PULSE TRACK
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Infrastructure Index up 9% for October 2006
STOCK IDEA
Fem Care Pharma
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs500
Current market price: Rs358
A name FEM(mes) trust
Key points
- Leadership position in a niche category: Fem Care Pharma Ltd (FCPL) has a dominant market share (around 65%) in the niche segment of bleach cream. It is also among the leading players in the liquid soap and hair-removing categories. To boost its overall growth, the company has introduced several product variants at various price points to effectively tap the expected growth in the FMCG industry, especially the fast growing beauty treatment and skin care segments.
- Incremental growth from exports: In FY2006, FCPL acquired a US-registered premium bleaching cream brand, Jaquline, which has an established presence in the UAE and Middle-East markets. The company plans to utilise it as an umbrella brand to introduce skin care and beauty products, and boost the overall growth of its export business.
- Margins to firm up: The introduction of high-margin premium products has positively affected its operating margins. The company has also commissioned a new manufacturing facility in the tax-blessed region of Baddi, Himachal Pradesh. The fiscal incentives in the form of income tax and excise duty exemptions are further boosting its overall profitability.
- Consolidation of its marketing arm: The distribution of FCPL's products is done exclusively by its 60% subsidiary, Mirasu Marketing. FCPL is expected to acquire the remaining 40% stake (held directly by the promoters) in Mirasu Marketing over the next one year. The consolidation is likely to result in marginal dilution in its equity base (about 1-1.5% on the higher side) but would be earnings accretive.
- Attractive valuation: The consolidated revenues and earnings are estimated to grow at a CAGR of 17.5% and 48.3% respectively during FY2006-08. Currently the stock trades at 9.9x FY2007E and 8x FY2008E earnings. We recommend a Buy on FCPL with a price target of Rs500.
SECTOR UPDATE
Telecom
Record breaking month
Riding on the cellular boom and the aggressive strategy by the operators to add new users, the Indian telecom operators are breaking new records. Both the GSM and CDMA industries witnessed a robust growth in subscriber add-ons taking the mobile subscriber base to 140.0 million at the end of November. However the key highlight for the month was witnessed in the GSM space. With an additional 5.0 million GSM subscribers bagged during the month, the total GSM mobile subscriber base stands at 100.7 million at the end of November, marking its entry into the elite 100 million GSM subscriber club. India now has the third largest number of GSM mobile subscribers next only to China (401.7 million) and Russia (152.2 million).