STOCK UPDATE
Tata Motors
Cluster: Apple
Green Recommendation: Buy Price target:
Rs980 Current market price: Rs708
Price target
revised to Rs980
Result
highlights
-
Tata
Motors' Q4FY2007 results are slightly below are
expectations, primarily on the margin front. The Q4FY2007
net sales (excluding a foreign exchange [forex] gain) of the
company grew by 20.0% to Rs8,206.8 crore, driven by a volume
growth of 16.2% and a realisation growth of 3.3%.
-
Excluding the effect of the forex gain/loss, the
operating profit margin (OPM) has fallen by 160 basis points
year on year (yoy) and by 130 basis points sequentially to
11.0%. This was mainly owing to a higher raw material cost
and a sequential drop in the realisation due to a change in
the product mix. Consequently, the operating profit grew by
just 5.1% to Rs906 crore.
-
The
other income was higher at Rs60.4 crore against Rs4.4 crore
last year. Further, lower interest cost and taxes, and
stable depreciation aided the company to record a 25.9%
growth in its profit to Rs576.7 crore.
-
For the
full year, net revenues grew by 33% to Rs27,404.8 crore
against Rs20,672 crore last year, while the net profit grew
by 25% to Rs1,913.5 crore.
-
The
consolidated sales for the full year grew by 36.4% to
Rs32,426.4 crore while net profit grew by 25.4% to Rs2,170
crore.
-
We are
taking a cautious view on the commercial vehicle (CV)
industry and expect the slowdown to continue in the first
half of FY2008 on the back of tightening liquidity and
higher interest rates. However, we expect the situation to
correct itself towards the second half of the fiscal with
the peaking out of interest rates and better availability of
funds.
-
We are
downgrading our FY2008 earnings estimate by 6.2% to Rs53.4
and are also introducing our FY2009 estimate. We expect
stand-alone earnings of Rs60.8 and consolidated earnings of
Rs70.3 in FY2009. At the current levels, the stock trades at
11.7x its FY2009 stand-alone earnings per share (EPS) and
10.1x its consolidated earnings. We maintain our Buy
recommendation on the stock with a revised price target of
Rs980.
Punjab National Bank
Cluster: Ugly
Duckling Recommendation: Buy Price target:
Rs578 Current market price: Rs559
Q4FY2007
results: First-cut analysis
Result
highlights
-
The
Q4FY2007 results of Punjab National Bank (PNB) are much
below our expectations with the profit after tax (PAT)
reporting a decline of 17.7% year on year (yoy) to Rs237
crore compared with our estimate of Rs460 crore. The PAT
declined mainly due to higher than expected staff expenses
and provisions.
-
The
adjusted staff expenses (adjusted for Rs225 crore of
write-back in pension liability expenses during Q4FY2006)
grew by 35.2% yoy and 34.4% quarter on quarter (qoq) to
Rs781 crore from Rs581 crore in December 2006 and Rs577.6
crore in March 2006. Such a sudden spike could be due to a
one-off item, details of which are awaited.
-
The
reported net interest income (NII) was up 20.6% yoy but down
by 1.6% qoq to Rs1,423 crore. However, adjusted for a
one-time cash reserve ratio (CRR) interest income of around
Rs56 crore the NII was up 15.8% yoy to Rs1,367 crore. The
net interest margin (NIM) of the bank is likely to have
declined on a sequential basis.
-
The
non-interest income was up 23% yoy and higher by 30.2% qoq
to Rs518.4 crore.
-
The
adjusted operating expenses shot up by 27.8% yoy and 30.4%
qoq mainly due to the jump in the staff expenses, which
restricted the operating profit growth to 6.9% yoy. The
provisions remained stable yoy but showed an increase of
41.6% qoq; a detailed break-up of the same is
awaited.
-
The
asset quality of the bank has shown some deterioration with
the net non-performing asset (NPA) in percentage terms at
0.76% in March 2007 compared with 0.42% in December 2006 and
0.29% in March 2006. However, the gross NPA stood at 3.45%
compared with 3.65% in December 2006, largely due to a
higher advances base because in absolute terms the gross NPA
increased to Rs3,391 crore from Rs3,268 crore in December
2006.
-
The bank
management has said that it needs around Rs2,000 crore of
additional capital in FY2008 for its overseas subsidiaries
and to meet Basel-II compliance. It plans to raise Rs500
crore tier-II capital by June-end and additional equity
capital could also be raised which will dilute the
government's stake from the existing 57.8% to 51% in
CY2008.
-
At the
current market price of Rs559, the stock is quoting at 8.4x
its FY2008E earnings and 1.4x FY2008E book value. A detailed
result update would follow.
NIIT Technologies
Cluster: Ugly
duckling Recommendation: Buy Price target:
Rs720 Current market price: Rs519
Price target
revised to Rs720
Result
highlights
-
NIIT
Technologies Ltd (NTL) reported a growth of 5.2% quarter on
quarter (qoq) and 46.5% year on year (yoy) in its
consolidated revenues to Rs243.5 crore during the fourth
quarter. The organic revenues grew at a rate of 5.2%
sequentially. The revenues of Room Solutions (acquired in
May 2006) also grew by 5.2% qoq to Rs31.3 crore.
-
The
company reported an improvement of 70 basis points in its
operating profit margin (OPM) to 21.9% on a sequential
basis, despite the adverse impact of the appreciation of the
rupee during the quarter. The margin improvement was driven
by the cumulative impact of a favourable revenue mix,
savings in the overhead cost as a percentage of sales,
higher margins in the business process outsourcing (BPO)
business and better profitability of Room Solutions.
-
The
increase in the other income (Rs5.6 crore as compared with
the third quarters' Rs3.3 crore, which was driven by tax
refund in its overseas subsidiary), lower depreciation
charges and a steep decline in effective tax rate (down to
2% due to the write-back of the provisions made earlier)
aided the earnings growth during the quarter. Consequently,
the consolidated earnings grew at an explosive rate of 32.7%
qoq and 138.9% yoy to Rs45.9 crore. This is the third
consecutive quarter of over 20% sequential growth in the
earnings.
-
In terms
of the outlook, the company is expected to maintain the
growth momentum on the back of the record order intake of
$72 million during the quarter and $209 million over FY2007.
The pending order backlog of $103 million (executable over
the next one year) is one of the highest ever reported by
the company. The management expects the margin to also
improve with the improving profitability of the BPO
business, the efforts taken to increase the proportion of
the high-margin offshore revenues and other cost levers like
a lower overhead cost. There is enough scope for further
improvement in the overhead cost (at 20% of its sales in
FY2007). Consequently, the earnings estimate has been
revised upwards by 16.4% for FY2008.
-
Along
with the results, the company has rewarded the shareholders
with a bonus issue of one equity share for every two shares
held and a dividend of 65% on the existing capital.
-
At the
current market price the stock trades at 12.2x FY2008 and
10.1x FY2009 estimated earnings. We re-iterate our Buy call
on the stock with an upgraded price target of Rs720 (14x
FY2009 earnings).
SECTOR UPDATE
Automobiles
Dream run
interrupted The
commercial vehicle (CV) segment has been on a dream run, with
FY2007 being its sixth straight year of positive growth. A
strong growth in the economy, easy availability of finance,
lower interest rates and high freight rates contributed to
this phenomenal performance. We believe that the time has come
for taking a slight breather. While the macro factors still
appear to be strong, we expect the growth to slacken in the
next 6-12 months.
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