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Indian stock market and companies daily report (January 30, 2013, Friday)
The Indian market is expected to open flat to positive, mirroring flat opening in the SGX Nifty and positive opening trades in most of the Asian bourses. Asian stocks are trading higher as South KoreaRs.s industrial output has climbed unexpectedly.
The US stocks edged higher over the course of the trading session on Tuesday. The strength that emerged on Wall Street reflected a positive reaction to the some of the latest earnings news, although buying interest remained somewhat subdued. The European markets ended the trading session on Tuesday with mixed results, as investors remained cautious ahead of U.S. FOMC announcement due today. Investors are also watching for some key U.S. economic data this week, including GDP on Wednesday and the jobs report for January, which is due to be released Friday.
Meanwhile, the Indian markets ended a volatile session lower on Tuesday after the RBI reduced repo rate by 25 basis points, as expected widely, for the first time in nine months to support the governmentRs.s renewed thrust to the reforms agenda. The central bank also unexpectedly reduced the CRR rate by 25 basis points, but signaled there was less room for aggressive policy rate cuts in future due to high inflation and the high level of current account and fiscal deficits.
The trend deciding level for the day is 20,055 / 6,068 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,140 - 20,288 / 6,094 - 6,137 levels. However, if NIFTY trades below 20,055 / 6,068 levels for the first half-an-hour of trade then it may correct up to 19,906 - 19,821 / 6,024 - 5,999 levels.
RBI cuts Repo, CRR by 25bp each
The Reserve Bank of India (RBI) in its Third Quarter Monetary Policy Review for FY2013 reduced the repo rate by 25bp from 8.0% to 7.75%. Consequently, the reverse repo rate stands adjusted at 6.75% and the marginal standing facility (MSF) rate and bank rate stand adjusted at 8.75%. The Cash Reserve Ratio (CRR) too has been reduced by 25bp from 4.25% to 4.0% of banksRs. net demand and time liabilities (NDTL) since liquidity remains tight and wedge between credit and deposit growth persists. The CRR reduction is expected to inject around Rs.18,000cr of primary liquidity into the banking system.
The RBI has further scaled its growth forecast for FY2013 downwards to 5.5% from 5.8% in its October policy review. Growth is likely to remain subdued for the fiscal year on the back of slowdown in private consumption, investment and exports. In light of the slowdown in growth and moderation in inflation, the RBIRs.s policy stance is increasingly shifting towards supporting growth. At the same time, we believe that the RBI still remains cautious in its approach on account of any negative surprise emanating from inflation and the twin deficits, ie current account and fiscal deficit. The RBI has positively scaled its inflation forecast for FY2013 downwards to 6.8% from 7.5% in its October policy review. Going ahead in FY2014, the RBI expects inflation to remain range-bound at the current level.
Earlier during the month the government partially deregulated diesel prices by allowing oil companies to hike retail prices gradually while allowing full price adjustment for bulk consumers. We believe that this move strengthens the governmentRs.s efforts towards fiscal consolidation but release of suppressed inflation is likely to lend an upward bias to inflation going ahead. In that context, we believe that favorable movement in international crude oil prices and INR are pertinent for further moderation in inflation.
We believe that the RBI has adopted a balanced approach weighing the growth-inflation dynamics in its policy stance and it marks a material shift from its earlier hawkish policy stance. We believe that the hike in diesel prices is likely to put some pressure on inflation in the near-term but it bodes positively for fiscal adjustment and inflationary pressures in the medium-term. Further, concerted efforts towards fiscal consolidation are likely to give the central bank more headroom to ease policy rates. We maintain our view on reduction in repo rate by about 1 00bp in 2013.
TTMT plans to hire over 500 people for R&D at JLR
Tata Motors (TTMT) in a US filing has indicated that it plans to hire over 500 engineers and designers at Jaguar and Land Rover (JLR) by March 2013, to support its new product development program. Post the hiring, the total strength of JLRRs.s R&D team will increase to around 5,500. The recent announcement to hire additional employees follows companyRs.s decision to hire 800 employees at Solihull plant to support the introduction of new model program. JLR has been on a hiring spree over the last one year and its total headcount across the world has gone up to 25,368 as on September 30, 2012 from 20,923 as on September 30, 2011. This bodes well with the companyRs.s intentions of increasing capacity at its existing plants and increasing spending on its research and development initiatives. JLR has recently announced a hike in its capital expenditure for FY2014 to GBP2.75bn from GBP2bn in FY2013. We see JLRRs.s employee expense as a percentage of sales increasing by 150-160bp in FY2013 as a result of the hiring spree that the company has undertaken. This would also factor in the recent wage hike that the company gave to its UK employees in November 2012. We expect JLRRs.s margins to contract by ~100bp in FY2013 led by increase in employee expenditure and unfavorable product-mix. However, softening commodity prices coupled with favorable currency movement would arrest further decline in margins.
Meanwhile, Jaguar Land Rover Automotive plc, the parent company of the JLR group of companies and a subsidiary of Tata Motors, has raised US$500mn through senior notes due 2023 at a coupon of 5.625%. The senior 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 company intends to utilize the net proceeds towards general corporate purposes, including the ongoing capital expenditure plans. Currently, we have an Accumulate rating on the stock with an SOTP based target price of Rs.337.
IDBI Bank reduces lending and deposits rate by 25bp
IDBI Bank has become the first bank to cut lending and deposit rates by 25bp, following the announcement of the RBI to reduce Repo rate and CRR by 25bp each. The new base rate for the bank would be 10.25%, effective from February 1, 2013. The benchmark prime lending rate (BPLR) and fixed deposit rates on select maturities are also reduced by 25bp. In our view, apart from impacting loan growth, reduced lending rates are also expected to augur well for subsiding some of the asset quality pressures. As we understand, other banks are likely to take a call on reducing rates in coming days, post the ALCO (Asset Liability Committee) meeting. At the CMP, the bank is trading at valuations of 0.7x FY2014E P/ABV, (0.9x adjusting for the SASF). We currently recommend Neutral rating on the stock.
3QFY2013 Result Review
Sterlite Industries (CMP: Rs.113, TP: -, Upside: -)
Sterlite Industries (Sterlite) reported disappointing 3QFY2013 results. Both, the topline as well as net profit were lower than expected, mainly due to lower-than-expected performance from the copper segment. Net sales increased 4.4% yoy to Rs.10,692cr below our estimate of Rs.11,288cr. Net sales growth was mainly driven by increase in Aluminium and Zinc segment revenues. Aluminium, and Zinc segment revenues grew 3.9% and 11.4% yoy to Rs.823cr and Rs.4,182cr, respectively. On the operating front, SterliteRs.s EBITDA was flat yoy at Rs.2,327cr; EBITDA margin was at 21.8% (below our estimate of 22.8%) as higher profitability from other segments was offset by lower profitability from copper and power segments. Copper segmentRs.s profitability was below our estimate as its EBIT declined 50.8% yoy to Rs.160cr due to lower Tc/Rc charges and lower by-product realizations. The aluminium segment reported a positive EBIT of Rs.8.9cr compared to a loss of Rs.23cr in 3QFY2012.
The company reported an exceptional item relating to forex loss of Rs.63cr, compared to a forex loss of Rs.307cr in 3QFY2012. The interest costs during the quarter rose by 13.1% yoy to Rs.227cr and other income grew by 6.4% yoy to Rs.859cr. However, tax rate decreased to 15.1% compared to 23.4% in 3QFY2012, thereby leading the adjusted net profit to increase by 2.7% yoy to Rs.1,254cr, which was below our estimate of Rs.1,524cr. The reported net profit increased 30.4% yoy to Rs.1,191cr.
Balco has received stage-II forest clearance for its coal mine which will result in significant cost savings once it is operational. Sterlite expects to commence production from 1QFY2014 which is optimistic in our view. Considering the ongoing process of group restructuring by the promoter, Vedanta Resources, valuation of Sterlite will mirror the valuation of consolidated company, Sesa Sterlite. We maintain our Neutral view on the stock.
Idea (CMP: Rs.114 / TP: - / Upside: -)
Idea Cellular (Idea) reported its 3QFY2013, which were in-line with our estimates on the revenue front but disappointed on the operating as well as profitability front. The revenues came in at Rs.5,579cr, up 5.0% qoq, because of 7.0% qoq rise in MOU to 384min. Overall network traffic grew by 5.2% qoq to 132bn min. Overall subscriber base of Idea reduced by 1.6mn to 113.9mn in 3QFY2013. ARPM declined by 0.5% qoq to Rs.0.411/min due to reduction of VAS share in revenues to 13.6% from 14.6% which was a major negative surprise in the results. EBITDA margin declined by 36bp qoq to 26.4%. PAT came in at Rs.229cr, down 4.8% qoq, impacted by higher interest charges. The company remain surrounded by regulatory uncertainties related to spectrum and license fee payments. We maintain Neutral view on the stock.
Dabur India (CMP: Rs.130/TP:/Upside:-)
Dabur India (Dabur) posted a 12.3% yoy growth in top-line to Rs.1,631cr. In terms of category, Foods grew by 22.1% yoy while Home & Personal care grew by 15.7% yoy. Hair Care portfolio grew by 13.9%, while shampoos grew by 29.6% yoy. The domestic consumer business posted a volume growth of 9.5% on a yoy basis. OPM rose by 126bp yoy to 16.6% aided by a 21 9bp yoy improvement in gross margins. The companyRs.s Advertising and Promotion expenditure as a percentage of sales rose by 77bp yoy to 14.4%. Bottom-line rose by 22.2% yoy to Rs.211cr aided by healthy operational performance and decline in finance costs (down 57.5% yoy) to Rs.7.8cr. We maintain our Neutral recommendation on the stock.
Crompton Greaves (CMP: Rs.109/TP: Under review)
For 3QFY2013, Crompton Greaves top-line performance was below our expectations and street estimates, coming in at Rs.2,972cr, a decline of 1.9% yoy. The restructuring at Belgium has led to EBIT losses of Rs.105cr in power segment which has dragged down OPM by 596bp yoy to 0.1%. Consequently, the company reported a loss of Rs.68cr. The company also incurred additional one off loss of Rs.121cr (due to VRS scheme package offered for downsizing of Belgium operations). Currently the stock is under review.
United Phosphorous (CMP: Rs.137/ TP: Rs.170/Upside: 24%)
For 3QFY2013, United Phosphorous reported top-line of Rs.2255cr, a growth of 20.5% yoy. The sales growth during the period was lead by the international markets, which grew by 23%yoy, while the domestic markets grew by 5%yoy during the period. In exports, USA and Latin America, were main drivers, registering a growth of 44% yoy and 25% yoy respectively. Overall, the volumes during the quarter rose by 15% yoy, while price variance and exchange contributed around 2% and 4% respectively. On the operating front, even though the Gross Profit Margins expended by 383bps during the period on back of the improved sales mix, however, the significant rise in other expenses, aided the margins to decline by 214bps. However, the net profit still posted a 54.3% yoy, growth aided by other income, higher income from associates and lower taxation during the quarter. The net profit came in at Rs.173.5cr V/s Rs.112.4cr during the last corresponding period. Currently, we maintain our buy recommendation on the stock with a price target of Rs.170.
Indoco Remedies (CMP: Rs.63/ TP: Under review)
For 3QFY2013, Indoco Remedies reported results below expectations. While the top-line came in at Rs.150cr V/s Rs.185cr expected during the period, registering a growth of 6.0% . The sales growth during the period was impacted by the low domestic and exports growth, which posted a growth of 11.0% and 1.2% respectively. On the operating front, the lower sales during the period impacted the OPMRs.s which came in very low at 10.8% V/s expectation of 16.4%, even though the Gross Profit Margins expended by 188bps during the period on back of the improved sales mix. Consequently, the net profit came in at Rs.7.4cr V/s Rs.18.5cr expected. On the yoy basis, the net profit dipped by 10.7%. Currently, the stock is under review.
3QFY2013 Result Preview
Colgate (CMP: T1,365/TP:-/Upside:-)
Colgate is slated to announce its 3QFY2013 results today. The company is expected to post a 14.3% yoy growth in topline to Rs.787cr. OPM is expected to decline marginally by 46bp yoy to 21.0%. Bottomline is expected to grow by 7.7% yoy to Rs.126cr. We maintain a neutral view on the stock.
Central Bank - (CMP: Rs.85 / TP: - / Upside: -)
Central Bank is scheduled to announce its 3QFY2013 results today. We expect the bank to report a NII growth of 24.3% yoy to Rs.1,465cr. Non-interest income for the bank is expected to decline by 2.2% to Rs.349cr. Operating expenses are expected to increase by 6.7% yoy to Rs.984cr, which would aid operating profit to grow by 35.3% on a yoy basis at Rs.831cr. Provisioning expenses are expected to decline by 21.1% yoy, and would result in Net profit of Rs.349cr for the quarter, more than triple on a yoy basis (on low base of 3QFY2012). At the CMP, the stock trades at valuations of 0.7x FY2014E ABV. We maintain our Neutral recommendation on the stock.
IPCA Labs (CMP: Rs.488/ TP: -/Upside: -%)
We estimate Ipca LaboratoriesRs. top line to grow by 21.5% to Rs.731cr for 3QFY2013. The OPM is expected to decline by 300bp yoy to 21.5%. Inspite, of the same adjusted Net Profit is expected to grow by 45.5% yoy, on back of top-line. We maintain our neutral recommendation on the stock.
KEC International (CMP: Rs.62/ TP: Rs.78/Upside: 26%)
For 3QFY2013, KEC International (KEC) is expected to register a strong top-line growth of 18% yoy to Rs.1,722cr on the back of strong execution of its robust order book. However, on the EBITDA front, the companyRs.s margin is expected to contract by ~146bp yoy to 6.3% on account of low margin orders in new segments. We expect PAT to decline by 26.9% to Rs.33cr on account of margin pressure and elevated interest cost. We recommend Buy on the stock with a target price of Rs.78.
Ashoka Buildcon (CMP: Rs.204 / TP: Rs.286 / Upside: 40%)
For 3QFY2013, Ashoka Buildcon (ABL) is expected to post a robust growth of 47.8% yoy on the consolidated revenue front to Rs.522cr on the back of underconstruction captive road BOT projects, which will drive its E&C revenue. The E&C segment will continue to dominate the companyRs.s revenue by contributing Rs.405cr (77.7%), while the BOT segmentRs.s share is expected to be Rs.117cr. EBITDAM is expected to come in at 23.0% (19.6%), registering a growth of 341 bp yoy. On the back of healthy execution we expect earnings to come at Rs.54cr for 3QFY2013. We maintain our Buy recommendation on the stock with a target price of Rs.286.
PVR (CMP: Rs.276/TP: -/Upside: - %)
For 3QFY2013, we expect PVR to report robust 36.5% yoy growth in top-line to Rs.186cr, on back of good performance in movie exhibition business, with many successful releases during the quarter. The companyRs.s EBITDA margin is likely to expand by 223bp yoy to 18.5%. Consequently, Net profit is expected to increase by 62.7% yoy to T15cr. At the current market price, PVR is trading at 13.2x FY2014E consolidated EPS of T19.6. We believe the stock is fairly valued and hence, maintain our Neutral rating on the stock.
Jyoti Structures (CMP: Rs.41/TP: T51/Upside: 24%)
For 3QFY2013, we expect Jyoti Structures to report a subdued top-line growth of 5.0% yoy to T617cr. On the EBITDA front, the company margin is likely to be flat yoy at 10.5%. However, the companyRs.s PAT is expected to increase by a robust 29.5% yoy to T18cr aided by a lower base. We recommend Buy on the stock with a target price of T51.
Economic and Political News
- RBI cuts FY13 GDP growth outlook further to 5.5%
- Govt. extends deadline for PSUs to apply for coal blocks
- India committed to reforms: FM tells European investors
- NHPC proposes to exit from National Power Exchange
- Tata Coffee to relaunch Eight ORs.Clock brand in US and Canada
- HPCL plans T700cr cavern storage for LPG
- RIL raises T4,300cr through perpetual bonds
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