Indian stock market and companies daily report (February 04, 2014, Tuesday)
February 4, 2014, Tuesday, 05:16 GMT | 00:16 EST | 10:46 IST | 13:16 SGT
Indian Markets are expected to open in the red today tracking negative opening trades in SGX Nifty and most of Asian markets.
US markets moved sharply lower during the trading session on Monday. The sell-off on Wall Street came following the release of a report from the Institute for Supply Management showing a significant slowdown in the pace of growth in the manufacturing sector in the month of January. The ISM said its purchasing managers index fell to 51.3 in January from a revised 56.5 in December. Major European markets too ended the trading session on Monday in negative territory. Investor sentiment was impacted by the drop in Chinese non-manufacturing data, which overshadowed the positive Eurozone manufacturing data.
Meanwhile, Indian markets also fell sharply on Monday on continued worries about emerging markets, as data showed a gauge of Chinese manufacturing fell to a six-month low in January, adding to concerns that the global economic recovery is faltering. Disappointing fiscal deficit and core sector data and the downward revision of India's GDP growth rate by the government for FY2013 also affected investor sentiment.
The trend deciding level for the day is 20,291 / 6,024 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,399 - 20,589 / 6,053 - 6,104 levels. However, if NIFTY trades below 20,291 / 6,024 levels for the first half-an-hour of trade then it may correct to 20,101 - 19,992 / 5,973 - 5,943 levels.
Spectrum auction Day 1: Government gets bids of ~Rs.40,000cr
As per media reports, on the first day of latest spectrum auction telecom operators have put in bids worth ~Rs.40,000cr on day first day of the auctions as a fierce contest got underway in the 900MHz band in Delhi, Kolkata and Mumbai with Bharti Airtel and Vodafone India. The Mumbai circle on Monday received the most aggressive bids for 900MHz airwaves, while Delhi and Kolkata were close behind. At the end of the seventh round, the average bid price for the three circles was ~34% higher than the reserve price. ParticipantsRs. response to the 1,800MHz airwaves, however, remained relatively muted, with only one circle, Gujarat, seeing demand higher than quantity of spectrum on offer.
Going by Monday's provisional winning price (the last bidding price), the government has already secured Rs.40,000cr in earnings from the spectrum auction, about 11% more than the value of the entire spectrum at reserve price. Given that companies pay in deferred mode, the government has already made ~Rs.11,600cr, higher than its budget target of ~Rs.11,343cr.
In Mumbai, the last bidding price at the end of the seventh round was 44.5% higher than the base price, while the increase was 38.2% per cent in Kolkata and 19.3% in Delhi. The demand for 900-MHz spectrum in the Mumbai circle exceeded the 16-MHz put on the block by five MHz; in Delhi, the bidding took place for just the 16-MHz on offer, while the demand in Kolkata appeared to be one MHz less than the 14-MHz being auctioned. The government's assured earnings from sale of 900MHz spectrum at the end of Day-1 stands at ~Rs.16,859cr. Bharti Airtel has 900-MHz spectrum in Delhi and Kolkata, but not in Mumbai. For 1,800MHz spectrum, on the other hand, the demand looked tepid. Gujarat, for which demand exceeded the 60 blocks offered (of 200 KHz each) by 11 blocks, was the only exception. Maharashtra and Bihar, too, received good response in terms of bidding value but the overall demand in these did not exceed the offered quantity. We continue to remain watchful of spectrum auctions and anticipate cautiously aggressive bidding in 900MHz spectrum and maintain Neutral on the overall sector.
CNG prices to be cut by Rs.15kg, piped cooking gas by Rs.5/scm
The government has raised the allocation of natural gas from domestic fields to City Gas Distribution (CGD) companiesRs. to 100% from current levels of 80%. It stated that CNG prices will be cut by ~Rs.15/ kg and cooking gas piped to kitchens by about Rs.5/scm in cities such as Delhi and Ahmedabad. In order to supply cheap gas to CGDs, the government will divert gas from non-core sectors such as petrochemicals, steel and refineries. Amongst our coverage companies, Indraprasth Gas will get higher access to cheaper domestically produced gas (as against expensive imported gas), the benefit of which, however, will be transferred to the end consumers. Also, Gujarat Gas is likely to get gas at a higher cost as 75% of its gas volume sales are constituted by non-core industries. Currently, it receives ~50% of its gas from domestic sources. Nevertheless, we expect Gujarat Gas to pass on the higher cost to its industrial customers, although in the nearterm we would keep a close watch on its volumes. Currently, we do not anticipate significant change in earnings of these companies on account of this move by the government. We maintain our Neutral ratings on both the stocks.
Tata Motors launches two new models
Ahead of the Auto Expo which is scheduled to begin from February 7, Tata Motors has launched two new models, compact sedan (sub 4 meter) Zest and hatchback Bolt. The two new models will be manufactured from the company's Pune facility and are based on a completely enhanced X1 platform, on which the existing Vista and Manza models are built. According to the company, Zest and Bolt have been designed and developed based on three key fundamental principles, namely, DesigNext, DriveNext and ConnectNext. Both the new cars will be powered by the segment-first, turbocharged intercooled multi-point fuel-injected new Revotron petrol engine family, which has been developed with inputs from the JLR team in UK. While Bolt will be available only in the petrol version and will compete against Maruti Suzuki's Swift and Hyundai's Grand i10, Zest would be available in both petrol and diesel variants and will take on Maruti Suzuki's Dzire and Honda's Amaze. The Zest will also have automated manual transmission and advanced infotainment system. The company has indicated that both the new models will be available for sale in 2HCY2014 and will announce the pricing around the same time. We however expect the company to price the products competitively as it intends to recoup the lost market share with the new launches. We maintain our Buy rating on the stock with a target price of Rs.447.
Auto Monthly - January 2014
Ashok Leyland (AL) registered a steep 25.1% mom growth in total volumes to 7,847 units, broadly in-line with our estimates, led by a 42.2% mom growth in medium and heavy commercial vehicle sales primarily due to the base effect. On a yoy basis though, the performance continues to remain weak amid the slowdown as sales posted a sharp decline of 25.7% yoy due to a 19.4% yoy drop in medium and heavy commercial vehicle sales and 37.3% yoy decline in LCV sales.
Bajaj Auto (BJAUT) reported in-line volumes with total sales posting a sharp decline of 8.5% yoy to 318,171 units led by continued weakness in the domestic sales. Domestic volumes declined 17.6% yoy mainly due to the sluggish performance of the Discover family. Export volumes though posted a healthy growth of 7.1% yoy to 137,644 units driven by Africa. While motorcycle sales of the company declined 6.6% yoy; three-wheeler sales registered a fall of 20.5% yoy during the month. On the domestic front, the company expects to gain traction in 4QFY2014 with higher production of the new Discover and is planning to launch one more variant of the Discover in March 2014.
Hero MotoCorp (HMCL) reported better-than-expected volumes led by continued traction in the rural markets, although demand in the urban markets continues to remain lackluster due to slowdown and increased competition. Total volumes for the month posted a 0.6% yoy (6.9% mom) growth to 561,253 units.
Lupin (CMP: Rs.922/ TP: / Upside: -)
Lupin, results came in just in line with expectations on the top-line, while the OPM's and net profit came much above expectations. On the sales front, the company posted sales of Rs.2983cr, posting a yoy growth of 21.0%. The growth was predominantly led by the exports formulation, which grew by 23% yoy, while domestic formulations markets grew by 14% yoy. It's OPM expanded by 151bp yoy during the period to 24.6% V/s expectation of 23.4%. This along with reduction in the interest expenses aided the PBT to register a yoy growth of 33.0%. Thus, the net profit came in at Rs.427cr V/s Rs.425cr expected, posting a yoy growth of 42.0%. In another, development Lupin announced the acquisition of Nanomi B.V. in the Netherlands. With this acquisition, Lupin has made its foray into the technology intensive complex injectables space. Nanomi has patented technology platforms to develop complex injectable products. We will revisit our numbers, till then we maintain our neutral stance.
Vijaya Bank- (CMP: Rs.37 / TP: -/ Upside: -)
Vijaya Bank delivered weak operating performance, while reported stable asset quality numbers. NII for the bank grew at moderate pace of 8% yoy, while noninterest income performance came in subdued, with a growth of 4% yoy. Opex growth at 43% yoy, was much higher than expected, resulted in sharp operating profit decline of 36% yoy. On the asset quality front, the bank reported stability, as the absolute Gross NPAs remained largely flat. Provisioning expenses for the bank grew by 55% yoy, thereby leading to a 8% qoq decline in Net NPAs. Overall, the bank reported steep earnings de-growth of 91% yoy to Rs. 11cr. We await management comments on the asset quality performance and sharp opex growth during the quarter and asset quality outlook going ahead. We maintain our Neutral rating on the stock.
GIPCL (CMP: Rs.55/TP: - /Upside: -)
For 3QFY2014, GIPCL reported a subdued performance. The company's top-line declined by 5.7% yoy to Rs.348cr but was better than our expectations. This was majorly due to a 18.4% yoy decline in power generation which was at 1,029MU in 3QFY2014 as compared to 1,271MU in 3QFY2013. The EBITDA margin also declined by 426bp yoy to 32.7%. Consequently, Net Profit came in at Rs.43cr for 3QFY2014 as against Rs.70cr in 3QFY2013 due to abnormally high tax expenses. We recommend Neutral rating on the stock.
Subros (CMP: Rs.25/ TP: -/ Upside: -)
Subros reported disappointing performance for 3QFY2014 led by continued slowdown in passenger vehicle demand which continues to impact company's volumes. The EBITDA margins, however, improved ~90bp qoq (flat yoy) to 10.5% aided by other operating income of Rs.4cr related to state government incentives received in Maharashtra. Top-line declined 15.1% yoy (3% qoq) to Rs.278cr due to a 12.4% yoy (1.4% qoq) decline in volumes. Net average realization too declined 4.4% yoy (3.2% qoq) during the quarter. Led by a sharp decline in the top-line, bottom-line too declined 72.7% yoy (43.5% qoq) to Rs.2cr. We revise our revenue and earnings estimates downwards to account for the weak volume performance during the quarter and also to factor in the weak demand environment which is currently prevailing in the country. At the CMP, the stock is trading at 9.9x FY2015 earnings; which is broadly in-line with its historical average. We maintain our Neutral rating on the stock.
Tech Mahindra (CMP: Rs.1,765/ TP: Rs.1,935/ Upside: 10%)
Tech Mahindra is slated to announce its 3QFY2014 results today. The company is expected to clock 2.4% qoq USD revenue growth to US$776mn. In INR terms, the consolidated revenues are expected to come in at Rs.4,811cr, up ~1% qoq. The EBITDA margin of Tech Mahindra is expected to decline marginally by ~20bp qoq to 23.1%. On a consolidated basis, Tech Mahindra's net profit is expected to grow by 2.3% qoq to Rs.735cr. We maintain Accumulate rating on the stock with a target price of Rs.1,935.
Bharat Forge (CMP: Rs.343/ TP: -/ Upside: -)
Bharat Forge (BHFC) is slated to announce its 3QFY2014 results today. We expect the standalone earnings to swell ~96% yoy to Rs.93cr largely due to the base effect. Its top-line is expected to jump ~28% yoy to Rs.858cr led by ~17% and ~10% yoy growth in volumes and net average realization respectively. The company's EBITDA margins are expected to improve sharply by ~470bp yoy to 25.9% driven by better product-mix and favorable exchange rate. Nevertheless, on a sequential basis, we expect the company's bottom-line to decline by ~4% as EBITDA margins are expected to contract 50bp qoq due to cost pressures. At the CMP, the stock is trading at 15.4x its FY2015E earnings. Currently, we have a Neutral rating on the stock.
Economic and Political News
- MGNREGA wage rate to be hiked from April 2014: Jairam Ramesh
- CNG price in Delhi slashed by 30%
- Steel minister announces 10 new steel processing units in UP
- ATF prices cut by about 3%
- Government cuts import tariff value of gold & silver
- Sugarcane arrears mount to Rs.10,000 cr as on January 31, 2014: ISMA
- Tea output up 9% in Apr-Dec to over 1.1bn kg
- IDFC plans to raise US$300 mn via overseas loans
- Bosch to invest Rs.1,200 cr in India in 2014
- Ford unveils Figo Concept compact sedan
- Lupin buys Nanomi B.V. of Netherlands
- Sembcorp to acquire 45% stake in NCC-Gayatri power project
- Ashoka Buildcon led group bags Rs.318cr Karnataka road project