24 Sept 2008
Stock picks and investment ideas from stockinvest.in
Lupin
CMP: Rs 721
Target Price: Rs 938
Citigroup Global Markets has maintained its ‘buy’ recommendation on the stock saying the company’s initiative to build a global presence through small acquisitions and the buyout of a majority stake in Pharma Dynamics of South Africa would boost inorganic growth.
“This is the company’s third acquisition in FY09 after Hormosan (Germany) and a minority stake in Generic Health (Australia). We believe the small size has kept valuations reasonable & expect all deals to be EPS and RoI accretive from FY10,” said Citi in a note to its clients.
Citi has rated Lupin as ‘medium risk’ citing generic competition in Suprax (around 5% & 16% of sales & PBT) as the key reason. According to Citi, rising input costs due to Chinese government’s crackdown on environmentally unfriendly plants could hurt profitability. “Inability to effectively integrate the Kyowa acquisition could take a heavy toll on profitability as well as return ratios,” added the Citi note.
Opto Circuits
CMP: Rs 287.25
Target Price: Rs 463
Kotak Securities has maintained a ‘buy’ rating on the stock saying the valuations are very attractive considering the strong market positioning, potential introduction of new products, front end R&D set up (with the Criticare acquisition) and strong management.
The brokerage expects OCIL to register a 56.7% and 43.7% compounded growth in revenues and earnings, respectively over the next two years. It expects revenue growth of 73.9% to Rs 8.1 billion and net profit growth of 43.5% to Rs 1.9 billion in FY09.
“The key growth drivers for topline would likely to be stents business which is expected to grow at about 80% while non-invasive segment is expected to grow at 77%, mainly due to Criticare acquisition,” said the Kotak note. According to Kotak, net profit margin is likely to decline to 23.8% in FY10 as against 28.3% in FY08 mainly due to higher interest cost.
“The company has raised $52 million debt to fund the Criticare acquisition. We expect 43% and 44% growth in EPS in FY09 and FY10, respectively. In FY09, we expect EPS of Rs.20.2 while in FY10 we expect EPS of Rs.29,” the note added.
Ranbaxy Lab
CMP: Rs 308.85
Target Price: Rs 271
Morgan Stanley has downgraded its rating on Ranbaxy to ‘underweight’ saying the recent FDA action will erode the company’s US business considerably, thereby rendering the business model incomplete and lowering its stature in the global generic industry.
“We expect a significant decline in base earnings along with a stock de-rating in the coming months,” said Morgan Stanley in a note to its clients. According to Morgan Stanley, sorting out FDA issues, resolving a Department of Justice enquiry, integration with Daiichi, and managing the negative fallout of the FDA action in other markets are the key challenges for the company.
“Ranbaxy stock currently trades at 25x 2008 and 21.8x 2009 EPS estimates (21.9x and 19.6x excluding exclusivities, Rs 42 per share using NPV vs 17.5x one-year forward sector earnings multiples,” the note said.
Ashok Leyland
CMP: Rs 28.95
Target Price: Rs 30
Edelweiss Research has maintained its ‘accumulate’ rating on the stock but adds that it does not expect any near-term positive triggers for the company. “The company’s interest cost is also likely to go up significantly on higher debt,” said Edelweiss.
Ashok Leyland’s management has admitted that the recent slowdown in industrial activity has affected the goods medium and heavy commercial vehicles (M&HCV) sales, Edelweiss said. However, it expects things to pick up in H2FY09 and has guided to match FY08 goods M&HCV sales (down 1.2 % YTD), at around 60K in FY09.
“The company currently has around 3-4K bus orders on hand (around 25% of its sales come from bus segment); it expects moderate growth in this segment during FY09E over FY08,” said Edelweiss is a note to its clients.
Recently, the company had signed a master cooperation agreement with Nissan to manufacture light commercial vehicles (LCVs) and power trains in India. “Manufacturing is scheduled to commence in December 2010 and the company targets to achieve 100K units per annum of sales in thee years and 200K pa of sales in five years,” the note added.
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