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Visit us at www.sharekhan.com June 11, 2010 Index Pulse Track >> April IIP growth robust at 17.6% Stock Update >> Reliance Industries Sector Update >> Fast moving consumer goods Viewpoint >> Strides Arcolab For Private Circulation only Sharekhan Ltd Lodha iThink Techno Campus, 10th Floor, Beta Building, Off. JVLR, Opp. Kanjurmarg Station, Kanjurmarg (East), Mumbai – 400 042, Maharashtra. investor’s eye pulse track Pulse Track April IIP growth robust at 17.6% The growth in the industrial output during April 2010 The Index of Industrial Production (IIP) for April 2010 was led by the manufacturing segment, which posted registered a robust growth of 17.6% year on year (yoy), a robust growth of 19.4% yoy (vs 0.4% in April 2009) which was well above the consensus estimate of 14.3% followed by the mining and electricity segments with 11.4% y-o-y and 6% y-o-y growth respectively. . yoy. However, it is important to note that the healthy growth numbers for April 2010 were aided by the low From a use-based perspective, the capital goods base of the previous year when the IIP had grown by segment registered a compelling growth of 72.8% vs just 1.1% yoy. the 5.9% contraction seen during April 2009 and the 28.4% y-o-y growth seen during March 2010. Growth The growth in the industrial output during April 2010 in capital goods production is the highest since was led by the manufacturing segment, which posted inception of the series in April 1995. Consumer goods a robust growth of 19.4% yoy followed by the mining growth stood at a strong 14.5% led by the 37% y-o-y and electricity segments with 11.4% year-on-year (y- growth in the consumer durables segment while o-y) and 6% y-o-y growth respectively. consumer non-durables grew by 6.6% yoy. The growth in the capital goods segment stood at a Importantly, the output of intermediate goods compelling 72.8% yoy. Consumer goods too posted a recorded a healthy y-o-y growth of 10.8% vs 7.9% seen strong growth of 14.5% yoy led by consumer durables. during April 2009. The growth for basic goods improved On an absolute basis, the April 2010 IIP reading came to 8.8% on a y-o-y basis as compared to the 4.4% y-o- in at 316.7, lower by 31.8 points from 348.5 in the y increase seen during the previous year. previous month. In % yoy chg Apr 2010 Mar 2010 Apr 2009 After the first revision, the IIP growth for March 2010 IIP 17.6 13.9 1.1 was revised upward to 13.9% yoy from provisional Basic 8.8 10.4 4.4 estimates of 13.5%. Intermediate 10.8 13.1 7.9 Highlights of April 2010 IIP numbers General Manufacturing 19.4 14.7 0.4 The Index of Industrial Production (IIP) for April 2010 Mining 11.4 11.8 3.4 registered a robust growth of 17.6% yoy, which was Electricity 6.0 7.8 6.7 well above the consensus estimate of 14.3% yoy. Use based However, it is important to note that the healthy Capital goods 72.8 28.4 -5.9 growth numbers for April 2010 were aided by the low base of the previous year when the IIP had grown by Consumer goods 14.5 10.7 -4.6 just 1.1% yoy. - Durables 37.0 32.6 17.6 - Non-durables 6.6 3.3 -10.5 Trend in IIP growth Robust manufacturing growth 20% The growth in the manufacturing segment came in at 18% IIP yoy (%) IIP 3 MMA (%) 19.4%, significantly higher than the 0.4% y-o-y growth seen 16% in the same period of the previous year. In terms of 14% 12% industries, 15 out of 17 industry groups showed growth 10% during April 2010. This was higher than the 14 industry 8% groups, which showed growth during March 2010. 6% 4% “Machinery and Equipment” led the industry segment with 2% the highest growth of 55.6% yoy, followed by a 51.9% y-o- 0% y growth in “Metal products”. Among the laggards, “Wood Apr-97 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 -2% and wood products” contracted by 16.6% followed by Beverages, tobacco and related products. Sharekhan 2 June 11, 2010 Home Next investor’s eye pulse track IIP for March 2010 revised upward Outlook The IIP growth for March 2010 was revised upward to 13.9% The industrial output continued to register a double-digit from the provisional 13.5% yoy. From a segmental growth and recorded a robust growth of 17.6% yoy for perspective, manufacturing and mining growth were April 2010. With the industrial growth rate sustaining at revised upward to 14.7% and 11.8%. From a used based higher levels, the Indian economy is well on course for a perspective, capital goods, basic goods and intermediate more broad-based economic recovery. The steady goods were revised upward from the provisional momentum in IIP growth coupled with persistently high estimates. inflation could lead the RBI to undertake more aggressive hikes in policy rates in the policy review scheduled next Revision in IIP Quick estimate Revised estimate month. However, it is important to note that the strong Mar 2010 Mar 2010 growth comes on the back of a low base for the previous Sectoral year. The low base effect is expected to prevail until May General (IIP) 13.5 13.9 Manufacturing 14.3 14.7 2010 after which industrial production growth is likely to Mining 11.0 11.8 moderate. Electricity 7.8 7.8 Use based Basic goods 10.1 10.4 Capital goods 27.4 28.4 Intermediate goods 12.7 13.1 Consumer goods 10.6 10.7 - Durables 32.0 32.6 - Non-durables 3.3 3.3 Industries Weights (%) Apr 2010 Mar 2010 Apr 2009 Food products 9.1 22.9 26.0 -33.3 Beverages, tobacco and related products 2.4 -2.7 0.8 -4.6 Cotton textiles 5.5 6.9 7.7 0.6 Wool, silk and man-made fibre textiles 2.3 0.1 -4.6 23.5 Jute & jute textiles 0.6 1.3 -9.6 2.8 Textile products incl. wearing apparel 2.5 1.5 -0.3 12.2 Wood and wood products 2.7 -16.6 16.9 22.8 Paper & paper products 2.7 11.5 7.9 -3.2 Leather & leather products 1.1 3.5 12.0 -11.1 Chemicals & chemical products 14.0 9.9 5.6 -0.9 Rubber, plastic, petroleum & coal products 5.7 19.2 14.8 7.2 Non-metallic mineral products 4.4 2.5 5.8 9.6 Basic metal and alloy industries 7.5 11.2 16.0 4.7 Metal products 2.8 51.9 42.4 -3.7 Machinery and equipment 9.6 55.6 23.3 5.2 Transport equipment 4.0 32.3 23.1 6.7 Other manufacturing industries 2.6 41.4 39.7 -5.0 Sharekhan 3 June 11, 2010 Home Next investor’s eye stock update Reliance Industries Evergreen Stock Update Forays into broadband market; focuses to strengthen E&P assets Hold; CMP: Rs1,046 Company details Key points After Mukesh Dhirubhai Ambani and Anil Dhirubhai Ambani scarpped the non- Price target: Rs1,215 compete agreement between them, Reliance Industries Ltd (RIL; led by Mukesh Market cap: Rs342,163 cr Ambani) has announced its foray into the broadband and data services market. 52 week high/low: Rs1,186/840 The company has entered into an agreement to acquire 95% stake in Infotel Broadband Services (P) Ltd (Infotel) for Rs4,800 crore through fresh issue of NSE volume: 48 lakh (No of shares) equity shares at par. RIL would be largely focusing on the enterprise and the corporate side of the data market that presently is less competitive and provides BSE code: 500325 high margins. Infotel is the only company to win a pan India (22 circles) NSE code: RELIANCE broadband wireless license for Rs12,848 crore. Sharekhan code: RIL On the exploration and procurement (E&P) front, RIL has made large number Free float: 168.5 cr of discoveries in Cambay Basin and has indicated towards considerable (No of shares) hydrocarbon potential in the block. Though we agree that the discoveries are yet to be certified by the directorate general of hydrocarbons (DGH) and though Shareholding pattern the exact amount of hydrocarbon reserves cannot be ascertained at the moment, three discoveries in less than two months’ time make us comfortable in regard Public & Others Foreign to RIL’s E&P portfolio going forward. 18% 22% The overseas acquisition has also been on the high focus of the company in the recent times. On this front, the media reports are indicating that RIL is Institutions considering acquiring stake in two energy assets in the US: 1) Shale gas assets 10% of Pioneer Natural Resources in the Eagle Ford Shale play in South Texas and 2) Some energy assets (including shale gas) from East Resources. The news indicates Non-promoter Promoters corporate RIL’s focus on non-conventional energy assets and its plans to enter the US gas 45% 5% market. We highlight here that RIL has not confirmed the news as yet. RIL’s foray into the broadband and data services market and its recent joint Price chart venture with Atlas Energy coupled with the news of acquiring assets from Pioneer Natural Resources and East Resources would ensure utilisation of cash flows 1200 1150 (around USD10-12 billion over FY2010-FY2012E) that the company is expected 1100 to generate from the start of Krishna-Godavari (KG) D-6 field and new Jamnagar 1050 refinery. 1000 950 The company however still faces uncertainties on the following fronts: (1) The 900 gas pricing in the ongoing court case with National Thermal Power Corporation 850 (NTPC; though RIL’s position has strengthened now) and (2) The tax benefits on Mar-10 Jun-09 Jun-10 Sep-09 Dec-09 Valuaton table Price performance Particulars FY2008 FY2009 FY2010E FY2011E FY2012E Net sales (Rs crore) 133,443.0 151,224.0 192,461.0 248,036.4 262,731.4 (%) 1m 3m 6m 12m Adj. net profit (Rs crore) 15,261.0 15,299.0 16,236.0 23,311.4 26,645.8 Shares in issue (crore) 290.7 314.6 328.6 328.6 328.6 Absolute -5.9 1.3 -4.7 -11.4 Adj. EPS (Rs) 52.5 48.6 49.4 70.9 81.1 Relative -4.1 1.7 -3.9 -20.4 % y-o-y change 26.4 -7.4 1.6 43.6 14.3 to Sensex PER (x) 19.9 21.5 21.2 14.7 12.9 EV/EBIDTA (x) 15.3 14.9 11.5 8.6 7.1 Sharekhan 4 June 11, 2010 Home Next investor’s eye stock update the natural gas business under section 80-IB (on which RIL is the operator of the block and holds 100% clarity is still awaited). Further, in spite of the light participating interest. heavy price differential (currently at USD3.1 per barrel from USD1.7 per barrel in January 2010) showing signs Significant oil discoveries in Cambay Basin of improvement with the Organisation of Petroleum Recently, RIL has made large number of discoveries in Exporting Countries (OPEC) increasing its heavy crude Cambay Basin and has indicated towards considerable production, the weak commodity prices are likely to hydrocarbon potential in the block. Though we agree that keep the middle distillate crack spread weak and thus the discoveries are yet to be certified by DGH and though keep the gross refining margin (GRM) under check. the exact amount of hydrocarbon reserves cannot be Hence, we maintain our Hold recommendation on the ascertained at the moment, three discoveries in less than stock with a price target of Rs1,215 in spite of around two months’ time make us comfortable in regard to RIL’s 16% upside at the current market price. At the current E&P portfolio going forward. market price, the stock trades at a price/earnings ratio of 12.9x FY2012E earnings and an enterprise value RIL considering to acquire two energy assets in the US (EV)/earnings before interest, depreciation, tax and According to the media reports, RIL is considering to amortisation (EBIDTA) of 7.1x FY2012E. acquire stake in two energy assets in the US – 1) Shale gas assets of Pioneer Natural Resources in the Eagle Ford Shale Event—RIL’s foray into broadband segment play in South Texas and 2) Some energy assets (including RIL has agreed to acquire substantial stake in Infotel Shale gas) from East Resources. The news indicates RIL’s Broadband Services (P) Ltd. Under the terms of the focus on non-conventional energy assets and its plans to agreement, RIL would invest around Rs4,800 crore by enter the US gas market. We highlight here that RIL has way of subscription to fresh equity capital at par to not confirmed the news as yet. be issued by Infotel. Post this, RIL will own 95% of Infotel’s equity thereby making it a subsidiary of RIL. Pioneer’s Eagle Ford Shale status Infotel is a start-up with focus on providing Internet 3,10,000 acre with 11 trillion cubic feet of gas of gross broadband services using WIMAX as access technology resource potential. and currently has around five lakh customers. It is the 6 plus BCFE per well gross estimated ultimate recovery only company to win a pan India (22 circles) broadband (EUR). wireless license for Rs12,848 crore. 70% of locations are located within liquids-rich window. The acquisition marks RIL’s entry into the lucrative Eagle Ford Shale—A promising liquid-rich shale play broadband and data services market, where the penetration level is abysmally low and which provides It is believed to be liquid rich and hence could produce a high growth opportunity. As per RIL’s press release, much more liquids and condensate compared to the it would be largely focusing on the enterprise and the other shale fields. corporate side of the data market that currently offers It has a much higher carbonate, thus making it easier less competition and high margins as compared to the to break. retail voice side of the business that is overly competitive. Break-even price at USD2.73 per mmbtu for Eagle Ford Shale is lowest for shale plays. RIL makes sixth discovery in block CB-ONN-2003/1 Break-even gas prices for shale plays RIL has announced its sixth oil discovery in the 7 6.35 exploratory block CB-ONN-2003/1 (CB 10 A&B) 6.18 6 awarded under NELP-V round of exploration bidding. 5 4.25 USD/mmbtu 3.7 3.95 The block is located in Cambay Basin (Gujarat) and 4 3.25 3.44 3.57 2.73 covers an area of 635 km. 3 2 RIL has drilled 16 exploratory wells in the block so far. 1 The company has said that the discovery is significant 0 Lower Huron Haynesville Eagle Ford Marcellus Fayetteville Barnett Barnett Pearsall Woodford and expected to open more oil pool areas and thus Tier result into better hydrocarbon potential within the block. Sharekhan 5 June 11, 2010 Home Next investor’s eye stock update Valuation and view under section 80-IB (where clarity is still awaited). Further, RIL foray into the broadband and data services market in spite of the light heavy price differential (currently at and its recent joint venture with Atlas Energy coupled USD3.1 per barrel from USD1.7 per barrel in January 2010) with the news of acquiring assets from Pioneer Natural showing signs of improvement with OPEC increasing its Resources and East Resources would ensure utilisation of heavy crude production, the weak commodity prices are cash flows (around USD10-12 billion over FY2010-FY2012E) likely to keep the middle distillate crack spread soft and that it is expected to generate from the start of KG D-6 thus keep the GRM under check. Hence, we maintain our field and new Jamnagar refinery. Hold recommendation on the stock with a price target of Rs1,215 despite around 16% upside from the current However, the company still faces uncertainties on the market price. At the current market price, the stock is following fronts: (1) The gas pricing in the ongoing court trading at a price/earnings ratio of 12.9x FY2012 earnings case with NTPC (though RIL’s position has strengthened and an EV/ EBIDTA of 7.1x FY2012. now) and (2) the tax benefits on the natural gas business Eagle Ford Shale comparison Shale gas play Eagle Ford Barnett Fayetteville Woodford Haynesville Marcellus Dept (TVD ft) 10000-14000 6000-9000 4000-6500 6000-12000 10000-140000 5500-8500 Thickness 120-350 200-250 50-300 90-300 150-350 50-300 IP (MMCFED) 3-17 2-8 2-4 2-10 5-25 3-8 TOC (%) 3-6 3-8 2-4 4-10+ 2-3 4-6 GIP (Bcfe/mi2) 180 150 50 135 200 100 The author doesn’t hold any investment in any of the companies mentioned in the article. Sharekhan 6 June 11, 2010 Home Next investor’s eye sector update Fast moving consumer goods Sector Update India FMCG—the monsoon connect Normal monsoon to keep the rural growth momentum farmers despite lower yields. Further, the ticking, soften input prices for some FMCG companies government’s push in terms of schemes like the After a drought prone year that led to soaring food prices, National Rural Employment Guarantee Act (NREGA), India is expected to witness a normal monsoon in 2010 loan waivers and additional spends on infrastructure that is likely to lead to a strong growth in food grain activity acted as significant aids to keep the rural spend production. Thus, higher production coupled with buoyant. remunerative prices will ensure high disposable incomes Consequently, almost all FMCG companies experienced for farm-based households and lead to the sustenance of a higher rate of growth in rural sales compared to the the strong growth in rural consumption. We believe this urban sales. The realisation of continuity of good bodes well for the growth of the fast moving consumer growth prospects in rural India (that is significantly goods (FMCG) companies in general as they continue with dependent on farm incomes) has led the FMCG their thrust on increasing their rural presence to tap this companies to expand reach/distribution, lower price growth opportunity. points of different products, and innovate marketing Also, compared to 2009 the likely softening of prices of and other strategies to capture the growth opportunity farm (agriculture) based inputs, such as wheat, milk and in the hinterland. milk powder, sugar and tea, will particularly benefit FMCG companies had a tough time absorbing input companies such as Britannia Industries, Nestle (India) and cost inflation: The higher prices of food articles GSK Consumer in FY2011 and should lead to an benefited FMCG companies in terms of a strong improvement in the profitability of these companies. demand from rural India. However, on the flip side FY2010—drought year—bolstered farm incomes but this led to high raw material cost pressures in a pressurised margins for food companies competitive environment. Prices of inputs such as wheat, milk and milk powder, sugar and tea have seen In 2009 one of the country’s worst monsoons led to a sharp rise specifically affecting the profit margin in soaring food prices: In 2009 India faced one of the categories such as biscuits, snack foods, worst droughts in several decades. The 22% rainfall confectioneries, baby foods, health drinks, ready-to- deficit in the monsoon (which accounts for 4/5th of drink beverages and the like. Thus, margin contraction the annual rains) led the food grain output to decline has been noticed for food companies, such as GSK by 7% year on year (yoy) to 218 million tonne. This Consumer, Britannia Industries, Nestle (India) and Tata was specifically acute as the country’s population and Tea, that has sharply affected their bottom line per capita consumption are both on the rise. The prices performance. of food grains and other edibles (including vegetables and fruits) saw an alarming increase, causing food FY2011—a good monsoon to help improve margins for inflation to rise at 15%+ levels over a long stretch of some FMCG companies, maintain strong momentum time (- since November 2009 till date). in rural sales Farm incomes bolstered by high realisations of food Lower input costs to propel profitability for a few FMCG articles: The high food inflation certainly affected the companies: We believe lower costs of food articles should offtake of the consumer products (more pronounced bring in a sigh of relief for manufacturers in food in the later half of FY2010) from the urban poor who categories such as biscuits, snack foods, confectioneries, were the worst hit, as fooding took away the higher baby foods, health drinks and ready-to-drink beverages. share of the wallet while the incomes suffered on Thus, we believe companies such as Britannia Industries, account of the economic slowdown. However, rural Nestle (India) and GSK Consumer are likely to be the key consumption got a boost with high realisations for the beneficiaries of a normal monsoon from a sourcing farm output leading to increased net income of the standpoint and would witness the easing of profitability Sharekhan 7 June 11, 2010 Home Next investor’s eye sector update pressures. Also, the other FMCG companies that have small FMCG companies with a relatively higher proportion of presence in food and beverages categories should benefit their revenues coming from the rural markets, such as though the benefit is likely to be much smaller (compared Dabur India, would continue to derive a strong growth to that for the companies mentioned above) since a small from the hinterland. On the other hand, the others such portion of their total revenues comes from these as Marico, Godrej Consumer Products, Colgate-Palmolive categories. India and Hindustan Unilever, which are focusing on increasing their rural sales through increased rural reach/ Better income of farm households to keep rural better distribution, focused brand connect with rural consumption growth ticking India, affordable price points and a strengthening rural Monsoon rains are the main source of irrigation for product platform, should see a good growth coming from approximately 23.5 crore farmers in the country. Thus, these markets. the higher net income from farming following a good monsoon and a sustained non-farm income from Company Rural sales as % of employment schemes such as NREGA and increasing domestic sales infrastructure spend augur well for the disposable incomes Hindustan Unilever 40 of the rural households. We believe the consumption Marico 25 Godrej Consumer 38 growth in rural India is, therefore, likely to remain strong. Dabur 50 Colgate 35 Increase in support prices of edible commodities Commodity Variety MSP 2010-11 CAGR crop year 2011 over 2010 (Rs per quintal) 2005-06 to 2010-11 (%) (%) Kharif crops Paddy Common 1000 11.9 0.0 Grade 'A' 1030 11.4 0.0 Jowar Hybrid 880 10.9 4.8 Maldandi 900 12.8 4.7 Bajra 880 10.9 4.8 Maize 880 10.3 4.8 Ragi 965 12.9 5.5 Arhar(tur) 3000 16.5 30.4 Moong 3170 15.8 14.9 Urad 2900 13.8 15.1 Cotton F-414/H-777/J34 2500 7.3 0.0 H-4 3000 8.7 0.0 Groundnut in shell 2300 8.6 9.5 Sunflower seed 2350 9.4 6.1 Soyabeen Black 1400 9.2 3.7 Yellow 1440 7.4 3.6 Sesamum 2900 13.3 1.8 Nigerseed 2450 15.3 1.9 Commodity MSP 2009-10 CAGR crop year 2010 over 2009 (Rs per quintal) 2005-06 to 2009-10 (%) Rabi crops Wheat 1100 12.0 1.9 Barley 750 8.1 10.3 Gram 1760 5.2 1.7 Masur (lentil) 1870 5.1 0.0 Rapeseed/Mustard 1830 1.6 0.0 Safflower 1680 1.8 1.8 The author doesn’t hold any investment in any of the companies mentioned in the article. Sharekhan 8 June 11, 2010 Home Next investor’s eye viewpoint Strides Arcolab Viewpoint Growth at a faster pace CMP: Rs382 Domain play (sterile injectables)—receiving approvals Highest number of filings by Strides on a fast track 50.0 45.0 Oncology Speciality Strides Arcolab (Strides) has been receiving approvals on 40.0 a fast track in CY2010, with eight abbreviated new drug 35.0 application (ANDA) in the sterile injectable space getting 30.0 25.0 approval in the last three months. With this quantum 20.0 leap—only three sterile injectable approvals in CY2008 15.0 to 23 approvals in the space in CY2010 till date—we 10.0 5.0 believe that the company is well on track to achieve its 0.0 guidance of developing around 120 products per annum 2006 2007 2008 2009 2010e translating into 40+ filings for sterile generic products Highest number of sterile filings approved of Strides for the next couple of years each, resulting into a robust portfolio of more than 180+ products. Strides’ focus on 16 2007 2008 the sterile injectable space could be well supported by 14 12 its collaboration with Pfizer for 40 generic injectables in 10 the US market. The first product under this agreement is 8 6 expected to be commercialised in CY2010. 4 2 Large number of ANDA filings awaiting monetisation 0 GeneraMedix Baxter Teva Hospira Sandoz Orchid Bedford labs Sun pharma Strides APP Akorn- Strides currently has about 125 cumulative ANDA filings, out of which 92 comprises sterile injectable products. The company topped the listed of new ANDA flings by the Indian companies in 2009 (filing 51 ANDAs in total, including Strides stands among the leaders in terms of ANDA 44 ANDA filings in the sterile injectable space). The filings company’s cumulative ANDA approvals till date stand at 33. Further, it has invested aggressively in its manufacturing The chart below clearly depicts that Strides now stands infrastructure (capacity scaled up by 10x spread among the big league of pharmaceutical companies in strategically across India, Poland and Brazil), which will terms of ANDA filings and this is impressive as the adequately support the strong revenue growth in future. commercialisation of the same will result in strong revenues for the company. Strides receives a slew of approvals from the USFDA in CY2010 Date Products approved JV Usage Market size ($mn) Feb-10 Labetalol HCL injection Sagent Blood pressure in hypertension - Apr-10 Granisetron HCL injection Sagent Prevent nausea and vomiting caused by chemotherapy 26 Apr-10 Mesna Injection Sagent Prophylactic agent in chemotherapy 12 Apr-10 Metoprolol Tartarate injection Sagent Acute myocardial infarction 13 Apr-10 Adenosine injection* Sagent - 124 May-10 Bacitracin injection Sagent Anti-infective 32 May-10 Vecuronium Bromide Akorn LLC Anesthesia 10 Jun-10 Fosphenytein sodium Akorn LLC Anti-apilepsy 60 * Tentative approval Sharekhan 9 June 11, 2010 Home Next investor’s eye viewpoint Foraying in the big league Strides appears to be an attractive investment in the near 250.0 ANDA Filed ANDA approved to medium term in the mid-cap pharmaceutical space 200.0 and we remain bullish on the company’s future growth 150.0 prospects. At the current market price of Rs382, the stock is available at 10.9x CY2010E and 7.5x CY2011E earnings. 100.0 50.0 Valuation table 0.0 Particulars CY07 CY08 CY09 CY10E CY11E Sun Aurobindo Strides Lupin Dr Reddy Net sales (Rs cr) 744.3 1020.3 1304.8 1786.8 2191.3 pharma Net profit (Rs cr) -50.1 108.0 109.7 154.8 226.5 Adj. net profit (Rs cr) -123.0 19.3 63.5 159.8 231.5 Valuation and view Shares in issue (cr) 3.5 4.0 4.0 4.5 4.5 With a strong focus on the sterile injectable business, Adjusted EPS (Rs) -35.1 4.8 15.8 35.2 50.9 Strides has re-jigged its research and development Reported EPS (Rs) -14.3 27.0 27.3 34.1 49.8 portfolio to move up the value chain. A faster slew of PER (x) -10.9 79.1 24.2 10.9 7.5 approvals re-imposes our confidence in the company’s EV/Ebidta (x) -108.0 39.9 15.0 8.4 5.7 ability to monetise its hefty ANDA pipeline. The company Book value (Rs/share) 79.0 103.7 208.1 223.8 289.7 has been continuously reporting an improvement in its P/BV (x) 4.8 3.7 1.8 1.7 1.3 performance at the operating level, which signifies the Mcap/sales 1.8 1.5 1.2 1.0 0.8 underlying strength of its fundamentals. Further, the ROCE (%) -2.1 7.1 7.6 10.9 12.9 multiple product launches from the new capacities and a RONW (%) -18.1 26.0 13.1 15.2 17.2 strong licensing income in the core specialties business would provide a steady income. We believe a focused approach towards oncology sterile injectables will enable Strides to unlock value across different divisions. Its de-leveraging balance sheet would provide further impetus to its growth. In recognition of the strong growth potential, we expect the company’s The author doesn’t hold any investment in any of the companies earnings to grow at a compounded annual growth rate mentioned in the article. (CAGR) of 44% over CY2009-11E. Sharekhan 10 June 11, 2010 Home Next Sharekhan Stock Ideas Evergreen Emerging Star Housing Development Finance Corporation 3i Infotech HDFC Bank Alphageo India Infosys Technologies Allied Digital Services Larsen & Toubro Axis Bank (UTI Bank) Reliance Industries Cadila Healthcare Tata Consultancy Services Emco Greaves Cotton Apple Green Max India Opto Circuits India Aditya Birla Nuvo Patels Airtemp India Apollo Tyres Thermax Bajaj Auto Bajaj Finserv Zydus Wellness Bajaj Holdings & Investment Bank of Baroda Ugly Duckling Bank of India BASF India Bharat Electronics Deepak Fertilisers & Petrochemicals Corporation Bharat Heavy Electricals Federal Bank Bharti Airtel Gayatri Projects Corporation Bank Crompton Greaves India Cements Glenmark Pharmaceuticals Ipca Laboratories Godrej Consumer Products ISMT Grasim Industries Jaiprakash Associates HCL Technologies Orbit Corporation Hindustan Unilever ICICI Bank Pratibha Industries Indian Hotels Company Punjab National Bank ITC Ratnamani Metals and Tubes Mahindra & Mahindra Selan Exploration Technology Marico Shiv-Vani Oil & Gas Exploration Services Maruti Suzuki India Subros Lupin Piramal Healthcare (Nicholas Piramal India) Sun Pharmaceutical Industries Punj Lloyd Sunil Hitech Engineers Sintex Industries Torrent Pharmaceuticals State Bank of India UltraTech Cement Tata Tea Union Bank of India Wipro United Phosphorus Cannonball Zensar Technologies Allahabad Bank Andhra Bank Vulture’s Pick IDBI Bank Esab India Madras Cements Mahindra Lifespace Developers Phillips Carbon Black Orient Paper and Industries Shree Cement Unity Infraprojects Tourism Finance Corporation of India Tata Chemicals To know more about our products and services click here. 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