Higher crude oil prices, rising inflation, weak industrial production numbers, fears of further rise in interest rates, fluid domestic political situation and tension in Middle East continue to weigh on the investor sentiment. Infosys kick started the Q1 June result season on 11 July 2008 on a positive note but failed to give a strong footing.
Sensex rose 15.85 points or 0.12% to 13,469.86 and S&P CNX Nifty edged up 33 points or 0.82% to 4,049 in the week ended Friday, 11 July 2008. BSE Mid-Cap index added 87.10 points or 1.65% to 5,365.34 and BSE Small-Cap index rose 263.99 points or 4.09% to 6,713.66.
Inflation raced to a fresh high of 11.89% for the week ended June 28, 2008, on the back of surging food and commodity prices.
INVESTMENT IDEA I: CIPLA LIMITED (CMP: Rs. 211.35)
Cipla Limited is India ’s second largest pharmaceutical company by sales. It manufactures and markets bulk drugs, prescription drugs, OTC products and veterinary products. The bulk drugs and formulations products cover a wide range of therapeutic segments including arthritis, inflammatory, TB, asthma, allergic, antibiotics, oncology, diabetes, diarrhoels, epileptic, malaria, migraine, obesity, retrovirals, cardiovascular, respiratory etc. In veterinary segment, Cipla offers animal care products for aqua, equine, poultry, companion animals and livestock animals. It also provides a range of flavours and fragrances having a variety of applications in the foods & beverages, bakery, confectionary, personal care, detergent products.
The management expects to grow revenues by about 12-15% and maintain margins in the similar level in FY09. Riding on the leadership position in the respiratory segment, expected value unlocking through new launches in the AIDS and cancer segment by this year and steady and ensured revenue flow due to its major presence in prescription drug segment, Cipla is a good and safe pick in the current bearish market.
At current market price of Rs. 211.35 at BSE, the scrip is trading at a P/E multiple of 23.46x of its FY08 EPS of Rs. 9.01. We recommend to BUY the stock with a target price of Rs. 252, an upside of 19% from the current market price.
INVESTMENT IDEA II: COROMANDEL FERTILISERS LIMITED (CMP: Rs.127.75)
Coromandel Fertilisers Limited (CFL) of the Murugappa Group is a leading company in India manufacturing a wide range of fertilisers and pesticides (technical and formulations). CFL markets around 2.5 mn tonnes of phosphatic fertilisers making it a leader in its addressable markets and the second largest phosphatic fertiliser player in India . The company is increasing its phosphate capacity to 3.3 mn tonnes by 2009 as against the current capacity of 2.5 mn tonne.
Domestic demand for complex fertilisers has been strong over the past three years, on the back of stable prices (fixed by the government) and expanding irrigated area, with the Southern market registering the strongest demand growth. Bridging the deficit through imports has become an expensive proposition with global fertiliser prices soaring more than two-folds in the past year. In this backdrop, the new fertiliser policy, wherein the domestic price of based on phosphorus and potash-based fertilisers will be linked to import price parity is likely to turn more favorable in the years ahead. CFL’s other products offerings within agri-inputs — crop protection and micronutrients — also offer growth potential.
At current market price of Rs. 127.75, the scrip is trading at a P/E multiple of 5.01x of its FY09E EPS of Rs.25.52 and trading at P/E multiple of 11x of its March ’08 ending TTM EPS of Rs. 11.27. We recommend to BUY the stock with a target price of Rs.168, for a period of 8-12 months.
Sector Updates:
Consumer durables, FMCG sales post gains in April-May despite the inflation scaling 13-year high. Industry data shows that the Rs 83,709-crore FMCG and the Rs 22,300-crore consumer durables have actually registered a growth in May.
The software and services exports segment grew by 29% (in USD) to register revenues of US$40.4bn in FY08, up from US$31.4bn in FY07. The domestic segment grew by 26% (in INR) to register revenues of US$11.6bn in FY08.Within the export segment, IT services exports have grown by 28% (in USD) to clock revenues of US$23.1bn; while BPO exports are up by 30% (in USD) registering revenues of US$10.9bn.
The Government scrapped import duty on raw cotton to help boost supplies to local textile mills and bring down soaring prices. The center has fully exempted raw cotton from custom duties w.e.f. July 8.
SAP ruling came as a huge negative for the sugar companies operating in Uttar Pradesh as High Court upheld state advised price (SAP) of sugarcane from Rs. 110 to Rs 125-130 a quintal for FY08. The mills are now required to pay the difference of Rs 15 a quintal within two months.
Early arrival of rains and short spell of summer have been a boon for pharma companies like Ranbaxy, GSK Pharma and Lupin having a strong anti-infective portfolio. The anti-infective domestic retail market grew by 21% during January-May this year as against a meagre 7% during the same period last year.
Sales of passenger cars in the domestic automobile market grew by 6.1% in June as against a healthy expansion of 14.3% in May, according to Society of Indian Automobile Manufacturers (SIAM).
For further details please find the attached Weekly Newsletter Dated 4th July'08-11th July '08.
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Weekly Newsletter Dated 4th July'08-11th July '08
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