09/05/13

Buy ACC Ltd For Target Rs.1377 


ACC revenues were in line with our estimates but tax write back related to previous year resulted in net profits coming higher than our estimates. Cement prices had recovered during Jan-March,13 in several regions while demand remained lower than expectations. Though cement prices have come off in few regions during April, 2013 due to lack of demand but with pre-election spend expected in few states, demand is expected to grow. We also expect cement prices to recover post monsoons and hence maintain BUY on the stock.
Valuation and recommendation
* At current price of Rs 1230, stock is trading at 13.8x P/E and 7.8x EV/EBITDA on CY13 estimates. We expect cement prices and demand to recover post monsoons and hence continue to maintain BUY recommendation on the stock.
* Key risk to our estimates would come from adverse decision on penalty imposed by CCI on ACC

 Buy ICICI Bank Ltd. For Target Rs.1,270

Outlook
ICICI Banks Q2FY13 results were above street estimates. Strong credit growth, higher core NII growth amidst stable margins coupled with contained cost helped the net profit (standalone) grew by 30% to Rs 1956 crore, which was significantly higher than expectations. There was a marginal deterioration in asset quality. The Bank has guided for a ~20% growth in advances boosted by its secured retail lending portfolio and increased requirement for working capital from its corporate segment.
The Bank expects NIMs to be maintained around the 3% levels with CASA being maintained at 38-40% and cost to income ratio being contained in the range of 41-42%. Given the strong performance and positive guidance we recommend a BUY on this stock with a SOTP
target price of Rs.1,270 ( P/Adj BV of 2.0X) over the next 18 months. At the CMP of Rs.1069 the stock is trading at 1.8x and 1.7x its P/Adj BV for FY13E and FY14E respectively.
 
Key Takeaways
• Advances and deposits have grown by 17.6% and 14.8% to Rs.2,75,076 crore and 2,81,438 crore respectively. The loan book growth was largely driven by retail (+14% yoy) which has auto loans, home loans and commercial business loans, Adjusted growth in domestic corporate loan book was 27%. While the CD ratio was 97.7%, the CASA deposits share has declined by 160 bps qoq to 40.7%. The company maintained loan book and advances growth at a CAGR of 20% over the forecast period.
• As a result of the strong loan growth and higher NIMs of 3.0 (+40bps yoy), NII grew 32% yoy to Rs 3192.9 crore. Non interest income increased by 17.4% YoY to Rs 2043 crore. However, fee income increased marginally to Rs 1709 crore in Q2FY13. The bank's fee income growth continued to remain impacted by lower corporate banking fee income due to slowdown in new projects and financial closures.
• The net NPA ratio was 0.66% in Q2FY13 (+5 bps QoQ, -14 bps YoY). The provisioning coverage ratio in Q2FY13 was 78.7% (80.6% in Q1FY13 In the corporate segment, during Q2FY13, the Bank classified its loans outstanding to a media company aggregating about Rs.500 crore as non-performing, resulting in an increase in additions to NPAs as compared to the previous quarters. Including the addition of this loan, the Bank saw gross additions of Rs. 1220 crore to its overall gross NPAs compared to gross additions of Rs. 868 crore in Q1FY13.
Recoveries in Q2FY13 were Rs. 558 crore, resulting in net additions to gross NPAs of Rs. 662 crore. The Bank has also written-off Rs. 506 crore of NPAs in Q2FY13.
   Buy CNX IT Index For Target Rs.7,450/7,700/7,970 

 CNX IT INDEX 6,936:- The index has breached the symmetrical triangle pattern with a big bullish candle along with a rising window pattern which further validates the breakout. The RSI & MACD indicator has exceeded its 2012 highs and has entered into the bullish mode. The immediate support for the index is at 6,700 & 6,650 levels on the downside. The index is likely to rally and test its July’11 highs of 7,590 & triangle pattern hints for an upside breakout for a long term target of 8,090 levels.

 

Hold IDFC Ltd 


Outlook
IDFC reported a 57% YoY surge in earnings at Rs 525.7 crore led by healthy loan growth of 16% and stable asset quality. NII grew by 10% YoY to Rs 643 crore in Q4FY13 driven by growth in loan portfolio. NIM reduced by 20 bps YoY to 4.1%. The management has guided for a 10 – 15%  rowth in the loan portfolio in FY14 along with a rise in GNPL to1% (loan loss reserve ratio to increase to 2%). In our view, this rise in doubtful  oans in the existing portfolio coupled with a stunted growth in the loan book is a dampener which would restrict the growth momentum of the stock. We recommend a HOLD on the stock. At a CMP of Rs 157, the stock is trading at 1.5x and 1.4x, its estimated P/BV for FY14E and FY15E

Key Takeaways
• IDFC Ltd’s (IDFC) NII grew by 10% YoY to Rs 643 crore in Q4FY13, mainly driven by growth in its loan portfolio. NII increased by 12% YoY to Rs 603 crore whereas treasury NII declined by 12% YoY to Rs 40 crore. NIM were lower 20 bps YoY to 4.1% in FY13 on account of increase in  verage leverage from 4.5 - 5.51x in FY13.
• Gross approvals were weak at Rs 26,576 crore in Q4FY13 and de-grew by 17% YoY, though cumulative o/s approvals grew by 4.1% YoY to Rs 72,597crore. Energy sector grew by 2.4% YoY (40% of o/s sanctions) with a 270 bps rise in operational exposure to 17.2% QoQ in Q4FY13.  roduct wise, project loans contributed 57% at Rs 41,103 crore to the cumulative o/s approvals followed by corporate loans at 34%.
• Gross disbursements decreased by 4% YoY to Rs 17,695 crore in Q4FY13. Energy, transportation and telecommunication continued to be the top three sectors contributing 41%, 24% and 23% respectively to total o/s disbursement of Rs 60,782 crore in Q4FY13. Product wise, project  loans contributed 54% at Rs 32,766 crore to the cumulative o/s disbursements followed by followed by corporate loans at 36%.
• IDFC’s loan portfolio grew by 16% YoY to Rs 56,595 crore in FY13, while its borrowings were up 17% YoY at Rs 54,227 crore. The management has guided a 10 – 15% growth in the loan portfolio in FY14 which seems to be a dampener restricting the growth momentum of the stock.
• IDFC's non-interest income rose by 171% YoY to Rs 363 crore with a 35% contribution from principal gains. All other non-interest income segments showed substantial improvement with investment banking up 2500% QoQ at Rs 26 crore, while institutional broking revenues were up by 100% QoQ to Rs 14 crore. Bank's asset management fees improved 2.3% QoQ on the back of pickup in mutual funds.
• Asset quality continued to be robust with GNPL ratio narrowing down to 15 bps in Q4FY13, resulting in an improvement in net NPL by 10 bps YoY to 0.05%. The company has guided the GNPL to increase to 1% and the loan loss reserve ratio to rise to 2% in FY14 (v/s 1.7% in FY13). Provisions rose by a whopping 97% YoY (216% QoQ) to Rs 165 crore in Q4FY13 due to a higher allocation for bad loans and investments. Loan provisions stood at Rs 106 crore, up 41.3% YoY whereas investment provisions stood at Rs 59 crore, up 556% YoY.
• Operating expenses were marginally up by 1% YoY to Rs 151 crore in Q4FY13 which included employee expenses of Rs 85 crore (down 15% YoY). Cost/income ratio dipped by 240 bps YoY to 15.1% in Q4FY13, consequently ROE increased by 100 bps to 14% whereas ROA moved downwards by 10 bps to 2.8%.
• Capital adequacy ratio improved by 130 bps YoY to 22.1% in Q4FY13 with Tier I ratio at 19.8%.