Mr. Shrenik Gujrathi (Sr. Research Analyst – Cement, Angel Broking) on Orient Cement 1QFY2016 Results:
“Orient Cement 1QFY2016 reported numbers were below our expectation. Its top-line de-grew 8.3% yoy to INR 348.9cr and was below our estimate of INR 404.3cr, mainly on back of sharp decline in realization. The company’s EBITDA declined by 7.7% yoy to INR 59.1cr and was also below our estimate of INR 76.8cr. However EBITDA margin were stable at 17% up 30bp yoy mainly due to lower raw material and power & fuel expenses; the bottom-line for the quarter declined by 20% yoy to INR 27.9cr. The PAT margin came in at 8.0%, down 113bp yoy. We maintain a NEUTRAL rating on the stock.”
Mr. Dinesh Thakkar (Chairman & Managing Director, Angel Broking) on ThirdBi-Monthly Monetary Policy:
“The status quo maintained by the RBI in terms of key policy rates was on expected lines. The RBI has however stated that it would continue to maintain accommodative policy stance in the coming months on expectations of moderation in inflation. The RBI reduced its inflation forecast for Q4FY2016 downwards by 0.2%.
The cumulative monsoon rainfall so far has been near normal. Also, higher reservoir positions bode well for the Kharif sowing which has increased by 8.7% compared to the year-ago period. These developments along with the contingency food management by the government are expected to check any shock to food inflation due to adverse weather conditions. In addition, the low increase in MSP and rural wages, modest global commodity as well as crude oil prices and still-weak domestic demand conditions are expected to check inflationary pressures in the coming months. In our view, the CPI would remain modest at 5.5% in the last quarter of FY16. With the CPI falling within the RBI’s target range, we believe that there could be around 50 bps reduction in the policy rates in the second half of the current fiscal.”
No Direct Impact of Greece Crisis on Indian Economy
The Greece debt crisis is not likely to have any direct impact on the Indian economy. There could be some indirect effects on trade flows depending on how European economies perform in the future.
The Indian financial markets have been stable and movements in equity markets have been orderly and in line with the economic fundamentals. In view of the fresh bailout agreement reached between Greece and its creditors, the prospects of stock market volatility looks unlikely in the near future.
Macroeconomic outcomes in India remains strong and provides the required resilience to cope with the external shocks. Adequate foreign exchange reserves are there to manage the volatility that may arise in the exchange rate from such external stocks.
States agree on Sharing of GST Revenue with union government
The State Governments have not objected to the proposed formula of the Union Government for sharing of revenue with States that would be earned as Goods and Service Tax (GST). Under the proposed GST regime, both Centre and States will simultaneously levy GST across the value chain. Tax will be levied on every supply of goods and services for consideration. Centre would levy and collect Central Goods and Services Tax (CGST) and States would levy and collect the State Goods and Service Tax (SGST) on all transactions within a State. The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply of goods and services. The proceeds of IGST will be apportioned between the States and the Centre, under the proposed Article 269A, as provided by Parliament by law on the recommendations of the GST Council. Further, the CGST collected by the Central Government as well as the Unions share of IGST collected will be devolved to the States as per the provisions of Article 270.
Gold reaching Buying Temptation Zone in India: ASSOCHAM Paper
Gold will remain gold and not turn into silver or brass however much correction in prices takes place due to receding global risk perceptions and the yellow metal is fast reaching a n++Buying Temptation Zonen++ in India, an ASSOCHAM Paper has said.
Rs 25,000 or a shade below per ten grams in the spot market is a n++Buying Temptation Zone (BTZ)n++ for Indian retail demand, the paper said , taking note of the fact that in the futures market the prices are already below this level for August delivery.
n++The enquiries among the consumers, mostly women, are increasing. As we near the festive and wedding seasons in the next few months, the demand for jewellery will pick up, boosting the overall sentiment, which of course at a bottom now,n++ the ASSOCHAM Paper said.
It said India, along with China, being among the largest two consumers of the gold can influence the global prices as well. A sharp reduction in the international prices below the USD 1100 per troy ounce was triggered by a resolution of the Greek financial crisis and stability returning in the Chinese stock market which had lost a huge three trillion dollar between June 12 and the second week of July on apprehensions of a bubble in the making.
Then, there have also been expectations of interest rates hikes to be announced by the US Fed sometime in September-October. This optimism about the interest rates in the US has been cemented by the better job data.
Result below expectations on sales and OPM front
Stock down 8.4%
Indoco Remedies (CMP: `371/ TP: /Upside: )
Indoco Remedies, for its 1QFY2016 results, marginally lower than expectations on sales and OPM front, while net profit was marginally above expectations, on back of higher other income during the period. On the sales front, the company posted sales of `216cr V/s `198cr in 1QFY2015 and `219cr expected, a 9.1% yoy growth, driven by exports which posted sales of `83.8cr V/s `69.9cr, a yoy growth of 19.8%. The growth in the exports was driven by formulation, which rose by 23.1% yoy, while the API sales declined by 24.5% yoy. On the domestic sales front, `131.6cr V/s `127.5cr, a yoy growth of 3.2%, mainly on back of domestic formulation sales growth of 2.3% yoy.
On the operating front, the gross margins came in 64.6% v/s 63.3% in 1QFY2015, an expansion of 130bps yoy, while EBDITA margins came in at 16.3% V/s 18.1% in 1QFY2015, a dip of 180bps yoy. This was against the expectation of 18.0%. This was mainly on back of R&D expenses, during the quarter which came in at 3.0% of sales V/s 2.2% of sales in 1QFY2015. Also, a higher deprecation charge of `15cr V/s `9.5cr in 1QFY2015, negated the positive impact of higher income `7.6cr V/s `1.3cr in 1QFY2015 consequently; the PAT came in at `20.3cr V/s `20cr in 1QFY2015, a growth of 1.2% yoy. This was against the expectation of `26.9cr during the period, mainly on back of lower than expected sales and other income. We maintain our neutral rating on the stock, on back of valuations.
Govt cuts down import tariff value of gold to USD 354 per gram
|Government today further cut down the import tariff value of gold to USD 354 per 10 grams and of silver there was no change to USD 498 per kg due to weak global prices.For last fortnight, the tariff value of gold was fixed at USD 376 per 10 grams and silver at USD 498 per kg.
The import tariff value is the base price at which customs duty is determined to prevent under-invoicing. It is revised on a fortnightly basis taking into account global prices.
The decrease in tariff value on imported gold and silver has been notified by the Central Board of Excise and Customs, according to an official statement.
Indias Nuclear power capacity expected to reach 10080 MW by 2018-19
|The nuclear power capacity is expected to reach 10080 MW on progressive completion of projects presently under commissioning/ construction by the year 2018-19. The Government has accorded financial sanction for two more projects namely Gorakhpur Haryana Anu Vidyut Pariyojana (GHAVP) Units 1&2 (2×700 MW) and Kudankulam Nuclear Power Projects (KKNPP) Units – 3&4 (2X1000 MW) with a total capacity of 3400 MW. These are being readied for start of construction in the current year. Another 2X700 MW project is also planned to be taken up in the near future.On progressive completion of these projects, the target is expected to be achieved by the year 2024. The Government, in July 2014, had announced tripling of the then existing capacity of 4780 MW in the next ten years, that is by the year 2024. A capacity of 1000 MW has already been added with the start of commercial operation of Kudankulam Nuclear Power Project Unit-1 (KKNPP 1) in December, 2014.
M/s General Insurance Corporation of India (GIC-Re) have on 12 June 2015 launched Indian Nuclear Insurance Pool (INIP) with the capacity of Rs 1500 crore to provide insurance to cover the liability as prescribed under Civil Liability for Nuclear Damage Act 2010.
Results below expectations on OPM front, while sales better than expected
Stock down 2.3%
Wipro (CMP: ₹588/ TP: ₹753/Upside: 28.0%)
Wipro, announced 1QFY2016 results today. The company posted a 1.1% qoq in USD IT Services revenues to end the period at US$1,794.1mn V/s US$1,775mn in 4QFY2015 and US$1,770mn expected. The guidance for the 1QFY2016 was US$1,765-1,793mn, a (0.5)-1% qoq growth. Thus results have come, at the upper end of the guidance. In rupee terms, the revenues came in at ₹12,238cr V/s ₹12,207cr expected and ₹12,142cr in 4QFY2015.
On Constant Currency (CC), the company posted a 0.2% qoq growth in 1QFY2016. On CC basis, the key verticals, which posted a qoq dip was Healthcare, Life Sciences & Services, Global Media & Telecom and Energy, Natural Resources & Utilities, which dipped 3.9%, 1.8% and 3.0% respectively. The, domains which posted growth was Retail, Consumer Goods & Transportation, Manufacturing & Hitech and Finance Solutions, was 4.5%, 2.1% and 1.3% qoq respectively.
In terms of geography, the USA posted a 2.6% qoq CC growth , while India & Middle East business and APAC and Other Emerging Markets, posted a 1.7% qoq and 0.4% qoq CC growth respectively. The geography, which posted the dip on CC basis, is 5.3% qoq.
On the EBDITA margin front, the EBDITA came in at 21.3% V/s 23.0% expected and EBIT at 18.5% V/s 20.0% expected. Thus the EBDITA and EBIT have posted a 169bps and 144bps qoq dip respectively. The IT services, EBIT margins came in at 21.0%. The margin dip was mainly on back of currency impact and higher wage hikes. On operating front the utilization level was 71.3% v/s 70.5%, with attrition levels at 16.4% V/s 15.6%.Consequently; the PAT came in at ₹2,188cr V/s ₹2,261cr expected and ₹2,272cr in 4QFY2015 a dip of 3.7% qoq.
In terms of client additions, the company added 36 clients during the quarter and for 2QFY2016, the company expects revenues from our IT Services business to be in the range of US$1,821mn-US$1,857mn, implying a 1.5-3.5% growth qoq, with expectations that the worst is over in the Energy, Natural Resources & Utilities domain and Healthcare, Life Sciences & Services expected to bounce back in 2QFY2016. We maintain our buy rating on the stock with a target price of ₹753.
Results below expectations
Stock down 5.2%
Lupin (CMP: ₹1,824/ TP: /Upside )
For 1QFY2016, the company announced numbers lower than expected. On sales front the company posted a dip of 6.4% yoy to end the period at ₹3074cr V/s ₹3600cr expected. Overall, the formulation ( ₹2748.6cr) posted a sales dip of 8.0% and API ( ₹325.7cr) an 11% yoy growth. The formulation sales dipped, on back of US (₹1109.6cr) posted a 26% yoy dip, on back of few launches and base impact. Another export destination Japan ( ₹323.1cr), posted a yoy dip of 5.0%, mainly on back of currency. Sales in JPY terms grew 6% to JPY 6,178mn during the quarter from JPY 5,823mn. Lupin’s sale to Europe (₹85.6cr) and India (₹885.1cr) posted a yoy growth of 21% and 16% respectively. ROW (₹182.6cr) posted a strong growth of 44% in 1QFY2016.
On the operating front, the gross margins came in at 68.0% V/s 65.5% expected and V/s 67.9% in a corresponding period. However, EBITDA margins came in at 24.2% V/s 27.0% expected V/s 32.2% in 1QFY2015. This was mainly on back of lower sales and the R&D expenditure, which rose by 28.4% yoy to end the period at 10.2% in 1QFY2016 V/s 7.4% in 1QFY2015. The other income during the quarter rose to ₹151.1cr V/s 85.1cr in 1QFY2015, also the Tax as % of PBT rose by 33.3% V/s 39.0% in 1QFY2015.Consequently; the PAT, came in at ₹525.5cr V/s ₹749cr expected and ₹624cr in 1QFY2015, a expected a yoy de-growth of 16.0%. We are neutral on the stock, given the valuations.
Goa plant gets Form 483’s from USFDA
In a recent development, the US Food and Drug Administration (USFDA) have served Lupin’s oral solids and formulation plant in Goa with Form 483, which used by the regulator to document and communicate concerns discovered during an inspection. The USFDA has raised nine concerns relating to manufacturing process and quality control. The plant was inspected by the USFDA last week.
The main cause of concern for USFDA is cross contamination due to free movement from one unit to another within the plant. Besides this, unsigned test records, air handling system and stock location are other observations listed in the form. Lupin has 15 days to respond to the observations before any further action is taken by the USFDA. The Goa plant supplies drugs to markets in US, Europe and Japan. While the further details are not available, these observations don’t look that serious. Thus currently we are, not changing our numbers.
Lupin acquires US based GAVIS Pharmaceuticals LLC
Also, the company entered into a definitive agreement to acquire privately held GAVIS Pharmaceuticals LLC and Novel Laboratories Inc. (GAVIS), subject to certain closing conditions, in a transaction valued at US$880mn, cash free and debt free. The transaction has been unanimously approved by the Boards of Directors of Lupin and GAVIS.
The acquisition enhances Lupin’s scale in the US generic market and also broadens Lupin’s pipeline in dermatology, controlled substance products and other high-value and niche generics. GAVIS brings to Lupin a highly skilled US based R & D organization which would complement Lupin’s Coral Springs, Florida, inhalation R&D center. GAVIS’s New Jersey based manufacturing facility will become Lupin’s first manufacturing site in the US.
New Jersey based GAVIS is a privately held company specializing in formulation development, manufacturing, packaging, sales, marketing, and distribution of pharmaceuticals products. GAVIS recorded sales of US$96mn in FY 2014 ( coming from around 20 products) and has over 250 New Jersey based employees. GAVIS currently has 66 ANDA filings pending approval with the US FDA and a pipeline of over 65+ products under development. 72% of these filings pending approvals represent niche dosage forms. To date, GAVIS has filed 25 Para IVs and 8 FTFs products. GAVIS’s pending filings address a market value of about US$9bn. The combined company will have a portfolio of 101 in-market products, 164 cumulative filings pending approval and a deep pipeline of products under development for the US. The acquisition creates the 5th largest portfolio of ANDA filings with the US FDA, addressing a US$63.8bn market.
Prima facie, the acquisition looks very costly, coming in at 9.2xMarket Cap/Sales, given the size of the company, though funding will be not a problem given that company has very little debt on the books. We maintain our neutral rating on the stock.
Results above expectation on sales front, while margins lower
Stock up 10%
Infosys (CMP: ₹1,002/ TP: ₹1,315/Upside: 31.2%)
Infosys announced its 1QFY2016 results today, which came well ahead of expectations on the sales front. The company posted a 4.5% qoq growth V/s 4.0% sequential growth in USD revenues to US$2,256mn V/s US$2,246mn expected. The Constant currency growth (CC) was around 4.4% during the period, mainly driven by a 5.4% volume growth (highest in 19 quarters). In terms of client additions, largest client crossed US$300mn; added 2 clients in US$200mn bucket. Also, it added 6 large deals in 1QFY2016 with TCV of US$688mn. Overall the company added 79 gross clients during the period.
In rupee terms, the revenues came in at ₹14,354cr V/s ₹14,253cr expected, up 7.0% qoq. EBITDA margins came in below expectation at 26.2% V/s 27.7% expected, a qoq dip of 152bps. While the utilization improved to 75.1% (including trainee) V/s 72.8% in 4QFY2015, higher onsite share along with wage hikes lead the margin dip in the quarter. Consequently; the PAT came in at ₹3,030cr V/s ₹3,227cr expected a dip of 2.2% qoq. On the positive side, quarterly annualized attrition for the company (consolidated) came in at 19.2% in 1QFY2016 compared to 18.3% in 4QFY2015.
In terms of guidance, for FY2016 revenue guidance has been retained at 10%-12% in constant currency; increased to 7.2%-9.2% in USD terms. We maintain our buy rating on the stock with a target price of ₹1,315.
Below are the views of Ms. Sarabjit Kour Nangra (VP Research – Pharma, Angel Broking) on NPPA- Update:
National drug price regulator NPPA has fixed the prices of 39 formulation packs including drugs used to treat diseases such as diabetes, infections, digestive disorders and pain among others. In a statement, National Pharmaceutical Pricing Authority (NPPA) said it “has fixed/revised the prices in respect of 39 formulation packs.”
As per the notification, the price of formulations including Ciprofloxacin Hydrochloride, Cefotaxime, Paracetamol, Domperidone and Metformin+Glime has been fixed. These drugs which are put under the scanner have a market size of around INR 1054cr (MAT value). The reduction in the price ranges from 5-40% depending upon drug category. The move impacts multinational drugmakers like Abbott Laboratories and GlaxoSmithKline Plc, and a number of local firms including Lupin Ltd, Cadila Healthcare Ltd, IPCA Ltd and Sun Pharmaceuticals. The overall impact for the companies would be minimal as these drugs are not from a significant portion of the overall sales of the company. Thus, we maintain our recommendations in the sector with ACCUMULATE on Sun Pharma, Aurobindo Pharma, Sanofi India and IPCA Labs.