| Summary of Contents
STOCK UPDATE Godrej Consumer Products
Recommendation: Hold
Price target: Under review
Current market price: Rs836 Q4FY2013 results-First cut analysis Result highlights -
Godrej Consumer Products Ltd (GCPL's) overall consolidated operating performance was a mixed bagged in Q4FY2013. Though the company was able to post a strong revenue growth, the operating profit growth was below par as the during the quarter. The benign raw material prices aided the consolidated gross profit margin (GPM) to improve by above 150 basis points year on year (YoY). However, there was a substantial drop in the EBIDTA margins of the key international geographies (including Indonesia, Africa and Latin America), which led to the consolidated operating margin (OPM) declining by 263 basis points YoY to 16.3% (key disappointer). -
GCPL's (consolidated) revenues grew by 29.7% YoY to Rs1,715.5 crore, which is largely in line with our expectation of Rs1,676.6 crore in Q4FY2013. The strong growth was largely driven by a strong organic growth of close to 20% YoY. -
GCPL's stand-alone (domestic; 54% of the consolidated revenues) business registered a strong revenue growth of 18% YoY to Rs925.4 crore. The strong growth can be attributed to the strong performance of the core segments including soap, household insecticide and hair colour. The revenues of the soap segment grew by 17% with the volume growth standing at 4% YoY (higher against the industry growth of 1%). The performance of the hair colour segment was the highlight of the quarter with the segment registering a revenue growth of 27% YoY, which is 2x the industry growth. The domestic household insecticide segment maintained the strong growth momentum with its revenues growing by 26% YoY (2.1x the category growth). -
On the other hand, all the international businesses registered a strong revenue growth of 48.4% YoY to Rs770.0 crore driven by a mix of organic and inorganic growth initiatives. Megasari (GCPL's Indonesian business; contributes half of the international business revenues) maintained it's above 30% YoY revenue growth momentum on account of the continuous marketing investments and new product launches. GCPL's African and Latin American businesses grew by 39.1% YoY to Rs178.0 crore and 72.0% YoY to Rs141.0 crore respectively during the quarter. -
Despite a 342-basis-point year-on-year (Y-o-Y) improvement in the GPM of the stand-alone business, its OPM was down by ~100 basis points to 19.7%, which is largely on account of a 120-basis-point Y-o-Y increase in the advertisement spends as percentage of sales and ~500-basis-point increase in the other expenses as percentage to sales during the quarter. Also, the international business registered a 431-basis-point decline in the EBIDTA margin, with the Indonesian business witnessing ~200-basis-point drop in the EBIDTA margin (due to an increase in the wage hike), the Latin American business witnessing ~430-basis-point drop in the EBIDTA margin (largely on account of the tougher regulatory norms on imports and a higher inflationary environment in the Argentinean and the African businesses EBIDTA margins declined by above 1,200 basis points (on account of a four-week closure of the Kenyan business due to election and continuous higher marketing investment behind brands). -
Overall, the consolidated OPM of GCPL was down by 263 basis points YoY to 16.3% (lower than our expectation of 17.8%). Hence, the operating profit grew by just 11.6% YoY to Rs279.1 crore. -
However, the lower incidence of tax and higher other income led to a 30.6% Y-o-Y growth in the adjusted profit after tax (PAT; before minority interest) to Rs232.9 crore (ahead of our expectation of Rs206.3 crore). -
During the quarter, there was a one-time exceptional gain of Rs129 crore (after tax exceptional gain of Rs103.1 crore) for the divestment of non-core food business of Megasari. Hence, the reported PAT grew by 73.4% YoY to Rs334.1 crore in Q4FY2013. -
The continuous pressure on the OPM has surprised negatively, especially since the softening of the commodity prices has aided the strong improvement in GPM. We will try to gain more clarity on the sustainable margin picture from the management and then review our earning estimates for FY2014 and FY2015. At the current market price, the stock trades at 30.9x and 24.8x its FY2014E and FY2015E earnings respectively. In view of the limited upside from the current level, we have downgraded our rating on the stock from Buy to Hold. Hindustan Unilever
Recommendation: Hold
Price target: Rs600
Current market price: Rs583 Voluntary open offer pushes valuation into expensive zone Key points Unilever announces offer to increase its stake to 75% in HUL
Unilever PLC (Unilever) has made a voluntary open offer to acquire 48.7 crore shares of Hindustan Unilever Ltd (HUL; or 22.5% of the equity capital) at a price of Rs600 per share (20.5% higher than the April 29, 2013 closing price). With this, Unilever's (the promoter group) stake in HUL will go up to 75% from 52.48% currently. At the open offer price of Rs600, HUL is valued at 36.1x its FY2014E and 32.6 x its FY2015E earnings. The potential value of the transaction at the open offer price is approximately Rs29,220 crore. Unilever's offer reflects its confidence on Indian operations
Unilever has always maintained that the emerging markets (including India) are one of its key growth drivers in the long run. This open offer thus gives a big vote of confidence in the Indian consumer story. HUL has a portfolio of strong brands straddling the pyramid in the domestic market. The company has maintained its thrust on achieving a steady growth through innovation in the portfolio considering the consumer preferences and needs. It has enhanced its focus on improving the gross profit margin (GPM) in the coming years through strategically buying the key inputs and improving the revenue mix (giving emphasis on premiumisation strategy). View: Open offer pushes valuation into expensive zone; opportunity to take home some profits
HUL's stock price had a decent run up yesterday on account of posting a better than expected fourth quarter results. The voluntary open offer announcement acted as an additional trigger for the stock to shoot up by almost 18% in today's trading session (April 30, 2013). At the current market price, the stock is trading at 35.0x its FY2014E earnings per share (EPS) of Rs16.6 and 31.8x its FY2015E EPS of Rs18.4, which is substantially ahead of its historical average valuation multiple of around 26x. Hence, though the long-term growth story is intact for HUL (the company with one of the stable cash flows and steady dividend payout), but we see limited scope for an upside in the near term and that provides an opportunity to take some profits off the table. The long-term investors can continue to Hold the stock. Shree Cement
Recommendation: Hold
Price target: Rs4,660
Current market price: Rs4,490 Q4 operating performance beats expectations Result highlights -
Operating performance exceeds expectation on lower P&F cost and effective tax rate: In Q3FY2013 Shree Cement posted an operating profit of Rs420 crore (up 12.6% year on year [YoY]), which is ahead of our as well as the Street's estimate on account of a lower than expected power & fuel (P&F) cost. Further, on account of a minimum alternate tax (MAT) credit to the tune of Rs48.4 crore the overall effective tax rate slipped to just 6% during the quarter which expanded the earnings growth. The adjusted net profit stood at Rs274 crore as compared with Rs117.3 crore in the corresponding quarter of the previous year. -
Power business drives overall revenue growth; revenues from cement division remain flat: For the quarter Shree Cement posted revenues of Rs1,471.6 crore, which is higher by 6.9% YoY and in line with our estimate. The overall revenue growth was driven by a sharp jump in the revenues from the sale of merchant power units (around Rs288.7 crore as compared with Rs173 crore in the corresponding quarter of the previous year). On the other hand, the revenues of the cement division largely remained flat YoY at Rs1,182.9 crore as a 6.2% drop in the volume YoY offset the impact of a higher average realisation, which was up 6.1% YoY. However, the average blended cement realisation declined by 2.5% quarter on quarter (QoQ) to Rs3,632 per tonne, which is lower than expected. The robust revenue growth in the power division was driven by an increase in the power volume (72.2 crore units as compared to 43.0 crore units in the corresponding quarter of the previous year) due to the commissioning of the second phase of its 150-MW power plant. -
Correction in P&F cost coupled with a higher realization YoY results in margin expansion: The operating profit margin (OPM) expanded by 144 basis points YoY to 28.6%. The margin expansion was largely on account of a sharp correction of 53.7% in the P&F cost YoY to Rs404 per tonne and a higher average blended cement realisation, which rose by 6.1% YoY. However, the other cost components like freight cost, raw material cost and other expenses continued to move northward. The EBITDA from the power division improved to Rs0.9 per unit as compared with Rs0.6 per unit in the corresponding quarter of the previous year. Consequently, the operating profit increased by 12.6% YoY to Rs420 crore. On a per tonne basis, the EBDITA per tonne of cement increased by 9% YoY to Rs1,088. -
Drop in the depreciation and lower effective tax rate further expand earnings growth: During the quarter under review, the depreciation charge declined by 46.1% YoY to Rs126.5 crore. Further, there was a MAT credit to the tune of Rs48.4 crore on account of which the overall effective tax rate corrected to 6% as compared with our estimate of 18%. Hence, the adjusted profit after tax (PAT) growth further expanded to Rs274.1 crore as compared with Rs117.3 crore YoY. -
Cement capacity to enhance to 15.5mtpa by June 2014: The company is in the process of adding another 2mtpa grinding capacity in Bihar which will increase its overall cement capacity from 13.5mtpa to 15.5mtpa by December 2013. Further, the company is also adding 4mtpa of clinker capacity through units IX and X at its current location in Ras, Rajasthan. The two capacities are expected to be complete by June 2013 and June 2014 respectively. -
Upgrading earnings estimate for FY2013; fine-tuning estimates for FY2014 and FY2015: We are upgrading our earnings estimates for FY2013 mainly to factor in the lower than expected P&F cost and effective tax rate. The revised earnings per share (EPS) estimate for FY2013 now works out to Rs259 whereas for FY2014 and FY2015 we have just fine-tuned our earnings estimates. -
Maintain Hold with price target of Rs4,660: We believe the performance of the company will improve at the operating level due to cost saving on the P&F front and a healthy growth in the revenues of the power business. However, on account of limited upside from the current level and the key concerns in terms of pressure on the cement realisation and higher freight cost due to partial deregulation of diesel price, we maintain our Hold recommendation on the stock with the existing price target of Rs4,660 (we have valued the cement business at enterprise value /tonne of $130 and the power business at a price/book value of 1.25x). At the current market price, the stock trades at an enterprise value/EBIDTA of 7.6x on FY2014E and 6x FY2015 earnings estimate. Marico
Recommendation: Hold
Price target: Rs232
Current market price: Rs225 Price target revised to Rs232 Result highlights -
Q4FY2013-subdued performance: The third quarter of FY2013 was yet another quarter of subdued performance by Marico, with the revenue growth standing in the high single digits and the adjusted profit after tax (PAT) declining by almost 15% for the quarter. An improvement of more than 350 basis points in the consolidated gross profit margin (GPM) was the only breather for the quarter. The domestic business continued to support the overall business performance with a 12% year-on-year (Y-o-Y) revenue growth while the revenues of the international business declined by 1% year on year (YoY) in Q4FY2013. The revenues from Kaya grew by 15% YoY during the quarter. The volume growth of the core domestic brands (including Parachute and Saffola) continued to remain subdued with the growth remaining in the mid-single digits. -
Consolidated results snapshot: Marico's net sales grew by 9.4% YoY to Rs998.6 crore in Q4FY2013, which is lower than our expectation of Rs1,055.4 crore. The revenue growth was pre-dominantly driven by a volume growth of 8% YoY. The benign key input prices (such as copra) and a change in the revenue mix led to a 363-basis-point Y-o-Y improvement in the GPM to 55.8%.Though the advertisement spends as a percentage of sales remained flat, the other expenses as a percentage of sales increased sharply by ~300 basis points during the quarter. An increase in the legal and professional fees along with a higher hedging cost led to a 100-basis-point additional increase in the other expenses as a percentage of sales during the quarter. This resulted in the operating profit margin (OPM) remaining flat at 12.0% YoY. Hence, the operating profit grew by 6.8% YoY to Rs120.3 crore in Q4FY2013. The higher incidence of tax led to ~16% Y-o-Y decline in the adjusted PAT (before minority interest) to Rs59.9crore in Q4FY2013. The tax rate stood significantly higher at ~36% largely on account of a higher contribution from the domestic business and reduced profit in the international business. -
Revision in earnings estimates: We have revised downwards our earnings estimates for FY2014E and FY2015E by 9% and 8% respectively to factor in lower than earlier expected revenue growth in the international business and an increase in effective tax rate (24% for FY2014 and 25% for FY2015). Also, we believe it will take sometime for core brands such as Parachute and Saffola to witness a strong revival in the volume growth. -
Outlook and valuation: We believe Marico's business fundamentals are intact and the demerger of the Kaya business into a separate entity would help the company to enhance its focus on improving the growth prospects of its domestic and international fast moving consumer goods (FMCG) business in the long run. Though the near-term outlook is bleak, we expect the company to achieve an earnings growth of around 20% over the next two to three years on account of its diversified product portfolio and focus on driving growth by launching new products. At the current market price, the stock trades at 32.1x its FY2014E earnings per share (EPS) of Rs7.0 and 26.2x its FY2015E EPS of Rs8.6. In line with downward revision of our earning estimates, we have revised downwards our price target to Rs232. We maintain our Hold recommendation on the stock.
SECTOR UPDATE Insurance APE declines by 15.2% in FY2013 Key points -
The growth in the annual premium equivalent (APE) of the life insurance industry declined for the ninth consecutive month during March 2013 as it declined by 14.0% year on year (YoY). The slowdown was mainly contributed by the Life Insurance Corporation of India (LIC), which showed a decline of 18.3% YoY in the APE. On the other hand, the private players reported a decline of 7.7% YoY in March 2013, with Tata AIA Life Insurance Company (down 35.6% YoY), ICICI Prudential Life Insurance (ICICI Prudential; down 18.0% YoY) and Max Life Insurance (Max Life; down 8.1% YoY) posting the steepest decline in the APE. On the other hand, players like MetLife Insurance Company (MetLife; up 76.9% YoY), Kotak Life Insurance (Kotak Life; up 15.9% YoY) and Birla Sun Life (up 12.6% YoY) posted an increase in their APEs on a year-on-year (Y-o-Y) basis. -
In FY2013, the private players fared relatively better as their APEs declined by mere 3.8% YoY as compared with a 21.3% Y-o-Y decline by the LIC and a 15.2% Y-o-Y decline by the industry. The growth in the APE of the private players was mainly led by players like SBI Life Insurance Company (SBI Life; up 9.7% YoY), Kotak Life (up 9.3% YoY) Bajaj Allianz (up 7.4% YoY) and HDFC Life Insurance (HDFC Life; up 5.2% YoY). -
On a month-on-month (M-o-M) basis, the APE for the industry increased dramatically with LIC growing more than the industry and the private players. On an M-o-M basis, all the 22 players posted an increase in their APEs. Companies like Birla Sun Life, Aviva Life and MetLife posted the highest increase in their APEs on an M-o-M basis. -
The market share of the private players in FY2013 improved by ~470 basis points to 39.6% (LIC, 60.4%) compared with 34.9% in FY2012. During the period under review, companies like SBI Life, HDFC Life, Bajaj Allianz, Kotak Life and ICICI Prudential turned out to be the major gainers as their market share improved by approximately 155, 120, 95, 40 and 20 basis points respectively. -
Compared to an expectation of a 15-20% growth at the beginning of the FY2013, the APEs for the industry declined by ~15% and 3.8% for the private players. Going ahead, the transition towards the newer regulations (proposed for traditional products) will continue to impact the premium growth. However, the private players expect about 10-12 % growth in their APEs during FY2014 led by the launch of new products and a scale-up of distribution capabilities.
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