Analysts' corner

ONGC, GNFC, Lupin, Emami

ONGC
Reco Price: Rs1,133, Target Price: Rs1,260

ONGC’s Q3-FY11 net profit of Rs7,080-crore was significantly ahead of estimates on account of 44 per cent q-o-q decline in dry-well write-offs and Rs1,900 crore of gas pool reimbursement from GAIL. Domestic crude and gas production grew 3 per cent and 2 per cent, respectively, and OVL production for Q3-FY11 came in at 2.63 mmtoe( million tonnes oil equivalent). ONGC benefited from higher crude prices with net realisation up 3 per cent to $64.8 a barrel. Recouped costs declined 17 per cent, driven by 44 per cent decline in dry-well write-offs. Analysts expect the cap of one-third of total under-recovery burden on upstream companies to provide some certainty to FY12ii EPS, while increase in production from marginal fields will aid EPS growth. Maintain buy.

—IIFL

GNFC
Reco Price: Rs112, Target Price: Rs157

GNFC’s Q3FY11 results were ahead of estimates mainly due to strong performance of the fertiliser segment. However, fertiliser segment also accounted for some subsidy amount (amount not disclosed) related to previous year. Fertiliser segment revenues increased 14 per cent y-o-y to Rs490 crore. Though high Ebit of current quarter may not be sustainable (since it includes subsidy related to previous year), analysts estimate fertiliser business' profitability has improved under the NBS regime and contribution is likely to improve. Chemical segment revenues increased 3 per cent to Rs336 crore, while this segment witnessed Ebit margin expansion of 170 bps to 27.6 per cent on account of increasing chemical prices. Emkay has upgraded 2010-11 EPS estimates by 7 per cent to Rs12.4 (previous Rs11.6) and maintained 2011-12 EPS estimates at Rs22.4. Maintain buy.

—Emkay Global Financial Services

LUPIN
Reco Price: Rs422, Target Price: Rs525

Lupin reported 49 per cent growth in the adjust net profit to Rs240 crore during Q3- FY11, which is the highest ever quarterly adjusted profit. Robust growth was despite various problems in the form of rebates and lower branded business in the US, price erosion in major generic products in the US, inventory correction in India and higher expenses on Indore facility completed but not yet contributing to sales. Bottomline growth was also aided by a lower tax rate of 9 per cent. Management has guided for a 11-12 per cent tax rate for 2010-11. Ebitda margin expanded 45 bps at 20.8 per cent, aided by higher operating income of Rs43 crore given higher dossier sales. Net sales increased 17 per cent at Rs1470 crore. Growth was led by strong growth across all business segments. Maintain buy.

—Reliance Securities

EMAMI
Reco Price: Rs410, Target Price: NA

Emami’s Q3FY11 revenue increased 15 per cent to Rs406 crore and net profit rose 9 per cent to Rs86 crore. Muted sales growth was because of slow sales of Boroplus and Fair & Handsome (lower SKU is not doing well). The company initiated Project Swadesh with an intention to increase rural coverage; consequently, rural area sales catapulted 40-50 per cent. Ebitda margin declined 464 bps. COGS inflation (up 553 bps) was partially offset by lower other expenses (down 10 bps), lower advertising and sales promotion (A&P) costs (down 66 bps), and lower staff expenses (down 13 bps). Menthol, light liquid paraffin (LLP), and HDPE prices increased sharply in Q3FY11, leading to gross margin decline. Emami has hiked prices 3 per cent till nine months 2010-11 and increased prices further 3 per cent in Q4FY11, which should offset commodity inflation. The company anticipates little risk to volumes on back of these price increases. Its Egypt expansion plans are on track. Maintain buy.

—Edelweiss Securities Limited