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Equity Research

I-Sec Maintains BUY on Sun Pharma Advanced Research Company

October 1, 20071 min read

Sun Pharma Advanced Research Company (SPARC) was formed after the demerger of Sun Pharma Industries’ (SPIL) innovative R&D business. SPARC, which got listed on July 18, ’07, is an international research-based pharmaceutical company that discovers and develops new drugs / delivery systems. SPARC’s innovation philosophy is based on finding drugs for unmet medical needs by focusing on validated targets, implying reduced risk, while not compromising much on the huge potential upside. ICICI is confident of NPV for the pipeline at ~US$700mn or Rs149 / share and expect significant value creation in the next 3-5 years.

SPARC is the only listed Indian company that focuses purely on pharma drug discovery research. SPARC’s innovation philosophy of finding a drug and develop analogue NCEs is an appropriate and ‘relatively lower risk yet higher returns’ strategy. The current pipeline is an impressive mix of two NCEs, two pro-drug NCEs, and eight products under development using four distinct novel drug discovery system (NDDS) platform technologies.

Breaking Corporate India Earnings News

Gulf Oil expansion plans

October 1, 20071 min read

India’s third largest blended lubricant manufacturer, has firmed up plans for two construction projects in Bangalore and Hyderabad and it is eying a couple of mining projects as well this year.

The 100-acre knowledge city in Hyderabad will need an investment of Rs 800 crore. It will be used for the company’s in-house R&D work on robotics for the explosives division and research for the speciality chemicals division. The construction cost of the Bangalore IT and IT enabled services hub, covering 40 acres, is estimated at around Rs 1,000 crore.

Reportedly, the company also plans to invest around Rs 400 crore in two mining projects that it hopes to bag during this fiscal.

The report indicated that the long-term plan of the company is to strengthen the four verticals and hive them off into separate entities

Economy, Markets and Macro Views

India not an Emerging Market Favorite – UBS

September 29, 20071 min read

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.

Economy, Markets and Macro Views

Target Price of Reliance Capital Raised – Merill

September 29, 20072 min read

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.

Breaking Corporate India Earnings News

Gammon India not responsible for Flyover Accident

September 29, 20071 min read

The government of Andhra Pradesh had constituted a high level committee to investigate the collapse of flyover @ Hyderabad. The findings of the report sent to us in a fax message is as follows,

The committee reported that the heavy rainfall in Hyderabad (on the day of the accident) and the trench dug near the temporary structures by HMWSSB resulted in the erosion of soil and subsequent loosening of the foundation of temporary structures of the flyover. The committee noted that the failure was not of the main structure but the temporary structure (due to rains) and hence absolved Gammon from any claims of negligence in handling the project.

Thus Gammon India will have no impact on obtaining or bidding for further large tenders.

Equity Research

Shiv-Vani Oil & Gas Exp for Medium Term

September 29, 20072 min read

ICICI recommends investment in Shiv-Vani Oil & Gas Exp for medium term [3-6] months with a price target of Rs 403.

Shiv-Vani provides services to ONGC, OIL, RIL, and Cairns India for on-shore exploration services. The company provides the entire value added services from seismic data acquisition through drilling. The growth of the company is a function of increase in the number of onshore block on offer for exploration and production. Under the New Exploration Licensing Policy – VI (NELP), the central government has invited bids for 55 exploration blocks comprising 25 onshore, 6 shallow water blocks and 24 deepwater blocks (beyond 400 metres). Only 18% of the total sedimentary basinals area has been explored so far. Huge potential is yet to be explored. Shiv-Vani has a 50% market share and is set to be one of the primary beneficiaries of the increase in the number onshore blocks on offer.

Shiv-Vani is sitting on an order book position of Rs 3,200 crore. Of this, Rs 1,000 crore pertains to a company in Oman and is spread over 15 years. The remaining Rs 2,200 crore, to be executed over the next 2 to 2.5 years is around 8x CY06 consolidated revenue of Rs 276.78 crore.

The stock trades at 11.37x its diluted CY08E EPS of Rs 29.56.Its foray into the offshore business could lead to a re-rating on the counter. The stock will be an outperformer with price target of Rs 403 over a 6-month time frame.

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