Your Stock Queries

FEDERAL BANK

I am holding around 200 shares of Federal Bank. Is it feasible to hold them for one more year? – Prachi Potdar, Mumbai

The banking sector largely saw a subdued Q4FY13 although some new private banks managed to do comparatively well. Also, the recent expectation of a rate cut by the RBI did not yield any results. Thus, the stocks of the sector experienced some setback. However, let us now take a closer look at the individual performance of this commercial bank for you.

Federal Bank offers various banking and financial services in India. It operates in two segments - Distribution and Retail Finance. As of FY13, it operated through a network of 1103 branches and 1172 ATMs. The company was formerly known as Travancore Federal Bank and changed its name to The Federal Bank in March 1947. It was incorporated in 1931 and is headquartered in Aluva.

The financial results of the company have been muted. The Interest Income has witnessed a growth of 10.96 per cent on a YoY basis for FY13 to stand at Rs 6167.57 crore. But the net interest income (NII) has grown merely by 1.09 per cent to stand at Rs 1974.66 for FY13 as compared to the same period last fiscal. The net NPA as of FY13 stands at 0.98 per cent as compared to 0.92 per cent for FY12. Although there is an increase in the net NPA levels, the bank has maintained a healthy provision coverage ratio at 80.96 which is certainly a good sign. On the valuation front, the stock trades at a book value of Rs 364.74 as of FY13 and the price to book value stands at 1.19x which is commendable. The company has been a consistent dividend payer for the last 21 years and has declared a dividend of Rs 9 per share this year, taking the dividend yield to 2.05x. 

We thus suggest that you hold the stock from a long-term perspective to garner better returns going forward.

CIPLA

Is it the right time to invest in this stock? - Rohan Prabhudas, Via Email

Investing in a particular stock must be preceded by appropriate research and analysis of the stock and the sector. You are thus wise to have raised this question before putting in your money. The Pharma industry, in which Cipla operates, has performed quite well in the quarter gone by (Q4FY13) and the depreciating INR is likely to bode well for the sector considering that these companies extensively engage in exports. But it is important to first look at the independent performance of Cipla before taking a call.

Cipla focuses on the manufacture and sale of pharmaceutical products in India and abroad. The company offers various prescription pharmaceutical products and animal health care products. It exports its products to approximately 180 countries. Cipla was founded in 1935 and is based in Mumbai.

The company’s numbers for Q4FY13 have been quite disappointing. The topline of the company grew by a mere 5.08 per cent on a YoY basis for Q4FY13 to stand at Rs 1906 crore as against Rs 1814 crore for the same period last year. The bottomline too declined by 8.29 per cent to stand at Rs 267.56 crore as against Rs 292 crore for Q4FY12. The revenue growth was muted across markets: India (plus five per cent with a decline in unbranded generics), API exports (- 24 per cent), formulation exports (+11 per cent). The big miss in net profit (minus seven per cent YoY) was also driven by a sharp increase in SG&A cost (+32 per cent, higher R&D, staff costs) and despite a forex gain of Rs 18 crore. The EBIDTA margin retraced to 21 per cent from the highs of 30.5 per cent in 1HFY1. The latter clearly buoyed by one-off exclusivity supplies of Lexapro to its partner. The stock trades at a PE of 20.14x. We believe that you should wait for a couple more quarters to take a decision on entering the stock.[PAGE BREAK]

FAG BEARINGS (INDIA)

I have bought 50 shares of this company at Rs 1300 per share. Should I continue to hold the counter or book profits? - Nimish Seth, Via Email

You seem to have raised this question at the right time. The auto ancillary industry has not performed too well lately and it is therefore advisable to think about your investments in this area. Let us take a look at this company’s financials.

FAG Bearings (FAG), a group company of Germany-based Schaeffler Group, is one of the leading suppliers of ball bearings with a more than 10 per cent domestic market share. FAG manufactures ball bearings, cylindrical bearings, spherical bearings and tapered roller bearings through its plant located in Vadodra, Gujarat. FAG caters to leading domestic OEM players as well as the replacement market. In the industrial segment, the company supplies to the automotive, construction machinery, steelworks, power transmission engineering, material handling engineering, wind power plants and railways segments.

For Q1CY13 (the company follows a calendar year), the topline declined of 6.5 per cent on a YoY basis to stand at Rs 340 crore. The topline performance continued to be impacted by the slowdown in the automotive and industrial sectors which are the key drivers of the company’s revenue performance. For the quarter, the operating profit fell significantly by 34.8 per cent on a YoY basis as the EBITDA margins witnessed a sharp decline, led by raw material cost pressures and lower utilisation levels. The raw material cost and employee expenditure as a percentage of sales surged by 165 basis points and 140 basis points respectively, during the quarter on a YoY basis.

Further, due to lower operating leverage benefits, other expenditure as a percentage of sales grew by 230 basis points during the same period. Led by a weak operating performance and lower other income, the net profit declined 45 per cent on a YoY basis to Rs 25 crore, which is lower than the street expectations of around Rs 30 to Rs 35 crore. On the valuation front, the stock trades at a PE of 17.42x and the company is debt free. However, as the performance of the company is linked to the growth in the automotive industry, it would be good for you to book profits in the counter at this point.

TATA CHEMICALS

What according to you should I do with this stock at the current levels? – Pratik Chokhe, Via Email

Tata Chemicals engages in the manufacture and sale of inorganic chemicals, fertilisers, and agri-inputs in Asia, Europe, Africa, and the United States. The company’s inorganic chemicals include soda ash, sodium bicarbonate, salt, and cement, as well as calcium chloride. It sells salt under the Tata Salt, i-Shakti, and Tata Salt Lite brands and calcium chloride under the Aquex brand.

With such a wide range of products, the chemicals industry in India is among the fastest growing ones, with an average growth of about 12.5 per cent. Let us, however, examine Tata Chemicals in particular. The company is the second largest producer of soda ash in the world.

The Q4FY13 results of Tata Chemicals have been subdued. The company reported a consolidated net loss of Rs 150.40 crore for the quarter ended March 31, 2013 as against a profit of Rs 182 crore witnessed in the same period last year. The drop in its bottomline can be attributed to the non-cash write down of goodwill and other assets of its European operations. During the quarter, the total consolidated income from operations of the company declined marginally to Rs 3391.45 crore from Rs 3467.04 crore in the same period a year ago. 

As mentioned earlier, the company's net profits were affected during the quarter as it impaired assets worth Rs 483.83 crore, including goodwill of Rs 97.14 crore and other assets worth Rs 386.69 crore. The stock trades at a PE of 19.05x. We suggest that you stay away from the stock at the moment.