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Brokerage Recommendations

Monday, April 30, 2012

Emkay calls a ‘Buy’ on Oberoi Realty
CMP: Rs. 270        Target Rs. 315

Oberoi Realty (OBRE) posts strong sales booking and financials in Q4FY12, much above our estimates. EBITDA margins improve QoQ mainly due to seasonality in hospitality. Management continues to remain positive on residential demand in Mumbai; hike rates by Rs 1000 / sf across projects, a 2nd such hike in last 6 months.  We believe the saleable area (SBA) at Oasis in Worli to increase significantly from 2.1msf to 3.2msf. Report by rating agency on Sahana Group, OBRE’s partner, states the same. We maintain our Accumulate rating on the stock but upgrade our target price to Rs 315.

Strong financials coming from higher sales booking and better execution beats our and street estimates significantly: OBRE posts revenue of Rs 2.55bn, up 36% QoQ and 1% down YoY. Growth in revenue came on back of strong sales bookings in the quarter.

Oasis launch should be in Q1FY13, SBA of which could increase to 3.2msf against 2.1msf earlier. Oberoi Exotica is planned to launch in Q2FY13, subject to final clearance of approvals: Launch of Oasis is as per the schedule and is expected in Q1FY13. We have estimated the same at the price assumption of Rs 35000 / sf.  The saleable area of 2.1 msf can increase to 3.2 msf subject to some government approvals. As per the rating agency, Brickwork’s Sep’10 report for rating Sahana Group’s Rs 5.5bn NCD issue, the Worli project has potential to increase the SBA to 2.47msf against the already approved area of 1.62msf.
We increase our target price to Rs 315 / share; missing clarity on new land acquisition is a drag on valuations as idle cash draw lower returns: We hike our target price by 17% to Rs 315, while maintaining our Accumulate rating, as higher than expected sales booking traction and increase in prices of the projects. We have not taken any increase in value from the higher SBA in Oasis. The broad calculations show an increase in NAV by Rs 15/share on our estimate of 1.1msf of additional area. Maintain 25% discount to commercial assets NAV.

Motilal Oswal calls a ‘Buy’ on ING Vysya Bank
CMP: Rs. 362        Target Rs. 450

ING VYSYA Bank’s 4QFY12 PAT grew 40% YoY to ~INR1.3b (8% above our estimate). Core-operating income came under pressure due to 20bp QoQ drop in margin and moderation in fee-based income growth (up just 8% YoY). However, strong control over opex (10% below est) led to in-line operating profits.
Key highlights:

Positives: (1) Asset quality improved further with PCR at 90%+, one of the best in the industry; GNPA increased 5% QoQ in absolute terms, (2) Loan grew 9% QoQ and 22% YoY to INR127b, and (c) strong control over opex.

Disappointments: (1) NIM down 20bp QoQ to 3.3% led by 30bp+ increase in cost of deposits, and (2) moderate growth in fee-based income (ex-forex) of just 8% YoY (flat QoQ) to INR1.3b. Other highlights: (1) CASA deposits grew 15% YoY and 17% QoQ led by strong growth in current deposits (up 25% QoQ and YoY basis). CASA ratio stood at 34.2% (+160bp QoQ). However, adjusted for one-off, CASA ratio stood at 33.4%. (2) The effective rate of tax in 4QFY12 was lower at 22%.

Valuation and view: NIM contracted 20bp to 3.3% in 4QFY12. Pressure on margins would continue in 1HFY13 due to tight liquidity conditions and the fall in lending rates. Reported margin for FY12 improved 5bp YoY to 3.3%, it however includes the benefit (+15bp) of capital raised in June 2011. Thus, core margin declined 10bp YoY. We have factored in further 10bp decline in FY13. Improvement in liquidity conditions remains the key for better margin performance. Asset quality has remained healthy in FY12 leading to lower credit cost and boosting RoA. We model in credit cost of 50-55bp over FY13-14 v/s 30bp in FY12. VYSB’s RoA improved from -0.3% in FY05 to 0.9% in FY11 and further to 1.1% in FY12. For further improvement, a decline in opex-to-average assets (improvement in productivity) is imperative there is little scope for a positive surprise on margins and credit costs. We expect the bank to report earnings CAGR of 15% and 0.8% RoA over FY13-14. However, RoEs are expected to be at around 12-13% due to lower leverage. Continued higher-than-industry growth, better operating leverage and improvement in fee-based income would be the key triggers for re-rating. The stock trades at 1.3x FY13E BV and 1.2x FY14E BV. Buy with a target price of INR 450 (1.4x FY14E BV).

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