Research: Macquarie
Rating: Outperform
CMP: Rs 2,768
Macquarie has initiated coverage on Reliance Capital with an
'outperform' rating and a target price of Rs 3,392, with a 23%
potential upside. The company looks set to make a serious breakthrough
into multiple segments of retail financial services. Macquarie
believes the domestic financial services sector is in a period of high
structural growth. The retail side of this is being driven by chronic
under-penetration, which is being unlocked by changing demographics
and greater availability and reach of products. The wholesale segment
is being driven by significant acceleration in investment activity in
the economy. Reliance Capital is entering a critical phase in most of
its businesses, where it will start to grow aggressively and give a
massive push to break into the top three.
It has already established its credentials by surging to the top spot
in the mutual fund league tables, and is now starting to make an
impact in insurance and broking/wealth management as well. Its core
strengths remain its strong brand name, aggression in the market, deep
pockets and execution capabilities. The stock looks expensive at >11x
P/BV, even on a consolidated basis, but its holding-company-like
structure makes it difficult to view it on traditional valuation
parameters. Also, the market is factoring in its large unrealised
gains on the equity portfolio, some of which include strategic
holdings in other group companies.
Moser Baer
Research: JP Morgan
Rating: Underweight
CMP: Rs 289
JP Morgan retains its negative view on Moser Baer with a
sum-of-the-parts based June '08 price target of Rs 250. Risks to the
target price include a sharp price increase in optical media. Monthly
sales of Taiwanese optical media manufactures fell 15% month-on-month.
December monthly sales also fell 36% year-on-year (YoY), indicating
continued original equipment manufacturer (OEM) pricing pressure.
Optical media sales fell 14% quarter-on-quarter (QoQ) and 30% YoY
during the second quarter. JP Morgan expects subdued pricing to
continue, especially in DVD-R, leading to weak margins. On January 4,
'08, Warner Brothers (WB) announced that it will exclusively support
the Blu-ray format. This is a major positive for the Blu-ray format as
WB has the largest market share (18-20%) in the US and earlier
supported both formats. As greater clarity emerges on the
next-generation DVD format, JP Morgan believes that adoption will
accelerate, but expects significant volumes only in late '09. The
photo voltaic business may face significant margin pressure going
forward, led by higher poly-silicon prices in the near term and rising
competition in the long term once the supply tightness eases.
Axis Bank
Research: CLSA
Rating: Buy
CMP: Rs 1,167
Axis Bank can trade up to 25x 12-month forward P/E based on its strong
growth trajectory, and reiterates 'buy' rating on the stock with a
price target of Rs 1,300. Axis Bank's Q3 FY08 profit grew 66% YoY to
Rs 310 crore, ahead of estimates, led by strong growth in core
operations and higher treasury gains. Despite moderation in sector
loan growth, Axis Bank's loan book grew 50% YoY led by corporate and
agricultural credit. Retail loans as a percentage of total loans fell
to 25% (29% in December '06). Despite strong loan growth, asset
quality improved, gross non-performing loans (NPLs) fell 5% YoY, while
net NPLs declined 12% YoY. Gross NPLs are now at 0.8% of advances and
coverage has improved to 50%. Net interest margins (NIMs) expanded 90
bps to 3.9%, of which, 30 bps was due to the bank's recent
capital-raising.
