Ipca Laboratories
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs875
Current market price: Rs638
Results in line with expectations
Result highlights
- Ipca Laboratories (Ipca) reported a 21.2% year-on-year (y-o-y) increase in its net sales to Rs281.8 crore in Q3FY2008. The sales growth was in line with our expectations and was driven by a 32% rise in the domestic business and a 14% growth in the exports.
- After a subdued performance in Q2FY2008 (on account of lower sales of anti-malarials), Ipca's domestic formulation business resumed its strong momentum. The domestic formulation sales grew by an impressive 32.1% in Q3FY2008, clearly outpacing the industry growth of 12.3%. The strong performance was driven by increased traction seen in the chronic therapy segments of cardiovascular, diabetology and arthritis.
- Ipca's formulation exports grew by 19.2% to Rs86.4 crore during the quarter. This was on the back of a strong performance in Europe, on account of new product approvals received during H1FY2008. The African, Asian and Commonwealth of Independent States (CIS) markets also performed well. The performance seems impressive when viewed in light of the ~12-13% appreciation in the rupee against the US Dollar.
- Ipca's active pharmaceutical ingredient (API) business grew by 13.1% to Rs77.0 crore in Q3FY2008, driven by a 33.3% rise in the domestic API sales and a muted 6.6% growth in the export of APIs. Ipca's API exports have been under pressure over the last few quarters, due to the sharp appreciation in the rupee against the US Dollar. However, Ipca has now initiated the process of raising prices across some of the key products and remains confident of a much improved performance in the coming quarters, given the strong order visibility.
- Ipca's operating profit margin (OPM) expanded by 40 basis points to 21.8% in the quarter. The expansion in the margin was driven by a 100-basis-point drop in the staff cost and a 150-basis-point reduction in the other expenses. Consequently, the operating profit grew by 23.7% to Rs61.6 crore in Q3FY2008.
- Ipca's pre-exceptional net profit increased by 12.8% to Rs38.3 crore and was in line with our estimate. The growth in the net profit was restricted due to a sharp reduction in the other income. On the other hand, the net profit was boosted by an 80-basis-point drop in the tax incidence of the company.
- At the current market price of Rs638, Ipca is discounting its FY2008E earnings by 10.6x and its FY2009E earnings by 8.7x. The valuations at these levels seem absolutely compelling when viewed in context of the strong growth potential that awaits the company. We retain our positive stance on the stock and maintain our Buy call with a price target of Rs875.
Lupin
Cluster: Apple Green
Recommendation: Buy
Price target: Rs840
Current market price: Rs515
Another strong quarter
Result highlights
- Lupin's consolidated revenues increased by 43.8% year on year (yoy) to Rs721.3 crore in Q3FY2008. The growth in the top line was above our expectations and was driven by a 25.3% growth in the domestic formulation business, an appreciable 169.8% jump in the export of formulations to advanced markets and the consolidation of the recent acquisitions. Excluding the impact of the acquisitions (which contributed Rs65-70 crore collectively during the quarter), the like-to-like growth stood at ~30% yoy.
- Lupin's consolidated operating profit margin (OPM) shrank by 40 basis points yoy to 16.8% in Q3FY2008, led by a 50-basis-point rise in the other expenses. The operating profit grew by 40.8% to Rs121.5 crore in the quarter.
- The company received Euro 20 million from the sale of its Perindopril patent rights to Laboratories Servier of France, which boosted the other income and the net profit substantially. As a resultant, the net profit level grew by a whopping 191.6% to Rs180.9 crore in Q3FY2008. The profit growth was way above our expectation of Rs149 crore. Excluding the impact of the Euro 20 million received from the sale of the Perindopril patent rights and its associated tax impact, the net profit grew by approximately 70% yoy.
- With Lupin still awaiting the approval of US Food and Drug Administration (USFDA) for generic Altace, the exclusivity opportunity for Lupin remains uncertain, as Cobalt (the first-to-file for generic Altace) has already launched the product in the USA towards the end of December, thus triggering off the 180-day exclusivity period. While the management is confident of securing a sizeable time period of limited competition to benefit out of the Altace opportunity, any delay in the USFDA resolution could significantly restrict Lupin's window of opportunity. The USFDA resolution and clarity on the launch would act as a near-term catalyst for the stock.
- At the current market price of Rs515, Lupin is discounting its FY2008E earnings by 14.4x and its FY2009E earnings by 11.7x. 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.
Sanghvi Movers
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Under review
Current market price: Rs290
Q3FY2008 results: First-cut analysis
Result highlights
- For Q3FY2008 Sanghvi Movers Ltd (SML) has reported a spectacular growth of 65.4% in its top line to Rs64.4 crore. The growth is above our expectation.
- The operating profit of the company grew by 66.9% to Rs46.9 crore during the quarter. The operating profit margin improved by 60 basis points to 72.8% as against 72.2% in Q3FY2007.The operating profit margin for the company has been improving on the back of better capacity utilisation and lower maintenance cost.
- The interest cost increased by 13.2% to Rs7.5 crore while, the depreciation charge was up 33.3% to Rs11.7 crore in Q3FY2008.
- The profit after tax grew by a whopping 111.2% to Rs17.8 crore, which is way above our expectation. The robust top line growth and stable operating performance led to a strong growth in the profits of the company.
- The company plans to acquire100 cranes at a total cost of Rs550 crore over the next 18 months. These will include 72 second hand cranes from the USA worth Rs160 crore, mainly for the use of the power sector.
Marico
Cluster: Apple Green
Recommendation: Buy
Price target: Rs70
Current market price: Rs60
Q3FY2008 results: First-cut analysis
Result highlights
- Marico's sales growth in Q3FY2008 was in line with our expectations. The company posted a strong top line growth of 23.7% year on year (yoy) in Q3FY2008 to Rs506.2 crore aided by an impressive performance across businesses. The impressive top line growth was a result of a 19% organic growth and a 5% inorganic growth.
- Affected by a hefty 34% year-on-year increase in the staff cost and a higher than expected increase in the other expenses (up 32.9% yoy to Rs81.2 crore) the operating profit margin declined by 79 basis points to 12.68%. Thus, the operating profit grew by 16.4% yoy to Rs64.2 crore.
- The raw material cost was under check as copra prices during the quarter were lower by about 10-12% yoy. However, the input cost for edible oils continued to rise and was up 20-30% across categories.
- A much higher other income of Rs7.53 crore (against Rs0.33 crore in Q3FY2007) and a lower tax incidence aided a strong 81% rise in the adjusted net profit to Rs50.2 crore.
- The company changed the method of charging depreciation on factory building that led to a one-time charge of Rs4.29 crore; after this the reported net profit stood at Rs45.9 crore, which was up 61.5% yoy.
- Marico continues to implement its three-pronged growth strategy of enhancing the existing products, introducing new products and achieving inorganic growth through acquisitions. During the quarter it entered the South African ethnic hair care and health care markets by acquiring the consumer division of Enaleni Pharmaceuticals, which has an annualised turnover of ~Rs53 crore.
- We remain positive on Marico's businesses and maintain our Buy recommendation on the stock with a price target of Rs70. At the current market price of Rs59.7 the stock trades at 17.9x our FY2009E earnings per share of Rs3.34.
Punjab National Bank
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs675
Current market price: Rs618
Q3FY2008 results: First-cut analysis
Result highlights
- For Q3FY2008, Punjab National Bank (PNB) reported a profit after tax (PAT) of Rs541 crore, beating our estimate of Rs502 crore. The Q3FY2008 PAT indicates a growth of 26% year on year (yoy), but remains largely flat on a quarter-on-quarter (q-o-q) basis.
- The quarterly performance at the net interest income (NII) level was lacklustre, with reported NII registering a 1.5% decline yoy and a growth of 10.3% quarter on quarter (qoq). The disappointing NII performance was primarily due to the net interest margin (NIM) contraction yoy coupled with a moderate growth in the advances.
- On a year-on-year (y-o-y) basis, NIM continued to remain under pressure. The calculated NIM for Q3FY2008 was 3.2% compared with 3.8% for the year-ago period and 3.2% for the previous quarter. The y-o-y decline of 58 basis points in NIM was due to the higher cost of funds (up 106 basis points yoy), which outweighed the 48-basis-points y-o-y improvement in the yield on funds. The reported NIM for the quarter stood at 3.66% compared with 3.85% for the year-ago period.
- Meanwhile, the non-interest income jumped by 49.6% yoy to Rs483 crore. Of the total non-interest income, treasury income contributed Rs134 crore.
- The rise in the operating expenses was contained at 12.8% yoy compared with a 22.4% growth in H1FY2008. The increase in the operating expenses was driven equally by the staff expenses and the other operating expenses. However, the resulting operating profit grew by a weak 3.6% yoy.
- Despite the weak operating profit growth, the PAT grew substantially, mainly due to a significant 56% y-o-y decline in provisioning.
- Advances at the end of the quarter stood at Rs101,534 crore indicating a growth of 15.8% yoy, while remaining flat on a q-o-q basis. The growth in advances was primarily due to a strong growth of 28% yoy in retail advances (excluding trade advances) and a healthy growth in agricultural advances. Meanwhile, the deposits grew by a healthy 17.2% yoy to Rs152,622 crore. Currently, the management's focus area is controlling the quality of the existing advances book and not the advance growth per se.
- Asset quality improved sequentially as evidenced by a 28% q-o-q decline in gross non-performing assets (GNPA) to Rs1,339 crore and a 10% decline in net non-performing assets (NNPA) to Rs4,251 crore. While the sequential improvement in asset quality is a positive, the NPA levels (%GNPA of 4.1%, %NNPA of 1.3%) are still high compared with peers in public and private sector banking space.
- Capital adequacy ratio (CAR) as on December 2007 stood at a comfortable 14% compared with 12.6% in September 2007 and 12.9% in December 2006.
No comments:
Post a Comment