Result Update: Natco Pharma Ltd
Natco pharma revenues were ahead of expectations led by strong domestic growth. EBIDTA margins though came in lower than expected at 23.9% due to increase in other expenses (higher outgo of profit share and royalty income for Hep C portfolio). In spite of lower than expected EBIDTA margins, PAT exceeded expectations due to robust revenues. Management has guided for revenues of Rs 13.5bn and PAT of Rs 1.75bn excluding US launches (due to ambiguity on timing of approvals). Inc US approvals of key products like gTamiflu, gCopaxone and gEntocort, we expect revenues of Rs 18.2bn and PAT of Rs 4.0bn. We have a Buy on Natco and we continue to believe that Natco is the best bet in the mid cap pharma space. We roll forward our target to FY18E and are valuing the company at 20x (earlier 22x) its core EPS plus an NPV of Rs 159 for limited competitions/FTFs. Maintain BUY with a revised target price of Rs 608 (earlier Rs 563).
Result Update: BHEL
BHEL's fourth quarter numbers were in line with the provisional estimates. Project pipeline is strong but issues remain regarding timely finalization and execution delays. We revise DCF based target price to Rs 130 (earlier Rs 123) and maintaining our negative stance on the company retain our"REDUCE' rating on the stock.
Result Update: Va Tech Wabag Ltd
VA Tech Wabag's (VAW) consolidated revenue missed our estimates due to impact of depreciation of euro and delay in commencement of some overseas projects. There was marginal deterioration in balance sheet metrics (receivables and working capital increased and so did the gross borrowings) as well. However, what is somewhat comforting is that its order book is strong, which improves the overall earnings outlook unless project-specific issues crop up. Near-term valuations are close to fair at 23.8x FY17 earnings, hence we recommend "ACCUMULATE", thereby advising investors to buy the stock on declines. Our revised target price of Rs 595 (prior target of Rs 540) values the stock at 18x FY18 earnings (25x FY17 earnings).
Result Update: State Bank of India (SBI)
SBI's earnings were pulled down by higher NPA provisioning on account of last tranche of RBI's AQR - NII growth (3.9% YoY) was muted largely on back of NIM compression due to recent cuts in base rate as well as income de-recognition due to higher slippages (9.3% annualized). PAT was further pulled down (67.1% YoY) by spike in NPA provisions (2.4x YoY). Retail loan growth has been resilient while large corporate book grew at strong pace. Robust liability franchise (CASA mix at 43.8% of domestic deposits) provides platform to compete with private sector counterparts. Sharp rise in fresh slippage mainly came from large corporate & mid-corporate segments. We believe SBI being the largest Indian bank with comfortable core capital (CET-I at 9.8%) is likely to be one of the biggest beneficiaries of improvement in the macro-economic environment. We are modelling subdued return profile (RoE: ~9% & RoA: ~50bps in FY17/18E) which justifies lower P/ABV multiple for the stock. However, stock is trading at reasonable valuation (1.0x its FY18E ABV), after stripping the value of its subsidiaries. Therefore, we retain BUY rating on the stock with marginally revised TP of Rs.260 (Rs.259 earlier) based on SOTP methodology where core business is valued at Rs.206 (1.5x FY18E ABV) and subsidiaries are valued at Rs.54 (post 20% holding company discount).
Result Update: Jammu & Kashmir Bank Ltd
Decline in margin impacted the core performance - NII declined 4.4% YoY largely on back of NIM compression (25bps QoQ) even though loan book grew at relatively stronger pace (12.6% YoY). Non-interest income was lower (down 50% YoY) on account of high base (one-off in Q4FY15). PAT (loss of Rs.560 mn) was pulled down by elevated NPA provisions. Sharp rise in NPLs is somewhat on expected lines as J&K bank is catching up with the industry and has recognised several exposures as stressed which have already been declared NPLs by other banks. We have cut the earnings estimates by 17% for FY17E and now expect its net income to grow 21.9% CAGR (albeit on low base) during FY16-18E with moderate return profile (RoE at 7-9% while RoA at 50-70bps during FY17/18E). We have cut the TP to Rs.83 (Rs.100 earlier; 0.7x FY18E ABV) but retain BUY rating on the stock.
Result Update: Sun TV Network Ltd
While Sun TV Network's 4QFY16 financials have missed estimates on revenues/ profits, we are encouraged by management's decisive action in Kannada/ Telugu markets (replacing the "private producer" model with commissioned programming), as we think the same adds to the long-term sustainability of the business model. Our earnings expectations continue to be modest (6% CAGR through FY16-FY18E), and we reckon several factors could play spoilsport in Sun TV Network story (adverse regulatory action on pricing to subscribers, ongoing investigations against promoter). As a result, we value Sun TV Network conservatively, at 16X FY18E PER, or Rs 414. We upgrade the stock a notch to ACCUMULATE (REDUCE earlier), but note that Sun TV stock may only be considered by investors with requisite risk proclivity.
Result Update: Oil India Ltd (OINL)
¾ Oil India's PAT for Q4FY16 is lower than our estimates. In Q4FY16, OINL has reported a PAT of Rs. 4.69 bn (+14% qoq but -15% yoy) largely reflecting lower net realization (both oil and gas), lower oil and gas production, higher depletion & write-offs and one-time impairment charge. However, higher other income (48% qoq and 34% yoy), weaker currency and lower taxes has arrested the decline. OIL's Q4FY16 net realized crude price decreased sharply to US$ 32.6/bbls versus US$ 42/bbls in Q3FY16 and US$ 53.6/bbls in Q4FY15 mainly due to sharp fall in international crude oil price. OINL has declared a total dividend of Rs.16/share including earlier interim dividend of Rs.8/share, attractive dividend yield of 4.6%.
¾ In the short to medium-term, the key triggers for the stock are rising crude oil prices and potential upward revision in domestic gas prices. We expect OINL to report an EPS of Rs. 42 FY17E (earlier Rs. 41) and Rs. 46 in FY18E. We expect FY18E to be better, driven by higher realizations. On the basis of our estimates, we believe the stock is attractively valued at 7.6x P/E and 5x P/cash earnings on the basis of FY18E. We maintain BUY on OINL with a revised price target of Rs. 412 (earlier Rs. 425/share). At current levels, the risk-reward profile looks favorable. The stock offers attractive dividend yield.
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