Stock Views on DIVI’S LAB, AXIS BANK, BHARAT FORGE

DEUTSCHE BANK on BHARAT FORGE

Deutsche Bank maintains `Buy' rating on Bharat Forge with a target price of 435. Bharat Forge's Q4FY11 standalone operating results are marginally below expectations. Revenue is 820 crore, EBITDA is 199 crore and EBITDA margin is at 24.2%. The miss in revenue was offset by lower-than-expected raw material costs. Contribution per tonne at 84,050 was in line. Exports revenue at 358 crore were 15% below expectations and were partly offset by 1% higher domestic revenues. Key negative surprise is on other expenditure, which is 16% higher leading to 3% lower EBITDA. Standalone PAT at 100 crore was higher by 16% versus the estimate due to lower depreciation and taxes.

CLSA on AXIS BANK

Axis Bank seems to be highly vulnerable to a sharp rise in interest rates due to maturity mismatches, higher share of wholesale deposits and higher proportion of non-SLR bond. Corporate profitability is high, but CLSA sees risks due to potential slowdown in investment cycle; share of retail profit has declined to 7%. Rising RWA/ total asset ratio suggests increase in risk profile on fund-based and non-fund based exposures. Overseas loans are 16% of loans and Axis has also opened a subsidiary in the UK. RoA of 1.5% is among the highest and receding asset quality pressures will support 23% CAGR in profit over FY11-14. CLSA expects earnings to grow at 23% CAGR over FY11-14 led by loan growth and receding asset quality pressures. Moreover, profitability is one of the best.

BANK OF AMERICA on DIVI'S LAB

Divi's Q4 profit at Rs175 crore grew 35% y-o-y and 78% q-o-q, which was 70% ahead of the estimates. This was mainly led by a 30% beat in sales at 480 crore driven by higher volume pick up in generic APIs. Carotenoid sales grew to 20 crore while revenue mix favoured generic API compared to custom synthesis. As a result, EBITDA grew 30% y-o-y at 194 crore with margins also largely in line at 40.3%. Bank of America expects contribution from the recently commissioned unit from H2FY12E, ramping to 400-500 crore over the next two years. Scale up of carotenoid business to 160 crore by FY13E, higher orders from repeat customers and new DMF supplies would drive sales outlook. Divi's trades at 14.3x FY13E P/E, which is at an about 20% discount to its historic average.