Stock Views on UNITED BANK OF INDIA, ORIENTAL BANK OF COMMERCE, STRIDES ARCOLAB

CREDIT SUISSE on UNITED BANK OF INDIA

Credit Suisse initiates coverage on United Bank of India with an `Outperform' rating and a target price of 129. Improving infrastructure and governance is boosting growth in eastern Indian states which until now have been relatively less developed. UBI, a government-owned bank, has strong presence in eastern India that houses 68% of its 1,568 branches. On the back of this branch network, UBI enjoys a strong liability franchise and has consistently maintained a 40%-plus share of low cost deposits. While its deposit base has been strong, the bank has operated at relatively low loan-deposit ratios (LDRs) that have dampened RoAs. With economic growth in the region picking up, the bank is now well positioned for acceleration in growth. Trading at 0.8x FY12E book and RoE of 18%, UBI is cheap even relative to other state-owned banks. It is also the cheapest deposit franchise with a market cap-to-CASA ratio of 10% versus 15-35% for peers. We expect the forecast upswing in profitability to be a catalyst for re-rating, and value UBI at 1.1x FY12E book (6x EPS), with a target price of 129.

RELIGARE on ORIENTAL BANK OF COMMERCE

Religare remains positive on Oriental Bank of Commerce as it believes that the risk-reward is highly attractive at current levels given a healthy ROE/dividend yield of 20%/4%% and earnings CAGR of 20% through FY13. Asset quality deteriorated in Q3FY11 with GNPA rising about 27 bps Q-o-Q to 1.94% due to one-off slippages. However, the management is confident of maintaining GNPA under 2%. OBC's exposure to telecom stood at 2,100 crore with 2G players comprising about 700 crore. Microfinance exposure stood at about 450 crore (0.5%), with 30% being concentrated in Andhra Pradesh. Aviation sector loans stood at around 900 crore. At the current market price, the stock is trading at 0.9/5.0 FY12E BV/ EPS-one of the cheapest valuations among PSU banks.

MACQUARIE on STRIDES ARCOLAB

Macquarie initiates coverage on Strides Arcolab with an `Outperform' rating and a target price of 485, implying upside potential of 28%. Limited FDA-approved capacities, longer timelines to set up facilities, changes in regulation (auto-handling is now mandatory in the EU) and manufacturing complexities make injectables a limited competition opportunity. Macquarie estimates the injectable franchise to contribute about 50% and 70% of sales and EBITDA respectively, by CY12. This transition into a sterile injectable play will lead to further multiple rerating. Capacity utilisation is about 30%, primarily because newer facilities are awaiting regulatory approvals. Of the current 428 million sterile dose unit capacity, just 167 million is FDA approved. FDA approval for the new facility and ramp-up of products launched under the big pharma deals should help increase utilisation thereby rationalising fixed costs. A significant capex cycle ( 800 crore from CY06-09) is now behind Strides, and recent QIP of $100 million has helped to significantly reduce its debt/equity.