ShareKhan Newsletter Blog

Back on our buying list

Result highlights

• The net interest income of Tourism Finance Corporation of India (TFCI) declined by 27.0% year on year (yoy) to Rs11.2 crore in Q4FY2008. This was mainly due to a 15.6% drop in the interest income and an 11.0% increase in the interest expenses of the company. 
• Notably, the operating expenses of TFCI declined sharply by 30.3% yoy during the quarter. The decline was primarily due to a higher base in the year-ago quarter on account of an extraordinary payment of Rs1.0 crore made towards the arrears of employee expenses. 
• In addition to the decline in the operating expenses, there was a write-back of provisions (for bad and doubtful debt) of Rs10.0 crore, as the same was no longer required. The significant write-back was the primary reason why the bottom line improved. 
• Lower operating expenses and write-back of provisions boosted the operating profit for the quarter. The operating profit increased by 45.4% to Rs19.9 crore. Hence, the net profit for Q4FY2008 also increased by a strong 60.2% to Rs15.3 crore. 
• At the end of the fiscal, the sanctions made by the company stood at Rs333.8 crore, up 36.0%. The disbursals also registered an increase of 50.0% to Rs180.36 crore. However, the high growth in the disbursals could not translate into growth of the loan book due to higher repayment of loans. 
• The loans increased by 6.0% to Rs372.7 crore, breaking the previous five years' trend of declining growth. 
• The gross non-performing assets (NPAs) stood at Rs61.0 crore on an asset base of over Rs500 crore (advances and investments combined). However, the company has maintained the net NPA level at 0% by fully providing for the gross NPAs. 
• During the quarter, TFCI raised Rs63.8 crore through the preferential allotment of 1.32 crore equity shares of Rs10 each for cash at a price of Rs48 per share (including a Rs38.0 premium). The capital raising was aimed at enabling the company to finance its future growth.
• At the current market price of Rs19.5, the stock trades at 8.2x its FY2009E adjusted earnings per share (EPS) of Rs2.4 and 0.6x its FY2009E book value of Rs34.9. At the existing valuations, the stock still has substantial upside potential and hence we are upgrading it to a Buy with a revised price target of Rs30. 

Acquisition spree continues

Key points

• 3i Infotech has announced three acquisitions since April 2008, namely Regulus Group LLC (Regulus), M/S Locuz Enterprise Solution (Locuz) and M/S FinEng Solutions Pvt Ltd (FSL). 
• Post these acquisitions, we expect 3i Infotech's top line to grow significantly in FY2009. However, the operating profit margin (OPM) and the net profit margin are expected to decline primarily due to revenue contribution from Regulus, which had a lower OPM of 13% in CY2007 and due to higher interest expenses associated with Regulus debt financing.
• We have revised upwards our FY2009 earnings estimate by 7.2% and FY2010 earnings estimate by 12.7%. At the current market price, the stock is trading at an attractive valuation of 8.2x FY2009 earnings estimate and 6.7x FY2010 earnings estimate. We maintain our Buy recommendation on the stock with price target of Rs180 (10x FY2010 earnings estimate).

Ranbaxy settles with Pfizer on Lipitor

Key points

• Ranbaxy Laboratories (Ranbaxy) has reached an out-of-court settlement with Pfizer, Inc (Pfizer) on Lipitor. Lipitor is the world's best selling drug, with global sales of $12.7 billion annually. Ranbaxy and Pfizer have been fighting on Lipitor since six years in 12-15 markets across the world.
• As per the agreement, Ranbaxy can launch generic Lipitor and generic Caduet in the USA with a 180-day marketing exclusivity in November 2011 and on varying dates prior to the patent expiry in seven other markets including Canada, Australia, Belgium, Germany, Sweden, Italy and the Netherlands. 
• All the pending lawsuits between Ranbaxy and Pfizer relating to Lipitor in these selected markets have been dismissed. In addition, the pending patent litigation between Ranbaxy and Pfizer on Caduet will be dismissed in the USA. 
• The agreement provides visibility and clarity to Ranbaxy's impeding launch of generic Lipitor in the USA and provides it with an early entry in other world markets. The termination of all pending litigation related to Lipitor would also benefit Ranbaxy in terms of reduced litigation costs. 
• We believe Ranbaxy will be able to garner collective revenues and profits of ~$1.5 billion and $880 million respectively from the launch of Lipitor in various markets at pre-determined dates and from the launch of Caduet in the USA. This would translate into an incremental upside of Rs25-30 per share from Ranbaxy (after excluding the earlier NPV of Rs35 per share for Lipitor, which has already been discounted in the stock price).