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STOCK UPDATE State Bank of India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs2,460
Current market price: Rs2,223
Q4FY2010 results: First-cut analysis Result highlights -
For Q4FY2010, State Bank of India (SBI) has reported a net profit of Rs1,867 crore, a decline of 31.9% year on year (yoy). And this is well below our estimates. The underperformance can be traced to a higher than expected operating expenses (up 41% yoy) and provisions (up 70.5% yoy). -
The reported net interest margin (NIM) stood at 2.96% for the quarter, expanding by 14 basis points sequentially. The sequential expansion can be attributed largely to a 12-basis-point sequential improvement in the cost of deposits. -
The non-interest income was muted at Rs4,508.5 crore, down 4.4% yoy, due to weaker treasury income (down 71.8% yoy). The fee income growth too remained muted, registering a rise of 2.8% yoy but improving by a significant 59.2% on a sequential basis (a year-end seasonal phenomenon). -
The operating expenses surged by 41% yoy to Rs6,036.1 crore driven primarily by a 53% y-o-y growth in the staff expenses (salary of new employees, provision for wage revision and pension etc). Meanwhile, the other operating expenses grew by 26.4% yoy as a result of the aggressive branch expansion carried out by the bank in the past few quarters. Consequently, the cost-to-income ratio jumped up to 53.7% in Q4FY2010 vs 52.3% in Q3FY2010. -
The provisions and contingencies jumped up sharply (up 70.5% yoy) to Rs2,349.4 crore in Q4FY2010 driven mainly by Rs2,187 crore worth of provision towards non-performing assets. The resulting provision coverage improved by 400 basis points sequentially to 44.4%. After including technical write-offs the provision coverage stands at 59.23%. Though better than the previous quarter, it is below the 70% level stipulated by the Reserve Bank of India (RBI). However, considering the extension of the deadline to March 2011, the bank should be able to reach the 70% stipulation by then. -
The advances grew by 16.9% yoy to Rs641,480 crore while the deposits grew at a much slower pace of 8.4% yoy, implying an over 100-basis-point sequential expansion in the deployment rate. Furthermore, the current account and savings account (CASA) ratio improved by 373 basis points quarter on quarter (qoq) to 46.7% during the quarter. -
The gross non-performing assets (GNPA) improved by 3.6% qoq to Rs19,534.9 crore in the quarter while the same on a relative basis (%GNPA) improved by 6 basis points qoq. The gross slippages stood high at Rs674 crore for the quarter, a bulk of which is from restructured assets mainly from corporate and small and medium enterprise (SME) segments. Of the restructured assets, around 9.62% of the standard assets have slipped into non-performing asset (NPA) category during the year. -
The bank?s capital adequacy ratio (CAR) stood at 13.39% as on March 31, 2010 with the tier-I capital adequacy at 9.45%. -
The associate banks? net profit came in at Rs2,774 crore, up 17.74% yoy. SBI Life posted a net profit of Rs276 crore in FY2010 (vs a loss of Rs.26 crore in FY2009) driven by a strong growth in the new business premium. SBI Mutual Fund?s asset under management (AUM) as on March 2010 stood at Rs28,703 crore, up 94% yoy. The resulting consolidated net profit stood at Rs12,013.6 crore, up 7.5%. -
At the current market price of Rs2,223, the stock trades at 12.14x FY2011E earnings per share (EPS), 5.73x FY2011E pre-provisioning profit (PPP), 2.2x FY2011E stand-alone book value (BV). We shall follow up this note with a detailed analysis shortly. We currently have a Buy rating on the stock with a price target of Rs2,460. Bajaj Auto
Cluster: Apple Green
Recommendation: Buy
Price target: Rs2,419
Current market price: Rs2,171
Price target revised to Rs2,419 Result highlights -
Results ahead of expectation: Bajaj Auto Ltd?s (BAL) Q4FY2010 results were above our expectations on account of higher than expected margins and a lower tax rate. The total operating income grew by 80.5% year on year (yoy) to Rs3,399.5 crore and the operating profit margin (OPM) expanded by a hefty 768 basis points yoy to 22.9% mainly on account of a much higher scale of operation and a decline in the other expenses and the employee cost. This led the operating profit grow by a strong 171.9% yoy in the quarter. Aided by a lower than expected tax incidence, the adjusted net profit surged by 171.2% yoy in the quarter. -
Robust volume growth expected in FY2011: We believe, the healthy demand for the existing products and the incremental volumes of the new launches will rope in a strong 35% year-on-year (y-o-y) volume growth in the motorcycle segment (as the high base will kick in only from H2FY2011) for FY2011. We also expect the three-wheeler segment to post a strong growth of 16.7% yoy in FY2011. Consequently, we expect the company to post an overall volume growth of 32.6% yoy in FY2011. -
Upgrading estimates and price target: Factoring in a higher volume growth and better than earlier expected margins, we have revised upwards our estimates for FY2011 and FY2012 by 20.8% and 11.9% to Rs155.3 and Rs172.8 respectively. We roll forward our price target on FY2012E earnings and thus our price target stands revised at Rs2,419 (14x FY2012E earnings). At the current market price of Rs2,171, the stock is trading at 14.x its FY2011E and 12.6x its FY2012E earnings. We maintain our Buy recommendation on the stock. Bajaj Finserv
Cluster: Apple Green
Recommendation: Hold
Price target: Rs572
Current market price: Rs538
Downgraded to Hold Result highlights -
In Q4FY2010, Bajaj Finserv reported a strong set of numbers by earning a consolidated net profit of Rs433.6 crore as compared with a net profit of Rs107 crore during the year-ago period. The strong performance was mainly driven by the life insurance business, which generated a pre-tax profit of Rs542.2 crore during the quarter as compared to Rs80.8 crore in the year-ago quarter. For FY2010, Bajaj Finserv has reported a consolidated profit after tax (PAT) of Rs554.53 crore, growing by more than 6x yoy. -
The consolidated income from operations for the quarter stood at Rs652 crore, growing by 3.6x on a year on-year (y-o-y) basis. -
Life insurance: Bajaj Allianz Life Insurance Company Ltd (BALIC) reported a full-year profit for the first time since its inception. For Q4FY2010 the company reported a pre-tax profit of Rs542.2 crore, a 5.7x growth from that of the year-ago quarter. As a result of the strong Q4FY2010 performance, the company recorded a shareholder profit of Rs542 crore for FY2010 as compared to a loss of Rs71 crore in FY2009. -
General insurance: The company reported a pre-tax profit of Rs50 crore during the quarter, down 33% year on year (yoy). The fall was a result of an underwriting loss incurred by the company during the quarter. For the full year, however, the company has reported a PAT of Rs121 crore, up a strong 27% yoy. -
Bajaj Auto Finance: Bajaj Auto Finance Ltd (BAFL), the automobile and consumer financing arm of the group, witnessed a strong quarter in terms of business growth with disbursements growing by 104% yoy to Rs1,320 crore. For Q4FY2010, the company reported a 44.1% y-o-y growth in its total operating income to Rs252.8 crore and a strong 67.2% y-o-y growth in its PAT to Rs25.2 crore. -
The Reserve Bank of India (RBI) has come out with revised pricing guidelines for the transfer of shares by Indian residents to non-residents. The revised guidelines are a strong positive for Bajaj Finserv and could lead to an upside potential of Rs417.5 (best case scenario) for the company. -
We have revised our target price to factor in the potential upside arising out of the RBI circular. However as we do not have complete clarity of the impact of the circular on Finserv?s agreement with Allianz and are of the opinion that although the price of the stake transfer will be revised upward it could still be at a considerable discount to the fair value. Thus our target price is an average of the target prices arising of the following two scenarios 1) Factoring in the potential upside from the RBI circular and 2) Factoring in zero upside arising out of the RBI circular. In the event that the stake transfer between Finserv and Allianz takes place at fair value, the scenario would provide further upside to our estimates. -
We value the company using the sum-of-the-parts method and revise our target price upwards to Rs572 while downgrading our recommendation to Hold due to a significant run up in the stock price of Bajaj Finserv as a reaction to the RBI circular.
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