Sharekhan Eagle Eye - Oct 31

The Nifty ended the trading session near its all-time high of 3774 after trading firm through the day...

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Sharekhan Eagle Eye - Oct 30

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Sharekhan Investor's Eye - Oct 23

Sun Pharmaceuticals
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,000
Current market price: Rs914

Impressive performance continues

Result highlight

• Sun Pharmaceuticals’ consolidated net sales grew by 29.1% year on year (yoy) to Rs536.2 crore in Q2FY2007. The strong growth was driven by an increase of 46.9% in its exports and a 14.6% growth in the domestic business.
• A sharp spike in the research and development (R&D) expenses, along with higher staff costs led to a decline in the company’s operating profit margin (OPM), which contracted by 50 basis points to 31.9% in Q2FY2007, causing the operating profit (OP) to increase by 27.1% to Rs170.8 crore. Barring the higher R&D costs, the company’s margins actually showed an expansion of 160 basis points.
• Sun Pharma’s net profit for Q2FY2007 stood at Rs186.4 crore, up 26.1% yoy. The growth in the profit was aided by a 1.5-fold increase in the company’s other income to Rs40.2 crore and a deferred tax write-back of Rs5.4 crore.
• Between Sun Pharma and Caraco, the group has 56 abbreviated new drug applications (ANDAs) pending approvals and 28 products already in the market. This is one of the strongest product pipelines in the industry.
• At the current market price of Rs914, Sun Pharmaceutical is valued at 26.7x FY2007 and 22.6x FY2008 fully diluted earnings. The company’s future growth prospects, positive contributions from past acquisitions and value-unlocking post R&D demerger reinforce our positive stance on the company. We maintain our Buy recommendation on the stock with a price target of Rs1,000.
  

Cipla
Cluster: Cannonball
Recommendation: Buy
Price target: Rs300
Current market price: Rs262

Better health than expected

Result highlight

• Cipla reported better-than-expected results for Q2FY2007 with its earnings showing a 47% jump (as against an expected growth of 40%) to Rs180.28 crore.
• The revenues were up by an impressive 33 % year on year (yoy) and by 4% quarter on quarter (qoq) to Rs896.11 crore, largely fuelled by a whopping 120% growth in the exports of active pharmaceutical ingredients (APIs) to Rs159.70 crore and above the industry performance of a 22% increase in the domestic formulations.
• The operating profit margin (OPM) witnessed a contraction of 100 basis points to 25.4% in the quarter, as the raw material costs increased by 250 basis points due to the company’s changed product mix. However, the operating profit increased by 28.4% to Rs227.60 crore.
• With the reduction in the incidence of tax to 18.3% from 21.1%, possibly due to the commissioning of the new export-oriented unit (EOU) at Patalganga, the net profit increased by 47% at Rs180.28 crore.
• At the current market price of Rs262, the stock trades at 21.5x its FY2008 earnings, but expecting earning surprises in the subsequent quarters (as the company is working on about 150 product projects), we maintain our Buy recommendation on the stock with a price target of Rs300.

India Cements
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs315
Current market price: Rs222

Results better than expected

Result highlight

• India Cements (ICL) achieved a net profit of Rs117 crore for Q2FY2007, ahead of our expectations.
• The net revenues grew by a healthy 31.91% to Rs517 crore helped by a 16% growth in the volumes and a 21% growth in the realisations.
• Due to strict cost control measures, the operating cost growth remained subdued at 6.3% year on year (yoy). This, coupled with the company’s leverage to the cement prices, resulted in the operating profit jumping by a whopping 154% to Rs173 crore as against Rs67 crore in the same quarter last year.
• The operating margins expanded by a staggering 1,605 basis points to 33.41% whereas the earnings before interest, tax, depreciation and amortisation (EBITDA)/tonne more than doubled to Rs791 as against Rs361 in the same quarter last year.
• The interest cost decreased by 8.7% to Rs36 crore on account of the repayment of debt, whereas the depreciation remained stagnant at Rs19 crore.
• The tax provision was negligible at Rs40 lakh on account of the write-off of the accumulated losses. Thus the net profit grew by a staggering 1,900% year on year to Rs117 crore.
  


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Capital Market Online - Vol 21 - Oct 23 to Nov 5

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Merrill Lynch - Reliance Industries

Strong operating performance but modest 2Q earnings rise

Reliance (RIL) has achieved yet another strong operating performance in 2Q as reflected in the 23% YoY jump in EBITDA and 18% YoY rise in EBIT. The strong operating performance has been driven mainly by a 38% YoY jump in petrochemical EBIT. Strong petrochemical margins and volume growth boosted EBIT. Despite strong operating performance, 2Q net profit was up just 9% YoY due to a steep decline in other income and a sharp rise in depreciation, interest and income tax.

2Q earnings higher than MLe; surprise mainly in refining

RIL’s 2Q net profit growth at 9% YoY is higher than MLe and consensus by 5%. The earnings surprise is mainly attributable to refining EBIT being higher than expected. RIL has not accounted discount on sale of LPG and kerosene to oil PSUs of Rs2.0bn in 2Q as expected by us, which explains the higher EBIT.

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Market falters after touching new intra-day high

The Sensex was on the verge of touching the 13000 level in early trades and touched a new intra-day high of 12994 before profit taking pulled it down and weighed on the
sentiment throughout the session. The fall came after the Sensex had notched up gains of 574 points in the last three trading sessions. On the back of weak Asian indices, early trades saw the Sensex slip into the red after adding 66 points to its previous close. The cautious trend with a negative bias prevailed for the rest of the trading session, with the index taking a sharp dip in the afternoon to touch the day's low of 12819, 109 points below its last close. Renewed buying in metal and other counters saw the Sensex pare losses to a considerable extent and end the session with losses of 44 points at 12884. The Nifty shed nine points to close at 3715.

Dragging down the Sensex, HDFC Bank tumbled 3.58% at Rs1,009, HLL declined 2.19% at Rs232, HDFC fell 2% at Rs1,515, Infosys dropped 1.13% at Rs2,074, NTPC lost 2.13% at Rs128, TCS dipped 1.46% at Rs1,114, Grasim slipped 1.67% at Rs2,624 and Gujarat Ambuja Cements was down 1.11% at Rs120. However, Satyam rose 3.27% at Rs450, BHEL advanced 1.95% at Rs2,463 and Hero Honda moved up by 1.57% at Rs758.

On the sectoral front, the BSE Metal index jumped 1.33% at 8908 while the BSE FMCG index fell 1.12% at 2048. The market breadth was negative. Of the 2,556 stocks traded on the BSE, 1,646 stocks declined, 838 stocks advanced and 72 stocks ended unchanged.

Movers & Shakers

* Cadila Healthcare gained on receiving the USFDA nod to market Zonisamide capsules in the USA.
* Micro Technologies declined despite signing an agreement for Home Security System Micro HSS with Macrosoft Associates of the USA.


Among the metal stocks Hindustan Zinc soared 9.74% at Rs820, Binani Industries surged 5.24% at Rs309, SAIL gained 4% at Rs86, Kalyani Steel added 3.88% at Rs321 and Lanco Industries moved up by 3.67% at Rs41. Bhushan Steel Strips, Ispat Industries, Sterlite Industries and GMDC were up 1-3% each.

Over 93.08 lakh Nandan Exim Bank shares changed hands on the BSE followed by Atlanta (79.03 lakh shares), Gayatri Projects (46.80 lakh shares), Action Construction Equipment (36.31 lakh shares) and SAIL (34.67 lakh shares).

Value-wise Atlanta registered a turnover of Rs265 crore on the BSE followed by Hindustan Zinc (Rs198 crore), Gayatri Projects (Rs148 crore), Reliance Industries (Rs129 crore) and Satyam (Rs98 crore).

Motilal Oswal - India Strategy

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Way2Wealth - Monthly Chronicle - Oct 2006

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Sharekhan Valueline - Oct 2006

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Q2FY07 Earnings Preview

# We also expect the information technology (IT) companies to report a strong earnings growth on the back of a robust volume growth and the depreciation of the rupee vis-à-vis the dollar.

# We expect the earnings of the Sensex companies to grow by a strong 22.6% year on year (yoy) led by a strong growth in the above-mentioned sectors.

#The implied growth for H2FY2007 works out 21% yoy. Further upmove in the Sensex could come only from further upgrades in the Sensex' earnings.

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Sharekhan Top Picks

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Sharekhan Eagle Eye - Oct 6

The Nifty closed the trading session well above the 10- DMA at 3558...

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