Pfizer:: Rating: Buy; Target Price: Rs1,810; Centrum

Rating: Buy; Target Price: Rs1,810; CMP: Rs1,372; Upside: 31.9%



Wyeth’s performance strong



We maintain Buy rating on Pfizer with a target price of Rs1,810 based
on 19xJune’16E EPS of Rs95.0. Though Pfizer’s Q1FY15 results were
lower than our expectations, the combined results with Wyeth were in
line with our FY15 estimates. Pfizer reported flat revenues due to
NPPP effect and the absence of Animal Health Care (AHC) business
during the quarter. The company’s EBIDTA margin improved by 330bpsYoY
to 23.4% due to overall reduction in costs. The reduction in equity
capital due to the merger with Wyeth will improve EPS.  The merged
company will have 14 strong brands and better bargaining power. Key
risks to our assumptions are stiff competition from other domestic
players and lower growth of its major brands.

$ Flat Revenues due to absence of AHC business: Pfizer reported flat
revenues of Rs2.66bn due to the absence of AHC sales. The pharma
segment (90% of revenues) grew by 9.9%YoY to Rs2.40bn from Rs2.18bn in
line with the industry growth of ~9.8%. The company’s revenues were
impacted by the price reduction of its major CVS brand Amlogard
(amlodipine besylate) which went under price control. The expected
annual hit would be ~Rs150mn. The AHC segment had nil revenues against
Rs193mn. We expect the company to report higher revenue growth in FY15
due to price increase of its products in April’14.

$ Good margin improvement: Pfizer’s EBIDTA margin improved by
330bpsYoY to 23.4% from 20.1% due to overall reduction in costs. The
company’s material cost declined by 190bps to 30.7% from 32.6% due to
the change in product mix and absence of low margin AHC business.
Personnel expenses declined by 40bps to 18.8% from 19.2% due to the
re-structuring of the sales force. Other expenses declined by 100bps
to 27.1% from 28.1%. We expect improvement in Pfizer’s margin from
economies of scale and better bargaining power due to the merger.

$ Net profit declines by 18%YoY: Pfizer’s net profit for the quarter
declined by 18%YoY to Rs462mn from Rs565mn due to lower sales growth,
lower other income and higher tax rate. Pfizer’s other income declined
by 67%YoY to Rs101mn from Rs305mn. Its tax rate went up to 34.0% from
31.1%. Pfizer is a debt-free, cash rich company and paid interim
dividend of Rs360 per share (3,600%) in December’13. We expect
superior performance for the merged company with strong brands and
price increase in April’14.

$ Recommendation and key risks: At the CMP of Rs1372, Pfizer trades at
19.1x FY15E EPS of Rs71.8 and 15.2x FY16E EPS of Rs90.5 and 12.7x
FY17E EPS of Rs108.0.  We maintain Buy rating on the scrip with a
target price of Rs1,810 based on 19x June’16E EPS of Rs95.0 with an
upside of 31.9% from CMP. We expect the merged company to report
better performance due to its strong brands and higher bargaining
power. Pfizer continues to be our top pick in the pharma sector. Key
risks to our assumptions are stiff competition from other domestic
players and lower growth of its major brands.



Thanks & Regards

Indraprastha Medical - A short and sweet cure :: Centrum

Rating: Buy; Target Price: Rs56; CMP: Rs44; Upside: 26.2%



Moderate revenue growth



We maintain Buy rating on Indraprastha Medical Corporation (IMCL) with
a revised target price of Rs56 (earlier Rs60) based on 8xJune’16E EPS
of Rs7.0. IMCL’s EBIDTA and net profit for Q1FY15 were below our
expectations. The company reported moderate revenue growth of 8%,
210bps decline in EBIDTA margin and 13% decline in net profit.
Increase in consultation fees to the doctors and other expenses led to
a decline in margin during the quarter. The company commands better
return ratios and higher dividend yield than its peers. Key risks to
our assumptions include slowdown in the healthcare segment and
increased competition from large players.

$ Moderate revenue growth: IMCL reported moderate revenue growth of
8%YoY to Rs1.78bn from Rs1.66bn during the quarter. We expect revenues
to grow at 16% over the next two years in view of increased occupancy
at its Sarita Vihar hospital and increase in revenues from the
outpatient department.

$ Lower revenue growth results in fall in margins: IMCL’s EBIDTA
margin during the quarter fell by 210bpsYoY to 12.2% from 14.3% due to
an increase in consultation fees to doctors and other expenses. The
company’s material cost declined by 120bps to 21.7% from 22.9% due to
operational efficiencies. Consultation fees to doctors were up by
220bpsYoY to 27.7% from 25.5%. Other expenses grew by 160bps to 19.2%
from 17.6%. However, personnel expenses declined by 40bps to 19.2%
from 19.6%. We expect improvement in margin with higher occupancy at
Sarita Vihar and operational efficiencies.

$ Net profit declines by 13%YoY: IMCL’s net profit for the quarter
declined by 13%YoY to Rs83mn from Rs96mn due to 210bps drop in EBIDTA
margin. The company’s interest cost declined by 17%YoY to Rs20mn from
Rs25mn due to better management of working capital. Its depreciation
was up by 5%YoY to Rs73mn from Rs70mn.  IMCL’s tax rate came down to
32.8% from 33.3% of PBT.

$ Recommendation and key risks: We have revised our FY15E and FY16E
EPS downwards by 1% each. At the CMP of Rs44, the stock trades at 8.9x
FY15E EPS of Rs4.9 and 6.7x FY16E EPS of Rs6.6 and 5.5x FY17E EPS of
Rs8.0. Our target price of Rs56 is based on 8x June’16E EPS of Rs7.0
with an upside of 26.2% over CMP. Key risks to our assumptions include
slowdown in the healthcare segment and increased competition from the
large players.



Thanks & Regards

Granules India - Achieving higher altitude in performance :: Centrum

Rating: Buy; Target Price: Rs860; CMP: Rs626; Upside: 37.4%



Operational efficiency improves



We maintain Buy rating on Granules India (GIL) with a revised target
price of Rs860 (earlier Rs720) based on 12xJune’16E EPS of Rs71.5 due
to strong growth and sustainable margins. GIL’s results for Q1FY15
were in-line with our expectations. The company reported strong
revenue growth of 36%YoY, 400bps improvement in EBIDTA margin to 17.0%
and 56%YoY growth in net profit. The results for the current quarter
include that of Auctus Pharma (APL) acquired in Feb’14. We expect APL
to turn around by the end of FY15. Key risks to our assumptions
include slowdown in the global pharma market and regulatory risks to
its manufacturing facilities.

$ Revenue grows 36%YoY: GIL reported strong revenue growth of 36%YoY
to Rs3.11bn from Rs2.28bn during the quarter. Sales composition was as
follows: finished formulations 38%, PFIs 26% and APIs 36%. However,
the quarterly results were not comparable due to the acquisition of
APL in February’14.  APL reported revenues of Rs261mn, EBIDTA of
Rs22mn (margin 8.4%) and net loss of Rs28mn during the quarter. We
expect APL to turn around by end of FY15 due to moving up the value
chain.

$ Margin improves 400bpsYoY: GIL’s EBIDTA margin during the quarter
grew by 400bpsYoY to 17.0% from 13.0% due to overall decline in costs.
The company’s material cost declined by 180bps to 58.1% from 59.9% due
to the change of product mix and higher capacity utilisation.
Personnel cost declined by 90bpsYoY to 8.3% from 9.2%. Other expenses
declined by 130bps to 16.6% from 17.9%. Going further, we expect
margin improvement due to higher capacity utilisation and change in
product mix with higher sale of formulations.

$ Net profit grows by 56%YoY: GIL’s net profit for the quarter grew by
56%YoY to Rs229mn from Rs147mn due to margin improvement and lower tax
rate. The company’s interest cost grew by 101%YoY to Rs74mn from
Rs37mn due to the increase in working capital and term loan for APL
acquisition. Its depreciation was up to Rs117mn from Rs57mn due to the
Gagillapur facility going on stream and APL depreciation.  GIL’s tax
rate came down to 33.0% from 33.8% of PBT. We expect the company to
report sustainable growth due to moving up the value chain leading to
margin improvement.

$ Recommendation and key risks: At the CMP of Rs626, the stock trades
at 13.6x FY15E EPS of Rs46.1 and 9.5x FY16E EPS of Rs66.2 and 7.2x
FY17E EPS of Rs87.3. We maintain Buy rating with a target price of
Rs860 based on 12x June’16E EPS of Rs71.5 with an upside of 37.4% over
CMP.  We expect the company to deliver superior performance due to the
acquisition of APL leading to the enlargement of product portfolio.
Key risks to our assumptions include slowdown in the global pharma
market and regulatory risks to its manufacturing facilities.



Thanks & Regards

Biocon -- Rating: Buy; Target Price: Rs620; Centrum

Rating: Buy; Target Price: Rs620; CMP: Rs480; Upside: 29.1%



Muted revenue growth



We maintain Buy rating on Biocon with a revised target price of Rs620
(earlier Rs640) based on 18xJune’16E EPS of Rs34.5. Biocon’s results
were below our expectations and were impacted by the geo-political
situation in the Middle East and North Africa. The company reported
10%YoY growth in domestic formulations and 11%YoY in research service
segments. Lower material cost led to margin improvement during the
quarter. Clinical trials of Biocon’s oral insulin IN-105 is
progressing well. With registration of rh-insulin in over 55
countries, it is poised for good growth in FY15 when its Malaysian
facility for insulin is expected to go on steam by the end of FY15.

$ CRAMS business to drive growth: Biocon reported sales growth of
4%YoY driven by domestic formulation and CRAMS segments. The company’s
biopharma business (61% of revenues) declined by 1%YoY to Rs4.36bn
from Rs4.40bn. Domestic formulations (15% of revenues) grew by 10%YoY
to Rs1.10bn from Rs1.01bn in line with the industry growth of 9.8%.
Biocon’s CRAMS business (24% of revenues) grew by 11%YoY to Rs1.72bn
from Rs1.55bn. We expect the CRAMS business to report good growth due
to its association with major global clients BMS, Abbott and Baxter
and extension of BMS contract for five years.

$ Lower material cost improves margins: Biocon’s EBIDTA margin
improved 230bps to 24.0% from 21.7% due to the decline in material
cost. The company’s material cost declined by 320bps to 40.1% from
43.3% due to strong growth of CRAMS segments, where the material cost
is lower. Personnel cost grew by 80bps to 17.3% from 16.5%. Biocon’s
other expenses grew marginally by 10bps to 18.6% from 18.5%. Its R & D
expenses declined by 19%YoY to Rs376mn from Rs465mn. We expect margin
improvement going further due to higher growth in formulation and
CRAMS, which command higher margins.

$ Net profit indicates moderate growth: Biocon’s net profit for the
quarter grew by 10%YoY to Rs1,029mn from Rs935mn due to improvement in
EBIDTA margin and lower tax rate. The company’s other income declined
by 26%YoY to Rs166mn from Rs225mn. Its tax rate declined to 22.4% from
23.6% of PBT. We expect improvement in net profit due to margin
improvement and debt-free status of the domestic entity.

$ Recommendation and key risks: We maintain Buy rating on the scrip
with a revised target price of Rs620 based on 18x June’16E EPS of
Rs34.5 with an upside of 29% from CMP.  We have lowered our FY15 and
FY16 EPS estimates by 3% each. Key risks to our assumptions are
slowdown in the biopharmaceutical segment and delay in the
implementation of Malaysian insulin facility. Moreover, recent changes
in the clinical trial environment may lead to transferring some
clinical trials to other countries resulting in higher cost.



Thanks & Regards

Wipro --Rating: Buy; Target Price: Rs660; Centrum

Rating: Buy; Target Price: Rs660; CMP: Rs577; Upside: 14.4%



Returning to growth as anticipated



Wipro reported results in line with our expectations but margins were
slightly lower than anticipated due to higher Sales & Marketing (S&M)
investments. While developed markets grew by a slower pace than in the
last 9m, India, Mid-East and APAC grew strongly. With good deal-wins
in the developed markets and a reportedly strong pipeline, we expect
Wipro to perform slightly better than our earlier expectations. We
revise our FY15 margin estimates downward to account for large deal
transitions, increase our FY16 estimates and retain our Buy rating
with a TP of Rs660 based on 15x Jun-16E  EPS.

$ Revenue growth in-line with expectations: Though Wipro’s revenues
came in line with our expectations; it has come in below the mid-point
of its guidance in realised currency terms (at USD1740.2Mn Vs
USD1750Mn). We were also surprised by the weak revenue additions in
North America (up only USD6.5Mn QoQ) and Europe (down USD1Mn QoQ)
after three quarters of consistently strong revenue additions (see
exhibit-7). Management suggested that client-specific issues in Retail
were largely responsible and that they expect the weakness to persist
for another quarter.

$ Sales & Marketing investments drag down margins below our
expectations:  Sales & Marketing investments overall increased 7.6%
QoQ to INR7,557Mn (6.72% of revenue Vs 6.0% in 4QFY14). The margin
impact of wage hikes was in line with our expectations while
depreciation was lower than anticipated. Onsite revenue proportion
increased 20bps QoQ to 54.3% and we note that Fixed Price revenue
proportion increased further by 80bps to 52.1% (up 470bps YoY). While
billing realisation rates (calculated by us) were lower QoQ by nearly
1.2%, we think that is due to initial stages of execution of Fixed
Price contracts.

$ Investments in S&M over FY13-14 paying off; new deal flexibility
refreshing:  With the urgency shown by the management to retain and
improve market-share, we expect the sales & marketing investments made
over the past few years will start paying off. We note that Sales &
Marketing for IT Services averaged just 5.5% over FY11-12 and has
since been increased to an average of 6.7% over FY13-14. Deals such as
ATCO also indicate a flexibility to gain market share in what we view
as a crucial window of opportunity to gain credentials in large
outsourcing deals. We think Wipro is better positioned strategically
due to recent large wins.

$ Expecting improved traction over FY16, retain Buy: While we expect
near-term margins to remain under pressure due to the transition of
recent large deal wins including Takeda Pharma and the ATCO
outsourcing deal, we expect margins to improve over FY16E and growth
to be even stronger over FY16E than anticipated (at 12.5% YoY in USD
terms Vs 11.4% earlier). We continue to value Wipro at 15x Jun-16E EPS
and arrive at a new TP of Rs660. We continue to recommend Buy.



Thanks & Regards

Sanofi India - Target price revision - Impacted by NPPA notification: Centrum

Rating: Buy; Target Price: Rs3,660; CMP: Rs2,943; Upside: 24.4%



Impacted by NPPA notification



We maintain Buy on Sanofi India (SIL) with a revised target price of
Rs3,660 (earlier Rs3,910) based on 23xJune’16E EPS of Rs159.0. SIL’s
revenues for Q2CY14 were above our expectation but net profit was
below our expectations. The company reported good revenue growth of
16% YoY and 70bps decline in EBIDTA margin due to sharp increase in
material cost. SIL was impacted by recent NPPA notification bringing
three of its major brands under price control impacting value loss of
Rs1.39bn at MRP level. Key risks to our estimates include slowdown of
the domestic pharma market and the company’s additional brands coming
under price control.

$ Good revenue growth: SIL reported 16%YoY growth in revenues to
Rs5.06bn from Rs4.35bn during the quarter. The company markets Sanofi
Synthelabo and Sanofi Pasteur’s products in the domestic market. As
per IMS MAT data of June’14, SIL’s top 10 brands contributed ~54% to
revenues. Four of its top 10 brands grew faster than the market growth
rate of 9.8%. These were Lantus 19.3%, Amaryl 10.8%, Amaryl M 29.7%
and Frisium 16.1%. We expect these brands to drive future growth of
the company.

$ EBIDTA margin declines by 70bps YoY: SIL’s EBIDTA margin declined by
70bpsYoY to 19.4% from 20.1% due to sharp rise in material cost. The
company’s material cost increased by 300bpsYoY to 48.7% from 45.7% due
to the change in product mix. Personnel cost declined by 40bps to
13.9% from 14.3% and other expenses went down by 190bps to 18.0% from
19.9%. We expect pressure on margins as its three major brand prices
have been reduced by recent NPPA provision affecting Rs1.39bn at MRP
level and Rs1.12bn at the manufacturer’s level.

$ Net profit up 12%: The company’s PBT grew at a slower pace by 10%YoY
to Rs872mn from Rs791mn due to decline in margins. SIL’s net profit
grew by 12%YoY to Rs575mn from Rs512mn due to lower tax provision. The
company’s tax rate declined to 34.1% from 35.3% of PBT. We expect
improvement in net profit from Q3CY15 onwards as it can increase the
prices of the three brands up to 10% per annum, which were impacted by
the recent NPPA notification.

$ Recommendation and key risks: We expect the company to report
superior performance in future due to its well-known brands and new
product introductions. We have revised our CY14 and CY15 EPS estimates
downwards by 15% and 8% respectively in view of reduction in prices of
its three major brands. We maintain Buy rating for SIL with revised
target price of Rs3,660. Our target price is based on 23x June’16E EPS
of Rs159.0 with an upside of 24.4% over CMP. Key risks to our
estimates include slowdown of the domestic pharma market and company’s
additional brands coming under price control.



Thanks & Regard

--

MRF- research report by Centrum

Rating: Buy; Target Price: Rs28,100; CMP: Rs24,332; Upside: 15.4%



Stellar performance, maintain Buy



We retain Buy on MRF with a revised TP of Rs28,100. Though, we were
expecting EBITDA margin to expand QoQ by ~100bps, reported margins
surprised us positively for 3QFY14 at 14.7% vs. our est. 13.5%. It is
encouraging to note that gross margins expanded YoY and QoQ by 124bps
and195bps respectively. In the backdrop of CEAT tyres’s EBITDA margin
dropping by 239bps/198bps YoY/QoQ during the quarter, MRF’s
performance was outstanding. Based on interaction with dealers/other
tyre manufacturers, we understand that pricing discipline was
maintained during the quarter and there was no increase in dealer
margins or price cuts in the replacement market.

$ Operating performance surprises positively: Despite the challenging
environment, revenues at Rs.33.4bn grew 9.4% YoY but remained flat
QoQ, though it was lower than our expectations of Rs34.6bn. However,
EBITDA margins at 14.7% expanded by 215bps QoQ (contracted 119bps
YoY).  It is encouraging to note that, gross margins at 36.3% expanded
by 124bps YoY and 195bps QoQ. Reported PAT stood at Rs2,302mn, higher
than our estimate by 10% on account of positive surprise at the
operating level despite higher tax rate.

$ Management points to sustaining margins at current levels: In a
post-results press interview (Source: CNBC), management indicated that
1) margins will be maintained at current levels of 14.7%, 2) its focus
on replacement market (currently 72% of sales) helped volume growth
during the quarter, 3) Going forward, it expects employee cost at
current levels, 4) it was currently operating at full capacity but
hinted that capex spend will kick-in in a phased manner.

$ Outlook on rubber prices continues to remain benign: Domestic rubber
prices averaged Rs144/kg in 3QFY14 (Rs149/kg in 2QFY14) and is
currently Rs142/kg. According to the Association of Natural Rubber
Producing Countries, the surplus in global natural rubber market in
2014 will be 78% higher than estimated (652k MT in 2014 v/s 366k MT)
due to weak demand environment and excess production expected in
Thailand. For 2014, world output may rise to 12.2mn tons vs.
consumption of 11.5mn tons. On the back of this, prices of
international rubber may continue to slide and remain under pressure
in the near term. There are indications that worldwide production will
outpace demand over the next two years.

$ Valuation and risks: We maintain Buy with a revised TP of Rs28,100
(9.5x June’16E EPS). The overall sector has seen re-rating on the back
of favourable industry factors including sustained growth in
replacement demand despite weak OE demand, benign rubber prices and
relatively stable pricing environment. Further, rubber prices are
currently at four year lows and lend visibility to strong margin
profile for the industry in the medium term. Key risks: 1) Longer than
expected replacement cycle and 2) Increased price competition from
Michelin and Bridgestone.



Thanks & Regards