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Indian stock market and companies daily report (February 27, 2013, Wednesday)

Contributed by Angel Broking

The Indian market is expected to open flat tracking similar opening in SGX Nifty and most other Asian markets.

The US market moved mostly higher over the course of the trading day on Tuesday after seeing some volatility in morning trading. This volatility came as Federal Reserve Chairman testified before the Senate Banking Committee. The positive sentiment was on the back of upbeat reports on new home sales and consumer confidence. The US new home sales surged up by 15.6% in January 2013. With this increase, sales rose to their highest rate since July 2008. Also, consumer confidence index jumped to 69.6 in February 2013 from a revised 58.4 in January 2013. The European markets also showed significant moves to the downside on the day due to the uncertainty created by the results of the Italian elections. After two days of voting in crucial elections, Italy appears headed for political gridlock, sparking fears of eventual comeback of European financial crisis

Meanwhile, Indian shares fell sharply on Tuesday, mirroring extremely weak Asian and European cues as inconclusive Italian elections stoked fears about the outlook for the Eurozone economy. The underlying sentiment remained cautious as investors await the upcoming Union Budget this week for directional cues.

Markets Today

The trend deciding level for the day is 19,095 / 5,783 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,213 - 19,412 / 5,817 - 5,873 levels. However, if NIFTY trades below 19,095 / 5,783 levels for the first half-an-hour of trade then it may correct up to 18,897 - 18,779 / 5,727 - 5,693 levels.

Elections deadlock in Italy unfavorable for investor sentiments

Elections in Italy have resulted in a deadlock as no political party has secured a clear majority. But former Prime Minister Silvio Berlusconi (of centre-right political bloc) has indicated that he might be open to a coalition with the center-left bloc, having a majority in the lower house. In the upper house, Senate, 158 seats are required for a majority but the center-left is likely to get about 1 19 seats, higher than 117 seats for the center-right bloc. This sentiment is largely coming from opposition to anti-austerity measures adopted by Mario Monti which is adversely impacting growth and employment in the economy. The economy has reported double-digit growth in unemployment and it presently stands at 11.2%. A prolonged political stalemate is likely to result in further risk aversion, coming on the back of the unfavorable reaction of equity markets to the recently released minutes of the United States Federal ReserveRs.s monetary policy meeting.

Railway Budget 2013 - 2014

The Railway Minister Pawan Kumar Bansal presented his maiden railway budget in Lok Sabha and emphasized largely on financial sustainability. The Railway Budget for FY2014 aims to focus on 4 areas namely safety, consolidation, passenger amenities and fiscal discipline. However, the Minister refrained from hiking passenger fares since the railways had already increased passenger fares across the board in January 2013. This revision is likely to bring in an additional Rs.6,600 cr for the railways in FY2014. However, the fuel bill in FY2014 is estimated to increase by Rs.5,100cr due to revision in HSD oil prices and electricity tariffs.

In this backdrop, the Railway Minister has proposed to segregate the fuel component in tariffs such that the fuel adjustment component (FAC) adjusts to changes in fuel costs and has proposed to implement this revision in freight tariff from April 1, 2013. This is likely to result in an upward revision of about 5.0% in freight tariff. Since no additional hike in passenger fares is implemented during the budget, the railway ministry would absorb the impact of the expected burden of Rs.850cr.

Further, the Railway Minister has also proposed to increase charges for super fast trains, reservation fee, clerkage charge, cancellation charge and tatkal charge but enhanced reservation fee is abolished to simplify the fee structure.

Passenger earnings are budgeted to increase robustly by 29.9% in FY2014 over the previous yearRs.s estimates while earnings from freight are budgeted to increase by a more modest 8.8% during FY2014. We believe that the FY2014 budgeted estimates of passenger earnings appear optimistic particularly as even the revised estimate for FY2013 indicates a decline of almost 10.0% over the budgeted estimate in that period. It is thus likely overstating the gross traffic receipts (FY2014 BE of Rs. 143,742) to an extent.

The operating ratio is slated to be brought down to 87.8% in FY2014 from the revised estimate of 88.8% in FY2013. The deceleration in the operating ratio from the 95.0% level in FY2012 suggests an improvement in the financial health of the railways

For FY2014, the highest ever plan outlay of Rs.63,363cr is likely to be financed through Gross budgetary support of Rs.26,000cr, road safety fund of Rs.2,000cr, internal resources of Rs.14,260cr, market borrowing of Rs.15,103cr and public private partnerships of Rs.6,000cr.

Going ahead the proposal for setting up of Railway Tariff Regulatory Authority, still at inter-ministerial consultation stage, is a positive for the railways and we believe its implementation would depoliticize railway tariff and ensure financial sustainability.

2G spectrum auction: No applicant for GSM waves

The second round of 2G spectrum sale is virtually set to be a flop show as there is no applicant for GSM band of radio waves while Sistema Shyam Teleservices (SSTL) is the only firm for CDMA band at close of deadline for applying to take part in the auction. While no application was received for the GSM band spectrum at the close of deadline, SSTL was the lone applicant for the 800 MHz CDMA band airwaves.

Government plans to conduct auction for spectrum unsold in November auction along with spectrum that is held by operators whose licenses are due for renewal in 2014. The government had expected to raise Rs.40,000cr from the March auction. This estimate is likely to come down to ~Rs.3,000cr after SSTL pays for the spectrum it has applied for, due to the lack of competing bidders. The Supreme Court in February last year had cancelled 122 2G telecom licenses. The government in November 2012 held auction for sale of partial spectrum vacated by these companies. However, there was no bidder for CDMA spectrum and GSM band radio waves in four circles (Delhi, Mumbai, Karnataka and Rajasthan) as operators believed the reserve price was too stiff. We continue to remain Neutral on overall telecom sector.

Hindalco locks out Silvassa plant

Hindalco has declared a lockout at itRs.s Silvassa plant which has a 30ktpa capacity for manufacturing aluminium foil and other small facilities. The company has stated that the lockout is on account of illegal strike by the workers at its plant. We do not expect any major impact on the companyRs.s financials due to this strike. We maintain our Neutral rating on the stock.

4QCY2012 Result Review

Ranbaxy (CMP: Rs.417/ TP: -/ Upside: -)

For 4QCY2012 Ranbaxy Labs posted numbers above expectations on the topline front, while it reported lower-than-expected numbers on the profit front. On the sales front, the company reported a 28.8% decline to end the period at Rs.2,671cr vs our expectation of Rs.2,525cr. The main disappointment came on the OPM front which came in at 3.4% vs our expectation of 9.3%. In addition to this, contractual expenses along with the forex losses amounted to an obligation of Rs.506cr and Rs.281cr respectively. This lead the company to post an adj. net loss of around Rs.154cr vs an expected net profit of Rs.274cr. We maintain our Neutral view on the stock.

Vesuvius India (CMP: Rs.332/ TP: Rs.355/ Upside: 7.1%)

For 4QCY2012, Vesuvius India (VIL) reported better-than-expected results. Its topline grew slightly by 3.5% yoy to Rs.154cr, and 10.6% higher than our expectation of Rs.139cr. For the full year CY2012, revenue grew by a marginal 3.8% yoy to Rs.564cr. EBITDA margin expanded by 298bp yoy to 19.3% for the quarter from 16.3% in 4QCY201 1 mainly due to reduction in other expenses. Consequently, the net profit for the quarter grew by 33% yoy from Rs.13cr to Rs.18cr in 4QCY2012. As we roll over to CY2014E, considering current fall in stock price, we upgrade the stock to Accumulate with a target price of Rs.355 based on a target PE of 12x for CY2014E.

4QCY2012 Result Preview

Bosch (CMP: Rs.8,851/ TP: Rs.9,570/ Upside: 8%)

Bosch (BOS) is slated to announce its 4QCY201 2 results today. We expect the company to post a revenue growth of ~8% yoy to Rs.2,202cr. The top-line growth is likely to be restricted on account of the slowdown in the MHCV industry which is the primary driver of the companyRs.s revenues. We expect EBITDA margins to decline sharply by ~220bp yoy led by increasing cost pressures and unfavorable currency movement. Hence, the net profit is expected to decline by ~29% yoy to Rs.199cr. At Rs.8,851 the stock is trading at 19.4x CY2014E earnings. Currently we have an Accumulate rating on the stock with a target price of ?9,570.

Economic and Political News

- Dual diesel pricing at same pumps difficult to implement: Finance Ministry
- DoT to start auction of CDMA spectrum from March 11, 2013
- Goa loses Rs.800cr in revenue due to mining closure
- Disinvestment proceeds to fund PSUs, banks, insurers: Finance Ministry

Corporate News

- Suzlon gets 103 MW order from ONGC
- TCS to pay $30mn to settle wage dispute in California
- Posco sets target to start production from Odisha plant
- Jaguar launches XJ Ultimate priced at upto Rs.1.9cr
- US-based Janus picks up 5.16% stake in Havells India