11 March 2011

ICICI Bank (ICBK.BO, Rs1,007.7, EW, PT Rs1065) :Morgan Stanley Research

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Investment Thesis
• Largest private sector bank in India –
implies significant scale.
• Management has been delivering on
key metrics – CASA, cost, credit and
capital.
• Decline in consumer NPLs and
improving macro will lead to
continued credit cost normalization in
F2012.
• Bank has started refocusing on
balance sheet. However, core
revenue growth will remain relatively
tepid as loan growth lags peers.
• Trades at 12.5x F2012e earnings and
1.7x F2012e BV (adjusted for value of
key subsidiaries).
Key Value Drivers
• Loan growth.
• Margin progression.
• Operating and credit costs.
• Insurance subsidiary valuation.
Potential Catalysts
• Strength of loan growth in F2012.
• Margin progression in F1H2012.
• Progress on improving liability
franchise.
• New NPL formation trends in F4Q11
and F2012.
• Potential regulatory developments
related to foreign investment in
insurance operations in India.
• Better-than-expected performance of
international loan book.
Key Risks
• Upside: Better-than-expected NIMs
and asset quality at the banking
business and higher-than-expected
market share or NBAP margins for the
life insurance business.
• Downside: Higher-than-expected
credit costs, lower-than-expected
loan growth.


Price Target Rs1,065 Sum of the parts; we assign an 70% probability to our base case, a
25% probability to our bull case, and a 5% probability to our bear case.
Bull
Case
Rs1,375
2.7x
F2013e
BVPS
Macro environment is stronger than expected driving faster
revenue growth Loan growth is stronger than base case estimate at
25% in F2012/13. Fee income growth picks up to 20%. Costs grow
slower than asset growth at around 20%.
Base
Case
Rs975
1.9x
F2013e
BVPS
Drop in new NPL formation allows management to refocus on
balance sheet growth; but NII growth will remain relatively tepid
as loan growth lags peers: Credit costs drop to 117 bps in F2011
and 60 bps in F2012 from 218 bps in F2010. Loan book records a 17%
CAGR in F2012-13 versus a decline of -17% in F2010 and growth of
20% in F2011. Reported NIMs compress by 15 bps to ~2.45% by
F4Q12.
Bear
Case
Rs755
1.5x
F2013e
BVPS
Slowdown in economic growth; asset quality concerns return.
System loan growth is lower than base case expectations and hence
ICICI bank loan book growth does not accelerate per expectations (at
less than 14%). Credit costs return to elevated levels seen in F1H2010
as new NPL formation in the consumer loan book increases again.

Kotak Mahindra Bank (KTKM.BO, Rs415.0, UW, PT Rs340) :Morgan Stanley Research

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Investment Thesis
• Presence across nearly all financial
services businesses in India.
• Management team is among the best
in the business – its execution of
conversion from a NBFC into a bank
has been exemplary.
• Historically traded as a capital market
proxy, but earnings mix has changed
over the past few years.
• Earnings progression in lending
businesses could be under pressure
given weak funding franchise and
sharp rise in funding costs.
• Valuations are full: Trades at 16.5x
F2012e EPS.
Key Value Drivers
• Lending businesses: 1) NIM
progression; 2) Volume growth 3)
Trend in loan loss provisioning
• Securities business: 1) Growth in
market volume; 2) Market share; 3)
Commission rates
• Asset management: 1) Growth trend &
composition of assets under
management; 2) Commission rates
• Insurance: 1) Growth in premiums; 2)
NBAP margins & multiples
Potential Catalysts
• Trend in short rates
• Capital market activity (equity market
turnover, equity issuance trend)
• Market share trends in various
businesses (securities in particular)
Key Risks
• Upside: Lending margins hold up
better than expectations, market share
trends in securities businesses turns
around.
• Downside: Slowdown in
global/domestic economic growth;
NPL formation accelerates again,
margins compress more than
expectations.


Price Target Rs340 Derived from Probability-weighted Sum of the Parts
Bull
Case
Rs480
17.2x Base
Case F013e
EPS
Better than expected macro environment / performance of
businesses: Lending margins remain at current levels as short
rates remain benign and volume growth picks up. Market share
trends (particularly in the broking business) are stronger than
expectations. AUMs in the domestic mutual fund business rise
sharply from current levels.
Base
Case
Rs330
11.9x Base
Case
F2013e EPS
Loan growth slows but remains robust, margin compression
from rising short rates: Volume growth in lending businesses
remains robust, helping offset margin compression. We build in
23% loan growth in Kotak Bank + Kotak Prime in F12/13. Credit
costs remain low. Capital market activity continues to rebound and
Kotak holds market share at current levels. Domestic mutual fund
AUM sees a rebound in coming year.
Bear
Case
Rs225
8.1x Base
Case
F2013e EPS
Disruptive rise in interest rates: Inflation is sustained at higher
level for longer, so there may be a disruptive rise in interest rates,
hence leading to asset quality issues. This will also have a
concurrent impact on volume growth in the lending businesses and
growth trends in capital-market linked businesses.

HDFC Bank (HDBK.BO, Rs2,177.35, OW, PT Rs2550) :Morgan Stanley Research

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Investment Thesis
• Retail loan growth in India has started
picking up – will allow HDFC Bank to
maintain strong revenue progression.
• Great long-term play - good funding
franchise with low-cost deposits at
~50% of deposits which will be
beneficial in a rising rate environment.
• Unlike corporate lenders, HDFC Bank
has virtually no legacy asset quality
issues in the form of restructured loan
balance implying greater visibility on
credit costs.
• HDFC Bank is well capitalized with a
Tier I ratio of 12.3% as of Dec-2010.
• Valuations look rich at 18.8x F2012e
earnings. However, earnings are likely
to be strong – both in terms of
momentum and quality – hence driving
our OW call.
Key Value Drivers
• Margin progression.
• Trend in loan growth.
• Fee income growth.
• Credit costs.
• Operating costs.
Potential Catalysts
• Strength of economic growth in F2012.
• Ability to sustain cost reductions.
• Trend in New NPL formation rate.
Key Risks
• Downside: new NPL formation
re-accelerates; drop in consumer
confidence hampers retail loan growth;
greater competition in retail space
restraining asset repricing.
• Upside: faster than expected rebound
in retail loan growth, better cost control
and margin expansion.


Price Target Rs2550 Derived from our base case residual income model
Bull
Case
Rs2900
4.6x
F2013E
BVPS
Recovery is stronger than expected – credit costs drop materially below
normalized levels. Loan growth is stronger than base case estimate.
Credit costs drop materially below risk tendency levels in F2012. Core
fee income grows ahead of total asset growth.
Base
Case
Rs2550
4.1x
F2013E
BVPS
Robust loan growth and credit costs drop below normalized levels.
Loan growth remains strong at 28% CAGR in F2012-13. Credit costs
average 132 bps in F2012-13 vs 163 bps in F2009-11. NIMs remain
stable in F2011-12.
Bear
Case
Rs1550
2.5x
F2013E
BVPS
Slowdown in macro growth; asset quality concerns return. System loan
growth is below base case expectations and hence HDFC Bank’s loan
book growth slows. Credit costs return to elevated levels seen in
F1H2010 as new NPL formation in the consumer loan book increases
again.

Bank of India (BOI.BO, Rs453.1, OW, Price Target Rs565) :Morgan Stanley Research

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Investment Thesis
• Between September 2009 and
September 2010 – BOI’s credit costs
were higher and its margin expansion
was weaker than peers. Both trends
have seen material improvement.
• We believe that a part of the asset
quality pressure stemmed from
front-loading by the new management.
• Valuations are attractive – BOI is
trading at 7.5x F2012e earnings, 1.2x
BV and 4.3x core PPOP.
• As the bank continues to deliver on
improving revenues and asset quality
– it could see more outperformance.
Key Value Drivers
• Margin progression.
• Trend in loan growth.
• Fee income growth.
• Credit costs.
• Operating costs.
Potential Catalysts
• New NPL formation in F2012.
• Margin trends.
• Trend in system-wide loan growth.
• Fee income progression.
Key Risks
• New NPL formation re-accelerates.
• Higher-than-expected margin
compression owing to persisting asset
quality issues.
• Muted system-wide loan growth.


Price Target Rs565 Derived from our probability weighted residual income model.
Bull
Case
Rs735
2.0x F2013e
BVPS
Stronger than expected macro picture drives growth. Loan
growth averages 25% in F2012/13. Margins hold up closer to
current levels (3.1%). Credit costs drop materially below current
levels to 50 bps (driven by sharper than expected recoveries).
Base
Case
Rs585
1.6x F2013e
BVPS
Margins normalize gradually in F2012; credit costs decline:
Loan book grows at 16% in F2012 and 18% in F2013. We expect
normalization in margins from current levels of 3.1% (on reported
basis) to 2.8% by end F2012. Building in credit costs of 63 bps in
F2012 versus 65 bps in F2011 and 113 bps in F2010.
Bear
Case
Rs325
0.9x F2013e
BVPS
Disruptive rise in interest rates owing to persisting inflation:
Loan growth and margins are lower that expected at 13% and 2.4%
respectively. Flow of impaired loan formation resumes and credit
costs are higher than base case at 125 bps in F2012/F2013.

Morgan Stanley ::India Financial Services: Structurally Attractive, but Cyclically Macro-Dependent

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India Financial Services: Structurally Attractive, but Cyclically Macro-Dependent
We remain structurally positive on Indian banks
given our expectation of robust profitability over the
medium term. In the past three months, these stocks
have been under pressure owing to domestic macro
headwinds and more recently owing to increasing oil
prices. If these headwinds continue, stock performance
could remain tepid. In this note, we take a closer look at
these headwinds and their implications.

Union Bank (UNBK.BO, Rs326.75, OW, Price Target Rs400) :Morgan Stanley Research

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Investment Thesis
• Margins likely to average 2.7% in
F2012-13 – normalizing from 2.9%
average in F2011. This will be partially
offset by robust loan growth of 17% in
F12-13.
• Impaired loan ratio is in line with
system average – coverage ratio at
70% is in line with RBI minimum of
70%.
• Capital position has improved
following infusion by the government.
Tier I ratio was at 9.4% (including
F3Q11 profits & capital infusion)
• Union Bank is trading at 6.5x F2012e
earnings and 1.1x F2012e BV.
Key Value Drivers
• Margin progression.
• Trend in loan growth.
• Fee income growth.
• Credit costs.
• Operating costs.
Potential Catalysts
• Slippage from restructured loans
which will be reported in QE Mar 2011
results
• Margin trend in F2012.
• Trend in system-wide loan growth.
• Fee income progression
Key Risks
• Higher than expected slippage from
restructured loans into NPLs;
• Formation of new impaired loans
accelerates.
• Muted system-wide loan growth.


Price Target Rs400 Derived from our probability weighted residual income model
Bull
Case
Rs515
1.8x F2013e
BVPS
Stronger than expected economic growth. Loan growth in
F2011 and F2012 higher than base case estimates at 25% --
driving stronger fee income growth and more robust margin
progression; Credit costs drop materially below base case estimate
to 50 bps in F2012-13.
Base
Case
Rs415
1.4x F2013e
BVPS
Margins normalize from peak levels, but expect credit cost
provide offset. Expect margins to normalize to 3.1% from current
reported level of ~3.4%; volume growth of 19% in F2012/13.
Expect credit costs to decline73 bps in F2012 from current levels of
111 bps.
Bear
Case
Rs250
0.9x F2013e
BVPS
Disruptive rise in rates: Loan growth slows down sharply and
margins compress more than expectations. Impaired loan
formation re-accelerates implying that credit costs remain higher
for longer (at 100 bps).

Bank of Baroda (BOB.BO, Rs894.5, OW, Price Target Rs1,085) :Morgan Stanley Research

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Investment Thesis
• BOB is the fourth largest bank in India.
• Very comfortably placed from an asset
quality perspective given coverage
ratio of 85.4% and a low impaired loan
ratio of 4.3%.
• Robust deposit franchise with
CASA/Deposits at ~35% –beneficial in
a rising rate scenario.
• Expect core ROE (ex-cap gains and
recoveries) to improve from 14.6% in
F2010 to 20.4% in F2011.
• Well capitalized following recent
infusion from government – Tier I ratio
at 10.9%. Government ownership has
increased to 58% – implying potential
for equity capital raising in future.
• Current valuations at 9.4x F12e
earnings and 1.5x F12e BV are still
attractive.
Key Value Drivers
• Margin progression.
• Trend in loan growth.
• Fee income growth.
• Credit costs.
• Operating costs.
Potential Catalysts
• System wide deposit / loan growth
trend
• New NPL formation (reported on
quarterly basis).
• Any newsflow on Dubai/Middle-East
region / Dubai World exposures
Key Risks
• Higher than expected impaired loan
formation.
• Exposure to Middle-East region
(including US$200mn exposure to
Dubai World).
• Disruptive rise in short rates.
• Muted system-wide loans growth.


Price Target Rs1,085 Derived from our probability weighted residual income model.
Bull
Case
Rs1,380
2.4x F2013e
BVPS
Stronger than expected macro outlook leads to faster revenue
growth: Loan growth is higher than our base case estimates at
25% for F2012/13. Fee income and margin progression is much
stronger than expectations driving strong revenue growth.
Base
Case
Rs1,140
2.0x F2013e
BVPS
Margin compression driven by rise in cost of deposits: Loan
book grows at 17% in F2012 & 18% in F2013. Reported margins
compress from 3.2% in F3Q11 to 2.8% in F4Q12e. Credit costs
(annual) average 65 bps in F2012-13.
Bear
Case
Rs620
1.1x F2013e
BVPS
Disruptive rise in rates – higher than expected credit costs;
loan growth remains muted: Loan growth will be below base
case expectation at 14%. Margins compress more than our base
case estimates driven by disruptive rise in rates owing to capital
outflows. Flow of impaired loan formation resumes (triggered by
domestic and problems with Middle-East exposure) and credit cost
are higher than base case at 100 bps.

State Bank of India (SBI.BO, Rs2622.8, OW, PT Rs3290) :Morgan Stanley Research

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Investment Thesis
• Largest bank in India with a 24%
market share in loans.
• Expect core PPOP progression to be
robust in F2012 – following strong
performance in F2011.
• Strong liability franchise (48.2%
domestic CASA) will benefit in a rising
rate environment.
• Near term EPS could be under
pressure due to higher credit costs. As
credit cost runs off in F2012, reported
EPS growth should be strong.
• Life insurance subsidiary is now the
biggest amongst private insurance
players.
• Stock is trading at 10.1x F12 core
earnings. On core book value, it is
trading at 1.5x F12.
Key Value Drivers
• Loan growth
• Margin progression
• Fee income
• Credit costs
• Life insurance valuation/market share
Potential Catalysts
• Impaired loan trends in F2H2011
• Margin progression
• System-wide loan growth trends and
rate movements
Key Risks
• Credit costs stay higher for longer
• Lower than expected loan growth
• Impaired loan formation re-accelerates
• Very sharp rise in long bond yields


Price Target Rs3,290 Derived from probability weighted sum of parts
Bull
Case
Rs4,200
2.5x F2013e
BVPS
Stronger than expected revenue progression and credit costs
drop sharply: Loan growth pick-up is much stronger than
expectations (25%) driven by better macro conditions. Credit costs
drop to 50 bps in F2012-13. We value the insurance business at
Rs200/share using a new business multiplier at 16x and an NBAP
margin of 16%.
Base
Case
Rs3,450
2.0x F2013e
BVPS
Core PPOP growth driven by strong revenue progression,
credit costs normalize in F2012: Reported margins normalize
3.20% by end-F2012 from current 3.52%. Loan book growth
averages 17% in F2012-13. Credit costs will run-off from F2012
with restructured loans slippages peaking at 20%. We value the
insurance business at Rs135/share using a new business
multiplier at 14x and an NBAP margin of 14%.
Bear
Case
Rs1,900
1.1x F2013e
BVPS
Disruptive rise in rates: Loan growth slows down sharply and
margins compress more than expectations (margins revert to
F2010 levels of 2.5%). Impaired loan formation re-accelerates
implying that credit costs remain higher for longer (at 120 bps). We
value the insurance business at Rs85/share using a new business
multiplier at 11x and an NBAP margin of 10%.

Canara Bank (CNBK.BO, Rs600.95, OW, PT Rs755) :Morgan Stanley Research

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Canara Bank (CNBK.BO, Rs600.95, OW, PT Rs755)


Investment Thesis
• Valuations for Canara Bank are
attractive at 7.0x F2012E P/E and 1.1x
BV.
• Core revenue trends have been doing
well with margins recovering to near
peak levels.
• Asset quality trends have been
tracking better than expectations.
Coverage ratio is above RBI
requirement at 76%.
• CASA ratio is weaker versus other
peers at 29%. We have already built
50 bps margin compression by
end-F12 into our numbers.
• Higher government stake at 73%
means that the bank could raise a
significant amount of capital through
dilutive equity issues.
Key Value Drivers
• Margin progression.
• Trend in loan growth.
• Fee income growth.
• Credit costs.
• Operating costs.
Potential Catalysts
• Margin progression in F2011 and F12
• Slippage from restructured loans
which will be reported in QE March
2011 and QE June 2011 results.
• Trend in system-wide loan growth.
Key Risks
• Very sharp rise in long bond yields
(Modified duration of AFS portfolio at
4.04 years as of Dec-10)
• Higher proportion of infrastructure
loans (23% of total) vs. peers.
• New impaired loan formation
re-accelerates.
• Muted system-wide loans


Price Target Rs755 Derived from our probability weighted residual income model.
Bull
Case
Rs950
1.8x F2013e
BVPS
Stronger than expected macro outlook leads to faster revenue
growth: Loan growth is higher than our base case estimates at
25% for F2012/13. Fee income and margin progression is much
stronger than expectations driving strong revenue growth.
Base
Case
Rs800
1.5x F2013e
BVPS
Margin compression driven by rise in cost of deposits: Loan
book grows at 16% in F2012 and 18% in F2013. Reported margins
compress from 3.3% in F3Q11 to 2.8% in F4Q12e. Credit costs
(annual) assumed to be at 74 bps in F2012E vs. 45 bps in F2011E
and 93 bps in F2010.
Bear
Case
Rs425
0.8x F2013e
BVPS
Disruptive rise in rates – higher than expected credit costs;
loan growth remains muted: Loan growth will be below base
case expectation at 13%. Margins compress more than our base
case estimates driven by disruptive rise in rates owing to capital
outflows. There are material slippages from restructured loans and
credit cost are higher than base case at 100 bps.

JM Financial, :: Bajaj Finance: Ready to cruise in its new Avatar

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Ready to cruise in its new Avatar
􀂄 Restructuring has set the base for sustainable growth: Post induction of
new management team led by Mr. Rajeev Jain, Bajaj Finance (BAF) underwent
significant restructuring during FY08-10 which included a) shift in focus
towards the affluent and HNI segment in the consumer business, b)
transformation from primarily being a captive business model (Bajaj Auto’s
finance arm) focused on 2-wheeler and consumer durable business to a
diversified NBFC with full suite of lending products, c) Significant improvement
in origination and underwriting processes by investing in technology, using
information from CIBIL and creating a dedicated risk analytics unit which has
enhanced its risk management capabilities. Going ahead, we believe BAF is
well-positioned to deliver sustainable and profitable growth which is scalable
with lower risk, as it intends to focus on secured business lines.
􀂄 Secured business lines to drive loan book CAGR of 32% over FY11-13E: We
expect secured loan products (loan against property, construction equipment
finance and infrastructure finance) to drive loan book CAGR of 32% over FY11-
13E, while unsecured business lines would be in consolidation phase after
witnessing strong growth during FY09-11. Consequently, we expect secured
assets to account for c.55-60% of the book by FY13E vs c.30% in FY10.
􀂄 Healthy NII CAGR of 26% despite margin pressure due to change in loanmix
and higher borrowing costs: We factor-in significant margin decline of
c.440bps over FY10-13E due to a) lower asset yields on account of higher
proportion of secured business going ahead, b) increase in cost of borrowings.
We still expect a healthy 26% CAGR in NII over FY11-13E.
􀂄 Credit costs to decline by 135bps over FY11-13E; coverage ratio now at
healthy 71% level: We expect credit costs for BAF to decline by 135bps over
FY11-13E given a) change in loan mix towards secured assets; b) BAF has
improved its coverage ratio from 28% in FY08 to a healthy 71% currently. We
forecast gross and net NPLs of 4% and 1% respectively in FY13E.
􀂄 Earnings CAGR of 27% with healthy ROE of c.22%: We expect earnings CAGR
of c.27% over FY11-13E on strong loan growth, lower credit costs and
improving cost ratios. We expect BAF to report healthy return ratios with ROA
of 3.1% and ROE of 22% by FY13.
􀂄 Solid business available at compelling valuation; initiate with BUY and TP
of `990: BAF is currently trading at a compelling valuation of 5.7x/1.2x based
on FY13E earnings and book value respectively. We value BAF at 9x Mar’13 EPS
(implied P/B of 1.8x), implying Mar’12 target price of `990, upside of c.57%.
Key risks: Spike in interest rates and higher than expected delinquencies.

Corporation Bank (CRBK.BO, Rs552.5, OW, Price Target Rs725) :Morgan Stanley Research

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Investment Thesis
• Valuations are very attractive: Trades
at 5.5x F2012e earnings, 1.0x F2012e
BV and 3.9x F2012e PPOP.
• We expect Corporation Bank to
generate an average ROA of 1.1% in
F2012/13 and ROE of 19 & 21% in
F2012 & F2013 respectively.
• Expect reasonable volume growth and
falling credit costs to offset potential
margin pressures in F2012.
• Tier 1 position of the bank is
comfortable at 9.8% (as of December
2010, adjusted by adding profits of
F9M11 & recent capital infusion).
• Weak CASA franchise (CASA to total
funding at 24%) is a risk
Key Value Drivers
• Margin progression.
• Trend in loan growth.
• Fee income growth.
• Credit costs.
• Operating costs.
Potential Catalysts
• Slippages and upgrades/recoveries to
be reported in QE Mar 2011 and QE
June 2011 results.
• Trend in system-wide loan growth
(released on a fortnightly basis).
• Trend in short rates (given relatively
weak CASA)
Key Risks
• Sharp rise in short rates (given
relatively weaker CASA ratio)
• Higher than expected slippage from
restructured loans into NPLs.
• New impaired loan formation
accelerates further


Price Target Rs725 Derived from our probability weighted residual income model.
Bull
Case
Rs870
1.6x F2013e
BVPS
Stronger than expected economic growth. Loan growth in
F2012-13 averages 25% -- higher than base case estimates
implying that NII growth and fee income is higher than
expectations; New NPL formation rate slows to materially below
normalized levels implying that credit costs drop sharply.
Base
Case
Rs775
1.4x F2013e
BVPS
Margins likely to compress in F2012, but falling credit costs
will help preserve profitability. We expect margins to compress
by 35 bps by end-F2012 from current levels of 2.7%. Building in a
volume growth of 17% in F2012 & 18% in F2013. Expect credit
costs to decline to 64 bps in F2012 (vs. 75 bps in F2011) owing to
slowing new NPL formation.
Bear
Case
Rs425
0.8x F2013e
BVPS
Disruptive rise in interest rates: Inflation rates remains at higher
levels for longer and hence resulting in a disruptive rise in rates in
the system. This will result in loan growth being slower than
expectations and new NPL formation to potentially re-accelerate.
In this scenario, we build in a sharper compression in margins.

Axis Bank (AXBK.BO, Rs1284.3, OW, PT Rs1510) :Morgan Stanley Research

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Why Overweight?
• Beneficiary of strong macro and
corporate activity pickup. We expect
revenue growth to be robust at 21%
CAGR in F2012-13
• Strong balance sheet with a Tier I ratio
of 10.2% (including F9M11 profits) and
CASA/assets ratio of 37%.
• Near-term pressures likely from
margin normalization.
• Credit costs will likely normalize in
F2012 given continued macro
recovery and coverage ratio of 83% on
NPLs.
• Higher CASA ratio will provide partial
offset against higher wholesale term
deposit base
• Valuation premium against SOE banks
has decreased. Stock is trading at
13.2x F2012e earnings.
Key Value Drivers
• Margin progression
• Trend in loan growth
• Fee income growth
• Credit costs
• Operating costs
Potential Catalysts
• System-wide loan and deposit growth
trends in F2012.
• Pickup in core earnings momentum –
stronger NIMs, better cost and fee
income progression.
• Asset quality improvement in F2012.
Key Risks
• Asset quality pressures given existing
stock of restructured loans.
• Micro finance institutions (MFIs) are
one segment that could put upward
pressure on credit costs
• The other potential stress point could
be exposure to commercial real estate
developers


Price Target Rs1510 Derived from our probability-weighted residual income model
Bull
case
Rs2000
3.5x
F2013E
BVPS
Macro picture is stronger than expected. Loan growth and fee income
accelerate more sharply than base case estimate (loan growth at 35%).
Margin progression is more robust given pricing power (i.e. remains
elevated around 3.6%). Credit costs drop materially below risk tendency
levels in F2012 (i.e. to 50 bps).
Base
case
Rs1375
2.4x
F2013E
BVPS
Robust loan growth and credit costs drop below normalized levels. Loan
growth remains robust at 25% CAGR in F2012-13. Credit costs drop from
104 bps in F2011 to 77 bps in F2012. Reported NIMs normalize to 3.3%
by end of F2012-end.
Bear
case
Rs965
1.7x
F2013E
BVPS
Sharp slowdown in economic growth; asset quality concerns return.
Loan growth slows down over the coming year to 18%. Margins contract
driven by falling asset yields to 2.7-3.0%. Credit costs return to elevated
levels seen in F1H2010 driven by greater than expected slippage from
restructured loans and CRE loans.
Source: Company data, Morgan Stanley Research estimates

Oriental Bank of Commerce (ORBC.BO, Rs338.1, OW, PT Rs450) :Morgan Stanley Research

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Investment Thesis
• Given recent correction – valuations
are attractive at 0.8x F2012e BV, 6.8x
PE F2012e.
• 150 bps expansion in margins over
the past year aided by low short rate
environment – expect it to unwind
partially (60 bps including
compression in F3Q11 till F4Q12e) as
short rates rise.
• CASA/funding is weak at ~23-24%.
• Tier I ratio has improved to 12.4%
following recent capital infusion by the
government.
• Even after factoring in the margin
compression in F2012 earnings –
valuations look very attractive.
Key Value Drivers
• Margin progression.
• Trend in loan growth.
• Fee income growth.
• Credit Costs.
• Operating Costs.
Potential Catalysts
• Margin progression in F2012.
• Slippages trend in coming quarters.
• Trend in system-wide loan / deposit
growth (released on a fortnightly
basis).
• Market ascribing value to the 23%
stake in life insurance venture with
HSBC and OBC.
Key Risks
• Downside: slower-than-expected loan
growth, sharp compression in NIMs
and significant deterioration in asset
quality (restructured loans slippages)
• Upside: Stronger than expected loan
growth. Credit costs below
expectations


Price Target Rs450 Derived from our probability weighted residual income model.
Bull
Case
Rs545
1.3x
F2013e
BVPS
Margins sustain at current levels in F2011 and F2012; credit costs
are more benign. Margins sustain around current reported levels of
3.1% in F2011 and F2012. NPL formation slows faster than expectations
and credit costs drop to 40-50 bps in F2012-13.
Base
Case
Rs485
1.2x
F2013e
BVPS
Margins compress driven by rising deposit costs. We expect
margins to compress from reported levels of 3.1% in F3Q11 to 2.5% by
F4Q12e. Loan book grows at 18% in F2012-13. Credit costs remain
elevated in F2011 (84 bps) owing to slippages from restructured loans
(20%) but normalize to 69 bps in F2012.
Bear
Case
Rs250
0.6x
F2013e
BVPS
Disruptive rise in rates – margins compress sharply; higher than
expected credit costs: Flow of impaired loan formation resumes and
credit costs are higher than base case. Margins compress to 2.0%-2.25%
owing to a sharp rise in short rates (owing to capital outflows).
Source: FactSet, Morgan Stanley Research estimates

Punjab National Bank (PNBK.BO, Rs1065.5, OW, Price Target Rs1,430) :Morgan Stanley Research

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Investment Thesis
• Strong presence in Northwestern India,
which has a strong deposits base, as
reflected in high CASA ratio (39%).
Strong low-cost deposit base will
benefit in rising rates scenario.
• Expect credit costs to decline to 81 bps
in F2012 from 95 bps in F2011. This
will help provide an offset to margin
normalization from current peak levels
of 4.1%.
• Adjusted Tier I ratio at 9.4% (including
profits for F9M11 & capital infusion by
the govt.)
• The stock is trading at 7.3 x F12e P/E
and 1.4x F12e P/BV. In this context,
we believe that that risk-reward is still
favorable.
Key Value Drivers
• Margin progression.
• Trend in loan growth.
• Fee income growth.
• Credit costs.
• Operating costs.
Potential Catalysts
• New NPL formation trend in QE
Mar-11 and QE Jun-11.
• Margin trends
• Trend in system-wide loan growth
(released on a fortnightly basis).
Key Risks
• Higher than expected slippage from
restructured loans into NPLs.
• New impaired loan formation
accelerates.
• Muted system-wide loan growth.


Price Target Rs1,430 Derived from our probability weighted residual income model.
Bull
Case
Rs1,750
2.2x
F2013e
BVPS
Stronger than expected economic growth. Loan growth in F2011
and F2012 higher than base case estimates at 25% -- driving
stronger fee income growth and more robust margin progression;
Credit costs drop materially below base case estimate to 50 bps in
F2012-13.
Base
Case
Rs1,550
2.0x
F2013e
BVPS
Margins normalize from peak levels, but expect credit cost
provide offset. Expect margins to normalize to 3.3% from current
reported level of ~4.1%; volume growth of 18% in F2012/13. Expect
credit costs to decline to 83 bps in F2012 from 95 bps in F2011.
Bear
Case
Rs750
1.0x F2013
BVPS
Disruptive rise in rates: Loan growth slows down sharply and
margins compress more than expectations. Impaired loan formation
re-accelerates implying that credit costs remain higher for longer (at
100 bps+).
Source: FactSet, Morgan Stanley Research estimates

LOVABLE LINGERIE - Final Subscription details: 28x; HNI 99.87x!!

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LOVABLE LINGERIE LIMITED


Total Issue Size3867500
Total Bids Received110000730
Total Bids Received at Cut-off Price16737390
No. of times issue is subscribed28.44


Sr.No.CategoryNo.of shares offered/reservedNo. of shares bid forNo. of times of total meant for the category
1Qualified Institutional Buyers (QIBs)15925003482121021.87
1(a)Foreign Institutional Investors (FIIs)11144580
1(b)Domestic Financial Institutions(Banks/ Financial Institutions(FIs)/ Insurance Companies)6076470
1(c)Mutual Funds17502600
1(d)Others97560
2Non Institutional Investors6825006816213099.87
2(a)Corporates34256220
2(b)Individuals (Other than RIIs)33818880
2(c)Others87030
3Retail Individual Investors (RIIs)15925003318654020.84
3(a)Cut Off23834700
3(b)Price Bids9351840

Updated as on 11 March 2011 at 1830 hrs

Sharp fall in the weekly food inflation; IIP growth data eyed: Edelweiss

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Sharp fall in the weekly food inflation; IIP growth data eyed
Government securities
 Sovereign bond yields continued to edge lower as sentiment was boosted by the
sharp fall in the weekly food inflation data. However the gains remained capped
ahead of the January industrial output growth data to be released on Friday. The
actively traded 8.13% 2022 bond ended 1 basis lower at 8.04% while the
benchmark ten year bond closed 2bps lower at 7.95%.

Edelweiss - IIP remains weak, led by capital goods

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Among the other components of IIP, what is notable is the reversal in the weakening trend observed in consumer non-durables since the beginning of FY11. Over the past two months, the non-durables category has seen strong sequential growth momentum. Meanwhile, consumer durables grew strongly Y-o-Y, although sequential momentum slowed significantly. The basic and intermediate goods category continued to grow moderately. Overall, we believe that this soft patch in industrial activity will continue in the coming months, with March seeing significant high base effect. While pick-up in exports augurs well for industrial activity, tightness in liquidity, rising interest rates and wage pressures pose a challenge.  

Kirloskar Oil Engines -- Managemement meeting takeaways : Credit Suisse,

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Kirloskar Oil Engines (NOT RATED) ---------------------------------------------------------------------
Managemement meeting takeaways


● We met Mr Sanjay Parande, KOEL’s CFO for an update on
business. Management highlighted that demand outlook was not
strong given weak ordering from the telecom segment, disruptive
competition from the Chinese in low KVA engines and likely
switch of one off-highway customer (JCB) to own engines(7-8% of
sales). The agri pumps business is also getting impacted by
competition from unbranded players (Chinese).
● KOEL currently operates at 65-70% utilisation and plans Rs1 bn
capex in FY11 and Rs1.2 bn in FY12. Sales tax reimbursed
(capital subsidy on Kagal facility) is being routed through balance
sheet (Rs1 bn on accruals). KOEL has Rs2 bn of cash.
● Margins have been under pressure due to RM price impact,
impact of competition and inventory clearance. Despite the
cautious view, management hopes to achieve 10-15% sales
growth in FY12 and expand margins (mix change to mid-high end,
cost initiatives).
● KOEL’s exposure to low KVA segment could be the key reason
for a relatively cautious outlook. While JCB is also a customer of
CIL, given the diverse range of end users, impact on sales should
not be high. CIL benefits from dominant positioning in the midhigh
segment and strong exposure to the export market.

Indiabulls Real Estate: Target: 155 Horizon: 9-12 mon : Anand Rathi

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Target: 155 Horizon: 9-12 mon
Investment Rationale

  • Diversified Land bank & Properties - Construction work picking in most of the geographies
  • Value Unlocking -Demerger of power business
  • Revenue visibility and low debt levels
  • Financial performance of FY11 has shown revival in business
  • Industry scenario

Buy Sun TV, TARGET PRICE: RS.595 --Kotak Sec,

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SUN TV NETWORK
RECOMMENDATION: BUY
TARGET  PRICE:  RS.595
FY12E P/E: 18.1X

Following negative newsflow and consequent price declines, we review our
investment thesis on Sun TV Network. We find that earnings risks to the
stock are minor (6-7%), and the price – value gap significant, given current
information set. With complete discounting of earnings risks, and
incorporating a reasonable discount for risks relating with recent adverse
news-flow, we believe Sun TV Network should be valued at Rs 595/ share
(FY12 – end), implying favorable risk-reward. We maintain our positive
stance on the stock, and re-iterate BUY.

Kotak Sec, March 11, 2011; News Round-up

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Economy News
4 After a gap of three months, food inflation fell to the single digit at
9.52% during the week ended February 26, raising hopes that the overall
inflation might come down close to seven per cent by the end of this
financial year, as projected by the finance ministry. (BS)
4 The government is likely to consider abolition of a 5% Customs duty on
crude oil if prices start moving towards the June 2008 levels when crude
prices were skyrocketing and triggering policy initiatives. (BS)
4 Goods export in February shot up by 49.8% over the same month last
year - posting an 11-month high - to $23.6 billion, enabling the country to
surpass the 2010-11 export targets of $200 billion well in advance. (BL)
4 With funding requirements posing a major challenge for the
infrastructure sector, the Securities and Exchange Board of India (SEBI)
and the Reserve Bank of India (RBI) are in consultation with the
government for creating a separate regulatory framework for
infrastructure debt funds. (BS)

BSE, Bulk deals, 11/3/2011

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Company
Client Name
Deal Type *
Quantity
Price **
ACROPET TEC
KANUDIA CAPITAL AND MANAGEMENT SERVICES PRIVATE LIMITED
B
208646
100.28
ACROPET TEC
GENUINE STOCK BROKERS PVT. LTD.
B
277057
102.94
ACROPET TEC
H P SHARE SHOPPE
B
354867
104.12
ACROPET TEC
MRIDUL VENTURES PRIVATE LIMITED
B
392207
99.35
ACROPET TEC
CROSSEAS CAPITAL SERVICES PRIVATE LIMITED
B
2261826
102.84
ACROPET TEC
A K G SECURITIES AND CONSULTANCY LTD
B
734403
104.30
ACROPET TEC
DIRVA TRADE IMPEX PRIVATE LIMITED
B
1333782
100.79
ACROPET TEC
EUREKA STOCK & SHARE BROKING SERVICES LTD
B
589310
104.68
ACROPET TEC
ARV ENTERPRISES
B
205066
104.15
ACROPET TEC
JIGYASA PROPERTIES PRIVATELIMITED
B
430699
111.97
ACROPET TEC
JIGYASA PROPERTIES PRIVATELIMITED
S
430699
103.22
ACROPET TEC
EUREKA STOCK & SHARE BROKING SERVICES LTD
S
589310
104.79

BSE - Other Categorywise Turnover- 11.3.11

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(Rs Crore)
Clients
Trade Date
Buy
Sales
Net
11-03-2011
2,815.75
2,807.14
8.61
10-03-2011
2,131.87
2,126.75
5.12
09-03-2011
2,445.61
2,512.44
-66.83
Mar , 11
17,939.76
18,242.26
-302.5
Since 1/1/11
1,09,961.90
1,10,639.97
-678.06
(Rs Crore)
NRI
Trade Date
Buy
Sales
Net
08-03-2011
1.40
0.27
1.14
07-03-2011
0.47
0.21
0.27
04-03-2011
0.95
1.06
-0.11
Mar , 11
8.68
6.71
1.97
Since 1/1/11
57.81
45.71
12.1
(Rs Crore)
Proprietary
Trade Date
Buy
Sales
Net
08-03-2011
767.74
762.71
5.02
07-03-2011
644.21
631.97
12.24
04-03-2011
704.24
693.23
11.01
Mar , 11
5,341.24
5,184.15
157.09
Since 1/1/11
32,757.24
32,954.10
-196.86