Government – Power sector IPOs

The Power ministry is looking to get three of Government controlled power companies listed over next few months. The first to hit the market will be National Hydro Power Corporation (NHPC). Other companies on ministry’s radar include Damodar Valley Corporation (DVC) and North Eastern Electric Power Corporation (NEEPCO).

We have reliably learnt that Delhi government may pick up 20% stake in DVC’s upcoming subsidiary.The ministry may give its go ahead to DVC’s IPO once the company floats its subsidiary. DVC has already appointed a consultancy firm towards finding the right path to equity market. The Delhi government may pick up 20% stake in DVC’s upcoming subsidiary as the company will become a major source of power to the state.

NTPC’s follow on public offer is also in the offing.

RBI Hikes Repo Rate by 50bps + CRR by 25bps

Breaking NewsThe RBI has tightened money supply in the Indian markets by raising the CRR by 25 bps and in a surprise move raised the repo rate by 50 bps taking it to 9.0% [This is the rate at which banks will borrow from RBI] We had expected a 25bps repo rate hike.

GDP growth projection for 2008-09 revised from the range of 8.0-8.5 per cent to around 8.0 per cent, barring domestic or external shocks. While the policy actions would aim to bring down the current intolerable level of inflation to a tolerable level of below 5.0% as soon as possible and around 3.0 per cent over the medium-term, at this juncture a realistic policy endeavour would be to bring down inflation from the current level of about 11.0-12.0 per cent to a level close to 7.0% by March 31, 2009. (more…)

Bank of Baroda + Andhra Bank Outlook

Bank of Baroda reported 1Q09 profits up 12% YoY ahead of estimates. Key highlights are – Flat margins QoQ, strong fee income growth and no significant deterioration in asset quality. BOB’s core fee incomes increased substantially (over 40% YoY). NIMs were flat QoQ (down 26bps YoY) with pressures building up on the domestic business. Expect moderate reductions in margins.

Loan growth (42% YoY) was aggressive, especially offshore (+68% YoY), now 23% of book. Management suggests will continue to grow this strongly, though could scale back on domestic growth to 20-25% (+36% in 1Q09). Growth is fairly broad-based (retail, SME, agriculture), profitable for now.

Asset quality of the bank remains a positive – the coverage of the bank remains comfortable at around 72%. Reported NPL grew 6% QoQ in the quarter – however, adjusted for farm loan waiver, NPL grew 11% QoQ. Going forward Bank of Baroda is expected to report negative growth in EPS for FY09 – Rs 32 to Rs 35.

Andhra Bank: Andhra’s 1Q09 profits down 45% YoY. Margins contracted significantly over the year and its relatively mid-market loan book is increasingly at risk. QoQ margins were stable; Andhra’s relatively lower CASA ratio suggests that margins will continue to be under pressure. Key positive for the quarter though was the sustained growth in fee incomes (+28% YoY).

NPLs have increased a little (+5.5% QoQ); reported asset quality is still fine with Gross NPLs at 1.2% and over 90% loan-loss coverage levels. Andhra’s loan book is relatively more exposed to agriculture and mid-market focused. Andhra Bank is expected to report flat EPS growth of Rs 11 to Rs 12 for FY09.

PNB + HDFC Bank – Result Analysis

Punjab National Bank (PNB) has reported a net profit of Rs5.1bn. NII at Rs14.4bn, up 11% yoy and operating profit at Rs9.8bn, up 5.3% yoy, were inline with estimates. The NII growth was mainly led by healthy advances growth (up 19.6% yoy). The NIM’s contracted by 39bps yoy. Nevertheless, lower provisioning and controlled Opex resulted in 20.3% yoy growth in net profit to Rs5.1bn.

The asset quality improved further with GNPA and NNPA having declined to 2.8% (3.8% Q1FY08) and 0.6% (0.98% Q4FY08) respectively. Overall NPLs reduced in 1Q09, gross slippages were at 2% levels (management suggests this is temporary and expects improvements ). PNB’s loan book, however, is relatively more exposed to agriculture and SMEs – susceptible to spillovers from the loan waivers and further environmental deterioration.

Analysts expect PNB to report flat EPS growth for FY09 at Rs 65.18.

HDFC Bank – HDBK’s profit and quality performance is largely along expected lines. HDFC Bank’s earnings (up 45% YoY factoring impact of CBOP merger) ; driven by a 75% rise in top line (NII) and 40% jump in operating profits. Credit costs were up only 8% YoY; but the bank continues to keep its NPL coverage at 65-70% (specific) and at >100% (incl. general). This is in line with levels HDFC Bank maintained even earlier. Core fee income growth at 37% was lower than est. as there was minimal contribution from CBOP.

HDBK continues to grow aggressively. Loan book is up almost 15% qoq (ex-centurion), and asset behaviour beyond acquired NPA’s remains in line with historical trends. Centurion’s acquisition has been expensive – in the actual price paid, the step down in operating and profit measures and the time consumed.

HDFC Bank is expected to report a fully diluted EPS of Rs 55 to Rs 57 for FY09.

Add Sujana Towers – SBI Cap Sec

SBI cap securities has initiated coverage on Sujana Towers Ltd [STL] with a BUY rating.

STL has the complete integrated manufacturing process right from billets procurement to erection. Its galvanized tower capacity, has gone up from 28000 MT by four fold to 128000 MT and will add another 100000 MT through a Greenfield facility in Chennai.

STL has an unexecuted order book of Rs350 crore to be realized in the next 3-6 months. In addition, it is also expected to receive an EPC contract of Rs200-250 crore during FY09. (more…)

Sell Indiabulls Financial Services – Goldman Sachs and Citigroup

Indiabulls Financials Q1FY09 profits were down 22% QoQ (+29% YoY). The sharp reduction in profits was largely due to lower IPO funding opportunities, higher cash on books (earning negative carry) and lower loan yields (change in loan mix). Revenues declined 3% qoq at Rs5.6bn; operating income net of interest expense was down 11% qoq to Rs3.3bn owing to
higher financing costs.

The Management has guided a 50-60% loan growth [down from 100% earlier] due to challenging environment. The company is reducing exposure to unsecured loans (15% of loans); increasing exposure to mortgages (50%), commercial credit (20%, backed by real estate / securities) and loans against securities (10%). (more…)

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