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Thursday, December 28, 2006

Sharekhan Investor's Eye dated December 28, 2006


Gateway Distriparks
Cluster: Cannonball
Recommendation: Buy
Price target: Rs250
Current market target: Rs202

GDL to operate Conware CFS
Gateway Distriparks Ltd (GDL) has won an operations and management (O&M) contract for the Conware container freight station (CFS) from the Punjab state government. The duration of the contract is 15 years. GDL will make an upfront payment of Rs35 crore and play an annual fee of Rs10 crore with an escalation clause of 5% on the same. The Conware CFS achieved a throughput of 55,662TEU and EBITDA of Rs13.8 crore in FY2006; the same translates into an EBITDA/TEU of Rs2,500.

State Bank of India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,380
Current market target: Rs1,236

PLR hike to improve margins

Key points

  • SBI hikes PLR by 50 basis points: State Bank of India (SBI), the country's largest bank, has announced a 50-basis-point hike in its prime lending rate (PLR) to 11.5% effective from December 27, 2006.
  • SBI had hiked deposit rates by 25-75 basis points: SBI had earlier announced a hike in its term deposit rates by 25-75 basis points effective from December 11, 2006.
  • PLR hike to improve NIM: SBI's net interest margin (NIM) is expected to improve by five basis points on an annualised basis, considering the net effect of the 50-basis-point hike in the PLR and the increase of 25 to 75 basis points in the deposit rates.
  • CRR hike to be a drag on the bank's profitability: The cash reserve ratio (CRR) balances of banks have stopped earning interest post-June 2006. Also the impact of this on market liquidity will push the cost of funds higher for the banks. Both the factors are a drag on SBI's profitability.
  • An 8.5% equity dilution factored in: We have factored in an 8.5% equity dilution (based on the current equity of Rs526.3 crore) in our valuation for the FY2008E numbers.
  • We maintain Buy on SBI: We have valued SBI at 1.4x FY2008E consolidated book value of Rs955 plus another Rs57 per share for its life insurance subsidiary. At the current market price of Rs1,236 the stock is quoting at 12x its FY2008E earnings per share (EPS), 5.7x FY2008E pre-provision profit (PPP), 1.7x FY2008E stand-alone book value and 1.3x FY2008E consolidated book value. We maintain our Buy recommendation on the stock with the price target of Rs1,380.
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