Yes Bank
Research: JP Morgan
Rating: Overweight
CMP: Rs 254
JP Morgan has an 'overweight' rating on Yes Bank and increases the March '09 target price to Rs 293, with 21% upside potential. It has a high return on equity (RoE), high growth and zero non-performing loans (NPLs). It reported a 116% growth in Q3 profit, with 1.5% return on assets (RoA) and 20.5% RoE despite its November issuance.
While the stock has outperformed the Sensex over the past year, it now presents an excellent entry point, given its flat absolute performance over the past month. Catalysts include its upcoming equity placement, wide launch of its retail initiatives, likely addition of 100 branches by July '08 and launch of non-banking businesses over the next 12 months.
Improved low-cost mix, firm margin trends, robust fee growth and 104% deposit growth have boosted the bank's operating profit 111% year-on-year (y-o-y). NPLs continue to remain nil. Retail loans are not a priority for the bank currently, since its growth is driven by small and medium enterprise (SME) loans.
High balance sheet growth, low margins, high fees, low operating expenditure and low provisions drive 10-20% increase in EPS over FY08E-FY10E. JP Morgan also factors in an equity issuance of Rs 500 crore in FY09, assuming 2 crore shares at Rs 250 per share. The stock trades at 3.5x book versus the target of 3.76x, based on Gordon Growth Model, assuming 23.6% normalised RoE.
Britannia Industries
Research: India Infoline
Rating: Buy
CMP:Rs 1,408
India Infoline has recommended a 'buy' on Britannia Industries with a target price of Rs 1,789, an upside of 24.3%. Britannia registered strong 15.6% y-o-y growth in revenues at Rs 660 crore during Q3 FY08, aided by excise savings.
The enhancement in excise exemption purview to include biscuits with Rs 100/kg maximum retail price from Rs 50/kg covers almost 75-80% of Britannia's biscuit portfolio, due to which, its key brands like Tiger, 50:50, Marie Gold, Nice, Milk Bikis and Good Day are now out of the excise ambit.
The increasing utilisation of the Baddi unit for manufacturing high-end products may have also helped to reduce excise duty. Net profit for the quarter increased by 147.7% y-o-y, driven by strong revenue growth, coupled with improved operating efficiency. Adjusted net profit, after voluntary retirement scheme cost of Rs 3.4 crore, rose by 176.8% y-o-y to Rs 45.4 crore, translating into an annualised EPS of Rs 76.
Since Britannia is the largest player in the fast-growing biscuits category, it is the biggest beneficiary of the excise exemption (biscuits priced below Rs 100/kg) on biscuits. India Infoline expects the reduction in excise duty, increasing capacity utilisation at Baddi and reduction in pack sizes to drive volumes and result in improved profitability, going forward.
Britannia is also looking at new growth triggers like acquisitions in new categories, both in India and overseas. At the current market price of Rs 1,439, the stock is trading at 16.1x FY09E EPS of Rs 89.4.
Jain Irrigation Systems
Research: Morgan Stanley
Rating: Buy
CMP: Rs 622
Morgan Stanley has retained its 'overweight' rating on Jain Irrigation Systems (JISL). Strong momentum in micro irrigation systems (MIS) and fruits & vegetables (FV) processing continues to drive growth.
Margins have expanded by 270 bps in 9M FY08 to 18.6%, led by faster growth in micro irrigation, which now comprises 33% of JISL's standalone revenues, against 28% in the previous corresponding period. In Q3 FY08, JISL reported standalone revenues of Rs 400 crore (36% y-o-y growth) and EBITDA of Rs 82 crore (75% y-o-y growth).
MIS grew 69% y-o-y to Rs 170 crore, driven by strong growth in all key states. EBITDA margins of the business expanded by 60 bps y-o-y, driving EBITDA growth of 72%. It currently has an MIS order book of around Rs 330 crore, which will largely be executed by March '08.
Agro-processing (AP) grew 76% y-o-y, driven by 170% growth in FV processing to Rs 41.8 crore, while onion dehydration declined 52%. The plastics business grew 11% y-o-y to Rs 200 crore, impacted by lower exports to the US (PVC sheets) and slowdown in domestic PVC pipes business. Morgan Stanley estimates that margins will expand over the next 3-5 years, with faster growth in MIS and earnings growth, which will push up revenues.
GMR Infrastructure
Research: JM Financials
Rating: Buy
CMP: Rs 175
JM Financials remains positive on GMR Infrastructure, given the valuable Delhi and Hyderabad airport assets, real estate development prospects of 1,255 acres around the airports and rising share of power assets in project portfolio (over 1,000 mw under development).
JM Financials maintains a target price of Rs 297 for the company. GMR Infra reported a y-o-y profit growth of 20% for the December '07 quarter. This was largely driven by other income, which rose by 133% y-o-y to Rs 28.2 crore. Passenger traffic growth at the Delhi airport has remained strong at over 20% during 9M FY08E. Non-aeronautical revenues, which accounted for 60% of the airport turnover, continue to drive airport profitability.
GMR Infra's existing power projects are based on fixed RoE power purchase agreements. Hence, though the plants operated at higher than the usually low plant load factors, EBITDA levels were maintained. GMR Infra's only operational road projects are two annuity-based projects, which also have steady cash flows. GMR's Delhi airport subsidiary received bids for 45 acres around the airport, which will be developed commercially.
Given the continuing disagreement with the government regarding receipt of a larger proportion of deposits than lease rentals, the opening of bids has been delayed. The management has indicated that the issue is expected to be resolved favourably by the end of February '08.
Steel Authority of India
Research: Credit Suisse
Rating: Neutral
CMP: Rs 226
Credit Suisse maintains 'neutral' rating on Steel Authority of India (SAIL). The company reported Q3 results in line with expectations, with lower sales volumes offsetting better-than-expected realisations. 9M FY08 production has outpaced sales by 1 million tonnes (mt).
SAIL has 1.6 mt of finished goods inventory. In the past, the fourth quarter has typically seen a surge in sales. This should help the company meet FY08 estimates. The company's employee costs were surprising, mainly due to a Rs 400-crore provision for gratuity and leave encashment. There will be another Rs 328-crore impact in Q4. The management expects a 20% increase in employee costs due to the Sixth Pay Commission's recommendations.
There is some potential for tightness in coking coal availability in March '08 due to flooding in Australia, but the company has asked Coal India and its American supplier to compensate for this. SAIL has received approval to buy 90% coking coal on long-term contracts (80% earlier), reducing its dependence on spot markets. 30% of the orders have been placed for the company's Rs 53,000-crore expansion.
Research: JP Morgan
Rating: Overweight
CMP: Rs 254
JP Morgan has an 'overweight' rating on Yes Bank and increases the March '09 target price to Rs 293, with 21% upside potential. It has a high return on equity (RoE), high growth and zero non-performing loans (NPLs). It reported a 116% growth in Q3 profit, with 1.5% return on assets (RoA) and 20.5% RoE despite its November issuance.
While the stock has outperformed the Sensex over the past year, it now presents an excellent entry point, given its flat absolute performance over the past month. Catalysts include its upcoming equity placement, wide launch of its retail initiatives, likely addition of 100 branches by July '08 and launch of non-banking businesses over the next 12 months.
Improved low-cost mix, firm margin trends, robust fee growth and 104% deposit growth have boosted the bank's operating profit 111% year-on-year (y-o-y). NPLs continue to remain nil. Retail loans are not a priority for the bank currently, since its growth is driven by small and medium enterprise (SME) loans.
High balance sheet growth, low margins, high fees, low operating expenditure and low provisions drive 10-20% increase in EPS over FY08E-FY10E. JP Morgan also factors in an equity issuance of Rs 500 crore in FY09, assuming 2 crore shares at Rs 250 per share. The stock trades at 3.5x book versus the target of 3.76x, based on Gordon Growth Model, assuming 23.6% normalised RoE.
Britannia Industries
Research: India Infoline
Rating: Buy
CMP:Rs 1,408
India Infoline has recommended a 'buy' on Britannia Industries with a target price of Rs 1,789, an upside of 24.3%. Britannia registered strong 15.6% y-o-y growth in revenues at Rs 660 crore during Q3 FY08, aided by excise savings.
The enhancement in excise exemption purview to include biscuits with Rs 100/kg maximum retail price from Rs 50/kg covers almost 75-80% of Britannia's biscuit portfolio, due to which, its key brands like Tiger, 50:50, Marie Gold, Nice, Milk Bikis and Good Day are now out of the excise ambit.
The increasing utilisation of the Baddi unit for manufacturing high-end products may have also helped to reduce excise duty. Net profit for the quarter increased by 147.7% y-o-y, driven by strong revenue growth, coupled with improved operating efficiency. Adjusted net profit, after voluntary retirement scheme cost of Rs 3.4 crore, rose by 176.8% y-o-y to Rs 45.4 crore, translating into an annualised EPS of Rs 76.
Since Britannia is the largest player in the fast-growing biscuits category, it is the biggest beneficiary of the excise exemption (biscuits priced below Rs 100/kg) on biscuits. India Infoline expects the reduction in excise duty, increasing capacity utilisation at Baddi and reduction in pack sizes to drive volumes and result in improved profitability, going forward.
Britannia is also looking at new growth triggers like acquisitions in new categories, both in India and overseas. At the current market price of Rs 1,439, the stock is trading at 16.1x FY09E EPS of Rs 89.4.
Jain Irrigation Systems
Research: Morgan Stanley
Rating: Buy
CMP: Rs 622
Morgan Stanley has retained its 'overweight' rating on Jain Irrigation Systems (JISL). Strong momentum in micro irrigation systems (MIS) and fruits & vegetables (FV) processing continues to drive growth.
Margins have expanded by 270 bps in 9M FY08 to 18.6%, led by faster growth in micro irrigation, which now comprises 33% of JISL's standalone revenues, against 28% in the previous corresponding period. In Q3 FY08, JISL reported standalone revenues of Rs 400 crore (36% y-o-y growth) and EBITDA of Rs 82 crore (75% y-o-y growth).
MIS grew 69% y-o-y to Rs 170 crore, driven by strong growth in all key states. EBITDA margins of the business expanded by 60 bps y-o-y, driving EBITDA growth of 72%. It currently has an MIS order book of around Rs 330 crore, which will largely be executed by March '08.
Agro-processing (AP) grew 76% y-o-y, driven by 170% growth in FV processing to Rs 41.8 crore, while onion dehydration declined 52%. The plastics business grew 11% y-o-y to Rs 200 crore, impacted by lower exports to the US (PVC sheets) and slowdown in domestic PVC pipes business. Morgan Stanley estimates that margins will expand over the next 3-5 years, with faster growth in MIS and earnings growth, which will push up revenues.
GMR Infrastructure
Research: JM Financials
Rating: Buy
CMP: Rs 175
JM Financials remains positive on GMR Infrastructure, given the valuable Delhi and Hyderabad airport assets, real estate development prospects of 1,255 acres around the airports and rising share of power assets in project portfolio (over 1,000 mw under development).
JM Financials maintains a target price of Rs 297 for the company. GMR Infra reported a y-o-y profit growth of 20% for the December '07 quarter. This was largely driven by other income, which rose by 133% y-o-y to Rs 28.2 crore. Passenger traffic growth at the Delhi airport has remained strong at over 20% during 9M FY08E. Non-aeronautical revenues, which accounted for 60% of the airport turnover, continue to drive airport profitability.
GMR Infra's existing power projects are based on fixed RoE power purchase agreements. Hence, though the plants operated at higher than the usually low plant load factors, EBITDA levels were maintained. GMR Infra's only operational road projects are two annuity-based projects, which also have steady cash flows. GMR's Delhi airport subsidiary received bids for 45 acres around the airport, which will be developed commercially.
Given the continuing disagreement with the government regarding receipt of a larger proportion of deposits than lease rentals, the opening of bids has been delayed. The management has indicated that the issue is expected to be resolved favourably by the end of February '08.
Steel Authority of India
Research: Credit Suisse
Rating: Neutral
CMP: Rs 226
Credit Suisse maintains 'neutral' rating on Steel Authority of India (SAIL). The company reported Q3 results in line with expectations, with lower sales volumes offsetting better-than-expected realisations. 9M FY08 production has outpaced sales by 1 million tonnes (mt).
SAIL has 1.6 mt of finished goods inventory. In the past, the fourth quarter has typically seen a surge in sales. This should help the company meet FY08 estimates. The company's employee costs were surprising, mainly due to a Rs 400-crore provision for gratuity and leave encashment. There will be another Rs 328-crore impact in Q4. The management expects a 20% increase in employee costs due to the Sixth Pay Commission's recommendations.
There is some potential for tightness in coking coal availability in March '08 due to flooding in Australia, but the company has asked Coal India and its American supplier to compensate for this. SAIL has received approval to buy 90% coking coal on long-term contracts (80% earlier), reducing its dependence on spot markets. 30% of the orders have been placed for the company's Rs 53,000-crore expansion.
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