Stock Views on Power Grid, Karnataka Bank, Bharti Airtel

INDIABULLS SECURITIES on Power Grid

INDIABULLS Securities initiates coverage on Power Grid Corporation with a ‘buy’ rating. Power Grid is a central transmission utility engaged in inter-state and inter-regional power transmission business. Over a period of 16 years, it has emerged as one of the largest and best-managed transmission utilities in the world. Currently, it operates around 67,000 circuit km of transmission lines, along with 111 sub-stations and transmits 40-45% of the power generated in the country. The company has around 45 projects in hand, which will drive its revenues and earnings in the medium term. Indiabulls estimates that Power Grid’s net sales and net profit will witness a CAGR of 20.5% and 19.5%, respectively, by ’10 on the back of significant investment opportunities. At the current market price (CMP), the stock is trading at a price-to-book (P/B) multiple of 2.7x. Based on the valuations, the target P/B multiple of the stock is 3.29x, resulting in a fair value price of Rs 110. This implies a potential upside of 21% from the CMP.

DEUTSCHE BANK on karnataka Bank

DEUTSCHE Bank has a ‘sell’ rating on Karnataka Bank with a target price of Rs 115. The ‘sell’ call is based on the following parameters: (i) Frequent equity dilution by the bank in its pursuit of maintaining higher Tier-I ratio, resulting in lower normalised leverage and return on equity (RoE); (ii) Consistently deteriorating asset quality, as higher exposure to retail and small & mid-corporate segments makes it vulnerable to any significant downturn in the asset quality cycle; (iii) Large proportion of the investment portfolio in available for sale category exposes the bank to higher mark to market risk; (iv) Unsatisfactory traction on the fee income front; and (v) Absence of consolidation as a trigger after FY09, as the Reserve Bank of India (RBI) is unlikely to allow foreign banks to acquire private sector banks.

HSBC on Bharti Airtel

HSBC retains ‘overweight’ rating on Bharti Airtel with a target price of Rs 1,002. The investment thesis expects sharp growth in the domestic wireless market, outstanding execution of a low-leverage, low-cost business model with high return on invested capital, and continued alignment of majority and minority shareholder interests. Principal risks will be upward revision of subscriber-based criteria for additional spectrum, hike in spectrum charges, aggressive international expansion and higher capital expenditure (capex) than HSBC’s estimates. Receipt of 3G spectrum should aid Bharti in consolidating market leadership. If the new entrants are able to manage roll-outs, players like Tata Teleservices, Reliance Communications and BSNL will be more vulnerable. The impact on Bharti will be the least. Bharti was willing to pay the government an additional Rs 2,600 crore for 4.4 MHz to start up 2G spectrum.