Cluster: Emerging Star
Price target: Rs490
Current market price: Rs410
Price target revised to Rs490
- UTI Bank's Q2FY2007 net profit at Rs142.0 crore was in line with our expectations.
- The net interest income (NII) grew by 43% year on year (yoy) backed by a strong growth in the advances.
- Remarkably UTI Bank's net interest margins (NIMs) expanded by 12 basis points yoy and by 24 basis points quarter on quarter (qoq) as the yield on the assets expanded and there was a growth in the demand deposits at almost one and half times the growth in the overall deposits.
- The fee income too grew by a strong 66% yoy backed by a strong growth in the fee income from the cash management and retail businesses.
- The operating profit for the quarter grew by a slower 16% yoy to Rs274.5 crore. The slower growth was attributable to a steep rise in the employee and other cost. However, we believe that the rise in the cost is justifiable looking at the rapid growth expected in the bank's branch network.
- The net profit grew by a faster 30.2% due to a lower provisioning for investment depreciation and a higher loan provisioning.
- The net non-performing assets (NPAs) as a percentage of the bank's customer assets were flat at 0.74% compared with 0.73% in Q1FY2007. However, the same have come down substantially over Q2FY2006.
- UTI Bank's Tier-I capital adequacy ratio (CAR) stood at 6.71% at the end of Q2FY2007 whereas its overall CAR stood at 11.5%. The bank will have to go in for further Tier-I capital raising to sustain the growth.
- We expect UTI Bank to go in for plain equity issuance of $250 million by the end of FY2007 or early FY2008 which will raise its book value to Rs167 by the end of FY2008, up by 16% from our current estimates.
- At the current market price of Rs410, the stock is quoting at 14.1x its FY2008E EPS and 2.7x its FY2008E book value (BV). We reiterate our Buy recommendation on the bank with a revised price target of Rs490 based on our revised earnings as well as estimated increase in its book value.
Indian Hotels Company
Cluster: Apple Green
Price target: Rs1,474
Current market price: Rs1,388
Merger to be earnings accretive
The board of directors of Indian Hotels Company Ltd (IHCL) has approved the proposal for amalgamation of 4 of its subsidiary/associate companies with itself. Specifically, the proposal seeks to amalgamate Indian Resort Hotels Ltd, Gateway Hotels and Gateway Resorts Ltd, Asia Pacific Hotels Ltd and Taj Lands End Ltd into the company in terms of a scheme of amalgamation under section 391-394 of the Companies Act 1956.