RESEARCH: CREDIT SUISSE
RATING: OUTPERFORM
CMP: RS 194
Credit Suisse expects 26% upside in Max India’s stock price from the current levels. Max’s recent bancassurance tie-up with Axis Bank will drive a sharp acceleration in its new business sales. This tie-up alone will boost insurance sales for Max NYL by 25%. Credit Suisse, therefore, expects Max NYL to be the fastest growing large private life insurers in FY11. Max India is also now adequately funded post the recent $152-million private placement and warrant issue, to meet capital needs of all its subsidiary businesses. Max India stock’s performance over the past few months has been weak as growth in its life insurance business was lacklustre. It is now available at an attractive 1.8x FY09 embedded value. Max NYL is also relatively better positioned compared to peers due to its superior product mix (high proportion of traditional policies) which will absorb the impact of Insurance Regulatory and Development Authority’s 2009 guidelines
capping fees on unit-linked products.

RESEARCH: MACQUARIE
RATING: UNDERPERFORM
CMP: RS138
Macquarie initiates coverage on Reliance Power with an `Underperform’ rating and a target price of Rs 117 per share. Considering that RPWR has spent only about 5% of the potential capex required to roll out its large 33,780-MW growth pipeline and that financial closure has been achieved for only 17% of its projects, there is still a long way to go regarding execution. The risks for the 7,480-MW Dadri Gas Project, RPWR’s largest project, have been increasing. Even after factoring in 50% of the value of the project, Macquarie prefers to have some clarity on this before attributing more value - even if that means missing out on some high-risk upside. The tariff structure of RPWR’s ultra mega power projects allows little or no pass-through of the tariff for either inflation or energy costs. Thus, higher-than-expected inflation or energy costs could eat away at earnings margins. While the company might successfully navigate its way through the risks that lie ahead, Macquarie does not suggest that investors pay for this upside now. Macquarie thinks it has the ability to pass through costs and is in a strong position to fund growth.

RESEARCH: BNP PARIBAS
RATING: BUY
CMP: RS 149
Since 10 June ‘09, IndusInd Bank (IIB) has returned 95% backed by a consistent delivery on the six core operating goals committed to by the management team. BNP Paribas is revising the FY11 loan growth estimate to 26% from the current 20%, and core fee income from 30% to 27%. On credit costs, gross non-performing loans (GNPL) percentage has been changed from 1.55% to 1.42%, which accounts for a 48% yo-y growth in GNPL (including write-offs). BNP expects IIB to clock a NIM of 3% in FY11 on the back of a CASA ratio of 25.5%. BNP expects IIB to add another 100 branches in FY11 taking the FY11 tally to 310. This branch expansion will also benefit from RBI’s relaxation regarding branch licensing norms especially in Tier 3-6 locations. The management guided towards converting approximately 100 of their 486 distribution outlets into full-fledged branches over a period of time. BNP expects some proportion of the FY11 addition of 100 branches to come from the conversion of distribution outlets into branches. The management expects to launch the re-branding exercise in FY11. BNP anticipates another $100 million in capital issuance and are taking in a 10-12% equity dilution in the H2FY11. BNP is increasing the target price to Rs 180 from Rs 150 on the back of the upward revision in estimates and is expecting a 29% growth in net profit and a 16% growth in EPS (EPS growth lower due to equity dilution)

RESEARCH: CITIGROUP
RATING: BUY
CMP: RS 203
NTPC has underperformed the BSE Sensex by 70% over the last one year and the current price provides an attractive entry point for investors wanting a defensive play on India’s persistent power deficits. Citigroup increases target price of NTPC to Rs 229 from Rs 220. At the new target price, NTPC would trade at a P/BV of 2.7x FY11E. Out of a target of 22.4 GW in the XIth Plan (FY08-12), NTPC commissioned 2.7 GW over FY08-09 and an additional 9.5 GW in FY10E-12E. Targets in the XIIth Plan are expected to be bigger at 28 GW and the company expects to place 34 GW of orders over the next 1.5 years. The NTPC-DVC block 11X660-MW tender has received two bids for boilers and five bids for turbines. Evaluation of techno-commercial bids will be completed in two months and after that the price bids will be invited. NTPC expects to award the contract by August ‘10. NTPC also plans to procure 800-MW supercritical units through the bulk ordering route and expects to issue the tender in three months for the supply of seven units. NTPC’s Q3FY10 PAT at Rs 2,370 crore, up 5% Y-o-Y, was in line with the estimate of Rs 2,390 crore. In 9mFY10 NTPC has delivered recurring PAT of Rs 6,540 crore, up 18% Y-o-Y, which is ahead of our FY10E expectation of 16% Y-o-Y.

RESEARCH: GOLDMAN SACHS
RATING: SELL
CMP: RS 2622
Goldman Sachs downgrades Nestle India to `Sell’ from `Neutral’, on valuation grounds and revises the 12-month target price to Rs 2,376. Nestle India’s current valuation is expensive as it trades at a one-year forward rolling P/E of about 29x, which is high compared with its long-run average of 25x. Although Nestle India remains structurally well-positioned to deliver strong 19% topline CAGR in FY09-FY12E, given its exposure to low-penetration processed food categories and urban skew, Goldman Sachs forecasts flat gross margins in FY10E driven by a spike in raw material costs. Nestle India’s current absolute P/E and 35% P/E premium relative to our India consumer staples coverage are both about one standard deviation above their long-run trends. Nestle India would need to continue investing in brands to maintain its high topline growth. Goldman Sachs lowers FY10E-FY12E EPS by 2%-4% post-FY09 results.

SOURCE: ET INTELLIGENCE

ADANI POWER

RESEARCH: UBS INVESTMENT
RATING: BUY
CMP: RS 106
UBS Investment maintains `Buy’ rating on Adani Power with a price target of Rs 130. Adani Power (APL) has been awarded a letter of intent (LOI) by the Madhya Pradesh government to develop a 1,320-MW power project at Chhindwara. The project is like a Case 2 bid and has significant advantages for Adani Power in the form of: a) land availability, b) state government support for obtaining fuel linkages, c) water availability, and d) support for infrastructure facility by MP government. The project also has a good mix of regulated and open capacity. As per the LOI, the first unit of 660 MW is to be commissioned in Q2FY14 and the second unit by end-FY14. UBS believes Adani Power has made reasonable progress on this project as the company has already invited engineering, procurement and construction bids for the project. Developments in APL are similarly positive for its parent entity, Adani Enterprises (AEL); APL contributes about 62% of the price target of Rs 550 for AEL.

SOURCE: ET INTELLIGENCE