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Summary
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SHAREKHAN SPECIAL
Monthly economy review
The BSE Bankex has outperformed the BSE Sensitive Index
(Sensex) by a wide margin since the recovery of the broader
market after touching a low of 12,576 on July 16, 2008. For
the period July 1–August 19, the BSE Bankex has appreciated by
22.3% compared with a 12.2% increase in the Sensex. The
recovery in the banking stocks has primarily been driven by
the widespread expectations of reforms in the banking sector
as well as the easing of the inflationary pressures (global
commodity prices have declined in the past few weeks).
However, against the backdrop of tight liquidity conditions,
moderating credit growth and a likely strain on the quality of
banking assets, the fundamental outlook for the banking sector
remains bleak over next few quarters. Hence, the upside to
banking stocks may be largely capped in the short term.
However, from the perspective of a medium to longer term, the
banking stocks look attractive at the current
valuations.
STOCK UPDATE
Lupin
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs840
Current
market price: Rs736
Expanding branded franchise
Key points
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Lupin has entered into a multi-year promotion and
marketing agreement for the AeroChamber Plus® line of
products with Forest Laboratories, Inc. Under the terms of
the agreement, Lupin Pharmaceuticals, Inc, USA, will use its
50-person sales force to promote the product to
paediatricians.
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Lupin already employs around 50 people in the USA for
the promotion of its branded product, Suprax, to
paediatricians. Through this deal Lupin will be able to
leverage the field force to increase its revenues without
any incremental spend on front-end marketing. Further, the
deal would also provide Lupin an opportunity to extend its
branded franchise with the paediatricians in the
USA.
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The above-mentioned deal would present an upside to
our current estimates, as it would provide Lupin with
incremental revenues without any increase in its costs. We
believe Lupin would make a distribution margin of 10-15% on
the marketing of the AeroChamber Plus® range of products
which would flow directly to the bottom line in the absence
of any additional cost. Due to the lack of clarity on the
size of the opportunity, we have not factored in the upside
from this deal into our estimates.
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At the current market price of Rs736, Lupin is
discounting its FY2009E earnings by 16.2x and its FY2010E
earnings by 13.5x. Keeping in mind the strong business
fundamentals and the growth potential of the company, we
maintain our Buy recommendation on Lupin with a price target
of
Rs840. | | |
