Stock Views on P&G HYGIENE & HEALTHCARE, ROLTA INDIA, DLF

RBS on DLF

RBS maintains `Sell' rating on DLF. DLF's Q3 EBITDA growth was offset by higher interest costs. While there has been some improvement in its operational performance, it's not enough, as weak cash flows and high debt persist and remain key concerns. While Q3FY11 revenues grew 22% y-o-y to 2,480 crore and EBITDA grew 40% to 1,180 crore, an increase in depreciation (101% y-o-y) and interest expense (up 67%) resulted in a flat y-o-y PAT of 460 crore. Despite DLF.s disclosure of 8.4 million sf of project pipeline under various stages of approval/launch for Q4, it is likely to miss its sales guidance of 12-15 million sf for FY11, due to sector headwinds coupled with weak equity markets (restricting the flow of gains from investments in equity markets to real estate). RBS cuts the FY11-13F earnings 9-20% on account of lower launch and sale assumptions. This, coupled with an increase in discount to gross asset value (GAV) from 10% to 15% and lower-than-expected debt reduction, resulted in a 30% reduction in target price to Rs195/share.

CITIGROUP on ROLTA INDIA

Citigroup maintains `Buy' rating on Rolta India with a new target price of 185. Rolta's revenue at 441 crore was up 3.2% q-o-q, while EBITDA margin came in at 39.4%. Reported profits were 154 crore due to a one-time net gain of 76.1 crore on the stake sale in the SWRL JV. While the cash balance was 40 crore and declined q-o-q the total debt stood at Rs1,300 crore with an FCCB component of 550 crore. The company generated negative free cash flow of about 120 crore in H1FY11, according to the calculations. Because of the break-up of the SWRL JV, the revenue estimates have reduced marginally. As a result, Citigroup's EPS estimates fall by about 10-12% for FY12-13E. Citigroup also reduces the target multiple to 10x from 12x due to: (1) lower growth trajectory, and (2) to account for the shift in accounting to IFRS from April 11, as the interest cost on FCCB would hit the P&L.

STANDARD CHARTERED on P&G HYGIENE & HEALTHCARE

Standard Chartered maintains `Underperform' rating on P&G with a revised 12- month price target of 1,489 based on a forward P/E of 21x. It posted overall volume growth of 15% in Q3FY11. However, price cuts in key products coupled with the company's decision to absorb the imposition of 10% excise duty on feminine hygiene products in the last budget, led to net sales growing a muted 8.7% Y-o-Y. Excise impact and price cuts resulted in raw material cost-sales increasing 771 bps Y-o-Y to 38.3%. Ad spend to sales remained inexplicably high and increased 594 bps Y-o-Y to 19.3%. Other expensesto-sales also increased 422 bps Y-o-Y to 14.3%. This led to operating profit and recurring PAT declining sharply by 42.4% and 39.7% Y-o-Y respectively. However, PGHH has displayed quarterly expense volatility in the past and hence quarterly other costs are not representative in nature. StanChart finds the current valuations irrational, as at a one-year forward P/E of 29.9x, PGHH trades at about 23% premium to its five-year median.