| Summary of Contents | | | STOCK UPDATE Crompton Greaves
Cluster: Apple Green
Recommendation: Hold
Price target: Rs273
Current market price: Rs249
Q4FY2010 results: First-cut analysis Result highlights -
Crompton Greaves Ltd (CGL) has reported a less than expected growth in its top line in Q4FY2010 primarily led by sluggish sales of its subsidiaries as well its stand-alone power systems division. However, the profit surpassed our expectations by a wide margin on the back of continuing robust operating performance by both its core business and subsidiaries. -
On a stand-alone basis, the revenues grew by 19% year on year (yoy) to Rs1,618 crore as against our expectation of a 23% y-o-y growth. The lower revenue growth was mainly led by less than expected growth in the revenues of the power system division. The other two divisions performed well?with the revenues of the consumer product division growing by 24.3% yoy and that of the industrial systems division?s up by 24.6% yoy (as against our expectation of a 4.1% y-o-y growth). -
The company maintained a healthy operating profit margin (OPM) of 16.7% in Q4FY2010 as compared to 15.9% in Q4FY2009. This was mainly led by the containment of the other expenses. The net interest cost continued to remain low. Boosted by a spectacular operating performance, the net profit surged by 45.7% yoy to Rs190.7 crore, which is way above our expectation of Rs160.5 crore. -
The net revenue of the consolidated entity rose by mere 2.6% yoy to Rs2,507.9 crore (below our projection of Rs2,839.3 crore) mainly on account of a 19% y-o-y fall in the revenue from the subsidiaries. The revenue from the subsidiaries was down in the quarter on account of appreciation in the rupee as well as sluggish demand in overseas markets. -
The OPM expanded to 16.1% in Q4FY2010 from 13.4% in Q4FY2009 backed by better stand-alone performance and operating performance by the subsidiaries. The subsidiaries? OPM expanded to 14.8% in the quarter from 10.2% in the corresponding quarter of the last year. This margin expansion was aided by containment of other expenses as well as raw material cost. -
The tax rate of the subsidiaries also fell to 17.5% in the quarter from 28.4% in the corresponding quarter of the last year. This along with a robust overall operating performance helped the adjusted net profit of the group to rise by 39.3% yoy to Rs271.3 crore, which is significantly above our estimates. -
There was also an extraordinary item of Rs35.2 crore on account of the profit on the sale of investment in Madanpur captive power plant on March 1, 2010. -
We would come up with a detailed note on Q4FY2010 results post interaction with the management, reviewing our estimates and the price target. Currently we have a Hold rating on the stock. At the current market price, the stock trades at 17.5x and 15.4x on FY2011 and FY2012 estimates respectively. Godrej Consumer Products
Cluster: Apple Green
Recommendation: Hold
Price target: Rs375
Current market price: Rs339
Price target revised to Rs375 -
Godrej Consumer Products Ltd (GCPL) has entered into an agreement to acquire the remaining 51% stake in Godrej Sara Lee (GSL) for 185 million euros (approximately Rs1,050 crore). At this price, GSL is valued at 15x its FY2010 profit of Rs137 crore and 12.4x its FY2011 profit estimate. The valuation, we believe, is relatively cheap considering GSL?s growth rate of around 20% and other synergies with GCPL. The acquisition shall be funded through a mix of low cost debt and equity. -
While GCPL?s stand-alone (domestic) business is expected to post a decent growth in the coming years on the back of market share gains and improved penetration, the 20%+ growth in the international business and the recent acquisitions would help the company to deliver a strong performance in the coming years. -
In line with our expectation of earnings accretion due to recent acquisitions (as mentioned above), we have revised our price target for GCPL to Rs375 (20x pro forma EPS of Rs17.8 for FY2012 post acquisitions). However, the disclosure of the actual deal size and the financial details of Tura and Megasari would provide more clarity and lead to revision in our estimates. Meanwhile, we maintain our Hold recommendation on the stock. BASF India
Cluster: Ugly Duckling
Recommendation: Hold
Price target: Rs469
Current market price: Rs425
Price target revised to Rs469 Result highlights -
BASF India?s stand-alone net profit for Q4FY2010 came in at Rs10.49 crore, up 91% year on year (yoy). The profit growth was achieved on the back of a 68% year-on-year (y-o-y) increase in the total income of the company to Rs349.24 crore. However, the financials of BASF India are not strictly comparable to that of the previous year as the company amalgamated the financials of Ciba India with itself during the quarter under review. For FY2010 the company has reported a consolidated profit after tax (PAT) of Rs96.07 crore as compared to Rs48.61 crore in the previous year; however, the figures for FY2010 include those of Ciba India from February 1, 2010 onward. -
The net sales for the quarter grew by 67.7% yoy to Rs345.07 crore, driven by a strong 92% y-o-y growth in the revenues from the performance products business partially due to the merger with Ciba India. The growth in the plastic division too remained strong during the quarter at 71% yoy. -
Importantly, the operating profit grew by a robust 126% yoy and 24.7% sequentially as the operating profit margin (OPM) improved by 216 basis points yoy and 34 basis points sequentially to 8.4%. Notably, the improvement in the OPM was possible despite the amalgamation with Ciba India, which has lower OPM than BASF India. From a segmental perspective, the agricultural solutions business witnessed a strong improvement in its profit before interest and tax (PBIT) margin to 8% as compared to a negative margin of 0.3% during the year-ago quarter. The PBIT margin for the chemical segment too witnessed a robust revival expanding to 48.3% from 20.9% in the previous year. -
The interest charges remained largely flattish on a y-o-y basis while the depreciation charges witnessed an uptick to Rs8.51 crore as compared to Rs3.68 crore in the previous year. A higher tax incidence (49.3% in Q4FY2010 vs 39.6% in Q4FY2009) restricted the bottom line of the company during the quarter. -
For FY2010 the stand-alone revenues grew by 24% yoy to Rs1,393.8 crore. The OPM improved by 170 basis points to 12.8%, thereby leading to a 41% y-o-y increase in the net profit to Rs96.8 crore. -
Notably, during FY2010, the losses incurred by Polyurethane, a subsidiary of BASF India, declined substantially to Rs0.74 crore as compared to Rs40.05 crore during the previous year. -
BASF India has reported a strong set of numbers for the fourth quarter of FY2010 as well as the full year ended March 31, 2010 on the back of a revival in demand and improvement in its OPM. During the quarter, the company amalgamated the financials of Ciba India with itself and the Q4FY2010 results include Ciba?s financials for two months. We have revised our earnings estimate for FY2011 to factor in the revenues from Ciba India and introduced our estimates for FY2012. We are rolling forward our price target based on our FY2012 estimates. At the current market price of Rs420, the stock is trading at 10.7x FY2012E consolidated earnings and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 6.4x FY2012E. We maintain our Hold recommendation on the stock with a revised price target of Rs469. Thermax
Cluster: Emerging Star
Recommendation: Hold
Price target: Rs682
Current market price: Rs674
Price target revised to Rs682 Result highlights -
Execution picks up but margins still muted: Thermax? Q4FY2010 results were mixed?where the top line exceeded our projections backed by robust execution, the adjusted profit fell below our projections on account of a lower than expected operating profit margin (OPM). -
Robust top line growth: The net income from operations improved by 28.6% year on year (yoy) to Rs1,219.3 crore in the quarter under review on the back of a strong growth in both the energy (up 18.9% yoy) and environment divisions. The environment division posted an excellent performance with the sales growing by 71% yoy in the quarter. -
Margins under pressure: The entire cost component including the raw material cost and the other expenses reported a higher growth compared with the top line. This led the OPM contract to 12% and the operating profit fall by 7.9% yoy in the quarter. Boosted by a 50.5% y-o-y increase in the other income and lower interest charges, the adjusted net profit fell by mere 10% yoy to Rs99.2 crore. The company is feeling pressure on its margins in view of rising raw material costs and could witness a 100-basis-point increase/decrease in the margins going ahead. -
Extraordinary item of Rs114.9 crore: There was also an extraordinary item of Rs114.9 crore (net of tax) on account of the settlement charges pertaining to the dispute with the US firm, Purolite International. This resulted in a reported loss of Rs15.7 crore in the quarter. -
FY2010 results marred by low margins and sluggish sales: For full FY2010, the net operational income decreased to Rs3,185.5 crore (down 2.4% yoy) mainly on account of sluggish sales of the energy division. The OPM of the company also came down to 12.1% in the fiscal from 15.4% in the previous fiscal mainly on account of a poor operating performance in M9FY2010. -
Robust order book, more orders in the offing: The company?s consolidated current order backlog stands at Rs5,966 crore (up 94% yoy) vs Rs5,613 crore at the end of Q3FY2010. The order inflow stood at Rs1,464 crore in Q4FY2010 versus Rs580 crore in Q4FY2009. Through the recently-formed joint venture for supercritical boilers with Babcock and Wilcox, Thermax also expects to participate in National Thermal Power Corporation (NTPC) bulk tendering Phase II and to get some orders. However, this participation is subject to joint venture agreement in place, equity infusion of around Rs175 crore and the completion of the land acquisition process. Its other joint venture with SPX Corporation for making air pollution control systems is also expected to yield some revenue in FY2011. -
Maintain estimates: In view of the opportunities present in the power sector and Thermax? foray in the super critical business, we maintain our estimates and expect the profit of the company to bounce back and show a compounded annual growth rate (CAGR) of 30% over FY2010-12 on the back of execution of the current order book and the upcoming prospects in the power and other sectors. -
Maintain Hold with a price target of Rs682: Thermax has shown a robust order intake during the quarter and there are also substantial bids in the pipeline on the back of improved private capital expenditure (capex) cycle and the NTPC Phase II bulk tendering. We are also positive on its entry into the boiler space and its diversified clientele. At the current market price, the stock trades at 22.7x and 18.5x on FY2011 and FY2012 estimates. Recently, the company has started enjoying the valuation multiple of engineering, procurement and construction (EPC) giants like Larsen & Toubro (L&T) and Bharat Heavy Electricals Ltd (BHEL) mainly due to its entry into super-critical boiler space and a better order inflow outlook. We are giving a target multiple of 18.7x, a discount of 15% to BHEL?s target multiple on FY2012 estimates. At this valuation, the price target for the stock stands at Rs682. In view of the limited upside from the current level, we maintain our Hold ratings on the stock.
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