Nirmal Bang says hold Dr Lal for long-term, like Alkem too

With regards to Alkem Lab, she thinks the US business could be their hidden driven and expects the company to an EPS of 69 in FY17.Below is the transcript of Runjhun Jain’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18. Sonia: Dr Lal’s Path Labs is soaring away – 35 percent higher now, at Rs 740, how do you rate the stock? A: In our subscribing note, we have actually compared it with the fast-moving consumer goods (FMCG) companies because if you compare the return ratios and the growth profile, it is comparable to FMCG companies. Anyway we do not have anything to compare in the listing space in the same diagnostics business. So, we feel that the company is into strong footing, they have a strong management and a very experienced one. We feel that the stock can be held for the long-term point of view. Latha: What is your price target? Would you have people entering Path Labs at Rs 740? That is where it is trading at now. A: I would feel that people who have already got this share should hold it for long-term and for the new entries we would like to advice people to at least wait for some correction to get into it. Our target for Dr Lal we have given 40 times comparing to Asian Paints for FY17 and that our earnings per share (EPS) was around Rs 17. So, that is how we have compared it, but for the new entry, would advice people to wait for some correction to get into. Sonia: So, have you forecasted any earnings, because in FY15, the revenue growth was quite strong at almost 18.5-19 percent? In FY16-FY17, what kind of earnings forecast do you have for Dr Lal’s? A: If you see the compounded annual growth rate (CAGR) of the company, they have been growing around 22-25 percent. Even the industry of the diagnostics business is growing 16-17 percent. So for them to grow above 20 percent, we do not see any problem, because anyway they are increasing their base in eastern India. So, we have projected around 22 percent around 22 percent CAGR for next year including Fy16 and for next year also FY17. Latha: And what is the call on Alkem? A: For Alkem, we think that their US business could be the hidden driver for the company. The H1 numbers have been very robust and we would like to actually see the sustainability of these numbers to see that those numbers would be able to replicate in the future or not. But, even on the very conservative basis, we assume that the company can do around Rs 69 of EPS in FY17. That is also on the conservative basis. If you see the pipeline of the company, they have around 66 Abbreviated New Drug Applications (ANDA) filed and out of that, 30 are Para 4 which could give a very upside for the company.