The investment scenario is gloomy with equity markets stagnating across the globe. India is no exception. Be it the poor monsoon, weak economic numbers, policy paralysis or a dispirited results season, investors have had little to cheer about so far. However, there are some winners in the quarterly show companies that have more than doubled their profits. ET Intelligence Group checks out some of these stars to determine if their stellar performance makes them eligible to be part of your portfolio
Although the overall results season has not been exciting so far, there have been a number of companies which have done substantially well. This doesn't mean just 50-60% profit growth. These companies have more than doubled their profits from the year ago level. A few have posted strong profit figures after reporting several continuous quarters of losses. We believe identifying and presenting such sparkling performances is important to investors as it offers a view on investment opportunities rather than academic number crunching on India Inc's overall results. Out of the 1,000 companies that have published quarterly results in July, we have chosen a dozen whose profit figures have more than doubled. In many cases some rode the wave higher than others when certain trends benefited their entire sector. In other cases profitability of the companies has shot up regardless of how their peers have performed.
When it comes to the entire sector gaining, a number of mid-size IT companies have come out with strong numbers although bigger players like Infosys and Wipro have disappointed. Cement players have also posted healthy profit growth for the June 2012 quarter on higher volumes and realisations. Similarly, lower rubber prices have benefited the tyre industry.
Another common theme running across most of these winners is the healthy gains they have made on overseas operations or substantial exports thanks to a weaker rupee.
Investors may have already noticed the spurt in the share prices of these companies after the results announcements. However, it is difficult for most to decide what they should do with such companies now. Was it just some one-off event that boosted the company's performance and should one use the rise in the share price to exit? Does the strong jump in profits mark a turnaround quarter and should one buy more shares? Or has the share price surge made the company expensive once again and there is nothing more to gain. ET Intelligence Group analyses the performance of the dazzling dozen to find out the answers.
(With inputs from Bakul Chugan, Jwalit Vyas, Crystal Barretto, Kiran Somvanshi, Rajesh Naidu and Ranjit Shinde)
JP POWER VENTURES
Jaiprakash Power Ventures' profit jumped by 163% in the June quarter as it benefited from its 1,200 MW Karcham Wangtoo project (KWP) that had become operational last May and thus contributed for only 45 days in the June quarter last year, apart from lower tax.
The company sold most of the power generated from this project in the merchant market (which provides higher selling price per unit) than through long-term agreements. The company has two other operational plants ?BASPA II (300 MW) and Vishnuprayag (400 MW).
In the current fiscal, the company will benefit fully from its KWP project (last year it was operational for 10 months.) Besides, the company will add another 500 MW of capacity with its Bina project expected to commission in the third quarter. However, generation will be partly impacted by the weaker monsoon.
Despite the doubling of profit, the company's stock has corrected 10% in last one month and is trading close to its 52-week low. There is not much downside risk, but the upside is also limited. Investor's should avoid this stock.
Profits for tyre manufacturer MRF have more than doubled during the June quarter, though on a lower base. The fall in rubber prices has lowered operating costs for the company. As a result it was able to improve margins over the past two quarters. In the June quarter, operating profit margin increased from 6.4% to 11% year-on-year. This was on the back of a 17% increase in sales to 3,006 crore. Lower rubber prices will continue to work in the company's favour. At the same time, the slowdown in vehicle sales and cutback in OEM demand is a concern.
At the current market price, the stock trades at 9.4 times its trailing twelve-month earnings, which is at a discount to its competitor Apollo Tyre which trades at 10 times. Long-term investors can accumulate the stock on account of sustained growth.
Mid-tier IT exporter MindTree has staged a strong recovery over the last four quarters. The company reported double-digit net profit growth on a sequential basis in each of the last four quarters boosted by robust demand.
In the June quarter, its net profit rose by 157% to 89 crore from the year ago. Increase in revenue from top five clients and favourable rupee-dollar movement were the main factors for the robust show. After adding just six clients in the March 2012 quarter, the company reported 19 additions in the June quarter, which reflects visibility of future revenue growth. Considering the traction, MindTree is expected to perform well in the coming quarters. But it needs to be noted that the currency movement will play a crucial role in the extent of growth. Investors with a horizon of over two years can consider the stock.
Past acquisitions have turned favourable for Pune-headquartered KPIT Cummins. The tier-2 IT player that offers product engineering and enterprise solutions to global clients has posted a strong double-digit sequential growth in each of the four quarters to June 2012.
The company has acquired three companies in the last two years. After taking over Germanybased In2Soft and US-based CPG Solutions in FY11, it acquired Systime, an enterprise services provider from India in June 2012. The inorganic strategy has started paying off for the company as the acquisitions helped to improve its presence in the manufacturing and energy verticals across geographies.
The company has shown a sustained trend in client additions over the last few quarters. The momentum is expected to continue in the near future. The company reported cash equivalents of 195 crore as of June. This can be put to use for further inorganic expansion. The stock can be accumulated with a long-term horizon.
Tata Coffee, a subsidiary of Tata Global Beverages, is one of the leading exporters of coffee from India. The jump in profits of its US subsidiary Eight O'Clock boosted the company's bottom line in the June quarter making it the best in the last six quarters. With the international business contributing 64% to the company's total revenues, the depreciation of rupee helped boost realisations.
The company's US business, which earlier was under stress due to high raw material costs, posted a net profit of $1.43 million in the June quarter against $0.17 million in the corresponding quarter last year. Profit performance of this business will remain critical for Tata Coffee's overall growth.
The company's agreement with US-based Starbucks to supply roasted coffee beans to its retail outlets in India as well as overseas is a key growth driver. The outlook for coffee prices remains positive for this year, which augurs well for this plantation company.
The company's stock has already run up by 26% in 2012 so far. Although the growth momentum is likely to continue in the coming quarters investors should be wary of high valuations.
Ending its sequential loss-making streak of the past three quarters, Blue Star's net profit more than doubled for the June quarter. With the company having kept its costs in check, especially that of raw material, operating margins improved marginally by about 70 basis points y-o-y. At 73.7%, Blue Star's material cost as a percentage to sales was the lowest in the last two years.
The gradual improvement in the company's profitability has attracted the interest of institutional investors. Mutual fund shareholding in the company has moved up from below 10% in the June 2011 quarter to over 12.2% now. The FII shareholding, which was declining between June and December 2011, has also increased to over 7.1% now. With the company's stock having lost over 30% in the last one year, long-term investors should start accumulating, especially since its financial performance is showing signs of a turnaround.
After losses in five consecutive quarters, SpiceJet has bounced back with an encouraging performance in the June 2012 quarter. Even after excluding one-time income on sale and leaseback of aircraft ( 39 crore) and claims of engine warranty ( 12.9 crore), it still made profits.
This strong financial performance was helped by a 26% growth in its passenger traffic, which enhanced its revenue per passenger to 4,068 from 3,283 in the year-ago period.
The company has a market share of 18.6% while Indigo Airlines has a 27.4% share and Jet Airways India is at 26%. One fourth of the company's 47 aircraft are Bombardier, which have a capacity for close to 80 passengers. This will help it focus on regional connectivity.
The company recently got approval to fly to the Gulf and Southeast Asia. It will fly 49 flights, which lesser than its peers Indigo and Jet. Although its balance sheet is one of the best in the industry, the need to fly more international flights may lead to more aircraft purchases and strain the balance sheet. Investors should hold this scrip, particularly because approval to directly import fuel is saving it costs and the possibility of FDI being allowed in the industry will be a booster.
JK LAKSHMI CEMENT
A 23% year-on-year growth in volumes helped drive a 36% rise in JK Lakshmi Cement's net sales in the June quarter. Average realisations were around 11% higher against the year-ago period, which boosted its operating profit margins by 300 basis points to 22.9%. This was also helped by high capacity utilisation and improved operational efficiencies.
The company's new 2.7-million tonne per annum plant in Chhattisgarh will commence operations later this fiscal. This will enable it increase volumes when demand grows ahead of assembly elections in FY13 and FY14. It will also take total capacity to 8.1 MT with 90% sales in the northern and western regions, which saw a demand growth of 14% as against the industry average of 7%. Its client base including L&T, Reliance, Airport Authority of India and Essar and involvement in big projects of the like of Golden Quadrilateral and Sardar Sarovar are strong growth drivers. The company's broad product portfolio and expansion plans are expected to help it sustain its growth story in the coming quarters. The company's valuations don't appear expensive. Long-term investors should accumulate.
DEVELOPMENT CREDIT BANK
Net profit more than doubled for Development Credit Bank (DCB) from 8.8 crore in June 2011 quarter to 18.9 crore this time. The growth was driven by a 23% rise in net interest income, which is the difference between interest earned and interest paid, as well as lower provisioning. The bank has over the past four quarters been lowering provisions ? a sign that it is managing its assets better. The improvement in its asset quality has also been reflected in the decline in the percentage of non-performing assets to total advances (net) from 1.19% in the June 2011 quarter to 0.75% in June 2012. The bank has also improved its net interest margin from 3.10% in June 2011 to 3.18% now. It has also become more cost efficient in its operations as seen in the fall in its cost to income ratio from 78.07% in June 2011 to 72.85%. Investors should accumulate.
Chemical maker Atul's net profit more than doubled in the June quarter ? the second consecutive quarter in which its profit has doubled. The company has steadily improved its capacity utilisations and moved up the value chain to make specialty chemicals.
During the June quarter, Atul's operating profit margin improved 350 basis points from the yearago period to 13.5%, which helped its operating profits grow 65% although net sales grew a modest 22.8%. A forex gain of 5.6 crore boosted other income, which was almost 10-fold up from the year ago. This helped the company to absorb the 69% jump in interest costs and still double its profits. Even though the scrip has more than doubled in 2012 so far, its valuations don't appear expensive. Long-term investors would do well to accumulate. For a detailed report on Atul, please check out the Stock Idea on Page 2.
Ahmedabad-based contract manufacturing and research services company Dishman Pharma's June quarter performance was largely influenced by the strong performance of its overseas subsidiaries ? Carbogen Amicis and Dishman Netherlands. However, the company's domestic operations posted a drop in revenues and net profit due to a delay in starting production of vitamin D3 and the absence of orders from a major client - Abbott Laboratories.
In view of its volatile performance in the past, sustaining this growth momentum is critical for the company. Commissioning of the Vitamin D3 facility, overseas operations coming back on track and resumption of orders from Abbott are likely to help it meet targeted revenues of 1,250 crore in FY13 ? 9.6% higher than FY12 and an EBDITA margin of 21%. The company's debt as on June 30th stood at 850 crore which makes deleveraging a priority. After falling from 264 to 36 in the two years from 2010, Dishman's stock has doubled in 2012. Investors can accumulate the stock, but need to be wary of any signs of volatility in the company's performance.
The spurt in the June quarter profits at Thirumalai Chemicals came on the back of years of subdued performance. The stock has gained over 35% since the results.
The rise in profits is a result of measures the company has taken in the last few months to improve cost efficiency, capacity utilisation and competitiveness. A safeguard duty of 10% imposed in January 2012 on its key product phthalic anhydride also helped. Its loss-making subsidiary in Malaysia also turned around. The company is expanding its specialty chemicals division, which should help to improve overall margins.
Although the company cannot be expected to repeat its June quarter profit figure in the coming quarters, its FY13 profits should remain significantly above the FY12 numbers. The company's valuations are still inexpensive. Investors should buy into the scrip with a one-year horizon.