Monday, August 2, 2010


The standalone bank reported PAT far ahead of our estimates at Rs 186.9 crore (107% YoY) against our estimate of Rs 159 crore. Even the NII surged 24% YoY to Rs 508.2 crore. On a consolidated basis, PAT grew 27% YoY to Rs 327 crore but sequentially declined by 21.7%. The
performance of other capital market subsidiaries continued to suffer, losing market share sequentially. We expect the banking business to grow at 25% CAGR over FY10-12E delivering an RoE of 18-19%.

Loan growth boosts NII, raises FY11E targets…
Strong traction in advances, growing 35% YoY and 11.6% QoQ to Rs 23,185 crore was supported by incremental growth in mortgage and corporate loans. Growth in corporate loans continued to dominate with a 62% YoY jump, an increase of Rs 1848 crore. Of this, about Rs 400 crore went to the telecom sector, the one off spurt most banks are witnessing. On the other hand, deposits grew 38% YoY and 0.7% QoQ. NII grew 24% YoY with NIM at 5.7%, declining from 6.1%. The shifting credit mix from the personal loan book to low yielding corporate and mortgage had led to
a dip in margin. We expect NIMs to remain in the 5.5-5.6% range during the next couple of years.

Subsidiaries performance – a drag on overall profitability
The securities business continued to lose market share (3.7% in Q1FY11 vs. 4.5% in Q1FY10) from the unorganised sector. Average daily turnover stood at Rs 4000 crore vs. Rs 3,600 crore in Q4FY10. AUM of Kotak AMC declined from Rs 307 billion in Q1FY10 to Rs 285 billion Q1FY11 mainly on liquid funds withdrawal as equity AUM has marginally dipped from Rs 48 billion to Rs 45 billion. However, regulatory pressures led to significant slump in PAT at Rs 74 crore, down from Rs 139 crore over same period.

Strength in the banking business has resulted in 50% of the valuation of the stock price coming from the same (2.5x FY12E ABV). With the AMC and insurance businesses under regulatory scanner and the broking business losing market share, we have revised their multiples lower and
arrived at an SOTP target of Rs 831 with an ADD rating on the stock

To read the full report: KOTAK MAHINDRA

>IDEA CELLULAR: Better than expected show…

Idea Cellular reported better than expected results for Q1FY11E. Consolidated topline for the quarter stood at Rs 3653.7 crore against our expectation of Rs 3411.3 crore. The company reported an EBITDA of Rs 888.4 crore at 24.3%. PAT for the quarter was at Rs 201.4 crore, higher than our expectation of Rs 183.8 crore. This was primarily due to lower than expected interest expense due to capitalisation of interest of Rs 40.4 crore against payment of 3G auction fees. The financials are not strictly comparable to the previous quarter since this quarter includes the full impact of 100% Spice amalgamation.

Highlights of the quarter
The company added 5.1 million subscribers during the quarter. This quarter includes 100% financials of Spice Communications for the whole quarter. Hence, the numbers are not strictly comparable to the previous quarter. Nevertheless, normalising for the impact of Spice consolidation, the total volume on the network grew 13% QoQ to 82.2 billion signalling robust volume growth. ARPM declined to Rs 0.44 as compared to Rs 0.47 (as reported) in Q4FY10 while the topline increased by 11.8%. ARPU for the quarter at Rs 182 vs. Rs 185 in Q4FY10, declining 1.6%. Share of VAS was up from 12.4% in Q4FY10 to 12.6%.

The company’s operating performance has been better than expected. Also, the rate of decline in KPIs has declined, indicating a stabilising performance. With the 3G and BWA auction behind us, the overall industry trend seems positive. Assuming revenue CAGR of 10.0% over FY11E-FY20E and terminal growth of 3% thereon, we have arrived at a target price of Rs 58/ share for the core business. We have valued Indus contribution at Rs 14/share to arrive at a target price of Rs 72 per share. Our target price discounts FY11E and FY12E EPS of Rs 2.0 and Rs 3.5 by 35.4x and 20.3x, respectively. The stock is currently trading at Rs 69. Our target price implies upside potential of 4.1%. We rate the stock as ADD.

To read the full report: IDEA CELLULAR


NIIT Tech reported a good first quarter. The YoY topline Growth is 33% and QoQ growth is 21%. The spike is on account of BSF order being included. Excluding the order the growth is still at a YoY level of 21%.

The company has bagged a good chunk of domestic business. They are also participating in the R-APDRP program just like other IT players, as a System Integrator. Overall 9% of revenue contribution is through the Govt Segment. The longer term implication of this would be a slightly reduced margin since Govt contracts are price competitive. Also, there would be a general increase in the average number of receivable days.

The company is clocking really good capacity utilization of about 82% consistently. This might be because of strictly controlled hiring in order to maintain the margin.

Cash position of the company stands at Rs. 217.9 crores as of June 2010. The company does have an exposure to the European market, and has shown a decline of ~3% this quarter. How it impacts the longer term revenue from EU is to be seen.

There has been no change in the assumptions so far and the business is being valued at less than 2 times sales, which seems to be fair at CMP Rs. 193.0. The business isn't ridiculously priced to merit a sell call either. We recommend to keep holding on to it.

Although Mphasis still looks good at CMP Rs. 607.0

To read the full report: NIIT TECHNOLOGIES

>UNICHEM LAB: Result update Q1FY11

Unichem’s (ULL) Q1FY11 results were in line with our expectations. Sales grew 11% YoY to Rs 186 crore (we expected Rs 197 crore) due to ~11% YoY growth in the domestic business and ~12% YoY growth in exports. In the domestic business, the top 3 brands viz. Ampoxin, Losar
H and Losar continued to stage a robust performance. ULL reported 3% YoY net profit growth in Q1FY11 to Rs 33.4 crore (we expected Rs 33.5 crore) on a standalone basis. EBITDA margin decreased 119 bps YoY from 27.1% in Q1FY10 to 25.9% in Q1FY11 but QoQ it improved marginally by ~7 bps. Although export formulations de-grew ~2% YoY, overall exports grew ~12% YoY on account of ~46% YoY increase in exports API. Niche Generics (100% UK subsidiary) clocked sales of £2.24 million, contributing ~7% to the overall topline. We maintain our target price of Rs 486 on the stock with an ADD rating.

Highlights for the quarter
During the quarter, domestic formulations grew at a lower rate of ~11% YoY to Rs 147 crore. The Losar group (market leader) clocked sales in excess of Rs 30 crore with 32% market share. The nearest competitor has 12% market share. However, the Ampoxin brand witnessed subdued growth during the quarter. Higher API sales led exports revenues to improve by ~12% YoY. The debt-equity ratio increased from 0.03 in Q1FY10 to 0.04 in Q1FY11.

ULL is poised to grow at 17% CAGR (on a consolidated base) over FY10E- 12E to ~Rs 1044 crore. We believe ULL is at an inflection point and will likely witness robust growth numbers, going forward. The stock is currently trading at 9.1x FY12E EPS of ~Rs 50. We estimate the fair value of ULL at Rs 486 on an SoTP basis and assign an ADD rating on the stock, implying ~7% upside from current levels.

To read the full report: UNICHEM LAB

>ACC: reported net sales and net profit of Rs 2020.7 crore

ACC reported net sales and net profit of Rs 2020.7 crore (-2.9% YoY, 3.9% QoQ) and Rs 358.9 crore (-26.1% YoY, -11.4% QoQ), respectively, in Q2CY10. These were in line with our respective estimates of Rs 2006.3 crore and Rs 380.8 crore, respectively. The EBITDA margin has declined 789 bps YoY (223 bps QoQ) to 27.4% in the quarter. ACC is adding 3 million tonnes (MTPA) at Chanda, Maharashtra, which will take its installed capacity to 30 MTPA by Q3CY10E. Considering the expansion, we expect volume growth of ~6% CAGR (CY09-11E). Cement realisations are expected to be under pressure in CY10E on account of a decline in capacity utilisation led by oversupply scenario during CY09-10. However, we expect cement prices to increase in CY11E on account of increase in utilisation rates. Increase in fuel prices and freight rates would keep margins under check, going forward.

Sales volumes declines 5.6% QoQ, realisation improves 1.8% QoQ
ACC reported sales volume of 5.27 MTPA that declined 2.8% YoY and 5.6% QoQ. Volumes declined on account of unavailability of railway wagons, inadequate supply of critical raw materials like slag and fly ash and delays in stabilisation of the recently commissioned new cement units. Net realisation has increased by 1.8% QoQ to Rs 3834 per tonne while it has remained flat YoY.

EBITDA per tonne declined 22.5% YoY, 5.9% QoQ on cost increase
The company reported an EBITDA per tonne of Rs 1049, which declined by 22.5% YoY and 5.9% QoQ. This was on account of 12% YoY (5% QoQ) increase in total expenditure to Rs 2785 per tonne.

At the CMP of Rs 825, the stock is trading at 12.2x and 12.2x its CY10E and CY11E earnings, respectively. The stock is trading at an EV/EBITDA of 7.1x and 6.1x CY10E and CY11E EBITDA, respectively. On an EV/tonne basis, the stock is trading at $113 and $99 its CY10E and CY11E capacities, respectively. We have valued the stock at $110/tonne (8% discount to current replacement cost of $120/tonne) at its CY11E capacity of 30 MTPA and maintained our ADD rating with revised target price of Rs 9 03 per share.

To read the full report: ACC

>AUTOMOTIVE AXLE: Topline provides a pleasant surprise…

Automotive Axles (AAL) reported impressive Q3FY10 numbers by beating our estimates with the topline galloping 197.7% YoY and 15.4% QoQ to Rs 196.2 crore on the back of an increase in share of sales from OEMs and improvement in realisation on renegotiation of prices with OEMs. AAL had a lesser than anticipated sequential margin shrinkage of 80 bps due to better cost management initiatives and inventory control even though raw material costs rose by 70 bps during the same period. EBITDA grew 11.7% QoQ and 262.3% YoY to touch Rs 27.5 crore. Net
profit zoomed to Rs 14.5 crore with 439.4% YoY and 17.9% QoQ growth. The continuance of strong commercial vehicles (CV) demand due to the resounding domestic economic performance is expected to get reflected in the coming quarter as well.

Strong economic growth fuels demand
Continuing with the traction gained from Q4FY10, economic recovery has been robust leading to an increase in sales volumes in the medium and heavy CV (M&HCV) segment for industry leaders like Tata Motors and Ashok Leyland. AAL, as one of the major suppliers to these companies, has been a major beneficiary of the higher offtake in the CV space.

Export segment a cause for concern
The exports business of the company is channelled through its JV partner Arvin Meritor to various OEMs across the globe. However, the immediate concern is the slowdown in demand arising in the European and American continents due to the sluggish pace of economic recovery reflected in the 16.2% QoQ drop in sales from exports. The company is increasingly focusing on internal demand arising from OEMs.

The bright CV sales outlook is expected to further improve AAL’s volumes and subsequent market share. The stock is currently trading at Rs 491, 11.7x SY11E EPS of Rs 42.1. We have valued the business at 13x SY11E EPS of Rs 42.1 to arrive at a valuation of Rs 547, which implies an 11.4% upside potential. Hence, we have changed our rating on the stock to BUY.

To read the full report: AUTOMOTIVE AXLE