Punjab National Bank
Apart from robust growth in fund-based income, the bank’s other income (which includes more stable fee-based income) has grown at a healthy pace. While an extensive branch network should continue to aid PNB to deliver robust business growth, the relatively high CASA ratio should ensure better NIMs, compared to its peers. The technology initiatives (100% CBS implementation) along with prudent lending practices would also help towards keeping costs under check and maintain asset quality. While PNB also holds 74 per cent in PNB Gilts and 30 per cent in Principal PNB Mutual Fund, any progress over the IPO of UTI AMC (PNB holds 25 per cent stake) could rub off positively on the stock.
Considering it has successfully executed its two mega ventures, viz. KG basin gas and the RPL refinery, we expect them to be the key drivers of profitability over the next few years. We remain positive on RIL’s future growth prospects. At current market price of Rs 2060, RIL is currently trading at 16.8x and 12.5x of FY10E and FY11E earnings respectively.We expect RIL to deliver 30.8% CAGR in earnings over next two years (FY09 – FY11E). Historically the stock trades at an average of 15x its 1 year forward earnings. Considering this our target price for the stock stands at Rs 2,475 (15x of FY11E earnings of Rs 165), providing an upside potential of 20% from current levels. We recommend a Buy on RIL.
The company is set to emerge as one of India’s leading petroleum producer - and possibly the largest onshore producer - once its oilfields in Rajasthan reach peak production in coming years. Higher production will boost revenue in the coming quarters. Going ahead, the profits are likely to show astonishing returns on year on year basis, assuming that the company would be able to meet its production targets and there would not be any major negative movement in crude prices and no substantial appreciation in rupee from current levels. So, we recommend to buy this stock and hold for a period of 1-2 years with target price of Rs 375.
Apollo Tyres (ATL), India’s premier tyre company which is currently ramping up its capacities to 1,000TPD from 744TPD in India (through both green and brown-field additions, entailing an investment of Rs 1, 000cr) is well-positioned to take advantage of the revival in the domestic and global auto industries. Further, the substantial decline in the prices of natural rubber and other crude related raw materials from their peak levels in 1HFY2009 is expected to boost ATL’s profitability going ahead. Also, we expect ATL stands to benefit on account of a demand-supply mismatch in the cross-ply segment on account of the existing players concentrating on building new radial facilities which would lead to better realisations in cross-ply segment thereby improving its margins and profitability in the long term.Further, in May 2009, Apollo acquired 100% shareholding of Vredestein Banden (VBBV), a Dutch tyre manufacturing company, with a production capacity of 5.5mn tyres and enjoying a market share of 1.67% in the European market. This acquisition is expected to add further impetus to the company’s growth in overseas markets. At Rs 42, the stock is currently trading at 6.4xFY2011E Earnings. We recommend a Buy on the stock with a Target Price of Rs 53.
We believe Axis Bank’s planned equity dilution of about 17% is a precursor to marketshare gains at a faster growth rate of 8-10 percentage points above the industry over the next few years, strongly positioning the bank for the imminent revival in GDP growth from early FY2011E onwards. This dilution will result in book value accretion of about Rs 94 per share (25% increase over pre-dilution estimates), with a reasonable post-dilution leverage of 12x, average RoEs of about 16% over FY2010-11E and EPS dilution of about 7.5% in FY2011E. Amongst factors that drive competitive advantage, steady branch expansion, comprehensive product range and channel presence are driving consistent CASA marketshare gains (increased fourfold since FY2003).Moreover, diverse fee income streams, including cash management, syndication, bond underwriting, wealth management and cards, apart from the traditional CEB and Fx income, contribute a meaningful 2% of average assets. At the CMP, the stock is trading at attractive valuations of 2.0x FY2011E ABV (post-dilution). Post-dilution valuations imply an almost 30% discount to HDFC Bank, despite similar return ratios over FY2010-11E. We maintain a Buy on the stock with a 12-month Target Price of Rs 1,106.
Bharti Airtel Ltd is India’s largest integrated and the first private telecom services provider with a footprint in all the 23 telecom circles. The businesses at Bharti Airtel have been structured into three individual strategic business units (SBUs) -- Mobile Services, Airtel Telemedia Services & Enterprise Services. For 1Q FY10, the company’s total revenue grew to Rs 99.4 bn, EBITDA grew 18% YoY and 3.8% QoQ to Rs 41.5bn, while earnings grew 24% YoY and 12.4% QoQ to Rs 25.2 bn. ARPU declined 20.6% YoY and 8.9% QoQ to Rs 278/sub/month. MOU was 478 minutes, down 1.4% QoQ. However, overall mobile minutes grew 33.7% YoY and 7.7% QoQ to 140.7b.Rural market remains attractive: Bharti remains sanguine about the rural markets and believes that economic growth in rural India would continue unabated. ARPU in rural markets remains attractive at ~2/3rd of the overall Indian market ARPU.Low tariffs (high affordability) is the safety net against competition: Bharti believes that very low tariffs prevailing in the Indian market are the biggest safety net for incumbents against increasing competition. Bharti's significant coverage advantage would ensure that incremental margins are in line with the current margin profile.Bharti MTN Deal: Bharti and the MTN group are in talks to discuss exclusively a potential transaction. The MTN group is present in 21 countries of Africa and the Middle East. High tariffs and relatively low penetration in Africa makes it an attractive market for Bharti. The scope for cost and tariff reductions could trigger significant volume growth opportunity in the African markets.Bharti, thus, remains best-placed, given low capex intensity, un-leveraged balance sheet, and scale advantage. Bharti trades at an EV of 8x FY11E EBITDA and 14.1 x FY11E EPS. Bharti is well positioned with strong incumbency advantage and healthy balance sheet.
GVK Power & Infrastructure
Since January 2009, there have been several positive developments that improved returns on project SPVs and addressed liquidity issues. The developments include:- 10% rise in aero revenue at Mumbai International Airport Ltd (MIAL)- The levy of ADF to mobilize Rs15.4bn over FY10-FY13 towards MIAL's development costs- Relaxations of land use (~20m square feet development) at MIAL, including commercial development- Availability of gas from the KG basin, leading to commissioning of 694MW power capacity- Raising Rs 7.2bn through a recent QIP, which provides growth capital- GVK expected to report consolidated net profit CAGR of 72% over FY09-FY11, from Rs 1.1b in FY09 to Rs 3.2bn in FY11. This will be driven largely by power, given commissioning of JP II and Gautami projects in 1QFY10
Bajaj Auto’s August total volumes grew by 6% YoY (~10.5% MoM) to 213,072 units (v/s est 205,000), with improvement in both domestic (~6% growth) and exports (~5.7% growth). Bajaj's domestic sales were at 137,908 units, whereas exports were at 75,164 units.Bajaj Auto 1QFY10 results are above estimates, driven by higher export realizations and higher operating leverage. EBITDA margins were at 19.5% and adjusted PAT of Rs3.1b volumes improved by 24% QoQ (but 11.7% YoY decline), driven by 29% QoQ growth (~13.8% YoY decline) in 2W and 2.5% QoQ decline (~8.8% YoY growth) in 3W. Realizations improved by 14.6% YoY (flat QoQ due to product mix change) due to higher forex rate.With encouraging response for new Discover 100, the company is planning to increase sales of Discover brand (incl Discover 135) to ~80,000/month for next two months (v/s 65,000 in Aug-09). Including new Pulsar, the company expects to sell ~500,000 motorcycles cumulative over the next two months.
Source: Economic Times