Stock Views on State Bank of India, Lanco Infra, Titan Industries

MOTILAL Oswal on SBI

MOTILAL Oswal maintains ‘buy’ rating on State Bank of India (SBI). The bank’s rural and agri-business unit comprises: (1) all the business done at its rural and semi-urban branches; and (2) agriculture business done at any branch. SBI has 7,100 branches in rural and semi-urban areas which account for ~70% of its total branch network strength. About 50% of its employees work in the agri-rural business (ARB) division. The bank’s ARB loan book is currently more than Rs 1 trillion; this accounts for ~23% of SBI’s total loan book and ~28% of its domestic loan book. About 45% of these are farm loans. ARB deposits stand at ~Rs 1.7 trillion and account for ~30% of SBI’s deposits. SBI’s ARB loan and deposits account for 21-22% of the industry, while its ARB branch network accounts for 13% of the industry. SBI is consistently gaining market share in this segment. Motilal expects the bank to report consolidated earnings per share (EPS) of Rs 155 in FY09E and Rs 187 in FY10E. Consolidated book value (BV) will be Rs 1,110 in FY09E and Rs 1,282 in FY10E. Return on assets (RoA) and return on equity (RoE) are expected to be ~1% and 15-16%, respectively, over the next two years. Adjusted for value of SBI Life at Rs 205/share, the stock trades at 1x FY10E consolidated BV.

UBS Investment on Lanco Infratech

UBS Investment has upgraded its rating on Lanco Infratech to ‘buy’, but has reduced the target price by 28% to Rs 250. It has also cut its EPS estimates by 10%/20%/19% to Rs 19/22.4/33.3 for FY09/10/11E to reflect a slowdown in project execution. It has factored in a 10% discount to power, EPC (engineering, procurement & construction) and infrastructure valuations. The contributions to value are from power (44%), EPC (40%) and real estate (15%). The stock is trading at 9.5x FY09E EPS, which is a good buying opportunity. The key risks are fuel availability, execution and a further slowdown in the real estate sector.

JP Morgan on Titan Industries

JP MORGAN maintains ‘overweight’ rating on Titan Industries with a March ’09 target price of Rs 1,475 based on a forward price-to-earnings (P/E) multiple of 23x. The company has seen a revival in demand for its watches and jewellery, post-June ’08. It continues to maintain its previous guidance of 33% growth in revenue to Rs 4,000 crore and similar profit growth for FY09. Specialty and lifestyle retailing will remain the company’s core focus as there are many organic growth opportunities in a nascent market like India. Titan aims to add 750 stores over the next five years, but it has no immediate plans to expand its international business. Several initiatives in the jewellery and watch businesses should help to sustain good growth over the next 1-2 years. Goldplus, Golden Harvest Scheme and innovative collections such as ‘Jodhaa Akbar’ should support double-digit volume growth in the jewellery business. The company has planned exciting new launches in the watch segment, such as a new children’s brand and automatic watches, over the next 6-9 months. Prospects of the eyewear business look encouraging and the company plans to add 60 stores in the next one year and 200 stores over the next three years. It is targeting sales growth of 50% through its own brands to improve margins. JP Morgan feels Titan is the best proxy for attractive growth opportunities in the specialty retail space.