Sector View on Indian pharmaceutical industry

Kotak Securities on PIRAMAL HEALTHCARE

Piramal Healthcare is increasing its focus on profitability in the customs manufacturing business. The company had strengthened its critical care business in 1QFY09 by buying PlasmaSelect’s polygeline-based blood plasma products for Euro7.7mn. We expect domestic branded formulation business to grow at 20% in FY09 and 15% in FY10 driven by sales from new acquired brands and increasing geographic reach.

Kotak Securities on LUPIN

Lupin is witnessing strong sales growth led by Kyowa acquisition and strong growth in branded and generic formulations across geographies. We expect Kyowa to contribute Rs3.9bn to consolidated revenue in FY09. Lupin has strengthened its CRAMS capabilities with the acquisition of Novodigm which is largely engaged in the manufacturing of advanced intermediates for APIs under CRAMS model.

Asit C Mehta Investment Intermediates on DISHMAN PHARMACEUTICALS

Dishman’s focus in contract manufacturing for high margin patented drugs and Active Pharmaceutical Ingredients (API) for products under patent/R&D distinguishes its business model from its peers (concentrating on manufacturing old generics) in the segment. The company’s acquisition of Carbogen Amcis has strengthened its capabilities and presence in contract research.

ICICI Securities on FORTIS HEALTHCARE

Fortis Healthcare came out with the positive Q2 FY09 results with net profit of Rs 10.06 crore led by better revenue growth, better cost management and exceptional income. With the huge expected demand in the tertiary care segment, along with the changes in demography, we expect Fortis to benefit in the long-term from its metro-focused multi-speciality facilities with expertise in cardiac care.

Prabhudas Lilladher on ANKUR DRUGS & PHARMA

Ankur Drugs is one of the largest contract manufacturers of pharma formulations. Major clients include: Ranbaxy Labs, Cipla, Novartis, and Lyka. It is also manufacturing six products for Novartis, Switzerland. The company has plans to introduce patented products of Labtec, Germany. The stock is attractively valued at 2.3x FY09E EPS of Rs41.3.

Angel Broking on ELDER PHARMACEUTICALS

It is one of the fastest growing companies in the Indian pharmaceutical industry. Elder’s operating profit registered CAGR of 37.4% during FY2005-08 on the back of strong revenue CAGR of 25% and expansion of operating margins by 480bp during the mentioned period. Domestic sales grew at a CAGR of 24.0% from Rs276cr to Rs528cr while exports clocked CAGR of 49.1% from Rs7cr to Rs23cr over FY2005-08.

Reliance Money views on Chennai Petroleum, Elder Pharma, Biocon

Chennai Petroleum - Target Rs 175

Reliance Money has upgraded its rating on Chennai Petroleum Corporation from hold to buy with a target price of Rs 175 in its October 23, 2008 research report. "As expected, Chennai Petroleum has posted disappointing Q2 FY09 results, thanks to lower Gross Refining Margins, huge inventory losses, and one month maintenance shut down during the last quarter. Although the outlook on refining margins is not great, still at current levels, stock is extremely cheap."

"The company also has a strong track record of declaring dividends, and the average dividend yield for the past 15 years is at around 6%, giving a good support to stock price on the downside. Keeping in view the fact that CPCL is the cheapest refinery stock available coupled with attractive dividend track record, we upgrade the stock from HOLD to BUY with a target price of Rs 175 based on 3x FY10 EV/EBITDA multiple," says Reliance Money's research report.

Elder Pharma - Target Rs 338

Reliance Money has maintained its buy rating on Elder Pharmaceuticals with a revised target price of Rs 338 in its October 23, 2008 research report. "With the lower than expected performance in H1FY09 and sharp correction in the valuations across the sector, we revise down the valuation for Elder. We have changed the valuation model from DCF basede earlier to PE multiple based. Hence, we value Elder Pharma at Rs 338 (i.e 6x its FY10 EPS) from earlier DCF based target of Rs 509 per share."

"Though we have revised down our target price to Rs 338 mainly to capture overall market valuations, we maintain our positive stance on the future earnings backed by increased shifting of manufacturing to excise free zones and consistent brand building efforts of the company. Hence, we maintain our BUY recommendation on Elder with the revised target price of Rs 338," says Reliance Money's research report.

Biocon - Target Rs 167

Reliance Money has maintained its buy rating on Biocon with a revised target price of Rs 167 in its October 24, 2008 research report. "Biocon reported 58% growth in its consolidated revenues to Rs 4422.9 million in Q2FY09, coupled with OPM of 16.6% (a sharp fall from 28.8%) and resulted in a flat PBT at Rs 557.1 million. Though we have revised down our target price to Rs 167 mainly to capture overall market valuations, we maintain our positive stance on the future earnings backed by strong pipeline of biosimilars and progress in its discovery pipeline. Hence, we maintain our buy recommendation on Biocon with the revised target price of Rs 167," says Reliance Money's research report.