| Summary of Contents | | STOCK UPDATE Apollo Tyres
Cluster: Apple Green
Recommendation: Buy
Price target: Rs84
Current market price: Rs71
Better than expected operational performance Result highlights -
Apollo Tyres? Q4FY2010 performance was better than our expectations fuelled by a higher than expected margin expansion. -
Top line driven by strong volumes: The Q4 total income grew by a strong 18.2% year on year (yoy) to Rs1,312.8 crore primarily aided by a 12.3% year-on-year (y-o-y) growth in tonnage volumes and a 5.3% y-o-y growth in realisation. -
Margins surprise positively: The surprise in Q4 earnings was a lower than expected decline in the operating profit margin (OPM). Though the Q4 OPM expanded by a strong 390 basis points on a y-o-y basis, it shrunk by 144 basis points on a quarter-on-quarter (q-o-q) basis (against our expectation of a 267 basis point q-o-q decline) to 14.1%. The y-o-y margin expansion was mainly on account of a lower raw material cost as percentage to sales, which declined to 67.8% in Q4FY2010 from 69.8% in Q4FY2009. Moreover, a 6.5% y-o-y decline in other expenses at Rs166.4 crore, which was primarily due to lower promotional expenses on account of strong demand, led to a 63.8% y-o-y growth in the operating profit to Rs184.6 crore. -
Strong operating performance coupled with lower tax rate aids profit: The company?s better than expected performance at the operating level was aided by a much lower than expected tax rate of 19.3% during the quarter. Consequently, the reported net profit grew by 151.2% yoy and 13.9% quarter on quarter (qoq) to Rs116.2 crore. -
Dividend: The Board has recommended a dividend of Re0.75 per share on a face value of Re1 per share. -
Consolidated performance for FY2010: On a consolidated basis, the top line for FY2010 grew by 63% yoy to Rs8,120.7 crore and the net profit stood at Rs653.4 crore as against Rs139.2 crore in FY2009. However, the consolidated numbers are not comparable on account of the inclusion of VBBV acquired on May 15, 2009. -
Volume growth and price hikes to aid top line in FY2011: The company currently operating at its full capacity speaks of the strong prevailing demand environment in the auto sector. Moreover, the recently commenced capacity of 100 tonne per day at its new plant in Chennai will add further volume growth from FY2011 onwards. We believe that the strong volume growth coupled with the price hikes taken by the company is likely to see a strong top line growth of 23.3% for FY2011. -
Margins to decline going forward: Though the company has taken price hike in the original equipment manufacturer (OEM) as well as the replacement markets to partially offset the surge in natural rubber prices, we believe that the margins going forward are likely to decline on account of higher price for rubber and other raw materials. We have factored in rubber prices at Rs149.6 per kg for FY2011, as we believe that the current prices of Rs165 per kg are likely to cool down going forward. However, the failure of rubber prices to soften from the current higher levels remains a key risk to our estimates. -
Maintain estimates: We broadly maintain our estimates for FY2011 and FY2012. At the current market price, the stock is trading at 7.5x its FY2011E and 6.9x FY2012E consolidated earnings of Rs9.4 and Rs10.2 respectively. We maintain our Buy recommendation on the stock with a price target of Rs84. Glenmark Pharmaceuticals
Cluster: Apple Green
Recommendation: Buy
Price target: Rs400
Current market price: Rs270
Price target revised to Rs400 Result highlights -
Net sales up 44.4%: Glenmark Pharmaceuticals (Glenmark)? Q4FY2010 results were above our estimates, with a strong revenue growth from the domestic formulation business (revenue up 35.1% year on year [yoy]) and the rest of world (ROW) formulation business (revenue up 223.9% yoy). The generic formulation business reported lower than expected revenues from the US business (up 18.5% yoy). The business of active pharmaceutical ingredient (API) exports performed in line with our expectations (up 39.1% yoy). -
Reported OPM expands 1,640 basis points: The reported operating profit for the quarter was up by 1,640 basis points to Rs178.3 crore at 25.1% due to strong revenues and lower than expected employee expenses (down 390 basis points) on a y-o-y basis. The hike in the input prices was due to a lower base in Q4FY2009 when the realisation of the exclusive product was higher. Glenmark incurred a foreign exchange (forex) loss of Rs10 crore in the quarter. -
Adjusted net profit grows 239%: Glenmark has reported a net profit of Rs102.6 crore for Q4FY2010, which is above our estimate of Rs102.6 crore. The strong operating margins and lower depreciation charges aided the bottom line in the quarter. -
Base business guidance of 20-25%: To incorporate the higher than expected growth from across the board, we have marginally increased our estimates for FY2011 and FY2012 by 3% each. The management has guided for a 20-25% growth in the base revenues and a steady rise in the operating profit margin (OPM) for the next two years on the back of tight cost control measures and a lower research and development (R&D) expenditure, but we believe the guidance is too aggressive and remain conservative in our estimates. Modeling in the lower tax outgo (14-15%; as guided by the management), we have marginally tweaked our earnings estimates upwards for FY2011 and FY2012. Our revised earnings per share (EPS) estimates stand at Rs19.8 (vs Rs19.3) and Rs21.6 (vs Rs20.7) for FY2011 and FY2012 respectively. -
Maintain Buy: In view of the improvement witnessed in Glenmark?s base business performance in FY2010 along with an improved working capital cycle and increasing return ratios, we believe that the risk-reward ratio is favourable for the stock at the current levels. We like Glenmark?s prime focus to improve the stretched balance sheet position. However the delay in the GGL initial public offering (IPO) and high receivable days could pose as a concern. The outlicencing deal of GRC 15300 has reaffirmed the strength in its new chemical entity (NCE) pipeline. More outlicensing deals and milestone payments could thus spring a positive surprise to our estimates. We maintain our Buy recommendation on the stock with a revised price target of Rs400 (15x FY2012E core earnings for the base business plus Rs74 per share for the R&D pipeline). At the current market price of Rs270, the stock trades at 12.5x FY2012E earnings.
VIEWPOINT Jagran Prakashan Another strong quarter Result highlights -
Q4FY2010 performance broadly in line with estimates: Jagran Prakshan Ltd (JPL)?s Q4FY2010 revenues grew by a strong 17.4% year on year (yoy) to Rs236.3 crore backed by a staggering 19.9% year-on-year (y-o-y) growth in the advertising revenues of the print business. The circulation revenues however remained subdued. -
Though the Q4 operating profit margin (OPM) expanded by 739 basis points yoy to 26.8%, it was lower than our estimates primarily due to higher than expected other expenses. The other expenses included around Rs9 crore on account of provision for doubtful debts and other non-recurring expenses. The operating profit hence grew by 53.7% yoy to Rs69.9 crore. Consequently the net profit was up by 66.8% yoy to Rs36.4 crore, which was a tad lower than our estimate of Rs40.8 crore. -
Strong FY2010 numbers: Led by a recovery in the advertising market in the second half of the year and subdued newsprint costs for the year, the net profit almost doubled in FY2010. For the year, the company has declared a dividend of Rs3.5 per share, which translates into a dividend yield of 3.3% at the current market price. -
Key monitorables: The entry of DB Corporation in Bihar and Jharkhand where JPL has significant presence could impact the circulation and advertising revenues of the latter. The movement of newsprint prices is another factor to be watched out for. -
Strong outlook: We believe with buoyancy returning to advertising market, strong growth of regional media and JPL?s prominent position in the Hindi space, the company?s profit is likely to grow at a compounded annual growth rate (CAGR) of around 18.8% (excluding the impact of Mid-Day acquisition). At the current market price of Rs106.8 the stock trades at 15.6x and 12.9x its FY2011E and FY2012E earnings. | 
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