Bajaj Finance Limited:: Nirmal Bang

Results in line with expectations; growth story continues
Bajaj Finance (BFL) reported net profit of Rs 175.7 cr (+26.8% YoY) in Q1FY14 in
line with expectations; driven by strong growth across consumer and SME
business. Disbursement growth was strong at 32.2% YoY supported by
consumer durables (40.7% YoY) and SME business (39.4% YoY). Net interest
income was higher sequentially reflecting lower cost of funds and change in
asset mix. The overall share of the SME and consumer continued to remain
higher. Asset quality witnessed slight pressure with higher gross NPA at 1.14%
and net NPA at 0.25% owing to slippages in construction equipment and two
wheeler businesses. Cost to income ratio was broadly stable despite higher cost
due to steady growth in income and operating leverage.
Going forward, consumer and SME business (particularly LAP) will continue to
drive the disbursement growth. BFL has adequate capital of 21.5% with Tier I
ratio of 18.1% which will support the growth plan. Adhering to Usha Thorat
guidelines, BFL has made standard asset provisioning at 40 bps (from 25 bps
earlier) for its portfolio except two wheeler and took additional hit of Rs 17.7 cr
in Q1FY14. The current measures taken by RBI to tighten liquidity may impact
the company’s margins only in H2FY14E as per management. Lower credit costs
(prudent practices followed) and operating leverage will be the key to strong
performance going forward.
BFL has been consistently delivering healthy performance which is
commendable given the current environment. With control over NPAs,
targeting wider access and strong growth in the book, Bajaj Finance will
continue to strengthen its position as a retail finance company. We expect
profitability to grow at 22% CAGR over FY13-FY15E. At CMP the stock is trading
at 1.74x FY14E and 1.47x FY15E ABV and 9.31x FY14E and 7.59x FY15E EPS.
Post the recent correction in the stock, we recommend to BUY the stock with a
target price of Rs 1,628 indicating potential upside of 21% from current levels.
AUM grew by 32.8% YoY and 9.8% on QoQ basis at Rs 19,229 cr.
Two wheeler financing growth witnessed some slowdown reflecting
weakness in the overall market. However, market share continued to
remain around 30% of Bajaj Auto’s domestic sales.
Three wheeler business is showing steady growth signs and market share
stands at 17% of total Bajaj Auto’s sales.
BFL tied up with Apple for selling iPhone and with Dell for selling laptops.
Fee based income continues to remain strong with growth in fee based
products like life and general insurance.
Provision coverage ratio stood at 78% in Q1FY14
Disbursements in the SME segment remain robust with growth across all
business; working capital and loan against property products.
Management intends to increase rural penetration even if it doesn’t get
qualified for banking license as rural areas offer tremendous business
scope.

Real estate investment to suit your needs ::Business Line

Gold and real estate are two assets that all of you typically have in your portfolio. And when it comes to evaluating real estate investments, excel sheets, risk and return metrics are not very helpful! This is because real estate investment also satisfies your emotional needs- the positive feeling you experience from owning land or apartment. The question is: How should you make meaningful real estate investment and yet satisfy your emotional needs?

Real estate: Soon-to-be-retirees

Real estate is as an investment only if you buy a house or commercial property to generate rental income or you buy a land for future consumption or for resale. An important variable while making your real estate investment is your age. If you are in the retirement risk zone- within 10 years to retirement- you should consider buying a house to generate rental income during your retired years. Rentals are good supplementary source of income as they offer a decent hedge against inflation; that is, you can increase your rental income in line with the rising price levels in the economy. And how should you fund your investment?

You should buy the house using a mortgage. Why? For one, your income is likely to be stable and perhaps, even peaking as you near your retirement age. For another, you would have consolidated your existing liabilities and, therefore, can afford to take a new loan. Your total liabilities, including the new loan, should not exceed 40 per cent of your total income. The tenure of the loan should be preferably two years less than the time left for your retirement. This will give you enough time to pay off your mortgage and also make additional contribution to your retirement portfolio should there be a shortfall due to decline in stock prices. But about real estate investment for those who are far away from their retirement?

Real estate: Working executives

If you are between 30 and 45 and intend to invest in real estate, you should preferably buy land. Why? Buying a house to generate rental income may not be worthwhile because the building would age by the time you retire. And that could translate into high maintenance costs. Besides, a house does not appreciate much, if it does at all. Land, on the other hand, appreciates because of the demand-supply gap. And why is this important?

You may be uncertain as to where you want to spend your retired life. Now, collecting rental income from your property in a city other than where you retire could create operational issues. You can, on the other hand, sell your land at a higher price at retirement and buy a house to generate rental income in the city in which you retire. But ensure that you buy land in a place where you can either oversee it or have someone do it for you! Otherwise, you could fall prey to land-grabbers.

You should take a loan to buy land, even if the interest rate on the loan is higher than the rate you earn on your fixed deposits. Why? Borrowing forces you to adopt a disciplined approach to managing your monthly cash flows. Using existing fixed deposit to buy land leaves you with higher disposable monthly income, which could prompt you to engage in higher discretionary spending.

Conclusion

Invest in real estate, if you so desire. But do so meaningfully, as real estate can be an important source of income during your retired life. It is important that you do not have real estate as your primary investment, because it is lumpy and illiquid. You should make minimum down payment and buy your real estate investment with loan. This will help you save capital to contribute to your stock-bond portfolio. Besides, inflation typically favours the borrower.

Unichem:: Margins Outperform, Maintain BUY :: Karvy research

Unichem’s revenues decreased by ‐0.4% YoY to Rs. 2,622mn in Q1FY14, as
against our estimates of Rs. 2,633mn. Operating margins improved to
19.1% as compared to 18.0% in Q1FY13. Net Profit has grown by 8.9% YoY
to Rs.361mn.
 Revenue Details: The Company’s Domestic Formulations (DF) business
grew 4.2% YoY to Rs. 1756 mn on account of high base last year, while
Exports Formulations de‐grew by 14.2% YoY to Rs. 563mn. The key
reason is lower offtake in contractual supplies in quarter. International
API Capital has grown 22% YoY to Rs260mn in quarter. There has been
growth YoY in this segment since last 2 quarters. However, Domestic
API has shown de‐growth of 47.5% YoY. According to Awacs, Unichem’s
CVS (+10.8%YoY) and Integra Division (+12.9%YoY) have grown in
excess of 10%YoYforthe quarter.