Visit us at www.sharekhan.com April 10, 2015 Index Sharekhan Special >> Q4FY2015 earnings preview Stock Update >> CMC Sector Update >> Pharma earnings preview For Private Circulation only REGISTRATION DETAILS 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. Sharekhan Ltd.: SEBI Regn. Nos. BSE - INB/INF011073351 ; BSE- CD ; NSE - INB/ INF231073330 ; CD-INE231073330 ; MCX Stock Exchange - INB/INF261073333 ; CD-INE261073330 ; DP - NSDL-IN-DP-NSDL-233-2003 ; CDSL-IN-DP-CDSL-2712004 ; 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 [email protected] ; Disclaimer: Client should read the Risk DisclosureSharekhan Document issued by SEBIApril & relevant 10,exchanges 2015 and Do’s & Don’ts by MCX & NCDEX and the T & C on www.sharekhan.com 1 before investing. Home Next investor’s eye sharekhan special Q4FY2015 earnings preview Sharekhan Special Another quarter of weak performance but outlook remains encouraging Q4FY2015 result expectations largely in line with the long-term average price/earnings (P/E) multiple of 15x FY2017 consensus earnings estimate. Though there is scope for some estimate downgrades in the forthcoming result season, the valuations are still in a comfortable zone. We re-iterate our prognosis that given the weakness in the corporate results, mounting pressure from the opposition parties, unseasonal rains that damaged the rabi crop and global uncertainties, the benchmark indices would slip into a consolidation phase with sideways movement in a range for some time before the earnings growth trajectory revives again. The Q4FY2015 performance of the Sensex companies would reflect the impact of several unfavourable factors like (1) cross-currency movement (appreciation of the dollar and the rupee against the euro which adversely affected the financials of the export-oriented companies, ie information technology [IT] and pharmaceutical [pharma] companies); (2) weak rural demand (plummeting agricommodity prices along with crop damage due to unseasonal rains); (3) inventory losses (mark-down of inventory to fully reflect the plunge in the prices of crude oil and other inputs); and (4) moderation in government spending in a bid to adhere to the fiscal deficit target for FY2014. Sensex’ one-year forward P/E band Consequently, the aggregate revenues of the Sensex companies are estimated to decline by 4.7% whereas their aggregate net profit is likely to remain flat or show a marginal decline in Q4FY2015. The key drag on the earnings would come from the metal, capital goods and some of the energy companies. Outlook Weakness more of an aberration; earnings revival ahead: In spite of the weak quarterly results for the second consecutive quarter, the consensus is building on a 1617% compounded annual growth in the earnings of the Sensex over the next two years. That’s because some of the negative factors are temporary and the macro scenario favours a revival in economic growth and corporate earnings in terms of higher government spending on infrastructure, a low energy cost, easing interest rates and an improving policy environment. Source: Bloomberg, Sharekhan Research Outperformers Underperformers Cadila Health, Cipla Ipca Labs, Torrent Pharma Ashok Leyland, Maruti Suzuki, Eicher Motors Mahindra & Mahindra, Bajaj Auto Century Ply , Relaxo Footwears Sun TV, GAIL Oil India, Skipper, Triveni Turbines BHEL, PTC India Valuation Yes Bank, HDFC Bank, PFS, Bajaj Finance IDBI Bank, Federal Bank Near the long-term average on FY2017 consensus earnings estimate: In spite of the handsome rally for the past 18 months, the valuations are not stretched and Marico, GCPL, GSK Consumers ITC, HUL Sharekhan The Ramco Cements, Mangalam Cement, Shree Cement GDL, Thomas Cook 2 April 10, 2015 Home Next investor’s eye sharekhan special Estimated sector-wise contribution to Sensex’ earnings growth (%) Trend in Sensex’ (ex oil) earnings growth—actual vs estimated Source: Company data, Sharekhan Research Source: Company data, Sharekhan Research Estimated revenue growth by sector ex energy (%) Estimated PAT growth by sector ex energy (%) Source: Company data, Sharekhan Research Source: Company data, Sharekhan Research Consensus earnings estimates of Sensex for FY2017 Source: Company data, Sharekhan Research Sharekhan 3 April 10, 2015 Home Next investor’s eye sharekhan special Sectoral previews Auto Barring a few bright spots, a relatively weak quarter for the sector Q4FY2015 result expectations Mid-single digit growth for the auto universe in Q4FY2015: The automobile companies (ex Tata Motors) are expected to report a modest 4.9% growth in revenues for Q4FY2015. The growth is on the lower side primarily owing to a slowdown in the two-wheeler and tractor segments. Given a fall in their volumes, original equipment manufacturers (OEMs) such as Bajaj Auto and Mahindra & Mahindra (M&M) are expected to report a decline in revenue. Ashok Leyland Ltd (ALL) is expected to outperform the industry with a growth of 52%. Riding on the continued popularity of Royal Enfield, Eicher Motors too is expected to post an impressive growth of 29.3%. In the ancillary space, aided by a strong growth in exports Bharat Forge’s revenues are expected to grow by 32.8%. Tyre manufacturers are expected to post a marginal decline in revenues due to a drop in the realisations. Margins improve YoY due to stable raw material prices and favourable currency: On a Y-o-Y basis, the margins of the OEMs (ex Tata Motors) are expected to expand by 50 basis points (BPS). ALL, deriving the benefit of operating leverage and price hikes undertaken, is expected to report the highest expansion in the operating profit margin (OPM). The depreciation of the yen against the dollar is expected to boost the margins of Maruti Suzuki. The tyre manufacturers, aided by a sharp fall in the prices of the key raw materials, are expected to report a 200-BPS Y-o-Y margin expansion. Automobile companies (ex Tata Motors) are expected to report a 3.3% growth in the net profit for Q4FY2015. Outlook The weak monsoon rainfall last year, damage to the rabi crop due to unseasonal rains in this year and a lack of growth in the farm income has weighed heavily on rural demand especially for motorcycles and tractors. Meanwhile, the urban demand-led scooter segment continues to outperform and its contribution is bound to increase going forward. A regular monsoon rainfall will re-kindle the rural demand. While the passenger vehicle (PV) segment has grown by 10% in FY2015, the growth has been driven by a discount push and excise duty cut. The lower fuel prices coupled with expectation of interest rate cuts should spur demand in FY2016. Meanwhile, the CV segment is expected to continue to grow in double digits, albeit at a slower pace. Valuation The auto stocks have been re-rated significantly in the last one year and most of them are trading at a premium to the average valuation multiple. Thus, it is essential to be selective now. From an investment perspective, we continue to prefer Maruti Suzuki in the four-wheeler space and Hero MotoCorp in the two-wheeler space. In the CV segment we like ALL and in the ancillary space we like Apollo Tyres and Gabriel India. Preferred picks this earnings season: ALL, Maruti Suzuki, Eicher Motors and JK Tyres Q4FY2015 results snapshot Banks Q4FY15E Coverage Coverage Maruti Suzuki Hero MotoCorp Bajaj Auto TVS Motor M&M** Ashok Leyland Apollo Tyres Greaves Cotton Gabriel India Rico Auto Industries* Soft coverage Tata Motors Eicher Motors # Exide Ind Bharat Forge Suprajit Eng Ceat Balkrishna Industries JK Tyre & Industries Sales (Rs cr) Q4FY14 YoY % QoQ % Q4FY15E OPM (%) Q4FY14 YoY BPS QoQ BPS Q4FY15E PAT (Rs cr) Q4FY14 YoY % QoQ % 13,480 6,572 4,528 2,441 8,779 4,682 3,024 431 361 320 12,101 6,513 4,932 2,156 10,214 3,077 3,229 435 335 368 11.4 0.9 -8.2 13.2 -14.1 52.2 -6.4 -1.0 7.7 -13.2 7.2 -3.9 -20.0 -8.0 -5.2 39.3 -2.6 -0.1 0.4 -10.4 13.1 13.0 19.8 6.1 11.3 9.5 15.8 12.0 8.1 7.5 10.3 13.7 19.6 6.4 10.4 6.0 14.3 10.6 8.3 10.1 275 -77 15 -37 94 356 152 136 -16 -262 40 94 -51 3 -34 245 0 5 9 134 1,093 615 643 81 608 187 260 34 17 2 800 554 788 75 915 (13) 271 28 15 3 36.7 11.0 -18.4 8.9 -33.6 NA -4.1 19.7 12.7 -35.9 36.3 5.5 -20.2 -9.9 -9.0 NA -1.3 4.6 -1.1 -130.8 69,323 2,487 1,878 1,236 161 1,456 1,023 1,944 65,317 1,924 1,613 931 154 1,453 1,037 1,912 6.1 29.3 16.5 32.8 4.5 0.2 -1.3 1.7 -0.9 8.4 20.5 3.2 -0.9 2.5 6.6 5.8 15.7 13.6 14.0 29.6 15.5 13.3 27.1 13.7 15.3 11.5 13.6 24.8 16.9 11.0 25.8 10.0 39 203 43 485 -143 226 125 364 249 200 -1624 1413 255 -1420 1329 -48 4,872 185 161 203 13 104 138 100 3,972 139 132 107 13 69 154 45 22.7 32.9 21.9 90.3 4.0 51.1 -10.4 122.6 25.2 20.3 65.7 3.4 11.7 17.1 6.4 8.9 * Please note Q4FY2015 results not comparable with Q4FY2014 results due to sale of its subsidiary to joint venture partner, FCC of Japan ** M&M+MVML # Results are for Q1FY2016, the company has changed accounting year to March ending Sharekhan 4 April 10, 2015 Home Next investor’s eye sharekhan special Valuations Company Reco Price CMP EPS (Rs) PE (x) target (Rs) (Rs) FY14 FY15E FY16E FY14 FY15 FY16 164.0 39.7 31.1 22.3 Maruti Suzuki Buy 4,250 3,657 92.1 117.5 Hero MotoCorp Buy 3,400 2,610 105.6 128.9 163.0 24.7 20.2 16.0 Bajaj Auto Buy 2,400 2,097 113.9 115.3 122.4 18.4 18.2 17.1 TVS Motor Hold 270 251 5.5 7.5 11.8 45.7 33.3 21.3 M&M* Buy 1,425 1,274 65.3 56.0 67.4 19.5 22.8 18.9 Ashok Leyland Buy 76 75 (1.8) 0.7 3.0 NA 101.6 24.8 Apollo Tyres Buy 260 181 20.7 22.1 23.8 8.8 8.2 7.6 Greaves Cotton Buy 165 137 5.0 5.5 7.8 27.5 24.7 17.6 Gabriel India Buy 110 90 3.3 5.0 7.0 27.7 18.0 12.8 Rico Auto Industries Buy 55 54 0.2 (0.1) 3.3 268.6 NA 16.3 Soft-coverage Tata Motors Positve 559 43.5 57.7 66.4 12.9 9.7 8.4 Eicher Motors Positve 16,339 145.7 227.0 364.9 112.1 72.0 44.8 Exide Ind Neutral 189 5.7 6.7 8.1 33.0 28.2 23.3 Bharat Forge Neutral 1,321 21.4 27.2 36.0 61.7 48.6 36.7 Suprajit Eng Positve 123 4.2 4.4 6.1 29.0 27.9 20.2 Ceat Neutral 832 78.2 74.6 84.8 10.6 11.2 9.8 Balkrishna Industries Positve 701 50.5 50.9 56.9 13.9 13.8 12.3 JK Tyre & Industries Neutral 124 11.9 15.4 17.1 10.5 8.1 7.3 * M&M + MVML Banking and NBFC Slower credit growth and higher provisioning to affect earnings growth Q4FY2015 result expectations Earnings growth of PSBs to be subdued: We expect the aggregate earnings of the banks under our coverage to grow by about 11% year on year (YoY) in Q4FY2015. However, despite the benefit of treasury gains and the utilisation of floating provisions the public sector banks (PSBs) are expected to report a marginal growth (of about 6% YoY) in their earnings due to a higher provisioning for the non-performing assets (NPAs), employee expenses and a slow core income growth. Asset quality remains key monitorable: Stress on asset quality will persist in Q4FY2015 as well, largely due to higher additions to the restructured book since this was the last quarter of regulatory forbearance on restructured loans. Overall, fresh NPA additions may remain elevated (ie remain near Q3FY2015 levels) partly because of rising NPA additions from the restructured portfolio which would keep the provisioning high. Outlook While the concerns persist in the near term (a slow credit growth, stress on asset quality and weak capital position) we believe a pick-up in the economy, easing of the interest rates by the Reserve Bank of India and some structural reforms in the financial sector could ease the challenges in the medium term. Valuation The PSBs trade at a discount of about 30% to the 12-month forward book value because of the concerns in the near term (weak asset quality, low capital ratio, etc). A revival in the economy will improve their valuations though. The private banks will continue to trade at premium valuations due to their superior performance and better operating metrics compared with the PSBs. Preferred picks this earnings season: Axis Bank, HDFC Bank and Yes Bank (private banks); State Bank of India and Bank of Baroda (PSBs); LIC Housing Finance and PTC India Financial Services (non-banking finance companies [NBFCs]) Sharekhan 5 April 10, 2015 Home Next investor’s eye sharekhan special Q4FY2015 results snapshot Banks Rs cr NII Q4FY15E Q4FY14 Public State Bank of India Punjab National Bank Bank of Baroda Bank of India Union Bank Corporation Bank* Andhra Bank* Allahabad Bank IDBI Bank PSBs total Private ICICI Bank HDFC Bank Axis Bank Federal Bank Yes Bank Private banks total Grand total NBFCs HDFC LIC Housing Finance Capital First# Bajaj Finance PTC India Fin. Ser. YoY % QoQ % PPP Q4FY15E Q4FY14 YoY % QoQ % PAT Q4FY15E Q4FY14 YoY % QoQ % 14,323 4,361 3,434 3,116 2,320 1,076 1,176 1,621 1,490 32,917 12,903 4,002 3,124 3,047 2,052 907 950 1,353 1,574 29,913 11.0 9.0 9.9 2.3 13.0 18.6 23.8 19.8 -5.4 10.0 4.0 3.0 4.5 12.1 9.4 4.6 -6.6 0.8 4.1 4.4 10,632 10,628 2,869 3,173 2,569 2,580 2,105 1,996 1,685 1,320 788 637 823 850 1,098 835 1,212 1,850 23,781 23,868 0.0 -9.6 -0.4 5.5 27.7 23.8 -3.2 31.4 -34.5 -0.4 14.4 4.3 9.8 12.8 15.0 8.5 -10.9 2.1 8.8 10.3 3,552 911 932 523 561 120 261 258 255 7,372 3,041 806 1,157 558 579 42 88 158 518 6,946 16.8 13.0 -19.5 -6.2 -3.2 187.5 196.9 63.4 -50.8 6.1 22.1 17.6 179.0 201.8 85.4 -18.8 29.6 57.1 147.9 44.3 4,842 6,039 3,734 642 933 16,190 49,106 4,357 4,953 3,166 625 720 13,820 43,733 11.1 21.9 18.0 2.7 29.6 17.2 12.3 0.6 6.0 4.0 9.3 2.6 3.8 4.2 5,202 4,453 4,826 3,779 3,973 3,248 445 420 918 680 15,364 12,581 39,144 36,449 16.8 27.7 22.3 6.0 34.9 22.1 7.4 3.3 1.0 19.9 12.0 6.4 6.8 8.9 2,908 2,835 2,140 248 550 8,682 16,054 2,652 2,327 1,842 277 430 7,528 14,475 9.7 21.9 16.2 -10.6 27.8 15.3 10.9 0.7 1.5 12.7 -6.4 1.8 3.5 18.9 2,632 627 133 745 98 2,278 533 96 553 65 15.5 17.5 38.2 34.6 51.9 30.5 14.2 -3.6 -9.6 9.8 15.2 18.8 41.4 31.3 35.0 30.1 12.3 -45.2 -11.2 15.8 1,890 396 35 240 65 1,723 370 30 182 46 9.7 7.0 15.8 31.6 40.4 32.6 15.0 15.5 -7.3 18.8 2,745 593 42 445 106.1 2,383 499 29 339 79 *Strong PAT growth in Corporation Bank and Andhra Bank is mainly attributed to a low base of Q4FY2014 #Capital First’s PAT growth adjusted for tax write-back in Q4FY2014 is about 50% YoY Valuations Reco Price target CMP (Rs) (Rs) FY14 FY15E FY16E FY14 FY15E FY16E FY14 378 203 212 275 268 78 104 135 82 274 153 169 206 157 57 80 101 74 0.6 0.6 0.8 0.5 0.5 0.3 0.3 0.6 0.3 0.5 0.7 0.6 0.5 0.4 0.5 0.3 0.4 0.3 0.2 0.4 0.8 0.8 0.7 0.5 0.5 0.4 0.5 0.5 0.3 0.5 10.0 9.7 13.4 10.1 9.5 5.7 5.1 10.1 5.0 8.7 10.5 9.8 10.0 7.4 9.9 6.4 7.9 5.6 2.4 7.8 12.7 12.4 12.7 9.7 10.7 8.4 10.7 9.9 4.4 10.2 1.8 0.8 1.1 0.5 0.6 0.5 0.5 0.5 0.5 0.8 1.7 0.7 0.9 0.5 0.5 0.5 0.5 0.5 0.5 0.7 1.5 0.7 0.8 0.4 0.5 0.4 0.5 0.4 0.5 0.6 Buy Buy Buy Buy Buy 424 1,260 610 170 930 315 1,035 556 130 821 1.7 1.7 1.7 1.1 1.6 1.6 1.0 1.8 1.7 1.8 1.1 1.7 1.6 1.0 1.8 1.8 1.8 1.1 1.6 1.6 1.1 14.0 21.3 17.4 12.6 25.0 18.1 13.4 14.7 19.7 17.8 13.3 21.4 17.4 12.6 15.7 19.2 17.9 14.3 18.6 17.1 13.7 2.5 5.7 3.4 1.7 4.2 3.5 2.1 2.3 4.3 3.0 1.5 2.9 2.8 1.7 2.1 3.7 2.6 1.3 2.5 2.4 1.5 Hold Buy Buy Buy Buy 1,360 558 485 UR 90 1,299 453 452 4,489 59 2.6 1.6 0.6 3.4 5.0 2.5 1.4 1.0 3.3 3.2 2.5 1.5 1.2 3.3 3.4 20.5 18.8 4.9 19.6 16.1 20.7 17.4 8.2 20.7 14.8 21.5 18.6 10.1 22.3 19.0 7.3 3.0 3.2 5.6 2.5 6.4 2.7 2.6 4.7 2.2 5.6 2.3 2.4 3.9 2.0 6 April 10, 2015 Banks Public State Bank of India Punjab National Bank Bank of Baroda Bank of India Union Bank Corporation Bank Andhra Bank Allahabad Bank IDBI Bank PSBs total / avg. Private ICICI Bank HDFC Bank Axis Bank Federal Bank Yes Bank Private banks total / avg. Grand total / avg. NBFCs HDFC LIC Housing Finance Capital First Bajaj Finance PTC India Fin. Ser. Buy Hold Buy Buy Buy Hold Hold Buy Hold RoA (%) RoE (%) P/BV(x) FY15E FY16E UR - Under review Sharekhan Home Next investor’s eye sharekhan special Consumer goods & services Sustained volume growth and margin expansion to drive earnings Q4FY2015 result expectations Double-digit revenue growth in Q4 also: In spite of signs of weakness in rural demand, most of the fast moving consumer goods (FMCG) companies under our coverage (barring Marico, which is likely to report a growth of over 20%) are expected to announce a revenue growth of 10-14% for Q4FY2015. The revenue growth would be led by a growth in volumes during the quarter. On the other hand, the leisure & travel majors like Thomas Cook India and Cox & Kings are expected to report a relatively higher revenue growth of 37% and 18% respectively for the same quarter. Low input prices to keep GPM high: The third quarter of FY2015 had marked the beginning of an improvement in the gross profit margin (GPM) of the FMCG companies due to a decline in the raw material prices. However, the larger benefits of lower raw material prices were expected to flow in from Q4FY2015. For Q4FY2015 the GPM of the FMCG companies is expected to show an improvement of 100-300 BPS (barring Marico, which will see a marginal improvement only). However, we expect the FMCG players to deploy some of the savings from the reduced raw material cost for advertisement and promotional activities, thereby limiting the margin expansion to 75-150BPS at the operating level. Given the improving profitability, the earnings growth of most of the FMCG companies is likely to be higher than the revenue growth. Outlook Soft input prices and improving demand to support earnings growth: Unseasonal rains in February and March damaged the ready-to-reap Rabi crop this year. This will dampen the rural sentiment and affect the sales of certain FMCG products in the rural markets. On the other hand, moderation in inflationary pressures, savings from reduced fuel prices and improving income levels (especially after an upward revision of the pay of government employees in keeping with the recommendations of the Seventh Pay Commission) are likely to sustain the revival in urban consumption. Valuation Premium valuations make us selective: We maintain our selective stance on the FMCG sector due to the premium valuations of some companies and retain Marico as our top FMCG pick due to a better visibility of its future earnings compared with the rest. The recent correction in the stock price of Jyothy Laboratories has made it one of our preferred picks in the mid-cap FMCG space. In the discretionary services segment, we continue to like Cox & Kings and Thomas Cook India because their growth prospects are better from the medium- to long-term perspective. Preferred picks this earnings season: Marico, Jyothy Laboratories, Cox & Kings and Thomas Cook India Q4FY2015 results snapshot Banks Net s7ales (Rs cr) Q4FY15E Q4FY14 YoY % QoQ % OPM (%) Adjusted PAT (Rs cr) Q4FY15E Q4FY14 YoY BPS QoQ BPS Q4FY15E Q4FY14 YoY % QoQ % FMCG companies under coverage HUL 7588.1 6935.8 9.4 0.1 14.2 13.1 111 -9 896.4 820.6 9.2 ITC 9879.8 9238.5 6.9 6.9 36.1 34.7 139 139 2550.3 2278 12 12 GSK Consumers 1241.7 1079.1 15.1 27.3 18.2 17.5 63 63 208.4 171.6 21.4 116.2 GCPL 2191.7 1931.5 13.5 -1.6 18.8 17.7 109 94 279.6 236.3 18.3 6.1 Marico 1300.6 1072.1 21.3 -10.5 14.7 14.4 32 -160 110.7 88.8 24.6 -30.8 Jyothy Laboratories Zydus Wellness -6.9 409.7 359.9 13.9 15 9.5 8.3 119 -62 31.1 21.8 42.5 17.8 114 101.1 12.7 6.5 19.4 19.8 -47 -190 23.3 21.8 6.9 -15.5 Under soft coverage Dabur India 1948.1 1769 10.1 -6.1 18 16.7 131 - 275.2 235.5 16.8 -3 Britannia Industries 2052.8 1801.5 13.9 1 10.8 9.4 144 0.9 141.1 108.1 30.5 -5.5 231.9 184.5 25.7 12.7 14.2 58.7 47.7 23.1 12.6 26726.4 24288.5 10 4516 3982.5 13.4 Bajaj Corp Total 29.6 28.6 99 22.9 21.9 98 Other companies under coverage Cox & Kings Speciality Restaurants Thomas Cook (India) 567.9 494.9 14.7 21.9 18.3 11 729 - 3.3 -42.5 - - 77.3 67.5 14.6 -3.9 10.4 9.9 47 -5.3 2.8 3.4 -17.5 -12 663.6 481.4 37.8 -10.4 6.1 5.7 45 - 15.8 7.9 99.1 -40.5 Sharekhan 7 April 10, 2015 Home Next investor’s eye sharekhan special Valuations Companies CMP (Rs) FY14 EPS (Rs) FY15E FY16E FY14 913 17.2 18.3 21.9 53.1 PE (x) FY15E Reco. FY16E Price target (Rs) FMCG HUL ITC 49.9 41.7 Hold 925 346 11.0 12.1 13.9 31.5 28.6 24.9 Hold 380 GSK Consumer 6,305 160.4 137.7 160.5 49.1 45.8 39.3 Hold ** GCPL 1,167 22.1 27.0 34.0 52.8 43.2 34.3 Hold 1,175 408 7.5 8.8 11.2 54.4 46.4 36.4 Buy 1,020 25.2 24.1 30.9 40.5 42.3 33.0 Hold 280 4.7 8.0 11.4 59.5 34.9 24.5 Buy Marico Zydus Wellness Jyothy Laboratories Consumer discretionary services 430 1,025 320 EV/EBIDTA (X) Cox & Kings 323 15.7 23.7 21.4 10.9 8.2 8.3 Buy 395 Speciality Restaurants 186 4.0 2.3 5.0 25.1 28.4 17.6 Hold 205 Thomas Cook India 212 2.5 5.6 5.0 33.9 18.6 16.6 Buy 250 *Thomas Cook India’s FY2015 estimates are for 15 months due to a change in the accounting year from December 2014 to March 2015 Capital goods & engineering Delay in investment cycle revival; be selective Q4FY2015 result expectations Double-digit growth driven by smaller companies: Excluding Bharat Heavy Electricals Ltd (BHEL), the financial performance of the capital goods and engineering companies under our coverage is encouraging with the aggregate revenues and earnings of our capital goods and engineering universe estimated to grow by 20% and 16% respectively in Q4FY2015. Incidentally, the mid-caps like Finolex Cables Ltd (FCL), Kalpataru Power Transmission Ltd (KPTL), V-Guard Industries (V-Guard) and Skipper are likely to witness a sound growth. On the other hand, the bellwethers like BHEL, Crompton Greaves Ltd (CGL) and Thermax continue to suffer from the weakness in the investment cycle. Margins under pressure only for large players under coverage: Even on the margin front, the large power equipment companies are facing pressure due to negative operating leverage (lower execution and higher fixed cost leading to lower profitability) especially in BHEL. On the other hand, smaller companies like Skipper, Triveni Turbines Ltd (TTL) and KPTL are expected to witness an improvement in the margins as compared with Q4FY2014. Outlook Order inflow picks up but demand environment still challenging: Though some of the large companies like BHEL and Larsen & Toubro (L&T) received some large orders from the power generation segment, the demand outlook remains challenging. On the positive side, the order flow in the power transmission sector has been quite healthy domestically. Internationally, the weakness in Europe and the rising volatility in the currency movements are putting pressure on the order flow from the overseas markets. Valuation Valuations factor in expected revival; be selective: Industrial companies had witnessed a sharp re-rating after the majority mandate given to the Narendra Modi-led government on hopes of an early revival in the investment cycle. Though the new government has taken steps to remove bottlenecks and improve the policy environment, the delay in the revival of the investment cycle is likely to limit the upside for some of the large companies in the near term. Thus, it is advisable to be selective. Preferred picks this earnings season: L&T, KPTL, FCL and Skipper Sharekhan 8 April 10, 2015 Home Next investor’s eye sharekhan special Q4FY2015 estimates Company Sales (Rs cr) Q4FY15E Y-o-Y % BHEL Crompton Greaves L&T (stand-alone) KPTL (stand-alone) Thermax (stand-alone) Finolex Cables V-Guard Industries Va Tech Wabag Skipper Triveni Turbines Sharekhan coverage Ex BHEL performance 12,154 4,252 24,523 1,208 1,506 813 482 1,097 495 189 46,720 34,566 Q4FY15E OPM (%) Y-o-Y BPS 7.7 4.9 14.6 10.3 10.6 11.7 8.5 8.9 11.1 21.1 11.4 12.7 (900) (8) 14 88 78 1 0 (354) 237 32 (251) 20 -17.6 12.9 22.1 4.9 10.9 26.5 15.1 21.6 14.8 44.2 7.1 19.7 PAT (Rs cr) Q4FY15E Y-o-Y % 783 67 2,608 49 111 66 24 77 19 25 3,829 3,046 -57.7 5.0 16.5 4.3 4.9 17.9 16.7 8.9 79.6 29.7 -14.6 15.7 Valuations CMP Particulars BHEL Crompton Greaves L&T # KPTL # Thermax # Finolex Cables V-Guard Industries Va Tech Wabag Skipper Triveni Turbines Price (Rs) target (Rs) 234 168 1,770 225 1,105 286 945 824 159 135 270 230 1,840 280 1,300 335 1,160 850 185 145 EPS CAGR over PE(x) Reco FY2014 FY2015E FY2016E FY14-16E FY2014 FY2015E FY2016E 14.1 3.9 52.9 9.5 18.5 12.4 23.5 20.4 2.6 2.1 5.4 3.3 58.6 11.4 26.3 14.5 25.0 21.4 4.8 2.9 14.9 8.7 70.1 14.4 32.8 16.9 32.7 30.0 8.2 4.1 2.8 49.4 15.1 23.1 33.2 16.7 18.0 21.3 77.6 39.7 16.6 43.1 33.5 23.7 59.7 23.1 40.2 40.4 61.2 64.3 43.3 50.9 30.2 19.7 42.0 19.7 37.8 38.5 33.1 46.6 15.7 19.3 25.2 15.6 33.7 16.9 28.9 27.5 19.4 32.9 Hold Buy Buy Buy Hold Buy Hold Buy Buy Hold # stand-alone Cement Players with exposure to south and west to outperform their peers in Q4 Q4FY2015 result expectations Revenue growth to be driven by rising capacity: We expect the revenues of the cement companies under our coverage (both active and soft) to increase by 13% largely supported by a growth in volumes (due to capacity expansion) and price hikes (in the western and southern regions). Consequently, we expect the companies from the west and the south to show an improvement in the OPM for the quarter. Southern players to benefit from strong pricing discipline: As compared with the other markets, the southern market has shown strong pricing power which is expected to boost the earnings for the southern players. Hence, we expect a strong earnings growth in The Ramco Cements, Mangalam Cement and JK Lakshmi Cement. Outlook Our channel-check suggests strong but volatile realisations in all regions except selected pockets in the west and the north. Going ahead, the key monitorables are a revival of demand across the country and sustainability of the cement price at the current level. We expect the demand revival to be driven by the infrastructure-led sectors as the economic environment of the country improves. Valuation Most of the players in the cement space have recently corrected from their near-term peak levels which provides selective opportunities to enter the sector now. We believe there is still scope for further appreciation for UltraTech Cement in the large-cap space and for The Ramco Cements in the mid-cap space considering their peak up-cycle valuations. Preferred picks this earnings season: UltraTech Cement, The Ramco Cements and Mangalam Cement Sharekhan 9 April 10, 2015 Home Next investor’s eye sharekhan special Q4FY2015 results snapshot Rs cr Company Net sales Q4 FY15E Q4 FY14 OPM (%) YoY % QoQ % Q4 FY15E Adj. PAT Q4 FY14 YoY BPS QoQ BPS Q4 FY15E Q4 FY14 YoY % QoQ % Grasim 8,789.4 8,245.9 6.6 11.4 15.8 16.4 -58 247 561.8 576.4 -2.5 68.4 UltraTech 6,476.3 5,831.9 11.0 18.0 18.3 19.6 -128 292 630.5 742.4 -15.1 73.0 28.6 Shree Cement 1,762.1 1,247.5 41.2 14.1 20.5 20.0 49 67 121.5 173.3 -29.9 India Cements 1,242.7 1,080.1 15.1 20.0 15.1 6.9 819 -26 31.7 -30.6 - - The Ramco Cements 1,095.3 985.1 11.2 34.2 18.7 13.1 565 282 27.5 10.4 166.1 20.0 Mangalam Cement 294.5 213.7 37.8 41.9 14.7 11.2 342 1287 13.8 0.2 - - JK Lakshmi Cement 874.1 648.2 34.8 57.2 17.9 17.4 43 430 92.1 71.9 28.1 222.6 20,534.4 18,252.4 12.5 17.1 17.2 16.9 29 252 1,478.9 1,544.0 -4.2 78.2 Total Valuations Company Reco Price target (Rs) CMP EPS (Rs) (Rs) FY14 FY15E PE (x) FY16E FY14 FY15 FY16 Grasim Buy 4,475 3,791 212 195.9 215.6 18 19 18 UltraTech Buy 3,440 2,968 74.8 71.2 106.5 40 42 28 Shree Cement Hold 11,500 10,830 248.3 389.1 462.6 44 28 23 The Ramco Cements Buy 420 324 5.2 9 15.4 63 36 21 India Cements NA NA 108 -1.2 0.8 3.5 -93 136 31 JK Lakshmi cement NA NA 369 10 15.6 21.1 37 24 17 Mangalam Cement NA NA 293 10 12.2 16.2 29 24 18 ** price targe under review IT A soft quarter led by cross-currency headwind Q4FY2015 result expectations Unfavourable cross-currency movements to dampen growth: The recent appreciation of the dollar by 10.4%, 4.1% and 8.3% against the euro, the pound and the Australian Dollar respectively would negatively affect the revenue growth of the top four IT companies by 200-250BPS in Q4FY2015. On a constant-currency basis, the sequential growth is expected to be in the range of 2.3-4.0% in Q4FY2015 with HCL Technologies leading among the front-line companies. Owing to unfavourable cross-currency movements, the OPM of the top four IT companies is likely to decline by 27-57BPS sequentially. Key issues to watch out for would be: (1) management commentary on IT budget for CY2015 and the overall demand environment; (2) outlook for energy & utilities and manufacturing verticals owing to a steep fall in crude oil prices; (3) the commentary on the deal flow and the trends in the digital space; (4) wage hikes for FY2016 (which could be higher than the last year’s average); (5) hedging policy, given the volatile cross-currency movements; and (6) Infosys is expected to deploy cash to the tune of $5 billion in carrying out acquisitions and buy-backs, as indicated by Dr Vishal Sikka, who is expected to unveil the company’s cash deployment strategy in April 2015 (which will serve as a re-rating trigger for Infosys in the near term). Outlook The demand environment is strong with improving discretionary IT spending in the USA and evolving opportunities in digital technologies. Thus, we believe that the adverse impact of a possible downgrade in the earnings estimates due to crosscurrency movements is already getting reflected in the valuations. Consequently, we remain constructive on the IT sector for an investment horizon of 12 months. Valuation In the last one month the CNX IT Index has corrected by close to 5% owing to the fear of growth tapering off in FY2016 and negative impact of unfavourable cross-currency movements. However, we remain positive on the sector and recent underperformance offer opportunty to buy for a decent return in next 12 months. Preferred picks this earnings season: Infosys, Tata Consultancy Services, HCL Technologies, Tech Mahindra (unrated) and Persistent Systems (in the mid-cap space). Sharekhan 10 April 10, 2015 Home Next investor’s eye sharekhan special Earnings expectations Particulars Rs cr Revenues QoQ (%) YoY (%) EBITDA (%) QoQ (BPS) YoY (BPS) Net profit QoQ (%) YoY (%) Infosys 13,992.7 1.4 8.7 28.2 (50) (12) 3,261.7 0.4 9.0 TCS 24,474.4 -0.1 13.6 28.4 (39) (248) 5,424.4 -0.4 2.4 Wipro# 12,146.0 1.3 4.2 22.9 61 (126) 2,265.2 3.3 1.7 9,427.9 1.6 12.9 24.4 (57) (232) 1,905.9 -0.5 17.4 6130.5 6.6 21.2 17.7 (243) (345) 732.4 -9.1 19.2 Persistent Systems 495.3 0.1 10.9 20.3 22 (666) 66.5 -10.7 -1.1 Firstsource Solutions 774.1 3.1 -2.8 12.8 34.8 38.2 63.4 10.2 7.7 HCL Technologies * Tech Mahindra #blended margins *June year ending Valuations Company Infosys TCS Wipro *HCL Technologies Persistent Systems Firstsource Solutions #Tech Mahindra Reco Buy Buy Hold Buy Buy Buy Unrated Price CMP target (Rs) 2,540 3,100 715 1,025 940 43 NA (Rs) 2,223 2,555 629 992 700 29 633 EPS (Rs) FY14 94.6 97.7 31.8 45.1 31.2 2.9 31.6 FY15E 108.8 108.4 35.3 54.6 35.1 3.5 29.8 FY16E FY17E 124.2 138.3 125.3 142.7 40.8 43.8 59.9 67.5 43.3 52.5 5 5.8 35.8 42.4 P/E (x) FY14 FY15E 23.5 20.4 26.2 23.6 19.8 17.8 22 18.2 22.5 20 9.8 8.2 20.1 21.2 FY16E 17.9 20.4 15.4 16.6 16.2 5.7 17.7 FY17E 16.1 17.9 14.4 14.7 13.3 4.9 14.9 **June year ending #EPS for FY2014 includes EO gains, EPS excludes treasury shares Oil & Gas A favourable equation in Q4; nil subsidy burden and strong GRM Q4FY2015 result expectations Weak crude but nil subsidy benefits: Global crude oil prices remained weak in Q4FY2015 (the same corrected by 29% sequentially to $54 per barrel) on global supply worries. In the meanwhile, the dollar remained resilient against the rupee at around Rs62.1. This is expected to pressurise the quarter’s gross realisation of the upstream companies. However, their subsidy burden is expected to be nil in this quarter. This would be positive for both the oil marketing companies (OMCs) and upstream companies. Nevertheless, the OMCs may report a marginal inventory loss but a better marketing margin. We have built in a net realisation of around $54 per barrel in our quarterly estimate for the upstream companies. In the absence of under-recoveries, the earnings of Oil India are expected to improve substantially (up by 39% YoY and 58% QoQ). Strong GRM but weak petchem margin: On the positive side, in Q4FY2015 the Singapore gross refining margin (GRM) moved up by around 37% YoY and 38% QoQ to $8.5 per barrel as spreads in light and heavy distillates strengthened over the previous quarter. We have built in a premium of around $1 over the Singapore benchmark GRM for estimating the GRM of RIL at $9.5 per barrel in this quarter. This would improve the profitability of RIL’s refining business sequentially. However, we expect the petrochemical margins to be soft for the current quarter which could affect GAIL’s earnings too. The earnings of RIL are expected to be up by 12% QoQ in Q4FY2015. Outlook Reforms to drive value: We believe reforms are going to drive value in the oil & gas space. The deregulation of diesel has played a major role in significantly reducing the subsidy burden of the OMCs and upstream companies which was one of the major drags for the sector. However, the Street seeks clarity from the government over the fixing of the subsidy sharing formula for future which could improve the visibility, though a regular revision of gas prices has helped to some extent. The global crude oil prices seem to be forming a new normal around $50 per barrel currently which is pressurising the realisation of the upstream companies but benefitting the downstream companies. Valuation Concerns factored in, remain positive on a few: We remain positive on Oil India, which could be one of the key beneficiaries of the recent reforms. RIL is going to benefit from its ongoing capital expenditure plan in the petrochemical and refining businesses. The valuations of RIL and OIL remain attractive. Preferred stocks: RIL and Oil India Sharekhan 11 April 10, 2015 Home Next investor’s eye sharekhan special Q4FY2015 results snapshot Rs cr Company Sales OPM (%) PAT Q4 FY15E Q4 FY14 YoY % QoQ % Q4 FY15E Q4 FY14 YoY BPS QoQ BPS Q4 FY15E Q4 FY14 YoY % QoQ % RIL 63,196 95,193 -33.6 -21.2 13.6 8.8 480.2 456.6 5697 5613 1.2 12.0 OIL 2,640 1,948 35.5 20.3 39.2 24.5 1470 950 785 566 38.8 57.6 ONGC 21,374 20,881 2.4 13 47.4 44.0 337.8 241.7 6,174 4889 26.3 73.0 GAIL 14,281 14,464 -1.3 -2 7.7 10.0 -223.2 -498.0 650.0 972.0 -33.1 8.1 Coverage Soft coverage Valuations Company CMP Price Reco. target Coverage RIL OIL Soft coverage GAIL ONGC EPS (Rs) CAGR PE (x) FY14 FY15E FY16E FY14-16E FY14 FY15E FY16E 904 468 1,045 625 Buy Buy 69.6 49.5 68.3 40.3 67.9 48.1 -1% -1% 13 9.5 13.2 11.6 13.3 9.7 399 310 NA NA NR NR 37.73 30.98 31.01 29.03 31.52 33.51 -9% 4% 10.6 10 12.9 10.7 12.7 9.3 Pharma Higher base effect and weaker exports to moderate growth considerably in Q4 Q4FY2015 result expectations Growth to moderate in Q4: Most of the pharma players in our universe are expected to show a moderate performance for Q4FY2015, mainly due to a high base effect (the exclusivity on Cymbalta to five leading players had formed a high base in Q4FY2014), adverse cross-currency movement, fewer product approvals for the regulated markets, and political instability in the Middle-East and the Commonwealth of Independent States region. Flattish growth at PAT level: On an aggregate basis, the net sales of our pharma universe are expected to show a 16% growth (versus a 28% growth in Q4FY2014) on the back of a 21% growth in the Indian formulation business and an 11% growth in the export of formulations. The OPM is likely to contract by 140BPS YoY while the net profit of the universe is likely to remain flat YoY for Q4FY2015. The profit growth for the quarter will be led by Cadila Healthcare, Cipla, Divi’s Laboratories and JB Chemicals while Glenmark Pharma, Ipca Laboratories and Torrent Pharma will see a decline in the profit. Outlook Issues in near term but a healthy growth outlook for long term: The past few quarters have seen a fewer number of product approvals in the USA, as the US Food and Drug Administration (USFDA) has been busy overhauling the drug review process. Meanwhile, the abbreviated new drug application (ANDA) filings by the generic players kept piling up and currently, on an average, nearly 40% of ANDAs filed remains to be approved by the USFDA. This has moderated the growth in the US market (the US market is the largest contributor to the revenues of our universe) for most of the players. However, we expect a large chunk of the pending ANDAs to unfold in the next few quarters and that will help revive the growth rates. Also, the growth is likely to be driven by the domestic market, which is witnessing a robust volume growth, and the introduction of new drugs. Therefore, while we are positive on the long-term prospects of the sector, a few of the front-line players may see headwinds in the short term. Valuation Relying on the long-term prospects, most of the pharma companies have been successively re-rated over the past few quarters and that has led most of the front-line players to trade at a significant premium to their respective historical average multiples. On an aggregate basis, our pharma universe is trading at 28.5x FY2016E earnings (versus 16x Sensex earnings) as compared with its historical average of 14-20x (on one-year forward earnings basis). However, we expect the premium to sustain due to an improving product profile and increasing reach of the Indian pharma companies. We advise staying selective in this space. Preferred picks this earnings season: Cadila Healthcare, Cipla and Divi’s Laboratories Sharekhan 12 April 10, 2015 Home Next investor’s eye sharekhan special Q4FY2015 results snapshot Company Net sales (Rs cr) OPM (%) Adj PAT (Rs cr) Q4FY15E YoY % QoQ % Q4FY15E YoY (BPS) QoQ (BPS) Q4FY15E YoY % Aurobindo Pharma 3190 37 1 19.5 -1244 12 435 -7 7 Cadila Healthcare 2316 17 6 19.9 88 -56 314 40 0 Cipla 2890 15 4 20.0 380 0 365 40 11 23 Divi's Lab QoQ % 831 11 5 38.9 159 265 258 23 1877 10 10 20.2 -111 -170 215 -17 -3 696 -6 -5 16.7 -663 108 61 -49 16 3455 11 9 28.5 41 72 599 8 2 272 19 3 18.3 663 -25 40.2 63 51 Sun Pharma* 4886 21 14 43.9 -28 -81 1584 0 11 Torrent Pharma 1203 0 4 22.4 -506 272 138 -44 -17 21615 16 7 27.4 -136.9 42 3696 -0.2 -5 Glenmark Pharma IPCA Lab Lupin JB Chemicals Total *Without factoring in Ranbaxy’s numbers Valuation Price EPS (Rs) P/E (x) RoE (%) Particulars Reco. target FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E Aurobindo Pharma Buy *** 48.9 65.3 80.3 27 20 17 32.3 31.7 FY17E 28.9 Cadila Healthcare Buy 2060 49.9 79.3 102.7 38 24 19 22.0 26.4 25.9 Cipla Buy 843 16.6 25.4 34.3 44 29 22 12.5 16.7 19.1 Divi's Lab Hold *** 62.2 78.1 98.3 31 25 20 25.6 26.2 26.5 Glenmark Pharma Buy 915 28.7 37.6 50.0 31 23 18 21.7 22.5 23.4 IPCA Lab Buy *** 30.1 41.1 53.3 22 16 12 17.6 20.2 21.7 Lupin Buy 2300 52.9 63.5 81.5 38 32 25 26.3 24.4 24.1 JB Chemicals Hold *** 13.7 17.0 20.8 14 11 9 10.6 12.1 13.3 Sun Pharma Hold 1250 29.6 33.0 40.1 39 35 29 26.8 23.7 22.9 Torrent Pharma Buy 1500 47.8 62.2 78.5 35.1 33.2 31.3 Sector 26 20 16 35.6 28.5 22.6 Power Prevailing uncertainties reflected in the valuation Q4FY2015 result expectations Weak performance on slower demand outlook: We expect companies under our coverage in power sector to report a weak set of numbers for Q4FY2015. Due to lower offtake from some of the large power buying states, the power trading volume is expected to be weak. Consequently, the earning of PTC India are likely to remain under pressure in this quarter. CESC is also expected to report weak numbers on an adjusted basis; given the lower volume (down 9% YoY and 16% QoQ). However, the reported numbers of CESC are not truly comparable as we expect the annual tariff adjustment (a tariff revision was approved by the regulator recently) to be included in the Q4 numbers. Regulated large companies to be stable, but weak demand to influence numbers: The regulated large-cap utility companies like NTPC and Power Grid Corporation of India Ltd (PGCIL) are likely to deliver a mixed set of numbers. NTPC is expected to report a moderate set of numbers with a marginally lower volume offtake. Though the revenues of PGCIL are expected to be up by 11% on higher capitalisation, its net profit is expected to be moderately higher by 6% YoY in Q4FY2015. Outlook Reforms led clarity emerging gradually, though several patches are still in dark: The new government is taking the right measures structurally to clear the critical hurdles for the sector like coal block e-auction, ensuring coal supply to operational plants and thrust on renewable energy. However, the coal auction has thrown new challenges for the aggressive bidders (who are unable to pass on part of the cost hike into their tariff). On the other hand, though Coal India has raised its production target substantially for the next three to four years, no convincing plan is visible yet. Sharekhan 13 April 10, 2015 Home Next investor’s eye sharekhan special Valuation Valuation factors in concerns; remain positive on a few: We believe most of the power companies are currently factoring in the prevailing uncertainties in their valuations. However, we believe some of the companies are passing through a rough patch and offer value. We like CESC due to expectations of a meaningful improvement in its subsidiaries in future; commencement of the Haldia plant and improvement in the First Source and Spencer’s businesses. Though PTC India is passing through a temporary phase of weak demand, it is available at an attractive valuation, considering the substantial embedded value of its investments. Preferred stocks: CESC and PTC India Q4FY2015 results snapshot Rs cr Company Net sales Q4 FY15E OPM (%) YoY % PAT QoQ % Q4 FY15E YoY BPS QoQ BPS Q4 FY15E YoY % QoQ % Coverage CESC 1,238.0 -1 -1 29.1 -739.0 511.0 152.2 -37 37 PTC India 1,979.0 -29 -30 1.6 7.0 1.0 27.0 -19 -30 Non-coverage NTPC 19,680.0 -6 4 24.0 231.7 -325.2 2,550.0 -18 -17 4,407.0 11 1 86.4 102.8 -18.6 1,246.0 6 1 Power Grid Corporation Valuations Company CMP Price Reco. EPS (Rs) target Coverage CESC PTC India Non-coverage NTPC PGCIL CAGR PE (x) FY14 FY15E FY16E FY14-16E FY14 FY15E FY16E 598 79 730 120 Buy Buy 48.9 7.3 48.3 8.2 52.6 9 4% 11% 12.2 10.8 12.4 9.6 11.4 8.8 156 153 NA NA NR NR 13.83 9.81 11.31 11.62 11.94 13.36 -7% 17% 11.3 15.6 13.8 13.1 13 11.4 Miscellaneous Q4FY2015 results snapshot Rs cr Company Net sales Q4 FY15E Q4 FY14 UPL 3,412 BEL 2,835 376 Ratnamani Metal Sun TV OPM (%) YoY % QoQ % Q4 FY15E Q4 FY14 3,296 3.5 13.4 21.0 3,056 -7.2 79.2 27.4 401 -6.2 -24.7 Adjusted PAT YoY BPS QoQ BPS Q4 FY15E Q4 FY14 YoY % QoQ % 20.1 90 210 343 402 -14.6 12.5 25.1 230 980 656 663 -1.1 141.5 19.7 21.3 -160 70 9 11 -16.5 -19.5 565 520 8.6 2.3 76.0 76.9 -90 -150 209 198 5.8 -2.4 1,231 1,159 6.3 -9.7 20.6 27.0 -640 -530 202 218 -7.2 -34.5 Eros Int. 299 315 -5.0 -39.1 28.0 23.4 460 -200 53 41 28.9 -51.2 Gateway Distriparks # 250 266 -5.9 -8.1 31.8 26.6 523 63 47 46 0.1 -14.4 1,002 883 13.5 4.0 55.3 50.1 524 -232 141 109 29.2 6.5 365.8 Zee Ent IRB Infrastructure Gayatri Projects 406 499 -18.5 3.5 20.0 16.2 381 1164 20 16 27.5 Pratibha Ind. 679 620 9.4 -14.4 13.6 13.3 30 6 5 4 29.9 -63.8 IL&FS Transportation 1,985 1,829 8.5 1.6 20.9 20.9 -6 -624 81 94 -14.1 -45.7 Supreme Industries* 1,199 1,005 19.3 12.5 13.6 12.8 80 150 74 55 33.5 39.7 267 322 -17 22.9 15.9 9.0 690 -2 25 26 -3.8 13.5 Techno Craft Industries *June ending year Supreme Industries - Q3FY2015 results, Q3FY2014*-no real estate contribution #Adjustment in accounting of Snowman Logistics from subsidiary to associate company Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. Sharekhan 14 April 10, 2015 Home Next investor’s eye stock update CMC Reco: Hold Stock Update Soft quarter, maintain Hold Key points Company details Price target: NA Market cap: CMP: Rs2,026 Rs6,141 cr 52 week high/low: Rs2,403/1,355 NSE volume: (no. of shares) 25,647 BSE code: 517326 NSE code: CMC Sharekhan code: CMC Free float: (no. of shares) 1.5 cr Shareholding pattern Price chart For Q4FY2015, CMC has delivered a revenue growth of 4.4% QoQ and 10.2% YoY to Rs666 crore, led by a 47% Q-o-Q growth in the customer service business, while the system integration and ITES revenues were down by 3.9% and 4% QoQ respectively. The EBITDA margin remained stable at 14.4% QoQ, led by a lower sub-contracting cost, which was down by 4.3% QoQ. The net income for the quarter was down by 2.1% QoQ and 21% YoY to Rs70.5 crore (the Y-o-Y figures are not comparable as there was an extraordinary income included in Q4FY2014, a one-time gain from the Kuwait Stock Exchange [KSE] case win, while the tax excludes the one-time impact of the KSE win and tax on dividend from its subsidiary [Rs20 crore]). During the quarter, the company added 16 new clients, out of which 13 clients have been added in India largely in the insurance space. The management has stated that the domestic business has started seeing momentum and expects opportunities to emerge in ports, insurance, e-governance and defence space. During the quarter, the company also added 255 headcounts taking the total to 12,665 headcounts. The offshore revenues stood at 20.3%. The total cash and cash equivalents stood at Rs314 crore. As per the scheme of amalgamation, CMC as an entity will cease to exist in the next three to four months as it will get fully integrated into Tata Consultancy Services (TCS). The management has not given any timeline for the record date of the swap ratio (as per the swap ratio, a shareholder will get 79 shares of TCS for every 100 shares of CMC). However, the management will likely make an announcement for the same after the annual general meeting of CMC in June 2015. The company has announced a dividend of Rs27.5 per share to the existing shareholders of CMC. We retain our Hold rating on the stock for the existing shareholders in-line with our positive view on TCS (on which we have a price target of Rs3,010). But for a fresh investment it would be more prudent to buy into TCS rather than CMC, as the latter will cease to exist as an entity in the months to come. Results Rs cr Particulars Price performance (%) 1m 3m 6m 12m Absolute 3.2 5.5 -11.2 38.7 Relative to Sensex 3.0 0.1 -18.4 7.3 Revenues Materials Staff costs Other expenses Sub contracting and outsourcing Total expenditure Operating profit Other income EBIDTA Depreciation Interest PBT Tax PAT Net profit EPS Margins analysis OPM Staff costs Sub-contracting costs Tax rate NPM Q4FY15 Q4FY14 Q3FY15 666.0 75.1 154.1 56.1 284.8 570.1 95.9 4.7 100.6 11.6 0.0 88.9 18.3 70.6 70.6 23.3 604.2 62.3 140.9 56.0 243.8 502.9 101.3 3.8 105.1 7.8 0.0 97.4 22.4 75.0 89.5 29.5 638.1 35.6 153.3 58.4 297.5 544.7 93.4 2.1 95.5 11.6 0.0 83.8 11.7 72.1 72.1 23.8 14.4 23.1 42.8 20.6 10.6 16.8 23.3 40.3 23.0 12.4 14.6 24.0 46.6 14.0 11.3 YoY % QoQ % 10.2 20.6 9.4 0.2 16.8 13.4 (5.3) 23.0 -4.3 50.0 4.4 110.9 0.5 -3.9 -4.3 4.7 2.7 121.5 5.3 0.1 -8.7 -18.1 (5.8) (21.1) -21.1 6.1 56.5 (2.1) (2.1) -2.1 * For Q4FY2014 the extraordinary items include one-time gain from the Kuwait Stock Exchange (KSE) case win while tax excludes the one-time impact of the KSE win and tax on dividend from its subsidiary (Rs20 crore). Sharekhan 15 April 10, 2015 Home Next investor’s eye stock update Valuation Particulars FY2014 FY2015 FY2016(P) FY2017(P) Total revenue (Rs cr) 2,212.6 2,513.5 2,889.6 3,406.8 EBITDA margin (%) 16.2 15.3 16.8 16.6 Net profit (Rs cr) 266.0 296.0 360.6 421.7 EPS (Rs) 87.8 97.7 119.0 139.2 PER (x) 23.1 20.8 17.0 14.6 EV/EBITDA (x) 16.3 15.2 11.4 9.5 RoE (%) 25.3 23.6 24.3 24.0 RoCE (%) 32.1 27.0 29.4 29.0 P/E (x) 23.1 20.8 17.0 14.6 Segmental performance Particulars Rs cr Q4FY15 Q4FY14 Q3FY15 YoY % QoQ % 136.3 119.8 6.7 8.1 92.6 13.8 47.2 5.5 -17.3 21.3 Customer services Revenues PBIT Margins (%) % of revenues 4.9 6.8 6.0 20.5 19.8 14.5 System integration Revenues 422.1 379.4 439.3 11.3 -3.9 PBIT 62.5 77.3 76.8 -19.1 -18.6 Margins (%) 14.8 20.4 17.5 % of revenues 63.4 62.8 68.9 73.7 77.4 76.8 -4.8 -4.0 -18.1 -13.9 31.8 45.0 ITES Revenues PBIT 21.5 26.2 24.9 Margins (%) 29.1 33.8 32.5 % of revenues 11.1 12.8 12.0 18.2 13.8 12.5 7.6 0.8 -0.5 42.1 6.2 -3.8 2.7 2.3 2.0 Revenues 15.7 13.8 16.9 14.0 -6.8 PBIT 10.4 10.0 10.3 4.0 0.4 Margins (%) 66.1 72.4 61.3 2.4 2.3 2.6 Education and training Revenues PBIT Margins (%) % of revenues SEZ % of revenues Total revenues 666.0 604.2 638.1 10.2 4.4 Total PBIT 108.7 122.5 117.1 -11.2 -7.1 16.3 20.3 18.3 Blended margins (%) Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. Sharekhan 16 April 10, 2015 Home Next investor’s eye sector update Pharma Sector Update > Q4FY2015 Earnings preview Higher base effect and weaker exports to moderate growth considerably in Q4 Q4FY2015 result expectations Growth to moderate in Q4: Most of the pharma players in our universe are expected to show a moderate performance for Q4FY2015, mainly due to a high base effect (the exclusivity on Cymbalta to five leading players had formed a high base in Q4FY2014), adverse cross-currency movement, fewer product approvals for the regulated markets, and political instability in the Middle-East and the Commonwealth of Independent States region. Flattish growth at PAT level: On an aggregate basis, the net sales of our pharma universe are expected to show a 16% growth (versus a 28% growth in Q4FY2014) on the back of a 21% growth in the Indian formulation business and an 11% growth in the export of formulations. The OPM is likely to contract by 140BPS YoY while the net profit of the universe is likely to remain flat YoY for Q4FY2015. The profit growth for the quarter will be led by Cadila Healthcare, Cipla, Divi’s Laboratories and JB Chemicals while Glenmark Pharma, Ipca Laboratories and Torrent Pharma will see a decline in the profit. Outlook Issues in near term but a healthy growth outlook for long term: The past few quarters have seen a fewer number of product approvals in the USA, as the US Food and Drug Administration (USFDA) has been busy overhauling the drug review process. Meanwhile, the abbreviated new drug application (ANDA) filings by the generic players kept piling up and currently, on an average, nearly 40% of ANDAs filed remains to be approved by the USFDA. This has moderated the growth in the US market (the US market is the largest contributor to the revenues of our universe) for most of the players. However, we expect a large chunk of the pending ANDAs to unfold in the next few quarters and that will help revive the growth rates. Also, the growth is likely to be driven by the domestic market, which is witnessing a robust volume growth, and the introduction of new drugs. Therefore, while we are positive on the long-term prospects of the sector, a few of the front-line players may see headwinds in the short term. Valuation Relying on the long-term prospects, most of the pharma companies have been successively re-rated over the past few quarters and that has led most of the front-line players to trade at a significant premium to their respective historical average multiples. On an aggregate basis, our pharma universe is trading at 28.5x FY2016E earnings (versus 16x Sensex earnings) as compared with its historical average of 14-20x (on one-year forward earnings basis). However, we expect the premium to sustain due to an improving product profile and increasing reach of the Indian pharma companies. We advise staying selective in this space. Preferred picks this earnings season: Cadila Healthcare, Cipla and Divi’s Laboratories Q4FY2015 estimates of Sharekhan’s pharma universe Company Net sales (Rs cr) OPM (%) Adj PAT (Rs cr) Q4FY15E YoY % QoQ % Q4FY15E YoY (BPS) QoQ (BPS) Q4FY15E YoY % Aurobindo Pharma 3190 37 1 19.5 -1244 12 435 -7 7 Cadila Healthcare 2316 17 6 19.9 88 -56 314 40 0 Cipla 2890 15 4 20.0 380 0 365 40 11 831 11 5 38.9 159 265 258 23 23 1877 10 10 20.2 -111 -170 215 -17 -3 696 -6 -5 16.7 -663 108 61 -49 16 3455 11 9 28.5 41 72 599 8 2 Divi's Lab Glenmark Pharma IPCA Lab Lupin QoQ % JB Chemicals 272 19 3 18.3 663 -25 40.2 63 51 Sun Pharma* 4886 21 14 43.9 -28 -81 1584 0 11 Torrent Pharma Total 1203 0 4 22.4 -506 272 138 -44 -17 21615 16 7 27.4 -136.9 42 3696 -0.2 -5 *Without factoring in Ranbaxy’s numbers Sharekhan 17 April 10, 2015 Home Next investor’s eye sector update Valuation Price Particulars Reco. Aurobindo Pharma EPS (Rs) P/E (x) RoE (%) target FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E Buy *** 48.9 65.3 80.3 27 20 17 32.3 31.7 28.9 Cadila Healthcare Buy 2060 49.9 79.3 102.7 38 24 19 22.0 26.4 25.9 Cipla Buy 843 16.6 25.4 34.3 44 29 22 12.5 16.7 19.1 Divi's Lab Hold *** 62.2 78.1 98.3 31 25 20 25.6 26.2 26.5 Glenmark Pharma Buy 915 28.7 37.6 50.0 31 23 18 21.7 22.5 23.4 IPCA Lab Buy *** 30.1 41.1 53.3 22 16 12 17.6 20.2 21.7 Lupin Buy 2300 52.9 63.5 81.5 38 32 25 26.3 24.4 24.1 JB Chemicals Hold *** 13.7 17.0 20.8 14 11 9 10.6 12.1 13.3 Sun Pharma Hold 1250 29.6 33.0 40.1 39 35 29 26.8 23.7 22.9 Torrent Pharma Buy 1500 47.8 62.2 78.5 35.1 33.2 31.3 Sector 26 20 16 35.6 28.5 22.6 Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. Sharekhan 18 April 10, 2015 Home Next Sharekhan Stock Ideas Apollo Tyres Ashok Leyland Bajaj Auto Gabriel India HeroMotoCorp M&M Maruti Suzuki India Rico Auto Industries TVS Motor Company Infrastructure / Real estate Gayatri Projects ITNL IRB Infra Jaiprakash Associates Larsen & Toubro Pratibha Industries Punj Lloyd Automobiles Oil & gas Oil India Reliance Ind Selan Exploration Technology Pharmaceuticals Aurobindo Pharma Cadila Healthcare Cipla Divi's Labs JB Chemicals & Pharmaceuticals Glenmark Pharmaceuticals Ipca Laboratories Lupin Sun Pharmaceutical Industries Torrent Pharma 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 GSK Consumers Godrej Consumer Products Hindustan Unilever ITC Jyothy Laboratories Marico Zydus Wellness IT / IT services Firstsource Solutions HCL Technologies Infosys Persistent Systems Tata Consultancy Services Wipro Capital goods / Power Bharat Heavy Electricals CESC Crompton Greaves Finolex Cables Greaves Cotton Kalpataru Power Transmission PTC India Skipper Triveni Turbine Thermax V-Guard Industries Va Tech Wabag Building materials Grasim Orient Paper and Industries Shree Cement The Ramco Cements UltraTech Cement Discretionary consumption Cox & Kings Century Plyboards (India) Eros International Media KDDL KKCL Raymond Relaxo Footwears Speciality Restaurants Sun TV Network Thomas Cook (India) Zee Entertainment Enterprises Diversified / Miscellaneous Aditya Birla Nuvo Bajaj Holdings Bharti Airtel Bharat Electronics Gateway Distriparks Max India Ratnamani Metals and Tubes Supreme Industries Technocraft Industries (India) UPL To know more about our products and services click here. Disclaimer This document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This document may contain confidential and/or privileged material and is not for any type of circulation and any review, retransmission, or any other use is strictly prohibited. This document is subject to changes without prior notice. This document does not constitute an offer to sell or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all customers who are due to receive the same, 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 obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence it should not be relied upon as such. While we would endeavour to update the information herein on a 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. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as he 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 his 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 licencing 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. Either SHAREKHAN or its affiliates or its directors or employees/representatives/clients or their relatives may have position(s), make market, act as principal or engage in transactions of purchase or sell of securities, from time to time or may be materially interested in any of the securities or related securities referred to in this report and they may have used the information set forth herein before publication. 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. The analyst certifies that all of the views expressed in this document accurately reflect his or her personal views about the subject company or companies and its or their securities and do not necessarily reflect those of SHAREKHAN. Further, no part of the analyst’s compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this document. Sharekhan 19 April 10, 2015 Compliance Officer: Ms. Namita Amod Godbole; Tel: 022-6115000; e-mail: [email protected] • Contact: [email protected] Home Next
© Copyright 2024