|
|
|
Summary
of Contents
STOCK UPDATE
Crompton Greaves
Cluster: Apple Green
Recommendation: Buy
Price target: Rs308
Current market price: Rs291
Annual report review
Key points
- During FY2009, Crompton
Greaves Ltd (CGL)’s working capital cycle improved close to 17 days
from 27.5 days in FY2008. The improvement in the working capital cycle
was achieved on the back of a reduction in both debtors and
inventories. As a result, the cash from operations increased by 71%
year on year (yoy).
- CG Power (India)’s export
sales rose to 50% of sales in FY2009 vs the 36% growth seen in FY2008.
The export sales of the division grew by 68% yoy to Rs1,104 crore in
FY2009. Overall, the export revenues stood at 59% of the total
sales.
- Ganz has reported a profit of
Rs30.3 crore for FY2009 versus a loss of Rs26 crore in the previous
year. As guided by the management Ganz broke even in this year.
Revenues from the company grew at 82% yoy to Rs496.7 crore.
- The company has completed
capital expenditure (capex) of close to Rs255 crore in the current
year. The consolidated debt on books has reduced to Rs718.2 crore from
Rs841 crore in FY2008.
- The management has shown
confidence with regard to the growth of the Indian business. However,
global demand could be a pressure point, particularly the demand for
distribution transformers. Domestically, the company foresees pressure
on LT motors with the cut-back on industrial investment.
- We have realigned our numbers
to incorporate the changes from the balance sheet. However, there has
been no material change to our earnings per share (EPS) estimates. At
the current market price the stock is discounting its FY2010 and
FY2011 earnings estimates by 16.3x and 14.8x respectively. We maintain
our Buy recommendation on the stock with a price target of Rs308 per
share.
SHAREKHAN SPECIAL
Q1FY2010 Banking earnings preview
- Credit demand, deployment
pace weakened further: The weakening trend in
credit demand, which started in Q4FY2009, continued well through
Q1FY2010. As per the latest data by the Reserve Bank of India (RBI),
the credit growth as on June 19, 2009 stood at 15.6%, down from the
~17.5% growth in Q4FY2009 and the ~26% growth in the first quarter a
year ago. Clearly, the uptick in some of the macro variables is yet to
translate into an improvement in the credit offtake. Having said that,
the credit demand should improve during H2FY2010, in line with our
expectation of a more widespread pick-up in economic activity.
Meanwhile, the deposits continued to grow at a healthy rate (22% as on
June 19, 2009), leading to weaker deployment pace.
- NIMs to come under pressure
sequentially: The net interest margin (NIM) of most of
the banks under our coverage is likely to come under pressure
sequentially as we believe that the impact of the prime lending rate
(PLR) cuts would outweigh the benefit of the lower cost of funds.
Besides, the banks have been increasingly parking surplus liquidity in
avenues other than credit. Consequently, these two factors are likely
to put pressure on the margins during the first half of the current
fiscal at least.
- Treasury gains to provide
healthy support to bottom line: The government
securities (g-sec) yields during Q1FY2010 came off at the shorter end
of the yield curve as against a flattish trend for long-term
maturities. With the short-term yields easing, the treasury gains
during Q1FY2010 are likely to be healthy and should provide a healthy
support to the bottom line. In addition, the rally in the equity
markets may lead to a write-back of the marked-to-market (MTM) losses
on the equity portfolio for some banks.
- Asset quality to remain at
centre-stage: The emergence of “green shoots” coupled
with the game-changing decisive election mandate has changed the
outlook on asset quality to an extent. Despite the improved outlook,
we believe that the asset quality trends would be keenly watched in
Q1FY2010 and further ahead, though the reported numbers are unlikely
to show significant weakness due to the restructuring window.
Importantly, the street would be looking at the additional
restructuring done during Q1FY2010.
- For the quarter ended June
30, 2009, we expect Bank of Baroda and Union Bank from the public
sector and Axis Bank from the private sector to outperform their
peers. Meanwhile, we believe ICICI Bank, Corporation Bank and Bank of
India would be among the underperformers.
Q1FY2010 Cement earnings preview
- With the strong double-digit
year-on-year (y-o-y) growth in dispatches for three consecutive months
(April, May and June 2009), the total dispatches for Q1FY2010 stood at
49.8 million metric tonne (MMT) as against 44.3MMT in Q1FY2009. This
represents a volume growth of 12.2%. The volume growth is mainly due
to a strong domestic demand and capacity addition. The capacity for
the quarter under review increased by 10.2% and the present all-India
cement capacity stands at 224MMT. The industry is likely to post a
strong utilisation rate of 90.5% for Q1FY2010 at all-India level.
- On a quarter-on-quarter (q-o-q)
basis, the dispatches declined by 1.1%, mainly on account of a higher
base of the previous quarter.
- All the regions have posted
an impressive volume growth. Among the regions, the northern region
led with a strong consumption growth of 22% in Q1FY2010 on a y-o-y
basis. The volume growth in the north was robust on account of higher
government spending on infrastructure and the impending 2010
Commonwealth Games. The central and eastern regions also recorded an
impressive volume growth of 12.9% and 11.5% respectively. However, the
north, east and west regions posted a negative volume growth on a
sequential basis.
- Much in tandem with the
volume growth, the cement prices also increased in April and May 2009.
However, for June 2009 the cement prices showed a mixed trend with the
prices remaining stable at some major cities, like Mumbai, Delhi and
Kolkata, but declining by Rs4-5 per 50kg in Chennai and Hyderabad on a
month-on-month (m-o-m) basis.
- On an all-India basis, cement
prices increased by Rs15-20 per bag from January 2009 to May 2009. The
prices increased on the back of a strong demand arising from
infrastructure projects, personal housing construction in rural and
semi-urban areas, and supply shortage in some areas.
Recently, the cement price in Kolkata increased by Rs7-8 per bag
effective from July 1, 2009. Almost all the companies have increased
the prices in the city and the nearby areas. With this increase in the
prices the average price in Kolkata stands at Rs278 per bag at
present.
- In Hyderabad, the average
cement price went down by Rs3 per bag in May 2009 to Rs229.
Furthermore, some dealers further decreased cement prices by Rs4 per
bag in June 2009 on account of sluggish demand and presently the
average price in the city is Rs225 per bag.
- In other cities like Chennai
and Mumbai, cement prices remained unchanged on an m-o-m basis and
traded at the level of Rs260 a bag of 50kg. In Delhi and Hyderabad,
the prices stood at Rs234 and Rs225 respectively.
- As per dealers, the volume
growth is likely to continue its momentum even in July and from August
the impact of the monsoon on cement volumes will start manifesting
itself (the monsoon was delayed by 15 days in this year). The prices
are likely to remain at the current levels till the end of July and
may come down by Rs5-10 per bag by mid August owing to the contraction
in the volumes.
- Overall, Sharekhan’s cement
universe is expected to register a 20% growth in volumes in Q1FY2010.
Shree Cement, UltraTech Cement and Grasim Industries are likely to
report an impressive volume growth of 32.5%, 24.9% and 24.3%
respectively for Q1FY2010.
- In terms of top line,
Sharekhan’s universe is likely to register a 19.8% growth in revenues.
Shree Cement, Madras Cement and UltraTech Cement are expected to post
an impressive sales growth of 37.1%, 24.6% and 24% respectively due to
a strong domestic demand and capacity addition carried out by these
companies.
- In terms of realisation, all
the companies had raised cement prices during the quarter due to a
strong demand and a supply shortage in a few areas. In terms of price
hikes, companies operating in the eastern region benefited the most as
compared with those operating in the other regions. The south-based
companies are fetching healthy realisation compared with the companies
operating in the other regions.
- The adjusted
profit after tax of the companies in Sharekhan’s universe is expected
to increase by 8.7%, on the back of a strong volume growth and
improved realisation. The OPM of the companies in Sharekhan’s universe
is expected to show a mixed performance with a few companies like
Shree Cement, UltraTech Cement and Orient Paper & Industries
likely to post an improvement in their OPM. On the other hand,
companies like India Cements and Madras Cement are expected to post a
decline in their OPM. At the same time, a sharp increase in the
interest and depreciation charges of the companies under our coverage
will restrict the bottom line growth during the quarter.
|
|
|
"India Stock \(A unit of IBN Services, New Delhi\)" <indiastock@...>
ibnservicesd...
 Online Now
 Send Email
|
Having problems with message search?
Fill out this form to ensure your group is one of the first to be migrated to the new message search system.
