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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily29032012.pdf
Pharmaceuticals: Recent outperformance notwithstanding, maintain SUN,
Lupin, Divis as top picks
` SUN and Lupin outperform, up 5% and 15% respectively since 3QFY12
results
` Cipla underperforms, down 14% since poor 3QFY12 results; maintain
REDUCE
` Divis - buy into weakness, top pick among CRAMS companies we cover
SUN and Lupin outperform, up 5% and 15% respectively since 3QFY12 results
Despite recent outperformance, we maintain SUN and Lupin as our top picks. Lupin has garnered
33% market share in the recent launch of Ziprasidone in US (market size of US$1.3 bn) versus
DRL’s 25% (however, contracted market share is higher as per DRL) due to (1) lower-thanexpected competition (Sandoz has not received final approval and Apotex has not entered into the
180-day exclusivity) and (2) limited participation of AG (Greenstone). The higher-than-expected
market share versus our expectation of 20% reveals superior execution capabilities of Lupin in the
US generic market, partly boosted by limited competition. Helped by (1) a sizeable number of
launches in US and (2) certain limited-competition launches (such as Combivir, Tricor), we believe
the earnings growth is intact, supporting its valuations. We increase our FY2013E EPS marginally
to Rs27.5 (was Rs26.5) upon Seroquel launch and TP to Rs550 (was Rs520), 20X FY2013E EPS.
Post the budget, we have reduced our FY2013-14E EPS for SUN on account of imposition of tax
on partnership structures. We accordingly revised our FY2013E EPS downwards to Rs25.6 from
Rs28.1 implying tax rate of 16% in FY2013-14E from 10% earlier. See our note ‘Tax woes apart,
nothing much for pharma‘. Due to (1) strong earnings visibility and (2) with the major overhang of
increase in tax rate now over, we increase our multiple to 25X from 24X and maintain SUN at ADD
with TP at Rs600 (was Rs580) — 25X FY2013E base business EPS and cash/share.
Cipla underperforms, down 14% since poor 3QFY12 results; maintain REDUCE
We view the inhalers opportunity for generic companies such as Cipla with cautious optimism.
We believe the Street is ignoring certain facts which make this a tough market to enter, although
it remains a lucrative market yet to be genericized. Following reasons make us cautious—(1)
patent protection on the device runs longer than product patent, (2) will remain physician-oriented
markets necessitating strong marketing partnerships which Cipla lacks, and (3) stringent regulatory
environment would imply country-wise approvals rather than a pan-European approval. See our
detailed note ’Deep dive into inhalers opportunity‘. REDUCE with TP of Rs315.
Divis—buy into weakness, top pick among CRAMS companies we cover
Post the Pfizer-Biocon deal being called off, we maintain Biocon at ADD despite the recent
underperformance. Overall, we view this development as a big setback to Biocon as it directly
affects Biocon’s efforts towards successfully marketing generic insulin in regulated countries
starting 2014E. The insulin market even post genericization is likely to remain a physician-oriented
market necessitating a strong marketing partner, which Biocon had found in Pfizer.
Divis is down 10% since 3QFY12 results, we therefore move our rating a notch higher to BUY
from ADD maintaining TP at Rs935 due to the recent underperformance. Despite lower-thanexpected 3QFY12 results on account of a sharp increase in costs, partly due to front-loading of
expenses on account of the new SEZ, we believe earnings growth drivers are intact. We value Divis
at (1) 20X FY2013E EPS and (2) cash/share of Rs63.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily29032012.pdf
Pharmaceuticals: Recent outperformance notwithstanding, maintain SUN,
Lupin, Divis as top picks
` SUN and Lupin outperform, up 5% and 15% respectively since 3QFY12
results
` Cipla underperforms, down 14% since poor 3QFY12 results; maintain
REDUCE
` Divis - buy into weakness, top pick among CRAMS companies we cover
SUN and Lupin outperform, up 5% and 15% respectively since 3QFY12 results
Despite recent outperformance, we maintain SUN and Lupin as our top picks. Lupin has garnered
33% market share in the recent launch of Ziprasidone in US (market size of US$1.3 bn) versus
DRL’s 25% (however, contracted market share is higher as per DRL) due to (1) lower-thanexpected competition (Sandoz has not received final approval and Apotex has not entered into the
180-day exclusivity) and (2) limited participation of AG (Greenstone). The higher-than-expected
market share versus our expectation of 20% reveals superior execution capabilities of Lupin in the
US generic market, partly boosted by limited competition. Helped by (1) a sizeable number of
launches in US and (2) certain limited-competition launches (such as Combivir, Tricor), we believe
the earnings growth is intact, supporting its valuations. We increase our FY2013E EPS marginally
to Rs27.5 (was Rs26.5) upon Seroquel launch and TP to Rs550 (was Rs520), 20X FY2013E EPS.
Post the budget, we have reduced our FY2013-14E EPS for SUN on account of imposition of tax
on partnership structures. We accordingly revised our FY2013E EPS downwards to Rs25.6 from
Rs28.1 implying tax rate of 16% in FY2013-14E from 10% earlier. See our note ‘Tax woes apart,
nothing much for pharma‘. Due to (1) strong earnings visibility and (2) with the major overhang of
increase in tax rate now over, we increase our multiple to 25X from 24X and maintain SUN at ADD
with TP at Rs600 (was Rs580) — 25X FY2013E base business EPS and cash/share.
Cipla underperforms, down 14% since poor 3QFY12 results; maintain REDUCE
We view the inhalers opportunity for generic companies such as Cipla with cautious optimism.
We believe the Street is ignoring certain facts which make this a tough market to enter, although
it remains a lucrative market yet to be genericized. Following reasons make us cautious—(1)
patent protection on the device runs longer than product patent, (2) will remain physician-oriented
markets necessitating strong marketing partnerships which Cipla lacks, and (3) stringent regulatory
environment would imply country-wise approvals rather than a pan-European approval. See our
detailed note ’Deep dive into inhalers opportunity‘. REDUCE with TP of Rs315.
Divis—buy into weakness, top pick among CRAMS companies we cover
Post the Pfizer-Biocon deal being called off, we maintain Biocon at ADD despite the recent
underperformance. Overall, we view this development as a big setback to Biocon as it directly
affects Biocon’s efforts towards successfully marketing generic insulin in regulated countries
starting 2014E. The insulin market even post genericization is likely to remain a physician-oriented
market necessitating a strong marketing partner, which Biocon had found in Pfizer.
Divis is down 10% since 3QFY12 results, we therefore move our rating a notch higher to BUY
from ADD maintaining TP at Rs935 due to the recent underperformance. Despite lower-thanexpected 3QFY12 results on account of a sharp increase in costs, partly due to front-loading of
expenses on account of the new SEZ, we believe earnings growth drivers are intact. We value Divis
at (1) 20X FY2013E EPS and (2) cash/share of Rs63.
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