Investor's Eye: Update - Aditya Birla Nuvo, Jaiprakash Associates, Andhra Bank

Investor's Eye [February 11, 2014]  Sharekhan www.sharekhan.com

Summary of Contents   STOCK UPDATE Aditya Birla Nuvo Recommendation: Buy Price target: Rs1,295 Current market price: Rs1,103 Price target revised to Rs1,295 Key points ABNL's Q3FY2014 results is not directly comparable on a Y-o-Y basis, as the last years performance included the carbon black business, which was sold-off in April 2013. Excluding the impact, on a like-to-like basis the overall performance was good, with a revenue growth at 5% YoY. Led by efficiencies in the business verticals (barring the insurance and fertiliser businesses), the operating profit grew by 22% YoY, while the net earnings was up 18% on a Y-o-Y basis. The company sounded confident on its non-banking finance business and continues to nurture its plans to grow the loan book size. Further, on the life insurance vertical, it sounded positive on the product portfolio front and expects a revival after elections. In line with its stated strategy of efficient capital allocation, and to concentrate and build the businesses in which the company has a leadership status. ABNL has decided to exit from its ITeS business (Minacs) at an enterprise value of $260 million (about Rs1,600 crore). We believe that the divestment would enable it to focus on its growing verticals and allocate capital in an optimal manner.  ABNL's strong positioning in each of the business verticals it operates in (life insurance, telecom, lifestyle and asset management) along with its quest for a profitable growth, makes us maintain our Buy rating on the stock with a revised price target of Rs1,295.    Jaiprakash Associates Recommendation: Hold Price target: Rs42 Current market price: Rs40 Steep correction prices in negatives; upgrade to Hold rating Key points Jaiprakash Associates reported a stand-alone loss of Rs88.5 as a dismal cement and real estate division's performance was met higher interest costs (up 41%YoY) and a lower other income (down 79% YoY). The construction division withstands with a 14%Y-o-Y growth in revenues and a 49% Y-o-Y growth in the EBIT. After the sale of the Gujarat cement division, the management seeks to divest two more cement plants, two hydro power plants and a few land parcels in the near term. Further asset sales across these divisions are likely to reach the management's target of paring the consolidated debt to Rs35,000 crore from the current Rs58,000 crore.  We have fine tuned our estimates for FY2014 and FY2015 to factor in a muted outlook for the cement and real estate division. Our reduce call on the stock has worked well, with the stock correcting by 37% since the beginning of 2014 (and achieved our price target of Rs40). Thus, we believe that most of the negatives are priced in and the divestment of assets (and consequently a reduction of the debt) would aid sentiments. We are upgrading the stock to Hold rating with a price target of Rs42.   Andhra Bank Recommendation: Reduce Price target: Rs48 Current market price: Rs55 Price target revised to Rs48 Key points The Q3FY2014 performance reported by Andhra Bank disappointed on all operating parameters. Its earnings declined by 82.3% YoY, affected by a decline in the net interest income, a sharp increase in provisions (up 50.2% YoY) and a higher tax rate (down to 51.3% from 39.8% in Q3FY2013). The net interest margin declined by 62BPS sequentially to 2.54%. The asset quality continues to deteriorate as fresh slippages remained high at about Rs690 crore while the bank restructured Rs950 crore worth of loans in Q3FY2014. The pressure on the bank's asset quality is likely to persist, given the bank's relatively higher exposure to troubled sectors (infrastructure, metals etc) and a weak economic growth. We have revised our earnings estimates for the bank downward to factor in the dip in its margin and adjust for a higher tax rate. We expect its return ratios to remain subdued. The weak capital position (tier-1 CAR of 7.96%) and the ongoing issues in Andhra Pradesh may affect its performance. We maintain our Reduce rating on the bank with a revised price target of Rs48. 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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