Current price :Rs 362 Target price :Rs 424
Potential upside :16% Time Frame :12-15 months
PERFORMER
High-growth PSU bank
For the second quarter in a row, Bank of India registered a 100% jump in net profit to Rs 512 crore in Q3FY08 from Rs 255 crore in the corresponding quarter the previous year. Net interest income also showed a comparatively a better performance than other public sector banks growing by 26% to Rs 1,079 crore on account of advances growth of healthy 30%, when the overall industry grew by just 23-24%.
On the NIMs front, the bank exhibited reasonable improvement as NIMs rose from 2.97% in Q3FY07 to 3.14% in Q3FY08. Even on a sequential basis, NIMs improved from 3.06% of Q2FY08. Despite the rise in the cost of funds, the bank was able to report higher NIMs as the yield on advances rose by 115 bps to 9.58%. We expect the bank to maintain NIMs of 3.07%-3.15% through FY07-09E. Other income growth was a stellar 72% y-o-y, with trading gains growing 111% much higher than expectations. Fee income growth was also strong for the bank as a whole for the quarter and nine-month FY08.
With QIP placement in line for 3.8 crore shares by the bank, where government is divesting 5% stake, we expect bank to get richer valuation higher than its peers due to high growth, good CASA and lower NPAs.
Valuations
At the current price of Rs 362, the stock trades at 2.0x its FY09E ABV of Rs 184 (post-dilution). We have revised earnings to grow at 40% CAGR over FY07-09E. With private placement being book accretive and expected to fuel further balance sheet expansion, we continue to remain positive on the prospects of the bank and rate the stock a performer with a revised target price of Rs 424, valuing the bank at 2.3x FY09E ABV. Due to its high growth, we give it a premium compared to its peers. High-growth PSU bank
Potential upside :16% Time Frame :12-15 months
PERFORMER
High-growth PSU bank
For the second quarter in a row, Bank of India registered a 100% jump in net profit to Rs 512 crore in Q3FY08 from Rs 255 crore in the corresponding quarter the previous year. Net interest income also showed a comparatively a better performance than other public sector banks growing by 26% to Rs 1,079 crore on account of advances growth of healthy 30%, when the overall industry grew by just 23-24%.
On the NIMs front, the bank exhibited reasonable improvement as NIMs rose from 2.97% in Q3FY07 to 3.14% in Q3FY08. Even on a sequential basis, NIMs improved from 3.06% of Q2FY08. Despite the rise in the cost of funds, the bank was able to report higher NIMs as the yield on advances rose by 115 bps to 9.58%. We expect the bank to maintain NIMs of 3.07%-3.15% through FY07-09E. Other income growth was a stellar 72% y-o-y, with trading gains growing 111% much higher than expectations. Fee income growth was also strong for the bank as a whole for the quarter and nine-month FY08.
With QIP placement in line for 3.8 crore shares by the bank, where government is divesting 5% stake, we expect bank to get richer valuation higher than its peers due to high growth, good CASA and lower NPAs.
Valuations
At the current price of Rs 362, the stock trades at 2.0x its FY09E ABV of Rs 184 (post-dilution). We have revised earnings to grow at 40% CAGR over FY07-09E. With private placement being book accretive and expected to fuel further balance sheet expansion, we continue to remain positive on the prospects of the bank and rate the stock a performer with a revised target price of Rs 424, valuing the bank at 2.3x FY09E ABV. Due to its high growth, we give it a premium compared to its peers. High-growth PSU bank
Current price :Rs 725 Target price :Rs 942
Potential upside :30% Time Frame :6-8 months
OUTPERFORMER
Strong rupee leads to subdued results …
KEC International came out with subdued numbers for Q3FY08. Net sales increased 27.6% to Rs 708.91 crore against Rs 555.50 crore in the corresponding quarter the previous year, buoyed by a robust Rs 5,000 crore order book. However, the results are not comparable with the previous corresponding quarter as they include those of National Information Technologies (NITEL), PRG Transmission (RPFT), which have been merged with KEC International. Stand-alone sales were up 11.3% to Rs 618 crore against Rs 555 in Q3FY07.
The subdued results were the impact of the strong rupee. The merged entity has a good order book of Rs 5,050 crore. Of this, Rs 4,220 crore are orders in hand and Rs 830 crore for project bid. Its overseas order book is Rs 3,450 crore and the South Asia order book is Rs 1,600 crore.
EBITDA margin during the quarter under review were stable at 14.47% to 14.51% on better cost control of erection and sub-contracting business, high-margin order execution. Margins are expected to remain at 12- 12.5%, despite the volatility in prices of inputs and currency fluctuations. Net profit up by 36.8%
Net profit increased by 36.8% from Rs 38.21 crore to Rs 52.30 crore on account of lower depreciation and interest cost on repayment of high cost debt.
Valuations
Going forward, with a strong order book and strong investment under pipeline in the transmission sector, thecompany to see a 33% CAGR in revenue over FY07-09E. The stock currently trades at 14.7x FY09E earnings and 7.0x on an EV/EBITDA basis. We rate the stock outperformer.
Potential upside :30% Time Frame :6-8 months
OUTPERFORMER
Strong rupee leads to subdued results …
KEC International came out with subdued numbers for Q3FY08. Net sales increased 27.6% to Rs 708.91 crore against Rs 555.50 crore in the corresponding quarter the previous year, buoyed by a robust Rs 5,000 crore order book. However, the results are not comparable with the previous corresponding quarter as they include those of National Information Technologies (NITEL), PRG Transmission (RPFT), which have been merged with KEC International. Stand-alone sales were up 11.3% to Rs 618 crore against Rs 555 in Q3FY07.
The subdued results were the impact of the strong rupee. The merged entity has a good order book of Rs 5,050 crore. Of this, Rs 4,220 crore are orders in hand and Rs 830 crore for project bid. Its overseas order book is Rs 3,450 crore and the South Asia order book is Rs 1,600 crore.
EBITDA margin during the quarter under review were stable at 14.47% to 14.51% on better cost control of erection and sub-contracting business, high-margin order execution. Margins are expected to remain at 12- 12.5%, despite the volatility in prices of inputs and currency fluctuations. Net profit up by 36.8%
Net profit increased by 36.8% from Rs 38.21 crore to Rs 52.30 crore on account of lower depreciation and interest cost on repayment of high cost debt.
Valuations
Going forward, with a strong order book and strong investment under pipeline in the transmission sector, thecompany to see a 33% CAGR in revenue over FY07-09E. The stock currently trades at 14.7x FY09E earnings and 7.0x on an EV/EBITDA basis. We rate the stock outperformer.
Recent developments
• KEC International currently has an impressive order book of Rs 5,000 crore out of which Rs 3,250 crore is for international business and Rs 1,750 crore in south business.
• The company bagged two major project wins in Abu Dhabi and Algeria worth Rs 385 crore and Rs246 crore respectively through an international competitive bidding process.
• It has bagged two contracts in Saudi Arabia and Namibia worth Rs 260 crore and Rs 140 crore respectively. These projects would be completed in 22 months.
• The company has been awarded the contract by Power Grid Corporation of India for the supply and construction of 400 KV double-circuit Ranchi–Rourkela transmission line on a turnkey basis. The value of the contract is Rs 56.87 crore. The company has also been awarded a contract by Power Grid for supply and construction of 132 KV single-circuit and double-circuit transmission line in North Bihar on a turnkey basis. The value of the contract is Rs 40.66 crore. The project is scheduled to be completed by July 2009.
• Besides the traditional markets of Middle East and Africa, the company is constantly on a hunt for further opportunities in Central Asia and North America.
• The company plans to enter new geographical locations and capture opportunities in the rural electrification and sub-station markets.
• There is a huge potential for telecom tower infrastructure business in India and the company plans to capture opportunities in this area.
• KEC International currently has an impressive order book of Rs 5,000 crore out of which Rs 3,250 crore is for international business and Rs 1,750 crore in south business.
• The company bagged two major project wins in Abu Dhabi and Algeria worth Rs 385 crore and Rs246 crore respectively through an international competitive bidding process.
• It has bagged two contracts in Saudi Arabia and Namibia worth Rs 260 crore and Rs 140 crore respectively. These projects would be completed in 22 months.
• The company has been awarded the contract by Power Grid Corporation of India for the supply and construction of 400 KV double-circuit Ranchi–Rourkela transmission line on a turnkey basis. The value of the contract is Rs 56.87 crore. The company has also been awarded a contract by Power Grid for supply and construction of 132 KV single-circuit and double-circuit transmission line in North Bihar on a turnkey basis. The value of the contract is Rs 40.66 crore. The project is scheduled to be completed by July 2009.
• Besides the traditional markets of Middle East and Africa, the company is constantly on a hunt for further opportunities in Central Asia and North America.
• The company plans to enter new geographical locations and capture opportunities in the rural electrification and sub-station markets.
• There is a huge potential for telecom tower infrastructure business in India and the company plans to capture opportunities in this area.
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