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Maintain Reduce on elevated expectations
Expectations set at elevated
levels; risk of disappointment
high; maintain Reduce
Action: Risk of disappointment high; maintain Reduce
While HUVR’s 2QFY12 results were ahead of our and street estimates,
they were helped by cost lines being much more subdued, which we
believe may not be sustainable. However, we think street expectations are
now factoring that in, which leaves HUVR vulnerable to a disappointment.
With valuations now at 28.2x FY13, we maintain our Reduce rating.
Catalysts: Competitive intensity perking up
Companies across the HPC space have guided for increased A&P
spending in 2HFY12, as gross margin pressures start to ease. India
remains one of the most attractive consumer markets in the world and we
think competitive intensity is likely to perk up from current levels. This, we
believe, is likely to again have an impact on margins, as companies ‘reinvest’
the ‘savings’ on the gross margin front into higher levels of
spending on advertising. This may not be fully factored in by the street and
is where the risk of disappointment lies into 2HFY12, in our view.
Valuation: Still one of the most expensive stocks
Post the recent run-up, HUVR is trading at 28.2x FY13F EPS, which is
higher than the sector average of ~25.4x. HUVR is likely to deliver 12-13%
earnings growth in FY13F, on our estimates, vs a sector average of ~19%.
We believe given the potential for disappointment and valuations that are
trading above sector average, as well as HUVR’s own long-term average,
risk reward at current levels remains unattractive. We raise our TP to
INR296, from INR232, largely on account of a roll-forward, with earnings
upgrades accounting for 8%, and a target multiple change of 4%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Maintain Reduce on elevated expectations
Expectations set at elevated
levels; risk of disappointment
high; maintain Reduce
Action: Risk of disappointment high; maintain Reduce
While HUVR’s 2QFY12 results were ahead of our and street estimates,
they were helped by cost lines being much more subdued, which we
believe may not be sustainable. However, we think street expectations are
now factoring that in, which leaves HUVR vulnerable to a disappointment.
With valuations now at 28.2x FY13, we maintain our Reduce rating.
Catalysts: Competitive intensity perking up
Companies across the HPC space have guided for increased A&P
spending in 2HFY12, as gross margin pressures start to ease. India
remains one of the most attractive consumer markets in the world and we
think competitive intensity is likely to perk up from current levels. This, we
believe, is likely to again have an impact on margins, as companies ‘reinvest’
the ‘savings’ on the gross margin front into higher levels of
spending on advertising. This may not be fully factored in by the street and
is where the risk of disappointment lies into 2HFY12, in our view.
Valuation: Still one of the most expensive stocks
Post the recent run-up, HUVR is trading at 28.2x FY13F EPS, which is
higher than the sector average of ~25.4x. HUVR is likely to deliver 12-13%
earnings growth in FY13F, on our estimates, vs a sector average of ~19%.
We believe given the potential for disappointment and valuations that are
trading above sector average, as well as HUVR’s own long-term average,
risk reward at current levels remains unattractive. We raise our TP to
INR296, from INR232, largely on account of a roll-forward, with earnings
upgrades accounting for 8%, and a target multiple change of 4%.
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