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Contents
IIP growth at 5.6%; Manufacturing growth down by 9% mom
n Index of Industrial Production (IIP) for August 2010 stood at 5.6% compared to 10.6% for the same period the previous year, pulled down by growth in manufacturing, that dropped by 9% mom; the highest contraction for Aug. since 1988.
n IIP growth for the month of July FY11 has been revised upwards to 15.2% from 13.76%; owing to an upward revision in manufacturing growth.
n Sectorally, manufacturing growth dropped to 5.9% from 16.7% last month and electricity generation dropped to 1% from 3.7%.
n On use-based classification, capital goods production dropped by ~40% mom compared to the spurt in production last month. YoY growth stood negative at -2.6%.
n Of the capital goods, Machinery & Equipment growth that saw a spurt last month by 45.8% mom fell by 33.3% mom.
n Growth in consumer goods moved southward to 6.9% from last month’s 7.8% due to a drop in non-durable goods production by 1.6% mom.
n The month of September is likely to see relatively muted IIP growth due to the presence of an unfavourable base effect.
Sintex Industries Q2FY11 Result Update; Above expectations; HOLD; Target: Rs 325
n Numbers above our estimates driven by significantly higher margins in standalone business, higher revenues in subsidiaries and higher other income (might be forex gain)
n Working capital issues aggravate with inspite of 16% lower revenues compared with Q4FY10, working capital has increased by Rs1bn (working capital cycle of about 170days)
n Earnings upgrade (10-12%) likely, will take a call after the concall tomorrow – need some clarity on (1) higher other income and (2) 42% growth in Nief in euro terms
n Stock trading at 11.9xFY12E earnings (Rs36/Share) and 2.1xFY12E book value (ROE of 19%), to review ratings (currently ‘hold’) post the concall tomorrow
Kajaria Ceramics Q2FY11 Result Update; Higher trading kept growth intact; BUY; Target: Rs 91
n Kajaria Ceramics’ results were in line with estimates with 20% revenue growth and 52% PAT growth
n 70bps yoy drop in EBITDA margins to 15.7% is on account of higher trading, increased by 78% yoy to Rs 1 bn
n PAT margins improved by 130bps to 6% due to lower fuel cost (switched to gas from high cost fuel) and interest charges
n With strong balance sheet (D/E <1x by FY12E) and RoE improvement to 26% and EPS CAGR of 37% (FY10-12E) we remain positive on the stock and maintain BUY
Sintex Industries Q2FY11 Concall Update; Upgrade Earnings; Maintain Hold; Target: Rs 430
n Better margins (monolithic – 23%, custom moldings – 27% and prefabs - 25%) across standalone businesses in Q2FY11 – part of it unsustainable, to normalize in full year numbers
n Increasing working capital (~ 135days, assuming Rs4bn of loans & adv. as cash, otherwise 170 days) is a function of monolithic mix increasing, its likely to be a permanent trend
n Upgrade EPS by 12-14% in FY11E/12E. Negative FCF in core business; yet plans to invest in oil & gas & power, also looking at acquisition. Cash flows to remain under pressure
n Trading at 10.5xFY12E earnings (Rs40.2/Share), the earnings growth in FY10-FY12E – 29% is lower than past 7 year’s growth at 33%, however valuations similar, maintain hold
n Technical Comments
Look out for a minor bounce
Indian index languished in the red since the start of the session and failed to make any inroad into the positive territory until the final hour. Technically, this indicates that the overall trend is still weak. However, looking at the hourly momentum oscillator RSI, we feel that a minor bounce of 50 odd points can be witnessed in Nifty. Though that bounce should only be used for adding fresh shorts near the resistance of 6150.
BSE IT:
Today’s positive close in BSE IT index was a sign of strength, due to which we feel that this index will touch the target of 6300 in the near future. Moreover, this index is repeatedly finding support at the 20- and 50- hourly moving averages, which also supports our bullish view.
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