Indian stock market and companies daily report (January 22, 2014, Wednesday)
January 22, 2014, Wednesday, 06:05 GMT | 01:05 EST | 11:35 IST | 14:05 SGT
Indian Markets are expected to open flat to positive tracking SGX Nifty which is trading marginally lower while most of the Asian markets are trading in the positive territory.
US markets closed mixed for the third consecutive session after fluctuating over the course of the trading day on Tuesday. Following the holiday on Monday, traders generally seemed reluctant to make any significant moves amid a lack of major U.S. economic data. European markets ended Tuesday's session in positive territory after China moved to supply more liquidity into the system ahead of the Lunar New Year holidays, easing fears over a credit squeeze and a slowdown in demand.
Back home, Indian markets posted modest gains on Tuesday, with rate-sensitive auto and banking stocks pacing the gains, amid expectations the Reserve Bank of India (RBI) will keep interest rates steady in its upcoming monetary policy meeting next week.
The trend deciding level for the day is 21,248 / 6,314 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 21,306 - 21,361 / 6,330 - 6,346 levels. However, if NIFTY trades below 21,248 / 6,31 4 levels for the first half-an-hour of trade then it may correct 21,193 - 21,134 / 6,298 - 6,282 levels.
Retail inflation as the new policy benchmark
The Urjit Patel committee on monetary policy framework has proposed that retail inflation should be the nominal anchor for the monetary policy framework. Although 50% of the weightage in the CPI basket is given to food itself, the RBI notes that shocks to food inflation and fuel inflation also have a much larger and more persistent impact on inflation expectations than shocks to non-food non-fuel inflation. As such, any attempt to anchor inflation expectations cannot ignore shocks to food and fuel. The Committee recommends that the nominal anchor or target should be set at 4% with a band of +/- 2 per cent around it (a) in view of the vulnerability of the Indian economy to supply/ external shocks and the relatively large weight of food in the CPI; and (b) the need to avoid a deflation bias in the conduct of monetary policy. This target should be set in the frame of a two-year horizon that is consistent with the need to balance the output costs of disinflation against the speed of entrenchment of credibility in policy commitment.
SUUTI clears sale of 10% stake in Axis Bank
Media reports suggest that SUUTI has cleared sale of around 10% stake in Axis Bank (SUUTI holds around 21% stake). SUUTI has three merchant bankers - J.P Morgan, Citigroup and J M Financial to manage the sale, which is to be done through block trades. At yesterday's closing price, SUUTI total holding in Axis Bank is worth Rs.11,700cr. While in the near term, the stake sale by SUUTI would remain an overhang on the stock, from a medium term perspective with increased expectations of lower interest rates by early part of next fiscal, we recommend investors to Buy Axis Bank, with a target price of Rs.1,553.
The stake sale from Axis Bank is likely to fetch about Rs.5,500cr in disinvestment revenue for the government. In addition the government has obtained revenue of Rs.19,000cr (including dividend tax) from the special dividend declared by Coal India. Until November 2013, the government had managed to garner merely Rs.1,325cr from its budgeted disinvestment target of Rs.40,000cr. But now expectedly towards the end of the fiscal year, the government is treading towards its commitment of sticking to its budget deficit target. Also on the cards is a 10% stake sale in IOC exclusively to ONGC and Oil India, a PSU ETF fetching about Rs.3,000cr and residual stake sale in Hindustan Zinc and Balco. It is estimated that the residual stake sale in Hindustan Zinc and Balco can also fetch the exchequer about Rs.21,000cr. On the receipts side, we believe that the government is likely to offset the slippage from tax revenues through higher-than-anticipated income from non tax revenues and disinvestments. While on the expenditure side, with a squeeze in plan expenditure it is likely to meet the red line of fiscal deficit at 4.8% of GDP during FY2014.
Aurobindo Pharma: Acquisition update
Earlier, during the last week, Aurobindo Pharma Limited announced the signing of a binding offer to acquire commercial operations in seven Western European countries from Actavis. During the concall , management indicated that the net sales for the acquired businesses would be around EUR 320mn in 2013 with a growth rate of over 10% year-on-year. With this the European sales of the company would reach EUR 400mn. Although these businesses are currently loss-making (to be around Euro 20mn), Aurobindo expects them to return to profitability in combination with its vertically integrated platform and existing commercial infrastructure.
The acquisition will make Aurobindo one of the leading Indian pharmaceutical companies in Europe. Since 2006 Aurobindo has been steadily expanding its European footprint through an increasing presence in UK, Spain and Germany. The acquisition will enable Aurobindo to achieve critical mass in Western Europe with a top 10 position in several key markets, which it plans to leverage to supply or widen its product portfolio, through introduction of its own products especially high margin products like injectiables.
In terms of turning the unit profitable, might take time, as most of the products acquired are new to Aurobindo's portfolio and hence would take time to shift the raw material benefits, the same timeline could be 2-3 years. Thus the key factor to make the acquired unit profitable would be more new product introductions. Thus depending upon the new product introductions, the acquired unit might take 1-3 years to turn profitable. On the positive side, given the acquired unit is the formulation business; it will enhance the overall formulation sales of the company in its sales mix ~85% in FY2015. In terms, of value of the transaction, the company is likely to pay around EUR 30mn and will depend upon the Cash and Net Working Capital position at closing. The company plans to fund the said acquisition through internal accruals, thus is unlikely to strain the balance-sheet. The acquisition would, is completed, and would reflect in FY2015 financials.
In terms of the acquisition, our estimates have been tweaked a little, with sales upgraded by 32.3% yoy to end FY2015 at Rs.11,214cr, with OPM's likely to be around 14.1% V/s 18.5% estimated earlier (though the new OPM also include benefit of the earlier business improvement in OPM which has been upgraded to 20.0%). With this the new EPS of the company has been reduced by 4.5% to Rs.32.3 V/s Rs.33.8 earlier. At CMP, the stock trades at 14.3xFY2015, we remain neutral on the stock.
Colgate Palmolive (CMP: Rs.1,311/TP:-/Upside:-)
For 3QFY2014 Colgate Palmolive India (Colgate) results were in-line with expectations. Top-line rose by 15.9% yoy to Rs.884cr aided by both volume and value growth. The company's volume growth for the quarter stood at 10%, aided by an 11% yoy growth in the toothpaste category. The company enhanced its leadership in the toothpaste category and achieved a volume market share of 56.0% for the year 2013. OPM stood at 1 6.2% down 67bp on yoy basis, impacted by higher advertising expenses (up 64bp yoy) and higher other expenses (up 311bp yoy). Net profit rose by 1.6% yoy to Rs.113cr. We maintain a neutral rating on the stock.
Thermax (CMP: Rs.667/ TP: /Upside: )
For 3QFY2014, Thermax reported 3% yoy decline in its top-line to Rs.1,013cr, as subdued order backlog in the last few quarters (due to weak order inflow) continues to drag down its revenue. However, order inflow for the quarter improved by 6% yoy to Rs.1,365cr. The company's operating margin contracted sharply by 171 bp yoy to 9.0% due to execution of low margin projects in environment segment. Falling revenue and margin resulted in a 13% yoy fall of in profit to Rs.67cr. We maintain our Neutral rating on the stock.
Ashok Leyland (CMP: Rs.17/ TP: NA/ Upside: NA)
For 3QFY2014, Ashok Leyland (AL) reported disappointing results as the company reported a loss of Rs.97cr on the EBITDA front as against expectations of a modest profit of Rs.21 cr. Consequently, the adjusted bottom-line loss stood at Rs.260cr against our expectations of a loss of Rs.151 cr. The performance for the quarter was impacted due to a volume decline of 18.6% yoy (20% qoq), adverse product-mix (share of MHCV in total volumes down to 16% from 24.9% in 2QFY2014), higher levels of discounts and lower utilization levels. The top-line for the quarter was inline with our expectations, down 18.8% yoy (23.4% qoq) to Rs.1,953cr, led by a sharp decline of 27.1% yoy (32.6% qoq) in MHCV volumes. EBITDA margins came in at negative 5% as adverse product-mix, higher discounts and lower utilization levels impacted the operating performance. While, raw-material expenditure as percentage of sales surged 340bp qoq, employee and other expenditure as a percentage of sales surged 230bp and 150bp qoq respectively. During the quarter, the company recorded an exceptional gain of Rs.100cr and Rs.34cr towards profit on sale of long term investments and profit on sale of immovable property respectively. The company also recorded an exceptional charge of Rs.44cr related to VRS compensation, ~500 executives opted for VRS during the quarter.
We believe that the operating environment would continue to remain challenging for the company in the near term as we expect the commercial vehicle cycle to remain weak going ahead. We therefore maintain our Neutral rating on the stock.
We shall release a detailed result note post earnings conference call with the management which is scheduled today.
HDFC- (CMP: Rs.837 / TP: - / Upside: -)
HDFC is expected to announce its 3QFY2014 results today. NII is expected to increase by 14.0% yoy to Rs.1,851cr. Non-interest income is expected to come in at Rs.78cr as compared to Rs.104cr in 3QFY2013. Operating Income and Operating profit are expected to grow by 11.6% and 11.0% respectively to Rs.1,929cr and Rs.1,758cr. Provisioning is expected to come in at Rs.24cr, a decrease of 40.1% yoy. Consequently the PAT is expected to increase by 12.6% yoy to Rs.1,283cr. At CMP, the stock trades at 4.2x FY2015 ABV. We recommend Neutral rating on the stock.
L&T (CMP: Rs.1,011 /TP: Rs.1,237 /Upside: 22%)
For 3QFY2014, owing to a large order book (~Rs.1.76 trillion) and robust order inflows in the past couple of quarters, we expect L&T to record a revenue of Rs.16,667cr, indicating a growth of 8.0% yoy. On the EBITDA front, we expect the company's margin to witness an expansion of 44bp yoy to 10.0%. We project the net profit to come in at Rs.1,116cr for 3QFY2014, registering a growth of 8.5% yoy. We estimate the company's order inflow to be at ~Rs.25,000cr for the quarter, which is in line with the Management's guidance of 15-20% growth in order book for the full year.
At the CMP, the stock is trading at 19.4x FY2015E earnings and 2.7x FY2015E P/BV, on a standalone basis. We have used the sum-of-the-parts (SOTP) methodology to value the company to capture all its business initiatives and investments/stakes in the different businesses. Ascribing separate values to its parent business on a P/E basis and investments in subsidiaries on P/E, P/BV and mcap basis, our target price works out to Rs.1,237. We continue to recommend Buy rating on the stock.
Dabur India (CMP: Rs.168/TP:-/Upside:-)
Dabur is expected to declare its 3QFY2014 results today. We expect the consolidated top-line to grow by 1 6.3% yoy to Rs.1,896cr aided by higher volumes. OPM is expected to increase by 94bp yoy to 17.5%. Bottom-line is expected to increase by 21% yoy to Rs.256cr. We maintain our Neutral recommendation on the stock.
Alembic Pharma (CMP: Rs.236/ TP: /Upside:)
For 3QFY2014, we expect Alembic to report a 13.9% yoy rise in its top-line to Rs.420cr, driven by the domestic markets. The company's OPM's is likely to contract by 21 0bp yoy to 16.6%. Dip in OPM's is expected to result in a 6.8% yoy fall of in profit to Rs.45cr. We maintain our Neutral rating on the stock.
KPIT Technologies (CMP: Rs.182/ TP: -/ Upside: -)
KPIT Technologies (KPIT) is slated to announce its 3QFY2014 results today. We expect the company to post revenue of US$1 15.3mn, up 2.7%. In INR terms, the revenue is expected to come in at Rs.715cr, up 1.7% qoq. EBITDA margin is expected to increase by 90bp qoq to 16.4%. PAT is expected to come in at Rs.67cr. We maintain Neutral rating on the stock.
Economic and Political News
- Ennore Port inks pact with Ford
- Governments need to act in cutting down supply chain barriers: Report
- India, Pakistan need to take steps to boost trade: Commerce ministry
- India's peak power deficit rises to 4.2% in December: CEA
- 2014 to be challenging for PC sales: IDC
- Sp iceJet cuts airfares by 50% for all bookings till January 23
- Zydus Cadila gets USFDA nod for anti-depressant drug
- Tata Motors launches premium Vista