Stock Recommendations – March 2021


State Bank of India is India’s largest bank. The bank operates 22,330 branches globally and has a vast network of 57,889 ATMs/CDMs. It provides a wide range of financial services, such as insurance, credit cards and asset management, through its subsidiaries.

In the quarter ended December 2020 the bank reported NII growth of 3.7% YoY to Rs. 28,820cr with NIM margin of 3.12% (-21bps YoY). NIM declined as the yield on advances reduced 75bps YoY to 8.16%, partially offset by the low-cost deposits of 4.26% (71bps YoY benefit). Fee income declined to Rs. 5,349cr (-5.1% YoY), mainly due to reduction in remittance collection (-10.1% YoY) and commission on govt business (-13.3% YoY). Resultantly, Cost to income ratio expanded 387bps YoY to 54.47% (vs 50.6% in Q3FY20), due to rising staff costs (14.5% YoY). Finally, since the provisions of Rs. 10,342cr were higher compared to Q3FY20 (42.6% YoY), the Net Profit declined 6.9%YoY to Rs. 5,196cr.

Current Account Savings Account (CASA) ratio stood at 45.15% (-24bps QoQ). Domestic deposits improved 1.8% QoQ due to increase in Term deposits (2.3% YoY). Domestic advances grew marginally 3.2% QoQ, with a shift in advances from Corporate segment (0.1% QoQ) towards Retail personal segment (5.8% QoQ) and SME advances (5.9% QoQ). GNPA/NNPA improved 51bps/36bps QoQ to 4.77% and 1.23% respectively as the slippages went down 91.4% YoY to Rs. 237cr. The bank thus recorded a strong PCR of 90.2%.

Restructuring requests estimated to be within guidance at Rs. 18,125cr for Q3FY21 of which requests from Corporate segment, Personal loan and SME loan were Rs. 11,707cr, Rs. 3,865cr and Rs. 2,553cr respectively. In the absence of Supreme Court order regarding NPA recognition, GNPA/NNPA would have been 5.44%/1.86%. GNPA for Agri, SME and Corporate segment were 13.7%, 6.9% and 7.5% respectively for Q3FY21.

Total disbursements under ECLGS were Rs. 23,000cr out of the sanctioned Rs. 26,000cr. The 6% growth in SME loan book includes Rs. 1,000cr from ECLGS. The bank has demonstrated solid performance under the difficult credit environment. Capital adequacy is well in-line with the risk of the loan portfolio. The bank is well positioned to deploy its excess liquidity into the credit growth as the market scenario improves. Hence, we reiterate our BUY rating on the stock, with a target price of Rs. 520 using the SOTP methodology, valuing the standalone bank at rolled over multiple of 1.0x FY23E BVPS at Rs. 383 and subsidiaries at Rs. 171.

Analyst: Rajin Rajan P, Geojit Financial Services Ltd., INH200000345

For Disclosures and Disclaimers and web link for the research notes: State Bank of India –

PNC Infratech Ltd (PNC) is an Infrastructure construction, development and management company; expertise in execution of projects including highways, bridges, flyovers, airport runways, industrial areas and transmission lines. The Company’s segments include EPC Contract and BOT (Toll and Annuity). It offers end-to-end infrastructure implementation solutions that include engineering, procurement and construction (EPC) services. It focuses on road building projects in Punjab, Haryana, Tamil Nadu, Madhya Pradesh, Maharashtra, Karnataka, Rajasthan, Uttar Pradesh, Uttarakhand, West Bengal and North Eastern India.

Q3FY21 revenue increased by 8.6% YoY (in-line with estimate) to Rs1,322cr supported by strong execution with labour availability at 100% pre-Covid level. The management expect execution to be strong in the coming quarters on account of strong order inflows and expectation of appointed date for balance orders in March-April 2021. The management expects FY21 revenue will be equal to last year revenue and expect FY22 revenue growth to be at 20% YoY. We expect execution will pick up in the coming quarters as most of the HAM projects are under execution stage with average ~90% land availability. PNC has already infused equity of Rs493cr for HAM projects and the balance of Rs306cr will be invested over the next two to three years.

Q3FY21 executable order book stood at Rs18,000 (incl. projects in L1 and waiting for approvals) which is 3.7x Trailing twelve months revenue and provides strong revenue visibility in the coming years. PNC is now entering into irrigation and water supply projects, which comprises 21% of the total order book. The margin profile of irrigation/water supply projects is at 13-14%. NHAI is expected to award 4,800 to 5,200km of roads projects in FY21E, which implies awarding activity would gain traction in Q4FY21. The management is targeting order inflows of Rs.9,000 to 10,000cr in FY21 and has secured Rs. 7,700cr of orders in 9MFY21.

EBITDA margins declined marginally by 56bps YoY at 13.5% due to increase in commodity prices, higher employee cost (8.2% YoY) and other expenses (11.3% YoY). While increase in other income (69% YoY) and fall in interest cost by 62% YoY due to drop in mobilization advances led earnings to grow by 33.6% YoY to Rs103cr. Strong order book and pick-up in execution, we expect EPS to grow at 15% CAGR over FY21E-FY23E.

Strong order book of PNC is providing revenue visibility for the coming years. We expect execution to pick up in the coming quarters as most of the HAM projects are under execution stage. We value EPC business at a P/E of 14x on FY23E EPS & BOT/HAM projects at 0.5x P/B and maintain our Buy rating.

Analyst: Antu Eapen Thomas, Geojit Financial Services Ltd., INH200000345

For Disclosures and Disclaimers and web link for the research notes: PNC Infratech Ltd. –

Exide Industries Limited (EIL) is a leader in storage battery business with a market share of 60% in India. Its segment includes automotive & industrial batteries and holds 86% market share in the 2Wspace. During Q3FY21, EIL posted a revenue growth of 16%YoY led by strong festive demand in the OEM space and robust aftermarket sales, both in the auto and home UPS. EBITDA Margin came at 14.4% (+90bps), above expectation largely due to product mix and cost control measures. While the overall demand scenario is showing sign of pick up due to reopening of the economy. The 4W replacement market is still not reached to the pre-covid level due to slow down in the ola/uber and tour & travel business. We expect the margin to show some resilience going forward due to fair raw material price at current level and cost optimization. While considering the full potential to reach by FY22 we expect the revenue to grow by 24%YoY in FY22 on account of robust sales in OEM and Aftermarket volume.

 We expect the demand scenario for 2Ws is likely to fair well both in the domestic and export market. The segment registered strong double-digit growth in Q3 on account of   increased rural income due to strong agri. output and new product launches by OEMs. In addition, the company is well poised to take advantage of the replacement market as unorganized players have been forced to shut shop due to pandemic. With batteries being a product that needs to be continuously replaced, Exide is in prime position to drive home its advantage. EIL will be the direct beneficiary from any structural change in the auto demand owing to its leadership position (~60% market share) in the automotive battery and having 86% market share in two -wheelers. We factor positive growth for H2 owing to   lower base and easy finance availability.

We expect margins to show some resilience at 14%-15% over FY21-23E. Expansion is justifiable once 1) a market share gain from unorganized players 2) strong rebound in 2W/PV OEM sales 3) an uptick in the e-rickshaws and solar battery segment 4) strengthening distribution network by introducing sub-distributor led model (cluster of small retailers) and 5) fair lead price & cost-saving initiatives.  EIL’s joint venture (JV) with Switzerland’s Leclanche to manufacture lithium-ion batteries in Gujarat for electric vehicles is on the commencement stage.

 We remain positive on the long-term outlook of EIL owing to higher acceptance of battery engineering and Exide’s foray into 3W manufacturing. On a SOTP basis, we value EIL at 18x FY23EPS for Rs.234 and Insurance business at 1x FY20 EV (Embedded value) Rs30/share and upgrade our rating Buy with a target price of Rs264.

Analyst: Saji John, Geojit Financial Services Ltd., INH200000345

For Disclosures and Disclaimers and web link for the research notes: Exide Industries Limited –

Dalmia Bharat Ltd (DBL) is the fourth largest cement company in India with a capacity of ~28MT, focusing in South with 12.1MT and East & North-East with 15.9MT.

DBL reported revenue growth of 18%YoY mainly aided by volume growth of 14%YoY (better than industry) on the back of demand from rural and pick up in government infra and low-cost housing projects. Demand in the East region continued while demand revival was visible in South region also. Blended realisation grew by ~5% YoY. The ongoing capacity expansion and the ramp up in recent acquisitions will support future volume growth. For Kalyanpur cement (acquisition), capacity utilization improved to 62% Vs 35% QoQ. We increase our volume assumptions and factor revenue growth of ~13% CAGR over FY21E-23E supported by capacity expansion/acquisitions and improvement in premium mix.

Controlling discretionary spending coupled with benign fuel costs resulted in EBITDA margin improvement of 530bps YoY to 24%. EBITDA growth was robust at 51%YoY and on a per ton basis improved to Rs.1,191 Vs. Rs.896 YoY. Power & Fuel expenses and Other expenses declined by -4%YoY each and employee expenses by -8%YoY. Freight expenses was flat though slight increase in lead distance due to sales in new region. Pet coke prices started to increase since Q1FY21 (after declining ~20% from the peak in June 2019), which along with normalisation of discretionary spends is likely to impact the margins negatively in the coming quarters. However, setting up of Waste Heat Recovery (WHR)-30MW by FY23 and green power will reduce fuel cost. Additionally, the ramp up in the new clinker capacity (at 70% utilization now) will reduce raw material cost (cost advantage of ~Rs.70-75 per ton of clinker). The improvement in premium mix (grew by 60%YoY to 18%) will support realisation. Expect EBITDA/Ton to improve to Rs.1,235 Vs Rs.1,092 in FY20. Reduction in debt will add to earnings growth. Any adverse price movements of cement, fuel and RM are the key risks.

Demand outlook is positive given GoI’s strong focus on infra & housing. DBL’s capacity expansion will support to continue its volume growth above industry. The stock currently trades at ~10x 1Yr Fwd EV/EBITDA. We value DBL at 10x FY23 EV/EBITDA to arrive at a revised Target of Rs.1,650 (Rs1,000 earlier) and upgrade to Buy rating.

Analyst: Vincent Andrews, Geojit Financial Services Ltd., INH200000345

For Disclosures and Disclaimers and web link for the research notes: Dalmia Bharat Ltd. –


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