UTI Bank
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs400
Current market price: Rs352
Aggressive growth continues
Result highlights
- The net profit of UTI Bank grew by 30.2% year on year (yoy) to Rs151.7 crore in Q4FY2006. The growth in the net profit was in line with our expectation.
- However the operating performance gave a positive surprise as the net interest income (NII) grew by 59.4% yoy backed by a strong growth in the advances and an expansion in the net interest margin (NIM). The fee income too grew by a good 47.2% yoy.
- The net non-performing assets (NPAs) as a percentage of the bank's customer assets improved markedly by 32 basis points yoy and by 20 basis points quarter on quarter (qoq). The NPAs now stand at 0.75% of the net customer assets.
- UTI Bank's Tier-I capital adequacy ratio (CAR) stood at 7.26% at the end of Q4FY2006 whereas its overall CAR stood at 11.08%. The bank plans to raise the Tier-I capital by the end of FY2007 to fund its growth plans.
- At the current market price of Rs352 the stock is quoting at 13.3x its FY2008E earnings per share (EPS) and 2.4x its FY008E book value (BV). We reiterate our Buy recommendation on the bank with a revised price target of Rs400.
New Delhi Television
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs300
Current market price: Rs275
Strong revenue growth
Result highlights
- The revenue of New Delhi Television (NDTV) showed a strong traction for yet another quarter as the same grew by 43.2% year on year (yoy) and by 2.4% quarter on quarter (qoq) to Rs69.9 crore.
- The operating costs that had gone up substantially in the first quarter due to a wage increase and the launch of NDTV Profit have begun to stabilise. At 25% the operating profit margin (OPM) was much higher than 16.7% in M9FY2006.
- The net profit adjusted for the employee stock options remained flat at Rs10.3 crore.
- We believe that NDTV is evolving as a complete media play with multiple revenue triggers in place. Revenue of NDTV Profit, its business news channel, has picked up substantially. NDTV now has global tie-ups for broadcast of its channels in the USA, the UK and Canada. The stake sale of the soon-to-be-launched general entertainment channel would also provide substantial upside from here. Its Internet vehicle, www.ndtv.com, has been rated the sixth best news site globally. In March 2006, the company tied up with Genpact to provide media outsourcing services globally (see our report "Price target revised to Rs300" dated March 29, 2006).
- At the current market price of Rs275, the stock is quoting at 19.8x it FY2008E earnings per share (EPS). We maintain our Buy recommendation on the stock.
Genus Overseas Electronics
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs305
Current market price: Rs218
A genius set of numbers
Result highlights
- At Rs8 crore the Q4FY2006 net profit of Genus Overseas (Genus) is sharply higher than our estimate, primarily because of higher-than-expected revenue booking by the project business.
- As a result of the healthy revenue booking, the company's net sales for the quarter got catapulted to Rs112 crore, up a whopping 294%. The three-fold jump in the revenue clearly marks the company's big-bang entry into the metering project business.
- At 11.4% the operating profit margin (OPM) for the quarter saw a decline of 5.4%. The margin declined because of a change in the revenue mix in favour of the project business, where the margins are comparatively lower. The operating profit for the quarter grew by 168% to Rs12.8 crore.
- The interest expenses for the quarter rose by 91% as the company had to avail of large working capital loans to execute project orders. Consequently the net profit for the quarter grew by 140% to Rs8 crore.
- After Genus' entry into the metering project business, the order book for the business has shown a phenomenal improvement with Rs495 crore of order backlog. That is a jump of a staggering 400% year on year (yoy) and of 20% quarter on quarter (qoq). The order book is more than 2x the company's FY2006 revenue of Rs229 crore and provides a strong visibility to its earnings.
Tata Consultancy Services
Cluster: Evergreen
Recommendation: Buy
Price target: Rs2,190
Current market price: Rs2,012
High on confidence
Result highlights
- Tata Consultancy Services' (TCS) consolidated revenues grew by 8.1% quarter on quarter (qoq) to Rs3,733 crore on the back of an 8.2% growth in the volumes during Q4FY2006. It should be noted that Tata Infotech Ltd (TIL) was amalgamated with TCS during the quarter. The Q3FY2006 performance is also restated and is comparable.
- The operating profit margins (OPM) declined by 130 basis points to 24.8% primarily due to the rupee appreciation and an increase in the contribution of the onsite revenues. Going forward, the company is likely to witness some margin pressure in the first half of FY2007 due to the proposed healthy annual hikes in the salaries. But the management is confident of maintaining the margins on a full year basis.
- However, the higher other income and the lower tax rate (due to some onsite tax write back and arrears totaling Rs31 crore) boosted the earnings growth to 10.9% qoq to Rs832.6 crore. Taking into account the one-time expense of Rs23 crore related to the grant of equity shares to the employees of TIL, the earnings growth stood at 7.9% qoq at Rs809 crore.
- On the full year basis, the revenues and earnings have grown by 36.3% to Rs13,255 crore and by 41.2% to Rs2,897 crore respectively. The OPM declined by 190 basis points to 25.8% as compared to FY2005. However, the performance is not strictly comparable due to the inorganic initiatives taken in the last fiscal.
- The management has announced a bonus issue of 1:1 and a final dividend of Rs4.5 per share (taking the total dividend for the year to Rs13.5 per share).
- TCS has not given any annual growth guidance but the management sounded quite optimistic about the growth prospects. Some of the key reasons for the management's confidence are: flow of large outsourcing orders (the company has bagged a $500 million order spread over five years) and overall improvement in IT spending; robust ramp-up in the acquired entities (FNS, Comicrom and the Pearl deal); healthy recruitment targets (gross employee addition of 30,500 planned in FY2007); and the stable margin outlook (in spite of the healthy salary hikes and the other cost pressures like commencement of large outsourcing deals where the margins can be lower at least initially).
- We maintain our Buy call on the stock with a revised target price of Rs2,190.
HDFC Bank
Cluster: Evergreen
Recommendation: Buy
Price target: Rs900
Current market price: Rs832
Another quarter of 30% growth
Result highlights
- In Q4FY2006 HDFC Bank�s net interest income (NII) grew by 44.3% year on year (yoy) on the back of a 48.1% year-on-year (y-o-y) growth in its advances.
- The net interest margin (NIM) declined by 25 basis points yoy due to a drop in the proportion of the demand deposits in the total deposits. However on a sequential basis, the NIM expanded as the bank raised rates on a couple of loan categories.
- The fee income grew sharply by 90.4% maintaining the strong growth momentum built over the past several quarters. The bank saw a good growth in its transaction service, third party product distribution and credit card businesses.
- As a result its operating profit grew by a strong 39% yoy despite a 46.7% y-o-y jump in its operating expenses. The operating profit excluding the treasury gains grew at even a higher rate of 65.8%.
- The net profit for the quarter grew by 30.9% to Rs263.3 crore. The provisioning for the loan loss went up substantially in the quarter as the bank aggressively grew its retail loan portfolio during the period. The provision for amortisation of investments was also higher in Q4FY2006.
- At the current market price of Rs832 the stock trades at 17.6x its FY2008E earnings per share (EPS) and 3.6x its book value (BV). We maintain our Buy recommendation on the stock with a revised price target of Rs900.