Buy, Sell, Hold: Analysts are watching 2 stocks today

Reiterating its buy call on the stock with a target of Rs 600 from Rs 549, Bank of America Merrill Lynch termed its Q4 results as a positive surprise and saw better outlook ahead. It has raised earnings estimates by over 2 percent for FY18 to factor in lower credit costs.

The global financial firm also forecast earnings growth of 72 percent and 56 percent for FY18 and FY19. Elaborating on the bank’s financials, BofAML said that it had delivered stronger topline owing partly due to interest reversals.

On the asset quality front, it highlighted management commentary to extinguish watchlist of bad loans in FY18. A cement account upgrade or downgrade has resulted in standard asset provision of Rs 400 crore, it said.

CLSA expected a stability in earnings from FY18 onwards and believed that better results should drive better return on equity (RoE). With that in mind, the brokerage firm retained an outperform rating with an increase in target price to Rs 570 from Rs 550. Moreover, the normalisation in slippages was a positive and this would lead to easing of credit costs and NPLs from FY18, CLSA said.

Deutsche Bank has retained a hold rating on the stock with an increase in target to Rs 540 from Rs 520. It expected overall net interest margins (NIMs) to moderate and saw growth remaining soft at over 12 percent. The research firm also cut FY17 earnings per share by 10 percent and 9 percent for FY18-19 and expects 10 percent and 12 percent FY18 and FY19 return on equity (RoE).

The key upside risk to the stock lies in strong recoveries, while higher than expected slippages remain a key downside risk.

Nomura has retained a buy rating on the stock with an unchanged target price of Rs 550. Dissecting the bank’s Q4 performance, it said that the net profit was broadly in line with estimates, while net interest income beat was driven by one-offs. It said that the credit cost band was higher than the expectation of 185 basis points.

Simultaneously, the March quarter performance has set a base for margin and credit costs going forward and believes that higher credit costs in FY18 should be transitory.

JPMorgan remains overweight on the stock with an increased target price of Rs 570 from Rs 550 as it saw value in the stock as well as turn in tide on earnings and asset quality. The bank’s net profit was in line with the estimates, but provisions were a surprise due to lumpy hits, it said.

The global brokerage firm also cut estimates by 18 percent and 10 percent for FY17 and FY18. This cut in earnings is driven by negative guidance of the management on margin and credit cost. It has assumed slippage of Rs 15,400 crore, which broadly equals non-NPL outstanding.

Kotak Securities has downgraded the stock from reduce to add and reduced target price to Rs 525 as the it termed the Q4 as another weak quarter due to high provisioning for bad loans. Gross NPLs for the bank were stable, but slippages from watchlist remained high, it added.

The brokerage firm also sees RoEs to be subdued for the current fiscal, while a decline of over 40 bps is expected in margin yields over medium term. The loan growth was expected to be above 13-14 percent CAGR in FY18-20.

IDFC Securities sees downside risks to EPS for FY18 if the management’s comments are considered on loan growth. The brokerage firm built in higher loan growth of 18 percent going by the traction in Q4. It has also cut earnings estimates for FY18 to factor in lower margins along with lower loan growth forecast to 18 percent.

L&T

Credit Suisse has reiterated an outperform rating on the stock with a target of Rs 1,850. The research firm believes that the recent flurry of orders has boosted the company’s confidence. Moreover, private sector clients see L&T as a reliable partner in terms of quality and delivery. The key risks to the stock are margin erosion on delays and absence of investment cycle.