Stock Market Result Update on Hindalco for 1QFY2012

Stock Market Result Update on Hindalco for 1QFY2012 with a Buy recommendation and a Target Price of `196 (12 months).

For 1QFY2012, Hindalco reported robust set of numbers for its standalone operations as well as for Novelis. However, the company reported delays in its Utkal and Aditya projects. Nevertheless, we expect robust growth in profits during FY2012 and FY2013. We maintain our Buy view on the stock.

Higher costs mute standalone EBITDA growth: Hindalco’s standalone net revenue grew by 16.2% yoy to `5,979cr due to higher realisation despite a decline in sales volume. However, EBITDA grew only by 4.2% yoy to `868cr. EBITDA margin dipped by 167bp yoy to 14.5% due to higher raw-material and energy costs. Interest expense grew by 12.5% yoy to `67cr, while other income grew by 158.1% yoy to `178cr. Consequently, net profit grew by 20.6% yoy to `644cr.

Robust performance by Novelis continues: Novelis’ top line grew by 22.9% yoy to US$3,113mn on the back of higher realisation. Shipments decreased by 1.5% yoy to 767kt (excluding ingots). Adjusted EBITDA grew by 26.8% yoy to US$298mn on the back of improved product mix. EBITDA/tonne increased by 10.3% yoy to US$374. Net income grew by 24.0% yoy to US$62mn.

Outlook and valuation: At the CMP, the stock is trading at 5.6x FY2012E and 5.2x FY2013E EV/EBITDA. We believe Hindalco is well placed to benefit from

a) its aluminium expansion plans (capacity increasing by nearly three folds in the next four years), b) low production cost at its new capacities and c) steady capacity expansion at Novelis. We maintain our Buy recommendation on the stock with an SOTP target price of `196.

Stock Market Result Update on Tata Steel for 1QFY2012

Stock Market Result Update on Tata Steel for 1QFY2012 with a Buy recommendation and a Target Price of `614 (12 months).

Tata Steel reported robust top-line growth in 1QFY2012. However, the company’s profitability suffered on account of higher raw-material costs and subdued demand at its European operations. Nevertheless, we continue to maintain our positive stance on Tata Steel owing to its buoyant business outlook in its India operations mainly driven by higher sales volume in FY2013. We maintain our Buy view on the stock.

EBITDA/tonne decreases despite higher realisation: Despite higher realisation, EBITDA/tonne decreased by 3.1% and 1.2% yoy to US$442 and US$78 in Tata Steel India and Tata Steel Europe (TSE) operations, respectively, as increased realisation was offset by higher raw-material costs. Consolidated EBITDA decreased by 0.2% yoy to `4,423cr. Other income increased to `3,882cr, compared to `59cr in 1QFY2011. Other income included gains on sale of Tata Refractories, final settlement credit on sale of TCP and stake in Riversdale Mining Ltd. Adjusting for these exceptional items, adjusted net profit decreased by 23.0% yoy to  `1,459cr, significantly below our estimate of  `1,858cr. Reported net profit stood at `5,347cr, compared to `1,825cr in 1QFY2011.

Net debt declines on sale of strategic investments: The company’s net debt decreased to US$8.5bn as on June 30, 2011, compared to US$13.6bn as on March 31, 2011, due to cash generated from the sale of strategic investments.

Volumes decline at TSE: In Europe, deliveries decreased to 3.5mn tonnes in 1QFY2012, compared to 3.7mn tonnes in 1QFY2011. EBITDA/tonne for TSE stood at US$78 in 1QFY2012 compared to US$79 in 1QFY2011.

Result Update on Asian Paints for 4QFY2011

Result Update on Asian Paints for 4QFY2011 

The numbers for this quarter are not comparable on a yoy basis as 4QFY2010 included six month results of overseas subsidiaries. We maintain our Accumulate recommendation on the stock.

Domestic volumes steady, international business affected by unrest in MENA: The top line grew by 4.7% yoy to `1,965.6 (`1,876.8cr), however in comparable terms, the growth was 22.6% yoy which was robust. For the full year, the company registered a paint volume growth of 17% yoy on a standalone basis, while on a consolidated comparable basis with overseas subsidiaries, the revenue was aided by 19.5% yoy growth. Earnings declined by 10.7% yoy to `190.9cr (`213.8cr), as the company faces margin pressures. The company’s operating profit declined by 184bp yoy to `289.4cr (`310.8cr) on account of high raw-material costs and other expenses (up 37bp yoy).

Outlook and valuation: Post 4QFY2011 results, we have tweaked our top-line numbers to factor in relative sluggishness in demand in the company’s international business (particularly in certain pockets of South Asia and Middle East). We have pruned our margin estimates to factor in gross margin pressures that the company faces on account of unrelenting increase in crude prices but expect margins to sustain at 17%, aided by higher value growth and ~4% weighted average price hike taken in FY2012 (further prices not rules out). 
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Result Flash on ABB for 1QCY2011

Revenues higher than estimates: ABB reported strong growth of 21.5% yoy in its top-line to `1,793cr (`1,475cr), which was higher by 5.7% from our expectation of `1,697cr.

Margins show improvement: After posting dismal margins since last few quarters, the company improved on operational front with a margin improvement of 416bps yoy to 5.7%. We had estimated EBITDA margin of 6.5%. This is partially attributable to the complete exit from rural electrification projects, where the company had incurred high costs during previous quarters.   Notably, company also gained in forex variations in the current quarter (`29cr) against high losses reported in the prior year period (`82cr). Consequently EBDITA came in at `102cr which was almost in line with our estimate of `110cr.

Reported PAT in line with our estimates: Strong revenue growth coupled with margin expansion and other income resulted in 8-fold yoy increase in the PAT to `60cr (`7cr) which was in line with our estimate of `62cr.

Overall, the results were broadly in line with our estimates. At CMP of `888, the stock is trading richly at 38.1x and 30.3x its CY2011E and CY2012E earnings estimate. The stock is currently under review.

Exhibit 1: Actual vs Estimates

(` cr)	Actual	Estimates	Var (%)
Revenues	1,793	1,697	5.7
EBITDA	102	110	(7.9)
PAT	60	62	(4.3)
EPS	2.8	2.9	(4.3)

Exhibit 2: Quarterly Performance

( ` cr)	1QCY11	1QCY10	% chg (yoy)	4QCY10	% chg (qoq)	CY10	CY09	% chg (yoy)
Net Sales	1,781	1,456	22.4	2,051	(13.1)	6,287	6,237	0.8
Other operating income	11.7	19.4	(39.4)	21.4	(45.0)	72	54	33.1
Total income	1,793	1,475	21.5	2,072	(13.5)	6,359	6,291	1.1
Stock adjustments	(17.0)	10.6		16.4		(9.9)	(43.5)
Raw Material	1,373	1,068	28.5	1,657	(17.1)	4,812	4,561	5.5
(% of total income)	76.6	72.4				75.7	72.5
Employee Cost	125	117	6.7	126.9	(1.3)	490	389	26.1
(% of total income)	7.0	8.0				7.8	6.2
Other Expenses	213	174	22.2	201	5.7	817	754	8.2
(% of total income)	11.9	11.8			0.0	12.8	12.0
Exchange Rate (gains)/loss	(2.9)	82.3	(103.5)	37.5	(107.8)	95	48	98.5
(% of total income)	(0.2)	5.7				1.5	0.8
Total Expenditure	1,691	1,453	16.4	2,039	(17)	6,203	5,708	8.7
EBITDA	102	22	356.1	33	211	156	583	(73.2)
(EBITDA %)	5.7	1.5	4.2	1.6	0.0	2.5	9.3
Interest	4	4	6.3	4.8	(17.5)	17	25	(31.5)
Depreciation	14	12	19.7	14.8	(2.9)	52	49	6.5
Other Income	5	2	144.0	2.6	75.6	13	18	(27.4)
PBT	88	8	952.1	15.6	463.1	100	527	(81.0)
(% of total income)	4.9	0.6				1.6	8.4
Total Tax	28	2	1,558.8	9	219.9	37	173	(78.6)
(% of PBT)	32.1	20.4		56.6		36.9	32.8
Reported PAT	60	7	796.7	7	779.9	63	355	(82.2)
(% of total income)	3.3	0.5	0.0	0.3		1.0	5.6
EPS (`)	2.8	0.3	797	0.3	780	3.0	17	(82.2)

Exhibit 3: Key Financials

Y/E December (` cr)	CY2009	CY2010	CY2011	CY2012
Operating income	6,237	6,287	7,602	9,294
% chg	(8.8)	0.8	20.9	22.3
Net Profit	355	63	495	622
% chg	(35.2)	(82.2)	682.4	25.6
EBITDA (%)	8.5	1.3	9.9	10.3
EPS (Rs)	16.7	3.0	23.3	29.3
P/E (x)	53.1	297.8	38.1	30.3
P/BV (x)	7.8	7.8	6.6	5.6
RoE (%)	15.7	2.6	18.8	20.0
RoCE (%)	21.2	1.3	26.1	28.3
EV/Sales (x)	2.9	2.9	2.4	1.9
EV/EBITDA (x)	34.7	217.6	24.1	18.9