26 January 2012

RIL - Buy - Q3FY12 Result Update/Estimate Change - Legacy businesses under pressure; share buyback - a positive ::Centrum

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Q3FY12 Result Update/Estimate Change
RIL

Buy
Target Price: Rs913
CMP: Rs772
Upside: 18.4%
Legacy businesses under pressure; share buyback - a positive
Although RIL reported weak Q3FY12 numbers, it complemented it with a positive move of share buyback to the extent of over Rs104bn (maximum of 120mn shares). GRMs remained weak at US$6.8/bbl lower than benchmark Reuters Singapore complex GRMs of US$7.9/bbl, petrochemical demand in the domestic market remained under pressure and KG D6 gas production declined further to average 41mmscmd. Effectively, PAT declined to Rs44.4bn against Rs51.4bn in Q3FY11 and Rs57.1bn in Q2FY12.
m  GRMs at a discount to benchmark: RIL’s GRMs declined sequentially to US$6.8/bbl from US$10.1/bbl due to a spate of factors like weak gasoline cracks, naphtha cracks remaining under pressure due to weak petchem demand, narrowing Arab light-heavy differentials, weak solids prices of sulphur and petcoke among others. With revival in gasoline cracks, Q4 is likely to be better than Q3. However, major improvement is expected only in Q1FY13 with the start of the US driving season which will boost gasoline demand and cracks.
m  Domestic petchem demand under pressure: Although, petchem volumes remained buoyant, the domestic petchem demand remained under pressure with flattish QoQ polymer demand due to higher interest rates and lower consumption and decline in polyester demand due to volatility in cotton prices. Petchem demand is likely to remain under pressure for the time being.

Thanks & Regards, 


Earnings Update - TCSQ3FY12 :: CSEC Research

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Earnings Update - TCSQ3FY12

 
 Dear All,

Exchange tailwind pushed the revenue growth higher…
Revenues during the quarter was tad above our expectation, reported at Rs. 132,040mn (CSEC est. of Rs. 131,110mn) a sequential growth of 13.5%. Volume grew 3.2% sequentially, coupled with exchange and realization aiding 8.95% and 2% respectively, which pushed the rupee revenue run rate. However the effort mix dragged to the tune of 64bps.

TCS posted an EBIT of Rs. 38,618mn a sequential growth of 22.4% and the margins expanded by 213 bps on a sequential basis to 29.24% v/s 27.11% in the previous quarter.

Outlook:
In a survey conducted by management with its top 120 clients, 96 clients have finalized their budget, of which 2/3rd of its client’s budget will be flat or marginally up. Though we believe the IT budget gives an indication of the demand outlook; in this current uncertain environment, budget makes little or no sense, as clients may or may not spend their entire budget, as evidence from the delay in decision making and higher scrutiny in discretionary project.

Though the macro economic condition remains challenging, we continue to remain cautiously optimistic on the growth outlook of the sector. We continue to overweight on TCS as it is positioned well to grab market share from vendor consolidation activity and new deal wins from first time outsourcers in continental Europe (revenue share from continental Europe has gone up by 160 bps from 8.9% in Q1FY11 to 10.5% in Q3FY12). Moreover it has already given 44,000 campus offers for next year to aid volume growth.

At current market price the stock is trading at a multiple of 19.9X and 16.9X of FY12E (Rs.54.3) and FY13E (Rs.63.5) earnings. We rate TCS as an “Outperformer” with a price target of Rs. 1,270 based on 20XFY13E earnings.

Regards,
CSEC Research

Hindustan Zinc: Q3FY12 – Net sales growth driven by strong volume from refined lead and silver • GEPL

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Q3FY12 – Net sales growth driven by  strong volume from refined lead and
silver
• Net sales for the Q3FY12 stood at `27,868 mn, showing a moderate growth of 6.0% on Y-o-Y
and 5.7% sequentially. This was mainly on account of increase in production of refined lead,
silver and refined zinc, which grew by 102%, 38% and 6% respectively on Y-o-Y basis. The same
was offset fall in LME Zinc prices.
• EBITDA margin stood at 50.3% in Q3FY12, showing a decline of 699 bps on Y-o-Y and 432 bps on
Q-o-Q basis. This was mainly on account of higher lead concentrate  consumption at Dariba.
The manufacturing expenses which constituted 37.4% of total cost of production rose by 18.6%
on Y-o-Y and the other expenses which accounts for 43.6% of the total cost, rose by 12% on
Y-o-Y basis.
• PAT for the Q3FY12 stood at `12,733 mn, showing a de- growth of 1.3% and 5.3% on Y-o-Y &
Q-o-Q basis.
Result Highlights
Strong volume growth on all segments of steel help steel unit exhibit a strong growth
Revenue for the zinc, Lead and Silver rose by 5.3% on Y-o-Y and 6.5% on Q-o-Q, fall in realisation
and increase in cost of production has resulted in EBIT de-growth of 10.5% & 4.3% on Y-o-Y and
Q-o-Q basis respectively. For the other division, which includes revenue from power was lower by
39.9% on Q-o-Q, however the same increased by 68.3% on Y-o-Y.
Valuation & Viewpoint
At current market price the stock is trading at 6.65x FY13E and 5.93x FY14E EV/EBIDTA of its
consensus estimates respectively. Given the low per capita consumption of  zinc domestically at
0.41 kg vs the global average of 1.7 kg, along with expansion of its silver capacity coupled with
stabilization of its Lead unit commissioned during Q2FY12 to fuel  growth  in  coming  quarters.  Also
with commodity prices (LME - zinc) showing signs of recovery, we expect HZL to benefit.

Sector Update Engineering & Capital Goods Margins @ Risk ·:: Emkay

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Sector Update

Engineering & Capital Goods
Margins @ Risk
·      Concerns on operating  performance persist for the ECG sector given a deteriorating order book, rising competitive intensity and high input costs
·      Believe FY13E EMKAY and consensus operating margin estimates inadequately factor above concerns. Downsides to EMKAY and consensus margins forecasts not ruled out
·      Softening of input prices could act as near term upside catalysts – but restricted to companies with higher exposure to equipments or shorter duration projects
·      Refraining from forecasting trend in input prices – Retain our top picks – L&T, Thermax, Greaves Cotton and Voltas considering top quartile of earnings performance and de-rated valuation

Company
Operating Margins (%)
Earnings / Share (Rs)
PER (X times)
CMP
Rating
Target
FY11
FY12E
FY13E
FY12E
FY13E
FY12E
FY13E
BHEL
20.6
19.8
18.8
26.4
27.9
10.4
9.8
274
Hold
376
L&T (*)
13.1
12.1
11.7
75.9
89.3
16.8
14.3
1,274
Accumulate
1,603
Cummins India
16.9
14.6
14.9
19.6
22.4
20.9
18.3
409
Hold
388
Thermax
11.0
11.3
10.4
36.3
36.1
13.5
13.6
491
Accumulate
495
Voltas
9.0
5.6
7.6
6.0
8.8
15.3
10.4
92
Accumulate
121
Blue Star
9.2
6.6
8.2
0.6
15.0
274.5
11.3
170
Hold
185
Punj Lloyd
5.1
7.4
7.5
1.4
2.5
34.0
19.2
49
Hold
63
Greaves Cotton
15.6
15.3
15.4
6.9
8.0
12.9
11.2
89
Buy
103
TRF
5.7
7.1
5.7
32.3
27.6
8.1
9.4
260
Hold
282
McNally Bharat
7.4
7.2
7.1
16.5
16.9
6.3
6.2
104
Accumulate
147
Elecon
16.0
14.7
15.3
8.2
8.3
6.8
6.6
55
Hold
61
(*) Note: L&T operating margins above are standalone while its earnings estimates are consolidated