Reports » India
Indian stock market and companies daily report (February 17, 2014, Monday)
Indian Markets are expected to open in green tracking positive opening trades in the SGX Nifty and most of the Asian indices. However, market is expected to take cues from today's Vote on account of the interim budget.
The US markets continued the recent upward momentum with stocks moving mostly higher over the course of the trading day on Friday. Before the start of trading, the Federal Reserve released a report showing an unexpected drop in industrial production, although the central bank noted that the weather curtailed manufacturing production in some regions of the country. The report said industrial production fell by 0.3% in January after rising by 0.3% in December. Traders once again shrugged off a disappointing economic report amid indications that the data was distorted by the severe winter weather. Meanwhile, the European markets ended Friday's session in positive territory. Investor sentiment received a boost from better than expected European GDP results. The results provided confirmation that the Eurozone is recovering. Investors also continue to watch the political situation in Italy, following resignation of PM Enrico Letta.
The Indian markets rose notably on Friday after data showed India's wholesale price inflation fell to its lowest level in eight months in January, helped by moderating food prices. The data raised hopes that the Reserve Bank of India (RBI) will maintain a status quo on policy rates in its next monetary policy review meet due in April.
The trend deciding level for the day is 20,303 / 6,030 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,456 - 20,546 / 6,075 - 6,102 levels. However, if NIFTY trades below 20,303 / 6,030 levels for the first half-an-hour of trade then it may correct 20,213 - 20,060 / 6,003 - 5,958 levels.
WPI Inflation surprises positively at 5.05%, an eight-month low
The Wholesale Price Index (WPI) based inflation surprised positively by coming in at an eight-month low level of 5.05% during January 2014 as compared to market expectations of 5.6%. The headline print compares with inflation of 6.16% in January 2014 and 7.31% in January 2013. The deceleration is largely driven by further cooling off in food prices during the month as compared to the preceding 5 months. Food inflation too eased to an eight-month low at 8.80% as against 1 3.68% in December 201 3, largely as vegetable prices normalized further.
Primary articles - weightage 20.1%
During January 2014, Primary articles inflation came off substantially to 6.84% as compared to 10.78% in December 2013 owing to across-the-board moderation in inflation of Food, Non-food articles and Minerals. Sharp deceleration in inflation of Food articles from 13.68% to an eight-month low of 8.80% is the main driver of this moderation. During the month inflation in Non-food articles and Minerals eased to 4.40% and -0.20% from 6.04% and 2.07% respectively in December 2013.
Food articles: On a sequential basis, with an over 6.17% mom decline in the previous month, inflation in food articles declined further by 2.71% mom in January 2014. On expected lines, Vegetable prices normalized further as inflation in the same came in at 16.60% as compared to 57.33% in December 2013 and 97.72% in November 2013. Cereals inflation has decelerated to 9.27% in January 2014 from double-digit inflation in the previous month, ie for the first time in eighteen months. Pulses continued to be deflationary for the seventh straight month as prices declined by 6.1 0% as compared to 7.1 9% in December 201 3 and 1 5.89% in January 201 3.
Fuel and power - weightage 14.9%
Fuel and power inflation moderated to 10.03% during January 2014 as compared to 10.98% in the previous month. Inflation in mineral oils eased to 10.94% as compared to 12.30% in December 2013. Amongst mineral oils, LPG prices reported a 1.42% decline for the second straight month and inflation in diesel, naptha and furnace oil moderated, offsetting the impact of uptick in inflation reported by petrol, kerosene and ATF.
Manufactured products - weightage 65.0%
Inflation in Manufactured products inched higher to 2.76% during January 2014 from 2.64% in the previous month. It is largely driven by the non-food manufactured component as core inflation picked up at 3.04% in January 2014 from 2.75% in the previous month, suggesting a pass through of higher input costs in the manufacturing sector despite weak pricing power. It also reflects that the output gap may not be as negative as earlier anticipated, indicating potential growth too has slowed down. Similarly despite moderation in headline CPI, the core CPI inflation has also inched marginally higher to 8.11% during January 2014 as compared to 8.09% in December 2013. Manufactured Food products inflation decelerated for the third straight month to 1.50% as compared to 1.80% in the previous month and 8.68% in January 2013.
The easing of both headline WPI and CPI inflation is driven by further cooling off in food prices during January 2014 as compared to the preceding 5 months. But on a sequential basis, core WPI as well as CPI inflation levels have picked up slightly. As far as monetary policy stance is concerned, the Reserve Bank of India (RBI) has indicated that in case the trajectory for inflation moderates as anticipated, further policy tightening is unlikely in the near term. We expect the RBI to focus on bringing down the headline level of CPI inflation to about 8.0% over the next year. In its forthcoming policy on April 1, 2014 we expect the RBI to hold monetary policy rates.
TTMT global sales continues to post poor performance
Tata Motors (TTMT) global sales continued its poor run witnessing a decline of 20.7% yoy to 80,163 units led by the ongoing weakness in the domestic commercial and passenger vehicle segments. The global commercial and passenger vehicle volumes posted a significant decline of 36.2% yoy and 7.1% yoy respectively during the month.
JLR volumes too registered a muted growth of 1.2% yoy (down 4% mom) to 38,631, which was slightly lower than our expectations of 40,600 units. This was primarily on account of the lower-than-expected Land Rover performance, which registered a modest growth of 0.6% yoy to 31,920 units. Jaguar volumes on the other hand were broadly in-line with our expectations at 6,71 1 units, an increase of 4.2% yoy.
Going ahead, we expect headwinds in the standalone business to continue in FY2014 due to weak macro-economic environment, which is expected to continue impacting the domestic volumes. Nevertheless, we expect JLR to record a strong performance driven by continued momentum in the global luxury vehicle market, success of the recently launched models and strong product launch pipeline. We retain our positive view on TTMT and maintain our Buy rating on the stock with a SOTP target price of Rs.451.
Egypt government to consider banning vehicle imports
According to news reports, Egypt government has proposed to impose a one year ban on imports of two-wheelers and three-wheelers into the country. While the decision is not yet final, the Egyptian cabinet has authorized the finance ministry to impose a ban if it is in the national interest. Among the Indian manufacturers, Bajaj Auto (BJAUT) is the biggest exporter with monthly dispatches of 5,000 units each of two-wheelers and three-wheelers to Egypt. The two-wheeler exports to Egypt account for ~5% of total two-wheeler exports of BJAUT, whereas, the threewheeler exports form a significant chunk (~25%) of total three-wheeler exports of the company. In the event that the proposed import ban is implemented, we expect the company's total volumes to be impacted by 2-3%. Nevertheless, the bottom-line impact is expected to be higher given that Egypt market is mainly for three-wheelers and fetches higher margins to the company. We await more clarity on the proposed import ban and until then maintain our estimates for the company.
At the CMP the stock is trading at 13.6x FY2015E earnings. We maintain our Buy rating on the stock with a target price of Rs.2,250.
State Bank of India - (CMP: Rs.1,475 /TP: Under Review /Upside: )
SBI reported weak performance both on the operating as well as on the asset quality front. Net slippages (slippages adjusted for recoveries/upgrades) for the bank came much ahead of ours and street's expectations at Rs.8,670cr as against around Rs.4,601cr in 2QFY2014. Higher net slippages resulted in 15.6% sequential increase in Net NPA. Write offs at Rs.5,077cr during quarter largely restricted further increase in Net NPAs. Gross and Net NPA ratios were higher by 9bp and 33bp qoq respectively to 5.7% and 3.2%. Restructuring during the quarter came in sequentially much lower at Rs.3,900cr vs. around Rs.9,300cr in 2QFY2014 and was broadly in-line with management guidance given post 2QFY2014 results (they had then indicated restructuring pipeline of around Rs.6,000cr over next few quarters).
On the operating front, NII grew by 13.1% yoy (aided by 17.5% advances growth), in-line with our expectations. Domestic margins remained largely flat sequentially at 3.51%. Non-interest income grew healthily by 15.5% yoy. Opex grew by 31.4% yoy, on expected lines, on back of higher retirement benefits provisioning and wage revision provisioning. Pre-provisioning operating profit remained largely flat at Rs.7,618cr. Provisioning expenses grew 55.5% yoy (NPA Provision increased by 23.9% yoy) and overall earnings de-grew by 34.2% yoy at Rs.2,234cr.
The bank's has witnessed elevated asset quality pressure for quite some time now, reflecting the overall weak macro environment. We await management comment particularly regarding the outlook on asset quality going ahead. The bank's core strength lies in its high CASA and fee income, which has supported its core profitability in current challenging times. Its strong capital adequacy also provides comfort. In our view, SBI's current valuations factors in most of its asset quality concerns and provides an opportunity for investment from a medium term point of view, keeping in mind the impending rate cycle reversion in next fiscal. Currently our target price is under review.
Mahindra & Mahindra (CMP: Rs.903/ TP: Rs.1,061/ Upside: 18%)
Mahindra & Mahindra (MM) reported in-line results for 3QFY2014 led by the strong growth in the farm equipment segment (FES) following robust volume growth of 21% yoy. The automotive segment (AS) however, continued posting poor performance which was on the expected lines, given that the volumes witnessed a steep drop of 11.9% yoy during the quarter. The profitability in the AS, nevertheless, remained strong on account of the price increases and cost rationalization efforts.
MM's top-line declined by 2% yoy to Rs.10,556cr, in line with our estimates of Rs.10,415cr, primarily due to a 1.8% yoy decline in volumes. The volume growth continues to be impacted by the decline in the AS, which was down by 11.9% yoy, led by the higher competition in the utility vehicle segment and also due to the lack of the new product launches. The FES segment on the other hand continued its strong sales momentum, registering a robust growth of 21% yoy, driven by strong monsoons and better farm output leading to a 20.4% yoy growth in FES revenues. On the operating front, EBITDA margins expanded strongly by 185bp yoy (27bp qoq) to 13.1%, in-line with our estimates of 13.2%, driven by price increases, cost control measures and superior product-mix (lower share of traded goods following decline in automotive volumes and higher share of tractors in the product-mix - ~38% as against ~31% yoy). As a result, the operating profit grew strongly by 14.1% yoy to Rs.1,382cr. The adjusted bottom-line thus grew strongly by 11.7% yoy to Rs.934cr. Higher than expected other income, which grew by 27.5% yoy too aided the bottom-line growth to some extent during the quarter. We broadly maintain our estimates for FY2014E/15E. We retain our positive view on MM given its diversified business model which we believe will help the company to face the macroeconomic challenges better than its competitors. We maintain our Buy rating on the stock with an SOTP target price of Rs.1,061.
SAIL (CMP: Rs.61/ TP:-/ Upside :-)
SAIL's 3QFY2014 net profit came in above our estimates mainly due to lower-than-expected staff costs. SAIL's standalone net sales increased by 8.3% yoy to Rs.1 1,363cr, below our estimate of Rs.11,566cr. Its sales volumes grew by 8.4% yoy to 2.98mn tonnes while realizations were flat yoy to Rs.38,130/tonne. Its employee costs grew by 9.0% yoy to Rs.2,268cr and was below our estimate. However, other expenditure grew by 21.0% yoy to Rs.10,327cr resulting in flattish EBITDA on a yoy basis at Rs.1,132cr, representing an EBITDA margin of 10.0%. It reported an exceptional item of Rs.20cr related to forex gain (forex loss of Rs.31cr in 3QFY2013). Adjusting these exceptional items, its adjusted net profit remained flat yoy at Rs.513cr (ahead of our estimate of Rs.379cr). Its reported net profit stood at Rs.533cr. Looking ahead, we expect SAIL's operational and financial performance to be affected by 1) inability to maintain/raise sales volumes amidst slower demand growth; 2) higher fixed (employee )costs, and 3) delays/cost overruns in its brownfield expansion projects. Hence, we recommend Neutral rating on the stock.
Sadbhav Engineering (CMP: Rs.87 / TP: under review)
For 3QFY2014, Sadbhav Engineering (SEL) reported a good set of numbers which were above our estimates. SEL posted decent set of numbers on the revenue front; however owing to better-than-expected operational performance earnings were above our estimate. On the top-line front, SEL reported a revenue growth of 75.7% yoy to Rs.621cr in 3QFY2014 against our estimate of Rs.641cr. This was mainly on the back of pick up in execution in remaining under construction projects and lower base of last year. On the margin front, the company posted EBITDAM of 10.4% up by 104bp yoy and was higher than our estimate of 10.0%. Interest cost grew by 9.3% yoy to Rs.22cr and was lower than our estimate by 21.0%. On the bottom-line front, company's PAT reported a growth of 596.4% yoy to Rs.26cr in 3QFY2014 against our estimate of Rs.19cr. This was mainly due to better-than-expected operational performance and lower base of last year. At CMP, the stock is trading at P/E and P/BV of 13.1x and 1.4 FY2015 earnings. The stock rating is currently under review. We shall revise our estimates post earnings conference call with the management which is expected to be scheduled on February 17, 2014 at 4.30pm.
Dishman Pharmaceuticals (CMP:Rs.86 / TP:140 / Upside:62.7)
Dishman Pharmaceuticals for 3QFY2014, posted numbers, lower than expected both on the sales and net profit, except the OPM, which was slightly better than expected. For, 3QFY2014 the company post net sales of Rs.313.4cr, lower than the Rs.370cr expected. The dip in the sales was on back of the CRAMS segment, which dipped by 1.9% yoy to end the period at Rs.205cr, while the MM segment posted almost flat sales, which came in at Rs.108.3cr.The OPM's, came in at 19.4% V/s expectations of 19.1% and a 1 23bps expansion yoy. The expansion in the margins came in on back of a 514bps expansion in the Gross profit margin and almost flat other expenditure. Thus, the net profits came in at Rs.15.2cr V/s expected Rs.20cr, a 7.5% yoy dip in net profit. We recommend a buy with a price target of Rs.140.
Monnet Ispat & Energy (CMP: Rs.81 / TP: Under Review/ Upside:-)
Monnet Ispat reported mixed set of 3QFY2014 results. The net sales increased by 39.4% yoy to Rs.640cr mainly due to strong performance from steel business. EBITDA however increased by a lower rate of 20.7% yoy to Rs.140cr due to higher raw material costs (+57.1% yoy to 523cr) and staff cost ( + 35.7% yoy to Rs.38cr). Interest expenses and depreciation expenses grew by 127.6% and 54.5% yoy to Rs.66cr and Rs.34cr respectively on account of capitalization of various projects.
Consequently, net profit decreased by 17.5% yoy to Rs.47cr. We keep our rating and target price under review.
Simplex Infrastructures (CMP: Rs.83/TP: under review)
For 3QFY2014, Simplex Infrastructures (SINF) reported a poor set of numbers which were below our estimates. SINF reported slow execution due to slow moving order book and delayed payments from clients; while owing to lower than expected revenue performance and high interest earnings were below our estimate On the top-line front, the company reported revenues of Rs.1,392cr registering a growth of 3.0% yoy, which was 7.0% lower than our estimate. EBITDAM came in at 10.5% showing an improvement of 86bp on a yoy basis and was above our estimate of 10.0%. Interest cost grew by 16.9% yoy to Rs.86cr for the quarter. The company reported adjusted PAT of Rs.15cr in 3QFY2014, a growth of 26.4% yoy which was below our estimate of Rs.18cr respectively. This was mainly owing to lower than expected revenue performance and high interest cost during the quarter. The company has an order book of Rs.16,530cr (3.0x trailing revenue) in 3QFY2014. SINF had secured order worth Rs.1,61 1cr in 3QFY2014. 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 February 17, 2014 at 2.00pm.
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