MBL Infrastructures Ltd
23/01/2015 Initiating Coverage
Strong Order inflows to lead to better execution: MBL Infrastructures (MBL), a specialist EPC player is expected to benefit from NHAI’s ~2,000km of EPC award activity in the next 12 months. With economic revival, infra award activity across verticals should catch-up. MBL has participated in projects worth Rs10,000cr. Going by its past track record, of ~25% strike rate, MBL should report ~Rs2,500cr worth of new project wins in the next 12 months. We expect MBL’s order inflow to report ~13% CAGR over FY2014-17E, which is likely to be followed-up by stronger execution. Accordingly, we expect MBL’s standalone entity to report a strong ~18% top-line CAGR during FY2014-17E. ~16% PAT CAGR during FY2014-17E: Stronger execution, benefits of backward integration and better absorption of fixed costs, should help the standalone entity report a ~22% EBITDA CAGR during FY2014-17E (EBITDA margin to expand 107bp during the same period). Despite a strong EBITDA growth, higher interest and depreciation expenses would restrict standalone PAT at ~16% CAGR during the same period, as per our estimation. BOT projects nearing completion: MBL has a portfolio of 5 BOT Road projects, of which 4 are won on “Toll+Grant” or “Toll+Annuity” model. This, when coupled with the fact that 4 of these projects are in the mineral belt region and are interconnected with no alternate roads, indicates that these projects could generate impressive equity IRRs. With commencement of 4 BOT projects in FY2016-17, we can expect a possible easing in the balance sheet stress. Comfortable Balance Sheet: MBL is one of the Road developers with moderate consol. D/E ratio of 1.8x. With 3 BOT projects nearing completion (to commence tolling in FY2016E) and 4th to commence operations in FY2017E, we expect consol. D/E ratio to increase to 2.7x by FY2017E. With Management clarifying that it does not intend to add any new BOT projects to company’s portfolio till FY2017E, we are confident that MBL’s D/E ratio would peak at 2.7x, which is comforting. Valuation: At CMP of Rs442/share, MBL is trading at FY2016E and FY2017E EV/EBITDA multiple of 9.1x and 7.0x, respectively. Improved order inflow outlook (with current bid pipeline of ~Rs10,000cr), strong profitability growth, and a comfortable Balance Sheet strengthen our view that MBL is poised for re-rating from here-on. We value BOT projects using PV of Free Cash Flows to Equity shareholders to arrive at a value of Rs105/share (for all 5 of the BOT projects). We have assigned 8.0x target P/E multiple to the standalone business to arrive at a value of Rs456/share. On adding-up value of standalone entity and BOT projects, we arrive at FY2017E sum-of-the-parts (SoTP) based price target of Rs561/share. Given the 27% upside from the current levels, we initiate coverage on MBL Infrastructures with a BUY rating.
   South Indian Bank Ltd
22/01/2015 Result Updates
South Indian Bank has reported a weak set of numbers for 3QFY2015. Its PAT for the quarter de-grew by 37.8% yoy, primarily on account of lower net interest income (NII) and higher provisioning. NIM and Asset quality witness pressure During 3QFY2015, the bank’s advances and deposits grew at a moderate pace of 9.2% and 8.5% yoy, respectively. Within advances, retail advances de-grew by 13.1% yoy. Gold loans, which form a part of retail advances, de-grew by 32.5% yoy, thus leading to a de-growth in retail advances. Strong traction was witnessed in the SME loan book which grew by 40.3%, whereas the Corporate book increased by 17% yoy. CASA deposits grew by 10.6% yoy with CASA ratio up by 39bp yoy to 21.5% in 3QFY2015. The Reported NIM for the bank declined by 10bp qoq to 2.7%, due to interest reversal of `38cr on account of NPA in 3QFY2015. Growth in Other income (excl. Treasury income) was lower at 2% yoy, whereas Trading gains during the quarter came in at Rs78cr, leading to an 89.5% yoy growth in non-interest income. Employee expenses went up by 21.7% yoy and 15% qoq with addition of 200 employees over last quarter, leading to increase in cost to income ratio by 98bp qoq to 54.3% On the asset quality front, the Gross NPA ratio increased by 25bp qoq to 1.8%, whereas the Net NPA ratio went up by 14bp qoq to 1% in 3QFY2015. The Annualized Slippage ratio came in higher at 1.8% in 3QFY2015 as compared to 0.9% and 1.3% in 2QFY2015 and 3QFY2014, respectively. Slippages from restructured book came in at Rs44cr for the quarter. The PCR (incl. technical write-offs) for the bank declined by 250bp qoq to 60.4%. Going forward, the Management expects the Gross NPA ratio to be maintained at around 1.8% for FY2015. Outlook and valuation: Asset quality issues continued to linger during the quarter. With an improvement in the macro-economic environment, the bank expects the Gross NPA ratio to stabilize at current levels. Currently the stock trades at 1.0x FY2016E ABV. With negatives factored in lower valuations, we recommend an Accumulate rating on the stock with a price target of Rs32.
   Rallis India Ltd
22/01/2015 Result Updates
Rallis India (Rallis) posted a disappointing set of numbers for 3QFY2015. On the top-line front, it reported a de-growth of 2.8% yoy to Rs385cr. Sales were impacted by a lower kharif yield and lower prices of key crops. On the operating front, the company reported an EBITDA margin of 11.9% V/s 12.9% in 3QFY2014, a dip of 100bp yoy. This was inspite of the gross margin expanding by 588bps yoy for the quarter to 46.8%. Thus, lower sale was the main culprit impacting EBDITA margins. The PBT de-grew by 19.7% yoy; however, on back of a 32.5% yoy dip in taxation expenses, the Adj. net profit de-grew by a relatively lower ~11.7% yoy to ~Rs25cr. We remain Neutral on the stock. Disappointing sales: Rallis posted a disappointing set of numbers for 3QFY2015. On the top-line front, it reported a de-growth of 2.8% yoy to Rs385cr. On the operating front, the company reported an EBITDA margin of 11.9% V/s 12.9% in 3QFY2014, a dip of 100bp yoy. This was inspite of the gross margin expanding by 588bps yoy for the quarter to 46.8%. Thus, lower sale was the main culprit impacting EBDITA margins. The PBT de-grew by 19.7% yoy; however, on back of a 32.5% yoy dip in taxation expenses, the Adj. net profit de-grew by a relatively lower ~11.7% yoy to ~Rs25cr. Outlook and valuation: The Management is confident about the long-term prospects of the agrochemicals industry. We expect Rallis to register a CAGR of 16.4% and 15.9% in net sales and profit, respectively, over FY2014-16. At the current levels, the stock is trading at a fair valuation of 20.6x FY2016E EPS. Hence, we maintain our Neutral recommendation on the stock.
   Hindustan Media Ventures Ltd
21/01/2015 Result Updates
Hindustan Media Ventures (HMVL) reported healthy results for 3QFY2015, both on the top-line and bottom-line front. The top-line growth was healthy mainly due to decent growth in advertising and circulation revenue. On the operating front, the company’s performance was modest; however, higher other income boosted profitability. Healthy growth in ad and circulation revenue: HMVL registered a double-digit growth in advertising revenue, ie of 11% yoy to ~Rs152cr, on back of increase in advertising yields and volumes. Further, the company reported an ~11% yoy growth in circulation revenue to Rs51cr on back of higher circulation as well as realization per copy. Despite flat operating margin, PAT grew ~27%: Despite a modest operating performance, HMVL posted a growth of ~27% yoy to Rs37cr on the earnings front for the quarter, owing to higher other income and lower taxes. Outlook and valuation: Going forward, we believe that the company would perform well, both on the top-line and bottom-line fronts on back of strong recovery in the Indian economy. Further, we expect strong growth in both advertising and circulation revenue due to the company’s strong presence in the states of Uttar Pradesh, Uttarakhand, Bihar and Jharkhand. The Management has also indicated that the company is focusing on operational efficiencies to ensure revenue growth, thus leading to profit growth. Moreover, the company has a strong balance sheet which would make HT Media more capable for future expansion plans. Hence, we recommend a Buy rating on the stock with a target price of Rs292.
   Axis Bank Ltd
21/01/2015 Result Updates
Axis Bank reported a good set of numbers for 3QFY2015. It reported an earnings growth of 18.4% yoy to Rs1899.8cr, supported by growth of 20.3% in Net interest income, 24% growth in non interest income and lower operating expenses growth of 14.9%. Advances growth remains healthy; Slippages plus incremental restructuring on lower side qoq and yoy: During 3QFY2015, the bank reported an advances growth of 23.2% yoy, while deposits grew by 11.0% yoy. The growth in the loan book has outpaced the industry loan growth, primarily due to strong traction in the Retail loan book as well as the Corporate book. The Retail book grew by 24% yoy and accounted for 38% of the advances compared to 36% in 3QFY2015. Within retail, (88% of the domestic retail lending book is secured) 50% of the advances were accounted by Home loans, 15% by Retail agricultural loans, 9% by Auto loans, and 9% by Personal Loans and Credit Cards. The Corporate loan book grew by 10.3% qoq and 24.8% yoy, mainly on account of refinancing of loans. The bank continued to benefit from its focus on retail franchise with CASA deposits registering a growth of 12.4% yoy, within which savings deposits grew by 14.8% yoy and current deposits grew by 8.5% yoy. This resulted in the CASA ratio improving by 56bp yoy to 43.1%. The NIM fell by 4bp qoq to 3.93% due to reduction of base rate by 10bp in 3QFY2015. Domestic NIM fell by 10bp qoq to 4.2%, whereas International NIM was flat at 1.7%. During the quarter, the bank witnessed slippages of Rs708cr (annualized slippage rate of 1.2%) as against Rs911cr in 2QFY2015 (annualized slippage rate of 1.6%). Overall, slippages and fresh restructuring taken together amounted to Rs840cr, which is much lower as compared to Rs1,481cr as in 2QFY2015. The bank continues to maintain its guidance of Rs6,500cr of addition to stressed assets in FY2015. Outlook and valuation: Healthy pace of branch expansion, backed by distribution network, continues to be the driving force for the bank’s retail business. Going forward, it will continue to focus on retail loans and will change its retail loans mix to a higher return business. With improvement in the economic environment, the bank is well positioned to grow by at least a few percentage points higher than the average industry growth rate. The Management has given a guidance of stressed assets at Rs6,500cr for FY2015. With stressed assets for 9MFY2015 amounting to Rs3,427cr, we believe that slippages and incremental restructuring for FY2015 could be lower than has been guided by the bank. We maintain our Buy rating on the stock with a target price of Rs643.
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