The Morning Meeting Notes as on 21st April, 2010. Contents >nResearch Views >Hindustan Zinc Ltd – 4QFY10 result estimates >We expect HZL to report net sales of Rs23.5bn (yoy up 85.7%, qoq up 4.3%), >EBITDA of Rs15.2bn (yoy up 172.9%, qoq up 9.3%) and PAT of Rs13bn (yoy up >136.1%, qoq up 13.3%). HZL is expected to report EPS of Rs30.8. Key things to >watch out are company’s outlook on volume growth, reduction in operating cost >and capex plans. >TVS Motor Company Limited (TVSM) – Q4FY10 Result expectation >We expect TVSM to report strong revenue driven by a 29% YoY (11% QoQ) growth >in volumes. We expect EBIDTA margins to improve by 180 bps YoY and 80 bps QoQ. >Key things to watch out for (1) raw material price contracts (2) status of >Indonesian business and (3) success of new product launches. >qNet sales are expected to grow by 33.1% YoY and 11.1% QoQ to Rs 12.1bn. >qEBITDA is expected to grow by 78.8% YoY and 26.3% QoQ to Rs 860 mn. >qEBIDTA margin is likely to improve by 180 bps YoY and 80 bps QoQ to 7.1%. >qAPAT is expected to grow by 158.9% YoY and 77.3% QoQ to Rs 422 mn. >BILT (Consolidated) Q3FY10 resultsbelow estimates, however valuations remain >favourable >Strong volume growth and improved realisation boosted revenues by 52% >BILT’s Q3FY10 results were below estimates on the bottomline mainly due to >lower than expected EBITDA margins. Significant improvement in pulp and paper >realisations along with sharp increase in the pulp and paper sale volumes >supported topline growth at Rs 10.4 bn (+52% YoY / +17% QoQ). Paper sales >volumes increased by 35% YoY / 3% QoQ (208 thousand mt) due to commissioning >of capacity while paper average realisations increased by 2.5% YoY / 11% QoQ >to Rs 44,000 / mt. >Sharp jump in raw material prices adversely affected margins >BILT’s EBITDA margins at 19.6% as against our expectation of 24% affected the >results for quarter. Drop in margins (though YoY remained flat, declined by >300bps QoQ) is primarily contributed to higher RM cost due to sharp increase >in global pulp prices. The recent capacity expansion (300 thousand mt) at >Ballarpur and Bhigwan plant has increased dependency on imported pulp from 16% >in FY09 to 40% by FY10 making it more prone to vagaries in the global pulp >prices. Global pulp prices have increased by ~45% YoY and ~15% QoQ in Q3FY10. >Despite lower EBITDA margins, EBITDA increased by 50% YoY / 2% QoQ to Rs 2 bn >due to growth in revenues. >Pulp business regains its strength with RGP prices reaching all time high >During the quarter, profitability of pulp segment improved significantly due >to sharp increase in pulp prices and recovery of RGP demand. In base year >company’s RGP plant was affected due to no demand of RGP by its key customer >Grasim and RGP pulp contributed loss of Rs 107 mn in Q3FY09. However with RGP >demand picking up, sales volumes increased by 5x and RGP realisation are at >their all time high level at Rs 42,500 / mt. As a result this segment >contributed profit of Rs 243 mn. >PAT up by 148% on low base >Due to commissioning of new capacities, interest and depreciation increased by >40% and 36% to Rs 770 mn and Rs 639 mn, respectively but was in line with our >expectations. Amortisation for deferred revenue expenditure (Rs 70 mn) >continues in current quarter also. PAT (before minority) increased by 230% to >Rs 550 mn mainly on low base wile PAT after minority was up by 148% to Rs 443 >mn resulting in an AEPS of Rs 0.7 versus Rs 0.3 last year. >Disappointing results leads to earnings downgrade however valuations remain >favourable >BILT results have been disappointing us from previous three quarters mainly in >current year on account of lower than expected EBITDA margins. Recovery in >paper prices has been slower than our expectation. However industry has >witnessed price increase in few of the products during current quarter and >likely to witness few more price hikes in near future driven by recent >increase in pulp prices. Though recovery has been slower than our expectation, >industry valuations (approx 20% discount to book value and P/E multiple of 5x >of the industry) have been in favour of our investment arguments. In light of >slower recovery in industry and adverse previous results, we are likely to >reduce our FY10 estimates by ~30% and FY11 by ~10% (previous est FY10E Rs 4. 6 >and FY11 Rs 5.7). Given valuations at current price continue to remain >favourable at approximately 6x FY11 EPS and 10% discount to current book >value, we remain positive on the stock and maintain BUY. >NOTE - We have organized a conference call to discuss Q3FY10 results with the >management today, April 21, 2010 at 4.30 PM. Dial in numbers are : 022- 2821 >3311 / 2821 8855 >nResearch Update Included >TCS Q4FY10 Result Update ; In line quarter, retain ACCUMULATE ; Target: Rs 860 >TCS reported revenues at US$ 1686 mn (+3.1% QoQ, +17.7% YoY) lower than >expectations (Emkay est of US$ 1704 mn). However significant cost controls >(despite a net addition of ~11k employees) resulted in margins expanding by >~20 bps QoQ to 29.9% (V/s expectations of ~30 bps decline). >Better than expected margin performance and higher other income lead to net >profit beat. Profits at Rs 19.3 bn (+7.4% QoQ, +46.9% YoY). >Operating metrics performance fails to excite especially in the context of >Infosys’s splendid show >We are slightly surprised by the lower growth in financial services revenues >after the superior performance in the past 2-3 quarters at ~1.7% QoQ wherein >peer Infosys seemed to maintain/gather momentum. We believe TCS might have >seen some form of market share loss in key financial services a/c during the >quarter >Tweak FY11/FY12 estimates marginally for higher revenue growth as we now build >in a 21%/17.4% YoY revenue growth (V/s 19.2%/16.8% earlier) resulting in >marginal change to our FY11/12 EPS estimates to Rs 39.5/43 (V/s Rs 38.9/Rs 43 >earlier). >Retain ACCUMULATE with an unchanged price target of Rs 860. We continue to >prefer Infosys over TCS (since the change in Jan’10) on a/c of (1) higher >earnings CAGR over FY10-12E at 15.6% (V/s 10.7% for TCS), (2) more operational >levers ( read utilization) and (3) superior cash generation profile. >Hero Honda 4QFY10 Result Update ; Above expectation, maintain ACCUMULATE ; >Target: Rs 2,280 >Hero Honda’s (HH) 4QFY10 net profit at Rs6bn was 8% above expectation. EBIDTA >margins at 17.3% were 60bps higher that our expectation driven by lower raw >material to sales ratio as complete impact of rising metal prices is yet to >filter in. Also better product mix (higher production at Haridwar plant) aided >lower RM to sales ratio. We believe that 1QFY11 will set the trend for margins >as the impact of ~10% increase in domestic metal prices since March 2010 will >be visible. >We have upgraded our FY11 EPS estimate by 5.2% to Rs 131.1 largely due to >increase in volume estimates by 2.7% to 5.2mn units, indicating a 12% volume >growth. HH will get complete benefit of ancillarization at Haridwar from >1QFY11. We have modeled our FY11 estimates based on production of 1.6mn units >(vis a vis 1.4 mn in FY10) at Haridwar. We introduce our FY12 estimates. We >expect volume growth of 10% to 5.7mn units and EPS of Rs152. We maintain our >ACCUMULATE rating with a target price of Rs2280, valuing the company at PER of >15x our FY12 estimates. >Banking Sector Update ; Annual monetary policy statement 2010-11 >The Reserve Bank of India (RBI) has raised CRR, reverse repo and repo rate by >25bps each in annual monetary policy statement for 2010-11. Though repo and >reverse repo rate increase was inline with market expectations (our >expectations NIL), 25bps increase in CRR was lower than our expectation of >50bps. The hike in policy rates is followed by 75bps hike in CRR in the Third >Quarter Review of January 2010 and mid-cycle increase of 25 basis points each >in the repo rate and the reverse repo rate on March 19, 2010. >The focus of monetary policy statement for 20010-11 has now clearly shifted >from growth to inflation management. The growth forecast has been upped to 8% >for FY10-11 (vis-à-vis 7.5% in FY10) with two key risks being southwest >monsoon for 2010 and inflation. >We expect the 10-year G-Sec yields to remain around 8-8.2% for FY11. We expect >the banks to raise lending rates by 25-50bps over next few months, even as >they have remained immune to policy changes till date. Our top picks in >banking space are Andhra Bank, Bank of Baroda, PNB and South Indian Bank. >nTechnical Comments >Inside day >Today, Nifty broke the five-day losing streak with an inside bar on daily >charts, which indicates that today’s high of 5258 will act as a key resistance >level going forward. Moreover, the inside bar formation was witnessed on the >support of 50-daily exponential moving average. Hence, if Nifty managed to >surpass the high of 5258 then the bounce can extend upto 5310 levels. On >hourly chart too Nifty is forming an inverse head-and-shoulders pattern whose >neckline is packed at 5258 level. So the penetration of neckline will also >take Nifty to 5310 level, which is the conservative target for inverse >head-and-shoulders pattern. >BSE Bankex:BSE Bankex continued its northbound journey and outperformed the >broader markets. Finally this index closed at 10679 with a gain of 1.53%.On >the daily chart this is trading above the 21DEMA as well as this index had >already retraced 38.20% of the recent fall from 11045 to 10388, thus now it >can test 10717 and 10794 which are 50% and 61.80% retracement level of the >above mentioned fall. >nResults Today >HCL Tech Hindustan Zinc Piramal Health Polaris Soft TVS Motor United Spirits >Click here to read report: 9AM with Emkay >Emkay Retail Advisory | Emkay Global Financial Services Ltd.| >www.emkayglobal.comParagonCenter, H -13-16, 1st Floor, Opp. Century Mills, >Pandurang Budhkar Marg, Worli, Mumbai - 400 013 | Fax: +9122-66610307 > >
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