Companies & Sectors
Q3FY11 analysis: Bajaj Auto records good profits, GAIL sales grow, HCL Tech margins lower

Bajaj Auto has recorded good results, but it has a tough road ahead; GAIL is expected to register increased gas transmission volumes going ahead; HCL Tech says it will focus on margins improvement

Bajaj Auto

Net sales came in at the lower end of the spectrum, while net profit was at the higher end. Realisations were up slightly higher than expected at 9% year-on-year (y-o-y). Margins did not dip as much as was being anticipated. Lower staff costs helped in this respect. Higher other income and a lower tax rate (from higher R&D expenditure) also helped in achieving good profits.

 The company has undertaken a price increase of Rs500-1,000 per vehicle on its Platina, Discover and Pulsar models from 1st January, both in the domestic and export markets. This should cushion the impact of rising raw material costs somewhat.

 Bajaj still aims to focus on its Pulsar and Discover models and does not seem too keen on new model launches. But it will launch a new Discover in April and a new Pulsar towards the end of the year.

Bajaj Auto Q3 FY11 highlights

Rs crore

Dec 2009

Sep 2010

Dec 2010

Net sales




Consumption of raw materials








Net profit




EBITDA margin (%)




 Over a three-month period the stock has not done so well. It has fallen from above Rs1,600 to current levels of about Rs1,300. While the stock took off around the time of the announcement of the third quarter results, it has since been coming off.

GAIL (India)

Sales came in at the higher end of expectations, while profits were in between. The negatives were higher other expenditure, lower other income (due to lower cash balances) and lower petrochemical volume.

 The positives were higher gas transmission volumes, which were above most brokers’ estimates despite lower KG-D6 volumes, 6.4% higher transmission tariffs and higher petchem and LPG realisations.

 Brokers continue to expect GAIL’s gas transmission volumes to be about 130 mcm/d next year, driven by higher LNG imports through Petronet LNG and Shell, recovery in gas production from the KG-D6 block, and commencement of gas production from ONGC’s marginal fields. However, these expectations seem to be at risk for now, especially the RIL ramp-up.

 Polymer sales were low in the quarter. GAIL sold 81,000 tonne of polymers in the third quarter compared to 107,000 tonne in the previous quarter and 120,000 tonne in the corresponding quarter a year ago. This has been mainly due to significantly lower demand and the shutdown of a plant for 20 days. It is expected that higher crude prices could drive up polymer EBIT in the near term.

 A sharp rise in LPG prices helped EBIT for the LPG and liquid hydrocarbons segment to rise 20% y-o-y.

 GAIL’s subsidy burden was at Rs420 crore, up from Rs350 crore in Q2FY11, but lower than Rs460 crore in Q3FY10.

GAIL (India) Q3 FY11 highlights

Rs crore

Dec 2009

Sep 2010

Dec 2010









Net profit




Gas sales (mcm/d)




 The GAIL stock price has come off sharply after the quarterly results. It has underperformed the Sensex in the past three months. The stock is still trading at historic highs, as far as the price-to-book is concerned and at 10-year highs in terms of price-to-earnings.

 HCL Technologies

 Both dollar and rupee revenue and profit came in at the higher end of expectations. Revenue growth was led by IT (+7.3% q-o-q) and infrastructure (+9.4% q-o-q).

 In the verticals, retail (+15% q-o-q), energy and utilities (+14% q-o-q) and healthcare (+7.5% q-o-q) reported strong growth. Among the geographies, Americas (+5.8% q-o-q) and Europe (+7.1% q-o-q) grew below the company’s average, while other geographies grew 14.5% q-o-q.

 The forex loss was down to Rs13 crore. The management believes that there in probably one last quarter of forex losses on account of the large hedges it had taken three years ago. The market had expected this would be the last quarter.

 The EBITDA margin continued to fall and it was down 460 basis points y-o-y. The management seems to have taken a decision to focus on margins now. In its Q2FY11 earnings call, it had said that it would focus on margins improvement for two quarters and hence give up a little on growth. This is in contrast to the stance a few quarters before, when it said that it had consciously chosen to invest and sacrifice margins to drive growth. Clearly, growth and margins are an either-or choice for HCL Tech.

 The biggest problem for the company is that strong revenue growth has not translated into operating profit growth, which is why most analysts are finding it hard to digest the recent re-rating in the stock. For now, it seems to be running up on the management’s commentary that margins will go up in the next two quarters. However, this is expected to be at the cost of revenue growth.

In the BPO business, HCL Tech has guided that it will continue to make losses of about $6 million a quarter for the next four quarters.

HCL Technologies Q2 FY11 highlights

Rs crore

Dec 2009

Sep 2010

Dec 2010

Revenues (US$ mn)








Net profit




EBITDA margins




 The HCL Tech stock has done very well over the past three months, outperforming the Sensex by quite a margin. The stock continues to do well even after the results.

 (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.)


Soumendra Nath Lahiri joins Emkay as chief investment officer

Soumendra Nath Lahiri will lead the portfolio management services business of Emkay

Emkay said it has appointed Soumendra Nath Lahiri as their chief investment officer.

Mr Lahiri will lead the portfolio management services business of Emkay.

Mr Lahiri brings with him over 21 years of rich experience across many segments of the industry. His experience includes managing hedge fund & mutual fund, stock broking portfolios.

Mr Krishna Kumar Karwa, MD, Emkay, speaking on the occasion said, "We are extremely excited about Mr Lahiri joining the team. His experience adds a lot of value to our services and our entire team will look forward to his guidance. We are sure that our clients too will benefit immensely with his presence on the team."

During his tenure with DSP Merrill Lynch Fund Managers, Mr Lahiri managed top performing funds like DSPBR TIGER Fund, DSPBR Opportunities Fund and Small & Mid-cap & Micro Fund. DSPBR TIGER Fund was rated as the top performing fund for six consecutive quarters by CRISIL and the DSPBR Opportunities Fund was awarded by CNBC TV 18 as Mutual Fund of the year in 2007 & 2008.


Wipro Q3 numbers miss estimates, lag behind TCS, Infosys

New Delhi: IT major Wipro's third quarter numbers failed to lift investors' sentiments, as they did not bring any "positive surprise", reports PTI quoting analysts.

Wipro today reported a 9.60% jump in consolidated net profit at Rs1,318.8 crore for the third quarter ended 31 December 2010, against a net profit of Rs1,203.2 crore in the year-ago period that failed to cheer the Dalal Street, they said.

Net income from sales rose to Rs7,829.3 crore for the December quarter as against Rs6,977.4 crore in Q3 FY10.

"Wipro's third quarter results are below our expectation. Revenue growth was lower than expected, whereas profit after tax (PAT) was in line with our estimates. We expect the stock to see correction as results lack any positive surprise," brokerage firm Prabhudas Lilladher said in a report.

Reacting to the lower-than-expected quarterly numbers, the stock witnessed selling pressure and slipped by 4.2% on the Bombay Stock Exchange (BSE).

However, the scrip had outperformed the key index in the last two months on expectation of a good show in the October-December quarter.

"We announced the appointment of TK Kurien as the CEO of IT business and executive director, Wipro with effect from 1 February 2011. The joint CEO structure was one of the key factors that successfully helped us navigate the worst economic crisis of our times," Wipro Chairman Azim Premji said.

Analysts feel that the management rejig may also hit the stock performance in the short-term.

"The operating margins for IT services business was flat, despite lower working days and drop in utilisation," Wipro executive director and chief financial officer Suresh Senapaty said.

The company's IT services revenue grew by 15% at Rs7,829 crore, over the same period last year.

For the fourth quarter ending 31st March, Wipro expects revenues from IT services business to be in the range of $1,384-$1,411 million, a sequential increase of 3% to 5%.

"There was no surprise element in the numbers. Wipro has effected management change. We expect the stock to be range-bound, post the recent run-up. We prefer Infosys and TCS in large caps," Kotak Securities senior vice-president (PCG research) Dipen Shah said.

Echoing Mr Shah's opinion, Geojit BNP Paribas Financial Services AVP Gaurang Shah said, "The management rejig has made the investors cautious, as it is now a big responsibility for Kurien, who will alone handle the position held by two people earlier."

Besides, Wipro's performance has been subdued in comparison to its peers Infosys and TCS, which may dampen investors' sentiments, Mr Shah added.


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