Stock Views on NTPC, BLUE STAR, STATE BANK OF INDIA

JP MORGAN on STATE BANK OF INDIA

JP Morgan maintains Neutral ratings on State Bank of India. SBI expects loan growth of 21-22% in FY12. Strong momentum in infra loan growth is expected to continue given high undisbursed sanctions over last 2 yrs, but growth in new sanctions is expected to slow down. Retail credit, including mortgages; continue to remain strong with non-metro cities propelling mortgage growth and high car demand. Management is seeing improving asset quality trend with lower gross delinquencies expected. But JP Morgan expect NPA provisions to remain high due to provisioning required to increase coverage and possibility of provisioning to be made of teaser loan portfolio. Citigroup continue with the Neutral stance on SBI and believe that valuations at par with PNB/BOB are not justified with lower ROEs. Operating performance would be strong but this is contingent upon strong asset quality improvement. Also higher NPA and pension provision would impact profit growth.

UBS on BLUE STAR

UBS initiate coverage on Blue Star with a Buy rating and a target price of Rs 430. Blue Star is a mechanical, electrical and plumbing (MEP) contractor, which also manufactures air conditioners (AC) and commercial refrigeration systems. UBS believe it is a structural growth story and a beneficiary of growing infrastructure spending in India. UBS believe earnings will be supported by its integrated project execution ability in MEP, significant experience, a presence in the high-growth AC and commercial refrigeration segments, a broader market focus and its derisking by focusing on the industrial and infrastructure sectors. Positives include its asset-light business model, low leverage and Rs 21bn order book for electro-mechanical projects, which provides visibility for about one year. A good economic environment could lead to an upside surprise on its outlook. The price target implies 16.5x FY13E PE.

GOLDMAN SACHS on NTPC

Goldman Sachs maintains Neutral rating on NTPC. NTPC declared a commercial operation date (COD) of 500 MW Unit #7 of Korba and commissioned 500 MW Unit#6 of Farakka during this week taking the total installed capacity to 33,694 MW. The capacity addition so far for FY11 is 1.5GW vs its target of 4.2GW for FY11E. Further, NPTC has synchronized the 660MW Unit 1 of Sipat I and it could be declared commercially operational over the next few weeks. While timelines of commissioning of Korba and Farakka are in line with the estimates, Goldman Sachs expected NTPC to earn over and above the regulated return for these capacities as a portion of the capacity is to be sold on merchant mechanism. Management initially guided that they will sell at least 65% of the output from these units on merchant mechanism, but the Ministry of Power allowed NTPC to sell only 15% of the capacity under merchant mechanism. However, NTPC has now entered into a 2 year PPA to sell even the 15% output (75MW) from Korba also at regulated tariffs, which implies that NTPC will not benefit from near term strength in merchant rates. Assuming the short term rate for FY12E to be Rs4/kwh and variable cost of 1.5/kwh, Goldman Sachs believe the benefit to NTPC at PBT would have been 2.5/kwh.