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Brokerage Recommendations

Monday, February 01, 2016

HDFC Securities calls a ‘Buy’ on ICICI Bank
CMP: Rs. 233    Target Rs. 285

ICICI Bank (ICICIBC) reported sharp deterioration in asset quality in 3QFY16, despite not complying fully with RBI’s stressed assets reclassification. Aggregate impairment shot up to 7.2% ann. (Rs 75.7bn). With higher slippage, GNPLs (4.7%) and NNPLs (2.3%) hit five and six-year highs. 4Q should be no better. Despite higher provisions of Rs 28bn, coverage declined ~490bps QoQ to 65%. The few bright spots included loan growth (~16% YoY), CASA/NIM at 45/3.5% and opex (just 9% YoY). Lumpy exposure to leveraged corp. will persist as the key overhang. Mercifully, ICICIBC’s liability franchise, increasing retail contribution, capital position and valueaccretive subsidiaries are intact. These underpin our longer term confidence. At 1.4x FY17E core ABV, ICICIBC looks alluringly cheap for its size (-1SD on historical valuation band). Maintain BUY with a revised SOTP of Rs 285 based on 1.8x FY17E core ABV and sub value of Rs 62/sh.

Highlights of the quarter

  • Elevated slippages (Rs 65.4bn; 6.2% ann.) were driven by RBI’s stressed assets reclassification (~66% of total slippages) and higher  relapse (Rs 13.5bn). Further, the bank implemented SDR of Rs 17bn, refinanced Rs 4.5bn under the 5:25 scheme and restructured one AC of Rs 6bn (O/S book at Rs 113bn, 2.6%).
  • Despite higher provisions (Rs 28bn, 2.7% ann.), PAT was in line, boosted by gains from the stake sale in the insurance arm (Rs 12.4bn). Adj. for this, PAT declined ~34% YoY and 37% QoQ.  Near-term outlook: With weak 4Q guidance - elevated slippages and provisions, coupled with NIM compression - the stock will remain under pressure. However, the one-off gains from the stake sale in the insurance companies will provide some cushion to earnings.

Emkay calls a ‘Buy’ on Bharti Infratel
CMP: Rs. 373    Target Rs. 505

Consolidated revenue was at Rs30.9bn (+1.8% qoq and +4.9% yoy) and EBITDA stood at Rs13.4bn (+3.2% qoq and +5.5% yoy) with EBITDA margin of 43.4% (+59bps qoq and +25bps yoy). PAT at Rs5.65bn (-2.4% qoq and +11.5% yoy). Energy margins expanded 4.8% vs 3.5% in Q2FY16, 38bps higher than estimate. Consolidated total tower base stood at 88,055 tower (+1.0% qoq and +3.5%yoy). Tower addition stood at 871 tower (+10.6% qoq and +14.5% yoy). Net tenancy addition on consolidated basis stood at 3285 (-4% qoq and -27% yoy), adjusting for one-off tenancy exits of 610 total tenancy addition was 3895. Total tenancy stood at 191921 (+1.7% qoq and 7.4% yoy). Tenancy factor was at 2.17x (+0.9% qoq and 4.3% yoy). The company continues to deliver heathy operating metrics, contrary to concerns about multiband/SingleRan equipment deployment by telcos. We remain positive on the tower infrastructure space, given the elevated capex spends by telecom service providers to expand 3G capacity, 4G LTE roll out. Maintain BUY with PT of Rs505

In-line results, tenancies impacted by one-off exits: Consolidated revenue at Rs30.9bn grew 1.8% qoq and 4.9% yoy, in line with estimates. Rental revenue stood at Rs19.7bn (+2.3% qoq and +9.3% yoy). Energy reimbursement grew 1.0% qoq while declined 2.1%yoy to Rs11.3bn. Cumulative (standalone + 100% of Indus) net tenancy addition was 5864 vs 5856 in Q2FY16. On standalone basis net tenancy addition was 1417 vs 1657 in the last quarter, down 14% qoq. Indus net tenancy addition grew 6% qoq while declined 32% yoy to 4447. Consolidated EBITDA at Rs13.4bn grew 3.2% qoq and 5.5% yoy. EBITDA margin at 43.4% (+25bps yoy &+59bps qoq). Power and fuel cost declined 0.4% qoq while increase 1.7%yoy. Energy margin was at 4.8% vs 3.5% in Q2FY16 and 8.3% in Q3FY15. Consolidated PAT was at Rs5.7bn, improved 11.5% yoy while declined 2.4% qoq, sequentially aided by lower tax but impacted by lower other income and depreciation. Tax stood at Rs2.96bn vs Rs3.13bn in Q2FY16.

Outlook: We estimate Revenue/EBITDA/PAT CAGR of 8%/10%/17% over FY15-17E. Continued data demand and expansion of data services in non-urban towns would increase demand of telecom towers, going forward. The company continues to deliver healthy operating metrics, contrary to noise about multiband/SingleRan equipment deployment and increasing competitive intensity. Further, rise in capex guidance by telcos augur well for Infratel. Risks to our thesis: Downward pressure on rental, meaningful delay in R-Jio’s launch, stringent regulatory norms on BTS radiations and large scale consolidation in telecom industry.

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