Bank of India
Reco price: Rs 235
Current market price: Rs 234.7
Target price: Rs 270
Upside: 15%
Brokerage: IDFC SSKI
Bank of India’s (BOI) PAT growth of 7 per cent y-o-y to Rs 810 crore in Q4 FY09 were below analyst estimates. The bank’s net interest income (NIIs) was bogged down by contraction in margins, lower asset growth and deteriorating CD ratio. Net interest margins declined by 40 bps q-o-q and 25 bps y-o-y to 3.46 per cent and while the CASA ratio fell to 30.5 per cent. NII managed to register a muted 18 per cent y-o-y growth to Rs 1,430 crore.
However, robust treasury gains and traction in non-fund income supported the bottom line. Other income grew 20 per cent y-o-y to Rs 780 crore on the back of strong treasury gains of Rs 220 crore, core fee income increased 26 per cent y-o-y to Rs 430 crore.
BOI restructured standard advances worth Rs 5,000 crore (3.5 per cent of loans) with further applications of Rs 1,400 crore under consideration. Gross NPAs increased to 1.71 per cent.
The brokerage expects the bank to report a 15 per cent CAGR in net profit, RoE to decline by 400-500 bps over FY09-11. The stock is currently trading at its 0.84 times FY10E and 0.67 times FY11E its adjusted book value. Maintain underperform.
Reliance Communications
Reco price: Rs 215
Current market price: Rs 239.45
Target price: Rs 275
Upside: 14.8%
Brokerage: Macquarie Research
Reliance Communications’ (RCom) Q4 revenue stood at Rs 6,120 crore, up 15.3 per cent y-o-y and 4.7 per cent q-o-q and were marginally below estimate. EBITDA at Rs 2,380 crore was up 2.9 per cent y-o-y and 1.3 per cent q-o-q due to better cost control. EPS for FY09 stood at Rs 27.17, up 9.8 per cent y-o-y. ARPUs came in 2.2 per cent below expectations, registering declines of 10.8 per cent q-o-q and 29.3 per cent y-o-y. This compares with Bharti’s ARPU decline of 6 per cent q-o-q and 14.6 per cent y-o-y in Q4. Average revenues per minute at 60 paise (down 2 per cent q-o-q and 18.6 per cent y-o-y) was relatively stable and came in ahead of expectations of 58 paise.
Wireless MoUs declined sharply by 9.3 per cent q-o-q to 372 in Q4, despite GSM launch led free minutes. This was due to lower incoming calls to customers on the new GSM platform and rationalisation of free/discounted minutes on CDMA in Q4. A reversal in amortisation of ESOPs helps RCOM to beat PAT estimate by 15.7 per cent. Maintain outperform.
DLF
Reco price: Rs 234
Current market price: Rs 244.9
Target price: Rs 260
Upside: 6.1%
Brokerage: Motilal Oswal Securities
DLF’s Q4 FY09 results were below expectations due to an adjustment of around Rs 690 crore (PBT impact Rs 300 crore) on price resets/other benefits to buyers of some of its residential projects. Revenue declined 74 per cent y-o-y to Rs 1,120 crore while net profit declined 92 per cent y-o-y to Rs 160 crore. EBITDA was Rs 150 crore (Rs 450 crore before adjustment) after a one-time adjustment on account of price resets. DLF has till date sold 13-14 million sq ft (msf) of IT SEZ offices to DAL, aggregating to around Rs 1,020 crore. DAL has visibility on the leasing of around 8msf and expects to lease the remaining over the next few years. Earlier DLF had indicated that rental income in DAL would commence for around 9.5msf by April 2009 and for the remaining by H2 FY10.
DLF’s land cost obligations have declined by around 96 per cent q-o-q to Rs 250 crore in Q4 FY09. This decline is on account of exit from township projects in Dankuni and Bidadi along with resizing of old projects. DLF trades at 16.9x its estimated FY10 earnings and 1.6x its FY10 book value of Rs 144 a share. Maintain buy.
IDFC
Reco price: Rs 91.35
Current market price: Rs 87.95
Target price: Rs 80
Downside: 9%
Brokerage: Citi Investment Research
The brokerage has increased IDFCs target price from Rs 58 to Rs 80 taking into account the recent improvement in the operating environment including easing of liquidity problems, low interest rates, jump in brokerage volumes and revenues and higher growth.
IDFC’s asset book remains amongst the best in industry (0.4 per cent NPLs, insignificant restructuring) and its increased coverage levels (over 4x now) provide adequate cushion for further slippages. Management has turned more confident on growth outlook; however, growth should remain modest (10-15 per cent) in the absence of any capital leeway from rating agencies.
IDFC’s NIMs improved in FY09 despite a challenging funding environment, suggesting they can be maintained at relatively high levels. Fee incomes improved across segments over Q3 with relatively strong show in principal trading and brokerage. Asset management business AUMs also increased and helped round off a good fee quarter. The brokerage has lowered earnings by 3-4 per cent over the next two fiscals on lower loan growth assumptions. The brokerage maintains a sell due to relatively low returns on lending business (sub-15 per cent ROEs) and dependence on broking, trading (50 per cent of fees). The stock is trading at 1.5x FY10 estimated price-to-book value.
Bharat Heavy Electricals
Reco price: Rs 1,701
Current market price: Rs 1706.2
Target price: NA
Brokerage: Edelweiss Securities
Bharat Heavy Electricals’ (BHEL) order accretion for FY10 is likely to be at Rs 50,000 crore. BHEL’s order backlog at the end of Q4 FY09 is Rs 1.17 lakh crore, of which 70 per cent is for the boiler-turbine generator (BTG) while the remaining is for EPC orders. Order accretion for FY09 was at Rs 59,600 crore, with the power segment contributing 79 per cent, industrial segment 16 per cent and international business segment 5 per cent. According to the management, issues related to execution have eased after Q3 FY09 and in the absence of any significant policy or economic disruptions; it could improve further in FY10E. However, the company has signed a MoU with the Ministry of Power, wherein the target for gross revenues has been set at Rs 31,000-32,000 crore which is lower than estimates.
For FY10E, the brokerage factors an improvement of around 350 bps in EBITDA margin and gross revenue estimate at around 5 per cent higher than the management guidance. An improvement in margins due to lower input cost is likely to play out only in the second half of FY10. The stock is currently trading at P/E of 19.9x and 15.2x its FY10 and FY11 estimated earnings respectively. Maintain accumulate.
Current market price as on May 7, 2009
