| STOCK UPDATE Maruti Suzuki India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs865
Current market price: Rs588 Price target revised to Rs865 Result highlights -
Maruti Suzuki India's Q1FY2009 results are ahead of our estimates on account of a higher than expected other income. -
The net sales for the quarter grew by 20.9% to Rs4,731 crore driven by a volume growth of 13.5% and a realisation improvement of 6.5%. -
The operating profit margin (OPM), excluding a Rs17.9 crore of mark-to-market foreign exchange (forex) loss, declined by 449 basis points year on year (yoy) and improved by 120 basis points quarter on quarter (qoq) to 10.13%. The margin declined due to an increase in all the costs, such as the raw material, employee and manufacturing costs, due to an increase in the fuel cost, and the selling, distribution and royalty expenses. The operating profit dropped by 16.2% to Rs481.5 crore during the quarter. -
The other income saved the day for the company by growing by 47.3% to Rs328.8 crore, mainly due to a 41% increase in the non-operational income and a 55% rise in scrap sales. -
The depreciation charge increased by 102% to Rs166 crore, in line with the change in the company's new depreciation policy. The reported profit after tax (PAT) fell by 6.7% to Rs465.9 crore. -
The management plans to meet the existing macro challenges by focusing on cost reductions and improving efficiencies. The demand situation remains weak. We modify our estimate to account for the decline in the profit margin and the higher other income. Our earnings estimate for FY2009 remains unchanged at Rs62.6 whereas that for FY2010 has been revised to Rs72.1. However, considering the decline in the profit margin and the prevailing weak market conditions, we have reduced the price/earnings (PE) multiple to 12x from 13x assigned to the company earlier. -
At the current market price of Rs588, the stock is quoting at 8.2x its FY2010E earnings, and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 3.8x. We maintain our Buy recommendation on the stock with a revised price target of Rs865. Aban Offshore
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs4,829
Current market price: Rs2,625 Results in line with expectations Result highlights -
Aban Offshore's Q1FY2009 results are ahead of our estimates on account of better than expected margins and a higher other income. -
During the quarter, the top line grew by 93.5% to Rs247 crore, which is in line with our estimate. The top line growth was fuelled by the start of new contracts for rigs Aban III and V during the quarter at much higher rates. The contracts for Aban IV and its drillship Frontier Ice were also renewed at higher rates towards the end of Q1FY2009. -
The operating profit margin (OPM) increased by 310 basis points to 56.5% on the back of greater operating efficiencies and improved realisations. Consequently, the operating profit grew by 104.9% to Rs139.5 crore. A higher other income, and stable depreciation charge and taxes led to a whopping growth of 152.3% in the net profit to Rs71.5 crore. -
The company has declared its consolidated numbers for FY2008. The top line grew to Rs2,021.1 crore in FY2008 from Rs718.7 crore in FY2007. The company has also shown a net translation loss of Rs194.4 crore for FY2008 on account of adverse exchange rate movements in the Norwegian Krone against the US Dollar. Adjusting for the same, the net profit of the company stood at Rs317.4 crore in FY2008, in line with our and street's expectations. -
Aban Offshore, in its board meeting, decided to raise capital through the issue of any of the following: Redeemable non-convertible preference shares, foreign currency convertible bonds (FCCBs), global depository receipts (GDRs) and American depository receipts (ADRs) among others. We view this development as a major positive since it would bring down the high debt levels of the company; while the placement too is likely to be done at a higher price, which would be a positive trigger for the stock. -
We are slightly tweaking our numbers after the availability of the FY2008 balance sheet numberswe are reducing our FY2009E earnings by 2.8% to Rs349.6 and FY2010E earnings by 1.1% to Rs477.6. At the current levels, the stock is trading at 5.4x our FY2010E earnings and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 4.5x. We feel the valuations are extremely attractive and maintain our Buy recommendation on the stock with a price target of Rs4,829. Bharat Heavy Electricals
Cluster: Apple Green
Recommendation: Buy
Price target: Rs2,230
Current market price: Rs1,597 Price target revised to Rs2,230 Result highlights -
Bharat Heavy Electricals Ltd's (BHEL) performance during Q1FY2009 was a mixed bag. The revenue growth during the quarter was higher than estimates, while the operating performance was lower than expected. Boosted by higher other income, the net profit was in line with our expectations. -
The net sales growth of 33.9% to Rs4,329.2 crore was ahead of our as well as street's expectations and was led by strong execution in both the divisions of the business. The power business revenues grew by 28.2% to Rs3,508.7 crore, while the industry business reported a robust 39.7% growth to Rs1,285.1 crore. -
The operating profit margin (OPM) of the company declined by 265 basis points to 8.6% mainly on account of higher employee expenses, as the company provided for the potential wage hike recommended by the second PSU pay revision committee. The provision is to the tune of Rs328 crore this quarter and an equal amount would be provided in the subsequent three quarters of FY2009. Consequently, the operating profits grew by only 2.5% yoy to Rs373.7 crore. -
The other income grew by 41.4% to Rs291.7 crore primarily on account of interest income of Rs72 crore from investments. The reported net profit grew by 33.1% to Rs384.4 crore against our estimates of Rs385.3 crore. -
The order inflow of Rs14,500 crore during the quarter was up 32% yoy and increased the order backlog to Rs95,000 crore (up 52% yoy) as against Rs85,400 crore at the end of FY2008. -
We have revised our estimates for FY2009 by 1.8% largely to take into account the increased provisioning in the wage cost. Our FY2009E earnings per share (EPS) now stands at Rs73.5. However, we maintain our FY2010 estimates. We are revising our price target to Rs2,230. -
BHEL has a strong order book of about Rs95,000 crore (4.4x FY2008 revenues). The capacity expansion coupled with the steps being taken to address the execution concerns would help the company's profits to grow at a compounded annual growth rate (CAGR) of 31.8% over FY2008-10E. We maintain our bullish stance on the company and reiterate our Buy call. At the current market price the stock discounts its FY2010E earnings by 15.8x and is trading at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 10.4x. Thermax
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs602
Current market price: Rs400 Q1FY2009 results: First-cut analysis Result highlights -
Thermax reported a 8.2% growth in its consolidated revenues to Rs772.5 crore in Q1FY2009 as against our estimates of Rs817.5 crore. -
On segmental basis, the environment division reported a robust 56% growth in the revenues to Rs185.9 crore. The energy division's revenues reported a de-growth of 3% to Rs595.5 crore mainly on account of slower order flow for the division during FY2008. The earnings before interest and tax (EBIT) margins improved in both energy and environment divisions by 130 and 150 basis points respectively. -
The operating profit grew by 20.2% to Rs91.9 crore translating into an operating profit margin (OPM) of 11.9%. The OPM improved by 120 basis points mainly on account of reduction in material cost as percentage of sales. -
During the quarter, the company has booked pre-operative expenses of its Chinese subsidiary to the tune of Rs5.5 crore; we have treated these expenses as one-time expense. Consequently, the adjusted profit after tax (PAT) grew by 14.9% to Rs63.9 crore against our estimates of Rs62.1 crore. -
The group's order book stands at Rs2,803 crore vis-à-vis Rs3,057 crore during the corresponding quarter of the last year. -
We will bring to you our detailed report on Q1FY2009 results after the conference call. At the current market price, the stock discounts its FY2010E earnings by 10.6x and is trading at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) multiple of 6.5x. We maintain our Buy recommendation on the stock.
SECTOR UPDATE Information Technology Good for now, outlook cautious
The quarterly performance of tech majors was largely in line with street's expectations. However, the markets seem to be disappointed by the lack of confidence in the management commentaries that have essentially dashed the hopes of a steep recovery in the demand environment in the second half of the fiscal. The cues from the operational metrices were also disheartening, with exceptionally weak recruitment by Satyam Computer Services (Satyam) and Wipro and muted performance by a top client of Infosys Technologies (Infosys).
VIEWPOINT Max India 'Max'imum growth
Max India reported a consolidated top line of Rs1,121.3 crore in Q1FY2009, indicating a growth of 60.1% on a year-on-year basis. The strong revenue growth for the quarter was due to an all-round performance delivered by the different business segments of the company. However, the same growth has not been translated into the bottom line. The net loss for the quarter stood at Rs41.0 crore. This was mainly due to higher-than-expected expenses in the rapidly growing life insurance business. During Q1FY2009, the first year premium grew by 75% year on year (yoy) to Rs541 crore, while the gross written premium increased by 88% yoy to Rs865 crore. For the first time, the company disclosed its new business margins, which stood at 20.4% for the quarter. Notably, unlike its peers, the company has just 53% of its policies in unit-linked insurance plans (ULIPs), which means that it is less exposed to the risks associated with capital markets. |
