| Summary of Contents | | STOCK UPDATE HDFC Bank
Cluster: Evergreen
Recommendation: Hold
Price target: Rs2,578
Current market price: Rs2,052 Q3FY2011 results: First-cut analysis Result highlights -
HDFC Bank?s results were slightly higher than our estimates as the net interest income (NII) grew 25% year on year (YoY) while the profit after tax (PAT) grew by 33% YoY to Rs1,087 crore. A strong growth in NII coupled with a higher contribution from non interest income (led by fee income) were the key drivers for profit growth. The margins and the current account- savings account (CASA) ratio remained stable at 4.2% and 50.5% respectively. An improvement in asset quality continued as gross and net non performing assets (NPA)s declined to 1.1% and 0.2% respectively (from 1.16% and 0.3% in Q2FY2011). -
NII up 25% YoY, advances growth moderates on Q-o-Q basis: The growth in NII was slightly ahead of our estimates as it grew 25% YoY and 10% quarter on quarter (QoQ) to Rs2,777 crore. This was driven by a strong growth in advances at 33% YoY and stable margins. On a sequential basis, advances growth was at 1.3%, which is lower than expected due to the repayment of some large corporate loans. -
Margins and CASA remain stable: The net interest margin (NIM) remained stable on a Q-o-Q basis while it declined 10 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% YoY growth in saving deposits against a 24% growth in overall deposits. -
Healthy growth in fee income: The fee income grew by 30% YoY and 10% QoQ to Rs943 crore. Income from foreign exchange and derivatives showed a strong recovery, growing by 42% QoQ. Overall the non-interest income grew by 17% QoQ and 25% YoY. -
Improvement continues on asset quality: The asset quality continued to improve as gross and net NPAs declined, both on a percentage basis and absolute basis. The provision coverage (excluding written off accounts) increased to 81% while the proportion of restructured advances remained at 0.3% of loans. -
Valuations: HDFC Bank has shown consistent growth over several quarters and maintains one of the best operating metrics (CASA, NIM, and return on assets [RoA]). Currently, the stock trades at 3.2x its FY2012E book value, which is at a significant premium to its peers. We will review our estimates and come out with a detailed report shortly. Marico
Cluster: Apple Green
Recommendation: Hold
Price target: Rs133
Current market price: Rs128 Q3FY2011 results: First-cut analysis Result highlights -
Marico?s Q3FY2011 results have come ahead of our and the Street?s expectation mainly on account of a higher than expected revenue growth during the quarter. -
The revenue growth during the quarter stood at 22.1% year on year (YoY) to Rs817.7 crore (ahead of our expectation of Rs766 crore). The strong growth can be attributed to the strong volume growth of 15% YoY and price-led growth of 7% YoY during the quarter. -
The operating profit margin (OPM) of the company declined by 256 basis points YoY to 12.2% (in-line with our expectation of 12.0%), mainly on account of a sharp year-on-year (Y-o-Y) increase in the raw material cost. The raw material cost as a percentage to sales increased by 537 basis points YoY to 52.7%, mainly on account of a sharp increase in the prices of key raw materials such as copra (62% YoY) and rice bran oil (25% YoY). -
Hence the operating profit stood flat YoY at Rs99.7 crore (higher than our expectation of Rs92.1 crore). However a lower incidence of tax resulted in an ~6% YoY increase in the adjusted profit after tax (PAT; before minority interest) to Rs71 crore (ahead of our estimate of Rs67 crore) during the quarter. -
It was yet another quarter of strong performance by the focus portfolio with Parachute rigid packs registering a value growth of 14% YoY (~5% volume growth), Saffola posting a growth of above 20% YoY (13% volume growth) and the hair oil portfolio registering a volume growth of ~31%. -
The international business, continuing with its strong performance, registered a revenue growth of 28% YoY. The strong growth can be attributed to the volume-led growth of 25% YoY and price led growth of 8% YoY. However the appreciating rupee had an impact of 5% on the revenue growth. -
Kaya?s performance was the highlight of the quarter. Kaya?s skin care solution business (including Derma Rx) recorded a revenue growth of ~40% YoY to Rs62 crore. However on a like-to-like basis the company posted a much better performance with a revenue growth of 11% YoY to ~Rs49 crore. This can be attributed to an ~10% YoY increase in the same-clinic-sales. Kaya?s domestic business revenues grew by ~5% YoY with same-clinic-sales growing by ~8% YoY. -
With price hikes implemented by the company to cover the spike in the raw material cost, the sustenance of steady volume growth in the focus portfolio is the key monitorable in the coming quarters. Also the company?s strategies to maintain operating margins in the band of 12-13% are a key monitorable in the coming quarters. We will review our estimates for FY2011 and FY2012 and come out with the detailed note soon. At the current market price the stock trades at 29.2x its FY2011E earning per share (EPS) of Rs4.4 and 23.1x its FY2012E EPS of Rs5.5. Currently we have a Hold recommendation on the stock.
IRB Infrastructure Developers
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs311
Current market price: Rs213 Q3FY2011 results: First-cut analysis 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 earning before interest, tax, depreciation and amortization (EBDITA) margin in the construction division (23% as compared to the expected 20%) and 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 construction division to Rs455 crore. Three new projects commenced construction work during the quarter which 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 construction division. In the construction 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. -
Valuation: After a recent lull in the project awarding activity by NHAI, it is again expected to pick up from Q4FY2011 onwards. Thus IRB being the largest toll operator and the second largest BOT player in India will benefit from the same. Further, its strong financials along with the healthy cash flows from its operational toll-based projects also provide comfort. At the current market price, the stock is trading at 16x and 11.6x its FY2011 and FY2012 estimated earnings respectively, which is attractive. We maintain our Buy recommendation on the stock with a price target of Rs311. We will come out with a detailed analysis post the conference call tomorrow. Deepak Fertilisers & Petrochemicals Corporation
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs215
Current market price: Rs157 Q3 results above estimates Result highlights -
Results above our estimate: For Q3FY2011 Deepak Fertilisers & Petrochemicals Corporation Ltd (DFPCL) has reported a net profit of Rs40.3 crore (a year-on-year [Y-o-Y] decline of 23.8%). Adjusting for the Rs3.4 crore of loss on the sale of land (vs a gain of Rs25.7 crore on the sale of land in Q3FY2010), the net income stood at Rs43.6 crore, indicating a growth of 60.7% YoY. -
Top line up marginally: The total operating income for the quarter stood at Rs375 crore, up marginally by 2.2% YoY (down 8.7% sequentially) as the higher revenues from the chemical segment were largely offset by a sharp decline in the fertiliser trading revenues during the quarter. The top line stood above our expectations due to lower than expected revenues from the fertiliser segmnet during the quarter. -
Chemicals: The revenues from the chemical segment expanded strongly by 23.2% YoY (a 12.1% sequential growth) to Rs263 crore mainly on account of improved realisation during the quarter. -
Fertilisers: The revenues from the fertiliser segment declined by 23.7% YoY (down 36.4% sequentially) to Rs120.3 crore. The trading component of the fertiliser sales declined by 36.6% YoY mainly on account of lower prices for the bulk fertilisers like MOP. -
Margin improves 321 basis points YoY: The operating profit margin (OPM) improved significantly during the quarter to 21.8% as compared to 18.6% in Q3FY2010 and 18.7% in Q2FY2011. The sharp improvement in the margin was achieved mainly on the back of a lower raw material cost as a percentage of net sales (58.5% in Q3FY2011 vs 64.1% in Q3FY2010). In terms of the segments: -
We lower FY2011 earnings estimates: We have lowered our FY2011 estimates to factor in the lower technical ammonium nitrate (TAN) sales volume for the year. Consequently, our revised earnings per share (EPS) estimate for FY2011 now stands at Rs21.1. We maintain our FY2012 EPS estimate. -
Maintain Buy with price target of Rs215: We are confident about our FY2012 estimates and maintain our positive view on the stock in view of the company?s strong OPM (22.1% in M9FY2011, up 152 basis points) and expectations of a strong top line growth with the commencement of commercial production from its new TAN plant. At the current market price, the stock trades at attractive valuations of 7.4x its FY2011E EPS and 5.9x its FY2012E EPS. We maintain our Buy recommendation and price target of Rs215 on the stock. Grasim Industries
Cluster: Apple Green
Recommendation: Hold
Price target: Rs2,500
Current market price: Rs2,360 Price target revised to Rs2,500 Result highlights -
Consolidated earnings in line with expectation: Grasim Industries (Grasim)?s consolidated net profit in Q3FY2011 decreased by 13.5% year on year (YoY) to Rs501.8 crore, which was in line with our estimate. On a sequential basis, the bottom line grew by a strong 55.3% due to a better demand environment for viscose staple fibre (VSF) which resulted in an increase in the volume and realisation. Further, an increase in cement prices in the southern market resulted in a rise in the blended cement realisation. -
Revenue growth driven by strong performance of VSF: The consolidated net sales of the company grew by 12.4% YoY to Rs5,384.5 crore driven by a healthy revenue growth (increased by 24.8% YoY) in the VSF division; chemical division posted the highest ever sales of 67,136 tonne during the quarter) and a 10% increase in the realisation. The revenue from the cement division grew by 8.6% YoY to Rs3,945 crore on account of a volume growth of 10% to 10.08 million tonne (including clinker sales and volume of Star Cement). -
Margin contracted YoY but improved sequentially: The operating profit margin (OPM) of the company contracted by over eight percentage points YoY to 20.8%. The decrease in the OPM was mainly on account of a sharp decline in the profit before interest and tax (PBIT) margin of the cement division (from 22.2% in Q3FY2010 to 12.7% in Q3FY2011) on account of a fall in the cement realisation and cost pressure. Thus, the operating profit of the company decreased by 19.1% YoY to Rs1,120.2 crore. However, sequentially the OPM expanded by 460 basis points due to an increase in the realisation of the cement and VSF divisions. -
Interest and depreciation costs rise due to capacity addition in cement: The company?s interest outgo surged by 37.1% to Rs108.8 crore and depreciation charge rose by 17.5% to Rs299.2 crore YoY during the quarter. The interest and depreciation charges increased on account of the commissioning of a cement capacity. -
Consolidation of Star Cement takes place, booked 0.75 million tonne of cement volume: UltraTech Cement, a subsidiary of Grasim, had acquired a controlling interest in Star Cement during Q2FY2011. Star Cement owns cement plants in Dubai, Sudan, Bangladesh and Bahrain with a total capacity of 3 million tonne. During the quarter under review (Q3FY2011) Grasim consolidated the operation of Star Cement and booked cement volume of 0.75 million tonne. After factoring the acquisition of Star Cement, the consolidated cement capacity of the company now stands at 51.75 million tonne. -
Upgrading earnings estimates to factor increase in VSF and cement realisation: We are upgrading our consolidated earnings estimates for FY2011 and FY2012 mainly to factor in the recent increase in VSF and cement realisation. Consequently our revised consolidated earnings per share (EPS) estimates for FY2011 and FY2012 stand at Rs220.4 and Rs261.6 respectively. Further we are also introducing our FY2013 earnings estimate with EPS at Rs282.8. -
Maintain Hold, price target revised to Rs2,500: Given the improvement in the global demand for VSF, the performance of the division continues to shine in terms of both volume and realisation. Going ahead, we believe the profitability of the division would remain healthy due to the rising price of competing fibres. Further, the chemical division has also attended its highest volume and demand outlook?this is a positive going ahead given the increased offtake from the aluminium industry. However, its cement division is under pressure due to a poor cement offtake and unfavorable demand-supply scenario. As per the management, cement volume will grow at around 7% in FY2011. Further cost inflation in terms of the rising price of imported coal remains a key concern as the company procures about 35% of its total requirement through imports. On the valuation front, we continue to value stock using the sum-of-the-parts (SOTP) valuation method and revise our price target for the stock to Rs2,500. We also maintain our Hold rating on the stock. At the current market price the stock trades at a price/earnings ratio of 9x, discounting its FY2012 estimated EPS. Hindustan Unilever
Cluster: Apple Green
Recommendation: Reduce
Price target: Rs246
Current market price: Rs273 Price target revised to Rs246 Result highlights -
The company?s net sales grew by 11.6% year on year (YoY) to Rs5,027.0 crore in the third quarter. The top line growth was entirely driven by a strong volume growth of 13% in the consumer business. -
In line with our expectation, the raw material cost as a percentage of sales went up by 202 basis points YoY to 51.1% during the quarter. The raw material cost surged due to a sharp increase in the prices of the key inputs (including Palm Oil, LAB, Raw Tea & Coffee). This along with a 100-basis-point year-on-year (Y-o-Y) increase to 14.8% in the advertisement cost as a percentage of sales resulted in a 353-basis-point Y-o-Y decline in the OPM to 12.4% (which was below our expectation of 13.6%). Thus, the operating profit of HUL declined by 13.1% YoY to Rs624.3 crore. -
However, a higher other income resulted in just a 2.8% Y-o-Y decline in the adjusted profit after tax (PAT) to Rs586.0 crore. -
Revised estimates: We have revised downwards our earnings estimate for FY2011 and FY2012 by 3% and 9.5% respectively to factor in the lower than expected growth in the core soap and detergent segment. Also, considering the sustenance of the higher advertisement spend (mainly to defend the market share in the key categories), we have increased our advertisement expenditure assumption for FY2011 and FY2012. We have also introduced our FY2013 estimates in this note. -
Outlook and valuation: We expect HUL?s top line and bottom line to grow moderately at a compounded annual growth rate (CAGR) of 12.0% and 8% respectively over FY2010-13. Hence, considering the poor earnings visibility amongst the fast moving consumer goods (FMCG) space we maintain our Reduce rating on the stock with a revised price target of Rs246 based on 20x its FY2013E earnings per share (EPS) of Rs12.3. At the current market price the stock trades at 25.3x its FY2012E EPS of Rs10.7 and 22.0x its FY2013E EPS of Rs12.3. IDBI Bank
Cluster: Cannonball
Recommendation: Buy
Price target: Rs182
Current market price: Rs145 Price target revised to Rs182 Result highlights -
IDBI Bank?s Q3FY2011 results were higher than our estimates as the profit after tax (PAT) grew by 58.1% year on year (YoY) to Rs454 crore led by a strong increase in the net interest income (NII) and lower operating expenses. Margins were at 2.28%, a 70 basis point improvement on a Y-o-Y basis. However, the asset quality of the bank continued to deteriorate as gross nonperforming assets (NPA) increased to 2.22% sequentially from 1.88% in Q2FY2011. The provision coverage ratio stood at 75.61%. -
NII up 68% YoY, loan growth target lowered: The NII of the bank grew by 68% YoY to Rs1,204 crore. The total advances of the bank grew by 3.3% quarter on quarter (QoQ). The growth in advances has come on the back of the mid corporate and retail segments. The bank has reduced its advances growth target to 10% for FY2011. -
Margins remain stable, focus on CASA: The margin of the bank has remained stable during Q3FY2011 at 2.28% while it has grown by 70 basis points YoY. Despite offering attractive schemes, the current account-savings account (CASA) balances have remained stable at around 15% levels. The bank plans to increase the CASA proportion to 18% by the year end. The net interest margin (NIM) for FY2011 could be maintained at ~2% levels. -
Asset quality deteriorates: The asset quality of the bank deteriorated as gross NPAs increased to 2.22% in Q3FY2011 from 1.88% in Q2FY2011. This was due to the higher slippages of Rs690 crore recorded during the quarter mainly from the small and medium enterprise (SME) segment. This contributed to increased provisioning to Rs490 crore as against Rs319 crore in Q2FY2011. The bank has also made Rs43 crore worth of provision for teaser loans. Most of the slippages of the bank have been in the SME segment. The provision coverage ratio (including written off account) stood at 75.6%. -
Cost-income ratio declines: The cost-income ratio of the bank declined from 38.2% to 31.3% sequentially. This was mainly due to gratuity provision of Rs100 crore made during Q2FY2011 which had lead to higher opex for the quarter (Q2FY2011). The bank targets to maintain the cost-income ratio at 33% in FY2011. -
Maintain Buy with a revised price target of Rs182: Though the bank has reported higher than expected results during the quarter, an increase in slippages and slower pick up in CASA may impact the future profitability of the bank. The management has guided for a slower business growth ahead and increased focus on qualitative parameters (margins, CASA, asset quality etc). We have tweaked our estimates to factor in the above concerns. We expect the bank to post a compounded annual growth rate (CAGR) of 33% in earnings over FY2010-13, and an average return on assets (RoA) and return on equity (RoE) of 0.8% and 15.8% respectively. We downgrade our sum of the parts (SOTP) based target price of the stock to Rs182 (valuing the bank at 1x FY2012E BV). We maintain our Buy recommendation on the stock with a revised price target of Rs182.
|
| |
No comments:
Post a Comment