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| ITC |
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| Other income lifts profits |
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| ITC registered a 12.45 per cent increase in net profit in the quater ended September 30, 2003, on the back of a 41.61 per cent surge in other income (treasury). |
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| The results have been above expectations, say analysts who had estimated a 10 per cent growth in profits. |
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| Moreover, revenues have come on account of better product mix and realisations since the main business of cigarettes has registered an unimpressive revenue growth of 3.4 per cent to Rs 2284.28 crore against the previous corresponding quarter. |
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| The cigarette division posted a 6.57 per cent rise in profit to Rs 522.92 crore. "The volume growth in cigarettes is only around 1 per cent but it should increase in the second half'," says an analyst with a domestic brokerage. Volumes in cigarettes are expected to grow 7-8 per cent in the whole year. Other retail businesses of ITC have posted an impressive revenue growth of 362.28 per cent to Rs 74.89 crore but are still under losses (Rs 39.88 crore) due to increased product launches. "Losses are bound to be there in the beginning but it will reduce by the second half of the year," adds the analyst. Margins from other revenue components improved with paper products posting a 20.03 per cent rise (Rs 61.73), agri-business 10.81 per cent (Rs 43.55) and hotels 2.70 per cent (Rs 1.53). |
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| Analysts feel that the improvement in the core business of cigarettes and settlement of excise and tax issues remain a concern for the company. |
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| However, market players continue to remain bullish on the stock with better expectations in the second half of the year. |
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| "Given ITC's current price (Rs 868.70), a P/E estimate of 11.6 for FY05 makes it one of the more attractive stocks in the FMCG sector," says Nikhil Vora, analyst with SSKI Securities. |
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| TATA MOTORS |
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| Volume growth, shift in product-mix enhance performance |
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| Tata Motors reported a better-than-expected 47 per cent rise in net sales and a 207 per cent jump in profit before exceptionals and taxes. |
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| Operating margin stood at 13.82 per cent, which was about 60 basis points higher compared to the June quarter. |
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| The company's performance was driven by strong volume growth and a shift in the product mix towards the more profitable commercial vehicles. |
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| Sales growth, at 47.1 per cent, was higher than the volume growth of 41.8 per cent, because of a higher proportion of commercial vehicle (CV) sales. CV sales stood at 50.4 per cent of domestic sales last quarter compared to 45 per cent of domestic sales in the year ago period. Better product mix and increased capacity utilisation led to a 170 (y-o-y) jump in operating margin. The gain would have been more, but for a 300 basis points jump in raw material costs (as a percentage of sales) because of higher steel prices. Operating profit growth stood at 68 per cent. Other income jumped 471 per cent to Rs 22.8 crore, thanks to higher dividend income. Besides, net interest costs were pruned 61 per cent to Rs 26 crore. These two factors led to a 120 per cent jump in PBDT. |
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| Tata Motors is expected to keep up with the fast paced growth even in the second half of the fiscal. |
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| Although the base is now much higher, higher industrial activity and the overall improvement in economic sentiment are expected to drive growth in commercial vehicles. |
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| In the passenger vehicles segment, the success of the 'Indigo' and the fact that 'Indica' has been able to maintain market share should continue to result in strong growth. |
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| Besides, exports would also contribute to growth, what with the arrangement with Rover soon expected to roll out. |
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| The Tata Motors stock now discounts FY05 earnings about 14 times, and given the continued strong growth most analysts still maintain their buys on the stock. Tata Motors is currently trading at Rs 374.50. |
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| HLL |
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| Sale of edible oil business boosts net |
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| HLL's net profit after accounting for a huge exceptional item (Rs 35.07 crore) grew 7.42 per cent to Rs 443.22 crore in the quater ended September 30, 2003, compared to the previous corresponding quarter. |
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| The increase was due to profits out of sale of the company's edible oil and fats business. |
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| However, net profits before exceptional items declined 3 per cent, mainly due to interest cost (Rs 29.96 crore) on bonus debentures allotted to shareholders. However, continuing sales accelerated by 6.8 per cent y-o-y. |
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| The topline growth of 4.23 per cent (Rs 2467.49 crore) is at the back of a successful 'power brand' strategy. Margins on the soaps and detergents segment decreased to 23.83 per cent (27.17 per cent last year) due to higher material cost and additional outsourcing, consequent to a factory lockout and a decline in premium personal wash portfolio. Margins on the personal products segment improved marginally to 34.76 per cent and the beverages, foods and ice-cream segment witnessed a marginal decline to 8.74 per cent. The oral-care segment performed well with Close-up and Pepsodent growing 12 per cent and 9 per cent respectively. "The growth in oral care comes as a surprise," says Nikhil Vora, analyst with SSKI securities. Power Brands surged by 10 per cent with the HPC segment and foods registering increases of 8 per cent and 20 per cent respectively. Export margins remained flat at 11.9 per cent, impacted by an appreciating rupee, unfavourable movement in castor oil prices and poor realisations in marine products. |
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| Going forward, analysts believe that unless there are new segments, HLL's margins will be under pressure. |
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| "Unless HLL drives growth through newer segments - be they exports, baked products, water, e-tailing or services - topline growth is likely to remain subdued," says Vora. At Rs 174.60 , HLL's stock trades at a P/E multiple of 20 for FY2004 estimates. |
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| TATA STEEL |
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| Better volumes, favourable product-mix drive results |
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| Tata Steel results have been impressive in the September 2003 quarter and the share price seconded it. |
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| The main driver for growth in net profits has been better volumes and a favourable product-mix (net profit grew 100.89 per cent to Rs 403.10 crore compared to the corresponding previous quarter). |
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| The company intends to increase its focus on the product-mix and increase its share of branded steel in its topline. |
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| Other income rose 291.59 per cent to Rs 56.35 crore because of higher dividends from mutual funds. Sales exceeded production during the quarter (sales of 1.04 million tonnes against 1.03 million tonnes in the previous corresponding quater) due to reduced inventories. Staff cost increased 31.5 per cent to Rs 406.98 crore as a result of a provision of Rs 78.89 crore made for wage agreements with the labour union. Interest costs reduced 29.8 per cent to Rs 57.02 crore on account of repayment of high cost debt. Raw material consumption dropped by 3.5 per cent to Rs 306.09 because of improved efficiency and usage of scrap and is expected to be sustained. The company has attained a market share of 60-70 per cent in the auto segemnt (supply of hot-rolled coils). It is also the only company that makes galvanised steel for the auto industry (which is otherwise imported) and this segment is expected to drive up revenues further. Exports remain a concern, but since they form only 12.69 per cent of the total sales, they are not expected to impact the topline significantly (exports decreased 3.25 per cent to Rs 331.78 crore). |
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| Analysts remain bullish on Tata Steel going ahead. The company has embarked on an output expansion programme which is expected to be completed by September 2005. |
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| "The company will gain on the raw material cost front also since it already has iron ore whose prices have almost tripled in one year," says Kunal Mittal, analyst with Pranav Securities. |
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| The focus on product-mix is also expected to contribute to topline growth. "We estimate an EPS of Rs 46 for FY2004," adds Mittal. At Rs 358.47, Tata Steel trades at a P/E multiple of 9.33 for FY2004 estimates. |
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| SBI |
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| Negative income from core business remains a concern |
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| SBI's net profit rose 21 per cent in the September quarter, mostly in line with expectations. While operating profits grew by a humungous 70.41 per cent, net interest income remained flat. |
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| Other income increased by a huge 133.33 per cent, driven by a large increase in profits on sales of investments. |
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| Analysts say the bank has taken advantage of the soft interest rate environment and booked treasury profits and increased provisioning for bad debts. In fact, the provisioning has made its presence felt in the net profit figure. |
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| Revenues from treasury operations grew 26.06 per cent y-o-y to Rs 6332.60 crore. Net interest margin for the first half was 2.79 per cent, much lower than 3.01 per cent in the first quarter. Return on equity for H1 was at 19.79 per cent, compared to 20.17 per cent in Q1. |
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Although analysts say the results were in line with expectations, they are concerned about the weakness in the bank
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