Investor's Eye: Update - HDFC Bank (Price target revised to Rs602), Sintex Industries (Operating performance in line)

Investor's Eye [July 13, 2012]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE

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HDFC Bank Cluster: Evergreen Recommendation: Hold Price target: Rs602 Current market price: Rs587 Price target revised to Rs602 Result highlights HDFC Bank's Q1FY2013 results were in line with our estimates as net profits grew 30.6% year on year (YoY) to Rs1,417 crore. The growth in profits was aided by a strong growth in the net interest income (NII) and the non interest income.

The NII grew by 22.3% YoY to Rs3,484 crore, which is in line with our estimates. This was on account of a sharp sequential growth in advances and an uptick in margins. During Q1FY2013, the net interest margin (NIM) increased by 10 basis points quarter on quarter (QoQ) to 4.3%.

Business growth remained strong as advances grew by 9.5% QoQ (21.5% YoY) mainly driven by the corporate segment (15% QoQ). The deposits grew 4.4% QoQ (22% YoY) while the current account savings account (CASA) ratio declined to 46% from 48.4% in Q4FY2012. 

The non interest income increased 36.6% YoY (2.5% QoQ) led by a 24% YoY growth in the fee income and 37% YoY growth in the foreign exchange (forex) income. The bank also reported a treasury income of Rs67 crore against a loss of Rs41 crore in Q1FY2012. 

The asset quality improved further as gross non performing assets (NPAs) declined to 0.97% from 1.02% in Q4FY2012 while the net NPAs remained stable at 0.2%. The provision coverage ratio (PCR) declined to 81% from 82.4% in Q4FY2012. The restructured book also declined to 0.3% from 0.4% in Q4FY2012.

ValuationThe bank continues to report strong numbers supported by healthy growth in core income and margins. We expect the bank's earnings to grow at a compounded annual growth rate (CAGR) of 20% over FY2012-14. We have revised our estimates slightly upwards to factor strong asset quality and margins. This leads to revision in our target price to Rs602 (3.5x FY2014 book value [BV]). Currently, the stock trades at 3.3x FY2014E BV, which is at a significant premium to the peer banks. We maintain our Hold rating on the bank.

Sintex Industries 
Cluster: Apple Green
Recommendation: Buy
Price target: Rs100
Current market price: Rs67

Operating performance in line 

Result highlights

In Q1FY2013 Sintex Industries' overall performance was largely in line with our estimates. For the quarter the top line contracted by 2.8% year on year (YoY; we had expected ~2% contraction) largely led by the monolithic business and the overseas custom moulding segment. Despite a challenging environment the company showed a resilient performance on the margin front (16.4% vs 17% for Q1FY2012; a 60-basis-point contraction). The margin was higher than our estimate-we had estimated a margin of 14.7% for the company. The accounting loss for the foreign currency convertible bonds (FCCBs) that are due for redemption (Rs28.9 crore) led to a 50.5% drop in the earnings; adjusting for the same on a post-tax basis, the net earnings at Rs68.4 crore came largely in line with our expectation of Rs71 crore, albeit the same contracted 27.6% on a year-on-year (Y-o-Y) basis.

We maintain our FY2013 and FY2014 earnings estimates. In view of the current valuation of 4.7x its FY2014E earnings and its presence in the high-priority social infrastructure segment (which is expected to get a boost) we maintain our Buy recommendation on the stock with a price target of Rs100.

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