Investor's Eye: Update - Axis Bank (Earnings beat estimate; price target rolled over to Rs1,650), United Phosphorus (Strong Q4 performance; marginally upgraded earnings estimate and price target)

 

Investor's Eye [April 25, 2013]  Sharekhan www.sharekhan.com

Summary of Contents     STOCK UPDATE Axis Bank Recommendation: Buy Price target: Rs1,650 Current market price: Rs1,503 Earnings beat estimate; price target rolled over to Rs1,650 Result highlights  Axis Bank's Q4FY2013 earnings were above our estimate as the same grew by 21.8% year on year (YoY) to Rs1,555.2 crore. The growth was achieved on the back of a strong growth in the net interest income (NII) and a higher non-interest income. The NII grew by 24.2% YoY (up 6.8% quarter on quarter [QoQ]), in line with our estimate. The growth in the NII was largely driven by a 13-basis-point expansion in the net interest margin (NIM; up 3.70% in Q4FY2013) as the cost of funds declined due to capital raising during the quarter. The non-interest income grew by 26.4% YoY (up 24.3% QoQ) led by a 22.0% year-on-year (Y-o-Y) growth in the fee income and a treasury profit of Rs237.8 crore (Rs146.0 crore in Q4FY2012) contributed by the fixed income portfolio of the bank.  The advances grew by 16.0% YoY (up 9.7% QoQ), driven by jump in the retail advances (up 44% YoY) and the advances to the small and medium enterprises (SME) sector (up 25.7% YoY). The bank had raised Rs5,537 crore through a qualified institutional placement (QIP) and a preferential allotment in Q4FY2013, which led to a 4.25% sequential dip in the term deposits. Consequently, the current account and savings account (CASA) ratio of the bank jumped to 44.4% during the quarter (40.0% in Q3FY2013). The asset quality displayed a slightly mixed trend with the slippages declining QoQ (Rs398 crore in the quarter vs Rs541 crore in Q3FY2013). But there was an increase in the fresh restructured loans (Rs791 crore vs Rs368 crore in Q3FY2013). The provision coverage ratio (PCR) was healthy at 79%. Valuation  Axis Bank's strategy of expanding the retail business is shaping well and is partly compensating for the drop in the corporate business. Going ahead, we believe the margins may decline and stabilise at 3.3-3.4%, which is still healthy. We have largely maintained the earnings estimates but rolled over our price target on FY2015 book value. Thus, the price target stands revised to Rs1,650 (1.7x FY2015 book value). We maintain our Buy rating on the stock.       United Phosphorus Recommendation: Buy Price target: Rs180 Current market price: Rs132 Strong Q4 performance; marginally upgraded earnings estimate and price target Result highlights  Results well ahead of expectation: During the quarter, the consolidated revenues of United Phosphorous Ltd (UPL) grew by a robust 32% to Rs2,820.7 crore as compared with Rs2,144 crore in Q4FY2012 while the reported profit after tax (PAT) for the quarter stood at Rs278.0 crore, which include exceptional items of Rs35.2 crore. Adjusting to the exceptional items, the adjusted PAT stood at Rs313.2 crore, which was well above of our as well as the Street's estimates. The revenue growth was aided by a higher blended realisation (4%) and currency benefit (16%) in addition to a 9% growth in the volume offtake, which was largely driven by a robust performance in America and Europe. Marginal improvement in margin during quarter: During Q4FY2013, the operating profit margin (OPM) improved marginally by 21 basis points year on year (YoY) to 19.0%, thereby reversing the declining trend experienced in the margin in the past four quarters. This is largely on account of a better product mix and currency benefit. The management has guided for a 100-basis-point improvement in the margin in FY2014 over FY2013. However, we are factoring in a flat margin in FY2014 in our expectation. Demand outlook remains optimistic; normal monsoon to play key role: The demand environment for the agrochemicals remains positive across the world on account of a favourable weather condition projected by the different metrological departments. North American and the domestic markets are expected to play a key role in revival of the demand for agrochemicals as both the markets were witnessing an uneven weather pattern. As per the guidance of the management, UPL will be able to achieve a revenue growth of 12-15% in FY2014, which is in line with our assumption of 13.3% growth in revenues in FY2014. Valuation: UPL's performance for the quarter was ahead of our estimate and its margin remains largely in line with our estimate. The commentary of the management also indicated a revival in the demand along with a growth in the volume in Latin America, India and North America. Based on the strong Q4FY2012 performance and the positive management commentary, we have revised our estimates upwards for FY2014 and FY2015 to earnings per share (EPS) of Rs18.7 per share and Rs20 per share respectively. We maintain Buy recommendation on the stock with a price target of Rs180.   Click here to read report: Investor's Eye     Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

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