Investor's Eye
[January 15, 2013] | | |
| Summary of Contents STOCK UPDATE Axis Bank
Recommendation: Buy
Price target: Rs1,570
Current market price: Rs1,422 Earnings growth ahead of estimate, asset quality remains stable Result highlights -
Axis Bank's Q3FY2013 results were above our estimates as the net profit grew by 22.2% year on year (YoY) to Rs1,347.2 crore. The growth in profit was driven by a steady growth in the net interest income (NII) and a sequential decline in provision (Rs386.8 crore vs Rs509.4 crore in Q2FY2013). -
The NII growth of 16.6% YoY was ahead of our estimate, which was driven by a sequential expansion in the net interest margin (NIM; 3.57% vs 3.46% in Q2FY2013) and a healthy growth in the advances (up 20.7% YoY). -
Led by a strong growth in the retail advances (up 44.5% YoY), the total advances increased by 20.7% YoY. The current account and savings account (CASA) ratio showed a marginal decline of 50 basis points on a quarter-on-quarter (Q-o-Q) basis to 40%. -
The asset quality remained stable as gross and net non-performing assets (NPAs) were largely similar to that of Q2FY2013. Further, the slippages were lower on a Q-o-Q basis while the restructured loans were marginally higher at Rs368 crore (vs Rs509.4 crore in Q2FY2013). One-third of the restructured loans have performed for over one year after the moratorium period. -
Valuations and outlook: Axis Bank's Q3FY2013 results were ahead of estimate due to an expansion in the margin and a lower than expected provision. We expect the bank's earnings to expand at a CAGR of 18% over FY2012-15. We maintain our Buy recommendation on Axis Bank with a price target of Rs1,570 (1.9x average of FY2014E and FY2015E book values [BVs]). Currently, the stock trades at 1.9x FY2014E BV and 1.6x FY2015E BV. Bajaj FinServ
Recommendation: Hold
Price target: Rs892
Current market price: Rs874 Steady growth in earnings Result highlights During Q3FY2013 Bajaj FinServ reported a consolidated net profit of Rs248.7 crore (up 46.2% year on year [YoY]) led by a strong growth in the lending business (Bajaj Finance) and the general insurance business. The income from the operations showed a robust growth of 35.7% YoY to Rs1,119.8 crore, leading to a strong 41.8% year-on-year (Y-o-Y) growth in the operating profit. Life insurance-earnings growth steady, premium growth slips though
The life insurance business reported a combined profit of Rs331 crore in Q3FY2013 (policy holders' surplus of Rs231 crore) showing a growth of 17.0% on a Y-o-Y basis. However, the gross written premium (GWP) declined by 9.9% YoY with the renewal premiums declining by 17.8% YoY. The assets under management (AUM) declined by 0.9% on a quarter-on-quarter (Q-o-Q) basis to Rs40,249 crore. General insurance-strong growth in profitability
The general insurance business reported a profit of Rs91 crore in Q3FY2013 as against a profit of Rs60 crore in Q3FY2012. The gross premiums increased by 22.6% YoY during the quarter while the combined ratio stood at 98.7% (including motor pool losses). As required by the Insurance Regulatory and Development Authority (IRDA), the company provided Rs53 crore (Rs42 crore in Q3FY2012) for motor pool. The profit growth was strong despite a rise in the claims ratio (60.5% vs 58.1% in Q3FY2012). Bajaj Finance-strong growth continues
Bajaj Finance showed a strong growth in profit (up 33.4% YoY to Rs160 crore) in Q3FY2013. The growth in the profit was driven by a strong uptick in the net interest income (NII), which grew by 27.4% YoY to Rs504 crore. The deployments of the company grew by 11.9% YoY to Rs5,200 crore during the quarter while its AUMs expanded by 9.6% quarter on quarter (QoQ) to Rs16,844 crore. Valuations
Bajaj FinServ has delivered steady numbers for the third quarter of FY2013 on the back of a strong growth by Bajaj Finance and the general insurance business. Though the life insurance business remains profitable, but the adverse environment and regulatory prescriptions could affect the premium growth, which, in turn, could affect the future profits.
We believe the increase in the foreign direct investment (FDI) limit to 49% by the government will be sentimentally negative for the company as the company has given an option to its joint venture partner to raise its stake at a pre-agreed price till 2016. However, the company can take shelter under ambiguity in the Reserve Bank of India (RBI)'s circular (transfer of shares to a foreign entity at a fair value). While the profit growth remains steady, the stock has appreciated significantly, leaving little room for upside. We upgrade our recommendation to Hold and maintain price target of Rs892. NIIT Technologies
Recommendation: Hold
Price target: Rs305
Current market price: Rs277 Maintain Hold, revise price target to Rs305 Result highlights -
Forex gains lead to outperformance: NIIT Technologies (NIIT)'s numbers for Q3FY2013 were broadly in line with our expectations. However, a higher than expected foreign exchange (forex) gain (Rs12.6 crore) led to an outperformance at the net income level. The revenues were up by 2.9% quarter on quarter (QoQ) and 18.8% year on year (YoY) to Rs514.4 crore (ahead of our expectation of Rs499.6 crore). However, excluding the hardware revenues of Rs22 crore the revenues were up by 0.3% QoQ to Rs492.4 crore. -
The revenue disappointment continues in the GIS (Geographic Information Systems) segment (owing to issues in the APDRP programme, with revenues dropping by 14% QoQ to Rs19.7 crore with a negative operating profit margin [OPM] of 7% (in Q2FY2013 the margin was 1%). The management expects some improvement in the revenue run rate in Q4FY2013, which is a seasonally strong quarter for the GIS business. On the other hand, it expects a steady margin of 20-22% by Q1FY2014. -
The revenues from the Room Solutions business further declined by 8% QoQ to Rs33.7 crore on account of a major catastrophe events like, Hurricane Sandy and others, which has caused losses to the reinsurers in the last few quarters. The management expects things to improve by Q1FY2014. -
During the quarter, the revenues from the Morris Communications joint venture (JV) rose by 15% QoQ to Rs30.3 crore whereas Proyecta reported revenues of Rs14.4 crore, showing a growth of 13% QoQ. -
The EBITDA margin fell by 120 basis points QoQ to 15.8% (our expectation was 15.3%) on account of the transition cost associated with the Morris Communications JV (negative 40 basis points), the losses in the GIS segment and drop in the margin of the Room Solutions business. The management expects the margins to see a marginal improvement in Q4FY2013 and some significant improvement by Q1FY2014. -
The net other income for the quarter was up by 30% QoQ to Rs56.1 crore (ahead of our expectation of Rs50.6 crore). The outperformance was primarily driven by a higher than expected forex gain of Rs10.3 crore against a forex loss of Rs15.1 crore in Q2FY2013. -
Valuation and view: Improvement in the margin and consistency in the earnings performance remain the two key events that could trigger NIIT's re-rating from the current levels. However, we remain sceptical about any meaningful improvement in the margin in the medium term owing to issues in two of the high-margin segments, GIS and Room Solutions. Besides, there is a lack of clarity regarding the steady state margins in the new deals. We maintain our Hold rating on the stock with an increased price target of Rs305 (target multiple rolled over to FY2015 earnings estimate).
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