26 Years
Home > Business > Brokerage Recommendations

Brokerage Recommendations

Wednesday, October 05, 2011

Sharekhan calls a ‘Buy’ on PTC
CMP: Rs. 68    Target Rs. 98

In FY2011, PTC India (PTC)’s revenues grew by 16% on a year-on-year (Y-o-Y) basis, primarily driven by a 34% increase in the volumes of electricity traded.

However, the realisation price declined by 5% over the previous year. Power units traded via the power exchange increased multifold to 3,940 million units in FY2011 while long term volume also reported a robust 47% yearly growth. In spite of a fall in other income, the overall net profit jumped by 47% year on year (YoY) owing to an expansion in the trading margin per unit (trading margin stood at 4.4paise per unit in FY2011 compared to 3.6paise per unit in FY2010).

Return ratios improved but still away from double digits: In FY2008, the company raised capital through a qualified institutional placement issue of shares amounting to Rs496.2 crore to be used in several strategic investments and in maintaining a healthy working capital cycle. This led to a substantial rise in the equity base and deterioration in return ratios. In FY2011, the rise in the core profit after tax improved the return ratios; but they are still far below the returns enjoyed during the pre QIP period.

Valuation remains attractive: Maintain Buy: While the volumes of PTC continued to register stupendous growth in Q1FY2012, its working capital requirement is hugely dependent on the healthy payment cycle from its SEB clients. PTC penalises its clients for delays in payments by charging 15% per annum on the due and outstanding receivables. However, this cannot be a long strategy as most of its clients are repeat customers and such kind of penalising could result in permanent loss of business as it happened in the case of Tamil Nadu SEB, one of its top clients. The power sector is also currently facing multiple headwinds like fuel linkages, environment clearances, SEBs’ deteriorating financials, rising cost of funds etc which have further depressed sentiments in growth driven stocks including PTC. Hence, we are downgrading our target multiple to 12x from the earlier 15x on FY2012 standalone earnings estimates. Also, we are valuing its PEL business at 1x book value. Overall, our sum of the parts based target price stands revised to Rs98. However, the current valuation at less than 1x FY2011 book value remains attractive and hence we maintain our Buy rating on the stock.

Sunidhi calls a ‘Buy’ on Federal Bank
CMP: Rs. 348    Target Rs. 465

With the RBI looking at issuing new bank licenses, competition in the banking industry is expected to heat up. In such a situation the future of old private banks which are smaller in size and geographically concentrated appears uncertain. In our opinion one of two scenarios are likely to play out 1) old private banks especially those with poor profitability and asset quality concerns could become takeover targets for new private sector banks and 2) larger old private banks could scale up operations and re-engineer business processes to bridge the gap between themselves and new private banks. This in turn could lead to a re-rating in the stock price of these banks. Given its large size and proactive management, we believe that Federal bank is amongst the best placed old private sector banks to make the transformation into a new generation bank.

Maintaining focus on traditional products… The banks management has stated that while it is attempting to revamp operations in order to compete with new private banks, it will continue to maintain its focus on regional products such as gold loans, NRI deposits and SME advances which have allowed it to maintain superior NIMs. NIM in FY11 was at 3.98% second only to HDFC bank in the private banking space. Going ahead however we expect Federal Banks NIM to moderate to ~3.86% in FY12 due to difficulty in passing on higher interest rates to consumers coupled with a shift in lending to less risky segments.

Subsequently in FY13 we are factoring in a 5bps improvement in the NIM as cost of funds is likely to come off due to an expected decline in cost of bulk deposits and an improvement in the CASA ratio.

Initiate coverage with a Buy rating and target price of Rs465: At the current market price of Rs359, Federal Bank trades at 1.1x and 1.0x its FY12E and FY13E ABV respectively. At these valuations the bank trades largely in line with its long term average P/ABV multiple. As the bank continues on its transformation to bridge the gap between itself and new generation private banks, we believe that the discount between its trading multiples and that of other new generation banks would narrow over the medium to long term. We believe Federal Bank is a Structural Buy Idea due to its transformation along the similar lines of IndusInd Bank. We initiate coverage on Federal Bank with a BUY rating and a target price of Rs465 (1.3x Its FY13E ABV).

Facebook   Delicious   Delicious   submit to reddit reddit
No Comments Posted
- Advertising -
City news
NGOs force civic body to nix lease/caretaking of ...
Is Rakesh Maria watching his own officials?
Cops yet to ascertain identity of the actual ...
Dr. Rajan B. Bhonsle, M.D. (Bom)
Consulting Sex Therapist & Counsellor
Dr. (Mrs.) Minnu R. Bhonsle, Ph.D.
Consulting Psychotherapist & Counsellor
Select Sun sign:
Aries (Mar 21 - Apr 20)
Aries (Mar 21 - Apr 20)Meetings and talks will go off very well. Exercise patience and consider all factors before arriving at any decision. An advance payment against a new deal will materialize. Your mate will help you along and will be a source of strength and happiness Make the most of a good day.
Tarot for Love
Select Sun sign:
Aries (Mar 21 - Apr 20)
Aries (Mar 21 - Apr 20)What the cards say: There is new energy. You will benefit Path: Use the energy constructively and cautiously. Don’t rush headlong into disaster Ally: Virgo will calm you down. Avoid Gemini who could confuse you Card for the week: Tarot key no. I The Magician. He gives you the wherewithal to forge ahead. You will achieve and win accolades
- Advertising -
The festive season is back! And it’s time to take
When four artists come together, there’s bound to
Liveaboard’s unique diving trip to the Maldives
Read More