Lupin Cluster: Apple Green Recommendation: Buy Price target: Rs840 Current market price: Rs736
Brilliant quarter; Results beat expectations
Result highlights
Lupin's performance in Q1FY2009 was ahead of our expectations. The consolidated revenues grew by a stupendous 49.8% to Rs862.3 crore in Q1FY2009, driven by steady growth of the company's domestic formulation business, strong traction in the US business and consolidation of the recent acquisitions. Excluding the impact of the acquisitions (which contributed Rs100 crore collectively during the quarter), the like-to-like growth stood at ~32% year on year (yoy).
The domestic formulation business grew by 15.7% in Q1FY2009, witnessing a slowdown in the growth due to a lower contribution from the anti-infective segment and the lowering of the excise duty in the Union Budget 2008-09 (which led to a lowering of prices and consequently of realisations).
The US business delivered an impressive performance, driven by growing revenues from the existing generic products, a ~20% growth in the Suprax franchise and an approximate incremental $4-5 million contribution from the recently launched Ramipril.
Despite an increase in the raw material and staff costs, Lupin's operating margin (OPM) expanded by 340 basis points to 17.7% (against our estimate of 17%). The margin expansion was driven by a sharp drop in the other expenses due to greater proportion of in-house manufacturing (as compared with outsourced manufacturing on a contract basis). The expanding margins caused the operating profit to grow by 85.9% to Rs152.7 crore.
The strong top line growth and the robust margin expansion caused Lupin's net profit to double to Rs112.0 crore in Q1FY2009. The net profit reported by the company was ahead of our estimates. The earnings for the quarter stood at Rs13.6 per share.
At the current market price of Rs736, Lupin is discounting its FY2009E earnings by 16.1x and its FY2010E earnings by 13.5x. Keeping in mind the strong business fundamentals and the growth potential of the company, we reiterate our Buy recommendation on Lupin with a price target of Rs840.
SEAMEC's Q2CY2008 results were below our expectations on the back of a drop in the operating margins. The revenues for the quarter grew by 29.9% year on year (yoy) to Rs60.7 crore.
The company has incurred dry-docking expenses of Rs3.58 crore and has made provision for Rs4.34 crore relating to the amount due to M/s Superior Offshore. There is also an exceptional item of Rs2.5 crore relating to damage repair charges for SEAMEC II. Adjusting for these, the operating profit margin (OPM) stood at 39.4% against 49.4% in the corresponding quarter of the last year and 27.1% in the last quarter (Q1CY2008). Consequently, the operating profit registered a 3.6% growth to Rs23.9 crore. The employee cost too has risen on account of increased scope of activities including diving operations in its present contracts.
For the quarter, the adjusted net profit has marked a decline of 8% yoy to Rs18.0 crore while the reported profit stood at Rs7.6 crore.
SEAMEC III will be out of operations due to statutory dry-docking and is expected to be back onstream by mid-August, while SEAMEC II has met with an accident again and would be out of action for a while. However, we gather that the damage to the vessel is not as severe as that of last time.
On the back of reduced operational days of SEAMEC II (due to the accident) and higher staff cost, we are downgrading our CY2008E earning estimates by 18.3% to Rs21.1, however we maintain our CY2009 earning estimates. After the dry-docking of SEAMEC III and repairs to SEAMEC II are over, we expect all the four vessels to be fully deployed by the last quarter of CY2008.
At the current market price, the stock trades at 6.0x CY2008 and 4.0x CY2009 estimated earnings. We maintain our Buy recommendation on the stock with a price target of Rs253 (8x CY2009 earnings).
Thermax Cluster: Emerging Star Recommendation: Buy Price target: Rs564 Current market price: Rs418
Price target revised to Rs564
Result highlights
Thermax' revenues in Q1FY2009 grew slower than our estimates mainly on account of marginal decline (-3% year on year) in the revenues of the energy business. The consolidated revenues of the group grew by 8.2% to Rs772.5 crore during the quarter.
The operating profit of the company grew by 40.7% to Rs107.5 crore translating into an operating profit margin (OPM) of 13.9%. The OPM improved by 320 basis points mainly on account of reduction in the raw material cost as percentage of sales.
Adjusting for the provision for mark-to-market (MTM) forex loss of Rs15.6 crore and a charge of pre-operative expenses of Rs5.5 crore with respect to the Chinese subsidiary, the adjusted net profit grew by 33.7% to Rs74.4 crore.
The order book of Thermax group stands at Rs2,803 crore of which Rs2,338 crore worth of orders are for the energy division. The company has recently bagged its first order for large utility boilers segment valued at Rs820 crore.
The new capacity at Baroda has completed its first phase of the boiler plant and has begun its commercial production. The China facility has started trial runs at the plant and would begin commercial production during Q2FY2009.
Thermax' stock price corrected sharply from its peak over concerns of a slow down in the order inflow, as the deteriorating macro environment has led its clients to delay the finalisation of their orders. However, we believe at the current valuations of 13.6x FY2009E earnings, the stock largely factors in the concerns as we expect the order flow to pick up gradually. Hence, we reiterate our Buy call with a revised price target of Rs564.
Crompton Greaves Cluster: Apple Green Recommendation: Buy Price target: Rs367 Current market price: Rs257
Q1FY2009 results: First-cut analysis
Result highlights
Crompton Greaves Ltd's (CGL) Q1FY2009 results are ahead of our estimates, on the back of a higher-than-expected top line and an improvement in the profitability.
The standalone top line grew by 20.8% due to strong performance across the segments. Looking at segmentals, the power systems division reported a 13.4% growth in the revenues to Rs490.6 crore; the consumer products and industrial systems too reported a strong growth of 25% and 19.9% respectively.
The company reported a 100 basis points improvement in its operating profit margin (OPM) to 12.7% because of greater operating efficiencies. The profit before interest and tax (PBIT) margin of the power systems division grew by 100 basis points to 12.5% and that of the industrial systems division improved by 70 basis points.
Lower interest cost, stable depreciation and taxes led to a 29.2% growth in its net profits to Rs88.9 crore for the quarter.
On a consolidated basis, CGL has reported revenues of Rs2,034 crore led by excellent growth in the international revenues as well as strong stand alone revenues. The OPM has grown by 220 basis points to 10.2% on account of better operating performance of its subsidiaries. The consolidated net profits of the company grew by 37.5% to Rs122.7 crore, above our as well as street expectations.
At the annual general meeting, the management highlighted that the order inflows have increased by 66% year on year (yoy), taking the total order backlog of the standalone entity to about Rs2,400 crore and that of the consolidated group to $1.4 billion.
We would revert to you with our detailed note on the results and revisit our estimates after the conference call with the management.
Increased product offering (after its international acquisitions) and improving profitability of its international subsidiaries would drive the future growth of the company. At the current market price, the stock trades at 18.5x and 14.3x FY2009E and FY2010E earnings. We maintain our positive view on the stock and recommend Buy with a price target of Rs367.
