Affordable medicine We maintain Buy on Biocon:: Centrum

Affordable medicine
We maintain Buy rating and target price of Rs555 for Biocon based on 18xDec’15 EPS
of Rs30.8. Despite lower revenue growth, Biocon’s EBIDTA and net profit for Q3FY14
were in line with our expectations. The company reported good growth in domestic
formulations and research service segments. Lower R & D spend led to margin
improvement during the quarter. Biocon has launched world’s first biosimilar
Herceptin under the brand name CANMAb in India. With registration of rh-insulin in
over 50 countries, it is poised for good growth in FY15 when its Malaysian facility for
insulin is expected to go on stream. Key risks to our assumptions are stiff competition
from other global players and change in clinical trials environment in India.
CRAMS business to drive growth: Biocon reported moderate sales growth of 11%YoY
driven by its CRAMS segment consisting of Syngene and Clinigene. The company’s
biopharma business (60% of revenues) grew by 2%YoY to Rs4.18bn from Rs4.09bn.
Domestic formulations (14% of revenues) grew by 16%YoY to Rs992mn from Rs855mn.
Biocon’s CRAMS business (26% of revenues) grew by 32%YoY to Rs1.84bn from
Rs1.40bn. We expect the CRAMS business to report good growth due to its association
with 5 major global clients.
Low R & D spends lead to margin improvement: Biocon’s EBIDTA margin improved
190bps to 24.2% from 22.3%, mainly due to low R & D spend and reduction in material
cost. The company’s material cost declined by 20bps to 48.2% from 48.4% due to strong
growth in CRAMS segment. Personnel cost grew by 140bps to 15.2% from 13.8% due to
annual rise in salaries. Biocon’s other expenses declined by 310bps to 12.4% from 15.5%
due to decline in R & D expenses. Its R & D expenses declined by 53%YoY to Rs230mn
from Rs490mn.
Moderate rise in net profit: Biocon’s net profit for the quarter grew by 15%YoY to
Rs1,050mn from Rs917mn due to improvement in EBIDTA margin, decline in interest
cost and lower tax rate. The company’s interest cost declined by 90%YoY to Rs3mn from
Rs29mn due to debt repayment. Its tax rate declined to 19.1% from 21.4%. Biocon’s all
hedging contracts for BMS expired in Q2FY14 and hence the hedging cost has come
down.
Recommendation and key risks: At the CMP of Rs451, Biocon trades at 22.6x FY14E
EPS of Rs20.0 and 17.2x FY15E EPS of Rs26.2 and 14.0x FY16E EPS of Rs32.2. We maintain
Buy rating on the scrip with a target price of Rs555 based on 18x Dec’15 EPS of Rs30.8
with an upside of 23% from CMP. Key risks to our assumptions are competition from
other global players in emerging markets. Moreover, the recent changes in the clinical
trial environment may lead to transferring some clinical trials to other countries
resulting in higher cost.

Low subscriber addition, high cost impact margins We upgrade Dish TV to Buy:: Centrum

Low subscriber addition, high cost impact margins
We upgrade Dish TV to Buy from Hold as we believe the company is taking right
steps towards maintaining a balance between growth and lean balance sheet. It is
well set to capitalize on its distribution reach to benefit from digitization and free
cash to fund future growth. Triggers of increasing ARPU post MSO billing in PhaseI/II cities, reduction in content cost following sustained efforts and reduction in
license fees could help in margin expansion. 22% correction in stock price after
our downgrade to Hold offers further comfort despite disappointment in Q3FY14
results on subscriber additions and margins.
Q3FY14 results below expectations: Dish TV posted 10% YoY growth in revenues
on the back of 11.8% YoY (2.9% QoQ) growth in subscription revenues led by 3.75%
YoY improvement in ARPU (Rs166, in line with expectations) and 7.4% YoY growth
in net subscribers (220K addition). Operating profit declined by 1.6% YoY (down
8.4% QoQ) due to 22% YoY increase in programming & other costs and higher
transponder cost on the back of rupee depreciation. Hence, operating margin was
at 22.1%, 415bps below expectations. Losses increased to Rs383mn against
Rs226mn expected.
Subscriber addition remains low: Management believes net subscriber addition
was the lowest in the industry in the past 3 years during the recent festive season
with Dish TV maintaining 20% incremental market share. We have reduced FY14
net subscriber addition to 0.8mn (guidance of 0.85-0.9mn). Management estimates
the demand to pick up on the back of Phase-III/IV digitisation with relevant market
of 40-45mn subscribers with DTH companies expected to have 60% market share.
Despite churn remaining under control at 0.6%, ARPU was flat QoQ on the back of
free viewing offered to the customers due to high competition.
Focus on healthy balance sheet: Company has repaid debt of Rs3.3bn during the
quarter and also expects to re-pay $42mn in Q4FY14 which would lead to ~Rs6bn
in net-debt by FY14. On-request offering of Indiacast channels could help the
company reduce its content cost over medium term while it would have an
opportunity to increase ARPU once MSO billing starts in Phase-I/II cities leading to
margin expansion. Further reduction in license fees to 6-8% against current 10%
could act as a trigger.
Valuations & Risks: We have cut our subscriber estimates for FY14/FY15 along
with lower operating margins on the back of fixed cost model. We upgrade the
stock to BUY with a target price of Rs62 and value it at 8x Dec 2015 EV/EBIDTA as
the stock has fallen by 22% post our downgrade to Hold on 1st January 2014. We
believe the company is taking right steps towards maintaining a balance between
growth and lean balance sheet. It is well set to capitalize on its distribution reach to
benefit from digitization and free cash to fund future growth internationally. Key
risk could be further delay in digitization and inability to increase ARPU.

NHAI/IRFC Tax Free Bonds/Muthoot Finance/SREI Infrastructure Finance - NCD Collection Figures at 5.00 p.m. as on 24-01-2014

Dear All,

Thanks & Regards

__________________

The app way to manage money :: Business Line

If you face difficulty in tracking your finances, here are tools that can be of help.

It’s that rosy time of the year when hatching plans to start new activities can be fun. So, for those of you who are planning to manage your finances a little better this year, read on.

The Internet and your smartphone have various tools and applications that come handy in tracking your money, lowering expenses and speeding up payments.

Tracking expenses

The key principle behind successful money management is good accounting. You need to have a grasp of not only how much money is coming into your bank account, but also how much is going out, and where.

But maintaining a register might not be everyone’s cup of tea. Further, if you have more than one account or source of income, keeping tabs becomes more complex.

So, let the Internet assist you in this book-keeping endeavour. One such tool is Perfios (Personal Finance One Stop), a Web-based personal finance application that provides a complete overview of your financial status.

Besides bank accounts and credit cards, the software can track your mutual fund investments, insurance policies, loans and fixed deposits.

You just have to link the relevant accounts with Perfios, which then keeps track of your money for you. With such tracking, identifying patterns in your shopping, dining and other spending patterns is easier.

It can also, thus help identify where expenses can be cut, and how much you can save.

In addition, Perfios can compute and help with filing of your income tax. You can also use the Web site to store financial documents.

Similar products available include Aditya Birla Money’s MyUniverse finances management tool andmanageyourexpenses.com.

All these products can be used for free, though there is a fee if you want to access more advanced functions.

Cutting costs

Technology can also help you save money by providing you with more choices. If you think your overseas phone calls are getting too expensive, try out a voice-over internet protocol (VoIP) service, such as Skype, which is free-to-use and just requires an investment in a Web camera for your computer.

You can also download Whatsapp, a chat messenger for your phone and PC that allows you to send unlimited messages to other users for free in the first year and for a fee of Rs 55 a year from the second year onwards.

Note, though, that you will need a data plan or Wi-Fi connection.

Turn to Netbanking to save a few bucks, too. Sometimes, paying with debit or credit cards carries a transaction fee which Netbanking does not.

For example, the Tamil Nadu Electricity Board (TNEB) levies a service charge on payments made using a debit card or credit card, whereas payments done through Netbanking are free.

Using technology for comparison shopping online can also help you snag the best deals. Online retailers often offer a significant discount on products that would be costlier at a brick-and-mortar store.

And sites, such as Groupon, offer free coupons to avail of discounts on anything from dining out to movie tickets. Every little bit helps in achieving your goal to financial security.

Equity watch

Keeping a tab on your investments is just as important as tracking where you’re spending.

For instance, dabbling in stocks can be a difficult proposition if you are not a full-time day trader.

If you’re busy at work, or on the move, there is a chance that you miss out on selling a stock when it hits a certain price or buying more shares when they’re available cheaply because you’re not monitoring the tickers.

Try out an application called such as Stock Tracker, which provides you with real-time alerts on your smartphone when a stock hits a certain price.

Combine it with other applications, such as Stock Watcher, which provides you with technical analysis charts and other data.

You can also analyse your portfolio with tools such as The Hindu Business Line’s free WealthCheck Web application or MProfit, a portfolio management and accounting software.

So, if a few mouse clicks can help you along the road to better wealth management, don’t fight progress!

OPM surprises positively, valuations stretched - Kajaria Ceramics :: Centrum

OPM surprises positively, valuations stretched
We maintain Hold rating on Kajaria Ceramics as we believe that valuations look
expensive after sharp run up in the stock post Q2 results. We believe further rerating of the stock will be restricted (it is trading near to mean+sd1) as we expect
RoE to decline to 24.1% in FY15E against 32.5% in FY13. However, we continue to
like the company due to a) its leadership position and strong brand equity b)
consistent better-than-industry growth rate, which is expected to continue over
the next few years on the back of aggressive capex plans and c) declining leverage
(0.3x in FY16E vs. 0.9x in FY13). In the quarter, Revenue was below our estimates,
however, positive surprise in the operating margin led to in-line profits.
Revenue impacted by strikes, expect recovery from Q4FY14E: Led by a mere
1.9% YoY volume growth due to strikes at Morbi, Gujarat for 24days, the company
reported Revenue of Rs4,400mn (vs. estimated Rs4,974mn, up 5.4% YoY). Blended
realization increased 3.5% YoY during the quarter. The management indicated that
sales volume growth will be maintained from Q4FY14E and believes volume growth
will be in the range of 14-15%.
OPM improves led by lower trading revenues and energy costs: EBITDA margin
improved 58bps YoY (and 134bps QoQ) led by higher realization (up 3.5% YoY),
lower contribution from trading revenues and moderation in energy costs. Led by
recent price hikes and stabilization in exchange rate, energy cost as a percentage of
sales declined by 67bps during the quarter. The management expects energy costs
to remain at current levels going forward. Contribution from trading revenues
declined to 19.2% against 25.4% in Q3FY13.
Earnings estimates revised downwards on lower sales volume: We have revised
sales volume estimates downwards by 5.9%/4.4% for FY14E/FY15E considering
lower sales volume in the quarter. Factoring in lower sales volume, revenue
estimates have been revised downwards by 5.9%/4.4% for FY14E/FY15E. We have
also revised energy cost estimates downwards considering moderation in energy
costs during the quarter which leads to higher OPM of 30bps/10bps for
FY14E/FY15E. Profit estimates are being revised downwards by 2.6%/3.4% for
FY14E/FY15E.
Valuation and key risks: The stock is trading at 19.6x FY14E EPS and 16x FY15E
adjusted EPS of Rs14.4 and Rs18.6 respectively. We value the company at 14.3x Dec-
15E EPS and arrive at a price target of Rs330, an upside of 11% from CMP. Key risks
to our thesis are: a) lower than expected sales volume due to weak construction
scenario, b) higher energy costs and c) threat from Chinese imports.

Hind Zinc": Rating: Buy; Target Price: Rs160; CMP: Rs130; Centrum

Rating: Buy; Target Price: Rs160; CMP: Rs130; Upside: 23%





Volume disappoints, guidance cut again; maintain Buy



We remain positive on Hindustan Zinc (HZL) despite subdued Q3 results
and further cut in metal-in-concentrate (MIC) volume guidance to 0.9MT
for FY14E. We cut our metal volume estimates to factor lower mining
output but see limited adverse impact on EBITDA estimates (cut by ~3%
for FY15E) due to better LME prices and strong metal premiums coupled
with weak rupee mitigating the impact of lower volumes and increased
costs. Q3 results were lower than expectations operationally due to
sharp drop in lead & silver volumes as MIC production fell 5.6% YoY to
220kt. Risk reward remains favourable with current valuations at 3.2x
FY15E EV/EBITDA despite strong free cash flow. Maintain Buy.

$ Lower MIC output results in sharp fall in lead & silver volumes: MIC
production fell by 5.6% YoY to 220kt due to slow ramp up in
underground production at Rampura Agucha and Kayar mines. Zinc sales
volumes stood at 1.99 lakh tonne, up by ~17% YoY as integrated
production saw a jump of ~14.6%. Lead and silver sales volumes
suffered due to lower MIC and were down YoY by 20% & 30% respectively.
HZL has indicated that output from Rampura Agucha is expected to be
down 10% YoY in FY14E (with underground mining share of 10% vs 20%
expected earlier).

$ Margins supported by strong metal premiums and weak rupee: EBITDA
stood at Rs18.2bn (vs. est. Rs19.2bn) with margins at 52.9% (higher
than est. 52.5%) on the back of strong premiums on zinc & lead
(~US$250/t) and better realizations due to a weaker rupee mitigating
the negative impact of lower volumes and higher CoP. Other income was
lower due to the continuation of MTM loss (lower QoQ but is expected
to reverse over the year).

$ Guidance lowered, earnings revised downwards marginally: HZL reduced
its mined metal production guidance to 900kt and integrated silver
output to 290t. The reduction in guidance (since Q1) was surprisingly
high at 10% for mined metal output and ~20% for integrated silver and
the company indicated slow ramp up in underground mine production as
the main reason for this. We reduce our mined metal production
estimate to 900kt/940kt in FY14E/15E and cut our integrated metal
volumes for lead and silver. However, strong metal premiums, better
LME prices and weak rupee helped mitigate the adverse impact on EBITDA
and as a result we revise EBITDA estimates by 0.9%/-3.2% for
FY14E/15E.

$ Valuation & key risks:  We continue to like HZL for its strong
fundamentals with volume growth led by mining expansion, lower overall
cost structure, structurally positive pricing scenario for zinc & lead
globally due to mining supply cuts and attractive valuations with
favorable risk-reward. Strong cash pile, high free cash flow
generation and low valuations at 3.2x FY15E EV/EBITDA, further
buttress our positive view on the stock. We value the stock at 4.5x
Dec’15E EV/EBITDA to arrive at our target of Rs160. Maintain Buy. Key
risks to our call are lower volumes and sharp fall in LME prices or
reversal in rupee.



Thanks & Regards

--

PTC India - Rating Revision - Non-recurring treasury income propels PAT :: Centrum

Rating: Hold; Target Price: Rs50; CMP: Rs59.8; Downside: 16.3%



Non-recurring treasury income propels PAT



We upgrade PTC to HOLD after recent stock correction post our
non-consensus SELL rating in Dec-13. During the quarter, PTC earned
net surcharge income of Rs0.73bn from UPPCL as part of its final
settlement and reversed provisions of Rs42mn, which cumulatively
propelled PAT. EBITDA was in line but APAT was 5% below estimates. We
are modestly negative on PTC owing to its skewed business model,
likely negative FCF in FY15/16E, core RoE of 7-8% vs. CoE of 14.5% and
current rich valuations.

$ Earnings snapshot: On neutralizing the impact of net rebate of Rs80
mn and earnings from erstwhile tolling projects of Rs133 mn reported
in Q3FY14, core EBITDA was at Rs 214mn. In YTD, net rebate and
surcharge contributed 28% to EBITDA which is seen as negative as it
implies stress in working capital cycle. During the quarter, receipt
of surcharge income of Rs0.73 bn from UPPCL and reversal in provisions
of Rs42mn, cumulatively propelled PAT. These are non-recurring items
and adjusted for these one-off items, APAT was at Rs384mn. We dissect
PAT for YTD period and highlight the share of treasury income at 42%,
net rebate and surcharge at 15%, erstwhile tolling at 11% and balance
32% from core business.

$ Core EBITDA and APAT per unit slide: Core EBITDA/unit at Rs0.027 was
down 15% QoQ as the share of trade on IEX/PXIL was at 28% vs 18% in
Q2FY14. Increasing mix of trade on IEX/PXIL is seen negative as
margins are comparatively less remunerative. It also implies inability
to identify buyer/seller on a bilateral basis and increase in working
capital cycle. Net debtor cycle (net-off UPPCL and overall creditors)
deteriorated sequentially to 25.7 days vs. 17.6 days in Q2FY14. PAT
adjusted with non-recurring items imply earning of Rs0.05/unit which
was down by 18% QoQ.

$ Outlook: We remain modestly negative owing to (1) skewed business
model leading to overall RoE of 7-8% vs. CoE of 14.5%; (2) lack of
visibility on tie-up of PSA for nearly 5.5GW capacity, (though we are
optimistic on it); (3) EBITDA and EBIT CAGR of 6-7% over FY13-16E; (4)
free cash flow peaking in FY14E and sliding down as cash gets
mopped-up in working capital; (5) Uncertainty on contractual disputes
of Rs1.28 bn which is reflected in contingent liabilities; (6)
possible surcharge income from TNSEB that can aid cash flows;  and (7)
current rich valuations.

$ Valuations and key risks: We upgrade to HOLD with a revised PT of Rs
50 (Rs48 earlier) which has been derived from (1) average of value on
fair multiple assigned to EPS and book value on Dec-15E basis; (2)
investments in PFS with a 20% holding company discount; and (3) other
investments at 0.34x BV. Key upside risks are (1) higher trading
volumes and margins; and (2) higher share in profits from long-term
PPAs. Key downside risks are (1) skewed working capital cycle which
may lead to steeper negative FCF; we have built in optimism in working
capital cycle; and (2) lack of buyers for its long term PPAs that
could lead to lower volumes and earnings.



Thanks & Regards

--

HDFC-Target Price: Rs860; CMP: Rs841; Upside: 2% :: Centrum

Rating: Hold; Target Price: Rs860; CMP: Rs841; Upside: 2%



Retail boosts growth



Uncertainties and cautious approach towards lending to the real estate
market has turned HDFC ltd towards retail loans for growth. This is
reflected in successive 8-quarters of 24% yoy (average) growth in the
individual loan portfolio and reveals the strength of the brand,
leadership position and deep understanding of markets. While growth
rates are bound to trend lower, we expect the mortgage giant to
witness 17% CAGR in disbursement/ loan portfolio over FY13-16E.
Diversified borrowing profile will help maintain spreads at 2.3%
levels. Also, with limited asset quality concerns, we build in RoA/
RoE at 2.7%/ 21% over FY13-16E. HOLD

$ Inline results, growth continues to be retail in nature: Q3FY14 NII
at Rs16.8bn (+14% yoy) and reported PAT at Rs12.8bn (+12% yoy) were in
line with estimates. However, adjusted for treasury gains, PAT at
Rs12.5bn, grew 17% yoy. Reported NIM at 4%, declined 10bps qoq.
Overall spreads at 2.25% (9mFY14) were in the nature of retail (1.97%)
and non-retail (2.82%). Loan portfolio (ex-sell down) grew 19.1% yoy
and was primarily in the nature of individual loans (+24.4% yoy).
Disbursements grew 17% yoy with retail disbursements up 20% yoy.

$ Borrowing shifted back to debentures; C/income ratio best in the
industry: Easing money market rates post the July-Sept’13 episode and
arrangement with banks to enable repayment of term loans saw HDFC
shift its borrowing mix to debentures. In Q3 the share of bond
borrowings increased to 56% (+700bps qoq) and as a result cost of
funds (calc.) was at 7.6%, a decline of 23bps qoq. With relatively
benign money market rates vis-à-vis bank loans, we expect the mix to
remain in favour of non-bank loans. C/income ratio at sub-10% is the
best in the industry and is due to in-house generation of 70% of
business.

$ Healthy provisioning to act as buffer against NPAs: Though not
alarming, retail GNPA at Rs7.5bn (0.57% of loan) has grown 14%+ yoy
for the second successive quarter. Corporate GNPA at Rs7.2bn (1.2% of
loans) includes one large corporate account, adjusted for which, the
NPA position is manageable and adequately provided for with cumulative
provisioning at 95bps of loans. Overall GNPA at 0.77% is among the
lowest in its peer set.

$ Limited near term catalyst; Retain HOLD: HDFC has underperformed the
broader index in the past 6-month/ 1-year on concerns over a) sticky
interest rates impacting margins b) fears over rise in NPAs in the
event of decline in property prices and c) slowdown in corporate
portfolio. We are factoring 17% CAGR in NII/ loan portfolio and expect
core mortgage RoEs to trade at 28% levels over FY13-16E against 33%
during FY10-12. Our SOTP based target price remains unchanged at
Rs860. Lower than expected loan growth and prolonged period of sticky
rates remain key risks.





Thanks & Regards

How to invest in silver:: Business Line

Unlike gold, which is available in the form of exchange traded funds, you can buy silver only from a bank or a jeweller. Silver coins from banks are expensive as they include charges for the tamper-proof packing and an assay certificate.

A 50-gm silver coin of 24 carat purity from HDFC Bank costs Rs 3,220, but the same coin from a jeweller costs Rs 2,500 in Chennai (as of January 14). Jewellers levy casting charges (around Rs 1,750/kg) apart from a 1 per cent sales tax.

Buying silver in the form of jewellery or artefacts is, however, far more expensive than buying coins. These suffer a making charge of 10 per cent or more and a melting charge of 15 per cent upwards at the time of resale, which lowers effective returns.

You can buy silver in the commodity futures exchange too, but the contract sizes are large. The smallest contract in silver (silver micro) is traded in units of 1 kg and delivered in minimum lots of 30 kg.

The initial margin one would have to pay when taking a position is 5 per cent - Rs 2,200. This apart, you will pay brokerage, STT, stamp duty and exchange levy, working out to another Rs 200-250. If you don’t intend to take delivery, you can roll over the contract, but the mark-to-market margins can be significant.

There is no silver ETF in India. Buying silver in the electronic spot market is also ruled out with the National Spot Exchange shut. The only other option for investing in silver is to buy silver ETFs listed in the US market. For this you need to first open an account with a stock broker who offers a platform to invest in global stock markets.

However, remember that silver doesn’t offer the haven qualities of gold because of its industrial character.

Chirag Mehta, Fund Manager-Commodities of Quantum Mutual Fund, says “Silver isn’t a good investment option for the layman. Half of global silver demand originates from industrial uses. Thus, it has a tendency to move with equities and perform badly when things turn difficult. In terms of return characteristics, silver is half copper and half gold. It is a risky bet compared with gold.”

Colgate-Palmolive (India) - Q3FY14 Results Update - Margins under pressure :: Centrum

Rating: Hold; Target Price: Rs1,250; CMP: Rs1,310; Downside: 5%



Margins under pressure



We maintain Hold rating on Colgate and believe A&P spends could
increase as competitive intensity in the oral care category continues
to remains high impacting margins as seen in Q3FY14 results.
Advertising and other expenses grew by 21.6% YoY and 32% YoY
respectively lowering operating margins by 67bps despite gross margin
expansion of 80bps. However, the company was able to increase its
market share in competitive category with 11% volume growth in the
toothpaste category. We expect the overhang and uncertainty to
continue for the next couple of quarters and impact valuations as seen
in the past 6 months where the stock under-performed the FMCG index
and corrected by 12%

$ Robust revenues, but margins under pressure: Colgate posted robust
15.9% sales growth on the back of strong 10% YoY overall volume growth
and 11% volume growth in the toothpaste category on low base. Revenue
was at Rs8840mn, 1.3% below expectations. Operating profit was at
Rs1434mn up by 11.3%YoY (1.8% below expectations) as operating margin
contracted by 67bps due to higher advertising and other expenditure.
Adj. PAT was at Rs1129mn, (up 1.7% YoY) 3.2% below expectations as
adj. tax rate for the company was high at 27%

$ Double digit volume growth in toothpaste category: The company
posted 10% overall volume growth led by the toothpaste category which
grew by 11%. Even after regular price hikes and stiff competition, the
company has been able to achieve double digit volume growth in the
toothpaste category. Flagship brands such as ‘Colgate Dental Cream’,
‘Active Salt’, ‘Max Fresh’, and ‘Colgate Total’ along with recently
launched ‘Visible White’ contributed to this growth. Volume market
share in the toothpaste category continues to increase and was at 56%
in Jan-Dec ’13 against 54.5% in Jan-Dec ’12 on the back of
premiumisation of products. Market share in the toothbrush category
also increased to 41.5% against 39.8% as the company has been
aggressive with multiple launches

$ High A&P spends impact margins: Despite gross margin increase of
80bps to 60.9% during the quarter, operating margins declined by 67bps
to 16.2%. Advertising spends for the company increased 21.6% YoY while
admin and other expenses which includes promotion expenses increased
by 32% YoY following high competitive intensity in the oral care
category. We expect high intensity to remain for a few quarters with
Colgate maintaining its share of voice to defend its market share

$ Maintain Hold: We have lowered our earnings estimate by 1.1%/1.2%
for FY14/FY15 on the back of lower volume growth and high A&P spends.
Colgate is currently trading at 34.9x and 29.5x FY14E and FY15E
respectively and we maintain Hold rating on the stock with a revised
target price of Rs1250 (25x Dec 2015). The stock has underperformed
the FMCG index and corrected ~12% in the last 6 months on the back of
concerns of increased competition and high A&P spends. Key downside
risk could be further increase in A&P spends and loss of market share
impacting volume growth while upside risk could be lower competitive
intensity improving margins.





Thanks & Regards

UltraTech Cement - Q3FY14 Result Update - Results in-line, near-term triggers missing:: Centrum

Rating: Hold; Target Price: Rs1,615; CMP: Rs1,719; Downside: 6%



Results in-line, near-term triggers missing



We retain Hold rating on UltraTech with a price target of Rs1,615
considering a) continued disappointment in cement despatches for the
industry, b) volatile cement prices due to lacklustre demand, c)
expensive valuations near to mean+sd1 despite lack of near term
triggers. During the quarter, result was largely in line with our
estimates on EBITDA and PAT levels, but OPM was slightly below
estimates led by higher freight costs and lower realization. We remain
concerned on the deterioration of earnings quality for cement
companies and will change our view only when there are signals of
demand recovery, which will also help cement prices to sustain at
higher levels.

$ Revenue in-line, OPM slightly below estimates: The company reported
Revenue of Rs47.9bn (vs. estimate of Rs47bn, decline of 1.5% YoY) led
by a drop of 1.9% YoY in blended realization. Sales volume was at
10mt, up 0.4% YoY (7.4% QoQ). Operating profit was at Rs7.6bn (vs.
estimate of Rs7.7bn) and profit at Rs3.7bn (4.9% above estimate of
Rs3.5bn). OPM at 16% was 49bps below our estimates largely due to
higher-than-expected freight cost (Rs1,122/tonne vs. est.
Rs1,105/tonne) and lower realizations (Rs4,796/tonne vs. estimate of
Rs4,837/tonne).

$ Lower realization and higher opex impact profitability: Operating
profit declined 25.4% YoY during the quarter led by fall in
realization (blended realization declined 1.9% YoY) and higher opex
(up 4.5% YoY on per tonne basis). Higher operating cost was primarily
due to an increase of 5.3% YoY in freight costs (led by higher railway
freight rates and diesel price) and 8.3% YoY increase in other costs.
Power & fuel cost declined 7.8% YoY due to an increased usage of pet
coke in the fuel-mix. Driven by higher operating costs and lower
realization, OPM declined 5.1pp YoY to 16%. Blended EBITDA/tonne
declined 25.7% YoY to Rs766/tonne.

$ Concerned with deterioration in earnings quality – expect cut in
Bloomberg consensus estimates: Cement companies under our coverage
universe have seen sharp cuts in earnings estimates in the past two
quarters due to earnings disappointment YTDFY14E. We had revised our
EPS estimates for the company downwards by 14.8%/11.6% for FY14E/FY15E
in our results preview note. The disappointment in earnings is due to
subdued sales volume, which resulted in increased volatility in cement
prices. Our earnings estimate for the company is 13.9%/8.5% below
Bloomberg consensus estimates and we expect downward revision in
consensus estimates.

$ Valuation and key risks: The stock trades at 13.2x/9.5x FY14E/FY15E
EV/EBITDA and 24.1x/18.5x FY14E/FY15E EPS. We value the company at 8x
Dec-15E EV/EBITDA and arrive at a value/share of Rs1,615. We have also
assigned Rs39/share for its acquisition of JCCL’s plant in the West
region. We maintain Hold rating on the stock with a possible downside
of 6%. Key upside risks to our thesis could be a) sharp increase in
cement realization and b) moderation in energy cost and other expense.
Key downside risks could be a) lower-than-expected sales volume, b)
lower cement prices and c) higher energy costs.



Thanks & Regards

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