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Indian stock market and companies daily report (February 11, 2013, Monday)

Contributed by Angel Broking

The Indian market is expected to open flat, mirroring SGX Nifty which is trading flat to marginally lower in the opening trade. Major Asian markets - Hong Kong, China, Taiwan, Malaysia and Japan are closed today.

US markets ended higher on Friday partly due to a positive reaction to a commerce department report showing a much narrower than expected US trade deficit for the month of December, with the data potentially leading to an upward revision to the disappointing fourth quarter GDP data. The report showed that the US trade deficit fell almost 21% in December to US$38.5bn, marking the biggest drop in four years, from a revised US$48.6bn in November, while economists had expected the deficit to shrink to US$46.0bn. In another positive sign for the global economy, a separate report released by the Chinese National Bureau of Statistics showed that the Chinese trade surplus came in at US$29.2bn in January compared to the US$24.2bn surplus expected by economists.

The Indian markets fell for the seventh session in a row as growth concerns and weaker earnings overshadowed firm global cues.

Markets Today

The trend deciding level for the day is 19,516 / 5,914 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,617 - 19,749 / 5,944 - 5,984 levels. However, if NIFTY trades below 19,516 / 5,914 levels for the first half-an-hour of trade then it may correct up to 19,384 - 19,283 / 5,874 - 5,844 levels.

3QFY2013 Result Review

Sun Pharmaceuticals (CMP-Rs.744, Target:-/Upside :-)

Sun Pharmaceutical Industries (Sun Pharma) reported a much higher-than-expected 3QFY2013 performance. Its net sales reported a 33.0% yoy growth. The Adj. net profit grew by 31.9% yoy, driven by a higher-than-expected improvement in sales and a higher-than-expected expansion in the OPM, which in at 44.2% V/s expectation of 40.6%. However, on account of the stockRs.s rich valuation, we recommend a Neutral rating on the stock.

M&M (CMP: Rs.883/ TP: Rs.1,019/ Upside: 15%)

Mahindra and Mahindra (MM) reported slightly lower-than-expected bottom-line performance for 3QFY2013 primarily due to the contraction in EBITDA margins led by sequential decline in net average realization. The top-line registered a strong growth of 28.5% yoy (9.8% qoq) to Rs.10,774cr; however it was lower than our expectations of Rs.1 1,070cr largely due to the sequential decline in net average realization in the AS (1% qoq) and farm equipment segment (FES, 1.3% qoq). The top-line growth on a yoy basis was driven by a robust volume (17.5% yoy) and net average realization growth in the AS (22.5% yoy). Total volumes, however, posted a growth of 10.9% yoy (10.8% qoq) as tractor sales witnessed a decline of 1.6% yoy on account of weak domestic demand. The EBITDA margins contracted 96bp yoy (16bp qoq) to 11.2% owing to raw-material cost pressures, which as a percentage of sales increased 153bp yoy (97bp qoq) to 75.9%. As a result, bottom-line came in at Rs.836cr, a growth of 26.3% yoy; however it was down 7.3% qoq largely due to absence of dividend income from the subsidiaries. The bottom-line benefitted from the reduced tax rate on account of higher R&D spends.

We broadly retain our top-line and EBITDA margin estimates for FY2013/14. However our earnings estimates are revised slightly upwards to factor in the lower tax-rate going ahead as guided by the management. We expect AS to drive the total volume growth of the company led by the success of the new launches (XUV5OO, Quanto and Rexton) in the utility vehicle (UV) segment. We expect tractor volumes to recover in FY2014 and clock a growth rate of 8% after posting a decline of 4% in FY2013. At Rs.883, MM is trading at 13.7x FY2014E earnings. We retain our positive bias on MM and recommend a Buy rating on the stock with an SOTP based target price of Rs.1,019.

Meanwhile, MM has announced that it will acquire BAE Systems 26% stake in the joint venture, Defence Land Systems India (DLSI) for an undisclosed amount. MM already holds 74% stake in DLSI. The stake would be acquired through MMRs.s 100% subsidiary, Mahindra Defence Systems Ltd. The JV was incorporated in 2009 with the purpose of supplying artillery howitzers and anti-mine vehicles to the Indian armed forces. MM has so far invested Rs.50cr in the JV. The JV reported a loss of ~Rs.24cr in FY2012. We would await more clarity from the management on this front.

Hindalco (CMP: Rs.109/ TP: -/ Upside :-)

HindalcoRs.s reported lower than expected performance both on the top line and bottom-line front. HindalcoRs.s net sales grew 3.0% yoy to Rs.6,790cr (below our estimate of Rs.7,199cr) mainly on account of lower than expected volumes. In aluminium segment, both alumina and aluminium production fell by 5.0% yoy each to 326kt and 139kt respectively. The downstream sales stood at 59kt. Aluminium segment net sales declined by 0.9% yoy to Rs.2,215cr mainly due to lower production at the Belgaum refinery due to lack of bauxite availability. In copper segment, copper cathode production decreased by 4.3% yoy to 84kt whereas CCR production declined by 3.7% yoy to 37kt. However, the Copper segment net sales increased by 5.5% yoy to Rs.4,661cr.

On the operating front, aluminium segment EBIT decreased by 33.4% yoy to Rs.206cr due to decrease in realizations coupled with increase in fuel and power costs. Nevertheless, Copper segment EBIT however improved by 4.3% yoy to Rs.225cr. Overall, HindalcoRs.s EBITDA declined by 18.6% yoy to Rs.582cr and EBITDA margin slipped 228bp yoy to 8.6% during 3QFY2013. Interest expenses increased substantially by 113.0% yoy to Rs.169cr on the back of new bonds raised during 1HFY2013. Other income was also higher by 93.2% yoy to Rs.174cr. The company reported an exceptional item of Rs.144cr related to some write-backs. Consequently, adjusted net profit declined by 35.8% yoy to Rs.289cr (below our estimate of Rs.404cr).

The company aims to start the Mahan smelter by April 2013 while it is in the process of commissioning Utkal refinery by March 2014. At current aluminium prices, we anticipate Mahan smelter to make loss during FY14 as it will not be able to commence coal production from the Mahan coal block until atleast 18 months in our view. We maintain our Neutral rating on the stock.

Canara Bank- (CMP: Rs.446 / TP: Rs.516 / Upside: 16%)

Canara Bank reported subdued operating performance, as its pre-provisioning profit declined by 3.8% yoy, which was in-line with our expectations. Asset quality pressures continued for the bank during the quarter, as slippages remained elevated, which resulted in 24.9% yoy increase in provisioning expenses and hence the bank witnessed 18.9% yoy decline in its bottom-line.

NIMs decline 17bp sequentially; Asset quality pressures continue: During 3QFY2013, the bankRs.s advance book remained almost flat on a yoy basis, while deposits grew at a subdued pace of 2.7% yoy. Current deposits grew by 3.4% yoy, while the saving deposits grew by 8.4% yoy. Calculated CASA ratio for the bank improved by 24bp sequentially to 25.1%. Sequentially, the bankRs.s yield on advances came in 8bp lower to 11.1%, which resulted in 17bp sequential fall in reported NIMs. Non-interest income (excluding treasury) witnessed a decline of 4.4% yoy, on back of lower recoveries from written off accounts and de-growth in CEB income. During 3QFY2013, the bank witnessed continued asset quality pressures, as slippages, on an absolute basis, remained elevated at Rs.1,314cr, (though lower sequentially considering slippages of Rs.1,922cr in 2QFY2013 and Rs.1,497cr in 1QFY2013). However, recoveries/upgrades came in at Rs.217cr compared to Rs.662cr in 2QFY2013 and Rs.657cr in 1QFY2013. Hence, gross and net NPA levels for the bank increased sequentially by 8.6% and 12.4%, respectively. As of 3QFY2013, the gross NPA ratio stood at 2.8%, higher by 19bp sequentially, while the net NPA ratio stood at 2.4%, higher sequentially by 23bp from. PCR dipped sequentially by 202bp to 61.0%. Additionally, the bank restructured Rs.857cr worth of accounts during the quarter (of which around 50% came from 3 chunky accounts in the steel sector), which was higher than Rs.610cr restructured in 2QFY2013, thereby taking its outstanding restructured book to Rs.14,501cr.

Outlook and valuation: At the current market price, the stock trades at cyclically moderate valuation of 0.8x FY2014E ABV vs. eight-year average of 1. 1 x and range of 0.7-1.4x. We value the bank at 1.0x FY2014E ABV and retain a Buy rating on the stock with a target price of Rs.516.

Cadila Healthcare (CMP-Rs.791, Target:-, Upside :-)

Cadila Healthcare reported below expected numbers for 3QFY2013, except on the sales front. The companyRs.s sales for the quarter were just-in-line with estimates at Rs.1,561 cr.On the operating front, the gross and operating margins came below expectations. This along with, a higher tax expense during the quarter resulted in net profit coming in a tad lower than expectations. Overall, the Adj. net profit came in at Rs.103cr, a dip of 31.0%. Management expects the company to be US $3bn by 201 5.We recommend a Neutral.

Bharat Forge (CMP: Rs.219/ TP: -/ Upside: -)

Bharat Forge (BHFC) reported disappointing performance for 3QFY2013 led by severe weakness in the domestic as well as the export markets which resulted in a volume decline of 32.4% yoy (19.1% qoq). For 3QFY2013, standalone revenue posted a significant decline of 28.5% yoy (22.5% qoq) to Rs.673cr led by 22.1% (9.3% qoq) and 33.2% yoy (33.5% qoq) decline in domestic and export revenues respectively. BHFC witnessed significant decline in revenues across all the geographies with the key markets of India, US and Europe experiencing a decline of 24%, 24.2% and 42.4% respectively. The net average realization however, registered a growth of 6.1% yoy as it benefitted from the higher share of machining component. On the operating front, margins contracted 424bp yoy (124bp qoq) to 21.2% which was below our estimates of 23.3% primarily on account of lower utilization levels (~50% in domestic operations). The company also initiated production cuts in an attempt to reduce inventories and align production levels with the demand environment. Hence operating profit and net profit registered a sharp decline of 40.5% (26.8% qoq) and 53.9% yoy (48.5% qoq) respectively.

BHFC also posted a disappointing performance in its wholly owned overseas subsidiaries (wos) with top-line registering a decline of 2.2% yoy. BHFC posted a net loss of Rs.6cr at wos as against a profit of Rs.1cr in 3QFY2012. Even the subsidiary in China posted a net loss of Rs.12cr during the quarter. The subsidiaries performance continues to be impacted due to the lower utilization levels caused by downturn in the heavy truck market in China and decline in demand in Europe. At Rs.219, the stock is trading at 9.5x FY2014 earnings. The stock rating is currently under review.

Gujarat State Petronet (CMP: Rs.70 / TP: -/ Upside: -)

Gujarat State Petronet Ltd (GSPL) reported disappointing 3QFY2013 results. Total operating revenues decreased by 2.8% yoy to Rs.266cr mainly due to decline in transmission volumes, partially offset by higher tariffs. Transmission volumes for 3QFY2013 decreased by 16.0% yoy to 27.56mmscmd whereas transmission tariffs increased by 15.5% yoy to Rs.1/scm. EBIDTA also decreased by 4.9% yoy to Rs.239cr mainly due to higher operating expenses. Depreciation expenses rose by 3.8% yoy to Rs.48cr. Tax rate declined marginally to 33.0% in 3QFY201 3 compared to 33.9% in 3QFY2012. Hence, PAT decreased by 5.7% yoy to Rs.119cr. We maintain our Neutral view on the stock.

BGR (CMP: Rs.235/TP: -/Upside: -)

For 3QFY2013, BGR Energy's (BGR) top-line growth came in flat yoy at Rs.805cr. The 22% yoy decline in revenue from the Capital Goods segment at Rs.59cr (Rs.75cr in 3QFY2012) was offset by a 2.4% yoy growth in revenue from the Construction and EPC segment at Rs.746cr (Rs.729cr in 3QFY2012).

On the operating front, the EBITDA margin contracted by 259bp yoy to 13.7%, mainly on account of a 289bp yoy contraction in margin of the Construction and EPC segment. Interest cost grew by 9% yoy to Rs.50cr (owing to elevated interest rate scenario and enhanced working capital requirements). Consequently, the net profit declined by 24% yoy to Rs.41cr. We recommend Neutral on the stock due to the structural issues (slowdown of order inflow in BTG space and working capital deterioration due to high receivables) faced by the company.

NCC (CMP: Rs.41 / TP: Rs.44 - Upside: 7%)

For 3QFY2013, NCC posted poor performance on the revenue front; however higher other income due to asset sale and lower tax expense help boost the bottom line growth. On the top line front, NCC reported a decline of 6.3% yoy to Rs.1,184cr, which was significant lower than our estimate of Rs.1,427cr. On the EBITDAM front, the companyRs.s EBITDA margins stood at 7.2% (down 116bp sequentially), which were below our estimate of 8.4%. This was mainly on back of slower-than-expected execution during the quarter. Interest cost came in at Rs.99cr a decline of 7.6% on a yoy basis. On the bottom line level, NCC reported PAT of Rs.11cr (was in line with our estimate of Rs.11cr) against a loss of Rs.9cr in 3QFY2012 owing to higher other income and lower tax expense. The current outstanding order book of NCC stands at Rs.18,799cr, with order inflow of Rs.3200cr till date. Further, on account of the recent decline in the stock price, we recommend Accumulate rating on the stock with a target price of Rs.44.

Subros (CMP: Rs.28/ TP: Rs.35/ Upside: 26%)

Subros posted better-than-expected results for 3QFY2013 driven by a strong volume growth of 30.7% yoy (41.1% qoq) leading to a 28.6% yoy (17.1% qoq) growth in the top-line. The volumes during the quarter were boosted by the festival demand and also due to the low base of last year. The 3QFY2012 volumes were impacted due to the strike at one of its largest customer, Maruti Suzuki. The EBITDA margin jumped 346bp yoy to 10.3% primarily due to the operating leverage benefits. On a sequential basis too, it expanded by 77bp. Hence, operating profit grew by 94% yoy (26.6% qoq) to Rs.33cr. Led by strong operating performance, the net profit stood at Rs.6cr as against Rs.2cr in 3QFY2012 and Rs.3r in 2QFY2013. At Rs.28 the stock is trading at 5.5x FY2014E earnings. We maintain our Buy rating on the stock with a target price of Rs.35.

Cravatex (CMP: Rs.401/ TP: Rs.545/ Upside: 36%)

Cravatex reported poor set of numbers for 3QFY2013. Top-line plunged by 42.6% yoy to Rs.49cr on a consolidated basis on account of order lumpiness in the same quarter previous year. Net sales from International segment and domestic segment fell significantly by 68% (due to high base effect) and 39% yoy. The contribution from the domestic sales has increased from 83% in 3QFY2012 to 89% in 3QFY2013. On the operating front the EBITDA dip by 32.7% yoy to Rs.4cr. However the EBITDA margins expanded by 109bp yoy mainly on account of 52.2% lower raw material cost. On the segmental front, the EBIT margin for the domestic segment contracted by 20bp yoy while the international segment reported a margin of 5.7%, higher by 203bp yoy. The company reported a bottom-line of Rs.1.4cr, low by 52.3% yoy. We maintain our Buy recommendation on the stock with a target price of Rs.545 based on target PE of 12x for FY2014E earnings.

3QFY2013 Result Preview

ONGC (CMP: Rs.313/TP: -/ Upside: -)

ONGC is slated to announce its 3QFY2013 results today. We expect the companyRs.s top line to increase by 6.5% yoy to Rs.19,294cr. On the operating front, EBITDA margin is expected to contract by 946bp yoy to 51.5%. The bottom line is expected to increase by 34.6% yoy to Rs.4,843cr. We maintain Neutral view on the stock.

DRL (CMP-Rs.1855, Target:-, Upside :-)

DRL is expected to post a top-line de-growth of 2.5% to Rs.2,700cr, on the back of base impact. The company is expected to see strong traction in its Indian and Russian formulation businesses as well. The company is expected to post an OPM of 20.7%, down from 31.4%. On the net profit front, the company is expected to post a net profit of Rs.339cr, a de-growth of 33.9% over the last corresponding period. We recommend a neutral on the stock

Britannia Industries (CMP:Rs.465/TP:584:/Upside:26%)

Britannia Industries is slated to announce its 3QFY2013 results today. Topline is expected to grow by 18.6% yoy to Rs.1,480cr. OPM is expected to decline by 114bp yoy to 5.4%. Net Profit is expected to grow by 6.8% yoy to Rs.58cr. We maintain a Buy on the stock with a Target Price of 584.

Hexaware (CMP: Rs.82 / TP: Rs.118 / Upside: 44%)

Hexaware is slated to announce its 4QCY2012 results today. We expect the company to post revenue decline of 1.3% qoq to US$91.6mn, majorly because of a change in project scope and deliverables from a large client which is amongst companyRs.s top-10 clients. In rupee terms, revenues are expected to come in at Rs.495cr, down 2.4% qoq. EBITDA margin is expected to decline by 520bp qoq to 16.4%. PAT is expected to come in at Rs.60cr. We maintain our Buy rating on the stock with a target price of ?118.

Sadbhav Engineering (CMP: Rs.122 / TP: Rs.168 / Upside: 38%)

We expect a subdued performance from Sadbhav Engineering (SEL) for 3QFY2013. On the top-line front, SEL is expected to report a muted revenue growth of 4% yoy to Rs.753cr. EBITDA margin is expected to witness a dip of 10bp yoy to 10.3%. On the earnings front, the company is expected to post a dip of 9.8% yoy to Rs.38cr. We maintain a Buy on the stock with a target price of ?168.

Economic and Political News

- Irda uncomfortable with investment flow into insurance from tax havens

- India developing Agni-VI ballistic missile

- Energy prices need to gradually align with intl mkt: Chaturvedi

- Foodgrain output over 250mn tonne despite drought: Pawar

Corporate News

- HCC-Samsung wins Rs.866cr Delhi Metro contract

- Starbucks, Tata Coffee open roasting plant in Karnataka

- Indo-German JV company Schott Kaisha launches new plant

- Telcos continue removing inactive SIMs, 26mn users lost in Dec