BANK OF INDIA
Reco Price: Rs 558,
Target Price: Rs 540
Over the past three months, Bank of India’s (BOI) stock has risen by 52 per cent, outperforming key benchmarks, Sensex and Bankex, which have risen by 14 per cent and 30 per cent, respectively. Although quarterly results are likely to be strong, owing to the low base of last year, the strong price performance suggests that such expectations are priced in the current valuations. BOI has a weaker deposit franchise among larger banks — CASA deposit ratio of 32 per cent. This is likely to limit improvements in profitability ratios. IIFL believes inferior profitability and weaker capitalisation would likely become a growth constraint over the medium-term.
Downgrade from buy to reduce.
— IIFL
KEWAL KIRAN CLOTHING
Reco Price: Rs 427,
Target price: Rs 574
Kewal Kiran Clothing's (KKCL) flagship brand, Killer, which had a gross retail turnover of around Rs 145 crore in 2009-10 (53 per cent of total revenues), features amongst the top three denim brands paralleling global brands like Levis, Lee and Pepe in the mind of the consumer. The other three brands (viz Integriti, Lawman and Easies), have registered a consistent revenue CAGR of more than 20.5 per cent over FY06-10. With a successful brand portfolio, KKCL’s revenues are expected to grow at a CAGR of 24.7 per cent over FY10-12. KKCL has the distinction of being one of the few branded apparel companies that have positive cash inflow and has a healthy balance sheet. It is underleveraged with a debt-equity ratio of 0.1 time.
Initiate coverage with buy.
— Sharekhan
SURYA ROSHNI
Reco Price: Rs 113,
Target Price: Rs 141
Surya Roshni has recently completed a large capacity expansion program across all products in the lighting and steel division, including capacity increase of 358 per cent in CFL and 29 per cent in steel pipes. The new capacities are expected to contribute to strong top-line growth of 23.8 per cent CAGR over FY10-12. The contribution of the high-margin lighting division to sales is expected to increase from 29.5 per cent to 33.6 per cent over FY10-12. Angel Broking expects the outstanding warrants also to be converted into equity, thereby increasing the promoters’ stake to 55 per cent by 2011-12 from 29.1 per cent currently thereby leading to an infusion of Rs 133 crore into the company.
Initiate coverage with buy.
— Angel
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INDRAPRASTHA GAS
Reco Price: Rs 317
Target Price: Rs 309
Despite good pricing power, Indraprastha Gas' (IGL) margins could dip from 36-42 per cent earlier to 29-30 per cent going forward as gas prices trend higher. The brokerage believes that risks on the pricing front are over. It expects supplies from APM, KG and LNG to be adequate to help drive gas volumes for IGL to 2.5/2.8/3.0 mmscmd over FY11/12/13. The decision on the court case of the city gas licence for Ghaziabad is likely by 8th November. A favourable ruling could be a slight positive. It expects limited growth opportunities given emergence of GAIL as an aggressive bidder. Further, value accretion from new cities is likely to be long gestation and not a near-term stock driver. IGL’s exclusivity in Delhi ends in January 2012, after which it could face competitive pressures.
Maintain Sell
— Citi