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Indian stock market and companies daily report (January 17, 2013, Thursday)

Contributed by Angel Broking

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

US markets turned in a relatively lackluster performance during trading yesterday, extending a recent sideways move. The worries about the global economy stemmed from news that the World Bank cut its forecast for global economic growth in 2013 to 2.4% from the earlier forecast of 3.0%. However, the negative sentiment was partly offset by the release of a report by the Federal Reserve showing a bigger than expected increase in US industrial production in the month of December to 0.3% (estimate - 0.2%).

Indian markets fell sharply yesterday, with rate-sensitive auto, banking and realty stocks leading the way, after RBI Governor Subbarao said there is no room for stimulus on both monetary and fiscal side.

Markets Today

The trend deciding level for the day is 19,870 / 6,017 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,957 - 20,096 / 6,041 - 6,081 levels. However, if NIFTY trades below 19,870 / 6,017 levels for the first half-an-hour of trade then it may correct up to 19,731 - 19,644 / 5,977 - 5,953 levels.

GSM subscribers down 6.62mn to 657.1 mn in December 2012

Indian GSM telecom operators, including Bharti Airtel, Vodafone and Idea, lost more than 6mn subscribers in December 2012, bringing down the total user base to 657.16mn. The top three operators - Bharti Airtel, Vodafone and Idea Cellular -which account for over 67% of the GSM market lost over 5mn users in December 2012 as per the data released by Cellular Operators Association of India (COAI). Except Uninor, which added 918,552 users, not even a single operator added any new subscriber during December 2012. Bharti Airtel lost 1.70mn users with its subscriber base standing at 181.91 mn. Vodafone and Idea Cellular lost 3.29mn and 1.97mn users, respectively. At the end of December 2012, VodafoneRs.s subscriber base stood at 147.48mn, while that of Idea Cellular was at 113.95mn. Aircel lost 1.98mn users in December, which squeezed its user base to 63.35mn, while Videocon lost 371,953 subscribers pulling down its base to 3.64mn in the reported month. State-run operator BSNL did not add a single subscriber in December with 97.17mn subscribers. Another government-run firm MTNL lost 2,253 users, taking its user base to 5.12mn at the end of December 2012. We maintain our Neutral view on the overall telecom sector.

Axis Bank picks advisors for upto US $1bn share sale

Axis Bank had last month, proposed to raise funds by offering 4.58cr shares through various means, including qualified institutional placement (QIP), global depository receipt (GDR) or preferential issue to promoters. As per media reports, the bank has appointed JP Morgan Chase and Citigroup Inc, for share sale upto US $1bn to institutional investors, which is likely to be launched over in the next two to three weeks. The capital raising would aid its tier-I capital adequacy, which has dipped to 8.8% as of 3QFY2013 (10.3% including 9MFY2013 profits) from 11.2% in FY2010 due to strong credit growth. The dilution is expected to be book accretive and will aid in further enhancing the bankRs.s credit market share going forward. At CMP, the stock trades at 1.9x FY2014 ABV, we maintain an Accumulate recommendation with a target price of Rs.1,641.

Diageo-USL deal hits CCI hurdle

As per media reports, the Competition Commission of India ( CCI) is believed to have expressed reservations over DiageoRs.s proposed purchase of a majority stake in UB GroupRs.s United Spirits Ltd (USL), as it has found certain clauses of the deal to be based on probabilities and not definitive in nature. CCI is not comfortable with the deal terms that provide for the existing promoters of USL giving a preferential treatment to Diageo, if it fails to get the required number of shares from public shareholders through an open offer. As per reports CCI has asked the companies to rework the contentious portion of the deal. We maintain a Neutral view on USL.

Daiichi Sankyo and Ranbaxy to leverage synergies in Thailand

Daiichi Sankyo Company (Daiichi Sankyo) and Ranbaxy Laboratories (Ranbaxy) announced their intention to integrate their business operations in Thailand, to leverage and maximize the synergies of the Hybrid Business Model, which is expected to commence business on April 1, 2013.

The planned integration of operations will provide a strong foundation for future Daiichi Sankyo Group business expansion in Thailand. The development will be mutually beneficial to Ranbaxy and Daiichi Sankyo. It is expected to enhance their competitiveness while offering both innovative and affordable, high quality generic medicines to the people of Thailand as well as generate cost synergies for both companies.

Under this strategy, Daiichi Sankyo and Ranbaxy would integrate the management of Daiichi SankyoRs.s subsidiary in Thailand, Daiichi Sankyo (Thailand) Ltd. (DSTH) and RanbaxyRs.s Thailand subsidiary, Ranbaxy Unichem Co. Ltd. (RUCL). The new representative of the proposed integrated entity will be Suthas Thongprasert, who presently heads DSTH.

The pharmaceutical market in Thailand is the second largest among ASEAN countries, and DSTH, has built its presence mainly by targeting healthcare facilities through innovative pharmaceuticals. The company was founded in 1994 and had sales of JPY 1.2bn yen (US$13mn*) in FY2011. On the other hand, RUCL markets generic medicines focusing on primary healthcare and pharmacies. RUCL was established in 1983 and had sales of US$14mn in CY2011. Overall development is positive for the company and we remain Neutral on the stock.

RCom, Alcatel-Lucent sign billion dollar network managed services contract

Reliance Communications (RCom) has signed a multi-year US$1 bn end-to-end network managed services contract with Alcatel-Lucent. This contract runs up to 2020. Currently, RCom has a 33:67 JV with Alcatel-Lucent, which was announced in 2008 for managed services for wireless. The new contract, though covers only Eastern and Southern India, would cover the entire range of RComRs.s telecom services - wireless, wireline, and utilities - on an end-to-end basis across the country. This is different from managed service contracts deals signed by other telecom companies, where the deals would be restricted only to the companyRs.s wireless operations. Alcatel-Lucent will enhance RComRs.s operations, and synergize hitherto independent wireless and wireline teams to form a single network management organization. As per the company, this optimized integration of resources will help RCom to strengthen its focus on growing its business, with top-of-the-line services to customers. Alcatel-Lucent also will drive a standardization of the tools, processes and best practices that are applied across RComRs.s businesses. We maintain our Neutral rating on the stock.

3QFY2013 Result Review

Bajaj Auto (CMP: Rs.2,073 / TP: - / Upside: -)

Bajaj Auto (BJAUT) registered an in-line operating and bottom-line performance for 3QFY2013; nevertheless, bottom-line performance was aided by higher other income. For 3QFY2013, BJAUT reported an 8.6% yoy (8.9% qoq) growth in its top-line to Rs.5,413cr driven by 4.9% (7.5% qoq) and 4.6% yoy (2.5% qoq) growth in volumes and net average realization respectively. While the volume growth was led by the festival demand, new launches (Pulsar 200NS and Discover 125ST) and opening up of permits in Delhi and Karnataka; the net average realization benefitted due to the better product-mix (three-wheelers accounted for 12.5% of sales as against 11.5% in 2QFY2013), price hikes of 2% in export markets (export realization up 8.9% qoq) and favorable exchange rate. The EBITDA margin remained stable on a sequential basis (up 30bp) and stood at 18.7% which was in-line with our estimates. However on a yoy basis, it declined 1 05bp mainly on account of raw-material cost pressures. A higher share of <125cc motorcycles in the total volumes (~63% vs. ~58% in 3QFY2012) also impacted the operating performance during the quarter. The adjusted net profit, posted a decline of 4.1% yoy (up 10.5% qoq) to Rs.819cr, owing to lower income tax benefits at the Pantnagar plant (tax rate of 30.2% vs. 25.1% in 3QFY2012). Nonetheless, it benefitted from higher other income which grew by 20.9% yoy (21.9% qoq).

Going ahead, we expect export volumes to recover gradually and also expect domestic volumes to benefit from the new launches (Pulsar 200NS, Discover 125 ST and Discover 100T). We await more clarity from the management on the forex hedges and volume guidance for FY2014. We shall release a detailed result update post the conference call which is scheduled today. At the CMP of Rs.2,073, the stock is trading at 16.4x FY2014E earnings. We maintain our Neutral rating on the stock.

Yes Bank (CMP: Rs.518 / TP: Rs.576 / Upside: 11.2%)

During 3QFY2013, Yes Bank reported strong performance, with net profit growth of 34.7% yoy, which exceeded our estimates, due to higher-than-estimated growth in non-interest income, contributed largely by Rs.financial advisoryRs. fees. Key positive takeaways from the results were strong momentum in savings deposits, maintenance of healthy asset quality and strong loan growth during the quarter.

NIMs improve on lower cost of funds: During 3QFY2013, the bank registered healthy growth in its business, as advances grew by 22.3% yoy, while deposits increased by 20.2% yoy. Growth in Customer Assets (Loans & Credit Substitutes) remained strong at 27.4% yoy. CASA deposits grew by 74.9% yoy, thereby taking its CASA ratio to 18.3% from 12.6% as of 3QFY2012. Savings deposits quadrupled on a yoy basis and rose by 26.5% qoq to Rs.4,905cr. Cost of funds fior the bank dipped by 20bp sequentially to 8.5%, on account of the significant traction in savings deposits and easing of wholesale rates. Hence, the NIMs improved by 10bp qoq to 3.0%. The bankRs.s non-interest income grew strongly by 48.1% yoy to Rs.313cr, largely on account of substantial growth witnessed in financial advisory and retail fee income streams. The fee income from financial advisory segment, (which is largely linked to deal closures during the quarter) more than doubled on a yoy basis. On the asset quality front, the bank witnessed sequential improvement, with gross and net NPA ratio coming down by 7bp and 1bp to a marginal 0.17% and 0.04%, respectively. On the Deccan chronicle e, till now the bank has already provided roughly 80% of the net exposure. The management expects to recover 10-15% of the net exposure over the next two quarters and is hopeful of eventually recovering 20-25% over the next four quarters, which would lead to release of some provisioning already made to the extent of extra recovery. The account still remains a servicing one for the bank and hence the bank refrained from classifying it as an NPA during the quarter.

Outlook and valuation: Yes Bank has taken challenges of building a retail deposit base head-on, nearly doubling its branch network over the past 18 months to 400 branches and aggressively increasing savings rate to 7% as a smart customer-acquisition strategy. In our view, the bank is in a sweet spot, wherein retail franchise growth is likely to remain strong as large banks cede some market share to it rather than offering higher savings rates to their entire customer base. Though, retail growth prospects appears stronger now, it currently trades at valuations of 2.6x FY2014E ABV, which in our view, offers limited room for upside from current levels. Hence, we recommend Accumulate on the stock with a target price of Rs.576.

3QFY2013 Result Preview

HCL Technologies (CMP: Rs.674 / TP: Rs.725 / Upside: 8%)

HCL Technologies is slated to announce its 2QFY2013 numbers today. We expect the company to post revenue of US$1,139mn, 2.3% qoq growth. In rupee terms, the revenue is expected to grow by 1.2% qoq to Rs.6,161cr. EBITDA margin is expected to decline by 1 79bp qoq to 20.4% due to negative impact of wage hikes. PAT is expected to come in at Rs.801cr. The company is one of our preferred picks in the IT sector. We maintain Accumulate rating on the stock with target price of Rs.725.

Hero MotoCorp (CMP: Rs.1,835 / TP: Rs.2,014 / Upside: 10%)

Hero MotoCorp (HMCL) is slated to announce its 3QFY2013 results today. We expect the companyRs.s top-line to post a modest growth of ~3% yoy to Rs.6,183cr primarily due to 1% yoy decline in volumes. However, the top-line is expected to post a strong ~19% growth as festival demand led to ~18% growth in volumes during the quarter. On a sequential basis, we expect the adjusted operating margins (adjusted for change in accounting for royalty payments) to improve sharply by 180bp to 1 1.7%, owing to the positive impact of operating leverage, better product-mix and positive impact of currency (~5% qoq depreciation in YEN v/s INR). Hence the bottom line (adjusted) is expected to post a growth of ~37% on a qoq basis. Nonetheless, it is expected to decline ~2% yoy led by contraction in operating margins (expected to decline ~50bp yoy). At Rs.1,830, the stock is trading at 14.1x its FY2014E earnings. Currently, we have an Accumulate rating on the stock with a target price of Rs.2,014.

Exide Industries (CMP: Rs.142 / TP: Rs.155 / Upside: 9%)

Exide Industries (EXID) is slated to announce its 3QFY2013 results today. We expect EXID to post a strong revenue growth of ~28% yoy (~5% qoq) to Rs.1,595cr owing to healthy demand from the automotive OEMs as well as replacement markets and continued traction in the inverter battery sales. We expect EBITDA margin to improve by ~115bp qoq (~30bp yoy) due to a richer product mix and ~5% increase in battery prices in the replacement segment. Hence net profit is expected to surge ~31% yoy (~14% qoq) to Rs.137cr. At the CMP of Rs.143, the stock is trading at 15.9x FY2014E earnings. Currently, we have an Accumulate rating on the stock with a target price of Rs.155.

Infotech Enterprises (CMP: Rs.182 / TP: - / Upside: -)

Infotech Enterprises is slated to announce its 3QFY2013 results today. We expect the company to post revenues of US$90mn, up 3.0% qoq majorly led by volume growth. In rupee terms, revenues are expected to come in at Rs.486cr, up 1.8% qoq. EBITDA margin is expected to increase by 61bp qoq to 19.3%. PAT is expected to come in at Rs.60cr. We maintain Neutral view on the stock.

Economic and Political News

- Cabinet to propose setup of holding co for PSU banks

- Despite slow sales, ticket size of auto loans grew 20% : CIBIL

- Petrol price hiked in Delhi by 32 paise

- Rising investment demand to drive gold price in 2013

- Sharp slowdown in India weakens GDP of South Asia: WB

- Steel consumption up 3.9% to 55mn tonne during Apr-Dec

Corporate News

- Coal India may start import this fiscal

- Diageo-United Spirits deal hits CCI hurdle

- HeidelbergCement expands India capacity to 5 mn tonnes

- Kingfisher fails to provide details on financing revival plan

- Persistent Systems to acquire NovaQuest

- Videocon aims to roll out 4G services this year