High Conviction Stock Ideas

Scrip CMP Target Potential Recommendation

Upside
(%)
Sun Pharmaceuticals Ltd 740 815 10 Buy

IPCA Laboratories Ltd 521 600 15 Buy

Kotak Mahindra Bank Ltd 659 715 8 Buy

Talwalkars Better Value 204 223 9 Buy

Fitness Ltd

2
Sun Pharmaceuticals Ltd
• Sun Pharma is the sixth largest pharmaceutical company in India. It has a presence in the key chronic

CMP 740 segments of psychiatry, neurology, cardiology, gastroenterology, orthopedics and ophthalmology
(constituting ~70% of its revenues).
Target 815
• It also has a strong presence in the US generic markets. The US markets have grown at a rapid CAGR of
44% over the last 5 years. Currently Sun has a strong pipeline of 395 ANDA’s products filed for USFDA
approval out of which 259 are approved and the balance 136 are pending USFDA approval.
Stock Data

52 week high/low (Rs) : 773 / 496

• The acquisitions of Taro and DUSA has also given Sun an entry into the low penetrated and high margin
dermatology segments.
Face value/share (Rs.) : 1/-

Outstanding share (Cr.) : 103.6

• Sun Pharma enjoys high EBIDTA and PAT margins of 34% and 30%, respectively for the past 2 years. It also
Market cap (Rs) : 76753
enjoys a decent ROE of above 20%.
Av. Daily volume (in 000's): 877277

Valuation Table

Particulars Mar '12 Mar '13E Mar '14E

EPS (Rs.) 25.0 29.6 31.0
EPS Gr (%) 18.4% 4.7%
P/E (x) 29.5 24.9 23.8
Pr/BV (x) 6.2 5.2 4.3
RoE (%) 23.7% 22.6% 19.9%
CMP as on 28th Nov, 2012
IPCA Laboratories Ltd
• IPCA is a fully integrated company producing branded and generic formulations, API’s and

CMP 521 intermediates.

600
• IPCA has a strong presence in the domestic markets with more than 150 formulations across therapies
Target
and is a market leader in the antimalarial and rheumatoid arthritis segments.
• IPCA plans to increase its penetration into the regulated markets post the USFDA inspection following a
voluntary disclosure of data irregularity in a filing from its Indore SEZ facility. It targets to commercialize

Stock Data
the plant in Q1FY14 post resolution in February 2013.

52 week high/low (Rs) : 537 / 273

• IPCA currently has 75 products identified for the US market backed by its own API’s. It has filed for 25

Face value/share (Rs.) : 2/-

ANDA’s out of which 12 are approved (8 are from Indore SEZ facility).

Outstanding share (Cr.) : 12.62 • IPCA is also an established player in the API business and is a low cost producer of select API’s.
Market cap (Rs) : 6587 • We value IPCA Laboratories at Rs.600 which discounts its FY14E EPS by 16x.
Av. Daily volume (in 000's): 271843

Valuation Table

Particulars Mar '12 Mar '13E Mar '14E

EPS (Rs.) 22.0 28.8 35.0
EPS Gr (%) 30.8% 21.6%
P/E (x) 23.7 18.1 14.9
Pr/BV (x) 5.2 4.2 3.4
RoE (%) 24.0% 25.8% 25.3%
CMP as on 28th Nov, 2012
Kotak Mahindra Bank Ltd
• Kotak Mahindra Bank (KMB) has come a long way from being a non-banking finance company in 2003

CMP 659 (Kotak Mahindra Finance) to several areas such as corporate and retail lending, investment banking,
stock broking and car financing business.
Target 715
• KMB currently has a balance sheet size of Rs.728 bn growing at an average CAGR of 36% since 2006.
• KMB has a significant presence in the vehicle finance segment through Kotak Mahindra Prime with a
market share of 10% (4th largest player).

Stock Data • KMB is also a leading player in the capital markets business with leadership position in both equity

52 week high/low (Rs) : 677 / 426

offerings and M&A transactions through Kotak Mahindra Capital Markets.

Face value/share (Rs.) : 5/- • KMB is also a leading player in the asset management business with an AUM of Rs.558 bn and a market
Outstanding share (Cr.) : 74.4 share of ~4%.
Market cap (Rs) : 49042 • KMB has a robust asset quality – its Gross and Net NPA’s as on Q2FY13 stand at 1.3% and 0.7%,
Av. Daily volume (in 000's): 722172 respectively.

Valuation Table

Particulars Mar '12 Mar '13E Mar '14E

EPS (Rs.) 24.8 27.9 35.1

EPS Gr (%) 12.5% 25.9%
P/E (x) 26.3 23.4 18.6
Pr/BV (x) 3.7 3.2 2.8
RoE (%) 15.4 14.9 16.1
CMP as on 28th Nov, 2012
Talwalkars Better Value Fitness Ltd
• Talwalkar Better Value Fitness Ltd (TBVFL) is one of the India’s largest fitness chains It has over 130 health

CMP 204 club and gyms across 69 cities in the country, with over 130,000 members and still counting. Overall
health clubs have increased to 130 in FY12 from just 30 gyms in FY07.
Target 223
• With focus on having a pan India presence; TBVFL has introduced no frills Hi Fi Gyms which results in
accelerated expansion at zero capex targeting the Tier II and III cities. In case of the Hi Fi format, TBVFL’s
royalty component is similar to the subsidiary model and receives additional upfront income of Rs. 1 mn
resulting in higher revenue at zero capex and enables faster roll out of health clubs.
Stock Data

52 week high/low (Rs) : 223 / 119

• TBVFL’s strategic move of offering unconventional services (such as ZUMBA, NuFORM, etc)will act as a
differentiating factor and aid in retaining members and attracting new members. Moreover, these
Face value/share (Rs.) : 10/-
premium services will enhance average realization per member and be margin accretive.
Outstanding share (Cr.) : 2.62

Market cap (Rs) : 526 • Ramp-up of existing gyms coupled with roll out of approx. 58 new gyms over the next 2 years (including

Av. Daily volume (in 000's): 191429 Hi-Fi) will drive the growth for the company.
• With Talwalkar’s presence in highly underpenetrated market coupled with aggressive pan India growth
strategy, it is well positioned for an accelerated growth over the next couple of years.

Valuation Table

Particulars Mar '12 Mar '13E Mar '14E

EPS (Rs.) 8.7 10.0 14.8
EPS Gr (%) 14.5% 48.3%
P/E (x) - 16.9 11.5
RoE (%) 15.2 14.3 16.4

CMP as on 28th Nov, 2012

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