shasun chemicals

Shasun Chemicals : Buy with a Price target of Rs. 90/- in 12months.

Shasun Chemicals & Drugs (Shasun) operates in three business areas -
Contract Research and Manufacturing Services (Crams), formulations and
complex chemical compounds used to manufacture APIs. We have a BUY
rating on Shasun on back of greater momentum in revenue and earnings
growth for the next two years due to increased benefits on account of
restructuring benefits and scaleup in the Contract Research and
Manufacturing Services (CRAMS) and Active Pharmaceutical Ingredients
(APIs) segments.

Shasun has added one innovator customer in its India business that
brought three early phase projects involving proprietary technology &
other innovator client in its UK business with phase II product line.
We estimate the innovative CRAMS segment to grow at a CAGR of 13.8%
from FY07 to FY09E to Rs.5.2bn with the scale-up of existing
contracts, signing of new contracts and increasing capacity
utilization.

Leasing of US-based lab to support CRAMS business: Shasun has leased a
lab in the US at Piscataway (near New Jersey) to support CRAMS
business involving an investment of USD 3mn. This is to develop APIs
for its US customers in the pre-clinical and clinical trial stages in
order to further strengthen the company's product portfolio.

The net revenues are expected to grow at a CAGR of 11.9% from
Rs.7.72bn in FY07 to Rs.9.67bn in FY09E on back of restructuring
benefits that would accrue mainly from CRAMS and API segments.

Shasun could be one of those who may be affected by Forex Derivatives
exposures and losses reported due to this could be utilized as an
opportunity to buy the stock at lower levels.

We have seen a sharp fall from levels of Rs 90+ in January to sub 40/-
levels in March. It is now consolidating in the range of Rs. 45 to Rs.
55/-. We have our diluted earnings estimates at Rs.7.41 in FY09E.
Currently, the stock is 7x on FY09E. We suggest a BUY with a price
target of Rs. 90 based on P/E of 13.5x FY09E (EPS Rs.7.41)