Analysts' corner

SBI, Reliance Communications, Sintex Ind & CESC

STATE BANK OF INDIA
Reco price: Rs 1,787,
Target price: Rs 2,852
Moody's has downgraded State Bank of India's bank financial strength rating from C- to D+. SBI's limited ability to manage capital and a likely further deterioration of its asset quality are the key reasons cited for the negative view. The bank reported a Tier-I capital ratio of 7.6 per cent, as of 30 June 2011. According to Moody's, the low level pushes the bank into a lower rating band. Against a backdrop of a slowing economy and higher interest rates, the rising trend evident in SBI's new non performing asset (NPA) formation rate since Q3FY11 will continue. Maintain buy.

RBS

RELIANCE COMMUNICATIONS
Reco price: Rs 72,
Target price: Rs 90
Reliance Communications is trading at all-time lows (down 50 per cent year to date). Its heavily geared balance sheet (net debt to Ebitda of 4.9 times, as of Q1FY12, is the highest in the region), little success in monetising any extensive asset and 2G licence news flow will likely remain a drag. At 44 paisa, RCom has seen steady pricing for 6-7 quarters now, which may bode well for wireless revenues and margins. Since December 2010, its wireless margins have dropped 200 bps to 27 per cent due to an increase in spending in marketing and advertising. Maintain Neutral.

Nomura Equity research

SINTEX INDUSTRIES
Reco price: Rs 127,
Target price: Rs 250
The stock has corrected 17 per cent over the past week. It is now trading at trough valuations (5.5 times FY13 etimated P/E), earlier seen during the 2008-09 credit crisis. Stock correction has accentuated in a weak market due to expected MTM forex losses in the second quarter on account of unhedged dollar-denominated FCCB exposure. The company has $100 million of unhedged exposure on account of the $225 million FCCBs it raised in 2008. Analysts expect second-quarter operating profit to grow 18 per cent on year. Maintain Overweight.

JP Morgan

CESC
Reco price: Rs 269,
Fair value: Rs 381
CESC operates under the regulated business model, which provides it with steady income flow. With the commissioning of 600 Mw capacity each at Chandrapur (Maharashtra) & Haldia (West Bengal), CESC would touch the 2,450-Mw mark by FY14, as against 1,250 Mw currently. Its retail business is expected to register positive Ebitda by FY13 and is expected to break-even in FY14. The stock trades at 6.4 times its FY13 estimated EPS and 0.5 times its FY13 estimated book value. Current valuations don’t reflect the strength in its core assured RoE power business. Maintain Buy.

Karvy Stock Broking