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STOCK UPDATE
JK Cement
Cluster:
Cannonball
Recommendation: Buy
Price target:
Rs200
Current market price: Rs162
Price target
revised to Rs200
Result
highlights
-
The
overall revenues of JK Cement grew by 49% year on year (yoy)
to Rs366 crore, as the overall volumes grew by 11% yoy and
the realisations improved by 34.9% yoy.
-
The
expenditure for the quarter increased by 27% yoy to Rs255
crore mainly on account of a 13% year-on-year (y-o-y)
increase in the raw material cost and a 31% y-o-y rise in
the freight cost.
-
The
company's high leverage to cement prices resulted in a 145%
y-o-y surge in its operating profits to Rs111.7 crore which
helped the operating profit margin (OPM) to expand by 1,200
basis points yoy to 30.5%.
-
As the
interest cost and depreciation provision remained flat, the
profit after tax (PAT) ballooned by 274% yoy to Rs61.4
crore.
-
We had
mentioned in our previous reports, the company is incurring
a capital expenditure (capex) of Rs290 crore for setting up
three captive power plants (CPPs). But as there has been a
delay in the commissioning of all the projects, we don't
expect the company to avail of the complete savings in the
power cost in FY2008 as expected earlier.
-
Consequently, we are revising our earnings estimate
downwards by 5.2% to Rs211 crore from Rs222 crore. We are
also introducing our FY2009 earnings estimate at Rs180
crore.
-
At the
current market price of Rs162 per share, JK Cement is
trading at 5.3x its FY2008 earnings and 6.2x its FY2009
earnings. We maintain our Buy recommendation on the stock
with a reduced price target of Rs200 per share.
Bank of Baroda
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs310
Current market price: Rs285
Improved
performance
Result
highlights
-
Bank of
Baroda's (BoB) results are marginally below expectations.
The profit after tax (PAT) grew by 17.6% year on year (yoy)
but declined 25.4% quarter on quarter (qoq) to Rs245.7 crore
compared with our estimate of Rs256.7 crore.
-
The
adjusted net interest income (NII) was up by 21.5% yoy and
9.6% qoq to Rs1,052.6 crore, better than our estimate of
Rs1,002 crore. The net interest margin (NIM) has shown a
sequential improvement of nine basis points, driven mainly
by an improvement in the asset yields.
-
The
non-interest income grew by only 6.9% yoy to Rs397.8 crore;
the growth was restricted mainly due to a 61.7% decline in
the treasury income. However the core fee income grew by
36.4% yoy and 13.9% qoq.
-
The
operating profit was up 21% yoy but the core operating
profit (operating profit excluding treasury and recovery)
grew by 37.4% yoy.
-
Although
provisions and contingencies remained stable on a
year-on-year (y-o-y) basis, yet the bank's tax liability for
the current quarter went up significantly. This restricted
the overall profit growth to only 17.6% on a y-o-y
basis.
-
The
asset quality of the bank continues to be healthy with the
gross non-performing assets (NPA) at Rs2,092 crore, down
Rs300 crore sequentially. The net NPA in percentage terms
stood at 0.6%, down from 0.67% in the previous quarter. The
capital adequacy ratio (CAR) remains at a comfortable 11.8%
with the Tier-I CAR at 8.74%.
-
The bank
has shown strong business growth with comfortable asset
quality levels. However the profitability has not improved
in proportion to the growth in the business, thereby leading
to a lower return on equity. We feel the bank has
successfully made structural changes required to show
consistent business growth and the management has now
focused on improving the profitability, which should lead to
better numbers going forward. At the current market price of
Rs285, the stock is quoting at 8x its FY2008E earnings and
1.1x FY2008E book value. We maintain our Buy recommendation
on the stock with a price target of Rs310.
Bajaj Auto
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs3,300
Current market price: Rs2,500
Q4FY2007
results: First-cut analysis
Result
highlights
-
Bajaj
Auto's Q4FY2007 results are slightly ahead of our
expectations due to a higher than expected other income. The
net sales grew by 6.8% to Rs2,313.6 crore in the fourth
quarter.
-
The
operating profit of the company declined by 23.2% to Rs326.3
crore as the operating profit margin declined by 550 basis
points to 14.1% year on year. However, the margin was stable
on a sequential basis.
-
The net
profit before extraordinary items for the quarter declined
3.9% to Rs320.75 crore.
-
The
consolidated income from operations rose to Rs2,589.5 crore
from Rs2,297.5 crore in the same quarter last year. The
consolidated profit grew to Rs377.4 crore for the quarter as
compared with Rs357.3 crore in the same quarter last
year.
-
The
company has also announced its demerger, whereby two new
companies will be listed. The existing Bajaj Auto will be
renamed as Bajaj Investment and Holdings Ltd (BIHL) and will
be the holding company for two other companies, namely Bajaj
Auto (new-consisting of two- and three-wheeler manufacturing
business) and Bajaj Finserv Ltd (BFL). Bajaj Finserv would
comprise wind power, insurance and financing
businesses.
-
All
shareholders in the existing Bajaj Auto on the record date
would become shareholders in each of the new companies and
be issued shares of the two new companies in the ratio of
1:1. After such issuance, for every share held in the
existing Bajaj Auto each shareholder would:
- continue to
hold one share of BHIL (existing BAL) of face value of Rs10
each fully paid up,
- be allotted one share of the new
Bajaj Auto (existing BHIL) of face value of Rs10 each, fully
paid up,
and
- be allotted one share of BFL of
face value of Rs5 each, fully paid up.
-
We will
come out with our detailed update on the company and revise
our estimates after gaining more clarity on the de-merger.
Watch this space.
Union Bank of India
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs141
Current market price: Rs120
Strong
operating performance
Result
highlights
-
The
Q4FY2007 results of Union Bank of India (UBI) are below our
expectations with the profit after tax (PAT) reporting a
growth of 57.4% year on year (yoy) to Rs228.1 crore compared
with our estimate of Rs254.7 crore. The profit is lower
mainly due to higher than expected provisions made by the
bank during the quarter.
-
The
adjusted net interest income (NII) was up 29.4% yoy and 9.4%
quarter on quarter (qoq) at Rs750.4 crore. The net interest
margin (NIM) of the bank improved on a sequential basis by
38 basis points to 3.37% for Q4FY2007. Controlled increase
in costs coupled with improvement in yields helped the bank
to improve its margins both yoy and qoq.
-
The
improvement in the NIM was a fall-out of the strategy
adopted by the bank's management in the previous quarters.
The bank shed low yielding advances and focused on quality
advances to improve the yields on the asset side. On the
liability side, the bank reduced the high-cost term deposits
and improved its low-cost deposits, which helped in
containing the costs.
-
The
operating profit was up 49.4% yoy and 30.7% qoq, while the
core operating profit (ie the operating profit excluding the
treasury gains and others) reported a growth of 56.4% yoy
and 31.4% qoq. The growth was driven by a good core income
growth and controlled operating expenses.
-
Provisions and contingencies rose by 48.1% yoy and
148.3% qoq mainly due to higher non-performing asset (NPA)
and standard asset provisions made during the quarter to
improve the asset quality levels.
-
As a
result of higher provisioning the bank's NPA level improved
to 0.96% from 1.12% in the previous quarter. The gross NPA
level also declined to 2.94% from 3.24% on a sequential
basis.
-
The
management's renewed focus on profitable businesses and
asset quality is a welcome move for the bank's future
performance, which is aptly reflected in its improved NIMs
and low NPA levels. The bank is currently available at
attractive valuations compared to its peers. At the current
market price of Rs120, the stock is quoting at 5.6x its
FY2008E earnings and 1x FY2008E book value. We maintain our
Buy recommendation on the stock with a price target of
Rs141.
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