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Hot Chips - Britannia Ind & Sun Pahrmaceuticals

By Saikat Mitra | 10/10/2011 2:50 PM Monday

With the launch of differentiated products across the branded foods segment, Britannia’s volume growth is likely to accelerate significantly going forward. New product launches, such as Healthy Start, Nutrichoice diabetic biscuits and Actimind milk will lead to an acceleration in volume growth. Its international business is largely focused on the Middle East, with a presence in Oman and Dubai.

The company’s operations in Oman have become profitable in FY11, even though production was impacted in February and March 2011 owing to the political events in the Arab world. The rise in prices of sugar, flour, fats and oils have impacted its consolidated EBITDA margins, which have decreased by 190 bps over the last three years. However, sugar and flour prices have stabilised in Q1 FY12. With stable commodity prices and the pass through of commodity inflation, the EBITDA margins are expected to improve. One can look at the stock for medium to long-term gains.

Sun Pharmaceuticals is well positioned for growth due to its favourable business mix (42 per cent of FY11 revenues from domestic formulations and 41 per cent from US export formulations, the rest being contributed by Taro). The company’s domestic business is poised to witness better growth than the industry, due to exposure to the growing chronic therapies segment. This would be aided in the near term by Sun Pharma Advanced Research Centre’s R&D initiatives.

The 19 ANDAs approved in the last 12 months, the 152 awaiting approval and the ongoing improvement in Taro’s margins are likely to be growth drivers going forward. It is believed that Sun Pharma will soon be able to resolve its USFDA issues on its Caraco facility, with the company having achieved USFDA resolution of its Cranberry facility and Taro’s facility in Canada in the last six months. One can look at the stock from a medium to long-term perspective.

 

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