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| Summary of Contents STOCK UPDATE IL&FS Transportation Networks
Recommendation: Buy
Price target: Rs284
Current market price: Rs212 Strong BOT performance; higher interest offset by tax reversals Key points - In Q1FY2015 IL&FS Transportation Networks Ltd (ITNL)'s consolidated adjusted earnings grew by 11% on account a tax reversal and a minority gain during the quarter. An increase in the operational projects drove the BOT income (up 23% YoY) and resulted in a better EBITDA margin for the quarter. Higher interest (including under-construction annuity projects) and depreciation charges led to a dip in the PBT (down 26% YoY).
- The road construction companies have suffered owing to a slowdown in fresh orders from the NHAI and a rising interest cost in the system. However, the macro environment is turning supportive now. The NHAI has set a target of 6,000km worth Rs55,000 crore to be awarded during FY2015. On the other hand, the competitive intensity has eased considerably with many players reeling under financial stress. We expect ITNL to gain in terms of both better order booking and a relatively higher IRR in the new projects.
- We remain positive on ITNL owing to an improving medium-term outlook. We believe a surge in the BOT income and a better execution will improve its balance sheet gradually. We maintain our Buy rating with an SOTP-based price target of Rs284.
Dishman Pharmaceuticals & Chemicals
Recommendation: Hold
Price target: Rs146
Current market price: Rs129 Performance weakens in Q1; downgraded to Hold Key points - Dishman Pharma reported a weak performance for Q1FY2015, as reflected in a 525-BPS decline in the OPM and a 34% drop in the adjusted net profit, though the top line grew by 18%. The weak performance of Q1 can mainly be attributed to a change in the product mix and the effect of a high base (in H1FY2014 the company had exceptionally high revenue from a particular client).
- Though the Q1 performance appears to be an aberration, but we would like to highlight that the CRAMs business in general is susceptible to lumpiness and Dishman Pharma in particular is not known to show consistency in performance. However, the company's growth story remains intact barring the occasional hiccups.
- The management has maintained the guidance of Rs1,500 crore of revenues and 26-27% EBIDTA margin in FY2015, as it hopes H2FY2015 would be stronger. We largely maintain our earnings estimates (our assumptions include margins lower than indicated in the guidance). We downgrade the stock to Hold and retain our price target of Rs146.
VIEWPOINT Force Motors
Current market price: Rs687
View: Positive Back on track; expansion plans to boost financials Key points - Force Motors Ltd (FML), a leading manufacturer of passenger and commercial vehicles, has started demonstrating a better operating performance since the past two quarters after five consecutive quarters of a muted top line and OPM performance. In Q1FY2015, the net profit and operating profit of FML grew by 35.9% and 12.3% YoY despite a moderate growth of 8% in the revenues.
- The company is now looking to grow organically through capacity expansions (a new Chennai facility will be dedicated to BMW for engine assembly), new product developments and entry into the off-road vehicle market in India (a niche product segment). Additionally, it is looking to boost its export revenues by increasing its foothold in the African belt, Latin America etc. Moreover, a technical collaboration with Mercedes Benz to assemble engines would boost its overall financial performance.
- In recent times, the stock price has seen fluctuations due to open market sale of shares held by a large corporate entity (BHIL; whose stake has come down from 19% to around 4% as of last week) which has been an overhang on the stock. However, with the overhang out of the way now, the stock price would again track its fundamentals. We expect the revenues and earnings to grow at CAGR of 9% and 10% in FY2014-16 respectively. Currently, the stock is trading at a P/E of 9.6x FY2016E earnings. We see scope for a 15-20% appreciation in the stock price from the current level.
SECTOR UPDATE Q1FY2015 Banking earnings review Key points - In Q1FY2015 The aggregate earnings growth of our banking universe was 5.4% YoY, with private banks reporting a strong earnings growth of 19.6% YoY. In case of PSBs, the aggregate earnings declined by 4.6% YoY and the operating profits saw an improvement led by a better growth in the net interest income (up 11% YoY). Lower treasury profits and elevated provisioning impacted YoY growth in earnings of PSBs.
- The reported gross and net NPAs increased on a sequential basis though the formation of stressed loans (fresh NPAs + restructured loans) stabilised. Private banks continued to maintain an edge in terms of asset quality. The reversal of investment provisions eased the provision burden and provision coverage was largely stable QoQ.
- The Q1FY2015 results suggest some stabilisation in the operating performance of banks (especially PSBs), though a slower credit growth and asset quality remain causes for concern. We believe that going ahead a likely revival in growth could partly address the asset quality and growth issues. The margins are likely to remain stable unless the RBI hikes the interest rates further. Therefore, we continue to be positive on the banks that are fundamentally sound and are likely to benefit from a revival in the economy (ICICI Bank, State Bank of India, Bank of Baroda, Federal Bank) as well as the NBFCs (PTC India Financial Services and LIC Housing Finance).
| | | 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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