¾ ABB's profits were higher than our estimates mainly due to improved margin gains driven by better product mix, soft material prices and operational efficiencies.
¾ Business outlook is mixed as renewables and railways (together 18% of revenues) are seeing good traction in orders but core sector ordering continues to remain weak.
¾ Revenue growth outlook remains subdued in the near-term as reflected by the flattish order book.
¾ Our projections are optimistic and build in substantial margin gains arising from continued benign material price scenario, reduction in competitive intensity and cost efficiencies.
¾ ABB is well placed to leverage the opportunities from a turnaround in the capex cycle. However, valuations are unjustifiably rich and factor in much of the potential earnings upsides. Hence maintain SELL.
Result Update: Gujarat State Petronet Ltd (GSPL)
¾ GSPL's Q3FY16 result is marginally lower than market consensus and our estimates. GSPL reported operating profit of Rs.2.1 bn, higher 3% yoy but lower 7% qoq mainly on account of lower transmission tariffs (reflecting concession to power sector), meaningfully higher operation & maintenance charges (+101% qoq, partly base effect) and marginally higher other expenses. PAT for Q3FY16 was at Rs.1.24 Bn higher 39% yoy and 14% qoq. Other income increased significantly 135% qoq to Rs. 288 mn (115% yoy) due to higher dividend income (from Gujarat Gas).
¾ Going forward, we expect the Company to benefit on account of both 1). Higher gas transmission volumes and 2). Expected upward revision in tariffs. Higher gas transmission volumes will be supported by 1) lower LNG prices, and 2) RLNG demand from the power sector. Additionally, rising city gas distribution growth opportunities, potential shift to natural gas due to environmental/pollution norms (industrial / CNG) and volumes from Mundra LNG terminal (FY18 onwards) adds support to long term volumes. We expect GSPL to report an EPS of Rs.8.1 and cash EPS of Rs.11.4 for FY16E and similarly an EPS of Rs.9.2 and cash EPS of Rs.12.7 for FY17E. We recommend ACCUMULATE (earlier buy) on GSPL with a revised target price of Rs.150/Share (Rs.160/share, earlier), given inexpensive valuations at 14.7x PE based on FY2017E earnings. We believe the long term growth story is not fully priced-in.
Result Update: GE Shipping Company (GESCO)
¾ Weak global shipping markets (esp. bulk) and stagnant offshore market because of lower crude prices has impacted the topline and earnings of GESCO for Q3FY16, with revenue of Rs 9.48 bn (-8% QoQ). Ebidta was reported at Rs 5.09 bn translating into healthy operating margin of 53.7% supported by weak bunker prices (fuel) and PAT of Rs 2.75 bn. The numbers are not disappointing considering the current weakness in global shipping and offshore markets.
¾ Historically, GESCO has traded in a range of 0.6 to 1.0x of its NAV. To factor in weakness in the shipping markets, we are lowering the value of GESCO from 0.8x to 0.75x of its decreased NAV of Rs 480 (Q2FY16 NAV was Rs 550). Business environment and sentiments continue to remain weak. A large number of GESCO assets (75%) on long term contracts, a strong BS, a prudent management and limited exposure to the bulk segment (<20%) cushions the company considerably from the current slowdown. Maintain near term estimates of FY16/FY17 and recommendACCUMULATE (earlier BUY) with a reduced TP of Rs 360 (from Rs430).
Result Update: Torrent Pharma
¾ Torrent Pharma (TRP) revenues were in line with expectations but PAT was higher than expected led by higher gross margins as well as improved fixed costs. The quarter continued to be driven by one off opportunity of gAbilify as impact of lower prices and higher competition is yet to be reflected in revenues/profits. Next quarter onwards we expect the quantum of this one off opportunity to come down significantly. Revenues at Rs 15.2bn were up 31% YoY but down 8.5% QoQ. EBIDTA margins at 40.5% were robust for the third straight quarter compared to TRP's earlier average of ~20%. PAT came in at Rs 4.8bn, up 189% YoY and down 8.5% QoQ. We assume gAbilify contributed US$60mn in the quarter and accounted for Rs 12.6 EPS.
¾ We revise our FY16E EPS higher to factor better than expected results, our revised EPS now stands at Rs 101.4 from 96.2 (as we factor better cost efficiency as well as gross margins). For FY17E, we revise our EPS lower by 5% as we build lower sales in domestic formulations as well as Brazil. Our revised EPS for FY17E now stands at Rs 70.8 from Rs 74.4 earlier. Torrent has filed for one ANDA in this fiscal so far and plans to file one more in 4QFY16. With mere 16 ANDAs pending for approval and plans to launch 7-8 ANDAs in FY17E, we believe FY18E would be a muted year for US revenues. TRP's lower spent on R&D (4%) and its decision to pay a higher dividend of Rs 20/per share (compared to Rs 10-11/per yr for last three years) raises concern on cash allocation. Maintain SELL with a revised price target of Rs 1345 (earlier Rs 1490) at 19x (earlier 20x) FY17E EPS.
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