>PANTALOONS RETAIL LIMITED: De-merger to ease debt but also take away higher margin business…

Pantaloon Retail (PRIL) has announced its intent to de-merge its Pantaloon Retail format (including Pantaloon Retail and Pantaloon Factory Outlet). Aditya Birla Nuvo (ABNL) will invest | 800 crore by subscribing to debentures issued by PRIL, which will be converted into equity shares in the de-merged entity (on completion of the de-merger process). The existing shareholders of PRIL, including its promoters will continue to own shares in the de-merged entity. Also, PRIL will transfer its apportioned debt of | 800 crore to the de-merged entity. ABNL will also make an open offer for a minimum of 26% of the stake of the resulting entity. Post listing of the resulting entity and conversion of the debentures, ABNL will hold a 50% stake in the new entity. The Biyanis and the public will hold 25% each. According to a press release by ABNL, the proposed transaction will take eight to 10 months to be completed. Hence, we have not factored the impact of the same in our financials until further clarity on the issue emerges.


■ Deal appears to be P&L neutral for PRIL and a win-win for ABNL
According to our quick calculations, we believe the amount saved on interest outgo (due to lower debt) will be forgone in the operating profit loss due to the high margin apparel business being parted with. ABNL, on the other hand, will be able to leverage PRIL’s strong retail presence and also diverse product mix.


Valuation
PRIL has taken a considerable beating on the Street considering the mounting debt and inventory levels. While this deal seems to be P&L neutral, we believe the inventory days (that the company has been trying to reduce) will come down as the apparel business is a low churn business as compared to the food segment. However, we have not made any changes to our estimates as the deal will be completed over the next two to three quarters. Our numbers will be positively impacted by (a) relaxation of FDI norms and (b) stake sale in non-core segments. We continue to value PRIL at 0.6x FY13E EV/sales (based on 20% discount to Shoppers Stop) to arrive at a target price of | 173. Considering the reduction in debt, we have upgraded the stock from SELL to HOLD.

RISH TRADER

>ORIENTAL BANK OF COMMERCE: Q4FY12RESULT UPDATE

Dismal show on all counts…


The results were disappointing on all fronts including business growth, NIM and asset quality. Tax write-back of | 45.3 crore on account of MAT benefit and high w/offs provided some support to profitability. Even then, PAT was below estimates at | 264.9 crore (I-direct estimate: | 309.6 crore) with 20.6% YoY de-growth. Credit and deposit growth was subdued at 16.8% YoY and 12.2% YoY to | 111978 crore and | 155965 crore, respectively. Other income grew 14.6% YoY to | 343.8 crore led by strong growth in CEB fees of 21.9% YoY to | 219.3 crore. The C/I ratio was on the higher side at 46.6% in Q4FY12 (35.8% in Q4FY11) due to higher operating expense & subdued income growth. We are introducing FY14E with PAT of | 1711 crore, a CAGR of 22.4% over FY12-14E.


■ Slippages uptrend continues keeping provisions at elevated levels…
Fresh slippages in Q4FY12 were high at | 1317.4 crore compared to | 698.8 crore in Q3FY12. This caused net provision towards NPA to rise from | 100 crore in Q3FY12 to | 500 crore in Q4FY12. Even after enormous write-offs worth | 541.2 crore, GNPA increased by | 348.2 crore sequentially to | 3580.5 crore. The GNPA and NNPA ratio stood at 3.2% and 2.2%, respectively. Restructuring of Air India (| 1616 crore) and Rajasthan SEB (| 1873 crore) during Q4FY12 took place, thereby increasing the outstanding restructured assets by | 3424.3 crore to | 9510 crore, constituting 8.5% of the credit book.


■ Lacklustre NII growth hits profitability...
NII de-grew 6.3% QoQ to | 1068.1 crore (5.4% YoY growth) as yield on fund dipped 6 bps QoQ to 9.5% while cost of funds inched up 13 bps to 7.1%. NIM witnessed a dip of 22 bps to 2.7%. Interest income reversal of | 140 crore on account of slippages also added to the decline in NII.


Valuation
High slippages and provisioning will keep profitability under pressure. A couple of stressed SEBs including UP and Punjab may undergo restructuring, thereby leading to lower profitability impacting return ratios. We estimate return ratios at RoA of 0.8% and RoE of 12.6% in FY14E. OBC has a high AFS portfolio of 28.6% with modified duration of 4.2 years leading to MTM loss on account of G-sec volatility. Our Gordon growth model leads us to a multiple of 0.7x FY14E ABV providing a TP of | 255. We recommend a HOLD rating on the stock with a negative bias.

RISH TRADER

>ING Vysya Bank: Q4FY12 RESULT UPDATE

ING Vysya Bank reported a PAT of `1273.9 mn up 40% yoy and 7% qoq. Bottom-line stood in line with our expectations. NII came off by 1.4% qoq due to a 20 bps sequential deterioration in the NIM which was largely seasonal in nature. Provisions increased sequentially despite asset quality improvement as the bank used one off tax deductions to shore up its coverage ratio.


NIM compresses by 20 bps sequentially
ING Vysya Bank reported a NIM of 3.3% for Q4FY12, which was a sequential NIM compression of 20 bps. The NIM deterioration was largely seasonal in nature on account of priority sector lending and subscription to RIDF bonds which led to a 9 bps qoq decline in the yield on advances. In FY13, the NIM is likely to be in line with that of the previous year.


Strong loan book growth led by PSL lending
Advances grew by 22% yoy and 9.3% qoq. Sequential loan book growth was led by the agricultural and rural banking business which grew by 18% yoy on account of priority sector lending. On a yoy basis loan book growth was led by the business banking division. Going ahead the loan book will continue to grow ahead of the industry.


Non-interest grows on the back of growth in forex and core fee income growth
Non-interest income increased by 15.4% yoy and 15.8% qoq. The increase in other income was on account of a strong growth in forex and core fee income.


Asset quality improves sequentially
The asset quality of the bank improved sequentially with %GNPAs coming off by 8 bps qoq though up 4.6% qoq on an absolute basis. Slippages came of sequentially and stood at `600 mn or a slippage rate of 0.9%. The bank used the onetime tax benefits that accrued to it during the quarter to shore up its provision coverage ratio. Hence provisions increased by 69% qoq which led to a 569 bps improvement in the PCR to 90.7%. Due to higher provisions, NNPAs came off by 35% qoq and %NNPAs came off by 12 bps sequentially to 0.2%. The bank has managed to maintain its asset quality despite strong growth in its SME portfolio.


Restructured book at 1.4% of advances
The banks restructured book stood at 1.4% of advances which stood largely in line with that of the previous quarter.


Valuation and view
At the CMP of `355 the bank trades at 1.3x its FY13E ABV and 1.1x its FY14E ABV. At these valuations the bank trades below its long term one year forward P/ABV multiple. The bank is a strong re-rating candidate given its sound asset quality and improving cost to income ratios which will lead to an improvement in return ratios going ahead.

RISH TRADER

> The Competition Commission of India (CCI) has imposed a fine of INR2.52bn on United Phosphorus (UNTP) on account of charges of cartelization

The Competition Commission of India (CCI) has imposed a fine of INR2.52bn on United Phosphorus (UNTP) on account of charges of cartelization pertaining to collusive bidding to supply aluminium phosphide tablets to Food Corporation of India (FCI). UNTP has, however, denied these charges and decided to approach the Competition tribunal against this order. Moreover, UNTP’s management mentioned that this order of CCI pertains to a bidding done in 2009 for an order from FCI worth INR80mn (~0.34% of UNTP’s FY09 standalone revenue), against which the penalty levied is grossly disproportionate at 9% of past three years average sales of UNTP on standalone basis. We have ‘BUY’ recommendation on the stock.

CCI imposes INR2.52bn fine on UNTP for cartelisation

CCI has imposed a fine of INR2.52bn on UNTP, along with two other companies – Excel Crop Care (INR630mn) and Sandhya Organics (INR16mn). This is on account of charges of cartelization pertaining to collusive bidding to supply aluminium phosphide tablets (ALP; used for pest control of food grains) to FCI. CCI stated that these three companies, by acting together and quoting identical prices, have deprived FCI of competitive bid rates in procurement of ALP tablets. CCI has imposed the penalty on these three companies at a rate of 9% on average of past three years’ revenue. UNTP to approach the tribunal to challenge the order

The management of UNTP clarified two things:

A) It has denied the charges levied against it for cartelization for the bidding done to FCI and decided to appeal against the CCI’s order with Competition tribunal. B) While the CCI order pertains to a bidding of INR80mn worth order by UNTP, which forms a small proportion of the company’s standalone revenues, the fine levied on it is 9% of past three years standalone revenue, which is unfair.

Valuations: Currently, the stock is trading at P/E of 8.6x and 6.8x FY12E and FY13E, respectively. We have a ‘BUY’ recommendation with target price of INR177 at 10x. FY13E EPS.

RISH TRADER