Bajaj Auto - "Results slightly below expectations, Downgrade on valuations":: LKP

Results slightly below expectations

Bajaj Auto's Q3 FY13 numbers came in slightly below our expectations at the PAT levels. Net sales including other operating income came in at Rs54.1 bn, which was 8.9% up qoq and 8.6% up yoy. Realizations were up 5.5% yoy and 2.6% qoq to Rs 49,863 which along with a 5% yoy and 7% qoq growth in volumes resulted in inline revenues. Domestic volumes grew by 8% yoy and 14% qoq on the back of a  seasonally good quarter associated with the festive season, while exports declined by 1% yoy and 4% qoq mainly on weak market conditions in Sri Lanka, while markets like Egypt, Iran and Argentina have shown some signs of recovery. At the EBITDA levels, RM costs to net sales dipped to 73.9% from 74.1% qoq, while staff costs declined sequentially as a % of sales from 3.2% to 3%. EBITDA margins were up to 19.1% from 19% qoq , but was lower on a yoy basis from 20.3%, which was again in line with our expectations. Other expenses came in at 6.3% v/s 7.2% of sales in Q2 and 6.6% yoy. However, more than expected tax rates at 30.2% v/s 28.8% qoq and 25.2% yoy due to expiry of tax benefits from Pantnagar from Q1 FY 13 onwards and lower other income pulled the adjusted profits down by 4% yoy, while on qoq basis, the profits were up by 11% to Rs8.18bn as compared to weak preceding quarter and 3% below our expectations.

Outlook and valuation

Bajaj Auto is facing issues in the domestic as well as export markets linked with the weak business environment across the globe. Market trends are signaling for a poor FY 13 and some recovery in FY 14. In India, competition may get arrested somewhat with new launches, however, the broad market remains lackluster. Muted volume growth with uncertainty surrounding excise duty hikes will keep the markets for 2W muted in the ensuing quarters. In exports, SL is dragging the business, while Africa remains taut. Latin America is also witnessing softness as the entire market is growing at a slow pace. Margins may improve of softening of input costs. However, the company looks overvalued at current levels at 16x times FY14E earnings, which we believe is not reasonable. In line with the muted outlook on the sector and considering the recent rally in the stock, we downgrade Bajaj Auto to Underperformer from Neutral, while we maintain our estimates and target price at Rs1,846.

ITC Q3 FY13 results :: Microsec Research

ITC announced its Q3 FY13 results on 18Jan 2013.

Q3 FY13 Result Analysis

The company’s Total Income increased by 23% YOY to INR7712 crore YOY and its EBITDA increased by 20% YOY to INR2858 crore. EBITDA Margin of the company decreased from 37.9% to 37.1% YOY. Adjusted PAT increased by 21% YOY to INR2052crore. Result was above Estimates. Cigarettes business contributed 83.7% vs 81.4% yoy in the profit. Performance of hotel business was again disappointing as profit dipped 45% yoy. At the CMP of INR288, the stock is trading at a P/E of 30.3x its FY13E EPS of INR9.5

DESCRIPTION	Dec-12	Sep-12	Dec-11	QOQ	YOY
Net Sales	7627	7146	6195
OPI	85	81	83
Total Income	7712	7227	6279	7%	23%
Total Expenditure	4854	4538	3867
PBIDT (Excl OI)	2858	2688	2382	6%	20%
EBITDA (%)	37.1%	37.2%	37.9%
Other Income	330	185	291
Operating Profit	3188	2873	2673
Interest	25	23	22
PBDT	3162	2850	2651
Depreciation	205	189	174
PBT	2957	2661	2477
Tax	905	825	776
Profit After Tax	2052	1836	1701	12%	21%
PAT (%)	26.6%	25.4%	27.1%
Equity Capital	787.83	785.63	779.62
Face Value (In Rs)	1	1	1.00
No. of shares	787.83	785.63	779.62
EPS	2.60	2.34	2.18	11%	19%

Regards,

Team Microsec Research

Hero MotoCorp - "Disappointing results, competition intensifies" LKP

Dismal show in the current quarter

Hero Motocorp (Hero)’s 3Q volumes were down by 1.1% yoy and up by18% qoq. Net revenues were up by 3% yoy and 20% qoq. The company increased the dealer margins by Rs100/bike in the wake of rising competition thus increasing the ad spend as well, which led to a sharp increase in other expenses (10.1% of sales v/s 9.8% qoq). Rising competition from Honda led to a decline in margins of Hero for straight fifth quarter. Less profitable shift in product mix and new launches led to higher RMC to sales (at 74.1% v/s 73.2% qoq) despite commodities softening a bit. EBITDA margins skid down to 12.6% v/s 15% yoy and 13.3% qoq. EBITDA de-grew by 13% yoy to Rs 7.7bn. The company mentioned that the depreciation of Japanese Yen will benefit them in the fourth quarter, however, we believe the rising competition will negate the impact of favorable yen movement. Lower other income coupled with operational underperformance led to a 20% yoy fall in PAT at Rs4.87bn. Tax rate came in at 16.3% as this is the second last quarter of full benefit from Haridwar plant.

Outlook and valuation

Disappointing Q3 FY13 results, with bleak expectation in the ensuing quarters has led us to turn negative on the stock. Concerns surrounding competition from Honda are becoming sharper and stronger. Honda’s new launches in the sub 125 cc segment and commissioning of capacities well ahead of Hero’s new capacities get lined up is the biggest concern from market share erosion point of view. We believe both Hero and Bajaj will feel the heat, though Hero will feel it more with its focus on the executive segment. Although Bajaj with its focus on 3 wheelers and exports is still slightly better placed than Hero, we believe that margins of Bajaj will also start weakening in due course of time. We are turning negative on the entire two wheeler sector by downgrading Hero to Underperformer (Bajaj already has an Underperformer rating and TVS a SELL) with structural shift favoring Honda alone. We have cut Hero’s estimates for FY 13E-FY14E by 15-20%, while have brought down the target price to Rs 1,579, which is a downside of 15% from current levels.

Bharti Airtel Ltd_LKP

Regulatory concerns easing significantly

In line with the positive expectations stemming from the eased regulatory environment fueling hopes of less aggression from competition, we expect the business environment for Bharti would be much better than what it was a couple of quarters back. Government’s decision of sharing the excess spectrum charge between all the leading telecom players has acted as a relief for Bharti. The renewal of spectrum coming up in Mumbai and Delhi and the partial refarming of 900 MHZ spectrum may add a negative regulatory outgo, but the situation is still better than what it was estimated a quarter back as the lukewarm response to the 2G auctions for 1800 MHz spectrum has itself reduced the reserve price of further spectrum auctions. Regulatory charge on competitors may make them less aggressive, thus ruling outchances of market share attracting schemes from them. This will assist Bharti to get back into the groove as the competitive environment gets benign.

Federal Bank Ltd Q3FY13 result: Microsec Research

Federal Bank Ltd has announced its Q3FY13 result on 17^th January 2013.

The bank’s total income increased by 8.66% QoQ and 5.29% YoY to INR701.20 crores, Whereas, Profit After Tax (PAT) decreased by 2.01% QoQ and increased by 4.41% YoY to INR210.78 crores. Bank has increased its provision by 144.30% QoQ but decreased by 35.45% YoY to INR74.39 crores.

During the quarter, Bank's loans book and total deposits expanded by 18.94% and 10.41% YoY to INR39494.03 and INR51607.31 crores respectively. On the assets quality front, the bank’s assets quality is still the matter of concern, NNPA increased by 24bps QoQ and 18bps YoY to 0.92%. On the margin front,  Net Interest Margin (NIM) decreased by 9bps QoQ and 45bps YoY to 3.49%. However, bank is well capitalized to support its growth trajectory, Capital Adequacy Ratio (CAR) stood at 14.92% which is around 6% higher than the regulator’s stipulated norms. 

Q3’13 (INR Crores)	Consensus	Actual	Variance %
PAT	220	210.78	-4.19%

Federal Bank Quarterly-[INR-Crores]
DESCRIPTION	Q3'13	Q2'13	Q3'12	QoQ%	YoY%
Interest Earned	1521.77	1525.63	1466.83	-0.25	3.75
Interest Expended	1024.42	1019.72	938.80	0.46	9.12
NII	497.35	505.91	528.03	-1.69	-5.81
Other Income	203.85	139.41	137.93	46.22	47.79
Total Income	701.20	645.32	665.96	8.66	5.29
Operating Expenses	307.26	295.68	247.24	3.92	24.28
Operating Profit before Prov.& Cont.	393.94	349.64	418.72	12.67	-5.92
Provisions and Contingencies	74.39	30.45	115.25	144.30	-35.45
PBT	319.55	319.19	303.47	0.11	5.30
Tax	108.77	104.09	101.60	4.50	7.06
Profit After Tax	210.78	215.10	201.87	-2.01	4.41
Adj Calculated EPS	12.32	12.58	11.80	-2.07	4.41
Advances	39494.03	36299.18	33206.07	8.80	18.94
Deposits	51607.31	49518.07	46742.46	4.22	10.41
	Q3'13	Q2'13	Q3'12	QoQ (bps)	YoY(bps)
Capital Adequacy Ratio Basel II	14.92%	15.79%	15.91%	-87	-99
% of Net NPAs	0.92%	0.68%	0.74%	24	18
% of Gross NPAs	3.85%	3.83%	3.97%	2	-12
Provisions Coverage%	74.53%	80.00%	80.54%	-547	-601
Net Interest Margin %	3.49%	3.58%	3.94%	-9	-45
C/D ratio	76.53%	73.30%	71.04%	322	549
C/I Ratio	43.82%	45.82%	37.13%	-200	669
OI/TI	56.18%	54.18%	62.87%	200	-669

Regards,

Team Microsec Research