Coal India’s last Board meeting on July 31, 2012 turned inconclusive owing to apprehensions of the board associated with price pooling and revised penalty. This clearly vindicates the candid investor-friendly policy of the Coal India Board. The price pooling should be mechanized in a manner that it does not raise risks for pricing of its coal.
Thanks to 6 per cent volume growth and nominal 3 per cent increase in flat realisations, Coal India’s earnings can be expected to grow at a CAGR of 15 per cent during FY12-14, despite sharp increase in the wage cost.
Coal India is valued at Rs 390, P/E of 12.5x FY13E operational EPS of Rs 23.1 and cash per share of Rs 102. Coal India’s valuations are justified, given the sustainable RoEs in excess of 30 per cent.
Top client’s ramp-down which troubled Infosys through H2FY11 are bottoming out. The consistent underperformance from top clients is reaching a nadir. The ramp-down is expected to spill over in H1FY13. A 1 per cent negative impact due to the same in Q2FY13 is factored in.
Infosys is currently trading at 13.1x FY14E earnings estimate, a trough valuation at which it traded post Lehman crisis. Retain ‘BUY’ due to valuation comfort, with a target price of Rs 2,850.
HDFC has been delivering 20 per cent plus PAT growth consistently. Coupled with this, HDFC has excellent track record in maintaining robust asset quality. ZCB issuance has been in line with investments in subsidiaries (not consolidated) and there is limited impact from reserve accounting for ZCB interests.
Moreover, HDFC is moving to IFRS accounting from Q2FY13 and that would address investor concerns, if any. Consolidated ROEs remain at ~22-23 per cent even after factoring in ZCB interests.
ICICI Bank seems to be coming out of the consolidation phase set in the aftermath of the global economic crisis. ICICI Bank’s Q1FY13 loan growth and margin performances has surprised positively and inspires confidence of improving core growth trends and sustenance of robust asset quality in FY13.
ICICI Bank’s current valuations are trading at 1.6x FY13 book. Improving ROEs, pending growth in balance sheet could imply better multiples. ICICI Bank has a Mar 13-target price of Rs 1,100 per share, implying FY13 P/B of 1.95x.
Cairn upgraded its estimate of gross risked prospective resources to 530m boe from 250m boe in April 2012. However, as exploration period for the Rajasthan block expired in 2005, street has not accorded value to the exploratory upsides. As per news reports, DGH will soon convene a Management Committee meeting of the Block. There is no reason why the extension in the exploration period will not be granted, and thus, the news flows on exploratory upside is expected to be positive, going ahead. Investors should accumulate Cairn India with a target price of Rs 403.
Power Grid Corporation:
Power Grid’s capitalization is expected to increase to Rs167bn in FY17E from Rs 71bn in FY11 and regulated equity base to increase by 2.6x to Rs 435bn in FY17, resulting in earnings CAGR of 16 per cent over FY12-17E. The CWIP in Power Grid’s balance sheet has also increased 2x to Rs266bn in FY11 from Rs132bn in FY09, indicating higher capitalization over the next few years.
Power Grid remains the safest play in the Power Utilities space which has been facing multiple issue of coal shortage, deteriorating SEB finances etc. Power Grid is immune to fuel risk and faces relatively moderate land acquisition issues as compared to IPPs. Power Grid is expected to deliver 16 per cent EPS growth over FY12-17E with core RoEs of ~17.6 per cent over the same period and has a price target of Rs 133.
AXIS BANK is being assigned discount valuations v/s peers, given the latter’s high exposure to SME book (~20 per cent). However, asset quality trends exhibits much better underwriting standards at AXIS BANK as against the PSUs.
AXIS BANK’s current valuations are trading at 1.65x FY13 book. Though restructuring and rating data suggest some inch-up in asset quality stress, the stress levels are manageable (net slippages of <1 per cent). AXIS BANK has a Sep-13 target of Rs 1,350 per share, implying FY13 P/B of 2.1x. RANBAXY LABORATORIES:
Ranbaxy has already provided US$ 500 mn as a provision towards penalties (with respect to DOJ, USFDA issues) in Dec’11 quarter in its P&L statement. It has signed the consent decree with the USFDA and is currently working with the USFDA to get all outstanding issues sorted. It has also appointed a third party consultant for the same. The 2011 annual report clearly exhibit’s the management’s confidence in the prospects of the business (some excerpts from 2011 annual report).
Since 2009 Ranbaxy has been taking systematic corrective steps to upgrade and enhance the quality of Ranbaxy’s business and manufacturing processes. Regulatory issues are now almost through, Ranbaxy has strengthened its processes, restructured its businesses and Ranbaxy today has a new face and can be bought with a price target of Rs 625.