SBI, Cement

State Bank of India
Cluster: Apple Green
Recommendation: Buy
Price target: Rs2,680
Current market price: Rs2,300

SBI receives approval for its mega rights issue

Key points

• State Bank of India (SBI) has received the government's approval for its Rs16,740 crore rights issue to be concluded this fiscal. The government is likely to invest Rs10,000 crore to maintain its 59.7% holding in SBI.
• The actual number of shares to be subscribed, the tenure of the securities and other modalities will be worked out by the government in consultation with the bank in due course of time. The government is expected to issue bonds (paying a coupon of 7.9% per annum) to fund its investment in the SBI rights issue.
• The public sector behemoth SBI remains one of our top picks in the banking space. We state below four reasons (for detailed discussion on these reasons please refer to our Investor Eye dated November 6, 2007) why we feel SBI should be a Buy at the current levels:
  1. Upcoming rights issue—at a price far higher than envisaged earlier
  2. New business initiatives—general insurance, private equity
  3. Launch of PSU Bank Benchmark Exchange Traded Scheme (Bank BEES)
  4. Other positive news flows and developments that are expected going forward

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SECTOR UPDATE

Cement

Cement prices to rise in Andhra Pradesh, Maharashtra
Cement majors in Andhra Pradesh (AP) and Maharashtra have announced a price hike of Rs5 per bag effective 1st December. From the feedback we had got from the dealers, we did not expect cement prices to rise before January 2008. Therefore the earlier-than-expected price hike is a positive surprise and will drive our earnings higher than expectations. Post price hike, wholesale cement prices in Maharashtra will stand at Rs245-250 per bag and at Rs230 per bag in AP. This will augur well for companies like ACC, Ultratech, Ambuja Cements, Orient Paper, India Cements, Madras Cements et al who have a significant exposure in Maharashtra and AP.