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Wednesday, June 15, 2011
Fw: Daring Derivatives: Bulls retreat
Fw: Company Report - Tulip Telecom: ‘Enterprising growth’ – BUY
Tulip Telecom: 'Enterprising growth' – BUY
CMP Rs161, Target Rs213, Upside 32.6%
We spoke with Tulip Telecom CFO to get a better understanding of its Bangalore data centre (DC). Overall ~Rs9.3bn (~40% of Tulip Mcap) would be spent on the 0.9mn sq ft data centre in Bangalore over 3 years including Rs2.3bn upfront investment made by Tulip in previous fiscal.
We peg the DCF-based equity value of Bangalore DC at ~US$200mn, which is in line with the value derived from the reported up to 30% dilution of DC subsidiary. Bangalore DC would report losses of just under US$10mn in FY12, its first year of operation but turn cash break-even in FY13 at 35% utilization. We refrain from adding the Bangalore DC value to our TP given the back-ended nature of revenues/profit. With a strong standing in data centre segment, Tulip would benefit from the estimated 12.5% cagr for third party data centres. Core MPLS VPN growth momentum should continue its robust showing. Reiterate BUY with a 9-mth TP of Rs213.
Fw: Axis Bank Ltd: ‘Concerns priced-in’ – BUY
Axis Bank Ltd: 'Concerns priced-in' – BUY
CMP Rs1,246, Target Rs1,500, Upside 20.4%
CMP Rs1,246, Target Rs1,500, Upside 20.4%
System outperforming loan growth to continue over FY11-13
After delivering industry-best loan growth of 36% in FY11, Axis Bank has guided to outgrow system by 30-40% in FY12. Based on an internal estimate of 18% growth for the system, bank expects its credit growth at 24-25%. The credit growth estimate is tailored around its target of 25%+ CASA growth. Significant improvement in branch productivity should drive strong CASA accretion, increasing its share in total deposits. C/D ratio would remain elevated with deposit growth expected to be slightly lower than advances. We build-in 25% loan CAGR for Axis Bank over FY11-13. In Q1 FY12, loan book may shrink sequentially with some short-term loans running-off.
NIM to moderate further in Q1 FY12; FY12 guidance at 3.25-3.5%
Bearing the brunt of its heavy reliance (~40%) on wholesale deposits, Axis Bank's NIM contracted sharply in Q4 FY11. Margin is expected to further moderate in the current quarter despite material lending rate increases in recent past. About 70% of advances are linked to Base Rate and BPLR. Bank anticipates NIM to stabilize in Q2 FY12 on expectations of re-pricing of current peak-cost deposits at lower rates. Margin is expected to recover gradually over Q3-Q4 FY12. For full-year FY12, Axis Bank has guided for NIM range of 3.25-3.5% capturing the extreme liquidity scenarios.
Bearing the brunt of its heavy reliance (~40%) on wholesale deposits, Axis Bank's NIM contracted sharply in Q4 FY11. Margin is expected to further moderate in the current quarter despite material lending rate increases in recent past. About 70% of advances are linked to Base Rate and BPLR. Bank anticipates NIM to stabilize in Q2 FY12 on expectations of re-pricing of current peak-cost deposits at lower rates. Margin is expected to recover gradually over Q3-Q4 FY12. For full-year FY12, Axis Bank has guided for NIM range of 3.25-3.5% capturing the extreme liquidity scenarios.
Asset quality to remain strong; capital raising likely in FY13
GNPL ratio is anticipated to be stable with slippages run-rate expected below Rs3.5bn/quarter in the medium-term. Further, bank does not foresee any large restructuring in short-term except for the Andhra Pradesh-based MFI exposure (~0.4% of overall book). The impact of enhanced provisioning levels is likely to be marginal as provisioning by Bank has been conservative. Credit charge for FY12 is estimated at 0.9%, 10bps lower yoy. With Tier-1 ratio near 9%, bank plans to raise equity capital during CY12 that would suffice 2.5-3 years of growth. We broadly estimate equity raising of Rs60-70bn during early FY13.
GNPL ratio is anticipated to be stable with slippages run-rate expected below Rs3.5bn/quarter in the medium-term. Further, bank does not foresee any large restructuring in short-term except for the Andhra Pradesh-based MFI exposure (~0.4% of overall book). The impact of enhanced provisioning levels is likely to be marginal as provisioning by Bank has been conservative. Credit charge for FY12 is estimated at 0.9%, 10bps lower yoy. With Tier-1 ratio near 9%, bank plans to raise equity capital during CY12 that would suffice 2.5-3 years of growth. We broadly estimate equity raising of Rs60-70bn during early FY13.
Valuation attractive post recent price correction
We believe that recent underperformance (despite strong Q4 FY11 results) has made Axis Bank's valuation attractive both in absolute and relative terms. The impact of spike in wholesale rates, which has been the key concern, is largely factored in current valuation (2x FY13E P/BV). Rather, stock would have a higher delta to any signs of rates easing. We also notice that HDFC Bank's valuation premium over Axis has expanded steeply in recent past and currently stands near 2-year high. Recommend BUY on Axis Bank with a 9-month price target of Rs1,500.
We believe that recent underperformance (despite strong Q4 FY11 results) has made Axis Bank's valuation attractive both in absolute and relative terms. The impact of spike in wholesale rates, which has been the key concern, is largely factored in current valuation (2x FY13E P/BV). Rather, stock would have a higher delta to any signs of rates easing. We also notice that HDFC Bank's valuation premium over Axis has expanded steeply in recent past and currently stands near 2-year high. Recommend BUY on Axis Bank with a 9-month price target of Rs1,500.
Fw: Sector Report: India Natural Gas – ‘Fuel for Growth’
India Natural Gas – 'Fuel for Growth'
India's primary energy basket is on the threshold of witnessing a quantum jump in contribution from natural gas. While the demand for gas has always been strong in the country, availability of transmission infrastructure and regulatory issues has restricted supply matching up to the demand growth. However, the medium term outlook has improved considerably with 1) increased availability of gas; both domestic and imports, 2) huge investments in gas pipeline infrastructure and 3) fast pace implementation of related reforms.
These developments, we believe, have created investment opportunities across the natural gas value chain. Pricing reforms are expected to be beneficial to both producers and LNG importers. While producers will gain from better realizations, LNG importers will benefit from correction in the pricing disparity (making LNG more affordable vis-à-vis domestic gas). Higher gas availability will lead to a jump in volumes for transmission companies. This coupled with stable tariffs would translate into better earnings visibility. City gas companies, which provide last mile connectivity for consumption by industries and vehicles, would also gain from increase in supplies and widening pipeline infrastructure of transmission companies.
We recommend investors to BUY GAIL, GSPL, Indraprastha Gas and Petronet LNG.
GAIL – BUY
CMP Rs451, Target Rs525, Upside 16.5%
± Doubling gas transmission capacity in two years
± Exposure to city gas projects and E&P fields value accretive
± Huge expansion planned for the petrochemical segment
± Subsidy an overhang, but relatively better placed
GSPL – BUY
CMP Rs97, Target Rs113, Upside 16.3%
± Expansion of transmission capacity to serve rising demand in Gujarat
± Three cross-country pipelines to add value
± Tariffs to remain flattish post PNGRB authorization
Indraprastha Gas – BUY
CMP Rs370, Target Rs409, Upside 10.5%
± Improving CNG economics and wider availability to drive demand in NCR region
± Under-penetration to propel demand for PNG
± Pricing power to enable margin sustenance
Petronet LNG – BUY
CMP Rs141, Target Rs162, Upside 14.9%
± Near term LNG demand to remain strong on lower production at KG-D6 field
± Expanding capacities at opportune time
± Regasification tariffs would continue to rise
Fw: Investor's Eye: Pulse - Inflation at 9.06%; Update - Patels Airtemp (PT revised to Rs103); Viewpoint - Sun Pharma Advanced Research Co (Sparkling outlook for the long term)
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