DATE 16/05/2014
Buy Canara Bank Ltd For Target Rs.363

Canara Bank reported moderate operating numbers for 4QFY2014, while asset quality exhibited improvement (aided by sale of vulnerable assets to ARCs). The key highlights of the results are: 1) NII growth of 21.3% yoy (adjusting for one-off interest on income tax refund of `100cr, the NII grew 16.1%), 2) Sale of assets to ARCs - `1,400cr (net impact `700cr), 3) NIM improvement by 6bp qoq, 4) Earnings de-growth of 30.7% adjusting for one-off item.
Loan book grew strongly; NIMs increase 6bp qoq:
During 4QFY2014, the bank’s loan book grew strongly by 24.3% yoy, while deposits book grew healthy at 18.2% yoy. Calculated CASA ratio for the bank increased by 36bp yoy (145bp qoq) to 24.5%. Reported NIM for the bank increased sequentially by 6bp to 2.3%. During 4QFY2014, the non-interest income (excluding treasury) witnessed an increase of 31.9% yoy, primarily on back of robust growth in ‘others’ at `600cr compared to `390cr in 4QFY2013. On the asset quality front, slippages came in at `2,135cr (annualized slippage rate of 3.5% as compared to `2,100cr in 3QFY2014. Recoveries/upgrades came in higher at `2,243cr, as compared to `1,061cr in 3QFY2014 and `520cr in 4QFY2013. The bank sold assets worth `1,400cr to ARCs (NPA impact of `700cr). Absolute gross and net NPAs decreased by 6.2% and 13.2% qoq respectively. Thus, the Gross and Net NPAs got reduced by 30bp and 41bp qoq to 2.5% and 2.0% respectively. The PCR for the bank increased qoq by 272bp to 60.1%. Additionally, the bank restructured advances worth ~`1,432cr, thereby taking its outstanding restructured book to `23,205cr. Going forward, the restructuring pipeline for the bank over the next few quarters remains sizeable at ~`3,000cr.
Outlook and valuation:
The bank witnessed asset quality improvement in 4QFY2014, aided by sale of assets to ARCs. Going ahead, the Management has exuded confidence of achieving Gross and Net NPA ratios of 2% and 1.5% respectively by FY2015. At CMP, even after the recent run-up in the stock price, the stock trades at a relatively cheap valuation of 0.4x FY2016E ABV as compared to large PSU banks. We recommend a Buy rating on the stock.
 

Buy Hindustan Unilever Ltd For Target Rs.625

Hindustan Unilever Limited (HUL) is India's largest FMCG Company with a heritage of over 80 years in India and touches the lives of two out of three Indians.
*  During Q4 FY14, the company’s net profit jumps to Rs. 8721.3 mn against Rs. 7872.0 mn in Q4 FY13, an increase of 10.79%.
*  Revenue rose by 9.72% to Rs 70941.0 mn in Q4 FY14 from Rs. 64658.1 mn in Q4 FY13, helped by strong volume growth.
*  Operating Profit (PBIT) for the quarter at Rs. 10117.8 mn (MQ’13: Rs. 9103.5 mn) grew by 11.1% and PBIT margin improved by 30 bps.
*  Net Sales grew by 8.9% during the quarter. Domestic Consumer Business (FMCG + Water) grew by 9.0% with a 9.0% growth in HPC and 9.2% growth in Foods businesses.
*  During the quarter, Soaps and Detergents, Personal Products, Beverages and Packaged Food segments are grew by 9%, 8%, 8% and 13% respectively. HUL has recommended a final dividend of Rs. 7.50 per share of Re.1 each, for the financial year ended 31st March, 2014.
*  Net Sales grew by 8.7% during the financial year 2013-14. Domestic Consumer Business (FMCG + Water) grew by 9.0%.
*  Operating Profit for the year grew by 11.9% and Profit after tax from ordinary activities before Exceptional Items grew by 7.3%.
*  Net Sales and PAT of the company are expected to grow at a CAGR of 9% and 5% over 2013 to 2016E respectively.

QUARTERLY HIGHLIGHTS (STANDALONE)
Results updates- Q4 FY14,
Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company with a heritage of over 80 years in India and touches the lives of two out of three Indians, reported its financial results for the quarter ended 31st March, 2014.
The company’s net profit jumps to Rs. 8721.30 million against Rs. 7872.00 million in the corresponding quarter ending of previous year, an increase of 10.79%. Revenue for the quarter rose by 9.72% to Rs. 70941.00 million from Rs. 64658.10 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 4.03 a share during the quarter, registering 10.78% increase over previous year period. Profit before interest, depreciation and tax is Rs. 12281.80 million as against Rs. 10870.10 million in the corresponding period of the previous year.
OUTLOOK AND CONCLUSION
*  At the current market price of Rs.564.50, the stock P/E ratio is at 29.63 x FY15E and 27.67 x FY16E respectively.
*  Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.19.05 and Rs.20.40 respectively.
*  Net Sales and PAT of the company are expected to grow at a CAGR of 9% and 5% over 2013 to 2016E respectively.
*  On the basis of EV/EBITDA, the stock trades at 20.93 x for FY15E and 19.60 x for FY16E.
*  Price to Book Value of the stock is expected to be at 30.44 x and 25.60 x respectively for FY15E and FY16E.
*  We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.625.00 for Medium to Long term investment.
 
Buy HT Media Ltd For Target Rs.110

For 4QFY2014, HT Media reported a modest 8.7% yoy growth in its top-line to `544cr (slightly ahead of our estimates of `532cr), aided by strong growth in advertising revenues from Hindi editions. Overall, the company registered a 10.4% yoy growth in advertising revenue to `417cr and 14.1% yoy growth in circulation revenue to `66cr. On the operating front, the OPM contracted by 47bp yoy to 13.9% while the net profit declined by 13.1% yoy to `35cr (our expectation was of `45cr).
Sluggish growth in English ad revenues:
Although HT Media’s Hindi subsidiary - HMVL registered a double digit advertising growth (20.3% yoy to `133cr on back of increase in yields and volume), the English advertising revenue grew by only 6.4% yoy to `284cr, primarily due to sluggish advertising growth in HT Media’s Delhi market. However, the Management expects English advertising yield to go up over FY2015, leading to improvement in English advertising revenues.
Net profit dragged down by reversal of deferred tax asset:
On the operating front, print business reported 14.1% yoy growth in EBIT to `78cr. The digital business continued to report an EBIT level loss to the tune of `7-8cr while the radio business reported an EBIT level profit of `5cr. Further, reversal of deferred tax asset (of `19cr related to HT Burda subsidiary) led to a 13.1% yoy decline in net profit to `35cr.
Outlook and valuation:
At the current market price, HT Media is trading at attractive valuations of 8.9x FY2016E consolidated EPS of `10.3. Considering the expectation of improvement in English advertising yields and stable exchange rate, we maintain Buy on the stock with a target price of `110. Downside risks to our estimates include 1) a sharp rise in newsprint prices in INR terms, and 2) higher-than-expected losses/increase in the breakeven period of emerging editions and digital business.