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Indian stock market and companies daily report (February 15, 2013, Friday)

Contributed by Angel Broking

The Indian market is expected to open flat to positive, mirroring SGX Nifty which is trading marginally higher in the opening trades. Other Asian markets had a mixed opening today with markets remaining alert for G-7/G-20 meeting.

The US markets ended mostly higher after a lackluster performance through the day. Reports showing contractions in fourth quarter GDP in Germany, France, and Japan led to renewed concerns about the global economy. German GDP fell by 0.6% in the fourth quarter, while French GDP dropped by 0.3; both decreases were slightly steeper than expected. A separate report showed that Japanese GDP edged down by 0.1% in the fourth quarter compared to economistsRs. estimates of a 0.1% growth. However, an upbeat jobs report from the US helped to offset the negative sentiment, with the Labor Department report showing that initial jobless claims fell to 341,000, a decrease of 27,000 from the previous weekRs.s revised figure of 368,000.

Meanwhile Indian markets fell in yesterdayRs.s trading session as concerns over high current account deficit and caution ahead of the upcoming Union Budget overshadowed data showing continued moderation in inflation (6.62%).

Markets Today

The trend deciding level for the day is 19,527 / 5,907 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,610 - 19,723 / 5,930 - 5,963 levels. However, if NIFTY trades below 19,527 / 5,907 levels for the first half-an-hour of trade then it may correct up to 19,414 - 19,332 / 5,874 - 5,852 levels.

WPI inflation at a three-year low

Wholesale Price Index (WPI) inflation for January 2013 positively moderated for the fourth straight month and slipped below 7.0% for the first time since December 2009, marking a three-year low. Headline WPI inflation stood at 6.6% yoy in January 2013 as compared to 7.2% yoy in the previous month as well as in January 2012. On a 3MMA basis, headline WPI inflation eased to 7.0% yoy as compared to 7.3% yoy in November 2012. Core inflation receded for the fifth straight month to 4.1% yoy as compared to 4.2% yoy in the previous month and 7.0% yoy in the corresponding period of the previous year.

Although inflation in primary articles moderated slightly to 10.3% yoy from 10.6% in the previous month, it still remains elevated at double digits. Amongst this category, inflation in food articles inched slightly higher to 11.9% yoy as compared to 11.2% yoy in December 2012 and a 0.7% yoy contraction in January 2012. This can be mainly attributed to the 16.7% yoy rise in fruits and vegetables inflation owing to a low base (it declined by 0.3% mom) as compared to 13.2% in the previous month and a decline of 22.2% in January 2012.

Fuel and power inflation moderated for the fourth straight month to 7.1% yoy as compared to almost double-digit growth since the past three years, mainly owing to inflation in coal remaining flat and a slight deceleration in mineral oil such as ATF, naptha, furnace oil, etc. On a 3MMA basis, the momentum of inflation in fuel and power weakened as it reported an 8.8% yoy rise.

Inflation in manufactured products eased for the fourth straight month to 4.8% yoy as compared to 5.0% in the previous month and 6.7% in January 2012. Core inflation, the non-food manufacturing component of inflation, slipped for the fifth consecutive month to 4.1% yoy as against 4.2% yoy in the previous month and 7.0% yoy in January 2012. At the same time, inflation in manufactured food products eased to 8.2% yoy as compared to 9.0% yoy in the previous month.

We believe that in light of the weakness in industrial production and CSORs.s modest projections for FY2013 of 5.0% real GDP growth and 1.9% manufacturing sector growth and the positive inflationary trend, the RBIRs.s monetary policy stance is likely to be more growth-supportive going forward.

However, we believe that the RBI is unlikely to adopt aggressive policy easing since risk factors continue to persist owing to 1) food inflation at double-digits keeping CPI inflation elevated, 2) the release of suppressed inflation in the economy, through hike in diesel prices, railway fares etc (though fiscally prudent), is likely to be inflationary in the near-term, 3) expectations of current account deficit (CAD) at a record-high level of almost 5.0% of GDP for FY2013. We believe a high CAD would be a key factor limiting headroom for the RBI to cut rates since it could stoke demand for imports further and also lead to higher imported inflation. At the same time, attracting capital flows is imperative to finance the current account deficit and lower interest rates could discourage capital flows, particularly debt inflows to finance the CAD.

In our view, the RBIRs.s policy stance is also likely to be influenced by the headline fiscal deficit number for FY2013 in the forthcoming budget and the deficit target for FY2014 along with the roadmap to narrow the fiscal deficit. We expect a 25bp rate cut in the March or April policy, maintaining our view of a 50-bp rate cut for the rest of CY2013.

MM to increase its stake in SYMC by ~3% to 73%

Mahindra and Mahindra (MM) has announced that it will increase its stake in Ssangyong Motor (SYMC) by subscribing to new shares being issued by SYMC. The SYMC board has approved to increase the paid in capital of the company by KRW80bn by issuing 14.5mn new shares to MM at a price of KRW5,500/ share, which is at a discount of ~13% to SYMCRs.s closing price on February 14, 2013. With the subscription to the additional shares, MMRs.s stake in SYMC which currently stands ~70% will be increased by ~3% to ~73%. We see the capital infusion as a positive development for SYMC as it will strengthen the companyRs.s financial position and more importantly it will enable the company to invest in its product development plans for the future. As far as MM is concerned, the fresh capital infusion into SYMC reinforces its strong commitment towards SYMC and its resolve for an early turnaround. We maintain our Accumulate rating on MM with a SOTP based target price of Rs.1,019.

3QFY2013 Result Review

SBI (CMP: Rs.2,216/ TP: Under Review)

State Bank of India reported subdued operating performance for 3QFY2013, as its net interest income (NII) and operating profit declined by 2.7% and 4.2% yoy, respectively. The bank has been aggressive in cutting its lending rates, so the decline in NII, was in-line with our expectations. The bank witnessed continued pressures on the asset quality front, as elevated slippages and sequentially lower recoveries/upgrades resulted in 8.6% sequential increase in gross NPA levels, with net slippages being about Rs.800cr higher than our estimates. As a result, in spite of slightly higher provisioning expenses than estimated by us, provisioning coverage ratio declined by about 130bp sequentially. At the current market price, the stock is trading at 1.4x FY2014E ABV (adjusting for value of subsidiaries 1.3x FY2014E ABV) vis-a-vis its historic range of 1.3-2.3x and median of 1.6x. We recommend an Accumulate rating on the stock, however, the target price is under review.

Tata Motors (CMP: Rs.297/ TP: -/ Upside: -)

For 3QFY2013, Tata Motors (TTMT) bottom-line performance was significantly lower-than-expected led by higher depreciation expense (up 29.8% qoq), forex loss of Rs.174cr and higher tax rate (at 38.7% as against 32% in 2QFY2013). The top-line performance too was lower-than-expected due to unfavorable product-mix at Jaguar and Land Rover (JLR) and standalone operations which resulted in a sequential decline in net average realization. The standalone operations posted a loss (adjusted) of Rs.450cr, against our expectations of a loss of Rs.25cr, primarily on account of dismal operating performance (EBITDA margins deteriorated to 1.4% on higher discounts and marketing spends in the passenger vehicle and medium and heavy commercial vehicle business and lower utilization levels).

The consolidated top-line registered a modest sequential growth of 6.2% to Rs.46,090cr, which was below our estimates of Rs.49,094cr on account of lower-than-expected top-line in the JLR and standalone operations. The JLR top-line (up 15.7% qoq) was impacted mainly due to 5.5% qoq decline in net average realization led by unfavorable product-mix (higher share of Evoque and Freelander). The standalone top-line (down 14.8% qoq) too was below our estimates on account of inferior product-mix (higher share of light commercial vehicles) and higher discounts leading to a 7.9% qoq decline in net average realization.

On a sequential basis, consolidated EBITDA margins stood flat at 12.3% (lower than our estimates of 12.8%) which led to a 6.1% growth in operating profit to Rs.5,657cr. The EBITDA margins at JLR declined 80bp sequentially led by inferior product-mix and higher marketing costs related to the launch of the new Range Rover. On the standalone front, EBITDA margins contracted sharply by 387bp qoq to 1.4% due to adverse volume-mix, lower utilization levels and higher discounts and marketing spends in the passenger vehicle and medium and heavy commercial vehicle business. However, adjusted net profit declined 13.6% qoq (49.5% yoy) to Rs.1,801 cr, lower than our expectations of Rs.2,865cr, on account of higher depreciation expense (up 29.8% qoq), forex loss of Rs.174cr and higher tax rate (at 38.7% as against 32% in 2QFY2013). We are still in the process of revising our numbers and therefore the rating is under review.

GAIL (CMP: Rs.334/ TP: -/ Upside: -)

GAILRs.s 3QFY2013 result was above our expectations. The companyRs.s top line grew by 10.8% yoy to Rs.12,474cr (above our estimate of Rs.11,986cr) mainly due to higher than expected performance from Petrochemicals and Natural gas trading segment which grew by 26.1% and 10.6% yoy to Rs.1107cr and Rs.10118cr respectively. The companyRs.s fuel subsidy burden stood at Rs.700cr in 3QFY2013, compared to Rs.536cr in 3QFY2012 and Rs.786cr in 2QFY2013. The petrochemical and LPG segment EBIT grew by 13.4% and 93.8% yoy to Rs.439cr and Rs.592cr, respectively. However, natural gas trading and LPG transmission EBIT decreased 7.5% and 82.9% yoy to Rs.299cr and Rs.13cr, respectively. However GAILRs.s EBITDA improved by 16.4% yoy to Rs.2,049cr in 3QFY2013 and EBITDA margin improved by 79bp yoy to 16.4% and therefore the companyRs.s net profit increased by 17.6% yoy to Rs.1,284cr (above our estimate of Rs.1,147cr). We maintain our Neutral view on the stock.

DLF (CMP: Rs.254/ TP:-/ Upside :-)

For 3QFY2013, DLF reported disappointing set of numbers both on revenue and profitability front. On the top-line front, DLFRs.s revenue decline by 35.8% yoy to Rs.1,310cr in 3QFY2013; which was below consensus estimate of Rs.2,040cr. EBIDTAM came in at 6.6% in 3QFY2013 which was significantly below street estimate of 36.6%. However, owing to surge in other income mainly due to asset sale company reported a PAT of Rs.285cr for the quarter, indicating a growth of 20.2% yoy. We will come out with a detailed note a conference call with the management. We maintain Neutral rating on the stock.

DRL (CMP: Rs.1,906/ Target: -/ Upside :-)

DRL came out with results higher than expectations. The company, is expected to post a 23% yoy growth (adjusted for the base effect) to end the period at Rs.2,870cr, while the net profit came in Rs364cr, which dipped 39.1% yoy. The sales growth (adjusted) came in back of global generics of 24% yoy, primarily driven by North America and Emerging markets. Both the net sales and profit came in higher than expectations. The OPM came in lower than expected at 19.9% (V/s 20.7% expected). We maintain our Neutral view on the stock.

LIC Housing - (CMP: Rs.252/ TP: -/ Upside :-)

LIC Housing Finance reported disappointing set of numbers for 3QFY2013, as growth in its net interest income, came below expectations at 11.3% yoy. Operating profit growth came in moderate at 8.0% yoy. Provisioning expenses for the bank jumped up to Rs.32cr during the quarter, which was much higher than ours as well as consensus estimates and hence earnings declined by 22.7% yoy. At CMP, it trades at valuations of 1.8x FY 2014E ABV. We await clarity from the management about the quarterly performance and the future outlook and till then keep our rating and target price is under review.

Page Industries (CMP - Rs.3,365/ TP: -/ Upside: -)

For 3QFY201 3, Page Industries reported mixed set of numbers. The companyRs.s top line grew by 25.6% yoy to Rs.216cr from Rs.172cr in same quarter last year, marginally above our estimate of Rs.207cr for the quarter. On the other hand, the EBITDA margin for the quarter contracted marginally by 1 7bp and came in at 17.0%, against our estimate of 20.8%. On qoq basis the operating margin dipped substantially by 302bp on account of higher employee cost (on account of the capacity expansion plans) and other expense (mainly the selling and advertisement expense) as a per cent of net sales. Consequently, the company reported a profit of Rs.25cr, 27.6% higher yoy from Rs.20cr in 3QFY2012, against our estimate of Rs.31cr.

The company is on expansion mode and expects the capacity to increase to 154mn pieces p.a. by December, 2013 from current capacity of 128mn pieces p.a. At the CMP of Rs.3,365, the stock is trading at a PE of 25.9x FY2014E earning. We recommend Neutral view on the stock due to the high valuation.

HDIL (CMP: Rs.68/ TP: -/ Upside: -)

For 3QFY2013, Housing Development & Infrastructure ltd (HDIL) reported mixed set of numbers with revenue coming in above street expectations but owing to lower-than-expected EBITDAM, earnings were below consensus estimates. On the top-line front, HDIL reported revenue of Rs.423cr in 3QFY2013 indicating a decline of 0.6% yoy but was ahead of street estimate of Rs.325cr. EBITDAM improved by 11 11 bp yoy to 49.1% for the quarter, and was below consensus estimate of 74.1%. Interest cost came at Rs.23cr, indicating a growth of 21% yoy. The companyRs.s PAT declined by 31.1% yoy to Rs.107cr (against consensus estimate of Rs.154cr) in 3QFY2013. Currently, the target price and rating is under review. We shall revise our estimates post earnings conference call with the management which is scheduled on 15th February 2013 at 4pm.

India Cements (CMP: Rs.80/ TP: -/ Upside: -)

India Cements posted a 15.0% yoy growth in top-line to Rs.1,082cr, which was higher than our estimates. The top-line growth was aided by a 10% increase in sales volume during the quarter. The companyRs.s OPM fell by 238bp yoy to 17.9% on account of steep increase in freight costs. The companyRs.s freight costs/tonne rose by 25.6% yoy to Rs.982. Net Plant Realization stood at Rs.3,359/tonne (vs. Rs.3,461/tonne in 3QFY2012). Finance costs went up by 1 2.3% yoy to Rs.82cr. Thus, Bottomline fell by 53.6% yoy to Rs.26cr. We maintain our Neutral rating on the stock.

FAG Bearings (CMP: Rs.1,396/ TP: Under Review/ Upside: -)

FAG Bearings (FAG) posted extremely poor results for 4QCY201 2 owing to sharp deterioration in EBITDA margins which declined 591bp yoy (258bp qoq) mainly led by raw-material cost pressures.

For 4QCY2012, FAGRs.s top-line stood flat (down 2.5% qoq) at Rs.347cr, which was lower than our expectations of Rs.369cr. The top-line performance was impacted by a slowdown in the automotive and industrial sectors which are the primary drivers of the companyRs.s revenues. The operating profit fell significantly by 33.4% yoy (19.9% qoq) as margins registered a sharp fall led by raw-material cost pressures and lower operating leverage. While, the raw-material cost as a percentage of sales surged 389bp yoy; employee expenditure as a percentage of sales jumped 90bp yoy during the quarter. Led by a weak operating performance, the net profit declined 30.9% yoy (19.6% qoq) to Rs.30cr, lower than our expectations of Rs.39cr. At the CMP of Rs.1,396 the stock is trading at 10.5x its CY2014E earnings. We maintain our Buy rating on the stock; however our target price is under review.

Monnet Ispat & Energy (CMP: Rs.235 / TP: -/ Upside: -)

Monnet Ispat reported disappointing 3QFY2013 results. The net sales declined by 4.7% yoy to Rs.459cr mainly due to weak performance from power business. EBITDA declined by 9.8% yoy to Rs.116cr, while EBITDA margin contracted by 144bp yoy to 25.3% mainly due to higher staff cost and other expenditure. Interest expenses and depreciation expenses grew by 53.5% and 16.7% yoy to Rs.29cr and Rs.22cr, respectively, on account of capitalization of various projects. Consequently, net profit decreased by 24.8% yoy to Rs.58cr. We keep our rating and target price under review.

Simplex Infrastructures (CMP: Rs.163/ TP: -/ Upside: -)

Simplex Infrastructures (SINF) reported slow execution and lower profitability in 3QFY2013 due to stagnant order book and delayed payments from clients. On the top-line front, the company reported a decline of 13.9% yoy to Rs.1,352cr, which was 24.7% and 21% lower than our and consensus estimate. EBITDAM came in at 9.6% showing an improvement of 138bp/ 103bp on a yoy/qoq basis and was above our estimate of 8.7%. Interest cost grew by 34% yoy to Rs.73cr for the quarter. The company reported adjusted PAT of Rs.12cr in 3QFY2013, a decline of 43.8% yoy which was significantly below our estimate of Rs.28cr respectively. The companyRs.s has a order book of Rs.15,064cr (2.5x trailing revenue) in 3QFY2013. SINF had secured order worth Rs.1,239cr and 4,254cr in 3QFY2013 and 9MFY2013 respectively. The stock rating and target price is currently under review. We shall revise our estimates post earnings conference call with the management which is scheduled on 18th February 2013 at 4pm.

IVRCL (CMP: Rs.29/ TP: Under Review/ Upside :-)

For 2QFY2013, IVRCL ltd (IVRCL) reported disappointing set of numbers on the operating front, which were significantly below our and consensus estimates. The company reported revenue of Rs.1,270cr in 2QFY2013, registering a growth of 5.6% yoy which was head of our estimate by 19%. However on the operating margins, the company posted Abysmal margins of 5.4%, a decline of 250 bp/172 bp on yoy/qoq basis and was significantly below our estimates of 8.5%. This was mainly on account of high subcontracting cost (up 169% yoy) during the quarter. Interest cost came in at Rs.114cr in 2QFY2013, a jump of 18.5% yoy. On earnings front, IVRCL reported loss of Rs.68cr (our estimate was a loss of Rs.15cr) against a profit of Rs.7cr in 3QFY2012. This was mainly on back of lower-than-expected operating performance and high interest cost. Currently, the target price and rating is under review. We shall revise our estimates post earnings conference call with the management which is scheduled on 15th February 2013 at 12pm.

Siyaram Silk Mills (CMP: Rs.278/ TP: Rs.332/ Upside: 19%)

For 3QFY2013, Siyaram Silk Mills (SSM) reported mixed set of numbers. The companyRs.s top line grew by 25.6% yoy to Rs.279cr, 7.8% higher than our estimate of Rs.259cr for the quarter. However, the company disappointed on the operating margin front as it dipped by 199bp yoy to 11.2% for the quarter, against our estimate of 13.1%. This was due to higher expenses, majorly the raw material cost and the employee cost. This resulted in a bottomline growth of 4.6% yoy, at Rs.14cr, in line with our expectation.

We remain positive on the company as the company is on strong expansion mode in order to take advantage of the growing demand for branded fabric and garments in India. The company has already installed 72 looms in 1HY2013 and expects to add another 50by the end of FY2013E. At CMP of Rs.278, the stock is trading at a PE of 4.2x FY2014E earnings. We maintain our Buy recommendation on the stock with a revised target price of 7332 based on a target P/E of 5.0x for FY2014E.

3QFY2013 Result Previews

GSK Consumer (CMP: Rs.3,835/ TP: -/ Upside: -)

GSK consumer is slated to announce its 4QCY2012 results today. W expect the topline to grow by 18.6% yoy to Rs.714cr. OPM is expected to increase by 47bp yoy to 10.7%. Bottom-line is expected to grow by 29.4% yoy to Rs.77cr. We maintain a neutral recommendation on the stock.

Economic and Political News

- Inflation likely to ease to 6.5% by March end: PMEAC

- Government needs extra Rs.20,000cr to implement Food Security Bill

- Hike in petrol price likely today

- NSSO data not necessarily helps reach right conclusion: Montek

Corporate News

- Aurobindo Pharma gets USFDA nod for anti-diabetes drug

- Cadila Healthcare gets USFDA final nod to market anti-diabetic drug

- KFA lenders to recover Rs.1,000cr by March: SBI

- India Cement planning to invest Rs.700cr in Rajasthan

- Mahindra Satyam appoints Manoj Chugh as global head of Business Development

- Maruti Suzuki dropped from MSCI India index