Stock Views on TATA COMMUNICATIONS, JAYPEE INFRATECH, HDFC

CREDIT SUISSE on HDFC

HDFC management highlighted that mortgage demand continues to be healthy; it is confident of 20-25% growth in FY12E. It believes that the rise in property prices is in line with the rise in income level. HDFC expects to maintain stable spreads of 2.1-2.2% even in the current highinterest-rate environment. HDFC will move to IFRS in two years, and its net worth will increase around 3x. Profit under IFRS is also likely to be 25-30% higher, as it will account for subsidiary/associate earnings. HDFC believes that RoEs will increase by at least 1% every year over the next few years. While the tier 1 is 13%, the bank is comfortable with a tier 1 of 7%. Therefore, on a fully leveraged basis, RoE will be in excess of 35%. Though the retail franchise continues to be robust, given the expensive, Credit Suisse retain their NEUTRAL rating.

BANK OF AMERICA on JAYPEE INFRATECH

Bank of America reiterate their Buy rating on Jaypee Infratech, with a new price target of 86, implying potential upside of 54%. They believe that the stock is the best play on the affordable mid-income segment in NCR. The key triggers include expected strong cash flows from pre-sold residential developments, the launch of parcel 2 for sale in 1QFY12 and the completion of the expressway in 2HFY12. Jaypee Infra is well on target to achieve sales of 12.5mn sq ft in FY11 from its Noida project. It is also looking to launch the new projects at 10-15% higher prices, which should help improve realisations from 3200 to 3700/sq ft in FY12. The execution on the expressway continued at brisk pace and is on track for completion by July-Aug 2011, while BoA only expect the deliveries for real estate development to start by FY14. The key risk remains a delay in the launch of projects in other land parcels. BoA expect more than a 15% contribution to sales from parcel 2 from FY12. The execution could also be a challenge, given that Jaypee Infra has to deliver over 30mn sq ft by FY14-15.

BNP PARIBAS on TATA COMMUNICATIONS

BNP Paribas upgrade the ratings of Tata Communications to BUY. As per the Shareholder Agreement drafted in 2002, 773 acres of surplus land was to be demerged and sold and the proceeds were to be distributed as 25% to the government, 20% to shareholders who tendered their shares in the open offer, 26% to the government for its existing holding and 29% to existing shareholders. TCOM says there are three options to sell or demerge the surplus land: 1) demerge the land and hive off the asset into a separate company and offer the shares to eligible shareholders; 2) sell the land via an auction and pay dividends; and 3) TCOM can develop the land and Panatone (a Tata Group company) to pay 45% of the independently appraised land value to the government and shareholders who had tendered their shares in the open offer such that 100% of the land ownership remains with the existing shareholders of TCOM. BNP estimate the value of the surplus land at INR143b (USD3.1b). After deducting stamp duty and capital gains tax of 25% and dividend distribution tax of 17%, BNP get a per-share contribution of INR234 for TCOM. BNP expect the sale of land to be expedited, benefiting existing shareholders.