Thursday, February 7, 2013

Investor's Eye: Update - Capital First (Traction in retail loans persists), Gateway Distriparks (Near-term pressure but better outlook ahead; maintain Buy)

 
Investor's Eye
[February 07, 2013] 
Summary of Contents

 

STOCK UPDATE

Capital First 
Recommendation: Buy
Price target: Rs260
Current market price: Rs
174

Traction in retail loans persists

Result highlights 

  • Capital First's Q3FY2013 performance was largely in line with our estimate as the company reported a net profit of Rs10.8 crore (down by 62.8% year on year [YoY]). The decline in net profit was due to a sharp increase in provisions (up 207% YoY) and a change in accounting policy relating to the income recognition from fee/assignment transactions. If the new accounting policy is applied to the past financials, the net profit for 9MFY2013 would increase by 21% YoY (Rs65.7 crore).

  • The net income interest (NII) of Rs64.9 crore was slightly above our estimate as it grew by 27.2% YoY (13.1% quarter on quarter [QoQ]). The strong growth in the retail advances (up 21.5% QoQ) and an expansion in the net interest margin (NIM) by 30 basis points QoQ to 5.5% led to the growth in NII. The increase in NIM was largely contributed by a decline in the cost of borrowings.

  • The advances grew by 11.9% QoQ to Rs4,945.3 crore, mainly driven by the retail advances (up 21.5% QoQ and 58.3% YoY). The wholesale book declined by 1.3% QoQ. Consequently, the proportion of retail advances increased to 62.7% as compared with 57.7% in Q2FY2013.

  • The asset quality improved as the gross non-performing asset (NPA) declined to 0.13% in Q3FY2013 (vs 0.18% in Q2FY2013). Moreover, the net NPA was nil as compared with 0.04% in Q2FY2013. 

  • The non-interest income declined by 18.1%YoY in Q3FY2013, largely contributed by a decline in the fee income (down 37% YoY, though not comparable on a year-on-year (Y-o-Y) basis due to change in accounting policy). 

Valuation
Capital First's Q3FY2013 results suggest a strong focus in the retail segment, which will lift the operating performance. Though the change in accounting of fee/ securitisation income may impact the near term reported profit, the traction in fee income may drive earnings in the subsequent quarters. We have rolled over our valuations on FY2015 estimate and maintained Buy rating on the stock with a price target of Rs260 (1.5x FY2015 book value [BV]).

Gateway Distriparks 
Recommendation: Buy
Price target: Rs163
Current market price: Rs
135

Near-term pressure but better outlook ahead; maintain Buy

Result highlights 

Decline in volumes and realisation at JNPT CFS led to poor stand-alone results
In Q3FY2013, Gateway Distriparks Ltd (GDL) reported a 37% decline in its stand-alone net profit on account of a 13% drop in the revenue and a decline in the EBITDA margin from 56.4% in Q3FY2012 to 43.4% in Q3FY2013. The revenues declined on account of a drop in the volumes at the Jawaharlal Nehru Port Trust (JNPT) by 5.8% year on year (YoY) due to the prevailing economic downturn and steep competition at JNPT which also affected the realisation and the margin. On a sequential basis, the volume fell by 9.7% but the realisation improved by 14.8% due to a hike in tariffs which resulted in a 4% increase in the revenues. The EBITDA margin was stable at 43.4% vs 42.8% in the previous quarter. The profits were down 30% YoY and 8% quarter on quarter (QoQ).

But robust performance by cold chain division with support from rail division helped consolidated revenues to be in line with estimate 
The consolidated revenues stood at Rs234 crore, 2% below our estimate. The revenues were up 12% YoY and 8% QoQ. The cold chain division witnessed a 97% growth in the revenues to Rs32 crore on the back of capacity addition. On the other hand, the rail division saw a 40% year-on-year (Y-o-Y) growth in the volumes along with a 17% fall in the realisation, resulting in a revenue growth of 16% YoY. In the container freight station (CFS) segment, the Chennai and Vizag CFSs together saw a 4% growth in volumes YoY (flat QoQ) which along with a 2% improvement in the realisation (down 14% QoQ) led to a 6% Y-o-Y (down 14% QoQ) growth in the revenues.

Consolidated PAT is 20% below our estimate 
Despite a decent performance at the revenue level, the margin dropped in all the segments due to cost pressures (except Chennai and Vishakhapatnam CFSs). The consolidated EBITDA margin fell by 680 basis points YoY and 210 basis points QoQ. The EBITDA margin stood at 24.3% vs 31.1% in Q3FY2012. Consequently, the profits fell by 14% YoY to Rs28.3 crore (20% below our estimate). The management attributes this steep drop in profits partly to a one-time expense of Rs2.4 crore, which the company paid as penalty to a shipping line on behalf of one of its clients. Excluding this one-time impact, the profits would have been 9% lower than our estimate.

Estimates marginally downgraded; Buy maintained 
We are downgrading our net profit estimate for FY2013 and FY2014 by 8% and 1% respectively to factor in the poor volumes along with the margin pressure at the JNPT and Chennai CFSs, given the poor economic condition and the heightened competition. We have also introduced our FY2015 estimates in this note. We continue to have faith in GDL's long-term growth story based on the expansion in each of its three business segments: CFS, rail transportation and cold storage infrastructure. Also, a revival in the export-import trade would augur well for the company. At the current market price, the stock trades at 9.9x and 8.1x its FY2014E and FY2015E earnings. We maintain our Buy recommendation on GDL
.


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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.

 

 


       

       

Regards,
The Sharekhan Research Team
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