Ranbaxy Labs
(CMP Rs. 477, PE FY08E 23X, Market Cap Rs. 143bn, BUY with a revised price target of Rs 635 )
- Ranbaxy Laboratories ltd reported a marginal 6% year on year (yoy) growth in its earnings to Rs1368mn in Q1CY08, which was almost in line with our expectations. In fact, the one time gain of Rs 895mn from sale of properties managed the net profit to our expectations level, otherwise Ranbaxy has under performed in this quarter. The under performance was basically due to the reversal in the Rupee (Re) movement (against US$), which caused a notional forex translation loss of Rs 798mn in Q1CY08 against a gain of Rs 559mn in the corresponding previous year.
- Though Ranbaxy delivered subdued performance in Q1CY08, going forward, we believe with its diversified business model Ranbaxy can deliver better revenue growth on the back of improving revenue mix (i.e less dependence from highly competitive markets of US and Europe) and backed by the monetization of FTF opportunities for next 4-5 years.
- Looking the FTF pipeline (which includes certain FTF opportunity for two largest drugs of the world like - Lipitor (US market size $8.5 bn) in Mar 2010 and Nexium (US market size $5.5 bn) in May 2014 of the company. We Continues to be optimistic about Ranbaxy. Also the likely value unlocking from spinning-off of R&D unit (in H2CY08) adds sheen to the valuation of the company. Hence, we maintain our optimism on Ranbaxy's future performance and recommend buy with a revised price target of Rs 635 from our earlier price target of Rs. 536 dated 20th Feb 2008.
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Orchid Chemicals & Pharmaceuticals Ltd
(Rs251, FY09E - P/E 11x, HOLD with target price of Rs. 283 )
- Orchid Chemicals & Pharmaceuticals Ltd (Orchid) has entered into a strategic business alliance with Ranbaxy Labs involving multiple geographies and therapies for both in the finished dosage formulations and active pharmaceutical ingredients (API) segment. Also, this pact would establish a framework for enhanced future co-operation between the two Companies.
- The alliance will benefit both the parties, as Ranbaxy's global scale and market reach and Orchid's state-of-the-art development and marketing capabilities would expand the business of both Companies. Leveraging on the inherent strengths, both the organizations would mutually benefit from this pact enabling them to enjoy synergistic opportunities.
- The synergetic alliance is certainly a big positive for Orchid but we could incorporate development into our model, as both the management are yet decide the fine print of the pact and financial aspects of the deal. However, Looking at the niche product launch opportunities going ahead and strategic tie-up with Ranbaxy, we remain optimist about the Orchid's future operational performance. Thus, we recommend a hold with a target price of Rs 283.
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Satyam Computer Services Ltd.
(CMP Rs. 461, PE FY09E 14X, Market Cap Rs. 287bn, HOLD with a target price of Rs 501)
- Satyam Computers continues its good run, for Q4FY08 it recorded a consolidated sequential revenues growth of 10% to Rs 24160 mn, led by 9.4% volume growth and increase in the blended pricing. EBITDA margins expanded 130bps 22.8%, on account of higher utilization coupled with improvement in billing rate and higher offshore revenue shift. Net profit for the quarter was higher by 7.7% to Rs 4668.2 mn. The performance for Q4FY08, was quite inline with our expectation on the revenues front, however bottomline growth was marginally below our expectations, on the back of lower other income (Forex losses to the tune of Rs 400 mn). For FY08, consolidated revenues were higher by 30.7% to Rs 84734 mn and net profit was up by 20% to Rs 16878 mn.
- We expect Satyam to grow at a CAGR of 25% and 16% in revenues and net profit over FY08-10E, currently stock is trading at 14x FY09E and 13x FY10E earning. We value Satyam, 10% discount to out target multiple for Infosys, historically Satyam always trade at a 10-30% discount to Infosys, however in the last one year the discount gap has declined to a great extent. We believe, going forward with better growth traction expected in Satyam, the stock should trade at lower end of discount to Infosys.
- We Recommend HOLD on Satyam with a 12 months revised target price of Rs 501, at our target price stock will be valued at 16x FY09E and 15x FY10E earning.
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Zee News Ltd.
(CMP: 59, PE FY08A- 35X, Market Cap Rs.13.95 bn,Unrated)
- ZNL reported a net sales growth of 59.7% YoY in Q4FY08 to Rs1102.2 mn led by strong revenues generated from advertising and subscription segments, which was higher by 84.1% and 49.5% YoY respectively
- EBITDA margins frogleaped to 24.1% as against meager 1.2% in Q4FY07. Significant improvement in the margins was led by 1210bps margins improvement in existing business to 37.2% and lower operating losses in new business. Led by strong growth in the topline and significant improvement in EBITDA margins, net profit for the quarter was multiplied by 11 times to Rs 152.7 mn
- Zee Telugu and Zee Kannada have increased by Impressive 74.3% and 123.4% as compared to the corresponding period last year. It is also noteworthy that both the channels have already gained market share of 10.5% each.
- ZNL is planning to launch a new channel i.e. Zee Tamil by the end of July this year. Launch of this new channel will mark Zee's entry in the biggest market in the southern region but launching up this channel will add up to the expenditure of the company
- At current market price of Rs 59, stock trades at 35x on FY08 earnings. We do not have rating on the stock, but we remain positive on the long term prospects of the company.
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Infotech Enterprises Ltd.
(Rs 256, FY08A - P/E - 16x, Unrated Mkt cap - Rs 13.3bn)
- Infotech Enterprises Ltd (IEL) was incorporated as a private limited company in 1987 and subsequently converted into a public limited company in 1992. IEL operates from 25 global locations, including 7 development centers and accommodates the largest operations out of India for Engineering Services, Geographic Information Systems and IT services.
- IEL's consolidated Q4 FY 08 top line showed a QoQ growth of 6% to Rs 1873.9 mn, contributed mainly due to UTG segment revenues rising by 11.8% to $18.9 mn although EMI segment revenues showed a muted growth of 2.6% over the previous quarter to touch $27.9 mn. EBITDA for Q4 FY 08 was at Rs 340 mn higher by 6.3% compared to Rs 319.7 mn in Q3 FY 08, with EBITDA margins being almost flat at 18.1% as compared to the previous quarter. Net profit for Q4 FY 08 rose by 21.9% to Rs 260.1 mn as compared to Rs 213.3 mn in Q3 FY 08.
- The management has guided for a 30-35% growth in top line for FY 09 in dollar terms has stated that 60-65% of the current projections have already being covered which reflect the confirmed orders and the run rate. The IEL management also sees its FY 09 EBITDA margins in the 18-18.5% levels.
- IEL has already realized 60-65% of the projected revenues which gives the company strong earnings visibility and this has also been augmented by new client additions in the UTG and GIS segments, of which 1 is a big perpetuity customer. IEL is also looking to add 2000 new employees to scale its operations which give it significant opportunities to leverage its domain expertise. IEL is guiding for a 30-35% growth in top line and bottom line and is also expecting EBITDA margins of 18 to 18.5% in Y 09. At the current market price of Rs 256 the stock trades at 15.6x its FY 08 EPS of Rs 16.4 .Currently we do not have any active rating on the stock.
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Biocon Ltd.
(Rs.491, FY08A - P/E 11x, Unrated)
- On the quarterly basis, Biocon registered a flat consolidated top line standing at Rs.2666.3mn (Rs.2782.4mn in Q4FY07), a slip by about 4% y-o-y. However, the slip in the top line was the effect of absence of revenues from the Enzymes business which Biocon had sold to Novozymes for $115mn in 2007, which had contributed about 10% in Q4FY07.The operating margins remained flat at 30.9% in Q4FY08, while the operating profits slipped marginally by 4% y-o-y to Rs.825mn from Rs.857mn (Q4FY07) in conjunction with the revenue fall and the increase in the other expenditure by 14.5% y-o-y.
- On the yearly basis, Biocon's consolidated performance was subdued with a rise of 7% y-o-y in the top line, due to the lack of revenues from its Enzymes business. The Enzymes business had added about 11% to the total revenues in FY07. However, the top line growth to Rs.10.5bn was backed by the improved performance of the Contract Research segment which grew by 29% y-o-y contributing about 17% to the top line.
- Biocon will be launching Abraxane in June 2008 in India and about three months later in the middle-east Biocon is creating a separate Cardiology division forming a Cardio-Diabetes business unit which will carry out the R&D activities thereby focusing on brand building for its flagship, statin based product Statix.
- With the topline growing at aCAGR of 13% and the net profits growing impressively at 23.8%, Biocon's focus in fastening its R&D pipeline of novel and bio-similar products in the European and US markets, will enhance its biopharmaceutical business as it being the major growth driver for the company would provide robust opportunities going forward. Also, with the separate division of the cardio-diabetes business focusing on brand building for its flagship, statin based product Statix adds will enhance its momentum going forward.
_______________________________________________ - Key headlines in leading business dailies -
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- Tata gets US antitrust OK for Jaguar, Land Rover
- Mahindra & Mahindra drives Scorpio to Chile
- ABG Shipyard will build sub-sea vessels
- DLF enters into pact with TIDCO for Chennai project
- Wipro taps Unza to build product line
___________________________________________________________________________________Global Cues
- NZ central bank holds rates, opens door to a cut
- Concentrate on 2008 world harvest success-FAO
- S.Korean finmin presses for lower interest rates
- Japan Feb all-industries index down 1.4 pct
- U.S. crude falls near $118 as dollar recovers
- US home loan demand dives to '08 low, rates soar
- Canadian economy resilient,no budget gap-finmin
- US chill hits Japan exports, Europe wavers
- Nikkei up 0.4 pct, exporters up on softer yen
- China stock index opens up 7.98 pct after tax cut
MARKET VIEW:
Finally profit booking was seen in BANKING sector while REALITY and IT stocks remained in lime light.
Yesterday's move in key indices did not seem to surprise as it was definitely anticipated by market men after six days of winning streak. At this point of ranged trading Traders as well as Investors are advised to remain cautious and disciplined. Although last few trading sessions have helped market gain, on lost hopes and sentiments, one should always work on different moneymaking strategies rather to count on hopes. One should always remember that in market nothing remains stagnant, it's just matter of "time" to see your strategy achieving desirable goal.
All in all, in last three trading session although NIFTY made "higher tops higher bottoms" it was unable to close even in the previously mentioned range of 5050~5100. As per provisional figures, FII remained net sellers in cash segment yesterday. Peculiar Expiry day volatility could be order of the day. We continue to see strong support on NIFTY at 4970~4980 levels on lower side. On higher side profit booking in 5050~5100 range once again could not be ruled out.
SECTOR INDICES
BSE IT (3982.85):
For the day we are covering BSE IT index. This index had closed at 3982.85 levels, UP by 1.33% yesterday. Move in this index remained in line with our expectations. Going ahead, any close below levels of 3865 levels could see fresh sell-off in short term. TCS now trading at Rs.889.15/- has good support at Rs.874/- and any close below this level would see further sell-off taking this stock lower.
