Investor's Eye: Update - PTC India, Aurobindo Pharma, Bajaj Holdings & Investment, UltraTech Cement

 

Investor's Eye [January 20, 2014]  Sharekhan www.sharekhan.com

Summary of Contents   STOCK UPDATE PTC India Recommendation: Buy Price target: Rs75 Current market price: Rs60 Powering ahead; price target revised to Rs75  Result highlights In Q3FY2014, PTC India's revenues grew by 39% backed by a strong 40% growth in the traded volumes. The tripling of the PAT was contributed by a one-time income of Rs73 crore (a net surcharge benefit for the pending receivables from clients). Even after adjusting for the non-recurring items, the PAT grew at a healthy rate of 62% to Rs35.5 crore.  We've factored the improving outlook for business volumes (from the retail and cross-border businesses) and the health of the balance sheet (with recovery of the receivables from the major SEBs). Consequently, we've upgraded our estimates for FY2014 and FY2015, and introduced our FY2016 estimates in this note.  PTC India is among the most stable businesses in a troubled sector. The key concern of bloated overdues from the SEBs is also receding with the recent tariff hikes announced by various SEBs and the restructuring of their debts. We retain our Buy rating with a revised price target of Rs75.    Aurobindo Pharma Recommendation: Buy Price target: Rs470 Current market price: Rs409 Favourable risk-reward profile from Actavis deal Key points Aurobindo Pharma has signed a binding offer to acquire the commercial operations, excluding the manufacturing assets, from Actavis in seven western European countries. Actavis is estimated to generate nearly Euro 320 million (or Rs2,704 crore) of revenues from its European operations but with an operating loss of Euro 20 million in 2013. The cost of acquisition would be slightly over Euro 30 million.  Although, the acquisition may drag the operating profit margin by 150-200 basis points on day-one of the consolidation, we expect a fast recovery in the margin profile through cost rationalisation, site transfer of key products and improving margin on other products. As the acquisition would not disturb existing debt repayments and capex plans, we expect a favorable risk-reward ratio in two to three years perspective. We maintain our estimate and price target of Rs470 with our Buy recommendation on the stock. We will revisit our estimate after Q3FY2014 results.    Bajaj Holdings & Investment Recommendation: Buy Price target: Rs1,473 Current market price: Rs924 Better outlook on investments; price target revised to Rs1,473 Key points Bajaj Auto (the key investment of Bajaj Holdings and Investment Ltd [BHIL]; BHIL holds a 31.49% stake) would see a strong double-digit earnings growth in FY2015 on the back of improved volumes and higher export profitability.  Another important investment of BHIL, Bajaj Finserv (BHIL has a 39.16% stake in it), is witnessing a strong sustained performance in the lending and general insurance businesses. We had upgraded the price target for and the recommendation on Bajaj Finserv to Buy in our Stock Update dated January 15, 2014. Given the positive outlook for its core listed investments (Bajaj Auto and Bajaj Finserv) and a possible uptick in treasury operations (ie invested cash on books of BHIL) driven by an improving interest rate environment, we maintain our Buy recommendation on the stock with a revised price target of Rs1,473.   UltraTech Cement Recommendation: Hold Price target: Rs1,869 Current market price: Rs1,721 Price target revised to Rs1,869 Key points The revenues of UltraTech Cement (UltraTech) declined by 1.5% YoY due to a decline in the volumes (down 4.6% YoY, 2.0% QoQ) in Q3FY2014. However, the realisation improved (up 3.3% YoY, 4.2% QoQ). The OPM contracted due to higher input and freight costs. UltraTech reported a PAT decline of 38.5% YoY to Rs369.8 crore (marginally ahead of our estimate). We have revised our earnings estimates for FY2014 and FY2015 marginally downwards after factoring in the lower volumes (volumes declined by 2% YoY in M9FY2014).  UltraTech remains our preferred pick in the cement space due to its strong balance sheet and pan-India presence. However, the current sluggish demand environment and continued cost pressure justify our cautious stance. Consequently, we maintain our Hold rating on the stock with a revised price target of Rs1,869. 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.

Regards, The Sharekhan Research Team

 

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