Stock Views on OBEROI REALTY, LARSEN & TOUBRO, SBI

GOLDMAN SACHS on LARSEN & TOUBRO

Goldman Sachs underpins the `Buy' rating on Larsen & Toubro with a target price of 2,006. L&T reported Q4FY11 sales of 15,380 crore and adjusted net profit of 1,500 crore, mostly in line with the consensus estimates. Total order inflows for the year grew by 15% y-o-y. FY11 results on a consolidated basis were also mostly in line with the estimates. The company recognised about 5,900 crore in orders from the Hyderabad Metro project in Q4FY11. Though industry-wide order inflows could remain weak at least through Q2FY12E, the impact of any such weakness on L&T could be muted, given its strong order backlog. Go ldman Sachs revises the FY12E-13E EPS by 0.4-0.5%, adjusting for the better-than-expected margins seen in Q4FY11. Goldman Sachs continues to factor in a 50-basis point decline in EBIT margins in FY12E versus FY11, in line with the company's guidance.

CITIGROUP on OBEROI REALTY

Citigroup initiates `Buy' rating on Oberoi Realty. Oberoi has a strong and diversified land portfolio of about 19 msf, spread largely across four locations in Mumbai. Oberoi, debt free since FY10, has a net cash balance of 1,460 crore, a positive in uncertain times. Development book is uniquely front-ended, with about 65% of gross NAV likely to be delivered by 2015. This feature should stand out in challenging times like now, making Oberoi a preferred pick. Oberoi forecasts 29%/26% CAGR in revenue/EBITDA respectively, based on the front-ended development book. A growing leasing and hospitality portfolio enhances the annuity stream, providing stability to cash flows. Oberoi stands out on the "safety" perception in the sector. It has 1,460 crore of cash, negative net D/E since FY07 and likely the best ROE in the sector. Its impressive disclosures, as seen in the last two quarters, comfort investors as well.

MORGAN STANLEY on SBI

SBI announced weak numbers for March 2011. The lower results were driven by sharp NIM contraction during the quarter (38 bps Q-o-Q) and large provisions. Moreover, the bank took a 8,000-crore hit through book value toward pension. This brought tier 1 ratio to 7.8%. The slippage rate spiked to 3.1% of loans in Q4 from 2.3% last quarter. This looks very high to Morgan Stanley, and they are being conservative and not changing their underlying LLP estimates at this time. Morgan Stanley, however, is building in a 1,500 crore hit to reflect the change in RBI regulations. However, if rates remain at current levels (lending rates are the highest in 10 years) and the economy slows, then credit costs could rise sharply (especially given the large unseasoned infrastructure loan book). Morgan Stanley's new EPS for 2012E is 3% lower as they reduce pension costs (already reflected in lower book). The new target price implies about 17% downside from current levels. The stock would trade at 8.1x FY2012E core P/E and 1.3x core book.