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Equity
Economy News % Chg
9-Nov 1 Day 1 Mth 3 Mths
The plywood and laminates industry is in the doldrums as prices of phenol and
Indian Indices
other chemicals used by it are on the rise due to a surge in crude oil prices. A
SENSEX Index 33,251 0.1 4.2 5.5
high goods and services tax (GST) of 28 per cent on plywood was already
NIFTY Index 10,309 0.1 2.9 5.0
proving to be a drag on the industry. (BS) BANKEX Index 28,635 0.5 4.6 4.7
Farmers estimate they would lose about Rs 360 Bn due to lack of government BSET Index 10,756 0.2 5.2 4.7
action. It could be as much as Rs 2 trillion if the loss is estimated from the actual BSETCG INDEX 18,393 0.5 5.7 7.4
cost of production plus 50 per cent profit as assured by the ruling party in its BSEOIL INDEX 16,092 (0.0) 4.8 11.9
election manifesto of 2014. (BS) CNXMcap Index 19,595 1.2 4.9 12.2
BSESMCAP INDEX 17,631 0.8 4.4 17.0
The Airports Authority of India (AAI) plans spend Rs 200 Bn in the next five years World Indices
to upgrade existing and build new airports across the country. Dow Jones 23,462 (0.4) 2.8 7.4
Nasdaq 6,750 (0.6) 2.5 8.6
Corporate News FTSE 7,484 (0.6) (0.7) 1.3
NIKKEI 22,869 (0.2) 8.3 14.3
Data from the Telecom Regulatory Authority of India (Trai) show that Reliance
HANGSENG 29,137 0.8 2.3 6.2
owned, Reliance Jio added 4.09 million customers in August. This is the second-
lowest monthly incremental growth for the company since its launch. (BS) Value traded (Rs cr)
The performance of Taro, Sun Pharma's US subsidiary, for the quarter ending 9-Nov % Chg Day
September 2017 (Q2), while indicating that pricing pressure continues in the US Cash BSE 4,262 (75.4)
market, has some positives. The numbers show compared to the sharp fall in Cash NSE 33,373 (5.1)
Derivatives 1,194,239 49.1
sales, gross margins fell at a slower pace. (BS)
The National Company Law Tribunal (NCLT) asked Swedish telecom equipment Net inflows (Rs cr)
and services provider Ericsson to file bank certificate detailing the amount 8-Nov % Chg MTD YTD
telecom service provider Reliance Communications (RCom) owes it within seven FII 5,987 782 10,433 48,885
days. (ET) Mutual Fund (1,360) (1,038) (1,535) 93,876
The government on Thursday said it has asked state owned SAIL and the world's FII open interest (Rs cr)
largest steelmaker ArcelorMittal to expedite setting up of their proposed joint 8-Nov % Chg
venture for a Rs 50 Bnauto-grade steel plant. (ET) FII Index Futures 27,689 0.7
FII Index Options 86,241 (1.8)
A media report suggested that two domestic drug makers including Zydus
FII Stock Futures 69,383 1.6
Cadila are under the scanner of the pharmaceutical regulator Central Drug
FII Stock Options 8,183 6.2
Standards Control Organization (CDSCO) for allegedly launching a combination
drug to treat hypertension without mandatory prior approval. (ET)
Advances / Declines (BSE)
Reliance Industries Ltd may be looking at buying part of textile maker Alok 9-Nov A B T Total % total
Industries Ltd. The interest may be focused on the polyester yarn unit. Alok Advances 211 631 70 912 100
IndustriesBSE -4.78 % is one of 12 large accounts identified by the Reserve Bank Declines 129 453 65 647 71
of India in June for bankruptcy proceedings after having defaulted on loans. (ET) Unchanged 1 21 7 29 3
NTPC announced that consequent upon successful commissioning, 50 MW (25 Commodity % Chg
X 2 MW) Rojmal Wind Project at Rojmal, Gujarat is declared on commercial 9-Nov 1 Day 1 Mth 3 Mths
operation. With this, the commercial capacity of NTPC would become 43692 Crude (US$/BBL) 57.0 (0.2) 12.0 17.4
MW and that of NTPC Group would become 50908 MW. (ET) Gold (US$/OZ) 1,285 0.3 (0.2) (0.1)
Silver (US$/OZ) 17.0 (0.3) (0.6) (0.6)
IRB Infrastructure Developers Ltd (IRB Infrastructure), one of the country's largest
road developers, said it is in talks with long-term foreign investors, including
Debt / forex market
pension funds, for bidding for toll-operate-transfer (TOT) projects that the 9-Nov 1 Day 1 Mth 3 Mths
government is expecting to tender. (BL) 10 yr G-Sec yield % 6.9 6.9 6.8 6.5
BEML Ltd is looking to get into the manufacturing of underground mining Re/US$ 64.9 65.0 65.4 63.8
equipment.BEML mostly manufactures open cast mining equipment. According
to BR Viswanatha, Director, Mining and Construction, BEML, the plan is to use Sensex
the now closed mining machinery facility of Mining and Allied Machinery 34,000
Corporation (MAMC) in Durgapur for manufacture of these equipment. (BL)
31,750
Magma Fincorp is planning to raise Rs. 7.5 Bn through the issue of securities in
29,500
one or more tranches. According to a notification to the bourses, the company
will raise funds either through the issuance of equity shares, global depository 27,250
receipts, American depository receipts, warrants or convertible securities, or a
25,000
"combination thereof". The exact mode is yet to be decided. (BL) Nov-16 Feb-17 May-17 Aug-17 Nov-17
Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, IE = Indian Express, Source: Bloomberg
BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange
Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this
document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited.
MORNING INSIGHT November 10, 2017
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high margin segments such as GTS, IFM, and IAM. There is further scope for
margin expansion with turnaround of Brainhunter, MFX, Manipal intergrated
solutions, and Comtel. To fuel its growth, Quess has so far done 18
acquisitions/investments in various ventures. Acquisition of Comtel has set the
next stage of growth Quess has established IT staffing footprint in
Singapore and gained market-leading presence in SE Asia, a key geography.
We are optimistic (considering sound track record on integration of
acquisitions) that meaningful value will emerge for Quess from aggressive
inorganic expansion which are opening multiple avenues of growth and
bottom-line expansion.
We initiate coverage on Quest Corp Healthy Financials: Quess has grown its revenues and PAT at a CAGR of 57%
with a price target of Rs.1010 and 101% respectively over FY11-FY17. On a consolidated basis, we expect
Quesss Revenue/EBIDTA/PAT to grow at a CAGR of 31%/46%/75%
respectively between FY17-19E supported by both organic and inorganic
growth.
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Result Highlights
Results are not comparable as the company amalgamated Hinduja Foundry
Limited (HFL) with itself. Revenue during the quarter grew by 31% YoY to
Rs60.5bn and marginally higher than our estimate of Rs59.4bn. After
witnessing sharp volume decline in 1QFY18 (due to BSIV transition), demand
picked-up in 2QFY18. ALL reported 23% YoY increase in volumes. Product mix
related changes and HFL amalgamation translated into 7% improvement in
average selling price.
In 2QFY18, truck segment accounted for 65% of revenues and 10% came from
exports. Defence revenues in the quarter was Rs2bn (Rs2bn in 2QFY17 and
Rs2.7bn in 1QFY18). Spare sales in the quarter was at ~Rs3bn.
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Gross margins during the quarter declined YoY and QoQ on account of increase
in commodity prices. Given heavy discounting in the market, company could
not initiate a price hike to pass through the impact in 2QFY18.
Increase in employee cost on a YoY basis is on account of higher volumes,
annual increment and HFL merger. Increase in other expenses largely pertains
to merger with HFL.
EBITDA during the quarter grew by 14% YoY to Rs6.1bn and was in line with
our estimate of Rs6.2bn. EBIDA margin declined YoY on the back of multiple
reasons. Commodity price increase, cost absorption due to heavy discounting
by peers, weaker exports margins as against relatively higher margins in
2QFY18 and impact of lower benefit from Pantnagar plant post GST (company
awaits reimbursement from State Government).
Rise in interest cost and depreciation pertains to HFL inclusion in financials.
PAT grew by 14% YoY to Rs3.34bn. PAT for the quarter came in line with our
estimate of Rs3.35bn.
Outlook
In the past one year, MHCV demand has been disrupted on account of
demonetization, BSIV transition and GST implementation. Post significant
decline in 1QFY18, MHCV demand in 2QFY18 rebounded strongly. We expect
MHCV volume growth in 2HFY18 to stay healthy. Given government focus on
infrastructure activities, expected re-bound in economic activities and possible
strict implementation of overloading ban, truck demand in India will likely grow
at healthy rate in the next 2 years.
Revenue growth in other segments like defence, spare sales and exports are
expected to grow at a healthy rate.
ALLs EBITDA margin performance is expected to witness gradual improvement
on account of operating leverage from volume growth, further improvement in
HFLs EBITDA margin and possible reduction in discounting levels.
We marginally revise our estimates. For FY18, we have marginally revised our
estimates lower and for FY19, we have slightly increased our estimates.
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MORNING INSIGHT November 10, 2017
We retain ACCUMULATE rating on We retain ACCUMULATE rating on the stock with revised price target of Rs126.
Ashok Leyland Ltd with a price (earlier Rs110). We value the stock at a PE of 20x FY19E earnings (earlier 10x
target of Rs.126 EV/EBITDA). Our target price would imply EV/EBITDA of 11.4x on FY19
earnings.
Change in estimates
FY18E FY19E
(Rs mn) Old New % chg Old New % chg
Revenues 232,829 233,197 0.2 270,423 276,884 2.4
EBITDA margin (%) 10.3 10.2 11.4 11.4
Reported PAT 12,877 12,791 (0.7) 18,042 18,472 2.4
Source: Kotak Securities Private Client Research
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Loss for the quarter came from Rs6.3bn in 2QFY17 and Rs4.7bn in 1QFY18 to
2.9bn. Strong operational performance led to net loss coming down for the
company.
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MORNING INSIGHT November 10, 2017
Consolidated Result
TAMOs consolidated results were better than expected. Standalone business and
JLR reported healthy revenue growth. On a consolidated basis, revenue grew by
11% YoY to Rs707bn. EBITDA margin at JLR and standalone business was better
than expectation. At the consolidated level, EBITDA margin improved YoY and
QoQ to 12.6%. PAT for the quarter increases strongly YoY.
Outlook
TAMOs standalone operations performance in 2QFY18 improved on the back
of strong performance in the commercial vehicle segment. While we expect
volume growth in the commercial vehicle business to remain healthy, the
growth rate witnessed in 2QFY18 (26% YoY growth) is not expected to
continue. In the passenger car business, company is trying to improve its
performance through new products. We expect the company will take more
quarters to meaningfully improve in its performance in the passenger vehicle
segment.
JLR volume growth will continue to be driven by new product launches.
Currently, certain markets are facing growth challenges. However company
remains optimistic on new products to support growth. Higher volumes will
provide positive operating leverage and help JLR witness margin improvement
over 1QFY18. Given weakness in US and UK, incentives at JLR is expected to
stay at elevated levels in the near to medium term.
We retain BUY rating on Tata On electric vehicle, JLR will launch its first battery EV in mid-2018. Further
Motors with a price target of company will also offer plug-in hybrids in 18MY Range Rover and Range Rover
Rs.514 Sport by the end of 2017. From 2020, all JLR vehicles will offer electric options
(mild hybrids/plug in hybrids/battery).
As of 2QFY18, total pre-tax hedge reserve was GBP1.09bn (of which
GBP793mn relates to next 12 months). Assuming GBP does not witness any
major movement, company is expected to witness improvement in EBITDA
margin and earnings for the company
We retain BUY on the stock with unchanged price target of Rs514. We have
valued the standalone business / JLR (including China JV) / other subsidiaries at
Rs57/ Rs433 /Rs24 respectively.
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During H1FY18, company fulfilled nearly 81% of coal requirement via pet coke
with average price of around $90-95 per tonne and Q2FY18 average was $92 per
tonne. Current prevailing prices are around $105 per tonne. So this can result in
power and fuel cost per tonne remaining at similar levels going forward for the
company.
The staff cost has been moving up since Q1FY18 due to provisioning of ESOP cost
on the basis of difference between grant value and market value as at the end of
the quarter. Company would continue to make provisions for ESOPs every quarter
as per the norms of accounting standard.
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Result Highlights
In Q2FY18, BAEL net revenues stood at Rs 9.3 Bn (de-grew 6.1% YoY, flat YoY
adjusted for GST) due to lower volumes in the consumer business. Company
reported operating margin at 4.6% against 4.5% in Q2FY17.
Consumer durable division reported revenues at Rs 5.1 Bn against Rs 5.6 Bn in
Q2FY17.
Sales in consumer division were adversely impacted by 1/ change in distributors
incentive systems (implementation of RREP; discussed below) and 2/ lack of
momentum at the dealer level due to GST transition. Lighting division continued
to observe transition from traditional lighting/CFL to LED based solutions.
EBIT Margin for the segment stood at 5.6% against 2% in Q2FY17. Management
mentioned that the RREP roll out has been encouraging so far and company would
likely report recovery from 2HFY18 onwards.
E&P segment, revenues stood at Rs 4.2 Bn (down 4.1% YY) with EBIT margins at
3.5% against 7.5% in Q2FY17. We note that most of the loss making legacy orders
in E&P segment is over and company would maintain superior margins in the
segment going ahead. However, in Q2FY18 execution/margins in the segment
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were affected by GST transition. Current order book in E&P segment stands at c.
33.8 Bn currently.
Segment Results
Q2FY18 Q2FY17 YoY% Q1FY18 QoQ %
Consolidated revenues
Consumer Durables 5141 5661 (9.2) 4695 9.5
Engg Projects 4213 4393 (4.1) 5598 (24.7)
PBIT
Consumer Durables 287 115 150 33 774.4
Engg Projects 146 330 (56) 398 (63.3)
PBIT%
Consumer Durables 5.6 2.0 0.7
Engg Projects 3.5 7.5 7.1
Source: Company, Q1FY17 and Q4FY16 financials not comparable due to reclassification of consumer numbers
RREP program should get implemented over the period of next two years
BAEL launched RREP (Retail reach expansion program) in FY16 to reach out to
dealers more efficiently as against traditional wholesaler based model of selling.
The RREP programs (TOC-Theory of constraints based model) is currently under
implementation and has had diminishing effect on companys primary sales over
the last few quarters. Management has earlier highlighted that TOC model would
start yielding benefits (partially) form FY18 onwards. However, full benefits from
TOC based distribution model are expected to materialize from FY18.
Management believes that TOC based RREP model would provide benefits in terms
of 1) improved engagement with dealers, 2) establish efficient feedback
mechanism, 3) expand product reach for premium/newly launched products and
4) achieve lower inventory levels.
Under RREP (where supply chain is highly centralized) company is optimistic of
seeking benefits from 1) improved purchases in terms of bulk buying, 2) savings
from lower investment in ideal inventory (slow moving products) and 3) reduction
in discounts offered to large wholesalers.
As a second step under TOC based selling, company would aim at increasing sales
and expect recovery from FY18 onwards. We suspect that the company has lost
market share in the past few quarters (reflected in companys poor sales in last few
quarters vis--vis competitors). As of now, TOC covers nearly 35% of distributors
and should reach 45-50% by the end of current fiscal. Management expects to
achieve over 90% TOC rollout by FY18.
We note that in the past, some of the other competitors have also made attempts
to realign the distributor discounts. For instance, in FY16 Havells too has averted
the practice of offering additional discounts to the large distributors and had
experiences temporary fall in sales. However, we fail to identify any major players
who have completely done away with wholesalers based selling. Most of the
players, we believe have resorted to a combination (40-60 or 50-50) of wholesalers
and direct selling model. We therefore believe that the company would have to be
swift and efficient in ramping up sales (by means of aggressive advertising
campaigns to create demand pull) post full commencement of RREP and regain
lost market share. We believe that the successful rollout of RREP is critical for the
company and remain watchful of the developments and progress made in this
direction.
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Valuation
Rs mn FY19E
B2C
EBIT-Consumer Appliances 2553
EBIT B2C 2553
Interest (300.00)
Tax (743.58)
PAT 1510
Target PER 20
Target Market Capitalization (B2C) (a) 30194
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Result Analysis
Revenue and realization: PLNGs revenue for Q2FY18 was at Rs.77.7 bn which
is up 21% on sequential basis (lower LNG prices) and 17.5% yoy. In Q2FY18,
PLNG processed highest-ever quantity of RLNG at 220 TBTUs, higher by 14.6%
qoq and 16.5% yoy. Kochi terminal operated at 15.4% of its capacity with 10
TBTUs of LNG.
Raw material cost: Raw material cost (RLNG) for Q2FY18 was at Rs.67.4 bn
higher 22% sequentially and 17% yoy. Raw material as a percentage of sales
has increased 60 bps qoq to 86.8% due to higher spot RLNG prices. In Q2FY18,
average cost of gas under contract with RasGas was between $6-7/mmbtu.
Net-back (Net revenue less raw material cost): Net-back for Q2FY18 was at
Rs.10.3 bn up 16% qoq and 20% yoy mainly on account of significantly higher
volumes and better realisation.
Quarterly financials
Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%)
Margin (%)
EBITDA Margin 11.6 11.0 0.6 11.6 0.0
EBIT Margin 10.2 9.7 0.5 10.0 0.3
Adj PAT Margin 7.6 6.9 0.6 6.8 0.8
Other Income/PBT 12.0 13.5 (11.4) 10.6 1.4
Tax/PBT 30.8 32.1 (0.0) 34.3 (3.5)
Expenses (Rs. Mn)
Raw Material consumption
(Incl. Forex loss or gain on RM) 67,427 57,613 17.0 55,467 21.6
Staff costs 194 180 7.5 268 (28)
Other Expenditure 1,094 1,086 0.7 1175 (6.9)
Total 67,427 57,613 17.0 55,467 21.6
Expenses Ratio (%)
RM/Sales 86.8 87.1 (0.3) 86.2 0.6
Employee Cost to Sales 0.25 0.27 (0.0) 0.42 (0.2)
Other Expenditure/Sales 1.41 1.64 (0.2) 1.83 (0.4)
Source: Company
Staff cost: Employee cost decreased significantly 28% qoq (base effect) to
Rs.194 mn (7.5% yoy). Employee cost for Q1FY18 includes one-time provision.
Other expenditure decreased meaningfully 7% qoq (despite lower base) to
Rs.1.1 bn (+1% yoy). Other expenditure as a percentage of sales decreased
40bps qoq and 20 bps yoy to 1.41%.
Operating profit (EBIDTA): For Q2FY18, the operational profit increased 21%
qoq to Rs.8.99 bn (+24% yoy). The company recorded EBIDTA margin of
11.6% increased 60 bps yoy but flat sequentially.
Depreciation: In Q2FY18, PLNGs depreciation cost has increased by 1% qoq
and 21% yoy to Rs.1 bn. The company had earlier capitalized Dahej phase-III A
storage tanks.
In Q2FY18, finance cost reduced 16% yoy to Rs.465 mn (flat qoq) mainly due
to debt repayment. Earlier, PLNG has replaced its rupee loan of ~Rs 10.32 bn
(average cost 11% annually) with lower cost unsecured bonds of Rs 10 bn
(~9% annually) placed in the Indian market. We expect interest cost to come
down further due to debt reduction.
PBT for Q2FY18 was at Rs.8.5 bn up 28% on sequential basis and 26% yoy on
account of higher operating income and other income.
Income tax: The Company paid tax of Rs.2.6 bn (at an average rate of 30.8%
in Q2FY18 v/s 34% in Q2FY17 and 32.1% in Q2FY17). This includes deferred
tax liability of Rs.356 mn.
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PAT for Q2FY18 was at Rs.5.9 bn significantly up by 35% qoq and 28% yoy on
account of higher revenues, higher other income and lower taxes. The
Company reported quarterly EPS of Rs.3.93 and CEPS of Rs.4.6.
Source:
Notes:
LNG is natural gas in its highly compact liquid form. When natural gas is cooled to
minus 260 degrees Fahrenheit (or minus 162 degrees Celcius), it is reduced to one
six-hundredth of its original volume and becomes a clear, non-toxic liquid. LNG
offers a safe and economical means for transporting natural gas over long
distances to locations beyond the reach of pipelines. LNG is loaded on specialized
ships and delivered to a regas- sification terminal where it is reheated, turned into
gas and distributed to customers through a pipeline network.
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Result Analysis
Revenue: Revenue for Q2FY18 stands at Rs. 5.88 bn, up 1% sequentially and
3% yoy basis, reflecting higher sales volume. Combined gas sales volume has
increased 6.5% qoq to 249 mmscm. Blended average realization has decreased
5.3% qoq to Rs.23.64/scm (-1% yoy) mainly due to lower realization in both
CNG and PNG segment.
Sales Volume: During Q2FY18, MGL sold ~135 mn kg of CNG thereby
registering a growth of 7% on sequential basis and 3% yoy. MGL sold 65
mmscm of PNG in Q2FY18 showing growth of 5% qoq and 6% yoy.
Segment wise revenue analysis: In Q2FY18, CNG segment registered a revenue
of Rs.4.3 bn, up 2.4% qoq but flat yoy due to lower realization. Similarly, PNG
segment has registered revenue of Rs.1.6 bn resulting in a revenue de-growth
of 2.5% qoq but growth of 10% yoy.
Raw Material Cost: The raw material cost has increased 2% qoq to Rs.2.37 bn
(-12% yoy) partly due to higher imported gas. The raw material cost as a
percentage of revenue is up 60 bps qoq to 40.3% (-680 bps yoy).
In order to meet the rising domestic demand of natural gas, MGL not only
sources KG-D6 gas and Administered price mechanism (APM) gas but also
sources higher priced long-term RLNG as well as spot RLNG. Decline in RLNG
and domestic gas prices yoy basis led to decline in raw material cost. We would
like to highlight here that the gas supplied by RIL and ONGC is fixed by
government in US dollar terms. Hence, any rupee depreciation increases the
cost for MGL and vice-a-versa.
Employee expenses: In absolute terms, employee cost has decreased 4.5% qoq
(partly base effect) to Rs.167 mn (+11% yoy). We believe staff cost is within
acceptable range.
Other expenses: Other expenses has increased 1.3% qoq to Rs.800 mn (6.4%
yoy) presumably due to higher maintenance activity, higher volumes and partly
higher base.
Operating profit: In absolute terms, EBIDTA stands at Rs.2 bn down 2% qoq
mainly due to lower gross margin. Another important factor to monitor is
EBIDTA per unit of sales. The same has decreased 7.5% qoq (partly base effect)
to Rs.8.05/scm (+21.4% yoy).
Operating Margins: In Q2FY18, the EBIDTA margin stood at 34.1%, which is
up 660 bps qoq and 80 bps sequentially.
Ratio's
(%) Q2FY17 Q2FY17 YoY (%) Q1FY18 QoQ (%)
RW/Net Sales (Excise) 40.3 47.1 (6.8) 39.7 0.6
Staff Cost 2.8 2.6 0.21 3.0 (0.2)
Other Mfg Expenses Excl Excise 13.6 13.2 0.4 13.5 0.1
Cash EPS (Rs/share) 15.3 12.7 20.2 15.1 1.1
Other Income/PBT 7.4 11.6 (4.3) 6.3 1.1
Tax rate 33.7 33.3 0.4 34.7 (1.0)
Source: company
Other income of the company has increased 15% qoq to Rs.139 mn (-22%
yoy). Other income consist of interest income and tax-free dividend.
Non-cash charges: The depreciation cost has gone up 5% qoq to Rs.259 mn.
Net fixed assets stands at Rs.13 bn as on 31st Mar17 as against Rs.11.6 bn as
on 31st Mar16. MGL will invest Rs. 2.5 bn in FY18E and FY19E each for
expansion of network.
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PBT for Q2FY18 is at Rs.1.9 bn down 1% qoq but up 23% yoy mainly on
account of lower realization and higher other expenses.
Bottom line for Q2FY18 is at Rs. 1.24 bn up 22% yoy and 0.4% qoq
sequentially thereby translating into Q2FY18 EPS of Rs.12.6 and CEPS of
Rs.15.3.
Business Background:
Mahanagar Gas Ltd (MGL) was incorporated on 8th May 1995 with the objective
of supplying natural gas as compressed natural gas (CNG) and piped natural gas
(PNG) in Mumbai and the adjoining areas. MGL is a joint venture between GAIL
(India) Ltd and BG Group, UK. Recently, Royal Dutch Shell acquired BG group plc.
Hence, Shell has become the ultimate holding company of all the BG Group
companies, including that of BG Asia Pacific Holdings Pte. Limited (BGAPH). MGLs
IPO came in June16 and was entirely an offer for sale of 24.7 mn shares (25%
stake) by the promoters GAIL and BG Asia Pacific Holdings PTE Ltd (12.3 mn shares
each).
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Result Analysis
Net Revenue: Net revenue for Q2FY18 stands at Rs. 12.5 bn, up 7%
sequentially and 16% yoy basis. Combined gas sales volume has increased 8%
qoq and 14% yoy to 480 mmscm. Blended average realization has increased
by 2% yoy to Rs. 25.9/scm (-0.5% qoq).
Sales Volume: During Q2FY18, IGL sold 257 mn kg of CNG thereby registering
a growth of 9% yoy and 4% on sequential basis. IGL sold 120 mmscm of PNG
in Q2FY18 showing growth of 18% yoy and 11% qoq.
Segment wise revenue analysis: In Q2FY18, CNG segment registered revenue
of Rs.9.6 bn, 7% qoq and 14% qoq supported by volume growth. Similarly,
PNG segment has registered revenue of Rs. 2.8 bn resulting in a revenue growth
of 24% yoy and 9% sequentially supported by significant increase in volumes.
Raw Material Cost: The raw material cost has increased 8% qoq to Rs.5.9 bn
(+11% yoy) mainly on account of rise in RLNG prices and higher offtake. The
raw material cost as a percentage of revenue is up 40 bps qoq to 47.6% (-230
bps yoy). In order to meet the rising domestic demand of natural gas, IGL not
only sources KG-D6 gas and Administered price mechanism (APM) gas but also
sources higher priced long-term RLNG as well as spot RLNG. We would like to
highlight here that the price of gas supplied by RIL and ONGC is fixed by
government in US dollar terms. Hence any rupee depreciation increases the cost
for IGL and vice-a-versa.
Employee expenses: The staff cost (as a percentage of sales) has decreased 10
bps qoq/yoy basis to 2.1%. In absolute terms, employee cost has increased
3.1% qoq and 10% sequentially to Rs.259 mn. We believe staff cost is within
acceptable range.
Other expenses: Other expense has increased by 14% qoq (partly base effect)
and 33% yoy to Rs. 2.3 bn mainly due to mainly due to implementation of GST
w.e.f. 1st July 2017 and increase in minimum wages in March17 by Rs. 140
mn each.
Operating profit: In absolute terms, EBIDTA stands at Rs.2.8 bn up 1.5% qoq
(base effect) and 18% yoy. Sequential increase in operating profit is mainly due
to higher revenues. Another important factor to monitor is EBIDTA per unit of
sales. The same has decreased 6% qoq to Rs.5.86/scm (+3.3% yoy).
Operating Margins: In Q2FY18, the EBIDTA margin stood at 22.6%, which is
down 130 bps qoq but up 30 bps yoy due to meaningful increase in volume.
Other income of the company has increased significantly by 40% qoq (partly
base effect) and 18% yoy to Rs.250 mn. Other income consists of interest
income and tax-free dividend.
Non-cash charges: The depreciation cost has increased 3% qoq (base effect)
and 7% yoy to Rs.450 mn.
PBT for Q2FY18 is at Rs.2.6 bn up 20% yoy and 4% on a sequential basis mainly
on account of higher operating profit.
Bottom line for Q2FY18 is at Rs.1.69 bn up 5% qoq and 17% yoy thereby
translating into Q2FY18 EPS of Rs.2.4 and CEPS of Rs.3.1. IGL has 50% stake
in CUGL and MNGL each. The combined profit of both the entities for Q2FY18
is Rs. 410 mn. (IGL Share is Rs. 210 mn).
price target of Rs.291 reflecting better sales volume booked in H1FY18 and
potential rise in CNG demand due to re-introduction of odd-even scheme.
Business Background
Indraprastha Gas (IGL) is a City Gas Distribution company with rights to distribute
CNG and PNG in Delhi and its adjoining areas. IGL was incorporated in 1998 as a
JV between GAIL and Bharat Petroleum Corp. (BPCL). The government of Delhi
owns another 5% stake. The company later took over the Delhi gas distribution
project from GAIL. At present, IGLs gas distribution network spans over Delhi,
Noida and Greater Noida, and Ghaziabad. The company supplies compressed
natural gas (CNG) to the auto sector, piped natural gas (PNG) to households and
commercial establishments, and R-LNG (re-gasified LNG) to industrial
establishments.
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MORNING INSIGHT November 10, 2017
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MORNING INSIGHT November 10, 2017
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MORNING INSIGHT November 10, 2017
Quarterly Financials
Rs mn, FY Ends Mar 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 % chg y/y % chg q/q
Revenues from Operations 5952 6174 6190 6635 5879 -1.2% -11.4%
Cost of Goods 4718 4315 4110 4504 4252 -9.9% -5.6%
Gross Profit 1235 1859 2080 2131 1627 31.8% -23.7%
Gross Margin 20.7% 30.1% 33.6% 32.1% 27.7%
Employee Expenses 355 366 392 391 410 15.5% 4.8%
Other expenses 692 650 768 654 659 -4.7% 0.8%
EBITDA 188 843 920 1086 558 196.6% -48.6%
Margin 3.2% 13.7% 14.9% 16.4% 9.5% 200.3% -42.0%
Depreciation and Amortization 71 71 70 70 70 -0.6% 0.3%
EBIT 118 772 850 1016 488 315.0% -52.0%
Interest Expenses 204 208 147 137 111 -45.7% -19.3%
Other Income 98 81 69 57 56 -42.6% -1.2%
PBT 12 645 772 936 434 NM -53.7%
Provision for Tax 8 228 355 417 162 NM -61.1%
PAT 3 417 417 519 271 NM -47.7%
Source: Company Reports
Segmental table
2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 % chg y/y % chg q/q
Segment Revenues
Poultry and Poultry Products 2771 3143 3192 3541 2843 2.6% -19.7%
Animal Health Products 533 451 374 502 487 -8.8% -3.1%
Oilseeds 2839 2685 2690 2773 2725 -4.0% -1.7%
Segment Results
Poultry and Poultry Products -18 541 691 782 313 NM -60.0%
Animal Health Products 85 71 107 108 95 12.0% -11.8%
Oilseeds 129 268 213 215 165 27.6% -23.5%
Total Segment Profit 195.7 880 1011 1104.4 572.4 192.5% -48.2%
Source: Company
Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 27
MORNING INSIGHT November 10, 2017
Results Summary
At the outset, we would like to note that 2Q is a seasonally weak quarter for
Venkys, as certain religious events tend to depress prices of chicken in the
quarter. As such, only y/y comparisons are useful for the company.
Venkys reported revenues Rs 5.88 Bn, marginally below our estimates.
Summary table
Revenues in oilseeds declined 4% (we expect, on account of decline in soya
(Rs mn) FY17 FY18E FY19E
prices); revenues in animal health and poultry and poultry products were lower
Sales 24,756 25,730 30,181 than our estimates we expect changing product mix (greater contribution of
Growth (%) 16.7 3.9 17.3
chick sales rather than broiler sales) has led to the miss in poultry segment.
EBITDA 2,774 3,859 4,403
EBITDA margin (%) 11.2 15.0 14.6 However, this has a positive impact on margins (since the margins in sales of
PBT 2,059 3,317 4,068 chicks are higher).
PAT 1,248 2,046 2,624
EPS 88.6 145.3 186.3 Raw material expenses in the quarter declined 10% y/y. Gross margin expanded
Growth (%) 317.2 64.0 28.2 6.9 ppt, and came in ahead of our estimates. Reported gross profit for the
CEPS (Rs) 108.8 167.2 210.0 quarter registered 32% y/y growth. Gross margin gains are attributable to a
Book value (Rs/share) 377.0 510.8 680.0 better product mix, as also stronger broiler/ chick prices in the quarter (y/y
Dividend per share (Rs) 6.0 10.0 15.0
comparison). Employee expenses were in line with expectations. Other
ROE (%) 26.3 32.7 31.3
ROCE (%) 24.0 28.1 27.2 expenses declined 5% y/y and contributed further to EBITDA outperformance
Net cash (debt) -2,910 -996 1,009 (relative to estimates). Reported EBITDA, Rs 558 mn, came in 22% ahead of
NW Capital (Days) 33.2 27.4 24.7 estimates.
P/E (x) 26.8 16.3 12.7
P/BV (x) 6.3 4.6 3.5 Venkys balance sheet shed ~Rs 1.5 Bn net debt over the past six months
EV/Sales (x) 1.5 1.3 1.1 (September, 2017 over March, 2017). This has led to the interest expenses
EV/EBITDA (x) 13.1 8.9 7.4 coming in lower than our estimates. Reported PAT, Rs 271mn, was 33% ahead
Source: Company, Kotak Securities Private Client of our estimates.
Research
Outlook and Investment View
Venkys continues to benefit from a favorable gross margin environment. Recent
data on rates indicates that prices of chicks continues to be relatively high. Rates
of broilers present a mixed picture while Punjab broiler rates have risen 12% in
October, Mumbai rates have declined about 7%. Prices of chicks in the last two-
three months indicate that there is an expectation that the prices of broilers shall
rise in the near-term. On an aggregated basis, we expect price changes to be
positive, along with healthy volume growth. Soya prices/ corn prices continue to
be benign.
10%
0%
-10%
-20%
-30%
We raise our EBITDA estimates upward to account for the positive surprise in
2QFY18, and higher gross margins over FY18/FY19. Our FY18/FY19 EBITDA
estimates are revised upward by 5%/4%. Due to lower interest expenses (relative
to prior estimates, sharp reduction in debt), our EPS estimates are revised upward
by 8%/5% for FY18/FY19.
Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 28
MORNING INSIGHT November 10, 2017
We are encouraged by the sharp reduction in debt that the company has affected
over the past two quarters. The net debt has declined by over Rs 1.5 Bn since March
2017, financed by profits generated (PAT generated for 1HFY18 is Rs 791 mn) as
well as a significant reduction in working capital (working capital requirement has
been reduced by Rs 852 mn). Since initiation on Venkys, we have pointed that the
company high debt over the period 2011-2016 has been a cause of concern for
investors. Further, in our opinion, high debt of the company over these years had
led to a rise in perceived volatility of earnings, and also stunted the companys
efforts to experiment with a B2C model. 2QFY18 balance sheet provides further
reasons to believe that the company shall be debt-free by FY-19 end. We believe
the sharp reduction in debt affected by the company in FY17, and now further in
1HFY18, augurs well for the valuation of the stock.
Longer-term potential for Venkys (secular growth in chicken consumption,
We maintain BUY on Venkys India possible curtailments on beef consumption, and movement towards a higher B2C,
with a price target of Rs.3000 processed chicken mix), is combining well with consistent earnings momentum (on
a y/y basis) in the near/ medium term. Institutional ownership of the stock remains
low (c. 3.6%, as of September), providing further reason to believe there is room
for expansion in valuations, likely to 16X FY19E PER, over the next 6-9 months. We
raise our target multiple on Venkys to ~16X FY19E PER (earlier ~15X FY19E PER).
Our price target stands revised to Rs 3000 (Rs 2650 earlier), on the back of an
expectation of further re-rating and an upward revision in earnings estimates.
Risks include industry level risks such as sharp rise in input/ decline in output prices,
and adverse news-flow on avian flu and the like. We further note that the
companys annual report states that the downside to financial statements, if any,
that may arise from the proceedings initiated against the company by the IT
department in May, 2017, is not ascertainable.
Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 29
The Pitch
10 November 2017 For private circulation only
BBTC (Rs.mn)
Q2FY2018 Q2FY2017 yoy (%) Q1FY2018 qoq (%)
Net Sales 554.4 735.4 -24.6% 541.1 2.5%
Operating Profit -88.7 -37.5 23
Other Income 56 45.2 23.9% 72.2 -22.4%
Finance Costs 61.6 89.2 -30.9% 95.2 -35.3%
PAT -110.2 -99.7 -16.9
EPS -1.58 -1.43 -0.24
Source
Quarter-on-quarter performance is not relevant for this company as it is engaged in plantation business, which normally
makes maximum losses in the September quarter;
Losses of BBTC on standalone basis should not be a cause of concern to the investors as this company didnt make any
significant profits in the last 4 years. In fact, in the last two financial years (FY2016 and FY2017), it made significant
losses, still the stock price of BBTC moved up almost 4-fold since April 2015. This is mainly due to the fact that the
market cap of BBTC is highly correlated with that of Britannia, rather than on its standalone business performance. BBTC
stock has become a play on growing value of its rich investments in Britannia;
BBTC publishes consolidated results (incorporating the profits of Britannia) only along with the March quarterly results.
Since Britannia profit accounts for over 90% of consolidated profits of BBTC, we expect very impressive growth in
consolidated net profit of BBTC for the whole of FY2018 on improved earnings from Britannia with recovery in rural
spending this year;
We have been banking on BBTC primarily for its investments in Britannia and value of its land bank. Now BBTC trades
at around 61% discount to its investments in Britannia as against the average of holding companies (HCs) discount
which stands at around 50%. We continue to believe that this discount would come down further or there could be
unlocking potential in the long-term and hence, we continue to suggest a BUY on this stock.
The Pitch 10 November 2017
Financial Summary
FY Ended (Rs Mn) (Consolidated) Net Sales Change PAT Change EPS Change P/E
(Rs Mn) (%) (Rs Mn) (%) (Rs) (%) (x)
FY2017 96,093 7.7 8,582 7.6 123.04 7.6 13.1
FY2018E 1,05,700 10.0 9,434 9.9 135.26 9.9 11.9
FY2019E 1,18,390 12.0 10,109 7.2 144.94 7.2 11.2
Source: Company, Equinomics Research and Advisor
MORNING INSIGHT November 10, 2017
Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 30
MORNING INSIGHT November 10, 2017
RATING SCALE
Definitions of ratings
BUY We expect the stock to deliver more than 12% returns over the next 9 months
ACCUMULATE We expect the stock to deliver 5% - 12% returns over the next 9 months
REDUCE We expect the stock to deliver 0% - 5% returns over the next 9 months
SELL We expect the stock to deliver negative returns over the next 9 months
NR Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for
information purposes only.
RS Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there
is not a Sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing,
an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock
and should not be relied upon.
NA Not Available or Not Applicable. The information is not available for display or is not applicable
NM Not Meaningful. The information is not meaningful and is therefore excluded.
NOTE Our target prices are with a 9-month perspective. Returns stated in the rating scale are our internal benchmark.
Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 31
MORNING INSIGHT November 10, 2017
Disclosure/Disclaimer
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The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research
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