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Summary
of Contents
STOCK UPDATE
Unichem Laboratories
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs360
Current
market price: Rs262
Niche Generics to have marginal
impact
Key
points
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Unichem Laboratories Ltd has
acquired the balance 40% stake in its subsidiary, incorporated in
the United Kingdom, Niche Generics Ltd, from a group of managers
of Niche Generics.
-
Prior to this acquisition, Unichem
held a 60% majority stake in the said Niche Generics.
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Niche Generics, UK, is engaged in
the business of product development, dossier filing and
manufacturing pharmaceutical formulations for the European
markets.
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Niche recorded revenues of GBP12.3
million (approximately Rs108.2 crore) in FY2006, with profits of
GBP0.1 million (approximately Rs0.9 crore). The performance of the
company has been poor largely due to the severe pricing pressures
being witnessed in the UK generics market.
-
We do not expect the acquisition
to impact the profitability of Unichem significantly. However,
strategically the company may exploit the strengths like product
development, dossier filing and manufacturing of the wholly-owned
subsidiary and may accelerate its fillings in the European region,
leading to an expansion of its footprint across Europe.
-
At the current market price of
Rs262, the stock is trading at 9.2x its estimated FY2008E
earnings. We maintain our Buy recommendation on the company with a
price target of Rs360.
SECTOR UPDATE
Cement
Concrete road ahead
Key points
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Continuing with the growth
momentum of the past few months, the cement dispatches for
November grew by a strong 13% year on year (yoy) to 12.4 million
tonne against a marginal growth of 5% in the same month last year.
The cement prices followed suit, surging by 25-30% yoy to the
levels of Rs205-210 per 50-kilogram bag for the month.
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The southern region witnessed the
highest year-on-year (y-o-y) growth in dispatches in the month at
18%.
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With all the three demand drivers,
ie the housing, industry and infrastructure sectors, showing
strong signs of growth, the consumption of cement is expected to
grow at a compounded annual growth rate (CAGR) of 10-10.5% for the
next three years.
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In such a scenario, we expect the
cement prices to sustain at the current levels for as long as
beyond FY2009. That the industry shares our expectations is
evident from Sanghi Industries' recently-announced plan to scale
up its cement capacity by 5.7 million tonne over the next two to
three years. Even the cash-rich companies including Shree Cement
(which is already raising its capacity from 4.5 million metric
tonne [MMT] to 10MMT) are looking to expand further and this only
reinforces our view that cement prices will remain buoyant for the
next two to three years.
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Tamil Nadu will implement the
value-added tax (VAT) with effect from January 1, 2007, migrating
to a sales tax rate of 12.5% from 14.5% currently. This will spell
good news for the south-based cement companies, namely India
Cements and Madras Cement.
-
Recently, Holcim upped its stake
in Gujarat Ambuja Cement Ltd (GACL) by 3.7% to 18.67% for a price
of Rs690 crore. This translates into a mammoth enterprise value
(EV) of USD270 per tonne. We believe the stake hike would provide
a fresh trigger for the cement stocks that have under-performed
the Sensex in the last three months.
-
We maintain our positive view on
the cement sector and believe that the companies that have taken a
lead in announcing capacity expansions, such as Grasim Industries,
Shree Cement, Jaiprakash Associates, UltraTech Cement and Madras
Cement, will benefit the most in a scenario of buoyant prices. We
rate Grasim Industries, UltraTech Cement and India Cements as our
top large-cap picks in the sector. Among the mid-caps we like
Shree Cement and Madras Cement. We also like Orient Paper and
Industries and JK Cement on account of their compelling
valuations, which are much less than the sector
average .
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