Due to lower Kesh King sales this year, a delayed winter season and a slower-than-expected pick-up in consumption, we cut our FY16/FY17F/FY18F revenue estimates by 3.9%/4.3%/4.4%. We accordingly lower our EBITDA margin forecasts by 60bps for FY16F to 25.8%, but largely stick with our estimates of 26.3% and 26.6% for FY17F and FY18F, respectively, as sales of Kesh King pick up. We cut our target price to Rs 1,050 and maintain our ‘neutral’ stance as we believe near-term earnings are still at risk despite the strength of core business.

Distribution hiccups in the Kesh King business after the acquisition have caused lower sales for this product in FY16, but the issues should be resolved by 4QFY16. All consumer companies continue to be faced with no recovery in urban consumption and a slowdown in the rural segment. While Emami is faced with this problem, it also has to cater to the seasonality of its product range, especially since winter this year is delayed.

Though valuations have come down from their peak earlier this year after the recent stock correction, we believe near-term earnings are at risk and retain our Neutral call. We arrive at our target price  of Rs 1,050 using a SOTP valuation, valuing the core business (ex-Kesh King) using a 32x target P/E multiple and valuing the Kesh King
business using discounted cash flow.

Manali Petrochemicals operates two production facilities at Manali near Chennai to manufacture Propylene Oxide (PO), Propylene Glycols (PG) and Polyols. (PTI)

Manali Petrochemicals share price fell as much as 7 per cent after the company informed BSE that production at both the plants of the company remains affected due to Chennai floods – this interruption in production started December 02, 2015 and is still continuing.

Manali Petrochemicals says due to power disruptions and disturbances in operations there will be a significant negative impact for the quarter and the year.

Manali Petrochemicals share price closed 4.95 per cent down at Rs 31.65. The scrip opened at Rs 33.90 and had touched a high of Rs 34.25 and low of 30.95, respectively, in trade.

In a BSE filing, the company said, “The plant operations are expected to recommence shortly in a phased manner subject to resumption of normalcy in power supply, material movements, etc. Consequently the overall operations for the quarter and the year will be impacted significantly.”

Manali Petrochemicals operates two production facilities at Manali near Chennai to manufacture Propylene Oxide (PO), Propylene Glycols (PG) and Polyols.

The promoters’ holding in the company stood at 44.82 per cent while institutions and non-institutions held 2.09 per cent and 53.09 per cent, respectively.

Godrej Properties share price gained as much as 5.23 per cent in morning trade on Monday after the real estate arm of Godrej Group announced that it has sold 300 apartments within one week (Photo: Reuters)

Godrej Properties share price gained as much as 5.23 per cent in morning trade on Monday after the real estate arm of Godrej Group announced that it has sold 300 apartments within one week at its flagship project in Vikhroli, Mumbai called ‘The Trees’. This represents more than 80 per cent of the 374 apartments it opened for sale in the first phase of this project. The value of apartments sold is in excess of 700 crore making this Godrej Properties’ project the most successful ever launch in terms of value of real estate sold.

At 10.57 am, Godrej Properties share price was up 2.56 per cent at Rs 343.05. The scrip opened at Rs 335.10 and had touched a high and low of Rs 352 and Rs 335 respectively, in trade so far. Sensex was down 31.05 points, or 0.12 per cent, at 25,607.06. For live stock market updates click here.

‘The Trees’ mixed-use development contains a commercial precinct spread across 9.4 acres, which houses Godrej One, the Godrej Group’s global headquarters. The central mixed use precinct, spread over 9.2 acres, will comprise of a 5 star luxury hotel, cultural buildings, luxury residential, and a high street retail park. The more private luxury residential precinct spread across 6.7 acres, which was recently opened for sale, will house a community of residential buildings with private parks and an iconic clubhouse facility. Adaptive reuse of heritage industrial structures within the development creates a unique and distinctive design and cultural experience.

The promoters holding in the company stood at 74.86 per cent while institutions and non-institutions held 10.01 per cent and 15.13 per cent, respectively.

For the quarter ended September 2015, Godrej Propeties posted consolidated net profit of Rs 106.16 crore, up 127.80 per cent, against Rs 46.60 crore in the corresponding quarter a year ago.

Dalal Street is set to witness two initial public offers (IPOs) this week from pharma and healthcare related companies – Alkem Laboratories and Dr Lal Pathlabs — on December 8. (Graphic: Sanjay Tambe)

Dalal Street is set to witness two initial public offers (IPOs) this week from pharma and healthcare related companies – Alkem Laboratories and Dr Lal Pathlabs — on December 8. Dr Lal Pathlabs is a provider of diagnostic and related healthcare tests and services in India, while Alkem Laboratories is a domestic pharmaceutical company with global operations, engaged in the development, manufacture and sale of pharmaceutical and neutraceutical products. Both initial public offers (IPO) will close on December 10.

Below are five key points you should know about these companies before investing in their IPOs.

1. About the Public Offer

Alkem Laboratories: The company will raise Rs 1,315-1,355 crore from its upcoming IPO from equity markets. The public offer has a price band of Rs 1,020-1,050 per equity share.

Dr Lal Pathlabs: IPO of Dr Lal Pathlabs will raise Rs 626- 638 crore from equity markets at a price band of Rs 540-550 per equity share.

2. Positives

Alkem Laboratories: For the financial year ended March 2015, Alkem was the fifth largest pharmaceutical company in India by domestic sales, and unlike many domestic pharma companies that bank on sales in the USA, it derives the bulk of its revenues from the domestic market (around 75 per cent). The company also has a strong marketing and distribution network in India comprising of a field force of 5,856 medical representatives. Alkem Laboratories also has employed 483 scientists working on various drug products and substances in India and the USA. The research and development department carries out process development, formulation development and analytical research for domestic and international markets.

Dr Lal Pathlabs: Dr Lal PathLabs (DLP) is the second largest diagnostic chain in India with 172 clinical laboratories, 1,554 patient service centers and over 7,059 pickup points as of September 30, 2015. Though the company has pan India presence, more than 72 per cent of its revenue comes from North India region.

DLP operates through “hub & spoke” model whereby specimens are collected across multiple locations within region for delivery to a predesigned clinical laboratory for centralised diagnostic testing, providing greater economies of scale and offers scalable platform for continued growth of business. The centralised IT platform fully integrates the large network through common logistics and payment system and tracks operations and internal performance metrics, thereby enabling to improve the efficiencies of business.

According to Sharekhan, DLP management’s focus in future is to expand presence in existing markets (north and east India). The expansion of network can be organic as well as through strategic acquisitions and partnership especially in newer geographies (south and west India). The company also intends to focus on hospital-based clinical labs by increasing tie-ups and providing lab management and specialised lab testing services.

3) Risks

Alkem Laboratories: Alkem competes with different companies depending on the market and type of products. Its main competitors in India include leading domestic players, such as Torrent Pharmaceuticals, Ipca Laboratories and Alembic, and leading global players that have penetrated the domestic market, such as GSK Pharma, Pfizer and Abbott, who offer branded generics. In the US generics market, the principle competitors are Teva Pharmaceutical Industries, Mylan, Actavis PLC, Apotex, Amneal, Sun Pharmaceutical Industries, Dr Reddy’s Laboratories, Lupin, Zydus Cadila Healthcare and Camber Pharmaceuticals Inc.

Sharekhan in a research note said, “Any adverse outcome of inspection of the USFDA approved sites could affect the financials of the company and hamper future growth and profitability of the business.”

Dr Lal Pathlabs: India’s diagnostics industry is highly competitive with standalone centers having close to a 48 per cent market share, compared to around 37 per cent for hospital-based diagnostic centers. This increases competition for organised diagnostic chains in terms of volumes of patients’ samples and aggressive pricing of diagnostic tests.

According to Motilal Oswal, diagnostics centres have to constantly upgrade their technology to stay ahead of competition. However, these upgrades not only involve significant capital investments but also increase maintenance costs. This significantly increases cost overheads for service providers.

4. Financials

Alkem Laboratories: Revenues of the Alkem have grown at a CAGR of 22.3 per cent in FY11-15 to Rs 3788.7 crore mainly due to robust growth in the international market and above industry growth in the domestic market. EBITDA margins contracted 400 basis points from to 12.9 per cent in FY11-15 due to investments in the international business and chronic segments in the domestic market. However, in H1FY16, the EBITDA margin increased to 17.9 per cent due to strong gross margins and higher operating leverage. The net debt/equity has reduced to 0.1x in FY15 from 0.3x in FY12. Also, in the past two years, it has generated cumulative free cash flow of Rs 488 crore post incurring capex on capacity expansions, technological upgradation and maintenance.

Dr Lal Pathlabs: Revenues grew at a CAGR of 29.1 per cent in FY11-15 to Rs 659.6 crore mainly due to an increase in sample collection. The strong growth in sample collection was mainly due to network expansion and increase in the portfolio of diagnostic and related healthcare tests and services.

Net profit grew at 33.9 per cent CAGR to Rs 95 crore during the same period. Due to its assets light model, the balance sheet is leverage free. Similarly, due to a low cash conversion cycle and a strong operational performance, the company has cumulatively generated Rs 246 crore of free cash flow by FY15.

5. Should you Invest

Alkem Laboratories: Alkem has set forth an ambitious target of doubling its US contribution in the next five years. Today, US contributes a quarter of the overall revenue.

With its impending product pipeline and focused efforts in R&D, Reliance Securities in a research report said, “We believe the company is following the footsteps of Alembic and Torrent pharma. Besides, its India business is a steady cash cow at 17-18 per cent growth adding financial muscle to the company. Alkem is definitely entering late into chronic and lifestyle therapies but its experience of brand-building and a large prescriber base should come in handy. At a price band of Rs 1,020-1,050, Alkem is valued at 15.7/16.2x FY18E EPS, (as per our back of the envelope calculations) which we feel is fairly valued given its operational scale. We recommend ‘Subscribe’ to the issue.”

According to ICICIdirect.com, at the IPO price band of Rs 1,020-1,050, the stock is available at 26-27x on FY15 EPS of 38.7. Investors can ‘Subscribe’ to the issue.

Dr Lal Pathlabs: Dr Lal Pathlabs will be the only pure play listed diagnostic business in India. According to market experts, the company has a strong brand franchise, robust growth, net cash balance sheet and cash flow generation.

ICICIdirect.com in a research report said, “At the IPO price band of Rs 540-550, the stock is available at 46-47x on FY15 EPS of Rs 11.7. We recommend that investors should ‘Subscribe’ to the issue.”