MultiBagger:Jubilant Organosys

Multi Bagger:Jubilant Organosys
Recommended Price Rs.358.90

Jubilant- A Multi-faceted Pharma giant in the making
Jubilant Organosys Limited is an integrated pharmaceutical industry player with a wide range of products and services for global life sciences companies. The Company is one of the largest Contract Research and Manufacturing Services (CRAMS) and Drug Discovery and Development Services (DDDS) organizations in India. Jubilant has a presence in generic pharmaceuticals business in the US and supply dosage forms along with regulatory services to European generic companies.

Jubilant's business interests are in three main segments - Pharmaceuticals & Life Science Products, Industrial Products and Performance Polymers. Each segment has independent growth units with clear performance and growth objectives. It is the leading manufacturer - worldwide - in distinct product segments including selective APIs, Pyridine and its derivatives, Solid Polyvinyl Acetate, Vinyl Pyridine Latex and Organic intermediates such as Ethyl Acetate, Acetic Anhydride and Acetaldehyde. Its product line comprises of a wide range of high value added chemicals for the pharmaceutical, agrochemical, confectionery, human and animal nutrition industries.

CRAMS- The New Growth Area for Pharma Companies:
CRAMS pertains to outsourcing services/ products from low-cost providers with world-class standards. Since late 1990s, CRAMS has gained more importance, as MNCs have come under pressure to maintain their profitability. It consists of contract manufacturing and contract research. India has become a major provider of these services due to its low cost labor, high expertise services, infrastructure and the time taken for regulatory clearance is less in India as compared to other countries. Over the last five years, CRAMS industry has been contributing close to eight percent to the total Indian pharmaceutical business. CRAMS require technical skills and a good R&D base.

Jubilant has successfully diversified into CRAMs and along with Divi�s, Dishman and a few others is a key player in the sector.

Financial Position:
In the FY-08 Jubilant witnessed an increase in the Sales by 37.5% to Rs 2489 crore and the EBIDTA grew by an impressive 4.2% to Rs 463.7 crore. Its net profit rose by 82.6% to Rs 309 crore. This is excellent growth by any standards. In the First Quarter FY�09 its sales rose by 35% to Rs 619 crore and the EBITDA also showed an increase of 43% to Rs 191.35 crore. Profit after tax declined by 91% to Rs 12.8 crore due to forex loss of Rs 107.6 crore compared to a gain of Rs 87.9 crore in Q1 of FY08. If this extra ordinary item is not taken into account the net profit was infact sharply higher by 119% to Rs 120.4 crore. In the current quarter the interest and depreciation went up by 63% and 73% respectively.

Product wise, the international revenue was also higher by 74% at Rs. 484.6 crore on account of volume growth in the outsourcing related segments comprising CRAMS and DDDS (Drug Discovery and Development Services). Its CRAMS revenue constitutes of 55% of its total revenue. Pharma and life science products and services (PLSPS) is the main force behind company's profitability. It recorded a revenue growth of 72% to Rs 522.7 crore. The revenue from industrial products also increased by 28.4% to Rs 304 crore.

Investment positives:

High Entry Barriers:
CRAMS require high expertise, technical skills and R&D. The approval process for entering into CRAMS business is also long and complex. So established players have a great early mover advantage.

Research and Development:
R&D is the backbone of Jubilant. It includes technical, marketing and economics skills generating new products/processes/services. In 2002, it was one of the first Indian companies to enter drug discovery and development. It has an R&D team of over 1,050 scientists. Jubilant has more than 25 years of chemistry experience and undertakes more than 30 complex chemical reactions with global leadership in certain technologies. Jubilant's subsidiaries, Jubilant Biosys, Jubilant Chemsys and Jubilant Clinsys provide a range of functional as well as integrated services.

Acquisitions:
Jubilant Biosys Ltd and Amgen Inc, the largest US based Biotech company have announced a drug discovery partnership under which Amgen and Jubilant will collaborate to develop a portfolio of novel drugs in new target areas of interest across multiple therapeutic areas. Jubilant successfully completes acquisition of Canada based Draxis Speciality Pharmaceuticals Inc. for US$ 253 million. It had acquired Speciality Molecules Pvt. Ltd., a niche manufacturer of Speciality Intermediates with manufacturing facilities located in Ambarnath (near Mumbai) in India in 2008. Its other acquisitions are Hollister Stier (USA), Clinsys Clinical (USA), Cadista Pharma (USA) and PSI Supply (Belgium).

Going Global:
Jubilant Organosys has a presence across the entire pharmaceuticals value chain with facilities and establishments in the U.S., Europe and China. Jubilant Organosys Ltd became the first company in India to be the registered Organisational Stakeholder of Global Reporting Initiative.

Concerns:
China is emerging as a strong competitor to India in the CRAMS business and India�s rising wage cost is also a major concern. But then also the prospects for India to continue its momentum are high. One of the major concerns for Jubilant is also the kind of contracts it will get in the future. The company has high debt in its books because of which the interest cost is also very high.

Valuation:
Jubilant Organosys has shown a strong growth in profits during the period. It has reported a quarterly EPS of Rs 8.33 (excluding extraordinary charge), which translates to an EPS of around Rs 33.32 per share for FY09. At CMP of Rs 358.90, it trades at a P/E of around 10.92. The PEG ratio (PE/growth in NP) comes to 0.08. We recommend the stock as an excellent investment with a target price of Rs 590.

Pick of the Week: GTL Infra

FOR SHORT TERM - MEDIUM TERM


BUY : GTL INFRA

GTL Infra (Rs. 41.25) (BSE Code : 532775)

Target Rs. 46 to 48

Equity : Rs. 735.93 Cr.

GTL Infrastructure, established in 2004 and part of Global group, is the pioneer in Shared Telecom Infrastructure in India. GTL Infrastructure offers ready to use passive infrastructure to wireless telecom operators. For over two decades, Global Group has been partnering with leading telecom operators and OEM's, offerring its expertise in wireless communication. From 2G networks to 3G and 4G, from WiMAX to IPTV, Global Group provides complete life-cycle solutions of network services. These services include network planning and design, network deployment, network operations and maintenance, application management and professional services.

The company is in the midst of rolling out a Pan India network of 6700 towers by 08, and is offering the infrastructure to the leading service providers in India. It is a publicly listed company, and has emerged as the largest independent tower company in India. GTL Infra is registered with the Department of Telecommunications as an Infrastructure Provider in Category I (IP-I). The Company builds, owns, operates and maintains passive network infrastructure on a shared basis in order to cater to the rapidly growing infrastructure needs of cellular telecom operators.

GTL Infra's model of infrastructure sharing is through building, owning, operating and maintaining the shared resources for multiple service providers. Under the Build-Own-Operate model GTL Infra would be rolling out the entire passive infrastructure required in the needed territories and also operate and maintain the same based on the Service Level Agreements (SLAs) entered into with the operators.

As GTL owns the passive assets, it frees up the operators capital. Gtl Infra plans to give the operators, a 'ready to move in' telecom equipment housing facility, in the form of base station sites and network management /monitoring facilities, with operator paying a monthly/quarterly fee to them for utilizing the facility.

Although GTL Infra is a new entity, they are backed by strong expertise, experience, capital base and intimate understanding of the Indian market place. GIL is well placed to play a crucial role in implementing the concept of shared infrastructure in the Indian marketplace. They possess extensive skills in designing and implementing telecom networks. Its status as a preferred partner with leading OEM's, gives them an added advantage in securing stronger customer alliances, and in garnering leadership status.

Sales and NP for year ended 07 / 08 were 124.6 Cr and for latest Quarter 42.2 Cr. On quarter basis NP has increased by 9%

Pick of the Week: Lanco Infratech

FOR SHORT TERM-MEDIUM TERM

BUY: LANCO INFRATECH

Equity: 222.36 Cr, BSE Code: 532778, CMP: 337.65

LANCO Infratech Ltd (LITL), one of the fastest growing corporate entities in India, has more than two decades of experience operating in the core sectors of Power Generation, Power Trading, Construction & EPC, Infrastructure and Property Development. As of now, the operating capacity of LANCO power projects stands at 518 MW and on the pipeline are a number of power projects to generate a total capacity of 15,000 MW by 2015.� With a proven record in integrated infrastructure development, LANCO constructs, develops and operates projects in power, roads and other infrastructure. The construction and EPC wing has so far executed Rs 2,000 crore worth projects and has an order book worth more than Rs 7,500 crore. Notably nearly all the construction and EPC works are done for LANCO power and infrastructure projects.

The construction industry is vast and complex, calling for specialization in different sectors. It also calls for enormous skills to master the intricacies of the works in the field. LANCO Infratech Ltd (LITL), established in 1993, is one of the few companies which have developed the art of developing diverse projects and managing them. LITL, the holding company of LANCO for Power, Realty and Infrastructure sectors, intends to leverage its expertise and experience to exploit opportunities in this emerging sector by developing large infrastructure projects in highways, ports, bridges and SEZs.

As part of streamlining its expanding operations, two divisions have been created to oversee and execute Infrastructure and EPC works. The two divisions are: Infrastructure & Construction Division and EPC Division.

LANCO proven expertise in power encompasses conventional as well as non-conventional sources of energy such as gas, coal, biomass, hydro and wind. Currently generating 518 MW of power in six operational independent power projects, LANCO plans to have an installed capacity of more than 4000 MW by 2010. Sales and NP for year ended 07-08 were 1574.6Cr & 200.2Cr. Sales and NP for latest Quarter 661.9Cr & 110Cr. On YOY basis NP has increased by 174% & based on quarter latest its increased by 353%

Multibagger: Natco Pharma

Multi Bagger: Natco Pharma
Recommended Price Rs 80

Natco Pharma - a Discovery led pharma company with strong R&D capabilities, with potential for significant increase in revenues on account of the company’s entry into retail pharma space in US and its tie-up with Mylan Inc. and with the additional cushion being in the form of land bank valued more than the company’s current market cap, is attractive at the current PE of 6.

Natco Pharma was promoted by Mr V.C. Nannapaneni in the year 1981 as a Private Limited Company to be in the business of Research, Developing, Manufacturing and Marketing of Pharmaceutical Substances and Finished Dosage forms for Indian and International markets. NATCO PHARMA began operations in 1984 in Andhra Pradesh, India. The company which began operations with one manufacturing plant and 20 employees today has four manufacturing facilities and 1500 employees. NATCO also has the credit of being one of the largest contract manufacturers in India.Some of the well-known companies like Ranbaxy, Dr. Reddy's Laboratories, John Wyeth etc. get their products manufactured by NATCO. The company’s bulk drug and Intermediate facility at Mekaguda, in Andhra Pradesh is certified for its environmental management systems (ISO-14001) and is US-FDA approved plant.

Natco Pharma is a leader in the Oncology segment and is ranked No.1 amongst Indian companies in the Oncology segment in terms of revenues from the domestic market. Strong Research Base:

The company has a strong research base and has developed various Oncology and non-Oncology drugs. As a recognition of its strong research capabilities, the company has recently been conferred the National Award -2008 by Technology Development Board, Government of India, Ministry of Science and Technology for indigenous technology developed by the company in life saving anti-cancer drugs.

New drug discovery: The company has developed a new molecule NRC 19 for treatment of Chronic Myelogenous Leukemia (CML) which is cancer of the blood in which too many granulocytes, a type of white blood cell, are produced in the marrow. The company has applied for Phase I of Clinical Trials. Successful clinical trials and commercialization of the Drug will lead to substantial benefits for the company

Acquisition of pharma retail companies in US: The company has been increasing its presence in Pharma Retail in US through the inorganic route. The company has over the past year and a half acquired three Pharma Retail chains in the US – Savemart Drugs, Nicks Drugs and Newark Drugs. These stores are capable of adding Rs.150 crores towards Sales Revenues for the company in a year. The company is scouting for more acquisitions in this space in the US.

Tie-up with Mylan Inc: The company has recently entered into a Tie-Up with the Pittsburgh based Mylan Inc., for worldwide marketing and distribution of Glatiramer Acetate. The drug is sold as Copaxone R - a registered trade mark owned by Teva Pharmaceutical, Israel. Natco has signed a license and supply agreement today with Mylan for its (NATCO's) Glatiramer Acetate pre-filled syringes, a generic version of Teva's Copaxone R, which is used to treat multiple sclerosis. The agreement grants Mylan exclusive distribution rights in the United States and all major markets in Europe, Australia, New Zealand, Japan and Canada, and includes an option to expand into additional territories. Teva’s market cap and profitability is a function of Copaxone, which, with brand sales of nearly $2 billion officially, returns a profitability of 50%-70%.

Land bank near Hyderabad Airport: The company has substantial land bank near the Hyderabad Airport (close to 300 Acres). As per a few press reports of Dec 2007-Jan 2008, the land is valued at around Rs.350 crores. Factoring a possible decline that might have taken place in land values in view of the recent real estate slowdown, the land may be valued at around Rs.250 crores on a conservative estimates - this is more than the current market cap of the company.

Conclusion:
Natco Pharma is a leader in Oncology segment and has strong research capabilities. The acquisition of pharma retail chains viz – SaveMart Drugs, Nicks Drugs & Newark Drugs would lead to addition of Rs 150 crores in the revenues. The company infact is scouting for more acquisitions in this space. The company’s recent tie-up with Mylan Inc for worldwide marketing and distribution of Glatiramer Acetate, which is the generic version of Copaxone R owned by Teva Pharmaceuticals, may lead to significant addition to the company’s Topline and Bottomline. This however may be a long drawn process (may take 2-3 years) since regulatory and legal hurdles have to be crossed before the sales of the drug could start – Mylan Inc is expected to spend between $ 20-30 mn for regulatory approvals and clinical studies. Many analysts opine that Israeli major may try to block the launch of the product by dragging both Mylan and Natco to court since Teva is being threatened of its m onopolistic position and may try and block the sales through legal route. The near term growth for the company, however is expected to come from the domestic Oncology segment where the company expects to grow at 20%.

Natco Pharma achieved Sales and PAT of Rs 228 crores and Rs 40 crores respectively for FY 08. This results in an EPS of Rs 12.28. The stock thus trades at a PE of 6. The icing on the cake however is the land bank which the company has near Hyderabad Airport – valued at Rs 250 crores on conservative estimates, is more than the current market cap of the company. Given the company’s current market cap of Rs.208 crores, there is thus a margin of safety or a cushion available incase of any adversity.

The stock available at a PE of 6 with company’s strong R&D capabilities, new Drug Discovery, potential for significant increase in revenues on account of the company’s entry into retail pharma space in US and its tie-up with Mylan Inc. and with the additional cushion being in the form of land bank valued more than the company’s current market cap, merits investment at the current levels.

Pick of the Week: Bombay Dyeing

FOR SHORT TO MEDIUM TERM
BUY: BOMBAY DYEING

Equity: 38.61Cr, BSE Code: 500020, CMP: 552.10

BUY BOMBAY DYEING @ 552/553 Target: 590 to 595

Bombay Dyeing was incorporated in 1879 to set up the countrys first indigenous yarn dyeing facility to cater to the power-looms, which till then were totally dependent on yarn dyed abroad. The company started with grey yarns in 1895, and soon after had surplus production, which it exported to China. Currently, Bombay Dyeing is one of the largest manufacturers in the composite sector of the Indian Textile industry. As a part of its restructuring plan for its Textile Division and consolidation of its Manufacturing facilities at one location, the company has disposed off the old equipment at Spring Mills and right sized its workforce. The company�s Textile Division is also setting up a Processing and Stitching facility at an alternate location in Maharashtra. Further, the company�s DMT Business is going head with its downstream project for the manufacture of polyester staple fibre (PSF), with a capacity of 1, 65,000tpa at its existing DMT plant.

During 2004-05, the company�s new Real Estate Division set up and took initial steps to shape up. During 2005-06, the Division commenced development of the two properties viz., Spring Mills in Dadar and Textile Mills at Worli. First Phase of the Spring Mills Project commenced, which included Town/Shopping Centre development catering to the Central Mumbai residents. Meanwhile, development of Textile Mills, Worli has commenced in phases. These developments in real estate business will drive its future revenues. For this, the company proposes to utilise and capitalise on its historical land bank in Mumbai.

Apart from this, Bombay Dyeing has also chalked out long-term plans to turn-around its traditional Textile business, curb costs and improve Margins. It has forward-integrated to a PSF plant of 1, 65,000 tones capacity and has shifted its Home Textile operations from Mumbai to Rajangaon to control operational costs.

Bombay Dyeing has a huge land bank at prime locations at Worli (20 acres) and Dadar (40 acres) in Mumbai, which is under development. Considering the dearth of prime locations in Mumbai, we believe this land would attract buyers even at premium valuations. We have valued the company's existing Real Estate business at Rs1, 083/share on NAV basis. We have assumed that the projects would be completed in the next four years as against management's estimates of 2-3 years.

We believe that Bombay Dyeing is a safe bet on Mumbai's Real Estate Sector as it has land at prime locations, clear title on property and property is fetching high prices in Mumbai.

Bombay Dyeing has started shifting its two textile mills out of Mumbai to Ranjangaon and PatalGanga, to restructure and consolidate its manufacturing facilities. This would reduce its operational costs also. The company proposes to exploit the land that would be available at prime locations in Mumbai post the shifting of the textile mills.

Sales and NP for year ended 07-08 were 933.7Cr & 8.5Cr. Sales for latest Quarter were 347.7Cr. Dividend during year ended 07-08 was 35%