Reports » India
Indian stock market and companies daily report (January 18, 2013, Friday)
The Indian market is expected to open in the positive, mirroring the positive opening of most of the Asian markets.
US markets moved notably higher over the course of the trading day on Thursday after moving sideways over the past few days. The rally came following the release of upbeat employment and housing reports. The jobless claims fell to 335,000 (estimated 368,000), a five-year low, in the week ended January 1 2th from the previous weekRs.s revised figure of 372,000. Another report from the Commerce Department stated that the housing starts jumped 12.1% to an annual rate of 954,000 in December from the revised November estimate of 851,000. The European markets also finished in the green on Thursday, after the release of better than expected economic data in the US.
Indian markets rose notable higher yesterday on reports that the government has permitted fuel price revision to reduce its fiscal deficit. Comments by Finance Minister, P. Chidambaram, on the implementation of the Goods and Service Tax and on the need for further economic reforms also boosted investor appetite.
The trend deciding level for the day is 19,918 / 6,027 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,052 - 20,140 / 6,066 - 6,092 levels. However, if NIFTY trades below 19,918 / 6,027 levels for the first half-an-hour of trade then it may correct up to 19,830 - 19,695 / 6,000 - 5,962 levels.
LPG cap raised to 9 cylinders; diesel price likely to increase gradually
The government has raised the annual cap on supply of cheap cooking gas to nine cylinders from six and has allowed state-run oil marketing companies to raise price of diesel in a timely manner. Post this announcement, oil marketing companies (OMCs) raised diesel prices by Rs.0.50/litre and cut petrol rates by Rs.0.25/litre. Further, OMCs stated that they will charge free-market rates for supplies to defence, Railways, commercial establishments and state roadways which is expected to cut the subsidy bill by Rs.12,900cr per annum. However, the quantum and timing of further diesel price hikes is still unclear. The decision to raise the cap on cheap cooking gas is expected to increase under-recoveries by Rs.9,300cr for (OMCs). The diesel under-recoveries (assuming no hike) would have been ~Rs.94,000cr for FY2013. Nevertheless, we note that any further hike in diesel price is likely to result in lower subsidy burden for upstream as well as downstream companies and hence, will have a positive impact on their profitability.
For the automotive sector, we believe that the recent hike of Rs.0.5/litre in diesel prices will not have any significant impact on customer preference for diesel passenger vehicles as the price difference between petrol and diesel prices still remains substantial at Rs.20.3/litre. Despite the diesel price hike of Rs.5/litre in September 2012, there was little impact on the sale of diesel vehicles which continued to grow at a strong pace and now account for ~60% of total passenger vehicle sales as compared to ~47% in FY2012. For the commercial vehicle sector, increase in diesel prices will increase the ownership cost of the fleet operators which could probably impact the demand for trucks.
On the macro front, the subsidy on petroleum has increased dramatically from 2.2% of the total subsidy burden in FY2009 to 31.7% of the total subsidy in FY2012. As per recent budgeted estimates, the government was seeking to reduce it to 22.9% of its total subsidy in FY2013 but in the April - November 2012 period itself 92.0% of the budgeted subsidy on petroleum has been exhausted.
Therefore, going forward in case further hikes in diesel prices come through, we expect it to be beneficial for narrowing the fiscal deficit. The move to align prices of regulated fuels towards market prices is also likely to correct demand-supply imbalances and ease medium-term demand-side inflationary pressures. In the near term, however, in case the hike comes into effect we expect it have an inflationary impact since it releases suppressed inflation in the economy.
National Investment Fund aligned to enhance divestment policy
The Cabinet Committee on Economic Affairs (CCEA) approved the proposal to credit divestment proceeds from FY2013-14 to the National investment Fund (NIF). The utilization pattern of the NIF will change and starting April 1, 2013 the fund will be used for:
1. Subscribing to shares of PSUs, Public Sector Banks (PSBs) and Public Sector Insurance Companies, on rights basis so as to maintain majority government ownership of 51 %.
2. Preferential allotment of PSU companiesRs. shares to promoters in case they raise fresh equity to meet capex program, so that majority government ownership is maintained.
3. Recapitalization of PSBs and Public Sector Insurance Companies.
The NIF was constituted in 2005 from divestment proceeds of PSUs with its main objectives being investment in the governmentRs.s social sector projects and capital investment in select PSUs to enlarge their capital base to finance expansion or diversification. However, since 2009 the government decided that divestment proceeds (in the 2009-13 period) be utilized in full for funding capex under the governmentRs.s social sector programs such as NREGA, Indira Awas Yojana, JNNURM etc as part of its measure to stimulate growth in the slowing economy.
Subsequently, the divestment proceeds from 2009-12 amounting to over Rs.59,000cr are invested in these identified social sector programs. So overall we view the step taken by the government as a positive one since it implies utilization of proceeds from divestment towards enhancing capital assets.
The corpus as on August 31, 2012 stood at Rs.1,814.5cr from the disinvestment proceeds of Power Grid Corporation of India and the Rural Electrification Corporation Limited (during 2007-08). The corpus is presently being invested through three Public Sector fund managers (SBI, LIC and UTI Mutual Funds) who are likely to be discharged of this responsibility once the fund is transferred.
BHEL wins Rs.730cr order from Bhutan
Bharat Heavy Electricals Limited (BHEL) has secured order for electro-mechanical equipment package for a 720 Mw (4x170 Mw) hydroelectric project in Bhutan. The order is worth Rs.594cr plus Balance of Plant on cost plus basis. The total contract value is expected to be in the range of Rs.730cr to Rs.750cr.
The order was awarded to BHEL by Mangdechhu Hydroelectric Project Authority (MHPA), Bhutan. The order envisages manufacture, supply, erection and commissioning of the electro-mechanical equipment for the 720Mw Mangdechhu Hydroelectric project. We maintain our Neutral outlook on the stock.
HCL Tech signs a long-term IT services agreement with Nokia
HCL Tech has entered into a long-term, global IT infrastructure management outsourcing services agreement with Nokia. The scope of this engagement includes datacenter, network management, end user computing services and cross-functional service management across NokiaRs.s global IT infrastructure operations. As part of this engagement, HCL Tech will be deploying its MTaaS and MyCloud solutions. HCL has been delivering global service desk and desktop management outsourcing services for Nokia since 2009. We continue to remain positive on the stock while the target price in under review.
PNB to issue shares upto Rs.1,250cr on preferential basis to GoI
Punjab National Bank (PNB) is likely to issue shares upto Rs.1,250cr, on preferential basis to Government of India (GoI), which will aid the bank to improve its Capital adequacy ratio (CAR). As of 2QFY2013, excluding for 1HFY2013 profits, PNB had CAR of 11.7%, with tier-I at 8.7%, which will improve by ~40bp post issuance of shares on preferential basis. We note that last year also the bank has got capital infusion of Rs.1,285cr from the GoI. At CMP, the stock trades at 0.95x its FY2014E ABV; we recommend Neutral view on the stock.
Canara Bank increases deposit rates
Canara Bank has increased the interest rates on deposits for select maturities by 55-100bp, w.e.f January 18, 2013. Interest rates on 1-2 years, 3-5 years and 5-10years fixed deposits have been raised by 55bp to 9.05%, while for maturity between 270 days to 1 year interest rates have been increased by 100bp to 9%. However, the interest rate has been reduced by 50bp for maturity between 180269 days to 7.5%. We note that in the last one month or so, banks like Dena Bank, Federal Bank, Bank of India and Axis Bank had also revised upwards their term deposit rates in some maturity buckets. Increase in deposit rates, in our view, is partly due to ALM (as clearly affirmed by Dena Bank and Axis Bank management, in their case) and due to moderating deposit growth and tightening liquidity situation. Even going ahead, we expect deposit growth to remain moderate as real interest rates continue to remain negative (considering CPI inflation reading of ~10%). The top management for the bank has been changed recently and at the CMP, the stock trades at 0.95x FY2014E ABV. Hence, we recommend Neutral on the stock.
3QFY2013 Result Review
HCL Technologies (CMP: Rs.703 / TP: Under review / Upside: -)
For 2QFY2013, HCL Technologies (HCL Tech) reported yet another healthy set of results, beating our as well as market expectations on all fronts. The USD revenue came in at US$1,154mn, up 3.6% qoq, on the back of whopping 10.0% qoq USD revenue growth in constant currency (CC) terms in its infrastructure services business and 0.4% qoq volume growth in its core software services business. Overall, the volume growth of the company was ahead of its peers at 3.0% qoq. EBITDA margin and EBIT margin of the company increased by 40bp and 43bp qoq to 22.6% and 19.8%, despite having 91 bp qoq wage hike impact which was a positive surprise. The negative impact of wage hike was absorbed by gain from operating efficiencies, increase in utilization and gain from savings in G&A spend. PAT came in at Rs.965cr, up 9.0% qoq.
HCL Tech, with end-to-end IT capabilities and a strong client mining ability, is clearly emerging as a front runner and outperforming many of its peer companies. HCL Tech won 12 multi-year, multi-million dollar deals this quarter with total contract value (TCV) of deals won aggregating to US$1bn. The management sounded confident of sustaining revenue growth within the top-tier league. We continue to be positive on the stock while the target price is under review.
Hero MotoCorp (CMP: Rs.1,819 / TP: - / Upside: -)
Hero MotoCorp (HMCL) reported disappointing set of results for 3QFY2013 as raw-material cost pressures and sharp increase in advertisement expenses led to a 17.4% and 20.4% yoy decline in operating and net profit respectively. While topline growth (driven by net average realization of 3.9% yoy) was in-line with our estimates; bottom-line came in 18.9% below our estimates on account of 305bp yoy (128bp qoq) contraction in operating margins.
For 3QFY2013, HMCLRs.s top-line recorded a modest growth of 2.6% yoy (19.3% qoq) to Rs.6,188cr driven primarily by 3.9% yoy (1.2% qoq) growth in net average realization. Volume performance however was sluggish on a yoy basis (down 1% yoy) owing to slowdown in demand. On a sequential basis though volume grew 18% yoy led by festival demand. The operating performance witnessed a sharp deterioration as margins contracted 305bp yoy (128bp qoq) to 12.6% led by raw-material cost pressures and higher branding and promotional expenses. While raw-material cost as a percentage of sales increased 120bp yoy (140bp qoq); other expenditure surged 26.5% yoy (23.6% qoq) during the quarter. As a result, net profit registered a decline of 20.4% yoy to Rs.488cr.
We lower our earnings expectations for FY2013/14 by 11.4%/9.3% mainly due to lowering of our volume (we now expect the company to register a 1% decline in volumes in FY2013 as against a growth of 1.9% earlier) and EBITDA margin (due to higher ad spends and raw-material cost pressures) estimates. At the CMP of Rs.1,819, the stock is trading at 15.4x FY2014 earnings. We recommend Neutral rating on the stock.
Exide Industries (CMP: Rs.139 / TP: - / Upside: -)
Exide Industries (EXID) reported dismal results for 3QFY2013 with top-line and bottom-line performance coming in significantly lower-than-our estimates. Top-line for the quarter registered a 17% yoy (down 3.8% qoq) growth to Rs.1,463cr; nonetheless, it was below our estimates of Rs.1,595cr. While the demand remained strong in the two-wheeler (2W) and four-wheeler (4W) replacement battery segments; subdued demand in the 2W and 4W OEM segments restricted top-line growth. Further, poor demand for home inverter batteries due to the onset of the winter in most parts of the country also impacted the top-line performance. On the operating front, EBITDA margins contracted ~200bp yoy to 11.3% as against our expectation of 13.5% mainly due to 37.7% yoy increase in other expenditure. The other expenditure increased on account of increase in advertising expenses and due to the unfavorable forex movement (~40bp impact on the margins). Sequentially, operating margins contracted ~110bp yoy primarily on account of raw-material cost pressures due to ~10% qoq increase in lead prices. Consequently, net profit declined 13.4% qoq (flat yoy) to Rs.104cr as against our estimates of Rs.137cr. We shall release a detailed result note post the earnings conference call with the management which is scheduled today. At Rs.139 the stock is trading at 17x FY2014 earnings. We recommend Neutral rating on the stock.
Infotech Enterprises (CMP: Rs.178 / TP: - / Upside: -)
For 3QFY2013, Infotech reported revenue of US$87.6mn, up merely 0.5% qoq. Overall volume growth was nil in the quarter. In INR terms, the revenue came in at Rs.475cr, down 0.4% qoq. The quarter witnessed challenges in two of the top 10 client accounts. These two accounts (one in heavy engineering and one in hi-tech) resulted in a revenue impact of -4.2% qoq. The EBITDA and EBIT margin of the company declined by 15bp and 52bp qoq to 18.5% and 15.1%, respectively. The companyRs.s operating margin faced headwinds from muted volume growth and gross addition of 656 employees into the system. PAT came in at Rs.62cr. Infotech added 11 new customers during the quarter - nine in ENGG and two in UT&C vertical. The stock is currently under review and we will be releasing a detailed result update on it shortly.
3QFY2013 Result Preview
Reliance Industries (CMP: Rs.890 / TP: - / Upside : -)
Reliance Industries Ltd. (RIL) is scheduled to announce its 3QFY2013 results today. We expect the companyRs.s top-line to increase 5.7% yoy to Rs.89,981cr due to higher petrochemical prices during the quarter. However, we expect the companyRs.s operating margin to decline 53bp yoy to 8.0% mainly on account of decrease in production from KG D6 basin. The companyRs.s bottom-line is expected to increase by 15.0% yoy to Rs.5,108cr. We maintain our Neutral view on the stock.
ITC (CMP: Rs.285 / TP: - / Upside: -)
ITC is expected to announce its 3QFY2013 results today. We expect the top-line to grow by 15.1% yoy to Rs.7,131cr. OPM is expected to decline by 249bp yoy to 35.1%. Bottom-line is expected to grow by 5.7% yoy to Rs.1,798cr. We maintain our Neutral recommendation on the stock.
HDFC Bank (CMP: Rs.667 / TP: - / Upside: -)
HDFC Bank is expected to announce its 3QFY2013 results today. We expect the bank to report a healthy NII growth of 24.9% yoy to Rs.3,892cr. Non-interest income is expected to register growth of 13.0% yoy to Rs.1,605cr, leading to an operating income growth of 21.2% yoy to Rs.5,496cr. Provisioning expenses are expected to decline by 55.5% yoy to Rs.146cr, leading to a healthy net profit growth of 30.1% yoy to Rs.1,860cr. At the CMP, the stock is trading at a valuation of 3.8x FY2014E P/ABV. We recommend a Neutral rating on the stock.
Wipro (CMP: Rs.431 / TP: - / Upside: -)
Wipro is slated to announce its 3QFY2013 results today. We expect the companyRs.s IT services segment to post revenues of US$1,581mn, up 2.6% qoq. Volume growth is expected to be ~2.5% qoq. At the consolidated level, we expect the company to record revenues of Rs.10,973cr, up 3.0% qoq. At a consolidated level, Wipro is expected to record 26bp qoq decline in its EBIT margin to 17.2%. PAT is expected to come in at Rs.1,585cr. Owing to recent stock run-up, we maintain our Neutral rating on the stock.
Hindustan Zinc (CMP: Rs.132 / TP: Rs.145 / Upside: 10%)
Hindustan Zinc is slated to announce its 3QFY2013 results. The companyRs.s topline is expected to increase by 10.8% yoy to Rs.3,044cr mainly on account of higher volumes and average realizations of zinc and lead. EBITDA margin is expected to expand by 218bp to 53.2% on account of increase in realizations. Its bottom-line is expected to increase by 31.6% yoy to Rs.1,685cr. We maintain Accumulate on the stock with a target price of Rs.145.
MindTree (CMP: 7745 / TP: - / Upside: -)
MindTree is slated to announce its 3QFY2013 results today. We expect the company to post revenue of US$109.7mn, up 2.2% qoq. In rupee terms, the revenue is expected to come in at 7593cr, down 0.5% qoq. EBITDA margin is expected to decline by 11 7bp qoq to 21.0%. PAT is expected to come in at 775cr. Owing to recent stock run-up, we recommend Neutral rating on the stock.
Economic and Political News
- Government to cap allocations for annuity payments for PPP projects
- Government approves 50% cut in reserve price of CDMA spectrum
- Government imposes 2.5% import duty on crude edible oil
- India to see 6.1% economic growth this year: UN
- Essar Ports to invest 710,000cr in Gujarat
- Honda, Hero MotoCorp to launch indigenously developed products next fiscal
- RCom,Tata Tele to be charged 72,900cr one-time spectrum fee
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