Sharekhan buys Glenmark Pharma, CESC; sells Lupin

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Sharekhan buys Glenmark Pharma, CESC; sells Lupin

Sharekhan has come out with its report on various stocks.

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RELATED NEWS Buy Jagran Prakashan; target of Rs 150: Unicon Investment Buy Deepak Fert; target of Rs 228: PINC Research Buy Power Grid Corp; target of Rs 122: PINC Research ALSO READ See previous views by Sharekhan See what other Experts & Brokerages are saying about BHEL See messages about BHEL BHEL BSE | NSE 01/06/12 Are Mutual Funds betting on BHEL? Other Stocks in this news CESC | Divis Laboratories | GAIL India | Glenmark Pharma | Godrej Consumer Products | HCL Technologies | ITC |

Sharekhan has come out with its report on various stocks.

"Despite the promising beginning of the month, the benchmark indices failed to break out of the multi-month range on account of an aggressive policy rate hike by the Reserve Bank of India and negative global cues. Consequently, the benchmark indices, the Sensex and the Nifty, declined by 4.4% and 4% respectively since July 1, 2011 when we had last revised the contents of our Top Picks basket. The CNX Mid-Cap Index was more resilient and reported a relatively lower loss of 1.8% for the same period. Compared to benchmark indices, the performance of our Top Picks basket was better as it declined by 2.4% in the same period."

"Over the past six months, the Top Picks basket has outperformed the benchmark indices five out of six times and generated cumulative returns of 5.5% as against flat and marginally negative returns of the Sensex and the Nifty respectively. The CNX Mid-Cap Index has appreciated by 4.0% in the same period. The two changes that we have initiated in this month are as follows. We have replaced Lupin with Glenmark Pharmaceuticals (Glenmark) as part of the routine churn within the sector and in view of the better upside potential in Glenmark after the recent revision in its price target. Second, CESC has come in place of Federal Bank, which disappointed with higher than expected slippages in Q1FY2012. On the other hand, CESC is our value pick in the utilities segment where we anticipate some positive policy actions."  

BHEL : In spite of all these concerns, the current valuation at 12.3x its FY13E earnings are looking attractive. We have, therefore, included BHEL amongst our Top Picks. The near- term positive trigger in the stock is the uptick in order inflow in the power equipment business and profitable execution of its order book.  

CESC : CESC is one of the cheapest utility stocks available in the Indian market, trading at 0.7x FY12 BV, and significantly lower to the average multiple of the comparable companies, primarily due  to  the  loss making  retail arm. However, improving  financial health of  the  retail business and  the growing  scale of  the power utility business has  reduced significantly the share of retail losses on the overall balance sheet. The current market price ignores the turnaround possibility, with substantial discounting. Hence, we have a Buy recommendation on CESC with a target price of Rs413 (SoTP based), which also factors negative value of Rs123 per share for the losses of the retail arm.  

DIVI'S LABORATORIES : With the order inflow picking up from H2FY11 and its new plant getting operational, Divi's has a strong revenue growth visibility and the operating leverage in the business will boost its margins. Consequently, we estimate the company's revenue and earnings to grow at a CAGR of 23% and 21% respectively over FY11-13. At the current market price the stock trades at PE of 21.2x and 17x discounting its FY12E and FY13E earnings respectively. We maintain our Buy recommendation.  

GAIL INDIA : At the current market price, the stock trades at a price/earnings ratio of 13.2x and EV/EBITDA of 8.5x based on our FY13 estimates. We have a Buy recommendation on the stock with a price target of Rs567.  

GLENMARK PHARMA : Improving visibility on resolution of balance sheet issues related to high gearing and receivables and its ability to close new out-licensing deals will be the triggers for the stock. Given the out-licencing deals and the favourable risk-reward ratio, the stock remains attractively valued at a price/earnings of 13.7x FY12E and 14.6x FY13E earnings.

GODREJ CONSUMER : At the current market price the stock trades at 25.4x its FY12E EPS of Rs16.9 and at 21.0x its FY13E EPS of Rs21.1. We have a Buy recommendation on the stock.

HCL TECH : We value HCL Tech at a 25% discount to Infosys at 15x FY13E earnings. At the current market price the stock trades at 14.9x and 11.6x its FY12E and FY13E earnings respectively. We have a Buy recommendation on the stock with price target of Rs622.

ITC : We expect ITC's bottom line to grow at a CAGR of about 21% over FY11-13. At the current market price, the stock trades at 26.1x its FY12E earnings and 22.0x its FY13E earnings. We maintain our Buy recommendation on the stock. 

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