Kotak Mahindra Bank - 2QFY18 Result Update - Performance Continues to be Stable; Maintain BUY
Kotak
Mahindra Bank (KMB) has reported a healthy performance in 2QFY18 as
both standalone and consolidated net profit recorded a healthy growth.
Its standalone PAT grew by 22.3% YoY and 8.9% QoQ to Rs9.9bn on the back
of healthy
growth in customer assets (+20.7% YoY & +6.1% QoQ), best-in-class
NIMs (4.3%) and strong growth in core fee income (+28.6% YoY & +0.6%
QoQ). Further, the Bank’s consolidated PAT surged by 20% YoY and 7%
QoQ to Rs14.4bn backed by strong bottom line growth recorded by Kotak
Prime (+15.4% YoY & 13.6% QoQ to Rs1.5bn), Kotak Life (+57.7% YoY
and -2.9% QoQ to Rs1bn) and Kotak Securities (+22.9% YoY and -5.6% QoQ
to Rs1.2bn). Customer assets growth was aided by 17.5% YTD and 6.4% QoQ
growth in Corporate portfolio, 17.1% YTD and 13% QoQ growth small
business & personal loans
and 12.7% YTD and 6.7%% QoQ growth in CV/CE portfolio. Notably, the Bank
has started getting benefitted from the full integration of erstwhile
ING Vysya Bank (IVB) especially in post demonetisation period.
Management Commentary & Guidance
- The Bank has completed process of buying back the remaining 26% stake in Kotak Life from Old Mutual. Under the deal, Kotak Life was valued at Rs48.9bn.
- CASA ratio improved by 390bps QoQ to the record high of 47.8% led by 61.9% YoY and 21.5% QoQ growth in saving deposits. Strong growth in SA deposit was led by acquisition of new customers and some large government business.
- KMB will launch consumer finance business through its NBFC subsidiary i.e. Kotak Prime, which will help the Bank to optimally utilise the excess capital available at Kotak Prime.
- With the positive initial response to the Bank’s Digital 811 Account, the Management believes the traction would continue in FY18 as well. However, standalone opex was partially impacted due to higher advertising cost for same.
- The Bank has not received any materially adverse observation from the RBI in annual supervision audit for FY17.
- The Management has clearly indicated that apart from organic growth, the Bank will be continuously exploring suitable inorganic growth opportunities.
Outlook & Valuation
KMB
has undoubtedly proven its competitive edge over its private sector
peers with higher fee based income generation, asset quality management
and effective management of financial business subsidiaries. The Bank
continues to witness moderation in SMA-2 balance, which clearly suggests
stable asset quality trend. Looking ahead, we expect the
strong traction in earnings to continue owing to robust growth in loan
book, moderate credit cost and healthy margins. Valuing standalone
entity at 4xFY19E adjusted BV and expecting subsidiaries to fetch
Rs257/share after deducting holding company discount of 15%, we maintain
our BUY recommendation on the stock with an unrevised Target Price of
Rs1,144.
******************************
Emami - 2QFY18 Result Update - Strong Show; Maintain
BUY
Following
a disappointing performance in 1QFY18 due to GST overhang, Emami has
posted an encouraging set of numbers in 2QFY18. While its consolidated
reported sales grew by 9.7% YoY
to Rs6.3bn, the underlying revenue grew by 14% YoY excluding the
accounting changes post GST. While EBITDA increased by 15% YoY to Rs2bn,
net profit surged by 49.7% YoY to Rs986mn.
We
estimate Emami to post 12.3% revenue and 17.2% earnings CAGR through
FY17-19E. We believe that Emami would sustain the growth momentum in
coming quarters on the back of good monsoons, increased focus on direct
distribution, strong new product pipeline and lower base effect. We maintain our BUY recommendation on the stock with a revised Target Price of Rs1,370 (from Rs1,316 earlier).
Smart Recovery in Domestic Business
Domestic
business grew by 14% YoY with underlying volume growth of 10% YoY.
While international business grew by 22% YoY on lower base effect, CSD
channel continued to witness pressure and declined by 20% YoY. While
Boroplus reported 38% revenue growth, Navratna witnessed 16% YoY revenue
growth led by double-digit growth in volume. Revenue from pain
management and male grooming segments grew by
15% YoY and 12% YoY, respectively. However, Kesh King revenues declined
by 16% YoY due to significant dependence on wholesale channel.
Healthcare segment too witnessed a subdued 2% YoY growth due to low
off-take in Pancharistha.
Margins Remain Benign
Consolidated
gross margins declined by 40bps YoY to 67.3%, which is impressive in
our view, considering sharp spike in prices of Mentha Oil. Although
A&P spend remained flat at Rs988mn, underlying A&P (excluding
GST accounting changes) increased by 10%. Thus, the resultant EBITDA
margins rose by 150bps YoY to 32.1%.
Other Key Highlights
The
Management continues to focus on improving its direct distribution
reach from current level of 7.9 lakh outlets to 8.3 lakh outlets by
Mar’18. Notably, approximately 75% of re-stocking has been made at trade
level post GST disruption. New product pipeline remains strong and the
Management would continue to aid the brands through higher A&P
spend. Although Mentha oil prices have increased, the prices of overall
input basket remains under
control.
Outlook & Valuation
We
expect Emami to benefit substantially from good monsoon as it derives
~50% of its domestic revenues from the rural areas. Also, higher focus
on direct distribution reach would aid overall
growth. This coupled with market leadership in all flagship brands,
robust pricing power and strong new product funnel should hold Emami in
good stead in the coming quarters. Based on expected adjusted EPS of
Rs35.5, the stock currently trades at reasonable PE ratio of 33.8x FY19E
earnings. We maintain our BUY recommendation on the stock with a revised Target Price of Rs1,370 (from Rs1,316 earlier).
******************************
Mindtree - 2QFY18 Result Update - Revenue below Estimate
Mindtree
has posted lower-than-expected revenue in 2QFY18. Its USD revenue grew
by 3% QoQ to US$206.2mn (+2.1% QoQ in CC terms) vs. our estimate
US$211.4mn. The lower-than-expected show on revenue front can be
attributed to poor performance of
subsidiary Magnet 360 (US$4.5mn, -30% QoQ), even as Bluefin saw a strong
recovery (>20% QoQ to US$8.9mn). Vertical-wise, MFG, CPG &
Retail vertical grew by a healthy 6.8% QoQ in USD terms, while Travel
& Hospitality saw a strong 4.3% QoQ growth. BFSI and Technology,
Media & Services both grew by 1.4% QoQ. Despite the impact of wage
hike, EBITDA margin expanded by 44bps QoQ led by lower visa cost and
operational efficiency. Notably, the Management has maintained its
earlier growth expectation of “higher single digit” in CC terms for
FY18E.
Volumes, Pricing both Pull their Weight
From
volume and pricing perspective, Mindtree’s blended volume rose by 1.8%
QoQ, while blended pricing grew by 1.2% QoQ. While onsite volume
declined by 0.3% QoQ, offshore volume grew by 2.4% QoQ. Onsite and
offshore pricing grew by 2.6% QoQ and 1.4% QoQ,
respectively.
Mindtree
added a gross of 856 employees in 2QFY18, while on a net basis, it
added 349 people to its rolls. Mindtree’s total headcount stood at
16,910 as of 2QFY18-end. Notably, employee utilisation saw
a rise, with ex-trainee utilisation rising to 74.6% (from 73.8% in
1QFY18).
Outlook & Valuation
While
Bluefin witnessed an improved performance, Mindtree’s other subsidiary
Magnet 360 continues to face growth challenges. The Management has
maintained the earlier
growth outlook given post 1QFY18 result, which implies CC revenue growth
in “higher single digit” as against “low double digit” growth envisaged
at the beginning of FY18. Margin expansion efforts remain
work-in-progress at this point. We believe it will be a challenge for
Mindtree to achieve revenue growth along with margin expansion
especially considering the current challenging business environment. The
Management intends to consistently use share buy-back method as part of
its capital allocation policy, which could prevent major stock price
downside, in our view. We believe
valuation at 15.5x FY19E EPS is too steep and unjustified. In our view,
the recent run-up in the stock price is not backed by a major
improvement in business fundamentals. Thus, we retain our REDUCE recommendation on the stock with an unchanged Target Price of Rs480.
******************************
Ambuja Cements - 3QCY17 Result Update - Soft Quarter; Expecting Traction Ahead
Ambuja
Cements (ACL) has delivered a dismal operating performance during the
quarter, with its reported EBITDA growing by 10% YoY to Rs3.2bn vs. our
estimate of Rs3.9bn. While all components of operational cost came
broadly in-line with our estimates, a significant
surge in raw material cost (+107% YoY and +18% QoQ) dragged its
operating performance, owing to reversal of Rs446mn relating to
contribution towards DMF following Supreme Court’s order. Adjusting for
this, ACL’s EBITDA grew by 25% YoY to Rs3.6bn. EBITDA/tonne came in at
Rs628 vs. Rs629 and Rs1,010 in 3QCY16 and 2QCY17, respectively. Notably,
sales volume grew by 10% YoY (-17% QoQ) to 5.04mnT mainly aided by
favorable demand in Northern and Eastern markets and lower base effect.
Though reported performance slipped our estimates owing to reversal of
Rs446mn, we continue to believe that ACL
is likely to gain traction ahead with the pick-up in demand and likely
synergies from group restructuring. We have marginally tweaked our
EBITDA estimate by 1% and 3% for CY17E and CY18E, respectively mainly to
factor in surging fuel prices. Rolling over our valuations to CY19E,
we upgrade our recommendation on the stock to BUY from HOLD with a
revised Target Price of Rs320 (from Rs265 earlier).
Better Volume Aids Yearly Revenue
ACL’s
revenue grew by 14% YoY to Rs22.8bn mainly due to 10% YoY growth in
sales volume to 5.04mnT (-17% QoQ) on the back of decent demand scenario
in Northern and Eastern (barring Bihar) regions. Further, average
realisation/tonne came in-line at Rs4,528 (+4% YoY and -3% QoQ).
Notably, ACL could not book Rs380mn towards VAT incentive due to pending
notification from state governments for continuity of scheme post
GST roll-out.
Higher Input Cost Drags Operating Performance
A
higher-than-estimated spike in raw material cost mainly due to reversal
of Rs446mn (as the Supreme Court disposed ACL’s special leave petition
relating to contribution towards DMF) dragged ACL’s
operational performance as EBITDA grew by a mere 10% YoY to Rs3.2bn
(-48% QoQ). Adjusted EBITDA grew by 25% YoY to Rs3.6bn. Operating
cost/tonne rose by 4.6% YoY and 7.1% QoQ to Rs3,899 owing to spike in
fuel prices. Looking ahead, we expect ACL’s operational performance to
improve owing to likely increase in realisation and higher utilisation.
Outlook & Valuation
Looking
forward, we expect ACL to get decent traction on the back of strong
brand equity, premium product portfolio and value-based pricing coupled
with expected pick-up in demand. Further, with the recent addition of
new mining leases through e-auction, we believe that ACL is serious to
add new capacity and regain market share, which bodes well for the
Company. Further, successful completion of group restructuring and
likely merger with ACC may aid ACL to improve its operating synergies,
going
forward. Rolling over our valuations to CY19E, we upgrade our
recommendation on the stock to BUY from HOLD with a revised Target Price
of Rs320 (13x CY19E EBITDA).
HCL Technologies - 2QFY18 Result Update - Subdued Show
HCL
Technologies (HCLT) has reported a subdued performance in 2QFY18.
Coming in below our estimates by 1%, its USD revenue grew by 2.3% QoQ
(+0.9% QoQ in CC terms), with the under-performance coming on account of
decline in India business, which adversely impacted revenue by US$20mn.
Adjusted for this, USD revenue grew by 3.4% QoQ (+1.8% in CC terms).
EBIT margin also came in below our estimate by 81bps owing to
lower-than-expected revenue growth. However, the IT major has maintained
its revenue growth and margin estimates for FY18E, with EBIT
margin to be in 19.5-20.5% range and CC revenue growth guidance at
10.5-12.5%.
Engineering
Services emerged as the key growth driver, clocking a healthy 4.7% QoQ
growth in USD revenue (+4.4% in CC terms). The key IMS segment saw a
2.1% QoQ growth in USD revenue (-0.2% QoQ in CC terms). Continued
decline in attrition in Software Services segment to 15.7% (vs. 16.2% in
1QFY18) is a
positive, in our view.
Guidance Reiteration – A Positive Factor
Led
by lower revenue from India business, HCLT’s USD revenue grew by a
muted 2.3% QoQ (+0.9% QoQ in CC terms), However,
maintenance of its earlier 10.5-12.5% CC revenue growth guidance for
FY18E is a positive sign, which implies decent traction in ensuing
quarters. We continue to remain positive on HCLT’s better-than-peers
growth outlook, particularly in context of a challenging business
environment.
From
vertical perspective, Financial Services (+2.7% QoQ in USD terms) and
Manufacturing (+3.8%)
witnessed better traction. On the other hand, Retail & CPG (+0.2%
QoQ) and Public Services (-1.4%) saw pressure owing to challenges being
faced in the former and volatile nature of the latter, which led to
revenue decline. Geographically, Europe was the out-performer with a
robust 8.7% QoQ growth in USD terms, while the Americas grew by 1.7%
QoQ. The RoW witnessed a steep 11.2% QoQ revenue dip owing to weak India
business.
Outlook and Valuation – Highest growth among top-tier IT, BUY stays
We
expect HCLT to out-perform top-tier peers in FY18E in terms of growth.
While the IT major’s strong positioning in the high potential
engineering services business will drive growth, the recent focus on IP
partnerships is likely to change the nature of its balance sheet and
investment
requirements, apart from increasing amortisation, thus impacting EPS.
Nonetheless, we believe underlying growth will take care of these
factors. Valuation at 12.9x FY19E EPS leaves room on the table for
investors. We retain our BUY rating on HCLT, with a revised target
price of Rs1,000 (Rs1,030), as we slightly reduce our EPS estimates post
the lower-than-expected performance in 2QFY18.
******************************
Hindustan Unilever - 2QFY18 Result Update - Secular Growth Story in Place
In
line with our estimates,
Hindustan Unilever (HUL) has posted an impressive set of numbers in
2QFY18. While net sales increased by 6.5% YoY to Rs82bn on the back of
4% volume growth, EBITDA surged by 19.7% YoY to Rs16.8bn aided by 230bps
YoY expansion in EBITDA margins to 20.2%. Notably, net profit – before
exceptional items – grew by 14.2% YoY to Rs12.4bn, in line with our
estimate. Adjusted for accounting adjustment for GST, underlying
domestic consumer business witnessed an encouraging 10% YoY growth in
value terms.
We
expect HUL to post revenue and earnings CAGR of 10.9% and 18.3%,
respectively through FY17-19E. Though the valuations appear to be high
at 46.2x FY19E earnings, we believe that HUL will sustain such high
multiples on the back of recovery in volume growth, continued
premiumisation strategy, expansion in margin profile and long-term
benefits of GST. Hence, we maintain our BUY recommendation the stock
with a revised Target Price of Rs1,429 (from Rs1,295 earlier).
Broad-based Growth in the Quarter
Underlying
volume growth stood at 4% in 2QFY18 vs. flat volume growth witnessed in
1QFY18. The Management stated that transition to GST adversely impacted
early part of the quarter with demand normalising towards the latter
part. Further, the wholesale and CSD channels are stabilising at a
gradual pace. HUL has undertaken price
reduction to the tune of 3-4% to pass on the benefit of lower taxes to
the consumers post GST. On comparable basis, while Home Care revenue
increased by 13% YoY, Personal Care revenues grew by 8% YoY.
Margins Continue to Move Northwards
HUL’s
gross margins improved by 360bps YoY to 52.1% aided by continued
premiumisation trend and stable input costs, although the input prices
have increased on QoQ basis. A&P spend for the quarter grew by 20%
on absolute basis to Rs10.2bn and rose by 140bps to 12.5% of sales, to
support new brands like Ayush. Continued focus on cost rationalisation
resulted in 80bps YoY decline in other expenses to 15.1%.
Outlook & Valuation
We
expect HUL to report net sales of Rs340.8bn/Rs385.1bn and net profit of
Rs50.2bn/Rs59.4bn in FY18E and FY19E, respectively. Continued strategy
of premiumisation and cost rationalisation are expected to result in
240bps improvement in margins from 17.4% in FY17 to 19.8% in FY19E.
Based on expected EPS of Rs27.5, the stock currently trades at 46.2x
FY19E earnings. We expect HUL to sustain these multiples on the back of
revival in volume growth, benefits of GST and strong margin trajectory. Hence, we maintain our BUY recommendation on the
stock with a revised Target Price of Rs1,429 (from Rs1,295 earlier).
Other 2QFY18 Result Updates -:
No comments:
Post a Comment