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STOCK UPDATE HDFC Bank
Recommendation: Hold
Price target: Rs712
Current market price: Rs689 Strong operating performance Result highlights -
HDFC Bank's Q4FY2013 performance was in line with our estimate as the net profit grew by 30.1% year on year (YoY) to Rs1,889.8 crore. This was driven by a strong growth in the net interest income (NII; up 20.6% YoY) and lower provisions (down 27.0% YoY). -
In Q4FY2013, the NII grew by 20.6% YoY to Rs4,295.3 crore. The net interest margins (NIMs) increased by 20 basis points quarter on quarter (QoQ) to 4.5% (adjusting for reclassification of acquisition cost on retail loans), which contributed to a strong growth in the NII. -
The business growth was strong as the advances grew by 22.7% YoY (-0.7% QoQ). The growth in advances was mainly driven by the retail advances (up 27.3% YoY). The current account and savings account (CASA) ratio increased to 47.4% from 45.4% in Q3FY2013. -
The fee income growth was slightly subdued at 10.8% YoY while the foreign exchange (forex) income declined by 38% YoY. The income from the sale of investments was Rs65 crore as against the loss of Rs71.5 crore in Q4FY2012. Overall, the non-interest income increased by 10.7% YoY. -
The asset quality held up well as the gross non-performing assets (NPAs) declined by 3 basis points sequentially to 0.97% in Q4FY2013 whereas the net NPAs remained firm at 0.2%. Moreover, the proportion of the restructured advances to overall advances reduced to 0.2% in Q4FY2013 from 0.3% in Q3FY2013. Valuation and outlook: HDFC Bank's earnings growth was in line with our estimate, though the spurt in NIMs (due to reclassification) came as a surprise. The bank expects to maintain the credit growth at 4-6% higher than the industry average and NIMs in the range of 4.1-4.5%. Further, the bank continues to increase the branch expansion and expects the cost-to-income ratio to improve gradually going ahead. We have largely maintained our estimate and expect earnings to grow at a compounded annual growth rate (CAGR) of 26.5% over FY2013-15. Though the bank continues to deliver strongly on all fronts, the premium valuation limits any meaningful upside. Therefore, we maintain Hold rating on the stock with a price target of Rs712. Mahindra Lifespace Developers
Recommendation: Buy
Price target: Rs460
Current market price: Rs390 Better execution and new land deals to be key drivers Result highlights -
Revenues and OPM disappoint: Mahindra Lifespace Developers (MLD)'s Q4FY2013 stand-alone revenues declined by 27.0% year on year (YoY) to Rs102.2 crore on account of subdued execution during the quarter. The stand-alone revenues showed a growth of 66.3% quarter on quarter [QoQ]) though. During the quarter, five new projects (Bloomdale, Ashvita, Aqualily, and Iris Court phases II and IIIA) had entered in revenue recognition mode while one project (Eminente-Angelica, Mumbai) had been completed. The operating profit margin (OPM) of the company took a huge hit and declined by 594 basis points YoY to 16.8% on account of an increase in the employee cost (up 228 basis points) and other expenditure (up 699 basis points) though this increase was marginally offset by a lower cost of projects (down 334 basis points). However, a lower effective tax rate of 20.5% as against 29.1% in Q4FY2012 and that of 32.1% in Q3FY2013 supported the poor operating performance limiting the decline in the profit after tax (PAT) to 27.7% YoY at Rs23.2 crore. -
Sales booking momentum continues; three out of eight MoUs executed: The sales booking maintained the upward momentum seen in the previous quarter, with MLD recording sales of Rs151 crore (0.38 million square feet [mn sq ft]) in Q4FY2013 vs sales of Rs155 crore (0.39mn sq ft) in Q3FY2013 and Rs53 crore (0.13mn sq ft) in Q4FY2012. The sales primarily took place in its new Hyderabad project, Ashvita, and a subsequent phase of Iris Court, the Chennai project. A positive development of the quarter was that the company had executed three memoranda of understanding (MoUs) out of eight signed for new lands: two in Mumbai (Andheri: 0.37mn sq ft; Boisar: 0.55 lakh sq ft) and one in Bangalore (Bannerghatta: 0.67 lakh sq ft). The eight MoUs are expected to generate Rs5,000 crore revenues with a 25% average land cost. -
Acquisition of land bank through leverage to provide next leg of growth: MLD increased its net debt by over Rs500 crore during FY2013 to acquire three land parcels of which two are in Mumbai and one is in Bangalore. The three projects are at various stages of designing, approvals and customer research. Further, the company is planning to raise Rs500 crore through non-convertible debentures (NCDs) to fund the remaining five land parcels for which it has signed MoUs and begun due diligence. We believe MLD has started leveraging its strong balance sheet for acquiring new land parcels in the currently distressed markets. The current land deals are expected to provide the next leg of growth, albeit the company has to maintain its cash flows by improving its execution. -
Signs of traction in integrated cities: At Mahindra World City (MWC), the integrated business city promoted by the company, the total number of operational facilities grew by three (as compared with the previous quarter) to 47 vs 62 in Chennai. On the other hand, in Jaipur, seven customers were added in DTA to the operational list taking the count to 13. -
Maintain Buy with a price target of Rs460: We continue to like MLD due to the quality of its management and its strong balance sheet that is currently leveraged (as expected) for acquiring new land parcels in distressed markets and for better execution of the existing land bank. Our long-drawn concern over delayed approvals has faded as the company saw some traction on that front, with approvals coming in faster in Q4FY2013. Going ahead, we expect the momentum to continue, which would augur well for the company as it will get more room to launch new projects and thereby support growth. We maintain our Buy recommendation on the stock with a price target of Rs460. At the current market price, the stock is trading at 1.0x its net asset value and 16.3x FY2014 earnings estimate.
SECTOR UPDATE Logistics Cargo declines 3% in FY2013; March remains sluggish Key points -
The total cargo volume at major ports in FY2013 reported a decline of 3% year on year (YoY) mainly due to a 55% year-on-year (Y-o-Y) decline in cargo at the Mormugao port. The volumes for March have also declined by 3% YoY, thus remaining sluggish. The Mormugao volumes have been suffering since June 2012 owing to a mining ban in the state of Goa. Excluding Mormugao, the aggregate increase in the cargo at the major ports was 1% in FY2013. The other ports which registered a decline in their cargo traffic in FY2013 were Vishakhapatnam (-13%), Haldia (-9%), Chennai (-4%), Kolkata (-4%), Jawaharlal Nehru Port Trust (JNPT; -2%) and Cochin (-1%). -
The container volumes remained flat in FY2013. For March 2013, the volumes remained tepid with a 1% Y-o-Y growth. In the light of the lower export-import (EXIM) trade, we do not foresee any signs of a recovery in the container volumes in the near term. Further, the major ports of JNPT and Chennai are operating in excess of their capacity and will not be witnessing any capacity expansion for the next 18-24 months. -
A slowdown in the EXIM trade as well as the domestic trade has resulted in a contraction in the cargo volumes owing to which the logistics industry is undergoing a challenging phase. The container volumes continued with their declining trend which does not augur well for the logistics players. We do not foresee any signs of a recovery in the container volumes in the near term. Further, the major ports of JNPT and Chennai which handle two-thirds of the country's container volumes are operating in excess of their capacity and will not be witnessing any capacity expansion for the next 18-24 months. Thus, we expect the overall sluggish performance to continue in the immediate term. However, we continue to prefer Gateway Distriparks Ltd (GDL) due to the robust long-term growth potential of each of its business segments, ie container freight station, rail and cold storage. The stock is currently trading at a price earnings (PE) of 7.4x based on its FY2015E earnings per share (EPS) of Rs16.6. Outlook and view
A slowdown in the EXIM trade as well as the domestic trade has resulted in a contraction in the cargo volumes owing to which the logistics industry is undergoing a challenging phase. The container volumes continued with their declining trend which does not augur well for the logistics players. We do not foresee any signs of a recovery in the container volumes in the near term. Further, the major ports of JNPT and Chennai which handle two-thirds of the country's container volumes are operating in excess of their capacity and will not be witnessing any capacity expansion for the next 18-24 months. Thus, we expect the overall sluggish performance to continue in the immediate term. However, we continue to prefer GDL due to the robust long-term growth potential of each of its business segments, ie container freight station, rail and cold storage. The stock is currently trading at a PE of 7.4x based on its FY2015E EPS of Rs16.6.
SHAREKHAN SPECIAL Monthly economy review Economy: Inflation declines to 5.96% in March; RBI policy review (on May 3rd) in focus -
In February 2013 the Index of Industrial Production (IIP) rose by 0.6%, which was above the market's estimate. The growth was driven by a better than expected performance from the capital goods segment. A sharp growth was recorded in the electrical machinery segment which lifted the growth in the capital goods segment, as the other industries continued to post a tepid performance. Based on the three-monthly moving average, the IIP growth for February 2013 stands at 0.8% as against 2.7% in February 2012. -
The Wholesale Price Index (WPI)-based inflation for March 2013 surprised positively as it slipped to a 40- month low of 5.96% (6.84% in February 2013). The month-on-month (M-o-M) decline of 88 basis points in inflation is attributed to a decline in all the three major constituents of the WPI but mainly the primary articles and manufacturing segments. However, the inflation rate for January 2013 was revised upwards to 7.31% from 6.62% as per a provisional estimate. -
India's trade deficit eased further to $10.3 billion in March 2013 from $14.9 billion in February 2013 and a high of $20.8 billion in January 2013. The trade deficit declined by 23.8% year on year (YoY) and 30.9% month on month (MoM) in March 2013. Exports increased by 7.0% YoY (up 4.2% in February 2013) to $30.9 billion while imports declined by 2.9% YoY (up 2.7% in February 2013) to $41.2 billion. -
In its mid quarter policy review (on March 19), the Reserve Bank of India (RBI) reduced the repo rate by 25 basis points to 7.5%, in line with the market's expectation. The cash reserve ratio (CRR) was kept unchanged at 4%, though the RBI vowed to support liquidity via open market operations (OMOs) and other instruments. The central bank also took note of the steps announced in the Union Budget for 2013-14 to contain the fiscal deficit and of the decline in the core inflation but reiterated that it has limited room for monetary easing in the current circumstances. However, in view of the recent decline in the trade deficit and the sharp decline in core inflation the market expects the RBI to reduce the repo rate by another 25 basis points. Banking: slowdown in deposit growth to limit transmission of monetary easing -
Despite the year-end push, the credit growth remained subdued. The credit offtake increased by 13.9% YoY (as of April 5, 2013), which was lower than the 14.1% Y-o-Y growth recorded in the previous month (as on March 22, 2013) compared with the RBI's projection of 16%. On a year-till-date (YTD) basis, the credit growth (as of April 5, 2013) stands at 13.9% as compared with the 18.7% Y-o-Y growth in the previous year. -
The deposits have grown by 13.2% YoY (as of April 5, 2013). The growth in the deposits was subdued throughout FY2013 due to competitive returns offered by the other instruments. Consequently, the growth in the deposits has been much lower than the RBI's guidance of 15.0%. -
A slower growth in the deposits compared with the advances remains a concern for banks. The credit/deposit ratio for the banks remains high as it has increased to 77.4% (as on April 5, 2013) from 77.0% (as on April 6, 2012). -
The yield on the government securities (G-Secs; of ten-year maturity) stood at 7.78% as on April 18, 2013 and was lower than the average of 7.89% maintained in March 2013. Moreover, the five-year and ten-year G-Sec yields declined by 20 and 10 basis points respectively on an M-o-M basis. As the yields of the short-term G-Secs have declined more than the longer-term G-Secs on an M-o-M basis, the yield curve has turned normal from inverted. Equity market: FIIs remain net buyers
During the month-to-date (MTD) period of April 2013 (April 1-17, 2013), the foreign institutional investors (FIIs) were net buyers of equities and the domestic mutual funds were net sellers of equities. For the MTD period the FIIs bought equities worth Rs596 crore while the mutual funds sold equities worth Rs325 crore.
Banking stocks outperform in April 2013
In the last one month, the BSE Bankex has appreciated by 11.9% as compared with an uptick of 2.3% in the Sensex. The improved macro-economic numbers, viz a decline in core inflation to 3.5%, a dip in the trade deficit have given rise to expectations of another rate cut by the RBI in the coming monetary policy review. This has led to the outperformance of the banking stocks. However going ahead, the earnings growth for the public sector banks (PSBs) is expected to remain weak for Q4FY2013 due to a slower growth in the core income and asset quality pressures. In addition, the political turmoil has given rise to apprehensions about the continuity of reforms which could affect the economy's recovery.
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