Stock Market Update on Yes Bank for 1QFY2012

Stock Market Update on Yes Bank for 1QFY2012 with an Accumulate recommendation

For 1QFY2012, Yes Bank reported a strong performance with net profit growth of 38.2% yoy (6.2% qoq) to `216cr, marginally above our estimate of `212cr. Profit growth was driven by sequentially stable NIMs and a sharp drop in provisioning expenses (due to write-back of `15cr), which offset the lower-than-expected non-interest income. The bank seemed to have moderated growth for maintaining NIMs. We maintain our Accumulate recommendation on the stock.

Business growth moderates; steady NIMs and strong asset quality: During the quarter, the bank seemed to have moderated its balance sheet growth to maintain NIMs, as evident from the sequential decline in advances of 3.7%. Consequently, deposit accretion also declined by 5.1% qoq. CASA deposits continued to grow at a brisk pace of 49.8% yoy, leading to an improvement in CASA ratio to 10.9% from 10.5% in 1QFY2011. The bank surprised positively with sequentially stable NIMs at 2.8% on the back of a 90bp rise in yield on advances, which offset the 70bp qoq increase in cost of funds. With advances growth moderating, non-interest income growth came down to 14.9% yoy. Asset quality of the bank continued to be in a sweet spot, with best-in-the-industry gross and net NPA ratios of 0.17% and 0.01%, respectively, coupled with provision coverage (excluding technical write-offs) of 95.2%. Branch expansion plans were on track, with addition of 41 branches to take the network to 255 branches.

Outlook and valuation: Structurally, as the bank’s balance sheet continues to grow rapidly, we believe there may be downside risks to the bank’s RoA. On the liabilities side, building a savings deposit franchise involves execution risks. However, as we believe that we are very close to the peak of the current interest rate cycle and as liquidity has improved compared to the extreme tightness during the last few quarters, the environment is expected to be relatively more conducive for banks such as Yes Bank. The stock is trading at of 2.0x FY2013E ABV. We maintain Accumulate on the stock with a target price of `353.

Stock Market Update on MindTree for 1QFY2012

Stock Market Update on MindTree for 1QFY2012 with a Buy recommendation and a Target Price of `445 (12 months)

 

MindTree reported a strong performance for 1QFY2012. Revenue grew by 7.3% qoq, with volume growth of 6.2% qoq despite ramp down in Kyocera’s revenue. MindTree has been one of the good performers on the revenue growth front in the Indian IT mid-cap space, growing by 21.5% yoy in FY2011 – the company managed this show despite its main founder, Mr. Ashok Soota, exiting the company, which had resulted in a steep de-rating of the stock in 1QCY2011. Further, fears of operational mayhem that took place post the company entered wireless handset manufacturing are behind, as the company exited the business in October 2010. We expect MindTree to continue its growth momentum at a 21% CAGR and return to profitable growth FY2012 onwards. We recommend Buy.

Quarterly highlights: For 1QFY2012, MindTree reported dollar revenue of US$92.5mn, up 7.3% qoq. In rupee terms, revenue came in at `413.1cr, up 5.6% qoq. EBITDA margin for the quarter fell by only 17bp qoq to 11.1%, even when margins had negative impacts of 1) 300bp qoq due to wage hikes given to 76% of the employees from April 1, 2011 and 2) 80bp due to rupee appreciation against dollar, which is a commendable task. These negative impacts were overshadowed by strong volume growth and improved utilisations.

Outlook and valuation:  We expect MindTree’s IT services segment to remain a growth driver because of the recent wins of two deals (one in UK and another in US) worth US$35mn each in the IMS space. We expect the PES business to start growing at the company’s average rate in FY2013. We expect MindTree to post a 20% CAGR in USD revenue over FY2011–13E, with EBITDA and PAT expected to grow at a 25.5% and 26.8% CAGR, respectively. At the CMP of `359, the stock is trading at 8.9x FY2013E EPS of `40.5, i.e. with a PEG ratio of merely 0.33x. Thus, we value the stock at 11x FY2013 EPS (45% discount to Infosys), i.e. with a target price of `445, and recommend a Buy rating.

Super Sixer Equity Trading Tips

According to the famous equity market investor Peter Lynch, the key to making money in stocks is not to get scared out of them. If you are new to equity trading or think that equity market is not your cup of tea, read on to discover six rules for investing smartly in the equity market!


1. Don’t buy stocks just because someone you know has recommended it! Before buying a stock, conduct preliminary research about the stock and the company. Read the financial statements and find out about the business, promoters and management.



2. Understand you risk tolerance level or how much risk you can take? Make investment in equity market based on your risk capacity.



3. Don’t wait for a correction to enter the market. More money is lost is waiting for market corrections to happen than in market corrections.



4. Do not panic when the equity market falls. Equity markets follow a cyclical trend and are influenced by many factors. The fundamentals and future prospects of the company do not change just because market undergoes a correction.



5. Be disciplined in equity trading. Create individual stop loss levels for all your equity investments based on the volatility of the stock. When the stop loss levels are hit, sell the stock instead of averaging it out at lower levels.



6. Don’t keep dud stocks in your portfolio in the hope that they will go up one day. Cut your losses and move ahead. Invest in some other stocks which will give you a better return in the same time frame.



Stick to these rules and invest smartly in the equity market!

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Markets end lower during the week

The Indian stock market ended on a weak note, amidst sessions marked by volatility during the week, with the Sensex and Nifty ending lower by 1.4% and 1.5%, respectively. BSE mid-cap and small-cap indices also witnessed a decline but, on a comparative basis, outperformed their large-cap counterparts by ending lower by 0.3% and 1% during the week. The market traded in a narrow range but finally declined to close below the psychological mark of 18,000 on the BSE index. Factors such as the ongoing earnings season, mixed cues from European and US markets, Central Bank's decision to raise short-term interest rates and drop in food inflation to 9.7% weighed on investors' sentiment during the week. On the sectoral front, the performance was mixed, as there were equal number of sectors gaining and losing, with the BSE capital goods index and BSE oil and gas index losing the maximum of 4.8% and 3.5%, respectively. On the gaining side, BSE Bankex and the BSE FMCG index gained the most by 0.4% each.

BSE Bankex outperforms

The BSE Bankex outperformed the Sensex this week, ending up by 0.4%, as against the 1.4% decline of the Sensex. A large part of this outperformance was driven by strong movement in HDFC Bank, which was up on account of good 1QFY2011 results announced in the last week. On July 27, RBI's move on expected lines provided a sentimental comfort to banking stocks. Among others, BOB, BOI and PNB gave returns in the range of 2-4%. We maintain our positive outlook on the sector and retain HDFC Bank, ICICI Bank, Axis Bank and SBI as our top picks among the large caps; among the midcaps, we recommend Dena Bank and Uco Bank.

SKS Microfinance - IPO Note: SKS Microfinance (SKSMF) offers a high-quality play on India's vast Rs2.7lakh cr microfinance opportunity. SKSMF's core strength lies in effective risk management and governance, advanced technology, wide product portfolio, diversified sources of capital and strong pan-India distribution network, all of which have brought down the cost of credit to the poorest to amongst the lowest in the world, unlocking tremendous latent demand. We recommend a Subscribe to the issue.

RBI Policy Review: With an objective to control inflationary expectations, the RBI’s has raised the repo and reverse repo rates by 25bp and 50bp to 4.50% and 5.75%, respectively. The reduction in the spread between repo and reverse repo rates to 125bp (compared to 300bp in 2QFY2009) indicates the RBI's comfort on liquidity situation.

Dena Bank -1QFY2011 Result Update: In 1QFY2011, Dena Bank reported net profit growth of 20.7% yoy, ahead of our estimates, on account of higher-than-expected growth in net interest income. However, the sequential increase in gross NPAs was a key negative from the results. We maintain a Buy on the stock with a Target Price of Rs114.

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Where to invest your hard-earned money?

There are many investment options which are available in the market today. But, first you need to understand how to start investing and what to invest in.
Shares:
Shares are a type of security that represents the ownership in a company. Shares are traded in stock markets. Stock investment is a good long-term investment option as the returns on stocks over a long time horizon are generally higher than most other investment avenues. However, along with the possibility of greater returns comes greater risk. In India, stocks are traded on BSE and NSE. Sensex and Nifty are two popular indices which depict the stock market in India.
Mutual funds:
A mutual fund allows a group of people to pool their money together and have it professionally managed, in keeping with a predetermined investment objective. Mutual Funds are popular because of its cost-efficiency, risk-diversification, professional management and sound regulation. You can invest as little as Rs 100 per month in a mutual fund.
Bonds:
Bonds are fixed income instruments which are issued for the purpose of raising capital. Both private entities, such as companies, financial institutions, and the central or state government and other government institutions use this instrument as a means of garnering funds. Bonds issued by the Government carry the lowest level of risk but could deliver fair returns.
Deposits:
Investing in bank or post-office deposits is a very common way of securing surplus funds. These instruments are at the lowest end of the risk-return spectrum.
Real estate:
With the ever-increasing cost of land, real estate has emerged as a profitable investment proposition.
Gold:
The ‘yellow metal’ is a preferred investment option, particularly when markets are volatile. Today, beyond physical gold, a number of products like gold futures and gold exchange traded funds, which derive their value from the price of gold, are available for investment.

Weekly Review---April 12, 2010

Global fears bring markets below 18k

Amidst sessions marked by high volatility, the Indian stock markets gained during the current week of trade, with both the benchmark indices, the BSE Sensex and the NSE Nifty, ending higher by 1.4% and 1.3%, respectively. The BSE Mid- and Small-cap indices, however, continued to outperform their large cap counterparts, with both the indices gaining 3.2% and 4.1%, respectively. After touching 18,000 during intraday trade, the key benchmark indices slumped, as weak global stocks and worries about the economic health of Greece triggered profit taking. Besides, a spike in food price inflation also rekindled fears of a hike in key policy rates. On the sectoral front, most of the indices ended in the green, with the BSE Realty index gaining the maximum of 5.7%, followed by the BSE Auto index. However, the BSE IT index ended in the negative territory, losing 0.5%.

BSE IT Index - Rupee rise dampens the growth momentum

The BSE IT Index lost 0.5% over the previous week, underperforming the Sensex by 1.9%, mainly on account of the Rupee's appreciation (by 1.1%) vis-à-vis the US Dollar. IT companies such as TCS, Wipro, HCL Tech and Tech Mahindra declined by 1.9%, 1.5%, 3.8% and 1.1%, respectively, while Infosys and Mphasis gained a mere 0.3% each. During the 4QFY2010, the Rupee had witnessed a sequential appreciation of 1.6% against the US Dollar, 7.7% against the Euro and 5.9% against the GBP. We believe that this appreciation will result in lower realizations in Rupee terms, which will mute the growth in the reported currencies, thereby resulting in lower-than-expected earnings in 4QFY2010 by most of the IT companies. Our Top picks in the sector are Tech Mahindra and Mphasis.

McNally Bharat Engineering - Initiating Coverage:

McNally Bharat Engineering (MBE) is a leading and experienced turnkey solutions provider for the core sector. We believe that MBE is well-placed to take advantage of the burgeoning industrial capex on account of being a turnkey solutions provider and having a presence in the high-margin product business. We Initiate Coverage on the stock with a Buy recommendation and  Target Price of Rs467, implying a P/E of 14x on FY2012E EPS EPS.

3i Infotech:

3i Infotech has completed its QIP to raise Rs180cr through issuance of 2.29cr equity shares at the floor price of Rs78.6 per share.

Godrej Consumer Products (GCPL):

GCPL has sealed the deal to acquire the Megasari Group as well as its distribution arm, PT Intrasari, for an undisclosed amount (all-cash deal).

Jagran Prakashan (JPL):

The Blackstone Group is investing Rs225cr in Jagran Media Network Private Ltd, which will hold a majority share (promoter holding at 63% will get consolidated and transferred to this entity) in JPL.

Reliance Industries (RIL):

RIL has acquired 40% stake in Atlas Energy's Marcellus Shale gas position in a deal valued at US $1.7bn.