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Indian stock market and companies daily report (January 28, 2013, Monday)

Contributed by Angel Broking

The Indian market is expected to open marginally in the green tracing positive opening trades in the SGX Nifty and most of the Asian indices.

The US markets moved notably higher over the course of the trading day on Friday. The markets benefited from a positive reaction to the latest batch of earnings news, which overshadowed a disappointing housing report. Major European bourses ended the trading session on Friday in positive territory. The stronger than expected increase in German business sentiment and the news regarding bank repayment of LTROs were viewed positively. Comments from ECB President Mario Draghi also provided a boost to investor sentiment. The markets were largely able to shrug off the higher than expected decline in British GDP.

Meanwhile, the Indian markets rallied on Friday on growing hopes of at least 25 basis points cut in policy rates by the RBI in its upcoming monetary policy review on Tuesday. Reports that the RBI may issue final guidelines for new bank permits by next month and positive global cues following upbeat economic data from China, Europe and the U.S. also helped boost investor risk appetite.

Markets Today

The trend deciding level for the day is 20,054 / 6,057 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,179 - 20,254 / 6,099 - 6,123 levels. However, if NIFTY trades below 20,054 / 6,057 levels for the first half-an-hour of trade then it may correct up to 19,978 - 19,853 / 6,033 - 5,990 levels.

Defence Ministry classifies RILRs.s KG-D6 block as "No-Go" area

Media reports suggest that the Defence Ministry has classified Reliance Industries (RIL) and its partner BP PlcRs.s KG-D6 gas fields and gas discovery area NEC-25 as "No-Go" areas. Media sources also suggest that Ministry of Defence has either withdrawn or withheld clearances for 47 oil and gas blocks (14 of which have been classified as "No-Go" areas). RIL-BPRs.s KG-DWN-98/3 or KG-D6 block has been declared as "No-Go" as it overlaps with a proposed Naval base. KG-D6 was awarded to RIL during CY2000 by the Cabinet after clearances from all ministries concerned and it has been producing gas beginning April 1, 2009. Currently, the gas output from KG-D6 block is approximately 24mmscmd. RIL-BPRs.s Mahanadi basin block NEC-OSN-97/2 (NEC-25) where sizable gas discoveries have been made, has also been classified as "No-Go" area as it is close to missile launching range/air force exercise area. Approximately 11% of our RILRs.s SOTP valuation comes from KG-D6 and NEC-25 blocks. Hence, this event is likely to have a negative impact on RILRs.s stock price in the near-term. However, we await further clarity on this matter. Until then, we maintain our Neutral rating on the stock.

Out of the 12 "No-Go" areas, there are some blocks allocated to ONGC and Cairn India. However, there is lack of clarity on the quantum of production from these blocks currently. Hence, we maintain our Reduce rating on ONGC with a target price of ?312 and Buy rating on Cairn India with a target price of ?383.

Godrej Consumer Products to sell Indonesian food biz to Creador

Godrej Consumer Products (GCPL) has entered into an agreement with private equity firm Creador to divest its non-core food business in Indonesia. The transaction is expected to be completed in two months. GCPLRs.s food business in Indonesia includes cereals, snack and instant food products under the brands Simba and Turbo. GCPL had acquired these businesses in 2010 as a part of its deal to acquire the Megasari group in 2010. GCPLRs.s Indonesian food businesses generated net sales of about US $22 million in 2012. Although GCPL has not disclosed the deal, media reports place the value of the deal at US $30-34mn. We believe this decision by GCPL would enable it to focus on its core home and personal care business. We also expect the companyRs.s profit margins to improve and result in better return ratios. We maintain a neutral rating on the stock.

Ceat signs JV with a Bangladesh firm

Ceat has signed a joint venture (JV) agreement with A K Khan and Company, a Bangladesh based business house, to set up a bias tyre manufacturing facility in Bangladesh. The plant is expected to manufacture bias tyres in truck, light commercial vehicle, and two-wheeler segments for the local Bangladesh market. The JV which would entail an investment of US$67mn (Rs.355cr) towards the new plant is expected to commence operations by the end of 2014. The plant is expected to have an installed capacity of 1 10MT/day and is likely to be completed in phases. As per the agreement, while Ceat will hold 70% in the JV Company, balance 30% will be held by A K Khan and Company. Further, Ceat will also provide technology and operational support to the JV Company. Around Rs.40- Rs.50cr of CeatRs.s planned capital expenditure towards the new plant will be incurred in FY2013E and the remaining will be incurred in FY2014E. The announcement by the company is on the expected lines as it had already announced its intentions of setting up a manufacturing facility in Bangladesh. At Rs.105, the stock is trading at attractive valuations of 2.6x FY2014E earnings. We maintain our Buy rating on the stock with a target price of Rs.163.

3QFY2013 Result Review

Maruti Suzuki (CMP: Rs.1,600/ TP: -/ Upside: -)

Maruti Suzuki (MSIL) reported strong set of results for 3QFY2013. While the top-line (up 35% qoq) was broadly in-line with our estimates; bottom-line was slightly ahead despite higher tax rate (at 26% as against 19% in 2QFY2013), driven by EBITDA margin expansion (up 183bp sequentially to 8%).

For 3QFY2013, net sales grew by a robust 44.9% yoy (22.9% qoq) to Rs.11,200cr which was in-line with our estimates, driven by 25.9% yoy (30.9% qoq) and 15.7% yoy (3.8% qoq) growth in volumes and net average realization respectively. While volume growth came on the back of the low base (volumes in 3QFY2012 and 2QFY2013 were impacted due to labor strike); net average realization improved on account of superior product-mix (higher share of Swift, Dzire and Ertiga and higher proportion of diesel vehicles in the volume-mix), lower discounts (at Rs.12,100/ unit vs. Rs.14,700/ unit in 2QFY2013) and price hikes. The share of diesel vehicle stood at ~40% in 3QFY2013 as against ~33% in 2QFY2013. On the operating front, margins improved 183bp sequentially to 8% primarily due to favorable product-mix, operating leverage benefits and favorable currency movement. The royalty expense for the quarter stood at 5.6% as against 6% in 3QFY2012. Led by strong operating performance and base effect, net profit surged 143.8% yoy (1 20.4% qoq) to Rs.501cr, slightly ahead of our estimates of Rs.474cr.

Going ahead, we expect the operating performance of MSIL to improve further led by price increases carried out in January 2013 and favorable currency movement. Further, the company has indicated that the benefits of Yen depreciation will materialize from 1QFY2014 which should support margin expansion. However, at the CMP of Rs.1 ,600, the stock is trading at rich valuations of 16.7x FY2014E earnings. We therefore maintain our Neutral rating on the stock.

Persistent (CMP: Rs.559 / TP: Under review / Upside: -)

Persistent Systems (Persistent) reported its 3QFY2013 results which came in line with our expectations on the revenue front but disappointed on operating margin front. The dollar revenues came in at US$60.8mn, up 1.2% qoq, led by 2.1% qoq revenue growth from IT services which came in at US$49.7mn. The companyRs.s EBITDA margin declined considerably by ~250bp qoq to 24.8% which was a negative surprise. PAT stood at Rs.50cr, up 1 0.9% qoq aided by forex gain of Rs.1.8cr as against loss of Rs.4.1cr in 2QFY2013. We await further clarity from management regarding decline seen in operating margins and keep stock under review.

Sarda Energy and Minerals (CMP: Rs.128, TP: Rs.153, Upside: 20%)

Sarda Energy and Minerals (SEML) reported healthy 3QFY2013 numbers. The net sales grew by 29.9% yoy to Rs.370cr mainly driven by healthy performance from steel business ( + 52.5% yoy to Rs.275cr). The EBITDA growth was however subdued at 10.7% yoy to Rs.71 cr due to higher raw material costs and other expenses. Interest costs increased by 23.4% yoy to Rs.18cr while other income declined by 59.4% yoy to Rs.4cr. As a result, the net profit of the company declined 3.3% yoy to Rs.27cr. We maintain our Buy rating on the stock with a target price of Rs.153.

3QFY2013 Result Preview

Bank of India- (CMP: Rs.364 / TP: - / Upside: -)

Bank of India is scheduled to announce its 3QFY2013 results today. We expect the bank to report NII growth of 8.9% yoy to Rs.2,253cr. Non-interest income is expected to register growth of 9.8% yoy to Rs.936cr. Operating expenses are expected to be higher by 1 5.7% yoy, while provisioning expenses are expected to increase by 54.6% yoy to Rs.1,072cr. Net profit is expected to decline by 22.2% yoy to Rs.557cr. At CMP, the stock is trading at valuations of 0.9x FY2014E P/ABV. Currently, we have a Neutral recommendation on the stock. The bankRs.s management has changed recently and we would have a relook at our rating/outlook on the stock, post the results.

JSW Steel (CPM: Rs.864, TP:-, Upside :-)

JSW Steel is slated to announce its 3QFY2013 results today. We expect its standalone net sales to grow by 8.5% yoy to Rs.8,531cr mainly on account of increased sales volumes as well as realizations and operating margin is expected to expand by 162bp yoy to 17.3% mainly on account of lower raw material costs. However net profit is expected to decrease by 32.5% yoy to Rs.451 cr mainly because of higher tax expenses and interest costs in this quarter. We maintain our Neutral view on the stock.

KPIT (CMP: Rs.112 / TP: Rs.130 / Upside: 16%)

KPIT Cummins Infosystems (KPIT) is slated to announce its 3QFY2013 results today. We expect the company to post revenue of US$105mn, up 1.0%. In INR terms, the revenue is expected to come in at Rs.565cr, almost flat qoq. EBITDA margin is expected to increase by 55bp qoq to 1 7.2. PAT is expected to come in at Rs.57cr. We maintain Buy rating on the stock with a target price of Rs.130.

Economic and Political News

- RBI hikes FII limit in govt. securities and corporate bond by US$5bn each

- Railways eyes Rs.6,000cr from non-core business

- PE, venture capital investments slump to US $7.6bn in 2012: E&Y

Corporate News

- Diageo-United Spirits deal clearance work in progress: CCI

- Ashok Leyland to dilute stake in subsidiaries

- Maruti told to pay Rs.138cr more in Manesar land case

- Maruti Suzuki buys land for 4th plant