21/1/13  
Buy Infotech Enterprises Ltd For Target Rs.218


Infotech's results were broadly in line with estimates on the EBIDTA front. While the volume growth was below expectations, margins fared better. Volumes were flat (0.04%) as compared to 3.9% in 1Q. Seasonality, along with client-specific issues impacted the company. In 1Q also, Infotech was hit by client-specific scale-downs. EBIDTA margins were down marginally QoQ on the back of rupee appreciation and lower utilisation rates. While the management has indicated a general pick-up in sentiments and a good pipeline, few sub-sectors and clients are facing challenges. We tweak our earnings estimates for FY13 and FY14. FY14E earnings stand at Rs.22.1 per share. We tweak our PT to Rs.218 (v/s Rs.221), based on FY14 estimates. Maintain BUY. Expected cash of Rs.61 per share by FY14 end, may provide cushion to the stock.
Valuations
* Infotech has managed to deepen engagement for clients like UTC, P&W, Bombardier, Tele-Atlas & Swisscom over the recent quarters and enjoys relationships with marquee clients in its verticals.
* Management continues to see opportunities in the higher thrust which aerospace companies (Bombardier, etc are major clients) are giving to efficient and light engine design skill sets- areas where IEL has domain expertise and existing impressive client roster.
* However, margins have scope for improvement. These reflect the challenges of a mid-tier company.
* We accord a suitable discount to Infotech as compared to the valuations of larger companies and arrive at a PT of Rs.218 (Rs.221  earlier). We will become more positive after seeing a sustained improvement in the margins and a stable revenue growth trajectory.
* We maintain BUY based only on valuations, looking at the near 17% upside from the current levels.
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Buy Cement

Our view on the Cement sector remains positive, driven by expected pick-up in demand and slowing capacity addition, thereby driving utilization, pricing and profitability.
* Mid Cap Cement stocks are trading at very attractive earnings valuations and significant discount to replacement cost and large peers. As the operating performance improves, the Mid Caps should see a re-rating. Pick-up in M&A activity is another potential re-rating trigger.
* Mid Caps offer base case upside of over 50%. We initiate coverage on seven Mid Cap Cement stocks. Buy BCORP, DBEL, JKCE, JKLC, OPI, MC and ICEM; Neutral on CENT and PRSC.
View on sector positive; reflected in re-rating of large caps
Our view on the Cement sector remains positive. Short-term volatility notwithstanding, we expect sustained volume recovery (~9% CAGR over FY13-15), slowing capacity addition and higher opex/capex cost to result in strong pricing (INR15/ INR12/bag increase in FY14/FY15). This coupled with cost stabilization, albeit at higher levels, will drive profitability improvement and capital efficiencies. We expect the
outperformance to continue (after 38% outperformance in CY12), driven by volume growth recovery, stabilizing cost and improving profitability.
Mid Caps' operating performance to improve, driving re-rating
We expect the profitability of our Mid Cap Cement Universe to improve by INR154/80 per ton in FY14/FY15 to INR1,033/INR1,113 per ton. We estimate EPS growth of ~42% CAGR (FY13-15E) for MOSL Mid Cap Universe, translating into ~550bp RoE improvement as against ~180bp RoE improvement for the Large Caps. Narrowing of the operating performance gap will drive re-rating.
Applying 5-S scale to pick potential winners
We have applied a 5-S scale to objectively evaluate 9 Mid Cap Cement companies on (1) size & scalability, (2) sales mix, (3) supply chain efficiencies, (4) strategic & other issues, and (5) strength of financials. While the 5-S score ranks these companies on relative attractiveness on operating parameters, we weigh the 5-S score against the valuation score to pick potential winners. Based on the 5-S / valuation score analysis, BCORP and DBEL are the most attractive. JKCE, OPI and MC offer favorable trade-off of quality and attractive valuations.
Attractive valuations - base case returns of 50%+, bull case returns of 2-4x
Our Mid Cap Cement Universe is currently trading at very attractive valuations of ~4.7x/3.9x FY14/FY15 EV/EBITDA and ~USD69/USD64 EV/Ton (FY14/FY15), considering improvement in operating performance and superior earnings growth. We believe the Mid Caps offer better risk-reward and initiate coverage on seven Mid Cap Cement stocks. We recommend Buy on BCORP, DBEL, JKCE, JKLC, OPI, MC, and ICEM and Neutral on CENT and PRSC. While base case return is over 50% (based on FY15 estimates), bull case returns could be 2-4x (see our Blue Sky Scenario). Cement upcycle, improvement in operating performance for Mid Caps, balance sheet deleveraging and  increase in industry consolidation driven by M&A activity would be catalysts for re-rating.



 Buy Bajaj Auto For Target Rs.2,250


Bajaj Auto (BJAUT) posted above estimate results, with EBITDA margins at 18.7% (v/s est 18.2%) and adj. PAT at INR8.2b (v/s est. INR7.7b), driven by richer product mix and higher export realizations. New launches helped 5% volume growth. Earnings call highlights
* Management expects 4Q volumes to remain muted ; however, no discounts/ subventions being offered, even in 3Ws.
* Expects domestic motorcycle growth to pick up in FY14 on better consumer sentiments and new launches. Exports to grow by over 10% in FY14; expects 15-18% CAGR in exports over 3-5 years, led primarily by Africa.
* FY14 export exposure of USD900m hedged at a base rate of 53 INR/USD (average 54, v/s 49 in FY13); benefit of favorable currency could be passed on to boost volumes. Upgrade FY13E/FY14E EPS est by ~1.2%/2.9%
* We upgrade FY13E/FY14E EP S by 1.2%/2.9% to factor higher export realizations driven by INR depreciation. We model INR/USD rate of 49/54 for FY13E/FY14E.
Valuation and view
* New launches and recovery in domestic two-wheeler industry to drive 13% volume CAGR over FY13E-15E in domestic motorcycles. This coupled with a recovery in export volumes and 3Ws (launch of a completely new range) to drive 14.6% overall volume CAGR. Volume growth coupled with favorable currency will drive 19.6% earnings CAGR over FY13E-15E.
* The stock is valued at 15.7x FY14E EPS of INR132.4 and 13.9x FY15E EPS of INR149.8. Our estimates could see upgrades for export realizations above 54(every INR1 depreciation would boost margins by 65bp, EPS by 3.2% for FY14E/ 15E). Maintain Buy with a target price of INR2,250 (15x FY15E EPS).

Buy Yes Bank For Target Rs. 620


Yes Bank 3QFY13 PAT grew 35% YoY to INR3.4b led by higher-than-expected income from financial advisory and strong performance on margins. Healthy customer asset growth (27% YoY), margin improvement (+10bp QoQ to 3%), continued traction in SA deposits (+27% QoQ), pick-up in fee income and impeccable asset quality (NNPAs at 4bp and restructured loans at 43bp) are the key highlights of
the quarter.
* Decline in the cost of funds by 20bp QoQ (down 50bp since 1QFY13) to 8.5% and largely stable yield on funds (-10bp) led to margin expansion.
* Customer asset growth was healthy at 3.2% QoQ (+27% YoY) led by a sequential growth of 4.5% (+22% YoY) in the loan book. Credit substitute portfolio was flat QoQ (+51% YoY).
* CASA deposits grew 14% QoQ and 75% YoY led by robust growth in savings deposits (27% QoQ and +308% YoY). CASA ratio stood at 18.3% (+100bp QoQ)
* On a large media exposure of ~INR1.1b, YES has already made a contingent provision of ~80% (INR350m in 3QFY13 and INR550m in 2QFY13). Further, it  has tangible collateral in place which would cover any further impact.
Valuation and view:
Over the past 17 quarters, RoA has remained at 1.5%+ and with the increasing leverage (core Tier I ratio now at
~8%), RoEs have moved to ~25%. While YES is likely to raise capital in the near term, we believe even post dilution, RoEs will remain healthy at 20%+. Maintain Buy.
  Buy Caplin Point Labora Tories LTD For Target Rs.100.00



Caplin Point Laboratories Ltd manufactures a wide range of Ointments, Creams and other External application preparations in addition to
the regular segments of pharmaceutical formulations.
* During the quarter, the robust growth of Net Profit is increased by 345.72% to Rs. 54.69 million.
* The Net Sales of the company for the  quarter rose 40.90% to Rs.301.07 million from Rs.213.68 million, when compared with the prior year period.
* Caplin Point recommended a dividend of Rs.2/- per Equity Share of Rs.10 each [20%] for the year ended June 30, 2012.
* Caplin Point has over 1500 products registered in various countries and further registrations are on the way.
* The ERP implementation covering all the processes in all locations are in the final stages and is hoped that this will go live from January
2013.
* Caplin Point will be starting up operations in the fully regulated markets of Europe, USA, Mexico and Brazil in mid-2013.
* Net Sales and PAT of the company are expected to grow at a CAGR of 20% and 28% over 2011 to 2014E respectively.
Investment Highlights
Results updates- Q1 FY13,
Caplin Point Laboratories Ltd manufactures a wide range of Ointments, Creams and other External application preparations in addition to the regular segments of pharmaceutical formulations, reported its financial results for the quarter ended 30 Sep, 2012.
The company’s net profit jumps to Rs.54.69 million against Rs.12.27 million in the corresponding quarter ending of previous year, an increase of 345.72%. Revenue for the quarter rose 40.90% to Rs.301.07 million from Rs.213.68 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.3.62 a share during the quarter, registering 345.72% increase over previous year period. Profit before interest, depreciation and tax is Rs.77.46 millions as against Rs.20.88 millions in the corresponding period of the previous year.
Outlook and Conclusion
* At the current market price of Rs.89.60, the stock P/E ratio is at 12.22 x FY13E and 10.01 x FY14E respectively.
* Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.7.33 and Rs.8.95 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 20% and 28% over 2011 to 2014E respectively.
* On the basis of EV/EBITDA, the stock trades at 7.84 x for FY13E and 6.54 x for FY14E.
* Price to Book Value of the stock is expected to be at 3.00 x and 2.31 x respectively for FY13E and FY14E.
* We recommend ‘BUY’ in this particular scrip with a target price of Rs.100.00 for Medium to Long term investment.Buy Axis Bank For Target Rs.1,800


Axis Bank's 3QFY13 PAT grew 22% YoY to INR13.5b (6% above estimate). While operating profit was in line with estimate at INR23.6b (estimate of INR23.2b), healthy asset quality performance (prov. 14% below estimate) led to higherthan- expected PAT. Key highlights:
* Reported margins improved 11bp QoQ to 3.57% (in line with est.) led by reducing low-yielding PSL loans, healthy growth in retail and SME segment and largely stable yield on investments and cost of funds.
* Gross slippages during the quarter declined to INR5.4b (INR6.3b in 2QFY13), an annualized slippage ratio of 1.45%. AXSB has effectively utilized the higher trading gains (9MFY13 at INR5.2b v/s INR2.2b) to write off NPAs (9MFY13 INR7.8b v/s INR6.4b) and keep headline gross NPA numbers lower.
* While gross addition to restructured loans was INR3.8b, net of repayment/ NPA increase in net restructured loan portfolio was contained at INR1.9b.
* Fee income growth continued to be moderate at 15% YoY (+4% QoQ) .
* Retail continues to be the key driver of loan growth (+9% QoQ and 45% YoY). Corporate loan book grew 3% QoQ and 12.5% YoY. Valuation and view: Healthy share of core revenues (4.8% of average assets) over FY09-12 helped AXSB to report superior RoA of 1.5%+ despite  pressure on asset quality. With the expected cyclical improvement and capital raising, we believe valuations will improve. Maintain Buy.