>KOTAK MAHINDRA BANK

The standalone bank reported PAT far ahead of our estimates at Rs 186.9 crore (107% YoY) against our estimate of Rs 159 crore. Even the NII surged 24% YoY to Rs 508.2 crore. On a consolidated basis, PAT grew 27% YoY to Rs 327 crore but sequentially declined by 21.7%. The
performance of other capital market subsidiaries continued to suffer, losing market share sequentially. We expect the banking business to grow at 25% CAGR over FY10-12E delivering an RoE of 18-19%.

■ Loan growth boosts NII, raises FY11E targets…
Strong traction in advances, growing 35% YoY and 11.6% QoQ to Rs 23,185 crore was supported by incremental growth in mortgage and corporate loans. Growth in corporate loans continued to dominate with a 62% YoY jump, an increase of Rs 1848 crore. Of this, about Rs 400 crore went to the telecom sector, the one off spurt most banks are witnessing. On the other hand, deposits grew 38% YoY and 0.7% QoQ. NII grew 24% YoY with NIM at 5.7%, declining from 6.1%. The shifting credit mix from the personal loan book to low yielding corporate and mortgage had led to
a dip in margin. We expect NIMs to remain in the 5.5-5.6% range during the next couple of years.

■ Subsidiaries performance – a drag on overall profitability
The securities business continued to lose market share (3.7% in Q1FY11 vs. 4.5% in Q1FY10) from the unorganised sector. Average daily turnover stood at Rs 4000 crore vs. Rs 3,600 crore in Q4FY10. AUM of Kotak AMC declined from Rs 307 billion in Q1FY10 to Rs 285 billion Q1FY11 mainly on liquid funds withdrawal as equity AUM has marginally dipped from Rs 48 billion to Rs 45 billion. However, regulatory pressures led to significant slump in PAT at Rs 74 crore, down from Rs 139 crore over same period.

Valuation
Strength in the banking business has resulted in 50% of the valuation of the stock price coming from the same (2.5x FY12E ABV). With the AMC and insurance businesses under regulatory scanner and the broking business losing market share, we have revised their multiples lower and
arrived at an SOTP target of Rs 831 with an ADD rating on the stock

To read the full report: KOTAK MAHINDRA

>IDEA CELLULAR: Better than expected show…

Idea Cellular reported better than expected results for Q1FY11E. Consolidated topline for the quarter stood at Rs 3653.7 crore against our expectation of Rs 3411.3 crore. The company reported an EBITDA of Rs 888.4 crore at 24.3%. PAT for the quarter was at Rs 201.4 crore, higher than our expectation of Rs 183.8 crore. This was primarily due to lower than expected interest expense due to capitalisation of interest of Rs 40.4 crore against payment of 3G auction fees. The financials are not strictly comparable to the previous quarter since this quarter includes the full impact of 100% Spice amalgamation.

■ Highlights of the quarter
The company added 5.1 million subscribers during the quarter. This quarter includes 100% financials of Spice Communications for the whole quarter. Hence, the numbers are not strictly comparable to the previous quarter. Nevertheless, normalising for the impact of Spice consolidation, the total volume on the network grew 13% QoQ to 82.2 billion signalling robust volume growth. ARPM declined to Rs 0.44 as compared to Rs 0.47 (as reported) in Q4FY10 while the topline increased by 11.8%. ARPU for the quarter at Rs 182 vs. Rs 185 in Q4FY10, declining 1.6%. Share of VAS was up from 12.4% in Q4FY10 to 12.6%.

Valuation
The company’s operating performance has been better than expected. Also, the rate of decline in KPIs has declined, indicating a stabilising performance. With the 3G and BWA auction behind us, the overall industry trend seems positive. Assuming revenue CAGR of 10.0% over FY11E-FY20E and terminal growth of 3% thereon, we have arrived at a target price of Rs 58/ share for the core business. We have valued Indus contribution at Rs 14/share to arrive at a target price of Rs 72 per share. Our target price discounts FY11E and FY12E EPS of Rs 2.0 and Rs 3.5 by 35.4x and 20.3x, respectively. The stock is currently trading at Rs 69. Our target price implies upside potential of 4.1%. We rate the stock as ADD.

To read the full report: IDEA CELLULAR

>NIIT TECHNOLOGIES LIMITED: Result Update Q1FY11

NIIT Tech reported a good first quarter. The YoY topline Growth is 33% and QoQ growth is 21%. The spike is on account of BSF order being included. Excluding the order the growth is still at a YoY level of 21%.

The company has bagged a good chunk of domestic business. They are also participating in the R-APDRP program just like other IT players, as a System Integrator. Overall 9% of revenue contribution is through the Govt Segment. The longer term implication of this would be a slightly reduced margin since Govt contracts are price competitive. Also, there would be a general increase in the average number of receivable days.

The company is clocking really good capacity utilization of about 82% consistently. This might be because of strictly controlled hiring in order to maintain the margin.

Cash position of the company stands at Rs. 217.9 crores as of June 2010. The company does have an exposure to the European market, and has shown a decline of ~3% this quarter. How it impacts the longer term revenue from EU is to be seen.

Valuation:
There has been no change in the assumptions so far and the business is being valued at less than 2 times sales, which seems to be fair at CMP Rs. 193.0. The business isn't ridiculously priced to merit a sell call either. We recommend to keep holding on to it.

Although Mphasis still looks good at CMP Rs. 607.0

To read the full report: NIIT TECHNOLOGIES

>UNICHEM LAB: Result update Q1FY11

Unichem’s (ULL) Q1FY11 results were in line with our expectations. Sales grew 11% YoY to Rs 186 crore (we expected Rs 197 crore) due to ~11% YoY growth in the domestic business and ~12% YoY growth in exports. In the domestic business, the top 3 brands viz. Ampoxin, Losar
H and Losar continued to stage a robust performance. ULL reported 3% YoY net profit growth in Q1FY11 to Rs 33.4 crore (we expected Rs 33.5 crore) on a standalone basis. EBITDA margin decreased 119 bps YoY from 27.1% in Q1FY10 to 25.9% in Q1FY11 but QoQ it improved marginally by ~7 bps. Although export formulations de-grew ~2% YoY, overall exports grew ~12% YoY on account of ~46% YoY increase in exports API. Niche Generics (100% UK subsidiary) clocked sales of £2.24 million, contributing ~7% to the overall topline. We maintain our target price of Rs 486 on the stock with an ADD rating.

■ Highlights for the quarter
During the quarter, domestic formulations grew at a lower rate of ~11% YoY to Rs 147 crore. The Losar group (market leader) clocked sales in excess of Rs 30 crore with 32% market share. The nearest competitor has 12% market share. However, the Ampoxin brand witnessed subdued growth during the quarter. Higher API sales led exports revenues to improve by ~12% YoY. The debt-equity ratio increased from 0.03 in Q1FY10 to 0.04 in Q1FY11.

Valuation
ULL is poised to grow at 17% CAGR (on a consolidated base) over FY10E- 12E to ~Rs 1044 crore. We believe ULL is at an inflection point and will likely witness robust growth numbers, going forward. The stock is currently trading at 9.1x FY12E EPS of ~Rs 50. We estimate the fair value of ULL at Rs 486 on an SoTP basis and assign an ADD rating on the stock, implying ~7% upside from current levels.

To read the full report: UNICHEM LAB