Weekend Highlights – 28th March, 2015

Coal Minister Launches Projects Monitoring Portal to Enhance Efficiency, Transparency & Improve Communication Between B2G, G2G & G2B
With the view to putting in place an institutional mechanism to track stalled investment projects, both in the public and private sectors and to remove implementation bottlenecks in these projects on a fast-track basis, Shri Piyush Goyal, Union Minister of State ( IC) for Power, Coal , New & Renewable Energy has launched online Coal Projects Monitoring Portal (e-CPMP) for all large projects, both public and private in the Ministry of coal.Speaking on the occasion , Shri Goyal said that the new system will bring in more transparency and responsiveness in the Ministry. Shri Goyal expressed his confidence that each of 30 allottees will successfully mine each piece of coal that is expected from them. The Government will encourage everyone to do more mining so that each one of allottee will not only meet their targets but exceed their targets, Shri Goyal added.

Shri Anil Swarup , Secretary Coal said that this marks a new beginning in making system transparent in the coal ministry.

Spectrum Auction Concludes with Over 88% Of Spectrum Offered Provisionally Committed
The spectrum auction in 1800 MHz, 900 MHz, 2100 MHz and 800 MHz band, which commenced on 4th March 2015 and ended on 25th March 2015 after 115 rounds over 19 days, has fetched over Rs 109874 Crore.In all 470.75 MHz has been put to auction in various LSAs. (in 800, 900, 1800 & 2100 MHz bands.) This compares with 390 MHz in November 2012 and 426 MHz in February 2014.

There was robust activity in the all the spectrum bands and vibrant bidding. Prices have significantly increased in 50 of the 69 offerings with bid price being as high as 300% over reserve price in some instances. Over 88% of the spectrum on offer has been provisionally committed at a value of over Rs 109874 crore. Overall increases over estimated proceeds from auction is about 37%.

In November 2012 the total realization from auction of spectrum in 1800 MHz band was Rs 9407 crore and in February 2014 Rs 61162 crore has been realized.

The current auction indicates that the Telecom Industry has full faith in the Government of the day and is confident of the future growth of the telecom sector and the economy of the country due to growth oriented policies of the present government. This also shows that a transparent & fair bidding system can help realize the real value of the natural resource.

Domestic air passenger traffic surges 22% in February 2015
The domestic passenger traffic of airlines surged 22% to 60.16 lakh passengers in February 2015, compared with 49.46 lakh passengers carried in the same month of the last year.Passengers carried by domestic airlines during Jan-Feb 2015 were 122.61 lakhs as against 100.93 lakhs during the corresponding period of previous year thereby registering a growth of 21.5%.

IndiGo carried the highest 22.31 lakh passengers followed by Jet Airways 11.89 lakh and Air India at 10.68 lakh passengers in February 2015. The passenger traffic of other airlines stood at 5.53 lakh for SpiceJet, 5.35 lakh for GoAir, 2.73 lakh for JetLite, 0.62 lakh for AirCosta, 0.72 for AirAsia and 0.33 lakh for Vistara.

Sun Pharmaceuticals & Ranbaxy Labs Merger approved

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

Sun Pharmaceuticals & Ranbaxy Labs Merger approved: Sun Pharmaceutical Industries has informed that it has received all the requisite approvals for Scheme of Arrangement between Ranbaxy Laboratories Limited (“Ranbaxy”) into Sun Pharmaceutical Industries (Sun Pharma) which is in the nature of merger of Ranbaxy into Sun Pharma effective from the appointed date i.e. April 1, 2014.

In terms of market share, the combination of Sun Pharma and Ranbaxy creates the fifth-largest specialty generics company in the world (just behind Teva, Sandoz, Activas and Mylan), the largest pharmaceutical company in India with a market share of 9.2% with a sales of US $1.1bn, and ahead of Abbott which has a market share of 6.5% (which is huge gap in the highly fragmented Indian market. In terms of asset base, the combined entity will have operations in 65 countries, 47 manufacturing facilities across 5 continents, and a significant platform of specialty and generic products marketed globally, including more than 600 ANDAs.

On the profitability front, the company is estimated to OPM of 31.6%, which is still very healthy, given that Ranbaxy is currently operating at a low OPM. The company is confident of turning around the same, given its history of turning around its acquisitions (Caraco, Taro, DUSA and URL) in the past. Sun Pharma is confident of turning around the acquisition. It expects synergies worth US$250mn by the third year of acquisition (i.e. mostly by FY2019). However, in the near term, the acquisition will dilute the reported ROE from 27.9% to 27.5% in FY2016, which is healthy, given the low profitability of the acquired company and it would be at the higher end of its peers, which have an ROE of 17-25%. The operating ROE, which excludes the cash component, will still be higher at around 41%.

We remain neutral on Sun Pharma.

IPCA Labs-USFDA issues alert against IPCA’s Pithampur and Silvassa unit

This article has been authored by Ms. Sarabjit Kour Nangra

IPCA Labs-USFDA issues alert against IPCA’s Pithampur and Silvassa unit: The USFDA has imposed import alerts on Silvassa and Indore (formulation facilities for US) for IPCA. However, Hydroxychloroquine Sulfate and Propanolol Hydrochloride, which accounted for around 45% of its total US sales in FY2014, are exempted from the ban. With this all the key US facilities of the company are under USFDA import alert. US which was as on FY2014, contributed sales of `419.6cr (12% of total sales and 20% of exports, with Formulation: API mix of around 61:39).Thus, on back of the ban around `231cr worth of sales will be impacted.

Whilst we are negatively surprised by the import alerts, we believe that now IPCA will have to follow the measures laid out by the US FDA to resolve the issue. In the past, the time taken to resolve by Indian companies has varied from few months to 2-3 years, depending on the company and the kind of issue raised by the USFDA. Currently we are unsure about the timelines for the same.

After the earlier downgrades, we have pruned our estimates further. We have cut the FY2016E EPS numbers by 20.0%. Thus at CMP, the stock trades at 20xFY2016E earnings. Though the timelines of the resolve are uncertain, we believe the size of the company, and low dependence on US, along with Indian geographies outperforming the market growth , we believe the company can easily sustain a 15-18% growth in sales and hence a significant downside is limited, and any downside can be used by investors to buy into the stock, with a long term view on the stock. At CMP, we remain neutral on the stock.

Weekend Highlights – 21st March, 2015

Nuclear Power installed capacity expected to reach 10,080 MW by 2019
The present nuclear power installed capacity of 5780 MW is expected to reach 10,080 MW by 2019 on progressive completion of the projects under construction/ commissioning.
In respect of projects set up with international technical cooperation, life time fuel supply guarantees are incorporated in the commercial contracts. Accordingly, the life time fuel supply guarantees in respect of the Tarapur Atomic Power Station Unit 1-2 and Kudankulam Atomic Power Project Units 1-4 are a part of the respective agreement/contracts.
Indias fuel consumption rises at 30-months high pace of 9.4% in February 2015
Indias fuel product consumption/sales surged at 30-months high pace of 9.4% to 14.03 mt in February 2015 over a year ago. Petrol sales jumped to 18.2% to 1.63 mt, while LPG sales galloped 7.9% to 1.51 mt. Sales of diesel advanced 7.5% to 5.78 mt and pet coke 30.4% to 1.24 mt. Further, the consumption of fuel oil moved up 18.5% to 0.55 mt, while that of lubricant rose 24.5% to 0.30 mt.
Sales of bitumen rose 4.5% to 0.52 mt, while that of other products gained 3.1% to 0.51 mt. However, sales of naphtha declined 3.5% to 0.93 mt, ATF 0.9% to 0.44 mt, and kerosene 0.1% to 0.59 mt in February 2015.
Consumption/sales of fuel product increased 4.5% to 150.46 mt in April-February of FY2015 compared with the 1.7% growth in the corresponding previous-year period. Sales of petrol increased 11.2%, pet coke 24%, and LPG 10.7%. Consumption of diesel also moved up 2% and that of lubes 4.2%, ATF 1.6% and bitumen 2.1%. However, sales of fuel oil declined 3.1%, naphtha 5.9% and kerosene 1.1% in April-February of FY2015.
Indian Railways introduces Wi-Fi Facilities in Moving Trains
As a pilot project, Wi-Fi in 12301/12302 Howrah-New Delhi-Howrah Rajdhani Express has been provided. Further, work for provision of Wi-Fi in 12957/12958 Ahmedabad Rajdhani Express, 12005/12006 Kalka Shatabdi Express and 12045/12046 Chandigarh Shatabdi Express has been taken up.
For provision of reliable Wi-Fi in a moving train, currently Satellite Communication is the only technology available which is capital intensive and has high recurring cost in the form of Bandwidth rentals. In view of the above, no specific time period can be given at present.

UPL- Acquires a stake in Brazilian Firm

This article has been authored by Ms. Sarabjit Kour Nangra

UPL- Acquires a stake in Brazilian Firm: UPL has agreed to acquire a 40% equity stake in Brazilian firm Sinagro group, which is into distribution of farm inputs in Cerrado region of Brazil, for an undisclosed amount. As per the agreement signed by UPL and Sinagro Produtos Agropecuarios SA (Sinagro), UPL through its step-down wholly-owned subsidiary will be subscribing to 40 per cent shares in Sinagro group. The transaction is, however, subject to necessary approvals.

While the exact details of the transaction are not available, the acquisition will provide company, a strong distribution front in its one of the key Brazilian agricultural product market, and given the comfortable debt: equity the company can easily finance the deal. During FY2014, the Brazilian market contributed 15% to its revenues and UPL had a 2.7% share in the $11.5bn Brazilian market. Currently on lack of details, we retain our numbers and our neutral rating on the stock.

Inox Wind – IPO Note

Strong Growth Prospects

Company background: Inox Wind Ltd (IWL), incorporated in 2009 and a part of the Inox Group, is one of the leading manufacturers of wind turbine generators (WTG’s) in India. The company also provides turnkey solutions, and operation and maintenance services for wind power projects. Currently, IWL has an installed capacity of 550 nacelles and hubs, 256 rotor blade sets and a capacity of 150 towers. The company is setting up a new integrated capacity which would take the total nacelles and hubs capacity to 950 units, rotor blades capacity to 800 sets and tower capacity to 600 units.

Strong order book: IWL has shown a strong growth during FY2014 and 9MFY2015 periods, wherein it sold 330MW and 380MW of WTGs during the period; plus, it also has a strong order book (as of December 2014). Currently IWL has an order book of 1,136MW, as against Suzlon’s order book of 1,148MW, and Gamesa India Pvt Ltd’s order inflow of 850MW (as of December 2014). These provide strong revenue visibility for FY2016. IWL has access to wind project sites which have been acquired or are under the acquisition process by its group companies – GFL and IRL – and its subsidiary IWISL. Currently, the wind sites acquired have an aggregate power project capacity of 2,130MW, while the wind sites which are under the acquisition process have a power project capacity of 1,922MW. Thus, it provides healthy revenue visibility for IWL in the medium term.

Government focus on renewable energy: The government has set a target of installed wind power capacity of 60,000MW till FY2022 from the current capacity of 21,150MW. This will create a huge opportunity for the company in the upcoming period. Hence we expect order inflow to increase at a faster pace during the next few years. We expect industry order flow to come in at the run rate of 5,000-6,000MW per annum as against the current run rate of 2,000MW per annum. The government has provided various incentives and framed several rules and regulations to increase demand for renewable energy.

Outlook and Valuation: On EV/sales, the company is valued at 3.3x (at the upper end of the price band) on the basis of 9MFY2015 annualized numbers. Looking at the strong order book of the company and government focus on the sector, we recommend a Subscribe on the issue.


This article has been authored by Ms. Sarabjit Kour Nangra

Lupin- Update: Lupin announced that it has entered into an agreement to acquire the balance 40% equity stake in South African generics major, Pharma Dynamics (PD) from its founders. As per the agreement, the founders will exercise their put option before March 31, 2015, for the 40% equity stake it currently holds.

On completion of this transaction, PD will become a wholly owned subsidiary of Lupin, subject to closing conditions. Headquartered in Cape Town, South Africa (SA) Pharma Dynamics was founded in the year 2001 and distributes a range of branded, generic prescription medicines and over-the-counter (OTC) products in SA as well as other key markets across the African continent.

In September 2008, Lupin acquired a strategic 60% equity stake in PD. Today, PD is amongst the fastest growing top 20 pharmaceutical companies in SA and the 3rd largest generic company in the SA prescriptions market. It is the biggest supplier of cardiovascular pharmaceuticals in SA by both value and volumes. Its products also address therapies such as central nervous system (CNS), gastrointestinal, diabetes and gynecological and male health segments. In 2013, it also entered the SA anti-infective market, supplying IV antibiotics to hospitals. Its OTC products portfolio includes antihistamines, cold & flu medication and heartburn treatment.

During FY20I4. Lupin’s South African subsidiary Pharma Dynamics (PD) recorded revenues of ZAR 63.8cr(₹345cr), registering a growth of 28% over the previous year. The additional share in the PD will add around ₹200cr in FY2016. We remain neutral on the stock.

Lupin- Update: Lupin, announced that its US subsidiary, Lupin Pharmaceuticals Inc. (collectively Lupin) has got approval for its generic drug Celebrex®. Earlier in Dec ’2014, the company had launched the authorized generic for G.D. Searle LLC’s (a subsidiary of Pfizer Inc.) Celebrex® Capsules (Celebrex) 50 mg, 100 mg, 200 mg and 400 mg strengths. Lupin had earlier signed a licensing agreement with Pfizer Inc. regarding Celebrex. Celebrex® Capsules had annual U.S sales of US$ 2.54 billion (IMS MAT September, 2014).Currently there is a limited competition for the product and the company can, conservatively garner sales of US $50-60mn in sales for the 50 mg capsules. We remain neutral on the stock.

Weekend Highlights 14th March, 2015

IIP rises 2.6% in January 2015
Indias Index of industrial production (IIP) increased 2.6% in January 2015, compared with the revised growth of 3.2% recorded in December 2014. The IIP growth for December 2014 has been scaled up sharply to 3.2% at the first revision compared with 1.7% reported provisionally. An upwards revision to the December 2014 IIP growth figure has been mainly driven by steep revision in the growth of basic metal production to 13.2% from 3.9% earlier. Meanwhile, the growth in October 2014 has also been revised sharply upwards to (-) 2.7% at its second and final revision compared with (-) 4.2% at the first revision as well as released provisionally.The mining sector output declined for the second straight month at 2.8% in January 2015, in addition to 2.1% decline in December 2014. Meanwhile, electricity generation growth further slowed down to 15-months low of 2.7% in January 2015. However, the manufacturing sectors output continued to grow at nearly steady pace for third straight month at 3.3% in January 2015.

The new Road Transport and Safety Bill 2015, aims for Safe Transport System
The new Road Transport and Safety Bill 2015, in place of Motor Vehicle Act 1988, proposes to constitute a National Road Transport and Multimodal Co-ordination Authority and State Transport Authority with an objective and power to plan and develop integrated, safe and sustainable transport systems that contribute to an inclusive, prosperous and environmentally responsible India under Sections 109 to 145 of Chapter-VI. In Section 139 of the proposed bill, the primary objective of State Transport Authority includes the following:-

(1) to ensure, in collaboration with National Transport Authority, other state transport bodies and public entities, urban local bodies and land holding agencies and the traffic police, that the public transport system is planned and operated as part of an integrated transport system which seeks to meet the needs of all transport system users within the state;

(2) to organize and regulate the public transport system in a manner which supports a multi-modal integrated transport system within the state by

(i) increasing the share of public transport trips within the state;

(ii) actively promoting public transport usage;

(iii) improving the environmental performance and minimizing the adverse environmental impacts of the public transport system;

(iv) contributing to social well-being by providing access to livelihood opportunities and supporting social interaction amongst members of the community;

(v) promoting economic prosperity through efficient and reliable movement of public transport users while also supporting the movement of livestock and freight; and

(vi) collaborating with relevant bodies including the Central Government, the State Government, National Transport Authority, State Road Transport Corporations, public and private transport operators, urban local bodies, the National Authority, the State Safety Authority, State Police and other such bodies, in order to improve the efficiency of public transport for public transport users.

Moodys: Lower oil prices to strain net exporters, offer respite to importers
Lower oil prices will reverse the financial performance of oil exporters and importers in 2015, with exporters public finances coming under renewed pressure and importers given some help in reducing their deficits, Moodys Investors Service says in a report.The impact of cheaper energy means oil exporters face worsening fiscal and external balances, with some moving from twin surpluses to twin deficits. Oil importers will gain some breathing space to cut their budget deficits and use savings from lower energy costs to rebuild their financial buffers.

Sustained lower oil prices will reverse fiscal and external metrics for oil exporters and importers, says Steffen Dyck, a Moodys Vice President and co-author of the report. Between 2011 and 2014, high oil prices helped many net oil exporters to record fiscal and current account surpluses, while exporters suffered twin deficits. Cheaper energy means this picture will change in 2015.

Moodys examines the impact of sustained low oil prices — which fell by almost 60% between June 2014 and January 2015 – on four net oil-exporting countries and six net oil-importing sovereigns.

For oil-exporters, the scale of the impact of lower oil revenues varies from country to country. However, all of the sovereigns will have to adjust their spending and investment plans, subduing their economic growth outlook in 2015. Bahrain, Oman and Saudi Arabia are likely to see the biggest deterioration in both fiscal and external metrics this year, moving from large twin surpluses to twin deficits.

Sun Pharmaceuticals-Update

This article has been authored by Ms. Sarabjit Kour Nangra

Sun Pharmaceuticals-Update: US Food and Drug Administration (FDA) have approved SPARC’s new drug application (NDA) for ELEPSIA XR (Levetiracetam extended-release tablets 1000 mg and 1500 mg). The product will be manufactured by Sun Pharmaceutical Industries at its Halol (Gujarat) facility in India. Levetiracetam is a very successful and highly effective antiepileptic drug but more than 80% of epilepsy patients require Levetiracetam in does in range of 1000mg to 3000mg resulting in a significant pill burden. Approval of ELEPSIA XRTM as 1000mg and 1500mg once a day tablets will be very useful for these patients and physicians.

According to SPARC, the Levetiracetam market volume in US is growing at an average annual growth rate of 11% and out of 600mn units sold per year, 400mn units are consumed for daily dosage of 1000mg-3000mg.Given the potential of the drug, the product is expected to be commercialized at significant premium to generics (the generic equivalent in the Tablet form for the same strength priced ~US$1/tablet).Given that the company can fetch a higher premium for the drug, the product can easily on a very conservative basis gross sales of US400mn in US from the product. Also, this first approval for the company from the Halol facility, after the 483, is positive indication. Since the product is expected to be manufactured at the Halol facility, the product will significantly to Sun Pharmaceuticals financials. During the first year itself the product can easily garner US$50-80mn in sales and US$25-40mn in net profit. Thus drug can be easily subscribed a value of  ₹30- ₹50 per share. We remain neutral on the stock.

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.

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