Background

Celestial Labs Limited (CLL) is an eight years old Hyderabad based company. It has been providing customised enterprise solutions, bioinformatics services to the health and life sciences sector, like gene sequence comparison and analysis, prediction modelling, design and development of drug molecules and development of industrial enzymes.

CLL, during its expansion plan, has scaled up its service operations with the available resources and further developed a DENOVO DRUG DESIGN TOOL called ‘Celsuite’. It is a revolutionary effort in the field of Drug Design and Development area, specifically in designing the molecules and bringing down the drug developmental cost. The company is in contact with various research institutes to develop its molecules.

 Objects of the Issue

To raise financial resources for:
1) Setting up infrastructure for Manufacturing of Enzymes.
2) Enhancing existing infrastructure for Bioinformatics and Drug Molecule Development and related services.
3) Setting up of marketing & liaison office at USA.
4) To procure funds for meeting the incremental working capital requirements.

 Industry Overview

The bio pharma market having grown at 16.5% from 2004’s revenue of $60.7 billion was valued at $70.8 billion in the year 2005 (Vision Gain report 2005). At present, the US is dominating the biotech market. The major thrust in biotechnology is in bio-pharmaceuticals, with more than 350 products under various phases of advanced clinical trials. In the US alone, more than 90 new products have been approved by the FDA, while more than 2000 products are under development. India being on the threshold of biotech revolution has 280 biotech and 180 bio suppliers contributing to the total biotech market worth $1.07billion. The Indian biotech industry in 2004-05 registered revenues of Rs. 4,745 crore recording a 36% growth compared to the previous year.

This sector offers good growth potential. Drug molecule development and allied services are growth areas in bio pharma industry and successful product innovations results in company commanding good premium in the market.

Financials and Valuations

The performance of the company has been quite consistent over the years. The total income increased marginally (from INR 8.07 crore in FY 04-05 to INR 10.22 crore in FY 05-06). The net profit after tax stood at INR 3.28 crore in FY 05-06 from INR 2.64 crore in FY 04-05

The bio pharma sector has recently picked up steam. The sector has huge potential, and India with its knowledge potential, has the ability to march ahead. Few Indian companies are showing the way. Celestial has done well in the past. The result will start pouring in when it completes the expansion plans.

Background

ICICI Bank Ltd. Promoted in 1994 as a wholly owned subsidiary of ICICI Ltd. was given a universal banking status after a reverse merger with ICICI Ltd. In 2001. ICICI is India’s second largest bank with a 30% market share. At the year end fiscal 2007, its principal network consisted of 710 branches, 45 extension counters and 3,271 ATMs across several Indian states. ICICI offers differential banking products and financial services to corporates and retail customers, through channels, subsidiaries and affiliates in the area of investment banking, life and non-life insurance, venture capital, asset management and information technology. ICICI was the first bank or financial institution from non Japan Asia to be listed in the New York Stock Exchange.

Objects of the Issue

Investment pipeline of USD500bn by corporates, growth in its insurance subsidiaries and overseas expansion are three areas where the bank has said it will require significant capital over the next few years. Funds are being raised to augment the capital base, to meet capital requirements arising out of growth in business, including meeting the expenses of the issue.

Industry overview

The global economy witnessed a strong growth in 2004, stimulated by a historically unique period of strong monetary and fiscal measures. The combination of a strong capex investment cycle, consumer finance boom, the subsequent higher take off of credit and increased penetration of fee based and third party products, like banc assurance and mutual funds, saw the incremental non-food credit rise many a fold. Hence, a rising interest rate environment, with its concomitant impact on treasury income, was offset by the rise in both, net interest margins and the core interest income and fee income of banks. This, combined with historically low NPAs, strong provisioning and capitalisation, with low valuations in terms of Price to book value, have made Indian public and private banks very attractive to global investors. With interest rate cycle near its peak and ability of banks to pass on increase in interest rate to customers, banking stocks are expected to continue their gains & outperform the market. ICICI is market leader in the segment and has displayed greater than sector growth during past few years & has been on high growth trajectory.

Financials and Valuations

The total income for FY 06-07 stood at INR 12,565 crore in comparison to INR 8,890 crore in FY 05-06. The profit before tax stood at INR 3,648 crore with respect to INR 3,096 crore year on year. The net profit showed an increase of 22%.

The bank’s ambitious plan to raise USD5bn will lead to pre-issue dilution of 25-20% and post-equity dilution of 20-22%. We believe that short-term pain may continue till the time the issue is completed. However, given the growth opportunities and the bank’s ambitious target to grow its balance sheet, we believe that long-term positives remain. The stock quotes at 1.3x FY09E Banking BV and 12x FY09E Banking earnings (after removing the value of investments). Postissue, while the BV of the bank is estimated to cross Rs 400 in FY08 (against Rs 270 in FY07), ROE is expected to fall to 10-11% in the next two years.

We recommend sector ‘Outperformer’ rating on the stock for long term investors while for investor looking for listing allotment gains it may turn out to be stock with no / limited upside potential.