Ratnamani Metals and Tubes
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,440
Current market price: Rs1,070
Steady growth momentum
Result highlights
For Q3FY2008, Ratnamani Metals and Tubes Ltd (RMTL) reported a growth
of 14.3% year on year (yoy) in the net sales to Rs214.4 crore. The net
sales were however marginally below our expectation.
The operating profit grew by 13.9% to Rs48.1 crore and the operating
profit margin (OPM) remained flat at 22.5%. The OPM remained flat on
the back of stable raw material prices and improved operational
efficiency.
The other income showed a steep increase on a year-on-year (y-o-y)
basis and came in at Rs3.3 crore. The increase in other income is
attributed to the foreign exchange (forex) gain.
The interest cost was up 28.1% to Rs4.4 crore, while the depreciation
charge jumped by 85.9% to Rs6.2 crore.
The net profit increased by 25.7% to Rs27.3 crore inline with our
expectation of Rs28.5 crore.
The order book stood at Rs532 crore executable over the next six-month
period. Orders worth Rs132 crore came in from direct exports.
Canara Bank
Cluster: Apple Green
Recommendation: Hold
Price target: Rs315
Current market price: Rs308
Margins continue to remain under pressure
Result highlights
Canara Bank reported a profit after tax (PAT) growth of 26.4% year on
year (yoy) to Rs458.8 crore. The PAT growth was mainly due to a 92.4%
year-on-year (y-o-y) jump in the non-interest income driven by higher
treasury profits. The core-operating performance was however
disappointing with the net interest income (NII) down by 10% (which is
a slight improvement over Q2FY2008, when it was down 19.8% yoy).
The NII was down by 10% yoy, but up 18.7% quarter on quarter (qoq) to
Rs934.4 crore. Canara Bank is perhaps the only public sector bank
(PSB), which reported a y-o-y decline in its NII. The calculated net
interest margin (NIM) for Q3FY2008 stood at 2.2%, down 63 basis points
yoy from 2.83% for the year ago period. The significant y-o-y
contraction in the NIM was mainly due to the higher cost of funds
offsetting the yield improvement.
However, the reported non-interest income increased by a whopping
92.4% yoy though down 4.5% qoq to Rs554.6 crore. The rise in the
non-interest income was mainly from higher treasury income and cash
recoveries.
The operating expenses grew by 13.5%, as the bank has not yet provided
for the revised AS-15 transitional liability expenses. Hence the AS-15
related costs are likely to keep the operating costs high in Q4FY2008.
Overall the operating performance remained weak with the operating
profit up by only 10.5% yoy to Rs757.8 crore.
The business growth moderated with the advances up by 8.7% yoy
compared with 24% for FY2007. The deposit growth was also moderate at
9.4%. The management has put in place a strategy of repaying the
high-cost deposits and reducing the low-yield advances.
Asset quality levels showed some marginal improvement with the gross
non-performing assets (GNPA) in percentage terms down by 12 basis
points to 1.54% sequentially (and down from 2.06% in December 2007).
The net NPA (NNPA) were down by 10 basis points to 0.89% sequentially
(and down from 0.96% in December 2006). The coverage ratio of the bank
continued to remain low at 42.8%.
The core operating performance of the bank was disappointing during
Q3FY2008 with pressure on NIM and slowdown in the growth of deposits
and advances. However the directors have put in place a strategy of
repaying the high-cost deposits and reducing the low-yield advances.
This strategy is likely to show results after a few quarters. The
pressure on NIM is also likely to continue for a couple of quarters
before the same stabilises. The operating expenses are likely be back
ended, as the bank is expected to provide for the revised AS-15
transitional expenses during FY2008, which would restrict the earnings
growth in the fourth quarter.
At the current market price of Rs308, the stock is trading at
inexpensive valuations of 7.1x its FY2009E earnings per share (EPS),
3.6x pre-provisioning profit (PPP) and 1x book value (BV). We don't
foresee a major downside for the stock considering its inexpensive
valuations. We therefore continue with a Hold recommendation with a
price target of Rs315.
Mahindra Lifespace Developers
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs1,096
Current market price: Rs629
Q3FY2008 results—in line with expectation
Result highlights
Please note that Q3FY2008 numbers are standalone numbers, which does
not give a complete picture, as the company's major SEZ projects
(Chennai and Jaipur SEZ projects) are executed through its
subsidiaries. The consolidated numbers are eported on an annual basis.
Mahindra Lifespace Developer's (MLD) revenues grew by 3.8% year on
year (yoy) to Rs43.4 crore in Q3FY2008. During the quarter, the
revenues were booked from Mahindra Eminente in Goregaon, Mahindra
Royale in Pune and Sylvan County in Chennai. In M9FY2008, MLD's
revenues declined by 7.4% yoy to Rs112.5 crore, due to delay in the
projects launches for the standalone properties in the previous
quarters.
The operating profit margin (OPM) contracted by 329 basis points yoy
to 19.1%. Consequently, the company's operating profit declined by
11.5% yoy to Rs8.3 crore.
MLD's net income grew by 17.6% yoy to Rs11.2 crore primarily due to
the increase in the other income to Rs5.2 crore in Q3FY2008 from Rs3.1
crore in Q3FY2007. The other income rose on account of higher interest
income generated on cash surplus. In M9FY2008, MLD's net income grew
175.8% yoy to Rs10.6 crore primarily due to higher other income on
account of dividend income received from its subsidiary, Mahindra
World City Developers.
