Fw: Investor's Eye: Update - GlaxoSmithKline Consumer Healthcare (Downgraded to Hold), Logistics (Contraction continues)

 

 

Investor's Eye [February 18, 2013]  Sharekhan www.sharekhan.com

Summary of Contents   STOCK UPDATE GlaxoSmithKline Consumer Healthcare  Recommendation: Hold Price target: Rs3,900 Current market price: Rs3,785 Downgraded to Hold Result highlights  Q4CY2012 results below expectation: GlaxoSmithKline Consumer Healthcare (GSK Consumer)'s Q4CY2012 results were lower than expectations due to a lower than expected operating profit margin (OPM), which was affected by higher other expenditures during the quarter. Around an 18% year-on-year (Y-o-Y) revenue growth gives us an indication that the volume growth must have stood in the range of 7-8% year on year (YoY) during the quarter. The improvement of over 100 basis points YoY in the gross profit margin (GPM) was the highlight of this quarter despite an absurd increase in the wheat and sugar prices in Q3FY2013. Performance snapshot: GSK Consumer's Q4CY2012 net sales grew by 17.8% YoY to Rs709.1 crore (largely in line with our expectation of Rs708.1 crore). We believe the volume growth must have stood in the range of 7-8% while the price-led growth might have been close to 10% YoY during the quarter. The core malted food drinks (MFD) segment must have grown by about 18% while the biscuit segment must have grown by about 25% YoY during the quarter. Despite a sharp increase in the prices of the key inputs, such as wheat and sugar, the GPM improved by 161 basis points YoY to 66.0% largely on account of the price hikes undertaken in the MFD segment. The OPM (excluding the business auxiliary income) declined by 310 basis points to 7.1% in Q4CY2012. Hence, the operating profit was down by 17.9% YoY to Rs50.6 crore. However, higher yields on investments resulted in a 36.0% Y-o-Y growth in the other income. Hence, the reported profit after tax (PAT) grew by just 4.9% YoY to Rs69.3 crore (which was lower than our expectation of Rs69.3 crore) during the quarter.  Successful completion of open offer: GlaxoSmithKline Pte (GSK) along with Horlicks and GSK Plc made a voluntary open offer to acquire 1.34 crore shares (31.84% of the share capital) of GSK Consumer at a price of Rs3,900 per share. The open offer was successful, as the parent company was able to acquire a 29% stake in GSK Consumer. With this the parent company's stake in GSK Consumer has gone up to 72.5%. Balance sheet remained strong: GSK Consumer's balance sheet remained strong with negative working capital and improved operating cash flows. The operating cash cycle remained negative at 102 days. The return ratios remained strong with the return on equity (RoE) and return on capital employed (RoCE) standing at 34.9% and 52.0% in CY2012. The company has recommended a dividend of Rs45 per share (a dividend pay-out of 43%) for the year end CY2012. With the cash flows remaining strong, we expect the company to maintain the strong dividend pay-out. Downgraded to Hold: In the persistent inflationary environment, we expect GSK Consumer's volume growth in the MFD segment to sustain at higher single digits. However, the low penetration of the segment (especially in the northern and western regions) and the scope for improving the reach in rural areas provide us visibility of a decent volume growth in the long run. Also, the company's continuous focus on enhancing its non-MFD product portfolio would help it to improve its growth prospects in the long run. The key things to monitor in the near term would be the volume growth in the MFD segment and any improvement in the OPM in the coming quarters. We have broadly maintained our earnings estimates for CY2013 and CY2014. We continue to like GSK Consumer on account of its strong market positioning in the domestic MFD market, healthy balance sheet and strong dividend pay-out. At the current market price the stock is trading at 31.1x its CY2013E earnings per share (EPS) of Rs121.3 and 27.2x its CY2014E EPS of Rs138.7. GSK Consumer's stock price moved up strongly during the open offer period and is currently trading at premium valuation. Hence, we downgrade the stock from Buy to Hold with a price target of Rs3,900. SECTOR UPDATE Logistics Contraction continues   Key points After eight consecutive months of contraction, India's export-import (EXIM; exports + non-oil imports) growth re-entered the positive zone in January 2013 by growing at 4%. This growth was largely on the back of a 6% growth in imports (non-oil) along with an export growth of 2%. However, the year-to-date (YTD) growth is still low at -5% year on year (YoY) for April 2012 to January 2013 as against a 28% year-on-year (Y-o-Y) growth during April 2011 to January 2012. The total cargo volume at major ports in January 2013 reported a decline of 1% YoY mainly due to a 72% Y-o-Y decline in cargo at Mormugao port. However, New Mangalore (+27%), VO Chidambaranar (+26%), Haldia (+25%), Ennore (+23%), Paradip (+16%), Kolkata (+13%) and Kandla (+13%) ports reported a growth in their cargo traffic. The total cargo volumes reported a decline of 3% YoY to 454MT YTD, ie April 2012 to January 2013. The container volumes in January 2013 were flat YoY, thus restricting the declining trend witnessed over the previous four months. However, the YTD (April 2012 to January 2013) contraction of 1% continues to portray a bleak outlook for container volumes. The current economic backdrop for logistics players, collaged by the overall weak EXIM trade along with a contraction in cargo volumes (particularly containers), is not an encouraging one. We expect this lacklustre performance to continue in the near term. However, we continue to prefer Gateway Distriparks Ltd (GDL) due to the robust long-term growth potential of each of its business segments, ie container freight station, rail and cold storage. The stock is currently trading at a price earnings (PE) of 8.0x based on its FY2015E earnings per share (EPS) of Rs16.6.  Click here to read report: Investor's Eye     Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Fw: Sharekhan's top equity mutual fund picks

 

 

Mutual Gains [February 14, 2013]  Sharekhan www.sharekhan.com

Summary of Contents MUTUAL GAINS Sharekhan's top equity mutual fund picks Large-cap funds Mid-cap funds Multi-cap funds UTI Wealth Builder Fund - Series II SBI Emerg Buss Fund Quantum Long-Term Equity Fund ICICI Prudential Focused Bluechip Equity Fund HDFC Mid-Cap Opportunities Fund UTI Equity Fund Birla Sun Life Top 100 Fund IDFC Sterling Equity Fund - Reg Canara Robeco Equity Diversified ICICI Prudential Target Returns Fund UTI Mid Cap Fund Taurus Starshare Fund DSP BlackRock Top 100 Equity Fund Reliance Long Term Equity Fund Tata Equity Management Fund Indices Indices Indices BSE Sensex BSE MID CAP BSE 500 Tax saving funds Thematic funds Balanced funds Axis Long Term Equity Fund Birla Sun Life India GenNext Fund ICICI Prudential Balanced Franklin India Taxshield Canara Robeco FORCE Fund - Reg HDFC Balanced Fund Canara Robeco Equity Taxsaver Reliance Media & Entet Fund HDFC Prudence Fund IDFC Tax Advantage (ELSS) Fund - Reg UTI India Lifestyle Fund Birla Sun Life 95 L&T Tax Advantage Fund L&T India Special Situations Fund FT India Balanced Fund Indices Indices Indices CNX500 S&P Nifty Crisil Balanced Fund Index Fund focus DSP Blackrock Top 100 Equity Fund-Growth Click here to read report: Top equity mutual fund picks   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Fw: Rajiv Gandhi Equity Savings Scheme

 

Open a new Demat account and avail additional tax benefits

Introducing Rajiv Gandhi Equity Savings Scheme
----------------------------------------------------

Greetings from Integrated.

Government has announced "Rajiv Gandhi Equity Savings Scheme - RGESS" with an objective of encouraging flow of savings of small investors in domestic capital market.

Eligible investors will get additional tax benefit of up to Rs.5,150 u/s.80-CCG by investing up to Rs.50,000/- in RGESS eligible securities/MF schemes. This benefit is over and above benefit u/s.80-C.

Please click here for a brief presentation on RGESS.

Mutual Fund houses have lined up exclusive schemes that would invest in RGESS eligible securities. By investing in them, investors will be eligible for additional tax benefit apart.

DSP BR RGESS Series 1	-	A 3 year close ended Equity Fund.
IDBI RGESS Series 1 Plan A	-	A 3 year close ended Equity Fund.
SBI Sensex ETF	-	An Exchange Traded Fund tracking BSE Sensex.
UTI RGESS Fund	-	A 3 year close ended Index Fund tracking Nifty.

Open your Demat account, invest in RGESS eligible securities / MF schemes & avail additional tax benefits.

Please note, the same Demat account can be used for other investments like MF ELSS, Gold ETF, Corporate Bonds etc.

For further informations, please contact our branches. For list of branches visit www.integratedindia.in

Risk Factors : MF investments are subject to market risks. Pl. read, scheme information document carefully before investing.

 

 

 

Fw: Investor's Eye: Update - Mahindra & Mahindra, Sun Pharmaceutical Industries, Aurobindo Pharma, Tata Chemicals, Orient Paper and Industries

 

 

Investor's Eye [February 08, 2013]  Sharekhan www.sharekhan.com

Summary of Contents   STOCK UPDATE Mahindra & Mahindra  Recommendation: Buy Price target: Rs1,046 Current market price: Rs883 Q3FY2013 results-First cut analysis Result highlights  Q3FY2013 sees a weaker operating performance Mahindra & Mahindra (M&M) delivered a weak operating performance in Q3FY2013 mainly due to a margin pressure in the automotive segment. The margin in the automotive segment at 8.5% was 70 basis points lower than our estimate. The company maintained its margin in the tractor segment despite the challenging environment. The company reported a profit before tax (PBT) of Rs1,059 crore, which was 7% below estimate. However, the company reported lower tax expenses, which resulted in a profit after tax (PAT) of Rs836 crore, which was broadly inline with our estimate of Rs844 crore. Tractor demand to remain sluggish in near term With the rabi rain lower than expected, the industry witnessed a negative growth during Q3FY2013 as against the expectation of a flattish growth. We expect the tractor sales to remain under pressure in the near term. Automotive demand to remain strong The company's automotive segment is witnessing a strong double-digit demand on back of a strong growth for the utility vehicles and light commercial vehicles. With new launches in the automotive segment (a sub-four metre Verito and an electric car) and continued outperformance of the utility vehicles, the automotive demand is expected to remain strong. Valuation We are keeping our Buy recommendation and the price target unchanged as of now. We would review our estimate in the subsequent note.  Sun Pharmaceutical Industries  Recommendation: Buy Price target: Rs775 Current market price: Rs744 Q3FY2013 results-First cut analysis Result highlights  Q3FY2013 results in line with expectation: Sun Pharmaceuticals (Sun Pharma) reported a 33% year-on-year (Y-o-Y) rise in net sales to Rs2,852 crore, which was line with our expectation of Rs2,850 crore. The operating profit margin (OPM) improved marginally by 28 basis points year on year (YoY) to 45.2% (better than our estimate of 41.5%). The adjusted net profit jumped by 36.1% YoY to Rs910 crore (vs our estimate of Rs896 crore). However, the reported net profit jumped by 31.9% YoY to Rs881 crore after providing for Rs28.30 crore as exceptional expenditure related to one-time payment to employees of the newly acquired Dusa Pharmaceuticals (Dusa Pharma) as severance cost. US business and API drive growth: The net sales during the quarter have been mainly driven by the US business, which grew by 43.7% YoY to Rs1,495 crore (or $276 million, 32% YoY at constant currency). The US business was strongly supported by supplies of Lipidox and performance of Taro Pharmaceuticals (Taro), which reported a 25.4% Y-o-Y rise in revenues to $185.7million. Besides, Sun Pharma did financial closures for the two newly acquired US-based entities, namely Dusa Pharma and the generic business of URL Pharma (through US-based subsidiary Caraco Pharmaceuticals). We believe these entities also partially contributed to the company's growth during the quarter. Besides, the revenues from the active pharmaceutical ingredient (API) business jumped by 36% YoY to Rs209 crore, which helped the growth.  Indian revenues fall short of expectation: The revenues from the branded formulation business in India reported a 13.3% Y-o-Y rise to Rs788 crore (vs our estimate of Rs826 crore). The slower growth in the Indian business as explained by the management was due to a change in treatment of expected sales return and in treatment of discounts. On a like-to-like basis, the growth in the Indian formulation business should have been nearly 19% YoY for the quarter. The company launched seven products during the quarter in the Indian market, taking the total to 22 products for the first nine months. RoW markets post impressive 31% growth YoY: The revenues from the Rest of the World (RoW) jumped by 31% YoY to $73million during the quarter. Excluding contribution from Taro in the RoW markets, the underlying sales growth in the dollar terms for Sun Pharma's business was 58% for the third quarter, which is impressive.  Higher tax and minority interest restrict growth at bottom line: The effective tax rate during the quarter increased to 18.2% (although on expected lines) as compared with 7.4% in Q3FY2012. Moreover, the strong profit contribution from Taro (where minority holds 33.7% stake) resulted in the minority stake increasing by 19.4% YoY to Rs152.1 crore. Consequently, the net profit after tax (adjusted for EO items) witnessed a restricted growth of 36.1% YoY to Rs910 crore, which was 1.6% lower than our estimate.  Product pipeline: In the third quarter, the company filed eight new the abbreviated new drug applications (ANDAs), taking the tally of total ANDAs filed to 403 products (including Taro and newly acquired generic business of URL Pharma). It got approvals for two products during the quarter, taking the tally of total ANDAs approved to 261 (including 107 products from newly acquired generic business of URL Pharma) including 17 tentative approvals. Recently, Sun Pharma got approvals for generic Doxil, which is a significant achievement and recognition of its technological capabilities.  Valuation: The stock currently trades at 22x FY2014E earnings. We have Buy rating on the stock with a price target of Rs775 (23x FY2014E earnings).  We will revisit our estimates after interactions with the management (a teleconference call with the management is scheduled at 7.00pm today). Aurobindo Pharma  Recommendation: Buy Price target: Rs247 Current market price: Rs184 Q3FY2013 results-First cut analysis Result highlights  Q3FY2013 results better than expected: Aurobindo Pharma reported a 22.2% year-on-year (Y-o-Y) rise in net sales to Rs1,570.1 crore (vs our estimate of Rs1,564 crore), mainly driven by the US formulation business (up 58% year on year [YoY] to Rs513 crore) and the dossier income of Rs38.6 crore (up 69.3% YoY). The operating profit margin (OPM) improved by 162 basis points YoY to 16.5% (vs our estimate of 16%) on the back of a better product mix (lower contribution of low-margin antiretroviral [ARV] business). The effective tax rate declined by 110 basis points to 6.6% during the quarter (vs our estimate of 12%) and that helped the adjusted net profit grow by 42.5% YoY to Rs165.2 crore (vs our estimate of Rs142.4 crore). However, due to a foreign exchange (forex) loss of Rs73.4 crore (related to translation of long-term foreign borrowings) compared with a forex loss of Rs144.5 crore provided in Q3FY2012, the reported net profit turned around to Rs91.8 crore during the quarter (vs loss of Rs28.6 crore). Lower proportion of ARV business helps margin in Q3: During the quarter, the contribution from the ARV formulation business, which is considered a low-margin business, dropped to 10.9% from 15.9% in Q3FY2012. Similarly, the contribution of the active pharmaceutical ingredient (API) business related to ARV drugs dropped to 12.5% of sales from 15% in Q3FY2012. We expect this change in business mix to continue in the subsequent quarters and that should help the company to achieve a 15% margin in FY2013 (vs 13.2% in FY2012). Aggressive launches in US market augur well; expect ramp-up to continue: During the quarter, the company launched nine generic products in the USA and also got tentative approvals for three products. These launches helped the company to clock sales of Rs514.4 crore (57.8% YoY) during the quarter. The company filed 11 new abbreviated new drug applications (ANDAs) during the quarter, which takes the tally to 262 filings by end of this quarter, and the total approvals from the US Food and Drug Administration (USFDA) goes to 171 including 26 tentative approvals. We believe the healthy pipeline will continue to expand further with aggressive filings from the newly approved facility at Unit-4 (general liquid injectable manufacturing) and Unit-12 (semi-synthetic penicillin oral and injectable).  Valuation: The stock currently trades at 10.6x FY2014E. We have Buy rating on the stock with a price target of Rs247 (12x average earnings for FY2014E and FY2015E). We will come out with detailed note after interaction with the management (teleconference call scheduled at 4:00 pm today). Tata Chemicals  Recommendation: Buy Price target: Rs430 Current market price: Rs355 Price target revised Rs430 Result highlights  Consolidated revenues grew marginally; subsidiaries' profitability remains a concern: During the third quarter of FY2013 Tata Chemicals Ltd (TCL)'s consolidated revenues grew by 10.2% to Rs4,196.8 crore, which was largely in line with our expectations. However, the consolidated earnings growth was dented by the weak performance of the subsidiaries, namely IMACID (pricing pressure on phosphoric acid), Tata Chemicals Europe (equipment cost failure and shrinkage in demand due to a slowdown) and Tata Chemicals Magadi (lower production due to rain and water backlogs). Consequently, the reported profit after tax (PAT; after the minority interest and income from associates) remained flat at Rs224.0 crore, which included an extraordinary income of Rs130.4 crore from the sales of the long-term investments, a foreign exchange loss of Rs50.1 crore and the restructuring cost (the UK loan was restructured) of Rs31.2 core. Adjusting for this the PAT stood at Rs175.8 crore, which was lower than our estimate. North American and domestic markets clocked better revenue growth: The stand-alone performance of TCL for Q3FY2013 was better than expected. The revenues for the quarter grew on the back of a higher production volume of non-urea fertilisers and a good volume growth in soda ash and branded salt. The volume in soda ash grew by 4% year on year (YoY). The total revenues of the stand-alone business grew by 8.8% to Rs2,546.0 crore and the EBIDTA margin stood at 11%, which was marginally lower than our expectation. However, the margin of the stand-alone business was under pressure during the quarter due to input cost pressure. The North American business' revenues also grew handsomely by 24.3% YoY to Rs690 crore and profit grew by 3% YoY to Rs68 crore. A lower growth in the profitability of the North American business was mainly due to a higher input cost and change in the product mix.  Outlook: margins to remain under pressure: The margin in the non-urea fertilisers is expected to remain under pressure mainly due higher prices of inputs and an increase in the sales of traded fertilisers. On the chemical front, margin pressure in the European and Kenyan businesses may remain because of an economic slowdown and intense competition. However, the company believes that the demand for soda ash and salt will remain firm in India and North America despite the declining demand from China.  Valuation: We have broadly maintained our earnings estimates for the company and rolled over our target multiple to the FY2015 estimate. Consequently, we have increased our price target to Rs430 and maintained our "Buy" rating on the stock. At the current market price the stock trades at 10.1x its FY2014E earnings per share (EPS) of Rs35.3 and 9.2x its FY2014E EPS of Rs38.5. On the valuation front, we value TCL at 10x FY2015E EPS and investment value of Rs45 per share, and arrive at a fair price of Rs430.  Orient Paper and Industries  Recommendation: Hold Price target: Rs79 Current market price: Rs73 Price target revised to Rs79 Result highlights  Revenues in line with estimate, margin pressure dents earnings: In Q3FY2013, Orient Paper & Industries (Orient Paper) posted net sales of Rs593.6 crore (up 3.1% year on year [YoY]), which was largely in line with our estimate. Further, the profitability of its cement division though contracted sharply at the earnings before interest and tax (EBIT) level, but came much in line with our estimate. However, its paper division disappointed with a higher than expected loss at the EBIT level, which stood at Rs23.6 crore. Hence, the loss in the paper division and a severe margin pressure in the cement division resulted in the net profit declining by 65.4% YoY to Rs14.7 crore, which was lower than our estimate. Electrical division supports revenue growth: The company's overall revenue growth of 3.1% was largely supported by the electrical division, which delivered a revenue growth of 19.5% YoY to Rs160.6 crore. On the other hand, the revenues from the cement division largely remained unchanged on a year-on-year (Y-o-Y) basis as a 1.4% growth in the average realisation got offset by a decline in the volumes. Further, the paper division continued to disappoint with the revenues declining by 8.5% YoY to Rs86.2 crore on account of lower production. Margin pressure witnessed across all business divisions: The overall operating profit margin (OPM) of the company contracted by 896 basis points YoY to 6.5%. The contraction in profitability was on account of a sharp decrease in the EBIT margin of the cement division by 976 basis points and a loss to the tune of Rs23.6 crore in the paper division as compared with a loss of Rs15.3 crore in the corresponding quarter of the previous year. The margin in the electrical division stood at 3.4% as compared with its historical average of 7-8% on account of advertising spends in the home appliance products. The sharp contraction in the margin of the cement division was largely on account of a cost inflation in terms of power and fuel due to the purchase of imported coal at a higher price on account of a shortage of coal in the domestic market and a surge in the freight charges due to a fuller impact of an increase in the diesel prices and railway freight. Consequently, the operating profit decreased by 56.5% YoY to Rs38.8 crore (as compared with 3.1% growth witnessed on the revenue front).  Commissioned captive power plant of 55MW: During the quarter, the company commissioned a captive power plant (CPP) of 55MW at its paper facility in Amlai. The CPP is expected to stabilise in the coming quarter and the saving in the cost of production of paper is expected in FY2014. Hence, we believe the move could limit the loss in the paper division and improve profitability in FY2014.  Demerger of its cement business: The cement business of Orient Paper will be transferred to its newly formed subsidiary company, Orient Cement. The demerger of its cement division will come into effect from April 2012. According to the management, the company is expected to get the order from the High Court for the proposed demerger of the cement division in two to three months. We believe the development is positive for the company as it will unlock the value for the shareholders through direct exposure to a pure cement player. However, as per our interaction with the management of the company, the procedure will take some more time to get Orient Cement listed on bourses. Huge outstanding water tax, company applied for waiver as per agreement: As per the auditor's report, no provision against the water tax amounting to Rs263.4 crore has been made by the company since its application for waiver thereof is under consideration by the state government of Madhya Pradesh. Downgrading earnings estimates for FY2013 and FY2014; introducing FY2015 estimate: We are downgrading our earnings estimates for FY2013 and FY2014 mainly to factor higher than expected cost inflation in the cement division and higher than expected loss in the paper division. Consequently, our revised earnings per share (EPS) estimates now stand at Rs8 and Rs9.3 for FY2013 and FY2014 respectively. We are also introducing our earnings estimate for FY2015 with the EPS estimate standing at Rs10.9. Maintained Hold with revised price target of Rs79: Given the severe margin pressure in the cement division, rising losses in the paper division and a limited upside from the current level, we have maintained Hold recommendation on the stock with a revised price target of Rs79 (based on the sum-of-the-parts [SOTP] valuation methodology). At the current market price (CMP), the stock trades at price/earnings ratio (PER) of 8x and enterprise value (EV)/ EBIDTA of 5x discounting its FY2014 earnings estimate. Click here to read report: Investor's Eye   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Fw: Investor's Eye: Update - IL&FS Transportation Networks, Relaxo Footwears, Insurance; Viewpoint - Escorts

 

 

Investor's Eye [February 05, 2013]  Sharekhan www.sharekhan.com

Summary of Contents   STOCK UPDATE IL&FS Transportation Networks  Recommendation: Buy Price target: Rs312 Current market price: Rs200 Price target revised to Rs312 Result highlights  Revenues above expectation due to faster execution: In Q3FY2013, the consolidated revenues of IL&FS Transportation Networks Ltd (ITNL) grew by a robust 39% year on year (YoY) to Rs1,764 crore (higher than our estimate) led by a strong execution and a consistent toll collection across projects. The construction revenues rose by 37% YoY to Rs1,239 crore. However, the company booked a low fee income during the quarter at Rs94 crore (a decline of 37% YoY). The revenues from the operational build-operate-transfer (BOT) assets grew at a healthy rate of 39% to Rs146 crore led by a consistent traffic in its operational project and also consolidation of Chongqing project (which was acquired in December last year, contributing nearly Rs40 crore to the BOT revenues in the current quarter). Revenue mix dents margin sequentially: However, the operating profit margin (OPM) contracted by 754 basis points quarter on quarter (QoQ) to 25.5%, which was lower than our estimate of 30%. The contraction in the margin was mainly on account a higher contribution of revenues from the low margin construction income vis-a-vis the BOT income. This was further aided by a lower contribution of revenues from the fee income (Rs94 crore as against Rs209 crore during Q2FY2013). Consequently, the EBITDA margin remained almost flat sequentially at Rs450 crore.  Growth in PAT limited by surge in the interest, depreciation and tax charges: Though the company reported a robust top line growth, the huge surge in interest charges (up 53% YoY) and depreciation (up 30% YoY) coupled with higher effective tax rate (ETR) took a toll on the profitability of ITNL, which reported a lower than estimated growth in the consolidated net profit by 19% YoY to Rs104 crore. Strengthening bid pipeline: At the end of Q3FY2013, ITNL has witnessed a robust increase in the request for proposal (RFP) stage (post-qualification) and the request for qualification (RFQ) stage (pre-qualification) bid pipeline. The post-qualification order pipeline grew by 2.2x times to Rs14,352 crore while the pre-qualification orders grew by 1.9x to Rs54,568 crore. We believe the sharp rise in bid pipeline promises a better order intake leading to a strong revenue visibility for ITNL. Estimates revised: We have revised our revenue estimates upwards for FY2013 and FY2014 by 9.4% and 4.9% respectively to factor in the better execution in a few projects. However, we have reduced our margin expectations by factoring in the higher project cost in a couple of projects for the same period. Consequently, our net profit stands reduced by 7% and 9% for FY2013 and FY2014 respectively. Further, we have introduced FY2015 estimate with the earnings per share (EPS) estimate of Rs32.1. Maintain Buy with a revised price target of Rs312: Considering the strong order backlog, an expected pick-up in the execution and a healthy new project award pipeline of National Highway Authority of India (NHAI), we remain positive on ITNL's financial performance going ahead. Moreover, we expect ITNL to be among the key gainers from the easing of competitive pressure in large NHAI projects. On account of an increase in the project costs of a few projects and a reduction in margin, we have revised our sum-of-the-parts (SOTP)-based price target to Rs312 and have maintained our Buy rating on the stock. However, we have not factored valuation of three toll projects under implementation awaiting financial closure. At the current market price, the stock trades at 7.4x and 6.7x its FY2013E and FY2014E earnings respectively.   Relaxo Footwears  Recommendation: Buy Price target: Rs845 Current market price: Rs740 Price target revised to Rs845; upgrade to Buy Result highlights  Q3FY2013-subdued performance: Relaxo Footwear (Relaxo)'s Q3FY2013 results were disappointing, with the top line growth remaining in the high single digits (moderated from ~20% in H1FY2013). The operating profit margin (OPM) of Relaxo remained stable on a year-on-year (Y-o-Y) basis despite a significant expansion in the gross profit margin (GPM). We believe that an uncertain macro environment and persistent inflationary environment have pulled down the growth value for the company. However, the highlight of the quarter was a sharp expansion in the GPM (by 825 basis points on a Y-o-Y basis due to a correction in the rubber prices). Performance snapshot Relaxo posted a muted top line growth of 9.2% on a Y-o-Y basis to Rs224.2 crore. The company derived a significant benefit from benign rubber prices during the last year or so to post a robust Y-o-Y growth of 28.5% in the gross profit to Rs123.04 crore. Consequently, the GPM increased to 54.9% in Q3FY2013 as against 46.6% in Q3FY2012, an improvement of 825 basis points on a Y-o-Y basis.  However, the company's operational performance was dented by an increase in employee expenses and other expenses. The employee expenses increased by 38.9% YoY to Rs35.5 crore. The other expenses also increased significantly to Rs67.5 crore, translating into a Y-o-Y growth of 30.1% (an increase of 510 basis points as a % of sales on a Y-o-Y basis). We believe that the significant increase in the other expenses during the current quarter is attributable to pre-operational expenses related to starting of production at the company's Bahadurgarh unit, which mainly manufactures the Flight PU, fashion footwear brand.  As a result, the OPM came in almost flat at 8.9% in Q3FY2013 as against 9.1% in Q3FY2012. As a result, the operating profit grew by 6.6% year on year (YoY) to Rs19.9 crore. A subdued performance at the operating level coupled with a marginal increase in the depreciation expenses and tax expenses resulted in a marginal deterioration in the bottom line performance. The adjusted profit after tax (PAT) stood at Rs5.97 crore as against Rs6.02 crore, translating into a PAT margin of 2.7% for Q3FY2013. Revision in earnings estimates: Relaxo's Q3FY2013 performance was subdued as the top line growth moderated from the high teens in Q2FY2013 to high single-digit revenue growth in Q3FY2013. The sharp moderation in the top line reflects the fact that the macro environment still remains uncertain, which is having its impact in the form of a subdued consumer spending. We believe that with the current uncertain economic environment, the company's performance may remain challenged in the near term. Also, the OPM stood flat on a Y-o-Y basis. Hence, we have revised our earnings estimates downwards for FY2013 and FY2014 by 16.3% and 27.4% respectively. We have also introduced our estimate for FY2015E. Outlook and valuation: Relaxo is an established player in the branded footwear segment with an array of brands and is expected to benefit significantly from the current softness in rubber prices. The company has a healthy balance sheet with minimal leverage. Also, the enhanced production capacity would lead to economies of scale in the medium term. Thus, we remain enthused about the company's medium- to long-term growth prospects. At the current market price, the stock trades at 17.5x and 14.0x its FY2014E and FY2015E earnings per share (EPS) of Rs42.3 and Rs52.8 respectively. We have rolled over our target P/E multiple to FY2015E, valuing the company at 16x its FY2015E EPS, arriving at a fair value of Rs845/share. In view of the strong balance sheet and the healthy long-term growth prospects along with a decent upside from the current levels, we have upgraded the stock from Hold to Buy. SECTOR UPDATE Insurance APE jumps 44% MoM in December 2012 The growth in the annual premium equivalent (APE) of the life insurance industry declined for the sixth consecutive month during December 2012 as it declined by 19.7% year on year (YoY). The slowdown was mainly contributed by the Life Insurance Corporation of India (LIC), which showed a decline of 27.2% YoY in the APE. On the other hand, the private players reported a decline of 7.2% YoY in December, with MetLife India Insurance Company (MetLife; down 72.1% YoY), Aviva Life (down 31.1% YoY) and Birla Sun Life (down 43.4% YoY) posting steepest decline in the APE. On the other hand, SBI Life (up 49.1% YoY) and HDFC Life Insurance (HDFC Life; up 22.8% YoY) posted an increase in the APE on a year-on-year (Y-o-Y) basis. On a month-on-month (M-o-M) basis, the APE for industry grew by 43.8% with the private players and LIC showing a growth of 44.1% and 43.5% respectively. On an M-o-M basis, mere two out of the 22 players posted a decline in their APE. The companies like SBI Life, Max Life and ICICI Prudential reported a growth of 111.6%, 78.8% and 47.3% respectively in their APE. On a year-to-date (YTD) basis (April-December 2012), the private players fared better than the LIC as their APE declined by mere 1.9% YoY as compared with a 15.0% Y-o-Y decline by the LIC and a 10.5% Y-o-Y decline by the industry. The growth (April-December 2012) in the APE of the private players was mainly led by players like SBI Life (up 18.5% YoY) and Bajaj Allianz (7.2% YoY). The market share of the private players improved by ~330 basis points to 37.5% (LIC, 62.5%) in April-December 2012 compared with 34.2% in the corresponding period of the previous year. During the period under review, the companies like TATA AIA (2.2% vs 3.7%), MetLife (2.8% vs 3.4%) and Birla Sun Life (8.0% and 8.6%) showed a decline in the market share. However, SBI Life, ICICI Prudential and HDFC Life turned out to be major gainers as their market share improved by ~220, 140 and 90 basis points respectively.  The growth in the life insurance premiums has been tepid for the industry, though private players have posted a better performance. The media reports suggest that the Insurance Regulatory and Development Authority (IRDA) may soon release guidelines for traditional products that would make minimum death benefit and minimum surrender value mandatory, besides aligning them with pension products in some aspects of benefits. The insurers will be required to refile the products for approval before June 2013, which could impact the premium growth. Therefore, compared with a 15-20% growth expectation at the beginning of the fiscal, the market expects the premium growth to be flattish in FY2013.  VIEWPOINT Escorts Improvement in tractor margin to sustain Tractor demand to remain sluggish in near term The company expects the demand for tractor to remain under pressure in the near term. It expects the industry to end on a flat note in FY2013. The weak sentiments and moderation in the non-farm usage (which contributes about 40% of the demand) have led to sluggish sales. The demand is expected to recover after two to three quarters. Margin improvement to sustain The company expects the margin improvement in the tractor segment to continue. This is on back of continued efforts of cost reduction, improved mix on back of higher horse power (HP) tractors, and rationalisation in manpower expenses. Further, with an improvement in the construction equipment and the railway segment's revenues, we expect the company's margin to improve going forward.  Market share of tractor intact with improved mix Escorts' market share in the tractor segment has remained stable at 11%. The lower end of the tractor segment, the 21-30HP range forming 13-15% of the mix, has seen its contribution dropping to merely 2%. The 31-40HP segment has seen its market share increase at the expense of the lower range. This segment currently contributes 45% of the overall volumes. Also, the core 41-50HP segment, contributing 55% of the volumes, saw a drop in the mix. With new launches in the over 50HP range, the company has managed to migrate the customers up the value chain. Revival in the constriction equipment crucial The construction equipment segment contributes about 13% of the overall revenues. The segment has remained subdued in the last three to four quarters on back of a weak economic environment. The margin of the segment has been impacted due to the high nature of fixed costs. We expect the sluggishness to continue in the near term.  Valuation We have marginally reduced our revenues estimate for FY2013 to factor in subdued tractor and the construction equipment demand. We expect the revenues to grow by 10% in FY2013. However, the margin is expected to improve by 90 basis points to 5.6% in FY2013 on back of an improved margin in the tractor segment. The stock trades at 7.2x its FY2013 estimated earnings. We have a positive view on the company. Click here to read report: Investor's Eye   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.