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Indian stock market and companies daily report (January 23, 2013, Wednesday)

Contributed by Angel Broking

The Indian market is expected to open flat to positive mirroring similar opening in SGX Nifty.

The US markets moved higher over the course of the trading day on Tuesday, on the back of a positive reaction to the latest earnings news, although buying interest was somewhat subdued. The major European markets ended the day in the red on Tuesday for a third consecutive session after the Bank of Japan disappointed investors hoping for a bolder policy by introducing a 2% inflation target and announced additional easing steps; but investors appeared somewhat disappointed that additional asset buying will not start until 2014. However, the stronger than expected German economic sentiment helped to curb market losses.

The Indian markets snapped three days of gains on Tuesday, weighed down by weak European cues as investors waited for key US earnings and housing data for directional cues. Going ahead investors would be watchful of the earnings data coupled with reports on weekly jobless claims, leading economic indicators, and new and existing home sales.

Markets Today

The trend deciding level for the day is 20,030 / 6,063 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,108 - 20,234 / 6,086 - 6,124 levels. However, if NIFTY trades below 20,030 / 6,063 levels for the first half-an-hour of trade then it may correct up to 19,904 - 19,826 / 6,026 - 6,003 levels.

RIL shuts 8th well in KG-D6 basin

Media reports suggests that Reliance Industries (RIL) has shut its eighth well on the main gas fields in KG-D6 block on January 9, 2013, leading to output plummeting to all time low of 21 mmscmd. Prior to this, on November 29, 201 2, it had shut B4, the seventh well on D1&D3 field. This development is on the expected lines since the management had guided for lower production during CY2013. Hence, we maintain our estimates and Neutral rating on the stock.

JP Associates to sell 2.78cr shares of Jaypee Infratech

Jaiprakash Associates has proposed to sell 2,78,64,584 equity shares of face value of Rs.10 each of Jaypee Infratech Ltd on January 24, 2013 through a sale on the separate window provided by the stock exchanges for this purpose. If the offer is fully subscribed at the current market price of Rs.53.15 of Jaypee Infratech, the company will be able to raise ~Rs.148cr. Further, the company has also kept the option of selling up to 70,619,430 additional shares of Jaypee Infratech. We continue to maintain our Accumulate rating on the stock with a target price of Rs.100.

3QFY2013 Result Review

HUL (CMP: Rs.482 / TP: - / Upside: -)

HUL has delivered a disappointing set of numbers for 3QFY2013. 5% underlying volume growth for domestic consumer business is the lowest in the last three years. Net sales rose by 10.3% yoy to Rs.6,434cr. While the low margin Soaps and Detergents division posted a 20% sales growth, the Personal Products division disappointed with a modest 13% sales growth. OPM fell by 122bp yoy to 13.5%, due to higher input costs and Rs.132cr of higher advertisement and promotion expenses (up 100bp yoy). The bottom-line rose by 15.6% yoy to Rs.871cr, aided largely by the 85.5% increase in other income to Rs.355cr.

The Board of Directors of the company has approved an incremental royalty payment of 1.75% of turnover payable to the parent group Unilever. Currently the company pays 1.4% of turnover as royalty, which will be increased to 3.15% based on a new agreement which would be effective from February 1, 2013.The royalty would be increased in a phased manner from February 2013 till March 31, 2018. For the period February 1, 2013 to March 31, 2014 the additional impact would be 0.5% of turnover. We expect the increase in royalty to have an impact of Rs.0.5/share on FY2014E EPS. We maintain our Neutral view on the stock.

Bank of Maharashtra (CMP: Rs.59 / TP: Rs.64 / Upside: 7.9%)

Bank of Maharashtra reported strong performance for 3QFY2013, both on the operating as well as on the asset quality front. While strong advance growth of 48.5% yoy, resulted in operating income growth of 23.4% yoy, earnings growth came in much higher at 43.2% yoy, further aided by decline in provisioning expenses on a yoy basis.

Business growth strong; Asset quality witnessed improvement: During 3QFY2013, the bank reported a strong growth in its business, with advances and deposits growth of 16.0% and 14.7% qoq, respectively. Owing to strong traction in term deposits, CASA ratio for the bank declined by around 350bp sequentially to 34%. Reported NIMs for the bank came off by 6bp qoq to 2.9%, on back of lower CASA ratio. The non-interest income for the bank grew by 1 5.9% yoy to Rs.1 74cr. On the asset quality front, the bank witnessed improvement, as annualized slippage ratio came in at 1.8%, much below the levels of 2.3% witnessed in 1HFY2013. Apart from normalized slippages, the bank also registered inspired performance on recoveries/upgrades front, resulting in sequentially flat gross NPA levels, on an absolute basis. Net NPA levels were also lower sequentially by 12.9%, on an absolute basis. Gross and Net NPA ratio declined sequentially by 29bp and 22bp, respectively to 1.7% and 0.7%. The bankRs.s PCR (including technically written-off accounts) improved by 270bp qoq to 82.8%. Owing to strong growth, as of 3QFY2013, excluding profits, the bankRs.s total CAR stood at 10.7%, with tier-1 ratio at 6.0%, which still remains on the lower side. Apart from likely Government infusion of ~Rs.400cr, the bank has evinced interest to raise funds from the equity markets.

Outlook and valuation: At the CMP, the stock is trading at valuations of 0.7x FY2014E ABV. We recommend Accumulate rating on the stock with a target price of Rs.64.

Tata Sponge Iron (CMP: Rs.308/ TP: Rs.379/ Upside: 22.8%)

For 3QFY2013, TSIL reported a mixed set of results. Revenue grew by a stupendous 52.8% yoy to Rs.200cr, 10.5% higher than our expectation of Rs.181cr. However, EBITDA margin contracted by 512bp on a yoy basis to 13.7% on account of higher raw material costs (as percentage of net sales) as compared to same quarter last year. Conversely, net profit for 3QFY2013 grew by 22.6% yoy to Rs.21cr on account of higher other income and lower tax outgo for the quarter as compared to 3QFY2012. TSIL received a notice in Nov 2012 from the Ministry of Coal (MoC) for encashment of bank guarantee (BG) of Rs.32.5cr on the grounds that there was a delay in commissioning the Radhikapur coal block allotted to the company. This amount has been disclosed as a contingent liability in the books of TSIL. The company has applied to the MoC for extension of the normative date of production after it contended that the delays in commissioning of the project were mainly attributable to both Central and State Government in granting approval, which is still pending. Even though TSIL has obtained a stay from the HonRs.ble High Court of Delhi against revocation of BG by the MoC till April 11, 2013, it continues to remain an overhang on the stock. At CMP, the stock is currently trading at a P/B of 0.7x for FY2014E, which we believe is attractive. Hence, we maintain our Buy recommendation on the stock with a target price of Rs.379 based on a target P/B of 0.8x for FY2014E.

3QFY2013 Result Preview

Sun TV (CMP: Rs.424/ TP: -/ Upside: -)

Sun TV is slated to announce its 3QFY2013 results. The company is expected to post a healthy 12.1% yoy growth in its top-line to Rs.477cr on the back of uptick in advertising revenue aided by festive season as well as increase in cable revenues. On the EBITDA front, the companyRs.s margins are expected to contract by 113 bp yoy to 79%. However, net profit is expected to grow by 1 0.3% yoy to Rs.1 85cr. At the current market price, Sun TV is trading at 22.3x FY2014E consolidated EPS of Rs.19.1. We maintain our Neutral view on the stock.

Syndicate Bank (CMP: Rs.140 / TP: Rs.158 / Upside: 12.8%)

Syndicate Bank is scheduled to announce its 3QFY2013 results today. We expect the bank to report a moderate 8.4% yoy growth in Net Interest Income to Rs.1,437cr. Growth in non-interest income is expected to be healthy at 19.7% yoy to Rs.288cr. Operating expenses are expected to increase at a higher pace of 24.5% yoy to Rs.800cr. While, provisioning expenses are expected to decline by 23.9% yoy, tax expenses are expected to come in at Rs.128cr compared to Rs.41cr in 3QFY201 2, which would result in net profit growth of 13.4% yoy to Rs.383cr. At the CMP, the stock is trading at 0.8x FY2014E ABV. We recommend Accumulate rating on the stock, with a target price of Rs.158.

Economic and Political News

- Cotton output estimate at 325lakh bales for 201 2-13

- Government issues spectrum auction guidelines

- IT industry concerned over property tax hike proposal

- Indian packaging industry likely to touch US$44bn by 2016

- Retail credit for NBFCs to grow by 17% in 201 2-13: ICRA

Corporate News

- Allahabad Bank to off-load Rs.540cr worth NPARs.s this quarter

- Larsen and Toubro bags Rs.447cr order from Defense Ministry

- Law Min approves re-allocation of coal blocks to NTPC

- Lupin gets USFDA nod to market oral contraceptive

- Tata Steel halts Sukinda mine operation as lease term ends