| Summary of Contents STOCK UPDATE Sun Pharmaceutical Industries
Recommendation: Buy
Price target: Rs680
Current market price: Rs596 Impact of drug recall immaterial; stock correction provides opportunity Key points -
Sun Pharmaceutical Industries (Sun Pharma) has recalled 2,528 bottles of its generic version of the diabetes drug, Glumetza, from the US market owing to a customer complaint that one of the bottles contained tablets of the epilepsy drug, Gabapentin. While the recall is not serious in nature and will not have a significant financial impact (an estimated revenue loss of $0.75 million), we consider the recent correction in the stock (it has fallen 9% in the past few weeks) as temporary. -
Sun Pharma is showing a better traction in the US market on the back of market share gains in its generic Cymbalta and older products like the generics Comtan and Stalevo (month-on-month basis). Although, Taro Pharma and the generic business of URL Pharma are witnessing a moderation in growth, the overall performance of Sun Pharma is set to remain strong in the US market. -
A strong product pipeline in the US market, leadership in the key Indian therapeutic market and cash rich position (hence inorganic growth opportunities) are some of the drivers of the company's long-term growth. We maintain our Buy rating on the stock with a price target of Rs680 (which implies 23x FY2016E EPS).
SECTOR UPDATE Cement Demand better in north; still struggling in south Key points -
Our channel check with cement dealers across the country suggests an average rise of 2% month on month (MoM) in cement prices. The prices rose in the northern, western and central regions by 6-8% each in March 2014 as compared with the previous month. However, cement prices slipped by 4-5% in the eastern and southern parts of the country in the same period. -
Given the low capacity utilisation and the pipeline of incremental capacities in the south, we maintain our cautious view on the south-based cement companies (The Ramco Cements, erstwhile Madras Cements, is relatively better placed in the south). -
To play the buoyancy in cement prices in the northern, western and central regions, we prefer UltraTech Cement (with a revised price target of Rs2,227) and Shree Cement (with a revised price target Rs5,384). However, we maintain our Hold rating on cement stocks (as the recent rally in these stocks more than factors in the cyclical uptick in cement prices). Overall, the financial performance of cement stocks during FY2013-15 would remain sluggish due to weak demand and cost inflation-led margin pressure.
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