HDFC Bank - Best of the lot, but not cheap
Monday, April 27, 2009
HDFC Bank reported 4QFY09 earnings and here is an update on the same:
NII increased c12.8% yoy, lower than our forecast due to slower loan growth and lower margins. NIMs declined 10bp sequentially to 4.2% in 4Q09 (4.4% in 4Q08), largely due to a decline in yield on loans but supported by a higher low cost deposits (CASA) ratio. Core fee income (+46% yoy) and treasury gains (cRs2.4bn) drove other income past our estimates.
Asset Quality:
Provision for NPLs was about 0.6% of loans in 4Q09 (1.7% in FY09). Asset quality in absolute terms was largely stable on a qoq basis. The provision coverage ratio was maintained at about 68% as of March 2009.Retail unsecured loans constitute about 30% of Gross NPLs. The total standard loans which have been restructured or where restructuring is under consideration is a mere 0.1% of gross loans as of March 2009.
HDFC Limited has the option to convert 26.2m of warrants into equity shares at Rs1,530 per share in FY10. HDFC Bank management stated that even if the warrants were not converted, the bank did not see the need to raise equity capital in the medium term to maintain the CAR and fund growth.
HDFC Bank is expected to report an EPS of Rs 68 for FY10 and Rs 78 for FY11.
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Published by Webmaster @ 8:15 AM IST.
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Book Profits in DLF + Unitech - Kotak
Monday, April 13, 2009
Real estate stocks have rallied rapidly over the past three weeks as new launch activity has picked up at 25-30% discount to prevalent prices. Good responses to some of these projects especially in Mumbai and Delhi have further contributed to this positive sentiment. However, despite the better launch activity in March, Kotak continues to observe large consensus downgrades in March.
Expect 4QFY09E to be extremely weak, with sales dropping 70% yoy and 16% qoq, driving 81% yoy and 39% qoq de-growth in profits.
Sharp reduction in commercial revenues, and new sales have to be significantly higher to maintain same contribution as selling prices are sharply lower. Improvement in financial performance thereafter will depend on sustained recovery in volumes.
Kotak Research believes real estate stocks should continue to trade at discount to Mar-10 based NAV's as uncertainty on pricing and volumes continues. As a result, we advise investors to reduce exposure to real estate stocks; especially DLF and Unitech post this sharp rally as we believe these stocks will offer better entry points.
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Published by Webmaster @ 9:44 AM IST.
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United Phosphorus Concerns Overdone - Citi
Thursday, April 09, 2009
Besides good results, management speak from global peers indicate that farm economics and demand are sound across markets, with the exception of some LatAm countries. The outlook for the next fiscal is strong in most cases and concurs with our positive view on UPL's business.
UPL has a steady B/S, with net D/E of 0.6x, low refinancing risk (most debt redeemable in 2011) and rising cash flows. As asset valuations come off, we believe UPL is one of the few players positioned to be an active participant in any industry consolidation.
UPL's valuations do not reflect its strong fundamentals due to overplayed concerns on industry growth and pricing prospects.
UPL is among the fastest growing and most profitable generics crop protection firms in the world. Its presence in regulated markets and low cost manufacturing base in India give it a competitive edge, while growing scale and cash flows provide the ability to seed growth. At 7xFY10E earnings, the stock appears very attractive in light of the 30% EPS CAGR (FY08-11E).
Citi has set a target price of Rs 180 on the stock.
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Published by Webmaster @ 6:40 PM IST.
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Hindalco + Sterlite + Sesa Goa - Revival Not Yet Visible
Wednesday, April 01, 2009
The aluminum and zinc prices may not be far off from their bottoms, but a pick up may be some time away. Medium-term earnings trajectories for stocks like Hindalco (UW), Nalco (EW), Sesa (EW), and Sterlite (EW) do not look that encouraging even though valuations look interesting, and balance sheets at Sterlite, Sesa, and Nalco are strong. Sterlite remains top pick in the space due to its multi dimensional growth story and strong balance sheet even though concerns about its restructuring plan and near-term earnings slump may cap the stock near term. On Hindalco, our concerns hover around Novelis profitability and its balance sheet.
Sterlite Industries:
Depressed metal prices and lack of near-term revival in demand should keep stock sentiment low, in our view. However, zinc division (contributed about 70% to Sterlite's EBITDA in F2008) may be coming close to an earnings bottom as zinc prices seem unlikely to decline much from here. EPS expectations for FY09 is Rs 47 and for FY10 it is very likely to dip to Rs 37.
Hindalco:
Compared to the previous down-cycle of F2000-03, we do not consider the valuations of the Indian nonferrous metals companies attractive. Hindalco may look attractive on P/BV valuation, but in the context of its sharply reduced ROE, the current P/BV looks on the higher side to us.
Due to expensive acquisition of Novelis, EPS will be subdued over the next 2 years. For FY09 it will be -Rs 2.4 and for FY10 it is expected to be -Rs 0.45. [Negative]
Nalco:
Aluminum and alumina prices remain subdued in the medium term. We expect a moderate recovery only in F2H10, spurred by some improvement in demand-supply balance.
Strong production growth of 16% in F2010e for alumina and 12% for aluminum, global cost leadership are the supporting factors for the stock. EPS for FY09 is expected to be Rs 19.7 and Rs 13.1 for FY10.
Sesa Goa:
Iron ore supply-demand dynamics are worsening as global steel production outages grow. We expect declines of 40% and 10% in contract ore prices for F2010 and F2011, respectively, capping the stock's movement, especially for a pure commodity stock like Sesa. Also, spot ore prices may fall a further 20-25% after the contract settlement given the faster fall in ore demand than in supply in China.
Earnings for FY09 will be Rs 24 / share and for FY10 it is likely to be Rs 16 / share.
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Published by Webmaster @ 1:10 PM IST.
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