C O M P A N Y

R E P O R T

India 4 Jun 2012 Sector: Pharma

BSE Code CMP (Jun 1) Nifty Equity Cap (m) Shares (m) Market Cap (m) 526953 166.1 4,842 2,369 9.74 1,618

Venus Remedies
Building a unique formulation
VENUSREM 276/141 15965 10 65.29% 9,514

Rs 166.1

NSE Code 52W H/L Sensex Face Value Free Float Avg Vol (weekly)

Rs Shareholding Pattern (March 31, 2012)

FII 14% DII 0% Others 32%

Venus Remedies (Venus), a high-growth mid-sized pharma company in the injectables space, has two key differentiators: presence in high value therapeutic segments and a strong research focus. This has allowed the company to maintain robust revenue CAGR of around 18% over last 4 years, at healthy operating margins. The companys growth rates and margins could get a boost as its growing repository of research products and patents comes into play.

In highly attractive injectables segment Venus is among top 10 players globally in combination drugs space. This is a high margin space within injectables. Venus has further focussed on highly specialised products within this space, helping it maintain high profitability and robust top-line growth. Concentrated focus on IP development 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 R&D investment as % of sales and top 15 by total amount. The Company has developed many path breaking products such as Sulbactomax, a novel combination product with market potential of US$400mn in India, and patents in more than 42 countries including EU and Australia. Venus is currently exploring out licensing deals for Sulbactomax for global markets and has hired a leading global consulting firm for the same. Antimicrobial Resistance: A winning strategy

Promoter 35%

Bodies Corporate 19%

Price Performance (Last 6 months)

Venus Remedies
200.00 190.00 180.00 170.00 160.00 150.00 140.00
30-Dec 30-Jan 29-Feb 31-Mar

Nifty

30-Apr

31-May

Consolidated Financials
FY'11 Sales EBITDA PAT EBITDA margin(%) Net margin(%) ROE(%) ROCE(%) P/E Ratio(x) EV/EBITDA(x) EPS (Rs) 3,631 892 462 24.57 12.73 22.65 19.11 3.99 4.12 50.63 FY'12E FY'13E FY'14E

4,196 1,022 493 24.35 11.74

18.07 16.28 3.28 3.60 50.56

4,788 1,186 610 24.78 12.75

18.01 16.37 2.65 3.10 62.65

5,546 1,395 755 25.14 13.62

18.56 17.39 2.14 2.64 77.55 Rs mn

Venus correctly identified anti-microbial resistance (AMR) as its core area for R&D efforts around 10 years ago. AMR has emerged as the biggest threat to global health in recent years, so much that even WHO has proposed a global strategy to fight AMR. Venus Remedies entire antibiotic research product chain caters to the AMR segment including Sulbactomax, Vancoplus, Potentox and Tobracef. Low Valuations At current price, Venus Remedies quotes at around 3.3x FY12 and around 2.6x FY13e earnings, below peer averages. These are values below its historical trading range. We expect Venuss price to cross Rs 200 over a 12 month period. Any big out licensing deal will give further upside. This is an upside of 23% from current levels.

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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 Indias over 10,000 pharmaceutical companies produce injectables) gives Venus a better ability to deliver higher margins. High growth segments Focussed on high growth, high margin segments within injectables Venus Remedies has focused on high growth segments like antiinfective (33% of revenue) and oncology (30.7%) which are considered to be the fastest growing segments and expected to contribute 50 to 60% of product launches globally by 2015. With changing demography and overall changes in lifestyle, antiinfective, 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 (%) Company Mid-Cap Peers Ajanta Pharma Indoco 19% 13% 10% 11% 21% 14% 12% 9% EBIDTA PAT TTM Margin (%) EBIDTA PAT

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Company Report: Venus Remedies

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

4 Jun 2012
12% 6% 6% 9% 32% 7% -20% 17% 9% 9%

18% 25%

9% 13%

18% 22%

9% 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 companys 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 new formulation or a dosage form. Venus aims to make formulations that are more effective than alternatives available in the market. It aims to offer a therapeutic advantage and differ from me-too generic 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.

Research pipeline based on novel formulations

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Company Report: Venus Remedies

4 Jun 2012

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 Venuss R&D initiative is Sulbactomax, an anti-infective product, used to combat beta-lactamase generated drug resistance, the only product in its category to prevent growth and spread of bacterial resistance. Sulbactomax is a combination of Ceftriaxone and Sulbactam with VRP1034. Venuss 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 launches beginning to hit the market Besides Sulbactomax, Venuss R&D has come up with several new unique formulations like Vancoplus, Potentox, and Tobracef. Achnil, launched in FY11, is a revolutionary once-a-day pain killer, given Product of the Year award by Biospectrum Asia for its uniqueness in addressing critical health conditions.

Sulbactomax, a likely winner

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Company Report: Venus Remedies

4 Jun 2012

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 discussions on for Sulbactomax Sulbactomax itself is patented in 42 countries including the EU countries; patents are awaited from 8 more countries including US 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 outlicensed 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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Company Report: Venus Remedies

4 Jun 2012

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 semiregulated 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 R&D products could grow 2025% annually With ever growing investment in R&D by Venus Remedies (from 14.5% of revenue in 2009 to 19% in 2011) and a strong R&D team of 60 scientists, in-licensing and R&D alliances with many 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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Company Report: Venus Remedies

4 Jun 2012

ROE
30% 25% 20% 15% 10% 5% 0% Indoco Ajanta Pharma Ahlcon Nectar Industry Average Natco Pharma Parenteral Drugs Strides Arcolab Parabolic Claris Venus Kilitch 25% 20% 15% 10% 5% 0% Indoco Ajanta Pharma

ROCE

Ahlcon

Nectar

Industry Average

Natco Pharma

Parenteral Drugs

Strides Arcolab

Parabolic

Claris

Valuations have trended down in FY12 High discount compared to its peers Valuations ignoring steady growth, and R&D results Venus is currently traded at discounted valuations as compared to its pharma peers. When we divide peers among injectable segment and mid-cap segment, within injectable segment, Venus Remedies is at 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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Venus

Kilitch

Company Report: Venus Remedies

4 Jun 2012

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 Cap

EV

TTM Sales

TTM Sales 4yr CAGR

TTM EBITDA

TTM EBITDA 4-yr CAGR

TTM PAT

TTM PAT 4-yr CAGR

Mid-Cap Peers Ajanta Pharma Indoco Natco Pharma Nectar Parabolic Average Injectable Peers Strides Arcolab Ahlcon Parenteral Drugs Claris Kilitch Average Industry Average Venus 39986 3089 1441 10674 570 11152 8531 1617 64181 3341 7329 14376 1100 18065 13,695 3486 25645 848 3083 7625 1414 7723 7825 4049 26% 9% 10% 0% 5% 10% 15% 18% 5399 139 -52 2446 235 1633 1552 896 67% 1% NA 5% 1% 19% 21% 15% 1,689 43 50 1,414 105 660 651 493 15% -2% NA 4% 2% 5% 10% 9% 7456 4981 11517 4339 1253 5909 8633 5980 13717 12299 5997 9325 6714 5389 4831 13412 9288 7927 21% 19% 10% 15% 33% 19% 1407 735 1095 2453 1666 1471 29% 15% 20% 18% 37% 24% 773 460 602 804 574 642 37% 11% 10% 2% 18% 16%

Better P&L growth numbers than injectables peer average

Venus Remedies has performed better than its injectable peers in the last 4 years as peers overall profit declined. Venus managed to improve PAT at a CAGR of 9%. 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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Company Report: Venus Remedies

on speciality injectables.

4 Jun 2012

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 Ahlcon Parenterals Ajanta Pharma Claris Lifesciences Indoco Remedies Kilitch Drugs Natco Pharma Nectar Lifesciences Parabolic Drugs Parenteral Drugs Strides Arcolab Industry Avg Venus Remedies
Standalone revenues, Rs mn

Revenue CAGR (FY08-FY11) 11% 17% 4% 22% 8% 16% 13% 31% 22% 9% 15% 19%

Comparing key P&L items Better profitability parameters Focus on high margin products has boosted margins Venus Remedies has outperformed most of its peers in profitability in midcap as well as injectable peers while generating strong growth numbers in last few years. 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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Company Report: Venus Remedies

FY11 Margin (%) Company Mid-Cap Peers Ajanta Pharma Indoco Natco Pharma Nectar Parabolic Drugs Average Injectable Peers Strides Arcolab Ahlcon Parenteral Drugs Claris Kilitch Average Industry Average Venus 21% 16% 10% 31% 15% 19% 18% 25% 7% 6% 1% 19% 7% 8% 9% 13% 21% 16% -2% 32% 17% 17% 18% 24% 19% 13% 19% 20% 15% 17% 10% 11% 12% 9% 8% 10% 21% 14% 23% 18% 18% 19% EBIDTA PAT

4 Jun 2012

TTM Margin (%) EBIDTA PAT

12% 9% 12% 6% 6% 9% 32% 7% -20% 17% 9% 9% 9% 12%

Balance sheet ratios

Reasonable leverage
Debt Equity (x) Interest Coverage (x) FY10 FY11 FY10 FY11 0.83 2.65 0.21 0.97 0.39 1.01 0.29 0.57 0.62 0.39 1.57 0.69 0.85 0.87 0.8 1.25 0.29 1.1 0.62 0.81 0.66 0.63 0.75 0.38 1.74 0.83 0.82 0.79 2.87 2.03 14.3 2.59 4.88 5.33 7.35 4.27 3.17 4.07 1.79 4.13 4.73 4.28 4.02 2.27 21.22 2.35 4.99 6.97 3.17 4.94 1.3 4.07 0.97 2.89 4.93 3.77

Company Mid-Cap Peers Ajanta Pharma Parabolic Indoco Nectar Natco Pharma Average Injectable Peers Ahlcon KIlitch Drugs Parenteral Drugs Claris Strides Arcolab Average Industry Average Venus

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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Company Report: Venus Remedies

4 Jun 2012

compared to most of its peers as can be seen table above. Liquidity ratios on par
Current Ratio (x) Company Mid-Cap Peers Ajanta Pharma Indoco Nectar Natco Pharma Average Injectable Peers Ahlcon KIlitch Drugs Claris Strides Arcolab Average Industry Average Venus FY9 FY10 FY11 Cash Ratio (x) FY10 FY11

1.62 2.7 1.26 1.27 1.71 1.11 1.68 1.54 1.39 1.43 1.57 1.65

1.85 2.79 2.11 1.31 2.02 1.58 1.42 2.53 2.12 1.91 1.96 1.50

1.55 2.63 1.72 1.53 1.86 1.37 1.08 3.43 1.86 1.94 1.90 1.67

0.16 0.48 0.17 0.08 0.21 0.36 0.17 1.08 0.37 0.43 0.32 0.11

0.12 0.31 0.13 0.31 0.2 0.1 0.38 1.04 0.19 0.36 0.28 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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Company Report: Venus Remedies

4 Jun 2012

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* Company Mid-Cap Peers Ajanta Pharma Indoco Natco Pharma Nectar Parabolic Average Injectable Peers Strides Arcolab Ahlcon Parenteral Drugs Claris Kilitch Average Industry Average 9.59 10.83 88.27 7.24 7.48 24.68 16.4 4.85 53.63 -2.29 7.24 4.58 13.60 11.53 13.80 31.17 14.78 6.07 4.97 14.16 11.6 4.62 10.70 14.48 5.35 5.00 8.03 9.72 10.84 19.13 5.41 2.18 9.45 8.96 9.28 15.80 5.58 5.95 9.11 P/E P/E (TTM) EV/ EBIDTA

EV/ EBIDTA (TTM)

CAGRs 4 year EV/ TTM Sales TTM Sales TTM NP D/E

Ratios ROCE (FY11) ROE (FY11)

6.13 8.13 12.52 5.58 3.60 7.19

1.69 1.24 2.97 1.10 0.89 1.58

17% 21% 11% 13% 31% 19%

32% 19% 10% 11% 21% 19%

0.80 0.29 0.62 1.10 1.25 0.81

22% 14% 16% 14% 15% 16%

27% 15% 16% 15% 20% 19%

11.89 24.11 -139.91 6.07 4.69 11.69 9.44

2.53 4.98 1.51 1.90 0.75 2.33 1.96 0.96

35% 4% 32% 7% 8% 17% 18% 19%

31% -11% -36% 19% -3% 0% 9% 9%

1.74 0.66 0.75 0.38 0.63 0.83 0.82 0.79

12% 17% 4% 16% 13% 12% 14% 19%

17% 12% 2% 15% 13% 12% 15% 23%

Venus 3.98 3.28 3.91 4.06 *based on latest financial year, +excluding Parenteral Drugs

Venus Remedies is discounted lower compared to all its peers Sharp valuation discount to both injectables and pharma peers Venus Remedies is valued at a sharp discount by the market compared to all of its peers. While Venus Remedies PE is ~3x FY12, industry average is hovering at 8-9x. Amongst the peer set listed 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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Company Report: Venus Remedies

4 Jun 2012

Valuation and Price Target Scope for higher valuations Business performance supports better valuation In terms of business ratios, like growth rates, operating margins, balance sheet ratios, Venus is doing as well as its peers. It is likely Venus valuations are still suffering from the resettlement 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 companys 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 Venuss 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 350 300 250 200 150 100 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-Dec-09 1-Dec-10 PE PE PE 1-Dec-11 1-Feb-12 1-Jun-09 1-Oct-09 1-Jun-10 1-Oct-10 1-Jun-11 1-Oct-11
3x 5x 7x

Even if Venus maintains current ttm

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Venus is currently trading at around 3.3x FY12 eps and 2.6x expected FY13 eps. This is below its historic trading range of the last 3 years, and around the valuation at the depth of the 2009 bear
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Company Report: Venus Remedies

valuations, Mar13 price could touch around Rs 225

4 Jun 2012

market. These values are also much below peer levels. Similarly, its EV/EBITDA for FY13 works out to 3.1x, which is much less than peer levels. We expect Venus to rerate upwards as market realises the strides it has made it its R&D portfolio. We expect Venuss 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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Company Report: Venus Remedies

Venus Remedies Business

4 Jun 2012

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 2006 Till year 2000, Venus Remedies was part of the cluttered generic 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 above peer levels Venus Remedies is ranked 3rd among all Indian listed pharmaceutical companies in terms of R&D spends as a share of revenues. It is ranked among the top 15 R&D spenders in absolute terms.

Rank 1 2 3 4 5 6 7 8 9 10 11 Four-S Research

Companies Dr Reddys Laboratories Sun Pharmaceutical Inds. Matrix Laboratories Cadila Healthcare Cipla Biocon Ranbaxy Laboratories Torrent Pharmaceuticals Lupin Glenmark Pharmaceuticals Aurobindo Pharma

R&D Spend (FY11) 8464 2860 2820 2686 2598 1725 1670 1527 1268 983 815 15

Company Report: Venus Remedies

12 13 14 15
(Rs mn)

4 Jun 2012
772 716 696 567

Panacea Biotec Piramal Healthcare Venus Remedies Jupiter Bioscience

Rank 1 2 3 4 5 6 7 8 9

Companies Vivo Bio Tech Suven Life Sciences Venus Remedies Jupiter Bioscience KDL Biotech Sun Pharma Advanced Research Company Zenotech Laboratories Dr Reddys Laboratories Auromed

% of revenue 49 22 19 17 16 14 12 11 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 approach The Company has proven its R&D capability with the gradual 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 tumour detection technology from University of Illinois The Company also benefits from in-licensing alliances with various innovative companies and university. It has in-licensed solid tumour detection technology for early detection from University of Illinois. Such alliances have enhanced companys R&D capabilities and have helped to improvise its R&D process. As of now, Venus is preparing to file more than 100 CTDs and ACTDs
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Company Report: Venus Remedies

4 Jun 2012

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 based sustained release formulations Novel Drug Delivery System (NDDS): Venus has achieved success in development of nanotechnology-based, sustained release and targeted delivery formulations with NDDS. This has resulted in 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. Formulation Development: Venus is building its IP through 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:

Non-infringing formulations

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

Office of research support (ORS)

Research Capabilities

Chemical and stability testing

Natural product research

Preclinical division (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
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Company Report: Venus Remedies

4 Jun 2012

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 novel cancer treatment Venus has setup CCMB laboratory in affiliation with some other pharma companies to fasten the cancer drugs testing. The company has 4-5 such products which are expected launched in next 4-5 years. Company is also working on novel cancer drug for targetspecific 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 testing kit through a research tie-up Company has tie-ups with IMTECH, a renowned research center of CSIR and Punjab University. Through this alliance, company is developing a typhoid diagnostic kit. This kit will reduce detection 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.

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Company Report: Venus Remedies

Capitalising the IP Seeking out licensing deals to monetise IP

4 Jun 2012

Venus Remedies understands that it is not easy to capitalise the IP wealth they are creating in the huge global market. So to maximise the potential of this IP development, it has a clear strategy in place. Venus Remedies has appointed a leading consulting firm to seek tieups with international pharma companies for Sulbactomax. Venus Remedies plans to out-license the patented products to multinational 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 manufacturing leaders in fixed dosage injectable

Venus Remedies is among worlds 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 revenue Sulbactomax: It is the top product in Venus Remedies kitty with 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

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Company Report: Venus Remedies

4 Jun 2012

4.2% of FY11 revenue

revenue contribution (4.6% in FY12). Company has patents in South Africa, New Zealand, South Korea, Australia, Ukraine and India. Patents awaited from 44 other countries including EU and US. 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. Vancoplus: It is third biggest product of Venus with 3% of 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.

3% of FY11 revenue

2% of FY11 revenue

Tobracef: Tobracef contributed 2% of revenue in FY11. Its a 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 worlds 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.

Launched in FY11

Venus Research Product portfolio

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Company Report: Venus Remedies

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

4 Jun 2012
Nature Injection Injection Injection Injection Injection Injection Injection

Neurotol

Infusion

Mebatic

Infusion

AMR compatible research products AMR has rapidly emerged as a big global health threat Antibiotic Resistance is spreading faster than expected throughout world and the poor R&D pipeline for new antibiotics is further adding up this menace. Recently, World Health Organisation (WHO) has also 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
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Company Report: Venus Remedies

4 Jun 2012

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 Sulbactomax Category Antibiotic Dose Once daily IM/ IV injection in mild to moderate infections and twice daily in severe infections Indications Infections caused by ESBL resistant pathogens: 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 Infections caused by resistant pathogens such as MRSA: Meningitis Septicemia Skin and skin structure infections Bone and joint infections Post operative infections

Vancoplus

Antibiotic

Twice Daily IV injection in mild to moderate infections and thrice daily in severe 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
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Company Report: Venus Remedies

phase at any point of time. Carbapenams, a key part of generics folio

4 Jun 2012

Meropenem is one such generic product (carbapenem injection). Venus Remedies has received market authorisation for Meropenem 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.

Oncology generics are about 29% of revenue

Venus also has strong presence in oncology segment with 21 injectables in its portfolio. Oncology segment contributed more than 30% to FY11 revenues, with extremely good margins. These are much specialised products and high technology is required in 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 R&D products Oncology liquid Oncology lyphilised Carbapenem Cephalosporin and other injectables PFS and infusions 5 products 11 nations No. of products 8 products 10 products (in various dosage forms) 9 products 3 products 17 products Presence 12 nations 19 nations 23 nations 23 nations 18 nations

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Company Report: Venus Remedies

Bigger the pipeline, greater the in-flow in future

4 Jun 2012

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, antiinfection and neuro. Typhoid and tumour detection kits part of IP pipeline Some of the products close to commercialisation include a Typhoid detection kit. With 17mn patients every year for typhoid, this detection kit has the potential to be a key revenue generator for Venus Remedies in future. The kit reduces the time taken for a 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

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Company Report: Venus Remedies

Pan India distribution reach

4 Jun 2012

Venus has established a pan-India marketing presence covering 24 States and two Union Territories, supported by over 700 marketing 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 tie-ups with other pharma companies

To improve the reach within the domestic market, Venus Remedies has entered into tie-ups with many renowned Indian Pharma companies like Abbot, IPCA, Glenmark, Lupin, Elder, etc. To target 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 presence in 11 countries

To capitalise on its IP pipeline, Venus Remedies has developed multiregional presence across the globe. Venus has setup 11 overseas 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 plants, 2 in India, one in Germany

Venus Remedies has state of the art manufacturing facilities with the latest technology. The company has invested more than Rs 2bn for a 100mn units injectable manufacturing facility at its unit in Baddi, 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.

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Company Report: Venus Remedies

Venus Pharma GmbH (Germany)

4 Jun 2012

With the goal in mind to be a true global Pharma company, Venus acquired the German Pharma company in 2006. Its 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 oncology are the two key segments Venus Remedies has a strong existence in dry powder segment constituting 33% of revenue in FY11. Cehpalosporin and penem products constitute this dry powder segment. Venus Remedies has 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)

12%

Infusions 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

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Company Report: Venus Remedies

Focus on higher margin products

4 Jun 2012

Dry Powder Revenues

1,350 1,300 1,250 INR mn 1,200 1,150 1,100 1,050 1,000 FY08 FY09 FY10 FY11 FY12E 60% 50% 40% 30% 20% 10% 0%

Dry Powder

% of Total Revenues

Dry power share coming down

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

Increasing higher margin oncology segment

Oncology biz growth

1,400 1,200 1,000 800 600 400 200 0 FY08 FY09 FY10 FY11 FY12E Oncology Segment % of Revenue 35% 30% 25% 20% 15% 10% 5% 0%

Oncology is a focus segment for Venus

Oncology segment contributes almost 31% of overall revenue of Venus Remedies. Due to complex products, critical nature and 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,

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Company Report: Venus Remedies

the company should be able to maintain this thrust.

4 Jun 2012

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.

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Financial Analysis and Growth Outlook

15% CAGR for revenue expected during FY12-14 The Companys net revenues have grown at a CAGR of 18% over FY08-12E (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 CAGR is 18%, 3 year growth is 12%

3,500 3,000 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 FY1114.
Revenue Growth Expected
6,000

Growth to be driven by newly launched products and expansion in regional presence

5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 FY'11 FY'12E FY'13E FY'14E

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Company Report: Venus Remedies

Segment Performance

4 Jun 2012

Oncology and Dry powder are major revenue contributors, making up 30.7% and 33% of revenues in FY12 respectively. One can see the growing contribution of oncology segment to Venus Remedies.
Revenue Mix
4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E Dry Powders IV fluids S.V.P(Injectio ns/Amp/PFS) Others Anti- Cancer

Oncology segment Strong growth seen in Oncology segment Oncology segment is growing at handsome rate of 42% in last 4 years growing from Rs 269mn in FY07 to Rs 1,047mn in FY11. This growth was driven by increasing demand from the segment, more than 375 market authorisations across the globe and more than 21 injectable products.
Growth in oncology segment
1,400 1,200 1,000 800 600 400 200 0 FY08 FY09 FY10 FY11 FY12E

Cephalosporin (Dry powder) Cephalosporic segment has grown at stable rate of 10% CAGR in last 5 years. This is mainly driven by new research products which are

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increasing their revenue contribution as the time passes and are expected to add high value in the years to come. Margins expected to move up Venus Remedies has maintained good margins historically. It has managed to maintain EBITDA margins of 20-25% through out last few years. With the range of products launched recently and increasing contribution from oncology, this segment is further expected to improve. Venus Remedies EBITDA is expected to grow from Rs 303mn in FY07 to Rs 1022 in FY12 at CAGR of 28%.

Impressive EBITDA performance

1,200 EBITDA 1,000 800 600 400 200 FY'07 FY'08 FY'09 FY'10 FY'11 FY'12E EBITDA Margin 25% 25% 24% 24% 23% 23% 22% 22% 21% 21% 20%

Net profit is expected to grow from Rs 238mn in FY07 to Rs 493mn at the CAGR of more than 16%.
Net Profit Growth
550

Net profit has grown at 16% CAGR over FY07-12

500 450 400 350 300 250 FY'07 FY'08 FY'09 FY'10 FY'11 FY'12E

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Financial Annexure
Profit & Loss Statement
Income Statement Gross Sales Less : Excise Duty Revenue from Operations Decrease/(Increase) in Stock Raw Materials Consumed Manufacturing/Other expenses Payments to and provision for employees Power & Fuel Cost Selling and Distribution Expenses Administrative & Other expenses Miscellaneous Expenses Total Expenses EBITDA Depreciation EBIT Other Income Financial Expenses Profit before tax and Exceptional Items Exceptional Items Profit before tax Tax Profit after tax before minority interest Reported net profit FY'08 2,165 9 2,156 -48 1336 73 119 19 62 57 25 1,643 512 50 462 19 48 433 433 75 358 358 FY'09 2,692 4 2,688 -82 1668 107 141 20 98 87 23 2,063 625 68 558 3 84 477 477 37 440 440 FY'10 3,144 4 3,140 -62 1885 147 167 17 153 91 14 2,413 728 125 603 2 141 464 464 68 396 396 FY'11 3,637 6 3,631 -39 2054 171 200 27 198 119 9 2,739 892 181 711 4 189 526 526 64 462 462 FY'12E FY'13E FY'14E

4,196 0 4,196 -90 2398 199 253 34 231 150 0 3,174 1,022 249 773 11 256 528 528 36 493 493

4,795 7 4,788 -66 2666 228 301 38 264 171 0 3,602 1,186 275 912 13 256 668 668 58 610 610

5,554 8 5,546 -77 3055 264 362 44 305 198 0 4,152 1,395 307 1,087 15 256 846 846 90 755 755

(Rs mn), consolidated financials

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Balance Sheet
Balance Sheet Shareholder's Equity Share Capital Reserves and Surplus ESOPs Total equity capital Liabilities Secured Loans Unsecured Loans Deferred Tax Liability Total Liabilities and Owner's Equity Assets Goodwill on consolidation Gross Block Less: Depreciation Net Fixed Assets Work-in-progress Investments Inventory Debtors Cash and Bank Balance Other Current Assets Loans and Advances Total Current Assets Current Liabilities Provision Total Current Liabilities Net Current Assets Total Assets 1,526 138 1388 14 278 169 11 0 183 1,518 86 106 192 449 1889 2,096 192 1905 8 446 330 16 0 239 1,519 113 92 205 825 2762 2,609 314 2295 7 619 283 24 0 260 1,520 98 121 220 967 3281 3,429 496 2933 145 754 357 31 0 378 1,521 116 162 278 1242 4330 4,332 745 3588 200 960 430 42 0 464 1,522 190 145 335 1561 5358 4,930 1019 3911 225 1066 535 67 0 583 1,523 250 175 425 1825 5971 5,653 1326 4327 325 1200 619 95 0 700 1,524 330 220 550 2064 6726 475 482 42 698 618 60 917 577 76 1,648 221 92 1,966 215 94 1,966 215 96 1,966 215 96 85 784 890 85 1,259 1,386 85 1,627 1,712 133 2,236 2,369 188 2,896 3,083 188 3,506 3,693 188 4,261 4,449 FY'08 FY'09 FY'10 FY'11 FY'12E FY'13E FY'14E

1,889

2,762

3,281

4,330

5,358

5,971

6,726

(Rs mn)

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4 Jun 2012

Cash Flow Statement

Cash Flow Statement Net Profit/(Loss) before Tax Depreciation Deferred Employee Compensations Expenses Amortised Adjustment of excess mat Transferred to gen reserve Adjustment for FBT Operating Cash flow before Wcap Adjustments for increase /decrease in Current Assets Decrease / Increase in Current Liabilities/ Provisions Extraordinary Items Cash Generated from Operations Direct Taxes Paid Operating Cash flow- A FY'08 433 50 4 15 0 -2 500 FY'09 477 52 2 14 0 -3 541 FY'10 464 125 2 13 -15 25 613 FY'11 526 182 0 9 53 4 774 FY'12E FY'13E FY'14E

528 249 0 0 52 0 830 -365 57 0 522 -86 436 -904

668 275 0 0 53 0 996 -329 90 0 756 -109 647 -598

846 307 0 0 50 0 1203 -336 125 0 992 -140 852 -724

-275 -33 -2 190 0 190

-275 -72 -4 189 0 189

-148 -123 0 342 0 342

-327 -73 0 373 0 373

Purchase/Sale of Fixed Assets (net)

-743

-570

-512

-820

Decrease in Capital Work-in-Progress (including capital advances) Interest received Cash from Investing activities- B

403 1 -338

6 0 -564

0 0 -512

-144 0 -964

-55 0 -959 54 166 318 -6

-25 0 -623 0 0 0 0

-100 0 -824 0 0 0 0

Proceeds from Issue of Share Capital proceed from share capital(share premium) Proceeds from Long Term Borrowing( Net) Proceeds from Short term Borrowing( Net)

0 -26 133 22

0 198 160 20

0 0 25 153

48 175 731 -357

Cash from Financing activities- C Change in Cash= A+B+C Opening Balance Closing Balance

129 -19 30 11

379 5 11 16

178 8 13 21

598 7 24 31

533 11 31 42

0 25 42 67

0 28 67 95
(Rs mn)

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Ratios
Ratios EPS CEPS DPS FY'08 42.4 22.5 2.0 FY'09 52.0 22.4 2.5 FY'10 46.7 40.4 1.0 FY'11 50.6 40.9 1.3 FY'12E 50.6 44.8 1.4 FY'13E 62.6 66.5 1.7 FY'14E 77.5 87.4 2.1

Valuation Ratios P/E Ratio EV/EBITDA EV/Sales 9.1 8.2 2.0 2.9 4.1 1.0 5.5 5.0 1.2 4.0 4.1 1.0 3.3 3.7 0.9 2.6 3.1 0.8 2.1 2.7 0.7

Profitability EBITDA margin Pretax margin Net margin Return on avg. Equity Return on avg. Capital employed 23.8% 20.1% 16.6% 21.7% 18.1% 23.3% 17.7% 16.4% 38.6% 24.5% 23.2% 14.8% 12.6% 25.5% 20.4% 24.6% 14.5% 12.7% 22.7% 19.1% 24.4% 12.6% 11.7% 18.1% 16.3% 24.8% 14.0% 12.7% 18.0% 16.4% 25.1% 15.3% 13.6% 18.6% 17.4%

Growth Ratios Revenue growth EBITDA growth Net profit growth 53.7% 69.3% 52.5% 24.7% 22.0% 10.0% 16.8% 16.3% -2.7% 15.6% 22.6% 16.8% 15.6% 14.5% 6.6% 14.1% 16.1% 23.9% 15.8% 17.6% 23.8%

Activity/Turnover Ratios Asset turnover Working Cap turnover Debtors turnover Debtor Days Inventory turnover Inventory Days Payables turnover Payables Days 0.9 6.2 16.3 22.4 9.4 38.8 32.2 11.3 1.3 4.2 10.8 33.8 7.4 49.2 27.0 13.5 1.1 3.5 10.3 35.6 5.9 61.9 29.7 12.3 1.0 3.3 11.3 32.2 5.3 69.0 33.8 10.8 0.9 3.0 11.3 32.2 4.9 74.6 27.4 13.3 0.9 2.8 9.9 36.8 4.7 77.2 21.8 16.8 0.9 2.9 9.6 38.0 4.9 74.6 19.1 19.1

Liquidity Ratios Current Ratio Cash Ratio 1.4 0.2 1.7 0.1 1.5 0.1 1.7 0.1 1.6 0.1 1.8 0.1 1.8 0.2

Solvency Debt Equity Leverage Ratio Net Debt / EBITDA Interest Coverage 1.1 2.1 1.8 9.7 0.9 2.0 2.1 6.6 0.9 1.9 2.0 4.3 0.8 1.8 2.1 3.8 0.7 1.7 2.1 3.0 0.6 1.6 1.8 3.6 0.5 1.5 1.5 4.2

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Company Report: Venus Remedies

About Four-S Services

4 Jun 2012

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