Summary
of Contents
STOCK UPDATE
Lupin
Cluster: Apple
Green Recommendation: Buy Price target: Rs840 Current
market price: Rs707
Price target
revised to Rs840
Result
highlights
-
Lupin's net
sales increased by 22.8% year on year (yoy) to Rs518.1 crore in
Q4FY2007. The growth in the top line is above our expectations.
The sales growth was driven by a 12% rise in the domestic
formulation business to Rs144.3 crore and a 53.4% increase in the
formulation exports to Rs165.9 crore.
-
Lupin's
operating profit margin (OPM) expanded by 460 basis points yoy to
14.5% in Q4FY2007; the same was lower than our expectation of
15.7%. The OPM was below expectations on account of a higher than
anticipated rise in the company's raw material cost and higher
research and development (R&D) expenses. Consequently, the
company's operating profit grew by 80.0% yoy to Rs75.0 crore in
Q4FY2007.
-
The company's
reported net profit stood at Rs137.1 crore, up by 173.1% yoy.
However, this includes the one-time income related to the sale of
the Perindopril patent. Based on our estimates, the net profit
excluding the post-tax consideration received from the sale of the
Perindopril patent stood at Rs61.3 crore, a jump of 22% yoy. The
same was above our estimate of Rs57.5 crore.
-
For FY2007,
the company's net sales increased by 22.7% to Rs1,970.9 crore,
which was above our estimate. The OPM expanded by 70 basis points
to 14.9% as against our estimate of 15.7%, driven largely by
higher R&D expenses. The company's reported net profit stood
at Rs302.1 crore, up by 65.3% yoy. However, this includes the
one-time income related to the sale of the Perindopril patent.
Based on our estimates, the net profit excluding the post-tax
consideration received from the sale of the Perindopril patent
stood at Rs226.2 crore, a jump of 23.8% yoy. The same was in line
with our estimate of Rs228.4 crore.
-
Lupin 's
FY2007 profit performance (exclusive of the one-time gain) was
just in line with our expectations. Hence, we are maintaining our
FY2008 sales and profit estimates at Rs2,600 crore and Rs328.9
crore respectively. For FY2009, we expect the revenue to grow by
18% to Rs3,054.4 crore and the profit to rise by 25% to Rs410.5
crore. As per FY2009 estimates, the revenue and profit (exclusive
of the one-time gain from the patent sale) would grow at
compounded annual growth rate (CAGR) of 24% and 35% respectively.
We have not included the earnings upside from the R&D pipeline
in our estimates.
-
The management
has given an impressive revenue guidance of Rs3,000 crore for
FY2008 (a 50% growth) and of Rs4,200 crore (a 40% growth) for
FY2009. The growth would be achieved through various initiatives
in the USA, Europe and semi-regulated markets. As per the
management, a small part of the growth would also come from
acquisitions. However, as per our organic growth estimates, at the
current price Rs707 the stock is available at Rs19x its FY2008E
and 15.2x its FY2009E earnings. We maintain our Buy recommendation
on the stock with a revised price target of Rs840 (18x of FY2009E
earnings).
Bharat Bijlee
Cluster: Apple Green Recommendation:
Buy Price target: Rs1,730 Current market price: Rs1,637
Q4FY2007 results:
first-cut analysis
Result
highlights
-
The Q4FY2007
results of Bharat Bijlee Ltd (BBL) are much ahead of our
expectations.
-
The revenue
for the quarter grew by 73% to Rs179 crore on the back of a strong
order book. The net profit increased by a superb 123% to Rs29.07
crore, much ahead of our expectations.
-
The operating
profit for the quarter grew by 105% to Rs44.5 crore, as the
operating profit margin (OPM) for the quarter improved by 370
basis points to 24.8% against 21.1% on a year-on-year (y-o-y)
basis.
-
The
improvement in the OPM is on account of a lower raw material/sales
ratio, which stood at 62.8% as against 64.9% in the same quarter
last year. The OPM also improved because of other operational
efficiencies as the other expenses/sales ratio declined to 5.9%
from 7.6% on a y-o-y basis.
-
The interest
cost for the quarter decreased by 20% while the depreciation
charge increased by 89%.
-
The company
has declared a dividend of Rs25 (250%) per share.
-
The timely
expansion of its transformer manufacturing capacity, by 3000MVA to
8000 MVA per annum, has benefited the company. Going forward, the
huge investments lined up in the power sector and the continuing
activity in the industrial sector will drive BBL's order
book.
-
At the current
market price of Rs1,637, the stock is discounting its FY2007
earnings by 16.3x and earnings before interest, depreciation, tax
and amortisation by 8.6x. Excluding the value of the cash and cash
equivalents, the stock is trading at 13x its FY2007 earnings. In
view of the better than expected results and strong order backlog,
we maintain our Buy recommendation on the stock with a price
target of Rs1,730. We shall be upgrading our FY2008 earnings
estimates and price target after analysing the annual report of
the company. Watch this space.
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