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Indian stock market and companies daily report (February 05, 2013, Tuesday)

Contributed by Angel Broking

The Indian market is expected to open in the red today, mirroring SGX Nifty which is trading lower by ~0.4%. Most of the Asian markets are trading in the negative zone with losses in the range of 0.1% to 1.6%.

US markets fell on Monday as traders booked profit post the impressive rally over the past few weeks. Dow Jones had closed above 14,000 for the first time since October 2007. Uncertainty about the political situation in Europe also weighed on stocks after opposition leaders called on Spanish Prime Minister Mariano Rajoy to resign amid allegations of corruption. European markets too fell on Monday due to concerns about the political situation in Spain and Italy.

IndiaRs.s Key benchmark indices closed lower on Monday for the third consecutive session in a row. The markets reversed intra-day gains in late trade as European stocks fell.

Markets Today

The trend deciding level for the day is 19,794 / 6,002 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,860 - 19,968 / 6,023 - 6,060 levels. However, if NIFTY trades below 19,794 / 6,002 levels for the first half-an-hour of trade then it may correct up to 19,685 - 19,620 / 5,966 - 5,945 levels.

Nestle acquires minority stake in Indocon Agro and Allied Activities Private Limited

Nestle India Ltd has informed BSE that the Company has entered into agreement for acquiring 26% minority stake in Indocon Agro and Allied Activities Private Limited, engaged in milk collection business in Western India. The company has not divulged about the size of the deal. We maintain a neutral view on the stock.

CG inks agreement with Transpower NZ Ltd

Crompton Greaves has signed a long term supply relationship agreement with Transpower NZ Ltd, owners and operators of the New Zealand national grid. The agreement enables CG to be preferred vendor to supply transformers to Transpower with the potential to scale to orders worth US$15 million annually. The agreement is valid for five years with possibility of two extensions of two years each. The transformers are being manufactured in CGRs.s Jakarta, Indonesia facility. We maintain our Buy view on the stock with the target price of Rs.129.

3QFY2013 Result Review

Bank of Baroda- (CMP: Rs.804 / TP: Under Review)

For 3QFY2013, Bank of Baroda reported subdued operating performance, as its operating income and operating profit declined by 3.2% and 13.5% yoy, respectively. Provisioning expenses for the bank increased by 22.6% yoy, on account of higher slippages during the quarter and hence earnings at PBT level declined by 30.9% yoy. The bank witnessed lower effective tax rate of 16.7% during the quarter compared to 26.6% in 3QFY2012, which limited the decline in net profit to 21.6% yoy.

On the asset quality front, the bank witnessed sequentially deterioration, gross and Net NPA levels increased by 24.5% and 41.0% qoq, respectively, on an absolute basis. The management has guided for asset quality pressures to continue for next few quarters. Gross and Net NPA ratio came higher sequentially by 43bp and 30bp, respectively to 2.4% and 1.1%. The bankRs.s PCR dipped sequentially by 484bp to 70.9%. At the CMP, the stock is trading at valuations of 0.9x FY2014E ABV. Currently the stock rating is under review.

United Spirits (CMP: Rs.1,856/TP: /Upside:-)

United Spirits (USL) posted a 11.3% yoy growth in top-line to Rs.2,174cr. Overall volumes for the quarter rose by 7% yoy and stood at 32.58 million cases. The volume growth in the prestige and above segments stood at 29% yoy, indicating the companyRs.s focus towards the premium segment. OPM for the quarter stood at 11.3% up 185bp on yoy basis. Bottom-line rose by 71.2% yoy to Rs.81cr. We maintain our Neutral recommendation on the stock.

ITNL (CMP: Rs.203 / TP: Rs.225/ Upside: 11%)

For 3QFY2013, on a consolidated basis, IL&FS Transportation Networks (ITNL) posted a strong performance at the top-line and EBITDAM fronts. However, higher interest cost and higher tax provision led to a subdued growth at the bottom-line level. The company reported consolidated revenue of Rs.1,764cr (Rs.1,268cr) in 3QFY2013, registering a growth of 39.1% yoy, which was 12% higher than our estimate. EBITDA margins declined sequentially by 754bp to 25.5% vs 25.3% in 3QFY2012, and against our estimate of 28%. This was mainly on account of higher revenue contribution from the relatively low-margin E&C segment during the quarter. ITNLRs.s interest cost grew by 53.3% yoy to Rs.284cr in 3QFY2013 and was marginally above our estimate of Rs.280cr. On the earnings front, ITNL reported subdued growth of 18.5% yoy to Rs.104cr (our estimate was of Rs.108cr) on back of higher interest cost and tax (40%). Owing to the recent run up in the stock price we recommend an Accumulate rating on the stock with a target price of ?225.

Relaxo Footwear (CMP - Rs.755 / TP - Rs.887 / Upside: 18%)

Relaxo reported lower-than-expected numbers for 3QFY2013. The revenue for the quarter grew by 9.2% yoy and stood at Rs.223cr, lower than our expectation of Rs.250cr. Operating margin for the quarter was flat yoy at 8.4%, however, it was lower than our expectation of 10.3%. Additionally, the operating margin contracted by 148bp on a qoq basis from 9.9% in 3QFY2013 on account of higher employee cost and other expenses (mainly advertisement expense) as a percentage of net sales. Subsequently, the profit for the quarter stood flat yoy at Rs.6cr, which was 49.9% lower than our estimate of Rs.15cr.

However, we remain positive on the company with the growth triggers in place, which include - 1) capacity expansion plan, 2) store expansion, 3) improved sales mix and 4) brand revamping. At Rs.755, the stock is trading at 13.6x FY2014E earnings. We maintain our Buy rating on the stock with a revised target price of ?887, based on a target PE of 16x for FY2014E.

3QFY2013 Result Preview

Tech Mahindra (CMP: Rs.990 / TP: Rs.1,087 / Upside: 10%)

Tech Mahindra is slated to announce its 3QFY2013 results today. The company is expected to clock 8% qoq USD revenue growth, leading the entire mid-cap IT pack, on the back of acquisition of Hutchison Global services (HGS) and Comviva. In INR terms, revenues are expected to come in at Rs.1,755cr, up 7% qoq. EBITDA margin is expected to decline by ~135bp qoq to 19.3% as the operating margins of the acquisitions done are lower than that of the company. PAT is expected to come in at Rs.240cr, impacted by lower profits from associate company - Mahindra Satyam (Satyam), as Satyam had exceptional loss of Rs.295cr due to Aberdeen claim settlement. Among the key things to watch out for include: (1) outlook for business within top clients - BT and AT&T, (2) Satyam merger timeline and (3) margin trajectory ahead. We maintain our Accumulate rating on the stock with a target price of Rs.1,087cr.

United Bank - (CMP: Rs.74 / TP: Rs.87 / Upside: 17.5%)

United Bank is scheduled to announce its 3QFY2013 results today. We expect the bank to report a NII de-growth of 4.1% yoy to Rs.640cr. Non-interest income for the bank is expected to increase by moderate 8.9% to Rs.178cr. Operating expenses are expected to increase by higher 14.8% yoy to Rs.399cr, which would result in operating profit de-growth of 13.2% on a yoy basis to Rs.419cr. Provisioning expenses are expected to remain almost flat on a yoy basis to Rs.202cr, and would result in Net profit of Rs.147cr for the quarter, a decline of 35.1% on a yoy basis. At the CMP, the stock trades at valuations of 0.5x FY2014E ABV. We maintain our Buy recommendation on the stock, with a target price of ?87.

Economic and Political News

- Etihad to take decision on investing in Jet next week

- Oil Ministry to go to Cabinet on gas pricing: M Veerappa Moily

- Power Minister to meet state energy ministers on discom restructuring

- Cabinet to take up coal price pooling today

Corporate News

- Hero to start selling in 10 new mkts in LatAm, Africa by March

- Indian Bank cuts lending rate by 0.30%

- Diageo to buy half of MallyaRs.s South Africa beer biz

- ONGC awards Rs.1,588cr contract for redevelopment of Heera field

- Axis Bank raises Rs.811cr via preference issue