Contents in today's MORNING INSIGHT
¾ Economic News
¾ Corporate News
Result Update: MT Educare Ltd
¾ MT Educare Ltd (MT) Q2FY17 results disappointed on both topline as well as bottomline level. MT's operating revenue for the quarter grew at 5.1% yoy to Rs 871.6 mn (Vs estimates of Rs 922 mn). The slower growth in the quarter was on account of sharp 90% yoy decline in Robomate product business, 19% decline in school segment and 5% yoy decline in science segment. The revenue was primarily supported by commerce segment which grew by 176% yoy led by growth in skill development segment.
¾ EBITDA for the quarter was inline and grew by 11.2% yoy to Rs 248 mn (Vs estimates of Rs 247mn) on improved margins. EBITDA margins at 28.5% improved by 150 bps yoy and was ahead of our estimates of 25%. PAT for the quarter declined by 6.8% yoy to Rs 124.4 mn (Vs estimates of Rs 151.3 mn). This is primarily on account of high finance expenses which grew by 226.2% yoy to Rs 18.38 mn on increased working capital. The company management has guided for 20-25% revenue growth in the current financial year, which we believe is challenging. We have cut our revenue and earnings estimates by 11%/15% and 13%/19% respectively in FY17E/FY18E factoring in slower growth, increased interest expenses and cash flows risk. We downgrade rating to ACCUMULATE (Vs buy earlier) on the stock with revised target price of Rs 129 (Vs Rs 182 earlier) based on 14x FY18E earnings (Vs 16x earlier).
Result Update: Time Technoplast Ltd (TTL)
¾ Time Technoplast reported healthy operating level performance for Q2FY17. Revenue growth was impacted by lower realization due to soft polymer prices. EBITDA margins expanded on a y-o-y basis. The company expects its debt to remain at the current levels as it would be meeting its future capex needs through internal accruals. We project 28% CAGR in earnings growth between FY16-18 and expect the return ratios to improve. We value the stock at 12x FY18 earnings, arriving at an unchanged target price of Rs 101 on the stock. In view of the moderate upside, we maintain ACCUMULATE, thereby advising clients to "BUY on declines".
¾ Key Risks: Delay in capacity expansion & commercialization of new products. Currency fluctuation & pricing of key raw material i.e. HDPE
Result Update: Reliance Defence and Engineering (RELD)
¾ Reliance Defence (RELD) has reported better numbers both, YoY and QoQ (but still poor on actual basis) with sales of Rs 987 mn, small operating profit of Rs 115 mn and net loss of Rs 1163 mn. Though performance has improved in the last 2 quarters after a change in the management of the company, still it is very poor and requires a big turnaround for investors to invest in the stock. During H1FY17, the company has signed few important MOUs to strengthen its manufacturing and technical capabilities. However, we do not see immediate financial turnaround for RELD as the sector is going through a slowdown. We estimate the company to report losses over FY16 to FY18E though in a declining trend, though we expect the PL and BS of RELD to improve in the longer run. Recommend SELL with a TP of Rs 48 (from Rs 70).
Result Update: Natco Pharma Ltd
¾ Natco pharma Q2FY17 revenues were higher than expected led by higher Export formulations revenues as well as higher other operating income. Gross margins dipped sharply, however EBIDTA margins came in line with expectations. The aberration in revenues, other operating income as well as gross margins was due to supplies of gTamiflu (API as well as formulations) to the US partner at cost plus margins. The profit sharing part would get accrued in coming quarters once the product is launched. EBITDA margins in those quarters are expected to be significantly higher, gTamiflu being a FTF launch for Natco.
¾ Natco has been our preferred pick in the mid cap pharma space due to its R&D capabilities and robust growth visibility (58%/87% CAGR in revenues/PAT over FY16-18E). The stock we believe will continue to trade at higher multiples given the events lined up over the next 6-12 months, (1) Tamiflu launch (supplies already started, it's a date certain launch), (2) gCopaxone 20mg approval (expected towards end of FY17), (3) increase in visibility of launches for products like gCopaxone 40mg, gVizada, gDoxil and gGleevec.
¾ We are valuing the company at 24x its core EPS of Rs 23.3 plus an NPV of Rs 186 for limited competitions/FTFs. Maintain BUY with a target price of Rs 750 .
Result Update: Gabriel India Ltd (Gabriel)
¾ Gabriel's 2QFY17 EBITDA margin was slightly above our estimates, but revenues and PAT came in marginally below estimates. Revenues for the quarter grew by 5% YoY to Rs3,938mn, as against our estimate of Rs4,156mn. EBITDA margin for the quarter stood at 9.5%, 60bps higher YoY and 20bps above estimates. Gabriel's Pat for the quarter grew by 10% YoY to Rs213mn as against our expectation of Rs230mn. In the near term, auto sector demand is likely to get impacted on account of demonetization and will reflect in Gabriel's near term financial performance. However, over the medium to long term, we remain positive on the growth outlook for Gabriel. We retain BUY on the stock with unchanged price target of Rs124.
Result Update: The Phoenix Mills Ltd (PML)
¾ Phoenix mills reported 16.2% YoY growth in consolidated revenues led by increased rentals and consumption seen in its flagship mall High Street Phoenix, better than our estimates. Better than expected margins led to profitability coming ahead of our estimates.
¾ During Q2FY17, rentals have witnessed an improvement for the quarter for most of the market cities along with improvement in consumption levels. However, post the demonetization move of the government, we believe that discretionary spend as well as consumption at these market cities is going to get impacted for next few quarters. Company has mentioned that nearly 20-25% of the transactions are in cash but till now it has not witnessed the slowdown in footfalls post demonetization. We also believe that residential segment may continue to see subdued demand which can also impact further launches of the company. We factor in the possibility of lower discretionary spend and risks to earnings by ascribing higher discounting for valuing the mall and market cities and arrive at a revised price target of Rs 366 (Rs 404 earlier). Based on adequate upside after recent correction, we now upgrade the stock to BUY from REDUCE earlier.
Result Update: KNR Constructions Ltd
¾ KNR Constructions Q2FY17 results were ahead of our estimates. Net revenue for the quarter grew by 70.8% yoy to Rs 3.63 bn and was ahead of estimates of Rs 3 bn led by pickup in execution across projects. EBITDA for the quarter stood at Rs 560 mn, up 42.7% YoY as against our estimate of Rs 441 mn led by strong revenue growth. EBITDA margins for the quarter declined by 310 bps on yoy on a high base to 15%, but was 50 bps ahead of our estimates of 14.5%. Adjusted PAT for the quarter grew by 74.3% yoy to Rs 438 mn (Vs estimates of Rs 281 mn) on strong topline growth. KNR has strong order backlog of Rs 45.79 bn at the end of Q2FY17 which is 5.1x FY16 revenue and gives strong revenue growth visibility for the next 3 years. The company targets to add another Rs 10-15 bn of new orders in H2FY17 to take current year's order inflows of Rs 27-32 bn and maintains revenue guidance of Rs 12 bn plus in FY17. Based on strong bid pipeline of 20 projects and robust order inflows till Q2FY17, KNR is on track to meet its revised full year's order intake guidance of Rs 27-32 bn. We maintain our EPS estimates for FY17E and FY18E and BUY recommendation on the stock with SOTP based target price of Rs 823.
Result Update: AIA Engineering Ltd (AIA)
¾ AIA reported Q2FY17 result tad higher than our estimate; margins continued to benefit from benign input prices. Revenue grew 8% yoy in the quarter.
¾ In view of the downside to our revised target price of Rs 972 (value AIA at PER 18x FY18 earnings against 17x earlier), we maintain 'SELL' recommendation on company's stock.
Result Update: Chennai Petroleum Corporation Ltd (CPCL)
¾ CPCL Q2FY17 result is lower than our expectation. Despite 11% qoq increase in crude throughput, CPCL's Q2FY17 PAT has decreased 79% qoq (base effect) to Rs.980 mn reflecting weak GRMs and higher raw material cost. In Q2FY17, CPCL reported a throughput of 2.93 mmt, higher 11% qoq and 44% yoy, resulting in 97% capacity utilization. CPCL's estimated GRM is lower at US$ 3.4/bbl for Q2FY17 as against US$5.99/bbl in Q2FY16 and US$8.02/bbl in Q1FY17.
¾ In Q3FY17 (till date), refining margins have improved due to rise in spreads of all the finished products. Singapore GRMs have increased by 39.3% qoq to US$ 5.9/bbl (average). This can improve its margins in Q3FY17.
¾ We expect CPCL to report an EPS of Rs.48.9/share in FY17E and Rs.52.2 in FY18E. At CMP, we believe that the stock is fully valued at a PE of 4.51x FY18E earnings. Due to limited upside, we recommend REDUCE (earlier SELL) recommendation on the stock with an unchanged price target of Rs.235. We suggest investors to wait for a better entry point.
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