Stock Views on ESCORTS , CIPLA, APOLLO TYRES, SUN PHARMA

DEUTSCHE BANK on SUN PHARMA

Sun announces a final approval to market six dosages of a generic version of Strattera with a 180-day exclusivity. Strattera, approved in November '02, is protected by only one patent expiring post-pediatric exclusivity in May 17. 10 companies filed patent challenges and were sued in September 2007. On 12 August '10, the US District Court of New Jersey ruled that the generics infringed the patent, but the patent itself was invalid due to a lack of enablement/ utility. On 26 August, US Appeals Court indicated that the injunction against the launch by seven companies - Actavis, Sun, Sandoz, Mylan, Teva, Apotex and Aurobindo - will continue till 8 September '10. Of these seven, Actavis and Apotex do not have the tentative approval. While Sun has announced the final approval with the 180-day exclusivity, the balance five would be in the process of receiving the final approval and share this exclusivity. Hence, in case the injunction is rejected, at least five or a maximum of seven companies will launch this generic. Hence, assuming equal market share, 65% margin and 20% effective tax rate, each generic can expect revenues and PAT of about $5-7 million and $2.5-3.5 million respectively.

CREDIT SUISSE on APOLLO TYRES

Credit Suisse initiates coverage of Apollo Tyres with an `Outperform' rating and target price of 108, implying potential upside of 50% from current levels. The Indian tyre industry is in the midst of a very favourable supply-demand scenario and expects capacity utilisation levels to remain close to 100% for the next three years. The resultant pricing power is amply visible in both the replacement market and, for the first time, auto makers (OEMs). The longer-term trends of improving mix, in terms of the user segment and product type, are supportive of sustainable enhanced profitability. Apollo Tyres is well positioned to capture these trends and grow its consolidated earnings 31% p.a. in FY11-13E. Credit Suisse expects tyre manufacturers to increase prices further in the near future to pass on raw material cost inflation. Fall in rubber prices could also lead to better share price performance. However, further increase in rubber prices would hurt margins, at least temporarily. Apollo Tyres will also benefit from commercialisation of its new plant and the resultant operating leverage. Its historical discount to global peers and the Indian market is not justified anymore, given the structural changes in the tyre industry. Apollo Tyres is one of the best ways to play the Indian economic cycle.

MOTILAL OSWAL on CIPLA

Motilal Oswal maintains `Buy' rating on Cipla. The management has given topline guidance of over 6,000 crore for FY11, representing growth of more than 7% over FY10. Cipla indicated it would invest 1,000 crore in the near future to build manufacturing facilities and expand existing ones to keep abreast of development and maintain its leading position in the pharmaceuticals space. Cipla's management said it was focussing on improving profitability. Cipla is targeting profitability improvement through backward integration and focussing on more complex and low competition areas like biotechnology. Motilal Oswal believes Cipla has one of the strongest generic pipelines among Indian companies. Its manufacturing infrastructure, strong chemistry skills and huge inhaler capacity make it a partner of choice for MNCs that are ramping up generics and their presence in emerging markets. Besides, its low-risk strategy and strong capex should ensure good long-term potential. Motilal expects Cipla to post EPS of 14.2 in FY11 and 16.9 in FY12, leading to 16% CAGR over FY10-12. Cipla is valued at 21.4x FY11E and 17.9x FY12E earnings.

EDELWEISS  on ESCORTS

Edelweiss maintains 'Buy' rating on Escorts. The company's new construction equipment plant has a higher degree of mechanisation. It is the leader in the crane segment; the strategic thrust of late has, however, been on the recently launched backhoe loaders - the largest segment in the construction equipment space. The initial feedback on these products has been positive. In the railway division, the company has new product lines approved by the railway board. However, the core brake equipment sub-segment has been impacted by increased competition. Our informal interactions with employees and the management indicate a shift in mindsets. Changes at the top management level seem to have considerably improved the organisational thought process, as reflected in the focus on cost cutting and new product development. While the company benefited from improvement in the macroeconomic environment, internal changes have contributed meaningfully. The management has successfully turned around the core tractor business. Also, the construction space is likely to add value.