ONGC-HPCL
Brokerage: JPMorgan
The global brokerage firm said that there was no clarity on key issues with respect to the government’s 51 percent HPCL stake purchase. On ONGC, it has a neutral call with a target of Rs 185. It expects a relief rally on the stock.
Meanwhile, it expects HPCL to react negatively as investors expected open offer at premium. The underweight rating, it said, does not build in the transfer of ownership.
Brokerage: Kotak Institutional Equities
The brokerage house highlighted that an exemption from open offer is a relief to ONGC shareholders. Further, ONGC’s target price of Rs 190 will reduce by 2-3 percent, depending on the final price, it added. For ONGC, the brokerage said, lack of operational or financial synergy will result in higher leverage. It assumes ONGC to divest 13.8 percent equity in IOC to fund this transaction. Additionally, it also said that the deal at 25 percent above 60-days volume weighted average price (VWAP) HPCL price will need the nod of the markets regulator. It expects HPCL to reverse sharply after 12 percent rally over the past one week.
Brokerage: CLSA | Rating: Sell | Target: Rs 280
The global brokerage house has cut earnings estimates for the firm on higher credit costs. The profit, ahead of estimates, it said, is due to the one-off treasury gains and lower tax rate, while slippages are higher than expected. The overall stress is high in the bank with total stress loan ratio at 18 percent. Increased credit costs and slippages are built in, which could lead to lower earnings for FY18-20.
Brokerage: Morgan Stanley | Rating: Underweight | Target: Rs 175
The global brokerage firm highlighted that asset quality weakness continues for the bank and that the quality was the biggest negative surprise with a sharp jump in slippages. Further, it added that it could be difficult for the bank to sustain improvement in the margin this quarter. As a result, it expects the bank to experience continued pressure on profitability.
Brokerage: Bank of America Merrill Lynch | Rating: Underperform | Target: Rs 200
The global research firm said that asset quality concerns could weigh on valuations. It has pruned EPS forecasts over the next three years by 2-3 percent.
Brokerage: CIMB | Rating: Add | Target: Rs 430
The brokerage house highlighted that the net profit is below estimates due to higher NPL provisions. It expects NIMs to remain stable in the medium term. But, going forward, it sees asset quality pressure so subside from here with lower delinquencies.
Brokerage: Jefferies | Rating: Buy | Target: Rs 1,790
Stronger loan growth and better net interest margins offset higher costs and provisions, the brokerage house said in a report. Moreover, it expects strong earnings growth to drive 38 percent earnings per share (EPS) CAGR over FY17-19. It also observed that the valuation is at a premium and may sustain given the solid growth. It has lifted FY18-19 EPS by 2-6 percent, factoring higher net interest margin.
Brokerage: Citi | Rating: Sell | Target: Rs 425
Citi said that challenges to profitable growth for the company will continue. Having said that, better capital allocation and focus on operational efficiencies may lend support. Growth acceleration is the key and margin headwinds continue to exist. It has trimmed FY18-19 estimates by 2-3 percent.
Brokerage: Macquarie | Rating: Underperform | Target: Rs 370
The global research firm has lowered FY18/19 EPS estimates by 3-5 percent and said that the downgraded revenue guidance of high single-digit growth is still optimistic. The revenue growth for current fiscal will range in mid-single digits.
It also observed that the ramp-up of one of the two large digital wins in December quarter of FY17 is running late by a quarter. Trailing 12-month deal wins expiring in one year are still down 3 percent year on year, it added. It is modelling 6% YoY growth in USD revenue for FY18, down from 8.8% previously along with 120 basis points decline in EBIT margin to 9 percent in FY18. It said that one could buy the stock after concrete signs of normalisation of margin.
Brokerage: Morgan Stanley | Rating: Underweight | Target: Rs 390
Morgan Stanley said that the bank’s Q1 missed expectations, while execution challenges continue. It also sees the EPS downgrade cycle to continue and PE multiple has room to de-rate. It assumes revenue growth of 8.7 percent YOY in FY18, but it lowered dollar revenue forecasts by 1 percent and margins by 120-200 bps over FY18-20.
Brokerage: Morgan Stanley | Rating: Overweight | Target: Rs 550
Morgan Stanley said that the margin disappointment lead to the earnings miss. But, the stock remains a compelling medium term play on improvement in infrastructure and housing capex.
Brokerage: Credit Suisse | Rating: Neutral | Target: Rs 535
Credit Suisse said that the margin dipped sharply as GST caused adverse mix and weak topline. It cut FY18/19 earnings by 9-11%. It expects Q2 to be tough as well.
Brokerage: JPMorgan | Rating: Neutral | Target: Rs 480
JPMorgan said that the margin recovery hold the key to earnings growth. The Q1 earnings were below expectations due to the margin miss, it added. The key negative was the sharp margin decline in the company’s core business.
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