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What is Z score?
Z score is a financial model developed by Dr. Altman to represent the probability of a company entering bankruptcy within the next two years. It is the sum of five financial ratios each multiplied by a predetermined weight. The Z score formula is:
To read report in detail: Z SCORE ANALYSIS
In line performance, JLR reported 110 bps YoY expansion in EBIDTA margin
As per our expectation TML reported healthy operating performance in Q1FY13 led by stellar performance in JLR business (110 bps YoY expansion in EBIDTA margin to 14.5%). However its standalone business showed muted performance (170 bps YoY contraction in EBIDTA margin to 6.6%).
Reported EBIDTA at `57.5 bn close to our estimates of `55.7bn
We believe that healthy volume growth in JLR business (34.4% YoY), favourable currency movement (average GBP/Re at 85.8 in Q1FY13 against 72.9 in Q1FY12) and increase in volumes in China (China contributed 21.5% to the total volumes in Q1FY13 against 15.7% in Q1FY12), helped TML to report healthy performance in Q1FY13. Revenue increased by 30.1% YoY to `433.2 bn (against estimates of `430.3bn).EBIDTA increased by 35.9% YoY to `57.5 bn (against estimates of `55.75 bn). EBIDTA margin expanded by 60 bps YoY to 13.3% (against our expectation of 13%).APAT increased by 30.6% YoY to `26.8bn (against our estimates of `27.2bn). It is to be highlighted that JLR board has proposed a dividend of GBP 150 mn to Tata Motors (parent company), which will likely to be paid off in August 2012.
Not offering discounts in JLR but indicated a caution on EBIDTA margin front
The management has indicated that currently they are not offering any kind of discounts (according to media reports, its competitors are offering) to its customers (including China market). However the management has not ruled out the possibility of increase in marketing cost in coming future due to increase in competitive pressure. Further management has shared a cautious optimistic outlook on EBIDTA margin front. Hence in anticipation of pressure on margin, we have tweaked our JLR’s EBIDTA margin expectation to 14.5% for FY13E.
Maintain outperform rating with target price of `297
In Q1FY13 TML’s operating performance was in line with our expectation. Post Q1FY13 result, we maintain our FY13E volume estimates for JLR at 364k units and standalone business at 967k. However, we tweaked conso EBIDTA margin expectation to 12.6% (from 13%) for FY13E on lowering JLR’s EBIDTA margin expectation to 14.5% from 15.2% (in line with its current EBIDTA margin).With this we maintain our Outperform rating on the stock with target price of `297 (earlier `307). At our target price stock would trade at 5.0xFY13E conso EV/EBIDTA and 4.5xFY14E conso EV/EBIDTA.
RISH TRADER
ING Vysya Bank reported a PAT of `1273.9 mn up 40% yoy and 7% qoq. Bottom-line stood in line with our expectations. NII came off by 1.4% qoq due to a 20 bps sequential deterioration in the NIM which was largely seasonal in nature. Provisions increased sequentially despite asset quality improvement as the bank used one off tax deductions to shore up its coverage ratio.
NIM compresses by 20 bps sequentially
ING Vysya Bank reported a NIM of 3.3% for Q4FY12, which was a sequential NIM compression of 20 bps. The NIM deterioration was largely seasonal in nature on account of priority sector lending and subscription to RIDF bonds which led to a 9 bps qoq decline in the yield on advances. In FY13, the NIM is likely to be in line with that of the previous year.
Strong loan book growth led by PSL lending
Advances grew by 22% yoy and 9.3% qoq. Sequential loan book growth was led by the agricultural and rural banking business which grew by 18% yoy on account of priority sector lending. On a yoy basis loan book growth was led by the business banking division. Going ahead the loan book will continue to grow ahead of the industry.
Non-interest grows on the back of growth in forex and core fee income growth
Non-interest income increased by 15.4% yoy and 15.8% qoq. The increase in other income was on account of a strong growth in forex and core fee income.
Asset quality improves sequentially
The asset quality of the bank improved sequentially with %GNPAs coming off by 8 bps qoq though up 4.6% qoq on an absolute basis. Slippages came of sequentially and stood at `600 mn or a slippage rate of 0.9%. The bank used the onetime tax benefits that accrued to it during the quarter to shore up its provision coverage ratio. Hence provisions increased by 69% qoq which led to a 569 bps improvement in the PCR to 90.7%. Due to higher provisions, NNPAs came off by 35% qoq and %NNPAs came off by 12 bps sequentially to 0.2%. The bank has managed to maintain its asset quality despite strong growth in its SME portfolio.
Restructured book at 1.4% of advances
The banks restructured book stood at 1.4% of advances which stood largely in line with that of the previous quarter.
Valuation and view
At the CMP of `355 the bank trades at 1.3x its FY13E ABV and 1.1x its FY14E ABV. At these valuations the bank trades below its long term one year forward P/ABV multiple. The bank is a strong re-rating candidate given its sound asset quality and improving cost to income ratios which will lead to an improvement in return ratios going ahead.
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
TCS results offered respite to the IT sector with topline marginally above street estimates and EBIDTA margins inline with street expectations. TCS offered positive commentary on the business environment citing uptick in discretionary spending at clients as well as new deal signings which has enabled strong order pipeline for the company. This was in sharp contrast to its earlier commentary during Q3FY12 in which it hinted of slower discretionary project starts and slower decision making cycles. Despite tapering Utilization rates and moderate hiring guidance for FY13E , TCS guided for wage hikes across the board and hinted at 8% wage hikes in India which could put nearest peer Infosys in a fix ( Infosys has not provided any wage
hikes to its employees post Q4FY12 fiasco) . BFSI vertical revenues were also flat on a sequential basis and TCS hinted at growth outlook in the BFSI vertical over the coming period driven by new deal wins. Barring rupee depreciation drive EPS upgrades we see few positive triggers for the stock in the near term and growth outlook is fairly priced in the valuations. We value TCS at a P/E of 16x on FY14E EPS of Rs70.4/share which yields target price of `1126/Share.
■ Reiterate Underperformer.
Revenues above expectations, EBIDTA Margins inline with street estimates TCS reported Q4FY12 revenues of USD2648mn up 2.4% on a QoQ basis ahead of our estimates (our estimate was USD2630mn). Volumes growth at 3.3% on a QoQ basis was ahead of peers Infosys which has reported a sequential drop in volumes. Revenues in INR terms came at `132.5bn up 0.4% QoQ and 30.5% on a YoY basis. Volume growth of 3.26%, Constant currency pricing was down 0.97%, currency impact was negative by 1.87% bps leading to rupee term revenue growth of 0.4% on a QoQ basis. EBIDTA margin came at 29.6% down
140bps QoQ predominantly driven by rupee appreciation and strong hiring by the company. PAT at `28.9 bn was marginally above our estimate due to beat in revenues and lower tax rates.
■ BFSI flat on a sequential basis, North America grows sequentially
North America, UK and APAC showed strength on sequential basis while Continental Europe declined QoQ. Retail, Manufacturing, Hitech verticals were growth drivers for the quarter while BFSI was flat on a sequential basis. BPO, ADM and asset managed services outperformed on the service line front while discretionary service lines like Business intelligence and Enterprise solution declined QoQ.
■ Guides for Gross additions of 50000 employees for FY13E
TCS guided for gross hiring of 50000 employees for FY13E (Of which 43000 are campus offers) and hinted at staggered intake during the year based on demand offtake. Utilization rates (excluding trainees) came at 80.6% down 140 bps on a sequential basis due to slower volume growth. Revenues from Top 10 clients grew by 0.2% QoQ while client mining improved across bands which hints at strong cross capabilities.
RISH TRADER
■ Q3FY12 & FY11 Results
During FY11, sales advanced by 45.4% to `245.3 crore but net profit fell by 34.5% to `6.9 crore due to 235% higher provision for depreciation. OP and NP margin stood at 6.9% and 2.8% against 7.0% and 6.3% respectively in the corresponding period last year.
EPS for FY11 stood at `8.0.The DER as at FY11 stood at 0.08:1 whereas the value of the gross block at `112.0 crore.
During Q3FY12, sales rose 13.2% to `64.7 crore and net profit by 621.8% to `6.5 crore. (YoY). OPM and NPM stood at 16.3% and 10.0% compared to 5.8% and 1.5% respectively in Q3FY11. EPS for Q3FY12 stands at `7.6.
■ Clients
TCL’s clients include Alfa Laval India, Bajaj Auto, Alstom, BHEL, Bharat Forge, Cummins India, Engineers India, Infoysys Technologies, Idea Cellular, IVRCL, Jyoti Structures, L &T, Mecon, NCCL, Shapporji & Pallonji, Tata Motors, Thermax, Siemens, Suzlon Energy and Uhde India. It also supplies its products to almost all SEBs.
■ Expansion & Modernisation
In order to capitalize on the growing HT/EHV cable demand, TCL had embarked on a `64 crore expansion program in the HT cable segment with product capability ranging upto 132 KV cables. The new line was partially commissioned in FY09-10.
Currently, TCL has arranged for Suppliers’ Line of Credit to the extent of `20 crore for the imported equipment in respect of expansion undertaken at Nadiad plant.
Along with expansion, TCL continues to replace major plant & machinery with the latest equipment.
■ Prospects
HT power cable segment has witnessed a lot of capacity addition, due to a major emphasis on the electrification programs and 'Power on demand by 2012' program. Based on the predicted growth of HT power cables, capacity additions are being planned.
As the Indian economy prepares for sustained growth of 7 – 9%, the importance of power sector should continue to increase. The power sector demand is expected to grow at 7.5% - 8% CAGR till 2017. The Government’s focus on attaining “power for all” has accelerated capacity addition in the country. For the next few years there is the possibility for huge investment in the power sector. The above suggests that power related business will have good prospects.
The power cable industry is expected to grow steadily over the coming years. Several market segments are expected to generate this demand. Industries will play a vital role in the surge in demand for cables. Since industries have planned substantial investments, either to add capacities or to setup green-field projects, their power requirement is expected to increase. A significant rise in the number of captive power plants and substations will also add to the demand.
Investment in infrastructure is positive and is expected in various segments ranging from manufacturing to service industry. The service industry is one of the fastest growing sectors in India. Demand for cables will be originating from the development of new industrial parks and office complexes. Power sector is expected to become the second largest consumer of power cables.
■ Outlook
The new HT XLPE line was fully operational during FY11. The major refurbishing and renovating the old HT XLPE line in FY11-12 should help to maintain the production level. TCL planned investments in the range of `5 to 8 crore to overcome the imbalances and thereby increase the output of the new HT XLPE line by nearly 15%.
This was expected to be operational in Q4FY12. TCL will continue to focus on operational efficiency in all facets of manufacturing.
To read full report: TORRENT CABLES
RISH TRADER
Q3FY12 & FY11 Results
During FY11, sales advanced by 2.8% to `726.2 crore but net profit fell by 43.6% to `50.6 crore. OP and NP margin stood at 13.4% and 7.0% against 22.3% and 12.7% respectively in the corresponding period last year. HIL was forced to briefly shut down its Dharuhera plant because of certain labour and regulatory issues, which resulted in decline in revenue from this segment. FY10 was an exceptional year in view of the decreased cost of production.
EPS for FY11 stood at `67.4.The DER as at FY11 stood at 0.29:1 whereas the value of the gross block at `444.5 crore.
During Q3FY12, sales rose 14.8% to `194.3 crore and net profit by 59.5% to `10.2 crore. (YoY). OPM and NPM stood at 10.5% and 5.2% compared to 8.5% and 3.8% respectively in Q3FY11. EPS for Q3FY12 stands at `13.6.
Expansion
HIL continues to expand its production capacity from time to time. HIL setup a new 90,000 tpa cement sheet plant at Balasore, Orissa, which started commercial production in Q3FY09. It also augmented its cement sheet capacity at Vijayawada plant by 90,000 tpa (commercial production started in Q2FY10) taking total capacity to 8.5 lakh tonnes a year.
In FY09, HIL had increased its thermal insulation capacity from 3,000 tpa to 6,000 tpa. HIL is further expanded its cement sheet capacity by setting up a 90,000 tpa plant at Jharkhand at cost of `40 crore; and increased capacity at existing UP plant by 90, 000 tpa at cost of `30 crore. A new unit at Golan, near Surat, Gujarat for manufacture of AAC blocks started commercial production during July 2010.
The total capacity of the cement sheet is at present 8, 54, 500 tpa. Prefab building panels at 4, 60, 000 tpa and prefabricated autoclaved capacity is increased to 3, 05, 000 from 1, 00, 000 tpa in 2010.
Aerocon Panels
Aerocon Panels, used for construction of prefab structures and partition walls, has been extensively used in the infrastructure sectors like roadways, irrigation, power plants, airports etc and also in the construction of malls, schools, colleges etc.
Aerocon Panels business is expected to grow in excess of 25% a year for next few years. Aerocon AAC – Blocks, another key offering of HIL as part of its Green Building Products initiative also registering a good growth. This was possible due to the newly commissioned plant at Golan. After the stabilization period of six months of operation, the Golan plant is operating at above 60% of its capacity.
This has helped HIL to capture significant portion of the markets in west and south in a short time amidst intense competition, which is a reflection of the HIL’s aggressive and successful strategies in developing this business. The division will continue to grow in volumes in the coming years, although there will be pressure on prices as competition is likely to intensify further with new entrants in the market. However, the high acceptance of its Aerocon brand and focus on quality and reliability will help HIL to grow this business.
Thermal Insulation Products
This group of Calcium Silicate based insulating materials supplies to industries such as cement, power, petrochemical and fertilizer plants. Due to their superior properties and high quality, HIL’s products have gained good acceptance over its substitutes. Efforts are being made for developing new applications to expand the market size.
The thermal insulation products, which face capacity constraints, also suffer owing to surge in imports from China. The augmented capacity, improvements in efficiency and costs will help in recovery of this product
segment in 2011-12 and going forward on account of fresh investments in green field projects and replacement and modernization of plants in the Cement, Fertilizer, Petrochemicals and other industries.
To read full report: HIL
RISH TRADER
Q3FY12 & 9MFY12 Results:
During Q3FY12, net profit surged by 42.3% to `22.2 crore (`15.6 crore) on 50.0% higher sales of `345.0 crore (`230.0 crore). OP and NP margin stood at 18.0% and 6.4% as against 18.2% and 6.8% respectively in Q3FY11. (YoY)
During 9MFY12, net profit advanced by 24.7% to `60.0 crore on 43.2% higher sales of `953.2 crore. OP and NP margin stood at 17.9% and 6.3% Vs 17.5% and 7.2% respectively in 9MFY11. 9MFY12 EPS works out to `46.5 Vs `37.3 in 9MFY11.
Tie-up with Hindalco
PAL has an exclusive tie-up with Hindalco, the only container grade raw material manufacturer in the country, for supply of Raw material. In this context, the Company also benefits from the almost ‘zero’ inward freight cost due to being in close proximity to Hindalco.
Clients
Major Airlines viz. Indian Airlines , Air India, Jet Airways etc. All the sectors of Indian Railway Catering and Tourism Corporation [IRCTC], entire Indian Railways viz. Western, Southern, South Central, Northern, Eastern and South Eastern and Railway Contractors; Flight Kitchens such as Sky Gourmet, Taj Air Caterers – Mumbai, Chennai, Delhi, Ambassador Flight Kitchen, Oberoi Flight Service etc. Bakers and confectioners such as Monginis,
Ambassador’s Croissants, Taj Birdys etc. Retailers such as Pantaloon Retail (Food Bazaar) and Reliance Retail (Reliance Fresh), P.S.U.s such as N.T.P.C., Rihand Nagar, Terminal Ballistic Research Laboratory, Chandigarh (Ministry of Defence), Many leading Hotels, Restaurants of Mumbai, Delhi, Kolkatta, Chennai, Hyderabad, Bangalore, Baroda, Pune etc.
Global clients include B.E. International, U.K. (Danone Group company), SOP International, U.K. (Major in Food packaging industry), Majors in Food and catering supplies in U.K. such as J.K. Foods Ltd Spiral Packaging, General catering supplies, Indus Foods Limited, Gafbros Limited, Wallace Packaging, Topmark Cash and Carry, Ethnic Foods, Seewoo, Kavis Ltd., Perk-up amongst others;
Alupack Gmbh and Devpack from Germany, USA, Kari-Out, Abaline, Universal, Pioneer etc. Major airlines such as Emirates Airlines, Singapore Airlines, Thai Airways, Gulf Air, Etihad Airways, Air Asthana, Srilankan Airlines, and International flight kitchens like Emirates Flight Catering Co., CIAS Flight Kitchen, and World Aviation Services.
Financial
Tiny equity capital of `12.9 crore is supported by huge book value of the share of `286. PAL’s gross block increased 160% to `572.7 crore from `220 crore in FY10 owing to its expanded capacity becoming operational. Debt equity ratio as at FY12 works out to 1.5:1.
The above both expansion was financed through internal accruals, debt and issue of preferential warrants converted at a various price of `260, `225, `115 and `105 from time to time. With its two manufacturing facilities situated strategically in the tax haven of the Union Territory of Dadra and Nagar Haveli, India, the tax outgo is rather minimal.
Prospects
Packaging accounts for around 11% of aluminium usage in India as compared to a global share of around 20%. Given the rising middle-class and with an increasing disposable income, health awareness and the preference for eco-friendly packaging and serving solutions, the demand for AFCs is set to increase at a rapid pace. As the Indian economy matures, this share is expected to move towards the global level of 20%.
The industry in which PAL operates is at a very nascent stage in India as the usage is largely restricted to airlines and railways. However with increased awareness for health and hygiene the demand for AFCs and AFRs is expected to pick up over the next couple of years in a big way.
Moreover, AFCs and AFRs are slowly and steadily replacing other packaging substitutes like plastic, porcelain and glass containers as AFC’s offer various advantages; Aluminum Foil has amazing properties. It is light weight, aesthetic, attractive, resistant to odour, water, air, light, gas, oil and grease and possesses high thermal and electrical conductivity features. All this adds up to a highly versatile product that can be used in myriad applications from the traditional food industry to the hi-tech electronics and telecommunications industry.
DEMAND DRIVERS
Railways: Indian Railways is the world’s fourth-largest railway network, transporting more than 18 million passengers daily. It runs more than 17,000 trains a day. Even a marginal change in aluminium packaging consumption by the Indian Railways can potentially increase demand for such products in a significant way. The Railways announced the addition of 56 trains in Budget 2011-12, and the construction of four lines. This is expected to translate into increased demand for aluminium packaging products.
Food processing industry: The Indian food processing sector is the fifth largest in the country in terms of production, consumption and export. The US$100 billion Indian food processing market is estimated to grow 13 percent annually.
Food retail industry: India’s food retail turnover is expected to grow from `3, 39,365 crore in
2009-10 to `7, 27,212 crore by 2025, enhancing the demand for aluminium packaging solutions. This is expected to translate into an increased consumption of aluminium foil containers, lids and foil rolls. Besides, the Indian fast food industry is expected to grow at a CAGR of 30-35% during 2010-2013, which is expected to increase downstream foil packaging applications.
Growing urban population: India's urban population is growing and the proportion of urban Indians is expected to rise from around 30% to 40% in a decade. This is likely to translate into an increased consumption of aluminium foil containers, lids and rolls.
Airports: The size of, India’s aviation market trebled in five years, according to the latest report by the International Air Transport Association (IATA). India is currently the world’s ninth-largest aviation market; domestic passenger traffic is estimated to reach 150–180 million by 2020. The Indian commercial aerospace market is estimated to absorb about 1,100 commercial jets worth US$130 billion over the next 20 years, widening the market for aluminium packaging products.
Growing working population: In 2010, half of India’s population was younger than 25 years old and 781 million individuals comprised the working-age population of 15-64. These numbers are expected to increase sharply over the next two decades. By 2020, the country’s working-age population is expected to reach 916 million and by 2030, India’s working-age population should reach an impressive 1.02 billion.
Valuation & Recommendation
PAL enjoys healthy position in the international market. Quality of the products is best and comparable to any other products of World Class suppliers. The expansion shall enable to capture the export market and the ever expanding retail market. Considering all these factors PAL is very much optimistic about times to come. The installed capacities have increased three times from the existing capacities with a wide range of product mix, which shall result in higher turnover & profitability going forward.
India is the world’s eleventh largest packaging consumer, with a market size of US$550-billion that is expected to grow 18-20% (presently 15%). Evidently, it is projected that increased incomes will translate into higher industry growth.
The large manufacturing base, long term supply contracts with leading clients, almost zero inward freight cost, zero excise, octroi and sales tax benefits, strong brand, huge replacement market, the potentially large addressable market coupled with major expansion give strong revenue & profitability visibility for PAL going forward.
At the CMP of `314, the share of PAL is trading at a P/E of 5.1 on FY12E. We recommend
BUY with a target price of `390 at which the share will trade at a P/E of 6.5.
RISH TRADER
■ Plenty of one-off items distorts reported numbers
TTML posted a normalized topline of INR5.6bn (a sequential decline of 8%), normalized EBITDA of INR1.2bn and a loss of INR0.59 per share on normalized basis against our expectation of a loss of INR0.62. This is the first time that TTML has posted standalone only results and as such a number of one-off items makes comparison to previous quarters untenable. The company reported an EPS of INR2.94 where the bottomline got a boost from the one-time gain from the disposal of tower business, amounting to INR8.3bn (positive impact of INR4.4 per share). In addition to this, EPS was distorted by a one-time provision of INR1.7bn (1.5x normalized EBITDA of the current quarter) set aside for contingencies towards outstanding loans/litigations against the company relating to DoT and other regulators.
■ EBITDA, ARPM decline, no Income Tax provision for FY11
EBITDA margins shrunk to 20.5% from 23% in the previous quarter, reflecting the sustainability (of EBITDA margins) of the core business. The company estimates that there will be no taxable profit for the year hence no provision has been made for the same. Until the last quarter, TTML had included USO subsidies in calculating ARPM. These expired last quarter hence the ARPM shows a sequential decline of 14% to INR0.43. The management highlighted in its earnings conference that
the tariff war is subsiding and it expects the ARPM to flatten out.
■ Maintain Sell
Excluding the one-time gain from hiving off the tower business, results were disappointing across the board. At CMP, the stock is trading at 15x FY12E EV/EBITDA and 8x FY12E Net debt/EBITDA (with an indicative sustainable margin of ~20%). These ratios are quite stretched in comparison to other telecom operators with higher EBITDA margins hence we maintain our SELL recommendation and target price of INR20.
To read the full report: TTML
■ Sales Up 74%, PAT up by 81% YoY
SIIL has reported excellent results. Net Sales at Rs. 1841 mn compared to 1059 mn in Q1FY10, Up 74% YoY, while PAT stood at Rs. 156 mn compared to Rs 86 mn in Q1FY10, Up 81% YoY. On QoQ basis, Sales was up by 7%, while PAT was up by 42%. Results are above our estimates.
■ Strong Order book at ` 20 bn translates into 3.7x of FY10 revenues
SIIL has diversified order book of ` 20 bn (including L1 of ` 3.3 bn) currently, while the average execution cycle is 24-30 moths. The current order book is 3.7x of FY10 revenues and provide revenue visibility for FY11E and FY12E. Order book is diversified across Buildings, Roads, Power transmission, Bridges and other segments.
■ Backward integration leads to higher margins, 19.7% in Q1FY11
SIIL reported EBIDTA margin of 19.7% in Q1FY11. The higher margin than industry is due to captive raw material with own quarries, crusher plants, Asphalt plants, RMC plants, Wet mix plants, tight cost controls and management efficiency. Higher margin in this quarter is also attributable to some of the road works which are about to be completed, where billing momentum has been good. We have been conservative in margin estimates for FY11E and FY12E to account for lower margins from increasing geographical spread and entry into new segments such as power transmission.
■ Foray into BOT projects, toll collections to start in FY13
SIIL has now focused on acquiring BOT portfolio as well and has 49% stake (74% after 3 years of project completion) in Manor Wada Bhiwandi Road project (4 laning of 64 KM) on SH-34 and SH-35 with a total project cost of Rs.4.3 bn. This project has a concession period of 22 years 10 months and is expected to be operational by Jun’12. On commissioning, the toll collection of ~`1.4 mn/day is expected. SIIL has also taken 10% stake in Kasheli road & bridge project where toll collection is expected at `1.1 mn/day on commissioning in FY13.
■ Valuations & Recommendation
At cmp of ` 292, SIIL is trading at P/E multiple of 8.9x of its FY11E and 6.4x on FY12E fully diluted EPS (at 16.74 mn shares) of ` 32.8 and ` 45.9 respectively. We maintain ‘Buy’ rating and Price target of ` 411 based on P/E multiple of 8x for construction business while BOT portfolio is valued at ` 44 per share based on NPV of FCFE method.
To read the full report: SIIL
Company Description: SGJHL was incorporated in August 2002 in Kolkata with the name Shree Ganesh Jewellery House Pvt Ltd. In the year 2004, it set up its first unit at Manikanchan SEZ with a capacity of 500 kg of gold jewellery per year. SGJHL is the largest manufacturer and exporter of hallmarked and handcrafted gold jewellery in India. Their products are primarily exported to countries such as the UAE, Singapore and Hong Kong.
Its four manufacturing units are located at Manikanchan SEZ in West Bengal, which is presently the only jewellery SEZ in West Bengal. It also manufactures products on behalf of various third parties at its plants at Manikanchan SEZ. The company has 14 subsidiary companies, all of which are into manufacturing and exports of gold products including one overseas subsidiary, Shree Ganesh Jewellery House at Singapore. Apart from Gokul Jewellery House, the company is set to amalgamate its 11 other subsidiaries with one of its subsidiary, Easy Fit Jewellery.
Investment Rationale:
SGJHL tapped the capital market in March 2010 with an IPO of Rs 315 crore priced at Rs 260 per share for expansion. About Rs 145 crore of the IPO will fund the ramping up of manufacturing capacity by setting up plants in three locations. All the projects are expected to be completed by November 2010. The strength showcased by revenues for FY09, which were up 77 per cent over FY08, a difficult period for gems and jewellery players is a confidence building factor. Customers include Wondercut Pte, Denzong Hong Kong, Ibrahim Al Sayegh Jewellery.
The product range include handcrafted and hallmarked gold jewellery, gold enameled jewellery and gold jewellery studded with precious stones such as diamonds, rubies, emeralds, sapphires, pearls, etc and semi-precious stones such as garnet, cubic zirconium, etc. The portfolio includes rings, earrings, pendants, bracelets, necklaces, bangles and medallions. The company markets its jewellery products under brand name ‘Gaja’, ‘Sitaare’, ‘GM’, ‘Marigiold’, ‘G elements’, ‘Gold
Bridals’, ‘Dianique’, ‘You’ and ‘Distar’.
The total capacity of the company as of year ended March 2010 was 30,500 kg of gold products, which is being enhanced to 43,000 kg of gold products per annum by FY 2012. Apart from setting up the manufacturing units, the company plans to expand its reach by opening 49 retail outlets in different formats by FY2013. The breakup of the different format outlets are: 14 owned outlets, 3 outlets on rent, 11 franchise model outlets and 11 shop-in-shop outlets. It has entered into an agreement with Vishal Retail for shop-in-shop arrangements in existing outlets. The Capex for expanding the retail outlets is estimated at Rs 68 crore.
Strategic location of the company in West Bengal makes it easy for availability of karigars (skilled workmen) for handcrafted jewellery at low costs. The market share of the company in the domestic gold jewellery exports has jumped from 1.8% in FY 2007 to 6.1% in FY2009. The company follows a strategy of expanding its presence into various geographies and product portfolios and is foraying into manufacture of machine made jewellery so as to consolidate its presence in the world market.
The company has more than three decades of business relationship with the Middle East customers and its major revenues generate from the jewellery wholesalers of Middle East countries. Risks in this space stem from its small store count and stiff competition from brands such as Tanishq and those of Gitanjali Gems which have a wider reach.
During FY10, Indian gems and jewellery exports advanced by 16% to $28.4 billion from $24.4 billion in FY09. Recognised as the diamond polishing capital of the world, the India is gaining prominence as an international sourcing destination for high quality designer jewellery with global retail majors such as Wal-Mart and JC Penney procuring jewellery from India. The domestic jewellery market pegged at US$ 16 billion, which includes gold, diamond, platinum and others is expected to grow to US$ 25.2 billion in two-to-three years.
SGJHL is likely to post an EPS of Rs 32 in FY11 and Rs 36 in FY12. At the CMP of Rs 113, the share is trading at a P/E of 3.5x on FY11E and 3.2x on FY12E. We recommend BUY with a target of Rs 150 in the medium term.
To read the full report: SHREE GANESH JEWELLERY HOUSE
Company Description: Promoted by Atlas Wires in 1988, Precision Wires India set up a plant to manufacture enamelled copper winding wires, which was funded by way of a public issue in March '92. AWL’s first manufacturing facility was set up in 1981 in the state of Gujarat. In 2001, AWL was amalgamated with PWIL. PWIL is a market leader for producing enameled copper winding wires which are used for electric motors, switch gears and transformers. PWIL has three manufacturing facilities located at Silvassa, Dadra Nagar Haveli and Palej, Gujarat with a total capacity of 32, 820 tpa. It also manufactures CTC (continuously transposed conductors) and PICC (Peripherally Inserted Central Catheter).
Highlights: PWIL suffered sharp set-back in profitability because during the period July -Dec 08, there was unprecedented fall in copper prices. Due to such meltdown, its customers unilaterally refused to take delivery of finished products against confirmed orders. However, PWIL had to take delivery of high priced copper against its commitments. Due to these reasons, the results for FY09 were adversely affected. The company is now back on the fast track.
PWIL caters to a wide spectrum of industries like power, electronics, industrial equipment, consumer durables, agri-equipments and special purpose machines. Its wires are widely used in equipment such as: rotating machines, alternators, hermetic motors (for refrigeration and air conditioning equipment), power and distribution transformers, control and power supply transformers, ballasts, auto electrical, electric hand tools, house hold appliances, fans, switchgear, relay and magnet coils, Instruments and audio coils etc.
PWIL has a long term technology tie up with Essex, Italy for the manufacture of CTC, enamelled copper strips and various other types of rectangular insulated winding wires. PWIL’s customers include large and medium electrical and electronic equipment manufacturers both in India and abroad. India has the fifth largest generation capacity in the world with an installed capacity of 152 GW as on 30 September 2009, which is about 4 percent of global power generation. The average per capita consumption of electricity in India was estimated at 704 kWh during FY09. However, this is fairly low compared to some of the developed and emerging nations such US (~15,000 kWh) and China (~1,800 kWh). The world average stands at ~2,300 kWh. Aided by ambitious plan to add 78.7 GW of additional generation capacity in the 11th plan by the year 2012, according to CRISIL Research estimates, about Rs 7, 50,000 crore is likely to be invested in the power sector by 2013-14. Of this, INR 4, 80,000 crore is expected to be invested in the power generation space. As the electrical equipment segment is the largest user of PWIL products, the huge investments in the power sector spell bright prospects for PWIL.
At the CMP of Rs 76, the share is trading at a P/E of 4.1X on FY10E and 3.5 on FY11E. We recommend BUY with a target of Rs 100 in the medium term.
To read the full report: PRECISION WIRES
Company Description: Incorporated in 1989 as Mayur Gem and Jewellery Export Private Limited, RJL was engaged in the business and manufacture of jewellery. In 1997, the Company's name was changed from Mayur Gem & Jewellery Export Private Limited to Renaissance Gem & Jewellery Export Private Limited. In 1998, Sur Style Jewellery Private Limited ('Sur Style') engaged in manufacture and export of studded jewellery was merged with company. In 2005, the Company was converted to a public limited company and the name was changed to Renaissance Jewellery. It tapped the capital market with an issue of 53.24 lakh shares at a price of Rs 150 per share aggregating 79.86 crore. From the IPO proceeds, RJL incurred Rs 35 crore on the US subsidiary, Rs 10.5 crore on increasing manufacturing capacity at Bhavnagar, Rs 4-5 crore for modernisation of its Mumbai facility and rest for the working capital.
Investment Rationale:
RJL has eight retail outlets (five in Mumbai, one in Pune, one in Lucknow and one in Gurgaon) and 16 shops. The retail products are sold under the brand name, Lucera. RJL is in the process of increasing outlets. RJL has two subsidiaries, Renaissance Jewelery New York Inc., which caters to independent mid-range retailers and Verigold Jewellery (UK) serves as a marketing and trading hub in UK and rest of Europe. Its supplies to major retailers like Wal-Mart, NBC, JC Penny & Zales.
Renaissance has a modern design studio complete with a state-of-the-art CAD/CAM facility. Its dedicated team of 40 designers is, well versed on the latest international trends and contributes at least 500 innovative designs monthly to its ever-expanding portfolio of over 25,000 styles. The majority of its current models are produced using CAD/CAM to ensure precision.
USA is the world's largest jewellery market. In the US, Christmas, Thanksgiving, Valentine's Day and Mother's Day are the important jewellery-buying occasions. The US jewellery market has grown at a compound annual growth rate of 5.7% over the last 25 years. RJL is US centric for last 11 years, but will soon move into Europe, Middle East and South East Asia markets. Expects margins expansion as it is able to pass on the full price hike to their customers.
During FY09, Indian Gem & Jewellery industry made exports of $21.1 billon Vs $20.8 billon in FY08. During April-January 2010, exports of gem & jewellery from India have gone up by 14.3% to Rs 1.07 lakh crore according to Gems and Jewelley Export Promotion Council. In dollar terms, exports are up 7.42% to $22.54 billion. The data showed that import of rough diamonds too has gone up 4.82 per cent to Rs 33, 900 crore. The domestic market is estimated to touch USD 28-29 billion in next 3 years by 2012.
The projected share of industry segments and key consumption market trend show that by 2015 China and India together will emerge as a market equivalent to the US market. The Middle East will surface another large market accounting for close to 9 of the global jewellery sales by 2015. The industry has a potential to grow up to US$ 280 billion by 2015 at a CAGR of 6.7%. These augur well for the industry players. RJL is likely to post an EPS of Rs 20 in FY10 and Rs 24 in FY11. At the CMP of Rs 71, the share is trading at a P/E of 3.5x on FY10E and 3.2x on FY11E. We recommend BUY with a target of Rs 100 in the medium term. The stock is in an uptrend as it is moving along the upsloping support trendline. Considering its big fall from early 2007 and its bottom in beginning of 2009, the stock can be seen forming a rounding formation. Technically, the upside target is Rs 115.
To read the full report: RENAISSANCE JEWELLARY
Company Description: Incorporated in 1980, Superhouse manufactures and sells finishing leather products like footwear, uppers and sports shoes, leather garments, bags, wallets and other leather goods. A US $ 50 million, Superhouse Group has 15 units, with workforce of over 5000 and has its presence in over 35 countries. The textile division contributes nearly 10% in the revenue. The company is having 6 subsidiary companies namely Superhouse (UK), Superhouse (USA) International Inc, Superhouse Middle East FZC, Superhouse R.O. S.R.L., Super House Canada Inc and Super House HK.
Until now, its‘ Allen Cooper’ brand had been enjoying the prestigious patronage of British and European markets. The brand has now stepped into the Indian market and is catering to the requirements of corporate and institutional customers, creating a niche image for its fashion leather products adhering to the high standards that the British have set, Double Duty is a brand owned by Superhouse for marketing safety footwear and garments mainly to Gulf and European countries.
Investment Rationale: Three state-of-art units involved in manufacturing of footwear are ably backed by its three marketing subsidiaries strategically located in USA, UK, UAE & Australia. To add on, it has approved vendors to world-wide brands such as Wal-Mart, Filanto, Auchan, Andre, Shoe Fayre, Hudson Bay, Heckel Securite, Secura and many more. Its in-house tanneries sole division provides finest quality leather soles for foot wears. To meet the exacting demand of clients it also imports leather from Brazil, Italy and Columbia. Superhouse derives nearly 85% of its revenue through exports. Its products are exported to countries like France, Germany, Holland, Australia and South Africa.
During FY07-08, SL spent Rs 40 crore towards expansion to cater exclusively to the US and European markets. SL’s existence for over three decades allows offering its customers the maximum in choice, value & quality. The prospects of the leather industry are so bright that the exports from the country are expected to touch $ 7 billion by 2011-12 from $ 3.6 billion at present. India has around 3% share in the global trade in leather compared to China's 20%. Realizing the growth potential of the leather industry, which occupies a prominent place in the Indian economy, the Government of India has been making significant efforts to promote rapid advancement of the industry.
The government’s measures to offer a slew of incentives for opening of the leather sector to foreign direct investment (FDI) are expected to spur the growth in this sector. The Government has also provided assistance worth 2% of the value of exports to the US and the European Union in the form of duty-free scrips that could be sold for cash.
The stock is forming a rounding bottom price pattern in its weekly chart. Volumes are also in confirmation with the price pattern as they are decreasing then reduced substantially and finally increasing during the formation of the price pattern. The stock is expected to touch Rs 84, which was the level from where the big fall began. At the CMP of Rs 60, the share is trading at a P/E of 4.3x on FY10E and 3.5x on FY11E. We recommend BUY with a target price of Rs 85 in the medium term.
To read the full report:SUPERHOUSE LIMITED
Company Description:
Incorporated in 1993, Globus Spirits (GSL) is the leading player in the Alcohol industry in North India. It is engaged in the business of manufacture, marketing and sale of Industrial alcohol comprising Rectified Spirit and Extra-Neutral Alcohol, Country Liquor (CL), and Indian Made Foreign Liquor (IMFL). The company has two distilleries; Alwar in Rajasthan and Panipat in Haryana. In January 2009, the company expanded its IMFL range in the state of Rajasthan by launching two new products, namely Hannibal Legendary Rum and 20-20 Premium Whisky.
GSL owns two modern distilleries which are situated at:- Behror, District Alwar, Rajasthan: The production facility is built on an area spread over 18 acres of land. The unit has its own captive supply of water and power.
Samalkha, District Panipat, Haryana:-The production facility is built on an area spread over 16.6 acres of land. This unit too has its own captive supply of water and power. At present both the units are capable of manufacturing alcohol from both molasses and grain.
The total installed capacity of each of the units is 144 lakh Bulk Litres (BL) per annum. The distilleries have modern bottling facilities equipped with bottling machines, which caters to its own production of CL and IMFL brands. GSL has tieups and separate arrangements for bottling IMFL products for other brand owners.
Investment Rationale:
GSL’s units are strategically located near the raw material sources. The plant also has technological flexibility to use both grain and molasses as raw material, insulating from dependence on any specific raw material.
The Company has a brand portfolio of its own in the country liquor segment, such as Rana, Rajasthan No 1, Ghoomar, Samalkha No 1, Samalkha ki Saunfi; and in IMFL segment, such as White Lace Gin, White Lace Vodka, Samurai Gold Extra Rich Blend Whisky, Samurai Premium Whisky, 20-20 Premium Whisky, GR 8 Times Whisky and Hannibal Legendry Rum. It also caters to the Indian brands in the IMFL segment, such as Officer's Choice Prestige Whisky, Officer's Choice Classic Whisky, Officer's Choice No 1 Brandy and Officer's Choice XXX Rum.
GSL has launched its own IMFL brands in Haryana, Rajasthan, Chandigarh, Uttar Pradesh, Andhra Pradesh, Kerala and Karnataka. It proposes to launch the brands in two states and Union territory in north India and one state and Union territory in south India. The company has a well established position in domestic CL segment with significant market share (22%, 17% and 20% share in Rajasthan, Haryana and Delhi respectively) and has made its presence in IMFL segment by taking up contract bottling to cater to the renowned Indian players.
GSL is implementing projects comprising expansion cum modernisation of (capacity increase from 288 lakh BL to 498 lakh BL per annum), setting up of new CPP (captive power plant), revamping IMFL bottling section and brand launching for IMFL, at an aggregate project cost of Rs 89.3 crore with the project debt equity ratio being 0.16 : 1, which was met by IPO proceeds of Rs 75 crore in September 2009 and a term loan of Rs 12 crore from SBI. GSL’s new projects are expected to be completed by March 2010.
India is emerging as the largest global market for whisky with 60% share, registering sales of more than 60 million cases per annum. Other spirits (Brown – Brandy/Rum; White–Gin, Vodka, and Rum) constitute the rest 40% of IMFL market. White spirits, although currently placed at only 5% of the market are growing at a much faster pace of 40% p.a. as against 10% p.a. growth of the overall IMFL market.
The demand for alcoholic beverages has been growing at a steady pace of approximately 10% p.a. and is expected to continue to grow at this rate in the future. Supply is expected to match the demand over the medium term. The overall profitability of the industry would continue to be subject to the prices of molasses and the extent of competition besides the duties levied by State Governments. GSL is in the process of acquiring Canteen Stores Department (CSD) registered brand for Rs 3 crore as it intends supplying to the Defence Services. Thus, the brand will have the requisite presence in the CSD market as well. GSL plans to simultaneously make its presence felt in the civil market too.
At the CMP of Rs 93, the share is trading at a P/E of 7.6x on FY10E and 5.6x on FY11E. We recommend BUY with a target price of Rs 120.
To read the full report: GSL
Company Description:
Federal-Mogul Goetze (India) (FMGIL) was established in 1954 by Mr. H.P. Nanda as a joint venture with Goetze-Werke of Germany. G-WG of Germany is now owned by Federal-Mogul Corporation (FMP), a $6.9 billion global company and one of the leading manufacturers of automotive components in the world. In 2006, FMP acquired majority of holding through two of its entities – Federal-Mogul Vermogensverwaltungs GmbH and Federal -Mogul Holdings Limited and is now a part of Federal -Mogul Corporation, USA who holds the majority of the equity shareholding of its Company. Its six manufacturing units are located at Patiala, Bhiwadi, Parwanoo, Khandsa and Bangalore.
Highlights:
FMGIL is the largest manufacturer of pistons and piston rings in India. It manufactures of world-class pistons, piston rings, valve train and structural components, aluminum alloy cylinder blocks, sintered parts and cylinder liners and other miscellaneous automobile engine components covering a wide range of applications including two/threewheelers, cars, SUVs, tractors, light commercial vehicles, heavy commercial vehicles, stationary engines and locomotive diesel engines.
FMGIL’s product portfolio in the piston segment covers almost the entire range of applications - from small engines for mopeds to large bore locomotives engines. It is also a major supplier for piston and piston rings to the armed forces. In terms of range of engines from the type of fuel used, it caters to petrol, diesel, LPG and CNG segments.
The company’s pistons and piston rings range of products are sold under the brand name “Goetze”, while its sintered products are sold under the brand name “Brico Goetze”.
FMGIL has currently has two subsidiaries – Goetze TPR (India) and Satara Rubber & Chemicals. GTP India is currently engaged in manufacturing steel rings for bi-wheelers while SRCL is currently not engaged in any business or operations.
FMGIL’s sales constitute from sale of our products to OEMs, replacement markets and exports. The sales from OEMs are handled through its marketing offices located at three major cities of India – New Delhi, Pune, and Chennai. The sales for the replacement segment is handled through the stockists and depots located at 22 locations across India while the exports are handled through our head office.
To read the full report: FEDERAL-MOGUL GOETZ
Incorporated in 1990, Era Infra is a multi-faceted engineering, construction and services conglomerate, well positioned in the fastest growing segments of the economy viz. construction, infrastructure development (including power projects construction), real estate, hospitality & entertainment and pre-engineered buildings. EIEL builds industrial complexes, residential buildings, multiplexes, super malls, power projects and airports. It has diversifying its revenue
stream by entering into new segments such as irrigation and build operate and transfer (BOT) projects.
Highlights:
It offers services to a diversified client base across the country. Some of its Key customers are Tata group, Bajaj group, Reliance, Bharati & L&T, Thermax, Videocon. It’s other PSU clients are NHAI, NHPC, NTPC, BHEL, RVNL, Nalco, Delhi Metro, the Railways, Central Public Works
Departments and Air Port Authorities.
EIEL has presence in 20 states in India and also expanding its footprints in the overseas markets. It has on hand capital intensive projects, BOT and annuity basis.
During FY09 its Capex plans included Rs 200 crore for its equipment division and Rs 400 crore for its ready mix concrete division. EIEL is confident of a robust growth in FY10, backed by its order book position of Rs 7,300 crore. It is targeting an order backlog of Rs 10, 000 crore by
the end of this fiscal.
EIEL has plans to foray into power generation. Era Power (India) Pvt. Ltd is incorporated to address the unfolding power generation opportunities in the country and overseas. It is working out modalities to establish a thermal power plant of 1200 MW in the State of Madhya Pradesh.
The key factor that has contributed to the company's success is its proven track record, in-house technical expertise and strong project management capabilities, which ensures timely execution of the projects within budgeted costs and continued emphasis on maintaining quality standards.
To see full report: ERA INFRA ENGINEERING
Company Description:
AIAEL was incorporated on March 1991 as Magotteaux (India) Pvt. Ltd. Ahmedabad. Induction Alloys Pvt. Ltd was merged with the company in 1992 and the name of the company was changed to AIA Magotteaux Pvt. Ltd. Due to the termination of joint venture with Magotteaux
International SA, Belgium in 2000 the name of the company was again changed to AIA Engineering. It manufactures 'mill internals' used by industries such as cement, mining and thermal power plants for crushing and grinding of the production process. It tapped the capital market in Nov 2005 with an issue of 47 lakh shares at a price of Rs 315 per share of Rs 10 each aggregating Rs 148 crore for expansion.
Highlights:
AIAEL sells its products to all major cement groups including Lafarge, Holcim, Heidelberger, and original equipment manufacturers such as FL Smidth, Polysius and major thermal power plants and mines. AIAE has also made inroads into China - the largest market for grinding media in
the world.
Even nearly 70% of the company`s business comes from replacement demand. It has customers in 70 countries. Nearly 57% of the company revenue comes from export.
Debottlenecking will expand capacity by 25,000 -35,000 tpa taking the total capacity to 200,000 tpa by FY10 end.
AIAEL continues to eye the SEZ land for its new facility as international revenues are likely to increase to 75-80% of revenues by FY11. AIA has already identified 2 proposed SEZ facilities, which are yet to be notified.
However, if the proposed SEZ’s do not get notification, then AIAEL may look at expanding its capacity at its existing facilities by further 50,000 tons facility for meeting its demand for its mill internals.
To see full report: AIA ENGINEERING
