Research Reports extracts & summaries - Thread
Rajesh Desai
Morgan Stanley maintains an 'equal weight' rating on Mahindra & Mahindra but has raised price target from Rs728 to Rs947. The brokerage has also upped the FY13 & 14 earnings estimates by 7 and 4 per cent respectively on better margins and higher UV growth.
But MS doesn't see strong triggers for further estimate upgrades or outperformance.
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CA. Rajesh Desai
Rajesh Desai
Top 5 stocks to be bought for 2013
ICICI Bank TP - 1286
• Focus on CASA, NIM and asset quality is likely to continue, in our view. Management focus on stable growth with improving structural profitability reinforces our existing positive outlook on the stock. We are modeling earnings to grow 22.4% CAGR during FY13-14E and expect bank to focus on liability franchise (CASA mix) and profitability (RoE is likely to improve further with increase in leverage in next 2-3 years).
Engineers India TP - 275
· Engineers India Ltd (EIL) is India’s leading publicly held company engaged in the areas of hydrocarbon, metals and infrastructure consultancy. According to Ministry of petroleum and natural gas, domestic crude oil refining sector is likely to significant capacity in twelfth five year plan. EIL is likely to benefit from this as it enjoys entrenched relationship with PSU majors like HPCL, BPCL, IOC etc. In order to widen its spectrum of offerings, company has entered into various favourable joint ventures with domestic as well as international players.
Marico TP - 248
• Marico is a market leader in the branded coconut oil and super-premium refined oils categories, and a significant player in the value-added hair oils category. In addition, Marico has made significant headway in high – growth categories that include deodorants, body lotions, and breakfast cereals. We expect 18% CAGR through FY12-FY15E. On account of improving gross margins, we expect 22% CAGR in earnings through FY12- FY15E. Longer term, we think that Marico has a built a platform to deliver strong revenue growth, and there is significant room for margin expansion, lending support to strong valuation multiples
Arshiya TP - 188
• FTWZ is a unique business model, new in India, and adopted by Arshiya. The company is also ramping up its container rail business which will effectively complement its FTWZ business. The business model of Arshiya is completely integrated and a one-stop-shop to cater to the point-to-point logistics requirement of the customers
Petronet LNG TP - 177
• PLNG is investing ~Rs 30bn on Dahej RLNG capacity expansion by 50% to 15 mmtpa. It is also setting up a second jetty, which will enable it to improve its utilization level by another 20-25%. Management has guided that second jetty is expected to commission by early 2014. The Company is setting up another LNG terminal (5 Mn MTPA) at Kochi with an investment of Rs.42 bn, expected to commission in Q4FY13E. Management has guided that there is a strong demand of LNG from refineries, petrochemicals and CGDs customers reflecting spot LNG to replace liquid fuels. Hence, going forward volumes are expected to improve. On the other hand, domestic natural gas supply was lower on account of falling gas production from RIL's KG-D6.
Disclaimer:
Kotak Securities Limited (KSL) may have proprietary long/short position in the above mentioned scrips and therefore should be considered as interested. Analyst holding: Nil. The views provided herein are general in nature and does not consider risk appetite or investment objective of particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with KSL.
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CA. Rajesh Desai
Rajesh Desai
3QFY13 Results Review
Yes Bank - Liability franchise continues to deliver…
Yes Bank reported one more quarter of strong performance with net profits at INR3.42bn, in line with our estimates of INR3.47bn and above consensus estimates of INR3.24bn, on the back of strong traction in non fund income and healthy NII growth. Expansion in margins, benign asset quality ratios, improvement in retail term deposit mix and more specifically continued traction in saving deposit accretion and CASA ratio were key positives of the result.
Results highlights
Business trajectory healthy
Yes Bank's customer assets (advances + credit substitutes) grew strongly at 27% YoY to INR557bn, within which advances accounted for 78%, suggesting a faster traction in the credit substitutes segment. Growth in advances was largely driven by commercial banking (20% QoQ) and corporate segment (2% QoQ). Within loan portfolio, share of Retail loans declined marginally to 13.5%. Management continued to maintain their cautious outlook on macro and is guiding some moderation in loan growth.
Traction in CASA franchise continues; margin to remain at +3% levels for FY13e
Liability franchise for the bank continues to show improvement with overall share of CASA ratio improving by 100bps on sequential basis to 18.3% aided by strong traction in saving deposits accretion (27% QoQ). The overall share of savings deposits ratio has increased 130bps QoQ to 8.70% of overall deposit. Management highlighted that the bank continues to witness strong momentum in saving deposits customer acquisition. Retail banking liabilities (CASA + Retail Banking FDs) improved to 37.8% (vs. 30.7% in 2QFY13) and the management intends to increase the same to 45% by FY14e. Reported margins for the bank expanded by 10bps on a sequential basis to 3%, on the back of decrease in cost of funds and improvement in liability franchise. Furthermore, to strengthen its retail deposit base, the bank has added 12 branches and increased the employee headcount to 6,532 during the current quarter. Going forward, management intends to add 900 branches by FY15e and improve its CASA ratio to 30% levels.
Valuation and outlook
We believe that Yes Bank is likely to witness stable margins over the next couple of quarters given benign wholesale rates and impressive traction in savings franchise. Further, asset quality for the bank continues to remain best in class despite the challenging environment. The bank seems well on course to achieve its Version 2 strategy of 3.5% NIMs, 30% consumer finance book and 30% CASA. Hence, we are increasing our estimates for FY13e and FY14e by 14% and 9% and have upgraded our target price to INR558 based on 2.8x FY14e P/BV. Reiterate BUY.
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CA. Rajesh Desai
Rajesh Desai
Sector
Update - Antique
Commercial vehicle finance - Solace in heterogeneity
While the issues of low levels of utilization, partial transmission of the diesel price hike, declining collection efficiency and rising re-possession rates are a natural progression to the protracted industrial slowdown, the fragmented nature of India's transportation landscape has ensured divergent trends across the country. Our interactions with the country's two largest road transport providers, two large fleet owners, rating agencies and CV financiers, helps us identify few clear trends - 1) Within the MHCV space, stress levels are highest in cases of fleet expansion undertaken over last 12-18 months, 2) Used CV segment continues to perform well, with little increase in stress levels over the last twelve months, and 3) MHCV capacity additions will remain extremely muted over FY14E, given the abysmal utilization expectations among the fleet operators.
This leads us to believe that even a modest improvement in economy could result in improved utilization levels and that used CVs is the best way to navigate the current slowdown and subsequent gradual recovery in the CV cycle. Among the institutional lenders, Shriram Transport Finance has strong presence in used CV space and could witness limited asset quality deterioration, given its early response to the stress. It also stands to benefit significantly from the declining interest rate environment and subsequent economic recovery. Re-iterate BUY with a price target of Rs850/share.
Sharp decline in new capacity additions to limit stress in the CV cycle
Rating agency data suggests soft nature of delinquencies (0 to 60 days overdue), while the current market expectation assumes large scale deterioration in coming quarters. We believe this may not happen given the sharp decline in new capacity addition in FY13 (23% decline) and very modest additions in FY14 on the back of muted utilization expectation of large fleet operators. Even a moderate improvement in the economy could result in significantly better utilization levels.
Used CVs - the best way to navigate current slowdown and benefit from subsequent recovery
The fragmented nature the used CV segment and its characteristics such as low LTVs, high operating flexibility due to self-driven nature of the vehicle, and operations in the consumption economy ensures lower problems for the vehicle owner as well as the financier. Also, the growth opportunity in this segment is large, given that capacities added over FY05-12 will enter the used CV market over FY14-18. On the contrary, recovery in new MHCV sales would be gradual and contingent on the pace of the economic recovery.
Early response to slowdown, large growth opportunity to augur well for Shriram Transport
Shriram Transport demonstrated pro-activeness as early as March 2011 - 1) Significantly slowed down its AUM growth since June 2011, especially in the new CV segment, 2) Lowered LTVs by 5% to 10% since early FY12, 3) Incremental lending largely happened towards single vehicle owners operating in the consumption economy. The company is well placed to capture the growing used CV market, once the recovery gets underway. Improving margins will offset the impact of higher provisioning and aid earnings CAGR of 18% and RoEs of 21% over FY13-15E. Maintain BUY.
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CA. Rajesh Desai
Rajesh Desai
Sector Update - Antique
FMCG - It's raining …. Offers
Our channel checks suggest limited period offers initiated by FMCG companies, notably in two key categories toothpastes and detergent powder. In toothpastes we believe that the limited period saver pack offers have been a fall-out of P&G's foray in to toothpastes while in detergents, we believe that the selective price reductions are a result of the pressure on growth. Assuming these two trends sustain or intensify in the coming quarters, the same would lead to increase in advertisement and promotional spends of Hindustan Unilever (HUL) and Colgate Palmolive India Ltd (CPIL). Add to it the pressure building from cost inflation resulting from currency depreciation, rise in crude oil prices and higher power and fuel prices, the same would lead to pressure on profitability. Currently we have built in an increase in advertisement and promotional spends by both the companies during FY14 (HUL at 13.6% of net sales (+78bps over FY13) and CPIL at 18.9% of net sales (+301bps over FY13). Therefore any incremental pressure from price cuts and increase in manufacturing cost could affect profitability of these companies by a higher than expected rate. We strongly believe that in view of the slowing demand, companies would initiate price cuts during the next two quarters. In anticipation of a challenging scenario during FY14, we re-iterate our SELL recommendation on HUL and CPIL at the current levels with a target price of INR484 and INR1211.
P&G and HUL initiating selective price cuts in detergents
Prices of P&G's key detergent brand, Tide Naturals are reduced by 9.6% and 10.7% on 1kg and 500gm SKUs respectively to INR47 and INR25, until the stocks last. Prices of HUL's Surf excel easy wash has been reduced by 24% to INR70 for a 700gm pack while Rin detergent powder prices have been cut by 10.5% to INR34.
Saver packs pushed in toothpastes to ward- off competition from P&G
In the toothpaste category, CPIL is aggressively pushing its saver packs (savings of about 10-12%) across key products, Colgate Maxfresh Gel, Colgate Total and Colgate Dental cream according to channel checks. Additionally we also understand from channel checks that CPIL will be ramping up its marketing efforts defend market share against its largest global competitor. HUL too is pushing saver packs of its strong toothpaste brand Close Up. However, the trade channel is currently doesn't expect any price cuts by industry players.
Outlook and Valuation
At the CMP of INR595, HUL is trading at a PE of 35.2x FY14e and 31x FY15e. Further CPIL at CMP of INR1400, is trading at a PE of 36.8x FY14e and 32.4x FY15e. Therefore, both the stocks have been trading at the higher band of their historic valuations. We expect a de-rating in the current valuations of these two companies in view of deteriorating demand and re-surfacing of probable input cost inflation. We therefore re-iterate our SELL recommendation on HUL and CPIL at the current levels with a target price of INR484 and INR1211.
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CA. Rajesh Desai
Rajesh Desai
Automobiles
A mixed bag
Key points
Companies reported mixed performance
The automotive players reported a mixed performance in September 2013. Hero MotoCorp and Maruti Suzuki (Maruti) reported a strong double-digit growth on a year-on-year (Y-o-Y) basis. TVS Motor Company (TVS Motor) also reported a strong double-digit growth in volumes though on a low base of the corresponding month of the last year. On the other hand, Tata Motors, Mahindra & Mahindra (M&M)'s automotive division and Eicher Motors reported a double-digit decline in volumes on a Y-o-Y basis.
Macro-economic environment remains challenging; CV most impacted
The macro-economic environment continues to remain subdued, thereby putting pressure on the automotive volumes. A lower economic growth and an increase in the fuel prices (particularly diesel prices) continue to impact the demand. Also, the firm interest rate environment has maintained pressure on the volumes. The sales of the commercial vehicles (CVs) like medium and heavy commercial vehicle (MHCV) and light commercial vehicle (LCV), which are closely linked to the economic growth, have bore the maximum brunt with the sales declining by 21% and 8% year on year (YoY) in the year-till-date (YTD) period.
Festive season and higher rural incomes to boost demand in H2FY2014; two-wheelers likely to benefit the most
A good monsoon has increased the kharif sowing area, which is likely to boost the rural incomes. Amongst the automotive companies, the two-wheeler players derive significantly higher chunk of sales (about 40 to 50%) from the rural areas. A higher crop output and increased realisations due to increased minimum support prices would boost farm incomes leading to an increase in the demand for the two-wheelers.
Also, the festive season is expected to further boost the volumes for the automotive companies. We expect the volumes to revive for both the two-wheeler and the passenger vehicle companies going forward. The CV companies are likely to witness continued pressure on the volumes due to a lower economic growth and continued increase in the diesel prices, which impact the profitability of fleet operators resulting in lower demand.
CA. Rajesh Desai