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Indian stock market and companies daily report (January 11, 2013, Friday)

Contributed by Angel Broking

The Indian market is expected to open flat to negative mirroring the flat opening trades on the SGX Nifty. All the major Asian indices except Nikkei are trading in the red.

The U.S market stocks fluctuated over the course of the trading day on Thursday but largely maintained a positive bias before ending the day notably higher. The markets benefited from a positive reaction to some upbeat news from overseas. The major averages ended the day firmly in positive territory, adding to the gains posted in the previous session. Meanwhile, the majority of the European markets ended ThursdayRs.s session in negative territory. The strong Chinese export data had provided a boost in early trade, but the markets struggled to find direction following the decisions of both the ECB and the BoE to maintain their respective interest rates. The domestic markets surrendered initial gains to end on a flat note on Thursday, as gains in bank, oil/gas and auto stocks offset losses in power, healthcare and metal stocks. Traders were reluctant to extend positions at higher levels as caution prevailed ahead of IIP as well as inflation data due today. Investors also awaited InfosysRs. earnings results for directional cues.

Markets Today

The trend deciding level for the day is 19,681 / 5,974 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,766 - 19,869 / 6,000 - 6,032 levels. However, if NIFTY trades below 19,681 / 5,974 levels for the first half-an-hour of trade then it may correct up to 19,579 - 19,494 / 5,942 - 5,916 levels.

CCEA approves disinvestment in Engineers India Ltd, fuel price hike not discussed

The Cabinet Committee on Economic Affairs (CCEA) approved divestment of 10.0% stake in Engineers India Ltd (EIL). The divestment will bring down governmentRs.s equity capital in the company down from its present holding of 80.4% to 70.4%. It is expected to fetch approximately Rs. 800 crores to the exchequer. EIL is a listed mini-ratna public sector company under the administrative control of Ministry of Petroleum and Natural Gas. It is primarily engaged in the business of providing engineering and related technical services for petroleum refineries and other industrial projects and is also involved in design, engineering and turnkey contracting business.

In the current fiscal year the government kick-started its divestment program by offloading 5.58% and 10.0% of its stake in Hindustan Copper and NMDC respectively. The CCEA has also approved disinvestment of equity capital in 8 other companies since 2012 such as NALCO, SAIL, NTPC, RINL, Oil India, MMTC, Hindustan Aeronautics Limited and RCF. As against the budgeted divestment target of Rs. 30,000 crores the government has garnered proceeds amounting to about Rs. 6,900 crores i.e. around 23% of its target for the fiscal year.

Reportedly the much-debated proposal of hike in diesel prices was not discussed in the CCEA meeting held yesterday. As per media reports the government is contemplating a phased hike in diesel prices by Rs. 1 per litre over the next 10 months to cover mounting under-recoveries by oil-marketing companies. At present the under-recovery of diesel stands at Rs. 9.03 per litre. Other reports suggest that the government is considering options such as a hike in diesel prices by Rs. 4.50 per litre in the next week or so or market-determined diesel prices for bulk consumers. We expect such a move to be beneficial in order to narrow the fiscal deficit and ease demand-side inflationary pressures in the medium term. In the near term however, in case the hike comes into effect we expect it to be inflationary since it would release suppressed inflation in the economy.

Cabinet approves Rs.12,517cr capital infusion in PSU banks

The Union Cabinet has yesterday approved a proposal to inject Rs.12,517cr in around 9-10 PSU banks to support their capital adequacy requirements considering their growth aspirations. Though, the amount of capital infusion is still undecided and can be expected to be finalized in the next few months, as the funds are to be disbursed before March. The government had budgetary earmarked sum of around Rs.15,888cr for capital requirements of SCBs, RRBs, NABARD and other financial institutions in the current fiscal. Capital infusion is likely to be based on an assessment made by the finance ministry about the capital needs of PSU banks for meeting Basel III norms. Amongst our coverage, banks with low tier-I CAR are Bank of Maharashtra, Central Bank and Indian overseas bank with tier-I CAR at 7.1%, 7.5% and 7.6%, respectively (as of 1HFY2013 excluding profits). Capital infusion in most of the PSU banks (excluding SBI and BOB) is expected to be book-dilutive, as they trade below their book.

Tata Steel reported production and sales numbers for 3QFY2013

Tata Steel reported 8.3% yoy growth in crude steel production for 3QFY2013 to 2.1mn tonnes. The saleable steel production grew by 10.7% yoy to 2.1mn tonnes. The companyRs.s sales in this quarter grew by 9.2% yoy to 1.9mn tonnes (slightly below our estimates). We maintain our Accumulate rating on the stock with a target price of Rs.463.

Diageo-USL deal structure irks regulators

As per media reports it is likely that SEBIRs.s permission for DiageoRs.s open offer to United Spirits (USL) shareholders will be granted only after a few clauses are dropped from the agreement. SEBI is not in favour of the put option in agreement clause which gives UB group the right to sell all or a part of its stake in USL at Rs.1,440/share, within a period of seven years from the time DiageoRs.s stake in USL crosses 50.1%. DiageoRs.s open offer was earlier proposed to be carried out between January 7 and 18, 2013. However, the offer got delayed as SEBI, Reserve Bank of India and Competition Commission are yet to approve it. We maintain a Neutral view on USL.

3QFY2013 Result Review

Cera Sanitaryware Ltd (CMP: Rs.438, TP: Rs.495, Upside: 13%)

Cera Sanitaryware Ltd (CSL) reported strong set of numbers for 3QFY2013. Top line soared by 55.2% yoy to Rs.128cr and was 14.3% higher than our expectations of Rs.112cr. The companyRs.s EBITDA came in at Rs.20.5cr 50.1% higher yoy attributable mainly to higher top-line vis-a-vis our estimate of Rs.18.4cr. EBITDA margin came in at 16.0%, marginally lower by 54bp yoy and 40bp against our estimate of 16.4%. Though net raw material cost rose by 297bp yoy but was offset by total reduction of 243bp in employee cost and other expenses. Net profit rose by 50.5% yoy to Rs.12cr from Rs.7.9cr in prior period and our estimate of Rs.10.5cr. We recommend Accumulate on the stock with a target price of Rs.495, based on a target P/E of 11x for FY2014E.

3QFY2013 Result Preview

Infosys (CMP: Rs.2,320 / TP: Rs.2,490 / Upside: 7%)

Infosys is slated to announce its 3QFY2013 results today. We expect the company to post a 2.4% qoq growth in USD revenue at US$1,811mn, aided by ~US$55mn from lodestone acquisition. In rupee terms, revenues are expected to come in at Rs.9,961 cr, up 1.0% qoq. The EBITDA margin is expected to decline by 97bp qoq to 28.1%, impacted by moderate wage hikes given to its employee base. The PAT is expected to be at Rs.2,157cr.

The key points to watch out for are: a) USD revenue growth guidance for FY2013; the company provided guidance of at least 5% top-line growth for FY2013 USD in October 2012 (excluding revenues from Lodestone; we believe that Infosys will scale down its yearly growth guidance to ~4.5%; in order to achieve a 5% growth the company requires an ~3.4% CQGR in 2HFY2013, which looks a bit stretched), b) outlook for client budgets for CY2013, and c) hiring plans for next year. We maintain our Accumulate rating on the stock with a target price of Rs.2,490.

Economic and Political News

- President gives assent to money laundering, banking bills

- Govt approves Rs 12,500 cr capital infusion in PSU banks

- HSBC cuts India GDP forecast to 5.2% for FY13

- Govt defers proposal for revival of Scooters India

Corporate News

- Fiat to open 1 00 dealerships across India by 2013-end

- SuzlonRs.s Kutch wind park crosses 1,000 Mw installed capacity

- Shriram Transport planning to raise Rs 1,000 cr via public issue

- Rolta bags $31mn contract from MLGW