HDFC Bank: Proving mettle
Better yields from assets helped HDFC Bank maintain net interest margin
| The bank was able to maintain its net interest margin (NIM) at 4 per cent, possibly because it is earning better yields from assets such as personal loans. |
| Also, net non-performing assets remained the same as in the March quarter at 0.4 per cent. However, other income growth at 33 per cent, was lower than the 38 per cent in Q4 FY06. Besides, provisions were up 59 per cent y-o-y at Rs 263 crore. |
| Deposits grew by 58 per cent y-o-y in Q1 FY07. The 37.3 per cent growth in low cost deposit (savings and current accounts) is also good, considering that it is on a high base and activity in the capital markets has reduced. |
| The proportion of these deposits is likely to remain at the same levels or fall marginally in an increasing interest rate scenario. As a percentage of total deposits, low cost deposits are still above 50 per cent. |
| Total customer assets increased by 40 per cent over Q1 FY06. The bank managed to increase its retail assets by about 500 basis points y-o-y and 100 basis points q-o-q to a huge 55.9 per cent. |
| While the bank has managed to meet market expectations in the June quarter, the changing composition of its deposits indicates that, in future, it will need to pass on the higher cost of funds to its customers to maintain margins. |
| The stock fell 2.3 per cent compared with the Sensex fall of 1.2 per cent on Friday. HDFC Bank is one of the best banks in the sector and should be able to continue growing faster than the industry. The stock trades at a reasonable 3.6 times estimated FY07 book value and 3.1 times FY08 book value. |
| Triveni Engineering : Turbine Power |
| Triveni Engineering saw its operating profit (after off-season expenses) rise by 32.1 per cent y-o-y to Rs 56.14 crore in the June 2006 quarter compared with 19.1 per cent growth in net sales to Rs 299.98 crore. |
| A sharp growth in segment profit in its steam turbines division contributed to the rise in operating profit. Operating profit margin too improved 181 basis points y-o-y to 18.71 per cent. |
| In its steam turbine division, the management explained that they have ramped up their product portfolio to include turbines up to 27 mw. |
| A strong demand from user industries such as paper and sugar has helped Triveni deliver turbines totalling 137 mw in the June 2006 quarter compared with 80 mw a year earlier. Segment profit grew a staggering 361 per cent y-o-y to Rs 19.56 crore in Q1 FY07. |
| In sugar division, sales fell to 92,000 tonne in Q1 FY07 from 110,000 tonne a year earlier. Lower sales volumes was partially offset by average realisations rising 16 per cent to Rs 18.37 per kg in the last quarter. |
| Nevertheless, the sugar segment profit fell 33.6 per cent y-o-y to Rs 23.4 crore in Q1. Triveni had raised Rs 240 crore in November 2005 for expansion, which will raise its sugar capacity to 61,000 TCD (tonne crushed per day) in the second half of FY07 from 40,500 TCD at present. |
| Given the company's growth prospects and the buoyant trend in sugar prices, the stock appears reasonably valued at about 8.9 times estimated FY07 earnings. |
| McDowell: Drink to it |
| McDowell has made two acquisitions, Bouvet Ladubay, a French wine company for 15 million euro and McDowell Scotland for £1.6 million. Bouvet will allow Mcdowell to enter the wine market, which is very small but tipped to grow. |
| Moreover, gross margins are in the region of 40-45 per cent. The McDowell buyout brings with it a Scotch whiskey maturation facility in Scotland. |
| McDowell's results for the June quarter have been good with top line growing to Rs 373.54 crore, an increase of 14.4 per cent. More impressive, has been the rise in operating profit margin, which has expanded 1000 basis points to 20 per cent. |
| The company has stopped selling low value brands and sold larger quantities of premium brands. In fact, overall volumes during the quarter have actually fallen by 3-4 per cent though volumes of top brands were up 7 per cent. |
| At the current price of Rs 493, the stock trades at 22 times estimated FY07 earnings. While that may seem expensive, McDowell is India's biggest IMFL firm with strong brands and commands a share of over 50 per cent. |
| Once the merger with Shaw Wallace and Herbertsons is complete, the emerging company United Spirits will be even better positioned to cash in on the growing market. |
| With contributions from Shobhana Subramanian & Amriteshwar Mathur |