| |
| Summary of Contents | STOCK UPDATE Bharat Electronics
Recommendation: Buy
Price target: Rs2,650
Current market price: Rs2,275 Higher order execution led to strong operating performance Key points - Bharat Electronics reported a strong set of results in a seasonally weak quarter with a revenue growth of 24% to Rs1,294 crore and a healthy margin of 9.2% as operating leverage kicked in during Q2FY2015. The adjusted profit for the quarter stood at Rs147 crore, a growth of 148% year on year (YoY). The total order book stood roughly around Rs22,500 crore (close to 4x the revenues) at the end of Q2FY2015.
- In view of the strong performance in H1FY2015, we have revised our earnings estimates for FY2015 and FY2016 marginally upward to take into account the strong order execution and high margin. The revised earnings estimates for FY2015 and FY2016 are Rs140.1 and Rs156.3 respectively.
- We continue to prefer Bharat Electronics as a niche public sector play in the fast growing defence sector. We reiterate our Buy rating on the stock considering the positive news flow in the defence sector and the improving sector dynamics. Considering the significant improvement in the order inflow, higher order execution and strong margins expected over the next two to three years, we see scope for further earnings upgrades over FY2016 and FY2017. At the current market price the stock is trading at price/earnings ratio of 16.3x and 14.7x the FY2015E and FY2016E estimated earnings respectively. We maintain our price target of Rs2,650 for the stock.
Finolex Cables
Recommendation: Buy
Price target: Rs285
Current market price: Rs237 No spark in Q2 but the outlook remains bright Key points - In Q2FY2015, Finolex Cables Ltd (FCL) reported a flat earnings growth but the adjusted earnings (adjusting extraordinary income of Rs8 crore in Q2FY2014) grew by 10% YoY to Rs79 crore, which is much ahead of our estimate. The result was mainly contributed by electrical cables business as the communication cables business continues to be depressed with the ordering activities from government being absent. On the positive side, electrical cable business registered a volume growth of 7% and FCL sustained an overall OPM at 12.6%. During H1FY2015, the adjusted earnings grew by 7% YoY, backed by a 5% revenue growth and marginal improvement in operating margin.
- During the quarter, due to planned maintenance at copper factory, inventory was piled up in advance, resulting into higher inventory sequentially but it managed well its working capital with lower receivable; cash generation remained healthy. The management shared that FCL is expected to have a soft launch for its switchgear products during Q4FY2015.
- Considering the H1FY2015 numbers, we have fine-tuned our FY2015 and FY2016 estimates. However, we maintain our positive stance on the stock as we believe the communication cables business could see better days ahead, considering the attention of new government on widening the broadband network. Nevertheless, with signs of revival in the core sectors, electrical cable would continue to have a healthy outlook. Moreover, the potential scale up in switchgear business could improve the overall margin profile of the company. With introduction of FY2017 earnings in the note, we have rolled-over our price multiple to FY2017 earnings and maintain our Buy recommendation on the stock with a price target of Rs285, based on SoTP.
Ratnamani Metals and Tubes
Recommendation: Buy
Price target: Rs640
Current market price: Rs578 Business visibility improves, price target revised to Rs640 Key points - Ratnamani Metals & Tubes (Ratnamani) delivered strong earnings for Q2FY2015, with a strong top line growth of 52% YoY to Rs438.1 crore. The growth was led by a 39% growth in the CS pipe business on the back of a higher realisation (up 16%, due to a higher contribution from the value-added products) and an increase in volume (up 57%, due to a strong traction in demand), and a 48% jump in the SS pipe segment (volume up 53% YoY, demand remains robust). The OPM improved by 142BPS to 20.1% while the interest cost for the quarter declined by 38% to Rs1.3 crore on the back of a decline in debt. The adjusted earnings for the quarter improved by 73% YoY to Rs49.2 crore.
- The order book for the quarter stood at Rs1,068 crore, 32% higher as compared with the same period in the last year. The company is likely to receive a month's order in the range of Rs125-150 crore which will be sustainable in the years to come. It is receiving more orders for CS pipes as compared with SS pipes.
- The management is confident of maintaining the current growth rate and the margin in the range of 18-20% over the next couple of years. It is experiencing strong traction in the oil & gas sector and the export market, and expects strong order flows in the coming years. We have marginally tweaked our earnings estimates for FY2015 and FY2016 in view of the higher revenue estimates due to strong order additions. Given the strong growth visibility and improvement in the earnings predictability, we increase our target multiple and price target for Ratnamani. We maintain our Buy rating on the stock with a revised price target of Rs640.
Corporation Bank
Recommendation: Hold
Price target: Rs388
Current market price: Rs330 Core earnings remain subdued, retain Hold rating Key points - Corporation Bank's earnings performance was weak as it reported a profit of Rs160.5 crore (Y-o-Y growth higher due to a low base of Q2FY2014) partly supported by reversal of tax provisions of Rs42.9 crore. The net Interest income growth was relatively better (up by 8% YoY) as margins increased by 7BPS QoQ to 2.0%.
- The fresh NPAs additions were lower than Q1FY2015 (Rs790 crore vs Rs 1,315 crore in Q1FY2015); though recoveries and upgradations were also much lower on QoQ leading to an increase in the reported NPAs. According to management the asset quality pressure remains over the next two quarters especially from infrastructure sector.
- Given bank's subdued net interest margins, higher NPA provisions and weak capital position, the earnings may remain subdued (we expect RoAs of ~0.4%). Going ahead, the capital raising could result in further dilution in return ratios. Currently, the stock trades at 0.5x FY2016 book value which reflects weak operational performance. We maintain Hold rating on the stock (price target Rs388).
| | 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 |
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