Yes Bank : BUY

Sustained Growth; Stable Margins

Yes Bank’s PAT grew 45% YoY to Rs 203 cr, in-line with our expectations. Core income rose 43% YoY, driven by advances growth of 55% and stable margins. Core fee income witnessed 44% YoY growth led by traction in transaction banking and branch banking segments. Cost-to-income ratio at 34.8% (down 96 bps QoQ) improved as a result of strong income growth. Gross NPAs increased by 11% QoQ, however, in ratio terms it remained stable at 0.23%. Provision coverage cushion has been raised to ~89% (from 76% in Dec-10). Restructured loans declined 3 bps QoQ to 0.24%.

Key highlights

• Yes Bank has been able to maintain margins at the last quarter’s level backed by its ability to pass on the increase in cost of funds. Almost 95% of its overall loans are on floating rate basis.
• CASA deposits growth (up 18% QoQ and 69% YoY) was in-line with overall deposits growth (up 16% QoQ and 71% YoY) – CASA ratio now stands at 10.3%.
• Advances growth was largely driven by retail and corporate banking segments which grew 251% YoY and 46% YoY respectively. Share of retail segment has improved to 12% (from 10% in Dec-10).
• The Bank maintains CAR at 16.5% (declined 170 bps from 18.2% in Dec-10). Tier-I ratio stands at 9.7% in Mar-11.

Maintain BUY, with TP of Rs 375

Margins remained intact as a result of loan re-pricing catching up with deposit cost increase. Overall business growth remained healthy with 64% YoY increase. The erstwhile strong business growth rates are expected to moderate due to high base effect coming into play. We expect that Yes Bank’s targeted branch network expansion (325 branches by Mar-12 from 214 in Mar-11) will support balance sheet growth. We have revised our EPS estimates upwards by 8% for FY12E. At CMP of Rs 316, the stock is trading at 12x FY12E EPS of Rs 27 and 2.1x FY12E ABV of Rs 150. We maintain our BUY rating with TP of Rs 375 (2.5x FY12E ABV and 14x FY12E EPS) – upside of 19%

27th April, 2011

The markets opened on a soft note amidst mixed global cues and moved lower on profit booking, touching the lowest point by the afternoon session. The markets gradually recovered the lost ground but ended the day with minimal losses. Among the Sectoral indices Healthcare witnessed some buying while Oil & Gas and Consumer duarbles witnessed selling. In the Sensex kitty Bharti Airtel (1.65%) and Hindalco (1.55%) were amongst the gainers while HUL (1.99%) and Maruti Suzuki (1.91%) were among the losers. The Sensex lost 39 points or 0.20% to close at 19,545 while Nifty lost 6 points or 0.10% to close at 5,868.

Total traded turnover stood at Rs 2,34,961 cr. In equities FIIs were net sellers of (Rs 554 cr) while DIIs were net buyers (Rs 162 cr). On the derivatives side, FIIs were net sellers in Index Futures (Rs 264 cr), Stock Futures (Rs 543 cr)    while they were net buyers in Index Options (Rs 693 cr) ,Stock Options (Rs 25 cr).

The US markets ended positive as investors remained optimistic due to strong corporate earnings being declared by companies like Ford Motor, 3M Co and United Parcel Services Inc. The Dow Jones gained 115 points or 0.93% to close at 12,595 while NASDAQ gained 22 points or 0.77% to close at 2,848.

The Asian markets are trading positive. Nikkei is trading higher by 1.29% while Hang Seng is trading higher by 0.51%.

The markets witnessed profit taking moving lower but managed to recover the losses to end with minimal gains. The markets may open on a positive note tracking positive global cues. Adopt a stock specific approach.

The trend deciding level for the day is 5851, If NIFTY trades above this level then we may witness a  further rally up to 5885-5915-5940 levels. However, if NIFTY spot  trades  below  5851  levels  then we may  see some profit booking to initiate in market, it may correct up to 5830-5802-5770.

Stocks to focus for intraday long:  Moser Baer, Havells, Gail

Hindustan Zinc : BUY

Silver-Rich Quarter; Volume Growth In Zinc

Hindustan Zinc’s (HZL) 4QFY11 EBITDA at Rs 1,967 cr (+27% YoY) was significantly above consensus (Rs 1,610 cr) & our estimates (Rs 1,750 cr) due to better-than-expected contribution from silver.

Silver revenues doubled YoY to Rs 200 cr. In addition, lead concentrate revenue increased 4x YoY and 2.5x QoQ to Rs 260 cr due to higher levels of silver in the concentrate. Net profit was at Rs 1,770 cr (+43% YoY).

Key highlights

• Increase in reserve base: HZL added 22 mnt to its reserve base (primarily from the Rajpura Dariba belt which includes SK mine), thereby increasing its total reserves & resources to 313 mnt.  This contains 34.7 mnt of zinc/lead metal and 885 mn ounces of silver.
• The co. expects to commission the 100kt lead smelter in 1QFY12, post which the combined lead/zinc capacity will be 1,064kt.

Outlook

We expect zinc/lead volume growth of 19% in FY12. Ramp-up of silver-rich zinc/lead SK mine (currently operating at 85%) would enable HZL to achieve its target of exit capacity (of 500 tonnes) by end-FY12.  We estimate silver volumes of 350 tonnes and 450 tonnes in FY12E and FY13E respectively.

Key result highlights

• Silver: Silver revenues doubled YoY to Rs 220 cr due to higher silver prices. Average silver price during the quarter was USD 32/oz vs USD in 17/oz in 4QFY10. In addition, lead concentrate sales revenue increased 4x YoY and 2.5x QoQ to Rs 260 cr  due to higher levels of silver in the concentrate. (50% of concentrate sales during the quarter was from the silver-rich SK mine)
• Volume: 4QFY11 refined zinc output was up  29% YoY to 194 kt, post the commissioning of the 210 kt Rajpura Dariba smelter in March 2010 (which contributed 46kt during the quarter). Concentrate sales during the quarter was 48kt as compared to 25kt in 3QFY11 and 49kt in 4QFY10.
• Other income: Other income increased to Rs 3 bn during the quarter vs. Rs 200 cr in 3QFY11 and Rs 130 cr in 4QFY10. This was primarily due to better yields on investments. Avg. return on investment was at 8.2% during the quarter vs. 5.2% in 3QFY11 and 4.4% in 4QFY10.

Valuations

We raise our silver price estimates for FY12E and FY13E to USD30/oz each from USD 25 and USD 27 respectively, driven by the recent surge in silver prices (currently at USD 46/oz). We also reduce our tax rate for FY12E and FY13E to 18% and 20% respectively from the earlier 22%, as per mgmt guidance. Consequently, we increase our EPS estimates for FY12E and FY13E to Rs 16.8 (vs. Rs 15.5) & Rs 18.7 (vs. Rs 17.8) respectively.  We raise our TP to Rs 168 (vs. 162 earlier) – zinc business at Rs 135 (5.5x FY12 EV/EBITDA) and silver business at Rs 33 (9x FY12 EV/EBITDA). Maintain BUY on the stock.

Dish TV : BUY

DISH TV Benefitting From Digitization

The I&B Ministry has announced its intent to implement the Digital Addressable Cable System by December 2014. In order to understand its implications, we met with the mgmt of Hathway Cables (unrated).

The management is confident of a successful rollout this time around and believes that their co shall be a key beneficiary (82% of its 8.3 mn subscribers come under Phase 1 and Phase 2 of the mandatory CAS implementation). In our opinion, Dish TV too will gain significantly from this thrust on digitization, leading us to raise our TP on Dish TV.

Hathway mgmt meet: Key highlights

• Focus on digitization: Hathway is currently focusing on digitizing its existing ~8.3 mn subscriber base, rather than expanding its subscriber base through inorganic means. They expect  to  digitize  ~1  mn  subs  in  FY12E  with  digitizing  becoming mandatory.
• Funding in place to digitalize 6 mn subscribers: Required to pay only 30% of STB capex upfront with the rest due at the end of the third year. Hathway will be required to pay 7-8% interest on outstanding liabilities. The STB subsidy is currently at Rs 600 /subscriber.
• Consolidation likely post CAS implementation:  Cable industry likely to witness consolidation post mandatory digitization as many small MSO’s and LCO’s business would become unviable.
• Cable players are the likely beneficiaries of mandatory digitization: Hathway’s mgmt believes that the mandatory digitization is likely to benefit cable players more than DTH as they can provide similar services at a comparatively lower rate than DTH. However, carriage & placement fees could get negatively impacted for cable cos.

Outlook and Recommendation

Rapid build-up in digital subs base post mandatory digitization augurs well for Dish TV as it leads to a faster expansion of its subscriber base. While we maintain our earnings estimate for Dish TV, we revise our TP upwards to Rs 81 (previous Rs 69) based on a 12x EV/EBITDA multiple on FY13E (earlier disc. back to FY12E @ 16% WACC).  We maintain our  BUY rating  on  Dish  TV  with  an upside of 16% from CMP of Rs 70.

I&B Ministry’s recommendation on digitization

The Information and Broadcasting ministry (I&B) has come out with its views on implementation of digital addressable cable system in India, suggesting Dec 2014 as the sunset date for the analogue cable regime.