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| Summary of Contents STOCK UPDATE Oil India
Recommendation: Buy
Price target: Rs670
Current market price: Rs568 Q4 numbers weak but structural positive triggers ahead; retain Buy Key points - The Q4FY2014 performance of Oil India Ltd (OIL) was disappointing with a lower volume and a higher subsidy burden. The revenues declined by 21% YoY and 29% QoQ, as crude oil and gas volumes declined due to blockades and bandhs in Assam. Further, the subsidy burden surged to Rs2,348 crore ($69 per barrel). Consequently, the net realisation declined by 29% both YoY and QoQ to $37 per barrel. This affected the overall result and the net profit declined by 26% YoY and 37% QoQ.
- We have fine-tuned our earnings estimates for OIL in view of the potential appreciation in the rupee and an expected decline in the subsidy due to continued revision in diesel prices. We expect the overall oil subsidy burden to be lower and a revision in gas price in FY2015.
- Given the new government at the center, we expect several reforms and positive policy actions which could benefit companies like OIL substantially. Hence, we retain our Buy rating on the stock with a revised price target of Rs670.
PTC India
Recommendation: Buy
Price target: Rs107
Current market price: Rs90 Riding on volume driven momentum; price target revised to Rs107 Key points - PTC India (PTC) reported a 27% Y-o-Y sales growth in Q4FY2014, backed by a 14% growth in volume and a 12% rise in realisation. However, the reported operating profit and net profit jumped significantly YoY due to one-off surcharges to the tune of Rs50 crore, (which was related to payments pending from SEBs). Adjusting for this, the PAT remained flat YoY at Rs34 crore, largely in line with our estimate.
- During FY2014, adjusting for the one-off surcharge, the net profit grew by 28%, driven by a 23% volume growth. Going forward, the management expects to sustain the healthy volume growth momentum, given the substantial capacities coming on stream in the next two to three years (about 4,000MW) under the long-term trading business. During FY2014, long pending receivables from the UPSEB were received; however, the receivables from the TNSEB are still pending and the management plans to go for the legal route to resolve the issue.
- Given the positive outlook on volume front, we have revised our earnings estimates for FY2015 and FY2016 by 13.5% and 22% respectively. Further, with an improved outlook, we have revised our PE multiple from 9x to 10x for the stand-alone business and valued PTC's financial services business at a 30% holding discount to our estimated fair value. Consequently, we continue to recommend it as a Buy with a revised price target of Rs107.
Jaiprakash Associates
Recommendation: Hold
Price target: Rs80
Current market price: Rs73 Re-rating in an improving business environment; upgraded to Hold Key points - Jaiprakash Associates Ltd (JAL) reported a stand-alone net profit of Rs100 crore for Q4FY2014. Despite a strong margin performance of the construction business, the earnings growth of JAL was dented by a weak performance of its real estate and cement businesses and a continued upsurge in its interest burden.
- After the sale of assets worth Rs15,000 crore in the cement and power divisions, JAL's plan to monetise more assets is likely to result in a higher valuation with an overall improvement in the economy. Moreover, the outlook for its core businesses of construction and real estate is likely to improve with a possible revival in the economy going ahead.
- To factor in the reduction in the debt through asset sales and the improving business conditions in some of its core businesses, we have revised the price target for JAL to Rs80. Consequently, we upgrade the stock to Hold. We see scope for further upgrades depending on the developments with regard its debt reduction exercise in future.
Thermax
Recommendation: Reduce
Price target: Rs825
Current market price: Rs899 Running ahead of fundamentals; downgraded to Reduce Key points - For Q4FY2014, Thermax reported a 6% Y-o-Y decline in sales to Rs1,383 crore with an OPM of 9.7% (down 171BPS YoY). Consequently, the adjusted PAT was lower by 8% YoY but the same was in line with our estimate. On the positive side, despite subdued sales in challenging times, Thermax managed its OPM in the range of 9-10% during FY2014 which is commendable. Moreover, the company could manage to generate free cash of Rs143 crore in FY2014 vs Rs115 crore in FY2013.
- The company's management expects better order inflow from H2FY2015, as the improvement in sentiment with the advent of the new government could trigger capacity addition plans in industries in the next six to nine months. Further, given the 25% Y-o-Y higher order book at the end of FY2014, we expect the company to deliver a double-digit top line growth and a double-digit margin in FY2015.
- With an improved outlook especially for the cyclical stocks, Thermax could witness continued institutional buying support with a longer-term view. However, from the retail investor's perspective, we believe that the bulk of the positives is factored in with a P/E multiple at 28x FY2016E (at a premium to the average multiple and just 25% below the peak valuation at the height of the last bull run). Thus, we advise clients to take home profits and look for re-entry at lower levels. We downgrade the stock to Reduce rating with a price target of Rs825.
JB Chemicals & Pharmaceuticals
Recommendation: Buy
Price target: Rs189
Current market price: Rs144 Operating performance weakened in Q4; long-term growth story intact Key points - JB Chemicals and Pharmaceuticals reported a moderate rise of 11.4% in its net operating income to Rs228.6 crore in Q4FY2014. Its operating profit declined by 2% to Rs26.8 crore mainly due to higher marketing spending. However, a 210% jump in the other income and a 96-BPS decline in the effective tax rate lifted the adjusted net profit by 30% to Rs24.6 crore during the quarter.
- Except Russia and the CIS region, which continued to see a decline during the quarter, most of the other geographies witnessed a strong growth in Q4FY2014.
- We believe growth would recover in the following quarter on the back of a better domestic performance and an improvement in the margin. Moreover, a cash rich balance sheet keeps alive the prospects of inorganic initiatives.
- We maintain our Buy rating on the stock with a price target of Rs189, which includes Rs129 (10x FY2015E core earnings; excluding the interest income on free cash) for the base business and Rs60 for the cash value.
SECTOR UPDATE Logistics Improving business visibility; retain bullish stance Key points - The revival in exim and domestic trade has been reaffirmed by the uptick in the exim and domestic trade volumes (up 11% YoY in FY2014 as against down 1% YoY in FY2013) reported by Concor. The outlook for volume remains optimistic for FY2015 with a 10-12% Y-o-Y growth expectation. The expansion at the JNPT port provides comfort that volume trade would improve over the long term.
- The scope for higher realisations is limited in the immediate term as the logistic industry absorbed rate hikes in a tough competitive environment. However, measures like double stacking and declining empties running cost are likely to hold the margins in the medium term.
- GDL with an expansion in its cold chain business and Concor with an expansion in its logistic parks are likely to provide the next leg of growth, complementing their business verticals. GDL's rail division and cold chain business maintain their growth momentum while its CFS division shows signs of a revival.
- Concor and GDL currently trade at 13.0x and 13.5x P/E on FY2016E and 9x and 7x EV/EBITDA on FY2016E respectively. We have rolled forward our business-wise DCF valuation of GDL to FY2016E arriving at a revised price target of Rs250 and maintain Buy recommendation on the stock. We maintain our positive view on Concor.
| | | 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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