Stock View on Lupin, Opto Circutes

CITIGROUP on Lupin - TARGET PRICE: RS 938

CITIGROUP Global Markets has maintained its ‘buy’recommendation on the stock saying the company’s initiative to build a global presence through small acquisitions and the buyout of a majority stake in Pharma Dynamics of South Africa would boost inorganic growth. “This is the company’s third acquisition in FY09 after Hormosan (Germany) and a minority stake in Generic Health (Australia). We believe the small size has kept valuations reasonable & expect all deals to be EPS and RoI accretive from FY10,” said Citi in a note to its clients. Citi has rated Lupin as ‘medium risk’ citing generic competition in Suprax (around 5% & 16% of sales & PBT) as the key reason. According to Citi, rising input costs due to Chinese government’s crackdown on environmentally unfriendly plants could hurt profitability. “Inability to effectively integrate the Kyowa acquisition could take a heavy toll on profitability as well as return ratios,” added the Citi note.

KOTAK Securities on - TARGET PRICE: RS.463

KOTAK Securities has maintained a ‘buy’rating on the stock saying the valuations are very attractive considering the strong market positioning, potential introduction of new products, front end R&D set up (with the Criticare acquisition) and strong management. The brokerage expects OCIL to register a 56.7% and 43.7% compounded growth in revenues and earnings, respectively over the next two years. It expects revenue growth of 73.9% to Rs 8.1 billion and net profit growth of 43.5% to Rs 1.9 billion in FY09. “The key growth drivers for topline would likely to be stents business which is expected to grow at about 80% while non-invasive segment is expected to grow at 77%, mainly due to Criticare acquisition,” said the Kotak note. According to Kotak, net profit margin is likely to decline to 23.8% in FY10 as against 28.3% in FY08 mainly due to higher interest cost. “The company has raised $52 million debt to fund the Criticare acquisition. We expect 43% and 44% growth in EPS in FY09 and FY10, respectively. In FY09, we expect EPS of Rs.20.2 while in FY10 we expect EPS of Rs.29,” the note added.