Bajaj Auto
Cluster: Apple Green
Recommendation: Buy
Price target: Rs2,271
Current market price: Rs2,094
Annual report review
Key points
- FY2007 was an interesting year for BAL as the company rendered a strong performance in the first nine months of FY2007, even though the performance faltered in the last quarter of the fiscal due to the rising interest rates and certain actions taken by the Reserve Bank of India (RBI) to control the growth in non-food credit.
- A number of variants in the motorcycle segment in all sub-segments, good export performance, a launch of new ungeared scooter Kristal led the growth during the year.
- The company continued its productivity improvements during the year as the turnover per employee increased from 132 in FY2004 to 266 in FY2007. BAL also continues to enjoy negative working capital. The high capital expenditure (capex) of the company during the year affected the return ratios as the return on capital employed reduced from 25.5% to 22.3% and the return on net worth reduced from 20.9% to 18%.
- The company expects this slowdown to be an aberration and is hopeful the situation would improve going forward. However, hardening raw material prices, the competitive scenario and possible lower demand in the first half of FY2008 would restrict the margins and the same are expected to remain in the region of 13-15%. The company has plans to launch a new bike in the second quarter of FY2008 and the management believes that the bike will be a blockbuster.
- At the current market price of Rs2,094, the stock trades at 16.1x its FY2009E and at an enterprise value/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 9.2x. We maintain our Buy call on the stock with a price target of Rs2,271.
Tourism Finance Corporation of India
Cluster: Cannonball
Recommendation: Buy
Price target: Rs30
Current market price: Rs20.65
Q4FY2007 results: First-cut analysis
Result highlights
- For Q4FY2007 Tourism Finance Corporation of India (TFCI) has reported a 33.1% year-on-year (y-o-y) growth in its profit after tax (PAT) to Rs9.6 crore, which is ahead of our estimate of Rs8.6 crore. The quarter-on-quarter (q-o-q) PAT growth stood at 281.3% but since the earnings are back-ended (the fourth quarter earnings comprise 60-65% of the total annual earnings) the q-o-q PAT growth figure is not relevant.
- In FY2007 TFCI's PAT stood at Rs14.3 crore, up 20% year on year and ahead of our estimate of Rs13.3 crore.
- The net interest income was up by 8.2% to Rs15.4 crore for Q4FY2007 and by 1.2% to Rs28.9 crore for FY2007.
- The operating profit was up by 6.3% to Rs13.7 crore for Q4FY2007 but down 3% to Rs24.9 crore for FY2007.
- Provisions and contingencies declined by 43.4% for Q4FY2007 and by 27.5% for FY2007, reflecting the lower provisioning requirement due to lower incremental non-performing assets (NPAs). We expect TFCI's net NPAs as percentage of loans to have improved from 2.5% in FY2006 to 1.8% in FY2007.
- As per our expectations the company has resumed dividend payment and declared a 5% dividend, which gives a 2.5% dividend yield. At the current market price of Rs20.65, the stock is quoting at 5.8x its FY2009E earnings and 0.6x FY2009E book value. We maintain our Buy recommendation on the stock with the price target of Rs30.
VIEWPOINT
Do financial service cos have any steam left?
In the past 12 months valuations of financial services firms, have shown significant appreciation. Are such valuations justified? Is anymore upside left? In order to find answer to these burning questions we did a small exercise to capture the valuations of five leading financial service firms engaged in brokerage, investment banking, insurance, consumer finance, banking etc using the sum-of-the-parts (SOTP) method. The valuations assigned are relative and based on the current multiples given to the various businesses of these firms by the market (except for ICICI Bank which is under our coverage).