Pharmaceutical Stocks in Demand

Thu, 18 Feb 01:30 pm

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After opening the day higher by around 300 points, the Indian indices have lost some of their early gains. The BSE Sensex is trading higher by 196 points (up 0.8%) and NSE Nifty is trading higher by 60 points (up 0.8%). The BSE Mid Cap and BSE Small Cap are trading higher by 0.5% and 0.9% respectively. Sectoral indices are trading on a positive note with stocks from the oil & gas and pharmaceutical sector witnessing maximum buying interest.

Gold prices, per 10 grams, are trading at Rs 28,844 levels. Silver price, per kilogram is trading at Rs 37,070 levels. Crude oil is trading at Rs 2,140 per barrel. The rupee is trading at 68.49 to the US$.

As reported in a leading financial daily, Dr Reddy's Laboratories board has approved a proposal to buy-back the company's shares. The buy-back will be executed at a price of Rs 3500 per share. This turns out to be a premium of around 18% to their closing price on Wednesday.

The company stated that buy-back is proposed on account of its strong cash flows which stood at around Rs 25 billion as of 31 December 2015. The buyback may also help the company to increase its earnings per share (EPS). Reportedly, the stock had hit an all-time high on 9 October and has fallen by 33% since then.

The fall was because of the warning letter from US Food and Drug Administration for alleged violations of manufacturing standards at three of its active pharmaceutical ingredients plants. Bhavita Nagrani, our Pharmaceutical Analyst, has written a detailed note regarding the implications of the warning letter on the financials of the company and the road ahead. Read this interesting piece to know more (subscription required).

In another news update, Larsen & Toubro is eyeing huge opportunities in the road sector. The government looks to double the length of country's highway to 200,000 kilometers.

Reportedly, in the previous two weeks the government has bid out 31 projects worth Rs 280 billion. Out of the above, nearly half were under the engineering, procurement and construction (EPC) mode. In the EPC mode the project is funded by the government. This encourages private players to participate in the bids as their capital is not blocked. Recent trends indicate that the private investments are on a decreasing trend because of their already over-leveraged balance sheets. Thus, we are seeing a substantial increase in EPC contracts.

Moreover, Mr Gadkari, Minister for Road Transport and Highways, stated that the quantum of stranded projects in the road sector have reduced from Rs 3,800 billion to Rs 150 billion. Further, the pace of building highways has gone up from 2km a day to 18km a day.

The company also sees opportunity in expressway projects by state governments, elevated corridors and ring roads in major cities besides dedicated freight corridor programme and highway projects in the Middle East. The stock is trading up by 2.9%.

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