Orchid Chemicals & Pharmaceuticals
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs390
Current market price: Rs253
Cefepime--a huge opportunity!
Key points
- Orchid Chemicals & Pharmaceuticals (Orchid) has received approval from the US Food and Drug Administration (USFDA) for its abbreviated new drug application (ANDA) for Cefepime injection.
- Cefepime injection is a life-saving Cephalosporin antibiotic drug used in hospitals. The brand product had recorded sales of $190 million in December 2006. The patent for the product has already expired.
- Since there will be only two players in the market including the innovator, Orchid will enjoy a near-exclusivity situation with this product and Apotex, through its strong marketing prowess, will be able to capture a healthy market share to the tune of 50-60%. Besides, with the entry of just one player, the market is also unlikely to get eroded beyond 20-30%.
- We believe that Cefepime injections will generate $18.3 million in revenues for six months of FY2008 (from July 2007-March 2008) and $36.6 million in revenues in FY2009. This will translate into incremental earnings of Rs2.6 per share and Rs5.3 per share in FY2008 and FY2009 respectively, on a fully diluted basis.
- At the current market price of Rs253, the stock is trading at 10.1x its estimated FY2008 earnings, on a fully diluted basis. Based on the FY2007 performance of the company, the outlook provided by the management and the recent news flow relating to the company, we are reviewing our estimates for Orchid and will come out with an update shortly. In view of the bright prospects for the company, we retain our positive stance on the stock and maintain our Buy call with a price target of Rs390.
Indian Hotels Company
Cluster: Apple Green
Recommendation: Buy
Price target: Rs180
Current market price: Rs144
Price target revised to Rs180
Result highlights
- The FY2007 results of Indian Hotels Company Ltd (IHCL) are above our expectations. However, on a stand-alone basis the FY2007 results are not comparable with the results of FY2006 as the former take into account the effect of the merger of five companies into IHCL with effect from April 1, 2006.
- The company reported a consolidated total income of Rs2,665.8 crore for FY2007 as against Rs1,914.1 crore for FY006. That implies a growth of 39%. Operating profit showed a growht of 39.5% from Rs512 crore to Rs715 crore in FY2007. The interest and depreciation charges were higher in FY2007 due to the merger of the five companies in the year. IHCL posted a consolidated profit after tax (PAT) of Rs369.9 crore in FY2007 as against Rs248.7 crore in FY2006. This resulted in earnings per share (EPS) of Rs6.1.
- The healthy trend in the top line is due to the rise in the number of foreign tourist arrivals in India, which has pushed up the average room rate (ARR) and the occupancy rate (OR). The hotel industry has witnessed continued buoyancy in the arrival of foreign tourists. The number of foreign tourist arrivals increased to 40 lakh from 44 lakh in FY2007, representing a 15% growth year on year (yoy).
- In FY2007 the ARR grew by 28.4% to Rs9,234 from Rs7,186 in FY2006; the OR increased from 70% in FY2006 to 73% in FY2007.
- IHCL has issued 16,219,670 equity shares to the members of Indian Resort Hotels, and Gateway Hotels and Getaway Resorts which has led to equity dilution of 2.76%. The new equity capital is 60.3 crore.
Q4FY2007 results (stand-alone)
- On a stand-alone basis, for the fourth quarter of FY2007 IHCL reported a top line growth of 42% at Rs505.2 crore against Rs355 crore in Q4FY2006. The operating profit margin (OPM) improved by 640 basis points from 35.5% in Q4FY2006 to 42.0%. The operating profit grew by 67.6% to Rs212.1 crore. The bottom line of the company grew by a healthy 71% to Rs134.5 crore from Rs78.7 crore in Q4FY2006, resulting in earnings of Rs2.23 per share.
- The company has merged Asia Pacific Hotels, Indian Resort Hotels, Gateway Hotels and Getaway Resorts, Taj Lands End and Kuteeram Resorts Pvt Ltd with itself with effect from April 1, 2006. This has led to an addition of around 400 rooms to the existing inventory. The results for the year ended March 31, 2007 are therefore not comparable with the results of the previous year.
- We have introduced our FY2009 estimates for the company with a consolidated PAT of Rs547.8 crore. At the current market price of Rs144 the stock is quoting at a price/earnings ratio (PER) of 20x FY2008E consolidated EPS of Rs7.4 and 16X FY2009E consolidated EPS of Rs9.1. We maintain our Buy recommendation on the stock with a revised price target of Rs180.