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STOCK UPDATE Thermax
Cluster: Emerging Star
Recommendation: Hold
Price target: Under review
Current market price: Rs666
Q4FY2010 results: First-cut analysis Result highlights -
Thermax? Q4FY2010 results were a mixed bag with the top line exceeding our expectation but the adjusted profit falling below our expectation on account of a lower than expected operating profit margin (OPM). -
The net income from operations increased by 28.6% year on year (yoy) to Rs1,219.3 crore against our expectation of Rs1,120.5 crore due to a robust growth in both the energy and environment divisions. In fact, the environment division posted an excellent performance with a 71% year-on-year (y-o-y) growth in the sales (vs our expectation of a 37.2% sales growth). -
The entire cost component including the raw material cost and the other expenses reported a higher growth compared with the top line. This led to a fall in the OPM to 12% (vs our expectation of 16.1%) and a 7.9% y-o-y fall in the operating profit. Boosted by a 50.5% increase in the other income and lower interest charges, the adjusted net profit fell by merely 10.9% to Rs99.2 crore. There was also an extraordinary item of Rs114.9 crore (net of tax) on account of the settlement charges pertaining to the dispute with the US firm, Purolite International. This resulted in a reported loss of Rs15.7 crore for the quarter. -
For the full year ended March 31, 2010, the company has reported a net operational income of Rs3,185.5 crore (down 2.4% yoy) mainly on account of sluggish sales in the energy division. The OPM of the company also came down to 12.1% from 15.4% in the last year mainly on account of a poor operating performance in M9FY2010. -
The company?s current order backlog stands at Rs5,381 crore (up 86% yoy) vs Rs5,613 crore at the end of Q3FY2010. -
Currently, we have a Hold rating on the stock. We will revisit our estimates and price target for the stock after an interaction with the management. At the current market price the stock trades at 22.4x and 18.2x on FY2011 and FY2012 estimates. Bajaj Auto
Cluster: Apple Green
Recommendation: Buy
Price target: Under review
Current market price: Rs2,146
Q4FY2010 results: First-cut analysis Result highlights -
Bajaj Auto Ltd (BAL)?s Q4FY2010 results were above our expectations on account of a higher than expected margin and a lower tax rate. -
For the quarter, the total operating income grew by 80.5% year on year (yoy) to Rs3,399.5 crore (against our expectation of Rs3,390.9 crore). The growth was mainly driven by a strong 83.8% volume growth. -
The operating profit margin (OPM) for the quarter expanded by a hefty 768 basis points yoy to 22.9% mainly on account of a much higher scale of operations and a decline in the other expenses and employee cost by 10% and 9% respectively. Thus, as a percentage of the total income, the other expenses and employee cost were down by 560 basis points and 249 basis points respectively. Consequently, the operating profit grew by a hefty 171.9% yoy to Rs777.1 crore (against our expectation of Rs686.1 crore). -
The strong performance at the operating level coupled with a lower than expected tax incidence at 26.4% (against our expectation of 29.5%) led the adjusted net profit to grow by 171.2% yoy to Rs578 crore (which is above our expectation of Rs474.3 crore). Taking into account the impact of a write-off of Rs45.6 crore (Rs61.1 crore in Q4FY2009) on account of a voluntary retirement scheme offered to its workmen in the Akurdi plant, the reported net profit stood at Rs528.9 crore, which is an increase of 306% yoy. -
The company has also announced a 400% dividend of Rs40 per share (on a face value of Rs10). -
At the current market price of Rs2,146, the stock is trading at 16.7x its FY2011E and 13.9x its FY2012E earnings per share of Rs128.6 and Rs154.5 respectively. We maintain our Buy recommendation and shall come out with a detailed note after the conference call with the management. Piramal Healthcare
Cluster: Apple Green
Recommendation: Buy
Price target: Rs540
Current market price: Rs490
Strong operating performance Result highlights -
Domestic formulations save the day: Piramal Healthcare (Piramal)?s top line growth of 10.7% year on year (yoy) to Rs941.8 crore in Q4FY2010 was below our estimate of Rs967.5 crore largely due to continuous languishing performance of its contract research and manufacturing services (CRAMS) business (down by 28.5% yoy). A sharp drop of 49.5% yoy in the Indian CRAMS business surprised us negatively. However an impressive performance by the branded formulation business (up by 36.6% yoy that ), the path lab business (up by 30.4% yoy) along with the Global Critical Care business (up by 56.9% yoy) led to a double-digit top line growth. -
Strong operating performance: The operating profit margin (OPM) expanded by 190 basis points to 23% in Q4FY2010 causing the reported operating profit to grow by 21.9% yoy to Rs216.3 crore (which is marginally ahead of our estimate of Rs198.6 crore). Improved gross margins and efficient cost control measures have resulted in stable margins at the operating level. -
Bottom line above estimates: The reported net profit grew by 34.3% yoy to Rs154.3 crore (as compared to our estimate of Rs122.1 crore) largely due to a strong operating performance as well as a lower than expected depreciation charge (adopted US GAAP and Minrad?s depreciation into books). Further, as per the new AS-11 guidelines, Piramal reported a gain of Rs4.9 crore in Q4FY2010 (as against a gain of Rs16.2 crore in Q4FY2009). On excluding the foreign exchange (forex) impact, the adjusted profit after tax (PAT) grew by 20% yoy resulting in an earnings per share (EPS) of Rs7.5 for Q4FY2010. -
FY2010 EPS guidance met: The supernormal growth in the branded formulation business and lower interest and depreciation charges in Q4FY2010 led the management to meet its EPS guidance (Rs23.5) for the year FY2010. However, lack of traction in CRAMS and critical care (Minrad) businesses led to an underperformance of its top line guidance for the fiscal. -
Tweaked in revenues as per the new guidance: Piramal has adopted a broader guidance policy and no longer provides business-wise guidance structure. On the broader front, it has guided for a 14-16% top line growth (on continuing business i.e. excluding any acquisitions) and a steady increase in the margins. The company has also guided for a capital expenditure (capex) of Rs350 crore, largely to be utilised for its upcoming Sikkim plant and for acquiring vaporisers for its critical care business. In order to incorporate the new guidance we have tweaked in our revenue estimates in the range of 4.5-6% for FY2011 and FY2012. However, given the strong operating performance and a lower tax guidance we maintain our bottom line numbers. -
Maintain Buy: We maintain a positive outlook for the Global Critical Care business (faster ramp-up) and the long term opportunities?CRAMS (increase in order inflow) and domestic formulations. At the current market price of Rs490, Piramal is discounting its FY2011E earnings by 19x and its FY2012E earnings by 15.5x. We maintain our Buy recommendation on the stock with a price target of Rs540 (17x FY2012E earnings). |
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