09 August 2013

Kajaria Ceramics - Growth momentum continues; Buy (Anand Rathi Institutional Research)

Kajaria Ceramics - Growth momentum continues; Buy


Key takeaways
Robust volumes drive growth in revenue. Kajaria Ceramics (Kajaria) reported strong revenue growth of 23% during 1QFY14 due to robust volumes of 18% yoy. For FY13, the company posted revenue growth of 23%, with volume growth of 15% yoy. Production growth during 1QFY14 was 12%, led by ramp-up in JV production (128% yoy rise), thus reducing the share of outsourcing/imports in overall sales. The share of low-margin category of outsourcing/imports in total sales (by value) has reduced from 31% in 1QFY13 to 24% in 1QFY14. We expect this trend to continue in the balance part of FY14, resulting in revenue growth of 22%.
EBITDA and PAT in line with estimates. The company reported 14.7% EBITDA margin in 1QFY14 versus 15.7% yoy and 15.1% qoq. Better realisations (5% yoy) and reduced outsourcing/imports enabled Kajaria to thwart pressure on margins due to rise in fuel prices and weakening of Indian currency. PAT and PAT after minority interest grew 23% and 16%, yoy, respectively. Both EBITDA and PAT were in line with estimates.
JV model to be replicated in sanitaryware. All subsidiaries operated at 95%+ utilisation in 1QFY14, except its Morbi facility in Gujarat (69% utilisation; acquired by Jaxx Ceramics in Apr’13). Kajaria is converting its 2msm polished vitrified facility in Sikandrabad into 3.4 msm glazed vitrified tiles by 4QFY14. Also, it has decided to venture into sanitaryware production (having tested the market with outsourcing so far) through a 0.7m pieces p.a. in Morbi Gujarat in JV with local partners (34% stake).
Our take. We expect growth momentum to continue, led by capacity expansions/new ventures, strong OPM and low gearing. Key positives are strong brand & distribution network and robust FCF & return ratios. At our target, it would trade at 17x FY14 consolidated earnings, in line with its average multiple of eight years. Risks. Slowdown in real estate sales, forex fluctuation.

Thanks & Regards
Anand Rathi Institutional Research

Just Dial (JUST.NS): Strong 1Q results: Revenue momentum to continue; Expect lower margins in 2Q :Morgan Stanley Research

Just Dial (JUST.NS): Strong 1Q results: Revenue momentum to continue; Expect lower margins in 2Q :Morgan Stanley Research

Quick Comment: Just Dial reported stronger than expected Jun-13 results. At the current rate, Just Dial is on track to meet consensus FY14 growth forecast. We believe Just Dial could continue to report 6-7%qoq revenue growth over the coming quarters.

Revenue growth of 28% yoy in Jun-13: JD reported revenues of Rs1,046m (+28% yoy) in 1Q14. Apr-June quarter had the impact of traders' strike in Mumbai and other parts of Maharashtra, which could have dragged down revenues by 1-2% for the quarter, we estimate.

Strong operating margin improvement: JD reported EBITDA margins of 34.7% (~400bps yoy). As per management, margins can be volatile across quarters. For example, in FY13, Q1 EBITDA margins were ~31%, but FY margins were 28%.

Strong margin improvement was driven by solid 6%qoq revenue growth and 4%qoq lower employee and operating expenses. We believe operating margins could ease as advertising and sales incentive costs normalize over the next two quarters. However, we believe JD could still report at least ~150-200bps margin improvement in FY14.

Valuation: At ~10xFY14e P/S and ~41x FY14e P/E, Just Dial stock could continue to trade in a tight range, we believe. Management has delivered ahead of expectations on all counts, and we believe strong Jun13 quarter performance should support the current stock price. However, margins could be volatile across quarters, and we do not see a material upward revision of our F14e EPS despite the strong June qtr results. 

Pfizer - Q1FY14 results update - Centrum

Strong margin improvement
Pfizer’s revenues and EBIDTA for Q1FY14 were marginally below our
expectations but net profit was in line. The company reported a growth of
10%YoY in revenues, 430bps in EBIDTA margin and 56%YoY in net profit
before EO items. As per AIOCD data, Becosules, Magnex and Minipress-XL
reported over 20% growth. The company has re-structured its marketing
function based on therapeutic categories leading to an improvement in
EBIDTA margin. Pfizer is unlikely to get majorly impacted by the New
Pharma Pricing Policy (NPPP) as seven of its eight major brands will be
outside price control. The company has cash per share of Rs480. We have a
Buy rating for the scrip and revised target price from Rs1,397 to Rs1,494
(based on 17x FY15 EPS of Rs87.9).
Moderate Revenue growth: Pfizer reported 10%YoY growth in revenues from
Rs2.43bn to Rs2.66bn in Q1FY14. The company’s pharma business was flat at Rs2.18bn.
Pfizer Animal Pharma Private Ltd (PAPPL) revenues grew by 865%YoY from Rs20mn to
Rs193mn. Other operating income including from services grew by 25%YoY from
Rs228mn to Rs286mn.
Strong margin improvement: Pfizer’s margin for Q1FY14 grew by 430bps from 12.5%
to 16.8% due to the decline in personnel and other expenses. Its material cost
increased by 280bps from 29.8% to 32.6% of revenues due to the change in product
mix and an increase in imported material cost with the depreciation of the rupee.
Personnel cost declined by 170bps from 24.2% to 22.5% due to the restructuring of the
marketing function. Other expenses declined by 540bps from 33.5% to 28.1% of
revenues. Personnel cost for the quarter included VRS of Rs 89mn against Rs14mn.
Excluding VRS, EBIDTA margin would have grown by 700bps from 13.1% to 20.1%.

Goldman Sachs, Buy Coal India - Risk-reward compelling; upgrade to Buy

Buy
Coal India Ltd. (COAL.BO)
Return Potential: 27% Equity Research
Risk-reward compelling; upgrade to Buy
Source of opportunity
We upgrade Coal India (CIL) to Buy (from Neutral) with a 12-m price target
of Rs375 (unchanged) now implying 27% upside following the recent
correction. We fine tune FY14E/15E EPS by +2%/+1% and are 2%-8% above
consensus (we introduce FY16E EPS). We believe CIL is one of the few
stocks in Asia which: 1) is largely unaffected by falling global coal prices (in
fact it can raise prices as it sells regulated (FSA) coal at avg. 50% discount);
2) has top quartile and rising CROCI; 3) enjoys sustainable cost leadership;
4) offers attractive valuations and dividend yields (6.5% on FY15E DPS). We
believe risk-reward is compelling and key concerns are already priced in.
Catalyst
1) We expect CIL’s earnings to grow at 12% CAGR from FY13-FY16E and
EBITDA margins (ex-OBR)/CROCI to expand from 31%/49% to 36%/56%. Our
regional analysts expect earnings for Indonesia and China coal stocks to
decline. 2) Conclusion of a FPO (media reports of further government
divestment) would remove a key overhang. 3) Rising dividend yield
(4%/6.5% on Mar 2013/15E) makes the stock attractive vs. peers. 4)
Attractive valuations – CIL is trading at historical lows.
Valuation
Our target price is based on Director’s Cut. On our target price, CIL implies
(on ex-OBR basis) 11.1x / 9.7x P/E and 6.8/5.6x EV/EBITDA FY14/FY15. CIL is
trading at 2SD below median on PE and EV/EBITDA at 8.6x/7.5x PE and
4.7x/3.7x (FY14/FY15). Our base assumes: 1) 5% increase in FSA prices; 2)
6% CAGR volume growth; and 3) no e-auction price increase. Even in a bear
case scenario where we assume: 1) no volume growth; 2) no FSA price rise;
and 3) 5% CAGR decline in e-auction ASP, CIL’s implied value of Rs295 is
largely in line with the current market price.
Key risks
Delay in FPO, muted production/sales growth, inability to raise prices.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List

Nirmal Bang - Persistent Systems Ltd

Q1FY14 quarter results were mixed wherein revenues were in
line with our expectations which grew by 7% QoQ; however
margins disappointed which witnessed pressure of 320 bps QoQ
due to onsite wage hikes and higher visa costs. The management
has cited better growth in H2FY14 on the back of increased
demand momentum in Product engineering in North America
and uptick in IP led revenues. At CMP the stock is trading at a P/E
of 9.4x/8.6x its FY14E/FY15E earnings and investors can
accumulate the stock on dips since outlook continuous to be
positive.
Quarter highlights:
Revenues in USD terms grew 1.5% QoQ to $ 63.03mn driven by 4.5%
growth in product engineering business. This business witnessed 3%
growth in volume and 1.5% growth in realisation. However, IP
revenues dipped 12.9% QoQ/ 24% growth YoY and contributed
15.1% to total revenues from 17.5% in Q4FY13.
Revenues in INR terms grew by 7% QoQ and 18.8% YoY at Rs.357.3
crore.
EBIDTA margins were down by 320 bps QoQ to 21.7% erasing the
currency gain of 180 bps due to higher visa costs, addition in sales
team in the US and onsite wage hikes. Company is giving salary hikes
to offshore employees of ~ 8-9% in the current quarter which we
believe would keep the margins under pressure in Q2FY14 as well.
Adjusted PAT for the quarter (forex gain of Rs.18.3 cr/Rs.4.2 crore in
Q1FY14 and Q4FY13 respectively) was down by 9.9% QoQ to Rs
44.05 crore.
IP revenues have been subdued for the last 3 quarters and
management is optimum of better Q3 and Q4FY14 on this front.
Concall highlights:
Onsite revenues grew by 14.6% QoQ (Volume +10.5%, +3.9%
realisation) and offshore revenue grew by 1.5% (+2.3% volume ,
-0.8% realization).
IP revenues would pick up in Q3 and Q4FY14, with revenues from
HP’s Radia Client Automation (HPCA) to start flowing in.
During the quarter, company has won 16 new clients (2 multibillion
dollar clients).

Coal India Limited (COAL.NS): 1QF14: Lower E-auction Realization Drives Miss :Morgan Stanley Research

 Coal India Limited (COAL.NS): 1QF14: Lower E-auction Realization Drives Miss :Morgan Stanley Research

Quick Comment: Coal India reported 1QF14 Pat of Rs37.3bn, down 16.5%YoY and 31.1%QoQ and 23% below MSe. Lower e-auction realizations on the back of softening global coal prices and grade deterioration primarily drove the miss. EBITDA was Rs43.0bn, down 16.2%YoY and 34.8%QoQ.

1QF14 Highlights:

Average realizations, in 1QF14 were Rs1404/t, down 2.3%YoY and 7.0%QoQ and 5% below MSe. E-auction realizations were Rs2,140/t, down 16.4%YoY and 7.3%QoQ and 14% below MSe.

Volumes: 1QF14 production volumes were 102.9mt, flat on a YoY basis. Sales volumes were 115.4mt up 2.1% YoY. E-auction volume proportion was 11.5% compared to 11.9% in 1QF13 and 11.5% in 4QF13.

Costs: 1) Consumption of stores and spares per ton was Rs134/t, up 11.2%YoY but down 5.3%QoQ. 2) Employee expenses were Rs68.1bn, up 11.1%YoY and down 8.8%QoQ. The YoY rise is partially due to the inclusion of a large part of the Corporate Social Responsibility (CSR) expenses. 3) Power and fuel cost per ton was Rs51/t up 1.4%YoY and 27.4%QoQ. 4) Contractual expenses per ton were Rs144/t compared to Rs120/t in 1QF13 and Rs139/t in 4QF13. 5) Misc. expenses were Rs6.7bn compared to 5.6bn in 1QF13 and 8.2bn in 4QF13.

Other Income was Rs22.2bn, up 7.2%YoY and 0.6%QoQ.

We continue to remain Overweight on CIL: 1) We expect CIL to raise FSA prices in the near term for the non-power sector. 2) With a cash balance of US$11.8bn at end of F13, we expect CIL to increase its dividend per share from Rs10 in F12, Rs14 in F13 to Rs25.2 in F14e, implying dividend yield of 9.9% based on F14e, which appears attractive, in our view.

Anand Rathi :: Siemens - Bearing the brunt of the slowdown; Sell

Siemens - Bearing the brunt of the slowdown; Sell

Terrible quarter on all fronts. Siemens reported a 7% drop in revenue to `26bn, belying our expected `28bn. While revenue contracted across verticals, the fall was the sharpest in its power business, which registered a 22% dive. This was on account of deferred deliveries at the option of customers, who were encountering issues with clearances or funding. Moreover, the short-cycle products business languished on channel partners continued to run down their inventories and deferred purchases.
EBITDA margins tank.  An upward revision of project expenditure and increase in provisions for the same saw expenditure rise by `1.4bn. This resulted in the company registering a loss of `62m at the operating level, against our estimates of operating profit of `565m. We believe that problems like low capacity utilisation and marked-to-market losses on hedges for forex and commodities also contributed to the poor operating performance in the quarter. The company incurred net loss of`488m, well below our estimated `59m of PAT.
Our take. Siemens India has been struggling for some time now, in the face of intensifying competition and relatively weak demand from end-user segments. Furthermore, an inefficient cost structure brought about low levels of operational profitability and adverse import policy has resulted in a steady decline in its profits over the past several quarters. We expect it to continue to face headwinds over the next few quarters. Any deterioration in the current environment would see its profits shrink considerably and its cash flow severely constrained. At the ruling price of ~`451, the stock trades at P/E and EV/EBIDTA of 57.5x and 23.5x respectively, discounting our FY14e figures. Given the extremely rich valuations and precarious operating environment, we maintain Sell and have lowered our price objective to `290 (vs `400 previously). Risk. Large lucrative order wins could see profitability improve.
 

 


Thanks & Regards
Anand Rathi Institutional Research

Nestle - Q2CY13 Result Update - Centrum

Continued focus on margins
Nestle posted Q2CY13 results in-line with expectations with net sales at
Rs22132mn, up 11.4%YoY following the growth of 9.2% YoY in domestic
sales and 47% YoY in exports. The company posted positive volume growth
during the quarter while it was up 1.6% for H1CY13. Operating profit was up
13.6% YoY as operating margin expanded 43bps due to 22bps gross margin
expansion and lower admin & other expenditure. Adj PAT was up 16.2% YoY
to Rs2823mn. We maintain Sell rating on the stock on the back of near term
challenges.
Results in-line with expectations: Nestle posted 11.4%YoY growth in net sales
following 9.2% YoY growth in domestic sales while exports grew 47% YoY on the back
of lower base and strong exports to affiliates. Operating profit was at Rs4880mn up
13.6%YoY as operating margin expanded by 43bps due to gross margin expansion of
22bps while admin & other expenditure grew by mere 9.6% YoY. Adj. PAT was at
Rs2823mn, (up 16.2% YoY).
Volume growth continues to be under pressure: Continued uncertainty in demand on
the back of challenging macro environment coupled with portfolio optimization and
aggressive pricing impacted volume growth. The company posted positive volume
growth during the quarter while for H1CY13 it was up 1.6% due to strong growth in
prepared dishes (up 6.5%) and beverages (up 6.5%). Volume growth in the milk products
& nutrition and chocolate segments was down 4.9% and 3.3% respectively for H1CY13.
Going forward we expect the company to post volume growth of 4.2% in CY13 against
1% in CY12 with beverages and prepared dishes both growing by 9% each. However, we
have modelled volume de-growth in milk & nutrition (3%) and chocolates (1%)

Goldman Sachs, ITC - In line with expectations

ITC (ITC.BO)
Buy Equity Research
In line with expectations: Higher cigarette margins, lower volumes
What surprised us
ITC reported 1QFY14 gross sales of Rs 107 bn (+13% yoy) and EBIT of
Rs25.8 bn (+19% yoy, 1% above GSe). Key takeaways from 1Q resulst: 1)
We estimate 1Q cigarette volume declined about 2%. Adjusted for VAT
hikes of around 300 bp yoy, we estimate price increases of 15-16% yoy,
leading to gross sales of Rs68.8 bn (14% yoy). Excise increase of 21% is
attributed to higher proportion of lower excise duty cigarettes in 1QFY13.
2) Cigarette margins were up 124bps yoy (81bps above GSe) due to price
increases, better cost management, and lower promotion expenses. 3)
FMCG (Others) registered growth of 18% yoy (-3% GSe). It reported a
minor operating loss of Rs 0.2bn after breaking even in 4QFY13. 4) Other
businesses. Agri-business reported robust sales growth of 29% yoy (+12%
vs GSe) due to higher sales of wheat and leaf tobacco. Hotel business was
weak with sales growth of 8% yoy (-9% vs GSe) while paper business
reported growth of 12% (+1% vs GSe). 5) ITC has expanded its product
portfolio in sub-65mm category by launching 3 products—'Flake Galaxy',
'Flake Liberty' & 'Silk Cut Virginia'— in identified markets in the quarter,
looking to arrest the growth of illegal cigarettes.
What to do with the stock
We raise our FY14-16E EPS estimates by 0%-3% to reflect higher-thanexpected cigarette margins. Consequently, we raise our SOTP-based 12-m
TP to Rs 368 (from Rs 361). We continue to value the FMCG (others)
business separately at 2X FY15E sales, in line with sector average multiple,
and the other business at 26X FY15E EPS. ITC trades at 26.8x FY15E EPS vs
our sector average of 30x despite higher EPS growth of 19.3% over FY13-
15E /s 15.8% for Indian consumer sector. Key risks: higher taxation.

Bank of Baroda - Q1FY14 Results Review :: Religare research

Bank of Baroda
BOB IN
Asset quality risks persist
BOB’s Q1FY14 earnings were in line, but asset quality risks remained elevated and future profitability outlook subdued. Business growth was muted and NIMs declined by 9bps QoQ. Impaired asset formation remained high at Rs 40bn (~5% on annualised basis). PAT was higher than estimates at Rs 11.7bn (+15% QoQ), but driven by trading profits. We cut FY14/FY15 EPS estimates by 17%/16% to factor in lower growth and higher provisions, but maintain BUY on attractive valuations (0.6x/4.8x FY14 ABV/EPS).Æ  Slippages/restructuring remain high: Slippages/restructuring were high at Rs 19.6bn/Rs 20bn. Slippages from domestic advances stood at Rs 18.4bn (3.7% on annualised basis). Recoveries/upgrades improved from Rs 2.3bn in Q4FY13 to Rs 3.5bn in Q1FY14 but remained lower compared to peers. GNPLs/NNPLs increased by 59bps/41bps QoQ to 3%/1.7% and the PCR declined to 44.3%. Outstanding standard restructured assets stood at Rs 175bn (5.4% of advances). The restructuring pipeline was at ~Rs 25bn in Q2FY14 with slippages likely to be at elevated levels; however, management has guided for an improvement in H2FY14. 
Æ  NIMs under pressure; advances growth muted:Advances/deposits declined by 1.4%/1.5% QoQ (up 13%/22% YoY). Domestic advances grew by 10% YoY whereas growth in international advances (+18% YoY) was driven by INR depreciation. Domestic/international NIMs declined by 9bps/17bps QoQ to 2.84%/1.3% as pricing power remains weak. However, the domestic C/D ratio was low at 66.5% which could provide support to NIMs. Other income grew by 60% YoY, but driven by trading profits (Rs 4.1bn as against Rs 815mn in Q1FY13). Opex increased by 27% as the bank provided Rs 1bn/Rs 0.75bn towards pension liabilities/wage revisions.    
Æ  Subdued near-term outlook but valuations attractive: We cut our FY14/FY15 earnings estimates by 17%/16% to factor in lower growth and higher provisions, and trim our TP to Rs 775 (from Rs 875). While the near-term outlook is challenging given a weak macro, valuations (0.6x/4.8x FY14 ABV/EPS) are attractive.

Tata Global Beverages Ltd (TAGL.NS): 1QF14: Earnings Inline: Morgan Stanley Research

Tata Global Beverages Ltd (TAGL.NS): 1QF14: Earnings Inline: Morgan Stanley Research

Quick Comment - In Line Results: TGBL reported consolidated revenue, EBITDA and adjusted PAT growth of 5%, 15% and 16%, respectively, vs. our expectations of 7%, 22% and 12%. TGBL's revenue growth was largely driven by domestic revenue growth of 18% with <1 150bps="" 22="" 2qf14="" a="" across="" and="" believe="" benefit="" br="" business="" categories="" cost="" coupled="" cyclical="" drive="" efficiency="" efforts="" expansion="" f14e.="" for="" from="" fx.="" fx="" geographies="" growth="" highlight="" impact="" improvement="" improving="" in="" initiatives="" input="" international="" is="" its="" key="" kick="" large="" management="" margin="" most="" of="" on="" ongoing="" onwards.="" operating="" ow.="" part="" pat="" profitability="" remain="" results.="" should="" tailwinds="" tgbl="" the="" these="" to="" uptrend="" was="" we="" will="" with="" yet="">
International Tea: International tea revenues for 1QF14 were down 3% YoY. We estimate favorable FX impact of ~2% and organic revenue decline of ~5%. According to management, Australia, Canada, the Middle East and France reported good performance for the quarter. However, they highlighted the challenging business environment in the UK and poor performance in Eastern Europe. In our view, the key positive has been operating margins which are flat, driven by a concerted effort for cost rationalization and product mix improvement. Over the next two quarters, we expect this segment to benefit from relatively benign input costs.

Domestic Tea: Increase in domestic tea prices adversely affected the India tea business. TGBL reported 18% revenue growth for the quarter, driven largely by pricing. TGBL reported MAT 20.2% volume share and 21.9% value share for June 2013 in India. Gross margin declined 150 bps during the quarter, reflecting high domestic tea prices. EBITDA margin decline however was marginally lower at ~140bps as management continues with its focus on cost rationalization.

NSE, BSE closed 09-Aug-2013 Friday Ramzan ID

Sr. No.DateDayDescription




609-Aug-2013FridayRamzan ID
715-Aug-2013ThursdayIndependence Day
809-Sep-2013MondayGanesh Chaturthi
902-Oct-2013WednesdayGandhi Jayanti
1016-Oct-2013WednesdayBakri ID
1104-Nov-2013MondayDiwali-Balipratipada
1214-Nov-2013ThursdayMoharram
1325-Dec-2013WednesdayChristmas