themes for 2014
Investors who choose to look at mid-caps in 2014 should adopt a selective approach based on the following three key themes:
(i) Relative insulation from leverage-related stress. Given our expectation that policy rates will remain high in 2014 on the back of sticky inflation, we would be cautious on most names with high leverage. Our equity analysts highlight two pharmaceutical companies, Ipca Laboratories Ltd and
* Ipca Lab (CMP: R701, OW and TP: R805): US growth has become a reality. Post the USFDA’s approval of SEZ Indore facility, Ipca expects US sales to ramp up significantly with the first few launches due in Q4FY14, along with two new approvals and site transfers for one-two old products. Ipca’s export formulations have bounced back strongly post the recent slowdown in a few markets due to the implementation of a new tracking system. Our analysts expect export formulations to outgrow domestic formulations sales with a CAGR of c24% (against 14% for India) over the FY12-15e.
* Torrent Pharma (CMP: R469, OW and TP: R537): Despite the overall market slowdown due to new pricing policy and trade disruptions, Torrent’s India formulations sales remain strong on the back of a healthy product mix with c65% its product portfolio for chronic therapies like cardiac, CNS and diabetes, (Q2FY14 sales growth of 14% versus market growth of 3%). The US contributes c12% of total company sales, and is one of the fastest growing markets for Torrent. Despite being a late entrant in the US market in FY06, Torrent had a healthy product launch rate of five-six products per year and has a decent pipeline with 24 pending ANDAs. Our analysts expect the US to remain a strong source of growth for the company, led by new launches and increasing market share in existing products.
(ii) Uptick in utilisation: Our economists expect the Indian economy to bottom in FY14 and slowly resume a growth trajectory. While execution related risks in corporate India remain elevated, a number of companies have completed their capital spending programmes over recent years and are poised to see