Colgate Palmolive India

Colgate-Palmolive (India) - Consumer Products.
Competitive position can potentially deteriorate. Colgate’s cost competitiveness is
likely under threat starting FY2011E as the company will see a reversal of trends in the past four years (FY2005-09) in lower excise rates—down 650 bps to 3.6% and lower income tax rates. 50% of Colgate’s output is in excise-exempt zones, this is 80% for HUL, providing HUL an option to channelize the benefits to gain market share.

Headwinds facing Colgate are (1) renewed aggression from HUL, (2) limited pricing power and (4) higher tax rates.

Favorable factors are (1) strong momentum in market share gains, (2) penetration-led growth in Cibaca and (3) opportunity to moderately cut adspends in the near term.

Investors can reduce the stock on rallies due to : (1) premium valuations for sub-par earnings growth in FY2011E, (2) HUL is now a threat as it has become more aggressive compared to its previous position of being satisfied with improving sales , (3) limited pricing power, (4) mix deterioration is a reality and (5) higher tax rates starting FY2011E are a reality too.

Infotech Enterprises

Result Update: Infotech Enterprises
• Infotech’s results for 2QFY10 were inline with expectations on the revenue line and operational front. Revenues grew 2.1% QoQ; EBITDA de-grew marginally QoQ as margins expectedly moderated 80bps QoQ. Business volumes were flattish QoQ; cross currency benefits impacted revenues positively by 2.1%, and contributed to all of the growth seen in the quarter.

• Reported PAT at Rs.353.3mn was above the estimated Rs.325mn, only on account of higher other income. Net other income for the Q (Rs.44.6mn) included Rs.72.5mn towards reversal of provision for MTM losses on forward contracts and Rs.84mn towards loss on forward contracts.

• Modify earnings to factor in Q2FY10 numbers; expect an FY10E EPS of Rs.26.1 (Rs.24 earlier). In FY11E, we expect revenues to grow 13% YoY; margins are likely to taper from FY10E levels given our assumptions on the INR, likely peak utilizations, wage inflation and increasing S&M investments, given an improving demand environment. Expect an FY11E EPS of Rs.28, 8% higher than FY10E EPS.

•Investors can Buy the stock with a price target of Rs.310, with a long term view. Exit multiple works out 11x FY11E EPS, a 45% discount to sector leaders.

Simplex Infra

Simplex Infra -stock update.

Strong growth in FY09: Simplex Infra witnessed a strong 68.6% YoY rise in its revenues to Rs47.4bn in FY09. Operating expenses increased by 69.1% YoY to Rs43bn driven mainly by consumption of materials (45.4% of net sales) & employee cost (31.6% of net sales). While operating profits surged 64.2% YoY led by the buoyant topline growth, OPM declined marginally by ~25bps to 9.3%. Net profits for the year were at Rs1.2bn (+37% YoY) translating into an EPS of Rs24.9.

Strong Order book at ~Rs101bn: Fresh order inflows for the quarter stood at Rs1.1bn, taking the full year inflows to Rs56.6bn (+15.5% YoY). Around 30% of the backlog consists of overseas projects; 36% accrue from the Government sector & 34% from various private sector parties. ~95% of the present backlog remains completely hedged against commodity price fluctuations, barring piling jobs.

Valuations.

At the CMP of Rs392, SIL trades at a P/E of 12x & EV/EBIDTA of 6.2x its FY10E earnings. We value its core construction business at Rs457 (14x FY10E EPS) & its 85% stake in the oil drilling business at ~Rs10/share. Thus, on a SOTP basis the fair value of the stock works out to 465.

EKC Everest Canto Cylinders -Q4 results

EKC Everest Canto Cylinders -Q4 results.

EKC has come out with good set of Q4 results.The demand for CNG cylinders in India is picking up due to increasing focus on reducing the environmental pollution and also due to the fact that even after reduction in global oil prices, CNG is still ~55% cheaper then petrol.

The Supreme Court has also mandated the public transport system of the 28 cities to be converted to CNG to reduce emissions over next few years. Also with the recent gas finds of Reliance and GSPC we expect good amount of gas to be available for the automobiles.

Revenues of Q4FY09 were impacted due to lower domestic sales on account of
slowdown in off take of CNG cylinders by OEMs. However the drop in CNG sales in
India was partly compensated by robust growth in sale of industrial cylinders. In
Q4FY09 the company recorded lower EBIDTA margin on account of higher sale of
industrial cylinders which typically have lower operating margins then CNG cylinders.
in India, Dubai and China and for acquisition of CPI industries of Rs.2.8 bn.

Valuations

At the current market price of Rs.220, the stock trades at fair valuations of 2.9x
book value, 13.5x earnings and 8.6x cash earnings based on FY10E. Investors can accumulate on declines, since the long term growth prospects of the company is positive.

NIIT Ltd

NIIT Ltd - Results Update.

NIIT Revenues rise by about 10% YoY . Revenues rose by 10% YoY and came in marginally below street stimates. The individual learning business (ILS) and corporate learning business (CLS) led the overall growth with 15% and 11% gains, respectively. However, on a QoQ basis, CLS revenues remained almost flat, despite the rupee depreciation. Schools business also grew by 17% YoY. New businesses like IFB, Imperia, Uniqua, etc disappointed.

Future prospects

The individual learning business is expected to witness a slowdown in growth rates in FY10 to about 16%. New initiatives are expected to gather steam over the quarters with higher acceptance of the courses. However, incremental growth is expected to be muted.
Corporate learning businessis expected to grow at 8%. This may prove to be optimistic in the back drop of further deterioration in the US economy and scale up issues faced by the company.
Margins to improve (YoY basis) on the back of better capacity utilization, higher volumes and better leverage on costs.

Valuations

Concerns.
A prolonged recession in major global economies could impact revenue growth of NIIT.
Steep rupee appreciation v/s major global currencies may impact the financials of NIIT.
Hence investors can accumulate NIIT on declines, with a price target of Rs.60.