By Angel Broking

The Indian indices witnessed a volatile session and ended the day on a weak note. The benchmark indices opened on a strong note, following positive cues from global indices. However, the markets slipped to trade flat by mid-session and continued to trade in a narrow range, before a sharp fall took the markets to the day’s lows. The Sensex and Nifty ended the session with a loss of 0.1% each. The BSE Mid-Cap Index ended lower by 0.3%, while the Small-Cap Index gained 0.1%. Among the front liners, Bharti Airtel, Maruti Suzuki, Tata Steel, Hindalco and ICICI Bank gained between 2-3%, while JP Associates, ONGC, Sterlite, DLF and Wipro lost between 2-3%. In the Mid cap segment, Jai Corp, Havells, Redington, Deccan Chronicle and KGN Industries gained between 5-20%, while Mindtree, HMT, Andrew Yule , RCF and STC lost between 5-9%.

Markets Today

The trend deciding level for the day is 17497/ 5227. NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17568 – 17662 / 5252 – 5282 levels. However, if NIFTY trades below 17497/ 5227levels for the first half-an-hour of trade then it may correct up to 17403 – 17331 / 5197 – 5171 levels.

Lupin’s Mandideep Facility cleared by US FDA

Lupin has announced that its Mandideep facility, which had received a Warning Letter in May 2009 for non-compliance of cGMP, has been finally cleared by US FDA, post the reinspection in November 2009. The company sells Cephalosporin products from this facility, which contributed about 10-12% to the company's overall Top-line and 13-15% to the Bottom-line. Further, in the last quarter, the US FDA also inspected and cleared two manufacturing sites of the company at Aurangabad and Indore without any major deviations. We view this development as positive, since the company has been successful in addressing one of the key concerns of the market. Further, the company could now file new ANDAs from the Mandideep facility. On a comparative basis, Lupin is trading at a discount of 12-31% on a PE basis to its Larger peers like Dr. Reddy’s, Sun Pharma and Cipla, which we believe is unwarranted, given the scale achieved by the company in last few years (FY2009 Revenue at Rs3,776cr, with growth of 30.6% CAGR over FY2006-09), best in class Operating Margins (FY2009 OPM at 17%) and superior Return Ratios (FY2009 RoE of 37%). We have valued the company at 18x FY2012E earnings (10% discount to Large Peers), arriving at a 15-month Target Price of Rs1,863. We reiterate Lupin as one of our Top picks in the sector.

3QFY2010 Result Reviews

Wipro

Wipro recorded a 0.5% qoq growth (5% yoy growth) in overall Net Revenue on a consolidated Indian GAAP basis in 3QFY2010. Combined IT Service Revenues clocked 3.4% qoq growth (1.7% yoy growth), backed by 4.7% qoq growth in blended volumes. However, a fall in price realisation, on account of lower working days and cross currency impact, contained further growth in revenues. The company acquired 31 new clients and made net addition of 4,855 employees, which was the highest ever in the last five quarers, and exhibits signs of business recovery. Wipro recorded a 77bp qoq expansion in overall EBITDA Margins, mainly due to 98bp reduction in G&A expenses. Thus, on account of the strong operational performance, the company reported a 4.8% qoq jump in its Bottomline. At the current levels, we maintain an Accumulate on the stock.

JSW Steel

JSW Steel’s 3Q results were ahead of our expectations, with net revenue coming at Rs4,796cr (Rs4,453cr), registering a growth of 46.7% yoy. Although steel prices were down sequentially, blended realisations increased by 4.2% qoq to Rs32,194/tonne, on account of an improved sales mix - share of semis as a % of total sales fell to 19% against 28% in 2QFY2010. The company’s sales volumes increased by 100% yoy to 1.425mn tonnes and were down 2% qoq, due to the production loss in Karnataka (floods and extended monsoon). The EBITDA margin expanded by 706bp yoy to 22.5%. Other income included a forex gain of Rs102.5cr and interest expenses fell by 21.7% to Rs258.3cr. Adjusted for the forex gain, the Net profit came in at Rs361.4cr – above our estimates (Rs282.9cr). US operations are also on the path of recovery, with the company posting an EBITDA loss of US $8mn (against a loss of US $21mn in 2QFY2010). Currently, the stock is under review.

Dr Reddy’s Laboratories

Dr Reddy’s Laboratories (DRL) announced its 3QFY2010 results. As per Indian GAAP, DRL reported Net Sales of Rs1,704cr (Rs1,805cr), which were down 5.6% yoy, as 3QFY2009 was buoyed by the launch of the generic version of Imitrex, and was in-line with our estimates. Excluding the one-off, DRL's Recurring Sales grew by 17%, on the back of stupendous growth witnessed on the Global generic segment in the India and Russia region, and the PSAI segment. DRL’s OPM expanded by 238bp to 19.3% (16.9%), and was higher than our estimate of 14.9% driven by lower Raw-Material and SG&A Expenses. However, in Germany DRL continues to witness significant price pressure, and, as a result, the company has written-off Intangibles pertaining to the Betapharm acquisition to the tune of Rs458.3cr, translating into Net Loss of Rs233.0cr (as against Profit of Rs 159.2cr) for the quarter. Nonetheless, excluding the one-off, the Net Profit grew by a stellar 41.5% to Rs225.3cr (Rs159.2cr), and was ahead of our estimate, driven by OPM expansion. However, the company has lowered its earlier Revenue guidance of 10% growth on the Top-line front in FY2010 to low single digit growth, on the back of a delay in product launches in US and pricing pressure faced in the German market. On the bourses, the stock is trading at 22.7x FY2011E and 16.6x FY2012E earnings. We recommend an Accumulate on the stock, with a 15-month Target Price of Rs1,313.

Yes Bank

Yes Bank reported a Net Profit growth of 19% yoy, in-line with our expectations. The Bank registered a strong yoy surge in loans (71.1%) and deposits (62.7%), which was reflected in NII growth of 75% for the bank. Asset quality ratios remained stable, with Gross NPAs and Net NPAs at 0.3% and 0.1%, respectively. However, on an absolute basis, gross NPAs increased by 8.4% sequentially to Rs54cr. We believe that the present level of slippages is significantly lower than the sectoral averages relative to the Bank’s high yield credit portfolio. Accordingly, from a structural point-of-view, we believe asset-quality deterioration remains a significant risk for the bank. The Capital Adequacy Ratio (CAR) of the bank has improved to 16.2%, aided by a large proportion of Tier 2 Capital as well (at 44%, close to the regulatory limit of 50%). The conference call with the management is scheduled today. Though the business growth was good, it was largely dependent on wholesale funds. Further, the branch expansion (which is important for CASA accretion) of the bank has been very slow for the last few quarter, as a result, bank will not be able to sustain its NIMs in a rising interest rate scenario. In our view, at the CMP, the stock is trading at expensive valuations of 2.2x FY2012E ABV (factoring in imminent equity dilution in FY2010E), leaving little margin of safety from asset quality and execution risks. Currently, we have a Neutral rating on the stock.

TVS Motor

TVS Motor announced its 3QFY2010 results yesterday, reporting a robust growth in its Net profit to Rs23.5cr (Loss of Rs0.9cr), and in line with our expectations of Rs23.3cr. For 3QFY2010, TVS clocked Net Sales of Rs1,089.5cr (Rs868.7cr), up 25.4% yoy. The total volumes for the quarter grew by 21.9% yoy, while average realisations per vehicle grew by 3.2% yoy. The company witnessed a substantial 300bp yoy jump in its EBITDA Margin to 6.4% (3.4%), largely due to the 416bp yoy decline in Raw Material costs and ar eduction in Staff costs. The Operating Profit increased by 138% yoy to Rs68.2cr (Rs28.6cr). The stock has seen a considerable run-up in the past month, due to which we believe that it is currently trading at fair valuations. At the CMP of Rs79, the stock is trading at 11.3x FY2012E EPS of Rs7. Owing to the sharp run-up in the stock price in the last one month, we recommend a Neutral rating on the stock.

3QFY2010 Result Previews

ONGC

ONGC is likely to report a good 3QFY2010 performance, on account of relatively lower subsidy burden, with upstream companies having to pay subsidy only on auto fuels. We had projected auto fuel subsidy burden at Rs4,000cr during 3QFY2010, on account of appreciation of the Rupee and weak product cracks; however, as per media reports, the actual subsidy burden during the quarter was at Rs4,400cr. Thus, on account of the same, ONGC’s subsidy burden during the quarter is likely to be higher than our estimates of Rs3,040cr, at Rs3,497cr. This will in turn lead to lower than expected net realisation of US $58/bbl, against our earlier estimate of US $60.7/bbl. On the bottom-line front, we had estimated the company to register a 102.9% yoy growth in PAT to Rs5,021cr; however, on account of higher-than-anticipated subsidy burden, bottom-line could stand at Rs4,700- 4,750cr. We maintain a Neutral on ONGC.

BHEL

Bharat Heavy Electricals Limited (BHEL) is scheduled to announce its 3QFY2010 results today. The top-line of the company is expected to grow at 30.2% yoy to Rs7,842cr, on the back of a healthy order book. On the operating front, we expect BHEL to register a 194bp margin expansion to 18.9%, majorly owing to the lower employee cost. Consequently, the net profit would increase at 35.8% yoy to Rs1,073cr. However given the structural long term concerns, we maintain our Neutral view on the stock.

ICICI Bank

ICICI Bank is scheduled to announce its 3QFY2010 results today. We expect the Net profit to decline by 15% to Rs1,082cr. We expect NII to grow yoy by 5%, likely to be driven by NIM expansion due to lower cost of funds. In 3QFY2009, bank’s cost of funds had increased due to global financial crisis. The non-interest income of the bank is expected to decline by 25% as per our estimates. The key to watch during the results is the asset quality numbers, the operating efficiency and branch expansion during the quarter. At the CMP, the stock is trading at 14.4x FY2012E EPS of Rs61.0 and 1.7x FY2012E Adjusted Book Value (ABV) of Rs511.8. We currently have a buy rating on the stock, with 15-month target price of Rs1,155, indicating an upside potential of 31%.

Piramal Healthcare

Piramal Healthcare (PHL) is likely to announce its 3QFY2010 results today. We estimate the company to clock 17.9% yoy growth in Top-line to Rs976.8cr, on the continuous, strong traction from the Inhalation Anaesthetic Segment, after the completion of the Minrad acquisition in March 2009. However, we expect PHL's CRAMS Segment to clock subdued growth for the quarter. We expect Margins to expand 21.0% on the back of the restructuring exercise undertaken in the CRAMS Segment. We expect Net Profit to register a significant 119.4% growth to Rs131.3cr, albeit on a low base. We recommend a Buy on the stock, with a 15-month Target Price of Rs457.

Petronet LNG

Petronet LNG is expected to announce its 3QFY2010 results today. We expect company to register a top-line growth of 12.0% yoy to Rs2,770cr (Rs2,473cr), on the back of 15.2% yoy growth in volumes to 98 TBTUs (85.1TBTUs), due to expansion of the Dahej terminal at the beginning of the year. However, on account of termination of the contract with RGPPL, Volumes will see a decline of 13.6% on a qoq basis. We expect company to earn OPM of 8.2% (7.5%), thereby registering an EBITDA growth of 23.0% yoy to Rs228cr (Rs186cr). Depreciation cost will be higher by 66.5% yoy to Rs43cr (Rs26cr), on account of capitalisation of expanded Dahej terminal in the previous quarter. Similarly, interest cost will be higher at Rs51cr (Rs25cr). On the bottom-line front, we expect company to register a 6.4% de-growth in PAT to Rs98cr (Rs105cr). Even on sequential basis, PAT will be lower by 18.5% yoy to Rs98cr (Rs121cr), on account of 13.6% lower volumes sequentially. We maintain a Buy on Petronet LNG, with a Target Price of Rs89.

Ipca Laboratories

Ipca Laboratories (Ipca) is likely to announce its 3QFY2010 results today. We estimate Ipca to grow its Top-line by 21.0% to Rs376.1cr for the quarter. Exports are expected to increase 20.0%, due to the higher penetration in the US and Semi-Regulated markets. We expect the company's Domestic Formulation business to grow at a notch higher than overall Industry growth. OPMs are expected to decline marginally on account of lower Gross Margins. However, Net Profit is expected to increase by 115.9% to Rs50.1cr on a low base. We recommend a Accumulate on the stock, with a 15-month Target Price of Rs1,360.

IGL

IGL is going to announce its 3QFY2010 results today. We expect IGL to continue to post strong Volume growth, driven by increased conversion of CNG vehicles witnessed during the trailing one year. CNG volumes during the quarter are estimated to have registered an increase of 17.2% yoy to 138.4mn kg (118.1mn kg). Net CNG realizations are expected to be at Rs17.8/kg (Rs16.4/kg). On the back of this, we expect the company to report a top-line growth of 27.3% yoy to Rs246cr (Rs193cr). We expect the company’s margins to increase by 662bp yoy to 37.8% (31.2%), thereby registering an EBITDA growth of 54.1% yoy to Rs106cr (Rs69cr). On the bottom-line front, we expect the company to report 47.9% yoy increase in PAT to Rs56.6cr (Rs38.3cr). We maintain a Reduce on IGL, with a Target Price of Rs175.

Economic and Political News
- Consumer price-based inflation rises to 16.9% in Dec
- South Korea eyeing nuclear cooperation with India
- DoT may prohibit M&As among 3G players

Corporate News
- T Rowe acquires 26% in UTI AMC, UTI Trustee
- ONGC-Mittal exit Turkmenistan oil block
- HDIL raises Rs425cr additional debt
- MAT Holdings eyes $150mn from Indian auto components biz