Stock Views on Godrej Consumer Product, Axis Bank

DEUTSCHE BANK on Axis Bank

Deutsche Bank believes that Axis Bank's all-stock deal for acquiring Enam Securities' sell-side businesses is valuable to Axis Bank. It appears expensive at first sight relative to historical deal multiples, but that is offset by a distinctly superior investment banking franchise of Enam, and is also in line with where the market and other brokerage stocks are trading at. That apart, the asset-light nature of the businesses to be acquired, substantive synergy with Axis' corporate banking business and plans to co-opt key members of existing management into Axis' fold should add value. The sell-side business will demerge from the rest of Enam and merge with Axis' broking subsidiary. Enam is one of the major, private-owned, Indian investment banking houses. The businesses being sold reported an income of 182 crore during 1 April '10 to 20 October '10, and a profit before tax of 77 crore. Deutsche Bank estimates approximately 1.362 crore shares to be issued implying 3.36% dilution. Annualising the profit above and taking a 30% tax, the FY11E P/E implied is 19.6x.

UBS on Godrej Consumer Product

UBS maintains `Sell' rating on Godrej Consumer and raises the price target to 415 to reflect the good Q2FY11 results, which were driven by:

 

1) better-than-expected performance in insecticides and the hair colour business;

2) higher than- expected other operational income; and

3) lower interest costs.

 

UBS increases the FY11/12 Megasari sales estimates 23%/24% to 640 crore/ 690 crore, due to betterthan-expected underlying Q2FY11 results. Godrej Household Products (GHPL) and the domestic hair colour business reported stronger-than-expected growth and increase their FY11 sales estimates 7% and 6% respectively. UBS lowers the FY11 sales estimate 7% as it expects continued underperformance. Hindustan Unilever (HUL)'s aggressive sales efforts continue to act as a overhang on GCPL's soaps business as it limits GCPL's pricing power in an environment of rising palm oil prices. However UBS increases the FY11 and FY12 PAT estimates 8% to reflect higher other operational income and lower interest costs.