Stock market Result Update on GIPCL for 1QFY2012

Stock market Result Update on GIPCL for 1QFY2012 with a Buy recommendation and a Target Price of `96 (12 months).

GIPCL’s 1QFY2012 top line rose by 35.7% yoy to `343cr, aided by higher capacity. The 250MW SLPP station-II, which was in trial stages during 1QFY2011, was commercially operational during 1QFY2012. The company’s operating margin rose substantially by 1,246bp yoy to 37.8% on account of healthy availability factor in all the plants enabling full recovery of fixed costs along with incentives; and higher generation of lignite-based power. Despite the huge 102.4% increase in operating profit, the bottom line rose only marginally by 2.8% yoy to `43cr due to higher interest (`32cr vs. `4cr in 1QFY2011) and depreciation (`41cr vs. `21cr in 1QFY2011) costs. We maintain Buy on the stock.

OPM at 37.8%, up 1,246bp yoy: GIPCL’s plants including the newly commissioned Surat Lignite Power Plant (SLPP) station II had healthy plant availability factor (PAF). Vadodara stations I and II had PAF of 100% and 90.8%, respectively. SLPP I and II stations operated at PAFs of 90.1% and 78.4%, higher than normative PAF of 75%. However, PLFs were low at 58.9% and 60.2% at Vadodara I and II, respectively. PLFs in SLPP I and II stations were better at 75.8% and 71.6%, respectively. High availability factor coupled with higher generation of lignite-based power resulted in margin expansion of 1,246bp yoy to 37.8% during the quarter.

Outlook and valuation: Going ahead, we expect GIPCL to report steady performance on the profitability front due to the stabilisation of 250MW SLPP station II. However, the second quarter is a seasonally weak quarter on account of monsoons, resulting in low demand and maintenance activities planned by the company. At the CMP of `83, the stock is trading at 0.8x FY2013 P/BV. We have assigned a P/BV of 0.9x on FY2013 book value to arrive at a target price of `96. We maintain our Buy rating on the stock.

Stock Market Result Update on ABB India for 2QCY2011

Stock Market Result Update on ABB India for 2QCY2011 with a Sell recommendation and a Target Price of `578 (12 months).

ABB India (ABB) reported mixed set of results for 2QCY2011. The company outperformed on the top-line front but disappointed on the earnings estimate due to lower-than-expected margin. The company reported strong growth of 17.0% yoy in its top line to `1,713cr, which was higher by 1.8% from our expectation of `1,683cr. However, weak operational performance (margin pressures) dented the company’s overall profitability – PAT remained flat with 1.1% yoy growth to `39cr. We maintain our Sell view on the stock.

Steady growth; earnings recovery yet to gain momentum: Aided by higher execution, ABB’s revenue grew by 17% yoy to `1,713cr (`1,463cr). Growth was driven by balanced performance across most of the operating divisions. However, margin recovery remained back-ended compared to the previous year, which witnessed cost overruns in RE projects. OPM slightly improved by 44bp yoy to 5%; however, it was well below our estimate of 8%. Interest cost rose by 55% yoy to `7cr (`4cr), partly offset by higher other income at `7cr (`5cr). Depreciation more than doubled compared to 1QCY2011 at `26cr (`12cr). Consequently, PAT was considerably impacted, registering flat growth of 1.1% yoy to `39cr.

Outlook and valuation: At the current valuation of 37.3x CY2012E EPS, the stock is highly expensive compared to its peers such as Crompton Greaves (9.7x FY2013E EPS) and Areva T&D (19x CY2012E EPS). Going ahead, even a meaningful earnings recovery would do little to justify such expensive valuation. Hence, we continue to maintain our Sell view with a revised target price of `578 (`637), assigning a multiple of 27x CY2012 EPS.

Stock Market Result Update on Mahindra Satyam for 1QFY2012

Stock Market Result Update on Mahindra Satyam for 1QFY2012 with a Buy recommendation and a Target Price of `89 (12 months).

Mahindra Satyam (Satyam) reported its 1QFY2012 results, which were better than our as well as street estimations. The company is back on the growth track after two years of metamorphosis undertaken by TechMahindra’s management post its acquisition in June 2009. The company’s new management took over the reins and has again put the company on the map of the Indian IT industry.

We recommend a Buy rating on the stock.

Quarterly highlights: For 1QFY2012, Satyam reported strong dollar revenue growth of 5.2% qoq to US$320mn on the back of 3.9% qoq volume growth. In rupee terms, revenue came in at `1,434cr, up 4.3% qoq. The company’s EBITDA and EBIT margin increased by 168bp and 225bp qoq to 14.6% and 12.0%, respectively, aided by almost flat SG&A expenses qoq in terms of absolute number despite higher growth.

Outlook and valuation: The new management proved its ability of turning around the company in two years’ time by putting it back to comparable industry level growth and improving margins from 3% in FY2010 to 14.6% in 1QFY2012. We expect the company to maintain its growth momentum as recorded over the past few quarters and grow at rates comparable to its peers at a 19.4% CAGR in USD revenue and 32.5% CAGR in earnings over FY2011–13E. At the CMP of `71, the stock is trading at a 9.6x FY2013 EPS of `7.4 i.e. at a PEG of 0.29x. We value the stock at 40% discount to Infosys’ target FY2013 PE i.e., 12.0x and recommend a Buy rating on the stock with a target price of `89.