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Summary
of Contents
STOCK UPDATE
JK
Cement
Cluster:
Cannonball
Recommendation: Buy
Price target:
Rs295
Current market price: Rs153
Better than expected performance
Result highlights
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JK Cement's Q1FY2007 results are way ahead of
our expectations, primarily because of higher-than-expected cement
realisations.
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The revenues for the quarter grew by 39.5% to
Rs279.5 crore, driven by a 32% increase in the cement realisations
and a 5.7% growth in the cement volumes.
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As the cement realisations improved
substantially, JK Cement's operating leverage came into play and
consequently its operating profit for the quarter grew by a huge
163% to Rs65.7 crore.
-
The interest for the quarter declined by 37.4%
as the company has adjusted interest earned (on the surplus funds
from the follow-on public issue) against interest expended. The
depreciation for the quarter jumped by 8%.
-
The net profit for the quarter grew by a
staggering 547% year on year (yoy) to Rs33 crore.
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JK Cement has acquired a 100% holding of a
group company JayKay Cem. This company holds limestone mining
rights. The company will now be implementing a 3-million-tonne
greenfield cement plant in Karnataka. The plant will commence
operations in December 2008.
-
The company is about to commence commercial
operations after the 0.5-million-tonne expansion. Further the
company is abount to place the orders for a waste heat recovery
plant and a captive power plant (CPP).
Punjab National
Bank
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs500
Current market price: Rs367
Strong operating performance
Result highlights
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Punjab National Bank (PNB) reported strong
operational results for Q1FY2007, which were above our
expectations.
-
The net interest income (NII) grew by 18.8%
year on year (yoy) to Rs1,293 crore backed by a 37.5% year-on-year
(y-o-y) growth in the advances and a 25-basis-point growth in the
net interest margins (NIMs).
-
However, PNB's total assets grew by a lower 14%
yoy as it redeemed its investments to fund the advances growth.
The deposits grew by 15.7% yoy; however, they declined by 2.1%
sequentially.
-
The fee income grew by 52% yoy as the company
revised certain fee rates and due to a lower base.
-
The operating profit grew by 36% yoy, as the
operating expenses remained flat. However, adjusting for the
exceptional expenses of Rs87 crore in Q1FY2006, the operating
profit grew by 19.8% yoy.
-
The net profit for Q1FY2007 grew by 2.3% yoy to
Rs367.6 crore. The same is not strictly comparable with that of
Q1FY2006 as during Q1FY2007, PNB had a write back of provisions
and one-time losses of Rs386.8 crore.
-
The concerns we had earlier about the bank like
a higher provisioning requirement and a lower fee income have been
allayed to an extent with the lower proportion of the available
for sale (AFS) portfolio (only 28% of the total investment now
falls in the AFS category) and a strong growth in the fee income.
-
We have revised our FY2007 earnings estimates
downwards by 7% to take into account the one-time provisioning
done by the bank during this quarter while keeping the FY2008
estimates unchanged.
-
At the current market price of Rs367, the stock
is trading at 5.6x its FY2008E earnings per share (EPS) and 0.9x
its FY2008E book value. With a return on equity (ROE) of 17.4% we
believe these valuations are attractive. We reiterate our Buy
recommendation on the stock with a price target of Rs500.
SECTOR
UPDATE
Hotels
More room for
upside
The Indian hotel industry went through a bad phase for
five years, from 1997 to 2002 due to various socio-economic factors
like the nuclear test, SARS disease etc and an unfavourable
demand-supply situation in the industry ie the supply outstripped
the demand. Since then the revival in the economy (Indian and
global) has led to the growth of the industry. Given below is the
snapshot of the key indicators like the occupancy rate (OR), the
average room rate (ARR) and the revenue per room available (RevPar).
Quite notably in the last two-year period, the ORs have improved by
around 500-1,000 basis points (except Bangalore) and the ARRs have
improved by 30-65% (again except Bangalore where they shot up by
131.2%). Both these factors led to the RevPar zooming
ahead.
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