!!SAI PARSADAM!!

BIG BOSS

VIKAS PARSHURAM SAMWATSARE

&

VPS GROUP's

Buy Shasun Pharmaceuticals Ltd. For Target Rs.181

 

Incivek (used to treat Hep C from Vertex) has been recommended by USFDA to include a “Black Box Warning” label.....Negative for Shasun,  revise target price downward to Rs 181 (from Earlier Rs 233) & maintain BUY. 
Vertex announced, as instructed by USFDA, the company has incorporated USFDA’s most serious warning “Black Box Warning” on the label  of Incivek (Telaprevir) following reports that some patients die from severe skin reactions after taking it in combination with Peginterferon alfa & Ribavarin (Incivek combination treatment). 
According to USFDA, boxed warning of Incivek label would state that Incivek combination treatment must be immediately stopped in patients  experiencing a rash with systemic symptoms or a progressive severe rash. 
Though rash & serious skin reactions were known side effects of Incivek and have been reported previously. However, this is the first time  the company has reported that such reactions have resulted in fatalities. According to company, in phase 3  clinical trials less than 1% patients who received Incivek combination treatment experienced serious skin reaction.
Background:
Incivek was approved by USFDA in May 2011 for the treatment of Hep C in combination therapy and subsequently it was launched in August  2011. Vertex reported $254 million revenue from the Incivek in the latest quarter ending Sep 2012. From the Indian counterpart, Shasun was  in agreement with Vertex to supply API (Active Pharmaceuticals Ingredients) for Incivek.
Historical scenarios:
In the past US FDA has recommended boxed warning on many drugs including:
i) Cox -2 inhibitors like Merck’s Vioxx (Rofecoxib), Pfizer’ Celebrex (Celecoxib) for cardiovascular and gastrointestinal risks.
ii) On 17 November 2004, Depo Provera, (contraceptive injection) due to the risk of significant loss of bone density with long-term use.
iii) In 2006, Warfarin (anticoagulant) due to the risk of bleeding to death.
iv) On November 14, 2007, USFDA added a boxed warning to the GSK’s diabetes medication Avandia (Rosiglitazone), citing the risk of heart  attack to patients with underlying heart disease or are at a high heart attack risk.
v) On July 8, 2008, USFDA ordered a boxed warning on certain antibiotic medications containing Fluoroquinolone, which has been linked to  tendon ruptures. Other drugs included were the popular Cipro (Ciprofloxacin) Levaquin (Levofloxacin) Avelox (Moxifloxacin), Noroxin  (Norfloxacin) and Floxin (Ofloxacin) etc.
We accessed that revenue of most of these drugs which have been recommended for black box warning label by USFDA, have declined  post warnings label. Also, very few of them have been withdrawn from the market. For example COX -2 inhibitors, (Vioxx, Celebrex) were  withdrawn from the market while revenue of Avandia (Rosiglitazone) declined ~70% after black box warning.
Likely Scenario for Incivek:
USFDA believes that potential benefits of Incivek combination therapy, namely reduction in morbidity & mortality from the complications of  chronic hepatitis C infection, outweigh the potential risk of mortality from serious skin reaction.
Hence, we are of the view that withdrawal of the drug from the market in near to medium term is unlikely. However, revenue may decline  going forward. We believe that due to critical demand of Incivek linked with its effectiveness, it is too early to assess the potential of revenue  decline. Hence, we would like to watch Incivek performance closely.
Impact on Shasun:
We believe that given development may have negative impact on Shasun’s financials in near to medium term due to decline in API’s  revenue & unfavorable operating leverage of Shasun UK. According to our estimates, Incivek API supply was likely to contribute ~$20 million  per year to Shasun’s revenue.
We believe that Shasun has many other APIs in pipeline (~8 in Phase III) with its UK subsidiary, which would propel the growth of company  in future, however the given pipeline does not have as big a molecule as Incivek, except for Alzheimer disease, which is likely to take at least  two years on condition of successful completion of Phase III clinical trials.
Assuming no withdrawal of drug but black box warning impact of 20% reduction in our estimated revenue from Hep C API supply in FY14E &  FY15E, we have adjusted revenue & margins for the company & reached at Target Price of Rs 181 (based on DCF valuations).
Revise target price downward to Rs 181 (from Earlier Rs 233) & maintain BUY
Post this news the stock has seen sharp negative reaction Additionally, company has already delayed the opportunity of Erectile Dysfunction  (ED) drug supply. However, supply of Sevelamers from August 2013 onwards may be trigger in medium term. Further, due to stretched  balance sheet & unfavorable operating leverage of the company we believe that company is likely to report ~10% earnings CAGR during FY12-15E. We maintain BUY on the stock with downward revise target price of Rs 181 (Based on DCF valuation). (Earlier Target Price was  Rs 233).

**********************************************

Buy Marico Ltd. For Target Rs.248

 

Marico is the market leader in the branded coconut oil and super-premium refined oils categories, and a significant player in the  value-added hair oils category. In addition, Marico has made significant headway in high-growth categories that include deodorants, body lotions, and  breakfast cereals. Given positive market share trends, we estimate the company's revenues shall grow 18% CAGR through FY12-FY15E. On  account of improving gross margins, we expect 22% CAGR in earnings through FY12-FY15E.
Longerterm, we think that Marico has a built a  platform to deliver strong revenue growth, and there is significant room for margin expansion through scale and higher contribution of new/  value added categories, supporting valuations. We initiate coverage on Marico with a BUY recommendation, and price target of Rs 248.
  *********************************************************************************

Buy Havells India Ltd For Target 684.00

  Havells India Ltd, is a $1.3 billion leading Fast Moving Electrical Goods (FMEG) Company and a major power distribution equipment manufacturer with a strong global footprint.
During the quarter, the robust growth of Net Profit is increased by 23.82% to Rs. 869.70 million.
During the quarter, Havells India has launched a new range of premium domestic appliances.
Havells India has launched new products in the market – Reo Switches, Smoke extraction motors and fans.
The Company has expands the existing Havells Galaxy chain by opening 30 more stores across India taking the total galaxy figure to 177.
Havells India has invested Rs 6.1 crs in Jiangsu Havells Sylvania Lighting Co.Ltd China.
Net Sales and PAT of the company are expected to grow at a CAGR of 18% and 20% over 2011 to 2014E respectively.

Outlook and Conclusion
At the current market price of Rs.605.00, the stock P/E ratio is at 20.38 x FY13E and 18.24 x FY14E respectively.
Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.29.69 and Rs.33.17 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 18% and 20% over 2011 to 2014E respectively.
On the basis of EV/EBITDA, the stock trades at 13.28 x for FY13E and 11.64 x for FY14E.
Price to Book Value of the stock is expected to be at 3.82 x and 3.16 x respectively for FY13E and FY14E.
We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.684.00 for Medium to Long term investment.
*********************************************************
 Buy Garware-Wall Ropes Ltd. For Target Rs.58.00

  Garware-Wall Ropes Ltd is a leading manufacturer of technical textiles for variety of applications in the various sectors.
* During the Second quarter ended the robust growth in the Net Profit of the company & is rose by 7.11% to Rs. 60.24 million.
* Garware’s revenue for the quarter increase 10.97% to Rs.1541.68 million from Rs.1389.25 million, when compared with the prior year period.
* Garware-Wall Ropes Ltd further pursued & has entered into two new business segments: Agritech & Coated fabrics.
* The Company is Government recognized 'Export House' & has received Export Awards for excellent performance.
* Garware Environmental Services Pvt Ltd a Joint Venture company to start the commercial operations.
* The company profit before interest, depreciation and tax is Rs.169.75 millions as against Rs.146.30 millions in the corresponding period of the previous year.
* Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 9% over 2011 to 2014E respectively.
Outlook and Conclusion
* At the current market price of Rs.51.00, the stock P/E ratio is at 4.31 x FY13E and 3.84 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.11.83 and Rs.13.27 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 12% and 9% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 3.19 x for FY13E and 2.92 x for FY14E.
* Price to Book Value of the stock is expected to be at 0.43 x and 0.39 x respectively for FY13E and FY14E.
* We expect that the company surplus scenario is likely to continue for the next years, will keep its growth story in the coming quarters also.  We recommend ‘BUY’ in this particular scrip with a target price of Rs.58.00 for Medium to Long term investment.
The company continue to be one of the largest manufacturers of products in the world & the marketing strategy aimed at new products and  new markets has enabled growth in market share in international market.
  ***********************************************
Buy Larsen & Toubro Limited For Target Rs.1916.00

 
Larsen & Toubro is a USD 12.8 billion technology, engineering & construction group with global operations. 
* L&T has bagged orders worth Rs. 1439 crores from leading developers for the design & construction of major residential building projects in Delhi.
* During the quarter, the PAT stood at Rs. 11373.10 million recorded a rise of 42.45% over the corresponding quarter of the previous year.
* L&T Construction has secured new orders valued Rs. 2130 crores across various business segments in September 2012.
 * L&T has secured further new orders valued Rs. 1744 crores across various business segments.
* L&T has restructured its IT and L&T IES businesses with a view to accelerate growth in the technology space.
* L&T has bagged Prestigious Order for Manufacture of Cryostat for International Fusion Energy Project.
* L&T has secured an offshore contract valued at Rs. 749 crore from the ONGC.
* L&T has Secures Rs. 1302 Crore Order from Petroleum Development Oman.
* Net Sales and PAT of the company are expected to grow at a CAGR of 18% and 16% over 2011 to 2014E respectively.
 
Outlook and Conclusion
*   At the current market price of Rs.1696.00, the stock P/E ratio is at 19.66 x FY13E and 17.20 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs. 86.25 and Rs.98.59 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 18% and 16% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 12.61 x for FY13E and 11.16 x for FY14E.
* Price to Book Value of the stock is expected to be at 3.41 x and 2.85 x respectively for FY13E and FY14E.
We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.1916.00 for Medium to Long term investment.
  ***********************************************************************
COPYRIGHT @VPS GROUP'S DEC 2012 AND VIKAS P SAMWATSARE 
PARSADAM