Stock Views on RELIANCE INFRASTRUCTURE, TATA CHEMICALS, BANK OF INDIA

JP MORGAN on BANK OF INDIA

JP Morgan recommends `Underweight' rating on Bank of India. BOI reported Q1FY11 net profit at 730 crore, up 70% q-o-q, which was significantly higher than consensus estimates. A big surprise in margins and lower credit costs were the main reason for the profit beat. Asset quality has shown a smart improvement after three quarters of very high slippages. Asset quality held up much better than expected with gross and net NPAs (non-performing assets) contracting in Q1FY11. Net quarterly slippages were down to 50 bps from about 160 bps in FY10. As a result, credit costs fell by about 50% q-o-q in spite of increase in coverage. Provision coverage has now increased to 68%. Also, slippages from the restructured book were restricted to less than 100 crore in this quarter. Asset quality trend has been very positive in Q1FY11 and to some extent factored in the strong outperformance in the last one month. Also, the quantum in margin improvement was very surprising. JP Morgan's `Underweight' recommendation is based on bad asset quality trends over the last twothree quarters but Q1FY11 has been better than expectations on multiple parameters. They believe further stock performance would depend upon the sustainability of Q1FY11 asset quality trends.

BANK OF AMERICA on TATA CHEMICALS

Bank of America reiterates `Underperform' rating on Tata Chemicals on unfavourable risk reward. Tata Chemicals reported strong Q1 numbers helped by a jump in trading revenue and inventory gains. Adjusting for inventory gains, operating performance was flat. Higher margins reported in Q1 are not sustainable and we maintain annual estimates despite strong results. Stock trades at 11x FY12E PE for about 12% EPS CAGR. As per the company, while the urea plant operated below capacity at about 80% due to technical problems, utilisation is likely to be normal going ahead. The non-urea plant at Haldea worked at full capacity given the settled labour unrest. Trading revenue, up 4x y-o-y, was the main revenue driver in fertilisers. Also, the company reported the resignation of the head of the fertilisers division.

BNP PARIBAS on RELIANCE INFRASTRUCTURE

BNP Paribas maintains `Buy' rating on Reliance Infrastructure with a target price of 1,331. The major contributors to the valuation are the engineering, procurement and construction (or EPC) and Mumbai power distribution businesses and net cash on the balance sheet; the 45% stake in Reliance Power contributes 451 to the target price. Risks to the recommendation include poor execution, lower traffic, lower R-Power valuation and inability to recover cash advances. BNP assigns 621 per share to the standalone business (EPC + Mumbai energy + net cash). BNP derived R-Power's value using a 20% holding company discount to the utility team's target price of 140 for R-Power. BNP values all other assets (Delhi distribution, Kochi generation, highways, metros, transmission projects) at 259.