L&T -Orders galore, assuage margin miss :: JPMorgan

Overcoming odds of a weak domestic investment cycle L&T managed to secure
an uphill 25% growth in FY13 order inflows. In an election year for India, they
surprised positively by guiding to 20% order inflow growth in FY14, implying
expectation of booking Rs1056bn (USD19bn) fresh jobs. Transportation
infrastructure jobs both in India and overseas are expected to swing the needle on
order inflows through FY14. Taking FY14 revenue guidance of 15%-17% growth
at face value in conjunction with inflows, the implied growth in order backlog this
fiscal works out to ~22%, improving prospects on even better topline growth in
FY15 vs. current fiscal. Post the Mar-q margin and topline miss (see First cut post
results) simply following guidance would imply ~6% lower FY14 standalone
EBITDA, though the EPS downside is more muted if lower average tax-rate of
29% over FY12/FY13 is built into FY14 (current JPM est. of 33% tax-rate).

Britannia Industries Growth visibility improves; valuations attractive : Prabhudas Lilladher

We are revising FY14 and FY15 EPS estimates for Britannia Industries (BRIT) by 12%
and target price to Rs812 (SOTP). This follows 280bps margin expansion to 8.8% in
Q4FY13, a 4-year high margin in any quarter. Although BRIT’s margins have
remained volatile in the past, we believe that favourable input costs, focus on
higher margin segments and more rational competition will enable 130bps margin
expansion over FY13-15 and provide 28% PAT CAGR. 45-50% P/E discount (FY15
Consol EPS) to Nestle (NEST) and GSK Consumer (GSK), despite 55% ROCE and
39.4% ROE, limits downside in the stock. Maintain ‘BUY’,

M&M : Auto-comp ambitions get a boost :CLSA

M&M has announced a strategic alliance with Spain-based auto-components
firm – CIE Auto. M&M will buy 13.5% stake in CIE Auto while CIE will buy
stakes in M&M's auto-comp subs in a largely cash-neutral deal. The key
rationale is to widen the geographical, customer & product footprint for both
firms given that there are minimal overlaps in these three areas. M&M has
struggled in the auto-comp space for the last 8 years and we believe that this
alliance has the potential of becoming value-generative in the long-term. The
fact that the transaction is largely cash-neutral also gives comfort given the
tough business environment in India and overseas. We await more details in
the concall but view it favourably based on details shared so far. Retain O-PF.

Gabriel India Internal efficiencies, new customers to drive growth; Buy :::Anand Rathi

Key takeaways
4Q was weak. Shrinking demand across most auto segments bore down on
Gabriel’s 4Q results. Its FY13 revenue grew 6.8% yoy; its 4Q revenue was up
3.9% yoy. The 4QFY13 EBITDA margin was 6.4% and, due to depressed
demand conditions, did not replicate the normal trend of a sharp qoq uptick
in 4Q, unlike in previous years.
New HMSI plant to add to growth. Honda Motorcycles & Scooters India
(HMSI) has inaugurated its plant near Bangalore in Karnataka, which would
drive growth for Gabriel over and above the average industry growth. Gabriel
is one of the major suppliers to HMSI of both shock absorbers and front
forks. Because of sluggish two-wheeler demand, management expects
4QFY13 revenue to be sustained in 1QFY14. However, from 2Q when
HMSI’s production at the new plant is in full swing, management is optimistic
of better growth. As a cautionary take however, the two-wheeler industry
demand scenario improvement would play an important part.
Focus on internal efficiencies. Gabriel has started focusing sharply on
innovation, reducing costs, working capital and overheads, and improving
productivity. Measures have also been taken on the working-capital side
because of which there has been significant improvement. Hence, Gabriel
could reduce inventories and receivables by `210m. Decent profitability and
lower interest cost also helped reduce its debt by ~`400m in FY13.
Our take. Additions to the customer base, exports and steady replacement
sales are future growth drivers. We maintain a Buy, with a price target of `27
(at a PE of 7x Sep’14e; the present PE is 6x FY14e). Risks: Inadequate price
hikes by OEMs, increase in commodity prices, prolonged demand slump,
delay in ramp-up by HMSI.

Madras Cements - TP: INR300 Buy ::Motilal Oswal

 Net sales up 1.7% YoY: Volumes grew 0.5% YoY (13% QoQ) to 2.2MT (v/s our
estimate of 2.36MT). Realization grew 8.4% YoY but was flat QoQ at INR4,465/
ton (v/s our estimate of INR4,646/ton), despite a seasonally strong quarter.
Net sales grew 1.7% YoY (declined 6% QoQ) to INR9.3b.
 EBITDA down 29% YoY: EBITDA declined 29% YoY (30% QoQ) to INR1.4b (v/s
our estimate of INR2.6b). EBITDA margin contracted ~7pp YoY (8pp QoQ) to
15.2%. Cement EBITDA/ton declined by INR176 YoY (INR264 QoQ) to INR740.
The sequential decline in profitability was driven by flattish realization, and
higher freight cost (+INR90/ton) and other expenditure (+INR109/ton). Energy
cost moderated sequentially due to softening of imported coal prices. Other
expenditure was up by INR220m due to increase in ad spends necessitated
by entry into the eastern market (on dealer network, brand building, etc).
 PAT down 35% YoY: PAT declined 35% YoY (24% QoQ) to INR642m, led by
lower depreciation, interest and effective tax rate.
 Cutting estimates; maintain Buy: We are downgrading our EPS estimates for
FY14/15 by 9%/2% to factor in (1) change in realization estimates to INR6.5/
bag for FY14 (INR13.5/bag earlier) and to INR15/bag for FY15 (INR12.5/bag
earlier), (2) higher escalation in freight cost and other expenditure for entry
into eastern market, and (3) lower interest and depreciation in FY14/15. The
stock trades at 7.9x FY15E EPS, and at an EV of 4.6x FY15E EBITDA and USD82/
ton. We maintain Buy, with a target price of INR300 (35% upside). The board
has approved a dividend of INR3/share (v/s INR2.5/share in FY12).

Banking - View from Mint Road - Centrum

View from Mint Road

Banking

What is inside?

m  Macro data - growth weakness continues:  Not withstanding the improvement in general sentiments, ground realities are yet to change for the better. The trend in inflation only reinforces the weakness in aggregate demand with WPI dipping below the 5% mark and CPI easing by 120bps MoM to 10.24% in April’13. The near term growth outlook remains challenging as reflected by the deteriorating trend in OECD’s lead indicator index for India. However, on a positive note the pace of MoM decline has slowed in March’13, providing some hope that the government actions in recent months may gradually yield results.
m  Ditto for banking: Charting similar lines, banking data too suggests challenging operating environment. The broad moderating trend in credit growth remains intact with 14.6% growth as on 17th May’13. This, along with stability in deposit growth around 13.5% level, implied a much narrower funding gap leading to easing in CD ratio. We expect the easing in CD ratio to continue through H1FY14. LAF has narrowed down to less than -1% of NDTL, which we expect to sustain  during large part of H1FY14. In turn, this should keep the CD and CP rates (currently at mid-2010 levels) under check. That said, expectations of repo rate cut at the next policy meeting has dimmed, despite WPI in comfort zone and weak IIP growth, as Re continues to depreciate (widening trade deficit, portfolio outflows etc) thus adversely impacting India’s ability to control imported inflation.
m  Sectoral credit deployment data for April’13 suggested credit growth picking up across sectors compared with Mar’13, except for services. Interestingly, dissection of industry sector credit reveals that credit growth for large borrowers continues to come off (likely de-leveraging) while credit growth momentum for micro, small and medium sized borrowers has gained traction (possibly longer WC cycles).  Industry credit demand is highly correlated with IIP growth, which leads us to believe that moderation in industry credit growth may be nearing its bottom as IIP growth has stabilized in recent months with initial signs of pick up. Probably led by removal of hurdles facing project implementation, credit exposure to infrastructure sector continues to rise as past sanctions come up for disbursals. Notably, power sector exposure has gone up from 8.5% in March’13 to 8.9% in April’13 and forms 57.3% of infrastructure sector exposure (from 54.3% 6 months ago).
m  Private banks outperform: In line with divergence in the Q4FY13 earnings performance, most PSBs underperformed the Bankex in contrast to outperformance by most private banks under our coverage except Axis Bank. The sustained asset quality challenges faced by PSBs continue to keep investor interest firmly in private banks with strong retail focus. We maintain our preference towards private banks. Top Pick: ICICI Bank – Improving return ratios with healthy NIM outlook and manageable asset quality risks.

Thanks & Regards, 

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Titan Industries: Buy :: Business Line

Abbott India - Initiating Coverage - Centrum

Initiating Coverage

Abbott India

Rating: Buy

Target Price: Rs1,860

CMP: Rs1,440

Upside: 29.2%

Turning science into caring

Abbott India (AIL) is a leading MNC pharma company with strong product portfolio in the domestic market. AIL’s seventeen brands appear in the list of top 300 products, which are likely to drive future growth. The company has major presence in anti diabetic, CNS, neutraceutical, gastrointestinal and women’s Health segments. The merger of Solvay Pharma (SPL) with the company in August’11 has improved sales and profitability. AIL is likely to get impacted by National Pharmaceutical Pricing Policy (NPPP) as two major brands will be subjected to the price control. It is debt-free cash rich company with cash per share of Rs153. We initiate coverage on the company with a Buy rating and target price of Rs1,860 (based on 20x CY14 EPS of Rs93.0).

m  Strong product portfolio: As per IMS-MAT March’13 data, 17 of the company’s brands appear in the list of top 300 products of which four are from SPL. The top 17 brands contribute ~32% of AIL’s revenues. We expect these brands to drive future growth.
m  Merger of Solvay Pharma:  In August’11, in line with the international merger, SPL merged with AIL. Two shares of SPL were exchanged for three shares of AIL. With this merger, AIL has entered into gynaec and gastro segments. We expect SPL’s four brands to deliver higher growth as they are outside price control.
m  Two major brands to be under price control: Currently, seven major products of AIL are under price control. Under the NPPP provisions Thyronorm and Eptoin would be under price control. These two brands have combined revenues of Rs2.65bn and hence the company will get adversely impacted.
m  Debt-free cash rich company: AIL continues to be a debt-free company. It had cash of Rs3.25bn (Rs153 per share) as on 31st December’12. We expect AIL to continue the debt-free status due to decent cash flow from operations and no major capex.
m  Initiate coverage with a Buy rating: We expect AIL to report 16% CAGR in revenues and 19% CAGR in net profit over the next 3 years from the strong growth of its brands in niche therapeutic segments and merger of SPL. At the CMP of Rs1,440, the stock trades at 18.8x CY13E EPS of Rs76.6 and 15.5x CY14E EPS of Rs93.0. We initiate coverage on the company with Buy rating and target price of Rs1,860 (based on 20x CY14E EPS of Rs93.0) with an upside of 29.2% over the next 12 months.

Thanks & Regards, 

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