| Summary of Contents | | PULSE TRACK -
RBI monetary policy preview
STOCK UPDATE Tata Consultancy Services
Cluster: Evergreen
Recommendation: Hold
Price target: Rs867
Current market price: Rs812
Q4FY2010 results: First-cut analysis Result highlights -
Tata Consultancy Services (TCS)? Q4FY2010 results were in line with our expectations on the revenue and the operating profit fronts. However, the earnings growth was ahead of our expectations due to higher other income (aided by foreign exchange [forex] gains of Rs42 crore) and decline in the effective tax rate. -
The consolidated revenue (US GAAP) grew by 1.1% sequentially to Rs7,737 crore driven by growth in volumes (4%), positive pricing (5 basis points) and improved effort mix (16 basis points), partially offset by a negative currency impact (-3.1%). In dollar terms, the revenue grew by 3.1% sequentially to USD1,686 million. -
The earnings before interest and tax (EBIT) margin improved by 20 basis points sequentially to 27.5% in the quarter driven by productivity gains (247 basis points) and other cost cutting measures (42 basis points). The same was however partially offset by unfavourable currency movement (-192 basis points), unfavourable effort mix (-16 basis points) and bad debt provisions (-60 basis points). -
The net income grew by 7.4% sequentially to Rs1,931 crore in the quarter, ahead of our expectation of Rs1,862 crore. The net income growth was on account of higher other income (Rs164 crore in Q4FY2010 versus Rs57 crore in Q3FY2010) and a 77-basis-point sequential decline in the effective income tax rate. The other income includes forex gains of around Rs42 crore, with the remaining coming largely from interest and dividend income. -
The company?s board of directors has proposed a final dividend of Rs20 per share (including Rs4 per share as final dividend and Rs10 per share as special dividend) for FY2010 as compared to Rs14 per share for FY2009. -
The company has won 10 deals during the quarter. Of this one deal is worth USD500 million and a couple of others are worth USD125 million, and indicates a healthy deal pipeline. In terms of demand environment, the company expects a strong volume growth from the banking, financial services and insurance (BFSI) vertical. It also expects retail and life sciences to post good volume growth and sees an up-tick in demand from telecom and manufacturing sectors. -
However, the key highlight of the quarter was a record net employee addition of 10,110. Moreover, the management expects a net addition of around 16,000-17,000 employees in FY2011. This reflects the management?s growing confidence in the volume growth going ahead. -
At the current market price, the stock is trading at 20.8x FY2011 and 18.5x FY2012 earnings estimate. We maintain our Hold recommendation on the stock and would follow up with a detailed note soon.
SECTOR UPDATE Cement Strong volume growth and price hikes in March 2010 -
Due to the pick-up in the construction activity the domestic cement industry witnessed strong volume offtake and impressive dispatch growth on both year-on-year (y-o-y) and month-on-month (m-o-m) bases in March 2010. Given the unavailability of the volume dispatch figures of ACC and Ambuja Cement, we have done the entire analysis of the dispatch performance after adjusting the previous year?s numbers for ACC and Ambuja Cement. The cement dispatch figures for March 2010 grew to 15.78 million metric tonne (MMT), showing an increase of 9.5% year on year (yoy). On a sequential basis, the dispatches grew by a sharp 15.3% due to a low base effect. In FY2010 the dispatches grew by 12.1%. -
During the month under review, the northern region witnessed the highest volume growth of 12.9% to 3.4MMT. Further, the southern region after a long period posted a double-digit volume growth (11.5%). The volume growth in the southern region was on account of an increase in consumption in Andhra Pradesh and the stabilisation of the new capacities of India Cements, Madras Cement and Dalmia Cement. On a sequential basis, the northern, eastern and southern regions posted a dispatch growth of close to 20% each. -
Among the cement companies under our coverage, JP Associates continues to be the frontrunner with a robust volume growth of 57.7% yoy to 1.23MMT for March 2010. Orient Paper and Industries (Orient Paper) and Madras Cement also registered impressive volume growth of 47.6% yoy and 36.3% yoy respectively. However, the top cement makers posted a mix performance in terms of volume growth for the month on a y-o-y basis. -
As per our interaction with cement dealers, cement prices have increased in most regions by Rs10 with effect from March 1, 2010 to offset the cost inflation due to the changes announced in the Union Budget 2010. In addition to the aforesaid price hike the cement players have again increased the prices by Rs5-10 with effect from April 1, 2010. Cement players especially those in the southern region have increased the prices by as much as Rs15-20 per bag from April 1, 2010. The average Price of cement price in Mumbai stood at Rs267 and that in the major cities of Gujarat is quoting at Rs230-235 per bag. In Hyderabad the price increased to Rs215 per bag. Going forward, we believe with the stabilisation of the new capacities the cement prices are expected to come under pressure. -
The increase in the price of cement in Q4FY2010 with improved cement offtake due to a pick-up in the infrastructure activity is a positive for the domestic cement industry. On the volume front, we expect a sequential improvement due to a pick-up in the urban construction and real estate activity. However, with the stabilisation of the new capacities the supply is expected to surpass the incremental demand, which will create pressure on utilisation and consequently on cement prices.
VIEWPOINT Hero Honda Motors Margins maintained at Q3FY2010 levels Result highlights -
Hero Honda Motors (Hero Honda)?s Q4FY2010 results are ahead of the street?s expectation mainly led by better-than-expected margins. -
The company reported a strong growth of 20% year on year (yoy) in its total income to Rs4,122.3 crore primarily on the back of a 19% year-on-year (y-o-y) growth in the volumes during the quarter. -
The operating profit surged by 30% yoy to Rs711.7 crore. This growth was mainly on the back of raw material consumption as percentage of sales, which declined to 67.2% in Q4FY2010 from 69% in the corresponding quarter of the last year (Q4FY2009) and was also 116 basis points lower than 68.3% in the previous quarter (Q3FY2010). Consequently, the company reported an operating profit margin (OPM) of 17.3% in the quarter as against 16% in the same quarter of the last year. -
Furthermore, aided by a higher other income and a lower tax incidence of 18.8% in the quarter as against 26.4% in the same quarter of the previous year, the company reported a 49% y-o-y jump in the profit after tax (PAT) to Rs598.8 crore for the quarter. -
The sales volume reported a growth of 19% yoy to 1,186,536 units in the quarter under review?the highest-ever for any quarter. This volume growth was mainly backed by robust demand, benign interest rates and strong pre-buying (in the first two months of the quarter) in anticipation of a hike in excise duty rate in the Union Budget 2010-11 in February 26, 2010. -
For the whole fiscal FY2010, the company reported a top line growth of 28% yoy, backed primarily by a strong volume growth of 24% yoy. Lower commodity prices and benefits accruing from economies of scale led the company to post historical peak margins of 17.5% for the fiscal. Consequently, the company reported a 74% y-o-y growth in PAT to Rs2,231.8 crore in FY2010. -
The company has also declared a full year dividend of Rs80 (final dividend of Rs30, face value Rs2) for FY2010 on account of the completion of its silver jubilee year. -
The company has done exceptionally well in maintaining its margins and volume growth momentum in FY2010. However, we believe, the high base of FY2010, upturn in interest rate cycle and intensifying competition in the two wheeler segment is likely to dent the volume growth going forward. This coupled with a steep increase in raw material cost is likely to make it tough for the company to maintain the margins at these peak levels. At the current market price of Rs1,897, the stock is trading at 16.1x its FY2011E and 14.5x FY2012E Bloomberg consensus earnings of Rs117.7 and Rs130.6 respectively.
MUTUAL FUND: INDUSTRY UPDATE Another round of reforms for Indian MF industry -
New mode of payment through ASBA in mutual funds: In order to make the public issue process efficient, the Securities and Exchange Board of India (SEBI) had introduced the applications supported by blocked amount (ASBA) facility for investors investing in the public issue of equity capital of companies. Under this facility, the application amount investors put for subscribing to an initial public offering (IPO) would not leave their bank account unless the allotment of shares is done. As a result, the hassle of refunding the money to the applicants on non-allotment of shares shall reduce and applicants shall still earn interest even on the blocked amount. Now this facility has been extended to the new fund offerings (NFOs) of mutual fund schemes. -
The total average assets under management (AUM) of equity mutual funds stood at Rs210,451.8 crore for March 2010. On adjusting the net inflows/outflows, the net rise in the assets stood at 4.7% as against the appreciation of 4.5% in the Sensex.
| ![]()
| |
No comments:
Post a Comment