Stock views on LUPIN, LANCO INFRATECH

CREDIT SUISSE   on LANCO INFRATECH

Lanco has acquired the coal assets of Griffin in Australia from an administrator for an equity value of A$750 million. This would be financed through a mix of debt and internal accruals and would be paid in three tranches over four years. As per the management, Griffin has JORC-approved mineable reserves of 310 mmt and resources of 1.1-1.25 bmt. The mine is already producing about 4.5-5 mmtpa, of which about 1 mmtpa is exported while the rest is consumed within Australia. Lanco plans to ramp up production from this mine to 15 mmtpa by 2015. Evacuation of coal for its power projects in India would require Lanco to incur capex of A$900 million over four years towards port and railway infrastructure. This would improve fuel security for Lanco's existing and planned coal projects that are currently sourcing most of the coal deficits from e-auction. However, Credit Suisse cuts EPS by 11-26% over FY11-13E and target price to 83 (from 86), led by an earnings dilution from acquisition, lower PLF (plant load factor) and merchant tariff and higher coal costs.

RBS on LUPIN

RBS reiterates the `Buy' rating on Lupin and continues to rate it as the top pick in pharma coverage. RBS expects Q3FY11 to be a strong quarter and forecasts 21% topline growth, EBITDA growth of 19% and PAT growth of 35%. Q3 is unlikely to be any different as branded prescriptions have grown by 28%. More importantly, with the company's bid to minimise the impact of a potential generic threat, it has been able to increase the share of double dosage strength of 200 mg to 56% compared to 49% a year back. However, a key disappointment has been the delay in turning around Antara. Domestic formulations are also expected to post consistent growth in excess of 20%. The generic Lunesta settlement augurs well for Lupin which is a relatively new entrant in the high risk-high reward Para IV segment. RBS had earlier assumed an "at risk" launch by Lupin in March 2014 along with launches of other generic players as well. RBS therefore had built in a higher 90% price erosion and lower 10% market share assumption for Lupin. However, post settlement and assuming lower competition, RBS values this opportunity at 0.2/share compared to 0.1/share.