| Summary of Contents STOCK UPDATE Reliance Industries
Cluster: Evergreen
Recommendation: Hold
Price target: Rs1,125
Current market price: Rs1,053
Q3FY2010 results: First-cut analysis Result highlights -
Reliance Industries Ltd (RIL)?s Q3FY2010 results were in line with our expectations. The company?s net income grew by 15.8% year on year (yoy) to Rs4,008 crore, which was in line with our estimate of Rs4,011 crore for the quarter. The company reported a gross refining margin (GRM) of USD5.9 per barrel for Q3FY2010 versus USD6 per barrel in Q2FY2010; the same was above our and the street?s expectations of USD5.5 per barrel. -
The net sales grew by a phenomenal 92.3% yoy to Rs56,856 crore in Q3FY2010 mainly due to higher volumes (on the back of the start of its new Jamnagar refinery and the gas production at the Krishna-Godavari [KG] D-6 block) and higher prices. The revenues from the petrochemical business grew by 16.9% yoy while that from the refining segment increased by 142.9% yoy. The revenues from the oil & gas segment rose by 242.4% yoy. -
The operating profit margin (OPM) declined by 436 basis points yoy to 13.8% in Q3FY2010 mainly on the back of a decline in the GRM to USD5.9 per barrel from USD10 per barrel in Q3FY2009. The operating profit grew by 46.1% yoy to Rs7,844 crore in Q3FY2010. In terms of the segments: -
The margins of the petrochemical division improved by 80 basis points yoy to 13.9%. On a sequential basis, the margins of the petrochemical division declined by 252 basis points on account of a higher price of naphtha, a key raw material for the petrochemical segment. -
The margin for the refining division declined sharply by 664 basis points yoy to 2.9% due to a decline in the GRM to USD5.9 per barrel in Q3FY2010 from USD10 per barrel in Q3FY2009. -
The exploration and production (E&P) division?s margin contracted by 1,674 basis points yoy to 41.8%. Despite a 111.3% year-on-year (y-o-y) increase in the depreciation charge (due to the start of the KG D-6 project and the merger of Reliance Petroleum) and a 189-basis-point rise in the effective tax rate to 20% [due to increase in minimum alternative tax (MAT)], the company?s net income grew by 15.8% yoy to Rs4,008 crore, which was in line with our estimate of Rs4,011 crore. During M9FY2010, the Petroleum Trust sold 1.5 crore equity shares of the company. The trust realised about Rs3,188 crore at an average price of about Rs2,125 per share. Subsequent to December 31, 2009, Petroleum Trust further sold 5.9 crore equity shares and realised about Rs6,146, crore at an average price of about Rs1,044 per share. Reliance Industrial Investments and Holdings, a wholly owned subsidiary of RIL, is beneficiary of the trust. In our view, the sale of treasury shares has been aimed at raising money to acquire a controlling stake in LyondellBasell. On November 23, 2009, RIL had submitted an all-cash but non-binding bid to buy a controlling stake in the petrochemical major LyondellBasell, if the latter emerges out of the Chapter 11 bankruptcy. RIL ramped up the gas production in the KG D-6 block (D1 and D3 fields) to 60 million standard cubic meter per day (mmscmd) in Q3FY2010. The company has said that the design capacity of the KG D-6 gas production facilities has achieved a flow rate of 80mmscmd. With the allocation of additional 50mmscmd of gas by the government, we expect gas production from the field to ramp up sharply in the next two quarters. In terms of financial health, the company?s debt as on December 31, 2009 stood at Rs70,008 crore compared to Rs73,904 crore as on March 31, 2009. The cash and cash equivalents were around Rs15,959 crore as on December 31, 2009. As a result, the net debt of the company stood at Rs54,049 crore as on December 31, 2009. Currently, the stock is trading at 13.6xFY2011 earnings estimate and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 8.6x. We maintain our Hold recommendation on the stock. We will follow this up with a detailed note shortly. ITC
Cluster: Apple Green
Recommendation: Hold
Price target: Rs271
Current market price: Rs249
Q3FY2010 results: First-cut analysis Result highlights -
ITC?s Q3FY2010 results were ahead of our as well as the street?s expectations on the back of a healthy performance by all the businesses. The net sales (including the other operating income) grew by 18.7% year on year (yoy) to Rs4,580.2 crore, which was ahead of our expectation of Rs4,481.9 crore for the quarter. -
The cigarette business continues to post a strong performance with the gross revenues growing by 13.4% yoy (net sales grew by 17.0% yoy) during the quarter. We believe the revenue growth was equally contributed by the increased sales volumes and price increases implemented by the company. The profit before interest and tax (PBIT) margin of the business improved by 55 basis points yoy to 29.6%. -
The highlight of the Q3FY2010 results was the performance of the non-cigarette fast moving consumer goods (FMCG) business. The revenues of the business grew by 23.5% yoy, better than the 14% year-on-year (y-o-y) growth in Q2FY2010 and the 11.8% y-o-y growth in H1FY2010. Also, the PBIT losses of the non-cigarette business came down to Rs86.0 crore as against Rs127.0 crore in Q3FY2009. -
Though the hotel business was expected to post a better performance in Q3FY2010 on the back of improved occupancies and average room rates (ARRs), and the commencement of the new hotel property in Bangalore, the flattish y-o-y growth in the revenues to Rs264 crore is ahead of our expectation. The PBIT margin of the business stood at 28.8% as against 33.7% in Q3FY2010. -
The agribusiness? performance was in line with the expectation. The business registered a hefty revenue growth of 45.6% yoy to Rs905.2 crore and its PBIT margin improved by 350 basis points yoy to 11.6% during the quarter. The strong growth in the agribusiness? revenue and the PBIT margin could be attributed to sustained high growth in leaf tobacco exports. -
The paperboards, paper and packaging business registered a stellar performance with the gross revenue growing by 29.5% yoy and the PBIT margin improving by robust 725 basis points yoy to 23.8%. -
Thus, the declining losses in the non-cigarette FMCG business coupled with the higher margins in the agribusiness and paperboards, paper and packaging business resulted in a 157-basis-point y-o-y improvement in the operating profit margin. The operating profit grew by 23.9% yoy to Rs1,707.6 crore. -
The other income stood at Rs159.1 crore as against Rs97.6 crore in Q3FY2009. Thus, the healthy operating performance across the business segments along with a higher other income resulted in a 26.7% y-o-y growth in the reported net profit to Rs1,144.2 crore, which is ahead of our expectation of Rs1,059.6 crore for the quarter. -
At the current market price the stock trades at 23.8x its FY2010E of Rs10.5 and 20.3x its FY2011E of Rs12.3. We shall revisit our estimates after the interaction with the management of the company. Though we have a Hold recommendation on the stock, the stock has corrected significantly since our last update (on November 24, 2009). Hence, we may upgrade our recommendation on the stock in the detailed note that will follow soon. Our current price target stands at Rs271. Corporation Bank
Cluster: Apple Green
Recommendation: Hold
Price target: Rs483
Current market price: Rs447
Q3FY2010 results: First-cut analysis Result highlights -
Corporation Bank reported a healthy set of numbers in Q3FY2010, well ahead of our estimates (both at top line as well as bottom line front). The strong Q3 results were led by a 23-basis-point (calculated) sequential improvement in the margins, reduction in the cost to income ratio to 35.2% as against 40.9% in Q2FY2010 and healthy business growth in the quarter. The bank reported a net profit Rs305 crore in Q3FY2010, up by 18.9% yoy, and a net profit of Rs857.9 crore for M9FY2010, up by 35.7%. -
The net interest income came in at Rs599.4 crore, up by 25.4 % yoy and 19% quarter on quarter (qoq) on account of a healthy 26.2% year-on-year (y-o-y) growth in the advances coupled with a sequential improvement in the net interest margin (NIM; calculated) to 2.41%. -
The NIM improvement was largely on account of an improvement in the cost of funds (calculated), which grew by 41 basis points on a sequential basis and offset the decline in the yield on advances by 52 basis points qoq. -
The non-interest income declined by 10.8% yoy to Rs251.7 crore mainly due to lower treasury gains, which came at Rs36.8 crore as against Rs123.4 crore in the year-ago quarter. While the performance on the core fee income front stood strong with a 186.5% y-o-y growth, it includes Rs108.4 crore of other income, the source of which is not known and we await the management?s clarification on the same. -
The operating expenses went down by 3.6% yoy to Rs299.5 crore on account of a dip in the staff expenses by 24.6% yoy, as a result of which the cost to income ratio improved to 35.2% from 40.9% in the same period of the last year. -
The provision expenses surged six fold to Rs127.1 crore from Rs18.5crore a year-ago due to Rs19 crore of investment depreciation as against the write-back of Rs60.1crore yoy. The non-performing asset (NPA) provisions also increased by 38.7% yoy leading to a steep rise in overall provisions. -
The asset quality of the bank deteriorated, as the gross non-performing assets (GNPA) increased by 34.3% yoy and 20% qoq to Rs752.3 crore. Accretion to GNPA largely came from agricultural sector, which added Rs47 crore to the figures. In line, the GNPA in percentage terms (%GNPA) inched up to 1.32% versus 1.24% in Q3FY2009, while the net non-performing asset in percentage terms (%NNPA) stood at 0.45% vis-?-vis 0.33% in the previous quarter. The provision coverage ratio also dropped to 65.7% from 73.24% in the previous quarter. -
The business growth during the quarter was healthy and well ahead of the industry growth. The advances grew by 26.2% yoy to Rs56,710 crore, while the deposits grew by 36.4% yoy to Rs84,411 crore. Overall, the balance sheet growth was strong at 35.4% yoy. -
As on December 31, 2009, the bank remains well capitalised with capital adequacy ratio (CAR) of 17.24% (as per Basel II), with tier-I ratio of 10.38%. Corporation Bank has by far the best capital adequacy among its peers, and a strong tier-I component leaves the bank with ample headroom to raise tier-II capital. -
At the current market price of Rs447, the stock trades at 5.6x FY2011E earnings per share, 2.8x FY2011E pre-provisioning profit per share and 1x FY2011E book value per share. In light of the higher than expected earnings, we would upgrade our estimates post management meet and follow it up with a detailed analysis. Currently, we have a Hold rating on the stock (price target Rs483). Allahabad Bank
Cluster: Cannonball
Recommendation: Hold
Price target: Rs144
Current market price: Rs134
Q3FY2010 results: First-cut analysis Result highlights -
For Q3FY2010 Allahabad Bank has reported a net profit of Rs345.4 crore, down 6.5% on a year-on-year (y-o-y) basis though above our estimate of Rs320 crore. The outperformance was the result of a higher than expected improvement in the net interest margin (NIM) and a strong advances growth. -
The net interest income (NII) for the quarter stood at Rs675.6 crore, up by 11.8% yoy and by 12% quarter on quarter (qoq). The growth was driven by a 13-basis-point sequential expansion in the NIM coupled with a robust 8% advances growth on a sequential basis. -
The reported NIM expanded by 13 basis points qoq to 2.97%, mainly driven by a 40-basis-point contraction in the cost of funds. Meanwhile the yields on funds contracted by 26 basis points qoq, driven by lower yields in both advances and investments. -
The non-interest income declined by 17% yoy to Rs339.5 crore, as the treasury income dropped by 54% yoy to Rs133.3 crore during the quarter. Importantly, the fee-based income grew by a robust 32% yoy as the bank leveraged its CBS branch network to achieve higher growth in the fee-based income. -
The bank maintained a tight leash over its operating expenses during the quarter, as a result of which the increase in the operating expenses was contained at 5.3% yoy. During the quarter the bank made an ad-hoc provision to the tune of Rs47 crore towards pension liability and Rs10 crore towards wage arrears. -
The provisions for the quarter came in at Rs246.3 crore, up 140% yoy on a lower base. The non-performing asset (NPA) provisions went up by 57% yoy to Rs110 crore while the investment depreciation provision stood at Rs63 crore vs a write-back of Rs68 crore in the year-ago quarter. Importantly, the other provisions jumped up sharply by three-fold to Rs73 crore (possibly due to the provisioning on additional restructuring). The resulting provisioning coverage of 80.4% is well above the 70% level mandated by the central bank. -
The business of the bank grew well above that of the industry during the quarter. The advances grew by a strong 24% yoy while the deposits grew by 25.4% yoy. Meanwhile on a sequential basis, the advances and deposits grew by 8% each. The growth in the advances was led by the small and medium enterprise (SME) and agriculture segments. -
The asset quality of the bank deteriorated in absolute terms. In absolute terms, the gross non-performing assets (GNPA) increased by 7.2% qoq to Rs1,160.5 crore. Meanwhile, the asset quality in relative terms, at both gross and net levels, stood almost steady qoq. -
The capital adequacy ratio (CAR) of the bank came in at 15% at the end of Q3FY2010?largely in line with that in the previous quarter. During the quarter the bank raised Rs650 crore (tier I: Rs150 crore; tier II: Rs500 crore) to augment its capital adequacy. -
Allahabad Bank has reported a healthy set of numbers for the third consecutive quarter. The bank is witnessing strong traction in its core fee income as it leverages its CBS branch network while maintaining healthy business growth momentum. While the GNPA growth was a little higher at 7% qoq, the bank maintains provision coverage among the highest in the industry. At the current market price of Rs134, the stock trades at 4.4x its FY2011E earnings per share, 2.1x FY2011E pre-provisioning profit per share and 1.0x FY2011E adjusted book value per share. We shall follow up this note with a detailed analysis shortly. We maintain our Hold recommendation on the stock. Grasim Industries
Cluster: Apple Green
Recommendation: Hold
Price target: Under review
Current market price: Rs2,607
Q3FY2010 results: First-cut analysis Result highlights -
Grasim Industries? Q3FY2010 adjusted net profit on a stand-alone basis grew by 80.8% year on year (yoy) to Rs595.9 crore, which is below our estimates. This was on the back of lower-than-expected profit before interest and tax (PBIT) margin of the cement division and higher-than-expected effective tax rate during the quarter. -
The revenues grew by 14.6% yoy to Rs3,087.9 crore driven mainly by the strong performance of the viscose staple fiber (VSF) division (which saw revenues grow by 70.7% yoy to Rs962.4 crore?the highest ever). The revenues from the cement division grew by 17.3%?in line with our estimates. However, due to absence of revenues from the sponge iron division and poor performance of the chemical division, the overall revenue growth was capped at 14.6% yoy. -
The operating profit margin (OPM) improved significantly by 13.2 percentage points yoy to 33.1% but declined by 187 basis points on a quarter-on-quarer basis. The OPM expansion on a year-on-year basis was mainly on account of improvement in the PBIT margin of the VSF and the cement division. Moreover, the power & fuel cost as percent of sales declined to 17.2% as against 20.1% in Q3FY2009. Thus, the operating profit increased by 91.1% yoy to Rs1,021.9 crore. -
The interest outgo increased by 14.8% yoy to Rs50.4 crore and the depreciation charge rose by 18.9% yoy to Rs142.4 crore. The depreciation charge increased because of capacity addition carried out by the company during the quarter. -
The effective tax rate increased to 32.4% as against 20.8% a year ago. The reported net profit improved by 80.8% yoy to Rs595.9 crore. -
The company commissioned a 1.5 metric million tonne (MMT) cement plant at Kotputli taking the total cement capacity of the company on a consolidated level to 48.8MMT. -
We will fine tune our earnings estimate and come out with a detailed note soon. At the current market price of Rs2,607, the stock trades at price/earnings (PE) of 12.2x FY2011 earnings estimates and enterprise value (EV)/earnings before interest, tax, depreciation and amortisation (EBITDA) of 6.8x on FY2011E. We maintain our Hold recommendation. Punj Lloyd
Cluster: Apple Green
Recommendation: Hold
Price target: Rs229
Current market price: Rs186
Q3FY2010 results: First-cut analysis Result highlights -
Punj Llyod Ltd (PLL) continued to post disappointing numbers in Q3FY2010 due to issues related to legacy orders. The consolidated performance was sharply lower than our as well as street?s expectations. Apart from decline in revenues, the earnings on a consolidated basis were dented by a provision of Rs165 crore for the bio-ethanol project implemented by its UK-based subsidiary Simon Carves. -
The stand-alone performance was much better than the consolidated performance. On a stand-alone basis, the total income rose by 18.2% year on year (yoy) to Rs2,116.6 crore. The operating profits margin (OPM) declined by 70 basis points to 13% on the back of higher raw material cost. However, the reported net profit was up by 31.5% yoy to Rs117.5 crore. -
On the other hand, the consolidated revenues declined by 6.9% yoy (versus our estimates of 5.7% yoy growth) to Rs3,143.4 crore. Moreover, the company accounted for Rs165 crore of cost overruns related to Ensus bio-ethenol project of Simon Carves, resulting in a reported consolidated net profit of just Rs12.5 crore. However, adjusting for the one-time items, the consolidated earnings would have stood at healthy levels of around Rs164 crore. -
The current order book stands at Rs23,431 crore with orders from African region forming 43% of the backlog. The company reported order inflow of Rs1,521 crore in Q3, which is much lower than the orders worth over Rs8,300 crore bagged in Q2. -
At the current market price, the stock is trading at 10.2x FY2011 estimates. We currently have Hold recommendation on the stock. We will revisit our estimates, price target and recommendation post our interaction with the management.
Bharti Airtel
Cluster: Apple Green
Recommendation: Hold
Price target: Rs350
Current market price: Rs321
Results in line with expectations Result highlights -
Bharti Airtel Ltd (BAL)?s Q3FY2010 results were in line with our expectations. The consolidated revenues declined by 0.7% sequentially to Rs9,772.2 crore, as against our estimate of Rs9,700 crore. The net profit fell by 4.8% quarter on quarter (qoq) to Rs2,209.7 crore, largely in line with our estimate of Rs2,214.7 crore. -
The overall operating profit was down by 5.6% qoq to Rs3,911.2 crore mainly led by a 6.5% sequential drop in the operating profit of the mobile business. The operating profit margin (OPM) contracted by 204 basis points qoq to 40%. Despite a 6.5% drop on the operating level, the sequential net profit drop was arrested at 4.8% aided by foreign exchange (forex) gain of Rs148.6 crore, leading to a net interest income of Rs176.9 crore for the quarter as against an interest expense of Rs42.8 crore in Q2FY2010. -
The intensifying tariff pressure led to further deterioration of the company?s key operating metrics. The average revenue per minute (ARPM) declined by 8% qoq at Rs0.52 and despite festive season the minutes of usage (MoU) showed a flattish to negative stance, standing at 446 minutes in Q3FY2010 as against 450 minutes in Q2FY2010. -
The revenues from the mobile segment declined by 1.7% on a sequential basis due to a 8% q-o-q drop in the ARPM to Rs0.52, partially offset by a 6.8% q-o-q increase in the total MoU to 15,345 crore minutes. The average revenue per user (ARPU) for the quarter declined sequentially by 8.7% to Rs230 as against our estimate of Rs228. -
Given the intense competition-led pricing pressure on the mobile business, we are now factoring in a decline of 25% and 22% in the spread per minute for FY2010 and FY2011 respectively. Further, we have also mellowed down our revenue growth for the non-mobile segment at 17.1% and 16.4% for FY2010 and FY2011 respectively. Our revised earnings per share (EPS) for FY2010 and FY2011 stands at Rs24.1 and Rs22.8 respectively. Further, we are introducing our FY2012 estimates and expect BAL to report FY2012 EPS at Rs23.3. -
The aggressive pricing strategy by some operators has adversely impacted the valuations of the entire sector. And rightly so, as it will have negative impact on the profitability of incumbent operators. We believe that the flow of negative news could continue over the next few months, resulting in weakness in the stock. However, such irrational pricing would hasten the consolidation process in the sector and players with strong balance sheet, scale and brand would emerge as winners. Thus, investors with patience and fairly long-term investment horizon should gradually accumulate the stock. -
At the current market price, the stock trades at 14.1x its FY2011 estimated earnings and 7.3x enterprise value (EV)/earnings before interest, tax, depreciation and amortisation (EBITDA). We maintain our near-term cautious view on the sector and maintain Hold recommendation on the stock with a price target of Rs350. At our price target the stock would be ruling at 15.3x its FY2011E earnings. Ipca Laboratories
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,470
Current market price: Rs1,204
Price target revised to Rs1,470 Result highlights -
Ipca Laboratories (Ipca) has reported a strong performance for Q3FY2010 with a 26.3% increase in its net sales, driven largely by a robust growth in the domestic formulation markets (up by 37.5%) and sustained traction in the active pharmaceutical ingredient (API) exports (up by 32.8%). The revenues from the export formulations languished at 11.4% due to a decline in the branded formulation segment (down 16%) on account of lower institutional tender business and continuous challenge in the Russian/Commonwealth of Independent States (CIS) market. -
Ipca?s reported operating profit margin (OPM) stood at 22.8%, up ten basis points year on year (yoy) and marginally ahead of our estimate of 22%. The OPM remained firm largely on account of a change in the product and market mixes (a higher share of high-volume, low-margin APIs). We expect the OPM to stay steady at ~21% over FY2010-12. While there will be a consistent increase in the proportion of higher-margin businesses like branded formulations and regulated market APIs, the likely appreciation in the rupee as well as the growing regulatory expenditure on filings and research and development (R&D) would offset the benefits. -
Driven by a strong operating performance, Ipca?s reported net profit in Q3FY2010 grew by 151.3% to Rs58.3 crore, aided by a lower interest cost. The company incurred a foreign exchange (forex) loss of Rs1.65 crore vis-?-vis a loss of Rs19.2 crore in Q3FY2009. On adjusting for the forex impact, the adjusted profit after tax (PAT) stood at Rs59.9 crore, ahead of our estimate of Rs45 crore. Aided by the low base of FY2009, the net profit is expected to double in FY2010 and grow at a compounded annual growth rate (CAGR) of 18% over FY2010-12. -
We are upgrading our estimates to factor in the strong growth posted by the company in M9FY2010 across its API and formulation businesses. We estimate the revenues to post a CAGR of 20% over FY2010-12. Our revised earnings per share (EPS) estimates stand at Rs84.7 (vs Rs78.5) and Rs97.9 (vs Rs90.1) for FY2010 and FY2011 respectively. We are also introducing our FY2012 numbers and forecast EPS of Rs117.6 for the year. Ipca?s board has also approved a stock split of five equity shares of Rs2 each for every one equity share of Rs10 each and an interim dividend of Rs4, and is awaiting the shareholders? approval. -
At the current market price of Rs1,204, Ipca is attractively valued at 14.2x FY2010E earnings and 12.3x FY2011E earnings. Although the stock has outperformed the market over the last few months, the valuations at these levels seem absolutely compelling when viewed in the context of the strong growth potential of the company. Based on the strong earnings visibility from the export segment and the scale-up in the US business, we maintain our Buy recommendation on the stock with a revised price target of Rs1,470 (15x its FY2011E earnings). Larsen & Toubro
Cluster: Evergreen
Recommendation: Hold
Price target: Rs1,658
Current market price: Rs1,472
Price target revised to Rs1,658 Result highlights -
Larsen and Toubro (L&T)?s Q3FY2010 sales growth was disappointing, though the profit after tax (PAT; adjusted for the extraordinaries) was marginally above our expectation on the back of a good operating performance. The subdued growth in sales was mainly due to the slower progress of certain projects (due to various factors) as well as the delayed financial closure of a few infrastructure projects. -
The stand-alone sales declined by 6.1% year on year (yoy) to Rs8,071 crore on account of the poor performance by the engineering & construction (E&C) division. The quarterly sales were also hit by the deferment of some high-value orders in the infrastructure and hydrocarbon segments. -
The revenues of the electrical & engineering (E&E) division increased by 11.4% yoy mainly driven by the industrial recovery. The revenues of the machinery & industrial products (MIP) segment went up by 11.1% yoy led by the recovery in the construction and mining equipment businesses. -
The profit before interest and tax (PBIT) margin of the E&C division improved by 100 basis points yoy to 12.2%. The PBIT margin of the E&E division fell by 20 basis points yoy to 12.1% while that of the MIP division jumped to 20.4% from 14.3% in the corresponding quarter of the last year. The operating profit margin (OPM) improved by 140 basis points yoy to 11.8%, which was above our expectation of 10%. The improvement in the margin was driven by operating cost efficiencies and lower commodity price levels. -
The other income included Rs86 crore from the profit on the sale of the Mahindra Satyam stake sale. The interest cost fell by 43.5% yoy due to an extra charge on account of the financial effect pertaining to the retirement benefits in Q3FY2009. The PAT (net of the extraordinaries) of the company grew by 15.3% to Rs696.3 crore for the quarter (against our estimate of Rs679.6 crore). -
The company reported an extraordinary gain of Rs62.6 crore on account of the sale of part of its holding in Mahindra Satyam (erstwhile Satyam Computer Systems) during the quarter. -
The order inflow increased by 22% yoy to Rs17,620 crore while the order backlog surged by 32% yoy to Rs91,104 crore. The Q3 order inflow improved on increased orders from the power, fertiliser, building and industrial sectors. The management has maintained its guidance of 30-35% increase in orders in FY2010 with stable margins but lowered its guidance for FY2010 revenues from 15% to 10%. This implies a year-on-year (y-o-y) growth of ~30% in revenue for Q4FY2010. -
In view of the Q3FY2010 results, we have revised our estimates downward for FY2010; we now estimate L&T?s stand-alone top line would post a y-o-y growth of 10% (versus the earlier estimate of 17.4% growth) in FY2010 with earnings per share (EPS) of Rs49.3. We also introduce our FY2012 estimates in this note. -
The growth outlook for FY2011-12 remains intact driven by the strong execution of its order backlog and robust capital expenditure (capex) outlook. We expect the consolidated earnings to grow to Rs78.6 and Rs95.3 in FY2011 and FY2012 respectively. Overall, we expect L&T to post a compounded annual growth rate (CAGR) of 19.4% in the top line and of 25.2% in the bottom line respectively over FY2009-12. -
At the current market price, the stock is trading at 18.7x its FY2011E consolidated earnings and 11.9x FY2011 enterprise value (EV)/earnings before interest, tax, depreciation and amortisation (EBITDA). Subsequent to the change in our estimates, we have revised the Sum of Total Parts (SOTP) price downwards to Rs1,658. Though most of the negatives are already discounted, the stock could under perform in the near term. We maintain our Hold recommendation on the stock with a revised price target of Rs1,658. Shree Cement
Cluster: Cannonball
Recommendation: Hold
Price target: Rs2,150
Current market price: Rs2,075
Price target revised to Rs2,150 Result highlights -
Shree Cement has reported lower than expected earnings for Q3FY2010. The adjusted net profit of the company grew by 31.8% year on year (yoy) to Rs168.4 crore, which is below our estimate on account of a lower than expected margin in the cement division (largely due to lower than expected average blended realisation) and a higher than expected effective tax rate. -
The company has reported a revenue growth of 30.3% yoy to Rs866 crore for the quarter. The revenue growth was driven by a 22.1% increase in the volume to 2.6 million metric tonne (MMT; including clinker sales) and a 5.2% increase in the blended realisation to Rs3,213 per tonne. Moreover, additional income from the sale of power units (Rs42.8 crore) also supported the top line growth. -
The operating profit margin (OPM) improved by 456 basis points yoy to 38.7% largely driven by (a) a decline in the power & fuel cost (down 18.5% to Rs611 per tonne) due to the installation of a captive power plant; (b) a 5.2% increase in the blended realisation to Rs3,213; and (c) additional revenue from the more profitable power division. Consequently, the operating profit increased by 47.8% yoy to Rs335.3 crore. However, sequentially the OPM contracted by 656 basis points on account of a drop in the cement prices. -
The depreciation charge increased by 86% yoy to Rs94.7 crore due to capacity addition in the cement division and the installation of a captive power plant. The cement capacity at present stands at 9.1MMT with captive power capacity of 119MW. -
An increase in the tax rate to 31.3% during the quarter as against our estimate of 20% further limited the bottom line growth of the company. The reported profit after tax (PAT) increased by 35.1% yoy to Rs167.4 crore. During the quarter the company wrote off assets constructed at the other premises to the tune of Rs1.4 crore as against Rs5.3 crore in a year-ago quarter so the adjusted PAT works out to Rs168.4 crore, showing a growth of 31.8% yoy. -
We have revised our earnings estimate upwards mainly to factor in the recent increase in the cement prices and the lower than expected depreciation charge of the company. The revised EPS estimates work out to Rs266 and Rs191.5 for FY2010 and FY2011 respectively. In this note we are also introducing our earnings estimate for FY2012 at Rs197.5. At the current market price the stock trades at price/earnings (PE) of 10.8x, an value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 4.7x on FY2011 and EV/tonne of USD113 on expanded capacity of 13 million tonne. We value the stock on the average EV/tonne of FY2011 and FY2012 and arrive at a price target of Rs2,150. However, due to limited upside from the current level we maintain our Hold recommendation.
SECTOR UPDATE Insurance Private players grow their pie
The annual premium equivalent (APE) for the life insurance industry displayed a robust growth in December 2009, as the low base effect of the previous year remained prevalent. The APE grew by a strong 58.9% year on year (yoy) in December 2009, as both the private players and Life Insurance Corporation (LIC) recorded a stellar year-on-year (y-o-y) growth.
SHAREKHAN SPECIAL Monthly economy review Economy: Export growth turns positive -
India?s trade deficit in November 2009 came in at USD9.7 billion, declining on a year-on-year (y-o-y) basis but increasing on a month-on-month (m-o-m) basis. On a y-o-y basis, the trade deficit fell by 21.4% whereas the sequential increase in the same stood at 10%. Notably, exports registered a y-o-y growth of 18.2% in November 2009, after contracting for 13 consecutive months. Meanwhile imports continued to contract albeit at a slower pace of 2.6% year on year (yoy). -
The Index of Industrial Production (IIP) for November 2009 registered a growth of 11.7% yoy, well above the consensus estimate of 10% y-o-y growth. The growth in industrial output during November 2009 was broad based and spanned across segments. The manufacturing segment posted the highest growth at 12.7% yoy followed by the mining and electricity segments with 10% and 3.3% y-o-y growth respectively. -
The inflation rate for December 2009 came in at 7.31%, which stood in line with the consensus estimate of 7.32%. The inflation rate for December 2009 indicates a 253-basis-point increase from the November 2009 inflation rate of 4.78%, led primarily by the rising prices of food products and articles. -
Globally, the macro economic data continues to point towards signs of economic recovery with industrial production and exports showing signs of a revival. However, the looming threat of rising inflation and high unemployment rates pose concerns relating to the sustainability of growth especially after the phasing out of the fiscal stimulus measures announced earlier (read more under ?Global round-up?). Banking: Credit offtake shows signs of revival -
The credit offtake (non-food) registered a growth of 14.3% yoy (as on January 1, 2010), higher than the 12.7% y-o-y growth seen during the previous period (December 25, 2010). The deposit growth continued to moderate during January 2010 as it fell to 17.6% yoy (as on January 1, 2010), lower compared with the 18% y-o-y increase seen as on December 25, 2009. -
The credit-deposit (CD) ratio remained more or less stable at 69.7% (as on January 1, 2010), in line with that of the previous month. Meanwhile, the incremental CD ratio expanded to 58.2% from 51.5% seen in the previous period (December 25, 2009). -
The money supply (M3) growth as on January 1, 2010 stood more or less in line with that of the previous period (December 18, 2009) at 17.1% yoy. -
The yields on the government securities (G-Secs; ten-year) stood at 7.64% as on January 19, 2010, up by 7.4 basis points from the previous month?s levels. The G-Sec yields for all other maturities fell on an m-o-m basis with the three-year and two-year yields falling by 31.3 basis points and 49.4 basis points respectively while the one-year and five-year yields fell marginally. Equity markets: FIIs remained net buyers -
During the month-till-date (MTD) period of January 1-19, 2009 the average daily volumes expanded in the cash segment but contracted in the futures and options (F&O) segment. -
The total industry average assets under management (AUM; equity + debt) declined by 1.6% mom during December 2009. The net resources mobilised in equity schemes during the same period stood at a negative Rs2,464 crore as redemptions outpaced resources raised through new and existing schemes. -
During December 2009 and the MTD period in January 2010 (January 01-19, 2010), the foreign institutional investors (FIIs) remained net buyers while the domestic mutual funds (MFs) remained net sellers. Insurance: Life insurance industry displays robust growth -
The annual premium equivalent (APE) for the life insurance industry increased by a strong 58.9% yoy during December 2009, after registering a growth of 22.4% yoy during the previous month. -
In December 2009, the gross premium underwritten for the general insurance industry grew by 13.4% yoy, in line with the y-o-y growth seen in the previous month. The public sector players posted a healthy growth of 12.2% while the private sector players registered a growth of 15.3% yoy, higher than the growth seen by the public sector players during the month.
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