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Monday, December 1, 2008

Stock Analysis - Colgate Palmolive, Yes Bank, Siemens

Analysis of stocks Colgate Palmolive, Yes Bank, Siemens from investment perspectives based on their recent results and performance

Colgate Palmolive
RESEARCH: HSBC
RATING: OVERWEIGHT
CMP: RS 385

HSBC has initiated an ‘overweight’ rating on Colgate-Palmolive with a potential return of 25.8%. The oral care category in India has a penetration rate of 78% and a per-capita usage of toothpaste, which is half that of China.

Increased usage and penetration, along with a shift from toothpowder to toothpaste, are likely to drive volume growth of 8-9 % for the next several years.

Colgate is the undisputed market leader in all the sub-categories of oral care and has a diversified product portfolio covering all price points and an excellent distribution network. Colgate is poised for steady growth.

It has increased gross margins by changing its raw material mix, reducing complexity, and increasing in-sourcing with minimal price increases, protecting volume growth. HSBC values Colgate on a price-earnings (P/E) and a direct cash flow (DCF) basis.

The P/E valuation, at 18x FY10E earnings per share (EPS), comes to Rs 424. The target price of Rs 470 is an average of the two. Colgate is currently trading at a 12-month forward P/E of 17.1x, the lowest forward P/E in three-and-a-half years.


Yes Bank
RESEARCH: Deutsche Bank
RATING: Hold
CMP: RS 61

Deutsche Bank believes that Yes Bank’s recent severe underperformance relative to the market and the banking index has factored in most of the concerns about its asset quality, margins and fee income growth and has upgraded the stock to ‘hold’0.

However, it has reduced the target price to Rs 55 and cut earnings by 11-17 % for FY09-11 . The major concerns are: asset quality due to large exposure to mid-corporate group and commercial real estate; margins due to weak funding franchise; and a sharp slowdown in non-interest income growth due to relatively high dependence on capital market-linked activities.

The target price of Rs 55 is based on a single-stage Gordon growth model with a price-to-book value (P/BV) of 1.0x, arrived by using a blended return on equity (RoE) of 15.5%. The key upside risk to Deutsche Bank’s hypothesis is a sharp recovery in loan growth accompanied by a rise in margins.

The key downside risks are higher-than-expected deterioration in asset quality and stagnation of branch network due to unavailability of branch licenses , which can pose a challenge for Yes Bank.


Siemens
RESEARCH: JP MORGAN
RATING: UNDERWEIGHT
CMP: RS 224

Siemens reported a standalone net profit of Rs 225 crore in Q4, substantially below the estimate of Rs 360 crore. Operating profit margin was down 300 basis points (bps) year-on-year (y-o-y ) to 12.5%. Markto-market (MTM) losses on short positions in foreign exchange (forex) derivatives contracts, in a quarter where the rupee depreciated 10% visà-vis the dollar, can be responsible for a large part of the margin decline.

With the underlying hedged being of longer maturity, JP Morgan can expect gains on the underlying in coming quarters. The performance of the company’s subsidiaries is a drag on results: Siemens’ FY08 consolidated revenue of Rs 9,680 crore was in line with estimates, while its profit after tax (PAT) of Rs 470 crore was 30% below full-year estimates.

The company’s 100%-owned principal subsidiary, SISL, performed poorly in FY08. Siemens’ standalone revenue growth from continuing operations is higher at 15%, but power (which contributes 49% to the topline), posted a growth of 3.2% y-o-y.

There has been little incremental visibility in the power segment, as the Qatar order has neared completion. All other segments have shown strong revenue growth.

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