Stock views on INFOSYS TECHNOLOGIES, STATE BANK OF INDIA

MERRILL LYNCH on STATE BANK OF INDIA

Merrill Lynch reiterates the `Buy' rating on SBI with a target price of Rs 2,800. Merrill Lynch believes NPL (non-performing loan) accretion in this quarter may be about Rs 2,500-2,700 crore versus estimate of Rs 3,000-3,500 crore. Moreover, this includes an estimated Rs 700-800 crore of agri related NPLs arising from the agri loan waiver scheme that expires on June 30, '10. NPLs from the restructured loans in this quarter may be less than 3% versus the expectation of 5%. Last year SBI had a negative carry on almost Rs 70,000 crore of funds that is not there this year; and CASA is sustaining at 47%. Hence, margins may be up +45-50 bps y-o-y resulting in a topline growth of +40% supported by 20% loan growth. Finally, opex may also be under control and credit costs may also be lower. SBI is a key beneficiary of the loan uptick, driven by infra loans and housing loans. Further, it's leveraged to rate hikes, likely by September '10. Earnings are expected to rise +7% for a 50 bps hike in rates. Merrill Lynch's FY11/12 earnings growth estimates of 23/40% are led by the core business. RoE is estimated to be 20% by FY12.

CITIGROUP  on INFOSYS TECHNOLOGIES

Citigroup maintains `Hold' rating on Infosys. Infosys reported Q1 revenue of $1,358 million, EBIT margin decline of about 200 bps and net profit of Rs 1,490 crore. Volume growth was strong at about 7.6% q-o-q while pricing declined about 60 bps. For FY11, Infosys raised the revenue growth guidance to 19-21% growth and EPS guidance to Rs 112-117. Implications for the sector: (a) Supply side issues increasing - Infosys, despite being proactive with wage hikes, has seen a uptick in attrition - margin management could be a challenge; (b) Europe's outlook continues to be challenging; (c) Pricing uptick could take more time than anticipated. A large part of the management's EPS guidance upgrade was due to currency. Citigroup believes EPS upgrades, if any, are unlikely to be seen until the September quarter results, and with valuations of about 23x FY11E Citigroup sees the upside as limited.