Result Flash - Wipro - 4QFY2011

Result Flash on Wipro for 4QFY2011.

 

Wipro reported its 4QFY2011 numbers which were slightly better than our expectations on revenue front but stood muted on operational front. The company reported IT services revenues at US $1,400mn (vs. our expectation of US $1,394mn), up 4.2% qoq. The volume growth for IT services was muted at 1.9% as onsite volume declined by 0.4% qoq while offshore volumes increased by 2.8% qoq. The company managed to garner better price points onsite and offshore with 1.8% and 1.2% qoq growth, respectively. In constant currency terms, revenues came in at US$1,391mn. In rupee terms the IT services revenue came in at `6,289cr (vs. our expectation of 6,258cr), a growth of 5.7% qoq. The overall consolidated revenues grew modestly by 6.0% qoq at `8,302cr (vs. our expectation of `8,190cr). The overall revenues were aided by 19.1% yoy growth in revenues of consumer care and lightening segment along with growth in IT services segment.

 

The overall EBIT margins declined by 52bp qoq to 17.8% (vs. our expectation of 19.3%) on the back of decline in EBIT margin in all the three business segments. The EBIT margin of IT services, IT products and Consumer care and lightening segment declined by  14bp, 100bp and 30bp qoq to 22.1%, 3.6% and 12.0%, respectively. In addition to this the company booked additional cost of `44.7cr in reconciling items as against `7.5cr in 3QFY2011. PAT came in at `1,375cr qoq, up 4.3% qoq.

 

4QFY2011: Result highlights (IFRS, consolidated):

 

 

(Rs cr)	4QFY11	4QFY11E	% Var	3QFY11	% chg (qoq)	4QFY10	% chg (yoy)
Net revenue	8,302	8,190	1.4	7,829	6.0	6,983	18.9
EBIT	1,479	1,583	(6.6)	1,435	3.0	1,336	10.6
EBIT margin (%)	17.8	19.3	(152)bp	18.3	(52)bp	19.1	(133)bp
PAT	1,375	1,433	(4.0)	1,319	4.3	1,209	13.8

 

Key highlights:

 

·         The net additions were decent at 2,894 employees taking the total employee base to 1,22,385.

 

·         The utilizations for Global IT inched up by 30bp qoq to 68.9%

 

·         Voluntary attritions (annualised) declined to 20.9% from 21.7% in 3QFY2011.

 

·         In constant currency terms, verticals like energy & utilities, retail & transportation, manufacturing, healthcare & services, technology and financial services grew by 7.4%, 4.9%, 3.9%, 2.7%, 1.9% and 1.4% qoq, respectively. The positive surprise came in from telecom vertical, which stood sluggish for all the tier-I IT companies, grew by whopping 9.0% qoq in constant currency terms for Wipro.

 

·         The IT products segment posted 2.3% yoy growth in revenues to `910.5cr, with EBIT margin at 3.6%, down 100bp qoq. 

 

·         Consumer care and lightening segment registered a strong growth of 19.1% yoy with revenues at `724.4crcr. EBIT margin of this segment stood at 12.0%, down 30bp qoq.

 

·         Client addition stood at robust at 68 (vs. 36 in 3QFY2011). Active client base of the company stood at 904 as against 880 in 3QFY2011.

 

·         The guidance for IT services for 1QFY2012 stands highly muted at US$1.394-1.422bn with merely 0.4-1.6% qoq growth.

 

The results were mixed bag and the guidance also looks muted considering the upbeat environment for IT spending. We wait for management's commentary on the outlook relating to client budgets and the internal restructuring going on. The stock is currently under review and we will be releasing a detailed result update shortly.

Reliance Industries - RU4QFY2011 - Buy

Result Update on Reliance Industries for 4QFY2011 with a Buy recommendation and a Target Price of `1189 (12 months).

 

For 4QFY2011, RIL reported 14.1% yoy growth in its bottom line due to higher refining and petrochemical margins. On a qoq basis, PAT growth was restricted to 4.7% because of the dip in production from KG-D6 field. Overall, numbers were below our expectations on the top-line and bottom-line fronts on account of lower-than-expected refining margins (due to the impact of FCCU shutdown) and output from KG-D6 field. We maintain Buy on the stock.

 

Earnings post sequential as well as yoy growth: RIL's top line increased by 26.2% yoy to `72,674cr (`57,570cr), primarily on the back of 22.3% yoy growth in refining revenue to `62,704cr (`51,250cr) and a 17.8% yoy increase in petrochemical revenue to `18,194cr (`15,448cr). Growth in the refining and petrochemical segments was due to higher product prices. Crude oil processed during the quarter was flat at 16.7mn tonnes. KG-D6 gas production declined sequentially, with average production at 51mmscmd (54.5mmscmd). Operating profit grew by 7.7% yoy to `9,843cr (`9,136cr), which was below our estimate due to lower-than-expected refining margins.

 

Outlook and valuation: RIL's extant businesses (refining and petrochemical) have been doing quite well and we expect the company to report higher refining margins in the coming quarters as FCCU of DTA Refinery has started. On the petrochemical side, we do not expect margins to fall below the current level. However, there are some concerns on the KG basin gas output. Nevertheless, we believe RIL's deal with BP deal is a positive one, as the combined expertise of both the parties will result in optimisation of producing blocks and enhancement of resources in exploratory blocks. Thus, timely ramp-up in producing fields would improve investor confidence and lead to factor other prospective basins as well. We maintain our Buy rating on RIL with an SOTP-based target price of `1,189.

Sadbhav Engineering - RU4QFY2011 - Accumulate

Result Update on Sadbhav Engineering for 4QFY2011 with an Accumulate recommendation and a Target Price of `161

 

 

For 4QFY2011, Sadbhav Engineering (SEL) posted numbers much higher than our and street expectations both on the top-line and bottom-line fronts. We are revising our estimates for FY2012 and FY2013, given the higher-than-expected top-line performance and pressure on EBITDA margins. We believe SEL has posted consistent growth over the last few quarters and is appropriately rewarded on the bourses with great outperformance over its peers. Hence, we are recommending an Accumulate view on the stock, given the recent sharp run up in the stock price and lower growth expected going ahead.

Outstanding quarterly performance: For 4QFY2011, SEL reported staggering 128.9% yoy top-line growth to `1,047cr (`457.2cr) vs. our estimate of `603.6cr. Ramp-up in execution of captive road BOT projects led to this stupendous growth in revenue. On the EBITDA margin front, SEL posted a decline of 320bp to 8.7% (11.9%) below our estimates of 11.5%, owing to high subcontracting, increased contribution from the low-margin irrigation segment and change in cost escalation policy. Interest and depreciation cost came in line with our estimates. On the earnings front, SEL reported stunning 199.3% yoy growth to `53.9cr (`18.0cr), substantially higher than our expectations of `36.4cr, mainly due to higher revenue.

Outlook and valuation: With the pick-up in award activity from NHAI, we are optimistic on the road segment, given the quantum of opportunities lined up in the sector. We expect the company to log a CAGR of 13.9% and 10.3% in its top line and bottom line, respectively, over FY2011–13 on the back of high base created in FY2011. We believe SEL will take a breather to consolidate before the next leap. At current levels, the stock is trading at valuations of 7.1x FY2013E EPS (adjusted for BOT investments). Owing to the sharp run up in the stock price,
we recommend Accumulate on the stock with a revised SOTP-based target price of `161(`171) to factor in EBITDA margin pressures.

Result Flash - Indian Bank - 4QFY2011 - Buy

Result Flash on Indian Bank for 4QFY2011 with a Buy recommendation and a Target Price of Rs269 (12 months).

Indian Bank announced its 4QFY2011 results today, registering a net profit growth of 7% yoy to Rs439cr, however on a sequential basis the net profit declined by 10.7%.The result was below our estimates of Rs486cr mainly on account of higher tax provisioning (43.5% effective tax rate for 4QFY2011) than factored in by us. Net Interest Income (NII) grew by 18.9% yoy which was slightly above our estimates The net advances for the bank grew by a marginal 1.8% qoq and 21.1% yoy to Rs 75,250cr, while the deposits grew by 4.7% qoq and 19.9% yoy to Rs1,05,804cr. Non-interest income grew by 9.2% qoq but came in lower by 7.3% on a yoy basis to Rs272cr. Operating expenses remained muted sequentially but increased by 35.2% on a yoy basis to Rs480cr. Cost to income ratio further improved to 34.7% from 36.9% in 3QFY2011. The bank's asset quality also showed improvement with Gross and Net NPAs in absolute terms declining by 1.6% qoq and 4.8% qoq, respectively. The Gross and Net NPA ratios of the bank both improved marginally by 4 bps each to 0.98% and 0.53%, respectively, with a provision coverage ratio of 84.3% including write-offs (83% in 3QFY2011).

At the CMP, the stock is trading at 0.9x FY2013E ABV. We maintain a Buy recommendation on the stock with the Target Price of Rs269. We may revise our estimates post interaction with the management.

 

 

Exhibit 1: 4QFY2011 Actual vs. Estimates
(Rs cr)	Actual	Estimates	Var (%)
Net interest income	1,111	1,045	6.3
Non-interest income	272	270	0.4
Operating income	1,383	1,316	5.1
Operating expenses	480	522	(8.1)
Pre-prov. profit	903	794	13.7
Provisions & contingencies	127	100	26.6
PBT	776	694	11.9
Prov. for taxes	337	208	62.1
PAT	439	486	(9.6)

  Source: Company, Angel Research

 

 

Exhibit 2: 4QFY2011 Performance summary

 

(Rs cr)	4QFY2011	3QFY2011	% chg (qoq)	4QFY2010	% chg  (yoy)
Interest earned	2,594	2,392	8.5	2,025	28.1
Interest expenses	1,483	1,354	9.5	1,091	36.0
Net interest income	1,111	1,038	7.1	934	18.9
Non-interest income	272	249	9.2	293	(7.3)
Operating income	1,383	1,286	7.5	1,227	12.7
Operating expenses	480	474	1.1	355	35.2
Pre-prov. profit	903	812	11.2	872	3.5
Provisions & contingencies	127	54	136.8	214	(40.6)
PBT	776	758	2.4	659	17.8
Prov. for taxes	337	267	26.3	249	35.6
PAT	439	491	(10.7)

Nestle - RU1QCY2011 - Reduce

Result Update on Nestle for 1QCY2011 with a Reduce recommendation and a Target Price of `3483.

 

Nestle reported strong set of numbers for 1QCY2011, beating our expectations by ~2% both on the top-line and earnings fronts. The company's top line grew by 22.3% yoy (largely driven by domestic volumes), while earnings grew by ~26.7% yoy (against our expectation of 24.8% yoy growth). During the quarter, Nestle's margin expanded on the back of cost rationalisation and robust top-line growth. Post 1QCY2011 results, we have tweaked our estimates. We maintain our Reduce view on the stock with a target price of `3,483.

 

Strong top line boosts results, gross margin recovers, though still under pressure: Nestle registered robust top-line growth of 22.3% yoy to `1,810cr, driven by steady growth in its net domestic sales (up 23.1% yoy to `1,712cr, supported by steady volume growth and higher realisations across categories). Earnings (on a reported basis) registered 26.7% yoy growth to `255.7cr, aided by margin expansion. Gross margin expanded by 100bp yoy due to improved product/channel mix and discontinuing of free goods promotion by the company, despite higher cost inflation in milk and sugar prices.

 

Outlook and valuation: At the CMP, Nestle is trading at ~139% premium to the Sensex, significantly ahead of its five-year average historical premium of ~78%. We render caution on Nestle's high premium to the Sensex on account of 1) gross margin pressures due to rising input costs and 2) competition in the high-growth noodles category from HUL (Knorr Soupy Noodles), GSKCHL (Horlicks Foodles) and ITC (Sunfeast Yipee). Hence, we maintain our Reduce view on the stock with a revised target price of `3,483 (`3,503).