Month: October 2007

Citigroup Research has downgraded Central Bank of India [CBI] and set a target price of Rs 130. It has initiated coverage with a SELL rating on the stock.

The Citi report says that the banking industry is well poised to grow in India. However, it is skeptical about CBI’s performance. Central Bank appears well positioned to capitalize on this growth through its strong pan-India distribution, above-industry deposit franchise and large corporate lending portfolio. Citi estimates pre-provision profits, earnings and loan growth of 16%, 13% and 18% over FY07-10E. This is well below the PSU Banking industry expectation of 20%.

Expect profitability to remain structurally challenged amid competitive margins, low fees and higher NPLs and delinquencies relative to peers. Though management has taken corrective steps, we see only a gradual recovery.

Central Bank is valued at Rs130 per share based on EVA model, which better captures the long-term value of the business and is a standard valuation measure for Indian banking coverage. At a price-to-book (P/BV) of 1.2x FY09E, which is at a slight discount to target multiples for peer government banks, a value of Rs127 per share of Central Bank is arrived at.

We reported that Lupin has acquired Rubamin Pharma.[RLL]

RLL is a research driven organization with 145 employees, of which 30% are involved in R&D. The company’s R&D capabilities encompass activities such as Product Development and Optimization, and NCE Development Support. This acquisition would provide Lupin access to RLL’s customer base of innovator and generic companies in the US and Europe and various technology platforms, which Lupin does not have. We believe that Lupin would be able to use this customer base, and technology platforms to leverage its own CRAMS initiatives. Lupin will also fill gaps, which RLL has in terms of scale-up and forward integration. Apart from this, we expect Lupin to initiate operational restructuring to reduce cost and improve profitability.

Currently, RLL has sales less than Rs500 mn and EBITDA margin lower than Lupin’s margin. However, ASK India expects sales of RLL to grow to Rs2.5- 3 bn in three years and significantly improve profitability. ASK maintains a BUY on Lupin with a price target of Rs 807. Fully diluted EPS expected for FY08 and FY09 are – Rs 36.9 and Rs 44.8.