Buy Madras Cements Ltd For Target Rs.273.00Madras Cements Ltd manufactures cement & allied products; it is marketed under brand of RAMCO Portland Cement.
* During the quarter, the robust growth of Net Profit is increased by 8.80% to Rs. 836.00 millions.
* Total Income has increased from Rs. 7458.70 million for the quarter ended December 31, 2011 to Rs. 9067.70 million for the quarter ended December 31, 2012.
* Madras Cements has finalised plans to set up a 0.95-million-tonne grinding unit in Andhra Pradesh with an investment of Rs 350 crore.
* Madras Cements Ltd has declared 2nd Interim Dividend of Rs. 1.00 per share of Rs. 1/- each for 2012-13.
* The Company is in process of installing Roll Press present level of 90 TPH to 230 TPH at cost of Rs.60 crores & expected to commission in 2012-13.
* Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 33% over 2011 to 2014E respectively.
Investment Highlights
Results updates- Q3 FY13,
Madras Cements Ltd is the fifth largest cement producer in country & well-known business group of South India is a flagship company of Ramco group, reported its financial results for the quarter ended 31st Dec, 2012. The THIRD quarter witnesses a healthy increase in overall sales as well as profitability on account of enhanced network & cement exports.
The company’s net profit jumps to Rs.836.00 million against Rs.768.40 million in the corresponding quarter ending of previous year, an increase of 8.80%. Revenue for the quarter rose 21.62% to Rs.9049.50 million from Rs7440.70 millions, when compared with the prior year period. Reported earnings per share of the company stood at Rs.3.51 a share during the quarter, registering 8.80% increase over previous year period. Profit before interest, depreciation and tax is Rs.2365.30 millions as against Rs.2122.90 millions in the corresponding period
of the previous year.
Outlook and Conclusion
* At the current market price of Rs.241.40, the stock P/E ratio is at 13.04 x FY13E and 11.61 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.18.51 and Rs.20.79 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 21% and 33% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 6.99 x for FY13E and 6.38 x for FY14E.
* Price to Book Value of the stock is expected to be at 2.31 x and 1.92 x respectively for FY13E and FY14E.
* We recommend ‘BUY’ in this particular scrip with a target price of Rs.273.00 for Medium to Long term investment.
Buy Oil India Ltd. For Target Rs.620Oil India Ltd (OIL) showed a subdued performance in Q3FY13. Revenue decreased by 3% y-o-y (flat q-o-q) to Rs 25.16 bn (in line with street expectation of Rs 25.99 bn and lower than our expectation of Rs 26.97 bn) dragged by lower sales volume along with lower net realization. Crude oil sales volume decreased 2.74% YoY to 0.924 MMT and natural gas sales volume down by 1.47%. Net realization stood at USD52.59/bbl (down 7.7% y-o-y) v/s USD57 in Q3FY12 and USD 52.63 in Q2FY13. During the quarter, oil subsidy burden of upstream companies stood at Rs. 150.82 bn (38.40% of total subsidy). Oil India shared subsidy burden was Rs. Rs 19.48 bn (13% of total upstream sharing burden vs. 13.75% in Q2FY13). EBITDA margin decreased 634 bps y-o-y and 179 bps q-o-q to 50.9% due to higher statutory levies, staff cost and other expenditure. However, net profit stood at Rs 9.40 bn, above consensus estimate of Rs 9.12 bn (slightly lower than our expectation of Rs. 9.56 bn) due to lower DD&A cost. DD&A cost decreased by 23% y-o-y and 13% q-o-q to Rs. 2.2 bn. On operational front, crude oil production de-grew by 5.25% y-o-y to 0.921 MMT while natural gas production slipped 0.15% y-o-y to 0.675 BCM.
Crude oil production volume de-grew
Crude oil production during Q3 FY13 was lower by 5.25% y-o-y to 0.921 MMT while natural gas production also slipped 0.15% y-o-y to 0.675 BCM. Crude oil sales at 0.924 MMT during Q3 FY13, decreased by 2.74% as compared to sales of 0.95 MMT in Q3 FY12. Sales of natural gas decreased by 1.47% to 0.536 BCM during Q3 FY13 as compared to 0.544 BCM during the Q3 FY12.
Valuation
We believe OIL’s strong resource base poses considerable triggers for volume growth. The recent reforms undertaken by the Indian government in pricing of petroleum products is also expected to be significantly value-accretive for OIL. At the CMP of Rs 534, the stock is trading at 9.58x FY13E and 8.63x FY14E EPS OIL’s cash rich balance sheet (Rs. 232/share) and compelling valuation (below 2Yr average P/E of 11x) makes this a good value buying. We maintain our BUY rating on the stock with DCF based target price of Rs. 620.
Buy Dr.Reddy's Laboratories Ltd For Target Rs.2,425Dr. Reddy's (DRRD) is a vertically integrated pharmaceutical major with presence across value chain through its core businesses of Global
Generics, Pharmaceutical Services & Active Ingredients (PSAI), and Proprietary Products. The company is currently developing biogenerics
and NCEs. Key focus markets include India, US, Europe and Russia.
Key investment positives
* Dr. Reddy's derives more than 75% of its revenues from exports and less than 20% of its raw material costs constitute of imports. As per its hedging policy, Dr. Reddy's covers receivables for the upcoming 18 months and classifies these hedges as cash-flow hedges. Its outstanding cash flow hedge position, as of September 2012, stood at ~USD600m. Company has not been able to realize the full benefit of Rupee depreciation as some of its cash flow hedges were booked at appreciated INR/USD rate. We believe that Dr.Reddy's will continue to see the benefit of INR depreciation in its top line as new hedges get locked at current INR/ USD rates.
* The company continues to focus on its five key markets - US, India, Russia, Germany and UK. The US market will be a key growth driver in FY14 led by the commercialization of its pipeline of 80 ANDAs (pending approval) and the contribution from FTF/ low-competition opportunities. At least one limited competition product approval is due in Q4, which should add to revenues in FY14.
Valuation and View:
* We expect core EPS CAGR of 17% for FY13-15. DRRD stock trades at 18.5x FY14E and 15.8x FY15E core earnings. Buy with a target price of INR2,425.
Buy Kotak Mahindra Bank Ltd For Target Rs.727.00Kotak Mahindra Bank Ltd is Centralized Banking Solution enabled and the first nonbanking finance company to receive a baking license from the RBI.
* Kotak Mahindra Bank Ltd has acquires the business loans portfolio from Barclays Bank PLC, India Branch.
* Kotak Investment Banking, alliance with SMBC and SMBC Nikko will play an active role in the growing cross-border M&A activity between India and Japan.
* Kotak Mahindra Bank revises Savings Bank Interest Rate. Balance above Rs. 1 Lakh - 6.00% p.a and below5.50% p.a. with effect from 1st November
* CASA and TDs below Rs. 50 million constitute 54.7% of total deposits.
* Kotak has added around Rs 2.1 lakh’s customer accounts for the quarter.
* Kotak Mahindra Bank has made once again in the list of the prestigious Forbes Asia’s Fab 50 Companies in 2012 for the 3rd consecutive year 2010-12.
* Net Income and PAT of the company are expected to grow at a CAGR of 28% and 17% over 2011 to 2014E respectively.
Investment Highlights
Results updates- Q3 FY13
The Kotak Mahindra Bank continues to show strong performance in terms of growth of Net Interest Income, Fee Income and Operating Revenue. The group has posted net profit of the Rs. 5857.80 million against Rs. 4662.23 million in the corresponding quarter ending of previous year, an increase of 25.64%. Net Income for the quarter rose 26.48% to Rs. 28114.70 million from Rs. 22227.92 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 7.76 a share during the quarter, registering
23.99% an increase over previous year period.
Outlook and Conclusion
* At the current market price of Rs. 655.00, the stock P/E ratio is at 21.96 x FY13E and 18.95 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs. 29.83 and Rs.34.57 respectively.
* Net Income and PAT of the company are expected to grow at a CAGR of 28% and 17% over 2011 to 2014E respectively.
* On the basis of Debt-Equity Ratio, the stock trades at 5.00 x for FY13E and 4.71 x for FY14E.
* Price to Book Value of the stock is expected to be at 3.23 x and 2.77 x for FY13E and FY14E respectively.
* We expect that the Bank continues to show strong performance in terms of growth of Net Interest Income, Fee Income and Operating Revenue. The Bank has taken several initiatives by the business loans portfolio from Barclays Bank to strengthen its business Loan portfolio and to add value to its existing business line and alliance with SMBC and SMBC Nikko will play an active role in the growing cross-border M&A activity between India and Japan. So, we will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs. 727 .00 for Medium to Long term investment.
Buy Radico Khaitan Ltd For Target Rs.18Radico Khaitan's 3QFY13 performance was below our estimates. However, results of premiumization focus are visible in gross margin expansion of 160bp and operating margin expansion of 60bp to 15.4% (est 15.5%). Sales growth of 8% to INR3.26b was below our estimate of INR3.4b. Higher tax rates resulted in 7% YoY growth in PAT to INR220m (est INR251m), despite 12% EBITDA growth to INR501m (est INR530m).
* Volumes grew 6.5% YoY; premium brands' outperformed with 20% growth, led by Morpheus brandy with 31% growth. Radico was granted a 10% price hike in Andhra Pradesh during end-3Q, benefits of which will accrue in 4Q and FY14. It also expects 8-10% price hike in Karnataka beginning FY14.
* Better mix enabled 160bp YoY gross margin expansion despite 8% YoY increase in ENA costs. ENA costs are expected to soften in 4Q.
* Operating margin expansion was capped at 60bp YoY to 15.4% due to 130bp increase in other expenses (incl ad spends), despite 50bp savings in selling and distribution expenses. Higher ad cost is led by continued investments in Verve vodka , which has expanded presence in Northern India. * Net interest cost remained flat YoY at INR99m.
* Recurring profit growth of 7% YoY to INR220m was below our expectation of INR251m due to lower-than-expected sales and higher tax rate (30.1% v/s 24.7% in base) which was due to higher provision for deferred tax liabilities. Reported PAT declined 22% due to forex related fluctuations - charge of INR36m v/s write-back of INR31m in base.
* Our core Buy rating on Radico remains as premium brands continue to outperform mainline brands in the portfolio. Robust gross margin expansion despite continued increase in input costs, reflect the benefit of premiumization trend, which we expect to accelerate in the medium term, given the changing focus of industry leader. Price hike in AP and expected hike in Karnataka (together ~30% of Radico's sales) augur well for 4Q and FY14 margins. We retain our estimates and reiterate a Buy with a target price of INR181 (16x FY15E EPS).
Buy Canara Bank For Target Rs.600Canara Bank's 3QFY13 PAT of ~INR7.1b (-19% YoY and +7% QoQ) was 6% above our estimate of INR6.7b. Higher non-interest income (27% above estimate) compensated for higher than expected provisions and tax rate. NII was 3% below estimate (+4% YoY and +2% QoQ to INR19.9b) led by lower-than-expected loan growth (flat both QoQ and YoY). NIMs calculated improved 4bp QoQ to 2.27% (inline
est). Key highlights:
* Net slippages remained high at INR11b v/s INR12.8b in 2QFY13. GNPAs/NNPAs grew 9%/12% QoQ and PCR, including write-offs stood at 61%.
* CBK restructured loan of INR8.7b during the quarter. However, repayment of INR12.5b, took cumulative restructured loans (facility-wise) to INR145b v/s INR149b a quarter ago. OSRL stood at INR134b (6.1% of loans facility-wise).
* Non core income (forex + trading + recoveries + MTM on investment) stood at INR4.2b (v/s INR3.3b) in 3QFY13 and INR9.3b (v/s INR8b) in 9MFY13. * CASA deposits grew 8% YoY (down 3% QoQ) led by 8% YoY growth in SA deposits (down 3% QoQ). CASA ratio improved marginally to 25%.
Valuation and view: CBK has aggressively built up investment portfolio, leading to higher share of trading (including AFS gains) in the profitability. With expected revival of growth from FY14 onwards, asset reallocation will be positive for margins, further, benefit on cost of funds (due to fall in above card rate deposits) will aid margin improvement in FY14. RoA and RoE will be healthy at 0.8%/16% over FY14-15E. Maintain Buy.
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