| Summary of Content STOCK UPDATE Yes Bank
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs415
Current market price: Rs318 Earnings growth intact though asset growth moderates Result highlights -
Yes Bank's Q1FY2012 results came in higher than our estimates as the net profits registered a growth of 38.2% year on year (YoY) to Rs216.1 crore. While the net interest income (NII) growth was in line with our estimates (35.1% YoY), the decline in provisions due to write back on non performing assets (NPA; ~Rs15 crore) led to a higher than estimated growth in profits. Stable margins (2.8% in Q1FY2012) contributed by repricing of the advances book and improvement in the asset quality were the other key positives during the quarter. In view of caution on loan growth we have trimmed our loan growth estimates for FY2012 resulting in a marginal reduction in FY2012 estimates. We maintain buy rating on the stock with a target price of Rs415. -
Strong growth in NII, advances growth contracts on Q-o-Q basis: Yes Bank's NII grew by 35.1% YoY and 1.6% quarter on quarter (QoQ) to Rs354 crore. This was led by a healthy growth in advances which grew by 26.1% YoY and stable margins. However, the advances contracted by 4% QoQ on a sequential basis as the bank consolidated its book by running down some bulk low yielding loans. However advances growth factoring the credit substitutes (advances + credit substitutes) grew at a higher rate ie at 34.7% YoY. -
Higher yields and contraction in advances book cushions NIM: Led by a 90 basis point QoQ increase in yield on advances (11.6% from 10.7% in Q4FY2011) and contraction in the advances book, the margins remained stable at 2.8%. According to the bank's management, about 95% of the assets are on floating rates (of these 30% assets are with less than a year maturity) which in our view would keep margins stable in the coming quarters. -
CASA ratio inches to ~11%: Though the absolute current account-savings account (CASA) balances remain flat on a sequential basis the CASA ratio increased to 10.9% from 10.1% as deposits contracted by approximately 5% QoQ. Going forward, the management expects a significant pick up in CASA deposits as it attains a critical size of around 350 branches. Currently the bank has a network of 255 branches and it plans to add 25-30 new branches every quarter. -
Non-interest income growth remains subdued, cost to income ratio expands: The overall non interest income of the bank grew by 14.9% YoY but has declined by 11.5% QoQ to Rs165 crore. The YoY increase in the non interest income was contributed by a 44% YoY growth in the retail segment and a 22.4% increase in the transactional banking segment. The cost to income ratio expanded sequentially to 37.4% (was 34.8% in Q4FY2011) due to salary revisions and addition of branches. -
Asset quality improves: The asset quality of the bank improved with the gross NPA of the bank declining to 0.17% from 0.23% in the earlier quarter whereas the net NPA of the bank declined to 0.01% from 0.03% in the earlier quarter. This was mainly contributed by the recovery of a significant NPA account which also contributed to lower provisions during the quarter. The coverage ratios were healthy; the specific loan loss coverage ratio of the bank stood at 95.2% as against 88.6% in the earlier quarter. -
Capital raising likely over next 8-12 months: The capital adequacy ratio (CAR) of the bank stands at 16.2% with a tier I capital of 9.6% (10.1% including Q1 profit). The bank is planning to raise Rs325 crore through tier II bonds to fund business growth. The bank plans to raise the tier I capital in FY2012 and would wait for the right price for the issue. -
Valuations: In view of Q1FY2012 results, we have moderated the loan growth estimates for FY2012 while having increased the loan yields leading to a marginal reduction in FY2012 estimates. However, we believe the bank would continue to grow significantly ahead of the industry and is likely to retain its asset quality. We expect the bank's earnings to grow at a compounded annual growth rate (CAGR) of 27% over FY2011-13. We maintain our Buy recommendation with a target price of Rs415 (2.3x FY2013 book value) for the stock. Mahindra Lifespace Developers
Cluster: Vulture's Pick
Recommendation: Buy
Price target: Rs450
Current market price: Rs374 New project launch supported pre-sales Result highlights -
Stand-alone net profit improved by 18%: In Q1FY2012 Mahindra Lifespace Developers (MLD) reported a stand-alone net profit of Rs17.1 crore, up by 18% year on year (YoY). The revenues of the company grew by 19.9% YoY to Rs81.5 crore which was supported by better execution of the projects launched and sold during FY2011. The key projects which have supported the revenue growth are Aura Phase II in Gurgaon, Mahindra Splendour and Eminente in Mumbai and Royale phase IV in Pune. Further the performance of the company during the quarter in terms of pre-sales was impressive in terms of volume as well as value due to launches of new projects during the quarter. However, the operating profit margin (OPM) contracted by 275 basis points to 21.2% on account of an increase in the raw material cost and decrease in the average realisation Y-o-Y due to change in the project mix. -
Pre-sales during the quarter impressive: The pre-sales during the quarter (including sales from subsidiary company) stood at Rs172 crore as compared to Rs92 crore in Q1FY2011 and Rs119 crore in Q4FY2011. The pre-sales of the company during the quarter improved Y-o-Y as well as on a sequential basis due to the launch of Aura phase III in Gurgaon where the company has sold 85% of the total area at an average realisation of Rs4,500 per square feet (sq ft). In addition to this the company has also launched Royal Ivy in Kanjurmarg in Mumbai in the month of June which will support the presale in Q2FY2012. -
Price increases in the range of 3-4% across ongoing projects: As per the management the prices of ongoing projects have increased in the range of 3-4%. Inspite of an overall increase in price, the average price for Q1FY2012 declined by 17.5% YoY. The fall in the average price is mainly on the back of a change in the revenue mix in favour of projects fetching relatively lower prices. However, on a sequential basis the average price has increased by 6.3% to Rs5,059 per sq ft. -
Addition of clients in MWC Chennai & Jaipur: The company has added 9 new customers at Mahindra World City (MWC) Chennai in the last one year, taking the total number of customers to 58, of which 37 are operational. Holiday Inn Express is set to operate a business hotel at MWC Chennai. Further, at MWC Jaipur, all the special economic zones (SEZ)s and the Domestic Tariff Area (DTA) were activated with customers either initiating construction or operations. Currently 5 clients have commenced operations over there and 8 have initiated construction work. -
Maintain Buy with price target of Rs450: We continue to like MLD due to its strong balance sheet that ensures timely execution of projects, its quality management and its progress in the SEZ business that ensures earnings growth. We maintain our Buy recommendation on the stock with a price target of Rs450. At the current market price, the stock is trading at 0.8x its net asset value (NAV), 14.6x FY2012 earnings estimate and 1.4x FY2012 price/book value (P/BV).
VIEWPOINT Hero Honda Motors Dhak Dhak beat to vibe solo from now Result highlights -
In Q1FY2012 the revenues of Hero Honda Motors (Hero Honda) grew by 32% year on year (YoY) driven by a 24% year-on-year (Y-o-Y) growth in the volumes and a 7% increase in the realisation. -
The operating profit margin (OPM) came in 60 basis points lower than our expectation of 14.4% primarily on account of a higher than expected raw material cost. -
On account of a higher other income (due to a higher yield) and a lower than expected tax rate of 16.7% the profit after tax (PAT) came in line with our expectation at Rs558 crore, indicating a growth of 13.5% YoY. -
Assuming an 80% pay-out, the company is likely to declare a dividend of Rs90 in FY2012 and of Rs107 in FY2013. At the current market price of Rs1,790, the dividend yield works out to 5% on FY2012 expected payout. The attractive yields are likely to protect any downside in the stock. -
We expect Hero Honda to report earnings per share (EPS) of Rs113 and Rs134 for FY2012 and FY2013 respectively. It has historically traded at 13.5x one-year forward earnings estimate. Based on the long-term discounting the stock is currently valued at Rs1,811 per share.
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