Fw: Investor's Eye: Update - Apollo Tyres; Special - Q4FY2012 FMCG earnings preview, Q4FY2012 Cement earnings preview

 

 

Investor's Eye [April 09, 2012]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE Apollo Tyres Cluster: Apple Green Recommendation: Buy Price target: Rs91 Current market price: Rs82 Extension of anti-dumping duty positive, price target revised to Rs91 Government stays anti-dumping duty on non-radial tyres from China, Thailand Anti-dumping duty would continue to be levied on non-radial bus/truck tyre imports from China and Thailand.  The finance ministry has extended the validity of anti-dumping duty on such bias tyres by another six months till October 7, 2012.  The anti-dumping duty had lapsed on October 8, 2011. This extension has come in the wake of a sunset review initiated in August last year.  The bulk of the sales by turnover of the domestic tyre industry comes from the non-radial bus and truck tyres. Impact of the extension of anti-dumping duty The truck tyre replacement market is dominated by non-radial tyres and constitutes 65-70% of the tyre market's size by value.  Most of the Chinese tyres are imported and sold in the truck tyre replacement market at a much cheaper price against the available branded tyres.  To protect the interests of the Indian tyre manufacturers the Indian government first imposed an anti-dumping duty on bias tyres imported from China and Thailand through a notification dated July 24, 2007. The duty was extended again on August 26, 2010 at new rates. The latest notification has extended anti-dumping duty on non-radial tyres till October 2012. Valuation We believe Apollo Tyres is the best sustainable tyre play in the Indian context on account of its product and regional diversification. The lower prices of natural rubber are expected to help its margins. Of late, the most crucial truck tyre replacement market has shown some signs of revival and this is expected to benefit the company. Apollo Tyres is now the largest radial tyre manufacturer in India and would gain from the shift from bias tyres to radial tyres.  Given the favourable headwinds-lower natural rubber prices and anti-dumping duty on tyre imports from China and Thailand--the stock is likely to see a re-rating. We keep our FY2014 earnings per share (EPS) estimate of Rs14.9 unchanged but we increase our price target to Rs91 per share. We are thus discounting the FY2014 earnings estimate by 6.1x, which is the long-term mean. We remain bullish on Apollo Tyres and keep it as our top pick in the auto ancillary sector.  SHAREKHAN SPECIAL Q4FY2012 FMCG earnings preview  Key points Strong top line growth is foreseeable: We expect Q4FY2012 to be yet another quarter of strong top line growth driven by a mix of sales volume growth and price increases for all the fast moving consumer goods (FMCG) companies under our coverage (except for Zydus Wellness [Zydus]). Our interaction with some of the FMCG companies under our coverage gave us the clear indication of a strong demand environment for daily consumption items in the domestic market. Also, the focus on enhancing the reach of their products (especially in rural India) is helping these companies to improve the consumption of products/categories. On the other hand, the discretionary/premium categories might witness some pressure on sales volume in Q4FY2012. The acquisitions made by some of the FMCG companies (including Godrej Consumer Products Ltd [GCPL], Marico and Dabur India) in the recent past would help in achieving a robust top line growth.  Raw material prices remained a mix bag: Though the prices of some of the key inputs, such as palm oil, copra and sunflower oil, have corrected from their highs, the prices of the other key inputs such as kardi oil, rice bran oil, LAB and HDPE have remained substantially higher on a year-on-year (Y-o-Y) basis. The FMCG companies had implemented calibrated price increases in their respective product portfolios during the fourth quarter. Despite that we expect the gross margin of some of the FMCG companies (including Bajaj Corp, GlaxoSmithKline Consumer Healthcare [GSK Consumer] and Zydus) to remain lower on a Y-o-Y basis. On the other hand, we expect the gross margin of Marico to improve substantially year on year (YoY) while that of Hindustan Unilever Ltd (HUL) and GCPL (reaping the benefits of low raw material inventory) is expected to remain stable on a Y-o-Y basis.  OPM to improve YoY: The rationalisation of the advertisement spends and stringent management of the operating cost would help the FMCG companies to post a better picture at the operating level. Performance of Sharekhan's FMCG universe: We expect the top line growth of most of the FMCG companies to remain above 17% YoY except for companies like Zydus, which is bearing the brunt of competitive intensity in categories such as scrubs and face wash. With the most of the companies likely to post a better margin picture, we expect companies under Sharekhan's FMCG universe to achieve a robust bottom line growth (except for Zydus and GSK Consumer). Despite a flat operating performance, Tata Global Beverages Ltd (TGBL) is expected to post around 26% Y-o-Y growth in the bottom line mainly on account of a lower interest cost YoY. Going ahead: Union Budget 2012-13 proposed a basic duty hike of 2% in consumer goods and an increase in the service tax rate by 2%. Also, the commodity price momentum has remained volatile for the past few months. In view of this, we expect the FMCG companies to go for price hikes in their respective product portfolios in the coming months. Having said that, we expect the companies to go for calibrated price hikes taking into account the competitive environment in the respective categories. We expect the steady volume growth momentum to sustain for most of FMCG companies, despite the price hikes implemented in the coming quarters. The steady volume growth would be on the back of an increase in the distribution reach, renovation/innovations amongst the product portfolio and steady consumption of FMCG products in the domestic market. With the implementation of price hikes and the prices of the key raw materials staying lower than their highs, we expect the margins to more or less remain stable in the coming quarters. Valuation: We retain our view of remaining selective in the sector. We prefer ITC, Marico and GCPL from the current levels. Since our last update on the company (on February 8, 2012) Bajaj Corp has moved up by 14% and there could be upside of another 11-13% from the current level. Though HUL's business fundamentals are intact, but the current valuations do not provide any upside from the present levels.   Q4FY2012 Cement earnings preview  Key points Volume offtake improved in Q4FY2012: With a pick-up in the infrastructure activity, the cement offtake in the domestic market improved in Q4FY2012. The all-India cement volume in the January-February 2012 period grew by 10.1% year on year (YoY). What's more, the March 2012 volume data of the large players is encouraging. Hence, we expect the volume growth to support the revenue growth of the cement players in Q4FY2012. However, on a year-till-date (YTD; April-February 2012) basis the volume growth in the domestic industry was limited to 5.6%, which is below the industry's expectation as well the projected gross domestic product (GDP) growth for the current fiscal. Among the Sharekhan's cement universe, companies like JP Associates Ltd (JAL) and Shree Cement are expected to register an impressive volume growth on the back of the stabilisation of their new capacities.  Average realisation for Q4FY2012 to be higher on a YoY and QoQ basis: Cement prices in the February-March 2012 period increased by an average of Rs15-18 per bag due to an increase in the railway freight and excise duty. The western and eastern regions witnessed relatively higher price hikes during Q4FY2012. But the cement prices in the southern and northern regions largely remained unchanged during the quarter. We expect the average cement realisation in Q4FY2012 to be higher by around Rs150-175 per tonne quarter on quarter (QoQ) for companies operating in the western and eastern regions. On the other hand, the realisation of the cement companies operating in the southern and northern regions is expected to increase by Rs50-75 per tonne QoQ. Among our coverage companies the realisation is expected to increase by 2-5% sequentially. JAL and Orient Paper and Industries (Orient Paper) are expected to post a relatively higher growth in their realisation. However, on a year-on-year (Y-o-Y) basis, cement prices across major cities were higher during the quarter. Hence, cement companies are expected to register a double-digit growth in their revenues for the quarter. Further, as per the recent channel checks the cement prices are likely to remain strong in the near term.  Cost pressure to offset benefit of price hikes; margin continues to be under pressure: With the support of growth in the volume as well as cement realisation, the revenues of the companies under our coverage are likely to increase by 5% to 36%. However, the positive impact of the increased realisation on the margins is expected to be offset by the cost pressure in terms of power & fuel and freight charges (due to an increase in the lead distance). The Sharekhan cement universe is expected to post a mixed performance on the margin front. Companies like India Cements, Madras Cement and JAL are likely to post an expansion in their operating profit margin (OPM) whereas Orient Paper, Grasim Industries (Grasim) and Shree Cement are expected to register a contraction of 200-350 basis points in their margins.  Average bottom line to decline by 6.3% YoY: Though the cumulative revenues of the companies under the Sharekhan cement universe are estimated to increase by 12.9% YoY, but the average bottom line of the universe is expected to decline by 6.3% on account of margin pressure and an increase in the interest and depreciation charges. India Cements and Madras Cement are expected to post a healthy earnings growth in the range of 53-58% on a Y-o-Y basis whereas JAL and Grasim are likely to post a decline in their earnings.  Click here to read report: Investor's Eye Outlook Due to a pick-up in the infrastructure activity and increased consumption from the rural housing sector, the demand for cement has improved in the past couple of months. Going ahead, in FY2013 we believe the domestic demand for cement would grow at around 8-9%. Further, with supply discipline and a likely improvement in the utilisation ratio the cement realisation would remain strong. However, the key risk remains the cost pressure in terms of power & fuel cost and freight charges. Moreover, an increase in the supply by the mid-sized cement players to deliver a higher volume may break the discipline and could be a concern with regard the stability of the cement prices at higher levels. Hence, we maintain our neutral view on the cement sector but are positive on selects cement companies. In the large-cap space we prefer Grasim and among the mid-cap companies we like Orient Paper. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.

Fw: Sharekhan Special: Q4FY2012 FMCG earnings preview

 

 

Sharekhan Special [April 09, 2012] Please see the attachment for details Sharekhan www.sharekhan.com

Summary of Contents SHAREKHAN SPECIAL Q4FY2012 FMCG earnings preview  Key points Strong top line growth is foreseeable: We expect Q4FY2012 to be yet another quarter of strong top line growth driven by a mix of sales volume growth and price increases for all the fast moving consumer goods (FMCG) companies under our coverage (except for Zydus Wellness [Zydus]). Our interaction with some of the FMCG companies under our coverage gave us the clear indication of a strong demand environment for daily consumption items in the domestic market. Also, the focus on enhancing the reach of their products (especially in rural India) is helping these companies to improve the consumption of products/categories. On the other hand, the discretionary/premium categories might witness some pressure on sales volume in Q4FY2012. The acquisitions made by some of the FMCG companies (including Godrej Consumer Products Ltd [GCPL], Marico and Dabur India) in the recent past would help in achieving a robust top line growth.  Raw material prices remained a mix bag: Though the prices of some of the key inputs, such as palm oil, copra and sunflower oil, have corrected from their highs, the prices of the other key inputs such as kardi oil, rice bran oil, LAB and HDPE have remained substantially higher on a year-on-year (Y-o-Y) basis. The FMCG companies had implemented calibrated price increases in their respective product portfolios during the fourth quarter. Despite that we expect the gross margin of some of the FMCG companies (including Bajaj Corp, GlaxoSmithKline Consumer Healthcare [GSK Consumer] and Zydus) to remain lower on a Y-o-Y basis. On the other hand, we expect the gross margin of Marico to improve substantially year on year (YoY) while that of Hindustan Unilever Ltd (HUL) and GCPL (reaping the benefits of low raw material inventory) is expected to remain stable on a Y-o-Y basis.  OPM to improve YoY: The rationalisation of the advertisement spends and stringent management of the operating cost would help the FMCG companies to post a better picture at the operating level. Performance of Sharekhan's FMCG universe: We expect the top line growth of most of the FMCG companies to remain above 17% YoY except for companies like Zydus, which is bearing the brunt of competitive intensity in categories such as scrubs and face wash. With the most of the companies likely to post a better margin picture, we expect companies under Sharekhan's FMCG universe to achieve a robust bottom line growth (except for Zydus and GSK Consumer). Despite a flat operating performance, Tata Global Beverages Ltd (TGBL) is expected to post around 26% Y-o-Y growth in the bottom line mainly on account of a lower interest cost YoY. Going ahead: Union Budget 2012-13 proposed a basic duty hike of 2% in consumer goods and an increase in the service tax rate by 2%. Also, the commodity price momentum has remained volatile for the past few months. In view of this, we expect the FMCG companies to go for price hikes in their respective product portfolios in the coming months. Having said that, we expect the companies to go for calibrated price hikes taking into account the competitive environment in the respective categories. We expect the steady volume growth momentum to sustain for most of FMCG companies, despite the price hikes implemented in the coming quarters. The steady volume growth would be on the back of an increase in the distribution reach, renovation/innovations amongst the product portfolio and steady consumption of FMCG products in the domestic market. With the implementation of price hikes and the prices of the key raw materials staying lower than their highs, we expect the margins to more or less remain stable in the coming quarters. Valuation: We retain our view of remaining selective in the sector. We prefer ITC, Marico and GCPL from the current levels. Since our last update on the company (on February 8, 2012) Bajaj Corp has moved up by 14% and there could be upside of another 11-13% from the current level. Though HUL's business fundamentals are intact, but the current valuations do not provide any upside from the present levels.   Click here to read report: Sharekhan Special   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.

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Fw: Sharekhan's top SIP fund picks

  

 

Mutual Gains [For April 04, 2012]  Sharekhan www.sharekhan.com

Summary of Contents MUTUAL GAINS Sharekhan's top SIP fund picks Large-cap funds Multi-cap funds Franklin India Bluechip ICICI Prudential Discovery Fund - IP DSP BlackRock Top 100 Equity Fund Tata Dividend Yield Fund Birla Sun Life Top 100 Fund Birla Sun Life Dividend Yield Plus Tata Pure Equity Fund UTI Opportunities Fund UTI Top 100 Fund Quantum Long-Term Equity Fund BSE Sensex BSE 500 Mid-cap funds Tax saving funds SBI Magnum Sector Funds Umbrella - Emerg Buss Fund  Franklin India Taxshield IDFC Premier Equity Fund - Plan A Reliance Tax Saver (ELSS) Fund DSP BlackRock Small and Midcap Fund ICICI Prudential Taxplan Kotak Midcap Fund HDFC Long Term  Advantage Fund Franklin India Prima Fund HDFC Taxsaver BSE Midcap S&P Nifty Fund focus IDFC Premier Equity Fund   Click here to read report: SIP fund picks   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.

Fw: Investor's Eye: Update - Unity Infraprojects; Special - Q4FY2012 Banking earnings preview, Q4FY2012 IT earnings preview; MF - Sharekhan's top SIP fund picks

 

 

Investor's Eye [April 04, 2012]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE Unity Infraprojects Cluster: Vulture's Pick Recommendation: Buy Price target: Rs107 Current market price: Rs52 Highest order inflow in FY2012 Key points  FY2012 records the highest order inflow ever: In FY2012 Unity Infraprojects (Unity) bagged fresh orders worth about Rs3,000 crore, the highest order inflow recorded in Unity's history. Of this nearly Rs1,300 crore came in Q4FY2012 wherein the company bagged two road build-operate-transfer (BOT) projects worth Rs840 crore. The company is also the lowest bidder (L1) in orders worth Rs770 crore that are likely to be announced over the next two to three months. The current order book stands at about Rs4,650 crore, 2.5x its FY2012E revenue. The management has further set a target of winning orders worth Rs5,000-5,500 crore for FY2013.  Wins 3 BOT projects in its maiden year: Unity marked its entry into the road BOT segment in FY2012 itself by bagging a project for two-laning of the Chomu to Mahla in Rajasthan in Q1FY2012. The project is worth Rs198 crore and has been awarded by the Public Works Department (PWD), Rajasthan on a toll basis. Last week Unity also won two more road BOT (toll-based) projects. The first is the four-laning of Punjab/Haryana border to Jind section of NH-71, for a concession period of 27 years from the National Highways Authority of India. The order is worth Rs510 crore. The second is a project to develop and operate the Suratgarh-Sriganganagar section of NH-15 in Rajasthan for a concession period of 11 years from PWD, Rajasthan. The order is valued at Rs330 crore. This takes the road BOT portfolio of Unity to three projects, which are together worth Rs1,040 crore. Of these, two are in Rajasthan and one is in Punjab. Over the next two years, these three projects will add substantially to the engineering, procurement and construction revenues of Unity after which these will start generating toll revenues. Of the three projects the Chomu-Mahla project is expected to get financial closure in one to two months. Bangalore and Nagpur likely to get launched in Q1FY2013: The company is awaiting approvals for the Bangalore real estate project, which is expected to be launched in this quarter. With regards to the Nagpur project, it is awaiting the final shareholder agreement and the operation and management agreement with one hotel operator. So both the projects are in the pipeline and will hopefully be announced in Q1FY2013. Strong order inflow strengthens the management guidance: The robust order inflow during FY2012 has strengthened Unity's order book to ~Rs4,650 crore, which is to be executed over 20-30 months. Such a strong order book strengthens the management's FY2013 guidance for a 20-25% growth in the top line. The management has further reiterated its aim of maintaining the operating profit margin at 13.5-14%. Attractive valuations, maintain Buy: We continue to like the company, given the strong momentum in its order inflow and its healthy lowest bidder position despite an adverse macro-economic environment. Such robust order wins will translate into a strong revenue growth over the next two years. We expect a 20% compounded annual growth rate in its revenue over FY2012-14. Hence, we maintain our Buy recommendation on the stock with a price target of Rs107. We have not considered the road BOT projects and the real estate projects in our valuation; these would provide further upside. We would include the real estate projects in our valuation once these get launched as their launch has been delayed substantially so far. We would include the BOT projects in our valuation once these are financially closed. At the current market price the stock is trading at a price/earnings multiple of 2.9x FY2013E earnings and at a price/book value of 0.2x FY2013E book value. SHAREKHAN SPECIAL Q4FY2012 Banking earnings preview Key points Earnings growth to trend down: We expect banks in our coverage universe to report an earnings growth of 11.3% year on year (YoY; ex State Bank of India [SBI]) compared with the 12.6% growth in Q3FY2012 and the 15.3% increase in Q2FY2012. On a quarter-on-quarter (Q-o-Q) basis the earnings are expected to grow 6% compared with the 10% Q-o-Q growth in Q3FY2012. This would be on account of a sequential drop in the margin and a higher provisioning. NII growth steady but could drop in the coming quarters: The net interest income (NII) of the banks under our coverage is expected to grow at 22% YoY (13.4% YoY ex SBI) compared with the 17.1% growth in Q3FY2012 and the 19.4% growth in Q2FY2012. The advances growth would be better on a sequential basis but remain sluggish for FY2012. The net interest margin (NIM) could decline by 5-15 basis points quarter on quarter (QoQ) and affect the NII growth. Asset quality pressure to continue: The asset quality pressure will continue due to slippages from agriculture, small and medium enterprise (SME) and certain corporate accounts. Further, the additional restructuring carried out during Q4FY2012 will keep the provisioning at elevated levels. Prefer exposure to private sector banks and select PSBs: We expect the private sector banks to report a relatively better performance (an NII growth of 19% YoY and a net profit growth of 19.3%) with lesser asset quality strain. We prefer ICICI Bank, Axis Bank and Allahabad Bank (as play on Q4 results). Valuations and outlook: The operating performance of banks remains reasonably healthy as higher NIM compensated for a slower growth in advances. However, the earnings will be subdued due to the rise in the credit cost and a sluggish growth in the non-interest income. The margins of banks may come off by 5-15 basis points driven by a rise in the cost of funds which could affect the growth in the NII in the coming quarters. The banking stocks have appreciated from the lows of Q3FY2012 and are trading at a marginal discount of their five-year mean valuations. Going ahead, the timing and magnitude of the RBI's rate cuts will be the key driver of valuations. We prefer private sector banks like ICICI Bank and Axis Bank, and Allahabad Bank (as play on the Q4 results) among the PSBs.   Q4FY2012 IT earnings preview Key points Weak volume growth: The March quarter is the period when the information technology (IT) budgets for the calendar year are finalised. The quarter also has the benefit of a higher number of working days compared with the December quarter. However, this time round, the March quarter saw the impact of a delay in decision making on discretionary spends that led to lower volumes. Therefore, we expect the top four IT companies to report another weak performance in terms of revenues for the quarter ended March 2012. However, on the back of an improving demand environment, as indicated by the recent Accenture and Oracle results, we expect the volumes to pick up in the June 2012 quarter. For the March 2012 quarter, we expect the average sequential revenue growth in dollar terms to be 1.7% against 2.6% in the previous quarter led by a weak volume performance. The adverse impact of the cross-currency movement would be marginal at 25-50 basis points. The rupee that had been the savior in the December 2011 quarter appreciated in the March 2012 quarter. On an average, the rupee appreciated by 2% quarter on quarter (QoQ) against the dollar. In Indian Rupee (INR) terms, we expect the sequential revenue growth to be flat on an average against the 13.3% quarter-on-quarter (Q-o-Q) growth in the previous quarter. Under our mid-cap coverage, Polaris Financial Technology (Polaris) and NIIT Technologies (NIIT Tech) are likely to report flat revenues and a growth of around 9.7% QoQ respectively in dollar terms for the March quarter. Polaris had the benefit of a large licence revenue in the previous quarter which would not be there in the quarter under review.  Margins likely to fall: The operating profit margin (OPM) in the December 2011 quarter had seen a benefit of 150-200 basis points due to the rupee's depreciation. This benefit would not be there in the current quarter. Also, the weak volumes would affect the margins in the March 2012 quarter. We expect Infosys and Tata Consultancy Services (TCS) to witness a larger fall in their margins. We expect TCS to report a 200-basis-point sequential drop in its margins followed by Infosys whose margin should contract by 167 basis points. Wipro and HCL Technologies (HCL Tech) are expected to report a fall of 81 basis points and 85 basis points in their margins respectively. On the other hand, we expect the marked-to-market (MTM) losses on foreign exchange (forex) covers to be lower in this quarter due to the rupee's appreciation in this period. On the net profit front, we expect Infosys and TCS to report a sequential fall whereas HCL Tech is expected to report a flat performance. Wipro is likely to report a sequential growth mainly on the back of higher other income.  Infosys' guidance and management commentary remain the key: The Infosys guidance for FY2013 and the management commentary on the demand environment and the spend/budget ratio remain the key. TCS has hinted at an improvement in decision making towards the end of the quarter. The recent Accenture and Oracle results have also indicated at an improving demand environment. We expect Infosys' initial revenue growth guidance for FY2013 to be at lower double digits in line with the National Association of Software and Services Companies (Nasscom)' expectation of an 11-14% growth in IT services exports for FY2013. Further, comments on the overall pricing environment and hiring plans (campus and lateral mix) would be the key monitorables.  Valuations: Over the last three months, the BSE IT Index has underperformed the BSE Sensex with a return of 6.3% against the Sensex' return of 13.9% as the rupee has been volatile with an appreciating trend. There are still some fears of slow decision making and watchful outlook on the demand environment. However, the recent Accenture and Oracle results have indicated the demand environment is improving indicating the return of volume growth in the June 2012 quarter. We believe that in the upcoming earnings season management commentaries (as against the quarterly numbers) will provide a clear direction to the market. We remain cautiously optimistic on the IT sector and our top IT picks remain TCS in the large-cap space and NIIT Tech in the mid-cap space. MUTUAL GAINS Sharekhan's top SIP fund picks Large-cap funds Multi-cap funds Franklin India Bluechip ICICI Prudential Discovery Fund - IP DSP BlackRock Top 100 Equity Fund Tata Dividend Yield Fund Birla Sun Life Top 100 Fund Birla Sun Life Dividend Yield Plus Tata Pure Equity Fund UTI Opportunities Fund UTI Top 100 Fund Quantum Long-Term Equity Fund BSE Sensex BSE 500 Mid-cap funds Tax saving funds SBI Magnum Sector Funds Umbrella - Emerg Buss Fund  Franklin India Taxshield IDFC Premier Equity Fund - Plan A Reliance Tax Saver (ELSS) Fund DSP BlackRock Small and Midcap Fund ICICI Prudential Taxplan Kotak Midcap Fund HDFC Long Term  Advantage Fund Franklin India Prima Fund HDFC Taxsaver BSE Midcap S&P Nifty   Fund focus Click here to read report: Investor's Eye IDFC Premier Equity Fund Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.