ICI India
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs581
Current market price: Rs520
Price target revised to Rs581
Result highlights
- The net revenues grew by 5.7% year on year (yoy) to Rs201 crore despite the discontinuation of the surfactant businesses (Uniqema).
- The sales from the continuing businesses (ie paints and chemicals) have shown a growth of 23%. The paint business grew by 26% yoy to Rs170 crore. The continued chemical business grew by 13% yoy to Rs31 crore.
- The profit before interest and tax (PBIT) from the continued businesses grew by 51% in the quarter under review on the back of improved PBIT margin of both the businesses. The PBIT in the paint business grew by 67% yoy with a 170-basis-point expansion in the margin. The PBIT in the residual chemical business grew by 11.5% yoy with an 20-basis-point expansion in the margin.
- The overall operating profit (including all businesses) dropped by 10% yoy with a 150-basis-point contraction in the operating profit margin (OPM).
- With a higher other income (due to a dividend income of Rs31 crore) and stable depreciation, the net profit grew by 20% yoy to Rs12.7 crore.
- ICI India's Q4FY2007 net profit (adjusted for extraordinary items and taxes) at Rs12.7 crore was slightly below our expectations. The net profit grew by 20% yoy.
- The company has announced that it would be utilising Rs210 crore to buy back its own shares from the minority shareholders at a price not exceeding Rs575 per share through market operations.
- Taking into account the sell-off of Quest International and the auto refinish business, we are also introducing our FY2009 numbers. At the current market price of Rs520, the stock trades at 18x its FY2008E EPS of Rs29 and 15.7x its FY2009E EPS of Rs33. In view of the cash per share of Rs202 and 21x FY2008 core earnings per share (EPS) of Rs18, we have revised upward our price target to Rs581. We maintain our Buy recommendation on the stock.
Aurobindo Pharma
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs914
Current market price: Rs725
USFDA approvals enrich earnings visibility
Result highlights
- Aurobindo Pharma has received the approval from the US Food and Drug Administration (USFDA) for oral suspensions of its antibiotic Cefpodoxime proxetil in 50mg/5ml and 100mg/5ml strengths.
- Cefpodoxime proxetil is the generic version of Pharmacia Upjohn's brand Vantin. It is an oral third generation Cephalosporin antibiotic.
- The size of the branded market for Cefpodoxime proxetil suspension is about $20 million and the patent of the product expired a few years ago. This is a critical product and just two competitors, including the innovator and Ranbaxy Laboratories, are there in the market.
- Aurobindo Pharma is the proven leader in this segment in several markets in the world. So anticipating a 20% market share and a 20% price erosion, the product can add annual revenue of $3.2 million and profit of $0.64million. That would translate into incremental earnings per share (EPS) of Rs0.43.
- Aurobindo Pharma with 82 abbreviated new drug applications (ANDAs), 110 drug master files (DMFs) and 11 USFDA-approved facilities is well positioned to exploit the generic opportunity going forward. Further, its expansion into Europe and emerging markets, and the likely incremental revenue flow from its largest approved anti-retroviral product basket would fuel its revenue growth and margin expansion in future.
- At the current market price of Rs725, the stock is trading at 15.8x its FY2008E and 12.6x its FY2009E earnings. In anticipation of the ramp-up in the formulation exports (particularly to the USA) we maintain our Buy recommendation, with a one-year price target of Rs914.