DEVELOPMENT CREDIT BANK
Current market price: Rs 56;
Fair value: Rs 61
Crisil Equities has assigned a fundamental grade of 2/5 to Development Credit Bank (DCB), indicating ‘moderate’ fundamentals. DCB is a small private sector bank promoted by Aga Khan Fund for Economic Development, offering corporate banking, SME/micro SME lending, ARMB and retail banking. Following heavy losses during FY09-10 due to large exposure to unsecured loans, the bank has restructured its balance sheet and is focusing more on a secured and diversified loan book. It has increased the share of Casa deposits to 35.2 per cent in FY11 from 24.3 per cent in FY08 and reduced net NPA levels to 5.86 per cent in FY11 from 8.78 per cent in FY09. This has helped the bank turn profitable in FY11. A new management team, led by Murali Natarajan, is also in place. Crisil expects total income to register a CAGR of 20 per cent to Rs 430 crore in FY13, primarily driven by strong business (deposits + advances) growth of 20 per cent. NIMs are expected to hover at 2.9-3.1 per cent and net profit is expected to continue its positive run, with a profit of Rs 82 crore in FY13.
—Crisil Equities
ORCHID CHEMICALS
Reco price: Rs 249;
Target price: Rs 373
Just a few weeks after clearing an USFDA inspection, Orchid Chemicals & Pharmaceuticals’ Cephalosporin API manufacturing facility in Alathur (Chennai) has been issued a closure notice by the Tamil Nadu Pollution Control Board (TNPCB) over a non-compliance issue relating to disposal of solid waste. The Alathur facility has been manufacturing a range of oral and sterile Cephalosporin APIs (it is an antibiotic used to treat infection and inflammation) since 1994. The facility caters to developed markets such as the US, Europe and Japan. The company is in active dialogue with the TNPCB officials and is confident of resolving the issues and bringing the plant to a fully operational stage at the earliest. Maintain Buy.
—Angel Broking
UNITED BREWERIES
Reco price: Rs 495;
Target price: Rs 443
The domestic beer market is under-penetrated, offering huge growth opportunities. United Breweries (UB), with FY11 sales of 140 million cases (post merger of all entities), enjoys 54 per cent market share. It has built up an unmatched distribution muscle, with owned/tie-up units in virtually every state, an advantage difficult to replicate for any newcomer. Over a 4-5 year period, UB believes 15 per cent volume CAGR could be sustainable, despite a rising base; analysts factor in 13 per cent volume CAGR over FY11-13. UB has guided FY12 capex of Rs 300 crore, of which 50 per cent is to be spent on a new unit in Karnataka and the rest on land acquisition in Bihar for another unit and expand to capacity of various other units. UB has taken steps to contain its packaging costs through roll out of patented bottles, resulting in significant savings of Rs 4-4.5/bottle. Savings on bottling costs and stable RM costs would support a 160-basis points operating margin expansion over FY11-13. Analysts believe current valuation appears expensive at 24.4 times FY13 EV/Ebitda and 52 times FY13 estimated earnings. Sell.
—IIFL