Yes Bank, IDBI offer upside from current levels: Jigar Shah

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In an interview with CNBC-TV18, Jigar Shah, Sr VP and HOR, Kimeng Securities India gave his readings and recommendations for banking and IT stocks.

He is expecting Yes Bank to deliver 32% earnings growth in the current year. He believes Yes Bank has pretty good upside from the current level. It also, expects about 20% upside in IDBI Bank to about Rs175-180 from current it's levels.

Below is the verbatim transcript of his interview with Udayan Mukherjee and Mitali Mukherjee of CNBC-TV18. Also watch the accompanying video.

Q:  Did you like Yes Bank and their numbers?

A: The Yes Bank numbers we in line with our expectation and they grew quite well both on year-on-year and quarter-on-quarter basis with Net-Interest Margin remaining unchanged. They are getting some kind of improvement on the loan yield and all this on a growing size is quite satisfying.

We see another 35-40% growth for the company in the current year on the back of strong capital base with them as well as good branch expansion taking place.

We are expecting them to deliver 32% earnings growth in the current year. We have set a target price of Rs 400 based on three times price to book. We feel Yes Bank still has pretty good upside from the current level.

Q: What about Infotech Enterprises and the midcap IT? You didn't like those numbers too much?

A: Infotech disappointment has been now prolonging for quite a few quarters. Their ability to squeeze the margin from the pressure of wage and other cost and also from turning around some of the acquisitions which they made in the previous year have not been coming along.

From their tone on the conference call also what we understood that FY12 also the margin expansion is not going to be immediate and will take time.

While the topline is pretty strong and impressive and client addition is very good, the margin part, the investors are going to get some more disappointment or they may have to wait for a longer time.

We have in that anticipation changed our price earning ratio to 10 times instead of 12 times for FY12 and brought down our stock price target from Rs 198 to Rs 165. Now we have a hold on the stock instead of a buy. We would wait before we see an evidence of margin improvement in Infotech.

Q: Did you cut estimates for CMC as well after the results?

A: Yes, we have marginally fine tuned from Rs 160 to about Rs 150. That is mainly arising because of the increase in tax for them which we had not taken into account. Otherwise we are still buyers on CMC.

We feel that the stock offers very strong upside because of the momentum in all the business segments. We are still going to see a 25% Earnings Per Share (EPS) growth in the FY12 with very strong margin. We are quite happy with CMC although it has missed some upside in earning which we thought.

Q: Did you like the other set of bank results as well from IDBI ?

A: Yes, on IDBI Bank what is hardening if you see the last two - three years they have been struggling to get to a decent CASA and also to NIM. But, we saw this year 100 bps improvement in NIM as well as very strong 600 basis point (bps) improvement in the CASA which is supporting the growth. It surprised the Q4 growth, probably surprise quite a few people.

May be the FY12 will not result into a similar kind of expansion in the margin on a higher base. But, we still feel that they can do a 25% kind of earnings growth and they are coming along on the capital front as well, branches are expanding and making them reasonably big enough to offer the retail services profitably.

Overall we see 20% upside still from IDBI Bank from the current level of the stock and the valuation for the core banking business should improve, because historically it has been below book because of the poor Return On Equity (ROE).

But if you see now, the ROE is going up 16%, 17% levels which should improve the price to book ratio in line with other government banks as well as the other banks. We are still seeing about 20% upside in the stock to about Rs175-180 from current levels.

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