Bajaj Auto: Riding comfort

ANALYSTS' CORNER

Khandwala Securities recommends a "buy" on Bajaj Auto. The report states that the company posted a sales growth of 30 per cent and earnings growth of 54 per cent for FY06. Operating margins improved by 440 bps to 19.6 per cent in FY06 from 15.2 per cent in FY05.

Improvement in margins is due to increase in sale of motorcycles, favourable change in product mix (higher number of motorcycles in the value and premium segment), higher exports and tighter control over material and fixed costs.

The company is consistently increasing its market share in the motorcycle segment with a slew of new product launches. It continues to dominate the premium and the economy segment with new product launches.

Syndicate Bank:Stressed margin

Enam Securities, in its report on Syndicate Bank, states that there has been a sharp compression in net interest margin (NIM), which came under severe pressure, falling to 2.9 per cent in Q4 FY06 (3.2 per cent for FY06) against 3.6 per cent in corresponding previous period.

The fall in NIM was largely led by higher cost of funds and a decline in yield on the investment portfolio. As a result, NIM declined almost 26 per cent in Q4, even as credit and deposits grew 36 per cent and 16 per cent yoy.

The bank's decision to fund credit growth through high-cost bulk deposits in Q3 and Q4 resulted in margin compression.

The report does not expect any shocks in its bond portfolio. The bank's HTM (held to maturity) proportion at 70 per cent and AFS (available for sale) duration at 1.5 provide solace in a rising interest rate scenario.

Non-SLR, which largely comprises re-capitalisation bonds are also in the HTM category. In Q1 FY07, the bank did some further restructuring by shifting some high coupon g-secs from HTM to AFS, which further strengthened its AFS portfolio.

Kesoram Industries: Growth menu

Indiainfoline, initiating coverage, recommends a "buy" on Kesoram Industries. This diversified BK Birla Group company, having interests in tyres, cement, textiles, transparent paper and CI spun pipes, is well placed to reap the benefits from the bright prospects for the cement and tyre industries over the next couple of years.

Its 1.65 million tonne cement plant, to be commissioned in Q3 FY07 is the only major cement capacity addition coming up in the next one year in the fast growing southern market.

Also, strong growth in medium & heavy commercial vehicles (M&HCVs) in the past two years and overloading restrictions has improved the outlook for the tyre industry.

The report expects the company to have strong earnings growth through FY08, with an EPS of Rs 18.9 in FY07E and Rs 23.8 in FY08E.