Stock views on ITC, Yes Bank

Citigroup On Yes Bank

Yes Bank's management expects strong growth over the medium term in:

a) Credit - 35-40% p.a. over the medium term;

b) Distribution - branch network growing to 225 by March '11 and 750 by March '15, incremental branches largely in North and West India;

c) Liabilities - including strong growth in CASA (current account savings account) ratios.

 

While focus will shift to retail assets - mainly mortgages and credit cards - the share of retail is likely to remain well below 15% even with a medium-term outlook. SME and mid-corporate segments are likely to be the key growth drivers- also likely to have higher loan yields.

 

The management appears confident of maintaining current net interest margins due to:

 

a) Growth in low CASA share;

b) Increasing proportion of higher yielding SME and mid-corporate loan book; and

c) Well matched asset and liability durations. Non-interest income growth has been a key strength of Yes Bank so far and the management expects it to remain strong going forward as well. However, it could lag balance sheet growth in the medium term. This could lead to non-interest income/income ratio falling to below 40% levels.

JP Morgan On ITC

JP Morgan initiates coverage of ITC with an `Overweight' rating and a target price of Rs 307.

 

The rating is primarily based on:

(a) Defensive nature of the stock,

(b) Core cigarette EBIT growth is likely to exceed the expectations of 15% over FY10-12E, and

(c) The non-tobacco business sustaining strong performance.

 

While cigarette volume off take is likely to remain subdued in the near term, ITC's medium-term investment case will depend on pricing power which drives earnings much more than volumes. Price hike of about 15% for its cigarette portfolio is substantially higher than the about 9% increase needed to offset the excise/VAT hike and would drive EBIT growth upwards of 15%. Sales growth surprised on upside, driven by higher than expected growth for cigarette (volume growth of 8.5- 9%), other FMCG (+34% y-o-y) and agri-business revenues (+88% y-o-y). The target price implies one year forward P/E and EV/EBITDA of 20.5x and 12.5x respectively which is inline with company's last five-year averages.