| | STOCK UPDATE Bharti Airtel
Cluster: Apple Green
Recommendation: Buy
Price target: Rs468
Current market price: Rs398 Q2FY2012 results: First-cut analysis Result highlights -
Bharti Airtel (Bharti)'s Q2FY2012 results on a reported basis were in line with our estimates. But on an adjusted basis they missed our expectations by 18.3%, largely due to the foreign exchange (forex) impact. The consolidated top line and the operating profit grew by 1.7% and 1.9% respectively. The consolidated margins came in at 33.7% vs our expectation of 34% (largely affected by Indian operations), The reported profit is exactly in line with our estimate of Rs1,027 crore, but on an adjusted basis (adjusting for the forex loss of Rs239 crore) the profit after tax (PAT) came in at Rs1,189 crore (vs our expectation of Rs1,455 crore) which is lower by 18.3%. We had expected a forex loss of Rs638 crore in our estimate, while the loss came lower at Rs239 crore. -
Adjusted earnings missed expectations: Bharti's adjusted earnings missed our expectations by 18.3% (adjusted PAT at Rs1,189 crore was lower than our expectation of Rs1,455 crore). The company reported a 15.5% sequential fall in the reported earnings, but adjusting for the forex impact the earnings grew by 2.2% on a quarter-on-quarter (Q-o-Q) basis. Despite a robust performance from the African venture, the soft performance from the domestic mobile segment, both on the revenue (-0.6% QoQ) and the profitability front (margins decline 50bps sequentially), along with a higher interest cost (+30.8% QoQ) dented the overall performance. -
Heightened seasonality impacted Asia mobile's business: The domestic mobile business disappointed on the revenue as well as the profitability front. The revenue declined 0.6% on a sequential basis, led by a decline in traffic growth (-1.6% QoQ) and a 4% drop in the average revenue per user (ARPU; at Rs183 vs Rs190 in Q1FY2012). The deleveraging impact of lower traffic coupled with an increase in other costs resulted in a 50bps sequential contraction in the EBITDA margins for the segment from 34.2% in Q1FY2012 to 33.7% in the present quarter. -
The silver lining of the result was the 1% sequential improvement in the average realised rate that increased from 42.8 paise in Q1FY2012 to 43.2 paise in the current quarter. We believe that the sequential enhancement in the tariff is owing to two factors - the 3G roaming pact revenues built in the total revenue coupled with some impact of the hike in tariff rates announced in July. -
Africa performance robust: The African business' performance was robust with a sequential revenue growth of 7.4% and an 110bps margin expansion from 25.2% in Q1FY2012 to 26.4% in the present quarter. Robust traffic growth (+9.9% QoQ) with an enhanced ARPU led the performance. -
Other businesses: All the other businesses showed good growth in their revenues and EBITDA. From this quarter onwards the company has started reporting DTH performance. It has an overall 6.3 million subscribers with an ARPU of Rs163 and the business is profitable at the EBITDA level. -
Positive regulatory announcements on radar: We believe that the recent regulatory news flows pertaining to the sector like the new telecom draft paper, the recent TRAI guidelines that propose for spectrum sharing, and the relaxed merger & acquisition norms are all positive. These point towards a favourable competitive environment with limited players and enhanced profitability going forward. We currently have a Buy recommendation on the stock with a price target of Rs468. At the current market price, the stock trades at 19.9x and 16.4x its FY2012 and FY2013 estimated earnings respectively. Marico
Cluster: Apple Green
Recommendation: Hold
Price target: Rs156
Current market price: Rs149 Price target revised to Rs156 Result highlights -
Strong operating performance: Q2FY2012 is the second consecutive quarter, where Marico's results were ahead of our expectation on account of better than expected operating performance during the quarter. The top line grew by 26% year on year (YoY) while the operating margin stood at around 12% (ahead of our expectation of 11%) during the quarter. Though gross margins declined by 487 basis points (bps) YoY to 45.3%, they have improved sequentially by 200bps. -
Volume growth momentum sustained: The domestic consumer business registered a strong growth of 44% YoY with the volume growth standing at 14% YoY (in-line with 15% YoY volume growth in Q1FY2012) during the quarter. This was on the back of sustained volume growth in the focus portfolio (Parachute +10% YoY, Saffola +11% YoY and value-added hair oils portfolio +25% YoY). The price-led growth in the domestic consumer business stood at 30% YoY during the quarter. The profitability of the domestic consumer business was affected by a higher input cost. -
Other businesses snapshot: The international business registered a strong growth of 19% YoY to Rs241 crore driven by a strong double-digit growth in South Africa and Egypt and contribution by the Vietnamese acquisition - ICP. The margins of the international business are in the range of 11-12%. Kaya revenues grew by 7% to Rs66.2 crore driven by a strong same clinic sales growth of 16%. Kaya's business registered a loss of Rs7.5 crore during the quarter. -
Gross margins remained under pressure: The cost of key raw materials such as copra, sunflower oil, kardi oil and rice bran oil were higher by 50% YoY, 24% YoY, 30% YoY and 47% YoY respectively during the quarter. The company has not implemented any fresh price increases in its flagship brands and hence gross margins were down by 468bps YoY to 45.3%. However due to lower Y-o-Y ad-spends (as a percentage to sales) and lower other expenses (as a percentage to sales), the sharp decline in the operating margins was arrested to 12.0%. The ad-spends stood flat on a Y-o-Y basis at Rs94 crore in Q2FY2012. -
Revision in estimates: We have marginally revised our FY2012 and FY2013 earnings estimates by 2.8% each to factor in a better than expected operating performance during the quarter. -
Outlook and valuation: We expect Marico's top line to grow at a compounded annual growth rate (CAGR) of 21% over FY2011-13 driven by a sustained and steady volume growth in the domestic consumer business and an above 20% growth in the international business. Though we expect the margins to remain under pressure in the near term, any significant downward movement in the key raw material prices (including copra) and the management's stringent efforts to reduce other operating spends would help in showing a better margin picture in FY2013. Hence we expect the bottom line to grow at a CAGR of 28% over FY2011-13. However any slowdown in growth in the domestic or international markets and any significant increase in the prices of inputs would act as a key risk to our earnings estimates.
In line with an upward revision in our earnings estimates, we have revised upwards our price target to Rs156. However 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 28.8x its FY2012E earning per share (EPS) of Rs5.2 and 21.9x its FY2013E EPS of Rs6.8. Ashok Leyland
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs31
Current market price: Rs28 Testing times ahead! Result highlights -
Ashok Leyland Ltd (ALL)'s revenues at Rs3,094.6 crore were up 14% year on year (YoY), a tad lower than our estimates. -
The operating profit was also marginally lower than our estimates at Rs331.2 crore, up 8.6% YoY. However the operating margin came in line with our estimates at 10.7%. -
The company reported a net profit of Rs154.1 crore against our estimate of Rs158 crore for Q2FY2012 reflecting a decline in the profit after tax (PAT) of 7.8% YoY. -
The contribution / vehicle declined by 4.2% sequentially on account of higher discounts given in the market place. -
One off items include one-time repair expense of Rs5 crore and Delhi Transport Corporation (DTC) maintenance charges of Rs8 crore. -
The profit before tax (PBT) was also impacted by higher interest charges due to a higher requirement of working capital. In Q2FY2012, the working capital requirement increased by Rs600 crore compared to the commensurate figure in the corresponding quarter of the previous year. -
ALL's Q2FY2012 PAT came 4% lower than our expectations at Rs154 crore. -
The vehicle factory at Jabalpur has completed 1,200 sets and another 1,500 are expected to get delivered in H2FY2012. -
In the power solutions business, the company has sold 5,000 engines in H1FY2012 and expects to sell 9,000 engines in H2FY2012. -
The company took pricing action of 1% or Rs8,000 - Rs12,000 per vehicle effective November 1, 2011. Another jump is expected to come in January 2012 the quantum of which is not known. -
The finished goods inventory at the end of Q2FY2012 remained high at 9,000 vehicles. | |
