9am with Emkay 18 April, 2011

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9am with Emkay

18 April, 2011

Contents

n        Research Views

HDFC Bank to report Q4FY11 results

HDFC bank’s NII is expected to grow by 19.2%yoy driven by 34% growth in advances and stable NIM’s. Fee income is also likely to grow strong in tandem with growth in advances. With lower provisioning costs, the net profit is likely to grow at higher pace of 32% yoy.

Key things to watch – CASA profile, movement in NPAs and Cost ratios.

L&T to sell its Electrical Business

News flows in the market suggest that L&T is planning to sell its electrical business as part of the restructuring exercise (See Link - http://business-standard.com/india/news/lt-plans-to-sell-its-electrical-biz/132189/on)

n    In FY10, the Electrical & Electronics (E&E) division revenues stood at Rs38.0 bn (8% of consolidated revenues) with EBIT margins of 12.5% or Rs4.9 bn

n    The division manufactures switchgears, metering systems, petrol dispensing pumps and medical equipment, among others.

n    It has manufacturing units in Navi Mumbai, Ahmednagar, Mysore, Powai and Coimbatore in India.

In case the event materializes, we believe that division could be valued at 1.2 to 1.5X sales... i.e. the deal could generate cash-flows of upto Rs60 bn.

IRB Infrastructure – New project win

n    IRB emerges as a preferred bidder for Ahmedabad - Vadodara 6-laning project on BOT basis with concession period of 25 years. IRB has quoted premium of Rs 3.1bn, that will increase 5% every year 

n    Our initial calculation indicate equity IRR of 13-14% for the project leading to minimal accretion for the new project win

n    Orderbook of Rs89bn to receive significant boost with incremental Rs 36bn of E&C taking the backlog to Rs126 bn leading to visibility of 7x EPC FY11E revenues 

n    We will assign project value post getting complete project details. Maintain Buy rating with a target price of Rs 280 and await clarity on the traffic assumptions for the project.

n        Research Update Included

State Bank of India Management Meet Update; Positive outlook; Accumulate; Target: Rs 3,000

n    NPA accretion to slow down driven by lower slippages from restructured and agriculture advances. FY12E slippages at 1.6-1.8%

n    Pension liabilities may be at Rs80-100bn. However, as % of FY12E net worth still at 8% compared with 8-18% for other PSU banks

n    Repricing of deposits taken in CY08 alongwith scope for raising base rate to protect margins. FY12E NIMs may remain stable at 3.4% in line with FY11

n    Operating performance likely to remain strong. Slippages to come down in coming quarters. Valuations now reasonable at 1.6x FY12E conso banking ABV. Maintain ACCUMULATE

Telecom Sector Event Update; Recommendation on Telecom Infrastructure policy

n    Trai announces recommendation on Telecom Infrastructure policy

n    Key issue to be solved to have conducive environment for telecom infrastructure in the country

n    Recommendations suggest for quicker tower roll outs and better efficiencies in the sector

n    Recommendations comes with few positives bundled with few negatives

Infosys Technologies Q4FY11 Result Update; Disappointment writ all over; Accumulate; Target: Rs 3,250

n    ‘Disappointment writ all over’ as a 1.1% QoQ rev increase in a strong demand environment  with volumes declining by ~1% seq(V/s +1-2% QoQ assumed in the guidance)

n    FY12 rev guidance of 18-20% in line with expectations, however are dismayed by earnings outlook of Rs 126-128(+5.5-7.3% YoY) driven by lower margin assumptions

n    Cut FY12/13E EPS by ~7.6/9.2% to Rs 138/165 driven by lower rev ( +23%/17.5% YoY V/s 25%/20% earlier) and lower EBITDA mgns (31.4%/30.9% V/s 32.8/32.4% earlier)

n    Retain ACCUMULATE with a revised TP of Rs 3,250(V/s Rs 3,400 earlier), implying ~20xFY13E EPS, however would not rule out further near term weakness despite a 10% fall today.

n        Technical Comments

Nifty

The index continues to struggle around the white trendline resistance for the second week running. The weekly charts now have two Doji formations and this suggests at indecision, the recent highs at 5944 now commands even more importance and any meaningful uptrend would only emerge once the level is decisively broken. On the lower end 5700 remains a crucial trend support and weakness would creep in once that is broken. We hence expect index to be range bound within the 5700-5900 levels for sometime before clarity emerges.

n        Results Today

CMC

HDFC Bank

IFCI

IndusInd Bank