CLSA says if Kotak Mahindra Bank and Axis Bank merged then the merged entity would be among the largest private banks and the merger would allow banks to capitalise on individual strengths.
CLSA says Moraiya outcome for Cadila Healthcare is a big surprise but approvals may take time. The brokerage house has maintained outperform rating on the stock, with a target price at Rs 480 after raising FY18-19 US sales estimates by 4-10 percent leading to 3-9 percent rise in FY18-19 EPS.
It feels near-term outlook for the company is challenging. It expects investor interest to return once more companies resolve US FDA issues.
CLSA believes benefit of Moraiya clearance will be more visible in FY19 than FY18.
Cadila Healthcare on Thursday said it did not receive any observations from USFDA for its formulation facility at Moraiya indicating successful resolution of the warning letter on the plant. USFDA inspected the plant from February 6-15.
Motilal Oswal expects Cadila's US sales to increase to USD 950 million in FY19 from USD 550 million in FY17 and raised FY18/19 EPS estimates by 5 percent. The brokerage house has set a target price at Rs 510.
Macquarie also raised multiple from 18x to 20x FY19 PE and target price to Rs 525 from Rs 425, while maintaining outperform rating on the stock.
ICICI Securities also retained its add rating on Cadila Healthcare, with increased target price at Rs 460.
Deutsche Bank revised target price on the stock to Rs 404, while maintaining hold rating.
Morgan Stanley stayed overweight on the stock, with increased target price at Rs 539 from Rs 439. The brokerage house estimated sales & net profit CAGR for FY18-19 of 18.9 percent & 29.8 percent.
CLSA says if Kotak Mahindra Bank and Axis Bank are merged then the merged entity would be among the largest private banks and the merger would allow banks to capitalise on individual strengths.
According to the research firm, branch rationalisation may aid improve productivity/reduce cost-income ratio and Kotak promoters' holdings could fall from 34 percent to 19 percent post merger.
Key challenge would be to align asset quality of the two banks, it feels while saying higher stressed loans at Axis Bank than Kotak Mahindra Bank may raise credit costs.
CLSA says merger would also raise HR integration as Axis Bank is a much larger bank. Merger might stretch return on equity expansion timelines for Kotak Mahindra Bank, it feels.
According to the firm, combined market capitalisation would be USD 40 billion and share-swap ratio may be 0.6:1 for Axis Bank. Kotak’s share of the banking business SOTP (some-of-the-part) would rise to over 90 percent, it feels.
The brokerage house has an outperform rating on Axis Bank and Kotak Mahindra Bank, with target price of Rs 550 & Rs 920, respectively.
Credit Suisse has maintained outperform rating on the stock, with increased target price at Rs 1,100 from Rs 1,070 as the stock is attractive at current valuations.
The brokerage house says management sees collection efficiency normalise by March. Share of cash in collections has fallen sharply & staying low.
CLSA has made changes its model portfolio. It raised rating on IT sector to overweight in its model portfolio.
Out of 113 companies under its coverage, 46 saw above expected earnings, 47 companies saw an upgrade in earnings and 43 disappointed & 36 saw earnings downgrades, the brokerage house says.
Earnings downgrades have been lumpy but upgrades have been broad-based, it says.
During the earnings season, consensus cut FY18 earnings by 2 percent but CLSA's earnings remained unchanged.
The research firm forecasts 8 percent Nifty earnings growth for FY17 & 17 percent For FY18. It downgraded foreign business earnings by 3-4 percent during the quarter.
Pharma was the worst, with 6 of 9 companies witnessing downgrades of 2-10 percent.
CLSA says margin improvement has been an earnings driver for domestic companies and expects margin expansion in FY18 for domestic companies on operating leverage.
Its model portfolio has outperformed MSCI India by 25 bps/360 bps year-to-date. The brokerage house has removed Tata Motors from the portfolio and downgraded the stock to sell.
HCL Tech remained its top pick in the IT sector.