Latin Manharlal Securities Pvt Ltd. 124 Viraj, S,V.Road, Khar (W), Mumbai S t o c k I d e a

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1 S t o c k I d e a Date: 13-July -12 CMP: `370 TARGET: `523 Upside: 41.4% B U Y SENSEX NIFTY 5227 Eq. Cap. (` Crs) 7.77 Face Value (`) 10.0 M. Cap (` Crs) `287 BSE Code NSE Code Financial Year TTKHEALTH Apr-Mar 52-w H/L 681/330 Avg. Daily Vol. 8,523 TTM EPS (`) TTM P/E (x) 18.3x BVPS (`) P/BVPS (x) 3.5x Stock vs. Sensex Latin Manharlal Securities Pvt Ltd. 124 Viraj, S,V.Road, Khar (W), Mumbai TTK HEALTHCARE LTD. (TTKHL) Incorporated in 1958, TTK Healthcare Ltd (TTKHL) is a diverse company operating through its Pharmaceuticals, Consumer products, Biomedical devices, Foods and Maps divisions. The company is part of the TTK group, which has business interests in the core products of kitchenware, pharmaceuticals, medical devices, food products, condoms, and other products. Strong Product portfolio The Company's brand wagon consists of products that are sought after by a wide range of customers. The company operates in Personal care products offering the Eva range of women s personal care products in a variety of fragrances. It also markets and distributes Woodward's Gripe Water - the undisputed market leader in the baby care category - and the recently introduced Woodward's Baby Soap. It also handles the national distribution of Durex and Kohinoor brands of condoms and the Scholl range of foot care products manufactured by TTK-LIG Ltd and SSL-TTK Ltd. Orthopaedic Implants A huge growth potential area TTKHL entered into Ortho implants business by acquiring Ortho implants business and assets from Invicta Mediteck. TTKHL Ortho division has a technical collaboration with BP Trust USA. Under the collaboration, the company manufactures and markets Orthopaedic implants under the brand name TTK Altius- Hi-flex knee in India. This is the only knee surgical implant manufactured in India with a USFDA approved design. The company claims that European or American made artificial knees are not suitable for Indians as they squat or sit cross legged whereas a BP Trust knee implant allows a person to perform these tasks. Strong Distribution & Marketing network TTKHL has an all India sales and distribution network for marketing not only their own products, but also the KIWI Brand (Shoecare), Brylcreem (Haircare). The Group's distribution strength includes 10,000 direct dealers stocking its consumer durables and more than 2,800 distributors stocking TTKHL's Consumer Products range. Increasing presence in export markets TTKHL's products are now sought after in the overseas markets and there is an increasing demand for the company's products in the Middle East, Africa, Asia, etc. Plans to add new products in Medical devices segment On the medical devices segment, the company plans to add new products including tissue valves and fixed bearing knees. It is expecting regulatory process to complete to import some of these products from Brazil. Strong Financials + Cash rich Balance sheet+ Debt Free Sales have grown at a CAGR rate of 17.2% over the FY09 FY 12 period. PAT has grown at a CAGR rate of 25.7% over the FY09-FY12 period. Negligible debt of < `1 Crs on its balance sheet as on 31st March Cash and Bank balance of `62.0 Crs which is ~63% of total balance sheet size of `98 Crs. Full Taxpaying company, average effective tax rate in last 3 years at ~33% Positive operating cash flows over past 5 years. TTKHL did Buy-Back of shares during FY09 and FY10. At the CMP of `370, the stock is trading at 14.2x its FY14E EPS of ` We recommend BUY on the stock with a months target price of `523, providing an upside of 41.4% from the current levels. Please Refer DISCLAIMER on the Last Page

2 Company Profile Part of the TTK group - a totally integrated manufacturing and marketing group. Incorporated in 1958, TTK Healthcare Ltd (TTKHL) is a diverse company operating through its Pharmaceuticals, Consumer products, Biomedical devices, Foods and Maps divisions. The company is part of the TTK group, a totally integrated manufacturing and marketing group, which has business interests in the core products of kitchenware, pharmaceuticals, medical devices, food products, condoms, and other products. TTK Prestige, TTK Textiles, Sara Lee TTK, TTK Bharat Planet - NRI Services, TTK-LIG, and TTK Maersk Medical are other group companies. Revenue Model Pharmaceuticals and consumer products division together forms ~90% of TTKHL revenue mix TTKHL has 3 Strategic Business Units (SBU) viz; (i) Pharmaceuticals Division (ii) Consumer Products Division (iii) Biomedical Devices Division. Apart from SBUs their Satellite divisions are (i) Foods (ii) Maps. Pharmaceuticals and consumer products division together forms ~90% of TTKHL revenue mix. The company has manufacturing units in Chennai and Karnataka. Foods 4% Others 1% Revenue Mix Consumer Products Distribution 40% Pharmaceu ticals 50% Medical Devices 5% Consumer Prod Dist. 0.2% EBIT Margin Pharmace uticals 14.7% Medical Devices 24.4% Source: Company TTK Healthcare Ltd July-2012

3 INVESTMENT POSITIVES Strong Product portfolio TTKHL is committed to providing customers with innovative "value for money" solutions and improving their quality of life. The Company's brand wagon consists of products that are sought after by a wide range of customers. The company operates in Personal care products offering the Eva range of women s personal care products (Deo, Talc, Lip Balm, Lip Drench etc) in a variety of fragrances such as fresh, doll, dreams, sweet, zing, chic and wow. It also markets and distributes Woodward's Gripe Water - the undisputed market leader in the baby care category - and the recently introduced Woodward's Baby Soap. It also handles the national distribution of Durex and Kohinoor brands of condoms and the Scholl range of footcare products manufactured by TTK-LIG Limited and SSL- TTK Limited. TTKHL's Pharmaceuticals Division functions through 4 main divisions - Ethical Products Division (EPD), Modern Medicine Division (MMD), Indian Medicine Division (IMD) and VENTURA. VENTURA, the herbal products division is present in ~15 regions across the country with coverage of ~30,000 doctors. It has introduced new products like LYCO- Q, a male infertility formulation; Arthrid Oil, an anti-arthritis formulation; and Utronorm Forte, a fortified version of poly herbal uterine tonic. Established in the year 1982, TTKHL s Animal Welfare Division is a rapidly growing business unit and has made great strides in the animal health segment since then. The division produces and markets a wide range of products for Livestock, Poultry and Companion segments. Presently the division ranks among the Top 20 leading Animal Health Companies in the nation. The Medical devices SBU involves in manufacture and distribution of India`s first indigenous heart valve prosthesis - the tilting-disc TTK Chitra Heart Valve. This is the only Indian-made heart valve and is the most price-friendly in the world. So far, over 50,000 TTK Chitra Heart Valves have been successfully implanted in patients. It also manufactures and distributes Hernia Repair Mesh and orthopedic Implants. The Publications division is the largest producer of maps and mapbased publications in the private sector focusing on maps publications, digital cartography, tourist information books, and other products. The Foods division manufactures potato and cereal based pellets in its state-of -the-art facility for markets in India and abroad. TTK Healthcare Ltd July-2012

4 Orthopaedic Implants A huge growth potential area To further consolidate its position in the medical devices segment, the company entered into Ortho implants business by acquiring Ortho implants business and assets from Invicta Mediteck. TTKHL Ortho division has a technical collaboration with BP Trust USA. Under the collaboration, the company manufactures and markets Orthopaedic implants under the brand name TTK Altius- Hi-flex knee in India. This is the only knee surgical implant manufactured in India with a USFDA approved design. Initially the company manufactured 80 units per month. TTK Altius Hi-flex knee is superior in terms of its better congruence, longevity, etc. The features which make this New Jersey Knee special are: Easy to implant Hi flexion angle - designed for 162 degrees No dislocation Lowest Contact Stress Maximum Product Life Finest congruence Optimum flexion and extension with long life. Axial rotation of +/- 45 degree is sufficient to take care of normal activity To increase the production, the company has set up a manufacturing facility at Mahindra world city SEZ near Chennai with a capex outlay of `20 Crs. TTKHL plans to take total production capacity to 20,000 units per annum in phased manner. The price of one unit of knee replacement system starts at ~`35,000 and it is manufactured in 6 sizes. The company claims that European or American made artificial knees are not suitable for Indians as they squat or sit cross legged whereas a BP Trust knee implant allows a person to perform these tasks. The other companies which manufactures and markets Knee replacement system in India are Johnson & Johnson, Zimmer, Stryker and Indus. TTKHL has also plans to take up the development of hip, ankle and shoulder replacements in the phased manner. With a growing population of potential patients, rising awareness about the impact of joint problems, and the importance of surgical treatments, the market for orthopedic implants promises to be one of the most lucrative segments in the Indian medical device market. With over 70,000 hip and knee replacements being performed every year, the growth rate of the orthopedic implants is estimated to be over 25% per annum for the next 5-6 years. The reduced price of implants could extend the products reach to various classes and sections of the population, thereby creating a wider customer base. [Source: Frost & Sullivan, April 2011] TTK Healthcare Ltd July-2012

5 The TTKHL Ortho Division has a technical collaboration with M/s. BP Trust for the manufacturing of Total Knee, Hip, Shoulder and Ankle joints. These designs are USFDA approved and are a result of over 25 years of development, clinical investigation and use. The licensed 3 rd generation knee currently marketed by TTKHL is a refinement of the two earlier versions marketed by Depuy. There is an increasing demand for TTKHL's products in the Middle East, Africa, Asia, etc Increasing presence in export markets TTKHL's products are now sought after in the overseas markets and there is an increasing demand for the company's products in the Middle East, Africa, Asia, etc. Demand for Ready to fry food pellets has shown an upward trend, especially from Middle East markets. Herbal pharmaceuticals e.g. Arthrid & Virilex tablets are finding positive acceptance in Malaysia, Indonesia & Myanmar. TTK Chitra Heart Valves & Hernia Repair Mesh has been successfully implanted in Kenya, South Africa, Bangladesh, Srilanka & Nepal. The Export Division is situated at the company's Head Office in Chennai and becomes a single window for overseas buyers. It is poised to spearhead the overall Group strategy in becoming a global player. Strong Distribution & Marketing network TTKHL has an all India sales and distribution network for marketing not only their own products, but also the KIWI Brand, Brylcreem, Kohinoor and Durex brands TTKHL has been known for its strong distribution and marketing network. TTKHL has an all India sales and distribution network for marketing not only their own products, but also the KIWI Brand (Shoecare), Brylcreem (Haircare) and Kohinoor and Durex brands (Contraceptives). The Company also specializes in sales and distribution in India as a JV partner. It has a successful tie up with Sara Lee Household and Bodycare Pvt. Ltd. and TTK-LIG Ltd. The Group's leading brands owe a great deal to the well-organized dealer and stockist network that TTK & Co., TTK Prestige and TTKHL have developed over the years, thereby making the TTK products readily available in 3,20,000 outlets in India's cities, towns and villages. The Group's distribution strength includes 10,000 direct dealers stocking its consumer durables and more than 2,800 distributors stocking TTKHL's Consumer Products range. The Company is continuously on the lookout for JVs and Third Party distribution opportunities so as to leverage its extensive distribution network. Plans to add new products in Medical devices segment On the medical devices segment, the company plans to add new products including tissue valves and fixed bearing knees. It is expecting regulatory process to complete to import some of these products from Brazil. TTKHL is planning to increase its FY13E profitability in the medical device business. The management is quite optimist that in FY13E its Medical devices business will see better returns and contributes more to revenue. TTK Healthcare Ltd July-2012

6 Management Guidance - Expects `25 Crs from Food Business in FY13E TTKHL has completed expansion of its two product lines in Food Business with a capex of `18 Crs and expects the revenue to clock `25 Crs in FY13E from `13.5 Crs recorded in FY12. Negligible debt of < `1 Crs on its balance sheet as on 31st March 2012 The company has erected the pellet (pappad) manufacturing line imported from Italy-based Fen, in Hosakote near Bangalore in November, The production has stabilized during FY12. The Fen make pellet (pappad) manufacturing line has just started commercial production at the company's Foods Division s Factory at Hosakote, near Bangalore. The company would also explore branding and retailing opportunities in the segment. Sustained Sales growth +Strong liquidity Position + Healthy Capital Structure Did a Buy-Back of shares during FY09 and FY10 Sales have grown at a CAGR rate of 17.2% over the FY09 FY 12 period. EBITDA has grown by 25.0% CAGR over FY09-12 and operating margin also remained stable at 6.6% levels. PAT has grown at a CAGR rate of 25.7% over the FY09-FY12 period. Negligible debt of < `1 Crs on its balance sheet as on 31st March Cash and Bank balance of `62.0 Crs which is ~65% of total balance sheet size of `96 Crs. Full Taxpaying company, average effective tax rate in last 3 years at ~33% Positive operating cash flows over past 5 years. TTKHL did a Buy-Back of shares during FY09 and FY10. CONCERNS Competitive pressures in most of its segments from other large players. Need for continuous investments in advertisements and sales promotion activities (esp. on consumer care products). TTK Healthcare Ltd July-2012

7 VALUATIONS At the CMP of `370, the stock is trading at 14.2x its FY14E EPS of ` We recommend BUY on the stock with a months target price of `523, providing an upside of 41.4% from the current levels. Registered Office: 124 Viraj, S,V.Road, Khar (W), Mumbai Tel. (022) , Fax (022) research@lmspl.com LMSPL Network: Fort, Mahalaxmi, Parel, Bandra, Santacruz, Vile Parle, Andheri, Malad, Kandivili, Borivali, Bhayender, Ghatkopar, Mulund, Chunabhatti, Jacob Circle, Masjid Bunder, Cotton Green, Thane, Bhiwandi, Panvel, Pune, Sholapur, Nasik, Malegoan, Ahmednagar, Aurangabad, Akola, Mahekar, Nagpur, Surat, Karjan(Baroda), Khambat, Ahmedabad, Rajkot, Surendranagar, Porbandar, Amreli, Bharuch, Anand, Chennai, Vishakhapatnam, Vizianagaram, Palasa, Kakinada, Karnal, Kolkatta, Bhubhaneshwar, Hyderabad, Bangalore, Jafrabad, Chital, Kodinar, Keshod, Gondal, Haryana, Srikakulam, Mehkar (Buldhana, Jamnagar, Bangalore, Jodhpur, Jalgaon, Malkangiri (Orissa), Karimnagar Dist. (Andhra Pradesh) This document is for information only and is meant for the use of the recipient & not for circulation. The information contained in this document has been taken from publicly available information, trade and statistical services & other sources. While the information contained herein is from sources believed to be reliable, we do not hold ourselves responsible for its completeness and accuracy. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. Investors are expected to use the information contained in this report at their own risk. This report is not and should not be construed as an offer or the solicitation of an offer to buy or sell any securities. M/s Latin Manharlal Securities Pvt. Ltd. and its affiliates may act as market maker or have assumed an underwriting position in the secure-ties of companies discussed herein and may sell them to or buy them from customers on a principal basis. TTK Healthcare Ltd July-2012