Posts in category All News
Left parties and SP queer pitch for Nitish-Lalu-Cong alliance (07-09-2015)
Study on reservation in schools: Wealthy kids turn more generous (07-09-2015)
Correction in Kotak a big opportunity: Nomura (07-09-2015)
We lift Kotak to Buy as we think the recent 20% correction provides investors with a good entry into a high-quality bank. After the ING Vysya acquisition, investors’ expectations seemed high. However, we think Q1FY16 integration charges partially explain the lower acquisition cost and also set investors’ expectations on growth and asset quality lower.
We think Kotak’s earnings quality remains one of the best in the sector. Our target price of R750 implies 3.8x FY17F BVPS of R173.
Merger cost taken; synergies to follow Kotak upfronted R3 bn of ING-related integration charges (18% of ING Vysya’s net worth) explaining the lower 2.2x valuation on the merger. While in the next 1-2 quarters part of these charges should continue, we expect significant synergy benefits after that: 1) lower opex cost; 2) CASA uptick in ING’s book and 3) better quality growth in ING’s book. Combined ROAs should fall to 1.5% in FY16F from 1.9% in FY15 due to integration but ROAs to revert to ~2% by FY17F.
Earnings growth remains superior: The quality of Kotak’s CASA and fee growth remains superior with CASA accretion being more granular than peer banks and contribution of bulky IB and debt syndication being smaller. As well, our exposure analysis suggests that risk to Kotak’s asset quality is very low and with R10bn of provisions taken on ING’s book, we think risk to credit costs of the combined entity is also low.
Praj looks good on strong outlook: Edelweiss (07-09-2015)
Praj Industries’ (Praj) senior management, during our recent interaction, was reasonably confident about Praj’s medium to long term growth prospects. In the near term, while the ethanol business is likely to have limited impacted by weak crude prices, management maintained strong outlook on its brewery and high purity (PH) businesses.
The company has sharpened focus on internationalisation of its PH business and expects strong momentum to emanate from pharma industry. PHS is expected to be a significant contributor to revenues over next 2–3 years. On the Petrobras order (~25% (Rs 9.8 bn) of current order book), management mentioned the order stands firm and there are no chances of cancellation. We believe the company is capable of scaling up its emerging and brewery businesses globally over next 2–3 years, thereby reducing reliance on ethanol business, which could in turn lead to substantial ramp up in RoE profile (FY15 RoE at 18% ex cash) beyond FY17E.
Maintain ‘BUY’ with a target price of Rs 100.
There has been increasing concerns around pressure on the ethanol blending program following the sharp drop in crude prices. However, Praj’s ethanol business is largely led by blending mandates and other factors than just the one variable of crude oil prices. Moreover, the company’s ethanol business is not dependent only on fuel ethanol plants.
Bank stocks fall 15% since third week of July (07-09-2015)
With many banking stocks leading the recent market correction – Bankex has lost more than 15% since third week of July against a 12% correction in Sensex – they now trade at a steep discount to their book value.
PSU banks in particular have seen their valuations touch record lows even as their latest quarterly numbers continue to reflect the NPA stress faced by the pack.
Data compiled by FE shows that many PSU banks currently trade at 0.25 to 0.30 times their book value which in some cases are their lowest valuations in seven years.
On the back of close to 32% drop in the CNX PSU Bank index the price to book value ratio (PBV) of the index declined to its lowest since February 2013.
Bank of India, Indian Overseas bank(IOB) and Oriental bank of Commerce (OBC) which have fell more than 45% in 2015 so far, currently trade at their lowest PBV in seven years.