Stock views on Andra Bank, Honda Motors

Kotak Securities on Andra Bank - TARGET PRICE: RS 81

Kotak Securities has initiated coverage on Andhra Bank with an ‘accumulate’ recommendation, saying the bank has one of the lowest NPAs (non-performing assets) in the industry and hence is better placed vis-à-vis its peers. The fact that the bank has been focusing on high yielding segments like agriculture, infrastructure, SMEs and retail has helped it deliver higher margins as compared to other public sector banks, says Kotak. “The bank’s gross NPA came down from 5.04% in FY04 to 1.07% in FY08 and net NPA declined from 0.93% to 0.17% during the same period,” the Kotak Securities note to clients said. The brokerage expects the bank to post an earnings growth of 1.1% CAGR (compound annual growth rate) for FY08-10E (estimated) as a result of moderate loan growth and lower noninterest income. However, says the note, the noninterest income would contribute less in the banks total income due to subdued equity market as well as increase in bond yields with corresponding fall in bond prices.

BNP Paribas on Honda Motors - TARGET PRICE: RS 884

BNP Paribas has upgraded its rating on two-wheeler major Hero Honda from ‘reduce’ to ‘buy’. The brokerage believes that potential upside on volume and earnings upgrades may act as positive catalysts for the stock. The year-to-date (YTD) growth in retail sales for Hero Honda, says the brokerage, were up 18% y-o-y (year-on-year) versus industry growth of 9.8% and going forward too, the volume growth looks healthy. “We don’t see any risk to our volume estimate, because our FY09 volume growth of 12.9% implies a 10% growth over the next eight months compared to a 17% growth achieved in the first four,” BNP Baribas note said in its note to clients. The brokerage has increased the FY09 EPS (earnings per share) and FY10 EPS estimates by 6.9% and 9.1% respectively. It expects the company’s net margins to be protected by fiscal benefits. “We do not see any threat to Hero Hondas’s net margins because we expect the aggregate 3-3.5% price increase (taken in two parts) coupled with lower tax rate due to fiscal benefits from the Haridwar plant to offset input cost pressure on the EBITDA line,” the note added.