Stock Market Update on ACC for 2QCY2011

StockMarket 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.

Stock Market Update on Dena Bank for 1QFY2012

StockMarket  Update on Dena Bank for 1QFY2012 with a Neutral recommendation

For 1QFY2012, Dena Bank reported healthy growth of 21.1% yoy and marginal growth of 7.1% qoq in its net profit to `168cr, above our estimates, mostly due to lower provisioning built in by us. Slippages surprised positively, while NIM contracted by 19bp qoq to 2.9%. We recommend a Neutral rating on the stock.

Sequential contraction in business; slippages surprise positively: In 1QFY2012, on a qoq basis, advances and deposits declined by 4.4% and 1.5% to `42,871 and `63,253cr, respectively. On the deposits side, CASA deposits declined by 2.2% qoq (up 16.9% yoy). CASA ratio for 1QFY2012 stood at 35.2% (down 25bp qoq). Yield on advances increased by 78bp qoq to 11.3% in 1QFY2012; however, cost of deposits increased by 67bp qoq to 6.7% in 1QFY2012, leading to a sequential decline of 19bp in reported NIM to 2.9%. During 1QFY2012, non-interest income declined by 31.2% qoq to `124cr, primarily because of an 83.5% dip in recoveries from written-off accounts to `10cr. Slippages witnessed a sharp decline in 1QFY2012, with slippage ratio decreasing from 3.1% in 4QFY2011 to 1.3% in 1QFY2012. Sequentially gross NPA ratio and net NPA ratio remained stable at 1.9% and 1.1%, respectively. NPA provision coverage ratio including technical write-offs increased to 77.9% (from 74.6% in 4QFY2011).

Outlook and valuation: Dena Bank, with a strong CASA ratio of 35.2%, is better placed than its peers to protect its NIM in a rising interest rate environment.
After the equity capital infusion of about `540cr by the government, the bank's tier-I ratio has improved to 9.7%. At the CMP, the stock is trading at 0.6x FY2013E P/ABV, the cheapest among PSU banks. However, considering that NPAs could surprise negatively in the next quarter as all accounts below `50 lakh come under system-based NPA recognition system and the hefty exposure to the power sector (~20% of the loan book), which might lead to some chunky NPAs or large restructuring in the books in the coming quarters, we recommend Neutral, and would look to upgrade the stock only once the near-term headwinds subside.

Stock Market Update on Blue Star for 1QFY2012

StockMarket  Update on Blue Star for 1QFY2012 with a Neutral recommendation

In 1QFY2012, Blue Star posted 6.0% yoy growth to `705cr (`665cr). OPM fell by 524bp yoy and 730bp qoq to 3.9% due to higher raw-material and other expenditure. Consequently, PAT declined by 73.6% yoy to `10cr (`37cr). According to management, the current scenario is going to continue for the next six quarters owing to cost overruns. Hence, we change our recommendation to Neutral on the stock.

Weak top-line growth, margin dips significantly: Blue Star reported 6.0% yoy top-line growth in 1QFY2012 to `705cr. The company’s growth was muted on the back of an 8.7% yoy decline in its electromechanical projects and packaged air conditioning systems (EMPPACS) segment to `342cr (`374cr), which accounted for nearly 49% of the total revenue. The segment also reported an EBIT loss of `9cr vs. profit of `34cr in 1QFY2012, negatively affecting margins. Owing to the losses in this segment, overall OPM declined by 524bp yoy to 3.9% (9.2%). Consequently, PAT and PAT margin also declined to `10cr and 1.4%, respectively.

Outlook and valuation: Demand from the key market segments has still not picked up. However, growth in the cooling products segment and DS Gupta remains strong. Overall, management is not very optimistic and expects the current scenario to continue over the next six quarters. Management also expects margin to contract by 3–5% on a yoy basis going ahead until 1QFY2013. We have revised our estimates downwards and changed our recommendation to Neutral.