>IDBI Bank: Sustainability of performance remains in question

IDBI Bank reported a PAT of Rs 7708 mn up 49% yoy and 88% qoq. Bottom-line stood well above expectations due to an improvement in asset quality and a spurt in fee based income. Additionally the bottom-line of the bank was aided by a lower tax rate as the bank took advantage of tax deductions under Sec 36 (1) (viii). However going ahead, fee based income and CASA are expected to come off and sustainability of asset quality remains questionable
NIM remains stable sequentially


IDBI Bank reported a NIM of 1.9% for Q4FY12, which was in line with that of the previous quarter. The yield on advances came off by 37 bps qoq due to continued focus on priority sector lending which has lower yields. However the fall in the yield on advances was compensated by lower cost of funds during the quarter. The cost of funds came off by 49 bps qoq as the CASA ratio improved sequentially. In FY13 the NIM is expected to fall in a range of 1-9%-2.1%.


Advances growth spurts sequentially due to higher PSL lending
Advances grew by 16% qoq and 15.3% yoy. The spurt in sequential lending was on account of higher bought outs as the bank prepares to meet priority sector lending targets by FY13.
Higher fee based income due to closure of assignments boosts other income Non-interest increased by 80% qoq as certain loan syndication and project appraisal assignments achieved closure in Q4FY12 which led to a 94% qoq increase in fee based income. Fee based income is likely to come off in Q1FY13.


Asset quality improves sequentially, slippages come off
Slippages for the quarter stood at Rs 3760 mn (slippage rate of 1.0%). Slippages were significantly lower than that of the previous quarter. Due to lower slippages and strong reductions, absolute GNPAs came off by 1.9% qoq and NNPAs came off by 4.8% qoq. On a relative basis asset quality improvement was stronger due to the high sequential growth in the advances book.


Restructured assets at 5.5% of total advances
The banks restructured book increased by 5.4% qoq to Rs 100373 mn as the bank restructured loans of around Rs 14980 mn during the quarter. Of this amount, Rs 7630 mn was due to restructuring of Air India.


Revise price target to Rs 117 from Rs 120 earlier
IDBI Bank has reported a strong set of numbers for Q4FY12 on the back of a spurt in fee based income, strong CASA growth and an improvement in the asset quality. However going ahead, fee based income and CASA are expected to come off and sustainability of asset quality remains questionable. As a result we maintain our Hold recommendation on the stock with a revised price target of Rs 117. At the CMP of Rs 105, the bank trades at 0.8x its FY13E ABV and 0.7x its FY14E ABV.


RISH TRADER

>NESTLE INDIA: 1QCY12 RESULTS REVIEW

Gearing up for growth


Nestlé India's performance has been below expectations with a further slowdown in volume growth during 1QCY12 due to substantial price hikes (13%). However, going ahead, over the next six months, we believe that it would post a recovery in volumes with ramp up in marketing
spends and increase in distribution. Additionally, the rising awareness for nourishment in the rural markets augurs well for the long-term growth plans of the company. We maintain a HOLD recommendation.


■ Net sales grew by 13.1% to INR20.5bn in the backdrop of a 13.7% growth in domestic sales at INR19.5bn and 3.3% growth in export sales at INR1.01bn. In our view domestic volume growth during the quarter has been almost flat.


■ EBITDA grew by 19% to INR4.57bn and EBITDA margin expanded by 104bps to 22.3%. The improvement in EBITDA margin was on account of 301bps drop in raw material cost to 45.8%. However, this improvement in EBITDA margin was below our expectations due to a 90bps increase in staff cost to 7.6% of net sales and 107bps increase in other expenses to 24.3% of net sales. The increase in staff cost has been due to increase in headcount to support the company's expansion initiatives. Additionally, the increase in other expenditure we believe has been because of ramp up in marketing expenditure.


■ Profit before tax grew by 14% to INR4.16bn while recurring PAT grew at a lower rate of 10% to INR2.9bn due to an increase in effective tax rate by 248bps to 30.6% of PBT.


■ Our channel checks suggest a substantial increase in marketing initiatives to fuel strong growth in sales during the next three years backed by the capacity expansion. Therefore, we believe that volume growth will recover over a period of six months led by the substantial ramp up in operations and subsiding of the impact of the price hikes. Additionally, the company's medium to long-term growth potential remains strong with rising awareness of nourishment even in the rural markets. 


Valuation and outlook
At the CMP of INR4,938, the stock is trading at a PE of 40.5x CY12e and 33x CY13e. We believe that Nestlé India would witness a strong recovery in sales momentum during CY13e backed by the ramp up in production and distribution. We therefore upgrade our EPS estimates by 2.4% for CY13e to INR149.8. We maintain our HOLD recommendation on the stock at the current levels with a target price of INR4,495.


RISH TRADER

>ULTRATECH CEMENT: Q4FY12 Result update

Result above estimates, earnings growth to moderate


AUltra Tech’s Q4FY12 result was above both our and Consensus estimates primarily due to lower-than-expected cost pressure, higher other income and lower tax rate during the quarter. The company reported EBITDA of Rs12.6bn vs. est. Rs11.8bn and EBITDA margin was at 23.7%, 1.3pp above our estimate of 22.4%. Higher-than-expected operating margin was driven by 6.3% QoQ decline in power & fuel cost to Rs1,031/tonne. The management said that
higher usage of pet coke and improved efficiency were the reasons for sequential decline in power & fuel cost. Higher other income of Rs2bn (up115% YoY) and lower tax rate (26% against 32.8% in Q3FY12) led to adjusted profit of Rs8.6bn against our estimate of Rs7.1bn (Bloomberg consensus’ estimates of Rs6.7bn). We believe that higher domestic realization (up ~16% YoY, despite lower industry utilization rate) helped the company register robust earnings growth of 42% in FY12 (which in our view led toA outperformance of the stock in FY12 despite higher valuations, sluggish demand and concerns on sustainability of higher prices). However, going forward, with our expectation of earnings decline in FY13E due to cost pressure, decline in other income and higher interest expense, we expect the stock to come under pressure. We maintain Sell on UTCEM with target price of Rs1,179, downside of 24% from its CMP.


■ Higher realization and sales volume help to post better results: Higher blended realization (up 10.2% YoY) and sales volume (up 7.9% YoY) resulted in 18.9% YoY growth in revenues to Rs53.3bn, 1% above our estimates of Rs52.9bn. Higher realizations led to 22.2% YoY increase in EBITDA to Rs12.6bn (est.: Rs11.8bn).


■ Lower power & fuel cost expands EBITDA margin: Power & fuel cost declined 6.3% QoQ to Rs1,031/tonne primarily due to higher usage of pet coke in the quarter and improved efficiency. EBITDA margin during the quarter was at 23.7% (vs. est. 22.4%) and EBITDA/tonne of Rs 1,095 against our estimate of Rs1,021/tonne.


■ Higher other income and lower tax rate boosts adjusted profit: Higher other income of Rs2bn (up 115% YoY) and lower tax rate (26% against 32.8% in Q3FY12) resulted in 40.3% YoY growth in adjusted profit to Rs8.6bn (our estimate: Rs7.1bn). Higher other income was due to maturity of FMPs in FY12 and subsidies related to state investment promotion scheme.



■ Earnings to decline in FY13: Benefitting from higher domestic realizations (up ~16% YoY despite lower industry utilization rate), adjusted EPS (on a liketo-like basis) of the company increased 42% YoY to Rs83.6 in FY12. We believe that outperformance of the stock over the past 1 year was driven by stellar earnings growth despite concerns on the sustainability of pricing power and sluggish volume growth. Going forward, we expect EPS to decline 2.3% YoY to Rs81.7 in FY13E.


■ Increasing costs remain a challenge; maintain Sell on expensive valuations: Operating costs (up 12% YoY in FY12) continue to remain higher and margins could be under pressure going forward. The stock is trading at 15.5x FY14E EPS, 8.6x EV/EBITDA and US$163.7 EV/tonne. We maintain Sell on the stock with target price of Rs1,179, a downside of 24% from its CMP.

>CAIRN INDIA LIMITED: 4QFY2012 results

■ CIL reports modest 4QFY2012 results: CIL’s top line declined marginally by 0.1% yoy to `3,651cr (above our expectation of `3,437cr). Gross crude oil realization increased by 16.0% yoy to US$109.3/bbl. Operating margin contracted by 207bp yoy to 81.6%, resulting in a 2.6% yoy decline in operating profit to `2,981cr for the quarter. CIL recorded an exceptional loss of `217cr due to forex fluctuation during 4QFY2012. Excluding this exceptional gain, adjusted net profit declined by 4.4% yoy to `2,403cr (above our estimate of `2,263cr).


■ CIL reports rise in potential resources: During 4QFY2012, CIL reported that its estimated potential resources increased to 7.3bboe compared to earlier estimate of 6.5bboe. The recoverable reserves estimate also increased from 1.4bboe to 1.7bboe during the quarter.


■ Outlook and valuation: CIL has the infrastructure in place to ramp up production to meet its targets. Hence, we expect production to gradually increase in the coming quarters to reach a capacity of 175kbopd by FY2013 and 205kbopd by FY2014. Further, there are various untapped exploratory upsides in Barmer Hills and other fields waiting to be developed. Hence, we recommend Accumulate on the stock with a target price of `372.


To read report in detail: CAIRN INDIA
RISH TRADER