Mahindra & Mahindra Financial Services - Operating profit resilience high; BUY ::Prabhudas Lilladher

MMFS reported PAT of Rs3.34bn, ~higher than consensus post adjustment of one‐
off gains, driven by higher margins and lower credit costs. Growth momentum
continues to surprise (~35% growth) and though a moderation is expected,
management commentary was very positive. With rate cycle in it’s favour, we
expect MMFS to report strongest FY14 PPOP growth (~30%) and this, coupled with
reducing asset quality risk (low waiver chances + positive start to monsoon
outlook), would be key stock catalysts. We maintain ‘BUY’ with PT of Rs250
! Growth outcomes better than street expectations: The key Q4FY13 highlight
was the resilience in AUM growth (~35% YoY growth) driven by all segments
except for some slowdown seen in non-M&M cars evident from slowing OEM
sales. Despite the challenging macro, management highlighted growing
importance of MMFS in increasing rural penetration of most OEMs and this is
likely to continue to aid loan growth. We see limited risk to our ~22% growth
expectations for FY14.
! Stable asset quality; Positive outlook on margins: Asset quality trends have
been stable and with MHCVs forming <20 book="" cv="" management="" mmfs="" of="" p="" s="">does not see any risk to their CV book. Moreover, MMFS has prudently started
building a provisioning buffer (Rs350m) from the stake sale gains of their
insurance subsidiary. Margins held up better than expectations, with cost of
funds moderating QoQ and with a 100% fixed rate book, rate cycle is very likely
to have a positive impact on MMFS’s margins in FY14 (we expect ~30bps
improvement).
! High PPOP resilience in FY14; Maintain BUY: With a better-than-industry
outcome on growth and improving margins, we expect MMFS to report best-inclass
PPOP growth of ~30% in FY14 and should be a key stock catalyst. With the
possibility of a debt waiver receding (low fiscal flexibility) and positive forecasts
on monsoons, asset quality risks have reduced

Cholamandalam Investment & Finance ::Nirmal Bang

Another stable quarter
Cholamandalam Investment and Finance (CIFC) reported results in line with
expectations with strong growth in NII driven by higher disbursements and
benefit of capital raising done in the quarter. Improving product mix towards
higher yielding segment and presence in LCV segments has helped the company
to maintain growth momentum. Despite addition in branches and higher
employee base cost to income ratio of the company stood within targeted levels.
Provisions were on the higher side which was due to provision for loan loss asset
during the quarter. PAT stood at Rs 86 cr up 59% YoY and 5.3% QoQ in Q4FY13.
For FY13, PAT stood at Rs 307 cr up 77.7%.
We are impressed with the strategy of Management to maintain growth without
compromising on the asset quality. In order to maintain asset quality company
has not been focusing on increasing the gold loan portfolio considering the
overall concerns in the sector. Even though the CV industry is not doing good
CIFC is a safe player as its focus is more towards the LCV segment which has not
yet seen any significant signs of stress and is performing satisfactorily. Moreover,
company also focuses on high yielding and growing segment of used CVs and
tractor financing. This will ensure that the company continues to maintain its
growth momentum. Improving productivity of branches will lead to an
improvement in cost to income ratio. We believe that margins will continue to
remain strong with easing interest rate cycle as most of the loans of the
company are at fixed rate.
The above initiatives with a revamped business model will lead to a sustainable
and profitable growth in CIFC’s business and expect PAT to grow at a CAGR of
28.7% over FY13-FY15E. We expect CIFC to report an improvement in its RoE
from 18.3% in FY13 to 20.2% in FY15E and RoA (post tax) to improve from 1.9%
in FY12 to 2% in FY15E. At CMP the stock is trading at 1.69x FY14E and 1.43x
FY15E ABV and 9.65x FY14E and 7.58x FY15E EPS respectively. Based on our
estimated BV of Rs.159 per share for FY14E and P/ABV target multiple of 2.0x
we arrive at a target price of Rs.317. We continue to maintain our positive
outlook on the stock and recommend investors to HOLD the stock for a further
upside of 18% from current levels.
CIFC reported strong growth in AUM at 41.1% YoY and 10.9% QoQ to Rs
18,998 cr in Q4FY13.
Disbursements growth remained robust at 32.6% YoY and 22.3% QoQ to Rs
3,808 cr during Q4FY13.
CIFC opened 12 branches in Q4FY13 taking the total branch network to 518
branches in line with expectations and added 1,416 employees during the
quarter. Despite this the cost to income ratio was broadly stable during the
quarter at 48.8% reflecting improving productivity.
Gross NPA stood at 1.0% as compared to 1.17% in Q3FY13. Net NPA stood
at 0.2% vs 0.63% QoQ.

Consider buying Nifty Dec put option :: Business Line

F&O pointers: Open interest in Nifty Futures dropped along with fall in price on Friday.

This indicates that traders are nervous and do not want to carry over their positions. Option trading indicates that Nifty could face strong resistance at 6,000 and support at 5,800 and 5,700.

Trading pattern suggests that retail investors and brokers are bearish on Nifty even as foreign investors are building up long positions on the index. But on stock futures, FIIs remained bearish, though retail brokers and domestic mutual funds have taken bullish positions.

VOLATILITY INDEX

The volatility index, though moderated a bit from its peak level, it is still holding at crucial level.

The index is currently hovering round 16 level. This suggests that still some scepticism is presence in the market.

RECOMMENDATION

Traders can buy either Nifty 6000 or 5500 December puts contract.

The latter closed at a premium of Rs 110.5 and the former at Rs 247. If Nifty falls sharply, then the premium of the put would start to rise.

If that happens on or around June, then the chance of premium going up sharply would be very high due to time value.

The maximum loss could be the premium paid.

Follow-up: Last week we had advised long strangle on Bank Nifty. Traders can hold it till expiry.

Pivotals: Infosys, Tata Steel, SBI, Reliance Industries :: Business Line

Index Outlook: Ready to take wing :: Business Line

SpiceJet: Buy :: Business Line

What drives FII flows? :: Business Line

Canara Bank: Growth takes precedence ::Kotak Sec

Canara Bank (CBK)
Banks/Financial Institutions
Growth takes precedence. After a period of consolidation, Canara Bank has stepped
up growth (11% qoq in loans), much to our disappointment. NIM was stable as the
benefit of declining cost of funds was largely passed to borrowers. Loan impairment
was high and driven by corporate loans. We continue to maintain our REDUCE rating
with TP at `415 (unchanged) and view the recent shift in strategy to growth under the
new management as a key concern. Earnings are likely to remain volatile given the
high-duration investment portfolio and skewed corporate loan exposure.