Emkay Global Financial Services' research report
Reliance Industries (RIL)
"RIL’s decent performance during the quarter has largely been the result of one-off event in E&P and higher other income. However in petchem, it is too early to expect a sustained recovery in petchem margins. In the case of petchem, demand remains a concern. Any weakness in demand could impact a sustained margin recovery. We maintain our weak outlook on the refining cycle for the near term on the back of a higher incremental new capacity compared to incremental demand. The incremental net refining capacity additions are expected to be 1.7mbpd in the current year as against demand growth of 1mbpd. Gas production from the KG basin is expected to increase in the coming quarters from MA field (D26; part of KGD6). However, incremental production from other fields, mainly Rseries, Satellite Field, etc. is expected by 2015-16, but would be subject to approval of terms and conditions of the bank guarantee."
"Although a positive government stance on RIL’s E&P efforts in terms of project approvals and gas pricing approval augurs well for the company. We remain cautious about RIL’s refining and petchem margins for the near term, due to new capacities and/or weakening demand. However, with the expected improvement in RIL’s business profile in the next 2 years, potential upsides from positive developments in E&P and attractive valuations, we maintain an Accumulate rating on the stock, with a target price of Rs 982. Currently, the stock trades at the FY15E PE multiple of 10.7x and 1.5x P/BV."
"Wipro’s Mar'14 quarter revenue guidance of USD 1,712 mn-1,745 mn (+2-4 percent QoQ growth) implies that Wipro continues to catch up with peers on sequential revenue growth and Wipro’s sequential revenue growth is inline with Tier I peers for 2 quarters now. Wipro remains confident of improving revenue growth trajectory ahead driven by a better demand environment, a healthy deal pipeline across multiple verticals as well as Infra Services (hitherto an area of strength, however company was lagging peers on growth here through the past 2 years)."
"We tweak our FY15/16E earnings higher by 4/7 percent higher to Rs 38/41 respectively driven largely by higher revenue/margin assumptions (refer table below). Valuations remain attractive given improving operating performance (read revenue growth trajectory). We raise TP to Rs 615 (V/s Rs 550 earlier), based on 15x FY16E earnings. Wipro remains our 2nd most preferred bet in the Tier I space after Infosys. Accumulate the stock."
"HDFC Bank, we are quite cognizant of the fact that the growth in the operating revenues for HDFCB has decelerated materially, 16 percent yoy for M9FY14 vs. 18-25 percent in FY12-13. However, the core operating profit has grown by 24 percent for M9FY14 vs. 15-22 percent in FY12-13. And hence, we aren’t unduly worried about few basis points drop in NIMs as notwithstanding the same, the RoAs have remain superior at 1.8-1.9 percent (in fact topped at 2.1 percent for Q3FY14)."
"HDFC Bank commands valuation premium over its peers owing to its a) ability towards healthy loan growth and across all segment ie retail and corporate b) NIM at 4 percent+ levels c) stable asset quality with healthy PCR and d) adequate capital for growth with superior return ratios. We continue to retain the stock as one of our top bets in the banking space. We continue to value the bank at 3.5x 1-yr forward book and arrive at target price of Rs 760. Retain ACCUMULATE," says Emkay Global Financial Services research.
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