Brokers’ Call: Federal Bank, Hindustan Zinc, ITC

Fed Bank to Touch Rs 565: Nirmal Bang

Nirmal Bang has maintained its ‘Hold’ rating on Federal Bank with a target price of Rs 565. The bank’s results were below expectations, primarily impacted by one-offs (Rs 20 crore of interest reversal; recognition of NAFED account as NPA which led to an increase in NPA levels and provisions made for the account).

Net interest income witnessed decline owing to higher cost of funds resulting from higher share of high cost NRE term deposit. Moreover, the bank also witnessed one- time gain of Rs 40 crore on offloading of its stake in the CARE IPO. Excluding these one-offs the bank reported much better show on asset quality front with slippages well under control.

After witnessing a de growth in H1FY13, the bank witnessed traction in its retail and corporate loan book in Q3FY13. Net profit of the bank declined qoq and increased mere 4.4% on yoy basis,” the brokerage house said in a report. Going forward, the broking firm believes the management’s strategy to strengthen the book and focus more on better rated corporate profile will have a positive impact on the bank’s performance.

Citi Stays Neutral on HZL

Citi has maintained its ‘Neutral’ rating on Hindustan Zinc with a target price of Rs141. “We use P/E as our preferred valuation parameter for HZL as we believe that stocks such as HZL are largely driven by commodity price trends. We arrive at our target price by applying a 7x P/E multiple to HZL’s FY14E EPS excluding cash and add the cash per share (Rs62/sh as of Mar-14E).

The 7x multiple is in-line with HZL's 5-year average P/E (excluding cash) of 6.6x. At our target price of Rs141, HZL would trade at an overall P/E of 8.7x; vs global companies such as Korea Zinc and Teck Resources (10-12x),” Citi said in a report.

Key upside risks to our investment thesis and target price on HZL include higher-than-expected zinc, lead and silver prices; rupee depreciation; higher volumes than we expect; increase in zinc/lead import duty.

ITC Remains a Buy: MOSL

Motilal Oswal has maintained its ‘Buy’ rating on ITC with a target price of Rs340. ITC's 3QFY13 results exceeded expectations, with adj PAT growth of 21% at Rs20.5 billion (est Rs20.2 billion).

The company posted a 14th consecutive quarter of 20%+ PAT growth. 3QFY13 performance underscores the predictability and consistency of ITC’s business model. Cigarette volumes were up 1.5%, despite 21% excise duty increase in CY12 budget, thus demonstrating the pricing power enjoyed by the company. ITC is likely to gain shares from VST and GPI, in our view. Company has again delivered 20%+ EBIT growth in cigarettes, with 400bp EBIT margin expansion on net basis.