Stock views on Pennar Industries, Corporation Bank, Lupin

Karvy Stock Broking on Pennar Industries - Target Rs 33


Karvy Stock Broking has maintained its buy rating on Pennar Industries with a target price of Rs 33 in its research report. "Pennar Industries Ltd (PIL) reported net sales of Rs 1509 million, 6% growth (YoY) and 12% de-growth (QoQ) in Q3FY08. This is 6% lower than our estimates. YoY growth of 6% is primarily driven by higher realisation over last year. EBITDA during Q3FY09 improved by 12% (YoY) and 3% (QoQ). This is 15% higher than our estimates. PBT grew by 17% (YoY) due to lower interest cost by 3% and higher other income by 20%. We retain our target price of PIL at Rs 33 and continue to rate it a BUY," says Karvy's research report


Emkay Global on Corporation Bank - Target Rs 240

Emkay Global Financial Services has maintained its buy rating on Corporation Bank with a price target of Rs 240 in its research report. "Corporation Bank’s (Corp Bank) Q3FY09 results were ahead of our expectations driven by better NII growth and higher other income. The NII has grown by 43.2% yoy to Rs 4.8 billion driven by 30.4% yoy growth in advances and 37 bps expansion in NIM’s. The other income has shown a jump of 85%yoy mainly driven by higher treasury and Forex income. Non interest income has grown by a strong 85.0% yoy to Rs 2.8 billion during the quarter. The same was mainly driven by higher treasury and Forex income. The core fee income has grown by 12.6% yoy. We maintain BUY rating on the stock with a price target of Rs 240," says Emkay Global Financial Services' research report.


Karvy Stock Broking on Lupin - Target Rs 850

Karvy Stock Broking has maintained its buy rating on Lupin with a target price of Rs 850 in its research report. "Lupin's recent acquisitions are a clear signal to focus on diversified revenues streams from different markets and create stability in revenues and earnings over the next couple of years. With formulations contributing 70 % of the revenues and the bias being towards India and regulated markets, the company appears on a strong wicket with focus on niche products in regulated markets. We maintain BUY on the stock with a price target of Rs 850," says Karvy's research report.

Stock views on Corporation Bank, Orchid Chemicals, Aventis Pharma

Sunidhi Securities on Corporation Bank - Target Rs 195

Sunidhi Securities & Finance has recommended a buy rating on Corporation Bank with a target price of Rs 195 in its research report. "During Q3FY09, total income has gone up by 50 per cent to Rs 1906 crore whereas net profit has gone up 34 per cent to Rs 256 crore. Net margin however, declined form 15% to 12.7%. During the nine months ended December 2008, net profit surged 19% to Rs 632 crore. NP margin stood at 12.7% against 14% in the previous nine months ended December 2007. At CMP, the share is trading at a P/BV of 0.5 (FY09), P/E of 2.8x on FY09E and 2.5x on FY10E. We recommend BUY on the stock with a price target of Rs 195 in the medium term," says Sunidhi Securities & Finance's research report.


Angel Broking on Orchid Chemicals - Target Rs 128

Angel Broking has maintained its buy rating on Orchid Chemicals and Pharmaceuticals with a target price of Rs 128 in its research report. "Orchid Chemicals & Pharmaceuticals (Orchid) will raise overseas debt to retire the USD 175 million (Rs 858 crore) foreign currency convertible bonds (FCCBs). A resolution passed by the company’s Board recently allowed it to raise up to Rs 1,500 crore, for which shareholder approval is expected to be sought soon."


"The company’s FCCBs are currently being traded at a significant discount and are set to mature in February 2012 at a strike price of Rs348 for conversion to Equity. The current yield-to-maturity is 7.25%. This move takes advantage of the recent liberalised norms that permit companies to use proceeds from overseas debt to retire FCCBs. The company did not confirm about the price at which the bonds would be bought back. We maintain a Buy on the stock, with a target price of Rs 128," says Angel's research report.


Angel Broking on Aventis Pharma - Target Rs 1,027

Angel Broking has maintained its buy rating on Aventis Pharma with a revised target price of Rs 1,027 in its research report. "For 4QCY2008, the company posted net sales of Rs 269.9 crore registering a yoy growth of 32.3% on the back of strong traction in both the domestic and export segments. Robust growth in sales, rise in OPM and higher other income led to 67.8% increase in Net Profit to Rs 45.3 crore during the quarter. For CY2008, the company posted 15.1% yoy growth in Net Profit to Rs 166.2 crore on the back of Sales growth. We maintain a Buy on the stock, with a revised target price of Rs 1,027," says Angel Broking's research report.

Views on banking stocks Corporation Bank, Karnataka Bank, South Indian Bank, Dena Bank,

Angel Broking on CORPORATION BANK

We are positive on Corporation Bank due to its efficient operations reflected in low operating expenses, as a percent to average assets, superior asset quality and proactive investments in modern distribution and payment systems. But the bank’s relatively small size and scope of operations as well as urban focus that subjects it to greater competition from private banks, temper the growth outlook on the key competitive parameters of CASA and fee income.

Karvy Stock Broking on DENA BANK

At current valuations, Dena Bank is the most attractively valued bank in our government banking universe, it is also the smallest. As a result of the wage hike provisions and lower other income we revise our FY2009 EPS to Rs 12.8 and FY2010 EPS to Rs 16.8. In FY2009 earnings would only increase by 2% y-o-y.

SMC Global on SOUTH INDIAN BANK

Kerala-based South Indian Bank has drawn up a five-year plan to drive total business to Rs 75,000 crore by March 2013. Under the five-year plan, banks deposit are likely to grow to Rs 44,000 crore and advances to Rs 31,000 crore by March 2013. We believe that stock is undervalued to the future potential price.

SMC Global on KARNATAKA BANK

Karnataka Bank has a dominant presence in the southern and western parts of India. With 12.17% capital adequacy as on March 2008, we believe the bank has sufficient capital to grow its loan book and comply with Basel II norms. With the implementation of Basel- II norms, the management expects a 100bps impact on its capital adequacy. We believe that stock is undervalued to the future potential price.

Stock Views on VOLTAS, CORPORATION BANK, STERLITE INDUSTRIES, INDIA CEMENTS, IRB INFRASTRUCTURE

CITIGROUP on VOLTAS - RATING: SELL

CITIGROUP rates Voltas as ‘sell/medium risk’ with a target price of Rs 121. Voltas, a Tata group company, is the market leader in India’s heating, ventilation and air-conditioning (HVAC) segment, having 28% market share in electromechanical projects. But domestic demand is decelerating across all its divisions. Citigroup sees increased risk to the company’s earnings if the market environment worsens. It expects overall margins to be in the range of 7.5-8.3% over the next three years. Voltas’ target price is set at 15x September ’09E forward EPS and is supported by forecasts of 27% earnings CAGR for FY07-10E and 29-33% return on equity (RoE). At 15x September ’09E, Voltas will trade at a discount to power equipment stocks like Bhel and engineering & construction companies such as L&T. The 15x September 09E multiple is lower than the average one-year forward P/E of 22x over the past three years — reflecting reduced growth outlook. Key downside risks include: international projects risks, termination of principal agent relationships, increasing competition in domestic and international markets, manpower shortages and material prices. Key upside risks include: stronger-than-expected performance driven by the international business, and turnaround of the domestic operating environment.

INDIABULLS SECURITIES on CORPORATION BANK - RATING: BUY

INDIABULLS Securities reaffirms its ‘buy’ rating on Corporation Bank with a target price of Rs 335, which is 21% more than its current market price. The bank’s operating profit grew by a healthy 16.5% y-o-y in Q109. But net profit grew by merely 4.1%, primarily due to mark-to-market (MTM) losses during the quarter. While growth in net interest income (NII) was hit due to compression in net interest margin (NIM), other income, which grew at 14%, supported growth in operating profit. An increase in business productivity reduced operating expenses, further improving profitability. But pressure on NIM may ease in the next few quarters as the bank hiked its benchmark prime lending rate (BPLR) by 50 bps in August. Moreover, the CASA ratio has been improving consistently on the back of an aggressive increase in the number of branches. This should help maintain, if not increase, the bank’s NIM. There has been a sequential reduction in the bank’s net and gross NPAs. The bank is likely to maintain its asset quality, given that it is not aggressively focused on the priority sector.

MERRILL LYNCH on STERLITE INDUSTRIES - RATING: NEUTRAL

MERRILL Lynch remains ‘neutral’ on Sterlite Industries due to weak zinc outlook. The long-pending decision on the Lanjigarh bauxite mines in Orissa finally came through in Sterlite’s favour. This development is more positive for the parent company, Vedanta Resources, than for Sterlite. But it will have a positive impact on Sterlite too. The approval for the mine indicates the promoter group’s ability to execute growth projects in the country, where mining approvals are typically difficult to secure. Vedanta is setting up a 1.1-million tonne (mt) alumina refinery and 500-kt ally smelter in Orissa. Lanjigarh bauxite mines have estimated reserves of 77 mt and are located 5 km from the refinery. Sterlite will mine the bauxite and sell to Vedanta on a transfer pricing basis. The mine development is expected to take around nine months and will make Vedanta a fully integrated low-cost producer of ally. The benefit from this project is relatively small for Sterlite, since it has only a 29.5% stake in this project, and it will account for a mere 5% of Sterlite’s consolidated profit in FY10. Sterlite is trading at 11.1x FY09E. On MTM spot zinc price of $1,733/tonne, it is trading at 13x FY09E. Merrill Lynch believes the sharp year-to-date stock correction already factors in the zinc price crash. Given that zinc prices are now lower than the marginal cost of production, Merrill Lynch believes the probability of supply closures is rising. In addition, speculation on minority stake buyouts in the company’s zinc and aluminum subsidiaries is building up.

JM FINANCIAL on INDIA CEMENTS - RATING: HOLD

JM FINANCIAL recommends ‘hold’ rating on India Cements (ICL) and values the company at a target enterprise value/tonne of $100 to arrive at its June ’09 target price of Rs 168. JM Financial expects 20.3% and 13.2% yo-y growth in revenue for ICL in FY09E and FY10E, respectively. EBITDA is estimated at Rs 1,060 crore and Rs 1,070 crore in FY09E and FY10E, respectively, resulting in EBITDA margins of 29.0% and 25.7% in that order. ICL undertook corporate debt restructuring (CDR) in FY03, when the cement industry was passing through difficult times and ICL had debt:equity of 4.4x. As the cement sector’s prospects improved, ICL repaid most of its debt and its debt:equity stood at 0.5x in FY08. Subsequent to the CDR, the company has done equity issues that have led to a large capital base, thereby lowering sustainable return on capital employed (RoCE) at the corporate level to 11.8%. ICL is the key player in the South, where it enjoys higher realisations and consumption growth of 11.74%, compared to the all-India growth rate of 10% in FY08. ICL currently trades at 5.7x EV/EBITDA, P/E of 8.1x and EV/tonne of $98 for FY10.

LEHMAN BROTHERS on IRB INFRASTRUCTURE - RATING: OVERWEIGHT

LEHMAN Brothers initiates coverage on IRB Infrastructure Developers with an ‘overweight’ rating and a March ’09 price target of Rs 195. IRB is one of the largest road developers in India, and has 14 BOT road projects. The company’s key strength is its in-house construction capability that enables it to capture the entire economic value of road projects, and helps it to address execution risks. Historical projects have yielded substantially high-equity internal rate of return (IRR). IRB has strong cash flows and low leverage compared to other international road developers. Its operating cash flow is strong and will improve further after commissioning of the Bharuch-Surat and Surat-Dahisar stretches. Lehman estimates cash flows before capex at Rs 1,200 crore over FY09-11. The increase in cash flow is driven primarily by a rise in toll revenue. The net debt-to-equity ratio for IRB is only 0.9, and leverage is likely to remain comfortable at 1.3 in FY10. Lehman values IRB at: (1) Road concessions at Rs 129 per share; (2) Rs 36 per share as growth factor to account for potential new projects; (3) Construction business at Rs 26 per share based on a multiple of 10x FY10 earnings estimate of Rs 87 crore; and (4) Real estate at Rs 3 per share. The stock is currently trading at a multiple of 9.4x FY10 earnings estimate of Rs 520.5 crore and 2.1x FY10 book value of Rs 2,372 crore, and at a substantial discount to its global peers. The stock is currently trading at 1.08x concession portfolio NAV of Rs 4,293.8 crore, implying that not much value has been attributed to construction, real estate and future growth opportunities in road concessions.