Investor's Eye
[July 17, 2013] | | |
| Summary of Contents
STOCK UPDATE HDFC Bank
Recommendation: Hold
Price target: Rs712
Current market price: Rs662 In line performance Result highlights -
HDFC Bank's Q1FY2014 performance was in line with our estimate as the net profit grew by 30.1% year on year (YoY) to Rs1,843.9 crore. This was driven by a strong growth in the net interest income (NII) and a treasury profit of Rs ~200 crore. -
The NII grew by 21.0% YoY to Rs4,418.7 crore, which too was in line with our estimate. A strong growth in advances coupled with a stable net interest margin (4.6% in Q1FY2014) contributed to the growth in NII. -
The business growth was strong as advances grew by 7.9% sequentially on account of a 14.3% quarter-on-quarter (Q-o-Q) growth in the corporate advances. The current account and savings account (CASA) ratio dipped to 44.7% from 47.4% in Q4FY2013 on account of an 11.9% fall in the current account deposits. -
The non-interest income grew by 16.7% YoY (6.8% quarter-on-quarter [QoQ]), largely contributed by a treasury profit to the tune of Rs199.5 crore (Rs64.9 crore in Q4FY2013). The growth in the fee income was slower at 11.7% YoY (down 7.1% QoQ). -
The asset quality witnessed a slight deterioration as the absolute gross non-performing assets (NPAs) spiked up by 16.5% on a sequential basis. Consequently, the provisions rose by 75.4% sequentially. The proportion of restructured advances to overall advances stood stable at 0.2% in Q1FY2014. Outlook
HDFC Bank's Q1FY2014 earnings growth was in line with our estimate, which was led by a strong growth in the NII. The higher treasury profits helped to absorb the rise in provisions and effective tax rate. Going ahead, the bank expects to sustain the net interest margins (NIMs) and foresee a decline in the costs (break-even of the newer branches), which will aid the earnings growth. We maintain our Hold rating and price target of Rs712 on the stock due to premium valuation. Ashok Leyland
Recommendation: Hold
Price target: Rs18
Current market price: Rs16 Price target revised to Rs18 Key points -
Ashok Leyland posts higher than expected loss in Q1FY2014: The Q1FY2014 results of Ashok Leyland Ltd (ALL) were below our as well as the Street's estimates as the company posted a higher than expected loss for the quarter. The revenues at Rs2,368 crore were in line with expectations. However, the operating profit margin (OPM) at 1% was way below estimates. The margin was affected by operating deleverage due to a drop in the volumes and a lack of defence orders, which is a high-margin business for the company. For the quarter ALL reported an adjusted loss of Rs135.2 crore, which is much higher than our estimate of a loss of Rs95 crore. -
MHCV sales to witness downtrend in FY2014: The sales of medium and heavy commercial vehicles (MHCVs) are expected to witness a drop in volumes in FY2014 on account of a subdued economic scenario and an increase in the diesel prices which is putting pressure on fleet operators' profitability. We expect volumes to recover only in FY2015. -
Margins to remain weak, expect a loss in FY2014: With subdued volumes and higher discounting the company's margins are expected to decline in FY2014. Further, higher interest expenses and depreciation would cause ALL to report a loss in FY2014. -
LCV growth to remain strong: ALL plans to launch new products in the light commercial vehicle (LCV) space (Stile, a multi-purpose vehicle [MPV]; Partner in 4- to 6-tonner space and passenger variant of the Dost) which is likely to boost volumes in the LCV space. Valuation: In view of the pressure on the MHCV volumes, we have reduced our revenue assumptions for FY2014 and FY2015. On account of the margin pressure caused by the subdued MHCV volumes and higher discounting, we have also reduced our margin assumptions. We now expect ALL to incur a loss in FY2014. The margins would improve in FY2015 on the back of an upturn in the MHCV industry and the cost-control initiatives adopted by the company. We expect earnings per share (EPS) of Rs1.7 in FY2015 as against Rs2.3 earlier. We maintain our Hold recommendation on the stock with a revised price target of Rs18.
VIEWPOINT Exide Industries Charging itself for a marathon Demand to remain sluggish in the auto OEM and the industrial segments
EIL expects the demand to remain subdued in the automotive (auto) original equipment manufacturer (OEM) space. The auto OEM space registered a volume decline of 6% YoY in Q1FY2014. Also, the poor economic scenario is expected to put pressure on the industrial segment as well. The industrial segment is facing demand pressures across segments viz inverters, railways, power and telecommunications. Its volumes declined by 7% YoY during the quarter. Auto replacement segment to register strong growth
The auto replacement segment is expected to register a strong growth on account of strong OEM sales in FY2010 and FY2011. During Q1FY2014, the four-wheeler replacement segment grew by 7% YoY while the two-wheeler replacement segment grew in excess of 20% YoY. EIL expects the demand to remain strong with a double- digit growth expected in FY2014. OEM market share down; gains in the replacement segment
The market share of EIL in the auto OEM space reduced from 75% in Q1FY2013 to 66% during Q1FY2014. The OEM volumes declined by 6% YoY during the quarter. Given the increased competition in the auto OEM space and consequent margin pressure, EIL let go its share in the automotive OEM space. However, it has gained market share in the auto replacement segment on account of an increasing network and correcting the price differential with the competition. The market share of EIL in the organised auto replacement segment currently stands in excess of 50%. Margins to remain at higher levels
The replacement OEM mix is expected to be higher in FY2014 given the expectation of a weak OEM demand and a strong growth in the replacement segment sales. Replacement being a high-margin business would lead to margins staying at elevated levels. Further, EIL has withdrawn the special incentives provided to the dealers with effect from February 2013 after gaining market share in the replacement segment, which would help sustain improvement in the margins. Valuation
The growth in the auto OEM and the industrial segments is estimated to remain subdued in FY2014. The auto replacement segment is expected to remain strong on account of robust OEM sales in FY2011. The margins are expected to remain at higher levels on account of an improvement in the mix and the price hikes undertaken. We estimate FY2014 and FY2015 earnings per share (EPS) at Rs7.9 and Rs8.8 respectively. We give a long-term median value of 15x to the core business and add Rs11 a share as the book value of investment in the insurance business. We have a Neutral view on the stock.
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. | | | |
| |
| |
This e-mail message may contain information, which is confidential, proprietary, legally privileged or subject to copyright. It is intended for use only by the individual or entity to which it is addressed. If you are not the intended recipient or it appears that this mail has been forwarded to you without proper authority, you are not authorized to access, read, disclose, copy, use or otherwise deal with it and any such actions are prohibited and may be unlawful. The recipient acknowledges that Sharekhan Limited or its subsidiaries, (collectively "Sharekhan "), are unable to exercise control or ensure or guarantee the integrity of/over the contents of the information contained in e-mail transmissions and further acknowledges that any views expressed in this message are those of the individual sender and no binding nature of the message shall be implied or assumed unless the sender does so expressly with due authority of Sharekhan . Sharekhan does not accept liability for any errors, omissions, viruses or computer problems experienced as a result of this email. Before opening any attachments please check them for viruses and defects. If you have received this e-mail in error, please notify us immediately at mail to: mailadmin@sharekhan.com and delete this mail from your records. This e-mail message may contain information, which is confidential, proprietary, legally privileged or subject to copyright. It is intended for use only by the individual or entity to which it is addressed. If you are not the intended recipient or it appears that this mail has been forwarded to you without proper authority, you are not authorized to access, read, disclose, copy, use or otherwise deal with it and any such actions are prohibited and may be unlawful. The recipient acknowledges that Sharekhan Limited or its subsidiaries, (collectively "Sharekhan "), are unable to exercise control or ensure or guarantee the integrity of/over the contents of the information contained in e-mail transmissions and further acknowledges that any views expressed in this message are those of the individual sender and no binding nature of the message shall be implied or assumed unless the sender does so expressly with due authority of Sharekhan . Sharekhan does not accept liability for any errors, omissions, viruses or computer problems experienced as a result of this email. Before opening any attachments please check them for viruses and defects. If you have received this e-mail in error, please notify us immediately at mail to: mailadmin@sharekhan.com and delete this mail from your records.
No comments:
Post a Comment