¾ Revenues for Q3FY16 were lower than our estimates and volumes were impacted by Chennai floods. Operating margins witnessed an improvement led by lower power costs. Net profit performance was boosted by sharp improvement in margins despite lower than expected revenue growth. Lower gas prices is likely to result in cost reduction and would help in aiding margins going forward also. Volume push would be led by improved demand environment as well as commissioning of new capacities. With likely implementation of GST by mid-FY17, we expect company to benefit from incremental volumes coming from unorganized segment also. Positive developments related to anti-dumping investigation on imported tiles would augur well for the industry.
¾ We revise our FY16 estimates slightly downwards to factor in lower volumes post witnessing impact of Chennai floods in Q3FY16 numbers while incorporate slightly higher other income in FY17. We arrive at a revised price target of Rs 1009 based on 25x P/E on FY17 estimates (Rs 1000 earlier). Owing to limited upside from current levels, we maintain ACCUMULATE on the stock and would advise investors to use declines to enter the stock.
Result Update: HDFC Ltd
Core operating performance (NII grew 9.0% YoY) was marginally below our expectations on the back of moderate loan growth and NIM contraction. Net profit was also a shade below our expectations further impacted by higher general provision on non-individual loan portfolio added during this quarter. Its spread remained stable at 2.31% during 9MFY16 but near-term outlook on NIM remains weak as full impact of 25bps cut in lending rate during October 15 is yet to play out completely. Individual segment continued to drive overall loan growth while its overall asset quality remained healthy (GNPA: 72 bps). At CMP, stock trades at 2.85x FY17E ABV, post striping the value of subsidiaries and investments (Rs.500). Hence, we upgrade the stock to BUY from ACCUMULATE earlier with unchanged TP of Rs.1380 based on SOTP method (core business: Rs.880; 3.75x FY17 ABV and subsidiaries: Rs.500).
Result Update: Havells India Ltd (HIL)
¾ HIL reported Q3FY16 result slightly lower than our estimates; higher advertisement spend led to slightly diminished operating margin. However, we are encouraged by the robust performance (growth of 22.8% YoY) in the consumer appliances segment due to 1) market share gain across product categories and 2) higher realizations in the festive season.
¾ HIL's wholly owned subsidiary, Havells Holdings Limited has divested its controlling stake in its subsidiaries Havells Sylvania Malta BV (excluding subsidiaries in United States, Brazil, Chile and Thailand) and Havells Exim Limited, Hong Kong for EUR 186 mn. We believe that this move is positive for Havells and would result in increasing profitability going ahead. We value Havells India stock at 32x FY17 to factor in absence of low margin Sylvania business and strong presence/focus in domestic market. We maintain'ACCUMULATE' rating with unchanged target price of Rs 320 on company's stock.
Result Update: Container Corporation of India (CONCOR)
¾ Concor reported weak numbers for Q3FY16 with drop in EXIM volumes at 599,506 TEUs (-7.5% QoQ), sales dipping by 7% QoQ at Rs 14bn and operating margins again dipping by 120 bps QoQ at 19.9% primarily due to three factors: 1) Weak global container trade, 2) Weak exports from India and 3) Arbitrary haulage hike by Indian railways in both EXIM and domestic markets. To offset the above impact, the company is taking strong measures to improve volumes going forward which is likely to reflect from Q1FY17.
¾ We are not changing our volume assumptions and estimates and expect the company to report 10% volume CAGR over FY15 to FY18E in Exim (versus guidance of 10%) and volume CAGR of 5% in the domestic segment (versus guidance of 6%), Ebidta margin of ~22/23%, PAT CAGR of 11% and ROE of 13.4%. This would be on the back of estimated recovery in trade (recovery from FY17 on a lower base of FY16), strong asset base and relationships of the company and steps taken by the company to revive growth. We continue to value the company at 25 times FY17E EPS and Maintain BUY with an unchanged TP of Rs 1660.
Result Update: Godrej Consumer Products Ltd
GCPL's 3QFY17 operating results came in below estimates, as revenues disappointed, largely on weakness in Indonesian operations. We cut our FY17 earnings estimates 3%. We lower our target valuation for GCPL as: a/ weak growth in Indonesia has implications for earnings visibility, b/ earnings growth of GCPL is significantly dependent on gross margin expansion. We continue to hold a positive stance on GCPL, given consistent market share gains in most categories/ geographies, and low penetration of key categories of the company, in the domestic market, which makes for strong long-term growth potential. We lower our price target to Rs 1257 (Rs 1383 earlier), and maintain ACCUMULATE.
Result Update: Colgate Palmolive (India) Ltd
3QFY16 results disappointed, as topline missed estimates on weaker than expected volume growth. Volume growth declined further in the quarter to 1% y/y. Colgate is likely losing market share to fringe players. Miss on EBITDA is not very significant, helped by lower advertising and promotion expenses; we think that going forward levers to manage earnings are few, if volume growth does not strengthen. We cut our earnings estimates for the company by 4%, and reduce our price target to Rs 909 (Rs 1015 earlier; result of lower valuation multiple in addition to lower earnings). We expect the industry to recover from a low base of growth in FY17, and expect Colgate's market share to stabilize. Valuations, at 34X FY17E PER, are still fairly rich for current growth profile/ visibility, and we would like to buy into declines. We raise the recommendation to ACCUMULATE, on account of recent price declines.
Result Update: Hindustan Media Ventures Ltd
HMVL's reported EBITDA came in 5% below estimates on higher than expected expenses in the quarter. The company has posted strong results (EBITDA grew 50% y/y); however, we believe the drivers of the results (lower newsprint prices, one-off benefits of elections) are unlikely to persist, and costs have risen significantly higher. The company has made significant gains in catching up with peers in Uttar Pradesh, and we think yield gains shall be relatively weaker, going ahead. We think that the likelihood of earnings surprises is low, and drivers of a re-rating (potential rise in dividend payout, elections in UP) are yet far. Looking for better entry points into what looks like a low - risk, limited returns stock, we downgrade HMVL to ACCUMULATE (BUY earlier), with a price target of Rs 300 (Rs 310 earlier)
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