9-Stocks Sharekhan 040814

Visit us at www.sharekhan.
com July 30, 2014

Index
Stock Update >> ITC
Stock Update >> Bharti Airtel
Stock Update >> IRB Infrastructure Developers
Stock Update >> V-Guard Industries
Stock Update >> Godrej Consumer Products
Stock Update >> Bank of India
Stock Update >> CESC
Stock Update >> Cadila Healthcare
Viewpoint >> Arvind
For Private Circulation only
Regd Add: Sharekhan Limited, 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East),
Mumbai 400042, Maharashtra. Tel: 022 - 61150000. Fax: 67481899; E-mail: publishing@sharekhan.com; Website: www.sharekhan.com; CIN:
U99999MH1995PLC087498. Sharekhan Ltd.: SEBI Regn. Nos. BSE- INB/INF011073351 ; CD-INE011073351; NSE INB/INF231073330 ; CD-INE231073330;
MCX Stock Exchange- INB/INF261073333 ; CD-INE261073330; DP-NSDL-IN-DP-NSDL-233-2003 ; CDSL-IN-DP-CDSL-271-2004 ; PMS-INP000000662 ; Mutual
Fund-ARN 20669 ; Commodity trading through Sharekhan Commodities Pvt. Ltd.: MCX-10080 ; (MCX/TCM/CORP/0425) ; NCDEX-00132 ; (NCDEX/TCM/
CORP/0142) ; NCDEX SPOT-NCDEXSPOT/116/CO/11/20626; For any complaints email at igc@sharekhan.com ; Disclaimer: Client should read the Risk
Disclosure Document issued by SEBI & relevant exchanges and Dos & Donts by MCX & NCDEX and the T & C on www.sharekhan.com before investing.
2 Sharekhan
Home Next July 30, 2014
Company details
Price chart
Shareholding pattern
Price performance
(%) 1m 3m 6m 12m
Absolute 11.7 6.3 11.3 -1.2
Relative 7.4 -8.4 -12.5 -26.2
to Sensex
ITC Reco: Buy
Stock Update
A mixed performance, maintain Buy with revised price target of Rs387 CMP: Rs359
Price target: Rs387
Market cap: Rs285,584 cr
52 week high/low: Rs387 / 285
NSE volume: 70.9 lakh
(no. of shares)
BSE code: 500875
NSE code: ITC
Sharekhan code: ITC
Free float: 795.5 cr
(no. of shares)
Key points
In Q1FY2015 ITCs net revenues grew by 25% YoY, driven by a strong 19% price-led
growth in the cigarette business (sales volume declined by 2.5% in line with our
expectation of a 3% decline) and a 51% growth in the agriculture business (driven
by strong trading of low-margin commodities). The non-cigarette FMCG revenues
grew moderately by 11% (affected by a general slowdown in the industry) while
the hotel business revenues stood flat due to a silent business period.
The GPM declined by 429BPS YoY largely on account of a change in the revenue
mix and an increase in the prices of some key inputs. However, OPM declined
by only 73BPS to 35.4%. The cigarette business PBIT margin improved by 140BPS
YoY to 64.5% on the back of a price hike undertaken in the cigarette portfolio.
The non-cigarette FMCG business posted a loss of Rs16 crore while the agriculture
business margin dropped by almost 300BPS to 6.0%. Overall, the operating
profit grew by 17.4% YoY to Rs3,277.6 crore and the PAT grew by 16% YoY to
Rs2,186.4 crore largely on the back of a strong growth in the revenues.
Q1FY2015 was largely a quarter of a mixed performance for ITC. Going ahead,
we expect the cigarette sales volume to remain under pressure as the company
plans to hike prices again to mitigate the impact of a sharp increase in the
excise duty on cigarettes. However, we expect the cigarette business revenues
to remain in double digits while the PBIT margin is likely to sustain YoY. We
believe revival in the other FMCG business would depend on an overall
improvement in the prospects of some of the key FMCG categories.
We have broadly maintained our earnings estimates for FY2015 and FY2016 and
believe that the company is well-poised to achieve an earnings CAGR of 16%
over the next two years. We continue to like ITC in view of its better earnings
visibility and discounted valuation of 24x FY2016E earnings to some of the other
large-cap FMCG stocks. We maintain our Buy recommendation on the stock
with a revised price target of Rs387 (valuing the stock 26x the FY2016E earnings).
Key risk: Any significant drop in the sales volume of the cigarette business and
further drop in the revenues of the other FMCG businesses remain the key risks
to our earning estimates.
Results (stand-alone) Rs cr
Particulars Q1FY15 Q1FY14 YoY % Q4FY14 QoQ %
Net sales 9,248.3 7,410.7 24.8 9,238.5 0.1
Total expenditure 5,970.7 4,619.4 29.3 6,035.1 -1.1
Operating profit 3,277.6 2,791.3 17.4 3,203.4 2.3
Other income 234.6 203.2 15.4 266.7 -12.1
Interest 15.2 17.0 -10.6 9.5 59.0
Depreciation 231.3 215.3 7.4 237.8 -2.7
Profit before tax 3,265.7 2,762.2 18.2 3,222.8 1.3
Tax 1,079.3 870.9 23.9 944.7 14.2
Adjusted PAT 2,186.4 1,891.3 15.6 2,278.0 -4.0
Exceptional item 0.0 0.0 0.0
Reported PAT 2,186.4 1,891.3 15.6 2,278.0 -4.0
EPS (Rs) 2.7 2.4 15.6 2.9 -4.6
GPM (%) 57.0 61.3 (429)BPS 58.1 (112)BPS
OPM (%) 35.4 37.7 (73)BPS 34.7 (77BPS
investors eye stock update
Domestic
Institutions
35%
FIIs
50%
Others
15%
280
300
320
340
360
380
J
u
l
-
1
3
O
c
t
-
1
3
J
a
n
-
1
4
A
p
r
-
1
4
J
u
l
-
1
4
3 Sharekhan
Home Next
July 30, 2014
Segment-wise revenue performance
Business Q1 Q1 YoY Q4 QoQ
FY15 FY14 % FY14 %
FMCG - cigarettes 4,201.1 3,537.4 18.8 4,078.8 3.0
FMCG - others 1,934.6 1,744.7 10.9 2,314.5 -16.4
Hotels 248.7 249.9 -0.5 320.5 -22.4
Agri - business 3,296.1 2,189.0 50.6 2,004.2 64.5
Paperboard, 1,288.5 1,163.1 10.8 1,261.2 2.2
paper and packaging
Total 10,968.9 8,884.0 23.5 9,979.2 9.9
Less: inter 1,804.5 1,545.5 16.8 834.1 116.3
segment sales
Gross sales 9,164.4 7,338.5 24.9 9,145.1 0.2
Cigarette business: volume declined by 2-3%, margin
improved on back of price hikes
ITCs cigarette business net revenues grew by about
19% year on year (YoY; gross revenues grew by about
10%) largely driven by the price increases undertaken
in the portfolio in the past few quarters.
The cigarette sales volume declined by about 2.5%
under a sustained impact of price hikes in the portfolio.
The cigarettes below 65mm size continued do well and
currently contribute around 10-11% of ITCs cigarette
sales volume.
Going ahead, we expect the cigarette sales volume to
remain under pressure, as the company is planning
further price hikes in the cigarette portfolio (can be
in the range of 6-8%) to mitigate the impact of the
excise duty hike in the recently announced union
budget for 2014-15. The price hikes would be
undertaken in all the segments (including the below-
65mm cigarettes). Thus, we expect the cigarettes sales
volume to decline by 3.5% in FY2015.
However, the price hikes would help the revenues to
grow in double digits and the profit before interest
and tax (PBIT) margin to sustain at about 65%.
Non-cigarette FMCG business: affected by general
slowdown in FMCG categories
Q1FY2015 was the second consecutive quarter of
slowdown in the revenue growth of non-cigarette FMCG
businessthe revenue growth of the business
moderated to 11% during the quarter. Though the
company managed to maintain the market share in
Segment-wise margin performance
Business PBIT (Rs cr) YoY Margins (%) Chg. in BPS
Q1FY15 Q1FY14 % Q1FY15 Q1FY14
FMCG - cigarettes 2,721.8 2,241.7 21.4 64.8 63.4 142
FMCG others -15.6 -18.9 -17.6 -0.8 -1.1 28
Hotels -12.1 8.9 -235.2 -4.9 3.6 -
Agri business 202.5 199.3 1.6 6.1 9.1 -296
Paperboard, paper and packaging 274.9 251.6 9.3 21.3 21.6 -30
Total 3,171.4 2,682.6 18.2 34.6 36.6 -195
most of the categories, but the general slowdown in
most categories resulted in moderation in the revenue
growth.
Biscuit, snacks, noodles, personal care products and
matchsticks are not growing in line with some of the
earlier quarters. We believe ITCs revenue growth
would get back on track once the inflationary pressures
ease out and consumer sentiment improves.
The company has maintained its thrust on continuous
addition of new products in the portfolio (especially
in foods and personal care portfolio).
The company posted a PBIT loss of about Rs16 crore
during the quarter mainly on account of moderation
in the revenue growth and sustained higher spending
on brand building and promotional activities in some
of the key categories. We should monitor the
profitability of this segment on quarter-on-quarter
basis and expect it to improve with an improvement
in the revenue growth and the revenue mix.
Agriculture business: revenues grew by 50%, but margin
disappointed
The agriculture business revenues grew by 51% YoY to
Rs3,296.1 crore, driven by trading opportunities in
wheat, soya and coffee. However, the tobacco sales,
which form a large chunk of the revenue pie, didnt
grow in line with the other commodities.
The PBIT margin of the segment declined by almost
300BPS YoY to 6.1%, largely on account of higher sales
of low-margin commodities.
Hotel business: a muted performance
The first quarter of a fiscal is normally dull for hotel
business in India. ITCs revenues from the hotel business
stood flat at Rs249 crore during the quarter. The
business registered a PBIT loss of Rs12.0 crore due to
incremental depreciation charge (of Rs14.3 crore) on
account of a revision in the useful life of fixed assets,
in accordance with Companies Act, 2013.
The company expects the second half of the fiscal to
be much better for the business, as domestic corporate
travel is expected to improve in the coming months.
Going ahead, once could see an improvement of at
least 100-200 basis points (BPS) in the occupancy rate
with a marginal increase in the room rentals.
4 Sharekhan
The construction activities of the new luxury properties
in Kolkata, Hyderabad, Bengaluru and at the Classic
Golf Resort near Gurgaon are progressing satisfactorily.
The Gurgaon and Bengaluru hotels are expected to be
operational in mid FY2015 (both the hotels will have a
room inventory of around 100 rooms each).
Paperboard, paper and packaging business: a better
performance
The revenues of the paperboards, paper & packaging
business grew by 10.8% aided by higher capacity
utilisation of recent investments.
The PBIT margin of the business stood almost flat at
21.3%.
Outlook and valuation
The Q1FY2015 performance of ITC was largely a mixed
bag. Going ahead, we expect the cigarette sales volume
to remain under pressure as the company plans further
price hikes to mitigate the impact of a sharp increase in
the excise duty on cigarettes. However, we expect the
cigarette business revenues to remain in the double digits
while the PBIT margin is likely to sustain YoY. We believe
a revival in the other fast moving consumer goods (FMCG)
businesses depends on the overall improvement in the
prospects for the FMCG sector.
We have broadly maintained our earnings estimates for
FY2015 and FY2016 and believe that the company is well
poised to achieve an earnings compounded annual growth
rate (CAGR) of 16% over the next two years. We continue
to like ITC in view of its better earnings visibility and
discounted valuation of 24x its FY2016E earnings compared
with some of the other large-cap FMCG stocks. We
maintain our Buy recommendation on the stock with a
revised price target of Rs387 (valuing the stock at 26x
the FY2016E earnings).
Valuations
Particulars FY12 FY13 FY14 FY15E FY16E
Net sales (Rs cr) 25173.8 29901.3 33238.6 37927.0 45070.2
Net profit (Rs cr) 6,162.4 7,418.4 8,785.2 9,846.1 11,852.4
EPS (Rs) 7.9 9.4 11.0 12.4 14.9
YoY chg (%) 22.3 19.1 17.7 12.1 20.4
PE(x) 45.5 38.2 32.5 29.0 24.2
P/BV (X) 14.9 12.7 10.9 9.4 7.8
EV/EBIDTA (x) 31.0 26.0 22.2 19.6 16.3
RoCE (%) 44.6 45.4 45.2 43.3 43.9
RoNW (%) 35.5 36.1 36.2 34.7 35.2
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
5 Sharekhan
Home Next
July 30, 2014
Company details
Price chart
Price performance
(%) 1m 3m 6m 12m
Absolute 6.7 4.8 15.7 5.0
Relative 2.6 -9.7 -9.0 -21.6
to Sensex
Bharti Airtel Reco: Hold
Stock Update
Strong domestic performance, Africa still lags; price target revised to Rs400 CMP: Rs373
Price target: Rs400
52 week high/low: Rs373/274
(no. of shares)
BSE code: 532454
NSE code: BHARTIARTL
Sharekhan code: BHARTIARTL
Free float: 138.4 cr
(no. of shares)
Key points
In Q1FY2015 Bharti Airtel (Bharti)s consolidated performance was marked by a
strong improvement in the domestic mobile business which led to a top line
growth of 3.3% QoQ (the top line growth was a result of volume as well as price
led improvement). The operating profit grew by a strong 5.7% QoQ. Consequently,
the margin expanded by 73BPS QoQ to 33.6%. The strong operational performance
coupled with a lower interest cost resulted in a 15.3% sequential growth in the
earnings. Adjusting for the exceptional loss for both the quarters, the adjusted
earnings grew by 17.1% QoQ.
Bhartis domestic wireless business was the star performer in its portfolio, with
a 4% Q-o-Q revenue growth (led by a 2.5% Q-o-Q growth in voice realisation and
a 2.3% Q-o-Q growth in traffic) and a staggering 200-BPS margin expansion. The
wireless business margin at 36.9% is the highest in several quarters (the last
time the company had seen a margin of 36.4% was in Q4FY2010). On the other
hand, the African business continued to disappoint on both the revenue (down
1.1% QoQ) and the margin front (a sequential contraction of 100BPS; at 24.2% it
was a multi-quarter low margin).
The management continued to place confidence in the improving competitive
landscape of the domestic wireless industry. Hence going forward, it expects
an improvement in the realised rates and consequently in the margins. Taking
cognisance of the strong margin improvement witnessed in the wireless business
in Q1FY2015 and the positive outlook for the Indian business, we have raised
our EBITDA estimates for FY2015 and FY2016 by 2.7% and 3.8% respectively.
Accordingly, we raise our price target from Rs370 to Rs400. We maintain our
Hold rating on the stock though.
Results (consolidated) Rs cr
Net sales 23,005.5 20,299.5 13.3 22,260.5 3.3
License fee & spectrum charges 2,200.3 1,821.9 20.8 1,995.1 10.3
% Sales 9.6 9.0 9.0
Employee expenses 1,168.0 1,092.6 6.9 1,151.7 1.4
% Sales 5.1 5.4 5.2
Access & inter connection charges 2,788.9 2,696.1 3.4 2,873.2 (2.9)
% Sales 12.1 13.3 12.9
Network operating expenses 5,123.6 4,670.0 9.7 5,021.9 2.0
% Sales 22.3 23.0 22.6
Other expenses 3,928.0 3,458.7 13.6 3,860.2 1.8
% Sales 17.1 17.0 17.3
Total expenses 15,285.5 13,754.6 11.1 14,953.9 2.2
Operating profit 7,720.0 6,487.0 19.0 7,306.6 5.7
Interest expenses 956.5 1,167.6 (18.1) 991.1 (3.5)
Depreciation 4,036.5 3,847.0 4.9 3,944.4 2.3
PBT 2,884.8 1,837.5 57.0 2,381.5 21.1
Tax 1,532.6 968.4 58.3 1,356.2 13.0
Reported PAT before minority 1,170.2 869.1 34.6 1,025.3 14.1
Minority interest 61.7 180.4 63.7
Reported PAT post minority 1,108.5 688.7 61.0 961.6 15.3
Exceptional including forex & 251.9 534.0 98.6
derivatives (net)
Adjusted PAT post-minority interest 1,360.4 997.5 36.4 1,162.2 17.1
Adj. EPS 3.4 2.50 36.4 2.91 17.1
OPM (%) 33.6 32.0 160 32.82 73 BPS
270
290
310
330
350
370
390
J
u
l
-
1
3
O
c
t
-
1
3
J
a
n
-
1
4
A
p
r
-
1
4
J
u
l
-
1
4
Institutions
7%
Promoters
66%
Public & Others
1%
Foreign
23%
Non-promoter
corporate
3%
6 Sharekhan
Valuations
Revenue (Rs cr) 71,506 79,434 85,746 94,714 105,205
% growth 20.2 11.1 7.9 10.5 11.1
EBITDA (Rs cr) 23,712 24,453 27,660 32,124 36,084
% growth 18.8 3.1 13.1 16.1 12.3
EBITDA margin (%) 33.2 30.8 32.3 33.9 34.3
Adjusted PAT (Rs cr) 4,258 2,172 3,935 5,607 6,509
EPS (Rs) 10.7 5.4 9.8 14.0 16.3
% growth -27.8 -49.0 81.2 42.5 16.1
PER (x) 33.4 65.5 36.2 25.4 21.9
EV/EBITDA (x) 8.8 8.7 7.5 7.1 6.1
RoCE (%) 9.0 7.5 9.3 11.9 13.7
RoE (%) 7.9 4.3 3.8 8.6 9.0
Result highlights
Strong top line performance aided by Indian mobile
business: The consolidated income of Bharti grew at
3.3% on a sequential basis, led by a strong 4% sequential
growth in the Indian mobile business and a 2.1% growth
in the tower business. Owing to the local currencys
appreciation against the dollar, the income from the
international businesses, ie the African and South Asian
businesses, declined by 1.1% and 2.6% quarter on
quarter (QoQ) respectively. The strong performance
of the Indian mobile business came on the back of an
improvement in both the realisation (up 3.5% QoQ)
and the volume (up 2.3% QoQ) along with a growth in
the data business.
Operating profit expands 5.7% QoQ; Indian mobile
business shines with 200-BPS margin expansion: The
consolidated operating profit for the quarter grew by
strong 5.7% QoQ and 19% year on year (YoY).
Consequently, the operating profit margin (OPM)
expanded by 73 basis points (BPS) QoQ. This strong
margin expansion was led by a margin (which witnessed
a very sharp margin expansion of 200BPS from 34.9%
in Q4FY2014 to 36.9% in Q1FY2015). Also, the Airtel
Digital business showed a substantial margin
improvement (up 650BPS QoQ). The African business
margin stood at 24.2% during the quarter (a contraction
of 100BPS QoQ),and was the lowest margin reported
in 14 quarters.
Reported earnings include exceptional losses;
adjusted earnings surpass expectations: The reported
earnings grew by 15.3% on a sequential basis to
Rs1,108.5 crore and also included an exceptional loss
on account of a charge related to various disputes and
a tax related provision. Adjusting for the same, the
earnings grew by 17.1% on a sequential basis.
Marked improvement in the balance sheet and
gearing: The consolidated net debt stood at $9.6 billion
while the net debt-to-earnings before interest, tax,
depreciation and amortisaiton (EBITDA) improved from
2.2x in Q4FY2014 to 2.04x in Q1FY2015.
Indian business performance
Indian mobile business; spectacular show on all
fronts: The mobile business witnessed a spectacular
4% sequential revenue growth; aided by volume as well
as realisation growth in the mainstay voice business
along with a strong data surge. The voice traffic grew
by 2.3% on a sequential basis on the back of a strong
3.8% sequential growth reported in Q4FY2014. For the
quarter the company carried 271 billion minutes on
its network. The voice realisation also witnessed a
sharp 2.5% sequential growth from 37.2 paise per
minute in Q4FY2014 to 38.1 paise in Q1FY2015,
signifying the easing of competition for the
telecommunications (telecom) players (the same was
evident from Idea Cellulars Q1FY2015 results). The
surge in data traffic and revenues continued, with,the
overall data volume growing by 17% QoQ and by 96%
year on year (YoY). Though the data realisation for
the quarter came 2% lower compared with Q4FY2014.
Non-mobile business; DTH and tower businesses
shine: On the non-mobile business, Airtel Digitals
revenues grew by 9.2% QoQ led by a strong growth in
the net additions (Bharti added 3.8 lakh subscribers in
Q1FY2015) and a 5.4% sequential growth in the average
revenue per user (ARPU). The margins for the segment
expanded by 650BPS QoQ to 24.3% in Q1FY2015 from
17.8% in Q4FY2015. This is the highest margin reported
by the segment so far. Also, the tower business reported
a 2.1% sequential growth in its revenues. The other
businessesenterprise business and telemedia
businessposted a lacklustre performance.
African business performance
Revenue growth at modest 1.7% on constant-
currency front: The revenues of the African business
declined by 1.1% QoQ in rupee terms; on a constant-
currency basis, the growth was modest at 1.7% QoQ.
The entire constant-currency growth for the African
business was on account of a growth in data revenues
and volumes. The data realisation grew at 8% QoQ while
the volume grew at 7% QoQ.
Higher operational expenses dragged margins to a
multi-quarter low of 24.2%: A subdued revenue
performance coupled with higher operational expenses
(network operating cost, and sales and administrative
expenses) weighed on the margin performance and
the African margin came at a multi-quarter low of 24.2%
for Q1FY2015. Consequently, the EBITDA declined 2%
QoQ. Bhartis African EBITDA has been trending in the
range of $280-300 million for ten quarters now.
Key takeaways from management conference call
Headroom for improvement in the voice realised
rates: The management maintained its positive stance
on the trend towards the voice realised rates and
mentioned that barring seasonal quarters, the realised
7 Sharekhan
Home Next
July 30, 2014
Voice realisation and growth trends (QoQ)
Data volume and growth trends
Data realisation and growth trends
0.6
4.6
0.5
1.2
(0.2)
2.5
33.000
33.500
34.000
34.500
35.000
35.500
36.000
36.500
37.000
37.500
38.000
38.500
Q4FY13A Q1FY14 Q2FY14 Q3FY14A Q4FY14A Q1FT14A
(1.0)
-
1.0
2.0
3.0
4.0
5.0
Voice realization (paise per minute) % QoQ growth
Voice volume and quarterly growth trends
5.1
2.1
(2.7)
1.5
3.8
2.3
240.0
245.0
250.0
255.0
260.0
265.0
270.0
275.0
-4
-3
-2
-1
0
1
2
3
4
5
6
Voice traf f ic (bn minutes) % QoQ grow th
18.7 18.7
21.9
15.3
19.3
16.7
-
10.00
20.00
30.00
40.00
50.00
60.00
-
5.0
10.0
15.0
20.0
25.0
Data volume (bn bytes) % grow th
29.3
32.7
30.0
30.4
28.6
28.0
(15.0)
(10.0)
(5.0)
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Data realization (pasie per byte) % grow th
rates are poised to increase as there still exists a gap
between the headline tariff and the realised tariff.
This will thus keep the headroom for growth.
Strong growth in data to be complemented by
spectrum: It echoed the stance of the other telecom
companies with respect to data growth and expects
data share and its growth to continue to increase. But
it also mentioned that the growth momentum needs
to be complemented with spectrum and that it would
be keen to acquire spectrum in the upcoming auctions.
African business saw strong data led growth: On the
African front, it has now acquired 3G licences in all
the 17 countries and has 3G presence in 15 countries.
Bharti expects to roll out 3G services in the remaining
two countries in the ensuing quarter. The management
sounded very positive on the data growth potential in
the African market and expects around 16-20%
sequential growth.
In line with Helios deal, looking at African tower
sale: In line with the recent divestment of 3,100 African
towers to Helios, the management is also looking to
enter into similar tower divestment deals for the
remaining 12,000-13,000 towers and guided that these
deals would be incremental profit before tax (PBT)
neutral to positive.
Capex guidance maintained at $2-2.4 billion: On the
capital expenditure (capex) front, it guided for a
consolidated capex in the range of $2.0-2.4 billion
including $800 million towards the African business.
The capex guidance excludes any spectrum related
pay-outs.
Tax guidance: For the Indian business, the
management guided for a 28-29% effective tax rate
while it continues to be challenging to provide any
guidance for the African business owing to the
differences in the law and a mix of loss- and profit-
making countries.
Reporting changes: For the quarter, there were a couple
of reporting changes including: (a) reclassification of
financing loan of the Dutch subsidiary from the African
business towards the Indian business; and (b) changes
in data subscriber reporting (as per the new definition,
a subscriber using > 1 megabyte of data in the immediate
30 days would be classified as data subscriber as against
the earlier definition of a customer using > 0 kilobyte
of data in the preceding 30 days).
8 Sharekhan
Company details
Price chart
Price performance
(%) 1m 3m 6m 12m
Absolute 4.9 101.4 244.9 190.5
Relative 0.9 73.5 171.2 117.0
to Sensex
IRB Infrastructure Developers Reco: Buy
Stock Update
Robust BOT performance limits impact of leverage; price target revised to Rs300 CMP: Rs239
Price target: Rs300
(no. of shares)
BSE code: 532947
NSE code: IRB
Sharekhan code: IRB
Free float: 12.9 cr
(no. of shares)
Key points
IRB Infrastructure Developers (IRB) reported a net profit growth of 11.8% on
account of a strong performance of the BOT segment (up 54% YoY, OPM up
387BPS). On the flip side, the construction business (down 23% YoY), and a
surge in the interest expenses (after commissioning of the Jaipur-Deoli project)
and depreciation (amortisation of premium deferment of two projects) limited
the net profit growth.
The companys order book stands at Rs11,348 crore (including projects worth
Rs5,500 crore bagged recently) providing visibility of the revenues of the
construction business over next three to four years. The tariff revision in some
projects from April 1, 2014 and September 1, 2014 along with an improvement
in the traffic is expected to drive the BOT revenues.
IRB is well funded to meet the Rs2,041 crore equity requirement over the next
three years with internal accruals. The improving macro environment (better
visibility of tendering, potential easing of interest rates etc) and a potential
upside from a better than expected growth in traffic on the back of an economic
revival are the key re-rating triggers for the stock. Thus, we continue to like
IRB, which could offer handsome gains over the next 12-18 months. We maintain
our Buy rating on the stock with a revised price target of Rs300.
Net sales 1,010.0 1,032.7 -2.2 882.9 14.4
Other income 26.7 29.3 -8.9 35.2 -24.2
Total income 1,036.7 1,061.9 -2.4 918.0 12.9
Total expenses 447.3 577.7 -22.6 440.9 1.5
Operating profit 562.8 455.0 23.7 442.0 27.3
Depreciation 176.5 121.7 45.0 119.3 48.0
Interest 216.7 166.0 30.5 209.9 3.3
Profit before tax 196.2 196.5 -0.2 148.0 32.5
Taxes 45.6 62.5 -27.0 37.9 20.3
PAT 150.6 134.1 12.3 110.1 36.8
Minority interest 0.2 -0.5 -147.5 0.9 -74.9
Consolidated PAT 150.4 134.6 11.8 109.2 37.7
No of equity shares 33.2 33.2 0.0 33.2 0.0
EPS 4.5 4.0 11.8 3.3 37.7
OPM (%) 55.7 44.1 1166 BPS 50.1 565 BPS
NPM (%) 14.9 13.0 186 BPS 12.4 252 BPS
Tax rate (%) 23.2 31.8 -854 BPS 25.6 -236 BPS
50
100
150
200
250
300
J
u
l
-
1
3
O
c
t
-
1
3
J
a
n
-
1
4
A
p
r
-
1
4
J
u
l
-
1
4
FII
25%
Institutions
4%
Public &
others
10%
Promoters
61%
9 Sharekhan
Home Next
July 30, 2014
Others
1%
O&M contracts
17%
Goa/ Karnataka
Border Kundapur
19%
Solapur Yedeshi
11%
Yedeshi
Aurangabad
24%
Kaithal Rajasthan
Border
17%
Sindhudurg airport
3%
Ahemdabad-
Vadodara
8%
Order book composition as of Q1FY2015
BOT segment drives revenues; higher interest and
depreciation charge limit profitability: In Q1FY2015,
IRBs consolidated revenues declined by 2.2% year on
year (YoY) to Rs1,010 crore owing to a year-on-year
(Y-o-Y) decline of 23.0% in the construction revenues.
The build-operate-transfer (BOT) segment reported a
53.9% Y-o-Y growth in the revenues. The construction
segment reported a decline on account of the
completion of the Tumkur-Chitradurga project during
Q2FY2014. The operating profit margin (OPM)
expanded by 1,166 basis points (BPS) YoY to 55.7% on
account of a higher contribution from the BOT segment.
Subsequently, the earnings before interest, tax,
depreciation and amortisation (EBITDA) rose by 23.7%
YoY. During the quarter, the interest expense grew by
30.5% YoY on account of the inclusion of the Jaipur-
Deoli and Talegaon-Amravati projects. Depreciation for
the quarter rose 45% YoY on account of amoritsation
of premium deferments for two projects (total Rs32
crore for the Ahmedabad-Vadodara and Tumkur-
Chitradurga projects. However, a lower effective tax
rate led the consolidated net profit to grow at 11.8%
to Rs150 crore.
Construction segment reports decline in revenues,
as expected: The revenues from the construction
vertical declined by 22.8% YoY to Rs583 crore on
account of the completion of the Tumkur-Chitradurga
project during Q2FY2014. The construction revenues
came mainly from the Ahmedabad-Vadodara project
(Rs450 crore) and the Goa-Kundapur project (Rs125
crore). Further, the quarter also witnessed a stable or
range-bound movement in the raw material prices as
a result of which the margin expanded to 30.5% in
Q1FY2015 from 28.6% in Q1FY2014.
BOT division posts stellar performance: The BOT
division registered a robust performance with the
revenues rising by 53.9% YoY to Rs427 crore. The growth
was largely led by the toll revenues in the Mumbai-
Pune, Pune-Solapur, Ahmedabad-Vadodara, Surat-
Bharuch, Surat-Dahisar, Omallur-Namakkal and Tumkur-
Chitradurga projects, which grew by 9-25% each YoY
during Q1FY2015. At the operating level, the segment
witnessed an increase of about 387BPS YoY in the
margin to 90.1% on account of lower operating and
maintenance costs for the recently completed BOT
projects. Overall, the traffic growth across projects
was 4-5% YoY.
Maintain Buy with revised price target of Rs300: IRB
is well funded to meet the Rs2,041 crore equity
requirement over the next three years with internal
accruals. The improving macro environment (better
visibility of tendering, potential easing of interest rates
etc) and a potential upside from a better than expected
growth in traffic on the back of an economic revival
are the key re-rating triggers for the stock. Thus, we
continue to like IRB, which could offer handsome gains
over the next 12-18 months. We maintain our Buy rating
on the stock with a revised price target of Rs300 (which
factors in the higher than expected growth in the BOT
toll revenues from a few projects).
Strong order book at Rs11,348 crore provides revenue
visibility over the next three to four years
At the end of Q1FY2014, the company reported an order
book of Rs11,348 crore, which provides a good revenue
visibility for the next three to four years. The company
recently bagged two projectsYedeshi-Aurangabad and
Kaithal-Rajasthan, aggregating Rs5,500 crorewhich are
expected to start contributing towards the construction
income from Q3FY2015 onwards. The Solpapur-Yedeshi
project is likely to contribute from H2FY2015 onwards.
Consequently, the company expects to the construction
income to grow at 10% YoY in FY2015.
Valuation
Sales (Rs cr) 3,130.5 3,687.2 3,731.9 4,309.8 4,929.8
YoY growth % 28.4 17.8 1.2 15.5 14.4
EBITDA (Rs cr) 1,373.3 1,633.3 1,753.7 2,301.7 2,609.9
Margins % 43.9 44.3 47.0 53.4 52.9
Adj. net profit (Rs cr) 495.8 556.7 459.1 556.0 685.9
YoY growth % 9.6 12.3 (17.5) 21.1 23.4
Shares in issue (cr) 33.2 33.2 33.2 33.2 33.2
EPS (Rs) 14.9 16.7 13.8 16.7 20.6
YoY growth % 9.6 12.3 (17.5) 21.1 23.4
PER (x) 16.0 14.3 17.3 14.3 11.6
Book value (Rs) 86.0 98.0 107.1 119.2 135.1
P/BV (Rs) 2.8 2.4 2.2 2.0 1.8
RoCE (%) 13.9 11.9 10.4 11.5 12.9
RoNW (%) 18.7 18.2 13.5 14.8 16.2
10 Sharekhan
Segment-wise performance Rs cr
Revenues
Construction 583.0 755.0 -22.8 568.2 2.6
BOT 427.0 277.5 53.9 314.8 35.6
Total 1010.0 1032.4 -2.2 883.0 14.4
EBITDA
Construction 178.1 215.6 -17.4 170.3 4.6
BOT 384.6 239.2 60.8 271.9 41.5
Total 562.7 454.8 23.7 442.2 27.3
EBITDA margin (%)
Construction 30.5 28.6 199 BPS 30.0 57 BPS
BOT 90.1 86.2 387 BPS 86.3 374 BPS
BOT revenues Rs cr
Toll collections Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 YoY % QoQ %
Mumbai-Pune 108.9 109.5 110.3 109.0 135.2 24.2 24.0
Pune-Nashik 5.9 5.7 5.7 5.5 5.6 -5.1 1.8
Pune-Sholapur 4.7 4.1 4.8 5.3 5.5 17.0 3.8
Thane-Bhiwandi & Kaman-Paygaon 18.4 15.3 17.3 18.2 18.1 -1.6 -0.5
Thane-Ghodbunder 8.6 8.8 8.9 6.5 7.4 -14.0 13.8
Kharpada Bridge 2.3 1.8 2.0 2.1 2.4 4.3 14.3
Ahmednagar-Karmala-Temburni 3.6 3.6 3.5 3.4 3.5 -2.8 2.9
Mohol-Kurul-Kampti-Mandrup 1.7 1.7 1.5 1.5 1.5 -11.8 0.0
Surat-Bharuch 40.2 39.8 42.6 44.0 43.8 9.0 -0.5
Surat-Dahisar 117.2 115.0 127.0 128.7 131.6 12.3 2.3
IRDP Kolhapur 1.9 - 0.2 -
Jaipur-Deoli 0.7 15.0 18.6 22.0 18.3
Talegaon-Amravati 5.1 6.5 7.2 7.7 12.9 152.9 67.5
Tumkur-Chitradurg 38.9 39.9 42.5 41.7 44.7 14.9 7.2
Ahmedabad-Vadodara 28.8 26.8 32.6 33.7 36.0 25.0 6.8
Omallur Salem -Namakkal 14.7 14.5 15.4 16.6 17.0 15.6 2.4
Total 399 394 438 443 487 22.2 10.1
11 Sharekhan
Home Next
July 30, 2014
Company details
Price chart
Price performance
(%) 1m 3m 6m 12m
Absolute 24.8 49.9 66.3 36.1
Relative 20.0 29.2 30.8 1.6
to Sensex
V-Guard Industries Reco: Buy
Stock Update
Positives galore, re-rating to continue; revised price target to Rs855 CMP: Rs753
Price target: Rs855
NSE volume: 48,038
(no. of shares)
BSE code: 532953
NSE code: VGUARD
Sharekhan code: VGUARD
Free float: 1.0 cr
(no. of shares)
Key points
V-Guard Industries (V-Guard) reported a very healthy earnings growth of 26%
YoY for Q1FY2015 backed by a 17% growth in the revenues and a margin expansion
of 89BPS to 8.5%. The revenue growth was mainly driven by a strong growth in
stabilisers, digital UPS systems and house wiring cables.
The two key positives of the results are: one, the company continued to ramp
up its non-south business, which grew at 31% and made the highest contribution
ever to the total sales at 35% in Q1FY2015; and two, improving working capital
efficiencies led to free cash generation of Rs33 crore from operations and helped
reduce the borrowings by Rs26 crore.
The management sounded positive on the growth outlook and maintained its
guidance for FY2015 (a 20% revenue growth and an EBITDA margin of 8-9% for
FY2015). Given the traction in the non-south markets and improving cash flows
(resulting in better return ratios), we see continued scope for the re-rating of
V-Guards valuation multiples. Consequently, we roll over our price target to
the average of FY2016 and FY2017 earnings estimates. Our revised price target
stands at Rs855.
Results Rs cr
Operational income 478 408 17 422 13
Operating expenses 437 377 16 387 13
Operating profits 40 31 31 35 14
Other income 1 1 -40 1 -52
Interest 5 5 -2 5 1
Depreciation 4 3 29 3 17
PBT 32 24 35 28 13
Tax 10 6 61 8 25
Adj PAT 22 18 26 20 9
Adj EPS 7.5 5.9 26 6.9 9
Margins (%) BPS BPS
OPM 8.5 7.6 89 8.4 8
NPM 4.7 4.3 34 4.8 (19)
Tax rate 30 26 495 28 282
380
450
520
590
660
730
800
J
u
l
-
1
3
O
c
t
-
1
3
J
a
n
-
1
4
A
p
r
-
1
4
J
u
l
-
1
4
Promoters
66%
FII
19%
DIIs
4%
Others
11%
12 Sharekhan
Healthy performance in both segments led to top line
growth
The net sales of V-Guard grew by 17% year on year (YoY)
to Rs478 crore in Q1FY2015 which was around 4% higher
than our estimate. The healthy growth can be attributed
to a 17% year-on-year (Y-o-Y) growth in both electrical &
electro mechanical (EEM) and electronics segments. The
growth in the electronics segment, which contributed 41%
to the top line, was mainly due to a higher growth in the
digital uninterruptible power supply (UPS) system and
stabiliser segments due to an extended summer season.
However, the UPS segment remained a laggard. On the
other hand, the EEM segment grew primarily driven by
traction in fans, electric water heaters and housing wire
cables during the quarter. It is noteworthy that the housing
wire cable segment recorded a 20% Y-o-Y growth despite
a high base in Q1FY2014. However, pumps and LT cables
registered a decline YoY. Sequentially too, the top line
grew by 13% due to a recovery in the digital UPS and
stabiliser sales.
Product-wise sales Rs cr
Particulars Q1 Q1 YoY Q4 QoQ
FY15 FY14 % FY14 %
Stabiliser 111 90 23.1 67 66.9
UPS 7 12 -40.0 8 -15.9
Digital UPS 76 63 19.3 42 81.9
Electronics segment 193 165 17.2 116 66.4
as a % of total 40.5 40.4 27.5
Y-o-Y growth % 17.2 31.1 -8.6
Pump 50 56 -10.6 72 -31.0
House wiring cable 127 106 19.2 140 -9.7
LT cables 15 16 -3.2 18 -17.5
Electric water heater 28 20 41.4 16 80.6
FAN 44 32 38.9 39 13.6
Others 11 6 82.0 12 -10.5
Electrical and electro 275 235 16.8 297 -7.6%
mechanical
as a % of total 57.5 57.6 70.4
Y-o-Y growth % 16.8 24.7 23.2
SWH 10 8 21.5 9 6.7
Other segment 10 8 21.5 9 6.7
as a % of total 2.0 1.9 2.1
Y-o-Y growth % 21.5 71.7 -12.6
Revenue share of non-south market touched historical
high of 35%
The south market witnessed a 9% Y-o-Y growth for V-Guard
on a high base of Q1FY2014 while the non-south market
witnessed a robust growth of 31% YoY on a low base, thanks
to the companys continuous efforts to enhance its
presence in the non-south markets. The share of revenues
from the non-south market touched 35%, which is the
highest in the history of the company. The management
of the company is focused on having a much larger share
from the non-south market in the coming years.
Regional contribution (%)
7
4
%
8
0
%
7
8
%
8
1
%
7
3
%
7
7
%
7
7
%
7
5
%
6
9
%
7
2
%
7
0
%
7
1
%
6
5
%
2
6
%
2
0
%
2
2
%
1
9
%
2
7
%
2
3
%
2
3
%
2
5
%
3
1
%
2
8
%
3
0
%
2
9
%
3
5
%
0%
20%
40%
60%
80%
100%
Q
1
F
Y
1
2
Q
2
F
Y
1
2
Q
3
F
Y
1
2
Q
4
F
Y
1
2
Q
1
F
Y
1
3
Q
2
F
Y
1
3
Q
3
F
Y
1
3
Q
4
F
Y
1
3
Q
1
F
Y
1
4
Q
2
F
Y
1
4
Q
3
F
Y
1
4
Q
4
F
Y
1
4
Q
1
F
Y
1
5
South Zone Non South Zone
Traction in better-margin products lifted margins
During Q1FY2015, V-Guards margin stood at 8.5%, an
improvement of 89 basis points (BPS) YoY and flat quarter
on quarter (QoQ). The Y-o-Y improvement in the margin
was mainly due to traction in its better-margin products
like cables, kitchen appliances, solar water heaters and
inverters. During the conference call the management
highlighted that the fan division, which was struggling in
the past, turned EBITDA positive during the quarter.
However, one of the new products, mixer grinder,
continues to be EBITDA negative till date. The advertising
expenses-to-sales ratio stood at 4.6% in Q1FY2015 vs 5.3%
in Q1FY2014. Moreover, the gross profit margin (GPM) also
improved by 20BPS YoY and by 148BPS sequentially during
Q1FY2015. Consequently, the operating profit grew by
31% YoY and 14% QoQ to Rs40.4 crore in Q1FY2105.
Strong growth in bottom line was a reflection of im-
proved operational performance
The adjusted profit after tax (PAT) of V-Guard saw a strong
growth of 26% YoY to Rs22.3 crore. This was largely in
line with our and the Streets estimates for Q1FY2015.
The strong growth in the bottom line was a reflection of
a healthy operational performance and a lower interest
outgo during the quarter. Hence, despite a lower other
income, a higher depreciation charge and a higher tax
rate (30.5% in Q1FY2015 vs 25.5% in Q1FY2014), the net
profit recorded a healthy growth of 26% YoY and of 9%
QoQ.
13 Sharekhan
Home Next
July 30, 2014
Improved working capital led to healthy return ratios
During Q1FY2015, V-Guard managed well its working
capital; the net working capital days were managed at 70
days (67 days in Q1FY2014 and 76 days in Q4FY2014). The
management continues to focus on reduction of the net
working capital days and targets reducing the cash
conversion cycle by five days every year through initiatives
like vendor financing and bill discounting. As a result of a
better operating profit and well managed working capital,
V-Guard managed to generate cash flow to the tune of
Rs33.3 crore from operations out of which Rs26 crore was
utilised for reducing debt. Thus, the debt-to-equity ratio
came down to 0.2x at the end of Q1FY2015 from 0.3x at
the end of FY2014 and 0.4x at the end of Q1FY2014.
Consequently, the balance sheet got healthier with a lower
debt-to-equity ratio and a nominal growth in the capital
employed. The company managed to deliver healthy
return ratios (return on equity [RoE] and return on capital
employed [RoCE] of 22% and 28% respectively).
Conference call highlights
1. The management maintained its guidance of a 20% top
line growth in FY2015, backed by a 9-10% growth in
the south market and a 35-40% growth in the non-south
market. It also maintained the margin guidance (at 8-
9% in FY2015) as it expects operating leverage to kick
in especially with increase in scale in the non-south
stores. From a longer-term perspective, the
management expects the margin to be around 10%,
which would be a result of better acceptability of
products in the non-south market that will give pricing
power and natural operating leverage.
2. V-Guard plans to spend Rs20 crore as a capital
expenditure (capex) and expects to generate healthy
cash flow of Rs80-90 crore from operations (vs Rs110
crore in FY2014) with stringent working capital
management in FY2015. The management also aims
to reduce the working capital days by five days next
year. It expects the debt level to remain broadly in
the range of Rs150-160 crore.
3. The management plans to keep the advertisement
spending in the range of 3.5-4.0% of the sales in FY2015.
With the reduction in tax exemption at certain plants,
it expects the effective tax rate to remain at 30% level
in the coming years.
View and valuation: The management sounded positive
on the growth outlook and maintained its guidance for
FY2015. We retain our estimate but believe that V-Guards
valuation multiples would be supported by an improving
growth outlook, higher free cash flows (better working
capital management) and firming return ratios. Hence,
we revise our price target to Rs855, based on 22x the
average earnings of FY2016 and FY2017. We maintain our
Buy recommendation on the stock.
OPM trend
Particulars Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15
RM cost as % of sales 72.2 73.8 72.5 75.4 74.2 72.4 73.1 75.5 74.0
Emp. Cost as % of sales 5.0 5.4 5.0 4.8 5.3 6.6 5.8 4.9 5.3
S&D cost as % of sales 5.5 4.2 6.8 8.5 7.5 5.6 5.9 5.4 6.9
Other exp as % of sales 6.6 7.1 8.4 5.9 5.4 7.4 7.0 5.8 5.3
Operating margin (%) 10.7 9.6 7.4 5.3 7.6 8.1 8.2 8.4 8.5
Net profit margin (%) 6.5 5.7 4.4 2.4 4.3 4.3 5.0 4.8 4.7
Return ratios (%)
18.0
23.0
28.0
33.0
F
Y
1
0
F
Y
1
1
F
Y
1
2
F
Y
1
3
F
Y
1
4
F
Y
1
5
E
F
Y
1
6
E
RoE RoCE
Working capital days
Particulars Q3FY14 Q4FY14 Q1FY15
Inventory days 86 82 78
debtors days 44 51 50
Creditors days 53 57 57
Working capital cycle 76 76 71
14 Sharekhan
Valuations
Valuations FY11 FY12 FY13 FY14 FY15E FY16E
Net sales (Rs cr) 727 965 1,360 1,518 1,774 2,079
Growth Y-o-Y % 59.9% 32.8% 41.0% 11.6% 16.9% 17.2%
Operating margin (%) 10.1 9.7 8.1 8.1 8.4 8.5
Net profit (Rs cr) 39.0 50.8 62.9 70.2 85.6 105.4
Adjusted EPS (Rs) 13.1 17.0 21.1 23.5 28.7 35.3
Growth Y-o-Y % 53.1% 30.3% 23.8% 11.5% 21.9% 23.2%
PER (x) 57.6 44.2 35.7 32.0 26.3 21.3
P/B (x) 13.1 10.7 8.6 7.1 5.8 4.7
EV/EBIDTA (x) 31.8 24.5 21.0 18.4 15.2 12.6
RoCE (%) 25.1 27.6 27.8 27.6 30.4 31.0
RoNW (%) 24.9 26.6 26.7 24.2 24.3 24.5
RoIC(%) 26.1 28.1 28.5 28.2 31.4 33.2
15 Sharekhan
Home Next
July 30, 2014
Company details
Price chart
Price performance
(%) 1m 3m 6m 12m
Absolute 6.8 11.6 22.5 1.5
Relative 2.7 -3.8 -3.6 -24.2
to Sensex
Godrej Consumer Products Reco: Reduce
Stock Update
Valuation stretched, downgraded to Reduce with revised price target of Rs810 CMP: Rs847
Price target: Rs810
(no. of shares)
BSE code: 532424
NSE code: GODREJCP
Sharekhan code: GODREJCP
Free float: 12.5 cr
(no. of shares)
Key points
Godrej Consumer Products Ltd (GCPL) registered a moderate revenue growth
of about 10% in Q1FY2015 largely on account of a 2% revenue growth in the
domestic soap business and a 9% revenue growth (vs a 17% growth in Q4FY2014)
in the domestic household insecticide (HI) business. The international business
revenues grew by 14% during the quarter. The key Indonesian and African
businesses grew at 10% and 17% respectively during the quarter.
The domestic business OPM declined by 90BPS YoY to 15.0% while the
international business OPM improved by 52BPS to 10.5%. Thus, the overall OPM
declined by 26BPS to 12.8% during the quarter. The operating profit grew by
7.3% YoY and the adjusted PAT grew by 12.1% YoY during the quarter.
GCPLs management has hinted that some of the benefits of a reduction in the
customs duty on some of key inputs into soaps may be passed on to the consumers
which would lead to a better performance of the domestic soap segment in the
coming quarter. The company is hoping to see a better performance from the
HI segment in the coming quarters as the penetration level is still low for the
category. It has taken many cost-saving initiatives and expects to reap the
benefits of the same from H2FY2015.
We believe it will take two to three quarters for GCPLs revenue growth to
return to high teens. We have downgraded our earnings estimates for FY2015
and FY2016 by 3% and 5% respectively to factor in the lower growth in the
domestic soap and HI business. Accordingly, we have revised our price target to
Rs810 (valuing the stock at 25x FY2016E earnings). In view of the stocks stretched
valuations and the growth head winds GCPL is facing in the near term, we
downgrade our rating on the stock from Hold to Reduce.
Key risk: Any significant improvement in the revenue growth of the domestic
business or margin of the international business is a key risk to our rating.
Total opt. income 1,888.5 1,724.9 9.5 1,931.5 -2.2
Raw material cost 895.0 800.8 12 923.3 -3.1
Employee cost 181.4 179.2 1 185.3 -2.1
Advertisement spend 250.2 239.1 5 145.8 71.6
Other expenses 320.1 280.5 14 335.8 -4.7
Total other expenditure 1,646.8 1,499.6 10 1,590.1 3.6
Operating profit 241.7 225.4 7.3 341.4 -29.2
Adjusted PAT 160.5 143.1 12.1 245.4 -34.6
Exceptional item -3.2 2.2 3.5
Minority interest -13.9 -12.6 -12.6
Reported PAT 143.5 132.7 8.1 236.3 -39.3
Adjusted EPS (excluding minority) 4.7 4.2 12.1 7.2 -34.6
Gross margins (%) 52.6 52.7 -10 BPS 52.0 54 BPS
OPM (%) 12.8 13.1 -26 BPS 17.7 -488 BPS
Foreign &
Institutions
29%
Promoters
63%
Others
8%
670
710
750
790
830
870
910
J
u
l
-
1
3
O
c
t
-
1
3
J
a
n
-
1
4
A
p
r
-
1
4
J
u
l
-
1
4
16 Sharekhan
Stand-alone businessdisappointing performance
GCPLs stand-alone revenues grew by just 6% in Q1FY2015
on account of only a 2% growth in the soap business and a
moderation of growth in the HI business, which grew by
9%. The hair colour business grew by 14% during the
quarter. The gross profit margin (GPM) improved by 50
basis points (BPS) year on year (YoY) to 52.7%. However,
the operating profit margin (OPM) declined by 90BPS
largely on account of a lower revenue growth and higher
trade marketing investments. Though the operating profit
stood flat, but a higher other income led to an 11% growth
in the profit after tax (PAT) to Rs114.1 crore.
Stand-alone performance snapshot
Particulars Q1FY15 Q1FY14 YoY %
Total revenues 977.5 923.1 5.9
Operating profit 146.5 146.4 0.1
Adjusted net profit 114.1 102.8 11.0
GPM (%) 52.7 52.2 50BPS
OPM (%) 14.8 15.7 (88)BPS
Soap segmentvolumes remain under pressure: The
first quarter of FY2015 was the second consecutive
quarter of a dismal sales performance by GCPLs
domestic soap business. While the sales volume
declined and grew in mid single digits, the revenues
grew by just 2% due to the price hikes undertaken in
the portfolio. The management has indicated that
soaps of the popular category are facing a slowdown
while the soaps of the premium category are doing
well. The sales of Godrej No.1 remained under pressure
during the quarter. The company will pass on the
benefits of a cut in the import duty on some of the
key inputs into soaps to the consumers in the form of
promotional add-ons and offerings. This should help
the company to see better sales volume in the quarters
ahead. The company has started seeing some
improvement in sales from late June this year, but it
expects a strong revival in sales on the back of a strong
improvement in the macro environment.
HIrevenue growth moderated to high single digits:
The domestic HI business revenue growth moderated
to 9% in Q1FY2015 from 17% in Q4FY2014. The
moderation can be attributed to a delayed monsoon
and a drop in the overall category growth. However,
GCPLs HI sales growth stood two times higher than
the category growth rate. The management has
indicated the segment has enough room to grow in
strong double digits, as the category penetration is
very low in India. Also, innovative value-added products
are gaining good acceptance. So overall, the company
is expecting the segments growth to improve in the
coming quarters.
Hair colour businesscontinues to post a double-
digit growth: The hair colour business continued its
strong performance with a double-digit revenue growth
(largely driven by higher volumes). The hair colour
crmes category continues to grow its market share.
The company launched two premium variants of Godrej
Expert Rich Crme hair colour shades (cinnamon red,
honey brown) at a 15% premium to the base price.
International businessregistered better operating
performance
International business revenue performance
International markets Q1FY15 Q1FY14 YoY %
UK (Keyline) 164.0 115.0 42.6
Africa (Rapidol, Kinky and Tura) 250.0 214.0 16.8
Indonesia (Megasari) 349.0 319.0 9.4
Middle East 28.0 25.0 12.0
Latin America (Issue Group and 126.0 130.0 -3.1
Argenco)
Total sales 917.0 803.0 14.2
International business margin performance
International markets Q1FY15 Q1FY14 BPS
UK (Keyline) 9.0 9.0 0
Africa (Rapidol, Kinky and Tura) 14.0 13.0 100
Indonesia (Megasari) 15.0 15.0 0
Latin America (Issue Group and 4.0 3.0 100
Argenco)
EBIDTA margin 10.5 10.0 52
Indonesiastrong constant currency revenue growth:
The revenues of the Indonesian business grew by 9.4%
(up 21% on a constant-currency basis) driven by good
acceptance of new products and distribution
expansion. The earnings before interest, depreciation,
tax and amortisation (EBIDTA) margin of the business
too stood flat while adjusting for the food business
that was hived off the same improved by 120BPS YoY.
After the results of the presidential election in the
country and a stabilising political environment, GCPL
expects a better revenue growth in its Indonesian
business going ahead. Also, the EBIDTA margin of the
Indonesian business is expected to improve sequentially
on the back of calibrated price increases and cost-
saving initiatives.
Africamargins improved YoY: The African business
revenues grew by 17% (up 12% on a constant-currency
basis) driven by a strong performance of the Darling
business and an improvement in the performance of
Rapidol in South Africa. The African business margin
improved by 100BPS in Q1FY2015 and the company
expects it to improve in the coming quarters. The
company has hinted at the consolidation of the Darling
business to 100% (current 65%) over the next two to
17 Sharekhan
Home Next
July 30, 2014
three years which would add another Rs300-350 crore
to the revenues of the African business. The company
is banking on low-penetrated HI segment for growth
in Africa, as it expects the segment to be a key revenue
driver in the long run.
Latam businessaffected by depreciation in
Argentine Peso: GCPLs Latin American (Latam)
business was affected by depreciation in the Argentine
Peso against the rupee. On a constant-currency basis,
the revenues of the business grew by 26% led by a
healthy market share performance. The Latam
business margin stood lower at 4% largely on account
of higher marketing investments. However, the
company is banking on Project Iceberg, which will
focus on streamlining the manufacturing process and
rationalising the sales structure, to help the business
clock better margins in the long run. The OPM is
expected to expand over the next 12 to 24 months.
UK businessstrong revenue performance: The
revenues of GCPLs UK business grew by a strong 42%
(driven by a 21% organic revenue growth). The strong
growth can be attributed to competitive market
investments and distribution initiatives. The brand Soft
& Gentle continued to deliver a strong performance.
Outlook and valuation
GCPLs management has hinted at passing on to the
consumer some of the benefits of a reduction in the
customs duty on some of key inputs into soaps which would
lead to a better performance of the domestic soap
segment in the coming quarter. The HI business was
affected by a delayed monsoon and a slowdown in the
category in Q1FY2015. The company is hoping to see a
better performance from the segment in the coming
quarters as the penetration level is still low for the
category. Also, the company is focusing on improving the
supply and distribution system. It has taken many cost-
saving initiatives and expects to reap the benefits of the
same from H2FY2015 onwards.
Though the management has taken initiatives to improve
the growth prospects, but we believe it will take two to
three quarters for GCPLs revenue growth to return to
high teens. We have downgraded our earnings estimates
for FY2015 and FY2016 by 3% and 5% respectively to factor
in the lower growth in the domestic soap and HI
businesses. In line with our revision in the earnings
estimates, our revised price target stands at Rs810 (values
the stock at 25x the FY2016E earnings). In view of the
stocks stretched valuations and the growth head winds
faced by the company in the near term, we downgrade
our rating on the stock from Hold to Reduce.
Valuations (consolidated)
Net sales (Rs cr) 4,850.9 6,399.7 7,582.6 8,627.9 10,249.3
Adjusted PAT (Rs cr) 526.6 667.2 753.7 899.1 1,100.1
EPS (Rs) 15.5 19.6 22.1 26.4 32.3
Y-o-Y change % 3.7 26.7 12.9 19.3 22.4
PER (x) 53.3 42.1 37.3 31.2 25.5
OPM (%) 18.0 15.8 15.5 15.7 15.9
EV/EBIDTA (x) 33.8 29.6 25.5 21.9 17.9
RoE (%) 24.3 23.4 22.9 23.5 24.1
RoCE (%) 20.6 18.2 18.6 20.4 23.1
18 Sharekhan
Company details
Price chart
Price performance
(%) 1m 3m 6m 12m
Absolute -0.4 16.2 35.7 58.1
Relative -4.2 0.2 6.7 18.1
to Sensex
Bank of India Reco: Buy
Stock Update
Asset quality pressure persists CMP: Rs281
Price target: Rs334
(no. of shares)
BSE code: 532149
NSE code: BANKINDIA
Sharekhan code: BANKINDIA
Free float: 21.4 cr
(no. of shares)
Key points
For Q1FY2015 Bank of India reported weakness in its core operations as its net
interest income growth slowed to about 6% YoY due to a decline in the margin
(down 18BPS QoQ to 2.16%). Consequently, the banks net profit declined by
16% YoY to Rs805.7 crore.
Fresh NPA additions remained elevated during the quarter (at Rs3,777 crore)
which was partly offset by improved recoveries and upgradations. Though the
management expects NPAs worth Rs900 crore to get resolved in Q2FY2015, but
the higher slippages remain a concern.
The banks earnings growth was better in Q1FY2015, though higher slippages and
restructuring, and a lower capital adequacy ratio were a cause for concern.
However, the stock trades at 0.6x FY2016E book value (at about a 30% discount to
peers like Bank of Baroda and Punjab National Bank) and partly factors in the
negatives. We have revised our valuation multiple to 0.7x FY2016E which has
resulted in a new price target of Rs334. We maintain our Buy rating on the stock.
Results Rs cr
Interest income 10,304.3 8,541.2 20.6 10,360.4 -0.5
Interest expense 7,617.8 6,004.2 26.9 7,313.1 4.2
Net interest income 2,686.5 2,537.0 5.9 3,047.3 -11.8
Non-interest income 1,024.5 1,180.8 -13.2 913.7 12.1
Fee income 427.0 313.0 36.4 408.0 4.7
Forex income 243.0 206.0 18.0 83.0 -
Treasury profit 162.0 524.0 -69.1 83.0 95.2
Misc. income 192.5 137.8 39.7 339.7 -43.3
Net total income 3,711.0 3,717.8 -0.2 3,961.0 -6.3
Operating expenses 1,650.7 1,537.4 7.4 1,964.9 -16.0
Employee expenses 1,072.6 962.5 11.4 1,143.2 -6.2
Other operating expenses 578.1 574.9 0.6 821.8 -29.7
Pre-provisioning profit 2,060.3 2,180.4 -5.5 1,996.1 3.2
Provisions 893.1 694.6 28.6 1,547.3 -42.3
Profit before tax 1,167.2 1,485.8 -21.4 448.8 160.1
Tax 361.5 521.7 -30.7 -108.7 -
Profit after tax 805.7 964.2 -16.4 557.5 44.5
Asset quality
Gross NPLs 12,532.5 9,413.5 33.1 11,868.6 5.6
Gross NPLs (%) 3.28 3.04 24 bps 3.15 13 BPS
Net NPLs 8,041.6 6,408.9 25.5 7,417.2 8.4
Net NPLs (%) 2.14 2.10 4 BPS 2.00 14 BPS
Capital adequacy (%)
CAR 9.98 10.36 -38 BPS 9.97 1 BPS
Tier I 7.25 7.84 -59 BPS 7.24 1 BPS
Key reported ratios (%)
NIM 2.16 2.50 -34 BPS 2.34 -18 BPS
CASA 27.68 30.59 -291 BPS 29.01 -133 BPS
Promoter
66%
Foreign
10%
MF & FI
16%
Public &
others
8%
100
150
200
250
300
350
400
J
u
l
-
1
3
O
c
t
-
1
3
J
a
n
-
1
4
A
p
r
-
1
4
J
u
l
-
1
4
19 Sharekhan
Home Next
July 30, 2014
NIM dips, operating performance weakens
In Q1FY2015 Bank of Indias net interest margin (NIM; global)
declined by 18 basis points (BPS) quarter on quarter (QoQ)
to 2.16% (contributed by a 40-BPS sequential dip in the
domestic NIM) which led to a slower than expected growth
in the net interest income (NII). However, the overseas
NIM increased (up 28BPS QoQ) due to a decline in the
proportion of buyers credit (about 30% of the overseas book
vs about 50% earlier), which have a lower yield. The income
reversal on the non-performing assets (NPAs) coupled with
higher lending in low-yielding corporate loans led to a
decline in the yield on the domestic loans (down 32BPS
QoQ to 10.92%). In addition, the rise in the cost of deposits
(up 9BPS QoQ to 5.71% and a decline in the yield on
investment also affected the NIM).
NIM
2.0%
2.2%
2.4%
2.6%
Q1FY13 Q1FY14 Q1FY15
Business growth continues to be ahead of industry rates
Despite a weak environment the bank continues to grow
its advances ahead of the industry rate (a growth of over
25% on an average in the past four quarters). The growth
in the advances in Q1FY2015 was led by the large and mid
corporate segment (up 29% YoY), followed by the agriculture
segment (up 24% YoY). The bank expects the growth in the
advances to moderate to 16-18% in FY2015. On the other
hand, the deposits grew by 20.7% YoY contributed by term
deposits (up 24.2% YoY). As a result, the current account
and savings account (CASA) ratio declined by 130BPS QoQ
to 27.7% which affected the margin.
Advances growth
160,000
190,000
220,000
250,000
280,000
310,000
340,000
370,000
400,000
15.0%
17.0%
19.0%
21.0%
23.0%
25.0%
27.0%
29.0%
31.0%
Advances Grow th-RHS (YoY,%)
Slippages rise sharply
Fresh addition to NPAs rose sharply to Rs3,777 crore
(mainly from the iron & steel and infrastructure sectors)
which was partly offset by improved recoveries (including
the sale of Rs580 crore of NPAs to asset reconstruction
companies). Though the management suggested that
Rs900 crore worth of slippages were technical in nature
(ie the same are likely to get recovered), but the sheer
rise in the quantum of slippages causes concern. The fresh
restructuring during the quarter was Rs1,631 crore and
the bank has approximately Rs600 crore of loans in the
pipeline for restructuring. The provision coverage ratio
was largely stable at 58.1%, though the bank provided
Rs100 core towards floating provisions.
Stressed asset formation
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Slippages Restructured book Stressed Loans
Fee income posts a strong growth, opex remains low
During Q1FY2015, the fee income growth was quite strong
as it grew by 36% YoY due to increased lending activity.
Overall, the non-interest income declined by 13.2%
contributed by a lower treasury profit compared with
Q1FY2014. The foreign exchange (forex) income also
showed a healthy growth of 18% YoY. However, despite
making an ad hoc provision of Rs80 crore towards wage
revision, the operating expenses (opex) grew by 7.4%,
which was slower than that of the peer banks.
Cost to income ratio
30.0%
35.0%
40.0%
45.0%
50.0%
20 Sharekhan
Price target revised to Rs334
The banks earnings growth was better in Q1FY2015,
though higher slippages and restructuring, and a lower
capital adequacy ratio were a cause for concern. Recently,
the bank raised additional tier-I capital of Rs1,250 crore
and has a green shoe option of retaining another Rs1,250
crore which will raise the tier-I capital adequacy ratio by
about 80BPS. The stock trades at 0.6x FY2016E book value
(at about a 30% discount to peers like Bank of Baroda and
Punjab National Bank) and partly factors in the negatives.
We have revised our valuation multiple to 0.7x FY2016E
which has resulted in a new price target of Rs334. We
maintain our Buy rating on the stock
One-year forward P/BV band
0.2
0.6
1.0
1.4
1.8
2.2
Jul-04 Jul-06 Jul-08 Jul-10 Jul-12 Jul-14
PBV (x) +0.5 Mean 5 year rolling PBV mean -0.5 Mean
Profit and Loss statement Rs cr
Net interest income 8,313 9,024 10,831 12,546 14,708
Non-interest income 3,321 3,766 4,292 4,719 5,308
Net total income 11,635 12,790 15,122 17,264 20,016
Operating expenses 4,941 5,332 6,699 7,775 9,121
Pre-provisioning profit 6,694 7,458 8,423 9,489 10,895
Provisions 3,116 4,451 4,878 5,100 5,749
Profit before tax 3,578 3,008 3,545 4,389 5,146
Tax 900 258 816 1,229 1,544
Profit after tax 2,678 2,749 2,729 3,160 3,602
Balance sheet Rs cr
Liabilities
Networth 20,962 23,919 29,923 32,270 34,945
Deposits 318,216 381,840 476,974 548,520 640,672
Borrowings 32,114 35,368 48,428 52,109 56,379
Other liabilities & 13,243 11,477 17,866 13,545 16,059
provisions
Total liabilities 384,536 452,603 573,191 646,445 748,055
Assets
Cash & balances 14,987 21,967 19,073 24,683 25,627
with RBI
Balances with 19,725 32,869 42,309 39,493 44,206
banks & money at call
Investments 86,754 94,613 114,152 129,913 148,965
Advances 248,833 289,367 370,734 430,051 505,310
Fixed assets 2,772 2,870 5,786 6,480 7,258
Other assets 11,466 10,916 21,136 15,823 16,689
Total assets 384,536 452,603 573,191 646,445 748,055
Financials
Key ratios
Per share data (Rs)
Earnings 46.6 46.1 42.4 49.1 56.0
Dividend 7.0 10.0 5.0 10.8 12.3
Book value 343.4 381.1 407.2 442.1 482.2
Adj. book value 266.4 267.0 278.0 296.6 337.9
Spreads (%)
Yield on advances 8.8 8.6 8.2 8.3 8.2
Cost of deposits 5.8 5.8 5.5 5.5 5.4
Net interest margins 2.6 2.4 2.4 2.3 2.3
Operating ratios (%)
Credit to deposit 78.2 75.8 77.7 78.4 78.9
Cost to income 42.5 41.7 44.3 45.0 45.6
CASA 34.1 33.3 30.1 30.4 30.9
Non interest income / 28.5 29.4 28.4 27.3 26.5
Total income
Assets/Equity (x) 19.2 18.7 19.1 19.6 20.7
Return ratios (%)
RoE 14.0 12.3 10.1 10.2 10.7
RoA 0.7 0.7 0.5 0.5 0.5
Asset quality ratios (%)
Gross NPA 2.3 3.0 3.1 3.5 3.4
Net NPA 1.5 2.1 2.0 2.2 1.8
Growth ratios (%)
Net interest income 6.4 8.5 20.0 15.8 17.2
Pre-provisioning profit 24.3 11.4 12.9 12.7 14.8
Profit after tax 7.6 2.7 -0.7 15.8 14.0
Advances 16.8 16.3 28.1 16.0 17.5
Deposits 6.5 20.0 24.9 15.0 16.8
Valuation ratios (x)
P/E 6.0 6.1 6.6 5.7 5.0
P/BV 0.8 0.7 0.7 0.6 0.6
P/ABV 1.1 1.1 1.0 0.9 0.8
Capital adequacy (%)
CAR 12.0 11.0 10.0 8.8 8.3
Tier I 8.6 8.2 7.2 6.7 6.5
Productivity ratios (Rs cr)
CASA per branch 21.2 22.8 23.6 29.5 33.6
Business per branch 141.8 156.4 182.5 201.9 227.1
Business per employee 12.0 15.9 19.6 22.2 25.6
21 Sharekhan
Home Next
July 30, 2014
Company details
Price chart
Price performance
(%) 1m 3m 6m 12m
Absolute -6.9 27.6 48.9 88.6
Relative -10.4 10.0 17.1 40.9
to Sensex
CESC Reco: Buy
Stock Update
Q1 numbers in line with expectations; positive bias maintained CMP: Rs642
Price target: Rs878
(no. of shares)
BSE code: 500084
NSE code: CESC
Sharekhan code: CESC
Free float: 6.0 cr
(no. of shares)
Key points
For Q1FY2015 CESC reported a healthy earnings growth of 15% YoY, in line with
our estimate. The revenues grew by 30% YoY as a result of a 24% revision in the
tariff and a 5% improvement in the volume. However, due to a significant jump
(of 25% YoY to 769MUs) in the power purchased from outside (where the margin
spread is lower), the OPM contracted by 206BPS YoY to 20.3%.
The performance of its subsidiaries remained encouraging; the store-level EBITDA
of Spencers remained at 4.6% (the same-store EBITDA at Rs74 per sq ft) in
Q1FY2015, similar to the Q1FY2014 level. On the other hand, FirstSource
Solutions is on a strong traction and addressing the scheduled debt repayment.
The Quest mall is fully operational now and witnessing strong footfalls.
The Haldia-based power plant of 600MW is expected to be commissioned by
Q4FY2015; it would supply to CESCs existing Kolkata distribution business.
Consequently, the regulated (cash generating) power generating business of
CESC group would grow significantly. However, pain at the Chandrapur (600MW)
plant continues for the time being, as after signing 100MW of PPA with TANGEDCO,
the management is still looking for opportunities to sign long-term power supply
contracts for the remaining capacities.
We believe the commissioning of the Haldia power plant will enhance the existing
base of the cash generating regulated power business. The focus of the new
government on addressing the coal linkage issues of power plants that are ready
should also turn positive for the Chandrapur power plant in future. Further, we
are positive on the gradual progress of its other subsidiaries. The stock is trading
at 1x FY2016E BV currently. We retain our positive stance and continue to rate
CESC as a Buy with a price target of Rs878.
Results Rs cr
Net sales 1,848 1,419 30 1,229 50
Other operating income 15 17 -12 17 -12
Total income 1,863 1,436 30 1,246 50
Total expenditure 1,485 1,115 33 792 88
Fuel cost expenditure 541 460 18 496 9
Personnel cost 211 156 35 151 40
Other expenditure 733 499 47 145 406
Operating profit 378 321 18 454 -17
Other income 15 19 -21 17 -12
Depreciation 94 84 12 86 9
Interest 100 90 11 77 30
PBT 199 166 20 308 -35
Tax expenses 48 35 37 65 -26
Net profit 151 131 15 243 -38
EPS 12.0 10.4 15 19.3 -38
Margin (%) BPS BPS
OPM 20.3 22.4 (206) 36.4 (1,615)
NPM 8.2 9.2 (106) 19.8 (1,160)
Tax rate 24.1 21.1 304 21.1 302
250
350
450
550
650
750
850
J
u
l
-
1
3
O
c
t
-
1
3
J
a
n
-
1
4
A
p
r
-
1
4
J
u
l
-
1
4
Promoters
53%
Foreign
23%
Institutions
16%
Others
8%
22 Sharekhan
Q1FY2015 result update
Revenues grew on higher tariff and decent volume
growth
For Q1FY2015 CESC reported a healthy set of numbers, in
line with our estimates for the quarter. The profit after
tax (PAT) grew by 15% year on year (YoY) to Rs151 crore,
backed by a 30% top line growth and a healthy operating
profit margin (OPM) of 20.3% (slightly lower YoY). The
revenues grew by 30% YoY to Rs1,848 crore, which was
mainly driven by a higher tariff (up 24% YoY) and a 5%
growth in the volume in Q1FY2015. The sales volume was
up by 5% while power generation remained flat; implying
a significant jump (up 25% to 769MUs) in the power
purchased from outside.
OPM lower on higher power purchase but PAT up 15%
The operating profit of the company grew by 18% YoY to
Rs378 crore, despite a revenue growth of 30%, due to
significantly higher quantum of power purchased from
outside. The OPM stood at 20.3%, which was slightly lower
than our estimate. The profit before tax (PBT) recorded
a growth of 20% YoY but due to a higher tax rate (24% vs
21% in Q1FY2014), the PAT reported a growth of 15% YoY
to Rs151 crore in Q1FY2015.
The sequential numbers are not comparable as the
Q4FY2014 numbers were influenced by a pending tariff
revision.
Performance of subsidiaries
Spencersstore-level profitability flat while same-store
sales grew at 10%: The retail arm of CESC, Spencers,
managed to notch a same-store sales growth of around
10% YoY. The store level earnings before interest, tax,
depreciation and amortisation (EBITDA) remained around
4.6% in Q1FY2015, similar to the level seen in Q1FY2014.
At the end of Q1FY2015, the total trading area of Spencers
was 1,062,000 sq ft spread across 126 stores (there was
an addition of one retail store in the quarter). The
company aims to add 12-15 new hyper stores in FY2014-
15 in the existing five regions on which it intends to focus.
Going forward, the company aims to break even at the
corporate level which would be one of the key
monitorables.
Quest mall and Haldia plant to add value, while pain at
Chandrapur remains: The Quest mall, under 100%
subsidiary CESC Properties, is fully operational now and
is witnessing strong footfalls. The Haldia-based power
plant (600MW), which would be supplying to its own
Kolkata region distribution business, is expected to be
commissioned by Q4FY2015. With this, the regulated
power capacity (cash generating) of CESC group would be
significantly higher. However, pain at the Chandrapur
(600MW) plant remains as after signing a power purchase
agreement (PPA) with TANGEDCO for 100MW, the
management is still looking for opportunities to sign long-
term power supply contracts for the remaining capacities
at Chandrapur.
View and valuation: We remain positive on CESC due to a
steady improvement in its retail and business process
outsourcing subsidiaries which is in addition to the steady
performance of the stand-alone entity. Further, with the
commissioning of its Haldia plant, the cash generating
regulated power business would expand significantly and
add value to the stock. We retain our price target of Rs878
and continue to recommend CESC as a Buy.
CESC (stand-alone) Rs cr
Particulars FY11 FY12 FY13 FY14 FY15E FY16E
Net sales 4,172.5 4,680.5 5,317.0 5,510.0 6,232.9 6,656.3
EBITDA 1,083.0 1,157.3 1,324.6 1,433.0 1,486.9 1,561.6
Net profit 488.4 554.3 618.5 652.0 683.5 722.2
EPS (Rs) 38.9 44.1 49.2 51.9 54.4 57.5
EPS growth (%) 12.7 13.5 11.6 5.4 4.8 5.7
EBITDA margin (%) 26.0 24.7 24.9 26.0 23.9 23.5
PER (x) 16.5 14.5 13.0 12.4 11.8 11.2
P/BV (x) 1.4 1.3 1.2 1.1 1.1 1.0
Price/sales(x) 1.9 1.7 1.5 1.5 1.3 1.2
EV/EBITDA (x) 9.1 8.5 7.9 7.4 7.0 6.6
Dividend yield (%) 0.6 0.8 1.1 1.1 1.1 1.1
RoCE (%) 8.3 8.1 8.7 8.2 7.9 7.8
RoE (%) 9.1 9.6 9.9 9.6 9.4 9.2
23 Sharekhan
Home Next
July 30, 2014
SOTP valuation
Particulars Rs /share Valuation method
Existing power business 774 1.2x FY2016 BV
Chandrapur power plant 27 65% discount to equity invested
Haldia power plant 57 20% discount to equity invested
CESC property 17 On equity invested
Spencers & other retail business -104 Discount for loss-making retail business
First Source acquisition 107 30% holding discount to our target value for FSL
Total 878
24 Sharekhan
Company details
Price chart
Price performance
(%) 1m 3m 6m 12m
Absolute 7.6 16.0 38.6 53.7
Relative 3.5 0.0 9.0 14.8
to Sensex
Cadila Healthcare Reco: Hold
Stock Update
US business boosts Q1 performance; price target revised to Rs1,300; put on Hold CMP: Rs1,165
Price target: Rs1,300
(no. of shares)
BSE code: 532321
NSE code: CADILAHC
Sharekhan code: CADILAHC
Free float: 7.2 cr
(no. of shares)
Key points
Cadila Healthcare reported a strong performance for Q1FY2015, as reflected in
a 25% growth in the revenues, a 219-BPS expansion in the OPM and a 50% jump
in the adjusted net profit. The growth during the quarter was mainly driven by
the US business (up 85% YoY) and the emerging markets (up 28% YoY). However,
the growth in the other geographies remained moderate.
The management plans to file over 40 ANDAs and expects 10-15 approvals in
the US market during FY2015, which should drive the growth in the subsequent
quarters. Also, the growth will accelerate in the domestic market as the impact
of the new pricing policy is getting settled.
We have marginally curtailed the earnings estimate for FY2015 due to a moderate
performance of the Indian business in Q1FY2015, but have revised our earnings
estimate for FY2016 up by 8.5% in anticipation of a large chunk of US approvals
in this year. Accordingly, our price target stands revised up by 8.5% to Rs1,300
(17x FY2016E EPS). However, owing to a limited upside to the stock price post-
results rally, we downgrade our rating on the stock to Hold.
Results Rs cr
Net sales 2,048 1,637 25.1 1,971 3.9
Expenditure 1,677 1,376 21.8 1,597 5.0
Operating profit 371 261 42.3 374 (0.7)
Other income 10 13 (16.9) 13 (20.7)
EBITDA 382 274 39.6 387 (1.4)
Interest 19 30 (34.8) 27 (28.6)
Depreciation 68 47 45.4 53 28.3
PBT 295 197 49.5 307 (4.1)
Taxes 52 20 158.2 35 50.9
Minority interest 7 8 (13.5) 7 (4.4)
Forex loss/(gains) (6) (27) (77.5) 13 (148.0)
Adj. PAT 254 169 50.2 253 0.4
Reported PAT 240 196 22.8 239 0.4
EPS 12.4 8.2 50.2 13.0 (4.4)
Margins (%) bps bps
OPM 18.1 15.9 219.2 19.0 (84.9)
EBIDTA 18.6 16.7 193.6 19.6 (100.7)
PATM 12.4 10.3 207.3 12.8 (43.9)
Tax rate 17.4 9.1 836.6 11.8 564.8
600
700
800
900
1000
1100
1200
J
u
l
-
1
3
O
c
t
-
1
3
J
a
n
-
1
4
A
p
r
-
1
4
J
u
l
-
1
4
Promoters
75%
Institutions
8%
Non-promoter
corporate
5%
Foreign
6%
Public and
others
6%
25 Sharekhan
Home Next
July 30, 2014
US business augers well
During Q1FY2015, the revenues from the US business
jumped by 85% to Rs717 crore, mainly driven by four new
product launches and better traction in the existing
business. The company accelerated the paced of filings
with 26 abbreviated new drug application (ANDA) filings
during the quarter against the targeted 40 ANDAs for the
year (FY2015). The company got the approval for one
injectible product during the quarter. Till date, the
company has got the approval for 91 ANDAs in the US
market out of 249 ANDAs filed with the US Food and Drug
Administration (USFDA) while it currently markets 64
products in the USA. With an accelerated pace of filing
and focus on niche segments like transdermals, injectibles
and other complex products, the company is set to
maintain the high growth momentum in the US market.
Indian market to see better traction going forward
During the quarter, the company recorded a moderate 8%
growth in the Indian formulation business to Rs675 crore.
The growth was moderate primarily due to the impact of
the new pricing policy and the re-organisation of the field
force in the market. However, as most of the issues related
to the pricing policy are getting fixed and the company is
able to take a price hike in the key products, we expect a
better performance from the domestic market in the
subsequent quarter.
Revenue break-up Rs cr
Domestic 871 810 7.6 814 7.0
Formulations 675 625 7.9 625 8.0
API 24 20 20.0 21 14.8
Wellness 108 115 -6.5 107 0.2
Animal health & others 64 49 30.4 61 6.1
Exports 1186 837 41.8 1138 4.2
Joint ventures (JVs) 119 131 -9.2 111 7.0
Formulation exports 977 627 55.9 940 3.9
US 717 387 85.0 678 5.6
Europe 101 93 9.2 85 19.8
Japan 0 12 -100.0 14 (100.0)
Brazil 54 52 4.0 60 (8.9)
Emerging markets 105 82 27.7 103 1.5
API exports 77 66 16.7 73 5.1
Animal health and others (exports) 13 13 1.5 14 (4.3)
Total consolidated revenues 2057 1646 24.9 1952 5.4
Total API 101 86 17.5 94 7.2
Other business continues to see a moderate
performance: Except the USA and the emerging markets
(which grew 27.7%), most of the other geographies and
businesses reported a moderate performance during the
quarter. The company reported a 9% growth in the
European business, a 4% growth in the Brazilian business,
a 2% growth in the global animal healthcare business, a
decline of 6.5% in the consumer business and a decline of
9.2% in the joint venture business during the quarter.
Though we do not expect any phenomenal change in the
business dynamics in most of these regions, but the
company is expected to see a gradual improvement in
the joint venture, consumer and European businesses over
a period of time.
Better product mix helps improve OPM; expect even
better margin ahead
The company reported an improvement of 219 basis points
(BPS) in the operating profit margin (OPM) to 18.1% during
the quarter (adjusted for the foreign exchange [forex]
impact) on the back of strong sales in the US market. We
expect the improvement in the OPM to continue in the
subsequent quarters as well on the back of a stronger
performance in the US and Indian markets. We expect an
improvement of 300BPS and 100BPS in the margin in
FY2015 and FY2016 respectively.
26 Sharekhan
Cost analysis
Particulars Q1 Q1 YoY Q4 QoQ
FY15 FY14 % FY14 %
Adjusted material cost 816 568 43.7 764 6.7
% of sales 39.8 34.7 38.8
Employee expenses 290 263 10.4 274 6.1
% of sales 14.2 16.1 13.9
Other expenses 571 546 4.6 559 2.1
% of sales 27.9 33.3 28.3
Total 1677 1376 1597 5.0
Change in depreciation policy raises depreciation cost:
During the quarter, the depreciation cost increased by
45% year on year (YoY) to Rs67.60, which included Rs18.38
crore additional provision arising out of the re-estimation
of the useful life of certain assets.
Adjusted net profit jumped by 50% to Rs254 crore: The
company reported a 22.8% rise in the net profit to Rs240
crore during the quarter. However, adjusting for a forex
gain of Rs6 crore, exceptional expenses of Rs1.18 crore
and additional depreciation of Rs18.38 crore, the net
profit jumped by 50% to Rs254 crore.
R&D pipeline progressing well: One of the companys
new chemical entities (NCEs), namely ZYDPLA1 (targeted
at regulating blood sugar level), advanced to phase-I global
clinical trial in the US market. Besides, it also completed
the phase-II trials for one of its biosimilars based on
monoclonal antibodies (MABs). The company is also in
advanced stage of getting marketing authorisation in the
regulated markets for one of its biosimilars that is already
being marketed in India.
Outlook remains strong
The company is set to intensify the US filings and we
expect a sizeable number of approvals coming through
over the next two to three years. The companys pipeline
for the US markets includes generic launches of some of
blockbuster drugs like Abilify ($4 billion), Niaspan ($1.1
billion) and Lialda ($550 million), which are likely to lose
their patent protection in FY2015. Besides, the company
has got tentative approvals for Sirolimus (market size of
$203 million) under the 180-day exclusivity and Asacol
(litigation settled with innovator and to be launched in
FY2016; potential revenues for Cadila at $40 million).
Though the businesses in Brazil and Europe, and the joint
ventures are unlikely to see any significant headway in
the near term, but the domestic business and the business
in the emerging markets will see a recovery in the
subsequent quarters. We expect the revenues and profit
to grow at a compound annual growth rate (CAGR) of 18%
and 55% over FY2014-16 respectively.
We revise price target up by 8% to Rs1,300 but
downgrade the stock to Hold
We have marginally lowered the earnings estimate for
FY2015 due to a moderate performance of the Indian
business in Q1. But we have revised up our earnings
estimate for FY2016 by 8.5% in anticipation of a large
chunk of US approvals in this year. Accordingly, our price
target stands revised up by 8.5% to Rs1,300 (implies 17x
FY2016E earnings per share [EPS]). However, owing to a
limited upside to the stock price post-results rally, we
downgrade our rating on the stock to Hold.
Revised estimates Rs cr
Old New Var %
Particulars FY2015E FY2016E FY2015E FY2016E FY2015E FY2016E
Net sales 8,463 9,859 8,537 9,976 0.9 1.2
Expenditure 6,647 7,882 6,813 7,880 2.5 0.0
Operating profit 1,816 1,977 1,724 2,096 -5.0 6.0
Other income 58 70 58 70 0.0 0.0
EBITDA 1,874 2,047 1,783 2,166 -4.9 5.8
Interest 107 68 66 43 -38.7 -36.7
Depreciation 217 237 217 237 0.0 0.0
PBT 1,550 1,742 1,500 1,886 -3.2 8.3
Taxes 233 261 225 283 -3.2 8.3
Minority Interest 33 36 33 36 0.0 0.0
Adj.PAT 1,285 1,445 1,242 1,567 -3.3 8.5
Reported PAT 1,285 1,445 1,242 1,567 -3.3 8.5
EPS 62.7 70.6 60.7 76.5 -3.3 8.5
Margins (%)
OPM 21.5 20.0 20.2 21.0 -126 96
EBIDTA 22.1 20.8 20.9 21.7 -126 95
PATM 15.2 14.7 14.5 15.7 -63 105
Tax rate 15.0 15.0 15.0 15.0 0 0
27 Sharekhan
Home Next
July 30, 2014
Valuations (consolidated)
Net sales (Rs cr) 5,263.2 6,358.1 7,224.0 8,537.2 9,976.2
Adjusted net profit (Rs cr) 770.2 655.2 803.5 1,242.0 1,567.2
Shares in issue (cr) 20.5 20.5 20.5 20.5 20.5
EPS (Rs) 37.6 32.0 39.2 60.7 76.5
% YoY change 10.6 -14.9 22.6 54.6 26.2
PER (x) 31.0 36.5 29.8 19.3 15.3
Cash EPS (Rs) 45.3 40.9 49.1 71.3 88.1
Cash PER (x) 25.8 28.5 23.8 16.4 13.3
EV/EBITDA (x) 23.5 23.2 21.4 14.5 11.5
Book value (Rs/share) 125.7 148.5 182.8 237.6 308.4
P/BV (x) 9.3 7.9 6.4 4.9 3.8
Mcap/sales 4.5 3.8 3.3 2.8 2.4
RoCE (%) 17.8 15.8 17.1 22.8 25.0
RoNW(%) 25.4 20.5 21.9 25.5 24.8
28 Sharekhan
Key points
Led by re-rating and latest run-up on account of a demerger the stock has delivered 62% returns in last six
months: We had initiated our positive view on Arvind on January 31, 2014 at a price of Rs149 per share. We had
further re-emphasised our preference for the stock in the subsequent Viewpoint note (dated March 14, 2014) and
again in May after the announcement of the companys Q4FY2014 results. Our prime investment thesis was a strong
growth in the textile business coupled with the companys metamorphosis into a branded play (with several marquee
brands), which were not getting reflected in the stocks valuations. The same has played off very well. Since the
time we initiated our positive view the stock has appreciated by 62%. It has risen by 27% since our last update on
the stock in May this year in which we had expressed confidence about the companys business model and the
stocks performance. At the current level of Rs241 the stock has surpassed all our targets.
Margin pressure expected ahead: Going forward, we expect the stocks performance to be capped in the short
term owing to: (a) margin pressure expected in the textile segment; and (b) Megamarts restructuring will be a
positive in the long term but may affect the financials in the short term. The Megamart business (value retailing in
nature) is currently bleeding and for Q1FY2015 the same has reported a 3.4 % decline in its same-store sales.
Recent run-up, possible margin risk in short term and aggressive valuation leave little scope; advise profit
booking with 62% overall gain: We continue to believe that Arvind is a proxy play on the robust brand and retail
story unfolding on the Indian shores as well as the significant opportunity in the textile export space where India is
rapidly growing its presence and taking share from Bangladesh, Vietnam and the other markets. But given the
strong appreciation in the stock price (up 62% in six months and up 27% in last three months) and the likely margin
risk in the short term, we believe that in the short term the upside to the stock is capped (more so, given the
recent run-up on account of the demerger). At the current valuation of 11x its FY2016E earnings, the stock is no
longer cheap and hence we advise our clients to take home profits with a 62% overall gain.
Arvind
Viewpoint
Strong run-up, 62% returns in 6 months; time to take profits home CMP: Rs241
investors eye viewpoint
Valuations Rs cr
Revenue 4,925.1 5,292.5 6,862.1 8,399.4 10,134.7
% growth 22.5 7.5 29.7 22.4 20.7
Adjusted profit 244.7 248.0 368.9 440.1 579.4
% growth 1.4 48.7 19.3 31.6
EPS 9.5 9.6 14.30 17.06 22.45
PER 25.4 25.1 16.9 14.1 10.7
EV/EBITDA 11.6 10.9 8.3 7.1 5.6
29 Sharekhan
Home Next
July 30, 2014
Q1FY2015 performance snapshot: Arvind posted a
decent performance for Q1FY2015, with the consolidated
revenues growing by 19% year on year (YoY, aided by a
13% growth YoY in textile business and a 26% growth YoY
in the brand & retail business). A combination of factors
(a) disruption of operations for woven owing to an
expansion project, (b) higher power and cotton costs;
and (c) losses relating to the Megamartrestricted the
operating profit growth to merely 6.2% YoY. On the other
hand, lower depreciation resulted in a 15.9% growth YoY
in the adjusted earnings, though the reported earnings
grew at 33.9% YoY.
Value unlocking through demerger of infra subsidiary a
positive: In an attempt to unlock value from the real
estate business as well as to provide leg room for growth
in the real estate business, the board decided to demerge
Arvinds infrastructure subsidiary, Arvind Infrastructure,
into a separate listed entity. The share swap ratio at 1:10
is fixed, whereby each shareholder holding ten shares in
Arvind would get one share in Arvind Infrastructure. Arvind
Infrastructure is a real estate company managing 11
projects in Ahmedabad and Bengaluru with a potential
construction space of 5.3 million sq ft over 360 acres of
land. The development business gets demerged from
Arvind into a subsidary while the land parcel continues to
stay in the books of the parent Arvind. We believe that
the demerger is a positive for the company as it enables
Arvind to focus on its core business while providing ample
leg room for growth of the infrastructure development
business.
investors eye viewpoint
30 Sharekhan
Sharekhan Stock Ideas
Disclaimer
This document has been prepared by Sharekhan Ltd.(SHAREKHAN) This Document is subject to changes without prior notice and is intended only for the person or entity to which it is addressed to and may contain confidential and/or
privileged material and is not for any type of circulation. Any review, retransmission, or any other use is prohibited. Kindly note that this document does not constitute an offer or solicitation for the purchase or sale of any financial
instrument or as an official confirmation of any transaction.
Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report.
The information contained herein is from publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, SHAREKHAN, its subsidiaries and associated
companies, their directors and employees (SHAREKHAN and affiliates) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and
affiliates from doing so. We do not represent that information contained herein is accurate or complete and it should not be relied upon as such. This document is prepared for assistance only and is not intended to be and must not alone
betaken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent
evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment
discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of Sharekhan may have issued other reports that are inconsistent with and reach different
conclusion from the information presented in this report.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or
use would be contrary to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all
jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.
SHAREKHAN & affiliates may have used the information set forth herein before publication and may have positions in, may from time to time purchase or sell or may be materially interested in any of the securities mentioned or related
securities. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates
or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. Any comments or statements made herein are those of the analyst and do not necessarily reflect those
of SHAREKHAN.
Automobiles
Apollo Tyres
Ashok Leyland
Bajaj Auto
Gabriel India
M&M
Maruti Suzuki India
TVS Motor Company
Banks & Finance
Allahabad Bank
Andhra Bank
Axis (UTI) Bank
Bajaj Finserv
Bajaj Finance
Bank of Baroda
Bank of India
Capital First
Corp Bank
Federal Bank
HDFC
HDFC Bank
ICICI Bank
IDBI Bank
LIC Housing Finance
Punjab National Bank
PTC India Financial Services
SBI
Union Bank of India
Yes Bank
Consumer goods
Bajaj Corp
GSK Consumers
Godrej Consumer Products
Hindustan Unilever
ITC
Jyothy Laboratories
Marico
Mcleod Russel India
TGBL (Tata Tea)
Zydus Wellness
IT / IT services
CMC
Firstsource Solutions
HCL Technologies
Infosys
NIIT Technologies
Persistent Systems
Tata Consultancy Services
Wipro
Capital goods / Power
Bajaj Electricals
Bharat Heavy Electricals
CESC
Crompton Greaves
Finolex Cables
Greaves Cotton
Kalpataru Power Transmission
PTC India
Thermax
V-Guard Industries
Infrastructure / Real estate
Gayatri Projects
ITNL
IRB Infra
Jaiprakash Associates
Larsen & Toubro
Pratibha Industries
Punj Lloyd
Oil & gas
Oil India
Reliance Ind
Selan Exploration Technology
Pharmaceuticals
Aurobindo Pharma
Cadila Healthcare
Cipla
Dishman Pharma
Divi's Labs
JB Chemicals & Pharmaceuticals
Glenmark Pharmaceuticals
Ipca Laboratories
Lupin
Sun Pharmaceutical Industries
Torrent Pharma
Agri-Inputs
UPL
Building materials
Grasim
Orient Paper and Industries
Shree Cement
The Ramco Cements
UltraTech Cement
Discretionary consumption
Eros International Media
Indian Hotel Company
KKCL
Raymond
Relaxo Footwear
Speciality Restaurants
Sun TV Network
Zee Entertainment Enterprises
Diversified / Miscellaneous
Aditya Birla Nuvo
Bajaj Holdings
Bharti Airtel
Bharat Electronics
Gateway Distriparks
Max India
Ratnamani Metals and Tubes
Supreme Industries
To know more about our products and services click here.

9-Stocks Sharekhan 040814

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

9-Stocks Sharekhan 040814

Uploaded by

Copyright:

Available Formats

Visit us at www.sharekhan.

com July 30, 2014

You might also like