Idea Cellular: Q2FY16 Result Was Below Street Estimates

Without Much "Idea" The Stock "Crashed"

But, buying around 137-132 area may not be a bad "Idea" at all !!

Q2 PAT is at Rs.809.30 cr, up by 7% (YOY) against consensus of 835.20 

(YOY and QOQ PAT at 755.9 & 930.85)

Reported Q2 EPS at Rs.2.25 against median estimate of 2.15 

(YOY and QOQ EPS at 2.59 & 2.11)

(All are consolidated figure)

CMP: 140

Suggested buying zone: 137-132

TGT: 150-160 (1-3M)

TGT: 185-205 & 250 (12-24M) 

TSL<123

Note: Consecutive closing below 123 for any reason, Idea may further fall to 110-105 level, where it may be again accumulated for better investment buying average.

Key takeaways & rationale:

Q2FY16 PAT is tepid (down 7% YOY) and around 3% below median street estimates as earnings were mainly hampered by reduced interconnection & roaming charges (wef May'15).

This is despite, net revenue increased by almost 15% due to increase in active subscribers as well as voice pulses and data usage. 

But sequentially, there is 5.4% drop in minutes of uses and 9.6% YOY fall in voice & data pricing. Consequently, ARPU fell to 175 in Q2 against 182 in Q1FY16. 

EBITDA margin also fell by 1.5% sequentially.

Sequentially, the data business grew by only 5% against 83% YOY.

The company spent capex of around Rs.1727 cr in Q2 for nearly 10000 2G/3G base stations and 5300 km of optical fibre. Thus the company, backed by a strong group (Aditya Birla) may be gearing itself adequately to face the likely competition from R-JIO & others.

As par analysts, increased sales & distribution costs and intense price competition in the telecom industry are taking a toll and causing lower ROE amid massive balance sheet debt. 

Idea has a consolidated debt of around Rs.16810 cr (YOY-18776), D/E of  0.73 (YOY-1.14) and PAT of  Rs.2810 (YOY-1689) for FY-15.

Analysts are also pointing out that over 58% of subscribers are from rural area for Idea. Historically Q2 is a tepid period in rural India for lack of sufficient economic activity and mobile callings are also reduced along with various other reasons, such as erratic monsoon this year.

The company also pointed out about pressure on mobile data realization & severe competition there.

Going ahead, Idea plans to roll out 4-G services shortly and by H1FY16, it will launch 4-G in its ten telecom services areas over 750 large & small towns and 4 emerging markets (KA/OR/TN/NE). 

Presently its main leadership markets are at MH/GOA/AP/MP/CHT/KE/PU/HR. Idea is also planning to offer various entertainment & e-commerce to its customers in 4-G digital space (like R-JIO).

Market is apprehending that launch of R-JIO will intensify competition further amid sequentially higher capex requirements and call drop issues could also impact all the existing telecom operators, including Idea.

Consequently, all the analysts who were earlier projecting a 12 month price target of Idea to around 190-215 following some "outperforming" quarters, are now slashing it to 150-180 (median projection of around 165) !!

Looking ahead, there will be immense opportunities in "Digital India" and we may see sequentially higher usages of data, specially in metro areas where everything is available online, be it cabs or buying FMCG/daily vegetables apart from worlds of WA/FB etc. 

In other words, beside  professional office use (PC etc), no person can think of a life without an android in India now-a-days and the android data boom will be the game changer in the telecom industry in the coming days.

"Smart Indians" are now talking less over traditional mobile route and texting more with images & videos or busy with video/voice callings over the net. Thus increasing OTT usages are causing more data demands too !!

R-JIO competition fear may be overdone and pre-mature to some extent as there will be hand set change issues from existing 3G to 4G and adaptation of  LTE ecosystem. Thus transformation will be gradual and not be overnight amid price conscious Indian consumers as common people will certainly not throw away their existing costly smart phones for a 4G enabled device, unless its absolutely necessary.  

Idea, being the 3-rd largest mobile telecom company in India and backed by a financially strong group might be one of the few strong & large telecos apart from Vodafone, Airtel, Tata who are able to counter the expected aggression by R-JIO in the mobile data space.

Recent price correction and other technicals are also suggesting, Idea scrip may be in the process of bottoming out as the above sets of "bad news" and analyst's "concerns" might be discounted to a great extent by the market.

Thus from the point of lower risk/reward ratio, accumulation from the present zone of 137-132 for target of 160-185 in the near term, may not be a bad "Idea" at all !!

As par BG metrics & current market parameters:

Present median valuation of Idea may be around: 146 (FY:16)

Projected fair valuations might be around: 160-175-190 (FY:17-19)

SCRIP	EPS(TTM)	BV(Act)	P/E(AVG)	Low	High	Median	200-DEMA	10-DEMA
IDEA	9.36	55.57	14.5	148.19	143.00	145.59	161.8	150.67

IDEA

11.1

72.05

14.5

161.37

155.73

158.55

161.8

150.67

IDEA

13.05

93.25

14.5

174.98

168.85

171.91

161.8

150.67

IDEA

15.55

120.75

14.5

191.00

184.32

187.66

161.8

150.67

Analytical Charts:

Market Mantra: Nifty Fut (Oct) Update

 Draghi is almost determined to bring EUR to parity and is ready for more QE !!

Further Pre-Diwali rally now only above 8375; expect 8405-8435

SGX NF: 8345 (CMP)

NSE-NF: 8261

As par early indication, NSE-NF may open around 8345 thanks to overnight US market (Dow/S&P Future) rally of around 2% amid Draghi (ECB) comments about more QE and better US Job data.

Draghi is committed to do "more QE or whatever it needs to do" to bring back growth in EU and fight "lowflation" and fixed next Dec'3 for a definitive real action. But nevertheless, his jawbone alone is sufficient to bought down the EUR/USD instantly by almost 2% to around 1.10. By his comments, it seems that he is committed to bring the EUR to almost parity (1.00).

As par market buzz, BOJ may also expand its QE programme on Oct'30 and PBOC may also cut its repo rate by 0.50% in one or two tranches in the near term. China may also extend some mini stimulus to stall the "slow down" of its economy.

Day before yesterday, there was some market talk that Chinese Govt may withdraw the "direct support" to its stock market after it stabilizes to some extent. But there was no official comments about it and later Chinese Premier talked about the importance of a stable & vibrant domestic stock market necessary for its economy and overall sentiment.

Amid all the above supportive global cues, technically, NF has to sustain above 8375 for next hurdle of 8405-8435. Consecutive closing above 8435, we may see 8675 in NF even before Diwali !!

On the downside, immediate support is placed at 8325-8305 and fall below that we may see 8240-8210 followed by 8190-8150 zone in the next few days.

Federal Bank: "Your Perfect Banking Partner"

 Q2FY16 Result Was Not Perfect & Way Below Street Estimates And The Stock Crashed

Q2 PAT at Rs.161 cr, down by 32.8% (YOY-240 cr) against estimate of  290.50 cr

Q2 EPS as 0.94 against estimate of 1.70 (YOY-1.40)

55-48 Might Be Proved As Very Good Demand Zone For TGT Of 68-80 

CMP: 57

Buy around: 55-48 

TGT: 68-80 (1-12M)

TGT: 90-100 (24M)

TSL<40

Note: Consecutive closing below 40 for any reason, FB can fall up to 35-25 zone, where it may be again accumulated for better investment buying average.

Some key takeaways :

FB "surprised" the street with a very disappointing Q2 earnings down almost 33% YOY on higher provisions for few large corporate loan accounts stress under restructured assets (CDR- Metal & Power sectors). As par reports, Essar Steel & Ratnagiri Power may be those two CDR accounts.

Provisions & contingencies jumped by almost 91% to Rs.87.28 cr (YOY-45.7) and on net NPA front, the bank scored quite badly. NIM was also flat.

Going ahead, the bank is optimistic for a turnaround and timely resolution of its NPL(s) including the above CDR accounts as most of them are "well collateralised". 

The bank is also targeting 15% credit growth in FY-16 from the present level of 5% (YOY) and is quite confident about the MSME sector and hopeful about corporate credit growth.

The bank has around 1250 branches all over India and 65% of those are in semi-urban, rural & non-metro locations and the management is confident about competing with new entrants (small & payment banks). 

FB is also foraying big into digital banking called "Selfie" and is confident that it will increase its CASA ratio quite substantially. 

But analysts are not so confident about the management commentary and has downgraded the stock from previous 80-90 target to 70-80 now (From Buy To Hold/Accumulate/Neutral rating).

QOQ numbers is not so "shocking" as Q2FY16 PAT of 161.28 has been grown by around 14% from Q1FY16 PAT of around 141.39. Net provisions are also down by almost 42% to 87.28 from 153.10 (QOQ).

In any way, the result of FB undermines the vulnerability of small banks to "large" corporate loan accounts (above 25 cr). Sudden stress of few hundred crores may wipe out these small banks. 

There will be around twenty one new players entering in to differentiated banking in India shortly (payment & small banks). Certainly competition will increase sequentially higher and companies having very deep pockets may be able to survive in the game only.

Full banking is not so easy and India is not a place for so many banks to survive.Thus  M&A will inevitably happen in the banking industry in the years ahead and all small banks including FB may be one of them (M&A candidate !!).

Quite a few of the new banking entrants are large corporate groups & "startups" flush with funds.  At certain point of time they, as well as the new banking aspirants want to grow either organically or inorganically and that may change the rule of the game. 

Small Banks & Payment Banks can take away some loan & CASA accounts from some full fledged banks in future but at this point of time its too early & premature to judge and its not possible for a partial bank to compete with a full bank because of the limitations of service availability with a partial bank vis-a-vis a full bank. 

As par some estimates, there might be around 10%  effect on NIM for this issue in future on the part of some full fledged banks and various full banks are tying up with payment banks for mutual benefit. We can see similar trends in the case of small banks also to avoid direct intense competition.

Now, technically for FB, below estimate Q2FY16 result "shocker" may be already discounted to a great extent by the market and considering the favorable risk/reward ratio 55-48 range might be a good buying zone for it and it may be another instance of "buying a good business in temporary distress".

As par BG metrics & current market parameters:

Present median valuation of Federal Bank may be around : 75 (FY:15)

Projected fair valuations might be around: 80-90-100 (FY:16-18)

SCRIP	EPS(TTM)	BV(Act)	P/E(AVG)	Low	High	Median	200-DEMA	10-DEMA
FEDERALBNK	5.77	88.09	15	75.78	74.32	75.05	66.35	63.82

FEDERALBNK

6.65

98.25

15

81.35

79.79

80.57

66.35

63.82

FEDERALBNK

7.75

109.75

15

87.82

86.13

86.98

66.35

63.82

FEDERALBNK

9.5

122.25

15

97.24

95.36

96.30

66.35

63.82

Analytical Charts:

 

Bajaj Auto: Q2FY16 Result Is Slightly Above Street Estimates

Only sustaining above 2550, expect 2655-2695

Q2 PAT at Rs.933 cr (estimate:896.2 & YOY:591) and EPS 32.20 

(estimate:31.28 & YOY:32.15)

CMP: 2519

Buy either on sustained break out above 2550 with TSL<2510 or wait for dips around 2440-2400

TGT:2585-2610 & 2655-2695 (T+30)

TGT: 2815-2900 & 3300-3500 (12-24M)

TSL<2380

Note: Consecutive closing below 2380 for any reason, Bajaj Auto can fall up to 2330-2290-2210, where it may be again accumulated for better investment buying average.

Some key takeaways: 

Q2FY16 PAT of Bajaj came around Rs.933 cr, up by almost 57.8% from Rs.591 cr (YOY). But there was an one time exceptional expense of Rs.340 cr last year on account of National Calamity Contingent Duty (NCCD) by Uttarakhand Govt. 

As par the management, considering that 340 cr, comparable PAT last year was Rs.853 cr (591+340=931-Tax). Analysts were expecting a PAT of around Rs.896 cr this time.

But nevertheless, the Q2FY16 result was good although net sales remained flat. The good result was aided by better product mix, lower input costs, strong operational performance,surge in other income and improved rupee returns on exports. It sold more high margin premium bikes (Pulsar) and autos.

Bajaj Auto managed to improve its margin by better operational metrics despite volume pressure, high competition in the industry and tepid rural demand this year.

The company sees improved festival demand, and focusing more on its premium segment(Pulsar/Avenger/KTM) apart from its regular brands (CT100/Platina), specially for urban young India. The company is shortly launching three new variants of its premium bike "Avenger" to take advantage of  the ongoing festival season and forthcoming 7-th pay commission induced liquidity and as par reports, it will launch another mid priced bike in Q4 and sports bike (KTM variants/CS-100/200/400) in 2016. The company is expecting substantial jump in its bike sales after the new launches in the coming months.

Apart from domestic market, Bajaj Auto has also good export market ((Egypt, Nigeria, Sri Lanka) and around 47% of its sales volume came from exports in Q2. It has also managed its cross currency risks quite well.

Bajaj also has excellent market for its high margin 3-W segment where demand is rising steadily in metro and urban areas. But E-Rickshaws (battery operated) is a growing threat to some extent. The management is also expecting new auto permits in Maharashtra (150000) and other parts of the country and subsequent surge in sales in 3-W in the coming days.

Unlike Hero Motors, Bajaj Auto has much better export market and has better product mix in high margin premium & CV-3W which are  more suitable for urban India, where there may be a visible uptick in demand in the near future. Rural demand may take some more time for a meaningful improvement. Nevertheless, rural & festive demand is very important for both the companies.

But considering the time & price action on the Bajaj Auto scrip, the above sets of good story might be already discounted to a great extent. Now post result concall may guide the analysts for further ratings of the stock.

In any case, looking at the chart, only consecutive closing above 2550 from the present level, the scrip may target 2655-2695 area in the near term, otherwise expect some corrections up to 2440-2400 zone.

As par BG metrics & current market parameters for Bajaj Auto :

Present median valuation may be around: 2550 (FY:15)

Projected fair valuations might be around: 2800-3000-3300 (FY:16-18)

SCRIP	EPS(TTM)	BV(Act)	P/E(AVG)	Low	High	Median	200-DEMA	10-DEMA
BAJAJ-AUTO	118.5	327.58	23	2520.50	2579.43	2549.96	2330.92	2441.18

BAJAJ-AUTO

140.3

365.5

23

2742.56

2806.68

2774.62

2330.92

2441.18

BAJAJ-AUTO

162.95

407.3

23

2955.66

3024.76

2990.21

2330.92

2441.18

BAJAJ-AUTO

195.5

455.15

23

3237.43

3313.12

3275.28

2330.92

2441.18

Analytical Charts:

Hero Moto Corp: Q2FY16 Result Is Slightly Better Than Street Estimates

Only Sustaining Above 2630-2650, Expect Some Fireworks Up to 2800-3000

Q2 PAT at Rs.772 Cr, up by 1.1% YOY (median estimate 717 cr)

Q2 EPS at 38.66 against street estimates of 35.65

CMP:2606

Buy: 2600-2580

TGT: 2650-2678-2705-2750-2795 (T+5)

TGT: 2920-3030-3165-3275 & 3500-4300 (1-12 & 24M)

TSL<2550

Note: Consecutive closing below 2550 for any reason, HMC can fall up to 2497-2435, where it may be again accumulated for better investment buying average. 

Some key takeaways:

Q2FY16 result of HMC published yesterday after market hours was slightly above street expectations. Although net sales declined by 1.72% YOY (against expectation of -6.96%),EBITDA/bottom line was improved by higher realisations per unit aided by reduced input costs and better internal cost control measures (LEAP). As a result, realisations per unit & EBITDA improved by 5.6% and 15.9% (YOY).

Weak rural demand amid fragile rural economy and uneven monsoon in some parts of the country this year might be one of the reason for falling sales in its motorcycle segment. Also, in urban area, there are more preferences towards light weight scooter/scooty and premium segment of bikes and competitors of HMC has some edge on it.Rural sales contribute almost 50% of HMC's revenue. 

In the urban scooter market to compete with its rival Honda, HMC has brought in two new models, which are completely been developed in-house. The company is hopeful to gain further overall domestic market share from its present 52% on the back of its new models and likely increased demand for the ongoing festival season. Its also recently launched Splendor Pro & Plus(manual & self-start feature) at reasonable & competitive price with convenience & comfort for a Splendor ride. 

The company has also inaugurated its first overseas manufacturing facility in Columbia and is very hopeful for its global expansion drive in the coming days.

Looking ahead, analysts are quite hopeful of sustained margin expansion for HMC due to lower input/commodity prices, better product mix and internal cost reduction programme.But new launches and its foray in to the premium segment may hold the keys.

Apart form festival demand, implementation of 7-th pay commissions may also increase the demand for both 4 & 2 wheelers significantly and all the major auto companies, including HMC may be a  beneficiary of that also. HMC has also strengthened its R&D ecosystem both ingeniously and by partnering several partners overseas in the last one year after separation from Honda. It may also diversify into defence sector in future.

As par BG metrics & current market parameters:

Present median valuation of HMC may be: 2650 (FY:15)

Projected median valuations might be: 2900-3100-3400 (FY:16-18)

SCRIP	EPS(TTM)	BV(Act)	P/E(AVG)	Low	High	Median	200-DEMA	10-DEMA
HEROMOTOCO	129.28	327.58	21	2640.14	2631.15	2635.65	2567.46	2550.01

HEROMOTOCO

155.15

384.9

21

2892.26

2882.41

2887.34

2567.46

2550.01

HEROMOTOCO

178.5

455.25

21

3102.28

3091.72

3097.00

2567.46

2550.01

HEROMOTOCO

215.5

535.15

21

3408.67

3397.07

3402.87

2567.46

2550.01

Analytical Charts:  

 

HCL Tech: Sep'15 QTR Result Is Largely In Line With Revised Street Estimates

Expect some fireworks only above 866-875 up to 935-990

 Quarterly PAT came around Rs.1726 cr against revised median estimate of Rs.1723 cr

and EPS at 9.99 (Exp 9.80) vs 10.21 (QOQ) & 12.00 (YOY) 

Is the management's profit warning action overdone ?

CMP: 858

Either buy on breakout above 866-875 or in dips around 830-811-800

TGT: 905-921-935 (1-3M)

TGT: 990-1045 & 1165-1280 (12-24M)

TSL<790

Note: Consecutive closing below 790 for any reason, HCL can fall up to 760-740-725-700 levels, where it can be again accumulated for better investment buying average.

Sep'15 QTR result published yesterday by HCL was by and large in line with revised street estimates after management's guidance warning last month. 

As expected QTR numbers is very weak and PAT fall by 8% due to cross currency headwinds and one time provision made to compensate for loss of revenue from a particular large client. Although the result showed that the infrastructure management services (IMS) is a drag for the company, but its core manufacturing clients added more projects. IMS contribute nearly 23% of the revenue of HCL.

The other business verticals of HCL also reported slower sequential growth of under 1% on QOQ basis (financial services, manufacturing, retail & telecom together comprises of around 77% of total revenue of HCL)

The management is confident about its large order book and expected  for the revenue reflection of the same from Jan'16 on wards and is not emphasizing too much on short term QOQ numbers. The management has pointed out the longer term trailing 12 month numbers (TTM), where the above verticals has shown good growth as a large multiyear order takes time to reflect in revenue stream.

Analysts are pointing out that this is the third consecutive earning downgrade for HCL. There is immense competition in IMS from other tier-1 players, HCL has somewhat weak software applications portfolio, which reflects in multi-year under performance and the company lags competition in capturing digital opportunity (artificial intelligence-AI, automation etc).

But, all the above negative news for HCL may be already discounted by the market going by the time & price action of the scrip. Technically, 800 zone should hold for HCL, unless we hear some more negative news or further earning downgrades/weak guidance from the management.

Looking ahead, apart from the export revenue, all major IT companies may be benefited immensely from our own domestic opportunity (Digital India theme) in the coming days and HCL might also be one of them.

HCL is also the the process of acquiring a Bangalore based engineering services firm "Concept to Sillicon System" (C2SiS) specializes in system-on-chip and design services and it has large Fortune-100/500 client base.

As par BG metrics & current market parameters:

Present median valuation of HCL may be around: 870 (FY:15)

Projected fair valuations might be around : 905-990-1070 (FY:16-18)

SCRIP	EPS(TTM)	BV(Act)	P/E(AVG)	Low	High	Median	200-DEMA	10-DEMA
HCLTECH	43.17	111.97	20	884.01	856.66	870.34	905.12	849.98

HCLTECH

46.55

125.55

20

917.97

889.57

903.77

905.12

849.98

HCLTECH

55.75

140.75

20

1004.59

973.51

989.05

905.12

849.98

830

HCLTECH

65.15

156.25

20

1085.99

1052.39

1069.19

905.12

849.98

830

Analytical Charts: