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Thursday, June 11, 2009

Power Grid Corporation of India Ltd and Karnataka Bank Ltd:-Future growth prospects and outlook

1)Scripscan:Power Grid Corporation of India Ltd
Traded in:Nse-bse

Story:Power Grid is a central transmission utility engaged in inter-state and inter-regional power transmission business. Over a period of 16 years, it has emerged as one of the largest and best-managed transmission utilities in the world. Currently, it operates around 67,000 circuit km of transmission lines, along with 111 sub-stations and transmits 40-45% of the power generated in the country. The company has around 45 projects in hand, which will drive its revenues and earnings in the medium term. Indiabulls estimates that Power Grid's net sales and net profit will witness a CAGR of 20.5% and 19.5%, respectively, by '10 on the back of significant investment opportunities. At the current market price (CMP), the stock is trading at a price-to-book (P/B) multiple of 3.5x. Based on the valuations, the company deserves a fair price of 150.A buy for long term defensive investors.

2)Scripscan:Karnataka Bank Ltd
Traded in:Nse-bse

Story:One can switch to some other betters banks.The 'sell' call is based on the following parameters: (i) Frequent equity dilution by the bank in its pursuit of maintaining higher Tier-I ratio, resulting in lower normalised leverage and return on equity (RoE); (ii) Consistently deteriorating asset quality, as higher exposure to retail and small & mid-corporate segments makes it vulnerable to any significant downturn in the asset quality cycle; (iii) Large proportion of the investment portfolio in available for sale category exposes the bank to higher mark to market risk; (iv) Unsatisfactory traction on the fee income front; and (v) Absence of consolidation as a trigger after FY09, as the Reserve Bank of India (RBI) is unlikely to allow foreign banks to acquire private sector banks.Considering all these I would suggest investors to switch to axis or hdfc bank for better returns.

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