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Monday, March 3, 2014

Your questions on Aurobindo Pharma, Larsen & Toubro and Apollo Tyres!

Question: Can you please provide your view on these stocks – Aurobindo Pharma, Larsen & Toubro and Apollo Tyres.


Aurobindo Pharma
Aurobindo Pharma is market leader in Semi-Synthetic Penicillin and has a strong presence in key segments such as neurosciences, cardiovascular, anti-retroviral, anti-diabetics, among others. The firm has a proven model of manufacturing specialty generic formulations which is both high margin and predictable business. The firm is among top 10 Pharma companies in India in terms of revenues and exports to over 125 countries across the globe with more than 70% of its revenues from international sales.

Looking at current financials, quarterly sales of Rs 1897 crores is an impressive jump over previous quarter revenues of Rs 1598 crores. EPS has also jumped from Rs 6.17 in previous quarter to Rs 14.36 in Dec, 13 quarter. In past 4 years, firm has been growing with impressive 40% topline growth on Y-o-Y basis. 
Firm has paid 275% divided in the current year 2013, and promoter shareholding is stable at 54.73%. 

However, is the firm overvalued at current valuations? The key ratio of Book Value is at Rs 100, and at current market price of Rs 483, firm is trading at almost 5X the Book Value. P/E ratio is pretty stretched at 28.72 and firm certainly doesn’t looks like a value-pick at these levels.

Technically speaking, after its recent highs of Rs 539, scrip is in a temporary downtrend and is expected to see support at Rs 442 or so. The next support will be at Rs 373, which is very steep and price may not reach this level at all. 

So, Aurobindo is a buy on dips for careful investors considering the steep rise in valuations in recent six months.

Larsen & Toubro

L&T is a $14 Billion engineering giant operating in myriad segments such as construction, turnkey projects, power, IT, shipbuilding and Infra segments, each of which is large enough to spin into an independent entity.

Fundamentally speaking, L&T is one of the few Infra companies left standing in current downtrend in this space in India. Quarterly Topline for Dec, 13 quarter was flat at Rs. 14,387 crores and is comparable to Rs 14,509 crores for the previous quarter. EPS was better for the quarter at Rs 13.4 compared to Rs 10.56 for the previous quarter.

Annual revenues and EPS have seen a steady increase and improvements over the past many years, which is a testament to a professional run large organization. Firm is a regular dividend paying company and dividend for year 2013 was at 617%.

At current Book value of Rs 473, firm is trading at a modest Rs 1081, which is just about 2.3 times its Book Value and hence a decent parameter.

On charts, the firm has support at Rs 956 and at Rs Rs 910. These two levels would provide good support to price, if the price dips from current levels. The resistance levels are at Rs 1100 and at Rs 1155, which would provide a stiff short term resistance to the price levels. Breaking these levels, Rs 1250 is a possibility for the firm.

Apollo Tyres 

Apollo tyres was in news recently with their $2.3 Billion merger deal fallout with Cooper tyres. The stock price surged after the deal was called off as investors were expecting the merger to bring new set of issues along with a large size, large debt and excessive risk.

Apollo tyres is a global firm with presence in Asia, Europe, Africa and exports to over 120 countries globally. Dec, 13 quarterly revenues for the firm were Rs 2,227 crores and showed minor improvements over the previous quarter numbers of Rs 2106 crores. EPS was flattish with Rs 2.19 for the current quarter with Rs 2.16 for the previous quarter.

Promoter Shareholding for the firm has gone up slightly from 42.98% to 43.11% which is a plus, as most firms are losing promoter shareholding in these turbulent times. Dividend payout was steady at 50% of the face value.

Book Value for the firm is at Rs 46.24 and hence at the Current Price of Rs 125.70, the Price to BV ratio is at 2.8, which is only slightly expensive.

Technically speaking, the price is breaking new grounds as we speak, and charts are at all-time highs of Rs 125.70. Any scrip breaking new highs remains in the momentum for some time to come. The support levels are at Rs 110 and at Rs 101 respectively. Rs 101 forms a strong base, so any buy close to this level should be good for investors.

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