Investor's Eye
[October 08, 2013] | | |
| Summary of Contents
SHAREKHAN SPECIAL Q2FY2014 Auto earnings preview
Earnings in slow lane Auto universe (ex Tata Motors) to report low single-digit growth in earnings
Sharekhan's automobile (auto) tracking universe (consisting of coverage and non-coverage automobile companies) is expected to report a 7.7% growth in earnings for Q2FY2014. Excluding Tata Motors, the Q2FY2014 earnings are expected to grow in low single digits of 3.8% year on year (YoY). The Sharekhan coverage universe is expected to report a revenue growth of 1.8% and a profit after tax (PAT) growth of 2.1%. Maruti Suzuki and TVS Motor to outperform OEMs, Exide Industries to lead ancillary space
The original equipment manufacturers (OEMs) are expected to report an 8.3% year-on-year (Y-o-Y) earnings growth for the quarter. Maruti Suzuki would register an earnings growth of 149% on a low base whereas TVS Motor Company (TVS Motor) would record an earnings growth of 52%. Exide Industries would outperform the ancillary space showing an earnings growth of 42%. Festive season and rural demand to boost sales in the near term
The upcoming festival season is expected to lead to a recovery in the automotive volumes. Also, given the good monsoon this year, the crop output is expected to be higher which would boost rural incomes. Apart from the strong tractor demand, we expect two-wheeler sales to surge, given the relatively higher proportion of sales from the rural areas. M&M remains preferred pick in the automotive space
The tractor demand for Mahindra and Mahindra (M&M) remains strong, given the expectations of higher crop output due to a good monsoon. Apart from the strong tractor demand, we believe the automotive volumes would recover with the onset of the festive season. M&M remains our preferred pick in the space. Q2FY2014 Pharma earnings preview
Strong Q2 performance aided by rupee's depreciation Key points -
Exports to drive growth: We expect our pharmaceutical (pharma) universe to report a 19.5% year-on-year (Y-o-Y) growth in revenues for Q2FY2014. The growth would be mainly led by the formulation exports (up 24%) which were aided by the rupee's depreciation. However, the Indian formulation business is likely to see a slower growth due to uncertainties that prevailed over the new pricing policy during the quarter. -
OPM to remain flat for our universe: We expect the operating profit margin (OPM) of most players to expand for the export-driven pharma companies like Dishman Pharmaceuticals and Chemicals (Dishman Pharma) and Lupin (also aided by the launch of new products in the US market). However, Cadila Healthcare (Cadila Health) is likely to witness a decline in the margin due to the competition in key products and the absence of new launches, while Cipla would record a decline in the margin due to the absence of exclusivity (it supplied generic Lexapro to Teva Pharmaceutical Industries [Teva] in Q2FY2013). -
Lower effective tax rate to boost our universe's profit growth to 22.4%: The effective tax rate for the pharma universe stood at 19.1% during the quarter as compared with 23.0% in Q2FY2013. This is likely to boost the adjusted net profit to grow at 22.4% year on year (YoY) during the quarter. The earnings growth would be mainly led by Aurobindo Pharma (Aurobindo; 80.4% YoY) followed by Sun Pharmaceutical and Industries (Sun Pharma; 43.7% YoY) and Lupin (34.2% YoY). Cipla would witness a 15.4% Y-o-Y decline in the adjusted net profit on loss of revenues from the supplies of Lexapro generic to Teva. -
Outlook-positive stance retained: We expect the pharma companies in our coverage to continue to maintain a strong growth in the subsequent quarters, despite head winds in the domestic market and the higher research and development (R&D) expenses by players to keep up with the international quality norms. The growth would be mainly driven by the growth in the base business of the key players, currency benefits and the key launches in the US and European markets. We are especially positive about Aurobindo (it has witnessed a ramp-up in the US supplies), Lupin (a ramp-up in the oral contraceptive portfolio, launch of low-competition products and potential inorganic expansions) and Sun Pharma (consolidation of the newly acquired entities and loss of competition in generic Doxil in the US market). Q2FY2014 Retail earnings preview
Festive-led demand The Q2FY2014 earnings performance of the retail companies under our coverage would be decent on account of increased demand in the festive season. The retail companies under our coverage (Kewal Kiran Clothing Ltd [KKCL], Raymond) are brand-oriented following the traditional distributor-led model, where primary sales account for the major chunk. Titan Industries is expected to post a 15.3% revenue growth (led by a growth in the sales of watches and higher demand for gold jewellery). We expect Jubilant Foodworks to report muted growth of 6% in the same-store sales but a double-digit growth of 27% in the revenues driven by new store addition. -
Kewal Kiran Clothing Company Ltd (KKCL): KKCL is expected to post a 20.4% growth in revenues led by brands Killer and Integriti. We expect Killer and Integriti to post a growth of 20% and 25% year on year (YoY) in revenues respectively. More than 70% of KKCL's revenues comes from the traditional distribution (multi-brand) mode. This is the primary sales channel for which the festive season sales are largely marked in two months before the actual festival. Hence the Q2FY2014 revenues for KKCL shall be driven by the festive demand. On the margin front, we expect KKCL to sustain its margin at the Q2FY2013 level, with a minor 10-basis-point reduction to 27.6% in Q2FY2014. The earnings after tax are expected at Rs20.8 crore, showing an 18% increase over Q2FY2013. -
Raymond Ltd: Raymond's consolidated earnings are expected to grow at 5% YoY, largely led by a growth in the textile and garment segments (the Q2FY2013 base for Raymond was high). The sustenance of the margin of the textile segment, a possible improvement in the margin of the garmenting segment (largely led by the rupee's depreciation) and a minor margin improvement as a result of supply chain initiatives are likely to aid the overall margin growth, despite a contraction in the margin of the branded apparel business. We expect Raymond to report a 14.8% margin for Q2FY2014. This would result in a 2.1% year-on-year (Y-o-Y) growth in the earnings before interest, tax, depreciation and amortisation (EBITDA) to Rs172.8 crore. The reported profit after tax (PAT) is expected at Rs50.7 crore (flat, a 0.9% growth YoY). Excluding the extraordinary items (on account of foreign exchange and inventory write-off for Autumn-Winter 2011 collection), we expect the adjusted PAT at Rs54.2 crore. -
Relaxo Footwears: The company is expected to post a 20% revenue growth, largely led by an improvement in product prices (in keeping with its move towards premiumisation). The benefit of soft rubber prices visible in the last five quarters will be missing, hence we estimate the margin at 10.1% (vs 10.3% in Q2FY2013). The margin is likely to hold owing to the improvement in the product profile and premiumisation. The net earnings are expected to yield a 16% growth YoY. -
Others: For Titan Industries we expect a 15.3% top line growth, a 9.9% margin and an 8.9% decline in the profit. The profit is expected to decline owing to an increase in the financing cost and contraction in the margin of the jewellery business. For Jubilant Foodworks Ltd we expect a 26.9% growth YoY in the revenues, largely led by store addition (the company is expected to have added 30 stores during the quarter). The same-store sales growth is expected at 6% for the quarter. Led by raw material price inflation and the expenses of the Dunkin Donuts format, we expect Jubilant Foodworks's operating profit margin to decline by 88 basis points YoY to 16.8% in Q2FY2014, resulting in a 21.3% Y-o-Y growth in the operating profit. For Page Industries, we expect the revenues to grow at 23% YoY (a 16% volume growth, 6% realisation growth). The margin is expected to be flat at 22.6%, resulting in a 25% Y-o-Y growth in the operating profit. The PAT is expected to grow at 19.8% YoY to Rs36.9 crore for the quarter. Q2FY2014 Cement earnings preview
Weak demand and cost pressure to weigh down earnings Key points -
Seasonally weak quarter: During Q2FY2014, the earnings growth of the cement companies would be dented due to a sluggish demand environment, a seasonal slowdown in the construction sector (due to the south-west monsoon) and the continued cost pressure on the margins (the higher freight charges and a continuous increase in the prices of diesel). Hence, the cumulative earnings of Sharekhan's cement universe are expected to decline by 27.8% on an annual basis. Among the companies under Sharekhan's cement universe, the south-based cement companies like India Cements and The Ramco Cements are expected to witness a sharp erosion on margins and a relatively higher dip on earnings. -
Flattish growth in revenues aided by marginal growth in volumes and non-cement businesses: The cumulative revenues of Sharekhan's cement universe are expected to largely remain flat on a year-on-year (Y-o-Y) basis. On the volume front, Shree Cement is expected to post a flat volume growth, whereas UltraTech Cement (UltraTech) is expected to post a marginal growth in the volume. On the other hand, the south-based companies are expected to post a volume growth of 2-8% on account of a low base effect. Further, the non-cement businesses like viscose staple fibre (VSF) in Grasim Industries (Grasim) and power in Shree Cement will offset the negative impact of a lower realisation in the cement division. -
Margins dented by lacklustre demand and lower average realisation: Though the volume growth was largely flattish to marginally positive in Q2 (as compared with that of Q1), the average realisation declined by 3-4% sequentially. Even when compared on an annual basis, the all-India average realisation is down by close to 7-7.5% as compared with that of Q2FY2013. The worst affected region is north India with a decline of close to 12-13% in the average realisations over the last one year. With the cost pressure also affecting the margins, we expect the cement companies under our coverage to report a 300-850-basis-point decline in the operating profit margin (OPM) during the quarter (as compared with that of Q2FY2013). -
Outlook-earnings to remain under pressure with recovery still some time away: Given the poor demand environment and the rising cost pressure, the weak financial performance of the cement companies is likely to persist in the coming quarters also. However, the valuations have corrected significantly and there is hope of some recovery in demand in the busy season (H2FY2014). In line with our cautious view on the sector, we prefer UltraTech due to its pan-India presence and a relatively stronger balance sheet.
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 | |
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. 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