Angel Brocking Views on Godawari Power, Sun Pharma, Glaxo Pharma, Alembic

Godawari Power - Target Rs 115
Angel Broking has maintained its buy rating on Godawari Power & Ispat with a target of Rs 115 in its October 24, 2008 research report. "Godawari Power & Ispat’s (GPIL) Top-line grew 86% yoy to Rs 331 crore (Rs 178.2 crore) in 2QFY2009. The company’s Bottom-Line surged 48.3% to Rs 31.8 crore (Rs 21.4 crore). We have revised our FY2009 and FY2010 estimates including our realisation assumption as we believe that prices across its products have peaked out. Growth in Bottom-line is expected to be slower owing to 494bp Margin contraction factored in by us. At the CMP, the stock is trading at 2.0x FY2009E and 1.8x FY2010E EPS and 0.4x FY2010E P/BV. We maintain a Buy on the stock, with a revised Target Price of Rs 115 (Rs 280)," says Angel Broking's research report.

Sun Pharma - Target Rs 1600

Angel Broking has upgraded its rating on Sun Pharmaceutical Industries from neutral to buy with a target of Rs 1600 in its October 24, 2008 research report. "The company posted Net Sales of Rs 1,177.8 crore registering yoy growth of 82.2%. Robust Sales growth along with expansion in Operating Margins aided Net Profits to end the period at Rs 512.8 crore yoy surging by 134.4%. In FY2008, Sun Pharmaceuticals clocked robust growth following launch of FTF products."

"Going into FY2009, the company would see potential upsides from Pantaprazole and Amifostine. Sun has maintained its guidance of 25% rise in its US business, while ex-USA regions are expected to deliver 18-20% growth. On the back of robust 1HFY2009, we have upgraded our Net Profit numbers for FY2009 and FY2010 by 34% and 23%, respectively. On the valuation front, at the CMP, the stock is trading at 13.9x FY2009E and 15.2x FY2010E Earnings. We upgrade the stock to Buy from Neutral, with a Target Price of Rs 1,600," says Angel Broking's research report.

Glaxo Pharma - Ttarget Rs 1250

Angel Broking has maintained its buy rating on Glaxo Pharma with a target of Rs 1250 in its October 24, 2008 research report. "Advent of the Product Patents Regime in India is more beneficial for MNC Pharmaceutical companies in the long run. Glaxo, which has a strong parentage, is our preferred pick in the MNC Pharmaceutical space on the back of management’s commitment to launch its products through its listed arm. This is evident from the 9 product launches that the company plans to carry out through its listed entity. On the valuation front, at Rs980, stock is trading at 19.0x CY2008E and 16.9x CY2009E Earnings. Including the significant cash on the books (constitutes around 18% of market capitalisation), the stock is trading at 15.4x CY2008E and 13.7x CY2009E Earnings, which we believe is attractive. We maintain a Buy on the stock, with a Target Price of Rs 1,250," says Angel Broking's report.

Alembic - Target Rs 44

Angel Broking has maintained its buy rating on Alembic with a target of Rs 44 in its October 24, 2008 research report. "For 2QFY2009, Alembic posted Net Sales of Rs 344.7 crore registering a growth of 13.1%. During 2QFY2009, the company posted Net Profits of Rs 15.0 crore, substantial part of which came on the back of Rs 22.5 crore forex losses booked by the company. Alembic has re-aligned its business model to leverage the opportunities available in the Pharmaceutical sector."

"Over the years, the company has also invested in R&D and built infrastructure to cater to the Regulated markets. The company is now through with its investment phase. The company’s 1HFY2009 performance has been impacted by forex losses on account of which we have pruned our FY2009 and FY2010 estimates by 54% and 23%, respectively. At Rs 27, stock is trading at 8.0x FY2009E and 4.2x FY2010E Earnings. We maintain a Buy on the stock, with a Target Price of Rs 44," says Angel Broking's research report.

Stock View on Alembic Pharma

WHEN A 100-year-old business undertakes restructuring to unlock its hidden value, it offers an attractive opportunity for investors to pick up assets at ‘value for money’ prices. Alembic is one such company that is transforming itself from a pure domestic pharmaceutical company to a ‘complete’ pharma company, with a presence across the entire pharma value chain.

BUSINESS:

With a turnover of Rs 1,000 crore, Vadodara-based Alembic is one of the oldest pharma companies. It lost out on growth to other players during the 1990s. The company, now managed by fourth-generation promoters, is restructuring its operations to catch up on lost opportunities. Alembic is an integrated manufacturer of formulations and active pharma ingredients (APIs) with 70% of its business coming from the domestic market. Its formulations business, consisting of generic as well as branded formulations, accounts for 70% of its total revenue, while APIs contribute the remaining. The company spends 4.5% of its sales towards R&D. It is involved in generic research, innovative research towards novel drug delivery systems (NDDS) and undertaking bio-equivalence studies. Recently, it entered into an out-licensing deal for its NDDS for Keppra XR, a leading anti-epileptic drug, with Belgium-based innovator company, UCB Pharma.

GROWTH STRATEGY:

Alembic has adopted a dual-pronged strategy of new products for existing geographies and existing products for new geographies. While anti-infectives contribute more than 50% to its domestic formulation sales, the company has broad-based its product portfolio to include products from high growth chronic therapeutic areas like respiratory, orthopaedic and gynaecology. The acquisition of Dabur Pharma’s non-oncology business in January ’07 helped the company to include more such products in its portfolio.

Alembic’s global strategy is to be the preferred supply chain partner to multinational pharma companies. Towards this, it has been investing in FDA-approved manufacturing facilities and research centres. Through these initiatives, the company aims to increase its share of international business to nearly half of its revenues over the next 2-3 years.

FINANCIALS:

The company’s net sales have seen a compound annual growth rate (CAGR) of 14.5% since ’03 to reach Rs 990 crore in FY08. Net profit during the same period grew over 29% to Rs 112.2 crore. This growth has been completely organic in nature. The stock currently offers a dividend yield of 4.8%, which is relatively higher than that of its similar-sized peers. On an average, the company distributes around 20% of its net profit as dividends and this ratio has remained constant over the years. Dividends have recorded a five-year CAGR of 45%, which is faster than the growth in the company’s profits. Alembic plans to hike its dividend payout to 35-40% in the next three years.

The company has restructured its domestic business and invested heavily in acquiring new products, building up field force and creating new business divisions. While this has had a negative impact on its profitability during the first two quarters of this fiscal, the company expects the full benefits of restructuring to be visible in FY10.

Alembic has land bank of 50 acres, which it plans to monetise in future to boost its cash flows. It is also considering acquisitions to expedite its growth.

VALUATIONS:

The company’s EPS is Rs 4.3. With an increase in products and production capacities, and emphasis on global business and R&D expertise, Alembic expects to achieve year-on-year growth of over 25% in its FY09 turnover to Rs 1,250 crore. Accordingly, considering the company’s estimated earnings for FY09, the stock is currently trading at a forward P/E of four times. This is quite attractive compared to the P/Es of similar-sized peers.

Beta: 0.8
Institutional Holding: 14.03%
Dividend Yield: 5.8%
P/E: 6 M-Cap:
Rs 354.4 cr