Indian stock market and companies daily report (February 11, 2014, Tuesday)
February 11, 2014, Tuesday, 05:37 GMT | 00:37 EST | 10:07 IST | 12:37 SGT
Indian Markets are expected to open flat with a positive bias tracking flat opening trades in the SGX Nifty and positive opening in most of the Asian indices.
The US markets showed lack of direction for most of the trading session, before extending the upward move seen over last few sessions, to close in positive territory on Monday. The choppy trading seen for most of the trading day came as investors continued to digest Friday's monthly jobs report amid a lack of new U.S. economic data. Traders were also looking ahead to remarks from new Federal Reserve Chair Janet Yellen, who is scheduled to testify before the House Financial Services Committee on Tuesday in her first public comments since taking over as head of the central bank. Yellen's remarks are likely to be closely scrutinized for any indications regarding the outlook for the Fed's tapering of its asset purchase program. Meanwhile, the European markets ended Monday's trading session with mixed results; partly due to mixed economic data showing unexpected increase in Eurozone investor confidence, but weak industrial production data from France and Italy.
Despite firm global cues, Indian markets closed lower on Monday. Caution prevailed as investors awaited consumer inflation data on Wednesday and wholesale inflation data due out on Friday for cues on the RBI's likely policy stance in its next policy review meet on April 1.
The trend deciding level for the day is 20,360 / 6,061 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,408 - 20,483 / 6,076 - 6,098 levels. However, if NIFTY trades below 20,360 / 6,061 levels for the first half-an-hour of trade then it may correct 20,286 - 20,238 / 6,039 - 6,024 levels.
SC orders 'status quo' in United Spirits-Diageo deal
Supreme Court of India has directed that status quo be maintained in the United Spirits - Diageo deal and has set aside the Karnataka High Court order which annulled the sale by United Breweries Holdings (UB Holdings) of its 6.9% stake in USL to Diageo. The Karnataka High Court had in December 2013 given the verdict in response to a winding up petition filed by creditors against UB Holdings with respect to Rs.600cr of debt pertaining to Kingfisher Airlines. United Breweries group and Diageo had appealed to the Supreme Court against the Karnataka High Court order. The Supreme Court has issued notice to UBHL's creditors and has said it will take up the matter in detail in April. We believe the interim order is positive for Diageo and United Spirits. We continue to remain neutral on USL.
Hindalco's subsidiary Novelis reports 3QFY2014 results
Hindalco's subsidiary Novelis reported its 3QFY2014 results. The company's topline increased by 4.3% yoy to US$2,422mn on account of increase in sales volumes partially offset by lower aluminium prices and lower conversion premiums. The aluminium shipments in 3QFY2014 increased 1 1.0% yoy to 721kt. The EBITDA also increased 10.0% yoy at US$203mn and therefore the company reported a PAT increase of 433.0% yoy to US$13mn. We maintain our Neutral rating on Hindalco.
Tata Motors (CMP: Rs.364/ TP: Under review)
Tata Motors (TTMT) reported stellar results for 3QFY2014, significantly beating consensus as well as our expectations. While the consolidated top-line was 6% ahead of our estimates; bottom-line was ahead by 47% with EBITDA margins coming in 175bp above our expectations at 15.6%. The results were once again driven by an impressive Jaguar and Land Rover performance (JLR), which posted record EBITDA margins of 17.9%, higher than our expectations of 16%. The standalone operations deteriorated further posting an operating loss of Rs.459cr, against our expectations of a marginal profit of Rs.48cr, largely due to negative operating leverage following steep decline in volumes (down 36.1% yoy and 13.9% qoq) and increase in discounts and promotional spends. Standalone net profit, however, stood at Rs.1,290cr, as it was boosted by profit of Rs.1,945cr related to sale of investment in a subsidiary. Adjusted for the exceptional profit, the standalone entity reported a bottom-line loss of Rs.658cr, higher than our expectations of a loss of Rs.568cr.
The consolidated top-line registered a better-than-expected growth of 38.6% yoy (12.3% qoq) to Rs.63,877cr driven by a stellar revenue growth of 61.1% yoy (17.7% qoq) at JLR in INR terms. JLR performance continues to ride on a robust 22.7% and 14.1% yoy growth in volumes and net average realization respectively and aided further by the translation gains on account of the INR depreciation against the USD. While the volume performance was on the back of the new launches (Range Rover, Range Rover Sport, Jaguar F type, XF Sportbrake and smaller engine options of XF and XJ); net average realization growth was led by favorable product-mix (higher share of Range Rover and Range Rover Sport) and richer geography mix (higher share of China). Consolidated EBITDA margin continues to surprise positively and stood at 15.6% (up 330bp yoy and 39bp qoq), substantially ahead of our estimates of 13.8%. The operating performance was led by JLR which posted record EBITDA margins of 17.9% against expectations of 15.8% led by superior product and geography mix and operating leverage benefits. Led by a strong operating performance, consolidated operating profit surged 75.9% yoy (15.2% qoq) to Rs.9,948cr. Consequently adjusted net profit increased 173.7% yoy (29.2% qoq) to Rs.4,929cr. The tax rate during the quarter stood lower at 21.4% (as against 38.7% in 3QFY2013 and 25.1% in 2QFY2014) which also aided the bottom-line to certain extent. During the quarter, JLR net profit increased substantially by 109.2% yoy to GBP619mn.
Going ahead, we expect headwinds in the standalone business to continue in the near term due to weak macro-economic environment which is expected to continue impacting the domestic volumes. However, we expect JLR to sustain its strong performance driven by continued momentum in the global luxury vehicle market and aided further by the strong product launch pipeline and the success of the newly launched models. We retain our positive view on the stock and maintain our Buy rating; however, our target price is currently under review.
Jaiprakash Associates (CMP: Rs.39/ TP: - /Upside: -)
For 3QFY2014, Jaiprakash Associates posted a mixed set of numbers with subdued performance on the revenue front however earnings were lower than our estimate owing to lower-than-expected operating performance and high interest cost (up 41.1% yoy). On the top-line front, the company reported a revenue of Rs.3,164cr for 3QFY2014, registering a decline of 7.8% yoy which was lower than our estimate by 4.6%. The construction segment posted a growth of 14.4% yoy; however, the cement and real estate segment's revenue declined by 7.0% and 58.5% on a yoy basis respectively. The Blended EBITDA margin increase by 37bp yoy to 23.5% and was below our expectation of 26.1%. This was mainly due to lower margins in the cement (2.0%) segment. Interest cost stood at Rs.752cr a jump of 41.1%/14.9% on a yoy/qoq basis and was higher than our estimate of Rs.600cr. Depreciation cost came in at Rs.197cr in 3QFY2014, a jump of 8.6% on a yoy basis. On the bottom-line front, the company reported a loss of Rs.89cr as compared to a profit of Rs.111cr in 3QFY2013. This is mainly due to a lower-than-expected operating performance and high interest cost (up 41.1%). We continue to maintain Neutral rating on the stock.
NMDC (CMP: Rs.144 /TP: Under Review/ Upside: -)
NMDC's 3QFY2014 net sales was in-line with our estimate while its net profit was above our estimate. NMDC's net sales increased by 37.8% yoy to Rs.2,821 cr (in-line with our estimates of Rs.2,821 cr) mainly due to higher volumes. Its realizations were flat yoy at Rs.3,778/tonne, while sales volumes grew by 35.3% yoy to 7.4mn tonnes. EBITDA/tonne was flat yoy at Rs.2,572 while EBITDA increased by 36.8% yoy to Rs.1,903cr. The company reported an exceptional item related to contributions for illegal mining in Karnataka amounting to Rs.200cr and hence it's adjusted net profit increased by 36.6% yoy to Rs.1,767cr (above our estimate of Rs.1,636cr). Due to better than expected results we are likely to raise our estimates post the interactions with the management and hence we keep our rating and target price under review.
Indraprastha Gas (CMP: Rs.264 / TP: -/ Upside: -)
Indraprastha Gas reported mixed 3QFY2014 results. Its net sales grew by 19.8% yoy to Rs.1,041cr. However, due to higher cost of gas the company's EBITDA grew by a muted 3.9% yoy to Rs.195cr. The cost of gas sold also increased by 24.2% yoy to Rs.715cr due to greater mix of high cost imported RLNG. Depreciation expenses grew by 17.7% yoy to Rs.56cr while the tax rate grew to 33.4% in 3QFY2014, compared to 32.4% in 3QFY2013 which led to net profit growing by only 2.9% yoy to Rs.90cr.
The company has recently slashed prices of CNG in Delhi and Greater Noida by Rs.15/kg after the oil ministry's ordered to allocate domestic gas for the entire consumption requirement of CGD players and the company has slashed the prices to pass the benefits to the end users. We keep our rating and target price under review.
India Cement (CMP:Rs.53/TP:-/Upside:-)
For 3QFY2014, India CementsRs. results were above estimates on the operating front. The company's top-line fell by 4.2% yoy to Rs.1,037cr, on account of lower realizations. OPM fell by 388bp on a yoy basis to 14% on account of lower realizations. Although, the operating performance was weaker on a yoy basis, it was ahead of expectations due to lower than estimated power and fuel, freight and other expenses. During the quarter, the company's profitability was boosted by Rs.5cr of sales tax incentive pertaining to earlier years. The company posted a net profit of 0.4cr in 3QFY2014 (vs Rs.26cr in 3QFY2013). We maintain a neutral rating on the stock.
BGR Energy (CMP: Rs.106/ TP: Rs.120/ Upside: 13.2%)
BGR Energy (BGR)'s top-line and bottom-line performance were below our estimates. The company reported subdued 3.8% yoy growth in its top-line to Rs.836cr. The Construction and EPC contract segment grew by 5.7% yoy to Rs.789cr while Capital goods segment declined by 19.8% yoy to Rs.47cr. On the operating level, the company reported 158bp yoy contraction in EBITDA margin to 12.2%. Although, EBIT margins of Construction and EPC contract segment were flat yoy, sharp contraction in margins of capital goods segment led to contraction of blended margins. Consequently, profit declined by 19.5% yoy to Rs.34cr (compared to our estimate of Rs.40cr). We recommend Accumulate rating on the stock with a target price of Rs.120.
Ceat (CMP: Rs.314/ TP: Under review)
For 3QFY2014, Ceat reported lower-than-expected results on the bottom-line front due to sequential decline in EBITDA margins on account of the raw-material cost pressures. Top-line however, grew stronger than expected by 8.2% qoq to Rs.1,386cr, which surprised us positively, given that the demand environment remains challenging. The top-line growth was driven by a strong volume growth of 8.8% qoq (16% yoy) led by the new OEM partnerships like Royal Enfield, Volvo-Eicher and Bajaj Auto and also on account of strong exports performance. EBITDA margins declined 178bp qoq to 11.1%, lower than our expectations of 12.9%, largely due to raw-material cost pressures, primarily due to increase in carbon black and tyre fabric prices. While, waw-material cost as a percentage of sales surged sharply by 221bp qoq; employee and other expenditure broadly stood stable. As a result, operating profit declined 6.7% qoq to Rs.154cr. Led by lower-than-expected operating performance, sequential decline in other income and higher tax-rate, net profit declined 19.9% qoq to Rs.61 cr, lower than our expectations of Rs.70cr. On a yoy basis though, net profit witnessed a strong 98.9% yoy growth driven by 15.1% yoy growth in the top-line and 268bp yoy expansion in EBITDA margins. We retain our positive view on the company and believe that the company will continue to benefit from the new OEM partnerships and expected stability in raw-material prices. After a stellar stock price performance (returns of ~150%) over the last six months, the stock is currently trading at 3.6x FY2015E earnings. Our rating is currently under review.
Hitachi Home (CMP: Rs.151/ TP: - / Upside: -)
For 3QFY2014, Hitachi Home reported mixed set of numbers. Top line grew by 4.8% yoy to Rs.151cr, 9.6% lower than our estimate of Rs.167cr. On operational front, Hitachi reported a loss of Rs.3.6cr as compare to Rs.4.9cr in 3QFY2013. The improvement in operating performance was due to sharp decline of 543bp yoy in cost of raw material as a percentage of net sales which was partially offset by an increase of 170bp and 272bp on yoy basis in employee and other expenses, respectively. Hitachi reported a loss of Rs.7.4cr against the loss of Rs.6.4cr in 3QFY2014 due to 25.5% and 53.9% yoy increase in interest and depreciation cost, respectively. There was a forex gain of Rs.1.3cr and a 283% yoy increased in other income which has reduced the loss. We believe that the quarterly performance was affected mainly due to cyclical nature of business and with gradual recovery in macro-economic conditions, company's performance will improve. At current market price, the stock is trading at a PE of 7.9x FY2015E EPS. We have a Neutral rating on stock due to run up in prices.
TVS Srichakra (CMP: Rs.266/ TP: Rs.309/ Upside: 16.0%)
For 3QFY2014, TVS Srichakra (TVSSL) reported better than expected numbers. The top-line grew by 14.8% on yoy basis to Rs.416cr, in-line with our estimate of Rs.405cr. The operating margin expanded by 318bp on yoy basis and came in at 7.0%, on account of lower raw material cost and other expenses. It was 87bp higher than our estimate due to lower than expected other expenses. The other income for the quarter was negligible and the tax expense was Rs.2cr, only 15.1% of PBT. Consequently, the company reported a profit of Rs.11cr in the quarter against as loss of Rs.3cr in same quarter last year.
The company's association with Honda Motorcycle & scooter India Pvt. Ltd. (HMSI) and TVS Motors is a key driver for the company. We expect things to turnaround with the improvement in the 2W industry. We maintain our target price of Rs.309 and recommend Buy on the stock based on a target PE of 6.0x for FY2015E.
Dr Reddy's (CMP: Rs.2686 / TP: Rs.3008/ Upside: 11.9%)
Dr Reddy's is expected to post a top-line growth of 25.2% to Rs.3,588cr, in 3QFY2014E on the back of robust exports growth. 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 25.4%, as against 17.7% in the corresponding period of the previous year. The company is expected to post a net profit of Rs.770cr, a yoy growth of 102.8% over the last corresponding period. We maintain our accumulate on the stock with a price target of Rs.3008.
Tata Steel (CMP: Rs.383, TP: Rs.461, Upside: 20%)
Tata Steel is expected to report its consolidated 3QFY2014 results today. We expect the company to post a net sales growth of 12.9% yoy to Rs.36,257cr due to higher volumes. EBITDA margin is expected to improve by 310bp yoy to 10.1% due to higher contribution from high-margin Indian business. The net profit is also expected to come at Rs.826cr. We maintain our Buy rating on the stock with a target price of Rs.461.
MOIL (CMP: Rs.211/ TP: -/ Upside: -)
MOIL is slated to report its 3QFY2014 results today. We expect its 3QFY2014 net sales to increase by 10.2% yoy at Rs.251cr mainly on account of higher volumes and realizations. EBITDA margin is however expected to decline by 968bp yoy to 40.6% in 3QFY2014 due to higher costs. Therefore the net profit is expected to decrease by 5.9% yoy to Rs.107cr. We maintain our Neutral rating on the stock.
KEC International (CMP: Rs.52 /TP: Rs.62, Upside: 19% )
For 3QFY2014, KEC International (KEC) is expected to register a double digit topline growth of 14.1% yoy to Rs.2,050cr on the back of strong execution of its robust order book. On the EBITDA front, the company's margin is expected to expand by 64bp yoy to 6.4%. Consequently, we expect PAT to grow by 21.5% yoy to Rs.36cr in spite of elevated interest costs. We recommend Buy on the stock with a target price of Rs.62.
FAG Bearings (CMP: Rs.1,575/ TP: Rs.1,751/ Upside: 11%)
FAG Bearings is set to announce its 4QCY2013 results today. We expect the company's revenue to register a ~12% yoy (~3% qoq) growth to Rs.388cr partly due to the low-base of last year. On the operating front, we expect EBITDA margins to expand ~200bp yoy (~40bp qoq) to 13.9% As a result; net profit is expected to increase by ~14% yoy to Rs.34cr. At the CMP, the stock is trading at 12.6x CY2015E earnings. Currently, we have an Accumulate rating on the stock with a target price of Rs.1,751.
Economic and Political News
- PowerMin mulls Rs.6000cr subsidy to discoms for cheap power
- IT services industry to grow by 13-15% for FY15: Offshore Insights survey
- Goa to e-auction half a million tonnes of iron ore on Feb 17
- Reconsider export duty on iron ore pellets: Commerce ministry to FinMin
- Engineers India FPO extended due to bank strike to Feb 1 2
- SC orders 'status quo' in United Spirits-Diageo deal
- HCC gets 7725-crore order
- Jet to raise $300 mn through ECB