Nestle, J & K Bank, Oil & Gas, Economy:: Kotak reports from 19 Sep :: Kotak Sec, PDF report link

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Company
Nestle India: RM/pricing tailwinds drive EPS upgrades; valuations stretched
` Multiple tailwinds drive upgrades to our EPS estimates
` However, core concerns remain; retain SELL with revised target price of
Rs5,300
` We note we have baked in a robust volume/earnings recovery over
CY2014-16E


J&K Bank: Floods send fresh pangs of pain
` 50% of the loan book within the state of J&K is probably at risk
` Guidelines from RBI indicate a sharp rise in restructured loans
` An overhang that is likely to extend beyond a year; NPLs could rise
moderately in the short term
` Maintain REDUCE as the concerns continue to increase

Sector
Energy: BPCL>IOCL>HPCL
` Sharp increase in normalized net debt of HPCL and IOCL; modest increase
for BPCL
` BPCL's operating cash flows fund capex, leading to enhancement of core
business
` Increase in net debt for IOCL is associated with significant capex in
greenfield projects
` HPCL's rising net debt has not resulted in much improvement in core
business metrics
` BPCL remains our preferred pick among OMCs


Economy
Economy: Notes from Delhi: strong government commitment
` Activity level is palpable
` Focus on urban development
` Stable macro picture, numbers can take some time to deliver
` Government committed to reforming the capital market



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Kotak reports from 18 Sep :: Kotak Sec, PDF report link

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Company
Karur Vysya Bank: Steady improvement
` We maintain BUY as the bank is addressing critical headwinds
` Tier-1 ratio improves; leverage ratio comfortable but high versus peers
` Greater focus on costs, revenue growth offer comfort


Sector
Metals & Mining: Complexities of the coal conundrum
` Captive blocks - expected step-up improvement may be delayed
` Few fallback options - little headroom for CIL, imports technology, cost
prohibitive
` Jindal Steel and Power most impacted, Coal India the only potential
beneficiary


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10 evergreen money lessons for the young: rediff

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Follow these simple tips and you will be on your way to getting prosperous, says Priya Nihalani.

1. Invest in yourself

Nothing like spending on your own knowledge and wisdom in matters of money. Such spending will empower you for the future and prove to be your best investment. Investing in self is a lifelong process. There is no pause button; lookout for shelling out decent money for gaining knowledge; this should be an unending regular activity.

2. Invest young

Investment in financial instruments, savings account etc can be done even before your first paycheck. Keep aside an amount from your pocket money, or salary if you've started your professional journey, in a way that the first slice is always invested. It can go from as low as Rs 500 monthly to as high as you can aim for a bright and secure future!

Many options available to compound your money saved periodically are available (the best of all and risk-free is PPF; next comes equity but this asset class has risks)).

Seek financial advice from professionals or select a financial instrument after proper research.

3. Go easy on plastic money

There will always be temptations, from that stylish trousers in the shopping rack and fancy food at the new restaurant to gadgets and adventurous vacations. Credit cards are extremely tempting as you are going to pay tomorrow for what you consume today and many a times end up paying high interest as well on the amount (sigh).

While paying by credit card postpones your liabilities to a future date problem arises if you face an emergency just around the time your outstanding is due? When it comes to cash outflows, the list is endless.

So, be frugal: what you hold on to today will compound and come back to you as a big reward in the future! Be prudent and think twice before that credit card swipe!

4. Budget

Budget and plan every penny earned and saved. Preparing a list of your needs beforehand helps keep in check impulses which do not align with a financially meaningful month. Scrutinise your spending and make notes for a few days. Study the pattern and spot the meaningless spending so that you can rein in your instincts. Save up and avoid small expenses to eventually build an asset.

Creating constant income stream in the long run will serve you better than small pleasures today, don't you think? However, every individual's plan will be unique and as per her/his circumstances. Do not get affected looking at peers or friends, mind your own overheads!

5. Stay time-wise

Value time as money. Invest it in constructive activities. Look for a part-time job if your energy allows it so that it helps you make that extra buck. Part-time tuitions in your own line of education or work is a good example of such an option. THis is any day better than wasting your time on insignificant activities. What we make of time is as good as making serious money.

6.Conserve

Curtail spending over daily travel for groceries, classes or even workplace by looking out for friends and form a carpool for your locality or social event. This will spare unnecessary expenditures. Monitor your phone bills and work towards making an intelligent and efficient use of this technology. If you are investing in yourself by upgrading your skills or acquiring new ones, you will need to join classes or read up. Borrowing the relevant study material from friends rather than purchasing a new set of books could be a nice idea.

Lookout for stores which stock up used books for sale at heavily discounted prices, a great option! Aim for the scholarships institutes offers.

7.Stay off trivial borrowings

Mindless borrowings from friends or family will make you less responsible for the spending and not to forget, a loan is a loan, which you have to pay back some day. Steer clear of burdening yourself with the mental and financial stress.

8. Socialise with a cap on!

Socialising has its merits, networking the biggest of them all. But, as they say, excess of everything is bad. Put a cap on those trips to the cafes, watering holes and parties and spare yourself the burden of that month-end financial crunch predicament.

9.Pursue a hobby

Pursuing a hobby keeps you distracted from flippant spending ideas and too much socialising. Hobbies are a great way to unwind, and you never know when pursuing a hobby will turn into a big innovative business idea!

10. Plan in peace

Spend some time in peace. Design a future and take planned steps to make that come true. Family and mentors are always there to encourage -- seek guidance from them. Some great ideas surface in tranquility!

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Kotak reports from 17 Sep :: Kotak Sec, PDF report link

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Strategy
Strategy: What's up (or down) with commodity prices?

Daily Alerts

Zee Entertainment Enterprises: Compounding story Company

LIC Housing Finance: Addressing a few investor concerns


Sector
Automobiles: Hero Motocorp to benefit from Honda's capacity constraints
Pharmaceuticals: Close race to the finish




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50% readers feel Sensex/Nifty Correct by 20% in 2014. IndiaER poll. What do YOU think? Vote NOW

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Will Sensex/Nifty Correct by 20% in 2014?

CURRENT results:

Yes, In October (50%)
 
No correction in 2014 (29%)


Yes, in December (11%)


50%  feel Sensex/Nifty Correct by 20% in 2014. IndiaER poll. What do YOU think? Vote NOW


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Sun Pharmaceuticals - It's a big deal; event update:: Edelweiss PDF link

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We perceive Sun Pharmaceuticals’ (SUNP) exclusive worldwide licensing deal with Merck for Tildrakizumab is another transformational step like its recent Ranbaxy acquisition. It not only takes the company closer to evolving into a specialty player, but also on approval (2016/2017) the drug could become a meaningful addition to its business. We are upbeat on the company’s capital allocation policies and believe that it will continue to be on the prowl for exciting opportunities (given large cash) that will drive long-term value, as in the past.

Inks exclusive marketing deal with Merck for psoriasis drug

SUNP has bagged exclusive worldwide commercialisation rights for Merck’s Tildrakizumab (MK-3222, details on Page 3) undergoing Phase III trials (details on page 4) for the treatment of chronic plaque psoriasis (details on Page 2-4) for an upfront payment of USD80mn. Merck will receive milestones and tiered royalties (mid-single digit through teen) on sales and will continue all clinical development/regulatory activities, which will be funded by SUNP. On approval (possible in FY16/17), SUNP will also be responsible for all regulatory activities, including subsequent submissions, pharmacovigilance, post approval studies, manufacturing and commercialisation. The global psoriasis market is large and is expected to touch USD8bn by CY16.

What’s the big deal?

(a) step towards becoming a specialty company, expect more activity towards this effort in the future; (b) SUNP is the first Indian company to own worldwide rights for a Phase III drug, and on approval will be first to commercialise a novel medicine in regulated markets; (c) Tildrakizumab (an IL-23 blocker) is expected to have fewer side effects than existing products (Humira, Enbrel) and could garner peak sales of USD500mn-1.5bn (20-60% of FY14 sales); (d) strengthens its existing branded derma franchise (DUSA, Ranbaxy’s derma franchise including Absorica); (e) further upside if other potential indications for Tildrakizumab including psoriatic arthritis and Crohn’s click in the future; (f) for the ongoing two Phase III trials (c2000 patients), we believe SUNP may need to spend another USD200-300mn over next 2-3 years before filing.

Financials

Year to March	FY13	FY14	FY15E	FY16E
Revenues (INR mn)	112,999	160,804	185,590	206,633
EBITDA (INR mn)	49,749	71,956	84,123	94,041
EPS (INR)	17.1	25.6	31.8	37.2
P/E (x) (based on recur. EPS)	46.6	32.7	25.0	21.5
ROE (%)	26.0	31.4	30.7	28.3

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Kotak reports from 16 Sep :: Kotak Sec, PDF report link

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Company
IndusInd Bank: On a comfortable path
` Comfort in the business in this leg of the cycle; concern about management
continuity eases
` Strong outperformance unlikely as valuation is at the upper end, factoring
recovery
` NII growth likely to recover as retail makes a strong comeback to the loan
composition

Sector
Technology: First impressions of Cognizant's acquisition of TriZetto
` Trizetto's software/IP revenues are differentiating factors
` Acquisition price is not cheap
` Long standing relationship with TriZetto reduces integration risks
` Read-through - products/IP acquisitions in 'hot' areas do not come cheap

Economy
Economy: GST - gathering momentum
` Consensus emerging on broad contours of GST
` Differences - compensation for revenue loss; inclusion of commodities
` The Centre needs to ready a compensation plan at the earliest
` What remains - clarity on GST IT network, GST council and amendment bill
timeline

Economy: Inflation continues to soften
` WPI eases across the board
` Soft crude supports fuel inflation
` Core inflation benign
` Trade balance improves but export growth disappoints
` An extended pause on monetary policy front is our base case

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Oil & Gas - Channel Check: Diesel de-regulation, a Diwali Cracker :: Edelweiss, PDF report link

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We met the President of Petrol Dealers’ Association, Mumbai, and liaison officer of the Consortium of Indian Petroleum Dealers. From our interaction we understand that during a recent high-level meeting, the Oil Ministry asked oil marketing companies (OMC) and dealers/traders to gear up for diesel de-regulation, perhaps as early as Diwali, i.e., in ~1 month. The association’s president believes that throughput/outlet will be a key determinant of profitability. He is of the view that high-margin branded fuels can be ramped up 8x and similarly non-fuel retail, which will have a further domino effect on throughputs. While BPCL and HPCL are best geared, IOCL’s rural push is not profitable.

Throughputs have fallen; current margins not remunerative

During the past decade, since temporary de-regulation during 2002-04, OMCs, HPCL, BPCL and IOCL have nearly tripled petrol pumps to ~55,000,  slashing throughput/outlet by ~20% to 173kl/month. Nevertheless, the past 2 years has witnessed rationalisation and hence fewer start ups. As new outlet capex is INR7.5-15.0mn, current margin (INR0.70/l) is not remunerative. Private competitors, Reliance Industries and Essar Oil, are wooing dealers to restart mothballed operations. We note that private players had gained 14-15% share during 2002-05, but drove up margins to allow for a reasonable return on investment.

Branding, retailing and throughputs to drive profitability

Higher throughputs not only enable operational leverage, but can reduce fuel evaporation by as much as 0.3% in an otherwise 2.0% margin business. High throughput outlets sell 600/kl/month i.e., 4x national average. Similarly, branding can add INR1/l to current controlled margin of INR0.7/l. Branded/premium fuels proportion could rise from 3% currently to 15-20% versus 40% in US. Moreover, non-fuel retailing/services at gas stations is a 15% margin business versus 3% for fuels. Corresponding rise in footfalls drives up fuel retailing as well.

BPCL, HPCL more competitive than IOCL

IOCL is rampantly expanding rural outlets, which are not viable as servicing pumps in far flung areas is expensive. BPCL’s and HPCL’s focus on towns and cities enables higher throughputs. In fact, in larger cities, the number of outlets is reducing-e.g., in Mumbai the number of outlets has dipped from 247 to 227 as OMCs are not extending leases by private parties who ask for sharp rental hikes. GST for fuel retailing is a distant, but highly positive possibility. Differential pricing will further trigger efficiency for OMCs as current tax anomalies across states create artificial arbitrages for consumers.

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Buy Maruti :: Kotak Sec, PDF report link

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MARUTI SUZUKI INDIA LIMITED (MSIL)

RECOMMENDATION: BUY
TARGET PRICE: RS.3404 FY16E P/E: 16.5X

Domestic passenger car demand is expected to do well over the next 2-3
years driven by expected revival in the economy. MSIL being the market
leader will benefit from expected strong surge in demand. Recovery in entry
level car segment and new products will be the key volume growth driver
for the company over the next two years. Operating margins will receive
support from reduction in discounting and positive operating leverage. We
expect MSIL earnings to grow by 40% CAGR between FY14-FY16E. We revise
our estimates upwards and raise our target price on the stock to Rs3,404
(earlier Rs2,951). We retain our BUY rating on MSIL.


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Kotak reports from 15 Sep :: Kotak Sec, PDF report link

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Special Reports
Re-initiating coverage
City Union Bank: Well capitalized to capture growth

Strategy
Strategy: Life of QE revisited - India gains despite EM to DM equity transition

GameChanger Perspectives: The buzz in payments


Company
ITC: Tougher tobacco legislation in the works

Sun Pharmaceuticals: Building a scalable business in Dusa

Economy
Economy: India's fiscal - between a rock and a hard place

Economy: Lackluster growth, sticky inflation




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Buy CONTAINER CORPORATION:: Kotak Sec, PDF report link

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CONTAINER CORPORATION OF INDIA (CONCOR)
PRICE: RS.1285 RECOMMENDATION: BUY
TARGET PRICE: RS.1470 FY16E P/E: 19.2X
Realizations continue to remain stable for Concor for both Exim and
domestic segments. Concor is also able to sustain its market share at ~75%
in Exim. The company has reported strong volumes for FY14/Q1FY15 and we
estimate the company to deliver 9% volume CAGR over FY14 to FY16E in
Exim (versus guidance of 10%) and volume CAGR of 8% in the domestic
segment (versus guidance of 15%). We estimate operating margins to
sustain at ~23% and ROE of ~15%. The company recently got the status of
Navratna PSU which we believe also adds value to the company.
We value the company at 22 times FY16E EPS, a premium for its dominant
market share, strong asset base, outperformance and strong balance sheet.
Continue to Recommend BUY with an unchanged TP of Rs 1465.


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Buy IRB INFRASTRUCTURE DEVELOPERS :: Kotak Sec, PDF report link

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IRB INFRASTRUCTURE DEVELOPERS LTD
PRICE: RS.241 RECOMMENDATION: BUY
TARGET PRICE: RS.276 FY16E P/E: 12.9X
 We recently met with the management of IRB Infrastructure to get an insight
about industry scenario and developments on key projects.
 Company has recently received letter of award for operation and maintenance
along with additional works on Mumbai-Pune expressway post
completion of its toll collection period from Aug, 2019. It has also
achieved financial closure of its Solapur Yedeshi project.
 We revise our estimates to incorporate recent award win and arrive at a
revised price target of Rs 276 on FY16 estimates (Rs.252 earlier). Based on
adequate upside from the current levels, we upgrade the stock to BUY
(ACCUMULATE earlier)



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Cement -Gladiator Stocks: UltraTech, Heidelberg :: ICICI Direct PDF link

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ULTRATECH
Fundamental view
• UltraTech Cement is one of the most geographically diversified and undoubted leaders in the Indian cement
industry with a capacity of 62.0 MT and market share of ~17%. Also, as one of the most efficient players in the
industry, it has commanded better margins compared to its peers. Further, the company has consistently
remained ahead of its peers in terms of capacity expansion with a CAGR of 23% vs. peer’s CAGR of 13% over
the past five years. The acquisition of the 4.8 MTPA Gujarat cement unit of Jaypee Cement Corporation at a
cost of | 3800 crore has strengthened the company’s presence in the growing western market. Other than that,
the company has commissioned a 25 MW thermal power plant at Rajasthan Cement, Karnataka and a 6.5 MW
waste heat recovery system at Awarpur, Maharashtra. With this, the total power capacity of the company
(including WHRS) stands at 709 MW, which is around 80% of the company’s power requirement. Further, the
company is aiming to reach a total capacity of 70 MT by FY16E, which we believe would help it to maintain its
leadership, going forward
• With lower lead distances due to a pan-India presence, captive power plants and higher sales realisations due
to a higher trade mix coupled with higher white cement sales realisation, the company generates highest
EBITDA/tonne in the industry. It has also been able to reduce its power consumption per tonne gradually
through various initiatives. Power requirement of ~80% is met through captive power plants, which helps the
company in reducing per tonne cost. Other than this, the company also has coal linkages with Coal India,
which helps in lowering dependence on imports
• We believe the industry’s capacity utilisation bottomed at ~72% in FY14. We think low capacity additions and
demand recovery should lift utilisation levels from hereon given the cyclical upturn in the economy coupled
with an expected policy push to drive investments in the infrastructure sector. We forecast pan-India utilisation
at 78% by FY16E. Excluding south, utilisation levels for the industry are expected at over 80% by FY16E levels
that could offer pricing power. Given this scenario, we expect UltraTech, being a industry leader with strong
balance sheet, to trade at premium valuations

Heidelberg

Fundamental view
• Heidelberg Cement is a central regional player that contributes over ~94% of its total revenues. The company
recently doubled its cement capacity to 6 MT from 3 MT in CY13 at a total capex of | 1570 crore. However, due
to subdued demand, these major expansions took a heavy toll on its profitability with the company reporting a
net loss of | 41 crore in CY13 (vs. net profit of | 31 crore in CY12) led by high interest and depreciation. It
currently operates at very low margins in the industry (average of 6.5% in the last three years) due to lower
cement realisation in the central region and dependence on high cost power from grid and higher lead
distances. However, given the favourable demand and limited new capacity additions, we expect the company
to achieve utilisation rate of 85% by CY15E. This, in turn, would drive volume growth, going forward
• To bring down the freight costs, the company has installed a conveyor belt between its limestone reserves and
clinker units, which are 20 km away (at a cost of | 200 crore) to transport limestones to its clinkerisation unit,
which are currently being transported by trucks. This would help the company in achieving cost savings of
about ~| 45-50/tonne. Further, to reduce its power costs, the company is currently setting up a 13 MW waste
heat recovery plant (capex of ~| 180 crore), which will be commissioned by early 2016E. Considering the
benefit of conveyor belt, economies of scale coupled with better utilisations, we expect operating margins to
improve to 14.8% in CY14E and 16.1% in CY15E from 6.3% in CY13
• Heidelberg’s Indian operations have the support of the rich experience of the German promoter (Heidelberg
AG), a Germany-based company, which is one of the world’s largest cement manufacturers with consolidated
revenue of €14 billion in 2013. This, we believe, would provide a huge potential to grow inorganically over the
longer run
• The company’s revenue has grown at a CAGR of 16.6% during FY10-13 led by volume CAGR of 9.9%
supported by realisation CAGR of 6.1% during the same period. For CY13-15E, we expect sales CAGR of
18.4% with volume CAGR of 12.7% and realisation CAGR of 5.0% during the same period. With all capacity
concentrated in the central region and steps like overhead belt conveyor to transport limestones to the
clinkerisation unit, going forward, we can expect margins to improve. We expect them to reach 15.1% by
CY15E. The stock is currently available at an EV/tonne of $80/tonne on FY16 capacity, which is at a significant
discount to the current replacement cost of $140-150/tonne


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GSFC: Reap the rewards of expansion : Business Line

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GOLD -It’s a clear signal to sell: Business Line

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The upward movement in dollar and end of the quantitative easing are negative for gold

With the Federal Reserve cutting down stimulus by another $10 billion and taking a more hawkish stance on interest rates this time, gold price moved sharply lower last week. It dropped to $1,215.7/ounce, down 1 per cent.

Despite the Fed’s statement that interest rates may continue to be near zero for a considerable time, the fact that more officials projected a rate hike by next year saw the precious metals lose sheen.

Silver and even platinum prices took a knock. Silver closed at $17.8, down 4 per cent. Platinum ended at $1,336, down 2.5 per cent.

The US SPDR Gold Trust, the largest gold-backed exchange-traded fund in the world, saw holdings drop to 784.2 tonnes from 788.4 tonnes in the previous week.

Data on Monday showed that the industrial production in the US in August dropped by 0.1 per cent against the expected gain of 0.3 per cent. Data on housing starts in the US that was released on Thursday showed a drop in new home construction. The enthusiasm this created among gold bulls was dampened later by the FOMC announcement.

Cues to watch

With the hints from the Fed that rate hikes will happen by next year, there is a possibility of prices dropping below $1,200/ounce by the end of the year. The dollar is steadily moving up and there are new highs on Wall Street every other day.

So, gold investors need to exercise caution. The Dollar index ended at 84.7 last week, up 0.5 per cent, moving closer to the technical target of 89, following weakness in the euro. Brent crude prices, on the other hand, continue to trade below $100, lowering inflation expectations.

This week, the US economic calendar is heavy. On Monday is the existing home sales data. On Wednesday is the release of new home sales data. Thursday will see the Labour Department give out jobless claims number.

On Friday, September 26, the final estimate of the second quarter GDP will be released.

On the charts

There is a clear sell signal in the gold chart. Prices are targeting $1,200 levels.

When this level is breached, it may trigger sell stop loss orders and a steeper fall may be witnessed. With prices hitting a low of $1,213.8 on Friday and recovering only mildly to close at $1,229.6, this week, prices may move further down.

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In a tight spot, bank on your FD : Business Line

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A loan against your FD carries lower interest rates than a personal loan and comes without processing fees

Personal loans are not the only way to meet your short-term financial needs. If you have been conscientious and put away money in fixed deposits (FDs) periodically, consider a loan against your FD. Here’s why.

Lower rates

The biggest benefit is that a loan against FDs comes at a much cheaper rate than a personal loan. Usually, banks charge an interest rate between 2-3 per cent over-and-above the FD’s interest rate. If you take a personal loan, the interest rate can even cross 20 per cent.

With the highest bank FD interest currently at 9.3 to 9.4 per cent, your FD loan rates will be cheaper by a mile.

For example, ICICI Bank and HDFC Bank offer a maximum of 9 per cent interest on their FDs. Axis Bank offers 9.2 per cent. So, in these cases, your interest rate on the loan against FDs could be capped at 12-12.2 per cent.

On personal loans, ICICI Bank charges 13.5-18 per cent, while HDFC Bank charges 15.75-20 per cent. And at Axis Bank, the interest rate can vary between 15.5 per cent and a high of 24 per cent.

The nitty-gritty

The quantum of loan that can be availed on an FD varies across banks, usually at 70-95 per cent of the principal and the interest accrued on your FD.

For example, public sector banks such as the State Bank of India and Canara Bank offer up to 90 per cent. On the other hand, HDFC Bank offers only up to 75 per cent of the deposit value.

It doesn’t matter what type of FD it is; you can get a loan against FDs of any tenure. You can even get a loan against a tax-saving deposit. The only criterion, in some cases, is that the FD should have completed and earned interest for at least three months.

It’s not just banks you can turn to for such loans. Non-banking financial companies (NBFCs) also offer loans against FDs. But with NBFCs, the quantum of loan offered is on the lower side compared to a bank.

Most NBFCs offer only up to 75 per cent of the present value of your FD. For example, Dewan Housing Finance offers 75 per cent of the value as loan amount. In the case of Mahindra Finance, it can start from 60 per cent and go up to a maximum of 75 per cent.

Payments

While a personal loan is given for a fixed tenure, there is no fixed period for loans against FD. In general, the period of your FD is the maximum tenor offered for these loans.

That is, if you have invested in a five-year deposit and are taking a loan at the end of the second year, the remaining three years will be the maximum period that would be available for you to repay the loan.

The mode of repayment is decided mutually between you and the bank at the time of taking the loan. You can either pay it back as equated monthly instalments, or the entire loan amount plus the interest can be deducted once the FD matures. Any remaining amount left in the deposit after such deduction will be paid back to you.

Then there’s Mahindra Finance, which has other options. One, you can pay just the interest on the loan every month and the entire principal would be deducted once the FD matures. Or you can opt for a payout after deducting both the principal and the interest amount at the time of maturity.

There is no pre-payment penalty either. Your FD will continue to earn interest during your loan period as well.

Pros and cons

While you have your choice of banks to get a personal loan at the best rate, for a loan against an FD, you are restricted to the bank or NBFC in which you have the deposit.

The drawback of a loan against FD is that the amount of loan you can take is capped.

And if your bank requires a higher margin, your loan amount will be reduced to that extent. If you have invested small amounts in multiple FDs across banks and need a big amount as loan, then approaching all these banks is a hassle.

However, the loan sanctioning process is simpler as all your details are already with the bank. This is the main reason why most banks do not charge any processing fee. Personal loans have a processing fee.

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Domestic mutual funds favoured MNCs but FIIs held a bearish view on these stocks : Business Line

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In addition to sound fundamentals, buying interest from institutional investors — foreign institutional investors and mutual funds — also supported the rally in pharma stocks. But the stock choices of these two classes of investors have been quite different.

Buying large-cap

In the last one year, FIIs have been buyers in Indian pharma stocks.

Dr Reddy’s has been the top addition in the large-cap space; FII holding in the stock has increased from 32.7 per cent at the end of June 2013 to 35.3 per cent this June. Strong performance over the last few quarters and a sharp 20 per cent-plus correction in the stock price during the first half of 2014 possibly triggered buying interest in this stock.

Other stocks where FIIs have taken fresh positions in the last one year include Ranbaxy Labs (2 per cent increase), Lupin (1 per cent), Cipla (0.58 per cent), Cadila (0.51 per cent) and Sun Pharma (0.19 per cent). Sun’s acquisition of Ranbaxy and the former’s good long-term prospects may have evoked interest in Sun Pharma’s stock, despite the strong rally in the stock over the last year. FIIs may have capitalised on the Ranbaxy route to buy into Sun Pharma.

For Cipla, improvement in profitability on a sequential basis due to concerted efforts to scale down low-margin businesses, expected pay-offs from its investments such as the inhaler franchise in the EU have added to the attractiveness of the stock.

Though FIIs have increased their exposure to Lupin in the last one year, they have marginally reduced exposure in the last six months. However, next to Dr Reddy’s, FIIs hold significant stake in Lupin.

As of June 2014, FII holding in the stock stood at 31.7 per cent.

FIIs have also picked up a reasonably big chunk in select small- and mid-cap pharma companies. Aurobindo Pharma tops the list; foreign institutions have bought an additional 9.72 per cent of the company’s total equity in the last one year. Shasun Pharma was the other stock which saw significant increase in FII holding — from barely 0.1 per cent last year to 6.68 per cent as of June 2014. Equity investment by animal health JV partner Sequent Scientific may have aroused institutional interest in this stock.

Other small-cap names that have seen significant increase in FII holding include Natco Pharma, Ajanta Pharma, Shilpa Medicare, Sequent Scientific, Granules India and Bliss GVS Pharma. In the mid-cap space Torrent Pharma and Divi’s Labs were favoured by FIIs.

Sellers in MNCs

When it comes to their investment calls on multinational pharma companies, FII moves have largely been on expected lines. Barring Pfizer India and AstraZeneca Pharma (India), where foreign institutions have bought 0.97 per cent and 0.65 per cent of their respective outstanding equity, they have been reducing exposure to other multinationals.

They have sold a little over 21 per cent in GSK Pharma during the year; possibly offloading a large part of their holding during the open offer made by the parent in February this year.

They have also trimmed holdings in Abbott India, Sanofi India, Merck and Wyeth India.

But what did MFs bet on?

Domestic mutual funds did quite the opposite of what their foreign peers did! They were buyers in stocks of most multinationals even as FIIs held a bearish view on these stocks, GSK Pharma, Pfizer India and Sanofi India being the exceptions. Merck India topped the list of stocks that saw an increase in mutual fund holding — from 7.9 per cent at the end of June 2013 to 9.97 per cent as of this June. Novartis India, Abbott India, Wyeth and AstraZeneca were the other multinational companies that appealed to domestic fund houses.

They sold most large-cap stocks which were picked up by FIIs — Dr Reddy’s, Ranbaxy Labs, Cadila Healthcare and Sun Pharma were their top sells. However, Lupin and Cipla did find some appeal among MF houses; their holdings in these stocks have gone up by 0.48 per cent and 0.16 per cent, respectively, in the last one year.

Not surprisingly, MFs were sellers in the small-cap stocks that were bought by FIIs.

The list includes Natco Pharma, Aurobindo Pharma, Shasun Pharma and Dishman Pharma. Instead, MFs chose to bet on a varied set of small-cap stocks such as TTK Healthcare, Unichem Labs, Jubilant Lifescience, Suven Life Science and Vinati Organics.

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