Indian stock market and companies daily report (January 16, 2014, Thursday)
January 16, 2014, Thursday, 05:57 GMT | 00:57 EST | 10:27 IST | 12:57 SGT
Indian Markets are expected to open in the green tracking a positive opening in the SGX Nifty which is trading higher by ~0.4%. Most of the Asian markets too are trading in the positive territory.
US markets rose higher on Wednesday adding to the gains posted in the previous session. The markets reacted positively to the strong financial results posted by Bank of America for the fourth quarter of 2013. During the day the labor department released a report showing that producer prices rose in line with economist estimates in the month of December. The World Bank too released a report which estimated the global economy to grow by 3.2% in 2014, higher than the 3% forecasted in June last year. The European markets rose on Wednesday reacting positively to World Bank increasing its global growth forecasts for 2014.
Meanwhile the Indian markets rose on Wednesday after the country's headline inflation eased to a five-month low of 6.16% in December from a 14-month high of 7.52% in November, driven largely by softening in vegetable prices.
The trend deciding level for the day is 21,228 / 6,304 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 21,364 - 21,439 / 6,342 - 6,364 levels. However, if NIFTY trades below 21,228 / 6,304 levels for the first half-an-hour of trade then it may correct 21,153 - 21,017 / 6,282 - 6,244 levels.
WPI Inflation at 5-month low on moderation in food prices
During December 2013, the Wholesale Price Index (WPI) based inflation eased to a five-month low of 6.16%, well below market expectations of about 7.00%. The substantial moderation from 7.52% in November 2013 is driven by deceleration of inflation in food articles led by cooling vegetable prices. Inflation for October 2013 has been revised higher to 7.24% from 7.00% reported earlier on account of upward revision in food, fuel and manufactured products indices.
Primary articles - weightage 20.1%
During December 2013, inflation reported by the primary articles index comprising food, non-food and minerals came in considerably lower at 10.78% as compared to 15.92% in the previous month, owing to deceleration across categories. The correction has largely been led by food articles moderating to 13.68% from 19.93% in the previous month. Inflation in non-food articles and minerals eased to 6.04% and 2.07% during the month from 7.60% and 6.09% in November 2013 respectively.
Food articles: The moderation in food articles inflation can be attributed mainly to cooling of vegetable prices (30.0% mom decline). Vegetable inflation came in at 57.33% as against 95.25% in the previous month; further normalization of prices is expected to continue to bring respite to overall food inflation. Cereals inflation, although elevated, has positively decelerated for the sixth straight month to 10.19% as compared to 11.32% in the previous month. Pulses continued to be deflationary as prices declined by 7.1 9% as compared to 10.56% in November 2013.
Fuel and power - weightage 14.9%
Inflation in the overall fuel and power segment eased slightly to 10.98% during December 2013 as compared to 11.08% in the previous month. The moderation can be attributed to inflation in mineral oils decelerating to 12.30% as compared to 12.85% in November 2013. Amongst mineral oils, LPG prices have reported a 1.54% decline as against rise of 10.90% in the previous month and 19.01% in December 2012 owing to a higher base. This factor alone has offset the impact of uptick in inflation reported by other mineral oils such as diesel, ATF, petrol and kerosene and also higher inflation reported by the electricity segment.
Manufactured products - weightage 65.0%
Inflation in manufactured products remained stable at 2.64% during December 2013. Manufactured food products inflation came in lower at 1.80% as compared to 2.52% in the previous month and 8.74% in December 2012. However, core inflation came in higher at 2.75% as compared to 2.63% in the previous month, suggesting a pass through of higher input costs in the manufacturing sector despite weak pricing power.
The cooling off of high food prices has resulted in considerable moderation of headline WPI and CPI inflation prints and further normalization of prices is expected to continue to bring respite to overall food inflation. At the same time however, core WPI inflation has picked up and core CPI inflation continues to remain at elevated 8% level.
In its December 2013 policy review, the Reserve Bank of India (RBI), despite no rate action, had continued to maintain a hawkish stance. It indicated that "...if the expected softening of food inflation does not materialize and translate into a significant reduction in headline inflation in the next round of data releases, or if inflation excluding food and fuel does not fall, the Reserve Bank will act, including on off-policy dates if warranted, so that inflation expectations stabilize and an environment conducive to sustainable growth takes hold." Although sequential decline in food prices has impacted inflation positively, we believe that the RBI is likely to remain cautious in view of the uptick in core inflation. We expect the RBI to hold monetary policy rates during its January 28 policy review.
RBI introduces incremental provisioning and capital requirement for un-hedged foreign currency exposures
RBI has introduced incremental provisioning and capital requirement guidelines for banks for their un-hedged foreign currency exposure, which are likely to be effective from 1st April 2014. Guidelines require that for un-hedged foreign currency exposures, likely loss to be taken to profit & loss account is to be calculated taking into account highest annual volatility in USD-INR over last ten years. In case, the likely loss as a proportion to EBID (PAT + depreciation + Interest) exceeds 15%, the incremental provisioning on entire exposure would be 20bp and would increase in tandem with the increase in proportion of likely loss to EBID. We await clarity from the banksRs. management as to their assessment of the likely impact of the guidelines on their profitability, as the data regarding the unhedged foreign currency exposures is not available in public domain.
Dr Reddys Labs in pact with Galena Biopharma
Dr Reddy's Laboratories Limited (DRL) and Galena Biopharma announced a strategic partnership to develop and commercialise NeuVax in India. NeuVax is a vaccine aimed at preventing the recurrence of breast cancer in patients under remission. Galena is an Oregan-based biopharmaceutical company commercialising and developing targeted oncology treatments that address unmet medical needs to advance cancer care.
Under the terms of the agreement Galena will license commercial rights of NeuVax to DRL for breast and gastric cancers. DRL will lead the development of NeuVax in gastric cancer, and help expand the scope of therapy by addressing a new patient population. Galena will receive development and sales milestones, as well as double-digit royalties on net sales. The licensing and development terms are conditioned to an agreement on ancillary activities.
NeuVax (nelipepimut-S) is an immunodominant nonapeptide derived from the extracellular domain of the HER2 protein, a well-established target for therapeutic intervention in breast carcinoma. Based on a successful Phase 2 trial, which achieved its primary endpoint of disease-free survival, the US Food and Drug Administration granted NeuVax a special protocol assessment (SPA) for its Phase 3 PRESENT (Prevention of Recurrence in Early-Stage, Node-Positive Breast Cancer with Low to Intermediate HER2 Expression with NeuVax Treatment) study. Currently, the vaccine is undergoing Phase 3 trial.
The Indian Cancer market is nascent and estimated to be ~Rs.1800cr in India and growing at healthy double digit. The partnership will strengthen DRL's oncology product portfolio in India. We maintain our accumulate with a price target of Rs.3008.
Yes Bank - (CMP: Rs.350 / TP: Rs.419 / Upside: 19.7% )
Yes Bank reported a healthy operating performance during the quarter, which was ahead of our expectations. Over the last few quarters, the balance sheet growth for the bank has moderated. Even during current quarter, aided by moderate loan book growth of 14.7% yoy, NII for the bank grew 13.9% yoy to Rs.665cr. NIMs expectedly remained flat qoq at 2.9%. Non-interest income registered healthy growth of 23.9% yoy to Rs.388cr, aided by robust performance of Rs.financial marketsRs. segment (yoy growth of around 80%) and healthy performance in segments like Retail and Transaction Banking. Gross NPAs for the bank increased by Rs.63cr on a low base of Rs.132cr, while net NPAs increased by Rs.23cr on a low base of Rs.19cr. Gross and Net NPA ratios for the bank remain well under control and amongst the best in the industry at 0.39% and 0.08%, respectively. Overall, the bank reported earnings growth of 21.4% yoy to Rs.416cr.
The bank's asset quality performance has been quite good so far, with credit costs contained well below the management guidance of 55-60bp for the year. The management had identified Rs.adversely labeled assetsRs. at around 1-2% of loan book (against which they already have provisions worth 0.4% of advances), which remain vulnerable of being bad and could result in higher credit costs if they turn so. However, with yield curve now much moderate then earlier and increasing expectations of lower interest rates by early part of next fiscal, the stock is likely to re-rate as valuations would factor in the growth potential. At CMP, the stock trades at 1.4x FY2015E ABV. We recommend Buy rating for the stock, with a target price of Rs.419.
TCS (CMP: Rs.2,354/ TP: Rs.2,500/ Upside: 6%)
TCS is slated to announce its 3QFY2014 results today. We expect the company to post revenue of US$3,457mn with 3.6% qoq growth, mostly volume led. In rupee terms, revenues are expected to grow by 2.2% qoq to Rs.21,434cr. EBITDA margin is expected to decline marginally by 23bp qoq to 31.4%, impacted by marginal INR appreciation during the quarter and slight decrease in utilization level. PAT is expected to be at Rs.4,955cr, up 5.4% qoq. TCS is expected to continue to show industry leading performance. We believe TCSRs. premium multiples are well deserved given consistency in performance and leadership in growth/profitability. We maintain our Accumulate rating on the stock with target price of Rs.2,500.
HCL Technologies (CMP: Rs.1,335/ TP: -/ Upside: -)
HCL Technologies is slated to announce its 2QFY2014 numbers today. We expect the company to post revenue of US$1,31 2mn, up 3.3% qoq. In rupee terms, the revenue is expected to grow by 2.2% qoq to Rs.8,136cr. EBITDA margin is expected to decline by ~35bp qoq to 26.0%, on account of dip in utilization level expected. PAT is expected to come in at Rs.1,450cr, up 2.4% qoq. Owing to recent run-up in the stock price, we maintain our Neutral rating on the stock.
Axis Bank (CMP: Rs.1,178 / TP: Rs.1,570 / Upside: 33.3%)
Axis Bank is slated to announce its 3QFY2014 results today. We expect the bank to report a healthy NII growth of 23.1% yoy to Rs.3,070cr, primarily on back of healthy advance growth of 17.8% yoy. Non-interest income is expected to remain flat yoy at Rs.1,655cr. Operating expenses are expected to increase by 11.9% yoy to Rs.1,956cr, while provisioning expenses are expected to be higher by 10.8% yoy to Rs.429cr. Hence, we expect the bank to report healthy growth of 16.4% yoy during the quarter to Rs.1,568cr. At the CMP, the stock is trading at 1.3x FY201 5E ABV. We recommend a BUY rating on the stock with a target price of Rs.1,570.
Bajaj Auto (CMP: Rs.1,895/ TP: Rs.2,272/ Upside: 20%)
Bajaj Auto (BJAUT) is scheduled to announce its 3QFY2014 results today. We expect the company's earnings to register a ~5% yoy growth to Rs.861 cr despite a ~2% yoy decline in the top-line to Rs.5,321cr. The earnings growth is expected to be driven by EBITDA margin expansion of ~180bp yoy to 20.5% led largely by favorable exchange rate movement. The top-line performance is expected to be impacted due to the ongoing weakness in the domestic segment which witnessed a volume decline of ~24% yoy. As a result, we expect domestic revenues to decline ~18% yoy during the quarter. Exports however, is expected to post a strong performance, led by a volume growth of ~12% yoy which coupled with favorable exchange rate movement is expected to result in a significant exports revenue growth of ~31% yoy. At the CMP, the stock is trading at 13.4x FY2015E earnings. We maintain our Buy rating on the stock with a target price of Rs.2,276.
LIC Housing (CMP: Rs.213 / TP: 248/ Upside: 16.3%)
LIC Housing is expected to announce its 3QFY2014 results today. NII is expected to increase by 15.3% yoy to Rs.461cr, while non-interest income is expected to de-grew by 6.9% yoy to Rs.19cr. Operating expenses are expected to increase by 15.3% yoy to Rs.78cr, while Provisioning expenses are expected to de-grow by 34.5% yoy to Rs.21cr. Overall, we expect PAT to increase by 17.4% yoy to Rs.277cr. We recommend a Buy rating on the stock with a target price of Rs.248.
Mindtree (CMP: Rs.1,479/ TP: Rs.1,650/ Upside: 12%)
MindTree is slated to announce its 3QFY2014 results today. We expect the company to post revenue of US$127mn, up 2.3% qoq. In rupee terms, the revenue is expected to come in at Rs.786cr, up 2% qoq. EBITDA margin is expected to decline by 25bp qoq to 20.5% impacted by lower volume growth and marginal dip in utilization level. PAT is expected to come in at Rs.104cr. We maintain our Accumulate rating on the stock with a target price of Rs.1,650.
DBCorp (CMP: Rs.305 / TP: Rs.330 / Upside: 8.1%)
DB Corp is slated to announce its 3QFY2013 results. We expect 12.3% yoy growth in its top-line to Rs.493cr aided by strong double-digit growth in advertising revenue (on back of festive season and recently held state elections). The company's margins are expected to expand by 45bp yoy to 27.6%. Consequently, net profit is expected to grow by 14.9% yoy to Rs.81cr. At the current market price, DB Corp is trading at 17x FY2015E consolidated EPS of Rs.17.9. We recommend Accumulate on the stock with the target price of Rs.330.
Infotech Enterprises (CMP: Rs.331/ TP: -/ Upside: -)
Infotech Enterprises is slated to announce its 3QFY2014 results today. We expect the company to post revenues of US$89.3mn, up 2% qoq. In rupee terms, revenues are expected to come in at Rs.554cr, up 1% qoq. EBITDA margin is expected to decline by 40bp qoq to 19.4%. PAT is expected to come in at Rs.72cr. We maintain our Neutral rating on the stock.
South Indian Bank - (CMP: Rs.20/ TP: Rs.24 / Upside: 17.9%)
South Indian Bank is scheduled to announce its 3QFY2014 results today. We expect the bank to report a weak NII growth of 4.6% yoy to Rs.369cr. Non-interest income is expected to remain flat yoy to Rs.66cr. While, operating expenses are expected to grow by 16.8% yoy to Rs.214cr, provisioning expenses are expected to decline to Rs.39cr from Rs.45cr in 3QFY2013. Hence, Net profit is expected to remain flat yoy at Rs.127cr. At the CMP, the stock is trading at 0.8x FY2015E ABV. We recommend Buy rating on the stock.
Economic and Political News
- World Bank lowers India's 2014 GDP growth estimates to 6.2%
- PNGRB extends last date for CGD bidding
- 41 coal block allocations likely to be cancelled: Govt. to SC
- Govt to expedite clearances to $12 bn Posco project: Sharma
- Cai rn India to get one more block in Srilanka
- SAT asks Sebi, RIL to clarify impact of new consent norms
- HCL Tech, CSC tie up for cloud computing