>WYETH: Leading player in oral contraceptive segment (Q1FY13 RESULT UPDATE)

Margins affected by weak rupee


Wyeth’s results for Q1FY13 were below our expectations. The company reported 14%YoY growth in revenues, 840bps reduction in EBIDTA margin and 8%YoY decline in net profit. Wyeth’s EBIDTA margin got affected by the weakening of rupee which had a bearing on imported raw material cost. The company’s material cost increased by 650bps YoY. Wyeth launched Prevenar 13 for adult usage during the quarter and hence the launch expenses were included in the other expenses. Wyeth is a debt-free cash rich company with Rs160 cash per share. We have a Buy rating for the scrip with a target price of Rs1,355 (based on 15x FY14E EPS).

Sales growth in line with the industry: Wyeth reported 14%YoY growth in revenues from Rs1.48bn to Rs1.68bn in line with the industry growth of 15%. The pharma segment (93% of revenues) grew by 14%YoY from Rs1.38bn to Rs1.57bn. The OTC segment (7% of revenues) grew by 13%YoY from Rs100mn to Rs113mn. Wyeth markets Anne French hair remover and Anacin in the OTC segment.
 
Sharp drop in Margin: Wyeth’s EBIDTA margin declined sharply by 840bpsYoY from 37.7% to 29.3% due to the increase in the material cost and other expenses. Material cost increased by 650bps from 31.7% to 38.2% of revenues due to the increase in imported material cost with the depreciation of rupee against the dollar. Other expenses increased by 230bpsYoY from 24.1% to 26.4% due to the launch expenses of Prevenar 13 for adult usage.



Branded value offerings: Wyeth launched six products in Branded Value Offering (BVO) segment. These are: Menocare 100, Menocare 200, Doris, Tussivil, Folvite MB and Pausera. These products are likely to drive future growth of the company.


Leading player in oral contraceptive segment: Wyeth is the market leader in the oral contraceptive (OC) segment and has over 23% MS in the OC segment. Its flagship brand Ovral-L has reported ~32% growth.


Valuations: We expect Wyeth to benefit from good growth in the domestic market, recent launch of BVO products and Prevenar 13 for adult use. At the CMP of Rs926, the stock trades at 12.2x FY13E EPS of Rs76.0 and 10.3x FY14E EPS of Rs90.3. We have a Buy rating for the scrip with a target price of Rs1,355 (based on 15x FY14E base EPS of Rs90.3) with an upside of 46.3% over CMP.

RISH TRADER

>SYMPHONY

4QFY12 results exceed expectations; we maintain a Buy


Symphony’s standalone 4QFY12 net profit rose 28% yoy to `197m (our estimate: `144m) on revenue that climbed 51.9% to `871m (`573m in 4QFY11) due to a 78% rise in domestic sales. The average realization in air-coolers (export + domestic) swelled to `5,776 a unit, up 46% yoy. We expect demand for air-coolers to be high in FY13 and retain a Buy, with a target of `308.


 4QFY12 result highlights. Symphony 4QFY12 revenues, at `871m, were 52% higher yoy (9% above expectations). The EBIDTA margin was 28.4% 167bps higher yoy due to lower raw material costs and ‘other expenditure’. Standalone profit came at `197m, 68% higher yoy.


 Robust volume growth. Domestic sales volumes, at 0.11m units, were up 59% yoy while export volumes were down 37% to 34,023 units. Symphony could not fulfil export demand for certain product categories due to higher sales in the home market. Sales in Jul ’12 were more than in all of 1QFY12 on account of the extended summer, though such sales would be difficult to sustain. The average domestic realisation was `6,224/unit (13.8% up yoy) and export realisation was 39.6% higher at `4,284 per unit due to the change in product-mix. The company now has over 750 distributors and 14,000 dealers in 4,100 towns


 Consolidated performance. FY12 revenues were `3.1bn (8% higher yoy) while net profit was 6% higher at `536m. Working capital came down significantly by `438m in FY12 due to lower inventory of coolers (`115m in FY12 vs `417m in FY11). Cash and investments for FY12 were `406m and `620m respectively. Revenues and net profit from IMPCO were `633m and `28m respectively.


 Valuation. At our target of `308, the stock trades at 14x Dec ’13e earnings. Risks. Demand slowdown, delay in arrival of summer.

RISH TRADER

>ORIENT PAPER

Recommendation: Buy

Target Price: Rs81

CMP: Rs65

Upside: 24.7%

Margins disappoint; maintain Buy on attractive valuations

Orient Paper & Industries’ (OPIL) Q1FY13 result was below expectations primarily due to lower margin in the cement business (EBIT margin declined 11pp YoY and 7.2pp QoQ). Cement business margin was under pressure due to higher energy cost (due to lower availability of linkage coal and increase in royalty on coal) and higher other expense (Rs110mn was spent on replacement of cement roller mill). EBITDA margin during the quarter was at 13.3% vs. est. 18.7%. As per the management, availability of linkage coal had improved and it was not importing coal as of now. It also expects the margin of the electrical business to improve going ahead with higher volumes in the CFL and Kitchen appliances business. The company has received the High Court’s approval for de-merger of the cement business and the share allotment process is expected to be completed by the end of Sept ‘2012. We believe that de-listing will unlock shareholders’ value and the company will attract better valuation for the cement business. We have revised our earnings estimates upwards by 9.9%/13.2% for FY13E/FY14E considering higher cement prices in key markets of the company. We maintain Buy on the stock with revised price target of Rs81 (earlier: Rs76), upside of 24.7% from the CMP.

m  Margins disappoint led by lower margins in the cement and electrical business: Revenues of the company increased 23%YoY to Rs6,569mn driven by 9.5% YoY/11.6% YoY/60.8% YoY growth in cement/electrical/paper business. EBITDA declined 15.2% YoY to Rs877mn led by lower margins in the cement and electrical business. EBIT margin of the cement business was down 11pp YoY (and 7.2pp QoQ) to 23.4% primarily due to higher energy cost and other expenses. EBIT margin of the electrical segment declined 3.7pp YoY to 3.7% mainly due to higher competition in the CFL and Kitchen appliances segment. Profit declined 17.7% YoY (and 43.5% QoQ) to Rs489mn.

m  Paper division’s dismal show continues: Though revenues from the paper division grew 60.8% YoY to Rs816mn, it continued to report EBIT level loss due to higher pulp prices and rise in coal costs. EBIT loss from the paper division was Rs159mn in the quarter against a loss of Rs229mn in Q1FY12. The management expects the margin from this segment to improve with the commissioning of 55MW power plant in 2HFY13.

m  Earnings estimates revised upwards: We have revised EPS estimates upwards by 9.9% to Rs11.2 for FY13E and 13.2% to Rs13.1 for FY14E considering improvement in cement realizations in its key markets. 

m  De-merger to unlock shareholders’ value: The company has received the High Court’s approval for de-merger of the cement business into a different company, “Orient Cement Ltd”. As per the management, allotment of shares for the new company should be completed by the end of Sept ’12 and after that, listing of Orient Cement should be completed in next 3-4months. We believe that de-merger of the cement business will unlock shareholders’ value in future and both companies will be able to independently pursue their growth plans.

m  Valuations attractive, maintain Buy: The stock trades at 5x FY13E EPS, 3.4x EV/EBIDTA, and EV/tonne of US$51.5. We maintain Buy on the stock with revised price target of Rs81, upside of 24.7% from the CMP.


RISH TRADER

>VOLTAS

Voltas - Global air conditioning and engineering Services Company has reported 40% decline in the consolidated Net profit to Rs 79.12 crore over 20% growth in the total income from operations to Rs 1616.82 crore. While all the three segments of the company have reported growth in revenues, UCP business has reported highest growth in revenues but steepest decline in segment margins. UCP business constituted 47% of total revenues and 54% of segment profits for the quarter.

OPM worsened 240bps to 5.8% which led to 15% de-growth in operating profits to Rs 93.91 crore and after meager EO benefit of Rs 1.11 crore against Rs 81.47 crore, PBT after EO declined 42% to Rs 110.57 crore. Decline in effective tax rate by 193 bps to 28.6% prevented further fall in the Net Profit.

Order book of EMPS business increased 0.5% to Rs 4574 crore at end of June 12 against Rs 4553 crore in the corresponding previous period.

Quarterly Performance

For the quarter ended June 12, the company has reported 20% growth in the consolidated total income from operations to Rs 1616.82 crore, as all the three segments have reported rise in the revenues. Revenues from Major – Electro Mechanical Projects and Services (EMPS) business grew 10% to Rs 741.3 crore and that of Unitary cooling products (UCP) business grew 34% to Rs 754.39 crore and constituted 46% and 47% of the total revenues respectively. On other hand, least contributor to revenues – Engineering products and services (EPS) business rose 10% to Rs 106.55 crore and constituted 7% of the revenues.

At segment level, the segment margins of EMPS business at 4.5%, down 9bps while the UCP business has reported 293 bps dip at 8.4%. The EPS business has improved margins by 70 bps to 18.2%. On the expenses front, the raw materials consumed as % of sales net of stock adjustments inched up 1107 bps to 62.7%. On the flip side, purchase of traded goods and employee cost declined 977bps to 11.2%, 17bps to 10.4% respectively. OPM slipped 240bps to 5.8% and led Operating Profit at Rs 93.91 crore, down 15%. Other income inched up 107% to Rs 34.94 crore and led PBIDT marginally up 1% to Rs 128.85 crore.

Interest cost jumped up 43% to Rs 12.09 crore but depreciation slipped 29% to Rs 7.3 crore and led PBT before EO up 1% to Rs 109.46 crore. At the segment front, profit from EMPS business grew 7% to Rs 33.24 crore, EPS business grew 14% to Rs 19.38 crore but UCP business declined 1% to Rs 63.21 crore.

The company has accounted 99% dip in the EO income at Rs 1.11 crore during the quarter against Rs 81.47 crore (mainly on transfer of material handling division). Further, taxation slipped 46% to Rs 31.6 crore. After accounting Rs 0.15 crore of MI income against Rs 0.41 crore and nil share of associates against loss share of Rs 0.05 crore, Net Profit was lower by 40% to Rs 79.12 crore.

On the standalone front, the company has reported 49% dip in the Net Profit at Rs 64 crore and 21% increase in the net sales at Rs 1674.42 crore.

Yearly Performance

For the year ended March 12, the company has reported 55% dip in the Net Profit at Rs 162.06 crore over flat growth in the consolidated total income from operations at Rs 5185.74 crore. Operating margins declined sharply 240 bps to 6.5% owing to pressure from all the segment margins. High interest rates, inflation and price rise in the raw materials and components had an adverse impact on operating profit at Rs 336.47 crore. After EO and charge of onerous contract, PBT was down 58% to Rs 219.13 crore.

On the standalone front, the company has posted 57% decline in Net Profit at Rs 152 crore over marginal 1% increase in the Net sales at Rs 5161 crore


RISH TRADER