BHEL
Reco price: Rs 262;
Target price: Rs 206
Given the sharp increase in competitive intensity and slack demand for power generation capacity, India has gone from being an under-supplied market to an over-supplied one. BHEL, the market leader with 50 per cent-plus market share, is the key loser. Analysts expect its profits to decline 38 per cent overall during FY12-15. Coupled with declining margins (amid higher competitive intensity), analysts project a negative CAGR of 15 per cent in net profits over the same period. During the last downcycle in FY1999-2001, valuations bottomed at one-year forward multiples of 4.9 times P/E and 2.6 times EV/Ebitda – a 50 per cent discount to current one-year forward valuations of 10.3 times P/E and 5.3 times EV/Ebitda. Resume coverage with Underweight.
- Morgan Stanley Research
SUN PHARMA
Reco price: Rs 596;
Target price: Rs 634
The US Supreme Court has ruled in favour of Caraco (Sun Pharma’s subsidiary). Prandin, used for the treatment of Type 2 diabetes, has $250 million sales at the innovator level. After the favourable ruling, Caraco could get FDA approval for two other uses without infringing on Novo Nordisk’s specific patent. Analysts believe the positive ruling could accelerate the approval process and judgment over the pending patent infringement litigation. Caraco already has the tentative approval for generic Prandin and is the potential FTF on the product. Analysts estimate $35 million sales during the exclusivity period, assuming 50 per cent market share and 50 per cent price erosion. Maintain Accumulate.
- Angel Broking
