Orchid Chemicals & Pharmaceuticals
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs355
Current market price: Rs315
Growing strongly
- Orchid Chemicals & Pharmaceuticals (Orchid) is planning to file 25 abbreviated new drug applications (ANDAs) in the next 12 months that will form the product portfolio of the company from FY2008 onwards.
- We expect these filings to be in the lifestyle drug segments apart from one filing in the high revenue molecule tazobactum+piperacilllin.
- These filings indicate the commitment of the company towards generating a long-term revenue stream for the future. It also speaks volumes of the strong thrust that the company has towards making a big entry in the lifestyle drug segments of the regulated markets in FY2008.
Hindustan Lever
Cluster: Apple Green
Recommendation: Buy
Price target: Rs270
Current market price: Rs236
Price target revised to Rs270
Result highlights
- Hindustan Lever Ltd's (HLL) revenues grew by 14.4% year on year (yoy) for Q4CY2005, the strongest ever growth in the last eight years, on the back of the strong traction in soap and detergents and personal products businesses. The growth was also strong quarter on quarter (qoq) at 8.9%.
- The home and personal care business reported a growth of 17.3% in its revenues on the back of the re-launch of key brands whereas, the food division reported a growth of 9.1%.
- HLL's operating profit grew by 14.7% with a marginal five-basis-point expansion in the operating margins. The margins expansion could have been higher but for the advertising and promotion (A&P) expenses, which went up by 49.7% yoy. The management has guided that the spending on A&P is likely to continue at that level in an effort to strengthen the brands of the company.
- A better supply chain management and aggressive cost cutting has helped HLL reduce its losses in the food processing and ice-cream businesses substantially, which helped it to sustain the margins despite the A&P spend going up.
- We have upgraded our earnings per share (EPS) estimates for CY2006 and CY2007 by 9% and 16% respectively.
- At the current market price of Rs236, the stock is quoting at 27.1x its CY2007E EPS and 23.3x CY2007E enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). We reiterate our Buy recommendation on the stock with a revised price target of Rs270 per share.