Buy ICICI Bank For Target Rs.1,325


ICICI's ~300bps ROE improvement over FY11‐13 seems great in the context of slowing growth but ~35% of this improvement is not linked to operational improvement. Though we remain sanguine on FY13 margins and stable credit costs, expecting similar ROE tick‐ups over FY13‐15 in the context of end of earlier recurring losses + weak macros, will be optimistic. This will cap near‐term re‐rating and hence, near‐term return expectations should be moderate. Our PT‐ Rs1,325/share (+10% upside).
*  FY13 ROA improvement ‐ Mix of NIM surprise + End of recurring losses:
PPOP/PAT growth of ~30% in FY13 was driven by a surprise in margins and end of recurring losses (Security receipt MTMs + securitisation ‐ FY12 loss of Rs6bn v/s Rs0.2bn profit in FY13) + Rs2bn increase in sub. dividends. This contributed ~35% of the ~30% PAT growth and ~200bps ROE improvement in FY13. With end of recurring losses + lower fees/asset offsetting potential NIM tick-up, ROE improvement will now be contingent on improving growth prospects (Exhibit 1).
*  Sensitive exposures + PSL update:
(1) Growth in sensitive sector (Exh.6) exposure moderated to ~15% due to limited new sanctions + off B/S exposures. Mining book was flat YoY and drawdown of sanctions aided 19% growth in the Infra book but ~17% YoY growth in commercial RE book remains a risk (4.8% of
total exposure).
(2) RWA growth at ~10%, lower than 14% loan growth driven by 7% contraction in non-fund exposure + lower pending sanctions.
(3) RIDF book (Exh.10) just increased ~11% (lower than B/S growth) but revised PSL classification is having its tool with Total/Agri/weaker compliance down to 88%/55%/25% of requirement v/s 95%/75%/38% in FY12, respectively.
* Focus shifting to Consol ROEs‐ Management targets looks optimistic (Exh. 11):
ICICI reported consol. ROEs of ~14.8% and mgt is targeting ~17-18% over the next 2-3 years. We do expect consol. ROE to inch up to ~16% by FY15 factoring some improvement in subsidiary ROEs driven by general insurance and some capital repatriation from overseas subs. However, target of 17-18% looks optimistic and that is likely to restrict ST re-rating beyond 1.9-2.0x book

Hold Graphite India Ltd

For Target Rs.81.00


Graphite India Ltd is largest producer of graphite electrodes in India & engaged in the manufacture of Carbon & Graphite products.
* During the quarter, the robust growth of Net Sales is increased by 13.05% to Rs. 5111.80 million.
* Graphite India has recommended dividend @ Rs. 3.50 per equity share of face value of Rs. 2/- each for FY 2012-13.
* Graphite India has successfully expanded capacity by 20,000 MT per annum at its Durgapur plant.
* Graphite India has secured needle coke supplies until the end of FY2014.
* The company has successfully developed New Alloy Tool Steel Grades - S2 and S5.
* Graphite India Ltd average consolidated capacity utilization is expected to be 70- 75% in FY2014.
* Net Sales of the company is expected to grow at a CAGR of 6% over 2012 to 2015E respectively.

Investment Highlights STANDALONE
Results updates- Q4 FY13,
Graphite India Ltd is largest producer of graphite electrodes in India and one of the largest globally, by total capacity, reported its financial  results for the quarter and year ended 31st March, 2013. The quarter witnesses healthy increase sales due to improved price realization  coupled with higher sales volumes but decline the profit due an increase in working capital requirements and expensing of interest on capex incurred on the Durgapur plant expansion.
The company’s net profit declines to Rs.415.70 million against Rs.1029.60 million in the corresponding quarter ending of previous year, a decrease of 59.63%. Revenue for the quarter rose 13.05% to Rs.5111.80 million from Rs.4521.70 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.2.13 a share during the quarter, registering 59.63% decrease over previous year period. Profit before interest, depreciation and tax is Rs.716.00 millions as against Rs.1343.00 millions in the corresponding period of the previous year.
Outlook and Conclusion
* At the current market price of Rs.73.60, the stock P/E ratio is at 8.50 x FY14E and 8.26 x FY15E respectively.
* Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.8.65 and Rs.8.91 respectively.
* Net Sales of the company is expected to grow at a CAGR of 6% over 2012 to 2015E respectively.
* On the basis of EV/EBITDA, the stock trades at 6.30 x for FY14E and 6.06 x for FY15E.
* Price to Book Value of the stock is expected to be at 0.79 x and 0.72 x respectively for FY14E and FY15E.
In the medium term, the Company is well positioned to capitalize on the growing demand for graphite electrodes through its increased capacity and low cost manufacturing base. The Company has continued its penetration of new markets and clients as well as pursues value enhancing inorganic growth opportunities.
* We recommend ‘HOLD’ in this particular scrip with a target price of Rs.81.00 for Medium to Long term investment.
 

Buy Coal India Ltd. For Target Rs. 400 


coal India reported Q4FY13 consolidated numbers ahead of our expectation. Revenue increased by 3% y-o-y to Rs 199.04 bn (vs. our  expectation of Rs 188.50 bn) led by higher off-take and better than expected realization. Blended realizations (both from regulated and E-auction coal) for the March quarter increased to Rs 1,531 per tonne vs. Rs. 1,438 per tonne in Q3FY13, due to better mix of higher grade coal. On operational front, production in Q4FY13 stood at 143.3MT (Flat Y-o-Y) and dispatches stood 130 MT (up 5.7% Y-o-Y). EBITDA margin improved 599 bps q-o-q due to lower employee and overburden removal adjustment cost. Net profit the quarter came at Rs. 54.13 bn against our  estimate of Rs. 47.97 bn.
Valuation
Over the last couple of quarters, CIL witnessed several challenges on the policy, operational and administrative fronts. These include  revised norms for environmental/forest clearances, uncertainty on mining tax/ MMDR Act, delays in land acquisition, e-auction diversion,  commitment on FSA, wage negotiations. However, we believe that these concerns do not impact the structural long term story as
1) strong domestic coal demand;
2) monopoly in coal production in India;
3) ASP (Average selling price) significantly lower than global prices—potential for price hikes, and
4) one of the lowest cost producers globally.
We maintain our buy rating on the stock with target price of Rs. 400.
 
Buy Apollo Tyres Ltd. For Target Rs.95.00


Apollo Tyres Ltd, with its corporate headquarters in Gurgaon, India, is in the business of manufacture and sale of tyres since its inception in 1972.
* Apollo Tyres has opened its Global PV R&D Centre in Enschede, the Netherlands.
* During the quarter, the robust growth of Net Profit is increased by 22.11% to Rs. 882.34 million.
* Apollo Tyres has opened its Sales Office in Bangkok to serve the entire ASEAN region, with Thailand as the hub of operations.
* Apollo Tyres Ltd has recommended final dividend @ Re. 0.50 per share of Re. 1/- each for the year 2012-13.
* Mahindra & Mahindra has chosen Apollo’s specially developed tyres, with low rolling resistance, for its electric car E2O.
* Apollo Tyres has launched new cross ply Steer Axle tyres, XMR, for extra mileage and durability.
* Apollo Tyres was honoured with the Tire Manufacturer of the Year award for Innovation and Excellence 2013.
* Net Sales and PAT of the company are expected to grow at a CAGR of 5% and 27% over 2012 to 2015E respectively.

Investment Highlights
Results updates- Q4 FY13, Apollo Tyres Limited was incorporated in 1972. The company`s main business is, manufacture & sale of automobiles tyres, tubes & flaps. Its product range  includes truck & bus bias, light truck bias & radial, passenger car radial, farm bias & radial, reported its financial results for the quarter and year ended 31st March, 2013.

The company’s net profit jumps to Rs.882.34 million against Rs.722.55 million in the corresponding quarter ending of previous year, an  ncrease of 22.11%. Revenue for the quarter declines 9.86% to Rs.20361.70 million from Rs.22590.02 million, when compared with the prior  ear period. Reported earnings per share of the company stood at Rs.1.75 a share during the quarter, registering at 22.11% increase  ver previous year period. Profit before interest, depreciation and tax is Rs.2708.05 millions as against Rs.2325.51 millions in the corresponding period of the previous year.

Outlook and Conclusion
* At the current market price of Rs.85.90, the stock P/E ratio is at 12.68 x FY14E and 11.80 x FY15E respectively.
* Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.6.78 and Rs.7.28 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 5% and 27% over 2012 to 2015E respectively.
* On the basis of EV/EBITDA, the stock trades at 5.88 x for FY14E and 5.54 x for FY15E.
* Price to Book Value of the stock is expected to be at 1.62 x and 1.43 x respectively for FY14E and FY15E.
The ASEAN region has gradually become one of Apollo’s strongest export markets, out of India, accounting for more than 40% of exports revenue. The contribution of this region to the total exports revenue of the company out of India has doubled in the last 3 years time. The company already has a sizable distribution network in the ASEAN market.
* We recommend ‘BUY’ in this particular scrip with a target price of Rs.95.00 for Medium to Long term investment.