30/04/2013
Buy ICICI Bank For Target Rs.1,300


ICICI reported PAT of Rs23bn, higher than our expectation, driven by a better margin performance. Loan growth and fee income trends did disappoint in Q4 but further margin improvement + low fee income will aid PPOP growth in FY14 (17.3% YoY). Asset quality trends have held up and management conviction on maintaining credit costs at ~75bps is positive. We, thus, remain positive on ICICI with a PT of Rs1,300/share (1.9x P/B Sep‐14). However, since we expect ROEs of 16% (v/s management guidance of 17‐18%), re‐rating to >2x book looks unlikely in this weak growth environment.
* NIMs cushioning weak fees; trend likely to continue: ICICI has surprised again on NIMs with a ~20bps QoQ expansion aided to some extent by one-offs cushioning a miss on core fees (~3% YoY). Fees income has disappointed but with corporate  B/S-linked fees down >50% from FY11, management expects base impact to get favourable now. Fee income weakness could continue but potential NIM expansion and possible opex levers will shield PPOP growth even in FY14.
* Asset quality – Management guidance positive: Gross slippages trend continued to remain constant at ~Rs8bn in Q4, with ~Rs5bn of recoveries/upgrades leading to credit costs coming on expected lines at ~70bps. Restructuring was marginally higher at Rs7.5bn in Q4 with management highlighting lumpiness in accretion. Stable asset quality trend/guidance on credit costs + low gas power exposure is also comforting.
* Will deliver on ROE improvement but at a slower pace: We expect ROEs to inch up from 14.7% to ~16% on a consolidated basis driven by leveraging and steady profitability in the lending business. However, 17-18% consolidated ROEs guidance (FY15) looks a stretch, especially in the slow growth environment currently. Hence, near-term valuations could get capped at <2x book. At our PT of Rs1,300/share, ICICI trades at ~1.9x Sep-14 book.
 

Buy Delta Corp Ltd. For Target Rs.100


Snapshot
Delta Corp Limited (Delta Corp) registered net sales of Rs.56.1 crore during the quarter compared to Rs.77.9 crore during the same quarter last year. The company posted a loss of Rs.10.37 crore on account of major one-time losses during the quarter.
Key highlights of the results:
* The company wrote off Rs.8 crore on account of a vessel owned by a subsidiary of Delta Corp. The company has sold off the vessel at Rs.20 crore (against the book value of Rs.28 crore), since it was not utilized by the subsidiary.
* The company is in the process of winding up the real estate business in Kenya as major projects are on the verge of completion. We expect strong numbers from this segment over the next two quarters. Post which, Delta should emerge as pure hospitality and gaming company. There is a change in the segmental reporting structure, which has incorporated gaming and hospitality  separately, further emphasizing the fact that these two segments are expected to grow significantly and needs a separate reporting format.
* We expect that the commencement of Horseshoe vessel and operations at Thunderbird Resorts in Daman, both scheduled during H1FY’14, lead to an exponential growth in earnings.
Valuation & Recommendation
This financial year should turn out to be a landmark year for the company with major milestones getting achieved. With the commencement of Thunderbird Resorts in Daman and Horseshoe in Goa, the gaming segment is expected to get a booster with the addition of ~2500 gaming positions getting added to the existing figure of ~700. The debt:equity ratio is comfortable at 0.5 and we do not expect any further increase in debt or equity dilution taking place in the near future. Since a significant portion of the assets would be put to use during the present financial year, we expect profitability to remain subdued over the next two quarters. We expect the full benefits of the expanded facilities to be visible from FY’15E onwards. We shall come up with a detailed financial projection very soon. Owing to its niche business model with strong entry barriers, expansion plans on the verge of completion and a focused management team, we continue to maintain our BUY recommendation on the stock with a target price of Rs.100.
 BUY RENUKA CMP For Target Rs. 44 48 and 52

DAILY CHART
* Momentum Indicator RSI showing a positive cross over in daily chart indicates strength in the stock is keeping a positive closing above the 6/30-DMA from four trading sessions Stock is showing strong signs of revival and is holding firmly above its 20- average of the Bollinger band daily chart on closing basis
* The important oscillators MACD on the daily have turned positive which indicates limited downside potential.
*Yesterday, the stock witnessed some buying interest from the support levels and it is poised for upside move from the current levels.
* The prices are currently trading above the long term an average 100DAM which is a bullish signal. Recently there has been a considerable rise in volumes and the price has breached above the previous two days closes of Rs 33.5 levels which is a bullish signal. We recommend a buy in this counter for the immediate target of Rs 44.
 

 


 Accumulate Indian Bank For Target Rs.200

Asset quality concern persists; however, upgrade to accumulate (REDUCE earlier) on recent underperformance
Indian Bank has corrected sharply in last two months (~16%) led by worries over asset quality pain and margin pressure. As per the management guidance, NPA numbers are likely to improve on strong recoveries/upgradation in Q4FY13. Its cumulative restructured book which stands at Rs.107 bn (10.7% of advances) at the end of Q3FY13 is also likely to fall to Rs.70 bn, post RBI notification. We believe Indian bank deserves better valuation on the back of comfortable tier-I ratio (10.75%; lower risk of equity dilution at <1x BV) and healthy return ratios (15-16%). Although we believe asset quality concerns in persist in near future, we upgrade the stock to ACCUMULATE (REDUCE earlier) with unchanged TP of Rs.200 (~13% upside; 0.9x FY14E ABV), on recent underperformance.