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| Summary of Contents | STOCK UPDATE Maruti Suzuki India
Recommendation: Buy
Price target: Rs3,600
Current market price: Rs3,242 Outlook positive, maintain Buy with a revised price target of Rs3,600 Key points - Maruti Suzuki India (Maruti) posted an impressive volume growth of 16.8% in Q2FY2015. A favourable currency impact aided in a 68BPS sequential expansion in OPM to 12.4%. A fall in the tax rate to 20.2% as against 24% in the previous quarter resulted in a 28.7% Y-o-Y increase in the net profit to Rs863 crore as against our estimate of Rs784 crore.
- Maruti's management has maintained its guidance of a 10% volume growth for FY2015 and reiterated that the discount push was necessary to sustain the current trend which remains unstable. The urban volume growing at 10% is the key positive and a sign of better times ahead for the industry. Maruti meanwhile continues to consolidate its leadership position with its market share touching a four-year high of 45.2%. A spate of new launches coupled with refreshes to the current line-up is targeted at further consolidating the pole position.
- We have tweaked our volume estimates for FY2016 and FY2017 given the deferment of the launch of XA-Alfa in FY2017 instead of FY2016 earlier. We have also reduced our tax rate estimate given the lower rates for the quarter and further benefit due to the expenditure on research and development. Consequently, earnings estimates for FY2015-16 are marginally higher, while FY2017 earnings estimates have been raised by 4.6% given the dual benefit of higher volume and lower tax rate. We continue to remain positive on the stock and reiterate a Buy recommendation with a revised price target of Rs3,600 (earlier Rs3,500) discounting FY2017E EBITDA 10x.
ICICI Bank
Recommendation: Buy
Price target: Rs1,800
Current market price: Rs1,612 Earnings growth intact, price target revised to Rs1,800 Key points - ICICI Bank delivered a healthy growth in profits (up by 15.2% YoY to Rs2,709 crore) partly supported by Rs165-crore foreign exchange gain on repatriation of profits from overseas branches. The net Interest income growth was steady showing an uptick of 15.2% with expansions in the net interest margins (3.42% vs 3.4% in Q1FY2015).
- Asset quality showed some deterioration on Q-o-Q basis as the bank reported slippages of Rs1,670 crore (Rs800 crore contributed by slippage from restructured book) and fresh restructuring of Rs900 crore. However, the management maintained that NPA additions in FY2015 will be lower than FY2014 and credit cost could be contained in the range of 90-95BPS.
- ICICI Bank's liability profile has improved significantly while the asset base continues to expand in the retail side, which should help to sustain healthy operating performance. We believe the asset quality stress will be within the manageable limits as economy is on a gradual revival path. We continue to value the stock on SOTP method and roll our valuations to FY2017 estimates resulting in a revised price target of Rs1,800. Currently, the stock trades at 1.7x FY2017 book value (stand-alone). We maintain our Buy rating.
Yes Bank
Recommendation: Buy
Price target: Rs720
Current market price: Rs663 Strong earnings performance Key points - Yes Bank reported a strong growth in earnings (up by 30% YoY) to Rs482.5 crore led by a 27.4% growth in the net interest income. During the quarter, its margins expanded by 20BPS QoQ to 3.2%, while the advances grew by 30% YoY which aided growth in operating income. The liability mix improved as CASA ratio expanded to 22.5% (vs 22.3% in Q1FY2015)
- The asset quality was largely stable as reported NPAs and restructured loans were stable on Q-o-Q basis. However, provisions were higher partly due to enhancing of its countercyclical provisions (Rs34 crore).
- Yes Bank has delivered a healthy earnings growth and stable asset quality. Going ahead, further expansion in CASA ratio will strengthen its margins and operating performance. The asset quality remains among the best in system and capital ratios have improved which should support growth. We expect Yes Bank's earnings to grow at a CAGR of 21.5% leading to RoAs of 1.7%. We maintain our Buy rating with a price target of Rs720.
Raymond
Recommendation: Hold
Price target: Rs500
Current market price: Rs465 Weak Q2; building for future, price target revised to Rs500 Key points - In Q2FY2015, the consolidated revenues of Raymond grew by 19% YoY aided by a strong double-digit growth in the textile, garment and branded apparel businesses. A higher raw material cost (as a result of consolidation of the shirting business, increase in low-margin exports) coupled with a store renovation cost and a high brand advertising and promotion spending weighed on the operating performance with the operating profit declining by 9% YoY. The weak operating performance resulted in a 26.2% Y-o-Y decline in the net earnings for the quarter while the adjusted earnings declined by 28.3% YoY.
- In line with its earlier stance, the management continued to guide for a robust double-digit revenue growth for FY2015 (as explained by the lead indicators, viz strong Autumn Winter 2014 order bookings for branded apparels, a double-digit growth in the volume offtake in the garmenting export business and a 6-8% growth in the textile suiting business). It further stated its intent to keep the advertising and brand promotion spending at elevated levels for the brand-building exercise which along with the store renovation expense would affect the profitability in the short term. Taking cognisance of the weak H1FY2015 operating performance, we have lowered our FY2015 and FY2016 estimates in this note; we have also introduced our FY2017 estimates. Our revised EPS estimates for FY2015 and FY2016 are Rs18.2 and Rs21.9 respectively while our FY2017 EPS estimate is Rs29.
- Raymond would be able to reap the benefits of its enhanced focus on its power brands via renovation of its retail stores, and increased advertising and brand promotion activities along with an improving macro environment in FY2016 and FY2017. In the meantime, its profitability will remain under pressure in FY2015. We continue to like the medium- to long-term brand franchisee of Raymond which coupled with the brand play and the embedded real estate value in the stock makes us maintain our Hold rating on the stock. We revise the price target to Rs500, as we now roll forward our multiple to the FY2017 earnings estimate (the core business is valued at 5.1x the FY2017E EEBITDA + 50% value of the land parcel).
- Any development on the value unlocking front through divestment of the non-core assets (monetisation of the land parcel, stake sale in engineering and automotive subsidiaries) would be a key upside risk to our rating.
Allahabad Bank
Recommendation: Buy
Price target: Rs145
Current market price: Rs113 Price target revised to Rs145 Key points - Allahabad Bank reported a net profit of Rs141.4 crore (down by 48.7% YoY, partly due to a high base of Q2FY2014 and higher tax rates in Q2FY2015). However, the net interest income growth was relatively better at 14.9% due to increase in the net interest margins (up by 30BPS YoY to 3.05%). The non interest income dipped by 25% YoY as the bank had one off income (~Rs350 crore through recovery from written off account) in Q2FY2014.
- The reported asset quality improved on a Q-o-Q basis as gross NPAs dipped to 5.36% from 5.48% in Q1FY2015 while the provision coverage improved to 55.2%. However, gross slippages were higher at Rs1,404 crore which was offset by reduction of Rs1,249 crore (including write off of Rs596 crore). The stressed loans (restructured loans + gross NPAs) constituted 7.02% of the advances book.
- While the Allahabad Bank's operating performance improved, the asset quality is an area of concern which is reflected in its valuations. The management strategy of cautious loans growth and focus on recovery could yield some results going ahead. We have revised our price target downwards to Rs145 (reduce FY2015 and FY2016 estimates) to factor slower earnings growth. We maintain our Buy rating on the stock mainly due to inexpensive valuations (0.5x FY2016 book value).
MUTUAL GAINS | Debt Mutual Fund Picks Bond / Debt market round up - Bond yields fell in the first half of the month and subsequently remained range bound till the end. Markets got support after Brent crude prices fell below $100 a barrel for the first time in more than a year. Market participants were optimistic that foreign investors will continue to remain invested despite some concerns over possible rise in U.S. interest rates going forward. A global rating agency raised India's sovereign credit outlook from 'negative' to 'stable', which provided additional support. Liquidity conditions remained comfortable during the month as the pressure of advance tax payments was neutralized by timely auction of term repos by the Central Bank, which in turn boosted bond markets.
- The yield on the 10-year benchmark bond dropped 5 bps to close at 8.51% against the previous month's close of 8.56%. It moved in the range of 8.44% to 8.55% over the month.
Bond / Debt Outlook - Bond yields are likely to remain range bound in the near term. The movement of inflation will be tracked closely by market participants. The movement of the domestic currency will also remain in focus, especially if there is any change in the outlook of U.S. interest rates. The Central Bank will conduct auction of 91-days, 182-days and 364-days Government of India Treasury Bills for an aggregate amount of Rs. 60,000 crore in October. It will also conduct the auction of dated securities for an aggregate amount of Rs. 45,000 crore.
| | | 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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