Fw: Investor's Eye: Update - Oil India, Crompton Greaves; Viewpoint - Bharat Forge

 

 

Investor's Eye [May 27, 2013]  Sharekhan www.sharekhan.com     If you do not wish to receive this research report in future, please click here

Summary of Contents     STOCK UPDATE Oil India Recommendation: Buy Price target: Rs650 Current market price: Rs587 Price target revised to Rs650  Result highlights Net profit increased by 71.9% YoY; better than estimate: In Q4FY2013, Oil India Ltd (OIL) posted a net profit of Rs764.5 crore (a growth of 71.9% year on year [YoY]), which is better than our estimate on account of a lower than expected subsidy burden (Rs1,850 crore as compared with our estimate of Rs2,216 crore) and also lower than the expected effective tax rate (30.7% as against expectation of 33%). On the revenue front, the company posted a growth of 37.2% YoY due to a better net realisation ($55/barrel in Q4FY2013 as against $39/barrel in Q4FY2012) as the subsidy burden has decreased. However, the company continued to disappoint with a degrowth in the production of crude oil and a muted growth in the production of natural gas.  Production of oil and gas continued to be affected during the quarter: During the quarter, the production of crude oil and natural gas was adversely affected due to an external environmental issue and was unable to support the revenue growth of the company. The crude oil production and sales volume for the quarter declined by 8.8% YoY and 9.3% YoY respectively. On the natural gas front, the company posted a muted production growth of 1.4% YoY, whereas the sales volume increased by 2.6% YoY to 0.51 billion cubic meter (bcm) in Q4FY2013. Going ahead, in FY2013-15, we expect the company's oil and gas to grow at a compounded annual growth rate (CAGR) of 3% and 4% respectively. Net realisation supported by lower subsidy burden: With the correction in the crude oil price during Q4FY2013, the company's gross realisation declined by 6.9% YoY to $111.4/barrel. However, with the decrease in the subsidy burden (to make up for the loss incurred by the oil marketing companies) to Rs1,850 crore as compared with Rs2,874 crore in the corresponding quarter of the previous year, the company's net realisation improved by 42.4% YoY to $55.4/barrel. Further, with the depreciation of the rupee against the dollar, the net realisation improved by 53.4% YoY in rupee terms. On the margin front, the operating profit margin (OPM) of the company expanded sharply by over 8 percentage points YoY to 39.5% (compared with our estimate of 40.8%) on account of a lower subsidy outgo, which results in better net realisation. Other income supported by huge cash balance: During the quarter, the company's other income remained strong and increased by 9% YoY to Rs369.4 crore. It is well supported by the company's huge cash balance. As on March 2013, the company has a cash balance of Rs12,133 crore. Going ahead, this cash could be utilised for the acquisition of oil and gas assets, which could provide an inorganic growth to the company.  Partial de-regulation of diesel and a likely increase in the gas price augurs well: The oil ministry has initiated a move to partially de-regulate the diesel price by allowing the oil marketing companies to increase the price by Rs0.50/litre on a monthly basis and eventually make diesel a completely de-regulated product. The move will result in a reduction in the subsidy outgo of the company and will improve the net realisation and earnings of the company. In addition to this, the oil ministry has moved a cabinet note for increasing the price of natural gas. Hence, the move will further increase the profitability and earnings of the company going ahead. However, currently, we are not incorporating impact of these developments into our earnings estimate and would like to wait a little longer for better clarity. Marginally downgrading earnings estimates for FY2014 and FY2015: We are marginally downgrading our earnings estimates for FY2014 and FY2014 mainly to incorporate lower than expected production in the crude oil and gas. The revised earnings per share (EPS) estimates now stand at Rs62.8 and Rs72.7 for FY2014 and FY2015 respectively.  Maintain Buy with revised price target of Rs650: We continue to hold our bullish stand on OIL because of its huge reserves and healthy reserve/replacement ratio (RRR), which would provide a reasonably stable revenue growth outlook. Further, the move to de-regulate the diesel price and a likely revision in the natural gas price augurs well for the company. In terms of valuation, the fair value of OIL works out to Rs650 per share (based on the average fair value arrived at using the discounted cash flow [DCF], price earnings [PE] and EV/EBIDTA valuation methods). In our fair value computation we have not incorporated the impact of a partial de-regulation of diesel and the new gas pricing, which could provide a further upside to our revised price target of Rs650. Hence, we maintain our Buy recommendation on OIL with a revised price target of Rs650 (roll forward on FY2015 earnings). At the current market price, the stock trades at PE of 9.4x its FY2014E EPS of Rs62.8 and 8.1x its FY2015E EPS of Rs72.7.   Crompton Greaves Recommendation: Hold Price target: Rs105 Current market price: Rs94 Price target revised to Rs105  Result highlights Restructuring pain and margin pressure kept results below expectations In Q4FY2013 Crompton Greaves Ltd (CGL) reported a net profit of Rs25 crore, which is significantly lower than our estimate. Though, the sales numbers reported by the company were in line with our estimate. The performance failed to meet expectations for two factors: a slower than expected recovery in the international business (mainly the European subsidiary) and the mounting pressure on the power system segment of the stand-alone business.  The consolidated net profit declined by 75% year on year (YoY) to Rs25 crore while the sales grew by 10% in Q4FY2013 as the power system segment (which contributes 60% of the revenues) continued to be in red with Rs59 crore of loss at the profit before interest and tax (PBIT) level. The other two segments, industrials and consumer, were relatively stable, though the consumer segment also witnessed margin contraction YoY in Q4FY2013. Sequentially, there was an improvement as the business turned from loss-making to profit-making, since in Q3FY2013 it had borne the brunt of restructuring related huge one-off expenses. Even in Q4FY2013, at the PBIT level the loss of the international operations had hovered around Rs60 crore. The PBIT margin of the power system at the consolidated level recovered from a 6% loss in Q3FY2013 to a 3% loss in Q4FY2013. That was largely because of the continued loss of the power system segment at consolidated level (a 10% loss at the PBIT level in Q4FY2013) as the recovery after the restructuring is in process.  Steady order backlog growth to reflect on sales, but profitability and pace of recovery would be monitorable The consolidated order book grew by 9% YoY and declined by 1% quarter on quarter (QoQ) to Rs9,126 crore at the end of FY2013. The order book traction was largely noticed from the Middle-Eastern and African region (power system), which will be serviced by the Indian facility. Based on this, the management expects the sales to grow at 8-10% in FY2014 while the profitability could be unpredictable given the possible negatives from the liquidation damages of the European operations (related to restructuring). Moreover, the rising competition is building margin pressure in the domestic power system segment. The industrial and consumer segments should have a healthy sales growth of 10% and 20% respectively but the sustainability of the double-digit margin (at the PBIT level) would be the key monitorable in FY2014.  View and valuation Earnings estimates downgraded; price target revised down to Rs105: We have lowered our earnings estimates for FY2014 and FY2015 by 35% and 11% respectively to build in the slower than expected recovery post-restructuring and the mounting pressure on the margin of the domestic power system business. Based on the revision, we have downgraded our price target to Rs105 (12x its FY2015E earnings). The stock currently trades at 20x and 10x its estimated earnings of FY2014 and FY2015 respectively and 8x and 5x its EV/EBITDA for FY2014 and FY2015 respectively. We believe the restructuring is behind us and the company should stabilise gradually. Hence, we have maintained our Hold recommendation on the stock.  VIEWPOINT Bharat Forge Demand weakness to sustain in near term Q4FY2013 conference call takeaways Demand to remain under pressure in H1FY2014, expect better outlook for H2 BFL has been witnessing demand pressure from the last two quarters with the revenues declining by about 30%. For FY2013, BFL's revenues declined by 15%. The demand deterioration is across the geographies (domestic market, the USA and Europe). In addition to the declining truck sales both in the stand-alone and the export markets, BFL is seeing a considerable slowdown in the non-automotive segments (oil and gas, construction and mining) due to a weak macro-economic growth in the key markets of India and Europe.  BFL expects the demand to remain subdued in H1FY2014 as there is no marked improvement expected in the key markets. BFL expects a meaningful recovery in H2FY2014 on account of an improved outlook for its key customers both in the automotive and the non-automotive segments. Margin under pressure on operating deleverage and unfavourable mix BFL has been witnessing margin pressure on account of a subdued demand. The margin in the last two quarters declined from 24-25% range to about 21%. The operating deleverage caused by a lower capacity utilisation has impacted the margin. The capacity utilisation levels dropped to 60% in Q4FY2013 as against 68% for FY2013, impacting the margin. Further a drop in the machining mix (due to demand slump in the oil and gas, and mining sectors) has put further pressure on the margin. The margin is likely to inch higher in H2FY2014 once the demand recovers and there is an improvement in the machining mix. Subsidiaries performance improves in Q4FY2013 The profitability of BFL's overseas subsidiaries (excluding the US subsidiary, which discontinued operations) improved despite the challenging demand environment. The cost rationalisation initiatives and productivity improvements improved profitability. At the profit before tax (PBT) level, the subsidiaries contributed profit of Rs14.4 crore as compared with a loss in Q3FY2013.  New customer additions and focus on high technology products to drive growth in long term  BFL recently won a global passenger vehicle original equipment manufacturer (OEM) order for supply to its new platform. Going ahead, BFL plans to focus on the passenger vehicle space and increase the market share globally. Also, BFL has witnessed new orders in the non-automotive segments (oil and gas, construction and railway). The revenues from the new orders are likely to commence from 2015. BFL thrust on technology (increasing mix of newly introduced aluminium forgings), which provides significant benefits to the automotive players, is likely to boost the revenues and margin in the long run. Further, focus on the high value products (higher machining on account of increased contribution from the non-auto segments) would help BFL to improve performance in the long run. Valuation We expect the demand pressure to continue in the near term and expect the revenues for FY2014 to decline marginally. We expect FY2015 to witness a strong demand with the revenues growing in the double digits. The margin is expected to remain under pressure in FY2014 on account of a sluggish demand. We expect the margin to decline by 40 basis points in FY2014. We have estimated EPS of Rs12.6 and Rs16.9 for FY2014 and FY2015 respectively. The stock can trade at 13x FY2015 earnings and can also incorporate a book value of investments in the subsidiaries and joint ventures estimated at Rs22 per share. We have a Neutral 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.

Fw: Investor's Eye: Update - PTC India, Sun Pharmaceutical Industries; Viewpoint - Wockhardt

 

 

Investor's Eye [May 24, 2013]  Sharekhan www.sharekhan.com     If you do not wish to receive this research report in future, please click here

Summary of Contents   STOCK UPDATE PTC India Recommendation: Buy Price target: Rs88 Current market price: Rs57 Q4FY2013 results-First cut analysis  Result highlights Sales exhibited healthy growth, in line with our expectations: PTC India (PTC) reported sales of Rs2,199 crore, indicating a growth of 52% year on year (YoY) and 17% quarter on quarter (QoQ). This is in line with our estimate. The sales growth was driven by a volume growth of 52% YoY and 15% QoQ. During this quarter, the total volume traded by the company was 6,732 million units, reflecting a blended realisation of Rs3.27 per unit. The blended realisation during Q4FY2013 remained flattish with a 2% decline YoY and 1% improvement QoQ.  Tolling business fuelled operating profit growth: The operating profit grew by 59% YoY and 71% QoQ to Rs51.2 crore in Q4FY2013. The volume of power sold jumped by 54% YoY attributing largely to the operating profit growth; nevertheless, a better operating profit margin (OPM) also supported it. We believe contribution of tolling volume (which earns better margin) in the total volume would be attributed to the improved margin in Q4FY2013 (2.3%) over that of Q4FY2012 (2.2%). The tolling business started contributing from Q1FY2013 only. Sequentially, the margin expansion was quite evident (by 73 basis points QoQ) as the operating profit jumped by 71% on a sales growth of 17% QoQ in Q4FY2013. The volume of power sold through the tolling arrangement improved by 34% QoQ to 304.08MU. Moreover, the cost of coal per unit for tolling volume (depicting softer coal prices in the international market) was 9% lower sequentially. As a result, the tolling business perked up the OPM in Q4FY2013, with better volume and lower fuel cost. Combined effect of other income and interest cost influence PAT performance: On a Y-o-Y basis, the lower other income partially net off gain earned at operating level. The profit before tax (PBT) grew by 32% YoY in Q4FY2013 on an operating profit growth of 59% YoY as the other income declined sharply by 84% to Rs2.3 crore. Though the interest cost dropped to negligible in Q4FY2013, the fall in other income was much higher and sharper. On a sequential basis, the improvement recorded at operating level almost trickled down till the net profit level. Eventually, the reported profit after tax (PAT) grew by 23% YoY and 70% QoQ to Rs37 crore. Adjusting prior period item and extraordinary item, the adjusted PAT stood at Rs38 crore in Q4FY2013. Annual volume pushed operating profit but dip in other income restricted PAT growth: The operating profit as well as sales growth of 16-17% was largely derived from an improvement in the power volume. However, the lower other income restricted the PAT growth to 7% YoY in FY2013, despite a 16% growth at the operating profit level. Improved working capital days: During FY2013, PTC managed to improve its working capital efficiently with an improvement in the debtor as well as in creditor days. The payment of Rs375 crore and Rs513 crore received from the state electricity boards of Tamil Nadu and Uttar Pradesh respectively during the year helped the company to reduce its debtor days to 88 days from 123 days in FY2012. The receivable in the balance sheet dropped by Rs439 crore YoY to Rs2,142 crore in FY2013. The management expects that the dues from the state electricity board of Tamil Nadu should reduce to zero in the next couple of months too. On the creditor front, PTC has reduced the creditor days to 48 days in FY2013 from 63 days in FY2012. With all this positive development, the management expects to maintain a healthy cash balance, which is more than Rs350 crore at the end of FY2013. View: The payment received from the state electricity boards of Tamil Nadu and Uttar Pradesh to the tune of Rs375 crore and Rs513 crore respectively is a positive development for the company. Moreover, the management expects these sticky receivables from these two state electricity boards to come down significantly in FY2014, which was a major hangover for the stock. On the back of the improving balance sheet status and a likely improvement in the earnings led by an incremental volume (supported by tolling route and long-term business), we remain positive on the stock and retain our price target of Rs88 with a Buy rating.    Sun Pharmaceutical Industries Recommendation: Buy Price target: Under review Current market price: Rs970 Taro reports slower growth in Q4FY2013  Key points  Growth slows in Q4FY2013; non-recurring expenses impact bottom line: After witnessing a stellar performance in M9FY2013, Taro Pharmaceutical (Taro), which is a 66.3% subsidiary of Sun Pharmaceutical Industries (Sun Pharma), has reported a lower than expected performance in Q4FY2013. The net revenues jumped by 13.8% year on year (YoY) to $165 million, which is 6% lower than our estimate. The gross profit margin (GPM) expanded by 400 basis points YoY to 72.4% on better pricing of products in some of the key drugs. However, sequentially, it is nearly 300-basis-point lower than that of the previous quarter (ie Q3FY2013). The company has indicated that there was a decline in volume during the quarter, which implies an increase in the prices of some of the products. However, the net profit witnessed a marginal growth of 4% to $49.17 million during the quarter, mainly due to the non-recurring loss of $22 million related to settlements and contingencies of various litigations. Without these expenses, the net profit would have increased by 51% YoY to $71.2 million during the quarter. Marginally negative for Sun Pharma: Taro contributes nearly 28% of Sun Pharma's revenues and 38% of the profit before tax (PBT). The slower than expected revenues of Taro translate into an impact of 2% and 7% on our revenue and PBT estimates of Sun Pharma for Q4FY2013 respectively. We expect Sun Pharma to report a growth of 38.5% YoY in sales to Rs3,226 crore but only a 5% rise in the net profit to Rs862 crore in Q4FY2013. However, given a 300-basis-point decline quarter on quarter (QoQ) in the GPM of Taro, Sun Pharma is likely to see pressure on the operating profit. However, given the other elements of growth, like newly acquired DUSA Pharmaceuticals and generic business of URL Pharma in the US market, Sun Pharma may be able to make up the shortfall in revenues and profit from Taro Pharma. We will revisit the numbers of Sun Pharma after the Q4FY2013 results, which are scheduled on May 28, 2013. Valuation: The stock is currently trading at 24.2x FY2015 earnings. We have Buy rating on the stock, while we keep our price target under review. VIEWPOINT Wockhardt USFDA imposes import alert on Aurangabad facility The management of Wockhardt conducted a teleconference call with analysts recently to clear its position on the import alert imposed on its Aurangabad-based injectible and solid dosages facilities by the US Food and Drug Administration (USFDO).  Highlights of the call Import alert: The USFDA has imposed an "import alert" on the company's plants located at Walun, Aurangabad following an inspection of the injectible facility in March 2013. The inspection had highlighted deviations from the USFDA-prescribed good manufacturing norms (called "483s" observations). An import alert implies that the company would not be able to export the products manufactured from that particular facility to the US market. As the location also houses the facilities for production of solid dosage forms and the import alert covers the entire location, shipment of solid dosages would also be blocked from the facility.  Revenue loss of over $100mn: The management estimates a revenue loss of around $100 million, with the injectible business accounting for $20-25 million of the loss and the solid dosage forms accounting for the balance. However, the management's estimates are based on the financials for FY2012. We believe the revenue loss could be higher if the M9FY2013 performance is considered instead.  50% of ANDAs filed would remain unapproved till matter is resolved: Wockhardt has currently 48 abbreviated new drug applications (ANDAs) pending approval of the USFDA. Of these 50% (ie 24 ANDAs) has been filed from the site facing the import alert. These ANDAs would remain unapproved till the USFDA clears these facilities or the company successfully transfers these products to a new site. Major drugs are not affected: Major drugs like Toprol and Flonase (estimated to generate revenues of $150-200 million) are not manufactured at the site under import alert and therefore would not be affected.  A two-pronged strategy to address problem; management expects resolution within 7-8 months: The management is immediately taking two major steps to address the problem. One, it will hire a consultant from the USA (at a likely cost of $2 million) to address the problems raised by the USFDA; and two, it will try to transfer the majority of the products to an alternate site, which is USFDA approved or is likely to receive the USFDA's approval. The management expects the site transfer to take seven to eight months and as much as 80% of the products could be shifted to the alternate site. Therefore, a major part of the revenues lost due to the import alert would be restored in seven to eight months. However, this is subject to successful inspection of the company's Chikalthana facility (Aurangabad) scheduled in July-August 2013. Also, the management would try to segregate the injectble facility (where the real issue has cropped up) from the solid dosages facility, which has been affected for being located in the vicinity of the injectible unit.  Our view: The import alert is set to severely affect Wockhardt , which has just come out of a corporate debt restructuring process after selling part of the business and aggressively tapping the US market through some key launches. Though the management estimates the revenue loss at $100 million (80% of which would be restored in the next seven to eight months) but we believe the impact would be greater. Apart from market share loss in the USA (which would be difficult to restore in a short time), the company will have to incur capital expenditure to make the injectible facility good manufacturing practices (GMP)compliant (to satisfy the USFDA) and to transfer the site. However, an early resolution of the matter would be a saving grace. Valuation: We believe apart from an earnings loss, the stock may see derating, given the level of uncertainty in dealing with the USFDA. Before the import alert the stock was trading at 13x FY2014E earnings per share (EPS) estimate of Rs127. Taking into account the tentative revenue loss of $100 million and a proportionate loss in the net profit, the EPS estimate for FY2014 should reduce by 8% to Rs126.  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 - Divi's Laboratories, Zydus Wellness

 

 

 

Investor's Eye [May 21, 2013]  Sharekhan www.sharekhan.com     If you do not wish to receive this research report in future, please click here

Summary of Contents   STOCK UPDATE Divi's Laboratories Recommendation: Buy Price target: Rs1,262 Current market price: Rs1,008 Expansion process at DSN SEZ impacts Q4  Result highlights Q4FY2013 results below expectations: Divi's Laboratories (Divi's Lab) reported weaker than expected results during Q4FY2013 as the facility expansion process at DSN special economic zone (SEZ) impacted the production. The company's consolidated revenues declined by 8.7% to Rs655.8 crore while the operating profit margin (OPM) declined marginally by 87 basis points year on year (YoY) to 39.1%. Moreover, a higher effective tax rate (at 23% in Q4FY2013 v/s 20.2% in Q4FY2012) and a foreign exchange (forex) loss of Rs7.8 crore impacted the net profit, which declined by 16.8% YoY to Rs180.6 crore. Excluding the impact of forex loss, the adjusted net profit declined by 13% YoY to Rs188.3 crore (v/s our estimate of Rs207 crore). FY2013 misses growth guidance: The company reported a 15% year-on-year (Y-o-Y) rise in the revenues to Rs2,140 crore in FY2013, which is materially below the management's guidance of 20-25% top line growth for the year. Though the company has expanded the OPM by 100 basis points to 37.9% during the year, the effective tax rate jumped by 163 basis points to 23.3%, which restricted the adjusted net profit growth at 10.7% to Rs590.6 crore. Including the forex gains of Rs11.5 crore, the company reported a net profit growth of 12.9% to Rs602 crore. We fine-tune our estimates for FY2014 and FY2015: Taking cues from Q4FY2013 results, we have reduced our earnings estimates by 9.7% and 3% for FY2014 and FY2015 respectively. However, since we have rolled over our valuation to FY2015, we have kept our price target intact at Rs1,262 (19x FY2015E revised earnings per share [EPS]). We maintain our Buy rating on the stock.  Zydus Wellness Recommendation: Buy Price target: Rs671 Current market price: Rs542 Price target revised to Rs671  Result highlights Q4FY2013 results-strong revenue growth momentum sustained: Zydus Wellness' Q4FY2013 results are ahead of expectations largely on account of better than expected top line growth and other income. The net sales grew by 25.3% year on year (YoY) to Rs103 crore during the quarter driven by a strong double-digit growth in the pillar brands, such as Everyuth and Sugarfree (the low base effect of Q4FY2012 had also come into play during the quarter). Despite a strong year-on-year (Y-o-Y) improvement in the gross profit margin (GPM; up 176 basis points YoY) the operating profit margin (OPM) was down by 79 basis points due to higher other expenses during the quarter. The other expenses as a percentage of sales were up by 363 basis points YoY to 21.6% in Q4FY2013. The operating profit grew by 22.0% YoY to Rs30.1 crore. This along with a higher other income helped the profit before tax to grow by 24.7% YoY to Rs33.1 crore. The company received a minimum alternate tax (MAT) credit amounting to Rs11.5 crore during the quarter, resulting in a net tax credit of Rs5.1 crore. This resulted in the reported profit after tax (PAT) growing by 59.3% YoY to Rs37.4 crore during the quarter.  GPM improved YoY: The improvement in the revenue mix due to higher sales of the Everyuth and Sugarfree brands led to a 176-basis-point Y-o-Y increase in the GPM to 69.7% during the quarter. With the company likely to gain the benefits of lower vegetable oil prices and with its revenue mix improving, we expect the GPM to remain higher YoY in the coming quarters as well. However, we might see the company passing on some of the benefits of the declining vegetable oil prices through likely price-offs in the Nutralite brand in the near future.  Outlook and valuation: The relaunch of products and distribution expansion would be the key revenue growth drivers for Zydus Wellness going ahead. For Nutralite, improving the awareness of the product and expanding its distribution reach would improve its growth prospects in the long run. Overall, we expect Zydus Wellness' revenues to grow at a compounded annual growth rate (CAGR) of 18% over FY2013-15. We believe the incremental benefits from the lower input prices would be utilised to carry out higher media spending and promotional activities. Hence, we expect the OPM to sustain in the range of 24-25% over the next two years. We expect Zydus Wellness' bottom line to grow at a CAGR of 18% over FY2013-15. At the current market price the stock trades at 18.9x FY2014E earnings per share (EPS) of Rs28.7 and 15.3x FY2015E EPS of Rs35.3. With an upward revision in the earnings estimates our price target also stands revised to Rs671. We maintain our Buy recommendation on the stock.  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 - Bajaj Holdings & Investment, India Cements, NIIT Technologies; MG - Debt Mutual Fund Picks

 

 

Investor's Eye [May 20, 2013]  Sharekhan www.sharekhan.com     If you do not wish to receive this research report in future, please click here

Summary of Contents   STOCK UPDATE Bajaj Holdings & Investment Recommendation: Buy Price target: Rs1,334 Current market price: Rs912 Price target revised to Rs1,334  Result highlights The consolidated income of Bajaj Holdings and Investment Ltd (BHIL) grew by 27.3% year on year (YoY) to Rs81.2 crore in Q4FY2013. For the last nine quarters the company reported a lacklustre top line of under Rs100 crore. In the fourth quarter of FY2013 the company's income declined 12% on a sequential basis.  The income from the company's associates grew by 3.2% YoY in Q4FY2013. This led to a 5.6% year-on-year (Y-o-Y) increase in the profit after tax (PAT) to Rs664.4 crore. During Q4FY2013, the total market value of its investments declined 13.7% sequentially whereas the cost of its investments grew 1.2% due to an increased exposure to fixed deposits. The company reduced its exposure in equities marginally during the quarter. The market value of its equity investment in the core associate companies (an 80% contribution) declined by 15.3% sequentially while the value of the other equity investments declined by 10.9% quarter on quarter (QoQ).  Valuation Bajaj Auto is the key investment of BHIL and has been valued at 14x FY2015E earnings per share (EPS). Though the company reported quarterly results slightly ahead of expectations (largely due to a higher other income), but there are concerns over the slowdown in the domestic motorcycle demand and increasing competion from Honda Motorcycle & Scooter India (Honda). Our price target for Bajaj FinServ is based on the sum-of-the-parts (SOTP) valuation method. Given the strategic nature of BHIL's investments, we have given a holding company discount of 50% to BHIL's equity investments. The liquid investments have been valued at cost. Our price target of Rs1,334 implies a 46% upside for the stock. We maintain our Buy recommendation on BHIL. India Cements Recommendation: Hold Price target: Rs95 Current market price: Rs87 Earnings below estimates  Result highlights Net profit declined by 59.5% YoY; below estimate: In Q4FY2013, India Cements posted a net profit of Rs26 crore (a decline of 59.5% year on year [YoY]), which is much below our as well as the Street's estimates on account of a lower than expected operating profit margin (OPM) due to a cost escalation in terms of freight and other expenses. Further, an increase in the depreciation charges coupled with a higher effective tax rate dented the earnings during the quarter. Revenue growth supported by cement volume: The net sales of the company grew by 6.7% YoY to Rs1,190.6 crore, which also include revenues from the Indian Premier League (IPL), wind power and shipping businesses. The revenues from the cement division (which is its core business) improved by 6.1% YoY to Rs1,171.3 crore, which is driven by a 6.7% growth in its overall volume. On the other hand, the average blended cement realisation during the quarter declined by 0.6% YoY and 3.4% quarter on quarter (QoQ) to Rs4,221 per tonne. The decline in realisation is on account of a weak pricing environment in Andhra Pradesh and also due to an increase in the proportion of non-trade sales. However, the cement prices in the southern region have increased by Rs10-15/bag in the past couple of days on account of a supply control, which could benefit the company in the quarters coming ahead. Cost pressure results in margin contraction: On the margin front, the continued cost pressure-in terms of (a) freight charges (up 17.8% YoY); and (b) an increase in the other expenses (up 23.6% YoY to Rs162 crore)-resulted in a margin pressure. Hence, the OPM contracted by 518 basis points YoY to 14.1%. The overall cost of production on per-tonne basis increased by 5.5% YoY and the EBITDA per tonne declined by 27.4% YoY to Rs572 per tonne. Consequently, the operating profit of the company decreased by 22% YoY to Rs167.9 crore as compared with a 6.7% growth registered at the revenue front. CPP of 50MW to be operational by H1FY2014: In order to achieve an operational efficiency and save on power cost, the company is setting up a captive power plant (CPP) of 50MW (25MW in two phases each) in Andhra Pradesh. The CPP is expected to be operational in H1FY2014. After the commissioning of CPP, the company is expected to save around Rs1-1.5/unit of power. Further, the first shipment of coal from its Indonesian mine has already taken place and the cargo will arrive by the end of May 2013. Enters infrastructure space by incorporating ICIL: During the quarter, the company has entered into the infrastructure space by incorporating India Cement Infrastructure Ltd (ICIL), which is a wholly owned subsidiary company of India Cements. Currently, ICIL has undertaken a few small-size infrastructure projects in certain cities of Kerala. The move to enter into the infrastructure space is to capture any upcoming opportunity in the future. Further, according to the management, the scale of business at the moment will not be significant and will not have any adverse impact on the balance sheet or cash flow of the parent company. Downgrading earnings estimates for FY2014 and FY2015: We are downgrading our earnings estimates for FY2014 and FY2015 mainly to incorporate an increase in the power tariff in Andhra Pradesh and also marginally lowered down our cement realisation assumption due to an increase in the proportion of non-trade sales. Consequently, the revised earnings per share (EPS) estimates for FY2014 and FY2015 now stand at Rs7.5 and Rs9.4 respectively. Maintains Hold with price target of Rs95: The demand for cement in Tamil Nadu and Karnataka has recovered partially and will support the volume growth of India Cements. However, the demand and pricing environment in Andhra Pradesh continue to remain weak. Also, a recent increase in the power tariff by the state electricity board (SEB) of Andhra Pradesh is likely to keep the margin under pressure. Hence, we maintain our Hold recommendation on the stock with a price target of Rs95. At the current market price, the stock trades at price earnings (PE) of 11.5x discounting its EPS for FY2014 and EV/EBITDA of 4.9x its FY2014 earnings estimates.   NIIT Technologies Recommendation: Hold Price target: Rs305 Current market price: Rs257 Margin improvement remain key for re-rating   Result highlights Performance in line with estimates: The Q4FY2013 results of NIIT Technologies (NIIT) were broadly in line with our expectations, with a net income of Rs56.6 crore (our estimate was Rs56.2 crore). The revenues grew by 4.4% sequentially to Rs537 crore (our estimate was Rs529.8 crore). On a year-on-year (Y-o-Y) basis, the revenues rose by 21.1%. The company's revenue growth can primarily be attributed to a steady ramp-up in the government vertical, which grew by 43.6% sequentially and contributed around 80% (Rs18 crore) of the total incremental revenues (Rs23 crore). For FY2013, the company has declared a dividend of Rs8.5 per share (an 85% dividend, a pay-out of 24% against 24.5% in FY2012).  Net income in line with expectations: The net income for the quarter was flat sequentially and up by 22.5% year on year (YoY) to Rs56.6 crore (our estimate was Rs56.2 crore) in the quarter. The net income was negatively affected by a foreign exchange (forex) loss of Rs5.9 crore as against a forex profit of Rs10.3 crore in Q3FY2013. However, a lower tax of 18% as compared with 28.9% in Q3FY2013 (due to a 7% saving on account of other income loss and minor tax benefits in the UK) helped the performance meet expectations at the net income level.  Management sees "green shoots" in margin improvement: The margin performance for the quarter was ahead of our estimate at 16.5% (a 66-basis-point sequential improvement). The growth in the margin could largely be attributed to the improvement in the margin of the GIS business (from -7% to 9%). Going forward, the management foresees margin improvement in FY2014 with a gradual improvement in the margin of the government contracts (almost $90 million including deals from the Airport Authority of India [AAI] and the Andhra Pradesh state government). Additionally, most of the bad news around the GIS business is behind it and the Morris Communications joint venture is expected to evolve into a transaction-based engagement that will support the margin improvement in FY2014. On the flip side, wage hikes (a 7% hike in offshore wages effective from April 2013 coupled with a higher incremental contribution from the low-margin government business could act as margin headwinds in FY2014). Currently, we have broadly maintained our margin estimates for FY2014 and FY2015. We shall wait for the management execution on improvement of the margin profile of the Government business before changing our margin estimates.  Valuation: NIIT is among a few mid-cap IT companies that have rich potential for earnings improvement in the coming years. However, the change in its portfolio mix and the transition of some bigger contracts would keep the earnings profile volatile in the medium term. We have tweaked our earnings estimates for FY2014 and FY2015 to incorporate a higher depreciation charge and tax rate changes. At the current market price of Rs260, stock trades at 6.3x and 5.6x FY2014 and FY2015 earnings estimates. We believe improvement in the margin trajectory and consistency in the earnings performance remain the two key events that may lead to the re-rating of NIIT from the current levels. We maintain our Hold rating on the stock with the existing price target of Rs305. MUTUAL GAINS Debt Mutual Fund Picks Bond / Debt market round up Bond yields fell during the month of April on growing expectations that the central bank will cut key policy rates in its annual monetary policy review. On the first trading day of the month, however, yields touched its highest level in three months because of record high CAD, which raised concerns over the future course of monetary easing. But thereafter, yields fell on the back of improved liquidity conditions and on drop of global crude oil prices, which raised hopes of a positive impact on domestic inflationary pressures. Yields dropped again after sluggish industrial output data, lower-than-expected Wholesale Price Index (WPI) figure and improved trade data, which will help ease pressure on the CAD, supported bond prices. The RBI has singled out CAD as one of the key factors in monetary policy decisions.  The 10-year benchmark bond yield hit its 33-month low in April and closed down 22 bps at 7.73% against previous month's close of 7.95%. Since then, the bond yields have fallen further and are now ruling at 7.43%. Bond / Debt Outlook The RBI on May 3 cut benchmark interest rates for the third time this year and signalled that there is little space to ease rates further, citing a current-account shortfall and the possibility of price pressures returning post September. Moreover, upward revision of February WPI data is likely to be tracked by the central bank closely. Although lower-than-expected inflation data puts forward a strong case of rate cut but the widening trade deficit numbers and the impact of the same on the country's CAD may act as dampeners. Moreover, the RBI has announced the new 10-year bond to be auctioned on May 17.  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.