The Indian markets are expected to open in green tracking positive cues from Asian markets. Asian stocks gained as manufacturing in the U.S. unexpectedly expanded in April at the fastest pace in 10 months, boosting the outlook for the region’s exporters.
The US markets moved sharply up in the morning trade on Tuesday; however gave up some ground before closing for the day. The rally seen in morning trading came on the heels of the release of a report from the Institute for Supply Management showing that activity in the U.S. manufacturing sector unexpectedly expanded at a faster rate in the month of April. The U.K. market got off to a positive start, but pulled back from its intraday high after the country's weaker than expected manufacturing report. The UK's manufacturing sector growth slowed in April amid sharp decline in new export orders.
Indian shares meanwhile ended Monday's session on a firm note, with hopes for more monetary stimulus from the U.S. Federal Reserve underpinning sentiment.
Markets Today
The trend deciding level for the day is 17,291 / 5,237 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rall up to 17,387 – 17,455 / 5,273 – 5,298 levels. However, if NIFTY trades below 17,291 / 5,237 levels for the first half-an-hour of trade then it may correct up to 17,223 – 17,127 / 5,212 – 5,177 levels.
IPO Note: Samvardhana Motherson Finance Ltd. – Avoid
Samvardhana Motherson Finance Ltd. (SMFL) is the principal holding company of the Samvardhana Motherson group with 18 subsidiaries, 19 Joint Ventures and 86 other consolidated entities catering to the domestic and global automotive industry. The principal investments of SMFL constitute a 36.1% stake in Motherson Sumi Systems (MSSL), 49% stake in Samvardhana Motherson Reflectec Group Holdings Ltd. (SMR, erstwhile Visiocorp) and 49% stake in Samvardhana Motherson Polymers Ltd. (SMPL). Together the three companies accounted for ~94% of the consolidated revenues in 9MFY2012.
MSSL: MSSL is the flagship company of the group and is the market leader in the domestic wiring harness segment with a market share of ~65%.
SMR: SMR, acquired in March 2009, is the world’s second largest exterior rear view mirror manufacturer with ~22% global market share.
SMPL: SMPL is engaged in the business of high quality plastic components and assemblies for exterior and interior trims for passenger vehicles through Peguform companies acquired in November 2011.
SMFL’s major customers include the Volkswagen group, BMW, Daimler, Renault Nissan, Ford India Private Limited, Volvo Car Corporation, Maruti Suzuki, Tata Motors, Honda Siel Cars India Limited, Toyota Kirloskar Motor Private Limited and Fiat India Automobiles Limited.
Details of the issue
SMFL intends to raise Rs.1,665cr through the IPO which comprises a fresh equity issue of Rs.1,344cr and an offer for sale of Rs.321cr by promoter group entity, Radha Rani Holdings Pte Ltd.
Outlook and valuation
SMFL has posted a 123.6% and 63.4% CAGR in revenues and earnings, respectively over FY2008-11 driven largely by the acquisition of SMR. SMFL is the market leader in the domestic wiring harness (65% market share) and rear-view mirror markets (53% market share) and has a 22% share in the global exterior rear view mirrors segment. Further, acquisition of Peguform is expected to enrich its product portfolio and consolidate its in-house design, development and tooling capabilities.
We value SMFL’s 36.1% stake in MSSL based on our target price for the company (Rs.216 based on 15x FY2014E consolidated earnings). We value SMFL’s stake in SMR and SMPL on an EV/Sales basis instead of earnings based multiples as current earnings of these companies’ do not reflect their true potential. Currently the profitability at SMR and SMPL has been impacted due to significant start up costs in relation to new manufacturing facilities and due to one-time costs related to the acquisition and refinancing of Peguform Group. We have assigned EV/Sales multiple of 0.5x based on our analysis of SMFL’s global as well domestic peers.
Based on our SOTP methodology we arrive at a value of Rs.97/share against the IPO price band of Rs.113-Rs.118. Management expects to turnaround the financial performances of SMR and SMPL over the medium term. However, we believe that it is early to factor in the anticipated turnaround in these two subsidiaries and valuations in our view are not providing sufficient margin of safety to investors considering the execution risks involved in the turnaround process. Hence we recommend Avoid on the issue.
Auto sales numbers – April 2012
Tata Motors (TTMT)
TTMT registered a weak set of volumes during the month as total sales declined 7% yoy to 60,086 units. The performance during the month was impacted a commerical and passenger vehicle business registered a decline of 6% and 9% yoy, respectively. In the commercial vehicle space, M&HCV sales were the most impacted and it declined by 30% yoy during the month. In the passenger vehicle segment, Nano volumes declined 20% yoy, while Indica sales grew by robust 63% yoy, led by strong demand for diesel models
Maruti Suzuki (MSIL)
MSIL reported 3.4% yoy (down 20.3% mom) growth in total volumes to 100,415 units led by strong momentum in the recently launched Swift and Dzire sales. The domestic volumes increased by 3.6% yoy to 90,255 units and exports recorded 1.5% yoy growth to 10,160 units. While the compact and super compact segments posted a strong growth of 43% and 31.5% yoy, respectively; mini segment registered a decline of 26.4% yoy as lack of diesel variants continue to hurt the sales.
Mahindra and Mahindra (MM)
MM reported 26.9% yoy (down 14.3% mom) growth in automotive volumes to 40,719 units, driven by continued buoyancy in the four-wheeler pick-up and UV segments (led by XUV5OO) which posted a 36.9% and 31.9% yoy growth, respectively. However, the exports segment registered a decline of 18.4% yoy during the month.
Hero MotoCorp (HMCL)
HMCL posted a healthy 6.7% yoy (4.4% mom) growth in total volumes to 551,557 units led by momentum across the products. The company posted its highest ever monthly sales during the month surpassing the previous highest monthly sales of 5,49,625 units in September 2011
TVS Motor (TVSL)
TVSL posted a modest 4% yoy (down 4.4% mom) growth in total volumes to 174,455 units as motorcycle segment witnessed a decline of 2.3% yoy during the month. Even the scooters sales posted a moderate growth of 2.2% yoy. Threewheeler and exports too witnessed a decline of 18.4% and 11.9% yoy. Mopeds on the other maintained its strong run recording a 13.8% yoy growth.
Aditya Birla Nuvo to buy Pantaloons retail chain
Kishore Biyani-led Future Group will spin off the branded apparel business under Pantaloon Retail into a separate entity in which Aditya Birla Nuvo will infuse Rs.1,600cr to acquire controlling stake. As per the plan, Birla-owned Madura Garments will subscribe to some Rs.800cr of debentures issued by Pantaloon, which, on completion of the demerger process, will convert into equity in the format. This will give Madura Garments 50.01% stake in the demerged entity and bring down promoter shareholding in it to 25%. For debt-laden Pantaloon Retail, the proposed stake sale in its retail format to Aditya Birla Nuvo will help partially ease its debt concern as once the deal is completed; the company's debt will be pruned by Rs.1,600cr, or roughly 20% of its total debt. We do not have Pantaloon Retail under our coverage currently.
Result Reviews
HUL
HUL posted a 15.7% growth in its stand-alone net sales to Rs.5,660cr. The company’s domestic consumer business grew by 20.5% with a volume growth of 10.1%. OPM’s stood at 14.7% up 292bp on yoy basis. The company’s net profit rose by 20.5%yoy to Rs.686cr. We will be releasing a detailed result update shortly We continue to remain neutral on the stock.
Bank of India (CMP: Rs.353 / TP: Rs.383 / Upside: 8.5%)
For 4QFY2012, Bank of India posted a healthy set of numbers, with net profit growing by 93.0% yoy to Rs.953cr, which were above our estimates on account of higher sequential rise in NIMs and lower provisioning expenses than expected by us.
The bank’s balance sheet growth was healthy during FY2012, with advances growing by 19.5% yoy (up 7.5% qoq) and deposits growing by 21.7% yoy (up 2.7% qoq). On a qoq basis, current account deposits witnessed strong traction growing by 13.9% qoq (up 9.9% yoy), however savings account deposits growth was muted, growing by 0.1% qoq (up a reasonable 14.3% yoy). Domestic CASA ratio improved sequentially by ~40bp qoq to 32.8%. Domestic NIMs of the bank improved by 43bp qoq in 4QFY2012 to 3.3%, on back of uptick in yield on advances (up 33bp qoq) to 12.3% on back of shift to higher yielding corporate loans and due to higher interest accrual on back of higher upgrades and recoveries. Fee income performance was robust, growing by 14.4% qoq (up 28.3% yoy) during 4QFY2012, aided by higher forex income and interest income on refund of interest tax (Rs.108cr). The bank’s NPA levels improved during 4QFY2012 with both gross and net NPA levels declining by 7.7% and 10.7% sequentially, respectively. The provisioning coverage ratio continues to remain low at 64.2% (60.9% in 3QFY2012). We recommend an Accumulate rating on the stock with a target price of Rs.383.
Dabur (CMP: Rs.110/ TP: -/ Upside :-)
Dabur posted a 23% growth in its consolidated net sales to Rs.1,364cr, aided by a 12.4% volume growth. The sales of domestic business grew by 19.2% driven by strong growth in hair oil, home care and foods. OPM’s stood flat on yoy basis at 16.3%. The company’s net profit rose by 16%yoy to Rs.171cr. We will be releasing a detailed result update shortly. We continue to remain neutral on the stock.
GCPL (CMP: Rs.540/ TP: -/ Upside :-)
GCPL posted a 30.8% growth in its consolidated net sales to Rs.1,323cr aided by 21%yoy growth in Indian Sub continent business. The company’s international too posted a strong 27% yoy organic sales growth. OPM’s rose by 115bp yoy to 18.9%. The company’s net profit rose by 36%yoy to Rs.193cr. We will be releasing a detailed result update shortly We remain neutral on the stock.
Exide (CMP: Rs.129 / TP: Under Review)
For 4QFY2012, Exide Industries (EXID) registered a strong top-line growth of 16% yoy (16% qoq) to Rs.1,448cr driven by strong ~15% and ~26% yoy volume growth in the industrial and two-wheeler batteries segments, respectively. However fourwheeler OEM as well as the replacement segment registered a modearte 6.6% yoy growth during the quarter. On the operating front, EBITDA margin declined 403bp yoy to 14.7% led by significant increase in raw-material expenses. Raw-material cost jumped 28% yoy and accounted for 67% of sales as compared to 60% of sales in 4QFY2011. As a result, operating profit and net profit declined by 8.9% and12.9% yoy, respectively. However on a sequential basis, 147bp improvement in operating margin led to 36.6% jump in net profit to Rs.143cr. At Rs.129, the stock is trading at 14.5x FY2013E earnings. The stock rating is currently under review. We shall revise our estimates and release a detailed note post earnings conference call with the management.
OBC (CMP: Rs.230 / TP: Rs.296/ Upside: 28.7%)
Oriental Bank of Commerce reported its performance for 4QFY2012. Performance was disappointing, both on the operating and asset quality front. NIMs for the bank declined by 32bp qoq, leading to sequential NII de-growth of 6.3%. The bank’s asset quality moderated during the quarter with both gross and net NPA ratios improving by 25bp and 32bp qoq, respectively. However, noninterest income for the bank saw traction during the quarter growing by 16.4% qoq (14.6% yoy). Further, operating expenses for the bank increased by 8.2% qoq (39.9% yoy), leading the net profit to decline by 25.2% qoq (20.6% yoy) to Rs.265cr. We recommend a Buy on the stock with a target price of Rs.296.
United Phosphorus (CMP: Rs.114 / TP: Rs.182/ Upside: 59.6%)
United Phosphorus Limited (UPL) reported consol revenues of Rs. 2,119cr, registering a growth of 17.4% yoy. Volumes contributed 12% to growth while price increased by 4% with the balance 2% being contributed by favorable impact of exchange. Organic growth for the quarter stood at 8% yoy. According to the regions, the main growth came in from RoW where revenues increased by 24% mainly on account of acquisitions. Europe reported revenue growth of 24% while North American revenues increased by 14%. On the other hand, India registered a 23% decline due to poor demand.
On the operating front, company reported an EBITDA Margin of 19%, V/s 21% during the last corresponding period, on account of 26% yoy rise in other expenditure. Consequently the Net Profits came in at Rs240cr, registering a dip of 3%.
For FY2012, the company has posted sales of Rs.7,534cr, a rise of 33% yoy. The Margins for the year came in at 19% and the Net profit at Rs.606cr, registering growth of 2% yoy.
Going forward, the Management has guided for 15% revenue growth in FY2013 with EBITDA margins of 18-20%, mainly driven by the Europe & North America. Also, the Management is confident about domestic growth to rebound and has plans to launch 2- 3 new products. At current valuations the stock is valued at 6.1xFY2014E earnings, which is attractive. Though we would be reviewing our numbers, but at current juncture maintain a buy with a target of Rs.182
Punj Lloyd (CMP: Rs.54 / TP: - / Upside: -)
For 4QFY2012, Punj Lloyd (Punj) posted 32.2% yoy top-line growth to Rs.3,038cr. The company’s EBITDA margin for the quarter stood at 8.4% against 10.7% in 4QFY2011. Interest and depreciation cost came in at Rs.187cr and Rs.70cr, respectively. Interest cost witnessed a jump of 37.0%/15.3% on a yoy/qoq basis, respectively. On the earnings front, Punj reported profit of Rs.9cr, registering a decline of 2.9% on a yoy basis. Order inflow for Punj in FY2012 was Rs.13,817cr, against Rs.9,978cr in FY2011, with an order backlog of Rs.27,276cr (2.6x FY2012 revenue). We maintain our Neutral view on the stock.
KPIT (CMP: Rs.85 / TP: Rs.98 / Upside: 15%)
KPIT Cummins Infosystems (KPIT) reported its 4QFY2012 results which were in-line with our estimates onteh revenue as well as operating front. The dollar revenues came in at US$95.4mn, up whopping 29.9% qoq because of revenues flowing from Systime acquisition (US$~9mn). In INR terms, revenues came in at Rs.480cr, up 26.7% qoq. EBITDA margin of the company improved by just 53bp qoq to 15.8% as the incremental growth came from Systime which has got EBITDA margin in single digits. PAT stood at Rs.33cr, down 17.4% qoq, impacted by loss on the other income front of Rs.11cr as against profit of Rs.11cr in 3QFY2012. The management has given guidance of 32-35% yoyo USD revenue growth for FY2013 which is in-line with our expectations as in FY2013 revenues from Systime will flow in all the four quarters. The stock is currently under review and will be releasing a detailed result update shortly.
TAJ GVK (CMP: Rs.58 / TP: 116 / Upside: 100%)
Taj GVK announced its 4QFY2012 results. Net sales grew by 2.3% yoy and 7.0% qoq to Rs.71cr. EBITDA was down 25.3% yoy on back of margin compression during the quarter. The company commissioned its new property at Begumpet in November 2011, and thus all pre operating expenses were charged to the P&L. Consequently, EBITDA margin took a hit during the quarter declining by 1,057bp yoy to 28.6% (39.2%). Other expenditure as a percentage to sales increased by 1,028bp yoy to 37.6% compared to 27.4% in 4QFY2011. PAT also declined by 46.2% yoy to Rs.7cr (Rs.13cr) while PAT margin declined by 882bp yoy to 9.8% (18.6%). Going ahead as the Begumpet property starts contributing to the top-line, we expect margins to come back to historical levels. We currently have a Buy recommendation on the stock. We may revise our estimates and target price post an interaction with the management.
Result Previews
Bharti Airtel
Bharti Airtel is slated to announce its 4QFY2012 results today. We expect the company to record revenue of Rs.18,973cr, up 2.7% qoq on the back of growth in 2.2% qoq growth in ARPM to Rs.0.46min and MOU remaining flat qoq at 418min. VAS as a share in mobility revenues is expected to move to 14.5% from 14.3% in 3QFY2012. Consolidated EBITDA margin of the company is expected to decline by 43bp qoq to 31.8%. PAT is expected to be at Rs.1,090cr. We maintain Neutral view on the stock.
Hero MotoCorp
Hero MotoCorp (HMCL) is slated to announce its 4QFY2012 results today. We expect the company’s top-line to grow by a healthy 12% yoy to Rs.5,984cr driven by 8.3% yoy growth in volumes and ~3% yoy increase in average net realization led by price increases. Operating margins (adjusted for change in accounting for royalty payments) are expected to expand 36bp yoy to 12.5% on account of softening of commodity prices. As a result, we expect the bottom line (adjusted) to post a 31% yoy increase to Rs.658cr. The stock rating is under review.
Economic and Political News
- Exports down 5.7% in March at US$28.7bn
- Power sector needs Rs.13.72 lakh cr for 12th Plan period: Government
- Bill to transfer RBI shareholding in NHB to Centre
- Engineering exports at US$58bn in FY2012, 19% short of target
Corporate News
- Vodafone ups price for Mumbai postpaid users
- HCC Concessions bags Rs.800cr contract from NHAI
- Punjab & Sind Bank cuts lending rate by 0.25%
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