Contents in today's MORNING INSIGHT
¾ Economic News
¾ Corporate News
Sector Update: Cement Sector Review Q1FY17
¾ Commissioning of new capacities and demand revival from government related projects led to healthy growth in dispatches during the quarter.
¾ Realizations remained under pressure except for companies which have exposure in northern and central region where prices had remained fairly strong during Q1FY17.
¾ Costs have come down during the quarter led by sharp reduction in power and fuel costs owing to lower priced pet coke inventory and increased usage of pet coke. Freight expenses have also come down but decline in freight cost per tonne was mitigated to some extent by higher lead distance. Improvement in EBITDA per tonne was thus led by cost reduction.
¾ Companies continue to remain optimistic on demand revival with increased government spending, focus towards reviving capex cycle and expectations of a normal monsoon reviving rural cement demand.
¾ We continue to remain positive on cement sector and prefer Shree Cement (TP Rs.19257; Reco: BUY) and India Cement (TP Rs.153; Reco: BUY).
Result Update: Allcargo Logistics Ltd (ALL)
¾ Allcargo (ALL) has reported mixed set of numbers for Q1FY17 with sales of Rs 14 bn (flat QoQ), EBIDTA of Rs 1.34 bn (EBIDTA margin of 9.5%, +50bps QoQ and +20 bps YoY) and PAT of Rs 613 mn below our expectation of Rs 763 mn. PAT got impacted by higher depreciation and taxes.
¾ We have observed that, despite weak global trade, ALL has been reporting volume growth in the Multimodal Transport (MTO) segment and exhibiting stability in the highly competitive CFS segment. Going forward, the company intends to expand its foot-print in the east coast of the country with a new CFS in Kolkata, continue to make value accretive small acquisitions in the MTO segment and take rational steps to bring down operational cost. We see Q1FY17 as an aberration in earnings for ALL and estimate it to report 5.8% volume CAGR in the MTO segment and 4.5% volume CAGR in the CFS segment over FY16 to FY18E, with inflation adjusted tariffs which will help ALL to maintain EBITDA margins at ~9.3% and report earnings CAGR of 11% over FY16 to FY18E. We also estimate ALL to be the biggest beneficiary of any recovery in trade and GST implementation. We retain estimates and maintain "BUY" on ALL with an increased TP of Rs 215 at 16x FY18E earnings (from Rs 200).
Result Update: Tata Power Ltd
Tata Power reported sharply lower than expected profits in the quarters. Profits were marred by one-offs like adverse MERC order in Mumbai Transmission business of Rs 620 mn and lower availability and forex loss in CGPL operations resulting in a hit of Rs 2.86 bn. On the positive side, fuel cost under-recovery has declined and the higher availability in future quarters in CGPL should compensate for fixed cost under-recovery in the first quarter. We value the stock at 1.3x FY18 book value and arrive at a target price of Rs 82 (Rs 84 earlier) and recommend "ACCUMULATE", thereby advising clients to buy on declines.
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