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Indian stock market and companies daily report (February 08, 2013, Friday)

Contributed by Angel Broking

The Indian market is expected to open flat with a negative bias, mirroring SGX Nifty which is trading marginally lower in the opening trade. Major Asian indices -Hang Seng and Shanghai are flat, while Nikkei is trading lower by 1.3%.

Meanwhile in the US, key benchmark indices ended lower on Thursday, although they staged a strong recovery from the lows of the day. The weakness in US markets was partly due to uncertainty about the financial situation in Europe following comments by European Central Bank President Mario Draghi. Major European indices such as FTSE 100 and CAC 40 too ended the day lower by 1.06% and 1.15% respectively.

The Indian markets continued to slide due to macro-economic concerns, with the Central Statistics Office (CSO) projecting IndiaRs.s growth rate for 2012-13 to be at a decade low of 5% (vs 6.2% in 2011-12). The CSORs.s estimates are much lower than even the RBIRs.s estimates of 5.5%.

Markets Today

The trend deciding level for the day is 19,608 / 5,948 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,675 - 19,770 / 5,969 - 5,999 levels. However, if NIFTY trades below 19,608 / 5,948 levels for the first half-an-hour of trade then it may correct up to 19,51 3 - 19,445 / 5,918 - 5,897 levels.

Govt. pegs real GDP for FY2013 at 5.0%

As per advance estimates released by the Central Statistical office (CSO), real GDP growth for FY2013 is estimated to slowdown to 5.0% as compared to 6.2% in the previous year. The data is disappointing especially coming on the back of a downward revision in growth for FY2012 from 6.5% to 6.2%. The slippage can be mainly attributed to deceleration in growth of the services sector to 6.6% which is by far the lowest growth recorded by the sector in over a decade. Industrial growth stood at 3.1% as compared to 3.5% in FY2012. This can be attributed to deceleration of growth in the manufacturing sector to 1.9% as compared to 2.7% in the previous year. Agricultural GDP too decelerated to 1.8% as compared to 3.6% affected by the decline in kharif production (by nearly 10% as per the first estimates) on account of deficient rainfall.

Real GDP growth for 1QFY2013 stood at 5.5% and marginally lowered to 5.3% in 2QFY2013. Overall, growth in the first-half of FY2013 stands at 5.4%, so the 5.0% estimate for FY2013 implies modest sub-5% growth for the rest of the fiscal year.

On the demand-side, both government and private final consumption expenditure are estimated to report 4.1% growth each as against 8.6% and 8% growth respectively in FY2012. Growth in gross fixed capital formation, an indicator of the investment environment in the economy, is estimated to decline to a decade-low of 2.5% as compared to 4.4% in the previous year.

Bharat Forge forms a JV to supply artillery systems

Bharat Forge (BHFC) and Elbit Systems Land and C4I Ltd, a wholly owned subsidiary of Elbit Systems has announced a new Joint Venture (JV), to cater to the requirements of the Indian Ministry of Defense. The JV would supply advanced artillery and mortar systems solutions to the Indian Defense establishments subject to the requisite government and regulatory approvals. BHFC has not provided any further details regarding stake holding pattern of the JV nor the amount and source of funds to be invested in the JV. We would wait for more clarity from the management on this front. At Rs.226, the stock is trading at 9.8x its FY2014E earnings. Currently, we have a Buy rating on the stock with a target price of Rs.278.

3QFY2013 Result Review

Ambuja Cement (CMP: Rs.200/TP:-/Upside:-)

Ambuja Cement posted a flat performance on the topline front during the quarter, and was below our estimates. We estimate the companyRs.s cement volume to have de-grown during the quarter, resulting in the flat performance on the topline front. OPM stood flat at 19.3%. Bottomline fell by 29.9% yoy to Rs.212cr with depreciation costs, going up by 49.8% on a yoy basis. We maintain a neutral view on the stock.

ACC (CMP: Rs.1,345/TP:-/Upside:-)

ACC posted a 24% yoy growth in standalone topline to Rs.3,098cr. Adjusted for the sales of RMC segment which was included in the standalone sales (w.e.f 4QCY2012) topline growth for the quarter remained flat. Volumes for the quarter remained flat. Overall OPM stood at 12.8% down 446bp on yoy basis, impacted by increase in freight costs and also due to low margins for the RMC business which got included in standalone business during the quarter. Adjusting for the RMC business, we estimate the OPM for the company to be 14.8%. Adjusted Profit after Tax stood at Rs.239cr down 1.3% on a yoy basis. We maintain a neutral view on the stock.

MRF- 1QSY2013 (CMP: Rs.13,231/ TP: Rs.14,331/ Upside: 8.3%)

For 1QSY2013, MRF reported a subdued topline growth of 5.2% yoy to Rs.3,026cr, slightly lower than our estimate of Rs.3,127cr, owing to slowdown in auto industry. Decline in rubber prices led to 437bp yoy expansion in EBITDA margin to 13.3% for 1QSY2013 as compared to 9.0% in 1QSY2012. Consequently, net profit for the quarter surged by 59.9% yoy at Rs.180cr as comparable to Rs.113cr in 1QSY2012. At current market price, the stock is trading at a PE of 7.4x for SY2014E and P/B of 1.3x for SY2014E. Due to current run up in the stock price, we reduce our rating to Accumulate on the stock with a target price of Rs.14,331, based on a target P/E of 8.0x for SY2014E.

Aurobindo Pharma (CMP: Rs.187, Target: Rs.208, Upside: 11.0%)

The company posted numbers ahead of expectations on the sales front, while the net profit came in below expectations. On sales front, the company posted 22.8% yoy growth to end the period at Rs.1552cr. However, the OPM came in at 15.5% V/s 17.0% expected. However, on yoy basis, the OPMRs.s expanded 200bps. This lead the net profit to come in at Rs.91.8cr V/s expected net profit of Rs.152cr. We maintain our accumulate rating on the stock.

Jyothy Laboratories (CMP - Rs.146 / TP - Rs.165 / Upside -14%)

For 3QFY2012, Jyothy Laboratories (JLL) standalone reported better than expected numbers. The companyRs.s top line (standalone) grew by 22.8% yoy to Rs.205cr, which was 12.6% higher than our estimate of Rs.182cr for the quarter. The growth is attributed to 10% growth in volume and rest to value growth across all segment. The revenue from soaps and detergent segment witnessed a yoy growth of 31.4% and came in at Rs.158cr, however the revenue from home care segment declined by 4.2% yoy and stood at Rs.45cr.The companyRs.s EBITDA margin expanded marginally by 89bp yoy and stood at 17.9% for the quarter, against our estimate of 12.7%. However on qoq basis, it expanded significantly by 527bp from 12.6% in 2QFY2013. This was mainly because of lower employee cost and other expense as a percent of net sales. The interest for the quarter increased marginally qoq to Rs.17cr, however it has increased substantially on yoy basis (Rs.2cr in 3QFY2012). Subsequently, the company has reported 70.6% increase in its bottomline on qoq basis and a decline of 10.4% on yoy basis and stood at Rs.26cr, considerably higher than our estimate of Rs.15cr.

Jyothy Consumer Product (formerly known as Henkel India), which is an 83.7% subsidiary of JLL, also reported numbers for 3QFY2013. The topline witnessed a marginal growth of 3.2% qoq to Rs.81cr. The company turned EBITDA positive for the quarter with operating profit of Rs.9cr. The interest expense for the quarter stood at Rs.1 4cr. Subsequently, the company reported a loss of Rs.15cr for the quarter.

As per the management, integration of JLL and Henkel distribution got completed in December, 2012 and effect of the same will be visible from 4QFY2013E onwards. At CMP of Rs.146, the JLL (standalone) is trading a PE of 24.9x FY2014E earnings. Looking at the positive developments in the company and better than expected result, we are upgrading the stock to Accumulate with a target price of Rs.165.

Prakash Industries (CMP: Rs.44, TP: - Upside: -)

Prakash Industries reported disappointing profitability performance for 3QFY2013 due to higher costs. Its net sales increased by 16.0% yoy to Rs.605cr in 3QFY2013 mainly on account of increase in revenue from steel and PVC pipe segments. However, EBITDA margin dipped by 1,11 0bp yoy to 6.4% on account of sharp rise in input costs and other expenses. EBITDA dipped by 57.1% yoy to Rs.39cr. Depreciation increased by 42.5% yoy to Rs.28cr. Interest expenses stood at Rs.15cr in 3QFY2013, compared to Rs.5cr in 3QFY2012. Other income also fell drastically by 84.6% yoy to Rs.2cr. Consequently, the net profit decreased by 69.1% yoy to Rs.21cr. We maintain our Buy rating but keep our target price under review.

JK Tyre & Industries (CMP: Rs.116/ TP: Rs.165/ Upside: 42%)

JK Tyre & IndustriesRs. (JKI) reported an in-line net profit (adjusted for exceptional expenses) for 3QFY2013 driven by 393bp yoy (103bp qoq) expansion in EBITDA margins to 9.2%. The adjusted net profit came in at Rs.32cr, a growth of 87.7% yoy (26.4% qoq). The top-line performance for the quarter remained subdued due to the slowdown in the OEM demand which led to a 7.4% yoy (3.1% qoq) decline in net revenues to Rs.1,281cr. The EBITDA margins registered a significant improvement as natural rubber prices declined 14.5% yoy (4% qoq) during the quarter leading to a 652bp yoy (62bp qoq) reduction in raw-material cost a percentage of sales. During the quarter the company incurred an exceptional expense of Rs.1 1 cr primarily due to the unfavorable currency movement. At the CMP of Rs.116, the stock is trading at 2.8x FY2014E earnings. We maintain our Buy rating on the stock with a target price of Rs.165.

Ceat (CMP: Rs.109/ TP: Rs.163/ Upside: 50%)

Ceat reported better-than-expected performance in 3QFY2013 driven by sharp expansion in operating margins mainly due to the receding cost pressures. For 3QFY2013, standalone top-line posted an in-line growth of 2.4% qoq to Rs.1,202cr driven by 3.9% growth in volumes to ~53,000MT. On a yoy basis though, top-line grew by a strong 1 3% led by volume growth of 15.2%. The yoy growth appears strong due to low base of 3QFY2012 which was impacted by 23 day strike at the Nashik plant. On the operating front, EBITDA margins surged substantially by 180bp qoq (227bp yoy) to 8.5% against our expectations of 7.9%, as raw-material cost as a percentage of sales witnessed a decline of 21 0bp qoq (470bp yoy) led by correction in natural rubber prices. During the quarter, Ceat recorded an exceptional expense of Rs.14cr related to the VRS scheme announced for the employees at the Bhandup plant. Around 188 employees opted for the VRS scheme during the quarter. Adjusted for the exceptional expense, net profit registered an 82% qoq growth to Rs.31cr. At Rs.109, the stock is trading at attractive valuations of 2.7x FY2014E earnings. We maintain our Buy rating on the stock with a target price of Rs.163.

3QFY2013 Result Preview

Sun Pharma (CMP: Rs.749/ TP: / Upside: )

For 3QFY201 3, Sun Pharma is likely to clock 11.1% yoy growth on the sales front, led by both - exports and domestic sales. Operating profit margins (OPM) would decline by 430bps with margins likely to be around 40.6%. This would be after factoring in a higher tax outgo and net de-growth of 12.6% yoy during the quarter. We recommend a neutral on the stock.

Mahindra and Mahindra (CMP: Rs.895/ TP: Rs.998/ Upside: 11%)

Mahindra and Mahindra (MM) will be announcing its 3QFY2013 results today. We expect the companyRs.s top-line to grow by a robust 32.1% yoy (12.8% qoq) to Rs.11,070cr backed by 17.5% yoy (4% qoq) growth in automotive volumes led by the new launches XUV5OO and Quanto. Total volumes, posted a healthy growth of 10.9% yoy (10.8% qoq) as tractor sales witnessed a decline of 1.6% yoy on account of weak domestic demand. On the operating front, EBITDA margin is expected to witness a decline of 10bp yoy to 12.1% largely due to lower share of tractors in the total volume-mix. Nonetheless, the bottom-line is expected to report a strong growth of 32.3% yoy (down 2.9% qoq) to Rs.876cr. At Rs.895, the stock is trading at 14.4x FY2014E earnings. Currently, we have an Accumulate rating on the stock with an SOTP based target price of Rs.998.

Hindalco (CMP: Rs.113/ TP:-/ Upside :-)

Hindalco is slated to report its 3QFY2013 results today. We expect standalone net sales to increase by 9.2% yoy to Rs.7,199cr. However, EBITDA margin is expected to contract by 412bp yoy to 6.7% on account of decrease in aluminium prices and rise in costs of key inputs. Net profit is expected to decrease by 10.4% yoy to Rs.404cr. We maintain our Neutral view on the stock.

Canara Bank- (CMP: Rs.460 / TP: Rs.516 / Upside: 12.1%)

Canara Bank is scheduled to announce its 3QFY2013 results today. We expect the bank to report a moderate growth of 4.5% yoy in its NII to Rs.2,004cr. Non-interest income for the bank is expected to grow by 6.0% to Rs.826cr. Operating expenses are expected to be higher by 15.9% yoy to Rs.1,299. Consequently, operating profit is expected to de-grow by 2.9% on a yoy basis at Rs.1,531cr. Provisioning expenses are also expected to be higher by 29.2% yoy, and would result in Net Profit decline of 21.9% on a yoy basis to Rs.684cr. At the CMP, the stock trades at valuations of 0.8x FY2014E ABV. We recommend an Accumulate rating on the stock with a target price of Rs.516.

Cadila Healthcare (CMP: Rs.816/ TP: Rs.922 / Upside : 13.5%)

For 3QFY2013, Cadila is expected to post yet another strong quarter with 15.3% growth in net sales to Rs.1,559cr on the back of robust growth on the exports front. On the OPM front, we expect the companyRs.s OPM to expand by 80bps yoy to 17.9% on the back of favourable product mix. Net profit is expected to increase by 21.7% yoy to Rs.181.6cr. We recommend a accumulate on the stock, with a target price of Rs.922.

Bharat Forge (CMP: Rs.226/ TP: Rs.278/ Upside: 23%)

Bharat Forge (BHFC) is slated to announce its 3QFY2013 results today. On a standalone basis, we expect the companyRs.s standalone volumes to decline sharply by ~17% yoy led by sharp deceleration in MHCV sales and slowdown in Europe. However, strong realization growth, due to increasing share of machining component and favorable forex movement, is expected to restrict the decline in net sales to ~7% yoy to Rs.871cr. We expect the bottom-line to decline by ~14% yoy to Rs.89cr as we expect operating margins to contract by ~210bp yoy on account of reduced operating leverage. At Rs.226, the stock is trading at 9.8x its FY2014E earnings. Currently, we have a Buy rating on the stock with a target price of Rs.278.

BGR Energy(CMP: Rs.237/TP: -/Upside: - %)

We expect BGR EnergyRs.s (BGR) top-line to grow by 12% yoy to Rs.900cr. However, the EBITDA margin is expected to contract by 244bp yoy to 13.9%. Interest cost is expected to remain high (owing to elevated interest rate scenario and enhanced working capital requirements), which is likely to drag the bottom-line slightly down by 1.0% yoy to Rs.54cr. We recommend Neutral on the stock.

NCC (CMP: Rs.42 / TP: - Upside: -)

We expect NCC ltd (NCC) to post a decent set of numbers for 3QFY2013. On the top-line front, NCC is expected to post a revenue of Rs.1,427cr, indicating a growth of 12.9% yoy. EBITDA margin is expected to witness an increase of 226bp yoy to 8.4% for the quarter. On the earnings front, we expect a profit of Rs.11cr against a loss of Rs.9cr in 3QFY2012. This would be primarily on account of pick up in execution pace during the quarter. We expect the interest cost to jump by 63.6% to Rs.116cr owing to an elongated working capital cycle. We maintain Netural view on the stock.

Economic and Political News

- Government plans to raise Rs.1 lakh cr via taxing cross-border deals

- 8% growth for India will take tough decision, time: IMF

- Power Minister to hold talks with FIs tomorrow

- India IncRs.s investment abroad jumps 179% in January

Corporate News

- SAIL, RINL contract coking coal cheaper by up to Rs.370/tone

- NTPC rating unaffected by lower Govt stake: S&P

- HDFC raises up to Rs.500cr via debentures

- Bharti Airtel to split its business into 8 divisions