Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Profit growth slows
Our analysis of the 1QFY12 results of 1300+ companies (
shows that while sales growth remains high, cost pressures are dampening
profit growth. Net profits grew by a modest 8% YoY, down from 26% in 4Q
and sharply lower than the 28% growth in sales amidst rising opex and
interest costs. Whilst the CNX Midcap has underperformed largecaps by 5%
over the past twelve months, it has outperformed by 3% over 3 months and
the PE discount is now broadly in line with the long term average. We prefer
quality names with valuation support and highlight Jain Irrigation, Oberoi
Realty, Shree Renuka Sugars, Sintex and Torrent Pharma as key picks.
Top line growth still strong, raw material costs being passed on
q Net Sales for 1QFY12 for the mid-cap universe grew 28% YoY but declined 1%
QoQ. In the ex-Oil & Gas and financials space, sales increased 21% YoY/-4% QoQ.
q Raw materials costs were up by 28% YoY but fell 3% QoQ to 45.7% of revenue (up
10bps YoY, down 100bps QoQ), while power costs rose 10% QoQ. In ex-Oil and Gas
and financials, material costs rose 23% YoY. The sales and raw material cost
pressures may suggest pricing lead growth rather than volume led.
EBITDA margins seeing pressure
q EBITDA margins for the entire midcap universe came in at 14.2%, down 100bps
YoY and 10bps QoQ. In ex-Oil & Gas and financials, EBTIDA margins fell 80bps YoY
and 20bps QoQ to 13.6%. The YoY decline was led by rising material costs.
q Rise in staff costs has been steady at 18-21% YoY for the last five quarters,
indicating persistent wage pressures.
Net profit growth at 8%, interest cost pressure high; sector trends mixed
q Interest costs grew 44% YoY (4% QoQ). The increase in interest costs is higher
than the 11% increase in depreciation, suggesting hardening interest rates.
q Net profit grew 8% YoY, decelerating from the 26% in 4QFY11, and declined 4%
QoQ. Net margin was 6.8% - down 130bps YoY/110bps QoQ.
q Net profit grew 6% YoY in the ex-oil and gas and financials universe (-13% QoQ) as
the net margin declined 90bps YoY/60bps QoQ.
q At a sector level, Energy saw the largest percentage increase in sales as well as
profits. However, in absolute terms, financials lead on top line growth and
industrials on bottom line growth. Almost all sectors have seen a deceleration in
profit growth, most notably consumer cyclical - which saw a modest 2% profit
growth following very strong performance over the past year.
q Overall, while sales growth across the midcap universe remains healthy, pressures
from operating costs and interest rates are visible. The pressure on profitability
may strengthen if top line growth slows in the coming quarters.
Midcap discount at long term average, prefer quality names
q A 3% 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 5%.
q After the recent catchup, midcaps trade at a 20-22% 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 Jain Irrigation: whilst the secular micro irrigation theme underpins healthy
revenue growth whilst rising government disbursals will ease cashflow concerns.
q Oberoi Realty: a strong balance sheet, healthy cash generation alongside a quality
portfolio and earnings visibility are at odds with Oberoi’s 9x FY13 PE.
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 8x FY12 PE
q Torrent Pharma: India business driving growth with extra momentum from
exports to drive FY11-13 earnings CAGR of 21% and surging cashflow.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Profit growth slows
Our analysis of the 1QFY12 results of 1300+ companies (
shows that while sales growth remains high, cost pressures are dampening
profit growth. Net profits grew by a modest 8% YoY, down from 26% in 4Q
and sharply lower than the 28% growth in sales amidst rising opex and
interest costs. Whilst the CNX Midcap has underperformed largecaps by 5%
over the past twelve months, it has outperformed by 3% over 3 months and
the PE discount is now broadly in line with the long term average. We prefer
quality names with valuation support and highlight Jain Irrigation, Oberoi
Realty, Shree Renuka Sugars, Sintex and Torrent Pharma as key picks.
Top line growth still strong, raw material costs being passed on
q Net Sales for 1QFY12 for the mid-cap universe grew 28% YoY but declined 1%
QoQ. In the ex-Oil & Gas and financials space, sales increased 21% YoY/-4% QoQ.
q Raw materials costs were up by 28% YoY but fell 3% QoQ to 45.7% of revenue (up
10bps YoY, down 100bps QoQ), while power costs rose 10% QoQ. In ex-Oil and Gas
and financials, material costs rose 23% YoY. The sales and raw material cost
pressures may suggest pricing lead growth rather than volume led.
EBITDA margins seeing pressure
q EBITDA margins for the entire midcap universe came in at 14.2%, down 100bps
YoY and 10bps QoQ. In ex-Oil & Gas and financials, EBTIDA margins fell 80bps YoY
and 20bps QoQ to 13.6%. The YoY decline was led by rising material costs.
q Rise in staff costs has been steady at 18-21% YoY for the last five quarters,
indicating persistent wage pressures.
Net profit growth at 8%, interest cost pressure high; sector trends mixed
q Interest costs grew 44% YoY (4% QoQ). The increase in interest costs is higher
than the 11% increase in depreciation, suggesting hardening interest rates.
q Net profit grew 8% YoY, decelerating from the 26% in 4QFY11, and declined 4%
QoQ. Net margin was 6.8% - down 130bps YoY/110bps QoQ.
q Net profit grew 6% YoY in the ex-oil and gas and financials universe (-13% QoQ) as
the net margin declined 90bps YoY/60bps QoQ.
q At a sector level, Energy saw the largest percentage increase in sales as well as
profits. However, in absolute terms, financials lead on top line growth and
industrials on bottom line growth. Almost all sectors have seen a deceleration in
profit growth, most notably consumer cyclical - which saw a modest 2% profit
growth following very strong performance over the past year.
q Overall, while sales growth across the midcap universe remains healthy, pressures
from operating costs and interest rates are visible. The pressure on profitability
may strengthen if top line growth slows in the coming quarters.
Midcap discount at long term average, prefer quality names
q A 3% 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 5%.
q After the recent catchup, midcaps trade at a 20-22% 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 Jain Irrigation: whilst the secular micro irrigation theme underpins healthy
revenue growth whilst rising government disbursals will ease cashflow concerns.
q Oberoi Realty: a strong balance sheet, healthy cash generation alongside a quality
portfolio and earnings visibility are at odds with Oberoi’s 9x FY13 PE.
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 8x FY12 PE
q Torrent Pharma: India business driving growth with extra momentum from
exports to drive FY11-13 earnings CAGR of 21% and surging cashflow.
No comments:
Post a Comment