Stock views on MAHINDRA & MAHINDRA, IRB INFRASTRUCTURE, AXIS BANK

GOLDMAN SACHS on AXIS BANK

Goldman Sachs downgrades Axis Bank to `Neutral' from `Buy', as recent share performance has priced in steps taken by management and an economic recovery. The stock is currently trading at 16x FY11E P/E and 2.7x FY11E P/B, a 14% premium when compared to the P/B median from FY04. While asset quality concerns are receding in general, concerns around some riskier and mid-sized exposures is likely to keep the stock range bound; Axis Bank has seen about 18% slippage from its restructured loan book. Goldman Sachs revises the EPS estimates by +3%/+2%/-1% for FY11E/FY12E/FY13E to factor in no further increase in CRR versus expectation of 50 bps and higher treasury gains partially offset by higher employee costs. Consequently, the 12-month target increases from Rs1,280 to Rs 1,320.

HSBC on IRB INFRASTRUCTURE

Given the government's renewed focus on building highways, HSBC estimates India's road sector will generate Rs 3 trillion worth of business over the next seven-ten years and HSBC estimates IRB will capture a 6.5% share ($2.6bn) of this highly fragmented market during this period. Market leader IRB offers a focussed play on India's road sector at a time when highway construction is a priority for the government. HSBC estimates it will record FY10-12 earnings CAGR of about 47%, driven by four contracts that the company has won in the last six months. IRB plans to complete the Rs 6,500 crore of project capex during the next 30 months, which sustains the revenue visibility in its construction segment. HSBC expects construction revenue CAGR of 90% during FY10-12, rising from Rs 1,000 crore to Rs 3,500 crore, with the share of construction revenue increasing from 58% in FY10 to 77% by FY12.

MACQUARIE on MAHINDRA & MAHINDRA

Macquarie initiates coverage on Mahindra & Mahindra (M&M) with an Outperform' rating and a target price of Rs 740. It rates M&M as a top pick in the Indian auto space. With leadership in the utility vehicle and tractor segments and a robust estimated 13% CAGR in earnings over the next three years, at 9.3x core auto FY12E PE, Macquarie thinks M&M remains one of the most attractively valued stocks in its coverage universe. It forecasts M&M's earnings to grow at a CAGR of 13% over the next three years despite a minor decline in margins. The stock trades at about 28% discount to its peers on core auto business valuations. Macquarie ascribes a PE multiple of 14x, in line with sector average, to core auto earnings, valuing it at Rs 583 per share and value listed subsidiaries at a 20% discount to current market cap, in-line with our valuation methodology for other auto names.