Stock Views on Tata Power, Union Bank of India, Reliance Capital

NOMURA on TATA POWER

NOMURA initiates coverage on Tata Power with a ‘buy’ rating and a 12-month target price of Rs 854, representing 17% potential upside from the current level. Nomura believes a strong project pipeline, adequate fuel security, global expansion plans and high earnings visibility are key positives for the stock. Tata Power’s capacity will rise to 13,611 mw by FY14, representing a CAGR of 33% over FY08-14E — significantly higher than the targeted 10% CAGR under India’s 11th Five-Year Plan. Nomura expects its EPS to rise from Rs 47.5 in FY08, at a CAGR of 28%, to Rs 209.4 by FY14E, due to stable cash flows from businesses in Mumbai, North Delhi Power, Mundra UMPP and Indonesian coal mines. The target price translates into a 14.2x FY09E EPS of Rs 60 and 12.9x FY10E EPS of Rs 66.4 — a significant discount to NTPC’s 20.9x FY09E P/E and 18.8x FY10E P/E.

MOTILAL OSWAL on UNION BANK OF INDIA

MOTILAL Oswal maintains ‘buy’ rating on Union Bank of India. The bank is confident of achieving its FY09 targets of stable margins (2.85% vs 2.8% in H1 FY09), loan growth of over 22%, deposit growth of 23%, and slippage ratio of <1.25%.>

(1) technology and process transformation;

(2) fast growing retail deposits, branch network and customer base; and

(3) achieving profitable business growth.

Motilal has upgraded FY09 estimates by 9% to factor in the bond gains and has downgraded the FY10 estimates by 3% to factor in higher NPA charges. Motilal expects the bank to report an EPS of Rs 33 in FY09 and Rs 35 in FY10. The stock trades at 4.7x FY09E EPS and 1.1x FY09E book value. RoA and RoE will remain strong at 1.1%+ and 23%+, respectively, over the next two years.

CITIGROUP on RELIANCE CAPITAL

CITIGROUP has a ‘sell’ recommendation on Reliance Capital with a target price of Rs 500. Reliance Capital has corrected sharply since September ’08, and is now close to its bare bones valuation. But Citigroup believes its businesses will continue to face challenges due to:

a) uncertainty in the capital market;

b) tight funding environment; and

c) slower economic and savings growth.

It values the life insurance business at Rs 294; AMC at Rs 124; consumer finance at Rs 42; non-life insurance at Rs 21 and broking at Rs 22, at 10x one-year forward EPS. Also, it does not attribute any value to unrealised portfolio gains due to sharp correction in the capital market. Key pressure points are:

a) earnings linked to the equity market;

b) non-banking platform;

c) growth in life insurance and consumer finance can slow meaningfully; and

d) vulnerability of consumer finance asset quality.

An easing of any/some of these concerns can lead to a change in the view on the stock.

Stock Views on Union Bank of India,

Mafatlal Securities on Union Bank of India - Buy Target Rs 205
Mafatlal Securities has recommended a buy rating on Union Bank of India with a target of Rs 205 in its September 11, 2008 research report. "At the current price of Rs 147.60 the scrip discounts its estimated EPS of FY09 and FY10 by 5.28x and 3.91x respectively. The scrip is currently trading at a PE ratio of 5.37x (TTM) which is at a discount of 39% to the industry PE of 7.45x. The scrip is trading at 1.10x and 0.88x of estimated BV of FY09 and FY10. We recommend a “BUY” on UNBK with a target price of Rs 205 and an investment horizon of one year," Mafatlal Securities' research report.

Anand Rathi on Punjab National Bank - Buy Target of Rs 515

Anand Rathi Securities has recommended to buy Punjab National Bank (PNB) between Rs 490 and Rs 495 with a stoploss of Rs 485 and a target of Rs 515 in its September 12, 2008 research report.

ICICIdirect.com on Tata Motors - Buy above 424

ICICIdirect.com has recommended to buy Tata Motors above Rs 425 with a stoploss of Rs 424 and target of Rs 427/435/higher in its September 12, 2008 report.

Deutsche Bank on Kotak Mahindra Bank - Target of Rs 600

Deutsche Bank has downgraded its rating on Kotak Mahindra Bank to Hold with a target of Rs 600