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Wednesday, April 25, 2007
Sharekhan Investor's Eye dated April 25, 2007
Ranbaxy Laboratories
Cluster: Apple Green
Recommendation: Buy
Price target: Rs558
Current market price: Rs369
Ranbaxy receives 180-day exclusivity for Pravastatin 80mg
Key points
- Ranbaxy Laboratories (Ranbaxy) has received the US Food and Drug Administration’s (USFDA) approval to manufacture and market Pravastatin sodium tablets (Pravastatin) of strengths 10mg, 20mg, 40mg and 80mg, with 180-day market exclusivity in the US healthcare system for the 80mg strength.
- Pravastatin is the generic version of Bristol Myer Squibb’s Pravachol. The product lost patent protection in April 2006. The total annual market sales for all strengths of Pravastatin were $1.19 billion. The annual sales for the 80mg strength alone stood at $209 million.
- We believe the launch of Pravastatin will generate $45.6 million in revenues and $17.2 million in profits in CY2007E, yielding incremental earnings of Rs1.8 per share for Ranbaxy. This implies a potential price upside of approximately Rs40 from the current levels. We maintain our Buy recommendation on Ranbaxy with a price target of Rs558.
Elder Pharmaceuticals
Cluster: Apple Green
Recommendation: Buy
Price target: Rs508
Current market price: Rs404
Another strong quarter
Result highlights
- Elder Pharmaceuticals (Elder) continued its strong performance during the fourth quarter of FY2007. The company’s net sales rose by 26.6% to Rs118.2 crore in Q4FY2007, on the back of a steady momentum in its core brands, a ramp-up in the sales of the Fairone brand due to the launch of the product in south India and the growing revenues from the in-licenced portfolio. The sales were in line with our estimate.
- Elder reported a 65-basis-point drop in its operating profit margin (OPM) to 19.6% during the quarter, on account of a 35.8% rise in the other expenditure and a 29.7% increase in the staff cost. The other expenditure was higher on account of the higher selling and promotional expenses incurred for its new launches.
- Consequently, the company’s operating profit rose by 25.4% to Rs23.7 crore in Q4FY2007.
- Despite a 26.6% drop in the other income, and an increase in the interest and depreciation costs, Elder’s net profit grew by 17.6% to Rs15.0 crore. The net profit was in line with our estimate.
- For FY2007, Elder’s revenues grew by 26.1% to Rs447.3 crore. The OPM expanded by 190 basis points to 19%, led by an improvement in the raw material cost, causing the operating profit to rise by 40% to Rs84.8 crore. Despite the increases in the depreciation and interest costs, the net profit showed a robust growth of 54.8% to Rs56.8 crore in FY2007. The net profit growth was aided by the sharp drop in the tax incidence (due to the shift of manufacturing to tax-free zones).
- In view of its strong growth potential, we remain positive on Elder’s future growth prospects. At the current market price of Rs404, the stock is quoting at 10.0x its estimated FY2008 earnings. We maintain our Buy recommendation on the stock with a price target of Rs508.
Maruti Udyog
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,050
Current market price: Rs790
Profits impacted due to higher costs
Result highlights
- Maruti Udyog Ltd's (MUL) Q4FY2007 results are ahead of our expectations on the profits front, but below expectations on the operating margins front.
- The net sales for the quarter marked a growth of 35.4% year on year (yoy) led by a volume growth of 30% and a realisation growth of 4.5%.
- On account of higher raw material prices, the losses at the new Manesar plant and higher power and fuel expenses, the operating margins for the quarter declined by 250 basis points to 12.4%. For the quarter under review, the Manesar plant recorded a loss of Rs58.5 crore at the net level.
- However, a higher other income of Rs205 crore and stable depreciation costs saw the company post a net profit growth of 24% to Rs448.6 crore.
- For the year FY2007, the volume growth was 20.1% yoy. The total income grew by 22% to Rs14,654 crore. The operating profit margin (OPM) for the year was stable at 13.6% as compared to 13.5% in FY2006. The profit after tax (PAT) for the year was Rs1,562 crore, registering a growth of 30%.
- The sales volume for H1FY2007 was very low. MUL launched three new products in Q4FY2007. Hence, we do not expect MUL to witness a sharp slowdown in the growth in FY2008. The profitability could be impacted due to rising raw material prices and higher expenditure on account of the new Manesar plant.
- Considering MUL's dominant position in the Indian car market, Suzuki's plans of making India its hub for small cars, and potential of exports, which shall commence in a big way starting FY2009, we maintain our positive view of the company. At the current market price of Rs790, the stock is quoting at 10.7x its FY2009E earnings. We maintain our Buy recommendation on the stock with a price target of Rs1,050.
Tata Tea
Cluster: Apple Green
Recommendation: Buy
Price target: Under review
Current market price: Rs774
Upside from stake in Glac�au
According to Reuters, Coca-Cola Co is in talks to acquire all or part of the vitamin water maker Energy Brands Inc (EBI), valuing the company at about $3 billion. It may be recalled that Tata Tea Ltd (TTL) and Tata Sons Ltd (TSL) have together acquired a 30% stake in EBI for $677 million or Rs3,110 crore, ie at a valuation of $2.2 billion.
SECTOR UPDATE
Information Technology
Rupee pangs
For the front-line information technology (IT) companies, it is likely to be a tough year in terms of margin pressure due to the cumulative impact of wage inflation, higher visa costs and the appreciation of the rupee. Given the tightening supply of quality manpower, the salary hikes are indicated to be aggressive this year too. The average hikes are estimated to be in the range of 13-15% for offshore employees and 4-5% for the onsite workforce. This would translate into an adverse impact of 250-350 basis points on the operating margins. The abnormally high demand for visas this year (application window was closed on the first day itself) would result in higher visa costs.
To factor in a much higher than expected appreciation in the rupee, we have revised downwards the earnings estimates and accordingly the target prices of the front-line IT service companies.
VIEWPOINT
Allcargo Global Logistics
Interesting times aheadAllcargo Global Logistics (Allcargo) had hosted an analyst meet on Tuesday (April 24, 2007) to discuss its Q1CY2007 performance. We attended the same and present the key takeaways.
Sharekhan Investor's Eye dated April 25, 2007
Labels:
Allcargo,
Elder Pharma,
Maruti Udyog,
Ranbaxy,
Sharekhan,
Tata Tea
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Good Evening - Apr 25 2007
Key indices were down marginally amid choppy trade as investors booked profits at every rise ahead of RBI's monetary policy announcement around noon. The RBI is expected to hold rates steady in its annual monetary policy meet as the current cycle of rate hikes has not completely seeped into the economy. However, some investors are worried that a rise in inflation rate to 6% again may force the central bank's hand otherwise. At 10:16AM, Sensex was 13939.83, up 11.50 points or 0.1%. Nifty was at 4091.10, up 6.00 points or 0.1%. The CNX Midcap and S&P CNX 500 indices were nearly flat. On the BSE, there were 659 advances and 375 declines in the morning session. The biggest Nifty gainers were Zee Entertainment Enterprises, up 1.8% at Rs 278, Tata Motors, up 1.7% at Rs 731, and Suzlon Energy, up 1.4% at Rs 1,161. Tata Motors gained on a report the company may set up a car unit in Egypt. Maruti Udyog was up 1.1% at Rs 775 ahead of its Jan-Mar earnings, which will be detailed today. The company's net profit for the fourth quarter is seen growing 18% to Rs 4.28 bn. Among losers, Siemens India was down 2.5% at Rs 1,038, and BHEL fell 1.2% to Rs 2,509. Siemens fell after it reported lower-thanexpected net profit in the quarter ended March. The company's second quarter net profit fell 8% on year to Rs 1.08 bn. HPCL and BPCL were down 1% each as crude oil prices Monday gained 3% on New York Mercantile Exchange. Sesa Goa shares were down 2.2% at Rs 1,702.85 despite reports of U.K.-based Vedanta acquiring Mitsui's 51% stake in the company for $981 mn (Rs 41 bn). Tata Motors was up 2.2% at Rs 734 on report the company is planning to set up a car making unit in Egypt. In the mid trading session, indices rose 1% led by gains in bank shares after the Reserve Bank of India today left key rates unchanged at its annual monetary policy review. Key indices were up 0.4% ahead of the policy. At around 12.10PM, Sensex was at 14053.36, up 125.03 points or 0.9%. Nifty was at 4126.80, up 41.70 points or 1.0%. Bank shares surged 6% after the Reserve Bank of India today left key rates unchanged and reduced risk weight on various small loans. PNB, up 4.5% at Rs 495, was the top Nifty gainer. SBI rose 4% to Rs 1,102 and ICICI Bank was up 3% at Rs 940. Oriental Bank of Commerce rose 7% and State bank of India was up 6.5%. CNX Bank Nifty was up 3%. BHEL, down 2.5% at Rs 2,477, was the worst hit on Nifty. Shares of automobile makers surged 2-5% after the Reserve Bank of India today kept key interest rates unchanged, which eased fears of further slowdown in sales volume due to higher financing costs. Construction shares were mixed after Reserve Bank of India today left its key rates unchanged in the monetary and credit policy for 2007-08 (Apr-Mar). However, real estate shares surged 2-4%. Maruti No. of Scrips Value (Crs.) Advances 512 7884 Declines 531 2727 Unchanged 29 43 Total 1072 10654 Udyog was off the day's highs after the company reported Jan-Mar net profit at Rs 4.48 bn against street expectations of Rs 4.28 bn. Key indices ended over 1% higher led by gains in bank shares after Reserve Bank of India kept key rates unchanged at its Annual Policy statement for 2007-08 (Apr-Mar). Despite a poor start and bouts of profit-booking in early trade, Sensex and Nifty gained strength towards noon ahead of the RBI policy. "Expect the unexpected from the RBI. The market rallied as interest rates have a linkage effect. Other sectors like capital goods, real estate and auto also gained because of this. However, the central bank said it will keep a close eye on inflation and money supply. Sensex ended at 14136.72, up 208.39 points or 1.5% from Monday, after touching a low of 13850.07 and a high of 14197.32 points intraday. The Nifty closed at 4141.80, up 56.70 points, or 1.4%. It moved between a low of 4057.70 and a high of 4162.15 points during the session. The Sensex closed above the 14000-level for the first time since Feb 22, while the Nifty ended above 4100 for first time since Feb 20. The turnover on BSE and NSE combined was Rs 151 bn, up 35% from Monday. The CNX Midcap Index ended up 1%, while the S&P CNX 500 Index rose 1.2%. Bank shares surged on value buying after RBI kept interest rates steady. SBI rose 7.4% at Rs 1,139, while PNB gained 7% at Rs 507. The CNX Bank Nifty ended 4.7% up. HDFC Bank ended at Rs 1,014, up 2.7%, ahead of its Jan-Mar earnings expected later today. The bank is seen reporting a net profit of 3.14 bn, up 195% on year. Zee Entertainment ended up 7.8% at Rs 295 on value buying after robust Jan-Mar results. Maruti Udyog ended at Rs 796, up 3.8%, after reporting March quarter earnings that exceeded analysts' expectations. Siemens, which opened weak on disappointing earnings reported late Monday, gained on value buying as brokerages have upgraded the stock. The worst-hit among Nifty stocks were MTNL, down 7.2% at Rs 150, Wipro, down 2.2% at Rs 555, and TCS, down 1.7% at Rs 1,226. MTNL shares fell, as its Jan-Mar net earnings fell short of analysts' expectations. The company's net profit rose 47% to Rs 2.06 bn, against expectations of a 15% rise, driven by other income. IT shares slipped today on concerns that overseas revenue will be hit if the rupee continues to strengthen against the dollar. Today, the Indian unit appreciated to as much as Rs 41.05 per $1, against Rs 41.67 per $1 on Monday. The BSE Infotech Index, down 0.6%, was the only sectoral index to end weak. Tech stocks ended in mixed trend. Infosys was up at Rs 2057.90 with volumes of Rs 269.01 crs, TCS was down at Rs 1224.85 with volumes of Rs 215.25 crs, Rolta was up at Rs 420 with volumes of Rs 194.32 crs, and Satyam closed down at Rs 474.55 with volumes of Rs 127.12 crs. Pharma stocks ended in mixed trend. Sun Pharma was down at Rs 1061.70 with volumes of Rs 51.64 crs, Ranbaxy closed up at Rs 349 with volumes of Rs 40.47 crs, Dr Reddy was down at Rs 713.50 with volumes of Rs 35.07 crs, and Cipla closed up at Rs 238.80 with volumes of Rs 30.96 crs. Banking stocks showed buying opportunity. In the Public Sector banks SBI closed up at Rs 1133.30 with volumes Rs 348.23 crs & Bank of India closed up at Rs 197.15 with volumes Rs 119.63 crs. In the private sector ICICI Bank closed up at Rs 950.10 with volume of Rs 209.64 crs & HDFC Bank closed up at Rs 1013.75 with volumes of Rs 173.65 crs. Auto Stocks ended up. Tata Motors closed up at Rs 741.60 with volumes of Rs.154.76 crs & M&M closed up at Rs 744.35 with volumes of Rs 44.67 crs. While in the 2 wheeler segment stocks, Baja Auto closed up at Rs 2442.70 with volumes of Rs 35.21 crs & Hero Honda closed up at Rs 665.95 with volumes of Rs 19.91 crs. Cement Stocks witnessed positivity. ACC closed up at Rs 816.95 with volumes of Rs 83.02 crs, GACL closed up at Rs 119.35 with volumes of Rs 80.50 crs, India Cement closed marginally up at Rs 170.80 with volumes of Rs 40.63 crs and Birla Jute closed up at Rs 233.65 with volumes of Rs 1.83 crs. Nifty ended at 4142 up by 57 points
Market Close : Smart recovery amids volatile sessions..
Weak play in the market from the start and had no support from global cues. Asian markets slipped into red while Europe trading mixed. Sensex saw some value buying in the mid sessions but couldn't sustain the momentum and selling crept in as investors played cautious ahead of FNO expiry. But bounced back as it witnessed some intense buying in the index heavyweights like SBI, RIL in the final sessions to trade and close high. Metal sector extended its gains tracking firm global metal prices as most of the stocks ended in green. Selective Pharma, Banking and FMCG stocks were in favor amongst the investors while Software and Telecom stocks bore the brunt of selling pressure. Real estate stocks were on fire as they rallied in the final session and ended with strong gains.
IT stocks came under selling pressure as the Indian Rupee rose to a fresh nine year high with the central bank not intervening to keep a check on it. The Rupee was seen at 40.84 per Dollar in the early sessions, strongest since May 1998 and last traded at 40.90. Rupee appreciating is a cause of concern for major IT companies as it directly impacts their revenue and profits as a major chunk of revenue is accounted by the exports.
Sensex ended up by 81 points at 14217.77. It was helped up by gains in Ranbaxy (369.1,+6 percent), Cipla (252.25,+5 percent), Hero Honda (687.35,+4 percent), ITC (161.75,+3 percent) and Grasim (2441.7,+3 percent). Restricting the gains were Infosys (2017.9,-2 percent), Satyam (466.45,-2 percent), TISCO (570.8,-1 percent), Bharti Tele (862.8,-1 percent) and NTPC (156.8,-1 percent)
Indian Bank reported strong Q4 March 2007 results with 69.1% growth in net profit for Q4 March 2007 at Rs 235 cr against Rs 139 cr the previous year. Total Income rose by 43.2% to Rs 1564 cr against Rs 1092 cr the previous year. The state run bank also claimed that its net non performing assets (NPA) declined to 0.35% as on 31 March 2007 from 0.79% as on March 2006. The gross NPA declined by 1.85% at end of March 2007 compared with 2.91% at end of March 2006. The stock rallied yesterday also as the RBI kept key rates unchanged at its monetary policy meeting and the stock rallied to close up by almost 17%.
As per some news, Tata Tea negotiations with Glaceau are going on and that some points of the deal still needed resolving. The news also said that Coke may also want to announce the deal with the same company when its North American bottlers meet in Atlanta next month or before that. The valuation of Glaceau is rumored to be at $3 billion up from a mere $2.2 billion just 8 months ago. Tata Tea had bought almost 30% stake in Glaceau for $677 million in August 2006 and also had valued Glaceau at $2.2 billion. Nothing to comment here till ther is more clearity here.
Jubilant Organosys informed that the company will acquire US based Hollister-Stier Laboratories LLC for $122.5 million to gain a foothold in the injectable drugs segment. The company also said that it would reimburse $16 million that Hollister had already spent on an on going capacity expansion which was expected to be completed by 2008. as per the calculation goes, Jubilant Organosys would be paying 11.2 times Hollister's fiscal 2006 normalized earnings before interest, tax, depreciation and amorti
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