!!SAI PARSADAM!!
VIKAS PARSHURAM SAMWATSARE
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Dhanuka Agritech reported revenues in line with expectations. Reported revenue of Rs 206.3 cr grew 6.4% yoy and 90.8% qoq, with sales picking up at in the second half of the quarter with late monsoons. Absolute EBITDA grew 8.5% yoy and 94.2% qoq while EBITDA margin rose to 14.8% (up 30 bps yoy and 20 bps qoq) on lower other expenses. PAT rose at a higher 12.9% yoy and 111.4% qoq on strong operational performance and lower interest expense. H1FY13 sales have grown 9.1% yoy while PAT grew 12.4% over H1FY12.
Management is quite optimistic about rabi due to good moisture levels in many states, sufficient reservoir levels and good rains in South India. Higher volumes are expected to drive growth in H2FY13. So far, Q3 FY13 sales have picked up well.
Key Highlights
* Revenue growth of 6% during the quarter has been contributed equally by volume growth and price hikes. There have been no new launched during the quarter. DAL has launched a biofertilizer in Q3FY13.
* Forex loss during the quarter stood at Rs 1 cr (vs. Rs 0.5 cr in Q2FY12).
* Insecticides contribution to sales has increased during the quarter while that of Fungicides has fallen. Insecticides, Herbicides, Fungicides and PG Rs contributed 49%, 31%, 10% and 10% respectively to sales in H1FY13/
* North, South, East and West zones contributed 27%, 26%, 13% and 34% of sales in H1 FY13, with contribution from West zone falling due to droughtlike condition in Saurashtra, Gujarat.
* DAL has bought 10 acres land in Rajasthan at a cost of Rs 5 cr to set up a Greenfield facility for formulations with a total capex of Rs 45 cr. This unit is likely to get commissioned in March 2014, and will be funded entirely from internal accruals
Valuation & Recommendation
At CMP the stock trades at 9.9x FY13E and 8.2x FY14E. With Q2FY13 sales picking and the company being able to maintain margins, and with an optimistic outlook on rabi, we have revised our numbers upwards. Rolling forward our estimates to FY14E, we arrive at a target price of Rs 146 (based on 10.0x FY14E EPS) indicating potential upside of 14% from current levels. We maintain our HOLD rating on the stock.
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Buy Ipca Laboratories Ltd. For Target Rs.527
Ipca Labs:…achieved target of Rs 527, revise upward to Rs 603 & maintain BUY
As on 22nd October 2012, at prevailing market price of Rs 459, we initiated detailed coverage on Ipca Labs & recommended BUY with the target price of Rs 561. However, due to Ipca’s voluntary reporting of few non-conformances for USFDA approved Indore facility in November 2012, we revised target price downwards to Rs 527. Yesterday (as on 26th December 2012), the stock achieved our target of Rs 527, yielding ~15% return in 2 months period.
Our recommendation was based on the following rationale:
Domestic formulation business likely to achieve historical growth rate in future:
Domestic formulation business contributed ~33% of total business (~Rs 23 billion) in FY12. On the back of company’s leadership position in anti malarial segment, antirheumatoid arthritis & pain management segments and increase in productivity of existing field force, we expect company to report 18.3% revenue CAGR during FY12- FY15E.
Branded promotional business is likely to grow above 25% y-o-y:
On the back of increase in penetration and positive industry outlook, we expect branded formulation business to grow at 22% CAGR during FY12-15E. In ~40 emerging countries, Ipca promotes its generic branded products own self with ~500 field force. Ipca’s major market for this business is CIS region, which contributed ~Rs 800 million, where company has field force of ~200 people and markets ~10 products. Other key markets for this business are South East Asia, Middle East Africa, Latin America & West America.
Ramp up in Indore SEZ & favorable currency would help in expansion of margins:
Company’s EBITDA margins are expected to increase by ~100 bps y-o-y to 22% level in FY13E & another ~120 bps y-o-y to 23.2% in FY14E on the back of favorable currency movement, increase in utilization of Indore SEZ & favorable product mix. Currently, Indore facility is supplying drugs to semi-regulated markets including New Zealand & Australia and it is at break even. Currently, this facility is not supplying any drugs to US market & there is no recent update on that. However, we believe supply to start in FY15E only.
Institutional (anti malarial) business likely to maintain the growth momentum:
We believe that company’s institutional business (anti malarial business mainly in Africa) is likely to grow at healthy rate of above 20% y-o-y in FY13E & FY14E on the back of increase in penetration for anti- malarial drugs in African region & continuous funding from various charity programs including “The Global Fund” AMFm (Affordable Medicine Facility – malaria). Management has guided Institutional business to report revenue of ~Rs 3.70 billion in FY13E & ~Rs 4.50 billion in FY14E
Valuations & Current Recommendation
We were of the view that given the positive outlook for business, Ipca is strong candidate for re-rating. Inline with our view, valuations have expanded from forward P/E multiple of 10x to 14x in the last one & half year. At current market price of Rs 529, the stock is trading at P/E multiple of 17.2x of FY13E & 14x of FY14E earnings estimates. Still stock is trading at 25%-30% discount to the mid size pharma companies like, Glenmark, Cadila & Torrent. We expect valuations gap to narrow down going forward. Hence, we maintain BUY rating on the stock & revise target price upward to Rs 603 (valuing at 16x of FY14E earnings estimates. We maintain our financial estimates but expect valuations to expand from current P/E multiple of 14x to 16x).
Buy Lords Chemicals Ltd For Target Rs. 31.00
Lords Chemicals Ltd is leading Indian manufacturer of basic industrial chemicals like sodium Dichromate, Chromic Acid & Chrome Oxide Green etc.
* The main consumer industries of these products are Iron & Steel Industry, Paints & Pigment Industry, Chromic Acid Plant, COG Plant, Paper Industry, Acid extraction, Electroplating.
* Lords Chemicals Ltd has demonstrated the results during the quarter; its boisterous growth of Net Profit is steers by 1340.42% to Rs. 48.11 million.
* Lords Chemicals Ltd has recommended a dividend @ 5% on the paid up Share Capital of Rs.1,25,300,000 for the year ended March 31, 2012.
* The chemical is used in variety of applications like pigments, wood preservation, metal treatment, pharmaceuticals, etc.
* Profit before interest, depreciation and tax is Rs.53.00 millions as against Rs.9.02 millions in the corresponding period of the previous year.
* Net Sales and PAT of the company are expected to grow at a CAGR of 41% and 28% over 2011 to 2014E respectively.
Outlook and Conclusion
* At the current market price of Rs.27.40, the stock P/E ratio is at 22.07 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.1.24 and Rs.1.50 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 41% and 28% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 7.32 x for FY13E and 5.69 x for FY14E.
* Price to Book Value of the stock is expected to be at 1.42 x and 1.32 x respectively for FY13E and FY14E.
The second quarter witnesses a healthy increase in overall sales as well as profitability on account of powerful combination of exciting products, an enhanced store network and robust infrastructural Support system. 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.31.00 for Medium to Long term investment.
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COPYRIGHT VIKAS PARSHURAM SAMWATSARE JAN2013
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