Buy Deepak Nitrite Ltd. For Target Rs. 294.00


* Deepak Nitrite Ltd is leading manufacturer of Organic, Inorganic, Fine Specialty chemicals & preferred business partner of global chemical companies.
* The company’s net sales registered a 36.80% increase and stood at a record Rs. 3105.26 million from Rs. 2270.00 million over the  corresponding quarter last year.
* The company’s net profit stood at a record Rs. 94.20 million from Rs. 95.77 million over the corresponding quarter last year.
* Deepak Nitrite Ltd has recommended a dividend of Rs. 8/- per share of Rs. 10/- each for the year ended March 31, 2013.
* The part facility at new unit at Dahej in Gujarat for Optical Brightening Agents has commenced production during 4th quarter of the current year.
* The company applies new technologies to enhance profitability of existing products expansion plan.
* Net Sales and PAT of the company are  expected to grow at a CAGR of 22% and 28% over 2012 to 2015E respectively.
Outlook and Conclusion
* At the current market price of Rs.270.00, the stock P/E ratio is at 6.73 x FY14E and 5.89 x FY15E respectively.
* Earnings per share (EPS) of the company for the earnings for FY14E and FY15E are seen at Rs.40.13 and Rs.45.83 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 22% and 28% over 2012 to 2015E respectively.
* On the basis of EV/EBITDA, the stock trades at 6.80 x for FY14E and 6.25 x for FY15E.
* Price to Book Value of the stock is expected to be at 0.88 x and 0.76 x respectively for FY14E and FY15E.
* We recommend ‘BUY’ in this particular scrip with a target price of Rs.294.00 for Medium to Long term investment.

Accumulate State Bank of India For Target Rs.2,450


SBI's Q4FY13 results reinforce the quantum of operational challenges faced by PSU banks which more than offsets some improvement in  asset quality trend. PPOP challenges will constrain ROEs at ~15% in FY14 despite our expectations of lower slippages. Low gas + less  risky infra book provides some comfort on incremental  slippages/restructuring. We, thus, maintain 'Accumulate' with PT of  Rs2,450/share (1.15x Sep‐14 book).
*  Operating metrics challenges only increasing:
(1) NIMs came in at 3.17%, down ~15bps QoQ as lending yields compressed, given the risk-averse lending. With SBI yet to move  aggressively on base rates, with the falling rates, we believe margin pressures will remain in FY14
(2) Core fee income contracted 8% YoY despite aggressive B/S growth and we see no pick-up in lumpy corporate activity to reverse this trend
(3) Growth at +20% surprised and  despite adding higher investment grade exposures, growth in most sensitive sectors was +20% which we see as a risk
(4) Opex growth remained sticky with overheads increasing by ~20% YoY and salary increasing by ~14% despite moving pension proceeds off B/S which would have resulted in lower salary expenses.
* Asset quality mixed:
Overall asset quality performance was mixed with some improvement in NPA performance. Gross slippages of Rs58bn were better than expected and though momentum on recoveries/upgrades has improved, especially on mid/SME corporates, ~Rs20bn of the Rs47bn of upgrade was linked to restructuring. Restructuring of Rs89bn included three large a/s totaling Rs40bn and management still sees some material pipeline, including TN SEB exposure.
* Expect ROEs of ~15% in FY14, Maintain 'Accumulate' with PT of Rs2,450/share:
We expect operational challenges to continue in FY14 and we further revise downwards our below consensus PPOP numbers by 4%.  Limited gas + low risk power book provides us some asset quality comfort and hence, despite the operational weakness, we maintain  ‘Accumulate’ with a PT of Rs2,450/share.
Margins getting worse;
We do not expect a pick up: SBI reported consolidated margins of ~3.17% in Q4FY13 which is ~15bps lower than  expected. Lending yields have come off ~50bps QoQ, some of it is due to the quarter-end balances but aggressive pricing in retail and  higher share of better rated corporate has a significant impact on margins. Though management expects Rs300bn of excess liquidity deployment to aid FY14 margins, we believe impact of falling rate cycle will be more pronounced and we see some more pressure on SBI's  margins in FY14.