Year: 2007

We reported that Lupin has acquired Rubamin Pharma.[RLL]

RLL is a research driven organization with 145 employees, of which 30% are involved in R&D. The company’s R&D capabilities encompass activities such as Product Development and Optimization, and NCE Development Support. This acquisition would provide Lupin access to RLL’s customer base of innovator and generic companies in the US and Europe and various technology platforms, which Lupin does not have. We believe that Lupin would be able to use this customer base, and technology platforms to leverage its own CRAMS initiatives. Lupin will also fill gaps, which RLL has in terms of scale-up and forward integration. Apart from this, we expect Lupin to initiate operational restructuring to reduce cost and improve profitability.

Currently, RLL has sales less than Rs500 mn and EBITDA margin lower than Lupin’s margin. However, ASK India expects sales of RLL to grow to Rs2.5- 3 bn in three years and significantly improve profitability. ASK maintains a BUY on Lupin with a price target of Rs 807. Fully diluted EPS expected for FY08 and FY09 are – Rs 36.9 and Rs 44.8.

UBS Equity research is underweight on the prospects of Indian market compared to others globally. It has rated India at position 15 amongst 16 countries.
Rank of India across various parameters in the UBS Report are as follows, [1=Highest Score, 16=Lowest Score]

• Country Risk Rank – 15
• Economic Rank – 16
• Political Rank – 9
• Budget Deficit – 15
• Current Account – 13
• Tariffs – 16
• Currency – 13
• Inflation – 14
• Sovereign Credit Rating – 14
• Economic Rank – 16
• Contract enforcement – 16
• Investor protection – 4
• Liquidity – 5
• Size of Government – 3
• Corruption – 11
• Reforms – 9

The sectors UBS is globally looking for are Banking, Telecom and Consumer Services and Goods.

Merill Lynch has raised the stock target price of Reliance Capital [R-Cap] to Rs 1850. R-Cap is expanding its distribution at a very rapid pace which could result in growth, ahead of Merill’s estimates, remaining very strong through FY10 and possibly beyond. Based on FY10E sum of parts valuation, a value of Rs 2033/share, the target price for Mar’09 (18 months from now), a 36% upside. Hence, 12 month PO is Rs 1850.

By Dec’08, it is likely to have 10,000 touch points in retail in 1 year (v/s 4,000 now), 5,000 locations (v/s 700), 300,000 agents in life insurance (and 400 cities) and +1500 dealers.

• Consumer loan book [Housing, Auto, Personal etc] to expand 10-fold to US$4.1bn by FY10, delivering ROE of +20%.
• General insurance too is likely to show +100% growth through FY09 and 75% in FY10.
• R-Money is likely to be the other strong growth driver as it expands distribution and customers hit 1 million mark.
• Overall, life insurance should, however, remain the biggest contributor at 37% of target value with premia income forecast to rise 7-fold from FY07 levels.

Reliance Capital is likely to emerge amongst the top 3-4 players in the financial services segment. R-Cap is expected to report an EPS of Rs 41.16 for FY 08 and Rs 59.27 for FY09.

In a separate report, Merill Lynch’s most preferred stocks are – BHEL, Bharti Airtel and Grasim Industries. While the least preferred are Hindalco, Tata Motors and Pantaloon Retail India Ltd.