Indian Equity Research and Investment Strategy
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We are into the third week of the current reporting season, things still look positive and ahead of expectations, with 1QFY10 profits at 18/29 Sensex companies (excluding -oil) up 12.6% yoy (4% expected). At a still broader level, 178/500 companies have reported 17% yoy growth. There are more positive than negative surprises. (more…)
SBI reported better-than-expected earnings – with NII growing 4% yoy and 9% ahead of estimates, PAT grew 42% to Rs23.3 bn and was 15% ahead of estimates. Asset quality trends were strong – incremental delinquency at 1.5% annualized and total restructured loans at 3.8%. Expect the positive traction on margins and asset quality to continue over the next few quarters.
A key concern for SBI has been its low margins, especially after its huge deposit mobilization in 2QFY09 and 3QFY09. SBI reported a 2.3% margin in 1QFY10, almost similar to its 4QFY09 margin. (more…)
Kotak reported consolidated F1Q10 earnings of Rs2.6bn, up 72% YoY and 22% QoQ.
Growth during the quarter was driven by a rebound in capital market-related businesses. PBT for these businesses increased 93% YoY and 206% QoQ.
Credit issues continued with gross NPL levels rising – up 100 bps during the quarter to 3.4%. Most of the increase was concentrated in the small value personal loan segment.
Banking business trends remained muted with NII progression still weak and the bank choosing to re-focus the loan book toward lower yielding corporate loans. Tier I increased to 18.3% from 16% in the previous quarter.
Kotak management has been proactive in managing asset quality through moderation in growth and has a strong balance sheet with high Tier 1. Also, market-related businesses should continue contributing to earnings as capital market activity picks up further.
FY10 EPS is expected to be Rs 28.
National Hydroelectric Power Corporation (NHPC), which is set to tap the capital market with its initial public offering (IPO) next month, has fixed the price band for the issue at Rs 30-36. The issue will take the book building route to raise the funds.
The IPO is set to open for subscription on August 7 and will close on August 11, 2009. The issue comprises 168 crore shares comprising 5% dilution of the govt’s stake and a 10% fresh issuance. NHPC plans to mop up between Rs 5,040 crore and Rs 6,048 crore from the issue. (more…)
The Reserve Bank of India (RBI) kept all rates unchanged in line with consensus and our expectation. The repo rate stands at 4.75% and the reverse repo rate at 3.25%, while the CRR of banks is at 5%.
The RBI raised its inflation target from 4% to 5% for end-March 2010 in line with market expectations. (more…)
Ashok Leyland continues to be adversely affected, given concentration of sales in southern India (coupled with loss of market share in the north and eastern markets). Mgmt had also indicated in the recent analyst meet that its sales were affected by consumers shifting to haulage vehicles, rather than speciality vehicles like tractor trailers, tippers.
Operationally, EBITDA was 86% below forecasts. Sales were ~8% above estimates due to higher realizations (we believe on account of spare parts & engine sales).
Mgmt. guided to single-digit domestic volume growth in FY10 and expects exports to increase to 9,000 units. It also expects to increase its operating margins by 350 bps y/y in FY10. Fully Diluted EPS expectation for FY10 is Rs 1.56 and Rs 2.07 for FY11.
Tata Motors recurring net profit at Rs 1.95bn was well ahead of our expectations (we had forecast a modest loss). The results are buoyed by a lower effective excise duty (7.6% of gross revenues this Q) as production from Uttaranchal increased (~13k units/ month). Material costs as % of revenues were a tad lower than estimates.
Mgmt noted that the company’s operating cash flows in 1Q were Rs20bn – an encouraging trend. Overall debt levels remain high – ~Rs169bn – and are a concern, given the aggressive debt equity ratio (~6x end FY09). Working capital was slightly elevated – inventory has increased to 32 days (from 28), while receivables also rose to 23 days.
Tata Motors is expectd to report an EPS of Rs 8.35 for FY10.
