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Summary of Contents
STOCK UPDATE
Ranbaxy Laboratories
Cluster: Apple Green
Recommendation: Buy
Price target: Rs558
Current market price: Rs369
Ranbaxy receives 180-day exclusivity for Pravastatin 80mg
Key
points
- Ranbaxy Laboratories
(Ranbaxy) has received the US Food and Drug Administration's (USFDA)
approval to manufacture and market Pravastatin sodium tablets
(Pravastatin) of strengths 10mg, 20mg, 40mg and 80mg, with 180-day
market exclusivity in the US healthcare system for the 80mg strength.
- Pravastatin is
the generic version of Bristol Myer Squibb's Pravachol. The product
lost patent protection in April 2006. The total annual market sales
for all strengths of Pravastatin were $1.19 billion. The annual sales
for the 80mg strength alone stood at $209 million.
- We believe the
launch of Pravastatin will generate $45.6 million in revenues and
$17.2 million in profits in CY2007E, yielding incremental earnings of
Rs1.8 per share for Ranbaxy. This implies a potential price upside of
approximately Rs40 from the current levels. We maintain our Buy
recommendation on Ranbaxy with a price target of Rs558.
Elder Pharmaceuticals
Cluster: Apple Green
Recommendation: Buy
Price target: Rs508
Current market price: Rs404
Another strong quarter
Result
highlights
- Elder
Pharmaceuticals (Elder) continued its strong performance during the
fourth quarter of FY2007. The company's net sales rose by 26.6% to
Rs118.2 crore in Q4FY2007, on the back of a steady momentum in its
core brands, a ramp-up in the sales of the Fairone brand due to the
launch of the product in south India and the growing revenues from the
in-licenced portfolio. The sales were in line with our estimate.
- Elder reported
a 65-basis-point drop in its operating profit margin (OPM) to 19.6%
during the quarter, on account of a 35.8% rise in the other
expenditure and a 29.7% increase in the staff cost. The other
expenditure was higher on account of the higher selling and
promotional expenses incurred for its new launches.
- Consequently,
the company's operating profit rose by 25.4% to Rs23.7 crore in
Q4FY2007.
- Despite a 26.6%
drop in the other income, and an increase in the interest and
depreciation costs, Elder's net profit grew by 17.6% to Rs15.0 crore.
The net profit was in line with our estimate.
- For FY2007,
Elder's revenues grew by 26.1% to Rs447.3 crore. The OPM expanded by
190 basis points to 19%, led by an improvement in the raw material
cost, causing the operating profit to rise by 40% to Rs84.8 crore.
Despite the increases in the depreciation and interest costs, the net
profit showed a robust growth of 54.8% to Rs56.8 crore in FY2007. The
net profit growth was aided by the sharp drop in the tax incidence
(due to the shift of manufacturing to tax-free zones).
- In view of its
strong growth potential, we remain positive on Elder's future growth
prospects. At the current market price of Rs404, the stock is quoting
at 10.0x its estimated FY2008 earnings. We maintain our Buy
recommendation on the stock with a price target of Rs508.
Maruti Udyog
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,050
Current market price: Rs790
Profits impacted due to higher costs
Result
highlights
- Maruti Udyog
Ltd's (MUL) Q4FY2007 results are ahead of our expectations on the
profits front, but below expectations on the operating margins
front.
- The net sales
for the quarter marked a growth of 35.4% year on year (yoy) led by a
volume growth of 30% and a realisation growth of 4.5%.
- On account of
higher raw material prices, the losses at the new Manesar plant and
higher power and fuel expenses, the operating margins for the quarter
declined by 250 basis points to 12.4%. For the quarter under review,
the Manesar plant recorded a loss of Rs58.5 crore at the net
level.
- However, a higher
other income of Rs205 crore and stable depreciation costs saw the
company post a net profit growth of 24% to Rs448.6 crore.
- For the year
FY2007, the volume growth was 20.1% yoy. The total income grew by 22%
to Rs14,654 crore. The operating profit margin (OPM) for the year was
stable at 13.6% as compared to 13.5% in FY2006. The profit after tax
(PAT) for the year was Rs1,562 crore, registering a growth of 30%.
- The sales
volume for H1FY2007 was very low. MUL launched three new products in
Q4FY2007. Hence, we do not expect MUL to witness a sharp slowdown in
the growth in FY2008. The profitability could be impacted due to
rising raw material prices and higher expenditure on account of the
new Manesar plant.
- Considering
MUL's dominant position in the Indian car market, Suzuki's plans of
making India its hub for small cars, and potential of exports, which
shall commence in a big way starting FY2009, we maintain our positive
view of the company. At the current market price of Rs790, the stock
is quoting at 10.7x its FY2009E earnings. We maintain our Buy
recommendation on the stock with a price target of Rs1,050.
Tata Tea
Cluster: Apple Green
Recommendation: Buy
Price target: Under review
Current market price: Rs774
Upside from stake in Glac�au
According to Reuters, Coca-Cola Co is in talks to
acquire all or part of the vitamin water maker Energy Brands Inc (EBI),
valuing the company at about $3 billion. It may be recalled that Tata Tea
Ltd (TTL) and Tata Sons Ltd (TSL) have together acquired a 30% stake in EBI
for $677 million or Rs3,110 crore, ie at a valuation of $2.2 billion.
SECTOR UPDATE
Information Technology
Rupee pangs
For the front-line information technology (IT)
companies, it is likely to be a tough year in terms of margin pressure due
to the cumulative impact of wage inflation, higher visa costs and the
appreciation of the rupee. Given the tightening supply of quality manpower,
the salary hikes are indicated to be aggressive this year too. The average
hikes are estimated to be in the range of 13-15% for offshore employees and
4-5% for the onsite workforce. This would translate into an adverse impact
of 250-350 basis points on the operating margins. The abnormally high
demand for visas this year (application window was closed on the first day
itself) would result in higher visa costs.
To
factor in a much higher than expected appreciation in the rupee, we have
revised downwards the earnings estimates and accordingly the target prices
of the front-line IT service companies.
VIEWPOINT
Allcargo Global Logistics
Interesting times ahead
Allcargo Global Logistics (Allcargo) had hosted an
analyst meet on Tuesday (April 24, 2007) to discuss its Q1CY2007
performance. We attended the same and present the key takeaways.
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