13 Nov, 2008

Punjab National Bank
Current market price: Rs 470
Brokerage: Motilal Oswal Securities

   
Punjab National Bank’s (PNB) advances grew 29 per cent year-on-year (y-o-y) and 14 per cent quarter-on-quarter (q-o-q) to Rs 1,304 billion (Rs 1 billion = Rs 100 crore) during Q2FY09, led by strong business growth. Net interest margins (NIM) increased 30 basis points y-o-y and 51 basis points q-o-q to 3.78 per cent. The bank’s current and savings account (CASA) ratio continues to decline, from 44 per cent in Q2FY08 to 39 per cent in Q2FY09. Provisions increased four times to Rs 317.7 crore, on account of the farm loan relief scheme and other non-performing assets (NPAs). Gross NPAs at 2.4 per cent and net NPAs at 0.4 per cent are comfortable.

The management has guided loan growth of 23-24 per cent, deposit growth of 22 per cent and an earnings growth of 25 per cent for FY09. PNB’s performance remains inferior to peers in terms of (1) core fee income growth (excluding forex income) at around 17 per cent y-o-y and (2) CASA growth of 9 per cent y-o-y. However, the brokerage likes PNB for its inherent strengths of large branch network in cash rich north India, strong liability side of balance sheet, higher sustainable margins, strong Tier-I at over 9 per cent and better asset quality. Post Q2FY09 results, PNB’s EPS estimates have been increased by 3-5 per cent for FY09-10. The stock trades at 5.6x FY09E earnings and 1.1x FY09E BV. Buy.

DLF
Current market price: Rs 271.15
Target Price: Rs 332
Upside: 22.4%
Brokerage: ICICI Securities

In Q2FY09, DLF’s revenues increased 15 per cent y-o-y to Rs 3,744 crore, while its earnings declined by 4 per cent y-o-y to Rs 1,935 crore. During the quarter, booking was higher from mid-income housing segment at 2.74 million square feet (msf) versus 2.1 msf in Q1FY09. However, booking in office segment at 2.1 msf (2.4 msf in Q1FY09) and retail was down sequentially. EBITDA margin dipped from 70 per cent in Q2FY08 to 59 per cent in Q2FY09 due to higher contribution from low-margin mid-income housing segment (35 per cent margins versus 70 per cent from other segments).

The company has launched three residential projects in Q2FY09 across India. Besides, one IT/ITES SEZ was notified during the quarter, taking DLF’s tally of notified IT/ITES SEZs to 11. The hotel, Aman Lodhi, at New Delhi and Hilton Garden Inn Courtyard at Saket are expected to open by end-FY09. The brokerage has lowered DLF’s FY09E NAV by 22 per cent to Rs 474 per share, to account for the current downtrend in realty given tight liquidity, sluggish transactions and price correction. DLF is expected to trade at 30 per cent discount to its NAV at Rs 332 per share. At Rs 290, the stock trades at P/E of 5.6x FY09E and 5.1x FY10E earnings. Maintains hold.

India Cements
Current market price: Rs 89.50
Target Price: Rs 121
Upside: 35.2%
Brokerage: Religare Hichens, Harrison

India Cements’ (ICL) net sales grew 24.2 per cent y-o-y to Rs 945.5 crore in Q2FY09. The company’s sales volume during the quarter was poor at 2.4 million metric tonne (mmt), marking a subnormal growth of 4.6 per cent y-o-y, due to disruption in production at its plants in Chilamkur and Vishnupuram (Andhra Pradesh). However, ICL was able to gain much of its lost ground, thanks to a 12.5 per cent y-o-y increase in net realisations to Rs 3,676 per metric tonne. EBITDA margin dropped 970 basis points y-o-y to 30.7 per cent on account of higher power and fuel costs. Reported PAT was down by 39.7 per cent y-o-y to Rs 134 crore. ICL’s profits were partly dented by a forex loss of Rs 29.6 crore on its outstanding FCCB.

ICL is expected to wrap up augmentation of line-I at Vishnupuram, addition of 1.2 mmt at Malkapur (Andhra Pradesh) and one mmt grinding unit at Parli (Maharashtra) by Q3FY09. In order to factor in the sluggish demand owing to slowdown in housing and construction activity and rising operating costs, the brokerage has revised its PAT estimates downwards to Rs 722 crore (as against Rs 770 crore) in FY09E and Rs 636 crore (as against Rs 740 crore) in FY10E. At Rs 89, ICL trades at P/E of 3.6x FY09E earnings. With respect to EV/Tonne, it trades at $65 on its installed capacity of 13.2 mmt in FY09E.