Summary
of Contents
STOCK UPDATE
Ranbaxy
Laboratories Cluster: Apple Green Recommendation:
Buy Price target: Rs558 Current market price: Rs414
Operating margin lower than expected
Result highlights
-
Ranbaxy
Laboratories (Ranbaxy) reported an impressive 167% growth in its
net profit to Rs183.3 crore in Q4CY2006, which is higher than our
expectation of Rs174.1 crore. The improvement in the profitability
was triggered by a forex gain of $8 million. The focused
cost-control efforts and rationalisation of research and
development (R&D) spending also contributed to the profit
growth.
-
The net sales
were higher by 22% to Rs1,697.50 crore in Q4CY2006 which was 4%
above our expectation. The revenue growth was supported by a
stronger revenue inflow from the Simvastatin-80mg tablet (which
was under exclusivity in the USA), integration of Terapia SA
(which reported over 50% growth) and the jump of 45% in the
business from Brazil, Russia, India, China and South Africa
(BRICS) during the quarter.
-
However, the
revenue growth was moderated by the pricing concerns in Europe,
particularly the UK, Germany and France, leading to a 6% fall in
the sales to $52 million and a 16% sequential decline in the
domestic revenues to $66 million.
-
With the
higher realisation from the products under exclusivity and
cost-cutting efforts, the operating profit margin (OPM) expanded
by 920 basis points to 15%; but the expansion was 240 basis points
less than our expectation. Again the margins were inflated by a
foreign exchange (forex) gain of $8 million (against a $2 million
forex gain in Q4CY2005). So if we discount the impact of the forex
gain and the other operating income, the OPM appears 620 basis
points less than our expectation. There is another cause for
concern as well: The OPM has declined by 180 basis points
sequentially. The decline was caused partly by the tapering of the
realisation from Simvastatin after the expiration of exclusivity
in the fag end of Q4CY2006.
-
For CY2006,
the company reported an 18% growth in the top line to Rs6,021.6
crore and an 890-basis-point expansion in the OPM to 15.4%. This
caused the net profit to double (ie a 97% rise) to Rs515.1
crore.
-
The company
has guided for a 15% top line growth (which is in line with our
estimations) with an earnings before interest, tax, depreciation
and amortisation (EBITDA) margin of 16% for CY2007. At the current
market price, the stock trades at 19.9x CY2007E earnings of Rs20.8
per share. We maintain our Buy recommendation with a longer-term
price target of Rs558.
Shree
Cement Cluster: Cannonball Recommendation:
Buy Price target: Rs1,700 Current market price: Rs1,482
Another quarter of superlative performance
Result highlights
-
The company
achieved a net profit of Rs104 crore for Q3FY2007, in line with
our expectations, translating into a year-on-year (y-o-y) growth
of 165%.
-
The net sales
increased by 153% year on year (yoy) to Rs364.5 crore driven by a
huge 80% jump in the volumes and a robust 40% y-o-y rise in the
realisations; however, the sales were down seque tially by
2%.
-
The operating
expenditure increased by 128% yoy to Rs204.4 crore. The rise in
the expenditure was in line with our expectations except for the
freight cost, which was slightly more than expectations at Rs390
per tonne.
-
The sequential
dip in the realisations as well as the rise in the freight costs
can be attributed to the exercise undertaken by the company to
test new markets like Uttar Pradesh. This exercise was undertaken
as the company will be commissioning a plant of 1.5 million metric
tonne (MMT) capacity in March 2007.
-
The operating
profit rose by a whopping 194% yoy to Rs160 crore whereas the
operating margins expanded by 620 basis points to 43.9%. The
earnings before interest, tax, depreciation and amortisation
(EBITDA) per tonne rose 1.5x yoy to stand at Rs1,222 per tonne,
whereas the EBITDA witnessed a marginal dip of 4%
sequentially.
-
The interest
cost stood much lower at Rs0.65 crore whereas the depreciation
provision was also lower at Rs26 crore. Consequently, the net
profit grew by 165.5 % yoy to Rs104 crore in line with our
expectations.
-
Looking
at the stupendous performance by the company in the first nine
months of the current fiscal year, we are upgrading our FY2007
estimates by 20% to Rs400 crore as against Rs332 crore as per
current estimates.
-
At the current
market price of Rs1,500, the stock is trading at 13.1x its FY2007
earnings and 11.7x its FY2008 earnings. We maintain our Buy
recommendation on the stock with a price target of Rs1,700.
Canara
Bank Cluster: Apple Green Recommendation:
Buy Price target: Rs320 Current market price: Rs262
Higher investment provisions are a
surprise
Result highlights
-
Canara Bank's
net profit grew by only 1.9% to Rs363 crore, below our
expectations of Rs394.7 crore. The operating performance was
better than our expectations mainly due to the controlled expenses
rather than the growth in the income, but higher provisions have
been a surprise, which resulted in the reported profit after tax
(PAT) being 8% lower than our estimates.
-
During the
quarter the bank's net interest income (NII) grew by 8.4% year on
year (yoy) to Rs1,038.6 crore compared to our expectations of a
5.6% year-on-year (y-o-y) growth to Rs1,012.3 crore. The increase
is primarily due to a sharp rise in the inte est on the RBI
balances and the other interest component.
-
The other
income declined by 3.8% yoy due to a 1.4% decline in the fee and
other income and a 20% decline in the trading income.
-
The reported
net interest margin (NIM) has declined by 16 basis points to 3.14%
on a y-o-y basis but remained stable on a sequential basis. The
NIM has been under pressure on a y-o-y basis because of a steep
jump in the interest expended component, which has increased by
50% yoy mainly due to a 29% growth in the deposits and a
58-basis-point y-o-y increase in the cost of funds to
4.86%.
-
The operating
profit was better than our estimates of Rs648.7 crore and touched
Rs701 crore, which remained stable on a y-o-y basis but improved
by 13.9% on a sequential basis mainly due to a 6.2%
quarter-on-quarter (q-o-q) decline in the operating expenses
brought about by the lower staff expenses.
-
The provisions
at Rs263 crore were up 7.4% yoy. However we expected the
provisions to be lower on account of the lower marked-to-market
provisions. Hence, despite the operating profits being higher than
our expectations the PAT at Rs363 crore was below our expectations
of Rs394.7 crore.
-
The
non-performing asset (NPA) provisions have been lower although the
absolute NPA numbers are on the rise on a sequential basis. Hence
we feel that going forward higher NPA provisions slightly above
the regulatory requirement would be prudent.
Satyam Computer
Services Cluster: Apple
Green Recommendation: Buy Price target: Rs550 Current
market price: Rs488
Price target revised to Rs550
Result highlights
-
Satyam
Computer Services (Satyam) reported a revenue growth of 3.7%
quarter on quarter (qoq) and of 31.3% year on year (yoy) to
Rs1,661 crore during the third quarter. The revenue growth was not
only below market expectations but also a tad below the company's
guidance. The consolidated volume growth was decent at 8.2% qoq
but the same was not reflected in the revenue growth due to the
appreciation in the rupee and the shift in the revenue mix towards
the offshore business.
-
The operating
profit margin (OPM) improved by 205 basis points to 24.7% on a
sequential basis, in spite of the adverse impact of the rupee
appreciation, an increase in the selling, general and
administrative (SG&A) expenses as a percentage of sales and a
decline in the profitability of its subsidiaries. On the ther
hand, the shift towards high-margin offshore business, decline in
provisions (related to leave encashment and gratuity) and other
cost efficiencies (including pricing and productivity gains in
foxed priced projects) had a positive impact (of over 400 basis
points) on the margins. Consequently, the operating profit grew at
a healthy rate of 13.1% sequentially to Rs410 crore.
-
However, the
earnings growth was limited by the steep decline of 64.2% in the
other income component to Rs10.1 crore (due to the foreign
exchange fluctuation loss of Rs35.5 crore) and the increase in the
effective tax rate to 10.7% (up from 8.8% in the previous
quarter). Consequently, the consolidated earnings grew by 5.4% qoq
and 25% yoy to Rs337.2 crore, which is below the consensus
estimate of around Rs340 crore.
-
For Q4, the
consolidated revenues and earnings are guided to grow by 4-4.5%
and 5.4% respectively on a sequential basis. This implies a
0.3-0.5% downgrade in the annual revenue guidance to Rs6,434-6,442
crore (down from Rs6,452-6,476 crore guided earlier). But the
annual guidance for the earnings including the stock compensation
charges has increased marginally to Rs20.9 per share (up from
Rs20.73-20.81 per share guided earlier). Moreover, the marginal
upgrade in the revenue guidance in dollar terms to $1,443-1,445
million (up from $1,434-1,440 million guided earlier) suggests
that the downgrade in the revenue guidance in rupee terms is
largely due to the steep appreciation in the rupee.
-
At the current
price the stock trades at 23.3x FY2007 and 19.4x FY2008 estimated
earnings (including the non-cash charges for the stock options).
We maintain our Buy call on the stock with a revised price target
of Rs550 (18x rolling four quarters one-year forward
earnings).
Nicholas Piramal
India Cluster: Apple Green Recommendation:
Buy Price target: Rs393 Current market price: Rs266
Results in line with expectations
Result highlights
-
Nicholas
Piramal (Nicholas) reported a 61.3% year-on-year (y-o-y) increase
in its net sales to Rs649.5 crore in Q3FY2007. The growth was
achieved on the back of a 13% increase in the domestic sales and a
whopping 208.9% surge in the global revenues. The sales growth was
ahead of expectations.
-
The 13% rise
in the domestic sales was driven mainly by a 12.6% growth in the
branded formulation business and a staggering 53.1% rise in the
pathology laboratory (pathlabs) business.
-
The
international sales benefitted largely from the incremental
revenues flowing in from Pfizer's Morpeth facility in the UK and
Avecia (now NPIL UK). Morpeth and NPIL UK together contributed
Rs216 crore of revenues during the quarter, up 17% on a sequential
basis.
-
Nicholas'
operating profit margin (OPM) expanded by 650 basis points to
14.9% in the quarter, driven by a sharp 970-basis-point reduction
in the raw material cost and a 360-basis-point drop in the other
expenses. The material cost improved because the company derived a
higher amount of the high-margin CRAMS revenues during the
quarter. Further, the enhanced capacity utilisation of the Morpeth
facility also increased the operating leverage.
-
Consequently,
the company's operating profit rose by 185.3% to Rs97 crore during
the quarter.
-
Even though
the acquisitions led to a substantial increase in the interest and
depreciation expenses during the quarter, the growth in the net
profit was impressive at 400% to Rs48.4 crore. Adjusting for the
income for the prior-period adjustments, the adjusted net profit
stood at Rs55.6 crore, up 474% year on year (yoy). The net profit
growth was aided by a relatively lower tax incidence during the
quarter. The tax outgo was lower on account of the progressive
shift of the manufacturing activities to the tax-exempt Baddi
facility. The net profit was in line with our
estimates.
-
At the current
market price of Rs266, the stock is quoting at 15.9x its estimated
FY2008 earnings. In view of the strong revenue flows and the
enhanced profitability picture for the coming years, we maintain
our Buy recommendation on the stock with a price target of
Rs393.
Reliance
Industries Cluster: Evergreen Recommendation: Buy Price
target: Rs1,530 Current market price: Rs1,380
Price target revised to Rs1,530
Result highlights
-
Reliance
Industries (RIL) has positively surprised in its Q3FY2007 results
by reporting a whopping 57.6% year-on-year (y-o-y) growth in its
earnings, way ahead of our and consensus estimates.
-
The net
revenues for the quarter grew by 45.7% driven by a strong 48.2%
y-o-y growth in the revenues from the petrochemicals business and
a 37.5% y-o-y growth in the revenues from the refining
business.
-
The profit
before interest and tax (PBIT) in the petrochemicals business grew
by only 32.2% on account of a 156-basis-point contraction in the
margins. The PBIT of the refi ing business grew by 124.9% on the
back of a 358-basis-point expansion in the margins. As a result
the PBIT grew by 38% yoy to Rs1,764 crore.
-
The refining
business again gave a positive surprise and the gross refining
margins (GRMs) grew by 28.6% yoy and also 28.6% sequentially
despite a 36.1% yoy and a 17.9% sequential decline in the
Singapore benchmark GRMs. In fact this is the highest ever
out-performance over the benchmark Singapore complex by
RIL.
-
With the
better-than-expected performance of the refining division and the
robust top line growth of the petrochemical business, the net
profit grew by a massive 57.6% to Rs2,799 crore.
-
We like the
way RIL has been diversifying into new areas of growth like the
upstream oil and gas activity, organised retailing and
construction of special economic zones (SEZs). However, these
areas of businesses would entail a lot of investment for RIL going
forward and we expect them to generate tremendous value for the
shareholders.
-
We are
revising our FY2007E earnings by 7.1% and the FY2008E earnings by
7.9%. Given the out-performance of our and street's expectations
for the second consecutive quarter, more clarity on the
exploration end of the business and definitive visions for the new
ventures like retail, we are revising our price target to
Rs1,530.
UltraTech
Cement Cluster: Ugly Duckling Recommendation:
Buy Price target: Rs1,365 Current market price: Rs1,130
Stellar performance
Result highlights
-
UltraTech
Cement Limited (UTCL) has reported a whopping 790% year-on-year
(y-o-y) jump in its net profit at Rs212.46 crore for Q3FY2007,
marginally ahead of our expectations.
-
The net sales
increased by 61% year on year (yoy) from Rs782 crore to Rs1,260
crore boosted by a 14% increase in the volumes and a 41% jump in
the realisations.
-
The company's
leverage to volumes resulted in the operating profit registering a
growth of 244.5% yoy to Rs380 crore whereas the operating margins
expanded by 1,600 basis points to 30% yoy.
-
On the
backdrop of a robust realisation growth and a muted increase in
the operating expenditure, the earnings before interest, tax,
depreciation and amortisation (EBITDA) per tonne stood at Rs879
clocking a y-o-y growth of 200% and a quarter-on-quarter (q-o-q)
growth of 27%.
-
Depreciation
stood at Rs57 crore whereas the interest expenditure stood at Rs20
crore, marginally lower than expectations.
-
Sweetened by a
higher-than-expected other income of Rs16 crore, the net profit
stood at Rs212.5 crore clocking a y-o-y growth of
790%.
-
The company's
capital expenditure (capex) plan of Rs2,700 crore is progressing
well. This will provide the much needed volume growth going
forward and result in higher profitability on account of the
savings in power costs.
-
Taking notice
of the stellar third quarter performance and considering the
buoyant scenario in the sector in the next one year, we are
upgrading our FY2007 earnings estimates by 6% to Rs722 crore and
FY2008 earnings by 28% to Rs1,132 crore.
-
At the current
market price of Rs1,130, the stock is discounting its FY2007
revised earnings by 18.4x and its FY2008 revised estimates by
12.4x whereas on an enterprise value (EV) per tonne basis, the
stock is trading at USD171 per tonne. Maintaining our positive
view on the stock, we are upgrading our price target to
Rs1,365.
Bharat
Bijlee Cluster: Apple Green Recommendation:
Buy Price target: Rs1,730 Current market price: Rs1,435
Price target revised to Rs1,730
Result highlights
-
Bharat Bijlee
Ltd's (BBL) Q3FY2007 results are slightly ahead of our
expectations.
-
The revenue
for the quarter grew by 28.5% to Rs120 crore on the back of a
strong order book of Rs270 crore at the beginning of the
quarter.
-
The operating
profit for the quarter grew by 41.5% to Rs22.2 crore, as the
operating profit margin (OPM) for the quarter improved by 180
basis points to 20.2% against 18.4% in Q3FY2006. This is a
significant improvement and the company has been able to reverse
the declining margin trend as depicted in H1FY2007 (H1FY2007 OPM
stood at 11.9% as against 12.4%). The H1FY2007 performance was
marred by the low margin 100MVA transformer business, which was
the entry order for BBL in the high range market.
-
The interest
for the quarter increased by 53% while the depreciation increased
by 25%.
-
Consequently
the net profit for the quarter grew by an impressive 43% to
Rs13.37 crore.
-
< ONT face="Trebuchet MS" size=2>The
order backlog for the quarter jumped by almost 100%. The order
inflows also showed a very strong growth of about 140% year on
year (yoy).
Genus Overseas
Electronics Cluster: Ugly Duckling Recommendation:
Buy Price target: Rs345 Current market price: Rs256
Price target revised to Rs345
Result highlights
-
The Q3FY2007
results of Genus Overseas Electronics (Genus) are in line with our
expectations.
-
The revenues
for the quarter grew by 266% to Rs89.5 crore mainly on the back of
the faster execution of the Surat meter supply contract.
-
The operating
profit for the quarter grew by 182% to Rs12.6 crore and the
operating profit margin (OPM) for the quarter stood at 14.1% as
against 18.3% in Q3FY2006. However, the Q3FY2007 and Q3FY2006 OPMs
are not comparable. That's because the company had abnormal
operations in Q3FY2006 due to a fire incident because of which the
other expenses were on the lower side in Q3FY2006. Going forward,
we expect the company to maintain its OPM in the range of
14.5-15%.
-
The interest
expense for the quarter rose by 108%, as the company has availed
of large working capital loans to execute its project
orders.
-
Consequently,
the net profit for the quarter grew by 273% to Rs6.2 crore.
-
The order book
of the company stood at Rs470 crore at the end of December
2006.
New Delhi
Television Cluster: Emerging
Star Recommendation: Buy Price target: Rs348 Current market
price: Rs309
Price target revised to Rs348
Result highlights
-
NDTV witnessed
a muted revenue growth of 15.8% year on year (yoy) to Rs79.1 crore
owing to higher competition.
-
The operating
profit margin (OPM) was down by 360 basis points yoy to 24.2% as
the company is spending for new businesses. The operating profit
was flat yoy at Rs19.1 crore as per expectations; however, it
improved substantially compared to an operating loss in
Q2FY2007.
-
The marketing
and distribution cost, the primary reason for the increased cost,
was up 59.8% yoy at Rs10.7 crore, but as a percentage of sales it
declined to 13.5% as compared to 14.1% and 18% in Q1FY2007 and
Q2FY2007 respectively.
-
The incubation
costs of the planned new ventures seem to have inflated the cost
structure and segregation of these costs this quarter onwards will
lead to the improved profitability picture for the news
business.
-
The profit
after tax (adjusted for extraordinary items) was down at Rs10.0
crore as against Rs14.1 crore in Q3FY2006 as expected.
-
We have
lowered our earnings estimates for FY2007 and FY2008 as NDTV
continues to be in an investment mode whereby we expect the
short-term profitability to remain muted. At the same time we
remain bullish on its exciting broadcasting properties,
diversification in other genres of broadcasting such as general
entertainment and lifestyle, its foray in the media consulting
segment and media process outsourcing thus leveraging on its
expertise in the business. The above makes it a good integrated
media play. |