Contents in today's MORNING INSIGHT
¾ Economic News
¾ Corporate News
Result Update: Bajaj Auto Limited (BAL)
In 1QFY17, BAL reported tepid earnings growth as weak exports impacted performance. On a YoY basis, revenue growth was 3%, EBITDA margin at 20.5% (10bps higher YoY) and PAT grew by 2%. Results were broadly on expected lines. In FY17, we expect the company to report strong volume growth in domestic market. Exports are likely to remain volatile and we expect de-growth in FY17. We expect EBITDA margin to remain between 20-21%. Over FY16-18E, we expect revenue and earnings CAGR of 13% and 16% respectively. We have raised our FY17 and FY18 estimates. We retain ACCUMULATE on the stock with revised price target of Rs2,960 (earlier Rs2,720).
Result Update: Escorts Ltd
Escorts reported strong operational performance in 1QFY17. Pick-up in tractor demand translated into strong margin in the agri-machinery business. On a YoY basis, revenues grew by 9%, EBITDA margin expanded by 230bps to 8.3% (well ahead of our expectation of 6.4%) and adjusted net profit grew by sharply. Given good monsoons so far and expectation of normal monsoon this year, we expect tractor industry to grow at a healthy pace. Escorts has also indicated for improvement in construction equipment segment which augurs well for the company. Order book from the railway business remain healthy. We believe healthy volume growth and cost saving initiatives by the management can translate into improvement in EBITDA margin in FY17/FY18. Given strong 1QFY17 performance and increased visibility of good monsoons, we revise our estimates upwards. We retain ACCUMULATE on the stock with revised price target of Rs282 (earlier Rs244). Lower than expected tractor sales growth can have substantial impact on our earnings estimates and target price.
Result Update: Castrol India Ltd. (CIL)
¾ Castrol's Q2CY16 reported results are well above our estimates led by impressive strong volume growth in the personal mobility segment and improved margins. Castrol has reported a PAT growth of 12% yoy and 20% qoq to Rs.2.07 bn mainly on account of 1). Lower raw material cost, 2). Higher sales volume supported by higher add spends and 3). Lower employee cost. Overall operating margin improved 280 bps yoy and 300 bps qoq to 32.5% in Q1CY16, supported by favorable raw material environment. With improved industrial activity the lubricant demand is expected to improve going forward, we opine. Additionally, new product launches will further boost lubricant sales.
¾ The company has declared 12.5% higher an interim dividend of Rs.4.50/share for CY2016. Record date for the same is 8th Aug'16.
¾ We have marginally revised our EPS estimates to Rs.14.3 for CY2016 and Rs.15.6 for CY2017 from Rs.13.9 and Rs.14.8 respectively, factoring in (1) Improved lubricant demand and (2) Better margins. On the basis of our estimates, the stock at current market price of Rs.435 is fairly valued at 17.7x EV/EBIDTA, 27.9x P/E and 28.2x P/BV on the basis of CY17E earnings. Based on our DCF valuation model, the target price of Castrol is Rs. 458/share (earlier Rs.446/share) and we now recommend Accumulate (earlier Buy) rating on the stock. Key trigger in the short to medium term is GST bill resulting in increased vehicle sales and freight movement.
Result Update: Dish TV
Although Dish TV has missed our profit estimates in the quarter, the same is largely a result of discretionary spends that shall be contained in the coming quarters. Leaving our key assumptions/ estimates unchanged, we account for lower license fees in the annual estimates and raise our EPS estimates 4%. Dish TV is potentially positively exposed to changes in regulation (GST, interconnect agreements, and DAS-3 passage) which are likely to have a positive impact on medium-term earnings/ near-term valuations. We raise our price target to Rs 110 (Rs 94 earlier) and upgrade the stock to BUY (ACCUMULATE earlier).
Result Update: Supreme Industries Ltd
Supreme Industries Q1FY17 results were below our estimates. The standalone net sales for the quarter declined by 7% yoy to Rs 11891 mn Vs our estimates of Rs 13473mn (with 5.4% yoy growth). This was on account of no contribution from real estate segment (Vs Rs 236.5 mn last year) and 2.9% yoy decline in plastic products business (as against 11% growth estimated by us). The company has witnessed muted volume growth of 3.2% yoy in plastic product business with 5.9% yoy decline in realization across all segment. The slower sales volume in plastic products is attributed to high base of last year led by the transition quarter in which customers normally place higher orders. The management expects the sales to normalize from the next quarter. As a result, EBITDA for the quarter declined by 22% yoy with EBITDA margins at 16.9% which was below our estimates of 18.4%. The company witnessed lower than expected margins across all segments on account of inventory gain witnessed last year. PAT for the quarter declined by 28% yoy to Rs 1015 mn (Vs our estimates of 1335 mn) on account of lower sales growth and lower than expected margins. The management has maintained its volume guidance of 12-15% in FY17 with margins to be in the range of 14.5-15%. We like the company's business and its strong fundamentals. We have marginally reduced our earnings estimates for FY17 factoring in slower Q1FY17. But considering the run-up in the stock price and premium valuation, we downgrade our rating on the stock to REDUCE (from Accumulate) with the target price of Rs 924 (Vs Rs 846).
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