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Indian stock market and companies daily report (January 21, 2013, Monday)
The Indian market is expected to open in the green mirroring positive start to the SGX Nifty.
The US markets ended FridayRs.s trading mostly higher after showing a lack of direction for much of the session. The markets benefited from the late-day buying partly due to a positive reaction to the latest news about the impending showdown over the U.S. debt limit. The House Republican leaders indicated they will hold a vote to authorize a three month temporary debt limit increase to give lawmakers time to pass a budget that reduces spending. The choppy trading seen earlier in the day reflected a mixed reaction to the latest earnings news, with upbeat results from Morgan Stanley and General Electric offset by disappointing results from Intel.
Indian markets fell sharply on Friday, with a correction in rate-sensitives including auto, banking and realty. Going ahead investors would be watchful of the earnings data coupled with economic reports on weekly jobless claims, leading economic indicators, and new and existing home sales.
The trend deciding level for the day is 20,052 / 6,065 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,114 - 20,188 / 6,082 - 6,100 levels. However, if NIFTY trades below 20,052/6,065 levels for the first half-an-hour of trade then it may correct up to 19,978 - 19,916 / 6,047 - 6,030 levels.
Excise duty on diesel SUVRs.s likely to increase
According to media reports, the government might impose a higher excise duty or a surcharge on diesel sports utility vehicles (SUVs) during the Budget 2013-1 4. This move by the government according to the reports is mainly aimed at reducing subsidies on the fuel bill. The report further states that the finance ministry has been exploring the idea of a higher excise duty on diesel cars; however, it could not be implemented earlier due to opposition from automobile companies. The clamor for imposing higher taxes on diesel vehicles has been doing the rounds since 2010, after the Kirit Parikh committee on pricing of petroleum products had proposed an additional duty of Rs.80,000 on diesel SUVs and an annual road tax of up to Rs.50,000 a year on diesel cars.
While, until now the government has resisted from adopting such a move, we cannot rule out the imposition of higher taxes on diesel vehicles completely. The utility vehicle segment which is mainly dominated by diesel models continues to defy the current slowdown in the automotive industry and has grown at a rate of 59.1% YTD in FY2013. We believe that increase in excise duty on diesel SUVs will have a negative impact on the utility vehicle segment and would hamper the growth of the overall passenger vehicle industry. We feel that Mahindra and Mahindra would be the major loser of such a move by the government as utility vehicles account for ~30% of the companyRs.s total volumes. Currently, we have an Accumulate rating on MM with a target price of Rs.998.
3QFY2013 Result Review
Reliance Industries (CMP: Rs.899/ TP: -/ Upside: -)
Reliance IndustriesRs. (RIL) 3QFY2013 profitability was above our estimates on account of higher than expected profitability from the refining segment. Gross refining margins (GRMs) surprised us positively and came in at US$9.6/barrel (US6.5/barrel in 3QFY2012 and US$9.5/barrel in 2QFY2013) vs our expectations of US$8.5/barrel. During 3QFY2013, RILRs.s net sales increased by 10.3% yoy to Rs.93,886cr, above our estimate of Rs.89,981cr. Net sales growth was mainly driven by the petrochemicals segment (+11.5% yoy to Rs.22,053cr) and the refining segment (+12.9% yoy to Rs.86,641 cr). RILRs.s EBITDA increased by 14.9% yoy to Rs.8,373cr on account of higher profits from refining and marketing segments. The refining segmentRs.s EBIT grew by 114.5% yoy to Rs.3,61 5cr due to higher GRMs. However, the petrochemical segmentRs.s EBIT decreased 10.2% yoy to Rs.1,937cr, while the oil and gas segmentRs.s EBIT decreased by 54.4% yoy to Rs.590cr due to decline in KG D6 production (-41.4% yoy to 78bcf). Other income increased 1.3% yoy to Rs.1,740cr. The company had a lower tax rate in this quarter of 17.9% (22.6% in 3QFY2012) and hence, the net profit grew by 23.9% yoy to Rs.5,502cr (above our estimate of Rs.5,108cr). Although 3QFY2013 results were above our estimates, given the recent rise in the stock price, we maintain our Neutral rating on the stock.
ITC (CMP: Rs.287/ TP: -/ Upside: -)
For 3QFY201 3 ITC has delivered a stellar set of numbers. Net sales rose by 23.1% on a yoy basis to Rs.7,627cr. Cigarettes business posted a 13.1% yoy growth in net sales to Rs.3,657cr aided largely by price hikes. Other FMCG business posted a healthy 30.1% yoy growth in net sales to Rs.1,783cr. Agri business surprised again with a remarkably good 43.1% yoy growth in net sales to Rs.1,631 cr. Hotels and Papers & Packaging businesses posted a top-line growth of 11% and 8.5% respectively. OPM came in at 36.4% down 75bp on yoy basis. While the cigarette business posted margin expansion, losses of other FMCG business halved to Rs.24cr. However, other divisions posted margin contraction on a yoy basis. The companyRs.s bottom-line rose by a healthy 20.6% yoy to Rs.2,052cr. We maintain our Neutral view on the stock.
HDFC Bank (CMP: Rs.663/ TP: -/ Upside: -)
HDFC Bank delivered another quarter of consistent performance on the bottom-line front, with a growth of 30% yoy, in-line with our as well as the streetRs.s estimates. In spite of an operating income growth of 23% yoy, the bankRs.s other income growth, boosted by treasury gains and overall steady provisioning, aided it to clock 30% yoy growth at the bottom-line level.
Balance sheet growth robust; Asset quality witnesses modest pressures: The bank registered a robust growth in its balance sheet, with net advances and deposits growing at 24.3% and 22.2% yoy, thereby outpacing industry average growth. On the CASA front, the current account (adjusted for one-offs) and saving account accretion was healthy, growing at 15.9% and 16.5% yoy, respectively. CASA ratio dipped by 50bp qoq to 45.4%. The share of retail advances to overall loan book, increased from 53.2% in 2QFY2013 to 53.8%, on back of lower wholesale lending (2.8% qoq compared to 5.5% qoq in retail loans). In spite of higher retail lending, the bankRs.s margins declined by10bp qoq to 4.1%, primarily due to absence of dividend income during the quarter, which had aided the margins in 2QFY2013 and also due to increased delinquencies and 50bp sequential fall in CASA ratio. Overall, the non-interest income grew by 26.7% yoy, aided by treasury gains and robust growth on the fee income front. Excluding treasury gains, the non-interest income grew at a moderate pace of 10.7% yoy. The bank faced modest pressures on the asset quality front this time around, as its Gross and Net NPA levels increased sequentially by 14% and 28%, on an absolute basis. As we understand from the management, around 40% of the total increase in Gross NPA levels during the quarter came in from CVCE loan book, within the retail portfolio. Overall, Gross and net NPA ratios for the bank remain amongst the best in the industry at 1.0% and 0.2%, respectively. Restructured loan book as a proportion of overall advances, remained stable at 0.3%. The bank made floating provision of Rs.30cr during the quarter, which took its outstanding floating provisions to around Rs.1,700cr. NPA provision coverage ratio (without considering the floating provisions) came off sequentially by 235bp to 79.6%.
Outlook and valuation: HDFC Bank is currently trading at one-year forward 3.9x P/ABV (3.7x FY2014 ABV), higher than its median of 3.5x (over FY2005-12). We believe the current valuations largely factor in the positives, leaving limited upside in the stock. Hence we recommend a Neutral rating on the stock.
Hindustan Zinc (CMP: Rs.130/ TP: Rs.144/ Upside: 11%)
Hindustan ZincRs.s (HZL) 3QFY2013 top-line was in line with our estimate, while bottom-line was slightly below our expectation. HZLRs.s net revenue increased by 14.3% yoy to Rs.3,140cr (in line with our estimate of Rs.3,044cr) mainly due to higher rupee realizations and increased sales volumes of Lead and Silver. However, Zinc production volumes declined 10.0% yoy to 171kt due to lower production from Rampura Agucha mines (in line with companyRs.s guidance). Nevertheless, Lead production volumes grew by 11.0% yoy to 32kt and silver production volumes grew 103.0% yoy to 11 7kt due to higher production from Sindesur Khurd mine and new Dariba Lead and Silver capacities. However, EBITDA margin contracted by 348bp yoy to 47.6% mainly on account of 11.0% yoy increase in cost of production to Rs.44,900/tonne. Cost of production increased due to increase in commodity prices, higher excavation and lower by-product credits. Hence, the EBITDA increased by only 6.5% yoy to Rs.1,494cr. Nevertheless, other income rose by 32.6% yoy to Rs.506cr while tax rate was lower at 11.2% in 3QFY201 3 (20.9% in 3QFY2012). Consequently, net profit grew by 26.0% yoy to Rs.1,613cr (slightly below our estimate of Rs.1,685cr).
HZL has announced to increase its mined metal capacity to 1.2mtpa. The development of mines will be progressively completed over a period of next 6 years and ~US$250mn capex will be incurred every year. We maintain our Accumulate rating on the stock with a target price of Rs.144.
Ultratech Cement (CMP: Rs.1,910/ TP: /Upside:-)
For 3QFY2013 Ultratech Cement (Ultratech) posted a 6.4% yoy growth in topline to Rs.4,857cr. Domestic grey cement sales volumes remained flat at 9.62mn tonnes, while the sales volume of white cement and wall care putty rose by 6.5% yoy. OPM fell by 20bp yoy to 21.1%. Realization increased by ~6% on a yoy basis, however, fell on a sequential basis. On the cost front raw material and freight costs rose on account of increase in railway freight and diesel costs. Net profit fell by 2.6% yoy to Rs.601cr. We maintain a neutral recommendation on the stock.
Bhushan Steel (CMP: Rs.433/TP: - /Upside: -)
Bhushan Steel reported its 3QFY2013 results. Net sales grew by 3.8% yoy to Rs.2,405cr as a 9.0% yoy volume growth (to 0.56mn tonnes) would have been offset by lower realizations in our view. However, EBITDA increased by 7.0% yoy to Rs.785cr due to 38.2% yoy growth in other operating income to Rs.124cr. Depreciation expense increased 36.8% yoy to Rs.207cr on account of increased capacity, while interest expense increased 27.9% yoy to Rs.293cr. Consequently, net profit decreased by 20.0% yoy to Rs.221cr.
The companyRs.s Board has approved to set up a 0.35mtpa capacity Cold Rolling cum Electrical Steel complex at estimated project cost of Rs.1,560cr and re-affirmed the proposal to set up a 1.8mtpa capacity Pickling Line coupled with Tandem Cold Rolling Mill at an estimated capex of Rs.6,000cr, at Meramandali plant in Orissa. We maintain our Neutral view on the stock as the stock is expensive at 7.7x FY2014 EV/EBITDA in our view.
Blue Star (CMP: Rs.179 / TP: Rs.234/ Upside: 30.9%)
Blue Star announced a mixed set of numbers for 2QFY2013. Topline came in at Rs.599cr, 6% higher than our expectation of Rs.565cr and 2.5% higher on a yoy basis from Rs.584cr in 3QFY201 2. Better performance of the EMPPACS division was offset by 5% yoy decline in revenue of the cooling products division owing to its seasonal nature of the and decline in PEIS division owing to the unfavourable business climate and declining demand capital goods sector. However, EBITDA margin was at 4.2%, 65bp below our expectation of 4.9% primarily due to lower than expected margin in EMPPACS division and cooling products division. Margin erosion in cooling products division resulted from sourcing and selling of installation accessories such as copper pipes and insulation material. This coupled with higher than expected interest expenses and lower other income led to net profit of Rs.5cr, 61% below our expectation Rs.14cr. We expect the companyRs.s revenue growth to recover in FY2014E after a decline in FY2013E along with an expansion in EBITDA margin due to better quality order intake in EMPPACS division and softening raw material prices in the cooling products division. Margin expansion coupled with expected decline in the interest cost in FY2014E is expected to result in a 57.4% yoy growth in net profit in FY2014E to Rs.92cr. We maintain our Buy on the stock with target price of T234 based on a target EV/sales of 0.8x for FY2014E.
Force Motors Ltd (CMP: Rs.471/ TP: Rs.523/ Upside: 11%)
Force Motors Ltd. (FML) reported disappointing set of numbers for 3QFY2013. Top-line slumped by 16.5% yoy and stood at Rs.436cr, 26% lower than our estimate. EBITDA fell by 31% yoy to Rs.19cr vis-a-vis our estimate of Rs.31cr. Subsequently EBITDA margin came in at 4.4% as compared to 5.3% in same period previous year. The sharp decline in margin is attributable to 421bp yoy increment in the other expenses. Despite weak operating performance, net profit revived to Rs.8cr which was 248% higher yoy; on the back of other income of Rs.9.3cr and lower tax expenses (5.4% of PBT). We recommend accumulate on the stock with the revised target price of Rs.523 based on target PE of 11 x for FY2014E earnings.
3QFY2013 Result Preview
HDFC (CMP: Rs.822 / TP: - / Upside: -)
HDFC is expected to announce healthy set of results for 3QFY2013. The NII is expected to increase by 15.7% yoy to Rs.1,337cr, while non-interest income is expected to come in at Rs.442cr, a growth of 45.4% yoy. Operating Income and Operating profit are expected to grow by nearly 22%. Provisioning is expected to be Rs.42cr compared to Rs.20cr in 3QFY2012. Consequently the PAT is expected to increase by 18.4% yoy to Rs.1,162cr. We recommend Neutral rating on the stock.
NTPC (CMP: Rs.164/TP: -/Upside: -)
NTPC is slated to announce its 3QFY2013 results today. The company is expected to post a 9.0% yoy growth in its top-line to Rs.16,712cr aided by higher realization. On the EBITDA front, OPM is likely to expand by 398bp yoy to 22.6%. Consequently, net profit is expected to grow by 21.7% yoy to Rs.2,592cr. We remain Neutral on the stock.
Cairn India (CMP: Rs.337/ TP: Rs.382/ Upside: 13%)
Cairn India is slated to report its 3QFY2013 results today. Cairn IndiaRs.s net sales are expected to increase by 47.8% yoy to Rs.4,576cr mainly due to increase in volumes. Its operating margin is expected to decline by 419bps yoy to 78.0% whereas its bottom-line is expected to increase by 52.3% yoy to Rs.2,986cr due to increase in operating income. We recommend an Accumulate rating on the stock with a target price of T382.
Asian Paints (CMP: Rs.4,310/ TP: -/ Upside: -)
Asian Paints is expected to announce its 3QFY2013 results today. We expect the top-line to grow by 20.3% yoy to Rs.3,079cr. OPM is expected to decline by 64bp yoy to 14.9%. Bottom-line is expected to grow by 15.8% yoy to Rs.298cr. We maintain our Neutral recommendation on the stock.
Shree Cement (CMP: Rs.4,525/ TP: -/ Upside: -)
Shree Cement is expected to announce its 2QFY2013 results today. We expect the top-line to grow by 11.2% yoy to Rs.1,400cr. OPM is expected to expand by 128bp yoy to 27.7%. Bottom-line is expected to grow by 207.7% yoy to Rs.182cr. We maintain our Neutral view on the stock.
DB Corp (CMP: Rs.232/ TP: Rs.264/ Upside: 13.6%)
DB Corp is slated to announce its 3QFY2013 results. The company is expected to post 10.6% yoy growth in its top-line to Rs.438cr on the back of uptick in advertising revenue aided by the festive season. However, on the EBITDA front, the companyRs.s margins are expected to contract by 193bp yoy to 23.8%. In spite of margin pressure, net profit is expected to grow by 7.5% to Rs.60cr. At the current market price, DB Corp is trading at 16x FY2014E consolidated EPS of Rs.14.4. We recommend Accumulate on the stock with a target price of T264.
Alembic Pharmaceuticals (CMP: Rs.71/ TP: Rs.91/ Upside: 28%)
For 3QFY2013, the company is expected to post a 11.7% yoy sales growth to end the period at Rs.426cr, mainly driven by the domestic markets. On the operating front, the margin came in at 13.6%, a reduction of 420bps. This will lead to a dip of 34.8% yoy in net profit, which is expected to come in at Rs.28.9cr. We maintain our Buy recommendation with a target of T91.
Economic and Political News
- Diesel price hike to have benign impact on inflation: Montek Singh Ahluwalia
- FMC to hold stakeholders meet on Jan 21, 2012
- State government buses to see hike in passenger fares
- I&B Ministry looks at regulating local cable TV channels
- Diesel price hike will push telecom tower cost by Rs.2,100cr: TAIPA
- Aurobindo Pharma gets USFDA approval for hypertension drug
- IDBI to raise Rs.3,000cr via QIBs, preference shares to government
- Dalmia Cement set to invest Rs.1,800cr by FY2014
- Hindalco to acquire alumina refinery from Novelis
- Colgate Palmolive in talks with protesting workers of Goa unit
- JK Cement plans to raise up to Rs.200cr via QIP
- Reliance Industries terminates US lobbying
- L&T Finance in talks to buy Morgan StanleyRs.s wealth business
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