Investor's Eye
[October 23, 2012] | | |
| Summary of Contents
STOCK UPDATE Yes Bank
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs480
Current market price: Rs399 Robust performance, price target revised to Rs480 Result highlights -
Yes Bank's Q2FY2013 results were above of our estimates as the net earnings clocked a growth of 30.2% year on year (YoY; 5.5% sequentially). The growth in profits was driven by a robust growth in the net interest income (NII) followed by a strong growth in the non-interest income. -
The NII growth was higher than our estimates as it grew by 35.9% YoY (11.0% quarter on quarter [QoQ]) led by a strong growth in the customer assets and a sequential improvement in the net interest margin (NIM). During the quarter, the NIM surged by 10 basis points to 2.9% while the current account and savings account (CASA) ratio expanded by 100 basis points to 17.3% from 16.3% in Q1FY2013. -
The growth in advances, including credit substitutes, was 32.5% YoY (ex credit substitutes the growth was 22.9% YoY). The corporate advances grew by 34.9% YoY, whereas the retail advances grew by 21.2% YoY. The deposits grew by 18.6% YoY on account of a robust growth in the CASA ratio. -
The non-interest income grew by 29.3% YoY (down 3.9% QoQ) aided by a robust 32.8% year-on-year (Y-o-Y) growth in the fee income, which was backed by a jump in the retail fees (up 114% YoY) and transactional banking income. The cost/income ratio remained flat at 39.5% QoQ. -
The asset quality improved marginally on a quarter-on-quarter (QoQ) basis as the gross and net non-performing assets (NPAs) declined to 0.24% and 0.05% respectively, which is best in the industry. Moreover, there was no fresh restructuring in Q2FY2013 and the restructured advances book was 0.45% of advances. Outlook and valuation
Yes Bank reported a strong performance driven by a strong growth in the NII and improved asset quality. We expect the company's earnings to grow at compounded annual growth rate (CAGR) of 27% over FY2012-14. This should lead to a return on equity (RoE) of +20% (after factoring in the dilution) and a return on asssets (RoA) of +1.5 over the next two years. Therefore, considering the strong growth and scope for margin expansion, we revise our price target upwards to Rs480 (2.2x FY2014 book value [BV]) and maintain Buy rating on the stock. Lupin
Cluster: Apple Green
Recommendation: Buy
Price target: Rs660
Current market price: Rs563 Better product mix inflates margin Result highlights -
An impressive all-round performance; higher tax incidence affects profit: For Q2FY2013 Lupin has reported a 36% year-on-year (Y-o-Y) rise in the net sales to Rs2,239.3 crore. The net sales grew on the back of an impressive all-round performance in various geographies. The advanced markets of the USA, Europe and Japan grew by 51% year on year (YoY) while the emerging markets of South Africa, India and the other countries jumped by 23% YoY during the quarter. The operating profit margin (OPM) improved by 349 basis points YoY to 20.3% on the back of a better product mix, which led the profit before tax (PBT) to jump by 76% YoY to Rs441 crore. However, due to higher tax provisions, the adjusted net profit witnessed a restricted growth of 49.7% YoY to Rs190.5 crore (excluding the milestone payment received from Medicis Pharmaceutical Corp [Medicis]). The overall performance of the company was better than expected in Q2FY2013. -
We maintain our estimates, recommendation and price target: There being no material change in the management's stand on scheduled product launches and other growth indicators, we stick to our earnings estimates for FY2013 and FY2014. We also maintain our Buy rating on the stock with a price target of Rs660. Raymond
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs483
Current market price: Rs373 Price target revised to Rs483 Result highlights -
Results ahead of expectations: Raymond's Q2FY2013 results (consolidated) are ahead of expectations largely on account of a better than expected operating performance during the quarter. The revenues grew by 13.0% year on year (YoY) to Rs1,115.1 crore (ahead of our estimate of Rs861.7 crore), but the operating profit margin declined by 349 basis points YoY to 14.3% (in line with our expectation of 14.0%) on account of higher input prices. The textile and garment businesses posted a double-digit revenue growth of about 18% YoY and 13% YoY respectively during the quarter. However, a higher input cost and inventory liquidation led to a decline in the margins of these segments. The company added 42 stores with an increase of 61,914 square feet in the retail space during the quarter. The average same-stores growth stood at 3% YoY (which was an improvement over the 3% year-on-year [Y-o-Y] decline in Q1FY2013) during the quarter. -
Performance snapshot: In Q2FY2013 Raymond's revenues grew by 13.0% YoY to Rs1,115.1 crore. The growth was largely driven by an 18.2% Y-o-Y growth in the textile business (largely driven by a growth in the realisation) and a 13.2% Y-o-Y growth in the garment business. The higher input cost resulted in a 275-basis-point Y-o-Y decline in the gross profit margin (GPM) to 61.7%. The operating profit margin (OPM) declined by 348 basis points YoY to 14.3% during the quarter. Thus, the operating profit declined by 9.2% YoY to Rs159.2 crore. The decline in the OPM and a 24.8% Y-o-Y increase in the interest expenses resulted in a 38% Y-o-Y decline in the reported profit after tax (PAT) to Rs50.3 crore during the quarter. The company had recognised expenses to the tune of Rs19 crore on account of a voluntary retirement scheme (VRS) during the quarter. However, excluding the exceptional items (the VRS expense and a profit on the sale of investments) of Rs9.5 crore the adjusted PAT stood at about Rs60 crore in Q2FY2013. -
Outlook and valuation: With the festive season upon us, we expect Raymond to post a better performance in the coming quarters. Overall, we expect Raymond to post a marginal decline in the PAT in FY2013 (due to a subdued performance in H1FY2013). However, a likely improvement in the macro environment and its positive effect on consumer sentiment should also help the company to post a strong bottom line growth in FY2014. At the current market price the stock trades at 18.5x its FY2013E earnings per share (EPS; excluding the value of the Thane land parcel) of Rs20.3 and 12.8x its FY2014E EPS (excluding the value of the Thane land parcel) of Rs29.3. In view of its strong brand equity and established market positioning, we maintain our Buy recommendation on the stock with a revised sum-of-the-parts (SOTP)-based price target of Rs483.
VIEWPOINT Hero MotoCorp Low on growth; high on margins Result highlights -
The second quarter of FY2013 realisation jumped sharply by 2.3% sequentially to Rs38,921 per vehicle. This increase is due to the improved mix because of the higher-end bikes (125cc), improved scooter and spare sales. -
The contribution/vehicle jumped 6.2% sequentially due to increased sales of deluxe bikes and spare sales. -
The other expenditure on absolute basis sustained at higher levels despite the volume drop due to increased marketing expenditure and a supply chain meet with the partners. -
The royalty charges (reflected under depreciation charges) declined by Rs14 crore on a sequential basis due to appreciation in the rupee.The company took price hike of Rs300/vehicle across the product range effective from October 1,2012. Outlook and valuation
We see the management's guidance of 5% volume growth for FY2013 as overly optimistic and now expect only a flat growth for the full year in light of the poor performance in Q2FY2013 and a flat year-on-year (Y-o-Y) growth during the initial festive season of Navratri. Going forward, the risk of management lowering its outlook may increase due to the heightened competitive intensity on account of a 100cc bike launch by Bajaj Auto and Honda Motors and Scooter India increasing its advertisement spends to support Shine 125cc sales.
While volumes may take a backseat, margins are likely to revive back to over 15% mark in H2FY2013 as compared with 14.4% in H1FY2013 on account of the favorable operating leverage, better product mix and stable raw materials. Our FY2013 earnings per share (EPS) of Rs121.8/share remains unchanged as we incorporate expectations of the lower volume growth and better margins for H2FY2013. However, we revise downwards our FY2014E EPS expectations to Rs142/share to incorporate the moderate industry growth for the next year and HMCL's continued underperformance in the domestic market. The stock can trade at 13.5x on FY2014 earnings. Post correction in the prices, we have a Neutral view on the company.
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