| Summary of Contents PULSE TRACK · Inflation rate higher than expectations
STOCK UPDATE Genus Power Infrastructures
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs673
Current market price: Rs563 Price target revised to Rs673 Result highlights - Genus Power Infrastructures Ltd (GPIL) reported a 27.4% growth in the revenues. The sales were below our expectation. The meters sales continue to be robust, however the project sales were deferred due to rising input costs.
- The operating profit grew by 75.9% year on year (yoy) to Rs35.1 crore, which was way above our expectation. The operating profit margin (OPM) reported a sharp 500-basis-point improvement to 18.1% on the back of a steep decline in the other expenses. The other expenses as percentage of sales decreased to 2.5% from 11.7% in Q4FY2007.
- The interest cost was up 12.4% to Rs4.4 crore, while the depreciation charge rose by 107.5% to Rs1.4 crore. Aided by better-than-expected operating performance the net profit of the company reported a growth of 102.1% to Rs25.5 crore. This was in line with our expectation, but higher than street expectation.
- The current order book of the company stood at Rs417 crore with close to 60% coming from the meters business. The company was also the lowest bidder for orders worth Rs450 crore.
- The full year sales were lower than our expectation. Hence we have revised our earnings and our fully diluted earnings per share (FDEPS) for FY2009 now stands at Rs48.7. We are also introducing our FY2010 estimates and expect GIPL to deliver compounded annual growth rate (CAGR) of robust 32.7% and 41.6% in its revenues and profits respectively over FY2008-10E. Our FY2010 FDEPS stands at Rs63.5.
- GPIL is a leading manufacturer of electronic energy meters. In our view the company is well poised to benefit from the government's plan to spend on the country's power transmission and distribution sector. We maintain our positive outlook and our Buy recommendation on the stock with an upward revision in price target to Rs673. At the current market price, the stock trades at 11.6x its FY2009E and 8.9x its FY2010E earnings.
Bank of India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs458
Current market price: Rs361 Results above expectations Result highlights - Q4FY2008 results of Bank of India were above our expectations. The profit after tax (PAT) was Rs757 crore, indicating an impressive growth of 69.2% year on year (yoy).
- The net interest income for the quarter came in at Rs1, 216.8 crore, up 25.7% yoy on the back of continued robust growth in advances and expansion in net interest margin (NIM).
- The reported NIM for the quarter stood at 3.24%, indicating an expansion of 10 basis points yoy. The improvement in NIM was largely driven by margin expansion in international business, while the margin for the domestic business was flat at 3.71%.
- The non-interest income was up 13.3% yoy to Rs653.3 crore from Rs576.7 crore a year ago. Importantly, the year-ago non-interest income included a one-time gain of Rs52 crore from Nigerian oil bonds and a Rs14 crore gain from sale of fixed assets. Excluding these one-time gains from the year-ago period, the non-interest income for Q4FY2008 indicated a robust 27.9% year-on-year (y-o-y) growth.
- The operating expenses during the quarter were up marginally by 1.3% yoy to Rs657.9 crore. The operating expenses growth was contained due to a 7.6% y-o-y decline in staff expenses, which helped to partly offset the 20.9% y-o-y increase in the other operating expenses. Consequently, the cost-income ratio improved significantly to 41.7% from 52.1% a year ago.
- Provisions and contingencies were down by 6.5% yoy, which in turn boosted the bottom line.
- The asset quality of the bank improved during the quarter as evidenced by a 8.1% y-o-y decline in the gross non-performing assets (GNPAs) and a 27.1% y-o-y drop in the net non-performing assets (NNPAs). In line, the provisioning coverage ratio improved to 69.3% from 61.3% a year ago.
- The capital adequacy ratio (CAR) moved up to 12.95% from 11.58% a year ago, helped by qualified institutional placements (QIPs).
- Advances witnessed a strong growth of 32.3% yoy and stood at Rs114,793 crore at the end of Q4FY2008. Meanwhile, the deposits grew by 25.1% yoy to Rs150,012 crore.
- At the current market price of Rs360.7, Bank of India trades at 7.4x 2009E earnings per share (EPS), 4.1x 2009E pre-provisioning profit (PPP) per share and 1.8x 2009E book value (BV) per share. We maintain our price target of Rs458 and Buy recommendation on the stock.
Subros
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs63
Current market price: Rs40 Price target revised to Rs63 Result highlights - The Q4FY2008 results of Subros are marginally ahead of our expectations.
- The top line for the quarter grew by 2.4% year on year (yoy) to Rs187.8 crore led by a growth of 7.6% in the volume. The realisation declined by 4.8% during the quarter. The realisation dropped because Subros supplied only components for newer models of passenger cars during the quarter instead of full kits comprising compressors and components.
- The operating profit margin (OPM) improved by 110 basis points leading to an operating profit growth of 12.3% to Rs24.4 crore. Higher interest and depreciation charge led the profit after tax (PAT) to grow by 9.8% to Rs8.87 crore.
- For FY2008, sales saw a growth of 2.4% to Rs662.7 crore and PAT stood at Rs29 crore, giving earnings per share (EPS) of Rs4.8.
- The company has bagged order from Maruti Suzuki to supply compressors for the latter's new export vehicle A Star. This is expected to boost Subros' sales volumes for FY2009 and FY2010.
- We are downgrading our EPS estimate for FY2009 to Rs6.2 due to some delay in the company's exports and the substantial decline in the realisation. We are also introducing in this note our EPS estimate for FY2010—Rs9.0.
- At the current market price of Rs40 the stock is trading at compelling valuations of 4.3x FY2010E EPS and 1.9x FY2010E enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). The stock's valuations are at a huge discount to that commanded by its peers. We maintain our Buy recommendation on the stock with a revised price target of Rs63.
Grasim Industries
Cluster: Apple Green
Recommendation: Buy
Price target: Rs3,002
Current market price: Rs2,369 Price target revised to Rs3,002 Result highlights - Grasim Industries (Grasim) Q4FY2008 results were below our estimates. The company reported a top line growth of 10.8% year on year (yoy) to Rs2,742.4 crore. This was on account of higher revenues from all its divisions especially the cement division. The cement division reported a 14.7% increase in the revenues on account of a 8.9% year-on-year (y-o-y) increase in volumes to 4.27 million metric tonne (MMT) and a 9.7% y-o-y increase in grey cement realisation to Rs3,267 per tonne. The viscose staple fibre (VSF) division reported a 9.6% growth in revenues to Rs714.9 crore on account of 21.1% higher realisation at Rs107.4 per kilo. Higher realisations compensated for 10.1% lower volumes, which stood at 61,650 tonne for the quarter. Revenues from the sponge iron and chemical divisions recorded growth of 14.1% and 7.3% respectively.
- The operating profit margin (OPM) for the quarter declined by 390 basis points to 24.2% on account of an increase in the cost pressure across all the divisions. The earning before interest, depreciation, tax and amortisation (EBIDTA) margin of the cement division declined by 330 basis points yoy to 28.8%. The EBIDTA margin of the VSF division dropped by 400 basis points yoy to 26.7% mainly on account of higher pulp and sulphur prices. Sponge iron division managed to improve its EBIDTA margin by 140 basis points to 16.7%, on account of a 32% y-o-y increase in realisations. The chemical business was the worst performer with EBIDTA margin falling by 1,140 basis points yoy to 24.9%. This was mainly because of the increase in raw material and coal prices along with higher maintenance cost. Consequently the operating profit of the company declined by 4.6% yoy to Rs662.3 crore.
- The adjusted net profit of the company increased by a meagre 1.5% to Rs455.6 crore. The growth in the net profit was mainly due to an increase of 53.1% in the other income to Rs118.7 crore and a 25.9% decline in the interest expense to Rs27.2 crore.
- During the quarter ended, the company had a profit on sale of subsidiary of Rs180.3 crore (net of tax) and a write back of provision for diminution in value of investment/loans of Rs31.52 crore (net of tax). Thus, the reported net profit of the company increased by 40.6% to Rs667.4 crore.
- For the quarter ended March 2008, on a consolidated basis the net sales increased by 15.3% to Rs4,714.7 crore, and the reported PAT stood at Rs880.8 crore, up 51.2%.
- For the year ended FY2008, on a standalone basis the net sales increased by 18.9% to Rs10,278.1 crore and the adjusted PAT stood at Rs2,016.1 crore, up 33.5%. On a consolidated basis, the net sales increased by 20.5% to Rs17,036.9 crore and reported net profit stood at Rs2,891.4 crore up 47% yoy.
- At the current market price of Rs2,369, the stock is trading at 9.5x its estimated FY2009 earnings per share (EPS). Based on our sum-of-the-parts valuation, we maintain our Buy recommendation on the stock with a revised price target of Rs3,002.
Television Eighteen India
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs486
Current market price: Rs355 Price target revised to Rs486 Result highlights - TV18 has posted robust performance across businesses for Q4FY2008. The operating revenues for the quarter grew by a healthy 64.7% year on year (yoy) to Rs132.4 crore. All the segments—news, Internet, and newswire--continued their strong growth trend.
- The news business revenues grew by 52.9% yoy to Rs109.9 crore, as the TV channels CNBC TV18 and Awaaz continue to maintain their stronghold over Indian business news viewers. The operating profit margin (OPM) for the segment was up 56 basis points quarter on quarter (qoq) to 44.8%.
- Web18 continues in investment mode. Inspite of a stupendous 112.2% year-on-year (y-o-y) growth in the revenues to Rs18 crore, the operating loss for the segment stood at Rs13.2 crore, as the company continued with the policy of writing off all the costs incurred, including the capital expenditure incurred on the development of new portals. Thus, Web18 is spending heavily towards its growth, the results of which we believe would be seen over the longer term.
- Newswire18 posted a 25.6% quarter-on-quarter (q-o-q) growth in its revenues to Rs4.5 crore. The operating loss stood at Rs2.0 crore. The business is witnessing rapid subscriber addition and we expect the business to break even in FY2009.
- The consolidated OPM of the company during the quarter stood at 25.7% against 39.4% in the corresponding quarter last year (and 28% in Q3FY2008). The overall OPM continues to be impacted by the heavy spend on augmenting Internet and newswire businesses. Thereby, the operating profit growth was restricted to 7.4% yoy to Rs34 crore.
- Higher depreciation, interest and substantially higher tax rate led the adjusted profit after tax (PAT) pre-ESOP charge during the quarter to be at Rs15.2 crore against Rs23.1 crore in Q4FY2007.
- Though the fundamental attributes of TV18’s business model remain on a strong footing, on the back of potential increase in competition, dependence on stock market participants and unlocking of value in Web18 appearing distant we are reducing our sum-of-the-parts price target to Rs486 and maintain a Buy recommendation on the stock.
3i Infotech
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs180
Current market price: Rs132 Results below expectations Result highlights - 3i Infotech's consolidated revenues grew by 10.3% quarter on quarter (qoq) and 66.5% year on year (yoy) to Rs349.9 crore in Q4FY2008. While, the organic revenue growth was 7.1% sequentially, acquisitions contributed 3.2% to the sequential growth in the top line during the quarter.
- The operating profit margin (OPM) was flat at 24.8% in Q4FY2008. The operating profit grew 9.9% qoq to Rs86.7 crore during the quarter.
- The company's net profit grew by 0.6% to Rs48.8 crore, which was below our expectation of Rs53.7 crore. This was primarily due to lower than expected other income on account of foreign exchange mark-to-market losses in foreign currency convertible bonds (FCCBs). The company reported other income of Rs2.2 crore during the quarter compared to Rs6.1 crore in the previous quarter.
- For FY2009, the company guided a top line growth of 40% to ~Rs1,700 crore and an earning growth of around 30%, leading to a fully diluted earnings per share (EPS) of Rs13-Rs13.5. The guidance has factored in only the organic growth and the fully diluted capital including FCCBs.
- The company proposed a dividend of Rs1.5 per share for FY2008.
- 3i Infotech acquired Regulus for $80 million. Regulus generated sales of $148 million and earnings before interest, depreciation, tax and amortisation (EBITDA) of $20 million in CY2007. The acquisition is funded through syndicated loans with interest rate of Libor plus the premium (base rate of 7%). The company has acquired Regulus at attractive valuation of enterprise value (EV)/EBITDA of 4.0x CY2007. The acquisition appears to be cash accretive since this will directly contribute ~$15 million (EBITDA of $20 million-interest expenses of $5.6 million [7% on $80 million]) to the bottom line next year.
- To fine tune our earning estimates, we have revised our FY2009 earning estimates by 3.4% and have introduced FY2010 earning estimates in this note. At the current market price, the stock is trading at 9.8x FY2009 and 8.4x FY2010 earning estimates. We maintain our Buy recommendation on the stock with price target of Rs180.
State Bank of India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs2,680
Current market price: Rs1,822 Q4FY2008 results: First-cut analysis Result highlights - State Bank of India reported a profit after tax (PAT) of Rs1,883.3 crore, indicating a growth of 26.1% year on year (yoy) and 4.1 quarter on quarter (qoq). The bottom line was above our expectation of Rs1,703 crore.
- The net interest income for the quarter came in at Rs48,00.6 crore, up a muted 5.6% yoy. The non-interest income was up 16.5% yoy to Rs2,817.2 crore on the back of strong growth in CEB (up 30.9%), while the treasury income was largely flat at Rs296.5 crore.
- The operating expenses were flat at Rs3,244.7 crore. The flattish operating expenses, was primarily due to a 22.4% year-on-year decline in staff expenses. Meanwhile, other operating expenses grew by 37.1% yoy.
- Provisions and contingencies during the quarter were up 37.7% to Rs1,619.1 crore primarily driven by higher loan loss provisions.
- The effective tax rate for the quarter at 31.6% was lower compared to 41.6% a year ago and helped boost the bottom line.
- Net advances registered a growth of 23.4% during the quarter to Rs435,521 crore, while deposits were up 23.6% to Rs337,336 crore.
- Asset quality deteriorated marginally on relative and absolute basis. In absolute terms, the gross non-performing assets (GNPAs) increased by 28.4%, while the net non-performing assets (NNPAs) increased by 41.2%. In relative terms, the %GNPA inched up to 3.04% from 2.92% a year ago, while the %NNPA reached 1.78% from 1.56% a year ago.
- Capital adequacy ratio helped by the mega rights issue came in at 13.47%, registering an improvement over 12.34% a year ago.
- At the current market price of Rs1,822, the stock trades at 16.2x 2009E earnings per share, 7.4x 2009E pre-provisioning profit per share and 2x 2009E book value per share.
SECTOR UPDATE Automobiles Positive beginning across segments
Automobile sales, across all the segments, have begun on a positive note in FY2009. Both two-wheelers and passenger cars have reported good sales growth in April 2008. However, how sustainable would this revival be is yet to be seen. In the case of four wheelers, the sales have been pushed due to the impending price hike (to be effective from May 2008). Sales of automobiles were expected to revive from April onwards on the back of the excise duty cut on two wheelers and small cars announced in the Union Budget 2008-09. |
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