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Indian stock market and companies daily report (December 31, 2013, Tuesday)
Indian markets are expected to open in the green today tracking positive opening trades in the SGX Nifty and most of the Asian markets. SGX Nifty is trading higher by 25 points (0.4%).
US markets showed a lack of direction throughout the trading session on Monday before ending nearly flat. Traders seemed reluctant to make any significant moves amid a holiday interrupted week. Traders largely shrugged off a report from the National Association of Realtors showing a much smaller than expected increase in pending home sales in the month of November. Majority of the European markets ended the Monday's trading session in negative territory. Trading activity was light at the start of the new trading week, as number of investors absent due to the holidays.
Meanwhile, Indian markets snapped two days winning streak on Monday, as higher crude prices and weak cues from the European markets weighed on sentiments. RBI in its latest Financial Stability Report highlighted that there is less scope for easing despite growth slowdown. It also added that the macro-economic adjustment is far from complete as inflation worries and high fiscal deficit remain a major concern.
The trend deciding level for the day is 21,179 / 6,303 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 21,269 - 21,394 / 6,332 - 6,374 levels. However, if NIFTY trades below 21,179 / 6,303 levels for the first half-an-hour of trade then it may correct up to 21,053 - 20,963 / 6,261 - 6,232 levels.
Shell and ONGC buy Petrobras Offshore Stake for US$1.64bn
Media reports suggests that Royal Dutch Shell and ONGC has acquired 35.0% stake of Petrobras for US$ 1.64bn in an offshore Brazilian development. According to this deal, Shell has increased its stake to 73.0% from 50.0% earlier, while ONGC's stake climbed to 27.0% from 15.0% in the Parque das Conchas project, also known as BC-10. The field is currently producing 50,000 bbl per day of oil and the production impact of a 12.0% stake hike in the project will be less than 1.0% of the total O&OEG ( Oil and Oil Equivalent Gas) production of ONGC on a consolidated basis and therefore we do not expect any significant impact on the company's financials post this deal. Hence until further updates, we maintain our estimates and our Accumulate rating on the stock with a target price of Rs.318.
Bosch suspends operations at its Jaipur plant
Bosch has announced suspension of manufacturing operations at its Jaipur plant for two days from December 30, 2013 following the slowdown in domestic demand. We believe that the planned shutdown will help the company to align the production in-line with the market demand and avoid unnecessary buildup of inventory. The domestic automotive industry which is the primary driver of company's revenue has been facing a challenging environment currently due to slowdown in economic activity, increasing fuel prices and weak consumer sentiments. At the CMP, the stock is trading at 25.7x CY2014E earnings. We maintain our Neutral rating on the stock.
APTY-CTB merger deal called off
Cooper Tire & Rubber Company (CTB) has terminated the merger agreement with Apollo Tyres (APTY) hours before the scheduled expiration of the contract which was due on December 31, 2013. In its filing, CTB has stated that APTY is not in a position to honor the agreement as the financing for the transaction is no longer available with APTY. We believe that with the termination of the agreement, the proposed merger deal between the two companies which has been facing several hurdles since its announcement in June 2013 has finally fallen apart. The initial signs of the deal not going through were evident when the Delaware Supreme Court on December 16, 2013 had dismissed CTB's appeal accusing APTY of violating the merger agreement. The ruling had dealt a setback to CTB's attempts to compel APTY to close the deal. While the merger agreement has been called off by CTB, the company has stated that it will continue to pursue legal action against APTY to protect the interests of its shareholders. Even APTY has indicated that it will pursue legal action against CTB's detrimental conduct.
We expect the ongoing litigation surrounding the deal to continue going ahead. Nevertheless, the termination of the deal is a positive development for APTY given that the concerns regarding significant increase in leverage (to fund the acquisition) has been abated. However, clarity still needs to be sought on the break-up fee of US$1 12mn which was to be borne by APTY for failure to conclude the deal. We believe that the APTY stock price will now reflect the underlying fundamental of the company as the proposed acquisition is behind us. We therefore expect the stock valuations to return to its long term historical averages. At the CMP, the stock is trading at 6.4x FY2015E earnings. We recommend an Accumulate rating on the stock with a target price of Rs.111 valuing the stock at 7x FY2015E earnings.
Economic and Political News
- FIPB okays Vodafone's proposal to invest Rs.10,141cr in India
- FIPB clears Tesco's US$110mn multi-brand retail proposal
- Telecom department defers spectrum auction to Feb 3, 2014
- Inflation limiting RBI's ability to boost growth: Raghuram Rajan
- India's e-commerce market rose by 88% in 2013: Assocham
- GMR to divest 40% stake in Istanbul international airport for Rs.1,910cr
- Welspun Corp. to exit from JV with Leighton for US$99mn
- SML Isuzu to raise prices by 2-5% from January 2014
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