Glaxosmithkline Pharmaceutical
Reco Price: Rs 2,223,
Target Price: Rs 2030
Glaxosmithkline Pharmaceutical’s (GLAX) business remains on solid ground, and analysts expect steady growth rates to continue. There is limited scope for rerating in the near term. GLAX reported healthy top-line growth (13 per cent YoY), driven by the domestic Pharma business (14 per cent YoY) while Iodex (4 per cent YoY) & exports (down 12 per cent YoY) were subdued. Growth in pharma was primarily led by volume, all segments doing reasonably well. Higher market share in hospitals and continued strong performance in rural areas aided growth across divisions. GLAX expects pharma business growth for calendar year 2011 to be at least similar to the previous year (14 per cent), driven by new launches and ramp up in sales force. GLAX expects pricing to remain stable and growth to be driven by rise in penetration and new launches. Maintain sell.
—Citigroup
DRL
Reco Price: Rs 1,537,
Target Price: Rs 1,957
Dr Reddy’s (DRL) management has maintained its $3-billion revenue target by 2012-13, indicating clear visibility for $2.7 billion. The company will look to increase market share for its backward integrated products in the US market. It expects approval on Fondaparinux soon and is ready for launch. In the domestic market, the company expects to see the scale in their rural expansion initiative from next year. In the Russian market, the management indicated that it would increase its focus in the OTC segment. In Germany, where the company has suffered in margins, it is focusing on the business outside of the tender market where margins are expected to be considerably better. Even though DRL got a favourable judgment from the district court in US in pending litigation with Sanofi on Allegra D24, the upside is now limited because of Sanofi switching Allegra to OTC. Maintain buy.
—IIFL
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Educomp Solutions Ltd
Reco Price: Rs 489,
Target Price: Rs 800
Educomp’s (EDSL’s) focus is on driving value by developing a strong IPled content base and by offering management expertise across the education spectrum. EDSL generated operating cash flows of Rs 250 crore in October-December qaurter as debtor days reduced; the management expects to remain cash-flow positive. Further, the company has forayed into higher education (engineering and management), though it is looking at a prudent, selective, acquisition-based approach for expansion in this segment. On Smartclass, the management remains confident of the securitisation model and the addition of a new independent vendor reaffirms this model. Total securitisation stands at Rs 995 crore, with Rs 660 crore at 100 per cent recourse and the remaining at 20 per cent recourse. While the incremental securitisation continues at 20 per cent recourse, the management target of 0 per cent could still take 1–2 years. Maintain buy.
—Religare Institutional Research
Marico
Reco price: Rs 125,
Target price: Rs 158
Marico entered Vietnam through an 85 per cent stake in International Consumer Products Corp (ICP), a hair-care company. ICP is a market leader in male shampoos with its XMen and L’Ovita brands. The management team, including CEO Phan Cong, has been retained. The acquisition was funded by ECBs at Libor + 300bps as well as internal accruals. In 2010, ICP had revenue of $25 million and Ebitda margin of 10 per cent. It recorded a revenue CAGR of 23 per cent over 2007-2010 period and has retained margins of 10 per cent in the past three years. Twenty per cent of ICP’s revenues come from food products under the Thuan Phat brand. Higher raw material prices and keener competition remain the key risks. Maintain buy.
—Anand Rathi