Result Update 3QFY2013

Bharti Airtel

For 3QFY2013, Bharti Airtel (Bharti)’s revenue as well as operating margins came in-line with our estimates, however its bottom-line disappointed because of higher interest charges, forex loss and higher tax. The company is now hopeful regarding its domestic operations as mobile operators have increased tariffs and cut freebies after a bruising three-year price war. Africa operations are expected to continue to weigh upon the company’s performance. The company’s board has elevated its international operations head Manoj Kohli to the post of managing director. On the domestic business front, despite the festival season, telecom operators did not resort to discounts and promotions to drive subscriber additions. Recently, telecom operators have reduced discounts and promotional vouchers, which would lead to improvement in realized tariffs and in turn average revenue per minute (ARPM). The company  has been consistently adding above 2.0mn subscribers plus per quarter in its Africa business. Traffic growth during the quarter was driven by implementing various minutes growth schemes across the continent. Going ahead elevated costs and pricing pressure in Africa might weigh upon Bharti’s performance. While operationally 3QFY2013 performance was in line on the revenue and operating front, regulatory issues persist. Apart from this, higher debt, interest costs and forex risks pose a risk to earnings. We expect Bharti to post revenue CAGR of 10.4% over FY2012-14E. Source: Angel Broking

ICICI Bank

For 3QFY2013, ICICI bank delivered a strong performance, both on the operating as well as on the asset quality front. The bank witnessed a growth 24.1% yoy growth in its operating income, in-line with our expectations. However, lower-than-expected provisioning, as the bank managed to broadly hold on to its good asset quality, enabled it to deliver strong earnings growth of 30% yoy. The bank’s substantial branch expansion in the past three to four years is expected to sustain a far more favorable deposit mix going forward. Moreover, a lower risk balance sheet has driven down NPA provisioning costs, which we believe will drive a 22.8% CAGR in net profit over FY2012-14E and enable a RoE of 15.9% by FY2014E (with further upside from financial leverage). At the current market price, the bank’s core banking business (after adjusting `153/share towards value of the subsidiaries) is trading at 2.0x FY2014E ABV (including subsidiaries, the stock is trading at 1.9x FY2014E ABV). We value the bank’s subsidiaries at `153/share and the core bank at `1,251/share (2.5x FY2014E ABV). Source: Angel Broking

Pinjab National Bank

During 3QFY2013, PNB registered a better-than-expected performance on the asset quality front, as higher recoveries/upgrades compensated for elevated slippages. On the operating front, the pre-provisioning profits remained almost flat on a yoy basis (due to cautious advance growth and interest reversal on slippages). Aided by 15.3% yoy decline in the provisioning expense (on lower investment-related provisioning), the bank posted an earnings growth of 13.5%. The bank’s valuations are currently at a low of 0.9x FY2014 ABV compared to its eight year range of 1.0–1.6x and median of 1.4x. due to the asset quality concerns facing the sector.  The bank structurally has lower cost of deposits than peers and has cyclically already experienced relatively higher asset quality pain than peers. Valuation-wise, the stock is trading below the lower end of its historical range. Source: Angel Broking

Union Bank of India

During 3QFY2013, Union Bank of India (UNBK) reported a moderate operating profit  growth  of  5.8%  yoy,  which  was  in-line with our estimates. While, the earnings grew by a strong 53.5% yoy on a low base, but they were below estimates as the management chose to  make higher provisions, in order to improve its PCR. Key highlight from the results was sequentially lower NPA levels, on account of lower slippages, healthy recoveries/upgrades, and higher NPA provisioning as PCR improved by 476bp qoq to 66.2%. We remain watchful of the bank’s performance on the asset quality front, particularly incremental slippages/restructuring and recoveries/upgrades going ahead. At CMP, the stock trades at 0.8x FY2014 ABV, which is below its eight year trading range of 0.9-1.5x and median of 1.2x. Source: Angel Broking 

Central Bank of India

For 3QFY2013, Central Bank of India  (Central Bank) reported a healthy operating profit growth of 26.9% yoy, which was on expected lines. Profit before tax was higher by 18.6% yoy, however tax write-back of `29cr during the quarter compared to tax expenses of  `14cr in 3QFY2012, aided the bank to report earnings growth of 59% yoy.  At the CMP, the stock is trading at 0.7x FY2014E ABV compared to its trading range of 0.6–1.7x with a median of 1.2x since its listing in 2007. While the stock has corrected over the past year, it is still trading higher than some of the other mid-size PSU banks with a better asset quality outlook and return ratios. Source: Angel Broking 

Godrej Consumer Products

Godrej Consumer Products Ltd (GCPL), in its 3QFY2013 results, reported an impressive top-line growth of 25.8% yoy to  `1,691cr. The domestic business registered a growth of 20% yoy on account of strong growth across categories. The international business registered a growth of 34%, aided by an impressive performance by the Indonesia business (Megasari), which grew by 30% yoy and consolidation of phase II geographies of Darling group. At the current market price, the stock is trading at 26.2x FY2014E consolidated earnings.  After valuing the company’s various international subsidiaries and giving effect to their varied geographic presence, we believe the current implied valuation of the domestic business is at fair levels.  Source: Angel Broking 

BHEL 

Bharat Heavy Electricals Ltd (BHEL) reported a disappointing performance on the top-line and bottom-line front in 3QFY2013. The top-line was below our expectations and street estimates, declining by 4.9% yoy to  `10,220cr. Order inflows continued to remain subdued at  `1,976cr for the quarter (and at `15,000cr for the year till January 2013). Consequently, the total order book declined by 22.4% yoy to  `113,700cr by the end of the quarter, thus implying order book coverage of ~2.3x, which has been deteriorating sequentially over the quarters. The Management has guided visibility of 10-13GW power sector orders, mainly from sate and central utilities. However, the headwinds in the power sector such as domestic fuel availability and land acquisition issues may delay these projects. Given the strong competition (domestic as well as international), declining order flows and  a weak capex cycle, we expect BHEL’s profit, margin and ROE to decline from the current levels. Hence, the cheaper valuations of 9.4x FY2013E EPS and 10.9x FY2014E EPS respectively, are largely overshadowed by structural issues plaguing the company. Source: Angel Broking