Emkay's view on IOCL, BPCL, Rcom, India Cem results

RELATED NEWS Buy Coromandel Int; target of Rs 435: Emkay Buy Anant Raj Ind; target of Rs 130: PINC Research Buy Tata Steel; target of Rs 740: KRChoksey ALSO READ See previous views by Emkay Global Financial Services See what other Experts & Brokerages are saying about IOC See messages about IOC IOC BSE | NSE 29/05/12 Are Mutual Funds betting on IOC? Other Stocks in this news Bharat Petroleum Corporation | Reliance Communications | India Cements | Cummins India | Indraprastha Gas | Tamil Nadu Newsprint and Papers |

Emkay Global Financial Services has come out with it's report on IOCL, BPCL, Rcom, India Cem, Cummins India, Indraprastha Gas, Tamilnadu Newsprint.

Indian Oil Corporation

"Indian Oil Corporation (IOCL) reported results which were above our estimates with Revenue at Rs.987bn and PAT at Rs.86.4bn. Crude throughput increased by 7.1% to 14.23mmt, while market sales has grown by 8.7% to 19.3mmt. Average gross refining margin for FY11 was at USD 5.95/bbl as compared to USD 4.47/bbl (growth of 33.1 % YoY). Valuations look reasonable at 1.2x FY13E ABV."

"Government has forced upstream companies to share higher subsidy burden resulting in higher profitability for OMC's during the quarter. But there is the still uncertainty hovering on subsidy sharing mechanism for FY12E under recovery, which remains the key overhang on the stock. However at CMP of Rs.320 valuation looks reasonable at 1.1 FY13E P/BV. We have rolled over our valuations to FY13E with target price of Rs.381 (1.3x P/BV), maintains Accumulate rating on the stock."

Bharat Petroleum Corporation

"BPCL reported results which were above our estimates with Revenue at Rs.452bn and PAT at Rs.9.3bn. Crude throughput declined marginally by 1.9% to 5.58mmt, while market sales has grown by 6.3% to 7.76mmt. Average gross refining margin for FY11 was at USD 4.47/bbl as compared to USD 2.97/bbl ( growth of 50% YoY). Valuations look reasonable at 1.2x FY13E ABV."

"Government has forced upstream companies to share higher subsidy burden resulting in higher profitability for OMC's during the quarter. But there is the still uncertainty hovering on subsidy sharing mechanism for FY12E under recovery, which remains the key overhang on the stock. However at CMP of Rs.627 valuation looks reasonable at 1.2 FY13E P/BV. We have rolled over our valuations to FY13E with target price of Rs.684 (1.3x P/BV), maintains ACCUMULATE rating on the stock."

Reliance Communication

"Reliance Communication (Rcom), Change in accounting policy to include IRU sales of 25.5bn led to spike in revenues. Ex-IRU revenue, topline improved by just 1.3% qoq. Mobility revenue was up 3.3% qoq. ARPU fell 3.5% QoQ to Rs107 purely on MOU decline as RPM remains stable. Wireless traffic improved 3.2% on the back of paid minutes coming on network. Net profit slumps to Rs1.7bn declining 64.9% qoq, led by lower margins across the business segments. Capex guidance at 15bn for FY12E, positive for peers."

"We maintain our REDUCE rating on the stock with target price of Rs85. At CMP of Rs88, the stock trades at 5.6x and 4.7x EV/EBIDTA and 17.6x and 12.6x our revised EPS for FY12E and FY13E respectively. High debt on books remains prime risk especially given the pressure on profitability of the company. Nevertheless, stake sale in tower business would key trigger for the stock in near term."

India Cements

"India Cements, APAT at Rs545 mn (+29% yoy) below est (Rs875 mn). Revenues at Rs9.9 bn +3.5%yoy- sharp price hikes led by pricing discipline help realizations (+22%), volumes -14% yoy. EBIDTA at Rs1.7 bn (+26% yoy) - below est (Rs2.06 bn) due to lower than est revenue & higher RM & P&F costs. However improved realization drive 75% increase in EBITDA/t to Rs696. Demand growth in south remains muted- still remain key concern. Cut FY12E EPS by 7.3% led by lower volumes assumptions for FY12. Lower TP by 5.1% to Rs93. ICL's valuations of 7.5X EV/EBDITA & ~USD 81/t leaves little upside from current levels, considering FY12 RoCE at 6.4% is barely half the cost of capital."

"Demand pick up in the southern region remains a key concern to sustain prices at current elevated levels. ICL's return ratios ROCE (6.4 % for FY12) and ROE (4.3% for FY12) are nowhere close to the cost of capital. At current levels, the stock is trading at PER 17x, EV/EBIDTA of 7.5X and EV/ton of USD81 for its FY12E numbers. These valuations leave little upside considering that ICL'S FY12 RoCE is barely half the cost of capital - Maintain Hold with revised target price of Rs93."

Cummins India

"Cummins Q4FY11 results were below expectations - reports 23.0% yoy growth in APAT to Rs1.43 bn - led by lower revenue growth and consequent impact of operating leverage. During FY11- Export business grew 140% and Domestic business grew 23% - which in turn had Power Cogen growing at 30% and Industrials growing 23%. Gradual erosion of Ebidta margins from 23.3% in Q4FY10 to 18.2% in Q4FY11 - tone down in Ebidta margin assumptions for FY12E and FY13E. Cut FY12E earnings by 7.5% to Rs34.5/Share and Introduce FY13E earnings of Rs40.0/Share."

"With tone down in Ebidta margins for FY12E, we cut FY12E earnings by 7.5% from Rs36.6/Share to Rs34.5/Share. We have introduced FY13E earnings of Rs 40.0/Share and earnings CAGR of 16% in FY11-13E period. We do not expect any further downgrades to FY12E earnings. Cummins remains Relative Outperformer to Capital Goods universe, owing to high earnings growth, strong cash generation and superior capital efficiency. We retain BUY recommendation with price target of Rs800/Share."

Indraprastha Gas

"Indraprastha Gas, volume increased by 32% from 205.5mmscm in Q4FY10 to 271.7mmscm in Q4 FY11. CNG and PNG volumes increased by 16% to 157.5mnKg and 136% to 59.1 mmscm respectively, YoY. Blended unit realisation stood at 19.2/scm, growth of 34.3% YoY and 3.3% QoQ, mainly due to hike in prices of both CNG and PNG segment at the beginning of the quarter. Given its monopoly in NCR region and easing of pricing pressure."

"Q4 FY11 results were broadly inline with our estimates. Our EPS estimate of Rs.21 and Rs.23.5 for FY12E and FY13E respectively, imply earning CAGR of 15% over FY10- 13E. We maintain Accumalate on IGL with the target prices of Rs.382, given its monopoly in NCR region, strong volume growth in CNG and PNG segment and robust business model with no commodity risk. We believe that concerns on pricing pressure and expansion in Ghaziabad have eased and any dip should be used as an opportunity to accumulate the stock. Presently stock trades at 14.1x FY13E EPS and 3.2x P/BV."

Tamilnadu Newsprint & Papers

"Q4FY11 results disappointed due to lower margins. Revenues of Rs 3.5 bn, flat yoy, EBITDA of Rs 743mn, -18% yoy, APAT Rs 196 mn,-66% yoy. EBITDA margins at 21.0% (-450 bps yoy / -510 bps qoq) were below estimates due to higher raw material, fuel and other Expenses. Margin pressure is likely to continue in near future despite increase in paper prices by ~4% in the quarter since pulp and coal prices remain at elevated level. Downgrade FY12E estimates by 24% to Rs 18.9. Introduce FY13E estimates (Rs 25.6) and roll over valuations to FY13E with 7xFY13E EPS to Rs 180 (previous Rs 200)."

"We believe margin pressures would continue in the near term due to higher coal and pulp prices as a result we have downgraded our FY12E estimates by 24% to Rs 18.9. We are introducing FY13E estimates and roll over valuations to FY13E. Based on 7x FY13E, we have reduced our target price to Rs 180 (from Rs 200) however with 42% upside we maintain BUY recommendation on the stock." says Emkay Global Financial Services research report.

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