Research Calls

Balaji Telefilms

Angel Broking has given a ‘buy’ recommendation for Balaji Telefilms with a 12-month price target of Rs 170. The company has been enjoying high TRPs over the years. This helps it to have the upper-hand while negotiating with broadcasters and this is reflected in the consistent high per hour realisations of the company.

Considering that Balaji's content commands a significant premium and Balaji itself has refrained from compromising on its realisations, Angel expects these to improve. Balaji has two shows lined up for release during Q4FY07 which will be beamed on Star One.

At the end of FY06, cash and investments amounted to around Rs 26 per share and by FY08 they are expected to be around Rs 33 per share, thus providing a cushion to the stock price. At the current price, the stock trades at a P/E of 9.8 times expected FY09 earnings.

Dr. Reddy's Laboratories

Motilal Oswal Securities recommended a ‘buy’ for Dr. Reddy's Laboratories with a price target of Rs 800. The company has recently priced its ADS at $16/ADS and has raised about $200 million. It is assumed that the ADS proceeds will be used for debt reduction.

Hence, savings in interest costs will compensate for the equity dilution. The company is eligible of Ondansetron 180-day exclusivity but the launch is contingent on US FDA approval. Motilal expects one-time upside of $45 million in revenues and an incremental EPS of Rs 9 from this opportunity.

The company expects to start Phase-III trials for Balaglitazone in early 2007 subject to favourable data on some of the tests conducted. Improvement in core business coupled with large short-term opportunities like Fexofenadine and Finasteride will result in increased traction for FY07.

The German operations are likely to contribute positively to margins despite the recent price cuts. The company is currently valued at 29.5 times and 21.3 times its expected FY07 and FY08 earnings.