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Strong but pressures visible
Our analysis of the 4QFY11 results of 2900+ companies (
shows that while sales growth remains high, cost pressures are building up.
Net profits grew by a healthy 18% YoY, up from 12% in 3Q but lower than the
22% growth in sales as rising raw material and interest costs created
headwinds. Whilst the CNX Midcap has underperformed largecaps by 7% over
the past twelve months, it has outperformed by 5% over 3 months and the PE
discount is now broadly in line with the long term average. We prefer quality
names with strong growth drivers and margin visibility. We highlight Petronet
LNG, Torrent Pharma, Dish TV, Shree Renuka Sugars and Sintex as key picks.
Topline growing at 22%; raw materials jump 26%
q Net Sales for 4QFY11 for the mid-cap universe increased to Rs4.91tn from Rs4.36tn
in 3QFY11. In the ex-Oil & Gas and financials segment, sales increased 18% YoY
although the QoQ pickup was sharper than the broader universe (+12%).
q Raw materials costs were up by 26% YoY and 16% QoQ to 57.6% of revenue (up
190bps YoY, 160bps QoQ), while power costs rose 11% QoQ and staff costs 10%
QoQ. In ex-Oil and Gas and financials, material costs rose 22% YoY (16% QoQ).
EBTIDA margin at 12.1%; up 40bps YoY, down 130bps QoQ
q EBITDA margins for the entire midcap universe came in at 12.1%, up 30bps YoY
but down 130bps QoQ. In ex-Oil & Gas and financials, EBTIDA margins fell 100bps
QoQ to 12.0% in 4QFY11 but were up 40bps YoY. The YoY increase was led by
falling opex ratios, which offset the increase in material costs.
q A 9% YoY (10% QoQ) rise in staff costs was the lowest in three quarters suggesting
that the hiring and wage recovery visible through most of FY11 may be moderating.
Net profit growing 18% but interest costs rising; sector trends mixed
q Interest costs grew 32% YoY (10% QoQ). The increase in interest costs is higher
than the 12% increase in depreciation, suggesting hardening interest rates.
q Net profit grew 18% YoY, accelerating from the 12% in 3QFY11. QoQ increase was
4%. Net margin was 5.4% - down 20bps YoY/40bps QoQ.
q Net profit grew 18% YoY in the ex-oil and gas and financials universe (+4% QoQ)
as the net margin was flat YoY but fell 40bps QoQ
q At a sector level, consumer non-cyclical has been the strongest drivers of
aggregate bottom line growth while energy led on top line growth and was second
in bottom line growth. The moderating trend in consumer cyclicals continued while
financials saw a slowdown in profit growth after the strength seen in 2Q/3Q.
q Within the mid cap space, the financial performance of the larger companies seems
to have been better than the smaller ones with companies in the US$0.2-0.5bn
market cap range in particular seeing weak profit growth.
CNX Midcap has outperformed the Sensex over the past three months
q A 5% outperformance over 3 months has helped the CNX midcap to make up for
some of the underperperformance against the Sensex in Nov-March. On a 12
month basis though, the underperformance still stands at 7%.
q After the recent catchup, midcaps trade at a 19-23% discount to the Sensex on
FY12-13 PE, suggesting that a broad based narrowing of the discount is unlikely
and outperformance by midcaps will be driven by stock specific fundamentals.
q Given the uncertain earnings environment, we prefer quality midcaps where
earnings visibility is high and valuations reasonable. Our key picks below.
q Petronet LNG: benefits from shortfall in domestic gas production; 15x FY12 PE
with 11% FY11-13 EPS CAGR and upside risks from escalating tariffs.
q Torrent Pharma: India business driving growth with extra momentum from
exports to drive FY11-13 earnings CAGR of 21% and surging cashflow.
q Dish TV: classic J-curve play with a ciritical mass of 10m subscribers already
achieved and momentum continuing; upside to estimates from ARPU surprises.
q Shree Renuka Sugars : near stress case valuation; strong earnings pickup from
Brazil and improving balance sheet likely to drive a rerating.
q Sintex: strong earnings growth (22% FY11-13 CAGR) alongside improving return
ratios create rerating potential on the current sub 9x FY12 PE
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong but pressures visible
Our analysis of the 4QFY11 results of 2900+ companies (
shows that while sales growth remains high, cost pressures are building up.
Net profits grew by a healthy 18% YoY, up from 12% in 3Q but lower than the
22% growth in sales as rising raw material and interest costs created
headwinds. Whilst the CNX Midcap has underperformed largecaps by 7% over
the past twelve months, it has outperformed by 5% over 3 months and the PE
discount is now broadly in line with the long term average. We prefer quality
names with strong growth drivers and margin visibility. We highlight Petronet
LNG, Torrent Pharma, Dish TV, Shree Renuka Sugars and Sintex as key picks.
Topline growing at 22%; raw materials jump 26%
q Net Sales for 4QFY11 for the mid-cap universe increased to Rs4.91tn from Rs4.36tn
in 3QFY11. In the ex-Oil & Gas and financials segment, sales increased 18% YoY
although the QoQ pickup was sharper than the broader universe (+12%).
q Raw materials costs were up by 26% YoY and 16% QoQ to 57.6% of revenue (up
190bps YoY, 160bps QoQ), while power costs rose 11% QoQ and staff costs 10%
QoQ. In ex-Oil and Gas and financials, material costs rose 22% YoY (16% QoQ).
EBTIDA margin at 12.1%; up 40bps YoY, down 130bps QoQ
q EBITDA margins for the entire midcap universe came in at 12.1%, up 30bps YoY
but down 130bps QoQ. In ex-Oil & Gas and financials, EBTIDA margins fell 100bps
QoQ to 12.0% in 4QFY11 but were up 40bps YoY. The YoY increase was led by
falling opex ratios, which offset the increase in material costs.
q A 9% YoY (10% QoQ) rise in staff costs was the lowest in three quarters suggesting
that the hiring and wage recovery visible through most of FY11 may be moderating.
Net profit growing 18% but interest costs rising; sector trends mixed
q Interest costs grew 32% YoY (10% QoQ). The increase in interest costs is higher
than the 12% increase in depreciation, suggesting hardening interest rates.
q Net profit grew 18% YoY, accelerating from the 12% in 3QFY11. QoQ increase was
4%. Net margin was 5.4% - down 20bps YoY/40bps QoQ.
q Net profit grew 18% YoY in the ex-oil and gas and financials universe (+4% QoQ)
as the net margin was flat YoY but fell 40bps QoQ
q At a sector level, consumer non-cyclical has been the strongest drivers of
aggregate bottom line growth while energy led on top line growth and was second
in bottom line growth. The moderating trend in consumer cyclicals continued while
financials saw a slowdown in profit growth after the strength seen in 2Q/3Q.
q Within the mid cap space, the financial performance of the larger companies seems
to have been better than the smaller ones with companies in the US$0.2-0.5bn
market cap range in particular seeing weak profit growth.
CNX Midcap has outperformed the Sensex over the past three months
q A 5% outperformance over 3 months has helped the CNX midcap to make up for
some of the underperperformance against the Sensex in Nov-March. On a 12
month basis though, the underperformance still stands at 7%.
q After the recent catchup, midcaps trade at a 19-23% discount to the Sensex on
FY12-13 PE, suggesting that a broad based narrowing of the discount is unlikely
and outperformance by midcaps will be driven by stock specific fundamentals.
q Given the uncertain earnings environment, we prefer quality midcaps where
earnings visibility is high and valuations reasonable. Our key picks below.
q Petronet LNG: benefits from shortfall in domestic gas production; 15x FY12 PE
with 11% FY11-13 EPS CAGR and upside risks from escalating tariffs.
q Torrent Pharma: India business driving growth with extra momentum from
exports to drive FY11-13 earnings CAGR of 21% and surging cashflow.
q Dish TV: classic J-curve play with a ciritical mass of 10m subscribers already
achieved and momentum continuing; upside to estimates from ARPU surprises.
q Shree Renuka Sugars : near stress case valuation; strong earnings pickup from
Brazil and improving balance sheet likely to drive a rerating.
q Sintex: strong earnings growth (22% FY11-13 CAGR) alongside improving return
ratios create rerating potential on the current sub 9x FY12 PE
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