Author: CP

Kotak reported consolidated F1Q10 earnings of Rs2.6bn, up 72% YoY and 22% QoQ.

Growth during the quarter was driven by a rebound in capital market-related businesses. PBT for these businesses increased 93% YoY and 206% QoQ.

Credit issues continued with gross NPL levels rising – up 100 bps during the quarter to 3.4%. Most of the increase was concentrated in the small value personal loan segment.

Banking business trends remained muted with NII progression still weak and the bank choosing to re-focus the loan book toward lower yielding corporate loans. Tier I increased to 18.3% from 16% in the previous quarter.

Kotak management has been proactive in managing asset quality through moderation in growth and has a strong balance sheet with high Tier 1. Also, market-related businesses should continue contributing to earnings as capital market activity picks up further.

FY10 EPS is expected to be Rs 28.

Ashok Leyland continues to be adversely affected, given concentration of sales in southern India (coupled with loss of market share in the north and eastern markets). Mgmt had also indicated in the recent analyst meet that its sales were affected by consumers shifting to haulage vehicles, rather than speciality vehicles like tractor trailers, tippers.

Operationally, EBITDA was 86% below forecasts. Sales were ~8% above estimates due to higher realizations (we believe on account of spare parts & engine sales).

Mgmt. guided to single-digit domestic volume growth in FY10 and expects exports to increase to 9,000 units. It also expects to increase its operating margins by 350 bps y/y in FY10. Fully Diluted EPS expectation for FY10 is Rs 1.56 and Rs 2.07 for FY11.

Tata Motors recurring net profit at Rs 1.95bn was well ahead of our expectations (we had forecast a modest loss). The results are buoyed by a lower effective excise duty (7.6% of gross revenues this Q) as production from Uttaranchal increased (~13k units/ month). Material costs as % of revenues were a tad lower than estimates.

Mgmt noted that the company’s operating cash flows in 1Q were Rs20bn – an encouraging trend. Overall debt levels remain high – ~Rs169bn – and are a concern, given the aggressive debt equity ratio (~6x end FY09). Working capital was slightly elevated – inventory has increased to 32 days (from 28), while receivables also rose to 23 days.

Tata Motors is expectd to report an EPS of Rs 8.35 for FY10.