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In this installment of 5 interesting stocks, we analyze the effects of ongoing Russia-Ukraine conflict on the leading commodity and metal stocks in India:

• Coal India: This company’s stock price rose over 20% in three trading sessions after the Russia-Ukraine conflict intensified in the start of March. Globally, coal prices have more than doubled since the start of the war in Ukraine. Coal prices surged more than 2.5 times in just 15 days to touch $462 per tonne on March 10. Although coal prices have cooled down to trade at $325 per tonne, the elevated prices suggest fears of its supply chain disruption. 

The stock price of Coal India has been rising in anticipation of price hikes by the company. Coal India’s Chairman Pramod Agarwal, on a call with analysts, said that some of the company’s manufacturing units are finding it difficult to survive without a price hike. The world’s largest coal producer is facing cost pressures from a looming rise in salaries and on higher prices of diesel. However, with the rise in coal prices globally, the company may finally take price hikes to ease cost pressures.

India’s demand for coking coal, which is used in steelmaking, has been growing at a very fast rate. India imports a total of 50-55 million tonnes annually. To reduce its import dependence on Australia, India entered into an agreement with Russia last year to import coking coal. In light of the Ukraine situation, India’s steel minister Ram Chandra Prasad assured steelmakers of a solution to deal with the supply disruption. As if on cue, Bharat Coking Coal (BCCL), a subsidiary of Coal India, registered its highest production growth of around 66% in February to 2.93 million tonnes. With the supply disruption looming, Coal India stands to gain from the situation by increasing the production of coking coal. 

• Balrampur Chini Mills:The stock of this leading Indian sugar producer rose 12% in the past one week as the Russia-Ukraine conflict intensified. The UN Food and Agriculture Organization foresees a possible food crisis emerging out of the ongoing war owing to supply side constraints. Moreover, both Russia and Ukraine put a temporary halt on the exports of certain grains and sugar to ensure sufficient domestic supplies. While the export bans and protectionism policies enforced by certain nations in wake of the war will impact sugar supplies, the real impact comes from the skyrocketing crude oil prices. Spiraling energy prices have given a boost to ethanol demand and the same is expected to rise at a CAGR of over 5% globally and 15% in India between FY22-FY30. In India, a litre of ethanol is priced at Rs 63.45 while a litre of petrol is priced at Rs 95.41. This phenomenon is also pushing up the demand for sugar and ultimately its prices. Sugar futures on intercontinental exchange (ICE) traded at $19.3 per pound, close to a two-month high of $19.8 hit last week. Additionally, as sugar is increasingly diverted to ethanol production globally, exporters back home are witnessing a demand boost. Domestic exports are expected to rise by 8-11% YoY to 7.8-8.0 million tonnes in FY22. 

All in all, sugar producers like Balrampur Chini will not only see their sales volumes rising, but will also get a better price for their sugar produce and for the ethanol extracted (as fixed by the Centre). Their bread is buttered on both sides.

• NMDC: The mining giant may benefit from the supply chain disruption in global commodity markets caused by the Ukraine-Russia conflict. Amid the conflict the company has been able to hike prices for the third time since January 2022,  the prices of iron ore lumps and fines by Rs 400/ton. Overall prices have risen by 20% since January 2022. The price hikes are driven by strong steel and international pellet prices. Alongside price hikes, the miner’s production of iron ore grew 13% YoY to 8.87 million tonnes (MT) and sales grew by 17% YoY to 8.21 MT, during January-February 2022. NMDC has declared dividends worth Rs 14.74 per share in FY22, the highest in its history.

For FY23, NMDC has planned a capex of Rs 3,000 crore and Rs 1,500 crore of it is for the core mining business. The company plans to expand mining activities by setting up a 2.5 MT crushing plant and a 12 MT screening plant. It also expects to complete the demerger process of its upcoming 3 million tonnes per annum Nagarnar iron and steel plant (NISP) around April-June 2022. NISP will likely be commissioned by May–June 2022. The listing of NISP is planned for June-July 2022. The total investment by NMDC in NISP is Rs 17,000 crore through equity and around Rs 4,900 crore via debt. The company has set an ambitious target of producing 100 MT of iron ore by 2030.

• Steel Authority of India (SAIL): The steelmaker looks to capitalize on the traction in global metal prices caused by the Russia Ukraine conflict. In Q3FY22, the revenue of the company grew 27% YoY to Rs 25,398.4 crore and profit grew by 4.1% YoY to 1,528.5 crore. The steep rise in coking coal put pressure on the margins of the company. The company expects sales volume to grow 25% QoQ to 4.8 million tonnes (MT) of steel in Q4FY22, on the uptick in steel prices. It has already sold 1.6 MT in January 2022 and is confident of achieving an annual sales volume of 16.3 MT. It expects margin pressure to be partially offset by higher sales volume and higher prices in Q4FY22. Coking coal prices saw a 65% jump QoQ to Rs 25,000/tonne in Q3 and it is expected that the prices will increase further in Q4FY22 by Rs 2,000-3,000/tonne. SAIL announced a price hike due to the improving demand situation in India and expects margins to improve going forward.

The company's focus remains to lower its borrowings and has reduced them by 15% QoQ to Rs 19,128 crore in Q3FY22, mainly due to a reduction in trade receivables from Rs 8,100 crore to Rs 1,600 crore. The debt reduction target of achieving net-debt zero by Q1FY23 is now pushed towards the end of FY23. SAIL is working on a expansion plan given global demand, and has planned a capex of Rs 8,000 crore for FY23, double the capex for FY22.

• National Aluminium Company: This aluminum maker’s stock gained nearly 3% in trade on Wednesday. Nifty Metal also traded in green after it shed close to 4% on Tuesday. Metal stocks have been rallying since the Russia Ukraine war broke out. Analysts believe that metal stocks will continue to gain  in the geopolitical conflict. The company has already given out robust earning numbers in Q3FY22 with net profit rising 3.5X YoY to Rs 831 crore and gross margins improving 78 bps YoY to 84%. Net sales for the company surged 58.6% to Rs 2,378.8 crore in Q3FY22.

Aluminum prices have been rallying for a few weeks now. This is because the global aluminum market is already facing shortages because of production cuts in Europe because of high energy prices and supply restrictions from China. Further, with the US putting out sanctions on Russia, the supply of aluminum will get further disrupted causing aluminum prices to rise. This is likely to benefit Indian aluminum producers, especially National Aluminum Company (NALCO), according to a report from Bloomberg Quint. Since NALCO is one of the lowest-cost producers, the company stands to gain disproportionately, as expenses will not cloud its earnings for the upcoming quarters.

Analysts from Motilal Oswal second this and have revised their FY23 EBITDA estimates by 29% for the company. Dolat Capital expects the aluminum segment EBITDA to go up by 1.35% and alumina segment EBITDA to go up by 5% in FY23-FY24. Analysts from Motilal Oswal expect NALCO’s Q4FY22 will turn out to be a strong quarter in terms of earnings, hence maintaining a ‘Buy’ on the stock.

Trendlyne's analysts identify stocks that are seeing interesting price movement, analyst calls or new developments. These are not buy recommendations.

Credit card swipes slowed down in January 2022 post the festival frenzy. Total credit cardspends fell nearly 7% to Rs 88,038 crore in January 2022 as against average monthly spends of Rs 94,975 crore in Q3FY22, during the festive season. But credit card spends still rose about 35% on a YoY basis compared to January last year.

Overall, nearly 13 lakh new credit cards were issued in January 2022 as against 13.66 lakh cards in December 2021. Among the top seven banking players,ICICI Bank saw the highest credit card additions at 2.41 lakh. In terms of the total spends on credit cards, only Axis Bank and Kotak Mahindra Bank witnessed a MoM rise in the same in January 2022. 

While the RBI lifted restrictions on HDFC Bank w.r.t. new credit card issuances in August last year, little has changed on the ground as far as the market share of the bank is concerned. In fact between August 2021 and January 2022, the bank lost around 170 bps of market share in the total credit card spends.

HDFC Bank’s loss was clearly ICICI Bank’s gain. ICICI Bank climbed steadily to the No.2 spot, overtakingSBI, and held 21.4% market share in total credit card spends in January 2022.

Recently, HDFC Bank’s management asserted that it would take atleast 3-4 quarters for it to return to the pre-embargo growth levels in the credit card segment. Notably, the RBI also eased the remaining restrictions on new digital issuances by HDFC Bank from March 11, 2022. It will be interesting to see if HDFC Bank is able to post a healthy core fee growth in the quarters ahead. 

Notably, for the 10 months ended FY22, IndusInd Bank replaced Citi Bank as the new No. 5 (credit card spends) as the latter looks to sell its consumer banking business present in India.

With the waning of the third Covid wave from the second half of February, Axis Securities expects the credit card spends and new customer sourcing for the banks to improve. The effects of the same should be visible from March 2022 onward.

1. Hindustan Aeronautics: ICICI Securities maintains a ‘Buy’ rating on this aerospace company with a target price of Rs 2,618, indicating an upside of 88.6%. The brokerage is bullish for the company’s order pipeline. The current outstanding order book is Rs 79,230 crore at the end of 2021 and with the defence ministry clearing more procurement proposals forwarded by the Indian defence forces, it is expected to strengthen the order book further by Rs 30,000 crore. Apart from this, the management is also expecting more orders worth around Rs 25,000 crore to be finalized in Q1FY23. 

HAL procures Rs 4,000 crore worth of spares and parts from Russia, for which it has maintained inventory to cater to the requirement for at least the next 8-9 months. “The company is also focusing on indigenous production of Russian supplies to reduce the import dependence,” said the analysts at ICICI Securities. The brokerage expects the company’s profit to grow by 8.3% CAGR over FY22-FY24 on a robust order pipeline and improving production capacity.

2. Alkem Laboratories: Motilal Oswal reiterates its ‘Buy’ rating on this pharmaceuticals stock with a target price of Rs 3,870, indicating an upside of 14.1%. “Given the turmoil on the international front, the branded domestic formulations segment remains well protected. It is also on the growth path, with the easing of Covid-related restrictions,” say analysts Tushar Manudhane and Gaurang Sakare. The company delivered 34.5% YoY sales growth in 9MFY22 and exports grew at 18% CAGR over FY16-21. The analysts cut their FY23 and FY24 earnings estimates by 6% and 7% respectively to factor in elevated operational costs for prolonged periods of time. But the brokerage expects a 10% earnings CAGR over FY22-24 on the back of steady outperformance in the domestic formulation segment, a positive benefit of inflation-linked price hike on products, and a consistent compliance track record.

3. Ion Exchange (India): Hem Securities initiates a ‘Buy’ call on this environment solutions company with a target price of Rs 2,526. This indicates an upside of 42.7%. In Q3FY22, the company posted a net profit of Rs 28 crore, down 3.44% YoY, and consolidated revenues of Rs 388 crore, up 11.18% YoY. The engineering division saw improvement in the order book. The company got an order from Numaligarh Refinery. The UP Jal Nigam project commenced in the quarter, and the management is expecting a higher revenue contribution in the next few quarters. Domestic sales improved and new products were launched by the company. The total order book was Rs 2,756 crore and the company has already bid for Rs 5,640 crore, mainly related to pipelines. Return on equity is 30% and the company is debt-free. The brokerage feels that the company’s market capitalisation can double from here over a longer-term. 

4. Infosys: Axis Securities has a ‘Buy’ rating on this software services company with a target price of Rs 1,895, indicating an upside of just 1.3%. The company’s management “has taken cost optimization efforts which help them to gain long term sustainable operating margins” said analysts at Axis Securities. The deal pipeline remained robust in Q3FY22 at $2.53 billion. It won multiple large transformation deals, despite uncertainty across sectors like BFSI, communication, manufacturing, and auto. 

The digital transformation business is intact, as its engagement with its partner network expanded beyond certifications into the setup of co-innovation centres, building industry solutions, and joint sourcing of deals. The company will continue to invest in Its digital product, digital talent, and sales and marketing to drive growth. The brokerage expects Infy’s profit to grow by 10.6% CAGR over FY22-FY24 on a strong deal pipeline and robust demand.

5. Avanti Feeds: Geojit BNP Paribas maintains ‘Buy’ on this food products company but reduced its target price to Rs 535, indicating an upside of 25.1%. For Q3FY22 the company’s sales grew by 17% YoY to Rs 1,069 crore on the back of 18%YoY growth in the feed segment and 12% YoY growth in the processing segment. But the company’s profit fell 46% to Rs 40 crore. Avanti Feeds announced a capacity expansion of 1.75 lakh metric tonne, with a capital expenditure of Rs 125 crore by Q1FY23. The brokerage expects revenue CAGR of 13% over FY22-24. 

In 2021, USFDA advised Avanti to voluntarily recall certain products processed between October 23, 2020 to November 11, 2020, which were identified as potential for contamination for containing Salmonella.  The total recall was for products worth more than Rs 66 crore. The company hiked prices to reduce the impact of cost inflation. Yet analyst Vincent Andrews says that “demand outlook is improving given the re-opening of hotels & malls in export markets along with better export & farm gate prices and favourable shrimp culture conditions.” He said the brokerage reduced its target price due to impending margin pressure.

Note: These recommendations are from various analysts and are not recommendations by Trendlyne.

On March 7, the Nifty 50 breached the psychological level of 16,000 and fell to 15,771.65 after four days of trading in red. Concerns on higher inflation, a weakening rupee and record crude oil prices had spooked investors. Though the index is up 3% in the last two days, the Russia-Ukraine war is far from over.

This week, we dive into a sector with direct correlation with the current oil shock, and how a healthcare company is taking on competition in the post-pandemic world. 

In this week’s Analyticks:

• Record crude oil prices add to woes of Indian Oil, BPCL and HPCL, as analysts forecast weak FY23
• Going to war - on the internet: Apollo Hospitals looks to raise capital for its healthcare platform, to compete with PharmEasy
• Screener: Which stocks are outperforming their industries, with strong fundamentals and lower PE? 

Let’s get into it.

As crude oil jumps, oil marketing companies hope for price hikes at the pump

With crude oil prices scaling the $130/bbl peak before falling back, speculations are rife about upcoming price hikes in petrol and diesel prices in India. Many believe that the four month long pause in fuel price increases were because of state assembly elections. 

Petrol and diesel prices haven’t moved up since November 2021 despite the sustained rise in crude oil prices from December. The current petrol price in New Delhi is Rs 95.4/litre and diesel price is Rs 86.67/litre. According to rating agency ICRA, the Indian crude oil basket, which indicates the purchase price of our crude imports, averaged at $114.6/bbl in March 2022 (March 1-7), relative to $93.3 a barrel in February 2022.

Ideally an increaseof $1/bbl in crude oil requires a 50 paise corresponding increase in retail fuel prices. This means that petrol prices should have increased by Rs 17/litre to Rs 112.41/litre.

A recent report stated that OMCs are suffering a marketing loss of Rs 20 per litre with current crude prices, amounting to a Rs 900 crore loss per day. On the face of it, OMCs are free to revise retail fuel prices fortnightly based on the movement in crude oil prices in international markets since 2014.

But more often than not, fuel prices move or don’t move with the political events occurring across India. Interestingly, fuel prices weren’t increased even after the recent state assembly polls got over on Monday. According to a senior government official, the Center is working on options involving reduction in excise duty that might reduce the burden on consumers. 

Will OMCs take a considerable hike in prices to protect their marketing margins - the mark-up they charge on fuel costs - in the current environment of spiraling oil prices? Or will the invisible hand of politics push them to keep prices benign?

Weak marketing margins cast a shadow on healthy refining profits in Q3FY22

The benchmark Singapore gross refining margin (GRM) saw a consistent rise to $6/bbl in January, 2022 and then to $7.5/bbl in February, 2022. Higher auto and aviation fuel demand led to a favorable improvement in gasoline, aviation turbine fuel and naphtha cracks in Q3FY22. Crack is the difference the oil refiners earn by converting crude oil into refined petroleum products. Understandably, the gross refining margins of Indian oil marketers also jumped 3X YoY and 2X QoQ to an average of $9.4/bbl in Q3FY22. 

Notably, Indian Oil Corp stands to benefit the most amongst other OMCs if the GRMs continue to rise or remain at such high levels. This is because the company is not only the top refiner in India but also controls one-third of India's five-million-barrels-per-day refining capacity. Also, more than 90% of its market sales volumes are met through its own refining output. As of 9 months ended December, 2021; the company derived around 38% of its EBITDA through refining operations. 

Interestingly, the OMCs’ sales volumes recovered in double-digits on a sequential basis in Q3 led by healthy demand witnessed for motor spirits. However, high-speed diesel demand continued to lag. If we come to the market sales reported by the OMCs for Q3FY22, they were largely range-bound on an YoY basis. 

The Centre reduced excise duty on petrol and diesel from November 4, 2022. Hence the OMCs could not pass on the burden of higher excise duties they paid on their fuel inventory outlets to the final consumers. Understandably, Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) suffered marketing inventory losses between Rs 1,400 and Rs 1,800 crore in Q3. 

Ultimately, weak profits from the marketing segment affected the overall operational performance of OMCs in Q3FY22.

All eyes are now on impending fuel price hikes as crude is boiling

When crude oil prices are on a downward slope, OMCs do not pass on the complete benefit of lower input costs to consumers. This is where they make higher marketing margins. If we talk about the refining segment, profits are generally lower as GRM adjusts to lower crude prices. In such a situation, analysts generally recommend a company like HPCL since it does not rely on its refining output to meet its market sales target. 

Currently our situation is the opposite to the example given above i.e. crude oil prices are rising and are at high levels. Hence, OMCs are also witnessing higher input costs which they may not be able to completely pass on. People are already feeling the pinch of high inflation and high fuel prices. 

However, higher gross refining margins on improved cracks will soften the impact of lower marketing profits. So, for Q4FY22, performance of OMC might be on the weaker side yet again as the fuel prices at their retail outlets haven't moved in tandem with international crude oil prices in the past four months. 

The spike in crude prices is so sharp, it is inevitable that pump prices will rise again.  If they do, any material impact on marketing margins of OMCs might be visible only from Q1FY23.

Analysts expect OMCs’ revenues to see a dismal YoY rise of 4% in FY23 on an average. They expect the earnings to fall by nearly 30% YoY on an average in the next fiscal.

Apollo Hospitals leverages its strong network to ramp up its omnichannel digital healthcare services

Apollo Hospitals posted strong Q3FY22 results, despite Q3 being a typically weak quarter for the hospital sector. The company’s revenues and profits continue to grow with the help of multiple growth levers. Apollo Hospital’s major growth project is Apollo HealthCo, which Apollo Hospitals formed in June 2021 to house its front-end and back-end pharmacy businesses, and the high growth digital business branded Apollo 24|7. 

Apollo Hospital’s revenue rose 32% YoY to Rs 3,656 crore and net profit rose 75% to Rs 228.4 crore. Revenue growth was driven mainly by the return of elective surgeries and higher average revenue per operating bed (ARPOB). ARPOB increased by 14.8% YoY to Rs 46,062 mainly driven by the better payor (over 75% from self-pay and insurance category) and case mix. Hospitals prefer higher contributions from self-pay and commercial insurance categories as they have higher margins than the government contracts.  

Apollo HealthCo is an omnichannel digital healthcare platform, directly competing with API Holdings (PharmEasy), which recently got the regulator’s approval for its Rs 6,250 crore initial public offering (IPO). Both online platforms are new age “healthtech'' companies offering a wide range of healthcare services. Apollo Hospitals, the parent company of Apollo HealthCo, is looking for investors to raise capital for the past two quarters. However, a deal is elusive. With API Holding’s IPO on the cards, Apollo HealthCo might then be benchmarked to  its valuation.

Apollo HealthCo posted a higher revenue of Rs 5,000 crore (9M FY22) compared to API Holdings’ Rs 2,335 crore reported in FY21 . But API Holding plans to leverage its higher number of registered users (250 lakhs vs 66 lakh of Apollo HealthCo) to drive revenues. 

Apollo Hospitals hopes to improve its operating profit margin through the backward integration of Apollo HealthCo, especially from the e-pharmacy segment. Currently, 41% of Apollo Hospital’s total revenue is derived from the pharmacy segment. Revenue from the combined pharmacy platform business rose 15% YoY in Q3FY22 to Rs 1,661 crore. The customer acquisition cost for the e-pharmacy industry is around Rs 500. However, Apollo HealthCo boasts a customer acquisition cost of Rs 150 helped by the strong network provided by its parent company. While older hospitals continue to boost the operating margins (22%), new hospitals reported lower operating margins of 12.4% in Q3FY22. With Apollo Hospitals’ plan to launch around six new hospitals in the next three years, the operating margin can come under pressure. 

The operating profit margin of Apollo Hospitals is on an uptrend from Q4FY20, helped by higher bed occupancies and higher margins from older hospitals. The operating profit margin improved by 190 basis points YoY while bed occupancy increased by 200 basis points to 65% in Q3FY22. 

Brokerages like HDFC Securities and ICICI Securities  have a positive outlook on the company as they expect it to announce strategic funding partnerships for Apollo HealthCo and in turn, drive revenue growth. The company’s management plans to raise the capital by the end of FY22. The delaying of this deal, coupled with the aggressive expansion of API holdings, can become a roadblock for Apollo Hospitals to gain market share through its omnichannel healthcare platform. 

Screener: Stocks which are outperforming their industry, with strong durability and momentum scores

Markets tumbled this month as Russia waged a war on Ukraine. The Nifty 50 and Nifty Midcap 100 indices fell 6% and 7.5%, respectively. However, the Nifty Metal gained (2%) over the past week-and-a-half.

This screener (subscriber access) shows 13 Nifty500 stocks with PE TTM lower than their industry, which are outperforming their industry in one year returns. These stocks are consistent performers with decent topline and bottom-line growth in Q3FY22.

Among the 13 companies, Narayana Hrudalaya is the only healthcare company. Pharma company Laurus Labs has also made the list.

Metal stocks like Tata Steel, among others, are gaining on analysts' expectations of upcoming export opportunities for the entire metal industry in US and European markets.On a surprising note, fertilizer stocks like Gujarat State Fertilizer & Chemicals also came up in this screener, despite crude oil prices rising. 

You can find popular screenershere.

• JK Cement: The stock of this cement company plunged nearly 14% in just two days after it announced a foray into paints business on March 5, 2022. A year ago, Grasim made a similar announcement and ended up gaining 12% in the next one week. Why did the market react to two similar events differently?

The announcement of JK Cement comes at a time when both cement and paint stocks are underperforming the broader indices. Paints and cement companies are reeling under inflationary cost pressures and posted weak results in Q3FY22. With the Russia-Ukraine conflict far from over, crude oil prices are unlikely to cool off anytime soon.

But there is more to this story. Grasim had a clear aim to become the No. 2 player in the paints industry, and the quantum of investment was accordingly set at Rs 5,000 crore. Analysts and investors took this as a positive, despite the fact that the decorative paints segment is a difficult market to crack owing to high competition. Grasim also brought with it a strong distribution network and brand. JK Cement is planning a much smaller investment of Rs 600 crore and might incur some EBITDA losses in the initial years. It is also the third company after Grasim and JSW group planning to enter the paints space. Another concern of analysts w.r.t JK Cement is a previously failed investment in the white cement plant of Fujairah, UAE. The company invested Rs 692 crore in the project and took an impairment of Rs 328 crore so far. Though the new paints business will bank on the strength of robust sales channels of JK Cement’s white cement division, the stock reaction after the announcement makes it clear that investors are not enthused with its capital allocation policy as of now.

• HDFC Bank: This private bank’s stock tanked with the broader market, falling 7% on the bourses on March 3.Nifty Bank is down 11% this month. Some analysts suggest that the stock was reeling under investor concerns over FPI (Foreign Portfolio Investment) outflows. This is because the US Federal Reserve tightened its monetary policies over the ongoing Russia-Ukraine war. These large FPI outflows shadowed HDFC Bank’s Q3FY22 performance.

HDFC Bank’s Q3 net profit rose 18.3% YoY to Rs 10,843 crore with loan AUM (assets under management) growing by 16% YoY to Rs 12,609 crore. Its credit card segment is also inching towards winning back market share after RBI lifted its ban over the issuance of new credit cards. In January 2022, HDFC Bank’s market share in outstanding credit cards stood at 23%, close to its January 2021 market share of 25%. This shows the bank’s resilience, as it regained its market share after the seven-month ban on issuing new credit cards from December 2020 to July 2021.

Reports suggest that HDFC Bank’s market share for outstanding credit cards stands at 23% for 9MFY22, with State Bank of India holding the second position with 19%.

HDFC Bank’s market share for credit card spends is at 26.6%, higher than ICICI Bank with 19.9%. With stabilizing asset quality of the bank and robust loan growth, the brokerage Motilal Oswal, gives a positive outlook on the bank in Q4FY22 as well.

• Natco Pharma: This pharmaceutical company’s stock rose 9% intraday on Tuesday as the company launched the first generic version of Revlimid (lenalidomide). Natco Pharma launched the drug with Teva Pharmaceuticals as its marketing partner in the US market. Currently, Celgene (acquired by Bristol Myers Squibb - BMS) manufactures and markets Revlimid, which is used to treat cancer, such as multiple myeloma, follicular lymphoma, and mantle cell lymphoma.

As per BMS’ quarterly filings, Revlimid’s annual US total sales were $ 8.7 billion. Natco Pharma has a 180-day exclusivity for all the strengths it has launched (5mg, 10mg, 15mg, and 25mg). Natco Pharma and Dr Reddy’s were the only two companies out of 15 to receive the product approval from the US Food and Drug Administration. Dr Reddy’s is expected to be the second to launch Revlimid in the US with 180-day exclusivity for two strengths (2.5mg and 20mg). Other generics manufacturers have also announced plans for their own versions of lenalidomide. Natco Pharma has a differentiated approach of manufacturing hard-to-make complex generic drugs including the Paragraph IV and First to File (FTF). Paragraph IV filing is a subset of an abbreviated new drug application - ANDA, where the generic applicant (Natco Pharma in this case) claims that the patent they are targeting is unenforceable.

The company derives about 50% of its total revenue through exports, mainly from the US markets. With Indian Rupee hitting a lifetime low of Rs 77.01 against US Dollar on Monday, the company stands to improve its profit margin through forex gains. This comes at a time when Indian pharma companies are struggling in the US market amid intense competition. Most pharma companies reported aggressive price erosion in the formulations business in the US markets.

• ITC: The stock of this tobacco-to-consumer goods company was up by more than 5% in the last week. It is one of the few large cap stocks that rose in while the markets were in turmoil. Although high input costs affected the margins of the company, it saw strong performance across all segments in Q3FY22 as its profit rose 15% YoY to Rs 4,056.7 crore. Revenues were up 28% YoY to Rs 18,787.7 crore as COVID-19 cases fell and business environment improved.

The company saw the revenue from its agribusiness rise 100% YoY to Rs 4,962 crore led by strong revenue growth in wheat, rice, spices, and leaf tobacco exports. The agribusiness segment contributes almost 30% to ITC’s consolidated revenue. The brokerage Edelweiss believes that the company could potentially gain from wheat exports amid the ongoing war between Ukraine and Russia. The two countries combined account for 30% of wheat exports worldwide. The brokerage added the company will gain only if regulators have a conducive policy and India’s food inflation does not become a big challenge.

In FY22, the company exported a significant quantity of wheat due to poor production in Russia and Ukraine. It has scaled up its wheat development program and has introduced location-specific superior seed varieties. As wheat production in India is estimated to reach a record high of 111.32 million tonnes this year and with the global wheat prices at a 14-year high, the Indian government wants to capitalize on this opportunity to increase exports. ITC tapping into European markets may be hard due to lack of regulatory approvals but will be able to gain in the Middle Eastern and Asian markets.  

• Gujarat Narmada Valley Fertilizers & Chemicals: This fertiliser company’s stock rose 5.3% in the last five trading sessions and hit a lifetime high of Rs 635.2 this week. The company had a stellar Q3FY22 performance with a nearly 123% rise in profits YoY to Rs 540.78 crore and revenue growing 56.4% YoY to Rs 2,428.5 crore. The stock is up 38.5% since it announced its Q3FY22 results on February 4, 2022. The company derives 68.2% of its revenue from the chemical segment and 30.9% revenue from the fertiliser segment. Being the only manufacturer of acetic acid, Toluene Di-Isocyanate (TDI), and formic acid gives the company a significant advantage in the market. The company’s domestic market share in the product segments of TDI, Formic acid, and technical grade Urea stands at 66%, 38%, and 37%, respectively. The company capitalised on higher import costs due to rising commodity prices, as it was the only domestic producer of certain products. The company also has the largest Ammonia Plant and Urea plant in India.

Amid high input costs, GNFC's margins were shielded thanks to higher realisations, leading to a profitable product mix mainly in the chemical segment. In the case of fertilisers, the support from the government for granting a special subsidy aided in minimising the adverse impact on margins. The management said it is well-positioned to benefit from the rise in demand for specific products with a flexible and diverse product mix. The company is continuously looking for growth opportunities and has initiated a capex of Rs 3,000 crore to expand its production capacity for the next three years.