1. Karnataka Bank – Sell Rating With A Reduced Target Price Of Rs. 50
For this private sector lender, Axis Direct has retained its ‘Sell’ call and at the same time reduced the target price to Rs.
Q1Fy22 results- Karnataka Bank-A mixed in terms of performance
NIM or net interest margin for the bank improved and lower C-I but with higher restructuring and lower non-interest income. NII was up 7%/25% YoY/QoQ led by improvement in NIM by 9bps/57bps YoY/QoQ to 2.98%. The loan book was down 4.5% YoY and up 0.2% QoQ to Rs 51,791Cr, said the brokerage report.
In its loan book, the bank’s large corporate lending has come down to 14% from 30% in March 19.
C-I ratio has improved to 48.9% from 53.9% QoQ.
Gross/Net NPAs marginally improved to 4.8%/3% from 4.9%/3.2% QoQ. Provisions declined 28% YoY but wereup 8% QoQ to Rs 368 Cr. PAT was down 46% YoY and up 238% QoQ to Rs 106 Cr, supported by a tax write-back of Rs 60 Cr during the quarter. Slippages for Q1FY22 stood at Rs 414 Cr (vs. Rs 1,176 Cr in Q4FY21).
“While up-tick in NIMs is encouraging, concerns on high restructured book persist. Threat and potential impact from the third wave of Covid could be more detrimental for smaller banks such as KBL with higher credit costs and lagging loan growth affecting profitability. The proposal of QIP placement is keenly eyed. We maintain SELL on the stock with a target of Rs 50/share(~0.25x FY23E ABV).
Loan advances de-grew, Gold loan book to improve
-Advances to large corporate receded and was at 14% for the just ended quarter
– With major presence in the rural areas there is anticipated a better traction in gold loan book
– Retail deposits led primarily by growth in CASA accounts
-Slippages mostly from MSME, other sectors leading to weakening in asset quality have been agriculture, CRE, housing loan, mortgages, vehicle and personal loans.
| CMP |
Rs. 58 (as on July 28, 2021) |
| Upside/Downside % |
-14% |
| High/Low |
73/40 |
| Market cap |
Rs. 1789 crore |
| Average daily volume |
8,78,784 |
| Number of shares (crore) |
31.1 crores |
2. Dixon Technologies:
With a tagline as “the brand behind brands”, Dixon Technologies offers design-focused solutions in consumer durables, home appliances, lighting, mobile phones and security devices across the globe. Along with that the company offers a host of refurbishment solutions for an array of products that include set top boxes, mobile phones and LED TV panels.
Though the recent PLI or production linked incentive has been a big boost to companies’ like Dixon, Axis Direct has downgraded the stock of Dixon to a ‘Hold’ recommendation, nonetheless has raised the target price to Rs. 4510, the stock last quoted at a price of Rs. 4230, this implies an upside of over 6%.
Resilient performance in Q1Fy22
Dixon reported a Consolidated Revenues of Rs 1,867 Cr up 261% YoY/ down 11% QoQ, as the second wave of Covid-19 impacted growth in April and May’21 while the recovery was seen in Jun’21. While the Gross Margins were adversely impacted by 460 bps, the EBITDA margins, too, declined to 2.6% (Vs 3.3% in Q1FY21) due to change in product mix (higher share of LED TV’s having lower margins), negative operating leverage, and a sharp increase in RM costs. The PAT stood at Rs 18 Cr as against Rs 2 Cr in Q1FY21.
Valuation and the rationale for the downgrade
“We believe Dixon will continue to ride on the strong order book by leveraging its execution capabilities to scale up its operations, enter new product segments, and capture PLI opportunities in other segments. We have adjusted FY22E revenue estimates lower by 4.5% and have marginally tweaked FY23E/FY24revenues by factoring in the growth recovery, going forward. We value Dixon at 50x FY24 E EPS of Rs 90.2 to arrive at a target price of Rs 4,510”, leaving little room for upside potential from the current levels. Given encouraging long-term potential but limited upside potential from CMP, we recommend a HOLD on the stock.said the brokerage firm in its latest report.
Future growth prospects sound for the company i) Healthy order book across segments, (ii) Addition of new clients, (iii) Significant contribution from the PLI revenues going forward.
Key downside risks a) Lower revenue contribution from PLI scheme and b) Slower ramp-up in the capacities. Although we continue to maintain our positive stance over the long term, the current price factors in the future growth prospects in our estimates.
| CMP |
Rs. 4513 (as on July 28, 2021) |
| Upside/Downside % |
0% |
| High/Low |
4732/1402 |
| Market cap |
Rs. 26109 crore |
| Average daily volume |
113195 |
| Number of shares (crore) |
5.78 crore |
Disclaimer:
Stock market investments are risky and do consider your risk profile and other details, the details listed out here are taken from brokerage reports. Do take financial help before taking any buy, sell and hold call on various investment products.
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