>JK CEMENT: Taxing times; Quaterly Update

■ Higher tax rate squashes bottom line
The operating performance of JK Cement (JKC) was in line with our expectations, but the lower net profit (due to a higher effective tax rate) was 15.2% below our estimates. JKC reported a 21.8% YoY growth in revenues thanks largely to a strong expansion in volume due to the addition of new capacities. The EBIDTA margin has declined by 1,280 bps YoY to 17.2%. The PAT for the quarter weakened 58% YoY (32.8% QoQ) to INR295mn.

■ Higher volumes, white cement shield profitability
Volume (including both grey and white) increased by 22.0% YoY to 1.34mn tonnes but blended realizations for the quarter were down by 0.2% YoY (1.2% QoQ) to INR3,882 per tonne as compared to INR3,889 per tonne in Q1FY10 due to sales in the low price South Indian market.
However, higher proportion of white cement sales (17.2% in Q1FY11 vs 16.3%in Q1FY10) helped cushion a sharp fall in realizations. Rising overall cost pressures were visible during the quarter as the cost per tonne increased 18% YoY (1.3% QoQ) to INR 3,214 as compared to INR 2,724 in Q1FY10. The EBITDA per tonne stood at INR668 as compared to INR1,165 in Q1FY10.

■ Maintain BUY with a target price of INR220
Though we expect margins for cement companies to be under pressure in the medium term due to the cost push and a decline in cement prices, JKC earnings are likely to be (partially) supported by stable white cement prices and a strong volume growth. Besides, the company is also trading at a more than 50% discount to its replacement cost as well as its large cap peers. Thus we are maintaining our BUY rating on JK Cement with an unchanged target price of INR220.

To read the full report: JK CEMENT

>BAJAJ ELECTRICALS: Result Update First quarter FY 2011

Bajaj Electricals (BEL) posted a healthy 35.2% growth in net sales for 1QFY2011, mainly on the back of strong growth in the lighting and consumer durables divisions, which grew 52.5% and 43.9%, respectively. Net sales at Rs483.9cr (Rs358.0cr) were slightly above our expectations. However, OPM declined to 8.4% (10.0%) on higher raw material costs. Interest costs fell to Rs5.7cr (Rs8.6cr) in 1QFY2011. Overall, PAT increased 37.3% to Rs22.5cr (Rs16.4cr). The carry
forward order book in the E&P division currently stands at Rs810cr. We remain Neutral on the stock.

■ Top-line growth momentum continues: The company maintained strong growth across segments during 1QFY2011. The lighting business grew 33%, while the luminaires business grew 78% during the quarter. In consumer durables, the appliances business grew 40%, Morphy Richards grew 48%, while fans registered 46% yoy growth. The E&P business registered mere 8% yoy growth for the quarter on a high base (82% growth in 1QFY2010).

■ Outlook and Valuations: We maintain our positive outlook on the company on the back of a comfortable order book position in the E&P business and normal monsoons expected this year, which augurs well for the consumer durables business. We expect sales to register 20.6% CAGR to Rs3,241cr in FY2012E from Rs2,229cr in FY2010. Currently, the stock is trading at fair valuations of 14.7x and 11.9x FY2011E and FY2012E EPS, respectively. We maintain a Neutral on the stock.

To read the full report: BAJAJ ELECTRICALS

>LUPIN: Result Update 1QFY2011

Lupin reported in-line 1QFY2011 results. The company continued its strong traction both in the US (Lotrel and Antara) as well as in the domestic (field force expansion) market. Though a delay in the launch of OC products in US is marginally disappointing, it’s unlikely to change the competitive scenario in the segment. We maintain an Accumulate on the stock and reiterate it as one of our top picks in the sector.

■ In-line results: Lupin reported net sales of Rs1,312cr (Rs1,285cr), which was in line with our estimates on the back of continuous traction in the US and domestic formulation segments. The company reported OPM of 20.0% (17.9%), up 210bp yoy on higher gross margins and exceeded our estimates. Net profit stood at Rs196.3cr (Rs140.1cr), up 40.1% driven by top-line growth and OPM expansion.

■ Outlook and Valuation: Lupin is at a discount of 7-23% to larger peers like Dr. Reddy’s, Sun Pharma and Cipla, which we believe is unwarranted given the scale achieved by the company in the last few years. We have valued the company at 18x (10% discount to large peers). The stock is currently trading at 20.1x and 16.1x FY2011E and FY2012E earnings, respectively. We maintain an Accumulate on the stock, with a Target Price of Rs2,099 and reiterate it as one of our top picks in the sector.

To read the full report: LUPIN

>Healthcare in Asia Pacific

Healthcare sector comprises of many segments, which include hospitals, medical infrastructure, medical devices, clinical trials, outsourcing, telemedicine, and health insurance. The global economic slowdown has affected many segments of the economy. However, as comparison, the
healthcare sector has outperformed the broader market.

Such phenomena is more significant in Asia Pacific as the meltdown of the economy has not hit the Asia Pacific region as severely as in the developed countries such as the US and Europe. Moreover, amidst the crisis, Asia Pacific was the gainer as healthcare companies in developed countries are under remarkable cost pressures. The recovery of the markets, especially the strong growth in Asia has been identified as the main driver of healthcare industry.

Alongside with the recovery of various markets since the end of 2009, Asia has become an important market for healthcare besides serving as an outsourcing hub. Mergers and acquisitions are falling apart in the West but Asia is expecting restructuring of its markets. In January 2010, Frost & Sullivan had forecasted that the region's healthcare market is set to reach new heights of USD 276 billion this year, from USD 246 billion in 2009, up by 12.2%. Asia Pacific's current contribution of 24% of global healthcare revenue is also expected to grow to 40% by the end of 2015. Strong economic recovery in Asian countries like India and China, rising investment in hospital infrastructure and healthcare facilities by global companies are among the positive factors.

According to the World Health Organization (WHO), private per capita expenditures on health increased by more than 15% in the last 5 years in emerging markets such as Malaysia, Vietnam, Indonesia and India. Moreover, based on medical claims analysis, premium costs in Asia will double in the next five years. Healthcare spending in Asia Pacific have been encouraging. In 2009, majority of healthcare spending was attributed by spending on treatment, which was as high as 85% of the total healthcare spending in Asia Pacific.

The rising number of aging population and the growth of chronic diseases in Asia had changed the trend and growth of healthcare industry. Such trend is more significant in Japan as the aging population (over 60 years old) is expected to mark about 42% of the country population by the end of this year. Japan’s population also tops the list with over 40% of its population having 1 or more chronic diseases in Asia.

To read the full report: HEALTHCARE INDUSTRY