Fw: Investor's Eye: Update - Bajaj Auto (Q3FY2013 results-First cut analysis), Yes Bank (Price target revised to Rs600)

 

 

Investor's Eye [January 16, 2013]  Sharekhan www.sharekhan.com

Summary of Contents     STOCK UPDATE Bajaj Auto  Recommendation: Hold Price target: Under review Current market price: Rs2,073 Q3FY2013 results-First cut analysis Result highlights  Bajaj Auto's Q3FY2013 PAT broadly in line with estimate The Q3FY2013 performance of Bajaj Auto Ltd (BAL) was broadly in line with expectations. Though weak realisation in the domestic market pushed down the operating profit margin (OPM) but the same was compensated by a lower other expenditure. The OPM at 18.7% was marginally better than estimated. A higher other income fuelled the profitability and consequently the adjusted profit after tax (PAT) at Rs818.7 crore was better than our estimate of Rs800 crore. Positive surprises The other expenditure/sales ratio dropped to 6.2%, the lowest in four quarters. The other expenses grew 5.5% year on year (YoY), at a lower pace than revenues, which grew at 8.6% YoY. The company realised the benefits of operating leverage due to improved volumes during the quarter. The other income at Rs203.2 crore was better than our estimate of Rs180 crore. The company realised a higher investment income of Rs109.5 crore during the quarter.  Negative surprises The realisation growth of 1.3% quarter on quarter (QoQ) to Rs47,996 per vehicle was below our estimate of Rs48,576 per vehicle. Though the export realisation has been robust, but the domestic realisation is under pressure due to subdued demand.  On the back of the lower realisation, the contribution per vehicle came in at Rs13,227, about 2.9% below estimate. The contribution declined by Rs153 per vehicle sequentially. The tax rate at 30.2% was higher than estimated due to increased production from Pantnagar where the tax benefits have expired.  Company guides to flat volumes for FY2013 After the end of the festive season, the company expects the volumes to remain subdued in Q4FY2013. It has guided to a flat growth in FY2013, ending up with volumes of 4.3 million units. Though the company is witnessing a recovery in exports, but the domestic market is likely to remain subdued.  New product launches to maintain outperformance BAL has hinted that the new product launches would enable it to gain market share in the domestic motorcycle segment. With an encouraging response to Discover ST and Pulsar NS the company has outpaced the industry. Further, with the recent launch of Discover 100T, the company expects the trend to continue. Valuation  We have factored volumes of 4.3 million units for FY2013, representing a flat growth, which is already in line with the management's guidance. Given that the results are in line with expectations, we keep our estimates and Hold recommendation on BAL unchanged as of now. We will review our estimates after a conference call with the management tomorrow.      Yes Bank Recommendation: Buy Price target: Rs600 Current market price: Rs518 Price target revised to Rs600 Result highlights  Yes Bank's Q3FY2013 results were slightly above of our estimate as the net earnings grew by 34.7% year on year (YoY; 11.8% sequentially). The growth in profit was driven by a robust growth in the non-interest income and net interest income (NII).  The NII growth was largely in line with our estimate as it grew by 36.7% YoY (11.5% quarter on quarter [QoQ]) led by a strong growth in the customer assets and a sequential improvement in the net interest margin (NIM). The NIM surged by 10 basis points to 3.0% while the current account and savings account (CASA) ratio expanded by 106 basis points to 18.3% from 17.3% in Q2FY2013.  The growth in advances including credit substitutes was 27.4% YoY (excluding credit substitutes, the growth was 22.3% YoY). The corporate advances grew by 27.1% YoY whereas the growth in retail advances slowed to 8.6% YoY. The deposits grew by 20.2% YoY on account of a robust growth in the CASA deposits.  The non-interest income showed a strong growth of 48.1% YoY (up 13.2% QoQ) aided by a robust 101% year-on-year (Y-o-Y) growth in the financial advisory and 66% Y-o-Y growth in retail fees. The cost/income ratio declined to 37.2% from 39.5% in Q2FY2013. The asset quality improved on a quarter-on-quarter (QoQ) basis as the gross and net non-performing assets (NPAs) declined to 0.17% and 0.04% respectively (among the best in the industry). Moreover, there was no fresh restructuring in Q2FY2013 and the restructured advances book was 0.43% of advances. Outlook and valuation During Q3FY2013, Yes Bank delivered another strong set of numbers with improvement across all parameters. The initiatives taken by the management to enhance the retail and CASA deposits are yielding and are clearly increasing the cushion on margin. Therefore, considering the strong growth, scope for margin expansion and equity dilution, we revise our price target upwards to Rs600 (2.4x average of FY2014 E book value [BV] and FY2015E BV) and maintain Buy rating on the stock.   Click here to read report: Investor's Eye   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.