Hold KPIT Technologies, Ambuja Cements, ACC: ICICIdirect
Brokerage house ICICIdirect.com has recommended a hold rating on KPIT Technologies, Ambuja Cements and ACC with a target price of Rs 150, Rs 181 and Rs 1270 respectively in its October research reports.
October 24, 2013 / 17:22 IST
ICICIdirect.com's research report
KPIT TechnologiesKPIT reported another soft quarter with dollar revenues growing 3.1 percent QoQ to USD112.2 million but below our USD113.9 million and 4.6 percent growth estimate. Constant currency revenues grew 4 percent QoQ led by volumes (2 percent) and realisations (2 percent) while rupee revenues grew 14.6 percent QoQ to Rs 702.8 crore (15.3 percent, Rs 707.2 crore estimate). Quarterly growth was led by auto & engineering (5.7 percent), BTU (4.6 percent), Europe (8.2 percent) and Asia (24.4 percent) while billing fluctuations in the US (-1.1 percent QoQ) impacted growth. The company expects to close two large deals (USD25+ million each) and could help accelerate H2 growth. However, the management commentary has moderated and raised anxiety on KPIT’s ability to achieve its stated revenue growth guidance of 14-16 percent. We are adjusting our estimates to account for a higher rupee rate. We expect revenues, PAT to grow 25 percent, 45 percent and 13 percent, 17 percent, in FY14E, FY15E, which translates to a CAGR of 19 percent, 30 percent, respectively, during FY13-15E. Though we maintain our target multiple (8.8x FY15E EPS of Rs 17.1), estimate revision leads to a change in our target price. Hold the stock with a target price of Rs 150.Ambuja CementsAmbuja Cement’s Q3CY13 numbers were lower than our estimates due to a weak operating environment. Revenues were down 7.5 percent YoY to Rs 2004.9 crore (our estimate: Rs 2282.0 crore) due to a sharp fall in realisations & muted sales volumes. Cement sales volume for this quarter grew marginally by 2.1 percent YoY to 4.89 MT (vs. I-direct estimate: 5.06 MT) while average realisation fell sharply by 9.4 percent YoY to Rs 4100/tonne. Gujarat region, accounting for ~40 percent of revenue, remained lacklustre. We believe this could have led to a sharp fall in realisations in this quarter. On the other hand, total operating cost increased 4.1 percent YoY led by a sharp rise in raw material cost (due to inventory adjustment of Rs 336/tonne) and 11 percent YoY increase in employee costs. As a result, EBITDA/tonne was far lower at Rs 522/tonne (vs. I-direct estimate: Rs 943/tonne), down 51.7 percent YoY, 42.9 percent QoQ. Operating margin in this quarter was at 12.7 percent (vs. I-direct estimate: 18.3 percent). With subdued topline & low margins, PAT remained tad lower at Rs 166.0 crore (including exceptional gain of Rs 24.8 crore on sale of flats) vs. our estimate of Rs 252.4 crore.With the recent price hike led by cost pressure and end of monsoon season, we expect an improvement in demand, going forward, although a healthy recovery is expected only after H1CY14E. The company has a strong foothold in the north & western region despite a moderation in demand due to limited capacity additions. However, a proposed cash outflow of Rs 3,500 crore to Holcim for acquiring a 50 percent stake in ACC could put some pressure on the liquidity of the company given the slowdown in demand. Hence, we maintain our HOLD recommendation on the stock with a revised target price of Rs 181 (i.e. at CY14E EV/EBITDA of 10.0x).ACCACC's Q3CY13 results were impacted mainly by high cost pressure coupled with poor offtake in demand. The consolidated topline (including RMC business) declined marginally by 1.3 percent YoY to Rs 2,508.6 crore (our estimate: Rs 2,600.3 crore). Operating margins fell 762 bps YoY to 9.0 percent on account of high raw material & employee costs. As a result, net profit for the quarter declined sharply by 50.9 percent YoY to Rs 118.9 crore. Comparing with our estimates, the performance of the cement division remained subdued with sales volumes and realisations of 5.54 MT (I-direct estimate: 5.76 MT) and Rs 4,528/tonne (I-direct estimate: 4,517/tonne), respectively. On the cost side, the RM cost (after stock adjustment) increased 27 percent YoY to Rs 789/tonne. Employee cost also increased sharply by 13.1 percent to Rs 311/tonne. Power & fuel costs fell 4.1 percent YoY to Rs 1,007/tonne, aided by a fall in international coal prices during the quarter. With higher cost increase coupled with lower revenues, the EBITDA/tonne for the quarter declined sharply by 47.7 percent to Rs 407/tonne. Revenues from the RMC segment declined marginally by 1.5 percent QoQ to Rs 162.4 crore. However, its profitability improved with profit of Rs 62 lakh vs. loss of Rs 22 lakh at the EBIT level. We remain positive on ACC due to its pan-India presence, strong balance sheet to withstand the slowdown and its compelling valuations. Hence, we maintain HOLD rating with a target price of Rs 1270/share (i.e. valuing at CY14E EV/EBITDA of 9.5x, EV/tonne of USD120/tonne (CY14E).Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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