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Buy State Bank of India

State Bank of India reported a steady quarter, with net earnings growing 67% YoY to Rs 76.3 billion (15% beat), aided by controlled provisions, as asset quality showed remarkable strength, despite the impact of the second COVID wave.

“It created a family pension provision of Rs 74.2 billion, instead of amortizing it over five years, thus prudently deploying one-off gains from the DHFL recovery and tax refund. The bank has fully provided for its exposure towards the SREI group,” the brokerage has said.

The bank saw NPA/NNPA ratios improving by 42bp/25bp QoQ to 4.9%/1.5% as fresh slippage subsided to Rs 41.8 billion (66bp annualized). Restructured book remained in check at 1.2% of loans, while the SMA pool declined sharply to Rs 66.9 billion (27bp of loans).

State Bank of India: Buy for a price target of Rs 675

State Bank of India has reported a robust performance as it bravely fought off the COVID-19 impact and displayed remarkable resilience in asset quality performance.

“The bank has been reporting continued traction in earnings, led by controlled provisions. However, business trends remain modest, impacted by continued deleveraging by corporates. The bank has been able to maintain a strong control on restructured assets at 1.2% of loans, while the SMA pool has declined sharply,” the brokerage has said.

Motilal Oswal sees a potential upside of almost 21% on the stock of Bharti Airtel from the current levels.

According to Motilal Oswal, the management is making the right noise in terms of steady market share gains, premiumization, cross selling through digital initiatives, and healthy inroads in non-Mobile revenue streams like payments bank, Home, and Enterprise segments. It expects 20% consolidated EBITDA CAGR over FY21-23E, along with tariff/consolidation to drive FCF/deleveraging.

“Bharti’s superior execution quality is reflected in its strong performance in the last 8-10 quarters; 25% YoY growth in consolidated EBITDA, despite no tariff

hikes; and consistent subscriber and revenue market share gains,” the brokerage has said.

Buy Bharti Airtel with a price target of Rs 875

Motilal Oswal sees a potential for a re-rating in both the India and Africa businesses on the back of steady earnings growth.

“We value Bharti Airtel on a Sep’22E basis, assigning an EV/EBITDA of 11x/5x to the India Mobile/Africa business, arriving at an SoTP-based target price of Rs 860. Our estimates do not factor in any upside from a tariff hike or steep market share gains from VIL’s financial stress. We maintain our Buy rating,” the brokerage has said.

Disclaimer

The above stock has been picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Buy Divi’s Laboratories at a target price of Rs 6,050

The brokerage believes the stock of Divi’s Laboratories may appreciate up to a target price of Rs 6,050 from current levels, and forecasts gains of +16 percent. The stock was recommended at Rs 5,205 by the brokerage, but it is today trading at Rs 4,812. According to the brokerage, DIVI’s revenue grew 14% YoY to INR19.9b (est. INR20.4b), and the gross margin remained flat YoY at 67.1%. EBITDA margin contracted by 180bp YoY to 41.5% (est. 42.7%) due to higher other expenses/employee costs (up 150bp/30bp as a percentage of sales).

“DIVI’s EBITDA rose 9% YoY to INR8.3b (est. INR8.7b) and PAT grew at a higher rate (15% YoY) to INR6.1b (est. INR6b) due to a lower tax rate of 20.2% in 2QFY22 (v/s 25.1% in 2QFY21)” said the brokerage. According to the research report of Motilal Oswal “inventories of DIVI’s stood at INR 26.8b at the end of 1HFY22 v/s INR17b/INR21.5b at the end of 1H/FY21.”

According to Motilal Oswal, the management stated that “DIVI has recorded some sales of Molnupiravir in 2QFY22. The management said it may not incur further CAPEX on this product in the near term as it has built sufficient capacity to cater to upcoming demand for this drug. The company has started manufacturing Molnupiravir API across all three production lines. The Generics-to-CS sales split stood at 46:54 in 1HFY22. Sales of Nutraceuticals stood at INR1.6b/INR3.1b in 2Q/1HFY22.”

“We reduce our FY22E/FY23E EPS estimate by 5%/2% to reflect some slowdown in offtake related to the Generics segment and higher operational costs”, said the brokerage. Motilal Oswal has said, “We expect a 34% earnings CAGR over FY21-23E, led by increased business prospects from CS and Generics, benefits from Molnupiravir supply to the innovator, improved growth in Nutraceuticals, new product additions in the Generics segment, as well as ~240bp margin expansion on process and productivity improvements.” The broking house has also reported that “Our TP stands at INR6,050 based on 36x 12-month forward earnings. We remain positive on DIVI on the back of strong demand in the CS segment, reduced cost of production due to backward integration, and the Kakinada project being back on track. We reiterate our Buy rating.”

Buy IndusInd Bank at a target price of Rs 1400

The brokerage expects IndusInd Bank’s shares to rise to a target price of Rs 1400 from current levels, implying gains of 18 percent. The brokerage recommended the stock to buy at a market price of Rs 1,189, but it is now trading at Rs 1,063.65.

According to the brokerage “The impact of COVID-19 on asset quality appears to be controlled as asset quality ratios witnessed an improvement, with GNPA/NNPA at 2.8%/0.8% as of 2QFY22. Collection efficiency improved to 98% in Sep’21. We expect this to gain further traction. The restructuring book remains high at ~3.6% v/s peers. However, healthy PCR (~72%), coupled with a provision buffer of 1.4% of loans, provides comfort. We remain watchful of asset quality as slippages could remain elevated in the near term and moderate post FY22. We estimate credit cost to remain at 2.8%/2.0% in FY22E/FY23E and moderate to 1.8% in FY24E.” The brokerage has said “IndusInd Bank had rolled out its ‘Planning Cycle 5′ (CY20-23), wherein it would focus on fortifying its liabilities, scaling up its key focus businesses, and investing in new growth engines. It expects the loan book to grow at 15-18% over FY2-223E (unsecured retail at less than 5%), with the CASA ratio in excess of 40% by FY23E. We estimate the loan book to grow 17% over FY21-24E.”

According to Motilal Oswal, “the management has maintained its loan growth and credit cost guidance as given during the 2QFY22 results. It expects loan growth to be 16-18% and credit cost of 160-190bp, plus an additional 50bp for Vodafone. Thus, the total credit cost guidance stands at 240bp. We estimate a loan growth CAGR of 17% over FY21-24E / credit cost of 2.8% for FY22E and moderate it to 2.0%/1.8% for FY23E/FY24E.”

Motilal Oswal in its research report said “The stock could witness some pressure due to adverse media articles and asset quality stress reported by some other MFI lenders. Nevertheless, we expect the impact to be controlled. We expect RoA/RoE of 1.8%/15.1% in FY23E. We maintain BUY, with unchanged TP of INR1,400 (1.9x 1HFY24E ABV).”

Disclaimer

The above stocks have been picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.