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Reports India

Indian stock market and companies daily report (February 19, 2014, Wednesday)

February 19, 2014, Wednesday, 04:55 GMT | 00:55 EST | 10:25 IST | 11:55 SGT
Contributed by Angel Broking

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

Although disappointing reports about the manufacturing and the home building sectors contributed to a lackluster start of the session, the US market continued its recent upward momentum on Tuesday to close in positive territory. The Nasdaq gained by 0.7%, to close at 4,273. The S&P 500 gained by 0.1% to close at 1,841 while Dow fell by 0.2% to close at 16,130. Meanwhile, performance of European markets was mixed with U.K. and Germany closing in green while France closed in red. A report on U.K. inflation showed a reading below the central bank's target, the first time this had happened since 2009 which aided UK market to post gains.

Indian shares rose notably on Tuesday, as investors seemed relieved by the absence of populist measures in the interim budget unveiled on Monday. The announcement by global ratings agency Moody's Investors Service that it was keeping a stable outlook on India's Rs.Baa3Rs. sovereign rating also bolstered investor sentiment.

Markets Today

The trend deciding level for the day is 20,585 / 6,112 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,734 - 20,834 / 6,157 - 6,187 levels. However, if NIFTY trades below 20,585 / 6,112 levels for the first half-an-hour of trade then it may correct 20,485 - 20,337 / 6,082 - 6,037 levels.

Government cancels further nine coal blocks; withholds cancellation of six block

Media reports suggest that the government has cancelled nine coal blocks (in addition to 10 blocks deallocated on February 17, 2014) allocated to 33 firms, and withhold its decision of cancellation of six blocks allocated to 17 companies.

Some of the companies whose coal blocks have been de-allocated include Rajhara North held jointly by Mukund Ltd and Vini Iron & Steel; Tubed held jointly by Hindalco and Tata Power; Rajgamar Dipside allocated jointly to API Ispat and Chhattisgarh Sponge; Bander held jointly by AMR Iron, J K Cement and Century Textiles; and Madanpur North allocated jointly to Ultratech, Navbharat Udyog, Prakash Industries and Vandana Energy. The additional six blocks where the ministry withheld "further action" even as it accepted the IMG's recommendations for cancellation included Rajgamar Dipside held jointly by Monnet Ispat and Topworth Steel; Radhikapur East allocated jointly to Tata Sponge, Scaw Industries and SPS Sponge Iron; and Gare Palma IV/6 held by JSPL and Nalwa Sponge.

The blocks have been cancelled on the basis of a review of 61 mines that had not achieved various milestones. Hindalco's Tubed coal block de-allocation is unlikely to have any material impact on its financials as the company has not committed significant capex for it and we had not factored its impact in our estimates either. Similarly, Prakash Industries Madanpur North block is unlikely to have any material impact on its financials. We continue to await further clarity on coal blocks de-allocation.

Bharti Airtel acquires Loop Mobile

In the first telecom merger & acquisition (M&A) deal since the government finalized its policy on this, Bharti Airtel has signed an agreement with Mumbai based Loop Mobile for about Rs.700cr (as per media reports) which includes ~Rs.400cr of debt in the books of Loop. This would involve acquisition of both the assets (tower, equipment's, fiber optic network etc) and customers of Loop.

Strengthens position in Mumbai circle: This deal would result in Bharti Airtel's revenue market share in Mumbai to increase from 16% to 23% and subscriber market share to increase from 14% to 24%. Loop, which offers GSM services in only the Mumbai circle, has ~3mn subscribers. Bharti Airtel had ~4.1mn subscribers in Mumbai circle and with this acquisition, Bharti Airtel now become the largest subscriber market share company in Mumbai circle with ~7.1mn subscribers, leaving behind Vodafone which has ~6.8mn user base in the Mumbai circle. Under the deal, besides subscribers, Bharti Airtel will take over the towers and other network assets of Loop. Loop has about ~2,000 operational towers. Of these, Bharti Airtel will get control of the ~500-odd that Loop owns.

Spectrum details: Bharti Airtel will not get any spectrum from the deal, as Loop's 20-year license (900-MHz band) expires in November this year and the company did not participate in the recently concluded auction. Vodafone now has 1 1MHz in the 900MHz band and 8.2MHz in the 1800MHz band while Bharti Airtel has 5MHz and 1 5.2MHz in the two bands, respectively. Both of them also have 5MHz each of 3G (2100MHz) spectrum in Mumbai. Acquisition of Loop will help Bharti Airtel to narrow the market share gap with Vodafone.

Financial standpoint: Based on our analysis, Bharti Airtel's acquisition of Loop comes out at ~1.1x EV/Sales, ~4.4x EV/EBITDA and Rs.5k EV/Subscriber. This is as against Bharti Airtel's 2.0/1.8x FY2014E/FY2015E EV/Sales and 6.3/5.4x FY2014E/FY2015E EV/EBITDA. With Loop's inferior operating metrics compared to Bharti Airtel and likely lower profitability, this seems a fair multiple to pay.

While the Loop deal is unlikely to have a material impact on Bharti Airtel's financials (less than a 1% rise in FY2015E revenues), we believe that Bharti Airtel's recent acquisition of 900MHz spectrum in Mumbai along with this deal highlights the intention of the company to compete in the lucrative data market in Mumbai. We maintain Accumulate rating on the stock.

HMCL reduces vehicle prices to pass on the excise duty cut benefits

Hero MotoCorp (HMCL) has reduced the prices across its product portfolio by 2% to 5% with immediate effect to pass on the benefits of the excise duty cuts announced in the Union Budget. The Finance Minister in the Interim Budget has reduced the excise duty on two-wheelers to 8% from 12% earlier. The price cuts announced by the company are on the expected lines and along with the strong monsoons are expected to boost demand in the near term. We retain our positive view on the company and maintain our Accumulate rating on the stock with a target price of Rs.2,180.

Result Review

Glaxo Pharmaceuticals (CMP: Rs.3017 / TP: / Upside: )

Glaxo Pharmaceuticals, posted results marginally lower than expectations on sales, while the net profit was lower by 7.1% yoy. The main disappointment came on the OPM front, which came in at 17.7% V/s 20.6% expected. The sales came in at Rs.631cr, a dip of 4.0%. The gross margins came in at 50.2% V/s 57.3% expected, a dip of 709bps. However, on higher than expected other income and lower taxation during the quarter, lead the net profit come in at Rs.111 V/s Rs.120cr expected, a yoy dip of 29.9%. We remain neutral on the stock.

Economic and Political News

- done a rescue act to pull economy back: FM

- Interim Budget to give impetus to the economy: CII

- Spectrum auction to boost consolidation in telecom industry:Fitch

Corporate News

- IL&FS infra debt fund to raise Rs.1,000cr

- Centre cancels coal block allotted to JSPL's CTL project

- Power Grid to invest over Rs.61,000 cr in next 3 yrs