¾ ABB largely in-line numbers with profits exceeding our estimates. Though there was a minor miss in EBITDA but it is mainly due to investment in group ventures which is expected to deliver significant efficiency benefits to ABB in future.
¾ Outlook is mixed as renewables and railways are seeing good traction in orders but core sector ordering continues to remain weak.
¾ The company is benefiting from short cycle orders which is resulting in revenue growth exceeding growth in order book. Our projections are build in substantial margin gains arising from continued benign material price scenario, reduction in competitive intensity and cost efficiencies.
¾ ABB is well placed to leverage the opportunities from a turnaround in the capex cycle. However, valuations are unjustifiably rich and factor in much of the potential earnings upsides. Hence maintain SELL.
Result Update: Axis Bank
¾ NII growth (19.8% YoY) came ahead of our estimates on back of better than expected NIM (up 18bps QoQ) while loan book continued to grow at healthy pace (20.5% YoY). PAT (Rs.21.5 bn) was down 1.2% (YoY) largely on back of higher provisions (64.6% YoY) along with higher opex (15.1% YoY) as compared to the run-rate of 7-8% seen during previous 3 quarters.
¾ NPLs remained stable - GNPA/NNPA at 1.67% and 0.70%, respectively. However, management has indicated Rs.226.3 bn worth of loan outstanding under watch list which could be future source of stress for the bank. Out of this ~50% is coming from two sectors namely Iron & Steel and Power. Management has guided 125bps of credit cost during FY17 (150bps in worst case scenario) on likely asset impairment. We expect earnings to grow 14.1% CAGR during FY16-18E with healthy return ratios (RoA: ~1.6%; RoE: ~18%). Stock trades at reasonable valuation (2.0x FY18E ABV) and hence we retain BUY rating on stock with revised TP of Rs.540 (Rs.510 earlier; 2.25x FY18E ABV) after rolling over to FY18E estimates.
Result Update: Maruti Suzuki India Ltd (MSIL)
MSIL reported better than expected operational performance. Revenues for the quarter came in at Rs153 bn, 12% growth over 4QFY15. Strong gross margins led to EBITDA margin coming in at 15.4%, as against our estimate of 15.1%. Lower other income led to PAT declining YoY and the same was below our estimate. Going ahead, we expect MSIL's volume growth to stay healthy. Successful new launches will drive volume growth for the company. EBITDA margin will likely stay lower in FY17/FY18 as compared with FY16 - largely on account of JPY appreciation. We rate the stock as ACCUMULATE(earlier BUY) with unchanged price target of Rs4,154. Adverse forex movement remains a key risk to our estimates and target price.
IPO Note: Thyrocare Tech Ltd (TT)
At the upper level of the band, Thyrocare Tech Ltd is available at 45x annualized FY16 EPS and 12.6x FY16E EV/Sales. The cash rich business, large untapped (unorganized) markets, ample growth avenues through different offerings and scarcity premium has led higher valuation for this industry in recent times (Dr Lal Path Labs trading at PE 55x and Carlyle - Metropolis deal at ~5.0x P/S). Cash adj RoE/RoCE of ~25-30%, no debt on balance sheet and a healthy CAGR of ~23% on revenues are the positives. However, the company will have to sustain higher growth in revenues and margins to continue trading at the premium valuations.
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