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Reports India

Indian stock market and companies daily report (January 17, 2014, Friday)

January 17, 2014, Friday, 06:04 GMT | 01:04 EST | 10:34 IST | 13:04 SGT
Contributed by Angel Broking


Indian Markets are expected to open flat with a negative bias tracking SGX Nifty which is trading lower by ~0.25%. Most of the Asian markets too are trading in the negative territory.
 
US markets posted a weak performance on Thursday reacting to a mixed batch of US economic data. The Philadelphia Federal Reserve released a report showing that its index of regional manufacturing activity rose to 9.4 in January from a revised 6.4 in December, as against the estimated 8.7. The better than expected performance came as a positive surprise and indicated improvement in the economy. The National Association of Home Builders also released a report which said its index of homebuilder confidence edged down to 56 in January as against estimates of 58. The European markets too finished mostly lower on Thursday.  Meanwhile the Indian markets ended marginally in the red on Thursday. The markets which posted gains in early trade ended the day lower after witnessing bouts of volatility during the course of the day. 
 
 
Markets Today
 
The trend deciding level for the day is 21,281 / 6,322 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 21,363 – 21,461 / 6,344 – 6,368 levels. However, if NIFTY trades below 21,281 / 6,322 levels for the first half-an-hour of trade then it may correct 21,183 – 21,102 / 6,297 – 6,275 levels.
 
 
Empowered Group of Ministers approves IOCL divestment through cross holding
 
Media reports suggests that the Empowered Group of Ministers (E-GoM) have approved the disinvestment of Indian Oil (IOC) through cross holding wherein, PSUs, ONGC and Oil India will together buy 10.0% stake in IOC amounting to ~Rs.4,500cr. The respective Boards of ONGC and Oil India are likely to meet soon and approve the stake purchase. ONGC already owns 8.77% stake in IOC. It is likely that there will not be any lock-in period for these companies to sell these shares later. In case of ONGC, the company had a cash and cash equivalent of Rs.19,556cr as on September 30, 2013. We do not expect material impact on ONGC’s financials or capex plans due to purchase of stake in IOC. Until Board approvals, we maintain our estimates and Accumulate rating on the ONGC stock with a target price of Rs.318.
 
 
Ranbaxy Labs- Reported to in a pact with MNC for Diovan
 
Ranbaxy Lab, though not confirmed is said to have partnered another multinational pharmaceuticals company for sourcing active pharmaceutical ingredients, or API, for the generic version of anti-hypertension drug Diovan. It has been said that the company had already filed an application with the US regulator, seeking permission for the partnership.
 
Despite the delay in seeking an approval from the regulator, has maintained it retained 180 days of exclusive marketing rights for the drug in the US. Though joining hands with another firm for sourcing API may help Ranbaxy get the long awaited permission for selling generic version of Diovan in the US along with securing exclusively rights for 180-days, it would also mean the company may have to share revenue or make a one-time payment to its partner. The total US market for Diovan, a patented product of Novartis AG, is estimated at around US $1.5bn annually. If Ranbaxy gets the approval for its generic version of the drug, with the subsequent 180-days of sole marketing rights, it will be the only generic player. During those six months, it could earn revenue of US$187mn, but on account of profit sharing the net profit could be lower- around US$50mn. We maintain our neutral stance on the stock.
 
 
Result Review
 
TCS (CMP: Rs.2,351/ TP: Under review)
 
TCS reported its 3QFY2014 results with revenues as operating margin coming in a bit lower than expectations while net profit stood higher than estimates on account of healthy forex gains. The dollar revenue grew by 3.0% qoq to US$3,438mn. The company registered volume growth of 1.8% qoq which was a bit disappointing. The company’s performance was impacted due to ~9% sequential decline in Indian business revenues; international business revenues grew modestly by 3.8% qoq in USD terms. Excluding India business, volume growth was better than expectations at 2.9% qoq. In INR terms, revenue came in at 21,294cr, up 1.5% qoq. EBIT margin of the company declined by 42bp qoq to 29.7% as the company increased its S&M investments. With this level of operating margin, now the margin gap between TCS and Infosys have widened by more than 450bp. Bottomline of company grew substantially by 13% qoq to Rs.5314cr, supported by forex gain of Rs.299cr as against loss of Rs.377cr in 2QFY2014.
 
TCS closed 8 large deals during 3QFY2014. Management sounded confident of growing higher than the industry. Management indicated that the company has a robust demand pipeline across markets and the company see a unique opportunity to strategically partner and participate with clients but India business will continue to be soft for next 2-3 quarter due to impending elections. TCS increased its gross hiring target for FY2014 to 55,000 from 50,000 earlier. We continue to remain positive on TCS remain positive on for a longer-term perspective keeping in notice the company’s consistent performance and healthy operating performance.
 
HCL Technologies (CMP: Rs.1,392/ TP: Rs.1,510/ Upside: 9%)
 
For 2QFY2014, HCL Tech came out with better than expected set of results largely on all fronts, joining Infosys in signaling the likelihood of a stronger year ahead. The dollar revenues came in at US$1,321mn, up 4% qoq (estimate – 3.3%), led by strong 6% qoq dollar revenue growth in Infrastructure management services (IMS). In CC terms, the revenue grew by 3.0% qoq to US$1,309mn. Excluding IMS, in the last 3 quarters, revenue growth had become a concern for the company, but in this quarter (2QFY2014) the company partially shrugged it off by registering a 3.1% qoq USD revenue growth (vs 1% in 1QFY2014; excluding IMS). In INR terms, the revenue came in at Rs.8,184cr, up 2.8% qoq. EBIT margin of HCL Tech declined marginally, though less than expected, by 10bp qoq to 23.7% (estimate – 23.5%). HCL Tech’s EBIT margin has grown by more than 350bp on a yoy basis which is creditable task. PAT grew by 5.6% on a qoq basis to Rs.1,495cr, assisted by sequentially lower forex losses at Rs.158cr as against loss of Rs.236cr in 1QFY2014.
 
In 2QFY2014, HCL Tech won over 15 large multi-year transformational deals with TCV worth US$1bn+ (half of which are in the IMS space), maintaining its  sustained momentum of signing ~US$1bn+ TCV worth of deals every quarter.  The concern of weak growth in core software services have been shrugged off by the company in the current set of results and management indicated that the deal pipeline in this area of services continues to remains healthy. We believe that a sustained revival in discretionary spending will potentially compound the revenue traction for the company. We expect HCL Tech to post USD and INR revenue CAGR of 14.2% and 21.3%, respectively. At the current market price of Rs. 1,392, the stock is trading at 16.2x FY2014E and 14.5x FY2015E EPS. We value the company at 16x FY2015E EPS and give it a target price of Rs.1,510. We recommend an Accumulate rating on the stock.
 
Axis Bank (CMP: Rs.1,177 / TP: Rs.1,500 / Upside: 27.4%)
 
Axis Bank delivered healthy operating performance for the quarter, which was inline with our estimates. NII expectedly grew at a healthy pace of 19.6% yoy to Rs.2,984cr, aided by loan book growth of 17.8% yoy. Net Interest Margins declined 8bp qoq to 3.71%, on guided lines. Non-interest income performance was muted during the quarter (a marginal 1.8% yoy growth, on expected lines). Opex unexpectedly grew at 15.1% yoy to Rs.2,013cr, which limited the growth in preprovisioning profits to 10.7% yoy to Rs.2,615cr. On the asset quality front, while annualized slippages came in largely flat qoq at 1.2%, the performance on the recoveries and upgrades was moderate at Rs.122cr vs. Rs.266cr in last quarter. Flat slippages and lower recoveries/upgrades resulted in 10% sequential increase in absolute Gross NPA levels for the bank, which given the context of current challenging macro environment, appears to be a moderate increase. Provisioning expenses for the bank came in much lower than expected at Rs.202cr and PCR also declined by 200bp to 78%, which resulted in Rs.165cr qoq increase in absolute net NPA levels (much higher than what we had factored in). Overall, the bank reported earnings growth of 19.1% yoy to Rs.1,604cr.
 
At CMP, the stock trades at near historic low valuations of 1.3x FY2015 ABV, which is well below our longer term fair value estimate for the bank. In the near term, given the weak macro environment, there is a high probability that stocks like Axis Bank may underperform. However, with increasing expectations of lower interest rates by early part of next fiscal, from a medium term perspective, we recommend investors to Buy the stock with a target price of Rs.1,500.
 
Bajaj Auto (CMP: Rs.1,908/ TP: Under review/ Upside: NA)
 
Bajaj Auto’s (BJAUT) reported net profit at 905cr for 3QFY2014 was ahead of our estimates of Rs.861cr; however, it was driven largely by mark to market gains of Rs.96cr (against a loss of Rs.39cr in 2QFY2014). Adjusted for the forex gains though, net profit declined 1.2% yoy (7.7% qoq) to Rs.809cr which was 6.1% lower than our expectations. The miss on the bottom-line (adjusted for mark to market gains) was mainly due to the lower-than-expected top-line performance. Adjusted EBITDA margins too declined 237bp sequentially to 20.3%, broadly in-line with our expectations, primarily led by adverse product-mix and lower utilization levels. On a yoy basis, EBITDA margins improved 157bp aided mainly by favorable currency movement. Top-line for the quarter declined 5.2% yoy (flat qoq) to Rs.5,131cr, slightly below our expectations of Rs.5,321cr. The performance was impacted due to a volume decline of 11.9% led by the sluggish demand in the domestic markets which resulted in domestic volumes declining by 24% yoy. Consequently, domestic revenues declined sharply by 19.1% yoy, broadly in-line with our expectations. Export volumes posted a strong growth of 12.3% driven by strong growth in the motorcycle segment which coupled with favorable currency movement led to a 23.5% yoy growth in export revenues. Nevertheless, export revenues were below our expectations as price cuts along with adverse-mix adversely impacted the exports performance.
 
We expect the domestic performance of the company to remain under pressure in the near term due to sluggish demand environment; nevertheless, on the exports front, we expect the company to continue registering strong growth led by market share gains in Africa and Latin America. We maintain our positive stance on the company given its diversified business model, strong focus on profitable growth, widening reach in the export markets and strategic alliances with global majors. We maintain our Buy rating on the stock; however our target price is currently under review. Post result conference call with the management is scheduled on January 17, 2014.
 
LIC Housing (CMP: Rs.211 / TP: Rs.248/ Upside: 17.4%)
 
LIC Housing Finance reported a healthy operating performance for the quarter, with operating profit growth of 27.4% yoy. NII growth for the company came in healthy at 22.3% yoy to Rs.488cr, aided by healthy loan book growth of 18.9% yoy. Non-interest income grew unexpectedly by 66.1% yoy to Rs.34cr. In-line with the trends witnessed over last few quarters, opex growth came in moderate at 8.9% yoy. The company registered operating profit growth of 27.4% yoy. On the asset quality front, absolute Gross and Net NPAs both increased sequentially by 15.2% and 21.0%, respectively. The company reported provision writeback of Rs.8cr, probably after utilising a part of the 160bp provisioning release on its teaser loan book and reported much higher earnings growth of 38.3% yoy to Rs. 327cr.
 
For companies like LIC Housing Finance, operating environment (particularly on the funding side) has eased considerably from the tough times witnessed in 2QFY2014, while retail housing loan growth and outlook remains buoyant. The stock currently trades at 1.3x FY2015E ABV. We recommend Buy rating on the stock, with a target price of Rs.248.
 
MindTree (CMP: Rs.1,496/ TP: Under review)
 
For 3QFY2014, MindTree’s revenue came inline with the expectations but disappointed on the operating margin as well as on the bottomline front. The dollar revenues came in at US$127mn, up 2.5% qoq, led by volume growth of 2.0% on a sequential basis. In INR terms, revenue came in at Rs.791cr, up 2.7% qoq. MindTree’s EBITDA and EBIT margin declined by 127bp and 134bp qoq to 19.5% and 16.9%, respectively, due to higher employee costs. PAT came in at Rs.89cr impacted by forex loss of Rs.27cr as against gain of Rs.20cr in 2QFY2014. MindTree’s management indicated that the deal pipeline of the company remains healthy because of pick up in client spending as well as a result of company’s greater concentration on mining its focus clients. We continue to remain positive on the stock owing to its diversified revenue portfolio and past performance. The target price is currently under review.
 
DBCorp (CMP: Rs.306 / TP: Under review)
 
For 3QFY2014, DB Corp’s top-line and bottom-line performance was better than expectations. Top-line grew by 18.1% yoy to Rs.518cr, driven by strong advertising growth. Festive season coupled with recently held state elections and hike in advertising yield led to robust 18.3% yoy growth in advertising revenue to Rs.404cr. Circulation revenue also grew in double digits, reporting 13.5% yoy increase to Rs. 83cr.
 
The company’s operating margin expanded by 276bp yoy to 29.9% primarily on account of robust top-line growth as well as reduction in losses of emerging editions. Consequently, net profit grew by 33.5% yoy to Rs.94cr. 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 under review.
 
Infotech Enterprises (CMP: Rs.347/ TP: -/Upside: -)
 
Infotech Enterprises (Infotech) reported a strong set of results on the revenue as well as the operating front but its bottom-line disappointed a bit due to forex losses. The dollar revenues grew by whopping 6.5% qoq (highest in last ten quarters) to US$93.3mn. Growth trajectory resumed for company after four quarters of flat business with all the four business units posting more than 3% sequential growth in dollar terms. In INR terms, the revenue came in at Rs. 578cr, up 5.3% qoq. The EBITDA margin of the company declined marginally by 15bp qoq to 19.6%. The EBITDA margin declined because of cost pressures coming in from increase in manpower cost (on account of net addition of 319 employees) and increase in S&M costs. The cost pressures however were partially offset by factors such as increase in offshoring of revenues (offshore share of revenues at 50.9% as against 50.3% in 2QFY2014) as well as increase in utilization level. PAT came in at Rs.69cr, down 4.3% qoq, impacted by loss at other income level of Rs.5.8cr as against a gain of Rs.8.3cr in 2QFY2014.
 
The Management indicated that the challenges seen earlier in few of its large client accounts are behind and is confident of the company maintaining revenue traction in the next year with a healthy deal pipeline visibility across all services offerings to sustain the growth momentum. Over FY2013-15E, we expect the company to post a USD and INR revenue CAGR of 9.4% and 16.9%, respectively. We expect the EBITDA margin of the company to remain in a narrow range and expect a CAGR of 19.6% and 18.3% in EBITDA and PAT respectively. Owing to the recent sharp run-up in the stock price, we maintain our Neutral rating on the stock.
 
Rallis India (CMP: Rs.178/ TP: -/ Upside: -)
 
Rallis India, reported robust numbers for the 3QFY2014.  The company posted sales and adj. net profit of Rs.396cr and Rs.29cr, registering a growth of yoy of 16.5% and 30.0% respectively. The gross profit during the quarter came in at 40.8% an expansion of 173bps; however, in spite of the same the OPM’s came in at 12.8% V/s 12.9% during the last corresponding quarter. The tax provision, during the quarter came in at 41.5% of PBT V/s 28.0% in 3QFY2013 impacted the net profit growth. Thus, the net profit before tax  come in at Rs. 45cr, posting a growth of 35.3% yoy , however on back of higher taxation during the quarter lead the adj. net profit growth to come in at 30.0%. On the other hand the, reported net profit came in at Rs.30cr, registering a yoy growth of 38.0%, on back of higher other income. We recommend a Neutral rating on the stock.
 
South Indian Bank (CMP: Rs.21/ TP: Rs.24 / Upside: 15.9%)
 
South Indian Bank reported in line operating performance, while asset quality surprised positively. On the operating front, Net Interest Income for the bank remained flat yoy to Rs.350cr, while non-interest income grew by 27.9% yoy, leading to operating income growth of 3.9% yoy to Rs.435cr. Operating expenses grew 19.5% yoy to Rs.219cr, in-line with expectations. Pre-provisioning profit expectedly de-grew by 8.3% yoy to Rs.216cr. On the asset quality front, the bank reported improvement, as not only slippages came in lower (annualized slippages at 1.3% in 3QFY2014 lower compared to 3.3% in 2QFY2014) but also recoveries and upgrades performance improved. Overall, the bank reported ~10% decline in both absolute Gross and Net NPA levels. Provisioning expenses came in at just Rs.2cr as compared to Rs.20cr in 2QFY2014, which enabled the bank to clock earnings growth of 10.2% yoy to Rs.141cr. We await clarity from the management particularly regarding provisioning expenses during the quarter. At the CMP, the stock is trading at 0.8x FY2015E ABV. We recommend Buy rating on the stock, with a target price of Rs.24.
 
 
Result Preview
 
Reliance Industries (CMP: Rs.885/TP: Rs.1,020/Upside: 15%)
 
Reliance Industries Ltd. (RIL) is scheduled to announce its 3QFY2014 results today. We expect the company’s top line to increase by 25.1% yoy to Rs.117,488cr due to INR depreciation against the US$ leading to higher petrochemical prices (in rupee terms). We expect the company’s operating margin to contract by 235bp yoy to 6.6% due to lower refining margins during the quarter. The company’s bottom-line is expected to be flat yoy at Rs.5,508cr. We maintain our Buy rating on the stock with a target price of Rs.1,020.
 
ITC (CMP: Rs.326/TP: Rs.382/Upside:17%)
 
ITC is expected to announce its 3QFY2014 results today. We expect the  top-line to grow by 9.8% yoy to Rs.8,373cr. Price hikes undertaken by the company during the year would aid the revenue growth for cigarette business even though volumes are expected to decline by ~2%. OPM is expected to increase by 215bp yoy to 38.5%. Bottom-line is expected to increase by 15.1% yoy to Rs.2,361cr. We recommend a Buy on the stock with a Target Price of Rs.382.
 
HDFC Bank (CMP: Rs.674 / TP: - Rs.753 / Upside: - 11.7%)
  
HDFC bank is expected to announce healthy set of results for 3QFY2014. The NII is expected to increase by 17.7% yoy to Rs.4,688cr, while non-interest income is expected to increase by 10.8% to Rs.2,136cr, thus achieving a healthy operating income growth of 15.5% yoy. Operating profit is expected to grow by 22.6% yoy, due to a moderate growth of 7.5% yoy in operating expenses. Provisioning is expected to be Rs.347cr compared to Rs.405cr in 3QFY2013. Consequently the PAT is expected to increase by 26.3% yoy to Rs.2,349cr. The stock is currently trading at a valuation of 3.1x P/ABV FY2015E. Hence, we retain Accumulate rating on the stock.
 
Wipro (CMP: Rs.570/ TP: Rs.600/ Upside: 5%)
 
Wipro is slated to announce its 3QFY2014 results today. We expect the company’s IT services segment to post revenues of US$1,672mn, up 2.5% qoq. Volume growth is expected to be ~2.0% qoq. At the consolidated level, we expect the company to record revenues of Rs.11,452cr, up 4% qoq. At a consolidated level, Wipro is expected to record ~10bp qoq inch up in its EBIT margin to 20.5%. PAT is expected to come in at Rs.2,022cr. We maintain our Accumulate rating on the stock with a target price of Rs.600.
 
Hindustan Zinc (CMP: Rs.130/ TP: Rs.156/ Upside: 20%)
 
Hindustan Zinc is slated to announce its 3QFY2014 results today. The company’s top-line is expected to increase by 9.7% yoy to Rs.3,447cr mainly on account of higher volumes of zinc, lead and silver. EBITDA margin is expected to expand by 549bp to 53.1% due to increase in top-line. Its bottom-line is also expected to increase by 11.3% yoy to Rs.1,795cr. We maintain our Buy rating on the stock with a target price of Rs.156.
 
Federal Bank (CMP: Rs.82/ TP: 87 - / Upside: 6.4%)
 
Federal Bank is slated to announce its 3QFY2014 results tomorrow. We expect the bank to report a moderate Net Interest Income (NII) growth of 13.2% yoy to Rs.563cr. Non-interest income is expected to report de-grew by 28.9% yoy to Rs.145cr. Operating expenses of the bank are expected to be higher by 14.4% yoy to Rs.351cr thus operating profit is expected to de-grow by 9.5% yoy. Provision expenses are expected to decrease by 6.9% yoy to Rs.69cr thus registering almost flat Net Profit at Rs.207cr. At the CMP, the stock trades at a valuation of 0.9x FY2015E. We maintain Accumulate rating on the stock.
 
 
Economic and Political News
 
- Posco to be operational in coming weeks: PM to Korea
 
- Coal ministry allows Odisha to clear pending coal blocks
 
- Group of Ministers okays incentives for raw sugar export
 
- Power ministry to seek relief mechanism for gas projects
 
- Final price bids for Odisha, Tamil Nadu UMPP to open on February 26
 
 
Corporate News
 
- ONGC's 2nd thermal unit at Palatana to be operational by June
 
- Power Grid to invest Rs.472cr in two projects
 
- JLR sells over 2,900 units in India in 2013
 
- Supreme Court defers appeal against UBHL-Diageo deal