Tuesday, May 03, 2016

Buy calls
1. Buy Allahabad Bank at Rs.56.85, for a target of Rs.64, in the short term. 
As the interest rate comes down gradually and as the Indian GDP improves, Banks in General will fare well on the bourses.

Recently, there were media reports that the public sector lender Allahabad Bank will raise over Rs.57.5 crore by issuing shares on preferential basis to LIC.

The Hindu Business Line reported on 2 May, 2016:
"The rising bad loan level in the banking system did not deter Life Insurance Corporation of India (LIC), the country’s largest life insurer, from betting big on bank stocks in 2015-16.

The state-owned insurer raised its shareholding in many banks, including Allahabad Bank, Axis Bank, Bank of Baroda, Canara Bank, IDBI Bank, ICICI Bank, Indian Overseas Bank, Oriental Bank of Commerce, and Punjab National Bank during the last financial year.

"In raising its stake, LIC may be pinning its hopes on a turnaround in the fortunes of banks after the clean-up of their balance sheets and a likely revival in the economy".

Another reason why LIC might have increased its stake in some banks including Allahabad Bank, could be Ibecause the finance ministry has categorically asked the PSU banks to step up bad loan recovery and is holding meetings with individual banks on their capital raising plans and how they will be selling their non-core assets.

The GOI had earlier issued statements that state-run banks seeking a share of the Rs.25,000-crore capital infusion by the government will have to show some movement on bad assets before they can petition for funds.

Meanwhile, an Indian finance ministry official said: "We are hopeful to get the bankruptcy law passed in this session of the parliament. In addition, we will introduce changes in SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) and DRT (debt recovery tribunal) laws to speed up the recovery process".

Banks that have made presentations to the finance ministry include Allahabad Bank, Bank of Baroda and Bank of India. 

If this happens then it would be a great news for the PSU bank shareholders.

Allahabad Bank has a book value of Rs.192.84 and market cap of Rs.3489.48 Cr. The Bank operates in four divisions: Treasury Operations, Corporate / Wholesale Banking, Retail Banking and Other Banking business. 

The Bank’s personal banking services include deposit products, other credit products, account portability, deceased depositors and All Ayushman Bima Yojana.

2. Buy JSW Energy Ltd at Rs.67.10 for a target of Rs.79.
JSW Energy Ltd, India’s fourth largest private power producer, is in various stages of discussions to buy three power assets, according to a recent media report.

The three power producers are Monnet Power Co. Ltd., Jaiprakash Power Ventures Ltd and Jindal Power Ltd, a unit of Jindal Steel and Power Ltd. 

The three deals together will add 2,591 megawatts (MW) of power generation capacity to JSW, making it the third largest private producer in India, dislodging Reliance Power Ltd (6,000MW) from the position. Currently, JSW has a total power generation capacity of 4,531MW. 

The top two private power producers are Adani Power Ltd (10,480 MW) and Tata Power Co. Ltd (9,130 MW).

There were also media speculation that JSW Energy Ltd is trying to reduce the cost of acquisition. If this happens, then it would further add to bottom lines of JSW Energy Ltd.

As 30 September, 2016, JSW Energy had a total debt of Rs.14,635.10 crore. The company’s debt-to-equity ratio in the same period was 1.76, which is manageable by any standards.

Also, in the current market conditions, it would be much easier for JSW Energy to raise fresh equity, as a spite of IPOs hit Dalal Street.

Earlier the CLSA said: "The core businesses grew on the back of 25% volume growth and lower fuel costs. Leverage peaked in 2Q and continued to decline in 4Q which is a positive sign". The global investment bank maintains outperform rating as the stock offers value at 8.1x FY17 EPS.

Meanwhile, after the CLSA, another well known research house, the IDFC has also come up with "Outperformer Rating" on JSW Energy Ltd, with a price target of Rs.87.

JSW Energy Limited is an India-based integrated power company. The Company is primarily engaged in generation and sale of power. The Company's operating segments include Power Generation, Power Transmission, Mining, Power Trading and Equipment Manufacturing. The Company produces approximately 3,140 megawatt (MW) of power. The Company's power plants are located at Vijayanagar, Karnataka; Ratnagiri, Maharashtra and Barmer, Rajasthan. The Vijayanagar plant produces 860 MW of power. The Company's subsidiaries include JSW Power Trading Company Limited, JSW Green Energy Limited, JSW Energy (Kutehr) Limited, JSW Energy Natural Resources Mauritius Limited, South African Coal Mining Holdings Limited, Umlabu Colliery Proprietary Limited, Jigmining Operations No 1 Proprietary Limited, Jigmining Operations No 1 Proprietary Limited and JSW Energy Natural Resources UK Limited, among others. The Company's subsidiary JSW Power Trading Company Limited is a power trading firm (Source: Reuters).
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