Research Calls: Jindal Drilling and Industries

Emkay (private client research) recommends a "Buy" on Jindal Drilling and Industries atRs 535 with a target price of Rs 786.

Jindal Drilling provides offshore drilling services by operating three leased rigs for ONGC, HARDY E&P, Reliance and Premium Drilling USA. It is expected to be one of the biggest beneficiaries among the domestic offshore drilling players, thanks to its strong engineering skill base.

Further the restructuring of the company by merging two subsidiaries in FY06A with itself has also brought rich experience in the offshore drilling business.

Emkay expects the net profit of the company to grow at a CAGR of 63 per cent for a period FY06A-FY09E coming off a 53 per cent CAGR topline during the same period.

Moreover the company is also expected to report a healthy ROCE and RONW of 34 per cent and 37 per cent respectively for FY08E. The company trades at a EV/EBITDA of 11 times and 8 times for FY08 and FY09 estimated earnings with the corresponding price to cash earnings of 9 times and 7 times.

Asian Electronics

BRICS PCG recommends a "Hold" on Asian Electronics at Rs 557 with a target of Rs 588. The stock trades at 12.1 times and 8.8 times estimated FY07 and FY08 earnings.

Asian Electronics is involved in design and manufacturing of energy efficient products, specializing in lighting solutions. The products offered encompass the domestic, corporate, industrial, down lighting, floodlighting, landscaping segments as also the arena for special applications as in Clean Rooms in the pharmaceutical industry.

Asian Electronics' December 2006 results have been largely in line with expectations. While revenues grew 71.4 per cent quarter on quarter (q-o-q) and 119.4 per cent year on year (y-o-y), with a significant jump in inflows from government customers and assets given out on operating lease operating profit margins dropped 160 basis points q-o-q due to higher expansion on leased asset maintenance.

But the fall was mitigated by a considerable 460 basis point increase in margins for the lighting segment. However net profit grew 93 per cent qoq and 183 per cent yoy to Rs 19.45 crore. BRICS has increased its net profit estimates marginally by 7 per cent to Rs 57.28 crore for FY07 while maintaining its revenue projections.

Union Bank of India

India Infoline recommends a "Buy" on Union Bank of India at Rs 112, at a target price of Rs 150, an upside potential of 34 per cent. This is because of the expectation that the bank will improve its margins over the next few quarters.

The bank has a share of current and savings accounts (CASA) deposits at 34 per cent as against about 40 to 42 per cent CASA deposits held by the top three PSU banks. The loan growth too has been lower at 26.5 per cent against the industry average of around 30 per cent.

However, on the brighter side, the gross as well as net non performing assets (NPAs) fell by Rs 1000 crore to Rs 19,000 crore and Rs 6,400 crore respectively, sequentially over the second quarter of FY07.

Furthermore, the bank has made cash recoveries of Rs 5,700 crore in the first nine months of FY07, of which Rs 2,000 crore were recovered in the third quarter. The stock currently trades at 1.1 times, 1.0 times and 0.8 times its estimated FY07, FY08 and FY09 book value respectively.

Petronet LNG

ASK Raymond James recommends a "Buy" on Petronet LNG at Rs 54, with a target price of Rs 70. Petronet LNG has posted a 53 per cent year on year rise in revenues at Rs 15,800 crore and a 72 per cent rise in net profit at Rs 8500 crore in December 2006 quarter.

The spike earnings was caused by higher than expected volumes arriving from Qatar and four spot cargos. ASK RJ expects the volumes to remain high over the next four to five quarters. This leads to an expected revenue growth at 25 per cent CAGR in revenues and at 33 per cent CAGR in net profit during the period FY06-FY09E.

Add to this, the volumes are expected to grow three folds by FY10, riding on the back of evolving gas markets in India, and the low risk business model followed by the company. The stock tardes at 14 times, 11.7 times and 11 times its estimated FY07, FY08 and FY09 earnings, respectively.

State Bank of India

Angel Broking recommends a "Buy" on State Bank of India at a price of Rs 1173 with a target price of Rs 1370. SBI reported a healthy growth in core earnings in Q3 FY07 on the back of improved net interest margins, coupled with a robust growth in business. The bank's interest on advances grew 37.4 per cent y-o-y to Rs 6414 crore.

However, due to decline in treasury income by 16 per cent y-o-y and an exceptional income pertaining to income tax refund received last year, net interest income declined by 6.4 per cent YoY to Rs 3951 crore.

Declining operating cost helped the bank to improve its cost to income ratio to 50 per cent. Consequently, operating profit of the bank grew 156 per cent y-o-y to Rs 2855 crore (excluding exceptional income).

SBI and its associates continue to be thelargest bank with a market share of 26 per cent of the aggregate bank credit in the country. Future growth prospects make Angel maintain its positive outlook. At Rs 1173, the stock trades at 8.4 times and 7.3 times estimated FY08 and FY09 earnings.