Wednesday, May 13, 2009

[Investors Please Listen] Research Update

Voltamp Transformers Q4FY09E Result Estimates (Result on 14th May)

We expect net sales to decline 15.9% YoY to Rs1.14bn. Expect Volume decline of 6% YoY to 1800 MVA. Expect realizations per MVA to drop by 10% yoy to Rs0.63mn.  We expect operating margins to be at 27.4% (improvement of 280 bps yoy) and operating profits to decline 6% yoy to Rs311mn. We expect net profits to increase by 6% YoY to Rs230mn. The key things to watch out - (1) order inflows from industrial segment as well as SEBs, (2) guidance on realizations/margins going forward, (3) Delay in dispatches. 

Industrial production declines by 2.3% in March 2009

The index of industrial production (IIP), decline by a sharp 2.3% in March 2009 as against market expectation of around 1.0% fall.  The decline was primarily on account of 3.3% drop in manufacturing output and just 0.4% growth in mining output. However Electricity generation increased by a healthy 6.3% as against 3.7% growth in corresponding period last year. The decline in the manufacturing output was led by decline in production of food products (35.8%), Wood and Wood Products (-25.1%) and Other Manufacturing Industries (-19.7%). However the industries which recorded higher growth were Beverages, Tobacco and Related Products (15.1%), Basic Chemicals & Chemical Products (8.3%) and Transport Equipment and Parts (7.0%). Capital goods witnessed a sharp fall of 8.2% as against 11.7% growth in the preceding month albeit could be because of higher base as the same grew by 20.3% in March 2008. 

n        Research Update included

HUL Q509 Result Update ; Margin Expansion ; BUY ; Target: Rs276

In Q5FY09, HUL reported (1) 5.1% yoy growth in its revenues to Rs40.4 bn, below our estimates (2) operating profit growth at 22.9% yoy to Rs6.0 bn, ahead of estimates and (3) adjusted net profit increased 32.7% yoy to Rs5.0 bn, ahead of estimates. HUL disappointed on volume growth by reporting volume decline of 4.2%, but posted higher than expected price-led growth (16.7% yoy increase) - partially mitigating the impact from slow volume growth. A higher than expected benefits from decline in raw material expenses resulted in 210 bps yoy expansion in operating margins – posting positive surprise. Barring disappointment in Personal Products segment, performance in other segments was satisfactory during Q5FY09 – though price-led performance.

Our argument of margin expansion owing to fall in cost index has played out in Q5FY09 (though earlier than anticipated) with gross margin and operating margin expansion of 160 bps yoy and 210 bps yoy respectively. But, steep decline in volume at 4.2% yoy accompanied with loss of market share in key categories – has come to fore. We believe that, HUL is more likely to adopt competitive growth against profitable growth in ensuing quarters- posing risk to incremental margin expansion and earnings growth momentum. We have revised downwards our FY10E estimates by 6.8% from Rs11.7/Share to Rs10.9/Share and introduced FY11E estimates of Rs12.1/Share. We maintain our 'BUY' rating with revised price target of Rs276 – valuing on 1-year rolling forward basis.

Sintex Industries Q4FY09 Result Update ; Mono - Lights ; BUY ; Target : Rs197

Sintex reported a 9% yoy decline in Q4FY09 revenues to Rs8.5bn led by commodity price deflation and muted volume growth. However, adjusted net profit at Rs1140mn was in line with expectations - attributed to higher than expected EBITDA margins, lower depreciation provision and lower tax incidence.  Subsidiaries performance during the quarter was better than expected owing to higher than expected EBITDA margins at 11.2% and change in depreciation policy resulting in lower depreciation charge. The execution in the monolithic construction business was Rs1.3bn during Q4FY09, the highest reported since inception. Further, new order booking of Rs2bn during the quarter has instilled fresh lease of life in the Monolithic Construction Vertical. For FY09, Sintex has reported earnings of Rs23.5/share – in line with estimates. We maintain our earnings estimate of Rs24.8 and Rs29.6 for FY10E and FY11E respectively. At CMP of Rs155, the stock is trading at 6.3x FY10E earnings and 1x FY10E book value. We continue to maintain positive bias on Sintex amidst - (1) strong balance sheet with cash in hand of Rs15bn, (2) ROE of 18%, (3) strong and multiple growth drivers and (4) attractive valuations. We maintain our 'BUY' rating with a revised price target of Rs197 (earlier target of Rs112) based on 1.2x 1-year rolling book value.    


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