Monday, November 3, 2008


Strong performance: IDFC’s consolidated earnings grew 19% YoY in 2QFY09 to Rs2.3b. Despite slower NII growth due to losses on treasury investments, sustained high capital gains and stronger traction in fees led to earnings growth.

1 Balance sheet grew 28% to Rs290b (QoQ flat), driven by 25% growth in loans to Rs214b (QoQ flat). Gross disbursements decreased 26% YoY and 30% QoQ to Rs19b in 2QFY09. Disbursements are down 7% YoY in
1HFY09 to Rs47b. Approvals decreased by 30% YoY to Rs29b in 2QFY09 and 12% YoY to Rs74b in 1HFY09.

2 Management maintained its conscious risk aversion attitude towards asset book growth considering the increasing macro risks and liquidity uncertainties. The management highlighted that its priorities would be (1) liquidity, (2) profitability, and (3) balance sheet growth. Non-interest income increased significantly by 72% YoY to Rs2.2b in
2QFY09 due to 60% growth in fees and 93% growth in capital gains. Asset management fees grew 4.6x to Rs600m in 2QFY09. We expect alternative asset management fees to grow 2.5x in FY09 to Rs1.42b.

3 IDFC’s capital adequacy is strong at 22.2% and Tier I at 18.9%. It said that it has no plans to raise capital in the foreseeable future. Management maintained that it would like to sustain leverage at current level of ~5x.
Upgrade to Buy: We are upgrading FY09 earnings estimates by 2% and cutting FY10 earnings estimates by 3%. The stock trades at 1.1x FY09E BV and 8.3x FY09E EPS and 1x FY10E BV and 6.9x FY10E EPS. The current valuations are attractive and offer favorable risk reward ratio. Upgrade to Buy with a target price of Rs76; an upside of 41%.

For full report IDFC(MOTILAL OSWAL)

>ICICI Bank (GS)

ICICI reported net profit of Rs10 bn, slightly ahead of Reuters consensus and 10% above our expectations. Improved cost-to-income ratio of 43%, NIM of 2.4% and CASA of 30% boosted the reported performance. Cautious lending caused a slowdown in loan growth to 7%, which was 4% lower than our estimate. Net NPA increased by 9 bp to 1.83%. 1HFY09 accounted for 46% of our full-year NPAT estimates. There was a significant slowdown in the life insurance business, which reported growth of only 4% yoy in NBP compared with consistent above-40% growth in the previous three quarters.
We expect slower loan growth in the short term till the market stabilizes
due to funding constraints as well as a sustained high level of credit costs, which will likely remain challenging. Deterioration in credit quality would likely cause the bank loan loss reserve ratio to rise going forward. In our view, improved productivity/efficiency in its operations, as well as targeted measures for cost control could partly offset these concerns. We believe that the life insurance business faces growth headwinds in the near term due to tougher capital market conditions. Given the recent sell-off, value appears to be emerging but the stock lacks catalysts, in our view. We note that monetizing strategic investments is likely going to be difficult given
the current market conditions.
At the current price, the stock appears to be largely pricing in downside to medium-term growth expectations, as the stock is trading at 0.71X FY09E P/B vs. 1.71X for its Indian bank peer group. Given the headwinds to revenue and profit from a material slowdown we anticipate in the short term, we are placing our estimates, target price and rating under review.

To read full Report ICICI Bank (GS)

>Great Offshore(Citi)

Buy: 2Q Affected by One-offs; New Target Price Rs403
Disappointing 2Q, marred by one-off low utilisation — 2Q standalone PAT of Rs169m (-66% yoy, -74% qoq) was well below estimates, driven primarily by 4 vessels (2 PSVs, 1 MSV, and the construction barge) not functioning at all during the quarter due to a combination of technical downtime, operational difficulties and surveys, combined with expenses related to repairs and dry docking of these vessels. The 3 OSVs have since been pressed back into service and will contribute to 3Q earnings, while the construction barge is likely to be operational by Dec. We view the 2Q performance as one-off and estimate
~Rs0.35-0.40bn of incremental revenues in 3Q .

Increasing revenue forecasts but lowering earnings — We have reduced our FY09-11E reported earnings by 12-15%, despite revenue and EBITDA estimates increasing by 2-10% and -1% to 7% respectively. While our revenue/EBITDA forecasts have risen due to a combination of (i) acquisition of the new AHTSV in Aug (US$47K day rate) and (ii) incorporation of new rupee forecasts, our earnings estimates have been decreased primarily to factor in higher funding cost (+200 bps) given tight credit conditions and higher debt to
finance the new vessel acquisition.

Maintain Buy on stable business profile, good earnings visibility — We maintain our Buy/Medium Risk rating on the stock with a revised TP of Rs403. Despite the earnings cuts and lower TP, we remain positive on the company at current valuations given a relatively stable business profile (nearly 75% of revenues are from ONGC) and good earnings visibility (avg. contract durations are 2-2.5 yrs) which make it less exposed to a cyclical downturn in the offshore capex cycle.

For full report Great Offshore(Citi)