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Reports India

Indian stock market and companies daily report (August 01, 2014, Friday)

August 1, 2014, Friday, 05:43 GMT | 00:43 EST | 10:13 IST | 12:43 SGT
Contributed by Angel Broking

Indian markets expected to open on negative note tracking SGX Nifty and the Asian markets.

US stock indices closed on negative territory after employee compensation costs increased by more than expected in the second quarter. Sell-off in the markets was also aided by ongoing conflicts in Ukraine and Gaza

European stocks declined the most in three weeks as Adidas AG lowered its profit forecast and Banco Espirito Santo SA led a fall in Portuguese equities market.

Back home, Indian markets shares ended on a lower note on the eve of the expiry of July series derivative contracts. Stocks dipped due to weak cues from Europe after Argentina defaulted on its debt for the second time in 13 years.

Markets Today

The trend deciding level for the day is 25,956 / 7,741 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 26,058 - 26,221 / 7,772 - 7,822 levels. However, if NIFTY trades below 25,956 / 7,741 levels for the first half-an-hour of trade then it may correct 25,793 - 25,691 / 7,691 - 7,661 levels.

USFDA raises concerns over production at Cadila Healthcare's Moraiya facility

The US Food and Drug Administration (FDA) have expressed concerns over the manufacturing process of at least one product at drug maker Cadila Healthcare's Moraiya facility. The FDA has been reportedly not expressed concerns over the entire facility. The US agency communicated its concern to Cadila in a Form 483, a letter in which the agency typically outlines violations of standard manufacturing practices. Once the Form 483 is sent, the company has 1 5 days to respond before the FDA takes any further action. As, of now we donRs.t think it's a cause of concern, as it pertains to only one product, thus we retain our estimates on the stock. We remain neutral on the stock.

Result Review

HCL Tech (CMP: Rs.1555/ TP: Rs.1859/ Upside: 19.5%)

HCL Technologies posted numbers better than expected on OPM and net profit front, while top-line came in just in line with expectations. The company posted revenues of US$1,407mn, up 3.4% qoq, in line with the expectation of US$1,407.5mn. On, Constant Currency terms (CC), the company has posted a 2.8% qoq in the sales terms. The growth came on back of Europe, which grew by 6.5% qoq (CC), while USA grew by 1.3%qoq (CC) and ROW grew by 0.1% qoq (CC). In terms of services, it was business services which grew by 16.8% qoq (CC) and in terms of industry it was Telecommunications, Media, Publishing & Entertainment, which grew by 9.5% qoq (CC), while Financial Services grew by 8.2% qoq (CC).

In rupee terms, the revenue came in Rs.8,424cr a growth of 0.9% qoq V/s expectation of Rs.8,414cr. EBITDA margin came in at 26.3%, V/s 25.9% expected, posting a decline by ~43bp qoq, mainly on back of manpower cost hikes. The utilization levels of the company, came in at 84.5% V/s 84.2% in 3QFY2014.This lead the net profit come in at Rs.1,834 V/s Rs.1,629cr expected , up 12.9% qoq, on back of lower taxation during the quarter. The tax rate for the quarter came in at 16.1% of PBT V/s 19.5% during the last corresponding period.

With this for FY2014 (Year ending June), the company has posted net sales and net profit during the quarter was US$5359.8mn and US$1036.9mn respectively, posting a yoy growth of 14.4% and 41.6% respectively. The EBITA margins came in at 26.3% V/s 22.3% during the last corresponding period.

Client additions during the quarter mainly were in US$ 10-20mn. Overall, it added 1 client in US$100mn+ along with 4 clients in US$50mn + category and 16 clients in US$ 20mn. We maintain our buy rating on the stock with a target price of Rs.1,859.

IPCA Labs (CMP: Rs.713/ TP: Rs.986/ Upside: 38.3%)

IPCA Labs, during the quarter, posted sales and net profit just in line with expectations. On the sales front, the company posted sales of Rs.928cr V/s Rs.913cr expected, posting a 16.7% yoy growth. The sales growth was driven by exports, which posted sales of Rs.571cr, posting a yoy growth of 14% yoy, while the domestic sales rose by 20.6% yoy. On the OPM front, the margins came in at 24.0% V/s 22.9% expected, an expansion of 410bps yoy, mainly on back of GPM expansion, which came in at 63.1% V/s 59.1% in 1QFY2014 and lower rise in other expenditure, which rose by 13.8% yoy .Thus, PAT came in at Rs.145.5cr V/s Rs.147.8cr, expected, registering a growth yoy of 35.2%. We retain our buy on the stock with a price target of Rs.986.

Tech Mahindra (CMP: Rs.2,150/ TP: ^,582/ Upside: 19.7%)

Tech Mahindra announced its numbers. For the quarter, the company posted sales of US$855mn, up 3.6% qoq. EBITDA came in at 18.1% V/s 1 8.8%, a dip of 70bps qoq. While the net profit came in at US$105mn, up 4.3% qoq. Utilization rates, dipped 72% V/s 74% in 1QFY2014 with a marginal increase in the attrition rate, which moved from 15% in 1QFY2014 to 16% in 1QFY2015. In terms of geography, the growth was mainly driven USA, while all verticals seem to have grown equally. Client additions mainly have happened in the US$1-5mn.

In rupee terms, the revenue grew by 1.3% qoq to Rs.5,122cr, while PAT came in at Rs.631cr, up 2.7% qoq. We maintain our buy rating on the stock with a target price of Rs.2,582.

Siyaram Silk Mills (CMP-Rs.550, TP- Rs.723, Upside-32%)

Siyaram Silk Mills (SSM) reported disappointing set of numbers for 1 QFY2015. The company's top line for the quarter grew substantially by 20.3% yoy to Rs.302cr, in line with our estimate of Rs.304cr. The operating margin was lower marginally by 35bp yoy at 10.6%, 46bp lower than our estimate of 11.1%, mainly because of the higher employee cost as a percent of net sales. Interest and tax outgo for the quarter was Rs.8cr and Rs.5cr respectively. On the back of poor operating performance, SSM reported a profit growth of 7.9% to Rs.12cr which was way lower than our estimate of Rs.18cr. PAT margins stood at 3.8%, lower by 120bp yoy and 200bp lower against our estimate of 5.8%.

In order to improve the demand scenario, SSML was in process of launching new designs and attractive schemes, which we assume has helped in driving the sales and will persist going forward. We continue to maintain our Buy recommendation on the stock with the target price of Rs.723 based on target PE of 6x for FY2016E earnings.

Bajaj Electricals (CMP: Rs.288/ TP: Rs.371/ Upside: 29%)

Bajaj Electricals Ltd. (BEL) reported disappointing set of numbers for 1QFY2015. Top-line reported growth of 13.3% yoy to Rs.888cr, below than our estimate of Rs.909cr. The growth in top-line was led by E&P and Consumer Durable segment which posted yoy growth of 13.2% and 15.6% to Rs.214cr and Rs.505cr, respectively. Lighting and luminous (LnL) segment grew modestly by 7.1%.

On EBITDA front, BEL reported profit of Rs.37cr, higher by 82.1% yoy as margins improved by 156bp yoy to 4.1%. However, EBIDTA and margins were lower than our estimates of Rs.61cr and 6.7% respectively. At EBIT levels, both CD and LnL segment reported margin of 6.9% and 1.5%; lower by 238bp and 339bp yoy respectively. Net Profit came in at Rs.5.6cr which was lower than ours as well as street estimates of Rs.27cr and Rs.22cr respectively, due to higher interest and depreciation cost.

Management expects Consumer Durables and LnL segment to deliver 15% growth while E&P segment is expected to report 25% growth. E&P segment which has been posting continued disappointing performance is expected to deliver positive results from 2QFY2015. Moreover, since the stock has corrected substantially post results, we continue to maintain our Buy rating on the stock with the revised target price of Rs.371 based on 0.7x EV/Sales (earlier 0.8x) for FY2016E.

Heritage Foods (CMP: Rs.289, TP: Rs.350, Upside: 21%)

Heritage Foods Ltd. (HFL) reported disappointing operational performance for 1QFY2015. Top line surged by 16.1% yoy to Rs.506cr, 7.0% higher than our expectation of Rs.473cr. However, EBITDA plunged by 35.7% yoy to Rs.18cr lower than our estimate of Rs.20cr. EBITDA margin dip by 289 basis point yoy to 3.6% which is attributable mainly to rise of 435bp in raw material cost as percentage of sales. Moreover, increased interest cost of 26.2% yoy further dent the bottom line leading to dip of 64.7% yoy to Rs.5cr against our estimate of Rs.8cr.

On segmental front, Dairy segment grew by 13.7% yoy to Rs.383cr (75.7% of total sales) while retail segment and agri segment registered growth of 21.7% and 37.1% yoy to Rs.118cr (23.3% of total sales) and Rs.21cr respectively. On EBIT front, the dairy segment reported dip of 49.1% to Rs.15.1cr while margins came in lower by 547bp to 3.9%. The poor performance was on the expected lines to some extent owing to lower milk supply on the back of extended summer coupled with increase in milk procurement prices without any subsequent rise in final packaged milk prices thereby denting the margins of the segment. Retail and agri segment reported reduction in EBIT losses by 16.2% and 79.2% to Rs.4.4cr and Rs.0.1cr respectively.

The poor quarterly performance in dairy is expected to improve from 3QFY2015 owing to the lactation period and price rise in milk prices coupled with geographical expansion strategy of the company, following which the company plans to set up plant in Delhi. Moreover, the rebound in the retail segment seems to be initiated with reducing EBIT losses thereby adding on to the bottom line of the company. We maintain our Buy recommendation on the stock with the target price of Rs.350 based on the target PE of 11x for FY2016E earnings.

Economic and Political News

- Govt allocates Rs.11,952 cr for powerloom sector

- Fitch retains India's rating; revision depends on bold reforms

- Road projects worth over Rs.26.5K cr stuck in disputes

Corporate News

- JSW Steel to increase steel capacity to 40 million tonnes by 2025

- Post-Satyam Cineplex buy, Inox aims 514 screens in 2 yrs

- Cipla to market BioQuiddity's products in EU