Citigroup on Sun Pharma

Citigroup believe thats Sanofi’s recent settlements with several generic companies for Eloxatin could potentially leave Sun Pharma as the sole generic player in the $1.3-bn market over July ‘10 to Aug ‘12. This could lead to the potential NPV (net present value) of this opportunity, during exclusivity, being much higher than current estimate of about Rs14/share. Sun appears to be the only generic firm with approval that will continue selling the product. Sanofi had sued several generic companies for infringement of its patents on Eloxatin. Sun settled its litigation in May ‘09. A favourable ruling for generic companies in June ‘09 triggered “at risk” launches by Teva and Hospira.

Sun launched generic Eloxatin in the US in Mar ‘10 and, unlike the other generic companies in the market, its launch is not “at risk”, given its earlier settlement. This has effectively strengthened its position vis-àvis the other generic companies, whose launches were “at risk”, allowing it to hold on in the market unlike other generic cos such as Teva, Hospira and Sandoz. However, there is upside to this if Sun remains in the market as the sole generic player till August ‘12. If Citigroup assumes a single-player market (30% price erosion and 30% market share) till August ‘12, the NPV from this opportunity would work out to Rs 65/share. Earlier than expected entry of other generic players is a potential risk to this valuation.

Caraco Pharmaceuticals

FDA thought otherwise and seized drugs at Caraco’s three Michigan facilities on June 25. The inventory seized is to the tune of $15-$20 million. Caraco is meeting its expenses from its cash balance of $64 million and by selling Sun Pharma’s products and those manufactured by third parties in the US.

The next step Since the current seizure has been carried out under a court order, Sun Pharma management believes that Caraco will interact with the FDA and work out a consent decree. The step means that the FDA through the court will impose its own controls and restrictions on manufacturing operations of Caraco. The consent decrees can be removed if the FDA is convinced that the firm has achieved compliance in line with regulations. It is unclear how long the process will take, but analysts believe that it will be at least 3-4 quarters before the issue is resolved which will mean higher fixed cost, no revenue from manufactured costs and likelihood of expensive changes to Caraco’s manufacturing processes.

Impact Caraco, which has been struggling to maintain its sales in FY09, (sales down by 4 per cent yo-y) due to price erosion and product recall, is likely to see a major part of the $110 million revenues from manufacturing operations affected in FY10. This means revenues for 2009-10 are estimated to could come down to about $230 million which is 32 per cent lower y-o-y. As far as Sun Pharmaceutical is concerned, the company has withdrawn its 13-15 per cent revenue growth guidance for 2009-10. Though the Caraco events could impact its revenues, the bigger issue could be a hit to its credibility as far as sales in the US is concerned. While none of its own facilities have any serious quality concerns, analysts believe there will be a short term impact on Sun’s products marketed by Caraco. The Sun Pharma management has indicated that its first priority would be to resolve the FDA issue before looking at either transfer of products manufactured at Caraco to third parties or to its plants in India.

Outlook On the back of superlative margins and niche product focus, Sun Pharma’s revenue and net profit have grown at a fast clip; in the last five years, these have risen at a CAGR of 32 per and 42 per cent, respectively. However, in 2009-10, the high base and one-off sales in 2008-09 and Caraco issue means that sales are likely to remain flat. The flat sales would get support from the strong domestic business, which account for about half of sales and is expected to grow by 18-20 per cent led by a favourable product mix. Here, nearly three quarters of sales accrue from products in the chronic segment, which is growing in doubling digits, say analysts.
One factor that could also help provide a fillip to Sun’s sales is EffexorXR. In the current fiscal, Sun Pharma will bank on USFDA approval for EffexorXR (used in treating depression and anxiety disorders) with an estimated innovator sales of $2 billion to improve incremental revenues. The approval, if it comes towards the end of the calendar year, could boost sales upwards of $75 million (Rs 375 crore) for 2009-10. One-off sales can substantially improve revenues as was seen in the case of generic Protonix (used for treating acid reflux disease), which was launched by Sun in the US in January 2008 and has so far grossed around $280 million (Rs 1,400 crore). The downside for this drug, however, is that if the company loses the patent case against Wyeth, it will have to pay stiff damages.

At current price, the stock is trading at about 15 times its 2009-10 diluted estimated EPS of Rs 74. Given the uncertainty over Caraco and continuing legal battle for Taro both of which are likely to take a year to resolve, the short term is unlikely to have any upsides.

The Sun Pharma stock lost 12 per cent on June 26 to Rs 1,140, a day after US authorities seized drugs at its 76 per centowned subsidiary, Caraco Pharmaceuticals’ Michigan-based facilities for violations of good manufacturing practices. This move by USFDA means that Caraco Pharmaceuticals will not be able to market drugs it manufactures at its three facilities in Michigan. Though the company also imports and markets Sun Pharmaceuticals’ products, the USFDA action will not affect the sale of its parent’s US drug basket. The closure of Michigan facilities and the company planning to layoff a part of its 350 employees, will have an adverse impact on Caraco’s 2009-10 revenues. For 2008-09, manufactured products contributed $112 million or a third of the total revenues of $227 million. On a consolidated basis, about 10 per cent of Sun Pharmaceutical’s revenues could be affected. Intensifying troubles Problems for Caraco began in June 2008 when the FDA issued a 483 and followed it up with a Warning Letter in October, 2008. While a 483 records observations of non-compliance with current good manufacturing practices (cGMP) by investigators and does not need an official response from the investigated party, a Warning Letter indicates that the FDA is not happy with the quality of drugs manufactured and the company in question must address the situation quickly if it is to avoid further action. Since January 2009, Caraco had initiated voluntary recalls of drug products due to manufacturing defects, including oversized tablets.

Stock Views on Rcom, Mahindra & Mahindra, Sun Pharma

Sharekhan on Sun Pharma - Target of Rs 1295

Sharekhan has recommended a buy rating on Sun Pharma, with price target of Rs 1295, in its report.

"Sun Pharmaceutical Industries (Sun Pharma)’ Q4FY2009 performance was above our expectations. The revenues for the quarter declined by 9.8% to Rs 1,134.4 crore due to lower sales in the US market (as against the high base of the nonrecurring sales of Pantaprazole in Q4FY2008), voluntary product recalls (Digoxin and associated write-offs) initiated by Caraco Pharmaceuticals (Caraco) and currency related losses."

"With Rs 3,000 crore of cash on books and with the global financial meltdown resulting in more attractive valuations for generic drug companies, Sun Pharma is scouting for other acquisition opportunities (possibly a mid-sized generic company in the USA). At the current market price of Rs 1,219, Sun Pharma is valued at 16x FY2010E fully diluted earnings. We shall review our estimates and follow this with a detailed note soon, Buy, target of Rs 1295," says Sharekhan's report.

Motilal Oswal on Mahindra & Mahindra - Target of Rs 756

Motilal Oswal has maintained its buy rating on Mahindra & Mahindra with a target price of Rs 756 in its research report.

"M&M’s operational performance for 4QFY09 was significantly better than we had expected, driven by merger of PTL and cost savings, with EBITDA margins at 11.5% and adjusted PAT at Rs 2.8 billion. The management guided 5-8% volume growth in both UVs and tractors, coupled with full benefit of raw material cost savings. We are upgrading our standalone EPS estimate for FY10 by 11.7% to Rs 37.9 and consolidated EPS estimate by 1.2% to Rs 62.6 (despite ~8% dilution related to PTL merger) to factor in benefits of PTL merger, higher volumes and cost savings. The stock trades at 10.8x FY10E consolidated EPS and an EV of 9.7x FY10E consolidated EBITDA."

"We remain positive on the core business of M&M and the accretion to its share value from its subsidiaries. The IPO of Mahindra Holidays will result in further value unlocking for the stock. The stock trades at 10.8x FY10E consolidated EPS and an EV of 9.7x FY10E consolidated EBITDA. We maintain 'Buy' with an SOTP-based target price of Rs 756," says Motilal Oswal's research report.

Motilal Oswal on Rcom - Target of Rs 350

Motilal Oswal has maintained its buy rating on Reliance Communications with a target price of Rs 350 in its research report.

"RCOM is seeking shareholders’ approval to raise funds through equity/equity-linked instruments which could result in potential equity dilution of up to 25%. As per the company, the funds would enable it to strengthen its balance sheet and equip it to participate in the upcoming 3G/Wi-Max auctions. RCOM’s shareholders have approved the scheme of arrangement for demerger of RCOM’s optic fiber division to Reliance Infratel. RCOM and its subsidiaries hold 94.5% stake in Reliance Infratel, financial investors hold 5%, while employee welfare trust holds 0.5% stake. As per RCOM’s notice convened for shareholders’ meeting, net consideration for the transfer of optic fiber assets would be Rs 67.2 billion."

"We are upgrading our March 10 target price to Rs 350 which now reflects nil discount to DCF (v/s 10% earlier) and incorporates a lower WACC of 12.8% v/s 13.5% earlier given reduced leverage concerns. Maintain 'Buy' on likely operational turnaround post recent GSM launch, and abating concerns on high leverage," says Motilal Oswal's research report.

Stock views on Sun Pharma, Ipca Labs, ITC

Motilal Oswal on ITC - Target of Rs 200

Motilal Oswal has recommended a buy rating on ITC, with price target of Rs 200, in its report.

"ITC’s stock price has reacted negatively to sharp increase in duties in the past. The stock declined by 6.1% in 2005 (10% excise increase after a gap of three years) and 17% in 2007 (imposition of 12.5% VAT and 5% increase in excise). We currently factor in 7.5% increase in excise and 4% volume growth: We are currently factoring in 4% increase in cigarette volume and 7.5% increase in excise duty. Double-digit excise duty increase will be viewed negatively by the markets, in our opinion. Expanding margins by increasing prices will not be an easy option in FY10 as cigarette prices have increased by over 25% in the last two years. Maintain Buy with target price of Rs 200," Motilal Oswal's report.

Angel Broking on Ipca Labs - Target of Rs 684

Angel Broking has maintained its buy rating on Ipca Laboratories with a target price of Rs 684 in its May 29, 2009 research report.

“Ipca, a vertically integrated company with a geographically diversified business model, has grown at a steady pace in the past posting a CAGR of 17.3% in net sales during FY2005-08 primarily driven by its Domestic Formulation Segment. Going forward, we expect the next leg of growth for the company to come from its Export Segment as it leverages its API capabilities to create a sturdy business in the Regulated and Emerging Formulations market.”
“For FY2010, management expects top-line to grow 18-20% with OPM remaining steady at 20-21% levels. On the back of the same, we have upgraded our FY2010 net sales estimates resulting in an 8% upward revision of our net profit FY2010 numbers. We have also introduced our FY2011 numbers, wherein we expect the company to post 14.1% and 23.9% rise in net sales and Profit, respectively. Overall, we expect Ipca’s net sales and Adjusted net profit to post a CAGR of 16.9% and 29.4% respectively, over FY2009-11. At Rs 547, the stock is trading at 8.0x FY2010E and 6.4x FY2011E Earnings. We believe that the stock is trading at attractive valuations compared to its historical trading band. Hence, we maintain a buy on the stock with a target price of Rs 684," says Angel's research report.

KRChoksey on Sun Pharma - Target of Rs 1352

KRChoksey has recommended a hold rating on Sun Pharmaceutical Industries with a target price of Rs 1352 in its KRChoksey's research report.

"Sun Pharma Q4FY09 performance was hit by lower sales from Caraco and the economic downturn, which resulted in a slowdown in the domestic business. Currently, the status of the Detroit facility is unchanged; however the management has indicated that if the need arises, the company could evaluate product transfer options to India from Caraco on a case-to-case basis. For FY2010, Caraco has not provided any guidance, given the uncertainty surrounding its Detroit facility and the lower exclusivity revenues."

"Going forward, we expect the slower growth in the business to continue for the next two to three quarters, due to the economic downturn and lack of new product launches from the Caraco facility that is under USFDA scrutiny. However, the company’s track record of delivering consistent and robust growth makes it the best Indian player in the generic space. With a strong balance sheet with over Rs 3,500 crore in cash, Sun Pharma is well positioned to exploit newer growth avenues. Thus we remain positive on the stock.'Hold', price target of Rs 1352," says KRChoksey's research report.

Stock views on IVRCL Infra, Colgate Palmolive, Sun Pharma

Angel Broking on Sun Pharma - Target of Rs 1526

Angel Broking has maintained its buy rating on Sun Pharmaceutical Industries with price target of Rs 1526, in its report.

"During FY2009, the company’s performance was driven by sales of the generic version of Protonix and robust growth in the Domestic Formulation Segment. However, in FY2010, owing to subdued sales from the said product, we expect moderation in the company’s overall Top-line growth and also its impact on overall Profitability."

"Without considering one-off opportunities, management has guided towards 13-15% growth in Top-line. However, we expect the company to clock Sales growth of 8.8% during the period and would monitor the company’s performance before revising our FY2010 numbers. We have also introduced our FY2011 numbers and expect the company to post 11.6% and 11.4% growth in Sales and Net Profit, respectively. On the valuation front, at Rs 1,219 the stock is trading at 16.0x FY2010E and 14.4x FY2011E Earnings, respectively. We maintain a Buy on the stock, with a Target Price of Rs 1,526," says Angel Broking's report.

IIFL on Colgate Palmolive - Target of Rs 627

IIFL has upgraded its rating on Colgate Palmolive (India) to buy from add with a target price of Rs 627 in research report.

"Colgate’s 4QFY09 results were significantly ahead of our estimate and consensus: net profit grew 38% YoY, while sales growth momentum accelerated to 16%. The revenue growth was entirely due to volumes (up 15% YoY). EBITDA margin expansion of 342bps was driven by a reduction in raw-material costs and advertising expenses. While the raw-material cost reduction (down 116bps) was expected, given declining raw-material prices, the fall in advertising expense (down 334bps) reflected lower media costs and a fall in the overall category advertising."

"We expect Colgate to sustain c15% sales growth going forward and estimate earnings will grow at a faster annualised rate of 18% (over FY09-11), led by a 90bps expansion in EBITDA margins. Besides being a strong rural play (45% of sales from rural areas), Colgate offers high volumes and earnings visibility and has one of the best capital efficiencies in the sector. We expect the stock to re-rate from hereon and raise our target multiple from 17x to 21x. Our new one-year target price is Rs 627. The stock also offers a 4.2% dividend yield. We upgrade the stock to 'BUY' from 'ADD', with a target price of Rs 627," says IIFL's research report.

Motilal Oswal on IVRCL Infra - Target of Rs 348

"Post FY09 results (earnings above estimate by 5%), we are upgrading our earnings estimates for FY10 to Rs 22.6/sh (+20.2%) and FY10 to Rs 25.2/sh (+12.7%) to factor in higher revenue growth and EBITDA margins assumptions. Maintain Buy with a price target of Rs 348/sh. We have valued core business at Rs 296/sh (13x FY10 earnings), BOT projects at Rs 30/sh (book value) and other subsidiaries at Rs 22/sh (based on the current m-cap discounts)," says Motilal Oswal's research report.

Stock views on Nestle, Sun Pharma, Glaxo smithkline Pharmaceuticals, Castrol, BOC India, Godrej Consumer Products, Hindustan Unilever, Hero Honda

CADILA HEALTHCARE


Cadila Healthcare, one of the five largest drug makers in India, may have been the top performer (64.51%) during the bear run, but analysts are cautious on this low volume stock at current market valuation. They believe though the stock is a safe bet in the current environment, and has good domestic business, technically it looks weak below Rs 225.


HERO HONDA MOTORS


In the last nine months, two-wheeler maker Hero Honda has outperformed market expectations with volume growth of 11.1% year-on-year, against a flat growth of 1.9% for the rest of the two wheeler industry. The key reason for the over-achievement has been the company’s strong rural franchise, lower input costs, and lower discount offerings. In fact, the share of volumes from rural India has gone up from 40% a year ago to more than 50% at present. Though concerns remain over — less correlation to broader markets, falling interest rates and raw material cost — a major section of brokers are bullish on the scrip. What makes the stock attractive is the company’s significantly reduced dependence on financing with only 15% of the vehicles sold on finance. This protects the company against the current tight credit cycle.


HINDUSTAN UNILEVER


India’s leading fast moving consumer goods company, Hindustan Unilever (HUL) is expected to benefit from the sharp drop in commodity prices this year. HUL has been formidable in this space in the last nine months. The company, in fact, recorded its fastest growth in 10 years, growing volumes despite aggressive price increases. Currently, rural areas contribute 45% of HUL’s sales, which analysts feel will remain a strong growth driver in FY10. Although the stock is a defensive bet and has limited upside, analysts are positive on the business. The operating margin for the company is expected to improve in the quarters ahead as the benefits of lower material prices kick in. Even though the pace is expected to decelerate, HUL’s revenue will grow 15.6% y-o-y in the current financial year.


GODREJ CONSUMER PRODUCTS


Analysts count on Godrej Consumer Products to ride on its strong brand image in new markets following its acquisition of five companies in the hair care and personal care space. The sharp fall in palm oil prices, a key raw material in soap manufacturing, coupled with price hikes at the start of the year, believe analysts, will lead to margin expansion. A strong balance sheet is expected to enable organic as well as inorganic growth. The stock has low volumes, but looks technically strong.


BOC INDIA

BOC India, the arm of BOC Group, the second largest industrial gases company in the world, has recently won a 15-year gas supply contract from SAIL. The company plans to invest around Rs 500 crore in a new air separation plant and ancillary equipment to meet the growing demand for liquid products in eastern India. The stock, one of the star performers during last year, lies low on the wish list of analysts. Falling global demand of the product coupled with low volumes doesn’t make it a winning stock. Further, it looks technically weak and we will suggest investors to sell at every rally.


CASTROL INDIA


One of the best dividend paying stock, Castrol India has good numbers to boast of due to high volumes and improved price realisations. Analysts are neutral on this oil lubricant firm, though it can turn out to be a dark horse in 2009. The company’s sound business model and stable financials make it an attractive long term investment. Strong brand equity of Castrol products has enabled it to churn out good cash flows year after year. Even amid a decline in the automobile sector, analysts say the company’s lubricants will have a large potential market to tap.



GLAXOSMITHKLINE PHARMACEUTICALS


Analysts have a favourable recommendation for Glaxo smithkline Pharmaceuticals, which is one of the fastest growing players in this segment over the past few years. Better cost-effectiveness over the years have reflected in the company’s improved net profit margins. The margins have increased from 16.5% in 2003 to 25.3% in 2007. The pharma company has clocked a 10% growth in revenues at Rs 473.9 crore for the September 2008 quarter, as compared with Rs 428.7 crore in the previous corresponding quarter. Aggressive product launches this year, sitting on huge cash amount on books, strong domestic presence and attractive valuations makes it a company to watch out for.



SUN PHARMACEUTICAL INDUSTRIES


Sun Pharma has one of the low-risk business models among the Indian peers with a strong presence in central nervous system, pain management, ophthalmology, cardiovascular and respiratory segments. It is one of the fastest-growing companies in the domestic pharmaceutical market. Having facilities approved by the United States Food and Drug Agency for controlled substances in regulated markets, analysts feel the company has an edge in the niche controlled substances market. The high margin, strong earnings growth, low risk revenue model and strong balance sheet make it a good defensive bet. With no significant forex hedges, Sun is likely to reap major benefits of the sharp depreciation of the rupee against the US dollar.



NESTLE INDIA


Changing consumer preferences from unpacked/ unbranded foods to branded packaged foods is expected to provide the $70 bn Indian food processing industry a robust growth opportunity. According to analysts, Nestle, with its strong presence in milk and milk-based products, beverages, prepared dishes, chocolates and confectionery and baby foods segment, is the best play as it garners more than 90% of its revenues from domestic business. Nestle has a strong product portfolio with some of the best-known brands globally, such as Nescafe, Maggi, KitKat, Polo and Milo, which are amongst the top 50 brands in India. The company will also benefit from the sharp drop in commodity prices. The operating margin of the company is expected to improve in FY10 as benefits of lower raw material prices set in.

Stock views on Cummins, Sun Pharma, Infosys

CITIGROUP on INFOSYS TECH
CITIGROUP has cut its price target for Infosys to Rs 1,350 from Rs 1,420 while maintaining a ‘buy’ rating, citing likely disappointments in the company’s third, or October-December, quarter earnings on Monday. “We have lowered our FY10-11E estimates by 6% on the back on lower volume/pricing assumptions and cross-currency impact in Q3,” the bank said in a report. “With a likely disappointment in Q3 numbers and further EPS cuts, the stock could underperform near term,” it added.


BNP Paribas on SUN PHARMA

BNP Paribas has maintained its ‘buy’ rating on Sun Pharma and also its price target of Rs 1,695 after the company initiated an out-of-court settlement with the promoters of Taro to acquire it. “We believe that an increase in consideration by 16-23% for the residual stake doesn’t alter the appeal of the Taro transaction for Sun Pharma,” the bank said in a report. BNP expects Taro’s acquisition to be accretive to Sun’s earnings per share and have a “15% positive impact” on FY10 earnings. “Taro’s operational history has been marred by accounting issues and cash flow problems. Despite these problems, we believe Taro represents a significant synergistic opportunity for Sun Pharma,” it added.


Kotak Securities on CUMMINS

Kotak Securities’ private client research has maintained its ‘accumulate’ rating on Cummins, citing likely strong earnings in the October-December quarter, or the third quarter. But the brokerage expects the growth to taper off in the fourth quarter. “Due to factors like product price hikes, some softening of material prices, depreciation in rupee and continuing value engineering exercises, we believe there is a strong case for margin expansion in Q3 FY09,” Kotak said in a report.

Stock views on Texmaco, GMR Infrastructure, Sun Pharma

KRChoksey on Sun Pharma - Target Rs 1260
KRChoksey Research has maintained its buy rating on Sun Pharmaceutical Industries with a target price of Rs 1260 in its research report. "In Q3FY09, the company’s sales have increased marginally by 14.2% on a Y-o-Y basis to Rs 918.3 crore on the back of decline in the Caraco, the US subsidiary sales by 32%. We maintained our BUY rating to the stock with a target price of Rs 1260.0, implying an upside potential of 19.0%. At the target price, the stock would be valued at 15.5x FY09E EPS of Rs 81.4," says KRChoksey's research report


Prabhudas Lilladher on GMR Infrastructure - Target Rs 81

Prabhudas Lilladher has recommended an accumulate rating on GMR Infrastructure with a target price of Rs 81 in its research report. "We initiate coverage on GMR Infrastructure with an Accumulate rating and a SOTP-based one year target price of Rs 81. Over the past few years, this company has emerged as one of the leading infrastructure developers with key interest in airports, power and road assets. We believe that GMR, though on a learning curve, will be a major beneficiary from the huge investments committed in the 11th plan, and growing aviation sector," says Prabhudas Lilladher's research report.


SKP Securities on Texmaco - Target Rs 117

SKP Securities has maintained its buy rating on Texmaco with a target price of Rs 117 in its research report. "Net sales were up by 3.7% to Rs. 166.5 crores in Q3FY09 over Q3FY08. For nine months, sales were up by 18.2% to Rs. 568.7 crores. Contribution of heavy engineering division in revenues moved up marginally to 81.7%. Results are in line with our expectations and we maintain our BUY recommendation on the stock with a target price of Rs 117 in 12 months," says SKP Securities' research report.

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.

Take Your PICK: Part I - LARGECAP STOCKS

Divis Laboratories (CMP: Rs 1,393): An established player in the generic active pharma ingredient (API) space and leader among Indian contract research and manufacturing services (CRAMS) players, the company has attained market leadership in several key products. It has 20 of the top 25 innovator companies as its client in CRAMS segment. It recently commissioned a nutraceutical facility for the $1 billion global market, which has high entry barrier in the form of complex chemistry skills.

Sun Pharma (CMP: Rs 1,414): With strong earnings visibility and industry-leading earnings before interest, taxation, depreciation and amortisation (EBITDA) margins, Sun Pharmaceuticals has one of the best business models among the peers. The company’s business in the US is also maturing, with windfall gains expected from 180 days exclusivities apart from a healthy product pipeline.

Aban Offshore (CMP: Rs 2,695): The largest offshore rig operator in India, the company is ideally placed to capitalise on exploration and production (E&P) boom. It renewed contracts with ONGC at a sizeable premium, boosting its top-line visibility. It will deliver four jack-up drilling rigs in FY09 and is set to expand its fleet to 21 vessels. The addition of drill ships will reduce dependence on jack-up rig operations and attract premium rates due to low availability.

Tata Steel (CMP: Rs 618): It is the world’s sixth largest steel company. In India, it has just raised its crude-steel capacity from 5 million tonnes per annum (tpa) to 6.8 million tpa, of which 60% is rolled into flat products and the rest sold as long products. It also sells ferro alloys, tubes, bearings and some mineral products. TSL India’s raw material security and operating efficiencies put it among the lowest-cost producers globally. Its focus on high-value products and branding helps it earn high EBITDA margins of 40%. It should benefit from the likely rise in domestic prices in August this year.

Reliance Industries (CMP: Rs 2,147): The company has interests in E&P, refining, petrochemicals, textiles, telecom, electricity, financial services and infrastructure. Its petrochemicals business is vertically integrated with an output of around 11 million tons. It also operates India’s largest and most complex refinery with a capacity of 33 million tons. It is expected to start RPL and KG Basin production from Q3 FY09, which is expected to drive growth for the company. Also, it plans to invest $7.5 billion on semiconductor and polysilicon facilities at Jamnagar. Looking at higher crude prices and strong gross refining margin (GRM), this company has strong future prospects.

This research is made by Religare Securities