BULL's EYE

YES BANK

RESEARCH: CITIGROUP
RATING: BUY
CMP: RS 281
Yes Bank's management expects strong growth over the medium term in: a) credit - 35-40% p.a. over the medium term; b) distribution - branch network growing to 225 by March '11 and 750 by March '15, incremental branches largely in North and West India; c) liabilities - including strong growth in CASA (current account savings account) ratios. While focus will shift to retail assets - mainly mortgages and credit cards - the share of retail is likely to remain well below 15% even with a medium-term outlook. SME and mid-corporate segments are likely to be the key growth drivers- also likely to have higher loan yields. The management appears confident of maintaining current net interest margins due to: a) Growth in low CASA share; b) Increasing proportion of higher yielding SME and mid-corporate loan book; and c) wellmatched asset and liability durations. Non-interest income growth has been a key strength of Yes Bank so far and the management expects it to remain strong going forward as well. However, it could lag balance sheet growth in the medium term. This could lead to non-interest income/income ratio falling to below 40% levels.

ITC


RESEARCH: JP MORGAN
RATING: OVERWEIGHT
CMP: RS 282
JP Morgan initiates coverage of ITC with an `Overweight' rating and a target price of Rs 307. The rating is primarily based on: (a) defensive nature of the stock, (b) core cigarette EBIT growth is likely to exceed the expectations of 15% over FY10-12E, and (c) the non-tobacco business sustaining strong performance. While cigarette volume offtake is likely to remain subdued in the near term, ITC's medium-term investment case will depend on pricing power which drives earnings much more than volumes. Price hike of about 15% for its cigarette portfolio is substantially higher than the about 9% increase needed to offset the excise/VAT hike and would drive EBIT growth upwards of 15%. Sales growth surprised on upside, driven by higher than expected growth for cigarette (volume growth of 8.5- 9%), other FMCG (+34% y-o-y) and agri-business revenues (+88% y-o-y). The target price implies one year forward P/E and EV/EBITDA of 20.5x and 12.5x respectively which is inline with company's last five-year averages.

TATA POWER


RESEARCH: MORGAN STANLEY
RATING: EQUALWEIGHT
CMP: RS 1272
Morgan Stanley maintains an `Equal weight' rating on the stock with a revised target price of Rs 1,087. In their view the company has strong execution capabilities and there is high visibility on the implementation of power projects. However, the stock is trading at two times P/B and 10x EV/EBITDA on FY2012 consolidated estimates, which leaves limited upside. Tata Power reported FY10 consolidated revenue of Rs 17,880 crore (up 2% Y-o-Y), EBITDA of Rs 3,680 crore (up 4% Y-o-Y), and adjusted profit of Rs 1,330 crore (up 6% Y-o-Y). Standalone earnings estimates was lowered due to uncertainty on merchant capacity: Tata Power had decided to sell an additional 200-400 MW in the shortterm market from the capacity that was earlier provided to RInfra. They had built in 158 MW of such additional merchant capacity; however, given regulatory uncertainty the company may have to sell this at regulated rates to Reliance Infrastructure. This is the primary reason for taking down the standalone earnings by 13% and 16% for FY2011E and FY2012E, respectively.

CONTAINER CORP. OF INDIA


RESEARCH: NOMURA
RATING: NEUTRAL
CMP: RS 1225
Nomura maintains the `Neutral' rating on Container Corporation of India with a price target of Rs 1,350. Based on data released by the Indian Ports Association, container traffic at the 12 major Indian ports rose 21.4% y-o-y but was down 3.7% m-o-m in April '10. CCRI recorded a weak H2FY10 owing to poor margins, despite reporting strong traffic in Q4FY10. Overall, FY10 results were disappointing, and Nomura expects further near-term pressure on margins as the company is still passing on the price hike imposed by the Indian railways. During the postresults call, Concor spoke of another possible price hike by the Indian railways in July '10. Trading at 17x FY11E P/E, Concor appears fairly valued, given its historical average trading multiple of about 15x oneyear forward earnings, although Nomura expects downsides to the current numbers. On an expected medium-term sustainable earnings growth rate in mid-teens, the historical mean traded multiple appears justified, and accordingly Nomura values the stock at 15x FY12F EPS to arrive at the price target of Rs 1,350.

MPHASIS


RESEARCH: HSBC
RATING: OVERWEIGHT
CMP: RS 580
HSBC maintains 'Overweight' rating on MphasiS with a target price of Rs 770. The key question for investors currently is whether the pricing discounts seen in Q1 were one-off and limited to the infra division. HSBC does not rule out further pricing discounts. However, the management has defined benchmarks for profitability and may not be willing to win business that breaches its profitability criteria. HSBC has factored in 31-30% threshold gross margins for the Applications and infra divisions in the forecasts. HSBC expects 4.5% q-oq dollar topline growth and an EBITDA margin decline of about 100 bps sequentially (primarily driven by the assumption of a pricing discount in the Application division and rupee appreciation). HSBC expects strong volume growth in FY10 and FY11 and EPS growth of about 8% in FY11 and values the stock at a PE of 14.5x on FY11E EPS, which is a 35% discount to Infosys.

Advertisement