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Last Updated : Jan 30, 2013 01:42 PM IST | Source: CNBC-TV18

Checkout: Mehraboon Irani's Q3 hits and misses

In an interview to CNBC-TV18, Mehraboon Irani of Nirmal Bang Securities highlights his hits and misses for the quarter ending December. While he lists Amara Raja and Spicejet as hits, Ashok Leyland and dish TV could not attract him.


In an interview to CNBC-TV18, Mehraboon Irani of Nirmal Bang Securities highlights his hits and misses for the quarter ending December. While he lists Amara Raja and Spicejet as hits, Ashok Leyland and Dish TV could not attract him.


Below is an edited transcript of Mehraboon Irani's interview on CNBC-TV18


Q: Let us start with a hit. Do you think Amara Raja needs to close its valuation gap further with Exide after these numbers?


A: I think so. The last quarter was brilliant, even December quarter has been very good. A top-line growth of 24 percent is praise worthy. That has mainly happened to the traction we have seen in the automotive segment plus the growth of sales in the uninterrupted power supply (UPS) segment.


Secondly, other expenses have shot up very sharply because of power shortage and the distribution cost which have gone up sharply, but yet the company's margins have hardly come down. The bottom-line is up 23 percent because of lower tax rates.


Now the company is planning an expansion of Rs 440 crore in the UPS segment. They are already planning an expansion of Rs 300 crore in the automotive segment. Both these will be funded through internal accruals because it has got a lovely cash flow, but this expansion in an environment, which has not been great, indicates the management's confidence and commitment. I fully agree that the valuation gap between the two should come down further. So, Amara Raja is a pure hit on the basis of numbers.

Q: You didn’t like the Dish TV numbers much. Do you think the stock might be de-rated further on the back of this disappointment?


A: Dish TV is not a company that should be seen on a quarter-to-quarter basis, but clear beneficiary of digitisation. So, if one looks at quarterly numbers in isolation, disappointment, atleast in the top-line numbers. Even the average revenue per user (ARPU) at Rs 160 is ahead of Rs 159, which was there in the last quarter, but slightly below expectations.


The content cost has gone up by 15 percent, which is mainly because of the tie-up Media Pro. The benefits should accrue later, but the management has stated that the year-on-year increase in content cost will be 12 percent.


Now if one adheres to that particular number, it means the content cost for Q4 that is March 2013 will also be up by atleast 27-28 percent vis-a-vis quarterly three. Looking ahead margins being under pressure, ARPUs not going up the way possibly it was expected. The stock could remain under pressure though I don’t feel it should go below Rs 70 and still say the same. It could be a lovely long-term story because it is the biggest beneficiary of digitisation though the quarterly numbers not too enthused.

Q: Ashok Leyland had quite a fall from grace these last few quarters. You didn’t like this quarter’s performance either?


A: Very disappointing. The managements that I meet in the commercial vehicle (CV) segment, things are just not taking off. On the ground things remain very bad. The numbers of Ashok Leyland clearly reflects that. If you look at the numbers, bottom-line includes Rs 156 crore that it had booked on an investment income, which is a one-time income.


If you take it off there is Rs 82 crore loss, sales are down 17 percent, and inventory has shot up to 11,000 units. The debt has gone up sharply. The original equipment manufacturer (OEM) segment is working for only five days versus six days in the previous quarter.


All this doesn't auger well for the stock. The stock could see lower levels of Rs 22-23 and whole lot of companies in this particular segment could continue to remain at lower levels for atleast one or two quarters.


Somewhere, maybe third or fourth quarter of 2013, if there is a revival in the CV sales that could possibly risk to Ashok Leyland's downgrade.

Q: Aviation has been in news, but SpiceJet delivered a strong quarterly performance, aside from all the Mergers and Acquisitions (M&A) news?


A: Yes, better-than-expected growth of 28 percent in average passenger revenues. Rs 102 crore profit much ahead of expectations against the Rs 39 crore loss last quarter. On the whole, the airline has done very well because enhancing regional connectivity and adhering to routes, which are not very well explored has been the single biggest gimmick as far as SpiceJet goes, which has worked in its favour.


If you look at what the government has done over the last 3-4 months, opening up of foreign direct investment (FDI) in the sector, allowing import of aviation turbine fuel (ATF), not allowing complete import of aircraft by airline companies thereby restricting capacity should auger well for this domestic airline companies. Though from a longer term the stock should be bought for the next 3-4 years, is a bit too early.


But from the short term angle looking at SpiceJet's performance, looking at the bottom-line, looking at the way it is growing, cautiously increasing its own capacity augers well for the stock atleast for the next two-three months. As far as the Etihad-Jet deal goes, if something happens in SpiceJet it could be one more trigger.



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First Published on Jan 30, 2013 11:57 am
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