Analysts' corner

State Bank of India, Sun Pharma & Bharat Forge

STATE BANK OF INDIA
Reco price/date: Rs 1,888/August 13;
CMP/Target Price: Rs 1,910/Rs 2,010
The net interest income growth of 14.6 per cent was marginally weaker than expected. Though the loan growth was in line, the net interest margin weakened, falling 32 basis points (bps) sequentially. Gross and net non-performing assets inched up 55 bps and 44 bps sequentially to 4.99 per cent and 2.22 per cent, respectively. While we are not shocked at the asset quality for the quarter ended June, the quantum is definitely higher than what we can digest. Given our view of the economic slowdown, we expect the slippage ratio to be elevated, at 3.4 per cent and 2.3 per cent for FY13 and FY14, respectively. However, State Bank of India should have enough firepower to cover the losses, with a net interest margin of about 3.6 per cent. Maintain 'add'

 

BRICS

SUN PHARMA
Reco price/date: Rs 675/August 13;
CMP/Target price: Rs 667/Rs 650
The company delivered a strong set of numbers, as growth of 64 per cent in net sales, at Rs 2,680 crore, was ahead of estimates, owing to 185 per cent growth in the US, higher Taro sales (43 per cent) and strong currency realisation. The US business benefited from the high-margin Lipodox and the ramp-up of key products. There was improved performance in the core business (ex-Taro, ex-Lipidox and one-offs). The operating profit margin of 46 per cent and growth of 59 per cent in net profit (Rs 796 crore) were ahead of estimates. Going forward, growth in the top line would be hit by Taro's high base, while a more gradual price reduction is likely to hold the margin. We are confident of Sun's execution. Maintain 'hold'

Edelweiss Securities

BHARAT FORGE
Reco price/date: Rs 312/August 10;
CMP/target price: Rs 302/Rs 295
The net revenue of Rs 936.4 crore was eight per cent below estimates, as weak domestic demand was partially offset by healthy exports. The operating profit was also eight per cent below estimates, as a slight improvement in gross margins was offset by higher employee expenses. Nevertheless, the margins were in line. Growth of eight per cent in net profit (Rs 105 crore) was affected by increased interest cost due to the high-cost external commercial borrowings raised to repay foreign currency convertible bonds ($40 million) and forex losses (Rs 14.5 crore). We believe Bharat Forge's domestic and foreign businesses (Europe, the US and China) face significant headwinds. We have cut the earnings per share estimate by six per cent and seven per cent for FY13 and FY14, respectively. Maintain 'sell'

Citi Research