Thursday, February 4, 2010

Tamilnadu Newsprint: CMP: Rs. 84 Target Price: Rs. 84

Tamilnadu Newsprint

Reco: HOLD

CMP: Rs. 84

Target Price: Rs. 84

Results below estimates, maintain earnings

Tamilnadu Newsprint and Papers (TNPL) Q3FY10 results were marginally below estimates due to lower than expected sale volumes. Net revenues increased marginally by 4% YoY to Rs 2.6 bn (below est). Volume growth remained muted due to the oversupply situation prevailing in the market. With EBITDA margins expansion of 170 bps, APAT increased marginally by 1% to Rs 274 mn (before EO loss of Rs 36 mn) with AEPS of Rs 4.

Company continues to hold inventory of ~30,000 mt at the end of the quarter and realizations too declined marginally by 2% YoY to Rs 42,145 / mt. Though domestic paper prices may continue to hold at current levels, we believe that increasing cost pressure (mainly coal) may have adverse impact on company's margins in near term. However management believes demand supply scenario will improve and expects inventory level to go down to 12-15 thousand mt by the end of FY10. Pulp sale has also started picking up with increase in global pulp prices and should positively impact company's bottomline in near future. We maintain our FY10 and FY11 estimates at Rs 12.3 and Rs 16.3 respectively. We re-iterate our HOLD rating on the stock trading at 26% discount to book value and 5x FY11 EPS.

 

Tulip Telecom Ltd

Reco: BUY

CMP: Rs. 985

Target Price: Rs. 1,240

Results in-line, Retain BUY with TP Rs,1,240

Tulip Telecom's Q3FY10 results were in line with estimates. While net sales at Rs5bn were lower than our estimate of Rs5.3bn, due to lower revenues from the barely profitable network integration (NI) business, EBIDTA at Rs1.35bn was in line with estimates, led by increased contribution and profitability from data business. The data connectivity revenues grew by 32% YoY v/s overall revenue growth of 15% YoY. Increased annuity revenues and revenue contribution from data connectivity business helped increase EBIDTA margins by 600bps to 27%. Reported PAT at Rs688mn was ahead of our estimate of Rs617mn due to forex gains, adjusting to which profits are in-line with estimates.

Tulip's revenue contribution from data connectivity business continues to rise with annuity revenues rising (the key reason we like Tulip) to 68% v/s 55% a year ago. Post the fiber deployment in top 10 CBD's, Tulip has begun deploying fiber in additional 20 cities. We believe that the revenues from fiber deployment remains key growth catalyst as also validated by the management that "revenues from fiber would contribute ~50% of revenues over the next few years."

Post Q3FY10 results we are reducing our revenue estimates by 3.4%, 1.8% and 1.3% but increasing EBIDTA estimates by 1%, 2.1% and 7.1% for FY10E, FY11E and FY12E respectively. Our revised EPS estimates are at Rs95.5, Rs104.6 and Rs127.7 for FY10E, FY11E and FY12E respectively. We maintain our BUY rating on the stock with reduced DCF based price target of Rs1240 (v/s Rs1275 earlier). At CMP of Rs985, stock trades at 9.4x PE and 5.5x EV/EBIDTA for FY11E.

 

Pharmaceutical Q3FY10 Review

·         Our Pharma universe reported a growth of 9% YoY in revenue (in-line with our est.) driven by 31%/ 31%, 29.7% & 26% growth in companies like Cadila, Lupin, Panacea and Ipca. Revenue growth was driven by strong traction in domestic formulation market coupled with increased traction in international generic business.

·         The CRAMS universe remained flat where as the ex-CRAMS universe reported a growth of 13% YoY. In the CRAMS space, 3 companies (Dishman, Divis & Piramal) were below our as well as street expectations. We expect earnings traction to improve from FY11E onwards for CRAMS companies because of recovery in demand and low base effect.

·         EBIDTA margin of our universe remained flat at 22% (in-line). Torrent Pharma (23% vs. est. of 22%) & Jubilant (23.4% vs. est. of 22.8%) surprised positively while Panacea (16.3% vs. est. of 22.6%) & Dishman (23% vs. est. of 27%) surprised negatively.

·         Lower interest cost (down by 37%) coupled with in-line operating performance has resulted in 20% APAT growth vis-à-vis our expectation of 15% growth.

·         Dishman, Divis, Piramal and Panacea surprised negatively.

·         Lupin, Cadila, Torrent Pharma and Ipca are our top picks in the generic space.

·         In the CRAMS space, we prefer Jubilant Organosys because of valuations comfort.

 

Madras Cement

Reco: HOLD

CMP: Rs. 113

Target Price: Rs. 112

Price pains - downgrading earnings & rating

MCL's net profit at Rs160 mn is significantly below our expectation on account of lower realization and higher than expected P&F & staff cost. Revenues at Rs6.07 bn were down 0.3% yoy and 28.4% qoq. Cement volumes (1.809 mt) grew by 20% yoy where as realisation (Rs3250/tonne) plunged 18.6% yoy and 12.7% qoq as cement prices in MCL's key markets of Andhra Pradesh and Tamilnadu fell sharply.  Following the declining trend in realisation, EBITDA at Rs1.07bn (our est Rs1.96 bn) declined 32% yoy and 68% qoq. P&F cost at Rs740/tonne though down 34.8% yoy was higher than our estimates of Rs708. Similarly employee cost at Rs389 mn (+30% yoy) was higher than our estimates. Consequently EBIDTA margins at just 17.7% declined sharply registering 820 bps yoy and 2190 bps qoq.    In order to factor in the higher than expected decline in cement prices in the southern region and to factor in the higher than expected costs we are downgrading our FY2010 earnings estimates by 16.6% (EPS of Rs16.1) and FY2011 estimates by 28.3% (EPS Rs13.8).  

Though the adverse demand supply situation in Southern region has severely impacted MCL's quarterly performance, the recent upturn in Southern cement prices led by demand uptick in Andhra Pradesh & Karnataka signal that the worst seems to be over for MCL. We also believe that MCL is rightly adopting strategy of improving its efficiency further, in order to protect its profitability against the adverse pricing behaviour in the fragmented Southern region. The upgradation and expansion of its RR nagar facility and setting up 80 MWCPP capacities are prime examples of this strategy. However to factor in the earnings downgrade we lower our price target to Rs112 (earlier Rs129) and downgrade our rating to HOLD.

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