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| Summary of Contents STOCK UPDATE Axis Bank
Recommendation: Buy
Price target: Rs2,135
Current market price: Rs1,839 Annual report review Key points - Axis Bank's FY2014 annual report highlights the structural changes in the business which include increasing the granularity in deposits and asset base, and diversifying the fee income further. This should result in a sustainable improvement in the operating performance going ahead.
- The bank has contained its exposures to risky sectors such as power (5.5% of book in FY2014 vs 6.8% in FY2013). Moreover, the rating profile of corporate loans (61% are rated as "A" and above) and SME loans (80% are rated as "SME-3" and above) remains healthy. The proportion of secured loans increased to 83.4% from 82.8% in FY2013 due to focus on secured retail loans.
- With a stable net interest margin, healthy asset quality, steady growth in fee income and strong capital adequacy (tier-1 CAR of 12.6%), we expect the bank to sustain the strong earnings performance (15.5% CAGR over FY2014-16). Therefore, the bank is likely to maintain its superior return ratios (RoA 1.8% and RoE of 17.5%). The stock currently trades at 1.7x FY2016E book value which is a discount of about 20% to the mean valuation. We maintain our Buy rating on the stock with a price target of Rs2,135 (2x FY2016E book value).
SECTOR UPDATE Cement South and east catch trend of increasing price Key points - Our channel check with cement dealers across the country suggests an average rise of 3% month on month in cement prices. Cement prices in the eastern and southern parts of the country rose by 12% and 6% respectively whereas that in the northern, western and central regions remained almost flat in June 2014 as compared with the previous month.
- Cement companies across regions increased prices during the period March-June 2014 to absorb cost pressures (prices were raised first in the northern, central and western regions, and then in the eastern and southern regions) even though the demand environment has yet to show any recovery.
- We expect the demand environment to improve with a cyclical upturn in the economy and as the expected policy push drives investments in the infrastructure sector. A pick-up in demand along with an increase in realisations can boost the OPM due to higher utilisation. Consequently, we maintain our positive stance on the cement sector with a Buy rating on UltraTech Cement, Shree Cement, Grasim Industries and The Ramco Cements. We also have a positive view on JK Lakshmi Cement.
| | | 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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