Investor's Eye
[August 02, 2013] | | |
| Summary of Contents
STOCK UPDATE GlaxoSmithKline Consumer Healthcare
Recommendation: Hold
Price target: Rs4,625
Current market price: Rs4,450 Price target revised to Rs4,625 Result highlights -
Mixed performance: GlaxoSmithkline Consumer Health Ltd (GSK Consumer) posted a mixed operating performance in Q2CY2013 with the revenues growing by ~17% and the profit after tax (PAT) growing by ~13% year on year (YoY; due to a decline in the operating profit margin [OPM] affected by the one-time items). The volume growth of 7% YoY was in line with our expectations for the quarter. Horlicks and Boost (GSK Consumer's pillar brands) registered a value growth of 19% YoY (volume growth of 8% YoY) and 15% YoY (volume growth of 5% YoY) respectively in Q1FY2014. The biscuits segment continued its strong performance with a 19% year-on-year (Y-o-Y) value growth while Horlicks Oats improved its ranking to two from three earlier in the south Indian market. The canteen stores department (CSD) sales grew by 20% YoY on account of a low base of Q2CY2012. The strategic sourcing of key raw materials aided the gross profit margin (GPM) to improve by 203 basis points YoY to 65.0% during the quarter. -
Performance snapshot: GSK Consumer's Q2CY2013 net sales grew by 16.9%YoY to Rs852.9 crore (largely in line with our expectations of Rs863.0 crore). The growth was driven by a mix of volume and value, with the volume growth standing at around 7% YoY during the quarter (volume growth stood at 8% in Q1CY2013). The core malted food drinks (MFD) segment grew by about 18% while the packaged food segment (largely biscuits) increased by about 19% YoY during the quarter. The GPM improved by 203 basis points YoY to 65% in Q2CY2013. The OPM (excluding the business auxiliary income) declined by 126 basis points to 13.9% in Q2CY2013. The OPM largely declined on account of a one-time wage settlement cost (resulting in the employee cost going up by 32% YoY) and the one-time operational expenses towards the expanded capacity, and higher production from third party manufacturer (resulting in a 166-basis-point increase in the other expenses as percentage to sales). The advertisement spends as percentage to sales stood almost flat at ~16% during the quarter. Hence, the operating profit grew by just 7.2% YoY to Rs118.7crore. However, a strong growth in the business auxiliary income (of around 30.2% YoY) and a high other income resulted in a 12.5% Y-o-Y growth in the reported profit after tax (PAT) to Rs120.0 crore (in line with our expectations of Rs123 crore). -
Outlook-volume growth to sustain in the range of 7-8%: We have broadly maintained our earning estimates for CY2013 and CY2014. GSK Consumer's management is confident of maintaining the sales volume growth in the range of 7-8% in the current inflationary environment on account of distribution enhancement and an improvement in the penetration (especially in rural India). With the OPM likely to sustain in the range of 15-15.5%, we believe GSK Consumer's bottom line will grow at a compounded annual growth rate (CAGR) of 18% over CY2012-14. With a strong cash pile of close to Rs1,500 crore in the balance sheet, the company is well poised to achieve the organic and inorganic initiatives. -
Premium valuation provides limited upside; maintain Hold: At the current market price, the stock is trading at 30.8x its CY2014E earnings per share (EPS) of Rs144.5. We have revised our price target to Rs4,625 (valuing the stock at 32x its CY2014E earnings, which is at a slight discount to FY2015 valuation of some of the multinational fast moving consumer goods [FMCG] companies). Despite of strong fundamentals, we don't see any significant upside from the current levels. Thus, we maintain our Hold recommendation on the stock. Glenmark Pharmaceuticals
Recommendation: Hold
Price target: Rs600
Current market price: Rs559 Growth slows in key geographies, downgraded to Hold Result highlights -
Q1FY2014 performance weaker than expected: Glenmark Pharmaceuticals (Glenmark Pharma) reported a 19% year-on-year (Y-o-Y) rise in the net sales to Rs1,238 crore during the quarter, which is 16% lower than our estimate. The lower than expected revenues are mainly attributed to the weaker growth in the US generic business and a decline in the revenues from the branded business in Europe and the oncology business in Argentina. During the quarter, the specialty business reported a 20% Y-o-Y growth to Rs607 crore while the generic business reported a 17.8% Y-o-Y growth to Rs497 crore. There was no out-licencing income during the quarter. -
OPM declines YoY due to higher R&D cost: The operating profit margin (OPM) of the company declined by 114 basis points YoY to 20% during the quarter due to a spike in the research and development (R&D) expenditure. However, it came better than our estimate of 19.2%. The decline in the OPM was mainly attributed to the higher employees' costs and other expenditure. We expect OPM of 20.5% and 20% for FY2014 and FY2015 respectively. -
Net profit jumps 65% YoY; due to huge forex loss during Q1FY2013: The company reported a 65% Y-o-Y jump in the net profit to Rs129.1 crore, despite higher finance costs, depreciation and tax rate. The growth was boosted by a foreign exchange (forex) gain of Rs2.4 crore during the quarter as compared with Rs55 crore forex loss in Q1FY2013. However, the adjusted net profit during the quarter declined by 4.9% YoY to Rs126.7 crore, which is 19.5% lower than our estimate. -
Estimates fine-tuned and rating downgraded to Hold but price target maintained at Rs600: The overall performance of the company during the quarter has not been up to our expectations. We have reduced our earnings estimates by 3% and 8% for FY2014 and FY2015 respectively to factor a higher R&D spend and tax rate. However, due to a roll-over of valuation to earnings estimate for FY2015, our price target stands intact at Rs600, which includes Rs507 (14x earnings for FY2015) from its base business and Rs94 for its R&D pipeline. We have downgraded our recommendation to 'Hold 'from Buy due to a limited upside. Tata Global Beverages
Recommendation: Buy
Price target: Rs175
Current market price: Rs146 Upgraded to Buy with revised price target of Rs175 Result highlights -
Decent operating performance: Tata Global Beverages Ltd (TGBL) posted a decent operating performance in Q1FY2014 in the challenging market environment. Though the consolidated revenue growth was just in mid-single digits, the improvement in the gross profit margin (GPM) due to the benign input prices (especially the green coffee prices) led to a growth in the high-teens in the bottom line during the quarter. Going ahead, we believe the drop in the international tea prices would further aid in the GPM improvement in the coming quarters. Most of the markets, including India, Australia and Canada, posted a strong operating performance during the quarter. However, the decline in revenues of UK and Russia was a drag on the overall revenue growth. The strategic alliances and joint ventures (JVs) are performing extremely well for the company. Its water business posted a strong performance with the revenues of Tata WaterPlus growing by 150% year on year (YoY). The TGBL-Starbucks alliance is currently operating 18 stores and the JV is making a cash profit. -
Performance snapshot: In Q1FY2014, TGBL's consolidated revenues grew by 5.1% YoY to Rs1,813.5 crore (marginally lower than our expectation of Rs1,843.0 crore). The mid-single digit growth was largely driven by an organic initiative with no foreign exchange (forex) translation gain due to the rupee's depreciation against the key international currencies. The revenues of TGBL's stand-alone business grew by 19.2% YoY to Rs679.6 crore (driven by a mix of volume and value), while the revenues of Tata Coffee's consolidated business stood flat on a year-on-year (Y-o-Y) basis during the quarter. The benign coffee prices and holding of product prices in the key geographies aided the consolidated GPM and the operating profit margin (OPM) to expand by 127 basis points YoY to 51.1% and 94 basis points YoY to 11.4% respectively in Q1FY2014. Hence, despite the mid-single digit revenue growth, the OPM grew by 14.6% YoY to Rs207.1 crore while the adjusted profit after tax (PAT) before minority interest and profit from share of associates grew by 18.8% YoY to Rs121.5 crore during the quarter. -
Upward revision in estimates: We have revised our earning estimates upwards for FY2014 and FY2015 by 5% and 4% respectively to factor a higher than earlier expected GPM. We believe the company would gain from the lower Kenyan tea prices as its large portion of international business raw material requirement is from Kenyan imports. Also, we believe any correction in the Indian tea prices would be beneficial for its stand-alone business. -
Outlook-decent earning visibility: We believe that TGBL is inching towards its aim of becoming a natural beverage player in the international market. The company has taken several initiatives in the recent past (such as enhancing the speciality tea portfolio in key geographies, enhancing the water business and promoting its pillar brands). However, we believe the company has to change its gears from a conservative approach to an aggressive approach toward its growth strategies, which will help it to achieve a strong profitability growth in the medium term. We expect TGBL's top line and bottom line to grow at a compounded annual growth rate (CAGR) of 12% and 18% respectively over FY2013-15. Any significant increase in the raw material prices or slowdown in the performance of key geographies would act as a key risk to our earning estimates. -
Upgraded to Buy: The current valuation of 19.1x its FY2014E earnings per share (EPS) of Rs 7.7 and 16.8x its FY2015E EPS of Rs8.7 are at a substantial discount to the current valuation of the fast moving consumer goods (FMCG) basket. In view of a decent earning visibility and an upside, we have upgraded our recommendation on the stock from Hold to Buy. In line with our upward revision in our earning estimates, our revised price target stands at Rs175 (valuing the stock 20x its FY2015E earnings). CanFin Homes
Recommendation: Buy
Price target: Rs220
Current market price: Rs127 Loan growth sustains; NIMs expand Result highlights -
CanFin Homes' Q1FY2014 performance was ahead of our estimate as the net profit grew by 43.2% year on year (YoY; 6.2% quarter on quarter [QoQ]) to Rs16.5 crore. This was driven by a robust growth in the net interest income (NII), which grew by 58.6% YoY. -
Apart from a sequential spurt in the net interest margin (NIM; calculated), a strong growth in advances led to a higher than expected growth in the NII. The reported NIM increased to 3.14% from 2.9% in FY2013 led by a decline in the cost of borrowings. -
The advances grew by 51.3% YoY (9.6% QoQ) on account of a 60.3% year-on-year (Y-o-Y) growth in the disbursements. During the quarter, the sanctions grew by 56.7% YoY. -
The operating expense (opex) grew by 55.4% YoY (70.5% QoQ) largely on account of a 26.5% Y-o-Y increase in the employee expenses. The company has opened about 17 new branches in FY2013, which raised the opex. -
In Q1FY2014, the asset quality was quite stable as the gross non-performing asset (NPA) was maintained at 0.4% while the net NPA was negligible (0.03% in Q1FY2014). Valuation
CanFin Homes registered a strong performance in Q1FY2014 led by a robust growth in advances and an expansion in the NIMs. The increase in the branch network and focus on individual segment contributed to the strong growth. We believe the company will sustain the healthy NIMs due competitive cost of funds. We have slightly fine-tuned our estimate and expect the earnings to grow at a compounded annual growth rate (CAGR) of 22% over FY2013-15. Given the healthy return ratios (return on equity [RoE] of 16-17%) and dividend yield of 3-4%, the valuations are attractive. We maintain Buy rating with a price target of Rs220 (0.9x FY2015 book value [BV]). Gateway Distriparks
Recommendation: Buy
Price target: Rs149
Current market price: Rs100 Price target revised to Rs149 Result highlights -
Substantial drop in volumes and margin at JNPT CFS led to poor stand-alone results: In Q1FY2014, Gateway Distriparks Ltd (GDL) reported a 40% decline in its stand-alone net profit on account of a decline in the EBITDA margin by 965 basis points from 50.2% in Q1FY2013 to 40.6% in Q1FY2014. The EBITDA margin improved by 274 basis points from 37.8% to 40.6% on a quarter-on-quarter (Q-o-Q) basis. However, the revenues declined by 11% year on year (YoY) to Rs48.4 crore on account of a 20% decline in the volumes at the Jawaharlal Nehru Port Trust (JNPT). On a sequential basis, the realisation declined by 3% while it increased by 11% over that of Q1FY2013. -
Additionally, muted performance by the rail division and other CFSs led to consolidated revenues lower than our estimate: The consolidated revenues stood at Rs245 crore, which is below our estimate. The revenues grew by 6% YoY but declined by 8% quarter on quarter (QoQ). The cold chain division witnessed a 58% growth in the revenues at Rs35 crore on account of a capacity addition. On the other hand, the rail division saw a decline of 15% YoY in the volumes along with a 9% increase in the realisation, resulting in a revenue growth of just 4% YoY. In the other container freight stations (CFSs), the Chennai, Vizag and Kochi CFSs together saw a growth of 17% YoY in their volumes (-3% QoQ), which along with a 12% decline in the realisation (-1% QoQ) led to a 3% year-on-year (Y-o-Y; -4% QoQ) growth in the revenues. -
Consolidated PAT comes in below our estimate as well: The consolidated profit after tax (PAT) is below our estimate on account of a lower than expected revenues and higher than expected interest expenses during the quarter. Adding to the muted performance at the revenue level, the margin dropped severely in the CFS business. The consolidated EBITDA margin was down by 333 basis points YoY. The consolidated margin stood at 24.6% vs 28.0% in Q1FY2013. The profit for the quarter declined by 15% YoY to Rs30.0 crore (18% below estimate). -
Estimates downgraded; price target revised to Rs149, maintain Buy: We have downgraded our net profit estimates for FY2014 and FY2015 by 3% and 11% respectively to factor in the higher interest expenses for the same period. We have revised our price target downwards to Rs149 taking into account the slower than expected recovery in the CFS business. We continue to have faith in GDL's long-term growth story based on the expansion in each of its three business segments, ie CFS, rail transportation and cold storage infrastructure. Also, a revival in the EXIM (export-import) trade would augur well for the company. At the current market price, the stock trades at 7.5x and 6.3x its FY2014E and FY2015E earnings. We maintain our Buy recommendation on GDL.
VIEWPOINT Idea Cellular Benign environment and strong execution keep us positive Result highlights -
Robust realisation coupled with volume growth drive top line: Idea reported a strong revenue growth of 7.9% QoQ (despite elimination of Indus Towers [Indus]' indefeasible right to use [IRU] arrangement) led by a strong realisation growth of 6.1% coupled with a robust data volume growth for the quarter (+20.8% QoQ). -
Margin aided by various factors: A strong growth in the revenues coupled with a meaningful reduction in the subscriber acquisition, and the selling and distribution cost (-9.4% QoQ; down from 12.9% in Q4FY2013 to 9% in Q1FY2014) reflected positively on the operating profit margin (OPM). The consolidated OPM improved by 415 basis points QoQ. -
Changes in asset life increased depreciation: During the quarter, Idea reduced the effective life of its network assets from 13 years to 10 years, thereby leading to a high depreciation. The company in its release stated that Rs180 crore was the impact of this change for the quarter while the full year impact would be Rs450 crore. -
Net profit grows by 50.1%: Mumbai and Bihar circles crossed the revenue market share of 10%; hence, they were shifted from new circles to established circles. Outlook and valuation
The Indian telecom environment is turning favourable with a reduction in the competitive intensity and the benefits of consolidation flowing to the incumbent players, which is visible in the improving performance indicators of the leading players for the past two consecutive quarters. We believe that Idea with its strong brand equity, superior execution capability and by virtue of being a pure wireless player is likely to witness disproportionate benefits in the improving business matrix; hence, we continue with our positive view on the same. At the current market price of Rs158, the stock is trading at an enterprise value (EV)/EBITDA multiple of 7.3x and 5.6x its FY2014 and FY2015 rough cut estimates respectively. Currently, we do not have any active 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. | | | |
| |
| |
This e-mail message may contain information, which is confidential, proprietary, legally privileged or subject to copyright. It is intended for use only by the individual or entity to which it is addressed. If you are not the intended recipient or it appears that this mail has been forwarded to you without proper authority, you are not authorized to access, read, disclose, copy, use or otherwise deal with it and any such actions are prohibited and may be unlawful. The recipient acknowledges that Sharekhan Limited or its subsidiaries, (collectively "Sharekhan "), are unable to exercise control or ensure or guarantee the integrity of/over the contents of the information contained in e-mail transmissions and further acknowledges that any views expressed in this message are those of the individual sender and no binding nature of the message shall be implied or assumed unless the sender does so expressly with due authority of Sharekhan . Sharekhan does not accept liability for any errors, omissions, viruses or computer problems experienced as a result of this email. Before opening any attachments please check them for viruses and defects. If you have received this e-mail in error, please notify us immediately at mail to: mailadmin@sharekhan.com and delete this mail from your records. This e-mail message may contain information, which is confidential, proprietary, legally privileged or subject to copyright. It is intended for use only by the individual or entity to which it is addressed. If you are not the intended recipient or it appears that this mail has been forwarded to you without proper authority, you are not authorized to access, read, disclose, copy, use or otherwise deal with it and any such actions are prohibited and may be unlawful. The recipient acknowledges that Sharekhan Limited or its subsidiaries, (collectively "Sharekhan "), are unable to exercise control or ensure or guarantee the integrity of/over the contents of the information contained in e-mail transmissions and further acknowledges that any views expressed in this message are those of the individual sender and no binding nature of the message shall be implied or assumed unless the sender does so expressly with due authority of Sharekhan . Sharekhan does not accept liability for any errors, omissions, viruses or computer problems experienced as a result of this email. Before opening any attachments please check them for viruses and defects. If you have received this e-mail in error, please notify us immediately at mail to: mailadmin@sharekhan.com and delete this mail from your records.
No comments:
Post a Comment