US court overturns Ranbaxy bid to block launch of rival generic drugs

US court overturns Ranbaxy bid to block launch of rival generic drugs: In a setback, the US court has denied a request by drugmaker Ranbaxy Laboratories to stop competitors from launching copies of AstraZeneca Plc’s heartburn pill Nexium and Roche’s antiviral Valcyte. Ranbaxy had sought the restraining order against Dr Reddy’s Laboratories and US firm Endo International Plc in a lawsuit it filed  against the US Food and Drug Administration last week for revoking tentative approvals to launch Nexium and Valcyte copies in US. US District court has denied the same to Ranbaxy.

Nexium and Valcyte were expected to add about ~US$180mn and US$80mn to Ranbaxy’s overall sales in the first six months of its launch, during the exclusivity period. Earlier this month, the USFDA, revoked the tentative approvals for the both drugs citing that it had made an error in granting the company tentative approval to launch the drugs, given manufacturing quality lapses at Ranbaxy’s India plants. Ranbaxy and the FDA have until Nov. 21 to submit a schedule for further proceedings in the case. We remain neutral on the stock.

Weekend Highlights – 22 November, 2014

Moodys: Global base metals industry: Prices to remain low, outlook stable
The outlook for the global base metals industry remains stable, Moodys Investors Service says in a new report. Copper, nickel and zinc are expected to trade within the price ranges seen this year over the next 12 to 18 months, while aluminium could exceed 2014 trading ranges. Prices will also continue to be volatile, with heightening concern over global growth factors tipping risk to the downside.Moodys outlooks reflect its expectations for the fundamental business conditions in a given industry over the next 12 to 18 months.

We expect average prices for copper, nickel, zinc and probably also aluminum to stay within 2014 ranges over the next year or so and to continue to show a pattern of gains and retreats, says Senior Vice President, Carol Cowan. Prices will remain vulnerable to influences including global economic growth rates, Chinese export/import levels, production disruptions and foreign-currency movements. Fundamentals wont support a break-out price recovery.

Uneven global economic expansion and slowing growth in China, the worlds biggest consumer of base metals, as well as in Europe and Brazil account for the subdued outlook for price recovery next year, despite the current strength of the US economy, Cowan says in Recovery Elusive: Downside Risk Developing on Slow Global Growth. Further, these factors have led to increasing risk to the downside for the base metals industry. Market perception, the strength of the US dollar and geo-political concerns will also continue to affect prices.

Next year base metals producers will remain focused on cost savings and capital discipline. Cost creep will continue, but at lower levels. In recent years base metals producers have more strictly managed capital investments, in particular projects and acquisition activity, after substantial spending in these areas, Cowan says. In 2015 they will continue to focus on strategic projects, while cost savings achieved to date and ongoing initiatives will help ease some of the pain from lower prices.

Ind-Ra: Revised Regulatory Guidelines to Structurally Strengthen NBFCs
The Reserve Bank of Indias (RBI) revision of guidelines for non-banking financial companies (NBFCs) is a step towards convergence of regulations between banks and large NBFCs and will increase transparency through better disclosures, India Ratings & Research (Ind-Ra) believes.The transition towards the 90 day past due (dpd) NPL recognition norm and the minimum tier 1 capital of 10% would reduce the prevailing regulatory arbitrage between banks and NBFCs for a similar set of assets. While the reported profitability of NBFCs is likely to be significantly impacted in the transition phase, long-term effects are likely to be moderate.

Assuming 10% coverage on incremental NPLs and 20% loan growth, the profitability of NBFCs may be impacted in the range of 1bp-15bp on an on-going basis. The impact, however, is likely to be higher in the transition period till FY18 (up to 30bp) as incremental provision would also have to be taken on the stock of portfolio in addition to loan growth.

Notable exceptions in Ind-Ras rated universe are NBFCs whose existing provision policies recognise NPLs on 90dpd basis. These are Fullerton India (IND AA+), Kotak Mahindra Prime (IND AAA) and Religare Finvest (IND AA-). Sundaram Finance (IND AA+) provides on 120dpd basis and the impact on its profitability will be minimal.

If the process of convergence in regulations continues, Ind-Ra expects NBFCs to accrue some benefits that currently apply only to banks. These include variable risk weighting based on riskiness of the underlying asset, tax deduction for loan loss provision and applicability of SARFAESI Act.

Provision Also For Smart Counties In 2015-16 Budget: PHD Chamber
India Inc. is eagerly awaiting an announcement in the forthcoming budget for setting up of Smart Counties across the country with a budgetary allocations on lines of 100 smart cities for which provisioning already made to the tune of over Rs.7,000 crores in the budget proposals for 2014-15 by the Finance Minister, Mr. Arun Jaitley, according to a random assessment conducted under aegis of PHD Chamber of Commerce and Industry on budgetary expectations for fiscal 2015-16.PHD Chamber which largely represents the MSMEs segment of India Inc. is of the view that Smart Counties are also the need of hour as created with cluster approach with all digital facilities amalgamated with them will end up fuelling the migration and purge the present urban and semi-urban congestion on their infrastructure, economy, industry and civic amenities, says the President of the Chamber, Mr. Sharad Jaipuria.

It also holds that at a time when aspirations of masses, especially that of rural India are rising and hopes being aroused for their realization under the present dispensation being led by Prime Minister Modi, the concept of Smart Counties would be an instant success as it would involve optimum utilization of rural agriculture, land, animal husbandry, fisheries, forestry, housing, water, sanitation, school, health and the like.

The Chamber has pointed out that the identified assets and areas listed out above are virtually dysfunctional in the rural India and its countryside need a new vision to make them fertile as the campaign for digital India launched by the present government cannot alone harness this hidden potential for which separate policy measures are required to be rolled out in the form of Smart Counties.

The Smart Counties should have digital connectivity and easy access to information technology as also digital infrastructure and the proposed project be monitored by Panchayats with necessary inputs for their design and layout be recommended by panel of experts drawn from joint exercise conducted by Union Rural Development Department in consultations with states concerned for which funding be arranged from both central as well as states pool.

Ranbaxy sues USFDA for revoking approvals for Nexium, Valcyte

Ranbaxy sues USFDA for revoking approvals for Nexium, Valcyte: It has been reported that the Ranbaxy Labs has sued the US Food and Drug Administration (FDA) for revoking approvals granted to the firm to launch copies of two drugs Nexium and Valcyte. Earlier during the month, the USFDA conveyed to Ranbaxy its decisions to grant the company tentative approvals for copies of Nexium and Roche AG’s antiviral Valcyte were “in error”, after it found that Ranbaxy’s plants at the time were not compliant with the FDA’s manufacturing quality standards. The agency also stripped Ranbaxy of six-month market exclusivity on the launch of generic Valcyte.

In the suit filed in the District Court for the District of Columbia, Ranbaxy said the FDA’s move violated constitutional rights, exceeded the agency’s statutory authority, and was “arbitrary, capricious, and otherwise contrary to law.” According to the Ranbaxy USFDA has no power to correct an alleged mistake it made six years ago. While one of its first kinds, the outcome of the case will be very important for Ranbaxy, as these drugs were expected to gross good revenue and profitability for the company. We remain neutral on the stock.

Tata Motors – Result Review

Tata Motors operating results in line; maintain positive view

Tata Motors 2QFY2015 results were in line with our estimates on the operating front even as higher taxation dragged profitability. Consolidated revenues grew 6% yoy to Rs 60,564 crores (slightly better than our estimate of 2% growth). JLR revenues grew 4% yoy led by volume growth and increased realization; while the Standalone revenues declined marginally by 1% due to drop in volumes. Consolidated operating margins at 15.8% improved 60 bp yoy (slightly lower than our estimate of 16.5%). JLR margins at 19.4% improved 190 bp yoy (in line with our estimate of 19.7%) led by improved product mix. Standalone business, however reported loss at operating level (margins of -3%) which is worse than our estimate. Further, higher taxation at the standalone level impacted the profitability. Net Profit at Rs 3,273 crores declined 12% yoy and was lower than our estimate of Rs 3,915 crores.. We currently have Accumulate rating on the stock

TVS Motors 2QFY2015 – Results Review

TVS Motors results in line with estimates; maintain Neutral

TVS Motors 2QFY2015 results were in line with our estimates. Revenues grew 35% yoy to Rs 2,683 crores primarily led by robust volumes. Realisation/vehicle remained flat on yoy basis. On the operating front, margins at 6.1% improved marginally 20 bp yoy (margins were in line with our estimate of 6%). Advertising and product development expenditure continues to remain high thereby negating the benefit of operating leverage due to higher volumes. However, lower finance expenses and taxation boosted profitability. Net Profit grew 62% yoy to Rs 95 crores (in line with our estimate). Currently, we have Neutral rating on the stock.

SBI – Result Review


SBI Q2 net up 30.5% yoy, asset quality stable

State Bank of India reported 2QFY2015 results with PAT growth of 30.5% yoy to Rs 3100.4cr, mainly on account of 14.9% yoy growth in operating income and lower opex growth of 2.2% yoy. Advances grew by 9.7% yoy, leading to 9.8% yoy growth in Interest income. Staff expenses de-grew by 4.4% yoy resulting in 2.2% growth in operating expenses. Other income growth was healthy at 39.4% yoy, which resulted in reduction in cost to income ratio by 655bp yoy to 52.8%. Bank made provisions to the tune of Rs 4275cr, of which provision of Rs 4028cr were made towards NPA. On asset quality front, Gross NPA was steady qoq at 4.89% as compared to 4.9% and improved by 75bp yoy from 5.64% in 2QFY2014. At CMP, stock is trading at 1.5x FY2016E ABV. We recommend an Accumulate rating on the stock.

Cipla – 2QFY2015 Result Review

Results below expectations

Stock down by 1%

Cipla (CMP – `624 / TP -/ Upside)

Cipla, posted results for 2QFY2015 below expectations on all fronts. For the period, the company posted sales of `2630cr V/s `2889cr, expected a growth of 6.8% yoy. The sales growth was predominately driven by the domestic formulations (`1251cr), which grew by 20.3% yoy, while exports (`1379cr) posted a dip of 3.1% yoy, mainly on back of the 33.5% yoy dip in the API exports, while formulation exports grew by 2.0% yoy respectively. Export sales has been impacted on back of reduced third party API business, less tender business,  integration process of front-ending and ongoing portfolio rationalization. On the operating front, the gross margin came in at 61.4% v/s 61.3%, expected, a yoy dip of 20bps. However, owing to a 30.6% and 12.6% yoy rise in staff cost and other expenditure respectively, the operating margins (OPM) came in at 16.0% V/s 19.3% expected, a yoy dip of 489bps. Thus, the Adj. net profit came in at `298.9cr V/s `383cr expected a dip of 16.6% yoy. For FY2015, the company has maintained its guidance of a mid-teen sales growth. We remain neutral on the stock.

Sun Pharmaceuticals – 2QFY2015 Result Review

Results surprise on OPM , net profit below expectations

Stock down 0.4%

Sun pharmaceuticals (CMP – `909 / TP -/ Upside)

Sun Pharmaceuticals, posted results mostly in line with expectations, with OPM’s remaining higher than expected. For 2QFY2015, the company posted sales of `4751cr V/s `4737cr expected a yoy growth of 13.3% yoy, driven by domestic markets which grew by 21% yoy. On exports front, the US formulation posted a yoy growth of 15% in US$ terms, while formulation exports outside US, posted a yoy growth of 12% in US$ terms.

On the operating front, the gross margin came in at 82.9% V/s 80.5% expected, an expansion of 203bps yoy, which lead the OPM to come in at 45.5% V/s 42.3% expected, a yoy expansion of 188bps. The key expenditure, the staff cost and the other expenses rose by 6.7% yoy and 17.4% yoy respectively. In-spite of higher than expected OPM, the Adj. net profit came in lower than expected at `1572cr V/s `1670cr (expected) a growth of 15.4% yoy. This was on back of the lower than expected lower other income (dipped by 40.1% yoy) and higher depreciation, which rose by 66.7%yoy. For FY2015, the company has maintained its sales guidance of 13-15% yoy. We remain neutral on the stock.

Eicher Motors – Results

Eicher Motors operating performance in line; maintain Neutral

Eicher Motors 3QCY2014 operating results were in line with estimates although the Net Profit was dragged by higher taxation. Revenues grew 31% yoy to Rs 2,275cr.  While the two-wheeler revenues grew 80% due to strong volume growth, the commercial vehicle segment grew 14% yoy led by higher realization and engine supplies.  On the operating front, margins at 13.4% improved 130 bp yoy and were in line with our estimate of 13.6%. Two wheeler segment margins at 25% improved sharply 570 bp yoy due to operating leverage and better product mix (margins were tad lower than our estimate of 25.6%). CV segment margins at 6.9% declined 260 bp yoy due to higher discounting and subdued volumes (margins were slightly better than our estimate of 6.1%). However,higher taxation (tax/PBT at 30.4%) dented profitability. Net Profit grew 54% yoy to Rs 165 cr and was below our estimate of Rs 188 cr.  Currently, we have Neutral rating on the stock.

Dishman Pharmaceuticals – 2QFY2015 Result review

Results lower than expected on OPM and net profit front

Stock down 2.3%

Dishman Pharmaceuticals (CMP – `158 / TP – `221/ Upside:39.8%)

Dishman Pharmaceuticals, for the quarter posted results better than expectations, while disappointing on the OPM and net profit front. On sales, the company posted sales of `392cr V/s `362cr expected , a growth of 11.2% yoy. The sales growth during the period was aided by the CRAMS segment, which posted sales of `281.2cr, a yoy growth of 19.2%, constituting a 71.7% of sales, while other segment posted a dip of 5% yoy. On the operating front, the gross margin came in at 69.7% V/s 74.0% expected, a yoy dip of 545bps. However, owing to high other expenses, which grew by 22.0% yoy, the operating margins (OPM) came in at 20.6% V/s 23.4% expected, yoy dip of 634bps. This along with the 40.0% rise in tax during the period, lead the net profit of `33.4cr V/s  `34.3cr expected , a de-growth of 21.1%yoy. Tax as % of PBT was 29.4% V/s 19.1% during the last corresponding period. We recommend a buy with a price target of `221.

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