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Indian stock market and companies daily report (February 18, 2013, Monday)

Contributed by Angel Broking

The Indian market is expected to open flat to positive mirroring SGX Nifty which is trading flat. The major Asian markets are however, trading mixed after the G20 nations refrained from censuring Japan's policies that have weakened the yen.

The US markets ended on a mixed note after a volatile session on Friday. A mixed batch of economic data contributed to the lackluster performance, with traders weighing upbeat reports on New York manufacturing activity and consumer sentiments against a disappointing report on industrial production. According to the report, the New York manufacturing index rose to a positive 10.0 in February from a negative 7.8 in January. The consumer sentiment reading too was positive with the index climbing to 76.3 in February from 73.8 in January. Meanwhile, the industrial production index for January came in lower-than-expected at 0.1%.

The Indian markets closed FridayRs.s session on a weak note as investors continue to remain cautious ahead of the Union Budget. Going ahead, the domestic investors would be watchful of the developments on the Union Budget. The market participants would also keep an eye on US economic data that is scheduled to be released in the week, including reports on housing starts, existing home sales, and consumer and producer price inflation.

Markets Today

The trend deciding level for the day is 19,454 / 5,880 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,527 - 19,585 / 5,907 - 5,926 levels. However, if NIFTY trades below 19,454 / 5,880 levels for the first half-an-hour of trade then it may correct up to 19,396 - 19,323 / 5,861 - 5,834 levels.

Petrol prices hiked by Rs.1.50/litre, diesel Rs.0.45/litre

The Oil Marketing Companies (OMCs) have announced to hike fuel prices. The petrol price has been increased by Rs.1.50/litre, while diesel price has been hiked by Rs.0.45/litre. The hike in diesel price was in line with our expectations as (earlier) government had permitted OMCs to make small price hikes in prices of diesel. Going forward, we expect the government to progressively raise diesel prices during CY2013 and CY2014, which is expected to result in lower subsidy burden for OMCs and upstream oil companies. The petrol price hike is not expected to have any impact on under-recoveries. We maintain our Accumulate rating on ONGC with a target price of Rs.357.

Cairn India gets approval to drill well in Rajasthan block

A committee of Directorate of Hydrocarbon has given Cairn India an approval to drill block in its Rajasthan block to raise production to 214,000bopd. The approval has been delayed by over a year. Currently the company produces 170,000bopd from its Rajasthan block (Mangala). The approval is in line with our expectations. We maintain out Buy rating on the stock with a target price if Rs.383.

Mahindra Satyam buys 51% stake in Brazilian firm Complex IT

Mahindra Satyam has acquired majority stake in a Brazilian firm - Complex IT, a provider of consultancy services on the use of SAPRs.s business management software. The company has acquired 51% stake for a maximum consideration of US$23m out of which US$6.5m will be paid up front while the remaining amount will be paid over a period of 18 months. Mahindra Satyam has a provision to take the stake to 100% after 18 months. The acquisition is expected to close by March 2013 end. Prior to the acquisition, Mahindra Satyam had a revenue run-rate of ~US$10mn from Brazil.

Complex IT has an annual revenue run-rate of ~US$45m and has grown in the past couple of years at 6-8% CAGR. EBITDA margin of Complex IT are in the range of 8-10% and PAT margin is 5-6%. It has ~500 SAP consultants servicing 120 active customers (few marquee clients include Unilever, Nestle and BASF), mainly in Brazil. ~50% of Complex IT revenues come from manufacturing industry vertical.

This acquisition facilitates Mahindra Satyam to entry the Brazilian market where it can cross sell its current services to existing customers of Complex IT. Also, the margins and growth rates at Complex IT have been lower because lack of offshore delivery capability. Management indicted that ~25% of Complex IT workforce can be shifted offshore directly without hampering any business on the client site and will look forward for gradual improvement in offshoring the effort. Management cited that the market for SAP in Brazil is currently estimated at ~US$1bn, forecasted to be growing at 20% yoy. Brazil is the second fastest growing geography globally for SAP AG. The current spend on IT by companies in Brazil is approximately US470bn, with USD36bn being spent on services and software. As Brazil gears up to host FIFA 201 4 and the Olympics in 2016, it would only provide an increased impetus to an already rapidly growing IT services market. This acquisition also lends potential of exploring possible work that the company can do in countries such as Argentina, Colombia, Chile, Peru and Mexico.

Mahindra Satyam has paid ~1x revenues for the acquisition. Assuming 5-6% PAT margin, the valuation comes out to 16.5-20x its current PAT. Our earnings estimates for Mahindra Satyam remained largely unchanged after factoring in the numbers for Complex IT as higher revenues are offset by marginal decline in profitability estimates as operating margins are lower and minority interest will be paid. Our revenue estimates for FY2014 at Mahindra Satyam are up by ~2.9% and EBITDA margin estimates are down by ~30bp during this period. We maintain Accumulate rating on the stock with a target price of Rs.126.

KEC wins orders worth Rs.646cr

KEC has secured orders worth Rs.559cr in its transmission business and Rs.87cr in its cable business. The orders in transmission business include: two orders worth Rs.291 cr from PGCIL, Rs.189cr order from Transmission Corporation of Andhra Pradesh and Rs.79cr order won by its subsidiary, SAE Towers. In Cable business, the Company has secured Rs. 87cr order for supply of Power and Telecom Cables. Given the attractive valuations and robust order book, we maintain Buy on the stock with target price of Rs.75.

FML launches new version of Gurkha SUV

Force Motors Ltd. (FML), a manufacturer of commercial and utility vehicles, launched its latest offering, Gurkha on 15th FebruaryRs.13. The new off-roader comes in three variants price ranging from Rs.6.3-8.5 lakhs (ex-showroom price, Delhi). In the niche market of 8000-10,000 units a year, FML targets to sell 1000 units of Gurkha in the first year of its launch. The company has incurred Rs.50-60cr on the development of the vehicle. FMLRs.s Gurkha competes with Mahindra Thar (ex-showroom price ~Rs.7.1 lakh, Delhi).

FML is planning to roll out its premium multi-purpose vehicle (MUV) licensed from Mercedes by the first quarter of FY2014. The company has planned to incur capex of Rs.500cr for this MUV which includes shifting the production facility from Spain to India. We maintain our Buy recommendation on the stock with a target price of Rs.550 based on target PE of 11x for FY2014E.

3QFY2013 Result Review

GSK Consumer (CMP: Rs.3,751/ TP: / Upside: -)

For 4QCY2012 GSK consumer posted a 17.8% yoy growth in top-line to Rs.709cr, which was in-line with estimates. The top-line growth is on account of both higher volumes and better pricing. However, steep increase in prices of raw materials such as wheat and sugar resulted in a huge 854bp decline in gross margins to 66%. OPM stood at 7.2%, down 305bp on yoy basis. Bottom-line stood at Rs.70cr up 17.9% on yoy basis, aided by a 24.5% yoy increase in other income to Rs.61cr. We maintain a neutral recommendation on the stock.

TVS Srichakra (CMP: Rs.230/ TP: Rs.276/ Upside: 20%)

For 2QFY2013, TVS Srichakra (TVSSL) registered a topline growth 4.4% yoy to Rs.363cr, marginally lower than our estimate of Rs.372cr. The major disappointment came at the operating margin front which contracted by 320bp on yoy basis to 3.9%, significantly lower than our estimate of 7.6%. This was attributable to the higher employee cost and other expenses as a percentage of net sales. The company reported a loss of Rs.3cr mainly due to the lower margin and high interest outgo. The performance of the company was also impacted due to slowdown in the overall two wheeler industry and agitation among the workers at Uttarakhand plant which impacted the production for almost 2 month (2nd week of October, 2012 to 8th December, 2012).

However, we expect that the companyRs.s sales and operating margin will improve by FY2014E with the expected revival in the two wheeler segment and slight softening in the rubber price. At the CMP, the stock is trading at a PE of 5.8x on FY2014E earnings. We recommend Buy on the stock with a target price of Rs.276 based on a target PE of 7.0x.

3QFY2013 Result Previews

GSK Pharmaceuticals (CMP: Rs.2,095/ TP: -/ Upside: -)

For 4QCY2012, the company is expected to post net sales of Rs.680cr. The Gross Margins are expected to be around 57.4% and the OPMRs.s are expected to come to 26.8%. Overall, the net profit came in at Rs.132.4cr, a dip of 10.1%. We recommend a neutral on the stock.

Economic and Political News

- Economy to grow at 5.5% in FY2013 and 7% in FY2014: Montek Singh

- Government mulls swap option in 700-MHz spectrum auction

- Government cuts import tariff values of gold, silver

- Government to take decision on sugar decontrol in next 15 days

- Mineral output up 7.9% in December 2012 at Rs.18,195cr

- Mines Ministry seeks 50% cut in export duty on iron ore fines

- RBI to cap interest charged by MFIs at 26%

Corporate News

- Aurobindo gets FDA nod for diabetes drug

- Etihad needs to revise Jet deal: Chairman

- KFA demise lets AI, Jet stretch business class fares

- Tata Motors to launch MCV buses for intercity and staff transportation

- Tata Motors launch six heavy duty trucks for domestic markets