The markets are expected to open weak following negative cues from the Asian markets. US Stocks turned in a relatively lackluster performance on Friday as GDP growth came in at 2.8%, below investor’s expectations. Also Economists were disappointed that much of the GDP growth in the fourth quarter was due to a positive contribution from private inventory investment. The U.S. consumer sentiment result which was also released on Friday was better than expected, but failed to lighten the session's negative mood.
Meanwhile Indian markets closed higher on Friday as investors pinned their hopes on the government unveiling a raft of investor-friendly policies in the upcoming budget. Also, weekly food inflation remained in the negative zone for the fourth consecutive week, reinforcing expectations of lower interest rates in the months to come.
Markets Today
The trend deciding level for the day is 17,200/5,195 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,293 – 17,352/5,227– 5,249 levels. However, if NIFTY trades below 17,200/5,195 levels for the first half-an-hour of trade then it may correct up to 17,141 – 17,047/5,172 – 5,140 levels.
ITNL emerges as the lowest bidder for road BOT project worth Rs.1,818cr
IL&FS Transportation Networks Ltd. (ITNL) has emerged as the lowest bidder for four laning of Kiratpur to Ner-Chowk project worth Rs.1,818cr. This BOT project in Himachal Pradesh would be executed on DBFOT basis under Phase III. The project is on toll basis with a concession period of 28 years and construction period of three years. Further, NHAI would provide a grant of Rs.134.6cr to ITNL. This is positive for the company, as ITNL had not won any project in FY2012 owing to the aggressive bidding witnessed in the road sector. Considering the sharp run up in the share price (~39% in one month), we recommend Accumulate on the stock with an SOTP target price of Rs.227.
3QFY2012 - Result Reviews
NTPC
NTPC’s stand-alone top-line rose by 14.2% yoy to Rs.15,332cr aided by higher operational capacity. On a stand-alone basis, the company’s capacity was higher by 2,820MW on a yoy basis during the quarter. However, the OPM’s declined by 812bp yoy to 18.6% impacted by higher fuel costs. The depreciation and interest costs too rose by 26.3% yoy and 38.5% yoy respectively during the quarter. The company’s bottom-line was down by 10.2% yoy to 2,130cr. We recommend an Accumulate on the stock with a Target Price of Rs.199.
BHEL
BHEL’s 3QFY2012 results were broadly in-line with our and street estimates. The top line grew by 19.1% yoy to Rs.10,743cr (Rs.9,023cr), lower by 1.2% than our (above street) expectation of Rs.10,873cr. Growth was largely driven by the power segment, which posted robust growth of 58.3% yoy to Rs.8,711cr (Rs.5,502cr). The strong growth was offset by the industry segment, which posted an unexpected decline of 37.3% yoy to Rs.2,367cr (Rs.3,778cr).
On the operating front, the industry segment witnessed phenomenal EBITM expansion of more than 2,000bp yoy to 31.6% mainly due to execution of high rating orders (embedded with high margins). On the other hand, the powersegment’s EBITM came off sharply by ~1200bp yoy mainly due to higher rawmaterial costs and other expenses. On an absolute basis, EBITDAM contracted by 360bp to19.4% (23.0%), in-line with our estimate of 20.0%. Depreciation cost increased by 29.1% yoy to Rs.186.8cr (Rs.144.7cr) partially offset by other income, which came in at Rs.196cr.
Led by the margin dip, PAT growth was subdued at 2.0% yoy to Rs.1,432cr (Rs.1,403cr), 2.2% lower than our (below street) estimate of Rs.1,465cr. On the order book front, orders worth Rs.5,800cr were cancelled during the quarter and order intake remained dismal (no clarity over total inflow during the quarter), thus making 9MFY2012 order inflow tally at mere Rs.15,273cr. Order backlog of the company stood at Rs.1,45,541cr, a sequential decline of 9.0%. Earnings commentary by the management appeared passive mainly due to concerns outlined in the power sector (such as deepening fuel crisis and environmental clearances). Unlike the previous quarters, management refrained to offer any guidance on revenue as well order inflows, which raises a predicament over the company’s performance estimates for the coming quarters.
The business outlook is also soured given 1) delay in order finalizations amid concerns in the power sector; 2) weak investment capex due to high interest rate regime, which could take more time to gather momentum than earlier predicted; and 3) changing dynamics in the BTG space (read sector related). Given this, the attractive valuation of 9.5x FY2012E EPS and 10.5x FY2013E EPS is largely overshadowed. Given the long-term structural concerns, we remain Neutral on the stock. We will shortly come out with a detailed result update.
Canara Bank
For 3QFY2012, Canara Bank posted a poor set of results, with net profit declining by 20.8% yoy to Rs.876cr. Net-interest income of the bank declined by 9.6% yoy to Rs.1,919cr, as high prevailing interest rates led to higher cost of funds. However, non-interest income registered robust growth of 45.2% yoy to Rs.779cr, leading to operating income growing by muted 1.6% yoy. Although operating expenses declined by 1.9% yoy to Rs.1,121cr, provisioning expenses more than doubled to Rs.501cr, leading to a decline of 20.8% yoy in net profit. The bank’s asset quality deteriorated during 3QFY2012, with both gross and net NPA levels rising by 5.4% and 4.8% sequentially, respectively. As of 3QFY2012 gross NPA ratio stands at 1.8% (1.7% in 2QFY2012), while net NPA ratio stands at 1.5% (1.4% in 2QFY2012).
At the CMP the stock is trading at 1.0x FY2013 ABV. We recommend a Neutral rating on the stock.
Bank of India
For 3QFY2012, Bank of India registered a moderate set of results, with net profit growing by 9.6% yoy to Rs.716cr. On the operating front, the bank’s performance was mostly muted (up 4.1% yoy); however, a 4.7% yoy decline in operating expenses led to pre-provisioning profit growing by 24.7% yoy to Rs.1,732cr. Higher provisioning expenses (up 39.2% yoy) negatively impacted profitability, leading to lower 9.6% yoy growth in net profit to Rs.716cr.
The bank’s asset quality improved during 3QFY2012, with gross and net NPA levels declining by 2.5% and 3.6% sequentially, respectively. As of 3QFY2012, gross NPA ratio stood at 2.7% (3.0% in 2QFY2012), while net NPA ratio stood at 1.8% (2.0% in 2QFY2012). Provisioning coverage ratio continued to remain low at 60.1% (59.1% in 2QFY2012).
At the CMP, the stock is trading at 1.1x compared to its historical range of 1.05-1.55x, with a median of 1.25x. We recommend Neutral on the stock.
Bhushan Steel
Bhushan Steel reported its 3QFY2012 results. The company's net sales grew by 23.9% yoy to Rs.2,407cr on account of increased realizations and sales volumes. EBITDA grew by 34.7% yoy to Rs.724cr on account of higher net sales. EBITDA margin expanded by 241bp yoy to 30.1%. During the quarter, interest expense grew by 124.6% yoy to Rs.229cr and depreciation expense grew by 165.8% yoy to Rs.152cr, as the company had capitalized its phase II expansion during FY2012. Hence, profit after tax decreased by 1.3% yoy to Rs.277cr. We maintain our Reduce rating on the stock; however, we keep our target price under review.
Indian Overseas Bank
For 3QFY2012, Indian Overseas Bank registered a poor set of results, with net profit declining by 53.3% yoy to Rs.108cr. On the operating front, the bank’s performance was moderate (up 8.1% yoy) as high prevailing interest rates led to higher cost of funds. Non-interest income of the bank increased by 17.0% yoy to Rs.411cr, leading to operating income growth of 10.2% yoy. High operating expenses, which rose by 19.6% yoy, and higher provisioning expenses (up 86.3% yoy) led to net profit declining by 53.3% yoy to Rs.108cr.
The bank’s asset quality remained under stress during 3QFY2012 as well. As of 3QFY2012, gross NPA ratio stood at 3.0%, while net NPA ratio stood at 1.2%. Provisioning coverage ratio continued to remain moderate at 71.7%. At the CMP, the stock is trading at 0.6x FY2013 ABV. We maintain our Neutral stance on the stock.
Blue Star
Blue Star announced its 3QFY2012 numbers. The company’s net sales declined by 3.9% yoy to Rs.590cr (Rs.613cr). The electromechanical projects and packaged air-conditioning systems (EMPPACS) segment registered a 15.3% yoy decline to Rs.368cr (Rs.434cr), while the cooling product and professional electronic and industrial systems (PEIS) segments registered strong yoy growth of 28.1% and 16.0% to Rs.164cr and Rs.52cr, respectively. EBITDA came in at negative Rs.3cr in 3QFY2012 vs. positive Rs.47cr in 3QFY2011. EBITDA margin declined by 824bp yoy to negative 0.5%, mainly due to increased raw-material cost and other expenditure. Consequently, PAT came in at negative Rs.33cr. The company witnessed Rs.14cr of forex loss during the quarter. We will be coming out with a detailed report. We continue to maintain our Neutral rating on the stock.
Union Bank of India
For 3QFY2012, Union Bank of India posted a disappointing set of numbers, which were far below our as well as streets estimates, primarily due to higherthan- expected provisioning expenses. While NIMs improved by 10bp qoq and gross and net NPAs were largely stable on a sequential basis, substantially higher provisioning expenses dented the overall bottom line. Consequently, net profit took a hit and declined by 66% yoy and 44.1% qoq to Rs.197cr.
The bank’s advances and deposits growth picked up after a sluggish movement in 1HFY2012. Advances registered healthy growth of 6.1% qoq (16.8% yoy) and deposits increased by 5% qoq (10% yoy). CASA deposits of the bank registered healthy growth of 6.5% qoq (moderate 7.6% yoy), leading to a 45bp qoq increase in CASA ratio to 32.5%. Reported NIM of the bank improved by 10bp qoq to 3.3%. Cost-to-income ratio rose further to 45.9% in 3QFY2012 from 44.3% in 2QFY2012 and 40.2% in 3QFY2011. On the asset-quality front, pressures moderated considerably, with slippages declining to Rs.566cr from the average of Rs.940cr over the past four quarters. Gross and net NPAs on an absolute basis were largely stable sequentially. Gross and net NPA ratios improved on a sequential basis, from 3.5% to 3.3% and from 2.0% to 1.9%, respectively. Provision coverage ratio including technical write-offs improved from 60.5% in 2QFY2012 to 63.1% in 3QFY2012.
At the CMP, the stock is trading at 0.9x FY2013E P/ABV. We recommend a Neutral view on the stock.
Jyoti Structures
Jyoti Structures (JSL) announced its 3QFY2012 results, which were lower than our and street estimates. The top line posted modest growth of 6.5% yoy to Rs.587.2cr (Rs.551.3cr), lower by 10.0% from our estimate of Rs.652.7cr. On the EBITDA front, margin compressed by ~130bp yoy to 10.1%, which was along expected lines (est. 10.5%). The margin dip was primarily due to higher sub-contracting expenses, which shot up by ~880bp yoy to 28.3%, as a proportion to sales. Profitability was further impacted by high interest expenses, which soared by 46.5% yoy to Rs.34.7cr. This resulted into PAT plunging by 44.1% yoy to Rs.13.8cr (Rs.24.7cr) against our (below street) estimates of Rs.20.8cr.
At CMP, the stock trades cheaply at 3.5x and 4.1x, FY2012E and FY2013E, EPS respectively. The pessimism, viz. high interest expenses, low profitability and elongated working capital cycle, has clearly factored in the stock’s performance. We would like to get more insights from the earnings conference call, post which we will revise our estimates and recommendation. Meanwhile, we maintain our Buy recommendation on the stock with a target price of Rs.61.
Tata Sponge Iron Ltd.
For 3QFY2012, TSIL’s reported a 23.3% yoy decline in its revenue to Rs.131cr, as compared to Rs.170cr in 2QFY2011. The company’s EBITDA margin came in at 18.8%, lower by 167bp yoy, from 20.5% in 3QFY2011 due to increased employee expenses as a percentage of net sales from 2.9% in 3QFY2011 to 4% in 3QFY2012. Profit for the quarter stood at Rs.17cr as compared to Rs.22cr in 3QFY2011. We expect ramp up in sponge iron volume sales in FY2013E, which would lead to improvement in the top line. Hence, we maintain our Buy recommendation on the stock with a target price of Rs.382, based on a target P/B of 0.9x for FY2013E.
Hitachi Home & Life Solutions
For 3QFY2012, Hitachi Home & Life Solutions (HHLS) reported a 13% yoy decline in its revenue to Rs.107cr from Rs.124cr in 3QFY2011. Increased expenses for the quarter led to negative operating profit of Rs.5cr. The company reported a higher forex loss of Rs.3.7cr on ECB during the quarter as compared to Rs.1.2cr during 3QFY2011. Operating loss and increased depreciation and interest cost led to loss of Rs.10cr as compared to profit of Rs.1.7cr in 3QFY2011.
We expect the company’s sales volume to register a CAGR of 14.1% over FY2011-13E, which would lead to its profit increasing to Rs.30cr in FY2013E from Rs.29cr in FY2011. At the CMP of Rs.113, the stock is trading at attractive valuations with PE of 8.3x FY2013E earnings.
We maintain our Buy rating on the stock with a target price of Rs.157, based on target PE of 12x for FY2013E.
3QFY2012 Result Previews
NMDC
NMDC is slated to announce its 3QFY2012 results. We expect the company’s top line to grow by 4.7% yoy to Rs.2,745cr on account of increased sales volumes as well as realization. On the operating front, EBITDA margin is expected to improve by 58bp yoy to 77.5%. The bottom line is expected to grow by 15.7% yoy to Rs.1,757cr. We maintain our Buy rating on the stock with a target price of Rs.231.
Oriental Bank of Commerce
Oriental Bank of Commerce is scheduled to announce its 3QFY2012 results. Net interest income is expected decline by 1.4% yoy (up 2.6% qoq). Non-interest income is expected to increase by 25.7% yoy (up 4.9% qoq) to Rs.291cr. Consequently, operating income is expected to increase by 3.6% yoy to Rs.1,307cr. Operating expenses are expected to increase by 10.6% yoy to Rs.539cr, leading to pre-provisioning profit declining by 0.8% yoy to Rs.768cr. Provisioning expenses are expected to increase substantially by 67.5% yoy to Rs.321cr. Consequently, net profit is expected to decline by 26.1% yoy (up 79.9% qoq) to Rs.302cr. At the CMP, the stock is trading at valuations of 0.7x FY2013E ABV. We recommend Neutral on the stock.
Indian Bank
Indian Bank is scheduled to announce its 3QFY2012 results. Net interest income is expected to grow moderately by 11.5% yoy (up 1.9% qoq) to Rs.1,157cr. Non-interest income is expected to increase by 20.6% yoy (decline of 12.4% qoq) to Rs.300cr. Consequently, operating income is expected to increase by 13.3% yoy to Rs.1,457cr. Operating expenses are expected to increase by 15.4% yoy to Rs.548cr, leading to pre-provisioning profit growing by 12.0% yoy to Rs.909cr. Provisioning expenses are expected to increase three-fold on a yoy basis to Rs.231cr (up 5.0% qoq). Consequently, net profit is expected to decline by 6.8% yoy (down 2.3% qoq) to Rs.458cr.
At the CMP, the stock is trading at valuations of 0.9x FY2013E ABV. We recommend Neutral on the stock.
Allahabad Bank
Allahabad Bank is scheduled to announce its 3QFY2012 results. Net interest income is expected to grow by healthy 29.3% yoy (up 3.1% qoq) to Rs.1,360cr. Non-interest income is expected to increase by 32.2% yoy (up 10.2% qoq) to Rs.341cr. Pperating expenses are expected to increase by 28.1% yoy to Rs.667cr, leading to pre-provisioning profit growing by 31.0% yoy to Rs.1,033cr. Provisioning expenses are expected to go up substantially by 56.1% yoy (decline of 10.6% qoq) to Rs.368cr. Consequently, net profit is expected to increase by lower 8.7% yoy (decline of 7.5% qoq) to Rs.452cr.
At the CMP, the stock is trading at valuations of 0.7x FY2013E ABV. We remain Neutral on the stock.
Sadbhav Engineering
We expect Sadbhav Engineering (SEL) to post robust 50.0% growth to Rs.714.3cr on the top-line front, owing to pick-up in the execution of captive road BOT projects. EBITDA margin is expected to witness a marginal fall of 40bp yoy to 10.7% for the quarter. On the earnings front, the company is expected to post healthy growth of 47.3% yoy to Rs.38.9cr, owing to strong performance at the revenue level.
At current levels, the stock is trading at valuations of 14.4x FY2013E earnings and 2.0x FY2013E P/BV on standalone basis. Based on a target P/E multiple of 9x and valuing the company’s BOT arm on DCF basis, our SOTP based target price works out to Rs.150. Hence, we maintain our Buy view on the stock.
Economic and Political News
- Fitch assigns 'stable outlook' to fertilizer in 2012
- Oil Ministry demands extra duty of Rs.80,000 on diesel vehicles
- Credit off-take up 17.1% as of mid-January
Corporate News
- Coal India plans to revise coal pricing from February 2011
- Network 18 Media plans rights issue of up to Rs.2,700cr
- Anti-coagulant injection issue resolved with USFDA: Dr. Reddy's
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