Fw: Sharekhan Special: Q4FY2012 Oil & Gas earnings preview

 

 

Sharekhan Special [April 11, 2012]  Sharekhan www.sharekhan.com

Summary of Contents SHAREKHAN SPECIAL Q4FY2012 Oil & Gas earnings preview   Key points Brent crude oil's price remains strong; was at $120/bbl in Q4FY2012: During Q4FY2012 the price of Brent crude oil hovered in the range of $110-125 per barrel. The average price of Brent crude oil in Q4FY2012 was $120, which is over 9% higher compared with the price in the previous quarter (Q3FY2012). The crude oil prices have surged largely on account of the geo-political issue in Iran. On a year-on-year (Y-o-Y) basis, the average price of crude oil in Q4FY2012 was higher by around 10%. Hence, the realisation of the end-products of exploration and production (E&P) should replicate the trend. However, the dollar corrected marginally in Q4FY2012 to Rs49.8 as compared with Rs51.3 in Q3FY2012. On account of strong crude oil prices, we expect E&P companies to benefit in terms of better realisation.  Expect correction in GRM: The Singapore gross refining margin (GRM) corrected sharply during the quarter and the average refining margin stood at $4.5 per barrel as compared with $5 per barrel in Q3FY2012. The Singapore GRM contracted on account of a correction in the gasoline crack. Further, the price difference between light and heavy crude oil also declined to $3.6 per barrel from $3.8 per barrel in Q3FY2012. Hence, we expect Reliance Industries Ltd (RIL) to report a GRM of around $6.5 per barrel in Q4FY2012 (as against $6.8 per barrel in Q3FY2012). Hence, we expect the earnings before interest and tax (EBIT) from the refining division to contract by over 18% quarter on quarter (QoQ).  Prices of petrochemicals improved, margin pressure continues: On the back of improved demand for petrochemical products globally, the prices of most of the petrochemical products moved northward during the quarter. Among the various products, the prices of ethylene, propylene, PVC, HDPE and PTA increased by 5% to 18% each. Further, depreciation in the rupee is likely to benefit the manufacturers and partially offset the margin pressure on the petrochemical industry. In case of RIL, we expect its petrochemical division to post a revenue growth of 6% QoQ and 15.3% year on year (YoY). However, we expect the EBIT from the petrochemical division to decline YoY.  Outlook The strong Brent crude oil price coupled with the rupee's depreciation during the quarter benefited the E&P companies by improving their realisation. Moreover, given the geopolitical issues Brent crude oil price could remain strong in the near term. However, contraction in the Singapore GRM due to a fall in the gasoline crack affected the refining industry. The key monitorables going ahead are GRM and petrochemical margins.  View and valuation We retain our estimates for RIL and GAIL. We value RIL following the sum-of-the-parts (SOTP) method at Rs890 and retain our Buy rating on it. We value GAIL at Rs464 based on the SOTP valuation method and retain our Buy rating on the stock.   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.

Fw: Sharekhan Special: Q4FY2012 Capital Goods & Engineering earnings preview

 

 

Sharekhan Special [April 10, 2012]  Sharekhan www.sharekhan.com

Summary of Contents SHAREKHAN SPECIAL Q4FY2012 Capital Goods & Engineering earnings preview   Key points Q4FY2012 would bring no respite for the capital goods companies as the business environment remains tough and execution of infrastructure projects has yet to pick up. Most of our coverage companies are expected to report a sluggish revenue growth in single digits for Q4FY2012 led by low order booking in the previous quarters and an unfavourable base effect.  Further, led by competitive margin pressure and a continuous rise in the prices of raw materials like metals, the margins would remain subdued in Q4FY2012. However, as Q4 normally accounts for 35-45% of these companies' yearly sales, some operating leverage is expected which would provide marginal relief from the margin pressure. The order inflow announcements in the capital goods space picked up slightly with companies bagging orders worth Rs30,787 crore in Q4FY2012 (excluding NTPC orders the same would have been Rs21,987 crore). Only a few large orders were bagged by the likes of Larsen and Toubro (L&T) and Bharat Heavy Electricals Ltd (BHEL). Though orders for all the expected super-critical equipment were not awarded by NTPC as was expected during the quarter, but some progress was seen with Doosan and JSW Toshiba bagging the first set of orders. A possible rise in the order awarding activities by NTPC and Power Grid Corporation of India Ltd (PGCIL) holds promise in the near term; nonetheless, the same needs to improve if the growth has to be robust from FY2013 onwards. In terms of the anticipated Q4 results, L&T and BHEL are expected to outperform in the large-cap space, Thermax and V-Guard Industries (V-Guard) would lead the show in the mid-cap space. Overall, our top picks in this space are L&T and V-Guard and we recommend a Buy on these companies from a long-term perspective. In the budget, there was no progress on the imposition of import duty to curb overseas competition which has continued to mar the sentiments in the domestic companies like BHEL, L&T, BGR Energy Systems (BGR) and Thermax. Outlook and valuation We expect the sluggish order inflow, margin pressure and subdued future guidance in the face of a slow demand environment and sluggish industry capex cycle to be the recurring tune in Q4FY2012 for most capital goods companies. Hence, the management commentary of these companies on the future growth would be closely watched and could lead to sharp downgrades in earnings estimates. In the budget, there was no progress on the imposition of import duty to curb overseas competition which has continued to mar the sentiment in the domestic companies like BHEL, L&T, BGR and Thermax. On the positive side, the expected awarding of NTPC's super-critical orders, a cut in interest rates and a pick-up in industrial capex activities remain the key positive triggers for the sector. Our top picks in this space are L&T and V-Guard, and we recommend a Buy on these companies from a long-term perspective.   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.

Fw: Sharekhan Special: Q4FY2012 Pharma earnings preview

 

 

Sharekhan Special [April 10, 2012]  Sharekhan www.sharekhan.com

Summary of Contents SHAREKHAN SPECIAL Q4FY2012 Pharma earnings preview  Key points Revenue to grow 24% YoY on strong domestic sales: We expect the Sharekhan pharma universe to report a 24% year on year (YoY) growth in revenue in Q4FY2012 on an aggregate basis, mainly led by Sun Pharmaceutical Industries (Sun Pharma; estimated revene to be up 55% YoY on strong performance of Taro), Glenmark Pharmaceuticals (Glenmark Pharma; estimated revene to be up 25% YoY on key launches in the US and Latin America and strong domestic sales), Torrent Pharmaceuticals (Torrent Pharma; estimated revene to be up 24% YoY on a low base) and Ipca Laboratories (estimated revene to be up 23% YoY on strong growth in institutional business). The sales in India of our pharma universe are likely to post a 24.5% YoY rise during the quarter, which is better than four sequential previous quarters. India sales would be mainly driven by Lupin (estimated to be up 33% YoY), Sun Pharma (estimated to be up 27% YoY) and Glenmark Pharma (estimated to be up 24.5% YoY).  On a quarter-on-quarter (Q-o-Q) basis we expect a marginal rise of 1.3% in the revenue for the universe as most of the acquisition led revenue is included in Q3FY2012.  Operating margin to improve by 394bps YoY; thanks to low base effect: The operating profit margin (OPM) is expected to improve to 26% in Q4FY2012 from 22% in Q4FY2011 for our universe. The margin would be mainly driven by a higher off- take from new facilities, higher inventory valuation and a favourable change in the product mix. The biggest gainer on the margin front would be Torrent Pharma (estimated margin to be up 1,195bps YoY) and Glenmark Pharma (estimated margin to be up 980bps YoY) on a lower base of Q4FY2011 due to one-off kind of expenses hitting operating margins. Other players like Opto Circuits (estimated margin to be up 512bps), Ipca Laboratories (estimated margin to be up 411bps YoY) and Lupin (estimated margin to be up 386bps YoY) would report better margins due to operationalisation of new facilities which would contribute to revenues and better product mix.  However, we expect a decline in margin for Divi's Laboratories (Divi's Lab; -322bps; due to higher operating costs at the new special economic zone [SEZ] facility). On a Q-o-Q basis, the operating margin of the universe is likely to shrink by 248bps YoY, mainly due to unavailability of exclusivity revenues in case of Sun Pharma. Adjusted PAT to jump by 24% YoY; forex loss may spoil the show: We expect the adjusted net profit (without considering foreign exchange [forex] losses and extraordinary items) to grow by 24% YoY for our universe, mainly led by Torrent Pharma (expected to be up 181% YoY on a low base), Sun Pharma (expected to be up 44% YoY) followed by Glenmark Pharma (expected to be up 20% YoY) and Lupin (expected to be up 19.6% YoY). On a Q-o-Q basis, the universe would show a decline of 2% in the adjusted net profit (ignoring marked to market [MTM] forex losses), mainly led by Glenmark Pharma which would record a 30% decline in its net profit, mainly due to lower licensing income.  However, MTM forex losses would materially impact the bottom line of key players like Glenmark Pharma (expect Rs100 crore of forex loss), Ipca Laboratories (expect Rs36 crore of forex loss) and Lupin (expect Rs30 crore of forex loss).  Top Picks: We prefer Sun Pharma, Divi's Lab and Ipca Laboratories   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.

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.