JSW Steel - Lupin- Analyst's Mid cap Stock recommendation

JSW Steel
cmp: Rs 336.95
target price: Rs 463

Kotak Securities has recommended a “buy” on OCIL as it believes that strong global distribution network, expanded product portfolio and increasing outsourcing opportunities from global majors would drive company’s growth.

“We expect 56.7% and 43.7% compounded growth in revenue and net profit, respectively over the next two years. We estimate an earnings per share of Rs 20.2 in FY09 and Rs 29 in FY10.”

For FY10, expected overall revenue growth is 41.1% to Rs 11.49 billion while net profit is expected to grow at 43.9% at Rs 2.73 billion, the note said. “The key growth driver for topline would likely be the stents business which is expected to grow at about 80%. The stock will be valued at 15.9x FY10 price to earning multiple and 14.9 times FY10 EV/EBIDTA,” the note added.


CMP: Rs 738

Lupin’s deal to market Forest Labs’ AeroChamber Plus line of products to US paediatricians will allow it to leverage its branded field force and strengthen its franchise in the paediatrics segment. While the upside may not be on the same scale as Suprax, this will be accretive, given the lack of incremental spend on development or at the front end.

Lupin has entered into a multiyear agreement with Forest to promote the latter’s value holding chamber (VHC) product AeroChamber Plus to paediatricians. AeroChamber Plus is the most prescribed holding chamber for use with inhaled asthma medications in the US.

As per IMS ’07 data, two-thirds of all prescriptions for the product are written by paediatricians. Lupin’s 50-strong sales force in the US currently promotes only Suprax and has room to add two more products, thus implying no incremental spend for this deal. Lupin will make an undisclosed marketing margin up to a certain threshold level of sales, beyond which, the upside will increase.

Citigroup expects margins to be in the range of 10-15 % — while this is lower than Lupin’s core business margins, the lack of incremental regulatory, development or front-end spend makes this an accretive deal. Citigroup believes this deal — besides being a small step towards offsetting the impact of a potential generic threat to Suprax — highlights the scope for multiple growth drivers within Lupin’s business model.

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