Centurion Bank: a success story

ANALYST'S CORNER

Prabhudas Lilladher recommends a Buy on Centurion Bank. The report states that the swap ratio for the merger of Centurion Bank and Bank of Punjab has been fixed at 4:9 (four shares of Bank of Punjab to nine shares of Centurion Bank).

While Centurion Bank has a hold over the south and west regions, Bank of Punjab is has a good market share in the north. While the former is strong in the retail segment, the later is strong in the SME segment.

Both the banks have young and non-unionised manpower and modern technology platform, enabling smoother integration. The Centurion Bank stock trades at 9.2x FY08E EPS of Rs 2 and 2.4x the FY08E adjusted book value of Rs 8.

Given its successful turnaround and strong growth prospects, the report believes that the bank deserves a higher premium. Further, it remains a key acquisition target, especially post-FY09, once RBI completely opens up the banking sector to foreign banks.

ABB: gaining momentum

Prabhudas Lilladher recommends a Buy on ABB. The company management remains optimistic regarding growth prospects in power and automation.

The report states that the growth momentum of the past year as well as in CY05 first half might well continue, post-CY06, so that ABB's revenues would grow by over 30 per cent compounded over CY04-07.

The power technologies division is expected to report a 30 per cent plus CAGR over CY04-07, buoyed by continuing investments from the Power on Demand program in the T&D segment, continuing capex of key clients like PCGIL, state electricity boards, state utilities and improving returns from ABB's foray into medium and low-voltage products.

The automation technologies division too is expected to report over 30 per cent compounded growth in revenues over the same period, largely owing to rising visibility on the crystallisation of capex plans from the manufacturing sector.

ABB India is already the global manufacturing hub of three product lines, as the outsourcing story should continue to build up after the initial success.

Indian Rayon: targets high growth

Enam Securities rates Indian Rayon as an Outperformer, relative to the sector. The report states that the merger swap ratio of three shares each of Indo Gulf Fertilisers and Birla Global Finance for every share of Indian Rayon translates into an acquisition value of Rs 1370 crore (Rs 870 crore for IGFL and Rs 500 crore for BGFL) at its closing price of Rs 578 on September 12.

Indian Rayon, has always looked at reducing its dependence on traditional businesses like VFY, carbon black, insulators and textiles and increasing its exposure towards high growth segments such as garments, insurance, IT, BPO and telecom.

In doing so, the company has largely managed to fund its growth initiatives through accruals from its traditional cash cow businesses. The report believes that the merger of IGFL and BGFL is an extension of this corporate objective and will further add to the free cash flow of the combined entity.