Express Stock Idea + Q4FY16 Results Update By Amar Ambani Of IIFL

Maruti Suzuki India (Q4 FY16): Strong show amid tough times – BUY
CMP: ₹3,869, 1-yr Target: ₹4,500, Upside: 16.3%

• Net sales increase 12.3% yoy owing to 3.9% yoy rise in volumes and 8.2% yoy higher realizations. Domestic volumes were higher by 5.1% yoy while export volumes declined 8.6% yoy
• Reported OPM at 15.4% was higher than our and street expectations and represented an increase of 96bps qoq but decline of 53bps yoy, yoy decline in margins was mainly due to adverse currency movements and increase in marketing expenditure
• PAT at ₹1,134cr was lower than our estimates owing lower than estimated other income and higher than estimated tax rate
• Cut volume growth estimates for FY17 given capacity constraints and factor in lower tax rate. Maintain BUY with a target price of ₹4,500

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Axis Bank Ltd. (Q4 FY16): Some pain lies ahead – Accumulate
CMP: ₹480, 1-yr Target: ₹505, Upside: 5.2%

• Loan growth sturdy at 20% yoy; above-industry growth to continue
• Deposits mix improved significantly aided by strong traction in CASA
• Significant NIM expansion was a positive surprise; could correct over the next couple of quarters
• Fee growth moderates; strong NII growth aid in managing cost/income ratio
• Asset quality was stable in the quarter; however, significant pain lies ahead
• High near-term risks to earnings is likely to halt valuation re-rating; downgrade rating to Accumulate

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Reliance Industries Ltd (Q4 FY16): Yet another strong quarter – BUY
CMP: ₹1,039, 1-yr Target: ₹1,200, Upside: 15.5%

• Reliance Industries Q4 FY16 performance was ahead of estimates on the back of an strong performance from both refining and petchem segments
• OPM improved 608bps yoy and 331bps qoq to 21.5% much higher than our expectations; yoy increase was led by 338bps and 610bps rise in petchem and refining segment EBIT margins respectively
• US$10.8/bbl GRMs was higher than our estimates
• PAT at ₹ 7,320cr was higher than our estimates due to better than expected refining and petchem performance and lower interest costs
• Maintain our BUY recommendation and 1-year target of ₹1,200

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HDFC Bank (Q4 FY16): Strong performance delivery – BUY
CMP: ₹1,092, 1-yr Target: ₹1,277, Upside: 16.9%

• Loan growth strong at 27% yoy; sustained high growth in retail segment, growth in corporate portfolio accelerates
• Deposit growth moderates sharply on significant deceleration in Retail TD growth
• Higher C/D ratio drive NIM improvement; NIM sustenance could be challenging in the near term
• Fee growth running below asset growth, core C/I ratio being managed well despite network investments
• Delinquencies were slightly higher than usual; overall asset quality remains solid
• Earnings growth to improve materially from FY18; Retain BUY

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Hindustan Zinc Ltd (Q4 FY16): Volumes disappoint – Accumulate
CMP: ₹172, 1-yr Target: ₹181, Upside: 5.2%

• HZL’s performance was quite weak during the quarter due to lower mined metal output
• Mined metal output was lower by 30.1% yoy and 17.5% qoq due to low volumes from Rampura Agucha mine (higher waste mining)
• Zinc refined metal output fell 29% yoy and 25.2% qoq due to lower metal content in mined metal and lower contribution from high grade mine
• The impact on lower zinc volumes was offset by higher integrated lead and silver production. This was largely due to rising contribution from Sindesar Khurd mine (higher lead and silver content)
• Integrated silver production jumped 65% yoy and lead jumped 15% yoy
• Cost of production per ton remained high due to lower metal output
• HZL managed to report higher than estimated PAT on the back of tax reversal during the quarter
• Management has guided for subdued volume growth for H1 FY17 as per its mining plan; However, maintained marginally higher refined metal output in FY17
• HZL has outperformed most of its peers, both global and domestic. Valuations at 5.1x FY18 EV/EBIDTA are inline with its peers. With upside capped, we downgrade the stock to Accumulate with a revised target price of ₹ 181.

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IndusInd Bank Ltd – BUY
CMP: ₹982, 3-6m Target: ₹1,150, Upside: 17%

After enjoying an unabated run since February 2014 for almost 14 months till April 2015, the stock had entered into a sideways time correction phase weathering the collapse in the Nifty and Bank Nifty.

Exceptionally petite price erosion was seen, indicating that the current consolidation is a continuation pattern and is healthy in nature. It has reinforced and created a new base from where the stock can take off afresh.

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M&M Financial Services Ltd. (Q4 FY16): Cyclical headwinds easing – Accumulate
CMP: ₹298, 1-yr Target: ₹328, Upside: 10.1%

• AUM growth sustained in double-digits aided by modest disbursement growth
• FY18 to be the inflection year for growth
• Asset quality improvement was sharper than expected; credit cost to fall by 70 bps over FY16-18
• NIM expanded materially on the back of asset quality improvement
• Recovery in profitability will be quite sharp over FY16-19; retain positive stance

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