Sun Pharma to buy GSK’s Opiates business in Australia

This article has been authored by Ms. Sarabjit Kour Nangra

Sun Pharma to buy GSK’s Opiates business in Australia: GlaxoSmithKline (GSK) and Sun Pharmaceutical Industries Ltd. (Sun Pharma) announced that their respective wholly owned subsidiaries have reached an agreement related to GSK’s Opiates business in Australia. The current GSK Opiates business including related manufacturing sites in Latrobe (Tasmania) and Port Fairy (Victoria) along with the inventories will be taken over by the Sun Pharma. The product portfolio consists of poppy-derived opiate raw materials that are primarily used in the manufacture of analgesics for the treatment of moderate to severe pain.

Sun Pharma has an established footprint in this market and believes it is well-placed to take the business forward. The global Opiates market holds good potential and the addition of GSK’s Opiates business will strengthen its positioning further. The financial terms of the transaction are not disclosed. The transaction closure is subject to customary closing conditions and requisite regulatory and other approvals, and is expected to close by August 2015. Thus, the acquisition will fully reflect in FY2017. We remain neutral on the stock.

Highlights of Mr Prabhu’s Speech – Railway Budget 2015

Highlights of Mr Prabhu’s Speech
  • Projects worth Rs. 96,182 crore to expand capacity of 9,420 km rail lines
  • CCTVs to be introduced in select trains and suburban trains for women safety
  • Train Protection Warning System, Train Collision Avoidance System
  • Air-conditioned coaches for suburban trains to be introduced
  • Railway stations will have Wi-fi available
  • Station redevelopment policy  to be revamped completely
  • Projects for rail connectivity to many ports and mines
  • To monetise assets rather than sell them
  • To set up full-fledged Railway University in FY16
  • Rs.2000 crore for Coastal Connectivity Program; Rs.2500 crore through BOT/Annuity route
  • Water vending machines to be expanded on more stations
  • Shatabdi trains to get extended on-board entertainment facility
  • General class coaches to have mobile charging stations
  • For benefit of the common man, more general class coaches will be added to select trains
  • Railways plans to spend over Rs. 8 lakh crore over five years
  • Pension funds, multi-lateral banks have evinced interest in Railways
  • Proposed the best operating ratio in nine years, of 88.5 per cent for 2015-16
  • Railways to go through transformation in five years; to increase track capacity by 10 per cent to 1.38 lakh km
  • Feasibility report of high-speed train between Mumbai and Ahmedabad expected by mid-2015
  • All India 24×7 grievances helpline 138 to start soon
  • 7,000 more toilets to be replaced by Bio-Toilets, New toilets at 650 stations, more  vaccum toilets
  • Passenger travelling unreserved  can procure a ticket within 5 minutes
  • Mobile application to address complaints of people is also being developed
  • Introduction of integrated ticketing will be done
  • Hand-held devices for ticket checkers for moving towards paperless ticketing
  • Centrally managed railway display network in over 2000 stations in next 2 years
  • Railways will play a big role in socio-economic development of the country
  • Railways carry a big burden of expectations
  • Investments in railways will have multiplier effect
  • Railways facilities have not improved significantly over last few years
  • Railways aims to deliver a sustainable improvement in customer experience and make rail a safer means of travel
  • Objective is to make Railways self-sustainable
  • Rail-cum-road ticket to be extended to many stations
  • We are committed to provide rail connectivity to North Eastern states
  • Transport Logistic Corporation of India to be set up to aid expanding freight handling capacity and provide end-to-end logistic solutions
  • PPP model will help to augment resources and generate more employment
  • 917 safety work projects to eliminate over 3,000 unmanned crossings in all states
  • PPP cell to be revamped to make it result oriented
  • Railways can’t function as business as usual mode
  • To set up infra fund, JV with IRFC for long-term funding
  • 800 km of gauge conversion will be commissioned
  • IRCTC website to enable ordering! E-catering to be introduced in 108 trains
  • Wagon-making scheme to be reviewed to make it easier for private investment
  • To improve cleanliness & design of bed linen
  • The cycle of under-investment should end
  • Railways has to regain in share in freight traffic
  • No increase in passenger fares were announced
  • No new trains announced this year
  • Tickets can be booked 120 days in advance instead of 60 days to tackle tout menace on the site
  • Outlay for passenger amenities increased by 67% this year
  • Plan expenditure to a staggering record Rs. 1.1 lakh crore in 2015-16 from Rs. 61,500 crore in 2014-15.
  • New trains to be introduced to save 20% of journey time, designed like bullet trains which can run on existing tracks
  • The speed passenger trains across 9 corridors will be increased to 160-200 km from 110 km
  • SMS alerts to be introduced for train timings

Sanofi India-4QCY2014 Result Review

This article has been authored by Ms. Sarabjit Kour Nangra

Results poor on back of pressure on OPM

Stock up 0.34%

Sanofi India (CMP: ₹3467 / TP: / Upside)

Sanofi India, for 4QCY2014 posted a poor set of numbers.  For 4QCY2014, the sales came in at ₹481cr, a yoy growth of 4.3%. The gross margins dropped by 660bps to end the period at 45.5% V/s 52.1% during the last corresponding period. This along, with the employee cost and the other expenditure which rose by 33.6% and 21.2% yoy respectively. This led the OPM, to come in at 13.6%, down to end the period at 5.2%, a 71% yoy dip in EBDITA. The margins were impacted on back of price cut on back of DPCO 2013. This along with the 40% reduction in the tax expenditure led the PAT decline by 61.5% yoy to end the period at the ₹25.9cr V/s ₹67.3cr in 4QCY2013. We maintain our neutral on the stock.


This article has been authored by Ms. Sarabjit Kour Nangra

Lupin-Update: Lupin has received final approval for its Bimatoprost Ophthalmic Solution, 0.03% from the United States Food and Drugs Administration (FDA) to market a generic version of Allergan Inc.’s Lumigan Ophthalmic Solution, 0.03%. Lupin Pharmaceuticals Inc (LPI), the company’s US subsidiary would commence marketing the product shortly. Lupin’s Bimatoprost Ophthalmic Solution, 0.03% is the AT rated generic equivalent of Lumigan Ophthalmic Solution, 0.03% and is indicated for the reduction of elevated intraocular pressure in patients with open-angle glaucoma or ocular hypertension. The product has more than US$500mn sales in US, with only Apotex being the other player in the market. Thus the product can contribute well for company’s US sales in FY2016. In FY2016, the company can easy garner sales of US$50-80mn in sales for the company.Lupin’s Bimatoprost Ophthalmic Solution, 0.03% filing was made from its Indore facility which was audited in January, 2015. Two Lupin facilities, the Lupin Bioresearch Center, Pune (LBC) and its manufacturing facility at Pithampur, near Indore were audited by the US FDA in November, 2014 and January, 2015 respectively. Both the audits were completed successfully with LBC not receiving any observations and the Indore facility receiving six observations (483′s). Since then, the Indore facility has received 1 ANDA approval and 2 site-transfer approvals. While currently the details of the observations are not known ( though should not be serious given that the company has got approvals after the observation), hence we are not changing our estimates, though the material impact of the damage should not be high. We maintain our neutral rating on the stock.

Lupin – inks pact with Celon Pharma

This article has been authored by Ms. Sarabjit Kour Nangra

Lupin – inks pact with Celon Pharma: Lupin has inked a pact with Poland-based Celon Pharma to jointly develop and market a generic version GlaxoSmithKline’s Advair Diskus, a drug used to treat Asthma, in global markets. Lupin and Celon Pharma SA have entered into a definitive agreement under which the companies will jointly develop fluticasone/salmeterol dry powder inhaler (DPI) product which is a generic version of GlaxoSmithKline’s Advair Diskus.

As per the agreement inked between the two companies, Lupin will be responsible for the commercialisation of the product.  Celon will supply the product to Lupin for its commercialisation in the US, Canada, Mexico, and other key markets. GlaxoSmithKline’s Advair Diskus had global sales of over US$7bn as of last fiscal.

The collaboration is an important milestone in Lupin’s efforts to evolve its global inhalation pipeline. Celon has experience in the development and manufacturing of fluticasone/salmeterol DPI in Europe. This coupled with Lupin’s expertise in inhalation product development and commercialisation in the US and other markets will accelerate the development of generic Advair Diskus for global markets. Lupin has been ramping up investments in niche and specialty therapies like inhalation and complex injectables as it gears up to grow as a specialty pharmaceutical player in the US and other key markets. The development is positive for the company. Since the timelines are not available, we maintain our numbers and rating with the neutral on the stock.

Subros Ltd – 3QFY2015 Result Review

This article has been authored by Mr. Bharat Gianani

Subros beats estimates; we maintain a positive stance.

Subros Ltd 3Q FY2015 results were ahead of our estimates on back of strong operating performance and lower depreciation. Revenues grew marginally 1% yoy to  ₹281 crores (lower than our estimate of ₹ 307 crores). Volumes grew 5% yoy but the realizations dipped 3% yoy leading to miss on the revenue front. However, the operating margins improved 80 bp yoy to 11.2% (in line with our estimates of 11.1%). Reduction in material costs due to localization initiatives led to margin improvement. Lower depreciation however boosted profitability. Depreciation expenses declined 10% yoy to  ₹17.32 crores. Net Profit at 3.86 crores more than doubled on yoy basis and was higher than our estimate of ₹2.7 crores. We maintain Accumulate rating on the stock

Infosys to acquire Panaya, a leading provider of Automation Technology

This article has been authored by Ms. Sarabjit Kour Nangra.

Infosys to acquire Panaya, a leading provider of Automation Technology:

Infosys, a global leader in consulting, technology and next generation services, today announced a definitive agreement to fully acquire Panaya, Inc., a leading provider of automation technology for large scale enterprise software management, in cash, for an enterprise value (EV) of US $200mn.This acquisition reflects Infosys’ execution of its Renew and New strategy to enhance the competitiveness and productivity of current service lines by leveraging automation, innovation and artificial intelligence. Panaya’s Cloud Quality suite uniquely positions Infosys to bring automation to several of its service lines via an agile SaaS model, and helps mitigate risk, reduce costs and shorten time to market for clients. The acquisition is positive for the company as it will enable the company better utilization of the cash. While the exact, numbers are not available, even the EV, the size of the company in terms of sales seems under US$100mn, and will be very small given the size of the company. Given lack of further details, we maintain our accumulate with a price target of  ₹2449.

Infosys- Update on acquisition of Panaya: Infosys announced acquisition of Panaya, an automation technology firm, for an aggregate enterprise value (EV) of US $200mn in an all-cash deal. The deal is valued at 6x revenue (estimated revenues of ~30mn) and provides the company access to 400 active clients and ~156 employees. The company earns 40% revenue each from America and EMEA, and balance from Rest of World.  Company expects to complete the acquisition by March 31, 2015 and hence will reflect in the FY2016 numbers. The deal is likely to be EPS accretive in 12-18 months. We maintain our rating on the stock with a price target of  ₹2,449.

Sun Pharmaceuticals – 3QFY2015 Result Review

This article has been authored by Ms. Sarabjit Kour Nangra

Results below expectations on all fronts

Stock down by 2.9%

Sun Pharmaceuticals (CMP:₹939 / TP: / Upside)

For 3QFY2015 Sun pharmaceuticals, posted results lower than expected. Sales for 3QFY2015 came in at ₹4280cr V/s our estimate of ₹5161cr which was below our estimate, as against ₹4287cr in 3QFY2014, posting a yoy de-growth of 0.2%. The top-line was driven by the domestic formulation sales, which grew by 21.4% yoy, US & ROW on the other dipped by 4.4% and 14.7% yoy respectively. On the operating front, the GPM’s came in at 85.0% V/s 81.7% in 3QFY2014, a yoy expansion of 327bps, while OPM’s came in at 44.7% V/s as against our estimate of 45.8% and was slightly below 3QFY2014 margin of 46.1%, a yoy dip of 139bps, mainly on back of 26.0% yoy growth in the R&D expenditure. This along with the other income, which dipped by 48.6%, aided the adj. net profit came in at ₹1424.6cr V/s ₹1701cr estimated V/s ₹1531cr in 3QFY2014, a yoy de-growth of 7.0%. We maintain our neutral stance on the stock.

Dishman Pharmaceuticals -3QFY2015 Review Result

Ms. Sarabjit Kour Nangra

Results much below expectations

Stock up 2.2%

Dishman Pharma (CMP: ₹161 / TP:₹226 / Upside: 40.4%)

For 3QFY2015 Dishman Pharma, posted results lower than expectations on OPM and net profit front.  Sales growth for 3QFY2015 came in at 23.1% yoy, to end the period at ₹386cr V/s ₹370cr expected and ₹313cr in 3QFY2014.The growth on the top line was driven by the CRAMS segment, which posted sales of ₹291.3cr, a yoy growth of 42.0% yoy, while the MM segment posted sales of ₹94.5cr, a yoy dip of 12.8%.

On the operating front, the OPM’s came in at 18.2% V/s 25.0% expected V/s 19.4% in 3QFY2014, a yoy dip of 120bps.The GPM’s came in at 67.0% V/s 77.0% expected and 70.9% in 3QFY2014. In spite of the same, the OPM dip was lower as, the employee cost rose only by 12.8% yoy. The adj. net profit came in at ₹24cr V/s ₹42.7cr expected and ₹15.2cr in 3QFY2014, a yoy growth of 58.5%, lower than estimated, as the OPM’s were much lower than expected. Also a higher other income, which came in at ₹11.6cr V/s ₹5.7cr in 3QFY2014, which aided the net profit growth higher than the EBDITA profitability growth. We maintain our buy with a price target of ₹226.

Consider stock market investments like a Test match rather than a T20.

The Indian equity markets had a roller coaster ride in January with the Index (NIFTY) almost touching 9000 levels and retracing back on weak corporate earnings coupled with contagion risks associated with a Greece exit and general global deflationary pressures exerted due to weak demand. We were pondering over the past few weeks whether investment decisions in the stock markets are based in a completely objective and rational manner encompassing all necessary information whether technical/Financial or fundamental. I was browsing through various articles on behavioral finance/stock market psychology which analyzes deviations from the aforesaid rational assumptions impacting decision making and pricing of stocks. In volatile times and fluctuations that the markets experience, plenty of individual investment decisions are based on emotions and perceptions and we tend to place undue weight on information which might be irrelevant. There is also the possibility of a missed out feeling if the markets have run up too fast and not able to catch the bus at the ‘Right time’. When there is exuberance and buoyancy in the markets, everyone has a opinion on the markets and the list probably gets drawn down to your local tea/tobacco vendor as well. As a relative measure with the cricket world cup just about to begin, just about everyone in India supposedly knows how a batsman should have played, how the bowler should have bowled or how the fielder should have caught the ball. Just about everyone introspects and conducts a ‘post mortem’ exercise after the match on where the team went right or probably the reasons why we lost. The same set of emotions/preferences as a parallel get played out in the stock markets especially for the investors/traders having a myopic horizon who have all sorts of explanations ready for either their MTM gains or losses.

The point we are trying to drive home are that: Keep a long term structural view on the markets and attempt not to get swayed with short term changes in sentiments/perceptions. Focus on fundamentally strong companies with good managements and effective corporate governance as such companies are bound to deliver compounded returns over a longer time frame. In short consider stock markets investments like a Test match rather than a T20 contest.

The markets structurally are looking forward to the Union Budget and the probabilities of what the Exchequer might deliver in terms of reform processes. Our opinion is that the Government shall continue pursuing the reforms agenda and would not adopt to populist measures to counter the probable measure one assumes that can come from the AAP government in Delhi. The Government in our opinion would address the supply side issues (Land, Power, Unlocking of Capex stock in Infra sector, Water) as well as demand issues to revive consumer discretionary spending. The Budget shall be keenly watched by all market participants for the potential roadmap that the Finance Minister shall draw upon for Fiscal consolidation. In a nutshell, focus areas in terms of sectors would be Infrastructure, Power, Logistics and the Manufacturing sectors with emphasis laid on the ‘Make in India’ campaign.

As we sign off, here’s wishing happy and successful investing to all the readers and hoping that we begin the world cup cricket by convincingly beating our arch rivals

Thanks and regards,
Mayuresh Joshi
VP Institution
Angel Broking

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