GSK Consumer, Jain Irrigation, SBI, M and M Financial: reports by IIFL

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Mahindra and Mahindra Financial Services (Growth drivers in place, BUY): Mahindra and Mahindra Finance (MMFS) is a leading rural-vehicle financier with a wide reach, strong parentage and well-established asset origination/collection skills. We believe buoyancy in the rural economy and structural under-penetration of finances would drive demand for credit higher. MMFS would sustain CAGR of 42%, 37% and 27% in disbursements, assets and earnings, respectively over FY10-13ii. Strong lending franchise, favourable growth outlook and robust profitability would drive valuation higher, in our view. We initiate coverage with BUY and target price of Rs900.

State Bank of India (2QFY11 results – below expectation, BUY): State Bank of India (SBI) reported Rs25bn of net profits for 2QFY11—flat on YoY basis. This came significantly below consensus and our estimates. Revenue growth was ahead of estimates by 5%. However, the gains were undone by higher provisions; loan loss provisions (LLP) and mark-to-market losses (MTM) were significantly higher.We believe higher LLP would likely remain as headwind to FY11 earnings outlook. However, the medium-term growth prospects remain strong with continued momentum in revenue growth, moderation in cost growth and likely decline in LLP. Maintain BUY.

GSK Consumer (Flawless execution, robust outlook, BUY): GSK Consumer saw a sharp acceleration in volume growth during 3QCY10, with domestic volumes growing c18% YoY, the strongest growth delivered in the last 12 quarters. The declining competitive intensity in malted beverages, combined with the strengthening equity of Horlicks, which has been re-launched with a large media campaign, are strengthening GSK’s dominance in this structural growth nutritional category. With new products complementing growth in the core malted-beverage category and pricing power ensuring margin expansion despite rising raw-material prices, GSK is well-placed to deliver strong 23% earnings CAGR over CY10-12ii. We retain BUY.

Jain Irrigation (Subdued quarter due to inclement weather, ADD): Jain Irrigation’s (JISL) 20% YoY adjusted earnings growth in 2QFY11 came in lower than our expectation, mainly because of a poor topline growth of 14% YoY. Monsoon disturbances adversely affected micro-irrigation growth during the quarter, while other segments showed steady growth (with the exception of PE pipes, which reflected a weakening in industrial capex demand). We maintain our FY11-13 earnings estimates, as management has indicated that demand from 2QFY11 will likely spill over to 2HFY11, making up for most of the loss during the quarter. The stock is trading at a PER of 23x on FY12ii, pricing in most of the upsides in growth.