Friday, July 22, 2016


ITC (ITC IN, CMP Rs 250, SELL): Q1FY17 – A mixed bag

·         ITC reported Q1FY17 Net sales/ EBITDA/ Adj. Pat growth of 9.7%/8.2%/10.1% with cigarettes volumes for the quarter growing 3% YoY (vs an expectations of 2% growth).
·         Cigarette EBIT growth for the quarter however was below estimates with a growth of 8% YoY (estimate of 11% YoY growth).
·         While FMCG business growth showed improvement to 9.5% (5.6% in Q4), business also reported a reduction in loss YoY. Most other businesses were lacklustre in performance with Agri and Paper & paperboard reporting a 1.5%/(2.7%) YoY EBIT growth respectively.
·         While we expect an improvement in volume/ EBIT growth for the cigarettes business over FY16-18, we believe current valuations at 28x/25x FY17/FY18 earnings fully capture in the expected recovery.
·         Risks on account of impending GST as well as other regulatory interventions (including the impact of larger graphic health warnings covering 85% of the cigarette packs) provide a downward risk to consensus earnings estimates.
·         We have a SELL rating on the stock.
Zensar Q1FY17 First Look: Revenue misses estimate but margins beat
·         Quarter results: Zensar reported $ revenue of $114M, up 3.1% QoQ and 2.6% in cc. This was below our estimate of $118M. AMS grew 4.5% in cc while IMS was a drag on revenue, down 3.4% QoQ.
·         Geography and verticals: Africa drove the growth for the quarter, up 9.7% QoQ in cc, while US was a drag and declined 0.6%. Among the verticals, growth was led by manufacturing (up 3.5%) and Retail CPG (up 3.5%) while FSI was down 0.8% QoQ
·         Margins beats estimate: Margins came ahead of our estimate despite the revenue growth miss. The company reported an EBITDA margin of 14% and EBIT margin of 12.7%, ahead of our estimate of 13.6% and 12% respectively.
·         Digital services contributed 27.3% to the overall revenue, vs. 27% in FY16.
·         PAT was largely in line with our estimate supported by better than expected margins despite the lower than expected revenue growth.
·         Zensar reported a slower than expected revenue, however given the results of IT companies in Q1 so far, a 3.1% USD revenue growth is positive. The company delivered superior result on margin and PAT despite the miss on revenue. On the earnings call, we would be looking for management's commentary on update on the initiatives taken by the new CEO, any impact due to Brexit and color on revenue growth for FY17.
Earnings call: July 22, 4:00pm, Dial in: 022 3938 1075
HDFC  bank results inline on all parameters
·          Asset growth on YoY of 20% with advances growth of 23.2%, mix between retail and corporate remained the same
·         Profit growth at 20% whereas provisions also grew by 19%
·         Reported NIMs were at 4.4%
·         Gross NPLs saw slight increase on YoY basis at 1.04% with business banking accounting for c. 35-40% of the incremental increase.
·         As per management, the FCNR B redemptions are expected to come in 3QFY17.
·         Overall no surprises as we also expect a growth 21% in full year profits. We retain our BUY rating on the stock.

 KMB results below consensus and in line with our estimates

·          Advances on a consolidated basis increased 17% y-y  (vs. our FY17 estimate of 20%). As per management, the CV (not involved in integration)  and corporate segments (integration completed in FY16) were the main drivers of loan growth. CV loans increased 42% y-y while the corporate segment increased 23% y-y. The retail and SME business segments seem to be impacted by the technology integration efforts undertaken in 1QFY17. The integration effort of porting the ING part of the business onto KMB’s Finnacle platform has been completed in 1Q17. As per our estimates, this segment constituting c.49% of the loan book grew at an average rate of 12%y-y (below overall average reflecting the impact). The management retains its full year loan guidance of 20%.
·         Deposits increased 20% y-y with period average SA growing at 35% while CA grew at 32%.
·         NIMs increased 2 bps q-q (17bps y-y) aiding NII growth of 20% y-y (3% q-q).
·         Non-interest income grew 24% with fee income growth of 35% y-y 
·         Cost to income ratio for the quarter was 50.4% . FY17 guidance is for sub 50%.
·         Gross NPAs increased to 2.5% (FY16: 2.36%) while net NPAs increased to 1.21% (FY16: 1.06%). Provision coverage ratio consequently declined to 52% from 55%, as per our estimates.
·         Credit costs was 60 bps with the FY17 guidance being retained at c.50bps. 
·         The stock currently trades at  3.3x FY18 adj BVPS and prices in the opportunities and challenges from the merger, in our view. We retain our NEUTRAL rating on the stock with a FV of Rs 787 (CMR: Rs761).

ABB Q2 CY16 results

·         Order inflow for the quarter came in at Rs 20.4bn up 7.7% y/y driven by growth in base orders supported by service, GIS and renewables
·         Order backlog came in Rs 77.5bn down 2.6% y/y
·         Revenue grew 8.8% y/y to 20.7bn (in-line with the consensus) as a result of higher focus on technology driven orders
·         EBITDA margin improved by 40 bps y/y to 6.9% (130 below consensus estimates)
·         Profit after tax came in at 774mn (2.6% above consensus) driven by the reduced interest cost as a result of enhanced cash performance
Segmental performance
·         Discrete Automation & Motion : Revenue grew 10.5% driven by Railway and renewables. The margins have reduced 230bps to 5.8% primarily due to the currency impact and change in the project/product mix
·         Electrification Products : Revenue grew by 7%, whereas margins grew by 330 bps to 13.9%
·         Process Automation : Revenue fell by 3.3% and margins fell by 100bps to 9.2%. There is a recovery of demand in Auto sector which is driving the Automation orders
·         Rower Grids: Revenues increased by 6.3% primarily driven by the exports . The margins have increased by 260 bps to 6.7%;:

No comments:

Post a Comment