Thursday, January 26, 2012


Strong operating performance continues

Bajaj Auto’s (BAL) 3QFY12 results were better than our expectations with EBITDA margin at 21% (est. 20.7%). Revenues at Rs.50.6bn were higher by 2.3% compared to our estimate of Rs49.5bn, largely on account of better than expected export realizations (up 9.9% QoQ, driven by 3.5% price hike and rupee depreciation). Adjusted PAT stood at Rs.8.39bn higher by 6% compared to our estimate of Rs.7.93bn. We continue to remain positive on the stock and maintain Buy rating with a revised target price of Rs.1,759.

■ Better than expected operating performance driven by higher export realizations: Revenues at Rs.50.6bn stood higher than our estimate by 2.3% largely driven by higher export realizations (up 9.9% QoQ). Though the RMC per unit stood higher by 3% compared to our estimate, higher than expected revenues and marginally lower than expected other overheads helped margin expansion by 90bps QoQ and 60bps YoY at 21%.

 Conference call highlights: 1) Against management commentary from Hero MotoCorp (expecting 10-11% YoY growth for the industry in 4QFY12E), BAL was conservative expecting the growth to moderate to 5-6% in the period. However, the company expects long term CAGR volume growth of 10-12% to continue for the industry over the next 3-5years 2) Export volume growth to remain strong and FY13E should see the repeat of FY12E (YTDFY12 export growth was 30%+) 3) KTM bike will be launched on 24 Feb 2012 and two new
products will be launched between Discover and Pulsar from BAL’s stable.

■ Valuations and Recommendations: At the CMP of Rs.1,561, the stock is currently trading at 14.7x FY12 EPS of Rs.106 and 13.1x FY13E EPS of Rs.119. We continue to remain positive on the stock and maintain BUY rating on the stock with a revised target price of Rs.1,759.


>JINDAL STEEL & POWER: Pellet and Steel sales volumes disappoints despite strong growth in steel production

■ Consolidated adjusted PAT grew 4% YoY to INR10.2b, below our estimate of INR11b. Reported consolidated PAT was INR9.96b, which included an exceptional gain of INR259m and forex loss of INR500m. JSPL has not adopted the new guidelines for amortization of forex loss over a longer period.

■ Jindal Power's revenue and PAT for the quarter were higher than we had estimated - at INR8b and INR4.8b, respectively. Power generation was 2,255mkwh at PLF of 102%. Power rate is estimated at INR3.94/kwh.

■ Two captive units of 135MW have been commissioned at Dongamahua, Chhattisgarh in January 2012. Also, these units have received open access permissions to sell power at merchant rates. Merchant tariffs are likely to be >INR4/kwh, while the cost is ~INR2.2/kwh. The improved margins and higher volumes are likely to drive earnings.

■ Power rates on surplus power sales to Odisha state from the 270MW CPP have been revised upwards by INR0.3/kwh to INR3.05/kwh.

■ Steel production during the quarter was a record 757k tons although sales were down 1% QoQ to 591k tons. Steel inventories built as of December 2011 have since been liquidated at higher realizations. We expect steel sales volumes to be higher and margins to be superior in 4QFY12.

■ Earnings growth is likely to moderate post 4QFY12 due to delays in the Angul steel and coal mine projects. We are cutting our EPS estimate for FY13 by 9% to INR49.9. Earnings are likely to grow 12.6% in FY13. The stock trades at 10.4x FY13E EPS. Maintain Buy.

To read the full report: JINDAL STEEL & POWER

>EXIDE INDUSTRIES LIMITED: “Positive developments factored in”

Q3 FY12 - Sequential improvement
On the back of strength shown from 2 wheeler segment, Exide was in a position to put up a sequential improvement in numbers. Total income increased by 6% qoq, while 19% yoy. At the EBITDA levels, there was an increase of 84% qoq and a 3% yoy. RM to sales came down significantly to 67.4% v/s 72.3% qoq while it was still up from 62.7% yoy. The reason for sequential dip was the exhaustion of high cost lead which impacted Q2 margins. EBITDA margins came in at 13.2% v/s 7.6% qoq and 15.2% yoy.PAT almost doubled to Rs1.04 mn on strong operational performance. 

2W volumes strong, 4W subdued, industrial post a growth
The volume improvement in the quarter was on the back of strong 2W battery sales. The auto battery volumes grew 19% yoy and 3% qoq to 3.55mn while 4W volumes declined by 21% yoy, while grew by 6% qoq. On the industrial side, volume growth was 13% yoy and 3% qoq on harsh October summer and demand from telecom industry increasing. On the capacity side, the company is through with 4W capacity expansion at 12mn units, while is still in the process of increasing 2W capacity which is slated to move up to 21mn. The management is confident about 2W demand getting back on track quickly, while has pessimistic outlook on 4W demand. In Q3FY12, the company functioned at 82% utilization rate on the auto side while 81% on the industrial side, which was a sequential improvement of 72% and 62% respectively. The replacement: OEM ratio on the auto side was 1.24:1 which was an improvement qoq. Going forward, we believe that 2W demand on the OEM side will be slightly soft as the sector has seen some slowdown off late, while on the 4W side OEM demand, we believe softness will continue over a couple of quarters. On the replacement side, we believe that Q1 FY13 will see some turnaround emanating from the demand for automobiles 3 years ago, both on 2W as well as 4W.

Margin improvement may come in coming quarters
The improvement in margin performance was in line with our expectations as high cost lead was expected to get over this quarter. The composition of replacement in the total volumes also improved and is expected to improve even more from FY 13. This will assist margin performance.Softening of lead prices as seen in Q3 is expected to continue and help the margins going forward. We have already factored in about 400 bps improvement in margins in FY 13 to 15.7%.

Industrial segment to remain subdued
Going forward with improving power conditions,we see the demand for inverters going down from current levels in the long term. In Q3, inverter sales were up due to strong summer in October, while stronger winter in most parts of the country would be reducing the sales of inverters in Q4. We expect the contribution of inverter sales to reduce in the total topline from FY 13, though the company is planning to enter the inverter business. On the telecom side of the industrial batteries, winning of contract by rival Amara Raja for supplying batteries to Bharti’s Africa business may take some market share from Exide.

To read the full report: EXIDE INDUSTRIES


  • Sarda Energy and Mineral (SEML) posted standalone adjusted PAT of INR187m (up 35% QoQ) for 3QFY12.
    Higher coal production, stabilization of pellet plant, and higher merchant power volumes and rates boosted earnings
  • Net sales increased 13% QoQ to INR2.8b (v/s our estimate of INR2.5b), driven by higher pellet and power sales, and increase in sponge iron prices.
  • EBITDA increased 34% QoQ to INR481m, driven by increase in production of pellets and coal, higher power
    generation, and higher sponge iron prices. Pellets are currently enjoying superior margins due to shortage of DRI 
    grade iron ore and strong sponge iron prices.
  • Reported standalone PAT was INR278m. This includes INR137m MTM impact of forex loss reversal, as SEML has adopted new guidelines for amortization of forex loss over a longer period.

Valuation and view: After a couple of quarters of subdued performance, the pellet plant has stabilized. The coal washery, which was started in August 2011, is also ramping up well and mining production has increased. We are  increasing our earnings estimate for FY13 to factor in stabilization of the pellet plant and coal washery, and rampup of coal mining. The stock trades at an EV of 5.3x FY12E EBITDA. Maintain Neutral.

To read the full report: SARDA ENERGY