Thursday, March 31, 2011


Met SBI: asset quality comfort high; limited risks to margins
We recently met with SBI. According to SBI, asset quality should improve and will see higher recoveries going ahead. We are still estimating for ~Rs150bn of fresh slippages (gross) in FY12 vs. estimated +Rs165bn in FY11. Moreover, SBI indicated that it will likely maintain its +3.4% margins (as on 9MFY11) for FY11, although could see qoq decline by +10-12bps from +3.6% in 3QFY11. SBI also believes that upside to rate is limited to +50-75bps from hereon. Further, SBI is
guiding for +19-20% loan growth in FY12 driven by infra. SME and mortgage.

Pension hit: ~Rs90bn, but earnings can still grow at +32%
SBI’s additional pension liability could rise to Rs90bn (vs. Rs65bn factored-in our est.), but SBI may likely amortize over 5 years. This implies an additional hit of ~Rs5bn/year. However, earnings even after factoring in the additional pension hit could still grow +32-33% earnings growth in FY12E-13E.

To read the full report: SBI

>Texmaco Rail & Engineering Limited (TREL)

 TREL now houses core engineering business of erstwhile Texmaco Limited, viz., Heavy Engineering (comprising Rolling Stock for Railways, Hydro-Mechanical Equipment, Steel Structural, Agriculture Machinery) and Steel Foundry. Company is strategically well placed to take advantage of high growth taking place in the user segments of these businesses.

 Company’s Rolling Stock division (81% of sales in 9 months FY 2011) manufactures general purpose & commodity specific special wagons catering to Indian Railways (IR) and other private players like CONCOR, NTPC, etc, and thus serves core sectors such as cement, coal, alumina, steel, oil, chemicals, fertilizers, container freight cars, etc

To read the full report: TREL

>AXIS BANK: Strong near term outlook but reducing TP due to high presence in risky segments

The management continues to guide for a credit growth of 1.3x the industry growth rate in the medium term. While the bank’s reported NIMs would come off from 3.8% in Q3FY11, compression of NIMs is likely to be restricted to ~20bps. Fee income growth would likely be in line with asset growth, as the impact of changes in the accounting policy on commissions is already in the base. Asset quality is likely to improve further in the near term, as slippages from restructured assets are expected to decline. Lower loan loss provisions are likely to boost earnings in the coming quarters. However, in the medium term, higher exposure to infrastructure and power sectors remains a concern, as higher losses in SEBs and execution risks in upcoming projects could weigh on valuations. Hence, we are maintaining our estimates and BUY rating on the stock but lowering our valuation multiple to 16x FY12E EPS and 3.1x FY12E BV. Our target price thus stands revised to Rs 1,675 (from Rs 1,800 earlier).

To read the full report: AXIS BANK

Monday, March 28, 2011


India is one of the oldest stock markets in the world with a strong presence of domestic and local intermediation. Stock markets in India surged over a decade on back of a wide range of economic reforms, liberalization of financial markets buoyed by greater freedom and flixibility. These changes resulted in dramatic growth of the stock markets in India as well as the equity broking firms. The broking industry is emerging as a rapidly growing segment in Indian finance, in terms of business growth, distribution & network and enterprises.

To read the full report: BREAKING INTO BROKING

>FINANCIALS: Profitability of banking sector's over FY 12 and FY 13

Loan growth of -20% operating leverage and fall in credit cost will drive banking sector's profitability over FY12 and FY13

To read the full report: INDIAN FINANCIALS

>UNITECH: What's the land value? At least Rs 62/share, in our view.

In calculating the land value, we have re-valued just two large
parcels in the company’ portfolio, viz. 1) 900 acres of high value land
parcels along the company’s traditional stronghold of Sohna Road,
Gurgaon region. (Land transactions at Rs 35-100MM/Acre vs. Book
value Rs 15MM/Acre) and 2) Noida land holdings especially on its 350
acre parcel in Noida (Grande). This is a prime piece of land, 20 minutes
away from South Delhi, but where monetization has remained slow.
Transaction rates around this parcel have ranged from Rs130-
200MM/Acre (Book value Rs 49MM/Acre).

Liquidity is not really a issue with the company having pre-sold
approx. Rs 95B of property over the last two years (FY10/11). We
estimate UT has yet to receive Rs 30B cash flows from these (net of
construction/taxes). This coupled with its annuities of Rs2B should cover
large part of its repayments, implying no stress in the business.

Earnings ramp up will be the key trigger- UT’s bookings run rate over
the last two years has been at Rs10-12B per Q. However, revenue
recognition from RE continues to lag at Rs5.5B per Q. As FY11/12
projects contribute to revenues progressively over FY12E, we forecast
earnings ramp up can be meaningfully high (JPM FY12E +90% Y/Y).

Upgrade to OW, Mar-12 TP Rs 60/share, based on 10x FCFE and in
line with current land value estimate. The upgrade is primarily due to the
removal of discount on FV given issues on telco (25% previously).
While there is still no clarity on it, newsflow on the same has started to

To read the full report: UNITECH LIMITED