Analysts' corner

Lupin, MOIL, Areva T&D & Century Plyboards

LUPIN
Reco price: Rs 473
Target price: Rs 530
A Markman hearing in a US district court essentially boils down to the construction on three disputable terms, which are part of the patent claims covering Fortamet (metformin hydrochloride, an antidiabetic drug). Lupin was sued for its abbreviated new drug application (ANDA) by Sciele Pharma (now Shionogi Pharma) in January 2009. However, despite the approval by the USFDA on June 29, the company has not launched the product due to the litigation. Mylan is another player being sued by Sciele Pharma on these patents. The court has adopted the constructions agreeable to all parties on the disputed terms, which analysts believe sets the case for a possible trial. Analysts have factored in the sales of $15 million in FY12. Lupin recently received approvals for levetiracetam xr (a drug for epilepsy), eszopiclone (for insomnia) and tramadol (for pain) generics. Maintain overweight.

—HSBC Securities

MOIL
Reco price: Rs 308
Target price: Rs 285
MOIL's stock has fallen 31 per cent this year, underperforming the Sensex by 14 per cent on weak ore prices and high inventory at Chinese ports. The international manganese ore prices have likely bottomed (close to the marginal cost of production). However, a medium-term recovery is unlikely, as ore is in surplus (global demand: 35 million tonne (mt), supply: 47mt) and the inventory exceeds 4 mt (eight per cent of the production), higher than the 2008 peak. Citigroup has reduced MOIL's target price from Rs 295 and cut the FY13 net profit estimates by 12 per cent, as it lowers the ore realisations by 13 per cent to average the $6 vs $7 per DLTU earlier. MOIL is India's largest manganese ore producer and its dominant position, good quality ore, centrally-located mines, customer ties and strong balance sheet augur well. Its valuations, however, discount these. Maintain sell.

—Citigroup

AREVA T&D
Reco price: Rs 219
Target price: NA
Areva T&D India has won a contract for constructing two 765kv sub-stations valued at Rs 220 crore from Bhopal Dhule Transmission Co Ltd (a subsidiary of Sterlite Technologies). This will refill the order book to some extent. However, concerns loom as order inflows have been dismal in the T&D segment. Similar to the previous quarter, analysts believe the company is likely to witness base or low-value orders as a bigger portion of the order inflows for the current quarter. This will categorically lead to a dip in the order backlog growth, thereby raising concerns on the future visibility. In addition, the near-term outlook will be challenging -- ordering activity in the T&D space is likely to be muted, given the overall malaise in it. The stock currently trades at rich valuations of 27.4 times CY2011 estimated earnings. Given fewer triggers, the stock seems to be fairly valued and the upside from the current level seems limited. Maintain neutral.

Angel Broking

CENTURY PLYBOARDS
Current Market Price: Rs 64
Fair Value: Rs 73
Century Plyboards' consolidated revenues grew by 33.4 per cent y-o-y to Rs 417 crore. Revenues from plywood and allied products, and cement grew 30 and 26 per cent y-o-y, respectively. Higher volumes and better pricing supported growth across all segments, except cement (realisations fell by 2.5 per cent y-o-y, as cement prices in the north-eastern region were affected by the supply pressure from the eastern region) where sales were largely driven by the 29 per cent volume growth. The EBIT margin declined 483 bps y-o-y owing to a sharp fall in it in cement. Overall, the net profit grew 5.7 per cent y-o-y on account of the higher other income and the lower tax outgo. Crisil research maintains the fundamental grade of 3/5.

Crisil Research