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Indian Hotels + Glenmark Pharma – Citi Bullish

September 19, 2007

Indian Hotels [Taj Group] acquired 10% stake in Orient Hotels in the US. Citigroup’s US lodging analyst forecasts revenue growth of 18% to US$603m and healthy EPS growth of 30% to US$1.40 for CY2007E, on REVPAR growth of 8.5% and occupancy of 62%.

The acquisition ties-in with the company’s strategy to grow overseas. While it looks to form an alliance and leverage on OEH’s luxury brand and global network, OEH’s management board has denied interest in entering into strategic discussions with Indian Hotels. If this alliance goes through, it would help the company diversify and manage downturn in India (86% of revenues) better. However, this large investment could dampen return ratios and stock sentiment in the near term. Citi maintains a BUY on Indian Hotels with a price target of Rs 187.

Meeting with the management of Glenmark Pharmaceuticals indicates that the next few months would be critical on the R&D front. It is awaiting the US FDA’s response on Oglemilast, even as it continues outlicensing discussions on GRC-6211. Besides, 2 more NCEs are set to enter the clinic over the next 2 months. Citi reiterates Glenmark as the best innovative R&D play in Indian pharma. Glenmark reiterated that it will conclude 2 R&D deals by end FY08. Glenmark is expected to report an EPS of Rs 20.27 and Rs 25.42 for FY2008 and FY2009 respectively. Citi has a BUY rating on Glenmark with a price objective of Rs 427.

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