1. C O M P A N Y U P D A T E
India
14 Sep 2012
Venus Remedies Rs 287
Sector: Pharma Positive research results
BSE Code 526953 NSE Code VENUSREM Venus Remedies has shown good progress from its
CMP (Sep 13) 287.5 52W H/L 308/141 research development pipeline in recent months,
Nifty 4,842 Sensex 18021
Equity Cap (m) 2,369 Face Value 10
with two of its innovative products getting patent
Shares (m) 9.74 Free Float 65.29% approvals by the US patent office. This marks a big
Market Cap (m) 2,816 3M Avg Vol 83524
stride in Venus’ ability show results from its R&D
investments, and the market has reacted positively,
Shareholding Pattern Jun-2012 rerating the stock upwards.
We believe these valuations are sustainable, with
more upside possible on further research gains
valuations.
Promoters
32% 35% 2 major US Patents approved
FIIs/FVCI
Domestic
The company achieved positive vindication of its research
Institutions efforts, with approval of US patents for two key products:
Corporate Bodies
Potentox, suitable for Nosocomial Pneumonia and Febrile
19% 14%
Neutopenia infections treatment; and CSE1034, an
antibiotic product effective against a range of drug resistant
0%
infections.
New research product launched
330 Price Performance Venus launched a new research based product,
300 nanotechnology based „Taxedol‟, a single vial Docetaxel
270
240
product. With market size of Rs 15bn in the domestic
210 market, this is a key product addition to its strong kitty of
180 cancer products.
150
120 Top-line growth as per expectations
90
60 Venus has showed growth in revenue of 13.3% in Q1 FY13
30 (Apr-Jun‟12) in line with our expectations. The Company‟s
- revenue reached Rs 1120mn in Q1‟FY13 from Rs 988.7
Jan-12 Feb- Mar- Apr- May- Jun- Aug- Sep- same quarter last year. Its EBITDA grew by 5.7% to Rs
12 12 12 12 12 12 12
281.2mn this quarter from Rs. 297.2mn in Q1‟FY12. It
Venus Remedis Sensex
registered PAT of Rs. 136.2mn up by 3.1% compared to
Q1‟FY12. EBITDA and net margin are affected with
increased SG&A expenses and higher depreciation and
financial charges.
Consolidated Financials
Valuations
FY'11 FY'12E FY'13E FY'14E
Venus scrip has shown strong movement as its US patents
Sales 3,631 4,196 4,788 5,546
for research products came through. The share has
EBITDA 892 1,022 1,186 1,395
increased more 70% since we came up with our last
PAT 462 493 610 755
research report in Jun 2012.
EBITDA margin(%) 24.57 24.35 24.78 25.14
Net margin(%) 11.74 12.75 13.62 Venus Remedies is currently trading at 5.4x ttm eps and
12.73
4.8x ttm ebitda which is still well below most of its peers.
ROE(%) 22.65 18.07 18.01 18.56
The low valuations, and strong research pipeline, imply
ROCE(%) 19.11 16.28 16.37 17.39
current valuations are sustainable, with scope for further
P/E Ratio(x) 3.9 5.7 4.6 3.7
re-rating on positive research developments.
EV/EBITDA(x) 4.1 4.8 4.2 3.5
EPS (Rs) 50.63 50.56 62.65 77.55
Rs mn
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2. Company Report: Venus Remedies 10 Sep 2012
Steady growth in Q1 FY13, to continue through FY13
Particulars (Rs mn) Q1 FY'13 Q1 FY'12 Q4 FY'12 % Chg YoY % Chg QoQ
Net sales 1120 989 1135 13.3 (1.3)
Total Operating Income 1126 990 1147 13.7 (1.8)
Total Expenditure 829 709 864 16.9 (4.1)
Consumption of Raw 652 622 647 4.8 0.9
Materials
(Inc)/Dec in Stock In -30 -78 0 (62.0) -
Trade & WIP
Employees Cost 57 55 56 4.6 2.3
Other Expenditure 149 110 162 34.9 (8.0)
EBITDA 297 281 283 5.7 5.1
Depreciation 78 61 61 27.9 26.7
EBIT 220 221 221 (0.5) (0.8)
Interest & Finance charges 76 61 73 24.9 4.9
Other Income 1 0 2 207.3 (37.3)
PBT 145 160 151 (9.6) (4.1)
Tax Expense 4 24 -5 (82.4) (186.2)
PAT 141 136 156 3.1 (9.7)
*Standalone (Source: Ace Equity, company reports)
Stable growth in Q1 FY13
FY13 growth Venus Remedies reported revenue of Rs 1120mn in Q1 FY13, up
likely to remain from Rs 989mn in same quarter last year, a good 13.3% growth over
in line with Q1 the last year. Strong domestic market performance has contributed
FY13 growth to this growth. Domestic market grew from Rs 376mn in Q1 last year
to Rs 442mn in this quarter, a growth of 17.5% Y-o-Y. This gives
assurance that efforts taken by the company to boosts revenue in
the domestic market are on track.
The company believes that it will continue to drive the growth on
similar lines of 13-15% through-out the rest of the year with similar
performance expected from domestic & international market in the
near future.
Margins on the expected levels
The company has maintained margins in this quarter, EBITDA margin
at 26.4%, and 12.5% PAT margin. These margins are at par with its
historical figures and are on the expected lines. It clocked EBITDA of
Rs 297mn this quarter up from Rs 281mn in the same quarter last
year and PAT of Rs 140mn, up from Rs 136mn in Q1 FY12.
Company‟s efforts to improve reach in domestic and international
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3. Company Report: Venus Remedies 10 Sep 2012
market has pushed the sales and distribution cost which has
marginally affected the EBITDA margins for this quarter. The
continued expenditure on R&D and other expenses has in effect
pushed up the financing cost and depreciation. This has resulted in
marginal dip in PAT margins.
Key Ratios Q1 FY'13 Q1 FY'12 Q4 FY'12
EBITDA Margin 26.40% 28.40% 24.65%
Net Margin 12.48% 13.75% 13.57%
Total Expenditure/Operating 73.60% 71.60% 75.35%
Income
Raw Material Cost/Operating 55.31% 54.94% 56.38%
Income
Staff Cost/Operating Income 5.07% 5.51% 4.86%
Other Expenditure/Operating 13.22% 11.14% 14.11%
Income
*Standalone (Source: Ace Equity, company reports)
Margins compare favourably with peers
Maintains Venus Remedies‟ operating margins continue to be at the higher end
strong margins of its peer set. Most midcap pharma companies, including injectable
companies, have operating margins in the range of 15-25%. Venus‟s
reported EBITDA margin of 27% is better than most of this lot. It
must be noted that Venus books more R&D expense through its
balance sheet compared to its peers.
With recent patents and upcoming research product launches, Venus
could see further improvement in the EBITDA margins. We expect
this change to manifest from middle of FY14.
Better profitability supporting the growth
Q1’FY13 Net
Total EBITDA Net Income
Company Income EBITDA Margin Income Margin
Mid-Cap Peers
Ajanta Pharma 1718 371 22% 196 11%
Indoco Remed 1512 256 17% 104 7%
Natco Pharma 1345 290 22% 168 12%
Nectar Life 3936 604 15% 160 4%
Parabolic Drugs 3052 433 14% 98 3%
Injectable Peers
Strides Arcolab 5083 1313 26% 905 18%
Ahlcon Parenterals 248 49 20% 23 9%
Parenteral Drug 716 -130 -18% -302 -42%
Claris Life 1949 777 40% 323 17%
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4. Company Report: Venus Remedies 10 Sep 2012
Kilitch drugs 154 -1 -1% 29 19%
Average 1932 390 16% 169 6%
Venus 1120 297 27% 140 13%
(Source: Ace Equity, company reports)
R&D investments show greater results
Receives 2 US patents for its research products
2 significant US The innovation cell of Venus Remedies has given some significant
patent awards results this quarter. The Company received two patents from US
patent office for antibiotic products: Elores and Potentox. Both
products are from its anti microbial resistance (AMR) product line.
The US patents are significant achievement for Venus Remedies as
earlier the Company had patents mainly in EU and other regions like
Australia, South Africa and the developing world while missing out on
the major US market. These patents may further strengthen the
market‟s belief in Company‟s R&D capability and its ability to achieve
growth through its R&D products.
‘Super Bug’ resistant drug patented in US
CSE1034, to be Venus Remedies has received patent from the US Patent Office for a
launched as breakthrough antibiotic product CSE1034. The new drug product
Elores in the CSE1034, is an antibiotic adjuvant entity (AAE), has been found to be
Indian market, effective against a wide range of drug resistant infections including
is the most the `superbugs‟ like Carbapenemase resistant Metallo Beta
effective anti- Lactamses (MBL) strains. Venus is planning to launch this drug in
biotic India under the brand name ELORES and is planning to have a pre
formulation IND meeting with US FDA for fast track approval of this product.
today The drug has been found safe while effectively dealing with
hospital acquired (nosocomial) infections involving Metallo Beta
Lactamase and other resistant strains such as E. coli, K. pneumoniae,
P. aeruginosa & A. baumanni, with reduced drug induced toxicity
resulting in lesser adverse effects.
US patent for Potentox
Venus Remedies has received patent from the US Patent Office for
Potentox, the patent protects the composition of Potentox and
the method of treatment.
The Patent provides an exclusivity period for Potentox until May,
2027. In addition to this new patent grant, Potentox is protected by a
number of other patents from across the Globe including India,
Australia, New Zealand, South Korea, South Africa and Ukraine.
The Company has already been marketing Potentox successfully in
India and few of the emerging markets around the globe. The
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5. Company Report: Venus Remedies 10 Sep 2012
product is growing with a CAGR of 50% since past 3 years and now
Venus is planning to have a pre IND meeting with US FDA for fast
track approval of this product.
Designed novel, patented technology for anti cancer products
DPPC is a The Company has established pre-clinical proof of concept for its
patented drug Drug–Protein-Polymer-Conjugate (DPPC). The DPPC concept by
delivery Venus is a novel, patent protected technology, which will help in
platform alleviating cancer by specific and selective targeting of tumor cells.
This is a platform technology with a novel concept of triple conjugate
i.e., Drug -Protein-Polymer- Conjugate (DPPC).
New Product launched: Taxedol
Taxedol is a Venus Remedies Limited has introduced for the first time a nano
ready to use technology based “Ready-to-Use” single vial Docetaxel in the
single vial domestic market under the brand name “TAXEDOL”. This one-vial
cancer product formulation has the advantage of requiring a single dilution step in
suitable infusion solutions prior to administration. The product caters
to the Rs 15bn Indian Cancer Drug Industry, which is expected to
grow at close to 20% over the coming few years.
Valuation: Available at decent bargain even after the upsurge
EV/ EV/
Company Sales Price Mcap EV EBITDA Sales P/E
Mid-Cap Peers
Ajanta Pharma* 6435 411 9629 11228 8.4 1.7 13.2
Indoco Rem* 5851 69 6322 7191 8.6 1.2 14.1
Natco Pharma 5369 348 10849 11918 9.8 2.2 17.6
Nectar Life 14874 20 4496 4496 1.7 0.3 5.3
Parabolic Drugs* 10377 24 1507 6285 3.8 0.6 3.3
Injectable Peers
Strides Arco 24916 886 52026 57982 68.0 2.3 6.1
Ahlcon
Parenterals* 825 340 2448 2616 18.3 3.2 45.8
Parenteral Drugs 3333 70 1806 5502 -79.5 1.7 -2.3
Claris LIfe 7657 219 13986 14817 6.9 1.9 11.4
Kilitch Drugs* 914 80 1057 947 14.5 1.0 35.7
Venus Remedies 4181 286 2785 4579 4.8 1.1 5.4
*Standalone (Source: Ace Equity, company reports)
Stock has seen Venus has seen a partial re-rating since we made our initiatial
rerating, but research report. The share price has moved from 161 on 4 th June to
still cheap around 280-290 now. The driver behind the rerating has been the
award of new patents for the US markets, which has bolstered
investor confidence in the Company‟s research capabilities.
Four-S Research 5

6. Company Report: Venus Remedies 10 Sep 2012
Venus is currently trading at PE ratio of 5.4x which is still at 68%
discount of its peers average. With current US patents approvals,
regular product launch schedule and stable financial performance, we
believe current valuations are sustainable, with upside based on
further positive show from its R&D efforts.
We raise our target price expectations to Rs 350 by Sep‟13, implying
an upside potential upside of 22%. At this price the company quotes
at 4.5x FY14 expected eps and 4x FY14 expected EV/EBITDA.
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7. Company Report: Venus Remedies 10 Sep 2012
Financial Annexure
Profit & Loss Statement
Income Statement FY'08 FY'09 FY'10 FY'11 FY'12E FY'13E FY'14E
Gross Sales 2,165 2,692 3,144 3,637 4,196 4,795 5,554
Less : Excise Duty 9 4 4 6 0 7 8
Revenue from Operations 2,156 2,688 3,140 3,631 4,196 4,788 5,546
Decrease/(Increase) in Stock -48 -82 -62 -39 -90 -66 -77
Raw Materials Consumed 1336 1668 1885 2054 2398 2666 3055
Manufacturing/Other expenses 73 107 147 171 199 228 264
Payments to and provision for
employees 119 141 167 200 253 301 362
Power & Fuel Cost 19 20 17 27 34 38 44
Selling and Distribution Expenses 62 98 153 198 231 264 305
Administrative & Other expenses 57 87 91 119 150 171 198
Miscellaneous Expenses 25 23 14 9 0 0 0
Total Expenses 1,643 2,063 2,413 2,739 3,174 3,602 4,152
EBITDA 512 625 728 892 1,022 1,186 1,395
Depreciation 50 68 125 181 249 275 307
EBIT 462 558 603 711 773 912 1,087
Other Income 19 3 2 4 11 13 15
Financial Expenses 48 84 141 189 256 256 256
Profit before tax and
Exceptional Items 433 477 464 526 528 668 846
Exceptional Items - - - - - - -
Profit before tax 433 477 464 526 528 668 846
Tax 75 37 68 64 36 58 90
Profit after tax before minority
interest 358 440 396 462 493 610 755
Reported net profit 358 440 396 462 493 610 755
(Rs mn), consolidated financials
Four-S Research 7

8. Company Report: Venus Remedies 10 Sep 2012
Balance Sheet
Balance Sheet FY'08 FY'09 FY'10 FY'11 FY'12E FY'13E FY'14E
Shareholder's Equity
Share Capital
85 85 85 133 188 188 188
Reserves and Surplus
784 1,259 1,627 2,236 2,896 3,506 4,261
ESOPs
- - - - - - -
Total equity capital
890 1,386 1,712 2,369 3,083 3,693 4,449
Liabilities
Secured Loans
475 698 917 1,648 1,966 1,966 1,966
Unsecured Loans
482 618 577 221 215 215 215
Deferred Tax Liability
42 60 76 92 94 96 96
Total Liabilities and Owner's
Equity 1,889 2,762 3,281 4,330 5,358 5,971 6,726
Assets
Goodwill on consolidation
- - - - - - -
Gross Block
1,526 2,096 2,609 3,429 4,332 4,930 5,653
Less: Depreciation
138 192 314 496 745 1019 1326
Net Fixed Assets
1388 1905 2295 2933 3588 3911 4327
Work-in-progress
14 8 7 145 200 225 325
Investments
- - - - - - -
Inventory
278 446 619 754 960 1066 1200
Debtors
169 330 283 357 430 535 619
Cash and Bank Balance
11 16 24 31 42 67 95
Other Current Assets
0 0 0 0 0 0 0
Loans and Advances
183 239 260 378 464 583 700
Total Current Assets
1,518 1,519 1,520 1,521 1,522 1,523 1,524
Current Liabilities
86 113 98 116 190 250 330
Provision
106 92 121 162 145 175 220
Total Current Liabilities
192 205 220 278 335 425 550
Net Current Assets
449 825 967 1242 1561 1825 2064
Total Assets
1889 2762 3281 4330 5358 5971 6726
(Rs mn), consolidated financials
Four-S Research 8

9. Company Report: Venus Remedies 10 Sep 2012
Cash Flow Statement
Cash Flow Statement FY'08 FY'09 FY'10 FY'11 FY'12E FY'13E FY'14E
Net Profit/(Loss) before Tax 433 477 464 526 528 668 846
Depreciation 50 52 125 182 249 275 307
Deferred Employee Compensations 4 2 2 0 0 0 0
Expenses Amortised 15 14 13 9 0 0 0
Adjustment of excess mat Transferred to gen
reserve 0 0 -15 53 52 53 50
Adjustment for FBT -2 -3 25 4 0 0 0
Operating Cash flow before Wcap 500 541 613 774 830 996 1203
Adjustments for increase /decrease in Current
Assets -275 -275 -148 -327 -365 -329 -336
Decrease / Increase in Current Liabilities/
Provisions -33 -72 -123 -73 57 90 125
Extraordinary Items -2 -4 0 0 0 0 0
Cash Generated from Operations 190 189 342 373 522 756 992
Direct Taxes Paid 0 0 0 0 -86 -109 -140
Operating Cash flow- A 190 189 342 373 436 647 852
Purchase/Sale of Fixed Assets (net) -743 -570 -512 -820 -904 -598 -724
Decrease in Capital Work-in-Progress (including
capital advances) 403 6 0 -144 -55 -25 -100
Interest received 1 0 0 0 0 0 0
Cash from Investing activities- B -338 -564 -512 -964 -959 -623 -824
Proceeds from Issue of Share Capital 0 0 0 48 54 0 0
proceed from share capital(share premium) -26 198 0 175 166 0 0
Proceeds from Long Term Borrowing( Net) 133 160 25 731 318 0 0
Proceeds from Short term Borrowing( Net) 22 20 153 -357 -6 0 0
Cash from Financing activities- C 129 379 178 598 533 0 0
Change in Cash= A+B+C -19 5 8 7 11 25 28
Opening Balance 30 11 13 24 31 42 67
Closing Balance 11 16 21 31 42 67 95
(Rs mn), consolidated financials
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10. Company Report: Venus Remedies 10 Sep 2012
Ratios
Ratios FY'08 FY'09 FY'10 FY'11 FY'12E FY'13E FY'14E
EPS 42.4 52.0 46.7 50.6 50.6 62.6 77.5
CEPS 22.5 22.4 40.4 40.9 44.8 66.5 87.4
DPS 2.0 2.5 1.0 1.3 1.4 1.7 2.1
Valuation Ratios
P/E Ratio 9.1 2.9 5.5 4.0 5.7 4.6 3.7
EV/EBITDA 8.2 4.1 5.0 4.1 4.8 4.2 3.5
EV/Sales 2.0 1.0 1.2 1.0 1.2 1.0 0.9
Profitability
EBITDA margin 23.8% 23.3% 23.2% 24.6% 24.4% 24.8% 25.1%
Pretax margin 20.1% 17.7% 14.8% 14.5% 12.6% 14.0% 15.3%
Net margin 16.6% 16.4% 12.6% 12.7% 11.7% 12.7% 13.6%
Return on avg. Equity 21.7% 38.6% 25.5% 22.7% 18.1% 18.0% 18.6%
Return on avg. Capital employed 18.1% 24.5% 20.4% 19.1% 16.3% 16.4% 17.4%
Growth Ratios
Revenue growth 53.7% 24.7% 16.8% 15.6% 15.6% 14.1% 15.8%
EBITDA growth 69.3% 22.0% 16.3% 22.6% 14.5% 16.1% 17.6%
Net profit growth 52.5% 10.0% -2.7% 16.8% 6.6% 23.9% 23.8%
Activity/Turnover Ratios
Asset turnover 0.9 1.3 1.1 1.0 0.9 0.9 0.9
Working Cap turnover 6.2 4.2 3.5 3.3 3.0 2.8 2.9
Debtors turnover 16.3 10.8 10.3 11.3 11.3 9.9 9.6
Debtor Days 22.4 33.8 35.6 32.2 32.2 36.8 38.0
Inventory turnover 9.4 7.4 5.9 5.3 4.9 4.7 4.9
Inventory Days 38.8 49.2 61.9 69.0 74.6 77.2 74.6
Payables turnover 32.2 27.0 29.7 33.8 27.4 21.8 19.1
Payables Days 11.3 13.5 12.3 10.8 13.3 16.8 19.1
Liquidity Ratios
Current Ratio 1.4 1.7 1.5 1.7 1.6 1.8 1.8
Cash Ratio 0.2 0.1 0.1 0.1 0.1 0.1 0.2
Solvency
Debt Equity 1.1 0.9 0.9 0.8 0.7 0.6 0.5
Leverage Ratio 2.1 2.0 1.9 1.8 1.7 1.6 1.5
Net Debt / EBITDA 1.8 2.1 2.0 2.1 2.1 1.8 1.5
Interest Coverage 9.7 6.6 4.3 3.8 3.0 3.6 4.2
Four-S Research 10

11. Company Report: Venus Remedies 10 Sep 2012
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Four-S Research 11