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Indian stock market and companies daily report (January 25, 2012, Wednesday)

Contributed by Angel Broking

By Angel Broking

The markets are expected to open in the green tracking positive cues from the Asian markets however investors would be closely watching developments in the Euro zone.

U.S. stocks ended mostly in the red on Tuesday, as investors awaited progress on Greek debt talks. A game of brinkmanship between European leaders and Greek bondholders drove European markets lower on Tuesday as investors worried that a deal needed to cut Athens’ mountain of debt might fall through. Anxiety remains about the European debt crisis and, in particular, Greece's ongoing negotiations with representatives of private-sector creditors to reduce its debt burden. A deal is a key condition for Greece to receive additional bailout funds from the European Union and International Monetary Fund. Without this financial support, Greece may not be able to make a EUR14bn debt payment that's due March 20.

Indian shares rallied on Tuesday as a cut in banks' cash reserve ratio signaled a change in RBI's monetary policy stance. Concerned over weak industrial performance, the central bank today unexpectedly cut the cash reserve ratio for banks by 50 basis points to infuse more liquidity in the banking system.

Markets Today

The trend deciding level for the day is 16,939 / 5,106 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,107 – 17,219 / 5,162– 5,197 levels. However, if NIFTY trades below 16,939 / 5,106 levels for the first half-an-hour of trade then it may correct up to 16,827 – 16,658 / 5,071 – 5,015 levels.

RBI Monetary Policy Review

Key highlights

- Cuts CRR by 50bp to 5.5% to address the prevailing liquidity concerns in the system

- Holds on to key policy rates (Repo: 8.5%, Reverse Repo 7.5% and MSF at 9.5%; keeps SLR unchanged at 24.0%

CRR cut by 50bp: The Reserve Bank of India (RBI) in its third-quarterly monetary policy review maintained status quo on key policy rates. However, it cut the CRR by 50bp in order to address the prevailing liquidity pressures in the economy. The reduction in CRR by the RBI, which is expected to infuse ~Rs.32,000cr into the system, comes on the back of open market operations (OMOs) of Rs.70,000cr in the last two months to bring down the liquidity deficit, which still stands at Rs.1.23lakh cr.

Increasing focus on liquidity and growth: After more than a year of sustained rate hikes and liquidity tightening, inflation is finally showing a marked decline (especially food inflation, which we believe will soon start getting mirrored in manufacturing inflation as well). This has provided the RBI some headroom to address growth concerns (with GDP growth having already slipped to 7%) that are getting exacerbated by high interest rates. As a first step, in our view, the RBI has begun infusing more liquidity through OMOs and now CRR.

Marks softening of policy stance in our view: In our view, this policy signals a marked softening of the RBI’s stance. Considering that there are some upside inflation risks from the high fiscal deficit and not wanting to undo the hard work of anchoring inflationary expectations achieved over the past year, the RBI has appropriately maintained a tone of caution. Accordingly, it may consider more decisive signaling through repo rate cuts only from April 2012, provided inflation continues to cool on expected lines. But, in any case, in our view, directionally policy and broader rates now have a downward bias, signaling a key positive for rate-sensitives.

3QFY2012 Result Reviews

Cairn India

Cairn India announced its 3QFY2012 results. The company’s top line remained flat yoy to Rs.3,097cr (above our expectation of Rs.2,917cr). Average crude oil realization increased by 33.0% yoy to US$101.1/bbl. However, positive impact of higher realization was offset by Rs.570cr of profit petroleum and royalty payment of Rs.630cr. The company’s gross production averaged 169,580boepd (-2.7% yoy). OPM contracted by 169bp yoy to 82.2%, resulting in 2.0% yoy decline in operating profit to Rs.2,546cr during the quarter. The company recorded an exceptional gain of Rs.301cr on account of forex fluctuation during 3QFY2012. Excluding this exceptional gain, adjusted net profit de-grew by 2.5% yoy to Rs.1,960cr (in line with our estimate of Rs.2,023cr). Also, the company remained optimistic to end the capacity from Mangala and Bhagyam field at 175,000bopd by FY2012E. The stock is under review currently.

Lupin

For 3QFY2012, the company posted Net sales of Rs.1,792cr, growth of around 22% yoy, driven by a strong exports and domestic formulations. The domestic formulation business grew by 30% yoy. Other key segment US market grew by 24% yoy driven by the branded business, which grew by 34% yoy growth. On the operating front the margins came in at 20.5%, a 85bps gain yoy. However, on account of higher tax out go during the quarter the overall Net Profit growth came in at 4.95% yoy for the period. We maintain our buy recommendation on the stock.

Yes Bank

For 3QFY2012, Yes Bank reported 32.9% yoy (8.1% qoq) growth in its net profit to Rs.254cr, above our estimates, mostly due to lower provisioning expenses than estimated by us. The bank’s NII grew by healthy 32.3% yoy to Rs.428cr, while non interest income grew by 30.8% yoy, leading to operating income growth of 31.8% yoy to Rs.639cr. Provisioning expenses for the bank fell by 10.4% yoy to Rs.22cr, leading to PAT growth of 32.9% yoy to Rs.254cr.

The bank’s business gathered pace in 3QFY2012, with advances growing by 4.9% qoq and deposits growing by 6.5% qoq. The bank had raised its saving account rate to 6% (7% for savings deposit above Rs.1,00,000) post the deregulation, due to which the bank witnessed strong traction in saving account deposits. Saving account deposits grew by 40% qoq (99.2% yoy) to Rs.1,202cr. Current account deposits also rose by healthy 14.5% qoq (37.2% yoy) to Rs.4,710cr. Consequently, CASA ratio jumped from 11.0% as of 2QFY2012 to 12.6% as of 3QFY2012. The bank’s cost of funds increased by 30bp compared to a 20bp increase in yield on advances, leading to a 10bp qoq compression in reported NIM.

The bank continued to maintain a healthy asset quality in 3QFY2012, with gross NPA ratio of 0.2% and net NPA ratio of 0.04%. Provision coverage ratio also stood elevated at 80.0%. At the CMP, the stock is trading at valuations of 2.0x FY2013E ABV. We recommend an Accumulate rating on the stock with a target price of Rs.338.

Ceat

Ceat reported weak 3QFY2012 results on the bottom-line front on account of production loss led by strike at Nashik plant coupled with higher depreciation and interest expense on a yoy basis due to commissioning of Halol plant. Net sales grew by strong 19% yoy, led by growth in the OEM and exports segments. On a sequential basis, however, the top line declined by 4.7% due to strike at Nashik plant, which lasted for 23 days, resulting in a volume decline (tonnage basis) of 8%. EBITDA margin improved by 102bp yoy to 5.6%; on a qoq basis, margins came in flat as the benefits of the decline in raw-material prices were offset by higher other expenditure. Net profit witnessed a 52.3% yoy (57.4% qoq) decline to Rs.2cr, primarily led by higher depreciation and interest expense.

Going ahead, we expect Ceat to report improvement in its operating performance as utilization levels at the Halol plant improve. Additionally, price hikes (~10% in 1HFY2012) and stable raw-material prices (declined 21% from peak in domestic markets) are expected to result in margin expansion in FY2013. We maintain our Buy recommendation on Ceat with a target price of Rs.125.

3QFY2012 Result Previews

Sesa Goa

Sesa Goa is slated to announce its 3QFY2012 result. We expect the company’s top line to decrease by 29.4% yoy to Rs.1,775cr on account of a decline in sales volumes. EBITDA margin is expected to contract by 669bp to 48.0% due to a decline in iron ore prices and higher export duty. Further, the bottom line is expected to decline by 47.5% yoy to Rs.562cr due to a sharp decline in other income. We recommend Accumulate on the stock with a target price of Rs.208.

TGBL

Tata Global Beverages (TGBL) is expected to announce its 3QFY2012 results. For the quarter, we expect the company to post modest 8.3% yoy growth in its top line to Rs.1,735cr, aided by a mix of value and volume growth. Earnings for the quarter are expected to register a 10.5% yoy decline to Rs.65cr on account of high raw-material cost. Also, we estimate the company’s operating margin to contract by 200bp yoy to 9.9%. We maintain our Accumulate rating on the stock with a target price of Rs.102.

IRB Infra

IRB Infra (IRB) is expected to post a poor set of numbers on a quarterly basis. We expect a 15.3% yoy decline and 14.2% yoy growth in C&EPC (Rs.395.1cr) and BOT (Rs.244.3cr) revenue, respectively, leading to overall top-line decline of 4.4% to Rs.639.5cr. Dip in the E&C segment would be due to completion of Surat Dahisar and Kolhapur road projects and remaining under-construction projects being at a nascent stage. We expect higher EBITDA margin at 45.9%, a jump of 205bp yoy, due to higher share of the high-margin BOT segment. Depreciation is expected to be higher at Rs.74.4cr, owing to completion of the Surat Dahisar project. We project net profit before tax and after tax (post minority interest) at Rs.109.3cr and Rs.81.5cr, respectively, after factoring a blended tax rate of 23.2% for the quarter.

Our valuation of Rs.182/share for the consolidated business uses NPV/EV/EBITDA based valuation for BOT assets and the E&C arm, respectively. We factor in CoE of 14% and a traffic growth rate of 5/6/7% for its BOT assets. Owing to the recent run up in the share price, we recommend Accumulate on the stock.

Economic and Political News
- RBI asks government to deregulate diesel prices
- Inflation may moderate below 7% by March
- No concern on Indian banks' bad loans currently: RBI deputy

Corporate News
- Reliance Ind’s US$2.1bn share buyback to open on February 1
- TCS gets green signal for Indore SEZ
- RCom cuts off Etisalat over payments