Indiabulls, IPCA, JSPL, Jaiprakash Power Ventures

 Indiabulls, IPCA, JSPL, Jaiprakash Power Ventures 

IPCA Labs

IPCA Labs

IPCA Labs

IPCA Labs

DLF, IPCA, Cement, Corporation Bank

Ipca Laboratories
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs875
Current market price: Rs660

Vertical integration to change fortunes

Key points

• Domestic formulation business to outpace industry growth: Driven by steady new launches, a strong therapy-focused field force and good brand building abilities, Ipca Laboratories' (Ipca) domestic formulation business has been growing at above industry growth rates. With an enhanced focus towards chronic therapies and aggressive new launches, Ipca's domestic formulation business would continue to grow at 16-18% during FY2007-09.
• Strong thrust on exports: With steady performance on the domestic front, Ipca is increasingly focusing on its export business, which generates 30% of its total revenues. Driven by aggressive brand promotion in the emerging economies, a revival in the European business and a scale-up in the US business, the formulation exports are projected to grow at a CAGR of 14.5% over FY2007-09.
• API business to benefit from outsourcing contracts: A leader in several API products, Ipca's API business constitutes 33% of its total revenues. With its low-cost advantage, Ipca is set to capture a substantial chunk of the outsourcing business of global pharmaceutical companies. We believe Ipca's API business will grow at a 13.5% CAGR over FY2007-09, driven by a 9% CAGR in the domestic API business and a 15% CAGR in API exports.
• Earnings to gallop at a 23% CAGR: We estimate Ipca's earnings to grow at a CAGR of 23% over FY2007-09E on the back of a 20% CAGR in revenues. The revenues will be driven by a 15.3% CAGR in the domestic business and a 24.4% CAGR in exports. We estimate earnings of Rs59.9 per share in FY2008 and of Rs73.0 per share in FY2009.
• Compelling valuations: At the current market price of Rs660, Ipca is trading at attractive valuations of 11.0x FY2008E earnings and 9.0x FY2009E earnings. It has traditionally been getting PE multiple in low teens. But with the enhanced visibility of growth from the US and European markets, the sustained growth in the domestic business and the healthy return ratios, we believe that the stock should command higher valuations. We therefore recommend a Buy on Ipca with a one-year price target of Rs875, ie an upside of 33% from the current levels.

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STOCK UPDATE

Corporation Bank
Cluster: Apple Green
Recommendation: Buy
Price target: Rs542
Current market price: Rs471

Price target revised to Rs542

Result highlights

• Corporation Bank's (CORP) Q2FY2008 profit after tax (PAT) grew by 27% year on year (yoy) to Rs161.3 crore. The growth was primarily driven by a higher non-interest income component. However, the net interest income (NII) growth was better than that of most peers. A surge in the operating expenses due to higher provisioning on account of AS-15 related staff expenses restricted the overall profit growth.
• We have revised our FY2008 and FY2009 earnings estimates upwards by 5% and 3.5% to Rs669.2 crore and Rs773 crore respectively. The upward revision in the earnings is to factor in the higher non-interest income growth and higher AS-15 related expenses likely to be reported by the bank going forward compared with what was envisaged at the beginning of the year.
• CORP's total assets grew by 18% yoy and 5% quarter on quarter (qoq) while the reported NII grew by 17.5% yoy and 7.3% qoq. The NII (adjusted for amortisation) grew by 15.3% yoy and 7% qoq. Its adjusted net interest margin (NIM) showed a sequential improvement unlike many of its peers as it was the only bank that aggressively reduced deposit rates after its dismal NII performance in Q1FY2008 (when NII had seen a growth of 7.8% yoy).
• The non-interest income grew by 62% yoy and by 32.3% qoq to Rs183.2 crore, driven by higher treasury and foreign exchange (forex) incomes. The higher non-interest income growth was the trend for all public sector banks during Q2FY2008.
• CORP's operating expenses jumped up by 25.3% yoy to Rs243.2 crore mainly due to a 39.2% jump yoy in the staff expenses brought about by a Rs47-crore AS-15 related expense charged during the quarter. Despite such a sharp jump in the operating expenses, the operating profit growth was robust at 33.4% yoy brought about by a higher non-interest income growth. However, the core operating profit growth was moderate at 8.7% yoy.
• Provisions and contingencies increased by 128% yoy mainly due to lower investment depreciation write-back and higher standard assets provisioning during the quarter compared with that in the corresponding quarter in the previous year.
• The bank's business growth moderated with advances up by 17% yoy from a 25% growth yoy reported during March 2007. The deposit growth also moderated from 28.8% to 20% for the same period. Its total assets grew by 18% yoy compared with a growth of 30% yoy reported in March 2007. The cut in the deposit rates and a moderation in the balance sheet expansion are welcome as the same would help in maintaining the margins, a task that many public sector banks are finding difficult at a time when credit growth is moderating and deposit costs are escalating.
• The bank's asset quality continues to remain one of the best in the industry with the gross non-performing asset (NPA) down by 21 basis points to 1.9% and the net NPA lower by 11 basis points to 0.35% sequentially.
• CORP has been the first bank to cut deposit rates and show some sequential improvement in its NIM in Q2FY2008. The non-interest income growth is expected to be much better in future. It will be driven by higher treasury gains that would help in improving the bank's return on equity (RoE) by 230 basis points to 17.3% in FY2009 from 15% reported in FY2007. The bank's earnings are expected to grow at a compounded annual growth rate (CAGR) of 20.1% between FY2007 and FY2009, which is much better than its past performance. At the current market price of Rs471 the stock is quoting at 8.7x its FY2009E earnings per share (EPS), 4.5x pre-provisioning profit (PPP) and 1.4x FY2009E book value (BV). We maintain our Buy recommendation on the stock with a revised twelve-month price target of Rs542.

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SECTOR UPDATE

Cement

Cement dispatches pick up post-monsoon
The top three cement majors have announced their October dispatches. Volumes for ACC grew by 6.7% year on year (yoy) to 1.76 million metric tonne (MMT), whereas Ambuja Cement's volumes grew by 3.6% yoy to 1.48MMT. Volumes for AV Birla group remained flat at 2.55MMT.

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VIEWPOINT

DLF

Strong Q2FY2008 performance

Result highlights

• DLF sales grew by 5.7% quarter on quarter (qoq) to Rs3,249.9 crore in Q2FY2008 despite a reduced revenue contribution from DLF assets Limited (DAL-the promoter owned company involved in the management of real estate properties). The revenues from the sales to DAL declined by 16.0% qoq to Rs1,387 crore and contributed 42.7% to the total revenues in Q2FY2008 (down from 53.8% in Q1FY2008). The non-DAL sales grew by 33.7% qoq to Rs1,963 crore.
• The operating profit margin (OPM) declined by 205 basis points qoq to 69.7% in Q2FY2008. The OPM decline can be attributed to a fall in the margins of non-DAL business, which went down to 69.5% in Q2FY2008 from 77.9% in Q1FY2008 due to unfavourable sales mix (lower margin in retail segment and absence of super luxury sales in residential segment). Consequently, the company's operating profit grew by 2.7% qoq to Rs2,263.7 crore.
• DLF's bottom line grew by 33.2% qoq to Rs2,018.6 crore during the quarter, primarily due to lower tax rate and interest expenses. The company's effective tax rate in Q2FY2008 stood at 14.1% compared with 28.4% in Q1FY2008, mainly due to a favourable sales mix. Moreover, the company invested in wind power assets, which led to the reduction in tax expenses. Additionally, the company also utilised some initial public offer (IPO) funds for the repayment of long term debt. This led to a significant reduction in the interest expenses to Rs3.6 crore in Q2FY2008 from Rs107.7 crore in Q1FY2008.
• During the quarter, the company also issued a 100% interim dividend of Rs2 per share.
• At the current market price of Rs915, the stock trades at 25.1x and 16.6x of consensus FY2008E and FY2009E price-to-earning multiples respectively. In terms of net asset value (NAV), the consensus estimates range from Rs800-820 per share. The stock trades at around 10-15% premium to the NAV estimates. Given its leadership position, superior quality land bank (concentrated in tier I cities and National Capital Region [NCR]), and proven execution skills, DLF has emerged as a preferred investment option in the real estate sector.
  

Kotak - IPCA Labs, Balaji Telefilms, Thermax

Kotak - IPCA Labs, Balaji Telefilms, Thermax

IPCA, NIIT Technologies, Tera Software, Carborundum Universal, ITC

Emkay in their report on IPCA say

Ipca Laboratories (Ipca) is a integrated pharmaceutical company with a strong thrust
on exports (contributes 53% of sales). In 9MFY07, Ipca¿s net profit rebounded by 100% on account of a) successful shift of focus from generic formulations to branded
formulations, b) new products launches in fast growing life style segments such as
cardiovascular, central nervous system and pain management , c) partial recovery of
its business in the UK and d) focused approach on key customers to build long term
relationships. We expect Ipca¿s revenues and EPS to grow at a CAGR of 15% and 20% over FY07-09E respectively, with an EPS of Rs. 68.6 in FY09E. At CMP of Rs.624, the stock trades at 11x FY08E and 9.1xFY09E earnings. We initiate coverage on Ipca with a BUY rating and a target price of Rs.820, i.e. an upside of 31%. Our price target for Ipca is based on 12x FY09E earnings.

Emkay in their report on NIIT Tech say

NIIT Technologies Ltd. (NTL) reported very strong set of Q4FY07 numbers. Revenues
grew by 5.2% qoq to Rs 2,435 mn in line with our expectations. ROOM Solutions
reported 5.4% qoq growth and BPO grew 7% qoq. Operating margins of BPO improved from 4% in Q3FY07 to 10% in Q4FY07. EBITDA, on a whole, improved by 60 bps to 21.9%. EBITDA grew by 8.5% qoq to Rs 534 mn, slightly above our expectations of Rs 525 mn. With higher yield on investments, write back of doubtful debts and refund of withholding taxes, other income jumped 70% qoq to Rs 56 mn. With higher other income and lower depreciation and taxes, PAT grew by healthy 33% qoq to Rs 460 mn, above our expectations of Rs 367 mn. EPS for Q4FY07 stood at Rs 11.8. The company has declared dividend of Rs 6.5 and maiden bonus of 1 share for every 2 shares held.

Karvy in their report on Tera Software

The company has healthy order book of worth Rs. 2,500 mn which is growing with new project wins. Also, the current Central and State Government spending in this area is estimated to be Rs. 20 bn a year and is expected to increase significantly in the future. Thereby creating huge opportunities for players in this segment Given the historical growth in government spending and considering that at present only
seven states are working on this front, gives us further confidence of the good times ahead.

SSKI maintains OUTPERFORMER on Carborundum Universal

SSKI maintains OUTPERFORMER on ITC, In their report,

We expect a marginal decline in cigarette sales over the next couple of quarters because of VAT and the consequent price hikes. However, we believe that with an average cigarette revenue growth of 13.3% over the last eight quarters, ITC will be able to tide over any slow-down and expect sales to be back on track. Furthermore, we still expect ITC to exhibit strong revenue growth in FY08, as we think the other segments like foods, agri-business and hotels will continue to show strong growth momentum. We continue to remain impressed with ITC's business model and its capacity to stay invested in new ventures. While the stock has underperformed the Sensex over the last 12 months because of the uncertainty over VAT, we believe there are substantial growth triggers in place and continue to see value in ITC. At 16.4x FY09E earnings, we reiterate our Outperformer rating.

ENAM Reports

ENAM - TCSENAM - Akruti NirmanENAM - IPCLENAM - UTI Bank

ASK RJ - IPCA Labs

Download here

Karvy - IPCA , Granules, Nitco Tiles

Download here

Businessline - IPCA Labs

Investors can take exposure to the stock of Ipca Laboratories, a Mumbai-based player in both the bulk drugs and formulations space. At the current price of about Rs 440, the stock trades at 11-12 times its expected per-share earnings for FY-07. In the light of the likely growth prospects over the next couple of years, we believe that the valuation is attractive vis-à-vis its peers and provides scope for further upside. The stock has also moved up sharply in the recent past and, hence, investors can buy into the stock with modest return expectations.

Company profile

Ipca derives about 65 per cent of its revenues from the formulations business; bulk drugs chip in with the rest. Exports-to-domestic market composition stand at 55:45. In the bulk arena, Ipca is among the largest manufactures of drugs in the anti-hypertensive and -malarial areas. The domestic formulations business accounts for as much as 40 per cent of the overall revenues.

Earnings snapshot

The topline continues to exhibit strong growth trends with sales up by 25 per cent and 16 per cent on a quarterly and half-yearly basis respectively (compared to the year-ago period). Margins too are on the rise; at 23.7 per cent for the latest quarter; operating margins are up by more than 500 basis points compared to the year-ago period. For the quarter, earnings have doubled to Rs 35.4 crore; earnings growth for the half year is slightly below 40 per cent

After a lacklustre performance in FY-06, when Ipca's exports were strained largely because of pricing pressure in its key UK market, the overall business now appears back on track, if the first half of the year is any indication. The company's domestic business appears to be the principal driver behind the sharp margin improvement and earnings delivery for the latest quarter. With a clutch of launches addressing chronic therapy areas, this business posted an impressive growth of close to 40 per cent in FY-06. With the sales force being organised into divisions for specific therapy focus, sales growth is expected to be brisk, backed by product launches.

Ipca has also commenced production from its new Dehradun facility since May. The plant entails tax benefits, that should lead to a moderation of tax outgo and prop up earnings.

On the exports front, Ipca follows a differentiated tack by targeting branded generic markets such as CIS countries and Africa. Most Indian companies have targeted the huge generic opportunity opening up in the US; this has also exposed them to a highly competitive pricing environment that provides for wafer-thin margins.

On the contrary, the branded generics business should result in better margins and we expect to see meaningful growth in Ipca's key markets; the UK market is facing pricing erosion, but Ipca is addressing the issue through product launches. With a rising contribution from other markets, the importance of the UK market would diminish, which would be a positive if the pricing environment there continues to remain challenging.

The focus on markets for branded generics has not meant that Ipca has decided not to address the US market either. Though a product launch there could still be a couple of years away, we expect to Ipca to be competitive, as its abbreviated new drug applications would be backed by its own active ingredients, given the integrated nature of its business.

In the interim, Ipca has also sewn up an agreement with Ranbaxy for the US market; generics manufactured by Ipca will be marketed by the latter. This arrangement would give Ipca the advantage of a presence in a key geography without the associated front-end costs.

Valuation and view

With prospects encouraging, a valuation of 11-12 times forward earnings appears reasonable. Also, a market cap-to-sales ratio of 1.25 (reckoned on expected FY-07 sales of Rs 900 crore and current market price) offers scope for expansion, in our view, as the revenue profile improves further in favour of formulations. The principal risk to our recommendation would be if the proposed new pharma policy seeks to bring under its ambit a much wider scope of drugs.

IPCA - Capital Telefolio

Ipca Laboratories is a backward integrated, fast growing pharmaceutical
major, with a strong thrust on exports. It has reported 25% jump in net
sales and a whopping 102% rise in net profit in September 2006 quarter.
As the sales growth for the second half is expected to continue over
25% with much better profit margins, the company's financials are set for
a major uptrend.


Actual EPS for March 2005 : Rs 31.4
Actual EPS for March 2006 : Rs 25.6
Projected EPS for March 2007: Rs 38.1