Companies & Sectors
Power utilities and coal: A mixed bag in the offing, says Nomura

Nomura Equity Research expects 4QFY13 results of JSW Energy to surprise whereas Adani Power and Lanco Infratech are expected to disappoint

Nomura Equities Research, in its Quick Note on power utilities and coal expects 4QFY13 normalized earnings of stocks under its coverage to exhibit a mixed bag. Relative to consensus, as was the scenario for 3QFY13, it expects 4QFY13 results of JSW Energy to surprise whereas Adani Power and Lanco Infratech are expected to disappoint.


It does not expect any major surprise in the earnings of NTPC, Power Grid Corporation and Reliance Power; as Nomura’s normalized PAT forecasts for these utilities are 2%-3% below consensus. As regards Coal India, Nomura’s net profit forecast is in line with consensus, although our EBITDA forecast is 4% below consensus; year-end incentives, incremental impact of the diesel price hike and e-auction contribution are key swing factors.



Adani Power (Reduce) – Expect net loss to reduce q-o-q:  Nomura has pegged Adani Power’s revenue at Rs18.5 billion (RS2.7/kWh blended realization, Rs4.25/kWh merchant realization, ~6.2bn kWh sales), EBITDA (normalized for fuel creditors-linked MTM exchange fluctuation gains) at Rs4.1 billion and normalized net loss at Rs4.9 billion (assuming 15% effective tax provision). Including potential MTM exchange fluctuation gain on derivative instruments, it expects reported loss at Rs4.6 billion. Once again, fuel mix at Mundra would be the key to profitability; the brokerage’s net loss forecast is 15% above consensus.


JSW Energy (Neutral) – Expect earnings to beat consensus: Nomura has pegged 4QFY13 revenue of JSW Energy at around Rs22.8 billion assuming blended realization at around Rs4/kWh and sales volume of around Rs4.85 billion kWh. The brokerage has build in a 5% q-o-q drop in cost of coal (per kWh) resulting in EBITDA at Rs8.3 billion (36.4% margin) and normalized net profit at Rs3.3 billion. Including potential MTM exchange fluctuation gain, Nomura expects reported PAT at Rs3.56 billion (up around 15% q-o-q).


NTPC (Buy) – Expect a robust performance: Nomura’s normalized earnings forecast for NTPC is marginally below consensus on the back of improved Plant Availability (PAF) and utilization (PLF) for coal-fired stations. It expects normalized earnings at Rs25.6 billion (up 11% y-o-y, 4% q-o-q). Including the recovery of prior period dues and interest thereon, Nomura expects reported PAT at Rs46.5 billion.


Lanco Infratech (Buy) – Expect cash losses to widen: Nomura expects: (1) Consolidated revenues to be marginally lower q-o-q as power revenues decline on lower PLF, solar EPC revenues pick up, non-solar EPC revenues remain stagnant and revision of the selling price to Bluewaters enhances Griffin Coal’s top line; and (2) EBITDA to drop 10% q-o-q, primarily due to lower contribution from the power business. Together with a marginal uptick in interest outgo and lower tax outgo, its expects Lanco Infratech’s normalized net loss at Rs4.7 billion (up 7% q-o-q); including  potential MTM f/x gains. Nomura has pegged reported net loss at Rs4.5 billion. The 4QFY13 EBITDA forecast is 9% below consensus while normalized net loss forecast is 22% above consensus, said Nomura.


Reliance Power (Reduce) – Expect ~35% RoE for Rosa: Factoring in around 35% RoE for Rosa (1200MW), Nomura expects consolidated EBITDA of Reliance Power at around Rs 3.7 billion (up 108.6% y-o-y, down 22.4% q-o-q). Together with a forecast 11% q-o-q drop in non-operating income (lower cash in hand) and a 20% potential tax incidence, the brokerage expects normalized net profit at Rs2.3 billion (up 32% y-o-y, down 32% q-o-q) and reported PAT at Rs2.4 billion. Normalized PAT would appear sharply lower q-o-q as 3QFY13 RoE at Rosa was likely exaggerated by recouping of fixed cost under- recovery in 2QFY13 on the back of outages-led low plant availability.


Power Grid Corporation (Buy) – All eyes on FY2013 commissioning: Nomura expects a 4.7%/3.4% q-o-q growth in revenues for PGCIL and EBITDA, driven by around Rs26 billion effective incremental capitalisation of transmission assets for the quarter. Building in a 20% drop in non-operating income (on the back of a lower cash chest), the brokerage expects normalized net profit to be up around 3% q-o-q (up 19% y-o-y) at Rs10.8 billion. Nomura’s 4QFY13F earnings forecast is 3% below consensus.


Coal India (Buy) – Expect PAT at Rs49.6 billion (up 25% y-o-y): On the back of a 130 million tonne (mt) offtake, Nomura has build-in: (1) 10% sales via e-auction; (2) blended realization at Rs1,472/tonne (up 2.3% q-o-q), including year-end incentives of Rs750 million; and (3) EBITDA at Rs53.5 billion (implying 28% EBITDA margin) post OB removal adjustment of around Rs18 billion. This translates to a normalized PAT of Rs49.6 billion (up 25% y-o-y). Nomura’s net profit forecast for is in line with consensus.


ICICI Bank fails to beat market expectations, Q4 net profit up 21%

Despite recording a 21% growth in its fourth quarter net profit, ICICI Bank shares ended about 3% down as the result failed to beat market expectations

ICICI Bank, India's largest private sector lender, on Friday reported a 21% growth in its fourth quarter net profit despite higher net non-performing loans (NNPLs) and marginal fall in other incomes.


For the quarter to end-March, the lender said its net profit on a standalone basis increase 21% to Rs2,304 crore from Rs1,902 crore while the same on a consolidated basis rose 38% to Rs2,249 crore over same period last year. During the March quarter, total revenues of the lender rose to Rs12,573.5 crore from Rs11,403 crore while its net interest income (NII) increased 22% to Rs3,803 crore from Rs3,105 crore in Q4-2012.


“ICICI Bank’s NII have been marginally higher than estimated while net revenues were below our estimates at Rs6,000 crore due to lower than expected other income. Slippages during the quarter could have been higher than trend given net non-performing loans (NNPLs) have risen quarter-on-quarter. While overall numbers have been in line with the management’s guidance, there has been no beat on numbers as most other private banks have beaten estimates,” said Siddharth Teli, managing director and co-head for institutional research at Religare Capital Markets.


ICICI Bank said during the full year, its net profit on standalone basis grew 29% to Rs8,325 crore from Rs6,465 crore a year ago. During FY13, the lender's net interest margin (NIM) increased 38 basis points to 3.11% from 2.73% for FY2012.


While the bank’s gross non-performing asset ratio declined to 2.68% from 3.04%, its net non-performing asset ratio increased marginally to 0.64% from 0.62% at March 2012.

During Q4-2013, ICICI Bank's savings account deposits increased by Rs4,188 crore and current account deposits increased by Rs1,252 crore. The bank’s current account savings account (CASA) ratio improved to 41.9% at March 2013 compared with 40.9% at December 2012.


During the full year, ICICI Bank said its total advances increased 14% Rs2.90 lakh crore from Rs2.53 lakh crore a year ago while the year-on-year growth in domestic advances was 18%.


The bank has declared a full year dividend of 200% or Rs20 per share.


ICICI Bank shares closed Friday 2.8% down at Rs1,144.3 on the BSE, while the benchmark Sensex ended marginally down at 19,286.


Hero MotoCorp disappoints as sales grow at an anemic 2%

In order to revive sagging sales and plummeting operating profit and weather the tough environment, the two-wheeler manufacturer has announced a first of its kind 5-year warranty

Hero MotoCorp has posted a 5% year-on-year (y-o-y) net profit of Rs574.23 crore for the quarter ended 31 March 2013 compared to Rs603.59 crore for the quarter ended 31 March 2012. Total Income has increased barely 1.81%, from Rs6139.90 crore for the quarter ended 31 March 2012 to Rs6250.26 crore for the quarter ended 31 March 2013. The company reported volumes for the quarter ended March 2013 stood at 15,27,351 units, while EBIDTA margin for the quarter stood at 13.83%. The disappointing result was due to a difficult automotive market.

Moneylife database reveals that the company has been going through a difficult time in the last one year, especially in the last three quarters. Its average three-quarter y-o-y sales growth rate is -2% as it struggles to sell in a competitive market characterised by high interest rates and higher cost of spare parts. Even though its profit is above the water, its operating profit isn’t. It is abysmal as it degrew by 8% while its three-quarter average growth rate is -16%. The company is quoting with market capitalisation of nearly 10 times operating profit, while return on networth and return on capital employed are high at 49% and 38% respectively.

In order to boost sales and get ahead of competition, it did something audacious and different. In a first of its kind, the company announced warranty of five years on all its two-wheelers (five years or 70,000 km on motorcycles, whichever is earlier and five years or 50,000 km on scooters). This could be a game changer as far as warranty is concern and a clear product differentiator for selling products that would be more consumer friendly. It remains to be seen if other competitors take up the same initiative to keep up with competition. If so, it will be a boon for consumers. However, in order to keep margins intact, it has hiked prices of its products, ranging from Rs500 to Rs1,500.

Pawan Munjal, managing director & CEO said, “FY13 has been a rough year for the overall Indian auto sector. Weak macro-economic sentiment coupled with subdued consumer confidence adversely impacted the industrial growth and sales volumes. Considering the current environment, these are tough times for the auto sector in India and we remain cautiously optimistic about the growth prospects in the near term. However, having sold over 60 lakh two-wheeler in just 12 months, we have sustained our performance during the period. Being the industry leader, we have planned major initiatives to boost the industry sentiment and accelerate growth in the new financial year, mainly through new launches, campaigns, capacity addition and network expansion. In a significant step working towards our global vision, we have commenced despatches to half a dozen new markets last fiscal and will add a few more to that tally soon.”

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