Fundamental News & Analysis - 29 SEP 2016


Posted September 29, 2016 by suhanisahani

Media Alert: Strides Shasun's chennai facility was inspected by USFDA in August 2016 (which lasted for 3-4 days) and few observations were reported which were routine & minor in

 
Media Alert: Strides Shasun's chennai facility was inspected by USFDA in August 2016 (which lasted for 3-4 days) and few observations were reported which were routine & minor in nature – Neutral for Strides Shasun as it will not impact fundamentals or numbers of the company.

Cipla freezes increments of top management to cut costs – Positive for Cipla; it will help improve operating margins of business.
Cipla has decided to trim its ballooning employee cost by freezing increments of 300-400 of its top managers as part of the company’s operational revamp. Cipla’s employee cost has trebled in the past four years, mostly because of several senior management hiring. For the first quarter ending FY17, Cipla’s employee cost rose by 11% to Rs 687 crore on a YoY basis. Cipla also reduced its top management team to 6 from 20. Company has also changed salary structure from fixed pay to performance based variable pay, which will be dependent on percentage of targets achieved.
Cabinet gave its nod to a consortium of IOC, Oil India and BPCL buying stakes in two Russian oilfields for a total of USD 3.14 billion.

OPEC agreed to cut oil production for the first time in eight years - crude oil price should be firm; positive for ONGC/OIL and L&T.
OPEC agreed to cut oil production for the first time in eight years, a surprising move. They agreed to limit production to a range of 32.5 to 33 million barrels a day. We believe the crude oil prices should remain firm here onwards. This will be positive for oil exploration companies like ONGC/OIL.Also positive for L&T as order inflow prospects from middle east will improve again.

JP Associates: The company at its annual AGM approved converting loans, debentures or other borrowings of the company into equity shares in the company. The move will help pave the way for lenders to step in and help in financial restructuring of the company. The development is positive read thru for the stock.

Liberty bid for two Tata Steel UK units worth nearly 100mn pounds; Liberty was a bidder for Tata Steel UK's major assets earlier; positive for Tata Steel

Stock Update:

UltraTech Cement: Weak prices and input cost pressure key headwinds in near term; downgrade to ‘Hold’

•Subdued pricing environment in key regions: Around 77% of UltraTech Cement’s current capacity is located in the non-south regions, where the pricing environment has been weak in Q2FY2017. As per our channel checks, cement prices in the Northern and Western regions have seen a correction of Rs5-15 per bag toward the end of September (which at the start of September were up by Rs2-5 per bag MoM). The Western region, which accounts for 31% of the company’s total capacity, has seen a decline of 4.5% YoY and 2.5% QoQ in Q2FY2017. The Southern region (~23% capacity) has seen a price revival in September, but prices are still down by 2.4% YoY for Q2FY2017. Therefore, we believe that Q2FY2017, which is a seasonally weak quarter, may be impacted by weak pricing environment.
•Higher cost of power & fuel may impact seasonally weak quarter: UltraTech’s pet coke consumption increased to 74% of total fuel mix in Q1FY2017 (vs 70% in Q4FY2016). This is likely to be affected by an increase in pet coke prices (up 80% from the lows of January 2016), as the low-cost inventory gets used up. Further, imported coal makes up 18% of total fuel mix (Q1FY2017), which has seen 15%+ increase in its price on a QoQ basis. Consequently, we believe that going ahead higher power & fuel cost, along with pressure on realisations may weigh heavy on the company’s Operating Profit Margin (OPM).
•Valuation – look for better entry points: UltraTech’s stock price has surged by ~40% over the past one year and is currently trading at an EV/EBITDA of 16.8x and EV/Tonne of $236 on FY2018E. We believe the current stock price provides unfavorable risk-reward ratio considering the above near-term headwinds. Consequently, we downgrade the stock to ‘Hold’ with a revised price target (PT) of Rs4,150 and recommend investors to wait for better entry levels to invest.

INOX Leisure Stock update: Downgrade to ‘Hold’; wait for better price point to re-enter

•Dismal box office collections lead to weak Q2FY2017: The July-September quarter started with a line-up of several high-profile movie releases. However, quarter-to-date (QTD), there have been more ‘misses’ than ‘hits’ on the Box Office (especially in July and August). Some of the big-budget movies that failed to draw crowds included films like Mohenjo Daro, Jason Bourne, A Flying Jatt, Baar Baar Dekho, Raaz Reboot and Akira. On the other hand, Sultan and Rustom tasted success at the Box Office during Q2FY2017, garnering upwards of Rs300 crore and Rs125 crore, respectively. Other movies that did well at the Box Office have been Dishoom and Pink. Owing to weak Box Office collections, we expect footfalls to fall by 20% QoQ. Further, distributors’ share will be higher, as most of the movies were screened only for a week or so. On the regional side, Janatha Garage (Telugu movie) has managed to rake in impressive collections of over Rs65 crore in India during the quarter. However, on the back of an overall weak Box Office show, we expect Q2FY2017 to be subdued for Inox Leisure, with fall in revenue and profitability.
•New screen additions continue to lag expectations: For Q2FY2017, the expected screen additions remain slow at 4-5 screens as against expectations of at least 10 screen additions. In Q1FY2017, the Inox management had revised down new screen and property additions from 89 to 60 and from 20 to 12, respectively. The slower-than-expected property addition was largely due to regulatory hurdles. The Inox management has stated that it has 15 properties ready for launch, but it is waiting for regulatory approvals. We expect further downward revision in the new screen addition guidance for FY2017.
•Content pipeline looks promising for rest of FY2017: Moving to H2FY2017, the big upcoming movie releases like Ae Dil Hai Mushkil, Shivaay, Mirzya, Inferno, Kaabil, Raees, Rangoon, Fifty Shades Darker, and The Shack are expected to drive the revenue growth. Further, the changing trend towards Regional and Hollywood movies will continue to compensate for the volatility in Bollywood Box Office performance.
•Downgrade to ‘Hold’ with a price target of Rs285: We have revised down our earnings estimates for FY2017/FY2018E, owing to slower-than-expected new screen additions and a weak Q2FY2017. However, we continue to remain positive on Inox given its strong brand and extended reach across India. We believe that Inox is well poised to leverage the opportunity in India’s under-penetrated multiplex sector and the growing spends by the consumers. At the current level, the stock trades at 13.4/10.2x EV/EBITDA FY2017/FY2018E and 35.5/22.3x Price-to-Earnings ratio (P/E). We downgrade our rating to ‘Hold’ with a price target (PT) of Rs285. We recommend investors to wait for a better price point for fresh investments.


OTHER NEWS

Eros International ties up with UAE’s Phars Film for co-production & distribution of Malayalam movies
Eros International announced its association with UAE’s largest film distribution and exhibition network (Hollywood & Bollywood), Phars Film. The partnership will entail the two companies jointly co-producing Malayalam films along with exploration of theatrical rights between the two entities.

Bank of India to cut base rate by 5 bps to 9.65% on Friday

ICICI Bank: ICICI Prudential Life insurance to list on the exchange today

Max India has received shareholders' approval for merger of Max Life Insurance Company with Max Financial Services and also for the demerger of insurance business for transfer to HDFC Standard Life Insurance Company.

Tata Global Beverages - Tata Starbucks Revenue Up 39% In 2015-16 At Rs 235 Crore; some of the mature cafes are profitable – positive read through for Tata Global Beverages

[url=https://www.linkedin.com/company/capitalstars-financial-research-private-limited ]Capitalstars[/url]
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Issued By suhanisahani
Country India
Categories Finance
Tags stock tips , equity tips
Last Updated September 29, 2016