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Tata Chem & Orchid Chem

Posted by Sathyamurthy www.sathyamurthy.com on January 1, 2008

Happy New Year my dear readers.

For the Indian stock market enthusiasts (Or should I call them old fashioned – Investors?) looking for that great stock or two, here is some choice from Sharekhan.

Bullish on Tata Chem & Orchid Chem: Sharekhan
2008-01-01 15:53:30 Source : CNBC-TV18

Hemang Jani, AVP, Sharekhan, said he is bullish on Orchid Chemicals and Tata Chemicals from the midcap space.

Orchid Chemicals exports formulations to the US and Europe, he said. “The company is venturing into the non-antibiotic space. It has identified over 80 products across various segments. Orchid Chemicals has marketing alliances with Actavis, Stada (Dava), and Par Pharma.” The company is trading at 17.5 times the estimated earnings of FY08 and 12.8 times the estimated earnings of FY09, he added.

Soda ash prices are up by 60%, which will benefit Tata Chemicals, he said. “The soda ash capacity addition will lead to volume growth. The company has an investment portfolio of Rs 4,600 crore, which works out to about Rs 187 per share.” The company is trading at 13.5 times estimated FY09 earnings with an EV/EBIDTA of 6.6 times, he added.

Excerpts from CNBC-TV18’s exclusive interview with Hemang Jani:

Q: Why do you like Tata Chemicals and what is the kind of price target that you are setting?

A: We like this stock because it is one of the world’s largest producers of soda ash. Prices of soda ash have moved up over the last six-months. They have gone up by about 60%. Currently, they are in the range of about USD 260-300 per tonne. Due to this, Tata Chemicals would be able to report a very good growth over the next 1-2 years.

Apart from that, there is also going to be windfall gains because of the debottlenecking of urea capacity. Tata Chemicals also has an investment portfolio of Rs 4,600 crore, which works out to about Rs 187 per share. Currently, it is available at a very reasonable valuation of about 14 times 2009 diluted earnings. We have set a price target of about Rs 535 for Tata Chemicals.

Q: Orchid Chemicals is the other stock that you like. How much of a run up do you think will come in from here? What are the factors in it favour?

A: Orchid Chemicals would do extremely well in 2008. In fact, people are looking out for stocks, which are available at a reasonable valuation and where the growth is going to be quite strong.

Orchid has displayed exceptionally good performance in the first half of 2008, mainly because of its focus on some niche products, where the competition is minimal and margins are high in the generic market. Orchid’s much awaited entry into Europe is very close now. They are going to be launching a Tazo-Pip formulation there, which should be a big blockbuster drug for it.

There will also be a host of Para IV filings. We feel the company should be able to do exceptionally well. Currently, it is available at about 18 times 2008 and about 13 times 2009 earnings. We have set a target of about Rs 375 on the stock.

Q: Any disclosures on both of them?

A: Personally, I don’t hold the stocks. But both these ideas are under our coverage, so our clients would be holding them.


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