This article has been authored by Mr. Santosh Yellapu.
Lower Other Income restricts PAT; Advise BUY post correction in the stock price
NBCC reported 28.8% yoy increase in its 3QFY2016 top-line to Rs1,421cr, slightly below our expectation of Rs1,429cr. PMC & Real Estate segments (87% & 7.6% of 3QFY2016 sales respectively) reported an impressive 27.4% & 55.0% yoy top-line growth during the quarter. Shift in the business mix helped the company report 66bp yoy EBITDA margin expansion to 3.9%. NBCC reported PAT of Rs57, below our expectation of Rs69cr, owing to lower than expected other income (at Rs38cr) and higher than expected tax rate (at 31.5%). Even though 3QFY2016 numbers were a miss, considering the huge re-development bid pipeline from Delhi, and order book of over Rs35,000cr (OB/LTM sales ratio of ~6.3x), we advise investors to use correction in the stock price as an opportunity to BUY.
This article has been authored by Mr. Amarjeet Maurya
Mixed set of numbers
“For 3QFY2016, Navkar has reported mixed set of numbers. The Consolidated top-line during the quarter grew by ~5% to ~INR 88cr on back of subdued EXIM volumes. On the operating margin front, the company has reported a margin contraction of 154bp YoY to 42.0% on account of higher operating and employee expenses. As a result EBITDA remained flat at ~INR 37cr for the quarter. However, net profit grew by ~83% to ~INR 29cr due to higher other income and lower interest related expenses (includes FOREX loss).
Going forward, we expect NCL’s utilizations to increase; we expect NCL to be able to garner a good chunk of business over the next three to four years due to its rail advantage at both JNPT and Vapi. Moreover, the capacity addition at JNPT port serves as an additional long-term trigger for the stock. Hence, we maintain positive stance on the stock.”
Results lower than expected
Stock down 4.0%
Aurobindo Pharmaceuticals (CMP: `743/ TP: `856 / Upside: 15.2%)
The company disappointed on the revenue front which came in below expectations growing by 9.2% yoy to `3,432cr. This was against our expectations of `3,800cr. The key markets like USA (`1571cr) posted a yoy growth of 30.8%, Europe(`779cr) posted a de-growth of 9.6%, ROW(`182cr) posted a yoy growth of 36.2% and ARV ( `305cr) posted an de-growth of 8.5%. On the operating front, the gross margins came in as expected at 54.7% V/s 49.6% in 3QFY2015, which aided the OPM’s to come in at 22.7% V/s 18.7% during the last corresponding period. Thus, the Adj. Net profit of the company rose to `525cr V/s `399cr in 3QFY2015, yoy growth of 31.7%. We maintain our buy rating on the stock with a price target of `856.
Earnings outperform, top-line flat YoY
“For 3QFY2016, Radico Khaitan outperformed our estimates on the earnings front although the top-line came in flat YoY. Revenues rose to ~INR 401cr, which is lower than our estimate of INR 432cr. The soft top-line performance could be attributed to the company’s shift in focus towards prestige and above products over higher volume mass market products.
On the operating front, the company’s margin improved by 344bp YoY to 14.6%, primarily on account of lower raw material and selling & distribution expenses. The operating profit resultantly grew by ~27% to INR 58cr.The reported net profit grew by 19% YoY to INR 25.4cr (above our estimate of INR 23.4cr) on account of the strong operating performance and lower interest costs (in FY2015 the company repaid a significant amount of its debt; further debt reduction is also on the cards).
The company has not performed well in the last two years due to increasing raw material costs (ENA is a key raw material) and with it not receiving significant price hikes from various states. We expect the company to perform well going forward in anticipation of easing material costs and on expectation of better price hikes. This would result in an overall improvement in the operating margin of the company. We currently have a positive view on Radico Khaitan.”
Results below expectation on sales front, while net profit higher on back of other income
Stock up 3.9%
Cadila Healthcare (CMP: `312 / TP: `352/ Upside:12.8% )
Cadila Healthcare posted robust results during the quarter, on the net profit front, while the sales came in lower. For 3QFY2016, the company posted sales of `2342cr V/s `2600cr expected a yoy growth of 8.4%. The growth on sales front was impacted on back domestic markets. Exports( `1398.8cr) which posted a 10.6% yoy during the quarter, while domestic markets( `993.2cr) posted a 6.4% yoy growth. In exports the key market like US (`1017.7cr) a yoy growth of 19.6%, while other key market like Europe(`76.2cr ) posted a dip of 10.0%, while JV and alliances ( `100.2cr) posted a dip of 17.7% yoy. In domestic markets, the Indian formulation markets posted a yoy growth of 11.0%.
On operating front, the OPM came in at 21.0% V/s 21.4% expected and V/s 19.3% in 3QFY2015. The expansion in the OPM was driven by the GPM expansion which expanded to 65.9% V/s 64.8% in 3QFY2015 and almost flat growth in the staff and other expenditure. R&D expenditure, during the quarter came in at 10.1% V/s 8.7% in 3QFY2015. Also during the quarter, the company posted a other income of `112cr V/s `39.9cr in 3QFY2015.This, aided the net profit to come in at `389cr V/s `353cr V/s `282cr, yoy growth of 38.2%. The Adj. net profit, came in at `390cr V/s `278cr in 3QFY2015, a yoy growth of 40.0%. We maintain our accumulate with a price target of `352.
Larsen & Toubro (L&T; standalone entity) reported bad set of numbers for 3QFY2016, both at the top-line and the bottom-line level. The company reported yoy top-line de-growth at 1.5% yoy to `14,774cr (vs. our expectation of 6% yoy growth). Revenue de-growth on yoy basis is owing to lower revenue booking across Infrastructure and Metallurgical & Material Handling segments. The disappointment continued further towards the EBITDA level; the company reported a 368bp yoy decline in EBITDA margin to 6.8%. Revenue de-growth and 38.0% yoy increase in sales, admin. and other expenses, led to EBITDA margin compression. During the quarter, L&T reported gain from stake sale in subsidiary and associate company to the tune of `92cr. Adjusting for the same, Adj. PAT of the company were at `791cr. Adj. PAT was also impacted due to muted other income, which declined 0.8% yoy to `617cr.
For 3QFY2016 L&T reported consol. Order inflows of `38,500cr. L&T in order to attain its flattish revised Order inflow guidance for FY2016E, it needs to report ~`61,900cr of Order inflows in 4QFY2016. This reflects a 30% order inflows asking rate for 4QFY2016.
Even though there have been delays on the awarding front, we believe in the Indian Infra growth story. Given the company’s market positioning, we expect L&T to be well positioned to gain from an expected gradual recovery in the capex cycle, given its exposure to a range of sectors, and better cash flow generating potential vis-a-vis its peers. We maintain our positive view on L&T; we maintain our BUY rating on the stock.
“Yes Bank reported a healthy performance during the quarter with PAT growth of 25.1% YoY to INR 675.7cr, above our expectations. NII for the bank grew at healthy pace of 27.3% YoY, on account of strong growth in advances and Retail & CASA deposits. Reported NIM inched up to 3.4% as compared to 3.3% in 2QFY16. CASA Ratio improved to 26.6% from 22.6% a year ago on the back of savings deposits robust growth of 64.1% Y-o-Y. Advances jumped 26.7% YoY to INR 84,396cr which is a healthy number given the sluggish credit growth in the economy. Non Interest Income continued to deliver healthy growth at 39.0% YoY while operating expenses grew by 29.2% YoY led by growth in staff as well as other operating expenses. On the asset quality front, Gross NPA and Net NPA ratios marginally inched up to 0.66% and 0.22% respectively in 3QFY2016 as compared to 0.61% and 0.20% in 2QFY2016 which remains comfortable. The bank indicated that there has neither been any sale to ARC during the previous four quarters nor the bank has refinanced any loan through 5-25 route.
The bank’s asset quality performance has held up well so far. Going forward, we have factored higher provisions and slippages given the bank’s corporate exposure to metals and EPC. Even after factoring the higher provisions and slippages, we expect Yes Bank to deliver a CAGR of 20.5% in earnings for FY2015-17E. Currently the stock trades at 1.8x FY2017E ABV. We recommend ACCUMULATE rating on the stock.”
Power Grid Corporation (PGCIL) 3Q2016 total revenues increased 24% yoy to Rs5,407cr, 5.5% ahead of our estimate of Rs 5,125cr. Transmission revenues came in 4.4% ahead of our estimate at Rs 5,143cr, increasing a healthy 23% yoy (vs. our estimate of 18%). Consultancy revenues came in line with our expectations at Rs114cr as against our estimate of Rs112cr. Telecom revenues jumped 49% yoy to Rs 103cr, well ahead of our expectations of Rs 86cr. Other operating revenues also came in at Rs 47cr as against our estimate of Rs 1.4cr. On the expenses front transmission expenses also came in lower than expected at 7.1% of transmission revenue (vs our expectations of 8%), while employee expenses were in line with estimates. EBITDA jumped 27% to Rs 4,797cr, 7% ahead of expectations, led by the higher revenue and lower than expected transmission expenses. EBITDA margin came in 126bp ahead of expectations and increased 213bp on a yoy basis. We expected a capitalisation of Rs 5,126cr this quarter. However, we believe the capitalisation figure would be higher at ~Rs 5300-5500cr. We await the capitalisation and capex details from the company. Depreciation and interest costs were ahead of expectations in line with our expectations of increased capitalisation. The company reported a net profit came of Rs 1,613cr 7.6% ahead of our estimate of Rs 1,500cr.
We like PGCIL for the high quality earnings and growth offered by the regulated equity model, huge investments that are required in the transmission sector and the execution track record of the company. We expect PGCIL to report a revenue and EBITDA CAGR of ~16% over FY2015-17E led by the strong capex plans and capitalisation rate. We expect the bottom-line to grow at a CAGR of 17% over the same period. At the current market price, the stock trades at a P/BV of 1.7x and 1.5x its FY2016E and FY2017E BV of Rs82 and Rs93, respectively. We remain positive on Power Grid and reiterate our Buy recommendation on the stock.
Result much above expectations
Stock down 2.7%
HCL Tech (CMP: `843 / TP `1,132 : Buy / Upside: 34.3%)
During 2QFY2016, the company posted results better than expected. On sales the company posted a 1.4% QoQ growth in USD revenues to US$1,566mn V/s US$1,568mn expected. On Constant Currency, (CC) the company posted a 2.1% QoQ. In rupee terms, revenues came in at `10,341cr V/s `10,331cr expected, a growth of 2.4% QoQ.
In CC terms the key geography that drove the sales was 5.5% QoQ, while Europe and ROW posted a dip of 2.4% QoQ and 3.4% QoQ respectively. In services all services posted robust growth, with the expectation of Engineering and R&D Services which dipped by 1.5% QoQ CC, while Application Services, Infrastructure Services and Business Services posted a QoQ CC growth of 2.0%, 3.4% and 8.0% respectively. In verticals, only Manufacturing and Life sciences & Healthcare were soft posting a dip of 1.3% QoQ CC and 0.3% QoQ CC growth respectively. Other Verticals like Financial Services, Public Services, Retail & CPG and Telecommunications, Media posted QoQ CC growth of 1.9%, 8.4% , 10.3% and 3.4% respectively.
On operating front, the EBITDA margins came in at 21.5% V/s 20.9% expected an uptick of 80bp QoQ. Consequently, PAT came in at `1,920cr V/s `1,739cr expected, de-growth of 0.5% QoQ. On productivity front, the blended utilization came in at 84.7% V/s 83.6% in 1QFY2016, while the attrition rate came in at 6.4% V/s 7.1% in 1QFY2016.
Strong client addition continued for the company in CY’2015: US$50Mn+ clients up by 3, US$30mn+ clients up by 5, US$20mn + clients up by 5.Continuing its momentum of deal wins, HCL booked business in excess of USD 1 billion in TCV this quarter, including 8 transformational deals. The broad–based business wins, across service lines and industry verticals were driven by our next–generation offerings. Thus, on back of strong order book, the company expects the 2HFY2016, to be better than 1HFY2016. We maintain our Buy on the stock with a price target of `1,132.
This article has been authored by Ms. Sarabjit Kour Nangra (VP Research - IT, Angel Broking) on Wipro- 3QFY2016 Results
Wipro (CMP: INR543/ TP: Under Review: Buy / Upside)
“During 3QFY2016, the company posted numbers lower than expected on all fronts. The IT services posted a 0.3% sequential growth in USD revenues to US$ 1,838mn V/s US$ 1,841mn expected. On the constant currency terms (CC), the IT services posted a 1.4% QoQ growth. The revenues came in at the middle end of the band of US$ 1,821-1,858mn at the actual currency realized. In rupee terms, overall consolidated revenues are expected to come in at INR 12,861cr V/s INR 12,739cr expected a growth of 2.8% QoQ.
In terms, of geography, the USA posted a 0.3% QoQ CC growth, Europe posted a 1.4% QoQ CC growth, India & Middle East Business posted a 5.4% QoQ CC growth and APAC and Other Emerging Markets posted a 3.1% QoQ CC growth. In terms of the vertical, Global Media & Telecom posted a 2.7% QoQ CC growth, Finance Solutions posted a -0.7% QoQ CC, Manufacturing & Hitech posted a -0.6% QoQ CC growth , Healthcare Life Sciences & Services posted a 6.0% QoQ CC, Retail, Consumer Goods & Transportation posted a QoQ CC 4.6% and Energy, Natural Resources & Utilities posted no growth during the period.
On the operating front, the EBITDA margins came in at 20.6% V/s 21.5% a downtick of 121bp QoQ. Consequently, PAT came in at INR 2,243cr V/s INR 2,318cr expected a growth of 0.4% QoQ. Other operating matrix, the gross utilization levels dropped to 66.4% V/s 69.5% in 2QFY2016. Net utilization (excl support) dropped to 73.8% V/s 77.2% in 2QFY2016. In terms of client addition, it added one client of US$50mn+ and major ones in the small order sizes. Overall 39 clients were added during the quarter.
For 4QFY2016, the company has guided for revenues of IT services in the range of US$ 1,875-1,912mn, a QoQ growth of 2.0-4.0%. We maintain our BUY rating on the stock with the price target under review.”