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Reports India

Indian stock market and companies daily report (December 04, 2013, Wednesday)

December 4, 2013, Wednesday, 05:52 GMT | 00:52 EST | 10:22 IST | 12:52 SGT
Contributed by Angel Broking


Indian markets are expected to open today with a negative bias tracking negative opening in SGX Nifty and most of the Asian markets.

After coming under pressure over the course of the previous session, US markets saw some further downside during trading on Tuesday. Concerns about the outlook for the Federal Reserve's stimulus program continued to weigh on the markets. The report from the Institute for Supply Management, which showed that the reading on national manufacturing activity unexpectedly rose to a two-year high in November, led to concerns about the outlook for the Federal Reserve's stimulus program. Traders seemed worried that additional upbeat economic data may lead the Fed to begin scaling back its asset purchases as early as its next monetary policy meeting in two weeks. Meanwhile, the European markets extended their recent weakness on Tuesday and finished in negative territory for a third consecutive session as investors were cautious ahead of the announcements from the policy meetings of both the European Central Bank and the Bank of England on Thursday.

The Indian markets snapped a three-day winning streak on Tuesday as investors booked some profits amid concerns that improving U.S. economy may prompt the U.S. central bank to pare its monthly pace of bond buying soon.


Markets Today

The trend deciding level for the day is 20,867 / 6,206 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,915 - 20,976 / 6,221 - 6,240 levels. However, if NIFTY trades below 20,867 / 6,206 levels for the first half-an-hour of trade then it may correct up to 20,806 - 20,757 / 6,187 - 6,172 levels.


EGoM approves M&A guidelines for telecom sector

The Empowered Group of Ministers (EGoM) on Telecom, yesterday, approved the mergers and acquisitions (M&A) guidelines, besides clearing the sale of over 400MHz of 2G spectrum (1 800MHz band), a move that would help further growth and consolidation of the cellular phone market in the country. The addition also means that an average 18MHz of spectrum will be up for sale in each circle -enough for three to four operators.

At its meeting, the EGoM, headed by Union Finance Minister P. Chidambaram, also approved payment of market rates for spectrum above 4.4MHz allotted to the acquired entity. An acquirer will have to pay the differential between the auction-determined market price and the administrative price for anything beyond 4.4MHz in the GSM band and 2.5MHz in CDMA, if an acquired company has got spectrum after paying administrative price. The M&A guidelines will now be sent to the Union Cabinet for its approval.

The ministers also agreed to increase the earlier-proposed 35% cap on market share (in revenue, as well as user base) for merged entities in a circle to 50%. However, if a merged entity breaches this 50% ceiling in any circle, the companies will get a year to lower the share to below 50% per cent. On the three-year lock-in period during which companies are not allowed to transfer equities, the ministerial panel decided to maintain the status quo for now.

The EGoM's decision is expected to benefit incumbent operators such as Bharti Airtel and Vodafone. The quantum available in an auction plays a very important role in determining fair price for spectrum, capacity of operators to pay for the quantum they acquire, quality of services, etc. The EGoM decision to increase the quantum will be positive for the industry, as a lower availability of spectrum might have led to aggressive bidding by operators, who would have ended up paying very high price. We maintain our Neutral view on the overall telecom sector.


HDFC raises home loan rate by 10bp

HDFC has hiked its home loan rates by 10bp effective December 1. The lending rates now stand at 10.5% for less than Rs.30L and 10.75% for Rs.30L & above. Earlier HDFC bank and SBI had raised its base rates which stand at 10.0% each. We maintain our Neutral rating on the stock.


L&T bags various orders worth Rs.1,471cr

L&T's Power T&D segment has bagged various orders worth Rs.686cr across both domestic & international markets. This include a major international order of a 132 kV transmission line and connection of Al-Dawadmi S/S to the 132 kV Riyadh Network bagged by Larsen & Toubro Saudi Arabia LLC, a fully owned subsidiary of Larsen & Toubro Limited for construction. On the domestic front, it has bagged a turnkey order for setting up a 400 kV Double Circuit transmission line between Veltoor to Yemmiganoor from Transmission Corporation of Andhra Pradesh Limited. The Buildings & Factories business of the company has bagged new orders worth Rs.461cr which includes construction of a cement plant in Chittapur, Karnataka from a reputed customer. The company has also bagged an order worth Rs.142cr in Water & Renewable Energy business from Karnataka Urban Water Supply & Drainage Board for providing, laying, jointing, testing & commissioning of waste water network under the 2nd stage Waste Water Scheme to Tumkur City. Also, the company's Heavy Civil Infrastructure segment has bagged additional orders valued Rs.182cr from its ongoing jobs. We continue to maintain our Buy rating on the stock with a target price of Rs.1,188.


Department of Telecom slaps Rs.600cr penalty on Idea

Idea Cellular has received a letter from the Department of Telecom (DoT), asking the operator to pay a penalty of Rs.600cr for alleged violation of licence conditions in its merger deal with Spice Cmmunications. The DoT has asked the operator to pay the fee within 15 days if it wants approval for the merger. The company is expected to challenge the penalty in court. An internal review committee set up by the DoT had earlier upheld the penalty. The case dates back to 2008 when Idea Cellular acquired Spice's operations, including licences held by Spice for six circles, two of which (Punjab and Karnataka) were commercially operational. Idea, too, had been awarded licences for all of those six circles and had spectrum in five, including Punjab and Karnataka. This overlap of licence areas was at the root of the problem. Under licence rules, an operator cannot own a stake exceeding 10% in another operator in the same circle. Idea Cellular had blamed the DoT for delaying the resolution of the issue despite the company's offer to unconditionally surrender the overlapping licences way back in 2008. The Delhi High Court had earlier stayed the merger between Idea Cellular and Spice on a complaint filed by the DoT. The Additional Solicitor-General of India had also held Idea Cellular to be in violation of the lock-in period clause, which stipulates that a company cannot enter into an agreement for merger for three years from the effective date of licence. In this case, new licences were issued to Spice and Idea Cellular on January 25, 2008. Hence, the two companies could not have merged operations until January 2011. We maintain our Neutral rating on the stock.


Bajaj Auto registers a steep fall of 16.6% yoy in November sales

Bajaj Auto (BJAUT) reported lower-than-expected sales led by a sharp decline of 28.7% yoy in domestic volumes due to the slowdown in the premium motorcycle segment and also on account of the higher competition in the entry and executive motorcycle segments. Total volumes registered a steep decline of 16.6% yoy to 310,591 units with motorcycle and three-wheeler sales witnessing a decline of 14.7% and 30% yoy respectively. Export volumes however posted a healthy growth of 7.7% yoy. According to the Management, the export performance was impacted due to the port strike in Mumbai which led to a sales loss of 15,000 units during the month. Going ahead, the company expects a monthly run rate of 150,000 units on the exports front. In the domestic market, the company expects to gain traction post January 2014 with higher production of the new Discover. The performance in the month of December is expected to remain subdued on account of the annual shutdown activity. At the CMP of Rs.1,854, the stock is trading at 13.8x FY2015E earnings. We maintain our Buy rating on the stock with a revised target price of Rs.2,263.


HMCL to form a JV with Magneti Marelli for fuelling systems

Hero MotoCorp (HMCL) has announced that it has partnered with Italy based, Magneti Marelli (MM) for the manufacturing of new generation fuelling systems through a joint venture (JV) in India. According to the agreement, both companies will be investing US$8.5mn over the next three years in the new JV, HMC-MM Auto Ltd. The total investment envisaged is around US$27mn over a period of next ten years. While HMCL will hold 60% in the JV, remaining 40% will be held by MM. According to HMCL, HMC-MM Auto will develop a new electronic fuel injection system that would enable the company to improve the fuel efficiency of its products. Additionally, functionality such as slip and traction control, immobilizers, flexi and multi fuel management systems will also be made available by the JV. The JV is also expected to bring in key engine related technology thereby reducing the dependence on external vendors. HMCL has stated that the JV is expected to commence production by the end of 2014 and is targeting a turnover of US$200mn in the next ten years. We believe that HMCL's new partnership with MM is broadly in-line with the company's strategy to enhance its technological prowess, post the break-up with Honda. This is also expected to strengthen HMCL's R&D initiatives and is expected to be positive in the long run. The company already has alliances with US based Erik Buell Racing and Austria's AVL to enhance its R&D capabilities. At the CMP of Rs.2,048, the stock is trading at 14.1x FY2015E earnings. We maintain our Accumulate rating on the stock with a target price of Rs.2,183.


Department of Telecom slaps Rs.600cr penalty on Idea

Idea Cellular has received a letter from the Department of Telecom (DoT), asking the operator to pay a penalty of Rs.600cr for alleged violation of licence conditions in its merger deal with Spice Cmmunications. The DoT has asked the operator to pay the fee within 15 days if it wants approval for the merger. The company is expected to challenge the penalty in court. An internal review committee set up by the DoT had earlier upheld the penalty. The case dates back to 2008 when Idea Cellular acquired Spice's operations, including licences held by Spice for six circles, two of which (Punjab and Karnataka) were commercially operational. Idea, too, had been awarded licences for all of those six circles and had spectrum in five, including Punjab and Karnataka. This overlap of licence areas was at the root of the problem. Under licence rules, an operator cannot own a stake exceeding 10% in another operator in the same circle. Idea Cellular had blamed the DoT for delaying the resolution of the issue despite the company's offer to unconditionally surrender the overlapping licences way back in 2008. The Delhi High Court had earlier stayed the merger between Idea Cellular and Spice on a complaint filed by the DoT. The Additional Solicitor-General of India had also held Idea Cellular to be in violation of the lock-in period clause, which stipulates that a company cannot enter into an agreement for merger for three years from the effective date of licence. In this case, new licences were issued to Spice and Idea Cellular on January 25, 2008. Hence, the two companies could not have merged operations until January 2011. We maintain our Neutral rating on the stock.


Jyothy Laboratories allotted 1,50,00,000 equity shares

Jyothy laboratories in its meeting yesterday allotted allotted 1,50,00,000 equity shares of the company of Rs.1 each to Sahyadri Agencies Limited on Preferential basis at the issue price of Rs.175.15/equity share (including Rs.174.1 5 towards share premium) in cash aggregating to Rs.262.7cr, leading to increase in the paid-up capital of the company Rs.18.1cr. We remain positive on the company and maintain Accumulate on the stock with a target price of Rs.207.


Force Motors - Discontinuing Coverage

Force Motors stock corrected significantly to Rs.225 per share post purchase of an aircraft worth Rs.136cr in 4QFY2013 (owing to lack of clarity regarding its usage). However, the stock has recently run-up to Rs.391 per share providing a good opportunity for the investors to exit. Also, we have discontinued our coverage on the stock from December 04, 2013 for the above mentioned reason.


Economic and Political News

- Market driven pricing key to boost energy sector growth: PM

- Resolve price expectations in Asian gas market: PM

- Foreign bankers line up to meet Rajan after subsidiary promise


Corporate News

- Coal India signs fuel supply pacts for 71,500 MW capacity

- Idea Cellular bags $1mn US grant for green telecom project

- Idea gets Rs 600cr penalty notice over Spice merger issue

- ONGC to appeal against Gujarat High Court order

- Canara Bank cuts term deposit rates