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Indian stock market and companies daily report (January 24, 2013, Thursday)

Contributed by Angel Broking

The Indian market is expected to open flat mirroring similar opening in SGX Nifty and most other Asian market.

The US markets saw modest strength during trading on Wednesday with traders reacting positively to the latest batch of earnings news. The gains on the day extended a recent upward move by the markets, although buying interest was somewhat subdued. The markets also benefited from positive sentiment generated by news that the House voted to approve a bill that would temporarily suspend the U.S. debt limit for nearly four months. The major European markets also ended the day mixed, while many investors were hesitant to take a position ahead of the vote to pass a short-term debt ceiling increase in the U.S. House of Representatives.

The Indian markets erased early losses to end modestly higher on Wednesday, mirroring firm European cues. Going ahead investors would be watchful of the earnings data and reports on weekly jobless claims, leading economic indicators, and new and existing home sales in the US.

Markets Today

The trend deciding level for the day is 20,002 / 6,048 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,083 - 20,139 / 6,076 - 6,097 levels. However, if NIFTY trades below 20,002 / 6,048 levels for the first half-an-hour of trade then it may correct up to 19,946 - 19,865 / 6,027 - 6,000 levels.

Tata Motors likely to see margin pressures at JLR in 3QFY2013

Tata Motors (TTMT) in a US filing, provided details on Jaguar Land RoverRs.s (JLR) provisional results for 3QFY2013. According to the management, JLRRs.s revenue will be higher than the previous two quarters reflecting the higher sales volume (growth of 10% yoy). EBITDA is likely to be in the region of levels reported for the previous two quarters; however EBITDA margin is likely to be slightly lower than in the previous two quarters, primarily due to less favourable exchange rates and of share of Evoque sales in the volume-mix. The company further stated that, Free cash Flow (FCF) for JLR will be negative in 3QFY2013 primarily owing to higher working capital requirements. Nonetheless, FCF will be positive for the first nine months of FY2013. Further, the management has increased its capital expenditure guidance for FY2014 to GBP2.75bn as against GBP2bn earlier. As a result, the management expects FCF to turn negative in FY2014. The company has indicated that JLR currently has a cash balance of GBP2.18bn. Meanwhile, Jaguar Land Rover Automotive plc, the parent company of the JLR group of companies and a subsidiary of Tata Motors, has announced that it will be raising capital (US$400mn Rs.Senior notesRs. due in 2023) for its expansion plans. The company further stated that the notes will be guaranteed on a senior unsecured basis by JLR Ltd, Land Rover, JLR North America LLC, Land Rover Exports Ltd and JLR Exports Ltd.

The management commentary for JLR on the margin front is slightly below our estimates. For JLR, we expect top-line to increase 10% yoy to GBP4.1bn. On the margin front, we expect the company to report margins of 14% (slightly higher than 13.8% reported in 1HFY2013). On the consolidated front, we expect TTMT to report 15.9% yoy decline in net profits to Rs.2,865cr. Post the announcement of JLR provisional results, Tata Motors ADR tanked by ~10% on NYSE. We expect the stock to see correction in domestic markets as well once the trading resumes today. Currently, we have an Accumulate rating on the stock with an SOTP based target price of Rs.337.

Exide Industries to buy 50% stake in ING Vysya Life Insurance for Rs.550cr

Exide Industries (EXID) which currently has 50% stake in ING Vysya Life Insurance Company (IVL) has announced that it will be acquiring the remaining 50% stake in IVL for Rs.550cr. EXID will be buying out the minority stake held by ING group (26%), Hemendra Kothari group (16.32%) and Enam group (7.68%). The company intends to fund the acquisition through internal accruals. The deal implies a market capitalization of Rs.1,100cr for IVL. EXID has so far invested Rs.744.4cr in IVL for its 50% stake. This implies that the company is buying the remaining 50% stake at a discount of ~26% of its book value which could be due to the fact that the new business premium for IVL has been declining continuously (down 5% in FY2012) and also owing to the fact that ING group was looking to exit the business. The ING group had earlier announced its intentions to exit its non-banking business such as insurance and asset management in Asia, including India as a strategy to pay back the government bailout funds it received during the financial crisis in 2008. We have been valuing IVL at Rs.1,500 by assigning a multiple of 1 5x to its FY2014E NBAP. Post the deal, we would value IVL at its acquisition price of Rs.1,100cr (Rs.13/share). Going ahead, EXID intends to find another strategic partner which could infuse fresh equity into IVL for future expansion. We would be watchful of the valuations the company gets for its insurance business in the future and would also seek more clarity on the companyRs.s future expansion plans. At Rs.125, the stock is trading at 15.9x FY2014 earnings. We maintain our Neutral rating on the stock.

3QFY2013 Result Review

SUN TV (CMP: Rs.439 / TP: - / Upside : -)

For 3QFY2013, Sun TV posted a healthy 14.3% yoy growth in its top-line to Rs.486cr mainly on account of a robust 20% yoy increase in advertising revenue to Rs.293cr (aided by festive season). OPM for the quarter stood at 77.5%, a decline of 279bp yoy, driven largely by 105bp yoy increase in cost of revenues and 141 bp yoy increase in other expenditure. In spite of margin pressure, net profit grew by 13.1% yoy to Rs.190cr. The stock is currently trading at 23x FY2014 EPS of 19.1. We believe the stock is fairly priced and hence, maintain Neutral on the stock.

Syndicate Bank - (CMP: Rs.133 / TP: Rs.158 / Upside: 18.8%)

For 3QFY2013, Syndicate Bank reported 50.4% yoy increase in its earnings, aided by tax write-back of Rs.174cr compared to tax expense of Rs.41cr in 3QFY2012, as earnings on PBT level declined by 11.8% yoy. On the operating front, the performance was moderate, with operating income growth of 6.6% yoy. and hence pre-provisioning profit decline of 6.3% yoy. Though, provisioning expenses came down by 2.5% yoy, earnings at PBT level witnessed a decline of 11.8% yoy. On the asset quality front, the bank witnessed improvement, as gross and Net NPA levels remained flat sequentially, on an absolute basis. Gross and Net NPA ratio declined sequentially by 16bp and 7bp, respectively to 2.3% and 0.9%. At the CMP, the stock is trading at valuations of 0.7x FY2014E ABV. We recommend Buy rating on the stock with a target price of Rs.158.

Rallis (CMP: Rs.141/ Target: -/ Upside: -)

For 3QFY2013, the company posted sales of Rs.340cr, a yoy growth of 7.0%. On the operating front, the margin came in at 12.3%, V/s 7.4% in the last corresponding period, posting an expansion of 490bps. However, adjusting for extra ordinary expenditure during the corresponding period, there was a dip in the margins of around 280bp, This along with higher tax outgo during the period, lead the adj. net profit to decline by 15.9% yoy to end the period at Rs.22.0cr. We maintain our neutral recommendation on the stock.

3QFY2013 Result Preview

L&T (CMP: Rs.1,561/TP: Rs.1,748 /Upside: 12%)

We expect Larson & Turbo (L&T) to record revenue a revenue growth of 12.8% yoy to Rs.15,790cr for 3QFY2013. This growth can be attributed to the companyRs.s large order book (~Rs.1.6trillion). On the EBITDA front, we expect the companyRs.s margin to witness on expansion of 161 bp yoy to 11.2%. We project the net profit to come in at Rs.1,020cr, indicating a growth of 21.6% yoy.

At the current market price of Rs.1,561, the stock is trading at 20.3x FY2014E earnings and 2.9x FY2014E 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.1,748. We continue to recommend Accumulate on the stock.

Ashok Leyland (CMP: Rs.25/ TP: Rs.31/ Upside: 24%)

Ashok Leyland (AL) is slated to announce its 3QFY2013 results today. We expect ALRs.s top-line to register a de-growth of ~14% yoy (~25% qoq) largely due to higher discounts and increasing contribution of the lower priced Dost (~36% of total volumes vs 29% in 2QFY2013). As a result, net average realization is expected to decline ~12% yoy during the quarter. On the operating front, we estimate EBITDA margins to decline by 180bp qoq to 8.3% on account of adverse product-mix and higher discounts which are likely to drag down the bottom-line by ~39% yoy (down ~70% qoq) to Rs.41cr. At Rs.26, the stock is trading at x FY2014E earnings. Currently, we have a Buy rating on the stock with a target price of Rs.31.

Economic and Political News

- FDI inflows slump to 2-yr low at US$1.05bn in Nov 2012

- Natural gas price set to go up

- Coal blocks to be allocated to government firms without reserve price

- Engineering exports to miss $60bn target in FY13

Corporate News

- Telcos reduce promotional benefits, cut free minutes

- Government withdraws de-allocation of 3 coal mines to NTPC

- Oil Ministry for doubling gas price to US$8-8.5 per mmBtu