most names with high leverage. Our equity analysts highlight two pharmaceutical companies, Ipca Laboratories Ltd and
* Ipca Lab (CMP: R701, OW and TP: R805): US growth has become a reality. Post the USFDA’s approval of SEZ Indore facility, Ipca expects US sales to ramp up significantly with the first few launches due in Q4FY14, along with two new approvals and site transfers for one-two old products. Ipca’s export formulations have bounced back strongly post the recent slowdown in a few markets due to the implementation of a new tracking system. Our analysts expect export formulations to outgrow domestic formulations sales with a CAGR of c24% (against 14% for India) over the FY12-15e.
* Torrent Pharma (CMP: R469, OW and TP: R537): Despite the overall market slowdown due to new pricing policy and trade disruptions, Torrent’s India formulations sales remain strong on the back of a healthy product mix with c65% its product portfolio for chronic therapies like cardiac, CNS and diabetes, (Q2FY14 sales growth of 14% versus market growth of 3%). The US contributes c12% of total company sales, and is one of the fastest growing markets for Torrent. Despite being a late entrant in the US market in FY06, Torrent had a healthy product launch rate of five-six products per year and has a decent pipeline with 24 pending ANDAs. Our analysts expect the US to remain a strong source of growth for the company, led by new launches and increasing market share in existing products.
(ii) Uptick in utilisation: Our economists expect the Indian economy to bottom in FY14 and slowly resume a growth trajectory. While execution related risks in corporate India remain elevated, a number of companies have completed their capital spending programmes over recent years and are poised to see a recovery in cash flow. In terms of the utilisation theme, our equity analysts believe that
Bharat Forge Ltd (which is benefiting from a recovery in both the local and overseas markets) and ILFS are key stocks to play this theme. ILFS does have a significant degree of leverage but most of the leverage is structured around toll roads and annuity incomes.
* Bharat Forge ( CMP: R320, OW and TP: R380): BFL is one of the largest forging companies in the world and, as a standalone entity, enjoys cost leadership and a track record of efficient operations.