JK Cement
Cluster: Cannonball
Recommendation: Buy
Price target: Rs200
Current market price: Rs162
Price target revised to Rs200
Result highlights
- The overall revenues of JK Cement grew by 49% year on year (yoy) to Rs366 crore, as the overall volumes grew by 11% yoy and the realisations improved by 34.9% yoy.
- The expenditure for the quarter increased by 27% yoy to Rs255 crore mainly on account of a 13% year-on-year (y-o-y) increase in the raw material cost and a 31% y-o-y rise in the freight cost.
- The company's high leverage to cement prices resulted in a 145% y-o-y surge in its operating profits to Rs111.7 crore which helped the operating profit margin (OPM) to expand by 1,200 basis points yoy to 30.5%.
- As the interest cost and depreciation provision remained flat, the profit after tax (PAT) ballooned by 274% yoy to Rs61.4 crore.
- We had mentioned in our previous reports, the company is incurring a capital expenditure (capex) of Rs290 crore for setting up three captive power plants (CPPs). But as there has been a delay in the commissioning of all the projects, we don't expect the company to avail of the complete savings in the power cost in FY2008 as expected earlier.
- Consequently, we are revising our earnings estimate downwards by 5.2% to Rs211 crore from Rs222 crore. We are also introducing our FY2009 earnings estimate at Rs180 crore.
- At the current market price of Rs162 per share, JK Cement is trading at 5.3x its FY2008 earnings and 6.2x its FY2009 earnings. We maintain our Buy recommendation on the stock with a reduced price target of Rs200 per share.
Bank of Baroda
Cluster: Apple Green
Recommendation: Buy
Price target: Rs310
Current market price: Rs285
Improved performance
Result highlights
- Bank of Baroda's (BoB) results are marginally below expectations. The profit after tax (PAT) grew by 17.6% year on year (yoy) but declined 25.4% quarter on quarter (qoq) to Rs245.7 crore compared with our estimate of Rs256.7 crore.
- The adjusted net interest income (NII) was up by 21.5% yoy and 9.6% qoq to Rs1,052.6 crore, better than our estimate of Rs1,002 crore. The net interest margin (NIM) has shown a sequential improvement of nine basis points, driven mainly by an improvement in the asset yields.
- The non-interest income grew by only 6.9% yoy to Rs397.8 crore; the growth was restricted mainly due to a 61.7% decline in the treasury income. However the core fee income grew by 36.4% yoy and 13.9% qoq.
- The operating profit was up 21% yoy but the core operating profit (operating profit excluding treasury and recovery) grew by 37.4% yoy.
- Although provisions and contingencies remained stable on a year-on-year (y-o-y) basis, yet the bank's tax liability for the current quarter went up significantly. This restricted the overall profit growth to only 17.6% on a y-o-y basis.
- The asset quality of the bank continues to be healthy with the gross non-performing assets (NPA) at Rs2,092 crore, down Rs300 crore sequentially. The net NPA in percentage terms stood at 0.6%, down from 0.67% in the previous quarter. The capital adequacy ratio (CAR) remains at a comfortable 11.8% with the Tier-I CAR at 8.74%.
- The bank has shown strong business growth with comfortable asset quality levels. However the profitability has not improved in proportion to the growth in the business, thereby leading to a lower return on equity. We feel the bank has successfully made structural changes required to show consistent business growth and the management has now focused on improving the profitability, which should lead to better numbers going forward. At the current market price of Rs285, the stock is quoting at 8x its FY2008E earnings and 1.1x FY2008E book value. We maintain our Buy recommendation on the stock with a price target of Rs310.
Bajaj Auto
Cluster: Apple Green
Recommendation: Buy
Price target: Rs3,300
Current market price: Rs2,500
Q4FY2007 results: First-cut analysis
Result highlights
- Bajaj Auto's Q4FY2007 results are slightly ahead of our expectations due to a higher than expected other income. The net sales grew by 6.8% to Rs2,313.6 crore in the fourth quarter.
- The operating profit of the company declined by 23.2% to Rs326.3 crore as the operating profit margin declined by 550 basis points to 14.1% year on year. However, the margin was stable on a sequential basis.
- The net profit before extraordinary items for the quarter declined 3.9% to Rs320.75 crore.
- The consolidated income from operations rose to Rs2,589.5 crore from Rs2,297.5 crore in the same quarter last year. The consolidated profit grew to Rs377.4 crore for the quarter as compared with Rs357.3 crore in the same quarter last year.
- The company has also announced its demerger, whereby two new companies will be listed. The existing Bajaj Auto will be renamed as Bajaj Investment and Holdings Ltd (BIHL) and will be the holding company for two other companies, namely Bajaj Auto (new-consisting of two- and three-wheeler manufacturing business) and Bajaj Finserv Ltd (BFL). Bajaj Finserv would comprise wind power, insurance and financing businesses.
- All shareholders in the existing Bajaj Auto on the record date would become shareholders in each of the new companies and be issued shares of the two new companies in the ratio of 1:1. After such issuance, for every share held in the existing Bajaj Auto each shareholder would:
- continue to hold one share of BHIL (existing BAL) of face value of Rs10 each fully paid up,
- be allotted one share of the new Bajaj Auto (existing BHIL) of face value of Rs10 each, fully paid up,
and
- be allotted one share of BFL of face value of Rs5 each, fully paid up. - We will come out with our detailed update on the company and revise our estimates after gaining more clarity on the de-merger. Watch this space.
Union Bank of India
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs141
Current market price: Rs120
Strong operating performance
Result highlights
- The Q4FY2007 results of Union Bank of India (UBI) are below our expectations with the profit after tax (PAT) reporting a growth of 57.4% year on year (yoy) to Rs228.1 crore compared with our estimate of Rs254.7 crore. The profit is lower mainly due to higher than expected provisions made by the bank during the quarter.
- The adjusted net interest income (NII) was up 29.4% yoy and 9.4% quarter on quarter (qoq) at Rs750.4 crore. The net interest margin (NIM) of the bank improved on a sequential basis by 38 basis points to 3.37% for Q4FY2007. Controlled increase in costs coupled with improvement in yields helped the bank to improve its margins both yoy and qoq.
- The improvement in the NIM was a fall-out of the strategy adopted by the bank's management in the previous quarters. The bank shed low yielding advances and focused on quality advances to improve the yields on the asset side. On the liability side, the bank reduced the high-cost term deposits and improved its low-cost deposits, which helped in containing the costs.
- The operating profit was up 49.4% yoy and 30.7% qoq, while the core operating profit (ie the operating profit excluding the treasury gains and others) reported a growth of 56.4% yoy and 31.4% qoq. The growth was driven by a good core income growth and controlled operating expenses.
- Provisions and contingencies rose by 48.1% yoy and 148.3% qoq mainly due to higher non-performing asset (NPA) and standard asset provisions made during the quarter to improve the asset quality levels.
- As a result of higher provisioning the bank's NPA level improved to 0.96% from 1.12% in the previous quarter. The gross NPA level also declined to 2.94% from 3.24% on a sequential basis.
- The management's renewed focus on profitable businesses and asset quality is a welcome move for the bank's future performance, which is aptly reflected in its improved NIMs and low NPA levels. The bank is currently available at attractive valuations compared to its peers. At the current market price of Rs120, the stock is quoting at 5.6x its FY2008E earnings and 1x FY2008E book value. We maintain our Buy recommendation on the stock with a price target of Rs141.