prabhudas report - Ashok leyland sail - telecom jubilant foods
Deepak Vaishnav
Q2FY12 Result Update - Results above expectations
n Good performance despite tough environment: Ashok Leyland (AL) reported growth of 14.0% YoY in its top-line at Rs30.9bn (PLe: Rs30.2bn). Volume for the quarter declined by 3.9% YoY, whereas average realisation grew by 18.7% YoY. Average realisation/vehicle was higher than our expectation on account of higher sales to the defence sector (Revenue of Rs1bn v/s Rs200m) and price hikes taken in previous quarters. Material cost/vehicle increased by 18.6% as against 18.7% improvement in average realization/vehicle. However, on account of 18.9% YoY increase in employee cost and 18.6% YoY growth in other expenditure, EBITDA for the quarter grew by only 8.1% YoY to Rs3.3bn (PLe: Rs3.0bn). On a QoQ basis, EBITDA improved by 90bps due to sequential decline of 50bps in other expenses. Interest expenses grew by 58.9% YoY on account of borrowing for higher working capital requirement. As a result, PAT for the quarter declined by 7.8% YoY to Rs1.54bn (PLe: Rs1.37m).
n Loan funds increase substantially: There was an increase of Rs7.7bn in the loan funds as of September 2011, taking the total loans to Rs33bn. Out of this, around Rs6bn loan has been on account of working capital requirement.
n Our volumes estimates: We maintain our volume estimate of 93K units for FY12E, lower than the management guidance of 1.0lac. We have assumed volumes of 8k units and 18k units of the new LCV ‘Dost’ in FY12E and FY13E, respectively. As a result, we expect 18.0% YoY growth in FY13E volumes.
n Outlook & Valuation: Our ground level interaction with truckers suggests that in some pockets, fleet operators are postponing their purchase decision which could lead to muted growth in M&HCV segment in FY12E. In our view, the operating performance is likely to improve on account of higher sales from the tax-free Uttarakhand plant (~33% of overall domestic sales). Maintain ‘Accumulate’ on account of fair valuations of 9.9x FY13E EPS.
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Telecom
Sector Update – TRAI responds to DoT: Incrementally positive
TRAI has responded on some of the issues referred back to it by DoT on the recommendation on ‘Spectrum Management and Licensing Framework’. Key highlights are as below:
Uniform license fee
TRAI reiterates its earlier recommendation of progressively moving towards a uniform license fee of 6% of Adjusted Gross Revenues (AGR) over four years from FY13 to FY16.
Progression towards uniform license fee
|
Service providers |
Current |
2012-13 |
2013-14 |
2014-15 |
2015-16 |
|
Metro |
10% |
10% |
9% |
8% |
6% |
|
Category ‘A’ |
10% |
9% |
8% |
7% |
6% |
|
Category ‘B’ |
8% |
7% |
6% |
6% |
6% |
|
Category ‘C’ |
6% |
6% |
6% |
6% |
6% |
Source: TRAI, PL Research
IMPACT: POSITIVE
Currently, Bharti/Idea pay blended license fees of 8.7%/8.9% on AGR, resulting in a ~250bps benefit on wireless margins in FY16. DoT has asked for 8.5% license fee which had a NEUTRAL impact.
Spectrum Pricing
TRAI has reiterated its view that the contracted spectrum is 6.2MHz/5MHz for GSM/CDMA and recommended that the ‘current price’ (determined by an expert panel) recommended earlier by TRAI be used for determining the price of excess spectrum beyond the contracted spectrum. TRAI had earlier recommended that excess spectrum up to 8MHz be charged at this ‘current price’ and beyond 8MHZ be charged at the rate of 1.3x the ‘current price’. TRAI has now stated that this additional charge would not be appropriate since the experts recommended only one price for all excess spectrum.
IMPACT: INCREMENTALLY POSITIVE
While the one-time charge on excess spectrum is a negative for incumbents, if the DoT opts for a uniform charge beyond 6.2MHz, it reduces the potential charge on excess spectrum on Bharti by ~8% to ~Rs40bn and on Idea by ~7% to ~Rs19bn.
M&A
Resultant entity can have a maximum revenue/subscriber market share of 60% (currently 40%). Up to 35% will be automatically approved, while between 35-60% will have to be referred to TRAI for approval. The limit on spectrum holding by the combined entity will be 25% of the total spectrum held in that service area. Spectrum sharing will also be permitted within this 25% limit.
TRAI has clarified that the “prescribed limit” of 2X10MHz for Metros and 2X8MHz for other circles pertains only to the assignment of spectrum by the Govt. It does not preclude a licensee from acquiring additional spectrum by way of auction or through mergers
IMPACT: POSITIVE
Will encourage consolidation in the wireless space and allow optimum use of allotted spectrum.
Re-farming
Reiterates need for spectrum re-farming in the 800/900 MHz bands and is separately initiating a consultation process and will give its final recommendations after that. It has recommended that the Govt. should at least bring out the need for re-farming in the New Telecom Policy 2011 and the details can be worked out in the consultation process.
In the process, TRAI also will consider limiting the auction of spectrum in the 700 MHz band initially to those not holding spectrum in the 800/900 MHz bands, subject to the condition that holders of 800/900 MHz spectrum would pay the market price. This is to establish a level playing field.
TRAI recommends that a specific fund for spectrum refarming be created and that 50% of the realization from all proceeds from spectrum, including from the auction proceeds as well as from the Spectrum usage charges, should be transferred to this fund.
IMPACT: NEGATIVE
The uncertainty over re-farming of spectrum in the 900MHz band remains a major concern owing to increased capex requirements in the less efficient 1800MHz.
Other Highlights
Incentive in the form of a progressive reduction in the USOF component (5% of AGR) of the license fee, starting with 0.5% for the achievement of two years’ obligation, extending up to 4% in the event of 90%+ coverage of all villages with a population of 500 to 2,000.
Renewal of licenses for a period of ten years v/s current term of twenty years.
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SAIL Reduce CMP: Rs109 TP: Rs108
Q2FY12 Result Update - Earnings disappoint; outlook remains
Steel Authority of India (SAIL) reported results below our expectation on account of lower-than-expected realisations and higher power and fuel (P&F) cost. We maintain our ‘Reduce’ rating on the stock, primarily on the back of expensive valuations, project execution risk and weak return profile.
n Earnings below expectation, marred by lower realisations and higher P&F cost: Owing to weaker-than-expected blended realisations (Rs38,565 v/s PLe: Rs39,413) per tonne and in-line volumes (2.8m tonnes), SAIL reported flat revenue QoQ (up 2%) at Rs108bn against our expectation of 2% QoQ (4% YoY) growth. However, pure steel realisations were in line with our expectation at Rs36,200. Hit by lower-than-expected realisations and higher P&F cost (Rs2,015 v/s PLe: Rs1,800 per tonne), EBITDA per tonne stood below our expectation at Rs4,214 (PLe: Rs5,277) with fall of 9% YoY (4% QoQ). Hence, EBITDA fell short of our expectation at Rs11.8bn (PLe: Rs14.8bn), down 15% YoY and 2% QoQ. Adjusted for forex translation of Rs5.1bn, PAT fell by 20% YoY (1% QoQ) to Rs8.4bn (PLe: Rs9.9bn)
n EPS revised downwards by 9%/6% for FY12/FY13: We revised our EBITDA estimates downwards for FY12 and FY13 by 13% and 8%, respectively, to account for higher P&F cost, stores and spares and royalty cost. However, EPS stands downgraded by lower proportion at 9% and 6% for FY12 and FY13, respectively, due to higher yields on investments and elevated cash levels associated with reduced capex.
n Outlook and Valuation: Stock continued to languish on account of highly cost-inefficient operations and persistent delays in execution of expansion plans. Even after sharp correction in stock price, stock continues to trade at a significant premium to its peers despite poor operational performance. We maintain ‘Reduce’, with price target of Rs108, P/BV of 1x FY13E.
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Jubilant FoodWorks Reduce CMP: Rs814 TP: Rs800
Q2FY12 Result Update - In-line quarter
n Same-store sales (SSS) growth of 26.7%: Jubilant FoodWorks (JUBI) reported Q2FY12 sales, EBITDA and PAT of Rs2.4bn (up 47 %), Rs436m (up 47% YoY) and Rs237m (up 28% YoY) as against our expectations of Rs2.4bn, Rs447m and Rs247m, respectively. SSS growth of 26.7%, on the base of 43.2% in Q2FY11, is commendable. During the quarter, JUBI opened 19 new stores, taking the total store count to 411. Management maintained the guidance of opening 80 new stores during FY12e. First Dunkin store will be rolled out in H1CY12 beginning with the metros. JUBI is doing the groundwork for Dunkin’s rollout, with focus on menu designing and back-end work e.g. vendor and supply chain etc.
n Key Con-call takeaways: 1) Very small signals of moderation in consumer demand; pre-emptively trying to boost demand through aggressive promotions 2) Will take one more price increase in November (taken 3 in last 12 months totalling ~10%) 3) SSS volume grew 20%+ in 2Q12; SSS grew even QoQ.
n Operating leverage cushions the gross margin decline: Operating leverage (140bps decline in other expenses) neutralized the impact of higher input costs which adversely impacted the gross margins by 160bps. Higher input costs is primarily attributed to the inflation in Milk and milk products prices. However, rental and employee costs did not show benefits of high SSS growth as both the cost items remained flat as a percent of sales (employee addition of 2850 YoY)
n Positives in the price, maintain REDUCE: Strong same store performance on high base reflects the superiority of Jubilant’s capital efficient model. We expect JUBI to continue to benefit from the strong growth dynamics in QSR space, helped by confluence of favourable income and demographic factors. However, valuations have run-up ahead of fundamentals, in our view. At 48x and 32.8x FY12e and FY13e earnings, risk-reward is unfavourable in our view. Maintain REDUCE, with a TP of Rs800.
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