Mahindra & Mahindra

Buy rating on Mahindra & Mahindra (M&M is maintained with a higher target price of Rs.815 over one 

year, against the earlier target price of Rs.800. The stock is currently traded in the price range of Rs.738. The company reported better than expected result for 1QFY13. In line with positive surprise in automotive volumes, company’s 1QFY13 earnings exceeded market expectations by 8%. Most of the surprises came from revenue side, which has beaten market expectations by 8% on account of favorable product mix.

‘Buy’ Yes Bank

• Buy rating on Yes Bank is maintained with an increased target price of Rs.354 over one year. TP increased on upward revision of earnings prospects. The bank reported 3QFY12 net profit of Rs. 250 crore, which increased 32.9% yoy. Net interest income at Rs.430 crore is up 32.3% yoy.
• Net interest margin (NIM) was flat at 2.8%v qoq.
• Company’s earnings projections were revised upward by 8.4% for FY12, by 9.5% for FY13 and by 11.3% for FY14.
• The bank could maintain margins as 38% of incremental deposits during the quarter were lower cost CASA deposits against 15% in 2QFY12.
• The bank is expected to benefit from policy rate cut as wholesale deposits would get re-priced at lower rates.
• Currently traded at 1.7 multiple of FY13 adjusted book value estimates. This valuation looks attractive for a bank with ROE estimate of 21% over FY12- 14.
• Risks to the target price may arise from higher slippages in the SME and infrastructure space.

Axis Bank

Buy rating on Axis Bank is maintained with a higher target price of Rs.1186 over one year, as against 

the earlier target   price of Rs.1127.

The TP is hiked on upward revision of its earnings estimates on stable NIM and higher other income.

Earnings estimates for  FY12 have been hiked by 3.7% and by 4.6%, by 4.1% for FY13 & FY14 

respectively.

For 3QFY12, net profit at Rs.1100 crore increased 23.7% yoy. Net interest income at 2140 crore 

increased 23.5% yoy with stable net interest margin at 3.75%.

Slippages remained more or less stable at 1.7% and this seems to be a positive. Stressed assets were 

reported at Rs. 8-8.5billion. It would be a positive if this level could be maintained from going up.

The bank has added 34% of its current branch network during the last two years. Its benefits are 

expected to accrue and will key earnings driver in the near term.

The bank had achieved higher priority sector requirements of around 45% in FY11 against 40% by the 

RBI norms. So the bank need not expand lending in this segment. This coupled with retail loan growth, 

the bank would maintain its profit margins.

‘Buy’ Hero Motocorp – TP Rs.2050

• Company’s 3QFY12 revenue increase at 17% yoy and EBITDA at 31% yoy are in line with market expectations.
• EBITDA margin at 15.8% up 170 bps yoy and 10 bps down qoq has also been line with market estimates.
• Company could offset higher raw material cost by lower other operating expenses.
• Depreciation increase of 7% is due to weakness in rupee against JPY.
• Domestic motorcycle volume increased 11% yoy against industry growth rate of 9%,  translating in to market share gain of 125 bps yoy.
• Company showed healthy improvement in all operating parameters yoy. Sequentially, the margins are slightly down due to seasonality and change in product mix.
• 4QFY12 volume growth is expected to be similar to that of 3Q. 
• Honda’s entry in to 100 cc bikes has been a significant overhang on the stock. However, the brand equity and distribution edge enjoyed by the company would help limit market share loss.
• Market share gain in 125 cc bikes and scooter segment will limit the market share loss in the two wheeler segment.