Posts tagged results
Indian Steel Sector – Results Update
• The recent recovery in industrial growth and in the real estate sector augurs well for Indian steel makers and the resultant rise in demand is already evident. India and China are two markets where steel units are operating at quite high levels of capacity utilization; 86% for China and 80% for India, compared with the world average of 64%.
• The four major steel companies came with their Q2FY10 results in October 2009. Tata Steel Ltd., India’s biggest producer, reported a nearly 50.0% slide in profit and state-run Steel Authority of India Ltd. posted a 17.0% decline in net income last quarter. Net profit of Jindal Steel &Power Ltd. And JSW Steel Ltd. improved by 7.5% and 42.2%, respectively
• Most companies benefited by selling more of their products as demand picked up because of the stimulus package and lower raw material prices but it did not translate into higher revenues and profits due to poor prices
• Indian steel prices fell almost 35.0% from a year earlier, trimming earnings at local steelmakers.
• Steel exports during the period declined by 40% to 0.93 million tonne as the global economy continues falters
• The steel companies have reduced the price of flat steel products on account of global weakening of prices and appreciation of the rupee, as well as a dip in Chinese domestic prices
• The margins have also contracted mainly on account of lower realizations and higher raw material prices
• We believe that the Steel Stocks have gone way above their fundamentals and most of the demand recovery and other such factors are already factored into their prices. Thus entering them at the current levels would be taking on significantly higher risk and so one should wait for at least 2 more quarters to see whether or not fundamentals improve and then enter
Result Update – Indian Steel Sector (Sept-09)
Overall Outlook of Steel Sector Companies
• The recent recovery in industrial growth and in the real estate sector augurs well for Indian steel makers and the resultant rise in demand is already evident. India and China are two markets where steel units are operating at quite high levels of capacity utilization; 86% for China and 80% for India, compared with the world average of 64%.
• The four major steel companies came with their Q2FY10 results in October 2009. Tata Steel Ltd., India’s biggest producer, reported a nearly 50.0% slide in profit and state-run Steel Authority of India Ltd. posted a 17.0% decline in net income last quarter. Net profit of Jindal Steel &Power Ltd. And JSW Steel Ltd. improved by 7.5% and 42.2%, respectively
• Most companies benefited by selling more of their products as demand picked up because of the stimulus package and lower raw material prices but it did not translate into higher revenues and profits due to poor prices
• Indian steel prices fell almost 35.0% from a year earlier, trimming earnings at local steelmakers.
• Steel exports during the period declined by 40% to 0.93 million tonne as the global economy continues falters
• The steel companies have reduced the price of flat steel products on account of global weakening of prices and appreciation of the rupee, as well as a dip in Chinese domestic prices
• The margins have also contracted mainly on account of lower realizations and higher raw material prices
• We believe that the Steel Stocks have gone way above their fundamentals and most of the demand recovery and other such factors are already factored into their prices. Thus entering them at the current levels would be taking on significantly higher risk and so one should wait for at least 2 more quarters to see whether or not fundamentals improve and then enter
Author: Rahul Sonthalia, Analyst, Kredent Group
Indian Telecom Sector – Results and Overview
OVERALL OUTLOOK:
- The three major Telecom Sector Operators Bharti Airtel , Reliance Communications & Idea Cellular came out with their Q2FY10 results in October 2009.
- While Bharti Airtel & Idea cellular came out with results around analysts expectations Reliance Communications posted figures which were way below street expectations
- The companies witnessed muted growth on top line front with sales not growing as analysts expected. This was due to less than expected growth in subscribers and with a decline in ARPU’s and MOU’s over the last five quarters
- Among the key revenue segments Wireless services registered a less than expected increase with Passive Infrastructure(towers) business registering a healthy increase The companies witnessed muted growth in EBITDA margins but PAT margins registered a healthy increase mainly on account of cost cutting and decreasing interest costs
- The current outlook of the telecom operators looks bleak considering growth which was a major factor for the valuations which the companies used to command is bottoming out because we are witnessing teledensity of more than 100% in the major metros which are major revenue drivers, intensifying competition because of entry of new players like MTS, Tata DOCOMO and with companies like Uninor, Swan, Loop due to start operations existing operators do have to slug it out to fight competition of falling call rates and subscriber churn
- Increasing competition and muted growth has made telecommunication a matured play and with the rural market being a low margin segment the rural growth story will not command higher valuations and with new services like 3G and Wimax being delayed due to regulatory hurdles the present outlook for the industry doesn’t looks favorable and with Mobile Number Portability (MNP) due to come there would be a churn in subscriber base making it all the more difficult for the existing players
- Our analysis concludes that declining sources of revenue, a declining trend witnessed in ARPU’s and MOU’S, saturation of urban customer base, increasing competition and regulatory hurdles makes telecom an unfavorable play to be in at the moment and until there is a clear picture on revenue front which would come out after 3G auctions and with the regulatory hurdles sorted out any valuations made for these companies would be unjustified so we would suggest staying away from this sector even though all major players have seen their stock price tumbling by 30-50% and with most of the damage already being discounted
- We strongly believe that Bharti Airtel is the only stock in the sector which is to some extent suited to investment and one can add the stock to their portfolio since it would benefit with entry into the 3G spectrum (largest 2G subscriber base) and value unlocking from Bharti Infratel and Indus Towers
- ARPUs have declined continuously with increasing competition leading to price wars
- MOUs have along being declining with saturation of high usage metro circle and entry into the low usage rural circles
- Bharti and Idea’s market share has declined and Reliance Communication’s has increased. However this is mainly on account of entry into the GSM spectrum
- All of this has lead to a slowdown in revenue growth, however the operating margins are maintained on account of reduction in advertising expenses and interest cost
Author: Rahul Sonthalia, Analyst, Kredent Group
Reliance Industries Q2 Results
Reliance Industries Result Highlights
Price performance
| Time Period |
Stock |
Nifty 50 |
| 1 MONTH |
-7.49 |
-5.12 |
| 3 MONTH |
4.03 |
5.25 |
| 1 YEAR |
66.38 |
76.14 |
Reliance Industries Market Data as on 29th October 2009
| LISTING | NSE/ BSE |
| MARKET CAP (Cr.) |
Rs. 3,34,482 |
| 52-WEEK HIGH |
Rs. 2490.0 |
| 52-WEEK LOW |
Rs. 1021.0 |
| BETA |
1.25 |
| CURRENT PE (x) |
22 |
| INDUSTRY PE (x) |
n/a |
Financials
Reliance Industries Ltd. declared its second quarter results today. The results came in line with the Bloomberg consensus expectations.
RESULT HIGHLIGHTS:
- Reliance’s standalone net profit fell by around 6% YoY, to Rs. 3,852 cr. from Rs. 4,116 cr. This was mainly on account of a lower gross refinery margins (GRMs)
- The total turnover rose by around 5% YoY, to Rs. 46,848 cr from Rs. 44,688 cr.
- Its petrochemical segment sales are down by around 14% YoY at Rs. 13,340, while the refining segment revenues remained flat
- Its turnover from the Oil & Gas segment rose on account of ramp up of the gas production from the KG basin
- Company’s GRMs stood at US$ 6.3/barrel for the half year and US$ 6.0/ barrel for the quarter ending 30th September, 2009 which is one of the key causes of disappointment given the complex nature of its refinery
- Its operating margin improved by around 90bps from 15.5% to around 15.4%
- Depreciation cost for the company jumped 92.4% to Rs 2,432 crore. This is mainly on account of higher depreciation in Oil & Gas and Refinery & Marketing business
- Its other income jumped by around 316% and there was substantial gain on the inventory front too
- For the half year ending September 2009 the EBIT margin from its refinery business fell to 4.1% as compared to 8.4% in the previous year mainly on account of over capacity with the addition of SEZ refinery and lower demand at the global level
- Even though the half year EPS is only around Rs 46 we believe it to touch around 110 levels for the full year on account of further ramp up of the gas production
Experts on the street believe that the numbers are disappointing as per their estimates and on account of lower margins and higher other income and they expect the stock to test Rs. 1900 levels.
Author: Rahul Sonthalia, Analyst, Kredent Group
Hero Honda net profit rises by 95%
Hero Honda net profit surges by 95%
Results highlights – India’s largest manufacturer of motorcycles, Hero Honda Motors second quarter results were ahead of the market’s expectation mainly on account of better margins. The company reported a strong surge of 95% in net profit to Rs 597.14 crore compared to the second quarter of financial year 2008-09. A similar sharp surge came in the first quarter ending June, when net profit rose by 83 per cent to Rs 500.11 crore.
The growth in sales is 26.8% compared to the same quarter in previous financial year. The company reported a strong total income of Rs4,059.4 crore. This was driven by huge volumes as the company sold more than one million units in the quarter.
Growth Factors – The festive season spread over two months during the quarter worked wonders for the company in terms of volume growth, which was also seen across all the segments in the automobile sector.
Decrease in raw material prices, depreciation, and the effective taxation rate at the Haridwar plant (from 28% in first quarter to 22.31% in second quarter).
Stock prices have been building up since August in accordance with strong market fundamentals and good earnings forecast. Prices touched a high of Rs.1724 in 3rd week of September and moved in the range of 1600-1700 ahead of the earnings announcement. Prices opened up on Thursday post announcement on rose up by 2.4% but were dragged down due overall weakness in the market. Prices corrected to close at Rs 1595, about 0.9% down from previous day on October 22, 2009. A better than expected performance failed to keep to prices at increased levels.
Caution – Though the company has achieved a strong volume growth in first half of FY2010, we believe that with the ongoing strikes at one of its major suppliers Rico Auto and few other auto ancillaries in the Gurgaon belt could lead to production constraints in second half of FY2010. Thus we believe that if the demand continues to remain strong, the ongoing agitations in the factories of its major suppliers could affect its production, thereby pushing down its sales volume on a quarterly basis.
Company expects an increase in prices of steel and aluminum between 5 to 10 per cent in the coming quarters as the economy revives. Increasing Interest rate can be threat to all the automobile players in the short term.
We believe given the sound management, consistent performance and expected increase in demand due to reviving economy makes it good long term bait for long term capital appreciation and stability of dividends. But all the above positive points are already factored in the current price. At the current market price of Rs1586, the stock trades at around 16.5x its FY2010E and 14.9x FY2011E Bloomberg consensus earnings of Rs97.6 and Rs108 respectively.
Results highlights – India’s largest manufacturer of motorcycles, Hero Honda Motors second quarter results were ahead of the market’s expectation mainly on account of better margins. The company reported a strong surge of 95% in net profit to Rs 597.14 crore compared to the second quarter of financial year 2008-09. A similar sharp surge came in the first quarter ending June, when net profit rose by 83 per cent to Rs 500.11 crore.
The growth in sales is 26.8% compared to the same quarter in previous financial year. The company reported a strong total income of Rs4,059.4 crore. This was driven by huge volumes as the company sold more than one million units in the quarter.
Growth Factors – The festive season spread over two months during the quarter worked wonders for the company in terms of volume growth, which was also seen across all the segments in the automobile sector.
Decrease in raw material prices, depreciation, and the effective taxation rate at the Haridwar plant (from 28% in first quarter to 22.31% in second quarter) led to the higher bottom line compared to the 26.8% increase in top line
Hero Honda vs. Index (source: BSEINDIA.COM)
Stock prices have been building up since August in accordance with strong market fundamentals and good earnings forecast. Prices touched a high of Rs.1724 in 3rd week of September and moved in the range of 1600-1700 ahead of the earnings announcement. Prices opened up on Thursday post announcement and rose up by 2.4% but were dragged down due overall weakness in the market. Prices corrected to close at Rs 1595, about 0.9% down from previous day on October 22, 2009. A better than expected performance failed to keep to prices at increased levels.
Caution – Though the company has achieved a strong volume growth in first half of FY2010, we believe that with the ongoing strikes at one of its major suppliers Rico Auto and few other auto ancillaries in the Gurgaon belt could lead to production constraints in second half of FY2010. Thus we believe that if the demand continues to remain strong, the ongoing agitations in the factories of its major suppliers could affect its production, thereby pushing down its sales volume on a quarterly basis.
Company expects an increase in prices of steel and aluminum between 5 to 10 per cent in the coming quarters as the economy revives. Increasing Interest rate can be threat to all the automobile players in the short term.
We believe given the sound management, consistent performance and expected increase in demand due to reviving economy makes it good long term bait for long term capital appreciation and stability of dividends. But all the above positive points are already factored in the current price. At the current market price of Rs1586, the stock trades at around 16.5x its FY2010E and 14.9x FY2011E Bloomberg consensus earnings of Rs97.6 and Rs108 respectively.
Full disclosure: No position at the time of this writing. Please do your own research before making an investment decisions for HEROHONDA.
Authors:
Vineet Patawari , B.Com (H), ACA, PGDM (IIM Indore)
