Stock Market Update on NIIT for 1QFY2012

Stock Market Update on NIIT for 1QFY2012 with a Buy recommendation and a Target Price of `69 (12 months)

For 1QFY2012, NIIT reported a decent performance, which was in-line with our expectations. Revenue growth was driven by all businesses, but operational performance was dented due to the SLS business, which posted a 472bp yoy dip in EBITDA margin. We have valued NIIT on an SOTP basis, arriving at a target EV/EBITDA of 4.3x on FY2013E consolidated EBITDA of `214.4cr, and have added the company’s stake in NIIT Technologies (with a holding discount of 25%). We maintain Buy on the stock.

Quarterly highlights: Consolidated revenue came in at `321cr, up 15.5% yoy. Revenue from ILS, SLS and CLS businesses increased by 15.7%, 5.0% and 18.4% yoy to `177.8cr, `40.3cr and `163.0cr, respectively. Blended EBITDA margin declined by 75bp yoy to 10.3% due to a 162bp and 472bp yoy margin decline in ILS and SLS businesses to 9.6% and 12.2%, respectively. However, the CLS segment posted a 102bp yoy increase in its EBITDA margin to 8.9%.

Outlook and valuation: The hiring environment in the Indian IT sector is strengthening, as indicated by Indian IT players such as Infosys and TCS aiming to collectively hire ~1,05,000 people in FY2012. Thus, we expect ILS to record strong growth of 16% yoy in FY2012, with strengthening of the hiring environment expected to result in demand for vocational courses. With developed economies such as the US returning to growth, we expect discretionary spend related to training outsourcing, learning products and managed training services to turn robust and expect 7% yoy growth in the CLS business. At the CMP, the stock is trading at EV/EBITDA of 4.0x FY2013E EBITDA, but the stake in NIIT Technologies provides for a strong upside. Hence, we maintain Buy on the stock with a target price of `69.

Stock Market Update on Colgate for 1QFY2012

Stock Market Update on Colgate for 1QFY2012 with an Reduce recommendation and a Target Price of `869 (12 months)

Colgate reported a weak performance for 1QFY2012. The company’s top line grew by 15.6% yoy, 1.4% above our estimates, driven by volumes. Earnings for the quarter declined by 17.7% yoy, owing to a sharp contraction in OPM and higher tax from the manufacturing plant in Baddi. The company’s operating margin contracted by 709bp yoy on account of spike in ad spends and other expenses. We maintain our Reduce rating on the stock.

Steady growth in oral care: Colgate registered top-line growth of 15.6% yoy, which was completely driven by volumes (registered 12% of overall volumes).
The toothpaste category witnessed steady volume growth of 14% yoy, resulting in the volume market share increasing to 53.0%. All core brands, Colgate dental cream, Active Salt, Max Fresh and Cibaca contributed to the top-line growth. In the toothbrush category, Colgate’s market share increased to 40.0%. Colgate Plax registered strong volume market share growth to 24%. Market shares mentioned are from June 2010–May 2011.

Outlook and valuation: During FY2011–13E, we expect Colgate India to report a 14.9% CAGR in its top line (largely volume growth) and have modeled in a 52bp yoy margin contraction due to higher ad spends and lower operating leverage. However, in terms of earnings, we expect Colgate to register a ~13% CAGR for FY2011-13E (~9% in FY2012E) as we model in higher tax rate (26% in FY2012). Hence, we retain our Reduce rating on the stock with a revised target price of `869 (`874), based on 23x FY2013E EPS.

Stock Market Update on Axis Bank for 1QFY2012

Stock Market Update on Axis Bank for 1QFY2012 with a Buy recommendation and a Target Price of `1648 (12 months)

For 1QFY2012, Axis Bank  reported strong performance with healthy 27.0% yoy growth in its net profit at `942cr, in line with our estimates of `943cr (which were ~5% higher than street’s expectations). Healthy fee income growth and further improvement in slippage ratio were the key highlights of the results. We maintain our Buy recommendation on the stock.

Moderating business momentum arrests fall in NIM; healthy asset quality: Business growth momentum for the bank slowed during the usually lean quarter, with advances declining by 7.4% qoq (up 21.4% yoy) and deposits coming off by 3.0% qoq (up 24.5% yoy). With the widening interest rate differential in savings account and term deposit, the bank’s CASA deposits growth moderated to 25.6% yoy (down 4.3% qoq) – leading to a decline in CASA ratio to 40.5% from 41.1% in 4QFY2011. Reported NIM compressed by 16bp qoq to 3.3% compared to a 37bp qoq decline in 4QFY2011. The slower build-up in CASA deposits, higher savings rate and drop in CD ratio added to the downward pressures on NIM. Asset quality remained healthy with annualised slippage ratio declining further to 0.8% from 1.0% in 4QFY2011 and 1.6% in 1QFY2011. Gross and net NPA ratios were also stable sequentially and the provision coverage ratio including technical write-offs was at comfortable 80.0%. The bank added 21 branches during the quarter. Tier-I CAR including 1QFY2012 profit improved to 9.8%.

Outlook and valuation: The bank’s substantial branch expansion over the past 2–3 years (407 in FY2011 itself, a 41.4% yoy increase) is expected to yield meaningful results over FY2012–13, leading to more CASA market share gains. We remain positive on the bank, owing to its attractive CASA franchise, rapid branch expansion, multiple sources of sustainable fee income, strong growth outlook and A-list management. The stock is currently trading at 2.1x FY2013E ABV. We maintain our Buy view on the stock with a target price of `1,648.