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Reports India

Indian stock market and companies daily report (April 16, 2014, Wednesday)

April 16, 2014, Wednesday, 05:22 GMT | 00:22 EST | 08:52 IST | 11:22 SGT
Contributed by Angel Broking

The Indian Markets are expected to open flat today tracking SGX Nifty which is trading flat in the early trade. Most of the Asian markets are trading in the positive territory.

US markets closed higher on Tuesday reacting to mixed batch of data on the economic and corporate earnings front. The markets reacted positively to earnings of companies like Coca Cola and Johnson and Johnson. However, some negative sentiment was generated by disappointing economic data, including a report from the National Association of Home Builders showing that homebuilder confidence has improved by less than expected in April. Meanwhile, the Labor Department released a report showing that consumer prices rose by slightly more than expected in the month of March. European stocks moved lower on Tuesday as tensions in Ukraine flared up with Ukraine's acting president saying that a military operation to wrest control of cities in eastern Ukraine from pro-Russian militants is underway.

Meanwhile Indian markets fell on Tuesday weighed by Increase in global crude oil prices and weak domestic macroeconomic data as the country's wholesale price inflation hit a three-month high of 5.7 percent in March.

Markets Today

The trend deciding level for the day is 22,546 / 6,753 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 22,676 - 22,867 / 6,794 - 6,854 levels. However, if NIFTY trades below 22,546 / 6,753 levels for the first half-an-hour of trade then it may correct 22,355 - 22,225 / 6,692 - 6,651 levels.

Inflation edges higher led mainly by higher food prices

The Wholesale Price Index (WPI) based inflation came in higher at 5.70% during March 2014 as compared to market expectations of 5.30% and 4.68% in February 2014. The rise in WPI inflation can be largely attributed to food items as well as fuel inflation (particularly in coal, LPG and diesel) which have together contributed by 71bp to the headline print. Headline WPI inflation for January 2014 has been revised higher to 5.17% as compared to 5.05% reported earlier and Core inflation also been revised higher to 3.4% from 3.0% earlier.

The Consumer Price Index (CPI) inflation also quickened to 8.31% in March 2014 as compared to 8.03% in February 2014 owing to higher inflation in fruits and vegetables which stood at 17.19% and 1 6.80% respectively during the month.

Trends in WPI Inflation for March 2014

Primary articles - weightage 20.1%

During March 2014, inflation in Primary articles edged higher to 7.66% as compared to 6.33% in February 2014 driven by food items. On the other hand inflation in Non-food articles during the month eased slightly to 4.62% as compared to 5.13% in February 2014 while Minerals reported deflation of 0.26% in February 2014 as against 1.59% decline in the previous month.

Food articles: Inflation in Food articles came in higher at 9.90% during March 2014 as compared to 8.12% in the previous month. As a consequence of the unseasonal rains in some parts of the country inflation in perishable items such as Vegetable hardened to 8.57% from 3.99% in February 2014 and that in Fruits also inched up to 16.15% as compared to 9.92% in the previous month. Inflation in food grains touched a six-month high at 6.94% owing to lower deflation in pulses even as cereals inflation decelerated for the tenth straight month. At the same time, protein-rich products such as Milk and Eggs, Meat & Fish components also reported higher inflation of 9.47% and 11.19% as compared to 8.45% and 9.69% respectively.

Fuel and power - weightage 14.9%

Fuel and power inflation touched a six-month high at 11.22% during March 2014 as compared to 8.75% in the previous month and 7.76% in the corresponding month of the previous year. The Coal index has remained unrevised and reported flat performance as compared to the sharp deflation ranging between 8.9-9.8% in the previous one year. Inflation in Mineral Oils came in at 10.57% as compared to 9.28% in February 2014 and 10.89% in March 2013 on account of higher prices in items such as LPG and diesel.

Manufactured products - weightage 65.0%

Manufactured products inflation came in at a ten-month high at 3.23% in March 2014 as compared to 2.76% in the previous month and 4.28% in the corresponding month of the previous year. Core (non-food, non-fuel) manufactured inflation has inched further to 3.50% during the month from 3.15% in the previous month reflecting pass-through of higher input costs despite pricing power affected by sluggish demand. Also, core inflation for January 2014 has been revised higher to about 3.43% from 3.0% reported earlier. We continue to maintain that core inflation is likely to edge higher going forward as well partially impacted by the low base effect setting in. Manufactured food products inflation also edged higher to 1.87% as compared to 0.9% in the previous month.

Promoter's stake in Crompton Greaves up for sale

According to a media report, Hitachi is in talks with Crompton GreavesRs. promoter Gautam Thapar to buy out his entire stake in the company. Gautam Thapar's stake in the company stands at 42.7%. The media report further expects the deal to value Crompton Greaves at Rs.15,000cr, which is at 31% premium to its current market cap of Rs.11,400cr. However, the company's management has termed it as baseless rumor. We maintain Accumulate on the stock with a target price of Rs.200.

Result Review

Infosys (CMP: Rs.3,260/ TP: Rs.3,640/Upside: 12%)

Infosys reported its 4QFY2014 results with operating margins and net profit ahead of our expectations and top-line inline with our estimates. The USD revenues came in at US$2,092mn, down 0.4% qoq (vs an estimated revenue decline of 0.3%). In constant currency (CC) terms, revenues declined by 0.4% qoq, largely because of a 1.3% qoq onsite volume decline. Overall volume growth came in at 0.4% qoq, driven by 1.2% qoq offshore volume growth. The weakness in the quarter has largely been driven by the Retail & CPG industry verticals which saw a 3.5% qoq decline in revenues during the quarter. qoq). In INR terms, revenue came in at Rs.12,875cr, down 1.2% qoq. InfosysRs. EBIT margin grew by 46bp qoq to 25.5% (better than our expectations), led by operational efficiency with inch up in utilization level to 74.4% (74.1% in 3QFY2014) and sequential decline in employee costs. PAT came in at Rs.2,992cr, up 4.1% qoq, aided by operating margin gains and higher other income of Rs.851cr as against Rs.731cr in 3QFY2014.

Infosys has given a USD revenue growth guidance of 7-9% which is inline with our expectations. We believe that this is a conservative number from the company and we expect the company to post ~10% USD revenue growth in FY2015. The Management commentary indicated that though the deal pipeline seems to be better than what it was the same time last year, the company continues to remain focused on reviving growth momentum. But the company is witnessing sporadic project cancellations or ramp downs in some of its deals. While the improvement in IT spending outlook for CY2014 does bode well for the FY2015E revenue outlook of the sector in general and Infosys in specific, we believe Infosys will continue to lag behind its tier-I peers like TCS and HCL Tech on revenue growth. Over FY2014-16E, we expect USD and INR revenue to grow at a CAGR of 10.6% and 10.8%, respectively. With the current set of results as well as guidance being largely inline with expectations, we donRs.t foresee a very sharp upside potential for the script in the immediate future. We value the stock at 15.5x FY2016E EPS of Rs.236, which gives us a target price of Rs.3,640. We maintain our Accumulate rating on the stock.

Result Preview

TCS (CMP: Rs.2,252/ TP: Rs.2,450/ Upside: 6%)

TCS is slated to announce its 4QFY2014 results today. We expect the company to post revenue of US$3,529mn with 2.6% qoq growth, mostly volume led. In rupee terms, revenues are expected to grow by 2.5% qoq to Rs.21,845cr. TCSRs. management indicated that along with expected seasonal softness in international revenues (vs 3Q), domestic revenues are also likely to be weak in 4QFY2014 due to hit in IT spends ahead of the upcoming Central Government elections. EBITDA margin is expected to decline by ~40bp qoq to 31.0%, impacted by marginal INR appreciation during the quarter and slight decrease in utilization level. PAT is expected to be at Rs.5,270cr, flat sequentially. We maintain our Accumulate rating on the stock with target price of Rs.2,450.

Mindtree (CMP: Rs.1,400/ TP: Rs.1,600/ Upside: 14%)

MindTree is slated to announce its 4QFY2014 results today. We expect the company to post revenue of US$130.5mn, up 2.6% qoq. In rupee terms, the revenue is expected to come in at Rs.808cr, up 2% qoq. EBITDA margin is expected to inch up by ~20bp qoq to 19.7%. PAT is expected to come in at Rs.99cr. We maintain our Accumulate rating on the stock with a target price of Rs.1,600.

Economic and Political News

- Govt proposes revival package for handloom sector

- Rate cuts unlikely before March next: Bofa-ML

- Pol icies not political party to decide sovereign ratings: S&P

- Arvind Mayaram appointed as new Finance Secretary

Corporate News

- Lupin recalls over 9,000 bottles of anti-infective Suprax from US

- Cadila, Depomed Inc settle patent dispute

- RIL commissions polyester filament yarn plant at Silvassa

- Lodha buys Mumbai land for Rs.1,154 crore