| Summary of Contents | | | | STOCK UPDATE HDFC Bank
Cluster: Evergreen
Recommendation: Hold
Price target: Rs2,205
Current market price: Rs2,049
Put on Hold
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 Rs811.7 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 growth in the operating expenses 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 previous quarter (Q4FY2010). At the end of Q1FY2011, the restructured assets formed 0.3% of the advances book, in line with that of the previous quarter. -
As a result of the 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. The tier-1 CAR at the end of Q1FY2011 came in at 12.4%. -
HDFC Bank has reported a strong all-round performance for Q1FY2011, with a robust loan growth, strong NII growth and improving asset quality. Despite a sturdy quarterly performance and an optimistic outlook for the bank, we revise our rating on the stock from Buy to Hold due to a significant run-up in the stock price and a limited upside to our price target of Rs2,205 from the current levels. At the current market price of Rs2,049, HDFC Bank trades at 18.4x FY2012E earnings per share (EPS), 10.1x FY2012E pre-provisioning profit (PPP) and 3.3x FY2012E price-book value. We maintain our estimates and price target of Rs2,205 on the stock while revising our recommendation to Hold. Crompton Greaves
Cluster: Apple Green
Recommendation: Hold
Price target: Rs292
Current market price: Rs265
Price target revised to Rs292
Result highlights -
Stand-alone results in line, subsidiaries? results less than expected: Crompton Greaves Ltd (CGL)?s Q1FY2011 stand-alone performance was largely in line with our expectations. However, its consolidated performance was less than expected, mainly led by the sluggish sales of its subsidiaries in rupee terms. -
Robust stand-alone results: On a stand-alone basis, the revenues grew by 14.4% year on year (yoy) to Rs1,342.9 crore, mainly led by a spectacular 28.8% year-on-year (y-o-y) growth in the revenues of the consumer product division. The industrial system division?s revenue also grew by 22.6% yoy. The power system division, however, was the biggest disappointment with the sales up by a mere 0.3% yoy, primarily led by deferment in delivery by some of the clients. However, the management expects this to be a temporary phenomenon, with the delivery picking up in subsequent quarters. The company maintained a healthy operating profit margin (OPM) of 15.6% in the quarter as compared to 14.8% in Q1FY2010, driven by the containment of the other expenses. Boosted by a robust operating performance and other income, the net profit surged by 23.9% yoy to Rs142.2crore. -
Fall in subsidiaries? revenue: The net revenue of the consolidated entity rose by 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 on account of the appreciation in the rupee against the euro. In euro terms, the subsidiaries? sale was up by 7% yoy. -
...led to less than expected consolidated net profit: 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 previous 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. -
Pick-up in order intake: The order book at consolidated and stand-alone levels currently stands at Rs3,733 crore (vs Rs3,400 crore in Q4FY2010) and Rs6,802 crore (vs Rs6,400 crore in Q4FY2010) respectively. The order inflow has jumped to Rs2,732 crore during the quarter due to better order inflow for both the international subsidiaries (up 19% yoy at Rs914 crore) and the domestic business (up 53% yoy at Rs1,818 crore). -
Outlook and valuation: In spite of less than expected growth in earnings, we maintain our estimates in view of pickup in power systems and better transmission and distribution (T&D) demand outlook in overseas markets. The management has maintained its revenue guidance for FY2011, with the revenue from the domestic operations up by 15-16% yoy and that from the overseas business higher by 5-6% yoy. The company is witnessing a good demand in overseas wind power market and expects it to grow further on the back of recovery in European wind power markets.
With strong market positioning and a robust balance sheet, CGL continues to be the best play in the domestic power T&D space. The company is well poised to capture the strong traction in demand for the power T&D products and services. We are increasing the target multiple of CGL to 18.7x (at 15% discount [from the earlier 20% discount] to BHEL?s target multiple of 22x FY2012 estimates) in view of better overseas demand outlook. Hence we are increasing our price target to Rs292. However, at current valuations of 17x FY2012 earnings, we feel CGL captures the 10.3% compounded annual growth rate (CAGR) in the earnings over FY2009-11E. Hence we maintain our Hold recommendation on the stock.
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