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Reports India

Indian stock market and companies daily report (July 02, 2014, Wednesday)

July 2, 2014, Wednesday, 04:08 GMT | 23:08 EST | 07:38 IST | 10:08 SGT
Contributed by Angel Broking

Indian markets are expected to open on a positive note tracking positive opening in SGX Nifty and the Asian markets.

The US market moved sharply higher over the course of the trading day on Tuesday which was because of the release of Chinese manufacturing data which climbed to a six-month high of 51.0 in June from 50.8 in May coupled with the improvement in investorsRs. sentiments as the US domestic economic data continued to point to an improving economy. A report from Institute for Supply Management (ISM) showed that the U.S. manufacturing sector unexpectedly grew at a slightly slower rate in the month of June. The report stated that the ISM's manufacturing index registered 55.3% in June, against May's reading of 55.4% (any number above 50% signals expansion). Meanwhile, European stocks rallied on Tuesday as the better-than-expected Chinese factory data strengthened the signs of global recovery.

Back home, the market closed 103 points as the manufacturing sector growth in June expanded at the fastest pace since February (the HSBC India Manufacturing Purchasing Managers Index (PMI) rose marginally from 51.4 in May to 51.5 in June) and good auto numbers which showed the signs of recovery in the auto sector amidst concerns of a poor monsoon.

Markets Today

The trend deciding level for the day is 25,518 / 7,634 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 25,570 - 25,623 / 7,650 - 7,665 levels. However, if NIFTY trades below 25,51 8 / 7,634 levels for the first half-an-hour of trade then it may correct 25,465 - 25,413 / 7,619 - 7,603 levels.

Banco products (India) - Initiating coverage with a BUY recommendation

Banco Products (India) (Banco) is among the leading manufacturers of radiators and gaskets in the country with five manufacturing units. In July 2010, the company acquired 51% stake in Lake Cement (a cement manufacturer), a diversification into unrelated business which led to sharp correction in the stock price. In May, 2014, the company exited the cement business at ~52% premium for US$1 7.7mn and is now expected to use the proceeds for acquisition in auto component related business in Europe which will further strengthen its foothold in global auto component market. Additionally, the commercial vehicle (CV) industry which contributes ~80% to the company's domestic revenue is also witnessing revival, which poses a huge growth potential for the company.

Recovery in global economy & revival in domestic CV industry to aid growth

The company is a leading exporter of aftermarket radiators to Europe, with a growing presence in the America, Middle East and African markets. The global economy which witnessed couple of difficult years is now showing recovery signs (U.N. forecasts global economic growth of 3% in 2014 and 3.3% in 2015). Also, the IHS Automotive predicts global auto sales to reach 85mn in 2014 and 100mn in 2018 from 82.8mn in 2013. Further, production in the domestic CV industry (contributes ~80% to domestic revenue) is to grow at a CAGR of 11% over FY2012-21E to 23.5lakh units. We expect these factors to aid the company's revenue, which is expected to grow at a CAGR of 12.0% over FY2014-16E to Rs.1,457cr in FY2016E.

Exit from Lake Cement - No further unrelated acquisitions

In order to focus on the core business, the company has divested its entire stake in Lake Cement for US$1 7.7mn, which is at an approximate premium of 52%. It is expected that the company will use the proceeds from the sale of Lake Cement (US$1 7.7mn) for acquisitions related to the core business. We believe this will help the company in strengthening its core business and enable it to make related acquisitions in Europe, which will enable it to fortify its presence in the global market.

Outlook and valuation: We expect Banco to register a revenue CAGR of 12.0% over FY2014-16E to Rs.1,457cr with an operating margin of 15.2% in FY2016E. The profit is expected to grow at a CAGR of 23.2% over the same period to Rs.136cr in FY2016E. At the CMP, the company is trading at a PE of 6.3x FY2016E earnings. On account of growth potential with revival in CV industry and potential acquisition plans, we initiate coverage on the company with a Buy recommendation with a target price of Rs.172 on a target PE of 9.0x FY2016E earnings.

Economic and Political News

- June factory activity grows at fastest pace since February, 2014

- LPG price hiked by Rs.16.50/cylinder; ATF by 0.6%

- RBI buys US$1 9bn forex forwards in May to shore up reserves

- Electrical equipment industry grows by 3.5% in FY14

- Losses on diesel more than double to Rs.3.40/litre

- QIP issuance at Rs.19,663 cr in H12014

- Food Ministry moves Cabinet note to suspend sugar export subsidy

- Global IT spending to grow 2.1% to US$3.7trillion in 2014: Gartner

Corporate News

- Maruti Suzuki sales up 33% in June

- BHEL commissions Raj discom's Rs.990cr thermal unit

- Mahindra TractorsRs. sales up 8% at 29,000 units in June, 2014

- Punj Lloyd bags Rs.1,41 8cr worth order from KNPC

- Corporation Bank exits from MCX; sells 58,000 shares

- IVRCL's Rs.7,000-cr debt recast approved, seeks more funds from banks

- Sterlite Tech bags Rs.2,500cr BSNL order

- L&T bags Rs.2,442cr contract from BSNL

- Tata Motors division delivers floor beam to Boeing