Dalal Street

Vishal Retail’s Q1FY09 net sales grew 18.26% to Rs 396.09 crore in Q1FY09 as compared to Rs 318.42 crore in Q4FY09 due to 10% higher footfalls. The operating profit stood at Rs 49.09 crore with a margin of 12.37% as against 10.88% in Q4FY08. This improvement in operating profit margin was on account of the enhanced contribution of private labels to 13.2% from 10% of sales in Q4FY08. Also, there was a marginal growth of 1.5% in sales per sq ft to Rs 1788 in Q1FY09 from Rs 1762 in Q4FY08. The net profit grew 36.5% to Rs 14 crore in Q1FY09 from Rs 10.4 crore in Q4FY08.

On the flip side, as per mgt, inventory position at the end of 1Q has worsened to Rs2800/sq ft (Rs6.5bn) vs Rs2580/sq ft (Rs5.6bn) as of FY08 end. Further, debt has gone up from Rs5.3bn to Rs6.5bn, pushing the debt-equity ratio beyond 2x.

DSP Merill expects the company to report an EPS of Rs 19 for FY09 while ICICI Sec expects the company to report an EPS of Rs 35. We find ICICI’s expectations are really aggressive to meet in this market.

Ranbaxy Labs: Ranbaxy’s 2Q PAT (adjusted for forex impact) of Rs1.6bn was on the back of 13% revenue growth and modest margin improvement (17.8% vs 16.4% in 1QCY07). Reported PAT at Rs229mn was largely shadowed by Rs1.93bn forex translational loss. As a result, forecasts are lowered by 12-19% and we now model 34% CAGR in core profits (CY08-10E) and impact of FTF opportunities till 2010.

Timelines on Daiichi Sankyo’s open offer remain intact (August 8th-27th). Management reiterates guidance of 20% top-line growth and 17-18% EBITDA margin. W.Europe markets continue to face pressures while growth outlook on RoW markets is robust. Complying with USFDA, to send necessary documents relating to district court motion on Poanta Sahib case by August 3rd, 2008. Ranbaxy is expected to report an EPS of Rs 16 to Rs 17 for year ending Dec-2008.

Glaxo Smithkline Pharma: GSK’s revenues (net of excise) grew 11% YoY on a comparable basis; reported growth (6.3% YoY) is lower due to sale of the fine chemicals business. This was driven by healthy growth rates in priority products and vaccines.

GSK continues with its efforts to boost revenues. It launched Tykerb in 2Q and has entered into an in licensing deal with Astellas. It has entered into a co-promotion agreement with Daiichi Sankyo India for the antihypertensive drug Olmesartan Medoxomil and its combination products.

Gross margins improved 176bps YoY on the back of improving product mix (no fine chemicals; higher share of priority products within pharma). At the same time, strong control over costs translated into a 207bps YoY improvement in EBIDTA margins. GSK is expected to report an EPS of Rs 55 for FY08 ending in Dec-08.

Bank of Baroda reported 1Q09 profits up 12% YoY ahead of estimates. Key highlights are – Flat margins QoQ, strong fee income growth and no significant deterioration in asset quality. BOB’s core fee incomes increased substantially (over 40% YoY). NIMs were flat QoQ (down 26bps YoY) with pressures building up on the domestic business. Expect moderate reductions in margins.

Loan growth (42% YoY) was aggressive, especially offshore (+68% YoY), now 23% of book. Management suggests will continue to grow this strongly, though could scale back on domestic growth to 20-25% (+36% in 1Q09). Growth is fairly broad-based (retail, SME, agriculture), profitable for now.

Asset quality of the bank remains a positive – the coverage of the bank remains comfortable at around 72%. Reported NPL grew 6% QoQ in the quarter – however, adjusted for farm loan waiver, NPL grew 11% QoQ. Going forward Bank of Baroda is expected to report negative growth in EPS for FY09 – Rs 32 to Rs 35.

Andhra Bank: Andhra’s 1Q09 profits down 45% YoY. Margins contracted significantly over the year and its relatively mid-market loan book is increasingly at risk. QoQ margins were stable; Andhra’s relatively lower CASA ratio suggests that margins will continue to be under pressure. Key positive for the quarter though was the sustained growth in fee incomes (+28% YoY).

NPLs have increased a little (+5.5% QoQ); reported asset quality is still fine with Gross NPLs at 1.2% and over 90% loan-loss coverage levels. Andhra’s loan book is relatively more exposed to agriculture and mid-market focused. Andhra Bank is expected to report flat EPS growth of Rs 11 to Rs 12 for FY09.

Punjab National Bank (PNB) has reported a net profit of Rs5.1bn. NII at Rs14.4bn, up 11% yoy and operating profit at Rs9.8bn, up 5.3% yoy, were inline with estimates. The NII growth was mainly led by healthy advances growth (up 19.6% yoy). The NIM’s contracted by 39bps yoy. Nevertheless, lower provisioning and controlled Opex resulted in 20.3% yoy growth in net profit to Rs5.1bn.

The asset quality improved further with GNPA and NNPA having declined to 2.8% (3.8% Q1FY08) and 0.6% (0.98% Q4FY08) respectively. Overall NPLs reduced in 1Q09, gross slippages were at 2% levels (management suggests this is temporary and expects improvements ). PNB’s loan book, however, is relatively more exposed to agriculture and SMEs – susceptible to spillovers from the loan waivers and further environmental deterioration.

Analysts expect PNB to report flat EPS growth for FY09 at Rs 65.18.

HDFC Bank – HDBK’s profit and quality performance is largely along expected lines. HDFC Bank’s earnings (up 45% YoY factoring impact of CBOP merger) ; driven by a 75% rise in top line (NII) and 40% jump in operating profits. Credit costs were up only 8% YoY; but the bank continues to keep its NPL coverage at 65-70% (specific) and at >100% (incl. general). This is in line with levels HDFC Bank maintained even earlier. Core fee income growth at 37% was lower than est. as there was minimal contribution from CBOP.

HDBK continues to grow aggressively. Loan book is up almost 15% qoq (ex-centurion), and asset behaviour beyond acquired NPA’s remains in line with historical trends. Centurion’s acquisition has been expensive – in the actual price paid, the step down in operating and profit measures and the time consumed.

HDFC Bank is expected to report a fully diluted EPS of Rs 55 to Rs 57 for FY09.