>BANK OF INDIA (DEUTSCHE BANK)

Analyst meeting takeaways

■ Consolidation and transition phase, maintain Hold
We believe that the long period of consistently high earnings growth for Bank of India is over. Loan growth is highly likely to moderate in the present sluggish environment, margins may remain under pressure even if they do not fall much, low-cost deposit ratio has failed to pick up for a long time and asset quality headwinds are increasing. An added element of uncertainty is an imminent CEO change in June’09. TP upside to the current price is also limited-Hold.

■ Admits to challenges but maintains a ~20% topline growth target for FY10
The management is targeting a 22% loan growth and 20% deposit growth for FY10. Though their medium term NIM target is 3%, they admit that there is pressure on spreads due to high cost of funds and yields dropping sharply. They believe that it could take still another two quarters for the high-cost deposits to run off. They also have the tough task of taking the low-cost deposit ratio (CASA) from 31% to 35% in FY10 – CASA had fallen in FY09 due to strong growth, high term deposit rates and an over-aggressive deposit mobilization campaign.

■ Asset quality headwinds visible; bank’s disclosures creditably transparent
BoI’s slippages have been rising both on a basic and lagged basis, and Q4FY09 NPL formation was high compared to historical trends. The bank provided the most succinct details on restructured assets that we have seen recently, and their classification norms are arguably conservative. However, the disclosures indicate significant stress: total restructured assets including pending applications 6.3% of loans, 98% of the restructuring bilateral instead of through the industry forum, and SMEs accounting for ~30% of the total restructuring.

■ Valuations and risks
We adopt a single-stage Gordon Growth model (P/BV-RoE) for valuing BoI, as we do for all PSU banks, leading to a rounded-off target price of INR250/share. Main downside risk includes sharp slowdown in international business and lower fee income growth. Key upside risk includes lower than expected wage revision and pension liabilities.

To see full report: BANK OF INDIA

>INDIA MACRO VIEW (CITI)

FY09 Industrial Production ends year on dismal note; down 2.3%YoY in March on back of Capital Goods contraction

■ Mar industrial production — Industrial production contracted by 2.3% in March, higher than our (+0.1%) as well as consensus expectations (-0.7%); largely due to a surprise contraction in capital goods (-8.2%yoy). On a MoM seasonally adjusted basis production was down 1.3%. Cumulatively, industrial growth during FY09 was 2.4% v/s 8.5% in FY08. Lower industrial numbers will likely result in a revision to the CSO’s 7.1% GDP estimate for FY09 (which incorporates value add industrial growth at 4.8%yoy). Looking ahead, we are maintaining our 5.5% growth estimate for FY10 which factors in an additional 50bps easing in policy rates.

■ Key data highlights— (1) Besides the contraction in capital goods; consumer goods also remained in negative territory for the second consecutive month down 0.8%, largely on the back of a fall in non-durables. This needs a close watch since production has declined despite stimulus measures undertaken by the govt over past months (2) intermediate goods saw a contraction for the 8th consecutive month; (3) manufacturing production posted an all-time low since the index was conceived; down 3.3%yoy (see p. 3 for detailed breakdown). (4) Encouragingly, electricity production provided some glimmer of hope, up 6.3%yoy from average growth of 2-3% over previous months.

■ Maintaining forecasts amid mixed macro data— With indicators such as real estate and trade remaining deep in the red; coupled with increasing uncertainty on the election outcome (results are due on May 16); we are currently maintaining our 5.5% GDP estimate for FY10; even as some incremental data is veering towards the positive (cement dispatches, port traffic, telecom subscribers, auto and retail sales).

To see full report: INDIA MACRO VIEW

>HINDUSTAN CONSTRUCTION COMPANY LTD (ANAGRAM)

RESULT HIGHLIGHTS

Hindustan Construction reported lower than estimated revenue of Rs 979.7 Cr (-7% yoy) as a few if its projects failed to reach the minimum threshold limit. The (adj) net profit however, was higher 7% partly owing to 300 bps improvement in operating margins to 15.4% for the quarter.

The FX reversal of losses provided earlier in the year and SAP implementation advisory fee has resulted in other income surging to Rs 24 Cr which in turned boosted reported profit by 94.5%. We have treated reversal of FX losses of Rs 19.33 Cras extraordinary item.

HCC booked orders worth Rs 5200 Cr during Q4FY09 taking the total order book to Rs 16400 Cr.

FINANCIALS

Due to change in its accounting policy for treating gains and losses on FX borrowings for working capital, the company has reserved Rs 29 Cr of net FX loss in Q4FY09. The reversed amount has been credited to 'Foreign Currency Monetary Items Translation Difference Account' and will be amortised over 3 years. For Q4FY09, Rs 9.67 has been amortised for the same. We have treated FX loss reversal as a non-recurring item whereas the amortisation of the same has been considered as recurring item.

The revenue growth (YoY) which had been decreasing for last 4 quarters finally slipped below zero - marking de-growth. Apart from the general slow down in execution, the de-growth in revenue was also due to failure of some projects to reach the threshold limit of revenue recognition. The bottom line however, witnessed a 7% rise yoy partly due to higher operating margins at 15.38% (+296 bps yoy)

HCC added orders worth Rs 5002 Cr in the Q4FY09 taking the total unexecuted orders to Rs 16400 Cr. The company is L1 for Rs 1000 Cr worth of projects and is currently evaluating projects worth Rs 10,000 Cr.

To see full report: HCC

>Spot gold unchanged; capped by dlr, equities

London - Spot gold prices were unchanged Friday in Europe with gains capped by U.S. dollar strength and mostly higher equity markets.

Market participants said the metal is likely to remain range bound due to little interest from both the physical jewelry market and investors buying Exchange traded funds or bars.

At 0900 GMT, spot gold was trading at $924.60 a troy ounce, down 0.1% from Thursday's close.

Spot gold trade is quiet Friday with the metal attracting little investor and physical interest, said a Switzerland-based trader.

Germany-based physical metal dealer Heraeus said demand for bars "was again very mellow" this week.

Holdings in exchange traded funds remain steady, but aren't rising significantly.

Gold holdings in the New York-listed SPDR Gold Trust ETF rose for the first time since May 6 data showed Thursday to 1,105.62 metric tons from 1,104.09 tons. Holdings have moved only marginally since April 23 and remained unchanged as of Friday data. SPDR is the largest gold ETF.

Gold is likely to remain in a range between $915/oz and $935/oz until there is more clarity on the economic recovery, the Switzerland-based trader said. Market participants will wait for the U.S. to open to provide some direction he said, adding that U.S. April consumer price index and April industrial production may spark some interest when they are released later Friday.

Looking ahead, fundamentals support gold in a $850/oz to $1,000/oz range this year, with the possibility the price could move above the top end of that range next year, the chief executive of AngloGold Ashanti Ltd. said Friday.

The other metals were also mostly unchanged. As of 0900 GMT, spot silver was at $14.01/oz, up 0.1%. Spot platinum was at $1,111.50/oz, up 0.2%. Spot palladium was at $222.50/oz, down 0.4%.

Gold-silver futures trade lower on strong USD

Mumbai - Gold traded unchanged in global market weighed by U.S. dollar strength and higher equity markets but traders and analysts said the metal could trend higher if the dollar weakens. Following the suite gold-silver futures traded lower on Multi Commodity Exchange Friday on selling pressure from higher level and strong dollar. As of now precious metals are taking cues from the global market and traded lower on the domestic front.

The gold June futures traded down by Rs 86/10gm while silver May futures down by Rs 229/kg.

MCX most active gold June contract opened down by Rs 22 at Rs 14,809/10gm. The contract saw movement between Rs 14,751 and Rs 14,830/10gm. At 5.52 pm IST, the contract traded down Rs 86 at Rs 14,747/10gm. Total volumes in June contract recorded 13778 lots.

MCX gold mini the most active June contract opened up by Rs 15 at Rs.14, 785/10gm. The contract saw movement between Rs. 14,740 and Rs. 14,849/10 gm. At 5.52 pm IST, June contract traded down by Rs 82 at Rs. 14,752/10 gm. Total volumes in June contract recorded 17184 lots.

Benchmark silver July contract opened down by Rs 65 at Rs 22,762/kg. The contract fluctuated between Rs 22,600 and Rs 22,895/kg. At 5.52 pm, IST, silver July contract traded down by Rs 229 at Rs 22,598/kg. Total volumes in July contract recorded 13692 lots.

MCX silver mini June futures opened down by Rs 23 at Rs. 22,780/kg. It fluctuated between Rs.22,590 and 22,895/kg. At 5.55 pm mini silver June futures traded down by Rs 204 at Rs 22,620/kg. Total volumes in June contract recorded 20582 lots.

To see full report: COMMODITIESCONTROL