Broking firm Sharekhan has suggested buying the three stocks of UPL, Laurus and Sumitomo Chemicals for long-term investors. According to the brokerage firm, the three stocks have a reasonable upside target from the current levels and have the potential to generate good returns. Here are some of the reasons Sharekhan is suggesting to buy the shares of these three companies.
Laurus Labs Ltd
Sharekhan has said to buy the stock of Laurus Labs with a price target of Rs 750, as against the current market price of Rs 677.85.
Laurus Labs works with the top 10 generic pharmaceutical companies in the world. The company sells Active Pharmaceutical Ingredients in 56 countries and its major focus areas include anti-retroviral, Hepatitis C and Oncology drugs.
Among the numerous reasons why the firm likes the stock of Laurus Labs includes robust growth prospects, sturdy capex, likely market share gains would support the management's target of achieving a topline of $1 billion in the next two years.
"The company's key focus areas for sustainable growth include - leveraging cost advantages in API business to integrate into fixed dosages, develop synthesis business, capitalise on leadership in select high-growth Active Pharmaceutical Ingredients, expansion of Active Pharmaceutical Ingredients portfolio to other therapeutic areas and lastly, ESG integration," the broking firm has said.
Laurus Labs: Valuations Are Inexpensive
"Laurus has targeted $1 billion in revenues by FY2023E. At the current market price, the stock trades at 29x/22.7x its FY22E/FY23E Earnings Per Share. Over the past six months, the stock price has outperformed the BSE Sensex and Healthcare index by 79% and 71% respectively and given the strong growth prospects, visibility on earnings, healthy return ratios and low debt-equity, outperformance is likely to sustain. We retain our Buy recommendation on the stock of Laurus Labs with a revised price target of Rs. 750," the brokerage has said.
According to Sharekhan the key risks for the company would be a delay in product approvals or any negative outcome of facility inspections by the USFDA can affect earnings prospects.
The shares of Laurus Labs were last seen trading at Rs 665 on the NSE.
Sharekhan also has a buy on the stock of UPL with a price target of Rs 930 on the stock as against the current market price of Rs 799. UPL is a producer of crop protection products, intermediates, specialty chemicals and other industrial chemicals.
Among the main reasons Sharekhan is suggesting to buy the stock, include an aim to double revenue from biosolutions to $700 million by FY24-25. The firm also sees the strong R&D pipeline (peak revenue potential of $4-4.5bn) and tie-ups with FMC and Meiji for launch of a new formulations as big positives.
"It makes us confident that UPL can achieve the higher end of long-term revenue growth guidance of 7-10%. Q1FY22 outlook - Strong mid double-digit growth for India, Latin America and Rest of World while the US and Europe may witness flat-to-moderate growth, with price hikes on cards across regions. Focus on deleveraging balance sheet to continue with a plan to further reduce debt by $500 million Financial Year 2022," the brokerage has said.
UPL: Good potential for the stock to rally
According to Sharekhan, UPL's recent collaboration with MNCs for new products and target to achieve 50% of revenue from differentiated & sustainable solutions) would improve margin/ earnings profile and drive sustainable growth.
"Valuations are attractive at 12.6x FY2023E its EPS and 10.8x FY2024E EPS. Hence, we maintain a Buy rating on UPL with a revised target price of Rs. 930," the broking firm has said.
Among the key risks that the firm sees for the company are a slowdown in the global agrochemical industry and delay in the flow of benefits from Arysta's integration might impact performance.
"Currency fluctuations might impact the company, as UPL has a significant presence in various geographies," it has said.
The shares of UPL were last seen trading at Rs 799 on the NSE.
Buy Sumitomo Chemical, says Sharekhan
Sumitomo Chemical India is another stock that Sharekhan has suggested investors to buy. The firm has set a price target of Rs 450 on the stock as against the current market price of Rs 395.
Among the many reasons the firm sees to buy the stock, includes a focus on high margin PGRs/herbicides, rising share of specialty chemicals and further synergies from Excel Crop Care, which is to drive 346 basis points expansion in margins and take EBITDA margins to 22% in FY24.
Sumitomo Chemical India: A decent price target
Sharekhan has said that it maintains its Buy rating on the stock of Sumitomo Chemical India with a revised target of Rs 448 as massive contract manufacturing opportunity from parent provides superior growth prospects and expect SCIL to enjoy premium valuation over domestic peers.
All of the above stocks are picked from the report of brokerage firm Sharekhan. Investing in stocks are risky and investors should do their own research. The author, the brokerage firm or Greynium Information Technologies Pvt Ltd is not responsible for any losses incurred due to a decision based on the above article. Investors should hence exercise due caution as markets have run-up significantly.