Investor's Eye: Update - Axis Bank; Viewpoint - Idea Cellular

 

Investor's Eye [July 22, 2014]  Sharekhan www.sharekhan.com

Summary of Contents   STOCK UPDATE     Axis Bank Recommendation: Buy Price target: Rs2,380 Current market price: Rs2,018   Price target revised to Rs2,380   Key points  In Q1FY2015 Axis Bank's earnings grew by 18.3% to Rs1,666.8 crore driven by a 15.5% growth in the NII. Though the non-interest income declined by 5.1%, but the earnings growth was aided by a lower provisioning (down 45.7%) during the quarter. The net interest margin was largely stable on a sequential basis at 3.88%. On the asset quality front, the absolute gross NPAs increased by 10.1% sequentially (in line with a 12% increase in HDFC Bank) resulting in a 12-BPS increase in the gross NPA as a percentage of assets to 1.34% in Q1FY2015. However, fresh stressed loans in Q1FY2015 stood at Rs1,106 crore, which was well within the guided levels and lower compared with the preceding quarters.  The bank has improved its liability profile and its retail diversification strategy is panning well. In addition, the bank is well capitalised to lever the growth opportunities with a revival in the economy. We expect its earnings to grow at a CAGR of 15.5% over FY2014-16, even after factoring in a higher provisioning. We have valued the stock at 2.2x FY2016E book value which results in a price target of Rs2,380. We maintain our Buy rating on the stock.   VIEWPOINT     Idea Cellular Current market price: Rs147 View: Positive   Strong all-round performance, maintain our positive stance     Key points Idea Cellular posted a solid all-round performance for Q1FY2015 with the consolidated revenues growing by 7.3% sequentially, aided by both realisation growth (up 3.3% QoQ) and volume growth (up 5.2% QoQ). Scale benefits coupled with cost management efforts resulted in a strong 154-BPS OPM expansion. Consequently, the operating profit grew by 12.6% sequentially. The strong operational performance culminated in a robust 23.5% sequential growth in the earnings. Despite intense competition, Idea Cellular has managed to consolidate its position (by gaining revenue market share amongst the top five players also) due to its strong brand recall and superior execution capabilities. It would further gain disproportionately owing to its strong execution capabilities. The stretched balancing has been a sore point but the company has managed to bring down its net debt/EBITDA from 2.4x in Q4FY2014 to 1.75x in Q1FY2015 via equity raising and robust cash generation. Hence, we hold a positive view on the stock and see scope for 12-15% upside from here. We advise investors to accumulate on declines after the recent run-up. Key risks to our view: Any form of irrational bidding by the telecom players in the upcoming spectrum auctions or any disruptive or irrational pricing action by Reliance Jio (which is yet to launch its services) would be the key risk to our view. 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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