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STOCK UPDATE Punjab National Bank
Recommendation: Buy
Price target: Rs998
Current market price: Rs783 Asset quality improves Result highlights -
Punjab National Bank (PNB)'s Q4FY2013 net profit came in lower than our estimate as the net profit declined by 20.6% year on year (YoY) to Rs1,130.8 crore. A lower than expected growth in the profit was mainly due to a sharp rise in provisions, including the investment provision of Rs196.0 crore, which the bank expects to reverse in Q1FY2014. -
The growth in the net interest income was largely in line with our estimate as it grew by 14.2% YoY. The net interest margin (NIM) increased by 4 basis points quarter on quarter (QoQ) to 3.51% (3.5% for FY2013), mainly due to a drop in the cost of funds. -
The asset quality continued to improve as slippages were lower than the past several quarters while the recoveries improved significantly. The incremental restructuring was higher at ~Rs6,400 crore (which includes disbursement to existing restructured accounts) but was offset by around similar amount of upgrades from the restructured book. -
The bank focused on consolidating the balance sheet, leading to a slower growth in advances (up 5.1% YoY) and deposits (3.2% YoY). The bulk deposits declined by 44.6% YoY. Consequently, the current account savings account (CASA) ratio improved to 40.86% in Q4FY2013. -
The non-interest income declined by 8.0% YoY due to a decline in the foreign exchange (forex) income (20.0% YoY) and fee income (15.5% YoY). The treasury profit increased by 67.9% YoY to Rs267.0 crore. The cost-to-income ratio declined to 42.4%in Q4FY2013. Valuation
Though the earnings growth was lower than our estimate, the asset quality showed a marked improvement driven by the lower slippages and a pick-up in the recoveries. The management is confident of maintaining the momentum in recoveries, which will be the key to moderation in the asset-quality pressure. However, the management has guided for a 15-20-basis-point decline in the NIM due to likely reduction in the lending rates. We largely retain our estimates for FY2014 and FY2015 and expect the return on equity (RoE) and return on assets (RoA) to be reasonably healthy at 16% and ~1% respectively. We maintain Buy rating on the stock with a price target of Rs998. Union Bank of India
Recommendation: Buy
Price target: Rs295
Current market price: Rs243 Earnings ahead of estimate, NPAs continue to decline Result highlights -
Union Bank of India (Union Bank)'s reported a net profit of Rs789.4 crore, which was ahead of our and the Street's estimates. Though the growth in the net interest income (NII) was subdued, a decline in provisions (23.5% quarter on quarter [QoQ]) and the lower tax rates (23.3%) contributed to a higher than expected growth in profit. -
The NII increased by 5.5% year on year (YoY), which was in line with our estimate. However, the net interest margin (NIM) declined by 6 basis points QoQ to 2.89%. -
The advances grew by 15.0% YoY while the deposits grew by 18.3% YoY. The growth in advances was driven by the corporate (up 14.9% QoQ) and small and medium enterprises (SME) segments (10.5% QoQ). The current account savings account (CASA) ratio stood at 31.0%. -
The bank has shown a consistent improvement in the asset quality despite the adverse environment. Though the slippages were slightly higher at Rs875 crore, it was compensated by the recoveries/upgradations of Rs442 crore and write-off of Rs503 crore. The bank restructured Rs1,400 crore of loans in Q4FY2013 and has a pipeline of Rs2,200 crore for Q1FY2014. -
The non-interest income increased by 7.9% YoY on account of a strong growth in the foreign exchange (forex) and treasury income. However, the fee income and miscellaneous income reported a decline on a year-on-year (Y-o-Y) basis. Valuations
Union Bank's earnings growth exceeded our estimate, mainly due to a relief on the provision front. Also, the impetus on recoveries continued, which led to a decline in the non-performing assets (NPAs). Though the macro environment remains weak, the sustained effort on recoveries coupled with a recovery in the economy will play a key role in asset-quality trend. The margin may decline in FY2014 but steady growth in advances (~16% in FY2014) will result in a healthy growth in the profit. Currently, the stock is trading at 0.8x FY2014 book value and we believe the improvement in the operating parameters may improve the valuation. We maintain Buy rating on the stock with a price target of Rs295. Lupin
Recommendation: Buy
Price target: Rs810
Current market price: Rs725 Price target revised to Rs810 Result highlights -
A bumper Q4: For Q4FY2013 Lupin reported an impressive rise of 34.7% year on year (YoY) in net sales to Rs2,537.4 crore (vs our estimate of Rs2, 313 crore). The sales growth was mainly driven by an overall good performance in the key geographies. During the quarter, the company achieved an operating profit margin (OPM) of 24.1%, which is 641 basis points higher than the OPM in Q4FY2012. The profit before tax jumped by 101.5% YoY to Rs596.3 crore. However, a lower effective tax rate (20.7% in Q4FY2013 vs 41% in Q4FY2012) led the adjusted net profit to record a growth of 185% YoY to Rs481.7 crore, which is substantially higher than our as well as the Street's consensus estimate. During the quarter, Lupin charged off Rs73.6 crore as amortisation of value of the Antara brand in the USA, which led the reported profit to jump by 162% to Rs408.1 crore. -
All-round good performance: During the quarter most of the key geographies reported a better than expected performance, partially due to better revenues from new product launches and currency benefits. The company reported a revenue growth of 48.9% YoY to Rs1,146 crore from the US market. The Indian formulation business registered an impressive growth of 42.6% YoY to Rs566 crore during the quarter over a low base of the previous year. The other geographies like Europe (up 45% YoY), South Africa (up 28.5% YoY) and the rest of the emerging markets (up 35% YoY) also impressed the Street. However, the revenues from the Japanese markets witnessed a moderate growth of 2.2% to Rs275 crore during the quarter. -
FY2013 finishes on positive note; outlook remains robust: Lupin has reported a 35.9% year-on-year (Y-o-Y) rise in the revenues to Rs9,461.6 crore on the back of a nearly 48% Y-o-Y rise in the revenues from the advanced markets of the USA, Europe and Japan. The emerging markets including India registered a 27% Y-o-Y growth in FY2013. The company managed to improve its OPM by 310 basis points to 22.1% in FY2013 on the back of a better product mix. The adjusted net profit for the year jumped by 42.2% YoY to Rs1,314.2 crore. We believe the pace of growth would continue in the subsequent quarters as well, given the strong product pipeline in the USA and the emerging markets. -
Management aspires for 25% revenue CAGR: The management of Lupin is confident of achieving a 25% compounded annual growth rate (CAGR) in revenues over the next couple of years, mainly driven by the US and Indian businesses. Also, India, Japan and the emerging markets are going to maintain a high growth momentum -
We revise estimates and price target, maintain Buy recommendation: Taking into account the bumper FY2013 results and the improved visibility of growth, we have revised our earnings estimates for FY2014 and FY2015 up by 9% and 12% respectively. Accordingly, our price target has also been revised to Rs810, which implies 20x average earnings for FY2014 and FY2015. We maintain our Buy recommendation on the stock. Gateway Distriparks
Recommendation: Buy
Price target: Rs163
Current market price: Rs122 CFS disappoints, other businesses fire; maintain Buy Result highlights -
Substantial drop in margin at JNPT CFS led to poor stand-alone results: In Q4FY2013, Gateway Distriparks Ltd (GDL) reported a 26% decline in its stand-alone net profit on account of a decline in the EBITDA margin by 1,000 basis points from 48.4% in Q4FY2012 to 38.4% in Q4FY2013. The EBITDA margin declined by 500 basis points from 43.4% to 38.4% on a quarter-on-quarter (Q-o-Q) basis. However, the revenues grew by 13% year on year (YoY) to Rs54 crore on account of a 12% recovery in the volumes at the Jawaharlal Nehru Port Trust (JNPT). On a sequential basis, the realisation declined by 6% while it increased by 1% over that of Q4FY2012. -
However, robust performance by the cold chain and the rail division led to consolidated revenues surpassing our estimate: The consolidated revenues stood at Rs266 crore, which is 6% above our estimate. The revenues were up by 28% YoY and 14% quarter on quarter (QoQ). The cold chain division witnessed an 87% growth in the revenues at Rs34 crore on account of a capacity addition. On the other hand, the rail division saw a growth of 10% YoY in the volumes along with a 17% increase in realisation, resulting in a revenue growth of 29% YoY. In the other container freight stations (CFSs), the Chennai, Vizag and Kochi CFSs together saw a growth of 26% YoY in the volumes (10% QoQ), which along with a 15% decline in realisation (-8% QoQ) led to a 7% year-on-year (Y-o-Y; 1% QoQ) growth in its revenues. -
Consolidated PAT comes in above our estimate as well: The consolidated profit after tax (PAT) is above our estimate on account of a higher than expected revenues as well as a lower tax rate for the quarter owing to a tax rebate on account of the deduction the company enjoyed for its expansion in the cold chain business. Despite decent performance at the revenue level, the margin dropped severely in the CFS business. The consolidated EBITDA margin is down by 630 basis points YoY and 120 basis point QoQ. The consolidated margin stood at 23.1% vs 29.4% in Q4FY2012. However, due to the lower tax rate, the profits for the quarter increased by 5% YoY to Rs33.6 crore (18% above estimate). -
Estimates marginally upgraded; maintain Buy: We are upgrading our net profit estimates for FY2014 and FY2015 by 1% and 8% respectively to factor in the higher volumes at the Chennai and Kochi CFSs. We continue to have faith in GDL's long-term growth story based on the expansion in each of its three business segments, ie CFS, rail transportation and cold storage infrastructure. Also, a revival in the EXIM (export import) trade would augur well for the company. At the current market price, the stock trades at 8.9x and 6.8x its FY2014E and FY2015E earnings. We maintain our Buy recommendation on GDL.
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