Hold Ashok Leyland; accumulate HDFC Bank: Emkay

Emkay's report on Ashok Leyland & HDFC Bank

Ashok Leyland
Poor operating performance; Maintain HOLD

• Q1FY14 op. performance was dented by poor operating leverage, higher discounts and adverse mix
• Mgmt expects a 10 percent decline for the industry in FY14; scenario of high discounting to continue in the near term
• We maintain our negative stance on the M&HCV industry and cut M&HCV growth est. for AL from +6 percent/15 percent to -5 percent/15 percent
• We lower our FY14/FY15 EPS estimates by 98 percent/37 percent;  the earnings cut looks sharper owing to a low base
• We lower our TP to Rs 17 (Rs 25 earlier), valuing the stock at 7.0x FY15E EV/EBITDA. The stock is currently trading at 6.7x EV/EBITDA and 1.4x P/BV in FY15

• HDFC Bank Q1FY14 NII at Rs44.2bn and PAT at Rs18.4bn - inline with estimates. NIM's at 4.6 percent, flat qoq. GNPA increased 17 percent+ qoq; PCR* at 75 percent declines 530bps
• CV/CE to continue witnessing stress. PCR maintenance at current levels will be a challenge. However, floating provisions at 72bps provides comfort
• Loan growth (+21 percent yoy) driven by retail loans (+26 percent yoy). Deposit growth at 18 percent yoy was largely in nature of term deposits (+21 percent yoy). CASA ratio stood at 45 percent
• Steady balance sheet growth and adequate provisioning buffers positions the bank in a higher orbit vis-à-vis its peers. Valuations at 3x FY15 ABV seem reasonable. Accumulate with a target price of Rs 760.

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