PNB: Saving grace

Treasury gains add sheen to June quarter

Punjab National Bank (PNB) reported a weak June 2007 quarter - its net interest income growth was small, net interest margins were lower, it faced slower growth in deposits and advances and non-performing assets (NPAs) went up.

If it weren't for other income on account of treasury gains, its net profit growth would have been lower than the reported 15.7 per cent y-o-y.

In Q1 FY08, PNB's net interest income increased by 7.4 per cent y-o-y as interest costs went up 47 per cent on account of higher interest costs. The cost of deposits went up 108 basis points y-o-y.

Though low cost deposits were maintained sequentially at 46 per cent of total deposits, they declined 260 basis y-o-y. Net interest margin declined by 30 basis points y-o-y to 3.8 basis points. In FY07, its NIM was 4.07 per cent.

Deposits grew at 21.7 per cent, lower than the industry average of 24 per cent, while advances grew 23.3 per cent. Pre-provisioning operating profit increased by just 6.2 per cent, and the bank incurred a loss of Rs 498 crore as it transferred investments to held-till-maturity.

Gross non-performing assets, which have been going up in FY07, increased by 9.4 per cent sequentially and 17.3 per cent y-o-y in Q1.

Analysts say the aggressive growth that PNB has clocked in the past is unlikely to continue in the future as the bank will focus on asset quality and maintaining margins. The bank should be able to maintain margins at current levels.

The stock price has corrected by 13 per cent from its high, and at 1.5 times estimated FY08 adjusted book value and 1.3 times FY09 estimates, the near-term upsides are priced in.

Marico: Sales prop

Marico's organic sales grew 20 per cent y-o-y in the June 2007 quarter, while its inorganic sales grew 6 per cent. However, a rising operational cost structure put pressure on margins in the last quarter.

As a result, consolidated operating profit grew 17.3 per cent y-o-y to Rs 66 crore in the previous quarter, while its net sales and services expanded 25.8 per cent to Rs 469 crore. Its operating profit margin declined 100 basis points y-o-y to 14.1 per cent in Q1 FY08.

The pressure on margins in the last quarter was owing to adjusted raw material costs as a percentage of net sales rising 60 basis points y-o-y to 44.2 per cent.

Meanwhile, in the domestic FMCG market, Marico's hair oils in rigid packs (excluding Nihar) grew 20 per cent y-o-y in volume terms in the last quarter. In the March 2007 quarter, growth in volumes terms was 17 per cent y-o-y for its hair care range (excluding Nihar) in rigid packs.

In addition, volume sales of Saffola grew by 28 per cent y-o-y in Q1 FY08. The company's earlier acquisitions of brands such as Fiancee and HairCode in Egypt, helped its international consumer products business grow 82 per cent y-o-y in the last quarter.

To offset higher input prices for copra, Marico has already hiked Parachute product prices by 3 per cent in July. At Rs 58, the stock trades at 21 times estimated FY 08 earnings, and should do well.

Hotel Leelaventure: Higher rentals

Hotel Leelaventure reported an improved performance in the June 2007 quarter thanks to higher average room rental (ARR) at its Mumbai property, coupled with the availability of 75 rooms at this property, which were under renovation during the corresponding period of the previous year.

In addition, Hotel Leela's revenue growth was driven by additional rooms that came up at its Bangalore property in the last quarter.

As a result, operating profit grew 26.3 per cent y-o-y to Rs 49 crore in the last quarter, while its sales grew by 24 per cent to Rs 100 crore. Its operating profit margin also grew 90 basis points y-o-y to 48.9 per cent in Q1 FY 08.

Larger rivals like Indian Hotels operating margin grew 110 basis points to 31.6 per cent in the last quarter. Meanwhile, at Hotel Leela's Bangalore property, which contributes nearly 46 per cent of total revenues, ARRs dropped 11 per cent y-o-y to Rs 16,151 in Q1 FY08.

However, at its Bangalore property, the company had 105 additional rooms in the last quarter, but that resulted in occupancy levels at this property dropping to 68 per cent in Q1 FY08 from 74 per cent in the June 2006 quarter.

At Mumbai, Hotel Leela's ARRs increased by 29 per cent y-o-y to Rs 9,918 in Q1 FY08, but occupancy levels were 77 per cent as compared to 88 per cent a year earlier.

To meet rising demand, the company has planned expansion projects across its properties in the country. However, analysts caution on the high acquisition cost of land paid by the company, for its planned hotel at South Delhi. At Rs 46.25, the stock trades at 14 times estimated FY 08 earnings and leaves little room for further upside.