Buy Cummins India Ltd For Target Rs.6804QFY14 operating performance below estimates:
KKC’s 4QFY14 operating performance was below estimates with revenues at INR9.7b (down 16% YoY) vs estimates of INR11.2b (down 2.6%), while EBITDA at INR1.7b (down 12% YoY) is 11.2% below estimates. EBIDTA margins stood at 17.6% (up 80bps) and are significantly above estimates of 17.1%. The improvement in EBIDTA margins is commendable, particularly given the poor fixed cost absorption.
* Muted domestic powergen sales impacted revenues, while industrial segment sales were flat:
Cummins Inc, in its concall, had stated that during 1QCY14, India powergen revenues have declined 46% YoY in USD / 37% in INR. Industrial sales were flat due to increased exports by Industrial OEMs.
* Improved cost efficiencies support margins, despite adverse product mix and increased pig iron prices:
The key highlight has been the sharp decline in RM costs to 61.3% of revenues in 4QFY14 (down 174bps YoY). This is encouraging, and is despite pig iron prices increasing by 8.2% from lows in 1QFY14 and is supported by value engineering / cost reduction program. Even the staff costs and other operating expenses have been maintained in a tight control.
* Net Working Capital deteriorates, increased capex:
Net working capital stood at 83 days in March 2014 (excluding ICDs of INR1.14b to Cummins Technologies), vs 65 days YoY. The deterioration is largely led by higher inventories and receivables. Fixed assets increased from INR6.8b in 2QFY14 to INR10.1b in 4QFY14, largely due to capex on India Technical Centre, etc. Cash on the books declined to INR6.4b vs INR9.7b in Sept 13. We await details on the quantum of ICDs to Cummins Technologies.
* Valuations:
We maintain Buy, with revised price target of INR680 (22x FY16E). KKC is an early cycle play on investment climate given pent up demand from stuck projects.
Accumulate State Bank of India For Target Rs.2987Q4FY14:
Earnings aided by strong non-interest income and containment of opex; strong recovery & up-gradation supported decline in headline NPL.
NII growth (16.5% YoY) came a shade below our expectations on back of margin pressure; net profit came higher on back of strong non-interest income, containment of opex and ~Rs.6.0 bn writeback of investment depreciation. NIM pressure during Q4FY14 pulled down the cumulative margin from 3.19% during 9MFY14 to 3.17% during FY14.
Positive surprise came on strong up-gradation as well as cash recovery which stood at 106% of gross slippage seen during Q4FY14 (24% in Q3FY14). In absolute terms, both GNPA and NNPA declined by 9.1% and 16.3%, respectively, while provision coverage ratio improved QoQ to 62.86% (Q4FY14; 450bps). However, addition to impaired assets (gross slippage + new restructuring) remained at elevated levels (Rs.155.8 bn; 6.0% on annualized basis).
Stock trades at reasonable valuation (1.3x its FY16E ABV) after stripping the value of its subsidiaries. We are rolling over TP on FY16 estimates and revise its TP upward to Rs.2987 (core business: Rs.2000; 1.5x FY16E ABV) but downgrade the stock to ACCUMULATE from BUY earlier, with recent stock outperformance. We believe SBI being the largest bank (comfortable tier-I: 9.72%) would be one of the biggest beneficiaries of any likely improvement in macro-economic environment.
Valuation & Recommendation
We believe SBI being the largest bank would be one of the biggest beneficiaries of any likely improvement in macro-economic environment. With the recent fresh capital mobilization (~Rs.100 bn) through QIP as well as GOI infusion, its tier-I capital is comfortable at 9.72% (FY14). With the improving revenue growth and moderate rise expected on the cost front, as bank has been aggressive in recognizing stressed portfolio as well as transition cost as compared to its peers, SBI is likely to report earnings to grow 15.6% CAGR during FY14-16E. We are modeling its return profile to remain muted (RoE: ~11%, RoA: ~0.7% during FY16E), post recent capital mobilization. However, we like its robust liability franchise, comfortable tier-I equity and lower risk on its future earnings with operating leverage likely to support from FY15 while credit cost is likely to be lower with likely improvement in the economic cycle.
At CMP, stock is trading at reasonable valuation (1.3x its FY16E ABV and 9.1x its FY16E earnings), after stripping the value of its subsidiaries. We are rolling over TP on FY16 estimates and revise its TP upward to Rs.2987 but downgrade the stock to ACCUMULATE from BUY earlier, with recent stock outperformance. The fair value is based on SOTP methodology where core business is valued at Rs.2000 (1.5x FY16E ABV) and subsidiaries are valued at Rs.987 (post 20% holding company discount).
Buy Sharon Bio-Medicine Ltd For Target Rs.55SYNOPSIS
* Sharon Bio-Medicine Ltd is a pharmaceutical company which engaged in the manufacture of APIs & Pharma Intermediates since 1995.
* During Q3 FY14, company net profit jumps to Rs. 178.40 mn against Rs. 145.23 mn in the corresponding quarter ending of previous year, an increase of 22.84%.
* Revenue for the quarter rose by 16.30% to Rs. 3156.85 mn from Rs. 2714.31 mn, when compared with the prior year period.
* During the quarter, Profit before interest, depreciation and tax is Rs. 393.70 mn as against Rs. 323.14 mn in Q3 FY13, registered a growth of 22%. Sharon Bio-Medicine has completed expansion in its 3 manufacturing facilities.
* The total investment in expansion has been incurred to the tune nearly Rs. 1250 mn.
* In Dehradun Formulation plant, the expanded expenditure has been app. Rs. 850 mn whereas capacity of the plant has been increased more than double.
* The commercial production in Sharon two expanded plants at Taloja near Navi Mumbai has already been started and Dehradun Formulation expanded facility will start production from June, 2014.
* Net Sales and PAT of the company are expected to grow at a CAGR of 25% and 22% over 2012 to 2015E respectively.
FINANCIAL HIGHLIGHTS (STANDALONE)
Results updates- Q3 FY14,
Sharon Bio-Medicine Ltd is a pharmaceutical company which commenced as a manufacturing of Pharma Intermediates in 1995 in India, reported its financial results for the quarter ended 31st March, 2014.
The company net profit jumps to Rs. 178.40 million against Rs. 145.23 million in the corresponding quarter ending of previous year, an increase of 22.84%. Revenue for the quarter rose by 16.30% to Rs. 3156.85 million from Rs. 2714.31 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.1.69 a share during the quarter, registering 87.72% decrease over previous year period, due to increased the equity capital of the company and stock split from Rs. 10/- to Rs. 2/-. Profit before interest, depreciation and tax is Rs. 393.70 million as against Rs. 323.14 million in the corresponding period of the previous year.
Outlook and Conclusion
* At the current market price of Rs.44.50, the stock P/E ratio is at 6.96 x FY14E and 6.02 x FY15E respectively.
* Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.6.39 and Rs.7.39 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 25% and 22% over 2012 to 2015E respectively.
* On the basis of EV/EBITDA, the stock trades at 7.41 x for FY14E and 6.55 x for FY15E.
* Price to Book Value of the stock is expected to be at 1.46 x and 1.17 x respectively for FY14E and FY15E.
* We recommend ‘BUY’ in this particular scrip with a target price of Rs.55.00 for Medium to Long term investment.
