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Summary
of Contents
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STOCK
UPDATE
Bharat
Electronics
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,525
Current market price: Rs1,378
Performance ahead of expectations
Result highlights
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Bharat
Electronics (BEL) has announced a robust growth of 27.6% in
its net sales to Rs863.8 crore, which is ahead of our
expectations.
-
The
operating profit margins have improved by 150 basis points
to 22.9% in spite of the 620-basis-point jump in the raw
material cost as a percentage of sales. However, the saving
of 770 basis points in the staff cost and the other expenses
as a percentage of sales more than made up for the adverse
impact of the higher raw material cost.
-
Consequently, the earnings jumped by 52.7% to Rs148.2
crore, which is ahead of our expectations of around Rs119
crore.
-
On the
nine-month basis, the revenues have grown by 9.9% to
Rs2,181.2 crore. The operating profit has declined by 50
basis points to 20.9%, largely due to the increase in the
raw material cost as a percentage of sales. However, the
jump of 72.1% in the other income component aided the growth
in its earnings, which grew at a relatively higher rate of
18.8% to Rs356.6 crore. The company is expected to
comfortably achieve our full year earning estimates of
Rs672.6 crore (which implies a growth of 12.5% in
Q4FY2007).
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The
company has declared an interim dividend of 40% (or Rs4 per
share).
-
At the
current price, the stock trades at 12.2x FY2007 and 9.7x
FY2008 estimated earnings (price has been adjusted for cash
on the books). We maintain the Buy call on the stock with a
target price of Rs1,525 (12x adjusted FY2008
earnings).
Elder
Pharmaceuticals
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs508
Current
market price: Rs412
Growth momentum continues
Result highlights
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Elder
Pharmaceuticals (Elder) continued its strong performance
during the quarter. The company's net sales rose by 31.7% to
Rs115.7 crore in Q3FY2007, on the back of a steady momentum
in its core brands, a ramp-up in the sales of the
Fairone brand due to the launch of the product in
south India and the growing revenues from the in-licenced
portfolio. The sales were in line with our
estimate.
-
Elder
reported a 150-basis-point drop in its operating profit
margin (OPM) to 18% during the quarter, on account of a
34.9% rise in the raw material cost and a 32.6% increase in
the staff cost. The raw material cost was higher on account
of the distribution of free samples as a promotional
initiative and the staff cost was higher due to an increase
in the sales force in order to expand its market reach and
penetration.
-
Consequently, the company's operating profit rose by
21.8% to Rs20.8 crore in Q3FY2007.
-
Despite
a 20% drop in the other income, and an increase in the
interest and depreciation costs, Elder's net profit grew by
35.7% to Rs14.6 crore. The net profit was in line with our
estimate. It was aided by a sharp 41.2% reduction in the
company's tax outgo. The tax incidence halved from 24% in
Q3FY2006 to just 12% in Q3FY2007, as the company increased
the production from its tax-exempt plants of Himachal
Pradesh and Uttaranchal.
-
In view
of its strong growth potential, we remain positive on
Elder's future growth prospects. At the current market price
of Rs412, the stock is quoting at 10.2x its estimated FY2008
earnings. We maintain our Buy recommendation on the stock
with a price target of Rs508.
Marico
Cluster:
Apple Green
Recommendation: Buy
Price target:
Rs634
Current market price: Rs569
Margins disappoint, but stay on
course!!
Result highlights
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In
Q3FY2007 the net revenues of Marico grew by 34.7% year on
year (yoy) to Rs409.2 crore, ahead of our estimate. The top
line growth was higher in this quarter on account of the
full contribution from the acquired brands of Nihar,
Manjal, Camelia and Aromatic, partial
contribution from the Fianc�e acquisition, and the
strong growth of 20% in the focused brand portfolio (organic
growth).
-
The
operating profit margin (OPM) declined by 210 basis points
to 13.5% on account of an increase in the selling and
administration expenses, and the other expenses as a
percentage of sales. Consequently, the operating profit grew
by 16.2% year on year (yoy) to Rs55.1 crore. The same was
below our estimate.
-
The
interest cost for Q3FY2007 grew to Rs5.4 crore from Rs1.3
crore in Q3FY2006, on account of the debt taken to achieve
inorganic growth. The depreciation and amortisation cost was
lower by 20.2% due to a one-time write-off in Q3FY2007 on
account of the change in the depreciation policy.
-
The net
profit before extraordinary items grew by 26.4% yoy to
Rs27.7 crore and it was below our expectation. The net
profit after the extraordinary items grew by 29.6% yoy to
Rs28.4 crore. But due to the placement with the qualified
institutional buyers and the resultant equity dilution, the
earnings per share (EPS) grew by a slower 20.4% to
Rs4.5.
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Marico
has acquired two brands (Fianc�e and HairCode)
in Egypt which will generate revenues of Rs90-95 crore in
FY2008. Significantly, these brands provide 15-18% profit
after tax (PAT) margin against that of 7-7.5% for Marico.
This indeed comes as a positive surprise as it will help
Marico expand its OPM next year.
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The Kaya
business grew by an impressive 64% yoy to Rs19.7 crore. It
managed to achieve a profit before tax (PBT) in the current
quarter. Marico expects the Kaya business to also break even
on a full-year basis. This is a big positive because going
forward the business will be contribute to the bottom line
and its higher margin profile will contribute to the margin
of Marico. Marico plans to open roughly 12 new Kaya clinics
in FY2008 and Marico wants to concentrate on increasing the
utilisation levels and product penetration going
forward.
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We are
revising our FY2007 and FY2008 earnings estimates higher by
0.6% and 0.7% to Rs18.5 and Rs24.2 respectively. The stock
is trading at attractive valuations of a price/earnings
ratio (PER) of 23.1x FY2008E and enterprise value
(EV)/earnings before interest, depreciation, tax and
amortisation (EBIDTA) of 13.2x FY2008E. We continue to
remain bullish on Marico and reiterate a Buy on the stock
with a price target of Rs634.
Indian Hotels
Company
Cluster: Apple Green
Recommendation:
Buy
Price target: Rs175
Current market price: Rs159
Another good quarter
Result highlights
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For the
third quarter of FY2007, Indian Hotels Company Ltd (IHCL)
reported a top line growth of 29% at Rs409 crore against
Rs317 crore in the third quarter of the previous year. The
bottom line of the company grew by a healthy 43% to Rs87.9
crore from Rs61.5 crore in Q3FY2006, resulting in earnings
of Rs1.5 per share.
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The
operating profit margin (OPM) improved by 450 basis points
from 32.9% in Q3FY2006 to 37.4%. The operating profit has
shown a growth of 35% year on year (yoy) to Rs155
crore.
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The
healthy trend in the top line is due to the rise in the
number of foreign tourist arrivals into India, which has
pushed up the average room rate (ARR) and the occupancy rate
(OR). During the third quarter, the ARR grew by 32% to
Rs10,772 from Rs8,150 in Q3FY2006; the OR zoomed to 76% from
74% in the corresponding quarter of the last fiscal. The
hotel industry has witnessed continued buoyancy in the
arrival of foreign tourists. During the period
January-December 2006, the number of foreign tourist
arrivals increased to 4.4 million from 3.9 million in
Q3FY2006, representing a 13% growth yoy.
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At the
current market price of Rs159 the stock is quoting at a
price/earnings ratio (PER) of 25x FY2007E consolidated
earnings per share (EPS) of Rs6.2. We maintain our Buy
recommendation on the stock with a revised price target of
Rs175.
Cipla
Cluster:
Cannonball
Recommendation: Buy
Price target:
Rs300
Current market price: Rs248
Growth triggers remain intact
Result highlights
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Cipla
reported lower than expected numbers for Q3FY2007 with a net
profit of Rs184.4 crore against the expectation of Rs192.1
crore.
-
The
earnings were lower due to the disappointing revenues, which
grew by only 13% to Rs880.5 crore against the expectation of
a 22% growth to Rs952.7 crore.
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The
exports of active pharmaceutical ingredients (APIs) declined
by 35% due to reduced supplies of Simvastatin and
Finasteride APIs to Teva owing to the expiration of the
180-day exclusivities for the said products in December
2006. This affected the company�s revenue growth. Also, the
sales of domestic formulations were lower than expected at
Rs435.7 crore.
-
However,
the company reported a strong 35% growth in the formulation
exports to Rs319.7 crore on the back of its global
partnerships. The stellar performance of the formulation
business was however overshadowed by the 35% decline in the
API exports.
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The
operating profit margin (OPM) witnessed a 450-basis-point
expansion to 24.9% in the quarter, as the other expenses saw
savings of 490 basis points caused by the foreign exchange
(forex) fluctuation gain and lower factory overheads.
Consequently, the operating profit increased by 38% to
Rs219.3 crore.
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With the
reduction in tax incidence to 14.9% from 22.6% (possibly due
to the commissioning of the new export-oriented unit at
Patalganga), the net profit before the extraordinary items
was up 79.7% at Rs184.4 crore.
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At the
current market price of Rs248, the stock is trading at 20.6x
its estimated FY2008 earnings. Expecting a strong momentum
in the company�s formulation exports, we maintain our Buy
recommendation on the stock with a price target of
Rs300.
Tata
Motors
Cluster: Apple Green
Recommendation:
Buy
Price target: Rs1,075
Current market price:
Rs916
Forex gains lift profits
Result highlights
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The net
sales (excluding the foreign exchange [forex] gain/loss) of
Tata Motors for Q3FY2007 have marked a strong growth of
34.5% to Rs6,825.2 crore, ahead of our expectations. This
was led by a 27.7% volume growth and a 7.7% growth in the
realisations. The total income for the quarter stood at
Rs6,956.8 crore and includes the forex gains of Rs131.6
crore.
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The
operating profit margins (excluding the effect of the forex
gains) have declined by 80 basis points year on year (yoy)
but have improved slightly sequentially to 12.3%.
Consequently, the operating profits excluding the forex
gain/loss have improved by 26.5% to Rs842.6 crore. The
sequential improvement in the margins is due to the stable
raw material costs and cost savings in the other
overheads.
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Both the
interest costs as well as the depreciation costs have risen
due to the higher capital expenditure (capex) of the
company. As a result, the adjusted net profits for the
quarter stood at 535.6 crore as against Rs80.4 crore a year
ago.
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On a
consolidated basis, the company has marked a 37% growth in
its net sales and a 14% growth in the net
profits.
-
Due to a
very strong volume growth registered in the first nine
months, we are revising our estimates upwards for both
FY2007 and FY2008. Our net profit estimates are revised
upwards by 7.4% and 3.8% respectively.
-
At the
current market price (CMP) of Rs916, the stock trades at
13.1x its consolidated earnings and at an enterprise value
(EV)/earnings before interest, depreciation, tax and
amortisation (EBIDTA) of 6.8x. We maintain our Buy
recommendation on the stock with a revised price target of
Rs1,075.
Bank of
Baroda
Cluster: Apple Green
Recommendation:
Buy
Price target: Rs327
Current market price: Rs246
First-cut analysis of Q3 results
Result highlights
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Bank of
Baroda's Q3FY2007 results are much above expectations with
the profit after tax (PAT) reporting a growth of 62.8% to
Rs329 crore compared to our estimates of Rs258.9 crore. The
higher than expected total income growth was mainly driven
by the other income and resulted in the actual PAT exceeding
expectations.
-
The net
interest income (NII) was up 17.8% to Rs960.8 crore compared
to our estimates of Rs921.3 crore. The other income
increased by 22.6% to Rs333.7 crore with the net total
income up 19% yoy and up 6.8% quarter on quarter
(qoq).
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With the
net income up 19% yoy and the operating expenses up only
4.5% yoy, the operating profit was up by 37.6% yoy to
Rs656.9 crore.
-
The
provisions declined by 26.7% to Rs141.7 crore primarily due
to the nil non-performing assets (NPAs) provisions made
during the quarter as compared to Rs42.6 crore in Q3FY2006.
The strong operating profit growth and a decline in the
provisions helped in the PAT reporting a sharp rise of 62.8%
to Rs329.1 crore.
-
The
total business of the bank increased by 37.06% to Rs189,959
crore, while the deposits increased by 31% to Rs112,298
crore and the advances increased by 46.8% to Rs77,661 crore.
The retail credit has increased by 49.2% yoy and constitutes
19.3% of the total gross domestic credit.
-
The
asset quality has improved as the gross NPAs have come down
on a y-o-y and q-o-q basis with the net NPAs in percentage
terms also down to 0.67% from 1.1% yoy and 0.77% qoq. The
capital adequacy stood at 12.24% compared to 12.93% on a
sequential basis.
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The
numbers have been strong for Q3FY2007 and based on the
higher than expected PAT numbers we have revised our FY2007
PAT upwards by 3.6% to Rs1,015.6 crore. At the current
market price of Rs246, the stock is quoting at 7x its
FY2008E earnings per share (EPS), 3.4x pre-provision profits
(PPP) and 0.9x book value. The bank is available at
attractive valuations given its low price to book multiple
compared to its peers and earnings upside possibilities. We
maintain our Buy call on the stock with a price target of
Rs327.
Grasim
Industries
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs3,350
Current market price: Rs2,800
Q3 results ahead of expectations
Result highlights
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The
Q3FY2007 net profit of Grasim Industries (Grasim) stood at
Rs412 crore. The same was ahead of our expectations on
account of the better than expected performance of the
viscose staple fibre (VSF) and sponge iron
businesses.
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The top
line grew by 38.3% year on year (yoy) to Rs2,280 crore on
account of the excellent performance of the cement business,
higher realisations in the VSF business and strong volumes
in the sponge iron business.
-
The
operating profit jumped by 108% to Rs666 crore whereas the
operating profit margin (OPM) expanded by 980 basis points
to 29.2%. The margin expansion was driven by a jump of 50%
in the cement realisation and a rise of 24% in the VSF
realisation. It was also aided by a robust 49% volume growth
yoy in the sponge iron business.
-
The
other income increased substantially by 191% yoy to Rs44
crore, thanks to the deployment of the surplus cash during
the quarter.
-
The
interest cost increased marginally by 2.2% quarter on
quarter (qoq) to Rs24 crore whereas the depreciation
provision rose by 10% qoq to Rs80.6 crore.
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The
excellent performance at the operating level was sweetened
by the other income component and this led the net profit to
zoom by 154% to Rs412 crore.
-
The
consolidated results too were of stellar kind on account of
a superlative performance of UltraTech Cement Ltd (UTCL).
The consolidated net profit (after minority interest) stood
at Rs555 crore, up 184% yoy.
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At the
current market price of Rs2,800, the stock is discounting
its FY2008E earnings by 11.4x and FY2008E enterprise value
(EV)/earnings before interest, tax, depreciation and
amortisation (EBITDA) by 5.4x. Taking cognisance of the
sanguine outlook, we maintain our Buy recommendation on the
stock with a price target of Rs3,350.
Madras
Cement
Cluster:
Cannonball
Recommendation: Buy
Price target:
Rs4,000
Current market price: Rs3,386
Upgrading earnings for
FY2007
Continuing the trend witnessed in the earlier
two quarters, Madras Cements (MCL) is once again expected to
report a stellar 795% year-on-year (y-o-y) growth in its net
earnings to Rs85 crore for the third quarter of FY2007. The
top line is expected to witness a 67% y-o-y increase to Rs405
crore on the back of a 26% jump in the volumes and a 33% rise
in the realisations. MCL, which has one of the highest
earnings before interest, tax, depreciation and amortisation
(EBITDA) per tonne in the industry, is expected to see the
same triple to
Rs1,070. |
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