South Indian Bank has bottomed out and one can expect a price of Rs 32 in six months, he said in an interview to CNBC-TV18.
Meanwhile, one can hold Alstom India from a longer term point of view, but in the near-term, with a view of about six months, price of Rs 400 can be expected, he added.
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Below is the verbatim transcript of his interview on CNBC-TV18
On South Indian Bank
The reason for picking up this stock is the results. There has been some deterioration in the net non-performing asset (NPA), it has risen by about 10 bps, but the gross NPA is reduced by 26 bps on a sequential basis. Considering the shareholding pattern, there are no identified promoters to the bank, 63 percent of the stake is held by the institutional investors and foreign institutional investors (FII).
The strong presence of the bank in southern parts of the country with 750 branches, 800 Automated Teller Machines (ATM), maybe in next couple of months when the bank guidelines or the bank license talk will become active this bank will be seen as a mergers and acquisitions (M&A) play. On Monday, we saw Karnataka Bank moving on that theme, the stock was in limelight.
There are few banks like South Indian Bank, Karnataka Bank that are widely talked as an immediate takeover target or an immediate M&A play. But apart from that even if you take on a fundamental basis, the earnings per share (EPS) for the year FY14 has been at Rs 4.03 which was at Rs 3.50 for FY12, so the bank has shown a growth of about 15 percent on the bottom-line. Going forward, the branch additions are also happening, about 30-40 branches are added by the banks every year. So, I expect Rs 4.5 EPS for the next year.
I expect improvement in the asset quality with the net NPA falling to about 60 bps in due course of time. Considering the price-to-book, the present book value is about Rs 21. Going forward on the current year’s estimates, it will be Rs 24-24.50 and the share is ruling at a price-to-book of 1.
On a PE basis, the present EPS of Rs 4 plus discounts it by about 6 times and on the forward it is about 5-5.5 times. The dividend has also been good. Bank has paid 70 percent dividend which is 70 paise on Rs 1 face value. Taking all this into account with a PE of 6 times, price-to-book of almost 1 and with a reasonable growth of 15 percent in the bottom-line, the stock seems to have bottomed out and one can expect a price of about Rs 32 in six months. The six months time limit has been given, as I expect things to start heating up on the bank license norms and the M&A talk and so this seems to be a good banking stock to buy now.
On Alstom India
The capital goods stocks are now again being talked about, though I am not holding positive view on Crompton Greaves but the positive bias building on Crompton Greaves, BGR Energy, Bharat Heavy Electricals (BHEL) even Siemens India and so they are all moving up. This company is also into the similar space. They are providing products and solutions to power generation plant.
The company has recently got an order of about Rs 700 crore from BHEL for their two power projects. It is holding the state of the art technology in the super-critical cold fired boilers and that is very critical. All thermal based power projects require it and that is why BHEL has been complimenting their orders with the technology and the solutions obtained from this company.
Considering the financial performance for FY13, the company has achieved a good top-line of closer to about Rs 2,800 crore and the EPS for the year has been at about Rs 27.30 for FY13. The dividend payout has been quite good as 100 percent dividend has been paid by the company which is about Rs 10 per share.
If you add the dividend distribution tax, almost 45 percent dividend payout has been happening and is a debt-free status. I am expecting that because the way government is moving up, maybe the energy sector or the new power projects will get some relief because that is the widely seen problem even for the banks, for power generation companies, capital goods suppliers.
The stock seems to be coming back on the focus because of the good numbers. Q4 numbers out of Rs 27 EPS which company has posted, Q4 has shown a good performance. Overall, next year, FY14 could see an EPS of close to about Rs 35-36. If you take that the share is available at a PE of about close to 10 on the forward earnings and about 13 on the current earnings. So, one can expect a price of about Rs 400 in six months.
One should not expect a phenomenal return from this company because they are consistent performers. One can have a stock from a longer term point of view but otherwise in the near-term with a view of about six months or so price of Rs 400 can be expected.
Disclosure: I do not have holdings or interest in the stocks discussed.