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| Summary of Contents STOCK UPDATE Bank of Baroda
Recommendation: Buy
Price target: Rs1,035
Current market price: Rs878 Steady operating performance, asset quality improves Result highlights - Bank of Baroda (BoB) reported a 12.5% Y-o-Y growth in the profits led by a healthy growth in the NII (up 11% YoY) and a decline in the provisions (down 28% YoY). The non-interest income also grew at 11% YoY (led by the fee income), contributing to the growth in profits.
- The bank continues to deliver on the asset quality front as the fresh addition to the NPAs and the additions to restructured book were lower on a sequential basis. Consequently, the reported NPAs declined on a Q-o-Q basis and the provision coverage improved to 65.5% from 62.2%.
- BoB continues to deliver a steady trend in the earnings and an improvement in the asset quality. The structural changes by the management are likely to drive the improvement in the margins and profitability. Given BoB's stable asset quality, improving return ratios and better capital position (tier-I CAR 9.3%), the stock should trade at a premium to other PSBs. We have maintained our Buy rating on the stock with a revised prices target of Rs1,035 (1x FY2016 book value). Key risk: an unexpected deterioration in the asset quality is the biggest risk to our call.
Relaxo Footwear
Recommendation: Buy
Price target: Rs430
Current market price: Rs362 Strong performance; price target revised to Rs430 Result highlights - In Q4FY2014 Relaxo Footwear (Relaxo)'s exceptionally strong surge of 61.8% was driven by a 27.1% growth in the revenues and a margin expansion of 65BPS (helped by efficiency gains). The superlative performance is all the more commendable as the overall demand and macro environment is not so supportive.
- Relaxo with its economical price points (averaging Rs112) is well placed to cash in on the transition towards the branded shoes segment from the unorganised segment. Thus, we expect the company to post a 23.4% revenue CAGR over FY2014-16, while initiatives on the efficiency drive, cost rationalisation with the support from soft raw material prices would culminate in a strong 40% CAGR earnings growth over FY2014-16. We have upgraded our earnings by 17% and 25% for FY2015 and FY2016 respectively.
- Despite a steep appreciation (the stock has appreciated by 36% since our last update on the stock in February 2014), Relaxo's strong and improved earnings visibility with its prudent risk management practice, healthy balance sheet and transition towards a professionally managed company keeps us bullish on the stock. We maintain our Buy rating on the stock with a revised price target of Rs430 (valued at 20x FY2016 EPS, a 20% discount to the industry leader-Bata India).
GlaxoSmithKline Consumer Healthcare
Recommendation: Buy
Price target: Rs4,500
Current market price: Rs4,159 Upgraded to Buy with a revised price target of Rs4,500 Result highlights - Q5FY2014 was yet another quarter of mid-teens revenue growth for GSK Consumer Healthcare (GSK Consumer) in the backdrop of macro uncertainties and a weak consumer demand. The core malted food drinks (MFD) segment grew by 13% (a volume growth of 7%), while the food business registered a strong growth of 32% (the biscuit segment grew by 18%). The inflated raw material prices (the milk prices soared up by about 30%) led to an 85-BPS decline in the GPM and a 63-BPS decline in the OPM.
- We expect the sales volume growth to sustain in the range of 6-8% in the coming quarters. With a price increase of about 6%, the value growth in the MFD segment would be in the range of 12-14%. The food business will continue to maintain the strong growth with the biscuit segment growing in the range of 18-20% and the oats segment gaining a good momentum. Despite the raw material inflation, we expect GSK Consumer to maintain the OPM in the range of 14-14.5% through price hikes and adequately managing of other operating expenses in the coming years.
- The sustained leadership positioning in the domestic MFD segment (a 65% market share), strong cash generation ability and a double-digit earnings growth visibility makes it a better pick in the FMCG space. Hence, we upgrade our recommendation on the stock from Hold to Buy with the revised price target of Rs4,500 (valuing the stock at 26x its FY2016E). However, any significant deceleration in the volume growth would act as a key risk to our earnings estimate.
Selan Exploration Technology
Recommendation: Buy
Price target: Rs700
Current market price: Rs591 Early signs of success; Buy with a price target of Rs700 Result highlights - Despite a significant jump in the provisions for the development of the hydrocarbon reserves in Q4FY2014, Selan reported a 16% growth in the earnings which was aided by the rupee's depreciation against the dollar. FY2014 was another year of declining oil production owing to a natural depletion from the existing producing wells. However, the situation is likely to change significantly in FY2015. As part of its efforts to develop oil fields, the company has already drilled nine wells and put the new wells in Lohar on commercial production. We expect the newly drilled wells in Bakrol also to get commercialised soon, while Indorora could take a little longer than expected. Apart from the incremental volumes from the recently drilled new wells, the planned drilling of additional 10-12 wells in FY2015 would add to the production volumes.
- Given the initial signs of a success in this phase of development of its oil fields, we have tweaked our assumptions (though still conservative) and raise the target EV/EBITDA multiple to 6.5x (a 10% discount to its average multiples in the last phase of the development FY2006-09 when the output had almost gone up by four times in the three years). Consequently, we retain our Buy rating with a revised price target of Rs700.
Punjab National Bank
Recommendation: Hold
Price target: Rs838
Current market price: Rs800 Sharp deterioration in asset quality impacts earnings Result highlights - Punjab National Bank (PNB) reported a weak set of numbers for Q4FY2014 as the net profits shrunk by 28.7% YoY to Rs806.3 crore led by a sharp increase in the provisions (up 44.7% YoY; including the utilisation of Rs354.9 crore of floating provisions). The operating performance was also subdued as the NIMs declined sharply by 37BPS QoQ to 3.2% (owing to a reversal of Rs209 crore of the interest income).
- Contrary to our expectation of a stable asset quality, the slippages increased sharply to Rs4,189 crore vs Rs1,142 crore in Q3FY2014. In addition, the bank restructured Rs3,100 crore of the loans in Q4FY2014 and has about Rs1,200 crore worth of loans in the pipeline.
- PNB's asset quality numbers have been quite volatile in the past quarters and given its higher proportion of stressed loans (accounts for 15.4% of the book) we maintain our cautious view on the asset quality. While we believe the bank is leveraged to a revival in the economy and stands better than some of its peers, the current valuations (0.7x on FY2016E book value) factors a near-term upside. We maintain our Hold rating with a price target of Rs838 on the stock.
| | | 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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