Indian stock market and companies daily report (January 30, 2014, Thursday)
January 30, 2014, Thursday, 04:50 GMT | 23:50 EST | 10:20 IST | 12:50 SGT
Indian Markets are expected to open in red tracking negative opening in most of the Asian markets, taking cues from Wall Street where the major averages ended lower following the US Federal Reserve announcing plans to scale back its bond purchases by another US$10bn.
US markets fell in the yesterday's session extending losses after the Fed announced plans to scale back its bond purchases by another US$10billion to US$65bn a month. The Fed also signaled that it is likely to keep reducing its purchases in the coming months, citing a pickup in economic activity and improvement in the labor market. Fed reiterated that it would be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6.5%. Meanwhile, the European markets reversed early gains in the Wednesday's trading session and finished in negative territory.
On domestic front, the Indian markets ended in the red on Wednesday, reversing early gains, as heavyweight banking and metal stocks came under selling pressure, offsetting gains in healthcare, IT, capital goods and auto stocks.
The trend deciding level for the day is 20,697 / 6,134 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,779 - 20,912 / 6,157 - 6,194 levels. However, if NIFTY trades below 20,697 / 6,134 levels for the first half-an-hour of trade then it may correct 20,564 - 20,481 / 6,097 - 6,073 levels.
US Federal Reserve cuts stimulus by another USD 10bn
US Fed decided to cut its bond purchase by another USD 10bn come February 2014 by reducing USD5bn in purchase of mortgage backed securities and USD5bn in treasury securities. The quantum of monthly asset purchases would amount to USD60bn (USD35bn in treasury securities and USD30bn in mortgage-backed securities) as compared to the pace of USD85bn maintained since September 2012. The Fed reiterated its commitment to an accommodative monetary policy stance. The policy rate has been maintained at a near-zero level of 0.25%. It would continue to keep interest rates near zero until employment improves further (below 6.5%) and price stability is maintained at or below its 2% medium-term objective. Also, the FOMC noted that inflation persistently below its 2% objective could pose risks to economic performance and indicated at monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.
Major US indices closed down more than 1.0% while yields on 10 yr Treasury notes hit their lowest level since October. We believe that this event is likely to impact EM currencies and equity markets negatively as the Fed was expected to hold further tapering of its stimulus during this policy meet on slightly weak employment data. Although there is likely to be some rub off impact on Indian markets as well, we believe that with our external sector is now more resilient as compared to the indication of tapering May 2013. The trade deficit looks to be on an improving trajectory and our current account deficit for FY2014 is slated to moderate to sustainable levels owing to the growth in exports and compression in imports, particularly gold. Also, with policy measures taken to attract capital inflows risks to financing of the deficit have also materially subsided.
HMCL unveils five new products
Hero MotoCorp (HMCL) has unveiled five new products that are currently under the development stage and are expected to hit the markets staring FY2015. The models include HX250R - new 250cc sports motorcycle, RNT - a diesel concept motorcycle, Leap - electric hybrid scooter, Dash - new 1 10cc scooter and Xtreme -new 150cc motorcycle. According to the Management, all the new models under development are technologically superior; youth focused and indigenously built on a completely new platform. Additionally, the company intends to showcase slew of products at the upcoming Auto Expo in February. We are excited by the company's announcement and believe that new launches will be crucial for the company to sustain its current market share and consolidate it further amidst higher competition, specifically from Honda Motorcycles and Scooters India. We would wait for more clarity on the specifications, pricing and the launch date of these new models. At the CMP the stock is trading at 13.9x FY2015E earnings. We maintain our Accumulate rating on the stock with a target price of Rs.2,235.
ICICI Bank (CMP: Rs.1,002/ TP: Rs.1,366/ Upside: 36.3%)
ICICI Bank reported healthy operating performance during the quarter, while asset quality performance was in-line with expectations. NII for the bank grew at healthy pace of 22% yoy to Rs.4,255cr aided by healthy loan book growth of 16% yoy (which was led by 22% yoy growth in retail portfolio) and sequentially stable margins. Non-interest income grew by 27% yoy to Rs.2,801cr. The bank reported healthy pre-provisioning profit growth of 29% yoy. Earnings for the bank grew at moderate 13% yoy to Rs.2,532cr (excluding the impact of special provision of Rs.215cr for deferred tax liability on special reserve, PAT growth would have been 22% yoy). On the asset quality front, absolute Gross NPAs increased marginally by 4% qoq, while net NPAs increased 16% qoq (as PCR came off by 310bp qoq to 70%). Additionally, the bank's restructured advances worth Rs.2,046cr during the quarter. Going forward, the management has guided for restructuring pipeline of Rs.3,000cr, while it expects the FY2014 credit costs to remain in the range of 90-100bp.
Though near term outlook for the bank remains challenging, given the current macro environment, from a structural point-of-view compared to peers, keeping in mind its robust franchise and capital adequacy (Total CAR at 16.8% and Tier-I at 11.5%), it remains one of the preferred banks, in our view, from a medium term perspective. We maintain Buy with a price target of Rs.1,366.
Bharti Airtel (CMP: Rs.359/ TP: Under review)
For 3QFY2014, Bharti Airtel's revenues as well as EBITDA came inline with the expectations while bottomline disappointed due to exceptional tax related provisions. Bharti's consolidated revenues grew by 2.8% qoq to Rs.21,939cr. The growth in revenues was mainly fueled by a strong 4.1% qoq increase in USD terms in the top line from African operations to US$1,165mn, which came as a positive surprise. Revenues from domestic mobile services grew by 2.5% qoq to 11,645cr.
KPI's of India mobile business came in a tad below expectations. The voice ARPM grew by ~1% qoq to 37.1paise while MOU declined by ~1% qoq to 434 min from 437 in 2QFY2014. Voice ARPU registered a growth of only 0.6% qoq to Rs.161. Non voice revenuesRs. share increased to 17.2% from 16.5% in 2QFY2014; share of data revenues grew to 10.3% from 9.2% in 2QFY2014 while share of messaging declined to 6.1% (6.7% in 2QFY2014). In India, Bharti Airtel witnessed addition of 3.8mn data subscribers, leading to overall data customer base to 54.4mn. BhartiRs. 3G customer base during the quarter increased by 18% qoq to ~9.5mn with data usage per customer increasing by 8% qoq to 249MBs from 231 MBs in 2QFY2014. Due to reduction in data tariffs, Data realization rate per MB declined marginally to 30.1paise. Bharti Airtel reported healthy KPIs for Africa business. Overall ARPU grew by 1% qoq to US$5.8. Voice ARPU as well as MOU declined 1% qoq but the share of non voice revenues grew substantially from 17.9% in 2QFY2014 to 19.6% in 3QFY2014.
On consolidated level, Bharti's EBITDA margin increased by ~25bp qoq to 32.3%. India mobile services registered ~60bp qoq EBITDA margin expansion to 34.1% while Africa EBITDA margin declined by ~110bp qoq to 25.8%. Profitability was hit due to exceptional tax provision of Rs.221cr; adjusting to that, net profit came inline with the expectations at Rs.831cr. Overall, the key surprise from the results was better than expected India cellular margins and Africa business revenue growth. However similar to Idea, MOU growth was slow - implying changing industry dynamics of slowing MOU due to free minutes being curtailed. Bharti continues to be our preferred pick amongst telcos due to its low-cost integrated model (owned tower infrastructure), established leadership in revenue and subscriber market share and relatively better KPIs.
GAIL (CMP: Rs.346/ TP: -/ Upside: -)
GAIL's 3QFY2014 net sales and adjusted net profit were above our estimates due to better-than-expected performance from its Natural Gas trading segment. Its net sales increased by 28.1% yoy to Rs.15,981 cr (above our estimates of Rs.13,734cr)) mainly due increase in net sales from Natural Gas trading segment which grew by 31.3% yoy to Rs.13,287cr. The company's fuel subsidy burden stood at Rs.1cr for 3QFY2014 compared to Rs.699cr in 2QFY2014 and Rs.700cr in 3QFY2013. GAIL's EBITDA grew by 11.5% yoy to Rs.2,232cr in 3QFY2014 mainly due to higher profit from Natural Gas trading segment. Interest expenses grew by 65.4% yoy to Rs.91cr. There was an exceptional item related to gain on sale of long term investment of Rs.345cr. Excluding this exceptional gain, adjusted net profit grew by 3.9% yoy to Rs.1,334cr (above our estimate of Rs.1,229cr). Looking ahead, our concerns on lower utilization of GAIL's pipelines remain. Hence, we maintain our Neutral rating on the stock.
Nalco (CMP: Rs.37/ TP: Under Review/ Upside: -)
Nalco's 3QFY2014 results were lower than our estimates both on top-line and profitability front due to lower-than-expected performance from Aluminium business. Its net sales decreased 2.9% yoy to Rs.1,621 cr (below our estimate of Rs.1,744cr). Its power costs declined by 1 1.2% yoy to Rs.520cr due to lower sales of aluminium (requires high power consumption) and improvement in coal linkage. Alumina division sales and EBIT grew by 26.2% yoy and 295.1% yoy to Rs.818cr and Rs.158cr, respectively whereas the aluminium segment posted an EBIT loss of Rs.40cr. Overall, company's EBITDA grew by 12.1% to Rs.205cr. However due to higher tax expenses (32.5% in 3QFY2014 compared to 30.9% in 3QFY2013) the company's net profit only grew by a muted 10.6% to Rs.131cr (significantly below our estimate of Rs.191cr). We keep our target price and rating under review.
Tata Global (CMP:Rs.142/ TP:-/ Upside:-)
For 3QFY2014 Tata Global posted an in-line 8% yoy growth in its top-line to Rs.2,057cr aided by good performance in some key markets and favourable foreign exchange translation impact. Tea business posted a top-line growth of 11.1%, while coffee business posted a growth of 2%. The company's operating performance was below estimates. OPM fell by 172bp yoy and stood at 8.3% (estimate of 9.5%). During the quarter, the company's profitability was affected by higher investment behind brands and new initiatives. While the tea business posted a 16.6% yoy growth in its profits, coffee business posted a 47% yoy de-growth in profits. However, the reported PAT rose by 49% yoy to Rs.1 20craided by tax credit of Rs.46cr arising out of stake sale in US based functional beverage company. We maintain our neutral recommendation on the stock.
Crompton Greaves (CMP: Rs.102/ TP: Under review)
For 3QFY2014, Crompton Greaves reported 12.8% yoy growth in its consolidated top-line to Rs.3,352cr (ahead of our estimate of Rs.3,299cr), mainly on account of 17.3% yoy growth in revenue from power system segment to Rs.2,132cr. However, operating performance was below our expectations, with CG reporting EBITDA of Rs.167cr compared to our estimate of Rs.191cr. Although OPM expanded by 492bp yoy to 5.0%, it was lower than our expectation of 5.8%, due to lower than expected margin in power system and industrial segments. Consequently, Net Profit came in at Rs.60cr compared to loss of Rs.69cr in 3QFY2013 (however, lower than our estimate of Rs.78cr). We maintain Buy rating on Crompton Greaves with target price under review.
Indian Overseas Bank (CMP: Rs.44/ TP: -/ Upside: -)
Indian Overseas Bank reported weak set of numbers for the quarter, dragged by asset quality pressures. NII for the bank remained largely flat yoy (in spite of 10.5% yoy growth in advances, on back of interest reversals on slippages), while non interest income expectedly de-grew by 11.9% yoy. Pre-provisioning profit de-grew 5.5% yoy to Rs.961cr, in-line with expectations. On the asset quality front, absolute Gross and Net NPA levels increased sequentially by 12% each, already on a large base. Gross and Net NPAs for the bank now stand at 5.3% and 3.2% respectively, having increased more than 200bps each over the last two years. Provisioning expenses for the bank remained flat yoy to Rs.811cr and as a result, PCR declined 275bp qoq to 56.6%. Overall, the bank reported earnings degrowth of 35.6% yoy. Though the stock trades at near historic low valuations, on account of near term asset quality concerns emanating from its high exposure to stressed sectors and overall weak macro environment, moderate core equity tier I capital and subdued return ratios, we maintain our Neutral rating on the stock.
TVS Motor (CMP: Rs.72/ TP: -/ Upside: -)
For 3QFY2014, TVS Motor Company (TVSL) posted strong results, which were broadly in-line with our estimates, led by strong exports performance (volumes up 26.1% yoy and revenues up 69.2% yoy) and superior product-mix. Top-line grew by a strong 13% yoy (3.5% qoq) to Rs.2,058cr, in-line with our estimates of Rs.2,051 cr, on the back of an impressive 12.7% yoy (1.7% qoq) growth in net average realization. The net average realization was aided by superior product-mix (higher share of scooters, three-wheelers and exports) and also due to better realization on the exports front. Total volumes though remained flat due to weakness in the domestic segment which witnessed a volume decline of 3.2% yoy. EBITDA margins remained stable on a sequential as well as yoy basis at 6%, inline with our estimates of 6.1%. On a yoy basis, the impact of increase in raw-material cost as a percentage of sales (~160bp) was mitigated by increase in other expenditure (~120bp) & employee expense (~30bp) as a percentage of sales leading to flat margins. Driven by a strong operating performance and sharp decline in finance cost, adjusted net profit grew strongly by 31.2% yoy (17.5% qoq) to Rs.69cr, in-line with our estimates of Rs.69cr.
The stock has outperformed over the past six months (gains in excess of 100%) on expectations of the success of the new launches like, Jupiter and Phoenix and strong performance on the exports front. We expect the operating environment to improve for the company given that its new scooter launch, Jupiter has been accepted well by the markets. The company further intends to launch one more scooter (upgraded Scoofy) to consolidate its position in the segment. Additionally, the volumes would also get a boost from the new launches in the motorcycle segment, strong focus on exports and entry into Nigerian market. At the CMP, the stock is trading at 11x FY2015E earnings. We maintain our Neutral rating on the stock.
Jagran (CMP: Rs.88/TP: Rs.116/Upside: 32%)
For 3QFY2014, JPL's top-line and bottom-line performance were ahead of our estimates. On stand-alone basis, top-line grew by 25.1% yoy to Rs.427cr (our estimate of Rs.407cr), aided by inclusion of Nai Dunia financials in JPL's standalone numbers. Advertising revenue grew by19.8% yoy to Rs.263cr and circulation revenue grew by 23.9% yoy to Rs.83cr. Even comparing on like-to-like basis, topline grew by 12.7% yoy to Rs.427cr. On the operating front, OPM expanded by 94bp yoy to 25.5%. In spite of strong double-digit top-line growth and margin expansion, Net profit grew by only 4.1% yoy to Rs.69cr due to high base effect on account of tax benefit in 3QFY2013 (due to accumulated losses in Nai Dunia subsidiary). At the current market price, Jagran is trading at 11.4x FY2015E consolidated EPS of Rs.7.7. We maintain Buy on the stock with a target price of Rs.116.
Indoco Remedies (CMP: Rs.120/ TP:-/ Upside:)
Indoco Remedies, posted numbers, in line on the sales front, while the net profit came in below expectations, inspite of the OPM coming above expectations. On the sales front, company posted net sales of Rs.188cr V/s expectation of Rs.187cr, registering a yoy growth of 25.4%. The sales growth was mainly on back of the exports which posted a yoy growth of 30.5%, while domestic sales, posted a growth of 22.7% yoy. The OPM, came in at 16.2% V/s expectation of 14.6%, an expansion of 539bps. The expansion in the OPM was driven by 382bps expansion in the gross margins and robust sales of the company during the quarter. As a result, the net profit increased by 89.8% yoy to Rs.14cr. However, the same was, lower than our expectations of Rs.17cr, on back of lower other loss of Rs.1cr V/s a gain of Rs.3cr during the last corresponding period and higher taxation during the quarter. We remain neutral on the stock.
Hero MotoCorp (CMP: Rs.2,071/ TP: Rs.2,235/ Upside: 8%)
Hero MotoCorp (HMCL) is slated to announce its 3QFY2014 results today. We expect the company to lead the earnings growth in the 2W segment following a strong volume growth of ~7% yoy (~19% qoq), led by rural demand amid the festival season. As a result, we expect the company to register a strong revenue growth of 11% yoy (20% qoq) to Rs.6,869cr. We expect EBITDA margins to improve ~180bp yoy to ~11% led by better product-mix, price increases and also on account of the cost reduction initiatives. Consequently the net profit is expected to surge ~15% yoy (~17% qoq) to Rs.561cr. At the CMP, the stock is trading at 1 3.9x its FY2015E earnings. Currently, we have an Accumulate rating on the stock with a target price of Rs.2,235.
Bank of India (CMP: Rs.208/ TP: -/ Upside: -)
Bank of India is scheduled to announce its 3QFY2014 results today. We expect the bank to report NII growth of 13.7% yoy to Rs.2,626cr. Non-interest income is expected to de-grow by 2.5% to Rs.914cr. Operating expenses are expected to grow by 13.4% yoy to Rs.1,576cr. Bank is expected to report operating profit growth of 5.8% yoy at Rs.1,964cr. Provisioning expenses is expected to decrease by 11.8% yoy at Rs.808. Tax expenses are expected to increase to Rs.370cr against Rs.137cr in 3QFY13 causing PAT to de-grow by 2.2% yoy at Rs.786cr. At the CMP, the stock trades at valuations of 0.5x FY2015E ABV. We maintain our Neutral recommendation on the stock.
Jyoti Structures (CMP: Rs.28/TP: -/ Upside: -)
For 3QFY2014, we expect Jyoti StructuresRs. top-line to grow by 12.6% yoy to Rs.698cr. However, the operating margin is expected to contract by 70bp yoy to 9.4% as tough competition in the last few years has led to more aggressive bidding for projects. In spite of margin pressure, the company's net profit is expected to grow by 21.6% yoy to Rs.16cr. We maintain our Neutral recommendation on the stock.
Economic and Political News
- All 8 applicants to bid for spectrum, no withdrawal
- India Ratings maintains stable outlook for Oil & Gas sector
- India, Japan to jointly buy LNG
- Limit raised for long-term foreign investment in G-Secs by US$5 bn
- NABARD projects a credit potential of Rs.12,727cr for Uttarakhand
- BHEL, 5 other PSUs to set up 4,000 MW solar plant in Raj
- GVK BIO to acquire US-based Aragen Bioscience
- HDFC puts Hirco's Chennai township on the block to cover its dues
- HMSI partners with L&T Finance
- India Infoline raises a Rs.750cr realty fund
- Lupin recalls Quinapril tablets from US market
- Mindtree plans two new delivery centres in US
- Tata Motors in the final stages of concluding a Rs.1,000cr contract with the Ministry of Defence