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Cadila Healthcare (Wait for more triggers, ADD): With 60% CAGR in US revenues over FY07-11ii, Cadila is set to emerge as the latest Indian success story in the US generics market. Significant revenue contribution from the domestic market (37% from prescription drugs, 7% from consumer products), other emerging markets (9%) and high-quality CRAMS (12%) make Cadila a balanced player with sustainable growth prospects. On the other hand, upside is limited, in our view, by slower growth in the domestic market, potential slowing of US growth due to base effect, rich valuations, and lack of major near-term triggers. We initiate coverage with an ADD rating and price target of Rs852.
Sun TV (From strength to strength, ADD): Our meeting with Mr Ajay Vidyasagar and Mr Unnikrishnan, COO and VP Finance, respectively, of Sun TV Networks, reinforced our confidence in the stock. Management indicated that although ad spend is unlikely to see the spikes seen in FY10, overall buoyancy persists, as evident from large advertisers queuing up for three-year deals with the company. On the other hand, distribution revenues are set to maintain the strong trajectory witnessed over the past few quarters, buoyed by the strong subscriber growth in the DTH market and the company’s renewed focus on the analogue cable space. We upgrade our earnings estimates for FY11 and FY12 by ~3%. At 22x FY12ii EPS, with strong visibility and possible upside to earnings, the stock remains attractive, in our view. We retain ADD.
Dumb Commodities (Best way to short China): There is no doubt that China is in a massive property-price bubble, fuelled by the Wen Jiaobao government’s reckless liquidity binge in the past five years. Yet we feel that the Chinese property bubble won’t burst as long as the US is also printing money. The central bank’s half-hearted tinkering of rate and bank reserves ratio will only serve to drive up volatility of commodity prices. Thus, trading commodities on Chinese policy signal is a good way to short China.
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