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| Summary of Contents STOCK UPDATE Ratnamani Metals and Tubes
Recommendation: Buy
Price target: Rs400
Current market price: Rs320 Piping hot; upgrade to Buy Result highlights - Ratnamani Metals and Tubes (Ratnamani Metals)' reported strong numbers for the quarter ended March 2014, the revenues surged by 16% YoY to Rs400.9 crore. The sales growth was backed by a 4% growth in the revenues of the carbon steel tubes and pipes segment (CS pipes) and a 26% jump in the stainless steel tubes and pipes (SS pipes) segment.
- The gross profit margin improved by 30BPS to 35.9% on the back of a lower input cost. The interest cost for the quarter increased by 35% to Rs3.7 crore on the back of an increasing cost of the debt, whereas the other income was down 23% to Rs3.6 crore. The profit after tax for the quarter grew by 29% YoY to Rs50.8 crore.
- Ratnamani Metals' management expects the demand for the pipes segment to improve materially from its key user industry, the oil and gas sector. The interconnection of the rivers across the country (connecting 72 rivers, BJP manifesto) would be the key demand driver for the CS pipes segment going ahead. The domestic and export demand for SS pipes also remains strong. Consequently, we have revised our earnings estimates and upgrade our recommendation to Buy with a price target of Rs400.
IRB Infrastructure Developers
Recommendation: Buy
Price target: Rs221
Current market price: Rs187 Improving growth outlook; Buy maintained Result highlights - IRB Infrastructure Developers (IRB) reported a net profit decline of 28% on account of a weak performance of the construction business (-16% YoY) and a surge in the higher interest expenses (after commissioning of the Jaipur-Deoli project) in Q4FY2014. On the positive side, the revenues from the BOT road segment improved considerably (up 14% YoY) resulting in a 548-BPS improvement in the overall margin.
- The company's order book has swelled to Rs11,974 crore (inclusion of Rs5,500 crore projects bagged recently) providing a construction revenue visibility over the next three to four years. The tariff revision in some projects from April 1, 2014, along with an improvement in the traffic is expected to drive the BOT revenues.
- IRB is well funded to meet the Rs2,900 crore equity requirement over the next three years with internal accruals. We believe IRB's earnings visibility over the next two years has improved significantly. We maintain our Buy rating on the stock with a price target of Rs221. We have not factored in our valuation for three new projects bagged recently, which are awaiting financial closure and clarity on the tariff and traffic estimates.
SHAREKHAN SPECIAL Q4FY2014 IT earnings review Key points - FY2014 has ended on a soft note for the Indian IT sector as the top four IT companies recorded a -0.4% to 3% sequential growth for the March 2014 quarter. On an aggregate basis, the top four IT companies have reported a 1.6% sequential growth in the revenues. Though the margin performance was impressive, but was yet again driven by business efficiencies across the board.
- Notwithstanding the sombre Q4FY2014 performance, the demand outlook for FY2015 remains positive. Apart from a slight moderation from Infosys' management (which seems to be a company specific issue), the commentary of the other companies management throughout (including the outlook offered by ISG and Cognizant given in Q1CY2014) remained positive for FY2015. This keeps our core investments thesis intact for the sector for FY2015 and FY2016.
- In the last three months, the CNX IT indices have underperformed with a -12% negative return vis-a-vis around 18% return by the broader market indices. The underperformance was attributed to a portfolio rebalancing towards the cyclical trades and the rupee's appreciation against the dollar (6.2% since February 2014).
- There is still room for a further appreciation of the rupee against the dollar owing to a stable government formation and potential improvement in the domestic macro indicators, which could restrict any material outperformance from the IT sector as a whole vis-a-vis broader market indices in the near term. However, the recent correction provides investors (12-month perspective) with an attractive price points to buy into the quality IT companies like TCS and HCL Technologies in the large-cap space and Persistent Systems and FSL in the mid-cap space.
| | | 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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