We have fine-tuned our revenue and earning estimates for CY08 and CY09 due to weak financial performance in CY07 and sale of consumer healthcare brands to Johnson & Johnson.
We expect revenue growth of 9.6% and 9.7% while net profit growth is pegged at 20.5% and 8.3% in CY08 and CY09, respectively. The company has posted adjusted EPS of Rs24 in H1CY08 which is 46% of our CY08 EPS estimate. We expect adjusted EPS of Rs52.4 and Rs56.7 in CY08 and CY09, respectively.
Further, the company is likely to have approximately Rs7.5 billion cash (Rs250/share) on its CY08 balance sheet, which is about 45% of current market capitalization. We may see upside in the price if company announces any buyback or acquisition plan to utilize this surplus cash.
At the current market price Rs550, the stock is trading at 10.5x CY08 and 9.7x CY09 earnings estimate. The stock has been beaten down significantly from our “Book Profit” recommendation at Rs805 in January 2008. We believe it is currently trading at attractive valuations hence we upgrade the stock to BUY with revised target price of Rs681.