| CLSA Asia Pacific Markets recommends a “buy” on Dr Reddy’s. The report is upgrading its forecasts for the company for 2006-07 by 33 per cent. This will reflect the company’s recent acquisition of betapharm and authorised generic upside for Proscar.
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| The report continues to be significantly ahead of consensus (72 per cent) and reiterates its hypothesis that the company has entered an earnings upgrade cycle after two years of downgrades.
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| The forecasts do not include authorised generic upside from Zocor, Zofran 180-day exclusivity or R&D-related benefits. The next trigger for the stock is the approval of Allegra generic.
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| Sandoz is expected to be the next generic in the market on June 9, 2006. Dr Reddy’s is expected to launch the authorised generic of Merck’s Proscar in June 2006. CIiplavax is the real generics which would get 180-day exclusivity.
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| Nilkamal Plastics: Tapping consumerism
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| SSKI, in its report, views Nilkamal Plastics as an opportunity to play the rapidly growing consumerism in the country.
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| The domestic market leader in the plastic crates and moulded furniture has diversified into lifestyle furniture business, wherein it plans to set up a chain of branded stores, @Home.
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| The report perceives high growth potential in the lifestyle furniture business. Nilkamal’s positioning is as an affordable brand. Also its traditional businesses would see better times ahead. @Home and the plastic processing business together augur well for Nilkamal.
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| The stock trades at 8.2x FY08E earnings. There is huge opportunity in the branded furniture business, which is expected to burgeon into a Rs 2,200 crore industry by FY10 from Rs 600 crore at present. This is a CAGR of 30 per cent, on the back of increasing consumerism.
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| India Cements: Southern comfort
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| CLSA Asia Pacific Markets recommends a “buy” on India Cements. The third largest cement group in the country and the largest in the southern region is set to report profit for FY06, the first time since FY01. The company has emerged much stronger financially.
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| Further financial improvement is likely as the cement industry in south has revived driven by a strong 25 per cent consumption growth during FY06. Reduction in sales tax and efficiency improvement will drive accelerated growth in earnings.
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| Financial burden has now become history for the company with net debt/equity falling to a comfortable level. This has been facilitated by an equity issuance of $100 million, turnaround in the business profitability, implementation of debt restructuring scheme and investments by private equity investments.
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| Interest cover, which has already moved up, will further improve by FY08. Further deleveraging is possible if the company goes ahead with its proposed FCCB issuance. |
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