Brokers' call: Deutsche Bank keeps 'buy' on STFC

Deutsche Bank has maintained a ‘Buy’ rating on Shriram Transport Finance (STFC) and set a target of Rs 705. The near-term operating environment remains challenging for STFC with lower volume growth and a likely decline in securitisation due to new norms. However, STFC is expecting business growth of 10-12% in FY13E.

It also has a well diversified liabilities mix, which should enable it to offset any decline in securitisation. Construction equipment and Automall subsidiaries continue to grow at a healthy pace. The stock trades at an attractive valuation of 1.5x FY13E P/B, which is a steep discount to its three-year average of 2.3x, with FY13E RoE of 22.5%.

CESC Likely to Hit Rs 385

Citigroup Global has rated CESC as a ‘Buy’ with a target price of Rs 385. Having turned from a loss of Rs 130 crore in FY99 to profit of Rs 490 crore in FY11, the power business continues to create value.

However, Citigroup has been worried about the company’s retailing business which on merger with CESC led to a 37% equity dilution and has been a drain on CESC power cash flows.

The target price is based on a target P/E of 9x June13E consolidated EPS, which is at a 20-25% discount to the historical average P/E in the interest of conservatism. CESC has traded in a band of 1x to 45x over the nine years.

Barclays ‘Equal-weight’ on PNB

Barclays Capital has retained its ‘Equal-weight’ rating on Punjab National Bank after the state-run lender announced earnings for the March quarter.

Analysts led by Anish Tawakley said that the operating profit was below expectations and net non performing assets (NPA) increased sharply to 1.5%. But, ff the net NPA was at 1.1%, profits before tax would have been mere Rs700 crore as against the reported Rs 1,900 crore.

Margins declined to 3.5% and gross non-performing loans rose 35% wuarteron-quarter, however business growth was strong led by 21% year-on-year growth in deposits and advances. The analysts set a target price of Rs 909 for the stock.