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Focus List: Adding DRRD and Removing COAL
Why are we adding Dr Reddy’s to our focus list?
• DRL has been a modest performer in the recent past -
down 6% YTD (outperforming index by 5%) and down
2% (in line with the market) over last three months.
• This, coupled with a few product catalysts ahead (relaunch from GSK Bristol site in Sep-11, Arixtra in next
three to four months, and Zyprexa 80mg in Oct-11) and
an inexpensive valuation at 16x F2012 and 14.5x F2013
our EPS estimates should make for good price
performance in the months ahead.
• Mid to longer term, DRL is leveraged to a strong patent
expiration cycle in the US (US$97 billion in five years),
bio-similar scale up in emerging markets and gradual IPR
build up (delivery based drugs), which should keep the
multiples in the historical range (17-19x), and earnings
growth should drive the stock price performance.
Why are we removing Coal India from our focus list?
• CIL’s 35% outperformance vs. the Sensex YTD suggests
limited upside to us. Our medium-term thesis of
improvement in sales mix, coal prices, and news flow on
volume growth has played out. Likely delay in notified
price hikes to March 2012 limits further upside in stock
price, in our view.
• We see only one near-term catalyst: The likely
cessation of OBR adjustment by CIL. We estimate this
change could lift consensus earnings by about 10% for
F2013.
• We continue to view Coal India as a structural longterm growth story: We think CIL’s price uptick remains
a potent long-term story; exposure looks more beneficial
on a six- to eight-quarter horizon.
Focus List and Sector Model Portfolio performance
• Year to date, our sector model portfolio has
underperformed the MSCI India index by 8bp and our
focus list has outperformed the BSE Sensex by 223bp.
• We are overweight Energy, Industrials, Telecoms, and
Utilities and underweight Consumer Staples, Materials,
Healthcare, and Financials. We are Neutral on
Technology and Consumer Discretionary. That said, we
are still becoming more constructive on Consumer
Discretionary stocks. Our work from early May shows
that these stocks tend to trough with peaking rates
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Focus List: Adding DRRD and Removing COAL
Why are we adding Dr Reddy’s to our focus list?
• DRL has been a modest performer in the recent past -
down 6% YTD (outperforming index by 5%) and down
2% (in line with the market) over last three months.
• This, coupled with a few product catalysts ahead (relaunch from GSK Bristol site in Sep-11, Arixtra in next
three to four months, and Zyprexa 80mg in Oct-11) and
an inexpensive valuation at 16x F2012 and 14.5x F2013
our EPS estimates should make for good price
performance in the months ahead.
• Mid to longer term, DRL is leveraged to a strong patent
expiration cycle in the US (US$97 billion in five years),
bio-similar scale up in emerging markets and gradual IPR
build up (delivery based drugs), which should keep the
multiples in the historical range (17-19x), and earnings
growth should drive the stock price performance.
Why are we removing Coal India from our focus list?
• CIL’s 35% outperformance vs. the Sensex YTD suggests
limited upside to us. Our medium-term thesis of
improvement in sales mix, coal prices, and news flow on
volume growth has played out. Likely delay in notified
price hikes to March 2012 limits further upside in stock
price, in our view.
• We see only one near-term catalyst: The likely
cessation of OBR adjustment by CIL. We estimate this
change could lift consensus earnings by about 10% for
F2013.
• We continue to view Coal India as a structural longterm growth story: We think CIL’s price uptick remains
a potent long-term story; exposure looks more beneficial
on a six- to eight-quarter horizon.
Focus List and Sector Model Portfolio performance
• Year to date, our sector model portfolio has
underperformed the MSCI India index by 8bp and our
focus list has outperformed the BSE Sensex by 223bp.
• We are overweight Energy, Industrials, Telecoms, and
Utilities and underweight Consumer Staples, Materials,
Healthcare, and Financials. We are Neutral on
Technology and Consumer Discretionary. That said, we
are still becoming more constructive on Consumer
Discretionary stocks. Our work from early May shows
that these stocks tend to trough with peaking rates
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