Stock Picks - Maruti Suzuki, Federal Bank - Arihant Capital Market

Federal Bank (CMP - Rs.111; TP - Rs.124)

Federal Bank Ltd. is engaged in the banking services business. The firm operates in four business segments such as treasury operations, wholesale banking, retail banking and other banking operations. It also provides various financial services in India.

For the quarter ended Q1 FY18 Federal bank reported steady profitability. The net profit stood at Rs 210 cr vs. Rs 167 cr in the corresponding quarter of the previous year. The bank's top-line performance was up as net interest income increased by 16% to Rs 801 crs compared to Rs 693 crs YoY & Rs 842 crs QoQ. Other income rose by 39% to Rs 392 crs YoY. Gross advances for the quarter under review grew by 29% YoY and deposits grew by 19% YoY. CASA ratio stood at 33.44% against 32.83% YoY and 35% QoQ majorly due to expansion on retail front.

Federal Bank reported consistent performance backed by NII growth and better operational efficiency. Asset quality stood steady. We expect the bank to continue trend with more focus on digitalization and distribution. We have valued the stock at P/ABV multiple of 2.3x FY19 & arrived at fair value of Rs 124 per share.

Maruti Suzuki (CMP - Rs 7739; TP - Rs 8050)

Maruti Suzuki India Limited (MSIL) is engaged in the business of manufacture, purchase and sale of motor vehicles, automobile components and spare parts (automobiles). The other activities of the Company consist of facilitation of pre-owned car sales, fleet management and car financing.

Healthy order book continues for Brezza, Baleno and newly launched Dzire. Production from the Gujarat plant stood at 24k units this quarter. With capacity ramping up, the management expects to reach full capacity of phase-1 at 20k units/month by end of 2017. The management expects to produce ~1.5-1.6mn units from Manesar plant as against ~160k units from the Gujarat plant in FY18, implying potential overall production at ~1.75-1.8mn units in FY18e. The second line of Gujarat plant is expected to commence operation from early 2019. Share of first time buyers has increased to 50% vs 43% in previous quarters. Expect FY18 capex at Rs45bn, towards new product development, R&D and marketing infrastructure. We value the stock at 25x FY19E EPS of Rs 322, and assign a price target of Rs 8050 with a "HOLD" rating on the stock.

Source : Equity Bulls

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