Why India Nivesh is bullish on Torrent Pharma, BoB

Second thing, what next after that? So when we attended the concall we actually gain more confidence that company is on the right path. They have increased their Research and development (R&D) expense. They are focusing more on launching new limited competition products. Right now they have some 40 products under development and 19 ANDAS pending for approval. So, this will give a visibility over next one, one and a half year. The big visibility will come from Nexium and Detrol which are likely to be launched in next one, one and a half year so FY16 and FY17 are stable and then FY18 onwards these new developments will come in.

So for next two three years Torrent Pharma is on the right track. On the domestic front they had taken over Elder Pharma’s portfolio which is also doing very well and they are increasing the productivity by reducing the manpower and all that which is also adding to the margins front. I guess both these strategies domestic as well as international are doing well and as of now this stock is fairly priced at 20 times of FY16 and 18 times of FY17 which gives you a room for appreciation. We value it at 21 times giving a target of Rs 1,673. Current price is Rs 1,470 or something so that gives you a good upside of 15-20 percent.

Ekta: Do you look at Alembic as well and the particular drug that you were talking about didn't show an Alembic's overall numbers as oppose to what the streets was expecting?

A: We do cover Alembic; in fact we have been buyer in Alembic since very long time. Now this is purely because of accounting treatment. Alembic has also got around 10-11 percent market share in the same drug but they have not booked the entire cashflows or sales from that in this quarter. So that means their revenue will get spilled over to the second quarter. That is the only reason. On Alembic also we have buy rating.

Anuj: The other stock that you like is Pitti Laminations, what is the story here?

A: This is a stock based on industrial recovery and also on the international theme. This company has exports as one part and domestic business. Domestic business is now picking up because of the industrial recovery. Their products which is laminates they find a place in automotive, locomotives, then in power generation all those things and we see that some amount of pick-up activity is happening there. So, domestic business has started coming well.

Now their international business which is purely GE business they have confirmed order of Rs 600 crore for next three years. Which means Rs 200 crore each year; laminates to be supplied to GE for the locomotive business. Now that order was pending in between for last two years because of some environmental issues with GE and the US government. Now those issues have been resolved and those orders have started moving out. This means that now there is a traction on both the businesses and from Rs 340 crore turnover what they did in FY15 we expect that in next two years that is in FY17 they will reach to Rs 500 crore.

Management had guided for Rs 1,000 crore turnover in FY18 which means that they will have to do some kind of an inorganic acquisition or some other route to go up to that level if they have to reach their guided number. Now because of this sales coming in the margins are expanding very fast so from Rs 9 crore profits in FY15 we are expecting Rs 22 crore profit in FY17 that is almost two and a half times. So, this means that there is a strong traction in numbers based on both domestic as well as international markets. Stock is fairly priced; it is just six times earnings value (EV) to EBITDA right now therefore leaves ample scope of appreciation. Right now we have given a conservative target of Rs 96 but we believe as numbers will come this target can be revised upwards.

Ekta: You look at the banking space quite closely and even in the PSU banking space. Any particular banks that you like or disliked the most in terms of numbers or even from the private banking space?

A: We have reiterated a buy on Bank of Baroda (BOB) just two days back after its numbers as well as this bank has started performing. Technically it has turned around. So we are looking at that part. Now we feel that BOB, because they started their cleaning up exercise much earlier than other peers in the public sector bank that is why they are coming to an end of cleaning so from here onwards they will perform better, their books will perform better.

The only thing which has to come is the credit offtake and therefore topline has to grow. At the asset quality side more or less things have been taken care of in BOB. It will come back to its previous rating. We have given a target of Rs 225 on BOB.

In private sector banks - Federal Bank, we have reiterated again post the numbers. There was a bit of disappointment in their numbers because of some metal and shipping companies going bad and so non-performing asset (NPA) going up. However, after talking to management we think that this will be probably taken care of in next quarter or so. Stock is again very nicely priced, cheaply priced. One should look at Federal Bank there again we have a buy rating with a target of Rs 88 or so.

Disclosures: All the stocks are recommended stocks. Our client’s promoter’s directors may have position. I don’t own any thing in any of these stocks.