MOSL: Morning India (29/November/17)-1. Alkem Laboratories (Uniquely positioned)-2. Crompton Greaves Consumer Electricals (Corner Office)-3. Siemens

​MOrning India (29/November/17): 1. Alkem Laboratories (Uniquely positioned); 2. Crompton Greaves Consumer Electricals (Corner Office); 3. Siemens

Today’s top research idea

Alkem Laboratories – Uniquely positioned; Fundamentals strong; Valuations reasonable

• Domestic business set to grow at >20% over next three quarters
  
• Lower tax rate from FY19 to boost PAT by ~10%
  
• Opportunity for margin improvement in medium term
  
• Chronic - low base and efficiency improvement to drive growth
  
• Strong presence in Acute (~90% of domestic sales) to provide stability
  
• OTC business - a new growth avenue
  
• Indechemie, Cachet a drag on margins, but scope of recovery visible
  

US business: Two thirds of pending portfolio to be approved in next 24 months

• Arguing for a multiple re-rating: We have upgraded ALKEM to Buy from Neutral, with a target price of INR2,500 @24x December 2019E PER (v/s INR1,950 @ 1HFY20E PER. We argue for a multiple re-rating, given the company's superior earnings growth profile (>25% EPS CAGR over FY18-20E), improving return ratios (RoIC to improve to ~30% by FY20E from ~20% in FY18E), net cash balance sheet, and high exposure to the domestic business which accounts for ~90% of its profits.
  

Piping hot news

Global firms line up for India’s largest convention centre; Rs 26,000-cr project may create 5L jobs

• ​Nearly 15 global players including Samsung Construction and China Construction are competing with home-grown companies such as L&T and Reliance Infrastructure for bagging the contract for constructing India’s largest convention centre. The government has invited the request for proposal by December 8 under the engineering, procurement and construction (EPC) mode after the Rs 26,000 crore International Convention and Expo Centre (IICC) project received the Union cabinet’s nod earlier this month.