| Summary of Contents | | STOCK UPDATE Allahabad Bank
Cluster: Cannonball
Recommendation: Buy
Price target: Rs300
Current market price: Rs202 Q3FY2011 results: First-cut analysis Result highlights -
Allahabad Bank?s Q3FY2011 results were higher than our estimates as the profit after tax (PAT) grew by 20.4% year on year (YoY) to Rs416 crore led by a strong increase in the net interest income (NII) and despite a 25% sequential decline in the non interest income. The net interest margin (NIM) of the bank stood at 3.44%, up from 2.97% in Q3FY2010. The asset quality of the bank was stable sequentially as the gross and net non performing assets (NPA) stood at 1.77% and 0.59% respectively. The provision coverage ratio stood stable at 80.22%. -
NII growth strong: The NII of the bank grew by 55.7% YoY to Rs1,052 crore. The growth was on the back of a strong increase in margins which grew to 3.44% and a strong growth in advances which grew by 32% YoY to Rs86,837 crore. The current account ? saving account (CASA) of the bank stood at 33.41%, down from 35.41% YoY. -
Margins improve: The NIM of the bank improved by 47 basis points YoY to 3.44% as against 2.97% in Q3FY2011 and 3.34% in Q2FY2011. The margin improvement was on the back of yield on advances which grew by 23 basis points sequentially and yield on investments which grew by 21 basis points sequentially. However the cost of deposits also grew by 21 basis points sequentially. -
Non interest income disappoints: The non interest income of the bank fell by 25.2% quarter on quarter (QoQ) and 24.2% YoY to Rs257.6 crore during Q3FY2011. The commission income of the bank fell by 18.2% sequentially to Rs174 crore. Treasury Gains also fell by 47.6% sequentially. -
Asset quality stable: The asset quality of the bank remained stable sequentially with gross NPA at 1.77% in line with that of Q2FY2011. However the net NPA increased marginally to 0.59% as against 0.56% in Q2FY2011. The provision coverage ratio of the bank stood at 80.22% as against 81% in Q2FY2011. Restructured assets stood at Rs2,751 crore. -
Capital infusion to boost profitability: The bank has applied to the government for capital infusion to the tune of Rs1,000 crore. The bank expects to receive the same by March 2011. Currently the bank has a healthy capital adequacy ratio (CAR) of 12.78% of which tier I Capital is to the tune of 8.14%. (excluding unaudited profits of M9FY2011). -
Valuation & outlook: The bank has reported higher than expected results during the quarter. However the reduction in the fee income and the fall in CASA during the quarter are the key areas of concern for the bank. Currently the stock trades at 1.1x its FY2012E book value. We will review our estimates and come out with a detailed report shortly. Crompton Greaves
Cluster: Apple Green
Recommendation: Hold
Price target: Rs327
Current market price: Rs262 Q3FY2011 results: First-cut analysis Result highlights -
Q3FY2011 results, subsidiaries drag down consolidated performance: Crompton Greaves Ltd (CGL)?s Q3FY2011 performance was a mixed bag. On the one hand, the consolidated revenue growth was less than expected mainly due to sluggish sales in its subsidiaries. On the other hand, the lower tax rate boosted the company?s overall earnings which were better than expected. -
Stand-alone revenues grew by 14.3%: On a stand-alone basis, the company registered revenues worth Rs1,398.6 crore, indicating a growth of 14.3% year on year (YoY) which was higher than our expectation of a 12.5% growth. The growth in the revenues was led by a robust 30.3% growth in the consumer products segment. The industrial system segment also recorded a healthy growth of 20.1% YoY. The power segment continued to be a laggard with a year-on-year (Y-o-Y) growth of a meagre 2.1%. -
Stand-alone OPM at 16.3%: The operating profit margin (OPM) of the company declined marginally by 33 basis points to 16.3% mainly led by an increase in the raw material cost. A higher other income and a lower tax rate helped the company to post a 30% Y-o-Y growth in its net profit to Rs176 crore (which was higher than our estimate of Rs144.8 crore). -
Consolidated revenues marred by a fall in subsidiaries? revenues: On a consolidated basis, the company reported a 6.7% Y-o-Y growth in its revenues to Rs2,397 crore, which was marginally below our estimate. The performance was disappointing mainly due to a fall of 2.4% YoY in the revenues posted by its subsidiaries. We feel that the revenues of its subsidiaries could have fallen on account of the depreciation of the euro against the rupee. -
Stable consolidated OPM at 14.2%: The consolidated OPM was 14.2%, the same as in Q3FY2010. Boosted by a lower rate (23.3%), the net profit was up 17% at Rs231.3 crore against our expectation of Rs216.9 crore. -
We will be back with a detailed note on CGL?s Q3FY2011 results after a conference call with the company?s management and after reviewing our estimates and price target for the company. Currently, we have a Hold rating on the CGL stock. -
Key things to watch in management commentary: The order backlog and the order inflow; and the reasons for the lower tax rate, the fall in the revenues of the subsidiaries and the continued underperformance of the stand-alone power business. Bank of Baroda
Cluster: Apple Green
Recommendation: Buy
Price target: Rs998
Current market price: Rs835 Price target revised to Rs998 Result highlights -
Results ahead of estimates: Bank of Baroda (BoB)?s Q3FY2011 results were ahead of estimates as the net interest income (NII) grew by 43% year on year (YoY) to Rs2,292 crore while the net profit grew by 28.5% YoY to Rs1,069 crore. A strong growth in the NII compensated for the increase in provisions during the quarter, leading to a healthy growth in profits. Margins increased to 3.2%, which is a growth of 18 basis points on a sequential basis, led by a jump in domestic margins. The gross and net non performing assets (NPA)s continue to remain broadly at Q2FY2011 levels ie at 1.32% and 0.36% respectively. During the quarter the bank also made a provision of Rs309 crore (for M9FY2011) for pension liabilities. -
Robust business growth: Led by an expansion in margins and a strong growth in advances, the NII grew by 43% YoY and 12.5% quarter on quarter (QoQ). Advances increased by 32.7% YoY and 7.4% QoQ contributed by a strong growth in the domestic and overseas advances. The credit to deposit ratio climbed to 73.6% compared to 71.5% in Q2FY2011. -
Upward momentum in margins continues: Overall margins went up by 18 basis points to 3.2% on account of an increase in the domestic margins which increased by 20 basis points QoQ to 3.82%. Re-pricing of advances, higher credit deposit (CD) ratio and a tight control on the cost of funds contributed to the increase in domestic margins. -
Non-interest income growth mute due to lower treasury income: The overall non-interest income showed a flattish growth as it grew by 2.6% YoY, mainly due to a decline in the treasury income. However ex-treasury, the non-interest income grew by 14% YoY. -
Asset quality stays healthy: BoB continues to maintain a superior asset quality compared to its peers due to control on slippages and improved recoveries. Incremental slippages were at ~1% for M9FY2011 (Rs1,230 crore) which is much lower compared to peer banks like Bank of India, Punjab National Bank, Union Bank of India etc. The provision coverage improved to 85% (including written off accounts). -
Valuation: BoB continued to deliver a strong operating performance with a consistent improvement in all the key parameters. Superior asset quality, higher margins and a stable current account savings account (CASA) ratio remain the key drivers for the bank?s earnings growth. We expect BoB?s earnings to grow at a compounded annual growth rate (CAGR) of 20% over FY2010-13 led by a 23% growth in advances. This should lead to a return on assets (ROA) and return on equity (ROE) of 24% and 1.1% respectively. We have revised our target price to Rs998 (1.8x FY2012 book value) in view of the macro head winds ahead. We maintain our Buy recommendation on the stock. Lupin
Cluster: Apple Green
Recommendation: Buy
Price target: Rs520
Current market price: Rs420 Long term drivers intact; upgrade to Buy Result highlights -
PAT in line with estimate, margins take a miss: Lupin?s performance in Q3FY2011 was largely in line with expectations on the net sales (up 16.9%) and the profits (up 39.5%) front. However the margins took a miss (down 230 basis points, 17.3%) due to increasing research and development (R&D) expenses, high investments in the Indore and Goa plants and a foreign exchange (forex) loss of Rs17 crore. This was however offset by a lower tax rate (due to higher R&D spend) and a higher other operating income, leading to a robust bottom line growth. -
Key takeaways: (a) Inventory rationalisation and change in accounting standard (impact of 4%) led to a subdued 9% growth in the US. (b) Steady ramp-up in prescription growth for Suprax and Antara despite price erosion. Launch of Allernaze further deferred by 4-6 months. (c) The launch of the first batch of 3-4 products of oral contraceptives (OC) would be in H2FY2012 worth $300-500 million in terms of market size. (d) Lupin filed 3 ophthalmic products till date and plans to scale up to 25 products with a market size of ~3-4 billion over the next couple of years. (e) Other geographies continued to do well ?Europe (up 72%), Japan (up 16%), South Africa (up 42%), domestic formulations (up 16.2%, inventory correction in Q2FY2011). Active pharmaceutical ingredient (API) grew by a strong 18.8% in Q3FY2011. -
Other highlights: (a) The capital expenditure (capex) stood at Rs106.6 crore for the quarter; the company has planned a capex of Rs500 crore each for the next three years with continued investments in oral contraceptives, R&D set up and the biosimilars facility. (b)The debt/equity ratio improved to 0.25x; gross debt stands at Rs1,200 crore. -
Introduce FY2013 numbers: We have marginally tweaked our FY2011 numbers to factor in the lower than expected operating margins and change in accounting practices in the US. However our FY2012 numbers remain unchanged. We also introduce FY2013 numbers in this note and anticipate an earning per share (EPS) of Rs27.2. We expect Lupin to post a compounded annual growth rate (CAGR ) of 16% in its top line and an even better 19% CAGR in the bottom line. -
Upgrade to Buy: The management is now focused on FY2013 and is aggressively scaling up its R&D portfolio with launches expected in biosimilars in India, oral contraceptives, ophthalmology and a faster ramp up in branded products in the US. We view this quarter?s operating performance as a temporary blip and expect a normalised growth from hereon. Indications of a ramp up on Antara and filings in OCs and opthalmics rebuild our confidence in the company. The recent decline in the stock also makes it attractive for entry. At the current market price of Rs420, the stock trades at 22x FY2011E fully diluted earnings and at 18.2x FY2012E fully diluted earnings. We thus broadly maintain our estimates and upgrade our recommendation from Hold to Buy on the stock with a price target of Rs520. Thermax
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs909
Current market price: Rs664 Upgraded to Buy on correction Result highlights -
Top line grew by 67.4%: Thermax? Q3FY2011 results were above our expectations on almost all the fronts due to a strong growth in its top line. The company?s net sales increased by 67.4% to Rs1,216.1 crore led by a robust growth in both the energy and the environment division, and a favourable base effect. The energy division posted a strong year-on-year (Y-o-Y) growth of 76.8% in revenues whereas the environment division grew by 44.9% year on year (YoY). -
OPM largely in line with expectations: The company was able to pass on most of the increase in its raw material cost in the quarter and reported an operating profit margin (OPM) of 11.5%. However, its management has indicated that there could be a margin pressure of 50-100 basis points as 15-20% of the current order book pertaining to structural works is open to price variation risk. Boosted by almost a nil interest charge and a lower tax rate, the adjusted net profit jumped by77.4% YoY to Rs100.2 crore. -
Order inflow muted at Rs1,234 crore: The order inflow for the Thermax group amounted to Rs1,234 crore (down 20% YoY) during the quarter. The company?s current order backlog at the group level stood at Rs7,154 crore (up 27% YoY) while at the stand-alone level the order book amounted to Rs6,654 crore (up 18% YoY). The company expects a robust growth in order booking for the year on the back of an improving industrial capital expenditure (capex) cycle in steel, cement and food processing industries. However, in the power segment, particularly among the small independent power producers (IPPs), the company is facing a delay in finalising orders on account of the rising interest rates and high inflation. -
Update on the supercritical venture: The company has already started the construction of the plant for its joint venture (JV) with Babcock and Wilcox to manufacture supercritical boilers. Thermax has also initiated talks with private power developers for engineering, procurement and construction (EPC) orders of the supercritical power projects. Nonetheless, the company is also expecting some major supercritical orders in the next six to nine months. Thermax also expects to participate in the National Thermal Power Corporation (NTPC) super critical boiler bids for 9x800MW power projects. -
Revised estimates: In view of the muted order inflow (down 8.2% YoY) in M9FY2011 and the delay in order awarding, we have downgraded our estimates for FY2012 and FY2013 by 2-4%. Now we expect the profit of the company to post a compounded annual growth rate (CAGR) of 32% over FY2010-13. -
Upgrade to Buy: The company has recently forayed into new areas like solar and geothermal energy, which holds a lot of potential and would help in diversifying its business. The company is also expecting the easing of Chinese competition in view of the expected reduction in subsidies provided by the Chinese government. Thermax also expects the Indian government to soon withdraw the import benefits bestowed on power equipment in order to boost the local industry. We are revising our price target to Rs909, which is 20x the average of FY2012 and FY2013 earning per share (EPS) estimates. At the current market price, the stock trades at 15.8x and 13.6x its FY2012 and FY2013 earnings estimates respectively. This looks attractive considering the company?s promise of a 32% compounded annual growth over the next three years. The Thermax stock has corrected sharply in recent times and provided a good entry point to the investors. Hence, we upgrade our rating on the stock from Hold to Buy. Tata Chemicals
Cluster: Vulture?s Pick
Recommendation: Buy
Price target: Rs404
Current market price: Rs341 Price target revised to Rs404 Result highlights -
Results below expectations: For Q3FY2011 Tata Chemicals reported a profit after tax (PAT) of Rs164.6 crore, indicating a year-on-year (Y-o-Y) decline of 22.5%. Adjusting for an exceptional gain of Rs6.6 crore related to the re-statement of the long-term borrowings (vs a loss of Rs22.2 crore in Q3FY2010), the adjusted PAT declined by 32.5% year on year (YoY) to Rs158.4 crore. The adjusted PAT was well below our estimate of Rs226.5 crore mainly due to a lower than expected operating profit margin (OPM). -
Higher trading boosts top line: Tata Chemicals? Q3FY2011 consolidated income from operations grew by 9.2% YoY to Rs2,890.9 crore. The same was below our estimate of Rs3,015.9 crore for the quarter. OPM declined due to input cost pressure, lower fertiliser sales volume and temporary shutdown of IMACID plant: The OPM declined sharply by 575 basis points YoY to 15.3% (vs our expectation of 19%) on account of input cost pressure in the soda ash business (due to an increase in the cost of coke and coal) and lower sales of complex fertilisers. Moreover, plant shut-downs (IMACID and BMG was shut down for 35 and 15 days respectively) also affected the company?s profitability during the quarter. The operating profit declined by 20.6% YoY to Rs441.4 crore despite the growth in the top line. -
Margin pressure seen in FY2012: The company?s management expects pressure on the margin of complex fertilisers in FY2012 due to lower subsidy under the nutrient-based subsidy (NBS) policy and higher price of raw materials (especially phosphoric acid). We also believe that the rising raw material cost would lead to margin pressure unless the government hikes the retail prices of fertilisers and revises subsidy upwards. -
Estimates lowered: We have downgraded our estimates for the company to factor in the deterioration in its OPM. Consequently, our revised earnings per share (EPS) estimates now stand at Rs25.9 for FY2011 and at Rs33.7 for FY2012. -
Maintain Buy with revised price target of Rs404: We continue to believe that any announcement with regards the urea policy (urea is being brought under the NBS policy, hike in costs) would act as a trigger for the stock. Hence, we maintain our Buy recommendation on the stock with a revised price target of Rs404. At the current market price, the stock trades at 10x its FY2012E EPS and 1.4x its FY2012E book value (BV). HDFC Bank
Cluster: Evergreen
Recommendation: Hold
Price target: Rs2,240
Current market price: Rs2,058 Price target revised to Rs2,240 Result highlights -
HDFC Bank?s Q3FY2011 results were slightly higher than our estimates as its net interest income (NII) grew at 25% year on year (YoY) while its profit after tax (PAT) grew by 33% YoY to Rs1,087 crore. The strong growth in the NII and a higher contribution from the non-interest income (led by the fee income) were the key drivers of the profit growth. The margin and the current account and savings account (CASA) ratio remained stable at 4.2% and 50.5% respectively. The improvement in the asset quality continued as the gross and the net non-performing assets (NPAs) declined to 1.1% and 0.2% from 1.16% and 0.3% in Q2FY2011 respectively. -
NII up 25% YoY, growth in advances moderates sequentially: The NII growth was slightly ahead of our estimate?the NII grew by 25% YoY and 10% quarter on quarter (QoQ) to Rs2,777 crore. This growth was driven by a strong year-on-year (Y-o-Y) growth of 33% in the advances and a stable margin. On a sequential basis, the advances grew by 1.3%, which was lower than expected mainly due to the repayment of third generation (3G) mobile telephony loans (approximately Rs6,000 crore). -
Margin and CASA remain stable: The net interest margin (NIM) remained stable on a quarter-on-quarter (Q-o-Q) basis but declined by ten basis points on a Y-o-Y basis to 4.2%. The CASA ratio also remained stable at 50.5% compared to 50.6% in Q2FY2011. This was driven by a 31% Y-o-Y growth in the savings deposits against a 24% Y-o-Y growth in the overall deposits. -
Healthy growth in fee income: The fee income grew by 22.5% YoY and by 10% QoQ to Rs943 crore mainly due to the cyclical factor led by the festive season. The income in foreign exchange and derivatives showed a strong recovery growing by 42% QoQ. Overall, the non- interest income grew by 17% QoQ and by 25% YoY. -
Improvement continues on asset quality front: The asset quality of the bank continues to improve as its gross and net NPAs declined both on a percentage basis and on an absolute basis. During the quarter, the bank created additional provision for standard assets in the microfinance institution (MFI) segment which further improved the provision coverage ratio to 81% (excluding the written-off accounts). -
Valuations: HDFC Bank has shown a consistent growth over several quarters and maintains one of the best operating metrics (CASA, NIM and return on asset [RoA]). In view of the Q3FY2011 results we have fine-tuned our estimates factoring some compression in the margin and a possible decline in the market share in the key segments. We have revised our price target to Rs2,240, which is 3.5x the FY2012 book value. Currently, the stock trades at 3.2x the FY2012 book value, which is a significant premium to its peers. We maintain our Hold recommendation on the stock. Marico
Cluster: Apple Green
Recommendation: Hold
Price target: Rs140
Current market price: Rs124 Price target revised to Rs140 Result highlights -
Marico?s Q3FY2011 results were ahead of expectation mainly on account of a higher than expected revenue growth during the quarter. The revenues grew by 22.1% year on year (YoY) on the back of a strong volume growth of 15% and a price-led growth of 7% during the quarter. As anticipated, the operating profit margin (OPM) declined by 256 basis points YoY to 12.2% mainly on account of a sharp year-on-year (Y-o-Y) increase in the raw material cost, which increased by 537 basis points YoY to 52.7% during the quarter. Hence, the operating profit stood flat YoY at Rs99.7 crore. However, a lower incidence of tax resulted in a 6% Y-o-Y increase in the adjusted profit after tax (PAT; after minority interest) to Rs70 crore. -
The consumer product business (including coconut oil, branded edible oil and value-added hair oil) in India grew by a strong 19% YoY (a volume growth of 10% YoY). -
On the back of several initiatives, the growth in the rural business (which contributes around 25% to the top line) stood at about 28% YoY while the urban growth stood at about 17%. -
Despite price increases the focus portfolio maintained the momentum in the volume growth: Parachute ?rigid packs up 5% YoY; Saffola portfolio?up 13% YoY; and hair oil portfolio?up 31% YoY. -
The Kaya business witnessed a strong revival with the same-clinic sales growing by about 10% YoY during the quarter (against the lull experienced in the previous three quarters). The domestic business? same-clinic sales grew by about 8% YoY during the quarter. -
It was yet another quarter of strong performance by the international business with its revenues growing by 28% (a volume growth of 25% YoY). -
With a consistent steady growth in the focus portfolio, a strong growth in the international business and a revival in the Kaya business, we expect Marico?s top line to grow at a compounded annual growth rate (CAGR) of 17% over FY2010-13. New product launches and an increase in the reach of the recent launches would further add-on to the top line. We expect Marico to maintain its OPM in the 12-13% band over FY2010-13. Hence, we expect Marico?s bottom line to grow at a CAGR of 16% over the same period. -
However, any tapering down in the volume growth of the focus portfolio and the sustenance of the strong upward movement in the prices of the key raw materials would remain the key risks to our earnings estimates for the company. -
We have tinkered with our estimate for FY2012 (downwards by 4%) to factor in the higher raw material cost. We have revised our price target upwards to Rs140 (based on 22x its FY2013E earnings per share [EPS] of Rs6.4). In view of the limited upside from the current levels, we maintain our Hold recommendation on the stock. At the current market price the stock trades at 23.4x its FY2012E EPS of Rs5.3 and 19.3x its FY2013E EPS of Rs6.4. IRB Infrastructure Developers
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs285
Current market price: Rs202 Price target revised to Rs285 Result highlights -
Earnings well ahead of estimates: IRB Infrastructure Developers (IRB)?s consolidated net profit for the quarter grew by a strong 45.5% year on year (YoY) to Rs133 crore, which is above our as well as the Street?s expectation, led by a higher than expected earnings before interest, tax, depreciation and amortization (EBDITA) margin in the engineering procurement and construction (EPC) division (23% as compared to the expected 20%) and a much lower than expected effective tax rate (17.5% as compared to the expected 30%). -
Consolidated net sales up 54%: IRB?s consolidated net sales for the quarter grew by 54.4% YoY to Rs669 crore driven by the robust growth of 100.6% in the EPC division to Rs455 crore. Three new projects which commenced construction work during the last two quarters along with the Surat-Dahisar project led to a strong performance of the division. The revenue from the build operate transfer (BOT) space grew by 3.7% YoY and 5.3% quarter on quarter (QoQ) to Rs214 crore (in line with our estimates). -
Operating margins surpass estimates: The EBITDA grew by 29.2% YoY to Rs294 crore, against our expectation of Rs276 crore. Though the EBITDA margin declined sharply by 855 basis points YoY to 43.9%, it stood higher compared to our estimates due to a better performance by the EPC division. In the EPC division, margins expanded by 451 basis points YoY to 23% against our expectation of 20%. The contraction in the overall margin is on account of an increase in the proportion of the construction revenue (from 52% in Q3FY2010 to 68% in the current quarter), which fetches lesser margins compared to the BOT division. -
Lower effective tax rate & higher EPC margin lead us to upgrade FY2011 earnings estimates: We are downgrading our revenue estimates for FY2011, as the Panji-Goa project which was expected to commence construction work in H2FY2011 has got delayed due to a land acquisition issue and now it is expected to commence in H1FY2012. However, higher than expected margins in the EPC division and lower than expected effective tax rate has led us to upgrade the company?s net profit estimates for FY2011 by 8.2%. However, we maintain our estimates for FY2012 and further introduce our earnings estimates for FY2013 wherein we expect an earnings growth of 10%. -
Price target downgraded to Rs285, maintain Buy recommendation: IRB has not been able to bag any new orders in the last 9 months, primarily due to a slowdown in NHAI?s awarding activity. This raises a concern on its EPC division as the current order book will be exhausted over the next two years. Because of lack of new order wins in FY2011, the growth in FY2013 could be impacted unless new orders are won in the near future. However, after the recent lull, the project awarding activity by NHAI is again expected to pick up from March 2011 onwards. IRB being the largest toll operator and the second largest BOT player in India will benefit from the same. Hence we have factored in some new projects in FY2012 and FY2013. New order wins in the next 12-18 months should be able to mitigate these concerns. We roll forward our price/earning (P/E) multiple to average of FY2012 and FY2013 for the EPC business and reduce the target multiple from 13x earlier to 12x to factor in lack of new orders and project specific execution delays. We also factor in execution delays in our discounted cash flows (DCF) and roll forward our DCF for each project by six months. Thus we arrive at a target price of Rs285 as compared to Rs311 earlier. However, we maintain our Buy recommendation as the stock looks very attractive at the current levels given the steep price correction in the recent past and on an improved outlook of NHAI?s awarding activity going ahead. At the current market price, the stock is trading at 14x and 10.8x its FY2011 and FY2012 estimated earnings respectively.
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