Brokerage house Angel Broking has maintained a neutral reatings on Asian paints, Federal Bank and IDBI Bank in its research report dated July 22, 2013.
Angel Broking's research report
For 1QFY2014 Asian Paints posted an 11.1 percent yoy growth in net sales to Rs 2,818cr, which is in-line with estimates. The company's decorative paints business in India continued to perform well with the volume of paints growing in double digits. However, the industrial paints and automotive coatings businesses continued to be affected by the prevailing economic slowdown. On a standalone basis, the revenue rose by ~12.6 percent, indicating a ~10-11 percent yoy growth in domestic volumes considering the price hikes taken by the company over the last one year. The consolidated OPM fell by 157bp yoy to 15.7 percent on account of Rs 14cr of forex loss due to INR depreciation, higher employee costs due to Rs 10cr of higher provisioning for gratuity and leave liability, higher ad-spends on a yoy basis, and costs related to the newly commissioned plant in Khandala. The net profit fell by 4.6 percent on a yoy basis to Rs 275cr.
Outlook and valuation: Over FY2013-15E, we expect the company to post a CAGR of 13.2 percent and 16.1 percent in its top-line and bottom-line respectively. At the current market price, the stock is trading at 31.6x FY2015E earnings. We maintain our Neutral view on Asian paints.
The Management of the company has taken various steps to stabilize its asset-quality woes, but given the weakening economic environment and the recent macro-economic developments, the pace of improvement in asset quality is expected to be slower than earlier anticipated. Moreover, the bank's gold loan portfolio accounts for ~15 percent of the overall loan book. As per the Management, ~10-15 percent of its gold loan book has a loan-to-value (LTV) of more than 90 percent, which could pose asset quality challenges if there is a significant correction in gold prices here on. At CMP, Federal Bank trades at 0.9x FY2015E ABV. We recommend a Neutral rating on the stock.
During the quarter, the bank's loan book grew at a subdued pace of 7.1 percent yoy (declined by 8.8 percent qoq). Going forward, the Management has guided for advances growth of ~10-12 percent for FY2014, with primary focus on increasing PSL share in the overall loan book. Savings deposits grew by 25.8 percent yoy, while current deposits declined by 8.6 percent yoy. CASA deposits grew by 8.9 percent yoy, which considering a decline of 4.4 percent yoy in overall deposits (due to shedding of bulk deposits), aided a 251bp yoy improvement in CASA ratio to 20.6 percent (454bp lower sequentially on back of 53.2 percent qoq de-growth in volatile current deposits). NIMs declined by 7bp qoq to 2.12 percent, as 37bp qoq decline in cost of funds was more than offset by 63bp sequential fall in yield on assets. Aided by strong growth in income from the forex/derivatives segment (which more than trebled on a yoy basis), the non-interest income (excluding treasury) grew by 21.1 percent yoy.
The bank faced asset quality pressures, as slippages ballooned to Rs 1,685cr, as compared to Rs 907cr in 4QFY2013. Of the slippages during the quarter, Rs 663cr came from 4-5 chunky accounts. Annualized slippage ratio spiked to 3.4 percent, as against 2.0 percent in 4QFY2013. Recoveries / upgrades during the quarter came in lower sequentially at Rs 174cr compared to Rs 486cr in 4QFY2013. PCR (incl. technical write-offs) came off by 286bp qoq to 68.0 percent. During the quarter, the bank restructured advances worth ~Rs 650cr. Going forward, the Management guided that a textile exposure could slip into NPA category in the next few quarters, while the restructuring pipeline for the bank stands at ~ Rs 500cr.
Outlook and valuation: At the CMP, IDBI Bank is trading at a valuation of 0.4x FY2015E P/ABV, (0.5x adjusting for the SASF). Considering the recent macroeconomic developments, the pace of asset quality improvement is likely to be much slower than earlier anticipated. Hence, we recommend a Neutral rating on the stock.
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