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Coal India’s 1QFY17 EBITDA (ex-OBR) of INR38.6b (-24% YoY) was below estimate of INR43.4b on lower FSA realization. Grade mix deterioration impacted the realization. OBR provision continues under Ind-AS. PAT of INR30.6b (-19% YoY) was ahead of estimate of INR29b on lower than estimated OBR provisions. Other income was down 13% YoY to INR17.6b (in-line) due to lower cash and equivalents.
Continuously improving coal prices in the international market strengthen the case for import substitution, but the volume growth has been elusive so far perhaps because of falling specific consumption of coal in power plants and growth in supply of alternative fuels e.g. gas, Nuclear, Renewables. Non-power sector demand is likely to pick up, in our view. Uncertainties regarding (1) Impact of deteriorating grade mix on realization (2) exact quantum of wage hike pending negotiation and (3) volume growth are fueling volatility to earnings. Although we remain positive on long term prospect, the near term uncertainties are likely to de-rate the stock. Further, there is limited upside to the target price.They downgrade the stock to Neutral
PTC India Limited recently participated in a conference call with Dr Pawan Singh, Director (Finance) & CFO of PTC India Financial Services (PFS). The company’s loan (assets) growth is expected to continue with renewable segment as the major contributor. On the liability side, a shift to the MCLR regime on bank borrowing is expected to result in lower cost of funds ahead, thereby providing impetus to margins. Post slippage seen in Q1FY17, asset quality is expected to remain stable with a near term recovery as the accounts that slipped in the previous quarter have been recovered. As of June 30, 2016, the capital adequacy ratio remains at a healthy ~21% aided by lower risk weighted assets.
With large growth opportunities in renewable energy project financing and PFS niche position, RoA, RoE still remain healthy and are expected at 3.0%, 15.3% in FY18E, respectively, aided by double digit PAT growth. Margins are expected to stabilise at 5.0-5.3%, with benefit from shifting to MCLR pouring in. Going ahead, we do not see any sharp asset quality deterioration at least in the near term. Therefore,they revise target multiple at 1.15x FY18E ABV (earlier 1.1x) at | 33.8. Consequently,revise their target price from | 37 to | 39 per share. They maintain HOLD rating on the stock.
We recently met Ramakanth V Akula, Chief Executive Officer of The Waterbase Ltd (TWL) to get an insight into the domestic aquaculture market and the company's role in the value chain. TWL is an aquaculture company established in 1987 in Nellore (Andhra Pradesh), belonging to the Karan Chand Thappar Group. It is primarily involved in manufacturing shrimp feed for the domestic market and export of processed shrimps. TWL has an installed capacity to manufacture 35000 tonne of shrimp feed annually. In FY16, TWL sold 42000 tonne of shrimp feed (including traded...
Balkrishna Industries’ (BIL) Q1FY17 revenues came in at | 928 crore (up 8.4% YoY) vs. our estimate of | 856 crore. Volumes grew 11% YoY to 43,306 MT (includes sales of 1,850 MT in Q4FY16 adjusted in Q1FY17) vs. expectations of volumes ~40,057 MT for the quarter • EBITDA margin at 28% (up 1518 bps YoY) was higher than estimate of 27%. The company has seen marginal benefit of forex gains thereby impacting margins. Subsequently, reported PAT came in at | 149 crore (up 46.1% YoY) vs. our estimate of | 110 crore • BIL has adopted Ind AS. Accordingly, there have been some major adjustments in Q1FY16 (last years) numbers as also accounting treatment for volumes sold during the period.
BIL is an export dominated niche play and is well placed to capture the demand revival opportunity. Though the management remains cautiously optimistic it has revised its volume guidance upwards signifying pre-signs of demand revival. Its strategy of higher utilisation, repayment of debt & deepening its reach will revive its performance. Thus,they value BIL at 13x FY18E EPS to arrive at a target price of | 925 with a HOLD recommendation on the stock. Any unfavourable regulatory changes (countervailing duty of 3-5% in US) may impact its performance.
Coal India (CIL) reported a subdued set of numbers wherein topline and PAT came in below our estimates while EBITDA came in line with our estimate. Reported PAT was lower than our estimate on the back of lower-than-expected other income and higher-than-expected tax rate .The company reported a total operating income of | 18421.9 crore, down 5.6% YoY lower than our estimate of | 19272.3 crore. The coal offtake came in line with our estimate at 133.2 MT up 2.9% YoY. However, the blended realisation during the quarter came in at | 1335.6/tonne, down 8.8% YoY, lower than our estimate of | 1401.6/tonne. FSA volume during the quarter came in at 107.7 MT with realisation of | 1239/tonne down 4.3% YoY (our estimate volume: ~108 MT, FSA realisation estimate: | 1315/tonne). The lower FSA realisation was on account of an inferior grade mix. Eauction volumes came in at 20.5 MT with realisation of | 1570/tonne down 28.1% YoY (our estimate of volume: ~17.0 MT and e-auction realisation estimate: | 1600/tonne).
Outlook and Valuation : During the current fiscal, Coal India registered meagre sales volume growth. For the first five months (April-August 2016), sales volumes remained flat at 211.1 MT primarily on the account of muted demand from end users. Subsequently, we have downward revised our sales volume estimate for FY17E and FY18E to 559 MT and 600 MT, respectively (from earlier sales volume estimate of 575 MT for FY17E and 625 MT for FY18E). We value the stock at 7.5x FY17E adjusted EV/EBITDA and arrive at a target price of | 340. We have a HOLD recommendation on Coal India.
TV Today Network (TTNL) reported a good set of numbers for 1QFY2017 with its consolidated top-line growing by ~8% yoy for the quarter. On the operating front, the company reported margin expansion on account of lower selling & administrative expenses, which lead to the net profit growing by ~24% yoy for the quarter.
Outlook and Valuation: We expect TTNL to report a net revenue CAGR of ~16% to ~`743cr and net profit to post a ~16% CAGR to `128cr over FY2016-18E. The company has sustained its leadership position in the Hindi news genre for14 consecutive years while in the English news genre it currently holds the No.2 position. Further, its exit from the radio business should boost profitability. The company is debt free with `201cr of cash on its balance sheet. Hence, maintain our Buy recommendation on the stock with a target price of `363.
Nalco’s 1QFY17 EBITDA of INR1.9b (-18% QoQ/-13% YoY) was below est. of INR2.4b on lower aluminum volumes and higher costs. PAT of INR1.3b (est. of INR1.8b) was down 35% QoQ/17% YoY on higher depreciation due to accounting policy change.
The negative surprise on aluminum cost in the quarter was primarily on account of negative operating leverage from re-stocking led lower sales volume. We largely maintain our estimates and TP. We estimate Nalco’s aluminum production to increase from 372kt in FY16 to 441kt by FY18E as it increases smelter utilization on improved domestic coal availability.
With fixed cost of more than USD600/t, higher volumes would deliver better cost absorption. Its alumina business is in the 1 st quartile of global cost curve and would help tide through the current depressed alumina market. Cost of production has tailwind of improving domestic coal quality and start of its captive mines. Maintain Buy with TP of INR67.
Tata Steel’s 1QFY17 consol. EBITDA at INR32.4b (in-line) was up 47% QoQ on higher product spreads in Europe and higher steel prices in India. Long product Europe (LPE) was sold off resulting in ~INR33b write-off primarily relating to working capital. Adj. PAT at INR3.4b (9% miss) was down 44% YoY on lower other income.
Earnings cut on shrinking spreads; Downgrade to sell: Margins of TSI will come under pressure from sharply rising coking coal prices, as there is limited headroom to increase steel prices, in our view. TSE has benefitted from exit of LPE and GBP depreciation, but shrinking spreads will cap upside. We are cutting cons. EBITDA estimates by 13% for FY18E and target price by 18% to INR241/share based on SOTP. Downgrade to sell.
After gap of 4 years, both UVs & tractors to deliver double digit volume growth. M&M is taking initiatives through product actions and increased marketing focus on TUV/KUV to drive recovery in UV business. Micro-hybrid opportunity to drive recovery in bigger SUVS and support margins. Levers to off-set headwinds on margins; estimate ~100bp improvement by FY18. Strong earnings traction in core (24% CAGR) + Potential reduction in losses of non-core (Consol EPS CAGR 36%) + Attractive valuations (14.5x FY18 consol PE) = Buy.
Worst is over for M&M not only in its core businesses of tractors and UVs, but also in key subsidiaries. This would result in ~36% consol EPS CAGR over FY16-18E (v/s ~14% CAGR decline over FY14-16). With strong earnings cycle ahead in core business and potential reduction in losses of non-core business, valuations at ~16.9x FY18E S/A EPS, ~14.5x FY18E Consol EPS and ~6.3% FY18 FCF yield are very attractive. Maintain Buy, with SOTP based TP of ~INR1,713 (16x FY18 Core EPS + Subs at 20% HoldCo Discount).
GNA Axles (GNA) was established in 1993. The company is among the leading manufacturers of rear axles shafts used in on-highway & offhighway vehicular segments in India. Apart from rear axle shaft (accounts for 85% of revenue), it also manufactures other shafts (6% of revenue) & spindles (9% of revenue). The company has two manufacturing facilities both located in Punjab with a total annual capacity of 2.30 million (mn) rear axle shafts, 0.4 mn other shafts and 0.3 mn spindles. In terms of revenue bifurcation, as of FY16, domestic: export mix was at 45: 55, respectively. Over the years, GNA has focused more on the export market where its revenue contribution has increased from 35% in FY12 to 55% in FY16. The company exports rear axle shafts globally with North America, Europe accounting for 45%, 33% of its export revenue, respectively. GNA has a strong relationship with some global OEMs & tier-1 suppliers. It plans to raise ~| 130 crore, of which | 80 crore would be used for purchasing new plant & machinery & | 35 crore for its working capital requirement. Over FY12-16, revenue, EBITDA, PAT registered a CAGR of 6%, 12%, 11%, respectively. On the balance sheet front, as of FY16, its net debt to equity was at 0.8x with RoE & RoCE at 18.8% & 22.6%, respectively.
Valuation : At the upper price band of | 207, the stock is available at 17x on FY16 post issue diluted EPS of | 12.1. We believe GNA has a decent business model (strong customer base & diversified revenue) and financial performance. However, we believe the company is also fairly valued at the IPO price.
