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Summary
of Contents
STOCK UPDATE
ICICI
Bank
Cluster: Apple Green
Recommendation:
Buy
Price target: Rs1,240
Current market price: Rs977
Price target revised to Rs1,240
Result highlights
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ICICI Bank's
Q3FY2007 net profit at Rs910 crore was much above our and market
expectations. The net profit saw a growth of 42.2% year on year
(yoy) against our expectation of a 26.1% year-on-year (y-o-y)
growth. The robust performance was driven mainly by a very high
growth in the fee income and the other income compared with our
expectations. Despite a rise of 125.6% in the provisions, the
profit growth was very strong on the back of a 65.4% growth in the
operating profit.
-
The net
interest income (NII) grew by 31.9% yoy to Rs1,708.8 crore. What's
impressive is that in Q3FY2006 the NII included a securitisation
income excluding which the y-o-y NII growth stands at
53%.
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The other
income grew by 68% yoy to Rs1,980.6 crore, of which the core fee
income grew by a strong 52.7% yoy to Rs1,345 crore.
-
The operating
profit was up by a strong 65.4% on the back of a good NII growth
and a sharp rise in the fee income. The operating expenses
increased in line with the business growth.
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The provisions
increased by 125.6% mainly due to higher provisions for the
non-performing assets (NPAs). The asset quality deteriorated as
non-collateralised retail loan products like credit cards reported
defaults. The gross non-performing asset (GNPA) increased by Rs650
crore on a sequential basis and the net non-performing asset
(NNPA) also increased in absolute and percentage terms.
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The capital
adequacy ratio (CAR) stood at 13.4%, with the Tier-I CAR at 8.63%.
Incorporating the Basel II guidelines the Tier-I CAR would be 9.5%
and we feel the bank can maintain its current growth rates without
any dilution in the medium term.
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We have
revised our FY2007 and FY2008 estimates based on the bank's
improved performance on the non-interest income front. We have
also factored in the higher provisions that may be made in future
in view of the signs of deterioration in the retail loan book. We
have revised the FY2007 and FY2008 profit after tax (PAT)
estimates by 2.9% and 2.4% to Rs3,375.7 crore and Rs4,041.9 crore
respectively. We have also introduced our FY2009 numbers as we
believe that slowly the market would start factoring in the FY2009
financials.
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At the current
market price of Rs977, the stock is quoting at 17.5x its FY2009E
earnings per share (EPS), 7.2x its pre-provisioning profits (PPP)
and 2.8x book value (BV). The valuation looks attractive if one
considers the value of the bank's subsidiaries which works out to
Rs400 per share of the bank. We maintain our Buy recommendation on
the stock with a one year price target of Rs1,240.
Maruti
Udyog
Cluster: Apple Green
Recommendation:
Buy
Price target: Rs1,050
Current market price: Rs939
Loss of new plant impacts reported
profits
Result highlights
-
The Q3FY2007
results of Maruti Udyog Ltd (MUL) re in line with our
expectations.
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The company's
net sales for the quarter grew by 18.5% to Rs3,679.5 crore from
Rs3,112.0 crore in Q3FY2006. The growth was led by a volume growth
of 18.7% during the quarter and was in line with our
expectations.
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The
expenditure for the quarter was higher due to higher employee
costs, an increase in royalty and a loss with respect to Maruti
Suzuki Automobiles India Ltd (MSAIL). Considering all these the
operating profit margin (OPM) declined by 52 basis points to
14.36%. The margins were affected due to higher royalty expenses.
Consequently, the operating profit grew by 14% to Rs528.48
crore.
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The interest
and depreciation costs for the quarter were higher due to the
commencement of the Manesar plant. The adjusted net profit grew by
14% to Rs384.81 crore. The reported profit after tax (PAT) rose by
12% to Rs376.4 crore.
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MUL is
expected launch the diesel Swift in January 2007. This is expected
to be a big boost for MUL as it would be its first serious attempt
to cater to the fast-growing diesel segment. The diesel segment
constitutes about 25% of the total car market in
India.
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We maintain
our positive outlook on MUL, considering its leadership position
in the Indian car market, planned product launches including the
foray into the diesel segment and a strong outsourcing potential.
Despite its rising raw material cost, MUL has been able to
maintain its margins at commendable levels due to increasing
efficiencies and a better product mix.
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At the current
market price of Rs939, the stock quotes at 14.4x its FY2008E
earnings and 9.9x its enterprise value (EV)/earnings before
interest, depreciation, tax and amortisation (EBIDTA). We maintain
our Buy recommendation on the stock with a price target of
Rs1,050.
Orchid Chemicals &
Pharmaceuticals
Cluster: Emerging
Star
Recommendation: Buy
Price target: Rs390
Current market
price: Rs217
Strong growth potential despite poor
performance
Result highlights
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The net sales
of Orchid Chemicals & Pharmaceuticals (Orchid) rose by 0.5%
year on year (yoy) to Rs238.7 crore in the third quarter of FY007.
The sales growth was slightly below our expectations, partly due
to an absence of any significant new product launches in the USA
and partly due to the high base of Q3FY2006.
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The company
maintained its performance in its major market, the USA. Its key
products�Ceftriaoxne and Cefproxil�continued to maintain a healthy
market share in excess of 20-25%.
-
The company's
operating profit margin (OPM) expanded by 350 basis points to
32.6% as against our expectation of 31.5%. The improvement in the
margin was primarily on account of a 27% drop in the raw material
cost, as the company continued to derive an increasing proportion
of its revenues from the sale of formulations in the high-margin
regulated markets. Formulations constituted roughly 45% of its
sales, almost 90% of which came from the USA.
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Consequently,
the operating profit grew by 12.4% to Rs77.8 crore in the
quarter.
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Despite a
substantial improvement in the margins, the high interest cost (up
by 19.4% yoy) and the higher tax provisioning as compared to
Q3FY2006 dragged down the net profit, which declined by 2.2% to
Rs28.3 crore in the quarter. The profit growth was in line with
our estimate.
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Orchid has
just received approval from the UK MHRA for its betalactum API
facility at Aurangabad. This development indicates that Orchid is
on track to make its big entry into Europe in FY2008, which will
add to its growth from FY2008 onwards.
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At the current
market price of Rs217, the stock is quoting at 8.5x our estimated
FY2008 earnings. The valuation is very attractive given the strong
growth potential for FY2008 and FY2009 in view of some forthcoming
big launches in the USA and a big entry into Europe. Hence, we
maintain our Buy call on the company with a price target of
Rs390.
Nucleus Software Exports
Cluster:
Emerging Star
Recommendation: Buy
Price target:
Rs898
Current market price: Rs811
Price target revised to Rs898
Result highlights
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Nucleus
Software Exports has announced lower-than-expected sequential
growth in its revenues at 2% quarter on quarter (qoq) and 50.3%
year on year (yoy) to Rs56.2 crore (against the expectations of
Rs58.6 crore). The product revenues have grown at a robust rate of
12.8% sequential. However the revenues from the project and
services business declined 9.3% sequentially and resulted in a
lower-than-expected overall growth in the revenues during the
third quarter.
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The operating
profit margin (OPM) declined by 110 basis points sequentially to
27.9% during the quarter, largely due to the steep increase in the
selling, general and administration expenses (SG&A) as a
percentage of sales (up from 12.6% of the sales in Q2 to 15.7% in
Q3). The huge jump in the SG&A expenses was driven by the
additional cost incurred (on travel and other related expenses) in
pursuing some of the large deals in the pipeline (including the
recently bagged order from ACOM).
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Consequently,
the earnings were largely flat at Rs13.9 crore on a sequential
basis. However, the earnings grew at a robust rate of 58.1% on an
annual basis.
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Notwithstanding the muted performance (sequentially) during
the quarter, the company has shown an exponential growth in its
order backlog that is likely to boost the overall revenue growth
in the coming quarters. The pending order book jumped to Rs335
crore, up from Rs135 crore at the end of the previous quarter. The
order backlog includes the multi-million multi-year order from
ACOM, a leading consumer finance company in Japan.
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To factor in
the impact of the huge fresh order intake, we are revising upwards
the revenues and earnings estimates by 7% and 9% respectively, for
FY2008. At the current market price the stock trades at 22.8x
FY2007 and 16.5x FY2008 earning estimates. We maintain our Buy
call on the stock with a one-year revised target price of Rs898
(15x its rolling four-quarter earnings).
India Cements
Cluster: Ugly
Duckling
Recommendation: Buy
Price target: Rs315
Current
market price: Rs242
Net profit up 1,000%
Result highlights
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India Cements
achieved a net profit of Rs79.77 crore for Q3FY2007, clocking a
year-on-year (y-o-y) growth of 1000% , though it was below our
expectations on account of higher-than-expected increase in the
costs.
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The top line
grew by a robust 36% year on year (yoy) to Rs472 crore on the back
of a 4% y-o-y growth in the volumes to 1.75 million metric tonne
(MMT) and a 32% growth in the realisations to Rs2,700 per
tonne.
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The company's
operating expenditure increased by 13% yoy to Rs339 crore on the
back of a 20% increase in the raw material costs and an 18% rise
in the distribution costs. Sequentially, the freight cost and the
power & fuel cost increased by Rs30 per tonne and Rs15 per
tonne respectively.
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The company's
high leverage to the cement prices resulted in an operating profit
growth of 185% yoy to Rs133 crore whereas the operating margin
expanded by a mammoth 1,40 basis points to 28%.
-
The earnings
before interest, tax, depreciation and amortisation (EBITDA) per
tonne tripled to Rs761 though it was down 12% quarter on quarter
(qoq) on account of lower volumes due to the monsoons in the
southern region namely Tamil Nadu and Andhra Pradesh.
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The interest
expenditure and the depreciation cost remained flat qoq at Rs34.7
crore and Rs19.82 crore respectively. These factors coupled with a
negligible tax provision helped the company's net profit to
register a 1,000% year-on-year jump to Rs79.77 crore.
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The company's
plan to augment its capacity by 2MMT at its existing facilities
(namely Sankaridurg and Vishnupuram) is well on schedule. One
million tonne of the capacity is expected to come in June 2007
whereas the balance one million will kick in by December
2007.
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We expect the
company's volumes to bounce back in the fourth quarter and also
expect the prices to firm up further by Rs5-10 per bag.
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At the current
price of Rs242, the stock trades at 12.2x its FY2007E and 8.5x its
FY2008E earnings. On an enterprise value (EV)/tonne basis, the
company is trading at USD115 per tonne, which is a steep discount
to its peer Madras Cement, which is trading at USD155 per tonne.
We continue to maintain our positive outlook on the company with a
price target of Rs315.
Indo Tech Transformers
Cluster: Ugly
Duckling
Recommendation: Buy
Price target: Rs335
Current
market price: Rs288
Price target revised to Rs335
Result highlights
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The Q3FY2007
results of Indo Tech Transformers Ltd (ITTL) are above our
expectations.
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The company
has reported strong quarterly results. The revenues for the
quarter grew by 130% to Rs45.04 crore as against our expectations
of Rs40 crore while the net profit grew by 166% to Rs7.3 crore
against our expectations of Rs5.3 crore. The volume growth was 89%
as the company sold 672 mega Volt Ampere (MVA) during the quarter
as against 355MVA in Q3FY2006.
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The above
performance was due to the fact that the company executed some
high-margin orders during the quarter under review and hence the
operating profit for the quarter grew by 153% to Rs11.86 crore.
The operating profit margin (OPM) for the quarter improved by 240
basis points to 26.3% as against 23.9% in Q3FY2006. Going forward
the company expects to maintain its OPM in the range of
19-20%.
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The interest
expense for the quarter stood at Rs0.23 crore while the
depreciation cost for the quarter was Rs0.28 crore.
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The order
backlog at the end of Q3FY2007 stood at Rs153 crore as against
Rs79 crore at the end of the previous quarter, showing a growth of
94%.
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