Research Views
JSW Steel – 2QFY10 result estimates
On consolidated basis, we expect company to report net sales of Rs47.3bn (yoy up 1.8%, qoq up 17.7%), EBITDA of Rs8.9bn (yoy down 23.1%, qoq up 29.1%) and PAT of Rs2.99bn (yoy down 29.9%, qoq up 27.7%). We expect the company to report EPS of Rs15.9. Key things to watch out – volume guidance, cost reduction and capex plans.
Dr Reddy’s Lab (CMP Rs 912, DRRD@IN, Mkt Cap- Rs 154bn)
Dr Reddy’s Lab is going to report its Q2FY10 results on 23rd October. We expect the company to report a growth of 16% YoY to Rs 18760mn on the back of 19% growth in the Global Generic Segment. On the operating front, the EBIDTA margin is expected to expand by 630 bps to 21% in Q2FY10. We expect the company to report a growth of 97% to Rs 2384mn in PAT. However, after adjusting the forex gain/ loss, the APAT is expected to grow by 70% YoY to Rs 2468mn. At CMP of Rs 912, the stock is trading at 17.4x FY10 FDEPS of 52.4 and 15x FY11 FDEPS of Rs 60.8. We have a Buy rating on the stock with a target price of Rs 956.
Key things to watch:
n Growth from the Global Generic business
n Revenue from Imitrex
n Update on Omeprazole and Fondaparinux
n Update on German Market
n EBIDTA margin from recurring business
n Update on Para IV pipeline
n Guidance for FY10E
NTPC Q2FY10E Result Estimates
Led by 2000 MW of commercial capacity addition during FY09, expect 7% YoY growth in gross generation to 50,377mn Units. Expect revenue growth of 11% YoY and 410bps YoY improvement in EBITDA margins to result in EBITDA growth of 29% YoY. However, increase in interest expense to result in lower APAT growth of 5% YoY. Q2FY10E would be second reporting quarter under the changed CERC regulations & therefore key things to watch out - (1) treatment of deferred tax, (2) overall direction of impact of new CERC regulations, (3) commentary on status & commissioning schedule of capacity addition, (4) progress in coal mining and coal mine acquisition, (5) update on gas supplies and (6) update on NTPC-BHEL JV.
Punj Lloyd Q2FY10E Result Estimates
n We expect Punj Lloyd (PLL) to report muted performance in Q2FY10E on back of low opening order book cover and slower execution of projects.
n We expect revenues to grow marginally by 4.4% yoy to Rs30.8 bn. Led by low revenue growth we expect operating margins to drop 80 bps yoy to 10.6%. We expect net profits to decline 4.2% yoy to Rs1,381 mn.
n We will closely watch management commentary on order inflows in the hydrocarbon sector.
Larsen & Toubro Q2FY10 Results (Standalone) – First Cut Analysis
Disappointing operational performance
n L&T reported second straight quarter of muted revenue growth – below our estimates. L&T’s revenues grew marginally by 3% yoy to Rs79188 mn. Adjusting for Ready Mix Concrete (RMC) business (sold during Q3FY09), revenue growth for the quarter was 6% yoy. Muted revenue growth was led by decline in Machinery & Industrial Products (down 26% yoy to Rs5096 mn) and Electrical & Electronics (down 7% yoy to Rs7088 mn) – as against our expectation of 8% yoy growth each. Engineering & Construction division reported healthy growth of 14% yoy to Rs68541 mn.
n Operating margins expanded 60 bps yoy to 10.6%, below our estimates of 11.1% margins – attributed to lower raw material costs.
n Led by lower than expected revenue growth and operating margins, growth in operating profit was lower at 8% yoy to Rs8372 mn – below our estimates.
n Despite disappointing operational performance, 20% yoy growth in adjusted net profit to Rs5530 mn was only marginally below our estimates. This was primarily due to higher than expected other income at Rs2176 mn versus our expectation of Rs1233 mn. Earnings for the quarter stood at Rs9.4 per share.
n L&T reported net profit of Rs5804 mn after accounting for profit on sale of stake in an associate (Rs676 mn) and provision for diminution in value of investment (Rs402 mn).
n L&T has bagged orders worth Rs184 (up 47% yoy) bn in Q2FY10 and Rs279 bn in H1FY10 (up 13% yoy). Its total outstanding order book has increased to Rs816 bn. We believe that pick up in order inflow is yet very low. This in our view remains the biggest concern and overhang in the stock considering - management has reiterated guidance of 30-35% growth in order inflows in FY10E would necessitate 40-46% yoy growth in order inflows in H2FY10E. We believe that any negative surprise could lead to de-rating of the stock.
n AT CMP, the stock is trading at rich valuations of 27.3X FY10E and 22.7X FY11E consolidated earnings of Rs58.9 and Rs70.8 per share respectively. We have a HOLD rating on the stock.
Titan Q2FY10E Expectation
Expect muted revenue growth at 5.6% YoY to Rs8.7 bn. This can be primarily attributed to (1) 7.7% yoy growth in the Jewellery business revenues (2) 2.6% yoy decline in the Watch business revenues and (3) 30.7% yoy growth in Other business revenues - led by Eyewear business.
The operating profit is expected to decline 55.5% yoy to Rs561 mn in Q2FY10E – attributed to mix change and astronomically high base effect of the last quarter. Consequently, the operating margins would decline 670 bps yoy to 4.9% in Q210E.
Adjusted net profit is expected to decline 68.4% YoY to Rs275 mn.
Watch business is expected to de-grow 2.6% yoy to Rs3.0 bn - primarily attributed to change in sales mix and high base in the same quarter last year
Jewellery business is expected to grow at 7.7% yoy to Rs8.1 bn driven by 19% surge in gold prices, partially offset by 9% decline in sales volumes
Key things to watch – (1) progress of store expansion in watches, jewellery and eyewear business (2) investment plans in creating additional retail infrastructure in FY10E (3) growth outlook in gold business (4) revenue growth guidance for FY10E.
Asian Paints Ltd. (APL) Q2FY10 Results – First Cut Analysis
n Asian Paints Ltd (APL) reported a robust 16.9% yoy growth in revenues to Rs17.2 bn in Q2FY10 – ahead of our estimates. Upfront analysis indicates that better than anticipated volume growth (expected 8% volume growth) resulted in better than anticipated revenues during the quarter
n Both local and international operations reported robust revenue growth – with local business revenue growth at 19.0% yoy to Rs14.0 bn and international business revenue growth at 7.9% yoy to Rs3.2 bn.
n The operating profit increased 54.6% yoy to Rs3.2 bn – ahead of our expectation. APL reported margin expansion of 460 bps from to 18.7% (expected 310 bps expansion) in Q2FY10, led by 430 bps drop in raw material costs from 61.1% (RM/Sales in Q2FY09) to 56.8% (RM/Sales in Q2FY10).
n The reported net profit grew by 104.1% YoY to Rs2.7 bn. The company reported gain of Rs627.1 mn related to sale of investments during the quarter. Excluding this extraordinary item, the adjusted net profit jumped 55.4% yoy to Rs2.1 bn - ahead of our estimates.
n We have earnings estimates of Rs51.4/Share and Rs58.7/Share in FY10E and FY11E respectively. We maintain positive bias on APL with ‘ACCUMULATE’ rating and price target of Rs1,414/Share.
n Research Update included
JK Paper Q2FY10 Result Update ; Positive earnings surprise continued ; HOLD ; Tartget: Rs 50
Driven by better than expected results in Q2FY10, we are revising our FY10 EPS estimates by 26% from Rs 8.3 to Rs 10.5 and FY11 EPS estimates by 23% from Rs 8.1 to Rs 10. In light of improved earnings visibility for the company and the industry, we are changing our valuation method for the company from P/BV to P/E and revising our price target from Rs 34 to Rs 50, based on 5x FY11 est EPS. At Rs 50, the stock offers ~14% upside. We continue to maintain HOLD rating on the stock.
Yes Bank Q2FY10 Result Update ; Downgrade to REDUCE ; REDUCE ; Target: Rs 180
Yes Bank’s Q2FY10 results were marginally below our expectations with NII growth of 31% yoy (Rs1.6bn) vis-à-vis our expectations of 42% yoy growth. However, with higher other income (up 88.9%yoy) and controlled expenses (up 14.1%yoy), the net profit at Rs1.1bn was ahead of our expectations of Rs896mn. The growth in other income was largely driven by treasury and transaction banking albeit with sharp increase in risk weighted assets.
The bank asset quality improved during the quarter as the gross and net NPA declined to 0.31% and 0.08% from 0.48% and 0.24% in Q1FY10. The provision cover has also improved to 74.9% from 50.5% in the preceding quarter.
The stock is currently quoting at 3.0x FY10E and 2.5x FY11E ABV which we do not find attractive. We downgrade the stock to REDUCE with price target of Rs180.
Sesa Goa - 2QFY10 Result Update ; Result below estimates, downgrade to HOLD ; Target : Rs289
Sesa Goa reported 2QFY10 results, which are below our estimates. Net sales stood at Rs6.3bn (yoy down 30.2%, qoq down 46%), EBITDA stood at Rs1.5bn (yoy down 63.2%, qoq down 66.3%) and PAT stood at Rs1.7bn (yoy down 50.5%, qoq down 60.6%). Sesa reported FDEPS of Rs2.05. During the quarter, Sesa reported iron ore sales volume of 1.6mt (yoy up 16.6%, qoq down 65.8%). This includes volumes from Dempo of 112,000t. For full year FY10, the company has maintained its guidance for 20-25% volume growth and around 3mt from Dempo. The average realization during the quarter was USD51/t (yoy down 53.1%, qoq up 37.4%). During the quarter, Sesa reported EBITDA margins of 24.4% (yoy down 2,182bps, qoq down 1,464bps). The reduction was mainly on account of additional royalty burden of Rs250mn and increase in ocean frieght expenses to Rs544/t (yoy up 169.2%, qoq up 71.5%). During the quarter, Sesa sold around 90% of the iron ore on spot basis and balance on contract basis (in 1QFY10, 85% of the sales was on spot basis). Considering the lower realization, increase in royalty and dilution from FCCB, we are revising down our FY10 and FY11 EPS estimates from Rs32.6 to Rs26.1 and from Rs39.1 to Rs30.1 respectively. As on 31st Jul ‘09, Sesa has cash balance of Rs29bn (ex Dempo and FCCB). At the CMP of Rs319, the stock is trading at 12.2x FY10E EPS of Rs26.1 and at 10.6x FY11E EPS of Rs30.1. On EV/EBITDA basis, the stock is trading at 7.7x FY10E EV/EBITDA and at 5.8x FY11E EV/EBITDA; while on P/B basis, the stock is trading at 3.7x FY10E book value and at 2.9x FY11E book balue. We are downgrading the stock from BUY to HOLD with revised target price of Rs289 (6x FY11E EV/EBITDA) (Previous target – Rs301).
Phoenix Mills Company Update ; Price Target upgraded to Rs.220 ; BUY ; Target : Rs 220
We believe value un-locking for Phoenix Mills Limited (PML) shall begin with listing of Entertainment World Development Limited (EWDPL), its 40% associate company. EWDPL has land bank of ~22mn sqft, ~4.3mn sqft of which will be operational by FY11 and ~9.9mn sqft by FY12. We value the Phase I development of 9.9mn sqft at Rs.14bn and the remaining land bank at Rs.4.9bn (at Rs.350 per sqft), valuing EWDPL at Rs.18.9bn. We value PML’s current stake in EWDPL at Rs.7.7bn/Rs.53 per share (post dilution Rs.41 per share).
Further, PML’s market city projects at Kurla, Bangalore, Pune and Chennai are on track. Kurla and Pune properties are expected to start operations by Q1/Q2FY11. The company has recently started pre-leasing at both the properties and has signed lease agreements of ~18% and ~45% of the total area at Kurla and Pune respectively. During Q2FY10, the company has also started operations of “Palladium” at High Street Phoenix.
After being in development phase in the last three years, we believe PML will witness sharp increase in its leased portfolio over the next two years. As PML’s properties were under-development phase, we had attributed 60% discount to NAV for the individual projects. As developments are nearing completion we are reducing our discount from 60% to 20%. We are also including PML’s proportionate stake in EWDPL and BARE (Big Apple Entertainment) to arrive at our fair valuation. We are revising our target price to Rs.135 to Rs.220 and retain our BUY rating on the stock.
Hero Honda 2QFY10 Result Update ; Positive surprises continue, maintain ACCUMULATE ; Target: Rs 1,750
Hero Honda’s 2QFY10 performance was ahead of our expectations. While net sales at Rs 40.6 bn was in line with expectation, EBIDTA and net profit at Rs 7.4 bn and Rs 6 bn were ahead of our estimates by 4% and 8% respectively.
More importantly EBIDTA margins at 18.3% (highest in the history) factors in partial impact of rising metal prices (around 3%to 3.5%). We expect EBIDTA margins to be 17% in 2HFY10.
We have upgraded our FY10 and FY11 EPS estimates by 7% and 4% to Rs 103.9 and Rs 117 respectively. Our earnings upgrade is due to increase in our volume estimates by 5% for FY10 as well as FY11. We believe that there is potential upside to our volume estimates of 4.4 mn units for FY10. However, we would like to assess the impact the launch of ‘Discover 100cc’ by Bajaj Auto before upgrading our volumes estimates.
At Rs 1606, the stock trades at PER of 15.5x and 13.7x and EV/EBIDTA of 10.4x and 8.8x our FY10E and FY11E estimates respectively. We maintain our ACCUMULATE rating on the stock with a target price of Rs 1,750.
Chambal Fertiliser Q2FY10 Result Update ; Fertiliser segment drove results ; ACCUMULATE ; Target: Rs 60
Chambal Fertilisers Q2FY10 results were ahead of expectations mainly on account of higher than expected fertiliser margins. Due to sharp fall in fertiliser prices, sales declined by 44.4%YoY (+25.2% QoQ) to Rs 9.6 bn. Revenues declined in all the segments while EBIT increased significantly in fertilisers and trading. As a result EBITDA Margins for the quarter increased impressively by 900 bps to 17.9% (inline with expectations) resulting in EBITDA of Rs 1.9 bn, +24.1%. Current quarter results include some extra ordinary items (related to previous year and MTM losses on fertiliser bonds and interest rate swaps) while company reported PAT of Rs 646 mn, +35.8% YoY which was above our expectation. We continue to maintain our ACCUMULATE rating on the stock with a price target of Rs 60.
Coromandel International Q2FY10 Result Update ; Adjusted results in line with expectation ; BUY ; Target: Rs 263
Coromandel International Ltd (CIL) Q2FY10 results were inline with expectations after adjusting for extraordinary. Net revenues declined by 55% YoY to Rs 15.3 bn (adjusted for Rs 1.6 bn of subsidy income for previous period) mainly due to sharp fall in fertiliser prices. Our adjusted EBITDA of Rs 1.8 bn (after adjusting for Rs 240 mn MTM loss on fertiliser subsidy bonds) is in line with our expectations with EBITDA margins of 11.6%. Our adjusted PAT of Rs 1.14 bn, -37.3% YoY, is in line with our estimates. However company reported PAT of Rs 1.9 bn, +3.4% YoY. In H1FY10 company reported an EPS of Rs 17.1 which is in line with our estimates (we expect FY10E EPS of Rs 26.7). Management expects that Rabi crop is likely to do well due to recent rainfall in the region which is likely to have positive impact on company’s H2FY10 results. We continue to maintain our positive view on the stock and re-iterate our BUY recommendation with a price target of Rs 263.
Allahabad Bank Q2FY10 Result Update ; Upgrading to BUY with TP of Rs150 ; BUY; Target : Rs 150
Allahabad Bank reported a net profit of Rs3.3bn for Q2FY10, much ahead of our expectations. While NII growth of Rs6.0bn was a tad lower than our estimate of Rs6.5bn, what surprised us positively were (1) 24% qoq growth in fee income (2) improvement in tier I CAR to 9.1% (7.9% in Q1FY10) and (3) improvement in provision cover to 81%. Growth in earnings driven by core income juxtaposed with improvement in tier I capital was commendable.
We saw three key problems with ALBK: (1) high dependence on wholesale deposits, (2) low fee income/average assets of 0.3-0.4% and (3) low real tier I CAR with reported tier I CAR of ~7.5% alongwith net NPAs/networth of 8%. Over past four quarters, ALBK has significantly improved on later two.
We believe that with such improvements, besides braodbasing of the deposits (88.2% retail), the current valuations of 0.8x FY11E ABV deserve rerating. We are raising the stock to BUY with revised price target of Rs150 driven by 5-13% upgrade in FY10E and FY11E earnings and P/ABV multiple of 1.0x FY11E ABV.
Key risks to our call: (1) Likely decline in earnings in H2FY10 driven by base effect as Q3FY10 was best in terms of treasury gains and NII and (2) any let up on fee income.
Slipping Yet Again : With today’s bearish close, Nifty finally managed to close below the physiological mark of 5000 level, which every bull was eyeing as a key support. On the daily chart Nifty has broken the short term average which was placed at 5013, which is a sign of caution. Going forward Nifty had broken a three month old rising trendline on closing basis, which will surely shake the bulls off their chair. Though the overall picture seems to be in the favour of the bears, 4900 is the last ray of hope below which bulls are expected to surrender. For coming session 5100 will act as an important hurdle for the bulls.
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