Monday, May 11, 2009

[Investors Please Listen] Research Update

Asian Paints Q4FY09 Estimates

We expect 17.5% revenue growth to Rs13.3 bn for APL in Q409. We expect better volume performance on both yoy and sequential basis. We expect 3-4% yoy volume growth in Q409E. The operating profit is expected to increase 3.7% yoy to Rs1.6 bn – lower than the growth in sales primarily due to high raw material expenses during the quarter. Consequently, the operating margins are expected to decline 160 bps YoY during Q409E. Led by weak operating performance and decline in operating margins adjusted net profit is likely to increase 1.1% YoY to Rs1.0 bn.  Key things to observe – (1) management comments on pricing environment (2) extend of input cost drop and (3) outlook shared on volume growth especially in the rural market.

 

Venus Remedies Q4FY09 Result Update ; Results below expectations ; BUY ; Target : Rs275

Venus reported a muted growth of 1% in revenues during Q4FY09 to Rs634mn. On QoQ basis, revenue de-grew by 3%. Lower growth in revenue is mainly because of muted growth in exports and slow off-take (decline of 13% QoQ) by strategic partners in the domestic market. On the operating front, EBIDTA declined by 11% to Rs149mn in Q4FY09 (Rs 167mn in Q4FY08). EBIDTA margins contracted by 320 bps to 23.5% in Q4FY09 mainly on the back of 100 bps increases in employee cost and 500 bps increase in other expenses to 17% of sales. Due to contraction in EBIDTA margin, lower other income and higher interest cost (up 69%) in Q4FY09, the RPAT declined by 21% to Rs 97mn (Rs 123mn in Q4FY08). For FY09, revenue was up by 24% to Rs2645mn. EBIDTA margins for the year declined by 230bps to 23.4% largely because of change in accounting policy towards R&D expenditures. Higher interest (up by 61%) and depreciation cost (up by 50%) coupled with 88% decline in other income has restricted PAT at Rs427mn (up by 11%) in FY09.

Venus Remedies was not able to repay its FCCB's liability of US$14.2mn (Rs700mn) which was due on May 4th 2009. CRISIL has downgraded its rating on Venus Remedies from 'A-/Stable' to C (means substantial risk) because of Venus Remedies failure to service its FCCBs liabilities. Though management has indicated that they are working on various options, we are taking a one time hit of Rs114mn towards interest and Rs120mn towards foreign currency loss on outstanding FCCBs in FY10E. We are maintaining our revenue estimate for FY10E, however taking into account the one time hit towards interest and foreign currency loss on outstanding, we have downgraded our earnings by 9% to Rs 54.5 in FY10E (as compared to the old estimate of Rs 59.6).  We are also introducing FY11E estimates (EPS of Rs 69.3in FY11E). At CMP of Rs 191, the stock is trading at 3.5x FY10E EPs of Rs 54.5. We maintain buy with a target price of Rs275 (4.4x rolling EPS of Rs61.9).

JSW - 4QFY09 Result Update ;  Results below estimates ; REDUCE ; Target : Rs323

JSW Steel reported 4QFY09 and FY09 results, which were below our estimates. For 4QFY09, consolidated net sales stood at Rs35.2bn (yoy down 28.4%, qoq up 7.7%), EBITDA stood at Rs1.3bn (yoy down 87.4%, qoq down 70.6%) and reported loss stood at Rs0.4bn. This includes marked to market forex gain of Rs0.2bn and gain of Rs0.97bn on FCCB buyback at lower rate. The adjusted net loss stood at Rs1.17bn. The sales volume stood at 1.1mt (yoy up 5.3%, qoq up 49.4%). The US plate and pipe mills are working at around 15% capacity utilization due to severe demand destruction. The plate volumes at US operations declined by 2.4% on qoq basis to 26,986t and pipe volumes declined by 65.2% on qoq basis to 9,942t. In 4QFY09, JSW commenced 3mtpa expansion project and did a trial production of 140,000t. The expansion project to increase capacities to 10mtpa is expected to be operational by Mar '11. JSW has deferred investments in Chile iron ore operations and is planning to shut down US plate mill temporarily. In 4QFY09, there has been inventory write down of USD58.4mn in US operations. As on 31st Mar '09, the company has consolidated net debt of Rs153bn. At CMP of Rs410, the stock is trading at 9x FY10E EPS of Rs45.5 and at 6.9x FY11E EPS of Rs59.5. On EV/EBITDA, the stock is currently trading at 5.8x FY10E EV/EBITDA and at 4x FY11E EV/EBITDA; while on P/B basis, the stock is trading at 0.84x FY10E book value and at 0.76x FY11E book value. We are valuing the stock at 0.6x FY11E book value. We are downgrading the stock from HOLD to REDUCE with revised target price of Rs323 (Previous target – Rs195).


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