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Brokerage Recommendations

Wednesday, November 10, 2010

Elara Capital calls a ‘Buy’ on Glenmark Pharmaceuticals

CMP: Rs 369 Target Rs 495

All inclusive growth of brands drive domestic formulations: Glenmark has achieved robust growth across the segments in domestic formulations. The management is confident that domestic formulation growth is sustainable on the back of the company’s increase in sales, which is evenly spread out across the large and smaller brands. Candid, Candid-B, Telma, and Telma-H have led the surge in branded formulation portfolio.

US revenues shifts to niche drugs with limited competition: We note that the company is increasingly gaining revenues from niche therapeutic areas with smaller market size and stable market share. Increasing presence in hormones and dermatology has led the company’s niche therapeutic portfolio. The management believes that the filing ANDAs in respiratory segment would enhance the portfolio further in near to medium term.

Emerging market poised to change gear: With product rationalization, optimization of work force, and utilization of existing infrastructures since 2008, the company is poised to gain full benefits of its structural changes in its emerging market business. The management expects Latam continue to grow at 30% while Russia maintain its growth rate at 30-35% despite high base.

Valuation: Rerating expected; upgrade to Buy; TP at INR 495: With significant improvement in asset quality, lower working capital cycle, and huge valuation gap with peers, the valuation of the stock is poised to be rerated. We derive 12-month target price at INR 495, averaging FCFF and target PER methodologies. Assuming 8% risk-free rate, 5% risk premium, and 2% terminal growth rate, we derive price objective of INR 537 with WACC of 12%. We assign 18x (at 30% discount to the peers) to FY13 earnings to arrive at price objective of INR 466 in target PER. Our target price implies 35% upside potentials to the current market price. We upgrade our recommendation to Buy.



Angel Broking calls a ‘Buy’ on TIL

CMP: Rs 718 Target Rs 823

Construction equipment (CE) demand is driven by infrastructure spend and private capex. As per industry reports, total infra spend and industrial capex is expected to register a 13% CAGR over FY2010–12, increasing from `532,000cr in FY2010 to `684,400cr in FY2012.
CE volume is expected to register an 18% CAGR over CY2009 13 v/s 13% registered over CY2005 09. Consequently, total CE demand is expected to increase from 35,000 units at the end of CY2009 to 68,000 units by CY2013. Overall, we expect opportunities for CE manufacturers to remain robust.

We believe an improving economic scenario, continued government focus on infrastructure spend and pick-up in private capex augur well for companies supplying CE to the core sectors of the economy.
We expect TIL’s coal and mining solution (CMS) and power system solution (PSS) divisions to revert to their high-growth path, while the material handling equipment (MHE) division would continue to post healthy growth, with the new plant coming on stream by April 2011.

We estimate TIL to register a 31% CAGR in revenue and a 24% CAGR in net profit over FY2010 12E. The company’s RoCE and RoE are likely to be at healthy levels of 28% and 24%, respectively, in FY2012.

On the valuation front, at Rs 711, TIL is trading at 7.8x FY2012E earnings, which is at a discount to peers such as BEML and Action Construction Equipment, which are trading at 14.7x and 10.6x FY2012E earnings, respectively. Thus, we recommend Buy on the stock with a Target Price of Rs 823 at which level it, would trade at 9x FY2012E earnings.


Anagram calls a ‘Buy’ on Kaveri Seed Co.

CMP: Rs 409 Target Rs 450

Kaveri Seed Company Ltd. is India's one of the prominent hubrid seed player. We believe that KSCL is ideally positioned to capitalise on the rising demand seen for hybrid seed like cotton, sunflower and rice.Also with a timely expansion at Pamulparthi village, warangal Mandal, Medak district, the company will get the benefit of increased capacity expansion which will further boost earnings during FY11 and FY12. We rate the stock as a BUY with a Target price of Rs 450.

Capex will fuel future growth and smooth functioning: The company has invested more than Rs 60 Crs in recent past. This capex is enough to take top line to Rs 400 Crs in years to come from the present Rs 160 Crs. The capex includes Strategic green field expansion at Pamulparthi village, warangal Mandal, Medak district with state of art facility for utilizing cob drying, seed processing and cold storage on owned farmland of 29 acres.

Valuations: The KSCL is offering very wide range of product portfolio and available at very attractive valuation. The stock was historically trading at the 18X of the earning and EV was 15 times to its historical EBIDTA. The stock is currently trading at 13X and 11X on there FY 11 and FY 12 Earning. The company shows very attractive forward EV/EBIDTA of 8X on its FY 12 earnings. The P/E and EV/EBIDTA of company is trading at discount of 22% to its peers. By taking conservative stance we assign historical multiplier of 13X for FY 12 earnings its FY 12 earnings we recommend to Accumulate the stock with the target price of Rs 450.




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