Stock Views on JAIPRAKASH ASSOCIATES, SHRIRAM TRANSPORT FINANCE

CREDIT SUISSE on SHRIRAM TRANSPORT FINANCE CO

Shriram expects to grow AUM by 20+% over the next year. Further, the fee-based activities, although small, are expected to show strong growth. Spreads are expected to be stable. By end-FY11 Shriram expects 80% of its borrowings to be at a fixed rate, thereby protecting the spreads on its existing loans. On incremental lending, the company has strong pricing power and expects to pass on the higher interest rates. With 3,900 crore of cash and strong demand for securitised loans, Shriram does not expect a raise in balance sheet debt for six to nine months. Capital position will remain strong even if the treatment of securitisation is made more stringent. The share of fixed rate funding was approximately 50% in September 2009 and this had increased to 75% by December 2010 and is expected to be 80% by March 2011. Given that Shriram's lending is fixed rate, this funding profile insulates the margins on its existing loans from rising borrowing costs. Shriram is unlikely to raise balance sheet finance for the next six to nine months. It expects disbursals of 1,600 crore per month and collections of 1,100 crore per month-generating net AUM growth of 500 crore per month. Shriram has 3,900 crore of cash on the balance sheet and expects to raise 3,000-4,000 crore through securitisation/assignment.

JP MORGAN on JAIPRAKASH ASSOCIATES

JP Morgan initiates coverage on Jaiprakash Associates with `Neutral' rating and a price target of 100. JPA is the flagship company of the Jaypee group, with cement assets of 23 mtpa, a captive hydropower construction business, and real estate of about 690 million sq ft around Noida. It is also the holding company for the group's listed IPP (independent power producer), Jaiprakasamit Power Ventures, and listed property developer Jaypee Infratech. The stock looks to have found support, but JP Morgan sees two broad overhangs which could limit a sustained rally in the shares over the next few quarters: A) Profit & Loss and balance sheet related: As a result of capacity ramp ups in cement and power, higher debt could make earnings vulnerable to operational and pricing risks and accelerate the need for new capital at JPVL, B) Sentiment related: i) Even with strong real estate sales at Noida, sentiment remains cautious towards developers and their stocks are trading at discount to NAV, ii) Despite efforts to diversify geographically, the run-up to UP state elections could create some near-term uncertainty for share performance due to the group's perceived political affiliations. The price target of 100 gets 52% of its value from real estate, 30% from power, 12% from cement, 14% from construction, and incorporates a 20% conglomerate discount to account for remaining overhangs.