Summary
of Contents
STOCK UPDATE
UTI
Bank Cluster: Emerging
Star Recommendation: Buy Price target: Rs400 Current
market price: Rs273
Strong operational performance
Result highlights
-
UTI Bank has reported a 30.2% year-on-year
(y-o-y) growth in its net profit for Q1FY2007 to Rs120.6 crore.
The growth in the net profit is in line with our
expectation.
-
The net interest income (NII) grew by 44.7%
year on year (yoy) backed by a strong growth in the advances.
-
However, the bank resorted to higher cost term
deposits to fund the growth in the advances. As a result the net
interest margin (NIM) declined by 28 basis points quarter on
quarter (qoq).
-
The fee income too grew by a strong 50% yoy
backed by a strong growth in the fee income from the cash
management and retail businesses.
-
The operating profit for the quarter grew by
51% yoy to Rs307 crore. The operating profit excluding the
treasury profits grew by 58.7% yoy.
-
The net profit growth was a tad lower at 30.2%
due to a higher provisioning for investment depreciation and a
higher loan provisioning.
-
The net non-performing assets (NPAs) as a
percentage of the bank's customer assets improved markedly by 46
basis points yoy and by 2 basis points quarter on quarter (qoq).
The NPAs now stand at 0.73% of the net customer assets.
-
UTI Bank's Tier-I capital adequacy ratio (CAR)
stood at 6.7% at the end of Q1FY2007 whereas its overall CAR stood
at 10.3%. The bank plans to raise its Tier-I capital by the end of
FY2007 to fund its growth plans.
-
At the current market price of Rs273 the stock
is quoting at 10.4x its FY2008E earnings per share (EPS) and 2.1x
its FY008E book value (BV). We reiterate our Buy recommendation on
the bank with a price target of Rs400.
HDFC
Bank Cluster:
Evergreen Recommendation: Buy Price target:
Rs900 Current market price: Rs729
Another quarter of 30% growth
Result highlights
-
HDFC Bank's net interest income (NII) grew by
56.1% year on year (yoy) for Q1FY2007 on the back of a 41.5%
year-on-year (y-o-y) growth in its gross advances.
-
The net interest margin (NIM) remained stable
over Q4FY2006 as well as Q1FY2006 at 4%. The ability to get a
higher yield on loans has helped the bank to manage costs in a
rising interest rate scenario.
-
The fee income grew by 38.2% for Q1FY2007. The
growth was lower than the 50%+ growth achieved over the last few
quarters because of a lower income from the distribution of third
party products and the high base effect of last year.
-
The operating profit grew by a strong 43.4% yoy
despite a 54.4% y-o-y jump in the company's operating expenses.
The operating profit excluding the treasury gains grew at an even
higher rate of 52.3%.
-
The net profit for the quarter grew by a lower
30.4% to Rs239.3 crore as the provisioning for the loan loss went
up substantially in the quarter.
-
At the current market price of Rs729 the stock
trades at 15.5x its FY2008E earnings per share (EPS) and 3.2x its
book value (BV). We maintain our Buy recommendation on the stock
with the price target of Rs900.
HCL
Technologies Cluster: Ugly
Duckling Recommendation: Buy Price target:
Rs670 Current market price: Rs558
Another large deal in bag
HCL Technologies (HCLT) has bagged an outsourcing
deal worth $70 million from Teradyne, a leading automatic test
equipment company. The order is spread over a five-year period. The
management has indicated that the contract size could actually
exceed $125 million over the five years and expects revenue of $25
million from the order in FY2007.
This is the fourth order worth over $50 million
that has been announced by HCLT in the past two to three quarters.
Some of the notable order wins announced earlier by the company
include those from AutoDesk ($50 million), DSG ($330 million) and
EXA ($100 million).
According to the management estimates, the four
outsourcing deals cumulatively are expected to contribute around
$120 million of revenues during FY2007.
MUTUAL
GAINS
Sharekhan's top equity fund
picks
We have identified the best
equity-oriented schemes available in the market today based on the
following parameters: the past performance as indicated by the
returns, the Sharpe ratio and Fama (net selectivity).
The past
performance is measured by the returns generated by the scheme.
Sharpe indicates risk-adjusted returns, giving the returns earned in
excess of the risk-free rate for each unit of the risk
taken.
FAMA measures the
returns generated through selectivity, ie the returns generated
because of the fund manager's ability to pick the right stocks. A
higher value of net selectivity is always preferred as it reflects
the stock picking ability of the fund manager.
MUTUAL FUNDS: WHAT�S IN�WHAT�S
OUT
Fund Analysis: July
2006
An analysis has been undertaken on
equity and mid-cap funds' portfolios, indicating the favourite picks
of fund managers for the month of June 2006. Equity funds comprise
of all diversified, index, sector and tax planning funds, whereas
mid-cap funds include a universe of 17 funds such as Reliance
Growth, Franklin India Prima Fund, HDFC Capital Builder, Birla
Mid-cap Fund etc.
SECTOR
UPDATE
Automobile
Soaring
high The automobile sector saw a robust growth in June
2006 with almost all the segments posting a double-digit growth in
sales. The overall automobile sales volume rose by 23.7% with the
domestic and export sales rising by 23.7% and 23.2%
respectively. |