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Reports India

Indian stock market and companies daily report (July 19, 2013, Friday)

July 19, 2013, Friday, 05:01 GMT | 00:01 EST | 08:31 IST | 11:01 SGT
Contributed by Angel Broking

Indian markets are expected to open flat today tracking flat opening in SGX Nifty and mixed opening in Asian markets.

US Stocks moved mostly higher over the course of the trading day on Thursday, adding to the modest gains posted in the previous session. The strength on Wall Street came on the heels of the release of some better than expected economic data, including a report from the Labor Department showing a bigger than expected pullback by initial jobless claims in the week ended July 13th. The report said initial jobless claim fell to 334,000, a decrease of 24,000 from the previous week's revised figure of 358,000. The European markets also closed higher on Thursday, fueled by statements made by Federal Reserve Chairman Ben Bernanke. Bernanke reiterated yesterday that there is no Rs.presetRs. timetable for rolling back bond purchases. Investors will be watching Bernanke's second day of testimony closely as well.

Meanwhile, Indian shares shrugged off weak global cues to end sharply higher on Thursday after Axis Bank posted solid Q1 results beating forecasts.

Markets Today

The trend deciding level for the day is 20,087/ 6,021 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,218 - 20,308 / 6,068 - 6,098 levels. However, if NIFTY trades below 20,087 / 6,021 levels for the first half-an-hour of trade then it may correct up to 19,997 - 19,866/ 5,991 - 5,945 levels.

RCom cuts 3G data rates by 50%

Reliance Communications (RCom) yesterday slashed 3G charges by more than 50% to bring them at par with 2G mobile Internet prices in 13 circles, including Delhi and Mumbai. RCom slashed 3G prices for all kind of connections across 13 circles where its third-generation services are available. The new tariff, for all 13 circles where RCom provides 3G services, has come down to Rs.123 for 1 GB of data, from the earlier Rs.247. RCom charges Rs.125 per GB of data over the 2G network. Users with 3G phones on 2G data plans will get automatically upgraded. The company aims to get a 40% market share of India's smartphone users by 2015, up from 14% currently. We believe that there was a good chance the rest of the industry will follow as this is a very competitive industry and the industry offerings are always very similar in terms of price and speed. Nevertheless, the rate reduction by RCom is marginally negative as it triggers a fresh war in the high-growth data space. We maintain our Neutral rating on overall telecom sector.

MSD and Lupin announce Strategic Partnership to Co-market MSD's 23-valent Pneumococcal polysaccharide vaccine (PPV) for Indian market:

Lupin inked an in-licensing agreement with pharma company MSD, under which the company will market MSD's pneumonia prevention vaccine under a different brand name in India. As part of the agreement, Lupin will have a non-exclusive license to market, promote and distribute MSD's 23-valent Pneumococcal Polysaccharide Vaccine under a different brand name in the country. MSD India, which is an affiliate of Merck & Co Inc that operates in more than 140 countries, would also continue to sell the vaccine in the country. Pneumococcal disease is an infection caused by bacteria and it results in variety of pneumococcal diseases with pneumonia being the most common occurrence in adults.MSD India operates in India via three separate legal entities MSD Pharmaceuticals Ltd, Organon India Ltd and Fulford India Ltd. The marketing tie-up is positive for the company's domestic formulation business, though would not contribute significantly. On valuation , the stock after the run-up has reached a fair valuation zone. Hence, as of now we are neutral on the stock.

Result Review

TCS (CMP: Rs.1,660/ TP: Under review)

TCS reported robust set of results for 1QFY2014. The dollar revenue grew by 4.1% qoq to US$3,165mn. In INR terms, revenue came in at Rs.17,987cr, up 9.5% qoq. Volume growth stood strong at 6.1%, ahead of its peers. TCS's EBITDA and EBIT margin moved up by 29bp and 50bp qoq to 28.6% and 27.0%, even when the company had wage hike headwind during the quarter which is commendable. With this, the EBIT margin differential between TCS and Infosys has widened to ~340bp with Infosys having EBIT margin of 23.6%. Bottomline of company grew by 5.5% qoq to Rs.3,796cr, despite lower other income of Rs.252cr as against Rs.419cr in 4QFY201 3.

TCS closed 10 large deals during 1QFY2014. These deals span industry segments as well as geographies. Management sounded confident of growing higher than the industry. Management indicated that they expect CY2013 to be better than CY2012 in terms of IT spending and the company has maintained hiring target of 45,000 gross employees for FY2014 which is encouraging. IN addition, the company added two new clients in US$100mn+ revenue bracket. Healthy set of results by TCS shrug off any concerns regarding health of the Indian IT industry which were raised due to weak performance by global players like Accenture and Oracle. We remain positive on TCS which has been a consistent performer since couple and but owing to recent sharp run up in the stock price, we maintain Neutral rating on the stock.

Axis Bank - (CMP: Rs.1,238 / TP: Rs.1,498 / Upside: 20.9%)

Axis Bank delivered yet another quarter of consistent performance with a 22% yoy growth in bottom line, which was in-line with our expectations. On the operating front, while NII grew strongly by 31%, non-interest income grew at robust pace of 33% yoy, thereby leading to a growth of 32% yoy in operating income and 45% yoy in pre-provisioning profits. In percentage terms, Gross and Net NPAs were largely flattish sequentially and its restructured book declined on a qoq basis.

In absolute terms, Gross and Net NPA levels are almost similar to HDFC Bank, but the stock is trading at almost 60% discount to HDFC Bank vs. an average discount of around 40% over the past five years (which we believe over-discounts asset quality concerns). In our view, the current valuations at 1.3x FY2015 ABV are below our longer term fair value estimates. In the near term, given the weak macro environment and cautious outlook for the sector, stocks such as Axis Bank may undershoot fair value estimates, but from a relative point-of-view compared to peers, it remains one of the preferred banks, in our view, from a medium term perspective. We recommend a Buy rating on the stock with a target price of Rs.1,498.

IDBI Bank- (CMP: Rs.71 / TP:-/ Upside: -)

IDBI Bank delivered weak set of numbers for the quarter, dragged by asset quality challenges. On the operating front while NII grew by 16% yoy, non-interest income grew by 38% yoy, thereby leading to operating income growth of 22% yoy and pre provisioning profit growth of 16% yoy. The bank witnessed sequential asset quality deterioration, as its absolute Gross NPA levels increased by 45% sequentially, on an already large base. The bank increased provisioning expense by 63% yoy, which limited the sequential increase in Net NPA levels to 11%, but resulted in 28% bottom-line de-growth. We await further clarity from the management particularly regarding the asset quality performance during the quarter and the outlook on the same going ahead. The stock is currently trading at a valuation of 0.4x FY2015E ABV. In the near term, given the weak macro environment and cautious outlook for the sector, we recommend Neutral rating on the stock.

Mindtree (CMP: Rs.914/ TP: Under review)

For 1QFY2014, Mindtree reported better than expected set of results for revenue as well as on the bottomline front, but disappointed on the operating margin front. The dollar revenues came in at US$117.7mn, up 4.1% qoq, on the back of 4.1% qoq volume growth. Blended realization grew by 0.4% qoq. In INR terms, revenue came in at Rs.648cr, up 5.8% qoq. During the quarter, MindTree's EBITDA and EBIT margins declined by 60bp and 87bp qoq to 18.4% and 15.6%, respectively. This was due to factors such as: 1) increase in visa costs, 2) increase in employee costs due to freshers getting added into the system and 3) decline in utilization level. The PAT came in at Rs.135cr, up 71% qoq, aided by whopping forex gain of Rs.62cr as against loss of Rs.15cr in 4QFY2013.

MindTree's management indicated that it remains hopeful of FY2014 turning out to be a better revenue growth year as compared to FY2013 because of pick up in client spending as well as a result of company's greater concentration on mining its focus clients. Even within the PES segment, the company cited better prospects in FY2014 as against in FY2013. The company has announced wage hike for 80% of its employee base effective from 1 July 2013, which will impact the operating margins of the company in 2QFY2014. We continue to be positive on the stock owing to its diversified revenue portfolio and past performance. The target price is currently under review.

Rallis (CMP: Rs.157/ TP: -/ Upside: -)

Rallis announced good set results. On the consolidated basis, for the period the sales were registered a growth of 20.0% yoy growth to end the period at Rs.409.3cr. EBITDA margin came in 12.9% in 1QFY2014 V/s 11.0%during the last corresponding period. This along with the higher minority interest resulted in the net profit to come in at Rs.27.5cr a rise of 13.7% during the period. We maintain Neutral rating on the stock.

Infotech Enterprises (CMP: Rs.184/ TP: -/Upside: -)

For 1QFY2014, Infotech reported weak set of results on the revenue as well as bottomline front. The dollar revenues came in at US$86mn, up merely 0.1% qoq, In constant currency terms, revenues grew by 0.7% qoq. The revenues, this quarter, has been impacted by ramp downs seen in few of company's top accounts. In INR terms, the revenue came in at Rs.484cr, up 4.2% qoq. The EBITDA margin of the company declined by 46bp qoq to 16.6%, while EBIT margin was almost flat sequentially at 12.8%. The company's operating margin faced headwinds from a muted volume growth, wage hikes given during the quarter and healthy gross addition of 763 employees into the system. The management indicated that the company is focused to improve its operating margin going ahead as the major headwind of wage hike is now behind.

The Management pointed out that they expect FY2014 turning out to be a better year than FY2013 and is trying to move out of client specific issues in aero, hi-tech and rail business area. The company plans to hire ~2,500 gross employees with ~15% planned attrition. For FY2014, in the ENGG vertical, the Management indicated at a good deal pipeline in the aerospace business segment and sees signs of growth in the transportation business segment owing to recovery in the transportation industry. In network and utilities business area Infotech is working on new service offerings to capture the opex of client budgets along with the capex portion the company is targeting currently. Over FY2013-15, we expect the company to post a USD and INR revenue CAGR of 6.4% and 9.9%, respectively. We expect EBITDA margin of the company to move to 17.2% in FY2014 and 1 7.6% in FY201 5 from 1 8.2% in FY201 3. At the current market price of Rs.1 84, the stock is trading at 8.2x FY2015E EPS. We value the company at 8.5x FY2015E EPS of Rs.22.5, which gives us a target price of Rs.190; we maintain our Neutral view on the stock.

DBCorp (CMP: Rs.250 / TP: Rs.290 / Upside: 16%)

For 1 QFY2014, DB Corp's financial performance was better than our expectations as well as street estimates. Top-line grew by 19.2% yoy to Rs.449cr (on back of robust 20.4% yoy growth in advertising revenue). The company also reported strong 16.9% yoy growth in circulation revenue. DBCorp's operating margin expanded by 873bp yoy to 29.6%, partially aided by reduction in losses of emerging editions. Losses in emerging editions stood at Rs.6cr in 1QFY2014 compared to Rs.12cr in 1QFY2013. Consequently, net profit grew by 74% yoy to Rs.76cr. At the current market price, DB Corp is trading at 14.9x FY2015E consolidated EPS of Rs.16.9. We recommend Buy on the stock with the target price of Rs.290.

Honeywell Automation India Ltd(CMP: Rs.2,426/ TP: - Upside: -)

Honeywell Automation India Ltd. (HAIL) reported decent set of numbers for 2QCY2013. Top-line reported yoy growth of 12.2% toRs.434cr, 1.9% lower than our estimates of Rs.442cr; after consecutive de-growth for last three quarters. EBITDA surged by whooping 167% yoy to Rs.36cr. Owing to overall reduced expenses, EBITDA margin expanded by 487 basis point yoy to 8.4% in 2QCY2013. On the back of growth in top-line coupled with robust operational efficiency, net profit grew by 139% to Rs.28cr while margins elevated from 3.0% in 2QCY2012 to 6.5% in 2QCY2013. Nevertheless the recent traction in the performance of the company, the consistency in the performance is still awaited. Hence, we maintain our conservative stance and maintain Neutral rating on the stock.

Result Preview

Reliance Industries (CMP: Rs.917, TP:-, Upside :-)

Reliance Industries Ltd. (RIL) is scheduled to announce its 1QFY2014 results today. We expect the company's top line to decrease 1 0.1 % yoy to Rs.82,561 cr due to lower petrochemical prices during the quarter. We expect the company's operating margin to expand 159bp yoy to 8.9%. The company's bottom-line is expected to increase by 20.5% yoy to Rs.5,392cr. We maintain our Neutral view on the stock.

HDFC- (CMP: Rs.823 / TP: Rs.904 / Upside: 9.9%)

HDFC is expected to announce healthy set of results for 1QFY2014. The NII is expected to increase by 19.5% yoy to Rs.1,824cr. The non-interest income is expected to come in at Rs.80cr, as compared to Rs.28cr reported in 1QFY2013. Operating Income and Operating profit are expected to grow by 22.5% and 23.1% respectively. Provisioning is expected to be Rs.52cr, an increase of 29% yoy. Consequently the PAT is expected to increase by 23.2% yoy to Rs.1,235cr. At CMP, the stock trades at 4.1x FY2015 ABV. We recommend an Accumulate rating on the stock, with a target price of Rs.904.

Bajaj Auto (CMP: Rs.1,897/ TP: Rs.2,096/ Upside: 10%)

Bajaj Auto (BJAUT) is scheduled to announce its 1QFY2014 results today. We expect the top-line to decline by ~2% yoy to Rs.4,792cr, despite a ~9% yoy growth in net average realization. Improvement in net average realization was led by a better product-mix (higher share of three-wheelers in the volume-mix) and price increases executed by the company in the export and domestic markets. Total volumes however, declined by ~9% yoy due to a ~13% yoy decline in volumes in the motorcycle segment. Export sales too registered a drop of ~13% yoy. We expect EBITDA margins to improve ~50bp yoy to 18.4%, largely led by a superior product-mix and softening of commodity prices. As a result, bottom-line is expected to post a marginal growth of 1% yoy to Rs.726cr. At the CMP of Rs.1,897, the stock is trading at 1 3.6x FY2015E earnings. Currently, we have an Accumulate rating on the stock with a target price of Rs.2,096.

Hindustan Zinc (CMP: Rs.108, TP: Rs.145, Upside: 34%)

Hindustan Zinc is slated to announce its 1QFY2014 results today. The company's top-line is expected to increase by 7.5% yoy to Rs.2,91 6cr mainly on account of higher silver and zinc concentrate sales. EBITDA margin is expected to expand modestly by 94bp to 53.6% due to increase in top-line. Its bottom-line is also expected to increase by 2.3% yoy to Rs.1,61 7cr. We maintain our Buy rating on the stock with a target price of Rs.145.

Federal Bank- (CMP: Rs.379 / TP: -409 / Upside: -7.9%)

Federal Bank is slated to announce its 1QFY2014 results today. We expect the bank to report a moderate Net Interest Income (NII) growth of 2.1% yoy to Rs.502cr. Non-interest income is expected to grow moderate by 11.7% yoy to Rs.139cr. Operating expenses of the bank are expected to be higher by 18.3% yoy to Rs.319cr. Net Profit is expected to go down by 0.8% yoy to Rs.192cr, inspite of lower provisioning expense at Rs.48cr in 1QFY14 as compared to Rs.63cr in 1QFY13 and lower tax provisioning at Rs.82cr in 1QFY14 as compared to Rs.93cr in 1QFY13 At the CMP, the stock trades at a valuation of 0.9x FY2014E ABV and 0.8x FY2015E. We maintain our Accumulate recommendation on the stock.

UCO Bank- (CMP: Rs.74 / TP: -63 / Downside: -14.1%)

UCO Bank is slated to announce its 1QFY2014 results tomorrow. We expect the bank to report a strong Net Interest Income (NII) growth of 31.4% yoy to Rs.1,371cr. Non-interest income is expected to decline by 0.6% yoy to Rs.231cr. Operating expenses of the bank are expected to be higher by 1 5.2% yoy to Rs.571 cr. However, Net Profit is expected to go down by 1 7.0% yoy to Rs.301 cr, on account of increase in provision expense by 47.2% yoy at Rs.602cr and significantly higher tax provisioning (on low base of 1QFY2013). At the CMP, the stock trades at a valuation of 0.9x FY2014E ABV and 0.7x FY2015E. We maintain our Reduce recommendation on the stock.

Hexaware (CMP: Rs.105/ TP: -/Upside: -)

Hexaware is slated to announce its 2QCY2013 results today. We expect the company to post revenue growth of 1.3% qoq to US$95.3mn. In rupee terms, revenues are expected to come in at Rs.543cr, up 7% qoq. EBITDA margin is expected to increase by 146bp qoq to 20.7%. PAT is expected to come in at Rs.82cr. Owing to recent run up in the stock price, we maintain Neutral rating on the stock.

Economic and Political News

- Worst yet to come for Indian corporates, says Fitch report

- Forex intervention only to curb volatility: Subbarao

- Finance Ministry forms panel to hear industry's tax issues

Corporate News

- Coal India starts further exploration of mines in Mozambique

- SBI says no liquidity squeeze so far on RBI moves

- CVC seeks report from Aviation Ministry on Jet-Etihad deal

- DLF cuts staff strength by 30 pc after outsourcing activities

- After CRR cut NBFC's and gold loan cos. turn to debentures for cash