Indian stock market and companies daily report (February 05, 2014, Wednesday)
February 5, 2014, Wednesday, 06:02 GMT | 02:02 EST | 11:32 IST | 14:02 SGT
Indian Markets are expected to open on a negative note today tracking weak start to SGX Nifty and mixed opening to most of the Asian indices.
US markets closed higher on Tuesday, partly offsetting the sell-off that was seen in the previous session. The strength on Wall Street was partly due to bargain hunting on the heels of the steep losses posted last week. On the economic front, the Commerce Department released a report showing a notable drop in new orders for US manufactured goods in the month of December. According to the report, factory orders fell by 1.5% in December, against expectations of a drop of 1.8%, following a revised 1.5% increase in November.
Meanwhile, Indian shares recovered early losses to end on a flat note on Tuesday after touching a four-month low earlier in the day on worries over the prospects for global growth and tapering in stimulus by the US Federal Reserve. Trading on Wednesday is expected to be impacted by the earnings announcement along with the reports on US private sector employment and service sector activity.
The trend deciding level for the day is 20,1 44 / 5,984 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,324 - 20,436 / 6,035 - 6,069 levels. However, if NIFTY trades below 20,144 / 5,984 levels for the first half-an-hour of trade then it may correct 20,032 - 19,851 / 5,950 - 5,900 levels.
Spectrum auction Day-2: Prices up in Delhi, Mumbai circles
The price of spectrum in the 900-MHz band jumped an average of 54.2% as compared with the original reserve price the government had set at the end of Tuesday, the second day of the telecom spectrum auction. However, demand for the 900-MHz airwaves tapered in the Delhi and Mumbai circles towards the end of the day, as it seems that the telecom companies stayed away from aggressive bidding at higher prices in the last few rounds.
The average price rose 15.5% at the end of the second day from Monday's auction in the band. While demand for spectrum suddenly dropped in the Delhi circle to only 7-MHz (aggregate demand), the price rose 23.7% during the day as compared with the first day, when demand and available spectrum was on a par in the circle. The price rise, if compared with the original reserve price, would be 47.5% higher. The price of spectrum jumped the highest in Mumbai when compared with the government's reserve price, by 68.5% at the end of the second day (a rise of 16.6% from Monday). While Mumbai attracted the most aggressive bidding, with demand of an extra 5MHz spectrum on the first day, this came down to 18MHz on the second day (16MHz is supply).
Demand in Kolkata dropped by only 1MHz to 12MHz (14MHz supply). The price of spectrum rose about 5% from the first day's provisional price in the Kolkata circle, while the total jump was 46.5% as against the original base price. If the entire spectrum put on auction gets sold in the 900-MHz band, with the 1,800-MHz band in line with demand from the telcos, the government will make close to Rs.44,500cr at Tuesday's provisional winning price, about 17% more than the value of the entire spectrum at the reserve price. As companies pay in installments mode, the government has made ~Rs.13,000cr, higher than its year's budget target of Rs.11,343cr. We remain watchful of spectrum auctions and maintain Neutral rating on the overall telecom sector.
DoT transfers Spice's licenses in Punjab, Karnataka to Idea
The Department of Telecommunications (DoT) has transferred the licenses for Punjab and Karnataka service areas held by erstwhile Spice Communications (erstwhile Spice) to Idea Cellular (Idea). This is subject to final outcome of Idea petition at the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) challenging penalties imposed by DoT in connection with acquisition of erstwhile Spice which remain stayed. Spice was merged with Idea with effect from 1 March 2010. The merger was reconfirmed vide a Delhi High Court Division Bench order dated 13 July 201 2.
The above action of DoT is result of order passed by the Supreme Court on 29 January 2014, wherein the DoT was directed to endorse the erstwhile Spice licenses to Idea, pursuant to Idea submitting an undertaking to the Court as well as to the DoT to the effect that in case Idea is held liable by TDSAT to pay the penalty as imposed by DoT and other dues, then the DoT would be at liberty to invoke the bank guarantees furnished by Idea to it and in such eventuality, Idea would replenish the bank guarantees to the extent of their encashment. The transfer of licenses would enable Idea, the commercial use of 3G spectrum won by it in 201 0 auction conducted by DoT and for which it had paid Rs.322cr to the DoT. In December 2013, the DoT slapped Rs.600cr penalty on Idea for its alleged violation of license conditions in its merger deal with Spice. Idea was asked to pay the amount to take on record the merger of the operational Spice licenses of Punjab and Karnataka in the parent company. As per the rules, a telecom operator cannot hold more than 10% stake in another operator in the same circle. In 2008, Idea Cellular acquired 41.09% stake in Spice Communications. The companies merged in 2010, which resulted in overlapping of licenses in six telecom circles. At the time of the merger, both companies had licenses for Andhra Pradesh, Delhi, Haryana, Maharashtra, Punjab and Karnataka.
Meanwhile, the Supreme Court in its February 2012, order cancelled Idea Cellular's licenses for Punjab and Karnataka circles, while Spice lost its licenses for Andhra Pradesh, Delhi, Haryana and Maharashtra. Therefore, the only two licenses that remained out of Spice's circles, which were taken over by Idea, were Punjab and Karnataka. We maintain our Neutral rating on the stock.
Tech Mahindra (CMP: Rs.1,770/ TP: Under Review)
Tech Mahindra reported its 3QFY2014 results which surprised positively on the revenue front while came inline with the expectations on the operating margin. The dollar revenues grew by 4.4% qoq to US$791mn, led by volume growth of ~3.4% qoq. In INR terms, revenues came in at Rs.4,889cr, up 2.7% qoq. The EBITDA margin of the company declined marginally by ~10bp qoq to 23.2% (estimate -23.3%), largely because of increase in employee costs. Reported profit came in at 1,010cr, up 41% qoq; Tech Mahindra had exceptional gain of ~Rs.347cr due to tax writebacks and other provision reversal, adjusting to that PAT came in lower than estimates at Rs.663cr, down 8% qoq, due to loss at other income level of Rs.46cr as against gain of 38cr in 2QFY2014.
The company reported net addition of 2,165 employees, highest in last nine quarters. Management expects non-BT telecom business to grow in line with company average and above Telecom sector average. Management indicated that the company is witnessing pick up in discretionary spending and a strong deal pipeline in IMS, where Tech Mahindra is actively gaining market share through renewal deal wins. We continue to remain positive on Tech Mahindra; the target price is currently under review.
Bharat Forge (CMP: Rs.340/ TP: Rs.356/ Upside: 5%)
Bharat Forge (BHFC) reported in-line results for 3QFY2014 aided by strong growth in exports. The performance appears strong on a yoy basis mainly due to the base effect. On a sequential basis though, the results are broadly stable and are driven by exports (revenue up 3.5% qoq) even as the domestic operations (revenues down 13.8% qoq) continue to remain under pressure. Meanwhile the company has divested its stake in the China JV, FAW Bharat Forge (Changchun) Company to its joint venture partner, China FAW Corporation for a consideration of Rs.175cr. The company expects the stake sale to positively impact the consolidated profitability and cash flows given that the entity has been incurring losses over the last two years.
For 3QFY2014, standalone revenues grew strongly by 23.7% yoy to Rs.832cr led by a strong 54.5% yoy growth in export revenues. Domestic revenues, however, declined 9.2% yoy due to the continued slowdown in the domestic commercial vehicle sales. Total volumes surged 13.9% yoy primarily driven by exports and on a low base of last year. Net average realization too increased 7.5% yoy on the back of better product-mix and favorable exchange rate. The export performance was boosted by a strong growth across all the key geographies with Europe and US witnessing a growth of 89.6% and 26.1% qoq respectively. The EBITDA margins improved 461bp yoy to 25.8%, in-line with our expectations of 25.9%, driven by cost control measures, favorable realization on the exports front and also due to superior product-mix. Led by a strong operating performance, net profit grew 97.7% yoy to Rs.94cr, in-line with our expectations of Rs.93cr. We maintain our Accumulate rating on the stock with a target price of Rs.356.
BHEL (CMP: Rs.163/ TP: -/ Upside: -)
We expect BHEL to post an 11% yoy decline in top-line to Rs.9,096cr for 3QFY2014 due to execution delays (on account of delay in payments by clients as well as delay in obtaining the necessary clearances). On the EBITDA front, the company's margin is expected to contract by 519bp yoy to 10.8%. Consequently, we expect PAT to decline sharply by 40% yoy to Rs.709cr. We maintain our Neutral recommendation on the stock as declining order backlog limits revenue visibility for BHEL.
GSK Consumer (CMP: Rs.4,301/ TP: -/ Upside: -)
GSK Consumer is expected to declare its 4QCY201 3 results today. We expect the top-line to grow by 20.2% yoy to Rs.852cr aided by both higher volumes and better realizations. OPM is expected to decline by 155bp yoy to 15.4%. Bottom-line is expected to increase by 18.6% yoy to Rs.83cr. We maintain our Neutral recommendation on the stock.
Ranbaxy Labs (CMP: Rs.322/ TP: / Upside: -)
Ranbaxy Labs is expected to post a modest growth of 3.3% with sales at Rs.2,758cr during 4QFY2014. Its OPM is expected to be at 6.6% vs 3.2% in 4QCY2012. Its net profit is likely to come in at Rs.120cr, vs a net loss of Rs.25cr during the last corresponding period. We remain neutral on the stock.
Economic and Political News
- India better prepared to deal with US Fed tapering: Rajan
- FinMin considering CTT relaxation
- TRAI writes to FM for pushing mobile banking services
- No plan to cap airline licences: Ajit Singh
- China to enter India's solar-powered vehicle market
- Muthoot enters White-Label ATM space, to invest Rs.300cr
- JSW Infra's SPV to set up Rs.2,000cr container terminal in Ratnagiri