Stock Views on TATA STEEL, POWER GRID, MANAPPURAM GENERAL FINANCE

UBS on MANAPPURAM GENERAL FINANCE

Manappuram General Finance and Leasing (MGFL) is one of India's largest gold finance companies with $1.7 billion in assets under management (AUM) as of March 2011. MGFL's AUM recorded a 93% CAGR in FY07-11, and UBS forecasts a 43% CAGR in FY11-13. While competition in the segment is increasing, MGFL is attractive as it has advantages over the non-banking financial companies from its brand and branch network. It also has a shorter turnaround time and lower costs per loan compared to the banks. UBS estimates average ROA/ROE of 4.4%/23% in FY12-13 as UBS expects NIMs to decline. However, given that 59% of its branches are less than two years old, there could be strong productivity gains once growth normalises in the medium term. However, given the outlook for medium-term growth and ROE, UBS thinks the risk-reward is attractive.

J P MORGAN on POWER GRID

J P Morgan maintains the `Overweight' rating on Power Grid Corp, with a target price of 116, offering 17.4% upside potential from current levels. YTD, the stock has outperformed the Sensex by 13.5% in CY11, owing to its defensive characteristic. Terminal value contributes 70% to the enterprise value of 917 billion. PGCIL reported March PAT of 750 crore, ahead of consensus estimates of about 690 crore. EBIT of 1,280 crore was broadly in line. PAT surprise was led by higher other income and lower capital costs. In FY11, operating leverage, partly led by economies of scale, stands out. OPM improved about 170 bps during the year mainly as staff costs increased only 2.6%.

MORGAN STANLEY on TATA STEEL

Tata Steel reported a good adjusted consolidated PAT of 1,900 crore in Q4FY11, up 115% Q-o-Q but down 29% Y-o-Y and ahead of general expectations. EBITDA was 4,470 crore, about 5% lower than estimates but was remarkable for the solid beat at Tata Steel Europe, which delivered EBITDA/t of $85 versus estimate of $57. Tata India reported EBITDA/t of $400, up 4% Q-o-Q and down 3% Y-o-Y and 9% lower than estimates. TSE's EBITDA/t of $85/t was aided by an average realisation of $1,192/t and operating cost of $1,108/t. In Q1FY12, Morgan Stanley expects higher raw material costs to be largely negated by increased steel prices. Realisations increased 7% Q-o-Q to 44,400/t, in line with the expectation. However, staff costs and other expenditures were higher than expected.