SSKI - Dr Reddy's Labs, Jaiprakash Associates, Voltas

Dr. Reddy's Labs (DRL's) Q4'FY07 headline results are significantly ahead of estimates largely driven by contribution from high margin one-offs like higher Ondansetron sales and unanticipated Rabeparazole API sales to Teva along with strong performance in all core business segments (except Betapharm). Despite Rs1.77bn write-off in Betapharm, profits at Rs3.25bn are far ahead of market estimates. Q4FY07 sales in Betapharm (Germany) have been impacted due to supply disruptions which have now been sorted out with the finalization of a new non-exclusive contract with Hexal. DRL has highlighted that while near term profitability in German business might be under pressure due to switch to this non-exclusive contract, the flexibility to seek other options and accelerated outsourcing of product manufacturing to India by FY08end will significantly enhance DRL's cost competitiveness in medium term. Management guidance on 50-52% gross margins, incremental growth in APIs on a much higher base, continued growth in branded formulations and improved performance in Germany is very positive. We believe that street is underestimating strength of DRL's core business and DRL's capabilities to profitability reorient its business model to the changing market dynamics in Germany. Additionally DRL has potential FTF status on ~$10bn worth of drugs which will continue to drive upsides. We reiterate that with its well balanced generics and discovery portfolio, DRL is one of our top picks in the space. We maintain our earning estimates and reiterate Outperformer with a price target of Rs835 ( 22.7xFY08E and 20x FY09E).


SSKI - Dr Reddy's Labs


We recently organised a Conference Call with Mr. Miyajiwala (CFO) and Mr. Garudachar (GM-Corporate Communications) of Voltas Limited, post its Q4FY07 results. The transcript of the conference call is attached for the benefit of those who could not make it to the call. We maintain Outperformer rating on the stock.

SSKI - Voltas' Q4FY07 & FY07 results (Outperformer): Results below expectation


Jaiprakash Associates Ltd's (JAL) standalone net profit was marginally higher than our estimates at Rs1.3bn (+87% yoy) led by a strong performance of the cement division. The cement revenues grew by 46% yoy (33% yoy realization growth), which led to a sharp jump in EBIT margins by 1660bps to 35% during the quarter. The construction business revenues fell by 34% as most of the projects were in the ramp up phase during the quarter. Consequently, overall operating margins expanded by 1170bps to 29.7% during the quarter. The stock is trading at 25.2x FY09 standalone earnings and at 20.2x FY09E on consolidated earnings, which is attractive considering the robust order backlog of Rs67.5bn for the construction business, firm cement prices across its key markets as well as huge land bank from the Jaypee Green and Taj Expressway project. We retain our Outperformer rating on the stock with a target price of Rs836/share based on sum of parts valuation.

SSKI - Jaiprakash Associates