>BANKING SECTOR: All eyes on restructuring (Q4FY12 Results Preview)

Incremental restructuring and pipeline will dominate the attention of investors even as other asset quality matrices are likely to remain largely stable. Pre-provisioning profit growth for PSBs estimated to be strong (25% YoY for PSBs ex-SBI), despite sequential pressure on NIMs and material moderation in credit growth, led by distorted base (pension provisioning and –ve one-offs for SBI). However, relatively higher provisioning cost for PSBs led by slippages and incremental restructuring should lead to continuation of the divergent earnings performance trend among private banks and PSBs. HDFC Bank and ICICI Bank should lead private banks while SBI should fare relatively better among PSBs.


■ All eyes on incremental restructuring and pipeline: In the light of moderating economic activity, we expect asset quality trends to remain the key focus area for the next few earnings seasons. Incremental restructuring is expected to increase as banks try to avoid slippages into NPA. Trends in cases referred to CDR corroborate our long held concern of material increase in restructured assets. This also implies that deterioration in other matrices (GNPA, slippage etc) will be avoided for now. We look forward to clarity on incremental restructuring pipeline as well as status of SEB restructuring from management of banks.


■ Some pressure on NIMs likely: Not withstanding the strong pricing power aided by tight liquidity, we expect NIMs to witness marginal pressure (5-10bps) on a sequential basis, especially for PSBs. The firm wholesale rates, fuller impact of deregulation of NRE deposit rates, some impact of priority sector lending and selective downward tweaking of lending rates could collectively force the NIMs downwards, albeit marginally. Sequential pressure on NIMs and dramatic slowdown in loan growth should keep NII growth in higher single digits for PSBs ex-SBI compared with ~17% YoY growth estimated for private peers.


■ Base distortions: The distorted base effect (pension provisioning and –ve one-offs for SBI) will help PSBs report strong growth in pre-provisioning profit (33% for PSBs vs 20% for private peers). However at bottom-line level, we estimate private peers to report 24% YoY growth on aggregate basis compared with 9% YoY growth for PSBs ex-SBI. Among the banks under our coverage, we expect HDFC Bank and ICICI Bank to report stronger performance while Bank of India and SBI should lead from bottom-line growth perspective among PSBs.

RISH TRADER

>Metals – Ferrous & Mining: Q4FY12 Result Preview

Sequential improvement on lower costs and higher volumes


Higher volumes on account of seasonal improvement in demand, improved realizations on a sequential basis and lower raw material costs (particularly for steel producers) are expected to result in a sequential improvement in profitability for metal companies in our universe during Q4FY12. We see the earnings improvement in Q4FY12 to be more seasonal in nature rather than structural and still remain concerned on the low demand-high supply dynamics in the global metals space. We maintain our cautious stance on the ferrous space but remain positive on the mining space on account of attractive valuations and low costs.


■ Sales volume to improve sequentially: We expect volumes to show sequential improvement on the back of higher seasonal demand. Steel players are expected to show volume growth with SAIL and JSW steel showing sequentially higher sales. Among base metal players, HZL will see increase in lead and silver volumes.


■ Realizations remain firm: Global base metal and steel prices improved during the quarter and with rupee remaining weak, we expect domestic realizations to remain firm on a sequential basis and result in sequential revenue growth. Mining players are expected to suffer a drop in realizations on a QoQ basis due to drop in global prices.


■ Margins to remain weak despite sequential improvement: Margins are expected to improve by 100-300 bps QoQ for metal players in our universe but still remain weak on an overall basis and lower YoY as the recovery in demand remains slow.


■ Profits to remain subdued: We expect pressure on PAT due to higher interest costs and expect only marginal recovery in MTM forex losses of previous quarters as rupee has remained
weak overall. We expect sequential improvement in PAT from all companies under our universe except NMDC which has suffered due to lower volumes in Q4FY12E.


■ Maintain cautious view on the ferrous space: We remain Cautious on the domestic ferrous space amidst tough operational environment and subdued global steel prices going ahead due to higher supplies. We also expect raw material prices to spike yet again going ahead. We maintain buy on mining stocks like NMDC and HZL on attractive valuations and volume growth. We remain neutral on Sterlite Industries due to concern over the proposed merger with Sesa Goa. We maintain sell on Tata Steel and SAIL.


RISH TRADER

>LOGISTICS: Q4FY12 Result Preview

Healthy volumes & margins boost CFS profits


With container volumes steady at the ports and CFS players’ ability to pass on higher rates and maintain healthy margins, we remain positive on container based logistics players with a Buy rating on Gateway Distriparks (GDL) and Allcargo Global Logistics. Container volumes at 12 major ports remained stable during FY12, growing at a modest 3.0% to 7.8mn TEUs after increasing by 9.4% in FY11 to 7.5mn TEUs. We estimate container volumes to grow at 8.3% to 8.4mn TEUs for FY13E. Transport Corporation of India (TCI) is riding on the growth in its supply chain and express logistics division, helping its revenue grow higher than that of the industry.


■ Container volumes stable: Container traffic at the 12 major ports remained stable during Q4FY12. Container volumes grew 0.2% YoY to 1.93mn TEUs during Jan-Mar 2012, compared to 3.0% in FY12. Volumes at JNPT grew 1.3% YoY to 1.08mn TEUs in Q4. The port handled a total of 4.32mn containers in FY12, its best annual performance in the last 5 years.


■ Total port traffic down 7.5% YoY: Total port traffic remained lacklustre with a decline of 7.5% in Q4FY12 on the back of a sharp drop in iron-ore volumes. Iron ore volumes declined 54% YoY in Q4 to 12.8mn tonnes. POL volumes increased 4.1% YoY to 47.3mn tonnes, while coal thru-put increased 6.9% YoY to 20.4mn tonnes.


■ EXIM trade too stable: India’s exports remained sluggish but its imports continued its robust growth during Q4. While exports grew just 7.2% YoY in value terms during Jan-Feb 2012, imports increased 20.4% YoY in the same period.


■ Domestic industrial activity: India’s Index of Industrial Production (IIP) recovered from its lows reached in Oct 2011. Following a marginal 1.1% growth in Q3FY12, IIP expanded by 6.8% in January 2012, led by a sharp 42.1% expansion of consumer non-durables, while the rest of the IIP index contracted by 1.2%.


■ GDL and Allcargo - Top picks in the sector: Gateway Distriparks and Allcargo are our top picks in the logistics space. We have a Buy rating on both with a target of Rs190 and Rs220 respectively. We believe Concor is looking fully valued at the current level and maintain Hold with a target of Rs1,015. We also maintain our Buy rating on TCI (target price Rs96).




Allcargo Global (Rating – Buy; Target Price – Rs220)
■ Consolidated revenue is likely to increase 32.4% YoY to Rs9,684mn, primarily led by higher volumes in the CFS and MTO businesses. Operating profit is expected to grow 33.9% YoY to Rs1,201mn, while margins are expected to remain flat at 12.4% (up 14bp YoY). Volumes in the CFS (container freight station) business are likely to grow 12.4% YoY to 66,960 TEUs while average realisation is likely to remain flat (up 0.6% YoY) at Rs10,784 per container.


■ The global MTO (multi-modal transport operation) business (ECU Line) volume is expected to increase 16.3% YoY to 64,409 TEUs and the domestic MTO business volumes are likely to grow at 14.5% YoY to 7,301 containers.


■ Net profit is expected to grow 28.8% YoY to Rs642mn while net margins are likely to remain flat (down 18bp YoY) at to 6.6%.

Container Corp of India (Rating – Hold; Target Price – Rs1,015)
■ We expect standalone revenue to increase 5.6% YoY to Rs10,511mn, mainly led by volume growth in the EXIM segment. EXIM segment’s volumes are expected to improve 7.1% YoY to 555,034 containers, while domestic business volumes are likely to decline 13.9% YoY to 120,031 containers.


■ Operating profit is likely to grow 10.0% YoY to Rs2,564mn. Operating margins are likely to improve 97bp YoY to 24.4%. While Exim segment’s EBIT is expected to grow 5.0% YoY to Rs2,022mn, domestic EBIT is likely to contract 19.7% YoY to Rs144mn mainly on the back of cost pressure and inability to pass on the increased haulage charges.


Gateway Distriparks (Rating – Buy; Target Price – Rs190)
■ GDL’s standalone CFS revenue is expected to remain flat; up 2.3% YoY to Rs541mn. Net profit is
likely to decline 21.1% YoY to Rs211mn on the back of higher taxes as the tax holiday period for Mumbai CFS got over in FY11.


■ We expect the consolidated total income (revenue + other income) to grow 14.7% YoY to Rs1,961mn and operating profit by 14.9% YoY to Rs639mn. Consolidated operating margins are likely to remain flat at 32.6%.


■ Container volume at the Mumbai CFS is likely to grow 15.3% YoY to 59,340 TEUs, while average realisation is expected to be higher by 41.3% to Rs10,584 per container. The higher realisation is expected to result in 12pp YoY increase in Mumbai CFS’ margins to 59.6%. 


■ The rail subsidiary, Gateway Rail Freight (GRFL), is expected to register 17.6% YoY revenue growth to Rs999mn. Container rail volumes are expected to increase 17.4% YoY to 43,227 TEUs, while average realisations are likely to remain flat at Rs23,100 per container.


Transport Corporation (Rating – Buy; Target Price – Rs96)
■ TCI’s standalone revenue is expected to remain flat (up 0.3% YoY) at Rs4,805mn, as growth in the express and supply chain business is negated by the decline in the transportation segment.


■ Operating profit is likely to decline 8.8% YoY to Rs359mn, while margins are likely to contract 75bp YoY to 7.5%. Net profit is likely to fall 4.8% YoY to Rs121mn on the back of decline in freight business’ margins and higher tax. Net margins are likely to contract 14bp YoY to 2.5%.


■ While the revenue of express division is expected to grow 9.2% to Rs1,309mn and that of supply chain solution (SCS) division by 2.6% YoY to Rs1,203mn, the freight revenue is likely to decline 5.7% YoY to Rs2,033mn. The express’ PBIT is expected at Rs109mn, a growth of 40.2% YoY with PBIT margins of 8.3%.

RISH TRADER