Category: Equity Research

Morgan Stanley is underweight on GMR Infrastructure. Research firm continue to believe that the company has one of the best long-term stories in the infrastructure development sector in India but is underweight on GMR in the Short to Medium Term.

GMR handed over contracts on both the construction and operations side (advertisement at Delhi and duty free at Hyderabad) in the quarter. The market is focused on the potential value creation from the monetization of a 45 acre (5.9 million sq ft) hospitality district at Delhi Airport. GMR expects to finalize the developer for this land parcel by September 2007.

Valuations remain high; Morgan Stanley retains Underweight call on the company due to lack of earnings visibility and doubts over consistency of maintaining the same.

The results expectations for quarter ended June-30th from Indian Banking sector according to Citgroup research is as follows.

The top consistent performers are likely to be,
Punjab National Bank is expected to report Rs 405 crore Net Profit for Q12008. 10% increase YoY and 71% increase on QoQ basis.

Bank of Baroda is expected to report Rs 270 crore Net Profit for Q12008. 66% increase YoY and 10% increase on QoQ basis.

State Bank of India is expected to report Rs 1163 crore Net Profit for Q12008. 46% increase YoY and 22% decrease on QoQ basis.

The scenario is quite negative when it comes to private sector banks. All of them are likely to underperform compared to quarter ending March-2007.

ICICI Bank is expected to report Rs 696 crore Net Profit for Q12008. 12% increase YoY and 16% decrease on QoQ basis.

HDFC Bank is expected to report Rs 320 crore Net Profit for Q12008. 33% increase YoY and 9% decrease on QoQ basis.

UTi/Axis Bank is expected to report Rs 165 crore Net Profit for Q12008. 37% increase YoY and 22% decrease on QoQ basis.

Citigroup Research just a while ago recommended a BUY on Maruti Udyog Ltd with a price target of Rs 945.

Domestic sales rose c26% YoY, buoyed by the sharp growth in the key sub-compact segment. The company sold 59,917 vehicles in June an increase of 0.9% over May-07. Maruti is expected to do well for the rest of the year. Citi rates the stock as a Low Risk BUY. 12-month target price of Rs945 is based on 11x P/CEPS FY09E. The multiple compares favorably with the cash earnings CAGR of c16.3% over FY07E-09E.

Strong UV sales (+34% YoY), offset weak growth within the tractor segment. UV sales across product segments were strong, with both Scorpio and non-Scorpio volumes up 32% and 35% respectively. Export initiatives within the auto sector continue – growth was strong at +89% YoY, albeit off a modest base.

The initial response to the Logan has been fairly positive – especially given that the Logan was launched in only 11 cities. Management plans to expand capacity from 90 vehicles/day to 180 vehicles / day over the next two months.

Citi maintains a BUY on Mahindra and Mahindra with a price target of Rs 1032 which is based on sum of parts valuation. M&M’s core business at Rs 543 / share. M&M’s listed subsidiaries (Rs402 / share), Auto component business (Rs57 /share) and M&M’s investments in other subsidiaries (including Mahindra Holidays at Rs30 /share).

LIC Housing Finance (LICHFL) is one of the largest housing finance companies in India. It possesses one of the industry’s most extensive marketing networks in India and Dubai with thousands of direct sales agents.

LICHFL reported robust income from operations, with disbursals growing 23% and net interest margin (NIM) sustaining at 2.45% in the March 2007 quarter over the March 2006 quarter. The company more than doubled (up 115%) the profit after tax (PAT) to Rs 89.14 crore, supported mainly by the strong NII growth and net performing asset (NPA) recoveries, surpassing market expectation. It sanctioned Rs 2479 crore and disbursed Rs 1755 crore — a growth of 72% and 23%, respectively, in the quarter.

LICHFL sanctioned Rs 6105 crore and disbursed Rs 5121 crore in the year ended March 2007 — a growth of 19% & 5%, respectively, over FY 2006. The company’s total income increased 25%, Rs 1583.25 crore. Net profit was up 34% to Rs 279.14 crore in the year.

The gross NPA ratio stood at 2.58% end March 2007 as against 3.41% end March 2006. Net NPAs were 1.26% as against 1.80%. The company has declared a total dividend of 80% (including 50% interim dividend already paid). The outstanding mortgage portfolio was Rs 17563 crore end March 2007 as against Rs 14867 crore end March 2006 — a growth of 18%.

LICHFL has taken a number of growth initiatives. The company recently launched a fixed deposit scheme to raise resources from individual depositors. It has increased its corporate tie-ups with reputed organisations in the country for granting loans to their employees. The total business coming out of such tie-ups accounted for around 33% of the total retail business in FY 2007 — up from 25% in FY 2006.

LICHFL identified certain areas of priority in FY 2007. It has delivered on it to a considerable extent. The company has been able to reduce both the gross and net NPAs significantly. It had undertaken lots of efforts on marketing, resulting in encouraging sanction and disbursement numbers in the March 2007 quarter (Q4).

LICHFL has targeted loan disbursals of Rs 6000 crore in FY 2008 — a growth of 17%, compared with a growth of just 5% in FY 2007. In view of the strong performance achieved in the March 2007 quarter and the management’s confidence and marketing initiatives already taken, such ramp-up in disbursals is achievable. However, on a conservative basis, the company si expected to report EPS of Rs 36.1 in FY 2008.

LIC holds a 40.5% equity stake in the company. There are good chances of LIC exiting from the business in the long run as housing finance is not its core business, nor does it offer any significant synergy. Moreover, in the hands of any other focused and aggressive player, the company can grow much faster. There is also lots of interest in the housing finance business in India due to the enticing growth potential.

Considering this, the current price of Rs 200, which is near the FY 2007 book value of Rs 180 and gives FY 2008 forward P/E of just 5.5 and dividend yield of 4.4%, offers great value. BUY this stock for Long Term.

Motillal Oswal in particularly thorough research report has put a BUY recommendation on Tata Corus Steel with a price target of Rs 739.

They expect consolidated earnings to grow at a CAGR of 26% during FY07-09, driven by overall volume growth and margin expansion in Corus. One year target price of Rs739 is based on EV/EBITDA of 5x FY09E.

Tata Steel is expected to report a fully diluted EPS of Rs 91.9 and Rs 110.9 for FY08 and FY09. You can download the report here.