Investor's Eye: Update - Bank of Baroda, Greaves Cotton; Viewpoint - Tribhovandas Bhimji Zaveri

 

Investor's Eye [February 06, 2014]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE Bank of Baroda Recommendation: Buy Price target: Rs665 Current market price: Rs538 Operating performance improves  Key points BoB reported a 7.6% Y-o-Y growth in the net interest income driven by a 5BPS Q-o-Q (2.37%) expansion in the net interest margins (NIMs) in Q3FY2014. However, a higher growth in the opex (up 25.7% YoY) and an increase in the tax rates (due to the creation of a deferred tax liability of Rs272.1 crore) contained the net profit growth to 3.6% YoY. The slippages (addition to NPAs) and restructured loans were lower on a sequential basis. The provision coverage improved to 62.22% vs 61.68% in Q2FY2014. The bank indicated a restructuring pipeline of Rs1,500-2,000 crore for Q4FY2014. BoB's operating performance improved in Q3FY2014 while the asset quality trends have been in line with the management's guidance. It is also among the better capitalised banks (tier-I CAR of about 9%, including 9MFY2014 profits and capital infusion by the government). We maintain our Buy rating with a revised price target of Rs665 (0.9x FY2015 adjusted book value).   Greaves Cotton Recommendation: Hold Price target: Rs64 Current market price: Rs61 Outlook challenging in the near term; downgrade to Hold   Key points The Q3FY2014 results were weak marked by a double-digit decline in the revenues on the back of subdued demand conditions and a pressure on the margin. The decline in the earnings was restricted by a lower tax rate (due to a deferred tax).  The management does not expect any immediate improvement in the demand conditions in the near term, thus we expect the financial performance to remain weak. Consequently, we are downgrading the rating to Hold and advise investors to wait for a better entry point.  Over the longer term, we expect the efforts to introduce new products, curtail costs and the expected economic revival driven by an uptick in demand in the latter part of FY2015, to boost its fortunes. In the interim period, we are reducing our target multiple to 10x and price target to Rs64.      VIEWPOINT Tribhovandas Bhimji Zaveri Muted demand in Q3; stiff regulation to keep performance under check  Key points TBZ reported a 10.1% Y-o-Y decline in its net sales, on account of a subdued festive demand. The decline was more evident in the diamond jewellery segment (down 17% YoY). The operating profit stood flat on a Y-o-Y ba sis due to the GPM and the OPM expansion (as result of a better product mix-no gold coin sale and calibrated discretionary expenses like advertising costs). A flat operating performance and a higher financing cost (as result of the increasing bank finance to fund inventory), resulted in a 23% Y-o-Y decline in the net earnings. The industry continues to struggle on the demand as well as on the regulatory front. Owing to uncertainty, the management has extended its store expansion plans and refrained from providing any specific timeline for the same. At the current market price, though the stock is trading at 9x its one-year forward earnings of Rs14 (consensus), which is at a significant discount to the leading jewellery retailer-Titan, we do not see any meaningful appreciation till the demand or the regulatory environment improves. We hold a neutral stance on the stock. Any positive development on the regulatory front or an improvement in the demand would be a key trigger for the stock and the sector performance. 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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