Investor's Eye: Update - Yes Bank, Bajaj FinServ; Viewpoint - Exide Industries

 

Investor's Eye [January 15, 2014]  Sharekhan www.sharekhan.com

Summary of Contents   STOCK UPDATE Yes Bank Recommendation: Buy Price target: Rs422 Current market price: Rs353 Lower provisions aid earnings growth Yes Bank's Q3FY2014 net profit growth of 21% was aided by a decline in the provisions (a reversal of the investment provisions of Rs52 crore led to the lower provisions); the net interest income growth moderated to 13.9% as the bank turned cautious on the advances growth. The net interest margin was stable; the asset quality showed a blip but remained healthy. The business growth is expected to remain modest due to tough macro-economic conditions. Capital raising (equity) and improvement in the liability base will be keenly watched. We expect an earnings growth of 17.5% compound annual growth rate (CAGR) over FY2013-16 and return on equity (RoE) of over 20% (after factoring in equity dilution in FY2015). We maintain our Buy rating with a price target of Rs422 (1.7x FY2015E book value).    Bajaj FinServ Recommendation: Buy Price target: Rs835 Current market price: Rs725 Price target revised to Rs835; upgraded to Buy Bajaj Finserv reported a steady set of numbers for Q3FY2014 (the consolidated profit after tax [PAT] grew by13% year on year [YoY] to Rs281 crore). The life insurance segment showed revival signs, on the other hand the lending (Bajaj Finance) business and the general insurance business reported strong performances. We upgrade the rating of Bajaj Finserv (from Hold to Buy) and the sum-of-the-parts (SOTP)-based price target (Rs835) in view of: (a) a strong sustained performance by the lending business and the general Insurance business; (b) an expectation of a revival in the life insurance business; and (c) the rolling of valuations on the FY2015 numbers. Key risks: the passage of insurance bill (a hike in foreign direct insurance [FDI] to 49%) and a change in the regulations by the Insurance Regulatory and Development Authority (IRDA).   VIEWPOINT Exide Industries Loosing charge Key points The muted demand from the original equipment manufacturer (OEM) segment and the replacement segment led to a double-digit decline in revenues in Q3FY2014 and has put pressure on the margin (a declined by 320 basis points quarter-on-quarter [Q-o-Q] and 30 basis points year-on-year [Y-o-Y]). With no signs of revival in the demand, Exide is expected to end FY2014 with a decline of 8.8% in earnings. The expected revival in the auto sector in FY2015 could lead to roughly a growth of around 10% in the earnings during FY2015. We expect the stock to trade at its historic average valuation multiple of 15x (add about Rs15 for investment in the insurance business; ING Insurance), leaving little scope for any meaningful gains in the near future. 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.

Regards, The Sharekhan Research Team

 

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