HDFC RESEARCH: BANK OF AMERICA/MERRILL LYNCH RATING: BUY CMP: RS 1388
Bank of America cuts HDFC’s target price to Rs 1,980 from Rs 2,450 owing to lower sum of parts value and factoring in moderation in growth. However , the stock can still trade at 2.5-3 .0x FY10E given the comfort in asset quality; earnings growth of 16-17 % through FY10-11 E and ROE (return on equity) of 29% on its core business.
HDFC’s 3QFY09 earnings were down 2% y-o-y and 4-5 % lower than market estimates. This was primarily due to the absence of Rs 100 crore of high investment gains and extraordinary income and Rs 50 crore of exchange losses booked by HDFC in its convertible bond. Adjusting for these factors, both topline and pre-tax earnings grew by about 19% y-o-y .
The other disconcerting feature was the 8% contraction in approvals - which appears to be a more conscious decision, as HDFC had been reluctant to lend in October-November ‘08 as conditions worsened. Bank of America has cut the FY09-10 reported earnings by 6-11 % to capture the lower investment gains.
BHARTI AIRTEL
RESEARCH: HSBC RATING: OVERWEIGHT CMP: RS 616
HSBC reiterates `Overweight’ rating on Bharti Airtel. The 15% fall in Bharti’s share price since the launch of RCOM’s GSM service in December is an overreaction. Instead, investors should focus on Bharti’s market leadership strengths and RCOM’s longer-term structural limitations of operations in 1,800 MHz which require additional base stations.
HSBC believes the combination of low revenue yields and bloated cost structure will reduce the scope for disruptive pricing and competitive intensity will become more rational . HSBC estimates FY10E traffic growth of 32% against the historical average of about 70% and cuts FY10-11 E EPS by 7% and 4% respectively to factor in increasing competition and the slowing economy.
The core business is valued at Rs 645 on 13.7x FY10E core earnings based on a 15% premium to HSBC’s Sensex target of 11.9x. The tower business is valued at Rs 141, which reflects a 36% discount to recent transaction multiples. Risks are early implementation of MNP (mobile number portability), rollout of flat rate plans, higher than estimated slowdown in usage, higher than estimated decline in margins on the back of rural penetration, lower termination charges and higher spectrum charges.
HERO HONDA MOTORS
RESEARCH: MORGAN STANLEY
RATING:UNDERWEIGHT
CMP: RS 847
Hero Honda posted a decent set of 3Q09 numbers with net income 7% higher than the expected and in line with Street expectations. Despite a volume decline of 5%, an 11% y-o-y improvement in realisations helped the company to report revenue of Rs 2,880 crore (up 5% y-o-y ). Margin came in at 14.5%, 50 bps above last year, primarily due to softening raw material commodity prices.
This was on the back of an 11% y-o-y realisation improvement , improving product mix, and ramp up of capacity at the excise duty-exempt Haridwar facility. Net income of Rs 300 crore, improved 9% y-o-y , and came in 7% above estimate on the back of an improvement at the operating level and a lower tax rate as the company increased production in tax-free zones such as Haridwar.
Hero Honda is on course to achieve 2009 growth estimate of 9% given its year to-date volume growth of 10.4%, and an improvement in market share of 5.5% to 58.5% in the fiscal year to date in the domestic motorcycle category.
NTPC
RESEARCH: GOLDMAN SACHS
RATING: BUY
CMP: RS 179
Goldman Sachs maintains its earning estimates of NTPC and `Buy’ rating on the stock. The 12-month target price of Rs 208 is the value of its FY2010E financial assets (Rs 37/share) plus the value of its operating assets using a residual income (RI) model (Rs 171/share).
India’s central electricity regulator (CERC) has announced the final tariff norms for generation and transmission projects for FY2010-14 . Takeaways for NTPC - [1] Minimum regulated post-tax ROE (return on equity) raised from 14% to 15.5% (16% in case of new projects completed within prescribed time). [2] Benefit of tax holidays to be retained, but tax on incentives will not be a pass-through. [3] Fixed-cost recovery linked to ‘plant availability’ and not utilisation rate (PLF or plant load factor).
[4] Option to avail R&M (repairs and maintenance) allowance for more than 25-year-old units. [5] Normative levels for operational and working capital parameters have been tightened. [6] Depreciation rate for tariff setting largely aligned with accounting norms. Prima facie, CERC’s final tariff norms for FY10-14 are neutral-to-positive for NTPC’s earnings outlook; consensus expected them to be neutral-to-negative . We maintain that [1] effective tax rate and, [2] economic life of projects, are critical parameters to assess NTPC’s profitability during FY10-14.
FEDERAL BANK
RESEARCH: CITIGROUP
RATING: BUY
CMP:RS 151
Citigroup maintains `Buy’ rating on Federal Bank. However, it revises the price target down to Rs 215 from Rs 270. Federal Bank reported a strong P&L quarter in 3Q09, with high NIMs (net interest margins) of over 450 bps, core fee income growth over 90%, trading and bond portfolio gains, and relative cost moderation (excluding one-offs ). However, the balance sheet was under pressure, with high asset deterioration and loan-loss provisions .
Overall, a mixed quarter - a resilient P&L but marked by increasing asset risks. Federal Bank’s loan book comprises 36% SMEs (small and medium enterprises) and 32% retail, both of which have seen significant pressures over the last couple of quarters, and contribute to the bulk of the deterioration in asset quality. Incremental slippages increased to about 1.4% of loans in 3Q09, meaningfully above its larger peers.
Citigroup increases FY09E earnings by 28%, to incorporate gains on the bond portfolio, but reduces FY10E and FY11E earnings by 21% and 31% respectively, reflecting significantly higher loan-loss provisioning costs.
NALCO
RESEARCH: DEUTSCHE BANK
RATING: SELL
CMP: RS 187
Deutsche maintains `Sell’ rating on Nalco with a price target of Rs 126. Nalco’s latest alumina sale tender, which is used as a benchmark for the spot market globally, has been closed at US$194/MT. The new contracted price is down 58% from a high of US$458/MT which Nalco got for a 30,000-tonne shipment in July ‘08. Outlook for alumina remains negative as brought out by the bidding range.
Apart from the winning bid of US$194/MT, the majority of bids from traders ranged between US$153-US $176/MT, which provides an indication of market expectations of future alumina price movement. Nalco is averse to any production cuts despite the global demand weakness. Consequently, its aluminum inventory situation is expected to get worse.
According to the news flow, inventory is hovering around 15 Kt which is already double of the normal levels of 8 Kt. The inventory situation is expected to get even worse with average inventory increasing to 30 Kt by the year-end . Deutsche remains negative on alumina /aluminium demand and pricing outlook in 2009.
No comments:
Post a Comment