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Mcleod Russel India Ltd. — Outlook remains
robust; Buy
Country Overview
Q4 below expectations; expect crop recovery in FY12
McLeod’s Q4 numbers were below expectations led mainly by more than
expected loss of crop and higher costs. While we cut estimates ~10% to account
for costs we see upside risk to estimates led by better than expected tea prices.
We retain Buy with an unchanged PO of INR315 as we roll fwd to FY13 based
multiple. PO is at 9x 1yr fwd P/E, in line with McLeod's 4yr median.
Price realizations robust; remain bullish on price outlook
Company mentioned that tea prices currently are up INR10-15 per kg (~10%) on
a like to like basis vs last year. We remain bullish on medium term price outlook
given i) continuing shortage situation, ii) ~8% YTD loss of production in Kenya
due to weather issues and iii) no significant new supply likely to come up globally.
FY11 hit due to lower production; expect recovery in FY12
While realized prices in FY11 were 6% higher yoy McLeod lost 2.3mn kg of
production. Of this ~4mn kg was lost in its owned gardens but was offset partially
by ~1mn kg increased production based on bought leaves. However given timely
start to monsoon in FY12 we expect McLeod’s production to recover ahead.
Valuations remain attractive; reiterate Buy
McLeod trades at 8xFY12e PE and 7.4xFY13e. Adjusting for treasury this implies
a valuation of 6xFY12e and 5.5xFY13e PE. This is at the lower end of 6x to 26x
1yr fwd trading range for peers in the global food commodities. We believe these
are attractive valuations given i) our positive view on tea price outlook, ii) free
cash flow generation and iii) continuous deleveraging. Reiterate Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mcleod Russel India Ltd. — Outlook remains
robust; Buy
Country Overview
Q4 below expectations; expect crop recovery in FY12
McLeod’s Q4 numbers were below expectations led mainly by more than
expected loss of crop and higher costs. While we cut estimates ~10% to account
for costs we see upside risk to estimates led by better than expected tea prices.
We retain Buy with an unchanged PO of INR315 as we roll fwd to FY13 based
multiple. PO is at 9x 1yr fwd P/E, in line with McLeod's 4yr median.
Price realizations robust; remain bullish on price outlook
Company mentioned that tea prices currently are up INR10-15 per kg (~10%) on
a like to like basis vs last year. We remain bullish on medium term price outlook
given i) continuing shortage situation, ii) ~8% YTD loss of production in Kenya
due to weather issues and iii) no significant new supply likely to come up globally.
FY11 hit due to lower production; expect recovery in FY12
While realized prices in FY11 were 6% higher yoy McLeod lost 2.3mn kg of
production. Of this ~4mn kg was lost in its owned gardens but was offset partially
by ~1mn kg increased production based on bought leaves. However given timely
start to monsoon in FY12 we expect McLeod’s production to recover ahead.
Valuations remain attractive; reiterate Buy
McLeod trades at 8xFY12e PE and 7.4xFY13e. Adjusting for treasury this implies
a valuation of 6xFY12e and 5.5xFY13e PE. This is at the lower end of 6x to 26x
1yr fwd trading range for peers in the global food commodities. We believe these
are attractive valuations given i) our positive view on tea price outlook, ii) free
cash flow generation and iii) continuous deleveraging. Reiterate Buy.
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