Fundamentals February 11, 2013

Nik's Diary

The Indian market opened flat, mirroring SGX Nifty which is trading flat to marginally lower in the opening trade. Major Asian markets – Hong Kong, China, Taiwan, Malaysia and Japan are closed today. US markets ended higher on Friday partly due to a positive reaction to a commerce department report showing a much narrower than expected US trade deficit for the month of December, with the data potentially leading to an upward revision to the disappointing fourth quarter GDP data. The report showed that the US trade deficit fell almost 21% in December to US$38.5bn, marking the biggest drop in four years, from a revised US$48.6bn in November, while economists had expected the deficit to shrink to US$46.0bn. In another positive sign for the global economy, a separate report released by the Chinese National Bureau of Statistics showed that the Chinese trade surplus came in at US$29.2bn in January compared to the US$24.2bn surplus expected by economists. The Indian markets fell for the seventh session in a row as growth concerns and weaker earnings overshadowed firm global cues.  

Sun Pharmaceuticals - RU3QFY2013

Sun Pharmaceutical Industries (Sun Pharma) reported a much higher-thanexpected 3QFY2013 performance. Its net sales reported a 33.0% yoy growth. The Adj. net profit grew by 31.9% yoy, driven by a higher-than-expected improvement in sales and a higher-than-expected expansion in the OPM, which in at 44.2% V/s expectation of 40.6%. Source: Angel Broking

M&M - RU3QFY2013 

Mahindra and Mahindra (MM) reported slightly lower-than-expected bottom-line performance for 3QFY2013 primarily due  to the contraction in EBITDA margins led by sequential decline in net average realization. The top-line registered a strong growth of 28.5% yoy (9.8% qoq) to `10,774cr; however it was lower than our expectations of `11,070cr largely due to the sequential decline in net average realization in the AS (1% qoq) and farm equipment segment (FES, 1.3% qoq). The top-line growth on a yoy basis was driven by a robust volume (17.5% yoy) and net average realization growth in the AS (22.5% yoy). Total volumes, however, posted a growth of 10.9% yoy (10.8% qoq) as tractor sales witnessed a decline of 1.6% yoy on account of weak domestic demand. The EBITDA margins contracted 96bp yoy (16bp qoq) to 11.2% owing to raw-material cost pressures, which as a percentage of sales increased 153bp yoy (97bp qoq) to 75.9%. As a result, bottom-line came in at `836cr, a growth of 26.3% yoy; however it was down 7.3% qoq largely due to absence of dividend income from the subsidiaries. The bottomline benefitted from the reduced tax rate on account of higher R&D spends.  We broadly retain our top-line and EBITDA margin estimates for FY2013/14. However our earnings estimates are revised slightly upwards to factor in the lower tax-rate going ahead as guided by the management. We expect AS to drive the total volume growth of the company led by the success of the new launches (XUV5OO, Quanto and Rexton) in the utility vehicle (UV) segment. We expect tractor volumes to recover in FY2014 and clock a growth rate of 8% after posting a decline of 4% in FY2013. At `883, MM is trading at 13.7x FY2014E earnings. Source: Angel Broking

Hindalco - RU3QFY2013

Hindalco’s reported lower than expected performance both on the top line and bottom-line front. Hindalco’s  net sales grew 3.0% yoy to  `6,790cr (below our estimate of  `7,199cr) mainly on account of lower than expected volumes. In aluminium segment, both alumina and aluminium production fell by 5.0% yoy each to 326kt and 139kt respectively. The downstream sales stood at 59kt. Aluminium segment net sales declined by 0.9% yoy to  `2,215cr mainly due to lower production at the Belgaum refinery due to lack of bauxite availability. In copper segment, copper cathode production decreased by 4.3% yoy to 84kt whereas CCR production declined by 3.7% yoy to 37kt. However, the Copper segment net sales increased by 5.5% yoy to `4,661cr.  On the operating front, aluminium segment EBIT decreased by 33.4% yoy to `206cr due to decrease in realizations coupled with increase in fuel and power costs. Nevertheless, Copper segment EBIT however improved by 4.3% yoy to `225cr. Overall, Hindalco’s EBITDA declined by 18.6% yoy to `582cr and EBITDA margin slipped 228bp yoy to 8.6% during 3QFY2013. Interest expenses increased substantially by 113.0% yoy to  `169cr on the back of new bonds raised during 1HFY2013. Other income was also higher by 93.2% yoy to `174cr. The company reported an exceptional item of `144cr related to some write-backs. Consequently, adjusted net profit declined by 35.8% yoy to  `289cr (below our estimate of `404cr). The company aims to start the Mahan smelter by April 2013 while it is in the process of commissioning Utkal refinery by March 2014. At current aluminium prices, we anticipate Mahan smelter to make loss during FY14 as it will not be able to commence coal production from the Mahan coal block until atleast 18 months in our view. Source: Angel Broking

Canara Bank - RU3QFY2013

Canara Bank reported subdued operating performance, as its pre-provisioning profit declined by 3.8% yoy, which was in-line with our expectations. Asset quality pressures continued for the bank during the quarter, as slippages remained elevated, which resulted in 24.9% yoy increase in provisioning expenses and hence the bank witnessed 18.9% yoy decline in its bottom-line. At the current market price, the stock trades at cyclically moderate valuation of 0.8x FY2014E ABV  vs. eight-year average of 1.1x and range of 0.7-1.4x. Source: Angel Broking

Cadila Healthcare - RU3QFY2013

Cadila Healthcare reported below expected numbers for 3QFY2013, except on the sales front. The company’s sales for the quarter were just-in-line with estimates at `1,561cr.On the operating front, the gross and operating margins came below expectations. This along with, a higher tax expense during the quarter resulted in net profit coming in a tad lower than expectations. Overall, the Adj. net profit came in at `103cr, a dip of 31.0%. Management expects the company to be US $3bn by 2015. Source: Angel Broking

Bharat Forge - RU3QFY2013

Bharat Forge (BHFC) reported disappointing performance for 3QFY2013 led by severe weakness in the domestic as well as the export markets which resulted in a volume decline of 32.4% yoy (19.1% qoq). For 3QFY2013, standalone revenue posted a significant decline of 28.5% yoy (22.5% qoq) to  `673cr led by 22.1% (9.3% qoq) and 33.2% yoy (33.5% qoq) decline in domestic and export revenues respectively. BHFC witnessed significant decline in revenues across all the geographies with the key markets of India, US and Europe experiencing a decline of 24%, 24.2% and 42.4% respectively.  The net average realization however, registered a growth of 6.1% yoy as it benefitted from the higher share of machining component. On the operating front, margins contracted 424bp yoy (124bp qoq) to 21.2% which was below  our estimates of 23.3% primarily on account of lower utilization levels (~50% in domestic operations). The company also initiated production cuts in an attempt to reduce inventories and align production levels with the demand environment. Hence operating profit and net profit registered a sharp decline of 40.5% (26.8% qoq) and 53.9% yoy (48.5% qoq) respectively. BHFC also posted a disappointing performance in its wholly owned overseas subsidiaries (wos) with top-line registering a decline of 2.2% yoy. BHFC posted a net loss of  `6cr at wos as against a profit of  `1cr in 3QFY2012. Even the subsidiary in China posted a net loss of `12cr during the quarter. The subsidiaries performance continues to be impacted due to the lower utilization levels caused by downturn in the heavy truck market in China and decline in demand in Europe. At `219, the stock is trading at 9.5x FY2014 earnings. Source: Angel Broking

Gujarat State Petronet - RU3QFY2013

Gujarat State Petronet Ltd (GSPL) reported disappointing 3QFY2013 results. Total operating revenues decreased by 2.8% yoy to `266cr mainly due to decline in transmission volumes, partially offset by higher tariffs. Transmission volumes for 3QFY2013 decreased by 16.0% yoy to 27.56mmscmd whereas transmission tariffs increased by 15.5% yoy to  `1/scm. EBIDTA also decreased by 4.9% yoy to `239cr mainly due to higher operating expenses. Depreciation expenses rose by 3.8% yoy to `48cr. Tax rate declined marginally to 33.0% in 3QFY2013 compared to 33.9% in 3QFY2012. Hence, PAT decreased by 5.7% yoy to `119cr. Source: Angel Broking

BGR - RU3QFY2013

For 3QFY2013, BGR Energy's (BGR) top-line growth came in flat yoy at  `805cr. The 22% yoy decline in revenue from the Capital Goods segment at `59cr (`75cr in 3QFY2012) was offset by a 2.4% yoy growth in revenue from the Construction and EPC segment at `746cr (`729cr in 3QFY2012). On the operating front, the EBITDA margin contracted by 259bp yoy to 13.7%, mainly on account of a 289bp yoy contraction in margin of the Construction and EPC segment. Interest cost grew by 9% yoy to `50cr (owing to elevated interest rate scenario and enhanced working capital requirements). Consequently, the net profit declined by 24% yoy to  `41cr. Source: Angel Broking

NCC - RU3QFY2013

For 3QFY2013, NCC posted poor performance on the revenue front; however higher other income due to asset sale and lower tax expense help boost the bottom line growth. On the top line front, NCC reported a decline of 6.3% yoy to `1,184cr, which was significant lower than our estimate of  `1,427cr. On the EBITDAM front, the company’s EBITDA  margins stood at 7.2% (down 116bp sequentially), which were below our estimate of 8.4%. This was mainly on back of lower-than-expected execution during the quarter. Interest cost came in at `99cr a decline of 7.6% on a yoy basis. On the bottom line level, NCC reported PAT of `11cr (was in line with our estimate of `11cr) against a loss of 9cr in 3QFY2012 owing to higher other income and lower tax expense. The current outstanding order book of NCC stands at  `18,799cr, with order inflow of  `3200cr till date. Source: Angel Broking

Subros - RU3QFY2013 

Subros posted better-than-expected results for 3QFY2013 driven by a strong volume growth of 30.7% yoy (41.1% qoq) leading to a 28.6% yoy (17.1% qoq) growth in the top-line. The volumes during the quarter were boosted by the festival demand and also due to the low base of last year. The 3QFY2012 volumes were impacted due to the strike at one of its largest customer, Maruti Suzuki. The EBITDA margin jumped 346bp yoy to 10.3% primarily due to the operating leverage benefits. On a sequential basis too, it expanded by 77bp. Hence, operating profit grew by 94% yoy (26.6% qoq) to `33cr. Led by strong operating performance, the net profit stood at `6cr as against `2cr in 3QFY2012 and `3r in 2QFY2013. At  `28 the stock is trading at 5.5x FY2014E earnings. Source: Angel Broking

Cravatex - RU3QFY2013

Cravatex reported poor set of numbers for 3QFY2013. Top-line plunged by 42.6% yoy to `49cr on a consolidated basis on account of order lumpiness in the same quarter previous year. Net sales from International segment and domestic segment fell significantly by 68% (due to high base effect) and 39% yoy. The contribution from the domestic sales has increased from 83% in 3QFY2012 to 89% in 3QFY2013. On the operating front the EBITDA dip by 32.7% yoy to `4cr. However the EBITDA margins expanded by 109bp yoy mainly on account of 52.2% lower raw material cost. On the segmental front, the EBIT margin for the domestic segment contracted by 20bp yoy while the international segment reported a margin of 5.7%, higher by 203bp yoy. The company reported a bottom-line of `1.4cr, low by 52.3% yoy. Source: Angel Broking