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| Summary of Contents STOCK UPDATE GlaxoSmithKline Consumer Healthcare
Recommendation: Hold
Price target: Rs4,990
Current market price: Rs4,886 Volume growth in HFD moderated to 3%; recovery expected from H2FY2015 Key points - GlaxoSmithKline Consumer Healthcare (GSK Consumer) posted a disappointing performance in Q1FY2015 with the volume growth in the core HFD segment moderating to 3% from 7-8% in the previous quarters and the OPM contracting because of inflated raw material prices. Export sales (accounting for 6% of the overall sales) declined by 26% due to certain one-off items and a slowdown in Bangladesh. Though the GPM was down by about 320BPS, but the company managed to arrest a significant drop in the OPM by reducing its advertisement and other costs.
- The drop in the sales volume of GSK Consumer was largely in line with the decline in the category growth as a result of the lag effect of the overall slowdown in consumer demand in the domestic market. With consumer sentiment on the verge of an improvement and the company focused on enhancing its distribution reach by 1 million outlets in the next 18 months, we expect the sales volume growth to recover to high single digits from the second quarter of the current fiscal. Though we expect a drop of about 50BPS in the OPM in FY2015, but we expect the margin to recover in FY2016.
- We have revised downwards our earnings estimates by 4% and 3% for FY2015 and FY2016 respectively to factor in the lower than estimated volume growth and GPM. The company's strong cash generation ability, good dividend pay-out and strong market positioning in the HFD segment make it one of the better players among the FMCG peers. However, the valuation of 29x FY2016E does not provide much upside from the current levels. We maintain our Hold recommendation on the stock with a revised price target of Rs4,990 (valuing the stock at 28x the average earnings over FY2016-17).
Capital First
Recommendation: Buy
Price target: Rs300
Current market price: Rs263 Earnings outlook improves, price target revised to Rs300 Key points - Capital First delivered a strong performance in Q1FY2015 as its net profit grew by 279% YoY to Rs20.8 crore during the quarter. The growth in the profit was largely supported by a strong uptick in the net interest income (up 53% YoY). There were also a one-off income of Rs6.3 crore (forex gain, interest on income tax refund which was utilised to write off the entire goodwill amount).
- The net interest margin also saw an expansion led by increased disbursements to the consumer durable and two-wheeler segments. The total assets under management (AUM) grew by 32% YoY with the retail loans constituting 82% of the overall book. The asset quality saw a marginal deterioration QoQ as the gross and net NPAs were at 0.54% and 0.09% respectively.
- Capital First's operational performance remains strong while it net profit is also showing a strong uptick due to operating leverage. It has downsized the unprofitable businesses due to focus on profitability. With a strong and experienced management at the helm and a high capital adequacy ratio (21.3% as of Q1FY2015) the company is poised to emerge among the leading diversified NBFCs in the medium term. We have raised our estimates and rolled over our valuation multiples to FY2017E book value leading to a revision in our price target of Rs300. We maintain our Buy rating on the stock.
Ratnamani Metals and Tubes
Recommendation: Buy
Price target: Rs500
Current market price: Rs415 Improved business visibility, price target revised to Rs500 Key points - Ratnamani Metals & Tubes Ltd (RMTL) delivered strong earnings for Q1FY2015, with a strong top line growth of 20% YoY to Rs349.4 crore. The growth was led by an 11% growth in carbon steel (CS) tube and pipe segment on the back of a higher realisation and volume, and a 26.3% jump in the stainless steel (SS) tube and pipe segment (which was largely volume led). The OPM remained stable at 19.7% while the interest cost for the quarter declined by 31% to Rs1.4 crore on the back of a decline in the debt and a 17% growth in the other income to Rs3.5 crore. The effective tax rate declined by 265BPS to 33.6% and the net income for the quarter rose by 29% YoY to 38.7 crore.
- The company booked Rs490 crore worth of orders during the quarter which took the total order book to Rs1,340 crore, up 74% YoY. Of the order book, export orders account for about Rs250 crore whereas the domestic orders account for Rs1,090 crore. The total debt at the end of the quarter stood at Rs70 crore, and cash and cash equivalents stood at Rs170 crore.
- The management is experiencing strong traction in the oil & gas sector and export markets, and expects strong order flows in the coming years. Further, the interconnection of rivers across the country (connecting 72 rivers) would be the key demand driver for carbon steel pipes going ahead. The demand for SS pipes also remains strong. We have marginally tweaked our earnings estimates for FY2015 and FY2016 led by higher revenue estimates in view of strong order additions. Given the strong growth visibility and the improvement in earnings predictability, we have increased our target multiple for RMTL and increased our price target to Rs500. We maintain our Buy rating on the stock.
IDBI Bank
Recommendation: Hold
Price target: Rs105
Current market price: Rs85 Asset quality and margin disappoint; price target revised to Rs105 Key points - IDBI Bank reported a weak set of numbers for Q1FY2015 as its operating profit declined by ~30% YoY leading to a sharp 66% Y-o-Y decline in the net profit to Rs108 crore. Due to a rise in the cost of funds and increased priority sector related lending the margin declined by 42BPS QoQ to 1.7%.
- The asset quality disappointed as stressed loans (Rs1,088 crore of slippages and fresh restructuring of Rs2,120 crore) remained high. The bank has about two to three large corporate accounts which may run into trouble while the restructuring pipeline is worth around Rs1,000 crore. The provision coverage ratio slipped to 51.5% from 64.5% in Q4FY2014.
- IDBI Bank's operating metrics remained subdued compared to the peer banks especially on the asset quality front. Also, given the weak capital position (tier-1 CAR of 7.85%), dilution risks remain. In view of the weak Q1FY2015 results we have reduced our estimates for FY2015 and FY2016 leading to a revision in the price target to Rs105. We maintain our Hold rating on the stock.
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| Regards,
The Sharekhan Research Team |
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