State Bank of India
Reco price: Rs 1,325
Current market price: Rs 1,267
Target price: Rs 1,461
Upside: 15.3%
Brokerage: IDFC-SSKI
State Bank of India (SBI) reported a PAT growth of 46 per cent y-o-y to Rs 2,740 crore on the back of higher treasury gains, despite muted net interest income (NII) performance.
NII performance was muted (0.86 per cent y-o-y growth) at Rs 4,840 crore due to a sharp contraction in margins, and 465 bpd y-o-y deterioration in credit-deposit ratio to around 74 per cent. Advances grew at 30 per cent y-o-y. Calculated net interest margins declined steeply by 50 bps q-o-q and 40 bps y-o-y to 2.3 per cent.
Net NPAs have risen by 40 bps q-o-q to 1.76 per cent, resulting in coverage ratio declining to 38.7 per cent from about 48 per cent in Q3 FY09. Other income posted a stupendous rise of 67.5 per cent y-o-y on the back of higher growth in treasury income to Rs 1,500 crore (about 29 per cent of operating profit). Fee income posted a growth of 34 per cent y-o-y to Rs 3,000 crore led by robust credit offtake.
Increases in the operating expenses led to a deterioration in the cost-to-income ratio to 44.8 per cent as against 42.6 per cent in fourth quarter of FY08. NII and PAT are expected to grow at 14.3 per cent and 16.3 per cent, respectively in FY11. At Rs 1,461, the stock is trading at 1.1 times its estimated FY10 consolidated book.
Cairn India
Reco price: Rs 205
Current market price: Rs 195
Target price: Rs 220
Upside: 12.4%
Brokerage: Goldman Sachs Research
The research firm believes that there could be some negative headwinds in the run-up to commencement of oil production from Cairn's Rajasthan block that could impact the stock price in the near term. Besides, the near-term pullback in spot oil prices can also contribute to weakness in the stock.
The brokerage believes that commencement of oil production from Cairn's Rajasthan block could be from June rather than May. It has reduced the target price to Rs 220 per share (from Rs 232), with normalised Brent of $85 a barrel from 2013, implying 7 per cent upside. Cairn's 2009E-11 estimated EPS has been cut by 7-25 per cent, considering a 15 per cent discount to Brent and the higher cess. The impact on target price is also muted owing to the government sharing 50 per cent of the impact of lower oil realisation and cost recovery on oil cess. Maintain buy.
Hindustan Unilever
Reco price: Rs 232
Current market price: Rs 224
Target price: Rs 276
Upside: 23%
Brokerage: Citi Investment Research
Price cuts and grammage increases undertaken in January has not affected revenues or profits, as soaps and detergent revenues and profits rose 16 per cent and 43 per cent y-o-y respectively with an EBIT margin expansion of 320 bps y-o-y to 16.6 per cent. Margins have been buffered through excise reduction of 4 per cent. Personal care products revenues rose only 2 per cent y-o-y due to outlet consolidation in organised retail and a decline in oral care. Margins have also declined 112 bps y-o-y due to lower-than-expected volumes. Reported net revenue growth was affected by a sharp 45 per cent decline in exports (planned decline in non-core exports). The management has indicated that FMCG volumes declined around 4 per cent y-o-y in this quarter
HLL's PAT rose 20 per cent y-o-y to Rs 457 crore (ahead of expectations). EBITDA margins expanded 210 bps y-o-y to 14.8 per cent, in-line with a 200 bps y-o-y increase in gross margins. Better management of SGA and ad spends also enabled EBITDA to increase 23 per cent y-o-y.
Capital employed trends indicate that capital employed in operating segments have risen 32 per cent q-o-q, with the sharpest increases in soaps and detergents and beverages. At Rs 276, the stock trades at 23 times its estimated March 2010 earnings. Maintain buy.
Asian Paints
Reco price: Rs 897
Current market price: Rs 952
Target price: Rs 1,000
Upside: 5%
Brokerage: Kotak Securities
Sales of the paint major grew 26 per cent to Rs 1,100 crore which were above estimates as the company had likely gained market shares from other organised players. The increase of EBITDA and PAT by 17 per cent and 14 per cent to Rs 160 crore and Rs 100 crore were also ahead of estimates due to benefits of lower-priced inventory kicking in earlier than estimated and on stronger sales growth. The estimated 20 per cent plus volume growth was primarily led by buoyant demand from Tier-II and Tier-III cities and favourable product mix.
In FY09, the company continued to gain market share in South India which remains a major market for the company. Sales from international operations grew by 30 per cent in CY2008. West Asian market recorded robust sales growth of 46 per cent led by strong growth in Egypt, Bahrain & Emirates and Oman markets. South Asia registered 39 per cent sales growth followed by South East Asia at 19 per cent. The brokerage has revised EPS estimates for FY2010 and FY2011 of Rs 49.1 per share (Rs 44.3 previously) and Rs 57.5 per share (Rs 51.1 previously), respectively. At Rs 1,000, the stock trades at 19 times its FY2010 earnings. Maintain add.
Tata Steel
Reco price: Rs 270
Current market price: Rs 264
Target price: Rs 295
Upside: 11.5%
Brokerage: Macquarie Research
The low-cost Indian operations remain the key for earnings. Expect an EBIDTA per tonne of $217 and 14 per cent volume growth from the recently commissioned 1.8 million tonne per annum facility remains on track.
Tata Steel remains under pressure due to its European exposure through Corus. However, Corus is targeting a cost reduction to the tune of £1 billion in Q3 FY10. Tata Steel is looking at selling some of its non-core assets. Given the market conditions, there are media reports that Corus might sell a 75 per cent stake in its Teeside facility. Tata Steel's initiatives for coking coal in Mozambique and iron ore in Canada and South Africa are expected to start having an impact from FY11, when the production starts from these facilities.
The brokerage believes that Tata Steel represents a good long-term pick, but its European operation will take a while to recover. It has downgraded the stock to neutral from outperform while increasing the target price to Rs 295 from Rs 265. Based on the long-term average P/BV (adjusted for goodwill) of 1.1x, the target price has been raised.
Current market price as on May 14, 2009
