ICICI Bank

While ICICI Bank’s moves to improve its financials are working, it will take 2-3 quarters before the benefits will be felt
Even as the June 2009 quarter performance of ICICI Bank was among its worst in terms of operational numbers, the bank’s medium-term strategy of focusing on the four ‘Cs’ seems to be working. This strategy centers around capital conservation, CASA improvement, cost control and credit monitoring. However, it may take two-three quarters before the benefits of these changes could be fully felt. While the performance of its life insurance subsidiary has also been muted, the pace is expected to pick up in the remaining part of the year. And, if economic growth picks up as anticipated by the second half of the current fiscal, it should help clear the clouds surrounding the bank’s medium-term growth prospects and asset quality.

Core income down Consequent to the economic slump that hit the world including India in 2008, ICICI Bank consciously decided to cut its exposure to unsecured retail segments like credit cards and personal loans. Not surprisingly, the share of its retail loans to total loans has been on a decline for some time now and stood at 48.5 per cent for June 2009 quarter. This is also partly responsible for the reduction in the bank’s total domestic loans and hence, has also meant lower deposit growth. For the quarter ended June 2009, the bank’s net interest income (interest income minus expended) was down five per cent on a year-on-year (y-o-y) basis. The decline in its loan portfolio, slowdown in business activity and lower volumes in retail savings and investment products led to a 32.6 per cent decline in the bank’s fee income to Rs 1,319 crore for the June quarter.

Over the last few quarters, ICICI Bank’s profits have received some support from gains on the treasury front. For June 2009 quarter, treasury gains stood at Rs 714 crore as against a loss of Rs 594 crore in June 2008 quarter, thus operating profit was up 47.5 per cent y-o-y at Rs 2,529 crore; adjusting for treasury gains, profit was lower by 21 per cent.

Problem loans still high While the bank fights hard to clear the legacies of the economic slump, its non-performing assets (NPAs) have also been high. Nonetheless, the bank has been aggressive in making provisions; total provisions were up 31 per cent at Rs 3,808 crore in 2008-09 and up 67 per cent at Rs 1,324 crore in June 2009 quarter. To a large extent, the RBI’s policy allowing banks to not classify restructured assets (providing relief till December 2009) as NPA has helped banks contain any sharp rise in NPA levels. For ICICI Bank, the combined figure for net NPA and restructured loans work out to 4.14 per cent (including 1.95 per cent for restructured loans) as compared to the 1.74 per cent net NPA reported for June 2008 quarter. Notably, even as the bank upgraded Rs 3,200 crore worth of loans as standard assets (as repayment track-record improved) during June quarter, it expects to restructure some more corporate assets (Rs 1,500-2,000 crore estimate analysts) during the next two quarters, both in its domestic and overseas books. However, it believes that the corporateside NPA levels will not rise. Analysts believe that the bank’s absolute provisioning figures should decline from the third quarter of 2009-10, as the share of unsecured retail loans to total loans shrinks further from 7-8 per cent currently – this category accounts for about 66 per cent of the bank’s NPAs.

Margins to rise As its deposit base has declined over the last few quarters, the bank has allowed the high-cost deposits to contract while maintaining the low-cost current and savings account (CASA) deposits base. Thus, the share of CASA in total domestic deposits has risen to 30.4 per cent in June 2009 quarter from 26.1 per cent in March 2008 quarter, which in turn has partly helped improve its net interest margins (NIMs) on a y-o-y basis. Although the margins were lower on a sequential basis, it is largely due to the low yield priority (agri) sector loans that the bank undertakes in the March quarter every year, wherein the impact on margins is felt in the June quarter.

ICICI Bank has licenses to open 580 new branches, which it aims to do so by the end of March 2010. This should help improve the bank’s CASA ratio, which the bank aims to take it closer to 33 per cent levels by March. Also, 50-55 per cent of its total borrowings are wholesale in nature, part of which was raised at high rates of 11-12 per cent during September-November 2008 for a period of 12 months. As they come up for renewal, the bank hopes to refinance these at lower levels; analysts expect a reduction of about 300-400 basis points (bps) in interest costs for such borrowings. Overall, even as the share of high-yielding retail loans declines (or stays flat), the bank’s NIMs should expand driven by increase in CASA deposits and re-pricing of wholesale deposits says a bank’s spokesperson.

The other aspect is the bank’s success in containing costs. For 2008-09, operating expenses were down by 14 per cent – for June 2009 quarter these have declined by 19.2 per cent to Rs 1,546 crore – mainly due to focus on cutting employee costs, direct marketing expenses and collection charges. Going ahead, even as it aims to expand its branch network, the bank hopes to curtail the absolute operating expenses at 2008-09 levels, which should help keep its cost-to-income ratio low.

Outlook While the tough times don’t appear to be over yet, the worst seems behind. With focus shifting away from non-secured loans, the bank’s asset portfolio quality should hopefully improve.

Given the expectations of an upward bias in interest rates, analysts don’t expect the trend in high treasury gains to continue in the ensuing 2-3 quarters. Assuming an economic recovery as well as pick-up in credit growth from the second half of 2009-10, the bank is seen clocking a topline growth of about 5 per cent led by enhanced focus on project and corporate financing and home loans. This, along with an increase in NIMs and lower costs, the bank’s core profit growth (excluding treasury gains) should be relatively better. Among its key subsidiaries, the turnaround of ICICI Prudential Life Insurance Company is expected in 2010-11; any move to list this subsidiary should unlock value. Analysts value the worth of all subsidiaries (AMC, securities trading, general and life insurance) at Rs 180 per share of ICICI Bank. At Rs 759, the stock is trading a price-to adjusted-book value (only for the core business) of 1.4 times and leaves room for 15-20 per cent gains over 12 months. Investors may consider on dips.

HDFC

HDFC is facing stiff competition from state-run banks.With the P/E at a high, it may be a good idea to exit at the current price point
HOUSING Development Finance Corp, better known as HDFC, is the biggest housing loan provider in India. In fact, its success is so unparalleled that its name has become synonymous with housing loans in the country. It is also one of the most consistent performers in India Inc. For instance, its profit growth remained in the range of 20-25% in six years from FY 2002-2007. As a result, its stock has become darling of investors be it retail, high net worth individuals or foreign institutional investors. However, state owned banks; particularly State Bank of India (SBI) has upped the ante on housing loans, which has intensified the competition.

BUSINESS

India is a country with acute shortage of dwelling units. This shows that housing loans will continue to be a growth business in many years to come. Moreover, housing loan is secured lending. Unlike unsecured lending such as credit cards, the risk of non-performing loans is much lower in mortgage business. The logical conclusion from these facts is that HDFC - being the largest mortgage player - is set to grow in future. But the competitive landscape has dramatically changed. In the good days of boom, it was ICICI Bank, which was the closest competitor of HDFC in terms of housing loans.

Today, public sector banks are coming out with attractive schemes for prospective borrowers. For instance, country's largest bank, SBI, has offered home loans at 8% per annum interest rate to new borrowers. The bank has met with such success that it has become the largest home loan provider in terms of both numbers of homes and volumes.

Other top PSU banks are also offering housing loans at attractive rates. In fact, today PSU banks offer lowest rates for housing loans. No doubt HDFC is feeling the heat. Moreover, PSU Banks have adopted modern practices such as core banking solution (CBS), improved their culture by instilling customer-focused approach at branch level, hired young workforce and introduced incentive based compensation structure. These changes have radically changed the competitive landscape in banking and finance space.

HDFC, however, has an upper hand due to its relationships with many builders across the country and its valueadded services to potential home buyers like qualitative information about builders and projects. Its staff also tends to be aggressive in courting prospective customers, while state-run banks mostly rely on walk-in customers.

FINANCIALS

HDFC’s performance has slipped a few notches in the last few quarters. In fact, in the December ’08 quarter, its net profit fell 2.3% year-on-year. Though profits soared 20.7% in the June’09 quarter, still the performance is lacking on some parameters. For instance, the growth in advances has come down to a mere 8.4% in the June ’09 quarter from 31% a year ago.

It is clear that the company is finding it difficult to maintain the growth rates. Plus, the competition has intensified over last year.

Moreover, the cost of funds for banks is much lesser because 30-40% of their deposits are CASA (current account and savings account) in nature. And because such deposits provide better liquidity than term deposits, banks offer extremely low interest rates. On the contrary, the cost of funds for HDFC is high because it is a non-banking finance company (NBFC) and cannot mobilize CASA deposits. For instance, in FY 2009, the cost of funds for SBI stood at 5.9% compared to 9.7% in case of HDFC. (Refer the chart below for comparison of cost of funds between HDFC and SBI over last five years). With higher cost of funds, HDFC cannot match the interest rates offered by PSU Banks on home loans.

VALUATIONS

The stock is trading at 30 times its trailing twelve months standalone earnings. The adjacent chart shows price to earning multiple (P/E) at various points in last six years. It is clear that only once in last six years that valuations were higher than what is prevailing now. And that happened in last months of year 2007. Those were the days of great Indian bullrun, when the company was growing by leaps and bounds.

The point here is that HDFC is facing strong headwinds in form of stiff competition. However, it seems that stock market has not captured it. On the contrary, the current rally has pushed the stock price bit too far. There is no doubt that HDFC will continue o grow due to its expertise in mortagge business. But, the growth rate may not be as high as invetsors have become used to. Later or sooner, stock market will factor this into valuations. It would be wise for long term investors to sell the stock or at least reduce exposure.

Stock Views on Allahabad Bank, Wipro, ICICI Bank

Maximus Securities on Allahabad Bank - Target Rs 105

"At the current price of Rs 75.50 the scrip discounts its estimated EPS of FY10 by 3.08x. The scrip is currently trading at a PE ratio of 4.39x and P/BV ratio of 0.68x which is at a discount of 45% and 10% to the industry average respectively. With the pick up in credit demand particularly in infrastructure and home loan segment, the business of the Bank is expected to grow at 20-21% in FY10. However NIM is likely to be affected with reduced lending rates which may affect the profitability of the Bank in the coming year. But the Banks target of 40% CASA ratio will help to maintain NIM at 2.75% at the end of FY10. With restructured accounts in the balance sheet, rise in NPAs remains a concern. However the fact that the Bank is adequately capitalized, provides cushion in case NPAs rise. We recommend a “BUY” on Allahabad Bank with a target price of Rs 105 and an investment horizon of one year," says Maximus Securities' report.

Sharekhan on ICICI Bank - Target Rs 781

"ICICI Bank’s loan book growth has decelerated sharply in the last three years with FY2009 marking the first instance of contraction in the loan book. The root cause of this decelerating trend in the loan book growth is the slowdown in the retail segment. The slowdown in the retail segment is partly due to the weakening demand and partly due to the management’s objective of re-balancing its loan portfolio following an uptick in delinquencies. At the current market price of Rs 733, the stock trades at 17x its FY2011E earnings per share (EPS) and 1.5x its FY2011E book value (BV). While we are maintaining our earnings estimates, we are revising our price target to Rs 781 based on our FY2011 estimates. We maintain our Hold recommendation on the stock,"

Bonanza on Wipro - Target Rs 500

"Wipro is the second largest IT service vendor in the Indian Market behind IBM. We expect the company to leverage its strong presence in India and continue to bag multiple contracts in the coming months, which would aid Wipro in reporting incremental revenues in the coming years. The company has bagged Six and a Half year contract worth Rs 1182 crore from Employee State Insurance Corporation. Order worth Rs 200 crore from LIC. Company bagged order from Unitech wireless executable over a period of Nine years for an undisclosed sum. Company has reported a growth of more than 28% in its topline for FY09."

"Going ahead, with orders form Indian Sector improving and Clients in US and Europe also seeking a reduction in cost and opting for out sourcing Company’s topline is expected to improve in the coming years and expansion of profit margins can also not be ruled out. At current market price the stock is trading at an earning multiple of 13.89 x for TTM EPS of 26.64. We recommend investor to gradually accumulate the scrip on dips near Rs 395 with a target of Rs 500 in the medium term," says Bonanza's report.

Stock views on ICICI Bank, Pantaloon Retail, Axis Bank

Karvy Stock Broking on Axis Bank - Target of Rs 829

Karvy Stock Broking has maintained its buy rating on Axis Bank with a target price of Rs 829 in its research report.

"We have revised our Axis Bank earning estimates after a visit to the bank's senior management; we expect that the bank's credit growth would moderate to 31.5% (Y/Y) to Rs 1,146 billion from our earlier credit book estimate of Rs 1,226 billion in FY10. Net interest margin is estimated to shrink by 30 bps to 2.57% in FY10.The bank's core fee income growth momentum is expected to come down to 28% (Y/Y) in FY10 from 70% in FY08 and 50% in 9MFY09. The bank's management did not provide with any guidance or estimates on non-performing assets front; we expect 152% (Y/Y) rise in gross NPA in FY10 to Rs 21.5 billion and increased credit cost to 1.3% in FY10 from 0.71% in FY08 and 1.1% 9MFY09."

"We increase our earning estimates for FY09 by 5.0% to Rs 17.7 billion and reduce for FY10 by 9.6% to Rs 15.5 billion and reduce our target price by 29% to Rs 629 per share.We estimate the bank to record RoAE of 18.8% and 14.4% in FY09 and FY10 respectively. We re-iterate our BUY rating on the stock with a target price of Rs 629 at 2.2x adjusted book value FY10," says Karvy Stock Broking's research report.


Angel Broking on Pantaloon Retail - Target of Rs 439


Angel Broking has maintained its buy rating on Pantaloon Retail with a target price of Rs 439 in its research report.


"We are bullish on the long-term growth prospects of the Retail Sector despite the ongoing slowdown in the economy. Our Top Pick PRIL is the largest player in the Indian Retail Sector. We are positive on PRIL as it has been able to maintain its growth (YTD) at a healthy 31% on a Standalone basis and 34% on a consolidated basis despite the slowdown. We believe that PRIL Standalone would be able to meet our FY2009 and FY2010 Net Sales estimates of Rs 6,894 crore and Rs 8,492 crore, respectively. We estimate PRIL Standalone to clock Net Profit of Rs 154.6 crore and Rs 217.8 crore in FY2009 and FY2010, respectively.


On the bourses, the PRIL stock has witnessed significant correction in the past few months and is currently trading at attractive valuations and provides favourable risk-reward for the investors. We have valued PRIL's stake in FCH, HSRIL and Future Bazaar at Rs 33, Rs 13 and Rs 20, respectively. We maintain a Buy on the stock, with SOTP target price of Rs 439, translating into an upside of 73% from current levels," says Angel Broking's research report.


Sharekhan on ICICI Bank - Target of Rs 805

Sharekhan has maintained its buy rating on ICICI Bank with a price target of Rs 805 in its research report.

"As part of its strategy of focusing on capital preservation and improving asset quality, the bank does not intend to grow its balance sheet aggressively in the coming fiscal. It expects a balance sheet growth in mid single digits for FY2010, with the loan mix likely to shift further away from the retail segment."

"In view of the management, the pressure on the margins is likely to persist till H1FY2010 as the loan mix shifts away from the high yielding retail segment and a larger chunk of the wholesale deposits gets re-priced during the September-December 2009 period, paving the way for some margin expansion during H2FY2010."

"Despite the various concerns over the bank’s asset quality, its international business and the lack of triggers in the near term, we believe that the current valuations of the stock more than reflect the potential risks to the earnings. We maintain our Buy recommendation on the stock with a price target of Rs 805," says Sharekhan's research report.

Stock Views on Micro Technologies, ESS DEE Aluminium, Britannia Industries

IIFL on Britannia, target of Rs 1765

IIFL has recommended a buy rating on Britannia Industries with a target price of Rs 1765 in its research report.

"We view the resolution of the three-year-old dispute between Britannia’s promoters, Danone and the Wadia group, as a positive development that removes a key overhang from the stock. Danone has agreed to sell its 25.5% stake in Britannia to the Wadia group. Wadia group’s shareholding in Britannia will now go up to 50.96% (from 25.48%). This was the most likely outcome of the dispute, though replacing Danone with a strategic foods player like Kraft, which is keen to enter India and has acquired Danone’s global biscuits assets (barring India) would have been more favourable to Britannia."

"Being an inter-promoter transaction, this deal will not trigger an open offer. Deal pricing is yet to be disclosed. The most positive fallout of this resolution will be an increase in the dividend payout, which at present is low at 20%. The Wadias are likely to fund the transaction through debt or via increased dividend payout in group companies. Media reports suggest that the company has secured a USD 200 million loan facility from ICICI Bank. "BUY", target price of Rs 1765," says IIFL's research report.

Sunidhi Securities on ESS DEE Aluminium, target of Rs 200

Sunidhi Securities & Finance has recommended a buy rating on ESS DEE Aluminium with a target price of Rs 200 in its research report.

"EDAL acquired a 90% stake in IFL for Rs 120 crore from Vedanta Group, making it a subsidiary. The remaining 10% stake is with Vedanta. During Q3FY09, sales have gone by 45% to Rs 103 crore whereas net profit has moved up by 11% to Rs 20.1 crore. During the 9 months of FY09, sales have gone up by 54% to Rs 333.5 crore and net profit by 31% to Rs 64.4 crore. OP & NP margin during the nine months of FY09 stood at 29.5% and 19.3% respectively against 30% and 22.7% (YoY). We recommend BUY with a target price of Rs 200," says Sunidhi Securities & Finance's report.

Sunidhi Sec on Micro Technologies, target of Rs 100

Sunidhi Securities & Finance has recommended a buy rating on Micro Technologies with a target price of Rs 100 in the medium term in its research report.

"During Q3FY09, consolidated sales have gone up by 43% to Rs 77 crore and net profit by 17% to Rs 18.4 crore. OP & NP margin during this quarter stood at 36.7% and 23.9% respectively against 41.7 and 29% (YoY). During the 9 months of FY09, sales have gone up by 65 per cent to Rs 213 crore whereas net profit has increased by 43 per cent to Rs 38.1 crore. OP & NP margins stood at 38.9 % and 25.5 against 41.5% and 29.5% respectively (Y0Y). We recommend BUY with a target price of Rs 100 in the medium term," says Sunidhi Securities & Finance's research report.

Sharekhan views on Crompton Greaves, ICICI Bank, JP Associates

Sharekhan on Crompton Greaves - Target of Rs 210

Sharekhan has maintained its buy rating on Crompton Greaves with a price target of Rs 210 in its research report.

"The board of Crompton Greaves Ltd (CGL) has decided to buy back the company’s shares and will be meeting on March 24, 2009 to finalise the buy-back exercise. At the current market price, the CGL stock is discounting its FY2010E earnings by 7.4x. In our view, the valuation of the stock is compelling, as it clearly does not capture the growth prospects of the company, and this could have prompted the management to buy back the company’s shares. Furthermore, CGL’s strong balance sheet (a low debt-equity ratio at the consolidated level and net cash position at the stand-alone level) provides the company enough headroom to carry out the process smoothly."

"We believe the domestic power business would be the key revenue driver for the company in the near future (thanks to the increasing spend on power T&D projects in the country). It will also aid CGL to grow its revenues at a compounded annual growth rate of 20.7% over FY2008-10. We maintain our Buy recommendation on the stock with a price target of Rs 210," says Sharekhan's research report.


Sharekhan on ICICI Bank - Target of Rs 505

Sharekhan has maintained its buy rating on ICICI Bank with a price target of Rs 505 in its research report.

"As part of its strategy of focusing on capital preservation and improving asset quality, the bank does not intend to grow its balance sheet aggressively in the coming fiscal. It expects a balance sheet growth in mid single digits for FY2010, with the loan mix likely to shift further away from the retail segment."

"In view of the management, the pressure on the margins is likely to persist till H1FY2010 as the loan mix shifts away from the high yielding retail segment and a larger chunk of the wholesale deposits gets re-priced during the September-December 2009 period, paving the way for some margin expansion during H2FY2010."


Sharekhan on JP Associates - Target of Rs 112

Sharekhan has maintained its hold rating on Jaiprakash Associates with a target price of Rs 112 in its research report.

"We have revised our estimates downward to factor in the delay in the commissioning of cement capacity and the delay in the execution of real estate projects. We continue to value the company using the SOTP valuation methodology and value the stock at Rs 112. We have taken into account the delay in the commissioning of cement capacity in our valuation. Hence, we maintain our Hold recommendation on the stock," says Sharekhan's report.

KRChoksey on Indraprastha Gas, ICICI Bank, Dishman Pharma

KRChoksey on ICICI Bank - Target Rs 608

KRChoksey has recommended a buy rating on ICICI Bank with target price of Rs 608, in its research report. "The Bank registered 0.4% y-o-y growth in Q3FY09 in its Net Interest Income of Rs 1,990.5 crore as against Rs 1,982.2 crore in Q3FY08. Interest earned declined by 1.2% y-o-y to Rs 7,836.1 crore, while interest expended decrease by 1.8% y-o-y to Rs 5,845.7 crore. We recommend a BUY on the stock with a 12 month target price of Rs 608, giving an upside potential of 63% from current level," says KRChoksey's research report.


KRChoksey on Dishman Pharma - Target Rs 209

KRChoksey has maintained its buy rating on Dishman Pharmaceuticals & Chemicals with a target price of Rs 209, in its research report. "In Q3FY09, the company’s sales have increased by 36.5% on a Y-o-Y basis to Rs 282.0 crore driven by strong performance from MM segment, US subsidiary Carbogen Amcis and also from the consolidation of Solvay Vitamin business. The net profit of the company increased by 23.5% Y-o-Y to Rs 39.7 crore. We maintained BUY rating to the stock with a target price of Rs 209, implying an upside potential of 78.3%," says KRChoksey's research report.


KRChoksey on Indraprastha Gas - Target Rs 130


KRChoksey has maintained its buy rating on Indraprastha Gas with a target price of Rs 130, in its research report. "Revenue was in-line with our estimate and increased by 20.1% y-o-y and 2.0% q-o-q to Rs 219.4 crore owing to higher CNG & PNG volumes which were increased by impressive 18% y-o-y and 31% y-o-y respectively. Operating margin declined significantly to 31.2% as IGL had provided Rs 17.5 crore towards excess gas drawn from GAIL in Q2FY09 & Q3FY09. We have maintained a BUY on the stock with target price of Rs 130," says KRChoksey's research report.

Emkay Global views on BHEL, HUL, ICICI Bank

Emkay Global on ICICI Bank - Target Rs 720

Emkay Global Financial Services has recommended a buy rating on ICICI Bank, with price target of Rs 720, in its report. "ICICI Bank reported net profit of Rs 12.7 billion, in line with our estimates. However, the operational performance was weaker with less than expected growth in NII and sharp dip in the fee income. The core operating profit declined by 9.2% yoy and 26.4% qoq. We maintain our BUY recommendation on the stock with price target to Rs 720," says Emkay Global Financial Services' research report.


Emkay Global on BHEL - Target Rs 1450

Emkay Global Financial Services has recommended a buy rating on BHEL, with price target of Rs 1450, in its report. "BHEL Q3FY2009 net profit at Rs 7.9 is sharply below our expectations primarily because of slower than expected topline growth - 16.7% yoy growth in gross turnover to Rs 64.5 billion (our estimate Rs 69.56 billion). On the order flows management said that for FY2009 it expect fresh order inflows of close to Rs 600 billion as earlier expectation of Rs 500 billion. Also the management expects benefits of falling commodity prices to be witnessed from Q4FY2009. In order to factor the earnings downgrade, we lower our price target for BHEL from earlier Rs 1520 to Rs 1450, Buy" says Emkay Global Financial Services' report


Emkay Global on HUL - Target Rs 305

Emkay Global Financial Services has maintained its buy rating on Hindustan Unilever with a target of Rs 305 in its research report. "In Q4FY09, HUL reported a robust 16.8% yoy growth in its revenues to Rs 43.1 billion. Lower interest income and other income in the quarter resulted in 19.2% yoy growth in adjusted net profit to Rs 6.1 billion. We maintain our earnings estimates for CY08E and CY09E at Rs 9.3 and Rs 11.7. We maintain our ‘BUY’ rating with price-target of Rs 305, valuing HUL at 26X CY09E earnings i.e. average of 10-year long-term and 5-year short-term multiple," says Emkay Global Financial Services' research report.

Motilal Oswal views on Bank Stocks - Union Bank, ICICI Bank, SBI

Union Bank - Target Rs 225

Motilal Oswal has maintained its buy rating on Union Bank of India with a target of Rs 225 in its October 27, 2008 research report. "NII grew 49% YoY to Rs 9.8 billion on the back of the strong improvement in margins and 26% YoY growth in loans. We are impressed by the core operating performance in 2QFY09 and expect the strong trend to continue. NII growth, cost of funds and margin movements are encouraging. Asset quality has improved significantly and would enable lower provisions ahead."

"We are upgrading our estimates by 5% for FY09 and FY10. We expect the bank to report EPS of Rs 31 and Rs 36 in FY09 and FY10. We expect BV to be Rs135 in FY09 and Rs164 in FY10. The stock is trading at 4x FY09E EPS and 0.9x FY09E BV. RoE would remain strong at 24%+ over next two years. Maintain Buy, target of Rs 225," says Motilal Oswal's research report.

ICICI Bank - Target of Rs 581

Motilal Oswal has maintained its buy rating on ICICI Bank with a target of Rs 581 in its October 27, 2008 research report. "ICICI Bank's NII grew 20% YoY in 2QFY09 (in line with exp) driven by stable margins on the back of slower loan growth (7%), lower term deposits (8% decline), and higher CASA growth at 16%. CASA ratio improved to 30%. PAT was flat in 2QFY09 to Rs 10.1 billion."

"We are reducing our target multiple of ICICI Bank to 1x FY10E ABV given its subdued core RoE (<12%) for the next couple of years. We are reducing our target valuations for all its subsidiaries due to lower expected growth. Adjusted for value of subs at Rs 175 per share, the stock trades at 0.4x FY09E BV. Maintain Buy with a revised target price of Rs 581, an 84% upside," says Motilal Oswal's research report.

SBI - Target of Rs 2057

Motilal Oswal has maintained its buy rating on State Bank of India with a target of Rs 2057 in its October 27, 2008 research report. "SBI’s 2QFY09 PAT of Rs 22.6 billion, driven by strong core business performance. Key highlights: 1) loans up 37% and deposits up 28%; CASA ratio marginally up YoY, decline QoQ; CASA deposits grew by 27% YoY, 2) 45% NII growth v/s our estimate of 30%; margins improve 15bp YoY to 3.16% in 1HFY09, 3) fee growth (ex forex) of 40%, and 4) gross NPA at 2.5% and net NPA at 1.3%; some stress visible."

"We have increased SBI’s earnings by 8% for FY09 to factor in higher fees, higher margins growth. However, for FY10, we have reduced our estimate by 2%, due to higher provisions. Adjusted for value of SBI Life at Rs117 in FY09 and Rs133 in FY10, SBI trades at 0.8x FY09E Cons BV and 0.7x FY10E Cons BV. Maintain Buy, target Rs 2,057," says Motilal Oswal's research report.

Stock Views on Infosys, Gail, ICICI Bank

JP Morgan on Infosys - TARGET PRICE: RS 1,825

JP Morgan Research has assigned an ‘overweight’ rating to the stock saying Infosys has reported good 2QFY09 results ahead of consensus. “We have a positive view on the sector, given our belief in secular offshoring trend but do accept that weak guidance would put pressure on Infosys and the sector near-term,” said the research firm in a note to its clients. According to the research firm, the weak guidance will raise fears about FY10E (estimated) rather than the next couple of quarters as the Indian IT sector might face a lot more pressure in 2009/FY10 from customers. “While consensus numbers might not change for FY09 (due to continued rupee/US$ depreciation), FY10 estimates might be cut. We believe that any panic sell-off on back of this guidance remains a good entry point,” the note said.

Morgan Stanley on Gail - TARGET PRICE: RS 347

Morgan Stanley has given an ‘overweight’ rating to the stock saying it is trading at 9.8 times F2009E (estimated) EPS (earnings per share) and 8.8 times F2010E EPS, which is a 30-35% discount to global peers. “We rate Gail a mustown stock in today’s environment — it has high quality assets, which are not easily replicable giving it a virtual mo-nopoly. It is net cash positive equal to 35% of its asset base; and its earnings are reasonably defensive, especially from its transmission business,” said Morgan Stanley in a note to its clients. According to Morgan Stanley, the company is best positioned to take advantage of higher supply of natural gas, which is expected to increase by 150% over the next four years.

Edelweiss Securities on ICICI Bank - TARGET PRICE: 779

Broking house Edelweiss Securities has reiterated a ‘strong buy’ on the stock saying it has corrected 26% vs 18% for Bankex and the general market correction of 16%. “Current prices seem to be completely ignoring value of subsidiary and moreover implying wild assumptions about asset quality (which appears highly improbable),” said Edelweiss in a note to its clients. “Even if we make a worse case assumption on all the various possible parameters (none of which is probable), the stock offers substantial value at these levels,” the note said. The broking house asserts that book value (BV) of Rs 417 does not take into account any valuations for the subsidiaries. “If we add subsidiary valuations (of Rs 220 per share in FY09E) to the adjusted BV, the fair value will be 50-75% higher than the current price. This represents a strong return to investors in the short-term itself,” the Edelweiss note said.