Research Notes – Buy IRB Infra, Tata Motors, Dr.Reddy’s, reduce GSPL (September 12, 2012)
Maintain ‘buy’ on IRB Infrastructure – TP Rs.182
 The Service Tax (ST) department has demanded Rs.60.46 crore as ST on tolls collected in three of its  It appears that IRB has a strong case in its defence. In the worst case, the impact of this order could be Rs.140 crore (a loss of Rs.4 per share) plus interest. However, this would most likely to be passed on to the NHAI.  ST claims of this sort have not been heard against other road developers and checks with NHAI suggest that IRB has a strong position in this dispute. The enforcement of such a levy could have an adverse impact on the entire sector and ultimately increase the cost of infrastructure development in India.  The company is confident that it would be able to invoke the ‘change in law/ interpretation of law clause in the agreement that allows such claims to be passed through the awarder.  Target price of Rs.182 is maintained on the stock. It is currently traded in Rs.123 range. Maintain ‘buy’ on Tata Motors – TP Rs.310
 Despite macro concerns, growth rate of luxury car sales in China, US and globally remained resilient in August 2012. This augurs well for Tata Motors JLR, which would report its August 2012 sales shortly. JLR sales are expected to report growth of 25% yoy in August.  Initial reviews of the newly launched Range Rover have been encouraging. Despite premium pricing, its contribution to overall JLR volume has been 10%. This is expected to sustain, implying sales growth of 20% for the 2013 model.  JLR should also benefit from the launch of the Jaguar XF Sportbrake and Jaguar F-type over the next  Maintain buy with a target price of Rs.310 over one year. Resilient industry growth trends should help maintain margins for JLR, which were previously seen at risk. Maintain ‘buy’ on Dr. Reddy’s Lab – TP Rs.1803
 Buy rating on Dr. Reddy’s Lab is maintained with a target price of Rs.1803.  The company has launched all strengths of generic Toprol XL (Metoprolol XL) in the US. Toprol XL is an antihypertensive product with a market size of USD1.1 billion. The company received approval for generic Toprol XL from the USFDA last month.  Toprol XL is a limited-competition product with four generic competitors in the market currently and two more generic players are expected to enter in due course.  Even if Dr. Reddy’s achieves 5% market share in the first year of launch, the opportunity translates into sales of USD50m with relatively high margins. EPS impact works out to Rs.3/share.  The Toprol XL approval gives further confidence of a revival in US sales over the next three quarters after a disappointing performance in 1Q FY13. Dr. Reddy’s is looking at sales of close to USD800m from the US in FY13 with potential upside from 1-2 large-sized products which are yet to be disclosed. It seems that these product approvals and their subsequent launch will be the key driver for the company’s stock performance from here on.  Delays in key product approvals for the US and pricing pressure in Russia pose risks to the target Maintain ‘reduce’ on GSPL – TP Rs.68
 ‘Reduce’ rating has been maintained on Gujarat State Petronet Ltd (GSPL) with a target price of Rs.68 over one year. The stock is currently traded in the range of Rs.75.  Petroleum and Natural Gas Regulatory Board (PNGRB) announced tariff pertaining to GSPL’s Gujarat High Pressure network. The average tariff has been cut 13% to Rs.840/tcm.  Await further clarity/management feedback before reviewing estimates. DISCLAIMER: Geojit BNP Paribas Financial Services Limited (GBNPP) or any of its Group companies, affiliates, subsidiaries or that of any of its shareholders do not accept any liability arising from the use of this report and the views and observations contained herein. While every effort is made to ensure the accuracy and completeness of information contained herein, GBNPP, or any of its group or associate companies or its affiliates take no guarantee and assume no liability for any errors or omissions of the information contained herein. Information contained herein cannot be the basis for any claim, demand or cause of action. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security. We are not soliciting any action based on this material. It is for the general information of retail clients of GBNPP. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. Opinion expressed herein is our current opinion as of the date appearing on this report only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. Certain transactions - futures, options and other derivatives as well as non-investment grade securities - involve substantial risks and are not suitable for all investors. Reports based on technical analysis is focused on studying charts of a stock's price movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material, may from time to time have 'long' or 'short' positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. We or any of the group or associate or subsidiary companies affiliated to us and / or to any of our shareholders may from time to time solicit or perform investment banking, or other services for, any company mentioned in this document. We do not undertake to advise any change in our views expressed in this document. While we would endeavor to update the information herein on a reasonable basis, Geojit BNP Paribas, its subsidiaries and associated companies, their directors and employees are under no obligation to update or keep the information current. Also there may be regulatory, compliance, or other reasons that may prevent Geojit BNP Paribas and affiliates from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. September 12, 2012


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