Stock views on South Indian Bank, Cipla, Hero Honda

IIFL on Hero Honda - Target Rs 1730

IIFL has maintained its add rating on Hero Honda Motors with a target price of Rs 1730 in its research report.

"Hero Honda’s 1QFY10 results were in line with our expectation. EBITDA margin expanded 500bps YoY and 100bps QoQ to 17%, thanks largely to lower raw-material costs (down 400bps YoY), better realisations (price hike and model mix) and increased production at Haridwar. Going forward, we expect margins to decline 100bps as the company purchases raw materials on spot basis (prices of key raw materials, steel and aluminium, have risen in the last few months). We raise our FY10 and FY11 earnings estimates by 15% and 18% respectively, as we revise our FY10 volume growth estimate to 20% from 12% earlier. We maintain ADD with a revised target price of Rs 1,730," says IIFL's research report.


KRChoksey on Cipla - Target Rs 286

KRChoksey has recommended a hold rating on Cipla with a target price of Rs 286 in its research report.

"The topline of the company is inline with our expectation and posted a turnover growth of 14% Y-o-Y backed by better performance from both its domestic as well as exports business. The domestic sale of the company has shown an increase of about 11.3% whereas Export sales grew by 14.3%. We believe the sales of the company were mainly driven by good performance from its domestic as well as exports business. The net profit of the company was impacted by an increase in interest cost (an increase of 186%). 'Hold', target of Rs 286," says KRChoksey's research report.


Angel on South Indian Bank - Target Rs 135


Angel Broking has recommended a buy rating on South Indian Bank with a target price of Rs 135 in its research report.

"South Indian Bank (SIB) is one of the better-performing old private sector banks. Largely concentrated in the semi-urban areas of the Southern states of India, SIB's profitable, cost-efficient and technologically up-to-date network constitutes a reasonably attractive standalone franchise. The Bank's Deposit franchise includes a niche NRI customer base that contributes a meaningful 17% of deposits and gives it a distinguishing cost advantage over several of its peers. At the same time, the Bank is trading at the cheapest valuations among peers. We value the stock at 0.9x FY2011E ABV to arrive at a target price of Rs 135, implying an upside of 26% from current levels. We Initiate Coverage on the stock with a 'Buy' recommendation," says Angel's research report.

Stock views on HDFC, Bharti Airtel, Hero Honda

BANK OF AMERICA / MERRILL LYNCH on HDFC

Bank of America cuts HDFC’s target price to Rs 1,980 from Rs 2,450 owing to lower sum of parts value and factoring in moderation in growth. However, the stock can still trade at 2.5-3.0x FY10E given the comfort in asset quality; earnings growth of 16-17% through FY10-11E and ROE (return on equity) of 29% on its core business. HDFC’s 3QFY09 earnings were down 2% y-o-y and 4-5% lower than market estimates. This was primarily due to the absence of Rs 100 crore of high investment gains and extraordinary income and Rs 50 crore of exchange losses booked by HDFC in its convertible bond. Adjusting for these factors, both topline and pre-tax earnings grew by about 19% y-o-y. The other disconcerting feature was the 8% contraction in approvals - which appears to be a more conscious decision, as HDFC had been reluctant to lend in October-November ‘08 as conditions worsened. Bank of America has cut the FY09-10 reported earnings by 6-11% to capture the lower investment gains.

HSBC on BHARTI AIRTEL

HSBC reiterates `Overweight’ rating on Bharti Airtel. The 15% fall in Bharti’s share price since the launch of RCOM’s GSM service in December is an overreaction. Instead, investors should focus on Bharti’s market leadership strengths and RCOM’s longer-term structural limitations of operations in 1,800 MHz which require additional base stations. HSBC believes the combination of low revenue yields and bloated cost structure will reduce the scope for disruptive pricing and competitive intensity will become more rational. HSBC estimates FY10E traffic growth of 32% against the historical average of about 70% and cuts FY10-11E EPS by 7% and 4% respectively to factor in increasing competition and the slowing economy. The core business is valued at Rs 645 on 13.7x FY10E core earnings based on a 15% premium to HSBC’s Sensex target of 11.9x. The tower business is valued at Rs 141, which reflects a 36% discount to recent transaction multiples. Risks are early implementation of MNP (mobile number portability), rollout of flat rate plans, higher than estimated slowdown in usage, higher than estimated decline in margins on the back of rural penetration, lower termination charges and higher spectrum charges.

MORGAN STANLEY on HERO HONDA MOTORS

Hero Honda posted a decent set of 3Q09 numbers with net income 7% higher than the expected and in line with Street expectations. Despite a volume decline of 5%, an 11% y-o-y improvement in realisations helped the company to report revenue of Rs 2,880 crore (up 5% y-o-y). Margin came in at 14.5%, 50 bps above last year, primarily due to softening raw material commodity prices. This was on the back of an 11% y-o-y realisation improvement, improving product mix, and ramp up of capacity at the excise duty-exempt Haridwar facility. Net income of Rs 300 crore, improved 9% y-o-y, and came in 7% above estimate on the back of an improvement at the operating level and a lower tax rate as the company increased production in tax-free zones such as Haridwar. Hero Honda is on course to achieve 2009 growth estimate of 9% given its year to-date volume growth of 10.4%, and an improvement in market share of 5.5% to 58.5% in the fiscal year to date in the domestic motorcycle category.