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Summary
of Contents
STOCK UPDATE
Andhra Bank
Cluster:
Cannonball
Recommendation: Buy
Price target:
Rs101
Current market price: Rs82.4
Stable
performance
Result
highlights
-
For Q4FY2007
Andhra Bank reported a stable year-on-year (y-o-y) growth in its
net profit to Rs138.8 crore. The same is better than our profit
after tax (PAT) expectation of Rs123 crore. The PAT growth was
driven by a lower than expected operating expenditure.
-
During the
quarter, the bank's net interest income (NII) grew by 18.4% year
on year (yoy) to Rs362.2 crore. However there was some sequential
pressure on the net interest margin (NIM) as the bank's cost of
funds increased at a much faster pace than its asset yields. Also,
its low cost deposit base declined sequentially.
-
The
non-interest income increased by 9% yoy to Rs138.4 crore despite a
40.4% y-o-y decline in the treasury income. The non-interest
income excluding treasury was up 20.3% yoy.
-
A 15.7% growth
in the net income coupled with a 7.3% y-o-y decline in the
operating expenses helped the bank to report a 46.7% y-o-y growth
in the operating profit to Rs270 crore. The core operating profit
(operating profit excluding treasury) reported further improvement
of 59.6% yoy to Rs256 crore.
-
Provisions and
contingencies showed a decline of 23% yoy to Rs81 crore but
increased 25.7% quarter on quarter (qoq) mainly due to higher
non-performing assets (NPA) and standard asset provisions charged
during the quarter.
-
The PAT growth
was marginal although the profit before tax (PBT) grew by 158.7%
yoy. This was mainly due to a Rs76 crore of tax charge in Q4FY2007
compared to a tax write-back in Q4FY2006.
-
Its full year
tax provision has gone up significantly by 208% to Rs247 crore
compared to Rs80 crore. The higher tax incidence is due to a 32.5%
jump in the operating profit coupled with the absence of the
investment provision amount (which reduces a bank's tax liability)
in FY2007.
-
We had
witnessed a jump in the net NPAs during Q3FY2007. The bank made
higher NPA provisions during the fourth quarter and the asset
quality, already at healthy levels, showed further improvement
during the quarter. The net NPAs improved to 0.17% from 0.44% on a
sequential basis.
-
The bank has
shown an improvement in its operating performance, its capital
adequacy ratio (CAR) is comfortable at 11.3% with the Tier-I CAR
at 9.98% and its asset quality continues to remain among the best
in the industry. At the current market price of Rs82.4, the stock
is quoting at 6.5x its FY2008E earnings per share (EPS), 3.6x
pre-provision profit (PPP) and 1.1x book value. The bank is
available at attractive valuations, given its low price to book
multiple compared with its peers, and an average return on equity
of 18.1%. We maintain our Buy call on the stock with a price
target of Rs101.
Hindustan Lever
Cluster: Apple Green
Recommendation:
Buy
Price target: Rs280
Current market price:
Rs195
Good sales growth
but disappointing margins
Result
highlights
-
The Q1CY2007
net profit of Hindustan Lever Ltd (HLL) grew by 13.6% year on year
(yoy) to Rs333.9 crore, which is slightly below our
expectations.
-
The net
revenues grew by 13.8% yoy on the back of an 8.73% year-on-year
(y-o-y) growth in the home and personal care (HPC) segment, which
comprises the soap and detergent, and personal care businesses.
The lower growth in the personal product range is disappointing
but is expected to pick up in the coming quarters.
-
The profit
before interest and tax (PBIT) margin showed a contraction of 70
basis points to 13.6%. The contraction in the PBIT margin is
attributable to the lower growth in the personal care
segment.
-
The soap and
detergent business has shown a growth of 9.6% whereas the personal
care product business has reported a lower growth of 7.4%.
Adjusting for the disposal of the Nihar brand, personal
products grew by 10.5%.
-
The beverage
business has shown a growth of 16.6% yoy whereas the processed
food business has grown by 26% yoy.
-
The operating
profit margin (OPM) of HLL contracted by 44 basis points to 11.37%
on a y-o-y basis due to a higher raw material cost. The selling
and administrative expenses as a percentage of sales increased by
35 basis points which led to further erosion in the margin.
-
The soap and
detergent segment was able to maintain its earnings before
interest and tax (EBIT) margin at 12.1% yoy whereas the EBIT
margin in the personal care product range recorded an improvement
of 30 basis points to 24.7%.
-
At the current
market price of Rs195, the stock is quoting at 22.8x its CY2007E
earnings per share (EPS) of Rs8.5 and 20x its CY2008E EPS of
Rs9.6. We maintain our Buy recommendation on the stock with a
price target of Rs280.
VIEWPOINT
TV Today Network
Missing growth
drivers
While Aaj
Tak has been the leader in the Hindi news genre and has
sustained its market share at about 22% (source: TAM Media
Research), the other channels of the group haven't been able to
garner significant share in their respective genres (Headlines
Today—10.7%, Tez—4.6%). Though we believe that these
channels had a low investment and incremental operating expenditure
(as they leveraged the existing infrastructure of Aaj Tak)
and the management claims them to be incrementally profitable, these
small initiatives, in our view, do not lay down a foundation for
strong growth. Also, competition to its channels has been heating up
with the launch of newer channels and the decreasing differentiation
of content that has led to pressure on the market share of the
existing channels.
The company had
about Rs100 crore cash on books at the end of FY2006, which should
increase to around Rs150 crore by the end of FY2007. But it hasn't
been able to find ways of deploying this cash in any new initiatives
(several other players in the industry have actually raised funds
for
expansion). |
