Corporation Bank – 'Gaining Ground ' – BUY
CMP Rs555, Target Rs648, Upside 16.7%
Corporation Bank is all set to establish a pan-India presence. Excess reliance on term deposits and tepid LDR had dragged margin performance for the last several quarters. Further, while asset quality remained at comfortable levels, CASA ratio was in the low 28-29% range. With above system loan growth, enhanced focus on garnering CASA deposits thereby leading to improvement in margins, planned branch addition especially in North India , and limited accretion in NPLs, we expect Corporation Bank to witness healthy 21% CAGR in its balance sheet and 22% CAGR in net profit over FY10-12E. Recommend BUY with a six-month time frame.
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JSW Steel – 'Showing its Mettle' – BUY
CMP Rs1,123, Target Rs1,293, Upside 15.1%
JSW Steel is best placed among Indian steel producers due to its strong volume growth, easing input pressures and low conversion costs. We see domestic steel demand remaining strong and expect JSW to witness 25% volume CAGR over FY10-12. Combined with a better product-mix and improving cost structure, will drive 33% operating profit and 43.3% PAT CAGR over FY10-12, even after factoring in a decline in steel prices in FY12. Any clarification on iron ore production from Chile and Hadimpadde mine will be a major trigger for the stock.
The balance sheet, which has strengthened following warrants issued to the promoter group, is set to improve further with strong cash flows expected over the next two years. Despite a decline in steel and raw-material prices, we are confident JSW will maintain margins led by strong volume-growth and a host of margin-improvement triggers. We recommend a BUY with a six-month price target of Rs1,293, based on 5.5x FY12E EV/EBIDTA.
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