{LONGTERMINVESTORS} Stock Update-Maruti Suzuki India, Axis Bank

April 26, 2016   Stock Update Maruti Suzuki India Reco: Buy PT: Rs4,700 CMP: Rs3,869 Margins surprise positively; maintain Buy with revised PT of Rs4,700   Key points MSIL springs margin surprise in Q4FY2016: Maruti Suzuki India Ltd (MSIL) surprised the Street by reporting a strong operating performance in Q4FY2016. Contrary to the Street's expectations of sequentially similar margins, due to the effect of the appreciation of yen and subdued volumes, MSIL surprised positively by reporting 100-basis point (BPS) expansion in the margins, sequentially. The operating profit margin (OPM) was 60-80BPS above the consensus estimates. With discount reduction on the back of strong demand for new products coupled with cost control measures, the company posted better-than-anticipated margins. MSIL to continue outgrowing industry growth in FY2017: MSIL is aiming to outpace the industry growth in FY2017 on the back of strong demand for the recent launches (Baleno and Vitara Brezza which have strong order backlogs), launches in the new segment (Ignis in the compact utility vehicle space) and further expansion of the distribution network particularly in rural areas. MSIL would also be a beneficiary of the consumer shift towards the petrol segment (MSIL's 70% volumes are petrol driven as against the industry average of 55%). Increasing estimates; maintain Buy: MSIL has demonstrated a robust margin performance despite challenging passenger vehicle industry and currency woes. We expect MSIL to outpace the passenger vehicle industry in FY2017 on the back of sustained strong demand for recent launches and strong product pipeline. Also, MSIL's yen exposure is likely to reduce given the increased localisation initiatives and royalty on future models which would be denominated in Indian Rupee. Also, we expect the discounting/vehicle to tread down given the increased proportion of new launches (recent launches have order backlog of about five to six months) and new launches in the upcoming festive season which would have no discounting. Further, MSIL has guided for a lower tax rate going ahead (tax rate estimated at 26-27% as against the current rate of 30%) due to higher other income recognition under the new IFRS rules. We have marginally raised our estimates by about 6% for both FY2017 and FY2018, given the robust operating performance. We have maintained our Buy rating on the stock with a revised price target of Rs4,700.   Axis Bank Reco: Buy PT: Rs590 CMP: Rs480 Business growth remains healthy; asset quality stable; PT revised to Rs590   Key points NII up 19.8%; margins expand: Axis Bank reported a strong 19.8% growth in net interest income (NII) for Q4FY2016 owing to 20.5% jump in the advances and expansion in net interest margin (up 16BPS YoY and 18BPS QoQ). The non-interest income growth was flat as treasury profit declined by 65.4% YoY, however retail fee income showed a growth of 15.1% YoY. Provisions for Q4FY2016 surged by 64.6% YoY owing to Rs300-crore contingent provisions made during the quarter. Loan book growth remains healthy, asset quality remains stable: For Q4FY2016 advances grew by 20.5% YoY owing to strong growth in retail advances (23.8% YoY) and corporate advances (21.7% YoY). Growth in retail advances was mainly driven by higher growth in personal loans and credit card segment. Asset quality remained largely stable as GNPA was stable (down 1BPS QoQ to 1.67%). Slippages during the quarter were lower on sequential basis (Rs1,474 crore versus Rs2,082 crore QoQ). The bank invoked SDR in 4 accounts worth Rs205 crore and undertook 5:25 refinancing in 1 account amounting to Rs130 crore. Accounts worth Rs400 crore slipped from restructured category to NPA during Q4FY2016. The bank has created a watchlist of stressed accounts amounting to Rs22,600 crore which it feels could slip into NPA over the next two years. Valuation and outlook: Axis Bank has delivered a better-than-expected performance during the quarter and has all the ingredients to grasp opportunities during an economic revival. Liability franchisee of the bank remains strong (CASA at 47%) while it is well capitalised to sustain healthy loan book growth. Though the management has guided for some stress in the corporate portfolio we feel retail segment would continue to drive growth and corporate loan growth would be tilted towards better rated category. We have rolled over our valuations to FY2018E leading to a revised price target of Rs590 by valuing the bank at 2.0x its FY2018E BV. We have maintained our Buy rating on the stock.     Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. Regards, Sharekhan Fundamental research team www.sharekhan.com

--
You received this message because you are subscribed to the Google Groups "LONGTERMINVESTORSRESEARCH" group.
To unsubscribe from this group and stop receiving emails from it, send an email to longterminvestorsresearch+unsubscribe@googlegroups.com.
Visit this group at https://groups.google.com/group/longterminvestorsresearch.
For more options, visit https://groups.google.com/d/optout.