BIG BOSS
VIKAS PARSHURAM SAMWATSARE
LONG AND SHORT TIME TIPS
2Q GDP at 5.3%, deterioration in consumption continues
India's Q2 GDP came in at 5.3% vs 5.5% in Q1, resulting in H1FY13 GDP at 5.4% vs. 7.3% in H1FY12. Going forward, we opine that though the worst may be over, we are unlikely to see V-shaped recovery as seen last time in 2009-10 (refer to Exhibit- 1), in absence of environment conducive to investments. Real GDP grew marginally by 5.3% in Q2, from 5.3% in Q4FY12 and 5.5% in Q1FY13. Surprisingly fixed investment grew sharply by 4.1% vs 0.7% in Q1FY13. Agricultural GDP growth came in at 1.2% reflecting the monsoon weaknesses. However, underlying demand remained weak. Private consumption growth weakened further to 3.7% vs 4.0% in Q1 and 6.1% in Q4. Gap between the GDP estimates by activity and expenditure widened further. As per expenditure side GDP in Q2 grew by just 2.8% vs 3.9% in Q1 and sharply lower than 9% in Q1FY12.
Moderation in consumption to 4.4% from 4.7% in Q1 led by both private (3.7% vs 4%) and public sector (8.7% vs 9%) reflects the slowing economy amid high inflation. The number is also much lower than the average of 7.6% during the past five years. Consumption has typically provided a steady and elevated floor for India's growth rate. Uptick in gross fixed capital formation to 4.1% from 0.7% in the previous quarter is a positive trend. The rising trade deficit was reflected in net exports coming in at (-)12.3% v/s (-)8.5% in Q1. In terms of contribution to growth, consumption was the key driver at 3.1%, investments at 0.6%, net exports at -1.3%, and discrepancies at 0.4%.
We do not anticipate any meaningful turnaround in economic momentum in near future. However, given the benefit of a favorable base, the growth numbers will likely remain supported. Despite the marked across-the-board growth slowdown, stubborn inflation is unlikely to allow the RBI to undertake any meaningful reduction in interest rates. Given the dismal industrial production trends seen in 1HFY13 (IIP coming in at a mere 0.2%), the 2QFY13 GDP reading of 5.3% with industry at 2.8% is positive.
Key events prior to the next RBI policy are: (1) Policy conformity towards revised fiscal target of 5.3% (2) Progress in the Winter Session of Parliament (more importantly, vote on FDI); (2) Macro data: CPI inflation data on 12th Dec, WPI on the 14th Dec and IIP data on 12th Dec. We are not expecting any significant change in RBI's stance in the next policy meeting on 18th Dec. Supportive measures (CRR cuts or OMOs) may continue from the RBI to prevent any further worsening of the liquidity deficit.
Accumulate Gateway Distriparks Ltd For Target Rs.154
Slightly subdued performance from Container Freight Station
(CFS) and Container Rail Segment GDL reported its consolidated net profit at Rs 298 mn (-11%YoY, -15% QoQ) for Q2FY13. It was below our expectations of Rs 325 million. Revenues have grown by ~29% YoY to Rs 2,373mn. We were unhappy with the performance of the key CFS segment. Volumes of the CFS segment has de grown 11% YoY and 5% QoQ to 82,652 TEUs primarily due to poor performance of Chennai CFS as well as JNPT CFS. Realisation of the CFS segment was stable at Rs 9444/TEU from Rs 9,407/TEU QoQ as company has
rationalized the tariffs (due to competition) plus the dwell time in the current quarter has fallen to 10 days (previous quarter 12 days).
Even the performance of the container rail segment was not so healthy for which the volumes have decreased ~5% QoQ and 20% YoY to 51,788 TEUs.The company continues to operate 21 rakes primarily on Exim routes for the last 4 quarters. With Indian railways behaving inconsistently in increasing the rail haulage charges, coupled with import/export mismatch, the margins have dipped by 550 bps QoQ to 10.4% in the container rail segment.
Operational performance of the cold chain business is stable but it continues to be a small part of the consolidated entity. We believe key risks to business lie in slower Exim growth on the back of slower GDP growth and negative global business sentiment. We assign a target price of Rs 154 for the stock and reiterate Accumulate.
Downside risk to our call includes:
1) Deterioration in Exim trade.
2) Further competition in the CFS segment and
3) Competition in rail haulage business.
Valuation and Outlook
GDL is into multiple businesses 1) CFS - slowing down but steady 2) rail business - capital intensive, fast growing venture and highly competitive 3) cold storage business- small and nascent but a big opportunity.
Combining GDL's various businesses of different capital intensity and differentgrowth trajectory; we value the company on 3 financial parameters - EV/EBITDA, P/B and P/E. We assign a target price of Rs 154 for the stock and reiterate ACCUMULATE.From the CMP of Rs 141 the stock has an upside of 9 %.
Buy Zee Entertainment Enterprises Ltd. For Target Rs 273
Outlook
Zee Entertainment Enterprises Ltd (ZEEL) continued to reported better than expected top-line growth of 33.8%. However, it recorded a decline in margins on account of increased investments (new channel launches – Zee Alwan & Zee Bangla Cinema and sports properties). ZEEL’s market share continues to remain robust led by strong showing of flagship channel Zee TV and stable performance in regional markets. We remain positive on its new ventures i.e. a) launch of HD channels, b) Zee Bangla Cinema (already leading cinema channel in Bengali market, complementing Zee Bangla), c) Zee Alwan, d) Ditto TV and e) ZeeQ (a edutainment channel to be launched in Q3FY13).
Furthermore, expected surge in subscription revenues due to the new digitization reforms, higher than expected ad-revenue growth and enhanced reach from the MediaPro venture should help revenues to grow at a CAGR of ~15.7% to Rs 4,711.3 crore from Rs 3,040.5 crore. At a CMP of Rs 191, ZEEL is trading at 19.1x and 14.1x its estimated earnings for FY14 and FY15 and we reiterate a BUY with the price target of Rs 273 representing a potential upside of ~43%.
Key Takeaways
* ZEEL reported a robust revenue growth of 33.8% YoY to Rs 953.5 crore in Q2FY13 as against Rs 712.8 crore in Q2FY12 with all round performance across major revenue streams i.e. advertising revenues and subscription revenues which grew by 33.7% YoY (Rs 528.1 crore v/s Rs 394.9 crore) and 35.7% YoY (Rs 394.9 crore v/s Rs 291 crore) respectively.
* During the quarter, advertising revenues grew sharply by 33.7% at Rs 528.1 crore despite seasonally weak advertising quarter. The ad-revenue growth was primarily driven by (a) India-Sri Lanka series and (b) ~18% advertising growth from ex-sports business (led by flagship channel Zee TV).
* Subscription revenues recorded 35.7% YoY growth to Rs 394.9 crore in Q3FY13 as against Rs 291 crore primarily driven by domestic subscription revenues. Domestic revenue grew by 43.9% YoY to Rs 280.8 crore on the back of continued traction from MediaPro and International subscription revenue grew by 19.0% YoY to Rs 114.1 crore largely due to rupee depreciation.
Buy Zydus Wellness Limited For Target Rs.522.00
VIKAS PARSHURAM SAMWATSARE
LONG AND SHORT TIME TIPS
2Q GDP at 5.3%, deterioration in consumption continues
India's Q2 GDP came in at 5.3% vs 5.5% in Q1, resulting in H1FY13 GDP at 5.4% vs. 7.3% in H1FY12. Going forward, we opine that though the worst may be over, we are unlikely to see V-shaped recovery as seen last time in 2009-10 (refer to Exhibit- 1), in absence of environment conducive to investments. Real GDP grew marginally by 5.3% in Q2, from 5.3% in Q4FY12 and 5.5% in Q1FY13. Surprisingly fixed investment grew sharply by 4.1% vs 0.7% in Q1FY13. Agricultural GDP growth came in at 1.2% reflecting the monsoon weaknesses. However, underlying demand remained weak. Private consumption growth weakened further to 3.7% vs 4.0% in Q1 and 6.1% in Q4. Gap between the GDP estimates by activity and expenditure widened further. As per expenditure side GDP in Q2 grew by just 2.8% vs 3.9% in Q1 and sharply lower than 9% in Q1FY12.
Moderation in consumption to 4.4% from 4.7% in Q1 led by both private (3.7% vs 4%) and public sector (8.7% vs 9%) reflects the slowing economy amid high inflation. The number is also much lower than the average of 7.6% during the past five years. Consumption has typically provided a steady and elevated floor for India's growth rate. Uptick in gross fixed capital formation to 4.1% from 0.7% in the previous quarter is a positive trend. The rising trade deficit was reflected in net exports coming in at (-)12.3% v/s (-)8.5% in Q1. In terms of contribution to growth, consumption was the key driver at 3.1%, investments at 0.6%, net exports at -1.3%, and discrepancies at 0.4%.
We do not anticipate any meaningful turnaround in economic momentum in near future. However, given the benefit of a favorable base, the growth numbers will likely remain supported. Despite the marked across-the-board growth slowdown, stubborn inflation is unlikely to allow the RBI to undertake any meaningful reduction in interest rates. Given the dismal industrial production trends seen in 1HFY13 (IIP coming in at a mere 0.2%), the 2QFY13 GDP reading of 5.3% with industry at 2.8% is positive.
Key events prior to the next RBI policy are: (1) Policy conformity towards revised fiscal target of 5.3% (2) Progress in the Winter Session of Parliament (more importantly, vote on FDI); (2) Macro data: CPI inflation data on 12th Dec, WPI on the 14th Dec and IIP data on 12th Dec. We are not expecting any significant change in RBI's stance in the next policy meeting on 18th Dec. Supportive measures (CRR cuts or OMOs) may continue from the RBI to prevent any further worsening of the liquidity deficit.
Accumulate Gateway Distriparks Ltd For Target Rs.154
Slightly subdued performance from Container Freight Station
(CFS) and Container Rail Segment GDL reported its consolidated net profit at Rs 298 mn (-11%YoY, -15% QoQ) for Q2FY13. It was below our expectations of Rs 325 million. Revenues have grown by ~29% YoY to Rs 2,373mn. We were unhappy with the performance of the key CFS segment. Volumes of the CFS segment has de grown 11% YoY and 5% QoQ to 82,652 TEUs primarily due to poor performance of Chennai CFS as well as JNPT CFS. Realisation of the CFS segment was stable at Rs 9444/TEU from Rs 9,407/TEU QoQ as company has
rationalized the tariffs (due to competition) plus the dwell time in the current quarter has fallen to 10 days (previous quarter 12 days).
Even the performance of the container rail segment was not so healthy for which the volumes have decreased ~5% QoQ and 20% YoY to 51,788 TEUs.The company continues to operate 21 rakes primarily on Exim routes for the last 4 quarters. With Indian railways behaving inconsistently in increasing the rail haulage charges, coupled with import/export mismatch, the margins have dipped by 550 bps QoQ to 10.4% in the container rail segment.
Operational performance of the cold chain business is stable but it continues to be a small part of the consolidated entity. We believe key risks to business lie in slower Exim growth on the back of slower GDP growth and negative global business sentiment. We assign a target price of Rs 154 for the stock and reiterate Accumulate.
Downside risk to our call includes:
1) Deterioration in Exim trade.
2) Further competition in the CFS segment and
3) Competition in rail haulage business.
Valuation and Outlook
GDL is into multiple businesses 1) CFS - slowing down but steady 2) rail business - capital intensive, fast growing venture and highly competitive 3) cold storage business- small and nascent but a big opportunity.
Combining GDL's various businesses of different capital intensity and differentgrowth trajectory; we value the company on 3 financial parameters - EV/EBITDA, P/B and P/E. We assign a target price of Rs 154 for the stock and reiterate ACCUMULATE.From the CMP of Rs 141 the stock has an upside of 9 %.
Buy Zee Entertainment Enterprises Ltd. For Target Rs 273
Outlook
Zee Entertainment Enterprises Ltd (ZEEL) continued to reported better than expected top-line growth of 33.8%. However, it recorded a decline in margins on account of increased investments (new channel launches – Zee Alwan & Zee Bangla Cinema and sports properties). ZEEL’s market share continues to remain robust led by strong showing of flagship channel Zee TV and stable performance in regional markets. We remain positive on its new ventures i.e. a) launch of HD channels, b) Zee Bangla Cinema (already leading cinema channel in Bengali market, complementing Zee Bangla), c) Zee Alwan, d) Ditto TV and e) ZeeQ (a edutainment channel to be launched in Q3FY13).
Furthermore, expected surge in subscription revenues due to the new digitization reforms, higher than expected ad-revenue growth and enhanced reach from the MediaPro venture should help revenues to grow at a CAGR of ~15.7% to Rs 4,711.3 crore from Rs 3,040.5 crore. At a CMP of Rs 191, ZEEL is trading at 19.1x and 14.1x its estimated earnings for FY14 and FY15 and we reiterate a BUY with the price target of Rs 273 representing a potential upside of ~43%.
Key Takeaways
* ZEEL reported a robust revenue growth of 33.8% YoY to Rs 953.5 crore in Q2FY13 as against Rs 712.8 crore in Q2FY12 with all round performance across major revenue streams i.e. advertising revenues and subscription revenues which grew by 33.7% YoY (Rs 528.1 crore v/s Rs 394.9 crore) and 35.7% YoY (Rs 394.9 crore v/s Rs 291 crore) respectively.
* During the quarter, advertising revenues grew sharply by 33.7% at Rs 528.1 crore despite seasonally weak advertising quarter. The ad-revenue growth was primarily driven by (a) India-Sri Lanka series and (b) ~18% advertising growth from ex-sports business (led by flagship channel Zee TV).
* Subscription revenues recorded 35.7% YoY growth to Rs 394.9 crore in Q3FY13 as against Rs 291 crore primarily driven by domestic subscription revenues. Domestic revenue grew by 43.9% YoY to Rs 280.8 crore on the back of continued traction from MediaPro and International subscription revenue grew by 19.0% YoY to Rs 114.1 crore largely due to rupee depreciation.
Buy Zydus Wellness Limited For Target Rs.522.00
Zydus Wellness is serving the health and fitness conscious consumers of India since 1988.
* The company aims at posting revenues of Rs. 500 crores by 2013.
* During the quarter, the robust growth of Net Profit is increased by 38.13% to Rs. 236.20 million.
* SugarFree has consolidated its position in the low calorie sugar
substitute market with a market share of more than 90% as of March 31,
2012.
* The company is No. 1 in peel-off with 97% share, which is growing at >20% and ~50% share in scrub market.
* Indian FMCG industry is valued at over $ 30 bn, growing at ~13% p.a. & is expected to cross $ 70 bn by 2018.
* The company has recommended the declaration of dividend @ Rs. 5/-
per Equity Share on 3,90,72,089 Equity Shares of Rs. 10/- each of the
Company for the year ended on March 31, 2012.
* Operating Profit and PAT of the company are expected to grow at a CAGR of 2% & 15% over 2011 to 2014E respectively.
Outlook and Conclusion
At the current market price of Rs.458.00, the stock P/E ratio is at 22.34 x FY13E and 19.98 x FY14E
respectively.
Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.20.50 and
Rs.22.92 respectively.
Operating Profit and PAT of the company are expected to grow at a CAGR of 2% and 15% over 2011 to 2014E
respectively.
On the basis of EV/EBITDA, the stock trades at 20.14 x for FY13E and 18.21 x for FY14E.
Price to Book Value of the stock is expected to be at 6.70 x and 5.02 x respectively for FY13E and FY14E.
We expect that the company surplus scenario is likely to continue
for the next three years, will keep its growth story in the coming
quarters also. We recommend ‘BUY’ in this particular scrip with a target
price of Rs.522.00 for Medium to Long term investment.
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