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STOCK UPDATE Glenmark Pharmaceuticals
Cluster: Apple Green
Recommendation: Buy
Price target: Rs400
Current market price: Rs329 Q4FY2012 results: First-cut analysis Result highlights -
Strong Q4FY2012: Glenmark Pharmaceuticals (Glenmark Pharma) reported a 34.5% year-on-year (Y-o-Y) rise in revenue to Rs1,065.9 crore during Q4FY2012, which is 6% better than our estimate of Rs1,005 crore. The company has shown an all-round impressive performance during the quarter with revenue from the specialty business segment (branded formulation) growing by 33.5% to Rs594.4 crore and the generic formulation business recording a 69% Y-o-Y growth. Core operating margin jumped by 712bps YoY to 18% during the quarter on substantially lower other expenditure (26.3% of net sales in Q4FY2012 vs 34.7% in Q4FY2011). During the quarter the company paid a tax on minimum alternate tax (MAT) basis and therefore the effective tax rate stood at 4% (vs a tax credit in Q4FY2011). This led the net profit during the quarter to expand by 35% YoY to Rs150.4 crore, which is substantially higher than our estimates. Exceptional items impact annual performance:
During FY2012 the revenue rose by 36.3% to Rs4,020.6 crore on the back of a 45% rise in the generic formulation business to Rs1, 213.7 crore and a 30.2% increase in the branded specialty business to Rs2,079.2 crore. During the year the company also received an out-licensing income of Rs253.5 crore. However, despite the 340bps expansion in the core operating margin to 21%, the net profit remained flat at Rs460.3 crore against Rs458 crore in FY2011 crore, mainly due to an exceptional item of Rs131.7 crore (vs exceptional gains of Rs65 crore in FY2011). Without these exceptional items, the profit would have grown by 51% to Rs592 crore. Valuation
The stock is currently trading at 17.6x FY2013E core earnings. We have a Buy rating on the stock with a target price of Rs400, which includes Rs64 from research pipelines and Rs336 (16x average earnings for FY2013-13E) from the core business. We will revisit our estimates post the conference calls with the company's management (scheduled at 8.30 am on May 9, 2011). CESC
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs405
Current market price: Rs262 Numbers reflect tariff hike impact as expected Result highlights -
As expected, CESC has factored-in its approved tariff revision (by 13%) in Q4FY2012. As a result of the same, incremental tariff approved to the tune of Rs0.69 paisa/unit is being accounted for in the units sold during the first ten months of the year. Therefore, in Q4FY2012, the sales include an approximate tariff adjustment of Rs656 crore, which is as expected. However, power units sold during Q4FY2012 were lower than our estimate by 7%, at 1,811 million units. The revenue reported at Rs1,379 crore in Q4FY2012 is 13% lower than our estimate. -
On account of a lower than estimated operating cost, the operating profit of the company, reported at Rs432 crore, is significantly higher than our estimates. A sharp rise in the operating profit on a year-on-year (Y-o-Y) and quarter-on-quarter (Q-o-Q) basis is attributed to the benefit of tariff hike adjustment, as most of the operating cost per unit (except other expenses) hovers around Q3FY2012 levels. Further, below EBITDA line cost items also remain flattish. Consequently, the tariff adjustment benefit percolated to the profit after tax (PAT) also during Q4FY2012. Fine tune estimates with revised tariff and introduce FY2014 numbers: Considering the above operating costs reported by the company against our estimates, we have fine tuned our cost estimates and arrive at a PAT estimate of Rs582 crore in FY2013 with a marginal improvement in estimated sales. Further, we have introduced FY2014 estimates with a sale figure of Rs5,902 crore, operating profit of Rs1,227 crore and PAT of Rs615 crore. Spencer's store level profitability sustained but signs of slowdown in Q4: The total number of Spencer's outlets by the end of FY2012 stood at 182 with a total trading area of 1,009,000 sq ft. The same store sales have increased from Rs1,000/sq ft in FY2011 to Rs1,147/sq ft in FY2012, which is a growth of 14.7%. Comparing with M9FY2012 numbers, there is apparently a marginal slowdown in same store sales in Q4FY2012, which was around Rs1,159/sq ft by the end of M9FY2012. The average sales have increased from Rs957/sq ft in FY2011 to Rs1,060/sq ft in FY2012, which is a growth of 9.7%. Spencer`s retail has sustained store level profitability since last year. In M9FY2012, it recorded an EBITDA of Rs35/sq ft per month (against Rs31/sq ft in H1FY2012). By the end of FY2012, the store level EBITDA hovers around Rs32/sq ft per month. Currently the store level EBITDA margin is hovering around 3.2%, which the management aims to take it to 4% in FY2013; the same would be a key monitorable. Better earning visibility post tariff revision; retain Buy: Though we have introduced our FY2014 standalone numbers, we await the audited results of the subsidiaries (primarily the retail business) before we revise our valuation and price target. Currently, the stock is trading at 0.6x its FY2012 and 0.5x its FY2013 standalone book value. Though we await the results of subsidiaries, we believe there should be progress in reducing losses. Hence, we continue to rate CESC as Buy and retain our target price of Rs405, based on the sum of the parts (SoTP) valuation method.
SECTOR UPDATE Information Technology Cognizant cuts full-year guidance
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