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Indian stock market and companies daily report (August 31, 2012, Friday)

Contributed by Angel Broking

Indian markets are expected to open in the red following weak opening of the Asian indices after reports on industrial output in South Korea and Japan added to signs of slowing global economic growth. JapanRs.s industrial production surprising fell by 1.2% in July 201 2.

The US markets on Thursday ended on a weak note as traders expressed caution ahead of Ben BernankeRs.s speech at the Jackson Hole symposium on Friday. On the macro-economic front, initial jobless claims released by the Labor Department came in at 374,000, unchanged compared to the previous weekRs.s revised figure. Economists had expected jobless claims to edge down to 370,000. A separate report from the Commerce Department showed that personal income rose by 0.3% in July which was in line with economist estimates.

Going ahead, domestic market participants would keenly watch out for the release of quarterly GDP growth rate for 1QFY2013 which is expected to come in at 5.2% (as per Bloomberg consensus). On the global front, trading is likely to be driven by reaction to BernankeRs.s speech, reports on US consumer sentiments and factory orders.

Markets Today

The trend deciding level for the day is 17,505/5,304 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,642 - 17,743/5,354 - 5,392 levels. However, if NIFTY trades below 17,505/5,304 levels for the first half-an-hour of trade then it may correct up to 17,404 - 17,267/5,266 - 5,217 levels.

TVS Srichakra - Management interaction

We had a conference call with the management of TVS Srichakra. The key take away from the call were:

- The performance of the company was disappointing in the 1QFY2013 both on revenue and profitability front mainly because of three major reasons - 1) there was a slowdown in the demand from replacement segment, 2) the company had to pass on the decrease in the raw material price to the OE players and 3) the power cost for the quarter was high. However, going forward the margins are expected to improve.

- The replacement demand for the ongoing quarter is expected to be relatively better than the last quarter and that will add to both the topline as well as the operating margin, as replacement segment is a high margin segment.

- We expect the operating margin for the of OE segment to improve in the current quarter vis-a-vis the last quarter on the back of rationalization of inventory.

- The power cost in the coming quarters is expected to normalize on account of the improved condition of power supply.

- The company has guided a 40% growth in the exports for FY201 3E.

The stock is currently trading at a PE of 5.7x FY2014E earnings. We have a Neutral rating on the stock.

BT sells 14% stake in Tech Mahindra

Telecom giant, BT, yesterday sold 14.1% or 1 7.9mn shares in Tech Mahindra to institutional investors for Rs.1,395cr at Rs.777.73 per share and said it would consider further such sales in future. The stake sale buzz took the companyRs.s stock down by 5.2% yesterday to Rs.792.15. Following the sale, BT has reduced its stake in Tech Mahindra from 23.16% to 9.1%. The stake sale comes as Tech Mahindra and Mahindra Satyam are nearing their merger. BT added Tech Mahindra continued to be a key supplier. BT is the largest client for Tech Mahindra, contributing ~36% to its revenue. We believe this stake sale will not impact Tech MahindraRs.s revenue stream from BT and Tech MahindraRs.s management has been maintaining that revenues from BT account is expected to remain flat going ahead. We maintain Accumulate rating on the stock with a target price of ?840.

Result Review

IVRCL (CMP: Rs.39/TP: - / Upside: -)

For 1QFY2013, IVRCLRs.s revenue grew by 7.4% yoy to Rs.1,207cr and was marginally below our estimate of Rs.1,258cr. On the operating margins, the company posted margins of 10.3%, an improvement of 270bps on yoy basis against and above our estimates of 7.7%. Interest cost came at Rs.138cr, a jump of 67.0% and 41.4% on yoy and qoq basis respectively. On earnings front, IVRCL reported loss of Rs.6cr against profit of Rs.4cr in 1 QFY2012 and our estimate of Rs.3cr. Currently, the Target price and rating are under review.

Economic and Political News

- Government looks to fund 60% of project cost to build electric vehicles

- Difficult to achieve 9% GDP growth in 12th Plan: Planning Commission

- India to see 30,000 MW renewable capacity addition in 12th plan

- Government receives Rs.28,837cr as licence fee from telecom companies

- Kamath disagrees with SBI chief, says CRR not an issue

- Loan restructuring to reach Rs.3.25tn by Mar Rs.13: CRISIL

Corporate News

- RCF plans Rs 4,000cr expansion at Thal plant

- Deepak Fertilizers drops plan for US$350mn plant in Australia

- UltraTech Cement plans to enhance capacity to 62MTPA by FY2014

- McNally Bharat bags Rs.20cr orders