Lupin
Cluster: Apple Green
Recommendation: Buy
Price target: Under review
Current market price: Rs714
Q4FY2007 results: first-cut analysis
Result highlights
- Lupin's net sales increased by 22.8% year on year (yoy) to Rs518.1 crore in Q4FY2007. The growth in the top line is above our expectations. The sales growth was driven by a 12% rise in the domestic formulation business to Rs144.3 crore and a 53.4% increase in the formulation exports to Rs165.9 crore.
- Having launched six new products in the USA in FY2007, Lupin continues to maintain a healthy double-digit market share for most of its products. It has managed to grab a market share of 33% for Lisinopril and that of 25% for Cefprozil tablets and suspension. Further, Lupin's branded product in the US market, Suprax, continues to do well. The product has seen a strong volume growth with prescriptions exceeding 8,500 a week during the peak season.
- Lupin's operating profit margin (OPM) expanded by 460 basis points yoy to 14.5% in Q4FY2007; the same was lower than our expectation of 15.7%. The OPM was below expectations on account of a higher than anticipated rise in the company's raw material cost and higher research and development (R&D) expenses. Consequently, the company's operating profit grew by 80.0% yoy to Rs75.0 crore in Q4FY2007.
- The profit before tax stood at Rs66.6 crore, a growth of 7.9% yoy. The same was below our expectation of Rs74.2 crore. However, on including the one-time income of Rs114.32 crore (euro 20 million) in relation to the sale of the Perindopril patent to Laboratories Servier of France, the reported net profit stood at Rs137.1 crore, a growth of 173.1% yoy.
- The company's reported net profit stood at Rs137.1 crore, up by 173.1% yoy. However, this includes the one-time income related to the sale of the Perindopril patent. Based on our estimates, the net profit excluding the post-tax consideration received from the sale of the Perindopril patent stood at Rs61.3 crore, a jump of 22% yoy. The same was above our estimate of Rs57.5 crore.
- For FY2007, the company's net sales increased by 22.7% to Rs1,970.9 crore, which was above our estimates. The OPM expanded by 70 basis points to 14.9% as against our estimate of 15.7%, driven largely by higher R&D expenses. The company's reported net profit stood at Rs302.1 crore, up by 65.3% yoy. However, this includes the one-time income related to the sale of the Perindopril patent. Based on our estimates, the net profit excluding the post-tax consideration received from the sale of the Perindopril patent stood at Rs226.2 crore, a jump of 23.8% yoy, and was in line with our estimate of Rs228.4 crore.
- The management aims to increase its turnover from the current level of Rs2,000 crore to Rs3,000 crore in FY2008 (a 50% growth) through various initiatives in the USA, Europe and semi-regulated markets. In FY2009, the company plans for an additional 40% growth to $4,200 crore. This growth will largely come from organic initiatives, with a small component of inorganic growth as well. Further, Lupin's lead anti-migraine new chemical entity is currently in Phase III trials; the management aims to monetise this molecule in FY2008 and any news on this front will come as a positive earnings surprise for the company.
- Based on the FY2007 performance and the outlook provided by the management at the recently held analyst meet, we are in the process of upgrading our numbers and will come out with an update shortly. At the current market price of Rs714, Lupin is quoting at 18.9 its FY2008 fully diluted earnings.
Gateway Distriparks
Cluster: Cannonball
Recommendation: Buy
Price target: Rs250
Current market price: Rs182
Results in line with expectations
Result highlights
- Gateway Distriparks Ltd's (GDL) revenues from the container business grew by 24% year on year (yoy) to Rs41 crore in Q4FY2007. With Snowman Frozen Foods, the cold chain subsidiary, contributing Rs6.65 crore for the quarter, the total revenues for the quarter stood at Rs47 crore.
- The operating profit grew by 22% yoy to Rs22.6 crore whereas the operating profit margin (OPM) declined by 840 basis points to 47.4%. Snowman Frozen Foods continued to remain unprofitable at the earnings before interest, tax, depreciation and amortisation (EBITDA) level, registering a loss of Rs0.17 crore for the quarter.
- The interest cost decreased by 66% yoy to Rs0.20 crore, thanks to the repayment of debt whereas the depreciation provision increased by 62.6% yoy to Rs4.57 crore on account of higher capital expenditure (capex) during the quarter.
- The tax provision stood at 17% as the company continued to enjoy the 80 IA benefit for investment in inland container depots (ICDs). The net profit increased by 8.5% yoy to Rs19.27 crore.
- Last month, GDL through its subsidiary GatewayRail had formed a 51:49 joint venture with Container Corporation of India (Concor) to construct and operate a rail-linked double-stack container terminal at Garhi-Harsaru, 7 kilometre from Gurgaon in Haryana.
- We are in the process of revising our numbers and will update you soon on the revised numbers. Meanwhile we maintain our Buy recommendation on the stock with a price target of Rs250 per share.
VIEWPOINT
Patel Engineering
Unlocking value of land bank
We attended the analyst meet of Patel Engineering Ltd (PEL) held on May 09, 2007 in Mumbai. Following are the key takeaways from the meet.
Real estate plans
- For the first time, the company unveiled its real estate plans and strategy for its land bank.
- The current land bank stands at around 500 acre, located in four places.
- The important thing about the company's land bank is that the entire land bank is situated in urban areas and hence commands higher realisation.
- The company has floated a wholly owned subsidiary called Patel Realty India Ltd (PRIL) under which all its real estate activities will take place.
MUTUAL FUNDS: WHAT'S IN WHAT'S OUT
Fund Analysis: May 2007
An analysis has been undertaken on equity and mid-cap funds' portfolios, indicating the favourite picks of fund managers for the month of April 2007. Equity funds comprise all diversified, index, sector and tax planning funds, whereas mid-cap funds include a universe of 18 funds such as Reliance Growth, Franklin India Prima Fund, HDFC Capital Builder, Birla Mid-cap Fund etc