Analysts' corner

Federal Bank, GSFC & Mahindra Lifespace Developers

Federal Bank
Reco price/date: Rs 488/October 23
Current/Target price: Rs 488/Rs 540
Federal Bank reported earnings of Rs 215 crore (13 per cent yoy growth), four per cent up led by lower credit costs, as slippages surprised. Hence, Bank of America Merrill Lynch has raised its target price to Rs 540 (from Rs 485) to factor in a) visible turnaround in asset quality, led by declining slippages and provision cover at 80 per cent; b) sustainable earnings growth of 20 per cent-plus through FY13-15; c) bank being well capitalised and; d) focus on raising Casa share. However, their earnings raise is only by one per cent for FY13/14, as they still build in some margin contraction, led by conscious shifting in mix of loans to ‘corporate’, lower yields. Maintain Buy.

Bank of America Merrill Lynch

GSFC
Reco price/date: Rs 72/October 22
Current/Target price: Rs 74/Rs 70
GSFC’s Q2FY13 results were disappointing, primarily due to pressure on fertiliser earnings. Net profit of Rs 150 crore declined by 29 per cent yoy which also includes Rs 25 crore spent as one-time donation. Fertiliser Ebit dropped to Rs 56 crore (lowest in 10 quarters). Writeback of urea subsidy of Rs 25 crore related to last year also affected fertiliser profitability. Chemical segment margins at 26.7 per cent (760 basis points lower YoY) were higher than estimated on account of high ammonia prices. Chemical spreads are likely to improve further. With improvement in chemical margins, commissioning of methanol plant along with recent correction in stock price, Emkay has upgraded the stock from REDUCE to HOLD.

Emkay Global

Mahindra Lifespace Developers
Reco price/date: Rs 397/October 23
Current/Target price: Rs 405/Rs 519
The first half earnings per share (EPS) of Mahindra Lifespace Developers (MLIFE) of Rs 11.3 (unchanged YoY) was as expected. MLIFE has a stock of pre-ordered homes worth Rs 520 crore, which secures more than the second half revenue. Analysts forecast the second half profit to rise 35 per cent YoY and form the bulk of full-year profit of Rs 35/share (up 20 per cent). Next year’s profit will come from new launches worth Rs 2,000 crore over the next six months. Analysts like MLIFE because of a low debt/equity of 0.4 times and strong EPS growth. Kim Eng has raised its target price to Rs 519/share from Rs 429/share on rolling forward valuations to FY14. Maintain Buy.

Kim Eng Research