The markets are expected to open sideways tracking mixed cues from the Asian markets and as investors would be waiting for the outcome of crucial Greek debt talks.
US shares ended on a weak note on Thursday following some mixed economic data, with new home sales notably weak. Profit taking following recent strength also contributed to the downturn by the markets. The data came one day after the US Federal Reserve indicated that it would keep rates in the US at ultra-low levels until late 2014. European market closed to the upside on Thursday. The mere hope of movement in the stalled negotiations over an average debt in Greece helped to put investors in a better mood. Greece and its private creditors made progress on Thursday in talks on restructuring its debt. They will continue negotiating on Friday with the aim of sealing an agreement within a few days.
Indian shares ended a volatility marred session on the last day of January F&O series above important resistance levels on the back of bullish sentiments following easing of policy stance by the Reserve Bank of India.
Markets Today
The trend deciding level for the day is 17,075 / 5,154 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,133 – 17,188 / 5,178– 5,198 levels. However, if NIFTY trades below 17,075 / 5,154 levels for the first half-an-hour of trade then it may correct up to 17,019 – 16,961 / 5,134 – 5,110 levels.
3QFY2012 Result Reviews
Bank of Baroda
For 3QFY2012, Bank of Baroda posted a healthy set of numbers on the operating front; however, slight deterioration in the asset quality was witnessed during the quarter. Provisioning expenses (Rs.850cr) grew substantially by 179.5% yoy, though they were mostly offset by traction in other income, which registered a robust performance, growing by 70.0% yoy to Rs.1,149cr. Consequently, net profit managed to grow by 20.7% yoy to Rs.1,290cr.
The bank’s businesses gathered pace during 3QFY2012, with advances growing by 9.1% qoq (25.8% yoy) and deposits growing by 6.1% qoq (24.0% yoy). The bank’s overseas book grew by 45.7% yoy, however removing the effect of INR depreciation over the past six months, growth was more normalized at ~25% yoy levels.
The bank witnessed slight deterioration in its asset quality, with gross and net NPA levels rising by 14.5% qoq and 18.5% qoq, respectively. Gross NPA ratio as of 3QFY2012 stood at 1.5% (1.4% in 2QFY2012), while net NPA ratio stood at 0.51% (.47% in 2QFY2012). Slippage levels, which have a quarterly run-rate of ~Rs.500cr, came in at Rs.952cr (annualized slippage ratio of 1.7%) for 3QFY2012.
The bank restructured accounts worth ~Rs.2,116cr in 3QFY2012, on which the bank made a provisioning of Rs.154cr. However, as a percentage of overall advances, restructured assets still remain at low 3.8% (much lower compared to other PSU banks). Also, the bank’s provision coverage ratio remained elevated at 80.5% for 3QFY2012. We maintain our Buy rating on the stock with a target price of Rs.906.
Sesa Goa
Sesa Goa reported is 3QFY2012 results. The company’s net sales increased by 16.3% yoy to Rs.2,617cr mainly due to increased iron ore sales volumes to 5.0mn tonnes (+5.4% yoy) as well as higher realization to US$94 (+10.0% yoy). Net sales were higher than our estimate of Rs.1,775cr due to higher-than-expected sales volumes. However, EBITDA declined by 11.8% yoy to Rs.1,085cr on account of increased export duty. Interest expense increased by 444.4% yoy to Rs.73cr. Hence, reported PAT decreased by 35.5% yoy to Rs.692cr.
The company reported exceptional item of Rs.178cr related to forex loss during the quarter. The company also reported share of profit from its associate (Cairn India) of Rs.122cr. Excluding exceptional items, adjusted PAT declined by 18.4% yoy to Rs.870cr (above our estimate of Rs.562cr). We keep our rating and target price under review.
Union Bank of India
For 3QFY2012, Union Bank of India posted a disappointing set of numbers, which were far below our as well as streets estimates, primarily due to higherthan- expected provisioning expenses. While NIMs improved by 10bp qoq and gross and net NPAs were largely stable on a sequential basis, substantially higher provisioning expenses dented the overall bottom line. Consequently, net profit took a hit and declined by 66% yoy and 44.1% qoq to Rs.197cr.
The bank’s advances and deposits growth picked up after a sluggish movement in 1HFY2012. Advances registered healthy growth of 6.1% qoq (16.8% yoy) and deposits increased by 5% qoq (10% yoy). CASA deposits of the bank registered healthy growth of 6.5% qoq (moderate 7.6% yoy), leading to a 45bp qoq increase in CASA ratio to 32.5%. Reported NIM of the bank improved by 10bp qoq to 3.3%. Cost-to-income ratio rose further to 45.9% in 3QFY2012 from 44.3% in 2QFY2012 and 40.2% in 3QFY2011. On the asset-quality front, pressures moderated considerably, with slippages declining to Rs.566cr from the average of Rs.940cr over the past four quarters. Gross and net NPAs on an absolute basis were largely stable sequentially. Gross and net NPA ratios improved on a sequential basis, from 3.5% to 3.3% and from 2.0% to 1.9%, respectively. Provision coverage ratio including technical write-offs improved from 60.5% in 2QFY2012 to 63.1% in 3QFY2012.
At the CMP, the stock is trading at 0.9x FY2013E P/ABV. We recommend a Neutral view on the stock.
TGBL
TGBL reported its 3QFY2012 results yesterday, which were in-line with our estimates. The company reported top-line growth of ~12% yoy to Rs.1,793cr, against our estimate of Rs.1,734cr. OPM came in at 9.6%, against our estimate of 9.9%. The company’s margins fell on account of higher raw-material costs and ad spends. TGBL reported an 11% yoy decline in its earnings to Rs.64.1cr, against our estimate of Rs.64.5cr. The stock is under review.
IRB Infra
For 3QFY2012, IRB reported a modest set of numbers, which were above our and street estimates. IRB’s top line witnessed growth of 11.5% yoy to Rs.745.5cr (Rs.668.8cr), ahead of our estimate of Rs.639.5cr. IRB’s operating margin stood at 45.8% (43.9%), in-line with our estimate of 45.9%. Interest cost came in at Rs.142.0cr (Rs.82.0cr), registering a jump of 73.2% yoy/0.6% qoq basis. Earnings for the quarter reported a decline of 0.7% to Rs.132.0cr (Rs.133.0cr), above our estimate of Rs.81.5cr on account of better-than-expected performance on the revenue front.
Our valuation of Rs.182/share for the consolidated business uses NPV/EV/EBITDA based valuation for BOT assets and the C&EPC arm, respectively. We factor in CoE of 14% and a traffic growth rate of 5/6/7% for its BOT assets. Owing to the recent run up in the stock, we recommend Accumulate with a target price of Rs.182.
Vijaya Bank
For 3QFY2012, Vijaya Bank registered an 18.1% yoy decline in its net profit to Rs.124cr, below our estimates, mainly due to higher provisioning expenses than built in by us. Due to higher prevailing interest rates, the bank’s NII suffered, declining by 11.5% yoy to Rs.475cr. Non-interest income of the bank registered a moderate performance, growing by 13.5% yoy to Rs.116cr. Although operating expenses of the bank declined by 7.4% yoy, provisioning expenses jumped up substantially by 45.7% yoy to Rs.167cr, leading to an 18.1% yoy decline in net profit. Bottom-line performance would have been worse without the support of a lower effective tax rate (7% in 3QFY2012 compared to 28.3% in 3QFY2011).
The bank’s asset quality remained under pressure in 3QFY2012 as well, with gross and net NPA rising by 20.7% and 31.0% qoq, respectively. Gross NPA ratio as of 3QFY2012 stood at 3.0% (2.5% in 2QFY2012), while net NPA ratio stood at 1.8% (1.4% in 2QFY2012). We continue to remain Neutral on the stock.
3QFY2012 Result Previews
NTPC
NTPC is set to announce its results. For 3QFY2012, we expect NTPC to record a 20.6% yoy increase in its top line to Rs.16,187cr, aided by commencement of new capacities and higher tariffs. However, OPM is expected to decline by 380bp yoy to 24.2%. Net profit is expected to decrease by 6.3% yoy to Rs.2,223cr due to lower other income and higher interest and depreciation costs. We recommend an Accumulate rating on the stock with a target price of Rs.199.
BHEL
BHEL is scheduled to announce its 3QFY2012 results. For the quarter, we expect the company to post top-line growth of 20.5% yoy to Rs.10,873cr. The company's operating margin is expected to compress by ~296bp yoy to 20.0%. Hence, bottom-line growth is expected to be subdued at 4.4% yoy to Rs.1,465cr. We remain Neutral on the stock.
Canara Bank
Canara Bank is scheduled to announce its 3QFY2012 results. We expect the bank to report a decline of 4.6% yoy in its net interest income to Rs.2,022cr. However, on the non-interest income front, the bank is expected to report robust growth of 48.2% yoy to Rs.795cr, leading to operating income growth of 6.1% yoy to Rs.2,817cr. Although operating expenses are expected to grow moderately by 5.5% yoy to Rs.1,206cr, provisioning expenses are expected to nearly double on a yoy basis (190.4% yoy) to Rs.457cr, leading to a decline of 17.5% yoy in net profit to Rs.912cr. We remain Neutral on the stock.
Bank of India
Bank of India is scheduled to announce its 3QFY2012 results. We expect the bank to report a decline of 1.3% yoy in net interest income to Rs.1,962cr. However, on the non-interest income front, the bank is expected to report healthy growth of 22.9% yoy to Rs.797cr, leading to operating income growth of 4.7% yoy to Rs.2,758cr. Although operating expenses are expected to decline by 2.5% yoy to Rs.1,216cr, provisioning expenses are expected to rise substantially by 42.6% yoy to Rs.710cr, leading to a decline of 4.4% yoy in net profit to Rs.624cr. We remain Neutral on the stock.
Jyoti Structures
Jyoti Structures is scheduled to announce its 3QFY2012 numbers. We expect the company to post decent top-line growth of 18.4% yoy to Rs.652.7cr. EBITDA margin is expected to contract marginally by ~91bp yoy to 10.5%. Interest cost is expected to increase due to higher working capital borrowings. Against this backdrop, the company's PAT is expected to decline by 16.0% yoy to Rs.20.8cr. We maintain our Buy rating on the stock with a target price of Rs.61.
Economic and Political News
- Government okays 10% disinvestment in Rashtriya Ispat
- Consumer Affairs Ministry opposes commodity transaction tax
- TRAI waives SMS limit for business houses
Corporate News
- RIL's gas pact with NTPC: EGoM to decide on February 14
- Ranbaxy to pay heavily for future US violations
- Dr Reddy's Labs in trouble with US health regulator again
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