Month: January 2008

SBI has reported a very strong quarter, combining high growth, improving profitability, and stable asset quality. It’s also a strong come-back from the previous quarter, in which growth was at the cost of profitability.

The strong P&L is a mix of a) 35% fee growth (excluding one-offs), driven by FX revenues and 19% core fees b) Rebounding margins – up about 20bps qoq (boosted by investment yields), though still low at 284bps – with some strains ahead and c) Moderate cost growth, strong trading gains, and strong asset write-backs. Exone- offs and trading gains, pre-provisioning profit growth of 48% yoy and 33%qoq.

SBI also continues to gain market share with 26% loan growth, has improved its under-pressure deposit mix over the last quarter, and importantly, maintained asset quality.

Ansal Properties & Infrastructure [ANSAL API] has entered into a tripartite agreement with Edu Infrastructure, a subsidiary of Educomp Solutions and Knowledge Tree Infrastructure – its associate company.

As per the agreement the company / its associate would construct / develop the school properties in the various residential townships of the company and lease it out to the school operators for operating and managing the schools. Edu shall have the right to take minority interest in the associate. The agreement is expected to enable the Company to leverage the experience of Educomp to emphasize the education in its residential colonies.

Canara Bank – CanBank is recovering after a poor start to the year – profitability is beginning to claw back after having dipped sharply, the balance sheet continues to be in good shape and sustains improvements, and the quarter is boosted by strong trading gains.

NIMs have now expanded on some loan/deposit restructuring – but at 240bps, are low, and still have some way to go, but management seems a lot more cognizant of this. Fee income is, however, a standout: up over 50%, and with another quarter of strong trading gains, provides the earnings impetus.

CanBank’s asset book now matches with the best – limited deterioration, strong recoveries continue to keep net NPLs below 1%,in contrast to the sector, at average. Growth in the quarter is sub-20%, a little lower than industry.

Stock View on Canara Bank.

Hindustan Construction (HCC) reported strong turnover growth of 38% YoY. EBITDA improved by 43% YoY, on the back of rising margins. However, the rise in interest costs by 133% YoY resulted in adjusted PAT declining by 3% YoY to Rs213 mn.

HCC’s EBITDA margins have improved YoY by 40 bps and QoQ by 170 bps. Management has indicated that since HCC is no longer booking losses in Bandra-Worli Sea Link project, EBITDA margins will be on an improving trend.

Sales of apartments at Lavasa during October 2007 have clocked Rs3.21 bn. The management indicated that discussions are continuing for a possible private equity deal in Lavasa. Regarding the disputed Sawalkote hydropower project order of Rs19.4 bn, it is expected be settled by a favourable court verdict by the end of February 2008.

Union Bank of India’s 3Q08 profits were strong and 16% ahead of estimates. Key highlights of the quarter were operational improvements – pick up in margins, continued fee income growth and strong asset quality, even as trading gains and recoveries boosted reported profits.

Net interest margins improved to 283bps (+20bps qoq), while still lower than industry averages and off a disappointing quarter; this has not come at the cost of growth (loan growth at 27% yoy is above industry trends).

Union’s core fee income growth remained strong and ahead of peers at 27% yoy, though overall non interest incomes increased sharply by 109% on higher trading gains and recoveries. Absolute reductions in NPLs; higher provisioning have reduced NPLs to 2.1% of loans.