Investor's Eye
[June 11, 2013] | | |
| Summary of Contents
STOCK UPDATE ICICI Bank
Recommendation: Buy
Price target: Rs1,320
Current market price: Rs1,076 Annual report review Going strong
ICICI Bank's annual report for FY2013 highlights the structural initiatives driving the improvement in the bank's profitability and asset quality. As per the report, unsecured lending has come down significantly though the shortfall in priority sector lending has increased. Going ahead, the bank is likely to grow faster than the industry with its focus on the retail segment. Its net interest margin (NIM) is likely to remain stable. We expect the bank's earnings to grow at a compounded annual growth rate (CAGR) of 15.7% (FY2013-15) leading to the expansion in the return on equity (RoE) to 14.7% by FY2015. We maintain our Buy rating on the stock with a sum-of-the-parts (SOTP) based price target of Rs1,320.
SECTOR UPDATE Cement Cement prices rise but demand growth yet to pick-up We have done a channel check with the cement dealers across most of the major cities in the country to know about the current status on the pricing and demand environment. The key highlights of our interaction are as follows: -
Cement prices increase in most of the cities; southern and eastern regions registered highest price hikes: According to our recent interaction with the cement dealers, the cement prices in May 2013 increased by an average of Rs15-20/bag of 50kg across the country. The hike in cement prices was largely supported by (a) supply control; (b) to pass on recent increase in the coal price by Coal India; and (c) to offset the likely weakness in the cement prices in June-July 2013 due to the monsoon season. Among the various regions, the hike in cement prices was highest in the southern and eastern regions, where the cement price increased in the range of Rs75/bag and Rs30/bag respectively. On the other hand, the hike in cement prices was relatively less in the northern region, where the cement price increased by 5-8/bag. With the recent increase in the cement prices, the all-India cement prices have increased to Rs310/bag as against the average cement prices of Rs295/bag for Q4FY2013. Hence, if the current prices sustain, we could see a sequential improvement in the average cement realisation of the cement companies in the coming quarter. -
Demand environment continues to remain weak: Though the cement prices have increased in major cities, the demand environment has remained weak on account of a slower than expected execution of the infrastructure and housing projects. Further, with the onset of monsoon, we believe the cement demand will remain weak in the near term. Among the regions, the central and eastern region witnessed a relatively better demand environment. However, the demand for cement in the major cities of the western region remained weak and hence witness relatively lesser price hikes. Further, the southern region also continued to witnesses a sluggish demand environment due to absence of government infrastructure projects and a slow recovery in the private housing segment. Hence, we have cut down our overall volume growth estimate for FY2014 to 7-7.5% as compared with 8-8.5% estimated earlier. -
Increase in the coal price along with higher freight charges will keep margin under pressure: Recently, Coal India increased the prices of coal by an average of 5% with effect from May 28, 2013. Hence, the companies with higher dependency on domestic coal like ACC, Ambuja Cements, Mangalam Cement, Orient Cement etc will witness an increase in the power and fuel cost. Further, as the demand environment is weak in certain regions, the cement players have increased their lead distance to deliver higher volumes in different regions. Hence, the freight cost is expected to remain high and will also increase from the current level of around Rs900/tonne basis. Hence, the cost inflation in terms of freight, and power and fuel cost is expected to keep the margin under pressure. -
Valuation gap widen between mid-cap and large-cap cement companies: The valuation gap between the large-cap cement players, which includes ACC, Ambuja Cements and UltraTech Cement (UltraTech), has widened over the valuation of mid-cap cement players, which includes India Cements, Madras Cement, JK Lakshmi Cement, JK Cement, Mangalam Cement and other regional players. Currently, the mid-cap cement players trade at an average discount of around 50% over the valuation of large-cap cement players as compared with the historical mean of around 30-35%. Going ahead, looking at the better earnings growth visibility and an attractive valuation of the mid-cap cement players, we believe the gap in the valuation between the large-cap and mid-cap players will narrow down to some extent. Among the large-cap players, we are positive on UltraTech as the valuation is relatively more comfortable. Among the mid-cap players, we maintain our positive stand on Orient Cement (demerged arm of Orient Paper & Industries), which is yet to be listed.
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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