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Indian stock market and companies daily report (January 15, 2013, Tuesday)

Contributed by Angel Broking

The Indian market is expected to open flat mirroring flat to positive opening in most of the Asian markets.

U.S. markets ended on a flat note yesterday as Apple Inc.Rs.s near 4% drop wiped out US$17bn from as a report stated that Apple had cut iPhone production plans because sales had come in below expectations. The European markets ended with a mixed result on Monday. The European markets were positive early after Chicago Fed President Charles Evans said the U.S. central bank should keep policy accommodative to boost employment while lawmakers take steps to cut back spending. In the meanwhile, investors will be watching for comments by U.S. Federal Reserve Chairman Ben Bernanke today on the monetary policy and the U.S. economy.

Indian shares rallied on Monday as the government deferred implementing the controversial GAAR by two years to April 2016. Moreover, IndiaRs.s WPI inflation eased marginally in December to 7.18% from 7.24% in the previous month, leaving space for RBI to ease monetary policy to support growth.

Markets Today

The trend deciding level for the day is 19,848 / 6,008 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,007 - 20,108 / 6,053 - 6,082 levels. However, if NIFTY trades below 19,848 / 6,008 levels for the first half-an-hour of trade then it may correct up to 19,747 - 19,589 / 5,979 - 5,933 levels.

CPI inflation for November 2012 nearly touches doubledigits at 9.9%

Wholesale Price Index (WPI) inflation for the month of December 2012 receded slightly to 7.18% yoy as compared to 7.24% yoy in the previous month. On a 3MMA basis too, headline WPI inflation eased to 7.3% yoy as compared to 7.5% yoy in November 2012. WPI inflation moderated for the third straight month owing to deceleration in the pace of manufactured products and fuel inflation. Core inflation eased further to 4.2% yoy as compared to 4.5% yoy in the previous month and 8.0% yoy in the corresponding period of the previous year. Inflation for October 2012 has been revised downwards from 7.5% yoy to 7.3% yoy as inflation in primary articles stood revised at 7.8% yoy as against 8.2% yoy reported earlier.

Primary articles inflation paced higher to double digits (10.6% yoy) during the month as compared to 9.4% yoy in the previous month and 3.6% yoy in the corresponding period of the previous year. Amongst this category, inflation in food articles edged upwards to 11.2% yoy as compared to 8.5% yoy in November 2012 and 0.8% yoy in December 2011. Fuel and power inflation decelerated for the third straight month to 9.4% yoy from 10.0% yoy in the previous month and 15.0% in December 2012. This can be attributed to deceleration in mineral oil inflation (7.6% yoy from 8.5% yoy in the previous month) owing to the index for naphtha, furnace oil and ATF fuel. Despite elevated inflation in manufactured food products (9.0% yoy as against 10.0% yoy in the previous month), inflation in the overall Manufactured products category cooled to 5.0% yoy owing to declining commodity prices.

We believe that the recent data points including decline in industrial production, moderation in headline inflation print for the third straight month, and easing of the core component within the Reserve Bank of India (RBI)Rs.s comfort zone, make for adequate grounds for monetary policy easing by the RBI. In its third quarter monetary policy review on January 29, 2013, we expect the RBI to reduce the repo rate by 25bp.

At the same time, the present moderation in inflation is unlikely to continue going ahead post the fiscal year end. We believe that upside bias to inflation is likely from factors such as the recent hike in railway passenger fares and implementation of the much-discussed hike in diesel prices since it would release suppressed inflation in the economy and fuel inflationary pressures in the shortterm, although beneficial for the medium-term outlook. We believe that managing inflationary pressures remains one of the key priorities of the RBI. Therefore, unless the fiscal deficit is brought to manageable levels and the emanating inflationary pressures contained, it is unlikely to get elbow room for adopting an aggressive easing policy. For CY2013, we expect the RBI to ease policy rates by about 75bp-100bp.

In contrast the new Consumer Price Index (CPI) inflation series starting January 2012 reached an all-time high at 10.6% in December 2012, inching upwards from 9.9% in November 2012. This is mainly because the retail inflation index gives a high weightage to food inflation which continues to remain elevated in the economy.

Government defers GAAR implementation to April 2016

The government has deferred the implementation of General Anti Avoidance Rules (GAAR) by two years until April 01, 2016 and has accepted major recommendations of the Expert Committee on GAAR with some modifications. This development is expected to come as a major relief for foreign investors by abating tax uncertainty. We believe that this measure is also likely to boost investor confidence and thereby attract capital inflows in the economy.

Background:

The GAAR provisions, aimed at curbing tax avoidance by foreign investors, were introduced in the FY2013 Budget by then FM Pranab Mukherjee and raised apprehension by overseas investors particularly with regard to application with retrospective amendment. Following this, a Committee led by Dr. Parthasarathi Shome was constituted to undertake stakeholder consultations and finalize the guidelines for GAAR.

The Shome Committee recommended that an amendment to the income-tax law seeking to tax indirect transfers of Indian assets should apply prospectively and only on those who make capital gains. Even in Rs.rarest of rareRs. cases where retrospective taxes are applied, it recommended exhaustive and transparent consultation with stakeholders and waiver on interest levies or penalties. It also recommended the exclusion of FIIs, listed companiesRs. P-notes and stock market transactions from the ambit of the retrospective amendment.

Accordingly, Finance Minister P Chidambaram indicated yesterday that modifications done to the GAAR provisions are aimed at making it fair, non-discriminatory, just and striking a balance between interest of revenue and interest of investors. Some of the major decisions are that it will not apply to FIIs that choose not to take any benefit under the Income-tax Act, 1961. GAAR will also not apply to non-resident investors in FIIs. In addition, a monetary threshold of Rs.3cr tax benefit in the arrangement will be provided in order to attract the provisions of GAAR. Investments made before August 30, 2010, the date of introduction of the Direct Taxes Code (DTC) Bill, will also be exempt from the provisions of GAAR.

Tata Motors to undertake block closure at Jamshedpur plant

Tata Motors has announced a three day block closure at its Jamshedpur plant from January 14 in the wake of the poor demand environment in the domestic markets. Further, the company also wants to avoid piling-up of inventory, control costs and align production in-line with the market demand. The decision has been taken considering the weak demand in the medium and heavy commercial vehicles (MHCV) segment which has witnessed a decline of ~19% YTD in FY2013. TTMT witnessed a steep fall in production at the plant with the company producing only ~4,000 units in December 2012 as against normal production levels of ~ 10,000 units. This is the second block closure in a fortnight (company had undertaken a 15 days block closure in 2012) at the Jamshedpur plant. The Jamshedpur plant manufactures trucks, besides engine and, cab and cowl. Due to limited upside from current levels, we maintain our Neutral rating on the stock.

MM to raise capacity of Quanto, XUV500 and Rexton

Mahindra and Mahindra (MM) has announced that it would be raising the capacity of some of its best selling models, Quanto, XUV500 and Rexton with immediate effect to bring down their respective waiting periods. According to the company, the waiting list on these models has increased offlate and is expected to increase further once the bookings are opened across more centers in India. The capacity of Quanto, XUV5OO and Rexton will be hiked to 3,500, 4,500 and 500 units/ month respectively from 2,500, 4,000 and 400 units/ month respectively. We see this as a positive move for the company and it will enable the company to maintain its volume momentum in the passenger vehicle segment going ahead. At Rs.935 the stock is trading at 15.1x FY2014E earnings. We maintain our Accumulate rating on the stock with an SOTP based target price of 7998.

JSW Steel's 3QFY2013 production numbers

JSW Steel's 3QFY2013 crude steel production grew 8.0% yoy to 2.1mn tonnes. The rolled flat production increased by 1 3.0% yoy to 1.6mn tonnes while the rolled long production increased 31.0% yoy to 0.5mn tonnes. The capacity utilization for the Vijaynagar plant was lower during 3QFY2013 compared to 2QFY2013 due to shortage of iron ore in the region. We maintain our Neutral rating on the stock.

3QFY2013 Result Review

TCS (CMP: Rs.1,334 / TP: Under review)

TCS reported yet another healthy quarterly result, outperforming street as well as our expectations on the operating margin as well as profit front. The dollar revenue grew by 3.3% qoq to US$2,948mn. In INR terms, revenue came in at Rs.16070cr, up 2.9% qoq. Volume growth was though muted at 1.25% qoq. TCSRs.s EBITDA and EBIT margin improved by 53bp and 50bp qoq to 29.0% and 27.3%, respectively, against street expectation of qoq decline seen. Bottomline of company grew by ~1% qoq to Rs.3,552cr.

TCS closed 7 large deals during 3QFY2013. These deals span industry segments as well as geographies. Management sounded confident of growing higher than the industry. Also, the company raised its gross hiring target by ~9,000 people for FY2013 which instills confidence in the deal pipeline of the company. Management indicated that they expect CY2013 to be better than CY2012 in terms of IT spending. Also, the company kept its campus hiring target of 25,000 people for FY2014 unchanged. We remain positive on TCS which has been a consistent performer since couple of years and maintain Accumulate rating on the stock. The target price is under review.

Petronet LNG (CMP: Rs.162 / TP: Rs.179 / Upside: 11%)

Petronet LNG reported 3QFY2013 numbers. During 3QFY2013, PLNGRs.s R-LNG volumes fell by 3.4% yoy to 140TBTUs. The contractual volumes stood at 97TBTUs, while spot cargo and tolling volumes stood at 43TBTUs. Although volumes declined, average realization increased by 39.3% yoy to Rs.602/mmbtu and therefore, net sales increased by 33.1% yoy to Rs.8,423cr. The EBITDA/mmbtu decreased by 3.3% yoy to Rs.37.8 and the EBITDA margin declined by 167bp yoy to 6.3% in 3QFY2013. The cost of LNG regasified increased by 37.0% yoy to Rs.7,809cr. Hence, despite a higher growth in net sales, the EBITDA increased by only 5.1% yoy to Rs.529cr. Other income decreased by 9.1% yoy to Rs.15cr, while the tax rate fell to 31.9% in 3QFY2013, compared to 32.7% in 3QFY2012. Hence, the net profit grew by 7.8% yoy to Rs.319cr. We maintain our Accumulate rating on the stock with a target price of ?179.

Electrosteel Castings (CMP: Rs.27 / TP: Under Review / Upside: -)

Electrosteel Castings reported its 3QFY2013 results. Its net sales increased by 6.5% yoy to Rs.473cr. It posted a positive EBITDA of Rs.47cr compared to an EBITDA loss of Rs.1cr in 3QFY2012 mainly due to lower raw material costs. Raw material costs as a percentage of net sales decreased to 53.9% in 3QFY2013, compared to 70.9% in 3QFY2012. The interest costs, however, increased by 142.3% yoy to Rs.27cr while other income grew by 397.5% yoy to Rs.38cr. Consequently, the company reported a net profit of Rs.33cr compared to a PAT loss of Rs.11cr in 3QFY2012. We maintain our Buy view on the stock but keep our target price under review

3QFY2013 Result Preview

Axis Bank (CMP: Rs.1,387 / TP: Rs.1,594 / Upside: 15.0%)

Axis Bank is slated to announce its 3QFY2013 results today. We expect the bank to report a healthy NII growth of 15.2% yoy to Rs.2,466cr. Non-interest income too is expected to increase at a healthy pace of 16.8% yoy to Rs.1,669cr. Aided by healthy growth in operating income, the pre-provision profit of the bank is expected to register a growth of 15.8% yoy. However, provisioning burden is expected to decline by 2.9% yoy, leading to net profit growth of 21.0% yoy to Rs.1,334cr.

The stock is currently trading at 1.9x FY2014E ABV - more than 50% discount to HDFC Bank vs an average discount of 35% over the past five years (which we believe over-discounts asset quality concerns). We remain positive on the bank, owing to its attractive CASA franchise, multiple sources of sustainable fee income and reasonable growth outlook. Hence, we maintain our Buy recommendation on the stock with a target price of Rs.1,594.

South Indian Bank (CMP: Rs.28 / TP: Rs.33 / Upside: 17.1%)

South Indian Bank is scheduled to announce its 3QFY2013 results today. We expect the bank to report a healthy growth of 17.8% yoy in net interest income (NII) to Rs.322cr. Non-interest income is expected to increase by 24.0% yoy to Rs.74cr. Operating expenses are expected to grow at 16.8% yoy to Rs.180cr. Provisioning expenses are expected to increase by 71.4% yoy to Rs.38cr. Net profit is expected to grow at 17.7% yoy to Rs.120cr. At the CMP, the stock is trading at 1.2x FY2014E ABV. We maintain our Buy recommendation on the stock with a target price of ?33.

Economic and Political News

- 2G: CBI court to take cognisance of chargesheet on January 30

- Fiscal deficit to stay elevated in 2013: MoodyRs.s

- IndiaRs.s January 1 food grain stocks 167% more

- India, South Africa for early conclusion of trade pact

- SC extends deadline for telecom operators to continue 2G service till Feb 4

Corporate News

- Sebi clears Bajaj Finance rights issue to raise up to Rs.750cr

- Crompton Greaves to acquire CFL division of Karma Industries

- Gas output from RILRs.s KG-D6 fields drops to 22 mmscmd

- Maruti launches new Wagon R starting at Rs.3.58lakh

- Suzlon EnergyRs.s CDR package to be signed in 2-3 days