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| Analysts' corner |
| S I Team / New Delhi Nov 09, 2009, 00:12 IST |
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IVRCL INFRASTRUCTURE
Reco price: Rs 347.55
Current market price: Rs 367.4
Target price: Rs 446
Upside: 21.4%
Brokerage: Macquarie Research
IVRCL's second quarter numbers were in line with expectations. IVRCL revenues grew by 11 per cent in H1 FY10, much lower than the full-year guidance of 30–35 per cent. However, the management stands by its guidance, given that H1's revenue booking was hampered by slow execution of its projects in Andhra Pradesh due to elections.
Some of these projects will start contributing to revenues from Q3 onwards. IVRCL was L1 on few large projects in Maharashtra this quarter, which should contribute to revenues in H2 FY10. The company expects to grow its 2009-10 revenue by 30 per cent. The management had guided for 9.5–10.0 per cent margins for full year (2009-10), whereas the in-house estimates margins to be 9.7 per cent.
IVRCL's order book stands at Rs 15,000 crore and it is looking to participate aggressively in the road sector. Moreover, the irrigation sector orders inflow is likely to pick up from provincial governments. IVRCL's net debt/equity ratio at 0.7x, allows room to add leverage and as there are no investment requirements toward the current BOT/real estate projects, funding availability is not a concern for new projects. IVRCL is trading at 13.7x FY10E and 11.1x FY11E earnings adjusted for subsidiary valuations. Maintain outperform.
PUNJAB NATIONAL BANK
Reco price: Rs 864
Current market price: Rs 885.95
Target price: Rs 830
Downside: 6.3%
Brokerage: Citi Investment Research
PNB's strong deposit franchise and good September quarter results are outweighed by historically peak valuations (1.6x 1-year forward price to book); aggressive loan growth, especially mid-market segment and its relatively higher sensitivity to rising rates.
PNB has delivered robust September quarter earnings which were over 31 per cent y-o-y. Also 26 bps q-o-q NIMs improvement to 3.64 per cent also helped maintain profitability. PNB's management remains confident of maintaining the above industry growth (25 per cent now). A decline of 8 per cent q-o-q in NPL's and higher coverage of 91 per cent, ensures no meaningful pressure on asset quality. PNB's deposit franchise remained strong with 39 per cent CASA mix.
However, PNB's NIMs are likely close to peaks, reflect higher risk appetite (21 per cent wholesale funding, aggressive 64 per cent y-o-y growth in SME) and are vulnerable to rising rates. Bad loans and restructured loans at 6.1 per cent remained above peers and could be a source of risks. The stock has outperformed the Sensex over the last three months, and is trading at 20-30 per cent premium to peers. The stock is trading at 1.5x 1-year forward price-to-book. The brokerage downgraded the stock to sell from buy.
THERMAX
Reco price: Rs 538
Current market price: Rs 546.85
Target price: Rs 550
Upside: 1%
Brokerage: Ambit Capital
Thermax's order book at the end of September quarter stood at Rs 5,058 crore, up 19 per cent y-o-y buoyed by a few large orders in the power sector that were bagged in H1 FY10. Some of the new orders awarded to Thermax are of 18 to 30 months execution duration vis-a-vis the average execution period of 6 to 8 months at present. Thus, new orders will increase the average execution cycle, leading to higher revenue visibility.
Standalone revenues dropped by 15 per cent y-o-y to Rs 680.4 crore versus a 25 per cent decline in Q1 FY10, thus indicating improving execution. The environment segment, which reported a 33 per cent y-o-y drop in revenues, continues to pull down the growth rate. The brokerage expects a pick-up of y-o-y growth in revenues from Q3 FY10 onwards.
EBITDA margins continue to be flat at 11.6 per cent now and were the same, a year ago due to efficient cost rationalisation measures undertaken from beginning of 2008-09. Expect the company to maintain margins for 2009-10 at 12.7 per cent. At Rs 538, Thermax is trading at 24.2x FY10E and 18.6x FY11E earnings. Maintain hold.
MAX INDIA
Reco price: Rs 181
Current market price: Rs 179.95
Target price: Rs 270
Upside: 50%
Brokerage: IDFC SSKI
Max India reported a consolidated loss of Rs 10 crore for September quarter 2009-10 as against a loss of Rs 225 crore in Q2 FY09. Bulk of the recent quarter's total losses pertains to the life insurance business.
Max New York Life (MNYL), its insurance business, has reported gross premium of Rs 1,080 crore for September quarter, up 26 per cent y-o-y. Improving productivity of distribution network, business from ULIP products and metro cities continue to drive growth.
MNYL's conservation ratio continues to be well above its average over the last few years. Over the next 6 months, MNYL intends to focus on better utilisation of the existing branch network.
In 2009-10, the company expects that it will require Rs 200-250 crore of incremental capital. In line with MNYL's growth trajectory, the peak equity commitment is likely to get revised downwards from the current Rs 3,600 crore.
The long-term growth prospects of the life insurance industry are positive, and expect a change in the FDI/FII regulation as and when it happens to act as a trigger. Also the recovering capital markets would bolster premium growth and could thereby boost earnings. On the back of an improving growth prospects and high conservation ratio relative to peers, the brokerage assigned a 15 times NBAP multiple to MNYL. Maintain outperformer.
HINDUSTAN UNILEVER
Reco price: Rs 283
Current market price: Rs 273
Target price: Rs 290
Upside: 6.2%
Brokerage: Enam Securities
Hindustan Unilever (HUL) reported net revenue of Rs 4,200 crore (up 5 per cent y-o-y), EBITDA of Rs 650 crore (up 17 per cent y-o-y) and adjusted PAT of Rs 560 crore (up 29 per cent y-o-y) in the September quarter of FY10. HUL's revenue performance was below expectations while PAT growth was higher due to tax write backs.
Growth of personal products remains strong (13.4 per cent y-o-y, largely volume-led) with PBIT margins improving 200 bps. Though HUL's hiked its promotional spends, lower overheads aided EBITDA margin expansion by 166 bps to 15.3 per cent.
HUL's overall volume growth fell to 1 per cent (2 per cent in Q1) largely due to slowing growth in soaps and detergents despite the initiatives taken by the management.
HUL has managed to improve margins driven by improved sales mix and stringent cost control. This will drive a 165 bps EBITDA margin expansion to 16.5 per cent in FY10E. However, a slowdown in volume growth coupled with a higher tax rate will dampen earnings growth to around 10 per cent y-o-y in FY10E. Given the volume underperformance vis-a-vis peers coupled with market share losses, current valuations seem to be in a fair range. At Rs 290, the stock is trading at 24x FY11E EPS of Rs 12.
Current prices as on November 06, 2009
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