Aurobindo Pharma
Reco Price: Rs 1,300,
Target Price: Rs 1,645
Aurobindo Pharma (AURO) revenues in the US market will be further augmented by the incremental approvals, traction in the sterile space and increase in market share in key products. The controlled substance foray will be revenue accretive in the long term. MNC deals will act as an additional distribution channel for the company. The ramp up in revenues in sterile space in 2011-12 will be margin accretive for the company. AURO’s US business revenues has grown at a compound annual growth rate of 95 per cent over the last four years primarily driven by significant product launches in anti-biotics (cephs), CVS and CNS space. AURO’s US revenues are expected to increase from $274 million in 2010-11 to $371 million in 2011-12. With requisite infrastructure and new alliances in place the company will have to clock in a CAGR of 27 per cent between FY10-FY14 to become a $2 billion company. Maintain buy.
—Karvy Institutional Equities
Coal India
Reco Price: Rs 309,
Target Price: Rs 298
Coal India (CIL) has already announced its inability to meet target volumes for 2010-11 and 2011-12, citing the extension of tough environmental norms. Volume growth and improving realisations remain compelling arguments for the stock to do better, but are equally difficult to execute on the ground. Wage cost controls may also prove to be more difficult than expected in the high inflation environment as of now. CIL’s employee cost increased by 17 per cent y-o-y in H1FY11. Due to increased efforts, production CAGR of CIL may increase marginally; however, it would continue to lag domestic demand growth. Despite deregulation, prices are still decided in consultation with various stakeholders, including the Indian government; realisation improvement will be a gradual process. Efforts to improve realisations through e-Auction and beneficiation, but will happen only by 2014-15. Maintain sell.
—Reliance Securities
Bhushan Steel
Reco Price: Rs 424,
Target Price: Rs 516
Bhushan Steel (BSL) has transformed itself into an integrated steel producer from only a converter (from hot-rolled to cold- rolled) via setting up a steel plant in Orissa. Brokerages believe backward integration benefits would significantly expand earnings. Volumes will be healthy on completion of phase-2. With ramp-up in BF operations and the HRC plant, it is set for robust volume growth. Phase-3 expansion, which is progressing well, would raise slab and HRC capacity to 5 Mtpa and 4.4 Mtpa, respectively, and result in the company becoming one of the largest private steel players in India. Backward integration will enhance margin by 770 basis points over FY10-13. Initiate coverage with buy.
—Anand Rathi Research
Kanpur Plastipack
Fair Value: Rs 40,
Current Price: Rs 31
Crisil Equities has assigned a fundamental grade of 2/5 to Kanpur Plastipack Ltd (KPL) indicating ‘moderate’ fundamentals. KPL is a domestic manufacturer of FIBCs which are used in bulk packing of chemicals, minerals and other commodities. Demand from the end-user industry coupled with the company’s capacity expansions are expected to drive its business growth and profitability. The undifferentiated nature of FIBC’s, increasing power costs on accouRs nt of increase usage of gensets as UP is a power deficit state and the susceptibility of its operating margins to changes in key raw material – polypropylene (PP) prices are the key risks. Crisil Equities expects KPL’s revenues to grow at a two-year CAGR of 24.5 per cent to Rs 150 crore in 2011-12, while EPS to increase to Rs 10 in 2011-12 from Rs 5 in 2009-10.
—Crisil Equities
