INDIAN STOCK MARKETS

HDIL
BUY HDIL ABOVE 346. STOPLOSS 338.

TARGET 356.2-358.6-366.

BUY IDFC AT CURRENT LEVELS FOR TARGET OF I84.
Trading at 2.5 times the expected standalone book value in FY11 IDFC, we believe IDFC has further upside. We continue our rating on IDFC of ‘Buy’ and raise our price target to Rs 184.

IDFC

Above our Expectations – IDFC reported a Net Profit of Rs 250 crores for Q2FY10 above our expectation of Rs 229 crores on a standalone basis. On a consolidated basis it reported a net profit of Rs 290 crores, outperforming our expectation of Rs 268 crores having grown at 24% on YoY basis and 6% on QoQ basis. Interest Income was below our expectation of Rs 919 crores reporting at Rs 882 crores showing a growth rate of 4.8% on YoY and 1% on QoQ basis. The shortfall in the Interest Income growth has been compensated by lower than expected net interest out go of Rs 511 crores vs our expectation of Rs 532 crores declining by 2% on YoY basis and 3% QoQ basis. This was possible on account of excess liquidity in the system which compressed the borrowing spreads. Net Interest Income reported was Rs 370 crores vs our estimate of Rs 388 crores growing 6% on QoQ basis and 16% on YoY basis. A five fold increase in Other Income on QoQ basis from Rs 2 crores to Rs 14 crores has further boosted the bottom line.

Margin Management – Despite the downgrade of IDFC by CRISIL at the beginning of the quarter, IDFC continued to maintain lower cost of funds due to reaffirmation of “AAA” ratings by ICRA and Fitch as well as excess liquidity in the market. Going forward, notwithstanding any substantial change in the monetary stance of the RBI due to inflationary pressures, the NIM’s will continue to be around 3% for IDFC going into FY11.

Remarkable Asset Quality – The bank has not added any new NPA’s in the H1FY10 showcasing the remarkable ability of the company to mange their credit risk profile. The gross NPA stood at Rs 776.4 crores and the net NPA amount was Rs 450 crores standing at 0.4% and 0.2% of the loan book respectively.

Leverage on Rating downgrade- IDFC was constrained to maintain Tier 1 capital adequacy ratio of 20% to maintain “AAA” rating by Crisil. The rating downgrade by Crisil has now removed this constraint enabling IDFC to increase their leverage as and when opportunities arise. However, we estimate that the internal cash accruals in the next two quarters will be sufficient to increase the loan book by 18% without distorting the existing capital adequacy. The further leeway in loan book expansion can be used in the next financial year when credit growth is expected to improve, thereby creating opportunities for IDFC to build assets with appropriate risk reward parameters.

Key Financials (Rs Crore)

FY08 FY09 FY10E FY11E
NII 1043 1234 1548 1789
Operating Profit 942 1114 1426 1664
Net Profit 669 736 887 1050
EPS 5.2 5.7 7.4 9.8
BV 42 47.7 55.1 64.9
P/E 31 28.2 21.8 16.5
P/BV 3.8 3.4 2.9 2.5

Our View –Trading at 2.5 times the expected standalone book value in FY11 IDFC, we believe IDFC has further upside. We continue our rating on IDFC of ‘Buy’ and raise our price target to Rs 184 on account of 1) Improved outlook on loan growth 2) Reduced margin pressure; 3) Strong non interest income (investment banking and asset management) growth on account of pick up in corporate fundraising and capital markets activity; 4) Embedded value of investments like NSE; 5) Continued strength in asset quality; 6) Improving efficiency on operating parameters. Key risks include: 1) Spike in the near term borrowing rates; 2) Change the rating outlook ICRA or Fitch; 3) Any regulatory action to reduce the liquidity in the system like CRR hike.

Oct 15, 2009

Kotak Mahindra
Buy Kotak Mahindra Bank with stop loss of Rs 770 for a target of Rs 890

IDFC
Buy IDFC with stop loss of Rs 148 for targets of Rs 176-Rs 185

Today's intraday tips 15.10.09

Buy ONGC>1275.1,1285,1298,1215 Sl 1262

Buy Neyveli lignite>142.1,144.5,147 sl 138.8

Buy GVK Power India Ltd>47.75,48.3,49.4 sl 45.9

Buy HDIL>382.75,386.5,389.5 sl 377.3

Buy HCC>146.5,148.5,150,153 sl 141.7 (now be careful as stock nearing its ultimate target and can thus reverse)

Buy Punj Llyod>301.1,304,309 sl 295

Buy Sterlite>865.1,874,889 sl 849

Buy SBI>2291.1,2299,2309,2325 sl 2272

Buy Titan>1461.1,1475,1486 sl 1455

Buy PNB>856.1,864,869,877 sl 846