Price target revised to Rs700

Result highlights

During Q4FY2012, Bajaj Finserv reported a consolidated net profit of Rs881 crore (up 1% year on year [YoY]) led by a strong growth in the lending business (Bajaj Finance) and the life insurance segment. The income from operations showed a 33% Y-o-Y growth to Rs1,752 crore while expenses grew by 57% leading to an approximately 30% Y-o-Y growth in the operating profits.

Life insurance-earnings up by 33% YoY
The life insurance business reported a profit of Rs392 crore in Q4FY2012, a growth of 33.3% YoY. The gross written premium declined by 14.4% YoY with renewal premiums declining by 21.9% YoY due to sluggish industry wide growth and higher surrenders. The assets under management grew by 10.9% quarter on quarter (QoQ) to Rs39,417 crore.

General insurance-Motor pool provisioning impacts earnings
The general insurance business reported a loss of Rs39 crore in Q4FY2012 as against a loss of Rs58 crore in Q4FY2011. The gross premiums increased by 17.8% YoY in Q4 while the combined ratio stood at 107.2% (including motor pool losses). For FY2012 the company’s reported profit was Rs124 crore (as against Rs43 crore in FY2011) despite an increased provision requirement by the Insurance Regulatory and Development Authority (IRDA) on motor pool (from 2007-2011). The company has provided for one third of the liabilities (motor pool loss) in FY2012 and will continue with it till FY2014 (~Rs150 crore per year).

Bajaj Finance-strong growth continues
Bajaj Finance showed a strong growth in profits (52.1% YoY to Rs108 crore) in Q4FY2012. The core income grew by 39% YoY while provisions increased by 10% YoY. The deployments of the company grew by 69% YoY to Rs4,208 crore during the quarter while the assets under management (AUM) grew by 10% QoQ to Rs13,107 crore.

Valuation
We have revised the target price upwards in view of improved growth in life insurance and financing businesses. The company will also start declaring the embedded value for its life insurance from FY2012. However we continue to value the company based on the average of the two scenarios (includes/excludes upside from RBI circular regarding transfer of shares to foreign investors) resulting in a target price of Rs700 per share. The stock price has risen sharply thereby factoring the upside from possible changes in the regulations which would enable it to avoid letting its foreign partner raise stake at an agreed discounted price. We maintain Hold recommendation on the stock.

Q4FY2012 results: First-cut analysis

Result highlights

Bajaj Auto’s Q4FY2012 PAT in line with expectations; contribution margins surprise on the negative side
Bajaj Auto’s Q4FY2012 results were in line with our estimates. The contribution per vehicle however was marginally below our estimates. This was on account of lower export realisations (down 5.3% sequentially) due to an adverse currency movement. Overall, realisations recorded a drop of 2.9% on a quarter on quarter (Q-o-Q) basis at Rs45,729 per vehicle. The company managed to keep the operating margins closer to the 20% mark. The management aims at maintaining profitability above the 20% mark even as the company struggles to keep pace in the domestic motorcycle market. The other income at Rs139 crore was the highest ever quarterly income in the last five years. The tax rate was however higher in the quarter at 25.9%.

Management’s outlook on business

There were no exports to Sri lanka in May 2012. In April 2012, the company had sold 10,000 motorcycles and 10,000 three-wheelers in Sri lanka.

May 2012′s overall volumes have been guided to be lower than May 2011.

Pulsar NS is to be launched in Maharashtra before May end.

Both, the Discover 100cc and ST would be in showrooms in the next two months.

The management has guided at improving market share to around 26% in May 2012 as no channel inventory has been pushed.

The management maintains guidance of 5 million units for FY2013.

Rupee hedges stand between Rs47 to Rs50 for FY2013, implying no major benefit of the significant rupee depreciation.

Valuation
We have a Reduce rating on the stock with a target price of Rs1,610. We would review the same post the management’s conference call tomorrow.

Earnings in line with estimates

Result highlights

Strong volume growth in cement & power drives overall revenue growth: Shree Cement in its Q4FY2012 results posted a revenue of Rs1,477.8 crore which is higher by 38% on a year-on-year (Y-o-Y) basis. The revenue growth was driven by a 25% growth in its cement business and a sharp jump in the revenue from the sale of power units (around Rs289 crore as compared to Rs120 crore in Q4FY2011). The revenue growth of the cement division was supported by a 20.5% growth in the volume and 3.8% improvement in the average blended realisation. In the power division the robust revenue growth was driven by a 67% increase in the power volume due to commissioning of its second phase of power plant for 150MW.

Increase in cost of production results in margin pressure: The operating profit margin (OPM) during the quarter has contracted by 246 basis points YoY to 25.2%. The margin contraction is largely on account of loss posted by the company in its power division to the tune of Rs68.6 crore as against a profit of Rs15.8 crore at the earnings before interest and tax (EBIT) level due to an increase in the production cost of power units. On the other hand the EBIT margin of its cement division has improved significantly to 21.1% from just 1.8% in Q4FY2011. Consequently the operating profit increased by 25.8% YoY to Rs373 crore (as compared to a revenue growth of 38% YoY). On a per tonne basis, the EBDITA per tonne of cement has increased by 17.8% YoY to Rs998 due to the increase in the average realisation.

The other income surged to Rs77.4 crore: The other income of the company increased to Rs77.4 crore as compared to Rs20.7 crore in the corresponding quarter of the previous year due to provision of earlier year amounting to Rs37 crore being no longer required. Hence the surge in the other income has also supported the overall earnings of the company.

Provided full tax rate as compared to write back of tax in Q4FY2011: The effective tax rate during the quarter works out to 33% (higher than our estimates) compared to the overall write-back of tax to the tune of Rs100 crore in the corresponding quarter of the previous year.

Adjusted net profit of Rs117.1 crore in line with our estimates: The reported net profit of the company grew by 72.8% YoY to Rs114.3 crore. The reported net profit also includes Rs2.8 crore of extraordinary items. So adjusting for the same, the adjusted net profit works out to Rs117.1 crore (increased by 161.2% YoY) which is in line with our estimates. The board of directors of the company has recommended a second interim dividend of Rs6/share. Further the company has decided to change the accounting period from the current 12 months ending March to 12 months ending June.

We fine tune earnings estimates for FY2013 and FY2014: We are incorporating better than expected volume growth in the power and cement divisions. We are also factoring in cost pressure on the power and fuel front. Overall we are marginally upgrading our earnings estimates, both for FY2013 and FY2014. The revised earnings per share (EPS) now works out to Rs101.6 and Rs129.3 for FY2013E and FY2014E respectively.

Maintain Hold with a price target of Rs3,100: We expect the performance of the company to improve at the operating level due to better than expected volume growth in both, the cement as well as the power division. However, the key concern remains in terms of a) oversupply which is likely to put pressure on the cement realisation and b) cost pressure in terms of higher pet coke price. Hence we maintain our Hold recommendation on the stock with a target price of Rs3,100. At the current market price the stock trades at an EV/EBIDTA of 6.1x FY2013 and 4.9x FY2014 estimated earnings.

High on cash, low on valuation

Key points

Holds substantial hydrocarbon reserves with a fairly healthy reserve-replacement ratio: Oil India Ltd (OIL), the state-owned upstream oil exploration company, has several commercialised onshore hydrocarbon discoveries across reserves in Rajasthan and the north-eastern region of India. It also has international presence through participatory interest in oil blocks in the Middle East and Africa. The total 1P (proven) and 2P (proven and probable) reserves of the company stood at 505 million barrels (mmbbls) and 944mmbbls as on March 2011. In addition to the huge oil reserves, the company’s reserve-replacement ratio (RRR) is quite healthy at 1.42x which implies a comfortable level of accretion of oil reserves through new discoveries.

Rising subsidy burden is a drag on valuation but largely priced in: The under-recoveries of the oil marketing companies are estimated to have shot up to Rs140,000 crore in FY2012 as the government has been unable to revise the retail price of the petroleum products. This is likely to almost double the subsidy burden of the upstream exploration companies. We believe that the same is already reflected in the recent underperformance of the upstream stocks like OIL and ONGC. Plus there is scope for positive surprises in the form of the cooling off of the crude oil prices and/or the achievement of political consensus by the government to at least partially pass on the impact of firm crude oil prices to the consumers through a revision in the petroleum prices.

Healthy balance sheet with huge free cash; impressive dividend yield: As per our estimates, OIL would have net cash of around Rs11,511 crore (ie over $2.2 billion or Rs191 per share) as on March 2012, which amounts to 41% of its market cap and over 100% of its annual net revenues. Despite a healthy dividend pay-out (estimated Rs20 per share for FY12 on post-bonus equity-yield of 4.3%), a higher share of subsidy burden and the exploration related capex, the free cash accretion would remain strong and limit the downside risk from the current level.

Valuation attractive; recommend Buy with price target of Rs600: We prefer OIL because its huge reserves and healthy RRR would provide a reasonably stable revenue growth outlook. Further, its valuation is attractive as it is trading at its lowest valuation since its IPO. In terms of valuation, the fair value works out to Rs600 per share (based on the average fair value arrived at using the DCF, PE and EV/EBIDTA valuation methods). This offers around 30% upside from the current level. Hence, we initiate coverage on OIL with a Buy recommendation and price target of Rs600. At the current market price the stock trades at PE of 7.5x its FY2013E EPS of Rs61 and 7x its FY2014E EPS of Rs66.

Q4FY2012 results in line with expectations, except for higher tax provisioning

Result highlights

Q4 revenue in line with expectations; higher fixed costs and tax impacts bottom-line: Cadila Healthcare (Cadila Health)’s net sales grew by 15.3% year on year (YoY) to Rs1,398 crore in Q4FY2012, which is in line with our expectations. However, the operating profit margin (OPM) at 20.2% (up 145bps YoY) stood lower than our expectation of 22.2%. Moreover, higher interest costs (up by 48% YoY), depreciation (up by 158% YoY) and higher tax provisioning (effective rate 19.5%) impacted the net profit to drop by 4.5% YoY to Rs171 crore. Adjusting for a foreign exchange (forex) loss (Rs9 crore), the net profit jumped by 10.7% YoY to Rs180 crore, which is 17% lower than our estimate of Rs218 crore.

Weaker base business sales in most geographies: During Q4FY2012, most of the export markets like Europe, Latin America, Japan and other emerging markets witnessed a single digit growth. Growth in the US market (by 26% YoY) was backed by additional revenue from the newly acquired Nesher Pharma. However, the domestic formulation business, coupled with the newly acquired Biochem Pharma, witnessed a sharp jump in base business (by 23% YoY).

We maintain our estimates, recommendation and target price: We maintain our estimates for FY2013 and FY2014 and Hold rating on the stock with a target price of Rs768.

Price target revised to Rs175

Result highlights

Earnings above estimates, margins expand: For Q4FY2012 IRB Infrastructure Developers (IRB)’s earnings grew by 17% year on year (YoY) to Rs120.3 crore (above our estimate of Rs109 crore) led by a decent revenue growth and huge margin expansion. The consolidated revenues were up by 10.6% YoY and 14% quarter on quarter (QoQ) to Rs848 crore (much in line with our expectation of Rs828 crore) led by a strong execution in the construction segment (up 7% YoY and 20% QoQ) and consistent toll collection across projects (up 19% YoY and 2% QoQ). The operating profit margin (OPM) improved sharply to 44.9% (higher than our estimate of 42.2%) as against 41% in Q4FY2011 and 45.8% in Q3FY2012 resulting in a 21% Y-o-Y growth in EBITDA. Despite a robust growth at the operating level, the profit after tax (PAT) growth was restricted due to an increase of approximately 73% in depreciation mainly on account of the Surat – Dahisar project.

Strong execution and stable toll collection supported revenue growth: The consolidated revenue of IRB continued to grow consistently, clocking a 10.6% YoY and 14% QoQ growth to Rs848 crore in Q4FY2012. The momentum was led by a strong order execution in the construction segment, which registered a growth of 7.4% YoY, and consistent toll collection across projects where revenues were up by a good 19% YoY. The growth in the construction division was largely led by the Jaipur – Deoli, Talegaon – Amravati and Tumkur – Chitradurga projects where the execution continues to be on schedule. There was no major toll revision during the quarter. The traffic growth across projects was stable with weakness continuing in both Surat-Dahisar and Surat-Bharuch projects due to diversion of traffic from Nasik on account of construction of bridges in that area.

OPM witnesses huge expansion: The OPM for the quarter improved sharply to 44.9% as against 41% in Q4FY2011 and 45.8% in Q3FY2012 resulting in a 21% Y-o-Y growth in EBITDA. The expansion was on account of the construction segment witnessing an increase in margins to 26.9% vs 22.6% in Q4FY2011 (and 24.2% in Q3FY2012) since the newer under-construction build operate transfer (BOT) assets have higher margins. Further in the Tumkur-Chitradurg project, only earthwork is being carried out currently which involves less cost. Conversely though, the BOT margins came down a bit to 88.1% vs 90.5% in Q4FY2011 and 89.8% in Q3FY2012.

Net profit growth restricted due to sharp rise in depreciation: In spite of a good revenue growth and huge margin expansion the consolidated PAT growth was restricted to 17% YoY and was down 8.4% QoQ to Rs120.3 crore. This was due to a sharp rise in the depreciation charge (up 73% YoY) on account of depreciation for the Surat-Dahisar asset which completed construction during Q2FY2012 and was operational since December 15, 2011. The interest cost was up by only 7% YoY and 6% QoQ as of the portfolio of 16 projects, 6 projects are debt free and 4-5 projects are under construction where interest cost gets capitalised. The consolidated debt figure now stands at Rs7,121 crore vs Rs6,600 crore in Q3FY2012. The tax rate too came in higher for the quarter at 28%.

IRB acquires an operational project in Tamil Nadu: The company has acquired a 100% stake in MVR Infrastructure & Tollways which is implementing the two to four laning of the Omallur Salem -Namakkal BOT road project. The concession agreement for the project was executed on February 16, 2006 for a 20-year period, of which IRB will now inherit 14.5 years. The cost of the project was Rs308 crore. The toll collection started in August 2009 and is witnessing a daily toll collection of Rs16 lakhs (FY2012). IRB has acquired the project for Rs128 crore which works out to 2x its price to book value (P/BV). The management is seeking an internal rate of return (IRR) of 21% based on traffic growth assumption of approximately 7% for the initial seven years and later stabilising at 6% with a 6.5% tariff hike. However as per our calculation the IRR works out to be 16% thereby adding a value of Rs.1.1 per share.

Earnings estimates revised downwards: We have reduced our revenue estimates for FY2013 and FY2014 by 5% and 4% respectively mainly to factor in the delay in start of the tolling of Kolhapur project and delay in the commencement of execution of the Ahmedabad- Vadodara project. The earnings estimates, on the other hand, have been reduced by 11% and 15% for FY2013E and FY2014E respectively to factor in higher depreciation than our estimate and higher interest cost due to higher debt than our assumption.

Price target revised to Rs175, maintain Buy: We continue to like IRB given its vast portfolio, rich experience, strong financials and the healthy cash flows from its operational toll-based projects, all of which provide comfort. With a strong pipeline of projects up for award from the National Highways Authority of India (NHAI) and the bidding process becoming less aggressive, the management is confident of securing projects at equity IRR of 18%. However, the recent legal trouble for the promoter will continue to be an overhang on the stock till it gets solved. Hence, we reduce our target price to Rs175 by roll forward of net asset value (NAV) of BOT projects to FY2013 and by reducing our multiple for the construction business to 5x from 6x (giving discount due to the legal trouble) on FY2013 earnings. Given the huge upside, we maintain our Buy recommendation on IRB. At the current market price, the stock is trading at 8.5x & 8.2x its FY2013E and FY2014E earnings respectively.

Rolling on a growth path

Result highlights

Standalone margins recover
Apollo Tyres Ltd (ATL)’s Q4FY2012 revenues grew 28.2% year on year (YoY) on the back of a 14% YoY volume growth and an equal contribution from the price and product mix. The operating margins recovered 160 basis points sequentially to 9.6% on account of lower material costs. Natural rubber prices reduced to Rs210/kg in Q4FY2012 as against Rs223/kg in Q3FY2012, giving a boost to contribution as well as operating margins.

Higher tax rates impacted profitability which recorded a moderate growth of 9.2% YoY. The tax rate for Q4FY2012 was 31.5% as against 29.6% for FY2012. Changes in accounting norms led to higher costs under the interest head as earlier interest income was not netted off. The same got reported under the other income head. The company took a marginal price hike of 1% in the truck segment in the month of May 2012.

Europe continues to be the star performer
Revenues from Europe grew 9% YoY in Q4FY2012 on the back of a 4% growth from volumes and the balance through price mix and currency. Europe continued to report strong margins (190 basis points improvement on a seasonally strong Q3FY2012). The margins were higher on account of renewed season end winter tyre sales in February 2012. The European operations also saw the impact of a Rs20 crore gain on actuarial valuation leading to lower employee costs.

South African operations disappointed with a loss against our expectation of a turnaround
ATL’s South African operations declined 4% YoY in Q4FY2012, on the back of volume decline of 18% in the quarter. The company reported a loss for the second consecutive quarter at the earnings before interest and tax (EBIT) level. The operations were impacted by planned shutdowns and rising threat of imported tyres. However with a better volume growth expected, both in the original equipment manufacturer (OEM) and the replacement segment, ATL expects the plant to breakeven in FY2013. The company had taken a price increase of 3% each in February 2012 and May 2012.

Valuation
We believe Apollo Tyres is the best sustainable tyre play in the Indian context on account of its product and regional diversification. The lower prices of natural rubber are expected to help its margins. Of late, the most crucial truck tyre replacement market has shown signs of revival and this is expected to benefit the company. The company expects a turnaround in South Africa and has given a stable outlook for Europe.

We keep our FY2014 earnings per share (EPS) estimate of Rs15.0 and the target price of Rs91 per share unchanged. The near term overhang on the stock is CCI’s penalty threat on tyre manufacturers. We see a high probability of cartelisation charge being slapped on all tyre companies including Apollo Tyres and the same would be a dampener on the stock. However, the event would also provide an attractive investment opportunity from a long term perspective. We retain our Buy recommendation on the stock.

Q4FY2012 results: First-cut analysis

Result highlights

Better than expected revenue; bottom-line impacted by higher fixed costs and tax
Lupin’s net sales for Q4FY2012 rose by 23.8% year on year (YoY) to Rs1,883 crore, which is 8% higher than our estimates. The operating profit dropped to 17.6% in Q4FY2012 vs 18.3% in Q4FY2011. This is substantially lower than our estimate of 21.6%. A higher interest cost (56% YoY rise) and depreciation (52.5% YoY rise) impacted the profit before tax (PBT), which registered a 9.7% Y-o-Y rise to Rs296 crore. During the quarter, the effective tax rate (excluding a one time tax payment of Rs13.3 crore on unrealised gains on inventories of foreign subsidiaries) jumped to 41% (vs 11.5% in Q4FY2011). This resulted in a drop in reported profit by 31.5% YoY to Rs155.6 crore, which is 38% lower than our estimate of Rs242 crore.

Valuation
The stock is currently trading at 20.5x and 15.8x FY2013E and FY2014E earnings. We have a Buy recommendation on the stock with a price target of Rs597.
We will revisit the numbers and target price after an interaction with the company’s management.

Result highlights

Strong Q4FY2012: Glenmark Pharmaceuticals (Glenmark Pharma) reported a 34.5% year-on-year (Y-o-Y) rise in revenue to Rs1,065.9 crore during Q4FY2012, which is 6% better than our estimate of Rs1,005 crore. The company has shown an all-round impressive performance during the quarter with revenue from the specialty business segment (branded formulation) growing by 33.5% to Rs594.4 crore and the generic formulation business recording a 69% Y-o-Y growth. Core operating margin jumped by 712bps YoY to 18% during the quarter on substantially lower other expenditure (26.3% of net sales in Q4FY2012 vs 34.7% in Q4FY2011). During the quarter the company paid a tax on minimum alternate tax (MAT) basis and therefore the effective tax rate stood at 4% (vs a tax credit in Q4FY2011). This led the net profit during the quarter to expand by 35% YoY to Rs150.4 crore, which is substantially higher than our estimates.

Exceptional items impact annual performance:
During FY2012 the revenue rose by 36.3% to Rs4,020.6 crore on the back of a 45% rise in the generic formulation business to Rs1, 213.7 crore and a 30.2% increase in the branded specialty business to Rs2,079.2 crore. During the year the company also received an out-licensing income of Rs253.5 crore. However, despite the 340bps expansion in the core operating margin to 21%, the net profit remained flat at Rs460.3 crore against Rs458 crore in FY2011 crore, mainly due to an exceptional item of Rs131.7 crore (vs exceptional gains of Rs65 crore in FY2011). Without these exceptional items, the profit would have grown by 51% to Rs592 crore.

Valuation
The stock is currently trading at 17.6x FY2013E core earnings. We have a Buy rating on the stock with a target price of Rs400, which includes Rs64 from research pipelines and Rs336 (16x average earnings for FY2013-13E) from the core business.

Numbers reflect tariff hike impact as expected

Result highlights

As expected, CESC has factored-in its approved tariff revision (by 13%) in Q4FY2012. As a result of the same, incremental tariff approved to the tune of Rs0.69 paisa/unit is being accounted for in the units sold during the first ten months of the year. Therefore, in Q4FY2012, the sales include an approximate tariff adjustment of Rs656 crore, which is as expected. However, power units sold during Q4FY2012 were lower than our estimate by 7%, at 1,811 million units. The revenue reported at Rs1,379 crore in Q4FY2012 is 13% lower than our estimate.

On account of a lower than estimated operating cost, the operating profit of the company, reported at Rs432 crore, is significantly higher than our estimates. A sharp rise in the operating profit on a year-on-year (Y-o-Y) and quarter-on-quarter (Q-o-Q) basis is attributed to the benefit of tariff hike adjustment, as most of the operating cost per unit (except other expenses) hovers around Q3FY2012 levels. Further, below EBITDA line cost items also remain flattish. Consequently, the tariff adjustment benefit percolated to the profit after tax (PAT) also during Q4FY2012.

Fine tune estimates with revised tariff and introduce FY2014 numbers: Considering the above operating costs reported by the company against our estimates, we have fine tuned our cost estimates and arrive at a PAT estimate of Rs582 crore in FY2013 with a marginal improvement in estimated sales. Further, we have introduced FY2014 estimates with a sale figure of Rs5,902 crore, operating profit of Rs1,227 crore and PAT of Rs615 crore.

Spencer’s store level profitability sustained but signs of slowdown in Q4: The total number of Spencer’s outlets by the end of FY2012 stood at 182 with a total trading area of 1,009,000 sq ft. The same store sales have increased from Rs1,000/sq ft in FY2011 to Rs1,147/sq ft in FY2012, which is a growth of 14.7%. Comparing with M9FY2012 numbers, there is apparently a marginal slowdown in same store sales in Q4FY2012, which was around Rs1,159/sq ft by the end of M9FY2012. The average sales have increased from Rs957/sq ft in FY2011 to Rs1,060/sq ft in FY2012, which is a growth of 9.7%.

Spencer`s retail has sustained store level profitability since last year. In M9FY2012, it recorded an EBITDA of Rs35/sq ft per month (against Rs31/sq ft in H1FY2012). By the end of FY2012, the store level EBITDA hovers around Rs32/sq ft per month. Currently the store level EBITDA margin is hovering around 3.2%, which the management aims to take it to 4% in FY2013; the same would be a key monitorable.

Better earning visibility post tariff revision; retain Buy: Though we have introduced our FY2014 standalone numbers, we await the audited results of the subsidiaries (primarily the retail business) before we revise our valuation and price target. Currently, the stock is trading at 0.6x its FY2012 and 0.5x its FY2013 standalone book value. Though we await the results of subsidiaries, we believe there should be progress in reducing losses. Hence, we continue to rate CESC as Buy and retain our target price of Rs405, based on the sum of the parts (SoTP) valuation method.