Research Updates with Emkay 1 February, 2011

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Contents: 

Result Update: Sterlite Tech; Jagran Prakashan; GSFC; Jaiprakash Asso; TRIL; GNFC; Canara Bank; JK Paper; NTPC; Shree Cement; BILT  and Emkaynomics

n        Research Views

BILT (Conso) Q2FY11 Results First Cut: Inline with estimates - Net Sales Rs 11.3 bn, PAT Rs 480 mn

Q2FY11 results for BILT were broadly inline with estimates although EBITDA margins were below expectations. On consolidated level, BILT reported revenue growth of 27% yoy to Rs 11.3 bn. Revenues were marginally ahead of estimates due to higher than expected pulp revenues. Pulp segment performance continued to remain strong as the segment reported revenues of Rs 1.22 bn, +32% yoy – ahead of our estimates of Rs 960 mn. Paper segment revenues at Rs 9.89 bn, increased by 28% yoy - inline with estimates of Rs 9.5 bn.

EBITDA margins at 19.3% (-330 bps yoy) were below estimates of 20.8%. Overall EBITDA for Q2FY11 stood at Rs 2.18 bn, +9% yoy – inline with estimates of Rs 2.23 bn. EBIT margins for the paper segment at 11% dipped by 430 bps over previous year and were lower than our estimates of 12.4%. Pulp segment continued its strong run on the margins front with 1300 bps expansion at 25.6% (we estimated 28%). APAT remained broadly inline with expectations at Rs 480 mn (we estimated Rs 528 mn) – growth of 5% yoy.

For H2FY11 the company has reported revenues of Rs 21.5 bn (+27% yoy), EBITDA of Rs 4.3 bn (+8% yoy) and APAT of Rs 889 mn (+2% yoy). AEPS for H2FY11 stood at Rs 1.4. EBITDA margins for H2FY11 at 19.8% are lower by 350 bps over H1FY10

We are hosting a conference call with the management to discuss Q2FY11 & H2FY11 results on Tuesday, February 1st, 2011 at 10.00 AM. Dial in numbers are : 022-3065 0020 / 6629 0048. Please find attached the invite for the same.

n        Research Update Included

Sterlite Technologies Q3FY11 Result Update; Worst is behind, Upgrade to BUY; Target: Rs 68

n    Q3FY11 profit of Rs171mn, significantly below our est. of Rs606mn, dragged by lower EBITDA margin in Power biz

n    Execution of low margin orders in absence of orders from PGCIL, led to sharp fall in power margins to 2.9% v/s average of 12-13%

n    Cut EPS estimate    s by 31% /18% to Rs4.4 /6.8 for FY11E & FY12E respectively mainly due to cut in profitability in power and realization in fiber

n    Stock price correction factors disappointments- Upgrade rating to BUY from HOLD earlier with revised target price of Rs68 (from Rs100 earlier)

Jagran Prakashan Q3FY11 Result Update; Good show, Reiterate BUY; Target: Rs 155

n    PAT up 32.5% YoY to Rs526mn, higher than our estimate of Rs487mn, driven by strong ad revenue growth

n    Robust advertisement revenue growth of 31.3% yoy to Rs Rs1945mn, on the back of strong ad volumes

n    Circulation revenue up 7.2% to Rs570mn v/s our expectation of Rs540mn. Other business on track with revenue growth of 19.7% to Rs252mn

n    EPS estimate of Rs 6.9 and Rs 8.2 for FY11E and FY12E respectively. Retain BUY rating with target Rs 155

GSFC Q3FY11 Result Update; Chemical segment margins at all time high; Buy; Target: Rs 530

n    Q3FY11 APAT growth of 77% yoy to Rs 2 bn (adjusted for Rs379 mn related to previous year) marginally ahead of estimates - driven by strong results of chemicals segment

n    Chemicals segment margins notched upto all time high of 40% (against historical average of 20%) may remain at current levels in the short term (model FY12 margins at 24%)

n    Fertiliser segment EBIT margins remain buoyant at 16% with company benefiting from its low cost ammonia production

n    Upgrade FY11E estimates by 16% to Rs 81.9, maintain FY12E at Rs 66.3. Re-iterate BUY on compelling valuations at FY11 EV/EBITDA of 1.9x and P/BV of 1x   

Jaiprakash Associates Q3FY11 Result Update; Cement & E&C disappoints – Downgrade earnings; Buy; Target: Rs 110

n    APAT at Rs 2.3bn (-26% yoy) sharply below estimates (Rs 2.8bn) led by lower Cement & Construction rev. Topline +0.5% yoy (Rs28.9 bn vs est-Rs33.9bn), EBITDA declines 1% 

n    Execution issues drag construction revenues down -22.7%, flat realisations restricts cement revenues growth to 30%. Real estate revenues up 23.1% – surprises positively

n    Increasing cost pressures drag cement EBIT down by ~40% yoy- Slower execution & 350 bps decline in EBIT margins lead to 33% decline in construction EBIT. RE EBIT doubles  

n    Downgrade earnings by -19.1%/-12.9% for FY11E/FY12E.  Valuations at and 7.3X FY12 EV/EBITDA looks attractive post sharp stock price decline. Upgrade to BUY. Target Rs110. 

Transformers & Rectifiers Q3FY11 Result Update; Impacted by one offs, dispatch slippage & competition; Accumulate; Target: Rs 315

n    TRIL rep. PAT of Rs68mn vs est. of Rs146mn due to (1) one time incentives (~Rs10mn), (2) dev. exp. of 1150kv transfrmr (~Rs15mn), (3) dispatch slippages & (4) competition

n    Around 1,300MVA of dispatches slipped to Q4 resulting in volume (2,711MVA) decline of 5% yoy; this led to revenue declining by 1% yoy to Rs1.3bn (realizations were up 4% yoy)

n    Due to same reasons, EBITDA margins declined by -205bps yoy; No signals of competition pressures easing except for fact that order inflows have been strong for third qtr in a row

n    Cut FY11E/12E earnings by 30%/32%; Order inflows, realizations and 765kv manufacturing key variables to track;  maintain accumulate on 20% valuations discount to peers 

GNFC Q3FY11 Result Update; Positive surprise by fertiliser division; Buy; Target: Rs 157

n    Q3FY11 APAT at Rs 884 mn (+5.8% yoy on previous year APAT of Rs 835 mn) is ahead of estimates - driven by strong performance of fertiliser segment

n    Chemical segment margins remain strong at 27.6% (vs 25.9% previous year) on account of buoyancy in chemical prices 

n    Fertiliser EBIT margins at 7.3% against historically reported losses - a positive surprise. Margins higher due to receipt of previous year subsidy and introduction of NBS policy

n    Upgrade FY11E estimates by 7% to Rs 12.4 (previous Rs 11.6) driven by strong Q3FY11 results. Maintain BUY

Canara Bank Q3FY11 Result Update; Strong results; upgrade to HOLD; Target: Rs 640

n    Canara Bank’s NII at Rs21.2 inline with expectation, however PAT at Rs11.1bn significantly ahead street expectation

n    The NII grew by 43.4%yoy to Rs21.2bn driven by 7.7%qoq growth in advances and stable NIM’s at 2.9%

n    The NPAs remained stable with a marginal increase in gross NPAs at Rs27.5bn. Strong recoveries and upgradation help keep provisioning at 0.3% vs an average of 0.6% for FY08-10

n    The stock has corrected sharply over last three months hence valuations looks reasonable now at 1.7x FY11E and 1.3x FY12E ABV, hence upgrade to HOLD with TP of Rs640

JK Paper Q3FY11 Result Update; Results in line with estimates; Buy; Target: Rs 84

n    Q3FY11 results were in line with estimates with revenue growth of 18% yoy (8% volume and 10% realisations) to Rs 3.1 bn and PAT growth of 23% yoy to Rs 251 mn

n    EBITDA margins contraction of 200 bps yoy to 20.8% is attributed to high input (wood) cost due to adverse monsoon, however the same is expected to improve by Q4FY11

n    Company revised its capex to Rs 16.5 bn (previously Rs 15 bn) due to upwards revision in planned capacity - funding for capex plans is tied up

n    Valuations remain compelling at FY12E P/E of 3.8x, EV/EBITDA of 3.2x and 40% discount to book value. We re-iterate BUY

NTPC Company Update; Results hinting at change in grossing up again; Hold; Target: Rs 190

n    APAT of Rs23.2bn (prior year sales not adj.) is higher than est. of Rs20.6bn - we see change in grossing up again to full tax rate led by 25.6% tax rate in the qtr (project delays)

n    Detailed analysis of Q310 & Q311 numbers indicate that Q311 APAT should have been lower byRs5.7bn, had NTPC followed MAT rate grossing up but actually its lower by only Rs450mn  

n    Though this might increase our FY11E earnings by ~10% but we believe that NTPC in all probabilities is likely to fall under MAT rate in FY12E - thus no change in FY12E earnings

n    Valuations at 2.2xFY12E Book value, reasonable on core ROE of 25%; to review earnings post the concall tomorrow; Maintain Hold

Shree Cement Q3FY11 Result Update; Earnings disappoint; Accumulate; Target: Rs 1,960

n    APAT at Rs240 mn (-86% yoy) sharply below est -11% decline in cement realisation & 26% decline in power realisation led to 53% drop in EBITDA (Rs1.6 bn vs est of Rs2.3 bn)

n    Revenues (Rs7.8 bn ) down 10% yoy, led by 9.4% decline in cement & 21.8% decline in power revs. Cement prices in Shree’s market hiked by Rs10-15/bag in January

n    Sharp increase in international pet coke prices to increase cost pressure for Shree. Cut earnings for FY11E/FY12E by 23%/31%. Lower TP to Rs1960 to factor earnings downgrade  

n    Valuation at 5.1 EV/EBIDTA and EV/ton at USD 78 (ex value of power) looks attractive post recent prices correction (down 20% in 3M) and factors in lot of negatives. ACCUMULATE 

Emkaynomics; January 14, 2011; Fortnightly round up of key banking and economic indicators

n    The growth in non food credit has moved down to 23.2% for the week ended January 14, 2011 as growth in deposit mobilisation remained stagnant at 16.6%

n    The CD ratio has marginally inched down to 75.2% for the week ended January 14, 2010 with TTM CD ratio down to 101%. The incr. CD ratio has moderated to 105%

n    Money supply growth has remained relatively stagnant at 17.4% and the money multiplier dropped to 4.9x

n    Call money rates have risen to 6.66% as on January 28, 2011 from 6.29% last fortnight

n    The shortage of liquidity in the system moved up to and stood at Rs181.8bn.  The net repo balances stood at ~ Rs826bn for the week ended January 14, 2011

n    The spread between the long and short end OIS has risen marginally to 43bps as opposed to 41 bps last fortnight