| |
| Summary of Contents STOCK UPDATE Mahindra & Mahindra
Recommendation: Buy
Price target: Rs1,440
Current market price: Rs1,229 Impressive margins, new launches to revive volume growth; maintain Buy Key points - Mahindra and Mahindra (M&M) overcame a 5.3% fall in volumes and the merger of the loss-making truck and bus business to report an impressive OPM of 14.3% for Q1FY2015. The OPM expanded by 55BPS YoY on account of a higher GPM. The company undertook price increases and cost rationalisation which aided the margin expansion. Further, helped by a higher other income the PAT rose by 4.3% YoY to Rs896 crore, which was higher than our expectation.
- Over the past several quarters the volumes of the company's auto division have declined because of weak consumer sentiment and a lack of new product launches. The company has lined up five product launches over the next 15 months which along with the improvement in consumer sentiment are expected to drive the growth in FY2016. The effect of a weak rainfall in this monsoon season was visible on the company's tractor volumes in July 2014. Even as the monsoon deficit has lowered, the volume in the tractor segment is expected to remain flat over the next couple of months and pick up only in H2FY2015.
- The company has positively surprised on the profitability front with an increase in the OPM despite weak volumes. The losses at the truck and bus division have also reduced due to the benefit of consolidation. We have increased our earnings estimates for FY2015 and FY2016 largely in view of an improved outlook on the margins. Our earnings estimates for FY2015 and FY2016 have been revised upwards by 2.5% and 4% respectively. We maintain a Buy recommendation on the stock with an SOTP-based revised price target of Rs1,440 (vs Rs1,400 earlier).
State Bank of India
Recommendation: Buy
Price target: Rs3,100
Current market price: Rs2,415 A steady operating performance Key points - For Q1FY2015 State Bank of India (SBI) reported a steady operating performance as its pre-provisioning profit grew at a healthy rate of 16% YoY, though higher provisions (up 22% YoY) led to a flattish growth in the profit (up 3.3% YoY). The domestic margins improved sequentially but a decline in the margins of the overseas business contributed to a slight correction in the overall margin (which contracted by 4BPS QoQ to 3.13%).
- Fresh addition to NPAs increased sequentially (Rs 9,932 crore) largely contributed by the mid corporate and agriculture segments (due to delayed sowing and expectations of a debt waiver in Andhra Pradesh). However, the reported NPAs were largely stable QoQ mainly due to higher write-offs. The fresh restructuring of advances was much lower QoQ at Rs3,600 crore vs Rs7,636 crore in Q4FY2014.
- SBI's operating performance has stabilised and is gradually improving led by a stable margin and a slower growth in operating expenses. While higher slippages cause some concerns, the likely revival in the economy may aid an improvement in the asset quality. With a tier-I CAR of 9.6% SBI is better capitalised compared with the other public sector banks. We expect its earnings to grow at a CAGR of 25% (over FY2014-16) resulting in an RoA of about 0.8%. We maintain our Buy rating on the stock with an SOTP-based price target of Rs3,100.
Aurobindo Pharma
Recommendation: Buy
Price target: Rs871
Current market price: Rs721 Healthy growth in Q1; price target revised to Rs871; maintain Buy Key points - Aurobindo Pharma reported a strong performance in Q1FY2015, as reflected in a 70% growth in the net sales, a 442-BPS expansion in the OPM and a 117% surge in the adjusted net profit. The performance should be viewed in light of the integration of the newly acquired API business (loss-making) of Actavis in the key European countries as it materially absorbed the operating profit from the generic Cymbalta (launched under shared exclusivity in the US market) during the quarter. \
- The reduction in debts by nearly $80 million during Q1, a record filing of 40 ANDAs in the US market and the management estimating a lower amount of loss (of EUR10 million vs earlier estimate of EUR 20 million) from the newly acquired API business of Actavis are some of the positives.
- We have marginally fine-tuned our earnings estimate for FY2015 to adjust for the higher depreciation and effective tax rate in FY2015. However, we assign a higher valuation multiple (of 14x FY2016E EPS vs 12x FY2016E EPS) on a better growth outlook to set a price target of Rs871. We maintain the Buy rating on the stock.
Sun TV Network
Recommendation: Buy
Price target: Rs515
Current market price: Rs420 Soft quarter, earnings impacted by IPL losses Key points - In Q1FY2015 Sun TV's revenues grew by 5.3% YoY to Rs633.5 crore; excluding the IPL revenues of Rs113 crore the revenues were up by 3.5% YoY. The EBITDA margin declined marginally by 73BPS YoY to 58%, though excluding the IPL related loss of Rs43.5 crore the EBITDA margin stood at 79% against 76.4% in Q1FY2014. The PAT for the quarter came in at Rs165.6 crore (including the IPL losses).
- The management expects the benefits of the phases III and IV of the digitisation process to have a full impact on the revenues in FY2017 and the subscriptions revenues to touch around Rs1,500-2,000 crore against Rs617 crore in FY2014. On the advertisement front, the management expects softness in FY2015; though it expects the scenario to improve in FY2016.
- Sun TV is among the prime beneficiaries of the digitisation theme, though on account of a potential delay in the implementation of phases III and IV, the revenue accretion process will be longer than expected. We have tweaked our earnings estimates for FY2015 and FY2016 to incorporate the lower growth in advertisements in FY2015, the lower than expected subscription revenues and the higher than expected IPL loss. Sun TV has grossly underperformed the market on account of softness in its earnings performance and the overhang of a CBI case on the promoters. We believe improving earnings delivery in FY2016 and FY2017 will be the re-rating trigger for the company. We maintain our Buy rating on the stock with a price target of Rs515.
- Risk: Any significant delay in the digitisation process in the key markets could pose an earnings risk for the company; also, the CBI case against the promoters will be an overhang on the stock's performance in the near term (we do not see any impact of the same on the company's business performance).
Finolex Cables
Recommendation: Buy
Price target: Rs285
Current market price: Rs200 A soft quarter but promising future; retain Buy Key points - Finolex Cables Ltd (FCL) reported flat earnings for Q1FY2015. The earnings growth was in line with the revenue growth, as the expected demand revival is yet to reflect in the company's numbers. Though the communication cable business disappointed on the margin front with a higher fixed cost and flat revenues, but the major revenue contributing segment of electrical cables managed to expand its margin by 100BPS YoY and grow its revenues by 7% YoY. Consequently, the OPM of FCL expanded by 50BPS to 9.8% which lifted the operating profit by 9% YoY. However, on account of higher depreciation (as per the revised accounting policy) and tax outgo, the PAT turned flat YoY at Rs35 crore in Q1FY2015. What is noteworthy is that FCL generated healthy cash flow of around Rs 40 crore from operations in this quarter.
- While the performance of the electrical cable business was satisfactory, the management believes the derived demand from the automobile industry is yet to pick up, given the overall volume growth in the automobile industry in recent times. On the other hand, the performance of the communication cable segment remained subdued, owing to a delay in the procurement activities of the government during the general election period. We expect a pick-up in both the segments in the coming quarters. Further, FCL is going to launch switchgears by Q4FY2015 which should bring some incremental revenues and earnings from FY2016.
- Given the potential revival in the demand from the industrial and infrastructure sectors, we retain our positive outlook for the company's core business of cables. Further, the expected launch of high-margin switchgears in Q4FY2015 looks promising. We remain positive on FCL considering its potential to grow its earnings in high teens, close to 20% RoE and ability to generate healthy free cash flow. We retain our Buy recommendation and price target of Rs285 (based on SOTP) on the stock.
| | | 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