| Summary of Contents STOCK UPDATE Tourism Finance Corporation of India
Cluster: Cannonball
Recommendation: Buy
Price target: Rs34
Current market price: Rs28
Price target revised to Rs34 Result highlights -
Tourism Finance Corporation of India (TFCI) reported a net profit of Rs7.4 crore in Q3FY2010?a growth of 23.3% year on year (yoy). However, excluding the provision write-back of Rs3 crore during the quarter, the adjusted net profit comes in at Rs5.4 crore, which is below our estimate of Rs6.9 crore. -
The net interest income (NII) declined by 16% yoy to Rs9.5 crore in the quarter from Rs11.3 crore in the corresponding quarter of the last year mainly due to a 15.8% year-on-year (y-o-y) increase in the interest expenditure. Meanwhile the yields on assets expanded by 25 basis points yoy to 11.15%, however an 11-basis-point increase in the cost of funds contained the NIM expansion to 14 basis points yoy. -
The operating expenses dipped by ~22% yoy to Rs1.2 crore during the quarter helping to maintain the cost to income ratio at 13%. The operating profit was down by 16% yoy to Rs8.4 crore in Q3FY2010 vs Rs10 crore in Q3Y2009. -
The company wrote back provisions of Rs3 crore in the quarter on account of recovery in the non-performing assets (NPAs), which helped boost the bottom line significantly. -
The year to date (YTD) trend in approvals and disbursals is weaker compared with the year-ago period. During the current fiscal, the cumulative disbursals stood at Rs110 crore compared with Rs120 crore in M9FY2010. Meanwhile, the YTD approvals too were down by 10% yoy to Rs320 crore. Having said that, the operating environment for hotels (the key customer segment for TFCI) is witnessing distinct improvement and hence the company expects to disburse Rs250-300 crore for FY2010, implying significant improvement in the next quarter (Q4FY2010). -
The asset quality improved dramatically during the quarter. In relative terms the gross non-performing assets (GNPs) for the quarter stood at 3.6%, down from 5.5% in the previous quarter. The management expects further improvement in Q4FY2010 on the back of recoveries and aims to bring down the GNPA to ~2.5%. The company has maintained the zero net NPA status during the quarter. -
We draw significant comfort from the zero NPA status of TFCI and anticipate improvement in the credit demand environment for tourism industry in general and hotel industry in specific. While regulatory changes may increase competition, TFCI is likely to benefit from faster financial closure of projects. Considering these factors, we have tweaked our estimates for FY2011. At the current market price of Rs28, the stock trades at 6.8x its FY2011E adjusted earnings per share (EPS) and 0.7x FY2011E book value. We maintain Buy recommendation on the stock with a revised price target of Rs34. Seamec
Cluster: Ugly Duckling
Recommendation: Hold
Price target: Rs235
Current market price: Rs205
Downgraded to Hold Result highlights -
Seamec? Q4FY2010 result was well below our expectation largely on account of lower than expected revenues and operating profit margin (OPM). The adjusted net profit dipped by 8.2% year on year (yoy) to Rs46.9 crore versus our expectation of Rs59.6 crore. -
The net sales declined by 17% yoy to Rs86.7 crore as only three vessels were operational during the quarter (Seamec II was sailing from West Africa to the Middle East for mobilisation of the next contact) as compared to all the four vessels in Q4CY2008. -
The OPM shrunk by a sharp 401 basis points yoy to 59.3% in Q4FY2010 as one of the vessels was not operational during the quarter. Consequently, the operating profit dropped by 10.9% yoy to Rs51.4 crore. -
The adjusted net profit also went down to Rs46.9 crore in the quarter from Rs51.1 crore (adjusted for dry-docking expenses and provisions) in Q4CY2008 on account of decline in the operating profit, though this was partially offset by decline in the interest and depreciation expenses. -
We have revised our earnings estimates for FY2010 to factor in the incremental revenues and earnings for one quarter, as the company has changed its accounting year to year ending March 31 from year ending December 31. Consequently, our estimate for FY2010 is for 15 months from January 01, 2009 to March 31, 2010. We have also factored in lower operating days for Seamec II, which was not operational for the entire quarter and lower operating days in one of the month for Seamec I, which is expected to go for dry-docking in March 2010. Hence, our revised earnings per estimates (EPS) for FY2010 stand at Rs83.5. We have fine tuned our FY2011 EPS estimate to Rs24.1 and introduced our FY2012 earnings estimate and expect an EPS of Rs38.8. -
We are rolling our target multiple to the average of FY2011 and FY2012 earnings estimates. Consequently, we have revised our price target to Rs235. Given the concerns on lower assets utilisation, we are downgrading the stock to Hold recommendation. We highlight here that with cash in excess of Rs180 crore, the acquisition of new vessel would help the company to allay the concern of lower asset utilisation in FY2011 and could act as a key trigger for the re-rating of the stock. At the current market price, the stock is trading at 8.5x its FY2011E earnings and 5.3x its FY2012E earnings. Opto Circuits India
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs250
Current market price: Rs218
Price target revised to Rs250 Result highlights -
Results in line with estimates: Opto Circuits (Opto) has reported a top line growth of 21.8% to Rs257 crore for Q3FY2010. The revenue growth was driven by a 33.5% growth in the non-invasive segment. The invasive segment, however, continued to languish on account of a slowdown in the global stent business and intensifying competition (down by 15.4%). Criticare Systems (Criticare) contributed revenue of Rs42 crore during the quarter (due to lower realisation of the dollar). On excluding Criticare?s contribution, the organic growth stood at 26%. -
Non-invasive business the key growth driver: Opto introduced three new products in this quarter under the Criticare brand coupled with an agreement with an European player for anesthetic gas delivery products in the key markets. We expect the products to gain traction from FY2011-12 onwards and anticipate a compounded annual growth rate (CAGR) of 21% over FY2010-12 for the non-invasive segment. -
Strong operating performance: Opto?s operating profit margin (OPM) expanded by 540 basis points yoy to 34.3% in Q3FY2010. The margin expansion was driven by improved gross margin (up 220 basis points) and lower promotional expenditure (down 350 basis points). -
Adjusted net profit grows by 64.6%: Opto incurred a foreign exchange (forex) loss of Rs6.1 crore during the quarter owing to the rupee?s appreciation (as 78% of its revenues are dollar denominated). Adjusted for the same, the net profit grew by 64.6% to Rs71.8 crore, in line with our estimate of Rs70.7 crore. A lower interest cost (substantial debt had been retired at the end of Q2FY2010 through qualified institutional placement) aided the profitability in Q3FY2010. -
Revised estimates; introducing FY2012 numbers: In order to factor in the lower than expected revenues from the invasive segment we have tweaked our current estimates for FY2010 and FY2011 by 5% each, taking our revised earnings per share (EPS) estimates for FY2010 and FY2011 to Rs13.5 (vs Rs14.3) and Rs17.7 (vs Rs18.8) respectively. We are introducing our FY2012 numbers in this note and forecast EPS of Rs21.1 for the year. -
Maintain Buy: Opto?s growth is likely to be driven by the non-invasive businesses in the near to medium term. We expect the non-invasive segment to continue to dominate the revenue mix, with its FY2012 revenue share expected at approximately 84%. We expect multiple factors, including the decline in the global stents market and the dominance of the larger players, to keep the invasive segment?s growth tepid (we expect this business to grow at 5% CAGR over FY2010-12). The approval for DIOR in the USA could trigger a re-rating of the stock. At the current market price of Rs218 Opto is trading at compelling valuations of 16.1x FY2010E fully diluted earnings and of 12.3x FY2011E fully diluted earnings. We maintain our Buy recommendation on the stock with a revised price target of Rs250. Unity Infraprojects
Cluster: Vulture?s Pick
Recommendation: Buy
Price target: Rs680
Current market price: Rs592
Price target revised to Rs680 Result highlights -
Unity Infraprojects (Unity)?s performance in Q3FY2010 was in line with our estimates. The net profit of the company grew by 34.5% year on year (yoy) and by 30.1% quarter on quarter (qoq) to Rs24.4 crore. The strong earnings growth of the company was on the back of an impressive revenue growth and margin expansion during the quarter. The net sales of the company grew by 36.6% yoy to Rs401.5 crore on account of the strong execution of the order book during the quarter. -
On the margin front, the operating profit margin (OPM) improved by 46 basis points yoy to 12.6% in Q3FY2010 due to a fall in the commodity prices compared with the last year and better operating leverage. However, on a sequential basis the OPM contracted by 81 basis points on account of an increase in the construction cost to 38.1% as a percentage of sales compared with 36.7% in Q2FY2010. -
The interest cost increased by 61.1% to Rs15.5 crore whereas the depreciation charge increased by 12.2% to Rs4.3 crore. During the quarter the company raised Rs73 crore via the private placement of shares with qualified institutional buyers (QIBs), which resulted in equity dilution of 11%. Consequently, the earnings per share (EPS) for the quarter grew by 21.3% yoy as compared to the profit after tax (PAT) which grew by 34.5%. -
During the quarter, the company saw a strong order inflow. It bagged orders aggregating Rs830 crore. Consequently, the company?s order book grew by 18.2% sequentially to Rs3,770 crore?2.5x FY2010E revenues. Furthermore, the company is also the L-1 bidder for contracts aggregating Rs320 crore. -
The company has acquired 37 acres of land in Bangalore and Kolkata for its real estate projects. Work on the projects will kick off in Q1FY2011. The total cost of developing the projects would be around Rs500 crore, including Rs102 crore for the acquisition of land. -
We remain positive on the company due to its growing order book and OPM that is higher than the industry average. Since the Q3FY2010 performance of the company is in line with our expectation in terms of earnings as well as order book size, we maintain our earnings estimates for FY2010 and FY2011 with EPS estimates of Rs57 and Rs71.1 for FY2010 and FY2011 respectively. We are also introducing our EPS estimate for FY2012 at Rs81.7. At the current market price the stock is trading at 8.3x FY2011 earnings estimate and 1.3x FY2011E price/book value (P/BV). We maintain our Buy recommendation on the stock with a revised price target of Rs680 (8x average EPS of FY2011E and FY2012E and P/BV of 1x its investment in two of its real estate projects). Thermax
Cluster: Emerging Star
Recommendation: Hold
Price target: Rs662
Current market price: Rs633
Upgraded to Hold Result highlights -
Thermax continues to report a decline in its top line and bottom line on a year-on-year (y-o-y) basis. In Q3FY2020 its top line and the bottom line declined mainly due to the poor performance of its energy segment during the quarter. -
Thermax? Q3FY2010 top line fell by 7.8% yoy to Rs726.3 crore against our expectation of a 6.3% y-o-y growth, as the energy division?s revenues fell by 9.9% yoy to Rs560.3 crore. This was due to the slower execution of the order backlog. The environment division was the positive surprise with a 10% y-o-y revenue growth against our expectation of a 10% y-o-y revenue decline. -
The operating profit margin (OPM) marginally fell to 11.9% from 12.2% in Q3FY2009 led by an increase in the employee cost as a percentage of sales. The profit before interest and tax (PBIT) margin of the energy division fell to 10.8% from 12.4% in Q3FY2009. The company has cited the last year?s economic slowdown as the reason for this decline as it had to take orders with lower margins during that period. However, the environment segment?s margin showed a significant increase at 15% versus 12.7% in the same quarter of the last year. -
A further increase in the depreciation charge and a fall in the other income led the net profit to decline by 21.8% to Rs56.5 crore in the quarter and the same was much below our expectation of Rs76.6 crore. -
The company booked Rs1,548 crore (up 79.6%) worth of new orders during the quarter. The total backlog of the consolidated group rose to Rs5,612 crore (up 36.8% yoy) from Rs5,059 crore in Q2FY2010. Of the current backlog, 87% of the orders are for the energy division. The execution of the order book is expected to gain momentum from Q4FY2010 onwards. -
We have revised our estimates downward taking into account the M9FY2010 performance. Hence, we have downgraded our earnings per share (EPS) estimate for FY2010 from Rs23.4 to Rs22.7. We expect the profit of the company to bounce back and show a growth of 30.9% in FY2011 on the back of an improvement in the order intake during the year. We have upgraded our EPS estimate for FY2011 to Rs29.7 from Rs28.8. We have also introduced our FY2012 estimates in this note and expect EPS of Rs36.5 for the year. -
Thermax showed a robust order intake during the quarter and also has substantial bids in the pipeline on account of the improved private capital expenditure (capex) cycle. We are optimistic about its entry into boilers as well as its diversified clientele. The company is currently trading at 21.3x FY2011 EPS and 17.3x on FY2012 EPS. Recently, the company has started enjoying valuation multiples similar to that of EPC giants like Larsen and Toubro (L&T) and Bharat Heavy Electricals Ltd (BHEL) mainly due to the market?s expectations with regard to its entry into the super-critical boiler segment and the improving order inflow. We are upgrading the target multiple to 20x, indicating a discount of 10% to BHEL?s target multiple. We are also rolling over the target multiple of 20x on the average of our FY2011 and FY2012 estimates. At this valuation, the price target for the stock stands at Rs662. Hence, we upgrade our recommendation on the stock from Reduce to Hold. Tata Tea
Cluster: Apple Green
Recommendation: Hold
Price target: Rs1,006
Current market price: Rs921
Price target revised to Rs1,006 Result highlights -
Tata Tea?s Q3FY2010 results are not exactly comparable on a year-on-year (y-o-y) basis due to the consolidation of the Russian beverage company, Grand (Tata Tea recently acquired a 51% stake in Grand) in Q2FY2010. -
In Q3FY2010 the consolidated net sales grew by 20.7% year on year (yoy) to Rs1,549.2 crore, driven by price increases across key markets, a strong volume growth in the Eight O?clock Coffee sales and revenue of approximately Rs120 crore contributed by the recent acquisition, Grand. On a comparable basis, the revenue grew by 11.4% yoy to Rs1,429.23 crore in Q3FY2010. -
The higher y-o-y raw tea prices in the domestic and international markets resulted in a 273-basis-point y-o-y increase in the raw material cost as a percentage of sales. Consequently, the company?s operating profit margin (OPM) declined by 115 basis points yoy to 12.6% in Q3FY2010. Thus, the operating profit grew by 10.6% yoy to Rs195.9 crore during the quarter. -
The lower other income and higher incidence of tax (due to a higher proportion of revenues coming from the US and Indian operations) resulted in a y-o-y decline of 5.3% in the adjusted net profit to Rs103.6 crore. -
We believe the company?s focus on extending its footprints into new geographies and expanding its product portfolio (with innovative products) in order to become a complete global beverage player augurs well and would help the company to achieve a good growth in the long term. Also, the huge pile of cash (net cash per share of Rs76) at its disposal along with the management?s intention to look for strategic acquisitions in the domestic and global beverage markets could act as an additional trigger for the stock. -
While we expect the price of the raw material (raw tea) to remain firm in the year ahead, the company?s focus on protecting its profitability may provoke it to go for price hikes in the key markets (if needed to maintain the margin). -
We broadly maintain our estimates for FY2010 and FY2011. We also introduce our FY2012 estimates in this note. At the current market price the stock trades at 12.8x its FY2011E earnings per share (EPS) of Rs71.9 and 11.1x its FY2012E EPS of Rs82.8. We roll over our price target to Rs1,006 based on 13x average of our FY2011 and FY2012 estimates. However, with a limited upside from the current level, we maintain our Hold recommendation on the stock. Subros
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs58
Current market price: Rs47
Price target revised to Rs58 Result highlights -
Subros? Q3FY2010 results were ahead of expectations on account of higher than expected margin and volume growth. -
For Q3FY2010 the company reported a total income of Rs228.5 crore (against our expectation of Rs223 crore), which shows a growth of 68.3% year on year (yoy). The top line was mainly boosted by a volume growth of 48.5% and an increase in the net realisation by 13.3% yoy. -
The operating profit margin (OPM) for the quarter expanded by 230 basis points yoy and by 70 basis points on a quarter-on-quarter (q-o-q) basis to 11.4% (which was higher than our expectation of 10.2%). The expansion in the margin on a year-on-year (y-o-y) basis was on account of a 140-basis-point lower employee cost as a percentage of sales at 6%. Also, the other expenses as a percentage of sales declined by 70 basis points yoy to 9.4% during the quarter. Consequently, the operating profit stood at Rs26 crore, indicating a growth of 110.7% yoy (which was higher than our expectation of Rs22.7 crore). -
A healthy performance at the operating level coupled with a lower interest cost (down 17.6% yoy) subdued the impact of the higher depreciation charge (up 42.8% yoy) during the quarter. This led to a ten-fold jump in the net profit to Rs8.8 crore. -
We expect the healthy performance by its key original equipment manufacturer (OEM) clients to continue in FY2011, thereby boosting its volume growth going forward. However, the OPM is likely to taper marginally from the current high levels due to escalation in the raw material cost. Nevertheless, we expect a strong compounded annual growth rate (CAGR) of 29.5% in its earnings from FY2010-12. This growth will be driven by a healthy operating performance and a significant reduction in the company?s debt and hence in its interest cost. -
In view of the better than expected margin for FY2010 and the continual growth in FY2011, we have revised our earnings estimates upwards for FY2010 and FY2011 by 17% and 11.8% to Rs4.4 and Rs5.8 respectively. We have also introduced our FY2012 earnings estimate in this note and expect the company to report earnings per share (EPS) of Rs7.5 for the year. -
At the current market price, the stock is trading at 8.0x its FY2011E earnings and an enterprise value (EV)/earnings before interest, tax, depreciation and amortisation (EBITDA) of 3.6x. We maintain our Buy recommendation on the stock with a revised price target of Rs58 (10x FY2011E earnings). Tata Chemicals
Cluster: Vulture?s Pick
Recommendation: Hold
Price target: Rs351
Current market price: Rs296
Price target revised to Rs351 Result highlights -
Tata Chemicals? Q3FY2010 results were above our expectations both on the top line and the bottom line front on account of a higher margin coupled with a lower interest cost for the quarter. The consolidated reported net profit of the company more than doubled on a year-on-year (y-o-y) basis to Rs212.4 crore. The contribution of Rallis India towards the bottom line was Rs12 crore. -
In Q3FY2010, the consolidated total income from operations contracted by 27.8% year on year (yoy) to Rs2,649.9 crore but expanded by a strong 18.2% on a sequential basis. However, the current quarter?s numbers include the contribution from Rallis India as it has now become a subsidiary of Tata Chemicals. Excluding the revenue contribution from Rallis India, the total income from operations contracted by 31.5% yoy to Rs2,513.85 crore but expanded by 12.1% on a sequential basis. The top line (excluding Rallis India?s) stands above our estimate of Rs2,307.2 crore. -
Fertilisers: The revenues from the fertiliser business showed a robust sequential growth of 32% to Rs1,120.5 crore on the back of higher volumes and stabilising operations of the phophatics segment. -
Chemicals: The revenues from the chemicals business were maintained at the previous quarter?s level. The demand for soda ash is picking up on a sequential basis in the domestic and international markets. The consumer products continued to display strong demand traction with the sales volumes of edible salts growing by over 20% on a y-o-y basis. During the quarter the company launched its water filter, Tata Swatch, in Maharashtra. -
Agri-inputs: The acquisition of Rallis India, in which Tata Chemicals now has a 50.06% stake, has proved to be accretive for the company. Several new products introduced by the subsidiary have been well received in the market. | |
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