Broking firms have come out with updates on a handful of companies. They included Sonata Software, Axis Bank, Siemens, IDFC First Bank, and Finolex Industries. Analysts remained optimistic about Sonata's largest acquisition while they saw IDFC Bank entering a phase of strong loan growth. For ICICI Bank, the completion o Citi's assets is seen as a long-term positive. Finolex Industries is seen gaining demand tailwinds in the agriculture segment. Siemens is seen as well-positioned, thanks to its technology prowess in digitalisation and sustainable solutions.
Sonata Software | HDFC Institutional Equities | Buy | Target Rs 775
Sonata Software recently announced its most significant acquisition of Quant Systems, which involves a cash payout of $65 million and an earn-out of $95 million payable over the next two years. The deal is valued at P/S of 4.3 times, which HDFC Institutional Equities said is on the higher side but justified by Quant’s high growth profile, a superior margin of over 25 per cent, excellent partnership network and domain capabilities in the BFSI and healthcare verticals.
HDFC Institutional Equities said the acquisition is in line with the management’s target to double IITS revenue (hit half a billion) in four years (organic CAGR of 15 per cent), supported by higher investments in new verticals and geographies and expanding partnerships beyond Microsoft. The acquisition will also add two new clients to the top-5 list of Sonata’s and will help expand its presence in the BFSI and healthcare verticals.
"We like Sonata based on growth acceleration in IITS; strong Microsoft relationship; new CEO focus on improving sales engine; continued growth in DPS; and high RoE of over 35 per cent . The deal is EPS accretive and will boost FY24/25E EPS by 2 per cent/6 per cent respectively. We maintain our BUY rating and increase our target to Rs 775, based on 18 times Dec-24E EPS.
IDFC First Bank | Motilal Oswal Securities | Buy | Rs 70
Motilal Oswal Securities said IDFC Bank is entering a phase of strong loan growth as the drag from the wholesale book moderates. It estimates a 25 per cent CAGR in loans during FY23-25. The bank has scaled up retail deposits (77 per cent of customer deposits) at a robust 73 per cent CAGR over FY19-22, with a strong CASA mix at 50 per cent.
It has invested well in digital capabilities, branch and product expansion, and has a presence across retail products. Cost ratios are elevated but will moderate as scale benefits come into effect, while the retirement of high-cost borrowings aids NII growth.
"We estimate a 37 per cent CAGR in PPoP over FY23-25, while controlled credit costs will drive a 36 per cent CAGR in PAT over a similar period. We estimate RoA/RoE to reach 1.3 per cent/14 per cent by FY25. Maintain BUY with an unchanged target of Rs 70 (premised on 1.5 times Sep’24E BV)," it said.
Finolex Industries | ICICIdirect | BUY| Target Rs 196
ICICIdirect said it recently interacted with the management of Finolex Industries. It noted that demand from agriculture pipes is yet to pick up in Q4FY23 post strong demand seen in the December quarter, partly due to dealer restocking as PVC prices started to increase post a sharp decline. The management is hopeful of a better demand scenario in March as the busy season for agriculture has started (Feb-May) and PVC prices remain attractive post the steep correction of 34 per cent YTD.
Plumbing demand, ICICIdirect said, continues to remain steady as an uptick in the housing market sustains. Profitability, the management felt, should normalise in the pipe segment as PVC prices have stabilised, thus, resulting in no inventory losses. In the PVC resin segment, too, margins should improve sequentially as high-cost inventory was mostly consumed in Q3FY23.
"We believe Finolex Industries has near-term demand tailwinds, as demand from the agriculture segment (which accounts for 60-65 per cent of revenues) sees traction due to lower PVC prices, and also margins are expected to normalise as PVC resin prices have stabilised. Maintain estimates and upgrade the stock from Add to BUY with an unchanged March 2023 SoTP-based target price of Rs196," it said/
Axis Bank | Nomura India | Buy | Target Rs 1,110
Axis Bank has completed the acquisition of Citi's consumer business, ahead of schedule. The total purchase consideration declined 6 per cent to Rs 11,600 crore for a loan /deposit franchise of Rs 27,300 crore/Rs 39,900 crore. The stickiness of the customer portfolio, primarily on the deposit front, remains a key monitorable, Nomura said.
"The CET-1 of 13.8 per cent leaves a reasonable cushion for Axis to plan out its capital raise at a more opportune time, in our view. The management continued to guide for cost synergies from the acquisition. Opex guidance (amortization of Rs 2,000 crore over 18 months) was broadly in line. Our estimates remain broadly unchanged for FY23F/FY24F, barring the impact of preponing (impact in FY23F vs FY24F earlier) and decline in purchase consideration (charged to P&L)," Nomura India said
The brokerage has retained its 'Buy' rating on Axis Bank for the target of Rs 1,110 with an implied P/BV of 2.3 times/2 times on December 24F/Dec-25F book.
Siemens | Elara Securities | Buy | Target Rs 3,800
The management of Siemens, in the FY22 annual report, said India’s decadal growth story remains intact, driven by political stability, favourable demographics, digital infrastructure, and energy transition.
The pace of tendering for capital expenditure (capex) by public and private sectors will continue, with increased investment in sustainable infrastructure, decarbonisation, electrification, automation, and digitalisation. Elara Securities said Siemens is well positioned through its technology prowess in digitalisation and sustainable solutions. It would continue to drive profitable growth, led by order momentum, strong execution, and participation in large projects, it said.
"We keep our EPS estimates unchanged over FY23-24. We reiterate Buy with a target of Rs 3,800 on 60 times FY24E P/E. We expect an earnings CAGR of 26 per cent over FY22-25E and a 16 per cent ROE over FY23-25E as we enter into a multi-year capex cycle of public and private capex. SIEM, with its diversified portfolio along with enhancing indigenous products portfolio, technological edge and parent support, would be a key beneficiary," it said.
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