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 Stock Update >> Ashok Leyland

 Sector Update >> Pharmaceuticals

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investor’s eye stock update

Ashok Leyland Ugly Duckling

Stock Update

FY2011 volume guidance likely to be a miss Buy; CMP: Rs53

Company details FY2011 estimates cut by 6% after factoring in a possible miss in FY2011
volume guidance
Price target: Rs84
We expect Ashok Leyland to report a volume growth of 46% (against our earlier
Market cap: Rs7,184 cr expectation of 49%) in FY2011, missing its FY2011 volume guidance of 95,000
52 week high/low: Rs82/45 units. The company’s volumes were affected in January 2011 by a shortage of
drivers but were in line with our expectations in February 2011. We are reducing
NSE volume: 43 lakh
our FY2011 earnings per share (EPS) estimate for the company by 6% to Rs4.4.
(No of shares)
However, our FY2012 EPS estimate remains unchanged at Rs6.1.
BSE code: 500477
February 2011 back to 10,000 levels; possible increase in market share
NSE code: ASHOKLEY
Ashok Leyland reported a strong growth momentum in its February 2011 volumes.
Sharekhan code: ASHOKLEY
The total volumes for the month stood at 9,800 units, an increase of 25% year on
Free float: 81.7 cr year (YoY) and 27% month on month (MoM).
(No of shares)
Its medium and heavy commercial vehicle (M&HCV) sales grew by a strong 31% YoY
Shareholding pattern and 37% MoM. We believe the February 2011 sales also include some inventory
from the previous month. We expect the company to gain market share in February
Public &
2011 as its closest rival Tata Motors reported a single-digit month-on-month (M-o-
Others M) growth in its M&HCV sales in the same month.
10%
Sales numbers for February 2011
Promoters
FIIs 39% Particulars Feb-11 Feb-10 % YoY % MoM YTD FY11 % YoY
29% M&HCV - Passenger 2,136 1,931 11 2 22,498 41
M&HCV - Goods 7,601 5,784 31 37 58,708 59
Institutions LCV 63 154 -59 24 727 -28
22% Total 9,800 7,869 25 27 81,933 52

What has changed?

Price chart
The company’s management aims to achieve an operating profit margin (OPM) of
85 10.5%-11.0% in FY2011 which implies margin of 12.6% in Q4FY2011. However, in
80
view of the lower than expected monthly performance in January 2011 and the
75
70 volumes as per expectations in February 2011, we are revising our margin estimate
65
downwards to 12% for Q4FY2011.
60
55
50
Valuation table
45
Mar-10

Jun-10

Mar-11
Sep-10

Dec-10

Particulars FY09 FY10 FY11E FY12E FY13E

Net sales (Rs cr) 5981.1 7244.7 10843.4 13087.6 14686.1
PAT (Rs cr) 203.6 427.0 586.2 810.7 936.8
Price performance
EPS (Rs) 1.5 3.2 4.4 6.1 7.0
EPS growth (%) -57.8 109.7 37.3 38.3 15.6
(%) 1m 3m 6m 12m
P/E (x) 35.3 16.8 12.3 8.9 7.7
Absolute -2.5 -26.7 -29.7 3.0 P/BV (x) 2.1 2.0 1.8 1.6 1.5
EV/EBITDA (x) 19.3 11.6 8.7 6.8 6.0
Relative -2.7 -21.0 -30.9 -6.7
to Sensex RoCE (%) 6.5 9.3 13.2 16.5 17.3
RoE (%) 6.8 11.9 15.4 19.4 20.2

Sharekhan 2 March 04, 2011 Home Next

investor’s eye stock update

Valuation and outlook In spite of expectations of a modest performance in

We expect the company to report a volume growth of
46% (against our earlier expectation of 49%). Our FY2011
volume estimate now stands at 93,330 units against 95,000
units earlier. Consequently, we have downgraded our
FY2011 earnings estimate by 6% to Rs4.4 per share.
FY2011, our FY2012 EPS estimate remains unchanged at
Rs6.1 as we are pinning our hopes on the timely ramp-up
of the company’s Uttarakhand facility. We maintain our
Buy recommendation on the stock with a price target of
Rs84.

FY2012 margins at 11.5% ?

 The Pantnagar plant has produced only 6,000 units in year till date (YTD) FY2011 and has been ramped up to
produce 3,000 units per month in Q4FY2011. This takes the effective production capability to 36,000 units for
FY2012. We estimate the tax free Pantnagar plant to form 30%-35% of FY2012 volume mix.
 The management has guided for a staff cost increase of just 10% in FY2012E over the base of 32% growth in
FY2011. The Pantnagar manpower is to increase from 1,450 people to 2,000 people and stabilise there in spite
of higher production.
 The contribution per vehicle is expected to be maintained as the truck-bus mix is to marginally improve (away
from STU deliveries) and within trucks, the medium and heavy commercial vehicles (MHCVs)’ share is on the
rise. The commercial vehicle industry is the most resilient in passing price escalations to the customers. Ashok
Leyland took a 12% price hike in YTDFY2011. This would also help it in maintaining gross margins.

The author doesn’t hold any investment in any of the companies mentioned in the article.

Sharekhan 3 March 04, 2011 Home Next

investor’s eye sector update

Pharmaceuticals
Sector Update

ANDA approvals in February 2011

In this report, we have summarised the abbreviated new The US-based companies received the most ANDA
drug application (ANDA) filings and Para IV challenges approvals, with 41 approvals going to 24 different US
made by pharmaceutical (pharma) majors in the US companies. The Indian groups were in the second place,
generics market and we analyze the trends/recent with 29 final approvals going to nine companies.
developments in the sector.
Companies with the most patent challenges on record as of 2010
Sector overview 180
160
Industry pressures are continuing to mount for innovators 140
120
as a number of blockbusters are losing exclusivity with 100
few new launches to fill up the gap. In light of that, it is 80
60
not surprising that the pharma majors continued their 40
foray into the generics sector and into the emerging 20
0
markets. Companies also continued their pursuit of patent
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challenges, geographic and portfolio diversification, and

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positioning for biosimilars.

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Among the notable recent deals are: Sanofi acquiring
Genzyme for $20 billion (biotech), Pfizer acquiring
Aurobindo’s drug pipeline for $28 million (emerging
market), and Reckitt Benckiser Group acquiring Paras
Pharma for $724 million (filling portfolio gap). At home,
Piramal Healthcare (Piramal) acquired a majority stake
in a discovery services firm - Oxygen bio research for
Rs51 crore (76% stake), while Sun Pharmaceutical
Industries (Sun pharma) is on its way to de-list Caraco.
Meanwhile, we remain robust on the US generics growth
story. We believe that the growth in the pharma sector is
now focused on specialist/niche therapy areas. In the
boom of off-patent drugs, generic companies like Sun
pharma, Dr Reddy’s Laboratories (Dr Reddy’s), Lupin and
Glenmark Pharmaceuticals (Glenmark) would be able to
weather the future downturns.
Total A-rated ANDAs by country of origin of applicant
45
40
35
30
25
20
15
10
5 The CVR would entitle the shareholders to receive
0 additional cash payments relating to developments and
an
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Teva continued to be by far the most prolific filer of ANDAs
with patent challenges. Mylan claimed the second spot
with challenges on 86 products, while Novartis (Sandoz)
dropped to the third place with links to 84 challenges.
Amongst the Indian pharma companies, Sun pharma ranks
the highest with major concentration towards
dermatology and controlled substances, followed by Dr
Reddy’s and Lupin (oral contraceptives, opthalmics,
modified release).
Key events/updates in pharma sector
 The US Food and Drug Administration (USFDA) imposed
an import alert on Aurobindo Pharma (Aurbindo)’s
cephalosporins plant after its initial inspection in
December 2010. The facility would contribute ~5% of
the total revenues. Currently Aurobindo supplies ten
products to Pfizer. A delay in the clearance of the ban
would impact the earnings from this deal. Pfizer
confirmed four of its injectable products—cefazolin,
cefotaxime, ceftazidime and ceftriaxone—would be
affected by this import alert.
 Sanofi Aventis has entered into a definitive agreement
to acquire Genzyme for $20 billion (~$74 per share).
In addition to cash, Genzyme’s shareholders would also
receive one contingent value right for each share held.
milestone achieved for Cerezyme and Fabrazyme. We

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believe that apart from earnings benefits, the

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acquisition would also help Sanofi strengthen its

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biotech portfolio.

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investor’s eye sector update

We present below the ANDA approvals by the Indian pharma companies from February 5, 2011 till March 4, 2011.

Generic Name Brand Innovator Company Approval Indication Market size Marketing Key players
Name company type ($mn) Timeline
Levocetirizine Xyzal UCB Inc. Glenmark Final Allergic 231 Immediate Dr Reddy,
Dihydrochloride rhinitis Synthon
Tablets
Levocetirizine Xyzal UCB Inc. Dr Reddy Final Allergic 231 Immediate Glenmark,
Dihydrochloride rhinitis Synthon
Tablets
Venlafexine ER Effexor XR Wyeth Aurobindo Tentative CNS 2400 - -
Capsules Capsules Pharma
Lamotrigine Tablets Lamictal GSK Pharma Alembic Final CNS - Immediate Apotex, Cadista,
Dr Reddy, Lupin,
Mylan, Sandoz,
Sun, Teva,
Torrent, Watson,
Cadila, Aurobindo
Lamotrigine Tablets Lamictal GSK Pharma Jubilant Final CNS - Immediate Apotex, Cadista,
Lifesciences Dr Reddy, Lupin,
Mylan, Sandoz,
Sun, Teva,
Torrent, Watson,
Cadila, Aurobindo
Pantoprozole Sodium Protonix Wyeth Dr Reddy’s Final GI 2000 - -
Pharma Lab
Carboplatin Paraplatin BMS Strides Final, EU Ovarian 138 Immediate Teva
Arcolab market Cancer
Gabapentin Tablets Neurontin Pfizer Matrix Labs Final Epilepsy 300 Immediate Actavis, Alkem,
Amneal, Apotex,
Aurobindo, Cadila
Invagen, Teva,
Ranbaxy, Sun,
Watson, Glenmark
Gabapentin Tablets Neurontin Pfizer Cadila Final Epilepsy 300 Immediate Actavis, Alkem,
Amneal, Apotex,
Aurobindo, Matrix
Invagen, Teva,
Ranbaxy, Sun
Watson, Glenmark
Naratriptan Tablets Amerge GSK Pharma Sun pharma Final CNS 60 Immediate Paddock, Roxane,
Sandoz, Teva
Lithium Carbonate Lithobid Noven Glenmark Final Psycotic 10 Immediate Roxane, West
ER Capsules Therapies ward, Sun Pharma
Zidovudine Ziagen VIIV Matrix Labs NDA Anti- - Cipla, Strides -
Healthcare approval retroviral-HIV tentative
approvals
Ondansetron Zofran ODT GSK pharma Ranbaxy Final Oncology 300 Immediate Glenmark, Mylan,
Sandoz, Sun
Pharma, Teva
Galantamine Razadyne Ortho Mcneil Cadila Final Alzheimer 50 Immediate Barr, Impax,
Hydrobromide ER Janssen Mylan, Watson,
Sun Pharma
Irbesartan and Avalide Sanofi Aventis Cadila Tentative Anti- 2100 Patent -
Hydrocholo Hypertensive expires in
rothiazide Sep 11/
Mar 12
Abacavir Sulphate Ziagen VIIV Cipla Tentative Anti- - Patent Strides Arcolab,
Solution Healthcare retroviral-HIV expires Matrix labs
in Dec 2011

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investor’s eye sector update

Valuation table: Sharekhan pharma universe

Company CMP EPS (Rs) P/E (x)
(Rs) FY11E FY12E FY13E FY11E FY12E FY13E
Glenmark Pharmaceuticals 300 17.6 19.5 24.1 17.0 15.4 12.4
Sun Pharma 432 16.9 21.8 26 25.6 19.8 16.6
Lupin 397 19.1 23.1 27.2 20.8 17.2 14.6
Nicholas Piramal 463 9.2 15.7 - 50.4 29.5 -
Cadila Healthcare 767 33.5 41.0 50.6 22.9 18.7 15.2
Ipca Laboratories 273 20.0 23.8 30.5 13.7 11.5 9.0
Opto Circuits 258 18.4 22.3 27.3 14.0 11.6 9.5
JB Chemicals 138 15.3 18.3 22.2 9.0 7.6 6.2
Torrent Pharmaceuticals 510 34.6 45.7 50.9 14.7 11.2 10.0

The author doesn’t hold any investment in any of the companies mentioned in the article.

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