GSPL, Indian Banks, AIA Engineering

Kotak on AIA Engineering

AIA reported numbers marginally better than expectations with adjusted consolidated netincome increasing by 84% to Rs965 mn in FY2007 from Rs524 mn in FY2006. Adjusted EBITDA margins of 24.9% for FY2007 were in-line with expected 25%. Reported EBITDA margin was lower on account of extraordinary marketing expense and Rs200 mn trading revenue booked under its subsidiary. On a y-o-y basis, FY2007 volumes and average realisations were higher by 12% and 10%, respectively. Allowing for marginal delays in power availability, we reduce our volume assumptions by 5% and 0.5%, respectively for FY2008 and FY2009. However, we increase our average realisation assumptions for FY2008 and FY2009 by 3.7% and 6.2%, respectively (see exhibit 1). Accordingly, we revise our consolidated FY2008 and FY2009 eps estimate to Rs70.4 and Rs98.8, respectively from Rs71.9 and Rs93.5, respectively, previously. We roll over our target price and increase it to Rs1,750 from Rs1,615 earlier and maintain OP rating on the stock

Kotak on GSPL


GSPL reported 4QFY07 net income at Rs193 mn (-32.2% qoq, +78.5% yoy) against our estimate of Rs159 mn. 4QFY07 EBITDA at Rs711 mn was lower versus our expected Rs764 mn due to lower-than-expected volumes. However, lower depreciation due to lower capex for two pipelines commissioned in 4QFY07 compensated for the weaker operating performance. GSPL's FY2007 reported net income is Rs894 mn (Rs1.6 EPS). We have fine tuned our EPS estimates for FY2008, FY2009 and FY2010 to Rs2.0, Rs4.1 and Rs5.2, respectively from Rs1.8, Rs4 and Rs5.5, respectively, previously. We have raised our rating in the stock to IL from U previously with a revised 12-month DCF-based target price of Rs57. The upward revision primarily reflects roll-forward and lower capex. Key risks stem from lower-than-expected gas transportation volumes and tariffs. We would also watch for
the nature of regulation on gas transportation business.

Kotak on Indian Banks

We are revising our earnings estimates post publication of their annual financial
statements. We are now assuming those banks will make the AS-15 pension gap
provisions through their net-worth, our new book value estimates thus reflect this. Our earnings estimates assume: (1) healthy but lower credit growth of around 20% to 23% compared to 24-40% in FY2007, (2) decline in margins of around 10 bps to 35 bps in FY2008 to reflect the lag impact of higher deposit cost and lower CASA ratio, (3) higher NPL provisions as recoveries slowdown and (4) lower investment depreciation/
amortization. While we are assuming moderating top line growth, PAT growth will likely be moderate to high given lower investment depreciation. Despite moderation in growth and higher pension gap we find PSU banks attractive given low valuations and significant valuation gap between PSU and private banks. Our top picks are: PNB, IOB, Andhra Bank, SBI and Canara Bank. While we believe that Indian Bank fundamentals remain strong, we are downgrading it to IL from OP, given that the stock trades at a premium to most other PSU banks at 1.5X PBR FY2008 and current market price is close to our fair value estimate.