State Bank of India
Reco price: Rs 1,046.6
Current market price: Rs 1,027.1
Target price: Rs 900
Downside: 12.4%
Brokerage: Macquarie Research
State Bank of India’s (SBI) teaser mortgage loans had a limited impact on the market for two reasons. Firstly, the window is open only until 30 April and buyers would be reluctant to close deals hurriedly. And secondly, the monthly installments are fixed at the existing card rates, not at 8 per cent, so the perceptible advantage to the customer is minimal. However, there has been relative success in acquiring existing loans from other lenders as loan rate covers the prepayment penalty that a borrower switching out of other banks will have to pay.
SBI had also launched special rates on SME loans and has extended them to cars and agricultural loans. This should work better than it did for mortgages as tenure of these loans tend to be shorter (three to five years for cars, even shorter for SMEs and farmers). Also, the loan disbursement cycles for these loans tend to be shorter. SBI’s strategy makes sense from the marginal costing perspective as it is deploying its excess liquidity of Rs 75,000-1,00,000 crore at 8 per cent yields. However, in the medium-term, NIMs could be under pressure as well as credit costs. Maintain underperform.
ABB
Reco price: Rs 374
Current market price: Rs 367.65
Target price: Rs 376
Upside: NA
Brokerage: Angel Broking
ABB posted top-line growth of 17.8 per cent year-on-year (y-o-y) to Rs 2,166 crore for Q4 CY08 (in line with expectations) on the back of a strong performance of its automation segments. During Q4, ABB’s automation segments combined posted strong growth of 42.3 per cent, while the power-related segments grew by 11.4 per cent. For CY08, top-line grew by 15.3 per cent y-o-y to Rs 6,837 crore.
Owing to the fall in margins, EBITDA grew by a mere 2 per cent y-o-y to Rs 268 crore during the quarter. Despite the sharp increase in interest expense (about 4 times to Rs 16 crore), net profit grew by 6.8 per cent to Rs 193 crore. For CY08, net profit grew by 11.3 per cent y-o-y to Rs 547 crore. During Q4, the order inflow was down by 37 per cent y-o-y and for CY08 it grew by 5 per cent to Rs 8,054 crore. The management highlighted that power generation, transmission and distribution segments would be the key growth drivers. Due to a gloomy near-term outlook, the brokerage has downgraded its estimates for sales by 7-7.5 per cent and earnings by 11-13 per cent for CY09E and CY10E. At Rs 374, the stock is trading at 15.0x and 12.9x CY09E and CY10E EPS, respectively. Maintain reduce.
Colgate Palmolive India
Reco price: Rs 448
Current market price: Rs 463.25
Target price: NA
Brokerage: Edelweiss Securities
Colgate had reported strong volume growth of 14 per cent for the December quarter. However, the company expects to maintain 9 per cent volume growth in the medium-term. Its flagship brand, Colgate dental cream, and mass segment brand, Cibaca, had both reported strong volume growth. The company is seeing much faster growth in rural segment (13-14 per cent) compared to urban (9 per cent). Lower rural penetration (35 per cent) in oral care remains a growth opportunity and Colgate has tried to tap into this segment with low unit price products and special customer acquisition drives.
Colgate hasn’t taken any significant price hike (around 1.2 per cent) during the year, despite inflation in its key input material. Raw material price index for Colgate has increased by 10 per cent during the first nine months of the year. Inflation in Sorbitol, essential oils and tubes has been the major driver of cost inflation. Although input costs are softening, its impact could only be expected to be witnessed from Q1 FY09, since the company engages in forward contract of its inputs. At Rs 448, Colgate trades at a P/E of 22.1x and 19.0x and EV/EBITDA of 21.1x and 18.1x on our FY09E and FY10E estimates, respectively. Maintain buy.
Shiv-Vani Exploration
Reco price: Rs 101
Current market price: Rs 104.3
Target price: Rs 370
Upside: 254.7%
Brokerage: Sharekhan
Shiv-Vani Oil and Gas Exploration Services (Shiv-Vani) had earlier bagged an order worth Rs 1,610 crore from ONGC for charter hire of eight onshore deep driller rigs for the latter’s Tripura, Sivasagar and Rajahmundry assets for a period of three years. Out of the eight rigs contracted, only three have been delivered. Another two are in advanced stages of mobilisation, while there has been a delay in another three rigs for which the company is seeking extension. As per the contract, ONGC can impose a 5 per cent penalty in case of failure in delivering the rigs on time. The management believes that ONGC would agree to the extensions sought by the company.
Taking into account a 5 per cent penalty, the total penalty on the delayed three rigs could work out to about Rs 6.5 crore. Consequently, it could potentially affect earnings estimates by 2.3 per cent to Rs 44.8. Shiv-Vani has debt of about Rs 1,400 crore in its books currently, and the same is payable in about six years. At Rs 101, the stock trades at 2.2x its FY2010E earnings. Maintain buy.
Grasim
Reco price: Rs 1,407
Current market price: Rs 1,371.5
Target price: Rs 1,486
Upside: 8.4%
Brokerage: India Infoline
Grasim expects cement volumes to grow 10 per cent in FY10, led by an increase in clinker production from the company’s new 10,000 tonne per day (tpd) Shambupura clinker unit, new grinding units at Aligarh and Shambupura to start in the next two months and increase in utilisation of the Panipat grinding unit, along with 10,000 tpd greenfield clinker expansion at Kotputli nearing completion, likely to come on stream.
Demand from the infrastructure segment has been strong in the past few months. However, the demand from housing segment in urban centres is lower compared to non-urban centres (contributes around 70 per cent of the total housing segment demand). Currently, coal receipt from linkage is at 25 per cent of total requirement. Grasim procures 30 per cent of its coal requirement from open market, where prices were almost twice as high as linkage coal prices now. It meets its remaining fuel requirement through imports, which includes pet-coke (price of which has fallen by around 50 per cent). VSF prices have declined and volumes are yet to pick up as weakness in domestic and global textile demand continues. At Rs 1,407, Grasim is trading at a P/BV of 1.0x on FY10E, a sharp discount to valuations of other cement majors. Maintain add.
Current market price as on February 27, 2009