Canara Bank
Cluster: Apple Green
Recommendation: Buy
Price target: Rs268
Current market price: Rs251
Higher provisions restrict profit growth
Result highlights
- Canara Bank's results have been much above our and market expectations with the profit after tax (PAT) reporting a growth of 2.3% to Rs505 crore compared with our estimate of a 10% year-on-year (y-o-y) decline to Rs444 crore. The profit growth was higher than expected mainly due to a substantial jump in the non-interest income driven by a higher treasury income and cash recoveries.
- The net interest income (NII) was up by 11.3% year on year (yoy) and 5.5% quarter on quarter (qoq) to Rs1,014 crore compared with our estimate of Rs1,030 crore. The NII has been adjusted for a one-time cash reserve ratio (CRR) interest income and the interest received on the income tax refund. Our calculations suggest that the adjusted net interest margin (NIM) declined on both y-o-y and sequential bases due to a rise in the cost of funds, as the low-cost deposits remained stable but bulk deposits increased, putting pressure on the cost of funds.
- The non-interest income zoomed by 58% yoy and 120% qoq to Rs626.2 crore, primarily driven by a 172% y-o-y and 186% sequential growth in the trading income to Rs92 crore. The miscellaneous income, which increased by 57% yoy and 247% qoq to Rs343 crore, also contributed to the growth in the non-interest income.
- The operating expenses grew by a marginal 1% yoy to Rs633 crore. The operating profit was up by 48% yoy and 65% qoq to Rs1,007 crore, driven primarily by the higher non-interest income.
- The provisions increased by 66.1% yoy and 54% qoq to Rs497 crore mainly on account of higher depreciation on investments provided on the marked-to-market investments book. A higher standard asset provisioning requirement also kept the provisions elevated as the non-performing asset (NPA) provisions declined by 67% yoy to Rs102 crore from Rs306 crore in Q4FY2006. Although the operating profit increased by 48% yoy, yet the higher provisions restricted the overall profit growth to 2.3%.
- Higher cash recoveries to the tune of Rs1,025 crore during the year as against Rs972 crore during the previous financial year helped the bank to bring down its gross NPAs. In absolute terms, the gross NPAs have reported a sequential decline of Rs380 crore while the net NPA ratio has declined sequentially from 0.96% to 0.94%.
- The margins may remain under slight pressure, however the business growth is likely to boost the NII. The bank has also reduced the interest rate risk on its book by bringing down the duration of its "available-for-sale" category to 2.48 years from 3.76 years earlier and stated that the duration is expected to further come down below two years. At the current market price of Rs251, the stock is quoting at 6.6x its FY2008E earnings per share, 3.3x pre-provisioning profits and 1.1x FY2008E book value. We maintain our Buy recommendation on the stock with a price target of Rs268.
Unichem Laboratories
Cluster: Apple Green
Recommendation: Buy
Price target: Rs360
Current market price: Rs265
Q4 results above expectations
Result highlights
- In Q4FY2007 Unichem Laboratories (Unichem) reported a sales growth of 26.7% to Rs134.1 crore, which is much higher than our expectations of Rs124.2 crore. The sales growth was achieved on the back of a superb 71% jump in the exports to Rs41.4 crore and an 11.8% rise in its domestic sales to Rs94.4 crore.
- The operating profit margin (OPM) narrowed by 210 basis points to 16.0% in the quarter, largely due to a higher product filing cost which restricted the growth in the operating profit to 12.2% at Rs21.4 crore.
- Subsequently, an over five-fold jump in the other income, an 18% fall in the interest expenses and a lower than expected tax provisioning during the quarter resulted in a 32.1% growth in the profit after tax (PAT; profit before extraordinary items) to Rs20.5 crore in Q4FY2007. The net profit was above our expectation of Rs15.5 crore for the quarter.
- For FY2007, Unichem reported a 20% growth in its net sales to Rs545.60 crore, a flat OPM of 20% and a 26.9% growth in the bottom line to Rs88.9 crore. For FY2007, both sales and net profit were higher than our expectations of Rs530 crore and Rs85.5 crore respectively.
- At the current market price of Rs265, the stock is trading at 9.3x its estimated FY2008 earnings. In view of the positive outlook for the company, we maintain our Buy recommendation on Unichem, with a price target of Rs360.
Tata Motors
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,075
Current market price: Rs743
Q4FY2007 results: First-cut analysis
Result highlights
- Tata Motors' Q4FY2007 results are slightly below our expectations, primarily on the margin front. The Q4FY2007 net sales (excluding the foreign exchange [forex] gain) of the company grew by 20.0% to Rs8,206.8 crore, driven by a volume growth of 16.2% and a realisation growth of 3.3%.
- Excluding the effect of the forex gain/loss, the operating profit margin has fallen by 160 basis points year on year (yoy) and by 130 basis points sequentially to 11.0%. This was mainly on the back of a higher raw material cost and a sequential drop in the realisation due to a change in the product mix. Consequently, the operating profit grew by just 5.1% to Rs906 crore.
- The other income was higher at Rs60.4 crore against Rs4.4 crore last year. Further, lower interest cost and taxes, and stable depreciation aided the company to record a 25.9% growth in its profit to Rs576.7 crore.
- For the full year, the net revenues grew by 33% to Rs27,404.8 crore against Rs20,672 crore last year, while the net profit grew by 25% to Rs1,913.5 crore.
- Looking at the consolidated results, the consolidated sales for the quarter grew by 24% to Rs9,759.2 crore while the net profit grew by 31% to Rs682.3 crore.