JUNE 10, 2016

Economy News  The central government could impose a customs duty of 25 per cent on export of sugar. There is an increasing trend in the price of sugar in the international market. Traders might increase the export to make profit. To keep this in control, it is proposed to levy 25 per cent duty. It will keep sufficient availability and the price will be under control. (BS)  A group of central and state government officials set up to frame the law for the proposed goods and services tax (GST) has submitted its final draft that could be taken up at a meeting of the empowered committee of state finance ministers next week. (ET)  Indirect tax collections rose by about 37 per cent during April-May with additional revenue measures (ARM) and 14 per cent without ARM compared to the corresponding period of the last fiscal year. (ET)

Corporate News  GVK Power & Infrastructure has sought shareholders approval for increasing the maximum limit of loans and guarantees that can be given to other entities to Rs 150 bn from Rs100 bn. (ET)  Dalmia Bharat, Shree Cements along with South-based Ramco are in hot pursuit of Lafarge Holcim's Sri Lankan operations that the global cement major is divesting as part of a global portfolio realignment. (ET)

Equity % Chg 9 Jun 16 1 Day 1 Mth 3 Mths Indian Indices SENSEX Index NIFTY Index BANKEX Index SPBSITIP Index BSETCG INDEX BSEOIL INDEX CNXMcap Index SPBSSIP Index

26,763 8,204 20,503 11,325 14,743 9,469 13,381 11,385

(1.0) (0.8) (0.3) (2.2) (0.8) 1.2 (0.3) 0.0

3.8 4.0 7.3 0.7 8.5 2.6 2.1 3.1

8.7 9.6 18.7 4.6 20.3 8.8 8.7 10.6

World Indices Dow Jones Nasdaq FTSE NIKKEI HANGSENG

17,985 4,959 6,232 16,668 21,298

(0.1) (0.3) (1.1) (1.0) (0.1)

0.3 3.1 1.2 0.1 5.3

5.8 6.4 3.2 (1.6) 6.1

Value traded (Rs cr)

Net inflows (Rs cr)

 Visa Steel will seek shareholders' approval for the merger of its JV firm Visa Bao (VBL) in an attempt to optimise costs and secure availability of resources for its ferrochrome business. (BL)

FII Mutual Fund

 Cairn India will pay one per cent of net profit as commission to its nonexecutive directors. Payment will be in addition to the sitting fees paid to the directors for attending board and other meetings (ET)  Sadbhav Infrastructure Project has received Provisional Completion Certificate for 86.00 km. out of total 87.25 km. and start of toll collection in Bhilwara-Rajsamand Tollway Private Limited. (BSE)  Coal India Ltd will begin the process of giving coal linkages or fuel supply agreements to customers on the basis of a transparent auction, similar to telecom spectrum auctions. (BL)  Motherson Sumi Systems raised $300 million (Rs 20 bn) via a global bond sale, in part to support its expansion in North America. (ET)  Water shortages had led to coal-power plant shutdowns in West Bengal, Karnataka and Maharashtra. NTPC, Adani Power, GMR, MahaGenco and Karnataka Power Corporation are among the companies affected. (BS)  Reliance Communications (RCom) fared the worst in a call drop rate test conducted by the Telecom Regulatory Authority of India (Trai) in Hyderabad. (BS)  Granules Pharmaceuticals, Inc (GPI), a wholly owned subsidiary of Granules India, has acquired exclusive rights from USpharma Windlas, LLC to market and distribute four products in the US. (BL)

% Chg - Day

2,436 16,684 272,855

2.3 0.4 59.5

Cash BSE Cash NSE Derivatives

 Canara Bank is set to raise Rs 5 bn this fiscal by selling stake in its noncore assets after it posted a huge loss in fiscal year 2015-16. (ET)

 Havells India is targeting garnering 10% share of the Rs. 10 bn strong entry-level modular switch market in the country in the next 2-3 years. (BL)

9 Jun 16

8 Jun 16

% Chg

MTD

YTD

541 (124)

(0) (234)

3,707 (405)

18,076 9,027

FII open interest (Rs cr)

FII FII FII FII

8 Jun 16

% Chg

18,190 62,674 52,565 4,748

1.5 1.2 (0.8) 5.9

Index Futures Index Options Stock Futures Stock Options

Advances / Declines (BSE) 9 Jun 16 Advances Declines Unchanged

A

B

T

136 162 2

511 618 41

23 29 10

Total % total 670 809 53

Commodity

44 53 3

% Chg 9 Jun 16 1 Day 1 Mth 3 Mths

Crude (US$/BBL) Gold (US$/OZ) Silver (US$/OZ)

50.5 1,268.8 17.3

(0.2) 0.7 1.7

13.0 0.5 1.4

33.4 (0.4) 11.2

Debt / forex market 9 Jun 16 1 Day 1 Mth 3 Mths 10 yr G-Sec yield % Re/US$

7.5 66.8

7.5 66.7

7.4 66.6

7.7 67.2

Sensex 28700 27200 25700 24200

Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange

22700 Jun-15

Sep-15

Dec-15

M ar-16

Jun-16

MORNING INSIGHT

June 10, 2016

INSECTICIDES (INDIA) LTD

INITIATING COVERAGE Pankaj Kumar [email protected] +91 22 6218 6434

PRICE: RS.455 TARGET PRICE: RS.554

Stock details BSE code NSE code Market cap (Rs bn) Free float (%) 52 wk Hi/Lo (Rs) Avg daily volume Shares (o/s) (mn)

: : : : : : :

532851 INSECTICID 9.4 32% 605/297 46981 20.66

Summary table - Standalone (Rs mn)

FY16

FY17E

FY18E

Revenue 9882 Growth (%) 2.5 EBITDA 911 EBITDA margin (%) 9.2 PBT 499 PAT 393 EPS 19.0 EPS Growth(%) (28.4) CEPS (Rs) 27 BV (Rs/share) 198 Dividend / share (Rs) 2 ROE (%) 11.2 Core ROCE (%) 12.1 Net cash (debt) (1955) NW Capital (Days) 104 P/E (x) 23.9 P/BV (x) 2.3 EV/EBITDA (x) 12.5 EV/Sales (x) 1.1

11515 16.5 1179 10.2 813 593 28.7 51.0 37 223 3 13.6 15.5 (1973) 103 15.8 2.0 9.7 1.0

13687 18.9 1479 10.8 1121 818 39.6 37.9 48 258 4 16.5 18.4 (1794) 98 11.5 1.8 7.6 0.8

Source: Company, Kotak Securities - Private Client Research

RECOMMENDATION: BUY FY18E P/E: 11.5X

Insecticides (India) Limited (IIL) is amongst the top 10 Indian agrochemical companies having approx. 7% market share of the Indian domestic agrochemical market. The company has a fully integrated business model right from manufacturing of technicals and branded formulations to sale of generic and inlicensed agrochemical products. The company has moved up in the value chain, by shifting its focus from trading of generic pesticides to sale of branded products and inlicensed products by inlicensing, leasing or acquiring brands from domestic and international players. Further, IIL is launching new products through reverse engineering of off patented molecule by increasing focus on R&D. This will positively impact its margins in the longer run. The company has created enough capacity and can double its sales on present capacity as it is presently operating at 36% capacity utilization. We believe that IIL is well placed to grow in agro chemical sector which is growing at double digits rate and has positive growth outlook. We believe that, IIL would be one of the best play if monsoon in 2016 turns out to be above normal as forecasted by IMD and Skymet. We expect the company's revenue and PAT to grow at a CAGR of 18% and 44% respectively in FY16-18E. The stock is available at FY17E and FY18E PE of 15.8x and 11.5x respectively which is 40-50% discount to its peers and is poised for re-rating. We assign Buy rating on the stock with a price target of Rs 554.

Key investment argument  Huge opportunity in the crop protection sector. India's crop protection industry has been growing at a double digit rate and is at USD 4.25 bn, with the top-10 players growing at a faster pace. India's crop protection industry is expected to reach USD 7.5 bn by FY19E, entailing 12% CAGR. Of this, domestic market is expected to grow from USD 2.25 bn to USD 3.3 bn with 8% CAGR and exports are expected to grow from USD 2 bn to USD 4.2 bn with 16% CAGR. Besides this, Agrochemicals worth USD 6.3 bn are expected to be taken off patent list by 2020 and leaves huge potential for introducing new products by players like IIL.  Positioning as niche agrochemical player by moving up in the value chain. IIL aiming to position itself as niche player by continuously focusing on moving up in the value chain. The company transformed its business from trading of generic agrochemical products to manufacturing and selling of branded formulations. Further, the company is in process of closing/exiting several low volume or loss making generic products and targets to close further 30 products (from present 99) in the next three years. This would positively impact its margins and increase focus on key products. The next step for IIL is to develop its patented products.  Focus on strengthening product portfolio with new products in pipeline. IIL has adopted different strategies to meet its short, medium term and long term growth with improved margins. These strategies include 1) adding 1-2 products every year through reverse engineering of off patented molecule where the life of the product would be approx. 2-3 years 2) adding 1-2 products through in-licensing or process patent every year where the life of the product would be 5-7 years 3) looking at developing new patented molecule through in house R&D in JV with OAT Agrio. IIL has recently got registration for Bispyribac Sodium 10% SC and would compete with PI Industries' flagship product 'Nominee Gold' by launching its generic version. IIL is targeting Rs 1 bn revenue with higher margins from the same. The company is also strengthening its portfolio through tie ups with global players like Nissan and AMVAC. The company targets to strengthen its portfolio of inlicensed products and has a pipeline of five inlicensed products from international players (like Nissan and OAT).

Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research

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 Created facility to support future growth. IIL has a fully integrated business model with presence in manufacturing of technicals and formulations. It also generates revenue from sale of technicals and formulations to third party. The company has invested over Rs 2bn in expanding manufacturing facilities at Dahej. The company is presently operating at 36% capacity utilization and based on current capacity it can generate over Rs 18 bn of revenue (which is ~2xFY16 revenues).  Best play on normal monsoon forecast. IIL would be one of the best play if monsoon in 2016 turns out to be normal. In the last two years monsoon was weak on account of El Nino which resulted in southwest monsoon being at 12% and 14% below normal in 2014 and 2015, respectively. IMD expects rainfall in this monsoon season to be more than normal with monsoon gathering pace during the second half of the season. Both IMD and Skymet have forecast above average monsoon at 106% and 105% of the Long Period Average (LPA) respectively. Despite weak monsoon in the past two years, IIL is able to grow its revenue in its formulation business. Any improvement in the rainfall in next year would be positive for the company.

Valuation

We initiate coverage on Insecticides India with a BUY recommendation and a target price of Rs.554

We expect the company's revenue and PAT to grow at a CAGR of 18% and 44% respectively in FY16-18E led by improved demand for pesticides, new product launches, improved capacity utilization and operating leverage benefits. At CMP, the stock is trading at FY17E and FY18E PE of 15.8x and 11.5x based on EPS of Rs 28.7 and Rs 39.6 respectively. IIL is presently trading at steep discount of 40-50% to its peers in the sector. Hence, we believe that IIL is re-rating candidate and assign BUY rating on the stock with target price of Rs 554, valued at 14x FY18E EPS (35% discount to its peers).

Key Risk  Seasonality Impact: Agrochemical business is sensitive to rainfall and its spread. IIL performance suffered in FY16 due to bad monsoon. As per forecast by MET and Skymet, the rainfall in FY17 is estimated to be marginally above average. Any major deviation in the rainfall from the forecast would impact our earnings estimates.  Acceptability of new products: The company plans to add new products every year. The acceptability of these new products would be key for future growth. Any major failure in new launches would negatively impact our estimates.

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June 10, 2016

METALS & MINING

SECTOR UPDATE Jatin Damania [email protected] +91 22 6218 6440

After a sustainable rally in the metal prices, prices have corrected in the month of May across metals. We continue to remain cautious on the metal sector. After rising for two consecutive months, the steel prices in China decline sharply, due to weak demand and higher supply. Higher prices, resulted in improvement in capacity utilisation (steel capacity utilization stands at 71.5% globally, up from 70.5% in March 2016), daily production run-rate increased to 4.5MT (4.43MT in March). We believe that, given the weak demand, higher production would put steel prices under pressure in the coming months. Despite, the fall in steel prices in China, domestic steel prices were largely stable, as steel manufacturers are taking advantage of MIP and lower imports. We expect domestic prices to remain firm in the coming months, but the sustainability of the same will be the key. On the non-ferrous front, prices of all base metals, have fallen MoM. While, inventory levels showed a mixed trend as aluminium and zinc reported decline in inventory and on the other hand it rose for lead and copper. We expect Zinc prices to remain strong in the coming months due to improved fundamentals (mine closure and decline in inventory levels).

Valuation: Coverage Companies Company

JSW Steel National Aluminium Company

CMP (Rs)

Target Price (Rs)

FY17E

EPS FY18E

P/E (x) FY17E FY18E

EV/EBITDA (x) FY17E FY18E

1,416

1,370

100.3

119.3

14.1

11.8

6.7

6.0

42

44

2.8

3.1

15.0

13.5

4.6

3.9

Hindustan Zinc

177

185

17.0

18.5

10.4

9.6

6.0

5.2

Tata Sponge

607

625

47.9

57.1

12.6

10.6

4.4

3.2

Source: Kotak Securities - Private Client Research

Ferrous Metals : Global Scenario Global steel prices declined in the month of May 2016, as the rise in the month of March and April was backed by re-stocking demand in China and not by actual demand. Average steel prices in China declined by 19% MoM to US$403/ tonne, while prices were up in CIS, US and Europe in the range of 5-12%. Rising steel prices in the last two months, have raised hopes of various steel plants across the globe and especially in China increase production (daily run-rate increased to 2.31MT from 2.28MT). However, the recent fall in steel prices, led to decline in the average gross margin of Chinese players to US$40/tonne. Global steel production during April 2016, stood at 134.9MT, down marginally YoY. Daily production run-rate increased to 4.5MT (4.43MT in March 2016). The fall in China manufacturing PMI to 50.1 in the month of April 2016, indicates that, there is not much improvement on demand front. Hence, we foresee further downside in China steel prices, which would put pressure on prices in other regions. China HRC prices are currently hovering over US$400/tonne, down from US$480/ tonne in the month of April 2016 (Export prices from China also fell to US$350/ tonne), while CIS HRC price rose to US$455/tonne. Steel prices were up in the US and Europe as well, thereby widening the price gap. After a rally in iron ore prices for past two consecutive months, prices have started correcting globally. Iron ore prices have declined to US$51/tonne from its high of US$66/tonne in the month of April 2016. At the same time, inventory levels also increased to 96.8MT at the end of May 2016, from 93.58MT in April 2016. We expect, the iron ore prices to remain under pressure in the medium term, as incremental production from large miners would further add to the global surplus, while demand continues to remain weak. Secondly, capacity curtailment, if any, going ahead to support steel prices, is also negative for the raw material prices, as demand will continue to remain subdued. Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research

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Ferrous Space in Charts Global capacity utilisation above 70%

China steel export- still at higher levels

Source: Industrial data, Bloomberg

Source: Industrial data, Bloomberg

China Export prices declined (US$/t)

CIS export prices continues to rise (US$/t)

Source: Industrial data, Bloomberg

Source: Industrial data, Bloomberg

US and Europe prices were also firm (US$/t)

Turkish Scrap prices (US$/t)

Source: Industrial data, Bloomberg

Source: Industrial data, Bloomberg

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Iron ore price gave its gain (US$/t)

…Coking coal prices saw uptick(US$/t)

Source: Industrial data, Bloomberg

Source: Industrial data, Bloomberg

Domestic steel industry - imports at 14 months low As per JPC provisional data, domestic steel demand grew 3.8% YoY in the month of May 2016 to 7.56MT (up 31.6% MoM). Imports during the month declined 40.9% YoY and 16.5% MoM to 546KT (at 14 months low), which is due to an impact of MIP (minimum import price) and levied safeguard duties until 2018 to curb cheaper imports and protect the domestic steel industry. Steel imports accounted for ~7% of domestic steel demand, down from 11% in April 2016. YTD imports declined by 29% to 1.2MT. We believe, imports will decline further in the coming months, as domestic steel prices are at Rs3,000-Rs3,500/tonne discount to the landed imported cost. Domestic steel production during May 2016 declined marginally to 8.28MT. Major steel players during their last results conference, said that, they took HRC price hikes in the range of Rs5,000-6,000/ tonne. While the real demand is yet to pick up, the uptick in prices was supported by lower imports. We believe that, the increase in domestic price will sustain till the month of August 2016. Beyond this, the government actions to protect the industry would be the key thing to watch. We expect global steel prices to remain under pressure as Chinese steel production continues to remain strong. As per the media reports, restrictions on imports by various countries have prompted China to think on subsidizing exports further. If it happens, we could see fall in global steel prices in the months to come. Given the sharp fall in the iron ore prices globally coupled with subdued demand and competitive pressure from other merchant miners, in the domestic market, NMDC (not under coverage) cuts the prices of iron ore lumps and fines prices by Rs200/tonne each to Rs1,800/tonne and Rs1,460/tonne respectively. For FY17, we expect growth in steel companies to be largely led by volume due to capacity expansion and re-commissioning of blast furnaces. In addition, protection measures by the government would also help the steel producers to report better profitability and higher EBTIDA margins in the coming quarter. However, over the long run improvement in the demand and reduction in the global oversupply are the key for the prices to sustain.

Steel Sector: Domestic Market Monthly Steel Data* (‘000 T) Production Imports Exports Real Consumption

May-16

May-16

% YoY

Apr-16

% MoM

8,276

8,351

(0.9)

7,485

10.6

546

924

380

358

7,564

7,285

654 308 3.8

5,748

31.6

Source: JPC

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Year to date (‘000 T) Production Imports Exports Real Consumption

FY16

FY15

% YoY

15,974

15,604

2.4

1,200

1,698

(29.3)

689

780

(11.7)

13,321

12,749

4.5

Source: JPC

Monthly Production Trend ('000 tonnes)

Monthly Consumption Trend ('000 tonnes)

Source: JPC Data

Source: JPC Data

Increase/Decrease in Inventory ('000 tonnes)

Monthly Export-Import Trend ('000 tonnes)

Source: JPC Data

Source: JPC Data

Non-ferrous On the base metal front, prices of all base metals declined MoM. Aluminium prices fell 7.5% in the month of May to US$1,544/tonne, after rising 13% in April 2016. The decline in aluminium price is attributed to higher supply, as increase in prices in the previous month, led to restart of closed smelters globally. Copper and lead prices also declined by 6.8% and 5.8% respectively. While Zinc prices compared to other base metals, were marginally down to US$1,922/tonne compared to US$1,933/tonne at the end of April 2016. The fall in zinc prices was restricted by tight supply, backed by the closure of mines. We believe zinc prices to outperform other base metals, given its strong fundamental. While prices declined across the base metals, inventory levels showed a mixed trend in the last month. Inventory declined by 4.4% and 5.8% for aluminium and zinc to 2.5MT and 381KT respectively, while, for lead and copper, inventory rose by 6% and 1.6% respectively. US mid- west premium fell by 3.5% to US$169/ tonne, MJP declined marginally to US$87/ tonne during the month.

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We believe aluminum prices to stabilize at current level due to capacity curtailment and an increase in global cost curve, while zinc prices are expected to remain strong due to weaker supply (closure of mines).

Non - Ferrous Space in Charts Aluminium prices and inventory

MJP Aluminium premium remain firm

Source: Bloomberg

Source: Bloomberg

Zinc Prices and inventory

Lead Prices and Inventory

Source: Bloomberg

Source: Bloomberg

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COMPANY UPDATE Meeta Shetty, CFA [email protected] +91 22 6218 4425

June 10, 2016

LUPIN LTD PRICE: RS.1433 TARGET PRICE: RS.1580

RECOMMENDATION: ACCUMULATE FY18E P/E: 18.1X

We had downgraded Lupin post 4QFY16 results due to sharp cut in EPS for FY17E led by cost escalations as well as indications of slowdown in revenues from US and domestic formulations. Post our last update on Lupin the stock has fallen by ~14% and now trades at ~18x FY18E EPS. Lupin has traded at an average 12 month forward PE of ~22x over the past five years. Lupin's key concern is the compliance issue at its Goa plant. Goa plant is critical for Lupin as it accounts for ~20% of pending ANDAs as well as >60% contribution to current US revenues. We believe that significant upside on Lupin will be visible only post clarity on its Goa plant compliance issues, but post the recent correction, we also believe there is limited downside visible from current levels. Hence, we upgrade the stock from Reduce to ACCUMULATE with a target price of Rs 1580. Summary table (Rs mn)

FY16 FY17E FY18E

Sales 137,016 167,127 194,359 Growth (%) 6.3 25.9 16.3 EBITDA 37,535 50,507 57,630 EBITDA margin (%) 26.4 29.2 28.7 PBT 34,331 42,898 49,553 Net profit 22,795 30,887 35,678 EPS(Rs) 50.4 68.3 78.9 Growth (%) (6.7) 35.5 15.5 CEPS(Rs) 60.9 87.7 100.6 BVPS(Rs) 243.8 302.6 371.5 DPS (Rs) 8.0 8.0 8.5 ROE (%) 22.9 25.0 23.4 ROCE (%) 18.5 23.2 23.5 Net debt 63,314 32,534 9,801 NW Capital (Days) 147.1 102.6 93.0 P/E (x) 28.4 20.9 18.1 P/BV (x) 5.9 4.7 3.8 EV/Sales (x) 5.2 4.0 3.3 EV/EBITDA (x) 18.9 13.4 11.3

Growth levers Gavis approvals to combat US base business pricing pressure - Lupin plans to launch ~25-30 ANDAs in the US in FY17E of which ~50% will be from Gavis portfolio. In FY16, Lupin received a total 39 USFDA approvals in FY16 of which 14 were from Gavis and rest from Lupin filings. The Gavis acquisition has provided Lupin with access to a pipeline of 130 products of which 66 are pending for approval and >65 are in the pipeline that would be filed going forward. Gavis is currently marketing 20 products in the US. The ANDAs pending for approval have a potential market size of ~US$8.8bn and include 25 Para IVs and eight FTFs. Gavis has a current run rate of ~US$120130mn revenue per year, which is expected to grow up to US$200mn in FY17. The EBIDTA margins for Gavis stood at ~36% last year. With ~50% of incremental launches coming from Gavis alone, we foresee Gavis to enable Lupin to double its earnings over the next 3-4 years. Gavis to account for 20% of Lupin's US revenues (US$ mn)

Source: Company, Kotak Securities - Private Client Research

Source: Company

Interesting US launches from Lupin's filings Lupin has one of the largest ANDA pipeline with 163 ANDAs pending for approval of which 45 are First-to-Files (FTF) including 35 exclusive FTF opportunities. For FY16, Lupin received 39 ANDA approvals (Inc Gavis), but lack of big ticket approvals and steep pricing pressure for existing drugs restricted US revenue growth. 4QFY16, saw uptick in US revenues led by gGlumetza launch (FTF, launched in Feb-16). The FTF exclusivity is set to end in Aug-16, post which we Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research

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expect Sun and Actavis to enter the market. Glumetza witnessed a sharp price increase over the last one year which also led to price increase of gFortamet. The price increases were in 1000mg metformin franchise, in which, Fortamet and Glumetza were the only available SKUs. Generic Fortamet accounted for ~150mn or ~15% of US revenues in FY15 (before price increases). Post gGlumetza exclusivity ends, we expect the prices of both brands/generics to decline. Hence, the US revenue are set to witness pressure in the 2HFY17. We have charted out few interesting launches for Lupin over the next 1-2 years which will offset the revenues loss from both drugs. However, most of these launches are back ended and will only be visible in FY18E. The most interesting one is gPrezista, wherein Lupin is an FTF for higher strengths, 400mg/800mg (market size - US$400 mn). We have also built in launches of gRenvela as well as gRenagel, these launches have been delayed since 2HFY16, we have modelled 2HFY17 launch. Key launches over the next 2 years Brand

US Sales - US$ mn

Tentative launch date

Nuvigil

300

FY17

Prezista

1200

FY18

Seroquel XR

1200

FY17

Truvada

200

FY18

Renvela

400

FY18

Renagel

400

FY18

Trizivir

138

FY18

Viread

400

FY18

65

FY18

350

FY18

Welchol suspension Welchol Tabs Gleevec Prevacid ODT

2000

2018

450

2018

Source: Company

Goa plant resolution - a key trigger Lupin's Goa plant was inspected in Mar-2016 and the plant had received 9 Form 483 observations. Goa is the most important facility at Lupin catering to the US market. Some of the key products including gFortamet and gGlumetza are manufactured at this site. As per our estimates ~60% of US revenues are from Goa plant. Plus Goa alone has ~30 ANDAs pending for approval of the total 163.

USFDA approved plants Location

Details

Last inspected

Aurangabad, MH

Formulations (solid orals)

Indore

APIs, Formulations (solid orals, OC's, Opthal)

Mandideep, MP

APIs, Formulations (sterile as well as non-sterile)

Mihan, Nagpur

Formulations (solid orals)

Verna, Goa

Formulations (solid orals and Suspensions)

Tarapur, MH

APIs

Pending Form 483s?

Contribution to US revenues

Jan-16

No

10%

Feb-16

No

60%

NA

NA

NA

Source: Kotak PCG Research, FDA Zilla, Company

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June 10, 2016

Healthy growth CAGR / Attractive valuations: Upgrade to Accumulate from Reduce

We recommend ACCUMULATE on Lupion Ltd with a price target of Rs.1580

We have modelled 19% revenue CAGR and a PAT CAGR of 25% for Lupin over FY16-18E. The key drivers would be Gavis consolidation as well as few interesting launches in US. We expect the Domestic segment to grow at ~14% CAGR over the next two years. We marginally tweak our estimates, our revised EPS for FY18E stands ~1% lower now at Rs 78.9. Post the recent correction, Lupin is trading at attractive valuations of ~18x FY18E EPS and 20.4x one year fwd trailing EPS. Historically (five year average), Lupin has traded at 21.9x 12 months forward EPS. Given the steep correction in the stock we believe the concerns on Goa plant, US price erosions as well as lack of big ticket launches are overdone. Although we do not foresee significant upside in the stock until clarity on Goa plant compliance issues emerges, we believe the downside is limited. Hence, we upgrade the stock from Reduce to Accumulate with a target price of Rs 1580 (earlier Rs 1665), 20x (earlier 21x) FY18E EPS of Rs 78.9 (earlier Rs 80.0). One year forward PE band

Source: Kotak Securities - Private Client Research

Kotak Securities - Private Client Research

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11

MORNING INSIGHT

Bulk deals

June 10, 2016

Trade details of bulk deals Date

Scrip name

Name of client

Buy/ Sell

Quantity of shares

Avg. price (Rs)

09-Jun

DUNE

09-Jun

DUNE

Ashish Bhupendra Thakar

B

154,500

18.2

Noshir Rustomji Anklesaria

S

154,300

18.2

09-Jun 09-Jun

FRASER

Jinesh Ashokkumar Shah

B

42,000

37.4

GOKUL

Bhartiben Bhogilal Shethia

S

1,185,773

15.9

09-Jun

GOKUL

Jitaji Ganeshaji Rajput

B

1,000,000

15.9

09-Jun

GOKUL

Ridhikripa Trading Private Limited

B

1,000,000

15.9

09-Jun

GUJMEDI

N S Securities Satish Kumar Arya

B

66,606

1.0

09-Jun

GUJMEDI

Jadhav Manish Minal

S

37,500

1.0

09-Jun

INFODRIVE

Bridge India Fund

S

7,456,259

0.2

09-Jun

JRIIIL

Akshaya Jmb Properties Pvt Ltd

S

228,515

6.5

09-Jun

KUBERJI

Santosh Pandurang Kate

B

21,370

25.4

09-Jun

KUBERJI

Dhara Pradipbhai Shah

B

34,286

25.2

09-Jun

KUBERJI

Dharmesh Ajitbhai Desai

B

44,000

25.3

09-Jun

KUBERJI

Jitin Popatlal Parikh

S

23,000

25.6

09-Jun

KUBERJI

Jitin Popatlal Parikh

B

23,000

25.6

09-Jun

M3GLOBAL

Khushal Pravin Khimashia

B

65,000

2.8

09-Jun

M3GLOBAL

Hareshkumar Mafatbhai Bhoi

S

50,000

2.8

09-Jun

NHCFOODS

Hiren Tarachand Karani

S

114,200

19.2

09-Jun

PGFOILQ

Prem Cables Pvt Ltd

S

100,000

54.0

09-Jun

PGFOILQ

Foils India Laminates P Ltd

B

100,000

54.0

09-Jun

RELICAB

Aryaman Broking Limited

B

198,000

20.8

09-Jun

RELICAB

Devang Rajnikant Shah

S

72,000

20.8

09-Jun

RELICAB

Jinali Vaibhav Kamdar

S

24,000

20.8

09-Jun

SRGSFL

Sajankumar Rameshwarlal Bajaj

B

192,000

25.0

09-Jun

SRGSFL

Aryaman Broking Limited

S

192,000

25.0

Source: BSE

Gainers & Losers

Nifty Gainers & Losers Price (Rs)

chg (%)

Index points

Volume (mn)

ONGC

221

2.3

NA

7.0

Coal India Ltd

313

2.0

NA

2.2

NTPC

151

2.0

NA

5.9

1,186

(4.3)

NA

6.4

232

(2.6)

NA

2.0

3,087

(2.6)

NA

0.2

Gainers

Losers Infosys Ltd Ambuja Cement Hero MotoCorp Source: Bloomberg

Kotak Securities - Private Client Research

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For Private Circulation

12

MORNING INSIGHT

June 10, 2016

RATING SCALE Definitions of ratings BUY

–

We expect the stock to deliver more than 12% returns over the next 9 months

ACCUMULATE

–

We expect the stock to deliver 5% - 12% returns over the next 9 months

REDUCE

–

We expect the stock to deliver 0% - 5% returns over the next 9 months

SELL

–

We expect the stock to deliver negative returns over the next 9 months

NR

–

Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for information purposes only.

RS

–

Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there is not a sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.

NA

–

Not Available or Not Applicable. The information is not available for display or is not applicable

NM

–

Not Meaningful. The information is not meaningful and is therefore excluded.

NOTE

–

Our target prices are with a 9-month perspective. Returns stated in the rating scale are our internal benchmark.

Fundamental Research Team Dipen Shah Information Technology [email protected] +91 22 6218 5409

Arun Agarwal Auto & Auto Ancillary [email protected] +91 22 6218 6443

Amit Agarwal Logistics, Transportation [email protected] +91 22 6218 6439

Nipun Gupta Information Technology [email protected] +91 22 6218 6433

Sanjeev Zarbade Capital Goods, Engineering [email protected] +91 22 6218 6424

Ruchir Khare Capital Goods, Engineering [email protected] +91 22 6218 6431

Meeta Shetty, CFA Pharmaceuticals [email protected] +91 22 6218 6425

Jayesh Kumar Economy [email protected] +91 22 6218 5373

Teena Virmani Construction, Cement [email protected] +91 22 6218 6432

Ritwik Rai FMCG, Media [email protected] +91 22 6218 6426

Jatin Damania Metals & Mining [email protected] +91 22 6218 6440

K. Kathirvelu Production [email protected] +91 22 6218 6427

Saday Sinha Banking, NBFC, Economy [email protected] +91 22 6218 6437

Sumit Pokharna Oil and Gas [email protected] +91 22 6218 6438

Pankaj Kumar Midcap [email protected] +91 22 6218 6434

Technical Research Team Shrikant Chouhan [email protected] 91 22 6218 5408

Amol Athawale [email protected] +91 20 6620 3350

Derivatives Research Team Sahaj Agrawal [email protected] +91 79 6607 2231

Rahul Sharma [email protected] +91 22 6218 5498

Kotak Securities - Private Client Research

Malay Gandhi [email protected] +91 22 6218 6420

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Prashanth Lalu [email protected] +91 22 6218 5497

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MORNING INSIGHT

June 10, 2016

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The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. No part of this material may be duplicated in any form and/or redistributed without Kotak Securities' prior written consent. Details of Associates are available on our website ie www.kotak.com Research Analyst has served as an officer, director or employee of subject company(ies): No We or our associates may have received compensation from the subject company(ies) in the past 12 months. We or our associates may have managed or comanaged public offering of securities for the subject company(ies) in the past 12 months. 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