Grasim Cements Gains, Bajaj Auto Ups Gear

QUARTERLY RESULTS ANALYSIS: SEP-03

BHARTI TELEVENTURES

Mobile circles achieve profitability

Bharti Televentures has come up with a commendable performance in the quarter ended September 30, 2003. Its net profit surpassed analysts' expectations to touch Rs 93.3 crore, an increase of 200.97 per cent sequentially.

The main factor for the rise in profitability is the break-even achieved by all of the company's mobile circles and thus their contribution to the bottomline.

Bharti's mobile customer base grew 23 per cent, better than the industry's average growth of around 21 per cent.

Efficiencies seem to have improved considerably with the company posting a net revenue growth of 18 per cent against an 8 per cent increase in operating expenses.

Analysts are concerned about the growing pre-paid customer base which was 83 per cent of the total customers in the quarter against 81 per cent in the quarter ended June 30, 2003. Monthly revenues from a post-paid customer are about four times that of a pre-paid user. Revenues per minute talked are falling, which, if sustained, can become a cause for concern.

Another concern that analysts voice is that of Reliance Infocomm starting its pre-paid segment. Considering the aggressive nature of Reliance's marketing, Bharti will have to take measures to better its offerings which can hit margins.

All said and done, analysts remain bullish on the stock. "I expect an EPS of Rs 1.5 for FY04 and Rs 3 for FY05.

Volumes are expected to increase at a CAGR (compounded annual growth rate) of 45-50 per cent," says Jaspreet Singh, research analyst with Prabhudas Lilladher Securities. The stock currently quotes Rs 77.10 with a P/E multiple of 113x.

TATA POWER

Lower purchases by BSES, MSEB hit topline

Lower power purchases by BSES and MSEB have had an impact on the revenues of Tata Power which decreased 11.62 per cent to Rs 1062.46 crore for quarter ended September 30, 2003 against the corresponding previous quarter.

However, net profit has grown 26.57 per cent in the quarter to Rs 170.81 crore due to a reduction in total expenditure (down 14.45 to Rs 722.26 crore) and interest costs (down 40.16 per cent to Rs 61.74 crore).

BSES purchased less power from Tata Power in the quarter compared with that in the previous corresponding quarter as it shut down a plant at Dahanu last year. MSEB also purchased less power (70 million units as against 270 million units in the corresponding previous quarter) due to load shedding in the state.

Revenues from other segments (strategic electronics, power systems and broadband) improved 201.89 per cent to Rs 46.13 crore.

Cost control measures by the company amounted to savings of Rs 162 crore for half year ended September 30, 2003. An additional amount of Rs 200 crore is earmarked for prepayment of loans.

Analysts are bullish on the stock since Tata Power's valuations are on the lower side compared to that of other power companies.

"We estimate an EPS of around 24 for FY04 and 27 for FY05," says a power analyst with a domestic broking and research house. The stock is currently trading at an earnings multiple of 7.5 and the price stands at Rs 217.65.

BHARAT FORGE

Margins remain steady; outlook for FY05 improves

Bharat Forge recorded a 40.77 per cent growth in net sales to Rs 220.15 crore and a 69.16 per cent growth in PAT to Rs 29.35 crore for the September quarter of 2003.

The rise was led by growth in both domestic and export businesses of the company. Operating margins were lower, considering the sharp rise in steel prices and appreciation in rupee.

Domestic sales increased 64 per cent while exports rose 13.63 per cent to Rs 81.30 crore over the previous corresponding period.

Increased contribution from China and Europe during the quarter reduced the company's dependence on US markets.

The company bagged orders from two global OEMs - Ford and Dialmer Chrysler - for passenger car components.

Other income increased manifold to Rs 4.22 crore from Rs 0.21 crore. Analysts attribute the rise to benefits from effective hedging.

Analysts opine that the results are more or less in line with expectations.

They also feel that the improved visibility from new order bookings and car component exports augur well for the company.

At a FY04 EPS target of Rs 32.5, analysts feel that valuations are looking rather stretched. The stock currently quotes Rs 517.10 with a P/E multiple of 18.17.

BAJAJ AUTO

Other income rises significantly

Bajaj Auto posted a 25.79 per cent rise in its topline to Rs 1556.88 crore - a huge improvement over that in the June quarter, which was marred by the transporters' strike and the uncertainty over VAT.

The company's net profit witnessed an increase of 47.81 per cent to Rs 193.37 crore. Bajaj Auto's motorcycle sales have been ably assisted by its successful offerings - Caliber 115 and Wind 125.

Other income witnessed a huge 160.45 per cent increase on a y-o-y basis, but the rise was not so meteoric on a sequential basis - up just about 1.7 per cent from the June quarter.

The executive and premium segment products contributed 64 per cent of the company's total motorcycle portfolio, compared to 40 per cent in September 2002.

On the other hand, scooter sales fell 17 per cent on a y-o-y basis. Analysts say the segment would be affected further with Honda Motorcycle and Scooter India launching new models in the 150 cc plus geared segment.

Export volumes grew 64 per cent in Q2 FY04 driven by sales of three-wheelers and motorcycles.

Bajaj's performance was well received by analysts who rated it above expectations.

They say though the company has seen a fall in the volumes of its entry segment to Hero Honda's CD-Dawn, the fact that realisations and margins are better in Bajaj's stronghold of higher-end models is a positive for the company. The stock is trading at Rs 853.80 on the BSE at a P/E of 13.5.

DIGITAL GLOBALSOFT

Software services business continues to grow

Digital Globalsoft posted a 7.90 per cent rise in revenues sequentially, led mainly by good performance in the Digital Contact Centre (DCC) business.

The software services business continued to grow while the company was successful in shifting a number of IT services engagements offshore during the quarter ended September 30, 2003.

However, the benefits of this were not very visible on the company's operating margins which were flat.

The company claims that factors like higher rupee rate compared to the corresponding quarter last year and greater geographical spread of revenues - increased contribution from the Middle East and other Asian regions, where the billing rates are lower - had a small impact on margins.

Revenues from HP grew 8 per cent sequentially, contributing 73 per cent to the total customer revenues, while those from non-HP customers grew 7 per cent. However, the share of HP- billed external customers saw a sequential decline of 7 per cent.

Geographical revenues from the US and Europe increased 3 per cent and 7 per cent respectively while that from other markets witnessed a huge 53 per cent growth sequentially.

Offshore revenues grew 17 per cent on a sequential basis while onsite revenues saw a 1 per cent decline. The offshore-onsite ratio stood at 48:52 in the quarter.

Revenues from DCC grew 99 per cent while revenues from telecom declined 16 per cent.

The company added over 1200 employees during the quarter. It added 900 employees to DCC.

Although analysts expect revenue growth to be strong, they are not too sure on the margins front. The company claims that billing rates have stabilised and it does not see any rate reductions in the near term.

However, analysts feel that pressures on billing rates could come in during or after the integration with HP ISO. Based on EPS target of Rs XX for FY04 and Friday closing of Rs 527, the scrip is trading at a P/E multiple of 14.62.

RANBAXY

Jump in other operating income enhances results

Ranbaxy's performance in its third quarter ended September 30, 2003, was in line with expectations at the topline level. The company reported a 11 per cent topline growth on a consolidated basis.

But the bottomline grew 25 per cent compared to the same period last year. Also, its consolidated operating margins were lower by 400 basis points against the standalone profits.

The contributing factor to the topline growth was the high growth rates in its key markets of US and Europe. While the US market (42 per cent of global sales) grew 37 per cent, the UK market grew 52 per cent. The other European markets exhibited near doubling of sales revenues.

The main profit driver for the company in the last few quarters - Cefuroxime axetil - witnessed an erosion in prices by almost 85 per cent as the exclusivity period for Ranbaxy ended.

The other major product - Ceftin - saw a considerable decline in sales to $9 million compared to $38 million in the previous corresponding quarter. This is because in the last quarter, Ranbaxy was the only player in the segment.

A jump in other operating income, comprising forex gains and export benefits, contributed significantly to the profits.

It also received a milestone payment of Rs 17 crore from Bayer.

Ranbaxy received Rs 10 crore due to a patent dispute being ruled in its favour.

The alliance with GlaxosmithKline augers well for the company's future.

A possible patent extension to Bayer for Cipro XR - which expires in December 2003 - will be a driver for Ranbaxy's margins.

If that happens, it will boost the company's profits significantly. Thus, even at the current discounting of 21x CY04 EPS, Ranbaxy is considered a buy.

GRASIM

Sponge iron, cement divisions better performance

Grasim's performance in the September 2003 quarter was along expected lines. Against a topline growth of 6 per cent, its bottomline grew 35 per cent before exceptional items, led by a improved performance in the sponge iron and cement divisions.

As a result, its operating margins improved 300 basis points to 28 per cent.

Sponge iron prices have been ruling firm and resulted in a 144 per cent jump in PBIT for the division.

The VSF division was impacted due to extension of plant shutdown at Nagda and an increase in input prices of caustic soda and pulp. But the division maintained operating margins.

Despite weak cement prices, cement division improved operating margins due to greater offtake in the eastern region, where prices are ruling firm.

Commissioning of a 12.5 mw plant and increased proportion of blending lowered cost of power. Blending of cement increased to 47 per cent from 34 per cent.

Ready-mix concrete revenues improved, adding to the performance of the cement division.

Bottomline growth of 35 per cent was also on account of higher other income, due to dividends from group companies.

Analysts are considerably bullish on the stock with the second-half expected to be better than the first.

Cement industry is expected to witness greater offtakes and the company's VSF plant will further improve capacity utilisation. At a discounting of 11.13x FY05 earnings, Grasim is considered a buy.