| Summary of Contents | | | | STOCK UPDATE HDFC Bank
Cluster: Evergreen
Recommendation: Buy
Price target: Rs2,205
Current market price: Rs2,050
Q1FY2011 results: First-cut analysis
Result highlights -
HDFC Bank?s Q1FY2011 performance was in line with our projections. The bank?s quarterly net profit was up by 33.9% year on year (yoy) to Rs811.71 crore vis-?-vis our projection of Rs814 crore. The quarterly profit growth was driven mainly by a healthy growth in the net interest income (NII) and lower provisioning during the quarter. -
The NII was up by a strong 29.4% yoy to Rs2,401.1 crore driven by an improved credit growth during the quarter. Meanwhile, the calculated net interest margin (NIM) deteriorated by 19 basis points sequentially due to a 34-basis-point sequential increase in the cost of funds, which in turn could be partly attributed to the move towards payment of interest on savings accounts based on daily balances. -
As expected, the non-interest income performance was weak, declining by 9.9% yoy to Rs939.9 crore led by a 91.6% year-on-year (y-o-y) fall in the treasury income for the quarter. However, the fee income was up by a fair 14.8% yoy. -
The operating expenses growth for the quarter was contained at 15.3% yoy. Consequently, the cost-to-income ratio stood at 47.7%, largely in line with that of the previous year. -
The asset quality of the bank improved on a sequential basis. The gross non-performing assets (GNPAs) declined by 1% quarter on quarter (qoq) to Rs1,791.2 crore, however the net NPAs (NNPAs) increased by 5.2% qoq. In relative terms, the GNPA (%GNPA) improved to 1.21% in the quarter from 1.43% in the last quarter (Q4FY2010). At the end of Q1FY2011, the restructured assets form 0.3% of the advances book, in line with that of the previous quarter. -
As a result of improvement in the asset quality, the provisions during the quarter declined by 15.8% yoy to Rs555 crore. The provisioning coverage ratio however fell by 145 basis points sequentially to 77%. -
The advances grew by a robust 40.9% yoy to Rs146,248 crore in the quarter. However the deposit growth was relatively slower at 25.6% yoy to Rs183,033 crore, though significantly higher than the industry average of around 14%. Importantly, the demand deposits grew by a strong 37.4% yoy leading to an improvement in the current account and savings account (CASA) ratio to 49.2% from 45% in the year-ago quarter. -
The capital adequacy ratio (CAR) of the bank as at the end of Q1FY2011 stood comfortable at 16.3%, though lower than 17.4% during the previous quarter. Tier 1 CAR at the end of Q1FY2011came in at 12.4%. -
At the current market price of Rs2,050, HDFC Bank trades at 18.4x FY2012E earnings per share, 10.1x FY2012E pre-provisioning profit and 3.3x FY2012E price-book value. We currently have a Buy rating on the stock and will come up with a detailed analysis of the bank?s Q1FY2011 performance shortly. Crompton Greaves
Cluster: Apple Green
Recommendation: Hold
Price target: Rs281
Current market price: Rs270
Q1FY2011 results: First-cut analysis
Result highlights -
Crompton Greaves Ltd (CGL)?s Q1FY2011 stand-alone performance was largely in keeping with our expectation. However, its consolidated performance was less than expected, mainly led by the continued sluggish sales of its subsidiaries. -
On a stand-alone basis, the company?s revenues grew by 14.4% year on year (yoy) to Rs1,342.9 crore, which was in line with our expectation of Rs1,345.1 crore. The revenue growth was mainly led by a spectacular 28.8% year-on-year (y-o-y) growth in the revenues of the consumer product division. The industrial systems division also performed well with a 22.6% y-o-y growth in the revenue. However, the power systems division was the biggest disappointment in the stand-alone results with a mere 0.3% y-o-y growth in the sales (as against our expectation of a 15% y-o-y growth). -
The company maintained a healthy operating profit margin (OPM) of 15.6% in the quarter as compared to 14.8% in Q1FY2010. This was mainly led by the containment of the other expenses. The net interest cost remained negative. Boosted by a robust operating performance and other income, the net profit surged by 23.9% yoy to Rs142.2crore, which is slightly above our expectation of Rs138.4 crore. -
The net revenue of the consolidated entity rose by a mere 4.8% yoy to Rs2,302.2 crore (below our projection of Rs2,428.6 crore) mainly on account of a 6.3% y-o-y fall in the revenue from the subsidiaries. The revenue from the subsidiaries fell in the quarter, apparently on account of the appreciation in the rupee against the euro as well as a sluggish demand in the overseas markets. -
The OPM expanded to 12.9% in Q1FY2011 from 11.3% in Q1FY2010 backed by better stand-alone performance and operating performance by the subsidiaries. The subsidiaries? OPM expanded to 9.2% in the quarter from 7.2% in the corresponding quarter of the last year. This margin expansion was aided by the containment of the other expenses as well as the raw material cost. -
This robust overall operating performance helped the adjusted net profit of the group to rise by 19% yoy to Rs190.9 crore, which is below our estimate. -
We will come up with a detailed note on the company?s Q1FY2011 results after an interaction with the management and shall review our estimates and the price target. Currently, we have a Hold rating on the stock with a price target of Rs281. At the current market price, the stock trades at 19.2x and 17.3x on FY2011 and FY2012 estimates respectively. Zensar Technologies
Cluster: Ugly Duckling
Recommendation: Hold
Price target: Rs394
Current market price: Rs358
Price target revised to Rs394
Result highlights -
Zensar Technologies (Zensar)?s net sales increased by 3.9% quarter on quarter (qoq) to Rs241.9 crore in Q1FY2011. The growth was mainly driven by a 3% quarter-on-quarter (q-o-q) volume growth and a minor improvement in the pricing during the quarter. In terms of the segments, the enterprise application services (EAS) division?s revenues increased by 4.3% sequentially to Rs63.9 crore while the global transformation services (GTS) division?s revenues improved by 3.9% sequentially to Rs177.7 crore during the quarter. -
The operating profit margin (OPM) improved by 126 basis points qoq to 15.9% mainly on the back of the volume growth. Consequently, the company?s operating profit also grew by 12.8% sequentially to Rs38.4 crore. -
Supported by the healthy revenue growth, margin expansion and higher other income, the company?s net income also grew strongly by 18.5% qoq to Rs32.5 crore. The net income growth was also supported by a foreign exchange (forex) gain of Rs6 crore included in the other income (Rs8.5 crore versus Rs3.5 crore in Q4FY2010). However, the company?s earnings were negatively affected by a higher effective income tax rate (18.3% in Q1FY2011 versus 11% in Q4FY2010). -
The company added 23 new clients during the quarter with six clients having the potential to become key accounts for the company going forward. Further, the company has highlighted strong gross hiring plans for FY2011 (400 freshers and 1,300 lateral hiring) and a net hiring target of 800 employees. We believe that with such a strong hiring target, the company would be able to achieve a double-digit growth. -
On the inorganic growth initiatives, the company has mentioned that it has short-listed some target companies based out of the USA. The company is targeting acquisitions aggregating USD80-100 million in the infrastructure management services (IMS) space. -
We have revised upwards our revenue estimates for Zensar to factor the higher volume growth (based on the strong hiring target given by the company). We now assume a lower income tax rate of 18% for FY2011 and that of 20% for FY2012. Consequently, our revised earnings per share estimate stands at Rs68.7 for FY2011 and at Rs78.9 for FY2012. We maintain our Hold recommendation on the stock with a revised price target of Rs394. At the current market price, the stock is trading at 5.2x FY2011 earnings estimate and 4.5x FY2012 earnings estimate.
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