Results Update 3QFY2013

Crompton Greaves

Crompton Greaves (CG) reported a disappointing performance for 3QFY2013, which was below our estimates and street expectations. The company posted a loss of  `69cr mainly on account of  `108cr restructuring loss at its Belgium unit (since most of the transformers had to be reworked at Hungary unit due to product defects). The company also incurred an additional loss of `121cr towards VRS package of 199 redundant workers. Although the company is expected to register a healthy 11-12% yoy sales growth, supported by healthy order backlog, its operating margins are expected to remain under pressure for the next few quarters. On a positive note, the Management has indicated that all exceptional losses due to Belgium unit’s restructuring have been accounted for and the company is expected to save up to 14mn euros/year on account of the same. We are of the opinion that CG’s margins will bottom out in FY2013 and we expect the operating margin to gradually improve over the next 14 to 18 months. Given the attractive valuation (stock trading at 0.5x FY2014E EV/Sales compared to its five year trading range of 0.6x to 1.6x and median of 1.1x). Source: Angel Broking

Mahindra Satyam

Mahindra Satyam (Satyam) reported broadly in-line set of results for 3QFY2013 on the revenue as well as operational front but the bottom-line disappointed due to exceptional loss of  `294cr because of Aberdeen claim settlement. Volume growth was decent at 1.5% qoq. The company added 33 new clients during the quarter. Satyam has successfully addressed its key concern areas in the past three years of client mining, employee retention, margin expansion, and dispute resolution. The company is back on its growth track after three years of metamorphosis undertaken by Tech Mahindra’s Management post its acquisition in June 2009.Mahindra Satyam indicated that it sees better revenue growth in FY2014 aided by decent logo wins (it won two Fortune 500 logos and two Forbes Global 2000 logos during the quarter) and healthy deal pipeline across verticals such as manufacturing, retail and healthcare. It mentioned that there is a definite improvement in the number of deals that the company is getting invited for and distinct uptick has been seen in the win ratios vs a year ago. We expect the company to post a 9.7% and 15.1% CAGR in USD and INR revenue, respectively, over FY2012-14E. The Management indicated that the proposed Tech Mahindra - Satyam merger has been approved by the Bombay High Court, while it awaits the Andhra Pradesh High Court approval. On the EBITDA front, the company is expected to post a 27.9% CAGR over FY2012-14E.Source: Angel Broking

National Aluminium

For 3QFY2013, Nalco reported a better-than-expected PAT performance, although the top-line was in line with our estimates. Nalco’s net sales grew by 16.8% yoy to `1,670cr (in line our estimate of  `1,657cr). Its aluminium sales volumes grew 4.1% yoy to 102,000 tonne while alumina production increased by 35.0% yoy to 220,000 tonne.Nalco’s power costs as a percentage of net sales stood at 35.0%, ie above our estimate, due to higher-than-expected proportion of linkage coal from Mahanadi Coalfields (80%). Hence, Nalco’s profitability was above our estimates.  Nalco reported an EBITDA and PAT growth of 166.6% and 132.0% yoy, respectively. Although Nalco has captive bauxite mines, the cost of aluminium production remains very high on account of high power costs. Further, there is lack of clarity over the company’s future expansion plans. At the CMP, Nalco is trading at valuations of 10.7x FY2013E and 7.3x FY2014E EV/EBITDA, ie at a significant premium to its peers.Source: Angel Broking

Amara Raja Batteries

Amara Raja Batteries (AMRJ) reported strong results for 3QFY2013 with top-line and bottom-line performance beating our estimates yet again. AMRJ has announced a capital expenditure plan of `750cr over the next two years to ease the capacity constraints that it is facing currently. We expect the company to sustain its growth momentum going ahead, led by widening reach, strong product offerings and increasing capacity. Further, price hike of ~4% in the replacement segment should enable the company to offset the impact of the recent surge in lead prices. We revise our revenue and earnings estimates upwards to factor in the strong operating performance during the quarter. Due to the strong operating performance over the last seven quarters, AMRJ has closed the valuation gap to the market leader – Exide; both the companies are now trading at similar PE multiples (one year forward basis). We expect the company to sustain its performance going ahead and estimate AMRJ to post a strong revenue CAGR of ~21% over FY2012–14E, leading to an ~30% CAGR in its net profit, aided by sustained growth in the automotive and industrial battery volumes. At  `308, AMRJ is trading at 14.3x FY2014E  earnings.  We  recommend  an  Accumulate  rating  on  the  stock  with  a target price of `323, valuing the stock at 15x (in-line with Exide) FY2014E EPS. Source: Angel Broking

Colgate Palmolive

For 3QFY2013, Colgate Palmolive (Colgate) posted a 3.9% yoy de-growth in its bottom-line to  `111cr, due to a 212bp yoy contraction in OPM on account of higher advertisement expenditure, which rose by 44% on a yoy basis.During 3QFY2013, Colgate posted a 13.9% yoy growth in its net sales to  `763cr, with volume growth estimated to be ~7% for the quarter. For 9MFY2013, the volume growth stood at 9%. The company has increased its volume market share on tooth paste to 54.5% (from 52.4% for CY2011) aided by healthy growth in flagship brands. For 3QFY2013, OPM stood at 16.9% down 212bp yoy due to a substantial 44% yoy increase in advertisement and promotional expenditure. Bottom-line fell by 4% yoy to  `111cr due to flat performance on the EBITDA front and higher tax outgo. We expect Colgate to report a 15.4% CAGR in its top-line and ~17.1% CAGR in its earnings over FY2012-14E. At the current market price, the stock is trading at 30x FY2014E EPS. Source: Angel Broking

Lupin

For 3QFY2013, Lupin’s net sales grew by 38.4% yoy to  `2,466cr, above our expectation of `2,090cr. However, OPM for the quarter stood at 23.1%, higher than our estimate of 20.5%. Net profit came in at  `335cr, higher than our expectation of  `259cr. Lupin reported net sales of `2,466cr, up 38.4% yoy, and higher than our estimate. The company’s gross margin came in lower at 62.1%, lower than in the corresponding period of the previous year (at 65.1%). However, inspite of the same, on back of lower other expenses, the OPM came in at 23.1% vs 19.3% in 3QFY2012, and also higher than our expectation of 20.5%. The net profit grew only by 42.6% yoy for the quarter at `335cr. We expect Lupin’s net sales to post a 19.3% CAGR to `10,082cr and earnings to report a 27.2% CAGR to  `31.4/share over FY2012–14E. Currently, the stock is trading at 24.4x and 19.2x FY2013E and FY2014E earnings, respectively. Source: Angel Broking

Syndicate Bank

During 3QFY2013, Syndicate Bank reported a moderate operating performance, with a 6.3% and 11.8% yoy decline in its operating profits and profit before tax, respectively. However tax write-back of `174cr as against tax expense of `41cr in 3QFY2012 aided the company to post an earnings growth of 50.4% yoy. During the quarter, the bank witnessed healthy growth in its business, as advances and deposits grew by 17.3% and 14.6% yoy, respectively. Despite the 11.9% yoy growth witnessed in savings deposits, the growth in CASA deposits remained moderate at 9.9% yoy, due to muted growth of 3.7% yoy in current deposits. CASA ratio for the bank was lower by 39bp qoq to 29.5%. The bank shed around  `3,300cr of differential rate deposits during the quarter and hence as of 3QFY2013, share of bulk deposits to total deposits stood reduced to 16.9% from 18% in 2QFY2013. NIMs remained largely stable sequentially at 3.3%. On the asset quality front, the bank witnessed stability, as gross and net NPA levels remained almost flat sequentially, on an absolute basis. Though, slippages for the bank remained elevated at  `903cr during 3QFY2013 (annualized slippage ratio of 2.9%), the bank reported stable performance on the asset quality front, due to higher recoveries and upgrades (`727cr in 3QFY2013 compared to `480cr in 2QFY2013 and average of `600cr in past one year). Gross and net NPA ratios came in lower sequentially by 16bp and 7bp, respectively to 2.3% and 0.9%. The bank’s PCR improved by 75bp sequentially and remained on the higher side within the PSU segment at 83%. During the quarter, the bank’s restructuring book grew by ~`600cr (lower than `1,100cr restructured in 2QFY2013), to `9,874cr.Although, the bank has a moderate CASA and fee income franchise, with the CASA ratio in the vicinity of 30% as of 3QFY2013 and fee income at 0.6% of average assets as of FY2012, it has relatively comfortable asset quality outlook than peers. Moreover, it is currently trading at 0.75x FY2014E ABV, lower than its median one year forward valuation of 0.9x. Source: Angel Broking

KEC International

For 3QFY2013, KEC International (KEC) reported a robust top-line performance, posting a 23.1% yoy growth to  `1,797cr, beating our expectations. The power system segment grew by 216.1% to  `383cr while the South Asian transmission segment grew by 18.7% yoy to `477cr. Among other business segments, telecom and water reported strong revenue numbers at `62cr (`21cr in 3QFY2012) and `36cr (`7cr in 3QFY2012) respectively. However, the international transmission business declined by 14.5% yoy to `395cr. The consolidated EBITDAM for the quarter contracted by 201bp yoy to 5.8%. The relatively new businesses of railway and water are currently operating at low/negative margin which is exerting pressure on the company’s operating margin. The company had aggressively bid for some of these low margin projects to get a foothold in these segments; the margins are expected to improve gradually as new orders are being booked at higher margins.KEC has a geographically diversified business model which insulates itself from slowdown in any particular region. Further, the company has also ventured in new businesses of railway and water, which have fared well with order inflows and revenues picking up at measurable pace. Source: Angel Broking