Stocks
JLR performance boosts Tata Motors’ Q2 net

The company plans to spend between Rs2,500 crore to Rs3,000 crore towards capital expenditure. It also plans to introduce new product lines and improve volumes

Tata Motors on Tuesday reported a massive 102-fold jump in its consolidated net profit for the second quarter ended 30th September at Rs2,223 crore on the back of robust domestic sales, strong profitability and healthy volume growth in its subsidiary Jaguar Land Rover. The consolidated profit stood at Rs22 crore in the corresponding quarter last year.

"The turnaround in the company's consolidated net profit is mainly due to the domestic business which registered a much better performance and strong profitability with healthy volumes in Jaguar Land Rover," Tata Motors chief financial officer C Ramakrishnan told reporters.

"Both wholesale and retail volumes improved favourably as compared to the corresponding quarter in the prior year, on the back of improved market conditions and continued overwhelming response," a company statement said.

The home-grown auto giant has witnessed a 36% growth in commercial vehicle sales in Q2 FY11 and a significant volume growth in its Nano model, Tata Motors managing director-India operations PM Telang said.

"The consolidated revenues (net of excise) in Q2 FY11 increased to Rs28,782 crore, a growth of 36.5% over the Rs 21,088 crore posted in the corresponding quarter of the previous year, with a strong volume growth globally in all major markets," Mr Ramakrishnan said.

Religare Capital, a brokerage firm, opined that Tata Motors' second quarter net profit beat market estimates due to a commendable performance from Jaguar Land Rover (JLR) business. JLR business reported an EBITDA margin of 16.6% - an improvement of 110 basis points (bps) q-o-q as against an expected decline of more than 100bps.

The highlights of the JLR performance were a q-o-q increase in per unit realisation of 6.6% on the back of a better product and geographic mix, and lower operating expenses resulting from cost reduction exercises/lower variable expenses.

Favourable macroeconomic conditions, good monsoons and good finance availability led to robust domestic demand during the quarter, resulting in volume growth across all segments, Tata Motors said.

In the domestic market, Tata Motors' commercial vehicle sales increased 23.4% year-on-year to 1,10,630 units. The company's market share in commercial vehicles was a robust 61.1%, Mr Ramakrishnan said.

BRICS Securities, another brokerage firm, stated that Tata Motors would be the biggest beneficiary of a turnaround in the commercial vehicle cycle.

The company plans to spend between Rs2,500 crore to Rs3,000 crore towards capital expenditure, Mr Ramakrishnan said, adding that it also plans to introduce new product lines and improve volumes.

The auto major said it plans to assemble the Land Rover SUV in India from early next year, besides it is also setting up assembly units to produce JLR brands in China, JLR's CEO Ralf Speth told the media. It also hopes to add Jaguar cars to the assembly plant at a later date, Mr Speth added. The company is also planning to assemble Land Rover SUVs in China.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security).
 

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Brokers divided on SBI’s results, not everybody negative

Opinions seem divided — while some believe the dip is a buying opportunity, others remain firmly negative

CLSA said, "SBI's healthy operating profit growth once again failed to feed through to net profit level as loan loss provisions continued to rise because of which net profit has been around Rs25 billion for the past nine quarters. SBI continues to leverage its size and technology platform to build its deposit franchise, grow fee revenues, but asset quality remains a drag and, in our view, will remain so for the next few quarters. At 15%, RoEs are lower than peers while valuations are at premium."

Kotak's view is more optimistic: "Slippages continued to remain high (at Rs44 billion, 2.7%) and were somewhat disappointing resulting in higher provisions and lower profits. We expect the stock price to correct in the near term, as result expectations were running high coupled with a very strong price performance in recent times. Retain positive view. Stock trades at 2x FY2012E PBR for core banking business. BUY with a TP of Rs 3,500."

Motilal seconds Kotak's optimism: "Adjusted for life insurance valuation, SBI trades at 1.9x FY12E Consol BV of Rs1,656 and 11.1x FY12E Consol EPS of Rs282. Standalone RoE will be 18.5% in FY12E. Given the sharp run-up up over the past few days and below-estimated earnings, the stock is likely to correct in the very near term. We see this as a buying opportunity and are bullish on core operating profitability. Maintain Buy."

Edelweiss downgraded the stock saying, "Asset quality woes continue, showing up in higher-than-expected slippages and management's guidance for higher-than-average slippages over the next few quarters. After adjusting for subsidiaries' valuation of INR 229, the stock is currently trading at 1.9x FY12E adjusted (cons.) book, leaving limited upside. Hence, we are downgrading our recommendation and rating on the stock from 'BUY' to 'HOLD'."

The main problem with SBI's results is the lack of profit growth. As CLSA puts it, "Net profit has remained around Rs25 billion for nine quarters, primarily due to sharp rise in provisions (Rs26 billion now v/s Rs6 billion in 2QFY09). Every quarter has some 'one-offs' (pension provisions, treasury gain/loss, interest on income-tax refunds etc) but the end result is same - flat net profit." This has led to a sharp contraction in RoE which is now at 15% versus around 18% for peers.

Other perceived negatives include annualised delinquency ratio at +3%, amongst the highest in the sector, the SBI chairman's statement that slippages will remain high in coming quarters, and the possibility that loan-loss provisions will remain high for a few more quarters. SBI also has a longer duration of bonds in the available for sale book (2.8 years), making it vulnerable to rising bond yields.

Key positives are CASA growth at 28%, fee income growth, and rising NIMs. Focus on shedding bulk deposits and excess liquidity in the balance sheet is also viewed as a long-term positive.

SBI shares have fallen after it declared its Q2 results seen by most market observers as disappointing.



The stock hit an all-time high of Rs3,515 on 8 November 2010.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).

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SBI braces for harsher third quarter

“Going forward in the next quarter we think another Rs500 crore-Rs600 crore would slip into NPAs. So the slippage ratio for these loans too would go up from 14.5% to 17% plus.” – SBI chairman OP Bhatt

State Bank of India (SBI), the country's largest lender, on Monday reported a 22.2% decline in consolidated net profit to Rs2,437.10 crore for the second quarter ended 30 September 2010. The Bank had a net profit of Rs3,133.10 crore in the year-ago period. The profit figures were well below analysts estimates. This was mainly due to increased provisioning for bad loans, the Bank said in a statement.

On a standalone basis, SBI's net profit grew by just 0.4% to Rs2,501.30 crore in the second quarter, against Rs2,490 crore in the year-ago period. Standalone income increased to Rs23,813.30 crore in the quarter under review from Rs21,301 crore, a growth of 11.7%.

According to BRICS Securities, pension/gratuity liability and costs related to a higher employee base pressured the bottom line, but the major disappointment was due to higher provision expenses towards higher non-performing assets (NPAs) and meeting the 70% threshold set by the Reserve Bank of India (RBI).

The Bank said that it had increased provisions for NPAs by 96% to Rs2,160.50 crore. The provision ratio widened to 62.78% as of 30th September from 60.70% as of 30th June. The RBI in October 2009 said banks would have to increase the minimum provision ratio to 70% from 10%.

NPA provisions were up 116% year-on-year (y-o-y) to Rs2,162.50 crore and the bank provided Rs300 crore towards provision for gratuity. It has provided an excess provision of Rs449 crore to increase its provision coverage ratio. The resulting provision coverage has improved by 320 basis points sequentially to 50%. After including technical write-offs, the provision coverage stands at 62.78% which, though better than the previous quarter, is still below the 70% level. Sharekhan wrote in its review of the result that considering the extension of the deadline to March 2011, the Bank should be able to reach the stipulated level of 70%.

Gross non-performing assets have increased by 11.4% quarter-on-quarter (q-o-q) to Rs23,205 crore. The gross slippages during the quarter were high at Rs4,412 crore. Out of these, Rs661 crore are from restructured assets. Of the restructured assets, about 14.5% have slipped into the NPA category with incremental slippages primarily from the mid-corporate segment.

SBI's total income, however, increased by 14.6% to Rs37,925.40 crore in the July-September quarter from Rs33,101.6 crore in the corresponding previous quarter. The Bank posted a net profit after minority interest of Rs2,363.90 crore in the period, compared to Rs3,050.90 crore in the corresponding period last year.

In Q2FY2011, SBI's loans grew by a strong 19.5% y-o-y to Rs6,93,224 crore, while deposits grew at a slower pace of 10.7% y-o-y. The current account and savings account (CASA) ratio improved by 28 basis points q-o-q to 47.79%.

SBI's capital adequacy ratio (CAR) stood at 13.20% as on 30 September 2010 with the tier-I capital adequacy at 9.6%.

"Short-term interest rate analysis is a function of demand for credit and liquidity. Liquidity is tight in the market and the RBI has decided that they have slightly tighter liquidity policy," SBI chairman O P Bhatt said after announcing second quarter results. "Going forward in the next quarter we think another Rs500 crore-Rs600 crore would slip into NPAs. So the slippage ratio for these loans too would go up from 14.50% to 17% plus.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security).

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