ITC - 2QFY18 Result Update - Modest Quarter; Valuations in Favour
ITC
has reported muted set of numbers in 2QFY18 with its net sales and net
profit growing by 7.2% YoY and 5.6% YoY to Rs102.3bn and Rs26.4bn,
respectively. Gross revenues before GST grew by 3.9% YoY to Rs163.9bn.
EBITDA margins declined by 80bps YoY to 35.9%.
We
estimate ITC to post revenue and earnings CAGR of 9.9% and 12.4%,
respectively through FY17-19E. Based on expected EPS of Rs10.6, the
stock currently trades at an attractive PE multiple of 25.4x FY19E
earnings, which is at a 35% to the consumer sector multiples (ex-ITC).
The stock has corrected by >20% post revision in GST rates, thereby
providing some margin of safety, in our view. Notwithstanding the
near-term concerns, we maintain our BUY recommendation on the stock with
a revised Target Price of Rs323 (from Rs336 earlier).
Muted Quarter for Cigarette Biz
We
estimate the cigarette volumes to have fallen by ~6-7% YoY during the
quarter. Post the revised GST rates and compensation cess, ITC effected a
14% price increase across the portfolio, which led to volume de-growth.
We expect the situation to normalise in 2HFY18 with gradual acceptance
of the price increase by the consumers. Although the reported cigarette
sales are not comparable due to
re-classification of line items post GST, segmental EBIT grew by 2.3%
YoY to Rs32.9bn. Segmental EBIT was also impacted due to higher costs
associated with transition to GST due to non availability of additional
duty surcharge credit on transition stocks.
Decent Growth in FMCG Biz despite GST Transition
Reported
revenue from the non-cigarette FMCG business rose by 5% YoY to Rs28bn
(comparable sales growth of 10%), while it registered an EBIT of Rs205mn
vs. loss of Rs33mn in the base quarter. Revenue growth was led by
branded foods and personal care segments, but was adversely impacted due
to on-going restructuring in lifestyle retailing business.
Mixed Performance in Other Segments
Revenue
from Hotels remained largely flat at Rs3bn, although EBIT improved from
Rs7mn to Rs42mn. While room revenues increased at a healthy pace due to
higher ARRs, F&B revenues were adversely impacted due to ban on
liquor near highways. Paperboard revenues fell by 1.7% YoY to Rs13.1bn
due to
subdued demand in FMCG and cigarette business, but segmental EBIT grew
by 18.2% YoY to Rs2.7bn on the back of improved product-mix and cost
saving initiatives. Agri-business revenues rose by 4.7% YoY to Rs19.7bn,
but EBIT fell by 13.7% YoY to Rs2.6bn due to shortage of leaf tobacco
and stronger INR, which impacted exports.
Outlook & Valuation
With
this modest quarterly performance, we believe that the worst is behind
for ITC. The current stock price is 20% lower from the date on which
revised GST rates on cigarettes were announced, thereby providing some
margin of safety. We continue to remain positive on the stock
considering ITC’s dominant market leadership, pricing power, strong cash
flow generation and attractive multiples. We maintain our BUY recommendation on the
stock with a revised SOTP-based Target Price of Rs323 (from Rs336 earlier).
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Yes
Bank continued to deliver higher-than-estimated operating performance
in 2QFY18 driven by sharp sequential growth in NII and other income
along with stellar business growth
led by consumer loans and business banking portfolio. However, the Bank
reported the highest ever fresh slippages to the tune of Rs19.9bn led by
substantially higher divergence, as suggested by the RBI in Annual Risk
Based Supervision Audit and elevated slippages (Rs7.7bn) from other
stressed sectors. The Bank has reported a divergence of Rs63.5bn on
gross NPA front in RBI Annual Supervision Audit for FY17, out of which
only 19% (Rs12.2bn) slipped into NPA, while the remaining got either
resolved or sold.
Management Commentary & Guidance
- Out of total divergence of Rs63.6bn; 47% got upgraded on satisfactory conduct, 27% got repaid and 7.3% got sold to the ARC. The rest 19% reported as fresh slippages in 2QFY18.
- The Management has shared last 3 Risk Based Supervision Audit for FY15, FY16 and FY17, which reveals the Bank on an average has witnessed ~16% net slippages to NPA.
- Further, the Bank has exposure to 9 corporate accounts out of total 40-45 accounts referred to Insolvency & Bankruptcy Code (IBC) by the RBI. It has total exposure of Rs14.3bn towards these accounts. Out of which only Rs1.7bn are currently classified as standard asset.
- The Management ruled out any overlap among any divergence reported in the RBI Annual Supervision Audit for FY15, FY16 and FY17. Further, maximum divergences are from Infra & Infra related accounts.
- The Bank continues to maintain credit cost guidance of 70bps for FY18, compared to actual credit cost of 48bps in 1HFY18.
- The Management looks forward to 25-30% growth in loan book in FY18, compared to 12.4% YTD. Further, it expects 3.7-
3.8% growth in NIMs in current fiscal.
Outlook & Valuation
YES
Bank is making sustained progress towards building a strong retail
franchise, which in our view would add depth to its balance sheet and
boost earnings. Further, recent developments indicate that the Bank has
been able to manage the issues of asset quality effectively. Further,
the Bank also raised capital to support its aggressive growth plan over
next 2-3 years. Looking ahead, we expect the Bank to sustain continued
improvement in operating metrics led by dwindling headwinds on asset
quality front and improving
balance sheet growth especially from retail segment. Hence, we
maintain our BUY on recommendation the stock with a revised Target Price
of Rs350 based on 2.7x FY19E Adjusted Book Value.
Other Post on YES Bank : Future of yes bank after stock split
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CG Consumer Electricals - 2QFY18 Result Update - A Strong Show; Fundamentals Remain Intact
Led
by
volume growth, Crompton Greaves Consumer Electricals (CGCEL) has
reported a strong performance in 2QFY18. Its reported revenue grew by
6.6% YoY to Rs9.6bn, while adjusted revenue – considering the impact of
Excise Duty – grew by 15.9% YoY. CGCEL’s reported PAT grew by 23.3% YoY
to Rs0.7bn, while adjusted for non-cash ESOP charge of Rs141mn, its PAT
surged by 39.8% YoY. We believe that the expected strong double-digit
growth in light electrical industry augurs well for CGCEL. Thus, we maintain our BUY recommendation on the stock with an unrevised Target Price of
Rs246.
Strong Growth in Lighting Biz Boosts Adjusted Revenue
Revenue
from lighting business – which contributes 35% to CGEL’s total sales –
grew by 15.5% YoY. Within the lighting
business, LED segment grew by 25% YoY to account for ~70% of its total
CGCEL’s lighting sales. Consumer Electrical segment, which contributes
~64% to CGCEL’s total revenue, grew by 2.4% YoY. Sales volume of premium
fans also remained strong. The markets witnessed some normalcy
following disruption in run-up to and following GST roll-out, which led
to notable improvement in two biggest businesses i.e. Fans &
Lighting. While leveraging innovation in Anti Dust Fans led to gain in
consumption market share in Fans segment, cost optimisation led to
healthy growth in B2C lighting growth. The
Company expects the business to back to normal by 3QFY18-end.
Higher Margin Aids Bottom-line Growth
CGCEL’s
EBITDA margin grew by 133bps YoY to 12.6% in 2QFY18 led by improved
margin in
electrical consumer durable and lighting products business. While the
margin from electrical consumer durable segment improved by 347bps YoY
to 17.8% in 2QFY18 (vs. 14.4% in 2QFY17), the lighting products business
segment witnessed 90bps YoY improvement in margin to 12.6% in 2QFY18.
Stable cost structure owing to continued efforts on operational
efficiencies and improved margins led to 23.3% YoY growth in reported
net profit to Rs0.70bn.
Outlook & Valuation
We
expect CGCEL’s business to recover in next 1-2 quarters, as normalcy is
steadily getting restored post GST roll-out. We expect CGCEL’s revenue
and earnings to witness 16.4% and 23.5% CAGR, respectively over FY17-19E
driven by strong product portfolio of established brands, market
leadership and strong distribution
network. The Company is expected to deliver RoCE in the range of 30-40%
during the same period. We maintain our BUY recommendation on the stock with an unrevised Target Price of Rs246 (Valuing at 35x P/E to its FY19E EPS).
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Jubilant Foodworks - 2QFY18 Result Update - Revenues in line but strong EBITDA beat; Upgrade to HOLD
Surpassing
our estimates, Jubilant FoodWorks (JFL) has posted a strong performance
in 2QFY18. While net revenues grew by 9.2% YoY to Rs7.3bn in line with
our estimates, EBITDA surged by 59% YoY to Rs1bn vs. our estimate of
Rs796mn. Led by sharp fall in operating costs, JFL’s net profit surged
by 125% YoY to Rs485mn vs. our estimate of Rs239mn. Same Store Sales
(SSS) growth came in at 5.5% YoY. Depreciation charge declined by 11%
YoY
to Rs326mn due to reversal of accelerated depreciation from 1QFY18,
thereby aiding earnings growth.
Considering
sharp improvement in margin profile due to low store addition,
aggressive cost reduction and lower base
effect coupled with stable SSS growth, we are revising our
revenue/EBITDA/PAT estimates upwards by 4.8%/17%/35%, respectively for
FY19E. On account of high operating leverage, we expect recovery in SSS
would lead to sharp improvement in margins. Hence, we upgrade our
recommendation on the stock to HOLD from REDUCE with an upwardly revised
Target Price of Rs1,586 (from Rs922 earlier).
Stable SSS Growth with No Store Addition
SSS
grew by 5.5% YoY compared to 7% YoY in 1QFY18. Looking ahead, we expect
lower base effect to result in higher SSS
growth in coming couple of quarters. While the Company added one new
store, it also closed one existing store keeping the Dominos store count
intact at 1,125. JFL has reduced the store opening target from 40-50 to
30-40 stores in FY18. Store count for Dunkin Donuts has come down to 52
from 55 in the same period. The Management stated that the consumer
response to the recent product changes has been encouraging. The Company
has also passed on the benefit of lower GST rates to the consumers.
High Operating Leverage in Play
JFL’s
gross margins declined
70bps YoY to 74.1%. Despite rise in the prices of key inputs and higher
cheese content in Pizzas, JFL was able to restrict the fall in margins
owing to lower discounting and availing of input tax credits. Sharp
focus on cost containment coupled with no major store addition resulted
in fall in other cost heads i.e. rent (-90bps YoY), employee (-100bps
YoY) and other expenses (-310bps YoY). Thus, the resultant EBITDA
margins rose by 440bps YoY to 14.1%.
Outlook & Valuation
Considering
the sharp earnings beat coupled with increased focus on cost
rationalisation and improved consumer sentiment, we have increased our
earnings estimates for JFL. Going forward, while SSS growth would be a
key monitorable factor, store expansion, cost rationalisation and
reduction in Dunkin losses will also be important factors to watch out
for, in our view. Based on expected EPS of Rs28.6, the stock currently
trades at 57.6x FY19E earnings. We upgrade our recommendation on the
stock to HOLD from REDUCE with an upwardly revised Target Price of
Rs1,586 (from Rs922 earlier).
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ABB India - 3QCY17 Result Update - Improving Fundamentals; Robust Order Book
Led
by better operating margins, ABB
India’s PAT grew by 18.2% YoY to Rs0.83bn in 3QCY17. However, its
top-line declined by 13.1% YoY to Rs18.8bn, as all its businesses
reported lower revenues following GST roll-out. Though the stock has
gained ~25% since our initiation report in Jan’17, we continue to remain
positive on the stock owing to improving fundamentals. We maintain our BUY recommendation on the stock with an unrevised Target Price of Rs1,607.
All Business Verticals Reeled Under GST Impact
Though
the new GST structure caused an impasse for several SMEs leading to
deferrals
and delays in the absence of clarity, innovative product-mix and
enhanced manufacturing base yielded results in the form of export orders
(15% of total revenue) during the quarter. Revenue declined by 13.1%
YoY to Rs18.8bn with the decline in revenues in all business verticals
i.e. Electrification Products (-2.8% YoY), Industrial Automation (-29.2%
YoY), Robotics & Motion (-7.1% YoY) and Power Grids (-14.3% YoY).
Looking ahead, the Management expects revenue to come back to normal
level as GST clarity issue among the suppliers and vendors is over.
Operating Margin Continues to Improve
ABB
continued to report steady improvement in margins led by operational
efficiencies and focus on products. Initiatives undertaken in past 3-4
years i.e. increased localisation, rationalisation of supply chain,
improving efficiency, better project management and lower input cost
aided ABB to report steady improvement in margins. Further, customised
offerings, continued focus on cost and differentiated portfolio
supported YoY improvement in ABB’s net working capital position. PBIT
margins for Robotics & Motion, Industrial Automation and Power Grid
expanded by
481bps YoY, 227bps YoY and 482bps YoY, respectively. However, PBIT
margins for Electrification products decreased by 11bps YoY.
Order Backlog Offers Strong Revenue Visibility
Though
ABB secured orders worth Rs19.3bn in 3QCY17 (vs. Rs29.7bn in 3QCY16),
adjusting for one-time large rail order in 3QCY16, fresh orders remained
largely flat. Base orders were the key contributor with industry
turning to improving operational efficiencies through technology and
digital upgrades including robotics automation. Notably, continued
uptrend in overseas business and order
backlog of Rs121.3bn augur well for ABB.
Outlook & Valuation
Looking
ahead, we expect ABB’s earnings to witness 34.5% CAGR through CY16-18E,
while RoE is expected to improve to 15.4% in CY18E from 11.5% in CY16.
On the back of strong presence in power T&D space, we believe ABB
would continue to command higher multiple, going forward. Valuing at
50x CY18E (15% discount to its mean multiple of 60x over 2005-15)
earnings of Rs32.1/share, we maintain our BUY recommendation with an
unrevised Target Price of Rs1,607.
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