Share Market Update on ACC for 2QCY2011

Share Market Update on ACC for 2QCY2011 with a Neutral recommendation.

For 2QCY2011, ACC posted a 6.2% decline in its bottom line; however, it was ahead of our estimates. The bottom-line decline was despite higher realisations, as the company faced margin pressure on account of higher power and fuel costs and freight costs. During the quarter, ACC faced the full impact of the domestic coal price hike carried out by Coal India. Realisation was higher as cement prices, which touched the peak in March 2011 remained strong until May.
At current levels, we maintain our Neutral view on the stock.

OPM at 24.1%, down 527bp yoy:  ACC posted an 18.9% yoy growth in net sales to `2,403cr on account of growth in dispatches and better realisation.
The company’s dispatches for the quarter stood at 5.9mn tonnes, up 12.5% yoy, on account of higher capacity (on a yoy basis) operational at Wadi and Chanda during the quarter. However, on a sequential basis, dispatches declined by 3.7%, indicating the lukewarm demand scenario. Realisation also improved by 5.7% yoy and 4.1% qoq to `4,052/tonne.

Outlook and valuation: All-India cement dispatches, which witnessed a marginal decline in 1QFY2012, are expected to pick-up post the monsoons. Demand growth is expected to be driven by infrastructure activities with FY2012 being the last year of the Eleventh Plan. However, the ongoing SFIO investigation on cement pricing might soften the extent of price recovery. We expect ACC to register a 16.0% CAGR in its top line over CY2010–12, aided by capacity addition. However, the bottom line is expected to grow at a lower CAGR of 4.6% over the mentioned period due to higher operating costs. At current levels, the stock is trading at EV/EBITDA of 6.8x and EV/tonne of US$110, based on CY2012 estimates. We maintain our Neutral view on the stock, as we believe it is fairly priced.

Share Market Result Update on Sarda Energy and Minerals for 1QFY2012

ShareMarket Result Update on Sarda Energy and Minerals for 1QFY2012 with a Buy recommendation and a Target Price of `259 (12 months).

For 1QFY2012, Sarda Energy and Minerals (SEML) reported net sales growth of 17.2% yoy to `254cr. However, adjusted net profit declined by 48.3% yoy to `14cr due to higher costs. We maintain our Buy rating on the stock.

Ferro alloy segment drags SEML’s 1QFY2012 profitability: During 1QFY2012, SEML’s net sales grew by 17.2% yoy to `254cr due to higher realisation in the steel segment coupled with higher sales volume of billets, ingots and power. Blended steel realisation grew by 96.1% yoy to `33,036/tonne on account of improved product mix. EBITDA margin declined substantially by 857bp yoy to 14.4% mainly on account of higher raw-material costs. Thus, EBITDA declined by 26.6% yoy to `37cr. EBIT of the ferro alloys segment declined by 73.0% yoy to `7cr on account of lower realisation coupled with higher prices of key inputs. Interest costs for the quarter increased by 112.6% yoy to `6cr, owing to which adjusted net profit declined by 48.3% yoy to `14cr.

Outlook and valuation: We continue to believe that SEML is well poised to benefit from a) backward integration into coal and iron ore, b) commercial production of pellets and c) increased power and ferro alloy production. Moreover, firm sponge iron and billet prices should lead to higher capacity utilisation in FY2012 and FY2013, thereby leading to higher sales volumes. A key catalyst for the stock would be restarting of its iron ore operations at Rajnandgaon. We recommend Buy with a target price of `259, valuing the stock at 5.5x FY2013E EV/EBITDA.

Share Market Update on IDBI Bank for 1QFY2012

Share Market Update on IDBI Bank for 1QFY2012 with a Neutral recommendation.

For 1QFY2012, IDBI Bank reported healthy 33.6% yoy growth in its net profit to `335cr, which was in-line with our estimates but lower than consensus forecasts. Sequentially stable NIM, lower fee income and higher slippages despite the already-functioning system-based NPA recognition platform were the key highlights of the result. We maintain our Neutral view on the stock.

NIM surprises positively while slippages rise: For 1QFY2012, the bank’s advances declined by 1.3% qoq (up 14.5% yoy). Deposits also declined by 2.3% qoq (up 12.1% yoy). Advances growth on a yoy basis was driven by strong 49.8% growth in retail credit, which has increased its share to 19.2% from 14.7% in 1QFY2011. CASA deposits growth continued to be healthy at 49.2% yoy, leading to a 429bp yoy improvement in CASA ratio to 17.3%. The bank was able to largely sustain (down marginally by 3bp qoq) its reported NIM at 2.1%, despite the 54bp qoq rise in cost of funds. The annualised gross slippage ratio increased to 1.6% as compared to 0.5% in 4QFY2011. Slippages were on the higher side considering the fact that the bank had already switched over to system-based NPA recognition platform. Profitability in 1QFY2012 was aided by the write-back of provisions on SRs of `92cr. However, profits were lower due to the higher effective tax rate at 44.6% (27.6% in FY2011) due to non-tax deductibility of certain provisioning expenses. Profits for the quarter included ~`18cr from the two subsidiaries, which had merged with the bank in 4QFY2011. Branch expansion was healthy with addition of 67 branches, taking the network to 883.

Outlook and valuation: We believe the bank is set to improve its credit and deposit mix going forward on the back of its strong branch expansion plans. The bank has been amongst the fastest-growing in terms of CASA deposits over the past few years even when compared to private banks and now has a market share of 2.1%. At the CMP, the stock is trading at 1.1x FY2013E P/ABV adjusting for SASF (0.8x without adjusting). However, in our view, there are near-term cyclical headwinds to margins and asset quality. Hence, we maintain our Neutral stance on the stock

Share Market Update on Federal Bank for 1QFY2012

Share Market Update on FederalBank for 1QFY2012 with a Buy recommendation and a Target Price of `478 (12 months).

For 1QFY2012, Federal Bank recorded net profit growth of 10.8% yoy (down 14.9% qoq), below our estimates, mostly due to higher provisioning expenses than built in by us. Management has attributed the rise in NPAs (slippages at `323cr) during the quarter to one-off employee-related issues, which led to a spurt in slippages in the retail book. Fee income according to management also suffered due to this one-off event. We recommend a Buy rating on the stock.

CASA ratio improves; however, asset-quality woes continue: For 1QFY2011, advances grew by 0.1% qoq to `31,972cr, while deposits declined by 0.2% qoq to `42,936cr. Although total deposits declined during the quarter, the bank was able to sequentially grow its savings and current account deposits by 3.5% and 4.2%, respectively, leading to a 96bp increase in CASA ratio to 27.2%.  Including NRE deposits, total low-cost deposits constituted 32.8% of total deposits. Cost of deposits increased by 103bp qoq, leading to a 13bp qoq decline in reported NIM to 3.9%. Slippages for 1QFY2012 stood at `343cr (annualised 4.0%), driven by higher slippages on the retail (~`140cr) and SME (~`140cr) front. Management has attributed the increase in slippages on the retail side to one-off employee-related issues that cropped up during the quarter, leading to slackness on the recovery front. During 1QFY2012, non-interest income declined by 17.2% qoq (up 6.4% yoy), mainly due to sluggishness in fee-related initiatives and recoveries on the retail side (recoveries were down by 42.6% qoq), as per management.

Outlook and valuation: Post the recent correction, the stock is trading at 1.1x FY2013E ABV. While lower leverage is leading to low RoE at present, the bank’s core RoA is relatively high and should improve further as asset-quality pressures start moderating. We recommend Buy on the stock with a target price of `478.