1. BANK OF INDIA: Mgmt meet highlights - Coverage ratio to remain at ~80%; Maintain Neutral We met with the management of Bank of India (BOI IN; Mkt Cap US$2.5b; CMP Rs238; Neutral). Key takeaways are : - In 3QFY09, BoI's Gross NPAs increased 12% QoQ in absolute terms to Rs22.1b. The rise in NPAs came from MSME segment (18% of total loan book) and is spread across sectors. Mgmt expects slippages to rise to Rs18-20b for FY09 vs. Rs13.9b for 9MFY09. However it aims to curtail Gross NPAs at Rs22-23b in absolute amounts. BoI has a restructured loan book of Rs10b currently which we estimate could increase to Rs25b by March 2009. - BoI makes 20% provision on sub standard assets vs. RBI's regulation of 10%. Also it makes 100% provision for any doubtful loan. Accordingly BoI has excess provisions of Rs10b (classified as specific NPA provisions) towards NPAs. Additionally BoI has Rs2b on floating provision, Rs1.5b excess provisions on standard assets and Rs1.8b provision towards waived agri loans (which is eligible for reversal). Thus the NPA provision cushion in the balance sheet stands at >Rs15b. Management highlighted that they would continue to make higher provisions in future as well so long operating profitability remains strong. The internal aim is to sustain provision coverage of ~80%. - BoI's key sector exposures are 1) Textiles - Rs46b (3.4% of book); 2) Metals - Rs61.8b (4.5% of book), 3) Infrastructure - Rs101.9b (7.5% of book); 4) Chemicals - Rs31.9b (2.3% of book) and 5) Gems and jewellery - Rs24.5b (1.8% of book). Mgmt sees stress in textiles and auto sector (Autos are 1% of loan book) currently. - BoI's total domestic investment book stands at Rs416b. ~90% of these investments (Rs376b) are SLR - SLR ratio is 24.7% as of December 2008. 82% of SLR investments and 76% of total investments are in HTM category as of December 2008. Unrealised gains (pre tax) on HTM portfolio stand at >Rs35b (Rs67/share). During 3QFY09, BoI booked investment profit of Rs4.4b of which Rs3.8b was from sale of HTM investment. - BoI's international investment book stands at Rs50b as of December 2008. Bank has made a total provision of Rs3.3b on this book so far including Rs1.5b towards Lehman exposure. Management highlighted that they have fully factored in write down in investment book till December 2008. BoI's international loan book stands at Rs276b (20% of loan book). About 10% of this book is towards acquisition financing and balance is short term trade credit. ~ 12% of the operating and net profit during 9MFY09 was contributed by international business during 9MFY09. The profitability was impacted due to MTMs and investment losses during 9MFY09 despite expanding NIMs on this business. Management sees profitability improving on international business going forward as incremental investment losses are immaterial (there could be reversals also). - We expect BoI to report EPS of Rs57 in FY09 and Rs51 in FY10. ABV would be Rs206 in FY09 and Rs230 in FY10. The stock trades at a P/E of 4.7x FY10E EPS and P/ABV of 1x FY10 ABV. Maintain Neutral. 2.CORPORATION BANK: Analyst meet highlights - Rs10bn of restructured loans applications received; Expect margins to stabilise We attended the analyst meet of Corporation Bank (CRPBK IN, Mkt Cap US$538m, CMP Rs180, Buy). The bank mentioned that it has recieved Rs10bn woth of applications for restructuring (yet to decide on the final quantum). For 3QFY09, NII grew 37% YoY to Rs4.8b backed by strong growth in loans and improvement in yield on loans. Business growth was strong with loan growth of 30% YoY and deposits growth of 26% YoY. CRPBK provided Rs250m for the likely wage increase and Rs830m for the additional liability for AS 15 due to fall in G Sec yields. Key takeaways are: Reported GNPA improved QoQ; however, quantum of restructuring worrisome In 3QFY09, asset quality improved with gross NPA falling by 7% QoQ and 6% YoY to Rs5.6b. However, management mentioned that it has received application for 375 accounts worth ~Rs10b to be restructured (1.9x of the existing GNPA and ~2.25% of the existing loan book). The final details and the exact quantum of restructuring will emerge in March 2009. As on FY08, CRPBK had standard restructured loans worth Rs1.3b. In 9MFY09, total slippage is ~Rs2b which leads to annualized slippage ratio of 0.5% for FY09. We have factored in the slippage ratio of 1.1% in FY09. CRPBK has the exposure of ~Rs25b for the real estate segment of which ~Rs8.5b for the builder financing, ~Rs11.7b for Rental discounting and rest for hotels, hospitals etc. CRPBK has not done any restructuring in real estate account. The exposure towards the textile sector stands at Rs22b (~5% of loans), steel and metals stands at Rs10.3b (~2.3% of loans) and towards gems and jewellery stands at Rs8.5b (~2% of loans). The share of SME loans in total loans stands at ~10.4% as on 3QFY09. Margins improved QoQ however, likely to stabilize below current levels For 9MFY09, NIMs of CRPBK improved 10bp QoQ to 2.53% on back of strong pricing power (yield on loans improved 43bp QoQ), CRR cut benefit (~Rs21b released) and higher incremental CD ratio of 100%+. However, mgmt mentioned that NIMs are likely to come down and will sustain in the range of 2.4-2.5%. Cost of deposits for CRPBK increased 49bp YoY and 15bp QoQ to 6.91%. CRPBK still offers 8.5% rate for deposits. The management is targeting the business growth ~25% in FY10. Fee income grew 20% Commission, exchange and brokerage income for 3QFY09 grew ~20% YoY to Rs1.4b. Management mentioned that it is aggressively focusing on increasing the share of fee income by changing the fee structure for basic services which remains lower than the peer state owned banks. Cost efficiencies (C/I ratio at ~40%), strong Tier I capital at 9%+ and robust asset quality are key strengths of Corporation bank. We expect RoE to remain healthy at ~17% with Tier I >8% over next two years despite rising NPA costs. We expect CRPBK to report EPS of Rs61 in FY09-10 and ABV will be Rs336 and Rs370 in FY09 and FY10. Valuations are attractive at 3.0x FY10 EPS and 0.5x FY10 ABV. Maintain Buy. 3. SUGAR: Govt allows duty-free imports of raw sugar; Unlikely to have any major negative impact on sugar prices; Positive for south-basedcompanies - Indian government has allowed duty free raw sugar imports for refining and selling domestically 'with re-export obligation within 24 months'. This move seems to have been taken aimed specifically at curbing the spiraling sugar prices. Since Sep-08, sugar prices have increased ~30%, with ex-mill sugar prices currently ruling at ~Rs19-20/Kg in Southern India and ~Rs21-22/Kg in North India. - The sharp jump in sugar prices since Sep-08 was largely driven by the forecast of ~35-40% drop in SY09 sugar production estimates to ~16-17mt vs initial estimates of 20-21mt of sugar production. As the expected sugar consumption for India during SY09 is ~23mt, sugar season SY09 is likely to witness a deficit of ~6mt of sugar, which would correct the current sugar stock inventory of ~8-9mt and lead to buoyancy in domestic sugar prices. - Our interactions with industry experts indicate that Indian sugar mills may not be in a position to import much of raw sugar during the SY09 sugar season, as the sugar crushing season is already coming to end by around Mar-09 (due to low availability of cane) and standalone sugar refining capacity in India is only ~1-2mt. Industry observers believe that we could witness import of only about 1.2-1.4mts of raw sugar upto Sep-09. Considering the sugar deficit of ~6mt during SY09, the current Government move is unlikely to cause any significant moderation in sugar prices. It may in fact be healthy for the sugar industry, particularly for the coast-based sugar mills and sugar companies with sugar refining capacities. India had imported 2.5mt of duty free raw sugar during the sugar season SY05. - At current international prices of raw sugar ($12.7c/lb), cost for coast based mills works out to Rs17-18/Kg. Limited quantum of imports and thin differential between cost of imported sugar and domestically produced sugar will ensure that sugar prices should remain firm above Rs20/Kg. - We expect domestic sugar prices to remain above Rs20/Kg as sugar production cost has itself increased from Rs14/Kg (pre-interest cost) to Rs19/Kg during SY09, due to higher sugar cane prices and low capacity utilization. Average realizations of sugar companies in Q1FY09 are up ~30% YoY to Rs16.5/Kg in Southern states and 17.5/Kg in North India. For Shree Renuka Sugar which has coast-based refineries, EBDITA margins work out to $40/t at its Karnataka refinery and $80/t at its Haldia refinery at current levels of raw sugar prices. Warm Regards, Sudeep Shah Equity Advisory and Wealth Management, Motilal Oswal Securities Ltd --~--~---------~--~----~------------~-------~--~----~ -- For Anything related with Stock market be Online at http://www.niftyviews.com/ Get free updates on your mobile phone. SMS- JOIN SRESEARCHERS to 567678for our market updates You received this message because you are subscribed to Google Group "STOCKRESEARCHER" group. To post to this group, send an email to STOCKRESEARCHER@googlegroups.com To unsubscribe email stockresearcher-unsubscr...@googlegroups.com for more info visit http://groups.google.com/group/STOCKRESEARCHER?hl=en-GB . This is Not a Spam Mail. Disclaimer :- "The opinions expressed by the members on this board are based on their individual experience and perceptions and to share information with other members with the best of intentions to help fellow members in investment decisions as equity investment is a risky venture." -~----------~----~----~----~------~----~------~--~---
