Sun Pharma - Company Update - Centrum

Sun Pharma

Buy

Target Price: Rs892

CMP: Rs837

Upside: 6.6%

Good overall performance

We recently interacted with the Investor Relations team of Sun Pharmaceutical Industries (SPIL) to get the latest update on the company. The key highlights were:

Supreme Infrastructure - Initiation - Centrum

Initiating Coverage

Supreme Infrastructure

Buy

Target Price: Rs373

CMP: Rs198

Upside: 87.9%

Growth in the offing

Supreme Infrastructure (Supreme) is an integrated and diversified EPC player present across segments and geographies. It has established itself as a leading BOT player with total projects worth Rs43.7bn spanning over 1,810 lane km (currently 4 operating projects spanning over 720 lane km and project investment of Rs10.6bn). Further inroads into the BOT segment has become easier with equity commitment from private equity 3i Capital which is committed to invest over Rs3.06bn in Supreme’s four BOT projects. In the Union Budget 2013-14 it was announced that during H1FY14 over 3,000km of new road projects will be awarded and Supreme, with its freed up capital is well placed to capitalise on this opportunity. The EPC segment which enjoys above industry margins due to backward integration is likely to support earnings with order book of over Rs54.4bn catering to segments like buildings, bridges, roads (both BOT and cash contracts), water and power (earnings CAGR of 39.8% over FY12-15E). Additionally, toll revenues are expected to rise with five BOT projects likely to be operational during FY14-15E. We like Supreme due to its integrated business model in EPC, diversified order book, BOT concentration in high traffic density states (Maharashtra, Punjab) and availability of growth capital with equity infusion by 3i Capital. We initiate coverage on the stock with a ‘Buy’ rating and target price of Rs373.

Hindalco Industries Buy Target Price: Rs122:: Centrum

Initiating Coverage

Hindalco Industries

Buy

Target Price: Rs122

CMP: Rs96  

Upside: 27.1%

Worst is behind and priced in

We expect the worst to be over for Hindalco with the commissioning of Mahan and Utkal projects in H1FY14 expected to ease cash flows, release long standing CWIP and deleverage the stretched balance sheet. We see volume growth ahead in domestic aluminium business and successful implementation of raw material projects (bauxite and coal) for new capacities alleviating market concerns on returns and margins. Novelis is expected to continue providing solid earnings support with relentless focus on increasing recycling volumes, expansion in growth segments and process & cost improvements. We expect consolidated EBITDA CAGR of 12.8% during FY13-15E on the back of volume growth and better LME aluminium realization (which we believe is near its bottom from a medium term view). We initiate coverage with a BUY rating and a target price of Rs122.

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