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Brokerage Recommendations

Friday, October 12, 2012

K R Choksey calls a ‘Buy’ on IndusInd Bank
CMP: Rs. 363  Target Rs. 400

Indusind Bank delivered strong operating performance with PAT of Rs 250 crore growing 29.6% Y-o-Y & 5.9% Q-o-Q in line with our expectation. NII grew 21.6% Y-o-Y & 5.3% Q-o-Q aided by strong loan growth 30.8% y/y. NIM  expanded 3bps Q-o-Q to 3.25% largely attributable to  fall in wholesale funding  rate.  Core fee income  continued to show strong momentum growing by 40.0% Y-o-Y & 10.1% Q-o-Q led by strong growth in  trade fees, processing fees and  foreign exchange. 

Loan book growth continued to be strong at 30.8% Y-o-Y & 5.9% Q-o-Q led strong growth in retail loan book (45.1% y/y & 8.9% q/q). Deposits increased 24.5% Y-Y & 6.0% Q-o-Q, CASA ratio showed marginal uptick 12bps Q-o-Q led by slowdown in saving deposit growth (up 9.5% Q-o-Q). Asset quality has been fairly strong during the quarter with Net NPAs at 0.3% & PCR of 72.1%. Maintain ACCUMULATE.

Strong loan book growth and better NIMs led to healthy NII growth: NII grew 21.6% y-o-y & 5.3% q-o-q led by strong loan growth 30.8% y-o-y & 5.9% q-o-q. NIM increased marginally 3 bps q-o-q to 3.25% mainly due to fall in wholesale funding rate.  Cost of deposits declined 18 bps q-o-q to 8.68% while cost of funds decreased only 7bps q-o-q due to higher foreign borrowing cost on account of increased rupee & dollar premium. We believe Indusind Bank will see margin to expand on falling wholesale rates and higher mix of fixed rate loan book.

Core fee income up 40% y-o-y outpacing balance sheet growth: Core fee income continued to show strong growth momentum led by trade fees, processing fees, investment banking and foreign exchange fee. Core fee income contributes 92.4% and 35.7% to non interest income and operating revenues respectively.  Contribution from treasury to non interest income has declined sharply 15.6% to 6.8%. We believe fee income growth continues to outpace balance sheet growth on the back of cross selling, expanding portfolio and increasing branch network in medium term.

Outlook & Recommendation: Indusind Bank delivered another strong operating performance in the challenging quarter. We believe Indusind Bank will see NIMs to expand on falling wholesale rates and relevantly stable consumer finance loan book yields. We expect Indusind Bank to deliver 28.8% CAGR in earnings over FY12-FY14, outperforming the sector earning growth. At Rs 357 the stock is trading at 2.6x FY14 ABV and 12.5x FY14 earnings. We maintain ACCUMULATE rating on the stock with TP of Rs 400.

First Call Research calls a ‘Buy’ on Indag Rubber
CMP: Rs. 276  Target Rs. 305

The Khemka Group founded Indag Rubber during the early 80’s and pioneered the introduction of cold retreading technology in India. During the quarter ended, the robust growth of Net Profit is increased by 11.77% to Rs. 58.50 million. Indag Rubber Ltd has declared an Interim Dividend of Rs. 2.50/- per equity share of Rs. 10/- each for the Financial Year 2012-2013. Indag Rubber Ltd launched a commercial range of new product named “Maxmile” in addition to its existing product range. The company’s processes have been certified as ISO 9001:2000 compliant. Indag Rubber Ltd has exported retreading material of Rs. 191.07 lacs.

The Company’s revenue and PAT are expected to grow at a CAGR of 26% and 43% over FY11 to FY14E respectively. The company’s factories are located in Nalagarh, Himachal Pradesh and Bhiwadi, Rajasthan.

Results updates- Q2 FY13: The Khemka Group founded Indag Rubber during the early 80’s and pioneered the introduction of cold retreading technology in India, reported its financial results for the quarter ended 30th Sep, 2012. The second quarter witnesses a healthy increase in overall sales as well as profitability on account, new product development and increase the export market.

Outlook and Conclusion: At the current market price of Rs.270.00, the stock P/E ratio is at 5.39 x FY13E and 4.48 x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs. 50.13 and Rs. 60.21 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 26% and 43% over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at 3.73 x for FY13E and 3.16 x for FY14E.  Price to Book Value of the stock is expected to be at 1.61 x and 1.19 x respectively for FY13E and FY14E. The second quarter witnesses a healthy increase in overall sales as well as profitability on account, effective communication with its customers and new product development and increase the export market. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs. 305.00 for Medium to Long term investment. 

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