Month: August 2021

Buy Bank of Baroda with a price target of Rs 100

Bank of Baroda reported a strong earnings performance, supported by a healthy core operating performance, despite sluggish business trends. Domestic Net Interest Margins improved sharply by 39 basis points on quarter to quarter basis to 3.12%.

Asset quality trends were stable sequentially in a challenging environment, with fresh slippage at Rs 51.3 billion (annualized slippage rate of 3.1%).

“Bank of Baroda reported a healthy earnings performance, supported by strong Net Interest Income and sharp improvement in domestic NIMs. The margin expansion was supported by an improving asset mix, as retail growth held strong, while corporate loans declined 11% QoQ.

The bank expects growth to pick up, led by retail segments, while corporate growth would see gradual recovery as the economic situation normalizes. The bank reported stable asset quality in a challenging quarter, with stable CE at 93%. Furthermore, SMA 1/2 declined to 2.7% of loans. We increase our earnings estimates by 47%, 22% for FY22/FY23E and estimate RoA/RoE of 0.7%/10.3% by FY23E. Therefore, we upgrade our rating to BUY, with revised target price of Rs 100 (0.7x FY23E ABV),” the brokerage has said.

Buy Bharat Electronics, target price Rs 205

Bharat Electronics is working on entering newer segments, including lithium ion battery manufacturing. The lithium ion technology is not a new area for the company has been using it in defense applications for over a decade. It has initiated discussions with OLA and could start manufacturing lithium ion batteries if the discussion materializes. In this case, Bharat Electronics would apply for PLI as well.

According to Motilal Oswal, the company maintained its revenue guidance at 15-17% growth and margin guidance at 22% for FY22, and is confident of achieving this despite the miss in 1QFY22.

On the order front, Bharat Electronics expects more than Rs 150 billion worth of order inflows in FY22. Large orders such as D-29 and Himshakti are expected to come in 2QFY22. The management expects Rs 10-15 billion worth of orders per year from the Metro business from FY23

“We maintain a Buy rating. Higher growth in the non-Defense business poses an upside risk to our EPS estimates, while working capital deterioration poses a key downside risk to valuations,” Motilal Oswal has said in its report.

Disclaimer

The stocks are taken from brokerage report of Motilal Oswal and is for informational purpose only. You should analyse your risk and other aspects before participating in the equity markets. Further a more cautious approach is needed when markets trade at record highs. Investments mentioned here need not be construed as investment advice, the company and the author shall not be responsible for any decisions taken based on the above report.

The Sovereign Gold Bond Scheme 2021-22 – Series V is open for subscription from today (9th August) to 13th August 2021. The RBI press release stated, “The nominal value of the bond based on the simple average closing price [published by the India Bullion and Jewellers Association Ltd (IBJA)] for gold of 999 purity of the last three business days of the week preceding the subscription period.” That will work out to Rs. 4790 per 1 gram gold.

The union government has also decided to offer a discount of Rs. 50/- per gram lesser than the nominal value to those investors who will apply online and the payment against the application is made through digital mode. For such investors, the issue price of a gold bond will be Rs. 4740 per 1 gram gold.

Why people should invest in SGB?

The gold prices are quite low in India now since last year. This present time is actually witnessing the highest drop in gold prices in one year period over more than one decade. It saw a 13% drop in one year period. Data published by the Value Research for Nippon India ETF GoldBeES informs – “the worst calendar year return for the precious metal since 2009 was in 2013 when it dropped by 14.08%”. Hence, people are thinking more to invest in gold.

However, in the case of investing in physical gold, the investor will not receive any interest rate. Additionally, in the case of physical gold, there are making charges, GST and if invested on a large scale there will be storage costs. SGB is a lucrative option in this regard because there will be no such challenge as it comes in the form of a certificate.

By investing in SGB, the investor will get a fixed interest rate of 2.5% which will be payable on a half-yearly basis. The last interest will be payable on its maturity along with the principal amount. This is not an option for physical gold; only SGBs offer that. In addition to that, no ‘capital gain tax’ will be charged on the redemption of the bond. The SGB can also be considered as collateral for loans.

With SGB, comes the facility of easy liquidity for the investor. These bonds too can be traded on exchanges or the secondary market. SGBs are generally issues for 8 eight years terms. But this term can be bypassed. If somebody invests in the SGBs now but later thinks to sell the bond, it can be done on an exchange. There will be available buyers in the secondary market to buy the old bonds. Also, it is sometimes profitable to buy SGB from the secondary market because in some cases the SGB can be obtained at a lesser price.

The government is encouraging more people to invest in gold in the form of SGB. Through this bond, the government and the RBI will also be able to defuse money from the economy and keep it to the RBI. It might help to control the growing inflation rates to some extend.

Sovereign Gold Bond (SGB) has been announced in six tranches from May 2021 to September 2021 that is issued by the RBI on behalf of the union government.

Through both commercial banks and state banks, one can invest in SGBs. These bonds are granted in the form of stock certificates. The bonds are available for conversion to Demat form.