4th june 2011 -...
TRANSCRIPT
Large Cap CMP
ICICI Bank(*) Rs.1,049
Infosys Tech. Rs.2814
M&M(*) Rs.667
1 TRADING PICK FROM 3
CMP: Current Market Price MBP: Maximum Buying Price
4th June 2011
“ Since Largre & Mid Cap shares are available at reasonable valuation , we have not recommended any stock from Small Cap segment.
NIL -----
CMP
(*): New -entry
Mid Cap CMP
Action Construction(*) Rs.43
Pantaloon Retail(*) Rs.272
PFC(*) Rs.203
1 TRADING PICK FROM 3 CMP
NIL ------
(Large Cap)
MOSt Mutual
DSP BlackRock Top 100 Equity Fund
Sundaram Select Mid Cap Fund
ICICI Pru Discovery Fund (Multi Cap)
(Mid Cap)
4th June 2011Febr
CMP (Rs.) 1,049
MBP (Rs.) 1,100
Face Value 10
Equity Shares (Mn) 1,151.8
52-Week Range (H/L) 1,277 /805
M.Cap. (Rs b) 1,208.0
ICICI Bank
BANKING
FY11E FY12E FY13E
EPS 44.7 57.6 69.0
P/E 23.5 18.2 15.2
ABV 352 391 436
P/BV 2.3 2.1 1.9
ICICI Bank is the second largest bank in India, with a balance sheet size of Rs3.9t and a widegeographical reach of 2,515 branches and 4,500+ ATMs. ICICI Bank, through its subsidiaries,is a leading player in insurance and asset management. Its strategic focus has changed frombalance sheet growth and market share to improving profitability and return ratios
Recent Key Highlights:
ICICI Bank's 4QFY11 PAT grew % 44YoY to Rs14.4b. Strong operating performanceand lower credit cost was offset by trading loss and higher opex, leading to marginallylower than (4%) estimated profitability.
NII grew 23% YoY (9% QoQ) to Rs25b (7% higher than our estimate), led by NIMexpansion (+10bp QoQ) and pickup in loan growth. Loans grew ~5% QoQ and~19% YoY, despite 14% QoQ decline in domestic corporate loans.
CASA ratio (calculated) increased to 45.1% in 4QFY11 from 44.2% in 3QFY11, led bystrong traction in CA deposits. Asset quality remained largely stable. GNPA was flatQoQ in absolute terms.
Key investment arguments:
Improvement in loan growth, high CASA ratio, reduction in bulk deposits andimprovement in international margins will lead to improved margins.
Reduced exposure to unsecured retail loans, moderate loan growth in past and PCRat 70%+, will lead to lower credit cost in future, driving RoA improvement. Lifeinsurance venture holds significant value. Increase in FDI limit in insurance would leadto potential unlocking of value for the company.
Valuation and view:
ICICI Bank is our top pick in the sector, considering (a) expected improvement in coreperformance, (b) strong capitalization, and (c) value unlocking potential from other businessventures. We expect ICICI Bank to report EPS of Rs58 in FY12 and Rs69 in FY13. ABV(adjusted for investment in subsidiaries) would be Rs402 in FY12 and Rs448 in FY13. Weexpect core RoE to improve to 14%+ in FY12 and ~16% in FY13. Buy with an SOTP-basedtarget price of Rs1,360, ~25% upside.
4th June 2011IT
Infosys Tech.
CMP (Rs.) 2,814
MBP (Rs.) 2,875
Face Value 5
Equity Shares (Mn) 574
52-Week Range (H/L) 3,494 / 2,617
M.Cap. (Rs b) 1,607.0
Infosys is the second largest IT Services Company in India with revenues of around US$6b
and employing over 130,000 people. Infosys defines designs and delivers IT enabled businesssolutions that help many Global 2000 companies to win in a flat world. Its service offerings
span business and technology consulting, ADM, SI, product engineering, IT infrastructureservices and BPO.
Recent Developments:
Infosys 3.0 formally launched: Infosys has formally launched 'Infosys 3.0', underwhich it intends to transform from a technology solutions company to a business
solutions company. It intends to make itself more relevant to its clients and proactivelyhelp them in 'Building Tomorrow's Enterprise'.
Leadership changes announced: Mr KV Kamath, the former CEO and now Non-
Executive Chairman of ICICI Bank, has been appointed Chairman of the Board toreplace Mr Narayan Murthy. Mr S Gopalkrishnan will be Executive Co-Chairman and
Mr SD Shibulal will take over as CEO. The trio will assume their respective responsibilitiesfrom 21 August 2011. Mr Murthy will be Chairman Emeritus
Infosys's 4QFY11 revenues were well below expectations (US$1,602m v/s est. ofUS$1,653m), driven by volume decline of 1.4% v/s est. of 4% increase. Volume decline
was primarily driven by continued weakness in Telecom (revenue down 4.8% QoQ inCC) and surprising weakness in the Insurance sub-segment within BFSI.
Valuation and view:
We reckon frontline Indian IT companies would be better placed to sail through the near
term adversities mentioned above. Niche IT/ITeS services companies with strong businessmodels are also likely to be better placed to face uncertainties in near term. We expect
Infosys to achieve revenue and EPS CAGR of 20.8% and 23.1% respectively, over FY11-FY13. We Maintain Buy with a price target of Rs3,400.
FY11E FY12E FY13E
EPS (Rs) 119.4 140.6 169.5
PE(x) 23.6 20.0 16.6
4th June 2011AUTOMOBILE
M&M
CMP (Rs.) 667
MBP (Rs.) 690
Face Value 5
Equity Shares (Mn) 587.2
52-Week Range (H/L) 826 /550
M.Cap. (Rs b) 401.3
FY11E FY12E FY13E
EPS (Rs) 48.7 61.7 71.6
PE(x) 13.7 10.8 9.3
M&M is the market leader in UV and tractors, with market share of 50% and 40% respectively.
Its tractor business is expected to benefit from the Government's thrust on the developmentof the rural economy. In the UV segment, it is expected to maintain its market share in even
in the face of competition. It has also entered the LCV and three wheeler segment recently.
Recent Developments:
M&M standalone 4QFY11 results are below estimates with EBITDA margins of 12.7%
(v/s est 15%) impacted by higher than estimated cost. Key highlights:
Net sales grew by 27% YoY (~10% QoQ) to Rs66.8b (v/s est Rs65.3b), driven by
volume growth of 22% YoY (~8%QoQ) and realization improvement of 4.5% YoY(~2.5% QoQ) to Rs422,287/unit (v/s est Rs413,717/units). EBITDA margins declined
by 240bp QoQ (~330bp YoY) to 12.7% (v/s est 15.0%) impacted by 140bp QoQ(~310bp YoY) RM cost inflation, and 60bp QoQ (~130bp YoY) increase in staff cost
Key investment arguments:
M&M would be one of the biggest beneficiaries of normal monsoon, given its ruralcentric product portfolio.
M&M's investments in its subsidiary and associate companies add substantially tothe company's valuations. Value unlocking in these companies would act as catalyst
for M&M's stock.
The management expects growth of 14-15% in the automobile and tractor industries,
but it expects UV volumes to grow below industry estimates due to rising competition(Tata Aria, a facelift of the Innova) and an ageing of portfolio.
Valuation and view:
We are cutting our standalone EPS for FY12 and FY13 by 7.4% and 7.6% respectively andconsolidated EPS by ~3% and ~3.7% respectively, to model a) higher cost in 4QFY11, b)
withdrawal of sales tax incentive for non-Maharashtra sales for Chakan plant, c) improvementin performance of Systech and Financial services subsidiaries. Maintain Buy with lowered
target price of Rs844 (FY13 based SOTP).
4th June 2011
Action Construction
CMP (Rs.) 43
MBP (Rs.) 45
Face Value 2
Equity Shares (Mn) 92.5
52-Week Range (H/L) 75 / 37
M.Cap. (Rs b) 4.1
ACE, Action Construction Equipment Limited, is India's leading mobile crane manufacturingcompany. ACE's production facilities are based in Faridabad with an assembly plant inUttarakhand. A new Uttarakhand plant is slated to become functional in FY12
Key Investment Arguments:Duopolistic Industry to drive revenue growth: The market share of ACE in mobile cranes is52-53% and with the nearest competitor it controls 95% of the market. The managementestimates this business to continue to grow at 25%+ rates with capacity having beenexpanded to 800 units per month.The duopolistic nature of the market allows healthymargins as a result of pricing power.Replacement sales, spares and tractors to add to growth: At present, replacement demandconstitutes only 5-7% of the total demand. Life of a mobile crane is close to 7 years. As aresult, replacement demand should pick up in the coming years. Also, likely to contributeto revenues is demand for spares.Further, there has been a ramp up in the tractor sideof the business and the company expects to ramp up volumes from 3500 units to6000 units by the end of FY12.
Recent Developments:In 4QFY11, revenue growth of 55% was driven by 50%+ growth across segments. Operatingmargins have beenunder pressure due to higher raw material costs. Margins in tractors andmaterial equipment businesses havedropped sharply as raw material cost increases in Jan-Mar-11 quarter were passed onto customers only in Mar/Apr-11. Despite higher interestcost on higher sales, profits have grown by 37% on account of higher other income.ForFY11, earnings are up by 79% on 61% rise in revenues. Margins are flat y/y. All businesseshave shown stronggrowth of 50%+ but tractors have shown depressed margins on accountof raw material pressure.
Valuations and View:The stock is trading at the bottom of the valuations band for the last 5 years at 8xFY12E EPS vs 16.3x averagevaluations for the last 5 years. We reiterate our target ofRs.80 and our BUY rating on the stock.
ENGINEERING
FY10A FY11E FY12E
EPS (Rs) 2.6 4.4 5.6
PE(x) 16.5 9.8 7.7
4th June 2011
Pantaloon Retail
CMP (Rs.) 272
MBP (Rs.) 285
Face Value 2
Equity Shares (Mn) 217
52-Week Range (H/L) 531 / 218
M.Cap. (Rs b) 60.7
Retail
FY11E FY12E FY13E
EPS (Rs) 8.7 12.0 16.4
PE(x) 31.3 22.6 16.6
Pantaloon Retail is the largest organized retailer in India, with a retail space of more than14msf under its belt. It has presence in multiple categories through different formats likedepartment stores (Pantaloon), hypermarkets (Big Bazaar), seamless mall (Central) andstandalone stores.
Key Investment Arguments:
Pantaloon is the best play in the fast growing organized retail industry, with presenceacross categories and formats. The company houses ~14msf of retail space and enjoys asignificant first mover advantage. The management has guided increasing share of privatelabels so as to improve the company's margin profile.
Recent developments
Pantaloon Retail has entered the premium food retailing segment with the launch of "Foodhall",a 15,000 sq ft store combining traditional food formats, gourmet foods, imported andfresh food formats under one roof. With higher revenue per sq ft than the company'saverage and a superior margin profile owing to higher proportion of imported products,the format is likely to have a positive impact on the overall margin profile of the companyonce its achieves scale.
Valuations and View:
The new retail format is expected to generate higher revenue per sq ft than thecompany's traditional formats. A large presence of private labels and imported brandswill also result in higher margins, and thus have a positive impact on overall marginprofile of the business. However, we expect no impact on near-term margins till theformat scales up. Pantaloon retails remains our top pick in the Retail sector. The stockhas corrected significantly from Rs550 levels. We maintain Buy.
4th June 2011
PFC
CMP (Rs.) 203
MBP (Rs.) 212
Face Value 10
Equity Shares (Mn) 1,147.7
52-Week Range (H/L) 383 / 191
M.Cap. (Rs b) 269.1
BANKING
FY11E FY12E FY13E
EPS (Rs) 22.8 23.3 27.8
PE(x) 8.9 8.7 7.3
PFC is well placed to leverage the strong demand for financing in the power sector, with itsleadership position and strong domain knowledge. Its healthy asset-liability profile hasbeen cushioning PFC against interest rate risks, but tighter liquidity conditions, rising ratesand increased competition could put pressure on spreads.
Niche power financiers are better placed to capitalize on this opportunity:
Total bank credit to the power sector has grown at a CAGR of 38% over FY05- FY11 toRs2.7t as against 22% for PFC (to Rs1t) and 24% for REC (to Rs800b). However, with somebanks approaching the lending limit approved by their respective boards for theinfrastructure segment, growth in bank loans to this segment would be in line or marginallyabove industry average. For niche NBFCs, grant of IFC status (enabling higher exposure to asingle/group of borrowers) and better asset liability profile will provide an edge.
Incremental lending opportunity of Rs8t+ over FY12-17:
Under the 12th plan alone, power sector fund requirement will be Rs11t - Rs5t for gencos(~100GW to be added), Rs2.4t for transmission, and Rs3.7t for distribution. In FY12 (lastyear of 11th plan), ~20GW is likely to be added, leading to fund requirement of Rs1t.Thus, total fund requirement over FY12-17 is Rs12t. Assuming debt equity of 70:30, thistranslates into a massive opportunity of Rs8t+ for lending agencies. We expect PFC to clock20% CAGR in loan disbursals over FY11-13 and consequently 23% CAGR in its loan book toRs1.5t by FY13.
Valuations and View:
PFC is a long-term bet on India's expanding power sector investments. It offers agood combination of strong growth and value. We model PAT CAGR of 18% overFY11-13 and expect the return ratios to remain strong, with RoA of ~2.7% and RoEof 16-17% (post dilution) for FY12-13. PFC trades at attractive current valuations. Weinitiate coverage with a Buy rating and target price of Rs290 (1.6x FY13E BV),37% upside.
MOSt Mutual 4th June 2011
(Large Cap)
MOSt Mutual
DSP BlackRock Top 100 Equity Fund
Sundaram Select Mid Cap Fund
ICICI Pru Discovery Fund (Multi Cap)
(Mid Cap)
Latest NAV (Gr): Rs. 100.18 (Jun 02, 11)
Latest NAV (Div): Rs. 21.25 (Jun 02, 11)
Fund Category: Equity Diversified
Type: Open Ended
Exit Load (%): 1% (< 365 days)
Inception Date: 10-Mar-03
Net Assets (Rs. Cr.): 2994.98 (Apr-11)
At a Glance
Top 5 Holdings 29.34%
No. of Stocks 42
Exposure to Sense 55.63%
Exposure to Nifty 76.27%
Portfolio PE Trailing 30.48
Expense Ratio (%) 1.86 (Apr-11)
Fund Manager
Dividends Declared
NAV Movement
Style Box Analysis
Comparative Performance
Scheme Objective
It seeks to generate long-term capital
appreciation from a portfolio that is
substantially consituted of equity and equity
related securities of the 100 largest companies,
by market capitalisation, listed in India.
Scheme Analysis
The fund holds investmetns in blue-chip, large-
cap stocks chosen from the 100 largest
companies by market capitalisation listed in
India. The fund has major allocations in
Petroleum & Gas (15.74%), Banks (16.74%) and
Softwares (10.49%) and. It has consistent strong
long-term track record since its inception in
2003. The fund manager manages a liquid
portfolio of around 42 stocks with 76.27%
exposure in NSE Nifty. The fund also follows the
target based strategy where it exits the
investments once the target is achieved. The
fund increased the exposure in Petroleum & Gas.
Portfolio Attributes
4th June 2011DSP BlackRock Top 100 Equity Fund (Large-Cap)
Apoorva Shah (Since Apr 2006)
3-Sep-10 12.5%
24-Jul-09 20.0%
26-May-08 50.0%
0
5
10
15
20 DSPBlackRockTop 100EquityFund ‐GrowthBSE100
‐10
‐5
0
5
10
15
20
25
6Months 1Year 2Years 3Years
DSPBlackRockTop100EquityFund‐Growth
Latest NAV (Gr): Rs. 150.18 (Jun 02, 11)
Latest NAV (Div): Rs. 21.25 (Jun 02, 11)
Fund Category: Equity Diversified
Entry Load (%): Nil
Exit Load (%): 1% (< 365 days)
Inception Date: 30-Jul-02
Net Assets (Rs. Cr.): 2211.85 (Apr-11)
At a Glance
Top 5 Holdings 21.67%
No. of Stocks 50
Exposure to BSE 200 36.77%
Exposure to CNX 500 23.13%
Portfolio PE Trailing 30.19
Expense Ratio 1.89 (Mar-11)
Fund Manager
Dividends Declared
NAV Movement
Comparative Performance
Scheme Objective
It aims to achieve capital appreciation by
investing in mid-cap stocks. The fund defines
'midcap' as a stock whose market capitalization
shall not exceed the market capitalization of the
50th stock (after sorting the securities in the
descending order of market capitalization)
listed with the NSE.
Scheme AnalysisSatish Ramanathan (Since Sept 2007)
Portfolio Attributes
4th June 2011Sundaram Select Mid Cap Fund (Mid-Cap)
Into its 9th year of performance, SBNPP Select
Mid Cap has awarded its investors regularly.
Even in terms of dividends, it has paid total of
340% and has maintained its mid-cap style
integrity since inception. Barring 2008 where it
performed badly in downturn, it scored well in
2006, 2007, 2009 & the last bull of 2010. It
returned 43.94% vs category average of 38.98%
in 2-year category. The Fund is bullish on Auto
& Auto Ancillaries, Utilities, Textiles and
Fertilizers and underweight in Power, Telecom,
CD and Engineering . The portfolio with 50
stocks is well diversified in terms of sector and
single-stock selection.
Style Box Analysis
12-Nov-10 20%
5-Feb-10 15%
20-Nov-09 15%
0
5
10
15
20 Su n d a ram S e lec t M id cap ‐ G row thB S E M ID CAP
‐15
‐10
‐5
0
5
10
15
20
25
30
3Months 6Months 1Year 2Years
SundaramSelectMidcap‐Growth
BSEMIDCAP
Latest NAV (Gr) Rs. 49.22 (Jun 02, 11)
Latest NAV (Div) Rs. 19.8 (Jun 02, 11)
Fund Category Equity Diversified
Entry Load (%) Nil
Exit Load (%) 1% (< 365 days)
Inception Date 14-Aug-04
AAUM (Rs. Cr.) 1625.81 (Jan-Mar 11)
At a Glance
Top 5 Holdings 18.25%
No. of Stocks 75
Exposure to Sensex 17.96%
Exposure to Nifty 23.13%
Portfolio PE Trailing 19.49
Expense Ratio (%) 1.92 (Apr-11)
Fund Manager
30-Mar-11 15%
28-Jun-10 10%
18-Dec-09 15%
Dividends Declared
NAV Movement
Comparative Performance
Scheme Objective
An open ended fund which aims to invest in a
well-diversified portfolio of value stocks (those
having attractive valuations in relation to earnings
or book value or current and/or future dividends).
Scheme Analysis
S Naren (Since Oct 2005)
Portfolio Attributes
4th June 2011ICICI Pru Discovery Fund (Multi-Cap)
Its value-based approach sometimes acts as a
dampener in bull run but provides an excellent
downside protection. It has provided excellent
returns in the recent upside. In 2-year category, it
has delivered 34.62% against the category average
of 21.19%. In other categories too, it has bitten its
benchmark. The Fund Manager is bullish on Banks,
Pharma and Software. In Mar 11, it took exposure
in Consumer Durables (1.08%) while exited Sugar
in Feb 2011. The fund increased the exposure in
Fertilizers (4.58% to 6.26%)and reduced in
Engineering (1.31% to 0.26%). The favorite stocks
are Great Eastern Shipping (3.79%), Standard
Chart PLC (3.77%), Bharti Airtel (3.64%), Sterlite
Ind (3.58%) and ONGC (3.47%).
Style Box Analysis
Motilal Oswal Securities Ltd.Regd. Office:- Palm Spring Centre, 2nd floor, Palm Court ComplexNew Link Road, Malad (W), Mumbai-64.
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The MOSt group and its Directors own shares in the following companies : Bharti Airtel, Birla Corporation, GSK Pharma, Hero Honda,IOC, Marico, Nestle India, Oriental Bank, Siemens, South Indian Bank, State Bank, Tata Steel.
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DISCLAIMER 4th June 2011