IndusInd Bank
Revival of CV cycle:
A lot of the concerns that people were expecting in IndusInd Bank on the commercial vehicle (CV) side of the business which was nearly about 35-40 percent of their portfolio, they have managed to ride over that pretty well. If you are taking a call that CV cycle is going to revive from here, that has been the overhang or sort of a concern area; not necessarily an overhang that people have had on IndusInd and it has reflected in the way for example the Ashok Leyland stock has done.
Steady ROEs:
So, that is a company that we like. It is doing about 14-15 percent return on equities (RoEs). We are expecting that to go to about 18-19 percent.
Reasonable valuations:
You are getting it at about 1.9 times return on assets (RoA). I don’t think there are any concerns as such. Generally, even if you look at the capitalisation of the bank and the kind of outlook it has by way of fund raising, I don’t think there are too many concerns that you have over there. It is definitely a richly valued bank but historically you have seen that when fund raisings take place in banks with higher RoAs the multiples keep expanding and we have done a study on that.
Aurobindo Pharma:
Strong base business; Debt repayment is the big trigger:
Aurobindo nearly about 70 percent of its injectables portfolio we believe still has to unfold. The acquisition that they have recently made will stand them in good state going forward as well. The story here is going to be more debt repayment rather than even the base business. I think the base business margins at 22 percent last quarter also you saw were pretty strong; it highlights the inherent strength. However, my analysts call is that the big trigger on Aurobindo will come from debt payment. They paid up about USD 85 million in the first half of this year and incrementally he is expecting the debt equity to go down from nearly about 1 time right now to close to about 0.1 times over the next two to three years. The stock has rallied pretty hard but the board meeting could be, the enabling resolution could be a step in that direction. What we understand is that they are very keen on retiring debt. The base business is strong as highlighted by the margins as well, the acquisition should stand them in good state and like I said close to 70 percent of their injectables portfolio in the US is yet to be monetised. So, that will play out over a period of time but this is a stock that if you get it, if you are ready to take a longer term view buy at this price; if you get I cheaper add on.
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