| Summary of Contents STOCK UPDATE Reliance Industries
Recommendation: Buy
Price target: Rs915
Current market price: Rs899 Q3FY2013 results-First cut analysis Result highlights -
Impressive performance; earnings much ahead of estimate: In Q3FY2013, Reliance Industries Ltd (RIL) delivered an impressive performance and posted an adjusted net profit of Rs5,502 crore (increased by 23.9% year on year [YoY]), which is much ahead of our as well as the Street's estimates. The impressive performance was supported by a better than expected gross refining margin (GRM) of $9.6 per barrel (as against the Street expectation of $8.5-8.7/barrel) and a margin expansion in the petrochemical (petchem) business by 90 basis points on a sequential basis. Further, a lower than expected effective tax rate has also added to the earnings growth. -
Net sales up by 10.3% YoY: RIL reported a revenue growth of 10.3% YoY to Rs93,886 crore, which was equally contributed by a healthy revenue growth in the refining business (a revenue growth of 12.9% YoY) and petchem business (a revenue growth of 11.5% YoY). However, the exploration and production (E&P) division continued to post a decline in the revenues by 32.2% on account of falling output from its KG-D6 basin. -
Overall margin expanded due to an improvement in the GRM and a better than expected petchem margin: The operating profit margin (OPM) expanded by 36 basis points YoY to 8.9% during the quarter on account of a positive surprise in the GRM, which came at $9.6/barrel in Q3FY2013 (as compared with $6.8/barrel in Q3FY2012 and $9.5/barrel in Q2FY2013). The earnings before interest and tax (EBIT) margin in the refining division improved significantly from 2.2% in Q3FY2012 to 4.2% in Q3FY2013. Further, the petchem margin also improved by 90 basis points quarter on quarter (QoQ) to 8.8%, which was better than the Street's estimates. -
Other income continues to remain healthy; lower tax rate added to earnings growth: During the quarter, the other income came at Rs1,740 crore as compared with Rs1,717 crore in the corresponding quarter of the previous year. The healthy other income was largely supported by the healthy cash. Further, the effective tax rate during the quarter came at 19.7% as against 22.6% in the corresponding quarter of the previous year, which further added to the earnings growth. -
During 9MFY2013 the company bought 4.2 crore shares at an average price of Rs725/share: The board has approved the buyback of up to 12 crore fully paid up equity shares at a price not exceeding Rs870/equity share. The buyback is up to an aggregate amount not exceeding Rs10,440 crore. During the 9MFY2013, the company bought and extinguished 4,25,62,849 equity shares for the amount of Rs3,086 crore. Valuation
Currently, the RIL stock trades at PE of 13.9x discounting its FY2014E estimated earnings per share (EPS) and EV/EBITDA of 9.8x on FY2014. We currently have a Buy recommendation on the stock with a price target of Rs915. We shall come out with a detailed note soon. HDFC Bank
Recommendation: Hold
Price target: Rs712
Current market price: Rs659 In line with performance Result highlights -
HDFC Bank's Q3FY2013 results were in line with our estimate as the net profit grew by 30.0% year on year (YoY) to Rs1,859.1 crore driven by a strong growth in the non-interest income (up 26.7% YoY) and a decline in provision (6.7% YoY). -
The net interest income (NII) increased by 21.9% YoY to Rs3,798.9 crore ( in line with our estimate), which was driven by a pick-up in the advances growth. However, the net interest margin (NIM) declined by 10 basis points quarter on quarter (QoQ) to 4.1% due to a decline in the loan yields. -
The business growth improved as advances grew by 24.3% YoY (4.2% QoQ). The growth in advances was mainly driven by retail advances (up 29.5% YoY). The current account and savings account (CASA) ratio declined to 45.4% from 45.9% in Q2FY2013 (excluding one-off current account balance). -
The non-interest income increased by 26.7% YoY, mainly driven by the treasury income (Rs135.8 crore vs loss of Rs81.8 crore in Q3FY2012). The fee income also showed a strong growth of 24.3% YoY while the foreign exchange income declined by 29% YoY. -
The asset quality showed some deterioration as gross non-performing asset (NPA) climbed by 9 basis points QoQ to 1.0%. The 14% quarter-on-quarter (Q-o-Q) rise in the net slippages was largely contributed by the retail (commercial vehicle/construction equipment [CV/CE]) segment. -
Valuation and outlook: HDFC Bank continued to report strong numbers, though the slippages were slightly higher compared with the past quarters. We believe HDFC Bank's asset quality is likely to remain stable due to diversified book, strong risk management and nominal exposure to stressed sectors (aviation, textile, power etc). Though the bank delivered a strong and consistent performance, it trades at a significant premium to its peers, which limits the upside. We maintain our target price of Rs712 (4.0x FY2014E book value) and Hold recommendation the stock. ITC
Recommendation: Buy
Price target: Rs340
Current market price: Rs287 Price target revised upwards to Rs340 Result highlights -
Sustained strong performance: The third quarter of FY2013 was yet another quarter where ITC produced a strong performance, with the top line and bottom line growing above 20% each on a year-on-year (Y-o-Y) basis. The highlight of the quarter was the performance of the non-cigarette fast moving consumer goods (FMCG) business and the agri business, with both the businesses clocking a strong revenue growth aiding overall top line of ITC to grow by ~23% year on year (YoY) in Q3FY2013. The revenues of the core cigarette business grew by ~17% YoY and the profit before interest and taxes (PBIT) improved by 106 basis points YoY to 32.8%. The sales volume growth of the cigarette business stood at ~1% YoY (improved on a sequential basis). The hotel business and the paperboard, paper and packaging (PPP) business continued to disappoint with a muted performance during the quarter. -
Quarterly performance snapshot: The income from operation (including the other operational income) grew strongly by 22.8% YoY to Rs7,712.1 crore in Q3FY2013, ahead of our expectation of Rs7,128.5 crore. The strong top line growth could be attributed to 17.2% Y-o-Y revenue growth in the core cigarette business, around 30% Y-o-Y revenue growth in the non-cigarette FMCG business and 43% Y-o-Y revenue growth in the agri business during the quarter. The gross profit margin (GPM) declined by 506 basis points YoY to 60.1% and the operating profit margin (OPM) declined by 89 basis points YoY to 37.1% during the quarter. Hence, the operating profit grew by 20.0% YoY to Rs2,857.8 crore and the reported profit after tax (PAT) grew by 20.6% YoY to Rs2051.9 crore. -
Segmental performance: The revenues of the cigarette business grew by 17.2% YoY to Rs6,808.5 crore, which was largely in line with our expectation for the quarter. The PBIT margin of the cigarette business improved by 106 basis points YoY to 32.8%, largely on account of higher sales realisation on a Y-o-Y basis during the quarter. The non-cigarette FMCG business posted a stellar performance with revenues growing by 30% YoY to Rs1,789.5 crore. The losses of the non-cigarette FMCG business were down by around ~49% YoY during the quarter. Despite a strong season for the hospitality sector in India, the revenues of ITC's hotel business grew by just 11.0% YoY to Rs309.5 crore and the PBIT margin was down by ~46% YoY in Q3FY2013. The agri business posted a strong revenue growth of 43.1% YoY to Rs1,631.0 crore. However, the PBIT margin of the business declined by 185 basis points YoY to 10.6%. -
Outlook and valuation: We have fined tuned our earning estimate to factor in higher than expected top line growth and lower than expected profitability in Q3FY2013. With an anticipated strong value growth in the core cigarette business and the non-cigarette FMCG business, we expect ITC's top line and bottom line to grow at a compounded annual growth rate (CAGR) of 17% and 20% over FY2012-15. However, any significant increase in the excise duty on cigarettes in the upcoming budget and any drop in the growth momentum of the non-cigarette FMCG business would act as a key risk to the earning estimates.
At the current market price, the stock trades at 30.1x its FY2013E earnings per share (EPS) of Rs9.5, 24.7x its FY2014E EPS of Rs11.6 and 20.9x its FY2015E EPS of Rs13.7. We have revised our price target to Rs340, rolling it over to FY2015 earnings. ITC remains our top pick in the FMCG space on account of its strong cash generation ability and its thrust on improving the growth prospects of its other businesses. We maintain our Buy recommendation on the stock. Wipro
Recommendation: Hold
Price target: Rs440
Current market price: Rs397 Price target revised to Rs440, maintain Hold Result highlights (IFRS) -
Disappointment continues, volume growth turns negative: Wipro continues to disappoint on the volume front. For the quarter, the sequential volume number turned negative to a decline of 1%. The worrying part is that this was on top of a muted base of 0.2% quarter-on-quarter (Q-o-Q) growth in Q2FY2013. In the last four quarters, the volume numbers had hardly seen any uptick with a compounded quarterly growth rate (CQGR) of 0.04%. However, the price realisation continues to see a decent uptick (3.4% onsite and 3.6% offshore). Notably, this was the second consecutive quarter of an uptick in the realisation. -
For the quarter, the revenues were up by 2.4% quarter on quarter (QoQ) to $1,577.2 million (broadly in line with our expectation of $1,580.6 million) and met the mid-level of guidance range ($1,560-1,590 million). On a constant-currency basis, the revenues were up by 2% QoQ. The consolidated revenues were up by 2.9% QoQ and 10.8% YoY to Rs10,948.7 crore. -
Guides to a soft 0.5-3.0% growth for Q4FY2013: Wipro has guided to a 0.5-3.0% Q-o-Q growth in the revenues to $1,585-1,625 million. The management has attributed the soft guidance to the uncertainty surrounding the timing of the deal ramp-up (reflected in the increased range of guidance band, increase of 50 basis points; the last quarter's guidance was in the range of 1.2%-3.2%). -
Margin sees a marginal improvement, better than expected: The information technology (IT) services business' EBIT margin showed a marginal improvement of 10 basis points to 20.8%, driven by productivity improvement (the fixed-priced projects up by 3.3% QoQ). On the other hand, the S&M (sales and marketing) cost went up by around 9% QoQ. The management expects investments to continue in the S&M space and margins are expected to remain in a narrow band in the medium term. -
Net income up 6.6% QoQ: For Q3FY2013, the net income rose by 6.6% QoQ to Rs1,716.4 crore, ahead of our expectation of Rs1,650 crore. The outperformance was driven by a better than expected margin performance and a higher than expected dip in the tax rate. -
Valuation-wait for turn-around continues: Wipro continues to struggle to catch up with peers in terms of growth and the management has also admitted softness in the volume growth will continue in the near term owing to the demand weakness in some pockets (in the RTB space). In the last several quarters, Wipro has failed to show any meaningful improvement in its performance and the turn-around still seems unlikely at least for the next couple of quarters. We have broadly maintained our estimates for FY2013 and FY2014, and introduced our estimates for FY2015 in this note. Consequently, we have rolled our target multiple to FY2015 estimates. As a result, our price target has been increased to Rs440. We maintain our Hold rating on the stock and Wipro remains our least preferred stock among the large-cap IT companies. Federal Bank
Recommendation: Buy
Price target: Rs590
Current market price: Rs503 Price target revised to Rs590 Result highlights -
In Q3FY2013, Federal Bank's results were below our estimate as the net profit grew by 4.4% year on year (YoY) to Rs210.8 crore. The decline in the net interest income (NII) contributed to a slower growth in earnings. -
The NII growth also came in below our estimate as it declined by 5.8% YoY (down 1.7% quarter on quarter [QoQ]) to Rs497.4 crore. This was due to the interest reversal to the tune of Rs30 crore and rise in the cost of deposits. The net interest margin (NIM) declined by 9 basis points sequentially to 3.49% (vs 3.58% in Q2FY2013). -
The business growth improved as advances grew by 18.9% YoY (up 8.8% QoQ) during the quarter led by a growth in the retail, small and medium enterprise (SME) and agricultural advances. On the other hand, the deposits grew by 10.4% YoY (up 4.2% QoQ) backed by a higher growth in the current account and savings account (CASA) balances. The CASA ratio improved by 47 basis points sequentially to 29.4%. -
The asset quality deteriorated as the gross and the net non-performing assets (NPAs) increased to 3.85% and 0.92% respectively. The gross slippages were higher at Rs422 crore vs Rs147 crore in Q2FY2013 contributed by one lumpy corporate account of Rs200 crore. However, the bank restructured Rs217 crore worth of loans in Q3FY2013 taking the total restructured loans to Rs2,170 crore. -
The non-interest income grew by 47.8% YoY (up 46.2% QoQ) led by a strong growth in the treasury income. The fee income also showed a healthy growth of 26.0% YoY. The cost-to-income ratio declined to 43.8% from 45.8% in Q2FY2013. Valuation
Though the Q3FY2013 results of Federal Bank were slightly disappointing, we believe the management's strategy of strengthening the balance sheet along with improving risk management is on course. We have slightly trimmed our estimate to factor in the slower growth and relatively higher provision. We expect the earnings to grow at a CAGR of 16.7% YoY between FY2012 - 15E. We have revised the price target to Rs590 (1.4x FY2014E book value [BV]) and maintain Buy rating on the stock .
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