MF Holdings is a pharmaceutical company that has shown steady profit growth in recent years. It has a low debt level and focuses on exports, which now make up over 50% of revenues. The company supplies generic drugs to global partners and has a portfolio of over 6,000 product registrations worldwide. It has a strong position in segments like asthma treatments and anti-retroviral drugs. MF Holdings is also expanding into biotech through recent acquisitions to diversify its business over the long term.

1. Summary
Recommendation
Risks
Confusion over succession plan
Stiff competition

2. Almost debt free company
Good profits
Adding new growth areas
Faster launch track record than peers helps to win markets
Huge requirements in hospital and drug segment going forward
MF Holdings increasing
Buy in range - 310-303
Accumulate on dips 270
Target 382 - Upside - 25% . Duration 12 months
Confusion over succession plan
Stiff competition

4. Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 7,000.00
Sources Of Funds
Total Share Capital 59.97 155.46 155.46 155.46 160.58 6,000.00
Equity Share Capital 59.97 155.46 155.46 155.46 160.58
Share Application Money 0 0 0 0 0
5,000.00
Preference Share Capital 0 0 0 0 0
Reserves 1,913.98 3,071.84 3,591.39 4,186.32 5,744.54
Revaluation Reserves 9.32 8.97 8.97 8.97 8.97 4,000.00
Networth 1,983.27 3,236.27 3,755.82 4,350.75 5,914.09
Secured Loans 51.27 7.25 16.98 2.79 0.41 3,000.00
Unsecured Loans 417.64 116.31 563.55 937.45 4.66
Total Debt 468.91 123.56 580.53 940.24 5.07 2,000.00
Total Liabilities 2,452.18 3,359.83 4,336.35 5,290.99 5,919.16
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 1,000.00
Application Of Funds 0.00
Gross Block 1,366.67 1,799.71 2,201.79 2,693.29 2,895.44
Mar '06
Less: Accum. Depreciation 310.06 411.64 540.43 700.8 884.27
Net Block 1,056.61 1,388.07 1,661.36 1,992.49 2,011.17
Capital Work in Progress 87.01 73.19 233.12 366.32 684.24
Investments 22.43 117.8 94.75 81.32 265.1 Almost a debt free com
Inventories 957 978.6 1,120.49 1,398.32 1,512.58
Sundry Debtors 875.96 1,028.78 1,393.91 1,837.15 1,552.71
Cash and Bank Balance 44.45 56.33 79.12 52.84 60.32
Total Current Assets 1,877.41 2,063.71 2,593.52 3,288.31 3,125.61
Loans and Advances 414.84 695.81 1,150.30 1,131.10 2,357.29
Fixed Deposits 0.03 75.16 0.16 0.16 0.52
Total CA, Loans & Advances 2,292.28 2,834.68 3,743.98 4,419.57 5,483.42
Deffered Credit 0 0 0 0 0
Current Liabilities 733.84 643.78 980.05 1,177.00 1,177.11
Provisions 272.31 410.13 416.81 391.71 1,347.66
Total CL & Provisions 1,006.15 1,053.91 1,396.86 1,568.71 2,524.77
Net Current Assets 1,286.13 1,780.77 2,347.12 2,850.86 2,958.65
Miscellaneous Expenses 0 0 0 0 0
Total Assets 2,452.18 3,359.83 4,336.35 5,290.99 5,919.16
Contingent Liabilities 1,600.75 1,586.64 1,664.58 730.75 423.87
Book Value (Rs) 65.83 41.52 48.2 55.86 73.55

5. Reserves (YoY)
Total Debt (YoY)
Assets(YoY)
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
Almost a debt free company

6. Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
Total Income 3,187.90 3,631.94 4,379.58 5,208.33 5,915.49 Total Income
Income Growth 13.93 20.59 18.92 13.58 Income Growth
Total Expenses 2,381.81 2,709.43 3,392.49 4,103.00 4,408.85 Total Expenses
Expenses Growth 13.76 25.21 20.94 7.45 Expenses Growth
Reported Net Profit 607.64 668.03 701.43 776.81 1,081.49 Net Profit
Net Profit Growth 9.94 5.00 10.75 39.22 Net Profit Growth
Earning Per Share (Rs) 20.26 8.59 9.02 9.99 13.47 Earnings Per Share(Rs)
-57.60 5.01 10.75 34.83
Book Value (Rs) 65.83 41.52 48.2 55.86 73.55
45.00
7,000.00 40.00
6,000.00 35.00
5,000.00 30.00
4,000.00 25.00
Income YoY
3,000.00 20.00
Expenses YoY 15.00
2,000.00
Net Profit YoY 10.00
1,000.00
5.00
0.00
0.00
Mar Mar Mar Mar Mar
'06 '07 '08 '09 '10 Mar '06 Mar '07 Mar '08 Mar '09
At current EPS of 13.47 and average EPS of 8 the fair value stands at around 382 by simple DCF calculation

7. Mar '08 Sep '08 Mar '09 Sep '09 Mar '10
2,291.46 2,595.70 2,742.67 2,841.61 2,876.11
13.28 5.66 3.61 1.21 Steady company, with steady profit growth
1,761.65 2,155.39 2,063.71 2,094.46 2,175.32 Steady dividends year after year
22.35 -4.25 1.49 3.86
390.1 291.47 476.36 517.45 564.56
-25.28 63.43 8.63 9.10
5.02 3.75 6.13 6.44 7.03
-25.30 63.47 5.06 9.16
70.00
60.00
50.00
Income Growth 40.00
Expense Growth 30.00 Income Growth QoQ
Net Profit Growth 20.00 Expenses Growth QoQ
10.00 Net Profit Growth YoY
0.00
-10.00 Mar '08 Sep '08 Mar '09 Sep '09
-20.00
-30.00

8. Growth QoQ
Growth YoY

12. CMP 311
Historic Resistence Band 355-358 Below
Historic Support Band 255-250 Above
Long term MA 327 Below
Short Term MA 307 Above
RSI +
Slow Stoch BUY
Current Support 300-298
Current Resistence Bands 320-322
Current Resistence Bands 340-344

13. Triple Bottom Bullish
Asymetric Triangle Consolidation

15. Cipla's exports strategy is different from domestic companies such as Ranbaxy and Dr. Reddy's. The latter are competing directly in the global
generics market. Cipla's focus however is on contract manufacturing. Here the company has entered into partnerships with various global
generics players. This is for manufacturing and supplying bulk drugs or formulations to them. The global generics players, meanwhile, take
care of the regulatory aspects. They also launch the drugs in the market. In that sense, Cipla's business model is relatively steadier because
the stability in terms of revenues and margins is higher than that in the generics model. This has also been amply demonstrated in the past
where as Cipla's tie-ups are concerned, these margins in Cipla's case was more visible. On the other hand, Ranbaxy and Dr. Reddy's exhibited
As far the consistency of revenue growth and arrangements are typically to supply specialty bulk drugs. The company has entered into
partnerships with around 22 companies in the US. Some of these include Teva, Watson, Eon, Morton Grove, Pentech Pharma, Paddock,
Akorn and Metpoint. Around 57 ANDAs of its partners have been approved. 35 of which so far have been commercialized. Besides this, the
company has over 6,000 product registrations in more than 170 countries worldwide. The company thus, intends to cater to the generics
market with a significantly enhanced Cipla's performance as the same stablegrown at an average annual rate of 23% over the last 5 years (till
Exports have low-risk return approach. This would ensure a relatively have earnings flow.
FY10). The company is present in over 170 countries worldwide and the contribution of exports to the topline has gone up to 51% in FY10 from
25% in FY01. Apart from developing markets, Cipla is also focusing on regulated markets for growth, wherein it supplies bulk drugs to global
generic companies with whom it has tied up. The company in recent times has also invested in setting up more manufacturing facilities to cater
to the demand for generics in the global market.
Keeping in mind the huge generics potential in the coming couple of years and consequently, an increase in product approvals of its generic
partners, we expect export revenues from the bulk drugs segment to grow at an average annual rate of 10% between FY10 and FY13. The
company's initiative to tie up with new customers are also expected to drive the growth of bulk drug exports. In addition, Cipla's formulation
exports are expected to grow at an annual rate of 20% over the next three years. Formulations in anti-hypertensives, anti-AIDS, anti-asthma
Cipla enjoys a near dominant position in the asthma segment (about 15% of sales). It is one of the few companies globally having the required
technology to manufacture CFC-free inhalers. With CFC (Chlorofluorocarbons) inhalers to be compulsorily phased out by 2010, this segment
is expected to see growth in the future. Cipla is targeting to market its inhalers in Europe, which is the biggest market for inhaler drugs. At
present, it has received approvals for 'Budesonide' in Germany and Portugal, 'Salbutamol MDI' in Denmark, UK and Portugal. Moreover, 8
inhalers have been developed for the EU and 6 have been submitted for registration. The timeframe for the regulatory and compliance work for
these inhalers is expected to take another 2 years. By that time, the inhalers will also lose their patents and so Cipla would be able to launch
these inhalers then.
Cipla also has a strong presence in the anti-retroviral segment and is one of the key suppliers to the Clinton Foundation HIV/AIDS Initiative
While Cipla's focus areas on the domestic side remains the same as exports, the company has a track record of launching new products faster
than any other of its competitor in the high value therapeutic segments. This gives Cipla a first mover advantage. Domestic revenues grew by
14.5% in FY09 and we expect an average annual growth rate of 14% for the domestic formulations segment over the next three years.
Just like its peers Biocon and Dr.Reddy's Cipla is also harnessing ambitions of being a strong player in the biotech space. The company
recently acquired stakes in two biotech companies called Mab Pharm in India (40% stake) and BioMabs in Hong Kong (25% stake). The
company has invested US$ 65 m in these acquisitions and the primary focus initially will be on oncology (anti-cancer). Other focus areas would
include asthma, arthritis, rheumatism and the like. Cipla will have the rights to market products of both the companies in India and the
international markets.
Biotech is a very niche area as the products are quite difficult to manufacture and so there is potential for higher revenues and profits due to
limited competition. Plus manufacturing 'biosimilars' (generic versions of patented biotech products) require clinical trials too. Hence, the