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L&T: D/G to Hold; Axis Bank: TP cut; PFC Q3FY11 results
Larsen & Toubro Ltd: Tailwinds become headwinds; downgrading to Hold
[Manish Saxena]
The slowdown in the investment cycle finally hit Larsen & Toubro, whose order
inflows fell 25% yoy—with the company stating in the post-results conference call
that it could miss its order inflow target of +25% yoy for FY11. We have cut our
consolidated EPS estimates for FY12 and FY13 by 20% as a result of a slowdown
in new order wins, coupled with the strong rise in commodity prices. However, a
15% drop in the stock price in one month factors in some of the negatives. At our
revised 12-month target price of INR1,725, we downgrade to Hold.
Axis Bank: Profitability intact on pricing power & liquidity management
[Dipankar Choudhury]
We maintain Buy on Axis Bank after reducing TP to INR1,560 from INR1790 and
retain it as one of our top picks. The TP reduction despite an earnings estimate
increase shows that prospects on growth, margins and credit quality remain fairly
robust, but the bank may not be able to escape the valuation compression that the
sector could undergo due to the sharp reversal in the interest rate cycle. Since
Axis has a relatively higher dependence on wholesale funding, it typically tends to
trade at lower multiples in times of tighter liquidity (like in Oct08-Mar09).
Power Finance Corp: 3QFY11 - core results solid, exceptionals pull down
profit [Dipankar Choudhury]
We believe that PFC has the ability to protect its NIM by deriving benefits of
Infrastructure Finance Company (IFC) status on the costs and pricing power in the
segments to which lends. The large pool of sanctioned loans should enable it to
grow its disbursements at a healthy pace. PFC reported pre-extraordinary PAT of
INR6.8bn, up 27% YoY and ~5% ahead of our estimates. However, the company
reported an extraordinary loss of INR210m leading to reported PAT of INR6.59bn,
up 17% YoY and ~5% below our estimates.
Banks: Magma call indicates upbeat prospects for CV & auto finance [Manish
Shukla]
Magma Fincorp (MAGM.BO, unrated, INR 62.90) indicated on a conference call
that the demand for commercial vehicle (CV) loans and auto loans is very strong.
But for supply constraints on the part of manufacturers, volume growth could
even be higher. They expect both CV and auto loans to grow at 20-25% in the
medium term. They also expect demand for construction equipment (CE) loans to
remain robust given the focus on infrastructure in the 11th and 12th Five Year
plans. The company intends to increase the share of high-yield segments – used
CV, tractors and SME loans in order to maintain NIM as the cost of funds
increases.
Asia Economics Monthly: January [Michael Spencer]
November IP growth pulled down sharply due to holiday and base effect; but
other indicators of growth remain strong. Inflation risks have accentuated, with
food prices soaring once again. The rise in global crude oil prices has complicated
the government’s petroleum subsidy policy. Industrial production rose by 2.7%yoy
in November, considerably below our forecast of 7.0%. On a yoy growth rate
basis, this looks like a sharp slowdown as IP recorded a growth rate of 11.3% in
the previous month. While a slowdown was expected anyway on account of weak
core infrastructure data released earlier and base effect, the magnitude of the
slowdown was not fully anticipated by these factors.
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