India Equity Analysis, Reports, Recommendations, Stock Tips and more!
Search Now
Recommendations
Monday, October 23, 2006
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.
Poweryourtrade.com Trading Calls
Buy Subex Azure with a stop loss of Rs 520 for a target of Rs 650
Buy Kesoram Ind with a stop loss of Rs 445 for a target of Rs 600
Sell Hindustan Lever above Rs 231.50 with a stop loss of Rs 234. This is a day trading recommendation.
Buy Gitanjali Gems below Rs 225 with a stop loss of Rs 221. This is a day trading recommendation.
Buy Bombay Dyeing (Rs 702.60) with a stop loss below Rs 697.50 for a target of Rs 712.
Buy Action Construction (Rs 235.10) with a stop below Rs 230.80 for a target of Rs 246–249.
Diwali Picks - WOW Team
Investment calls for this year from wow team Greenply, Bharat Fertilisers, United phosphorus, Apollo Tyres, Zee Telefilms, Karuturi, Zen Technology, Subex Azure, Astra Micro
Concept stocks for positives with multibagger possibilities... Northgate, Educomp, VIP and ION Exchange, Financial Technologies.
Merrill Lynch - Reliance Industries
Strong operating performance but modest 2Q earnings rise
Reliance (RIL) has achieved yet another strong operating performance in 2Q as reflected in the 23% YoY jump in EBITDA and 18% YoY rise in EBIT. The strong operating performance has been driven mainly by a 38% YoY jump in petrochemical EBIT. Strong petrochemical margins and volume growth boosted EBIT. Despite strong operating performance, 2Q net profit was up just 9% YoY due to a steep decline in other income and a sharp rise in depreciation, interest and income tax.
2Q earnings higher than MLe; surprise mainly in refining
RIL’s 2Q net profit growth at 9% YoY is higher than MLe and consensus by 5%. The earnings surprise is mainly attributable to refining EBIT being higher than expected. RIL has not accounted discount on sale of LPG and kerosene to oil PSUs of Rs2.0bn in 2Q as expected by us, which explains the higher EBIT.
Download here
Sunday, October 22, 2006
The Next YouTubes
After Google's deal, dotcoms are bubbling hot. What you need to know about Web 2.0
For budding internet entrepreneurs, the moral of Google's $1.65 billion purchase of video start-up YouTube is simple: Build a real, functioning company, then sell it to a bigger one. During the dotcom bubble of the late 1990s, garage innovators could peddle imaginary businesses in initial public offerings. If an idea seemed as if it might make money someday (remember Pets.com?) that was good enough. Today's upstarts are more fully formed and are often led by wealthy veterans of the first boom. They know Google's not the only shopper. Yahoo! has spent close to $100 million for start-ups Flickr and Jumpcut, among others. Facebook may be next, with Yahoo! said to be mulling a $1 billion offer. With investors on track to inject $500 million into new Net firms this year--twice last year's total, according to a Dow Jones VentureOne report--this may be the start of a golden hunting season.
Read more at TIME
How to invest in stocks WITHOUT any risk
Via Moneycontrol.com
Everyone knows that investing in equity is risky. However, the risk taking abilities of investors vary. Some don't think twice before investing everything, including the kitchen sink, in equities.
And yet there are the risk averse others who cannot bear losing even a rupee of their capital. Most of us are somewhere in between.
But what if one could invest in equities with the guarantee of not losing capital? In other words, what if you could have your cake and eat it too? I know, most of you must be thinking such a thing isn't possible--- such a Utopia doesn't exist.
Through this article, I will introduce the readers to precisely such a Utopia. And I am not even talking about the capital guaranteed schemes that are soon going to be launched by various mutual funds.
These schemes apart from being close-ended will invest a large proportion of funds in fixed income instruments, thereby making the return comparable at best with a well-to-do MIP scheme.
Instead, I am referring to pure unadulterated equity pleasure without taking a single iota of risk as far as loss of capital is concerned. To know how, read on.
Here's what must you do. Invest Rs 6 lakh (Rs 600,000) in the Post Office Monthly Income Scheme (POMIS). POMIS gives interest at the rate of 8% p.a., which means per year you would receive Rs 48,000.
As it is a monthly income scheme, the interest per month works out to Rs 4,000. Now, this is fully taxable. Assuming you are in the 30% tax bracket, the net balance after tax left with you would be Rs 2,800.
Now, enter into an SIP (Systematic Investment Plan) with this amount of Rs 2,800. POMIS is a six-year scheme. So basically, you would invest Rs 2,800 per month for six years.
At the end of six years, you would receive the market value of your mutual fund investment and also the capital amount of Rs 6 lakh invested in POMIS.
Consequently, while you have kept your capital intact, you still have taken on equity with all its associated risk.
To see how this strategy can actually work out, we ran some numbers. Say, you started your POMIS account in September 2000. The monthly interest was invested in Franklin Templeton Prima Fund on an SIP basis.
By adopting this simple structure, at the end of six years, the investor would have received around Rs 9.45 lakh (Rs 945,000) just on account of the mutual fund investment. Add to it the capital amount of Rs 6 lakh of POMIS and the total investment would net a cool Rs 15 lakh (Rs 1.5 million). And this is after tax and without an iota of risk.
So who needs capital guaranteed funds?
Anyway, the point that I continuously make through my write-ups is that mutual fund investing is all about the long term.
We have seen how an SIP of Rs 2,800 per month has grown to a phenomenal Rs 9.45 lakh. However, the key here is that the investor kept up his investments for all of the six years, month after month, year after year.
How many of us have invested in a mutual fund six years back? And more importantly, how many of us still remain invested? The answer would most probably be none.
The reason in all probability is because we invest and disinvest based on what happens in the world around us. In other words, we react to world events.
Though I am not much of a crystal ball gazer, here's what I think will happen in the next six years:
The US Fed will raise interest rates. The US Fed will lower interest rates. Oil prices will rise and oil prices will fall. Commodity prices will fall. Commodity prices will rise. FIIs will intermittently pull out of Indian markets only to fall over themselves to get in once again. (Did someone say that this was smart money?) There will be terror strikes. There will be political upheavals, both nationally and internationally.
These things have taken place before our times, during our times and will take place after our times also. For, that is the way of the world. In the meanwhile, your personal net worth will solely depend upon how you react or more appropriately don't react to these events.
In another piece, we will discuss the reasons one should sell one's mutual fund. But none of the same appear in this article.
You want to win in the markets. Take the following words of Calvin Coolidge to heart: "Nothing in this world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent."
A six-year SIP was persistent enough. And look how much money it made.
Subscribe to:
Posts (Atom)