IPCA Labs- Update

IPCA Labs- Update: The U.S. Food and Drug Administration (FDA) has banned imports from Indian generic drugmaker Ipca Laboratories Ltd’s plant at Ratlam in Madhya Pradesh due to violations of standard production practices. The company had received a 483 earlier for this plant. Ipca had voluntarily halted shipments to the United States from the plant in July last year after the FDA outlined half a dozen violations including data integrity issues. We are not changing our estimates as we had already pruned the same when company got a 483’s. Thus we maintain our buy recommendation with a price target of `817.

Dr Reddy’s Labs- Curis and Aurigene Discovery Technologies enter into an exclusive agreement.

Dr Reddy’s Labs- Curis and Aurigene Discovery Technologies enter into an exclusive agreement: Curis Inc. & Aurigene Discovery Technologies announced that they have entered into an exclusive collaboration agreement focused on immuno-oncology and selected precision oncology targets.
Aurigene is a specialized, discovery stage biotechnology company, developing therapies to treat cancer and inflammatory diseases. Aurigene is an independent, wholly-owned subsidiary of Dr. Reddy’s Laboratories Ltd. Aurigene will have the responsibility for conducting all discovery and preclinical activities, including IND-enabling studies and providing Phase-1 clinical trial supply.
According to the agreement, Curis will have responsibility for all clinical development, regulatory and commercialization efforts worldwide, excluding India and Russia, for each program for which it exercises an option to obtain a license. Curis will have the option to exclusively license compounds once a development candidate is nominated within each respective program. In connection with the transaction, Curis has issued to Aurigene approximately 17.1mn shares of its common stock, or 19.9% of its outstanding common stock immediately prior to the transaction, in partial consideration for the rights granted to Curis under the collaboration agreement. The company noted that the shares issued to Aurigene are subject to a lock-up agreement until January 18, 2017, with a portion of the shares being released from the lock-up in four equal bi-annual installments.
The first two programs under the collaboration are an orally-available small molecule antagonist of programmed death ligand-1 (PD-L1) in the immuno-oncology field and an orally-available small molecule inhibitor of Interleukin-1 receptor-associated kinase 4 (IRAK4) in the precision oncology field. Curis expects to exercise its option to obtain exclusive licenses to both programs and file IND applications for a development candidate from each in 2015. We maintain our buy with a price target of ₹3,935

Rallis – Result Review 3QFY2015

Results disappointing

Stock down 4.0%

Rallis India (CMP: `229/ TP: / Upside:)

Rallis India posted disappointing set of numbers for 3QFY2015. On the top-line front, Rallis reported de-growth of 3% yoy to `390cr. The sales was impacted on back of the lower kharif yield and lower prices of key crops. On the operating front, the company reported an EBITDA margins of  11.9%  V/s 12.9% in 3QFY2014, a dip of 100bps. This was inspite of the gross margins expanding by 588bps to end the period at 46.8%. Thus a lower sales was the main culprit for impact on the EBDITA margins. Thus, the PBT de-grew by 19.7% yoy, however on back of the 32.5% yoy dip in the taxation expenses, the net profit de-grew by ~15% yoy to ~`25cr. We remain Neutral on the stock.

Wipro Ltd – Result Review 3QFY2015

Results mostly in line with expectations

Stock up 7.1%

Wipro (CMP: `555/ TP: `711/ Upside: 26.9%)

For 3QFY2015, company’s IT services segment posted revenues of US$1,795.4mn V/s US$1,793.3mn, up 1.3% qoq, mainly impacted by the cross currency movements. On constant Currency (CC), the company posted a 3.7% qoq growth during the quarter. The company had guided towards a qoq growth of 1-3% during the 4QFY2015. At the consolidated level, the company posted revenues of `11,929cr V/s `12,203cr expected, up 2.6% qoq. At a consolidated level, Wipro posted an  ~61bp qoq inch up in its EBIT margin to 19.2%, exactly in line with expectations. Thus , the PAT came in at `2,203.1cr V/s `2,177cr, a qoq growth of 5.7%.We maintain our buy rating on the stock with a target price of `711.

TCS- Result Review 3QFY2015

Results, mostly inline

Stock down 1.9%

TCS (CMP: `2,545/ TP: `2,833/ Upside: 11.3%)

TCS, announced results broadly in line with expectations. For, sales the company posted a 0.5% sequential growth in USD revenues to US$3,931mn V/s US$3,935mn expected, mostly impacted by cross currency impact. In rupee terms, revenues came in at `24,501cr V/s `24,563cr expected, up 2.9% qoq. On Constant Currency (CC) terms, the company posted a 2.5% qoq.

Growth in 3QFY2015 was driven by industries like Telecom (3.1% qoq), Hi Tech (5.3% qoq) and Life Sciences (5.6% qoq). North America lead the growth by posting a 4.7%qoq, while Latin America posted a 10.3% qoq. Among service lines, Global Consulting (18.0% qoq), Asset Leveraged Solutions (8.6% qoq), Infrastructure Services (6.5% qoq) and Assurance Services (4.4% qoq) were the leaders.

EBIT margins came in at 27.0%, in line with expectations, taking the PAT to `5,444cr V/s `5,424cr expected an up-tick of 2.9% qoq. On the operating front, the utilization levels improved to 82.1 %( including trainees) V/s 81.3% in 2QFY2015. Attrition rate during the quarter was 13.4%. On client additions, the company has added one client in the US$100mn+, 3 in the US$ 50mn+, and 20 in the US$5mn+ space. As, for FY2015, the Management has maintained, that it will deliver growth higher than Industry (13-15% growth) and EBIT margins around 26-28%.We maintain our Accumulate rating on the stock, with a price target of `2,833.

Infosys – 3QFY2015 Result Review

Results better than expected on operating front

Stock up ~4%

Infosys (CMP: `1,978/ TP: `2,417/Upside: 22.2%)

Infosys announced its 3QFY2015 results, better than expected. The company posted 0.8% sequential growth in USD revenues US$2218mn, exactly in line with expectations. In rupee terms, the revenues came in at `13,796cr V/s `13,746cr expected, up 3.4% QoQ. On Constant currency (CC) terms, the company posted a 2.6% QoQ in US$ terms. The volume growth during the growth during the quarter was 4.2% QoQ, the highest in the last three years. On the operating front, the EBIT came in at 26.7% V/s 26.3% expected, an expansion of 60bps. Consequently, PAT came in at `3,250cr V/s expected `3,182cr, a growth of 5.0% QoQ.

The high volume growth during the quarter, lead better-operating matrix. The  utilization came in at 76.6% (including the trainees), better than 76.2% in 2QFY2015. Also, in terms of the client additions, the same has been healthy at 59, with 7 clients in the US $200-50mn bracket.

In terms of the guidance the company has marinated its FY2015 dollar guidance as 7-9% (with US/INR as on 30th September’2014), which is positive, and does not take into account cross currency effects. However, given that company has already done a CC growth of ~2.6% QoQ in 9MFY2015, we believe that even without growth in 4QFY2015, the company can achieve a 8% CC US$ growth in FY2015 and a 1.0% CC growth would entail meeting the higher end guidance of 9%. Thus, given the client additions, we expect the company can easily meet its guidance in CC terms. We maintain our buy rating on the stock with a target price of `2,417.

Lupin & Aurobindo Pharma launches Generic DIOVAN Tablets

Lupin & Aurobindo Pharma launches Generic DIOVAN Tablets: Lupin announced that its US subsidiary, Lupin Pharmaceuticals Inc. has launched its Valsartan Tablets USP, 40 mg, 80 mg, 160 mg and 320 mg, the generic for Novartis Pharmaceuticals Corporation’s (Novartis) Diovan Tablets 40 mg, 80 mg, 160mg and 320mg strengths, having received final approval from the United States Food and Drug Administration (FDA). Lupin’s Valsartan Tablets 40mg, 80mg, 160mg and 320mg are the AB rated generic equivalent of Novartis’s Diovan Tablets and is indicated for the treatment of hypertension and heart failure. Diovan Tablets had annual U.S sales of US$2.1bn (IMS MAT September, 2014). Aurobindo Pharmaceuticals, along with the Lupin, also launched its generic version of the said drug in the 40mg, 80mg, 160mg and 320mg strengthens. We expect more competition to enter the market; hence we maintain our neutral rating on both the stock.

Weekend Highlights – 3rd January, 2015.

Indias External Debt rises to US$ 455.9 billion at End September 2014

Indias External Debt Stood at US$ 455.9 Billion, recording an increase of US$ 13.7 billion (3.1%) over the level at end-March 2014. The rise in external debt during the period was due to long-term external debt particularly commercial borrowings and NRI deposits.Long-term debt was US$ 369.5 billion at end-September 2014, showing an increase of 4.7% over the end-March 2014 level, while short-term debt declined by 3.2% to US$ 86.4 billion.

Short-term debt accounted for 18.9% of Indias total external debt at end-September 2014, while the remaining (81.1%) was long-term debt. Component-wise, the share of commercial borrowings stood highest at 35.4% of total external debt, followed by NRI deposits (23.8%) and multilateral debt (11.7%).

Government (Sovereign) external debt stood at US$ 88.4 billion, (19.4% of total external debt) at end-September 2014 against US$ 81.5 billion (18.4%) at end-March 2014.

The share of US dollar denominated debt continued to be the highest in external debt stock at 60.1% at end-September 2014, followed by the Indian rupee (24.2%), SDR (6.5%), Japanese yen (4.5%), and euro (3.0%).

The ratio of concessional debt to total external debt was 9.8% at end-September 2014 as compared to 10.5% at end-March 2014.

Indias foreign exchange reserves provided a cover of 68.9% to the total external debt stock at end-September 2014 against 68.8% at end-March 2014.

The ratio of short-term external debt to foreign exchange reserves was at 27.5% at end-September 2014 as against 29.3% at end-March 2014.

Prime Minister will be the Chairperson of NITI Aayog

The Government has replaced Planning Commission with a new institution named NITI Aayog (National Institution for Transforming India). A cabinet Resolution issued today gave details of the new institutions. The institutional framework of government has developed and matured over the years. This has allowed the development of domain expertise which allows us the chance to increase the specificity of functions given to institutions. Specific to the planning process, there is a need to separate as well as energize the distinct process of governance from the strategy of governance.In the context of governance structures, the changed requirements of our country, point to the need for setting up an institution that serves as a Think Tank of the government – a directional and policy dynamo. The proposed institution has to provide governments at the central and state levels with relevant strategic and technical advice across the spectrum of key elements of policy. This includes matters of national and international import on the economic front, dissemination of best practices from within the country as well as from other nations, the infusion of new policy ideas and specific issue-based support. The institution has to be able to respond to the changing and more integrated world that India is part of.

An important evolutionary change from the past will be replacing a centre-to-state one-way flow of policy by a genuine and continuing partnership with the states. The institution must have the necessary resources, knowledge, skills and, ability to act with speed to provide the strategic policy vision for the government as well as deal with contingent issues.

Perhaps most importantly, the institution must adhere to the tenet that while incorporating positive influences from the world, no single model can be transplanted from outside into the Indian scenario. We need to find our own strategy for growth. The new institution has to zero in on what will work in and for India. It will be a Bharatiya approach to development.The institution to give life to these aspirations is the NITI Aayog (National Institution for Transforming India). This is being proposed after extensive consultation across the spectrum of stakeholders including inter alia state governments, domain experts and relevant institutions.

Ban on Iron ore mining & exports in Karnataka & Goa led to 1 mn job losses: Study

Ban on iron ore mining and exports in top producing states of Karnataka and Goa led to jobs loss of one million people, directly and indirectly, according to a recent ASSOCHAM-Yes Bank joint study.n++After the global meltdown and export ban in Goa and Karnataka, a significant decline was registered in minerals production, this had major consequences on iron ore exports that declined markedly from over 117 million tonnes (mt) in 2009-10 to about 14 mt in 2013-14 thereby leading to massive job loss,n++ noted the study titled, Mining: Building a sustainable development framework for inclusive growth, jointly conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) and Yes Bank.

n++Recent issues of illegal mining together with regulatory challenges, policy gridlocks, inadequate supporting infrastructure and others are significant hurdles in growth of Indias mining sector,n++ said Mr D.S. Rawat, secretary general of ASSOCHAM.

n++Indias mining sector is saddled with logistic inefficiencies, economic, bureaucratic, environmental and a host of capacity issues owing to a lack of co-ordination between various agencies, besides, lack of central planning has resulted in procurement delays,n++ said Mr Rawat.

n++This calls for consistent increase in transportation via rail, road for easy transport of minerals to the point of consumption,n++ he added.

The ASSOCHAM-Yes Bank study has suggested the Government to take progressive policy initiatives like single window clearances for Greenfield and Brownfield projects to encourage private sector participation by enhancing domestic availability of major raw materials, improving financing avenues across mineral value chain and initiating steps to promote sustainable practices through larger community engagements and responsible mining.

Rapid urbanization coupled with growth in manufacturing sector would fuel up to 9-11 per cent annual growth in demand for various metals and minerals which is further expected to grow 4-5 times during the next decade, added the study.

The Indian mining industry which largely comprises small and medium enterprises (SMEs) involved in surveying, exploration and other mining activities needs to evaluate and tap into some innovative funding sources accessed by its global peers, more so as recent judicial and regulatory developments in the sector have further dried up new funding areas from banks.

Limited geological and exploration expenditure, weak law enforcement, lack of coordinated approach in decision making, human resource and technological gaps, insufficient investments are certain key challenges being faced by Indian mining industry.

A time-bound plan to closely monitor mining activities, introduction of a single-window system to centralize functions of all ministries/agencies to expedite approval processes, offer transparent information to boost investor confidence, enabling local community participation, initiate training programs to develop skilled manpower, adoption of world-class technology & equipment with latest emission norms, ensuring environmentally sustainable practices, revamping evacuation infrastructure and all these together with adequate financial support from banks/financial institutions/government agencies to players in the mining sector are certain feasible solutions to the problems faced by the industry, noted the ASSOCHAM-Yes Bank study.

Cadila Healthcare- Recalls bottles of benzonatate capsules from US

Cadila Healthcare- Recalls bottles of benzonatate capsules from US: According to US Food and Drug Administration (USFDA), Zydus Pharmaceuticals USA Inc, the US-based arm of Cadila Healthcare, is recalling 58,920 bottles of benzonatate capsules, used to treat coughs, because of “wet and/or leaking capsules”. The recall had been initiated on November 26’2014 under Class-II, which the FDA states as a situation in which the use of or exposure to a volatile product may cause temporary or medically reversible adverse health consequences. The capsules have been manufactured by Ahmedabad-based Cadila Healthcare and distributed by Zydus Pharmaceuticals USA. Further, Hospira is recalling 2,61,706 vials of meropenem, an antibiotic, in the US, Puerto Rico, Italy, the Netherlands and Spain for having “defective container”. We don’t expect the development to have an adverse impact on the company’s operation. We remain neutral on the stock.

Weekend Highlights – 27 December, 2014

100% FDI allowed in manufacturing of medical devices

The Union Cabinet chaired by the Prime Minister Narendra Modi, today gave its approval to amend the existing Foreign Direct Investment (FDI) policy in the Pharmaceutical Sector to create carve out for medical devices.As per the extant FDI policy for pharmaceuticals sector, FDI up to 100% is permitted subject to specified conditions. While FDI for green-field projects is under automatic route, brown-field projects are placed under government route. The Policy on the pharmaceutical sector covers medical devices since this area is not separately covered.

Since medical devices are part of the Drugs & Cosmetics Act, 1940 and fall under the Pharmaceutical sector, all the conditions of the FDI policy on the sector, including the condition relating to non-compete clause, apply on brownfield investment proposals of medical devices industry. As per National Industrial Classification (NIC) Code 2008, sector code of Manufacture of pharmaceuticals, medicinal chemical, and botanical products is 2100 while sector code of Manufacture of medical and dental instruments and supplies is 3250. Medical devices will fall under the category of medical and dental instruments and supplies. Therefore, drugs and pharmaceuticals and medical devices are two different industrial activities.

The condition of non-compete was imposed so that the Indian manufacturers can continue manufacturing generic drugs and catering to the needs of the large number of people in the country and in other developing countries who cannot afford branded and patented drugs. This condition is not relevant to medical devices industry of the country where the country is substantially import dependent and the sector is adversely impacted because of the lack of adequate capital and required technology.

Coal Ministry to commence first batch of E-Auction of 24 Coal Mines on 25 December 2014
Pursuant to the order of Honourable Supreme Court and in line with the provisions of Coal Mines (Special Provisions) Ordinance, 2014 and subsequent Rules, Ministry of Coal will commence the first batch of e-auction process for the 25-1=24 (Marki -Mangli II being in inviolate area as informed by MoEF) Schedule II mines from 25 December 2014.While briefing the whole process, Anil Swarup, Coal Secretary stated that out of 24 mines proposed to be auctioned, seven are for the power sector, 16 for other end use plants of iron & steel, cement and CPPs and 1 mine for steel sector (coking coal). Two Mines each i.e. four mines shall be auctioned together: Gotitoria East and West and Gare-Palma IV/2 and IV/3, Anil Swarup added.

Anil Swarup further stated that bidders with specified end use plant are only permitted to participate in this auction. After own consumption, if there is any surplus coal, the successful bidder will be permitted to sell the surplus coal only to CIL at respective bid price or notified price of CIL for that specific grade of coal. Registrations will commence on 25 December 2014 and interested bidders with end use plants could visit MSTC website for the purpose .The registration process will be as per KYC norms and will be available on MSTC website.

Explaining the process, Anil Swarup said that entire auction process will be transparent, efficient and conducted online only. However, two documents the Bank Guarantee comprising the bid security and an Undertaking stating that all information submitted is true and correct shall be received in hard copy. The auction process will comprise (i) Techno-commercial bid for qualification and (ii) Financial bid (e-auction) for selection of successful bidder. Only 50% of the qualified bidders from technical stage (subject to a minimum of five bidders)will be allowed to participate in the e-auction process.

Rural Development Ministry to introduce Mobile Monitoring System in MGNREGA to bring Transparency
The Ministry of Rural Development is likely to introduce Mobile Monitoring System for effective implementation of Mahatma Gandhi National Rural Employment Guarantee Act, MGNREGA. The Monitoring System will be introduced on a pilot basis to allow real time monitoring of all works, workers attendance and work site measurement. The move is likely to plug leakages in the rural job scheme. Moreover, the Centre has recently sanctioned 147 crore rupees to the States to strengthen the social audit structures. Social Audit ensures comprehensive public scrutiny of records and accounts with a view to enhance transparency and accountability. The additional grant was sanctioned as States were finding it difficult to put the necessary institutional structures for social audit within the overall 6 percent administrative cost.To devise a better mechanism to improve the quality and durability of assets created under MGNREGS, Schedule I to the MGNREG Act, 2005 has been modified to provide that at least 60% of the works being taken in a district in terms of cost shall be for creation of productive assets directly linked to agriculture and allied activities through development of land, water and trees. It has also been notified that the 60:40 ratio of labour to material component will be maintained at the district level (instead of Block level) for the works to be executed by implementing agencies other than Gram Panchayats. Detailed labour budget guidelines for 2015-16 were issued in July, 2014 introducing an Intensive Participatory Planning Exercise(IPPE) in 2500 backward blocks to bring greater participation and scientific methods in planning of works and to give due emphasis on convergence with a view to creating sustainable assets and providing focussed wage employment. Guidelines have been issued for watershed management works taken up independently under MGNREGS or in convergence with Integrated Watershed Management Project, IWMP.

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