Alembic Pharma (Download Research Report)
CMP: INR251 TP: INR350
Improving business profile; re- rating candidate: The business mix at Alembic Pharma is likely to improve further, with higher contribution from US generics and specialty therapies in India, while low-margin APIs and acute therapies may continue to face slowdown. We expected transition to result in 280bp EBITDA margin expansion and 35% earnings CAGR over FY14E-16E. With majority of the capex behind them and high free cash generation visibility, we expect Alembic Pharma to be net-debt free by FY16E. Return ratios are expected to remain above 40%. Our EPS estimates for FY15E/16E are 10%/14% above Bloomberg consensus estimate. With improving business profile and strong earnings growth, we believe ALPM is a potential re-rating candidate. Initiate coverage with a Buy and target price of INR350 (15x FY16E EPS).
Cummins India (Download Research Report)
CMP: INR515 TP: INR560
Over the last 18 months, KKC has seeded several growth levers, including: i) LHP Products, for Exports (potential revenues of INR10b+, vs INR3.9b in FY13) and Domestic (targeting ~15-20% market share, possible revenues of INR5b+) ii) Reconditioning (Recon), as CPCB-2 implementation will improve economic viability. We model revenue CAGR of 14.6% during FY14-16 largely led by potential ramp-up in LHP products and Recon business; excluding these segments, the growth CAGR stands at just 8.7%. Maintain Buy, with price target of INR560/sh (18x FY16E).
V-Guard Industries (Download Research Report)
CMP: INR441 TP: INR550
Valuation and view: We expect VGRD to post 20.3% CAGR in revenue and 28.1% CAGR in PAT over FY14E-16E. We believe that growth has bottomed out after two quarters of lower single digit performance and is expected to accelerate, given the strong outlook of summer going forward and lower base effect. At CMP of INR442, the stock trades at 13.9x FY15E and 11.2x FY16E earnings respectively. We value VGRD at 14x FY16E EPS of INR39.3 and arrive at a target price of INR550. Maintain Buy.