>SIEMENS LIMITED: Projects in mobility KAHRAAMA, Essar Construction, solar thermal & Torrent Power (Earnings Review Q4FY12)

New orders fall, Adj PAT 46% below BofAMLe; Maintain UPF


2Q12 only optically in line, Revenue disconnect
Siemens (SIEM) 2Q12 Adj PAT of Rs1.63bn is 46% lower than BofAMLe. Revenues of Rs38bn beat BofAMLe by 11%, up 22% YoY. However, results include a net write back of Rs2.1bn (PBT), which we believe led to higher revenues and in-line Rep PAT Rs3bn. 1H12 order inflows declined 36% YoY (adj -27%) due to high base, lower project orders, but short cycle & SMART products drove base orders. We maintain our Underperform rating on: 1) reduced revenue visibility as orders decline from power gen, T&D and process sectors; 2) lower FY12-14E margins due to new product launches; and 3) modest 8% earnings CAGR in FY12-14E, and declining RoEs.


Mobility and new products drive revenues
We believe a) projects in mobility (Gurgaon Rs7-8bn, Chennai Rs6bn, & Kolkata Rs1.6bn), b) power (KAHRAAMA Rs25bn, Essar Const, 200MW solar thermal &  Torrent Power Rs15bn), and c) launch of new low cost products in 1Q12, were major revenue drivers in our view in absence of mgmt commentary on the impact of the write back on revenue and EBITDA.


Margins lower on comp, cost push, entry pricing & losses
Despite the write back EBITDA margins contracted 130bp YoY (13%) on price competition in T&D, cost push in industry projects and entry pricing on SMART products. Segmentally, Industry (-600bp), Healthcare (loss) and Infra &cities (-100bp) were margin drags. Energy was positively impacted due to the write back.


We are 6% & 14% lower than consensus, expect downgrades
We maintain our FY12/13/14 earnings ests despite lower than anticipated results in 1H, as SIEM aggressively provides for contingencies (3-3.5% of rev) while executing large orders. We estimate KAHRAAMA & Gurgaon metro to be mostly complete in FY12, so expect further write backs. We do not change order inflow & revenue ests as we build in for contribution from VAI and also Rs10bn order from Qatar. However, our FY12/13 ests are 6% and 14% lower than Street. Consensus has lowered ests by 13/10% in past qtr; we expect further earnings downgrades.

RISH TRADER

>MAGMA FINCORP: Q4FY12 Result update

In line with estimates

Magma’s Q4FY12 numbers, in-line with our estimates, reflect continued pressure on profitability though disbursement growth remains healthy and asset quality has held up well. It should be noted that the recent change in accounting policies renders YoY comparison inconclusive and misleading. We retain Buy rating on attractive valuations and price target of Rs101.

■ Disbursements growth momentum slows but healthy: Disbursements in Q4FY12 grew by a healthy 28% YoY (though slower than 50% in Q3) with the Cars & Utility segment (48% YoY) and high yield assets (up 71% YoY) driving this growth. The mix of the high-yielding assets was stable QoQ at 25% in Q4FY12. The strong growth in Cars & Utility segment, despite moderation in overall auto sales volumes in recent months, stems from Magma’s 1) rural and semi-rural focus where demand remains healthy and 2) new branch additions.

■ Spread stable QoQ: Reported spreads for Q4FY12 at 4.3% are stable QoQ, despite 30bps contraction in asset IRRs, as cost of funds came down in sync. The contraction in asset IRRs can be traced to 1) higher strategic CE disbursals and 2) shift in loan mix. From a funding source perspective, the management is making a conscious effort to reduce reliance on the banking system, which remains the chief source of funds. For FY13, the spreads should improve as banks have begun cutting base rates and liquidity should be relatively better than FY2012.

■ Collection efficiency at ~101%: Collection efficiency remains strong at 101% for Q4FY12 giving us significant comfort considering the challenging in operating environment. Strong collection efficiency and healthy credit quality of the book helped contain the write offs (at 0.2% for FY12). Given the slowdown in economy and higher share of high yielding assets, we expect the write-off ratio to move up from the current level. In line, this should keep the credit costs stiff at ~85bps during FY13.

■ High earnings growth ahead: Based on management’s views, if we exclude the impact of change in accounting policies during FY12 the proforma PAT stands at Rs1550mn (vs Rs780mn reported), which implies a growth of 27% YoY. For FY13, we expect Magma to report an impressive growth at bottomline level led by the fact that YoY comparison will now be possible. 

■ Cheap valuations, Reiterate Buy: We continue to like the stock due to cheap valuations, large potential for growth, and a seasoned senior management team that has seen multiple cycles and has a clear focus on containing risks. Moreover, Magma would be a key beneficiary of reversal in interest rates due to its reliance on whole-sale funding and large part of loan carrying fixed interest rate. At its current multiple of 0.9x FY14 BVPS, Magma trades at a

significant discount to its peers and factors in potential risks amply. We reiterate Buy with a revised price target of Rs 101 (based on 1.3x FY14 BVPS).

RISH TRADER

>PANTALOONS RETAIL LIMITED: De-merger to ease debt but also take away higher margin business…

Pantaloon Retail (PRIL) has announced its intent to de-merge its Pantaloon Retail format (including Pantaloon Retail and Pantaloon Factory Outlet). Aditya Birla Nuvo (ABNL) will invest | 800 crore by subscribing to debentures issued by PRIL, which will be converted into equity shares in the de-merged entity (on completion of the de-merger process). The existing shareholders of PRIL, including its promoters will continue to own shares in the de-merged entity. Also, PRIL will transfer its apportioned debt of | 800 crore to the de-merged entity. ABNL will also make an open offer for a minimum of 26% of the stake of the resulting entity. Post listing of the resulting entity and conversion of the debentures, ABNL will hold a 50% stake in the new entity. The Biyanis and the public will hold 25% each. According to a press release by ABNL, the proposed transaction will take eight to 10 months to be completed. Hence, we have not factored the impact of the same in our financials until further clarity on the issue emerges.


■ Deal appears to be P&L neutral for PRIL and a win-win for ABNL
According to our quick calculations, we believe the amount saved on interest outgo (due to lower debt) will be forgone in the operating profit loss due to the high margin apparel business being parted with. ABNL, on the other hand, will be able to leverage PRIL’s strong retail presence and also diverse product mix.


Valuation
PRIL has taken a considerable beating on the Street considering the mounting debt and inventory levels. While this deal seems to be P&L neutral, we believe the inventory days (that the company has been trying to reduce) will come down as the apparel business is a low churn business as compared to the food segment. However, we have not made any changes to our estimates as the deal will be completed over the next two to three quarters. Our numbers will be positively impacted by (a) relaxation of FDI norms and (b) stake sale in non-core segments. We continue to value PRIL at 0.6x FY13E EV/sales (based on 20% discount to Shoppers Stop) to arrive at a target price of | 173. Considering the reduction in debt, we have upgraded the stock from SELL to HOLD.

RISH TRADER

>ORIENTAL BANK OF COMMERCE: Q4FY12RESULT UPDATE

Dismal show on all counts…


The results were disappointing on all fronts including business growth, NIM and asset quality. Tax write-back of | 45.3 crore on account of MAT benefit and high w/offs provided some support to profitability. Even then, PAT was below estimates at | 264.9 crore (I-direct estimate: | 309.6 crore) with 20.6% YoY de-growth. Credit and deposit growth was subdued at 16.8% YoY and 12.2% YoY to | 111978 crore and | 155965 crore, respectively. Other income grew 14.6% YoY to | 343.8 crore led by strong growth in CEB fees of 21.9% YoY to | 219.3 crore. The C/I ratio was on the higher side at 46.6% in Q4FY12 (35.8% in Q4FY11) due to higher operating expense & subdued income growth. We are introducing FY14E with PAT of | 1711 crore, a CAGR of 22.4% over FY12-14E.


■ Slippages uptrend continues keeping provisions at elevated levels…
Fresh slippages in Q4FY12 were high at | 1317.4 crore compared to | 698.8 crore in Q3FY12. This caused net provision towards NPA to rise from | 100 crore in Q3FY12 to | 500 crore in Q4FY12. Even after enormous write-offs worth | 541.2 crore, GNPA increased by | 348.2 crore sequentially to | 3580.5 crore. The GNPA and NNPA ratio stood at 3.2% and 2.2%, respectively. Restructuring of Air India (| 1616 crore) and Rajasthan SEB (| 1873 crore) during Q4FY12 took place, thereby increasing the outstanding restructured assets by | 3424.3 crore to | 9510 crore, constituting 8.5% of the credit book.


■ Lacklustre NII growth hits profitability...
NII de-grew 6.3% QoQ to | 1068.1 crore (5.4% YoY growth) as yield on fund dipped 6 bps QoQ to 9.5% while cost of funds inched up 13 bps to 7.1%. NIM witnessed a dip of 22 bps to 2.7%. Interest income reversal of | 140 crore on account of slippages also added to the decline in NII.


Valuation
High slippages and provisioning will keep profitability under pressure. A couple of stressed SEBs including UP and Punjab may undergo restructuring, thereby leading to lower profitability impacting return ratios. We estimate return ratios at RoA of 0.8% and RoE of 12.6% in FY14E. OBC has a high AFS portfolio of 28.6% with modified duration of 4.2 years leading to MTM loss on account of G-sec volatility. Our Gordon growth model leads us to a multiple of 0.7x FY14E ABV providing a TP of | 255. We recommend a HOLD rating on the stock with a negative bias.

RISH TRADER