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India Equity Research Reports, IPO and Stock News
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B e t o n q u a l i t y m i d c a p s w i t h b e t t e r r i s k r e t u r n t r a d e o f f …
In December 2011, 4600 levels on the Nifty coupled with a |54 on the
exchange rate, the ongoing tough ground realities made the consensus
scary for a further slide on the indices as well as the exchange rate and
register new lows. But only variable, liquidity behaved strangely. This lead
to Indian markets posting their best ever January performance induced by
liquidity and reversal of risk on trade. While after a sharp jump the Indian
markets may consolidate over the next two or three months. Volatility is
likely to get amplified as the markets take cues from domestic events like
the outcome of polls in five states, Q3 GDP number and Budget 2012
(which may provide visibility on reforms). Also, the outcome of events in
the Euro area may add volatility to the markets till March 2012. Apart from
this, clarity on various macro headwinds such as monetary easing (given
the RBI has commenced the loosening process with the recent CRR cut),
direction of commodities and rollover of focus on FY13 earnings outlook
will act as key catalysts for the markets making a move ahead.
In such a scenario, we are recommending select large caps and midcaps
which offer better risk return trade off and should benefit from improved
macroeconomic condition and liquidity.
Orient Paper & Industries
• Orient paper & industries (OPIL) is a lowest cost cement producer,
having presence in western & southern region. With the utilisation
rates are expected to improve going forward, we expect the
cement volume to increase at ~6% CAGR during FY11-13E to 3.8
million tonnes in FY13E.
• With the cement business is likely to be demerged by April
2012; we expect the re-rating of the cement business as the
cash flows from the business will be used for cement operations
rather than covering the losses of paper business.
• At the CMP, the core cement business is trading at cheap
valuations of $42/tonne at FY13E capacity, which is steep
discount of ~70% to the current replacement cost. We value the
cement business at $50/tonne at its FY13E capacity of 5 million
tonne.
Biocon
• Biocon is Asia’s largest manufacturer of insulin and one of the
leading manufacturers of statins & immuno-suppressants. It has
major presence in the domestic insulin segment and also has
presence in other therapies like Oncology, Nephrology and
Cardiology.
• Last year it struck with Pfizer for supply of four human insulin
products according to which Pfizer will launch these products in
both advanced and emerging markets. Pfizer had already
launched two of these drugs in India and is in the process of filing
dossiers in other emerging markets. The approvals and launch of
these drugs in various geographies would drive the growth.
• It started supply of Fidaxomicin (Anti-infective) API to US based
Optimer’s innovative brand Dificid. Biocon is the sole supplier of
API. The increase in off take would improve both sales and
profitability.
• Off late, R & D services business is witnessing consistent double
digit growth. Biocon plans to unlock the value through IPO.
• We value the stock at | 366 i.e. 18x FY13E EPS of | 20.4
Motherson Sumi
• MSSL is India’s largest supplier of wire harnesses and rear view
mirrors for passenger cars, with market shares of 65%/48%,
respectively, and a global market share of 22% in rear view
mirrors. Its key strengths lie in large customer base across
various geographies with Tier-I status.
• MSSL continues to add new marquee clients through new
acquisitions /JV’s across geographies/segments, the recent
acquisition of Peguform Plc another one. We expect revenues to
grow ~ 15% CAGR (FY13-11E) even as European growth
remains weak. The increase in content-per-car, ramp up of
newer facilities in both domestic/foreign markets we expect
EBITDA margins to improve to ~11.5% (up ~250bps YoY) in
FY13E. Earnings are expected to rise ~16% CAGR (FY13-11E)
• MSSL is currently trading at ~11.5x FY13E EPS of | 13.6 and
5.6x FY13E EV/EBITDA. Our target price for the stock is | 171.
JK Tyre
• JK Tyre is the market leader in the Truck/Bus radial segment
and one of the largest players in passenger car radial (PCR)
space. Moreover, in line with rapid growth witnessed in truck
radicalization, the company has made significant investments to
enhance its Truck/Car radial capacities. JK Tyre caters to
marquee clients viz Maruti, Chevrolet, Fiat etc. to name a few.
• We believe with possibility of interest rate cuts from H2CY12, so
a demand pick-up in the interest rate sensitive PV and M&HCV
segment would be a reasonable assumption. We have factored
in topline CAGR (FY13-11E) of 18.6%. Also, with rubber prices
cooling off from its peak of ~|250/kg by ~28% to ~195/kg, thus
margins are expected to rise ~6.2% (140 bps YoY) in FY13E.
The PAT is estimated to post a CAGR (FY13-11E) growth of
21.9%.
• The stock is trading at trough valuations of 3.5x FY13E EPS and
even more attractively 0.4x P/BV on 1-year trailing basis. Our
target price for the stock is | 88.
Oil India
• Oil India, a Navratna PSU, is engaged in exploration,
development, production & transportation of crude oil & natural
gas in India & abroad. We expect Oil India to report a CAGR of
12.2% & 16.6%, in revenue & net profit respectively over FY11-
13E on the back of healthy oil & gas production growth.
• The company is focused to increase crude oil production via
EOR measures. We expect the oil production to grow at a CAGR
of 5.5% over the FY11-13E period. The outlook for gas
production remains robust, with the gas production estimated
to grow at a CAGR of 9.9% over the FY12-13E period.
• The company has a strong oil & gas reserve base where its 1P
reserve base stands at 505 million boe. Such a strong reserve
base reflects a significant growth potential. OIL has maintained
a strong & consistent reserve replacement ratio (RRR) of 1.42.
• OIL’s strong balance sheet in terms of cash position & negligible
debt provides support for value accretive overseas acquisition
which will improve the business model. At the CMP of |1259,
the stock is trading at 8.3x FY12E & 7.7x FY13E EPS of |151.1 &
163.3, respectively. We value OIL at |1490, ~ 9x FY13 EPS of
|163.3.
Navneet Publications
• Navneet Publications, an established supplementary book
publisher is poised for a healthy topline growth on the back of the
line-up of syllabus changes and also the ramping of its E-learning
business. We expect the topline to grow at a CAGR of 13.4%
during FY11-13E. Going forward we expect the E-learning
business (currently ~1% of sales) to aid topline growth as the
company targets to increase the number of schools catered from
487 schools in FY11 to 1,000 – 1,200 schools in FY12E and further
increase it to ~ 5,000 schools by FY15E.
• The company has been able to pass on the impact of rising
input costs (primarily paper) and has maintained an EBITDA
margin of ~20%. With the stabilizing of the stationery segment
and higher share of revenues from the e-learning business
(which is a high-margin business), we expect a 270 bps
expansion in the operating margin to 23.4% by FY13E.
• The company’s healthy financials make it a strong case for
investment. It has always maintained a virtually debt free status
(largely requires working capital debt). The debt/equity as on
H1FY12 stands at 0.3x. Navneet has a strong history of
rewarding shareholders consistently and has maintained a
dividend payout of over 40%.
• At the current price the stock is trading at 16.0x and 13.2x its
FY12E and FY13E EPS of | 3.5 and | 4.3, respectively. We
expect the topline, operating profit and bottomline to grow at a
CAGR of 13.4%, 20.5% and 24.3%, respectively, during FY11-
13E. Considering the virtually debt free status, healthy return
ratios (RoE of 20%+), strong free cashflow generation and the
potential to the boost to the earnings through inorganic growth,
we believe that Navnneet Publications is a good play on the
Indian education sector. We have a BUY rating on the stock with
a target price of | 65 (based on 15.0x FY13E EPS).
DB Corp
• DB Corp is the second largest paper in India. With the English
ad revenue to readership ratio at ~ 9 times that of Hindi, we
expect hindi ad revenues to grow faster than that of English as
has been the case in the last few years. Among the hindi space,
DB Corp is our top pick on the back of growing readership in
already established markets as well as in markets where they
have entered recently. As per the latest IRS report for Q3CY11,
DB Corp added 0.8 million readers to reach a total base of 19.2
million readers.
• With the RBI cutting the CRR by 50 bps and hinting at reversal of
monetary stance, corporates are expected to come back to
spend on ads in big numbers. We expect the revenues of the
company to grow at a CAGR of 12.8% from FY11-13 on the back
of a 12.6% growth in ad revenues. With no more plans of new
launches in the next 6-9 months, we expect the EBITDA margin
of the company to improve from 27.9% to 33.0%.
• At the CMP of | 195, DB Corp. is trading at 18.1x times FY12
EPS of | 10.7 and 13.5x times FY13 EPS of | 14.4. We value the
stock at 16x times FY13 EPS to arrive at a target price of | 230
implying an upside potential of 18%.
Bharti Airtel
• Bharti Airtel is the market leader in telecom with ~30.9% revenue
market share and strongest fundamentals in the industry. Falling
capex intensity, repayment of debt and reduced interest expense
thereon, margin expansion in African business and high quality
subscribers (first takers of 3G) led uptake in 3G services would
support the growth in the future.
• The licenses of Bharti are insulated from the recent Supreme
court ruling of canceling 122 licenses which were awarded on
or after January 2008. However, as the industry leader, Bharti
would be the key beneficiary of the ruling as it presents an
opportunity to acquire subscribers relating to the licenses which
stand to be cancelled which form ~ 5% of the total subscriber
base.
• We expect domestic revenues to grow at 16.9% CAGR over
FY11-13E on the back of 18.5% CAGR in the mobility business.
The growth in mobility business would be on the back of 9.7%
CAGR in total traffic and improvement in ARPM. EBITDA
margins are expected to expand from 33.6% in FY11 to 35.0%
in FY13 on the back of reduced network rollout costs as a % if
sales.
• Assuming revenue CAGR of 10.8% over FY11-FY20E and
terminal growth of 3% thereon, we have arrived at a target price
of | 450/ share for Bharti Airtel. Our target price discounts
FY12E and FY13E EPS of | 13.4 and | 21.3 by 33.6x and 21.2x,
respectively. The stock is currently trading at | 389. Our target
price implies an upside potential of 16%.
Dish TV
• The digitization mandate passed by the government has opened
up huge opportunity for the DTH industry. Currently there are
70 million analog cable households who will have to move to
either DTH or Digital Cable. Digital cable would face an outgo of
~ | 25000 crore to accommodate so many subscribers. On the
other hand, DTH industry is in the best position to capitalize on
this opportunity as it is relatively well funded and has a
distribution infrastructure in place already. We believe, Dish TV
being the market leader of the DTH industry would be the
highest beneficiary of the mandatory digitization bill passed by
the government
• We expect Dish TV to post a CAGR of 26.7% on the revenue
front from FY11-13 on the back of a subscriber addition of 2.7
million in FY12 and FY13 each and an increase in ATP from |
140 to | 162. Due to its high operational leverage, we expect the
margins to improve from 16.6% in FY11 to 28.2% in FY13.
• Assuming revenue CAGR of 16.7% over FY11E–FY20E and
terminal growth of 4.5% thereon, we have arrived at a target
price of | 71/share. The stock is currently trading at Rs 64. Our
target price implies an upside potential of 11.0%.
Bank of Baroda
• Bank of Baroda is among the top 4 PSU bank with business size
of | 609800 crore as on December 2012. It has strong
international presence with over 20% of business coming from
overseas.
• On account of aviation and telecom exposures, some slippages
and restructuring were witnessed in recent quarters. However,
strong profitability matrix is expected to wither the higher
provisions arising from asset quality pressures. Currently,
outstanding restructured assets stand at 3.8% of credit book.
We expect GNPA ratio at 1.6% and NNPA ratio at 0.6% by
FY13E.
• The bank has managed to maintain credit growth of over 20%
even in current environment with NIM close to 3%. We expect
the robust performance to continue with 20% CAGR in credit
and 16% CAGR in PAT.
• ·At the CMP of | 770, the bank is trading at valuation of 1.1x
FY13E ABV. It has been consistently reporting strong return
ratio with RoA of ~1.2% and RoE of ~20%. Among the public
sector peers, it has one of the best asset quality and hence
commands premium. We value BOB at 1.4x FY13E ABV and
recommend BUY with target price of | 954
Dena Bank
• Dena bank is a mid sized PSU bank with presence in rich CASA
based western part of country. It has healthy CASA ratio of
35.6% as on Q2FY12.
• We expect the bank to maintain credit growth of 16-18% and
NIM in range of 2.9-3.0%.
• Asset quality is better than industry average as its GNPA ratio
for Q2FY12 stood at 1.9% compared to industry average of
2.8%. The outstanding restructured book constituted 3.6% of
total credit book in Q2FY12. Relatively higher exposure to
power and infra space have remained a drag on valuations,
however, the bank has not shown any deteriorating
performance in that portfolio till now.
• At the CMP of | 73, the bank is trading at an attractive valuation
of 0.6x FY13E ABV. It has been consistently reporting RoA of
~1% and RoE of ~20% for past 13 quarters. As risk reward
remains favourable, we value Dena bank at 0.7x FY13E ABV and
recommend BUY with target price of | 84.
Simplex Infrastrucutre
• Simplex Infrastructure (SIL) is one of oldest construction
company with well-diversified project execution skills. The
company has executed projects across the verticals and has
marquee clientele across the verticals.
• The order book stood at | 15,034 crore (as on Q2FY12) implying
2.94x order book to bill (on TTM basis) and providing revenue
visibility for the next couple of years. The differentiating factor
for SIL is that the order book is well diversified with no
contentious orders unlike its peers and minimal captive orders
(~500 crore) assuring execution on almost complete order
book. Furthermore, the company has lowest equity
commitment towards its subsidiary which gives us comfort in
terms for funding constraint which otherwise is faced across
industry.
• At the CMP, the stock is trading at 8.7x FY13E EPS and 0.8x
FY13E P/BV. SIL’s strong well diversified order book, lowest
equity commitment towards subsidiary and execution
capabilities makes it a strong candidate for sharp earning
upgrade and re-rating in the multiples when the macro
environment improves. We have a target price of | 285 on the
stock
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Click here for PDF LINK ICICI Top PICKS
B e t o n q u a l i t y m i d c a p s w i t h b e t t e r r i s k r e t u r n t r a d e o f f …
In December 2011, 4600 levels on the Nifty coupled with a |54 on the
exchange rate, the ongoing tough ground realities made the consensus
scary for a further slide on the indices as well as the exchange rate and
register new lows. But only variable, liquidity behaved strangely. This lead
to Indian markets posting their best ever January performance induced by
liquidity and reversal of risk on trade. While after a sharp jump the Indian
markets may consolidate over the next two or three months. Volatility is
likely to get amplified as the markets take cues from domestic events like
the outcome of polls in five states, Q3 GDP number and Budget 2012
(which may provide visibility on reforms). Also, the outcome of events in
the Euro area may add volatility to the markets till March 2012. Apart from
this, clarity on various macro headwinds such as monetary easing (given
the RBI has commenced the loosening process with the recent CRR cut),
direction of commodities and rollover of focus on FY13 earnings outlook
will act as key catalysts for the markets making a move ahead.
In such a scenario, we are recommending select large caps and midcaps
which offer better risk return trade off and should benefit from improved
macroeconomic condition and liquidity.
Orient Paper & Industries
• Orient paper & industries (OPIL) is a lowest cost cement producer,
having presence in western & southern region. With the utilisation
rates are expected to improve going forward, we expect the
cement volume to increase at ~6% CAGR during FY11-13E to 3.8
million tonnes in FY13E.
• With the cement business is likely to be demerged by April
2012; we expect the re-rating of the cement business as the
cash flows from the business will be used for cement operations
rather than covering the losses of paper business.
• At the CMP, the core cement business is trading at cheap
valuations of $42/tonne at FY13E capacity, which is steep
discount of ~70% to the current replacement cost. We value the
cement business at $50/tonne at its FY13E capacity of 5 million
tonne.
Biocon
• Biocon is Asia’s largest manufacturer of insulin and one of the
leading manufacturers of statins & immuno-suppressants. It has
major presence in the domestic insulin segment and also has
presence in other therapies like Oncology, Nephrology and
Cardiology.
• Last year it struck with Pfizer for supply of four human insulin
products according to which Pfizer will launch these products in
both advanced and emerging markets. Pfizer had already
launched two of these drugs in India and is in the process of filing
dossiers in other emerging markets. The approvals and launch of
these drugs in various geographies would drive the growth.
• It started supply of Fidaxomicin (Anti-infective) API to US based
Optimer’s innovative brand Dificid. Biocon is the sole supplier of
API. The increase in off take would improve both sales and
profitability.
• Off late, R & D services business is witnessing consistent double
digit growth. Biocon plans to unlock the value through IPO.
• We value the stock at | 366 i.e. 18x FY13E EPS of | 20.4
Motherson Sumi
• MSSL is India’s largest supplier of wire harnesses and rear view
mirrors for passenger cars, with market shares of 65%/48%,
respectively, and a global market share of 22% in rear view
mirrors. Its key strengths lie in large customer base across
various geographies with Tier-I status.
• MSSL continues to add new marquee clients through new
acquisitions /JV’s across geographies/segments, the recent
acquisition of Peguform Plc another one. We expect revenues to
grow ~ 15% CAGR (FY13-11E) even as European growth
remains weak. The increase in content-per-car, ramp up of
newer facilities in both domestic/foreign markets we expect
EBITDA margins to improve to ~11.5% (up ~250bps YoY) in
FY13E. Earnings are expected to rise ~16% CAGR (FY13-11E)
• MSSL is currently trading at ~11.5x FY13E EPS of | 13.6 and
5.6x FY13E EV/EBITDA. Our target price for the stock is | 171.
JK Tyre
• JK Tyre is the market leader in the Truck/Bus radial segment
and one of the largest players in passenger car radial (PCR)
space. Moreover, in line with rapid growth witnessed in truck
radicalization, the company has made significant investments to
enhance its Truck/Car radial capacities. JK Tyre caters to
marquee clients viz Maruti, Chevrolet, Fiat etc. to name a few.
• We believe with possibility of interest rate cuts from H2CY12, so
a demand pick-up in the interest rate sensitive PV and M&HCV
segment would be a reasonable assumption. We have factored
in topline CAGR (FY13-11E) of 18.6%. Also, with rubber prices
cooling off from its peak of ~|250/kg by ~28% to ~195/kg, thus
margins are expected to rise ~6.2% (140 bps YoY) in FY13E.
The PAT is estimated to post a CAGR (FY13-11E) growth of
21.9%.
• The stock is trading at trough valuations of 3.5x FY13E EPS and
even more attractively 0.4x P/BV on 1-year trailing basis. Our
target price for the stock is | 88.
Oil India
• Oil India, a Navratna PSU, is engaged in exploration,
development, production & transportation of crude oil & natural
gas in India & abroad. We expect Oil India to report a CAGR of
12.2% & 16.6%, in revenue & net profit respectively over FY11-
13E on the back of healthy oil & gas production growth.
• The company is focused to increase crude oil production via
EOR measures. We expect the oil production to grow at a CAGR
of 5.5% over the FY11-13E period. The outlook for gas
production remains robust, with the gas production estimated
to grow at a CAGR of 9.9% over the FY12-13E period.
• The company has a strong oil & gas reserve base where its 1P
reserve base stands at 505 million boe. Such a strong reserve
base reflects a significant growth potential. OIL has maintained
a strong & consistent reserve replacement ratio (RRR) of 1.42.
• OIL’s strong balance sheet in terms of cash position & negligible
debt provides support for value accretive overseas acquisition
which will improve the business model. At the CMP of |1259,
the stock is trading at 8.3x FY12E & 7.7x FY13E EPS of |151.1 &
163.3, respectively. We value OIL at |1490, ~ 9x FY13 EPS of
|163.3.
Navneet Publications
• Navneet Publications, an established supplementary book
publisher is poised for a healthy topline growth on the back of the
line-up of syllabus changes and also the ramping of its E-learning
business. We expect the topline to grow at a CAGR of 13.4%
during FY11-13E. Going forward we expect the E-learning
business (currently ~1% of sales) to aid topline growth as the
company targets to increase the number of schools catered from
487 schools in FY11 to 1,000 – 1,200 schools in FY12E and further
increase it to ~ 5,000 schools by FY15E.
• The company has been able to pass on the impact of rising
input costs (primarily paper) and has maintained an EBITDA
margin of ~20%. With the stabilizing of the stationery segment
and higher share of revenues from the e-learning business
(which is a high-margin business), we expect a 270 bps
expansion in the operating margin to 23.4% by FY13E.
• The company’s healthy financials make it a strong case for
investment. It has always maintained a virtually debt free status
(largely requires working capital debt). The debt/equity as on
H1FY12 stands at 0.3x. Navneet has a strong history of
rewarding shareholders consistently and has maintained a
dividend payout of over 40%.
• At the current price the stock is trading at 16.0x and 13.2x its
FY12E and FY13E EPS of | 3.5 and | 4.3, respectively. We
expect the topline, operating profit and bottomline to grow at a
CAGR of 13.4%, 20.5% and 24.3%, respectively, during FY11-
13E. Considering the virtually debt free status, healthy return
ratios (RoE of 20%+), strong free cashflow generation and the
potential to the boost to the earnings through inorganic growth,
we believe that Navnneet Publications is a good play on the
Indian education sector. We have a BUY rating on the stock with
a target price of | 65 (based on 15.0x FY13E EPS).
DB Corp
• DB Corp is the second largest paper in India. With the English
ad revenue to readership ratio at ~ 9 times that of Hindi, we
expect hindi ad revenues to grow faster than that of English as
has been the case in the last few years. Among the hindi space,
DB Corp is our top pick on the back of growing readership in
already established markets as well as in markets where they
have entered recently. As per the latest IRS report for Q3CY11,
DB Corp added 0.8 million readers to reach a total base of 19.2
million readers.
• With the RBI cutting the CRR by 50 bps and hinting at reversal of
monetary stance, corporates are expected to come back to
spend on ads in big numbers. We expect the revenues of the
company to grow at a CAGR of 12.8% from FY11-13 on the back
of a 12.6% growth in ad revenues. With no more plans of new
launches in the next 6-9 months, we expect the EBITDA margin
of the company to improve from 27.9% to 33.0%.
• At the CMP of | 195, DB Corp. is trading at 18.1x times FY12
EPS of | 10.7 and 13.5x times FY13 EPS of | 14.4. We value the
stock at 16x times FY13 EPS to arrive at a target price of | 230
implying an upside potential of 18%.
Bharti Airtel
• Bharti Airtel is the market leader in telecom with ~30.9% revenue
market share and strongest fundamentals in the industry. Falling
capex intensity, repayment of debt and reduced interest expense
thereon, margin expansion in African business and high quality
subscribers (first takers of 3G) led uptake in 3G services would
support the growth in the future.
• The licenses of Bharti are insulated from the recent Supreme
court ruling of canceling 122 licenses which were awarded on
or after January 2008. However, as the industry leader, Bharti
would be the key beneficiary of the ruling as it presents an
opportunity to acquire subscribers relating to the licenses which
stand to be cancelled which form ~ 5% of the total subscriber
base.
• We expect domestic revenues to grow at 16.9% CAGR over
FY11-13E on the back of 18.5% CAGR in the mobility business.
The growth in mobility business would be on the back of 9.7%
CAGR in total traffic and improvement in ARPM. EBITDA
margins are expected to expand from 33.6% in FY11 to 35.0%
in FY13 on the back of reduced network rollout costs as a % if
sales.
• Assuming revenue CAGR of 10.8% over FY11-FY20E and
terminal growth of 3% thereon, we have arrived at a target price
of | 450/ share for Bharti Airtel. Our target price discounts
FY12E and FY13E EPS of | 13.4 and | 21.3 by 33.6x and 21.2x,
respectively. The stock is currently trading at | 389. Our target
price implies an upside potential of 16%.
Dish TV
• The digitization mandate passed by the government has opened
up huge opportunity for the DTH industry. Currently there are
70 million analog cable households who will have to move to
either DTH or Digital Cable. Digital cable would face an outgo of
~ | 25000 crore to accommodate so many subscribers. On the
other hand, DTH industry is in the best position to capitalize on
this opportunity as it is relatively well funded and has a
distribution infrastructure in place already. We believe, Dish TV
being the market leader of the DTH industry would be the
highest beneficiary of the mandatory digitization bill passed by
the government
• We expect Dish TV to post a CAGR of 26.7% on the revenue
front from FY11-13 on the back of a subscriber addition of 2.7
million in FY12 and FY13 each and an increase in ATP from |
140 to | 162. Due to its high operational leverage, we expect the
margins to improve from 16.6% in FY11 to 28.2% in FY13.
• Assuming revenue CAGR of 16.7% over FY11E–FY20E and
terminal growth of 4.5% thereon, we have arrived at a target
price of | 71/share. The stock is currently trading at Rs 64. Our
target price implies an upside potential of 11.0%.
Bank of Baroda
• Bank of Baroda is among the top 4 PSU bank with business size
of | 609800 crore as on December 2012. It has strong
international presence with over 20% of business coming from
overseas.
• On account of aviation and telecom exposures, some slippages
and restructuring were witnessed in recent quarters. However,
strong profitability matrix is expected to wither the higher
provisions arising from asset quality pressures. Currently,
outstanding restructured assets stand at 3.8% of credit book.
We expect GNPA ratio at 1.6% and NNPA ratio at 0.6% by
FY13E.
• The bank has managed to maintain credit growth of over 20%
even in current environment with NIM close to 3%. We expect
the robust performance to continue with 20% CAGR in credit
and 16% CAGR in PAT.
• ·At the CMP of | 770, the bank is trading at valuation of 1.1x
FY13E ABV. It has been consistently reporting strong return
ratio with RoA of ~1.2% and RoE of ~20%. Among the public
sector peers, it has one of the best asset quality and hence
commands premium. We value BOB at 1.4x FY13E ABV and
recommend BUY with target price of | 954
Dena Bank
• Dena bank is a mid sized PSU bank with presence in rich CASA
based western part of country. It has healthy CASA ratio of
35.6% as on Q2FY12.
• We expect the bank to maintain credit growth of 16-18% and
NIM in range of 2.9-3.0%.
• Asset quality is better than industry average as its GNPA ratio
for Q2FY12 stood at 1.9% compared to industry average of
2.8%. The outstanding restructured book constituted 3.6% of
total credit book in Q2FY12. Relatively higher exposure to
power and infra space have remained a drag on valuations,
however, the bank has not shown any deteriorating
performance in that portfolio till now.
• At the CMP of | 73, the bank is trading at an attractive valuation
of 0.6x FY13E ABV. It has been consistently reporting RoA of
~1% and RoE of ~20% for past 13 quarters. As risk reward
remains favourable, we value Dena bank at 0.7x FY13E ABV and
recommend BUY with target price of | 84.
Simplex Infrastrucutre
• Simplex Infrastructure (SIL) is one of oldest construction
company with well-diversified project execution skills. The
company has executed projects across the verticals and has
marquee clientele across the verticals.
• The order book stood at | 15,034 crore (as on Q2FY12) implying
2.94x order book to bill (on TTM basis) and providing revenue
visibility for the next couple of years. The differentiating factor
for SIL is that the order book is well diversified with no
contentious orders unlike its peers and minimal captive orders
(~500 crore) assuring execution on almost complete order
book. Furthermore, the company has lowest equity
commitment towards its subsidiary which gives us comfort in
terms for funding constraint which otherwise is faced across
industry.
• At the CMP, the stock is trading at 8.7x FY13E EPS and 0.8x
FY13E P/BV. SIL’s strong well diversified order book, lowest
equity commitment towards subsidiary and execution
capabilities makes it a strong candidate for sharp earning
upgrade and re-rating in the multiples when the macro
environment improves. We have a target price of | 285 on the
stock
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