Stock views on SESA GOA, S. KUMARS NATIONWIDE, HDFC

HSBC on HDFC

HSBC reiterates the `Neutral' rating on HDFC. HDFC reported Q1 net profit 13% below the Street's estimates mainly because of lower-thanexpected trading gains. The stock fell about 2% on the back of these numbers. Robust growth of 62% in new residential loans led to a 17% loan book growth after sell-down of some parts of the loan book. While new developer loans data was unavailable, overall disbursements grew 25-30% in Q1FY11. Home loan spreads, too, grew from last year to 2.34%. Fees and capital gains are typically lumpy and hence acted as a drag on topline growth, even though operating profits grew 24% and earnings 23%. HSBC values HDFC using a weighted average combination of PE, PB, and economic profit model (EPM) methodologies and incorporates sum-of-the-parts to value its non-mortgage businesses. HSBC raises the 12-month target price to Rs 3,010 from Rs 2,657, now implying a potential return, including dividends, of 1.7%.

JP MORGAN  on S. KUMARS NATIONWIDE

JP Morgan recommends `Overweight' rating on S. Kumars Nationwide (SKNL). SKNL is a leading branded textiles and garments player in India with a presence across economy, mid-market and luxury segments. It has expanded into European and North American markets through its acquisitions of Legguino in Italy and Hartmax in the US. Rising discretionary consumer spending in India is driving over 25% growth for branded textiles and apparel. SKNL is well positioned to benefit from this trend-it offers a wide product range spread across all market segments, has well recognized brands and a strong distribution network. Its domestic growth strategy is aligned to the changing customer profile, as it shifts its product mix in favor of ready-to-wear clothing. JP Morgan sees SKNL trading beyond 6-8x forward P/E, unless it allays concerns on: 1) high working capital intensity and 2) accounting policy followed on CDR (corporate debt restructure) related interest payments. Key risks include delay in listing of Reid & Taylor, rising working capital, changes in accounting treatment for deferred interest, which would impact our profit estimates, and delays in turnaround of the overseas business.

CLSA  on SESA GOA

CLSA downgrades the rating of Sesa Goa to `Sell' with a target price of Rs 290. Spot iron ore prices are down 35% from the April '10 peak but that the worst is not over. CLSA's resources team has come out with new iron ore price forecasts of $90-95/tonne for CY11-12 - 15-20% below consensus. Factoring in this, CLSA cuts Sesa Goa's EPS estimates 34-48% over FY11-12. CLSA's estimates assume flawless execution by Sesa on volume growth and assumes iron ore volumes growing at 25% CAGR over FY10-14, hitting 50 million tonnes in FY14. On the revised estimates, Sesa's NPV (net present value) on existing mine-life drops to Rs 247. CLSA gives the company the benefit of doubt on reserve accretion and assumes a further 250 million tonnes of reserves at zero cost taking NPV higher to Rs 290 - still 18% below current price. Any disappointments in volume growth and reserve accretion could pull NPV lower. Sesa's stock remains highly correlated to spot iron ore prices and CLSA does not expect any reversal of the recent underperformance of the stock.