Dalal Street

Ashok Leyland reported lower financial income and a higher tax rate than expected. Operationally, EBITDA was ~7% below forecasts. Sales were ~2% above estimates due to higher realizations.

Mgmt. guided to ~15% volume growth (upped from single-digits in 1QFY10), driven by confluence of recovery in industrial activity, better utilisation of trucking fleet. Margin guidance of 350 bps improvement was not stated this Q (as it was in 1Q) but mgmt noted that 10.5% EBITDA margin in 2Q could be improved on slightly.

On the back of sharp increase in earnings is driven by a) lower tax rates (benefits at the Uttaranchal plant) and b) mgmt guidance on profitability is better than anticipated, Citi revised EPS estimates to 2.91 and 3.46 for fy 10 and fy11 respectively.

JP Morgan expects EPS of Rs 2 and Rs 2.7 for fy10 and fy11 respectively.

Anand Rathi pegs EPS estimates at Rs 2.6 and Rs 2.95 for fy10 and fy11.

Morgan Stanley is expecting 2.45 and 3.62 for fy10 and fy11 [Remember, Morgan’s underlying tone on India is extremely bullish and hence EPS estimates will be higher than the rest]

Nestle India’s Revenue growth was healthy at 18% Y/Y; driven by 18% domestic growth (both volumes and pricing led) and 11% in exports. Reported PAT rose c39% Y/Y to Rs1.83bn and was lower than our estimate (Rs1.9bn) as EBITDA margin expansion of 160 bps to 20.3%.

Gross margins may witness some pressure ahead, as prices of key commodities (milk solids and sugar) are firming up. While Nestle’s expansion into rural markets is a positive long-term opportunity but with issues of deteriorating product mix.

Nestle is expected to report an EPS of Rs 85 to 87 and 100 to 106 for fy 10 and fy11 respectively according to various FII estimates. Nestle is a good play on India’s urban consumption story, current valuations at 30x one-year forward P/E leave no room for Investors.

Hindalco Industries 2QFY10 adj. standalone PAT was Rs2.2bn down 34% q-o-q, -52% yoy. Adjusting for MTM gains (net) of Rs1.2bn, recurring PAT was Rs2.2bn, -69% yoy.

The decline was on: 1) a 35% drop in aluminium LME prices, 2) high cost e-auction coal and poor quality linkage coal, 3) high caustic soda prices, 4) sharp fall in copper by-product prices. Adj margin was 10% vs 18%.

Aluminium EBIT falls 64% yoy – Reported EBIT margin fell to 16% from 34% last year. Like Nalco, Hindalco was also hit by lower LME prices (US$1,807/t) and higher coal costs. The negative impact was partly offset by rupee deprecation (48.8 vs. 43.8), and a 7% increase in production.

Hindalco is expected to report an EPS of Rs 10 and Rs 13 for fy10 and fy11 respectively according to Citi. However, BoFA-Merrill is expecting just Rs 8.5 and Rs 8.9 for fy 10 and fy11 respectively.