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Sunday, June 7, 2009

Tata Chemicals Ltd and Lupin Ltd:-Future outlook and growth prospects

1)Scripscan:Tata Chemicals Ltd
Traded in:Nse-bse

Story:With its soda ash assets spread across geographies serving key consumption regions and an improving regulatory environment in the fertiliser industry, the market has not yet fully factored in Tata Chemicals'' earnings capability.I expect 49% EBITDA CAGR over FY08-FY10E, on the back of earnings accretion from its US soda ash facility and improving margins in the soda ash and fertiliser segments. Tata Chemicals is trading at 4.x FY10E EV/EBITDA, against its historical trading band of 6-8x forward EV/EBITDA. The company''s key catalysts include: 1) FY10 1st q results, which should provide insight into Tata Chemicals'' soda ash realisations across geographies; 2)Sustained strength in global urea and di-ammonium phosphate (DAP) prices that lead to improvement in fertiliser margins; and 3) Potential greenfield expansion plans in the urea segment.Market analyst values Tata Chemicals'' core business using EV/EBITDA methodology and the investments in its group companies at 25% holding company discount to market value.A big brokerage house values the fertiliser/soda ash/other chemical segments at 6x/5.5x/6x FY10E EV/EBITDA, respectively. The 12-month target price of Rs 435 implies FY10E EV/EBITDA of 6x.

1)Scripscan:Lupin Ltd
Traded in:Nse-bse

Story:LUPIN''S deal to market Forest Labs'' AeroChamber Plus line of products to US paediatricians will allow it to leverage its branded field force and strengthen its franchise in the paediatrics segment. While the upside may not be on the same scale as Suprax, this will be accretive, given the lack of incremental spend on development or at the front end. Lupin has entered into a multi-year agreement with Forest to promote the latter''s value holding chamber (VHC) product AeroChamber Plus to paediatricians. AeroChamber Plus is the most prescribed holding chamber for use with inhaled asthma medications in the US. As per IMS ''07 data, two-thirds of all prescriptions for the product are written by paediatricians. Lupin''s 50-strong sales force in the US currently promotes only Suprax and has room to add two more products, thus implying no incremental spend for this deal. Lupin will make an undisclosed marketing margin up to a certain threshold level of sales, beyond which, the upside will increase.A big brokeage house expects margins to be in the range of 10-15% - while this is lower than Lupin''s core business margins, the lack of incremental regulatory, development or front-end spend makes this an accretive deal. Market analyst believes this deal - besides being a small step towards offsetting the impact of a potential generic threat to Suprax - highlights the scope for multiple growth drivers within Lupin''s business model.A great buy at dips for a target of 1000rs.

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