Pricing pressure debilitates Ranbaxy

(Rs crore)

Q3FY06

Q3FY05

%change

Net sales

399

310.9

28.5

Other income

16.1

0.4

4017.9

Operating Profit

114.7

87.9

30.4

OPM(%)

28.7

28.3

-

Net profit

53.3

41.4

28.6

NPM(%)

13.3

13.3

  EPS

2.4

2.1

-

Trailing 12 month P/E at Rs 398

43x

 On a standalone basis, sales growth was robust at 28 per cent and 33 per cent year-on-year for the third quarter and nine months ended FY06 respectively. Margins (operating as well net) have been stable thanks to control over expenses.  

In Q3FY06, on a standalone basis, net sales grew by 28.5 per cent y-o-y at Rs 399.4 crore largely led by robust growth of about 49 per cent in domestic sales. Exports growth was marginal as the introduction of the company's products in the western markets has been postponed by 1-2 quarters.

Operating profits grew by 30 per cent at Rs 114.7 crore and margins have been maintained at 28.7 per cent.

Net profit reported a growth of 29 per cent at Rs 53.3 crore and net margins has been firm at 13.3 per cent.

The consolidated revenues reported a growth of 58 per cent at Rs 2304 crore for 9 months ended FY06. Overseas revenues grew by 67.2 per cent at Rs 1590 crore, which is faster than domestic operations. However operating and net profit margins have been under pressure, declining by 320 bps and 170 bps at 18.7 per cent and 8.1 per cent respectively.

 With its acquisitions in Sweden and Scotland and new manufacturing facilities in China, the company has achieved its goal of attaining global leadership in the forged auto components business. According to analysts, the stock is trading at 40 times and 28 times earnings expected in FY06 and FY07 respectively.  On a consolidated basis, the earnings multiple works out to 33 times and 21 times. Though the valuations look a bit on the higher side, analysts feel that the company is fairly valued in view of the strong growth expected in the next couple of years on the back of a turnaround in its overseas subsidiaries.  HDFC
Sustained growth despite rising interest rates  HDFC has shown an unabated improvement in its performance in the third quarter despite rising interest rates. The housing loan major has been able to maintain its net interest margin (NIM) at 2.17 per cent for the past few quarters. 

HDFC
(Rs crore)	Q3FY06	Q3FY05	%change
Net interest income	412	338.27	21.9
NIM(%)	2.17	2.17	-
Operating expenses	63.2	53.88	17.3
Operating profit	352.3	285.51	23.4
OPM (%)	84.8	84.1	-
PAT	284.52	236.05	20.5
NPM (%)	68.5	69.6	-
EPS	11.34	9.48	-
CAR (%)	15.7	14.6	-
P/Adj BV for FY07E			5.1

 The company has not faltered on the quality of loans either with gross non-performing loans continuously declining this fiscal. Non-performing loans on 90-day basis was almost at the same level (1.5 per cent) as in Q2FY06. Non-performing loans for over 90 days have declined by 15 bps at 1.11 per cent.  Capital adequacy ratio has improved by 100 bps to 15.7 per cent largely led by higher growth in Tier II capital ($500 mn FCCBs). However it has declined by 160 bps as compared to 17.3 per cent as on Q2FY06.

Robust growth in business with a 32.02 per cent rise in loan approvals and a 29.6 per cent increase in loan disbursements.

Net interest income improved by 22 per cent at Rs 412.2 crore with an increase of 30.64 in interest income on loans. Interest costs also went up by 24.62 per cent. Net interest margin has remained firm at 2.17 per cent.

Operating profit increased by 23 per cent at Rs 352.3 crore with margins improving marginally by 68 bps at 84.8 per cent.

Though net profit increased by 20 per cent at Rs 284.52 crore, net margin declined by 107 bps at 68.5 per cent due to higher tax provisions.

 HDFC has hinted a review of the lending rates over the coming week. This could be in the range of 25-50 basis points. Analysts feel that the hike will have minimal impact on the bank's business. The housing finance behemoth is expected to be a key beneficiary of the booming mortgage market in India.  This segment has been growing at about 30 per cent in the past five years driven by easier and cheaper availability of money and low housing penetration. The stock trades at a price to adjusted book value of 5.1 times for FY07E.  ICICI BANK
Strong growth in retail assets  India's largest private sector bank, ICICI Bank has seen yet another quarter of strong growth in assets even as the bank maintains its leadership position in the retail loans market. 

ICICI BANK
(Rs crore)	Q3FY06	Q3FY05	%change
Net Interest Income	1,167	733.2	59.1
Non Int income	1179.2	890.7	32.4
NIM(%)	2.5	2.4	-
Cost to Income Ratio	49.1	52.5	-
Operating Profit	1194.5	771.2	54.9
OPM(%)	50.9	47.5	-
Net Profit	640.1	517.7	23.6
NPM(%)	27.3	31.9	-
EPS	8.4	7	19
CAR (%)	14.5	13.5	-
P/Adj BV for FY07E			2.2x

 The bank's core income has continued to grow mainly due to the 70 per cent (y-o-y) growth in its retail portfolio, which constitutes about 64 per cent of total advances. Net interest margins have been stable due to faster growth in interest income; albeit at high interest costs.  At the operating level, profits and margins have improved mainly due to better control over expenses. However net profits grew at a slower rate largely due to higher provisioning.

Net interest income has gone up by 59 per cent y-o-y at Rs 1177 crore due to robust growth of 48 per cent in interest income on advances. Net interest margin has been maintained at around 2.5 per cent.

Non interest income rose by 32 per cent at Rs 1179 crore largely due to robust growth of 46 per cent in fee-based income.

Operating profit increased by 55 per cent at Rs 1195 crore owing to better control over operating expenses. Cost to income ratio has come down by 340 bps to 49.1 per cent .

Net profit grew 24 per cent. But growth in the bottomline could have been better but for higher provisioning of government securities and standard assets.

Net non-perfoming assets (NPAs) stands at 0.8 per cent as on December 31, 2005 as against 2.3 per cent in the corresponding period last year mainly due to resolution to the Dabhol imboglio.

The bank's capital adequacy ratio improved by 100 bps at 14.5 partly due to the recent public offer.

 At Rs 579.5, the stock trades at price to adjusted book value of 2.2 times for FY07E. Analysts feel that the stock is attractively priced.  The bank's continued thrust on international operations provides an additional growth opportunity. Further the unlocking of the value hidden in its subsidiaries is a positive for shareholders.  Larsen & Toubro
Strong order growth, margins stable  Larsen & Toubro posted spectacular growth in bottomline and order bookings for the third quarter. After excluding the profits on sale of certain businessess, net profit recorded a 60 per cent growth to Rs 212 crore. Sales growth was relatively less impressive at 11 per cent through it looks alright on considering that it has come on a higher base. 

L&T
(Rs crore)	Dec