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PULSE TRACK RBI cuts repo rate by 50 basis points -
Surpassing the market's expectations the Reserve Bank of India (RBI) has reduced the repo rate by 50 basis points to 8%. The cash reserve ratio (CRR) rate remains unchanged while the reverse repo and marginal standing facility (MSF) rates stand revised to 7% (linked to the repo rate) and 9% respectively. The MSF borrowings have been eased to 2% of the net demand and time liabilities (NDTL) from 1% earlier to improve the liquidity. -
The moderation in inflation and the deterioration in the economic growth below the trend were the key factors behind the rate cuts. However, the RBI has guided that due to the upward pressure on inflation and the expanding twin deficits the scope for further monetary easing is limited in the near future. -
The reduction in the repo rates marks a change in the central bank's stance and the market expects an aggregate reduction of 75-100 basis points in the repo rate in FY2013. The RBI has played its part in supporting growth by reducing the policy rates, and infusing liquidity through a 125-basis-point reduction in the CRR (since January 2012) and open market operations (OMO; buying in the bond market to release liquidity in the banking system). This has reduced the firmness of the bond yields despite the huge government borrowing programme. Now, it is up to the government to take fiscal and policy measures to provide the much needed policy boost to the economy.
STOCK UPDATE Piramal Healthcare
Cluster: Apple Green
Recommendation: Hold
Price target: Rs489
Current market price: Rs445 Upgrade to Hold with revised price target of Rs489 Key points
Click here to read report: Investor's Eye -
Growth in core pharma business picks up; thrust on R&D to auger well: Piramal Healthcare's core pharmaceutical (pharma) business which includes custom manufacturing services, critical care products and over the counter (OTC) products is currently growing at a healthy rate. In the first nine months (M9FY2012), the contract research and manufacturing services (CRAMS) segment has grown at a healthy rate of 43% to Rs963 crore. We expect the pharma business to grow at a compounded annual growth rate (CAGR) of 16% over FY2012-14 on the back of enhanced capacities, new approvals and products launches. Moreover, the strategy to focus on acquiring intellectual properties to play on innovation led business is also playing out well. The company has merged the new chemical entity (NCE) research units of Piramal Life Sciences into itself, acquired BioSyntech (for technology of GST-CarGel) and acquired the worldwide marketing right for molecular imaging research and development (R&D) portfolio of Bayer Pharma AG. -
Financial services business to yield better in the long term: Two wings of financial services - IndiaReit and an another financial services company involved in infrastructure funding projects (through proposed non banking financial companies [NBFCs]) are set to tap high growth in a relatively low competition market. However, with most of these projects being long-term in nature, short-term finances may be under pressure for these particular segments. We expect these businesses to give superior returns post FY2014. -
Valuation - upgrade to Hold on improved outlook for pharma business and effective deployment of cash on books: Post the selling out of Piramal Healthcare's branded formulation and diagnostic business, we had downgraded the company's stock to Reduce. The buyback offer looked unattractive and there was also an uncertainty related to the utilisation of cash on the books. Since then, the residual pharma business has stabilised and the growth outlook for the same has improved considerably. The management's diversification strategy is getting clear now and it has made some interesting investments in pharma R&D and other businesses. Consequently, we are upgrading the stock's rating to Hold with a sum of the parts (SoTP) based target price of Rs489. | | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. | | | | | |
