Investor's Eye: Update - Torrent Pharmaceuticals, Maruti Suzuki India

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Summary of Contents STOCK UPDATE Torrent Pharmaceuticals Recommendation: Buy Price target: Rs649 Current market price: Rs542 Strong prospects from Para-IV filings, price target revised up by 7% to Rs649 Key points Torrent Pharma is among six pharmaceutical players who have been sued by Pfizer for seeking generic approval for erectile-dysfunction drug, Viagra (market size $1.88 billion), from the USFDA. We expect Torrent Pharma to gain significant upside from this product, even without winning market exclusivity (we see only a remote possibility of the company winning market exclusivity for Viagra).  Litigations related to ANDA filings under Para-IV of the Hatch-Waxman Act give visibility to the product pipeline of the generic players. We observe that the aggregate market size of products that are currently being litigated by Torrent Pharma among others stands over $15 billion. This indicates a significant upside for the company in the medium to long term.  Though, the upside from the products under litigation is contingent on the court's ruling, but the litigation profile gives better visibility of the US product pipeline of the company. We assign a higher valuation (14x FY2016E EPS vs 13x earlier) to set a price target of Rs649. We maintain our Buy rating on the stock.  Maruti Suzuki India Recommendation: Buy Price target: Rs2,130 Current market price: Rs1,869 Key concerns addressed; valuation multiple to revert to long-term average Key points Maruti Suzuki's board has announced some measures to address the concerns of its investors over the proposed plant in Gujarat to be set up under Suzuki India owned by its parent, Suzuki Motor Corp. The board has decided to go ahead with the proposal though. The three key measures are: (1) it would seek the nod of the minority shareholders though the same would not be binding on the company; (2) no mark-up would be charged over the variable cost (plus depreciation) for the transfer of vehicles manufactured in Gujarat to Maruti Suzuki (earlier the management had indicated some mark-up over the cost); and (3) transfer of the Gujarat plant to Maruti Suzuki (if proposed in future) would be done at book value. Addressing some of the key concerns of the investors would ease the selling pressure (resulting from the de-rating of the company's multiples) and the stock should gradually get re-rated to its average multiple of 15x one-year forward earnings. Thus, we upgrade to Buy rating with price target of Rs2,130 (15x FY2016E earnings). Click here to read report: Investor's Eye     Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Regards,  The Sharekhan Research Team

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