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Result Reviews – 3QFY2011
Tata Motors
Tata Motors (TML) reported impressive results for yet another quarter of FY2011, beating
street’s as well as our expectations.
On a consolidated basis, the company reported strong 21.7% yoy and 10.1% qoq growth in
net sales to `31,685cr (v/s `28,870cr est.), led by robust performance of JLR and betterthan-
expected performance at the standalone level. Total volumes in the domestic markets
grew by 17.4% yoy, while JLR volumes jumped by 11.3% yoy. On the operating front, margin
improved by a substantial 276bp yoy and 26bp qoq to 14.2% (v/s 12.8% est.) on the back
of improved operational performance at JLR. Further, favourable currency movement and
restructuring efforts at JLR helped margin expansion at the consolidated level. As a result, net
profit for the quarter grew significantly by 272.9% yoy to `2,425cr (v/s `1,920cr est.)
On a standalone basis, TML reported 28.3% yoy growth in its top line to `11,520cr, ahead
of our estimates of `10,922cr, aided by 17.4% yoy growth in volumes and ~9.3% yoy
growth in average net realisation. On a qoq basis, however, the top line remained flat as
volumes registered a decline of 5.8%. Volume growth was restricted on account of supply
constraints due to emission norm changes. Realisation improved on account of better
product mix (higher share of commercial vehicles) and price increases carried out during the
quarter. Operating margins stood at 10.1% (v/s 9.2% est.), posting a decline of 243bp yoy
due to a 372bp increase in raw-material cost and a 90bp increase in other expenses. As a
result, net profit registered a marginal 2.5% yoy increase to `410cr, better than our estimates
of `350cr.
On the JLR front, stellar performance continued with better-than-expected results during the
quarter. Net sales registered robust 35.6% yoy (18.4% qoq) growth, primarily due to an
11.3% yoy (14.5% qoq) increase in volumes and an impressive ~21.8% yoy (3.3% qoq)
jump in average net realisation. Volume growth at the retail level was particularly strong in
China (up 72%), Russia (up 24%) and North America (up 16%). On the operating front, JLR
recorded a substantial 762bp jump in operating margins to 17.4%, owing to improved
operating leverage, favourable currency movement and cost-cutting measures initiated by
the company. Hence, profit after tax witnessed 75.2% yoy and 15.5% qoq growth during
3QFY2011.
We maintain our positive stance on the company, considering its impressive operating
performance especially on the JLR front. As a result, we have revised our earnings estimates
for JLR upwards by ~10%. At `1,145, the stock is trading at 8.8x and 8.3x FY2011E and
FY2012E consolidated earnings, respectively. Valuing the company on SOTP basis, we
maintain our Buy recommendation with a revised Target Price of `1,384 (`1,458). We have
valued the domestic core business at `406/share, implying P/E of 13x FY2012E. Our
embedded value of the subsidiaries and investments in TML's books (including JLR) works out
to `978/share. We have valued JLR at 7x FY2012E earnings, in line with its peers.
Hindalco Industries
Hindalco’s standalone net sales increased by 12.0% yoy to `5,918cr, mainly driven by
increased aluminium prices. Novelis’s (100% subsidiary of Hindalco) net sales increased by
21.2% yoy to US $2,560mn, mainly driven by increased shipments. However, Hindalco’s
standalone EBITDA declined by 1.0% yoy to `740cr on account of higher raw-material costs.
Raw-material costs as a percentage of sales increased to 67.4% in 3QFY2011, compared to
65.5% in 3QFY2010. Novelis’s EBITDA increased by 4.7% yoy to US $225mn. Novelis’s
adjusted EBITDA/tonne increased by 8.9% yoy to US $317 in 3QFY2011.
Hindalco’s net profit increased by 7.8% yoy to `460cr, as the decline in EBITDA was offset by
lower interest costs and tax expenses. Novelis reported loss of US $46mn in net profit in
3QFY2011 compared to net profit of US $66mn in 3QFY2010, on account of forex losses
(exceptional item) of US $74mn in 3QFY2011. We recommend Buy on the stock with a
Target Price of `249.
HDIL
For 3QFY2011, HDIL reported above-expectation results on account of steady TDR volumes
and sale of high-margin FSI. Revenue increased by 11.4% yoy and 22.2% qoq to `455cr (v/s
our estimate of `420cr) on account of TDR sale of 1mn sq. ft. from the MIAL project and
average realisation of `3,100/sq. ft. (`3,000/sq. ft. in 2QFY2011). Further, the company
received ~`140cr from sale of FSI in Vasai/Virar. EBITDA margin came in at 58.5%, up by
1,236bp yoy (down 512bp qoq), owing to lower costs associated with FSI sale.
Consequently, operating profit stood at `267cr, up 12.4% qoq and 41.2% yoy. Tax rate for
3QFY2011 stood at 6.0% (16.6%). During the quarter, HDIL booked expense of `4.5cr (net
of insurance claims and salvage) on account of damage done by fire at one of the
company’s towers. PAT for the quarter grew by 54.8% yoy and 17.8 qoq to `252cr.
During the quarter, net debt-to-equity increased from 0.32x to 0.4x on account of higher
investments (new land acquisitions adding another ~40mn sq. ft.). Management has
outlined aggressive residential launches entailing ~27mn sq. ft. and expects the delay
(eligibility of slum dwellers) in the `200bn MIAL project to be sorted out over the next two
quarters. This would improve the company’s cash flow and reduce dependence on TDR sales
going forward. At `137, HDIL is trading at 60% discount to our one-year forward NAV of
`347 and at 0.5x FY2012E P/BV. We maintain Buy on HDIL with a Target Price of `243
(30% discount to our NAV).
Great Eastern Shipping Company
GE Shipping (Gesco) reported a subdued performance for 3QFY2011 on account of lower
tonnage and a decline in average time charter yields (TCYs). The company’s revenue
declined by 21.3% yoy and 11.9% qoq as TCYs weakened for two of its major asset classes,
viz. dry bulk carriers (4% yoy) and product tankers (19%), while that for the crude carriers
remained flat. OPM also fell sharply by 469bp qoq but increased by 817bp yoy on a lower
base of 3QFY2010. Gesco reported gain of `55cr from the sale of vessels vis-à-vis nil in
3QFY2010 and `26cr in 2QFY2011. The company also reported marginal forex gains vis-àvis
loss of `37cr in 3QFY2010 and `32cr in 2QFY2011. However, interest cost increased by
46.8% qoq (down 3.9% yoy), while other income declined by 44.2% yoy (63.0% qoq).
Further, its tax rate increased by 833bp qoq to 13.7%. Consequently, reported PAT declined
by 30.3% qoq but increased by 24.5% yoy to `117cr on account of base effect.
Gesco has shelved the plans of raising `150cr–200cr through an IPO of its offshore
subsidiary – Greatship (India) Ltd. – due to prevalent market conditions. We believe the
listing would have unlocked significant value as the offshore sector commands premium over
the shipping business on account of revenue visibility. Gesco has guided that revenue
visibility for the balance part of FY2011 is around `207cr. Geopolitical tensions, natural
calamities, demand curtailment by monetary tightening and vessel over-supply have kept
TCYs extremely subdued across asset classes. We are likely to downgrade our FY2011 and
FY2012 estimates post the conference call today. We maintain our Buy recommendation on
Gesco; our target price is under review.
Apollo Tyres
Apollo Tyres reported a strong set of results for 3QFY2011 with reported numbers coming in
better than our expectations. Standalone top line registered better-than-expected 8.2% yoy
growth to `1,432cr (`1,323cr) in 3QFY2011. On the operating front, the company reported
EBITDA margin of 10.4% (15.5%) a fall of 509bp yoy. The margin declined mainly due to a
significant increase in the cost of natural rubber during the quarter. As a result, operating
profit declined by 27% yoy; however, it was ahead of our estimates by 18.3%. Net profit for
the quarter dipped by 47% yoy on account of margin contraction at the operating level.
Further, higher interest cost impacted the bottom line to a certain extent.
On the consolidated front, revenue increased by 3.2% yoy to `2,369cr (`2,296cr), with
better-than-expected performance in the domestic markets. Revenue at South African
operations increased by 2.6% yoy, while European operations witnessed a yoy decline of
4.7% in revenue. Operating margin at the consolidated level stood at 11.5% in 3QFY2011
as against 16.7% in 3QFY2010 and 9.5% in 2QFY2011. As a result, operating and net
profit dipped by 29% and 36% yoy, respectively.
At `51, the stock is trading 9x and 6.8x FY2011E and FY2012E consolidated earnings,
respectively. Due to better-than-expected performance during 3QFY2011, we maintain our
Buy rating on the stock; however, the target price is under review.
Dishman Pharma
Dishman reported its 3QFY2011 results. Net sales came in at `232cr (`222cr), lower than
our estimates of `291cr. CRAMS revenue came in at `158cr (`161cr), down by 2%; while
marketable molecule sales came in at `73.6cr (`61.6cr), an increase of 20%. Gross margin
reported a drop to 63.9% (73.4%), lower than our estimates of 72.1%. This was mainly due
to increased raw-material cost to `83.5cr (`41.7cr), up 100% during the quarter. Dishman
reported OPM of 10.9% (23.1%), lower than our estimates of 23.1%. Net profit came in at
`1.7cr (`33.1cr), down 94.7%, lower than our estimates of `36.7cr. The stock is currently
under review.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Result Reviews – 3QFY2011
Tata Motors
Tata Motors (TML) reported impressive results for yet another quarter of FY2011, beating
street’s as well as our expectations.
On a consolidated basis, the company reported strong 21.7% yoy and 10.1% qoq growth in
net sales to `31,685cr (v/s `28,870cr est.), led by robust performance of JLR and betterthan-
expected performance at the standalone level. Total volumes in the domestic markets
grew by 17.4% yoy, while JLR volumes jumped by 11.3% yoy. On the operating front, margin
improved by a substantial 276bp yoy and 26bp qoq to 14.2% (v/s 12.8% est.) on the back
of improved operational performance at JLR. Further, favourable currency movement and
restructuring efforts at JLR helped margin expansion at the consolidated level. As a result, net
profit for the quarter grew significantly by 272.9% yoy to `2,425cr (v/s `1,920cr est.)
On a standalone basis, TML reported 28.3% yoy growth in its top line to `11,520cr, ahead
of our estimates of `10,922cr, aided by 17.4% yoy growth in volumes and ~9.3% yoy
growth in average net realisation. On a qoq basis, however, the top line remained flat as
volumes registered a decline of 5.8%. Volume growth was restricted on account of supply
constraints due to emission norm changes. Realisation improved on account of better
product mix (higher share of commercial vehicles) and price increases carried out during the
quarter. Operating margins stood at 10.1% (v/s 9.2% est.), posting a decline of 243bp yoy
due to a 372bp increase in raw-material cost and a 90bp increase in other expenses. As a
result, net profit registered a marginal 2.5% yoy increase to `410cr, better than our estimates
of `350cr.
On the JLR front, stellar performance continued with better-than-expected results during the
quarter. Net sales registered robust 35.6% yoy (18.4% qoq) growth, primarily due to an
11.3% yoy (14.5% qoq) increase in volumes and an impressive ~21.8% yoy (3.3% qoq)
jump in average net realisation. Volume growth at the retail level was particularly strong in
China (up 72%), Russia (up 24%) and North America (up 16%). On the operating front, JLR
recorded a substantial 762bp jump in operating margins to 17.4%, owing to improved
operating leverage, favourable currency movement and cost-cutting measures initiated by
the company. Hence, profit after tax witnessed 75.2% yoy and 15.5% qoq growth during
3QFY2011.
We maintain our positive stance on the company, considering its impressive operating
performance especially on the JLR front. As a result, we have revised our earnings estimates
for JLR upwards by ~10%. At `1,145, the stock is trading at 8.8x and 8.3x FY2011E and
FY2012E consolidated earnings, respectively. Valuing the company on SOTP basis, we
maintain our Buy recommendation with a revised Target Price of `1,384 (`1,458). We have
valued the domestic core business at `406/share, implying P/E of 13x FY2012E. Our
embedded value of the subsidiaries and investments in TML's books (including JLR) works out
to `978/share. We have valued JLR at 7x FY2012E earnings, in line with its peers.
Hindalco Industries
Hindalco’s standalone net sales increased by 12.0% yoy to `5,918cr, mainly driven by
increased aluminium prices. Novelis’s (100% subsidiary of Hindalco) net sales increased by
21.2% yoy to US $2,560mn, mainly driven by increased shipments. However, Hindalco’s
standalone EBITDA declined by 1.0% yoy to `740cr on account of higher raw-material costs.
Raw-material costs as a percentage of sales increased to 67.4% in 3QFY2011, compared to
65.5% in 3QFY2010. Novelis’s EBITDA increased by 4.7% yoy to US $225mn. Novelis’s
adjusted EBITDA/tonne increased by 8.9% yoy to US $317 in 3QFY2011.
Hindalco’s net profit increased by 7.8% yoy to `460cr, as the decline in EBITDA was offset by
lower interest costs and tax expenses. Novelis reported loss of US $46mn in net profit in
3QFY2011 compared to net profit of US $66mn in 3QFY2010, on account of forex losses
(exceptional item) of US $74mn in 3QFY2011. We recommend Buy on the stock with a
Target Price of `249.
HDIL
For 3QFY2011, HDIL reported above-expectation results on account of steady TDR volumes
and sale of high-margin FSI. Revenue increased by 11.4% yoy and 22.2% qoq to `455cr (v/s
our estimate of `420cr) on account of TDR sale of 1mn sq. ft. from the MIAL project and
average realisation of `3,100/sq. ft. (`3,000/sq. ft. in 2QFY2011). Further, the company
received ~`140cr from sale of FSI in Vasai/Virar. EBITDA margin came in at 58.5%, up by
1,236bp yoy (down 512bp qoq), owing to lower costs associated with FSI sale.
Consequently, operating profit stood at `267cr, up 12.4% qoq and 41.2% yoy. Tax rate for
3QFY2011 stood at 6.0% (16.6%). During the quarter, HDIL booked expense of `4.5cr (net
of insurance claims and salvage) on account of damage done by fire at one of the
company’s towers. PAT for the quarter grew by 54.8% yoy and 17.8 qoq to `252cr.
During the quarter, net debt-to-equity increased from 0.32x to 0.4x on account of higher
investments (new land acquisitions adding another ~40mn sq. ft.). Management has
outlined aggressive residential launches entailing ~27mn sq. ft. and expects the delay
(eligibility of slum dwellers) in the `200bn MIAL project to be sorted out over the next two
quarters. This would improve the company’s cash flow and reduce dependence on TDR sales
going forward. At `137, HDIL is trading at 60% discount to our one-year forward NAV of
`347 and at 0.5x FY2012E P/BV. We maintain Buy on HDIL with a Target Price of `243
(30% discount to our NAV).
Great Eastern Shipping Company
GE Shipping (Gesco) reported a subdued performance for 3QFY2011 on account of lower
tonnage and a decline in average time charter yields (TCYs). The company’s revenue
declined by 21.3% yoy and 11.9% qoq as TCYs weakened for two of its major asset classes,
viz. dry bulk carriers (4% yoy) and product tankers (19%), while that for the crude carriers
remained flat. OPM also fell sharply by 469bp qoq but increased by 817bp yoy on a lower
base of 3QFY2010. Gesco reported gain of `55cr from the sale of vessels vis-à-vis nil in
3QFY2010 and `26cr in 2QFY2011. The company also reported marginal forex gains vis-àvis
loss of `37cr in 3QFY2010 and `32cr in 2QFY2011. However, interest cost increased by
46.8% qoq (down 3.9% yoy), while other income declined by 44.2% yoy (63.0% qoq).
Further, its tax rate increased by 833bp qoq to 13.7%. Consequently, reported PAT declined
by 30.3% qoq but increased by 24.5% yoy to `117cr on account of base effect.
Gesco has shelved the plans of raising `150cr–200cr through an IPO of its offshore
subsidiary – Greatship (India) Ltd. – due to prevalent market conditions. We believe the
listing would have unlocked significant value as the offshore sector commands premium over
the shipping business on account of revenue visibility. Gesco has guided that revenue
visibility for the balance part of FY2011 is around `207cr. Geopolitical tensions, natural
calamities, demand curtailment by monetary tightening and vessel over-supply have kept
TCYs extremely subdued across asset classes. We are likely to downgrade our FY2011 and
FY2012 estimates post the conference call today. We maintain our Buy recommendation on
Gesco; our target price is under review.
Apollo Tyres
Apollo Tyres reported a strong set of results for 3QFY2011 with reported numbers coming in
better than our expectations. Standalone top line registered better-than-expected 8.2% yoy
growth to `1,432cr (`1,323cr) in 3QFY2011. On the operating front, the company reported
EBITDA margin of 10.4% (15.5%) a fall of 509bp yoy. The margin declined mainly due to a
significant increase in the cost of natural rubber during the quarter. As a result, operating
profit declined by 27% yoy; however, it was ahead of our estimates by 18.3%. Net profit for
the quarter dipped by 47% yoy on account of margin contraction at the operating level.
Further, higher interest cost impacted the bottom line to a certain extent.
On the consolidated front, revenue increased by 3.2% yoy to `2,369cr (`2,296cr), with
better-than-expected performance in the domestic markets. Revenue at South African
operations increased by 2.6% yoy, while European operations witnessed a yoy decline of
4.7% in revenue. Operating margin at the consolidated level stood at 11.5% in 3QFY2011
as against 16.7% in 3QFY2010 and 9.5% in 2QFY2011. As a result, operating and net
profit dipped by 29% and 36% yoy, respectively.
At `51, the stock is trading 9x and 6.8x FY2011E and FY2012E consolidated earnings,
respectively. Due to better-than-expected performance during 3QFY2011, we maintain our
Buy rating on the stock; however, the target price is under review.
Dishman Pharma
Dishman reported its 3QFY2011 results. Net sales came in at `232cr (`222cr), lower than
our estimates of `291cr. CRAMS revenue came in at `158cr (`161cr), down by 2%; while
marketable molecule sales came in at `73.6cr (`61.6cr), an increase of 20%. Gross margin
reported a drop to 63.9% (73.4%), lower than our estimates of 72.1%. This was mainly due
to increased raw-material cost to `83.5cr (`41.7cr), up 100% during the quarter. Dishman
reported OPM of 10.9% (23.1%), lower than our estimates of 23.1%. Net profit came in at
`1.7cr (`33.1cr), down 94.7%, lower than our estimates of `36.7cr. The stock is currently
under review.
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