The repo rate has been hiked by 50 basis points to 9% from 8.5% earlier.
The CRR, the ratio of cash balances to be maintained by banks with the central bank, has been increased by 25 basis points to 9% (effective from August 30, 2008).
The bank rate (the rate at which the RBI lends to commercial banks) and the reverse repo rate under the liquidity adjustment facility have been kept unchanged.
The gross domestic product (GDP) growth forecast for FY2009 has been revised downwards from 8-8.5% to around 8.0%, barring domestic or global shocks.
Inflation to be contained around 7% by March 2009, with a medium-term objective of a 3% inflation rate.
Though the growth in money supply, credit offtake and deposits has moderated, the same remains well above the central bank's target levels.
"Price stability" (anchoring inflation) remains the top priority of the RBI and the Central Bank has kept its options open to respond to any adverse development, globally and domestically, that can have a bearing on inflation and inflationary expectations.
STOCK UPDATE
Ranbaxy Laboratories Cluster: Apple Green Recommendation: Buy Price target: Rs575 Current market price: Rs475
Q2CY2008 results: First-cut analysis
Result highlights
Ranbaxy Laboratories (Ranbaxy) has delivered a disappointing performance in Q2CY2008, largely due to a higher than anticipated foreign exchange (forex) loss of Rs193.1 crore (as compared to our estimates of Rs148.1 crore).
The revenues grew by 13% in rupee terms to Rs1,829.6 crore in Q2CY2008, which is marginally below are estimate of Rs1,876.3 crore. The growth was primarily driven by a 12% rise in the revenues from the developed markets and a 9% jump in the revenues from the emerging markets.
While the US markets continue to do well, the performance in Europe is disappointing due the lower than anticipated sales in the United Kingom and Germany. Romanian markets grew by 5.2%, which is in line with our estimates and the growth is expected to improve in the coming quarters.
The operating performance was in line with our expectations. The operating profit margin (OPM) expanded by 260 basis points to 12% as compared to 9.4% in Q2CY2007, led by improving gross margins. Consequently, the operating profit stood at Rs218.7 crore, registering a growth of 43.7% year on year (yoy).
Despite a healthy operating performance, the reported profit after tax (PAT) has witnessed a decline of 91.3% to Rs22.9 crore due to higher than anticipated mark to market forex loss of Rs193.1 crore. Excluding the translation loss, the reported PAT is Rs160.8 crore.
The management has re-affirmed its guidance of an 18-19% growth in the top line in US Dollar terms and has stated that it expects to ramp up the growth in the coming quarters to achieve the said guidance.
At the current market price of Rs475, Ranbaxy is discounting its CY2008 base earnings (excluding exclusivities) by 34.0x and its CY2009E base earnings by 20.2x. We maintain our Buy recommendation on the stock with a sum-of-the-parts price target of Rs575 (Rs470 per share for the base business and Rs105 per share for exclusivities).
Bank of Baroda Cluster: Apple Green Recommendation: Buy Price target: Under review Current market price: Rs227
Q1FY2009 results: First-cut analysis
Result highlights
Bank of Baroda (BoB) reported a net profit of Rs370.9 crore for Q1FY2009, indicating a growth of 12.1% year on year (yoy). The Q1FY2009 profit after tax was above our estimates of Rs327 crore.
The net interest income for the quarter stood at Rs1,057 crore, up 16.9% yoy on the back of a robust 42.1% growth in the advances and a significant improvement of 790 basis points in the credit deposit ratio to 71.8%.
The reported NIM (global) for the quarter stood at 2.76%, indicating a decline of 26 basis points yoy. The contraction in the NIM was largely driven by a 43-basis point year-on-year decline in the yields on advances (mainly due to prime lending rate cut affected by the bank in Q4FY2008). Further, the cost of deposits increased by 13 basis points yoy, thereby putting added pressure on the margins.
The non-interest income was up by 20.8% yoy to Rs512.6crore from Rs424.4 crore a year ago. Notably, this growth was achieved on the back of higher growth in the foreign exchange income (up by 49.8%), followed by core fee income (up by 44.4%) and recoveries (up by 38.3%).
The operating expenses during the quarter were marginally up by 3.7% yoy to Rs709.4 crore. The other operating expenses increased by 5.3% yoy and the employee expenses increased by 2.8% yoy. During the quarter, the bank made a provision of Rs45.05 crore on account of the transitional liability as per the revised accounting standard (AS-15) on employee benefits. Notably, the cost-income ratio improved significantly to 45.2% from 51.5% a year ago.
The provisions and contingencies were up by 98.2% yoy, mainly due to a significant spike in the marked to market provisions to Rs218.6 crore during the quarter as compared to Rs29.5 crore in the corresponding period of the last year.
The asset quality of the bank improved during the quarter at gross levels. The gross non-performing assets (GNPAs) declined by 5.3% yoy to Rs2,091.1 crore, however, the net non-performing assets (NNPAs) increased by 10.8% yoy to Rs575.5 crore. In relative terms, the %GNPA declined to 1.86% from 2.78% and %NNPA declined to 0.52% from 0.67% in Q1FY2008. Importantly, the provision coverage ratio declined to 72.5% from 76.5% a year ago.
The capital adequacy ratio (CAR) remains comfortable at 13.19% from 14.33% a year ago.
The advances witnessed a robust growth of 42.1% yoy and stood at Rs111,214 crore at the end of Q1FY2009. This growth was achieved on the back of a strong 67.8% growth in the foreign advances, a healthy 31.0% growth in the farm loan segment, a 19.5% growth in the small and medium enterprise segment and a 18.8% growth in the retail segment.
Meanwhile, the deposits grew by 26.5% yoy to Rs154,908 crore. However, the current and savings account (CASA) ratio declined to 36.86% for Q1FY2009 as compared to 38.4% for the year ago period. On a sequential basis, the CASA ratio improved marginally by 86 basis points.
At the current market price of Rs227, BoB trades at 5.0 2009E earnings per share, 2.5x 2009E pre- provisioning profit per share and 0.8x 2009E book value per share. We will follow it up with a detailed analysis shortly.
Corporation Bank Cluster: Apple Green Recommendation: Buy Price target: Under review Current market price: Rs253
Q1FY2009 results: First-cut analysis
Result highlights
Corporation Bank reported a profit after tax (PAT) of Rs184.3 crore, indicating a growth of 4.1% year on year (yoy). The same was above our estimate of Rs143 crore.
The net interest income (NII) came in at Rs378.0 crore, up a muted 7.2% yoy despite a healthy growth in the advances (28.3% yoy), as the reported margins contracted by 58 basis points to 2.43%.
The non-interest income provided some relief with a 32.7% growth yoy.
The operating expenses were flattish at Rs214.6 crore during the quarter. The expenses were contained primarily due to a 13.0% decline in staff expenses, while other operating expenses grew by 12.4% yoy.
In line with the robust growth in the non-interest income and the contained growth in the expenses, the pre-provisioning profit registered a healthy growth of 16.5% yoy.
Notably, the provisions witnessed a significant (five-fold) jump and stood at Rs100.8 crore. The spike was primarily due to a significant (Rs248 crorenet of tax) marked to market loss on the bank's investment book.
The asset quality of the bank remained healthy with an improvement on absolute and relative basis. The gross non-performing asset (GNPA) in percentage terms came in at 1.46%, down 61 basis points yoy, while the net non-performing asset (NNPA) in percentage terms was down 10 basis points to 0.36%.
The capital adequacy ratio was healthy at 12.43% as at the end of June 2008, compared with 13.3% a year ago.
The growth in advances was healthy at 28.3% yoy, while the deposits registered a growth of 26.6% yoy. The healthy business growth implies that the bank is again focussing on building the advances book after a muted performance in Q4FY2008, when the bank was focussing on rebalancing its advances book.
At the current market price of Rs253, Corporation Bank trades at 4.5x 2009E earnings per share, 2.7x 2009E pre-provisioning profit and 0.7x 2009E book value.
Genus Power Infrastructures Cluster: Ugly Duckling Recommendation: Buy Price target: Rs502 Current market price: Rs280
Price target revised to Rs502
Result highlights
The Q1FY2009 results of Genus Power Infrastructure Ltd (GPIL) are in line with our expectations on both revenue growth and profitability fronts.
In Q1FY2009, the company's revenues grew by 20% to Rs100.2 crore against our estimate of Rs95.9 crore. The revenue growth was higher because the performance of both the businesses, meters and projects, was stable during the period.
The operating profit of the company grew by 19.9% to Rs100.2 crore, implying an operating profit margin (OPM) of 16.4%. The OPM improved by 52 basis points year on year (yoy) to 16.4%. The employee cost as a percentage of sales increased by 263 basis points to 73.3%.
The other income increased by 40.9% while the interest cost rose by 32.6% to Rs5.5 crore. Consequently, the net profit of the company grew by 23.4% to Rs8.5 crore vis-à-vis our estimate of Rs8 crore.
Currently, the executed order book of the company stands at Rs645 crore.
We have revised our earnings estimates for FY2009 and FY2010 downwards by 5.8% and 6.4% to Rs45.6 and Rs59.8 respectively. The earnings estimates have been revised to factor in the increase in the input cost that is expected to exert pressure on the company's OPM going forward.
GPIL is a leading manufacturer of electronic energy meters (EEMs). In our view, the company is well poised to benefit from the government's plan to spend on the country's power transmission and distribution sector. We maintain our positive outlook for the company's business and recommend Buy on the stock with a revised price target of Rs502. w At the current market price the stock trades at 6.2x and 4.7x its FY2009E and FY2010E earnings respectively.
Crompton Greaves Cluster: Apple Green Recommendation: Buy Price target: Rs367 Current market price: Rs229
Stupendous performance
Result highlights
Crompton Greaves Ltd (CGL) reported a stunning 33.6% growth in the revenues to Rs2,034.6 crore, led by strong growth in the international businesses of the company. Coupled with the volume growth, the favorable currency movement also aided the growth in the international revenues.
The operating profit of the consolidated entity grew by 70.2% to Rs208.3 crore resulting in a 220-basis-point improvement in the operating profit margin (OPM) to 10.2%. The OPM improved on the back of a 195-basis-point decline in the raw material cost as percentage of sales. The net profits after minority interest grew by 36.4% to Rs122.6 crore.
The current order book of the stand-alone entity stands at Rs2,424 crore, while that of the consolidated entity is at Rs6,004 crore.
In the conference call, the management has guided that the consolidated revenues are expected to grow by a robust 20-22% with stable operating performance going forward.
Factoring in the same, we have revised our estimates for FY2009 by 2.5% to Rs14.2 per share, while the FY2010 earnings per share (EPS) stands at Rs18 per share. We expect CGL to report compounded annual growth rate (CAGR) of 20.9% and 27.3% for its revenues and profits over FY2008-10E.
CGL, which is one of the leading players in the power transmission and distribution (T&D) space in the country, is expected to witness strong order inflows going forward. We remain bullish on the stock and reiterate our Buy recommendation with a price target of Rs367.
At the current market price, the stock trades at 16.1x and 12.7x its FY2009 and FY2010E earnings respectively.
Punj Lloyd Cluster: Apple Green Recommendation: Buy Price target: Rs532 Current market price: Rs243
Q1FY2009 results: First-cut analysis
Result highlights
Punj Lloyd Ltd's (PLL) Q1FY2009 results were ahead of our expectations, on both revenue and profitability front, led by strong performance of the stand-alone entity as well as its subsidiaries.
On a consolidated basis, PLL reported a robust 89.9% growth in the revenues to Rs2,648.8 crore led by strong growth across all the segments of business, barring tankages.
The company reported a foreign exchange loss of Rs50 crore, which we have considered as one-time expense. Consequently, the operating profit grew by 115.5% to Rs261.6 crore. The operating profit margin (OPM) improved by 117 basis points to 9.9%.
The reported profit was up 121.4% to Rs131.7 crore, which is well above our as well as street's expectations, on the back of stronger than expected revenue growth. The reported profit after tax (PAT) was higher by 88% to Rs111.9 crore.
The current unexecuted orders stood at Rs2,0162.1 crore at the end as against Rs1,5624.2 crore in the same period last year. The process plant division continued to form majority (42%) part of the order backlog.
We shall revert back to you with a detailed update after the conference call with the management. We continue to maintain Buy call on the stock. At the current market price the stock discounts it FY2010E earnings by 10.5x.
The stand-alone revenues of Mahindra Lifespace Developers (MLD) grew by 38.4% year on year (yoy) to Rs48.2 crore in Q1FY2009. During the quarter, the company booked revenues from the following properties: Slyvan County (Chennai), Mahindra Eminente (Goregaon), Mahindra Royale (Pune) and Mahindra Splendour (Bhandup).
The operating profit margin (OPM) of the company declined by 134 basis points yoy to 14.6% in the quarter. The OPM declined primarily due to a higher revenue contribution from the low-margin Sylvan County projects and operational inefficiencies. Consequently, the company's operating profit grew by 26.7% yoy to Rs7 crore during the quarter.
Its reported net income declined by 20.1% yoy to Rs9.8 crore during the quarter. In Q1FY2008 the company had reported a gain of Rs4.87 crore on its investments. Adjusting for this, the company's net income grew by 33% yoy to Rs9.8 crore in Q1FY2009 and the same is lower than our estimate of Rs15.6 crore. The company's results are below our expectations primarily due to the lower than expected OPM.
We have factored in our estimate the delay in the launch of the stand-alone properties. This has led to a downward revision of 7.6% and 13.8% in our FY2009 and FY2010 earnings estimates. We maintain our Buy recommendation on the stock with a revised price target of Rs828. At the current market price, the stock is trading at 0.6x its net asset value, 16.5x FY2009 earnings estimate and 7.4x FY2010 earnings estimate.
Orient Paper and Industries Cluster: Vulture's Pick Recommendation: Buy Price target: Rs57 Current market price: Rs37
Price target revised to Rs57
Result highlights
The revenues of Orient Paper and Industries (Orient Paper) grew by 9.8% year on year (yoy) to Rs312.8 crore in Q1FY2009. The revenue growth was mainly driven by the cement and electric consumer durable divisions. The revenues of the paper division declined during the quarter due to a plant shutdown.
The operating profit margin (OPM) of the company declined by 280 basis points to 23.8% during the quarter. Consequently, its operating profit dropped by 1.7% to Rs76.4 crore. The OPM declined mainly due to the loss in the paper division.
The company's interest expense decreased by 30.4% to Rs3.9 crore due to the repayment of debt while its depreciation charge increased by 20.4% to Rs7.7 crore due to capacity additions carried out in the cement division.
The profit before tax (PBT) fell by 1.7% to Rs66.7 crore. The provision for tax declined by 11.4% to Rs20.5 crore. The decline in the provision for tax was on account of a credit of Rs2.14 crore pertaining to the earlier years. The net profit of the company grew by 3.4% to Rs46.1 crore during the quarter.
We expect the company to record earnings per share (EPS) of Rs11.5 and Rs14.6 in FY2009 and FY2010 respectively. High volumes from the capacity additions in the cement and paper divisions will be the primary drivers of its earnings growth in FY2010. At the current market price of Rs37, the stock trades at 3.2x and 2.5x FY2009 and FY2010 earnings estimates and enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 2.8x and 1.6x for FY2009E and FY2010E respectively. We maintain our Buy recommendation on the stock with a revised price target of Rs57.
Ceat Cluster: Ugly Duckling Recommendation: Book Out Current market price: Rs72
Book out
Result highlights
Ceat's Q1FY2009 results are lower than our expectations due to declining profitability during the quarter.
The sales for the quarter grew by 20.8% led by a volume growth of 13% year on year (yoy) and price increases. The replacement sales grew by 29% during the quarter.
The company has reported an operating loss for the quarter due to the rise in its raw material cost during the period. The raw material cost per kilogram increased by a whopping 21.5% in Q1FY2009 to Rs104. The other expenses such as power and fuel cost, publicity cost, employee cost and transportation cost also increased during the period. As a result, the operating loss for the quarter stood at Rs4 lakh.
The company suffered an operating loss in Q1FY2009 for several reasons. For one, the price increases undertaken by it in April and June 2008 in the tyre segment were not available for the full quarter. Also, there was no sufficient inventory of raw material with the company at the beginning of the quarter. Consequently, its margin saw a higher decline compared with the industry. Its publicity expenditure was also higher in Q1FY2009 due to the launch of its new company logo.
A higher other income helped cap the company's reported net loss at Rs10.7 crore in Q1FY2009.
The raw material cost remains a cause for concern and is expected to increase further in the second and third quarters. The price hikes effected may not be adequate to offset the increase in the raw material cost. Hence, the going is expected to be tough for the company in the next two quarters.
Ceat is expected to make an operating profit in the next quarter as the price increases undertaken in Q1FY2009 will be available for the full second quarter and the company has effected another price hike of 6.5% with effect from July 2008. Going ahead, the management plans to focus on cost reduction measures.
However, the outlook for the next two quarters appears gloomy. In view of the Q1FY2009 performance we are revising our earnings estimate for FY2009 and expect a decline of 54% in the company's adjusted net profit to Rs31.4 crore in this fiscal. At the current market price of Rs72, the stock is trading at 6.2x its FY2010E earnings and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 3.2x. We advise investors to book out of the stock at the current levels.
Bank of India Cluster: Apple Green Recommendation: Buy Price target: Rs365 Current market price: Rs258
Price target revised to Rs365
Result highlights
Bank of India (BOI) has reported a net profit of Rs562 crore for Q1FY2009, indicating an impressive growth of 78.3% year on year (yoy). The Q1FY2009 net profit is well above our estimate of Rs372 crore.
The bank's net interest income (NII) grew by 24.7% yoy to Rs1,180.8 crore on the back of a robust growth in the advances and an improvement of 4.8 percentage points in the credit/deposit ratio.
The reported net interest margin (NIM; global) for the quarter stood at 2.89%, indicating a decline of seven basis points yoy. The contraction in the NIM was largely driven by an 11-basis-point increase in the cost of funds while the yield on assets remained largely stable during the quarter.
The non-interest income rose by 48.6% yoy to Rs566.4 crore from Rs381.2 crore a year ago. Notably, this strong growth was achieved on the back of a significant jump (of over four times) in the recoveries, followed by a 71.2% growth yoy in the foreign exchange (forex) income and a 53.3% increase yoy in the core fee income.
The operating expenses increased marginally by 3.7% yoy to Rs674.8 crore during the quarter. The growth in the operating expenses was contained due to a 9.4% decline yoy in the other operating expenses. This helped to partly offset the 11.2% year-on-year (y-o-y) increase in the staff expenses. Consequently, the cost/income ratio improved significantly to 38.6% in Q1FY2009 from 49.0% a year ago.
The provisions and contingencies increased by 75.2% yoy, mainly due to a significant spike (up by 249% yoy) in the mark-to-market (MTM) provisions to Rs129 crore during the quarter. The non-performing asset (NPA) provisions rose by 56.2% yoy to Rs144 crore.
The asset quality of the bank improved during the quarter. The gross NPAs (GNPAs) remained largely flat with a 0.5% decline yoy to Rs2,017.3 crore whereas the net NPAs (NNPAs) declined by 19.3% yoy to Rs628.5 crore. In line, the provision coverage ratio improved to 80.3% from 70.5% in Q1FY2008.
The advances witnessed a robust growth of 38.8% yoy and stood at Rs122,889 crore at the end of Q1FY2009. This growth was achieved on the back of a 55.5% growth in the corporate segment, a 30.1% rise in the small and medium enterprises (SME) segment and a 28.7% increase in the agricultural segment.
The deposits grew by a healthy 30.1% yoy to Rs159,234 crore. Importantly, the current account and savings account (CASA) ratio declined to 34.1% in Q1FY2009 from 37.8% in the year-ago period.
While we are maintaining our earnings estimates for the bank, we are lowering our price target for it to Rs365 to factor in the higher cost of equity, in line with the rise in the 10-year G-Sec yields. At the current market price of Rs295, BOI trades at 7.6x 2009E earnings per share (EPS), 4.2x 2009E pre- provisioning profit (PPP) per share and 1.8x 2009E book value (BV) per share.
Tata Tea Cluster: Apple Green Recommendation: Buy Price target: Rs970 Current market price: Rs756
Margin pressure to continue
Result highlights
Tata Tea's Q1FY2009 results were below expectations. Though the top line growth was more than expectations, a significant dip in the margins dented the growth at operating level.
The consolidated sales were up by 12.3% year on year (yoy) to Rs1,134.7 crore. However, the operating profitability was affected by the increase in the commodity prices and other input costs. The raw material cost as percentage to sales increased by 270 basis points yoy impacting the operating profit margin (OPM), which was down by 233 basis points yoy. Thus, the operating profit was down by 4.2% yoy to Rs153.8 crore.
The interest cost fell by 88.1% to Rs10.9 crore on account of the repayment of the loans taken for acquisitions. This led the adjusted net profit grow by 101% yoy to Rs74.8 crore.
The stand-alone sales (domestic operations) were up 12.2% yoy to Rs315 crore. The OPM declined by 256 basis points yoy to 17% consequent to a 371-basis point increase in the raw material cost as percentage to sales. Thus, the operating profit was down by 2.5% yoy to Rs53.4 crore. Consequently, the adjusted profit after tax (PAT) was down 5.3% yoy to Rs38.4 crore.
Tata Tea has felt the pinch of the rise in the auction tea prices and the input cost inflation during the quarter. Going forward, if auction tea prices continue to rise, it will impact the growth at operating levels. The company has already undertaken price hike in its product basket and it would be difficult to implement another price hike in near term, as it would impact the volume of the branded tea segment. However, if the company does take another price hike in the coming quarters, it will help it combat the rising input cost to some extent.
We believe the company's focus on new geographies and new initiatives (such as green and herbal tea and water) augurs well for the company. The huge pile of cash together with the management's intention to look for strategic acquisitions in the domestic as well as global beverage market will ensure inorganic growth for the company.
We expect Tata Tea's earnings to grow at a compounded annual growth rate (CAGR) of 13.5% from FY2008 to FY2010, which is line with the growth for the other fast moving consumer goods (FMCG) majors. Considering this fact and possibility of inorganic growth through acquisitions, the valuations look inexpensive. At the current market price of Rs756, the stock trades at 12.2x FY2009 and 10.7x FY2010 earning estimates. We maintain our Buy recommendation on the stock with the price target of Rs970.
