Brokers’picks: Yes Bank, L&T

HSBC stays ‘overweight’ on Yes Bank

TARGET: Rs 592

CURRENT PRICE: Rs 374

Yes’ in-line Q1 performance was ignored by the markets despite growth remaining in mid-20s and RoA at 1.6% with CASA having crossed 20%

If elevated rates linger, ability to preserve margins will remain intact via hike in lending rates but growth to slow to 20%

HSBC has reduced the target price to Rs 592 from Rs 612, implying c56% potential return; P/B multiple of 1.6x appears to have discounted much worse scenario.

It has sharply underperformed the Bankex by c.25% in the last week in response to RBI’s measures and now trades at 1.6x 12mth forward P/B.

Nomura Remains ‘Neutral’ on L&T

TARGET: Rs 921

CURRENT PRICE: Rs 854

L&T posted another successive quarter of strong order inflows in 1QFY14, although it reinforces our view that incremental orders in the currently challenging macro-environment will be plagued by: 1) a longer execution cycle; and 2) poor margins/ROEs.

Domestic E&C revenue growth worsened further to a decline of ~9% y-y, while international revenue growth was still strong at 92% y-y.

It has reacted negatively on weak results, and we see further risk of 5-7% on potential Street downgrades on earnings estimates by 5-10%.

It has retained its fullyear guidance for order inflow and margins.