On Monday, pharma stocks will be in focus as they will react on Donald Trump’s statements on pricing policies.
Karnataka polls, macroeconomic data, fourth quarterly earnings, trend in global markets, investment by foreign portfolio investors (FPIs) and domestic institutional investors (DIIs) will dictate trend on the bourses next week.
On Monday, pharma stocks will be in focus as they will react on Donald Trump’s statements on pricing policies. Karnataka will go for polling on 12th May to 15th May. Its exit polls and result will drive Indian market. Among corporate earnings, HUL will announce 4QFY18 quarterly results on Monday, 14 May 2018. LUPIN will announce January-March 2018 quarterly results on Tuesday, 15 May 2018.
ITC, Hindalco And Tata Steel will come out with Q4 results on 16th May. Bajaj group’s financial arms Bajaj Finance and Bajaj Fiserv will declare their quarterly results on 17th May while Bajaj Auto will come out with results on 18th May.
On the macro front, the movement of rupee against the dollar and crude oil prices will be monitored keenly. Brent crude hovers near $75 per barrel mark. Spike in oil prices raises India’s import bill as the country imports majority of its crude requirements. A weak rupee raises the cost of importing crude oil.
On Monday, May 14, 2018, Orient Electric will get listed. MSCI Index will announce changes in index on May 15. Market will react on results of Karnataka on Tuesday. Bond market will be focus on 17th May as RBI to buy up to Rs10,000 crore of government bonds and later on the same day RBI
Governor Urjit Patel called by Parliamentary Panel to answer queries on banking frauds and the powers that the central bank needs for better regulation of public sector banks.
IOLCP
IOLCP is our top pick from pharma sector. It’s business is comprised of two segments, chemicals and pharmaceuticals. The chemical segment manufactures Ethyl Acetate, Iso Butyl Benzene (IBB), Acetyl Chloride and Mono Chloro acetic Acid (MCA), while under pharmaceuticals the company manufactures active pharmaceutical ingredient (APIs) i.e. Ibuprofen.
Company sells branded formulation and ibuprofen in export markets like Europe, Latin America and Middle East. Apart from Ibuprofen, it also manufactures Metformin Hydrochloride, Lamotrigine, Fenofibrate and Clopidogrel Bi sulphate. It is one of the largest producers of Ethyl Acetate (87,000 TPA) and ISO Butyl Benzene in India with over 30% of the global market share and a major player in Ibuprofen. It has forward integrated this vertical to the pharmaceutical segment with end products such as IBB (9000 TPA), MCA (7200 TPA) and Acetyl Chloride (5200 TPA) used as key raw materials for Ibuprofen. It is the world’s only backward-integrated Ibupro
fen producer (8,000 TPA) that manufactures all intermediates and key starting materials at one location. It has augmented its pharma business by moving up the value-chain by entering into lifestyle drugs for pain management, anti-depressant, anti-diabetic, anti-platelet and anti-convulsion.
Currently, 6 APIs are already commercialized and 10 APIs are in the advance stage of development. The chemical and pharmaceutical segments contribute equally to the revenue We have initiated coverage at Rs. 95 with Target of Rs. 175. For short term one can BUY with Target of Rs. 125 keeping SL of Rs. 98.
Ruchira Papers is manufactures writing and printing paper and kraft paper. It’s white writing and printing paper is used to make notebooks and writing material, while the colored paper is used in the fabrication of spiral notebooks, wedding cards, shade cards, children’s coloring books, colored copier paper and bill books. Of the 750 paper mills across the country’s fragmented paper industry, only 50 have the capacity to produce 50,000 or more metric tonnes per annum.
The current industry demand has been pegged at ~16 million tonnes with over 2 million tonnes being imported annually. During 3QFY2018, Ruchira Papers reported revenue growth of 15% YoY driven by strong realization. On the operating front, margins expanded by 340bps YoY due to lower raw material cost and other expenses. This led to an increase in bottomline by 48% YoY.
On the segmental front, sales volume of writing & printing paper segment fell by 2.5%, while that of kraft paper increased by 3.5%. We believe Ruchira Papers has potential to report healthy topline growth on the back of superior demand in printing & writing paper and kraft paper segments. On the profitability front, it will post better operating performance aided favorable raw material prices. We are recommending a BUY with Target of Rs.187 with SL of 158.
Newgen Software
Newgen is a software product company which operates across Enterprise Content Management (ECM) through its flagship product OmniDocs, Business Process Management through OmniFlow iBPS and Customer Communication Management through OmniOMS.
According to industry reports, these three areas present a market opportunity of US$23bn globally which is expected to grow to US$30bn by FY21 and Indian market is expected to reach US$800mn. Newgen’s customers are very sticky which leads to a 70-80% of revenue from repeat customers and client concentration is low, with about 500 active customers and top-10 customers accounting for only 23% of revenue.
Newgen is focused on driving innovation and adopting solutions in line with rapidly evolving technological trends. It has four patents registered in India and 28 outstanding patent applications in India and two outstanding patent applications in the USA. It has registered a total of 12 trademarks in India under various classes and had five pending trademark applications for registration in India and registered five copyrights. Newgen is currently trading at 19x FY19 P/E and 13x FY19 EV/EBITDA. We are recommending a BUY with TP of Rs. 275-280 with SL of Rs. 240.
