Axis Bank (Upgraded to Buy); Marico (North signals volume pressure)

STOCK UPDATE - INDIA

Axis Bank

Recommendation: Buy

Price target: Rs1,012

Current market price: Rs920

Buy

Axis Bank has raised Rs3,900 crore through global depository receipts (GDRs) and qualified institutional placements (QIPs). The share offering under both the categories was priced at Rs906.7 per share. The bank offered 33,044,500 equity shares under the QIP offering and 5,055,500 equity shares in the form of GDRs, with each GDR representing one equity share. Further, the bank has received its shareholders? approval for a preferential allotment of up to 10,826,073 equity shares to the promoters; of the total quantity approved the bank is making a preferential allotment of up to 4,902,257 equity shares at Rs906.70 per equity share to Life Insurance Corporation of India (LIC) and New India Assurance.

We are incorporating the capital raising exercise into our earnings model and revising our estimates upwards by 3.3% for FY2010 and by 4.7% for FY2011. Based on our revised earnings estimates, our two-stage dividend discount valuation model indicates a price target of Rs1,012. At the current market price of Rs920, the stock trades at 2.0x FY2011E book value per share and 2.3x FY2011E adjusted book value per share. We upgrade our recommendation on the stock to Buy from Hold with a revised price target of Rs1,012.

Marico

Recommendation: Hold

Price target: Rs90

Current market price: Rs87

North signals volume pressure

With the management indicating that there are signs of pressure on the volume growth in the north, the company may witness a slowdown in its volume growth in the region in Q3FY2010 (October-December 2009). Thus, while this increases the risk to the overall growth for Marico in FY2010, we expect this to be a short-term phenomenon as the rabi crop is likely to be good with the late revival in the monsoon. While we maintain our estimates for FY2010 and FY2011, we shall revisit them after the Q2FY2010 results. At the current market price the stock trades at 22.2x its FY2010E of Rs3.9 and 19.3x its FY2011E of Rs4.5. We maintain our Hold recommendation on the stock with a price target of Rs90.

MUTUAL FUND: INDUSTRY UPDATE

MF sales hit by abolition of entry load

Total AUM of equity MFs stood at Rs192,732.5 crore in August 2009, a growth of 2% from July 2009. On adjusting for the net inflows, the growth stood at 2.2%, which was higher than the growth in the market which remained flat in the same period.