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Reports India

Indian stock market and companies daily report (April 30, 2014, Wednesday)

April 30, 2014, Wednesday, 04:43 GMT | 23:43 EST | 09:13 IST | 11:43 SGT
Contributed by Angel Broking

The Indian Markets are expected to open flat to positive today tracking SGX Nifty and mixed opening in the Asian markets.

The US market moved mostly higher over the course of the trading day on Tuesday after the volatility throughout the previous session reacting positively to the earnings news. A report from the Conference Board limited the upside for the markets as it showed a modest deterioration in U.S. consumer confidence in the month of April to 82.3 from an upwardly revised 83.9 in March. Moreover, traders seemed reluctant to make significant moves as the Federal Reserve's two-day monetary policy meeting got underway. With the Fed widely expected to announce another US$10bn reduction in the pace of its asset purchases on Wednesday, investors will closely be looking for clearer guidance on the future path of interest rates. On the other hand, the European stocks rallied on Tuesday mainly because of the better-than-expected corporate earnings and hopes for a peaceful resolution to the crisis in Ukraine.

The Indian markets fell sharply on Tuesday, as investors weighed quarterly earnings and continued to monitor events in Ukraine. Also, investors await the result of the Federal Reserve's two-day monetary policy meeting.

Markets Today

The trend deciding level for the day is 22,531 / 6,735 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 22,618 - 22,769 / 6,760 - 6,806 levels. However, if NIFTY trades below 22,531 / 6,735 levels for the first half-an-hour of trade then it may correct 22,379 - 22,292 / 6,689 - 6,663 levels.

Sun Pharma and Ranbaxy Lab merger runs into legal hurdle

The merger of Sun Pharma with Ranbaxy has run into a legal hurdle as Andhra Pradesh High Court has asked stock exchanges as well as Securities and Exchange Board of India (Sebi) to maintain an interim status-quo on the merger. This has come to news after some retail investors filed a writ petition claiming that there was insider trading. The Andhra Pradesh High Court has said that unless and until they hear this and give a decision on this matter of an insider trading, no clearances should be given to this deal. When the insider trading issues were talked about earlier, Sun Pharma claimed that there were not involved and they had not violated any rules. The company, maintained that they have not violated any of the insider trading regulations in the purchase of Ranbaxy shares and that the company holds the code of conduct for share purchase. We maintain a neutral on the stock.

Result Review

Bharti Airtel (CMP: Rs.335/ TP: -/ Upside: -)

For 4QFY2014, Bharti Airtel reported broadly in line set of results. The weakness is Africa performance was offsetted by robust numbers from India Business which kept its momentum intact. Bharti's consolidated revenues grew by 1.3% qoq to Rs.22,219cr. Revenues from domestic mobile services grew by 3.4% qoq to Rs.12,039cr. KPI's of India mobile business remained good. Total network traffic grew 3.8% qoq to 265bn minutes. Overall RPM came in at 44.9 paise/min (flat qoq), ARPU stood at Rs.196/sub/month (+0.8% qoq) and MOU grew by 0.7% qoq to 437min. Voice RPM was flat qoq. Data revenues grew strongly with data volumes growing by ~20% qoq but data realization per MB declined by 5.8% qoq due to reduction in data tariffs. Africa revenues declined by 1.7% qoq to US$1,145mn. EBITDA margin of Africa business went down by ~50bp to 25.3%. KPIs for Africa business were weak. Overall ARPU declined by 5% qoq to US$5.5. Voice ARPU as well as MOU declined by 6% and 4% qoq. On consolidated level, Bharti's EBITDA margin increased by ~60bp qoq to 32.9%. Net profit came in at Rs.9,616cr, up 58% qoq. Overall, the key surprise from the results were inline but Africa business continues to remain an overhang on the stock. The stock is currently under review.

Sesa Sterlite (CMP: Rs.190/ TP: Under review/ Upside :-)

Sesa Sterlite's (Sesa) 4QFY2014 net profit was below street expectations. Actual 4QFY2014 results are not comparable with 4QFY2013 results as the two companies, Sesa Goa and Sterlite Industries were merged during August 2013 to form Sesa Sterlite. Sesa's 4QFY2014 net sales stood at Rs.20,894cr. Its EBITDA stood at Rs.6,764cr while its adjusted net profit stood at Rs.1,758cr. The company produced 1.5mn tonne of iron ore during the quarter from Karnataka after the mining ban was lifted in Karnataka last year. The Supreme Court has also lifted the iron ore mining ban in Goa however; we believe that meaningful production can only take place in Goa after mining lease renewals and other regulatory approvals which will take their own time. We keep our rating and target price under review.

Dabur (CMP: Rs.178/ TP: -/ Upside: -)

For 4QFY2014 Dabur's results were in-line with estimates. The company's top-line rose by 15.5% yoy to Rs.1,769cr aided by 9.4% volume growth. Dabur's volume and value growth remained healthy despite the slowdown witnessed in the FMCG industry. The company's domestic FMCG business posted 14% yoy sales growth, while international business posted a 19.7% sales growth. On the domestic front, while healthy supplements category grew by 18% yoy, digestives category rose by a strong 23% yoy. OPM fell by 60bp yoy to 16.4% due to higher raw material, employee and other expenses. Bottom-line rose by 17.3% yoy to Rs.235cr. We maintain a neutral rating on the stock.

Federal Bank (CMP: Rs.92/ TP: Rs.110/ Upside: 19.7%)

Federal Bank reported operating performance above expectations, while asset quality witnessed improvement. On the operating front, Net Interest Income for the bank increased by 30.3% yoy, while non-interest income de-grew by 9.4% yoy, leading to a healthy operating income growth of 18.8% yoy. Operating expenses grew 22.8% yoy, leading to pre-provisioning profit growth of 15.2%. On the asset quality front, the bank reported improvement, as its absolute Gross NPA decreased by 9.5% sequentially, while the Net NPA decreased by 9.7% qoq. Provision expenses for bank came lower at Rs.55cr as compared to Rs.93cr in 4QFY2013, which enabled bank to clock earnings growth of 24.9% yoy. At the CMP, the stock is trading at 0.9x FY2016E ABV. We recommend Buy rating on the stock.

Hexaware (CMP: Rs.153/ TP: Under review)

For 1QCY2014, Hexaware reported extremely disappointing set of results. The USD revenue came in at US$95.8mn, down 4.3% qoq. In INR terms, revenue came in at Rs.589cr, down 5% on sequential basis. Revenue growth during the quarter was hit because of ~6%/9% qoq decline in revenues from its top5/10 clients, respectively. Management indicated that the company experienced decline in revenues from some of its top 10 customers primarily due to some project closures as well as budget re-allocation to other initiatives on the client side. The company's EBITDA margin declined by ~330bp qoq to 19.2%. PAT came in at Rs.70cr, down 32% on a qoq basis, impacted by weak operational performance as well as forex loss of Rs.13.5cr as against loss of Rs.1 0.8cr in 4QCY2013. We believe that from hereon, the company will require fresh investments in service offerings as well as in sales capabilities to build a pipeline for sustained growth, which is expected to impact company's cash flows in the near term. The stock is currently under review.

TVS Motor (CMP: Rs.92/ TP: Rs.104/ Upside: 12%)

TVS Motor Company (TVSL) reported strong results for 4QFY2014, which were marginally ahead of our estimates, led by continued momentum on the exports front (volumes up 32.8% yoy), strong growth in scooter sales backed by Jupiter and better product-mix.

Top-line grew strongly by 21.4% yoy (4.8% qoq) to Rs.2,156cr, slightly lower than our estimates of Rs.2,200cr. The marginal miss on the top-line was primarily due to lower-than-expected growth in net average realization. Overall top-line performance was aided by 10.1% and 9.9% yoy growth in volumes and net average realization respectively. The volume performance benefitted from the launch of the new Jupiter which led to a 38% yoy growth in scooter volumes and continued traction on the exports front where the volumes surged 32.8% yoy during the quarter. Net average realization growth was on account of the superior product-mix and higher exports realization led by INR depreciation. Net average realization on a sequential basis declined 3.5% mainly due to the reduction in prices following reduction in excise duty during the Interim Budget. On the operating front, EBITDA margins expanded 115bp yoy (43bp qoq) to 6.4%, broadly in-line with our estimates of 6.3%, driven by superior product-mix, operating leverage benefits and cost reduction initiatives. Driven by a strong operating performance adjusted net profit grew strongly by 40.8% yoy (19.4% qoq) to Rs.82cr, marginally higher than our expectations of Rs.79cr. During the quarter, the company made a provision of Rs.33cr towards its wholly owned subsidiary, TVS Motor Company (Europe) B.V. Accounting for the provisions, reported net profit stood at Rs.52cr.

We expect TVSL's operating environment to improve given that its new scooter launch, Jupiter has been accepted well by the markets. The company further intends to launch one more scooter (upgraded Scooty) to consolidate its position in the segment. Additionally, the volumes would also get a boost from the new launches in the motorcycle segment, strong focus on exports and entry into Nigerian market. At the CMP, the stock is trading at 11.5x FY2016E earnings. We maintain our Accumulate rating on the stock with a target price of Rs.104.

Ceat (CMP: Rs.409/ TP: Rs.487/ Upside: 19%)

Ceat reported strong results for 4QFY2014 which were broadly in-line with our estimates. The overall performance was driven by a healthy volume growth of 7.8% yoy, improvement in operating margins at 11.1% (as against 10.6% in 4QFY2013) and decline in interest cost. Top-line for the quarter grew at a healthy rate of 7.4% yoy (1.6% qoq) to Rs.1,408cr, which was marginally lower than our expectations of Rs.1,452cr. The top-line performance was impacted mainly due to the decline in net average realization by 0.2% yoy (1.9% qoq). The volume growth, however, remained healthy as it grew by 7.8% yoy (3.4% qoq) led by the new OEM partnerships like Royal Enfield, Volvo-Eicher and Bajaj Auto and also on account of strong exports performance. EBITDA margins improved 43bp yoy (flat qoq) to 11.1%, broadly in-line with our estimates of 11.5%, led by improved product-mix. While, raw-material and employee cost as a percentage of sales declined 110bp and 90bp yoy respectively, other expenditure as a percentage of sales surged 160bp yoy during the quarter. We would await more clarity from the Management on sharp surge in other expenditure. On the positive side interest expense declined 12.3% yoy (15.4% qoq) aiding the bottom-line performance, which increased 12.7% yoy to Rs.69cr (adjusted basis), broadly in-line with our expectations of Rs.67cr. During the quarter, the company recorded an exceptional charge of Rs.10cr related to VRS for employees and provision for loss due to the fire at Bhandup facility. We retain our positive view on the company and believe that the company will continue to benefit from the new OEM partnerships and expected stability in raw-material prices. Meanwhile, the company has announced its intentions of foraying into the business of manufacturing, distribution and sale of sporting equipments provided that they get an approval from the shareholders. We would await more clarity from the Management on its new venture. The stock is currently trading at 4.2x FY2016E earnings. We maintain our Buy rating on the stock with a target price of Rs.487.

Tata Sponge Iron (CMP: Rs.574/ TP: Rs.643/ Upside:12%)

For 4QFY2014, TSIL reported better than expected results. Revenue for the quarter came in at Rs.237cr, 11.9% higher yoy while 10% higher than our estimate of Rs.215cr. The EBITDA margin surprised positively with an improvement of 1,623bp on yoy basis to 25.1% on account of lower raw material and employee expense.

Raw materials as a percentage of net sales declined from 79.3% in 4QFY14 to 64.7% for the quarter in review and employee expenses declined from 5.5% to 3.1% for the same period. Consequently, net profit for the quarter increased by 332% yoy to Rs.41cr vis-a-vis our expectation of Rs.29cr.

For FY2014, TSIL's revenue declined by 1.7% to Rs.782cr. However, EBITDA margins improved by 350bp to 18.6% aided by 8.1% decline in raw material cost (which as a percentage of net sales was lower by 323bp). As a result, net profit for FY2014 increased by 18.4% to Rs.101cr. We revise our recommendation to Accumulate on the stock with a target price of Rs.643 based on a target P/B of 1.1x for FY2016E.

Vesuvius India (CMP: Rs.535/ TP: Under Review)

For 4QCY2012, VIL reported poor set of numbers. Top line came in at Rs.155cr, below our expectation of Rs.165cr. EBITDA margins declined by 271bps yoy to 17.5% for the quarter mainly due to 290bp yoy increase in raw material cost as a percentage of sales. Employee cost and depreciation for the quarter also increased by 12.4% and 18% yoy to Rs.11cr and Rs.5cr. As a result, the net profit for the quarter declined by ~10% yoy from Rs.18cr to Rs.16cr in 1QCY2014. Currently, the stock is under review.

Styrolution ABS Ltd. (CMP-Rs.459/TP-/Upside-)

Styrolution ABS Ltd. (Styrolution) reported disappointing set of numbers for 1QCY2014. Top line for the quarter grew by 23.7% yoy to Rs.299cr, higher by 13.0% as compared to our estimate of Rs.265cr. However, EBITDA plunged by 59.4% yoy and came in at Rs.10cr, while margins contracted by 650bp yoy to 3.2% owing to 745bp higher raw material cost as percentage of sales. Consequently, net profit dip by 60.1% to Rs.6cr, 64% lower than our expectation of Rs.16cr. We expect the revival in the economy to aid growth for the company until then we recommend Neutral rating on the stock.

Automotive Axles (CMP: Rs.348/ TP: -/ Upside: -)

Automotive Axles (ATXL) registered strong results for 2QSY2014 driven by sequential up-tick in medium and heavy commercial vehicle (MHCV) sales which is likely to have improved company's volumes and therefore the capacity utilization levels. For 2QSY2014, top-line grew by 31.3% qoq (7.3% yoy) to Rs.175cr led by a 43.2% qoq growth in the MHCV industry sales. The operating margins expanded by 44bp sequentially to 9.3% primarily due to improvement in capacity utilization levels. On a yoy basis, margins improved sharply by 209bp due to softening of raw-material expenses and operating leverage benefits. On account of the better-than-expected operating performance, bottom-line surged 102% qoq (133% yoy) to Rs.6cr. At the CMP, the stock is trading at 13.1x SY2015E earnings. Our rating is currently under review.

Result Preview

IDBI Bank (CMP: Rs.68/ TP: Rs.76/ Upside:12.1% )

IDBI Bank is slated to announce its 4QFY2014 results today. We expect the bank to report a moderate Net Interest Income (NII) growth of 6.2% yoy to Rs.1,529cr. Non-interest income is expected to be largely flat yoy at Rs.1,145cr. Operating expenses of the bank are expected to be higher by 10.6% yoy to Rs.1,098cr. The provisioning expense is expected grow 19.6% yoy at Rs.1,039cr. Overall Net Profit for bank is expected to de-grow by 25.4% yoy to Rs.414cr. The stock is currently trading at a valuation of 0.4x P/ABV FY2015E. We retain our Accumulate rating on the stock.

Marico (CMP: Rs.203/ TP: Rs.254/ Upside: 25%)

Marico is expected to declare its 4QFY2014 results today. We expect the top-line to grow by 4.7% yoy to Rs.1,045cr. OPM is expected to increase by 177bp yoy to 13.7%. Bottom-line is expected to increase by 74% yoy to Rs.88cr aided by both higher EBITDA and higher other income. We maintain a Buy on the stock with a target priced of Rs.254.

Economic and Political News

- TDSAT overturns govt ban on 3G roaming pacts

- SC appoints former Australian judge to head arbitration panel on KG-D6 case

- Third e-auctioning of iron ore in Goa on May 10

Corporate News

- Reliance Industries asks Oil Minisrty to announce new gas price on May 13

- Coal India invites bids for 3rd phase of drilling mines in Mozambique

- Coal India asked to scale up production by 10% despite slowing demand

- IRB Infra wins Rs.3,200cr road project in Maharashtra

- SJVNL signs pact with Bhutanese company for 600 MW hydel plant

- Force Motors to set up an engine facility in Tamil Nadu