Recommendations From Banking & Iron Ore sector

Recommendations From Banking & Iron Ore sector

The scrips in this column have been recommended with a 15-day investment horizon in mind and carry high risk. Therefore, investors are advised to take into account their risk appetite before investing, as fundamentals may or may not back the recommendations.

KARNATAKA BANK

CMP - Rs. 124.90
BSE CODE -532652
Volume- 320970
Face Value Rs. 10
Target Rs. 140
Stoploss Rs. 115 (CLS)

Karnataka Bank provides personal and business banking products and services in India. As of February 2019, the company operated through a network of 838 branches. The Karnataka Bank Limited is headquartered in Mangalore, India, and was founded in 1924. The company is a regional private sector bank. It operates in four segments, namely treasury, corporate/wholesale banking, retail banking and other banking operations. The company maintained its loan growth momentum at 17 per cent YoY during Q3FY19 led by corporate segment. However interest income reversal restricted NII growth at 8 per cent YoY during Q3FY19. The gross non-performing assets (GNPAs) improved to 4.45 per cent during Q3FY19 sequentially from 4.66 per cent. Lower credit costs improved profitability to Rs. 140 crore during Q3FY19. Given low stress in book at 2.1 per cent of advances, the bank is likely to witness improvement on asset quality front. We recommend a BUY.

TATA SPONGE 

CMP - Rs. 764.15
BSE CODE 513010
Volume 17520
Face Value Rs. 10
Target Rs. 870
Stoploss Rs. 710 (CLS)

The company produces sponge iron by direct reduction method of iron ore and is engaged in generation of power from waste heat. The company operates in two segments namely, manufacturing of sponge iron and generation of power. The company uses Tisco Direct Reduction (TDR) technology for the manufacturing of sponge iron. The company has two power plants with a cumulative generation capacity of 30 megawatts that generate power from waste heat. The company’s total production capacity is 3,60,450 metric tonnes of sponge iron from approximately three kilns. The company has a total power generation capacity of 160 million kilo-watt hours. The company registered a 22 per cent YoY sales growth on account of higher sponge iron prices and debottlenecking of existing capacity to increase volumes. The sponge iron prices have fallen in recent months due to soft international steel prices, which put pressure on the stock. This has provided some valuation comfort. We recommend a BUY on the scrip.

(Closing price as of Mar 12, 2019)