Reports » India

Indian stock market and companies daily report (August 31, 2010, Tuesday)

Contributed by Angel Broking

Volatility was the order of the day as the market swung between gains and losses after the government tabled the much-awaited Direct Taxes Code bill in the Lok Sabha. The market surged in early trade, tracking gains in Asian stocks and gained strength in mid-morning trade. However, it came off the lower level in afternoon trade and regained the positive zone after turning negative for a brief period in mid-afternoon trade. Immense volatility was witnessed in the last one hour of trade as the Sensex alternatively swung between gains and losses. The Sensex and Nifty closed up by 0.2% and 0.1%, respectively. BSE mid-cap index closed up by 0.1%, while the small-cap index closed down by 0.1%. Among the front liners, Tata Steel, Bharti Airtel, ONGC, Hindalco Industries and Reliance Infrastructure gained 2–3%, while ITC, BHEL, TCS, L&T and Infosys lost 0–1%. Among mid caps, EIH, KGN Industries, Pipavav Shipyard, Baja Electricals and Aurobindo Pharma gained 4–11%, while Pfizer, HCL Infosystems, FDC, MVL and State Bank of Travancore lost 3–4%.

Markets Today

The trend deciding level for the day is 18070 / 5425 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18179 – 18326 / 5460 - 5504 levels. However, if NIFTY trades below 18070 / 5425 levels for the first half-an-hour of trade then it may correct up to 17923 – 17813 / 5381 - 5346 levels.

Government introduces DTC bill in Parliament

Government introduced the Direct Tax Code (DTC) bill in the Parliament yesterday. The code is slated to come in force from 2012.

Following are some of the salient features of the bill:

- The bill proposes to increase the exemption limit for individuals from Rs1.6lakh to Rs2lakhs. Accordingly, the slabs have also been reworked. Those with a taxable income of Rs2lakh–5lakh will be taxed at 10%; those in the Rs5lakh–10lakh bracket will have to pay 20%; while taxable income of over Rs10lakh will attract a 30% levy.

- Exemption on saving instruments, which were proposed to be withdrawn, has been retained. In fact, there have been a few additions to the list such as investment in the New Pension Scheme.

- Under the new regime, companies will pay 30% corporation tax, including cess and surcharge, instead of the present combined levy of 33.2%. Besides, the tax rate for foreign companies will now be the same as domestic companies.

- MAT will be levied on 20% book profits and credit will be available for 15 years.

- SEZ developers and units operating in the zones will be included under the MAT regime, where a 20% tax on book profits is proposed.

- Existing SEZ units starting operations before March 31, 2014, shall be eligible to claim profit-based tax holiday.

We will be shortly coming out with a detailed note on the same shortly.

Jagran Prakashan – Management Meet Update

We conducted a concall with Jagran Prakashan’s (JPL) management (CFO – R K Agarwal). Following are the key takeaways of the call:

FY2011 guidance of 18% ad growth intact, circulation to be muted: Management reiterated its guidance of ~18% growth in ad revenue in FY2011, contributed by higher number of colour ads and absorption of the ad-rate hike (~8–9%). JPL registered ad revenue growth of 18% in July and 27% till date in August 2010 and expects 2QFY2011 to deliver positive surprise. However, circulation revenue is expected to remain muted due to rising competition (cover price cuts).

Non-publishing divisions to record strong growth in FY2011: OOH broke even in 1QFY2011 and is expected to register revenue of ~Rs60cr (Rs48cr). The event management business is estimated to grow by 40% yoy in FY2011 to Rs32cr (Rs23cr). Digital media is expected to grow multi-fold and garner top-line of Rs8cr–10cr in FY2011E.

Aggressive growth plans for i-Next and City Plus: i-Next and City Plus, the three-year old brands, have been performing satisfactorily. Management has guided for 20% and 100% yoy growth in i-Next and City Plus from the current revenue of ~Rs40cr and ~Rs4cr, respectively.

Entry of DB Corp. into Jharkhand not a major threat: Dainik Jagran’s cover price has been slashed from Rs4 to Rs2 post the entry of DB Corp. in Ranchi. Consequent to the cover price cut, Jharkhand’s circulation spiked to ~50% yoy to 2.3lakh copies (1.45lakh copies). However, management maintains that it does not see DB Corp. as a major threat owing to the relatively smaller size of the Jharkhand market (~5% contribution to JPL’s revenue).

Outlook and valuation: With Blackstone’s investment of Rs225cr (awaiting FIPB approval, likely by 3QFY2011) and wider portfolio (including Mid-Day publications), we believe JPL is well poised to benefit from steady growth in the print media. While we have not factored in the Mid-Day deal (likely to be integrated with JPL by 3QFY2011), we believe that the deal is likely to be earnings accretive by ~2–3% in FY2011E. We reiterate a Buy rating on the stock with a Target Price of Rs154, based on a P/E multiple of 20x FY2012E earnings.

NTPC signs pact with Bangladesh to set up two power projects

NTPC has signed an MoU with Bangladesh Power Development Board (BPDB) for setting up two 1,320MW each coal-based power projects at Chittagong and Khulna in Bangladesh. The power plants are likely to come up at an investment of approximately Rs13,200cr and are likely to be installed on a 50:50 equity basis. The projects will be operated by NTPC and will run on imported coal. NTPC will also provide training and development to employees of BPDB and help in the enhancement of productivity and efficiency of its existing power stations. Bangladesh has a power generation capacity of 5,000MW, of which 83% is gas-based. However, in the coming years, Bangladesh wants to increase the share of its coal-based power plants, for which it needs technology from India. A power plant, in a JV with NTPC, will help Bangladesh to use its technology.

At the CMP, NTPC is trading at 2.3x and 2.2x its FY2011E and FY2012E book value, respectively. We recommend a Buy rating on the stock with a Target Price of Rs230.

RIL acquires 14.12% stake in EIH

RIL yesterday announced that it has acquired a 14.12% stake in EIH Ltd. The acquisition was made through Reliance Industries Investment and Holding Pvt. Ltd., a wholly owned subsidiary of RIL. RIL bought the shares from Oberoi Hotels Pvt. Ltd. and certain other promoters of EIH Ltd. at a total cost of about Rs1,021cr. The deal works out to Rs184 per share, while the stock ended yesterday at Rs150.7 per share on the BSE. However, post the stake sale, there will be no change in the management, operation or control of EIH Ltd. Earlier, Analajit Singh of Max India, who also holds under 5% stake in EIH Ltd., was interested in hiking his share. However, talks failed over differences in valuations. Even ITC, which holds 14.98% stake in EIH Ltd., declined to comment on the deal. However, it reiterated that it will not make a hostile bid for EIH Ltd. RIL believes that EIH Ltd. has excellent future prospects as the Oberoi family has developed the Oberoi Hotels brand into a premier brand in the luxury hospitality sector. RIL is continuously scouting for newer ventures to deploy its surplus cash, and this is a further step in that direction.

We await more information to ascertain whether the investment is a business investment or a mere financial investment. Given the relatively smaller size of the deal, the same is unlikely to impact the company’s valuation. We maintain a Buy rating on RIL with a Target Price of Rs1,260.

Result Review

Pantaloon Retail – 4QFY2010 and FY2010

Pantaloon Retail (PRIL) declared its 4QFY2010 and FY2010 results. PRIL’s reported core retail earnings for 4QFY2010 and FY2010 are not strictly comparable on a yoy basis, considering the merger of Home Solutions Retail (HSRIL). As per the company’s reported numbers, during 4QFY2010, the company’s core retail business posted 50% growth in net sales to Rs2494cr (Rs1663cr), driven by Same Store Sales (SSS) growth of 11.5%, 19.4% and 56.9% in value retailing, lifestyle retailing and home retailing, respectively. On the PAT front, the company reported 170.7% yoy growth in 4QFY2010 to Rs98.8cr (Rs36.5cr). For FY2010, PRIL on a standalone basis posted 41% yoy growth in net sales to Rs8926cr (Rs6342cr). On the EBITDA and PAT fronts, the company reported growth of 23% to Rs819.1cr (Rs668.4cr) and 64% to Rs230.2cr (Rs140.6cr), respectively. Management is hosting an earnings call on August 31, 2010, for providing further clarity on the company’s results. We might revise our earnings estimates and rating post the conference call.

Economic and Political News
- Government approves 1000MW grid-connected solar power projects
- India largest recipient of World Bank loans in 2009–10
- MoEF expands terms of reference of Posco committee

Corporate News
- PNB raises fixed deposit rate by 25bp
- RCOM has appointed Prashant Gokarn as the head for its 3G business operations
- EdServ to raise Rs12cr via warrants issue
- ACIL enters into contract farming for 173 acres in Gujarat
- Mundra Port begins operations at Gujarat terminal