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Downgrade to SELL with a TP of Rs 2,275 (17x Jun19E). Dr. Reddys Labs (DRRD) posted weak numbers, with the top-line growing only ~3% YoY in 1QFY18. This was led by a 3% decline in the US business and a 10% decline in domestic revenues. The EBITDA margin came in at 9.2%, sinking ~700bps QoQ, with the gross margin plummeting to 51.5% during the quarter. Incremental competition in the US continues to erode profits in the absence of new lucrative product launches. The impact of GST on the domestic business also contributed to the margin decline. PAT was Rs 591mn, down 53% YoY despite the low base.
Retains Guidance, But Organic Growth Will Be Smaller Contributor HCL Technologies' (HCLT) 1QFY18 QoQ revenue growth of 2.6% in CC terms was below our estimate of 3.6%. Moreover, the organic growth was a disappointing 1.3% (our estimate was 2.0%). For FY18, while HCLT has retained its revenue growth guidance of 10.5%-12.5% in CC terms and 19.5%-20.5% CC EBIT margin, we believe the former will be less driven by organic revenues than assumed earlier (6%-7%). After a great FY17, HCLT sounded fairly cautious on prospects of the IMS service line (~40% of revenues) in FY18 because of slower decisionmaking by clients which is quite surprising as we did not hear any such commentary from peers. In 1QFY18, poor organic growth was led by disappointing performance in its IMS and...
Biocon's revenues in 1QFY18 remained flattish at Rs9,337mn, posting sequential growth of 0.3% and YoY decline of 5%. They were below our/consensus estimates by 5%/6%, respectively. The revenue decline was on account of: sluggish API sales impacting the small molecule segment (down 8% QoQ), lower licencing income, channel destocking because of Goods and Services Tax or GST implementation in India, a weak US dollar impacting exports and continuous impact of Syngene performance after a fire incident there in December last year. Revival of growth in the near term hinges on successful approval and launch of biosimilars in emerging markets which, in our view, will be a gradual process and gain...
Government to sell stake in HPCL to ONGC; Impact negative to neutral The Union Cabinet has given its approval to the sale of 51.11% government stake in Hindustan Petroleum Corporation (HPCL) to Oil & Natural Gas Corporation (ONGC). In the long run, with global oil marketing companies or OMCs consolidating, ONGC's acquisition of HPCL will combine the upstream and downstream oil & gas operations and there could be some benefits of integration. However, in the short to medium-term if ONGC sells Mangalore Refinery & Petrochemicals or MRPL stake to HPCL to integrate refining operations, there could be worsening of the balance sheet of HPCL because of the increase in debt to fund the...
Maintain SELL with a TP of Rs 220 (ACC/ACEM at 9.0/10.0x June 19 EV/EBITDA). Ambuja Cement (ACEM) reported an EBITDA/t of Rs 1,010/t (vs. estimate of Rs 885/t, 2.2% YoY, 67.1% QoQ). Strong pricing in both West (~40% of dispatches) and also East (~25%), drove realisations up 10.9% QoQ (Rs 4,651/t, 7.6% YoY, est 8.0% QoQ). Other operating income was also higher (Rs 380mn, 94.1% YoY, 30.8% QoQ), and this added to the earnings beat (Rs 3.71bn, -13.2% YoY, 59.1% QoQ).
with volume growth of ~4% (est. of flat growth) in the domestic decorative paints business. The quarter failed to build on a good start due to destocking ahead of GST implementation....
1QFY18, with volumes down 18.9% YoY (est. of -9%). According to management, adjusted for operating model changes, sales were down 7% YoY. Trade down-stocking in anticipation of highway ban also impacted sales by 3- 4%. Gross sales declined 0.6% YoY to INR58.2b, with excise duty as % of sales up 420bp YoY to 69.4%. Overall 1Q volumes fell 18.9% YoY to 18m cases. Popular volumes fell 25.6% YoY to 9.6m cases, while Prestige and above volumes declined 9.7% YoY to 8.4m cases. Gross margin expanded 270bp YoY to 46%,...
Persistent Systems' (PSL) 1QFY18 QoQ USD revenue growth of 3.6% was in line with our expectation. However, growth in linear' services revenues (73% of total) was a stronger-thanexpected 4.2% QoQ in USD terms, despite PSL's focus on increasing its non-linear' IP-based revenues (27% of total) which grew 2.1% QoQ. EBIT margin at 9.0% (our estimate 10.1%) declined 350bps on QoQ basis (excluding one-off items in 4QFY17). This is even before higher wages hitting the P&L; account, starting from 3QFY18, being delayed by three months. The decline was attributed to INR appreciation (120bps), higher onsite mix and investment in partnerships with USAA' and Partners Healthcare' (90bps), visa and M&A-; related costs (70bps) and others like lower employee utilisation, investment in sales and higher bad debt...
Industry Matching Growth To Be Elusive, But Buyback To Support Stock Wipro reiterated its promise of industry-leading/matching growth (undefined) by 4QFY18, despite delivering below industry QoQ revenue growth for 1QFY18 (but at the upper end of its very modest guidance) and lower-than-expected 2QFY18 guidance (-0.5% to 1.5% CC growth). The pick-up in growth is expected to be driven by: 1) Continued traction in Energy and Utilities business, which bottomed out earlier than expected in 4QFY17 and where it has a market-leading position. 2) Return of India and Middle East businesses to growth. (3) Continued traction in the BFSI space where it...
to INR22.3b, missing our estimate of INR23.8b by 7%. EBIDTA margin of 6.6% (+120bp YoY) too was below our estimate of 9.7%. EBITDA rose 30% YoY to INR1.5b, but came in below our estimate of INR2.2b due to ECL provisioning done under Ind-AS accounting system and expenses incurred on developing new products. PAT of INR0.8b too missed our estimate of INR1.1b....
Lowered Guidance Is Still At Risk: Mid Single-digit Growth Likely Mindtree's 1QFY18 performance was significantly below our and street expectations, both on revenues and more so on the margin front. 1.2% CC QoQ revenue growth in 1QFY18 was against our estimate of 3.9%. While we were expecting only mid single-digit growth in FY18 versus guidance of low double-digit' revenue growth (see our recent initiating coverage report Not Too Late To Sell: Market Is Giving It The Benefit Of Doubt), we expected a stronger start to the year. EBIT margin at 7.6% declined 300bps on QoQ basis and 300bps below our estimate. The decline in margins was attributed to high visa costs...
Dragged by acquisitions, top clients and standalone margins 1Q miss reflects elevated pressures: MTCL's 1QFY18 revenue grew 1.2% QoQ CC versus our estimate of +3% QoQ, dragged by acquired companies' performance: QoQ decline of 19% in Bluefin and 13% in Magnet360 (negative impact of 1.4pp on growth). This, combined with visa costs (140bp impact) and a stronger INR (90bp), drove ~300bp EBITDA margin contraction to 11%, well below our estimate of 13.9%. Adj. PAT declined 5% QoQ to...
provide for any potential acquisition opportunities that may be available bhupendra.tiwary@icicisecurities.com in the course of business. However, the argument seems unconvincing as the company has failed to attract investors' attention. In addition, the English segment's ad growth continues to be elusive. We assign a SELL rating to the stock valuing it at 10x FY19E EPS of | 7.8, with a revised target price of | 78. We highlight that any multiple re-rating can only happen post clarity on the cash allocation or if there is a marked...
2QCY17 results are ACC's best since 2QCY12. However, its costs remain one of the highest in the industry, led by legacy operations. With no capacity addition scheduled, volume growth will taper after 1HCY18, as the expansion in the East gets factored in. Valuations at 15.6/12.1x CY17/18E EV/EBITDA remain expensive, especially given low return ratios (~15% RoE/RoCE in CY18E). We remain cautious (TP: Rs 1,459, 10x June 2019 EBITDA, US112/t) ACCs numbers were inline (EBITDA/t at Rs 704/t vs estimated Rs 699/t, 7.7% YoY, 48.0% QoQ). The company witnessed double-digit volume growth (6.74 mT, 10.1% YoY) for the first time since 3QCY11, led by capacity addition in the East (4 mTPA, commissioned by 3QCY16). Strong pricing (Rs 4,509/t, 5.7% YoY, 5.7% QoQ) also aided growth, as overall costs remained flattish QoQ (Rs 3,805/t, 5.3% YoY). Other operating income surprised (Rs 1.4bn, ~2x YoY), driving the earnings beat (Rs 3.2bn, 35.3% YoY, 52.1% QoQ, est Rs 2.85bn)
+2%) to INR85.3b. Domestic consumer business grew 6% YoY, with flat volumes (est. -1%). EBITDA increased 14.1% YoY to INR18.7b (12% above estimate) and PAT (bei) rose 14.6% YoY to INR12.9b (11% above estimate). Home care revenues were up 5.9% YoY, while personal care witnessed 3.5% YoY growth in sales. Foods business sales were up 4.3% YoY, while refreshment sales increased 10.8% YoY. Home care EBIT margin expanded by 230bp YoY and personal care margin by 50bp YoY. Among the smaller segments, foods margin...
On 17 July 2017, the Indian government announced the new GST rates applicable on cigarettes. The tone of the GST Council's press release appeared to indicate a reversal to neutral GST levels, from the earlier indication of beneficial rates for ITC after the abolishment of additional excise duty (as per the 1 July announcement). However, a closer look at the latest press release indicates that the revised GST rates are higher than the erstwhile indirect tax rates, and also much higher than the assumed GST rates after the announcement on 1 July 2017....
After a disastrous performance in 4QFY17, Jubilant FoodWorks (JFL) has reported a strong set of numbers for the quarter ended June 30, 2017, ahead of our estimates. While net revenues grew by 11.5% YoY to Rs6.8bn (estimate of Rs6.4bn), Net profit surged by 25.5% YoY to Rs238mn...
(1) SSSG of 6.5% in 1QFY18 was led by growth in business volumes, mostly due to good response to Everyday Value' strategy for Domino's Pizza. (2) Benefits of cost rationalization efforts in association with AT Kearney will be witnessed mainly in 3QFY18 and 4QFY18. (3) 255bp negative...
US BFS Pick-up And Mediocre Large Deal TCV Are Pain Points The reiteration of revenue growth guidance by Infosys of 6.5%-8.5% in constant currency (CC) terms (7.1%-9.1% in USD terms) requires 2% CQGR for the next three quarters to hit the lower end. This, we believe, is contingent on a pick-up in the US BFS sector which looks increasingly difficult in 2017. Therefore, modest risk to even the lower end of its revenue guidance exists despite an in-line performance in 1QFY18. Mediocre total large deal TCV at US$657mn (most of which is renewal-related) in our view will also exert pressure on growth in the coming years. While Infosys' management wanted focus on...
