Techno Funda Report – January 2024
The research department,
Mumbai, January 6, 2024:
ANUPAM RASAYAN INDIA LTD. | Specialty Chemicals |Buy
Technical View
• Following a 45% move after a bullish breakout from the double bottom pattern, the stock underwent a profit taking stint to retest the former breakout level.
• The price action has pared 30% loss and trades marginally above the polarity level near 1091 now acting as immediate support.
• The stock shows improving price strength, relatively stronger EPS strength and higher buyers’ demand.
• The RSI across daily and higher timeframe are trading well above their respective medians which indicates thrust in the price momentum.
We recommend to BUY ANURAS between CMP-1080 for the target of 1194 with a stop loss of 1034 in the short term.
Investment Rationale
Strong order book led by multiple Letters of Intent
Anupam recently signed five LOIs worth Rs. 5,500 crores with a Japanese player to supply a newage patented life-science active ingredient and new-age polymer intermediate. With this, the total LOIs and contracts signed are worth Rs. 8,000 crores, which provides strong revenue visibility for the coming years. These LOIs are expected to contribute around Rs1,000 crores in revenue over the next three to four years. The company’s order book remains strong, and the company is positive about maintaining its guidance of 20% growth with similar margins. Moreover, Anupam is in advanced discussions with customers across geographies for various niche and high-value molecules.
Tanfac acquisition to aid backward integration and expand product portfolio
Anupam acquired a 26% stake in Tanfac and became the joint promoter of the company. Over the years, the company has gained the requisite skill set, technical expertise, and know-how for handling KF as a fluorinating agent and this acquisition will help Anupam to further scale up its fluorine-based products. The company plans a phased capex in Tanfac to increase the hydrochloric acid and potassium fluoride capacities and build infrastructure for manufacturing advanced intermediates with applications in polymers and semiconductors. Anupam has further identified 14 niche molecules in the fluorination space developed in its R&D and is at the pilot stage for 4- 5 years. The company is the sole supplier for most of these products in Asia, which will expand its growth visibility.
DIVI’S LABORATORIES LTD. | Pharmaceuticals |Buy
Technical View
• The pattern analysis on the weekly chart shows that the price action has been trading in an inverted head and shoulder pattern which proposes potential signs of reversal.
• The pattern neckline has also guised as polarity level which validates the support following the breakout confirmation.
• The 50 period volatility trades at lower level indicating lesser probability of an unruly move.
• The RSI across daily and higher timeframes are trading well above their respective medians indicating thrust in the price momentum.
We recommend to BUY DIVISLAB at CMP-4030 for the target of 4443 with a stop loss of 3829 in the short term.
Investment Rationale
Focus on new opportunities in custom synthesis and generic products
Divis Laboratories, a prominent pharmaceutical sector player, is continuously exploring new opportunities in various segments including custom synthesis and generic products. Diversifying into specialty chemicals and custom synthesis of complex molecules can open up new market opportunities and revenue streams for Divis. Further, continuously expanding the portfolio of generic products by entering new therapeutic segments or introducing generic versions of high-demand branded drugs can drive growth. Divis is experiencing pricing pressure and inventory destocking in the generics segment but expects the situation to improve. The company management has still guided for double-digit revenue growth on the back of multiple projects across contrast media and generic APIs, with scheduled patent expiry over the next few years.
GLP-1 represents a significant growth opportunity
Divis Laboratories believes that it has an excellent opportunity in peptides, particularly in Glucagonlike peptide-1 (GLP-1) products. The company has made a lot of progress in the peptides space and is confident of becoming one of the major suppliers very soon. Outside China, only some companies can supply these building blocks, with a lot of chemistry involved. Therefore, it is an ample opportunity, as several products are coming up in this segment. The company expects a lot of demand for the building blocks. Even in these building blocks, there can be value addition by forward integration into dipeptides, tripeptides and up to at least four or five residues. Despite being a relatively late entrant, Divis intends to be one of the largest suppliers of the building blocks of GLP-1 drugs, which will provide strong growth visibility from this opportunity from FY2025 onwards.
ITC LTD. | FMCG | Buy
Technical View
• The pattern analysis shows that the price action has taken brief breather amidst a strong trending primary trend on the upside.
• This formation of a rounding bottom pattern is potentially an indication of garnering bullish strength to fuel further upside.
• The price action managed to pierce through the narrow range of consolidation on highest volume recorded during the quarter. This potentially indicates strength in the price action and that the buyers are gradually recouping their strength.
• The 50 period volatility trades at lower levels and hence the probability of any sharp declines is less likely.
We recommend to BUY ITC at CMP-477 for the target of 509 with a stop loss of 457 in the short term
Investment Rationale
Outperformance by non-cigarette business and positive outlook
The non-cigarette business showed an outstanding performance during FY2018-23 period which reflected in revenue and PAT CAGR of 14% and 20%, respectively. Going forward, the company will emphasize on driving a double-digit growth in the FMCG business by premiumization and intensifying the distribution reach, thereby aiming for an 80-100bps improvement in EBITDA every year from the current margin of 10%. This shall be achieved by achieving economies of scale, mix improvement, and cost optimization initiatives. In the near-term, we expect rural demand to improve in the next 12 months as the effect of inflation eases.
Profitable volume growth via market share gains in the cigarette business
The company maintains its focus on driving profitable volume growth by gaining market share from illicit markets, innovation, and portfolio fortification. The illicit cigarette market amounts to 1/3rd of the legal cigarette market. The company’s focus on new product launches over the last five years has enabled the management to identify unmet consumer needs, thereby slowly capturing the illicit cigarette market. Such new product launches which account for 17% of total volumes as of today along with premiumization and the company’s commitment to innovation serve as a strong countermeasure to illegal trade and establish a strong foothold among the legal players.
GLAND PHARMA LTD. | Pharmaceuticals | Buy
Technical View
• Following the Q2 result, the price action has been trending relatively stronger with higher high and higher low structure.
• The price action has constantly been taking support at its shorter term 10 DMA which further indicates a relatively stronger intermediate trend.
• The price action has also seen a follow-through to the breakout it witnessed 2 weeks ago.
• The stock has fair price strength and high buyers’ demand along with RSI on their daily and higher timeframe trading well above their medians. We recommend to BUY GLAND from CMP-2010 for the target of 2203 with a stop loss of 1929 in the short term.
Investment Rationale
Strong visibility on the business trajectory
Gland Pharma sounded relatively more positive on most of the issues in Q2FY24, with the company introducing 34 products into the US market including nine entirely new products. Gland Pharma expects to increase its launch pipeline to more than 60 in the US, monitor the drug shortage scenario in the US market and foresees opportunities in the oncology space. Core markets and India showed superior performances, with a normalization in certain key products. The company is also improving operational efficiencies and reducing costs to maximize profitability. Overall, the outlook for future growth is positive, propelled by upcoming product launches, portfolio broadening, and market penetration through a partner-led approach.
Focus on integrating Cenexi and driving synergistic benefits
The company has enhanced its geographical footprint in Europe by acquiring and integrating Cenexi for CDMO operations. The acquisition of Cenexi contributed to the company's financials, with revenue of Rs. 3.6 billion and an EBITDA margin of 6.4% YoY in Q2FY24, with margins impacted due to the annual summer shutdown in France. Gland Pharma sees multiple synergies from Cenexi, including access to technologies that the company doesn't have, access to newer markets, common purchase-related synergies, shifting manufacturing to India, etc. It expects Cenexi margins to improve in a few quarters, while high-teen margins may still be some time away.
GLENMARK LIFE SCIENCES LTD. | Pharmaceuticals | Buy
Technical View
• Following the Q2 results, the price action entered into an elongated phase.
• The lateral maneuver is a potential sign of manipulation as the stock shows resilience to drawdowns as profit booking attempt after a 82% surge in the price.
• This further indicates participation of smart hands.
• The price action has staged bullish cup and handle schematic breakout. We recommend to BUY GLS at CMP-720 for the target of 789 with a stop loss of 694 in the short term.
Investment Rationale
Steady pace of new launches to aid financial growth
Glenmark Life Sciences has a strong portfolio of APIs, focusing on high-value APIs in chronic therapies. The company has recently added three new products to the pipeline: one high-potent API and two complex APIs. Coming to the high-potent API pipeline, the company has 12 products with a total addressable market of USD 21 billion, with three products validated and three products in advanced stage of development. We expect the company to develop 8-10 APIs annually, including high-value and high-volume APIs and add another 2-3 projects to the CDMO pipeline in about a year. We also expect growth aided by the company's strategy of leveraging its marketed portfolio by filing these existing products in newer geographies, including regulated and semi-regulated markets.
Expansion plans on track with strong growth visibility in H2FY24
Glenmark Life Sciences has recently completed the brownfield expansion for generic API products at Dahej, which is an oncology product plant with a 240kl capacity. One of the two independent modules for the latter is 100% commissioned. The company's backward integration plant at Ankleshwar of 208kl is under construction and is expected to be operational by FY25. The Solapur phase 1 greenfield project of 200 KL is expected to be operational by FY24. The overall greenfield project is progressing well, with consent to establishment (CTE) received for 1,000kl, which is scheduled to be operationalised over FY24-FY26. A strong demand scenario and better visibility for H2FY24 makes Glenmark Life Sciences confident of delivering strong growth in FY24.
PRINCE PIPES AND FITTINGS LTD. | Plastic Products | Buy
Technical View • The price action is trading in a volatility compression pattern while it trades near to life highs.
• The shrinking bases by price depth and time correction potentially indicates absorption of available supply at higher levels.
• The price action is trading closer to its 20DEMA acting as immediate support. This offers for a lower risk and higher rewarding opportunity.
• The stock shows better EPS strength and improving buyers’ demand. We recommend to BUY PRINCEPIPE between CMP-729 for the target of 794 with a stop loss of 707 in the short term.
Investment Rationale
Diversification into bathware segment and technological advancements fuel growth prospects
Prince Pipes has strategically expanded its product portfolio with the launch of PE-FIT Aqua HDPE Piping Systems which results in much lower installation and whole-life cost when compared with traditional piping materials. The company's recent foray into the bathware business, marked by the introduction of premium faucets and sanitaryware, demonstrates a commitment to diversification and enhancing brand visibility. With a long-term margin profile expected to surpass that of piping, the company’s expansion into bathware is poised to contribute positively to the company's overall growth. Additionally, the management's bullish outlook on double-digit growth in pipe volumes across agriculture, plumbing, and infra segments, coupled with a stable raw material pricing environment, positions the company as a key player in the pipes sector.
Robust expansion plans and strategic initiatives to drive sustainable growth
The company’s forward-looking approach is evident in its expansion plans and strategic initiatives. The company aims to double revenue in FY24 from its water storage tank vertical and is set to operationalize the Bihar facility by FY25 end, catering to the North-Eastern market, a potential growth driver in the pipes industry. The acquisition of land for an eighth manufacturing facility in Bihar and the ongoing brownfield expansion via debottlenecking of 20,000-30,000MT demonstrates a commitment to scaling production capacity. Additionally, the company's investment in distribution, brand building, and the aggressive pursuit of acquisitions in faucets showcase a comprehensive approach in tapping into the bathware market. Despite a temporary decline in ROCE in FY23, the management anticipates an improvement, backed by a positive business outlook, affordable polymer prices, and robust economic activity across urban and rural India.
YES BANK LTD. | Private Sector Bank | Buy
Technical View • The price action is currently trading in between its stage 1 and stage 2. • The price action attempted at breaking out from the basing pattern, however, it fizzled out immediately. • The shakeout phenomena corrected 13% and potentially ruling out the weaker hands in participation. • With that, the price action reclaimed the resistance on relatively stronger volume and momentum.
We recommend to BUY YESBANK at CMP-22.60 for the target of 24.80 with a stop loss of 21.90 in the short term.
Investment Rationale
Strong business growth drives profitability and NIMs
Despite a decline in corporate loans growth, Yes Bank reported healthy loan growth of 11.9% YoY and 4.1% QoQ in its Q3FY24 business update. Over the past few quarters, the bank has been shedding corporate loans (around 20% YoY decline in run rate) due to less rewarding pricing, which aligns with its strategy of de-bulking the balance sheet. Furthermore, in Q3FY24, the bank saw strong growth in its deposits of 13.2% YoY and 3.2% QoQ. With improvement in CASA in Q3FY24 and loan portfolio mix shift towards retail and SMEs, the bank might see higher NIMs. Also, the non-interest income growth is likely to be better on the back of growth in the bank’s portfolio and normalized treasury operations, which will aid the bank in delivering healthy profit growth in the coming quarters.
Significant improvement in asset quality
With the bank selling many NPA portfolios to ARCs in the past few quarters, Yes Bank’s GNPA and NNPA levels have dropped sharply from their past averages. The bank’s reduction in the corporate loan book has helped the bank reduce its slippages sequentially. The bank made accelerated provisions during FY23 due to the ageing of the stressed assets, which allowed it to clean its balance sheet. Furthermore, continued positive interventions in resolutions and recoveries will help the bank to improve its asset quality further.
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