More: About Us | Feedback | Privacy


Reduce Siemens India - Kotak

Friday, November 28, 2008

The software subsidiary Siemens Information Systems Ltd - SISL, which had an extraordinary loss and increase in tax liability has impacted the results of Siemens India. The management clearly indicated that Energy, Industry and Healthcare are the focus areas for Siemens India Ltd. Siemens management further indicated that the worst of the project-related losses are behind us so far as Torrent Power project is concerned.

SISL was reoriented in a new form as Siemens IT services (SIS) and it has become a prime offshore development centre for SIS globally. SISL reportd revenues of 9943 mn and a net prodit of 339 mn. Margins were impacted by rupee appreciation. During the year, there was a change in business model which affected profitability. Further there were higher tax charges as more revenue came under tax liability.

It appears that likelihood of transfer of infotech business (SISL) to parent cannot be ruled out in the future. But we sincerely hope that the Management does it at some cost and cash be transferred to Siemens India, one of the old established players in the Software industry.

Siemens is trading at 11.4x and 10.4x FY09 and FY10 earnings respectively. In view of the changes made, Siemens can be REDUCED from portfolio as the target price stands revised to Rs 260 from Rs 340.

Update:
Minutes ago, JP Morgan has come out with an UNDERWEIGHT rating on Siemens India and has set a new price target of Rs 190.
Read the full article

Published by Webmaster @ 1:30 PM IST. ,

HDFC + HDFC Bank Reverse Merger - Insight

Tuesday, November 25, 2008

There has been a whisper doing the rounds for quite some time now that HDFC will go for a reverse merger with its child - HDFC Bank. However, the time seems to be right if RBI meets some relaxations sought by HDFC.

HDFC has always taken a stand that a merger with their banking associate, HDFC Bank, would make sense only if reserve requirements (Statutory Liquidity Ratio and Cash Reserve Ratio) were lower or/and if they were granted some exemptions/flexibility in meeting these requirements.

In the current economic environment, where regulators globally are encouraging NBFCs to convert into banks, the possibility that RBI will grant some leeway on compliance with reserve requirements cannot be ruled out.

Rationale for Merger:
The merger would complement each of the business needs. HDFC Bank won't be just a balance sheet merger, but will lead to many synergies for the group,
  • For mortgage financing business it would help to improve the funding costs leveraging HDFC Bank's strong deposit franchise.
  • For the bank it would provide it with the much needed capital and a high RoE business which will allow the bank to grow its other businesses without a need for further dilution.
  • Net-worth of the merged entity (~ Rs285 bn-FY09CL) would significantly enhance its ability to take big ticket exposures. 4. Economies of scope - a large product suite would increase the cross selling potential.
  • Will allow HDFC Bank to offer a complete product suite, and will put to rest shareholder concerns on mortgage product, transfer pricing.
  • Optimal use of Infrastructure from branches to IT networks etc.

The merger ratio of HDFC into HDFC Bank is more likely to be in favor of HDFC shareholders given the embedded value of HDFC's non-banking financial services business, especially life insurance and asset management. Some speculate that it could be in the region of 1.8 shares of HDFC Bank for every 1 HDFC share.
Read the full article

Published by Sunil K @ 11:39 PM IST. ,

Fortis Healthcare - Turning Around for Healthy Bottomline

Fortis Healthcare has been able to operationally turnaround its largest hospital - Escorts Heart Institute and Surgery Hospital. The management is now focused on steering other newer group hospitals to a steady state performance. Escorts acquisition also helped the management gain the required experience and they are now focused on smaller-scale acquisitions with a bed size of
around 100-150 beds, which in our view is a better strategy.

Two of the company's projects at Shalimar Bagh and Gurgaon are on schedule and the company is not facing any liquidity or cash crunch. Management expects phase I to be commissioned on schedule in mid-2009 for Gurgaon (250 beds in phase I) and in 2010 for Shalimar Bagh (350 beds in phase II).

Expect Fortis to generate positive earnings for the first time ever in FY09E and improve further in the next two years. The company was loss-making till last year and we expect it to be profitable for the first time this year.

Fortis is expected to report an EPS of Rs 1.5 for FY09 and Rs 3.0 for FY10 according to Goldman Sachs report. Further, Goldman has upgraded the stock from neutral to BUY with a DCF based target of Rs 110.
Read the full article

Published by Webmaster @ 11:54 AM IST. ,

MIC Electronics - Review

Monday, November 24, 2008

MIC Electronics is the only listed / organized player in the LED segment with capabilities in multi color display boards and LED based lighting solutions. MIC has competencies in the design, development and manufacture of LED Video Displays, high-end Electronic and Telecommunication equipment and development of Telecom software since 1988. The company is a technology driven design-to-manufacture player with an early mover advantage and an established clientele. MIC offers a cost effective means of communicating with a longer shelf life than the traditional means of advertising through billboards.

A healthy Rs.200cr order is in the pipeline (likely by Dec 08) that includes coach lighting, emergency lighting, LED indicators in long-distance trains, etc. Initiatives to enter into home lighting business, which is albeit at a very nascent growth stage in India.Enjoys a long-term relationship with NICHIA of Japan for sourcing of LEDs - resulting in an assured LED supply - looking at backward integration plant in India.

Expect MIC to grow at a CAGR of ~ 35% over the next 2 years. LED segment, currently accounting for nearly 69% of the revenues would be the key growth driver. At the current market price of Rs 35, the scrip is quoting at 4.20x FY09e earnings of Rs.8.33 per share and 3.08x FY10e earnings of Rs.11.39 per share.

MIC Electronics had an IPO in May-2007. Since then the stock has dropped below its issue price. Investors with appetite for Risk in Small Caps can BUY the stock which can double from current levels.
Read the full article

Published by Webmaster @ 2:30 PM IST. ,

Astra Microwave Products - Review

Friday, November 21, 2008

Astra Microwave Products - AMPL designs, develops and manufactures components and sub-systems for microwave wireless communications systems used in defense, space, and civilian telecom applications. Around 60% of revenues accrue from Defense, 30% from Space and the balance from Telecom. AMPL has 4 state of the art manufacturing facilities. AMPL is expected to be a key supplier of sub-systems for all of India's future missile/radar/electronic warfare development programs.

Defence: With a proven track record and expertise in making critical sub-systems for missile, electronic warfare and radar applications, AMPL would be a big beneficiary of the "Offset Program". Some deals are already under negotiation for export orders. AMPL is working on the R&D of other radars for specific needs of DRDO labs. Successful induction of any of these radars would provide a significant upside to revenues and with high margins.

Space: Developed products for space applications to be used by organizations like ISRO, IMD and others. Working closely with ISRO on the Radar Imaging Satellite (RISAT) which is likely to be launched in 2009

Telecom:AMPL has been working on a few products which are in various stages of approval. These products are in the categories of amplifiers, boosters, repeaters and jammers

AMPL is a small company with a market cap of Rs 25 crore. It is expected to report an EPS of Rs 3.78 and Rs 5.9 for FY09 and FY10 respectively.
Read the full article

Published by Komal M @ 4:05 PM IST. ,

Everonn System - Virtual Education Boosting Bottomline

Thursday, November 20, 2008

Everonn's Q2FY09 standalone revenues jumped 49% YoY felled by its ViTELS segment [Virtual Technology Enabled learning Solutions] where the revenues went up by 178.2% YoY (61% of revenue) to 208.8 mn. The company added 156 schools and 123 colleges in this segment. On the other hand, ICT segment saw a revenue degrowth of 15% YoY (39% of revenues) to 130.8 mn. The company added just 80 schools under ICT in Q2FY09. Company also had LoIs from HP and Maharashtra schools.

The operating margins improved by 290 bps YoY to 35.2% in Q2FY09, due to increasing contribution of high margin ViTELS segment to overall profitability. ViTELS with PBT margin 40.6% contributed 71% of PBT in Q2FY09, while ICT with 26% PBT margin contributed 29% of PBT.

At the CMP of 220, the stock is trading at a P/E of 16.6x and 9.7x on our estimated EPS of Rs13.2 and Rs22.6 for FY09 and FY10 respectively. Everonn to record revenue CAGR of 63.3% and PAT CAGR of 61.5% over FY08 to FY10E, making it the second fastest growing company under our coverage.
FIIs have increased their stake in Educomp Solutions - a company operating in the same area.

Note: Company made a preferential issue at Rs720 per share for 0.36 mn warrants convertible into equity shares. The amount relating to equity shares, only 10% of the warrant money (Rs 23.5 mn) has been received as on date. Due to poor market conditions, converting warrants will be a concern.
Read the full article

Published by Webmaster @ 1:00 PM IST. ,

United Phosphorus - Low Exposure to likely agri downturn

Wednesday, November 19, 2008

United Phosphorus has a steady earnings profile, Unlike fertilizers, agri chem is relatively well positioned to withstand the agriculture down cycle. Demand for agri chem is less elastic to economic cycles. Industry is consolidated with strong entry barriers and Benefits of Cerexagri integration would start reflecting from FY2010E.

3QFY09 results giving the street confidence in the ability of the company to deliver organic growth by sweating its assets and demonstration of improvement in margins through successful integration with Cerexagri.

United Phosphorous is expected to report an EPS of Rs 10.21 for FY09 and Rs 12.17 for FY10. Goldman Sachs reiterate Buy on United Phosphorus (Uphos) with a new 12-month price target of Rs 120 (earlier Rs 220) implying potential upside of 33% from the current level. The stock is currently trading at 7.4x FY10E P/E against its historical trading band of 12x-14x (since 2004)
Read the full article

Published by Sunil K @ 2:33 PM IST. ,

Realty Stocks decay like Radio Active Material

Tuesday, November 18, 2008

The Indian Realty Stocks have been decaying like a Radio Active material where they halve again and again. Will it ever stop ? We conducted a research and over the last 10 months most have been decayed by 3 halves - x becomes x/2 and then x/4 and then x/8. Here is the complete list of Real Estate losers.

Name of the Company - 52 Week High and Current Price [Also its 52 week Low]

Anant Raj - Rs 395 - Rs 46
Ansal Infra - Rs 470 - Rs 38.85
Bombay Dyeing - Rs 1,065 - Rs 196
Brigade Enterprises - Rs 428 - Rs 46.10
DLF - Rs 1,225 - Rs 232
HDIL - Rs 1,120 - Rs 112.10
IndiaBulls Realty - Rs 847 - Rs 101
IVR Prime - Rs 480 - Rs 39
Jai Corp - Rs 1,450 - Rs 94
Mah life - Rs 907 - Rs 168
Mundra - Rs 1,324 - Rs 328
Omaxe - Rs 613 - Rs 54
Orbit - Rs 1,080 - Rs 65
Parsvnath - Rs 598 - Rs 41
Peninsula - Rs 167 - Rs 21
Purva - Rs 520 - Rs 48.50
Sobha - Rs 1,041 - Rs 91.70
Unitech - Rs 546 - Rs 42.75

In a related move , DLF is getting out of its SEZ project and the Government of Karnataka has started an investigation into Mukesh Ambani / Gandhi's backed SKIL's - Sea King Infrastructure Ltd Nandgudi SEZ in Bengaluru / Bangalore.

Read the full article

Published by Komal M @ 1:37 AM IST. ,

Underweight on IT Services + Earnings to Drop in FY10 - Anand Rathi

Monday, November 17, 2008

The risk of IT demand growth falling to 2001-02 levels is increasing. Gartner models worst case scenario of demand decline in 2009. The BFSI segment accounts for 23.5% of global IT services demand. The current credit crunch is squeezing this segment. We expect this to impact demand adversely. Around 55% of Indian IT companies' revenues come from the US. IT service providers would have to work harder in conveying cost reduction and/or deliver at predictable costs. Competition on price is likely to turn severe in IT management services.

Expect financial services companies to reduce their IT spends. However, the impact would be modest since some expenses are necessary to keep businesses running. Moreover, crisis scenarios present new opportunities either due to the changing business environment or due to new regulations/ government structures.

End of Tax Incentives:
100% deduction for ten years in profits from IT/ITES exports. This window is available up to 31 Mar '10. US$ revenues for IT large caps have been growing slower since Dec '07. Indian IT stocks (proxy used CNXIT Index) have, not surprisingly, reacted negatively in the same time frame.

Infosys Technologies:
Infosys unfortunately has a combination of both problematic BFSI (34.5% of TTM revenue) and North America (61.7% of TTM revenue). This potent mix would act as a revenue dampener. Infosys is expected to report an EPS of Rs 105 for FY09 and is expected to fall to Rs 95 in FY10.

TCS:
TCS added 124 clients (net) in FY08 (vs 32 clients in FY07). The number of active clients stands at 920. Strong delivery capabilities helped it receive a Rs10bn government contract. Management has indicated a strong order pipeline. TCS expects to earn an EPS of Rs 60.7 for FY)9 and then drop to Rs 55 in FY10.

Wipro:
The company is the top player in India centric IT operations. Wipro is steadily progressing towards higher fixed-price projects (up 100bps qoq, to 31.6% in
2Q) making it successful in non-linear initiatives. It is being helped by higher utilisation, changing client mix and price increases. Wipro's EPS is expected to be Rs 26.1 for FY09 and Rs 23.4 for FY10 respectively.

Satyam Computers:
BFSI contributed 21.5% of TTM revenue. Among peers, Satyam has a better vertical mix, including manufacturing, retail, etc. Also, its non-BFSI revenue is concentrated on enterprise solutions, placing Satyam in the driver's seat to ride the present uncertainty. Satyam is expected to report an EPS Of Rs 38.2 and Rs 34 for FY09 and FY10 respectively.

HCL Technologies:
HCL Tech's 1QFY09 was its eighth consecutive quarter of revenue deceleration, crawling at 0.1% sequentially to US$505m. All its three businesses, core software, infrastructure management and BPO, slowed. EPS for FY09 is expected to be Rs 23 and then take a sharp drop to Rs 17 in FY10.

Tech Mahindra:
Tech Mahindra is the largest Indian IT services player in the telecom service provider space. Given its strong relationships with the likes of BT (which owns 31%) and AT&T, Tech Mahindra would benefit from their spend. EPS is expected to be Rs 91 for FY09 and is likely to drop to Rs 83 in FY10.

Read the full article

Published by Webmaster @ 1:32 PM IST. ,

HDFC downgrades Bajaj Hindustan

Friday, November 14, 2008

HDFC Sec has downgraded Bajaj Hindustan to "Market performer" with a negative bias from BUY rating as the company is likely to be adversely impacted by higher debt and sugar cane costs. UP government has declared cane price (SAP) of Rs 1,400 per tonne for 2008-2009 (Oct-Sep) crushing season against Rs 1,100 per tonne paid by the companies for the last season. Sugar Mill owners have challenged the order in the High Court. Meanwhile, Bajaj Hindustan has agreed to pay Rs 1,400 per tonne for 08-09 crushing season to the farmers and not delay their operations till the court issues directives on this matter.

According to revised cane pricing assumptions there is a significant earnings downgrade for the company of 50% and 32% for CY09E and CY10E respectively. For every 5% change in cane prices, EPS changes inversely by 51%. It was also expected that government would give incentives to sugar mills after two years of the downturn faced by them which did not happen.

At the current market price of Rs. 49.4, the stock is trading 14.39X CY09E at an EPS of Rs. 3.43. HDFC Sec expects FY10 EPS of Bajaj Hindustan to be Rs 11.9, a jump of 200%. Can they achieve it ?
Read the full article

Published by Sunil K @ 2:03 PM IST. ,

DLF No Bottom Yet - SELL

Wednesday, November 12, 2008

In a report released by Reliance Equities, the company has recommended a SELL on the stock of India's largest Realtor DLF which has stalled work on its Gurgaon's Mall of India [Largest Mall]

The main trigers for the recommendation are - Volumes will disappoint in the immediate period. Rising receivables during the better part of the cycle (again to result in lower volumes). Commercial property sale to slow post DLF Assets (DAL) transaction.

DLF has planned average delivery of 50m sq. ft. annually through FY09-FY18E. It has booked sales of 36.6m sq. ft. in FY08-1H FY09, while delivery stood at 14.2m sq. ft. The difference between delivery and sales is due to the Percentage Completion of Contract Method. Delivering 50m sq. ft. annually (even with its focus on the mid-income housing segment) will be difficult, in our view.

DLF had total sales of Rs 221 billion in FY08–1H FY09. Receivables currently stand at Rs 97 billion. Thus, effectively 44% of sales during this the period are yet to be received.

DLF has an NAV of Rs 220/share and Reliance Equities has set a target price of Rs 176 on the stock.

Read the full article

Published by Webmaster @ 1:53 PM IST. ,

Everest Kanto Cylinder + Nitin Fire Protection - Review

Monday, November 10, 2008

The Growth in CNG cylinders' usage will continue to be robust for the next few years despite the recent fall in crude oil prices as developing economies which account for bulk of the demand rely heavily on imported sources of energy, hydrocarbon supply over the next 5-10 years will not match demand and CNG is definitely economical.

Everest Kanto Cylinder - EKC continues to hold more than 75% market share in the Indian CNG cylinder market and about 10% globally. Lower steel prices (about 50% of raw material costs) will largely cushion a moderate fall in realizations—we forecast 44% EPS CAGR over the next two years.

Revised EPS estimates suggest EKC will report an EPS of Rs 16 and Rs 21 for FY09 and FY10 respectively.

Nitin Fire Protection:
Nitin Fire continues to ramp up its cylinder manufacturing operations at the Vizag SEZ. We expect capacity at the plant to double to 500,000/year by 1QFY2010E and foresee utilization levels improving from about 51% in FY2009E to about 60% in FY2011E. Lower steel prices will also benefit Nitin Fire.

Nitin Fire is expected to report an EPS of Rs 27,5 and Rs 31.8 for FY09 and FY10 respectively. Stock has potential upside of 25%.
Read the full article

Published by Webmaster @ 2:55 PM IST. ,

IVRCL + Lanco Infratech - Review

Friday, November 07, 2008

IVRCL's Q2 FY09 Recurring PAT at Rs354mn was 36% ahead of our estimates primarily led by 34% better than expected sales; alleviating our concerns on the possibility of execution delays even as the operating environment is difficult. After including the impact of a) Rs160mn dividend received from its 62.3% listed real estate subsidiary, IVR Prime b) forex loss of Rs30mn on its outstanding FCCB and c) full tax rate at 34%, reported PAT at Rs571mn was up 57% YoY.

Current orderbook is Rs140bn. The company expects another Rs15-20bn of orders shortly as they have emerged as the lowest bidders on the same. ~65%-70% of orderbook is from the water segment. Water projects from the AP government form ~30%-40% of the water projects orderbacklog.

Management has guided Revenue growth of 35%-40% CAGR for next 2 years, EBITDA margins in the range of 9.5%-9.9%, Interest cost for FY09E in the range of Rs1.25bn-1.3bn, Depreciation of ~Rs450mn.

IVRCL is expected to report an EPS between Rs 13.7 to Rs 14.5 for FY09.

Lanco Infratech:
Lanco reported Q2 FY09 consolidated revenues of Rs12.8 bn (up 113% YoY) and earnings after minority interest (excluding forex losses) of Rs516 mn (down 8% YoY). During the quarter, Lanco incurred foreign exchange translation losses of Rs259 mn, after adjusting for which earnings would have been Rs775 mn (up 38% YoY). Reported EBITDA margin was 15.5% during Q2 FY09 as against 19.4% in Q2 FY08, however, on adjustment of sales on account of power trading and on account of naptha, EBITDA margin in F2Q09 would be 25% vs 22% in Q2 FY08.

Lanco is facing concerns over the cash flow issues for its huge investment requirement in power. Lanco will remain negative free cash flow till 2011-12, by which time most of its projects get completed. Real estate venture which is facing a huge slowdown. The company recently announced plans to divest stake in the SEZ business of the Lanco Hills project. If outlook for real estate remains bleak, we could see further dilution.

Lanco is expected to report an EPS between Rs 21 to Rs 24 for FY09.
Read the full article

Published by Webmaster @ 12:14 AM IST. ,

Bharat Forge - Bitten by Slowdown Bug

Thursday, November 06, 2008

Bharat Forge's consolidated net profit, adjusted for forex losses and extraordinary items grew just 1.3% YoY and declined 15.7% QoQ at Rs 729mn, which was below expectations. Consolidated sales grew 28.8% at Rs 13.5bn, but EBITDA grew just 9.2% YoY and declined 5.2% QoQ at Rs 1.94bn. Margins declined 20bps YoY and 120bps QoQ at 14.4%. Disappointment came from both, domestic and subsidiary performances.

Expect company to revert to decelerating EBITDA and declining profits over the next year on slowing sales, contracting margins and higher fixed costs. Our estimates factor on-time commissioning of non-auto facilities, which is expected to partially offset slowdown in auto sales.

Domestic sales account for 50% of standalone operations, where its key customer segments are in the midst of a prolonged slowdown. Within exports, US contributes 47%, but down from a year ago, and Europe is the fastest growing geography (also ~47%). Commercial vehicle segment dominates both markets, estimated at ~60% of
respective sales.

Bharat Forge is expected to report an EPS of Rs 12.30 and Rs 11.17 for FY09 and FY10 respectively.

Read the full article

Published by Webmaster @ 2:44 AM IST. ,

Reliance Downgarded to Reduce by Kotak

Wednesday, November 05, 2008

In a somewhat bold move, Kotak Securitis Analysts have come forward and downgraded Reliance Industries Ltd to "REDUCE" from "ADD" due to earnings risk with cyclical downturn in chemical and refining turning out to be worse than expected. Adding to Ambani's woes is the sharp contraction in refining and chemical margins in recent weeks.

The report said that implosion in demand, reduced operating rates and ample supply as indicator of weaker-than expected commodity cycle. Further contraction in multiples of RIL's cyclical commodity businesses given increasing concerns about global GDP growth, which would determine the strength of global commodity prices and margins over the next two years.

According to Kotak's estimate RIL is expected to report a flat EPS of Rs 100. Based on the Sum of the parts valuation of Refining, Chemicals, Oil and Gas, Retailing and Investments, Kotak has a target price of Rs 1,325 on the stock.

Read the full article

Published by Webmaster @ 2:28 PM IST. ,

Nestle India - Growth Continues Amidst Inflationary Pressure

Tuesday, November 04, 2008

Nestle reported net sales, operating profit, and adjusted PAT growth of 22%, 8.5%, and 11.4%, respectively, which compares with our expectations of 20%, 18%, and 19% growth, respectively. Domestic FMCG growth was robust at 23% during the quarter. Nestle reported a 250bp decline in GPM due to a steep increase in prices of key commodities like milk solids, green coffee, vegetable fats, wheat flour, and sugar.

The calibrated price hikes taken by Nestle could only partially offset the cost pressures being faced by the entire FMCG industry. However, we continue to believe that Nestle is the best way to play the growth story in the packaged food industry in India, given its strong brand equity, differentiated products, wide global experience, and strong local knowledge.

Packaged foods in India is at an inflection point and is likely to deliver around 1,000bp growth ahead of disposable income growth for the next 10 years, driven by rising disposable income, changing consumer habits, and an evolving modern trade structure. Nestle is very well placed to capitalize on this growth potential.

Nestle is expected to report an EPS of Rs 70 for FY09.

Read the full article

Published by Webmaster @ 2:20 AM IST. ,

Sun Pharma + Ranbaxy

Monday, November 03, 2008

Sun Pharma reported Sales and PAT were up 76% and 135% respectively. While exclusivities were the primary driver of growth and margin expansion, we highlight that core biz appears to have done well too. We estimate exclusivity sales of cUS$68m in 2Q - assuming PBT margins of 85% on these sales, we estimate that recurring sales and PAT grew 32% and 31% respectively. Sun maintained its FY09 guidance.

Sun indicated that post the sharp erosion in market values of global generic companies, there appear several assets that could give a better return vis-a-vis Taro. Sun is comfortable on its risk with respect to the "at risk" Protonix launch and intends to continue sales till it reaches a
point where the risk gets higher.

According to Citi, Sun Pharma is expected to report an EPS of Rs 85 for FY09.

Ranbaxy Laboratories:
Ranbaxy' results were disappointing as the company reported 3QCY08 loss of Rs3.95bn versus our estimates of profit of Rs1.73bn mostly from forex loss.

The key one offs and forex related expenses were - Inventory write off related to US FDA import ban amounting to Rs2.4bn; Forex related to losses amounting to Rs3.1bn, and the other operating income reported loss of Rs2.8bn compared to Rs13.16bn income last year; One time $9mn or Rs450mn SGA expense.

Heavy Cash Balance: Post the preference issue to Daiichi Sankyo, Ranbaxy has a significant cash balance (Rs35bn or $700-750mn).

Read the full article

Published by Webmaster @ 11:40 AM IST. ,

SBI+ Bank of Baroda

Saturday, November 01, 2008

SBI reported 11% growth in its net profits to Rs23.8bn in 2Q2008.Operating revenue was up 27% and is marginally ahead of our expectations by 5%. Lower operating cost growth (up 9%) boosted PPOP growth to 55% yoy. The bank has provided Rs6.93bn as estimated liability with respect to wage revision, but details regarding the accounting for the same are not available. Provisioning for NPA has been higher than our expectations by 14%. We expect this trend to continue as provision coverage for the bank is low compared to the industry.

SBI showed aggressiveness as it continued to grow its business well above the sector average. Loan growth of 38% y-o-y and deposit growth of 28% at September-end defied signs of a slowdown. However, the timing of SBI's growth drive during the business downcycle may be less than ideal. This was reflected in loan loss provisions, which increased markedly in 2Q following a writeback in the preceding quarter. Because SBI's loan loss coverage ratio stands at a mere 47% at September-end, much lower than that of its peers BOB (at 77%) and PNB (at 75%), we believe risks due to rapid loan growth may not be adequately covered.

SBI's life insurance and asset management business has slowed down in-line with Indian markets. DSP ML expects SBI to report an EPS of Rs 122.50 for FY09. Goldman Sachs is expecting SBI to report an EPS of Rs 123.86 while HSBC expects SBI to report an EPS of Rs 117.

Bank of Baroda:
BOB reported net profit of INR3.95bn, up 21% y-o-y but lower than our estimates of INR4.1bn, owing to surge in provisions and contingencies. NII growth at 15.5% y-o-y regained momentum in Q2FY09, having grown at a modest pace in the preceding quarters. BOB continued to maintain loan growth (32% at September end) above the sector, average. Net interest margin was up c10bps q-o-q to 2.80% in Q2FY09 on the back of robust growth in low cost savings deposit.

Bank of Baroda (BOB) had an overseas investment book of INR38bn comprising c40% credit derivatives, c40% corporate bonds and c20% sovereign bonds. While this by itself wasn't a very sizeable exposure, accounting for just 10% of the total investment book at September end, BOB recorded MTM losses to the tune of cINR1.5bn on the overseas book in Q2FY09, up c350% q-o-q and constituting c60% of the total provisions and contingencies, which surged by 150% y-o-y as a result.

DSP Merill expects BOB to report an EPS OF Rs 39 while HSBC expects it to be Rs 42 for FY09.

Read the full article

Published by Webmaster @ 11:21 AM IST. ,