India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
9am with Emkay |
Contents
Short term interest rates heading for correction
The liquidity in the system seems to be heading for easing in Q4FY11 as the government sits on fat balance with RBI to the tune of Rs1tn. Driven by the strong advance tax payments, the government balances swelled to Rs1tn, up from average Rs300bn over most of the last quarter. As the government has been able to pass the supplementary demand from grants of Rs450bn, the amount is likely to flow into the system in Q4FY11. The net liquidity shortage in the system also reduced to Rs430bn.
There is a high likelihood that the liquidity will be easing significantly in Q4FY11 as the government starts spending this money and also as the RBI does open market purchases of Rs480bn over four weeks, the liquidity and the short term interest rates may ease.
Crude oil prices pose key risk
However the rising crude oil prices and consequent probable tightening actions by the RBI pose key risk to interest rates. As visible from the chart below the manufacturing inflation has already started to ease but the POL inflation is still keeping overall non-food inflation high. We believe that as winter start to fad in the US and Europe there may be some cooling off in the oil prices.
Allahabad Bank – Management Meet Update
We recently spoke to the management of ALBK on the recent liquidity squeeze, rising costs and movement in NPAs
Revised deposit rates and base rate
ALBK has revised its deposit rates by 50-100bps over YTD and its BPLR and base rate by 50bps. The peak rate offered as of now is 8% on 300 days deposit.
The total bulk deposits are at ~175bn (14% of the total deposits including Rs170bn of CDs) with average cost of 6%. The repricing of some of the CDs which are coming for renewals would have an impact of 5bps on cost of funds. The CDR as on Sep 2010 was at 72.2% and hence any further improvement is not possible.
There may be another revision in the base rate in January 2011. However, ALBK may not revise BPLR very soon.
Growth numbers maintained as of now
ALBK has maintained its growth target for the year in tact as of now. The advances growth is likely to be at 25% to Rs900bn and deposit growth at 23% to Rs1.3tn with CDR of 70%.
Valuations and view
We have already factored in NIMs decline of 20bps for ALBK in our numbers with slippages of 1.5%. We find the current valuations 1.2x FY12E ABV reasonable looking at the improving RoE profile of the bank. We expect the RoEs to improve from 19% in FY10 to 22% in FY11E. We maintain BUY rating on the stock.
eClerx – Management Meet Update
We met up with Mr Rohitash Gupta, CFO, eClerx to update ourselves on the co’s business prospects going forward. We summarize the key highlights from the meeting below
Dec’10 quarter – expect a 7-8% sequential growth in revenues
Our interactions with co management indicate that the company is on track to achieve our FY11 revenue estimates of ~US$ 74.7 mn (+35% YoY).We note that the company has reported revenues of US$ 34.8 mn (+43.2% YoY) in H1FY11 driven by pick up in demand for co’s digital media business(~50 % of rev). Co expect sales and marketing support business to grow faster than the capital market business driven by new client wins in the recent past as well as pick up in prospects after a relatively sedate FY10 for the segment. In terms of demand from the capital market segment, co does see regulatory resolutions (read Frank Dodd bill) impacting volumes (as trade moves from OTC’s to exchanges) however sees this as a future opportunity in the form of transformational/consulting projects. We currently model in 8% sequential growth in revenues for Dec’10 quarter at US$ 19.4 mn with margins flat margins QoQ at 36.2%.
Valuations reasonable after a 70%+ upmove in the past 6 months.
eClerx currently trades at ~17.2/x14.1x/13x FY11/12/13E earnings of Rs 40.2/48.9/53 respectively which are fair and reasonable in our view with further upsides contingent on a further lift in earnings estimates driven by (1) possible revenue upgrades (given the strong demand momentum for the sector which we believe should drive revenue upgrades for our coverage universe), (2) reset in our US$/INR assumptions to Rs 45/$ for FY12/13 respectively (V/s Rs 44/$ currently, every 1% change in US$/INR impacts operating margins by ~52 bps V/s ~35-40 bps impact for IT services companies). We currently have an ACCUMULATE rating on the stock with a price target of Rs 670 which we would review post Q3FY11 results.
No comments:
Post a Comment