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.

Angel Broking on Ceat, Ranbaxy Labs

Ceat - Target of Rs 43

Angel Broking has recommended a buy rating on Ceat with a target price of Rs 43 in its November 21, 2008 research report. "The current global economic situation also hampers the possibility of large scale exports, though the global price is higher by Rs 22 per kg (Bangkok — Rs 87) than the price in the Indian market. But, there is no hurry in the industry, especially the tyre manufacturers, to stock rubber heavily. The Tyre industry strongly believes that the price would further decline and Rs 50 seems to be within reach. We recommend a Buy on CEAT with target price of Rs 43," says Angel's research report.

Ranbaxy Labs - Target of Rs 316

Angel Broking has maintained its buy rating on Ranbaxy Laboratories with a target of Rs 316 in its October 31, 2008 research report. "For the quarter, the company posted Net Sales of Rs 1,882 crore, registering a yoy growth of 14.7%. At current valuations, the stock trades at 15.6x CY2008E and 10.0x CY2009E earnings, a deep discount to its historical valuations."

"While the stock would remain lackluster in the near term, we believe that at current valuations, the stock discounts the concerns fairly well. Thus, we maintain our BUY recommendation on the stock with an 18-month revised SOTP Target Price of Rs 316 (Rs 410), wherein the core business is being valued at a P/Ex of 16x CY2009E core earnings (multiple lowered on back of lower visibility on the US business) giving it a fair value of Rs 218, Rs 24 for the non-core income and Rs 75 has been ascribed to NPV of the FTF opportunities available to the company," says Angel Broking's research report.