Investor's Eye
[October 15, 2012] | | |
| Summary of Contents
PULSE TRACK
Inflation rises to 7.8% -
The Wholesale Price Index (WPI)-based inflation came at 7.8% in September 2012 as against 7.6% in August 2012. Inflation was ahead of the market estimate, mainly contributed by a robust increase in fuel inflation. In addition, the inflation rate for July 2012 has been revised upwards to 7.5% from 6.9% as per the provisional estimate. -
The inflation rate for September 2012 was higher compared with the previous month, primarily led by an increase in the fuel group inflation. On a year-on-year (Y-o-Y) basis, the prices of the manufacturing segment increased by 6.3% (as against by 6.1% in August 2012) while the fuel inflation increased to 11.9% from 8.3% posted in August. However, the primary articles segment showed some moderation in inflation (8.8% vs 10.1% in August 2012) contributed by lower food inflation. -
On a month-on-month (M-o-M) basis, the fuel index was up by 4.0% contributed by the electricity and mining segments. The manufacturing index was up 0.5% month on month (MoM) to 147.7 (compared with 146.9 in August 2012). The primary article index was marginally higher (up 0.5% MoM), though the food inflation index was virtually stable compared with the September 2012 level. -
After showing significant moderation in July, the inflation rate surged to 7.6% in August 2012 and 7.8% in September 2012 due to a significant increase in fuel group inflation. Moreover, the inflation rate for July 2012 has been revised upwards by 65 basis points which signifies that the pressure of inflation persists in the system. Further, the recent hike in the fuel prices and the weak monsoon are likely to maintain the pressure on inflation especially in the food and fuel segments. Though the inflationary pressures remain and would influence the Reserve Bank of India (RBI)'s stance, but the recent policy measures by the government raise the probability of a policy rate cut (of 25 basis points) and a further reduction in the cash reserve ratio (CRR; of 25-50 basis points) by the RBI in the forthcoming policy review meet.
STOCK UPDATE Reliance Industries
Cluster: Evergreen
Recommendation: Buy
Price target: Rs875
Current market price: Rs823 Q2FY2013 results: First-cut analysis Result highlights -
Earnings in line with expectations: Despite the unexpected surge in the effective tax rate, Reliance Industries Ltd (RIL) in its Q2FY2013 posted a net profit of Rs5,376 crore, which is a decline of 5.7% year on year (YoY). The earnings are in line with our estimates. The gross refining margin (GRM) of $9.5 per barrel is in line with expectations but the margins in the petrochemical business were ahead of the street's expectations. The higher than expected net other income of Rs2,112 crore mitigated the effect of surge in the tax rate during the quarter. -
Net sales up 15% YoY: The company reported revenue growth of 15% YoY to Rs90,335 crore. The revenue growth has been largely driven by a healthy revenue growth of 23.2% year on year (YoY) in its refining division and revenue growth of 4.7% YoY in the petrochemical division. However, exploration and production (E&P) division continues to post de-growth in revenue by 36.7% on account of falling output from its KG-D6 basin. -
Overall margin contracted on YoY; sequential improvement in GRM and better than expected petrochemical margin: The operating profit margin (OPM) contracted by around 400 basis points YoY to 8.5% during the quarter. However, on a sequential basis, the company has displayed signs of recovery with an improvement in the refining margin from 2.5% in Q1FY2013 to 4.2% in Q2FY2013. Further, the petrochemical margin even though contracted on a quarter-on-quarter (Q-o-Q) and year-on-year bases came better than the street's estimates at 7.9%. -
Other income continues to remain healthy and limits de-growth in the bottom line: The other income during the quarter surged to Rs2,112 crore as compared with Rs1,102 crore in the corresponding quarter previous year. The surge in the other income has largely come on the back of healthy cash on the books.. Hence, the de-growth in the bottom line is limited to 5.7% as compared with 21.7% de-growth at the operating level. -
During H1FY2013, the company bought Rs3.5 crore shares at an average price of Rs712/share: The board has approved the buyback of up to Rs12 crore fully paid up equity shares at a price not exceeding Rs870 per equity share. The buyback is up to an aggregate amount not exceeding Rs10,440 cr. During the H1FY2013, the company has bought and extinguished 35,386,616 equity shares for an amount of Rs2,520 crore. Valuation
Currently, the RIL stock is trading at price earnings of 12.7x discounting its FY2014E estimated earnings per share (EPS) and enterprise value/earnings before interest, depreciation, tax and amortisation (EV/EBITDA) of 9.4x on FY2014. We currently have a Buy recommendation on the stock with a price target of Rs875. We shall come out with a detailed note soon. Sintex Industries
Cluster: Apple Green
Recommendation: Hold
Price target: Rs85
Current market price: Rs73 Downgrade to Hold; price target revised to Rs85 Sintex Industries (Sintex)' Q2FY2013 results were slightly ahead of expectations on the revenue (due to strong execution in the prefabs segment) and earnings (adjusted net profit of Rs77.2 crore as against our expectation of Rs71.7 crore) fronts. The management highlighted that it is taking steps to address the key concerns of: (1) a tie-up for $292 million worth outstanding foreign currency convertible bonds (FCCBs) due for redemption in March 2013; (2) slowing growth momentum; and (3) negative cash flow and subdued return ratios.
Though the valuation is cheap (at 5x FY2014 estimate), we remain cautious and believe that the stock would continue to languish as the company's financial performance is likely to remain soft in FY2013 (which is a year of course correction and consolidation of operations). Second, the proposed preferential issue of warrants (convertible into 3 crore equity shares; requiring only 25% contribution until converted into equity shares) to promoters would lead to significant dilution of equity but does not bring in the required resources to fund the FCCB redemption. Thus, we downgrade the stock to Hold rating with a price target of Rs85.
SECTOR UPDATE Telecommunications Subscriber base declines for second consecutive month; Bharti leads fall The Cellular Operators' Association of India (COAI) has released the GSM subscriber figures for September 2012. The month witnessed the continuation of the trend of declining subscriber numbers. All the operators except Aircel and Uninor posted a decline in their subscriber base compared with the previous month. Among the top three players (ex Reliance Communications [RCom]), Bharti Airtel reported the highest decline in its net GSM subscriber numbers, which fell by around 0.98 million as compared with a fall of 1.90 million in August this year. Idea Cellular and Vodafone India reported a decline of 0.51 million and 0.69 million in the net subscriber addition for the month. The total GSM subscriber base for September 2012 stood at 671.7 million subscribers vs 671.9 million subscribers for August 2012, down 0.04% on a month-on-month (M-o-M) basis.
View: The subscriber numbers have reported an M-o-M fall for the second consecutive month on account of disconnection of the inactive users as operators are shifting focus to increasing ARPUs and controlling the churn rather than acquiring subscribers. In the near term, we expect this trend to continue among the top three incumbents because of their increasing focus on improving RPM and ARPUs. We maintain our Hold rating on Bharti Airtel with a 12-month price target of Rs310.
Click here to read report: Investor's Eye
| | | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. | | | |
| |
| |
This e-mail message may contain information, which is confidential, proprietary, legally privileged or subject to copyright. It is intended for use only by the individual or entity to which it is addressed. If you are not the intended recipient or it appears that this mail has been forwarded to you without proper authority, you are not authorized to access, read, disclose, copy, use or otherwise deal with it and any such actions are prohibited and may be unlawful. The recipient acknowledges that Sharekhan Limited or its subsidiaries, (collectively "Sharekhan "), are unable to exercise control or ensure or guarantee the integrity of/over the contents of the information contained in e-mail transmissions and further acknowledges that any views expressed in this message are those of the individual sender and no binding nature of the message shall be implied or assumed unless the sender does so expressly with due authority of Sharekhan . Sharekhan does not accept liability for any errors, omissions, viruses or computer problems experienced as a result of this email. Before opening any attachments please check them for viruses and defects. If you have received this e-mail in error, please notify us immediately at mail to: mailadmin@sharekhan.com and delete this mail from your records. This e-mail message may contain information, which is confidential, proprietary, legally privileged or subject to copyright. It is intended for use only by the individual or entity to which it is addressed. If you are not the intended recipient or it appears that this mail has been forwarded to you without proper authority, you are not authorized to access, read, disclose, copy, use or otherwise deal with it and any such actions are prohibited and may be unlawful. The recipient acknowledges that Sharekhan Limited or its subsidiaries, (collectively "Sharekhan "), are unable to exercise control or ensure or guarantee the integrity of/over the contents of the information contained in e-mail transmissions and further acknowledges that any views expressed in this message are those of the individual sender and no binding nature of the message shall be implied or assumed unless the sender does so expressly with due authority of Sharekhan . Sharekhan does not accept liability for any errors, omissions, viruses or computer problems experienced as a result of this email. Before opening any attachments please check them for viruses and defects. If you have received this e-mail in error, please notify us immediately at mail to: mailadmin@sharekhan.com and delete this mail from your records.
No comments:
Post a Comment