidated business revenue across Global Generics (GG), Pharmaceutical Services and
Active Ingredients (PSAI), and Proprietary Products and Others.

22
North America
In FY2012, North America generics revenue increased by 68% over the previous year, to Rs. 31,889
million. This growth was largely driven by new product launches such as fondaparinux,olanzapine,
ziprasidone and market share expansion in existing products such as tacrolimus,omeprazole mg OTC and
lansoprazole. During the year, the Company launched 16 new products including the Company’s
opportunity for first-to file launches of olanzapine (generic version of the brand Zyprexa®) and ziprasidone
(generic version of the brand Geodon®). The product olanzapine contributed around USD 100 million in
revenues for FY2012.The OTC portfolio crossed USD 100 million and recorded a growth of 120%.About a
third of the North America revenues were contributed by our limited competition basket of products and
the same crossed a significant milestone of USD 200 million.
Russia and other CIS countries
Revenues in Russia and CIS countries grew by 22% to Rs. 13,260 million in FY2012 over the previous
year. The growth in Russia was 23% over previous year largely driven by volume increase in key brands
such as Cetrine, Keterol and Senade. Table 2 gives the data of the company’s key brands in Russia.
Dr. Reddy’s secondary sales growth in Russia of 21% continues to outperform the industry growth
of 17% (Pharmexpert data for MAT March 2012).During the year, the Company launched 14 new
products. OTC sales which accounted for 29% of the overall Russian portfolio in FY2012 grew by
39% over the previous year.
Europe
Revenues from Europe region fell by 2% to Rs. 8,259 million. This was on account of a 7% decline in
Germany, largely due to the pricing challenges resulting from the continuing shift of the German generic
pharmaceutical market moving towards a tender (i.e., competitive bidding) based supply model. However,
the decline was partially offset by launch of new products which were outside the scope of tender business.
The rest of Europe showed a growth of 8% in revenue, largely driven by the out licensing of products.

23
India
Revenues in India grew by 11% during FY2012 to Rs. 12,931 million. The growth was primarily on
account of volume increase across brands and new product launches. The Company’s focus according to
therapeutic areas (TAs) is on gastro-intestinal, cardiovascular, diabetes, oncology, pain management and
dermatology. In FY2012, the top five therapeutical segments (excluding pain management) grew
at 16%. Dr. Reddy’s forayed into the OTC segment with the launch of Velocit (women
healthcare) and Nise Gel (pain management). Table 3 gives the data for the top-10 brands in India.
Rest of the World (RoW)
Revenues from RoW markets increased by 16% to Rs. 3,904 million in FY2012. This was largely
contributed by South Africa, Australia and other south Asian markets, offset by muted growth
in Venezuela which was impacted by currency devaluation.

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Growth Drivers
 The Company’s focus on profitable growth and targeting a leadership position in Global Generics
and PSAI will create significant value in the near term. It is addressing the need for infrastructure
and capacity increases to meet future growth.
 In Global Generics, improving depth through portfolio expansion, consistent delivery of limited
Competition products and supply chain excellence should lead to a leadership position in key
markets.
 In the PSAI segment, the objective is to be the partner of choice by creating compelling value for
customers through leveraging IP, technology and cost leadership.
 In Proprietary Products, the aim is to create a viable business by calibrating investments to produce
a self sustainable model.
 The largest increment of growth is expected to be contributed by the North America generics
business. It also expects continued momentum from its key emerging markets.
 In a dynamic business environment, the Company’s base business model in pharmaceuticals is
exposed to considerable volatility, both upwards and downwards. While the upsides create non-
linear value for the organization, there is a conscious attempt to protect it against the downsides.
R&D Innovation
Investments in R&D in FY2012 grew by 17% to approximately USD 125 million, or 6% of sales. About
two-thirds were spent towards generics development, and the balance one-third was dedicated to innovator
and biologics research. The company filed 68 DMFs in FY2012. Of these 14 each were filed in US, Europe
and 40 in other countries. As on 31 March 2012, the company had cumulative filings of 543 DMFs.

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Financials
Balance Sheet as of 31 March 2012
Financial Year FY'12 FY'11
Share Capital 84.8 84.6
Reserves Total 4904.2 3947.3
Total Shareholders Funds 4989 4031.9
Long term borrowings 1641.9 537.2
Deferred tax liabilities 19.1 99.9
Other long term liabilities 49.5 56.8
Long term provisions 33.3 28.8
Total Debt 1743.8 722.7
Total Liabilities 6732.8 4754.6
Fixed assets
Tangible assets 2573.2 2326.6
Intangible assets 838.5 1058.9
Capital Work in Progress 708.5 575.2
Non current investments 0.9 0.9
Deferred tax assets 134 122.4
Long term loans and advances 70.1 64.1
Current Assets, Loans & Advances
Current Investments 207 -
Inventories 1943.3 1599.2
Sundry Debtors 2536.8 1761.1
Cash and Bank 1606.1 575.1
Loans and Advances 705.8 879.6
Total Current Assets 6999 4815
Current Liabilities and Provisions
Short term borrowings 1588.8 1831.9
Trade payables 756.6 634.5
Other current liabilities 1749.2 1328.9
Short term provisions 496.8 413.2
Total Current Liabilities 4591.4 4208.5
Net Current Assets(CA-Cl) 2407.6 606.5
Total Assets 6732.8 4754.6

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Profit & Loss Account as of 31 March 2012
Income
Sales Turnover 9473.4 7272.4
Excise Duty -40.5 -35.6
Net Sales 9432.9 7236.8
Other operating revenue 381.6 260.1
Other Income 132.3 52.3
Total Income 9946.8 7549.2
Expenditure
Cost of material consumed 1949.3 1474.5
Purchase of stock in trade 718.2 719.4
Changes in inventory of finished goods, WIP, stock in trade -152.6 -164.5
Conversion charges 227.8 96.2
Excise duty 53.4 61.7
Employee benefit expense 1591.2 1304.8
Research & Development 595.2 507.7
Other expenses 2400.9 1943.9
Total Expenditure 7383.4 5943.7
Operating Profit 2563.4 1605.5
Interest 105.6 24.6
Gross Profit 2457.8 1580.9
Depreciation 518.1 398.1
Impairment of goodwill and intangibles 135.3 -
Profit Before Tax 1804.4 1182.8
Tax 524.8 210.6
Fringe Benefit Tax - -
Deferred Tax -21.3 -26.7
Net Profit 1300.9 998.9

27
Shareholding pattern as of 31 March 2012

28
Balance Sheet Analysis as of 31 March 2012
In FY’12 there is sharp increase in the long term debt levels (around 142% over the FY’11) of the company
and further reduction in the tax provision illustrate a major burden on the company on future growth
prospects. There is a increase of 11% of tangible assets but 21% decrease of intangible result in less
investment on innovation.
Financial Year FY'12 FY'11 Increase(in %)
Share Capital 84.8 84.6 0.24%
Reserves Total 4904.2 3947.3 24.24%
Total Shareholders Funds 4989 4031.9 23.74%
Long term borrowings 1641.9 537.2 205.64%
Deferred tax liabilities 19.1 99.9 -80.88%
Other long term liabilities 49.5 56.8 -12.85%
Long term provisions 33.3 28.8 15.63%
Total Debt 1743.8 722.7 141.29%
Total Liabilities 6732.8 4754.6 41.61%
Fixed assets
Tangible assets 2573.2 2326.6 10.60%
Intangible assets 838.5 1058.9 -20.81%
Capital Work in Progress 708.5 575.2 23.17%
Non current investments 0.9 0.9 0.00%
Deferred tax assets 134 122.4 9.48%
Long term loans and advances 70.1 64.1 9.36%
Current Investments 207 -
Inventories 1943.3 1599.2 21.52%
Sundry Debtors 2536.8 1761.1 44.05%
Cash and Bank 1606.1 575.1 179.27%
Loans and Advances 705.8 879.6 -19.76%
Total Current Assets 6999 4815 45.36%
Current Liabilities and Provisions
Short term borrowings 1588.8 1831.9 -13.27%
Trade payables 756.6 634.5 19.24%
Other current liabilities 1749.2 1328.9 31.63%
Short term provisions 496.8 413.2 20.23%
Total Current Liabilities 4591.4 4208.5 9.10%
Net Current Assets(CA-Cl) 2407.6 606.5 296.97%
Total Assets 6732.8 4754.6 41.61%

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Profit & Loss Account analysis as of 31 march 2012
Financial Year
FY'12 FY'11 Increase (in
%)
Income
Sales Turnover 9473.4 7272.4 30.27%
Excise Duty -40.5 -35.6 13.76%
Net Sales 9432.9 7236.8 30.35%
Other operating revenue 381.6 260.1 46.71%
Other Income 132.3 52.3 152.96%
Total Income 9946.8 7549.2 31.76%
Expenditure
Cost of material consumed 1949.3 1474.5 32.20%
Purchase of stock in trade 718.2 719.4 -0.17%
Changes in inventory of finished goods, WIP, stock in trade -152.6 -164.5 -7.23%
Conversion charges 227.8 96.2 136.80%
Excise duty 53.4 61.7 -13.45%
Employee benefit expense 1591.2 1304.8 21.95%
Research & Development 595.2 507.7 17.23%
Other expenses 2400.9 1943.9 23.51%
Total Expenditure 7383.4 5943.7 24.22%
Operating Profit 2563.4 1605.5 59.66%
Interest 105.6 24.6 329.27%
Gross Profit 2457.8 1580.9 55.47%
Depreciation 518.1 398.1 30.14%
Impairment of goodwill and intangibles 135.3 -
Profit Before Tax 1804.4 1182.8 52.55%
Tax 524.8 210.6 149.19%
Fringe Benefit Tax - -
Deferred Tax -21.3 -26.7 -20.22%
Net Profit 1300.9 998.9 30.23%
In FY’12 Net Sales grew by 30% over the previous year and better cost controlling (expenses around 24%)
gives EBIDTA of around 60%. But finance and depreciation cost increased by 329% and 30% respectively.
Though, Net Profit grew by 30% over the previous year.

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Trend Analysis
Income Statement
2010 2011 2012
Total Income 7107.7 7652 10046
Operating Expense 6037.8 6038.8 7609.4
Net Profit 351.5 998.9 1300.9
Trend Analysis 2010 2011 2012
Total Income 100% 108% 141%
Operating Expense 100% 100% 126%
Net Profit 100% 284% 370%

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Financial Ratios as of 31 March 2012
Profitability Ratios
Gross Profit Margins 75% 73%
EBITDA Margins 26% 21%
EBIT Margins 19% 16%
Net Profit Margin 13% 13%
Activity Ratios
Inventory Turnover 1.42 1.38
Days of Inventory 257 264
Receivables Turnover 4.39 4.96
Days of Sales Outstanding 83 74
Payables Turnover 3.62 3.20
Days of Payables 101 114
Operating Efficiency Ratio
Working Capital Turnover 6.26 6.03
Fixed Asset Turnover 2.5 2.0
Total asset Turnover 0.98 0.92
Equity Turnover 2.09 1.85
Liquidity Ratios
Current Ratio 1.52 1.14
Quick Ratio 0.95 0.56
Cash Ratio 0.39 0.14
Cash Conversion Cycle (Net Operating Cycle) 239.27 223.81
Return on Investments
Return on Assets (ROA) 0.13 0.12
Return on Invested Capital (RoIC) 0.33 0.24
Return on Stockholder's Equity (ROE) 0.29 0.26
Capital employed 6732.8 4754.6
Debt Ratios
Debt-to-Capital Ratio 0.26 0.15
Debt-to-Equity Ratio 0.35 0.18
Coverage Ratios
Interest Coverage Ratio 18.09 49.08
Earning per share 76.70 59.04
Dividend payout Ratio 20.82 30.59

32
Company posted a healthy profitability with EBIDTA margin stood at 26% vs. 21% YOY basis, but Net
Profit margin remain stable at 13% due high interest cost. Continues improvement in management resulted
in increase in Total Asset Turnover ratio to 0.98 vs. 0.92. With improvement in Quick ratio results it will
be more able to pay short term bills. There is increase in ROA of company from 12% to 13% and
ROIC(Return on invested Capital) from 24% to 33%.Increase in debt-to-equity ratio 0.18 to 0.35 due to
increase in debt. Continuous improvement in management results in improvement in EPS from 59 to 76.

33
Glenmark Pharma
Glenmark is a leading player in the discovery of new molecules, both NCEs (new chemical entity) and
NBEs (new biological entity), with seven molecules in various stages of clinical development. The company
has a significant presence in branded generics markets across emerging economies including India. Its
subsidiary, Glenmark Generics Limited has a fast growing and robust US generics business. The subsidiary
also markets APIs to regulated and semi-regulated countries. Glenmark employs over 10,000 people in
over 80 countries. It has fourteen manufacturing facilities in four countries and has five R&D centers.
FY’12 Review
1. Revenue crossing USD 40 billion and a sales growth of 36%.
2. Largest out-licensing deal through novel monoclonal antibody to Sanofi for USD 613 million
receiving USD 50 million as an upfront payment.
3. Conclude a Validation deal to validate capabilities in NCEs(New Chemical Entities) and NBEs
(New Biologics Entities).
4. One molecule completing phase III; another two programs in phase II and another two in Phase I.
Sales
India
The company registered value growth of 26.4% vis-a-vis the industry growth of 15%. The breakup of
revenue and gain in market share is shown below.
Segment (in Rs. Millions) FY’12 FY’11
Formulation Revenue 10,021.30 8,446.88
Therapeutic Segments FY’12 FY’11
Derma 8.69% 8.23%
Cardiac 2.86% 2.34%
Respiratory 2.84% 2.65%
Anti-infective 1.44% 1.31%
Gynecology 1.43% 1.26%
Pain/Analgesic 1.08% 1.0%
Anti-diabetic 1.45%
Revenue and Market Share Growth as per IMS Data

34
The company has further strengthened its presence in core therapeutic area i.e. Dermatology through
launch of Cosmocare division and also launched a new Respicare division to consolidate our presence in
Acute care prioritizing brand promotion and launch of Zoltan Care division to strengthen our presence in
Cardiovascular.

35
Rest of World
Rest Of World (in Rs.
Millions)
FY’12
Formulation Revenue 5925.52
Country Company Growth
Russia / CIS 17.8%
Africa & Middle East 40%
Asia 70%
Latin America 50%
Central Eastern Europe 29%
USA 45%
Western Europe 90%
Russia & CIS
Glenmark is one of the fastest growing Indian pharma companies in Russia and the company now ranks 59th
in the market, gaining 3 ranks vis-a-vis March 2011.The secondary sales growth for dermatology products
was over 50%in the financial year. The company launched two Dermatology products Supirocin and
Supirocin B in the third quarter which paved the way for the establishment of ‘Glenmark Institute of
Healthy Skin’. The company’s market share in the dermatology segment in Russia increased to 1.75 from
1.56% vis-à-vis the previous financial year.
In other CIS markets of Ukraine, Kazakhstan and Uzbekistan; the positive trend of growth in secondary
sales continued. In Ukraine, which is the largest market in the CIS region after Russia, Glenmark has
recorded over 83% growth in secondary sales in the year.
Africa & Middle East
Glenmark’s Africa & Middle East operations recorded impressive growth in overall sales. The business
recorded strong secondary sales growth of over 40% backed by its power brands strategy. While Supiroban
(Mupirocin) continued its robust secondary growth in South Africa, Flexilor (Lornoxicam) registered good
sales numbers in Kenya. In the year under review, the UAE subsidiary entered the metabolic disease
segment by launching Glimulin(Glimepiride) in the fourth quarter of FY 11-12.
Asia
The Asian region continued to perform well registering an increase of 30% in secondary off take over the
Corresponding previous year. The power and focus brands strategy continued to yield rich dividends for the
company and presently contribute nearly 70% to the total sales from the region. Our Malaysia,Vietnam and
Myanmar units grew by around 50%; while the Philippines subsidiary recorded a growth of 25% in FY
12.Key product launches included Giemont (Monteleukast) in Malaysia and Dervia MS/Klenzit MS
(Adapalene in microsphere technology) in Malaysia, Vietnam, Philippines and Sri Lanka. In the fourth

36
quarter our Malaysian and Philippines subsidiaries received approval for Levocetrizine dihydrochloride
tablets.
Latin America
Glenmark’s revenue from its Latin America and Caribbean operations was at Rs. 2869.13 mn (USD 59.12
mn) as against Rs. 1918.86 mn (USD 41.81 mn); a growth of 50% over previous corresponding year. All
subsidiaries in the region viz Brazil, Venezuela, Mexico, Caribbeanand Peru continued to record good
secondary sales growth. Brazil, the largest subsidiary contributing over 70% of sales from LatAm region
grew by over 30%.
Central Eastern Europe
Glenmark Europe’s operations revenue for the entire financial year was Rs.1976.47 mn (USD 40.73 mn) as
compared to Rs.1527.65 mn (USD 33.28 mn) for the previous corresponding financial year,an increase of
29%.Despite the testing environment, Glenmark CEE had a successful year on all parameters. Overall, the
company posted a growth in revenue of 14%, while secondary sales grew by 22% while the overall market
recorded a -2% de-growth. The key markets of Czech Republic, Slovak Republic and Romania posted
secondary sales growth above 25%. The company reached its highest ever market ranking of No. 36 in the
Czech market. In Slovakia too, the company reached its best ranking of No. 59 in March 2012 propelled by
a 28% increase in secondary sales.
USA
Glenmark Generics Inc., U.S.A. registered revenue from sale of finished dosage fomulations of Rs.
12136.93 mn (USD 250.09 mn) for FY 12 against revenue of Rs 8351.56 mn (USD 181.95 mn), an
increase of 45% in term over the corresponding previous year. In the fiscal year 2012, Glenmark was
granted approval of 14 Abbreviated New Drug Applications (ANDA), comprised of 12 final and 2 tentative
approvals. Glenmark completed successful launch of 12 products during fiscal year 2012 consisting of a mix
of semi-solid preparations, oral-contraceptives, extended release, and immediate release items.
In March 2012, the Company initiated the exclusive launch of fluticasone propionate lotion, their generic
version of Nycomed’s Cutivate® lotion. Under the terms of the Settlement Agreement, Glenmark will
market and distribute its Fluticasone propionate lotion under a royalty-bearing license from Nycomed US,
for which they are entitled to 180 days exclusivity. In September 2011, Glenmark Generics also completed
royalty payment to Paul Capital Partners' Royalty Fund for developing dermatological products for the US
market with the final tranche of
USD 28.8 mn.

37
The company launched Atovaquone & Proguanil HCl (Malarone) in September 2011 and Fluticasone lotion
(Cutivate) in March 2012. The company expects Malarone’s exclusivity to run throughout FY 13, while
Cutivate will have 6 months exclusivity in FY 13.Glenmark’s marketing portfolio as on 31 March 2012
consisted of 77 generic products authorized for distribution in the U.S. market. The Company currently has
39 applications pending in various stages of the approval process with the US FDA, of which 17 are
Paragraph IV
applications.
Western Europe Formulations
Revenues from Glenmark’s European business increased to Rs.1031.36 mn (USD 21.25 mn) as against a
revenue of Rs .543.61 mn (USD 11.84 mn) in the previous financial year; an increase of 90% in Rs. term
R&D Innovation
The total R & D expenditure was Rs. 2916.25 mn in FY 11-12 as compared to Rs. 1380.47 mn in FY 2010
-11.In FY 11-12, approximately 60% of total R&D expenditure was spent towards innovation R&D and
balance 40% was incurred on overall Generics R&D. Total R&D expenditure as a percentage to revenue for
the company was 7.25% for FY 11-12 .Glenmark has always made continuous investment in R&D. Because
of these investments in R&D, the organisation was able to receive a number of product approvals across
many countries. During the year under review, Glenmark received from the USFDA approvals for the
products Norgestimate and Ethinyl Estradiol Tablets USP, Desogestrel & Ethinyl Estradiol Tablets,
Imiquimod Cream, Ciclopirox Gel, Levonorgestrel & Ethinyl Estradiol Tablets USP, Norethindrone and
Ethinyl Estradiol (AlyacenTM1/35) Tablets USP & Norethindrone and Ethinyl Estradiol (AlyacenTM
7/7/7) Tablets USP, Verapamil extended releasetablets, Ursodiol Tablets, Norgestimate and Ethinyl
Estradiol tablets, Mupirocin ointment, Fluticasone propionate 0.05% lotion.
Growth Drivers
Glenmark's short-term and long-term outlook is encouraging for several reasons. On the discovery front,
the pipeline is progressing well with 6 molecules in clinics, of which one is in Phase III and two in Phase II
trials. The company will also continue with its approach of out-licensing its molecules. On the generics
front, with high value patented drugs going off patent in the coming years, there is huge potential for the
generics business. Glenmark is actively increasing its base in major generics markets of US and Western
Europe. At same time, the specialty business will continue to build differentiated pipelines in rest of the
world markets, notably the 'Pharmerging' markets. Focus will be on building size and scale organically.
The Company has also put multiple systems and processes in place to manage its complex operations and
instill efficiencies across the value chain. Glenmark will also continue to build capabilities and nurture a
talent pool with diverse skills sets to deliver continuous results.API and Oconology business will drive the
growth to further level. 2012 may see the biggest patent expires, but significant generics opportunity at
least until 2015 will sustain momentum of growth in the US. We believe that the growth rate for the
domestic Indian Pharma market is set to rise over the medium term due to factors like continued new
product launches by Indian firms and measured by them on improving effectiveness of field force additions.

38
Financials
Balance sheet as of 31 March 2012
Share Capital 27.05 27.03
Additonal paid in capital 775.62 772.09
Stock compenation reserve 25.13 20.03
Statutory Reserve 20.10 20.10
Currency Translation reserve (210.29) (141.92)
Accumulated Earnings 1,764.01 1,339.91
Total Shareholders Funds 2,401.62 2,037.24
Minority Interest 24.90 26.70
Long term liability 1,312.47 617.06
Other Liabilities 77.98 3.18
Employee Obligation 14.57 6.90
Deferred Tax Liabilities 150.02 147.63
Total Liabilities 1,555.04 774.77
Current Liabilities
Accounts Payables 788.82 657.40
Current tax liabilities 25.66 6.64
Short Term Borrowings 687.45 1,480.22
Current portion of long term liabilities 244.57 11.17
Other Liabilities 144.59 91.98
Provisions 10.62 11.62
Total 1,901.71 2,259.03
Total Liabilities 5,883.27 5,097.74
Property, plant & equipment 1,299.45 1,179.41
Intangible assets/ Investments 1,125.30 972.33
Goodwill 60.80 60.57
Deferred tax assets 417.42 255.76
Restricted cash 3.42 2.79
Long term financial assets 29.80 28.12
Inventories 787.67 807.01
Sundry Debtors 1,243.61 1,130.81
Cash and Bank 321.91 195.83
Other current assets 537.14 397.26
Current tax assets 56.80 67.84
Total Current Assets 2,947.13 2,598.75
Total Assets 5,883.32 5,097.73

39
Profit & Loss Account as of 31 March 2012
Share Holding pattern as of 31 March 2012
Sales Turnover 4020.64 2949.07
Net Sales 4020.64 2949.07
Other Income 18.16 144.4
Total Income 4038.8 3093.47
Material Consumed 1345.39 991.83
Employee costs 628.89 510.16
Other expenses/ R&D 1331.98 854.81
Total Expenditure 3306.26 2356.8
Operating Profit 732.54 736.67
Interest 146.56 160.46
Gross Profit 585.98 576.21
Depreciation 97.88 94.68
Profit Before Tax 488.1 481.53
Tax 134.59 50.48
Deferred Tax -110.81 -26.77
Net Profit 464.32 457.82
Minority Interest (after tax) 3.96 4.62
Profit/Loss of Associate Company - -
Net Profit after Minority Interest & P/L Asso.Co. 460.35 453.21
Extraordinary Items - 0.31
Adjusted Net Profit 460.35 452.9

40
Balance Sheet Analysis as of 31 March 2012
Overall increase of 18% in shareholder fund, Increase of 100% over Non-Current liabilities
and increase of 64% in cash and bank.
Financial Year FY'12 FY'11 Increase (in %)
Share Capital 27.05 27.03 0.07%
Additonal paid in capital 775.62 772.09 0.46%
Stock compenation reserve 25.13 20.03 25.46%
Statutory Reserve 20.10 20.10 0.00%
Currency Translation reserve (210.29) (141.92) 48.18%
Accumulated Earnings 1,764.01 1,339.91 31.65%
Total Shareholders Funds 2,401.62 2,037.24 17.89%
Minority Interest 24.90 26.70 -6.74%
Long term liability 1,312.47 617.06 112.70%
Other Liabilities 77.98 3.18 2352.20%
Employee Obligation 14.57 6.90 111.16%
Deferred Tax Liabilities 150.02 147.63 1.62%
Total Liabilities 1,555.04 774.77 100.71%
Current Liabilities
Accounts Payables 788.82 657.40 19.99%
Current tax liabilities 25.66 6.64 286.45%
Short Term Borrowings 687.45 1,480.22 -53.56%
Current portion of long term liabilities 244.57 11.17 2089.53%
Other Liabilities 144.59 91.98 57.20%
Provisions 10.62 11.62 -8.61%
Total 1,901.71 2,259.03 -15.82%
Total Liabilities 5,883.27 5,097.74 15.41%
Property, plant & equipment 1,299.45 1,179.41 10.18%
Intangible assets/ Investments 1,125.30 972.33 15.73%
Goodwill 60.80 60.57 0.38%
Deferred tax assets 417.42 255.76 63.21%
Restricted cash 3.42 2.79 22.58%
Long term financial assets 29.80 28.12 5.97%
Inventories 787.67 807.01 -2.40%
Sundry Debtors 1,243.61 1,130.81 9.98%
Cash and Bank 321.91 195.83 64.38%
Other current assets 537.14 397.26 35.21%
Current tax assets 56.80 67.84 -16.27%
Total Current Assets 2,947.13 2,598.75 13.41%
Total Assets 5,883.32 5,097.73 15.41%

41
Profit & Loss Account analysis as of 31 March 2012
In FY’12 Net Sales grew by 36% over the previous year but as other income decreased and
thus increase of 31% in Total Income. Due to increase in R&D expenditure there is increase
of around 40% in total expenditure over the previous year. Increase in expenditure resulted
in decline 0.56% in EBIDTA levels, even reduction in interest cost Net Profit rises only by
1.42%.
Financial Year FY'12 FY'11 Increase(in %)
Sales Turnover 4020.64 2949.07 36.34%
Net Sales 4020.64 2949.07 36.34%
Other Income 18.16 144.4 -87.42%
Total Income 4038.8 3093.47 30.56%
Material Consumed 1345.39 991.83 35.65%
Employee costs 628.89 510.16 23.27%
Other expenses/ R&D 1331.98 854.81 55.82%
Total Expenditure 3306.26 2356.8 40.29%
Operating Profit 732.54 736.67 -0.56%
Interest 146.56 160.46 -8.66%
Gross Profit 585.98 576.21 1.70%
Depreciation 97.88 94.68 3.38%
Profit Before Tax 488.1 481.53 1.36%
Tax 134.59 50.48 166.62%
Deferred Tax -110.81 -26.77 313.93%
Net Profit 464.32 457.82 1.42%
Minority Interest (after tax) 3.96 4.62 -14.29%
Profit/Loss of Associate Company - -
Net Profit after Minority Interest & P/L Asso.Co. 460.35 453.21 1.58%
Extraordinary Items - 0.31
Adjusted Net Profit 460.35 452.9 1.64%

42
Trend Analysis
Income Statement
2,010 2,011 2,012
Total Income 2549.55 3093.47 4038.8
Operating Expenses 1881.06 2356.8 3306.26
Net Profit 331.01 457.82 464.32
Trend Analysis 2,010 2,011 2,012
Total Income 100% 121% 158%
Operating Expenses 100% 125% 176%
Net Profit 100% 138% 140%

43
Financial Ratio as of 31 March 2012
Profitability Ratio- Total Income
Gross Profit Margin 67% 68%
EBIDTA Margin 18% 24%
EBIT Margin 16% 21%
Profitability Ratio- Sales
Gross Profit Margin 67% 66%
EBIDTA Margin 18% 20%
EBIT Margin 15% 17%
Liquidity Ratio
Current Ratio 1.55 1.15
Quick Ratio 0.82 0.59
Cash Ratio 0.17 0.09
Acitivity Ratio
Inventory Turnover 1.69 1.31
Days of inventory 216 279
Receivbales Turnover 3.39 2.67
Days of sales outstanding 108 137
Paybale Turnover 1.86 2.08
Days of Payables 196 176
Operating Efficiency Ratio
Fixed assets turnover 3.24 1.65
Total assets Turnover 0.73 0.59
Equity Turnover 1.81 1.34
Working Capital Turnover 5.81 2.63
Return Ratios
Return on Assets 8% 9%
Return on capital employed 21% 20%
Return on Equity 21% 21%
Capital Employed 3,981.61 2,838.70
Leverage Ratio
Debt to Equity 0.62 0.29
Debt to capital 0.38 0.22
Coverage Ratio
Interest Coverage Ratio 4.33 4.00
EPS 17.17 16.94
Dividend Payout ratio 12% 2%

44
In FY’12 there is a sharp decline in EBIDTA margins from 24% to 18% YOY basis. Thus Net Profit fell to
11% from 15%. Though there is reduction in the days of Inventory but there is a major increase in the days
of payable. There is improvement in the asset utilization level reflected in increment in RoA and RoIC.
Increase in debt level resulted in increase in Debt-to-equity ratio from 0.29 to 0.62.

45
Comparative Analysis of Glenmark and Dr Reddy

46
Particulars as on March 31, 2012 (MM) Dr Reddy's Glenmark Industry Average
Equity Shares Outstanding 169,560,346 270,535,503 187,424,921
Equity Paid Up 848.00 270.53 516
Reserves & Surplus(excl Capital and Revaluation Reserve) 46,451.00 25,848.67 21,695
Minority Interest - 249.98 315
Networth 47,299.00 26,369.18 22,527
Other reserves 2,591.00 -2,102.90 589
Total reseves& Surplus and Capital 49,890.00 24,266.28 22,931
Promoter Holding(%) 25.61 48.27 51
longterm Debt & Short Term (Secured) 12,169.00 13,124.70 9,397
Unsecured Loan 5,078.00 925.59 1,517
Deferred Tax Liability 191.00 1,500.28 873
Capital Employed (Net Worth+ Long Term debt) 67,328.00 39,816.85 34,479
Gross Block/ Fixed Assets 43,759.00 15,974.93 21,860
Net Block 33,518.00 24,247.59 20,066
Goodwill 8,385.00 608.64 4,651
Investments 9.00 332.31 2,472
Deferred Tax asset 1,340.00 4,174.20 1,150
Current Asset 69,990.00 29,471.53
Current Laibaility 45,914.00 19,017.42
Net Working Capital (CA-CL) 24,076.00 10,454.11 6,715
Total Funds applied 67,328.00 39,816.85 34,479
Net Sales 98,145.00 40,206.43 38,402
Other Income 1,323.00 92.61 648
EBIDTA 25,634.00 7,414.48 7,725
Interest 1,056.00 1,554.79 997
Depreciation 5,181.00 978.78 1,628
PBT 19,397.00 4,880.91 5,100
Tax 5,035.00 237.84 946
PAT 14,362.00 4,643.07 3,227
Book Value Per Share 278.95 97.47 150
CMP (07/03/2013) 2,212.50 568.20 582
Market Capitalisation 375,152.27 153,718.27 121,346
Face Value 5 1 4
EPS (Rs.) 84.70 17.16 25
P/E Ratio 26.12 33.11 22
Price / BV 7.93 5.83 4.03
Debt-Equity Ratio 0.26 0.50 0.49
EBIDTA Margin (%) 26% 18% 0.20
PAT Margin (%) 14.63% 11.55% 0.11
ROCE (%) 25% 12% 0.14
RONW (%) 30% 18% 0.15
Enterprise Value 376,338.27 164,567.80 128,619
Cash 16,061.00 3,200.76 3,488
Net Debt (Long Term Debt - Cash) 1,186.00 10,849.53 7,274
RONW/ PB Ratio 4% 3% 0.14
EV / EBIDTA 14.68 22.20 14
EV / Sales 3.83 4.09 3

47
Dr Reddy has around 2X the Net worth as compared to as compared to industry average as well as
Glenmark, Capital Employed is 2X the industry average while EBIDTA stood at 4X the Glenmark and
industry average. With EPS of Dr Reddy around Rs. 81 vs. Rs 17 of Glenmark vs. Rs 25 of the industry
average. Low debt ratio, high RoCE and low PE-ratio as compared to Glenmark and Industry average it is
better recipe for investment purposes. PAT margin stood at 14% vs. 11% of industry average as well as
Glenmark average.
DuPont Analysis
Compared to Glenmark, DrReddy is better positioned as compared on RoE basis and as show in previous
analysis DrReddy better manages and utilizes it fund.
Our Recommendation is to go with Dr Reddy for investment purposes.
Glenmark
Net Profit Margin 0.12 0.16
Asset Turnover Ratio 0.73 0.59
Equity Multiplier 2.47 2.27
ROE 20.92% 20.85%
Dr Reddy
Net Profit Margin 0.130786 0.132319
Asset Turnover Ratio 0.980594 0.924937
Equity Multiplier 2.248922 2.09045
RoE 28.84% 25.58%

48
Indian Pharma Industry Analysis

49

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