Investor's Eye
[November 20, 2012] | | |
| Summary of Contents
STOCK UPDATE Maruti Suzuki India
Recommendation: Hold
Price target: Rs1,526
Current market price: Rs1,500 Price target revised to Rs1,526 Key points Festive season brings volume upsurge
The successful launch of the new Alto and the growing preference for its diesel models have boosted the demand scenario for Maruti Suzuki in this festive season. Our channel checks show that the bookings in the past couple of weeks have been better than expected. Maruti Suzuki is believed to be carrying an order backlog of 1.25 lakh units (including over 30,000 units of the newly launched Alto model; and robust demand for Swift, Dzire and Ertiga).
Favourable forex movement also aids investor sentiments
Apart from the uptick in the volume sales, the favourable movement of the Japanese Yen (JPY) against the US Dollar (USD) last month is also a positive development for the stock (as the company pays royalty to its parent in JPY). Consequently, the stock has outperformed the benchmark indices and appreciated by close to 8% in the last one month.
Fine-tuning FY2013 and FY2014 estimates, and introducing FY2015 estimates; price target revised to Rs1,526
To factor in the better than expected festive demand and favourable currency movement, we are fine-tuning our earnings estimates for FY2013 and FY2014. We are also introducing our FY2015 estimates in this note. Our revised earnings per share (EPS) estimates stand at Rs60.5 and Rs97.2 for FY2013 and FY2014 respectively. Our FY2015 EPS estimate stands at Rs120.9. We are rolling over the price target on the average of the FY2014 and FY2015 estimates. Our revised price target, thus, stands at Rs1,526. We maintain our Hold recommendation on the stock and believe that the upside in the near term is limited from the current levels.
SECTOR UPDATE Oil & Gas GRM corrected sharply; petrochemical margin witnessed improvement in October 2012 Key points -
Singapore GRM corrected in October 2012: In spite of an improvement in the Arab light-heavy price differential by $1/barrel, the Singapore gross refining margin (GRM), which recovered during Q2FY2013 and in the first week of October 2012, corrected sharply by around $2.5/barrel by the end of October 2012. The recent correction in the GRM was on account of pressure on the product cracks, particularly gas oil, gasoline and jet kerosene. The Singapore GRM further weakened in November 2012 by another $1/barrel. Currently, it is below the level of Q2FY2013 results. Hence, we believe if the GRM remains at the current level, then the GRM of the refining companies would contract on a quarter-on-quarter (Q-o-Q) basis in the coming quarter, resulting in a negative impact on the profitability of the company. The companies like Reliance Industries, Essar Oil, Mangalore Refinery and Petrochemicals and others could be affected due to a recent decline in the GRM. -
Correction in the product crack; gas oil crack corrected sharply: During the October 2012, the crack between petroleum product and crude oil narrowed down, which resulted in a decline in the GRM. Among the various petroleum products, the gas oil crack corrected sharply by $3.5/barrel to $16.5/barrel at the end of October 2012. Further, gasoline crack corrected by $1/barrel month on month (MoM) to $18/barrel and jet kerosene crack corrected by $3/barrel MoM to $19/barrel at the end of October 2012. However, the Brent crude oil price in October 2012 was largely maintained on a month-on-month (M-o-M) basis to $113/barrel. -
Petrochemical margin witnessed an improvement in October 2012: During October 2012, most of the petrochemical margins witnessed an improvement on an M-o-M basis. Among the various products, the margins of PTA (purified terephthalic acid) and MEG (monoethylene glycol) improved in the range of 17-25% MOM. The margins of other products like polypropylene, high-density polyethylene and low-density polyethylene improved in the range of 4-6%. However, polyvinyl chloride witnessed a correction in the margin. Overall, the margin in the petrochemical industry seems to have improved in October 2012. Hence, the companies could witness a sequential improvement on their profitability in the coming quarter. Outlook
Given the sharp correction in the Singapore GRM, the refining companies are expected to have an adverse impact on their profitability in coming quarter if the GRM does not recover from the current level. On the other hand, an improvement in the margins of most of the petrochemical products is likely to support profitability of petrochemical companies in the coming quarters.
SHAREKHAN SPECIAL Q2FY2013 Agri inputs earnings review
Input pressure dents OPM Key points -
Growth in aggregate revenues higher than estimated: The aggregate revenues of our fertiliser and agro chemical coverage universe grew by 13% in Q2FY2013. The growth was ahead of our estimate. The revenue growth was mainly supported by a higher realisation in the chemical segment and a higher trading volume in the fertiliser segment. The volume growth in the fertiliser segment was driven by higher trading activity whereas the volume growth in the chemical segment was affected by demand moderation and plant shutdowns in some cases. -
Margin pressure persists: Firm input cost and an increase in the other expenses (employee cost, fuel and power cost etc) affected the profitability of all three agri companies under our coverage. The aggregate operating profit margin (OPM) declined by 330 basis points to 15% in Q2FY2013. The production of indigenous DAP and complex fertilisers was mainly affected because of the non-availability of phosphoric acid. Consequently, the aggregate adjusted profit after tax (PAT) declined by 26% for the three companies under our coverage. -
Late revival in monsoon rains to boost demand in winter (rabi) season: A late revival of the monsoon rains along with a good level of water in the reservoirs augurs well for the demand for fertilisers and agro chemicals in the rabi season. We expect the area under acreage to also increase in the current rabi season. But the margin pressure is likely to persist because of the high prices of the inputs (mainly ammonia) and the limited scope for raising prices of the complex (non-urea) fertilisers. -
Better demand outlook for H2; margin pressure to limit earnings growth: Though we expect a better demand environment for the agri inputs in the second half, but the firm input cost and the inability of the manufacturers to fully pass the same to consumers would restrict the growth in the earnings. Moreover, the much awaited policy announcements (namely the urea investment policy) have also been delayed beyond expectations and are acting as a drag on the valuations. Among the stocks under our coverage, we prefer United Phosphorous as its growth would be better due to a low base effect and the demand for its products in certain overseas markets (like Latin America) is expected to improve going ahead.
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| | | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. | | | |
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