Investor's Eye
[March 18, 2013] | | |
| Summary of Contents
STOCK UPDATE Axis Bank
Recommendation: Buy
Price target: Rs1,570
Current market price: Rs1,325 Recent fund raising to support growth Axis Bank recently raised Rs5,568 crore of equity capital leading to an 8-6% expansion in our FY2013 and FY2014 book value estimates and about a 200-basis-point impact on the return on equity estimates (RoE; 17% in FY2014) of the stock. The capital raised will help the bank to achieve a strong growth in advances amid expectations of an economic recovery, which should drive the credit demand. In addition, the bank's operating performance remains strong and the diversification of its loan book into the retail segment is progressing well. The asset quality has largely remained stable and we expect the slippages and provisioning to be broadly in line with the management's guidance (ie an impairment of Rs1,000 crore per quarter). The recent media reports alleging money laundering by the bank seem to have been priced in the stock and the development should not have any significant impact on the broader performance of the bank. Currently, the stock is trading 1.7x and 1.4x FY2014E and FY2015 book value respectively and is at an 18-20% discount to the five-year mean valuation. We maintain our Buy rating on the stock with a price target Rs1,570.
SECTOR UPDATE Logistics Overall cargo volume remains flat; container volume recovers Key points -
After eight consecutive months of contraction, India's export-import (EXIM; exports + non-oil imports) growth has re-entered the positive zone in the last couple of months. The growth in February 2013 was, however, marginal at just 1% year on year (YoY). A closer look at the EXIM trend indicates that the worst may be behind us: from -10% YoY in the five-month period May-September 2012 the growth has improved to 0% YoY for the subsequent five-month period (October 2012-February 2013). The recovery in February (1% YoY) was largely possible on account of a 6% growth in the exports. The imports (non-oil), on the other hand, declined by 2%. The year-till-date (YTD) growth stood at -5% YoY for the April 2012 to February 2013 period as against 26% YoY during the April 2011 to February 2012 period. -
The total cargo volume at the major ports in February 2013 reported an increase of just 1% YoY mainly due to a 72% year-on-year (Y-o-Y) decline in the cargo at the Mormugao port. The Mormugao volumes have been suffering since June 2012 owing to a mining ban in Goa. Excluding Mormugao, the aggregate increase in the cargo at the major ports was 7%. The other ports that registered a decline in their cargo traffic were Mumbai (-12%) and VO Chidambaranar (-7%). On a YTD basis, the total cargo volumes reported a decline of 3% YoY. -
The container volumes in February 2013 expanded by 4% YoY after contracting for five months in a row. However, the flattish growth on a YTD basis (April 2012 to February 2013) continues to portray a bleak outlook for container volumes. We would have to closely monitor the volumes at the major container ports of the Jawaharlal Nehru Port Trust (JNPT) and Chennai in the coming months to conclude the recovery is sustainable. We believe that a recovery, if any, would be restricted to low single-digit growth rates as both these major ports are operating in excess of their capacity and will not be witnessing any capacity expansion for the next 18-24 months. -
A slowdown in EXIM as well as domestic trade has resulted in contraction of cargo volumes owing to which the logistic industry is undergoing a challenging phase. Container volumes reversed their declining trend in the last couple of months. The sustenance of growth in container volumes in the coming months would augur well for the logistic players. However, a sustained recovery, if any, would be restricted to low single-digit growth rates as the JNPT and Chennai ports, the major ports that handle a large chunk (two-thirds) of the total containers are operating in excess of their capacity and will not be witnessing any capacity expansion for the next 18-24 months. Thus, we expect the overall lacklustre performance to continue in the near term. However, we continue to prefer Gateway Distriparks Ltd (GDL) due to the robust long-term growth potential of each of its business segments, ie container freight station (CFS), rail and cold storage. The stock is currently trading at a PE of 7.3x based on its FY2015E EPS of Rs16.6. Outlook and view
A slowdown in EXIM as well as domestic trade has resulted in contraction of cargo volumes owing to which the logistic industry is undergoing a challenging phase. Container volumes reversed their declining trend in the last couple of months. The sustenance of the growth in the container volumes in the coming months would augur well for the logistic players. However, a sustained recovery, if any, would be restricted to low single-digit growth rates as the JNPT and Chennai ports, the major ports that handle a large chunk (two-thirds) of the total containers are operating in excess of their capacity and will not be witnessing any capacity expansion for the next 18-24 months. Thus, we expect the overall lacklustre performance to continue in the near term. However, we continue to prefer GDL due to the robust long-term growth potential of each of its business segments, ie CFS, rail and cold storage. The stock is currently trading at a PE ratio of 7.3x based on its FY2015E EPS of Rs16.6.
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