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Reports India

Indian stock market and companies daily report (January 13, 2014, Monday)

January 13, 2014, Monday, 05:20 GMT | 00:20 EST | 10:50 IST | 13:20 SGT
Contributed by Angel Broking


Indian Markets are expected to open with a positive bias tracking positive opening in the SGX Nifty and most of the Asian markets.
 
US markets posted a mixed performance after the release of a report from the Labor Department which showed that U.S. employment rose by much less than expected in the month of December. The report said non-farm payroll employment rose by 74,000 jobs in December as compared to economist estimates for an increase of about 200,000 jobs. The labor department attributed bad weather to the lower than estimated growth in jobs as 273,000 people were not able to work due to poor weather. The European markets too pared their early gains after the weaker than expected U.S. jobs report, but still finished in positive territory.
 
Back home, key benchmark indices posted marginal gains after witnessing high volatility during the second half of the trading session. The markets posted healthy gains in early afternoon trade aided by positive sentiment generated from IT major Infosys raising its revenue guidance for FY2014. However, most of the gains evaporated before the close of trade ahead of the announcement on IIP data which was made post market hours. Further, EXIM data announced earlier in the day showed slowdown in India's exports in December 2013.
 
 
Markets Today
 
The trend deciding level for the day is 20,785 / 6,1 83 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,945 - 21,131 / 6,227 - 6,283 levels. However, if NIFTY trades below 20,785 / 6,183 levels for the first half-an-hour of trade then it may correct 20,599 - 20,439 / 6,128 - 6,084 levels.
 
 
Trade deficit at USD10.1bn aided by decline in imports
 
According to provisional data released by the commerce ministry, the trade deficit for December 2013 has come in at USD10.1bn as against USD9.2bn in the previous month and USD17.6bn in December 2012. The overall quantum of imports contracted steeply by 15.3% during December 2013 as compared to growth of 7.5% in December 201 2.
 
The decline in imports for the seventh straight month has been led by sharp nonoil import compression in spite of a 1.0% increase in oil imports during the month. Non-oil imports witnessed a steep 22.9% contraction as compared to growth of 3.3% in December 2012, largely on account of restrictions on gold import and also due to weak demand in the economy. During the April-November 2013 period, trade deficit excluding gold has declined by about 20% over a year ago period, reflecting slowdown in the demand environment in the economy. In addition, for the April-December 2013 period, gold and silver imports have declined by 30.3% to USD27.3bn. Growth in exports slowed for the second consecutive month as exports reported a modest 3.5% growth despite an almost flat performance in December 2012. The lower export growth has been attributed to slowdown in petroleum product exports for the third straight month.
 
CAD expectations: As per Commerce Ministry data, the trade deficit for 3QFY2014 at about USD30bn is similar to the 2QFY2014 level. We thus expect the current account deficit (CAD) to moderate substantially in the range of 0.91.4% of GDP during 3QFY2014 as against 6.5% of GDP reported in the corresponding quarter of the previous year and similar to 1.2% of GDP in the previous month. For FY2014 as a whole, the CAD is seen moderating to a sustainable level of within 2.5% of GDP as compared to 4.8% of GDP in the previous fiscal year, reducing the risks emanating from the external sector. The concern surrounding financing of the deficit has also materially subsided on account of timely policy measures.
 
 
IIP at a six month low, reflects weakness in the consumption space
 
The 2.1% contraction in IIP during November 2013, despite a 1.0% de-growth in the corresponding period of the previous year, surprised negatively as market expectations pegged a 1.0% growth in output. Cumulatively during the April -November 2013 period, industrial output marginally declined by 0.2% as compared to a tepid 0.9% growth in the corresponding period of the previous year.
 
IIP: Performance on Sector-wise classification
 
In terms of sector-wise classification, the Mining sector reported a growth of 1.0% as against 5.5% decline in November 2012 supported by coal and crude oil production during the month. The Electricity sector reported a growth of 6.3% in November 2013 as compared to 1.3% in the sequential previous month and 2.4% in the corresponding period of the previous year, supported by increase in thermal generation as well as support from a low base. During December 2013 as well electricity production is likely to report a similar growth performance.
 
Despite a contraction of 0.8% during November 2012, the Manufacturing sector reported a further 3.5% de-growth for November 2013. During the April - November 2013 period, production in the sector declined by 0.6% as compared to a growth of 0.8% in the corresponding period of the previous year. The industry groups Rs.Radio, TV and Communication Equipment & ApparatusRs. (42.2% decline); Rs.Office, Accounting & Computing MachineryRs. (27.5% decline) and Rs.Furniture, Manufacturing n.e.c.Rs. (19.5% decline) continued to weigh on the sector's performance.
 
IIP: Performance in the Use-based category
 
In terms of use-based classification, production in intermediate goods continued to report moderate growth for the ninth straight month (at 3.3% during November 2013). Basic as well as capital goods production also witnessed a marginal growth of 0.7% and 0.3% respectively on a low base.
 
The Consumer goods production side continued to remain under pressure and declined by 8.7% even on the back of a 0.3% contraction in November 2012, impacted by the steep de-growth in Consumer durables production. The Consumer durables segment, having contracted for 12 straight months, continued with the trend and reported a 21.5% decline in November 2013, weighing substantially on the overall index (by 330bp).
 
Outlook
 
We expect the IIP for FY2014 to remain muted with growth ranging between 0.5 -1.0% as against 1.1% during FY2013. We continue to believe that sluggish domestic demand, in addition to restraints on government expenditure, is likely to weigh on GDP which is expected to grow by a moderate 4.8% during FY2014. Growth is likely to be largely supported by the performance of exports and agriculture.
 
In view of continuing sluggishness in growth and with food inflation expected to moderate and bring some respite from elevated headline WPI and CPI inflation prints, we expect the RBI to hold monetary policy rates during its January 28 policy review.
 
 
Government officially notifies higher gas price from April 2014
 
The government has officially notified the new gas pricing policy that would be applicable to all the domestically produced gas from April 2014 which will be effective for five years. As per the new pricing mechanism, the new gas price is likely to be US$8.4/mmbtu for FY2015. Currently, the gas prices are in the range of US$4.2-5.7/mmbtu for domestically produced gas. Amongst our coverage companies, Reliance Industries (RIL) and ONGC are likely to be main beneficiaries of higher gas prices. However, we had factored the new prices in our FY2015 estimates earlier when the government had announced the gas price hike. RIL will have to submit bank guarantee before it can sell gas at a higher price which is not likely to be a constraint for the company. We maintain our Accumulate rating on ONGC with a target price of Rs.318 and Buy rating on RIL with a target price of Rs.1020.
 
 
JLR registers better-than-expected growth in retail sales in December 2013
 
JLR recorded strong growth in retail sales, posting a better-than-expected growth of 21% yoy (8.6% mom) to 40,635 units. The performance continues to be driven by strong momentum in the newly launched models with sustained growth traction across the world markets, especially in China, Rest of the World and North America. Jaguar sales maintained its strong run, posting a growth of 41.3% yoy (11.8% mom) to 6,981 units led by the strong growth in the XF and XJ models and aided further by incremental sales from the F type model. LandRover sales too recorded a strong growth of 17.5% yoy (8% mom) to 33,654 units driven by healthy growth traction in Range Rover Evoque and ramp-up in the dispatches of the new Range Rover and the Range Rover Sport. Going ahead, we expect headwinds in the standalone business to continue in FY2014 due to weak macroeconomic environment, which is expected to continue impacting domestic volumes. Nevertheless, we expect JLR to sustain its strong performance driven by continued momentum in the global luxury vehicle market, success of the recently launched models and strong product launch pipeline. We are building in an ~13% volume CAGR for JLR with an EBITDA margin improvement of 170bp over FY2013-15E, driven by superior product mix and favorable geography mix. We retain our positive view on TTMT and maintain our Accumulate rating on the stock with a SOTP target price of Rs.419.
 
 
Result Review
 
Infosys (CMP: Rs.3,549/ TP: Rs.3,730/Upside: 5%)
 
Infosys reported 3QFY2014 results with operating margins ahead of our expectations, but top-line came in below estimates. The USD revenues came in at US$2,100mn, up 1.6% qoq (estimate - 2%). The constant currency (CC) revenue growth came in at 1.2% qoq led by led by merely 0.7% qoq volume growth (largely offshore led). In INR terms, revenue came in at Rs.13,026cr, up 0.5% qoq. InfosysRs. operating margins have been a concern since the last six quarters and during 3QFY2014 the company posted whopping 145bp qoq growth in EBIT margin to 25.0%, led by operational efficiency with inch up in utilization level to 74.1% (73.7% in 2QFY2014) and sequential decline in S&M spends. The company expects margins to stabilize around the current levels in the medium to long term. PAT came in at Rs.2, 875cr, up 9.5% qoq, aided by healthy operating performance as well as higher other income of Rs.731 cr as against Rs.510cr in 2QFY2014.
 
Infosys has revised its USD revenue growth guidance for FY2014 to 11.5-12% (expectation: 11-12%) from 9-10% given earlier, implying 1.4% qoq USD revenue growth in 4QFY2014 to meet the upper end of guidance which seems attainable. The company's Management opined that the global economic environment has improved and looks exciting for IT services industry. The company expects the client budgets to be flat from last year, but the business environment to improve gradually. The deal pipeline has seen steady improvement over the last 4-5 quarters that could be attributed to better macro-economic environment and increased focus on traditional Business IT. While the improvement in IT spending outlook for CY2014 does bode well for the FY201 5E revenue outlook of the sector in general and Infosys as well. We believe Infosys will continue to lag tier-I peers such as TCS and HCL Tech on revenue growth. The current set of results as well as guidance given is largely inline with expectations and factored in the stock, which limits a sharp upside potential in the immediate future. At the CMP of Rs.3,550, the stock is trading at 19.2x and 16.6x its FY2014E and FY2015E EPS, respectively. We value the stock at 17.5x FY2015E EPS of Rs.213.3, which gives us a target price of Rs.3,730. We recommend an Accumulate rating on the stock.
 
 
Result Preview
 
Exide Industries (CMP: Rs.112/ TP: Rs.135/ Upside: 20%)
 
Exide Industries (EXID) is slated to announce its 3QFY2014 results today. We expect the company to register a modest top-line growth of ~2% yoy (~5% qoq) to Rs.1,500cr due to slowdown in demand from OEMs and also due to sluggish demand trend in the industrial battery business. Nonetheless, we expect EBITDA margins to improve ~330bp yoy (~50bp qoq) to 14.5% due to the pricing action and easing of lead prices. As a result, we expect the company's bottom-line to register a growth of ~29% yoy (~13% qoq) to Rs.134cr during the quarter. At the CMP, the stock is trading at 13.8x FY2015E earnings. Currently, we have a Buy rating on the stock with a target price of Rs.135.
 
 
Economic and Political News
 
- Finance minister tells regulators to move on FSLRC proposals
 
- Cleared projects worth Rs.1.5 lakh cr till now, says Moily
 
- Oil Ministry raises concerns over plans to raise LPG cap
 
- CoalMin floats another CCI note for completion of 3 rail lines
 
 
Corporate News
 
- RIL-BP avert shutdown of KG-D6 fields
 
- No preference to Vedanta in HZL, Balco stake sale: Mayaram
 
- Coal India gets environment ministry approval for 23 projects
 
- CIL to once again invite fresh applications for coal import

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