| | STOCK UPDATE Bajaj Auto
Cluster: Apple Green
Recommendation: Hold
Price target: Under review
Current market price: Rs1,616 Q2FY2012 results: First-cut analysis Result highlights -
Bajaj Auto delivered a better than expected performance, adjusted for the marked-to-market (MTM) foreign exchange (forex) losses, in Q2FY2012. The company once again crossed the 20% operating profit margin (OPM) yardstick with all-round improvement. Most surprising is the 3.5% quarter-on-quarter (Q-o-Q) improvement in its blended realisation as well as the Rs939 improvement in the contribution per vehicle despite the marginally lower three-wheeler mix.
The management aimed at maintaining profitability as it took price hikes in domestic as well as export markets in a stable commodity price scenario. The company though suffered from MTM losses to the tune of Rs95 crore on account of outstanding hedges. However, the charge is a small impact and non-recurring in nature assuming the rupee stabilises. In the wake of a better than expected performance in Q2FY2012, we would revise our FY2012 earnings per share (EPS) estimate as well as target price after the conference call with the company's management. -
In the light of the better than expected performance, we are likely to revise our FY2012 earnings estimate upward. We will review our target price post conference call with the management. Yes Bank
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs360
Current market price: Rs285 Strong operating performance Result highlights -
Yes Bank's Q2FY2012 results were ahead of our estimates as net profits grew 33% year on year (YoY) and 8.8% quarter on quarter (QoQ) to Rs235 crore. This was on account of a strong growth in net interest income (NII; 23% YoY) and a robust growth in the non interest income (63.4% YoY). The net interest margin expanded by 10 basis points (bps) sequentially to 2.9%, aided by repricing of advances and containment of funding cost by a diversified borrowing mix. The advances grew by 12.7% YoY while including the credit substitutes it grew by 27.4% YoY. The asset quality largely remained stable while restructured assets grew to 0.5% of loans due to restructuring of the micro finance institution (MFI) loans. 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 price target of Rs360 (2x FY2013E book value [BV]) for the stock. -
Healthy growth in NII: The NII of the bank grew by 23.1% YoY and 8.9% QoQ to Rs385.6 crore majorly led by a strong growth in advances (including credit substitutes) and expansion in margins. The core advances grew at a slower rate ie at 12.7%, while including credit substitutes it grew by 27.4% YoY. Within advances, the branch banking segment reported a strong growth of 58% YoY (24% QoQ), followed by the commercial banking segment (36.8% YoY). The management has guided for an over 25% growth in core advances for FY2012. -
Margins expand 10bps QoQ to 2.9%: The NIM of the bank grew by 10bps sequentially to 2.9% from 2.8% in the previous quarter. This was majorly led by an uptick in the yield on advances which grew by 60bps QoQ to 12.2% contributed by the re-pricing of the advances. Further the funding costs were contained leading to an only 10bps Q-o-Q increase in the cost of funds. The current account-savings account (CASA) ratio of the bank was also stable at 11% as against 10.9% in the previous quarter. -
Robust growth in non interest income: The non interest income of the bank grew by 63.4% YoY and 29.5% QoQ to Rs214 crore majorly led by a strong growth in the financial advisory income (54% YoY and 18% QoQ) followed by financial market income which grew by 191% YoY to Rs41 crore). The transaction banking income also grew by 59% YoY and 45% QoQ while retail fees dipped by 3% YoY. -
Cost-income ratio declines: The cost to income ratio of the bank also declined to 35.6% in Q2FY2012 as against 36.6% in Q2FY2011 and 37.4% in Q1FY2012. The bank has added 50 branches during the quarter thereby increasing the branch tally to 305. -
Asset quality remains stable: The asset quality of the bank remained stable with gross and net non performing assets (NPAs) at 0.2% and 0.04% respectively as against 0.17% and 0.01% in the previous quarter. However the bank restructured loans worth Rs90 crore (mainly pertaining to micro finance companies) during the quarter thereby increasing the restructured loans to 0.5% of the advances (Rs175 crore). The specific loan loss coverage ratio declined sharply to 80.2% from 95.2% in the previous quarter. -
Capital Adequacy Ratio: The capital adequacy ratio (CAR) of the bank stands at 15.98% and the tier I capital stands at 9.4%. The bank has raised Rs322 crore of lower tier II capital during the quarter. We have assumed a 10% equity dilution in FY2013 estimates to factor the possible dilution. -
Outlook: Yes Bank delivered a strong set of numbers in Q2FY2012 driven by a strong operating performance and healthy asset quality. The increase in NIM was a positive surprise, though it could decline slightly in the coming quarters due to a low CASA base and high interest rates. 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 CAGR of 27% over FY2011-13. We maintain our Buy recommendation with a price target of Rs360 (2x FY2013E BV) for the stock. Crompton Greaves
Cluster: Apple Green
Recommendation: Hold
Price target: Rs152
Current market price: Rs142 Disappointment continues, price target cut to Rs152 Result highlights -
Disappointment continues: Contrary to expectations of seeing some signs of a recovery after the disastrous Q1FY2012 quarter, Crompton Greaves Ltd (CGL)'s Q2 results failed to provide any respite to investors. The top line of the standalone business remained sluggish while subsidiaries' revenues picked up, registering a yearly growth of 32%. Nonetheless, high pricing pressure, volatility in key metal prices like that of steel, copper and aluminum and the company's inability to pass on the price increase to the customers has resulted in overall depressed margins. Further marred by high depreciation (and amortisation) and interest charges, and a higher tax rate, the consolidated net profit almost halved for the quarter on a yearly basis to Rs116.8 crore. -
Order book growth muted; company strangely revises down order intake of Q1: The consolidated order backlog position for the quarter stood at Rs7,120 crore which is flattish on a yearly basis. The order inflow for the quarter was Rs2,260 crore, which is a fall of 11% year on year (YoY). The orders comprised primarily the ones from off-shore wind farm and solar projects. The company has also received an order from Power Grid Corporation of India Ltd (PGCIL) for the delivery of 765kv high voltage sub-stations during the quarter. The Q1 order inflow data has been now revised to Rs1,704 crore as against Rs2,260 crore reported earlier owing to miscommunication, which is quite intriguing. -
Management guidance maintained: With the revenue growth guidance at 10-12% for FY2012 as against 9% achieved in H1FY2012, the growth in H2FY2012 is also likely to be similar to that in the first half of this fiscal year.The management also guided for the consolidated operating margins to be in the range of 8-10% for FY2012, which is much lower than the 12-14% annual range for the past few years. The guidance implies only a marginal improvement in the second half of the fiscal. Thus, we believe that the financial performance of CGL will continue to remain under pressure for at least a few more quarters. -
Focus on cost control and pacifying investors: The management has decided to undertake several cost-reducing measures like increased material sourcing from low cost countries like China, India and other south-east Asian countries. The company also plans to gradually shift its production base to India from Europe, which has a substantially higher cost of production. Further, the management has planned the disposal of its aircraft by the end of Q3FY2012 bringing in a sizable amount of cash into the company. The purchase of the aircraft, to be primarily utilised to serve the promoters, had created a lot of distaste among investors. -
Estimates sharply downgraded: Although the management had earlier indicated in Q1FY2012 that the company's margins had bottomed-out at 12.7%, and that it expected better margins for this quarter; the same is not to be witnessed in the Q2FY2012 results. Therefore the concerns about overcoming the stickiness in the margins have aggravated. In line with poor H1FY2012 results, impending margin pressure and a tough business environment, we have sharply downgraded our FY2012 and FY2013 estimates by 28% and 19% respectively. Overall, now we are expecting the company to post a yearly de-growth rate of 6.4% over FY2011-13E. However a better offtake in the overseas orders, uptick in PGCIL order awarding activities, stability in the input cost especially of metals like copper, aluminum and steel could provide some respite. -
Price target cut to Rs152: While H1FY2012 numbers were disappointing, it's the lack of timely indication from the management in its recent commentary on the impending margin pressure that has caused more worry to the investors. Moreover, the increasing competition in the power transmission and distribution (T&D) segment remains a worry for its power business (which accounts for over 40% of its stand-alone revenue and has seen a muted growth in recent times). Further, a slow down in consumer spending has raised concerns with regards its cash-generating consumer durables business also. Hence, we have further downgraded our target multiple to 12x from 14x earlier. Accordingly, we have revised our price target to Rs152 (12x FY2013 estimates). The current valuation at 15.1x FY2013E earnings doesn't justify its poor earnings growth outlook. Hence, we maintain our Hold recommendation on the stock. We believe that the turnaround will take at least a few more quarters and the stock would continue to languish in the meantime. Accordingly, we advise against bottom fishing in the stock at the lower levels. UltraTech Cement
Cluster: Ugly Duckling
Recommendation: Hold
Price target: Rs1,150
Current market price: Rs1,111 Earnings below estimates Result highlights -
Net profit increases by 140.5%: In Q2FY2012 UltraTech Cement (UltraTech) posted a net profit of Rs278.5 crore, showing a growth of 140.5% year on year (YoY). The same was below our estimate on account of lower than expected average blended realisation and higher than expected cost of production on per tonne basis. The earnings growth was largely supported by healthy realisation (which grew by 19.1% YoY) and a surge in the other income (which increased by 50.2% YoY). The net sales of the company grew by 21.6% YoY to Rs3,909.8 crore. -
Revenue growth driven by realisation growth: The revenue growth of 21.6% was supported by a 19.1% year-on-year (Y-o-Y) increase in the average blended realisation to Rs4,125 per tonne. On the volume front, the company underperformed the overall industry. The volume (including clinker sales, exports and white cement) for the quarter increased by 2.1% YoY to 9.48 million tonne (mt). On a sequential basis the volume and the blended realisation both were adversely affected and declined by 6.1% and 4.6% respectively due to the monsoon season. Going ahead, we believe cement prices could come under pressure with the likely increase in the supply. -
Expansion in the OPM due to higher realisation: On the margin front, the operating profit margin (OPM) expanded by 220 basis points YoY to 14.9% on account of an increase in the realisation by 19.1%. However, on the cost front the key cost elements like the raw material cost, the power & fuel cost and the freight charges continued their upward trend which resulted in an increase in the overall cost of production by 16.1% to Rs3,511 per tonne. The operating profit increased by 42.7% YoY to Rs582 crore and the EBITDA per tonne increased by 39.7% YoY to Rs614. -
Expansion at Chhattisgarh and Karnataka for 9.2mt cement are on track: The company is setting up additional cement clinkerisation plants in Chhattisgarh and Karnataka and the two projects are on track. The company has already placed the orders for the major equipment. The total cement capacity to be added will be 9.2mt which is expected to come on stream by Q1FY2014. After the commissioning of the aforesaid capacity the overall cement capacity of the company will enhance to over 61mtpa. -
Oversupply to continue for two to three years, cost inflation to pressurise margin: As per the management the oversupply scenario in the domestic cement industry is likely to continue for the coming two to three years which will have an adverse impact on the cement prices. Further, the sharp increase in the domestic as well as imported coal prices coupled with the likely increase in the freight cost could pressurise the OPM. However, we believe from H2FY2012 the execution of infrastructure projects would speed up which will support the cement offtake. -
Maintain Hold with price target of Rs1,150: We like UltraTech due to its diversified pan-India presence and its strong balance sheet. Further, the company's footprint in growing markets like Bangladesh, Dubai, Sudan and Bahrain augurs well. However, on account of the anticipated pressure on cement prices in the coming one year and the cost inflation in terms of the rising coal prices (UltraTech imports 40% of its coal needs) we maintain our Hold recommendation on the stock with a price target of Rs1,150. At the current market price the stock trades at a price/earnings (PE) of 14.6x discounting its FY2013E. On EV/EBITDA basis it trades at 6.8x FY2013E. IDBI Bank
Cluster: Cannonball
Recommendation: Hold
Price target: Rs140
Current market price: Rs105 Asset quality pressure continues Result highlights -
IDBI Bank reported a net profit of Rs516 crore in Q2FY2012, significantly ahead of our and the Street's estimates. However the net interest income (NII) declined by 3.9% year on year (YoY) and was in line with our expectation. During the quarter, the provision expenses declined 27.4% YoY (24.7% QoQ) while the tax rate was lower at 24.8% which boosted the growth in net profits. Deterioration in the asset quality was the key disappointing factor during the quarter as gross and net non performing assets (NPAs) increased to 2.47% and 1.57% respectively from 2.1% and 1.25% in Q1FY2012. The asset quality continued to disappoint as slippages remained high (Rs925 crore), mainly contributed by the small and medium enterprise (SME) segment. Due to the slower business growth and continued pressure on asset quality the earnings growth could shrink. We estimate the earnings to grow at a compounded annual growth rate (CAGR) of 14% over FY2011-13 contributed by an around 17% growth in the NII. We maintain our Hold rating with a price target of Rs140. -
Subdued growth in core income: The NII of the bank declined by 3.9% YoY and 2.6% QoQ to Rs1,122 crore, in line with our estimates. This was majorly led by a weak sequential growth in advances and subdued net interest margin (NIM). The advances of the bank grew by 19.7% YoY whereas they remained flat sequentially. The bank continues to guide for an advances growth of 15% for FY2012. The deposits grew by 13% YoY but have remained flat sequentially. The proportion of bulk deposits in total deposits is also reducing due to a rise in retail term deposits; it now constitutes around 60% of deposits. The bank is targeting to reduce the same to 50% in the next two years. -
Margins dip by 7bps QoQ: During Q2FY2012 the NIMs dropped to 2% from 2.07% in Q1FY2012. The cost of funds increased sequentially by 41 basis points (bps) to 8.4% due to an increase in deposit rates. The current account-savings account (CASA) ratio of the bank increased to 19.19% from 17.9% in Q1FY2012. The management has lowered the guidance for margins for FY2012 to 2.15% from 2.20% earlier. -
Fee income growth under pressure: The non interest income of the bank declined by 2.6% YoY though it increased by 11.2% sequentially. The fee income declined by 19.2% YoY followed by a 45.5% decline in the foreign exchange (forex) income of the bank. The bank expects the fee income to grow by 10-15% in FY2012. -
Cost to income ratio at 37.1%: The cost to income ratio of the bank stood at 37.1% as against 38.2% in Q2FY2011 and 34.9% in Q1FY2012. The bank has opened 25 branches during the quarter taking the total branches to 908. The bank plans to expand its branch network to 1,000 branches by FY2012. -
Slippages continue to rise: The asset quality woes continue as slippages increased to Rs925 crore (2.8% of opening advances) compared to Rs622 crore in Q1FY2012. Consequently the gross and net NPAs increased to 2.47% and 1.57% respectively from 2.1% and 1.25% in Q1FY2012. The slippages during the quarter were contributed by large corporate accounts (Rs230 crore), mid corporate accounts (Rs300 crore) and small and medium enterprise (SME) accounts (Rs140 crore). The restructured advances declined sequentially to Rs8,860 crore as compared to Rs10,560 crore during Q1FY2012, though the bank restructured Rs500 crore of micro finance institution (MFI) loans in Q2FY2012. The slippages on the SME side seem to be stabilising but rise in slippages from the corporate segment raise concern on asset quality. -
Provision expenses decline: The provision expenses declined by 27.4% YoY and 24.7% QoQ due to lower provision requirement on NPAs (Rs183 crore vs Rs360 crore in Q1FY2012). The bank also provided Rs108 crore towards depreciation in security receipts. The tax provisions were lower during the quarter (24.8% compared to 44.6% in Q2FY2012) while they were around 34% for H1FY2012, in line with the guidance for the full year. -
Outlook: The bank continues its strategy of pursuing a slower advances growth and focusing on the credit quality, CASA growth, retail deposits etc. However mounting concerns on asset quality and no significant improvement in margins could dampen the earnings outlook. We estimate earnings to grow at a CAGR of 14% over FY2011-13 contributed by an around 17% growth in the NII. Due to asset quality concerns and insignificant improvement in other operating parameters we value the bank at a discount to its book value. We maintain our Hold rating with a price target of Rs140 (0.9 FY2013 book value). | |
