Fw: Investor's Eye: Update - Bharti Airtel, Mahindra & Mahindra, Cadila Healthcare, IL&FS Transportation Networks, Bajaj Corp, Opto Circuits India, Zydus Wellness

 

Investor's Eye [February 08, 2012]  Summary of Contents STOCK UPDATE Bharti Airtel  Cluster: Apple Green Recommendation: Buy Price target: Rs450 Current market price: Rs354 Price target revised to Rs450 Result highlights Results below expectation: Bharti Airtel (Bharti)'s Q3FY2012 earnings fell short of our as well as the Street's expectations. The adjusted net profit for the quarter stood at Rs1,003 crore (-15.7% quarter on quarter [QoQ]) and the same was 23% lower than our expectation. The biggest negative surprise for the quarter came in the form of a 140bps QoQ contraction in the operating margins. The consolidated operating margin for the quarter came in at 32.2% vs our expectation of 34.4%. Non mobile business the biggest culprit for the underperformance: The core business (India mobile business + Africa business) that forms approximately 90% of the company's total business, performed decently on the revenue as well as the margin front. The non mobile business saw a deterioration in the performance for the quarter - telemedia, digital TV and enterprises, all witnessing margin pressure, bringing down the overall consolidated margins by 140bps for the quarter. Some negative elasticity seen in India operations; Africa continued with the growth: On the mobile business front, Bharti undertook a price correction in all the 22 circles. As a result we saw negative elasticity in the system whereby despite Q3 being a seasonally strong quarter, the volume did not witness a pick-up (traffic growth remained flat at +0.8% QoQ). The management re-iterated that the business environment remains very competitive and if need be felt Bharti may change its strategy to regain lost market share. On the Africa business front, revenue as well as profitability continues to chug well, but at a slower pace than expected. Incorporating results; adjust earnings for FY2012 & FY2013: Incorporating a weak Q3FY2012 performance and building for lower than earlier expected margin expansion in the African venture, we have likewise adjusted our FY2012 and FY2013 earnings downwards by 19.2% and 13% respectively. Further any clarity on pending regulatory issues is likely to drive stock performance in the near term. Intact core business performance and likely improvement in competitive environment keeps us bullish: The core business continued to deliver well. There were signs of improving competitive intensity in the market place (read Supreme Court verdict on cancellation of 122 competitors' licenses). Further the potential in the Africa business keep us bullish on Bharti. We maintain our Buy rating on the stock with a revised price target at Rs450 (8.1x FY2013 EV/EBITDA). Mahindra & Mahindra  Cluster: Apple Green Recommendation: Hold Price target: Rs740 Current market price: Rs687 Price target revised to Rs740 Q3FY2012 PAT in line, adjusted for one-time exchange reversal Our profit after tax (PAT) estimate for Mahindra & Mahindra (M&M) at Rs625 crore was the lowest among such estimates. The company reported a stand-alone profit after tax (PAT) of Rs662 crore. This includes a one-time gain of Rs39.86 crore related to the reversal of an exchange difference charge. Adjusting for this extraordinary gain, the company reported a PAT of Rs635 crore, which is marginally higher than our estimate. Highlights of Q3FY2012 A 30-basis-point sequential improvement in the earnings before interest and tax (EBIT) margin for the tractor business has surprised us. Our concerns of deteriorating profitability of the tractor division due to higher raw material prices were unfounded. A favourable operating leverage was witnessed in the staff cost which moderated to 5.4% of sales, the lowest in the last six quarters. The other expenses after adjusting for the Rs39.86 crore of exchange reversal were the lowest ever for any quarter at 8.6% of the sales. The Q3FY2012 automotive EBIT disappointed us and was the lowest in two years at 8.2%, ie lower by 170 basis points quarter on quarter (QoQ), in spite of a 10% sequential jump in the automotive realisations.  The operating profit margin (OPM) adjusting for exchange reversal was the lowest in two years at 11.7% on account of a sharp increase in the raw material cost. Outlook and valuation We value M&M stand-alone company at Rs550 a share, discounting the FY2013E earnings by 13x. We have given a lower discount to the stock as we expect the parent company's margin to drop to lower double digits in FY2013 as the proportion of the traded products manufactured by Mahindra Vehicle Manufacturers Ltd (MVML) increases. We have valued MVML separately at Rs55 a share. The total value of the subsidiaries including MVML is estimated at Rs190 a share. We arrive at a price target of Rs740 a share for the company and recommend Hold on the stock.   Cadila Healthcare  Cluster: Emerging Star Recommendation: Hold Price target: Rs734 Current market price: Rs661 Disappointment on many fronts Result highlights Q3FY2012 results broadly in line; forex loss of Rs34 crore hurts net profit: Cadila Healthcare (Cadila) reported an 18.5% year-on-year (Y-o-Y) rise in its net sales to Rs1,383 crore for Q2FY2012. The same is better than our estimate of Rs1,323 crore. However, a 317-basis-point Y-o-Y decline in the operating profit margin (OPM), higher fixed costs and a foreign exchange (forex) loss of Rs34.17 crore affected the net profit, which declined by 7.9% to Rs149.2 crore. However, ignoring the forex loss, the net profit would grow by 10% year on year (YoY) to Rs183 crore.  Disappointment in most segments: In this quarter the company recorded a 12% Y-o-Y decline in the revenues from the consumer business (Zydus Wellness), virtually flat revenues in Europe and a meagre 2.8% Y-o-Y growth from the emerging markets. However, a higher offtake in the revenues from the joint ventures and the contribution from the newly acquired entities supported the growth.  We fine-tune our estimates: Taking our cues from the M9FY2012 results and management interactions, we fine-tune our revenue and profit estimates. Accordingly, we have reduced our earnings estimates by 3.6% and 5.3% for FY2012 and FY2013 respectively, mainly to factor the revenue decline in certain segments as well as the higher fixed costs.  We downgrade the stock to Hold with a reduced price target: We reduce our price target by 24% to Rs734 mainly to factor the weaker performance of the consumer business, the slower ramp-up in the US market and the pressure on the balance sheet due to multiple acquisitions. The stock is currently trading at 14x FY2013E. Our new price target is 16x FY2013E earnings per share (EPS). IL&FS Transportation Networks  Cluster: Emerging Star Recommendation: Buy Price target: Rs330 Current market price: Rs208 Strong performance continues Result highlights Strong revenue growth at 74% (in line with estimates): IL&FS Transportation Networks Ltd (ITNL)'s consolidated revenues for Q3FY2012 grew by a robust 74% year on year (YoY) to Rs1,268 crore led by a strong execution across a few projects, especially the Jharkhand project which gained momentum during the quarter. The Jharkhand project is expected to get completed in Q4FY2012 before its scheduled date. The construction revenue grew by 124% YoY to Rs905 crore. On the other hand, toll collections were steady across projects and grew by 32% YoY to Rs112 crore. Almost all the projects clocked a double digit Y-o-Y growth. There are a few regulatory and land clearance related issues in certain projects, which the company feels, would be sorted soon, thereby pushing up execution. Elsamex on the other hand continued to disappoint with its performance registering a de-growth of 23% YoY and 14% quarter on quarter (QoQ) on the revenue front mainly due to non renewal of completed contracts that the company had in hand. However, going ahead, with new projects coming in, traction is expected on this front as well.  Margins contract higher than expectation: The operating profit margin (OPM) contracted to 25.3% as compared to 29.8% in Q3FY2011 and 28.4% in Q2FY2012. During the quarter there were a couple of one time items namely 1) fees paid towards consultancy charges for exploring a few shortlisted international projects and 2) provisioning of some non recoverable debt on account of Elsamex. Both of these aggregate to an amount of Rs50 crore which led to margin contraction. Subsequently the EBITDA has declined on a Q-o-Q basis by 10% (though it is up 47% on a Y-o-Y basis).  PAT growth at 42% in line with estimates: The net profit came in line with our expectation at Rs101.2 crore registering a growth of 42%. The profit after tax (PAT) growth was limited vis a vis revenue growth due to shrinking of the EBITDA margin and with interest charges surging by 61% YoY and 10% QoQ. The interest charges are expected to remain high in case of annuity projects under construction. This is because as the execution progresses, additional debt is drawn, thereby increasing the debt component.  New project wins- after a long time: The company finally bagged a new project after a haul of 18 months, which is of four-laning of the Kiratpur to Ner-Chowk section of the NH-21 in the state of Himachal Pradesh. The project is on toll basis with a concession period of 28 years including the construction period of three years and is worth Rs1,900 crore. The company had quoted a grant of Rs134.57 crore for the project. Furthermore, Elsamex, a subsidiary of ITNL also bagged a project worth Rs265.3 crore from the Ministry of Civil Works, Transports & Communications, Government of Haiti, for rehabilitation works on the National Route 3 between Hinche and Saint Raphael to be completed in 30 months. The contract value is of Euro40.72 million (approx. Rs2,65.3 crore). The company also acquired a 49% stake in an operational Chinese project, Yu He Expressway Company - Chongqing Expressway Group, for $160 million during the quarter.  Chonquing to start consolidation in Q4: ITNL had acquired the Chonquing highway project in November 2011. This is an operational project. Thus the consolidation of the books beginning from December 2011 would result in incremental revenue growth as well as better margins for the company (since operational projects have better margins compared to under construction projects).  Estimates revised upward for FY2013 We have revised our revenue estimates downwards for FY2012 by 3% mainly to factor in a poor performance of Elsamex and regulatory hurdles faced in a couple of projects. However for FY2013, we have upgraded our top line estimates by 3% led by consolidation of the Chonquing project. Further the consolidation would reflect in a healthy PAT growth of nearly 9% in our estimates on account of top line growth as well as expansion in margins. Maintain Buy The recent project wins and a Chinese acquisition are very positive as the company had not won any big road build operate transfer (BOT) project over the last 12-18 months. Thus, the absence of any new win was the key concern and an overhang on the stock. ITNL had not been bidding aggressively unlike the other players to bag projects which we believe was a prudent step. Now these project wins have allayed the concerns and provide revenue visibility. Further the continuous strong execution across projects provides impetus to growth. Meanwhile, given its strong balance sheet, it is also looking at inorganic growth, like the recent acquisition of a Chinese project. We believe that given its strong parentage and scale of operations, the company stands to gain from the expected consolidation in the sector. We maintain our Buy rating on the stock with a price target of Rs330. However we have not considered the recent project win in Himachal Pradesh in our estimates which would be incorporated post the financial closure, thereby resulting in a further upside in our estimates. At the current market price the stock is trading at 8.7x and 7.1x its FY2012E and FY2013E earnings respectively. Bajaj Corp  Cluster: Ugly Duckling Recommendation: Buy Price target: Rs142 Current market price: Rs114 Growth momentum continues Result highlights Results largely in-line, strong revenue growth sustained: Bajaj Corp's Q3FY2012 results were largely in line with our expectation mainly on account of sustenance of strength in the top line growth and higher than expected other income during the quarter. Q3FY2012 is the third consecutive quarter of around 30% year on year (YoY) revenue growth, which was largely driven by strong volume growth. The only disappointment during the quarter was the decline in operating margins, which dropped by 434bps YoY to 25.5% (which is broadly in line with our expectation). Net sales grew by 30% YoY: Bajaj Corp's revenues grew by 30% YoY in Q3FY2012, largely driven by a strong volume of 20.5% YoY. The price-led growth stood at ~10.0% during the quarter. Bajaj Almond Drops, the flagship brand of Bajaj Corp, registered a strong volume growth of more than 20.4% YoY. Q3FY2012 is the fourth consecutive quarter where the company witnessed an above 20% YoY volume growth in a quarter. The strong volume growth can be attributed to consumers upgrading to light hair oil, improvement in rural penetration and share gains from value-added hair oil brand.  Margins are down Y-o-Y: The prices of key raw material such as LLP, glass bottle and vegetable oil were up by 29.3% YoY, 7% YoY and 19.3% YoY respectively during the quarter. The company has not implemented any price hikes in the past few quarters. Hence the gross margins were down 162bps to 54.2%. However the same improved sequentially by 53bps. The decline in the gross margins along with increase in ad-spends as a percentage of sales resulted in a 434bps drop in the operating margins to 25.5%. Hence the operating profit grew by 11.8% YoY to Rs28.6 crore. PAT grew by 18.2% YoY: Though the operating profit grew by 11.8% YoY, the reported profit after tax (PAT) grew by 18.2% YoY to Rs28.9 crore mainly on account of higher than expected other income during the quarter. The other income grew by 52.0% YoY to Rs7.9 crore, largely on account of higher yields on investment done by the company. Outlook and valuation We have fine-tuned our FY2012 and FY2013 earning estimates to factor higher than expected volume growth in Bajaj Almond Drops and slightly higher than expected other income. We expect the mid to high teens volume growth to sustain in the coming quarters as the company is focusing on enhancing its rural penetration and tapping the consumers upgrading to light hair oil category. Having said that, increasing competition in the light hair oil category remains a key risk to our volume growth assumption. Any new product launch or acquisition in the domestic or international markets would act as a key trigger for the stock. We maintain our Buy recommendation with a price target of Rs142. At the current market price the stock trades at 14.2x its FY2012E earnings per share (EPS) of Rs8.0 and 11.7x its FY2013E EPS of Rs9.7. Opto Circuits India  Cluster: Emerging Star Recommendation: Buy Price target: Rs355 Current market price: Rs268 Q3 performance better than expected Result highlights Performance better than expected: Buoyed by the contribution from Cardiac Science, which contributed only one month's revenue in Q3FY2011, the net sales of Opto Circuits India (Opto) jumped by 46.4% year on year (YoY) to Rs611.3 crore in Q3FY2012. On a quarter-on-quarter (Q-o-Q) basis, the net sales jumped by 8.8%. However, the operating profit margin (OPM) declined during the quarter by 143 basis points to 28% of net sales mainly due to a ramp-up in the Malaysian facility which increased the administration costs. The net profit during the quarter jumped by 30.7% YoY to Rs125 crore, which is better than our estimate of Rs110 crore.  Bonus shares to expand equity by 30%: The company has announced a plan to issue three bonus shares for every ten equity shares held in the company. Accordingly, equity would be expanded by 30% (5.6 crore shares to be issued on the current number of shares of 18.6 crore).  We revise our earnings estimates: Taking our cues from the M9FY2012 results and management interactions, we have revised our revenue earnings estimates for FY2012 and FY2013. Our revised earnings estimates are higher by 10% and 7.9% for FY2012 and FY2013 respectively.  Valuation and view: The stock is currently trading at 9.1x FY2013E. We maintain our price target at Rs355 (implies 12x FY2013E EPS) and Buy rating on the stock Zydus Wellness  Cluster: Emerging Star Recommendation: Reduce Price target: Rs323 Current market price: Rs389 Maintain Reduce with revised price target of Rs323 Result highlights Disappointment continues: It is the third consecutive quarter where Zydus Wellness has posted a disappointing performance at the operating level. The intensified competition in the face wash and scrub category and slowdown in premium categories such as Sugarfree has resulted in a sharp decline in the revenue during the quarter. The operating margin, affected by higher input costs and high year-on-year (Y-o-Y) ad-spends, witnessed a decline of 266bps.  Everyuth feeling the heat of competition: This is the first time since its inception that, Zydus Wellness has registered a double-digit decline in its net sales, which are down 17.1% YoY (in Q3FY2012) to Rs75.3 crore (lower than our expectation of Rs98.7 crore). The Everyuth brand is feeling the heat of intensified competition from multinationals such as HUL and Johnson & Johnson in the face wash and scrub categories in the domestic market. Hence the Everyuth brand has registered a double digit decline (likely to be more than 20%) in revenues during the quarter. On the other hand Nutralite and Sugarfree registered a single digit revenue growth during the quarter. Margins decline YoY: The gross margins declined by 100bps YoY and 609bps QoQ to 61.9%. This is largely because of the change in the revenue mix, as the Everyuth brand registered a sharp Y-o-Y decline during the quarter. Also the contribution of Nutralite to overall sales picks up in Q3 every fiscal. Nutralite's margins are lower in comparison to other brands such as Everyuth and Sugarfree. The decline in gross margins along with higher ad-spends (as a percentage of sales) on a Y-o-Y basis resulted in a 272bps Y-o-Y decline in the operating profit margin (OPM) to 28.3% (slightly better than our expectation of 27.6%). Hence the operating profit was down 24.0% YoY to Rs21.3 crore during the quarter. PAT declined by 3.4% YoY: The company is reaping tax benefits from the Sikkim facility, which resulted in a drop in the tax rate from 33.2% in Q3FY2011 to 15.9% in Q3FY2012. Hence the tax expense declined sharply by 63.3% YoY to Rs3.6 crore during the quarter. This has helped in arresting a sharp drop in the reported profit after tax (PAT) during the quarter. The PAT declined by 3.4% YoY to Rs18.9 crore (lower than our expectation of Rs23.0 crore) in Q3FY2012. Enhancing focus on improving sales The company is planning to rework on it strategies to get back to the double-digit revenue growth trajectory. It is planning to support Everyuth with higher media and promotional spends in the current intensified competitive environment. The company is promoting the small pack (sachet priced at Rs14) of Peel Off in the domestic market. The company is also planning to launch new variants in Nutralite to push sales at modern retail levels. Actilife (nutritional milk additive) is being sold at all-India level and is performing in line with the company's expectations. The company expects its contribution to sales to improve significantly by FY2015.   Downward revision in estimates We have significantly revised downwards our earning estimates for FY2012 and FY2013 by 13.8% and 18.8% respectively to factor in the sharp decline in revenues during the quarter. However any significant improvement in the performance of any of the key branches would act as an upside risk to our earnings estimates.   Outlook and Valuation It is the third consecutive quarter of dismal performance by Zydus Wellness. Though the company is focusing on regaining its double digit growth trajectory, we think it will take some time for it to happen considering the increasing competition in the face wash and scrub categories and the prevalence of an uncertain macro environment (which has affected the sales growth of premium categories). In view of near term uncertainties on growth prospects of the company, we have reduced our target multiple on the stock to 18x (which is at a 15% discount to its mean price earning multiple of 21.0x). Hence our revised price target stands at Rs323 (based on 18x its FY2013E earning per share [EPS] of Rs17.9). We maintain our Reduce rating on the stock. At the current market price the stock trades at 25.1x its FY2012E EPS of Rs15.5 and 21.7x its FY2013E EPS of Rs17.9.   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. Regards, The Sharekhan Research Team myaccount@sharekhan.com Manage your newsletter subscriptions

 

Fw: Investor's Eye: Update - Mahindra & Mahindra, Hindustan Unilever

 

 

Investor's Eye [February 07, 2012]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE Mahindra & Mahindra  Cluster: Apple Green Recommendation: Hold Price target: Rs676 Current market price: Rs689 Q3FY2012 results: First-cut analysis Result highlights Q3FY2012 PAT in line adjusted for one time exchange reversal Our profit after tax (PAT) estimate for Mahindra & Mahindra (M&M) at Rs625 crore was the lowest among the consensus estimates. The company reported a standalone PAT of Rs662 crore. This includes a one time gain of Rs39.86 crore related to reversal of an exchange difference charge. Adjusting for this extraordinary gain, the company reported a post tax PAT of Rs635 crore, marginally higher than our estimates. Positive surprises The company reported a 30bps sequential improvement in the earnings before interest tax (EBIT) margin for the tractor business. Our concerns of deteriorating profitability in tractors due to raw material price escalations were unfounded.  A favourable operating leverage was witnessed in staff costs which moderated to 5.4% of sales - the lowest in the last six quarters. Other expenses after adjusting for Rs39.86 crore exchange reversal were the lowest ever for any quarter at 8.6% to sales.  Negative surprises  The Q3FY2012 automotive EBIT was the lowest in the last two years at 8.2%, ie lower by 170bps quarter on quarter (QoQ), in spite of a 10% sequential jump in automotive realisations. The lower EBIT margins would also have a higher depreciation effect post the launch of the XUV5OO. However margin pressure due to cost escalation was quite evident. The Q3FY2012 raw material (RM)/sales at 74.3% was the highest ever for any quarter. This was on account of very aggressive pricing of the XUV5OO and limited ability to take price increases in the tractors segment. The operating margin adjusting for exchange reversal was the lowest in the last two years at 11.7%. Outlook and valuation The demand for tractors and automotive profitability are our key concerns related to the company. The company has guided for a 17-18% tractor growth for FY2012 which in all probability is likely to be lowered. On the automotive side, the company took a 3% price hike from January 2012 to protect margins. We will incorporate inputs from the management during the results conference call to revise our estimates if required. Our target price as well as 'Hold' recommendation remain unchanged as of now.   Hindustan Unilever  Cluster: Apple Green Recommendation: Hold Price target: Under review Current market price: Rs382 Personal product segment disappoints Result highlights Q3FY2012-trimming of ad spends aided bottom line growth: It was yet another quarter when Hindustan Unilever Ltd (HUL) posted strong profitability at the operating level by trimming its advertisement and promotional spends and controlling its operating cost. The operating profit margin (OPM) improved by 271 basis points year on year (YoY) to 15.1% and the operating profit grew by 41.9% YoY to Rs885.6 crore during the quarter. The sales volume growth sustained in higher single digits at 9.1% in Q3FY2012. The same was largely in line with the 9.8% volume growth in Q2FY2012. However, the 14% year-on-year (Y-o-Y) growth in the revenues of the personal product segment and a 294-basis-point Y-o-Y decline in its profit before interest and tax (PBIT) margin were the key disappointers for the quarter. Outlook and valuation We have fine-tuned our earning estimates for FY2012 and FY2013 to factor in the higher than expected operating performance during the quarter. The sustenance of a high single-digit volume growth and a sequential improvement in the GPM were the highlights of the quarter. Having said that, the personal product business performance failed to meet the Street's expectations. The performance of the same has to be keenly monitored in the coming quarters. At the current market price the stock is trading at 32.8x its FY2012E EPS of Rs11.6 and 27.6x its FY2013E EPS of Rs13.8. The stock is trading at a substantial premium of mean average of 26x. Though the company's business fundamentals are intact, the same is already factored in its stock's current valuation. Hence, we do not see any upside in the stock price from the current level. In view of this, we maintain our preference for ITC over HUL. We also maintain our Hold recommendation on the stock with price target under review.   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.   Click here to read report: Investor's Eye

Regards, The Sharekhan Research Team myaccount@sharekhan.com Manage your newsletter subscriptions

 

Fw: Notice for Extraordinary General Meeting - Dena Bank

DENA BANK Head Office: Dena Corporate Centre, C-10, "G" Block, Bandra-Kurla Complex, Bandra (East), Mumbai- 400 051.

February 6, 2012   Dear Shareholder,   Sub: Notice for Extraordinary General Meeting   Shareholders are hereby informed that an Extraordinary General Meeting of the shareholders of Dena Bank will be held on Friday, 9th March 2012 at 11.00 A.M. at Auditorium, Sir Sorabji Pochkhanawala Bankers' Training College, J.V.P.D. Scheme, Near Cooper Hospital, Vile Parle (West), Mumbai – 400 056 to transact the business as detailed in the Notice.   In line with the "Green Initiative" circulars issued by the Ministry of Corporate Affairs (MCA) on April 21, 2011 and April 29, 2011 and Bank's participation in the initiative, the Notice of the said Meeting including the various Notes, Explanatory Statement, Declaration, Nomination Form, Personal Information, Declaration & Undertaking, Attendance Slip, Entry Pass & Ballot Paper Pass, Form of Proxy and Extract of Relevant Act, Schemes & Regulations are attached.   Please note that the said Notice is also available on the Bank's website www.denabank.com.   In case you desire to receive the documents in physical form, you are requested to send an e-mail to denabank@shareproservices.com on or before 11th February, 2012 and on receipt of request for physical document, the same will be sent free of cost.   We are sure that as a responsible citizen, you would appreciate the efforts made by Bank to save the environment as part of the "Green Initiative" taken by MCA and will whole-heartedly support the same.   For Dena Bank   S. K. Jain General Manager (Fin. Mgmt, IRC & Treasury)

 

Fw: Investor's Eye: Update - Hindustan Unilever, GlaxoSmithKline Consumer Healthcare, India Cements; Special - Q3FY2012 IT earnings review

 

 

Investor's Eye [February 06, 2012]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE Hindustan Unilever  Cluster: Apple Green Recommendation: Hold Price target: Under review Current market price: Rs387 Q3FY2012 results: First-cut analysis Result highlights Hindustan Unilever Ltd (HUL)'s Q3FY2012 results have come ahead of our as well as the Street's expectations largely on account of a better than expected operating performance during the quarter. The volume growth momentum in the domestic consumer business sustained at high single digit with a 9.1% year on year (YoY) growth during the quarter (as against a 9.8% YoY volume growth in Q2FY2012). Net sales grew by 16.4% YoY to Rs5,852.7 crore (largely in line with our expectation of Rs5,897.3 crore) in Q3FY2012. The growth was driven by an 18% YoY growth in the home and personal care (HPC) business (which contributes more than 75% to the total revenue) and a 12.0% YoY growth in the foods  business . The strong growth in the HPC business can be attributed to an approximately 21% YoY growth in the soaps and detergents segment revenues and around 14% YoY growth in the personal products business. We believe an above 21% YoY growth in the soaps and detergents business can be attributed to price increases undertaken in the portfolio, while the growth in the revenues of the personal products business has been largely volume driven. The profit before interest and tax (PBIT) margins of soap and detergents segment improved by 573bps YoY to 13.5% during the quarter. However the PBIT margins in the personal products segment declined by 294bps YoY to 25.9%, which is a kind of a disappointer for the quarter. The foods business also posted a steady performance with the beverage segment growing by 11.3% YoY and the packaged foods segment expanding by 13.5% YoY during the quarter. The beverage segment's PBIT margin was down by 115bps to 15.7% largely on account of higher coffee prices. The losses in the packaged food segment declined by 63.0% YoY to Rs6.0 crore. The higher raw material prices continued to put pressure on the gross profit margin (GPM) of the company. The GPM contracted by 143bps YoY to 47.5% in Q3FY2012. However the GPM improved sequentially by 181bps. Despite a decline in the gross margins, the operating profit margin (OPM) improved by 271bps YoY to 15.1%, largely on account of lower advertisement spends (as a percentage of sales) and other expenses (as a percentage of sales) on a Y-o-Y basis. The ad-spends as a percentage to sales were at 11.8% in Q3FY2012 as against 14.8% in Q3FY2011. Thus the operating profit grew by 41.9% YoY to Rs885.6 crore. However a lower other income Y-o-Y and a higher incidence of tax resulted in a 30.3% YoY growth in the adjusted profit after tax (PAT) to Rs763.5 crore for the quarter. The post tax exceptional loss stood at Rs9.7 crore against an exceptional gain of Rs51.5 crore in the corresponding quarter of the previous year. Hence the reported PAT grew by 18.2% YoY to Rs753.8 crore during the quarter.  It was yet another quarter of strong operating performance for HUL with volume growth in the domestic consumer business standing in higher single digits. The sequential improvement in the gross margins was the highlight of the quarter. We will review our estimates for FY2012E and FY2013E post the conference call tomorrow. The stock is currently trading at 28.6x its FY2013E earnings per share (EPS) of Rs13.5 (ahead of mean PEx of 26x). We maintain our Hold recommendation on the stock. GlaxoSmithKline Consumer Healthcare  Cluster: Evergreen Recommendation: Buy Price target: Rs3,000 Current market price: Rs2,637 PAT largely in line with expectations Result highlights Q4CY2011 performance snapshot: The net sales grew by 18.6% YoY during the quarter with the overall volume growth standing at 11% YoY. The price-led growth during the quarter stood at 8% YoY. The raw material cost inflation for the quarter stood at 13%. However the price hikes in the portfolio aided in mitigating cost pressure and hence the gross margins stood almost flat at 64.4% (down by 44bps YoY). However a substantial increase in ad-spends and other expenses resulted in operating margins declining by 127bps YoY to 10.2%. Hence the operating profit grew by just 5.5% YoY to Rs61.6 crore. However a 33.3% YoY growth in the business auxiliary income and a 37.5% YoY growth in the interest resulted in a 21.2% YoY growth in the profit before tax (PBT). The adjusted profit after tax (PAT) grew by 23.0% YoY to Rs66.0 crore (excluding the prior period tax adjustment of Rs6.9 crore), which is largely in-line with our expectation of Rs63 crore for the quarter. MFD segment registered double digit volume growth: The malted food drinks (MFD) segment (contributes close to 94% to the top line) registered a volume growth of 12% YoY during the quarter. The same was driven by a 16% YoY volume growth in the company's flagship brand - Horlicks. The brand's volume growth improved on a Q-o-Q basis from 10% YoY in Q3CY2011 to 16% in Q4CY2011. Boost's sales volume grew by just 2% YoY in Q4CY2011. This flat growth can largely be attributed to a high base of Q4CY2010 (volume growth of 25% YoY). The value growth in Horlicks and Boost stood at approximately 23% YoY (price-led growth of 7%) and an approximately 10% YoY growth (price-led growth of 8%) during the quarter. With food inflation likely to soften in the near term, we expect the volume growth for the MFD segment to stand in the range of 10-12% in the coming quarters. Performance of non-MFD segment: The biscuit segment (contributes close to 5%) registered a value growth of 29% YoY (with volume growth standing at 15% YoY) during the quarter. The recently launched Horlicks Oats got a good response in the southern market and is now the number two brand in Tamil Nadu and Kerala. Outlook and valuation We have broadly maintained our earnings estimates for CY2012 and CY2013. We expect GSK Consumers' top line to grow at a compounded annual growth rate (CAGR) of 20% over CY2011-13E with sales volume growth standing in the range of 10-12% over the same period. With the operating margins likely to position in the range of 16-17%, we expect the bottom line to grow at a CAGR of 20% over the same period.  We like GSK Consumer largely on account of its market leadership positioning in the lowly penetrated MFD segment, strong balance sheet with cash of more than Rs1,000 crore and its good dividend payout policy. We maintain our Buy recommendation on the stock with a price target of Rs3,000. At the current market price the stock is trading at 25.8x its CY2012E earnings per share (EPS) of Rs102.0 and 21.7x its CY2013E EPS of Rs121.7.   India Cements  Cluster: Ugly Duckling Recommendation: Hold Price target: Rs105 Current market price: Rs94 Price target revised to Rs105 Result highlights Earnings ahead of estimates: India Cements in its Q3FY2012 results delivered an impressive performance and posted a 177.4% year-on-year (Y-o-Y) growth in its adjusted net profit. The adjusted net profit for the quarter stood at Rs56 crore which is well ahead of our as well as the Street's estimates largely on account of better than expected operating profit margin (OPM) and much lower than expected effective tax rate.  Revenue growth driven by healthy realisation and volume growth: The net sales of the company grew by 20.6% YoY to Rs941.5 crore (much in line with our estimates). The net sales also include revenues from the Indian Premier League (IPL) franchise, wind power and shipping businesses. The revenue from the cement division (which is its core business) has improved by 24% YoY to Rs926.7 crore. The same was driven by a 15.7% growth in the average cement realisation due to supply discipline followed by cement companies in south India. On the other hand the southern region has witnessed partial recovery in the cement offtake and hence the volume grew 7.1% on a Y-o-Y basis. However, the revenue from the IPL franchise declined to Rs4 crore as against Rs21 crore in the corresponding quarter of the previous year. The shipping division has booked a revenue of Rs10 crore during the quarter.  Margin expansion led by surge in realisation; cost pressure continues: On the margin front the OPM expanded by 450 basis points (bps) YoY to 20.7%. The margin expansion is due to a 15.7% increase in realisations to Rs4,241 per tonne. However, on the other hand the cost pressure continued to play its role with a) the raw material cost (blended basis) increasing by 41.3% on a per tonne basis, b) power & fuel cost increasing by 7.2% on a per tonne basis and c) employee cost increasing by 12.6% YoY to Rs70.8 crore. Hence the overall cost of production on a per tonne basis has increased by 5.3% on a YoY basis. However, with a healthy growth in the average realisation, the blended EBITDA per tonne has increased by 89% YoY to Rs861. Consequently, the operating profit of the company has increased by 54.1% YoY to Rs194.6 crore.  Surge in interest cost due to increased borrowings & forex charges: The interest cost during the quarter increased by 84.4% YoY to Rs75 crore on account of increase in borrowings at a higher rate to redeem the outstanding foreign currency convertible bonds (FCCBs) and to meet working capital requirements. The total borrowings of the company currently stood at Rs2,900 crore as compared to Rs2,456 crore at the end of FY2011. The interest cost of Rs75 crore also includes foreign exchange (forex) translation charges on the forex loans to the tune of Rs15.6 crore.  Lower than expected effective tax rate supports earnings growth: The effective tax rate during the quarter worked out to just 9.2% as compared to 35% in the corresponding quarter of the previous year. We had factored a 33% tax rate in our estimates. The lower than expected effective tax rate during the quarter is on account of tax paid on redemption of FCCBs amounting to Rs177.9 crore which has been adjusted against Securities Premium Account.  Captive power plant for 50MW commissioned in Jan 2012: A power plant of 50MW capacity at Sankar, Tamil Nadu for captive requirement has been commissioned during the month of January 2012 and the trial runs of the plant have been undertaken. Hence the positive impact in terms of regular power supply and cost savings will reflect in FY2013. Further the work on the development of its coal mine in Indonesia has been delayed and is now expected to be completed during Q4FY2012.  Upgrading estimates for FY2012 & FY2013: We are incorporating better than expected average realisations. Further we also factor a marginal cut in the volume estimates for FY2012. Overall we are upgrading our earnings estimates for FY2012 and FY2013 and the revised earnings per share (EPS) now stands at Rs9.7 and Rs11.9 respectively.  Maintains Hold with revised price target of Rs105: The cement demand in India Cements' key market area (the southern region of India) has witnessed a sign of partial recovery driven by private sector housing and rural demand. Hence going ahead we expect the volume growth to support revenue growth. On the realisation front, the supply discipline mechanism has worked well and realisation in the southern region stood at a healthy level. However, in order to deliver higher volume the realisation could come under pressure. Further cost pressure in terms of higher imported coal price and freight cost through increase in lead distance will partially offset the positive impact of increase in realisation. Hence we maintain our Hold recommendation on the stock with a revised price target of Rs105 (valued at enterprise value [EV]/tonne of $65). At the current market price the stock trades at a price earning (PE) of 8x discounting the EPS for FY2013E and EV/EBITDA of 4.5x its FY2013E earnings. SHAREKHAN SPECIAL Q3FY2012 IT earnings review  Key points Rupee led growth in a seasonally soft quarter: The performance of the top four IT companies remained broadly in line with our as well as the Street's estimates for the seasonally soft December 2011 quarter. However, there was some moderation seen in volume growth adjusted for seasonal weakness. The aggregate sequential revenue growth in USD terms was at 2.6% for the December quarter, impacted by cross currency headwinds. However on a constant currency basis the revenue growth was more decent at 4.3%. Nevertheless, a steep rupee depreciation of 9.7% during the quarter helped the companies to report fascinating numbers in rupee terms. The favourable rupee has also translated into strong margin performance during the quarter. The quarter saw some strong deals signing with Infosys and TCS bagging five and ten large deals respectively while HCL Technologies (HCL Tech) reported cumulative deal signings worth $1 billion. However, the management commentary of the leading companies in the sector has seen some tear down in optimism on the back of the macro-economic headwinds. Most of the companies' managements indicated at facing delays in decision making in some projects and also softness in the discretionary spends. With expectations of IT budgets for CY2012 remaining flat to marginally down, there was unanimous optimism about increase in offshore IT budgets.  Volume growth moderation owing to seasonal weakness: Seasonally, the December quarter has always been a soft quarter in terms of volume growth owing to lower billing days and planned shutdowns by clients. The quarter saw moderation in volume growth; the average volume of the top four IT companies grew by a modest 3% sequentially as against a 5.5% growth in the September 2011 quarter. Incidentally the sequential volume growth for the December 2011 quarter was the lowest in the last five years (the average being 4.5% in the last five years). TCS, Infosys and HCL Tech's volume growth was below expectations; Wipro disappointed the most posting just a 1.8% quarter-on-quarter (Q-o-Q) volume growth. On the positive side, there was a pricing uptick of 40-200bps in the quarter on a constant-currency basis for the top four IT companies. Overall, a modest volume growth coupled with the adverse impact of cross currency headwinds (150-200bps) led to a soft 2.6% sequential aggregate revenue growth for the quarter.  Margins benefited primarily led by rupee: For the December 2011 quarter, most of the companies have reported an improvement in their operating margins, primarily led by a favourable rupee. Infosys has led the pack with a 265bps improvement and Wipro has shown the least improvement (93bps) among the top four. On the other hand, an improvement in pricing (led by a change in the mix and a higher proportion of fixed price projects) has also contributed to the improvement, though employee utilisation saw a decline. Going forward, we expect margins to remain in a narrow band (internal levers like utilisation could pick up in the coming quarters). However a further strengthening of the rupee could adversely impact margin performance from the current levels.  Valuation: In the last one month (since January 6, 2012), the BSE IT Index (up 1%) has underperformed the Sensex (up 11.4% for the commensurate period) after a smart outperformance in the preceding three months. Going forward, with external levers (rupee benefits) showing sign of fading, the internal variables (volume, price and productivity) need to gear up to sustain earnings momentum in the coming quarters. With the Street's earnings expectations for FY2013E still at a modest level, any surprises in the form of an improvement in the global macro environment would translate into a better stock performance in the coming months. We continue to remain cautiously positive on the sector over a 12-month horizon. However, we like TCS and HCL Tech as our top picks among the large-cap IT companies and NIIT Technologies (NIIT Tech) and Polaris Financial Technology (Polaris) are our preferred bets in the mid-cap space..   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.   Click here to read report: Investor's Eye

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