The top pharma, travel scrips

STREET CUES

International Travel House (ITHL), Nagarjuna Agrichem (NACL), Cadila Healthcare (CHL) and Dishman Pharma and Chemical are the top picks of brokerages houses Edelweiss, HDFC Securities and India Infoline.

According to World Travel & Tourism Council, the $53.5 billion Indian tourism industry is slated to grow to $128 billion by 2016 led by strong economic growth, rising income levels, consumerism and increasing business and domestic travel.

Mumbai based Edelweiss believes that International Travel House (ITHL) is among the few end-to-end providers in the industry and is well poised to benefit from the current boom.

"We expect the Indian car market to grow at 23-25 per cent over the next three-five years. This augurs well for ITHL as it is amongst the top five players in this industry and derive 72 per cent in FY09E of its commission from this business.

Given the booming tourism sector, the ITC pedigree, launch of portal, and strong focus on the car rental industry, the prospects of the company appear extremely bright.

"We expect ITHL's revenues and profits to grow at 29 per cent and 33 per cent CAGR respectively, between FY07E and FY09E.We initiate coverage with a 'Buy' recommendation," said Edelweiss in its research report.

Nagarjuna Agrichem, part of the Nagarjuna Group, is HDFC Securities' fundamental pick. In addition to a growing presence in agri business, the group has made significant investments in core sectors such as refining, power generation and life sciences.

During FY06, total sales increased by 17.6 per cent compared with the previous year. Though domestic sales were the same as in the previous year, exports grew by 115 per cent, resulting in overall sales growth. In Q3FY07, net sales increased by 32 per cent.

"Owing to price competition among various manufacturers, operating margins continue to be under pressure. Based on a nine-month comparison, PAT and EPS have decreased by close to 20 per cent. While Q3 does show an upturn in performance, the lacklustre performance based on nine-month results can be attributed to natural conditions. However, fundamentals remain strong. NACL is available at under 8.2 times annualised FY07(E) EPS," stated the report.

Cadila Healthcare and Dishman Pharma and Chemical are the favourite picks of Sachin Neema, vice president-research, India Infoline.

Cadila Healthcare is expected to record revenue CAGR of 20 per cent to Rs 24.9 billion over FY06-09, driven by strong growth in the export formulations market. Domestic formulations growth is likely to rebound in FY08 and would be above industry average growth.

Operating margins are estimated to expand to 21.7 per cent over FY06-09. He believes at the current market price, the stock is trading at 17.7x FY07E EPS of Rs 17.8 and 14.3x FY08E EPS of Rs 22.1.

CHL is estimated to trade at 19x FY08E and 15x FY09E, considering increasing visibility in export formulations, strong foothold in the domestic market and returns ratios in excess of 22 per cent.

Dishman Pharma and Chemicals is another stock that has a good upside, according to Neema. "We expect Dishman to witness revenue CAGR of 77.4 per cent to Rs 8.73 billion over FY06-08. Carbogen Amcis would be the growth engine for the company over the next few years and is expected to account for 48 per cent of sales by FY08.

"Dishman is well placed among peers to capitalise on the lucrative contract research and manufacturing services opportunity," feels Neema.