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Reports India

Indian stock market and companies daily report (February 14, 2014, Friday)

February 14, 2014, Friday, 05:26 GMT | 01:26 EST | 10:56 IST | 13:26 SGT
Contributed by Angel Broking

Indian Markets are expected to open in green tracking positive opening trades in SGX Nifty and most of the Asian indices.

After coming under pressure at the start of trading on Thursday, US market staged a substantial turnaround over the course of the trading session. The initial weakness on Wall Street was partly in reaction to a report from the Commerce Department showing an unexpected drop in retail sales in January. While the report showed weaker than expected January sales as well as downward revisions to the data for November and December, most economists cited the impact of poor winter weather. A separate report from the Labor Department showed that initial jobless claims unexpectedly saw a modest increase in the week ended February 8th. However, as traders shrugged off these disappointing economic reports as weather-related, US markets rebounded. Meanwhile, the European markets ended Thursday's session with mixed results, following 6 consecutive sessions of gains. A number of weaker than expected corporate financial reports negatively impacted investor sentiment.

The Indian markets fell sharply on Thursday as investors digested mixed earnings reports and conflicting data on industrial output and retail inflation.

Markets Today

The trend deciding level for the day is 20,287 / 6,029 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,410 - 20,626 / 6,067 - 6,132 levels. However, if NIFTY trades below 20,287 / 6,029 levels for the first half-an-hour of trade then it may correct 20,071 - 19,948 / 5,963 - 5,926 levels.

2G spectrum auction nets Rs.61,162cr

After 10 days of intense bidding, eight telecom companies, including Bharti Airtel, Vodafone India and Idea Cellular, on Thursday, bought spectrum worth a total of Rs.61,162cr against the government's estimate of Rs.47,933cr. The companies are required to pay 33% of 1800MHz spectrum and 25% of 900MHz spectrum price upfront and rest can be paid in ten installments along with an interest component after two years moratorium period. The Finance Ministry will now get revenues to the tune of Rs.18,296cr this fiscal from the auction against the initial projection of Rs.11,340cr.

The value of the premium 900MHz band spectrum, available only in three metro circles of Delhi, Mumbai and Kolkata, stood at Rs.23,590cr (85% higher than the value of the reserve price at Rs.12,574cr). Here, Bharti Airtel and Vodafone India, whose licenses are expiring this year, managed to get the desired quantity of radio waves to ensure uninterrupted services to their customers. This was higher than expectations; companies went for aggressive bidding as the quantum available was not large and the incumbent operators were forced to bid as their spectrum was being refarmed.

In the 1800 MHz band, radio waves available in all 22 telecom circles, the net value was put at Rs.37,574cr. All of 46 MHz spectrum in the 900MHz band was sold, but 78 blocks of the 385MHz spectrum in the 1800MHz band remained unsold. The top three incumbent operators - Bharti Airtel, Vodafone and Idea Cellular have shown considerable aggression in the auctions. Bharti Airtel and Vodafone have been able to retain at least 5MHz of spectrum in the 900MHz band in Delhi, Mumbai and Kolkata. Vodafone appeared to be the most aggressive and won 11MHz of this prized spectrum in Mumbai while Idea too has won 5MHz in Delhi. In order to make up for the shortfall, if any, in the 900MHz band, Bharti Airtel and Vodafone have topped it up with 1800MHz spectrum in these three metro circles. Bharti Airtel's strategy seems to be acquiring spectrum in current and future auctions, thus reducing future risk of renewal. Reliance Jio did not win any spectrum in the 900MHz band, it won 1800MHz band spectrum in 14 of the 22 circles - largely concentrated in the Metros and Category-A circles.

Bharti Airtel and Idea Cellular are required to shell out Rs.5,425cr and Rs.3,240cr respectively in FY2014 for which they will have to raise funds. Majority of spectrum won by incumbent players in recent auctions is to protect their current revenues as against grabbing new revenues. We believe increased financial pressure on these companies would lead to increase in vice base rates for telecom industry. Currently, we maintain our Neutral view on the telecom sector.

Result Review

ONGC (CMP: Rs.273/ TP: Under Review/ Upside :-)

ONGC's 3QFY2014 net profit was above our expectations while the top-line was below our estimates. Its net sales decreased 1.2% yoy to Rs.20,745cr (below our estimate of Rs.21,643cr) mainly due to lower gas sales volumes (down 2.4% to 4.9mmscm) which was partially offset by higher net realizations in INR terms (+9.9% to Rs.2,852/bbl) due to INR depreciation in the quarter. The company shared a subsidy burden of Rs.13,764cr in 3QFY2014, compared to Rs.12,330cr in 2QFY2014 and and Rs.13,796cr in 3QFY2013. Its EBITDA however increased by 8.6% yoy to Rs.12,318cr due to lower other expenses (down 22.2% to Rs.191cr). The other income increased 107.8% yoy to Rs.2,662cr and hence, its net profit grew by 28.1% yoy to Rs.7,126cr (significantly above our estimate of Rs.5,558cr). The company reported four new discoveries in this quarter in KG basin and western offshore and onshore.

Media reports suggests that the Supreme court has overruled the Gujarat High court's decision directing ONGC to retrospectively pay the arrears of royalty to the state of Gujarat amounting to ~Rs.10,000cr, however the Supreme court has now ordered to company to pay royalty at pre-discounted rate from February 2014 and no retrospective payment needs to be made. We await further clarity from the management on the exact quantum of outgo due to this move and hence we keep our rating and target price under review.

Sun Pharmaceuticals (CMP: Rs.611 / TP: / Upside: -)

Sun Pharmaceuticals for 3QFY2014, posted results much ahead of expectations. The sales came in at Rs.4287cr V/s Rs.3700cr expected, posting a yoy growth of 50.3%. The growth was primarily lead by the led by exports, which rose by 61% yoy, while domestic formulations grew by robust 20.0%. The key region, that drove, the exports growth was US , which posted growth of 79.2% yoy and a growth of 57% yoy in US $ terms. On the profitability front, the Gross margins expanded by 136bps to end the period at 81.7%, which aided the OPM's to come in at 46.1% V/s 44.2% in 3QFY2013, higher than the 42.1% expected. Also, a higher other income during the period aided the net profit come in at Rs.1531cr V/s expected Rs.1054cr, a yoy growth of 73.7%. We remain neutral on the stock.

United Spirits (CMP: Rs.2,364/TP:-/Upside:-)

For 3QFY2014, United Spirits posted a 5% yoy de-growth in its stand-alone net sales to Rs.2,278cr, which was below estimates. Volumes fell by 3.7% yoy to 31.5 million cases. However, the volumes of the prestige and above segments grew by 12%, with a value growth of 15%. The share of these brands in the overall sales volume stood at 28% for the quarter. OPM fell by 289bp yoy to 8.4% due to higher raw material csots. The company also indicated that the prices of Extra Neutral Alcohol (ENA) have gone up by ~Rs.16/case on a yoy basis during 3QFY2014 due to an increase in demand from Oil Marketing Companies. Bottom-line fell by 19.4% yoy to Rs.65cr due to steep fall in OPM. The company has indicated it plans to sell the Whyte and Mckay business in whole or a portion of it in 1QFY2015, to address the completion concerns raised by the UK's office of fair trade. We maintain a neutral rating on the stock.

Hindalco (CMP: Rs.100/ TP: -/ Upside :-)

Hindalco's standalone 3QFY2014 top-line and bottom-line were above our expectations due to better-than-expected performance from Copper segment. Its net sales increased 6.1% yoy to Rs.7,201 (above our estimate of Rs.6,775cr). Its aluminium production increased by 13.7% yoy to 158kt (including Mahan smelter production of 18kt) during the quarter. EBITDA increased 8.7% yoy to Rs.630cr due to increase in profit from Copper segment. Copper segment EBIT grew by 33.2% yoy to Rs.300cr and was ahead of our estimate. Other income increased by 1 7.4% yoy to Rs.204cr. Excluding exceptional item of Rs.144cr in 3QFY2013, its 3QFY2014 net profit increased by 15.4% yoy to Rs.334cr (above our estimate of Rs.224cr). The company's Aditya smelter (359kt) has commenced production during January 2014. Media reports suggest that Hindalco secured "Stage II" forest clearance from India's ministry of environment and forests (MoEF) for its Mahan coal block. This is structurally positive news for Hindalco as it will make its Mahan smelter cost-competitive once it commences production from this block. The next important stages would be signing of mining lease with the state government followed by mine development which could take two years. Hence, we are likely to have a positive stance on the stock but we keep our rating and target price under review.

Cera Sanitaryware Ltd (CMP: Rs.758, TP: Rs.846, Upside: 11.6%)

Cera Sanitaryware Ltd. (CSL) reported poor set of numbers for 3QFY2014. Top line surged by 25.1% yoy to Rs.160cr, 8.5% lower than our expectation of Rs.175cr. However, EBITDA grew marginally by 0.6% yoy to Rs.21cr lower than our estimate of Rs.25cr. Moreover, EBITDA margin dip by 313 basis point yoy and came in at 12.9%. The dip in margin is attributable mainly to rise in raw material cost by 173bp as percentage of sales from 42.3% in the same quarter previous year to 44.0%. Subsequently, net profit dip by 9.9% yoy to Rs.11cr against our estimate of Rs.14cr, while net profit margin came in at 6.7% from 9.3% in 3QFY2013. Due to recent run up in the stock, we recommend Accumulate rating on the stock with a revised target price of Rs.846, based on a target P/E of 13x for FY2016E.

Result preview

State Bank of India (CMP: Rs.1,500 / TP: Rs.1,861 / Upside: 24.1%)

State Bank of India is scheduled to announce its 3QFY2014 results today. We expect the bank to report NII growth of 13.7% yoy to Rs.12,687cr. Non-interest income is expected to de-grow by 5.9% to Rs.3,432cr. In line with last few quarters trend, operating expenses are expected to grow by 32.8% yoy to Rs.9,312cr. Bank is expected to report operating profit de-growth of 12.6% yoy at Rs.6,808cr. Provisioning expenses is expected to increase by 13.8% yoy at Rs.3,036cr, leading to a PAT de-growth of 20.0% yoy at Rs.2,716cr. At CMP, the stock trades at valuations of 1.0x FY2015E ABV. We maintain our Neutral recommendation on the stock.

Mahindra and Mahindra (CMP: Rs.907/ TP: Rs.1,050/ Upside: 16%)

Mahindra and Mahindra (MM) will be announcing its 3QFY2014 results today. We expect the company's top-line to register a decline of ~3% yoy to Rs.10,415cr largely due to a ~2% yoy decline in volumes. We expect the tractor segment to register a robust revenue growth of ~24% yoy following a ~21% yoy growth in volumes led by the domestic demand. The automotive segment revenues are however expected to decline sharply by ~16% yoy following a ~12% yoy decline in volumes. The volume growth during the quarter was impacted due to the severe decline in the passenger vehicle volumes amid higher competition in the utility vehicle segment. EBITDA margins nonetheless, are expected to improve ~200bp yoy to 13.2% driven by superior product-mix (higher share of tractors), price increases and cost control measures. As a result, bottom-line is expected to increase by ~8% yoy to Rs.902cr. At the CMP, the stock is trading at 1 3.9x FY2015E earnings and adjusted for the valuations of subsidiaries and investments, the stock is trading at 9x FY2015E earnings. Currently, we have a Buy rating on the stock with an SOTP target price of Rs.1,050.

Nestle India (CMP: Rs.5,105/TP:-/Upside:-)

Nestle India is set to announce its 4QCY2013 results today. Top-line is expected to grow by 10.6% yoy to Rs.2,380cr. OPM is expected to decline by 127bp yoy to 21.8%. Net Profit is expected to increase by 10% yoy to Rs.307cr. We maintain a neutral rating on the stock.

SAIL (CMP: Rs.60/ TP: Rs.51/ Downside: 15%)

SAIL is expected to announce its 3QFY2014 results today. We expect the company's top line to increase by 10.2% yoy to Rs.11,566cr due to increase in volumes. We expect EBITDA margin to however contract by 235bp yoy to 8.5% due to lower prices and higher costs. The bottom line is expected to decrease by 26.0% yoy to Rs.379cr. We maintain our Sell rating on the stock with a target price of Rs.51.

Britannia (CMP: Rs.899/TP: Rs.945/Upside: 5.1%)

Britannia Industries is expected to declare its 3QFY2014 results today. We expect the top-line to grow by 15.8% yoy to Rs.1,682cr. OPM is expected to increase by 332bp yoy to 8.7%. Bottom-line is expected to increase by 82.2% yoy to Rs.104cr. We recommend an accumulate on the stock with a target price of 7945

Sadbhav Engineering (CMP: Rs.85 / TP: Rs.99 / Upside: 16%)

On the back of pick up in execution and a low base of 3QFY2013, we expect Sadbhav Engineering (SEL) to post a strong performance for the quarter. The company is expected to post a revenue of Rs.641cr, a growth of 81.3% yoy. The EBITDA margin is expected to witness a jump of 64bp yoy to 1 0.0%, mainly due to pick-up in execution. On the earnings front, the company is expected to post a growth of 419.7% yoy to Rs.19cr mainly led by revenue growth and lower base of last year. We maintain a Buy on the stock with a Target Price of T99.

Dishman Pharmaceuticals (CMP:Rs.86 / TP:Rs.140 / Upside: -62.7%)

Dishman Pharmaceuticals for 3QFY2014, is likely to post sales of Rs.370cr, a yoy of 16.5%. on the Operating front, the OPM's are likely to come in at 19.1%, an expansion of 130bps, which is expected to aid a 21.3% yoy growth to end the period at Rs.20cr. We recommend a buy with a price target of Rs.140.

Simplex Infrastructures (CMP: Rs.64 / TP: - / Upside:-)

Simplex Infrastructures (Simplex Infra) is expected to post a decent performance on the revenue front as we expect its top-line to come in at Rs.1,497cr, registering a growth of 10.7% yoy for 3QFY2014. We expect the EBITDA margin to increase by 40bp to 10.0%. The bottom-line is expected to post a growth of 45.9% yoy to Rs.18cr for the quarter. This is mainly on account of higher-than-expected operating performance and low base of 3QFY2013. We maintain a Neutral on the stock.

Economic and Political News

- TCS will beat Nasscom's growth guidance: N Chandrasekaran

- USL plans to raise $800 mn from Whyte & Mackay sale

- No need for CIL restructuring now: Coal Minister

Corporate News

- Budget target for fiscal deficit unlikely to be met: UN report

- New aviation regulator gets nod from Cabinet

- Spectrum sale makes govt richer by Rs.61,000cr