24 April 2013
India Financial: 4QFY13 preview – does not look bad; valuations are attractive: Deutsche Bank
Steady earnings for private banks and NBFCs; upgrading UNBK to Buy
We expect steady earnings and asset quality to continue for private banks and
NBFCs in 4QFY13, aided by stable NIMs and capital issuances by Axis and IIB.
PSU banks are likely to see a QoQ improvement in gross and net slippages,
even while remaining high. Overall for banks, we expect NII to grow 8% YoY
and PAT to fall 1% YoY (private banks +21%, +22%). NBFCs’ earnings growth
is likely to be 26%. The recent sharp correction seems unjustified, and has
made valuations very attractive, in our view. We upgrade Union Bank to Buy
given the attractive valuations. We maintain a preference for ICICI, Axis, Yes
and IIB. We like PNB, Canara and BOI among the PSU banks.
NIM should remain stable; SBI is worst positioned
We think banks like Axis and IIB, which have raised equity capital, should
witness a QoQ NIM expansion. We expect most other private banks to witness
a stable QoQ NIM, with a rise on a YoY basis. While select public banks, such
as Canara and BOI, should also benefit, due to lower wholesale rates, we
believe the cut in base rates will neutralize this, to some extent. We expect SBI
to be the worst-positioned on margins, as its funding costs will be slow to fall,
as it is largely retail-funded, coupled with its intent to grow fast.
Asset quality may surprise positively on reported NPLs; restructuring may rise
As we have been highlighting, in terms of overall reported numbers, the
worsening phase on slippages is over, even though any improvement will be
gradual. We maintain our view that net slippages for PSU banks are likely to be
lower than 3Q levels, but that the pace of restructuring may continue.
However, credit costs are likely to remain high for public banks, as these banks
improve their provision coverage levels. Among the private banks, we expect
similar positive trends to continue, with no meaningful deviation. On retail
assets, we remain positive, despite some pressure in the CV portfolio.
On PSU banks, we lower our earnings forecasts and target prices marginally
Overall, in line with our thoughts on loan growth and margins, we have
reduced our earnings estimates for the PSU Banks by 2-9% and our target
prices by 3-9%. However, given their very attractive valuations, we remain
positive on these banks. Post a very sharp decline in stock prices, we upgrade
our recommendation on Union Bank to Buy.
NBFCs: another quarter of strong earnings
We expect NBFCs to continue to report stable asset quality in 4QFY13, with no
surprises likely. NIMs are likely to remain stable, even as we expect loan
growth to remain strong for most players. Overall, we expect NBFCs to report
net profit growth of 25% YoY during 4QFY13.
Valuation and risks
We value the Indian banks’ lending businesses on a two-stage residual income
model, insurance on appraisal value, asset management on percentage of
AUM and other non-banking businesses on P/E or P/B. Key upside risks are a
much lower NPL formation and higher-than-expected loan growth, driven by
economic recovery in FY14. The biggest downside risk is a sharply weaker
macro environment, which could result in higher-than-expected delinquencies,
in turn resulting in higher provisions
We expect steady earnings and asset quality to continue for private banks and
NBFCs in 4QFY13, aided by stable NIMs and capital issuances by Axis and IIB.
PSU banks are likely to see a QoQ improvement in gross and net slippages,
even while remaining high. Overall for banks, we expect NII to grow 8% YoY
and PAT to fall 1% YoY (private banks +21%, +22%). NBFCs’ earnings growth
is likely to be 26%. The recent sharp correction seems unjustified, and has
made valuations very attractive, in our view. We upgrade Union Bank to Buy
given the attractive valuations. We maintain a preference for ICICI, Axis, Yes
and IIB. We like PNB, Canara and BOI among the PSU banks.
NIM should remain stable; SBI is worst positioned
We think banks like Axis and IIB, which have raised equity capital, should
witness a QoQ NIM expansion. We expect most other private banks to witness
a stable QoQ NIM, with a rise on a YoY basis. While select public banks, such
as Canara and BOI, should also benefit, due to lower wholesale rates, we
believe the cut in base rates will neutralize this, to some extent. We expect SBI
to be the worst-positioned on margins, as its funding costs will be slow to fall,
as it is largely retail-funded, coupled with its intent to grow fast.
Asset quality may surprise positively on reported NPLs; restructuring may rise
As we have been highlighting, in terms of overall reported numbers, the
worsening phase on slippages is over, even though any improvement will be
gradual. We maintain our view that net slippages for PSU banks are likely to be
lower than 3Q levels, but that the pace of restructuring may continue.
However, credit costs are likely to remain high for public banks, as these banks
improve their provision coverage levels. Among the private banks, we expect
similar positive trends to continue, with no meaningful deviation. On retail
assets, we remain positive, despite some pressure in the CV portfolio.
On PSU banks, we lower our earnings forecasts and target prices marginally
Overall, in line with our thoughts on loan growth and margins, we have
reduced our earnings estimates for the PSU Banks by 2-9% and our target
prices by 3-9%. However, given their very attractive valuations, we remain
positive on these banks. Post a very sharp decline in stock prices, we upgrade
our recommendation on Union Bank to Buy.
NBFCs: another quarter of strong earnings
We expect NBFCs to continue to report stable asset quality in 4QFY13, with no
surprises likely. NIMs are likely to remain stable, even as we expect loan
growth to remain strong for most players. Overall, we expect NBFCs to report
net profit growth of 25% YoY during 4QFY13.
Valuation and risks
We value the Indian banks’ lending businesses on a two-stage residual income
model, insurance on appraisal value, asset management on percentage of
AUM and other non-banking businesses on P/E or P/B. Key upside risks are a
much lower NPL formation and higher-than-expected loan growth, driven by
economic recovery in FY14. The biggest downside risk is a sharply weaker
macro environment, which could result in higher-than-expected delinquencies,
in turn resulting in higher provisions
Ultra Tech Cement - Q4FY13 Result Update - Centrum
Q4FY13 Result Update
UltraTech Cement
Buy
Target Price: Rs2,231
CMP: Rs1,872
Upside: 19.2%
Op. margin tad lower, expect recovery in 2HFY14E
UltraTech’s Q4FY13 result was below estimates with op. margin at 22.3% against estimated 22.8% primarily due to lower-than-expected realization and sales volume. Realization declined 1.3% QoQ to Rs4,147/tonne (est. Rs4,186/tonne). The company reported EBITDA of Rs12bn (est. Rs12.8bn) and profit of Rs7.3bn (est. Rs7.7bn). Operating cost/tonne during the quarter was at Rs3,765/tonne against estimated Rs3,777/tonne. Blended EBITDA/tonne was at Rs1,078 vs. est. Rs1,117. Going forward, we believe that utilization rate of the industry will improve to 80.4% by FY15E after bottoming out at 75.4% in FY13E. We expect cement demand to grow at ~7% in FY14E and improve to 8-9% in FY15E led by revival in capex cycle of industries; growth in housing projects (due to our expectation of cut in interest rate) and government’s thrust on infrastructure development. We believe that improvement in utilization rate and demand scenario will lead to improved pricing power of cement manufacturers and help them pass on the rise in input cost to consumers leading to improvement in operating margins for the industry. The company will also benefit from its planned capacity expansion of 10.2mt by Q2FY14E after which its grinding capacity in India will stand at 59mt against 48.8mt currently. During the quarter, the company commissioned 3.3mt clinkerization unit at Chhattisgarh and grinding unit of 2.15mt (1.55mt in Maharastra and 0.6mt in Gujarat). We have factored in grey cement sales volume growth of ~8% in FY14E and 10% in FY15E for the company. We maintain Buy on the stock with a one-year price target of Rs2,231.
BSE, NSE closed today: Mahavir Jayanti; Next holiday May Day (01-May, Wednesday)
| Sr. No. | Date | Day | Description |
|---|---|---|---|
| 1 | 27-Mar-2013 | Wednesday | Holi |
| 2 | 29-Mar-2013 | Friday | Good Friday |
| 3 | 19-Apr-2013 | Friday | Ram Navmi |
| 4 | 24-Apr-2013 | Wednesday | Mahavir Jayanti |
| 5 | 01-May-2013 | Wednesday | May Day |
| 6 | 09-Aug-2013 | Friday | Ramzan ID |
| 7 | 15-Aug-2013 | Thursday | Independence Day |
| 8 | 09-Sep-2013 | Monday | Ganesh Chaturthi |
| 9 | 02-Oct-2013 | Wednesday | Gandhi Jayanti |
| 10 | 16-Oct-2013 | Wednesday | Bakri ID |
| 11 | 04-Nov-2013 | Monday | Diwali-Balipratipada |
| 12 | 14-Nov-2013 | Thursday | Moharram |
| 13 | 25-Dec-2013 | Wednesday | Christmas |
*Muhurat Trading will be conducted. Timings of Muhurat Trading shall be notified subsequently.
The holidays falling on Saturday / Sunday are as follows:
| Sr. No. | Date | Day | Description |
|---|---|---|---|
| 1 | 26-Jan-2013 | Saturday | Republic Day |
| 2 | 10-Mar-2013 | Sunday | Mahashivratri |
| 3 | 14-Apr-2013 | Sunday | Dr. Ambedkar Jayanti |
| 4 | 13-Oct-2013 | Sunday | Dasera |
| 5 | 03-Nov-2013 | Sunday | Diwali-Laxmi Puja* |
| 6 | 17-Nov-2013 | Sunday | Gurunank Jayanti |
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