SSKI India Strategy Reports

USE: deadpresident.blogspot.com as the password

SSKI - India Strategy SSKI - India Strategy - Alcohol

SSKI - India Strategy - Automotive Components

SSKI - India Strategy - AutomobilesSSKI - India Strategy - BankingSSKI - India Strategy - Cement SSKI - India Strategy - Construction SSKI - India Strategy - Engineering SSKI - India Strategy - FMCG SSKI - India Strategy - IT Strategy SSKI - India Strategy - Logistics SSKI - India Strategy - Media SSKI - India Strategy - Metals SSKI India Strategy - Oil and Gas SSKI India Strategy - Pharma SSKI India Strategy - Pipes SSKI India Strategy - Power SSKI India Strategy - Power Equipment SSKI India Strategy - Retail SSKI India Strategy - Telecom SSKI India Strategy - Textiles

Motilal Oswal - Pharma

Motilal Oswal - Pharma

ISEC - Pharma Sector

ISEC - Pharma Sector

ISEC - Maruti Udyog, MTNL, Pharma, Aviation, Bharti Airtel, Ranbaxy Lab, Glaxo Pharma

Maruti Udyog

MTNL

Pharma

Aviation

Bharti Airtel

Ranbaxy Lab

Glaxo Pharma

Sharekhan Investor's Eye dated April 16, 2007

SHAREKHAN SPECIAL

Q4FY2007 Pharma earnings preview

Key points

• We remain positive on the Indian pharmaceutical sector on account of the continued domestic growth, steady contributions from exports and synergies arising out of integration of acquisitions. Further, the increased focus on drug discovery and collaborative research with the global players enhances the medium-term earnings visibility for the sector.
• In line with the business trend, the growth of the domestic market moderated to around 9% in Q4FY2007 from over 15% in the previous couple of quarters. But the ramp-up in the formulation export segment continues to be robust and the successful integration of acquisitions (viz Ranbaxy Laboratories’ Terapia, Wockhardt’s Pinewood and Nicholas Piramal’s Morpeth) would drive the revenue growth for the sector. Further, Dr Reddy’s Laboratories’ 180-day exclusivity for Ondansetron would also boost the overall industry growth. We expect the pharmaceutical companies under our coverage to report a revenue growth of 20.3% in Q4FY2007.
• With a greater number of players entering the generic space in the USA and the European Union, pricing pressures are likely to continue. But thanks to the cost-cutting efforts, improvement in the product mix and larger thrust on branded formulation business by the local players, stable margins are likely to be ensured. The pharmaceutical companies under our coverage are expected to report a 420-basis-point expansion in the operating profit margin (OPM), leading to a 30% growth in their net profit in Q4FY2007.
• Research and development (R&D) was the highlight of the fourth quarter as Indian pharma space witnessed impressive developments on the R&D front. Sun Pharmaceuticals de-merged its R&D unit into a separate entity called Sun Pharma Advance Research Company and unveiled its new chemical entity (NCE)/novel drug delivery system (NDDS) pipeline (comprising four NCEs and four NDDS). Alongside, Ranbaxy Laboratories has expanded its collaborative research partnership with GlaxoSmithKline Plc (GSK), as per which the Indian company would identify the new chemical leads and take them up to Phase-II proof of concept study. The Ranbaxy Laboratories-GSK alliance would focus on therapies like anti-infectives, metabolic disorders, respiratory and oncology. As per the deal, Ranbaxy Laboratories could receive over $100 million in potential milestone payments for a single product. We expect further positive news flow on the innovative R&D front from Lupin, Dr Reddy’s Laboratories and Glenmark Pharmaceuticals in the coming quarters, which would act as a strong growth trigger in the medium to long term.

Q4FY2007 Banking earnings preview

We expect the interest income on advances in the last quarter to show a strong growth on the back of above 28% year-on-year (y-o-y) credit growth and the full impact of the hike in the prime lending rates (PLRs) effected by the banks in the fag end of December 2006 or early January as well as in mid-February 2007.

However, the cost of funds may have an upward bias, thereby putting some pressure on the margins of the banks with lower current and savings deposit account (CASA) balances as the deposit costs, especially the bulk deposit rates, have moved up sharply. However, the one-time cash reserve ratio (CRR) income that banks are expected to get in this quarter with retrospective effect should help them to tide over the increased deposit costs.

---

STOCK UPDATE

Tata Consultancy Services
Cluster: Evergreen
Recommendation: Buy
Price target: Rs1,508
Current market price: Rs1,285

Q4FY2007—fist cut analysis

Result highlight

• Tata Consultancy Services (TCS) has reported a growth of 5.9% quarter on quarter (qoq) and 38.2% year on year (yoy) in its consolidated revenues to Rs5,146.4 crore. The sequential revenue growth was largely driven by a 6.42% growth in the volumes and a 1.33% improvement in the billing rates and productivity. On the other hand, the appreciation of the rupee adversely impacted the revenue growth by 1.87% sequentially.
• The earnings before interest and tax (EBIT) margins declined by 47 basis points to 25.6% sequentially, largely due to the adverse impact of the appreciation in the rupee.
• The other income stood at Rs89.8 crore and included one-time extraordinary income of Rs66.3 crore from the sale of stake in Sitel. Excluding the one-time income (adjusted for tax), the consolidated earnings have grown at a disappointing rate of 1.1% qoq to Rs1,116.8 crore, which is much lower than the consensus estimates of around Rs1,185 crore.
• In terms of the outlook, the company reiterated that the demand environment continues to be robust and it expects to maintain the margins in FY2008 (at the level of 24.9% reported in FY2007). The company doesn't give any specific growth guidance. However, it has indicated that the gross employee addition would be higher than 32,500 reported in FY2007.
• The key operational highlights for Q4 are: addition of 43 clients; healthy growth of 9.3% qoq in the Top 10 clients; closing of two large deals worth over $50 million each and one deal worth $35 million; attrition rate at a comfortable level of 10.6% and a slowdown in banking, financial services and insurance (BFSI) and manufacturing industry verticals.
• Given the lower-than-expected performance and the steep appreciation in the rupee, we would review our FY2008 estimates and introduce the FY2009 estimates in the detailed report. We maintain our Buy call on the stock with a price target of Rs1,508.

---

MUTUAL GAINS

Sharekhan's top equity fund picks

We have identified the best equity-oriented schemes available in the market today based on the following 3 parameters: the past performance as indicated by the returns, the Sharpe ratio and Fama (net selectivity).

The past performance is measured by the returns generated by the scheme. Sharpe indicates risk-adjusted returns, giving the returns earned in excess of the risk-free rate for each unit of the risk taken. The Sharpe ratio is also indicative of the consistency of the returns as it takes into account the volatility in the returns as measured by the standard deviation.

FAMA measures the returns generated through selectivity, ie the returns generated because of the fund manager's ability to pick the right stocks. A higher value of net selectivity is always preferred as it reflects the stock picking ability of the fund manager.

---

MUTUAL FUNDS: WHAT’S IN—WHAT’S OUT

Fund Analysis: April 2007

An analysis has been undertaken on equity and mid-cap funds' portfolios, indicating the favourite picks of fund managers for the month of March 2007. Equity funds comprise of 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.

GET Sharekhan Investor's Eye dated April 16, 2007

Q4FY2007 Pharma earnings preview: Sharekhan Special dated April 16, 2007

SHAREKHAN SPECIAL

Q4FY2007 Pharma earnings preview

Key points

• We remain positive on the Indian pharmaceutical sector on account of the continued domestic growth, steady contributions from exports and synergies arising out of integration of acquisitions. Further, the increased focus on drug discovery and collaborative research with the global players enhances the medium-term earnings visibility for the sector.
• In line with the business trend, the growth of the domestic market moderated to around 9% in Q4FY2007 from over 15% in the previous couple of quarters. But the ramp-up in the formulation export segment continues to be robust and the successful integration of acquisitions (viz Ranbaxy Laboratories' Terapia, Wockhardt's Pinewood and Nicholas Piramal's Morpeth) would drive the revenue growth for the sector. Further, Dr Reddy's Laboratories' 180-day exclusivity for Ondansetron would also boost the overall industry growth. We expect the pharmaceutical companies under our coverage to report a revenue growth of 20.3% in Q4FY2007.
• With a greater number of players entering the generic space in the USA and the European Union, pricing pressures are likely to continue. But thanks to the cost-cutting efforts, improvement in the product mix and larger thrust on branded formulation business by the local players, stable margins are likely to be ensured. The pharmaceutical companies under our coverage are expected to report a 420-basis-point expansion in the operating profit margin (OPM), leading to a 30% growth in their net profit in Q4FY2007.
• Research and development (R&D) was the highlight of the fourth quarter as Indian pharma space witnessed impressive developments on the R&D front. Sun Pharmaceuticals de-merged its R&D unit into a separate entity called Sun Pharma Advance Research Company and unveiled its new chemical entity (NCE)/novel drug delivery system (NDDS) pipeline (comprising four NCEs and four NDDS). Alongside, Ranbaxy Laboratories has expanded its collaborative research partnership with GlaxoSmithKline Plc (GSK), as per which the Indian company would identify the new chemical leads and take them up to Phase-II proof of concept study. The Ranbaxy Laboratories-GSK alliance would focus on therapies like anti-infectives, metabolic disorders, respiratory and oncology. As per the deal, Ranbaxy Laboratories could receive over $100 million in potential milestone payments for a single product. We expect further positive news flow on the innovative R&D front from Lupin, Dr Reddy's Laboratories and Glenmark Pharmaceuticals in the coming quarters, which would act as a strong growth trigger in the medium to long term.

Download here

Kotak - Pharma - Q4FY07

Kotak - Pharma - Q4FY07

ICICISec - Pharma

ICICISec - Pharma

Merrill Lynch Reports

BHEL

Pharma

Educomp

Rate Hike

Sharekhan Investor's Eye dated March 16, 2007

Mahindra & Mahindra
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,050
Current market price: Rs731

Acquisition marginally earnings accretive

Key points

• As mentioned in our earlier note dated March 9, 2007, M&M had won the bid to acquire a 43.5% stake in Punjab Tractors at Rs360 a share in an all-cash deal. Private equity fund Actis and the Burman family are selling their respective stakes of 29% and 14.5% in Punjab Tractors.
• M&M's management expects a number of strategic benefits and synergies from the acquisition. Several benefits are expected to come from the brand Swaraj, a well-respected brand that enjoys a good brand loyalty, particularly in the northern states like Punjab, Haryana, Uttar Pradesh and Bihar. M&M is particularly strong in the central, western and southern regions. The acquisition of Punjab Tractors would further increase its presence in the north Indian market.
• The acquisition would make M&M an undisputed leader in the tractor segment, with an overall market share of about 40%. It would help it consolidate its presence in the 31-40 horsepower (hp) category and help it to acquire a dominant status in the >51hp category. This would be a huge positive as a strong growth is expected in the higher-end tractor segment.
• We believe that the acquisition would have a marginal impact on M&M's earnings for FY2008. The management has indicated that it will use a mix of internal resources and debt to fund the acquisition. At present the management has surplus funds of up to Rs800 crore, and its debt equity ratio currently stands at 0.43:1. We expect that about 40-50% of the acquisition cost would be financed through debt. Considering this, our calculations suggest that the deal would be marginally earnings accretive for M&M for FY2008. However, we believe that the deal is a good strategic move by M&M, which would yield substantial long-term benefits for M&M.
• At the current levels, M&M trades at 11x its FY2008E consolidated earnings. We maintain our Buy recommendation on the stock with a price target of Rs1,050.

Sun Pharmaceutical Industries
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,341
Current market price: Rs1,012

R&D pipeline adds sheen

Key points

• Sun Pharma Industries has de-merged its innovative research division into a separate company called Sun Pharma Advanced Research Company (SPARC) Ltd.
• As anticipated Sun Pharma has unfolded the innovative research pipeline for SPARC Ltd, which comprises of 4 new chemical entities (NCE) and 4 novel drug delivery systems (NDDS). The lead molecule—SUN 1334H—that targets anti-allergic disorders is undergoing Phase-II clinical studies in the USA and is likely to enter Phase-III trials in 2008.
• On the NDDS technology front, Sun is working on four platforms including controlled release system (which covers gastro retentive innovative device and WRAP matrix system), dry powder inhalers (DPI), targeted delivery by Nanoemulsion and biodegradable injections/implants.
• Sun Pharma's NCE research is analogue-based which means that the research is for creating newer drugs by modifying the existing ones. Hence, the risks of uncertainty about the molecules are minimal.
• The de-merger would positively affect Sun Pharma Industries, as Sun Pharma currently spends 35-40% of its research and development (R&D) expenses for innovative research, which will be saved on the de-merger. On the other hand, the NDDS technologies developed by SPARC would help Sun Pharma to launch new NDDS products in various markets where it has a presence.
• For lack of information, we are maintaining our earlier estimate for SPARC at Rs54 per share. And as per our earlier estimate, the base business is valued at Rs1,287 per share. Hence, our target value for Sun Pharma remains at Rs1,341 per share.

---

SECTOR UPDATE

Pharmaceuticals

Strong competition to limit gains from Zolpidem
Ranbaxy Laboratories has received a tentative approval from the US Food and Drug Administration (US FDA) to manufacture and market Zolpidem Tartrate tablets, of 5mg and 10mg strength.

Download here

Q3FY2007 pharma earnings preview: Sharekhan Special dated January 09, 2007

Key points

• We are positive on the Indian pharmaceutical sector and expect most companies to report good earnings growth for Q3FY2007, driven by continued domestic growth, steady contributions from exports and synergies arising out of integration of acquisitions. We expect the pharmaceutical companies under our coverage to report a revenue growth of 22.7% for Q3FY2007.
• Despite the de-stocking impact caused by the anticipatory introduction of value-added tax (VAT) in Tamil Nadu with effect from January 1, 2007, the branded formulation business in the domestic market continued its growth momentum in the quarter. The growth momentum was maintained on the back of aggressive new product launches and continued focus of companies on the high-growth chronic lifestyle segments. The companies with a wider domestic presence like Cipla, Sun Pharmaceuticals, Nicholas Piramal and Cadila Healthcare are the likely beneficiaries.
• On the export front, the growth is expected to be strong, on the back of new product launches, especially of products under 180-day exclusivity. For example, Ranbaxy Laboratories is expected to derive strong sales from "Zocor" under 180-day exclusivity while Dr Reddy's Laboratories may witness revenue upsides from the sale of "Zocor" and "Proscar" under authorised generic terms with Merck Inc. Similarly, Cipla is expected to strengthen its exports by supplying active pharmaceutical ingredients (APIs) of "Zoloft" and "Proscar" to Teva.
• With a greater number of players entering the generic space in the USA, pricing pressures are likely to continue. The pricing environment in the key markets of Europe too is likely to be tough with the ongoing regulatory reforms.
• The merger and acquisition (M&A) focus of Indian pharmaceutical companies has continued in the quarter, with Ranbaxy Laboratories acquiring South African Be Tabs and Wockhardt acquiring the Irish generic company, Pinewood. The integration of past acquisitions is likely to get reflected in the earnings growth of the pharmaceutical companies during the quarter. Moreover, we expect the Indian pharmaceutical companies to continue to widen their geographical presence and expand product portfolios through inorganic means.
• On the domestic front, the contentious issues of pricing control, data exclusivity etc continue to loom over the domestic pharmaceutical industry. Despite this, the increasing focus on the high-margin regulated markets coupled with an improvement in the product mix (moving more towards the high-margin formulation business), improved cost discipline and shifting of production to tax-free zones is likely to get reflected in the improving operating profit margin (OPM) of the Indian pharmaceutical companies. We expect the OPM of the pharmaceutical companies under our coverage to expand by 540 basis points in Q3FY2007.
• The recent outlicencing deal of Glenmark Pharmaceutical's anti-diabetic molecule to Merck KG has reinforced confidence in India's innovative and research abilities. India's capabilities in drug discovery research are being increasingly recognised by global pharmaceutical majors. Lupin's anti-migraine compound entering Phase III clinical trials further vindicates the capabilities of the Indian companies to create their own innovative new chemical entity (NCE) pipeline. We expect further positive news flow on the innovative research and development (R&D) front from Sun Pharmaceuticals, Lupin, Dr Reddy's Laboratories and Glenmark Pharma in the coming quarters.
• The strong cost control initiatives coupled with the synergies derived out of the integration of acquisitions are expected to drive the earnings growth of the Indian pharmaceutical companies. The pharmaceutical companies under our coverage are expected to report a jump of 58.9% in their net profit in Q3FY2007.

Download here

ISEC - Pharma

Download here

Merrill Lynch Reports

India Economics - Trade Deficit

Infotech Enterprises

India Model Portfolio

Pharma

Thanks Vishesh

UBS : Monthly Pharma Trends

Download here

Thanks Vishesh

Motilal Oswal- Pharma

Download here

Thanks Ramesh

Pharma Earnings Preview

• We are positive on the pharmaceutical sector and expect most companies to report a good earnings growth in the July-September quarter, driven by the strong domestic growth and steady contributions from exports.
• The domestic market has witnessed a strong growth in the quarter on the back of aggressive new product launches and the continued focus of the companies in the high growth chronic lifestyle segments. The growth has been largely volume driven, indicating the strong demand for pharmaceutical drugs across the nation. The companies with a wider domestic presence like Cipla, Sun Pharma and Cadila Healthcare are likely to be benefited from the development.
• The show on the export front is also expected to be encouraging driven by new launches of generics or supplying of abbreviated pharmaceutical ingredients (APIs) to the global generic players. For example, Ranbaxy is expected to derive strong sales from the launch of generic Zocor under the 180-day exclusivity period, while Dr Reddy's Lab may witness revenue upside from the sale of Zocor and Proscar under authorised generic terms with Merck Inc. Similarly, Cipla is likely to strengthen its exports by supplying APIs of Zoloft and Proscar to TEVA. Further, with a greater number of companies spreading their wings globally, Indian companies are likely to witness strong earnings in Q2FY2007.
• Pricing pressures in the key markets of the USA and Europe are expected to continue, as more and more players are entering the generic industry. However, we expect the Indian generic companies to remain competitive by vertically integrating themselves in most products and increasing their global presence.
• On the domestic front, the contentious issues of pricing control, data exclusivity etc continue to loom over the domestic pharma industry. Despite this, the increasing focus on the high-margin regulated markets coupled with an improvement in the product mix (moving more towards the high-margin formulations business), strong cost control measures and the shifting of production to tax-free zones is likely to be reflected in the improving operating margins of the Indian pharmaceutical companies. Further, the mergers and acquisitions (M&A) focus of the Indian players should maintain the growth momentum for the domestic pharma industry going forward.
• Pharmaceutical companies under our coverage are expected to report an overall revenue growth of 21.3% year on year (yoy) with a sharp jump of 63.5% in the net profit.

Download here