| Summary of Contents
STOCK UPDATE State Bank of India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs2,300
Current market price: Rs2,156 Asset quality disappoints again Result highlights -
In Q2FY2013, State Bank of India (SBI)'s results surprised us at the net interest income (NII) levels at it grew by 5.3% year on year (YoY), lower than our estimates. However, the net profits came in slightly higher than our estimate due to lower than expected provisions (down 46.0% YoY). -
The net interest margins (NIMs) declined 24 basis points quarter on quarter (QoQ) to 3.33% due to interest income reversal on non-performing assets (NPAs) and rise in cost of deposits and drop in the overseas NIMs. The domestic NIMs also declined by 9 basis points to 3.77%, which affected the NII growth. -
The advances growth remained healthy as it grew by 17.2% YoY, while the deposits grew 16.5% YoY. The current account and savings account (CASA) ratio declined by 115 basis points QoQ to 44.95%. -
The asset quality continued to disappoint as slippages were to the tune of Rs8,495 crore (mainly from mid-corporate segment), thereby pushing the gross NPAs to 5.15%. The recoveries were Rs4,477 crore and write-off was higher at Rs1,972 crore. The bank also restructured Rs4,694 crore of advances in Q2FY2013. -
The non-interest income declined by 2.4% YoY by a sharp decline in the foreign exchange (forex) income (down 33% YoY). The fee income growth was also subdued due to reduction in charges and decline in commissions and government business. Valuation and outlook: While the slippages have remained high, the operational performance is beginning to taper, led by a decline in the margins. However the management expects strong traction in retail segment and deployment of surplus liquidity to improve the core income growth. We maintain our sum-of-the-part (SOTP)-based price target of Rs2,300 and Buy recommendation on the stock. Sun Pharmaceutical Industries
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs743
Current market price: Rs694 Solid performance continues Result highlights -
Strong performance; Protonix-related provisions impact bottom line: In Q2FY2013, Sun Pharmaceutical Industries (Sun Pharma) reported a 40.3% year-on-year (Y-o-Y) rise in its net sales to Rs2,657.2 crore, which is better than our estimate. The growth has been mainly driven by export sales of formulations, which grew by 61.3% year on year (YoY) to Rs1,703 crore. The operating profit margin (OPM) expanded by 259 basis points YoY to 43.9%, mainly driven by a better price realistion in Taro Pharmaceuticals (Taro) and the higher proportion of Lipodox supplied in the US market. As a result, the profit before tax (PBT) jumped by 47.6% YoY to Rs1,233 crore. However, the company provided Rs583.6 crore for possible damages that may arise out of claims made by Wyeth related to the patent infringement case on Protonix. Thus, the net profit declined by 46.5% YoY to Rs319.6 crore. However, excluding this exceptional charges, the adjusted net profit jumped by 51.1% YoY to Rs903.2 crore. -
Taro and Lipodox drive growth and margins: The growth during the quarter was mainly driven by the US business. The company's US business grew by 66.5% YoY to Rs1,330 crore (38% YoY on current currency terms) on healthy contribution from Taro, which contributed 66% of the US business during the quarter, and an increase in the supply of Lipodox under the temporary arrangement with the US Food and Drug Administration (USFDA). Taro witnessed a 640-basis-point Y-o-Y rise to 51.2% in its OPM on account of a better realisation in select products during the quarter. -
Acquisition of Dusa may not be EPS accretive from day one but holds immense potential in the long run: The acquisition price of US$230 million for Dusa Pharmaceuticals, Inc (Dusa) implies 4.6x annual sales, while EV (offer price)/EBIDTA stands near 9x. Sun Pharma's acquisition of Dusa may not be earnings per share (EPS) accretive from day one, if we consider the opportunity cost of funding at 9% and assuming that Sun Pharma prefers to amortise the goodwill arising out of acquisition over a period of five years. However, considering the company's growth profile and niche segment presence, Dusa holds immense potential for Sun Pharma. However, Sun Pharma has enough cash lying in its balance sheet, which will be used to fund the acquisition. We are not factoring the financials of Dura, as the effective date of acquisition is yet to emerge. -
We maintain estimates, recommendation and price target: We expect a moderate growth in H2FY2013, assuming supply of Lipodox terminates on arrival of branded product - Doxil, in the US market. Also, Taro may not sustain similar type of growth in the subsequent quarter. We maintain our estimates, with a price target of Rs743. We maintain our Buy recommendation on the stock. Corporation Bank
Cluster: Apple Green
Recommendation: Hold
Price target: Rs480
Current market price: Rs401 Profits cushioned by lower taxes Result highlights -
In Q2FY2013, Corporation Bank's net profits were ahead of our estimates as they grew by 1.2% year on year (YoY) to Rs405.7crore. While the net interest income (NII) growth was in line with our estimates (up 8% YoY), the lower tax rates (2.7% vs 18.3% in Q1FY2013) and sequential decline in operating expenditure cushioned profits. -
The net interest margin (NIM) declined by 6 basis points sequentially to 2.23% due to increase in cost of funds and decline in yield on funds. The current account and savings account (CASA) ratio remained flat on a sequential basis at 20.9% in Q2FY2013 as compared with 20.7% in Q1FY2013. -
Advances grew by 20.2% YoY (up 2.7% quarter on quarter [QoQ]) led by the corporate and retail segments (especially gold loans). The deposit reported a robust growth of 7.2% on a sequential basis due a 14.5% quarter-on-quarter (Q-o-Q) growth in the current account balances. -
The non-interest income declined by 18.2% YoY mainly contributed by a foreign exchange (forex) income (Rs6.7 crore vs Rs38.7 crore in Q1FY2013). The cost/income ratio fell to 39.3% in Q2FY2013 from 40.9% in Q1FY2013 due to a 4.7% Q-o-Q decline in the operating costs. -
The asset quality deteriorated as gross and net non-performing assets (NPAs) climbed on a Q-o-Q basis. The slippages were to the tune of Rs445 crore, while recoveries were lower at Rs185.5 crore. During the quarter, the bank restructured Rs251.9 crore of loans. The total restructured book stood at Rs8,866.6 crore (9.0% of the advances). Outlook and valuation
In Q2FY2013, Corporation Bank's profits were aided by lower tax rates, while the operating performance continues to remain weak. The slippages were relatively lower this quarter, but in view of weak macro, the pressure on asset quality is likely to continue. Currently, the stock is trading at 0.7x FY2014 adjusted book value. We maintain price target of Rs480 (0.8x FY2014 book value) and Hold recommendation on the stock. Ashok Leyland
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs29
Current market price: Rs26 Better outlook for H2FY2013 and FY2014, upgraded to Buy Result highlights Key takeaways from conference call ALL outperforms MHCV industry
ALL has outperformed the MHCV industry with an improvement in the market share. The company's market share increased from 22.9% in H1FY2012 to 25.7% in H1FY2013. The increase was on account of new product launches in the intermediate commercial vehicle segment. Also, ALL expanded its network outside the southern markets, resulting in increased market share in the non-southern markets. The company has maintained a market share in the southern region, resulting in outperformance. H2FY2013 margins to improve on cost control and operating leverage
ALL incurred higher annual maintenance contract charges (AMC) in the last few quarters affecting the margins. The company managed to bring down the AMC charges in Q2FY2013, thereby benefiting the margins. The company is changing its policy to avoid tenders that carry huge AMC component. Further, the improved MHCV volumes in H2FY2013 would result in operating leverage thereby increasing the margins. We expect the margins of 10.3% in H2FY2013 as against 9.1% in H1FY2013. New product launches to further improve market share
ALL plans to launch new products to gain further market share. The company is planning to launch a 37-tonne 10x2 multi-axle vehicle to boost its presence in the heavy truck segment. The launch of a low-floor Jan bus is likely to boost ALL's presence in the bus category. Further, the introduction of next-generation cabs in the intermediate commercial vehicle segment is expected to further improve the market share. Valuation
The MHCV industry volumes are likely to recover in H2FY2013. On back of new product launches and enhanced network, ALL expects to report a volume growth ahead of the industry average and continues to increase its overall market share. Also, with cost controls and operating leverage, the margins are likely to see an uptick in H2FY2013. To factor in the expected uptick in margins and improving growth outlook, we have raised our FY2013 and FY2014 EPS estimates by 4.6% and 9.3% respectively. We upgrade our recommendation to Buy with a price target of Rs29 per share. Gateway Distriparks
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs166
Current market price: Rs139 Price target revised to Rs166 Result highlights -
Volume decline in JNPT CFS led to poor standalone results: In Q2FY13, Gateway Distriparks Ltd (GDL) reported a 37% decline in its stand-alone net profit on account of a 22% drop in the revenue and decline in the operating profit margin (OPM) from 56% in Q2FY2012 to 43% in Q2FY2013. The decline in revenues is mainly on account of drop in volumes at Jawaharlal Nehru Port Trust (JNPT) by 8.7% year on year (YoY) due to prevailing economic downturn and steep competition at JNPT, which resulted in realisation and margins going down. On a sequential basis, the volume is down by 19.4% but realisations improved by 5.5% due to higher dwell time, resulting in the revenues being down by 15%. However, the OPM contracted sharply from 50% to 42% quarter on quarter (QoQ) as the higher cost could not be passed to the customers, resulting in a 21% profit after tax (PAT) decline. -
However, good performance by other CFSs and cold chain division led to consolidated revenues being in line with estimates: At the consolidated level, the revenues grew by a decent 15% YoY on the back of a good performance by other container freight stations (CFSs) and the cold chain division. The Chennai and Vishakhapatnam CFSs together saw a 10.7% growth in the volumes YoY (2.7% QoQ), which along with a 40% improvement in realisation (11.8% QoQ) led to a 43.6% year-on-year (Y-o-Y; 24% QoQ) growth in its revenues. Similarly, the cold chain division saw an 89% growth in the revenues on back of capacity addition. On the other hand, the rail division saw a 20% Y-o-Y growth in volumes but due to a 14% decline in realisation, the revenue grew by just 3.4% YoY. In fact, the volumes dropped by 15% due to higher empty running on account of trade imbalance resulting in the revenues declining by 12% QoQ. -
However consolidated PAT down 11% YoY: Despite good performance at the revenue level, the margin dropped in all the segments due to cost pressure, except Chennai and Vishakhapatnam CFSs, led by the EBITDA margin being down by 5% YoY and 11.6% QoQ. The consolidated margins stood at 26.4% vs 32% in Q2FY2012. Consequently, the adjusted PAT fell by 11% YoY to Rs30 crore (in line with estimates) due to lower OPM and higher depreciation and interest cost. -
Estimates revised downwards: We are downgrading our net profit estimates by 11% and 5% in FY2013 and FY2014 to factor in the poor volumes at JNPT CFS and rail division, given the poor economic conditions. -
Maintain Buy with a revised price target of Rs166: Though we have downgraded our estimates, but we continue to like GDL given its leadership position in all the three verticals. We believe the company would be able to revive its volume as soon the economic condition improves. Going ahead, its Faridabad inland container depot (ICD) will be the key trigger once it gets operational in Q4FY2013, which would enhance the rail business even further. At the current market price, the stock trades at 11.1x and 9.4x its FY2013E and FY2014E earnings. We maintain our Buy recommendation on GDL with a price target of Rs166. CESC
Cluster: Ugly Duckling
Recommendation: Hold
Price target: Rs355
Current market price: Rs275 Performance in line but FSL acquisition to remain overhang in short term Result highlights -
Reported numbers broadly in line with estimates: CESC's sales in Q2FY2013 grew by 8% year on year (YoY) but declined by 5% quarter on quarter (QoQ) to Rs1,344 crore. The annual sales growth was primarily driven by a better realisation (reflecting the tariff revision). However, the sales declined sequentially on account of a 4% drop in the volume. The operating profit of the company grew by 20% YoY to Rs311 crore on a sales growth of 8% YoY due to a lower other expenditure. On the other hand, on account of a lower fuel and power purchase costs, the operating profit grew by 7% sequentially despite a fall in the sales. The profit after tax (PAT) grew by 19% YoY and 9% QoQ to Rs136 crore during Q2FY2013 in line with our estimate. -
Healthy operational performance of utility business, improvement in store-level profitability of retail business: The units of power sold grew by 2% YoY (supported by a 3% rise in power generation) but dropped by 4% (due to lower purchase from outside) sequentially to 2490MUs. However, the transmission and distribution (T&D) losses remained at the previous quarter's range of 12.5% of the total power transmitted. The blended realisation hovered around Rs5.7 per unit of the power sold. The operating profit per unit of power remained healthy at around Rs1.4 per unit during Q2FY2013.
The rationalisation and restructuring efforts in the retail business seem to be bearing fruits as the profitability at the store level improved significantly to 4.7% during the quarter (against 3.7% in Q1FY2013) along with a healthy same-store sales growth of 16.6% YoY in H1FY2013. Around five stores were closed over the last quarter and currently 158 units are operational covering 958,000 square feet of trading area. -
View: retain Hold with a price target of Rs355: After the announcement of the acquisition of First Source Ltd (FSL) by the company, we have revised down our price target from Rs405 to Rs355. We have also revised our rating on the stock from Buy to hold, as we believe the diversification was unrelated and would not add any strategic value to the business or investors. We believe the unrelated diversification would remain as an overhang in the near term, though the cash generating utility business continues to perform well and the stock is trading at ~0.5x FY2014 book value (BV; stand-alone). Therefore, we retain our Hold rating on the stock with a price target of Rs355 based on the sum-of-the-parts SOTP valuation method. Unity Infraprojects
Cluster: Vulture's Pick
Recommendation: Buy
Price target: Rs72
Current market price: Rs43 Price target revised to Rs72 Result highlights -
Muted revenue growth; margins stood healthy: In Q2FY2013, the net sales of Unity Infraprojects (Unity) grew by just 2.9% year on year (YoY) and by 1.5% quarter on quarter (QoQ) to Rs401 crore, which is below our expectation. The sales were affected by the delays in obtaining approvals/clearances for certain government projects (government projects form 85% of Unity's order book), which led to the slow execution of these projects. However, on the operational front, the operating profit margin (OPM) stood healthy and expanded by 159 basis points YoY to 17.6%, which was better than our estimates. The OPM is also better than the Q1FY2013 margin of 13.6%, mainly because the raw material prices were stable during Q2FY2013. The operating profit thus rose by 12.5% YoY. -
Higher interest charge resulted in a decline in PAT: The moderate top line performance and the margin expansion were nullified by the escalating interest charge, which rose by 30.3% YoY, resulting in a 19.6% drop in the profit after growth (PAT) to Rs16.6 crore (which is below our expectation). Further, the effective tax rate of 36.8% as compared with 30.7% in Q2FY2012 dented the earnings during the quarter. -
However, healthy order book provides revenue visibility: Unity has bagged fresh orders worth Rs786 crore in FY2013 so far. This along with the orders worth Rs2,850 crore secured in FY2012 takes the total order book to a respectable position of Rs4,095 crore, which is 2.1x its FY2012 revenues. Thus, there is a good revenue visibility for the company over the next two years. Of the present order book, 51% is from buildings, 22% is from the water segment and the remaining is from the transportation segment. -
One of three road BOT projects starts execution; while real estate portfolio still moving slow: Unity currently has three road build-operate-transfer (BOT) projects in its portfolio. Out of these, financial closure has been achieved for the two-laning of the Chomu-to-Mahla project in Rajasthan (after a delay) and work has started on the project. The management is expecting to complete the projects as per the scheduled. In addition, the two projects will achieve financial closure four to six months after the signing of the concession agreement. On the other hand, the real estate project in Nagpur has finally signed the management agreement with Hyatt and will start execution work in near term. All the necessary approvals for the project are in place. However, the project in Bangalore maintains the status quo and expects the final approval in one to two months, as the new government settles down. -
Estimates revised downwards for FY2013 and FY2014: We have revised our revenue estimates downwards for FY2013 and FY2014 to factor in the slower project approval, which will hamper the execution of the order book. Further, in light of this, we expect the working capital needs to rise, which would result in higher borrowings. Thus, we have also increased our interest expense estimates. Consequently, the revised earnings per share (EPS) estimates now work out to Rs14 for FY2013 and Rs16 for FY2014 respectively. -
Maintain Buy with a revised price target of Rs72: We continue to like the company due to its strong order inflow momentum and healthy order book position in an adverse macro environment. We also like its diversification into the road BOT space with prudent caution. The successful mobilisation of funds from a private equity would remove some overhang on account of the real estate projects. We have not given any value to Unity's road BOT and real estate projects, which would add to the valuation whenever they gain some momentum. We maintain our Buy recommendation on the stock with a revised price target of Rs72. At the current market price, the stock trades at a price/earnings multiple of 3.1x FY2013E and 2.7x FY2014E earnings respectively.
Click here to read report: Investor's Eye
| | | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. | | | |
| |
No comments:
Post a Comment