Divi's Labs, KEC International, Hotel Leela Venture & RPG Life Sciences
DIVI’S LABS
Reco price: Rs 650,
Target price: Rs 833
Divi’s Labs is scouting for acquisitions in the bio-similar space and has accumulated Rs 500 crore cash for inorganic growth. Growth momentum is likely to accelerate 20 per cent CAGR in custom synthesis and generics business over FY11-13E. The company is confident of clocking over 100 per cent sales CAGR in nutraceuticals over FY11-13E. Overall, management has a clear visibility of Rs 600 crore of additional sales over the next 2 years. Analysts believe carotenoids will be the next growth driver for the company. With increased visibility on growth on the back of increase in outsourcing from customers in US & Europe, commissioning of Vizag facility in the first quarter of FY12, Emkay has upgraded the stock to buy.
— Emkay Global Financial Services Ltd
KEC INTERNATIONAL
Reco price: Rs 78,
Target price: Rs 95
KEC International management remains confident of achieving order intake targets despite intensifying domestic competition. Aided by international orders, first nine months saw intake at Rs 5,020 crore, up 31 per cent y-o-y. The recent momentum in inflows would translate into revenue growth acceleration in FY12. New businesses such as railways, water and BoP would add to growth but would eat into margin gains from SAE Towers. Increased interest cost coupled with stable margins means FY12 profit growth would lag revenue growth. Order inflow and execution to remain stable. Around 14 per cent is the sustainable Ebitda margin for SAE Towers, helped by higher proportion of tower supplies and less construction. However, consolidated Ebitda margin for KEC would be 10 per cent, as new businesses such as cables, railways, power BoP and water (irrigation and water treatment) are yielding lower margins as the company builds qualifications in these businesses. Hardening of borrowings rates to hurt profitability.
— IIFL
HOTEL LEELA VENTURE
Reco price: Rs 37,
Target price: Rs 39
Despite the revival in Indian hospitality industry, analysts believe Hotel Leela’s balance sheet would continue to be stressed, mainly due high cost of its upcoming hotel in New Delhi. Its main revenue earning properties are in Mumbai and Bangalore and the increased room supply in these metros means ARR growth would be capped despite rising occupancy levels. Delays over commissioning its hotels in Delhi and Chennai would make matters worse. Hotel Leela’s debt-burdened balance sheet will be a concern. The company will continue to have a high debt/equity ratio of 1.6x in FY12 only showing a marginal drop to 1.5x in FY13.
— Centrum Broking
RPG LIFE SCIENCES
Current price: Rs 77,
Fair value: Rs 120
Crisil Equities has assigned fundamental grade of 3/5 to RPG Life Sciences Ltd (RPGLS), indicating ‘good’ fundamentals. RPGLS has accelerated its growth by launching 30 new products during the first nine months of FY11 in its focus therapies. RPGLS’s efforts to obtain the USFDA approval is expected to bear fruits by FY13.
— Crisil Equities
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