"Shasun Chemicals -Things Can Only Get Better" : SOKHI SCRIP SCAN

Generic drugs and CRAMs producer Shasun Chem has been reduced to junk valuations. At the CMP of Rs 12, the entire company sells for Rs 60 crore. A valuation that reflects a virtually closed entity. The fact however remains that the corporate is running 5 units, with three spread over Coimbatore and Puduchery and two units in Britain.

The Rs 400 crore entity has been impacted by a number of factors which include forex fluctuations and increase in price of chemical inputs imported from China. So much so that forex losses in FH2009 were Rs 20 crore and this was also the loss for the first half. However, the very factors impacting negatively in the first half are now improving,with the Rupee falling against the dollar and Chinese exporters cutting price of chemical inputs.The corporate has strengthened its contracts with Merck, Eli Lilly, Alpharma all innovator drug companies of the US. The Revenues from CRAMs will thus contribute substantially in the second half.

Significant improvement in growth outlook across segments. Indian pharma is now an integral part of global pharma value chain.

Generic exports to drive near term growth aided by significantly enhanced exclusivity period profits in US markets (~$1.5bn exclusivity profits over next 3-4 years). CRAMS set to gain traction with increasing emphasis on outsourcing to low cost Asian destinations by global pharma companies despite near term challenges.

Revival in domestic business growth to support growth in generics and CRAMS. Weakening of rupee further reinforces earnings momentum in this export heavy sector. Strong growth, insularity to global slowdown, attractive valuations.

Investors with a one year view are unlikely to go wrong in this stock. They would do well to consider the following points:

21% CAGR in revenues and 25% CAGR in earnings over FY08-10E.

Insulation to the global financial turmoil - minimal impact of the global slowdown on revenue growth and profitability; Slowdown might even spur greater use of low cost generics.

Well supported by strong balance sheets and high operating cash flows. This scrip is available at Modest valuation of Rs 12/-.