Investor's Eye
[October 22, 2013] | | |
| Summary of Contents
STOCK UPDATE Wipro
Recommendation: Buy
Price target: Rs580
Current market price: Rs515 Upgraded to Buy with price target of Rs580 Result highlights -
Revenue growth in line with expectations, posts highest growth in last seven quarters: Though Wipro continues to lag peers in terms of the revenue growth, for the quarter, it delivered its highest sequential growth in the last seven preceding quarters. After reporting tepid 0.9% compounded quarterly growth rate (CQGR) in the last seven sequential quarters, Wipro's revenue growth for Q2FY2014 was a decent 2.7% quarter on quarter (QoQ) to $1,631 million, 3.2% on a constant currency basis (in line with our expectations of $1,628 million). The product business also reported a strong growth of 14.8% QoQ to Rs937.4 crore, though on a lower base (down 24% QoQ in Q1FY2014). In the rupee terms, the revenues were up by 10.7% QoQ to Rs10,772.7 crore. -
Margin ahead of expectations, net income beats estimates: For the quarter, led by the currency tail winds coupled with rationalisation of headcounts (a net reduction of 65 employees) and operational efficiency (utilisation excluding trainees improved by 100 basis points to 74.3%), the earnings before interest and tax (EBIT) margin of the information technology (IT) services improved by 250 basis points QoQ to 22.5% ahead of our expectations of 19.7%. The net income for the quarter was higher by 19% QoQ to Rs1,942 crore ahead of our estimate of Rs1,866.9 million. -
Valuation-improving earnings predictability, upgraded to Buy: After several quarters of earnings disappointments, Wipro's performance for Q2FY2014 has seen a marked improvement with a decent revenue growth, an impressive margin performance and an increase in the deal wins (with an improvement in the success ratio). More importantly, a confident management commentary led by a conducive operating environment lends support to the earnings predictability for the coming quarters. We have reset our currency estimates to Rs61 and Rs62 for FY2014E and FY2015E respectively and upgraded our earnings estimates. At the current market price (CMP) of Rs515, the stock trades at 16.4x and 14x FY2014 and FY2015 earnings estimates. Given the improvement in the earnings predictability (estimate earnings compounded annual growth rate [CAGR] of 20% over FY2013-15E) and undemanding valuation of 14x FY2015E, we have upgraded our rating on Wipro from Hold to Buy with a revised price target of Rs580. Yes Bank
Recommendation: Buy
Price target: Rs422
Current market price: Rs372 Price target revised to Rs422 Result highlights -
Yes Bank reported a net profit of Rs371.1 crore (up 21.2% year on year [YoY]) in Q2FY2014, which was higher than our estimate. During the quarter, the bank had a one-off mark-to-market (MTM) gain of Rs111.6 crore incurred on interest rate swap, which helped it to absorb the MTM losses on the available-for-sale (AFS)/held-for-trading (HFT) investments. -
The net interest income (NII) growth was very much in line with our estimate as it grew by 28.2% YoY. Despite a 25-basis-point rise in the base rate, the net interest margin (NIM) declined by 10 basis points quarter on quarter (QoQ) to 2.9% largely contributed by a rise in the cost of funds (up 20 basis points QoQ). -
The growth in the customer assets lagged the industry rate as it grew by 12.7% YoY. However, the deposits growth remained strong as it grew by 29.2% YoY largely contributed by the savings deposits, which grew by 80.8% YoY. The current and savings account (CASA) ratio was largely stable at 20.4% as compared with 20.2% in Q1FY2014. -
The non-interest income posted a robust growth of 61.2% YoY largely contributed by the financial market segment (includes one-off income of Rs111.6 crore). The retail fee income also showed a strong growth of 68.6% YoY while the growth in the financial advisory income remained flat on a year-on-year (Y-o-Y) basis. -
The asset quality broadly remained stable as the non-performing assets (NPAs) and restructured loans remained largely similar to the Q1FY2014 levels. The provision coverage ratio remained high at 85.3%. Valuation and outlook
Yes Bank's Q2FY2014 results exceeded our estimate on account of a one-off income, which helped the bank to provide for the MTM losses on the investment book. The asset quality remains sound, though we expect the credit cost to increase in view of a weak macro-economic scenario. The bank's tier I capital adequacy ratio (CAR) stood at 9.5% (including H1FY2014 profit) so we have factored for the equity dilution in FY2015. We have fine-tuned our estimate to factor a reduction in the marginal standing facility (MSF) rates and a relatively healthy growth in the fee income, and expect the earnings to grow at a compounded annual growth rate (CAGR) of 14.8% YoY. Consequently, we have revised our price target to Rs422 (1.7x FY2015 book value). Given the healthy asset quality and the return on asset (RoA) of ~1.5%, the valuation seems to be reasonable. We maintain our Buy rating on the stock. Jyothy Laboratories
Recommendation: Buy
Price target: Rs260
Current market price: Rs190 Price target revised to Rs260 Result highlights -
Q2 results ahead of expectations: Jyothy Laboratories Ltd (JLL)'s Q2FY2014 results are ahead of expectations largely on account of a higher than expected growth in the revenues during the quarter. However, the margin profile (including the gross profit margin [GPM] and operating profit margin [OPM]) was in line with the expectations for the quarter. Continuous media and promotional activities helped all the power brands to deliver a strong performance, which grew by 36%yoy during the quarter. Ujala Fabric Whitener continues to perform well and registered a stupendous revenue growth of 77% year on year (YoY) during the quarter. In a bid to reduce the debt on books the company's board has decided to make a preferential allotment of 1.5 crore shares to the promoter (raising around Rs250 crore) as well as issue redeemable non-convertible debentures of Rs400 crore. This will help the company to zero its interest cost and improve the earning growth in the coming years. Also, it will help the company to utilise the cash generated from the business operations in improving the growth prospects of its power brands in the coming years. -
Revenue growth of above 30%: JLL's revenues grew by 33.0% YoY to Rs306.1 crore (on a comparable basis) in Q2FY2014. The strong revenue growth can be attributed to a 25% year-on-year (Y-o-Y) volume growth and an 8% Y-o-Y price-led growth during the quarter. The two key segments of soaps & detergents and homecare products registered a strong revenue growth of 35% YoY and 37% YoY respectively in Q2FY2014. JLL's flagship brand Ujala Fabric Whitener maintained its leadership in the Fabricare category and registered a strong value growth of around 77% YoY while Maxo registered a growth of 33% YoY in the same quarter. -
Profitability improved substantially: The GPM improved by 91 basis points YoY to 46.9%. However, the improvement in the GPM was lower compared with the previous quarter due to a change in the sales mix and the impact of the rupee's depreciation that resulted in a higher input cost. The employee cost as a percentage of sales declined by 358 basis points YoY to 9.3%, as there was restructuring at the organisation level due to the merger of Jyothy Consumer Products Ltd (JCPL) with JLL. Hence the OPM expanded by 466 basis points YoY to 13.9%. However, in an inflationary environment there was an impact of 2% of higher freight charges on the OPM which would have been absent in a normal business environment. The operating profit doubled YoY and stood at Rs42.7 crore in the quarter. At Rs22.2 crore the adjusted profit after tax (PAT) was ahead of our expectation of a profit of Rs16.7 crore for the quarter. -
Outlook and valuation: In H1FY2014 JLL's revenues and operating profit grew by 22% and 70% respectively at the stand-alone level. The management has maintained its guidance of around a 22-25% revenue growth and an OPM of around 15% for the stand-alone business in FY2014. Jyothy Fabricare Services Limited (JFSL) is expected to clock revenues of over Rs50 crore and turn earnings positive (at earnings before interest, depreciation, tax and amortisation [EBIDTA] level) at the end of the current fiscal.
We have marginally revised our earning estimates for FY2014, FY2015 and FY2016 by 3%, 1% and 4% respectively. In line with the revision in earning estimates, we have revised upwards our 18-month price target for the stock to Rs260. We have not factored in the preferential allotment of 1.5crore shares to the promoter and raising of Rs400 crore through the issuance of redeemable non-convertible debentures. We shall factor in the same as and when the events unfold. However, our rough-cut calculation suggests that the incremental benefits of savings in interest cost due to a debt repayment could result in additional upside of 12-15% to our price target. At the current market price the stock trades at 23.2x its FY2015E earnings per share (EPS) of Rs8.2 and 15.0x its FY2016E EPS of Rs12.6. We maintain JLL as our top pick in the mid-cap fast moving consumer goods (FMCG) space and retain our Buy rating on the stock.
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Regards,
The Sharekhan Research Team | |
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