SAIL
Reco Price: Rs 203
Target Price: Rs 184
SAIL’s Ebitda for the first quarter of FY11 dropped 2 per cent y-o-y mainly due to a 17 per cent decline in sales volume to 2.32 million tonnes. Profit after tax (PAT) declined 12 per cent y-o-y on higher interest cost and lower treasury income.
Steel margins would be under pressure in the second quarter of FY11 due to sequential decline in steel prices amidst higher raw material cost. However, correction in raw material spot prices by 20-35 per cent since April would lead to lower contract prices for the third quarter. Aided by bottoming out of steel prices, should help improve operating margins from third quarter onwards.
Although SAIL’s exposure to infra-led domestic growth, strong balance sheet and significant resource integration do give some respite, volume disappointments cost & time-overrun on ongoing capacity and large employee cost have been reducing benefits. Maintain sell.
—Pinc Research
Corporation Bank
Reco Price: Rs 203
Target Price: Rs 184
Corporation Bank reported a higher-than-expected 28 per cent y-o-y growth in net profit to Rs 330 crore led by strong core income growth and lower operating expenses. Net interest income rose 49 per cent y-o-y driven by a 37 per cent y-o-y growth in credit and improvement in net interest margins (NIM). CASA ratio came back to 24 per cent (28 per cent in fourth quarter). Asset quality witnessed pressure as the absolute gross NPAs increased 12 per cent sequentially. Provisioning coverage (including technical write-off) stood at 77 per cent (81 per cent as on March 10).
Brokerage would strive to increase its CASA ratio to guard its margin in a rising interest rate regime. Maintain ‘outperformer’.
— Enam Research
MSP Steel & Power
Current market price: Rs 40
Fair value: Rs 44
MSP is expanding its sponge iron manufacturing capacity from 192,000 million tonnes (mt) to 423,000 mt. MSP has also been allotted iron ore mine in Chhattisgarh with expected reserves of 35 mt, expected to be operational by FY14. Crisil Equities expects MSP’s revenues to grow at a two-year CAGR of 73 per cent in FY12. Ebitda margins are estimated to improve over the next two years to 18.4 per cent. With increased capacity and margins, RoE could stand at 29.3 per cent in FY12. Even though earnings look promising, execution risks remain due to high debt and cyclical nature of the industry. Crisil Equities assigned fundamental grade of 2/5 indicating ‘moderate’ fundamentals relative to other listed equity securities in India.
—Crisil Equities
Areva T&D India
Reco Price: Rs 288
Target Price: Rs 218
Areva T&D India’s second quarter CY10 results were below estimates on account of delayed project executions and margin pressures. While revenues registered muted growth of 10 per cent y-o-y, Ebitda and PAT fell 24 per cent y-o-y and 36 per cent y-o-y, respectively.
Lower pricing due to increasing foreign competition coupled with delayed executions of major projects were observed recently.
Acquisition of Areva’s global T&D business by Alstom and Scheidner continues to play on the stock. Management is positive on this front and feels it will bring in additional technological and industrial expertise in the T&D business. On the T&D market, management cited concerns over pricing pressures and fears of increased competition from Chinese and Korean imports.
With several domestic and overseas players bidding aggressively, the company could be pressured on the margins front. Maintain sell.
—Angel Broking
