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.
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.
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.
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.
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 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$2.1bn (IMS MAT September, 2014). Aurobindo Pharmaceuticals, along with the Lupin, also launched its generic version of the said drug in the 40mg, 80mg, 160mg and 320mg strengthens. We expect more competition to enter the market; hence we maintain our neutral rating on both the stock.
|Indias External Debt rises to US$ 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.
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.
|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.