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STOCK UPDATE Yes Bank
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs431
Current market price: Rs357 Earnings up by 34% YoY, CASA ratio inches up Result highlights -
Yes Bank's Q4FY2012 results came in line with our estimates as the net profit grew by 33.6% year on year (YoY; up 7% sequentially) to Rs272 crore. The profit growth was on account of a strong growth in the net interest income (NII) and non-interest income. -
The NII grew by 28.6% YoY (up 4.8% sequentially) to Rs448 crore, which was very much in line with our estimate. The growth in the NII was contributed by a steady increase in customer assets (credit + credit substitutes) and stable net interest margin (NIM). -
The advances excluding credit substitutes grew by 10.6% YoY (the same including the credit substitutes grew by 20.3% YoY) whereas the deposits grew by 7% YoY and 4.7% quarter on quarter (QoQ). The current account and savings account (CASA) ratio expanded by 254 basis points QoQ to 15% led by an impressive growth in the savings deposits (up 108% QoQ). -
The non-interest income reported a strong growth of 42.6% YoY and 26% QoQ led by the financial advisory business (up 26.6% QoQ) and the financial market segment(42.4% QoQ). The operating expenses increased by 18.3% QoQ causing the cost-to-income ratio to increase to 39.8% from 37.6% in Q3FY2012. -
There was not much change in the asset quality compared with the Q3FY2012 levels as the gross and net non-performing assets (NPAs) were at 0.22% and 0.05% respectively. The provision coverage ratio (PCR) of the bank stood at 79.2% as against 80.4% in Q3FY2012. The restructured advances stood at 0.53% of the total advances. -
Yes Bank continues to report a strong growth in its earnings contributed by an uptick in the core income and a robust growth in the fee income. The margins have remained steady at around 2.8% levels and could improve in the coming period due to an increase in the CASA ratio and building up of the retail, and short and medium enterprises (SME) book. The growth in the advances was moderate in FY2012 as the bank focused on consolidation while the asset quality remained the best in the industry. We have factored an equity dilution in FY2013 as the bank plans to raise equity of around $500 million in FY2012. We expect Yes Bank's earnings to grow at a compounded annual growth rate (CAGR) of 27% over FY2012-14 leading to a return on asset (RoA) of over 1.5%. We maintain our Buy rating on the stock with a price target of Rs431. Raymond
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs500
Current market price: Rs404 Liquidation drive to clear inventory results in poor earnings Result highlights -
Q4FY2012 - good revenue growth; dismal earnings result of increased discounting: Raymond's consolidated Q4FY2012 revenues grew by a strong 13.1% year on year (YoY) to Rs949 crore, led by growth in textiles, garmenting and the denim businesses, each of which grew at a Y-o-Y pace of 24.4%, 40.5% and 14% respectively for the quarter. Despite a robust show on the revenue front, the earnings plunged 89% YoY to Rs3.2 crore due to margin compression (as a result of heavy discounting done for inventory liquidation) coupled with an increase in the interest charge. For the quarter, the company added 46 stores, while same store sales showed a healthy 15% growth. -
Earnings revision: The management in its commentary sounded committed to its core strategy of focusing on its four power brands and enhancing its already strong network with new stores in the hinterlands (smaller towns and cities). But for the short term ie H1FY2013, it sounded cautiously optimistic. Building the same momentum in our estimates we have revised our earnings for FY2013, with new EPS at Rs Rs32.8 and have also introduced our FY2014 estimates where we expect Raymond to report an earning per share (EPS) of Rs39.7 for the year. -
Strong brand play - we maintain Buy: Raymond's Q4FY2012 performance has been resilient in the light of challenging macroeconomics (demand slowdown, high input cost pressure) . We believe that Raymond, with its continuous focus towards its power brands and strong distribution franchise, is all set to encash on the strong secular consumer wave waiting ahead. Hence we continue with our bullish view on the company. Further, any development with regard to the Thane land in the form of either joint development or disposal would lead to value unlocking and provide significant cash for the company. We continue to maintain our Buy rating on the stock and our revised sum of the part (SOTP) based target price of Rs500 (valuing the core business at 10x FY2014E earnings plus 50% value for the Thane land bank parcel). Bharat Electronics
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,805
Current market price: Rs1,466 Price target revised to Rs1,805 Result highlights -
Weak operational performance, other income the saviour: Bharat Electronics Ltd (BEL) closed FY2012 with a poor performance on the revenue front which had an impact on the margins and the bottom line. Against a full year sales target of Rs6,200 crore, the company reported sales of Rs5,710 crore. The fourth quarter is the strongest for BEL with more than 40% of the full year's revenues delivered in the quarter. In FY2012, the fourth quarter contributed 40% of the total revenues of the company. However, in FY2012 there was a revenue lag starting from the middle of the year which could not be recouped. Also, the company faced delays in accepting deliveries from its customers, mainly government and quasi government organisations. For the quarter ended March 2012, BEL reported a 3.3% fall in its revenues to Rs2,232.1 crore. The EBITDA margin was down 1,140 basis points to 11.5% affected by a higher input cost. However, on the back of a 62.9% jump in the other income to Rs212.3 crore the fall in the net profit was restricted to 25.5% at Rs333.8 crore. -
Margins remain under pressure: The margins of the company remained under pressure with the EBITDA margin down 1,140 basis points to 11.5% in Q4FY2012. The gross profit margin (GPM) of the company was down 1,170 basis points to 32% on account of input cost pressure. For FY2012, the EBITDA margin stood at 7.8% against 16.2% in FY2011. One of the reasons for the dip in the margin could be the the depreciation of the rupee as one-third of the company's expenses is in foreign currency. Another reason would be that the share of the revenues from the defence sector was down to 73% from 80% during the period. Finally, the delay in accepting deliveries from clients, generally government and quasi government organisations, would have led to pressure on the margins. -
FY2013 revenue target at Rs6,300 crore: For FY2012, BEL reported net sales of Rs5,645.3 crore, up 3.2% with the EBITDA margin down to 7.8% from 16.2% in FY2011 and the net profit down 12.2% at Rs756.3 crore. For FY2013 the management has set a revenue target of Rs6,300 crore, implying a growth of 10.3% over FY2012. In FY2013, the company would be working on many strategically important projects in the areas of weapon systems, electronic warfare systems, shipborne systems, coastal surveillance system, network centric systems, night vision devices, Satcom and communications. -
Valuation and view: BEL has reported a poor show for FY2012 on account of the execution of the low-margin non-defence business as well as a delay in decision making by its customers. BEL remains one of the best plays in the defence capital expenditure space. With the increase in the defence budget and the focus on modernisation of the defence technology, BEL is best placed to take a sizeable pie of the defence spend. The order book at 4.5x FY2012 sales gives BEL strong revenue visibility for at least the next two to three years. The huge cash reserve gives the stock further support. The key risks, however, remain the timely delivery of orders and the margin performance, which has deteriorated through FY2012. We have introduced our FY2014 estimates and rolled over our PE multiple in this note. We maintain our Buy rating on the stock with a revised price target of Rs1,805 (Rs1,893 earlier) in view of the strong long-term growth outlook for the company.
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