Research Notes – October 21, 2010

Reiterate ‘buy’ on Bajaj Auto – TP maintained at Rs.1530
 Company has reported better than expected 2QFY11 result. EPS at Rs.23.6 is higher by 57% y-y.
 Operating profit margin at 20.7% was up by 60bps over the street estimate.
 Better than expected sales of Pulsar and Discover 150 coupled with domestic and export price hike helped the company to produce better than expected numbers.
 Monthly average sales of 36000 Discover 150 per month as against the company’s guidance of 30000 vehicles per month.
 Overall sales guidance of 4 million vehicles for the full year is achievable if the current momentum of sales could be maintained throughout the year.
 Company has reiterated operating profit margin at 20%. This appeared to be very conservative and the margin is likely to be better than company’s guidance. Considering the recent price hike of 1-25 in October 2010.
 EPS numbers for FY11 and FY12 would be better by 9% and 12% respectively over the street estimates.
 The target price is maintained at Rs.1530, which is at 15 multiple of FY12 expected earnings.

Buy call maintained on Yes Bank – TP hiked to Rs.390
 Buy recommendation on Yes Bank has been reiterated with an upward revision in target price to Rs.390, the current market price is at Rs.352 range.
 The bank has reported excellent numbers for 2QFY11 with robust EPS growth of 34% y-y, which appears to be well ahead of street estimates.
 Better EPS numbers are mainly due to 86% y-y increase in loan book in the second quarter.
 The bank could maintain net interest margin (NIM) at 3% and hopeful of maintaining NIM throughout the year.
 About 70 – 75% of 80 new branches are expected to come up in tier 1 cities, which would significantly increase branch density and may help to improve CASA ratio by 2QFY12.
 FY11 fee income growth is expected at 36% y-y while loan book growth is expected at 52%
 EPS growth is expected at 28% on expanded equity for FY11 on 53% increase in loan book. NIM for the whole year is expected at 2.9%.
 The target price of Rs.390 is at 3.1 multiple of FY12 adjusted book value estimate and at adjusted ROE of 20.6%.

Hold on HCL Tech – TP Rs.450
 HCL Technology has been downgraded to ‘hold’ from the earlier ‘buy’ call with a target price of Rs.450 over one year. The downgrade is mainly due to margin pressure.
 Despite 9% growth in USD revenue in 1QFY11(July – September), operating profit margin declined by 230 bps and EPS is lower than the street estimate.
 Pressure on profit margin is mainly attributed to higher than expected employees cost.
 Company’s focus areas such as infrastructure services, enterprise applications and BPO are on a recovering path. However, concern over margin pressure remains.
 Profit margin is unlikely to improve in the coming quarters because of unfavorable forex market conditions (hardening of the Rupee)
 The stock is downgraded to hold from the earlier buy call with a revised target price of Rs.450. Investors may also consider partly booking profit in the counter and a switch over to Infosys.

Source: Geojit

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