Stock Views on JSW STEEL, ABAN OFFSHORE, BIOCON

DEUTSCHE BANK on BIOCON

Double blind placebo controlled trials were done in India on 264 patients, whose diabetes is poorly controlled on metformin. While all patients continued on metformin, one group was on placebo. Deutsche Bank global pharma team indicates that (a) Clearly the drug has failed to meet the primary endpoint and this is disappointing, but; (b) placebo benefits suggest a failed trial and not necessarily a failed drug. Biocon has also not described the manner in which they carried out the post ad hoc analysis, which indicated that primary end point was met in several sub-groups. (c) However, without knowing the baseline HbA1c, failing to meet the threshold 0.7% reduction appears disappointing for an oral anti-diabetic drug. Out licensing may be difficult without further studies, unless Biocon can provide compelling details as to why post ad hoc analysis showed a benefit against the failed primary endpoint.

UBS INVESTMENT on ABAN OFFSHORE


UBS Investment assumes coverage of Aban Offshore, with a positive view as: 1) oil prices will remain high; 2) oil companies' E&P capex will rise; and 3) oil service companies' margins will improve on higher demand for oil services at a time when costs are not the primary concern of oil companies. UBS views any equity offering to deleverage the company as a key catalyst for the stock. Aban is well positioned to benefit from this trend, with 55% of its rigs capable of reaching water depths of 350 ft+ and the second-youngest jack-up fleet in the world. There is an increasing preference for newer rigsthe global utilisation of jack-ups built before 2000 is 70%-but 90% of post-2000 jack-ups are deployed. The stock is attractive, as it is trading close to the estimate for Aban's replacement cost of 700/share. Aban's strategy is to concentrate on revenue consolidation and strengthening its balance sheet. However, jack-up rig oversupply could be a short-term overhang on the industry.

RBS on JSW STEEL

RBS maintains `Sell' rating on JSW Steel with a target price of 850. JSW Steel announced it will acquire a 41.3% controlling stake in Ispat Industries for 2,160 crore ($ 475m) by subscribing to a fresh equity issue. Ispat has a capacity of 3.3 mt and operates at less than 85% capacity. According to JSW Steel, there should be significant savings stemming from freight transportation costs, common sharing of rolling facilities, state sales taxes, common purchase of raw materials, JSW's expertise and experience in turnaround companies, etc. While there would certainly be savings, substantial investments would be required to address Ispat's core issues of 1) high-cost power, 2) investment towards coke oven batteries, and 3) lack of raw materials, etc. Ispat's strong and experienced management team would be a positive for JSW Steel. With a cash infusion by JSW Steel and resumption of Ispat's operations, Ispat is to report EBITDA/tonne of $100 and volume of 2.5 mt for FY12-13. Based on these assumptions, this could add $100 million to JSW Steel's EBITDA for 2012-13. RBS factors in 5% higher coking coal price of $230/tonne and $216/tonne for FY12E and FY13E, respectively, and cut the FY11-13E earnings by 11-16%.