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Summary
of Contents
STOCK UPDATE
State Bank of
India
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,116
Current market price: Rs908
Amendment to SBI Act positive
The Cabinet
has passed an amendment to the provisions of the State Bank of India
Act of 1955. The amendment will allow the State Bank of India (SBI):
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to increase its authorised capital to Rs5,000
crore
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to reduce the stake of the Reserve Bank of
India (RBI) in it to 51% and raise new capital
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to access the capital markets to raise funds
through preference share capital to reduce the face value of its
share from the current Rs10 per share
However, the amendment has maintained that the
global depository receipt and financial institutional investor
holdings in the bank will be part of foreign holdings, which will be
capped at 20% of the bank's paid-up capital. It also does not
mention anything about the government buying out the RBI's stake in
SBI.
NIIT
Technologies
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs296
Current market price: Rs188
Annual report review
The growth is
expected to pick up as NIIT Technologies is through most of its
restructuring initiatives in both software service and BPO
businesses. The incremental revenues from the recent acquisition
would further aid the overall revenue growth. The margins are guided
to remain flat this fiscal. The downside risk is limited due to the
stock's attractive valuation and a reasonably decent dividend yield.
At the current price the stock trades at 8.6x
FY2007 and 6.8x its FY2008 estimated earnings. We maintain our Buy
recommendation on NIIT Tech with a price target of
Rs296.
Marico
Industries
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs634
Current
market price: Rs500
An eventful year FY2006
FY2006 was
an action packed year for Marico Limited. The company completed four
acquisitions during the year, including the prize catch of
Nihar from HLL. The focus brands led the strong top line
growth and benign material prices helped the operating margins
expand. Marico released its annual report for FY2006 detailing its
achievement for FY2006 and the outlook for the coming years.
SECTOR
UPDATE
Banking
Thy time has come
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The banking stocks have severely underperformed
vis-à-vis the BSE Sensex over the last one year. The current
valuations of these stocks do not justify the strong growth in the
core income that the sector is expected to report over the next
two years.
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We believe that the primary concern of rising
interest rates that was an overhang on the banking stocks is
likely to ease over a period of time. With the ten-year government
bond yield at 8.0%, we do not foresee any substantial rise in the
interest rates.
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We expect the credit growth to remain strong
going forward, backed by the strong demand for credit from both
the corporate and the retail sector.
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With stable liquidity in the economy and term
deposit rates becoming lucrative vis-à-vis the returns on the
small saving schemes, we expect the deposits of the banking sector
to grow by a healthy 16-17% and the same should be sufficient to
support the strong credit growth.
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We believe that the worst is behind the Indian
banking sector with the interest rates likely to have peaked out.
We believe that the current valuations are compelling at 0.6-1.1x
price/book value (P/BV) for the public sector banks (PSBs) and
1.9-3.5x for the private sector banks. The same also look
attractive at 2.5-3.8x P/pre-provisioning profit (PPP) and
6.4-9.3x P/PPP respectively.
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Our top picks in the sector; Canara Bank, State
Bank of India, Union Bank of India and ICICI Bank.
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